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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ________________
Commission file number 0-12938
INVACARE CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 95-2680965
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Invacare Way, P. O. Box 4028, Elyria, Ohio 44036
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 329-6000
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
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(Title of Class)
Rights to purchase Common Shares of Invacare, without par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
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As of February 27, 1998, 28,746,162 Common Shares and 1,433,107 Class B
Common Shares were outstanding. At that date, the aggregate market value of the
25,587,028 Common Shares of the Registrant held by non-affiliates was
$586,966,422 and the aggregate market value of the 91,187 Class B Common Shares
of the Registrant held by non-affiliates was $2,091,830. While the Class B
Common Shares are not listed for public trading on any exchange or market
system, shares of that class are convertible into Common Shares at any time on a
share-for-share basis. The market values indicated were calculated based upon
the last sale price of the Common Shares as reported by the NASDAQ National
Market System on February 27, 1998, which was $22.94. For purposes of this
information, the 3,159,134 Common Shares and 1,341,920 Class B Common Shares
which were held by Executive Officers and Directors were deemed to be the Common
Shares and Class B Common Shares held by affiliates.
Documents Incorporated By Reference
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Part of Form 10-K Document Incorporated By Reference
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Part III (Items 10, 11, Portions of the Registrant's
12 and 13) definitive Proxy Statement to
be used in connection with
its 1998 Annual Meeting of
Shareholders.
Except as otherwise stated, the information contained in this Annual Report on
Form 10-K is as of December 31, 1997.
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PART I
Item 1. Business.
(a) General Development of Business.
Invacare is the leading home medical equipment (HME) manufacturer in the world
based upon its distribution channels, the breadth of its product line and sales.
The company designs, manufactures and distributes an extensive line of medical
equipment for the home health care, retail and extended care markets. Invacare
continuously revises and expands its product lines to meet changing market
demands and currently offers over two dozen product lines. The company's
products are sold principally to over 10,000 home health care and medical
equipment provider locations in the U.S., Australia, Canada, Europe and New
Zealand, with the remainder of its sales being primarily to government agencies
and distributors. Invacare's products are sold through its world-wide
distribution network by its sales force, telemarketing employees and various
organizations of independent manufacturer's representatives. The company also
uses its extensive dealer network to distribute medical equipment and related
supplies manufactured by others.
Invacare is committed to design, manufacture and distribute the best value in
mobility products and medical equipment for people with disabilities and those
requiring home health care. Invacare will achieve this vision by:
* designing and developing innovative and technologically superior
products; * ensuring continued focus on our primary market - the home
health care market; * marketing our broad range of products under the
"One Stop Shoppingsm" strategy * providing the industry's most
professional and cost-effective sales, customer service
and distribution organization;
* providing superior and innovative dealer support and aggressive
product line extensions; * building a strong referral base among
health care professionals; * building brand preference with
consumers; * handling the retail channel through a dedicated sales
and marketing structure; * managing the extended and acute care
market with separate sales and distribution; * continuous
advancement/recruitment of top management candidates; * empowering
all employees; * providing a performance based reward environment;
and * continually striving for total quality throughout the
organization.
When the company was acquired in December 1979 by a group of investors,
including certain members of management and the Board of Directors, it had $19.5
million in net sales and a limited product line of standard wheelchairs and
patient aids. In 1997, Invacare reached $653 million in net sales, representing
a 21.5% compound average sales growth rate since 1979, and currently is one of
the only companies in the industry which manufactures, distributes and markets
products in each of the following major home medical equipment categories: power
and manual wheelchairs, patient aids, home care beds, home respiratory products,
low air loss therapy products, seating and positioning products and bathing
equipment.
The company's executive offices are located at One Invacare Way, Elyria, Ohio
and its telephone number is (216) 329-6000. In this report, "Invacare" and the
"company" refer to Invacare Corporation and, unless the context otherwise
indicates, its consolidated subsidiaries.
(b) Financial Information About Industry Segments.
The company operates predominantly in the home medical equipment industry
segment. For information relating to net sales, operating income, identifiable
assets and other information for this industry segment, see the Consolidated
Financial Statements of the company.
(c) Narrative Description of Business.
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THE HOME MEDICAL EQUIPMENT INDUSTRY
North America
The home medical equipment market includes home health care products, physical
rehabilitation products and other non-disposable products used for the recovery
and long-term care of patients. The company believes that sales of domestic home
medical equipment products will continue to grow during the next decade as a
result of several factors, including:
Growth in population over age 65. The over 65 age group represents the vast
majority of home health care patients and continues to grow. A significant
percentage of people using home and community-based health care services
are 65 years of age and older and it is estimated that this segment of the
population will double during the next ten years. It also has been widely
reported that by the year 2000, one American will turn 50 every nine
seconds.
Treatment trends. Many medical professionals and patients prefer home
health care over institutional care because they believe that it results in
greater patient independence, increased patient responsibility and improved
responsiveness to treatment as familiar surroundings are believed to be
conducive to improved patient outcomes. Health care professionals, public
payors and private payors agree that home care is a cost effective,
clinically appropriate alternative to facility-based care. Recent surveys
show that approximately 70% of adults would rather recover from accident or
illness in their home, while approximately 90% of the older population
showed preference for home based long-term care.
Technological trends. Technological advances have made medical equipment
increasingly adaptable for use in the home as current hospital procedures
often allow for earlier patient discharge, thereby lengthening recuperation
periods outside of the traditional institutional setting. In addition,
continuing medical advances prolong the life of adults and children, thus
increasing the demand for home medical care equipment.
Healthcare cost containment trends. In 1996, it was estimated that spending
on health care in the U.S. surpassed $1 trillion dollars, which is
approximately 14.0% of Gross Domestic Product (GDP). Spending on health
care was estimated to reach 15.9% and 17.9% of GDP in the years 2000 and
2005, respectively. The rising cost of health care has caused many payors
of health care expenses to look for ways to contain costs. Home health care
has gained wide-spread acceptance among health care providers and public
policy makers as a cost effective, clinically appropriate and patient
preferred alternative to facility-based care for a variety of acute and
long-term illnesses and disabilities. Thus, the company believes that home
health care and home medical equipment will play a significant role in
reducing health care costs.
Society's mainstreaming of people with disabilities. People with
disabilities are part of the fabric of society, and this has increased, in
large part, due to the Americans with Disabilities Act which became law in
1991. This legislation provides mainstream opportunities to people with
disabilities. The Americans with Disabilities Act imposes requirements on
certain components of society to make "reasonable accommodations" to
integrate people with disabilities into the community and the workplace.
Distribution channels. The changing home health care market continues to
provide new ways of reaching the end user. The distribution network for
products has expanded to include not only specialized home health care
providers and extended care facilities but retail drug stores, surgical
supply houses, rental, hospital and HMO-based stores, home health agencies,
mass merchandisers and direct sales.
Europe
The company believes that, while many of the market factors influencing demand
in the U.S. are also present in Europe - aging of the population, technological
trends and society's acceptance of people with disabilities - each of the major
national markets within Europe has distinctive characteristics. The European
health care industry is more heavily socialized and is, therefore, more
influenced by government regulation and fiscal policy. Variations in product
specifications, regulatory approvals, distribution requirements and
reimbursement policies require the company to tailor its approach to each
market. Management believes that as the European markets become more homogeneous
and the company continues to refine its distribution channels, the company can
more effectively penetrate these markets.
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OPERATING UNITS
North America
North American operations, which includes Australia and New Zealand operations,
are aligned into three primary operating groups, which manufacture and market
products in all of the major home medical equipment categories. In Australia,
the company manufactures and markets custom power wheelchairs for Australasia.
In Canada, the company principally sells Invacare products manufactured in the
U.S. In New Zealand, the company principally produces components used in other
Invacare products, as well as manufactures and distributes products for the New
Zealand market. The company also sells standard wheelchairs and seating and
positioning products manufactured in Canada and certain patient aids
manufactured in Europe.
REHAB PRODUCTS GROUP
Power wheelchairs. Invacare manufactures a complete line of power
wheelchairs for individuals who require independent powered mobility. The
range includes products that can be significantly customized to meet an
individual's specific needs, as well as products that are inherently
versatile to meet a broad range of individual requirements. Invacare's
power wheelchair lines are marketed under the "Action" trademarked brand
name and include, among others, the Storm SeriesTM, a technologically
advanced series of power wheelchairs. Action Virtual ServiceSM technology
was introduced in 1996 on the Power MK IV series controllers. This
innovative technology allows technicians to access power chair controllers
via modem so that in-depth diagnostics and performance adjustments can be
done from any location where a phone line is available.
Custom manual wheelchairs. Invacare manufactures and markets a range of
custom manual wheelchairs for everyday, sports and recreational uses. These
lightweight chairs are marketed under the Action brand and Action Top
End(R) product name. The chairs provide mobility for people with moderate
to severe disabilities in their everyday activities as well as for various
sports such as basketball, racing, skiing and tennis.
Scooters. Invacare manufactures three- and four-wheeled motorized scooters,
including rear wheel drive models for both outdoor and indoor use and
markets them under the Action brand name. This product line includes the
Action Cat(TM) and Action Flyer(TM) products.
Seating and positioning products. Invacare manufactures seat cushions, back
positioners and a variety of attachments used for comfort, support,
pressure relief and posture control and markets them under the PinDot(R)
brand. Seating products marketed under the Action brand, include the
Tarsys(TM) product of electronic and mechanical tilting and reclining
devices for use on power wheelchairs.
STANDARD PRODUCTS GROUP
Manual wheelchairs. Invacare's manual wheelchairs are sold for use in the
home, institutional setting or public places (e.g. airports, malls, etc.)
by people who are chronically or temporarily disabled but do not require or
qualify under medical reimbursement programs for customization in terms of
size, basic performance characteristics, or frame modification. Examples of
Invacare's standard wheelchair lines, which are marketed under the
Invacare(R) brand name, include the 9000 and TracerTM product lines. Both
standard and prescription manual wheelchairs are designed to accommodate
the diverse capabilities of the individual.
Self care. Invacare manufactures and/or distributes a full line of patient
aids, including ambulatory aids such as crutches, canes, walkers and
wheeled walkers; bath safety aids such as tub transfer benches, shower
chairs and grab bars; and patient care products such as commodes, lift-out
chairs and foam products.
Home care beds. Invacare manufactures and distributes a wide variety of
manual, semi-electric and fully-electric beds for home use under the
Invacare(R) brand name. Home care bed accessories include bed side rails,
mattresses, overbed tables, trapeze bars and traction equipment.
Low air loss therapy products. Invacare manufactures and markets a complete
line of mattress overlays and replacement products, under the Invacare(R)
brand name, which use air flotation to redistribute weight and move
moisture away from patients who are immobile and spend a great deal of time
in bed.
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Patient transport. Invacare manufactures and markets products for use in
the home and institutional settings, including patient lifts and slings,
multi-position recliners and bathing equipment.
Distributed products. Invacare distributes a line of personal medical care
products manufactured by others, including bedding and ostomy,
incontinence, diabetic and wound care supplies. Effective January 28, 1998,
Suburban Ostomy Supply Co., Inc., a direct marketing wholesaler of ostomy,
incontinence, diabetic and wound care products to the home health care
market, was merged with a wholly owned subsidiary of the company.
Extended care bed and furniture products. Invacare, operating as Invacare
Continuing Care Group (ICCG), manufactures and distributes beds,
furnishings, bathing equipment and patient lifts for facility based care
focusing on the extended and acute care markets.
RESPIRATORY PRODUCTS GROUP
Home respiratory products. Invacare manufactures and/or distributes home
respiratory products including oxygen concentrators, liquid oxygen systems,
nebulizer compressors, aspirators, portable compressed oxygen systems and
respiratory disposables. Invacare's home respiratory products are marketed
predominately under the Invacare(R) brand name.
OTHER PRODUCTS
Microprocessor electronic control systems. Invacare manufactures and
markets electronic control systems for power wheelchairs, scooters,
respiratory and other products.
Accessory Products. Invacare also manufactures, markets and distributes
many accessory products, including spare parts, wheelchair cushions, arm
rests, wheels and respiratory parts. In some cases, Invacare's accessory
items are built to be interchangeable so that they can be used to replace
parts on products manufactured by others.
Europe
The company's European operations operate as a "common market" company with
sales throughout western Europe. The European operation currently sells a
limited line of products providing significant room for growth as Invacare
continues to broaden its product line offerings to mirror that of the North
American operations.
Most wheelchair products sold in Europe are designed and manufactured locally to
meet specific market requirements. However, as a result of Invacare's worldwide
development efforts, the Action 2000, a manual lightweight design that
originated in the U.S., was the first wheelchair in Europe to meet the high
standards of quality required to receive the Community European (CE) mark. In
addition, certain power wheelchair products sold in the United States are
adaptations of products originally designed for the European markets.
The company manufactures and/or assembles both manual and power wheelchair
products at six of its European facilities - Bencraft Ltd. and Invacare (UK)
Ltd. in the U.K., Poirier Groupe Invacare S.A. in France, Invacare Deutschland
GmbH in Germany, Fabriorto Lda in Portugal and Kuschall Design AG, in
Switzerland. Motorized scooters are manufactured in Germany. Self care products
and patient lifts and slings are manufactured in the United Kingdom and France.
Oxygen products are imported from Invacare's U.S operations.
WARRANTY
Generally, the company's products are covered by warranties against defects in
material and workmanship for periods up to five years from the date of sale to
the customer. Certain components carry a lifetime warranty. A non-renewable
warranty also is offered on various products for a maximum period of five years.
COMPETITION
In each of the company's major product lines, both domestically and
internationally, there are a limited number of significant national competitors
and a number of regional and local competitors. In some countries or in certain
product lines, the company may face competition from other manufacturers that
have larger market shares, greater resources or other competitive advantages.
Invacare believes that it is the leading home medical equipment manufacturer
based on its distribution channels, breadth of product line and sales.
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North America
The home medical equipment market is highly competitive, and Invacare's products
face significant competition from other well-established manufacturers. The
company believes that its success in increasing market share is dependent on
providing value to the customer based on the quality, performance and price of
the company's products, the range of products offered, the technical expertise
of the sales force, the effectiveness of the company's distribution system, the
strength of the dealer and distributor network and the availability of prompt
and reliable service for its products. The company believes that its "One Stop
Shoppingsm" approach provides the competitive advantage necessary for continuing
profitability and market share growth. Various manufacturers have from time to
time instituted price-cutting programs in an effort to gain market share. There
can be no assurance that other HME manufacturers will not attempt to implement
such aggressive pricing in the future.
Europe
As a result of the differences encountered in the European marketplace,
competition generally varies from one country to another. The company typically
encounters one or two strong competitors in each country, some of them becoming
regional leaders in specific product lines.
MARKETING AND DISTRIBUTION
North America
Sales and Marketing. Invacare's products are marketed in the United States
primarily to HME providers that in turn sell or rent these products directly to
the end user or to health care institutions, including hospital and post acute
care facilities. Although the company's primary customer in the past has been
the HME provider, the company also markets its home health products using a
"pull-through" marketing method to medical professionals, including physical and
occupational therapists, who refer their patients to HME providers to obtain
specific types of home medical equipment.
As a result of the superior service provided by the company's "One Stop
Shoppingsm" program, the company has been able to increase its large national
account business as well as business with small-to-medium size providers. "One
Stop Shoppingsm" offers the HME provider the broadest range of products and
services at the total lowest cost. The products of "One Stop Shoppingsm" include
a full HME product line, including HME retail merchandising; a dedicated
territory business manager with specialist support; account services; InvatelTM
Electronic Data Interchange (EDI) Systems; Invacare Credit Corporation;
distribution; and technical training. In some cases, Invacare sells directly to
government agencies such as the Department of Veterans Affairs (V.A.) or the
Department of Defense.
The company continues to make improvements to existing sales and marketing
programs to generate greater consumer awareness of Invacare and its products, as
witnessed by enhancements made to its consumer marketing program in 1997 through
its sponsorship of a variety of wheelchair activities and support of various
charitable causes which benefit users of its products. Invacare continued as a
National Corporate Sponsor of the National Easter Seal Society, one of the most
recognizable charities in the United States that annually meets the needs of
over 40 million children and adults who have various types of disabilities.
In 1997, the company continued the implementation of its brand strategy in order
to effectively communicate to home health care providers and consumers the wide
variety of products which Invacare manufactures. The Invacare(R) brand is the
company's primary brand for home health care and respiratory equipment, or
"stock" products, and is the preferred brand of HME professional providers. The
Action brand is the primary brand for high-tech mobility and sports equipment,
or "custom" products preferred by health care professionals and consumers. The
PinDot(R) brand represents the company's various seating and positioning
products preferred by providers and health care professionals. Launched in 1996,
the AuroraTM brand was developed to serve the newly emerging mass-retail
channels of distribution for home medical equipment which is considered to be
"off-the-shelf" as it does not require the expertise of a medical professional
in the purchasing process.
Invacare's domestic sales and marketing organization consists primarily of a
home care sales force which markets and sells Invacare(R), Pindot(R) and Action
branded products to the HME providers. A combination of direct sales and
manufacturers representatives market and sell the Invacare brand through the
company's Invacare Continuing Care Group (ICCG) to the extended care market; and
a separate manufacturer's representatives' sales force markets and sells the
Aurora(TM) brand to the mass retail channels of distribution, including home
centers, mass merchants and chain drug stores. Each member of Invacare's home
care sales force functions as a Territory Business Manager (TBM) and handles all
product and service needs for an account, saving the customer valuable time. The
TBM also provides training and servicing information to providers, as well as
product catalogs, point-of-sale display materials and advertising and
merchandising aids. In Canada products are sold through a direct sales force and
distributed through regional distribution centers in British Columbia, Ontario
and Quebec and health care dealers throughout Canada.
The North American sales and marketing group receives additional support in
order to provide focus on clinical applications for Invacare(R), PinDot(R), and
Action brand products. Eleven physical and occupational therapists provide
valuable services to medical professionals in the facility-based rehab setting.
These specialists assist peer professionals with in-service education on
relevant topics of seating and positioning; provide a broad spectrum of product
education on the products' clinical applications; assist in clinical evaluations
for mobility; provide assistance on documentation for reimbursement entities;
offer continuing education programs; and furnish selected products for patient
evaluation purposes.
In 1997, Invacare continued refining its strategic advertising campaign in home
health care magazines and trade publications which complements the company's
brand strategy. The company also contributed extensively to editorial coverage
in trade publications on articles concerning products it manufactures, and its
representatives attended trade shows and similar conventions to display its
products to providers, medical professionals and consumers.
The company's top ten customers and buying groups accounted for approximately
30% of 1997 net sales. The loss of business of one or more of these customers or
buying groups may have a significant impact on the company although no single
customer accounted for more than 5% of the company's 1997 net sales. Dealers
that are part of a buying group generally make individual purchasing decisions
and are invoiced directly by the company.
Customer Service. As part of "One Stop Shoppingsm", the company views its
customer service activities as strategically important in its efforts to achieve
market leadership. The company's customer service strategy is directed at
meeting the needs of medical equipment dealers and is specifically designed to
focus on the dealer's inventory management, equipment financing, training and
administrative needs.
Invacare has made a significant investment in assisting dealers in minimizing
inventory requirements. For stock items, dealers can either pick up orders at
the nearest distribution center or receive freight-free delivery (with minimum
order levels) generally within 24 hours of the company's receipt of an order for
any standard or stock product. This distribution system permits dealers to
minimize their inventory levels. As an additional service, Invacare manufactures
accessories, such as upholstery and arm rests for wheelchairs, that are
interchangeable with products of other manufacturers, thereby allowing dealers
to stock only one line of accessories.
The company also maintains a network of ten regional repair centers where
Invacare products can be repaired promptly by factory technicians. Invacare also
has a network of 15 independent dealers that can provide factory authorized
service. Factory training is provided throughout the United States This service
network, when combined with the company's distribution centers, enables dealers
to minimize spare parts inventory.
To further assist dealers in reducing their cash requirements for inventory and
rental equipment, the company provides various financing options for certain
types of its products. In a typical financing arrangement, the company sells the
equipment on a financing contract to the dealer for periods ranging from 6 to 51
months. The majority of these transactions are secured with a UCC-1 filing, a
purchase money security and/or a personal guarantee. The company also introduced
a revolving credit agreement, known as Invacard, which provides an additional
financing option to HME dealers. Currently, all note obligations are serviced
and managed by the company and are not sold to third parties.
The company devotes significant time and resources in training dealers,
rehabilitation therapists and others in the sale, use, maintenance and repair of
its products. Expenditures for training are expected to increase as the
company's product lines continue to expand and as certain products, such as
power wheelchairs, become more complex.
Invacare is continuing to develop programs to assist dealers in reducing
administrative costs. One such effort is to provide customers with direct
computer-to-computer links with the company in order to provide on-line order
entry and order tracking to further expedite delivery, thereby reducing the
dealer's paperwork and inventory. During 1997, additional customers and customer
locations began utilizing EDI, which resulted in an increase in related EDI
sales.
