INVACARE CORPORATION S-4
As filed with the Securities and Exchange Commission on April
23, 2007
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-4
REGISTRATION
STATEMENT
UNDER THE SECURITIES ACT OF
1933
Invacare Corporation
(Exact Name of Registrant as
Specified in Its Charter)
SEE TABLE OF
CO-REGISTRANTS
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Ohio
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3842
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95-2680965
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(State or Other Jurisdiction
of
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(Primary Standard
Industrial
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(I.R.S. Employer
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Incorporation or
Organization)
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Classification Code
Number)
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Identification
No.)
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One Invacare Way
P.O. Box 4028
Elyria, Ohio 44036
(440) 329-6000
(Address, Including Zip Code,
and Telephone Number, Including Area Code, of Registrants
Principal Executive Offices)
Dale C. LaPorte, Esq.
Senior Vice President Business Development and
General Counsel
Invacare Corporation
One Invacare Way
P.O. Box 4028
Elyria, Ohio 44036
(440) 329-6000
(Name, Address, Including Zip
Code, and Telephone Number, Including Area Code, of Agent For
Service)
Copy To:
Douglas A. Neary, Esq.
Calfee, Halter & Griswold LLP
1400 KeyBank Center
800 Superior Avenue
Cleveland, Ohio
44114-2688
(216) 622-8200
Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after the effective date of this registration statement.
If the securities being registered on this form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION
OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate
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Registration
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Securities to be Registered
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Registered
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Per Unit
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Offering Price(1)
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Fee
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93/4% Senior
Notes due 2015
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$175,000,000
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100%
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$175,000,000
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$5,372.50
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Guarantees of
93/4% Senior
Notes due 2015(3)
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(2)
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(2)
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(2)
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(2)
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(1) |
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Estimated pursuant to Rule 457(f) under the Securities Act
of 1933 solely for the purpose of determining the registration
fee. |
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(2) |
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Pursuant to Rule 457(n) under the Securities Act of 1933,
no registration fee is required with respect to the guarantees. |
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(3) |
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See the Table of Co-Registrants for the list of guarantors. |
Each Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until the
Registration Statement shall become effective on such date as
the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
TABLE OF
CO-REGISTRANTS
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State or Other
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Primary Standard
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Jurisdiction of
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Industrial
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I.R.S. Employer
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Exact Name of Co-Registrant as
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Incorporation or
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Classification Code
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Identification
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Specified in its Charter
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Organization
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Number
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Number
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Adaptive Switch Laboratories,
Inc.
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Texas
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3842
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76-0446470
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Altimate Medical, Inc.
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Minnesota
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3842
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41-1595309
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Champion Manufacturing Inc.
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Delaware
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3842
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20-1700364
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Freedom Designs, Inc.
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California
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3842
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95-3674857
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Garden City Medical Inc.
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Delaware
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3842
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34-1907951
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Healthtech Products, Inc.
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Missouri
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3842
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43-1696816
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The Helixx Group, Inc.
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Ohio
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3842
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20-2732748
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Invacare Canadian Holdings,
Inc.
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Delaware
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3842
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20-2493311
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Invacare Credit Corporation
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Ohio
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3842
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34-1386578
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Invacare Florida Corporation
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Delaware
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3842
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59-3446753
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Invacare Florida Holdings, LLC
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Delaware
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3842
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N/A
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Invacare Holdings, LLC
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Ohio
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3842
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N/A
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Invacare International Corporation
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Ohio
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3842
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34-1429041
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Invacare Supply Group, Inc.
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Massachusetts
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3842
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34-1852891
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Kuschall, Inc.
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Delaware
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3842
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20-3001038
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Medbloc, Inc.
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Delaware
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3842
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16-1512988
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The Aftermarket Group, Inc.
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Delaware
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3842
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31-1632048
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The address, including zip code, and telephone number including
area code, of each Co-Registrants principal executive
offices is: c/o Invacare Corporation, One Invacare Way,
P.O. Box 4028, Elyria, Ohio 44036, Telephone:
(440) 329-6000.
The name, address, including zip code, and telephone number,
including area code of the agent for service for each of the
Co-Registrants is: Dale C. LaPorte, Esq., Senior Vice
President Business Development and General Counsel,
Invacare Corporation, One Invacare Way, P.O. Box 4028,
Elyria, Ohio 44036, Telephone:
(440) 329-6000.
Copy To: Douglas A. Neary, Esq., Calfee,
Halter & Griswold LLP, 1400 KeyBank Center,
800 Superior Avenue, Cleveland, Ohio
44114-2688,
Telephone:
(216) 622-8200.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION DATED
APRIL 23, 2007
PROSPECTUS
$175,000,000
Invacare Corporation
OFFER TO EXCHANGE
$175,000,000 PRINCIPAL AMOUNT OF OUR
93/4%
SENIOR NOTES DUE 2015
FOR ANY AND ALL OUTSTANDING
93/4%
SENIOR NOTES DUE 2015
We are offering to exchange all of our outstanding
93/4% Senior
Notes due 2015, or the initial notes, for new
93/4% Senior
Notes due 2015, or the exchange notes. Except as identified in
this prospectus, the terms of the exchange notes are identical
in all material respects to the terms of the initial notes,
except that the exchange notes have been registered under the
Securities Act, and the transfer restrictions and registration
rights relating to the initial notes do not apply to the
exchange notes.
The exchange notes will mature on February 15, 2015. We
will pay interest on the exchange notes at the rate of
93/4% per
year, and interest on the exchange notes will be payable on
February 15 and August 15 of each year. The exchange notes will
be fully and unconditionally guaranteed on a senior unsecured
basis by our direct and indirect wholly-owned subsidiaries that
currently guarantee our obligations under the initial notes.
The exchange notes and the subsidiary guarantees thereof will be
general unsecured senior obligations and will rank equally in
right of payment with all of our and the subsidiary
guarantors existing and future senior debt. The exchange
notes will be senior in right of payment to any subordinated
debt. The exchange notes will be effectively subordinated to all
secured obligations to the extent of the value of the collateral
securing such obligations and any obligations of non-guarantor
subsidiaries, which will include all of our foreign subsidiaries.
We may redeem some or all of the exchange notes at any time on
or prior to February 15, 2011 at a redemption price equal
to 100% of the principal amount of the exchange notes redeemed
plus an applicable premium calculated as set forth in this
prospectus. We may redeem some or all of the exchange notes at
any time after that date at the redemption prices set forth in
this prospectus. We also may redeem up to 35% of the aggregate
principal amount of the exchange notes using the proceeds from
certain equity offerings on or before February 15, 2010.
The redemption prices are described under Description of
the Notes Optional Redemption.
The exchange offer will expire at 5:00 p.m., New York time,
on ,
2007
(the
business day following the date of this prospectus), unless we
extend the exchange offer in our sole and absolute discretion.
To exchange your initial notes for exchange notes:
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You are required to make the representations described on
page 31 to us.
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The exchange agent, Wells Fargo Bank, N.A., must receive your
completed letter of transmittal that accompanies this prospectus
by 5:00 p.m., New York time
on ,
2007.
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You should read the section titled The Exchange
Offer for further information on how to exchange your
initial notes for exchange notes.
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There is no established trading market for the exchange notes,
and we do not intend to list the exchange notes on any
securities exchange or automated quotation system.
Investing in the exchange notes involves risks similar to
those associated with the initial notes. See Risk
Factors beginning on page 8 for a discussion of
certain risks you should consider before participating in the
exchange offer.
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.
Broker-Dealers
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Each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of such
exchange notes. The letter of transmittal states that by so
acknowledging and delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an underwriter
within the meaning of the Securities Act of 1933.
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This prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with
resales of exchange notes received in exchange for initial notes
where such initial notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities.
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We have agreed that, for a period of up to 180 days after
the consummation of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection
with any such resale. See Plan of Distribution.
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The date of this prospectus
is ,
2007
TABLE OF
CONTENTS
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i
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ii
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ii
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1
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8
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24
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25
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27
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35
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36
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40
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84
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90
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90
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91
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91
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91
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F-1
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we have
filed with the Securities and Exchange Commission, or SEC. This
prospectus does not contain all of the information included in
the registration statement. The registration statement filed
with the SEC includes exhibits that provide more details about
the matters discussed in this prospectus. You should carefully
read this prospectus, the related exhibits filed with the SEC
and any prospectus supplement, together with the additional
information described below under the headings Where You
Can Find More Information and Incorporation by
Reference.
This prospectus incorporates important business and financial
information about us that is not included in or delivered with
this prospectus. We will provide without charge to each person
to whom a copy of this prospectus is delivered, upon written or
oral request of that person, a copy of any and all of this
information. Requests for copies should be directed to
Shareholder Relations Department, Invacare Corporation, One
Invacare Way, P.O. Box 4028, Elyria, Ohio
44036-2125;
(440) 329-6000.
You should request this information at least five business days
in advance of the date on which you expect to make your decision
with respect to the exchange offer. In any event, in order to
obtain timely delivery, you must request this information prior
to ,
2007, which is five business days before the expiration date of
the exchange offer.
You should rely only on the information contained or
incorporated by reference in this prospectus and in any
accompanying prospectus supplement. We have not authorized any
other person to provide you with different information. If
anyone provides you with different or inconsistent information,
you should not rely on it. You should assume that the
information appearing in this prospectus, any prospectus
supplement and any other document incorporated by reference is
accurate only as of the date on the front cover of those
documents. Our business, financial condition, results of
operations and prospects may have changed since those dates.
Under no circumstances should the delivery to you of this
prospectus create any implication that the information contained
in this prospectus is correct as of any time after the date of
this prospectus.
i
Unless otherwise indicated or unless the context otherwise
requires, all references in this prospectus to
Invacare, we, us, and
our mean Invacare Corporation and all of our
subsidiaries that are consolidated under GAAP. In this
prospectus, we sometimes refer to the notes and guarantees
collectively as the securities. References in this
prospectus to the notes mean the initial notes
and/or the
exchange notes, as the context requires. Our fiscal year ends on
December 31 of each year. When we refer to a year, such as
2006, we are referring to the fiscal year ended on
December 31 of that year.
MARKET,
RANKING AND OTHER INDUSTRY DATA
Due to the variety of our products and the markets that we
serve, there are few published independent sources for data
related to the markets for many of our products. Furthermore, in
certain categories we participate in portions of larger markets
for which data may be available but we estimate our portion of
the market based on internal analysis. To the extent we are able
to express our belief on the basis of data derived in part from
independent sources, we have done so. To the extent we have been
unable to do so, we have expressed our belief solely on the
basis of our own internal analyses and estimates of our and our
competitors products and capabilities. Industry
publications, surveys and forecasts that we have utilized
generally state that the information contained therein has been
obtained from third-party sources believed to be reliable.
Although we believe that the third-party sources are reliable,
we have not independently verified any of the data from
third-party sources nor have we ascertained the underlying
assumptions or basis for any of the information. In general,
when we say we are a leader or a leading
manufacturer or make similar statements about ourselves, we are
expressing our belief that we formulated principally from our
estimates and experience in, and knowledge of, the markets in
which we compete. Our estimate of the overall size of the
worldwide market for medical equipment used in the home is
principally based on our internal analysis of our market share
and the market sizes of our individual geographic segments and
product groups. In some of the cases described above, we possess
independent data to support our position, but that data may not
be sufficient in isolation for us to reach the conclusions that
we have reached without our knowledge of our markets and
businesses.
FORWARD-LOOKING
STATEMENTS
This prospectus contains and incorporates by reference
forward-looking statements. Generally, you can identify these
statements because they contain words like
anticipates, believes,
estimates, expects,
forecasts, future, intends,
plans and similar terms. These statements reflect
only our current expectations. Forward-looking statements
include the statements concerning our plans, objectives, goals,
strategies, future events, capital expenditures, future results,
our competitive strengths, our business strategy and the trends
in our industry.
We cannot guarantee the accuracy of any forward-looking
statements, and actual results may differ materially from those
we anticipated due to a number of uncertainties, including,
among others, the risks we face as described under the
Risk Factors section and elsewhere in this
prospectus. You should not place undue reliance on these
forward-looking statements. These forward-looking statements are
within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, and are intended to be
covered by the safe harbors created thereby. To the extent that
these statements are not recitations of historical fact, these
statements constitute forward-looking statements that, by
definition, involve risks and uncertainties. In any
forward-looking statement where we express an expectation or
belief as to future results or events, that expectation or
belief is expressed in good faith and is believed to have a
reasonable basis, but is based on underlying assumptions that
may not occur and may be beyond our control and there can be no
assurance that the future results or events expressed by the
statement of expectation or belief will be achieved or
accomplished. Our actual results, performance or achievements
could differ materially from those expressed in, or implied by,
forward-looking statements. We can give you no assurance that
any of the events or performance measures anticipated by
forward-looking statements will occur or be achieved or, if any
of them do, what impact they will have on our results of
operations and financial condition. Important
ii
factors that could cause actual results to differ materially
from the forward-looking statements include, but are not limited
to:
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possible adverse effects of being substantially leveraged, which
could impact our ability to raise capital, limit our ability to
react to changes in the economy or our industry or expose us to
interest rate risks;
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changes in domestic or foreign government and other third-party
payor reimbursement levels and practices and regulations and
interpretations of regulations;
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consolidation of health care customers and our competitors;
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ineffective cost reduction and restructuring efforts;
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inability to design, manufacture, distribute and achieve market
acceptance of new products with higher functionality and lower
costs;
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extensive government regulation of our products;
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environmental regulations which hinder our research and
development and manufacturing processes;
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lower cost imports;
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increased freight costs;
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failure to comply with regulatory requirements or receive
regulatory clearance or approval for our products or operations
in the United States or abroad;
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potential product recalls;
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increases in uncollectible accounts receivable;
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further difficulties in implementing our new enterprise resource
planning system;
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legal actions or regulatory proceedings and governmental
investigations;
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product liability claims;
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inadequate patents or other intellectual property protection;
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incorrect assumptions concerning demographic trends that impact
the market for our products;
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provisions of our charter documents and our bank credit
agreements or other debt instruments that could prevent or delay
a change in control;
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the loss of the services of our key management and personnel;
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decreased availability or increased costs of raw materials could
increase our costs of producing our products;
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inability to acquire strategic acquisition candidates because of
limited financing alternatives;
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risks inherent in managing and operating businesses in many
different foreign jurisdictions;
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exchange rate fluctuations; and
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potential impairment charges associated with goodwill,
intangibles
and/or other
assets.
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Additional risks, uncertainties and other factors that may cause
our actual results, performance or achievements to be different
from those expressed or implied in our written or oral
forward-looking statements may be found under Risk
Factors contained in this prospectus and in the annual and
quarterly reports that we have filed with the SEC and that are
incorporated by reference in this prospectus.
iii
These factors and other risk factors disclosed in this
prospectus and elsewhere are not necessarily all of the
important factors that could cause our actual results to differ
materially from those expressed in any of our forward-looking
statements. Other unknown or unpredictable factors could also
harm our results. Consequently, there can be no assurance that
the actual results or developments anticipated by us will be
realized or, even if substantially realized, that they will have
the expected consequences to, or effects on, us. Given these
uncertainties, you are cautioned not to place undue reliance on
these forward-looking statements.
The forward-looking statements contained in this prospectus are
made only as of the date of this prospectus. Except to the
extent required by law, we do not undertake, and specifically
decline any obligation, to update any forward-looking statements
or to publicly announce the results of any revisions to any of
these statements to reflect future events or developments or
otherwise.
iv
PROSPECTUS
SUMMARY
The following summary highlights certain information
contained in or incorporated by reference in this prospectus. It
does not contain all of the information that may be important to
you and to your investment decision. The following summary is
qualified in its entirety by the more detailed information and
the financial statements and the notes included or incorporated
by reference in this prospectus. You should carefully read this
entire prospectus and should consider, among other things, the
matters described in the Risk Factors section before
deciding to invest in the notes.
The
Company
We are the worlds leading manufacturer and distributor in
the $8.0 billion worldwide market for medical equipment
used in the home based upon our distribution channels, breadth
of product lines and net sales. We design, manufacture and
distribute an extensive line of health care products for the
non-acute care environment, including the home health care,
retail and extended care markets. We continuously revise and
expand our product lines to meet changing market demands and
currently offer numerous product lines. We sell our products
principally to over 25,000 home health care and medical
equipment providers, distributors and government locations in
the United States, Australia, Canada, Europe, New Zealand and
Asia. Our products are sold through our worldwide distribution
network by our sales force, telesales associates and various
organizations of independent manufacturers representatives
and distributors. We also distribute medical equipment and
disposable medical supplies manufactured by others.
We are committed to design, manufacture and deliver the best
value in medical products, which promote recovery and active
lifestyles for people requiring home and other non-acute health
care. We pursue this vision by:
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designing and developing innovative and technologically superior
products;
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ensuring continued focus on our primary market the
non-acute health care market;
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marketing our broad range of products;
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providing the industrys most professional and
cost-effective sales, customer service and distribution
organization;
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supplying superior and innovative provider support and
aggressive product line extensions;
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building a strong referral base among health care professionals;
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building brand preference with consumers;
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continuously advancing and recruiting top management candidates;
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empowering all employees;
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providing a performance-based reward environment; and
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continually striving for total quality throughout the
organization.
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When Invacare was acquired in December 1979 by a group of
investors, including some of our current officers and Directors,
we had $19.5 million in net sales and a limited product
line of standard wheelchairs and patient aids. In 2006, Invacare
reached approximately $1.5 billion in net sales,
representing a 17% compound average sales growth rate since
1979, and currently is the leading company in each of the
following major, non-acute, medical equipment categories: power
and manual wheelchairs, home care bed systems and home oxygen
systems.
The
Recapitalization
On February 12, 2007, we completed certain refinancing
transactions which are further described below and which we
refer to collectively as the Recapitalization.
1
On February 12, 2007, we entered into a Credit Agreement
which provides for a $400 million senior secured credit
facility consisting of a $250 million term loan facility
and a $150 million revolving credit facility. Our
obligations under the Credit Agreement are secured by
substantially all of the Companys assets, subject to
certain exceptions, and are guaranteed by our material domestic
subsidiaries, with certain obligations also guaranteed by our
material foreign subsidiaries. The Credit Agreement contains a
number of customary restrictive covenants, affirmative covenants
and events of default, and financial covenants that require the
Company to maintain a maximum leverage ratio, a minimum interest
coverage ratio, and a minimum fixed charge coverage ratio.
We also consummated the issuance and sale of $135 million
aggregate principal amount of our 4.125% convertible senior
subordinated debentures due 2027 (the debentures) on
February 12, 2007. The net proceeds to the Company from the
offering, after deducting the initial debenture purchasers
discount and the estimated offering expenses payable by us, were
approximately $132.3 million. The debentures are governed
by an Indenture, dated February 12, 2007, by and among the
Guarantors named therein and Wells Fargo Bank, N.A. (the
trustee), and us. The debentures are unsecured
senior subordinated obligations of the Company guaranteed by
substantially all of our domestic subsidiaries and pay interest
at 4.125% per annum on each February 1 and August 1.
See Description of Other Indebtedness.
We also consummated the issuance and sale of the initial notes
on February 12, 2007. Our net proceeds from the offering,
after deducting the initial note purchasers discount and
the estimated offering expenses payable by us, were
approximately $167 million. The initial notes are governed
by an Indenture, dated February 12, 2007, by and among the
Guarantors named therein, the trustee and us. The initial notes
are unsecured senior obligations of the Company, guaranteed by
substantially all of our domestic subsidiaries.
We used the net proceeds from the offerings of the initial notes
and the debentures, together with our initial borrowings under
the Credit Agreement to repay outstanding indebtedness under our
previously existing revolving credit facility, our accounts
receivable securitization, our 6.71% senior notes due 2008,
3.97% senior notes due 2007, 4.74% senior notes due
2009, 5.05% senior notes due 2010 and 6.17% senior
notes due 2016 and our related expenses and repayment costs
aggregating $570 million, and we refer to these related
transactions collectively as the Recapitalization.
Our principal executive offices are located at One Invacare Way,
Elyria, Ohio 44036, and our telephone number at that address is
(440) 329-6000.
Our website address is http://www.invacare.com. The
information on our website is not part of this prospectus.
2
The
Exchange Offer
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Notes Offered |
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We are offering to exchange up to $175,000,000 of our
93/4% Senior
Notes due 2015. The terms of the exchange notes are identical in
all material respects to the terms of the initial notes, except
that the exchange notes have been registered under the
Securities Act, and the transfer restrictions and registration
rights relating to the initial notes do not apply to the
exchange notes. |
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The Exchange Offer |
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We are offering to issue the exchange notes in exchange for a
like principal amount of your initial notes. We are offering to
issue the exchange notes to satisfy our obligations contained in
the registration rights agreement entered into when the initial
notes were sold in transactions permitted by Rule 144A
under the Securities Act and therefore not registered with the
SEC. For procedures for tendering your initial notes, see
The Exchange Offer. |
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Tenders, Expiration Date, Withdrawal |
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The exchange offer will expire at 5:00 p.m. New York City
time
on ,
2007 unless it is extended. If you decide to exchange your
initial notes for exchange notes, you must acknowledge that you
are not engaging in, and do not intend to engage in, a
distribution of the exchange notes. If you decide to tender your
initial notes in the exchange offer, you may withdraw them any
time prior
to ,
2007. If we decide for any reason not to accept any initial
notes for exchange, your initial notes will be returned to you
promptly after the exchange offer expires. |
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Conditions of the Exchange Offer |
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The exchange offer is subject to the following customary
conditions, which we may waive:
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the exchange offer, or the making of any exchange by
a holder of initial notes, will not violate any applicable law
or interpretation by the staff of the SEC;
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no action may be pending or threatened in any court
or before any governmental agency with respect to the exchange
offer that may impair our ability to proceed with the exchange
offer; and
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no stop order may be threatened or in effect with
respect to the exchange offer or the qualification of the
indenture under the Trust Indenture Act of 1939, as amended.
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Material U.S. Federal Income Tax Considerations |
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Your exchange of initial notes for exchange notes in the
exchange offer will not result in any income, gain or loss to
you for federal income tax purposes. See Material United
States Federal Income Tax Consequences. |
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Use of Proceeds |
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We will not receive any proceeds from the issuance of the
exchange notes in the exchange offer. |
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Exchange Agent |
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Wells Fargo Bank, N.A. is the exchange agent for the exchange
offer. |
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Failure to Tender Your Initial Notes |
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If you fail to tender your initial notes in the exchange offer,
you will not have any further rights under the registration
rights agreement, except under limited circumstances. Because
the initial notes are not registered under the Securities Act,
the initial notes and exchange notes will not be
interchangeable. Consequently, if you fail to tender |
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your initial notes in the exchange offer, you will not be able
to trade your initial notes with the exchange notes we issue. If
most of the initial notes are tendered in the exchange offer,
holders of notes that have not been exchanged will likely have
little trading liquidity. |
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Consequences of Exchanging Your Initial Notes |
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Based on interpretations of the staff of the SEC, we believe
that you may offer for resale, resell or otherwise transfer the
exchange notes that we issue in the exchange offer without
complying with the registration and prospectus delivery
requirements of the Securities Act if you: |
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acquire the exchange notes issued in the exchange
offer in the ordinary course of your business;
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are not participating, do not intend to participate,
and have no arrangement or undertaking with anyone to
participate, in the distribution of the exchange notes issued to
you in the exchange offer; and
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are not an affiliate of Invacare as
defined in Rule 405 of the Securities Act.
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If any of these conditions is not satisfied and you transfer any
exchange notes issued to you in the exchange offer without
delivering a proper prospectus or without qualifying for a
registration exemption, you may incur liability under the
Securities Act. We will not be responsible for or indemnify you
against any liability you may incur. |
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Any broker-dealer that acquires exchange notes in the exchange
offer for its own account in exchange for initial notes which it
acquired through market-making or other trading activities, must
acknowledge that it will deliver a prospectus when it resells or
transfers any exchange notes issued in the exchange offer as
described in more detail under Plan of Distribution. |
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Risk Factors |
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An investment in the notes is subject to certain risks. See
Risk Factors beginning on page 8 of this
prospectus and the other information in this prospectus for a
discussion of factors you should consider carefully before
deciding to invest in the notes. |
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Accounting Treatment |
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The exchange notes will be recorded in our accounting records at
the same carrying value as the initial notes, as reflected in
our accounting records on the date of the exchange. Accordingly,
no gain or loss for accounting purposes will be recognized by
us. The costs of the exchange offer and the expenses related to
the issuance of the initial notes will be amortized over the
term of the exchange notes. |
4
The
Exchange Notes
The terms of the exchange notes and the initial notes are
identical in all material respects, except that the exchange
notes have been registered under the Securities Act, and the
transfer restrictions and registration rights relating to the
initial notes do not apply to the exchange notes. The following
summary contains basic information about the exchange notes and
is not intended to be complete. It does not contain all the
information that may be important to you. For a more complete
understanding of the exchange notes, please refer to the section
in this prospectus entitled Description of Notes.
You should read the entire prospectus, including the financial
statements and related notes included or incorporated by
reference in this prospectus, before making an investment
decision.
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Issuer |
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Invacare Corporation. |
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Securities |
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$175 million in aggregate principal amount of
93/4% Senior
Notes due 2015. |
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Maturity |
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The notes will mature on February 15, 2015. |
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Interest |
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The notes will bear interest at
93/4% per
annum. We will pay interest on the notes semiannually on
February 15 and August 15 of each year. The first such payment
will be made on August 15, 2007. |
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Guarantees |
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The notes will be guaranteed on a senior unsecured basis by all
of our existing domestic restricted subsidiaries (other than our
captive insurance subsidiary and any receivables subsidiaries)
and certain future domestic restricted subsidiaries. |
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Ranking |
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The notes will be our unsecured senior obligations. Accordingly,
they will: |
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rank equally in right of payment with all of our
existing and future senior debt;
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rank senior in right of payment to our existing and
future subordinated indebtedness, including our 4.125%
convertible senior subordinated debentures due 2027; |
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rank senior to any of our existing and future debt
that expressly provides that it is subordinated to the notes;
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be effectively subordinated to any of our existing
and future secured debt to the extent of the assets securing
such debt, including all borrowings under our senior secured
credit facilities; and |
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be structurally subordinated to any existing and
future debt or other liabilities of our subsidiaries that do not
guarantee the notes, including debt borrowed by our foreign
subsidiaries.
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Similarly, the guarantees will be unsecured senior obligations
of the guarantors and will: |
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rank equally in right of payment with all of the
applicable guarantors existing and future senior debt;
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rank senior in right of payment to all of the
applicable guarantors existing and future subordinated
debt; |
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rank senior in right of payment to all of the
applicable guarantors debt that expressly provides that it
is subordinated to the guarantees;
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be effectively subordinated in right of payment to
all of the applicable guarantors existing and future
secured debt to the extent of the assets securing such debt,
including the guarantors guarantees of our senior secured
credit facilities; and
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be structurally subordinated to all existing and
future debt and other obligations of each of such
guarantors subsidiaries that do not guarantee the notes,
including debt borrowed by our foreign subsidiaries.
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As of December 31, 2006, after giving effect to the
Recapitalization, we estimate that we would have had
$296.1 million of senior secured debt to which the initial
notes were subordinated. In addition, we estimate that we would
have had $3.3 million of letters of credit under our senior
secured credit facilities. As of that date, we also would have
had $117.9 million of availability for additional
borrowings under our senior secured credit facilities, subject
to borrowing base availability. Certain of our foreign
subsidiaries are able to borrow up to $150 million of our
senior secured credit facilities. |
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Optional Redemption |
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After February 15, 2011, we may redeem some or all of the
notes at any time at the redemption prices listed under
Description of Notes Optional
Redemption, plus accrued and unpaid interest. |
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Prior to February 15, 2010, we may redeem up to 35% of the
notes with the proceeds from certain equity offerings at the
redemption price listed under Description of
Notes Optional Redemption, plus accrued and
unpaid interest. |
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We may redeem the notes, in whole or in part, at any time on or
prior to February 15, 2011 at a redemption price equal to
100% of the principal amount of the notes redeemed plus an
applicable premium calculated as set forth in this prospectus. |
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Change of Control |
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If we experience certain types of change of control
transactions, we must offer to repurchase the notes at 101% of
the aggregate principal amount of the notes repurchased, plus
accrued and unpaid interest. |
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Basic Covenants of Indenture |
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The indenture governing the notes, among other things, restricts
our and our subsidiaries ability to: |
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incur additional debt;
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pay dividends on, or redeem or repurchase stock;
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create liens;
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make specified types of investments;
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apply net proceeds from certain asset sales;
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engage in transactions with our affiliates;
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engage in sale and leaseback transactions;
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merge or consolidate;
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restrict dividends or other payments from
subsidiaries; and
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sell, assign, transfer, lease, convey or dispose of
assets.
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These covenants are subject to a number of important exceptions,
limitations and qualifications that are described under
Description of the Notes Certain
Covenants. |
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Absence of Public Market |
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The exchange notes will be freely transferable, but will be new
securities for which there will not initially be a market. We do
not intend to list the exchange notes on any securities exchange
or to seek their admission to trading on any automated quotation
system. Accordingly, there is no assurance that a market for the
exchange notes will develop or as to the liquidity of any market. |
You should carefully consider all of the information included
or incorporated by reference in this prospectus, including the
discussion in the section entitled Risk Factors, for
an explanation of certain risks of investing in the exchange
notes.
7
RISK
FACTORS
You should carefully consider the risk factors set forth
below as well as the other information contained in this
prospectus before purchasing any notes. The risks described
below are not the only risks facing us and your investment in
the notes. Additional risks and uncertainties also may
materially and adversely affect our business, financial
condition, cash flows or results of operations. The following
risks could materially and adversely affect our business,
financial condition, cash flows or results of operations. In
such a case, you may lose all or part of your original
investment.
Risks
Relating to the Notes and the Exchange Offer
Our
substantial leverage could adversely affect our ability to raise
additional capital to fund our operations, limit our ability to
react to changes in the economy or our industry, expose us to
interest rate risk to the extent of our variable rate debt and
prevent us from meeting our obligations under the
notes.
We are highly leveraged. As of December 31, 2006, our total
indebtedness was $573.1 million and, after giving effect to
the Recapitalization, our total indebtedness would have been
$606.1 million as of December 31, 2006. We also would
have had an additional $117.9 million available for
borrowing under our senior secured credit facilities, without
consideration of covenant restrictions.
Our high degree of leverage could have important consequences
for you, including:
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making it more difficult for us to make payments on the notes
and our other debt;
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increasing our vulnerability to general economic and industry
conditions;
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requiring a substantial portion of cash flow from operations to
be dedicated to the payment of principal and interest on our
indebtedness, therefore reducing our ability to use our cash
flow to fund our operations, capital expenditures and future
business opportunities;
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exposing us to the risk of increased interest rates as some of
our borrowings, including borrowings under our senior secured
credit facilities, will be at variable rates of interest;
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limiting our ability to make strategic acquisitions or causing
us to make non-strategic divestitures;
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limiting our ability to obtain additional financing for working
capital, capital expenditures, product development, debt service
requirements, acquisitions and general corporate or other
purposes; and
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limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to some of our
competitors who may be less highly leveraged.
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We and our subsidiaries may be able to incur substantial
additional indebtedness in the future, subject to the
restrictions contained in our senior secured credit facilities
and the indenture governing the notes.
Our
debt agreements contain restrictions that limit our flexibility
in operating our business.
Our senior secured credit facilities and the indentures
governing the notes and our 4.125% convertible senior
subordinated debentures due 2027 contain various covenants that
limit our ability to engage in specified types of transactions.
These covenants limit our and our restricted subsidiaries
ability to, among other things:
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incur additional indebtedness or other contingent obligations;
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pay dividends on, repurchase or make distributions in respect of
our capital stock or make other restricted payments;
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make investments;
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sell assets;
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create liens on assets;
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets;
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engage in transactions with affiliates;
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enter into sale and leaseback transactions;
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designate our subsidiaries as unrestricted subsidiaries;
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amend, modify or terminate our material contracts;
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permit operations of foreign subsidiaries that are not obligors
under our senior secured credit facilities to exceed a specified
percentage of total operations;
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engage in any new material line of business;
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enter into contractual obligations limiting our ability to make
intercompany loans, investments and other transfers or to
provide subsidiary guarantees of and collateral to secure our
obligations under our senior secured credit facilities or
requiring a negative pledge on our assets;
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amend our organizational documents or make changes to our
accounting policies; and
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prepay, redeem, purchase or otherwise satisfy other debt.
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In addition, under our senior secured credit facilities, we are
required to satisfy and maintain specified financial ratios and
other financial condition tests. These covenants could
materially and adversely affect our ability to finance our
future operations or capital needs. Furthermore, they may
restrict our ability to conduct and expand our business and
pursue our business strategies. Our ability to meet these
financial ratios and financial condition tests can be affected
by events beyond our control, including changes in general
economic and business conditions, and we cannot assure you that
we will meet these ratios and tests in the future or at all.
A breach of any of these covenants could result in a default
under our senior secured credit facilities. Upon the occurrence
of an event of default under our senior secured credit
facilities, the lenders could elect to declare all amounts
outstanding under our senior secured credit facilities to be
immediately due and payable and terminate all commitments to
extend further credit. If we were unable to repay those amounts,
the lenders under our senior secured credit facilities could
proceed against the collateral granted to them to secure that
indebtedness. We have pledged a significant portion of our
assets as collateral under our senior secured credit facilities.
If the lenders under our senior secured credit facilities
accelerate the repayment of borrowings, we cannot assure you
that we will have sufficient assets to repay the amounts
borrowed under our senior secured credit facilities, as well as
our unsecured indebtedness, including the notes.
If we
default on our obligations to pay our indebtedness, we may not
be able to make payments on the notes.
Any default under the agreements governing our indebtedness,
including a default under our senior secured credit facilities,
that is not waived by the required lenders, and the remedies
sought by the holders of such indebtedness, could prevent us
from paying principal, premium, if any, and interest on the
notes and could substantially decrease the market value of the
notes. If we are unable to generate sufficient cash flow and are
otherwise unable to obtain funds necessary to meet required
payments of principal, premium, if any, and interest on our
indebtedness, or if we otherwise fail to comply with the various
covenants, including financial and operating covenants, in the
instruments governing our indebtedness (including covenants in
our senior secured credit facilities and the indenture governing
the notes), we could be in default under the terms of the
agreements governing such indebtedness. In the event of such
default, the holders of such indebtedness could elect to declare
all the funds borrowed thereunder to be due and payable,
together with accrued and unpaid interest, the lenders under our
senior secured credit facilities could elect to terminate their
commitments thereunder, cease making further loans and institute
foreclosure proceedings against our assets, and we could be
forced into bankruptcy or liquidation. If our operating
performance declines, we may in the future need to obtain
waivers from the required lenders under our senior secured
credit facilities to avoid being in default. If we breach our
covenants under our senior secured credit facilities and seek a
waiver, we may not be able to obtain a waiver from the required
lenders. If this occurs, we would be in default under our senior
secured credit agreement, the lenders could exercise their
rights, as described above, and we could be forced into
bankruptcy or liquidation.
9
Your
right to receive payments on the notes is effectively
subordinate to those lenders who have a security interest in our
assets.
Our obligations under the notes and our guarantors
obligations under their guarantees of the notes are unsecured,
but our obligations under our senior secured credit facilities
and each guarantors obligations under its guarantee of the
senior secured credit facilities are secured by a security
interest in substantially all of our domestic and certain of our
international tangible and intangible assets and all of our
promissory notes and the capital stock of substantially all of
our existing and future domestic and international subsidiaries.
If we are declared bankrupt or insolvent, or if we default under
our senior secured credit facilities, the lenders could declare
all of the funds borrowed thereunder, together with accrued
interest, immediately due and payable. If we were unable to
repay such indebtedness, the lenders could foreclose on the
pledged assets described above to the exclusion of holders of
the notes, even if an event of default exists under the
indenture governing the notes at such time. Furthermore, if the
lenders foreclose on the pledged assets and sell the pledged
equity interests in any guarantor under the notes, then that
guarantor will be released from its guarantee of the notes
automatically and immediately upon such sale. In any such event,
because the notes will not be secured by any of our assets or
the equity interests in the guarantors, it is possible that
there would be no assets remaining from which your claims could
be satisfied or, if any assets remained, they might be
insufficient to satisfy your claims fully. See Description
of Other Indebtedness Senior Secured Credit
Facilities.
As of December 31, 2006, on an as adjusted basis after
giving effect to the Recapitalization, we would have had
$296.1 million of senior secured indebtedness, and we would
have had $117.9 million of availability for additional
borrowings under our revolving credit facility, without
consideration of covenant restrictions.
The
assets of any of our non-guarantor subsidiaries may not be
available to make payments on the notes.
The guarantors of the notes will include substantially all of
our existing domestic restricted subsidiaries, other than our
captive insurance subsidiary, any receivables subsidiary and
certain future direct and indirect wholly owned domestic
restricted subsidiaries. Our foreign subsidiaries will not
guarantee the notes. Payments on the notes are required to be
made only by us and the subsidiary guarantors. As a result, no
payments are required to be made from assets of subsidiaries
that do not guarantee the notes, unless those assets are
transferred by dividend or otherwise to us or a subsidiary
guarantor. In the event that any non-guarantor subsidiary
becomes insolvent, liquidates, reorganizes, dissolves or
otherwise winds up, holders of its debt and its trade creditors
generally will be entitled to payment on their claims from the
assets of that subsidiary before any of those assets are made
available to us. Consequently, your claims in respect of the
notes will be effectively subordinated to all of the liabilities
of any of our non-guarantor subsidiaries, including trade
payables. Our non-guarantor subsidiaries generated approximately
41% of our consolidated revenue for 2006 and are more profitable
than our guarantor subsidiaries.
To
service our debt, we will require a significant amount of cash,
which may not be available to us.
Our ability to make payments on, or repay or refinance, our
debt, including the notes, and to fund planned capital
expenditures, will depend largely upon our future operating
performance. Our future operating performance, to a certain
extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our
control. In addition, our ability to borrow funds in the future
to make payments on our debt will depend on the satisfaction of
the covenants in our senior secured credit facilities and our
other debt agreements, including the indenture governing the
notes, and other agreements we may enter into in the future.
Specifically, we will need to maintain specified financial
ratios and satisfy financial condition tests. We cannot assure
you that our business will generate sufficient cash flow from
operations or that future borrowings will be available to us
under our senior secured credit facilities or from other sources
in an amount sufficient to enable us to pay our debt, including
the notes, or to fund our other liquidity needs.
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Our
4.125% convertible senior subordinated debentures due 2027
are our senior subordinated obligations. In addition, we may be
required to pay substantial amounts in cash to holders of our
4.125% convertible senior subordinated debentures due 2027
at the time of conversion prior to the maturity of the notes. As
a result of making cash payments on these debentures, we may not
have sufficient cash to pay the principal of, or interest on,
the notes.
The notes are senior in right of payment to our
4.125% convertible senior subordinated debentures due 2027,
which we sometimes refer to as the convertible
debentures. The convertible debentures provide that upon
conversion, we have the right to deliver, in lieu of our common
shares, cash or a combination of cash and our common shares. In
addition, upon the occurrence of a fundamental change (as that
term is defined in the indenture governing the convertible
debentures) holders of our convertible debentures have the right
to require us to repurchase the convertible debentures for cash
which could occur prior to the stated maturity of the notes. The
indenture governing the notes may not allow these payments to be
made in cash. See Description of Other
Indebtedness Convertible Senior Subordinated
Debentures. Payments of the convertible debentures upon
conversion to be made in cash or payments to repurchase the
convertible debentures upon a fundamental change could be
construed to be a prepayment of principal on subordinated debt,
and our existing and future senior debt including the notes may
prohibit us from making those payments, or may restrict our
ability to do so by requiring that we satisfy certain covenants
relating to the making of restricted payments. If we are unable
to pay the cash amount required, we could seek consent from our
senior creditors to make the payment. If we are unable to obtain
their consent, we could attempt to refinance the debt. If we
were unable to obtain a consent or refinance the debt, we would
be prohibited from paying the cash portion of the conversion
consideration, in which case we would have an event of default
under the indenture governing the convertible debentures. An
event of default under the convertible debentures indenture most
likely would constitute an event of default under our senior
secured credit facilities.
The indenture governing the convertible debentures provides that
the debentures are convertible only upon the occurrence of
certain events. However, we otherwise generally will be unable
to control timing of any conversion of the convertible
debentures. As a result of making payments on the convertible
debentures in the form of cash or a combination of cash and our
common shares, we may not have sufficient cash to pay the
principal of, or interest on, the notes. For example, if a
significant amount of convertible debentures were converted
shortly before a regular interest payment date for the notes and
the form of payment included all cash or a portion in cash, we
may not have sufficient cash to make the interest payment on the
notes. We may attempt to borrow under our senior secured credit
facilities to fund interest payments on the notes, but there can
be no assurance that we will have sufficient availability under
that or any successor facility or that the lenders under our
senior secured credit facilities will allow us to draw on that
facility for the purpose of making payments on the notes.
Federal
and state statutes allow courts, under specific circumstances,
to void the guarantees, subordinate claims in respect of the
guarantees and require note holders to return payments received
from the guarantors.
Certain of our existing and future domestic subsidiaries will
guarantee our obligations under the notes. The issuance of the
guarantees by the guarantors may be subject to review under
state and federal laws if a bankruptcy, liquidation or
reorganization case or a lawsuit, including in circumstances in
which bankruptcy is not involved, were commenced at some future
date by, or on behalf of, our unpaid creditors or the unpaid
creditors of a guarantor. Under the federal bankruptcy laws and
comparable provisions of state fraudulent transfer laws, a court
may void or otherwise decline to enforce a guarantors
guarantee, or subordinate such guarantee to such
guarantors existing and future indebtedness. This may be
more relevant in our circumstances due to our recent financial
performance. While the relevant laws may vary from state to
state, a court might do so if it found that when a guarantor
entered into its guarantee or, in some states, when payments
became due under such guarantee, such guarantor received less
than reasonably equivalent value or fair consideration and
either:
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was insolvent or rendered insolvent by reason of such incurrence;
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was engaged in a business or transaction for which such
guarantors remaining assets constituted unreasonably small
capital; or
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intended to incur, or believed that such guarantor would incur,
debts beyond such guarantors ability to pay such debts as
they mature.
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The court might also void a guarantee, without regard to the
above factors, if the court found that a guarantor entered into
its guarantee with actual intent to hinder, delay or defraud its
creditors. In addition, any payment by a guarantor pursuant to
its guarantee could be voided and required to be returned to
that guarantor or to a fund for the benefit of that
guarantors creditors. A court would likely find that a
guarantor did not receive reasonably equivalent value or fair
consideration for its guarantee if that guarantor did not
substantially benefit directly or indirectly from the issuance
of the notes. If a court were to void a guarantee, you would no
longer have a claim against that guarantor. Sufficient funds to
repay the notes may not be available from other sources,
including the remaining guarantors, if any. In addition, the
court might direct you to repay any amounts that you already
received from any guarantor.
The measures of insolvency for purposes of these fraudulent
transfer laws will vary depending upon the law applied in any
proceeding to determine whether a fraudulent transfer has
occurred. Generally, however, a guarantor would be considered
insolvent if:
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the sum of that guarantors debts, including contingent
liabilities, was greater than the fair saleable value of such
guarantors assets; or
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if the present fair saleable value of that guarantors
assets were less than the amount that would be required to pay
such guarantors probable liability on such
guarantors existing debts, including contingent
liabilities, as they become absolute and mature; or
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that guarantor could not pay its guarantors debts as they
become due.
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To the extent a court voids any of the guarantees as fraudulent
transfers or holds any of the guarantees unenforceable for any
other reason, holders of notes would cease to have any direct
claim against the applicable guarantor. If a court were to take
this action, a guarantors assets would be applied first to
satisfy that guarantors liabilities, if any, before any
portion of its assets could be applied to the payment of the
notes.
Each guarantee contains a provision intended to limit a
guarantors liability to the maximum amount that it could
incur without causing the incurrence of obligations under its
guarantee to be a fraudulent transfer. This provision may not be
effective to protect the guarantees from being voided under
fraudulent transfer law, or may reduce the guarantors
obligation to an amount that effectively makes the guarantee
worthless. The indenture governing the notes permits us and our
restricted subsidiaries to incur substantial additional
indebtedness in the future, including senior secured
indebtedness.
We may
not be able to repurchase the notes upon a change of
control.
Upon the occurrence of specific kinds of change of control
events, we will be required to offer to repurchase all
outstanding notes at 101% of their principal amount plus accrued
and unpaid interest. The source of funds for any purchase of the
notes will be our available cash or cash generated from our
subsidiaries operations or other sources, including
borrowings, sales of assets or sales of equity. We may not be
able to repurchase the notes upon a change of control because we
may not have sufficient financial resources to purchase all of
the notes that are tendered upon a change of control. Further,
we may be contractually restricted under the terms of our senior
secured credit facilities or other debt from repurchasing all of
the notes tendered by holders upon a change of control.
Accordingly, we may not be able to satisfy our obligations to
purchase the notes unless we are able to refinance or obtain
waivers under our senior secured credit facilities. Our failure
to repurchase the notes upon a change of control would cause a
default under the indenture governing the notes and a
cross-default under the senior secured credit facilities and may
cause a cross-default under the indenture governing our
convertible debentures. Our senior secured credit facilities
also provide that a change of control will be a default that
permits lenders to accelerate the maturity of borrowings
thereunder and the indenture governing the convertible
debentures requires us to repurchase all outstanding convertible
debentures at specified prices upon the occurrence of specified
kinds of change of control events. Any of our future debt
agreements may contain similar provisions.
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If you
do not properly tender your initial notes, your ability to
transfer your initial notes will be adversely
affected.
We will only issue exchange notes in exchange for initial notes
that are timely received by the exchange agent, together with
all required documents, including a properly completed and
signed letter of transmittal. Therefore, you should allow
sufficient time to ensure timely delivery of the initial notes
and you should carefully follow the instructions on how to
tender your initial notes. Neither we nor the exchange agent are
required to tell you of any defects or irregularities with
respect to your tender of the initial notes. If you do not
tender your initial notes or if we do not accept your initial
notes because you did not tender your initial notes properly,
then, after we consummate the exchange offer, you may continue
to hold initial notes that are subject to the existing transfer
restrictions.
As a result, the initial notes may not be offered or sold unless
registered under the Securities Act or pursuant to an exemption
from or in a transaction not subject to the Securities Act and
applicable state securities laws. We do not intend to register
the initial notes under the Securities Act or any applicable
state securities laws. After the exchange offer, you will not be
entitled to any rights to have such initial notes registered
under the Securities Act except in limited circumstances. Except
as otherwise described in this prospectus, the exchange notes
will not be subject to any transfer restrictions under the
Securities Act or state securities laws. In addition, the
aggregate principal amount of the initial notes will be reduced
to the extent initial notes are tendered and accepted in the
exchange offer. This could adversely affect the trading market,
if any, for the initial notes.
Certain
participants in the exchange offer must deliver a prospectus in
connection with resales of the exchange notes.
Based on certain no-action letters issued by the staff of the
Commission, we believe that you may offer for resale, resell or
otherwise transfer the initial notes without compliance with the
registration and prospectus delivery requirements of the
Securities Act. However, in some instances described in this
prospectus under Plan of Distribution, you will
remain obligated to comply with the registration and prospectus
delivery requirements of the Securities Act to transfer your
exchange notes. For example, if you exchange your initial notes
in the exchange offer for the purpose of participating in a
distribution of the exchange notes, you may be deemed to have
received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale
transaction. In these cases, if you transfer any exchange note
without delivering a prospectus meeting the requirements of the
Securities Act or without an exemption from registration of your
exchange notes under the Securities Act, you may incur liability
under this act. We do not and will not assume, or indemnify you
against, this liability.
Your
ability to transfer the exchange notes may be limited by the
absence of an active trading market, and there is no assurance
that any active trading market will develop for the exchange
notes.
The exchange notes are new issues of securities for which there
is no established public market. The initial notes are eligible
for trading in the
PORTALsm
Market; however, we do not intend to list the exchange notes on
any securities exchange or to seek their admission to trading on
any automated quotation system and the exchange notes will not
be eligible for trading in the
PORTALsm
Market. The initial purchasers of the initial notes advised us
that they intended to make a market in the initial notes, and
the exchange notes, if issued, as permitted by applicable laws
and regulations; however, the initial purchasers are not
obligated to make a market in any of the initial notes or the
exchange notes, and they may discontinue their market-making
activities at any time without notice. Therefore, we cannot
assure you that an active market for any of the initial notes or
exchange notes will develop or, if a market does develop, that
it will continue.
Historically, the market for non investment-grade debt has been
subject to disruptions that have caused substantial volatility
in the prices of securities that are similar to the notes. We
cannot assure you that the market, if any, for any of the
initial notes or exchange notes will be free from similar
disruptions or that any such disruptions may not adversely
affect the prices at which you may sell your notes. In addition,
subsequent to their initial issuance, the initial notes or
exchange notes may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the
market for similar notes, our performance and other factors.
13
Risks
Relating to Our Business
Changes
in government and other third-party payor reimbursement levels
and practices have negatively impacted and could continue to
negatively impact our revenues and profitability.
Our products are sold through a network of medical equipment and
home health care providers, extended care facilities, hospital
and HMO-based stores, and other providers. Many of these
providers, who are our customers, are reimbursed for the
Invacare products and services provided to their customers and
patients by third-party payors, such as government programs,
including Medicare and Medicaid, private insurance plans and
managed care programs. Many of these programs set maximum
reimbursement levels for certain of the products sold by us in
the United States. If third-party payors deny coverage, make the
reimbursement process or documentation requirements more
uncertain or further reduce their current levels of
reimbursement (i.e., beyond the reductions described below), or
if our costs of production increase faster than increases in
reimbursement levels, we may be unable to sell the affected
product(s) through our distribution channels on a profitable
basis.
Reduced government reimbursement levels and changes in
reimbursement policies have in the past added, and could
continue to add, significant pressure to our revenues and
profitability. In early 2006, The Centers for Medicare and
Medicaid Services, or CMS, announced a series of
changes to the eligibility, documentation, codes, and payment
rules relating to power wheelchairs that impact the
predictability of reimbursement of expenses for and access to
power wheelchairs. The implementation of these changes will not
be completed until early in 2007, after which the effect of
these changes on our business will become more apparent.
However, these changes may be significant. Effective
November 15, 2006, the CMS reduced the maximum
reimbursement amount for power wheelchairs under Medicare by up
to 28%. The reduced reimbursement levels may cause consumers to
choose less expensive versions of our power wheelchairs.
Additionally, the Deficit Reduction Act of 2005 includes payment
cuts for home oxygen equipment that will take effect in 2009 and
reductions for certain durable home medical equipment spending
that will take effect in 2007.
Largely as a consequence of the announced reimbursement
reductions and the uncertainty created thereby, our North
American net sales were lower in 2006 as compared to 2005 as
were Asia/Pacific sales as the U.S. reimbursement
uncertainty in the power wheelchair market resulted in decreased
sales of microprocessor controllers by the companys
Dynamic Controls subsidiary. Sales of our respiratory products
were particularly affected by the changes. Small and independent
provider sales declined as these dealers slowed their purchases
of our
HomeFilltm
oxygen system product line, in part, until they had a clearer
view of future oxygen reimbursement levels. Furthermore, a study
issued by the Office of Inspector General or OIG, in
September 2006 suggested that $3.2 billion in savings could
be achieved over five years by reducing the reimbursed rental
period from three years (the reimbursement period under current
law) to 13 months. The uncertainty created by these
announcements continues to negatively impact the home oxygen
equipment market, particularly for those providers considering
changing to the
HomeFilltm
oxygen system.
Similar trends and concerns are occurring in state Medicaid
programs. These recent changes to reimbursement policies, and
any additional unfavorable reimbursement policies or budgetary
cuts that may be adopted, could adversely affect the demand for
our products by customers who depend on reimbursement by the
government-funded programs. The percentage of our overall sales
that is dependent on Medicare or other insurance programs may
increase as the portion of the U.S. population over
age 65 continues to grow, making us more vulnerable to
reimbursement level reductions by these organizations. Reduced
government reimbursement levels also could result in reduced
private payor reimbursement levels because some third-party
payors may index their reimbursement schedules to Medicare fee
schedules. Reductions in reimbursement levels also may affect
the profitability of our customers and ultimately force some
customers without strong financial resources to go out of
business. The reductions announced recently may be so dramatic
that some of our customers may not be able to adapt quickly
enough to survive. We are the industrys largest creditor
and an increase in bankruptcies in our customer base could have
an adverse effect on our financial results.
Medicare will institute a new competitive bidding program for
various items in ten as yet unidentified of the largest
metropolitan areas late in 2007. This program is designed to
reduce Medicare payment levels for items that the Medicare
program spends the most money on under the home medical
equipment benefit. This new program will likely eliminate some
providers from the competitive bidding markets, because only
those providers who are
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chosen to participate (based largely on price) will be able to
provide beneficiaries with items included in the bid. Medicare
will be expanding the program to an additional 80 metropolitan
areas in 2009. In addition, in 2009, Medicare has the authority
to apply bid rates from bidding areas in non-bid areas. The
competitive bidding program will result in reduced payment
levels, that will vary by product category, and will depend in
large part upon the level of bids our customers submit in an
effort to ensure they become approved contract suppliers. It is
difficult to predict the specific reductions in payment levels
that will result from this process.