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Europe
The company's European operations consist primarily of manufacturing, marketing
and distribution operations in Western Europe and export sales activities
through local distributors elsewhere in the world. The company has a direct
sales force and distribution centers in the United Kingdom, France, Germany,
Portugal, Spain, Sweden and Switzerland, and sells through distributors
elsewhere in Europe. In markets where the company has its own sales force,
product sales are typically made through dealers of medical equipment and, in
certain markets, directly to government agencies. In most markets, government
health care and reimbursement policies play an important role in determining the
types of equipment sold and price levels for such products. The company
continues to focus on the implementation of the "One Stop Shoppingsm" concept in
Europe.
PRODUCT LIABILITY COSTS
Invacare supports its dealers by defending product liability claims in an effort
to hold down costs. The company's captive insurance company, formed in 1986,
insures the first $2 million per claim, up to annual aggregate policy losses of
$3 million, of the company's domestic product liability exposure. The company
also has additional layers of coverage insuring up to $78 million in annual
aggregate losses arising from individual losses that exceed $2 million per claim
or annual policy aggregate losses of $3 million. There can be no assurance that
Invacare's current insurance levels will continue to be adequate or available at
an affordable rate.
PRODUCT DEVELOPMENT AND ENGINEERING
Invacare is committed to continuously improving, expanding and broadening its
existing product lines. During the past three years, new product introductions
included: major improvements in the power wheelchair line in terms of
electronics, functionality and aesthetics; new models of power wheelchairs; new
additions/enhancements to the electronic controllers for power wheelchairs; new
models of aluminum frame ultralight wheelchairs; a comprehensive new line of
innovative seating and positioning products; a complete line of home respiratory
products, including an oxygen home fill system, nebulizers compressors,
flowmeters, aspirators, oxygen analyzer, and respiratory disposables; a new
version of the Invacare(R) microAir(R) Turn-Q(TM) automatic turning mattress
system; and an improved line of ambulatory and safety products.
New product development remains a key component of Invacare's strategy to grow
market share and maintain competitive advantage. To this end, Invacare's efforts
in 1997 continued to focus resources on innovative manufacturing concepts while
also investing significant resources in cost reduction and design improvement.
Important new technologies were added, as well as many line extensions and
refinements to existing categories. In 1997, 32 new products were introduced
with the most significant being:
North America
Invacare(R) Venture(TM) HomeFill(TM) Complete Home Oxygen System- Allows
patients to fill oxygen cylinders from an oxygen concentrator. The company
is so encouraged by the initial response to this product that the second
generation of this product is now being developed.
Action Arrow(R) and Action Ranger(TM) X Storm Series(R) Power Wheelchairs
- A mid-wheel drive offering exceptionally tight turning ability and
maneuverability, which is ideal for use in tight spaces and over firm
surfaces.
Action Orbit(TM) Pediatric Tilt-In-Space Chair - A lightweight chair which
offers significant adjustability and numerous design features.
Action Scooter line - A new, more affordable line that offers seven
different models with a wide range of standard features and three new seat
options.
Invacare(R) Reliant Stand-Up Lift - Designed to be more compact with
increased maneuverability to serve a range of dependency levels, from
fully dependent to those who just need assistance during rehabilitation.
Invacare(R) ConnectO2(TM) Telemetry System - Innovatively designed to
monitor and report information on equipment performance and patient
compliance, a product designed for improved efficiency and proactive
preventive maintenance.
Invacare(R) microAir(R) Turn-Q(TM) LTM - A powered lateral turning
mattress which is based on the accepted technology of the Invacare
Turn-Q(TM) Plus. The LTM is designed for the treatment of Stage I - Stage
IV pressure ulcers.
Invacare(R) Tracer(R) SX Wheelchair - A lightweight economy wheelchair
designed for either rental or purchase featuring a chrome-plated carbon
steel frame that is durable and easy to clean.
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Europe
During 1997, European operations also introduced several new products and
continued to update existing products as required by the market. Key
introductions and updates in 1997 included the Kuschall K3, a three wheel
wheelchair and the Kuschall K4 rigid chair, the Zipper, a lightweight standard
steel wheelchair made by Bencraft Ltd. in the United Kingdom, the Storm seat
lifter, which improves the user's access to the environment and the Action 2000
Echo lightweight wheelchair aimed at providing the geriatric user with an easily
transportable chair at a very competitive price.
MANUFACTURING AND SUPPLIERS
The company's objective is to maintain its commitment to be the total
lowest-cost manufacturer in its industry, as well as the highest-quality
producer. The company believes that it is achieving this objective not only
through improved product design, but also by taking a number of steps to lower
manufacturing costs. During 1997, the company initiated plans to close and
consolidate a number of manufacturing operations, the cost of which was included
in charges in the third and fourth quarters. Also during 1997, the worldwide
consolidation of purchasing continued thereby taking advantage of significant
leverage opportunities available to the company for certain commodity raw
materials and allowed the company to achieve ongoing cost reduction objectives.
The company also makes substantial investments in its facilities and equipment
in order to increase productivity, lower costs and improve quality. Over the
past three years, the company has invested $72.2 million in capital improvements
and acquisition of facilities.
North America
The company has vertically integrated its manufacturing processes by
fabricating, coating, plating and assembling many of the components of each
product. The company designs and manufactures electronics for power wheelchairs,
from insertion of components into printed circuit boards to final assembly and
testing.
Invacare has focused on "value engineering" which reduces manufacturing costs by
eliminating product complexity and using common components. Value engineering
has been applied to all product introductions in the last three years, including
the latest generation of oxygen concentrators, electronic controls, wheelchairs,
patient lifts, beds and bath safety products.
Investments continue to be made in manufacturing automation. The company
has initiated programs to reduce manufacturing lead times, shorten production
cycles, increase employee training, encourage employee involvement in
decision-making and improve manufacturing quality. Employee involvement teams
participate in engineering, production and processing strategies and employees
have been given responsibility for their own quality assurance. The
consolidation of facilities that will be sustantially completed in 1998 will
also enhance manufacturing efficiency.
The manufacturing operations for the company's wheelchairs and replacement
parts, patient aids and home care beds consist of a variety of metal fabricating
procedures, electronics production, coating, plating and assembly operations.
Manufacturing operations for the company's oxygen concentrators, nebulizer
compressors, and seating and positioning products consist primarily of assembly
operations. The company purchases raw materials, fabricated components and
services from a variety of suppliers. Where appropriate, Invacare does employ
long term contracts with its suppliers. In those situations in which long term
contracts are not advantageous, the company believes its relationship with those
suppliers to be satisfactory with alternative sources of supply readily
available.
Europe
As in other areas, manufacturing and operational issues faced in the U.S.
are also present in Europe. The European operation has challenged and
rationalized the mission of each manufacturing location allowing for the
realization of significant synergies and identified areas for further cost
reductions and improved efficiencies for 1998 including certain facilities
eliminations and consolidations.
ACQUISITIONS
During 1997, the company made two acquisitions for $4.1 million in cash which
extended or added new product lines as well as expanded distribution
capabilities. As a result of the company's ongoing search for opportunities,
coupled with the industry trend toward consolidation, numerous acquisition
opportunities were evaluated in 1997. The company focuses on acquisitions
intended to fulfill the following objectives:
Tactical. Grow market share or extend current product lines.
Strategic. Enter new market segments that complement existing
businesses or utilize the company's distribution
strength.
Geographic. Enables rapid entry into new foreign markets.
In addition, in January 1998, the company acquired Suburban Ostomy, a wholesaler
of medical supplies and related products to the home health care industry for
approximately $132 million.(See MD&A and Notes for further information)
<PAGE>
10
GOVERNMENT REGULATION
The company is directly affected by government regulation and reimbursement
policies in virtually every country in which it operates. Government regulations
and health care policy differ from country to country and, within the U.S. and
Canada, from state to state or province to province. Changes in regulations and
health care policy take place frequently and can impact the size, growth
potential and profitability of products sold in each market.
In the U.S., the growth of health care costs has increased at rates in excess of
the rate of inflation and as a percentage of GDP for more than four decades. A
number of efforts to control the federal deficit have impacted reimbursement
guidelines for government sponsored health care programs and changes in federal
programs are often imitated by private insurance companies. Reimbursement
guidelines in the home health care industry have a substantial impact on the
nature and type of equipment an end user can obtain and thus affect the product
mix, pricing and payment patterns of the company's dealers.
Congress, in its effort to balance the federal budget, has continued to propose
Medicare and Medicaid cuts during 1997 to accomplish this task. Cuts in Medicare
are projected at $100.7 billion over a five year period. The proposed cuts
include a significant reduction in oxygen reimbursement and the elimination of
cost of living increases in reimbursement levels for all home medical equipment.
However, Congress is serious about reducing health care costs and is interested
in cost effective alternatives such as home care. Therefore, the company
believes that home health care is a viable solution to reducing health care
costs and also believes that home medical equipment and supplies are markets
with significant growth potential.
The company will continue its pro-active efforts to improve public policy
affecting home health care and believes that these efforts can give the company
a competitive advantage over other HME manufacturers who are forced to react to
change instead of helping to direct change.
The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to
the Federal Food, Drug and Cosmetics Act of 1938 (the "Acts") provide for
regulation by the United States Food and Drug Administration (the "FDA") of the
manufacture and sale of medical devices. Under the Acts, medical devices are
classified as Class I, Class II or Class III devices. The company's principal
products are designated as Class I or Class II devices. In general, Class I
devices must comply with labeling and record keeping requirements and are
subject to other general controls. In addition to general controls, certain
Class II devices may have to comply with performance standards when established
by the FDA. Manufacturers of all medical devices are subject to periodic
inspections by the FDA. Furthermore, state, local and foreign governments have
adopted regulations relating to the manufacture and marketing of health care
products. The company believes that it is presently in material compliance with
all applicable regulations promulgated by FDA, for which the failure to comply
would have a material adverse effect.
BACKLOG
The company generally manufactures most of its products to meet near term
demands by shipping from stock or by building to order based on the specialty
nature of certain products. Therefore, the company does not have substantial
backlog of orders of any particular products nor does it believe that backlog is
a significant factor for its business.
EMPLOYEES
As of December 31, 1997, the company had approximately 4,550 employees.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
The company also markets its products for export to other foreign countries. The
company had product sales in approximately 80 countries worldwide.
For information relating to net sales, operating income and identifiable assets
of the company's foreign and domestic operations, see Business Segments in the
Notes to the Consolidated Financial Statements.
<PAGE>
11
Item 2. Properties.
The company owns or leases its warehouses, offices and manufacturing
facilities and believes these facilities to be well-maintained, adequately
insured and suitable for their present and intended uses. Information concerning
certain of the leased facilities of the company as of December 31, 1997, is set
forth in Leases and Commitments in the Notes to the Consolidated Financial
Statements of the company and in the table below:
<TABLE>
<CAPTION>
Ownership
or Expiration Renewal
North American Operations Square Feet Date of Lease Options Use
- ------------------------- ----------- ------------- ------- ---
<S> <C> <C> <C> <C>
Adelaide, Australia 11,500 June 1998 none Manufacturing, warehouse
and offices
Ashland, Virginia 36,000 September 2000 none Warehouse and offices
Atlanta, Georgia 91,418 January 2000 one (3 yr.) Warehouse
Auckland, New Zealand 11,959 March 1998 none Distribution
Auckland, New Zealand 33,154 March 2003 none Manufacturing, warehouse
and offices
Auckland, New Zealand 12,000 Month to Month - Distribution
Belle, Missouri 39,200 Own - Manufacturing and offices
Beltsville, Maryland 33,329 August 1999 two (2 yr.) Manufacturing and offices
Carol Stream, Illinois 38,400 July 1998 one (5 yrs.) Warehouse (Subleased now)
Chesterfield, Missouri 8,466 December 1998 two (1 yr.) Offices
Christchurch, New Zealand 48,787 April 1998 one (2 yr.) Manufacturing and offices
Delta, British Columbia 6,900 January 2000 none Warehouse & offices
Edison, New Jersey 48,400 October 2001 one (5 yr.) Warehouse and sales office
Elyria, Ohio
- Taylor Street 240,744 Own - Manufacturing and offices
- Cleveland Street 226,998 September 1999 one (5 yr.) Manufacturing and offices
- One Invacare Way 50,000 Own - Headquarters
- Sugar Lane 20,000 February 1998 none Manufacturing
Grand Prairie, Texas 43,754 December 1998 one (3 yr.) Warehouse
Kirkland, Quebec 13,241 November 2000 one (5 yr.) Manufacturing, warehouse
and offices
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
12
North American Operations Square Feet Renewal Use
Ownership Options
or Expiration
Date of Lease
- ------------------------ ----------- ------------- ------------ -------------------
<S> <C> <C> <C> <C>
LaPalma, California 78,000 June 1999 one (3 yr.) Warehouse
McAllen, Texas 11,587 March 1998 none Warehouse
Mississauga, Ontario 81,004 January 2005 none Manufacturing, warehouse
and offices
North Ridgeville, Ohio 139,200 Own - Manufacturing, warehouses
and offices
Northboro, MA 22,000 June 2002 none Manufacturing
(sublet as of 1/98)
Northbrook, Illinois 27,458 June 1999 two (3 yr. & 2 yr.) Manufacturing and offices
Pharr, Texas 2,500 December 1998 one (1 yr.) Warehouse
Pinellas Park, Florida 12,000 June 1998 four (1 yr.) Manufacturing and offices
Reynosa, Mexico 135,200 Own - Manufacturing and offices
Sacramento, California 26,900 May 2003 one (3 yr.) Manufacturing, warehouse
and offices
San Diego, California 5,940 May 1998 one (2 yr.) Manufacturing and offices
Sanford, Florida 19,913 August 1998 one (1 yr.) Warehouse
Sanford, Florida 113,034 Own - Manufacturing and offices
Sanford, Florida 99,892 Own Manufacturing and offices
Sanford, Florida 23,000 February 1998 three months Warehouse
Sarasota, Florida 15,450 month to month none Manufacturing, warehouse
and offices
Traverse City, Michigan 15,000 April 2000 two (3 yr.) Manufacturing and offices
Tonawanda, New York 4,668 April 1998 none Sublet for remainder of term
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
13
Ownership Renewal
European Operations Square Feet or Expiration Options Use
Date of Lease
- ------------------ -------------- -------------- -------- -----
<S> <C> <C> <C> <C>
Askersund, Sweden 10,000 November 1998 - Warehouse
Bad Oeynhausen, Germany 76,600 June 2000 one (2 yr.) Manufacturing, warehouse and
offices
Basel, Switzerland 36,000 Own - Manufacturing and offices
Birmingham, England 13,000 Own - Warehouses and offices
Birmingham, England 19,378 Own - Manufacturing and offices
Bridgend, Wales 131,522 Own - Manufacturing and offices
Girona, Spain 13,600 November 2004 one (1 yr.) Warehouse and offices
Oporto, Portugal 27,800 November 2003 - Manufacturing and offices
Spanga, Sweden 2,000 March 1999 one (3 yr.) Offices
Tours, France 86,000 November 2007 none Manufacturing
Tours, France 104,500 Own - Manufacturing, warehouse
and offices
</TABLE>
Item 3. Legal Proceedings.
Invacare is a defendant in a number of product liability actions in which
various plaintiffs seek damages for injuries allegedly caused by defective
products. All these actions have been referred to the company's insurance
carriers and are being vigorously contested. The primary carrier for the first
$2 million of insurance coverage per claim or annual policy aggregate losses of
$3 million is a subsidiary of the company which was established in September
1986 to provide the first layer of product liability insurance for the company.
The company has additional layers of coverage insuring up to $78 million in
annual aggregate losses arising from individual losses that exceed $2 million or
annual policy aggregate losses of $3 million of the company's domestic product
liability exposure. Management does not believe that the outcome of any of these
actions will have a material adverse effect upon its business or financial
condition.
In 1997, the company provided for potential settlements of several intellectual
property lawsuits that were diverting management's time and attention. While the
company believes it would eventually have been successful in defending itself
against these suits, the legal fees and distraction to management led to the
decision to settle these suits. At the date of this filing , the company has
settled three cases for a total of $8.4 million.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
<PAGE>
14
Executive Officers of the Registrant.*
The following table sets forth the names of the executive officers and certain
other key employees of Invacare, each of whom serves at the pleasure of the
Board of Directors, as well as certain other information.
<TABLE>
<CAPTION>
Name Age Position
- --------------------- ----- ----------------------
<S> <C> <C>
A. Malachi Mixon, III 57 Chairman of the Board of Directors and
Chief Executive Officer
Gerald B. Blouch 51 President, Chief Operating Officer and Director
Thomas R. Miklich 50 Chief Financial Officer, General Counsel, Treasurer and
Corporate Secretary
Joseph B. Richey, II 61 President - Invacare Technologies & Invacare Senior Vice
President - Total Quality Management and Director
Louis F.J. Slangen 50 Senior Vice President - Sales & Marketing
Larry E. Steward 45 Corporate Vice President - Human Resources
Thomas J. Buckley 49 Senior Vice President - Continuing Care Products
M. Louis Tabickman 53 Senior Vice President - Respiratory Products
Donald D. Campopiano 46 Vice President - Account Services, Parts and Distribution
Steven C. Clark 39 Vice President - Power Products
Neal J. Curran 40 Vice President - Seating and Custom Mobility Products
</TABLE>
A. Malachi Mixon, III has been Chief Executive Officer and a Director of the
company since December 1979 and Chairman of the Board since September 1983. Mr.
Mixon had been President of the company from December 1979 until November 1996.
Gerald B. Blouch was named President and a Director of the company in
November 1996. Mr. Blouch has been Chief Operating Officer since December 1994
and Chairman - Invacare International since December 1993. Previously, Mr.
Blouch was President - Home Care Division from March 1994 to December 1994 and
Senior Vice President - Home Care Division from September 1992 to March 1994.
Mr. Blouch served as Chief Financial Officer from May 1990 to May 1993 and
Treasurer from March 1991 to May 1993.
Thomas R. Miklich has been Chief Financial Officer, General Counsel and
Treasurer since May 1993 and in September 1993 was named Secretary. Previously,
Mr. Miklich was Executive Vice President and Chief Financial Officer of Van Dorn
Company from 1991 to 1993, and Chief Financial Officer of The Sherwin-Williams
Company from 1986 to 1991.
Joseph B. Richey, II has been a Director since 1980 and in September 1992 was
named President-Invacare Technologies and Senior Vice President - Total Quality
Management. Previously, Mr. Richey was Senior Vice President of Product
Development from July 1984 to September 1992, Senior Vice President and General
Manager of North American Operations from September 1989 to September 1992.
Louis F. J. Slangen was named Senior Vice President - Sales & Marketing in
December 1994 and from September 1989 to December 1994 was Vice President -
Sales and Marketing. Mr. Slangen was previously President - Rehab Division from
March 1994 to December 1994 and Vice President and General Manager - Rehab
Division from September 1992 to March 1994.
<PAGE>
15
Larry E. Steward was named Corporate Vice President of Human Resources in
April 1997. From April 1996 to April 1997, Mr. Steward was Director of Human
Resources for the Rehab Group. Previously, Mr. Steward was employed by LTV Steel
Company serving as Manager of Human Resources from November 1991 to April 1996.
Thomas J. Buckley was named Senior Vice President - Continuing Care Group
in October 1997 and from August 1995 to October 1997 was Group Vice President
Standard Products. Mr. Buckley was previously General Manager of Manual
Wheelchairs from December 1994 to August 1995. From November 1993 to December
1994, Mr. Buckley was the Business Unit Leader of the Bed Products and Pressure
Relief Business Units. Before this period, Mr. Buckley served as Director of
Distribution.
M. Louis Tabickman was named Senior Vice President - Respiratory Products in
October 1997 and, from August 1995 to October 1997, was Group Vice President
Rehab Products . Mr. Tabickman has been an officer since July 1985 and was named
President - Invacare Canada in March, 1994. Previously, Mr. Tabickman was Vice
President & General Manager - Power Business Unit from December 1994 to August
1995, Vice President and General Manager - Invacare Canada from September 1992
to March 1994 and Vice President and General Manager of Service and Distribution
from July 1985 until September 1992.
Donald D. Campopiano was named Vice President of Account Services, Parts
and Distribution in October 1997. Mr. Campopiano joined Invacare in 1993 as
Director of Distribution. Since then, he also has served as the General Manager
of the Beds Business Unit and as Vice President and General Manager of Invacare
Canada. Previously, Mr. Campopiano was employed by General Electric Lighting
Group most recently as Manager of Logistics.
Steven C. Clark was named Vice President of Power Products in October 1997. Mr.
Clark has been with the company since 1986 and was previously the General
Manager of the Manual Wheelchair Business Unit from October 1995 to October
1997. Mr. Clark served as the Director of Operations at the Maquiladora Plant in
Mexico from January 1993 to October 1995 and Manufacturing Manager of Invacare's
Sanford, Florida manufacturing plant from October 1989 to January 1993.
Neal J. Curran was named Vice President - Seating and Custom Mobility Products
in October 1997. Mr. Curran has been with the company since 1983 and was
previously the General Manager of the Custom Manual Business Unit since December
1994. From September 1992 to December 1994, Mr. Curran served as the Power
Business Unit leader and Vice President of Rehab engineering from January 1991
to September 1992.
* The description of executive officers is included pursuant to
Instruction 3 to Section (b) of Item 401 of Regulation S-K.
<PAGE>
16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Invacare's Common Shares, without par value, are traded over-the-counter in the
NASDAQ National Market System under the symbol IVCR. Ownership of the company's
Class B Common Shares (which are not listed on NASDAQ) cannot be transferred,
except, in general, to family members. Class B Common Shares may be converted
into Common Shares at any time on a share-for-share basis. The approximate
number of record holders of the company's Common Shares and Class B Common
Shares at February 27, 1998 was 6,212 and 38, respectively. The closing sale
price for the Common Shares on February 27, 1997 as reported by NASDAQ, was
$22.94 . The prices set forth below do not include retail markups, markdowns or
commissions.
The range of high and low quarterly prices of the Common Shares in each of the
two most recent fiscal years are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
Quarter Ended: High Low High Low
---------------- ------------------------------------------------
<S> <C> <C> <C> <C>
December 31 $24.88 $20.75 $29.25 $25.00
September 30 24.88 20.13 32.00 23.13
June 30 24.00 18.13 28.75 23.50
March 31 29.00 23.00 29.50 24.50
</TABLE>
During 1997, the Board of Directors for Invacare Corporation declared dividends
of $.05 per Common Share and $.045 per class B common share. For information
regarding limitations on the payment of dividends in the company's loan and note
agreements, see Long Term Obligations in the Notes to the Consolidated Financial
Statements. The Common Shares are entitled to receive cash dividends at a rate
of at least 110% of cash dividends paid on the Class B Common Shares.
<PAGE>
17
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997* 1996 1995 1994 1993 1992
- ----- ---- ---- ---- ---- ----
(In thousands except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C>
Earnings
Net Sales $653,414 $619,498 $504,032 $411,123 $365,457 $305,171
Income from Operations 8,457 65,393 54,144 43,736 36,870 27,567
Net Earnings 1,563 38,918 32,165 26,377 22,110 17,739
Net Earnings per Share - Basic .05 1.33 1.10** .91 .77 .65
Net Earnings per Share -
Assuming Dilution .05 1.28 1.07** .89 .75 .63
Dividends per Common Share .05000 .05000 .03750** .01875 - -
Dividends per Class B Common
Share .04545 .04545 .03409** .01705 - -
As of December 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
Balance Sheet
Current Assets $275,211 $258,720 $204,685 $180,435 $156,191 $151,934
Total Assets 529,923 509,628 408,750 338,109 286,367 262,412
Current Liabilities 109,553 97,768 84,936 67,667 60,913 68,226
Working Capital 165,658 160,952 119,749 112,768 95,278 83,708
Long-Term Obligations 183,955 173,263 122,456 105,528 90,351 78,648
Shareholders' Equity 236,415 238,597 201,319 164,007 134,962 114,000
Other Data
Research and Development
Expenditures $ 12,706 $ 11,060 $ 9,002 $ 7,651 $ 6,840 $ 5,251
Capital Expenditures, net of
Disposals 38,485 22,465 11,027 12,217 11,961 17,301
Depreciation and Amortization 18,348 17,896 14,159 12,686 12,280 10,008
Key Ratios
Return on Sales .2% 6.3% 6.4% 6.4% 6.0% 5.8%
Return on Average Assets .3% 8.5% 8.6% 8.4% 8.1% 8.4%
Return on
Beginning .7% 19.3% 19.6% 19.5% 19.4% 20.5%
Shareholders' Equity
Current Ratio 2.5:1 2.6:1 2.4:1 2.7:1 2.6:1 2.2:1
Debt-to-Equity Ratio .8:1 .7:1 .6:1 .6:1 .7:1 .7:1
</TABLE>
* Reflects non-recurring and unusual charge of $61,039 (38,839 or $1.28
per share assuming dilution after tax) taken in 1997.
** As adjusted for the 2-for-1 splits effected in the form of a 100%
share dividend in October 1995.
<PAGE>
18
Item 7. Management Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
1997 Versus 1996
Non-recurring and Unusual Charge. The review of results that follows excludes
the impact of the non-recurring and unusual charge ("the charge") taken in1997.
The reasons for the charge and the impact on the company's current and future
performance is explained below under the heading "Non-recurring and Unusual
Charge" later in this section.
Net Sales. Net sales for 1997 increased 5.5% for the year net of a 2.1%
impact from foreign currency translation. Acquisitions contributed 2.9% of the
increase. The net sales increase of 4.7%, excluding acquisitions and the impact
of foreign currency translation, was due to increased unit volumes as
competitive pressures caused prices to decline for most product lines for the
second consecutive year. Sales were also negatively impacted by 4.3% due to
reduced purchases by the company's largest customer. Despite the competitive
pricing environment, almost all product lines had sales gains for the year.
Custom wheelchairs (power and custom manual), personal care products and
standard wheelchairs posted the largest dollar increases. The company believes
that its sales growth was aided by its cost effective "One Stop Shoppingsm"
distribution system that is supported by the company's broad range of products
and services. The company's goal is to increase sales by 24% to 30% per year
with 12% to 15% internal growth and 12% to 15% growth through acquisition,
although there can be no assurance that it will be able to achieve this goal.
North American Operations
Rehab Products Group. Sales of the Rehab Products Group, which consists of the
power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 13.8% for the year. The gain was due principally to
unit volume growth. Power wheelchairs continued to lead the way as sales for the
power business unit increased 18.5% resulting from continued strong volume
growth in low end power chairs, scooter products and from the introduction of
the new mid-wheel drive power chairs.
Sales of custom manual wheelchairs increased 7.1% due to new product
introductions and the continued success of the company's "Team Action" athletes,
as many of the high-tech design features in high performance sport wheelchairs
are incorporated in the everyday Action chairs. The new Action orbit(TM)
tilt-in-space, a pediatric product, was introduced during 1997 and has gained
widespread acceptance in the market. Unit growth exceeded the dollar increase
due to pricing pressure in this product category.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs/patient transport, personal care, beds, low air loss
therapy, Invacare Health Care Furnishings and retail business units, increased
9.0%. Acquisitions contributed 5.4% of the sales increase including two
strategic acquisitions made during 1997. Allied Medical Supply Corporation
(acquired October 7), a distributor of soft goods and disposable products and
Silcraft Corporation (acquired May 6), a manufacturer of bathing equipment and
patient lifts, contributed .8% and 1.7% respectively. Acquisitions made in 1996
that positively impacted 1997 sales growth include Frohock-Stewart, a
manufacturer of personal care products with distribution through mass retailers
and Invacare Health Care Furnishings, a manufacturer and distributor of beds and
furnishings for the non-acute care markets. The personal care product line
posted a sales increase of over 18.0%, while standard wheelchair sales increased
modestly for the year. Sales of low air loss therapy products increased 28.3%
after showing significant decline in the prior year as changes in governmental
reimbursements policies caused the overall market for those products to shrink
dramatically from levels in 1995. The sales of this group also were impacted by
the aforementioned reduction in purchases by a major customer in 1997.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, decreased .8% for the year.
Volume increases were offset as significant pricing pressure continued in 1997.
The products within this group, primarily oxygen concentrators, continue to
experience the largest price decline of any of the company's product categories.
This product category was the area most effected by the reduction in
purchases by the company's major customer.
Other. Other Products, consisting primarily of the company's Canadian,
Australian and New Zealand operations, aftermarket parts and ambulatory infusion
pumps businesses, had a 10.5% sales increase for the year, with 7.4% due to
acquisitions made in the prior year. The company's Canadian operation had
another strong year with sales up 19.9%, excluding a 1.9% negative impact from
foreign currency translation. The company's New Zealand operations, principally
Dynamic Controls, was adversely affected by the sluggish European market for
power wheelchairs, as their sales declined by 5.9% excluding a 2.0% negative
impact for foreign currency translation.
<PAGE>
19
European Operations
European sales increased 2.7%, excluding a negative impact of 9.4% from foreign
currency translation. Acquisitions had a minimal impact on sales growth (.4%).
Sales were significantly impacted by European governmental budget trends,
especially in Germany and France, that resulted in reduced reimbursement levels
and caused providers to utilize more refurbished equipment.
Gross Profit. Gross profit as a percentage of net sales decreased to 30.8% from
32.5% last year. The decline was a result of ongoing significant pricing
pressures and a product mix shift, offset by continued productivity improvements
and the cost reduction from strategic realignment of production facilities. The
company is committed to redesigning products to lower manufacturing costs while
improving quality and reliability and implementing other spending reductions
necessary to remain competitive and improve profitability.
North American Gross profit from Operations declined slightly despite an
intensifying pricing environment. Continued manufacturing productivity
improvements were somewhat offset by the impact of reduced purchases by a major
customer in 1997. The facilities rationalization implemented during the year
also favorably impacted the company's gross profit.
Gross profit in Europe declined to 26.5% from 30.0% in 1996. Continued effects
of a strong U.S. dollar, overall price declines and product mix changes each
negatively impacted margins. A significant reduction in gross profit
(approximately $2.0 million) was the result of a failure to hedge certain
transaction exposures early in 1997.
Inventory turns improved for 1997 in both the North American and European
operations, as the plan for realignment of manufacturing facilities was
initiated and implemented. The company expects turns will continue to show
improvement in 1998 as facility consolidations continue and strategic
partnerships are formed with major suppliers.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales decreased to 20.2% in 1997 compared to 22.0% in
1996. The dollar decrease was $3,807,000 or 2.8%, despite acquisitions which
increased selling, general and administrative costs by approximately $5,000,000
or 4.0%. The businesses acquired operate with a significantly higher selling,
general and administrative expense as a percentage of net sales however, tight
expense control in the company's existing businesses resulted in a reduction in
the overall expense as a percentage of sales for 1997. The company focuses on
improved productivity and acquisition integration, which it expects can continue
to favorably impact the selling, general and administrative expense as a
percentage of net sales.
North American operations' selling, general and administrative costs decreased
as a percentage of net sales by approximately 1.8% from last year, as the focus
on expense control continued during 1997. The dollar change was minimal despite
acquisitions which increased costs by approximately $4,756,000. In an effort to
combat the competitive pricing environment, the company continued its
implementation of activity-based budgeting aimed at allocating the expense
dollars to the programs that most effectively supported the company's business
strategy. The company's bad debt expense and reserve for bad debt substantially
increased during the year due to expenses created by the balanced budget act and
general competitive market. The increase was taken as part of the non-recurring
and unusual charge. There can be no assurance that future government actions or
business conditions will not cause this to recur in the future.
European operations' selling, general and administrative expenses, as a
percentage of net sales, decreased to 24.9% from 25.6% in 1996, with the dollar
decrease amounting to $3,190,000 or 9.2%. Acquisitions had a minimal impact on
total costs. The overall decrease is a result of restructuring and cost
containment initiatives implemented throughout 1997 and the strong dollar which
reduced selling, general and administrative expenses reported in dollars by
9.2%.
Interest. Interest income decreased in 1997 to $9,321,000 from $9,661,000 last
year, representing a 3.5% decrease. The change between years was due primarily
to the introduction of several new financing programs offered by the company's
finance subsidiary. These programs included a three and six month interest free
financing period with rates at or below prime. Interest expense increased to
$12,555,000 from $11,286,000, representing a 11.2% increase resulting from
additional borrowings incurred to fund the 1997 acquisitions and other investing
activities, principally capital expenditures. As a result, the company's
debt-to-equity ratio increased to .8:1 from .7:1. It is anticipated that the
company's interest expense will increase in 1998 as a result of the acquisition
of Suburban Ostomy Supply Co., Inc. on January 28, 1998.
Income Taxes. The company had an effective tax rate of 39.0% in 1997,
excluding the effects of the unusual and non-recurring charge. Including the
effects of the charge, the effective tax rate was 70.1% compared to 39.0% in
1996 as the impact of permanent differences increase or earnings decline. See
Income Taxes in the Notes to Consolidated Financial Statements for further
discussion.
<PAGE>
20
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $12,706,000 from
$11,060,000 in 1996. The expenditures, as a percentage of sales, increased only
slightly because businesses acquired spent less on research and development as a
percent of sales than the company.
1996 Versus 1995
Net Sales. Net sales for 1996 increased 22.9% for the year with the net effect
of acquisitions and currency translation accounting for 10.9% of the increase.
The sales increase of 12.0%, excluding acquisitions and the impact of foreign
currency translation, was due to increased unit volumes as competitive pressures
caused prices to decline for most product lines again in 1996. All product
lines, with the exception of therapeutic support surfaces, liquid and Dynamic
Control had sales gains for the year with personal care products, custom
wheelchairs (power and custom manual), standard wheelchairs and concentrators
posting the largest dollar and percentage increases. The company believes its
sales growth was aided by its cost effective "One Stop Shoppingsm" distribution
system that is supported by the company's broad range of products and services.
The company sales goals are to increase sales at a level that is 50% greater
than the overall market growth rate and to reach $1 billion in sales by the year
2000.
North American Operations
Rehab Products Group. Sales of the Rehab Products Group, which consists of the
power wheelchairs, custom manual wheelchairs and seating and positioning
business units, increased 20.0% for the year, with 4.5% of the increase due to
the acquisitions of PinDot Products in mid 1995 and Special Health Systems in
late 1995. The gain was due principally to unit volume growth although prices
for certain product lines were increased slightly during the year. Power
wheelchairs continued to lead the way as sales for the power business unit
increased 17.0% with over 90.0% of the improvement coming from increased unit
sales.
Sales of custom manual wheelchairs also showed double digit growth as the
success of the company's "Team Action" athletes in the 1996 Atlanta Paralympic
Games helped to enhance sales of our everyday Action chairs that incorporate
many of the high-tech design features and materials used in the high performance
sports wheelchairs. Seating and positioning sales increased 81.6% principally as
a result of the acquisitions made to complete this product line in 1995.
Excluding acquisitions, sales of seating and positioning products achieved
double-digit levels in units, however the increase in dollars was limited to
9.0% due to the pricing pressures experienced during the year.
Standard Products Group. Sales of the Standard Products Group, which consists of
the manual wheelchairs/patient transport, personal care, beds, low air loss
therapy and Invacare Continuing Care Group business units, increased 23.2%. The
acquisition of Invacare Continuing Care Group, a manufacturer and distributor of
beds and furnishings for the extended and acute care markets, contributed
approximately 9.0% to the increase. The group's unit volume increase was greater
than the reported dollar increase, as again in 1996 the product lines within
this group experienced significant competitive pricing pressure. The personal
care product line posted a sales increase of over 45.0%, while standard
wheelchairs sales increased 15.0% for the year. Sales of low air loss therapy
products declined significantly for the year as changes in governmental
reimbursements policies caused the overall market for those products to shrink
dramatically from 1995.
Respiratory Products Group. Sales of the Respiratory Products Group, which
consists of the oxygen concentrator, liquid oxygen, aerosol therapy and
associated respiratory products business units, increased 14.2% for the year.
Volume increases were significantly greater than the overall sales dollar
increase as significant pricing pressure continued in 1996. The products within
the group, primarily oxygen concentrators, experienced the largest price decline
of any of the company's product categories. The company still managed to
increase its market share position to become the leader in oxygen concentrators
during 1996, as sales to both national accounts and independent providers
increased at a rate greater than the overall market growth rate.
Other. Other, consisting primarily of the company's Canadian, New Zealand and
Australian operations, retail, aftermarket parts business and ambulatory
infusion pumps, had a 59.7% sales increase for the year, with almost all of the
increase due to acquisitions. The company's Canadian operation had another
strong year with sales up 10.8%, including a .7% positive impact from foreign
currency translation. This gain was offset by a down year in sales at Dynamic
Controls, the company's electronic wheelchair controller business, due primarily
to the loss of a large customer during 1995 who is also a major competitor to
the company. The acquisitions made in 1996 that positively impacted sales growth
include Frohock-Stewart, a manufacturer of personal care products with
distribution through mass retailers, Production Research Company, a supplier of
aftermarket parts for the home medical equipment market and Rollerchair Pty.
Ltd., a manufacturer and distributor of custom power wheelchairs in Australia.
<PAGE>
21
European Operations
European sales increased 15.6%, with acquisitions accounting for 9.6% of the
increase. Foreign currency translation had a negative effect on the reported
sales of 1.9%. Sales increased in almost all product lines, with power
wheelchairs and patient aid sales posting the largest dollar increases.
Competitive pricing pressure intensified in Europe in 1996, resulting in higher
unit volume growth than the reported increase in dollars. The European sales
growth was enhanced by a significant percentage increase in the sales of beds
and respiratory products. The absolute level of sales for these products is
still relatively small as they represent new product categories in the European
market. The introduction of these product lines support the company's goal of
mirroring the product lines of our North American operations in Europe.
Gross Profit. Gross profit as a percentage of net sales decreased to 32.5% from
33.0% last year, due primarily to businesses acquired which had lower gross
margins than the company's existing businesses. Despite ongoing intense price
competition, excluding businesses acquired, gross margins were basically flat
with last year. The company's continued focus on cost reductions in all of its
business processes was the principal reason margins were held level in the
ongoing competitive environment. The company intends to continue to focus on
improving productivity, redesigning products to lower manufacturing costs while
improving quality and reliability and implement other spending reductions to
remain competitive. The company is continuing its initiative of realigning
production among locations and consolidating certain facilities in order to
achieve improved productivity, efficiency and reduction of costs.
North American operations' gross profit, excluding businesses acquired,
increased from last year as a result of improved manufacturing productivity,
reduced distribution costs and improved purchasing synergies which were only
partially affected by the negative effects of the competitive pricing
environment and a shift in product mix.
Gross profit in Europe declined significantly to 30.0% from 33.2% in 1995. The
decline was due in part to increased pricing competition in Europe but was
primarily the result of internal operating difficulties. Poor implementation of
the manufacturing and purchasing improvement plans for the year as well as a
lack of control over freight and distribution costs were the major factors
contributing to the decline. The company believes that it has plans in place so
that these problems do not reoccur in 1997.
Inventory turns declined in 1996 in both the North American and European
Operations, negatively impacting gross margins for the year. The company expects
that turns will improve in 1997 as the realignment of manufacturing facilities
is implemented. As stated above, the company believes its focus on reducing
costs in all of its business processes and improving productivity will enhance
for future competitiveness and profitability.
Selling, General and Administrative. Selling, general and administrative expense
as a percentage of net sales was 22.0% in 1996 compared to 22.3% in 1995. The
dollar increase was $23,911,000 or 21.3%. Acquisitions increased selling,
general and administrative costs by approximately $16,000,000 for the year,
representing approximately 14.0% of the percentage increase. The businesses
acquired operate with a significantly higher selling, general and administrative
expense as a percent of sales ratio, however, tight expense control in the
company's existing businesses resulted in a reduction in the overall percentage
of sales ratio in 1996. It is expected that the ratio for the company as well as
the acquired businesses will decline in the future as the company focuses on
improved productivity and activity-based management.
North American operations' selling, general and administrative costs increased
as a percent of sales by approximately 1.0% from last year. Excluding
acquisitions, these costs were lower than last year as the focus on continued
expense control intensified during 1996 as a result of the competitive pricing
environment. The company also refocused its efforts on activity based budgeting
during the year to ensure that the expense dollars spent were allocated to the
programs that most effectively supported the company's business strategy. The
company made substantial investments in 1996, primarily related to brand
strategy and clinical application specialists, that it believes had a positive
impact on growth in 1996 and will also favorably impact growth opportunities in
the future.
<PAGE>
22
European operations' selling, general and administrative expenses, as a
percentage of sales, increased to 25.6% from 24.3% in 1995, with the dollar
increase amounting to $6,173,000 or 21.8%. Acquisitions accounted for over
one-half of the dollar increase. The balance of the increase was a result of
spending required to build the infrastructure needed to implement a full-line
product strategy in Europe which began during 1995, resulting in increased
spending of 10% for the year, excluding acquisition impact. The company believes
the infrastructure investments in Europe will provide the organizational
structure required to support future growth as well as a full-line product
strategy.
Interest. Interest income in 1996 increased to $9,661,000 from $7,276,000 last
year, a 32.8% increase, due primarily to increased financing activity by the
company's finance subsidiary that resulted in higher average outstanding
installment loans. Interest expense increased to $11,286,000 or 17.9%, primarily
as a result of the additional borrowings incurred to fund the 1996 acquisition
and other investing activity. The company's debt-to-equity ratio increased
marginally to .7:1 from .6:1. It is anticipated that the company's interest
expense, in the absence of additional acquisitions or significant increases in
borrowing rates, will decline due to the company's strong cash flows from
operations offset to some extent by additional capital expenditures planned for
1997.
Income Taxes. The company had an effective tax rate of 39.0% in 1996
compared to 38.0% in 1995. See Income Taxes in the Notes to Consolidated
Financial Statements for further discussion.