Outside the United States, reimbursement systems vary
significantly by country. Many foreign markets have
government-managed health care systems that govern reimbursement
for new home health care products. The ability of hospitals and
other providers supported by such systems to purchase our
products is dependent, in part, upon public budgetary
constraints. Canada and Germany and other European countries,
for example, have tightened reimbursement rates and other
countries may follow. If adequate levels of reimbursement from
third-party payors outside of the United States are not
obtained, international sales of our products may decline, which
could adversely affect our net sales and would have a material
adverse effect on our business, financial condition and results
of operations.
In January 2007, the OIG announced its goals and priorities for
2007, which include a number of investigations into Medicare and
Medicaid payments for durable medical equipment, or
DME, among them, for example, investigations into
Medicare pricing of equipment and supplies and the medical
necessity of durable medical equipment for which Medicare
provided payments.
The impact of all the changes discussed above are uncertain and
could have a material adverse effect on our business, financial
condition and results of operations.
The
consolidation of health care customers and our competitors could
result in a loss of customers or in additional competitive
pricing pressures.
Numerous initiatives and reforms instituted by legislators,
regulators and third-party payors to reduce home medical
equipment costs have resulted in a consolidation trend in the
home medical equipment industry as well as among our customers,
including home health care providers. Some of our competitors
have been lowering the purchase prices of their products in an
effort to attract customers. This in turn has resulted in
greater pricing pressures, including pressure to offer customers
more competitive pricing terms, and the exclusion of certain
suppliers from important market segments as group purchasing
organizations, independent delivery networks and large single
accounts continue to consolidate purchasing decisions for some
of our customers. Further consolidation could result in a loss
of customers, including increased collectibility risks, or in
increased competitive pricing pressures.
The
industry in which we operate is highly competitive and some of
our competitors may be larger and may have greater financial
resources than we do.
The home medical equipment market is highly competitive and our
products face significant competition from other
well-established manufacturers. Any increase in competition may
cause us to lose market share or compel us to reduce prices to
remain competitive, which could materially adversely affect our
results of operations.
If our
cost reduction efforts are ineffective, our revenues and
profitability could be negatively impacted.
In response to the reductions in Medicare power wheelchair and
oxygen reimbursement levels and other governmental and third
party payor pricing pressures and competitive pricing pressures,
we have initiated further cost reduction efforts in addition to
those announced in 2005 and early 2006. We may not be successful
in achieving the operating efficiencies and operating cost
reductions expected from these efforts, including the estimated
cost savings described above, and we may experience business
disruptions associated with the restructuring and cost reduction
activities, including the restructuring activities previously
announced in 2005 and 2006 and, in particular, our facility
consolidations initiated in connection with these activities.
These efforts may not produce the full efficiency and cost
reduction benefits that we expect. Further, these benefits may
be realized later than expected, and the costs of implementing
these measures may be greater than anticipated. If these
measures are not successful, we intend to undertake additional
cost reduction efforts, which could result in future charges.
Moreover, our ability
15
to achieve our other strategic goals and business plans and our
financial performance may be adversely affected and we could
experience business disruptions with customers and elsewhere if
our cost reduction and restructuring efforts prove ineffective.
Our
success depends on our ability to design, manufacture,
distribute and achieve market acceptance of new products with
higher functionality and lower costs.
We sell our products to customers primarily in markets that are
characterized by technological change, product innovation and
evolving industry standards and in which product price is
increasingly the primary consideration in customers
purchasing decisions. We are continually engaged in product
development and improvement programs. We must continue to design
and improve innovative products, effectively distribute and
achieve market acceptance of those products, and reduce the
costs of producing our products, in order to compete
successfully with our competitors. If competitors product
development capabilities become more effective than our product
development capabilities, if competitors new or improved
products are accepted by the market before our products or if
competitors are able to produce products at a lower cost and
thus offer products for sale at a lower price, our business,
financial condition and results of operation could be adversely
affected.
We are
subject to extensive government regulation, and if we fail to
comply with applicable laws or regulations, we could suffer
severe criminal or civil sanctions or be required to make
significant changes to our operations that could have a material
adverse effect on our results of operations.
We sell our products principally to medical equipment and home
health care providers who resell or rent those products to
consumers. Many of those providers (our customers) are
reimbursed for the
Invacare®
products sold to their customers and patients by third-party
payors, including Medicare and Medicaid. The federal government
and all states and countries in which we operate regulate many
aspects of our business. As a health care manufacturer, we are
subject to extensive government regulation, including numerous
laws directed at preventing fraud and abuse and laws regulating
reimbursement under various government programs. The marketing,
invoicing, documenting and other practices of health care
suppliers and manufacturers are all subject to government
scrutiny. Government agencies periodically open investigations
and obtain information from health care suppliers and
manufacturers pursuant to the legal process. Violations of law
or regulations can result in severe criminal, civil and
administrative penalties and sanctions, including
disqualification from Medicare and other reimbursement programs,
which could have a material adverse effect on our business. We
have established policies and procedures that we believe are
sufficient to ensure that we will operate in substantial
compliance with these laws and regulations.
We recently received a subpoena from the U.S. Department of
Justice seeking documents relating to three long-standing and
well-known promotional and rebate programs maintained by us. We
believe the programs described in the subpoena are in compliance
with all applicable laws and we are cooperating fully with the
government investigation which is currently being conducted out
of Washington, D.C. There can be no assurance that our
business or financial condition will not be adversely affected
by the government investigation.
Health care is an area of rapid regulatory change. Changes in
the law and new interpretations of existing laws may affect
permissible activities, the costs associated with doing
business, and reimbursement amounts paid by federal, state and
other third-party payors. We cannot predict the future of
federal, state and local regulation or legislation, including
Medicare and Medicaid statutes and regulations, or possible
changes in health care policies in any country in which we
conduct business. Future legislation and regulatory changes
could have a material adverse effect on our business.
Our
research and development and manufacturing processes are subject
to federal, state, local and foreign environmental
requirements.
Our research and development and manufacturing processes are
subject to federal, state, local and foreign environmental
requirements, including requirements governing the discharge of
pollutants into the air or water, the use, handling, storage and
disposal of hazardous substances and the responsibility to
investigate and cleanup of contaminated sites. Under some of
these laws, we could also be held responsible for costs relating
to any contamination at our past or present facilities and at
third-party waste disposal sites. These could include costs
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relating to contamination that did not result from any violation
of law and, in some circumstances, contamination that we did not
cause. We may incur significant expenses relating to the failure
to comply with environmental laws. The enactment of stricter
laws or regulations, the stricter interpretation of existing
laws and regulations or the requirement to undertake the
investigation or remediation of currently unknown environmental
contamination at our own or third party sites may require us to
make additional expenditures, which could be material.
Lower
cost imports could negatively impact our
profitability.
Lower cost imports sourced from Asia may negatively impact our
sales volumes. Competition from these products may force us to
lower our prices, cutting into our profit margins and reducing
our overall profitability. Asian goods had a particularly strong
negative impact on our sales of Standard Products (this category
includes products such as manual wheelchairs, canes, walkers and
bath aids) during 2006, which declined compared to the previous
year.
Our
failure to comply with regulatory requirements or receive
regulatory clearance or approval for our products or operations
in the United States or abroad could adversely affect our
business.
Our medical devices are subject to extensive regulation in the
United States by the Food and Drug Administration, or the
FDA, and by similar governmental authorities in the
foreign countries where we do business. The FDA regulates
virtually all aspects of a medical devices development,
testing, manufacturing, labeling, promotion, distribution and
marketing. In addition, we are required to file reports with the
FDA if our products cause, or contribute to, death or serious
injury, or if they malfunction and would be likely to cause, or
contribute to, death or serious injury if the malfunction were
to recur. In general, unless an exemption applies, our
wheelchair and respiratory medical devices must receive a
pre-marketing clearance from the FDA before they can be marketed
in the United States. The FDA also regulates the export of
medical devices to foreign countries. We cannot assure you that
any of our devices, to the extent required, will be cleared by
the FDA through the pre-market clearance process or that the FDA
will provide export certificates that are necessary to export
certain of our products.
Additionally, we may be required to obtain pre-marketing
clearances to market modifications to our existing products or
market our existing products for new indications. The FDA
requires device manufacturers themselves to make and document a
determination of whether or not a modification requires a new
clearance; however, the FDA can review and disagree with a
manufacturers decision. We have applied for, and received,
a number of such clearances in the past. We may not be
successful in receiving clearances in the future or the FDA may
not agree with our decisions not to seek clearances for any
particular device modification. The FDA may require a clearance
for any past or future modification or a new indication for our
existing products. Such submissions may require the submission
of additional data and may be time consuming and costly, and may
not ultimately be cleared by the FDA.
If the FDA requires us to obtain pre-marketing clearances for
any modification to a previously cleared device, we may be
required to cease manufacturing and marketing the modified
device or to recall the modified device until we obtain FDA
clearance, and we may be subject to significant regulatory fines
or penalties. In addition, the FDA may not clear these
submissions in a timely manner, if at all. The FDA also may
change its policies, adopt additional regulations or revise
existing regulations, each of which could prevent or delay
pre-market clearance of our devices, or could impact our ability
to market a device that was previously cleared. Any of the
foregoing could adversely affect our business.
Our failure to comply with the regulatory requirements of the
FDA and other applicable U.S. regulatory requirements may
subject us to administrative or judicially imposed sanctions.
These sanctions include warning letters, civil penalties,
criminal penalties, injunctions, product seizure or detention,
product recalls and total or partial suspension of production.
In many of the foreign countries in which we market our
products, we are subject to extensive regulations that are
similar to those of the FDA, including those in Europe. The
regulation of our products in Europe falls primarily within the
European Economic Area, which consists of the 27 member states
of the European Union, as well as Iceland, Liechtenstein and
Norway. Only medical devices that comply with certain conformity
requirements of the
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Medical Device Directive are allowed to be marketed within the
European Economic Area. In addition, the national health or
social security organizations of certain foreign countries,
including those outside Europe, require our products to be
qualified before they can be marketed in those countries.
Failure to receive, or delays in the receipt of, relevant
foreign qualifications in the European Economic Area or other
foreign countries could have a material adverse effect on our
business.
Our
products are subject to recalls, which could harm our reputation
and business.
We are subject to ongoing medical device reporting regulations
that require us to report to the FDA or similar governmental
authorities in other countries if our products cause, or
contribute to, death or serious injury, or if they malfunction
and would be likely to cause, or contribute to, death or serious
injury if the malfunction were to recur. The FDA and similar
governmental authorities in other countries have the authority
to require us to do a field correction or recall our products in
the event of material deficiencies or defects in design or
manufacturing. In addition, in light of a deficiency, defect in
design or manufacturing or defect in labeling, we may
voluntarily elect to recall or correct our products. A
government mandated or voluntary recall/field correction by us
could occur as a result of component failures, manufacturing
errors or design defects, including defects in labeling. Any
recall/field correction would divert managerial and financial
resources and could harm our reputation with our customers,
product users and the health care professionals that use,
prescribe and recommend our products. We could have product
recalls or field actions that result in significant costs to us
in the future, and these actions could have a material adverse
effect on our business.
Our
reported results may be adversely affected by increases in
reserves for uncollectible accounts receivable.
We have a large balance of accounts receivable and have
established a reserve for the portion of such accounts
receivable that we estimate will not be collected because of our
customers non-payment. The reserve is based on historical
trends and current relationships with our customers and
providers. Changes in our collection rates can result from a
number of factors, including turnover in personnel, changes in
the payment policies or practices of payors or changes in
industry rates or pace of reimbursement. As a result of recent
changes in Medicare reimbursement regulations, specifically
changes to the qualification processes and reimbursement levels
of consumer power wheelchairs and custom power wheelchairs, the
business viability of several of our customers has become
questionable. Our reserve for uncollectible receivables has
fluctuated in the past and will continue to fluctuate in the
future. Changes in rates of collection or fluctuations, even if
they are small in absolute terms, could require us to increase
our reserve for uncollectible receivables beyond its current
level. We have reviewed the accounts receivables associated with
many of our customers that are most exposed to these issues. As
part of our 2006 financial results, we recorded an incremental
reserve against accounts receivable of $26.8 million.
Difficulties
in implementing a new Enterprise Resource Planning system have
disrupted our business.
During the fourth quarter of 2005, we implemented the second
phase of our Enterprise Resource Planning, or ERP,
system. Primarily as a result of the complexities and business
process changes associated with this implementation, we
encountered a number of issues related to the
start-up of
the system, including difficulties in processing orders,
customer disruptions and the loss of some business. While we
believe that the difficulties associated with implementing and
stabilizing our ERP system were temporary and have been
addressed, there can be no assurance that we will not experience
additional ongoing disruptions or inefficiencies in our business
operations as a result of this new system implementation, the
final phase of which is to be completed in late 2007 or in 2008.
We may
be adversely affected by legal actions or regulatory
proceedings.
We may be subject to claims, litigation or other liabilities as
a result of injuries caused by allegedly defective products,
acquisitions we have completed or in the intellectual property
area. Any such claims or litigation against
18
us, regardless of the merits, could result in substantial costs
and could harm our business. Intellectual property litigation or
claims also could require us to:
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cease manufacturing and selling any of our products that
incorporate the challenged intellectual property;
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obtain a license from the holder of the infringed intellectual
property right alleged to have been infringed, which license may
not be available on commercially reasonable terms, if at all; or
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redesign or rename our products, which may not be possible and
could be costly and time consuming.
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The results of legal proceedings are difficult to predict and we
cannot provide you with any assurance that an action or
proceeding will not be commenced against us, or that we will
prevail in any such action or proceeding. An unfavorable
resolution of any legal action or proceeding could materially
and adversely affect our business, results of operations,
liquidity or financial condition.
Product
liability claims may harm our business, particularly if the
number of claims increases significantly or our product
liability insurance proves inadequate.
The manufacture and sale of home health care devices and related
products exposes us to a significant risk of product liability
claims. From time to time, we have been, and we are currently,
subject to a number of product liability claims alleging that
the use of our products has resulted in serious injury or even
death.
Even if we are successful in defending against any liability
claims, these claims could nevertheless distract our management,
result in substantial costs, harm our reputation, adversely
affect the sales of all our products and otherwise harm our
business. If there is a significant increase in the number of
product liability claims, our business could be adversely
affected.
Our captive insurance company, Invatection Insurance Company,
currently has a policy year that runs from September 1 to
August 31 and insures annual policy losses of
$10,000,000 per occurrence and $13,000,000 in the aggregate
of our North American product liability exposure. We also have
additional layers of external insurance coverage insuring up to
$75,000,000 in annual aggregate losses arising from individual
claims anywhere in the world that exceed the captive insurance
company policy limits or the limits of our per country foreign
liability limits as applicable. There can be no assurance that
our current insurance levels will continue to be adequate or
available at affordable rates.
Product liability reserves are recorded for individual claims
based upon historical experience, industry expertise and
indications from a third-party actuary. Additional reserves, in
excess of the specific individual case reserves, are provided
for incurred but not reported claims based upon third-party
actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken
into consideration by the third-party actuary to estimate the
ultimate reserves. For example, the actuarial analysis assumes
that historical loss experience is an indicator of future
experience, that the distribution of exposures by geographic
area and nature of operations for ongoing operations is expected
to be very similar to historical operations with no dramatic
changes and that the government indices used to trend losses and
exposures are appropriate. Estimates are adjusted on a regular
basis and can be impacted by actual loss awards or settlements
on claims. While actuarial analysis is used to help determine
adequate reserves, we are responsible for the determination and
recording of adequate reserves in accordance with accepted loss
reserving standards and practices.
In addition, as a result of a product liability claim or if our
products are alleged to be defective, we may have to recall some
of our products, which could result in significant costs to us
and harm our business reputation. See Our
products are subject to recalls, which could harm our reputation
and business.
If our
patents and other intellectual property rights do not adequately
protect our products, we may lose market share to our
competitors and may not be able to operate our business
profitably.
We rely on a combination of patents, trade secrets and
trademarks to establish and protect our intellectual property
rights in our products and the processes for the development,
manufacture and marketing of our products.
19
We use non-patented proprietary know-how, trade secrets,
undisclosed internal processes and other proprietary information
and currently employ various methods to protect this proprietary
information, including confidentiality agreements, invention
assignment agreements and proprietary information agreements
with vendors, employees, independent sales agents, distributors,
consultants, and others. However, these agreements may be
breached. The FDA or another governmental agency may require the
disclosure of this information in order for us to have the right
to market a product. Trade secrets, know-how and other
unpatented proprietary technology may also otherwise become
known to or independently developed by our competitors.
In addition, we also hold U.S. and foreign patents relating to a
number of our components and products and have patent
applications pending with respect to other components and
products. We also apply for additional patents in the ordinary
course of our business, as we deem appropriate. However, these
precautions offer only limited protection, and our proprietary
information may become known to, or be independently developed
by, competitors, or our proprietary rights in intellectual
property may be challenged, any of which could have a material
adverse effect on our business, financial condition and results
of operations. Additionally, we cannot assure you that our
existing or future patents, if any, will afford us adequate
protection or any competitive advantage, that any future patent
applications will result in issued patents or that our patents
will not be circumvented, invalidated or declared unenforceable.
Any proceedings before the U.S. Patent and Trademark Office
could result in adverse decisions as to the priority of our
inventions and the narrowing or invalidation of claims in issued
patents. We could also incur substantial costs in any
proceeding. In addition, the laws of some of the countries in
which our products are or may be sold may not protect our
products and intellectual property to the same extent as
U.S. laws, if at all. We may also be unable to protect our
rights in trade secrets and unpatented proprietary technology in
these countries.
In addition, we hold patent and other intellectual property
licenses from third parties for some of our products and on
technologies that are necessary in the design and manufacture of
some of our products. The loss of these licenses could prevent
us from, or could cause additional disruption or expense in,
manufacturing, marketing and selling these products, which could
harm our business.
Our
operating results and financial condition could be adversely
affected if we become involved in litigation regarding our
patents or other intellectual property rights.
Litigation involving patents and other intellectual property
rights is common in our industry, and companies in our industry
have used intellectual property litigation in an attempt to gain
a competitive advantage. We currently are, and in the future may
become, a party to lawsuits involving patents or other
intellectual property. Litigation is costly and time consuming.
If we lose any of these proceedings, a court or a similar
foreign governing body could invalidate or render unenforceable
our owned or licensed patents, require us to pay significant
damages, seek licenses
and/or pay
ongoing royalties to third parties, require us to redesign our
products, or prevent us from manufacturing, using or selling our
products, any of which would have an adverse effect on our
results of operations and financial condition. We have brought,
and may in the future also bring, actions against third parties
for an infringement of our intellectual property rights. We may
not succeed in these actions. The defense and prosecution of
intellectual property suits, proceedings before the
U.S. Patent and Trademark Office or its foreign equivalents
and related legal and administrative proceedings are both costly
and time consuming. Protracted litigation to defend or prosecute
our intellectual property rights could seriously detract from
the time our management would otherwise devote to running our
business. Intellectual property litigation relating to our
products could cause our customers or potential customers to
defer or limit their purchase or use of the affected products
until resolution of the litigation.
Our
business strategy relies on certain assumptions concerning
demographic trends that impact the market for our products. If
these assumptions prove to be incorrect, demand for our products
may be lower than we currently expect.
Our ability to achieve our business objectives is subject to a
variety of factors, including the relative increase in the aging
of the general population. We believe that these trends will
increase the need for our products. The projected demand for our
products could materially differ from actual demand if our
assumptions regarding these trends and acceptance of our
products by health care professionals and patients prove to be
incorrect or do not
20
materialize. If our assumptions regarding these factors prove to
be incorrect, we may not be able to successfully implement our
business strategy, which could adversely affect our results of
operations. In addition, the perceived benefits of these trends
may be offset by competitive or business factors, such as the
introduction of new products by our competitors or the emergence
of other countervailing trends.
Provisions
of Ohio law, our charter documents and our shareholder rights
plan may have anti-takeover effects that could prevent or delay
a change in control.
Provisions of Ohio law, our dual class capital stock structure,
our shareholder rights plan and provisions in our charter
documents may discourage, delay or prevent a merger or
acquisition or make removal of incumbent directors or officers
more difficult. These provisions may discourage takeover
attempts and bids for our common shares at a premium over the
market price.
The
loss of the services of our key management and personnel could
adversely affect our ability to operate our
business.
Our future success will depend, in part, upon the continued
service of key managerial, research and development staff and
sales and technical personnel. In addition, our future success
will depend on our ability to continue to attract and retain
other highly qualified personnel. We may not be successful in
retaining our current personnel or in hiring or retaining
qualified personnel in the future. Our failure to do so could
have a material adverse effect on our business. These executive
officers have substantial experience and expertise in our
industry. Our future success depends, to a significant extent,
on the abilities and efforts of our executive officers and other
members of our management team. If we lose the services of any
of our management team, our business may be adversely affected.
Our
Chief Executive Officer and certain members of management own
shares representing a substantial percentage of our voting power
and their interests may differ from other
shareholders.
We have 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 February 23, 2007, our chairman and CEO,
Mr. A. Malachi Mixon, and certain members of management
beneficially own up to approximately 35% of the combined voting
power of our Common Shares and Class B Common Shares and
could influence the outcome of any corporate transaction or
other matter submitted to the shareholders for approval,
including mergers, consolidations and the sale of all or
substantially all of our assets. They will also 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 you disagree.
Decreased
availability or increased costs of raw materials could increase
our costs of producing our products.
We purchase raw materials, fabricated components and services
from a variety of suppliers. Raw materials such as plastics,
steel, and aluminum are considered key raw materials. Where
appropriate, we employ contracts with our suppliers, both
domestic and international. In those situations in which
contracts are not advantageous, we believe that our
relationships with our suppliers are satisfactory and that
alternative sources of supply are readily available. From time
to time, however, the prices and availability of these raw
materials fluctuate due to global market demands, which could
impair our ability to procure necessary materials, or increase
the cost of these materials. Inflationary and other increases in
costs of these raw materials have occurred in the past and may
recur from time to time. In addition, freight costs associated
with shipping and receiving product and sales are impacted by
fluctuations in the cost of oil and gas. A reduction in the
supply or increase in the cost of those raw materials could
impact our ability to manufacture our products and could
increase the cost of production.
21
Since
our ability to obtain further financing may be limited, we may
be unable to acquire strategic acquisition
candidates.
Our plans include identifying, acquiring and integrating other
strategic businesses. There are various reasons for us to
acquire businesses or product lines, including to provide new
products or new manufacturing and service capabilities, to add
new customers, to increase penetration with existing customers
and to expand into new geographic markets. Our ability to
successfully grow through acquisitions depends upon, among other
things, our ability to identify, negotiate, complete and
integrate suitable acquisitions and to obtain any necessary
financing. The costs of acquiring other businesses could
increase if competition for acquisition candidates increases. If
we are unable to obtain the necessary financing, we may miss
opportunities to grow our business through strategic
acquisitions.
Additionally, the success of our acquisition strategy is subject
to other risks and costs, including the following:
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our ability to realize operating efficiencies, synergies, or
other benefits expected from an acquisition, and possible delays
in realizing the benefits of the acquired company or products;
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diversion of managements time and attention from other
business concerns;
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difficulties in retaining key employees of the acquired
businesses who are necessary to manage these businesses;
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difficulties in maintaining uniform standards, controls,
procedures and policies throughout acquired companies;
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adverse effects on existing business relationships with
suppliers or customers;
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the risks associated with the assumption of contingent or
undisclosed liabilities of acquisition targets; and
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ability to generate future cash flows or the availability of
financing.
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In addition, an acquisition could materially impair our
operating results by causing us to incur debt or requiring the
amortization of acquisition expenses and acquired assets.
We are
subject to certain risks inherent in managing and operating
businesses in many different foreign
jurisdictions.
We have significant international operations, including
operations in Australia, New Zealand, Asia and Europe. There are
risks inherent in operating and selling products
internationally, including:
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difficulties in enforcing agreements and collecting receivables
through certain foreign legal systems;
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foreign customers who may have longer payment cycles than
customers in the United States;
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tax rates in certain foreign countries that may exceed those in
the United States and foreign earnings that may be subject to
withholding requirements;
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the imposition of tariffs, exchange controls or other trade
restrictions including transfer pricing restrictions when
products produced in one country are sold to an affiliated
entity in another country;
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general economic and political conditions in countries where the
company operates or where end users of our products reside;
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difficulties associated with managing a large organization
spread throughout various countries;
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difficulties in enforcing intellectual property rights and
weaker intellectual property rights protection in some countries;
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required compliance with a variety of foreign laws and
regulations;
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different regulatory environments and reimbursement systems; and
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differing consumer product preferences.
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22
Our
revenues are subject to exchange rate fluctuations that could
adversely affect our results of operations or financial
position.
Currency exchange rates are subject to fluctuation due to, among
other things, changes in local, regional or global economic
conditions, the imposition of currency exchange restrictions,
and unexpected changes in regulatory or taxation environments.
The functional currency of our subsidiaries outside the United
States is the predominant currency used by the subsidiaries to
transact business. Through our international operations, we are
exposed to foreign currency fluctuations, and changes in
exchange rates can have a significant impact on net sales and
elements of cost.
We use forward contracts to help reduce our exposure to exchange
rate variation risk. Despite our efforts to mitigate these
risks, however, our revenues and profitability may be materially
adversely affected by exchange rate fluctuations. We also are
exposed to market risk through various financial instruments,
including fixed rate and floating rate debt instruments. We use
interest swap agreements to mitigate our exposure to interest
rate fluctuations, but those efforts may not adequately protect
us from significant interest rate risks.
23
RATIO OF
EARNINGS TO FIXED CHARGES
The following table sets forth our ratios of earnings to fixed
charges on a consolidated basis for the periods shown. You
should read these ratios of earnings to fixed charges in
connection with our consolidated financial statements, including
the notes to those statements, included or incorporated by
reference into this prospectus. It should be noted that the
Recapitalization did not occur until February 12, 2007.
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Years Ended December 31,
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2002
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2003
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2004
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2005
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2006
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Ratio of earnings to fixed charges
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8.0
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11.0
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8.1
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3.5
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N/A
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(1)
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(1) |
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For the year ended December 31, 2006, earnings were
insufficient to cover fixed charges by $309.5 million. |
24
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with
respect to our consolidated statements of operations, cash flows
and shareholders equity for the fiscal years ended
December 31, 2006, 2005 and 2004, and the consolidated
balance sheets as of December 31, 2006 and 2005 are derived
from the Consolidated Financial Statements included elsewhere in
this prospectus. The consolidated statements of earnings, cash
flows and shareholders equity data for the fiscal years
ended December 31, 2004, 2003 and 2002 are derived from our
previously filed Consolidated Financial Statements. Certain of
the amounts derived from our Consolidated Financial Statements
for the fiscal years ended December 31, 2005, 2004 and 2003
have been reclassified to conform with the presentation in the
Consolidated Financial Statements for the fiscal year ended
December 31, 2006.
The data set forth below should be read in conjunction with our
Consolidated Financial Statements and the related Notes,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and other financial
data included elsewhere or incorporated by reference in this
prospectus.
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2006*
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2005**
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2004
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2003
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2002
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(In thousands, except per share and ratio data)
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Earnings
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Net Sales
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$
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1,498,035
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$
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1,529,732
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$
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1,403,327
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$
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1,247,176
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$
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1,089,161
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Net Earnings (loss)
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(317,774
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)
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48,852
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75,197
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71,409
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64,770
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Net Earnings (loss) per
Share Basic
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(10.00
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1.55
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2.41
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2.31
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2.10
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Net Earnings (loss) per
Share Assuming Dilution
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(10.00
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1.51
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2.33
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2.25
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2.05
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Dividends per Common Share
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0.05
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0.05
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0.05
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0.05
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0.05
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Dividends per Class B Common
Share
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0.04545
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0.04545
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0.04545
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0.04545
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0.04545
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Balance Sheet
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Current Assets
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$
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655,758
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$
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594,466
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$
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565,151
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$
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474,722
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$
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398,812
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Total Assets
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1,490,451
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1,646,772
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1,628,124
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1,108,213
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906,703
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Current Liabilities
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447,976
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356,707
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258,141
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223,488
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168,226
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Working Capital
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207,782
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237,759
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307,010
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251,234
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230,586
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Long-Term Debt
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448,883
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457,753
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547,974
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232,038
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234,134
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Other Long-Term Obligations
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108,228
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79,624
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68,571
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34,383
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24,031
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Shareholders Equity
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485,364
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752,688
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753,438
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618,304
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480,312
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Other Data
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Research and Development
Expenditures
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$
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22,146
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$
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23,247
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$
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21,638
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$
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19,130
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$
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17,934
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Capital Expenditures
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21,789
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30,924
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41,757
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28,882
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21,451
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Depreciation and Amortization
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39,892
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40,524
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32,316
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27,235
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26,638
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Key Ratios
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Return on Sales
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(21.2
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)%
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3.2
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%
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5.4
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%
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5.7
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%
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5.9
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%
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Return on Average Assets
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(20.3
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)%
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3.0
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%
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5.5
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%
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7.1
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%
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7.1
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%
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Return on Beginning
Shareholders Equity
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(42.2
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)%
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6.5
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%
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12.2
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%
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14.9
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%
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17.0
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%
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Current Ratio
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1.5:1
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1.7:1
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2.2:1
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2.1:1
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2.4:1
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Debt-to-Equity
Ratio
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0.9:1
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0.6:1
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0.7:1
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0.4:1
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0.5:1
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* |
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Reflects restructuring charge of $21,250 ($18,700 after tax or
$.59 per share assuming dilution), $3,745 expense related
to finance charges, interest and fees associated with our
previously reported debt covenant violations ($3,300 after tax
or $.10 per share assuming dilution), $26,775 expense
related to accounts receivable collectibility issues arising
primarily from Medicare reimbursement reductions for power
wheelchairs announced on November 15, 2006 ($26,775 after
tax or $.84 per share assuming dilution), $300,417 |
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expense for an impairment charge related to the write-down of
goodwill and other intangible assets ($300,417 after tax or
$9.45 per share assuming dilution). |
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Reflects restructuring charge of $7,533 ($5,160 after tax or
$0.16 per share assuming dilution). |
The comparability between periods of the Selected Financial Data
provided in the above table is limited as acquisitions made, in
particular the Domus acquisition in 2004, materially impacted
our reported results. See Acquisitions in the Notes to the
Consolidated Financial Statements as provided in our
Form 10-K
for the year ended December 31, 2004.
26
THE
EXCHANGE OFFER
Concurrently with the sale of the initial notes on
February 12, 2007, we and the subsidiary guarantors entered
into a registration rights agreement with the initial purchasers
of the initial notes that requires us to file a registration
statement under the Securities Act with respect to the exchange
notes and, upon the effectiveness of the registration statement,
offer to the holders of the initial notes the opportunity to
exchange their initial notes for a like principal amount of
exchange notes. The exchange notes will be issued without a
restrictive legend and generally may be reoffered and resold
without further registration under the Securities Act. The
registration rights agreement further provides that we must pay
additional interest on the notes if, among other things, we do
not complete the exchange offer within 210 days from the
issue date of the initial notes.
Except as described below, upon the completion of the exchange
offer, our obligations with respect to the registration of the
initial notes and the exchange notes will terminate. A copy of
the registration rights agreement has been filed as an exhibit
to the registration statement of which this prospectus is a
part, and this summary of the material provisions of the
registration rights agreement does not purport to be complete
and is qualified in its entirety by reference to the complete
registration rights agreement. We will not have to pay certain
additional interest on the initial notes as provided in the
registration rights agreement, provided that we complete the
exchange offer within 210 days from the issue date of the
initial notes. Following the completion of the exchange offer,
holders of initial notes not tendered will not have any further
registration rights other than as set forth in the paragraphs
below, and the initial notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of
the market for the initial notes could be adversely affected
upon consummation of the exchange offer. See Risk
Factors If you do not properly tender your initial
notes, your ability to transfer your initial notes will be
adversely affected.
The exchange offer is not being made to, nor will we accept
tenders for exchange from, holders of initial notes in any
jurisdiction in which the exchange offer or acceptance of the
exchange offer would violate the securities or blue sky laws of
that jurisdiction.
Terms of
the Exchange Offer; Period for Tendering Initial Notes
This prospectus and the accompanying letter of transmittal
contain the terms and conditions of the exchange offer. Upon the
terms and subject to the conditions included in this prospectus
and in the accompanying letter of transmittal, which together
are the exchange offer, we will accept for exchange initial
notes that are properly tendered on or prior to the expiration
date, unless you have previously withdrawn them.
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When you tender to us initial notes as provided below, our
acceptance of the initial notes will constitute a binding
agreement between you and us upon the terms and subject to the
conditions in this prospectus and in the accompanying letter of
transmittal.
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For each $1,000 principal amount of initial notes surrendered to
us in the exchange offer, we will give you $1,000 principal
amount of exchange notes.
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We will keep the exchange offer open for not less than 30
calendar days and not more than 45 calendar days (or longer if
required by applicable law) after the date that we first mail
notice of the exchange offer to the holders of the initial
notes. We are sending this prospectus, together with the letter
of transmittal, on or about the date of this prospectus to all
of the holders of initial notes at their addresses listed in the
records of the registrar with respect to the initial notes.
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The exchange offer expires at 5:00 p.m., New York City
time,
on ,
2007; provided, however, that we, in our sole discretion, may
extend the period of time for which the exchange offer is open.
The term expiration date
means ,
2007 or, if extended by us, the latest time and date to which
the exchange offer is extended.
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We expressly reserve the right, at any time, to extend the
period of time during which the exchange offer is open, and
thereby delay acceptance of any initial notes, by giving oral or
written notice of an extension to the exchange agent and notice
of that extension to the holders as described below. During any
extension, all initial notes previously tendered will remain
subject to the exchange offer unless withdrawal rights are
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exercised. Any initial notes not accepted for exchange for any
reason will be returned without expense to the tendering holder
promptly upon the expiration or termination of the exchange
offer, as applicable.
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As of the date of this prospectus, $175,000,000 in aggregate
principal amount of initial notes were outstanding. The exchange
offer is not conditioned upon any minimum principal amount of
initial notes being tendered.
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Our obligation to accept initial notes for exchange in the
exchange offer is subject to the conditions that we describe in
the section called Conditions to the Exchange Offer
below.
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We expressly reserve the right to amend or terminate the
exchange offer, and not to accept for exchange any initial notes
that we have not yet accepted for exchange, if any of the
conditions of the exchange offer specified below under
Conditions to the Exchange Offer are not satisfied
or waived prior to expiration of the exchange offer. All
conditions of the exchange offer, other than those subject to
government approval, will be satisfied or waived prior to
expiration of the exchange offer. In the event of a material
change in the exchange offer, including the waiver of a material
condition, we will extend the exchange offer if necessary so
that at least five business days remain in the exchange offer
following notice of the material change.
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We will give oral or written notice of any extension, amendment,
termination or non-acceptance described above to holders of the
initial notes as promptly as practicable. If we extend the
expiration date, we will give notice by means of a press release
or other public announcement no later than 9:00 a.m., New
York City time, on the business day after the previously
scheduled expiration date. Without limiting the manner in which
we may choose to make any public announcement and subject to
applicable law, we will have no obligation to publish, advertise
or otherwise communicate any public announcement other than by
issuing a release to the BusinessWire News Service.
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Holders of initial notes do not have any appraisal or
dissenters rights in connection with the exchange offer.
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Initial notes that are not tendered for exchange or are tendered
but not accepted in connection with the exchange offer will
remain outstanding and be entitled to the benefits of the
indenture but will not be entitled to any further registration
rights under the registration rights agreement.
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We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
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By executing, or otherwise becoming bound by, the letter of
transmittal, you will be making the representations described
below to us. See Resale of the Exchange Notes.
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Important
Rules Concerning The Exchange Offer
You should note that:
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All questions as to the validity, form, eligibility, time of
receipt and acceptance of initial notes tendered for exchange
will be determined by us in our sole reasonable discretion,
which determination shall be final and binding.
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We reserve the absolute right to reject any and all tenders of
any particular initial notes not properly tendered or to not
accept any particular initial notes which acceptance might, in
our judgment or the judgment of our counsel, be unlawful.
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We also reserve the absolute right to waive any defects or
irregularities or conditions of the exchange offer as to any
particular initial notes before the expiration of the exchange
offer, including the right to waive any defect or irregularity
in connection with the tender of any holder who seeks to tender
initial notes in the exchange offer. All conditions of the
exchange offer, other than those subject to government approval,
will be satisfied or waived prior to expiration of the exchange
offer. Unless we agree to waive any defect or irregularity in
connection with the tender of initial notes for exchange, you
must cure any defect or irregularity within any reasonable
period of time as we shall determine. To the extent we agree to
waive any condition of the exchange offer, we will waive that
condition for all holders of the initial notes.
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Our interpretation of the terms and conditions of the exchange
offer as to any particular initial notes prior to the expiration
date shall be final and binding on all parties.
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Neither Invacare, the exchange agent nor any other person shall
be under any duty to give notification of any defect or
irregularity with respect to any tender of initial notes for
exchange, nor shall any of them incur any liability for failure
to give any notification.
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Procedures
for Tendering Initial Notes
What
to submit and how
If you, as the registered holder of initial notes, wish to
tender your initial notes for exchange in the exchange offer,
you must:
(1) transmit a properly completed and duly executed letter
of transmittal to Wells Fargo Bank, N.A. at the address set
forth below under Exchange Agent on or prior to the
expiration date; or
(2) comply with DTCs Automated Tender Offer Program
procedures described below.
In addition,
(1) certificates for initial notes must be received by the
exchange agent along with the letter of transmittal, or
(2) a timely confirmation of a book-entry transfer of
initial notes, if such procedure is available, into the exchange
agents account at DTC using the procedure for book-entry
transfer described below, must be received by the exchange agent
prior to the expiration date, or
(3) you must comply with the guaranteed delivery procedures
described below.
The method of delivery of initial notes, letters of transmittal
and notices of guaranteed delivery is at your election and risk.
If delivery is by mail, we recommend that registered mail,
properly insured, with return receipt requested, be used. In all
cases, sufficient time should be allowed to assure timely
delivery. No letters of transmittal or initial notes should be
sent to us.
How to
sign your letter of transmittal and other
documents
Signatures on a letter of transmittal or a notice of withdrawal,
as the case may be, must be guaranteed unless the initial notes
being surrendered for exchange are tendered:
(1) by a registered holder of the initial notes who has not
completed the box entitled Special Issuance
Instructions or Special Delivery Instructions
on the letter of transmittal, or
(2) for the account of an eligible institution.
If signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed,
the guarantees must be guaranteed by an eligible guarantor
institution meeting the requirements of the exchange
agent, which requirements include membership or participation in
the Security Transfer Agent Medallion Program
(STAMP) or such other signature guarantee
program as may be determined by the exchange agent in
addition to, or in substitution for, STAMP, all in accordance
with the Exchange Act.
If the letter of transmittal or any initial notes or powers of
attorney are signed by trustees, executors, administrators,
guardians,
attorneys-in-fact,
officers or corporations or others acting in a fiduciary or
representative capacity, the person should so indicate when
signing and, unless waived by us, proper evidence satisfactory
to us of its authority to so act must be submitted.
How to
tender your notes through DTC
The exchange agent and DTC have confirmed that the exchange
offer is eligible for DTCs Automated Tender Offer Program.
Accordingly, DTC participants may electronically transmit their
acceptance of the exchange offer
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by causing DTC to transfer initial notes to the exchange agent
in accordance with DTCs Automated Tender Offer Program
procedures for transfer. DTC will then send an agents
message to the exchange agent.
The term agents message means a message
transmitted by DTC, received by the exchange agent and forming
part of the book-entry confirmation, which states that DTC has
received an express acknowledgment from the DTC participant that
is tendering initial notes which are the subject of that
book-entry confirmation that the participant has received and
agrees to be bound by the terms of the letter of transmittal,
and that we may enforce such agreement against such participant.
In the case of an agents message relating to guaranteed
delivery, the term means a message transmitted by DTC and
received by the exchange agent which states that DTC has
received an express acknowledgment from the DTC participant
tendering initial notes that they have received and agree to be
bound by the notice of guaranteed delivery.
Acceptance
of Initial Notes for Exchange; Delivery of Exchange
Notes
Once all of the conditions to the exchange offer are satisfied
or waived, we will accept, promptly upon the expiration date,
all initial notes properly tendered and will issue the exchange
notes promptly after expiration of the exchange offer. See
Conditions to the Exchange Offer below. For purposes
of the exchange offer, our giving of oral or written notice of
our acceptance to the exchange agent will be considered our
acceptance of the exchange offer.
In all cases, we will issue exchange notes in exchange for
initial notes that are accepted for exchange only after timely
receipt by the exchange agent of:
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certificates for initial notes, or
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a timely book-entry confirmation of transfer of initial notes
into the exchange agents account at DTC using the
book-entry transfer procedures described below, and
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a properly completed and duly executed letter of transmittal.
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If we do not accept any tendered initial notes for any reason
included in the terms and conditions of the exchange offer or if
you submit certificates representing initial notes in a greater
principal amount than you wish to exchange, we will return any
unaccepted or non-exchanged initial notes without expense to the
tendering holder or, in the case of initial notes tendered by
book-entry transfer into the exchange agents account at
DTC using the book-entry transfer procedures described below,
non-exchanged initial notes will be credited to an account
maintained with DTC promptly after the expiration or termination
of the exchange offer, as applicable.
Book-Entry
Transfer
The exchange agent will make a request to establish an account
with respect to the initial notes at DTC for purposes of the
exchange offer promptly after the date of this prospectus. Any
financial institution that is a participant in DTCs
systems may make book-entry delivery of initial notes by causing
DTC to transfer initial notes into the exchange agents
account in accordance with DTCs Automated Tender Offer
Program procedures for transfer.
However, the exchange for the initial notes so tendered will
only be made after timely confirmation of book-entry transfer of
initial notes into the exchange agents account, and timely
receipt by the exchange agent of an agents message,
transmitted by DTC and received by the exchange agent and
forming a part of a book-entry confirmation. The agents
message must state that DTC has received an express
acknowledgment from the participant tendering initial notes that
are the subject of that book-entry confirmation that the
participant has received and agrees to be bound by the terms of
the letter of transmittal, and that we may enforce the agreement
against that participant.
Although delivery of initial notes may be effected through
book-entry transfer into the exchange agents account at
DTC, the letter of transmittal, or a facsimile copy, properly
completed and duly executed, with any required signature
guarantees, must in any case be delivered to and received by the
exchange agent at its address listed under Exchange
Agent on or prior to the expiration date.
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If your initial notes are held through DTC, you must complete a
form called instructions to registered holder
and/or
book-entry participant, which will instruct the DTC
participant through whom you hold your notes of your intention
to tender your initial notes or not tender your initial notes.
Please note that delivery of documents to DTC in accordance with
its procedures does not constitute delivery to the exchange
agent and we will not be able to accept your tender of notes
until the exchange agent receives a letter of transmittal and a
book-entry confirmation from DTC with respect to your notes. A
copy of that form is available from the exchange agent.
Guaranteed
Delivery Procedures
If you are a registered holder of initial notes and you want to
tender your initial notes but your initial notes are not
immediately available, or time will not permit your initial
notes to reach the exchange agent before the expiration date, or
you cannot comply with the applicable procedures under
DTCs Automated Tender Offer Program on a timely basis, a
tender may be effected if:
(1) the tender is made through an eligible institution,
(2) prior to the expiration date, the exchange agent
receives, by facsimile transmission, mail or hand delivery, from
that eligible institution a properly completed and duly executed
letter of transmittal and notice of guaranteed delivery,
substantially in the form provided by us, stating:
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the name and address of the holder of initial notes;
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the amount of initial notes tendered; and
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the tender is being made by delivering that notice and
guaranteeing that within three New York Stock Exchange trading
days after the date of execution of the notice of guaranteed
delivery, the certificates of all physically tendered initial
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, will be deposited by that
eligible institution with the exchange agent; and
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(3) the certificates for all physically tendered initial
notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, are received by the exchange
agent within three New York Stock Exchange trading days after
the date of execution of the Notice of Guaranteed Delivery.
Withdrawal
Rights
You can withdraw your tender of initial notes at any time on or
prior to the expiration date. For a withdrawal to be effective,
a written notice of withdrawal must be received by the exchange
agent at one of the addresses listed below under Exchange
Agent or holders must comply with the appropriate
procedures of DTCs Automated Tender Offer Program system.
Any notice of withdrawal must specify:
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the name of the person having tendered the initial notes to be
withdrawn;
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the initial notes to be withdrawn;
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the principal amount of the initial notes to be withdrawn;
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if certificates for the initial notes have been delivered to the
exchange agent, the name in which the initial notes are
registered, if different from that of the withdrawing holder;
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if certificates for the initial notes have been delivered or
otherwise identified to the exchange agent, then, prior to the
release of those certificates, you must also submit the serial
numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal with signatures guaranteed by an
eligible institution unless you are an eligible
institution; and
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if initial notes have been tendered using the procedure for
book-entry transfer described above, any notice of withdrawal
must specify the name and number of the account at DTC to be
credited with the withdrawn initial notes and otherwise comply
with the procedures of that facility.
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Please note that all questions as to the validity, form,
eligibility and time of receipt of notices of withdrawal will be
determined by us, and our determination shall be final and
binding on all parties. Any initial notes so withdrawn
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will be considered not to have been validly tendered for
exchange for purposes of the exchange offer. If you have
properly withdrawn initial notes and wish to re-tender them, you
may do so by following one of the procedures described under
Procedures for Tendering Initial Notes above at any
time on or prior to the expiration date.
Conditions
to the Exchange Offer
Notwithstanding any other provisions of the exchange offer, we
will not be required to accept for exchange, or to issue
exchange notes in exchange for, any initial notes and may
terminate or amend the exchange offer, if at any time before the
acceptance of initial notes for exchange or the exchange of the
exchange notes for initial notes, that acceptance or issuance
would violate applicable law or any interpretation of the staff
of the SEC. We will not accept for exchange any initial notes
tendered, and no exchange notes will be issued in exchange for
any initial notes if there is a threatened or pending action in
any court or before a governmental agency with respect to the
exchange offer that may impair our ability to proceed with the
exchange offer. In addition, we will not accept for exchange any
initial notes tendered, and no exchange notes will be issued in
exchange for any initial notes, if at that time any stop order
shall be threatened or in effect with respect to the exchange
offer to which this prospectus relates or the qualification of
the indenture under the Trust Indenture Act.
The above condition is for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to that
condition. Our failure at any time to exercise the foregoing
rights shall not be considered a waiver by us of that right. Our
rights described in the prior paragraph are ongoing rights that
we may assert at any time prior to the expiration of the
exchange offer.
Exchange
Agent
The Wells Fargo Bank, N.A. has been appointed as the exchange
agent for the exchange offer. All executed letters of
transmittal should be directed to the exchange agent at the
address set forth below. Questions and requests for assistance,
requests for additional copies of this prospectus or of the
letter of transmittal and requests for notices of guaranteed
delivery should be directed to the exchange agent, addressed as
follows:
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By Overnight Courier:
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By Registered or Certified
Mail:
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By Hand:
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Corporate Trust Operations
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Corporate Trust Operations
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Corporate Trust Operations
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MAC
N9303-121
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MAC
N9303-121
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Northstar East Bldg.
12th Floor
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6th & Marquette Avenue
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P.O. Box 1517
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608 2nd Avenue South
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Minneapolis, MN 55479
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Minneapolis, MN 55480
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Minneapolis, MN 55402
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Attn: Reorg
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Attn: Reorg
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Attn: Reorg
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By Facsimile:
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To Confirm by
Telephone:
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(612) 667-6282
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(800) 344-5128 or (612) 667-9764
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Attn: Bondholder Communications
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Attn: Bondholder Communications
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Delivery to an address other than as listed above or
transmission of instructions via facsimile other than as listed
above does not constitute a valid delivery.
Fees and
Expenses
The principal solicitation is being made by mail; however,
additional solicitation may be made by electronic mail,
telephone or in person by our officers, regular employees and
affiliates. We will not pay any additional compensation to any
of our officers and employees who engage in soliciting tenders.
We will not make any payment to brokers, dealers, or others
soliciting acceptances of the exchange offer. However, we will
pay the exchange agent reasonable and customary fees for its
services and will reimburse it for its reasonable
out-of-pocket
expenses in connection with the exchange offer.
Expenses incurred in connection with the exchange offer,
including legal, accounting, SEC filing, printing and exchange
agent expenses, will be paid by us.
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Transfer
Taxes
Holders who tender their initial notes for exchange will not be
obligated to pay any transfer taxes in connection therewith,
except that holders who instruct us to register exchange notes
in the name of, or request that initial notes not tendered or
not accepted in the exchange offer be returned to, a person
other than the registered tendering holder will be responsible
for the payment of any applicable transfer tax thereon.
Resale of
the Exchange Notes
Under existing interpretations of the staff of the SEC contained
in several no-action letters to third parties, the exchange
notes generally will be freely transferable after the exchange
offer without further registration under the Securities Act. The
relevant no-action letters include the Exxon Capital Holdings
Corporation letter, which was made available by the SEC on
May 13, 1988, and the Morgan Stanley & Co.
Incorporated letter, made available on June 5, 1991.
However, any purchaser of initial notes who is an
affiliate of Invacare or who intends to participate
in the exchange offer for the purpose of distributing the
exchange notes:
(1) will not be able to rely on the interpretations of the
staff of the SEC,
(2) will not be able to tender his or her initial notes in
the exchange offer, and
(3) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with
any sale or transfer of the notes unless that sale or transfer
is made using an exemption from those requirements.
By executing, or otherwise becoming bound by, the letter of
transmittal, each holder of the initial notes will represent
that:
(1) the holder is not our affiliate as such
term is defined in Rule 405 promulgated under the
Securities Act;
(2) any exchange notes to be received by the holder were
acquired in the ordinary course of its business;
(3) the holder has no arrangement or understanding with any
person to participate, and is not engaged in and does not intend
to engage, in the distribution, within the meaning
of the Securities Act, of the exchange notes; and
(4) the holder is not acting on behalf of any person who
cannot truthfully make the foregoing representations.
In addition, in connection with any resales of exchange notes,
any broker-dealer participating in the exchange offer who
acquired notes for its own account as a result of market-making
or other trading activities must deliver a prospectus meeting
the requirements of the Securities Act. The SEC has taken the
position in the Shearman & Sterling no-action
letter, which it made available on July 2, 1993, that
participating broker-dealers may fulfill their prospectus
delivery requirements with respect to the exchange notes, other
than a resale of an unsold allotment from the original sale of
the initial notes, with the prospectus contained in the exchange
offer registration statement. Under the registration rights
agreement, we are required to allow participating broker-dealers
and other persons, if any, subject to similar prospectus
delivery requirements, to use this prospectus as it may be
amended or supplemented from time to time, in connection with
the resale of exchange notes.
Consequences
of Failing to Exchange Initial Notes
Holders who desire to tender their initial notes in exchange for
exchange notes registered under the Securities Act should allow
sufficient time to ensure timely delivery. Neither we nor the
exchange agent is under any duty to give notification of defects
or irregularities with respect to the tenders of initial notes
for exchange.
Initial notes that are not tendered or are tendered but not
accepted will, following the consummation of the exchange offer,
continue to be subject to the provisions in the indenture
regarding the transfer and exchange of the initial notes and the
existing restrictions on transfer set forth in the legend on the
initial notes and in the offering
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memorandum, dated February 7, 2007, relating to the initial
notes. Except in limited circumstances with respect to the
specific types of holders of initial notes, we will have no
further obligation to provide for the registration under the
Securities Act of such initial notes. In general, initial notes,
unless registered under the Securities Act, may not be offered
or sold except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and applicable
state securities laws. We do not anticipate that we will take
any further action to register the untendered initial notes
under the Securities Act or under any state securities laws.
Upon completion of the exchange offer, holders of the initial
notes will not be entitled to any further registration rights
under the registration rights agreement, except under limited
circumstances. Initial notes that are not exchanged in the
exchange offer will remain outstanding and continue to accrue
interest and will be entitled to the rights and benefits their
holders have under the indenture relating to the initial notes
and the exchange notes. Holders of the exchange notes and any
initial notes that remain outstanding after consummation of the
exchange offer will vote together as a single class for purposes
of determining whether holders of the requisite percentage of
the class have taken certain actions or exercised certain rights
under the indenture.
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USE OF
PROCEEDS
This exchange offer is intended to satisfy our obligations under
the registration rights agreement, dated as of February 12,
2007, by and among us, the subsidiary guarantors and the initial
purchasers of the initial notes. We will not receive any
proceeds from the issuance of the exchange notes in the exchange
offer, but instead, we will receive initial notes in like
principal amount. We will retire or cancel all of the initial
notes tendered in the exchange offer. Accordingly, issuance of
the exchange notes will not result in any change in our
capitalization.
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DESCRIPTION
OF OTHER INDEBTEDNESS
Senior
Secured Credit Facilities
Overview
On February 12, 2007, we entered into a $400 million
senior secured credit facility, or the senior secured
credit facilities, consisting of a $250 million term
loan facility, or the term loan facility, and a
$150 million revolving credit facility, or the
revolving credit facility, with Banc of America
Securities LLC, or BAS, and KeyBank National
Association, or KeyBank, as joint lead arrangers for
the term loan facility, and National City Bank, or
National City, and KeyBank, as joint lead arrangers
for the revolving credit facility. BAS, National City and
KeyBank acted as joint book managers, National City acted as
administrative agent, KeyBank acted as syndication agent, and
Bank of America, N.A. acted as documentation agent for our
senior secured credit facilities.
Interest
Rate and Fees
Borrowings under our senior secured credit facilities generally
bear interest at a rate equal to LIBOR plus an applicable margin
or, at our option, an alternate base rate (defined as the higher
of (a) the prime rate of National City or (b) the
federal funds rate plus 0.50%) plus an applicable margin. The
initial interest rate for revolving borrowings under our senior
secured credit facilities is LIBOR plus a margin of 2.25%,
including an initial facility fee of 0.50% per annum on the
facility. The applicable margin for borrowings and the revolving
credit facility fee under our senior secured credit facilities
may be reduced based upon our attaining specified leverage
ratios. We also must pay customary letter of credit and
bankers acceptance fees.
Prepayments
Our senior secured credit facilities require us to prepay
outstanding loans, subject to some exceptions, with:
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100% of all net cash proceeds (i) from sales of property
and assets by us and our subsidiaries (excluding sales of
inventory and equipment in the ordinary course of business and
some other exceptions) and (ii) of casualty proceeds and
condemnation awards, subject, in all cases, to reinvestment
provisions and thresholds and other exceptions;
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100% of all net cash proceeds from the issuance or incurrence
after the closing date of the offering of debt by us or any of
our subsidiaries, subject to exceptions;
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50% (which percentage shall be subject to decreases upon our
attaining specified leverage ratios) of the net cash proceeds
from the issuance after the closing date of the offering of
additional equity interests in us or our subsidiaries, subject
to exceptions;
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75% (unless we attain specified leverage ratios) of our annual
excess cash flow; and
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100% of extraordinary receipts.
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All such mandatory prepayments shall be applied first to the
term loan facility and second to the revolving credit facility.
Amortization
The term loan facility will mature on its sixth anniversary,
with scheduled amortization of principal at three month
intervals, in amounts equal to 0.25% of the initial aggregate
principal amount of the term loan facility loans, in the case of
each of the first 24 quarterly payments, and the then remaining
outstanding principal amount of all term loan facility loans
shall be due and payable in full on the sixth anniversary of the
term loan facility.
The revolving credit facility shall terminate and all amounts
outstanding thereunder shall be due and payable in full on the
fifth anniversary of the revolving credit facility.
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Guarantee
and Security
All obligations under our senior secured credit facilities are
unconditionally guaranteed by us and each of our existing and
future direct and indirect domestic subsidiaries and all foreign
obligations under our senior secured credit facilities are
unconditionally guaranteed by us and each of our existing and
future direct and indirect domestic and foreign subsidiaries, in
each case, other than immaterial foreign subsidiaries and
subsidiaries to the extent their guarantee is precluded by law
or regulation (for example, our captive insurance subsidiary) or
the guarantee from which will result in increased tax
liabilities to us and our subsidiaries, taken as a whole, or
collectively, the Facility Guarantors. All
obligations under our senior secured credit facilities, and the
guarantees of those obligations, are secured by substantially
all of our assets and the assets of each Facility Guarantor,
subject to exceptions, including the following:
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a pledge of 100% of the capital stock of each of the Facility
Guarantors (subject to limitations and exceptions);
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all present and future intercompany debt owed to us and each
Facility Guarantor;
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all of our and the Facility Guarantors present and future
property and assets, real and personal (other than leased
realty), including, but not limited to, machinery and equipment,
inventory and other goods, accounts receivable, owned real
estate, leaseholds, fixtures, bank accounts, general
intangibles, license rights, patents, trademarks, tradenames,
copyrights, chattel paper, insurance proceeds, contract rights,
hedge agreements, documents, instruments, indemnification
rights, tax refunds and cash; and
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all proceeds and products of the property and assets described
above.
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Covenants
and Events of Default
Our senior secured credit facilities contain a number of
covenants that, among other things, restrict, subject to some
exceptions, our ability to:
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incur additional indebtedness or other contingent obligations;
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create liens on assets;
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change the nature of our business;
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engage in mergers or consolidations;
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sell assets;
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make loans or advances, investments, joint ventures or other
acquisitions;
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pay dividends and other restricted payments;
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repay indebtedness (including the notes);
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engage in certain transactions with affiliates;
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change our fiscal year, amend our organizational documents, or
amend or otherwise modify any debt, any related document or any
material agreement;
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make some intercompany transfers;
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enter into sale and leaseback transactions;
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make capital expenditures;
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grant negative pledges;
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engage in some foreign operations;
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37
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impair security interests; and
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change our accounting policies or reporting practices.
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In addition, our senior secured credit facilities require us to
maintain the following financial covenants:
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a maximum leverage ratio, as set forth in the table that follows;
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Maximum Consolidated
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Four Fiscal Quarters Ending
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Leverage Ratio
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Closing Date through
September 30, 2007
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6.00 to 1.00
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October 1, 2007 through
September 30, 2008
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5.75 to 1.00
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October 1, 2008 through
September 30, 2009
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5.00 to 1.00
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October 1, 2009 through
September 30, 2010
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4.00 to 1.00
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October 1, 2010 through
September 30, 2011
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3.50 to 1.00
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October 1, 2011 until the
Term B Maturity Date
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3.00 to 1.00
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a minimum interest coverage ratio, as set forth in the table
that follows; and
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Minimum Consolidated
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Four Fiscal Quarters Ending
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Interest Coverage Ratio
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Closing Date through
September 30, 2007
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2.00 to 1.00
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October 1, 2007 through
September 30, 2008
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2.25 to 1.00
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October 1, 2008 through
September 30, 2009
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2.50 to 1.00
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October 1, 2009 until the
Term B Maturity Date
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3.00 to 1.00
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a minimum fixed charge coverage ratio, as set forth in the table
that follows.
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Minimum Consolidated
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Fixed Charge
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Four Fiscal Quarters Ending
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Coverage Ratio
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Closing Date through
September 30, 2007
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1.10 to 1.00
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October 1, 2007 through
September 30, 2008
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1.30 to 1.00
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October 1, 2008 through
September 30, 2009
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1.40 to 1.00
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October 1, 2009 through
September 30, 2010
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1.60 to 1.00
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October 1, 2010 through
September 30, 2011
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1.70 to 1.00
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October 1, 2011 until the
Term B Maturity Date
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1.80 to 1.00
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Our senior secured credit facilities also contain customary
affirmative covenants and events of default.
Financing
Arrangement with De Lage Landen Inc.
In December 2000, we entered into an agreement with DLL to
provide the majority of future lease financing to our customers.
The DLL agreement provides for direct leasing between DLL and
our customers. We retain a limited recourse obligation
($43,676,000 at December 31, 2006) to DLL for events
of default under the contracts (total balance outstanding of
$107,826,000 at December 31, 2006). See Notes to
Condensed Consolidated Financial Statements
Concentration of Credit Risk.
Convertible
Senior Subordinated Debentures
On February 12, 2007, we issued $135 million of
4.125% convertible senior subordinated debentures due
February 1, 2027, or the convertible
debentures. The convertible debentures bear interest at a
fixed annual rate of 4.125%, which will be paid in cash on
February 1 and August 1 of each year.
The convertible debentures are our general unsecured senior
subordinated obligations. The convertible debentures are
subordinated in right of payment to all of our existing and
future senior debt, including our senior secured credit
facilities and the notes, but excluding debt that expressly
provides that it ranks equal to or
38
subordinated in right of payment to the convertible debentures;
rank equal in right of payment to all of our existing and future
senior subordinated debt; and will rank senior in right of
payment to all of our future subordinated debt.
The convertible debentures are due on February 1, 2027 but
are redeemable at either our option or the holders option
on other specified dates. We may not redeem the convertible
debentures before February 6, 2012. We may redeem some or
all of the convertible debentures for cash on or after
February 6, 2012 through and including February 1,
2017 if the last reported sale price of our common shares for at
least 20 trading days in a 30
trading-day
period exceeds 130% of the then applicable conversion price on
such 30th trading day (such 30th trading day being no
later than February 1, 2017) at a redemption price
equal to 100% of the principal amount of the convertible
debentures to be redeemed, plus any accrued and unpaid interest
(including additional interest, if any), to the redemption date.
We may redeem the convertible debentures at our option in whole
or in part beginning on February 1, 2017, at a redemption
price of 100% of the principal amount plus accrued and unpaid
interest including additional interest, if any. Holders may
require us to repurchase all or part of the convertible
debentures in cash on February 1, 2017 and on
February 1, 2022 at a repurchase price of 100% of the
principal amount of the convertible debentures plus accrued and
unpaid interest including additional interest, if any. Holders
of the convertible debentures also may require us to repurchase
the convertible debentures upon a fundamental change for cash at
100% of the principal amount of the convertible debentures.
The convertible debentures are able to be converted at the
option of the holder: (A) if for a specified period of
time, the last reported sale price per share of our common stock
exceeds 130% of the applicable conversion price; (B) during
the five business days immediately following any five
consecutive trading day period in which the trading price per
convertible debenture for each trading day in that period was
less than 98% of the product of the last reported sale price of
our common stock and the applicable conversion rate of the
convertible debentures on each trading day; (C) if we call
any or all of the convertible debentures for redemption;
(D) on or after November 1, 2026; and (E) upon
the occurrence of specified corporate transactions, including a
change in control, a termination of trading of our common stock,
the distribution to holders of our common stock of certain
purchase rights or the distribution to holders of our common
stock of assets (including cash), debt securities or rights or
warrants to purchase our securities that have a per share value
exceeding 10% of the last reported sale price of the common
stock on the trading day preceding the announcement date of the
distribution of such assets.
The indenture that governs the convertible debentures also
prohibits us from consolidating or merging with or into any
person or disposing of all or substantially all of our assets
unless specified conditions are satisfied. The indenture also
contains events of default, including, among others, events of
bankruptcy, insolvency or reorganization and failure to pay
principal and interest when due.
39
DESCRIPTION
OF NOTES
As used below in this Description of Notes section,
the terms Note or Notes refer to both
the initial notes and the exchange notes to be issued in the
exchange offer. You can find the definitions of certain terms
used in this description under the caption Certain
Definitions. In this description, references to the
Company refer only to Invacare Corporation
(Invacare) and not to any of the subsidiaries of
Invacare.
The initial notes were issued, and the exchange notes will be
issued, under an indenture, dated February 12, 2007 (the
Indenture) among the Company, the Guarantors and
Wells Fargo Bank, N.A. as trustee (the Trustee). The
terms of the Notes include those expressly set forth in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended. The terms of the
exchange notes and the initial notes are identical in all
material respects, except that the exchange notes have been
registered under the Securities Act, and the transfer
restrictions and registration rights relating to the initial
notes do not apply to the exchange notes.
The following is a summary of the material provisions of the
Indenture. It does not restate the Indenture in its entirety,
does not purport to be complete and is subject to, and qualified
by reference to, all of the provisions of the Indenture. We urge
you to read the Indenture because it, and not this description,
defines your rights as holders of the Notes. A copy of the
Indenture will be made available to prospective purchasers of
the Notes upon request and has been filed as an exhibit to the
registration statement of which this prospectus is a part.
Certain defined terms used in this description but not defined
below under Certain Definitions have the meanings
assigned to them in the Indenture.
Brief
Description of the Notes and the Guarantees
The
Notes
The Notes:
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are general unsecured senior obligations of the Company;
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rank equally as to payment with all existing and future senior
Indebtedness of the Company;
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are effectively subordinated to all secured Indebtedness of the
Company, including Indebtedness under our Senior Credit
Facilities, to the extent of the value of the collateral
securing such secured Indebtedness;
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are structurally subordinated to all existing and future
Indebtedness and claims of creditors (including trade creditors)
and of holders of Preferred Stock of Subsidiaries of the Company
that do not guarantee the Notes, including all of our Foreign
Subsidiaries;
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rank senior in right of payment to any future subordinated
Indebtedness of the Company, including the Companys
Convertible Senior Subordinated Debentures described under
Description of Other Indebtedness; and
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are fully and unconditionally guaranteed by the Guarantors on a
senior basis.
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The
Guarantees
Each guarantee of the Notes:
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is a general unsecured senior obligation of the Guarantor;
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ranks equally with all existing and future senior Indebtedness
of such Guarantor;
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is effectively subordinated to all secured Indebtedness of such
Guarantor, including its guarantee under our Senior Credit
Facilities, to the extent of the value of the collateral
securing such secured Indebtedness;
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is structurally subordinated to all existing and future
Indebtedness and claims of creditors (including trade creditors)
and of holders of Preferred Stock of Subsidiaries of such
Guarantor that do not guarantee the Notes, including our Foreign
Subsidiaries; and
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ranks senior in right of payment to any future subordinated
Indebtedness of such Guarantor, including such Guarantors
guarantees of the Companys Convertible Senior Subordinated
Debentures described under Description of Other
Indebtedness.
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As of December 31, 2006, on an as adjusted basis for the
Recapitalization, the Notes would have been effectively
subordinated to approximately $282.1 million of
Indebtedness outstanding under our Senior Credit Facilities. In
addition, we had $117.9 million available for additional
borrowings under our Senior Credit Facilities. The assets of any
Subsidiary of the Company that does not guarantee the Notes will
be subject to the prior claims of all creditors of that
Subsidiary, including trade creditors. In the event of a
bankruptcy, administrative receivership, composition,
insolvency, liquidation or reorganization of any of the
non-guarantor Subsidiaries, such Subsidiaries will pay the
holders of their liabilities, including trade payables, before
they will be able to distribute any of their assets to the
Company or a Guarantor.
Principal,
Maturity and Interest
The Notes will mature on February 15, 2015, will be limited
in aggregate principal amount to $175.0 million and will be
senior obligations of the Company. The Indenture provides for
the issuance of up to an unlimited amount of additional Notes
(the Additional Notes) having identical terms and
conditions to the Notes (in all respects other than at the
option of the Company as to the payment of interest accruing
prior to the issue date of such Additional Notes or except for
the first payment of interest following the issue date of such
Additional Notes), subject to compliance with the covenants
contained in the Indenture. Such Additional Notes may be
consolidated and form a single series with the Notes and have
the same terms as to status, redemption or otherwise as the
Notes. For purposes of this Description of Notes,
reference to the Notes includes Additional Notes unless
otherwise indicated; however, no offering of any such Additional
Notes is being or shall in any manner be deemed to be made by
this prospectus. In addition, there can be no assurance as to
when or whether the Company will issue any such Additional Notes
or as to the aggregate principal amount of such Additional Notes.
Interest on the Notes will accrue at the rate of
93/4% per
annum and will be payable semi-annually in cash on each February
15 and August 15, commencing August 15, 2007, to the
Holders of record on the immediately preceding February 1 and
August 1. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest
has been paid, from the original date of issuance (the
Issue Date). Interest will be computed on the basis
of a 360-day
year comprising twelve
30-day
months.
The principal of and premium, if any, and interest on the Notes
will be payable and the Notes will be exchangeable and
transferable, at the office or agency of the Company maintained
for such purposes (which initially will be the office of the
Trustee located at 608 2nd Avenue South, Attention
Corporate Trust Operations, MAC
N9303-121,
Minneapolis, MN 55479) or, at the option of the Company,
payment of interest may be paid by check mailed to the address
of the person entitled thereto as such address appears in the
security register. The Notes will be issued only in registered
form without coupons and only in denominations of $1,000 or
whole multiples of $1,000 in excess thereof. No service charge
will be made for any registration of transfer or exchange or
redemption of Notes, but the Company may require payment in
certain circumstances of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection
therewith.
The Notes and any Additional Notes will be treated as a single
class of securities under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to
purchase.
The Notes will not be entitled to the benefit of any sinking
fund.
Guarantees
Each of the Companys direct and indirect Restricted
Subsidiaries (other than each Foreign Subsidiary, any
Receivables Subsidiary and the Companys captive insurance
subsidiary, Invatection Insurance Company, and any other captive
insurance Restricted Subsidiary) will become a Guarantor and
payment of the principal of and premium, if any, and interest on
the Notes, when and as the same become due and payable, will be
guaranteed, jointly and severally, on a senior basis (the
Guarantees) by the Guarantors. In addition, if any
Restricted Subsidiary (other than each Foreign Subsidiary, any
Receivables Subsidiary, Invatection Insurance Company and
41
any other captive insurance Restricted Subsidiary) of the
Company becomes a guarantor or obligor in respect of any
Indebtedness of the Company or any of the Restricted
Subsidiaries, the Company shall cause such Restricted Subsidiary
to enter into a supplemental indenture pursuant to which such
Restricted Subsidiary shall agree to guarantee the
Companys obligations under the Notes jointly and severally
with any other Guarantors, fully and unconditionally, on a
senior basis. See Certain Covenants
Issuances of Guarantees by Restricted Subsidiaries.
The obligations of each Guarantor under its Guarantee are
limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor, and
after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture,
will result in the obligations of such Guarantor under its
Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Guarantor that makes a
payment or distribution under its Guarantee will be entitled to
a contribution from any other Guarantor in a pro rata amount
based on the net assets of each Guarantor determined in
accordance with GAAP.
The Guarantee of a Guarantor will be released automatically:
(1) in connection with any sale of a majority of the
Capital Stock of a Guarantor to a Person that is not (either
before or after giving effect to such transaction) the Company
or a Restricted Subsidiary, if the sale of all such Capital
Stock of that Guarantor complies with the covenants described
below under Certain Covenants Asset
Sales and Certain Covenants
Transactions with Affiliates;
(2) if the Company properly designates any Restricted
Subsidiary that is a Guarantor as an Unrestricted
Subsidiary; or
(3) if the Notes are discharged in accordance with the
procedures described below under Defeasance or Covenant
Defeasance of Indenture or Satisfaction and
Discharge;
provided that any such release and discharge pursuant to
clauses (1) and (2) above shall occur only to the
extent that all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other
security interests which secure any, Indebtedness of the Company
shall also terminate at such time.
Optional
Redemption
After February 15, 2011, the Company may redeem all or a
portion of the Notes, on not less than 30 nor more than
60 days prior written notice, in amounts of $1,000 or
whole multiples of $1,000 in excess thereof at the following
redemption prices (expressed as percentages of the principal
amount), set forth below plus accrued and unpaid interest, if
any, thereon, to the applicable redemption date (subject to the
rights of holders of record on relevant record dates to receive
interest due on an interest payment date), if redeemed during
the twelve-month period beginning on February 15 of the years
indicated below:
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Year
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Redemption Price
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2011
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104.875
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%
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2012
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102.438
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%
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2013 and thereafter
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100.000
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%
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In addition, at any time and from time to time prior to
February 15, 2010, the Company may use the net proceeds of
one or more Public Equity Offerings to redeem up to an aggregate
of 35% of the aggregate principal amount of Notes issued under
the Indenture (including the principal amount of any Additional
Notes issued under the Indenture) at a redemption price equal to
109.750% of the aggregate principal amount of the Notes
redeemed, plus accrued and unpaid interest, if any, to the
redemption date (subject to the rights of holders of record on
relevant record dates to receive interest due on an interest
payment date); provided that this redemption provision
shall not be applicable with respect to any transaction that
results in a Change of Control. At least 65% of the aggregate
principal amount of Notes (including the principal amount of any
Additional Notes issued under the Indenture) must remain
outstanding immediately after the occurrence of such redemption.
In order to effect this redemption, the Company must deliver a
notice of redemption no later than 30 days after the
closing of the related Public Equity Offering and must complete
such redemption within 60 days of the closing of the Public
Equity Offering.
42
If less than all of the Notes are to be redeemed, the Trustee
shall select the Notes to be redeemed in compliance with the
requirements of the principal national security exchange, if
any, on which the Notes are listed, or if the Notes are not
listed, on a pro rata basis, by lot or by any other method the
Trustee shall deem fair and appropriate. Notes redeemed in part
must be redeemed only in amounts of $1,000 or whole multiples of
$1,000 in excess thereof. Redemption pursuant to the provisions
relating to a Public Equity Offering must be made on a pro rata
basis or on as nearly a pro rata basis as practicable (subject
to the procedures of DTC or any other depositary).
At any time prior to February 15, 2011, the Company also
may redeem all or part of the Notes, upon not less than 30 nor
more than 60 days written notice, at a redemption
price equal to 100% of the principal amount of the Notes
redeemed plus the Applicable Premium as of, and accrued and
unpaid interest and additional interest, if any, to the
redemption date, subject to the rights of Holders on the
relevant record date to receive interest due on the relevant
interest payment date.
Mandatory
Redemption
The Company is not required to make mandatory redemption or
sinking fund payments with respect to the Notes.
Change of
Control
If a Change of Control occurs, each holder of Notes will have
the right to require that the Company purchase all or any part
(in amounts of $1,000 or whole multiples of $1,000 in excess
thereof) of such holders Notes pursuant to the offer
described below (the Change of Control Offer). In
the Change of Control Offer, the Company will offer to purchase
all of the Notes, at a purchase price (the Change of
Control Purchase Price) in cash in an amount equal to 101%
of the principal amount of such Notes, plus accrued and unpaid
interest, if any, to the date of purchase (the Change of
Control Purchase Date) (subject to the rights of holders
of record on relevant record dates to receive interest due on an
interest payment date).
Within 30 days of any Change of Control or, at the
Companys option, prior to such Change of Control but after
it is publicly announced, the Company must notify the Trustee
and give written notice of the Change of Control to each holder
of Notes at his address appearing in the security register. The
notice must state, among other things,
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that a Change of Control has occurred or will occur and the date
of such event;
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the circumstances and relevant facts regarding such Change of
Control, including information with respect to pro forma
historical income, cash flow and capitalization after giving
effect to such Change of Control;
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the Change of Control Purchase Price and the Change of Control
Purchase Date, which shall be fixed by the Company on a business
day no earlier than 30 days nor later than 60 days
from the date the notice is mailed, or such later date as is
necessary to comply with requirements under the Exchange Act;
provided that the Change of Control Purchase Date may not
occur prior to the Change of Control;
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that any Note not tendered will continue to accrue interest;
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that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue
interest after the Change of Control Purchase Date; and
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other procedures that a holder of Notes must follow to accept a
Change of Control Offer or to withdraw acceptance of the Change
of Control Offer.
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If a Change of Control Offer is made, the Company may not have
available funds sufficient to pay the Change of Control Purchase
Price for all of the Notes that might be delivered by holders of
the Notes seeking to accept the Change of Control Offer. The
failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when
due will give the Trustee and the holders of the Notes the
rights described under Events of Default.
Our Senior Credit Facilities provide that certain change of
control events with respect to the Company would constitute a
default thereunder, which would obligate the Company to repay
amounts outstanding under such
43
indebtedness upon an acceleration of the Indebtedness issued
thereunder. A default under our Senior Credit Facilities would
result in a default under the Indenture if the lenders
accelerate the debt under our Senior Credit Facilities. Any
future credit agreements or agreements relating to other
indebtedness to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from
purchasing Notes, the Company could seek the consent of the
lenders under those agreements to the purchase of the Notes or
could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or
repay such borrowings, the Company will remain prohibited from
purchasing Notes. In such case, the Companys failure to
purchase tendered Notes would constitute an Event of Default
under the Indenture which would, in turn, likely constitute a
default under such other indebtedness. See Risk
Factors Risks Relating to the Notes We
may not be able to repurchase the notes upon a change of
control.
The definition of Change of Control includes a phrase relating
to the sale, lease, transfer, conveyance or other disposition of
all or substantially all of the assets of the
Company. The term all or substantially all as used
in the definition of Change of Control has not been
interpreted under New York law (which is the governing law of
the Indenture) to represent a specific quantitative test.
Therefore, if holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest
such election, it is not clear how a court interpreting New York
law would interpret the phrase.
The existence of a holders right to require the Company to
repurchase such holders Notes upon a Change of Control may
deter a third party from acquiring the Company in a transaction
which constitutes a Change of Control.
The provisions of the Indenture will not afford holders of the
Notes the right to require the Company to repurchase the Notes
in the event of a highly leveraged transaction or certain
transactions with the Companys management or its
affiliates, including a reorganization, restructuring, merger or
similar transaction (including, in certain circumstances, an
acquisition of the Company by management or its affiliates)
involving the Company that may adversely affect holders of the
Notes, if such transaction is not a transaction defined as a
Change of Control. A transaction involving the Companys
management or its affiliates, or a transaction involving a
recapitalization of the Company, will result in a Change of
Control if it is the type of transaction specified by such
definition.
The Company will comply with the applicable tender offer rules,
including
Rule 14e-1
under the Exchange Act, and any other applicable securities laws
or regulations in connection with a Change of Control Offer.
The Company will not be required to make a Change of Control
Offer upon a Change of Control if a third party makes the Change
of Control Offer in the manner, at the times and otherwise in
compliance with the requirements described in the Indenture
applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under
such Change of Control Offer.
Certain
Covenants
The Indenture contains covenants including, among others, the
following:
Incurrence
of Indebtedness and Issuance of Disqualified Stock
(a) The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, create, issue, incur, assume,
guarantee or otherwise in any manner become directly or
indirectly liable for the payment of or otherwise incur,
contingently or otherwise (collectively, incur), any
Indebtedness (including any Acquired Debt and the issuance of
Disqualified Stock), unless such Indebtedness is incurred by the
Company or any Guarantor and, in each case, the Companys
Consolidated Interest Coverage Ratio for the most recent four
full fiscal quarters for which financial statements are
available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater
than 2.0:1.
(b) Notwithstanding the foregoing, the Company and, to the
extent specifically set forth below, the Restricted Subsidiaries
may incur each and all of the following (collectively, the
Permitted Debt):
(1) Indebtedness of the Company and of any Restricted
Subsidiary under a Credit Facility in an aggregate principal
amount at any one time outstanding not to exceed
$400 million, which amount shall be permanently
44
reduced by the amount of Net Available Cash from Asset Sales
applied by the Company or any Restricted Subsidiary thereof to
permanently repay any such Indebtedness; provided that no
more than $100 million of the borrowings under such Credit
Facility can be directly borrowed or guaranteed by Subsidiaries
that are not Guarantors;
(2) Indebtedness of the Company or any Guarantor pursuant
to the Notes (excluding any Additional Notes) and any Guarantee
of the Notes and any notes (including Guarantees thereof) issued
in exchange for the Notes pursuant to the Registration Rights
Agreement;
(3) Indebtedness of the Company or any Restricted
Subsidiary outstanding on the date of the Indenture, and not
otherwise referred to in this definition of Permitted
Debt;
(4) Indebtedness of the Company or any Guarantor pursuant
to the Convertible Senior Subordinated Debentures outstanding on
the date of the Issue Date, and any amount of Indebtedness
issued pursuant to an over-allotment option with respect to the
Convertible Senior Subordinated Debentures;
(5) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the
Company and any of its Restricted Subsidiaries; provided,
however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness and the obligee is a Foreign Subsidiary, such
Indebtedness must be subordinated to the prior payment in full
in cash of all Obligations with respect to the Notes, in the
case of the Company, or the Note Guarantee, in the case of a
Guarantor; and
(b) (i) any subsequent issuance or transfer of Capital
Stock that results in any such Indebtedness being held by a
Person other than the Company or a Restricted Subsidiary thereof
(other than pursuant to a pledge under a Credit Facility
pursuant to a Permitted Lien) and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either
the Company or a Restricted Subsidiary thereof, shall be deemed,
in each case, to constitute an incurrence of such Indebtedness
by the Company or such Restricted Subsidiary, as the case may
be, that was not permitted by this clause (5);
(6) guarantees of any Guarantor of Indebtedness of the
Company or any of the Guarantors which is permitted to be
incurred under the Indenture;
(7) (a) obligations pursuant to Interest Rate
Agreements, but only to the extent such obligations do not
exceed the aggregate principal amount of the Indebtedness
covered by such Interest Rate Agreements; (b) obligations
under currency exchange contracts entered into in the ordinary
course of business; and (c) obligations pursuant to hedging
arrangements (including, without limitation, swaps, caps,
floors, collars, options and similar agreements) entered into in
the ordinary course of business and not for speculative
purposes; and (d) any guarantee of any of the foregoing;
(8) Indebtedness of the Company or any Restricted
Subsidiary represented by Capital Lease Obligations (whether or
not incurred pursuant to sale and leaseback transactions) or
Purchase Money Obligations in an aggregate principal amount
pursuant to this clause (8) not to exceed
$30.0 million outstanding at any time; provided that
the principal amount of any Indebtedness permitted under this
clause (8) did not in each case at the time of incurrence
exceed the Fair Market Value, as determined by the Company in
good faith, of the acquired or constructed asset or improvement
so financed;
(9) Indebtedness of the Company or any Restricted
Subsidiary in connection with (a) one or more standby
letters of credit issued by the Company or a Restricted
Subsidiary in the ordinary course of business consistent with
past practice and (b) other letters of credit, surety,
performance, appeal or similar bonds, bankers acceptances,
completion guarantees or similar instruments pursuant to
self-insurance and workers compensation obligations;
provided that, in each case contemplated by this
clause (9), upon the drawing of such letters of credit or
other instrument, such obligations are reimbursed within
30 days following such drawing and which obligations may be
reimbursed through borrowings of Indebtedness permitted under
this covenant; provided, further, that with respect to
clauses (a) and (b), such Indebtedness is not in connection
with the borrowing of money or the obtaining of advances or
credit;
45
(10) Indebtedness of the Company to the extent the net
proceeds thereof are promptly deposited to defease or satisfy
the Notes as described below under Defeasance
or Covenant Defeasance of Indenture or Satisfaction
and Discharge;
(11) Indebtedness of the Company or any Restricted
Subsidiary arising from agreements for indemnification or
purchase price adjustment obligations or similar obligations,
earn-outs or other similar obligations or from guarantees or
letters of credit, surety bonds or performance bonds securing
any obligation of the Company or a Restricted Subsidiary
pursuant to such an agreement, in each case, incurred or assumed
in connection with the acquisition or disposition of any
business, assets or Capital Stock of a Restricted Subsidiary;
provided that the maximum assumable liability in respect
of all such obligations shall at no time exceed the gross
proceeds actually paid or received by the Company and any
Restricted Subsidiary, including the Fair Market Value of
non-cash proceeds;
(12) Permitted Refinancing Indebtedness of the Company or
any Guarantor issued in exchange for, or the net proceeds of
which are used to renew, extend, substitute, refund, refinance
or replace, any Indebtedness, including any Disqualified Stock,
incurred pursuant to paragraph (a) of this covenant
and clauses (2) and (3) of this
paragraph (b) of this definition of Permitted
Debt;
(13) Indebtedness owed to third party financing companies
in the form of limited recourse obligations that finance
receivables of customers of the Company or any Restricted
Subsidiary in the ordinary course of business; provided
that such Indebtedness is limited in an amount not in excess
of 75% of such obligations in the aggregate of the total owed by
customers of the Company or any Restricted Subsidiary to such
third party financing companies;
(14) Indebtedness with respect to Standard Receivables
Undertakings;
(15) Indebtedness incurred by a Foreign Subsidiary, which
may but is not required to be incurred under the Senior Credit
Facilities, which, when aggregated with the principal amount of
all other Indebtedness incurred pursuant to this
clause (15) and then outstanding, does not exceed 25%
of Consolidated Assets of the Foreign Subsidiaries; provided
that at the time of the incurrence of any such Indebtedness
the Companys Consolidated Interest Coverage Ratio for the
most recent four full fiscal quarters for which financial
statements are available immediately preceding the incurrence of
such Indebtedness taken as one period is at least equal to or
greater than 2.0:1; and
(16) Indebtedness of the Company or any Restricted
Subsidiary in addition to that described in clauses (1)
through (15) above, and any renewals, extensions,
substitutions, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all
such Indebtedness shall not exceed $35.0 million
outstanding at any one time in the aggregate.
For purposes of determining compliance with this
Incurrence of Indebtedness and Issuance of Disqualified
Stock covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of
Indebtedness permitted by this covenant, the Company in its sole
discretion shall classify or reclassify such item of
Indebtedness and only be required to include the amount of such
Indebtedness as one of such types; provided that
Indebtedness under the Senior Credit Facilities which is in
existence following the Issue Date, and any renewals,
extensions, substitutions, refundings, refinancings or
replacements thereof, in an amount not in excess of the amount
permitted to be incurred pursuant to clause (1) of
paragraph (b) above, shall be deemed to have been
incurred pursuant to clause (1) of
paragraph (b) above rather than
paragraph (a) above.
Indebtedness permitted by this covenant need not be permitted
solely by reference to one provision permitting such
Indebtedness but may be permitted in part by one such provision
and in part by one or more other provisions of this covenant
permitting such Indebtedness.
Accrual of interest, accretion or amortization of original issue
discount and the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the
accretion or payment of dividends on any Disqualified Stock or
Preferred Stock in the form of additional shares of the same
class of Disqualified Stock or Preferred Stock will not be
deemed to be an incurrence of Indebtedness for purposes of this
covenant; provided,
46
in each such case, that the amount thereof as accrued is
included in the calculation of the Consolidated Interest
Coverage Ratio of the Company.
For purposes of determining compliance of any
non-U.S. dollar-denominated
Indebtedness with this covenant, the amount outstanding under
any U.S. dollar-equivalent principal amount of Indebtedness
denominated in a foreign currency shall at all times be
calculated based on the relevant currency exchange rate in
effect on the date such Indebtedness was incurred, in the case
of the term Indebtedness, or first committed, in the cases of
the revolving credit Indebtedness, provided, however,
that if such Indebtedness is incurred to refinance other
Indebtedness denominated in the same or different currency, and
such refinancing would cause the applicable
U.S. dollar-denominated restriction to be exceeded if
calculated at the relevant currency exchange rate in effect on
the date of such refinancing, such U.S. dollar-denominated
restriction shall be deemed not to have been exceeded so long as
the principal amount of such refinancing Indebtedness does not
exceed the principal amount of such indebtedness being
refinanced.
If Indebtedness is secured by a letter of credit that serves
only to secure such Indebtedness, then the total amount deemed
incurred shall be equal to the greater of (x) the principal
of such Indebtedness and (y) the amount that may be drawn
under such letter of credit.
The amount of Indebtedness issued at a price less than the
amount of the liability thereof shall be determined in
accordance with GAAP.
Restricted
Payments
(a) The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly:
(1) pay any dividend on, or make any distribution to
holders of, any shares of the Companys Capital Stock
(other than dividends or distributions payable solely in shares
of its Qualified Capital Stock or in options, warrants or other
rights to acquire shares of such Qualified Capital Stock);
(2) purchase, redeem, defease or otherwise acquire or
retire for value, directly or indirectly, the Companys
Capital Stock or options, warrants or other rights to acquire
such Capital Stock;
(3) make any principal payment on, or repurchase, redeem,
defease, retire or otherwise acquire for value, or make any
consent payment in connection with any amendment of prior to any
scheduled principal payment, sinking fund payment or maturity,
any Subordinated Indebtedness, except a purchase, repurchase,
redemption, defeasance or retirement within one year of final
maturity thereof;
(4) pay any dividend or distribution on any Capital Stock
of any Restricted Subsidiary to any Person (other than
(a) to the Company or any of its Wholly Owned Restricted
Subsidiaries or (b) dividends or distributions made by a
Restricted Subsidiary on a pro rata basis to all stockholders of
such Restricted Subsidiary); or
(5) make any Investment in any Person (other than any
Permitted Investments);
(any of the foregoing actions described in clauses (1)
through (5) above, other than any such action that is a
Permitted Payment (as defined below), collectively,
Restricted Payments) (the amount of any such
Restricted Payment, if other than cash, shall be the Fair Market
Value of the assets proposed to be transferred, as determined by
the Board of Directors of the Company, whose determination shall
be conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect
to such proposed Restricted Payment on a pro forma basis,
no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event
which is, or after notice or lapse of time or both, would be, an
event of default under the terms of any Indebtedness
of the Company or its Restricted Subsidiaries;
(2) immediately before and immediately after giving effect
to such Restricted Payment on a pro forma basis, the
Company could incur $1.00 of additional Indebtedness (i.e., the
Companys Consolidated Interest Coverage Ratio for the most
recent four full fiscal quarters for which financial statements
are available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater
47
than 2.0:1) (other than Permitted Debt) under the provisions
described under paragraph (a) of
Incurrence of Indebtedness and Issuance of Disqualified
Stock; and
(3) after giving effect to the proposed Restricted Payment,
the aggregate amount of all such Restricted Payments declared or
made after the date of the Indenture and all Designation Amounts
does not exceed the sum of:
(A) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period
beginning on the first day of the Companys fiscal quarter
beginning after the date of the Indenture and ending on the last
day of the Companys last fiscal quarter ending prior to
the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100%
of such loss);
(B) the aggregate Net Cash Proceeds, or the Fair Market
Value of property other than cash, received after the date of
the Indenture by the Company either (1) as capital
contributions in the form of common equity to the Company or
(2) from the issuance or sale (other than to any of its
Subsidiaries) of Qualified Capital Stock of the Company or any
options, warrants or rights to purchase such Qualified Capital
Stock of the Company (except, in each case, to the extent such
proceeds are used to purchase, redeem or otherwise retire
Capital Stock or Subordinated Indebtedness as set forth below in
clause (2) or (3) of paragraph (b) below)
(and excluding the Net Cash Proceeds from the issuance of
Qualified Capital Stock financed, directly or indirectly, using
funds borrowed from the Company or any Subsidiary until and to
the extent such borrowing is repaid);
(C) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company (other than from any of its
Subsidiaries) upon the exercise of any options, warrants or
rights to purchase Qualified Capital Stock of the Company (and
excluding the Net Cash Proceeds from the exercise of any
options, warrants or rights to purchase Qualified Capital Stock
financed, directly or indirectly, using funds borrowed from the
Company or any Subsidiary until and to the extent such borrowing
is repaid);
(D) the aggregate Net Cash Proceeds received after the date
of the Indenture by the Company from the conversion or exchange,
if any, of debt securities or Disqualified Stock of the Company
or its Restricted Subsidiaries into or for Qualified Capital
Stock of the Company plus, to the extent such debt securities or
Disqualified Stock were issued after the date of the Indenture
other than pursuant to the over-allotment option for the
Convertible Senior Subordinated Debentures, the aggregate of Net
Cash Proceeds from their original issuance (and excluding the
Net Cash Proceeds from the conversion or exchange of debt
securities or Disqualified Stock financed, directly or
indirectly, using funds borrowed from the Company or any
Subsidiary until and to the extent such borrowing is repaid);
(E) (a) in the case of the disposition or repayment of
any Investment constituting a Restricted Payment (including any
Investment in an Unrestricted Subsidiary) made after the date of
the Indenture, an amount (to the extent not included in
Consolidated Net Income) equal to the lesser of the return of
capital with respect to such Investment and the initial amount
of such Investment, in either case, less the cost of the
disposition of such Investment and net of taxes, and
(b) in the case of the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary (as long as the
designation of such Subsidiary as an Unrestricted Subsidiary was
deemed a Restricted Payment), the Fair Market Value of the
Companys interest in such Subsidiary provided that
such amount shall not in any case exceed the amount of the
Restricted Payment deemed made at the time the Subsidiary was
designated as an Unrestricted Subsidiary; and
(F) any amount which previously qualified as a Restricted
Payment on account of any guarantee entered into by the Company
or any Restricted Subsidiary; provided that such
guarantee has not been called upon and the obligation arising
under such guarantee no longer exists.
48
(b) Notwithstanding the foregoing, and in the case of
clauses (2) through (11) below, so long as no Default
or Event of Default is continuing or would arise therefrom, the
foregoing provisions shall not prohibit the following actions
(each of clauses (1) through (5) and clauses (9)
through (11) being referred to as a Permitted
Payment):
(1) the payment of any dividend within 60 days after
the date of declaration thereof, if at such date of declaration
such payment was permitted by the provisions of
paragraph (a) of this covenant and such payment shall
have been deemed to have been paid on such date of declaration
and shall not have been deemed a Permitted Payment
for purposes of the calculation required by
paragraph (a) of this covenant;
(2) the purchase, repurchase, redemption, or other
acquisition or retirement for value of any shares of any class
of Capital Stock of the Company in exchange for (including any
such exchange pursuant to the exercise of a conversion right or
privilege in connection with which cash is paid in lieu of the
issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issuance and sale for
cash (other than to a Subsidiary) of, other shares of Qualified
Capital Stock of the Company; provided that the Net Cash
Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of
paragraph (a) of this covenant;
(3) the purchase, repurchase, redemption, defeasance,
satisfaction and discharge, retirement or other acquisition for
value or payment of principal of any Subordinated Indebtedness
in exchange for, or in an amount not in excess of the Net Cash
Proceeds of, a substantially concurrent issuance and sale for
cash (other than to any Subsidiary of the Company) of any
Qualified Capital Stock of the Company; provided that the
Net Cash Proceeds from the issuance of such shares of Qualified
Capital Stock are excluded from clause (3)(B) of
paragraph (a) of this covenant;
(4) the purchase, repurchase, redemption, defeasance,
retirement, refinancing, acquisition for value or payment of
principal of any Subordinated Indebtedness (other than
Disqualified Stock) through the substantially concurrent
issuance of Permitted Refinancing Indebtedness;
(5) the repurchase, redemption, retirement or other
acquisition for value of any Capital Stock of the Company held
by any current or former officers, directors or employees of the
Company or any of its Subsidiaries (or permitted transferees of
such current or former officers, directors or employees)
pursuant to the terms of agreements (including employment
agreements) or plans approved by the Companys Board of
Directors or any Committee thereof, including any such
repurchase, redemption, acquisition or retirement of shares of
such Capital Stock that is deemed to occur upon the exercise of
stock options, restricted shares or similar rights if such
shares represent all or a portion of the exercise price or are
surrendered in connection with satisfying federal income tax
obligations; provided, however, that the aggregate
amount of such repurchases, redemptions, retirements and
acquisitions pursuant to this clause (5) (other than of
shares of such Capital Stock that are deemed to occur upon the
exercise of stock options, restricted shares or similar rights
if such shares represent all or a portion of the exercise price
or are surrendered in connection with satisfying federal income
tax obligations) will not, in the aggregate, exceed
$2.5 million per fiscal year (with unused amounts in any
fiscal year being carried over to succeeding fiscal years
subject to a maximum of $5.0 million in any fiscal year);
(6) loans made to officers, directors or employees of the
Company or any Restricted Subsidiary approved by the Board of
Directors in an aggregate amount not to exceed $2.5 million
outstanding at any one time, the proceeds of which are used
solely (A) to purchase common stock of the Company in
connection with a restricted stock or employee stock purchase
plan, or to exercise stock options received pursuant to an
employee or director stock option plan or other incentive plan,
in a principal amount not to exceed the exercise price of such
stock options or (B) to refinance loans, together with
accrued interest thereon, made pursuant to item (A) of this
clause (6);
(7) so long as no payment Default or Event of Default has
occurred and is continuing or would result thereby, the payment
of cash dividends on the Companys shares of common stock
in the aggregate amount per fiscal quarter not to exceed
$0.0125 per share for each share of common stock of the
Company outstanding as of the one record date for dividends
payable in respect of such fiscal quarter (as such amount shall
be
49
appropriately adjusted for any stock splits, stock dividends,
reverse stock splits, stock consolidations and similar
transactions);
(8) the repurchase, redemption or other acquisition or
retirement for value of any Convertible Senior Subordinated
Debentures upon a fundamental change as defined in
the Convertible Senior Subordinated Debenture Indenture;
provided that all Notes tendered by holders of the Notes
in connection with a Change of Control Offer or Prepayment Offer
in connection with an Asset Sale, as applicable, have been
repurchased, redeemed or acquired for value;
(9) cash payments made in respect of the Convertible Senior
Subordinated Debentures upon conversion in an amount not to
exceed $10.0 million dollars during the term of the Notes
plus any amount repaid with or exchanged or converted for
Capital Stock;
(10) Investments in a Receivables Subsidiary made in
connection with a Qualified Receivables Transaction; and
(11) Restricted Payments not exceeding $10.0 million
in the aggregate.
Transactions
with Affiliates
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into
any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of
assets, property or services) with or for the benefit of any
Affiliate of the Company (other than the Company or a Restricted
Subsidiary) unless such transaction or series of related
transactions is entered into in good faith and in
writing and
(1) such transaction or series of related transactions is
on terms that are no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that would
be available in a comparable transaction in arms-length
dealings with a party who is not an Affiliate of the Company,
(2) with respect to any transaction or series of related
transactions involving an aggregate value in excess of
$10.0 million or, for a multi-year transaction, involving
an aggregate value in excess of $2.0 million per fiscal
year,
(a) the Company delivers an officers certificate to
the Trustee certifying that such transaction or series of
related transactions complies with clause (1)
above, and
(b) such transaction or series of related transactions has
been approved by a majority of the Disinterested Directors of
the Board of Directors of the Company, or in the event there is
only one Disinterested Director, by such Disinterested
Director, or
(3) with respect to any transaction or series of related
transactions involving an aggregate value in excess of
$25.0 million or, for a multi-year transaction, involving
an aggregate value in excess of $5.0 million per fiscal
year, the Company delivers to the Trustee a written opinion of
an investment banking firm of national standing or other
recognized independent expert with experience appraising the
terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating
that the transaction or series of related transactions is fair
to the Company or such Restricted Subsidiary from a financial
point of view;
provided, however, that this provision shall not apply to:
(i) employee benefit arrangements with any officer or
director of the Company, including under any employment
agreement, stock option or stock incentive plans, and customary
indemnification arrangements with officers or directors of the
Company, in each case entered into in the ordinary course of
business,
(ii) the payment of reasonable and customary fees to
directors of the Company or any of its Restricted Subsidiaries
who are not employees of the Company or any Affiliate,
(iii) loans or advances to officers, directors and
employees of the Company or any Restricted Subsidiary made in
the ordinary course of business in an aggregate amount not to
exceed $2.5 million outstanding at any one time,
50
(iv) any Restricted Payments made in compliance with
Restricted Payments above,
(v) any transactions undertaken pursuant to any contracts
in existence on the Issue Date (as in effect on the Issue Date)
and any renewals, replacements or modifications of such
contracts (pursuant to new transactions or otherwise) on terms
no less favorable to the holders of the Notes than those in
effect on the Issue Date,
(vi) any transaction with a Receivables Subsidiary effected
as part of a Qualified Receivables Transaction on terms at least
as favorable as would reasonably have been entered into at such
time with an unaffiliated party, and
(vii) the issuance of Equity Interests (other than
Disqualified Stock) of the Company to any Affiliate of the
Company.
Liens
The Company will not, and will not cause or permit any
Restricted Subsidiary to, directly or indirectly, create, incur
or affirm any Lien of any kind, other than Permitted Liens, upon
any property or assets (including any intercompany notes) of the
Company or any Restricted Subsidiary owned on the date of the
Indenture or acquired after the date of the Indenture, or assign
or convey any right to receive any income or profits therefrom,
unless (and until such liens remain outstanding) the Notes (or a
Guarantee in the case of Liens of a Guarantor) are directly
secured equally and ratably with (or, in the case of
Subordinated Indebtedness, prior or senior thereto, with the
same relative priority as the Notes shall have with respect to
such Subordinated Indebtedness) the obligation or liability
secured by such Lien.
Notwithstanding the foregoing, any Lien securing the Notes or a
Guarantee granted pursuant to the immediately preceding
paragraph shall be automatically and unconditionally released
and discharged upon: (i) any sale, exchange or transfer to
any Person not an Affiliate of the Company of the property or
assets secured by such Lien, (ii) any sale, exchange or
transfer to any Person not an Affiliate of the Company of all of
the Capital Stock held by the Company or any Restricted
Subsidiary in, or all or substantially all the assets of, any
Restricted Subsidiary creating such Lien, or (iii) with
respect to any Lien securing a Guarantee, the release of such
Guarantee in accordance with the Indenture.
Asset
Sales
(a) The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless
(i) the Company or such Restricted Subsidiary, as the case
may be, receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets and property
subject to such Asset Sale and (ii) 75% of the
consideration paid to the Company or such Restricted Subsidiary
in connection with such Asset Sale is in the form of cash, Cash
Equivalents, Liquid Securities, Exchanged Properties (including
pursuant to asset swaps) or the assumption by the purchaser of
liabilities of the Company (other than liabilities of the
Company that are by their terms subordinated to the Notes) or
liabilities of any Guarantor that made such Asset Sale (other
than liabilities of a Guarantor that are by their terms
subordinated to such Guarantors Guarantee), in each case
as a result of which the Company and its remaining Restricted
Subsidiaries are no longer liable for such liabilities
(Permitted Consideration).
(b) The Net Available Cash from Asset Sales by the Company
or a Restricted Subsidiary may be applied by the Company or such
Restricted Subsidiary, to the extent the Company or such
Restricted Subsidiary elects (or is required by the terms of any
Pari Passu Indebtedness of the Company or a Restricted
Subsidiary), to
(1) repay Indebtedness of the Company under a secured
Credit Facility with respect to the assets securing such Credit
Facility or repay Indebtedness of a Foreign Subsidiary with the
proceeds received with respect to assets of such Foreign
Subsidiary;
(2) reinvest in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with
Net Available Cash received by the Company or another Restricted
Subsidiary); or
(3) purchase Notes or purchase both Notes and one or more
series or issues of other Senior Indebtedness on a pro rata
basis (excluding Notes and Senior Indebtedness owned by the
Company or an Affiliate of the Company).
51
(c) Any Net Available Cash from an Asset Sale not applied
in accordance paragraph (b) above within 365 days
from the date of such Asset Sale shall constitute Excess
Proceeds. When the aggregate amount of Excess Proceeds
exceeds $25.0 million, the Company will be required to make
an offer to purchase Notes having an aggregate principal amount
equal to the aggregate amount of Excess Proceeds (the
Prepayment Offer) at a purchase price equal to 100%
of the principal amount of such Notes plus accrued and unpaid
interest, if any, to the Asset Sale Purchase Date (as defined in
paragraph (d) below) in accordance with the procedures
(including prorating in the event of over subscription) set
forth in the Indenture, but, if the terms of any Pari Passu
Indebtedness require that a Pari Passu Offer be made
contemporaneously with the Prepayment Offer, then the Excess
Proceeds shall be prorated between the Prepayment Offer and such
Pari Passu Offer in accordance with the aggregate outstanding
principal amounts of the Notes and such Pari Passu Indebtedness,
and the aggregate principal amount of Notes for which the
Prepayment Offer is made shall be reduced accordingly. If the
aggregate principal amount of Notes tendered by Holders thereof
exceeds the amount of available Excess Proceeds, then such
Excess Proceeds will be allocated pro rata according to the
principal amount of the Notes tendered and the Trustee will
select the Notes to be purchased in accordance with the
Indenture. To the extent that any portion of the amount of
Excess Proceeds remains after compliance with the second
sentence of this paragraph (c) and provided
that all Holders of Notes have been given the opportunity to
tender their Notes for purchase as described in
paragraph (d) below in accordance with the Indenture,
the Company and its Restricted Subsidiaries may use such
remaining amount for purposes permitted by the Indenture and the
amount of Excess Proceeds will be reset to zero.
(d) Within 30 days after the 365th day following
the date of an Asset Sale, the Company shall, if it is obligated
to make an offer to purchase the Notes pursuant to
paragraph (c) above, deliver a written Prepayment
Offer notice to the Holders of the Notes (the Prepayment
Offer Notice), accompanied by such information regarding
the Company and its Subsidiaries as the Company believes will
enable such Holders of the Notes to make an informed decision
with respect to the Prepayment Offer. The Prepayment Offer
Notice will state, among other things:
(1) that the Company is offering to purchase Notes pursuant
to the provisions of the Indenture;
(2) that any Note (or any portion thereof) accepted for
payment (and duly paid on the Asset Sale Purchase Date) pursuant
to the Prepayment Offer shall cease to accrue interest on the
Asset Sale Purchase Date;
(3) that any Notes (or portions thereof) not properly
tendered will continue to accrue interest;
(4) the purchase price and purchase date, which shall be,
subject to any contrary requirements of applicable law, no less
than 30 days nor more than 60 days after the date the
Prepayment Offer Notice is mailed (the Asset Sale Purchase
Date);
(5) the aggregate principal amount of Notes to be purchased;
(6) a description of the procedure which Holders of Notes
must follow in order to tender their Notes and the procedures
that Holders of Notes must follow in order to withdraw an
election to tender their Notes for payment; and
(7) all other instructions and materials necessary to
enable Holders to tender Notes pursuant to the Prepayment Offer.