Research and Development. The company continues to increase its research and
development activities to maintain its competitive advantage. While the
competitive environment requires that research and development expenditures be
focused on the cost reduction of products while increasing functionality and
reliability, the company continues to dedicate dollars to applied research
activities to ensure that new and enhanced design concepts are available to its
businesses. Research and development expenditures increased to $11,060,000 from
$9,002,000 in 1995. The expenditures, as a percent of sales, remained at 1.8% as
businesses acquired spent less on research and development as a percent of sales
than the company. For certain of the acquired businesses, future spending is
anticipated to be more in line with the company's overall spending levels.
INFLATION
Although the company cannot determine the precise effects of inflation,
management believes that inflation does continue to have an influence on the
cost of materials, salaries and benefits, utilities and outside services. The
company attempts to minimize or offset the effects through increased sales
volume, capital expenditure programs designed to improve productivity,
alternative sourcing of material and other cost control measures. In 1997 and
1996, the company was able to offset the majority of the impact of price
increases from suppliers by productivity improvements and other cost reduction
activities.
LIQUIDITY AND CAPITAL RESOURCES
The company continues to maintain an adequate liquidity position through its
unused bank lines of credit (see Long-Term Obligations in the Notes to
Consolidated Financial Statements) and working capital management. The company
maintains various bank lines of credit to finance its worldwide operations. In
1997, the company completed a $425,000,000 multi-currency, long-term revolving
credit agreement which expires on October 31, 2002, or such later date as
mutually agreed upon by the company and the banks. Additionally, the company
maintains various other demand lines of credit totaling a U.S. dollar equivalent
of approximately $16,000,000 as of December 31, 1997. The lines of credit have
been and will continue to be used to fund the company's domestic and foreign
working capital, capital expenditures and acquisition requirements. As of
December 31, 1997, the company had approximately $291,000,000 available under
its various lines of credit.
Subsequent to year end, the company completed a private placement of
$100,000,000 in senior notes having a blended fixed coupon rate of 6.69% with
$20,000,000 maturing in seven years and $80,000,000 maturing in ten years. The
proceeds were used to pay-down revolving credit debt incurred to fund the
acquisition of Suburban Ostomy Supply Co., Inc., which was consummated on
January 28, 1998.
The company's borrowing arrangements contain covenants with respect to net
worth, dividend payments, working capital, funded debt to capitalization and
interest coverage, as defined in the company's bank agreements and agreement
with its note holders. The company is in compliance with all covenant
requirements. Under the most restrictive covenant of the company's borrowing
arrangements, the company may borrow up to an additional $267,000,000 as of
December 31, 1997.
<PAGE>
23
CAPITAL EXPENDITURES
There are no individually material capital expenditure commitments outstanding
as of December 31, 1997. However, the company expects to invest approximately
$26,000,000 in capital projects in 1998. The decrease in capital spending in
1998 is due principally to the expansion of three manufacturing facilities, the
completion of a new respiratory manufacturing plant and the completion of a new
corporate headquarters building in 1997. The company believes that its balances
of cash and cash equivalents, together with funds generated from operations and
existing borrowing capabilities, will be sufficient to meets its operating cash
requirements and fund required capital expenditures in the foreseeable future.
CASH FLOWS
Cash flows provided by operating activities were $37,935,000, compared to
$34,323,000 last year. The 10.5% increase is primarily the result of decreased
inventory levels from the prior year, as continued focus on inventory management
initiatives have proven effective, and an increase in accrued expenses relating
to the unpaid portion of the unusual charge taken in 1997. The improved cash
flow was offset to some extent by an increase in trade receivables. The changes
in operating assets and liabilities are not apparent from the face of the
balance sheet as funds expensed for assets acquired through business
acquisitions are accounted for in the investment activities section of the
Consolidated Statement of Cash Flows.
Cash flows required for investing activities decreased by $23,341,000 or 30.6%.
The decrease was a result of reduced acquisition activity in 1997 and the sale
of the company's investment in Healthdyne Technologies, Inc.. The decrease was
offset by an increase in capital expenditures primarily relating to investments
in computer systems, production machinery and equipment and facility expansions
associated with the continuing implementation of a worldwide facilities plan.
Cash flows provided by financing activities were $16,467,000 in 1997 compared to
$42,556,000 in 1996. The 61.3% decrease in cash provided by financing activities
was primarily a result of a reduction in net proceeds from long-term borrowings
which were used to fund acquisitions in the prior year and increased payments on
revolving lines of credit when compared to the prior year.
In addition to acquisition activities, the effect of foreign currency
translation results in amounts being shown for cash flows in the Consolidated
Statement of Cash Flows that are different from the changes reflected in the
respective balance sheet captions.
DIVIDEND POLICY
It is the company's policy to pay a nominal dividend in order for its stock to
be more attractive to a broader range of investors. The current annual dividend
rate remains at $.05 per Common Share and $.045 per Class B Common Share. It is
not anticipated that this will change materially as the company continues to
have available significant growth opportunities through internal development and
acquisitions. For 1997, a dividend of $.05 per Common Share and $.045 per Class
B Common Share were declared and paid.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using the
last two digits rather than four to define the applicable year. Thus, many
programs are unable to properly distinguish between the year 1900 and the year
2000. This is frequently referred to as the "Year 2000 Problem."
The company has developed a plan to modify its existing information technology
in order to recognize the year 2000 and has begun converting its critical data
processing systems. The plan is designed to ensure that there is no adverse
effect on the company's core business operations and that transactions with
customers, suppliers and financial institutions are fully supported. The company
is well under way with these efforts and believes its planning and
implementation efforts will be adequate to address its year 2000 concerns.
Currently, the project is expected to be substantially completed by early 1999
and to cost between $4.0 and $6.0 million. This estimate includes internal costs
and excludes the costs to upgrade and replace systems in the normal course of
business. The company does not expect this project to have a significant effect
on the company's results of operations or financial position.
For the year ended December 31, 1997, approximately $600,000 was incurred
and expensed related to this activity. The company will continue to implement
systems with strategic long term value as it has undertaken a long-term systems
improvement program that will result in a global Enterprise Resource Planning
(ERP) system utilizing certain of the Oracle ERP product modules. While the
review of the project has been revised from the original plan, the company still
plans to spend significant funds over the next several years implementing its
new systems plan. This program is expected to cost approximately $40.0 million
over the next four years including internal costs.
<PAGE>
24
NON-RECURRING AND UNUSUAL CHARGE
In 1997, the company recorded a non-recurring and unusual charge of
$61,039,000 ($38,839,000 or $1.28 diluted per share after tax) for the
acceleration of certain strategic initiatives and other items. The charge
impacted cost of products sold by approximately $3,391,000 and selling, general
and administrative expenses by approximately $27,787,000. During the fourth
quarter, the company reviewed the charge and its related estimates and
components. The review resulted in certain changes to the components of the
charge. In addition, while reviewing the technical requirements of Financial
Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) 94-3 and all
relevant accounting pronouncements, it was determined that part of the charge
related to the fourth quarter rather than the third quarter and the company
restated the quarters to reflect this change. There was no significant impact on
results recorded for the year. The charge includes $20,337,000 for the
acceleration of global manufacturing facility consolidations and the elimination
of certain non-strategic product lines, $7,456,000 for certain accelerated
global systems' initiatives, $10,293,000 for an increase in the company's bad
debt reserve and $22,953,000 for asset write-downs and an increase in reserves
for litigation. The portion of the charge identified for certain global systems
initiatives relates to the write-off of assets that will not benefit future
periods due to new systems replacements or the change in scope of the original
project. There were no year 2000 costs charged to the reserve as these costs are
expensed as incurred pursuant to the requirements of the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force (EITF) 96-14. The company
initiatives included in the charge are anticipated to be substantially completed
in 1998. During 1997, approximately $8,480,000 of the reserve amount was
utilized for facility consolidations and business exits, $7,456,000 for systems
related costs, $4,423,000 for the write-off of specifically identified accounts
receivable and an increase in the general reserve for bad debts and $14,371,000
for asset write-downs and litigation. The remaining accrual balance at December
31, 1997 in the amount of $26,309,000 relates primarily to facility
consolidations, business exits, litigation and bad debt.
PRIVATE SECURITIES LITIGATION REFORM ACT
This management's discussion contains forward-looking statements based on
current expectations which are covered under the "safe harbor" provision within
the Private Securities Litigation Reform Act of 1995. Actual results and events,
including the acceleration of certain strategic initiatives for which a
non-recurring and unusual charge has been reported, may differ significantly
from those anticipated as a result of risks and uncertainties which include, but
are not limited to, pricing pressures, the consolidations of health care
customers and competitors, the availability of strategic acquisition candidates
successfully completing its project to resolve its year 2000 issues and
Invacare's ability to effectively integrate acquired companies, the timely
completion of facility consolidations and other strategic initiatives provided
for, the completion of year 2000 compliance programs and the overall economic,
market and industry conditions, as well as the risks described from time to time
in Invacare's reports as filed with the Securities and Exchange Commission.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the Report of Independent Auditors, Consolidated Balance
Sheet, Consolidated Statement of Earnings, Consolidated Statement of Cash Flows,
Consolidated Statement of Shareholders' Equity, Notes to Consolidated Financial
Statements and Financial Statement Schedule which appear on pages FS -1 to FS -
21 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by Item 10 as to the Directors of the company is
incorporated herein by reference to the information set forth under the caption
"Election of Directors" in the company's definitive Proxy Statement for the 1998
Annual Meeting of Shareholders, since such Proxy Statement will be filed with
the Securities and Exchange Commission not later than 120 days after the end of
the company's fiscal year pursuant to Regulation 14A. Information required by
Item 10 as to the Executive Officers of the company is included in Part I of
this Report on Form 10-K.
<PAGE>
25
Item 11. Executive Compensation.
The information required by Item 11 is incorporated by reference to the
information set forth under the caption "Compensation of Executive Officers and
Directors" in the company's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item. 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by Item 12 is incorporated by reference to the
information set forth under the caption "Share Ownership of Principal Holders
and Management" in the company's definitive Proxy Statement for the 1998 Annual
Meeting of Shareholders, since such Proxy Statement will be filed with the
Securities and Exchange Commission not later than 120 days after the end of the
company's fiscal year pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
The information required by Item 13 is incorporated by reference to the
information set forth under the caption "Certain Transactions" in the company's
definitive Proxy Statement for the 1998 Annual Meeting of Shareholders, since
such Proxy Statement will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the company's fiscal year pursuant to
Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Financial Statements
The following financial statements of the company are included in Part II, Item
8:
(a)(1) Financial Statements.
Consolidated Statement of Earnings - years ended December 31, 1997, 1996
and 1995
Consolidated Balance Sheet - December 31, 1997 and 1996
Consolidated Statement of Cash Flows - years ended December 31, 1997,
1996 and 1995
Consolidated Statement of Shareholders' Equity - years ended December 31,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
(a)(2)Financial Statement Schedules.
The following financial statement schedule of the company is included in
Part II, Item 8:
Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not applicable or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
(a)(3) Exhibits.
See Exhibit Index at page number I-27 of this Report on Form 10-K.
(b) Reports on Form 8-K.
None
<PAGE>
26
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 31, 1998.
INVACARE CORPORATION
By: /S/ A. Malachi Mixon, III
-----------------------------
A. Malachi Mixon, III Chairman of the Board
of Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 31, 1998.
Signature Title
/S/ A. Malachi Mison, III Chairman of the Board of Directors and
- -------------------------- Chief Executive Officer (Principal Executive
A. Malachi Mixon, III Officer)
/S/ Gerald B. Blouch President, Chief Operating Officer and Director
- ------------------------
Gerald B. Blouch
/S/ Thomas R. Miklich Chief Financial Officer, General Counsel,
- ----------------------- Treasurer and Corporate Secretary (Principal
Thomas R. Miklich Financial and Accounting Officer)
/S/ Francis J. Callahan
- -------------------------- Director
Francis J. Callahan
/S/ Frank B. Carr
- -------------------------- Director
Frank B. Carr
/S/ Michael F. Delaney
- -------------------------- Director
Michael F. Delaney
/S/ Whitney Evans
- --------------------------- Director
Whitney Evans
/S/ Dan T. Moore, III
- -------------------------- Director
Dan T. Moore, III
/S/ E.P. Nalley
- -------------------------- Director
E. P. Nalley
/S/ Joseph B. Richey
- ------------------------- Director
Joseph B. Richey, II
/S/ William M. Weber
- ------------------------- Director
William M. Weber
/S/ Dr. Bernadine P. Healy
- -------------------------- Director
Dr. Bernadine P. Healy
<PAGE>
27
<TABLE>
<CAPTION>
INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended
December 31, 1997.
Exhibit Index
-------------
Official
Exhibit No Description Sequential Page No.
- ---------- -------------- -------------------
<S> <C> <C> <C>
3(a) - Amended and Restated Articles of Incorporation, as amended through (A)
May 29, 1987.
3(b) - Code of Regulations, as amended on May 22, 1996. (V)
3(c) - Amended and Restated Articles of Incorporation, as amended through February 2, 1996. (T)
4(a) - Specimen Share Certificate for Common Shares, as revised (H)
4(b) - Specimen Share Certificate for Class B Common Shares (H)
4(d) - Rights agreement between Invacare Corporation and Rights Agent dated as of (S)
July 7, 1995
10(a) - Stock Option Plan, adopted in February 1984 (B)*
10(b) - Amendment to Stock Option Plan, adopted in May 1987 (C)*
10(c) - Amendment to Stock Option Plan, adopted in May 1988 (D)*
10(d) - Amendment to Stock Option Plan, adopted in May 1991 (I)*
10(h) - Assignment of Patent Application and License of Know-how dated January 14, 1981, and an (E)
amendment thereto dated October 12, 1981, with respect to certain royalty payments to be
made to the former owners of the company's home care bed subsidiary
10(p) - Form of Indemnity Agreement entered into by and between the company and certain of its (H)
Directors and officers and Schedule of all such Agreements with current Directors and
officers
10(r) - Master Note, between Invacare Corporation and Sanwa Bank, Limited (J)
10(s) - Employees' Stock Bonus Trust and Plan as amended and restated effective (G) *
January 1, 1988 and as amended on April 13, 1988, April 3, 1990, and May 24, 1991
10(t) - Profit Sharing and Savings Trust and Plan effective as of January 1, 1988 and as amended (G) *
on November 28, 1988, September 12, 1990, October 9, 1990, and
May 24, 1991
10(u) - Agreement between Invacare Corporation and Weber, Wood, Medinger, Inc. (J)
10(v) - Real Property Purchase Agreement by and between Invacare Corporation and Taylor Street (N)
limited partnership
10(z) - Note Agreement dated February 1, 1993 among Invacare
Corporation and five purchasers of (P) an aggregate of
$25,000,000, 7.45% Senior Notes due February 1, 2003.
10(aa) - Amendments to Stock Option Plan adopted in May 1992 (M) *
10(ab) - 1992 Non-Employee Directors Stock Option Plan adopted in May 1992 (K)
<PAGE>
28
10(ac) - Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992 (L)
10(ad) - Shares Purchase and Contribution Agreement dated July 27, 1992 (O)
10(af) - Invacare Corporation 1994 Performance Plan approved January 28, 1994 (Q) *
10(ag) - Real Property Purchase Agreement between Mobilite Building Corporation (a newly formed (R)
subsidiary of Invacare Corporation as of February 15, 1994) and I-M Associates, LTD.
dated February 28, 1994
10(ar) - First Amendment to Note Agreement among Invacare Corporation and five purchasers of (U)
Senior Notes dated March 20, 1997
10(as) - Loan Agreement by and among Invacare Corporation, the Banks, certain borrowing (F)
subsidiaries, the Banks named therein, NBD Bank, as agent for the Banks and KeyBank
National Association, as co-agent for the Banks
10(at) Agreement and Plan of Merger, dated December 17, 1997, between Invacare Corporation, (W)
- Inva Acquisition Corp. and Suburban Ostomy Supply Co., Inc..
21 - Subsidiaries of the company
23 - Consent of Independent Auditors
27 - Financial data schedule
99(a) - Executive Liability and Defense Coverage Insurance Policy (H)
99(b) - Supplemental Executive Retirement Plan
</TABLE>
* Management contract, compensatory plan or arrangement
<PAGE>
29
(A) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 28, 1987, which Exhibit is incorporated herein by
reference.
(B) Reference is made to the appropriate Exhibit of the company's Report
on Form 10-K for the fiscal year ended December 31, 1984, which
Exhibit is incorporated herein by reference.
(C) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1987, which
Exhibit is incorporated herein by reference.
(D) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 25, 1988, which Exhibit is incorporated herein by
reference.
(E) Reference is made to the appropriate Exhibit of the company's Form 8
Amendment No. 1 (filed on September 23, 1987) to its Registration
Statement on Form 8-A (Reg. No. 0-12938, effective as of October 21,
1986), which Exhibit is incorporated herein by reference.
(F) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1997, as amended,
which is incorporated herein by reference.
(G) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1990, as amended,
which is incorporated herein by reference.
(H) Reference is made to the appropriate Exhibit of the company's
Registration Statement on Form S-3 (Reg. No. 33-40168), effective as
of April 26, 1991, which Exhibit is incorporated herein by reference.
(I) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 24, 1991, which Exhibit is incorporated herein by
reference.
(J) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1991, as amended,
which is incorporated herein by reference.
(K) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which exhibit is incorporated herein by
reference.
(L) Reference is made to Exhibit B of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which Exhibit is incorporated herein by
reference.
(M) Reference is made to Exhibit C of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 27, 1992, which Exhibit is incorporated herein by
reference.
(N) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended June 30, 1992, which Exhibit is
incorporated herein by reference.
(O) Reference is made to Exhibit 2 of the company's report on Form 8-K,
dated October 29, 1992, which Exhibit is incorporated herein by
reference.
(P) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1992, which
Exhibit is incorporated herein by reference.
(Q) Reference is made to Exhibit A of the company's Definitive Proxy
Statement used in connection with the Annual Meeting of Shareholders
held on May 23, 1994, which Exhibit is incorporated herein by
reference.
(R) Reference is made to the appropriate Exhibit of the company's report
on Form 10-K for the fiscal year ended December 31, 1993, which
Exhibit is incorporated herein by reference.
<PAGE>
30
(S) Reference is made to Exhibit 1 of the company's report on Form 8-A,
dated July 18, 1995, which Exhibit is incorporated herein by
reference.
(T) Reference is made to the appropriate Exhibit of the Company's
Definitive Proxy Statement used in connection with the Annual Meeting
of Shareholders held on May 22, 1996, which Exhibit is incorporated
herein by reference.
(U) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended March 31, 1997, which Exhibit is
incorporated herein by reference
(V) Reference is made to the appropriate Exhibit of the company's report
on Form 10-Q for the quarter ended September 30, 1996, which Exhibit
is incorporated herein by reference
(W) Reference is made to the appropriate Exhibit to the company's report
on Form 8-K, dated January 23, 1998, which Exhibit is incorporated
herein by reference.
<PAGE>
31
Report of Independent Auditors
Shareholders and Board of Directors
Invacare Corporation
We have audited the accompanying consolidated balance sheet of Invacare
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, cash flows and shareholders' equity for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index at Item 14 (a)(2).
These financial statements and schedule are the responsibility of the Company's
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 generally accepted auditing
standards. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with 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.
ERNST & YOUNG LLP
Cleveland, Ohio
March 27, 1998
<PAGE>
32
CONSOLIDATED STATEMENT OF EARNINGS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C>
Net sales $653,414 $619,498 $504,032
Cost of products sold 455,036 418,025 337,719
--------- --------- --------
Gross Profit 198,378 201,473 166,313
Selling, general and administrative expense 160,060 136,080 112,169
Non-recurring and unusual items * 29,861 - -
--------- -------- --------
Income from Operations 8,457 65,393 54,144
Net interest income (expense) (3,234) (1,625) (2,299)
--------- -------- --------
Earnings before Income Taxes 5,223 63,768 51,845
Income taxes 3,660 24,850 19,680
--------- -------- --------
Net Earnings $ 1,563 $ 38,918 $ 32,165
========= ======== ========
Net Earnings per Share - Basic $ .05 $ 1.33 $ 1.10
========= ========= ========
Weighted Average Shares Outstanding - Basic 29,569 29,332 29,128
========= ========= ========
Net Earnings per Share - Assuming Dilution $ .05 $ 1.28 $ 1.07
========= ========== ========
Weighted Average Shares Outstanding -
Assuming Dilution 30,374 30,393 30,077
========= ========== ========
</TABLE>
* Excludes amounts included in cost of products sold and selling, general and
administrative expenses of $3,391 and $27,787 respectively.
See notes to consolidated financial statements.