(e) The Company will comply, to the extent applicable, with
the requirements of
Rule 14e-1
under the Exchange Act and any other securities laws or
regulations thereunder to the extent such laws and regulations
are applicable in connection with the purchase of notes as
described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions
relating to the Prepayment Offer, the Company will comply with
the applicable securities laws and regulations and will not be
deemed to have breached its obligations described above by
virtue thereof.
Issuances
of Guarantees by Restricted Subsidiaries
The Company will provide to the Trustee, on or prior to the
30th day after the date that (i) any Person (other
than a Foreign Subsidiary, a Receivables Subsidiary or
Invatection Insurance Company or any other captive insurance
Restricted Subsidiary) becomes a Restricted Subsidiary,
(ii) any Unrestricted Subsidiary is redesignated as a
Restricted Subsidiary, or (iii) any Restricted Subsidiary
of the Company (which is not a Receivables Subsidiary
52
or a Guarantor other than Invatection Insurance Company or any
other captive insurance Restricted Subsidiary) becomes a
guarantor or obligor in respect of any Indebtedness of the
Company or any of the domestic Restricted Subsidiaries, in each
case, a supplemental indenture to the Indenture, executed by
such Restricted Subsidiary, providing for a full and
unconditional guarantee on a senior basis by such Restricted
Subsidiary of the Companys obligations under the Notes and
the Indenture to the same extent as that set forth in the
Indenture.
Dividend
and Other Payment Restrictions Affecting Restricted
Subsidiaries
(a) The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly,
create or otherwise cause to exist or become effective any
consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to
(1) pay dividends or make any other distribution on its
Capital Stock,
(2) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary,
(3) make loans or advances to the Company or any other
Restricted Subsidiary, or
(4) sell, lease or transfer any of its properties or assets
to the Company or any other Restricted Subsidiary.
(b) However, paragraph (a) above will not
prohibit any encumbrance or restriction created, existing or
becoming effective under or by reason of:
(1) any agreement (including the Senior Credit Facilities)
in effect on the date of the Indenture;
(2) any agreement or instrument with respect to a
Restricted Subsidiary that is not a Restricted Subsidiary of the
Company on the date of the Indenture, in existence at the time
such Person becomes a Restricted Subsidiary of the Company and
not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary, provided that
such encumbrances and restrictions are not applicable to the
Company or any Restricted Subsidiary or the properties or assets
of the Company or any Restricted Subsidiary other than such
Subsidiary which is becoming a Restricted Subsidiary;
(3) any agreement or instrument governing any Acquired Debt
or other agreement of any entity or related to assets acquired
by or merged into or consolidated with the Company or any
Restricted Subsidiaries, so long as such encumbrance or
restriction (A) was not entered into in contemplation of
the acquisition, merger or consolidation transaction, and
(B) is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or
assets of the person, so acquired, so long as the agreement
containing such restriction does not violate any other provision
of the Indenture;
(4) existing under applicable law or any requirement of any
regulatory body;
(5) encumbrance or restriction pursuant to the security
documents evidencing any Liens securing Indebtedness otherwise
permitted to be incurred under the provisions of the covenant
described above under the caption
Liens that limit the right of the
debtor to dispose of the assets subject to such Liens;
(6) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary, or customary restrictions
in licenses relating to the property covered thereby and entered
into in the ordinary course of business;
(7) asset sale agreements permitted to be incurred under
the provisions of the covenant described above under the caption
Asset Sales that limit the
transfer of such assets pending the closing of such sale;
(8) shareholders, partnership or joint venture
agreements entered into in the ordinary course of business;
provided, however, that such restrictions do not apply to
any Restricted Subsidiaries other than the applicable company,
partnership or joint venture; and provided, further,
however, that such encumbrances and restrictions may not
materially impact the ability of the Company to permit payments
on the Notes when due as required by the terms of the Indenture;
(9) cash or other deposits or net worth imposed by
suppliers or landlords under contracts entered into in the
ordinary course of business;
53
(10) any other Credit Facility governing debt of the
Company or any Guarantor, permitted to be incurred under the
provisions of the covenant described above under the caption
Incurrence of Indebtedness and Issuance of
Disqualified Stock, that are not (in the view of the
Board of Directors of the Company as expressed in a board
resolution thereof) materially more restrictive, taken as a
whole, than those contained in the Senior Credit Facilities;
(11) under Indebtedness or other contractual requirements
of a Receivables Subsidiary in connection with a Qualified
Receivables Transaction; provided, however, that
such restrictions apply only to such Receivables Subsidiary or
the Receivables Assets that are subject to such Qualified
Receivables Transaction;
(12) any encumbrance or restriction in connection with a
transaction of the type contemplated pursuant to
clause (13) of the definition of Permitted
Debt; and
(13) encumbrance or restriction under any agreement,
amendment, modification, restatement, renewal, supplement,
refunding, replacement or refinancing that extends, renews,
refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (1)
through (12), or in this clause (13), provided that
the terms and conditions of any such encumbrances or
restrictions are no more restrictive in any material respect
taken as a whole than those under or pursuant to the agreement
evidencing the Indebtedness so extended, renewed, refinanced or
replaced.
Sale
Leaseback Transactions
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale Leaseback Transaction;
provided, that the Company or one of its Restricted
Subsidiaries may enter into a Sale Leaseback Transaction if:
(a) the Company or such Subsidiary could have incurred
Indebtedness in an amount equal to the Attributable Indebtedness
relating to such Sale Leaseback Transaction pursuant to the
Consolidated Interest Coverage Ratio test set forth in
paragraph (a) of the covenant described above under
the caption Incurrence of Indebtedness and
Issuance of Disqualified Stock;
(b) the gross cash proceeds of such Sale Leaseback
Transaction are at least equal to the Fair Market Value of the
property that is the subject of such Sale Leaseback
Transaction; and
(c) the transfer of assets in such Sale Leaseback
Transaction is permitted by, and the Company applies the
proceeds of such transaction in the same manner and to the same
extent as Net Available Cash and Excess Proceeds from an Asset
Sale in compliance with, the covenant described above under the
caption Asset Sales.
Unrestricted
Subsidiaries
The Board of Directors of the Company may designate after the
Issue Date any Subsidiary as an Unrestricted
Subsidiary under the Indenture (a Designation)
only if:
(a) no Default or Event of Default shall have occurred and
be continuing at the time of or after giving effect to such
Designation;
(b) (x) the Company would be permitted to make an
Investment (other than a Permitted Investment) at the time of
Designation (assuming the effectiveness of such Designation)
pursuant to paragraph (a) of
Restricted Payments above in an
amount (the Designation Amount) equal to the greater
of (1) the net book value of the Companys interest in
such Subsidiary calculated in accordance with GAAP or
(2) the Fair Market Value of the Companys interest in
such Subsidiary as determined in good faith by the
Companys Board of Directors, or (y) the Designation
Amount is less than $10,000;
(c) the Company would be permitted under the Indenture to
incur $1.00 of additional Indebtedness (other than Permitted
Debt) pursuant to the covenant described under
Incurrence of Indebtedness and Issuance of
Disqualified Stock at the time of such Designation
(assuming the effectiveness of such Designation);
54
(d) such Unrestricted Subsidiary does not own any Capital
Stock in any Restricted Subsidiary of the Company which is not
simultaneously being designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than
Unrestricted Subsidiary Indebtedness, provided that an
Unrestricted Subsidiary may provide a Guarantee for the
Notes; and
(f) such Unrestricted Subsidiary is not a party to any
agreement, contract, arrangement or understanding at such time
with the Company or any Restricted Subsidiary unless the terms
of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted
Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company or, in the event
such condition is not satisfied, the value of such agreement,
contract, arrangement or understanding to such Unrestricted
Subsidiary shall be deemed a Restricted Payment.
In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted
Payment pursuant to the covenant Restricted
Payments for all purposes of the Indenture in the
Designation Amount.
The Indenture will also provide that the Company shall not and
shall not cause or permit any Restricted Subsidiary to at any
time
(a) provide credit support for, guarantee or subject any of
its property or assets (other than the Capital Stock of any
Unrestricted Subsidiary) to the satisfaction of, any
Indebtedness of any Unrestricted Subsidiary (including any
undertaking, agreement or instrument evidencing such
Indebtedness) (other than Permitted Investments in Unrestricted
Subsidiaries) or
(b) be directly or indirectly liable for any Indebtedness
of any Unrestricted Subsidiary.
For purposes of the foregoing, the Designation of a Subsidiary
of the Company as an Unrestricted Subsidiary shall be deemed to
be the Designation of all of the Subsidiaries of such Subsidiary
as Unrestricted Subsidiaries. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of
the Company will be classified as a Restricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a Revocation) if:
(a) no Default or Event of Default shall have occurred and
be continuing at the time of and after giving effect to such
Revocation;
(b) all Liens and Indebtedness of such Unrestricted
Subsidiary outstanding immediately following such Revocation
would, if incurred at such time, have been permitted to be
incurred for all purposes of the Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be
Permitted Debt), immediately after giving effect to such
proposed Revocation, and after giving pro forma effect to the
incurrence of any such Indebtedness of such redesignated
Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Debt) pursuant to the
covenant described under Incurrence of
Indebtedness and Issuance of Disqualified Stock.
All Designations and Revocations must be evidenced by a
resolution of the Board of Directors of the Company delivered to
the Trustee certifying compliance with the foregoing provisions
of this covenant.
Payments
for Consent
The Indenture provides that neither the Company nor any of its
Restricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest,
fee or otherwise, to any holder of Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all holders of
Notes that consent,
55
waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or
agreement.
Lines
of Business
Neither the Company nor any of its Restricted Subsidiaries will
directly or indirectly engage in any line or lines of business
activity other than that which is a Permitted Business.
Reports
Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the
Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting
pursuant to rules and regulations promulgated by the Commission,
the Indenture requires the Company to file with the Commission
(and make available to the Trustee and Holders of the Notes
(without exhibits), without cost to any Holder, within
15 days after it files them with the Commission) from and
after the Issue Date,
(a) within the time period then in effect under the rules
and regulations of the Exchange Act with respect to the filing
of a
Form 10-K
after the end of each fiscal year, annual reports on
Form 10-K,
or any successor or comparable form, containing the information
required to be contained therein, or required in such successor
or comparable form;
(b) within the time period then in effect under the rules
and regulations of the Exchange Act with respect to the filing
of a
Form 10-Q
after the end of each of the first three fiscal quarters of each
fiscal year, reports on
Form 10-Q
containing all quarterly information that would be required to
be contained in
Form 10-Q,
or any successor or comparable form;
(c) within the time period then in effect under the rules
and regulations of the Exchange Act with respect to the filing
of a
Form 8-K
after the occurrence of an event required to be therein
reported, such other reports on
Form 8-K,
or any successor or comparable form; and
(d) any other information, documents and other reports
which the Company would be required to file with the Commission
if it were subject to Section 13 or 15(d) of the Exchange
Act;
in each case, in a manner that complies in all material respects
with the requirements specified in such form; provided
that the Company shall not be so obligated to file such
reports with the Commission if the Commission does not permit
such filing, in which event the Company will make available such
information to prospective purchasers of Notes, in addition to
providing such information to the Trustee and the Holders of the
Notes, in each case within 15 days after the time the
Company would be required to file such information with the
Commission, if it were subject to Section 13 or 15(d) of
the Exchange Act. In addition, to the extent not satisfied by
the foregoing, the Company has agreed that, for so long as any
Notes are outstanding, it will furnish to Holders and to
securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to
Rule 144A(d)(4) under the Securities Act.
The Indenture requires the Company to hold a quarterly
conference call for the Holders of the Notes to discuss the
Companys operating results within five Business Days from
the date that the Company would otherwise be required to file
reports as set forth above.
Notwithstanding anything herein to the contrary, the Company
will not be deemed to have failed to comply with any of its
obligations hereunder for purposes of clause (4) under
Events of Default until 15 days
after the date any report hereunder is due.
Consolidation,
Merger and Sale of Assets
The Company will not, in a single transaction or through a
series of related transactions, consolidate with or merge with
or into any other Person or sell, assign, convey, transfer,
lease or otherwise dispose of all or substantially all of its
properties and assets to any Person or group of Persons, or
permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions, if such transaction or
series of transactions, in the aggregate,
56
would result in a sale, assignment, conveyance, transfer, lease
or disposition of all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of Persons
(other than the Company or a Guarantor), unless at the time and
after giving effect thereto
(1) either (a) the Company will be the continuing
corporation or (b) the Person (if other than the Company)
formed by such consolidation or into which the Company is merged
or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the
properties and assets of the Company and its Restricted
Subsidiaries on a Consolidated basis (the Surviving
Entity) will be a corporation or limited liability company
duly organized and validly existing under the laws of the United
States of America, any state thereof or the District of Columbia
and such Person expressly assumes, by a supplemental indenture,
in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture,
and the Notes and the Indenture will remain in full force and
effect as so supplemented (and any Guarantees will be confirmed
as applying to such Surviving Entitys obligations);
(2) immediately before and immediately after giving effect
to such transaction on a pro forma basis (and treating
any Indebtedness not previously an obligation of the Company or
any of its Restricted Subsidiaries which becomes the obligation
of the Company or any of its Restricted Subsidiaries as a result
of such transaction as having been incurred at the time of such
transaction), no Default or Event of Default will have occurred
and be continuing;
(3) immediately before and immediately after giving effect
to such transaction on a pro forma basis (on the
assumption that the transaction occurred on the first day of the
four-quarter period for which financial statements are available
ending immediately prior to the consummation of such transaction
with the appropriate adjustments with respect to the transaction
being included in such pro forma calculation), the
Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (other than Permitted Debt) under the
provisions of Certain Covenants
Incurrence of Indebtedness and Issuance of Disqualified
Stock;
(4) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described
above, will have by supplemental indenture confirmed that its
Guarantee shall apply to such Persons obligations under
the Indenture and the Notes;
(5) at the time of the transaction, if any of the property
or assets of the Company or any of its Restricted Subsidiaries
would thereupon become subject to any Lien, the provisions of
Certain Covenants
Liens are complied with; and
(6) at the time of the transaction, the Company or the
Surviving Entity will have delivered, or caused to be delivered,
to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers certificate and an opinion of
counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or other
transaction and the supplemental indenture in respect thereof
comply with the Indenture and that all conditions precedent
therein provided for relating to such transaction have been
complied with.
Except as provided under the third paragraph of
Guarantees, of this Description of Notes, each
Guarantor will not, and the Company will not permit a Guarantor
to, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other
Person (other than the Company or any other Guarantor) unless at
the time and after giving effect thereto
(1) either (a) the Guarantor will be the continuing
Person in the case of a consolidation or merger involving the
Guarantor or (b) the Person (if other than the Guarantor)
formed by such consolidation or into which such Guarantor is
merged (the Surviving Guarantor Entity) will be a
corporation, limited liability company, limited liability
partnership, partnership, trust or other entity duly organized
and validly existing under the laws of the United States of
America, any state thereof or the District of Columbia and such
Person expressly assumes, by a supplemental indenture, in a form
reasonably satisfactory to the Trustee, all the obligations of
such Guarantor under its Guarantee of the Notes and the
Indenture, and such Guarantee and the Indenture will remain in
full force and effect;
57
(2) immediately before and immediately after giving effect
to such transaction on a pro forma basis, no Default or
Event of Default will have occurred and be continuing; and
(3) at the time of the transaction such Guarantor or the
Surviving Guarantor Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers certificate and
an opinion of counsel, each to the effect that such
consolidation or merger and the supplemental indenture in
respect thereof comply with the Indenture and that all
conditions precedent therein provided for relating to such
transaction have been complied with;
provided, however, that this paragraph shall not apply to
any Guarantor whose Guarantee of the Notes is unconditionally
released and discharged in accordance with the Indenture.
Notwithstanding the foregoing, the Company or any Guarantor may
merge with an Affiliate incorporated or organized solely for the
purpose of reincorporating or reorganizing the Company or
Guarantor in another jurisdiction to realize tax or other
benefits.
An assumption of our obligations under the Notes and the
Indenture by such Surviving Entity or an assumption of the
obligations of a Guarantor under its Guarantee of the Notes and
the Indenture by such Surviving Guarantor Entity might be deemed
for U.S. federal income tax purposes to cause an exchange
of the Notes for new Notes by the beneficial owners thereof,
resulting in recognition of gain or loss for such purposes and
possibly other adverse tax consequences to the beneficial
owners. You should consult your own tax advisor regarding the
tax consequences of such an assumption.
Events of
Default
An Event of Default will occur under the Indenture if:
(1) there shall be a default in the payment of any interest
on any Note when it becomes due and payable, and such default
shall continue for a period of 30 days;
(2) there shall be a default in the payment of the
principal of (or premium, if any, on) any Note at its Maturity
(upon acceleration, optional or mandatory redemption, if any,
required repurchase or otherwise);
(3) there shall be a default in the performance or breach
of the provisions described in Consolidation,
Merger and Sale of Assets, the Company shall have failed
to make or consummate a Prepayment Offer in accordance with the
provisions of Certain Covenants
Asset Sales, or the Company shall have failed to
make or consummate a Change of Control Offer in accordance with
the provisions of Change of Control;
(4) there shall be a default in the performance, or breach,
of any covenant or agreement of the Company or any Guarantor
under the Indenture or any Guarantee (other than a default in
the performance, or breach, of a covenant or agreement which is
specifically dealt with in clause (1), (2) or
(3) above) and such default or breach shall continue for a
period of 60 days after written notice has been given, by
overnight delivery, (1) to the Company by the Trustee or
(2) to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the outstanding Notes;
(5) (a) any default in the payment of the principal,
premium, if any, or interest on any Indebtedness shall have
occurred under any of the agreements, indentures or instruments
under which the Company, any Guarantor or any other Restricted
Subsidiary then has outstanding Indebtedness in excess of
$25.0 million when the same shall become due and payable in
full and such default shall have continued after any applicable
grace period and shall not have been cured or waived and, if not
already matured at its final maturity in accordance with its
terms, the holder of such Indebtedness shall have the right to
accelerate such Indebtedness or (b) an event of default as
defined in any of the agreements, indentures or instruments
described in clause (a) of this clause (5) shall have
occurred and the Indebtedness thereunder, if not already matured
at its final maturity in accordance with its terms, shall have
been accelerated;
(6) any Guarantee shall for any reason cease to be, or
shall for any reason be asserted in writing by any Guarantor or
the Company not to be, in full force and effect and enforceable
in accordance with its terms,
58
except to the extent contemplated by the Indenture and any such
Guarantee including any release of any Guarantee contemplated by
the Indenture;
(7) one or more judgments, orders or decrees of any court
or regulatory or administrative agency for the payment of money
in excess of $25.0 million, either individually or in the
aggregate, shall be rendered against the Company, any Guarantor
or any other Restricted Subsidiary or any of their respective
properties and shall not be discharged and either (a) any
creditor shall have commenced an enforcement proceeding upon
such judgment, order or decree or (b) there shall have been
a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect; and
(8) the occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the Company or any
Significant Subsidiary.
If an Event of Default (other than as specified in
clause (8) of the prior paragraph with respect to the
Company) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may,
and the Trustee at the request of such holders shall, declare
all unpaid principal of, premium, if any, and accrued interest
on all Notes to be due and payable immediately, by a notice in
writing to the Company (and to the Trustee if given by the
holders of the Notes) and upon any such declaration, such
principal, premium, if any, and interest shall become due and
payable immediately. If an Event of Default specified in
clause (8) of the prior paragraph with respect to the
Company occurs and is continuing, then all the Notes shall
ipso facto become due and payable immediately in an
amount equal to the principal amount of the Notes, together with
accrued and unpaid interest, if any, to the date the Notes
become due and payable, without any declaration or other act on
the part of the Trustee or any holder of Notes. Thereupon, the
Trustee may, at its discretion, proceed to protect and enforce
the rights of the holders of Notes by appropriate judicial
proceedings.
After a declaration of acceleration, but before a judgment or
decree for payment of the money due has been obtained by the
Trustee, the holders of a majority in aggregate principal amount
of Notes outstanding by written notice to the Company and the
Trustee, may rescind and annul such declaration and its
consequences if
(a) the Company has paid or deposited with the Trustee a
sum sufficient to pay (1) all sums paid or advanced by the
Trustee under the Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents
and counsel, (2) all overdue interest on all Notes then
outstanding, (3) the principal of, and premium, if any, on
any Notes then outstanding which have become due otherwise than
by such declaration of acceleration and interest thereon at the
rate borne by the Notes and (4) to the extent that payment
of such interest is lawful, interest upon overdue interest at
the rate borne by the Notes;
(b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of
principal of, premium, if any, and interest on the Notes which
have become due solely by such declaration of acceleration, have
been cured or waived as provided in the Indenture.
No such rescission shall affect any subsequent default or impair
any right consequent thereon.
The holders of not less than a majority in aggregate principal
amount of the Notes outstanding may on behalf of the holders of
all outstanding Notes waive any past default or Event of Default
under the Indenture and its consequences, except a default or
Event of Default (1) in the payment of the principal of,
premium, if any, or interest on any Note (which may only be
waived with the consent of each holder of Notes affected) or
(2) in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of
the holder of each Note affected by such modification or
amendment.
No holder of any of the Notes has any right to institute any
proceedings with respect to the Indenture or any remedy
thereunder, unless the holders of at least 25% in aggregate
principal amount of the outstanding Notes have made written
request, and offered to the Trustee security or indemnity
against the costs, expenses and liabilities which may be
incurred by the Trustee to institute such proceeding as Trustee
under the Notes and the Indenture, the Trustee has failed to
institute such proceeding within 15 days after receipt of
such notice and the Trustee, within such
15-day
period, has not received directions inconsistent with such
written request by holders of a majority in
59
aggregate principal amount of the outstanding Notes. Such
limitations do not, however, apply to a suit instituted by a
holder of a Note for the enforcement of the payment of the
principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
The Company is required to notify the Trustee in writing within
five business days of the occurrence of any Default. The Company
is required to deliver to the Trustee, on or before a date not
more than 60 days after the end of each fiscal quarter and
not more than 120 days after the end of each fiscal year, a
written statement as to compliance with the Indenture, including
whether or not any Default has occurred. The Trustee is under no
obligation to exercise any of the rights or powers vested in it
by the Indenture at the request or direction of any of the
holders of the Notes unless such holders offer to the Trustee
security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities which might be incurred thereby.
In the case of any Event of Default occurring by reason of any
willful action or inaction taken or not taken by or on behalf of
the Company with the intention of avoiding payment of the
premium that the Company would have had to pay if the Company
then had elected to redeem the Notes pursuant to the optional
redemption provisions of the Indenture, an equivalent premium
shall also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the Notes. If
an Event of Default occurs during any time that the Notes are
outstanding, by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Company with the intention
of avoiding the premium payable upon optional redemption of the
Notes, then the premium specified in the Indenture shall also
become immediately due and payable to the extent permitted by
law upon the acceleration of the Notes.
No
Personal Liability of Directors, Officers, Employees and
Stockholders
No director, officer, employee, member or stockholder of the
Company or any Restricted Subsidiary, as such, will have any
liability for any obligations of the Company or the Restricted
Subsidiaries under the Notes, the Indenture or the Guarantees to
which they are a party, or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws.
Defeasance
or Covenant Defeasance of Indenture
The Company may, at its option and at any time, elect to have
the obligations of the Company, any Guarantor and any other
obligor upon the Notes and the Guarantees discharged with
respect to the outstanding Notes (defeasance). Such
defeasance means that the Company, any such Guarantor and any
other obligor under the Indenture and the Guarantees shall be
deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes and the Guarantees, except
for
(1) the rights of holders of such outstanding Notes to
receive payments in respect of the principal of, premium, if
any, and interest on such Notes from Funds in Trust (as defined
below) when such payments are due,
(2) the Companys obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes, and the maintenance
of an office or agency for payment and money for security
payments held in trust,
(3) the rights, powers, trusts, duties and immunities of
the Trustee, and
(4) the defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time,
elect to have the obligations of the Company and any Guarantor
released with respect to certain covenants that are described in
the Indenture (covenant defeasance) and thereafter
any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the
Notes. In the event covenant defeasance occurs, certain events
(not including non-payment, bankruptcy and insolvency events)
described under Events of Default will no longer
constitute an Event of Default with respect to the Notes.
60
In order to exercise either defeasance or covenant defeasance,
(a) the Company must irrevocably deposit with the Trustee,
in trust, for the benefit of the holders of the Notes cash in
United States dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof (Funds
in Trust), in such amounts as, in the aggregate, will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized
investment banking firm, to pay and discharge the principal of,
premium, if any, and interest on the outstanding Notes on the
Stated Maturity (or the applicable redemption date, if at or
prior to electing either defeasance or covenant defeasance, the
Company has delivered to the Trustee an irrevocable notice to
redeem all of the outstanding Notes on such redemption date);
(b) in the case of defeasance, the Company shall have
delivered to the Trustee an opinion of independent counsel in
the United States stating that (A) the Company has received
from, or there has been published by, the Internal Revenue
Service a ruling or (B) since the date of the Indenture,
there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such
opinion of independent counsel in the United States shall
confirm that, the holders and beneficial owners of the
outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the
case if such defeasance had not occurred;
(c) in the case of covenant defeasance, the Company shall
have delivered to the Trustee an opinion of independent counsel
in the United States to the effect that the holders and
beneficial owners of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant
defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or insofar as
clause (8) under the first paragraph under
Events of Default are concerned, at any
time during the period ending on the 91st day after the
date of deposit;
(e) such defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a Default under, the
Indenture or any other material agreement or instrument to which
the Company, any Guarantor or any Restricted Subsidiary is a
party or by which it is bound;
(f) such defeasance or covenant defeasance shall not result
in the trust arising from such deposit constituting an
investment company within the meaning of the Investment Company
Act of 1940, as amended, unless such trust shall be registered
under such Act or exempt from registration thereunder;
(g) the Company will have delivered to the Trustee an
opinion of independent counsel in the United States to the
effect that (assuming no holder of the Notes would be considered
an insider of the Company or any Guarantor under any applicable
bankruptcy or insolvency law and assuming no intervening
bankruptcy or insolvency of the Company or any Guarantor between
the date of deposit and the 91st day following the deposit)
after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting
creditors rights generally;
(h) the Company shall have delivered to the Trustee an
officers certificate stating that the deposit was not made
by the Company with the intent of preferring the holders of the
Notes or any Guarantee over the other creditors of the Company
or any Guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of the Company, any Guarantor
or others;
(i) no event or condition shall exist that would prevent
the Company from making payments of the principal of, premium,
if any, and interest on the Notes on the date of such deposit or
at any time ending on the 91st day after the date of such
deposit; and
(j) the Company will have delivered to the Trustee an
officers certificate and an opinion of independent
counsel, each stating that all conditions precedent provided for
relating to either the defeasance or the covenant defeasance, as
the case may be, have been complied with.
61
Satisfaction
and Discharge
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of
transfer or exchange of the Notes as expressly provided for in
the Indenture) as to all outstanding Notes under the Indenture
when
(a) either
(1) all such Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced
or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust as provided
for in the Indenture) have been delivered to the Trustee for
cancellation or
(2) all Notes not theretofore delivered to the Trustee for
cancellation (a) have become due and payable, (b) will
become due and payable at their Stated Maturity within one year,
or (c) are to be called for redemption within one year
under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the
expense, of the Company;
(b) the Company or any Guarantor has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in
trust an amount in United States dollars, U.S. Government
Obligations, or a combination thereof, sufficient to pay and
discharge the entire indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, including principal
of, premium, if any, and accrued interest at such Maturity,
Stated Maturity or redemption date;
(c) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit;
(d) the Company or any Guarantor has paid or caused to be
paid all other sums payable under the Indenture by the Company
and any Guarantor; and
(e) the Company has delivered to the Trustee an
officers certificate and an opinion of independent counsel
each stating that (1) all conditions precedent under the
Indenture relating to the satisfaction and discharge of such
Indenture have been complied with and (2) such satisfaction
and discharge will not result in a breach or violation of, or
constitute a default under, the Indenture or any other material
agreement or instrument to which the Company, any Guarantor or
any Subsidiary is a party or by which the Company, any Guarantor
or any Subsidiary is bound.
Amendments
and Waivers
Modifications and amendments of the Indenture may be made by the
Company, each Guarantor, if any, any other obligor under the
Notes, and the Trustee with the consent of the holders of at
least a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a
purchase of, or tender offer or exchange offer for, Notes);
provided, however, that no such modification or amendment
may, without the consent of the holder of each outstanding Note:
(1) change the Stated Maturity of the principal of, or any
installment of interest on, or change to an earlier date any
redemption date of, or waive a default in the payment of the
principal of, premium, if any, or interest on, any such Note or
reduce the principal amount thereof or the rate of interest
thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any such
Note or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any
such payment after the Stated Maturity thereof (or, in the case
of redemption, on or after the redemption date);
(2) reduce the percentage in principal amount of such
outstanding Notes, the consent of whose holders is required for
any such amendment or supplemental indenture, or the consent of
whose holders is required for any waiver or compliance with
certain provisions of the Indenture;
(3) modify any of the provisions relating to supplemental
indentures requiring the consent of holders or relating to the
waiver of past defaults or relating to the waiver of certain
covenants, except to increase the percentage of such outstanding
Notes required for such actions or to provide that certain other
provisions of the Indenture cannot be modified or waived without
the consent of the holder of each such Note affected thereby;
62
(4) except as otherwise permitted under
Consolidation, Merger and Sale of Assets, consent to
the assignment or transfer by the Company or any Guarantor of
any of its rights and obligations under the Indenture;
(5) voluntarily release, other than in accordance with the
Indenture, the Guarantee of any Guarantor; or
(6) amend or modify any of the provisions of the Indenture
in any manner which subordinates the Notes issued thereunder in
right of payment to any other Indebtedness of the Company or
which subordinates any Guarantee in right of payment to any
other Indebtedness of the Guarantor issuing any such Guarantee.
Notwithstanding the foregoing, without the consent of any
holders of the Notes, the Company, any Guarantor, any other
obligor under the Notes and the Trustee may modify, supplement
or amend the Indenture:
(1) to evidence the succession of another Person to the
Company, a Guarantor, or any other obligor under the Notes, and
the assumption by any such successor of the covenants of the
Company, such Guarantor or such obligor in the Indenture and in
the Notes and in any Guarantee in accordance with
Consolidation, Merger and Sale of Assets;
(2) to add to the covenants of the Company, any Guarantor
or any other obligor under the Notes for the benefit of the
holders of the Notes or to surrender any right or power
conferred upon the Company or any Guarantor or any other obligor
under the Notes, as applicable, in the Indenture, in the Notes
or in any Guarantee;
(3) to cure any ambiguity, or to correct or supplement any
provision in the Indenture, the Notes or any Guarantee which may
be a mistake or inconsistent with any other provision in the
Indenture, the Notes or any Guarantee;
(4) to make any provision with respect to matters or
questions arising under the Indenture, the Notes or any
Guarantee, provided that such provisions shall not
adversely affect the interest of the holders of the Notes in any
material respect;
(5) to add a Guarantor or additional obligor under the
Indenture or permit any Person to guarantee the Notes
and/or
obligations under the Indenture;
(6) to release a Guarantor as provided in the Indenture;
(7) to evidence and provide the acceptance of the
appointment of a successor Trustee under the Indenture;
(8) to mortgage, pledge, hypothecate or grant a security
interest in favor of the Trustee for the benefit of the holders
of the Notes as additional security for the payment and
performance of the Companys and any Guarantors
obligations under the Indenture, in any property, or assets,
including any of which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be
granted to or for the benefit of the Trustee pursuant to the
Indenture or otherwise;
(9) to provide for the issuance of Additional Notes under
the Indenture in accordance with the limitations set forth in
the Indenture;
(10) to comply with the rules of any applicable securities
depositary; or
(11) to conform any non-conforming language or defined
terms in the text of the Indenture, the Guarantees or the Notes
to any provision of the Description of Notes section
of the offering memorandum dated February 7, 2007 pursuant
to which the initial Notes were offered and sold, so that such
provision in the Description of Notes section
reflects a verbatim recitation of a provision of the Indenture.
The holders of a majority in aggregate principal amount of the
Notes outstanding may waive compliance with certain restrictive
covenants and provisions of the Indenture.
63
Transfer
and Exchange
A holder of Notes may transfer or exchange Notes in accordance
with the Indenture. The Registrar and the Trustee may require a
holder of Notes, among other things, to furnish appropriate
endorsements and transfer document and the Company may require a
holder of Notes to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to
transfer or exchange any Note for a period of 15 days
before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of
it for all purposes.
Governing
Law
The Indenture, the Notes and any Guarantee will be governed by,
and construed in accordance with, the laws of the State of New
York, without giving effect to the conflicts of law principles
thereof.
Concerning
the Trustee
Wells Fargo Bank, N.A., the Trustee under the Indenture, is the
initial paying agent and registrar for the Notes.
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or
otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any
conflicting interest it must eliminate such conflict within
90 days, apply to the Commission for permission to continue
as Trustee with such conflict or resign as Trustee.
The holders of a majority in principal amount of the then
outstanding Notes have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy
available to the Trustee, subject to certain exceptions. The
Indenture provides that if an Event of Default occurs (which has
not been cured), the Trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the
Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request of any holder of Notes
unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or
expense.
Book-Entry,
Delivery and Form
Except as set forth below, the exchange notes will initially be
issued in the form of one or more global notes. The global notes
will be deposited on the Issue Date with the Trustee as
custodian for The Depository Trust Company (DTC) and
registered in the name of Cede & Co., as nominee of DTC
(such nominee being referred to herein as the Global
Note Holder), in each case for credit to an account
of a direct or indirect participant in DTC as described below.
Beneficial interests in the Global Notes may be held through the
Euroclear System (Euroclear) and Clearstream
Banking, S.A. (Clearstream) (as indirect
participants in DTC).
Except as set forth below, the Global Notes may be transferred,
in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the
Global Notes may not be exchanged for Notes in certificated form
except in the limited circumstances described below. See
Exchange of Global Notes for Certificated
Notes. Except in the limited circumstances described
below, owners of beneficial interests in the Global Notes will
not be entitled to receive physical delivery of Notes in
certificated form.
Transfers of beneficial interests in the Global Notes will be
subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those
of Euroclear and Clearstream), which may change from time to
time.
Depositary
Procedures
The following description of the operations and procedures of
DTC, Euroclear and Clearstream are provided solely as a matter
of convenience. These operations and procedures are solely
within the control of the respective settlement systems and are
subject to changes by them. The Company and the Guarantors take
no responsibility for
64
these operations and procedures and urges investors to contact
the system or its participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust
company that was created to hold securities for its
participating organizations (collectively, the
Participants) and to facilitate the clearance and
settlement of transactions in such securities between
Participants through electronic book-entry changes in accounts
of its Participants. The Participants include securities brokers
and dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other
organizations. Access to DTCs system is also available to
other entities such as banks, brokers, dealers and trust
companies (collectively, the Indirect Participants)
that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of
ownership interests in, each security held by or on behalf of
DTC are recorded on the records of the Participants or Indirect
Participants.
DTC has also advised the Company that pursuant to procedures
established by it, ownership of these interests in the Global
Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by DTC (with
respect to the Participants), or by the Participants and the
Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes who are Participants in DTCs
system may hold their interests therein directly through DTC.
Investors in the Global Notes who are not Participants may hold
their interests therein indirectly through organizations
(including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream may hold interests in the
Global Notes on behalf of their participants through
customers securities accounts in their respective names on
the books of their respective depositories, which in turn will
hold such interests in the Global Note in customers
securities accounts in the depositories names on the books
of DTC. All interests in a Global Note, including those held
through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through
Euroclear or Clearstream may also be subject to the procedures
and requirements of such systems. The laws of some states
require that certain Persons take physical delivery in
definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to
such Persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of
Indirect Participants, the ability of a Person having beneficial
interests in a Global Note to pledge such interests to Persons
that do not participate in the DTC system, or otherwise take
actions in respect of such interests, may be affected by the
lack of a physical certificate evidencing such interests.
Except as described below, owners of an interest in the
Global Notes will not have Notes registered in their names, will
not receive physical delivery of Notes in certificated form and
will not be considered the registered owners or
Holders thereof under the Indenture for any
purpose.
Payments in respect of the principal of, and interest and
premium, if any, on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the
registered Holder under the Indenture. Under the terms of the
Indenture, the Company, the Guarantors and the Trustee will
treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of
receiving payments and for all other purposes. Consequently,
none of the Company, the Guarantors, the Trustee or any agent of
the Company or the Trustee has or will have any responsibility
or liability for (i) any aspect of DTCs records or
any Participants or Indirect Participants records
relating to or payments made on account of beneficial ownership
interest in the Global Notes or for maintaining, supervising or
reviewing any of DTCs records or any Participants or
Indirect Participants records relating to the beneficial
ownership interests in the Global Notes, or (ii) any other
matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the
Notes (including principal and interest), is to credit the
accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not
receive payment on such payment date. Each relevant Participant
is credited with an amount proportionate to its beneficial
ownership of an interest in the principal amount of the relevant
security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial
owners of Notes will be governed by standing instructions and
customary practices and will be the responsibility of the
Participants or the Indirect Participants and will not be the
65
responsibility of DTC, the Trustee or the Company. None of the
Company, the Guarantors or the Trustee will be liable for any
delay by DTC or any of its Participants in identifying the
beneficial owners of the Notes, and the Company and the Trustee
may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Transfers between Participants in DTC will be effected in
accordance with DTCs procedures and will be settled in
same day funds, and transfers between participants in Euroclear
and Clearstream will be effected in accordance with their
respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the
other hand, will be effected through DTC in accordance with
DTCs rules on behalf of Euroclear or Clearstream, as the
case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the
counterparty in such system in accordance with the rules and
procedures and within the established deadlines (Brussels time)
of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements,
deliver instructions to its respective depositary to take action
to effect final settlement on its behalf by delivering or
receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures
for same-day
funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction
of one or more Participants to whose account DTC has
credited the interests in the Global Notes and only in respect
of such portion of the aggregate principal amount of the Notes
as to which such Participant or Participants has or have given
such direction. However, if there is an Event of Default under
the Notes, DTC reserves the right to exchange the Global Notes
for Notes in certificated form (Certificated Notes),
and to distribute such Notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the
foregoing procedures to facilitate transfers of interests in the
Global Notes among participants in DTC, Euroclear and
Clearstream, they are under no obligation to perform or to
continue to perform such procedures, and may discontinue such
procedures at any time. None of the Company, the Guarantors or
the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, Euroclear or
Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and
procedures governing their operations.
Certificated
Notes
Subject to certain conditions, any Person having a beneficial
interest in a Global Note may, upon prior written request to the
trustee, exchange such beneficial interest for notes in the form
of Certificated Notes. Upon any such issuance, the trustee is
required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such Person or Persons (or
their nominee).
Neither the Company nor the trustee will be liable for any delay
by the Global Note Holder or DTC in identifying the
beneficial owners of notes and the Company and the trustee may
conclusively rely on, and will be protected in relying on,
instructions from the Global Note Holder or DTC for all
purposes.
Exchange
of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form if:
(1) DTC (a) notifies the Company that it is unwilling
or unable to continue as depositary for the Global Notes and the
Company fails to appoint a successor depositary within
90 days or (b) has ceased to be a clearing agency
registered under the Exchange Act;
(2) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of the Certificated
Notes, the Trustee, in turn, notifies participants of their
right to withdraw their beneficial interests from the Global
Note, and such participants elect to withdraw their beneficial
interests; or
(3) there shall have occurred and be continuing a Default
or Event of Default with respect to the Notes.
66
In addition, beneficial interests in a Global Note may be
exchanged for Certificated Notes upon prior written notice given
to the Trustee by or on behalf of DTC in accordance with the
Indenture. In all cases, Certificated Notes delivered in
exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any
approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures) and, in
the case of initial notes, will bear any applicable restrictive
legend unless that legend is not required by applicable law.
Same-Day
Settlement and Payment
The Indenture requires that payments in respect of the Notes
represented by the Global Notes (including principal, premium,
if any, and interest) be made by wire transfer of immediately
available funds to the accounts specified by the Global
Note Holder. With respect to Certificated Notes, the
Company will make all payments of principal, premium, if any,
and interest by wire transfer of immediately available funds to
the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such
Holders registered address. The exchange notes represented
by the Global Notes are expected to trade in DTCs
Same-Day
Funds Settlement System, and any permitted secondary market
trading activity in such exchange notes will, therefore, be
required by DTC to be settled in immediately available funds.
The Company expects that secondary trading in any Certificated
Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a
Euroclear or Clearstream participant purchasing an interest in a
Global Note from a Participant in DTC will be credited, and any
such crediting will be reported to the relevant Euroclear or
Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear or
Clearstream) immediately following the settlement date of DTC.
DTC has advised the Company that cash received in Euroclear or
Clearstream as a result of sales of interests in a Global Note
by or through a Euroclear or Clearstream participant to a
Participant in DTC will be received with value on the settlement
date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for
Euroclear or Clearstream following DTCs settlement date.
Certain
Definitions
Acquired Debt means Indebtedness of a Person
(1) existing at the time such Person becomes a Restricted
Subsidiary or (2) assumed in connection with the
acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation
of, such Person becoming a Restricted Subsidiary or such
acquisition, as the case may be. Acquired Debt shall be deemed
to be incurred on the date of the related acquisition of assets
from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be. For the avoidance of
doubt, any Indebtedness under (1) or (2) above that is
concurrently extinguished with the underlying transaction will
not be Acquired Debt.
Additional Assets means (i) any assets
or property (other than cash, Cash Equivalents or securities)
used in the Permitted Business or any business ancillary
thereto, (ii) Investments in any other Person engaged in
the Permitted Business or any business ancillary thereto
(including the acquisition from third parties of Capital Stock
of such Person) as a result of which such other Person becomes a
Restricted Subsidiary, (iii) the acquisition from third
parties of Capital Stock of a Restricted Subsidiary,
(iv) Permitted Business Investments or (v) capital
expenditures of the Company or any Restricted Subsidiary in the
Company or any Restricted Subsidiary.
Affiliate means, with respect to any
specified Person: (1) any other Person directly or
indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (2) any
other Person that owns, directly or indirectly, 10% or more of
any class or series of such specified Persons (or any of
such Persons direct or indirect parents) Capital
Stock or any officer or director of any such specified Person or
other Person or, with respect to any natural Person, any person
having a relationship with such Person by blood, marriage or
adoption not more remote than first cousin; or (3) any
other Person 10% or more of the Voting Stock of which is
beneficially owned or held directly or indirectly by such
specified Person. For the purposes of this definition,
control when used with respect to any specified
Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through ownership
of voting securities, by contract or otherwise; and the terms
controlling and controlled have meanings
correlative to the foregoing.
67
Applicable Premium means, with respect to a
note at any redemption date, the greater of (i) 1.0% of the
principal amount of such note and (ii) the excess of
(A) the present value at such redemption date of
(1) the redemption price of such note on February 15,
2011, (such redemption price being that described in the first
paragraph under Optional Redemption)
plus (2) all required remaining scheduled interest payments
due on such note through and including February 15, 2011
(excluding accrued but unpaid interest to the redemption date),
computed using a discount rate equal to the Applicable Treasury
Rate plus 0.50%, over (B) the principal amount of such note
on such redemption date, as calculated by the Company or on
behalf of the Company by such Person as the Company shall
designate; provided that such calculation shall not be a
duty or obligation of the applicable Trustee.
Applicable Treasury Rate means, as of any
redemption date, the yield to maturity as of such redemption
date of United States Treasury securities with a constant
maturity (as compiled and published in the most recent Federal
Reserve Statistical Release H.15 (519) that has become
publicly available at least two Business Days prior to the
redemption date (or, if such Statistical Release is no longer
published, any publicly available source of similar market
data)) most nearly equal to the period from the redemption date
to February 15, 2011; provided, however that if the
period from the redemption date to February 15, 2011, is
less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant
maturity of one year will be used.
Asset Sale means (1) the sale,
conveyance, transfer or other disposition, whether in a single
transaction or a series of related transactions, of property or
assets (including by way of a Sale and Lease-Back Transaction)
of the Company or any of its Restricted Subsidiaries (each
referred to in this definition as a disposition); or
(2) the issuance or sale of equity interests of any
Restricted Subsidiary (other than Preferred Stock of Restricted
Subsidiaries issued in compliance with the covenant described
under Incurrence of Indebtedness and Issuance of
Disqualified Stock), whether in a single transaction
or a series of related transactions; in each case, other than:
(a) any disposition of Cash Equivalents, hedging contracts,
financial instruments or obsolete or worn-out equipment in the
ordinary course of business or disposition of assets subject to
a casualty loss or any disposition of inventory or goods (or
other assets) held for sale in the ordinary course of business;
(b) the disposition of all or substantially all of the
assets of the Company governed by, and in a manner permitted
pursuant to, the provisions described above under Certain
Covenants Consolidation, Merger and Sale of
Assets; (c) the making of any Restricted Payment
or Permitted Investment that is permitted to be made, and is
made, under the covenant described above under Certain
Covenants Restricted Payments;
(d) any disposition of assets or issuance or sale of equity
interests of the Company or any Restricted Subsidiary in any
transaction or series of related transactions with an aggregate
fair market value of less than $5.0 million; (e) any
disposition of property or assets or issuance of securities by a
Restricted Subsidiary of the Company to the Company or by the
Company or a Restricted Subsidiary of the Company to another
Restricted Subsidiary of the Company; (f) to the extent
allowable under Section 1031 of the Internal Revenue Code
of 1986 or comparable law or regulation, any exchange of like
property (excluding any boot thereon) for use in a Permitted
Business; (g) the lease, assignment or
sub-lease of
any real or personal property in the ordinary course of
business; (h) any issuance or sale of equity interests in,
or Indebtedness or other securities of, an Unrestricted
Subsidiary; (i) foreclosures on assets; (j) sales of
Receivables Assets and related assets of the type specified in
the definition of Qualified Receivables Transaction
to a Receivables Subsidiary for the fair market value thereof in
a Qualified Receivables Transaction in the ordinary course of
business; (k) the creation of Liens to the extent permitted
under the covenant described above under Certain
Covenants Liens) and (l) the
surrender or waiver of any contract rights.
Attributable Indebtedness in respect of a
Sale Leaseback Transaction means, at the time of determination,
the present value (discounted at the rate of interest implicit
in such transaction, determined in accordance with GAAP) of the
obligation of the lessee for net rental payments during the
remaining term of the lease included in such Sale Leaseback
Transaction (including any period for which such lease has been
extended or may, at the option of the lessor, be extended).
Average Life to Stated Maturity means, as of
the date of determination with respect to any Indebtedness, the
quotient obtained by dividing (1) the sum of the products
of (a) the number of years from the date of determination
to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount
of each such principal payment by (2) the sum of all such
principal payments.
68
Bankruptcy Law means Title 11, United
States Bankruptcy Code of 1978, as amended, or any similar
United States federal or state law or foreign law relating to
bankruptcy, insolvency, receivership, winding up, liquidation,
reorganization or relief of debtors or any amendment to,
succession to or change in any such law.
Capital Lease Obligation of any Person means
any obligation of such Person and its Restricted Subsidiaries on
a Consolidated basis under any capital lease of (or other
agreement conveying the right to use) real or personal property
which, in accordance with GAAP, is required to be recorded as a
capitalized lease obligation.
Capital Stock of any Person means any and all
shares, units, interests, participations, rights in or other
equivalents (however designated) of such Persons capital
stock, other equity interests whether now outstanding or issued
after the date of the Indenture, partnership interests (whether
general or limited), limited liability company interests, any
other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person, including any
Preferred Stock, and any rights (other than debt securities
convertible into Capital Stock), warrants or options
exchangeable for or convertible into such Capital Stock.
Cash Equivalents means
(1) United States dollars or such local currencies held
from time to time in the ordinary course of business;
(2) any evidence of Indebtedness issued or directly and
fully guaranteed or insured by the United States or any agency
or instrumentality thereof,
(3) deposits, time deposit accounts, certificates of
deposit, eurodollar time deposits, money market deposits or
acceptances of any financial institution having capital and
surplus in excess of $500 million that is a member of the
Federal Reserve System, in the case of U.S. banks, and
$100 million (or the U.S. dollar equivalent as of the
date of determination) in the case of
non-U.S. banks,
and whose senior unsecured debt is rated at least
A-2
by Standard & Poors Ratings Services, a division
of The McGraw-Hill Companies, Inc. (S&P), or at
least
P-2
by Moodys Investors Service, Inc.
(Moodys),
(4) commercial paper with a maturity of 365 days or
less issued by a corporation (other than an Affiliate or
Subsidiary of the Company) organized and existing under the laws
of the United States of America, any state thereof or the
District of Columbia and rated at least
A-1
by S&P and at least
P-1
by Moodys,
(5) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or
unconditionally guaranteed by the United States or issued by any
agency thereof and backed by the full faith and credit of the
United States maturing within 365 days from the date of
acquisition, and
(6) money market funds which invest substantially all of
their assets in securities described in the preceding
clauses (1) through (5).
Change of Control means the occurrence of any
of the following events:
(1) the direct or indirect sale, lease, transfer,
conveyance or other disposition (other than by way of merger or
consolidation), in one transaction or a series of related
transactions, of all or substantially all of the properties or
assets of the Company and its Subsidiaries, taken as a whole, to
any person (as that term is used in
Section 13(d) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or
dissolution of the Company;
(3) The consummation of any transaction (including, without
limitation, any merger or consolidation) or the acquisition of
any Voting Stock of the Company, the result of which is that any
person (as defined above) becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the Voting
Stock of the Company, measured by voting power rather than
number of shares;
(4) the Company consolidates with or merges with or into
any Person, or any such Person consolidates with or merges into
or with the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other
property, other than any such transaction where
69
(A) the outstanding Voting Stock of the Company is changed
into or exchanged for (1) Voting Stock of the surviving
Person which is not Disqualified Stock or (2) cash,
securities and other property (other than Capital Stock of the
surviving Person) in an amount which could be paid by the
Company as a Restricted Payment as described under
Certain Covenants Restricted
Payments (and such amount shall be treated as a
Restricted Payment subject to the provisions in the Indenture
described under Certain
Covenants Restricted Payments) and
(B) immediately after such transaction, the holders of
Voting Stock of the Company immediately before such transaction
beneficially own a majority of the Voting Stock of the surviving
Person; or
(5) the first day on which a majority of the members of the
Board of Directors of the Company are not Continuing Directors.
Commission means the Securities and Exchange
Commission, as from time to time constituted, created under the
Exchange Act, or if at any time after the execution of the
Indenture such Commission is not existing and performing the
duties now assigned to it under the Securities Act and the
Exchange Act then the body performing such duties at such time.
Company means Invacare Corporation, an Ohio
corporation.
Consolidated Assets means, with respect to
any Person at any date of determination, the aggregate amount of
total assets included in such Persons most recent
quarterly or annual consolidated balance sheet prepared in
accordance with GAAP.
Consolidated EBITDA means, at any date of
determination, an amount equal to Consolidated Net Income (Loss)
of the Company and its Restricted Subsidiaries on a consolidated
basis for any period plus, (a) the following (without
duplication) to the extent deducted in calculating such
Consolidated Net Income (Loss): (i) Consolidated Interest
Expense, (ii) the provision for federal, state, local and
foreign income taxes payable, (iii) depreciation and
amortization expense (including, without limitation, the
amortization of debt issuance costs), (iv) the rehab
reimbursement reserve recorded as of December 31, 2006 in
an aggregate amount not to exceed $27.0 million,
(v) the non-cash write-down of goodwill and general
intangibles with respect to the fiscal quarter ended
December 31, 2006, (vi) non-cash compensation charges
or other non-cash expenses or charges arising from the grant of
or issuance of stock, stock options or other equity-based awards
to the directors, officers and employees of the Company and its
Restricted Subsidiaries, (vii) make-whole payments with
respect to the repayment on the Issue Date of the privately
placed notes of the Company and the write-off of bank fees
associated with Indebtedness issued prior to January 1,
2007, collectively in an aggregate amount not to exceed
$15.0 million, (viii) cash charges relating to
anticipated cost savings initiatives implemented during the
Companys fiscal year 2007 in an aggregate amount not to
exceed $18.0 million and up to an aggregate amount not to
exceed $10.0 million during each of the Companys
fiscal years 2008 and 2009 of potential cash charges relating to
cost savings initiatives implemented during such fiscal year,
(ix) other expenses and losses reducing such Consolidated
Net Income (Loss) which do not represent a cash item in such
period or any future period (in each case of or by the Company
and its Restricted Subsidiaries for any such period), and
(x) bank or lending fees classified as selling, general and
administrative expenses, minus (b) the following to the
extent included in calculating such Consolidated Net Income
(Loss): (i) federal, state, local and foreign income tax
credits and (ii) all non-cash items increasing Consolidated
Net Income (Loss) (in each case of or by the Company and its
Restricted Subsidiaries for any such period).