<PAGE>
33
CONSOLIDATED BALANCE SHEET
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- --------------
(In thousands)
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 5,696 $ 4,431
Marketable securities 3,501 3,569
Trade receivables, net 114,410 105,432
Installment receivables, net 49,298 51,995
Inventories 75,708 78,934
Deferred income taxes 18,855 7,181
Other current assets 7,743 7,178
------------ ----------
Total Current Assets 275,211 258,720
Other Assets 56,567 49,459
Property and Equipment, net 90,577 77,830
Goodwill, net 107,568 123,619
------------ ----------
Total Assets $529,923 $509,628
============ ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable $ 42,497 $ 40,723
Accrued expenses 59,998 50,900
Accrued income taxes 1,872 1,563
Current maturities of long-term obligations 5,186 4,582
------------ ---------
Total Current Liabilities 109,553 97,768
Long-Term Obligations 183,955 173,263
Shareholders' Equity
Preferred Shares (Authorized 300 shares; none outstanding) 0 0
Common Shares (Authorized 100,000 shares; 28,724 and
28,408 issued in 1997 and 1996, respectively) 7,182 7,103
Class B Common Shares (Authorized 12,000 shares;
1,438 and 1,442, issued and outstanding in
1997 and 1996, respectively) 359 360
Additional paid-in-capital 74,954 71,143
Retained earnings 167,649 167,561
Adjustments to shareholders' equity (6,506) (833)
Treasury shares (438 and 418 shares in
1997 and 1996, respectively) (7,223) (6,737)
------------ ----------
Total Shareholders' Equity 236,415 238,597
------------ ----------
Total Liabilities and Shareholders' Equity $529,923 $509,628
============ ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
34
CONSOLIDATED STATEMENT OF CASH FLOWS
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
-----------------------------------------
(In thousands)
<S> <C> <C>
Operating Activities
Net earnings $ 1,563 $ 38,918 $ 32,165
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Non-recurring unusual charge, (non cash) 40,226 - -
Depreciation and amortization 18,348 17,896 14,159
Provision for losses on trade and installment receivables 1,411 1,546 1,379
Provision for deferred income taxes (18,867) (596) (3,321)
Provision for other deferred liabilities 2,546 2,658 728
Changes in operating assets and liabilities:
Increase in trade receivables (13,265) (5,937) (10,028)
(Increase)/decrease in inventories (1,817) (16,395) 3,102
Increase in other current assets (1,911) (714) (2,681)
Increase/(decrease) in accounts payable 1,001 2,487 (1,427)
Increase/(decrease) in accrued expenses 8,700 (5,540) 10,373
------------------------------------------------
Net Cash Provided by Operating Activities 37,935 34,323 44,449
Investing Activities
Purchases of property and equipment (38,485) (22,553) (11,173)
Proceeds from sale of property and equipment 523 88 146
Installment contracts written (74,104) (65,241) (50,908)
Payments received on installment contracts 67,265 47,742 40,705
Marketable securities purchased (4,018) (3,416) (4,307)
Marketable securities sold 4,140 2,274 4,927
Business acquisitions, net of cash acquired (3,997) (24,860) (31,019)
(Increase)/decrease in other investments 4,316 (6,986) (2,246)
Increase in other long-term assets (5,394) (3,945) (3,865)
Other (3,283) 519 961
-------------------------------------------------
Net Cash Required for Investing Activities (53,037) (76,378) (56,779)
Financing Activities
Proceeds from revolving lines of credit and
long-term borrowings 79,169 103,872 67,057
Principal payments on revolving lines of credit,
long-term debt and capital lease obligations (64,993) (61,831) (58,942)
Proceeds from exercise of stock options 3,766 4,222 1,447
Payment of dividends and rights plan redemption (1,475) (1,457) (968)
Purchase of treasury stock 0 (2,250) 0
-------------------------------------------------
Net Cash Provided by Financing Activities 16,467 42,556 8,594
Effect of exchange rate changes on cash (100) (202) 509
-------------------------------------------------
Increase/(decrease) in cash and cash equivalents 1,265 299 (3,227)
Cash and cash equivalents at beginning of year 4,431 4,132 7,359
-------------------------------------------------
Cash and cash equivalents at end of year $ 5,696 $ 4,431 $ 4,132
=================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
35
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
---- ---- ----
Shares Amount Shares Amount Shares Amount
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Shares:
Balance at beginning of year 28,408 $ 7,103 24,589 $ 6,148 22,289 $ 5,573
Conversion of Class B Common Shares
to Common Shares 4 1 3,531 883 2,095 524
Issuance of Common Shares for acquisition 0 0 0 0 77 19
Exercise of stock options 312 78 288 72 128 32
-------------------------------------------------------------------------
Balance at end of year 28,724 $ 7,182 28,408 $ 7,103 24,589 $ 6,148
=========================================================================
Class B Common Shares:
Balance at beginning of year 1,442 $ 360 4,973 $ 1,243 7,068 $ 1,767
Conversion of Class B Common Shares
to Common Shares (4) (1) (3,531) (883) (2,095) (524)
-------------------- ----------------------------------------------------
Balance at end of year 1,438 $ 359 1,442 $ 360 4,973 $ 1,243
=========================================================================
Additional Paid-In-Capital:
Balance at beginning of year $ 71,143 $ 66,890 $ 63,671
Issuance of Common Shares for acquisition 0 0 1,804
Exercise of stock options 3,811 4,253 1,415
-------------------------------------------------------------------------
Balance at end of year $ 74,954 $ 71,143 $ 66,890
=========================================================================
Retained Earnings:
Balance at beginning of year $167,561 $130,100 $ 99,086
Net earnings 1,563 38,918 32,165
Dividend of $.05000, $.05000 and $.03750 per Common
Share in 1997, 1996 and 1995, respectively (1,475) (1,457) (1,078)
Redemption of 1991 rights plan 0 0 (73)
-------------------------------------------------------------------------
Balance at end of year $167,649 $167,561 $ 130,100
=========================================================================
Adjustments to Shareholders' Equity:
Balance at beginning of year $ (833) $ 993 $ (2,196)
Foreign currency translation adjustment (6,074) (2,256) 2,965
Marketable securities holding gain/(loss), net of tax 401 430 224
-------------------------------------------------------------------------
Balance at end of year $ (6,506) $ (833) $ 993
=========================================================================
Treasury Shares:
Balance at beginning of year (418) $ (6,737) (311) $ (4,055) (303) $(3,894)
Repurchase of treasury shares (20) (486) (107) (2,682) (8) (161)
-------------------------------------------------------------------------
Balance at end of year (438) $ (7,223) (418) $ (6,737) (311) $(4,055)
=========================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES
Nature of Operations: Invacare Corporation and its subsidiaries (the
"company") is the leading home medical equipment manufacturer in the world based
on its distribution channels, the breadth of its product line and sales. The
company designs, manufactures and distributes an extensive line of medical
equipment for the home health care, retail and extended care markets. The
company's products include standard manual wheelchairs, motorized and
lightweight prescription wheelchairs, seating and positioning systems, motorized
scooters, patient aids, home care beds, low air loss therapy products, home
respiratory and ambulatory infusion pumps.
Principles of Consolidation: The consolidated financial statements include the
accounts of the company and are prepared in conformity with generally accepted
accounting principles 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. Certain foreign
subsidiaries are consolidated using a November 30 fiscal year end. All
significant intercompany transactions are eliminated.
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, 1997.
Recently Issued Accounting Pronouncements: In June 1997, the Financial
Accounting Standards Board issued SFAS No. 130, Reporting Comprehensive Income,
which requires that an enterprise classify items of other comprehensive income,
as defined therein, by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The company intends to comply with the provisions of this statement upon
its required adoption in the first quarter of 1998, and does not anticipate a
significant impact to the financial statements.
Also in June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
statement establishes standards for reporting financial and descriptive
information about operating segments. Under SFAS No. 131, information pertaining
to the company's operating segments will be reported on the basis that is used
internally for evaluating segment performance and making resource allocation
determinations. Management is currently studying the potential effects of
adoption of this statement, which is required in 1998.
Marketable Securities: Current marketable securities are stated at market value,
and 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
shareholders' equity.
Inventories: Inventories are stated at the lower of cost or market with cost
principally determined for domestic manufacturing inventories by the last-in,
first-out (LIFO) method. Market costs are based on the lower of replacement cost
or estimated net realizable value. Non-domestic inventories and domestic
finished products purchased for resale ($46,255,000 and $52,188,000 at December
1997 and 1996, respectively) are stated at the lower of cost or market with cost
determined by the first-in, first-out (FIFO) method.
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.
Estimated Liability for Future Warranty Cost: Generally, the company's products
are covered by warranties against defects in material and workmanship for
periods up to five years from the date of sale to the customer. Certain
components carry a lifetime warranty. A non-renewable warranty is also offered
on various products for a maximum period of five years. A provision for
estimated warranty cost is recorded at the time of sale. The provision is an
estimation based upon actual experience.
<PAGE>
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES--Continued
Research and Development: Research and development costs are expensed as
incurred. The company's annual expenditures for product development and
engineering were approximately $12,706,000, $11,060,000 and $9,002,000 for 1997,
1996 and 1995, respectively.
Revenue Recognition: The company recognizes revenue when the product is
shipped and provides an appropriate allowance for estimated returns and
adjustments.
Income Taxes: The company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities in 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.
Net Earnings Per Share: Effective December 31, 1997, the Company adopted
SFAS No. 128, "Earnings Per Share". Accordingly, basic earnings per share was
computed based on the weighted-average number of Common Shares and Class B
Common Shares outstanding during the year. Diluted earnings per share was
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. All earnings per share amounts shown for periods prior to
adoption have been restated to conform to the provisions of SFAS No. 128.
Foreign Currency Translation: Substantially all the assets and liabilities
of the company's 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 the
balance sheet caption "Adjustments to shareholders' equity".
Goodwill: The excess of the aggregate purchase price over the fair value of net
assets acquired is amortized by use of the straight line method for periods
ranging from 20 to 40 years. The accumulated amortization was $13,707,000 and
$10,743,000 at December 31, 1997 and 1996, respectively. The carrying value of
goodwill is reviewed at each balance sheet date to determine whether goodwill
has been impaired. If this review indicates that goodwill will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, the company's carrying value of
the goodwill would be reduced by the estimated shortfall of cash flows at such
time an impairment in value of goodwill has occurred. During 1997, $8,452,000 of
goodwill was written off as part of the non-recurring and unusual charge. Based
on the company's review as of December 31, 1997, no other impairment of goodwill
was evident.
Advertising: Advertising costs are expensed as incurred and included in
"Selling, general and administrative expenses". Advertising expenses amounted to
$10,419,000, $12,049,000 and $8,972,000 for 1997, 1996 and 1995, respectively.
<PAGE>
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
RECEIVABLES
Trade receivables are net of allowances for doubtful accounts of $6,565,000
and $4,405,000 in 1997 and 1996, respectively.
Installment receivables as of December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
Long- Long-
(In thousands) Current Term Total Current Term Total
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Installment receivables $61,020 $25,777 $86,797 $57,547 $24,598 $82,145
Less:
Unearned interest (4,585) (2,264) (6,849) (4,828) (2,877) (7,705)
Allowance for doubtful accounts (7,137) (1,477) (8,614) (724) (349) (1,073)
--------------------------------------------------------------------------
$49,298 $22,036 $71,334 $51,995 $21,372 $73,367
==========================================================================
</TABLE>
INVENTORIES
Inventories as of December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------------------------------
(In thousands)
<S> <C> <C>
Raw materials $ 23,704 $ 25,137
Work in process 11,676 12,022
Finished goods 40,328 41,775
--------------------------------
$ 75,708 $ 78,934
================================
</TABLE>
Current cost exceeds the LIFO value of inventories by approximately
$482,000 and $431,000 at December 31, 1997 and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---------------------------------
(In thousands)
<S> <C> <C>
Land, buildings and improvements $ 40,026 $ 35,779
Machinery and equipment 111,959 104,297
Furniture and fixtures 9,649 10,693
Leasehold improvements 6,979 7,330
--------------------------------
168,613 158,099
Less allowance for depreciation 78,036 80,269
--------------------------------
$ 90,577 $ 77,830
================================
</TABLE>
<PAGE>
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
CURRENT LIABILITIES
Accrued expenses as of December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---------------------------------
(In thousands)
<S> <C> <C>
Accrued salaries and wages $17,387 $ 19,715
Accrued warranty cost 6,385 6,052
Accrued product liability, current portion 1,389 1,354
Other accrued items 24,210 21,594
Litigation settlement 4,500 -
Plant relocation 6,127 2,185
--------------------------------
$ 59,998 $ 50,900
================================
</TABLE>
ACQUISITIONS
In May, 1997 the company purchased all of the outstanding shares of Silcraft
Corporation. Silcraft manufactures and distributes bath tubs, barrier-free
showers and patient lifts for use primarily in extended-care facilities. In
October, 1997 the company purchased all of the outstanding shares of Allied
Medical Supply Corporation, a distributor of medical soft goods and disposables.
In February, 1996 the company purchased all the outstanding shares of Fabriorto,
Lda, a Portuguese manufacturer and distributor of manual and power wheelchairs,
beds and walking aids and purchased all the outstanding shares of
Frohock-Stewart, Inc., a manufacturer of personal care products distributed
mainly through the retail channel. In March, 1996 the company purchased all the
outstanding shares of Healthtech Products, Inc., a manufacturer of extended care
beds and patient-room furniture for the institutional market. In June, 1996 the
company acquired all the outstanding shares of Production Research Corporation
(PRC). PRC is a distributor/supplier of after-market parts for the home medical
equipment market. In July, 1996 the company purchased all of the outstanding
shares of Roller Chair Pty. Ltd., an Australian manufacturer and distributor of
custom power wheelchairs.
In December, 1994 the company purchased the remaining outstanding shares of
Beram AB, a Swedish marketer and distributor of prescription wheelchairs and
rehab products. The company previously held a minority interest in Beram. In
May, 1995 the company purchased the assets of PinDot Products, a manufacturer
and distributor of custom seating systems, and purchased all the outstanding
shares of Patient Solutions, Inc., a manufacturer and distributor of an
ambulatory infusion pump that accommodates intravascular feeding, intermittent
antibiotic therapy, patient-controlled analgesia and chemotherapy. In June, 1995
the company purchased the outstanding shares of Bencraft Limited, a United
Kingdom manufacturer of manual and power wheelchairs and supplier of specialty
seating systems and purchased the assets and business of Thompson Rehab from
Salmond Smith Biolab Limited. Thompson Rehab is New Zealand's leading
manufacturer of manual and power wheelchairs. In September, 1995 the company
purchased the outstanding shares of Group Pharmaceutical Limited, a New Zealand
marketer and distributor of prescription wheelchairs and other products for
people with disabilities and purchased the outstanding shares of Medical
Equipment Repair Service, Inc., a supplier of aftermarket parts and repair
services for the respiratory equipment market. In September, 1995 for cash and
company stock, the company also acquired the outstanding shares of Paratec AG, a
Swiss company that manufactures manual wheelchairs which are sold under the
Kuschall trademark. In November, 1995 the company purchased the outstanding
shares of Special Health Systems Ltd., a Canadian designer and manufacturer of
seating and positioning systems for wheelchairs.
The operating results of all acquisitions are included in the company's
consolidated results of operations from the respective dates of acquisition. The
above transactions have been accounted for by the purchase method of accounting
and the pro forma effects are not material.
<PAGE>
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
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 10 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, 1997, 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 2005. Lease expenses were
approximately $6,978,000 in 1997, $6,071,000 in 1996 and $4,725,000 in 1995.
Future minimum operating lease commitments as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
Year Amount
--------------------------------
(In thousands)
<S> <C>
1998 $ 5,604
1999 4,143
2000 2,515
2001 1,354
2002 1,141
Thereafter 902
---------------------------------
Total Future Minimum Lease Payments $ 15,659
=================================
</TABLE>
The amount of buildings and equipment capitalized in connection with capital
leases was $4,301,000 and $4,680,000 at December 31, 1997 and 1996,
respectively. At December 31, 1997 and 1996, accumulated amortization was
$1,851,000 and $1,545,000, respectively.
RETIREMENT AND BENEFIT PLANS
Substantially all full-time salaried and hourly domestic employees are included
in two profit sharing plans sponsored by the company. The company makes matching
contributions up to 66.7% of the first 3% of employees contributions and may
make discretionary contributions to the domestic plans based on an annual
resolution of the Board of Directors. The company has no requirement to make the
discretionary contribution. The contributions can either be in the form of cash
or property to the Profit Sharing Plan or in the form of cash, Common Shares or
property to the Employee Stock Bonus Trust and Plan. Cash contributions to the
Employee Stock Bonus Trust and Plan are used to purchase the company's Common
Shares on the open market.
The company introduced a 401(k) Benefit Equalization Plan effective March 1,
1994 covering certain employees, which provides for retirement payments so that
the total retirement payments equal amounts that would have been payable from
the company's principal retirement plans if it were not for limitations imposed
by income tax regulations.
Contribution expense for the above plans in 1997, 1996 and 1995 was
$3,925,000, $3,703,000 and $2,406,000, respectively.
In 1995, the company introduced a non-qualified defined benefit Supplemental
Executive Retirement Plan (SERP) effective May 1, 1995 for certain key
executives to recapture benefits lost due to governmental limitations on
qualified plan contributions. The projected benefit obligation related to this
unfunded plan was $20,016,000 at December 31, 1997.
Pension expense for the plan was $923,000 in 1997 and $748,000 in 1996.
The company utilizes a Voluntary Employee Benefit Association (VEBA) to provide
for the payment of self-funded employee health benefits for current employees.
Contribution expense for each of 1997, 1996, and 1995 was $1,400,000.
<PAGE>
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SHAREHOLDERS' EQUITY TRANSACTIONS
At December 31, 1997, the company had 100,000,000 authorized Common Shares,
without par value, and 12,000,000 authorized Class B Common Shares, without par
value. In general, the Common Shares and the Class B Common Shares 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.
At December 31, 1997, the company had 300,000 shares of Serial Preferred Shares
authorized, none of which were issued or outstanding. Serial Preferred Shares
are entitled to one vote per share.
During 1994, the Board of Directors adopted and the Shareholders approved the
1994 Performance Plan (the "1994 Plan"). The 1994 Plan provides for the issuance
of up to 2,000,000 Common Shares in connection with stock options and other
awards granted under the Plan. The 1994 Plan allows the Compensation Committee
(the "Committee") to grant incentive stock options, non-qualified stock options,
stock appreciation rights, and stock awards (including the use of restricted
stock). The Committee has the authority to determine the employees that will
receive awards, the amount of the awards and the other terms and conditions of
the awards. Payments of the stock appreciation rights may be made in cash,
Common Shares or a combination thereof. There were no stock appreciation rights
outstanding at December 31, 1997, 1996 or 1995. During 1997, the Committee,
under the 1994 Plan, granted 582,250 non-qualified stock options for a term of
ten years at 100% of the fair market value of the underlying shares on the date
of grant.
The company also has a Stock Option Plan for non-employee Directors. The plan
was approved May 27, 1992 and provides for the granting of up to a maximum of
100,000 options to eligible Directors. Directors will receive grants with
exercise prices at 100% of the fair market value of the company's stock on the
date of grant. At December 31, 1997 there were 5,883 options outstanding under
this plan. During 1997, no options were granted under this plan.
The Plans have provisions for the cashless exercise of options. Under these
provisions the company acquired 19,951 treasury shares for $486,000 in 1997,
16,430 treasury shares for $432,000 in 1996 and 8,350 treasury shares for
$161,000 in 1995.
As of December 31, 1997, an aggregate of 8,304,512 shares was reserved for
conversion of Class B Common Shares, future rights (as defined below) and the
exercise and future grant of options.
The following summarizes the stock option transactions and related information
under the company's stock option plans:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1997 Price 1996 Price 1995 Price
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at January 1, 2,758,587 $12.12 2,691,902 $9.81 2,357,304 $7.95
Granted 582,250 25.13 401,908 24.77 487,600 18.47
Exercised (311,575) 6.22 (288,101) 7.27 (127,973) 6.78
Canceled (61,500) 23.01 (47,122) 17.53 (25,029) 12.48
------------------------------------------------------------------------------
Options outstanding at December 31, 2,967,762 $15.05 2,758,587 $12.12 2,691,902 $9.81
==============================================================================
Options price range at December 31, $ 2.13 $ 2.13 $ 1.56
to to to
$ 26.75 $ 26.75 $ 25.25
Options exercisable at December 31, 1,872,552 1,793,289 1,651,406
Options available for grant at
December 31, 572,839 1,095,239 1,462,897
</TABLE>
<PAGE>
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the company's stock option plans been
determined based on the fair value at the grant date for awards in 1997 and
1996, consistent with the provisions of SFAS 123, the company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(In thousands except per share data) 1997 1996 1995
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings - as reported $ 1,563 $ 38,918 $ 32,165
Net earnings/(loss) - pro forma (234) $ 37,725 $ 31,617
Earnings per share as reported - basic $ .05 $ 1.33 $ 1.10
Earnings per share as reported - assuming dilution $ .05 $ 1.28 $ 1.07
Pro forma earnings per share - basic $ (.01) $ 1.29 $ 1.09
Pro forma earnings per share - assuming dilution $ (.01) $ 1.24 $ 1.05
</TABLE>
The assumption regarding the stock options issued in 1997 and 1996 was that 25%
of such options vested in the year following issuance. The stock options awarded
during the year provided a four year vesting period whereby options vest equally
in each year. SFAS 123's pro forma disclosure is prospective, as retroactive
application is prohibited. Therefore, since compensation expense associated with
an award is recognized over the vesting period, pro forma net income may not be
representative of compensation expense in future years, when the effect of the
amortization of multiple awards would be reflected in the income statement.
Furthermore, current 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 used for grants in 1997: dividend yield of 1.48%; expected
volatility of 33.9%; risk-free interest rate of 6.2%; and an expected life of
6.5 years. The weighted-average present value of options granted during the
year, per the Black-Scholes model based on the expected exercise year of 2004,
is $9.69.
The plans provide that shares granted come from the company's authorized but
unissued or reacquired common stock. Pursuant to the plan, the Committee has
established that the 1997 grants may not be exercised within one year from the
date of grant and options must be exercised within ten years from the date
granted. The weighted-average remaining contractual life of options outstanding
at December 31, 1996 is 6.54 years.
On July 7, 1995, the company adopted a Rights Plan whereby each holder of a
Common Share and Class B Common Share received one purchase right (the "Rights")
for each share owned. Under certain conditions, each Right may be exercised to
purchase one-tenth of one Common Share at a price of $8 per one-tenth of a
share. The Rights may only be exercised 10 days after a third party has acquired
30% or more of the company's outstanding voting power or 10 days after a third
party commences a tender offer for 30% or more of the voting power (an
"Acquiring Party"). In addition, if an Acquiring Party merges with the company
and the company's Common Shares are not changed or exchanged, or if an Acquiring
Party engages in one of a number of self-dealing transactions, each holder of a
Right (other than the Acquiring Party) will have the right to receive that
number of Common Shares or similar securities of the resulting entity having a
market value equal to two times the exercise price of the Right. The company may
redeem the Rights at a price of $.005 per right at any time prior to 10 days
following a public announcement that an Acquiring Party has acquired beneficial
ownership of 30% or more of the company's outstanding voting power, and in
certain other circumstances as approved by the Board of Directors. The Rights
will expire on July 7, 2005. Coincident with adoption of the Plan, the company
redeemed Rights outstanding under a prior plan at the price of $.005 per Right.
<PAGE>
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
NET INCOME PER COMMON SHARE
Net income per common share has been computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 adopted for the quarter ended
December 31, 1997. All net income per share amounts shown for periods prior to
adoption have been restated to conform to the provisions of SFAS No. 128. For
the period ended December 31, 1997, there was no effect on net income per share
from SFAS No. 128. Net income per share-basic increased by $.05 and $.03 for the
periods ended December 31, 1996 and 1995 respectively, over the previous method
of computing net income per share.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------
(In thousands except per share data)
<S> <C> <C> <C>
Basic
Average common shares outstanding 29,569 29,332 29,128
Net income $ 1,563 $ 38,918 $ 32,165
Net income per common share $ .05 $ 1.33 $ 1.10
Diluted
Average common shares outstanding 29,569 29,332 29,128
Stock options 805 1,061 949
---------------------------------------------------------
Average common shares assuming dilution 30,374 30,393 30,077
Net income $ 1,563 $ 38,918 $ 32,165
Net income per common share $ .05 $ 1.28 $ 1.07
</TABLE>
LONG-TERM OBLIGATIONS
Long-term obligations as of December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------------------------------
(In thousands)
<S> <C> <C>
$25,000,000 senior notes at 7.45%, mature in February 2003 $ 21,429 $ 25,000
Revolving credit agreement ($200,000,000 multi-currency) at .14% to
.32% above local interbank offered rates 0 135,723
Revolving credit agreement ($425,000,000 multi-currency) at .185% to .375%
above local interbank offered rates, expires October 31, 2002 147,231 0
Notes payable to banks and other third parties 3,346 1,474
Notes and mortgages payable, secured by buildings and equipment 3,064 3,432
Capitalized lease obligations 2,466 3,150
Product liability 5,383 4,774
Other 6,222 4,292
--------------------------------
189,141 177,845
Less current maturities of long-term obligations 5,186 4,582
--------------------------------
$183,955 $173,263
================================
</TABLE>
<PAGE>
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
In 1993, the company completed a private placement of $25,000,000 in senior
notes at 7.45% which contain covenants similar to the revolving credit agreement
described below. At December 31, 1997, $79,378,000 of retained earnings is
available for dividends. The notes are due in 2003 and require principal
payments of $3,571,429 per year beginning in 1997.
During 1997, the company terminated the $200,000,000 multi-currency revolving
credit agreement and entered into a $425,000,000 multi-currency revolving credit
agreement with a group of commercial banks, which expires on October 31, 2002,
or such later date as mutually agreed upon by the company and the banks. The
borrowing rates under the agreement are determined based on the funded debt to
capitalization ratio of the company as defined in the agreement and range from
.185% to .375% above the various interbank offered rates. The agreement requires
the company to maintain certain conditions with respect to net worth, funded
debt to capitalization, and interest coverage as defined in the agreement.
In September 1997, the company fixed the interest rate on 7,500,000 of its New
Zealand dollar borrowings through an interest rate swap agreement. The effect of
the swap is to exchange a short-term floating interest rate for a fixed rate of
7.30% for a five year term. As of December 31, 1997 and 1996, the weighted
average floating interest rate on the New Zealand dollar debt was 8.10% and
9.97%, respectively.
In July 1997, the company fixed the interest rate on 50,000,000 of its French
franc borrowings through an interest rate swap agreement. The effect of the swap
is to exchange a short-term floating interest rate for a fixed rate of 4.14% for
a three year term. As of December 31, 1997 and 1996, the weighted average
floating interest rate on the French franc debt was 3.66% and 4.43%,
respectively.
In May 1997, the company fixed the interest rate on $15,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. Each agreement is
for $7,500,000 U.S. dollars. The effect of the swaps is to exchange a short-term
floating interest rate for a fixed rate of 6.18% for a two year term, extendible
for an additional year at the counterparty's option in one agreement and 6.285%
for a three year term in the other agreement. As of December 31, 1997 and 1996,
the weighted average floating interest rate on the U.S. dollar debt was 5.90%
and 5.82%, respectively.
In August 1996, the company fixed the interest rate on 7,500,000 of its New
Zealand dollar borrowings through an interest rate swap agreement. The effect of
the swap is to exchange a short-term floating interest rate for a fixed rate of
8.75% for a two year term.
In May 1995, the company fixed the interest rate on $10,000,000 of its U.S.
dollar borrowings through two interest rate swap agreements. Each agreement is
for $5,000,000 U.S. dollars. The effect of the swaps is to exchange a short-term
floating interest rate for a fixed rate of 6.1725% for a three year term in one
agreement and 6.38% for a five year term in the other agreement.
Also in May 1995, the company fixed the interest rate on 7,500,000 of its
Canadian dollar borrowings through an interest rate swap agreement. The effect
of the swap is to exchange a short-term floating interest rate for a fixed rate
of 7.245% for a three year term. As of December 31, 1997 and 1996, the weighted
average floating interest rate on the Canadian dollar debt was 3.76% and 5.29%
respectively.
In March 1993, the company fixed the interest rate on 50,000,000 of its French
franc borrowings through an interest rate swap agreements. The effect of the
swap is to exchange a short-term floating interest rate for a fixed rate of
7.48% for a five-year term.
Notes payable to banks and other third parties consists of borrowings by the
company and its subsidiaries under term lending arrangements for certain assets
or licensing or service contracts.
The notes and mortgages payable financed the purchase of certain buildings and
equipment which secure the obligations. The notes and mortgages payable bear
interest at rates from 4.3% to 10.4 % and mature through 2003.
The capital leases at December 31, 1997 are principally for a manufacturing
facility and computer systems, with payments due through 2007.
<PAGE>
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The company is self-insured for a portion of its product liability and
certain other liability exposures. Product liability for domestically
manufactured products is insured through the company's captive insurance
company, which insures the first $2,000,000 per claim or annual policy aggregate
losses of $3 million. The company also has additional layers of coverage
insuring up to $78,000,000 in annual aggregate losses arising from individual
losses that exceed $2,000,000 or annual policy aggregate losses of $3 million of
the company's domestic product liability exposure.
The aggregate minimum combined maturities of long-term obligations are
approximately $5,186,000 in 1998, $5,452,000 in 1999, $5,688,000 in 2000,
$5,781,000 in 2001, $162,612,000 in 2002 and $4,421,000 thereafter. Interest
paid on borrowings was $10,612,000, $10,213,000 and $8,982,000 in 1997, 1996 and
1995, respectively.
INCOME TAXES
Earnings/(loss)before income taxes consist of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Domestic $ 10,734 $58,182 $46,062
Foreign (5,511) 5,586 5,783
-----------------------------------------------
$ 5,223 $63,768 $51,845
===============================================
</TABLE>
The company has provided for income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $18,030 $19,840 $16,340
State 2,800 3,800 3,490
Foreign 1,250 2,370 2,980
-----------------------------------------------
22,080 26,010 22,810
Deferred:
Federal (13,320) (1,330) (1,300)
State (2,400) 0 0
Foreign (2,700) 170 (1,830)
------------------------------------------------
(18,420) (1,160) (3,130)
------------------------------------------------
Income Taxes $ 3,660 $24,850 $19,680
================================================
</TABLE>
At December 31, 1997, the company had foreign tax loss carryforwards of
approximately $2,100,000 of which $1,900,000 are non-expiring and $200,000
expire between 2000 and 2003.
The company made income tax payments of $19,907,000, $26,686,000 and
$19,528,000 during the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
A reconciliation to the effective income tax rate from the federal statutory
rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of
federal income tax benefit 5.0 3.9 4.4
Tax credits (23.0) (1.9) (1.9)
Goodwill 59.3 1.7 1.6
Other, net (6.2) 0.3 (1.1)
-------------------------------------------------
70.1% 39.0% 38.0%
=================================================
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------
(In thousands)
<S> <C> <C>
Current deferred income tax assets, net:
Bad debt $ 4,030 $ 1,520
Warranty 1,656 1,369
Inventory 1,988 684
Other accrued expenses and reserves 4,442 451
State and local taxes 1,387 1,305
Litigation reserves 2,258 0
Compensation and benefits 3,347 1,703
Product liability 289 191
Loss carryforwards 36 408
Other, net (578) (450)
---------------------------
$ 18,855 $ 7,181
---------------------------
Long-term deferred income tax assets (liabilities), net:
Fixed assets $ 1,653 $(1,877)
Product liability 1,155 717
Loss carryforwards 726 1,051
Compensation and benefits 1,645 868
State and local taxes 2,400 0
Other, net (417) (447)
$ 7,162 $ 312
---------------------------
Net Deferred Income Taxes $ 26,017 $ 7,493
===========================
</TABLE>
RELATED PARTY TRANSACTIONS
The company purchased 90,000 shares of Invacare Common Stock at $25.00 per share
in 1996, which approximated the fair value at time of purchase, from a
charitable trust in which the Chairman and Chief Executive Officer of the
company has a reversionary interest. The total cost of the shares was $2,250,000
and was added to the treasury shares of the company.
<PAGE>
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
(In thousands, except per share data)
1997 March 31, June 30, September 30,* December 31,
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $151,524 $ 164,992 $ 166,144 $ 170,754
Gross profit 44,218 51,488 49,570 53,102
Earnings before income taxes 11,830 16,417 (28,620) 5,596
Net earnings/(loss) 7,220 10,017 (19,060) 3,386
Net earnings per share - basic .24 .34 (.64) .11
Net earnings per share - assuming dilution .24 .33 (.64) .11
<CAPTION>
1996 March 31, June 30, September 30, December 31,
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 134,461 $ 159,169 $ 158,146 $ 167,722
Gross profit 41,627 51,355 53,204 55,287
Earnings before income taxes 9,937 15,898 17,446 20,487
Net earnings 6,062 9,698 10,646 12,512
Net earnings per share - basic .21 .33 .36 .43
Net earnings per share - assuming dilution .20 .32 .35 .41
</TABLE>
* The company has restated the previously issued third quarter 1997
financial statements. The restatement was issued to reflect a reduction in the
non-recurring and unusual charge taken in the third quarter, to reallocate a
portion of the charge to the fourth quarter, and to reflect changes in estimates
.
BUSINESS SEGMENTS
The company operates in one business segment, durable medical equipment.
Geographic information for each of the three years ended December 31, is as
follows
<TABLE>
<CAPTION>
Other Total
North North
Domestic American American European Total
------------------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C> <C>
1997
Net sales $ 478,040 $ 49,697 $ 527,737 $ 125,677 $ 653,414
Earnings/(loss)before income taxes (a) 12,038 2,098 14,136 (8,913) 5,223
Assets 368,424 55,876 424,300 105,623 529,923
Liabilities 195,017 43,077 238,094 55,414 293,508
1996
Net sales $ 435,171 $ 49,557 $ 484,728 $ 134,770 $ 619,498
Earnings before income taxes 56,603 3,507 60,110 3,658 63,768
Assets 325,978 60,759 386,737 122,891 509,628
Liabilities 155,507 47,864 203,371 67,660 271,031
1995
Net sales $ 353,340 $ 34,154 $ 387,494 $ 116,538 $ 504,032
Earnings before income taxes 46,930 (2,842) 44,008 7,757 51,845
Assets 227,003 56,974 283,977 124,773 408,750
Liabilities 96,129 43,718 139,847 67,584 207,431
</TABLE>
(a) Earnings before income taxes in 1997 include a non-recurring and unusual
charge which reduced Domestic, Other North American and European
earnings by $49,648, $1,217 and $10,174, respectively.
<PAGE>
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
The operations of the company's Mexican facility are treated as domestic for
segment reporting purposes. Substantially all of the products manufactured at
the Mexican facility are sold to customers located in the United States.
The results of the company's Canadian, New Zealand and Australian operations are
included in Other North American operations for segment reporting purposes. A
significant portion of the New Zealand operations represent components used in
products manufactured by the company's North American facilities.
Eliminated from above net sales for 1997, 1996 and 1995 were $11,490,000,
$13,122,000 and $11,296,000, respectively, of sales by North American
subsidiaries to European subsidiaries and $747,000, $883,000 and $1,005,000,
respectively, of sales by European subsidiaries to North American subsidiaries.
Sales between geographic areas are based on the costs to manufacture plus a
reasonable profit element.
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. To further
assist dealers in reducing their cash requirements for inventory and rental
equipment, the company provides various financing options for certain types of
products through Invacare Credit Corporation "ICC". In a typical financing
arrangement, the company sells the equipment on a financing contract to the
dealer for periods ranging from 6 to 51 months. The company also introduced a
revolving credit agreement, known as Invacard, which provides an additional
financing option to our dealer base. In addition, the majority of these
transactions are secured with a UCC-1 filing purchase money securities and/or
personal guarantees. At this time, all ICC note obligations are serviced and
managed by the company. The note obligations are not sold to third parties.
Substantially all of the company's receivables are due from health care and
medical equipment dealers located throughout the United States, Australia,
Canada, New Zealand and Europe. A significant portion of products sold to
dealers, both foreign and domestic, are ultimately funded through government
reimbursement programs such as Medicare and Medicaid. As a consequence, changes
in these programs can have an adverse impact on dealer liquidity and
profitability. Credit losses are provided for in the financial statements.
During 1997, due primarily to the effects of the Balanced Budget Act on Medicare
Reimbursements, a bad debt provision of $10,793,000 was recorded as part of the
non-recurring and unusual charge. There can be no assurance that further changes
in reimbursement programs will not lead to additional future losses.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:
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 majority of the
portfolio contains receivables with terms less than three years, of which a
large concentration is due in less than one year. The interest rates associated
with these receivables have not varied significantly over the past three years.
Management believes that after consideration of the credit risk, the net book
value of the installment receivables approximates market value.
Long-term debt: The carrying amounts of the company's borrowings under its
long-term revolving credit agreements approximate their fair value. Fair values
for the company's senior notes are estimated using discounted cash flow
analyses, based on the company's current incremental borrowing rate for similar
borrowing arrangements.
<PAGE>
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
Interest Rate Swaps: The company is a party to interest rate swap agreements
with off-balance sheet risk 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 floating rate payments
with fixed 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 company's interest rate
swaps are based on pricing models or formulas using current assumptions.
Other investments: The company has made other investments in limited
partnerships and non-marketable equity securities. These investments were
acquired in private placements and there are no quoted market prices or stated
rates of return. It is not practicable to estimate the fair value of these
investments because of the limited information available and because of the
significance of the cost to obtain an outside appraisal. The investments are
carried at their cost of $9,178,000 in 1997 and $10,384,000 in 1996 and are
accounted for using the cost method.
The carrying amounts and fair values of the company's financial instruments at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------------
( In thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,696 $ 5,696 $ 4,431 $ 4,431
Marketable securities 4,518 4,518 9,642 9,642
Installment receivables 71,334 71,334 73,367 73,367
Long-term debt (including current 175,070 175,549 165,629 165,622
maturities)
Interest rate swaps (fair value liability) - 356 - 768
</TABLE>
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 company does not use derivative financial
instruments for speculative purposes.
The gains and losses that result from the forward contracts are deferred and
recognized when the offsetting gains and losses for the identified transactions
are recognized. At December 31, 1997 and 1996, the gain resulting from forward
contracts was not material to the financial statements.
The following table represents the fair value of all outstanding forward
contracts at December 31, 1997 and 1996. The valuations are based on market
rates. All forward contracts noted below mature before May, 1998 and March, 1997
respectively.
<TABLE>
<CAPTION>
December 31, 1997
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
-------------------------------------- --- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
British pound $525 $ (1) $524
New Zealand dollar 1,670 75 1,745
U.S. dollar (2,250) 45 (2,205)
</TABLE>
<PAGE>
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31, 1996
Cost Market Value
U.S. dollar (In thousands) (Buy)/Sell Gain/(Loss) (Buy)/Sell
-------------------------------------- --- ------------------ --------------------- ---------------------
<S> <C> <C> <C>
Australian dollar $ 36 $ - $ 36
British pound 86 4 90
New Zealand dollar 1,000 12 1,012
New Zealand dollar (1,881) 2 (1,879)
</TABLE>
Non-Recurring and Unusual Charge: In 1997, the company announced a
non-recurring and unusual charge of 61,039,000 ($38,839,000 or $1.28 diluted per
share after tax) for the acceleration of certain strategic initiatives and other
items. The charge was recorded in accordance with the Financial Accounting
Standards Board's (FASB's) and the Securities and Exchange Commission's (SEC's)
accounting pronouncements, including the Emerging Issues Task Force (EITF) 94-3.
The charge included global manufacturing facility consolidations including the
termination of approximately 440 employees, the elimination of certain
non-strategic product lines, asset write downs related to global systems
initiatives, principally as a result of changes in project scope, an increase in
the company's bad debt reserve, other asset write-downs and an increase in
reserves for litigation.
The charge increased cost of products sold by approximately $3,391,000 and
selling, general and administrative expenses by approximately $27,787,000.
Management believes that this program will allow the company to more quickly
lower its operating cost structure in light of the current and projected
competitive environment. The program is anticipated to be substantially
completed in 1998.
The following table summarizes the non-recurring and unusual charge activity
through December 31, 1997:
<TABLE>
<CAPTION>
Amounts Balance
Charge Q3 1997 Charge Q4 1997 Total Charge Utilized as of December 31,
1997 Dec. 31, 1997 1997
------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Facility consolidations and elimination of
product lines 13,104,000 7,233,000 20,337,000 8,480,000 11,857,000
Systems initiatives 6,335,000 1,121,000 7,456,000 7,456,000 0
Provision for doubtful accounts 6,887,000 3,406,000 10,293,000 4,423,000 5,870,000
Asset write downs and litigation reserve 19,756,000 3,197,000 22,953,000 14,371,000 8,582,000
---------- --------- ---------- ------------ -----------
Total 46,082,000 14,957,000 61,039,000 34,730,000 26,309,000
========== ========== ========== ========== ==========
</TABLE>
SUBSEQUENT EVENT (UNAUDITED)
On December 17, 1997, Invacare Corporation entered into an Agreement and Plan of
Merger with Inva Acquisition Corp., a Massachusetts corporation and a
wholly-owned subsidiary of Invacare, and Suburban Ostomy Supply Co., Inc., a
Massachusetts corporation, providing for the acquisition by Invacare of all of
the stock of Suburban. Suburban was a NASDAQ-listed direct marketing wholesaler
of medical supplies and related products to the home health care industry.
Pursuant to the Merger Agreement, Inva Acquisition Corp. commenced a tender
offer on December 22, 1997 for all of the outstanding shares of common stock of
Suburban for $11.75 per share in cash. On January 23, 1998, Inva Acquisition
Corp. acquired approximately 99.5% of Suburban's outstanding shares pursuant to
the tender offer. Subsequently, on January 28, 1998, Suburban was merged with
and into Inva Acquisition Corp. with Inva Acquisition Corp. as the surviving
corporation. Inva Acquisition Corp. then changed its name to "Suburban Ostomy
Supply Co., Inc.". Effective upon consummation of the Merger, each remaining
share of Suburban common stock that was not tendered now represents the right to
receive $11.75 in cash. The shares of Suburban common stock have been de-listed
and de-registered and may no longer be transferred. The purchase price paid for
all of the equity of Suburban acquired pursuant to the Merger Agreement was
$131,826,000.