Consolidated Income Tax Expense of any Person
means, for any period, the provision for federal, state, local
and foreign income taxes (including state franchise taxes
accounted for as income taxes in accordance with GAAP) of such
Person and its Consolidated Restricted Subsidiaries for such
period as determined in accordance with GAAP.
Consolidated Interest Coverage Ratio of any
Person means, for any period, the ratio of
(a) Consolidated EBITDA to
(b) without duplication, the sum of Consolidated Interest
Expense for such period and any cash dividends paid on any
Disqualified Stock or Preferred Stock of such Person and its
Restricted Subsidiaries during such
70
period, in each case after giving pro forma effect (as
calculated in accordance with Article 11 of
Regulation S-X
under the Securities Act or any successor provision) to, without
duplication,
(1) the incurrence of the Indebtedness giving rise to the
need to make such calculation and (if applicable) the
application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was
incurred, and the application of such proceeds occurred, on the
first day of such period;
(2) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Restricted Subsidiaries
since the first day of such period as if such Indebtedness was
incurred, repaid or retired at the beginning of such period
(except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be
computed based upon the average daily balance of such
Indebtedness during such period);
(3) in the case of Acquired Debt or any acquisition
occurring at the time of the incurrence of such Indebtedness,
the related acquisition, assuming such acquisition had been
consummated on the first day of such period; and
(4) any acquisition or disposition by the Company and its
Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, whether by
merger, stock purchase or sale or asset purchase or sale, or any
related repayment of Indebtedness, in each case since the first
day of such period, assuming such acquisition or disposition had
been consummated on the first day of such period;
provided that
(1) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on
a pro forma basis and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period
for which the computation is being made but which bears, at the
option of such Person, a fixed or floating rate of interest,
shall be computed by applying at the option of such Person
either the fixed or floating rate, and
(2) in making such computation, the Consolidated Interest
Expense of such Person attributable to interest on any
Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average
balance of such Indebtedness during the applicable period.
Consolidated Interest Expense of any Person
means, without duplication, for any period, the sum of
(a) all interest, premium payments, debt discount, fees,
charges and related expenses in connection with borrowed money
(including capitalized interest) or in connection with the
deferred purchase price of assets, in each case to the extent
treated as interest in accordance with GAAP, plus
(b) all interest paid or payable with respect to
discontinued operations, plus
(c) the portion of rent expense under Capital Lease
Obligations that is treated as interest in accordance with GAAP,
in each case of or by the Company and its Restricted
Subsidiaries on a consolidated basis for such period, plus
(d) the interest expense under any Guaranteed Debt of such
Person (to the extent such Guaranteed Debt remains outstanding)
and any Restricted Subsidiary to the extent not included under
any other clause hereof, whether or not paid by such Person or
its Restricted Subsidiaries, plus
(e) dividend requirements of the Company with respect to
Disqualified Stock and of any Restricted Subsidiary with respect
to Preferred Stock (except, in either case, dividends payable
solely in shares of Qualified Capital Stock of the Company or
such Restricted Subsidiary, as the case may be).
Consolidated Net Income (Loss) of any Person
means, for any period, the Consolidated net income (or loss) of
such Person and its Restricted Subsidiaries for such period on a
Consolidated basis as determined in accordance
71
with GAAP, adjusted, to the extent included in calculating such
net income (or loss), by excluding, without duplication,
(1) all extraordinary gains or losses (less all fees and
expenses relating thereto) net of taxes,
(2) the portion of net income (or loss) of such Person and
its Restricted Subsidiaries on a Consolidated basis allocable to
minority interests in unconsolidated Persons or Unrestricted
Subsidiaries to the extent that cash dividends or distributions
have not actually been received by such Person or one of its
Consolidated Restricted Subsidiaries,
(3) any gain or loss, net of taxes, realized upon the
termination of any employee pension benefit plan,
(4) gains or losses (less all fees and expenses relating
thereto), net of taxes, in respect of dispositions of assets
other than in the ordinary course of business,
(5) the net income of any Restricted Subsidiary to the
extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is
not at the time permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its
stockholders,
(6) any impairment charge or write-down of non-current
assets, in each case pursuant to GAAP,
(7) any non-cash expenses or charges resulting from stock,
stock option or other equity-based awards,
(8) any cumulative effect of a change in accounting
principles,
(9) all deferred financing costs written off, and premiums
paid, in connection with any early extinguishment of
Indebtedness, and.
(10) any non-cash restructuring charges.
Consolidated Net Tangible Assets means, with
respect to any Person at any date of determination, the
aggregate amount of total assets included in such Persons
most recent quarterly or annual consolidated balance sheet
prepared in accordance with GAAP less applicable reserves
reflected in such balance sheet, after deducting the following
amounts: (a) all current liabilities reflected in such
balance sheet, and (b) all goodwill, trademarks, patents,
unamortized debt discounts and expenses and other like
intangibles reflected in such balance sheet.
Consolidated Non-cash Charges of any Person
means, for any period, the aggregate depreciation, depletion,
amortization and exploration expense and other non-cash charges
of such Person and its Subsidiaries on a Consolidated basis for
such period, as determined in accordance with GAAP (excluding
any non-cash charge which requires an accrual or reserve for
cash charges for any future period).
Consolidation means, with respect to any
Person, the consolidation of the accounts of such Person and
each of its subsidiaries if and to the extent the accounts of
such Person and each of its Subsidiaries would normally be
consolidated with those of such Person, all in accordance with
GAAP. The term Consolidated shall have a similar
meaning.
Continuing Directors means, as of any date of
determination, any member of the Board of Directors of the
Company who: (1) was a member of the Board of Directors on
the date of the Indenture; or (2) was nominated for
election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of
such Board of Directors at the time of such nomination or
election.
Convertible Senior Subordinated Debentures
means the $135 million aggregate principal amount of
4.125% Convertible Senior Subordinated Debentures due 2027
issued by the Company under the Convertible Senior Subordinated
Debentures Indenture.
Convertible Senior Subordinated Debentures
Indenture means the Convertible Senior Subordinated
Debentures Indenture dated as of the Issue Date, among the
Company, as issuer, certain of its Subsidiaries, as guarantors,
and Wells Fargo Bank, N.A., as trustee, pursuant to which the
Convertible Senior Subordinated Debentures are issued.
72
Credit Facility means, one or more debt
facilities (including, without limitation, the Senior Credit
Facilities), commercial paper facilities or other debt
instruments, indentures or agreements, providing for revolving
credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such
receivables), letters of credit or other debt obligations, in
each case, as amended, restated, modified, renewed, refunded,
restructured, supplemented, replaced or refinanced (including by
means of any Qualified Receivables Transaction) from time to
time in whole or in part from time to time, including without
limitation any amendment increasing the amount of Indebtedness
incurred or available to be borrowed thereunder, extending the
maturity of any Indebtedness incurred thereunder or contemplated
thereby or deleting, adding or substituting one or more parties
thereto (whether or not such added or substituted parties are
banks or other institutional lenders).
Default means any event which is, or after
notice or passage of time or both would be, an Event of Default.
Disinterested Director means, with respect to
any transaction or series of related transactions, a member of
the Board of Directors of the Company who does not have any
material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
Disqualified Stock means any Capital Stock
that, either by its terms or by the terms of any security into
which it is convertible or exchangeable or otherwise, is or upon
the happening of an event or passage of time would be, required
to be redeemed prior to the final Stated Maturity of the
principal of the Notes or is redeemable at the option of the
holder thereof at any time prior to such final Stated Maturity
(other than upon a change of control of or sale of assets by the
Company in circumstances where the holders of the Notes would
have similar rights), or is convertible into or exchangeable for
debt securities at any time prior to such final Stated Maturity
at the option of the holder thereof.
Exchange Act means the Securities Exchange
Act of 1934, as amended, or any successor statute, and the rules
and regulations promulgated by the Commission thereunder.
Exchanged Properties means properties or
assets or Capital Stock representing an equity interest in or
assets used or useful in the Permitted Business, received by the
Company or a Restricted Subsidiary in a substantially concurrent
purchase and sale, trade or exchange as a portion of the total
consideration for other such properties or assets.
Fair Market Value means, with respect to any
asset or property, the sale value that would be obtained in an
arms-length free market transaction between an informed
and willing seller under no compulsion to sell and an informed
and willing buyer under no compulsion to buy. Fair Market Value
shall be determined by the Board of Directors of the Company
acting in good faith and shall be evidenced by a resolution of
the Board of Directors.
Foreign Subsidiary means any Restricted
Subsidiary of the Company that (x) is not organized under
the laws of the United States of America or any State thereof or
the District of Columbia, or (y) was organized under the
laws of the United States of America or any State thereof or the
District of Columbia that has no material assets other than
Capital Stock of one or more foreign entities of the type
described in clause (x) above and is not a guarantor
of Indebtedness of a domestic entity under the Senior Credit
Facilities.
GAAP means generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements
of the Financial Accounting Standards Board, the Public Company
Accounting Oversight Board or in such other statements by such
other entity as have been approved by a significant segment of
the accounting profession, which are in effect (i) with
respect to periodic reporting requirements, from time to time,
and (ii) otherwise on the Issue Date.
Guarantee means the guarantee by any
Guarantor of the Companys Indenture Obligations;
provided that the term Guarantee shall not
include Standard Receivables Undertakings in a Qualified
Receivables Transaction.
Guaranteed Debt of any Person means, without
duplication, all Indebtedness of any other Person referred to in
the definition of Indebtedness below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed
directly or indirectly by such Person through an agreement
73
(1) to pay or purchase such Indebtedness or to advance or
supply funds for the payment or purchase of such Indebtedness,
(2) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such
Indebtedness or to assure the holder of such Indebtedness
against loss,
(3) to supply funds to, or in any other manner invest in,
the debtor (including any agreement to pay for property or
services without requiring that such property be received or
such services be rendered),
(4) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or
other financial condition of the debtor or to cause such debtor
to achieve certain levels of financial performance or
(5) otherwise to assure a creditor against loss;
provided that the term guarantee shall not
include endorsements for collection or deposit, in either case
in the ordinary course of business.
Guarantor means any Subsidiary which is a
guarantor of the Notes, including any Person that is required
after the date of the Indenture to execute a guarantee of the
Notes pursuant to the Issuances of Guarantees by
Restricted Subsidiaries covenant until a successor
replaces such party pursuant to the applicable provisions of the
Indenture and, thereafter, shall mean such successor.
Indebtedness means, with respect to any
Person, without duplication,
(1) all indebtedness of such Person for borrowed money or
for the deferred purchase price of property or services,
excluding any trade payables and other accrued current
liabilities arising in the ordinary course of business, but
including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of
credit issued under letter of credit facilities, acceptance
facilities or other similar facilities,
(2) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments,
(3) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect
to property acquired by such Person to the extent of the value
of such property (even if the rights and remedies of the seller
or lender under such agreement in the event of default are
limited to repossession or sale of such property), but excluding
trade payables arising in the ordinary course of business,
(4) all obligations under or in respect of currency
exchange contracts, commodity hedging arrangements and Interest
Rate Agreements of such Person (the amount of any such
obligations to be equal at any time to the termination value of
such agreement or arrangement giving rise to such obligation
that would be payable by such Person at such time),
(5) all Capital Lease Obligations of such Person,
(6) the Attributable Indebtedness related to any Sale
Leaseback Transaction,
(7) all Indebtedness referred to in clauses (1)
through (6) above of other Persons and all dividends of
other Persons, to the extent the payment of such Indebtedness or
dividends is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien, upon or with respect to property to the
extent of the value of such property (including, without
limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the
payment of such Indebtedness,
(8) all Guaranteed Debt of such Person,
(9) all Disqualified Stock issued by such Person valued at
the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends,
(10) Preferred Stock of any Restricted Subsidiary of the
Company or any Guarantor, and
74
(11) any amendment, supplement, modification, deferral,
renewal, extension, refunding or refinancing of any liability of
the types referred to in clauses (1) through
(10) above.
For purposes hereof, the maximum fixed repurchase
price of any Disqualified Stock which does not have a
fixed repurchase price shall be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified
Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the Fair Market Value of
such Disqualified Stock, such Fair Market Value to be determined
in good faith by the Board of Directors of the issuer of such
Disqualified Stock.
Indenture means the Notes Indenture
dated as of the Issue Date, among the Company, as issuer,
certain of its Subsidiaries, as guarantors, and Wells Fargo
Bank, N.A., as trustee, pursuant to which the Notes are issued.
Indenture Obligations means the obligations
of the Company and any other obligor under the Indenture or
under the Notes, including any Guarantor, to pay principal of,
premium, if any, and interest when due and payable, and all
other amounts due or to become due under or in connection with
the Indenture, the Notes and the performance of all other
obligations to the Trustee and the holders under the Indenture
and the Notes, according to the respective terms thereof.
Interest Rate Agreements means one or more of
the following agreements which shall be entered into by one or
more financial institutions: interest rate protection agreements
(including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements)
and/or other
types of interest rate hedging agreements from time to time.
Investment means, with respect to any Person,
directly or indirectly, any advance, loan (including
guarantees), or other extension of credit or capital
contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for
the account or use of others), or any purchase, acquisition or
ownership by such Person of any Capital Stock, bonds, notes,
debentures or other securities issued or owned by any other
Person and all other items that would be classified as
investments on a balance sheet prepared in accordance with GAAP.
Investment shall exclude direct or indirect advances
to customers or suppliers in the ordinary course of business
that are, in conformity with GAAP, recorded as accounts
receivable, prepaid expenses or deposits on the Companys
or any Restricted Subsidiarys balance sheet, endorsements
for collection or deposit arising in the ordinary course of
business, extensions of trade credit on commercially reasonable
terms in accordance with normal trade practices and travel
expenses and similar advances to officers and employees arising
in the ordinary course of business. If the Company of any
Restricted Subsidiary of the Company sells or otherwise disposes
of any Capital Stock of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the
Company (other than the sale of all of the outstanding Capital
Stock of such Subsidiary), the Company will be deemed to have
made an Investment on the date of such sale or disposition equal
to the Fair Market Value of the Companys Investments in
such Subsidiary that were not sold or disposed of in an amount
determined as provided in Certain
Covenants Restricted Payments.
Issue Date means the original issue date of
the Notes under the Indenture.
Lien means any mortgage or deed of trust,
charge, pledge, lien (statutory or otherwise), privilege,
security interest, assignment, deposit, arrangement, easement,
hypothecation, claim, preference, priority or other encumbrance
upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention
agreement, any leases in the nature thereof, and any agreement
to give any security interest), real or personal, movable or
immovable, now owned or hereafter acquired. A Person will be
deemed to own subject to a Lien any property which it has
acquired or holds subject to the interest of a vendor or lessor
under any conditional sale agreement, Capital Lease Obligation
or other title retention agreement.
Liquid Securities means securities
(i) of an issuer that is not an Affiliate of the Company,
(ii) that are publicly traded on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq Stock Market
and (iii) as to which the Company is not subject to any
restrictions on sale or transfer (including any volume
restrictions under Rule 144 under the Securities Act or any
other restrictions imposed by the Securities Act) or as to which
a registration statement under the Securities Act covering the
resale thereof is in effect for as long as the securities are
held; provided that securities meeting the requirements
of clauses (i), (ii) and (iii) above shall be
treated as Liquid
75
Securities from the date of receipt thereof until and only until
the earlier of (a) the date on which such securities are
sold or exchanged for cash or Cash Equivalents and
(b) 150 days following the date of receipt of such
securities. If such securities are not sold or exchanged for
cash or Cash Equivalents within 150 days of receipt
thereof, for purposes of determining whether the transaction
pursuant to which the Company or a Restricted Subsidiary
received the securities was in compliance with the provisions of
the Indenture described under Certain
Covenants Asset Sales, such securities
shall be deemed not to have been Liquid Securities at any time.
Maturity means, when used with respect to the
Notes, the date on which the principal of the Notes becomes due
and payable as therein provided or as provided in the Indenture,
whether at Stated Maturity, the Asset Sale Purchase Date, the
Change of Control Purchase Date or the redemption date and
whether by declaration of acceleration, Prepayment Offer in
respect of Excess Proceeds, Change of Control Offer in respect
of a Change of Control, call for redemption or otherwise.
Net Available Cash from an Asset Sale or Sale
Leaseback Transaction means cash proceeds received therefrom
(including (i) any cash proceeds received by way of
deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received and
(ii) the Fair Market Value of Liquid Securities and Cash
Equivalents, and excluding (a) any other consideration
received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to the assets or
property that is the subject of such Asset Sale or Sale
Leaseback Transaction and (b) except to the extent
subsequently converted to cash, Cash Equivalents or Liquid
Securities within 180 days after such Asset Sale or Sale
Leaseback Transaction, or consideration other than as identified
in the immediately preceding clauses (i) and (ii)), in each
case net of (a) all legal, title and recording expenses,
commissions and other fees and expenses incurred, and all
federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP as a consequence of such Asset
Sale or Sale Leaseback Transaction, (b) all payments made
on any Indebtedness (but specifically excluding Indebtedness of
the Company and its Restricted Subsidiaries assumed in
connection with or in anticipation of such Asset Sale or Sale
Leaseback Transaction) which is secured by any assets subject to
such Asset Sale or Sale Leaseback Transaction, in accordance
with any Lien upon such assets, or which must by its terms, or
in order to obtain a necessary consent to such Asset Sale or
Sale Leaseback Transaction or by applicable law, be repaid out
of the proceeds from such Asset Sale or Sale Leaseback
Transaction, provided that such payments are made in a
manner that results in the permanent reduction in the balance of
such Indebtedness and, if applicable, a permanent reduction in
any outstanding commitment for future incurrences of
Indebtedness thereunder, (c) all distributions and other
payments required to be made to minority interest holders in
Subsidiaries or joint ventures as a result of such Asset Sale or
Sale Leaseback Transaction and (d) the deduction of
appropriate amounts to be provided by the seller as a reserve,
in accordance with GAAP, against any liabilities associated with
the assets disposed of in such Asset Sale or Sale Leaseback
Transaction and retained by the Company or any Restricted
Subsidiary after such Asset Sale or Sale Leaseback Transaction;
provided, however, that if any consideration for an Asset
Sale or Sale Leaseback Transaction (which would otherwise
constitute Net Available Cash) is required to be held in escrow
pending determination of whether a purchase price adjustment
will be made, such consideration (or any portion thereof) shall
become Net Available Cash only at such time as it is released to
such Person or its Restricted Subsidiaries from escrow.
Net Cash Proceeds means with respect to any
issuance or sale of Capital Stock or options, warrants or rights
to purchase Capital Stock, or debt securities or Capital Stock
that have been converted into or exchanged for Capital Stock as
referred to under Certain
Covenants Restricted Payments, the
proceeds of such issuance or sale in the form of cash or Cash
Equivalents including payments in respect of deferred payment
obligations when received in the form of, or stock or other
assets when disposed of for, cash or Cash Equivalents (except to
the extent that such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary), net of
attorneys fees, accountants fees and brokerage,
consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of
taxes paid or payable as a result thereof.
Pari Passu Indebtedness means any
Indebtedness of the Company or a Guarantor that is pari passu in
right of payment to the Notes or a Guarantee, as the case may be.
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Pari Passu Offer means an offer by the
Company or a Guarantor to purchase all or a portion of Pari
Passu Indebtedness to the extent required by the indenture or
other agreement or instrument pursuant to which such Pari Passu
Indebtedness was issued.
Permitted Business means any business
conducted by the Company or any of its Subsidiaries as described
in this prospectus and any businesses that, in the good faith
judgment of the Board of Directors of the Company, are
reasonably related, ancillary, supplementary or complementary
thereto, or reasonable extensions thereof.
Permitted Investment means
(1) Investments in any Restricted Subsidiary (including the
purchase of Capital Stock of a Restricted Subsidiary) or any
Person which, as a result of such Investment, (a) becomes a
Restricted Subsidiary or (b) is merged or consolidated with
or into, or transfers or conveys substantially all of its assets
to, or is liquidated into, the Company or any Restricted
Subsidiary;
(2) Indebtedness of the Company or a Restricted Subsidiary
described under clauses (5), (6), (7) and (13) of
the definition of Permitted Debt and the related
Investment;
(3) Investments in any of the Notes;
(4) Cash Equivalents or cash;
(5) Investments acquired by the Company or any Restricted
Subsidiary in connection with an asset sale permitted under
Certain Covenants Asset
Sales to the extent such Investments are non-cash
proceeds as permitted under such covenant;
(6) Investments in existence on the date of the Indenture
and any extensions or renewals thereof;
(7) Investments acquired in exchange for the issuance of
Capital Stock of the Company or an Unrestricted Subsidiary;
(8) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility and workers
compensation, performance and other similar deposits provided to
third parties in the ordinary course of business;
(9) loans or advances to employees of the Company in the
ordinary course of business for bona fide business purposes of
the Company and its Restricted Subsidiaries (including travel,
entertainment and relocation expenses) in the aggregate amount
outstanding at any one time of not more than $2.5 million;
(10) any Investments received in good faith in settlement
or compromise of obligations of trade creditors or customers
that were incurred in the ordinary course of business, including
pursuant to any plan of reorganization or similar arrangement
upon the bankruptcy or insolvency of any trade creditor or
customer;
(11) other Investments in the aggregate amount outstanding
at any one time of up to $15.0 million;
(12) the acquisition by a Receivables Subsidiary in
connection with a Qualified Receivables Transaction of Capital
Stock of a trust or other Person established by such Receivables
Subsidiary to effect such Qualified Receivables Transaction; and
any Investment by the Company or a Subsidiary of the Company in
a Receivables Subsidiary or any Investment by a Receivables
Subsidiary in any other Person in connection with a Qualified
Receivables Transaction; provided that such Investment is
in the form of a customary promissory note from the Company or a
Subsidiary, contributions of additional Receivables Assets
and/or cash
and Cash Equivalents or equity interests; and
(13) Investments in Invatection Insurance Company to the
extent required under the State of Vermont regulatory authority
or law.
In connection with any assets or property contributed or
transferred to any Person as an Investment, such property and
assets shall be equal to the Fair Market Value at the time of
Investment, without regard to subsequent changes in value.
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Permitted Lien means:
(a) any Lien existing as of the date of the Indenture on
Indebtedness existing on the date of the Indenture and not
otherwise referred to in this definition;
(b) any Lien with respect to a Credit Facility or any
successor Credit Facility so long as the aggregate principal
amount outstanding under such Credit Facility or any successor
Credit Facility does not exceed the principal amount which could
be borrowed under clause (1) of the definition of Permitted
Debt;
(c) any Lien securing Indebtedness permitted to be incurred
pursuant to clause (15) and (16) of the
definition of Permitted Debt;
(d) any Lien granted by Invatection Insurance Company or
any other captive insurance company to the extent such
Indebtedness was incurred in accordance with the laws or
regulations of the State of Vermont or other jurisdiction;
(e) any Lien securing goods sold by a Restricted Subsidiary
located in Europe to the extent such Lien is limited to the
value of such goods sold;
(f) any Lien securing the Notes, the Guarantees and other
obligations arising under the Indenture, and any Lien in favor
of the trustee under the Convertible Senior Subordinated
Debentures Indenture;
(g) any Lien in favor of the Company or a Restricted
Subsidiary;
(h) any Lien arising by reason of:
(1) any judgment, decree or order of any court, so long as
such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of
such judgment, decree or order shall not have been finally
terminated or the period within which such proceedings may be
initiated shall not have expired;
(2) taxes, assessments or governmental charges or claims
that are not yet delinquent or which are being contested in good
faith by appropriate proceedings promptly instituted and
diligently conducted, provided that any reserve or other
appropriate provision as will be required in conformity with
GAAP will have been made therefor;
(3) security made in the ordinary course of business in
connection with workers compensation, unemployment
insurance or other types of social security;
(4) good faith deposits in connection with tenders, leases
and contracts (other than contracts for the payment of money);
(5) zoning restrictions, easements, licenses, reservations,
title defects, rights of others for rights of way, utilities,
sewers, electric lines, telephone or telegraph lines, and other
similar purposes, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of
title (and with respect to leasehold interests, mortgages,
obligations, Liens and other encumbrances incurred, created,
assumed or permitted to exist and arising by, through or under a
landlord or owner of the leased property, with or without
consent of the lessee), none of which materially impairs the use
of any parcel of property material to the operation of the
business of the Company or any Subsidiary or the value of such
property for the purpose of such business;
(6) deposits to secure public or statutory obligations, or
in lieu of surety or appeal bonds;
(7) operation of law in favor of mechanics, carriers,
warehousemen, landlords, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business for sums
which are not yet delinquent or are being contested in good
faith by negotiations or by appropriate proceedings which
suspend the collection thereof; or
(8) Indebtedness or other obligations of a Wholly Owned
Restricted Subsidiary owing to the Company or another Wholly
Owned Restricted Subsidiary of the Company;
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(i) any Lien securing Acquired Debt created prior to (and
not created in connection with, or in contemplation of) the
incurrence of such Indebtedness by the Company or any
Subsidiary; provided that such Lien only secures the
assets acquired in connection with the transaction pursuant to
which the Acquired Debt became an obligation of the Company or a
Restricted Subsidiary;
(j) any Lien to secure performance bids, leases (including,
without limitation, statutory and common law landlords
liens), statutory obligations, surety and appeal bonds, letters
of credit and other obligations of a like nature and incurred in
the ordinary course of business of the Company or any Subsidiary
and not securing or supporting Indebtedness;
(k) any Lien securing Indebtedness permitted to be incurred
under Interest Rate Agreements incurred pursuant to
clause (7) of the definition of Permitted Debt, so long as
none of such Indebtedness constitutes debt for borrowed money;
(l) any Lien securing Capital Lease Obligations or Purchase
Money Obligations incurred in accordance with the Indenture
(pursuant to clause (8) of the definition of Permitted
Debt) and which are incurred or assumed solely in connection
with the acquisition, development or construction of real or
personal, moveable or immovable property commencing within
90 days of such incurrence or assumption; provided that
such Liens only extend to such acquired, developed or
constructed property, such Liens secure Indebtedness in an
amount not in excess of the original purchase price or the
original cost of any such assets or repair, addition or
improvement thereto (including the cost of any installation and
software), and the incurrence of such Indebtedness is permitted
by the Incurrence of Indebtedness and Issuance of
Disqualified Stock covenant;
(m) leases and subleases of real property which do not
materially interfere with the ordinary conduct of the business
of the Company or any of its Restricted Subsidiaries;
(n) (1) Liens on property, assets or shares of stock
of a Person at the time such Person becomes a Restricted
Subsidiary or is merged with or into or consolidated with the
Company or any of its Restricted Subsidiaries; provided,
however, that such Liens are not created, incurred or
assumed in connection with, or in contemplation of, such other
Person becoming a Restricted Subsidiary or such merger or
consolidation; provided further, that any such Lien may
not extend to any other property owned by the Company or any
Restricted Subsidiary and assets fixed or appurtenant thereto;
and (2) Liens on property, assets or shares of capital
stock existing at the time of acquisition thereof by the Company
or any of its Restricted Subsidiaries; provided, however,
that such Liens are not created, incurred or assumed in
connection with, or in contemplation of, such acquisition and do
not extend to any property other than the property so acquired;
(o) any Lien incurred in connection with a transaction of
the type contemplated pursuant to clause (13) of the
definition of Permitted Debt;
(p) any extension, renewal, refinancing or replacement, in
whole or in part, of any Lien described in the foregoing
clauses (a) through (o) so long as no additional
collateral is granted as security thereby; and
(q) in addition to the items referred to in
clauses (a) through (p) above, Liens of the Company
and its Restricted Subsidiaries on Indebtedness in an aggregate
amount which, when take together with the aggregate amount of
all Liens on Indebtedness incurred pursuant to this
clause (q) and then outstanding, will not exceed 10.0% of
Consolidated Net Tangible Assets at any one time outstanding.
Permitted Refinancing Indebtedness means any
Indebtedness of the Company or any of its Restricted
Subsidiaries issued in exchange for, or the net proceeds of
which are used to refund, refinance, replace, defease or
discharge other Indebtedness of the Company or any of its
Restricted Subsidiaries (other than intercompany Indebtedness);
provided that:
(1) the principal amount (or accreted value, if applicable)
of such Permitted Refinancing Indebtedness does not exceed the
principal amount (or accreted value, if applicable) of the
Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged (plus all accrued interest on the
Indebtedness and the amount of all fees and expenses, including
premiums, incurred in connection therewith);
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(2) such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the
Weighted Average Life to Maturity of, the Indebtedness being
renewed, refunded, refinanced, replaced, defeased or discharged;
(3) if the Indebtedness being renewed, refunded,
refinanced, replaced, defeased or discharged is subordinated in
right of payment to the Notes, such Permitted Refinancing
Indebtedness is subordinated in right of payment to the Notes on
terms at least as favorable to the holders of Notes as those
contained in the documentation governing the Indebtedness being
renewed, refunded, refinanced, replaced, defeased or
discharged; and
(4) such Indebtedness is incurred either by the Company or
by the Restricted Subsidiary that is the obligor on the
Indebtedness being renewed, refunded, refinanced, replaced,
defeased or discharged.
Person means any individual, corporation,
limited liability company, partnership, joint venture,
association, joint-stock company, trust, unincorporated
organization or government or any agency or political
subdivision thereof.
Preferred Stock means, with respect to any
Person, any Capital Stock of any class or classes (however
designated) which is preferred as to the payment of dividends or
distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such
Person, over the Capital Stock of any other class in such Person.
Public Equity Offering means an underwritten
public offering of common stock (other than Disqualified Stock)
of the Company pursuant to a registration statement that has
been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on
Form S-4
(or any successor form covering substantially the same
transactions),
Form S-8
(or any successor form covering substantially the same
transactions) or otherwise relating to equity securities
issuable under any employee benefit plan of the Company).
Purchase Money Obligation means any
Indebtedness secured by a Lien on assets related to the business
of the Company and any additions and accessions thereto, which
are purchased or constructed by the Company at any time after
the Notes are issued; provided that
(1) the security agreement or conditional sales or other
title retention contract pursuant to which the Lien on such
assets is created (collectively a Purchase Money Security
Agreement) shall be entered into within 90 days after
the purchase or substantial completion of the construction of
such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom,
(2) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in
connection with the purchase of additions and accessions thereto
and except in respect of fees and other obligations in respect
of such Indebtedness; and
(3) (A) the aggregate outstanding principal amount of
Indebtedness secured thereby (determined on a per asset basis in
the case of any additions and accessions) shall not at the time
such Purchase Money Security Agreement is entered into exceed
100% of the purchase price to the Company of the assets subject
thereto (including the cost of any installation and software) or
(B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired (including the
cost of any installation and software), any additions and
accessions thereto and any proceeds therefrom.
Qualified Capital Stock of any Person means
any and all Capital Stock of such Person other than Disqualified
Stock.
Qualified Receivables Transaction means any
transaction or series of transactions entered into by the
Company or any of its Subsidiaries pursuant to which the Company
or any of its Subsidiaries sells, conveys or otherwise transfers
to (1) a Receivables Subsidiary (in the case of a transfer
by the Company or any of its Subsidiaries) or (2) any other
Person (in the case of a transfer by a Receivables Subsidiary),
or transfers an undivided interest in or grants a security
interest in, any Receivable Assets (whether now existing or
arising in the future) of the Company or any of its
Subsidiaries, and any assets related thereto including, without
limitation, all
80
collateral securing such Receivable Assets, all contracts and
all guarantees or other obligations in respect of such
Receivable Assets, proceeds of such Receivable Assets and other
assets which are customarily transferred, or in respect of which
security interest are customarily granted, in connection with
asset securitization transactions involving Receivable Assets
and any hedging obligations entered into by the Company or any
of its Subsidiaries in connection with such Receivable Assets.
Receivables Assets means any accounts
receivable, instruments, chattel paper, contract rights, general
intangibles or revenue streams or any rights to collection of
any of the foregoing (whether now existing or arising or
acquired in the future) subject to a Qualified Receivables
Transaction and any assets related thereto, including, without
limitation, all collateral securing such assets including any
pledged bank accounts and lock boxes, all contracts and contract
rights and all guarantees or other obligations in respect of
such assets and all proceeds of the foregoing.
Receivables Subsidiary means a Subsidiary of
the Company (or another Person formed for the purposes of
engaging in a Qualified Receivables Transaction in which the
Company or any of its Subsidiaries makes an Investment and to
which the Company or any of its Subsidiaries transfers
Receivables Assets and related assets) which engages in no
activities other than in connection with the financing of
Receivables Assets of the Company or its Subsidiaries, and any
business or activities incidental or related to such business,
and which is designated by the Board of Directors of the Company
(as provided below) to be a Receivables Subsidiary (a) no
portion of the Indebtedness or any other obligations (contingent
or otherwise) of which (1) is guaranteed by the Company or
any Subsidiary of the Company (excluding guarantees of
obligations (other than the principal of, and interest on,
Indebtedness) pursuant to Standard Receivables Undertakings),
(2) is recourse to or obligates the Company or any
Subsidiary of the Company in any way other than pursuant to
Standard Receivables Undertakings or (3) subjects any
property or assets of the Company or any Subsidiary of the
Company (other than Receivables Assets and related assets as
provided in the definition of Qualified Receivables
Transaction) directly or indirectly, contingently or
otherwise, to the satisfaction thereof other than pursuant to
Standard Receivables Undertakings, (b) with which neither
the Company nor any Subsidiary of the Company has any material
contract, agreement, arrangement or understanding (other than on
terms which the Company reasonably believes to be no less
favorable to the Company or such Subsidiary than those that
might be obtained at the time from Persons who are not
Affiliates of the Company) other than fees payable in the
ordinary course of business in connection with servicing
Receivables Assets, and (c) with which neither the Company
nor any Subsidiary of the Company has any obligation to maintain
or preserve such entitys financial condition or cause such
entity to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company or such
other Person will be evidenced to the Trustee by filing with the
Trustee a certified copy of a resolution of the Board of
Directors of the Company or such Person giving effect to such
designation, together with an officers certificate
certifying that such designation complied with the foregoing
conditions.
Restricted Subsidiary means any Subsidiary of
the Company that has not been designated by the Board of
Directors of the Company by a board resolution delivered to the
Trustee as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under Certain
Covenants Unrestricted Subsidiaries.
Revolving Credit Facility means the revolving
credit facility of $150 million dated as of
February 12, 2007 with the Company as borrower and Bank of
America, N.A., National City Bank and KeyBank National
Association as initial lenders thereunder, with National City
Bank as administrative agent, National City Bank and KeyBank
National Association as joint lead arrangers, Banc of America
Securities LLC, National City Bank and KeyBank National
Association as joint book running managers, KeyBank National
Association as syndication agent and Bank of America, N.A. as
documentation agent thereunder.
Sale Leaseback Transaction means, with
respect to the Company or any of its Restricted Subsidiaries,
any arrangement with any Person providing for the leasing by the
Company or any of its Restricted Subsidiaries of any principal
property, acquired or placed into service more than
180 days prior to such arrangement, whereby such property
has been or is to be sold or transferred by the Company or any
of its Restricted Subsidiaries to such Person.
Securities Act means the Securities Act of
1933, as amended, or any successor statute, and the rules and
regulations promulgated by the Commission thereunder.
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Senior Credit Facilities means, collectively,
the Revolving Credit Facility and the Term B Credit Facility.
Significant Subsidiary means any Restricted
Subsidiary that would be a significant subsidiary of
the Company within the meaning of
Rule 1-02
under
Regulation S-X
promulgated by the Commission as in effect on the date of the
Indenture.
Standard Receivables Undertakings means
representations, warranties, covenants and indemnities,
including, without limitation, any indemnification of directors,
entered into by the Company or any Subsidiary of the Company
which the Company has determined in good faith to be reasonably
customary in a Qualified Receivables Transaction, including,
without limitation, those relating to the servicing of the
assets of a Receivables Subsidiary.
Stated Maturity means, when used with respect
to any Indebtedness or any installment of interest thereon, the
dates specified in such Indebtedness as the fixed date on which
the principal of such Indebtedness or such installment of
interest, as the case may be, is due and payable.
Subsidiary of a Person means
(1) any corporation more than 50% of the outstanding voting
power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other
Subsidiaries of such Person, or by such Person and one or more
other Subsidiaries thereof, or
(2) any limited partnership of which such Person or any
Subsidiary of such Person is a general partner, or
(3) any other Person in which such Person, or one or more
other Subsidiaries of such Person, or such Person and one or
more other Subsidiaries, directly or indirectly, has more than
50% of the outstanding partnership or similar interests or has
the power, by contract or otherwise, to direct or cause the
direction of the policies, management and affairs thereof.
Term B Credit Facility means the Term B
facility aggregating $250 million dated as of
February 12, 2007 with the Company as borrower and Bank of
America, N.A., National City Bank and KeyBank National
Association as initial lenders thereunder, with National City as
administrative agent, Banc of America Securities LLC and KeyBank
National Association as joint lead arrangers, Banc of America
Securities LLC, National City Bank and KeyBank National
Association as joint book running managers, KeyBank National
Association as syndication agent and Bank of America, N.A. as
documentation agent thereunder.
Unrestricted Subsidiary means any Subsidiary
of the Company (other than a Guarantor) designated as such
pursuant to and in compliance with the covenant described under
Certain Covenants Unrestricted
Subsidiaries.
Unrestricted Subsidiary Indebtedness of any
Unrestricted Subsidiary means Indebtedness of such Unrestricted
Subsidiary
(1) as to which neither the Company nor any Restricted
Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to,
such Indebtedness), except Guaranteed Debt of the Company or any
Restricted Subsidiary to any Affiliate of the Company, in which
case (unless the incurrence of such Guaranteed Debt resulted in
a Restricted Payment at the time of incurrence) the Company
shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent
guaranteed at the time such Affiliate is designated an
Unrestricted Subsidiary; and
(2) which, upon the occurrence of a default with respect
thereto, does not result in, or permit any holder of any
Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any
Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity;
provided that notwithstanding the foregoing, any
Unrestricted Subsidiary may guarantee the Notes.
U.S. Government Obligations means
(i) securities that are (a) direct obligations of the
United States of America for the payment of which the full faith
and credit of the United States of America is pledged or
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(b) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States of
America, which, in either case, are not callable or redeemable
at the option of the issuer thereof; and (ii) depositary
receipts issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any
U.S. Government Obligation which is specified in
clause (i) above and held by such bank for the account of
the holder of such depositary receipt, or with respect to any
specific payment of principal or interest on any
U.S. Government Obligation which is so specified and held;
provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the
holder of such depositary receipt from any amount received by
the custodian in respect of the U.S. Government Obligation
or the specific payment of principal or interest of the
U.S. Government Obligation evidenced by such depositary
receipt.
Voting Stock of a Person means Capital Stock
of such Person of the class or classes pursuant to which the
holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the Board of
Directors, managers or trustees of such Person (irrespective of
whether or not at the time Capital Stock of any other class or
classes shall have or might have voting power by reason of the
happening of any contingency).
Weighted Average Life to Maturity means, as
of the date of determination with respect to any Indebtedness,
the quotient obtained by dividing (1) the sum of the
products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled
principal payment and (b) the amount of each such principal
payment by (2) the sum of all such principal payments.
Wholly Owned Restricted Subsidiary means a
Restricted Subsidiary all the Capital Stock of which is owned by
the Company or another Wholly Owned Restricted Subsidiary (other
than directors qualifying shares).
83
MATERIAL
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
To ensure compliance with requirements imposed by certain
U.S. Treasury Regulations, notification is hereby given
that the tax discussion and any conclusions contained herein
(i) are written in connection with the promotion or
marketing by others of the transactions or matters addressed
herein, and (ii) are not intended or written to be used,
and cannot be used by any taxpayer, for the purpose of avoiding
any penalties which may be imposed on the taxpayer by the
U.S. Internal Revenue Service, or the IRS. Each
prospective investor should seek advice with respect to the
U.S. federal, state, local, and
non-U.S. tax
consequences of the transactions discussed herein based on its
particular circumstances from an independent tax advisor.
In
General
The following discussion is a summary of certain material
U.S. federal income tax consequences and, in the case of a
non-U.S. Holder
(as defined below), the material U.S. federal estate tax
consequences relevant to the exchange for the note, and the
purchase, ownership and disposition of the notes, but this
summary does not purport to be a complete analysis of all
potential tax effects to beneficial owners of the notes.
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The discussion is based on provisions of the Internal Revenue
Code of 1986, as amended, or the Code,
U.S. Treasury Regulations issued thereunder, IRS rulings
and pronouncements and judicial decisions in effect or in
existence as of the date of this prospectus, all of which are
subject to change or differing interpretations at any time. Any
such change or differing interpretations may be applied
retroactively in a manner that could adversely affect beneficial
owners of the notes and the continued validity of this summary.
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This discussion does not address all of the U.S. federal
income tax consequences that may be relevant to particular
beneficial owners of the notes in light of their particular
circumstances (such as the application of the alternative
minimum tax) or that may be relevant because the beneficial
owner is subject to special rules, including but not limited to
rules applicable to certain financial institutions, certain
U.S. expatriates, insurance companies, dealers in
securities or currencies, traders in securities,
U.S. holders whose functional currency is not the
U.S. Dollar, tax-exempt organizations, individual
retirement accounts and tax-deferred accounts, controlled
foreign corporations, passive foreign investment companies and
regulated investment companies and shareholders of such
corporations, pass-through entities (including partnerships and
entities and arrangements classified as partnerships for
U.S. federal income tax purposes) and beneficial owners of
pass-through entities, and persons holding the notes as part of
a straddle, hedge, synthetic
security, constructive sale, conversion
transaction, wash sale or other integrated
transaction.
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This discussion only applies to a beneficial owner of a note
that purchased the initial note for cash in the original issue
and at the notes issue price within the
meaning of Section 1273 of the Code (i.e., the first price
at which a substantial amount of notes are sold to the public
other than to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement
agents, or wholesalers for cash).
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Except where specifically indicated, this summary does not
discuss the effect of any other U.S. federal tax laws
(including, but not limited to, U.S. federal estate and
gift tax), or any applicable state, local or foreign tax laws.
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The discussion deals only with notes held as capital
assets (generally, assets held for investment) within the
meaning of Section 1221 of the Code.
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As used herein, U.S. Holder means a beneficial
owner of the notes that is for U.S. federal tax purposes:
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an individual that is a citizen or resident of the U.S.,
including a resident alien individual meeting the requirements
under Section 7701(b) of the Code,
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a corporation or other entity taxable as a corporation created
or organized in or under the laws of the U.S., any state thereof
or the District of Columbia,
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an estate, the income of which is subject to U.S. federal
income tax regardless of its source, or
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a trust, if a U.S. court can exercise primary supervision
over the administration of the trust and one or more
United States persons (within the meaning of the
Code) can control all substantial decisions of the trust (or if
a valid election is in effect under the applicable
U.S. Treasury Regulations to treat the trust as a
United States person).
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A
non-U.S. Holder
is a beneficial owner of the notes that is neither a
U.S. Holder nor a partnership (or an entity or arrangement
classified as a partnership) for U.S. federal tax purposes.
We have not sought and will not seek any rulings from the IRS
with respect to the matters discussed below. There can be no
assurances that the IRS will not take a different position
concerning the tax consequences of the exchange, purchase,
ownership or disposition of the notes or that any such position
would not be sustained.
If a partnership or other entity or arrangement classified as a
partnership for U.S. federal income tax purposes holds the
notes, the tax treatment of a partner will generally depend on
the status of a partner and the activities of the partnership.
This discussion does not address the tax consequences to the
beneficial owner of the notes if the notes are held through a
partnership, an entity or arrangement classified as a
partnership or any other pass-through entity.
Each taxpayer should consult their tax advisors with
regard to the application of the U.S. federal income and
estate tax consequences discussed below to their particular
situation and the application of any other U.S. federal as
well as state, local or foreign tax laws and tax treaties,
including gift and estate tax laws.
U.S. Holders
This section applies to U.S. Holders.
Exchange
Offer
The exchange of the initial notes for the exchange notes (as
described in The Exchange Offer) will not constitute
a taxable exchange for U.S. federal income tax purposes and
each exchange note will, in general, be treated for
U.S. federal income tax purposes as the same instrument as
the note it was exchanged for. Consequently:
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A U.S. Holder will not recognize taxable gain or loss as a
result of exchanging its notes for exchange notes.
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The adjusted tax basis of the exchange notes received will be
the same as the adjusted tax basis of the notes exchanged
therefor immediately before such exchange.
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The holding period of the exchange notes received will include
the holding period of the notes exchanged therefor.
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Interest
Payments
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If a U.S. Holder is a cash method taxpayer for
U.S. federal income tax purposes (including most
individuals), the U.S. Holder must include the interest on
its notes in its gross income when received (actually or
constructively).
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If a U.S. Holder is an accrual method taxpayer for
U.S. federal income tax purposes, it must include the
interest on its notes in its gross income at the time the
interest accrues (i.e., when all events that fix, with
reasonable certainty, the U.S. Holders rights with
respect to the interest have accrued).
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In certain circumstances (as described in Description of
Notes Change of Control) we may be obligated to pay
amounts in excess of stated interest or principal on the notes.
According to U.S. Treasury Regulations, the possibility
that any such payments in excess of stated interest or principal
will be made will not affect the amount of interest income a
U.S. Holder recognizes if there is only a remote chance as
of the date the notes were issued that such payments will be
made. We believe that the likelihood that we will be obligated
to make any such payments is remote. Therefore, we do not intend
to treat the potential payment of additional interest pursuant
to the registration rights provisions or the potential payment
of a premium pursuant to the change of control provisions as
part of the yield to maturity of any notes. Our determination
that these contingencies are remote is binding on a
U.S. Holder unless such U.S. Holder discloses its
contrary position in the manner required by applicable
U.S. Treasury Regulations. The IRS, however, may take a
different
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position, which could affect the character, amount and timing of
income that you must recognize. If, contrary to our
expectations, we pay additional interest, although it not free
from doubt, such additional interest should be taxable to a
U.S. Holder as ordinary interest income at the time it
accrues or is paid in accordance with the
U.S. Holders regular method of tax accounting. In the
event we pay additional interest on the notes, a
U.S. Holder should consult its own tax advisor regarding
the treatment of such amounts.
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We have the option to repurchase the notes under certain
circumstances at a premium to the issue price. Under special
rules governing this type of unconditional option, because the
exercise of the option would increase the yield on the notes, we
will be deemed not to exercise the option, and the possibility
of this redemption premium will not affect the character, amount
and timing of income recognized by a U.S. Holder in advance
of receipt of any such redemption premium.
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Sale
or Other Taxable Disposition of the Notes
On the sale, exchange (other than for exchange notes pursuant to
the exchange offer, as discussed above, or in a tax-free
transaction), redemption, retirement or other taxable
disposition of a note:
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A U.S. Holder will recognize taxable gain or loss equal to
the difference between the amount realized upon such disposition
(less a portion allocable to any accrued and unpaid interest, as
explained below) and its tax basis in the note.
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In general, the tax basis in the note is the amount the
U.S. Holder paid for the note.
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The gain or loss generally will be a capital gain or loss and
will be a long-term capital gain or loss if the note has been
held for more than one year at the time of the disposition.
Otherwise, the gain or loss will be a short-term capital gain or
loss. For some non-corporate taxpayers (including individuals)
long-term capital gains will be subject to a maximum tax rate of
15%, which maximum tax rate currently is scheduled to increase
to 20% for disposition occurring during taxable years beginning
on or after January 1, 2011. Short-term capital gains are
taxed at ordinary income rates. The deductibility of capital
losses is subject to limitation under the Code.
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If a U.S. Holder sells its note between interest payment
dates, a portion of the amount it receives will reflect interest
that has accrued on the note but has not yet been paid by the
sale date. That amount is treated as interest income to the
extent not previously included in its gross income (and not as
sale proceeds) and will be taxed as ordinary income rather than
capital gain.
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Discharge
If we were to obtain a discharge of our obligations under the
Indenture with respect to all of the notes then outstanding, as
described above under Description of Notes
Satisfaction and Discharge, such discharge generally would
be deemed to constitute a taxable exchange of the outstanding
notes for other property. In such case, a U.S. Holder would
be required to recognize capital gain or loss in connection with
such deemed exchange. In addition, after such deemed exchange, a
U.S. Holder also might be required to recognize income from
the property deemed to have been received in such exchange over
the remaining life of the transaction in a manner or amount that
is different than if the discharge had not occurred. Each
taxpayer should consult their tax advisors as to the specific
consequences arising from a discharge in their particular
situation.
Information
Reporting and Backup Withholding
Under the tax rules concerning information reporting and backup
withholding to the IRS:
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If a U.S. Holder holds its notes through a broker or other
securities intermediary, such intermediary must provide
information to the IRS and to a U.S. Holder on IRS
Form 1099 concerning interest, or disposition proceeds on
the notes, unless an exemption applies.
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Similarly, unless an exemption applies, a U.S. Holder must
provide the intermediary or us with their correct Taxpayer
Identification Number, or TIN, for use in reporting
information to the IRS. If the U.S. Holder is an
individual, this generally is such individuals social
security number. A U.S. Holder is also required to
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comply with other IRS requirements concerning information
reporting, including a certification, signed under the penalties
of perjury, that the U.S. Holder is not subject to backup
withholding and is a U.S. person.
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If a U.S. Holder is subject to these requirements but does
not comply, the intermediary must withhold a percentage of all
amounts payable to the U.S. Holder on the notes, including
principal payments. Under current law, this percentage will be
28% through 2010, and 31% thereafter. This is called
backup withholding. Backup withholding may also
apply if we are notified by the IRS that such withholding is
required or that the TIN provided is incorrect.
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Backup withholding is not an additional tax. The withheld
amounts, if any, may be used as a credit against the
U.S. Holders U.S. federal income tax liability
(or refund may be claimed) as long as the U.S. Holder
timely provides the required information to the IRS.
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All individuals are subject to these requirements. Some
non-individual holders, including all corporations, tax-exempt
organizations and individual retirement plans, are exempt from
these requirements.
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Non-U.S. Holders
This section applies to
non-U.S. Holders.
Exchange
Offer
As described under
U.S. Holders Exchange
Offer, the exchange of the initial notes for the exchange
notes will not constitute a taxable exchange.
Interest
Payments
Subject to the discussion below concerning effectively connected
income and backup withholding, payments of principal of and
interest on the notes by us or our paying agent (in its capacity
as such) to a
non-U.S. Holder
will not be subject to U.S. federal income and withholding
tax, provided that in the case of interest one of two tests is
satisfied:
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The first test (the portfolio interest test) is
satisfied if:
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the
non-U.S. Holder
does not own, directly or indirectly, actually or
constructively, 10% or more of the combined voting power of all
classes of our stock entitled to vote within the meaning of
Section 871(h)(3) of the Code;
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the
non-U.S. Holder
is not a controlled foreign corporation (within the meaning of
the Code) for U.S. federal income tax purposes that is
related, directly or indirectly, to us through sufficient stock
ownership (as provided in the Code);
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the
non-U.S. Holder
is not a bank receiving interest on the notes on an extension of
credit made pursuant to a loan arrangement entered into in the
ordinary course of its trade or business; and
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the
non-U.S. Holder
certifies to us or our paying agent on IRS
Form W-8BEN
(or appropriate substitute form), which can reliably be related
to the
non-U.S. Holder,
under penalties of perjury, that it is not a United States
person within the meaning of the Code and provides us or
our paying agent its name and address. If the
non-U.S. Holder
holds the notes through a securities clearing organization,
bank, financial institution or other agent that holds
customers securities in the ordinary course of its trade
or business and holds the notes on behalf of the
non-U.S. Holder,
the
non-U.S. Holder
will be required to provide appropriate documentation to the
agent who will then be required to provide certification to us
or our paying agent under the penalties of perjury, either
directly or through other intermediaries.
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The second test is satisfied if the
non-U.S. Holder
is otherwise entitled to the benefits of an income tax treaty
under which such interest is exempt from U.S. federal
withholding tax, and it (or its agent) provides to us a properly
executed IRS
Form W-8BEN
(or an appropriate substitute form evidencing eligibility for
the exemption).
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The applicable U.S. Treasury Regulations provide
alternative methods for satisfying the certification requirement
described in this section. In addition, under these
U.S. Treasury Regulations, special rules apply to
pass-through entities and this certification requirement may
also apply to beneficial owners of pass-through entities.
Payments of interest on the notes that do not meet the
above-described requirements will be subject to a
U.S. federal income tax of 30% (or such lower rate provided
by an applicable income tax treaty if the
non-U.S. Holder
establishes that it qualifies to receive the benefits of such
treaty) collected by means of withholding.
Sale
or Other Taxable Disposition of the Notes
Subject to the discussion below concerning effectively connected
income and backup withholding, a
non-U.S. Holder
will not be subject to U.S. federal income tax on any gain
realized on (or accrued interest treated as received from) the
sale, exchange, redemption, retirement or other taxable
disposition of the notes unless (i) the
non-U.S. Holder
is an individual, is present in the U.S. for at least
183 days during the year in which it disposes of the notes,
and certain other conditions are satisfied (in which case,
except as otherwise provided by an applicable income tax treaty,
the gain, which may be offset by U.S. source capital
losses, generally will be subject to a flat 30%
U.S. federal income tax, even though the
non-U.S. Holder
is not considered a resident alien under the Code), or
(ii) in the case of disposition proceeds representing
accrued interest, the
non-U.S. Holder
cannot satisfy the requirements of the portfolio
interest test described above or is not entitled to the
benefits of an income tax treaty under which such interest is
exempt from U.S. federal income tax (and the
U.S. federal income tax liability has not otherwise been
fully satisfied through the U.S. federal withholding tax
described above).
Discharge
As described above under
U.S. Holders Discharge,
in the case of a discharge of our obligations under the
Indenture with respect to all the notes then outstanding, such
discharge generally would be deemed to constitute a taxable
exchange of the outstanding notes for other property. A
non-U.S. Holder
may be required to recognize income with respect to the property
deemed to have been received in such discharge over the
remaining life of the transaction in a manner or amount that is
different than if the discharge had not occurred. Such income
may be subject to U.S. federal income
and/or
withholding taxes. Each taxpayer should consult their tax
advisors as to the specific consequences arising from a
discharge in their particular situation.
Effectively
Connected Income
The preceding discussion assumes that the interest and gain
received by a
non-U.S. Holder
is not effectively connected with the conduct by it of a trade
or business in the U.S. If a
non-U.S. Holder
is engaged in a trade or business in the U.S. and its investment
in the notes is effectively connected with such trade or
business:
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The
non-U.S. Holder
will be exempt from the 30% withholding tax on the interest
(provided a certification requirement, generally on IRS
Form W-8ECI,
is met) and will instead generally be subject to
U.S. federal income tax on any interest and gain with
respect to the notes on a net income basis at the regular
graduated rates and in the same manner as if it were a
U.S. Holder.
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If the
non-U.S. Holder
is a foreign corporation, it may also be subject to an
additional branch profits tax at a rate of 30% of your
effectively connected earnings and profits for the taxable year,
as adjusted for certain items (or such lower rate provided by an
applicable income tax treaty if it establishes that it qualifies
to receive the benefits of such treaty).
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If the
non-U.S. Holder
is eligible for the benefits of an applicable income tax treaty,
any effectively connected income or gain will generally be
subject to U.S. federal income tax only if it is also
attributable to a permanent establishment (or, in the case of an
individual, a fixed base) maintained by the
non-U.S. Holder
in the U.S.
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U.S. Federal
Estate Tax
A note held or beneficially owned by an individual who, for
U.S. federal estate tax purposes, is not a citizen or
resident of the U.S. at the time of death will not be
includable in the decedents gross estate for
U.S. federal estate tax purposes, provided that
(i) such individual did not at the time of death, directly
or indirectly, actually or constructively, own 10% or more of
the combined voting power of all classes of our stock entitled
to vote within the meaning of Section 871(h)(3) of the
Code, and (ii) at the time of death, payments with respect
to such note would not have been effectively connected with the
conduct by such individual of a trade or business in the
U.S. In addition, the U.S. estate tax may not apply
with respect to such note under the terms of an applicable
estate tax treaty. Each taxpayer should consult their tax
advisors concerning the application of the U.S. federal
estate tax laws to their particular situation.
Information
Reporting and Backup Withholding
U.S. rules concerning information reporting and backup
withholding applicable to a
non-U.S. Holder
are as follows:
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Under current Treasury Regulations, backup withholding and
information reporting will not apply to payments made by us or
our paying agent (in its capacity as such) to a
non-U.S. Holder
if it has provided the required certification that it is not a
United States person (as described above). The
exemption does not apply if the withholding agent or an
intermediary knows or has reason to know that the
non-U.S. Holder
should be subject to the information reporting or backup
withholding rules. In addition, information reporting may still
apply to payments of interest (on
Form 1042-S)
even if certification is provided and the interest is exempt
from the 30% U.S. federal withholding tax. Moreover, copies
of the information returns reporting such interest payments and
any withholding may also be made available to the tax
authorities in the country in which the
non-U.S. Holder
resides under the provisions of a treaty or agreement.
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Gross proceeds received by the
non-U.S. Holder
on a disposition of its notes through a broker may be subject to
information reporting
and/or
backup withholding at a rate of up to 28% (which rate currently
is scheduled to increase to 31% for taxable years beginning on
or after January 1, 2011) if it is not eligible for an
exemption or do not provide the certification described above,
or if the broker has actual knowledge or reason to know that the
non-U.S. Holder
is a United States person. In particular,
information reporting and backup withholding may apply if the
non-U.S. Holder
uses the U.S. office of a broker, and information reporting
(but generally not backup withholding) may apply if it uses the
foreign office of a broker that has certain connections to the
U.S.
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We suggest that each taxpayer consult their tax advisors
concerning the application of information reporting and backup
withholding rules in their particular circumstances and the
availability of and procedure for obtaining an exemption from
backup withholding under current U.S. Treasury Regulations.
Any amounts withheld under the backup withholding rules from a
payment to a
non-U.S. Holder
will be allowed as a refund or credit against its
U.S. federal income tax liability, provided the required
information is timely furnished to the IRS.
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PLAN OF
DISTRIBUTION
Each broker-dealer that receives exchange notes for its own
account in the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of exchange
notes. Any broker-dealer who holds initial notes that are
Transfer Restricted Securities (as defined in the registration
rights agreement) and that were acquired for its own account as
a result of market-making activities or other trading activities
(other than Transfer Restricted Securities acquired directly
from us), may exchange those initial notes pursuant to the
exchange offer; however, such a broker-dealer may be deemed to
be an underwriter within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Securities Act in connection with any
resales of the exchange notes received by the broker-dealer in
the exchange offer. This prospectus delivery requirement may be
satisfied by the delivery by such a broker-dealer of this
prospectus, as it may be amended or supplemented from time to
time. We have agreed that, for a period of 180 days after
the consummation of the exchange offer, we will make this
prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any resale of exchange
notes received by it in exchange for initial notes. In addition,
all dealers effecting transactions in the exchange notes may be
required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes
by broker-dealers.
Exchange notes received by broker-dealers for their own account
in the exchange offer may be sold from time to time in one or
more transactions:
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in the
over-the-counter
market;
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in negotiated transactions;
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through the writing of options on the exchange notes; or
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a combination of those methods of resale at market prices
prevailing at the time of resale, at prices related to
prevailing market prices or negotiated prices.
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Any resale may be made:
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directly to purchasers; or
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to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer
and/or the
purchasers of any exchange notes.
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Any broker-dealer that resells exchange notes that were received
by it for its own account in the exchange offer and any broker
or dealer that participates in a distribution of those exchange
notes may be deemed to be an underwriter within the
meaning of the Securities Act. Any profit on any resale of those
exchange notes and any commission or concessions received by any
of those persons may be deemed to be underwriting compensation
under the Securities Act. The letter of transmittal states that,
by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it
is an underwriter within the meaning of the
Securities Act.
For a period of 180 days after the consummation of the
exchange offer, we will promptly send additional copies of this
prospectus and any amendment or supplement to this prospectus to
any broker-dealer that requests those documents in the letter of
transmittal. We have agreed to pay all our expenses incident to
the exchange offer, other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the notes,
including any broker-dealers, against some liabilities,
including certain liabilities under the Securities Act.
LEGAL
MATTERS
Certain legal matters related to New York law will be passed
upon for us by Harter Secrest & Emery LLP, Rochester,
New York.
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EXPERTS
The consolidated financial statements and schedule of Invacare
Corporation as of December 31, 2006 and 2005, and for each
of the three years in the period ended December 31, 2006,
appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent
registered public accounting firm, as set forth in their report
thereon appearing elsewhere herein and are included in reliance
upon such report given on the authority of such firm as experts
in accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, which we refer to as the
Securities Act, that registers the sale of the securities
offered by this prospectus. The registration statement,
including the attached exhibits, contains additional relevant
information about us. The rules and regulations of the SEC allow
us to omit some information included in the registration
statement from this prospectus.
We file annual, quarterly, and other reports, proxy statements
and other information with the SEC under the Securities Exchange
Act of 1934, as amended, which we refer to as the Exchange Act.
You may read and copy any materials we file with the SEC at the
SECs Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330
for further information on the Public Reference Room. Our SEC
filings are also available to the public through the SECs
website at http://www.sec.gov. General information about
us, including our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q
and current reports on
Form 8-K,
as well as any amendments and exhibits to those reports, are
available free of charge through our website at
http://www.invacare.com
as soon as reasonably practicable after we file them with,
or furnish them to, the SEC. Information on our website is not
incorporated into this prospectus or our other securities
filings and is not a part of this prospectus.
INCORPORATION
BY REFERENCE
The SEC allows us to incorporate by reference
information into this document. This means that we can disclose
important information to you by referring you to another
document filed separately with the SEC. The information
incorporated by reference is considered to be part of this
prospectus. We incorporate by reference the documents listed
below, other than any portions of the respective filings that
were furnished (pursuant to Item 2.02 or Item 7.01 of
current reports on
Form 8-K
or other applicable SEC rules) rather than filed:
|
|
|
|
|
our annual report on
Form 10-K/A,
filed March 7, 2007, for the year ended December 31,
2006;
|
|
|
|
our current reports on
Form 8-K
as filed with the SEC on the following dates: January 24,
2007; February 1, 2007 (under Item 8.01 only);
February 6, 2007; February 7, 2007; February 9,
2007; February 13, 2007; and March 2, 2007;
|
|
|
|
the description of our common shares contained in our
registration statement on
Form 8-A
filed under the Exchange Act, including any amendments or
reports filed for the purpose of updating such description.
|
All documents that we file pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and until the offerings hereunder are completed, or
after the date of the registration statement of which this
prospectus forms a part and prior to effectiveness of the
registration statement, will be deemed to be incorporated by
reference into this prospectus and will be a part of this
prospectus from the date of the filing of the document. Any
statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed to
be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or in any
other subsequently filed document that also is or is deemed to
be incorporated by reference in this prospectus modifies or
supersedes that statement. Any statement that is modified or
superseded will not constitute a part of this prospectus, except
as so modified or superseded. Information that accompanies an
SEC filing but that is furnished under SEC rules, rather than
filed, will not be considered a part of this prospectus and will
not supplement, modify or supercede the information contained
herein.
91
We will provide to each person, including any beneficial owner,
to whom a prospectus is delivered, a copy of any or all of these
filings, other than an exhibit to these filings unless we have
specifically incorporated that exhibit by reference into the
filing, upon written or oral request and at no cost. Requests
should be made by writing or telephoning us at the following
address or phone number: Shareholder Relations Department,
Invacare Corporation, One Invacare Way, P.O. Box 4028,
Elyria, Ohio
44036-2125;
(440) 329-6000.
92
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
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Page
|
|
Consolidated Financial
Statements of Invacare Corporation and Subsidiaries
|
|
|
|
|
Audited Consolidated Financial
Statements as of December 31, 2006 and 2005 and for each of
the three years in the period ended December 31,
2006
|
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F-2
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|
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F-3
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|
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F-4
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|
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|
|
F-5
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|
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|
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F-6
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F-7
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F-44
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F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Invacare Corporation
We have audited the accompanying consolidated balance sheets of
Invacare Corporation and subsidiaries as of December 31,
2006 and 2005, and the related consolidated statements of
operations, cash flows and shareholders equity for each of
the three years in the period ended December 31, 2006. Our
audits also included the financial statement schedule listed in
the Index. These financial statements and schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of Invacare Corporation and
subsidiaries at December 31, 2006 and 2005, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2006, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set
forth therein.
As discussed in Accounting Policies in the notes to the
consolidated financial statements, the Company adopted the
provisions of SFAS No. 123(R), Share Based
Payment, effective January 1, 2006; the provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and
132(R), effective December 31, 2006; and the provisions
of SAB No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements, applying the one-time special
transition provisions, in 2006. In addition, as described in
Accounting Policies in the notes to the consolidated
financial statements, in 2005 the Company changed its method of
accounting for inventories.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of Invacare Corporations internal control
over financial reporting as of December 31, 2006, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report, not
presented herein, dated February 28, 2007 expressed an
unqualified opinion thereon.
Cleveland, Ohio
February 28, 2007, except for the Supplemental Guarantor
Information Note as to
which the date is April 19, 2007
F-2
INVACARE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
1,498,035
|
|
|
$
|
1,529,732
|
|
|
$
|
1,403,327
|
|
Cost of products sold
|
|
|
1,080,965
|
|
|
|
1,083,533
|
|
|
|
985,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
417,070
|
|
|
|
446,199
|
|
|
|
417,944
|
|
Selling, general and
administrative expenses
|
|
|
373,846
|
|
|
|
342,039
|
|
|
|
298,557
|
|
Charge related to restructuring
activities
|
|
|
17,277
|
|
|
|
7,295
|
|
|
|
|
|
Debt finance charges, interest and
fees associated with debt refinancing
|
|
|
3,745
|
|
|
|
|
|
|
|
|
|
Asset write-downs related to
goodwill and other intangibles
|
|
|
300,417
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
34,084
|
|
|
|
27,246
|
|
|
|
14,201
|
|
Interest income
|
|
|
(2,775
|
)
|
|
|
(1,683
|
)
|
|
|
(5,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before Income
Taxes
|
|
|
(309,524
|
)
|
|
|
71,302
|
|
|
|
110,372
|
|
Income taxes
|
|
|
8,250
|
|
|
|
22,450
|
|
|
|
35,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss)
|
|
$
|
(317,774
|
)
|
|
$
|
48,852
|
|
|
$
|
75,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss) per
Share Basic
|
|
$
|
(10.00
|
)
|
|
$
|
1.55
|
|
|
$
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding Basic
|
|
|
31,789
|
|
|
|
31,555
|
|
|
|
31,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss) per
Share Assuming Dilution
|
|
$
|
(10.00
|
)
|
|
$
|
1.51
|
|
|
$
|
2.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
Shares Outstanding Assuming Dilution
|
|
|
31,789
|
|
|
|
32,452
|
|
|
|
32,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-3
INVACARE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
82,203
|
|
|
$
|
25,624
|
|
Marketable securities
|
|
|
190
|
|
|
|
252
|
|
Trade receivables, net
|
|
|
261,606
|
|
|
|
287,955
|
|
Installment receivables, net
|
|
|
7,097
|
|
|
|
12,935
|
|
Inventories, net
|
|
|
201,756
|
|
|
|
176,925
|
|
Deferred income taxes
|
|
|
13,512
|
|
|
|
27,446
|
|
Other current assets
|
|
|
89,394
|
|
|
|
63,329
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
655,758
|
|
|
|
594,466
|
|
Other Assets
|
|
|
66,346
|
|
|
|
47,110
|
|
Other Intangibles
|
|
|
103,973
|
|
|
|
108,117
|
|
Property and Equipment,
net
|
|
|
173,945
|
|
|
|
176,206
|
|
Goodwill
|
|
|
490,429
|
|
|
|
720,873
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,490,451
|
|
|
$
|
1,646,772
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
163,041
|
|
|
$
|
133,106
|
|
Accrued expenses
|
|
|
147,776
|
|
|
|
130,033
|
|
Accrued income taxes
|
|
|
12,916
|
|
|
|
13,340
|
|
Short-term debt and current
maturities of long-term obligations
|
|
|
124,243
|
|
|
|
80,228
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
447,976
|
|
|
|
356,707
|
|
Long-Term Debt
|
|
|
448,883
|
|
|
|
457,753
|
|
Other Long-Term
Obligations
|
|
|
108,228
|
|
|
|
79,624
|
|
Shareholders
Equity
|
|
|
|
|
|
|
|
|
Preferred Shares (Authorized
300 shares; none outstanding)
|
|
|
|
|
|
|
|
|
Common Shares (Authorized
100,000 shares; 32,051 and 31,695 issued in 2006 and 2005,
respectively) no par
|
|
|
8,013
|
|
|
|
7,925
|
|
Class B Common Shares
(Authorized 12,000 shares; 1,112, issued and
outstanding) no par
|
|
|
278
|
|
|
|
278
|
|
Additional
paid-in-capital
|
|
|
143,714
|
|
|
|
138,937
|
|
Retained earnings
|
|
|
276,750
|
|
|
|
598,025
|
|
Accumulated other comprehensive
earnings
|
|
|
99,188
|
|
|
|
47,480
|
|
Unearned compensation on stock
awards
|
|
|
|
|
|
|
(1,692
|
)
|
Treasury shares (1,186 and
1,058 shares in 2006 and 2005, respectively)
|
|
|
(42,579
|
)
|
|
|
(38,265
|
)
|
|
|
|
|
|
|
|
|
|
Total Shareholders
Equity
|
|
|
485,364
|
|
|
|
752,688
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity
|
|
$
|
1,490,451
|
|
|
$
|
1,646,772
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-4
INVACARE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands)
|
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(317,774
|
)
|
|
$
|
48,852
|
|
|
$
|
75,197
|
|
Adjustments to reconcile net
earnings (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
39,892
|
|
|
|
40,524
|
|
|
|
32,316
|
|
Provision for losses on trade and
installment receivables
|
|
|
37,711
|
|
|
|
14,168
|
|
|
|
11,222
|
|
Provision for deferred income taxes
|
|
|
4,285
|
|
|
|
(100
|
)
|
|
|
4,250
|
|
Provision for other deferred
liabilities
|
|
|
4,607
|
|
|
|
3,571
|
|
|
|
4,091
|
|
Loss on disposals of property and
equipment
|
|
|
2,219
|
|
|
|
297
|
|
|
|
(74
|
)
|
Write down of goodwill and
intangibles
|
|
|
300,417
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(4,035
|
)
|
|
|
(10,075
|
)
|
|
|
(19,978
|
)
|
Installment sales contracts, net
|
|
|
(5,997
|
)
|
|
|
(4,402
|
)
|
|
|
(2,911
|
)
|
Inventories
|
|
|
(15,932
|
)
|
|
|
(12,919
|
)
|
|
|
(15,781
|
)
|
Other current assets
|
|
|
(25,043
|
)
|
|
|
(7,046
|
)
|
|
|
(516
|
)
|
Accounts payable
|
|
|
22,857
|
|
|
|
(6,923
|
)
|
|
|
19,718
|
|
Accrued expenses
|
|
|
19,284
|
|
|
|
9,185
|
|
|
|
(11,281
|
)
|
Other long-term liabilities
|
|
|
(754
|
)
|
|
|
2,112
|
|
|
|
1,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Operating
Activities
|
|
|
61,737
|
|
|
|
77,244
|
|
|
|
98,250
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(21,789
|
)
|
|
|
(30,924
|
)
|
|
|
(41,757
|
)
|
Proceeds from sale of property and
equipment
|
|
|
2,298
|
|
|
|
5,365
|
|
|
|
3
|
|
Business acquisitions, net of cash
acquired
|
|
|
(15,296
|
)
|
|
|
(58,216
|
)
|
|
|
(343,554
|
)
|
Increase (decrease) in other
investments
|
|
|
252
|
|
|
|
(44
|
)
|
|
|
(603
|
)
|
Increase in other long-term assets
|
|
|
(850
|
)
|
|
|
(1,013
|
)
|
|
|
(3,133
|
)
|
Other
|
|
|
939
|
|
|
|
(1,902
|
)
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Required for Investing
Activities
|
|
|
(34,446
|
)
|
|
|
(86,734
|
)
|
|
|
(388,948
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
872,549
|
|
|
|
796,073
|
|
|
|
844,432
|
|
Payments on revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
(846,100
|
)
|
|
|
(796,619
|
)
|
|
|
(541,244
|
)
|
Proceeds from exercise of stock
options
|
|
|
3,081
|
|
|
|
4,623
|
|
|
|
9,850
|
|
Payment of dividends
|
|
|
(1,589
|
)
|
|
|
(1,580
|
)
|
|
|
(1,557
|
)
|
Purchase of treasury stock
|
|
|
|
|
|
|
|
|
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing
Activities
|
|
|
27,941
|
|
|
|
2,497
|
|
|
|
307,051
|
|
Effect of exchange rate changes on
cash
|
|
|
1,347
|
|
|
|
50
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
56,579
|
|
|
|
(6,943
|
)
|
|
|
16,493
|
|
Cash and cash equivalents at
beginning of year
|
|
|
25,624
|
|
|
|
32,567
|
|
|
|
16,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end
of year
|
|
$
|
82,203
|
|
|
$
|
25,624
|
|
|
$
|
32,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-5
INVACARE
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENT OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Class B
|
|
|
Paid-in-
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Unearned
|
|
|
Treasury
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Earnings (Loss)
|
|
|
Compensation
|
|
|
Stock
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
January 1, 2004
Balance
|
|
$
|
7,686
|
|
|
$
|
278
|
|
|
$
|
109,015
|
|
|
$
|
477,113
|
|
|
$
|
51,057
|
|
|
$
|
(1,458
|
)
|
|
$
|
(25,387
|
)
|
|
$
|
618,304
|
|
Exercise of stock options,
including tax benefit
|
|
|
112
|
|
|
|
|
|
|
|
13,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,444
|
)
|
|
|
11,540
|
|
Restricted stock awards
|
|
|
5
|
|
|
|
|
|
|
|
906
|
|
|
|
|
|
|
|
|
|
|
|
(911
|
)
|
|
|
|
|
|
|
|
|
Restricted stock award expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
812
|
|
|
|
|
|
|
|
812
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,197
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,903
|
|
|
|
|
|
|
|
|
|
|
|
57,903
|
|
Unrealized loss on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,322
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,322
|
)
|
Marketable securities holding loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128,769
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,430
|
)
|
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004
Balance
|
|
|
7,803
|
|
|
|
278
|
|
|
|
123,793
|
|
|
|
550,753
|
|
|
|
104,629
|
|
|
|
(1,557
|
)
|
|
|
(32,261
|
)
|
|
|
753,438
|
|
Exercise of stock options,
including tax benefit
|
|
|
117
|
|
|
|
|
|
|
|
14,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,004
|
)
|
|
|
8,246
|
|
Restricted stock awards
|
|
|
5
|
|
|
|
|
|
|
|
1,011
|
|
|
|
|
|
|
|
|
|
|
|
(1,016
|
)
|
|
|
|
|
|
|
|
|
Restricted stock award expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
881
|
|
|
|
|
|
|
|
881
|
|
Net earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,852
|
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,176
|
)
|
|
|
|
|
|
|
|
|
|
|
(56,176
|
)
|
Unrealized losses on cash flow
hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,008
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,008
|
)
|
Marketable securities holding gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,297
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005
Balance
|
|
|
7,925
|
|
|
|
278
|
|
|
|
138,937
|
|
|
|
598,025
|
|
|
|
47,480
|
|
|
|
(1,692
|
)
|
|
|
(38,265
|
)
|
|
|
752,688
|
|
Cumulative effect adjustment,
adoption of SAB 108, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,912
|
)
|
Adjustment upon adoption of
FAS 123R
|
|
|
|
|
|
|
|
|
|
|
(1,692
|
)
|
|
|
|
|
|
|
|
|
|
|
1,692
|
|
|
|
|
|
|
|
|
|
Exercise of stock options,
including tax benefit
|
|
|
59
|
|
|
|
|
|
|
|
5,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,314
|
)
|
|
|
1,168
|
|
Restricted stock awards
|
|
|
29
|
|
|
|
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,075
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(317,774
|
)
|
Foreign currency translation
adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,386
|
|
|
|
|
|
|
|
|
|
|
|
64,386
|
|
Unrealized gains on cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,303
|
|
|
|
|
|
|
|
|
|
|
|
2,303
|
|
Marketable securities holding loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(251,126
|
)
|
Adjustment to initially apply FASB
Statement No. 158, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,940
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,940
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
Balance
|
|
$
|
8,013
|
|
|
$
|
278
|
|
|
$
|
143,714
|
|
|
$
|
276,750
|
|
|
$
|
99,188
|
|
|
$
|
|
|
|
$
|
(42,579
|
)
|
|
$
|
485,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
F-6
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Accounting
Policies
Nature of Operations: Invacare Corporation is
the worlds leading manufacturer and distributor in the
$8.0 billion worldwide market for medical equipment used in
the home based upon our distribution channels, breadth of
product line and net sales. The company designs, manufactures
and distributes an extensive line of health care products for
the non-acute care environment, including the home health care,
retail and extended care markets.
Principles of Consolidation: The consolidated
financial statements include the accounts of the company, its
majority owned subsidiaries and a variable interest entity for
which the company is the primary beneficiary. Certain foreign
subsidiaries, represented by the European segment, are
consolidated using a November 30 fiscal year end in order
to meet filing deadlines. No material subsequent events have
occurred related to the European segment, which would require
disclosure or adjustment to the companys financial
statements. All significant intercompany transactions are
eliminated.
Use of Estimates: The consolidated financial
statements are prepared in conformity with accounting principles
generally accepted in the United States, which require
management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying
notes. Actual results may differ from these estimates.
Marketable Securities: Marketable securities
consist of short-term investments in repurchase agreements,
government and corporate securities, certificates of deposit and
equity securities. Marketable securities with original
maturities of less than three months are treated as cash
equivalents. The company has classified its marketable
securities as available for sale. The securities are carried at
their fair value and net unrealized holding gains and losses,
net of tax, are carried as a component of accumulated other
comprehensive earnings (loss).
Inventories: Inventories are stated at the
lower of cost or market with cost determined by the
first-in,
first-out method. Market costs are based on the lower of
replacement cost or estimated net realizable value. Inventories
have been reduced by an allowance for excess and obsolete
inventories. The estimated allowance is based on
managements review of inventories on hand compared to
estimated future usage and sales.
In the fourth quarter of 2005, the company changed its method of
accounting for domestic manufactured inventories from the lower
of cost, as determined by the
last-in,
first-out (LIFO) method of accounting, or market to the lower of
cost, as determined by the
first-in,
first-out (FIFO) method of accounting, or market. The company
believes that this change is preferable because: 1) the
change conforms to a single method of accounting for all of the
companys inventories, 2) LIFO inventory values have
not been materially different than FIFO inventory values, and
3) the majority of the companys competitors use FIFO.
The change from LIFO to FIFO did not result in any change to the
companys reported Consolidated Balance Sheets because the
inventory valued under LIFO was at current cost. As a result,
there was no impact for the change from LIFO to FIFO on the
companys Consolidated Statement of Operations and
Consolidated Statement of Shareholders Equity for all
periods presented.
Property and Equipment: Property and equipment
are stated on the basis of cost. The company principally uses
the straight-line method of depreciation for financial reporting
purposes based on annual rates sufficient to amortize the cost
of the assets over their estimated useful lives. Accelerated
methods of depreciation are used for federal income tax
purposes. Expenditures for maintenance and repairs are charged
to expense as incurred.
Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount may not be
recoverable. The asset would be considered impaired when the
future net undiscounted cash flows generated by the asset are
less than its carrying value. An impairment loss would be
recognized based on the amount by which the carrying value of
the asset exceeds its fair value.
Goodwill and Other Intangibles: In accordance
with SFAS No. 142, Goodwill and Other Intangible
Assets, (SFAS No. 142) goodwill is
subject to annual impairment testing. For purposes of the
impairment test, the fair
F-7
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
value of each reporting unit is estimated by forecasting cash
flows and discounting those cash flows using appropriate
discount rates. The fair values are then compared to the
carrying value of the net assets of each reporting unit. As a
result of reduced profitability in the NA/HME operating segment
and uncertainty associated with future market conditions, the
company recorded impairment charges related to goodwill and
intangible assets of this segment of $300,417,000 at
December 31, 2006.
Accrued Warranty Cost: Generally, the
companys products are covered by warranties against
defects in material and workmanship for periods up to six years
from the date of sale to the customer. Certain components carry
a lifetime warranty. A provision for estimated warranty cost is
recorded at the time of sale based upon actual experience. The
company continuously assesses the adequacy of its product
warranty accrual and makes adjustments as needed. Historical
analysis is primarily used to determine the companys
warranty reserves. Claims history is reviewed and provisions are
adjusted as needed. However, the company does consider other
events, such as a product recall, which could warrant additional
warranty reserve provision. No material adjustments to warranty
reserves were necessary in the current year. See Current
Liabilities in the Notes to the Consolidated Financial
Statements for a reconciliation of the changes in the warranty
accrual.
Product Liability Cost: The companys
captive insurance company, Invatection Insurance Co., currently
has a policy year that runs from September 1 to
August 31 and insures annual policy losses of
$10,000,000 per occurrence and $13,000,000 in the aggregate
of the companys North American product liability exposure.
The company also has additional layers of external insurance
coverage insuring up to $75,000,000 in annual aggregate losses
arising from individual claims anywhere in the world that exceed
the captive insurance company policy limits or the limits of the
companys per country foreign liability limits, as
applicable. There can be no assurance that Invacares
current insurance levels will continue to be adequate or
available at affordable rates.
Product liability reserves are recorded for individual claims
based upon historical experience, industry expertise and
indications from the third-party actuary. Additional reserves,
in excess of the specific individual case reserves, are provided
for incurred but not reported claims based upon third-party
actuarial valuations at the time such valuations are conducted.
Historical claims experience and other assumptions are taken
into consideration by the third-party actuary to estimate the
ultimate reserves. For example, the actuarial analysis assumes
that historical loss experience is an indicator of future
experience, that the distribution of exposures by geographic
area and nature of operations for ongoing operations is expected
to be very similar to historical operations with no dramatic
changes and that the government indices used to trend losses and
exposures are appropriate. Estimates made are adjusted on a
regular basis and can be impacted by actual loss award
settlements on claims. While actuarial analysis is used to help
determine adequate reserves, the company accepts responsibility
for the determination and recording of adequate reserves in
accordance with accepted loss reserving standards and practices.
Revenue Recognition: Invacares revenues
are recognized when products are shipped to unaffiliated
customers. The SECs Staff Accounting Bulletin (SAB)
No. 101, Revenue Recognition, as updated by
SAB No. 104, provides guidance on the application of
GAAP to selected revenue recognition issues. The company has
concluded that its revenue recognition policy is appropriate and
in accordance with GAAP and SAB No. 101.
Sales are only made to customers with whom the company believes
collection is reasonably assured based upon a credit analysis,
which may include obtaining a credit application, a signed
security agreement, personal guarantee
and/or a
cross corporate guarantee depending on the credit history of the
customer. Credit lines are established for new customers after
an evaluation of their credit report
and/or other
relevant financial information. Existing credit lines are
regularly reviewed and adjusted with consideration given to any
outstanding past due amounts.
The company offers discounts and rebates, which are accounted
for as reductions to revenue in the period in which the sale is
recognized. Discounts offered include: cash discounts for prompt
payment, base and trade discounts based on contract level for
specific classes of customers. Volume discounts and rebates are
given based on
F-8
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
large purchases and the achievement of certain sales volumes.
Product returns are accounted for as a reduction to reported
sales with estimates recorded for anticipated returns at the
time of sale. The company does not sell any goods on consignment.
Distributed products sold by the company are accounted for in
accordance with EITF
No. 99-19
Reporting Revenue Gross as a Principal versus Net as an
Agent. The company records distributed product sales gross
as a principal since the company takes title to the products and
has the risks of loss for collections, delivery and returns.
Product sales that give rise to installment receivables are
recorded at the time of sale when the risks and rewards of
ownership are transferred. In December 2000, the company entered
into an agreement with DLL, a third party financing company, to
provide the majority of future lease financing to Invacare
customers. As such, interest income is recognized based on the
terms of the installment agreements. Installment accounts are
monitored and if a customer defaults on payments, interest
income is no longer recognized. All installment accounts are
accounted for using the same methodology, regardless of duration
of the installment agreements.
Research and Development: Research and
development costs are expensed as incurred and included in cost
of products sold. The companys annual expenditures for
product development and engineering were approximately
$22,146,000, $23,247,000, and $21,638,000 for 2006, 2005, and
2004, respectively.
Advertising: Advertising costs are expensed as
incurred and included in selling, general and administrative
expenses. The company has a co-op advertising program in which
the company reimburses customers up to 50% of their costs of
qualifying advertising expenditures. Invacare product, brand
logos and corporate spokesperson, Arnold Palmer, must appear in
all advertising. Invacare requires customers to submit proof of
advertising with their claims for reimbursement. The
companys cost of the program is included in SG&A
expense in the consolidated statement of operations at the time
the liability is estimated. Reimbursement is made on an annual
basis and within 3 months of submission and approval of the
documentation. The company receives monthly reporting from those
in the program of their qualified advertising dollars spent and
accrues based upon information received. Advertising expenses
amounted to $24,214,000, $26,621,000 and $24,999,000 for 2006,
2005 and 2004, respectively, the majority of which is incurred
for advertising in the United States.
Stock-Based Compensation Plans: Prior to the
companys adoption of Statement of Financial Accounting
Standard No. 123 (Revised 2004), Share Based Payment
(SFAS 123R), the company accounted for
options under its stock-based compensation plans using the
intrinsic value method proscribed in Accounting Principles Board
Opinion (APBO) No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Only compensation
cost related to restricted stock awards granted without cost was
reflected in net earnings, as all other options awarded were
granted at exercise prices equal to the market value of the
underlying stock on the date of grant.
Effective January 1, 2006, the company adopted
SFAS No. 123R using the modified prospective
application method. Under the modified prospective method,
compensation cost was recognized for the twelve months ended
December 31, 2006 for: 1) all stock-based payments
granted subsequent to January 1, 2006 based upon the
grant-date fair value calculated in accordance with
SFAS No. 123R, and 2) all stock-based payments
granted prior to, but not vested as of, January 1, 2006
based upon grant-date fair value as calculated for previously
presented pro forma footnote disclosures in accordance with the
original provisions of SFAS No. 123, Accounting for
Stock Based Compensation. The amounts of stock-based
compensation expense recognized were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Stock-based compensation expense
recognized as part of selling, general and administrative expense
|
|
$
|
1,587
|
|
|
$
|
881
|
|
|
$
|
812
|
|
The 2006 amounts above reflect compensation expense related to
restricted stock awards and nonqualified stock options awarded
under the 2003 Performance Plan. The 2005 and 2004 amounts
reflect compensation expense recognized for restricted stock
awards only, before SFAS No. 123R was adopted.
Stock-based compensation is not
F-9
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
allocated to the business segments, but is reported as part of
All Other as shown in the companys Business Segment Note
to the Consolidated Financial Statements.
As a result of adopting SFAS No. 123R on
January 1, 2006, the companys earnings (loss) before
income taxes and net earnings (loss) for the year ended
December 31, 2006, are $(511,000) and $ (332,000) lower,
respectively, than if it had continued to account for
share-based compensation under APBO No. 25. Basic and
diluted earnings (loss) per share for the year ended
December 31, 2006 are $0.01 lower than if the company had
continued to account for share-based compensation under APBO
No. 25.
Pursuant to the modified prospective application method, results
for periods prior to January 1, 2006 have not been restated
to reflect the effects of adopting SFAS No. 123R. The
pro forma information below is presented for comparative
purposes, as required by SFAS No. 148, Accounting
for Stock-Based Compensation Transition and
Disclosure, an amendment of FASB Statement No. 123, to
illustrate the pro forma effect on net earnings and related
earnings per share for 2005 and 2004, as if the company had
applied the fair value recognition provisions of
SFAS No. 123 to stock-based compensation for those
years (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
Net earnings, as reported
|
|
$
|
48,852
|
|
|
$
|
75,197
|
|
Add: Stock-based compensation
expense included in reported earnings, net of tax ($308 and
$284, respectively)
|
|
|
573
|
|
|
|
528
|
|
Deduct: Total stock-based
compensation expense determined under fair value-based method
for all awards, net of tax ($7,993 and $2,559, respectively)
|
|
|
(14,845
|
)
|
|
|
(4,754
|
)
|
|
|
|
|
|
|
|
|
|
Adjusted net earnings
|
|
$
|
34,580
|
|
|
$
|
70,971
|
|
Net earnings per share:
|
|
|
|
|
|
|
|
|
Basic as reported
|
|
$
|
1.55
|
|
|
$
|
2.41
|
|
Basic as adjusted for
stock-based compensation expense
|
|
$
|
1.10
|
|
|
$
|
2.28
|
|
Diluted as reported
|
|
$
|
1.51
|
|
|
$
|
2.33
|
|
Diluted as adjusted
for stock-based compensation expense
|
|
$
|
1.07
|
|
|
$
|
2.19
|
|
On December 21, 2005, the companys Board of
Directors, based on the recommendation of the Compensation,
Management Development and Corporate Governance Committee,
approved the acceleration of the vesting for substantially all
of our unvested stock options, which were then underwater. The
Board of Directors decided to approve the acceleration of the
vesting of these stock options primarily to partially offset
certain reductions in other benefits made by the company and to
provide additional incentive to those employees critical to our
cost reduction efforts.
The decision, which was effective as of December 21, 2005,
accelerated the vesting for a total of 1,368,307 options on
the companys common shares, including 646,100 shares
underlying options held by the companys named executive
officers. The stock options accelerated equated to 29% of the
companys total outstanding stock options. Vesting was not
accelerated for the restricted stock awards granted under the
companys stock-based compensation plans and no other
modifications were made to the awards that were accelerated. The
exercise prices of the accelerated options, all of which were
underwater, were unchanged by the acceleration of the vesting
schedules. All of the companys outstanding unvested
options under our stock-based compensation plans which were
accelerated, had exercise prices ranging from $30.91 to $47.80
which were greater than our stock market price of $30.75 as of
the effective date of the acceleration.
Income Taxes: The company uses the liability
method in measuring the provision for income taxes and
recognizing deferred tax assets and liabilities on the balance
sheet. The liability method requires that deferred income taxes
reflect the tax consequences of currently enacted rates for
differences between the tax and financial reporting bases of
assets and liabilities. Undistributed earnings of the
companys foreign subsidiaries are considered to be
indefinitely reinvested and, accordingly, no provision for
United States federal income taxes has been
F-10
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provided. The amount of the unrecognized deferred tax liability
for temporary differences related to investments in foreign
subsidiaries that are permanently reinvested is not practically
determinable.
Derivative Instruments: The company recognizes
its derivative instruments as assets or liabilities in the
consolidated balance sheet measured at fair value. A majority of
the companys derivative instruments are designated and
qualify as cash flow hedges. Accordingly, the effective portion
of the gain or loss on the derivative instrument is reported as
a component of other comprehensive income and reclassified into
earnings in the same period or periods during which the hedged
transaction affects earnings. The remaining gain or loss on the
derivative instrument in excess of the cumulative change in the
fair value of the hedged item, if any, is recognized in current
earnings during the period of change. The derivatives designated
as fair value hedges are perfectly effective; thus, the entire
gain or loss associated with the derivative instrument directly
affects the value of the debt by increasing or decreasing its
carrying value.
The company was a party to interest rate swap agreements during
the year that qualified as fair value hedges and effectively
converted fixed-rate debt to floating-rate debt, so the company
could avoid paying higher than market interest rates.
The company also had interest rate swap agreements, which
expired in 2004, that qualified as cash flow hedges and
effectively converted $20,000,000 of its floating-rate debt to a
fixed-rate basis, thus reducing the impact of interest-rate
changes on future interest expense. The company recognized a net
loss of $696,000 in 2006 and net gains of $1,230,000 and
$4,577,000, respectively, related to its swap agreements in 2005
and 2004, which is reflected in interest expense on the
consolidated statement of operations.
To protect against increases/decreases in forecasted foreign
currency cash flows resulting from inventory purchases/sales
over the next year, the company utilizes cash flow hedges to
hedge portions of its forecasted purchases/sales denominated in
foreign currencies. The company recognized a net loss of
$240,000 and $280,000 in 2006 and in 2005, respectively and a
net gain in 2004 of $6,961,000, on foreign currency cash flow
hedges. The gains and losses are included in cost of products
sold and selling, general and administrative expenses on the
consolidated statement of operations.
The company recognized no gain or loss related to hedge
ineffectiveness or discontinued cash flow hedges. If it is later
determined that a hedged forecasted transaction is unlikely to
occur, any gains or losses on the forward contracts would be
reclassified from other comprehensive income into earnings. The
company does not expect this to occur during the next twelve
months.
Foreign Currency Translation: The functional
currency of the companys subsidiaries outside the United
States is the applicable local currency. The assets and
liabilities of the companys foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates.
Revenues and expenses are translated at weighted average
exchange rates. Gains and losses resulting from translation are
included in accumulated other comprehensive earnings (loss).
Net Earnings Per Share: Basic earnings per
share are computed based on the weighted-average number of
Common Shares and Class B Common Shares outstanding during
the year. Diluted earnings per share are computed based on the
weighted-average number of Common Shares and Class B Common
Shares outstanding plus the effects of dilutive stock options
outstanding during the year.
Recent Accounting Pronouncements: In September
2006, the Financial Accounting Standards Board, or
FASB, issued FASB Statement No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans an Amendment of FASB
Statements No. 87, 88, 106 and 123(R)
(FAS 158). FAS 158 requires plan sponsors
to recognize the funded status of the benefit in its statement
of financial position, measure the fair value of plan assets and
benefit obligations as of the balance sheet date and provide
additional disclosures. On December 31, 2006, the company
adopted the recognition and disclosure provisions of
FAS 158. The effect of adopted FAS 158 on the
companys financial condition at December 31, 2006 has
been included in the 2006 consolidated financial statements and
did not have an effect on the companys financial condition
at December 31,
F-11
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2005 or 2004 and did not effect the companys consolidated
statement of operations for 2006, 2005, or 2004. The adoption of
FAS 158 resulted in a decrease of $14,940,000 on a pre-tax
and after-tax basis on the companys accumulated other
comprehensive earnings (loss). See Retirement and Benefit Plans
Note for further discussion on the effect of adopting
FAS 158 on the companys consolidated financial
statements.
In 2006, the company determined that the reported
December 31, 2005 accumulated benefit for the
companys non-qualified defined benefit Supplemental
Executive Retirement Plan (SERP) was understated by $2,941,000
($1,912,000 after-tax) as the result of accounting errors in
which recorded expense in prior years was netted by SERP benefit
payments. The company assessed the error amounts considering SEC
staff published Staff Accounting Bulletin No. 99,
Materiality, as well as SEC staff published Staff Accounting
Bulletin No. 108, Considering the Effects of Prior
Year Misstatements When Quantifying Misstatements in Current
Year Financial Statements, or SAB 108. The
error was not deemed to be material to any prior period reported
financial statements, but was deemed material in the current
year. Accordingly, the company recorded the correction of the
understatement of expense as an adjustment to beginning retained
earnings pursuant to the special transition provision detailed
in SAB 108.
In June 2006, the FASB, issued FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, or
FIN 48. FIN 48 prescribes recognition and
measurement of a tax position taken or expected to be taken in a
tax return as well as guidance regarding derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006, thus
January 1, 2007 for Invacare. The company will adopt the
standard as of the effective date and currently does not believe
the adoption will have a material impact on the companys
financial position or future results.
Reclassifications: Certain reclassifications
have been made to the prior years consolidated financial
statements to conform to the presentation used for the year
ended December 31, 2006.
Receivables
Accounts receivable are reduced by an allowance for amounts that
may become uncollectible in the future. Substantially all of the
companys receivables are due from health care, medical
equipment dealers and long term care facilities located
throughout the United States, Australia, Canada, New Zealand and
Europe. A significant portion of products sold to dealers, both
foreign and domestic, is ultimately funded through government
reimbursement programs such as Medicare and Medicaid. In
addition, the company has seen a significant shift in
reimbursement to customers from managed care entities. As a
consequence, changes in these programs can have an adverse
impact on dealer liquidity and profitability. The estimated
allowance for uncollectible amounts ($35,591,000 in 2006 and
$12,470,000 in 2005) is based primarily on
managements evaluation of the financial condition of the
customer. The increase in the allowance for uncollectible
accounts in 2006 compared to 2005 is primarily the result of the
company recording additional allowances due to the increased
collectibility risk to the company resulting from changes in
Medicare reimbursement regulations, specifically changes to the
qualification processes and reimbursement levels of power
wheelchairs. The company has reviewed the accounts receivables
associated with many of its customers that are most
exposed to these issues. The company is also working with
certain of its customers in an effort to help them reduce costs,
including product line consolidations and introduction of
simplified pricing. In addition, the company has also
implementing tighter credit policies with many of these accounts.
On September 30, 2005, the company entered into a
364-day
$100 million accounts receivable securitization facility.
The Receivables Purchase Agreement (the Receivables
Agreement), provides for, among other things, the transfer
from time to time by Invacare and certain of its subsidiaries of
ownership interests of certain domestic accounts receivable on a
revolving basis to the bank conduit, an asset-backed issuer of
commercial paper,
and/or the
financial institutions named in the Receivables Agreement.
Pursuant to the Receivables Agreement, the company and certain
of its subsidiaries from time to time may transfer accounts
receivable to Invacare Receivables
F-12
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Corporation (IRC), a special purpose entity and subsidiary of
Invacare. IRC then transfers interests in the receivables to the
Conduit
and/or the
financial institutions named in the Receivables Agreement and
receives funds from the conduit
and/or the
financial institutions raised through the issuance of commercial
paper (in its own name) by the conduit
and/or the
financial institutions. In accordance with U.S. Generally
Accepted Accounting Principles (GAAP), Invacare accounts for the
transaction as a secured borrowing. Borrowings under the
facility are effectively repaid as receivables are collected,
with new borrowings created as additional receivables are sold.
As of December 31, 2006 and 2005, Invacare had $71,750,000
and $79,351,000, respectively, in borrowings pursuant to the
securitization facility at a borrowing rate of approximately
6.1% in 2006 and 4.6% in 2005. The initial borrowings were used
to reduce balances outstanding on Invacares revolving
credit facility. The debt is reflected on the short-term debt
and current maturities of long-term obligations line of the
consolidated balance sheet at December 31, 2006 and 2005.
Installment receivables as of December 31, 2006 and 2005
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
Long-
|
|
|
|
|
|
|
|
|
Long-
|
|
|
|
|
|
|
Current
|
|
|
Term
|
|
|
Total
|
|
|
Current
|
|
|
Term
|
|
|
Total
|
|
|
Installment receivables
|
|
$
|
9,077
|
|
|
$
|
18,991
|
|
|
$
|
28,068
|
|
|
$
|
23,630
|
|
|
$
|
162
|
|
|
$
|
23,792
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned interest
|
|
|
(1,401
|
)
|
|
|
(1,738
|
)
|
|
|
(3,139
|
)
|
|
|
(71
|
)
|
|
|
(16
|
)
|
|
|
(87
|
)
|
Allowance for doubtful accounts
|
|
|
(579
|
)
|
|
|
(1,463
|
)
|
|
|
(2,042
|
)
|
|
|
(10,624
|
)
|
|
|
|
|
|
|
(10,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,097
|
|
|
$
|
15,790
|
|
|
$
|
22,887
|
|
|
$
|
12,935
|
|
|
$
|
146
|
|
|
$
|
13,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decrease in the allowance for doubtful accounts in 2006 was
the result of the write-off of accounts receivable for which
collection efforts were exhausted.
In addition, as a result of the third party financing
arrangement with DLL, management monitors the collection status
of these contracts in accordance with the companys limited
recourse obligations and provides amounts necessary for
estimated losses in the allowance for doubtful accounts. See
Concentration of Credit Risk in the Notes to the Consolidated
Financial Statements for a description of the financing
arrangement. Long-term installment receivables are included in
Other Assets on the consolidated balance sheet.
Inventories
Inventories as of December 31, 2006 and 2005 consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Finished goods
|
|
$
|
118,323
|
|
|
$
|
100,337
|
|
Raw materials
|
|
|
66,718
|
|
|
|
59,888
|
|
Work in process
|
|
|
16,715
|
|
|
|
16,700
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
201,756
|
|
|
$
|
176,925
|
|
|
|
|
|
|
|
|
|
|
F-13
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Current Assets
Other current assets as of December 31, 2006 and 2005
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Value added taxes receivable
|
|
$
|
43,264
|
|
|
$
|
31,125
|
|
Prepaids and other current assets
|
|
|
46,130
|
|
|
|
32,204
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
89,394
|
|
|
$
|
63,329
|
|
|
|
|
|
|
|
|
|
|
Property
And Equipment
Property and equipment as of December 31, 2006 and 2005
consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Machinery and equipment
|
|
$
|
276,062
|
|
|
$
|
252,545
|
|
Land, buildings and improvements
|
|
|
86,544
|
|
|
|
84,031
|
|
Furniture and fixtures
|
|
|
29,609
|
|
|
|
28,788
|
|
Leasehold improvements
|
|
|
15,943
|
|
|
|
15,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
408,158
|
|
|
|
380,558
|
|
Less allowance for depreciation
|
|
|
(234,213
|
)
|
|
|
(204,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
173,945
|
|
|
$
|
176,206
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
In 2006, Invacare Corporation acquired the following businesses,
which were individually immaterial and in the aggregate, at a
total cost of $15,296,000, which was paid in cash:
|
|
|
|
|
Home Health Equipment Pty Ltd (HHE), an Australian based
company, and leading supplier of medical equipment in South
Australia, providing high quality equipment and service to
institutions and individual clients selling the full range of
rehabilitation, mobility and continuing care products.
|
|
|
|
Morris Surgical Pty Ltd (Morris), an Australian based company,
and a leading supplier of medical equipment in Queensland,
providing high quality equipment and service to institutions and
individual clients selling the full range of rehabilitation,
mobility, continuing care products as well as niche and made to
order products.
|
On September 9, 2004 the company acquired 100% of the
shares of WP Domus GmbH (Domus), a European-based holding
company that manufactures several complementary product lines to
Invacares product lines, including power add-on products,
bath lifts and walking aids, from WP Domus LLC. Domus has three
divisions: Alber, Aquatec and Dolomite. The acquisition allows
the company to expand its product line and reach new markets.
The final purchase price was $226,806,000, including acquisition
costs of $4,116,000, which was paid in cash.
In accordance with EITF Issue
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination, the company previously recorded
accruals for severance and exit costs for facility closures and
F-14
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contract terminations. A progression of the accruals recorded in
the purchase price allocation is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exit of
|
|
|
Sales Agency
|
|
|
|
Severance
|
|
|
Product Lines
|
|
|
Terminations
|
|
|
Balance at
1/1/05
|
|
$
|
561
|
|
|
$
|
|
|
|
$
|
|
|
Additional accruals
|
|
|
4,445
|
|
|
|
897
|
|
|
|
612
|
|
Payments
|
|
|
(1,957
|
)
|
|
|
|
|
|
|
(612
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
12/31/05
|
|
|
3,049
|
|
|
|
897
|
|
|
|
|
|
Adjustments
|
|
|
(1,285
|
)
|
|
|
(897
|
)
|
|
|
|
|
Payments
|
|
|
(566
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
12/31/06
|
|
$
|
1,198
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company anticipates all of the remaining reserves to be
utilized in 2007. The adjustments represent reversals to
goodwill for accruals not to be utilized.
Goodwill
The carrying amount of goodwill by operating segment is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
Invacare Supply
|
|
|
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
America/HME
|
|
|
Group
|
|
|
Products Group
|
|
|
Europe
|
|
|
Asia/Pacific
|
|
|
Consolidated
|
|
|
Balance at January 1, 2005
|
|
$
|
313,327
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
390,611
|
|
|
$
|
14,026
|
|
|
$
|
717,964
|
|
Acquisitions
|
|
|
14,293
|
|
|
|
|
|
|
|
|
|
|
|
22,481
|
|
|
|
8,984
|
|
|
|
45,758
|
|
Foreign currency translation
adjustments
|
|
|
4,318
|
|
|
|
|
|
|
|
|
|
|
|
(45,941
|
)
|
|
|
(1,226
|
)
|
|
|
(42,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
331,938
|
|
|
|
|
|
|
|
|
|
|
|
367,151
|
|
|
|
21,784
|
|
|
|
720,873
|
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,081
|
|
|
|
8,081
|
|
Foreign currency translation
adjustments
|
|
|
4,366
|
|
|
|
|
|
|
|
|
|
|
|
51,983
|
|
|
|
1,964
|
|
|
|
58,313
|
|
Purchase accounting adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,182
|
)
|
|
|
|
|
|
|
(2,182
|
)
|
Re-allocation
|
|
|
(41,648
|
)
|
|
|
23,541
|
|
|
|
18,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charge
|
|
|
(294,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(294,656
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
|
|
|
$
|
23,541
|
|
|
$
|
18,107
|
|
|
$
|
416,952
|
|
|
$
|
31,829
|
|
|
$
|
490,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a result of the HHE and Morris acquisitions in 2006,
additional goodwill of $8,081,000 was recorded, none of which is
expected to be deductible for tax purposes.
In the fourth quarter of 2006, the company expanded its number
of reporting segments from three to five due to organizational
changes within the former North American geographic operating
segment and changes in how the chief operating decision maker
assesses performance and makes resource allocation decisions.
Accordingly, under the provisions of SFAS No. 142, the
company allocated a portion of the goodwill related to the
former North American reporting unit in 2006 based upon the
relative fair values of each of the three reporting units now
comprising North America.