<PAGE>
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
Funds were obtained from cash on hand and from existing credit agreements.
Invacare and certain of its subsidiaries are parties to a five year Loan
Agreement dated November 18, 1997, with a group of lenders represented by NBD
Bank, as Agent and KeyBank National Association, as Co-Agent (the "Loan
Agreement"). The Loan Agreement established a revolving credit facility
providing Invacare with a maximum availability (including letters of credit) of
$360,000,000. The Loan Agreement was subsequently amended as of December 23,
1997 to increase the maximum availability to $425,000,000. Subsequent to year
end, the company completed a private placement of $100,000,000 in senior notes.
The proceeds were used to pay down revolving credit debt incurred to fund the
acquisition.
Suburban uses its equipment and other assets to direct market a wide range of
medical supplies and related products to the home health care industry. Invacare
intends to continue to utilize the assets acquired in this transaction in
substantially the same manner as they were employed prior to the acquisition.
Contingencies
In 1997, the company provided for potential settlements of several
intellectual property lawsuits that were diverting management's time and
attention. While the company believes it would eventually have been successful
in defending itself against these suits, the legal fees and distractions to
management lead to the decision to settle these suits. At the date of this
filing, the company settled three cases for a total of $8.4million.
<PAGE>
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
INVACARE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL.E
---------- -------- ------- ------- ------
ADDITIONS
Balance Charged Charged To Balance
At To Other At
Beginning Cost And Accounts Deductions- End Of
Description Of Period Expenses Describe Describe Period
- -----------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Deducted from asset accounts --
Allowance for doubtful accounts $5,478 $15,942 $ 75(C) $6,316(A) $15,179
Inventory obsolescence reserve 4,963 1,650 - 1,826(B) 4,787
Accrued warranty cost 6,052 4,931 - 4,598(B) 6,385
Accrued product liability 6,128 3,218 - 2,574(D) 6,772
Year Ended December 31, 1996
Deducted from asset accounts --
Allowance for doubtful accounts $4,771 $2,397 $ 183(C) $1,873(A) $5,478
Inventory obsolescence reserve 5,274 2,883 689(C) 3,883(B) 4,963
Accrued warranty cost 5,745 5,154 363(C) 5,210(B) 6,052
Accrued product liability 4,165 5,251 - 3,288(D) 6,128
Year Ended December 31, 1995
Deducted from asset accounts --
Allowance for doubtful accounts $4,540 $3,419 $ 163(C) $3,351(A) $4,771
Inventory obsolescence reserve 3,491 4,158 510(C) 2,885(B) 5,274
Accrued warranty cost 4,554 4,689 64(C) 3,562(B) 5,745
Accrued product liability 3,604 2,080 - 1,519(D) 4,165
</TABLE>
NOTE (A)--Uncollectible accounts written off, net of recoveries.
NOTE (B)--Amounts written off or payments incurred.
NOTE (C)--Amounts recorded due to acquisition of subsidiaries.
NOTE (D)--Loss and loss adjustment expense.
<PAGE>
1
Exhibit 21
1. Canyon Products Corporation, an Ohio corporation and wholly owned
subsidiary.*
2. Invacare (UK) Ltd., an English corporation and wholly owned
subsidiary, except for one share registered in the name of Mr. Kevin
Crumpler as nominee for Invacare Holdings Corporation.
3. Invacare Canada Inc., an Ontario corporation and wholly owned subsidiary.
4. Invacare Deutschland GmbH, a German corporation and wholly owned subsidiary.
5. Invacare Holdings Corporation, an Ohio corporation and wholly owned
subsidiary.
6. Invacare International Corporation, an Ohio corporation and wholly owned
subsidiary.
7. Invacare Respiratory Corporation, an Ohio corporation and wholly owned
subsidiary.
8. Invacare Trading company, Inc., a United States Territory of the
Virgin Islands corporation and wholly owned subsidiary.
9. Invamex, S.A. de C.V., a Mexican corporation and wholly owned subsidiary.
10.Invacare Credit Corporation, an Ohio corporation and wholly owned
subsidiary.
11.Invatection Insurance company, a Vermont corporation and wholly owned
subsidiary.
12.Mobilife Corporation, a Missouri corporation and wholly owned subsidiary.
13.Mobilite Corporation, a Florida corporation and wholly owned subsidiary.
14.Option 5 Inc., a Quebec corporation and wholly owned subsidiary.
15.Poirier Groupe Invacare, a French corporation and wholly owned subsidiary.
16.POK - Rollstuhle GmbH, a German corporation and wholly owned subsidiary.
17.Dynamic Controls Ltd., a New Zealand corporation and wholly owned
subsidiary.
18.Quantrix Consultants Ltd., a New Zealand corporation and wholly owned
subsidiary.
19.Controls Dynamic Ltd., an English corporation and wholly owned subsidiary.
20.Geomarine Systems Inc., a New York corporation and wholly owned subsidiary.
21.Sci Des Hautes Roches, a French partnership and wholly owned subsidiary.
22.Sci Des Roches, a French partnership and wholly owned subsidiary.
23.Mobilite Building Corporation, a Florida corporation and wholly owned
subsidiary.
24.Rehadap, S.A., a Spanish corporation and wholly owned subsidiary.
25.Genus Medical, Inc., a New York corporation and wholly owned subsidiary.
<PAGE>
2
26.Beram, AB, a Swedish corporation and wholly owned subsidiary.
27.Invacare Florida, a Delaware corporation and wholly owned subsidiary.
28.Patient Solutions, Inc., a Delaware corporation and wholly owned subsidiary.
29.Medical Equipment Repair Services, Inc., a Florida corporation and wholly
owned subsidiary.
30.Invacare New Zealand Limited, a New Zealand corporation and wholly owned
subsidiary.
31.Bencraft Limited, an English corporation and wholly owned subsidiary.
32.Kuschall Design AG, a Switzerland corporation and wholly owned subsidiary.
33.Healthtech, Inc., a Missouri corporation and wholly owned subsidiary.
34.Frohock Stewart, Inc., a Massachusetts corporation and wholly owned
subsidiary
35.Fabriorto Lda, a Portugal company and wholly owned subsidiary.
36.Production Research Corporation, a Maryland corporation and wholly owned
subsidiary.
37.Inva Acquisition Corporation, now renamed Suburban Osotmy Supply Company,
Inc.
- ---------------------
* "Wholly owned subsidiary" refers to indirect, as well as direct, wholly
owned subsidiaries.
<PAGE>
1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Forms S-8, No. 33-24619 dated October 10, 1988, No. 33-45993 dated February 24,
1992 and No. 33-87052 dated December 5, 1994) pertaining to the Invacare
Corporation stock option plans, of our report dated March 27, 1998, with respect
to the consolidated financial statements and schedule of Invacare Corporation
and Subsidiaries included in the Annual Report (Form 10-K) for the year ended
December 31, 1997.
ERNST & YOUNG LLP
Cleveland, Ohio
March 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,696
<SECURITIES> 3,501
<RECEIVABLES> 120,975
<ALLOWANCES> (6,565)
<INVENTORY> 75,708
<CURRENT-ASSETS> 275,211
<PP&E> 168,613
<DEPRECIATION> (78,036)
<TOTAL-ASSETS> 529,923
<CURRENT-LIABILITIES> 109,533
<BONDS> 0
0
0
<COMMON> 7,541
<OTHER-SE> 228,874
<TOTAL-LIABILITY-AND-EQUITY> 529,923
<SALES> 653,414
<TOTAL-REVENUES> 653,414
<CGS> 455,036
<TOTAL-COSTS> 455,036
<OTHER-EXPENSES> 189,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,234
<INCOME-PRETAX> 5,223
<INCOME-TAX> 3,660
<INCOME-CONTINUING> 1,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,563
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,431
<SECURITIES> 3,569
<RECEIVABLES> 105,432
<ALLOWANCES> (5,478)
<INVENTORY> 78,934
<CURRENT-ASSETS> 258,720
<PP&E> 158,099
<DEPRECIATION> (80,269)
<TOTAL-ASSETS> 509,628
<CURRENT-LIABILITIES> 97,768
<BONDS> 0
0
0
<COMMON> 7,463
<OTHER-SE> 231,134
<TOTAL-LIABILITY-AND-EQUITY> 509,628
<SALES> 619,498
<TOTAL-REVENUES> 619,498
<CGS> 418,025
<TOTAL-COSTS> 418,025
<OTHER-EXPENSES> 136,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,625
<INCOME-PRETAX> 63,768
<INCOME-TAX> 24,850
<INCOME-CONTINUING> 38,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,918
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,132
<SECURITIES> 2,437
<RECEIVABLES> 93,592
<ALLOWANCES> 4,771
<INVENTORY> 54,468
<CURRENT-ASSETS> 204,685
<PP&E> 133,473
<DEPRECIATION> (68,395)
<TOTAL-ASSETS> 408,750
<CURRENT-LIABILITIES> 84,936
<BONDS> 0
0
0
<COMMON> 7,391
<OTHER-SE> 193,928
<TOTAL-LIABILITY-AND-EQUITY> 408,750
<SALES> 504,032
<TOTAL-REVENUES> 504,302
<CGS> 337,719
<TOTAL-COSTS> 337,719
<OTHER-EXPENSES> 112,169
<LOSS-PROVISION> 1,379
<INTEREST-EXPENSE> 2,299
<INCOME-PRETAX> 51,845
<INCOME-TAX> 19,680
<INCOME-CONTINUING> 32,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,165
<EPS-PRIMARY> 1.07
<EPS-DILUTED> 1.07
</TABLE>
<PAGE>
1
THIS LOAN AGREEMENT, dated as of November 18, 1997 (as amended or
modified from time to time, this "Agreement"), is by and among INVACARE
CORPORATION, an Ohio corporation (the "Company"), each of the Subsidiaries of
the Company designated in Section 1.1 as a Borrowing Subsidiary (individually, a
"Borrowing Subsidiary" and collectively, the "Borrowing Subsidiaries") (the
Company and the Borrowing Subsidiaries may each be referred to as a "Borrower"
and, collectively, as the "Borrowers"), Invacare Corporation, as treasury
manager for the Borrowers (the "Treasury Manager") and the Banks set forth on
the signature pages hereof (collectively, the "Banks" and individually, a
"Bank") and NBD BANK, a Michigan banking corporation, as agent for the Banks (in
such capacity, the "Agent") and KEYBANK NATIONAL ASSOCIATION, a national banking
association, as co-agent for the Banks (in such capacity, the "Co-Agent").
INTRODUCTION
A. The Borrowers, certain banks named therein and NBD Bank, as agent
for such banks, entered into a Loan Agreement dated as of December 20, 1994, as
amended and modified (the "1994 Loan Agreement"), in which such banks agreed to
make loans and other credit available to the Borrowers.
B. The Company, certain banks named therein, NBD Bank, as agent for
such banks, and KeyBank National Association, as co-agent for such banks,
entered into a Loan Agreement dated as of February 27, 1997, as amended and
modified (the "1997 Loan Agreement"), in which such banks agreed to make loans
and other credit available to the Company. The 1994 Loan Agreement and the 1997
Loan Agreement may be referred to collectively as the "Existing Loan
Agreements".
C. The parties hereto wish to continue the existing credit
relationships between them by consolidating, amending and restating the Existing
Loan Agreements rather than entering into a new and unrelated loan agreement.
D. Pursuant to the terms of this Agreement, the Borrowers desire to
obtain a revolving credit facility, including letters of credit, in the
aggregate principal amount of $360,000,000 (or the equivalent thereof in any
other Permitted Currency), in order to refinance certain existing indebtedness
under the Existing Loan Agreements and provide funds for their general corporate
purposes, and the Banks are willing to establish such a credit facility in favor
of the Borrowers on the terms and conditions herein set forth.
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree that the Existing Loan Agreements shall be
amended and restated as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS
1.1 Certain Definitions. As used herein the following terms shall have the
following respective meanings:
"Acquisition" shall mean any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Company or any of its Subsidiaries (i) acquires any going business or all or
substantially all of the assets of any firm, corporation or limited liability
company, or division thereof, whether through purchase of assets, merger or
otherwise or (ii) directly or indirectly acquires (in one transaction or as the
most recent transaction in a series of transactions) at least a majority (in
number of votes) of the securities of a corporation which have ordinary voting
power for the election of directors (other than securities having such power
only by reason of the happening of a contingency) or a majority (by percentage
or voting power) of the outstanding ownership interests of a partnership or
limited liability company.
"Advance" shall mean any Loan and any Letter of Credit Advance.
"Affiliate" when used with respect to any person shall mean any other
person which, directly or indirectly, controls or is controlled by or is under
common control with such person. For purposes of this definition "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, shall mean possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities or by contract or otherwise.
"Applicable Lending Office" shall mean, with respect to any Advance
made by any Bank or with respect to such Bank's Commitment, the office of such
Bank or of any Affiliate of such Bank located at the address specified as the
applicable lending office for such Bank set forth next to the name of such Bank
in the signature pages hereof or any other office or Affiliate of such Bank or
of any Affiliate of such Bank hereafter selected and notified to the Company and
the Agent by such Bank. Unless the Agent shall notify the Treasury Manager
otherwise, the Applicable Lending Office of the Agent shall be: (a) with respect
to all Advances denominated in Dollars, the principal office of the Agent in
Detroit, Michigan; (b) with respect to Advances denominated in CAD, the main
office of First Chicago NBD Bank, Canada, an Affiliate of the Agent, in Toronto,
Ontario; (c) with respect to all Advances denominated in AUD or NZD, the branch
of FNBC in Adelaide, Australia and (d) with respect to all other Advances, the
branch of FNBC in London, England.
"Applicable Margin" shall mean with respect to any Floating Rate Loan,
Interbank Offered Rate Loan, S/L/C fee and facility fee, as the case may be, the
applicable percentage per annum set forth in the table below as adjusted on the
date on which the financial statements and compliance certificate required
pursuant to Section 5.1(d) are delivered to the Banks and shall remain in effect
until the next change to be effected pursuant to this definition, provided,
that, if any financial statements referred to above are not delivered within the
time period specified in Section 5.1(d), then, until the financial statements
are delivered, the margins shall be as set forth in Tier IV of the Table.
<PAGE>
3
<TABLE>
<CAPTION>
Applicable Margin
Floating Interbank Offered S/L/C Fee Facility Fee
Funded Debt to Total Capitalization Rate Loan Rate Loan
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
<S> <C> <C> <C> <C> <C>
I. Less than 0.40:1.0 0.00% 0.185% 0.185% 0.09%
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
II. Greater than or equal to 40:1.0 but less 0.00% 0.23% 0.23% 0.12%
than 0.50:1.0
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
III. Greater than or equal to 0.50:1.0 0.00% 0.27% 0.27% 0.15%
but less than 0.575:1.0
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
IV. Greater than or equal to 0.575:1.0 0.00% 0.375% 0.375% 0.175%
- ------------------------------------------------- ------------ -------------------- -------------- --------------------
</TABLE>
"Assignment and Acceptance" is defined in Section 8.6(d).
"AUD" shall mean the lawful currency of Australia.
"Australian Domestic Rate" shall mean, with respect to any Interbank
Interest Period, the per annum interest rate which is determined by the Agent by
taking the average bid rate quoted on the page numbered "BBSY" of the Reuters
Monitor System at or about 10:00 a.m. (Adelaide time) two (2) Business Days
prior to the first day of such Interbank Interest Period for not less than five
Australian trading banks (selected by the Agent in its sole discretion and
appearing on that page and so quoting) as being the mean buying rate for a Bill
having a tenor equal to such Interbank Interest Period, eliminating the highest
and the lowest mean rates and taking the average of the remaining mean rates,
provided that, if in respect of any Interbank Interest Period less than five
Australian trading banks have quoted rates on the page numbered "BBSY" of the
Reuters Monitor System, the rate shall be calculated as in the manner set forth
above by taking the rates otherwise quoted by five Australian trading banks upon
application by the Agent for a Bill of the same tenor.
"Bank Obligations" shall mean all indebtedness, obligations and
liabilities, whether now owing or hereafter arising, direct, indirect,
contingent or otherwise, of the Borrowers to the Agent or any Bank pursuant to
the Loan Documents.
"Bid-Option Auction" shall mean a solicitation of Bid-Option Quotes
setting forth Bid-Option Rates pursuant to Section 2.2(b).
"Bid-Option Interest Period" shall mean with respect to each Bid-Option
Borrowing, the period commencing on the date of such Borrowing and ending on the
date elected by the Treasury Manager in the applicable Bid-Option Quote Request,
which date shall be not more than 60 days after the date of such Bid-Option
Loan; provided that:
<PAGE>
4
(i) any such Interest Period that would otherwise end on a day
that is not a Business Day shall be extended to the next succeeding
Business day; and
(ii) no such Interest Period that would end after the
Termination Date shall be permitted.
"Bid-Option Loan" shall mean a Loan which is made by a Bank pursuant to
a Bid-Option Auction.
"Bid-Option Note" shall mean a promissory note of the Borrowers in
substantially the form of Exhibit A hereto evidencing the obligation of the
Borrowers to repay Bid-Option Loans, as amended or modified from time to time
and together with any promissory note or notes issued in exchange or replacement
therefor.
"Bid-Option Percentage" shall mean, with respect to any Bank, the
percentage of the aggregate outstanding principal amount of the Bid-Option Loans
of all the Banks represented by the outstanding principal amount of the
Bid-Option Loans of such Bank.
"Bid-Option Quote" shall mean an offer by a Bank to make a Bid-Option
Loan in accordance with Section 2.2(d).
"Bid-Option Quote Request" shall have the meaning ascribed thereto in
Section 2.2(b).
"Bid-Option Rate" shall mean, with respect to any Bid-Option Loan, the
Bid-Option Rate, as defined in Section 2.2(d)(ii)(E), that is offered for such
Loan.
"Bill" shall mean a bill of exchange as defined in the Australian Bills
of Exchange Act 1909, as amended, or any successor act or code, but shall not
include a check.
"Borrowing" shall mean the aggregation of Advances made to any
Borrower, or continuations and conversions of such Advances, made pursuant to
Article II on a single date and for a single Interest Period. A Borrowing may be
referred to for purposes of this Agreement by reference to the type of Loan
comprising the relating Borrowing, e.g., a "Floating Rate Borrowing" if such
Loans are Floating Rate Loans, an "Interbank Offered Rate Borrowing" if such
Loans are Interbank Offered Rate Loans or a "Bid-Option Borrowing" if such Loans
are Bid-Option Loans.
"Borrowing Subsidiary" shall mean each of the Subsidiaries of the
Company set forth on Schedule 1.1(a) on the Effective Date together with any
other Subsidiary of the Company upon request by the Company to the Agent for
designation of such Subsidiary as a "Borrowing Subsidiary" hereunder so long as
(a) the Company guarantees the obligations of such new Borrowing Subsidiary
pursuant to the terms of the Guaranty, (b) such new Borrowing Subsidiary
delivers Notes executed in favor of each Bank and (c) the Company and such new
Borrowing Subsidiary execute an agreement in the form of Exhibit B hereto.
<PAGE>
5
"Business Day" shall mean a day other than a Saturday, Sunday or other
day on which (a) the Agent is not open to the public for carrying on
substantially all of its banking functions or (b) if such reference relates to
the date for payment or purchase of any amount or deposit denominated in any
currency other than Dollars, banks are not generally open to the public for
carrying on substantially all of their banking functions in the principal
financial center of the country issuing such currency.
"CAD" shall mean the lawful currency of Canada.
"Canadian Domestic Rate" shall mean, with respect to any Interbank
Interest Period, the per annum interest rate which is equal to the Agent's cost
of funding an Advance in like amount and term as determined by the Agent at
10:00 a.m. on the date of such Advance (with calculation of such cost of funds
to be provided by the Agent in reasonable detail upon request by the Company to
the Agent).
"Capital Lease" of any person shall mean any lease which, in accordance
with generally accepted accounting principles, is capitalized on the books of
such person.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations thereunder.
"C/L/C" shall mean any commercial letter of credit issued by the Agent
hereunder.
"Commitment" shall mean, with respect to each Bank, the commitment of
each such Bank to make Revolving Credit Loans and to participate in Letter of
Credit Advances made through the Agent pursuant to Section 2.1, in amounts not
exceeding in aggregate principal amount outstanding at any time the commitment
amount for each such Bank set forth next to the name of each such Bank in the
signature pages hereof, or, as to any Bank becoming a party hereto after the
Effective Date, as set forth in the applicable Assignment and Acceptance in the
form of Exhibit L attached hereto or the applicable Assumption Agreement in the
form of Exhibit M attached hereto, as such amounts may be reduced or modified
from time to time pursuant to Section 2.4 or Section 8.6.
"Consolidated" or "consolidated" shall mean, when used with reference
to any financial term in this Agreement, the aggregate for the Company and its
consolidated Subsidiaries of the amounts signified by such term for all such
persons determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Net Income" of any person shall mean, for any period, the
net income (after deduction for income and other taxes of such person determined
by reference to income or profits of such person) for such period (but without
reduction for any net loss incurred for any fiscal year during such period), all
as determined in accordance with generally accepted accounting principles.