F-15
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In accordance with SFAS No. 142, goodwill is subject
to annual impairment testing. For purposes of Step I of the
impairment test, the fair value of each reporting unit is
estimated by forecasting cash flows and discounting those cash
flows using appropriate discount rates. The fair values are then
compared to the carrying value of the net assets of each
reporting unit. Step II of the impairment test requires a
more detailed assessment of the fair values associated with the
net assets of a reporting unit that fails the Step I test,
including a review for impairment in accordance with
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144).
Pursuant to SFAS No. 144, the company compared the
forecasted un-discounted cashflows for each facility in the
North America/HME segment to the carrying value of the net
assets associated with a given facility, which calculated no
impairment of any other long-lived assets. As a result of
reduced profitability in the NA/HME operating segment and
uncertainty associated with future market conditions, the
company recorded an impairment charges related to goodwill in
the North America/HME segment of $294,656,000 in the fourth
quarter of 2006.
The impairment of goodwill in the NA/HME operating segment was
primarily the result of reduced government reimbursement levels
and changes in reimbursement policies, which negatively affected
revenues and profitability in the NA/HME operating segment. The
changes announced by the Centers for Medicare and Medicaid
Services, or CMS, affected eligibility,
documentation, codes, and payment rules relating to power
wheelchairs impacted the predictability of reimbursement of
expenses for and access to power wheelchairs and created
uncertainty in the market place, thus decreasing purchases.
Effective November 15, 2006, the CMS reduced the maximum
reimbursement amount for power wheelchairs under Medicare by up
to 28%. The reduced reimbursement levels may cause consumers to
choose less expensive versions of the companys power
wheelchairs.
NA/HME sales of respiratory products were also negatively
affected by the changes in 2006. Small and independent provider
sales declined as these dealers slowed their purchases of the
companys
HomeFilltm
oxygen system product line, in part, until they had a clearer
view of future oxygen reimbursement levels. Furthermore, a study
issued by the Office of Inspector General or OIG, in
September 2006 suggested that $3.2 billion in savings could
be achieved over five years by reducing the reimbursed rental
period from three years (the reimbursement period under current
law) to 13 months. The uncertainty created by these
announcements continues to negatively impact the home oxygen
equipment market, particularly for those providers considering
changing to the
HomeFilltm
oxygen system.
Medicare will also institute a new competitive bidding program
for various items in ten as yet unidentified of the largest
metropolitan areas late in 2007. This program is designed to
reduce Medicare payment levels for items that the Medicare
program spends the most money on under the home medical
equipment benefit. This new program will likely eliminate some
providers from the competitive bidding markets, because only
those providers who are chosen to participate (based largely on
price) will be able to provide beneficiaries with items included
in the bid. Medicare will be expanding the program to an
additional 80 metropolitan areas in 2009.
F-16
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Intangibles
All of the companys other intangible assets have definite
lives and continue to be amortized over their useful lives,
except for $33,034,000 related to trademarks, which have
indefinite lives. The companys intangibles consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
December 31, 2005
|
|
|
|
Historical
|
|
|
Accumulated
|
|
|
Historical
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
Customer Lists
|
|
$
|
71,106
|
|
|
$
|
14,373
|
|
|
$
|
64,218
|
|
|
$
|
8,270
|
|
Trademarks
|
|
|
33,034
|
|
|
|
|
|
|
|
30,246
|
|
|
|
|
|
License agreements
|
|
|
8,149
|
|
|
|
6,384
|
|
|
|
7,564
|
|
|
|
5,821
|
|
Developed Technology
|
|
|
6,819
|
|
|
|
940
|
|
|
|
6,260
|
|
|
|
487
|
|
Patents
|
|
|
6,631
|
|
|
|
3,869
|
|
|
|
12,414
|
|
|
|
2,690
|
|
Other
|
|
|
8,005
|
|
|
|
4,205
|
|
|
|
7,876
|
|
|
|
3,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
133,744
|
|
|
$
|
29,771
|
|
|
$
|
128,578
|
|
|
$
|
20,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles recorded as the result of acquisitions during 2006
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Fair Value
|
|
|
Amortization Period
|
|
|
Customer relationships
|
|
$
|
1,941
|
|
|
|
6 years
|
|
Non-Compete Agreements
|
|
|
134
|
|
|
|
3 years
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense related to other intangibles was $9,311,000
and $9,307,000 for 2006 and 2005, respectively. Estimated
amortization expense for each of the next five years is expected
to be $8,622,000 for 2007, $8,186,000 in 2008, $7,944,000 in
2009, $7,559,000 in 2010 and $7,283,000 in 2011.
In accordance with SFAS No. 142, the company reviews
intangibles for impairment. For purposes of the impairment test,
the fair value of each unamortized intangible is estimated by
forecasting cash flows and discounting those cash flows using
appropriate discount rates. For amortized intangibles, the
forecasted un-discounted cash flows were compared to the
carrying value, and if impairment results, the impairment is
measured based on the estimated fair value of the intangibles.
The fair values are then compared to the carrying value of the
intangible. As a result of the companys 2006 intangible
impairment review, an impairment charge of $160,000 was recorded
associated with a trade name and a charge of $5,601,000 was
recorded related to the intangible recorded associated with
NeuroControl. See Investment in Affiliated Company in the Notes
to the Consolidated Financial Statements included in this report
below. The company has recorded a material amount of intangibles
as the result of acquisitions which may become impaired if
performance assumptions, primarily related to sales and
operating cash flows estimates, made at the time of originally
valuing the intangibles are not achieved.
Investment
in Affiliated Company
FASB Interpretation No. 46, Consolidation of Variable
Interest Entities (FIN 46), which was revised in
December 2003 and, requires consolidation of an entity if the
company is subject to a majority of the risk of loss from the
variable interest entitys (VIE) activities or entitled to
receive a majority of the entitys residual returns, or
both. A company that consolidates a VIE is known as the primary
beneficiary of that entity.
The company consolidates NeuroControl, a development stage
company, which is currently pursuing FDA approval to market a
product focused on the treatment of post-stroke shoulder pain in
the United States. Certain of the companys officers and
directors (or their affiliates) have small minority equity
ownership positions in
F-17
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NeuroControl. Based on the provisions of FIN 46 and the
companys analysis, the company determined that it was the
primary beneficiary of this VIE as of January 1, 2005 due
to the company board of directors approval of additional
funding in 2005. Accordingly, the company consolidated this
investment on a prospective basis since January 1, 2005 and
recorded an intangible asset for patented technology of
$7,003,000. The other beneficial interest holders have no
recourse against the company.
In the fourth quarter of 2006, the companys board of
directors made a decision to no longer fund the cash needs of
NeuroControl, to commence a liquidation process and cease
operations as it was decided that the additional investment
necessary to commercialize the business was not in the best
interest of the company. Therefore, funding of this investment
ceased on December 31, 2006. As a result of this decision,
the company established a valuation reserve related to the
NeuroControl intangible asset of $5,601,000 to fully reserve
against the patented technology intangible as it was deemed to
be impaired.
Current
Liabilities
Accrued expenses as of December 31, 2006 and 2005 consist
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Accrued taxes other than income
taxes, primarily Value Added Taxes
|
|
$
|
43,899
|
|
|
$
|
30,955
|
|
Accrued salaries and wages
|
|
|
31,970
|
|
|
|
29,681
|
|
Accrued warranty cost
|
|
|
15,165
|
|
|
|
15,583
|
|
Accrued interest
|
|
|
10,893
|
|
|
|
5,180
|
|
Accrued rebates
|
|
|
8,356
|
|
|
|
9,434
|
|
Accrued legal and professional
|
|
|
8,222
|
|
|
|
6,077
|
|
Accrued severance
|
|
|
6,457
|
|
|
|
6,153
|
|
Accrued freight
|
|
|
4,278
|
|
|
|
4,144
|
|
Accrued product liability, current
portion
|
|
|
3,296
|
|
|
|
2,657
|
|
Accrued insurance
|
|
|
2,258
|
|
|
|
2,519
|
|
Accrued derivative liability
|
|
|
435
|
|
|
|
2,330
|
|
Other accrued items, principally
trade accruals
|
|
|
12,547
|
|
|
|
15,320
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
147,776
|
|
|
$
|
130,033
|
|
|
|
|
|
|
|
|
|
|
Accrued rebates relate to several volume incentive programs the
company offers its customers. The company accounts for these
rebates as a reduction of revenue when the products are sold in
accordance with the guidance in EITF
No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendors Products). The
company has experienced significant pricing pressure in the
U.S. market for standard products in recent years and has
partially reduced prices to our customers in the form of a
volume rebate such that the rebates would typically apply only
if customers increased their standard product purchases from the
company.
Changes in accrued warranty costs were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Balance as of January 1
|
|
$
|
15,583
|
|
|
$
|
13,998
|
|
Warranties provided during the
period
|
|
|
9,175
|
|
|
|
9,811
|
|
Settlements made during the period
|
|
|
(10,252
|
)
|
|
|
(8,931
|
)
|
Changes in liability for
pre-existing warranties during the period, including expirations
|
|
|
659
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
$
|
15,165
|
|
|
$
|
15,583
|
|
|
|
|
|
|
|
|
|
|
F-18
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-Term
Debt
Debt as of December 31, 2006 and 2005 consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Revolving credit agreement
($500,000,000 multi-currency), at 0.675% to 1.40% above local
interbank offered rates, expires January 14, 2010
|
|
$
|
157,465
|
|
|
$
|
264,828
|
|
$80,000,000 senior notes at 6.71%,
due in February 2008
|
|
|
80,000
|
|
|
|
80,553
|
|
$50,000,000 senior notes at 3.97%,
due in October 2007
|
|
|
49,565
|
|
|
|
49,244
|
|
$30,000,000 senior notes at 4.74%,
due in October 2009
|
|
|
30,000
|
|
|
|
30,339
|
|
$20,000,000 senior notes at 5.05%,
due in October 2010
|
|
|
20,000
|
|
|
|
20,134
|
|
$150,000,000 senior notes at
6.15%, due in April 2016
|
|
|
150,000
|
|
|
|
|
|
Short-term borrowings secured by
accounts receivable
|
|
|
71,750
|
|
|
|
79,351
|
|
Other notes and lease obligations
|
|
|
14,346
|
|
|
|
13,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
573,126
|
|
|
|
537,981
|
|
Less short-term borrowings secured
by accounts receivable
|
|
|
(71,750
|
)
|
|
|
(79,351
|
)
|
Less current maturities of
long-term debt
|
|
|
(52,493
|
)
|
|
|
(877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
448,883
|
|
|
$
|
457,753
|
|
|
|
|
|
|
|
|
|
|
The carrying values of the senior notes have been adjusted by
the gains/losses on the swaps accounted for as fair value hedges.
On November 6, 2006, the company determined that it was in
violation of a financial covenant contained in three
Note Purchase Agreements between the company and various
institutional lenders (the Note Purchase
Agreements). The Note Purchase Agreements relate to
an aggregate principal amount of $330 million in long-term
debt of the company. The financial covenant limits the ratio of
consolidated debt to consolidated operating cash flow. The
company believed the limits were 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 companys 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. On
February 12, 2007, the company announced the completion of
its previously announced refinancing transactions. The new
financing program provides the company with total capacity of
approximately $710 million, the net proceeds of which have
been used to refinance substantially all of the companys
existing indebtedness and pay related fees and expenses. See
Subsequent Events in the Notes to the Consolidated Financial
Statements for an explanation of the details of the
companys new financing structure.
On April 27, 2006, the company consummated a new Senior
Notes offering for $150 million at a fixed rate of 6.15%
due April 27, 2016. The proceeds were used to reduce debt
outstanding under the companys $500 million revolving
credit facility.
On March 31, 2006, the company and the other parties to its
$500 million Credit Agreement dated as of January 12,
2005, entered into certain amendments to the Agreement which
among other things: (i) amended the definitions of Adjusted
EBITDA and EBIT under the Credit Agreement to clarify the
treatment of restructuring costs under the Credit Agreement, and
(ii) amended the definition of Consolidated Interest
Expense under the Credit Agreement to exclude any interest
accrued under any Trade Receivables Securitization Transaction
permitted pursuant to Section 5.2(n) of the Credit
Agreement.
On January 14, 2005, the company entered into a
$450,000,000 multi-currency, long-term revolving credit
agreement which was increased on April 4, 2005 by
$50,000,000 to an aggregate amount of $500,000,000 and
F-19
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expires on January 14, 2010. The facility provides that
Invacare, may, upon consent of its lenders, increase the amount
of the facility by an additional $50,000,000. The new agreement
replaced the $325,000,000 multi-currency, long-term revolving
credit agreement entered into in 2001 and a $100,000,000 bridge
agreement entered into in 2004.
Borrowings denominated in foreign currencies aggregated
$115,964,000 at December 31, 2006 and $131,464,000 at
December 31, 2005. The borrowing rates under the revolving
credit agreement are determined based on the ratio of debt to
EBITDA of the company as defined in the agreement and range from
0.35% to .675% above the various interbank offered rates. As of
December 31, 2006 and 2005, the weighted average floating
interest rate on borrowings was 5.90% and 4.53%, respectively.
The revolving credit agreement and senior notes all require the
company to maintain certain conditions with respect to net
worth, funded debt to capitalization, and interest coverage as
defined in the agreements. Under the most restrictive covenant
of the companys borrowing arrangements, the company was at
its maximum borrowing capacity as of December 31, 2006
pursuant to the covenants of the companys $500,000,000
multi-currency, long-term revolving credit agreement.
In October 2003, the company exchanged the fixed rates of 3.97%,
4.74% and 5.05% on the $50,000,000, $30,000,000 and $20,000,000
Senior Notes due in October 2007, October 2009 and October 2010
for variable rates based on LIBOR plus 0.01%, LIBOR plus 0.14%
and LIBOR plus 0.26%, respectively. The effect of these swaps
was to exchange fixed rates for floating rates. In November
2005, the $30,000,000 and $20,000,000 swaps, exchanging fixed
rates of 4.74% and 5.05% for variable rates, were terminated. In
December 2006, the $50,000,000 swaps were de-designated as
hedges as the associated debt was to be paid off as part of the
companys recapitalization, which was completed in February
2007.
In December 2001, the company exchanged the fixed rate of 6.71%
on $50,000,000 of the $80,000,000 in Senior Notes due in
February 2008. The three agreements for $25,000,000, $15,000,000
and $10,000,000 exchanged the fixed rate for variable rates
equal to LIBOR plus 1.9%, 1.71% and 1.62%, respectively. In
January 2002, the company exchanged the fixed rate of 6.71% on
the remaining $30,000,000 of the $80,000,000 in Senior Notes due
in February 2008. The two agreements for $10,000,000 and
$20,000,000 exchanged the fixed rate for variable rates equal to
LIBOR plus 1.05% and 1.08%, respectively and were terminated in
August 2006. All losses associated with the terminations of fair
value hedge swaps have been amortized over the remaining life of
the previously hedged debt using the effective yield method.
The aggregate minimum maturities of long-term debt for each of
the next five years are as follows: $52,493,000 in 2007,
$80,884,000 in 2008, $30,896,000 in 2009, $178,219,000 in 2010,
and $789,000 in 2011. Interest paid on borrowings was
$28,723,000, $29,017,000 and $15,348,000 in 2006, 2005 and 2004,
respectively.
Other
Long-Term Obligations
Other long-term obligations as of December 31, 2006 and
2005 consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Supplemental Executive Retirement
Plan liability
|
|
$
|
33,251
|
|
|
$
|
14,962
|
|
Product liability
|
|
|
19,335
|
|
|
|
18,292
|
|
Deferred federal income taxes
|
|
|
34,593
|
|
|
|
27,792
|
|
Other, principally deferred
compensation
|
|
|
21,049
|
|
|
|
18,578
|
|
|
|
|
|
|
|
|
|
|
Total long-term obligations
|
|
$
|
108,228
|
|
|
$
|
79,624
|
|
|
|
|
|
|
|
|
|
|
F-20
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Leases
and Commitments
The company leases a substantial portion of its facilities,
transportation equipment, data processing equipment and certain
other equipment. These leases have terms of up to 14 years
and provide for renewal options. Generally, the company is
required to pay taxes and normal expenses of operating the
facilities and equipment. As of December 31, 2006, the
company is committed under non-cancelable operating leases,
which have initial or remaining terms in excess of one year and
expire on various dates through 2015. Lease expenses were
approximately $21,302,000 in 2006, $18,718,000 in 2005, and
$18,663,000 in 2004.
The amount of buildings and equipment capitalized in connection
with capital leases was $17,072,000 and $15,592,000 at
December 31, 2006 and 2005, respectively. At
December 31, 2006 and 2005, accumulated amortization was
$5,461,000 and $4,505,000, respectively.
Future minimum operating and capital lease commitments as of
December 31, 2006, are as follow (in thousands):
|
|
|
|
|
|
|
|
|
Year
|
|
Capital Leases
|
|
|
Operating Leases
|
|
|
2007
|
|
$
|
1,876
|
|
|
$
|
17,448
|
|
2008
|
|
|
1,719
|
|
|
|
11,530
|
|
2009
|
|
|
1,643
|
|
|
|
6,030
|
|
2010
|
|
|
1,421
|
|
|
|
2,976
|
|
2011
|
|
|
1,391
|
|
|
|
2,498
|
|
Thereafter
|
|
|
10,625
|
|
|
|
3,107
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
18,675
|
|
|
$
|
43,589
|
|
|
|
|
|
|
|
|
|
|
Amounts representing interest
|
|
|
(6,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of minimum lease
payments
|
|
$
|
12,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
and Benefit Plans
Substantially all full-time salaried and hourly domestic
employees are included in the Invacare Retirement Savings Plan
sponsored by the company. The company makes matching cash
contributions up to 66.7% of employees contributions up to
3% of compensation, quarterly contributions based upon 4% of
qualified wages and may make discretionary contributions to the
domestic plans based on an annual resolution of the Board of
Directors.
The company sponsors a Deferred Compensation Plus Plan covering
certain employees, which provides for elective deferrals and the
company retirement deferrals so that the total retirement
deferrals equal amounts that would have contributed to the
companys principal retirement plans if it were not for
limitation imposed by income tax regulations. Contribution
expense for the above plans in 2006, 2005 and 2004 was
$5,514,000, $5,811,000, and $5,860,000, respectively.
The company also sponsors a non-qualified defined benefit
Supplemental Executive Retirement Plan (SERP) for certain key
executives. The projected benefit obligation related to this
unfunded plan was $33,676,000 and $31,071,000 at
December 31, 2006 and 2005, respectively, and the
accumulated benefit obligation was $20,236,000 and $15,386,000
at December 31, 2006 and 2005, respectively based upon
estimated salary increases of 5%, an assumed discount rate of
6.75% and a retirement age of 65. Expense for the plan in 2006,
2005 and 2004 was $2,861,000, $2,439,000, and $2,278,000,
respectively of which $1,407,000, $1,278,000 and $1,211,000 was
related to interest cost. Benefit payments in 2006, 2005 and
2004 were $952,000, $424,000, and $424,000, respectively.
In conjunction with these non-qualified plans, the company has
invested in life insurance policies related to certain employees
to satisfy these future obligations. The current cash surrender
value of these policies
F-21
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
approximates the current benefit obligations. In addition, the
projected policy benefits exceed the projected benefit
obligations.
On December 31, 2006, the company adopted the recognition
and disclosure provisions of FAS 158, which required the
company to recognize the funded status (i.e., the difference
between the fair value of plan assets and the projected benefit
obligations) of its SERP and the Death Benefit Only (DBO) Plan
in the December 31, 2006 consolidated balance sheet, with a
corresponding adjustment to accumulated other comprehensive
earnings, net of tax. The incremental effects of adopting the
provisions of FAS 158 on the companys balance sheet
at December 31, 2006 are presented in the following table.
The adoption of FAS 158 had no effect on the companys
consolidated statement of operations for the year ended
December 31, 2006, or for any prior period presented, and
it will not effect the companys operating results in
future periods. The incremental effect of adopting FAS 158
on the companys balance sheet at December 31, 2006 is
as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2006
|
|
|
|
|
|
|
Prior to
|
|
|
Effect of
|
|
|
As Reported
|
|
|
|
Application of
|
|
|
Adopting
|
|
|
at December 31,
|
|
|
|
Statement 158
|
|
|
Statement 158
|
|
|
2006
|
|
|
Accrued SERP liability
|
|
$
|
20,236
|
|
|
$
|
13,440
|
|
|
$
|
33,676
|
|
DBO Plan liability
|
|
|
461
|
|
|
|
1,500
|
|
|
|
1,961
|
|
Accumulated other comprehensive
earnings
|
|
$
|
114,128
|
|
|
$
|
(14,940
|
)
|
|
$
|
99,188
|
|
The SERP liability includes a current portion included in
accrued expenses and the long-term portion, which is included in
other long term obligations in the companys consolidated
balance sheet. As a result of the adoption of FAS 158,
deferred federal income taxes of $5,229,000 have been recorded
and a full valuation allowance has been recorded as well.
Shareholders
Equity Transactions
The companys Common Shares have a $.25 stated value.
The Common Shares and the Class B Common Shares generally
have identical rights, terms and conditions and vote together as
a single class on most issues, except that the Class B
Common Shares have ten votes per share, carry a 10% lower cash
dividend rate and, in general, can only be transferred to family
members. Holders of Class B Common Shares are entitled to
convert their shares into Common Shares at any time on a
share-for-share
basis.
The 2003 Performance Plan (the 2003 Plan) allows the
Compensation Committee of the Board of Directors (the
Committee) to grant up to 3,800,000 Common Shares in
connection with incentive stock options, non-qualified stock
options, stock appreciation rights and stock awards (including
the use of restricted stock). The 1994 Performance Plan (the
1994 Plan), as amended, expired in 2004 and allowed
the Compensation Committee of the Board of Directors (the
Committee) to grant up to 5,500,000 Common Shares.
The Committee has the authority to determine which employees and
directors will receive awards, the amount of the awards and the
other terms and conditions of the awards. During 2006 and 2005,
the Committee granted 522,152 and 614,962, respectively, in
non-qualified stock options for a term of ten years at the fair
market value of the companys Common Shares on the date of
grant under the 2003 Plan. There were no stock appreciation
rights outstanding at December 31, 2006, 2005 or 2004.
Restricted stock awards for 115,932, 21,304 and
20,510 shares were granted in years 2006, 2005 and 2004
without cost to the recipients. Under the terms of the
restricted stock awards, which were initially granted in 2001,
239,449 of the shares granted vest ratably over the four years
after the award date and 6,500 of the shares granted vest
ratably over the 2 years after the award date. At
December 31, 2006 and 2005, there were 147,085 and
58,828 shares, respectively for restricted stock awards
that were unvested. Unearned restricted stock compensation of
$3,512,000 in 2006, $1,016,000 in 2005 and $911,000 in 2004,
determined as the market value of the shares at the date of
grant, is being amortized on a straight-line basis over the
vesting period. Compensation expense of
F-22
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$1,075,000, $881,000 and $812,000 was recognized in 2006, 2005
and 2004, respectively, related to restricted stock awards
granted since 2001.
The 2003 Plan has provisions that allow employees to exchange
mature shares to pay the exercise price and surrender shares for
the options to cover the minimum tax withholding obligation.
Under these provisions, the company acquired treasury shares of
approximately 128,000 for $4,314,000 in 2006, 124,000 for
$6,004,000 in 2005 and 53,000 for $2,444,000 in 2004.
On December 21, 2005, the Board of Directors of Invacare
Corporation based on the recommendation of the Compensation,
Management Development and Corporate Governance Committee (the
Committee), approved the acceleration of the vesting
for substantially all of the companys unvested stock
options which were granted under the 1994 Plan, as amended, and
the 2003 Plan, which were then underwater. The Board of
Directors decided to approve the acceleration of the vesting of
the companys stock options primarily to partially offset
the recent reductions in other benefits made by the company and
to provide additional incentive to those critical to the
companys current cost reduction efforts.
The decision, which was effective as of December 21, 2005,
accelerated the vesting for a total of 1,368,307 of the
companys common shares; including 646,100 shares
underlying options held by the companys named executive
officers. The stock options accelerated equate to 29% of the
companys total outstanding stock options. Vesting was not
accelerated for the restricted awards granted under the Plans
and no other modifications were made to the awards that were
accelerated. The exercise prices of the accelerated options, all
of which were underwater, were unchanged by the acceleration of
the vesting schedules.
All of the companys outstanding unvested options under the
Plans, which were accelerated, had exercise prices ranging from
$30.91 to $47.80 which were greater than the companys
stock market price of $30.75 as of the effective date of the
acceleration. As of December 31, 2006, an aggregate of
38,484,620 Common Shares were reserved for issuance upon the
conversion of Class B Common Shares and future rights (as
defined below) and the exercise or grant of stock options or
other awards under the companys equity incentive plans. On
an as adjusted basis, including the Common Shares issuable upon
conversion of the convertible debentures that were issued as
part of the companys Refinancing completed in February
2007, an aggregate of 43,930,364 would have been reserved for
issuance as of December 31, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Exercise
|
|
|
|
|
|
Average Exercise
|
|
|
|
|
|
Average Exercise
|
|
|
|
2006
|
|
|
Price
|
|
|
2005
|
|
|
Price
|
|
|
2004
|
|
|
Price
|
|
|
Options outstanding at
January 1
|
|
|
4,776,162
|
|
|
$
|
31.57
|
|
|
|
4,638,405
|
|
|
$
|
29.81
|
|
|
|
4,518,890
|
|
|
$
|
27.34
|
|
Granted
|
|
|
522,152
|
|
|
|
23.87
|
|
|
|
614,962
|
|
|
|
41.59
|
|
|
|
626,450
|
|
|
|
43.89
|
|
Exercised
|
|
|
(231,448
|
)
|
|
|
24.61
|
|
|
|
(356,676
|
)
|
|
|
23.39
|
|
|
|
(449,374
|
)
|
|
|
24.13
|
|
Canceled
|
|
|
(342,215
|
)
|
|
|
36.83
|
|
|
|
(120,529
|
)
|
|
|
37.17
|
|
|
|
(57,561
|
)
|
|
|
34.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
December 31
|
|
|
4,724,651
|
|
|
$
|
30.68
|
|
|
|
4,776,162
|
|
|
$
|
31.57
|
|
|
|
4,638,405
|
|
|
$
|
29.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options price range at
December 31
|
|
$
|
16.03 to
|
|
|
|
|
|
|
$
|
16.03 to
|
|
|
|
|
|
|
$
|
16.03 to
|
|
|
|
|
|
|
|
|
$47.80
|
|
|
|
|
|
|
|
$47.80
|
|
|
|
|
|
|
|
$47.35
|
|
|
|
|
|
Options exercisable at
December 31
|
|
|
4,216,624
|
|
|
|
|
|
|
|
4,745,435
|
|
|
|
|
|
|
|
2,963,385
|
|
|
|
|
|
Options available for grant at
December 31*
|
|
|
1,784,033
|
|
|
|
|
|
|
|
454,142
|
|
|
|
|
|
|
|
1,033,858
|
|
|
|
|
|
|
|
|
* |
|
Options available for grant as of December 31, 2006 reduced
by net restricted stock award activity of 241,649. |
F-23
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes information about stock options
outstanding at December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Number
|
|
|
Weighted Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
Exercisable
|
|
|
Weighted Average
|
|
Exercise Prices
|
|
at
12/31/06
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
at
12/31/06
|
|
|
Exercise Price
|
|
|
$16.03-$23.69
|
|
|
1,770,178
|
|
|
|
4.3 years
|
|
|
$
|
22.21
|
|
|
|
1,340,001
|
|
|
$
|
22.10
|
|
$25.13-$36.40
|
|
|
1,486,921
|
|
|
|
4.3
|
|
|
$
|
30.02
|
|
|
|
1,409,071
|
|
|
$
|
29.94
|
|
$37.70-$47.80
|
|
|
1,467,552
|
|
|
|
7.7
|
|
|
$
|
41.57
|
|
|
|
1,467,552
|
|
|
$
|
41.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,724,651
|
|
|
|
5.3
|
|
|
$
|
30.68
|
|
|
|
4,216,624
|
|
|
$
|
31.50
|
|
The company had utilized the disclosure-only provisions of
SFAS No. 123 through December 31, 2005.
Accordingly, no compensation cost was recognized for the stock
option plans, except the expense recorded related to the
132,017 restricted stock awards granted in years 2001
through 2005.
The plans provide that shares granted come from the
companys authorized but unissued Common Shares or treasury
shares. Pursuant to the plans, the Committee has established
that the majority of the 2006 grants may not be exercised within
one year from the date granted and options must be exercised
within ten years from the date granted. Accordingly, the
assumption regarding the stock options issued in 2006, 2005 and
2004 was that 25% of such options vested in the year following
issuance. The stock options awarded during such years provided a
four-year vesting period whereby options vest equally in each
year. Current year expense and prior years pro forma
disclosures may be adjusted for forfeitures of awards that will
not vest because service or employment requirements have not
been met. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected dividend yield
|
|
|
.93
|
%
|
|
|
.67
|
%
|
|
|
.63
|
%
|
Expected stock price volatility
|
|
|
29.5
|
%
|
|
|
26.7
|
%
|
|
|
28.8
|
%
|
Risk-free interest rate
|
|
|
4.71
|
%
|
|
|
4.38
|
%
|
|
|
3.67
|
%
|
Expected life (years)
|
|
|
4.4
|
|
|
|
5.6
|
|
|
|
5.6
|
|
Expected stock price volatility is calculated at each date of
grant based on historical stock prices. Actual risk free rates
used during the year ranged from a low of 4.3% to a high of
5.0%. The weighted-average fair value of options granted during
2006, 2005 and 2004, based upon an expected exercise year of
2010, was $7.87, $12.41 and $13.58, respectively. The plans
provide that shares granted come from the companys
authorized but unissued Common Shares or treasury shares. In
addition, the companys stock-based compensation plans
allow participants to exchange shares for withholding taxes,
which results in the company acquiring treasury shares. The
weighted-average remaining contractual life of options
outstanding at December 31, 2006 and 2005 was 5.3 and
5.7 years, respectively. The weighted-average contractual
life of options exercisable at December 31, 2006 was
4.8 years. The total intrinsic value of stock awards
exercised in 2006, 2005 and 2004 was $1,792,170, $7,401,047 and
$9,871,085, respectively. As of December 31, 2006, the
intrinsic value of all options outstanding and of all options
exercisable was $4,149,899 and $3,287,272, respectively. The
exercise of stock awards in 2006, 2005 and 2004 resulted in cash
received by the company totaling $3,081,000, $4,623,000 and
$9,850,000 for each period, respectively and tax benefits of
$955,000, $4,545,000 and $2,934,000, respectively.
As of December 31, 2006, there was $13,182,000 of total
unrecognized compensation cost from stock-based compensation
arrangements granted under the plans, which is related to
non-vested options and shares, which includes $3,512,000 related
to restricted stock awards. The company expects the compensation
expense to be recognized over a weighted-average period of
approximately 2 years. Prior to the adoption of
SFAS 123R, the company presented all tax benefit deductions
resulting from the exercise of stock options as a component of
operating cash flows in the Consolidated Statement of Cash
Flows. In accordance with SFAS 123R, tax benefits
F-24
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
resulting from tax deductions in excess of the compensation
expense recognized for those options is classified as a
component of financing cash flows. The impact of this change was
not material in 2006.
Effective July 8, 2005, the company adopted a new Rights
Agreement to replace the companys previous shareholder
rights plan, which expired on July 7, 2005. In order to
implement the new Rights Agreement, the Board of Directors
declared a dividend of one Right for each outstanding share of
the companys Common Shares and Class B Common Shares
to shareholders of record at the close of business on
July 19, 2005. Each Right entitles the registered holder to
purchase from the company one one-thousandth of a Series A
Participating Serial Preferred Share, without par value, at a
Purchase Price of $180.00 in cash, subject to adjustment. The
Rights will not become exercisable until after a person (an
Acquiring Party) has acquired, or obtained the right
to acquire, or commences a tender offer to acquire, shares
representing 30% or more of the companys outstanding
voting power, subject to deferral by the Board of Directors.
After the Rights become exercisable, under certain
circumstances, the Rights may be exercisable to purchase Common
Shares of the company, or common shares of an acquiring company,
at a price equal to the exercise price of the Right divided by
50% of the then current market price per Common Share or
acquiring company common share, as the case may be. The Rights
will expire on July 18, 2015 unless previously redeemed or
exchanged by the company. The company may redeem and terminate
the Rights in whole, but not in part, at a price of
$0.001 per Right at any time prior to 10 days
following a public announcement that an Acquiring Party has
acquired beneficial ownership of shares representing 30% or more
of the companys outstanding voting power, and in certain
other circumstances described in the Rights Agreement.
Capital
Stock
Capital stock activity for 2006, 2005 and 2004 consisted of the
following (in thousands of shares):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Class B
|
|
|
Treasury
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
January 1, 2004 Balance
|
|
|
30,739
|
|
|
|
1,112
|
|
|
|
(770
|
)
|
Exercise of stock options
|
|
|
449
|
|
|
|
|
|
|
|
(53
|
)
|
Stock awards
|
|
|
21
|
|
|
|
|
|
|
|
|
|
Repurchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 Balance
|
|
|
31,209
|
|
|
|
1,112
|
|
|
|
(934
|
)
|
Exercise of stock options
|
|
|
465
|
|
|
|
|
|
|
|
(124
|
)
|
Stock awards
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 Balance
|
|
|
31,695
|
|
|
|
1,112
|
|
|
|
(1,058
|
)
|
Exercise of stock options
|
|
|
240
|
|
|
|
|
|
|
|
(128
|
)
|
Stock awards
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006 Balance
|
|
|
32,051
|
|
|
|
1,112
|
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option exercises in 2006 include deferred share activity,
which increased common shares by 9,000 shares and treasury
shares by 4,000 shares. Stock option exercises in 2005
include deferred share activity, which increased common shares
by 108,000 shares and treasury shares by 14,000 shares.
F-25
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Comprehensive Earnings (Loss)
The components of other comprehensive earnings (loss) are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
|
|
|
(Loss) on
|
|
|
|
|
|
|
Currency
|
|
|
(Loss) on
|
|
|
Adjustment to
|
|
|
Derivative
|
|
|
|
|
|
|
Translation
|
|
|
Available-for-Sale
|
|
|
Initially Apply
|
|
|
Financial
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
FASB 158
|
|
|
Instruments
|
|
|
Total
|
|
|
Balance at January 1, 2004
|
|
$
|
46,567
|
|
|
$
|
675
|
|
|
|
|
|
|
$
|
3,815
|
|
|
$
|
51,057
|
|
Foreign currency translation
adjustments
|
|
|
57,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,903
|
|
Unrealized loss on available for
sale securities
|
|
|
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Deferred tax benefit relating to
unrealized loss on available for sale securities
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Current period unrealized loss on
cash flow hedges, net of reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,649
|
)
|
|
|
(6,649
|
)
|
Deferred tax benefit relating to
unrealized loss on derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,327
|
|
|
|
2,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004
|
|
|
104,470
|
|
|
|
666
|
|
|
|
|
|
|
|
(507
|
)
|
|
|
104,629
|
|
Foreign currency translation
adjustments
|
|
|
(56,176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(56,176
|
)
|
Unrealized gain on available for
sale securities
|
|
|
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
Deferred tax liability relating to
unrealized gain on available for sale securities
|
|
|
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
(19
|
)
|
Current period unrealized loss on
cash flow hedges, net of reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,551
|
)
|
|
|
(1,551
|
)
|
Deferred tax benefit relating to
unrealized loss on derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
543
|
|
|
|
543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005
|
|
|
48,294
|
|
|
|
701
|
|
|
|
|
|
|
|
(1,515
|
)
|
|
|
47,480
|
|
F-26
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
|
|
|
|
|
|
|
Unrealized Gain
|
|
|
|
|
|
(Loss) on
|
|
|
|
|
|
|
Currency
|
|
|
(Loss) on
|
|
|
Adjustment to
|
|
|
Derivative
|
|
|
|
|
|
|
Translation
|
|
|
Available-for-Sale
|
|
|
Initially Apply
|
|
|
Financial
|
|
|
|
|
|
|
Adjustments
|
|
|
Securities
|
|
|
FASB 158
|
|
|
Instruments
|
|
|
Total
|
|
|
Foreign currency translation
adjustments
|
|
|
64,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,386
|
|
Unrealized loss on available for
sale securities
|
|
|
|
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
(63
|
)
|
Deferred tax benefit relating to
unrealized loss on available for sale securities
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
22
|
|
Adjustment to initially apply FASB
Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
(14,940
|
)
|
|
|
|
|
|
|
(14,940
|
)
|
Deferred tax benefit resulting
from adjustment to initially apply FASB Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
5,229
|
|
|
|
|
|
|
|
5,229
|
|
Valuation reserve resulting from
adjustment to initially apply FASB Statement No. 158
|
|
|
|
|
|
|
|
|
|
|
(5,229
|
)
|
|
|
|
|
|
|
(5,229
|
)
|
Current period unrealized gain on
cash flow hedges, net of reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,543
|
|
|
|
3,543
|
|
Deferred tax liability relating to
unrealized gain on derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,240
|
)
|
|
|
(1,240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
$
|
112,680
|
|
|
$
|
660
|
|
|
$
|
(14,940
|
)
|
|
$
|
788
|
|
|
$
|
99,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses of $240,000 and $283,000 and a net gain of $6,650,000
were reclassified into earnings related to derivative
instruments designated and qualifying as cash flow hedges in
2006, 2005 and 2004, respectively.
Charge
Related to Restructuring Activities
On July 28, 2005, the company announced multi-year cost
reductions and profit improvement actions, which included:
reducing global headcount, outsourcing improvements utilizing
the companys China manufacturing capability and third
parties, shifting substantial resources from product development
to manufacturing cost reduction activities and product
rationalization, reducing freight exposure through freight
auctions and changing the freight policy, general expense
reductions, and exiting four facilities.
The restructuring was necessitated by the continued decline in
reimbursement by the U.S. government as well as similar
reimbursement pressures abroad and continued pricing pressures
faced by the company as a result of outsourcing by competitors
to lower cost locations.
To date, the company has made substantial progress on its
restructuring activities, including exiting four facilities and
eliminating approximately 600 positions through
December 31, 2006, which resulted in restructuring charges
of $21,250,000 and $7,533,000 in 2006 and 2005, respectively, of
which $3,973,000 and $238,000, respectively is recorded in cost
of products sold as it relates to inventory markdowns. There
have been no material changes in accrued balances related to the
charge, either as a result of revisions in the plan or changes
in estimates, and the company expects to utilize the accruals
recorded as of December 31, 2006 during 2007.
F-27
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A progression by reporting segment of the accruals recorded as a
result of the restructuring is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
1/1/05
|
|
|
Accruals
|
|
|
Payments
|
|
|
12/31/05
|
|
|
Accruals
|
|
|
Payments
|
|
|
12/31/06
|
|
|
North America/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HME Severance
|
|
$
|
|
|
|
$
|
3,528
|
|
|
$
|
(1,398
|
)
|
|
$
|
2,130
|
|
|
$
|
5,549
|
|
|
$
|
(6,320
|
)
|
|
$
|
1,359
|
|
Product line discontinuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,719
|
|
|
|
(682
|
)
|
|
|
2,037
|
|
Contract terminations
|
|
|
|
|
|
|
88
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
1,346
|
|
|
|
(789
|
)
|
|
|
557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,616
|
|
|
$
|
(1,486
|
)
|
|
$
|
2,130
|
|
|
$
|
9,614
|
|
|
$
|
(7,791
|
)
|
|
$
|
3,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invacare Supply Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
173
|
|
|
$
|
(61
|
)
|
|
$
|
112
|
|
|
$
|
457
|
|
|
$
|
(403
|
)
|
|
$
|
166
|
|
Product line discontinuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
552
|
|
|
|
(552
|
)
|
|
|
|
|
Contract terminations
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
338
|
|
|
$
|
(61
|
)
|
|
$
|
277
|
|
|
$
|
1,009
|
|
|
$
|
(1,120
|
)
|
|
$
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Products Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
27
|
|
|
$
|
(27
|
)
|
|
$
|
|
|
|
$
|
38
|
|
|
$
|
(38
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
2,297
|
|
|
$
|
(1,498
|
)
|
|
$
|
799
|
|
|
$
|
5,208
|
|
|
$
|
(2,273
|
)
|
|
$
|
3,734
|
|
Product line discontinuance
|
|
|
|
|
|
|
169
|
|
|
|
(169
|
)
|
|
|
|
|
|
|
455
|
|
|
|
(455
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
252
|
|
|
|
(252
|
)
|
|
|
|
|
|
|
2,995
|
|
|
|
(2,995
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
2,718
|
|
|
$
|
(1,919
|
)
|
|
$
|
799
|
|
|
$
|
8,658
|
|
|
$
|
(5,723
|
)
|
|
$
|
3,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia/Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
642
|
|
|
$
|
(579
|
)
|
|
$
|
63
|
|
|
$
|
621
|
|
|
$
|
(684
|
)
|
|
$
|
|
|
Contract terminations
|
|
|
|
|
|
|
39
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
745
|
|
|
|
(623
|
)
|
|
|
122
|
|
Product line discontinuance
|
|
|
|
|
|
|
69
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
557
|
|
|
|
(557
|
)
|
|
|
|
|
Other
|
|
|
|
|
|
|
84
|
|
|
|
(84
|
)
|
|
|
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
834
|
|
|
$
|
(771
|
)
|
|
$
|
63
|
|
|
$
|
1,931
|
|
|
$
|
(1,872
|
)
|
|
$
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
$
|
|
|
|
$
|
6,667
|
|
|
$
|
(3,563
|
)
|
|
$
|
3,104
|
|
|
$
|
11,873
|
|
|
$
|
(9,718
|
)
|
|
$
|
5,259
|
|
Contract terminations
|
|
|
|
|
|
|
292
|
|
|
|
(127
|
)
|
|
|
165
|
|
|
|
2,091
|
|
|
|
(1,577
|
)
|
|
|
679
|
|
Product line discontinuance
|
|
|
|
|
|
|
238
|
|
|
|
(238
|
)
|
|
|
|
|
|
|
4,283
|
|
|
|
(2,246
|
)
|
|
|
2,037
|
|
Other
|
|
|
|
|
|
|
336
|
|
|
|
(336
|
)
|
|
|
|
|
|
|
3,003
|
|
|
|
(3,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
7,533
|
|
|
$
|
(4,264
|
)
|
|
$
|
3,269
|
|
|
$
|
21,250
|
|
|
$
|
(16,544
|
)
|
|
$
|
7,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income
Taxes
Earnings (loss) before income taxes consist of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Domestic
|
|
$
|
(349,144
|
)
|
|
$
|
18,605
|
|
|
$
|
57,557
|
|
Foreign
|
|
|
39,620
|
|
|
|
52,697
|
|
|
|
52,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(309,524
|
)
|
|
$
|
71,302
|
|
|
$
|
110,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The company has provided for income taxes (benefits) as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(12,815
|
)
|
|
$
|
9,475
|
|
|
$
|
14,075
|
|
State
|
|
|
750
|
|
|
|
600
|
|
|
|
2,800
|
|
Foreign
|
|
|
16,030
|
|
|
|
12,475
|
|
|
|
14,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,965
|
|
|
|
22,550
|
|
|
|
30,925
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
11,695
|
|
|
|
(2,225
|
)
|
|
|
2,225
|
|
Foreign
|
|
|
(7,410
|
)
|
|
|
2,125
|
|
|
|
2,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,285
|
|
|
|
(100
|
)
|
|
|
4,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes
|
|
$
|
8,250
|
|
|
$
|
22,450
|
|
|
$
|
35,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation to the effective income tax rate from the
federal statutory rate follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Statutory federal income tax rate
|
|
|
(35.0
|
)%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local income taxes, net
of federal income tax benefit
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
1.6
|
|
Tax credits
|
|
|
(0.1
|
)
|
|
|
(0.8
|
)
|
|
|
(1.6
|
)
|
Foreign taxes at less than the
federal statutory rate
|
|
|
(2.0
|
)
|
|
|
(5.2
|
)
|
|
|
(2.1
|
)
|
Asset write-downs related to
goodwill and other intangibles, without tax benefit
|
|
|
30.2
|
|
|
|
|
|
|
|
|
|
Federal valuation allowance
|
|
|
9.3
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
0.1
|
|
|
|
2.0
|
|
|
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7
|
%
|
|
|
31.5
|
%
|
|
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-29
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of deferred income tax assets and
liabilities at December 31, 2006 and 2005 are as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
Current deferred income tax assets
(liabilities), net:
|
|
|
|
|
|
|
|
|
Loss carryforwards
|
|
$
|
7,375
|
|
|
$
|
6,246
|
|
Bad debt
|
|
|
14,006
|
|
|
|
7,386
|
|
Warranty
|
|
|
3,365
|
|
|
|
4,036
|
|
State and local taxes
|
|
|
3,154
|
|
|
|
2,764
|
|
Other accrued expenses and reserves
|
|
|
2,645
|
|
|
|
2,754
|
|
Inventory
|
|
|
2,337
|
|
|
|
1,361
|
|
Compensation and benefits
|
|
|
3,079
|
|
|
|
2,061
|
|
Product liability
|
|
|
292
|
|
|
|
292
|
|
Valuation allowance
|
|
|
(22,552
|
)
|
|
|
|
|
Other, net
|
|
|
(189
|
)
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,512
|
|
|
$
|
27,446
|
|
|
|
|
|
|
|
|
|
|
Long-term deferred income tax
assets (liabilities), net:
|
|
|
|
|
|
|
|
|
Goodwill & intangibles
|
|
|
(29,480
|
)
|
|
|
(36,252
|
)
|
Fixed assets
|
|
|
(18,289
|
)
|
|
|
(20,030
|
)
|
Compensation and benefits
|
|
|
16,541
|
|
|
|
10,344
|
|
Loss and credit carryforwards
|
|
|
6,453
|
|
|
|
5,674
|
|
Product liability
|
|
|
4,715
|
|
|
|
3,812
|
|
State and local taxes
|
|
|
10,619
|
|
|
|
8,628
|
|
Valuation allowance
|
|
|
(27,721
|
)
|
|
|
(7,100
|
)
|
Other, net
|
|
|
2,569
|
|
|
|
7,132
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(34,593
|
)
|
|
$
|
(27,792
|
)
|
|
|
|
|
|
|
|
|
|
Net Deferred Income Taxes
|
|
$
|
(21,081
|
)
|
|
$
|
(346
|
)
|
|
|
|
|
|
|
|
|
|
At December 31, 2006, the company had federal foreign tax
loss carryforwards of approximately $40,600,000 of which
$29,350,000 are non-expiring, $900,000 expire in 2011,
$5,175,000 expire in 2012, and $5,175,000 expire in 2013. The
loss carryforward amounts include $16,900,000 of federal foreign
loss carryforwards associated with 2004 acquisitions. At
December 31, 2006 the company also had a $9,425,000
domestic capital loss carryforward that expires in 2011 and
$226,800,000 of domestic state and local tax loss carryforwards,
of which $113,800,000 expire between 2007 and 2010, $55,450,000
expire between 2011 and 2020 and $57,550,000 expire after 2020,
all of which are fully offset by valuation allowances. The
company made income tax payments of $14,370,000, $10,435,000 and
$30,180,000 during the years ended December 31, 2006, 2005
and 2004, respectively. The company recorded a valuation
allowance for its domestic net deferred tax assets due to the
loss recognized in 2006 and based upon near term domestic
projections.
F-30
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net
Earnings Per Common Share
The following table sets forth the computation of basic and
diluted net earnings per common share.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
(In thousands except per share data)
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
31,789
|
|
|
|
31,555
|
|
|
|
31,153
|
|
Net earnings (loss)
|
|
$
|
(317,774
|
)
|
|
$
|
48,852
|
|
|
$
|
75,197
|
|
Net earnings (loss) per common
share
|
|
$
|
(10.00
|
)
|
|
$
|
1.55
|
|
|
$
|
2.41
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares outstanding
|
|
|
31,789
|
|
|
|
31,555
|
|
|
|
31,153
|
|
Stock options
|
|
|
|
|
|
|
897
|
|
|
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares assuming
dilution
|
|
|
31,789
|
|
|
|
32,452
|
|
|
|
32,347
|
|
Net earnings (loss)
|
|
$
|
(317,774
|
)
|
|
$
|
48,852
|
|
|
$
|
75,197
|
|
Net earnings (loss) per common
share
|
|
$
|
(10.00
|
)
|
|
$
|
1.51
|
|
|
$
|
2.33
|
|
At December 31, 2006, 2005, and 2004, 2,713,000, 813,191,
and 21,167 shares, respectively were excluded from the
average common shares assuming dilution, as they were
anti-dilutive. In 2006, all of the shares associated with stock
options were anti-dilutive because of the companys loss.
In 2005, the majority of the anti-dilutive shares were granted
at an exercise price of $41.87, which was higher than the
average fair market value price of $41.46 for 2005. In 2004, the
majority of the anti-dilutive shares were granted at an exercise
price of $47.35, which was higher than the average fair market
value price of $44.39 for 2004.
Concentration
of Credit Risk
The company manufactures and distributes durable medical
equipment and supplies to the home health care, retail and
extended care markets. The company performs credit evaluations
of its customers financial condition. Prior to December
2000, the company financed equipment to certain customers for
periods ranging from 6 to 39 months. In December 2000,
Invacare entered into an agreement with DLL, a third party
financing company, to provide the majority of future lease
financing to Invacares customers. The DLL agreement
provides for direct leasing between DLL and the Invacare
customer. The company retains a limited recourse obligation
($43,676,000 at December 31, 2006) to DLL for events
of default under the contracts (total balance outstanding of
$107,826,000 at December 31, 2006). FASB Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, requires the company to record a
guarantee liability as it relates to the limited recourse
obligation. As such, the company has recorded a liability for
this guarantee obligation within accrued expenses. The company
monitors the collections status of these contracts and has
provided amounts for estimated losses in its allowances for
doubtful accounts in accordance with SFAS No. 5,
Accounting for Contingencies. Credit losses are provided
for in the financial statements.
Substantially all of the companys receivables are due from
health care, medical equipment dealers and long term care
facilities located throughout the United States, Australia,
Canada, New Zealand and Europe. A significant portion of
products sold to dealers, both foreign and domestic, is
ultimately funded through government reimbursement programs such
as Medicare and Medicaid. In addition, the company has also seen
a significant shift in reimbursement to customers from managed
care entities. As a consequence, changes in these programs can
have an adverse impact on dealer liquidity and profitability. In
addition, reimbursement guidelines in the home health care
industry have a substantial impact on the nature and type of
equipment an end user can obtain as well as the timing of
reimbursement and, thus, affect the product mix, pricing and
payment patterns of the companys customers.
F-31
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Values of Financial Instruments
The company in estimating its fair value disclosures for
financial instruments used the following methods and assumptions:
Cash, cash equivalents and marketable
securities: The carrying amount reported in the
balance sheet for cash, cash equivalents and marketable
securities approximates its fair value.
Installment receivables: The carrying amount
reported in the balance sheet for installment receivables
approximates its fair value. The interest rates associated with
these receivables have not varied significantly since inception.
Management believes that after consideration of the credit risk,
the net book value of the installment receivables approximates
market value.
Long-term debt: Fair values for the
companys senior notes are estimated using discounted cash
flow analyses, based on the companys current incremental
borrowing rate for similar borrowing arrangements.
Interest Rate Swaps: The company is a party to
interest rate swap agreements, which are entered into, in the
normal course of business to reduce exposure to fluctuations in
interest rates. The agreements are with major financial
institutions, which are expected to fully perform under the
terms of the agreements thereby mitigating the credit risk from
the transactions. The agreements are contracts to exchange fixed
rate payments for floating rate payments over the life of the
agreements without the exchange of the underlying notional
amounts. The notional amounts of such agreements are used to
measure interest to be paid or received and do not represent the
amount of exposure to credit loss. The amounts to be paid or
received under the interest rate swap agreements are accrued
consistent with the terms of the agreements and market interest
rates. Fair value for the companys interest rate swaps are
based on independent pricing models.
Other investments: The company has made other
investments in limited partnerships and non-marketable equity
securities, which are accounted for using the cost method,
adjusted for any estimated declines in value. These investments
were acquired in private placements and there are no quoted
market prices or stated rates of return.
The carrying amounts and fair values of the companys
financial instruments at December 31, 2006 and 2005 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Cash and cash equivalents
|
|
$
|
82,203
|
|
|
$
|
82,203
|
|
|
$
|
25,624
|
|
|
$
|
25,624
|
|
Marketable securities
|
|
|
190
|
|
|
|
190
|
|
|
|
252
|
|
|
|
252
|
|
Other investments
|
|
|
8,461
|
|
|
|
8,461
|
|
|
|
8,342
|
|
|
|
8,342
|
|
Installment receivables
|
|
|
22,887
|
|
|
|
22,887
|
|
|
|
13,081
|
|
|
|
13,081
|
|
Long-term debt (including
short-term borrowings secured by accounts receivable and current
maturities of long-term debt)
|
|
|
573,126
|
|
|
|
583,856
|
|
|
|
537,981
|
|
|
|
538,053
|
|
Interest rate swaps
|
|
|
(435
|
)
|
|
|
(435
|
)
|
|
|
(202
|
)
|
|
|
(202
|
)
|
Forward contracts
|
|
|
1,213
|
|
|
|
1,213
|
|
|
|
(2,330
|
)
|
|
|
(2,330
|
)
|
Forward Contracts: The company operates
internationally and as a result is exposed to foreign currency
fluctuations. Specifically, the exposure includes intercompany
loans and third party sales or payments. In an attempt to reduce
this exposure, foreign currency forward contracts are utilized
and accounted for as hedging instruments. The forward contracts
in 2006 and 2005 were entered into to as hedges of the following
currencies: USD, NZD, CAD, GBP, EUR, SEK, DKK and AUD. The
company does not use derivative financial instruments for
speculative purposes.
F-32
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The gains and losses that result from the majority of the
forward contracts are deferred and recognized when the
offsetting gains and losses for the identified transactions are
recognized. The company recognized losses of $240,000 in 2006
and $280,000 in 2005 and gains of $6,961,000 in 2004,
respectively, which were recognized in cost of products sold and
selling, general and administrative expenses.
Business
Segments
The company operates in five primary business segments: North
America/Home Medical Equipment (NA/HME), Invacare Supply Group,
Institutional Products Group, Europe and Asia/Pacific. The
company expanded its number of reporting segments from three to
five in 2006 due to organizational changes within the former
North American geographic operating segment and changes in how
the chief operating decision maker assesses performance and
makes resource allocation decisions. Prior to 2006, the Invacare
Supply Group and Institutional Products Group were fully
integrated into the former North American operating segment in
that they shared the same sales force, managed customer service
jointly, etc. In 2006, management reporting changes were made
along with changes in the sales structure, customer service,
supply chain management, etc., all of which established ISG and
IPG as autonomous businesses. Accordingly, the company has
modified its operating segments and reportable segments in 2006
with the corresponding prior year amounts being reclassified to
conform to the 2006 presentation.
The NA/HME segment sells each of three primary product lines,
which includes: standard, rehab and respiratory products.
Invacare Supply Group sells distributed product and the
Institutional Products Group sells health care furnishings and
accessory products. Europe and Asia/Pacific sell the same
product lines with the exception of distributed products. Each
business segment sells to the home health care, retail and
extended care markets.
The company evaluates performance and allocates resources based
on profit or loss from operations before income taxes for each
reportable segment. The accounting policies of each segment are
the same as those described in the summary of significant
accounting policies for the companys consolidated
financial statements. Intersegment sales and transfers are based
on the costs to manufacture plus a reasonable profit element.
Therefore, intercompany profit or loss on intersegment sales and
transfers is not considered in evaluating segment performance.
The information by segment is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Revenues from external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
676,326
|
|
|
$
|
706,555
|
|
|
$
|
720,553
|
|
Invacare Supply Group
|
|
|
228,236
|
|
|
|
220,908
|
|
|
|
205,130
|
|
Institutional Products Group
|
|
|
93,455
|
|
|
|
85,415
|
|
|
|
76,590
|
|
Europe
|
|
|
430,427
|
|
|
|
432,142
|
|
|
|
336,792
|
|
Asia/Pacific
|
|
|
69,591
|
|
|
|
84,712
|
|
|
|
64,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
1,498,035
|
|
|
$
|
1,529,732
|
|
|
$
|
1,403,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
51,081
|
|
|
$
|
46,048
|
|
|
$
|
43,966
|
|
Invacare Supply Group
|
|
|
102
|
|
|
|
26
|
|
|
|
7
|
|
Institutional Products Group
|
|
|
|
|
|
|
2,305
|
|
|
|
544
|
|
F-33
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Europe
|
|
|
12,599
|
|
|
|
12,019
|
|
|
|
2,825
|
|
Asia/Pacific
|
|
|
39,757
|
|
|
|
36,576
|
|
|
|
35,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
103,539
|
|
|
$
|
96,974
|
|
|
$
|
83,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
18,433
|
|
|
$
|
18,266
|
|
|
$
|
18,814
|
|
Invacare Supply Group
|
|
|
383
|
|
|
|
448
|
|
|
|
409
|
|
Institutional Products Group
|
|
|
1,888
|
|
|
|
1,867
|
|
|
|
1,456
|
|
Europe
|
|
|
14,533
|
|
|
|
15,100
|
|
|
|
8,687
|
|
Asia/Pacific
|
|
|
4,645
|
|
|
|
4,829
|
|
|
|
2,911
|
|
All Other(1)
|
|
|
10
|
|
|
|
14
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
39,892
|
|
|
$
|
40,524
|
|
|
$
|
32,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
16,530
|
|
|
$
|
13,299
|
|
|
$
|
946
|
|
Invacare Supply Group
|
|
|
3,158
|
|
|
|
2,447
|
|
|
|
2,561
|
|
Institutional Products Group
|
|
|
3,852
|
|
|
|
1,620
|
|
|
|
1,248
|
|
Europe
|
|
|
8,398
|
|
|
|
8,628
|
|
|
|
4,924
|
|
Asia/Pacific
|
|
|
(629
|
)
|
|
|
(431
|
)
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
31,309
|
|
|
$
|
25,563
|
|
|
$
|
9,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
(320,556
|
)
|
|
$
|
53,303
|
|
|
$
|
87,139
|
|
Invacare Supply Group
|
|
|
3,291
|
|
|
|
6,428
|
|
|
|
7,312
|
|
Institutional Products Group
|
|
|
4,789
|
|
|
|
5,747
|
|
|
|
12,264
|
|
Europe
|
|
|
26,077
|
|
|
|
29,255
|
|
|
|
18,705
|
|
Asia/Pacific
|
|
|
(7,318
|
)
|
|
|
(4,418
|
)
|
|
|
1,430
|
|
All Other(1)
|
|
|
(15,807
|
)
|
|
|
(19,013
|
)
|
|
|
(16,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(309,524
|
)
|
|
$
|
71,302
|
|
|
$
|
110,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
430,121
|
|
|
$
|
719,366
|
|
|
$
|
665,098
|
|
Invacare Supply Group
|
|
|
90,086
|
|
|
|
81,895
|
|
|
|
76,697
|
|
Institutional Products Group
|
|
|
43,918
|
|
|
|
44,372
|
|
|
|
46,953
|
|
Europe
|
|
|
751,502
|
|
|
|
671,642
|
|
|
|
710,510
|
|
Asia/Pacific
|
|
|
98,737
|
|
|
|
74,101
|
|
|
|
69,685
|
|
All Other(1)
|
|
|
76,087
|
|
|
|
55,396
|
|
|
|
59,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
1,490,451
|
|
|
$
|
1,646,772
|
|
|
$
|
1,628,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
65,264
|
|
|
$
|
374,023
|
|
|
$
|
377,529
|
|
Invacare Supply Group
|
|
|
61,363
|
|
|
|
54,447
|
|
|
|
24,858
|
|
Institutional Products Group
|
|
|
31,374
|
|
|
|
32,457
|
|
|
|
33,665
|
|
F-34
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Europe
|
|
|
563,479
|
|
|
|
508,196
|
|
|
|
548,843
|
|
Asia/Pacific
|
|
|
50,760
|
|
|
|
38,866
|
|
|
|
31,797
|
|
All Other(1)
|
|
|
62,453
|
|
|
|
44,317
|
|
|
|
46,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
834,693
|
|
|
$
|
1,052,306
|
|
|
$
|
1,062,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for assets
|
|
|
|
|
|
|
|
|
|
|
|
|
North America/HME
|
|
$
|
9,478
|
|
|
$
|
19,242
|
|
|
$
|
13,607
|
|
Invacare Supply Group
|
|
|
853
|
|
|
|
338
|
|
|
|
825
|
|
Institutional Products Group
|
|
|
828
|
|
|
|
427
|
|
|
|
819
|
|
Europe
|
|
|
8,041
|
|
|
|
5,470
|
|
|
|
20,064
|
|
Asia/Pacific
|
|
|
2,559
|
|
|
|
5,438
|
|
|
|
6,441
|
|
All Other(1)
|
|
|
30
|
|
|
|
9
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
21,789
|
|
|
$
|
30,924
|
|
|
$
|
41,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Consists of un-allocated corporate selling, general and
administrative costs and intercompany profits, which do not meet
the quantitative criteria for determining reportable segments. |
|
(2) |
|
As a result of increasing the number of reporting segments in
2006, the company allocated a portion of the goodwill related to
the former North American segment to the Invacare Supply Group
and Institutional Products Group segments based upon the
relative fair values of each of the three segments now
comprising North America. The reported assets above give effect
to that re-allocation as if it had occurred on January 1,
2004. |
Net sales by product, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
North America/HME
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehab
|
|
$
|
272,517
|
|
|
$
|
274,417
|
|
|
$
|
280,339
|
|
Standard
|
|
|
239,540
|
|
|
|
251,331
|
|
|
|
257,668
|
|
Respiratory
|
|
|
141,531
|
|
|
|
159,300
|
|
|
|
161,247
|
|
Other
|
|
|
22,738
|
|
|
|
21,507
|
|
|
|
21,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
676,326
|
|
|
$
|
706,555
|
|
|
$
|
720,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invacare Supply Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributed
|
|
$
|
228,236
|
|
|
$
|
220,908
|
|
|
$
|
205,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Institutional Products
Group
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Care
|
|
$
|
93,455
|
|
|
$
|
85,415
|
|
|
$
|
76,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
|
|
$
|
252,335
|
|
|
$
|
263,121
|
|
|
$
|
200,064
|
|
Rehab
|
|
|
170,138
|
|
|
|
161,082
|
|
|
|
128,316
|
|
Respiratory
|
|
|
7,954
|
|
|
|
7,939
|
|
|
|
8,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
430,427
|
|
|
$
|
432,142
|
|
|
$
|
336,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-35
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Asia/Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
Rehab
|
|
$
|
39,027
|
|
|
$
|
47,730
|
|
|
$
|
34,273
|
|
Standard
|
|
|
13,070
|
|
|
|
10,125
|
|
|
|
7,721
|
|
Respiratory
|
|
|
7,111
|
|
|
|
8,304
|
|
|
|
8,162
|
|
Other
|
|
|
10,383
|
|
|
|
18,553
|
|
|
|
14,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,591
|
|
|
$
|
84,712
|
|
|
$
|
64,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated
|
|
$
|
1,498,035
|
|
|
$
|
1,529,732
|
|
|
$
|
1,403,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No single customer accounted for more than 5% of the
companys sales.
Interim
Financial Information (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
QUARTER ENDED
|
|
2006
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
361,704
|
|
|
$
|
371,764
|
|
|
$
|
379,462
|
|
|
$
|
385,105
|
|
Gross profit
|
|
|
101,296
|
|
|
|
105,565
|
|
|
|
111,065
|
|
|
|
99,144
|
|
Earnings (loss) before income taxes
|
|
|
7,437
|
|
|
|
6,848
|
|
|
|
12,193
|
|
|
|
(336,002
|
)
|
Net earnings (loss)
|
|
|
5,207
|
|
|
|
4,953
|
|
|
|
9,693
|
|
|
|
(337,627
|
)
|
Net earnings (loss) per
share basic
|
|
|
.16
|
|
|
|
.16
|
|
|
|
.31
|
|
|
|
(10.61
|
)
|
Net earnings (loss) per
share assuming dilution
|
|
|
.16
|
|
|
|
.15
|
|
|
|
.30
|
|
|
|
(10.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Net sales
|
|
$
|
370,944
|
|
|
$
|
396,267
|
|
|
$
|
395,270
|
|
|
$
|
367,251
|
|
Gross profit
|
|
|
109,448
|
|
|
|
112,831
|
|
|
|
118,286
|
|
|
|
105,634
|
|
Earnings before income taxes
|
|
|
19,890
|
|
|
|
18,958
|
|
|
|
22,492
|
|
|
|
9,962
|
|
Net earnings
|
|
|
13,545
|
|
|
|
12,908
|
|
|
|
15,317
|
|
|
|
7,082
|
|
Net earnings per share
basic
|
|
|
.43
|
|
|
|
.41
|
|
|
|
.48
|
|
|
|
.22
|
|
Net earnings per share
assuming dilution
|
|
|
.42
|
|
|
|
.40
|
|
|
|
.47
|
|
|
|
.22
|
|
Subsequent
Events
On February 12, 2007, the company announced the completion
of its previously announced refinancing transactions. The new
financing program provides the company with total capacity of
approximately $710,000,000, the net proceeds of which have been
used to refinance substantially all of the companys
existing indebtedness and pay related fees and expenses.
As part of the 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 companys obligations under the new
senior secured credit facility are secured by substantially all
of the companys 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
3/4% 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
F-36
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 companys domestic subsidiaries, and pay interest at 9
3/4% 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 companys
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. 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. The debentures are
redeemable at the companys option, subject to specified
conditions, on or after February 6, 2012 through and
including February 1, 2017, and at the companys
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 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.
The notes, debentures and common shares issuable upon conversion
of the debentures have not been registered under the Securities
Act or the securities laws of any other jurisdiction and may not
be offered or sold in the United States absent registration
under, or an applicable exemption from, the registration
requirements of the Securities Act and applicable state
securities laws.
Supplemental
Guarantor Information
Effective February 12, 2007, substantially all of the
domestic subsidiaries (the Guarantor Subsidiaries)
of the company became guarantors of the indebtedness of Invacare
Corporation under its 9
3/4% Senior
Notes due 2015 (the Senior Notes) with an aggregate
principal amount of $175,000,000 and under its
4.125% Convertible Senior Subordinated Debentures due 2027
(the Debentures) with an aggregate principal amount
of $135,000,000. The majority of the companys subsidiaries
are not guaranteeing the indebtedness of the Senior Notes or
Debentures (the Non-Guarantor Subsidiaries). Each of
the Guarantor Subsidiaries has fully and unconditionally
guaranteed, on a joint and several basis, to pay principal,
premium, and interest related to the Senior Notes and related to
the Debentures and each of the Guarantor Subsidiaries are
directly or indirectly wholly-owned subsidiaries of the company.
F-37
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Presented below are the consolidating condensed financial
statements of Invacare Corporation (Parent), combined Guarantor
Subsidiaries and combined Non-Guarantor Subsidiaries with their
investments in subsidiaries accounted for using the equity
method. The company does not believe that separate financial
statements of the Guarantor Subsidiaries are material to
investors and accordingly separate financial statements and
other disclosures related to the Guarantor Subsidiaries are not
presented.
CONSOLIDATING
CONDENSED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Year ended December 31,
2006 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
342,614
|
|
|
$
|
615,163
|
|
|
$
|
613,237
|
|
|
$
|
(72,979
|
)
|
|
$
|
1,498,035
|
|
Cost of products sold
|
|
|
265,844
|
|
|
|
486,469
|
|
|
|
401,584
|
|
|
|
(72,932
|
)
|
|
|
1,080,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
76,770
|
|
|
|
128,694
|
|
|
|
211,653
|
|
|
|
(47
|
)
|
|
|
417,070
|
|
Selling, general and administrative
expenses
|
|
|
103,167
|
|
|
|
113,922
|
|
|
|
156,757
|
|
|
|
|
|
|
|
373,846
|
|
Charge related to restructuring
activities
|
|
|
5,597
|
|
|
|
637
|
|
|
|
11,043
|
|
|
|
|
|
|
|
17,277
|
|
Debt finance charges, interest and
fees associated with debt refinancing
|
|
|
3,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,745
|
|
Asset write-downs related to
goodwill and other intangibles
|
|
|
300,257
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
300,417
|
|
Income (loss) from equity investee
|
|
|
20,004
|
|
|
|
23,012
|
|
|
|
3,077
|
|
|
|
(46,093
|
)
|
|
|
|
|
Interest expense-net
|
|
|
17,025
|
|
|
|
10,177
|
|
|
|
4,107
|
|
|
|
|
|
|
|
31,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before Income
Taxes
|
|
|
(333,017
|
)
|
|
|
26,810
|
|
|
|
42,823
|
|
|
|
(46,140
|
)
|
|
|
(309,524
|
)
|
Income taxes (benefit)
|
|
|
(2,865
|
)
|
|
|
1,422
|
|
|
|
9,693
|
|
|
|
|
|
|
|
8,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss)
|
|
$
|
(330,152
|
)
|
|
$
|
25,388
|
|
|
$
|
33,130
|
|
|
$
|
(46,140
|
)
|
|
$
|
(317,774
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2005 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
363,277
|
|
|
$
|
610,106
|
|
|
$
|
625,505
|
|
|
$
|
(69,156
|
)
|
|
$
|
1,529,732
|
|
Cost of products sold
|
|
|
263,005
|
|
|
|
473,178
|
|
|
|
416,164
|
|
|
|
(68,814
|
)
|
|
|
1,083,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
100,272
|
|
|
|
136,928
|
|
|
|
209,341
|
|
|
|
(342
|
)
|
|
|
446,199
|
|
Selling, general and administrative
expenses
|
|
|
96,342
|
|
|
|
88,948
|
|
|
|
156,749
|
|
|
|
|
|
|
|
342,039
|
|
Charge related to restructuring
activities
|
|
|
3,546
|
|
|
|
408
|
|
|
|
3,341
|
|
|
|
|
|
|
|
7,295
|
|
Income (loss) from equity investee
|
|
|
40,971
|
|
|
|
7,167
|
|
|
|
3,161
|
|
|
|
(51,299
|
)
|
|
|
|
|
Interest expense-net
|
|
|
2,506
|
|
|
|
15,673
|
|
|
|
7,384
|
|
|
|
|
|
|
|
25,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before Income
Taxes
|
|
|
38,849
|
|
|
|
39,066
|
|
|
|
45,028
|
|
|
|
(51,641
|
)
|
|
|
71,302
|
|
Income taxes
|
|
|
1,299
|
|
|
|
306
|
|
|
|
20,845
|
|
|
|
|
|
|
|
22,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss)
|
|
$
|
37,550
|
|
|
$
|
38,760
|
|
|
$
|
24,183
|
|
|
$
|
(51,641
|
)
|
|
$
|
48,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Year ended December 31,
2004 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
391,667
|
|
|
$
|
568,024
|
|
|
$
|
522,207
|
|
|
$
|
(78,571
|
)
|
|
$
|
1,403,327
|
|
Cost of products sold
|
|
|
274,231
|
|
|
|
432,552
|
|
|
|
357,070
|
|
|
|
(78,470
|
)
|
|
|
985,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
117,436
|
|
|
|
135,472
|
|
|
|
165,137
|
|
|
|
(101
|
)
|
|
|
417,944
|
|
Selling, general and administrative
expenses
|
|
|
100,487
|
|
|
|
89,377
|
|
|
|
108,693
|
|
|
|
|
|
|
|
298,557
|
|
Income (loss) from equity investee
|
|
|
45,698
|
|
|
|
13,719
|
|
|
|
(301
|
)
|
|
|
(59,116
|
)
|
|
|
|
|
Interest expense-net
|
|
|
(8,116
|
)
|
|
|
14,253
|
|
|
|
2,878
|
|
|
|
|
|
|
|
9,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before Income
Taxes
|
|
|
70,763
|
|
|
|
45,561
|
|
|
|
53,265
|
|
|
|
(59,217
|
)
|
|
|
110,372
|
|
Income taxes
|
|
|
15,150
|
|
|
|
|
|
|
|
20,025
|
|
|
|
|
|
|
|
35,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earnings (loss)
|
|
$
|
55,613
|
|
|
$
|
45,561
|
|
|
$
|
33,240
|
|
|
$
|
(59,217
|
)
|
|
$
|
75,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
ASSETS
|
December 31, 2006 (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
35,918
|
|
|
$
|
2,202
|
|
|
$
|
44,083
|
|
|
$
|
|
|
|
$
|
82,203
|
|
Marketable securities
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
Trade receivables, net
|
|
|
651
|
|
|
|
15,888
|
|
|
|
248,667
|
|
|
|
(3,600
|
)
|
|
|
261,606
|
|
Installment receivables, net
|
|
|
|
|
|
|
5,513
|
|
|
|
1,584
|
|
|
|
|
|
|
|
7,097
|
|
Inventories, net
|
|
|
77,201
|
|
|
|
37,511
|
|
|
|
88,585
|
|
|
|
(1,541
|
)
|
|
|
201,756
|
|
Deferred income taxes
|
|
|
4,223
|
|
|
|
393
|
|
|
|
8,896
|
|
|
|
|
|
|
|
13,512
|
|
Other current assets
|
|
|
26,353
|
|
|
|
8,764
|
|
|
|
55,477
|
|
|
|
(1,200
|
)
|
|
|
89,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
144,536
|
|
|
|
70,271
|
|
|
|
447,292
|
|
|
|
(6,341
|
)
|
|
|
655,758
|
|
Investment in
subsidiaries
|
|
|
1,293,046
|
|
|
|
607,559
|
|
|
|
|
|
|
|
(1,900,605
|
)
|
|
|
|
|
Intercompany advances,
net
|
|
|
354,660
|
|
|
|
850,121
|
|
|
|
110,935
|
|
|
|
(1,315,716
|
)
|
|
|
|
|
Other Assets
|
|
|
49,346
|
|
|
|
15,566
|
|
|
|
1,434
|
|
|
|
|
|
|
|
66,346
|
|
Other Intangibles
|
|
|
2,113
|
|
|
|
13,150
|
|
|
|
88,710
|
|
|
|
|
|
|
|
103,973
|
|
Property and Equipment,
net
|
|
|
65,016
|
|
|
|
11,550
|
|
|
|
97,379
|
|
|
|
|
|
|
|
173,945
|
|
Goodwill
|
|
|
|
|
|
|
23,541
|
|
|
|
466,888
|
|
|
|
|
|
|
|
490,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,908,717
|
|
|
$
|
1,591,758
|
|
|
$
|
1,212,638
|
|
|
$
|
(3,222,662
|
)
|
|
$
|
1,490,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
89,818
|
|
|
$
|
12,095
|
|
|
$
|
61,128
|
|
|
$
|
|
|
|
$
|
163,041
|
|
Accrued expenses
|
|
|
34,611
|
|
|
|
17,405
|
|
|
|
100,560
|
|
|
|
(4,800
|
)
|
|
|
147,776
|
|
Accrued income taxes
|
|
|
10,021
|
|
|
|
26
|
|
|
|
2,869
|
|
|
|
|
|
|
|
12,916
|
|
Short-term debt and current
maturities of long-term obligations
|
|
|
51,773
|
|
|
|
|
|
|
|
72,470
|
|
|
|
|
|
|
|
124,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
186,223
|
|
|
|
29,526
|
|
|
|
237,027
|
|
|
|
(4,800
|
)
|
|
|
447,976
|
|
Long-Term Debt
|
|
|
321,263
|
|
|
|
70
|
|
|
|
127,550
|
|
|
|
|
|
|
|
448,883
|
|
Other Long-Term
Obligations
|
|
|
53,044
|
|
|
|
2,040
|
|
|
|
53,144
|
|
|
|
|
|
|
|
108,228
|
|
Intercompany advances,
net
|
|
|
862,823
|
|
|
|
370,452
|
|
|
|
82,441
|
|
|
|
(1,315,716
|
)
|
|
|
|
|
Total Shareholders
Equity
|
|
|
485,364
|
|
|
|
1,189,670
|
|
|
|
712,476
|
|
|
|
(1,902,146
|
)
|
|
|
485,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity
|
|
$
|
1,908,717
|
|
|
$
|
1,591,758
|
|
|
$
|
1,212,638
|
|
|
$
|
(3,222,662
|
)
|
|
$
|
1,490,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
ASSETS
|
December 31, 2005 (in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,270
|
|
|
$
|
1,046
|
|
|
$
|
17,308
|
|
|
$
|
|
|
|
$
|
25,624
|
|
Marketable securities
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
252
|
|
Trade receivables, net
|
|
|
295
|
|
|
|
17,228
|
|
|
|
276,046
|
|
|
|
(5,614
|
)
|
|
|
287,955
|
|
Installment receivables, net
|
|
|
|
|
|
|
11,106
|
|
|
|
1,829
|
|
|
|
|
|
|
|
12,935
|
|
Inventories, net
|
|
|
74,213
|
|
|
|
34,565
|
|
|
|
69,641
|
|
|
|
(1,494
|
)
|
|
|
176,925
|
|
Deferred income taxes
|
|
|
17,761
|
|
|
|
394
|
|
|
|
9,291
|
|
|
|
|
|
|
|
27,446
|
|
Other current assets
|
|
|
13,117
|
|
|
|
9,288
|
|
|
|
40,935
|
|
|
|
(11
|
)
|
|
|
63,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
|
112,908
|
|
|
|
73,627
|
|
|
|
415,050
|
|
|
|
(7,119
|
)
|
|
|
594,466
|
|
Investment in
subsidiaries
|
|
|
1,184,266
|
|
|
|
581,526
|
|
|
|
|
|
|
|
(1,765,792
|
)
|
|
|
|
|
Intercompany advances,
net
|
|
|
435,576
|
|
|
|
889,094
|
|
|
|
56,816
|
|
|
|
(1,381,486
|
)
|
|
|
|
|
Other Assets
|
|
|
46,072
|
|
|
|
18
|
|
|
|
1,020
|
|
|
|
|
|
|
|
47,110
|
|
Other Intangibles
|
|
|
8,232
|
|
|
|
15,185
|
|
|
|
84,700
|
|
|
|
|
|
|
|
108,117
|
|
Property and Equipment,
net
|
|
|
70,281
|
|
|
|
12,061
|
|
|
|
93,864
|
|
|
|
|
|
|
|
176,206
|
|
Goodwill
|
|
|
187,884
|
|
|
|
|
|
|
|
532,989
|
|
|
|
|
|
|
|
720,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
2,045,219
|
|
|
$
|
1,571,511
|
|
|
$
|
1,184,439
|
|
|
$
|
(3,154,397
|
)
|
|
$
|
1,646,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS EQUITY
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
77,453
|
|
|
$
|
9,544
|
|
|
$
|
46,109
|
|
|
$
|
|
|
|
$
|
133,106
|
|
Accrued expenses
|
|
|
35,142
|
|
|
|
16,047
|
|
|
|
84,469
|
|
|
|
(5,625
|
)
|
|
|
130,033
|
|
Accrued income taxes
|
|
|
12,876
|
|
|
|
98
|
|
|
|
366
|
|
|
|
|
|
|
|
13,340
|
|
Short-term debt and current
maturities of long-term obligations
|
|
|
256
|
|
|
|
|
|
|
|
79,972
|
|
|
|
|
|
|
|
80,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
Liabilities
|
|
|
125,727
|
|
|
|
25,689
|
|
|
|
210,916
|
|
|
|
(5,625
|
)
|
|
|
356,707
|
|
Long-Term Debt
|
|
|
314,646
|
|
|
|
192
|
|
|
|
142,915
|
|
|
|
|
|
|
|
457,753
|
|
Other Long-Term
Obligations
|
|
|
32,424
|
|
|
|
2,040
|
|
|
|
45,160
|
|
|
|
|
|
|
|
79,624
|
|
Intercompany advances,
net
|
|
|
819,734
|
|
|
|
381,990
|
|
|
|
179,762
|
|
|
|
(1,381,486
|
)
|
|
|
|
|
Total Shareholders
Equity
|
|
|
752,688
|
|
|
|
1,161,600
|
|
|
|
605,686
|
|
|
|
(1,767,286
|
)
|
|
|
752,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and
Shareholders Equity
|
|
$
|
2,045,219
|
|
|
$
|
1,571,511
|
|
|
$
|
1,184,439
|
|
|
$
|
(3,154,397
|
)
|
|
$
|
1,646,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-41
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
CONSOLIDATING
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Year ended December 31,
2006 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (required
for) Operating Activities
|
|
$
|
(15,946
|
)
|
|
$
|
21,057
|
|
|
$
|
73,996
|
|
|
$
|
(17,370
|
)
|
|
$
|
61,737
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(6,974
|
)
|
|
|
(2,440
|
)
|
|
|
(12,375
|
)
|
|
|
|
|
|
|
(21,789
|
)
|
Proceeds from sale of property and
equipment
|
|
|
|
|
|
|
11
|
|
|
|
2,287
|
|
|
|
|
|
|
|
2,298
|
|
Business acquisitions, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(15,296
|
)
|
|
|
|
|
|
|
(15,296
|
)
|
Increase (decrease) in other
investments
|
|
|
(7,604
|
)
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
10,856
|
|
|
|
252
|
|
Increase in other long-term assets
|
|
|
(850
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(850
|
)
|
Other
|
|
|
673
|
|
|
|
|
|
|
|
266
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Required for Investing
Activities
|
|
|
(14,755
|
)
|
|
|
(5,429
|
)
|
|
|
(25,118
|
)
|
|
|
10,856
|
|
|
|
(34,446
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
593,876
|
|
|
|
|
|
|
|
278,673
|
|
|
|
|
|
|
|
872,549
|
|
Payments on revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
(536,019
|
)
|
|
|
(122
|
)
|
|
|
(309,959
|
)
|
|
|
|
|
|
|
(846,100
|
)
|
Proceeds from exercise of stock
options
|
|
|
3,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,081
|
|
Payment of dividends
|
|
|
(1,589
|
)
|
|
|
(17,370
|
)
|
|
|
|
|
|
|
17,370
|
|
|
|
(1,589
|
)
|
Capital contributions
|
|
|
|
|
|
|
3,020
|
|
|
|
7,836
|
|
|
|
(10,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (required
for) Financing Activities
|
|
|
59,349
|
|
|
|
(14,472
|
)
|
|
|
(23,450
|
)
|
|
|
6,514
|
|
|
|
27,941
|
|
Effect of exchange rate changes on
cash
|
|
|
|
|
|
|
|
|
|
|
1,347
|
|
|
|
|
|
|
|
1,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
28,648
|
|
|
|
1,156
|
|
|
|
26,775
|
|
|
|
|
|
|
|
56,579
|
|
Cash and cash equivalents at
beginning of year
|
|
|
7,270
|
|
|
|
1,046
|
|
|
|
17,308
|
|
|
|
|
|
|
|
25,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
35,918
|
|
|
$
|
2,202
|
|
|
$
|
44,083
|
|
|
$
|
|
|
|
$
|
82,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2005 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (required
for) Operating Activities
|
|
$
|
165,372
|
|
|
$
|
(2,878
|
)
|
|
$
|
(85,250
|
)
|
|
$
|
|
|
|
$
|
77,244
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(17,646
|
)
|
|
|
(2,019
|
)
|
|
|
(11,259
|
)
|
|
|
|
|
|
|
(30,924
|
)
|
Proceeds from sale of property and
equipment
|
|
|
51
|
|
|
|
4,680
|
|
|
|
634
|
|
|
|
|
|
|
|
5,365
|
|
Business acquisitions, net of cash
acquired
|
|
|
(23,233
|
)
|
|
|
|
|
|
|
(34,983
|
)
|
|
|
|
|
|
|
(58,216
|
)
|
Increase (decrease) in other
investments
|
|
|
(70,694
|
)
|
|
|
(70,650
|
)
|
|
|
|
|
|
|
141,300
|
|
|
|
(44
|
)
|
Increase in other long-term assets
|
|
|
(966
|
)
|
|
|
(14
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
(1,013
|
)
|
Other
|
|
|
(1,579
|
)
|
|
|
|
|
|
|
(323
|
)
|
|
|
|
|
|
|
(1,902
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Required for Investing
Activities
|
|
|
(114,067
|
)
|
|
|
(68,003
|
)
|
|
|
(45,964
|
)
|
|
|
141,300
|
|
|
|
(86,734
|
)
|
F-42
INVACARE
CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
|
|
|
Combined
|
|
|
Combined
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
Guarantor
|
|
|
Non-Guarantor
|
|
|
|
|
|
|
|
|
|
(Parent)
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Total
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
489,232
|
|
|
|
|
|
|
|
306,841
|
|
|
|
|
|
|
|
796,073
|
|
Payments on revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
(543,094
|
)
|
|
|
(178
|
)
|
|
|
(253,347
|
)
|
|
|
|
|
|
|
(796,619
|
)
|
Proceeds from exercise of stock
options
|
|
|
4,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,623
|
|
Payment of dividends
|
|
|
(1,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,580
|
)
|
Capital contributions
|
|
|
|
|
|
|
70,650
|
|
|
|
70,650
|
|
|
|
(141,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (required
for) Financing Activities
|
|
|
(50,819
|
)
|
|
|
70,472
|
|
|
|
124,144
|
|
|
|
(141,300
|
)
|
|
|
2,497
|
|
Effect of exchange rate changes on
cash
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
486
|
|
|
|
(409
|
)
|
|
|
(7,020
|
)
|
|
|
|
|
|
|
(6,943
|
)
|
Cash and cash equivalents at
beginning of year
|
|
|
6,784
|
|
|
|
1,455
|
|
|
|
24,328
|
|
|
|
|
|
|
|
32,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
7,270
|
|
|
$
|
1,046
|
|
|
$
|
17,308
|
|
|
$
|
|
|
|
$
|
25,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
2004 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (required
for) Operating Activities
|
|
$
|
(146,821
|
)
|
|
$
|
4,321
|
|
|
$
|
240,750
|
|
|
$
|
|
|
|
$
|
98,250
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(19,063
|
)
|
|
|
(4,234
|
)
|
|
|
(18,460
|
)
|
|
|
|
|
|
|
(41,757
|
)
|
Proceeds from sale of property and
equipment
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
Business acquisitions, net of cash
acquired
|
|
|
(100,577
|
)
|
|
|
|
|
|
|
(242,977
|
)
|
|
|
|
|
|
|
(343,554
|
)
|
Increase (decrease) in other
investments
|
|
|
(3,335
|
)
|
|
|
(2,732
|
)
|
|
|
|
|
|
|
5,464
|
|
|
|
(603
|
)
|
Increase in other long-term assets
|
|
|
(1,544
|
)
|
|
|
(47
|
)
|
|
|
(1,542
|
)
|
|
|
|
|
|
|
(3,133
|
)
|
Other
|
|
|
(50
|
)
|
|
|
|
|
|
|
146
|
|
|
|
|
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Required for Investing
Activities
|
|
|
(124,567
|
)
|
|
|
(7,012
|
)
|
|
|
(262,833
|
)
|
|
|
5,464
|
|
|
|
(388,948
|
)
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
793,176
|
|
|
|
335
|
|
|
|
50,921
|
|
|
|
|
|
|
|
844,432
|
|
Payments on revolving lines of
credit, securitization facility and long-term borrowings
|
|
|
(522,351
|
)
|
|
|
(145
|
)
|
|
|
(18,748
|
)
|
|
|
|
|
|
|
(541,244
|
)
|
Proceeds from exercise of stock
options
|
|
|
9,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,850
|
|
Payment of dividends
|
|
|
(1,557
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,557
|
)
|
Capital contributions
|
|
|
|
|
|
|
2,732
|
|
|
|
2,732
|
|
|
|
(5,464
|
)
|
|
|
|
|
Purchase of treasury stock
|
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by Financing
Activities
|
|
|
274,688
|
|
|
|
2,922
|
|
|
|
34,905
|
|
|
|
(5,464
|
)
|
|
|
307,051
|
|
Effect of exchange rate changes on
cash
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash
equivalents
|
|
|
3,300
|
|
|
|
231
|
|
|
|
12,962
|
|
|
|
|
|
|
|
16,493
|
|
Cash and cash equivalents at
beginning of year
|
|
|
3,484
|
|
|
|
1,224
|
|
|
|
11,366
|
|
|
|
|
|
|
|
16,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
year
|
|
$
|
6,784
|
|
|
$
|
1,455
|
|
|
$
|
24,328
|
|
|
$
|
|
|
|
$
|
32,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
INVACARE
CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COL A.
|
|
|
COL B.
|
|
|
COL C.
|
|
|
COL D.
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Additions
|
|
|
Balance
|
|
|
|
Beginning of
|
|
|
Cost and
|
|
|
(Deductions)
|
|
|
at End of
|
|
|
|
Period
|
|
|
Expenses
|
|
|
Describe
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Year Ended December 31,
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
23,094
|
|
|
$
|
37,711
|
|
|
$
|
(23,172
|
)(A)
|
|
$
|
37,633
|
|
Inventory obsolescence reserve
|
|
|
8,591
|
|
|
|
5,325
|
|
|
|
(1,773
|
)(B)
|
|
|
12,143
|
|
Investments and related notes
receivable
|
|
|
8,339
|
|
|
|
|
|
|
|
|
|
|
|
8,339
|
|
Tax valuation allowances
|
|
|
7,100
|
|
|
|
28,785
|
|
|
|
14,388
|
(E)
|
|
|
50,273
|
|
Accrued warranty cost
|
|
|
15,583
|
|
|
|
9,834
|
|
|
|
(10,252
|
)(B)
|
|
|
15,165
|
|
Accrued product liability
|
|
|
20,949
|
|
|
|
6,813
|
|
|
|
(5,131
|
)(C)
|
|
|
22,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15,576
|
|
|
$
|
14,168
|
|
|
$
|
(6,650
|
)(A)
|
|
$
|
23,094
|
|
Inventory obsolescence reserve
|
|
|
9,532
|
|
|
|
4,378
|
|
|
|
(5,319
|
)(B)
|
|
|
8,591
|
|
Investments and related notes
receivable
|
|
|
29,540
|
|
|
|
|
|
|
|
(21,201
|
)(D)
|
|
|
8,339
|
|
Accrued warranty cost
|
|
|
13,998
|
|
|
|
10,516
|
|
|
|
(8,931
|
)(B)
|
|
|
15,583
|
|
Accrued product liability
|
|
|
17,045
|
|
|
|
8,780
|
|
|
|
(4,876
|
)(C)
|
|
|
20,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset
accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
27,704
|
|
|
$
|
11,222
|
|
|
$
|
(23,350
|
)(A)
|
|
$
|
15,576
|
|
Inventory obsolescence reserve
|
|
|
8,715
|
|
|
|
2,609
|
|
|
|
(1,792
|
)(B)
|
|
|
9,532
|
|
Investments and related notes
receivable
|
|
|
29,540
|
|
|
|
|
|
|
|
|
|
|
|
29,540
|
|
Accrued warranty cost
|
|
|
12,688
|
|
|
|
9,287
|
|
|
|
(7,977
|
)(B)
|
|
|
13,998
|
|
Accrued product liability
|
|
|
11,909
|
|
|
|
8,202
|
|
|
|
(3,066
|
)(C)
|
|
|
17,045
|
|
|
|
|
Note (A) |
|
Uncollectible accounts written off, net of recoveries. |
|
Note (B) |
|
Amounts written off or payments incurred. |
|
Note (C) |
|
Loss and loss adjustment. |
|
Note (D) |
|
Elimination of allowance for investment following consolidation
of variable interest entity. |
|
Note (E) |
|
Other activity not affecting federal tax expense. |
F-44
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
|
Item 20.
|
Indemnification
of Directors and Officers.
|
Section 1701.13(E) of the Ohio Revised Code sets forth the
conditions and limitations governing the indemnification of
officers, directors and other persons. Section 1701.13(E)
provides that a corporation shall have the power to indemnify
any person who was or is a party or threatened to be made a
party to any threatened, pending or contemplated action, suit or
proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a
director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation in a similar
capacity with another corporation or other entity, against
expenses (including attorneys fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in
connection therewith if he or she acted in good faith and in a
manner that he or she reasonably believed to be in and not
opposed to the best interests of the corporation and, with
respect to a criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful. With respect to a
suit by or in the right of the corporation, indemnity may be
provided to the foregoing persons under Section 1701.13(E)
on a basis similar to that set forth above, except that no
indemnity may be provided in respect of certain claims,
including any claim, issue or matter as to which such person has
been adjudged to be liable to the corporation for negligence or
misconduct in performing his or her duty to the corporation
unless and to the extent that the Court of Common Pleas or the
court in which such action, suit or proceeding was brought
determines that despite the adjudication of liability but in
view of all the circumstances of the case such person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper. Moreover, Section 1701.13(E) provides
for mandatory indemnification of a director, officer, employee
or agent of the corporation to the extent that such person has
been successful in defense of any such action, suit or
proceeding and provides that a corporation shall pay the
expenses of an officer or director in defending an action, suit
or proceeding upon receipt of an undertaking to repay such
amounts if it is ultimately determined that such person is not
entitled to be indemnified. Section 1701.13(E) also
provides the registrant may indemnify any director or officer or
any former director or officer of the registrant against
expenses, including attorneys fees, judgments, fines and
amounts paid in settlement, actually and reasonably incurred by
him or her by reason of the fact that he or she is or was such
director or officer in connection with any threatened, pending
or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
Section 1701.13(E) establishes provisions for determining
whether a given person is entitled to indemnification, and also
provides that the indemnification provided by or granted under
Section 1701.13(E) is not exclusive of any rights to
indemnity or advancement of expenses to which such person may be
entitled under any articles, regulations, agreement, vote of
shareholders or disinterested directors or otherwise.
Article V of the registrants Code of Regulations, as
amended, requires the registrant to indemnify any officer,
director or other person, to the fullest extent provided by, or
permissible under, Section 1701.13(E).
The registrant has entered into indemnification agreements (the
Indemnification Agreements) with the current
directors and certain executive officers of the registrant and
expects to enter into similar agreements with its director and
certain executive officers elected or appointed in the future at
the time of their election or appointment. Pursuant to the
Indemnification Agreements, the registrant will indemnify a
director or executive officer of the registrant (the
Indemnitee) if the Indemnitee is a party to or
otherwise involved in any legal proceeding by reason of the fact
that the Indemnitee is or was a director or executive officer of
the registrant, or is or was serving at the request of the
registrant in certain capacities with another entity, against
all expenses, judgments, settlements, fines and penalties,
actually and reasonably incurred by the Indemnitee, in
connection with the defense or settlement of such proceeding.
Indemnification is only available if the Indemnitee acted in
good faith and in a manner which he or she reasonably believed
to be in, or not opposed to, the best interests of the
registrant. The same coverage is provided whether or not the
suit or proceeding is a derivative action. Derivative actions
may be defined as actions brought by one or more shareholders of
a corporation to enforce a corporate right or to prevent or
remedy a wrong to the corporation in cases where the
corporation, because it is controlled by the wrongdoers or for
other reasons, fails or refuses to take appropriate action for
its own protection. The Indemnification Agreements mandate
advancement of expenses to the Indemnitee if the Indemnitee
provides the registrant with a written promise to repay the
advanced
II-1
amounts in the event that it is determined that the conduct of
the Indemnitee has not met the applicable standard of conduct.
In addition, the Indemnification Agreements provide various
procedures and presumptions in favor of the Indemnitees
right to receive indemnification under the Indemnity Agreement.
Under the registrants Executive Liability and Defense
Coverage Insurance Policy, each director and each executive
officer of the registrant are insured against certain
liabilities.
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Item 21.
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Exhibits
and Financial Statement Schedules.
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See the attached Exhibit Index.
(a) Each undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate
offering price set forth in the Calculation of
Registration Fee table in the effective registration
statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) Each undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of an annual report by Invacare Corporation
pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each
filing of an employee benefit plans annual report pursuant
to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) Each undersigned registrant hereby undertakes to
respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4,
10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(d) Each undersigned registrant hereby undertakes to supply
by means of a post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-2
(e) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, each registrant has been
advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Elyria, State of Ohio, on
April 23, 2007.
INVACARE CORPORATION
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By:
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/s/ A.
Malachi Mixon, III
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A. Malachi Mixon, III
Chairman of the Board of Directors and Chief
Executive Officer
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ A.
Malachi
Mixon, III
A.
Malachi Mixon, III
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Chairman of the Board of Directors
and Chief Executive Officer
(Principal Executive Officer)
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April 23, 2007
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President, Chief Operating
Officer and Director
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April 23, 2007
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Senior Vice President, Chief
Financial Officer (Principal
Financial and Accounting Officer)
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April 23, 2007
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/s/ James
C. Boland
James
C. Boland
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Director
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April 23, 2007
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/s/ Michael
F. Delaney
Michael
F. Delaney
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Director
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April 23, 2007
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/s/ C.
Martin
Harris, M.D.
C.
Martin Harris, M.D.
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Director
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April 23, 2007
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II-4
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/s/ Bernadine
P.
Healy, M.D.
Bernadine
P. Healy, M.D.
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Director
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April 23, 2007
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/s/ John
R. Kasich
John
R. Kasich
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Director
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April 23, 2007
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/s/ Dan
T.
Moore, III
Dan
T. Moore, III
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Director
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April 23, 2007
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/s/ Joseph
B.
Richey, II
Joseph
B. Richey, II
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Director
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April 23, 2007
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/s/ William
M. Weber
William
M. Weber
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Director
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April 23, 2007
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/s/ James
L. Jones
James
L. Jones
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Director
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April 23, 2007
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II-5
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
ADAPTIVE SWITCH LABORATORIES, INC.
INVACARE FLORIDA CORPORATION
INVACARE CREDIT CORPORATION
THE AFTERMARKET GROUP, INC.
THE HELIXX GROUP, INC.
INVACARE INTERNATIONAL CORPORATION
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
In their capacity as the specified officer or as a director of
the following Co-Registrants:
Adaptive Switch Laboratories, Inc.
Invacare Florida Corporation
Invacare Credit Corporation
The Aftermarket Group, Inc.
The Helixx Group, Inc.
Invacare International Corporation
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President
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April 23, 2007
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Vice President and Treasurer
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April 23, 2007
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/s/ A.
Malachi
Mixon, III
A.
Malachi Mixon, III
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Director
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April 23, 2007
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II-6
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
KUSCHALL, INC.
INVACARE SUPPLY GROUP, INC.
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
In their capacity as the specified officer or as a director of
the following Co-Registrants:
Kuschall, Inc.
Invacare Supply Group, Inc.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President
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April 23, 2007
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Treasurer
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April 23, 2007
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/s/ A.
Malachi
Mixon, III
A.
Malachi Mixon, III
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Director
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April 23, 2007
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II-7
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
ALTIMATE MEDICAL, INC.
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President and a Director
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April 23, 2007
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Treasurer and a Director
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April 23, 2007
|
II-8
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
FREEDOM DESIGNS, INC.
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President and a Director
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April 23, 2007
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Chief Financial Officer and a
Director
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April 23, 2007
|
II-9
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
MEDBLOC, INC.
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By:
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/s/ Gregory
C. Thompson
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Gregory C. Thompson
Vice President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Vice President and a Director
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April 23, 2007
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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Director
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April 23, 2007
|
II-10
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
GARDEN CITY MEDICAL INC.
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By:
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/s/ Gregory
C. Thompson
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Gregory C. Thompson
Vice President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Vice President and a Director
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April 23, 2007
|
II-11
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
CHAMPION MANUFACTURING INC.
HEALTHTECH PRODUCTS, INC.
INVACARE CANADIAN HOLDINGS, INC.
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
In their capacity as the specified officer or as a director of
the following Co-Registrants:
Champion Manufacturing Inc.
Healthtech Products, Inc.
Invacare Canadian Holdings, Inc.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President and a Director
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April 23, 2007
|
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|
/s/ Gregory
C. Thompson
Gregory
C. Thompson
|
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Vice President and Treasurer and a
Director
|
|
April 23, 2007
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|
|
|
|
/s/ A.
Malachi
Mixon, III
A.
Malachi Mixon, III
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Director
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April 23, 2007
|
II-12
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
INVACARE FLORIDA HOLDINGS, LLC
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President and Manager
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April 23, 2007
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|
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/s/ Gregory
C. Thompson
Gregory
C. Thompson
|
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Treasurer and Manager
|
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April 23, 2007
|
II-13
Pursuant to the requirements of the Securities Act, each of the
Co-Registrants set forth below has duly caused this registration
statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Elyria, State of Ohio,
on this 23rd day of April, 2007.
INVACARE HOLDINGS, LLC
Gerald B. Blouch
President
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints A. Malachi
Mixon, III, Gerald B. Blouch, Gregory C. Thompson, Dale C.
LaPorte and Douglas A. Neary, and each of them, his or her true
and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
any and all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said
attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said
attorneys-in-fact
and agents or either of them or their or his or her substitute
or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated.
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/s/ Gerald
B. Blouch
Gerald
B. Blouch
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President
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|
April 23, 2007
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|
|
/s/ Gregory
C. Thompson
Gregory
C. Thompson
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Treasurer
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April 23, 2007
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/s/ Gerald
B. Blouch
Invacare
International Corporation
By: Gerald B. Blouch
Its: President
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Sole Member
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April 23, 2007
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II-14
EXHIBIT INDEX
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Exhibit No.
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Description
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3
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.1
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Articles of Incorporation of
Adaptive Switch Laboratories, Inc.
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3
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.2
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By-Laws of Adaptive Switch
Laboratories, Inc.
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3
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.3
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|
Articles of Incorporation, as
amended, of Altimate Medical, Inc.
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3
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.4
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Bylaws of ALT, Inc. (Altimate
Medical, Inc.), as amended
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3
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.5
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Certificate of Incorporation of
Champion Manufacturing Inc.
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3
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.6
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Bylaws of Champion Manufacturing
Inc.
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3
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.7
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|
Articles of Incorporation of
Freedom Designs, Inc.
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|
3
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.8
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Bylaws of Freedom Designs, Inc.
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3
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.9
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Certificate of Incorporation of
Garden City Medical Inc.
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3
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.10
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By-laws of Garden City Medical Inc.
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3
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.11
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Articles of Incorporation, as
amended, of Healthtech Products, Inc.
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3
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.12
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By-laws of A.H. Acquisition, Inc.
(Healthtech Products, Inc.)
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3
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.13
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Certificate of Incorporation of
Invacare Canadian Holdings, Inc., as amended
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3
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.14
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By-Laws of Invacare Canadian
Holdings, Inc.
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3
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.15
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Certificate of Incorporation, as
amended, of Invacare Credit Corporation
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3
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.16
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Code of Regulations of Invacare
Credit Corporation
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3
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.17
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Certificate of Incorporation of
Invacare Florida Corporation
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3
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.18
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By-Laws of Invacare Florida
Corporation
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3
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.19
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Certificate of Formation of
Invacare Florida Holdings, LLC
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3
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.20
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Limited Liability Company
Operating Agreement of Invacare Florida Holdings, LLC
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3
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.21
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Articles of Organization of
Invacare Holdings, LLC
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3
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.22
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Declaration of Limited Liability
Company of Invacare Holdings, LLC
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3
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.23
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Articles of Incorporation of
Invacare International Corporation
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3
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.24
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Code of Regulations of Invacare
International Corporation
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3
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.25
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Articles of Organization, as
amended, of Invacare Supply Group, Inc.
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3
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.26
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By-Laws of Inva Acquisition Corp.
(Invacare Supply Group, Inc.)
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3
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.27
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Certificate of Incorporation of
Kuschall, Inc.
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3
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.28
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By-Laws of Kuschall, Inc.
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3
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.29
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Certificate of Incorporation of
Medbloc, Inc.
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3
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.30
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By-Laws of Medbloc, Inc.
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3
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.31
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Certificate of Incorporation of
The Aftermarket Group, Inc.
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3
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.32
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By-Laws of The Aftermarket Group,
Inc.
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3
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.33
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Articles of Incorporation of The
Helixx Group, Inc.
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3
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.34
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Code of Regulations of The Helixx
Group, Inc.
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4
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.1
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Indenture, dated as of
February 12, 2007, by and among Invacare Corporation, the
Guarantors named therein and Wells Fargo Bank, N.A., as trustee
(including the Form of
93/4% Senior
Note due 2015 and related Guarantee attached as Exhibit A),
which is incorporated herein by reference to Exhibit 4.2 to
the Companys Current Report on
Form 8-K,
dated February 12, 2007.
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4
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.2
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Registration Rights Agreement,
dated February 12, 2007, among Invacare Corporation, the
Guarantors named therein and the Initial Purchasers named
therein, which is incorporated herein by reference to
Exhibit 4.4 to the Companys Current Report on
Form 8-K,
dated February 12, 2007.
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5
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.1*
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Opinion of Harter
Secrest & Emery LLP
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II-15
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Exhibit No.
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Description
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12
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.1
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Statement regarding computation of
ratio of earnings to fixed charges
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23
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.1
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Consent of Ernst & Young
LLP, Independent Registered Public Accounting Firm
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23
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.2*
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Consent of Harter
Secrest & Emery LLP (included as part of its opinion
filed as Exhibit 5.1 hereto)
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24
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.1
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Power of Attorney (included as
part of signature pages)
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25
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.1
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Form T-1
Statement of Eligibility of Wells Fargo Bank, N.A. to act as
Trustee
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99
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.1
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Form of Letter of Transmittal
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99
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.2
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Form of Notice of Guaranteed
Delivery
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99
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.3
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Form of Letter to Clients
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99
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.4
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Form of Letter to Nominees
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99
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.5
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Form of Instructions to Registered
Holder
and/or
Book-Entry Transfer Participant from Owner
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* To be filed by amendment.
II-16