<PAGE>
6
"Contingent Liabilities" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obligor, guarantor, surety or in any other capacity, or in respect of
which obligations such person assures a creditor against loss or agrees to take
any action to prevent any such loss (other than endorsements of negotiable
instruments for collection in the ordinary course of business), including
without limitation all reimbursement obligations of such person in respect of
any letters of credit, surety bonds or similar obligations and all obligations
of such person to advance funds to, or to purchase assets, property or services
from, any other person in order to maintain the financial condition of such
other person.
"Default" shall mean any of the events or conditions described in
Section 6.1 which might become an Event of Default with notice or lapse of time
or both.
"Designated Borrower" shall mean, in relation to any Advance, the
Borrower nominated by the Treasury Manager as the Designated Borrower in the
request for such Advance.
"Dollar Equivalent" shall mean, with respect to each Loan, the sum in
Dollars resulting from the conversion of the amount of such Loan from the
Permitted Currency in which such Loan is denominated into Dollars at the most
favorable spot exchange rate determined by the Agent to be available to it for
the purchase of such Permitted Currency with Dollars at approximately 11:00 a.m.
local time of the Applicable Lending Office on the date any Loan is disbursed or
rolled over, or on such other date as a determination of the Dollar Equivalent
is made, which rate shall be substantially representative of the market rate.
"Dollars" and "$" shall mean the lawful money of the United States of
America.
"EBIT" shall mean, with respect to any person, for any period, the sum
of (a) operating net income or loss plus (b) all amounts deducted in determining
such operating net income or loss on account of (i) Interest Expense and (ii)
taxes based on or measured by income, all as determined in accordance with
generally accepted accounting principles, provided, that, for any calculation of
EBIT including the fiscal quarter ending September 30, 1997, there shall be
excluded from such calculation an amount equal to $61,100,000, representing: (a)
the effect of a one time charge taken by the Company as of September 30, 1997 in
connection with the exit by the Company and its Subsidiaries from certain lines
of business, as further detailed in information provided by the Company to the
Banks dated August 20, 1997 (the "August 20, 1997 Information") and detailed in
the Company's press release of October 21, 1997 and attached hereto as Exhibit M
(the "Press Release") and (b) the effect of the increase of reserves related to
the acceleration of certain strategic initiatives as further detailed in the
August 20, 1997 Information and the Press Release.
"Effective Date" shall mean the effective date specified in the final
paragraph of this Agreement.
"Environmental Laws" at any date shall mean all provisions of law,
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards which are applicable to any Borrower or any
Subsidiary and promulgated by the government of the United
<PAGE>
7
States of America or any foreign government or by any state, province,
municipality or other political subdivision thereof or therein or by any court,
agency, instrumentality, regulatory authority or commission of any of the
foregoing concerning the protection of, or regulating the discharge of
substances into, the environment.
"Equivalent" of an amount of one currency (the "first currency")
denominated in another currency (the "second currency"), as of any date of
determination, shall mean the amount of the second currency which could be
purchased with the amount of the first currency at the most favorable spot
exchange rate quoted by the Agent at approximately 11:00 a.m. local time of the
Applicable Lending Office on such date, which rate shall be substantially
representative of the market rate.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations thereunder.
"ERISA Affiliate" shall mean, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code.
"Event of Default" shall mean any of the events or conditions described
in Section 6.1.
"Federal Funds Rate" shall mean the per annum rate that is equal to the
per annum rate established and announced by the Agent from time to time as the
opening federal funds rate paid or payable by the Agent in its regional federal
funds market for overnight borrowings from other banks; as conclusively
determined by the Agent, absent manifest error, such rate to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), which Federal Funds Rate shall change simultaneously with any
change in such announced rates.
"Fixed Rate Loan" shall mean any Fixed Rate Revolving Credit Loan or
Bid-Option Loan.
"Fixed Rate Revolving Credit Loan" means any Negotiated Rate Loan or
Interbank Offered Rate Loan.
"Floating Rate" shall mean the per annum rate equal to the greater of
(i) the Prime Rate in effect from time to time, or (ii) the sum of one-half of
one percent (1/2 of 1%) per annum plus the Federal Funds Rate in effect from
time to time; which Floating Rate shall change simultaneously with any change in
such Prime Rate or Federal Funds Rate, as the case may be.
"Floating Rate Loan" shall mean any Revolving Credit Loan which bears
interest at the Floating Rate.
"FNBC" shall mean The First National Bank of Chicago, an Affiliate of
the Agent.
<PAGE>
8
"Funded Debt" of any person shall mean all Indebtedness that would, in
accordance with generally accepted accounting principles, constitute long term
debt, including (a) any Indebtedness with a maturity of longer than one year
after the creation of such Indebtedness, (b) any Indebtedness outstanding under
a revolving credit or similar agreement (and any renewal or extension thereof)
providing for borrowings which constitute long term debt; provided, however,
that all Indebtedness outstanding under this Agreement shall be deemed "Funded
Debt" at all times regardless of the proper classification under generally
accepted accounting principles, (c) any Capital Lease and (d) any guarantee with
respect to Funded Debt of another person to the extent the indebtedness or
obligations guaranteed are not included in the liabilities of the Company and
its Subsidiaries determined on a consolidated basis as of the date of the last
balance sheet required to be furnished to the Banks pursuant to Section
5.1(d)(ii) or 5.1(d)(iii) of this Agreement.
"generally accepted accounting principles" shall mean generally
accepted accounting principles in effect from time to time and applied on a
basis consistent with that reflected in the financial statements referred to in
Section 4.6, unless any change in generally accepted accounting principles from
those in effect on the Effective Date materially impacts the calculation of the
covenants set forth in Sections 5.2(a), (b) and (c).
"Guaranty" shall mean the guaranty entered into by the Company for the
benefit of the Agent and the Banks pursuant to this Agreement in the form of
Exhibit C hereto, as amended or modified from time to time.
"Indebtedness" shall mean (i) indebtedness for borrowed money, (ii)
obligations evidenced by bonds, debentures, notes or other similar instruments,
(iii) obligations to pay the deferred purchase price of property or services,
except for trade accounts payable arising in the ordinary course of business
that are not more than 90 days past due or as are reasonably being contested,
(iv) obligations as lessee under leases which have been in accordance with
generally accepted accounting principles, recorded as Capital Leases, (v)
obligations to purchase property or services if payment is required regardless
of whether such property is delivered or services are performed (generally
called "take or pay" contracts), but such obligations shall only be included in
an amount equal to the difference between the amount of the required payment and
the value to the Company or a Subsidiary of the Company of the goods or services
required to be delivered in connection with such required payment, (vi)
obligations in respect of currency or interest rate swaps or comparable
transactions valued at the maximum termination payment payable by the obligor,
other than any such contracts entered into as hedges against Indebtedness of the
kinds referred to in clauses (i) and (ii) above; provided, that, for purposes of
Section 6.1(f) only, such contracts shall be included in "Indebtedness", (vii)
any obligation of any Person other than the Company or its Subsidiaries, if such
obligation is secured by any lien on the property of the Company or any of its
Subsidiaries, provided that, the amount of any such Indebtedness shall be
limited to the greater of the then book value or fair market value of the
property securing any such lien, (viii) guaranties in respect of indebtedness or
obligations of other Persons of the kinds referred to in clauses (i) through
(vii) above, to the extent the indebtedness or obligations guaranteed are not
included in the liabilities of the Company and its Subsidiaries determined on a
consolidated basis as of the date of the last balance sheet required to be
furnished to the Banks pursuant to Section 5.1(d)(ii) or 5.1(d)(iii) of this
Agreement, and (ix) liabilities in respect of unfunded vested benefits under
plans covered by Title IV of ERISA.
<PAGE>
9
"Interbank Offered Rate" applicable to any Interbank Interest Period
means, the per annum rate that is equal to the sum of:
(a) the Applicable Margin, plus
(b) other than an Interbank Offered Rate Loan denominated in
CAD and described in clause (ii) below, an Interbank Offered Rate Loan
denominated in AUD and described in clause (iii) below or an Interbank Offered
Rate Loan denominated in NZD and described in clause (iv) below, (i) the rate
per annum obtained by dividing (A) the per annum rate of interest at which
deposits in the Permitted Currency in which such Interbank Offered Rate Loan is
to be denominated for such Interbank Interest Period and in an aggregate amount
comparable to the amount of the related Interbank Offered Rate Loan to be made
by the Agent in its capacity as a Bank hereunder are offered to the Agent by
other prime banks in the applicable interbank market selected by the Agent in
its reasonable discretion, at approximately 11:00 a.m. local time of the
Applicable Lending Office, two (2) Interbank Business Days prior to the first
day of such Interbank Interest Period by (B) an amount equal to one minus the
stated maximum rate (expressed as a decimal) of all reserve requirements
including, without limitation, any marginal, emergency, supplemental, special or
other reserves, that is specified on the first day of such Interbank Interest
Period by the Board of Governors of the Federal Reserve System (or any successor
agency thereto) or the relevant fiscal or monetary authority for determining the
maximum reserve requirement with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System; all as conclusively determined by
the Agent, absent manifest error, such sum to be rounded up, if necessary, to
the nearest whole multiple of one one-hundredth of one percent (1/100 of 1%) or
(ii) in the case of any Interbank Offered Rate Loans denominated in CAD, the
Canadian Domestic Rate or (iii) in the case of any Interbank Offered Rate Loans
denominated in AUD, the Australian Domestic Rate or (iv) in the case of any
Interbank Offered Rate Loan denominated in NZD, the New Zealand Domestic Rate;
which Interbank Offered Rate shall change simultaneously with any change in the
Applicable Margin.
"Interbank Business Day" shall mean, with respect to any Interbank
Offered Rate Loan, a day which is both a Business Day and a day on which
dealings in Dollar deposits or the relevant Permitted Currency are carried out
in the relevant interbank market.
"Interbank Interest Period" shall mean, with respect to any Interbank
Offered Rate Loan, the period commencing on the day such Interbank Offered Rate
Loan is made or converted to an Interbank Offered Rate Loan and ending on the
date one, two, three or six months thereafter, as any Borrower may elect under
Section 2.6 or 2.9, and each subsequent period commencing on the last day of the
immediately preceding Interbank Interest Period and ending on the date one, two,
three or six months thereafter, as any Borrower may elect under Section 2.6 or
2.9, provided, however, that (a) any Interbank Interest Period which commences
on the last Interbank Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Interbank Business Day of the appropriate
subsequent calendar month, (b) each Interbank Interest Period which would
otherwise end on a day which is not an Interbank Business Day shall end on the
next succeeding Interbank Business Day or, if such next succeeding Interbank
Business Day falls in the next succeeding calendar month, on the next preceding
Interbank Business Day, and (c) no Interbank Interest Period which would end
after the Termination Date shall be permitted.
<PAGE>
10
"Interbank Offered Rate Loan" shall mean any Loan which bears interest
at the Interbank Offered Rate.
"Interest Expense" of any person shall mean, for any period, all
interest paid or payable by such person during such period.
"Interest Coverage Ratio" shall mean, as of any date, the ratio of (a)
Consolidated EBIT as calculated for the four most recently ended consecutive
fiscal quarters of the Company to (b) Consolidated Interest Expense as
calculated for the same four fiscal quarters.
"Interest Payment Date" shall mean (a) with respect to any Negotiated
Rate Loan, Interbank Offered Rate Loan or Bid-Option Loan, the last day of each
Interest Period with respect to such Negotiated Rate Loan, Interbank Offered
Rate Loan or Bid-Option Loan and, in the case of any Interest Period exceeding
three months, those days that occur during such Interest Period at intervals of
three months after the first day of such Interest Period, and (b) in all other
cases, within five (5) days of receipt of an invoice containing a computation of
interest due, which invoice shall be prepared as of the last Business Day of
each March, June, September and December occurring after the date hereof,
commencing with the first such Business Day occurring after the date of this
Agreement.
"Interest Period" shall mean any Negotiated Interest Period,
Interbank Interest Period or Bid-Option Interest Period.
"Invitation for Bid-Option Quotes" shall mean an invitation for
Bid-Option Quotes in the form referred to in Section 2.2(c).
"Letter of Credit" shall mean an S/L/C or C/L/C issued by the Agent on
behalf of the Banks for the account of any Borrower under an application and
related documentation acceptable to the Agent requiring, among other things,
immediate reimbursement by such Borrower to the Agent in respect of all drafts
or other demand for payment honored thereunder and all expenses paid or incurred
by the Agent relative thereto.
"Letter of Credit Advance" shall mean any issuance of a Letter of
Credit under Section 2.6 made pursuant to Section 2.1 in which each Bank
acquires a pro rata risk participation (based on such Bank's Commitment)
pursuant to Section 2.6(e).
"Lien" shall mean any pledge, assignment, deed of trust, hypothecation,
mortgage, security interest, conditional sale or title retaining contract,
financing statement filing, or any other type of lien, charge, encumbrance or
other similar claim or right.
<PAGE>
11
"Loan" shall mean any Revolving Credit Loan, any Swing Line Loan or any
Bid-Option Loan, as the context may require.
"Loan Documents" shall mean this Agreement, the Notes, the Letter of
Credit Documents, the Guaranty and any other agreement, instrument or document
executed at any time in connection with this Agreement.
"Margin Stock" shall mean Margin Stock within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System.
"Multiemployer Plan" shall mean any "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA or Section 414(f) of the Code.
"NBD" shall mean NBD Bank, a Michigan banking corporation.
"Negotiated Interest Period" shall mean, with respect to any Negotiated
Rate Loan, the period commencing on the day such Negotiated Rate Loan is made or
converted to a Negotiated Rate Loan and ending on the date agreed upon among the
Borrowers and the Agent at the time such Negotiated Rate Loan is made, and each
subsequent period commencing on the last day of the immediately preceding
Negotiated Interest Period and ending on the date agreed upon among the
Borrowers and the Agent at the time such Negotiated Rate Loan is elected to be
continued as a Negotiated Rate Loan by the Borrowers under Section 2.9, provided
no Negotiated Interest Period which would end after the Termination Date shall
be permitted.
"Negotiated Rate" shall mean, with respect to any Negotiated Rate Loan,
the rate per annum agreed upon between the Borrowers and the Agent at the time
such Negotiated Rate Loan is made.
"Negotiated Rate Loan" shall mean any Loan which bears interest at the
Negotiated Rate.
"Net Worth" of any person shall mean, as of any date, the amount of any
preferred stock, paid in capital and similar equity accounts plus (or minus in
the case of a deficit) the capital surplus and retained earnings of such person
and the amount of any foreign currency translation adjustment account shown as a
capital account of such person minus treasury stock, provided, that, for any
calculation of Net Worth including the fiscal quarter ending September 30, 1997,
there shall be excluded from such calculation an amount equal to $38,900,000,
representing: (a) the effect of a one time charge, net of related tax effects,
if any, to be taken by the Company as of September 30, 1997 in connection with
the exit by the Company and its Subsidiaries from certain lines of business, as
further detailed in the August 20, 1997 Information and the Press Release and
(b) the effect of the increase of reserves related to the acceleration of
certain strategic initiatives as further detailed in the August 20, 1997
Information and the Press Release.
"NZD" shall mean the lawful currency of New Zealand.
<PAGE>
12
"New Zealand Domestic Rate" shall mean, with respect to any Interbank
Interest Period, the per annum interest rate which is determined by the Agent by
taking the average bid rate quoted on the page numbered "BKBM" of the Reuters
Monitor System at or about 10:45 a.m. (Wellington time) two (2) Business Days
prior to the first day of such Interbank Interest Period for not less than five
New Zealand trading banks (selected by the Agent in its sole discretion and
appearing on that page and so quoting) as being the mean buying rate for a Bill
having a tenor equal to such Interbank Interest Period, eliminating the highest
and the lowest mean rates and taking the average of the remaining mean rates,
provided that, if in respect of any Interbank Interest Period less than five New
Zealand trading banks have quoted rates on the page numbered "BKBM" of the
Reuters Monitor System, the rate shall be calculated as in the manner set forth
above by taking the rates otherwise quoted by five New Zealand trading banks
upon application by the Agent for a Bill of the same tenor.
"Notes" shall mean the Revolving Credit Notes, the Bid-Option Notes and
the Swing Line Note; "Note" shall mean any Revolving Credit Note, any Bid-Option
Note or any Swing Line Note.
"Notice of Bid-Option Loan" shall have the meaning set forth in Section
2.2(f).
"Original Dollar Amount" shall mean, with respect to any Loan, the
Equivalent in Dollars of the original principal amount of such Loan specified in
the related request therefor given by any Borrower pursuant to Section 2.6 (a)
as such amount is reduced by payments of principal made in respect of such Loan
in Dollars (or the Dollar Equivalent thereof in the case of a payment made in a
Permitted Currency other than Dollars) and (b) as such amount is adjusted
pursuant to Section 3.1(d).
"Overdue Rate" shall mean (a) in respect of principal of Floating Rate
Loans, a rate per annum that is equal to the sum of two percent (2%) per annum
plus the Floating Rate, (b) in respect of principal of Fixed Rate Loans, a rate
per annum that is equal to the sum of two percent (2%) per annum plus the per
annum rate in effect thereon until the end of the then current Interest Period
for such Loan and, thereafter, a rate per annum that is equal to the sum of two
percent (2%) per annum plus, with respect to Loans denominated in Dollars, the
Floating Rate and, with respect to Loans denominated in any other Permitted
Currency, the relevant market rate for such Permitted Currency, and (c) in
respect of other amounts payable by any Borrower hereunder (other than
interest), a per annum rate that is equal to the sum of two percent (2%) per
annum plus the Floating Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any
entity succeeding to any or all of its functions under ERISA.
"Percentage of Total Commitments" shall mean, with respect to each
Bank, the amount set forth on the signature page next to the name of such Bank
or as subsequently set forth in any Assignment and Acceptance in the form of
Exhibit L attached hereto or Assumption Agreement in the form of Exhibit M
attached hereto.
<PAGE>
13
"Permitted Currency" shall mean Dollars and any currency which is
freely transferable and convertible into Dollars and is issued by an OECD
country (as such designation shall change from time to time) or any other
currency approved by the Agent. A list of all OECD countries as of the Effective
Date is set forth in Schedule 1.1(b), which Schedule shall be updated, if
necessary, by the Agent on each anniversary of the Effective Date.
"Permitted Liens" shall mean Liens permitted by Section 5.2(d) hereof.
"Person" or "person" shall include an individual, a corporation, a
limited liability company, an association, a partnership, a trust or estate, a
joint stock company, an unincorporated organization, a joint venture, a trade or
business (whether or not incorporated), a government (foreign or domestic) and
any agency or political subdivision thereof, or any other entity.
"Plan" shall mean, with respect to any person, any pension plan (other
than a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any Subsidiary of such person or any ERISA Affiliate,
or by any other person if such person, any Subsidiary of such person or any
ERISA Affiliate could have liability with respect to such pension plan.
"Prime Rate" shall mean the per annum rate announced by the Agent from
time to time as its "prime rate" (it being acknowledged that such announced rate
may not necessarily be the lowest rate charged by the Agent to any of its
customers), which Prime Rate shall change simultaneously with any change in such
announced rate.
"Prohibited Transaction" shall mean any non-exempt transaction
involving any Plan which is proscribed by Section 406 of ERISA or Section 4975
of the Code.
"Reportable Event" shall mean a reportable event as described in
Section 4043(b) of ERISA including those events as to which the thirty (30) day
notice period is waived under Part 2615 of the regulations promulgated by the
PBGC under ERISA.
"Required Banks" shall mean Banks in the aggregate having at least
sixty percent (60%) of the aggregate Commitments or, if the Commitments have
been terminated, Banks in the aggregate holding at least 60% of the aggregate
unpaid principal amount of the outstanding Advances.
"Restricted Margin Stock" means Margin Stock owned by the Company or
any of its Subsidiaries which represents not more than 25% of the aggregate
value (determined in accordance with Regulation U), on a consolidated basis, of
the property and assets of the Company and its Subsidiaries (other than any
Margin Stock) that is subject to the provisions of Section 5.2(d).
"Revolving Credit Advance" shall mean any Revolving Credit Loan,
any Letter of Credit Advance and any Swing Line Loan.
"Revolving Credit Loan" shall mean any Borrowing under Section 2.6 and
made pursuant to Section 2.1(a).
"Revolving Credit Note" shall mean any promissory note of the Borrowers
evidencing the Revolving Credit Loans in substantially the form annexed hereto
as Exhibit D, as amended or modified from time to time and together with any
promissory note or notes issued in exchange or replacement therefor.
<PAGE>
14
"Short Term Borrowings" shall mean all Indebtedness for borrowed money
with an original maturity less than one year, other than the Advances.
"S/L/C" shall mean any standby letter of credit issued by the Agent
hereunder.
"Subsidiary" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors'
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"Subordinated Debt" of any person shall mean, as of any date, that
Indebtedness of such person for borrowed money which is expressly subordinate
and junior in the right of payment to the Advances of such person to the Banks
in manner and by agreement satisfactory in form and substance to the Required
Banks, which consent and agreement may not be unreasonably withheld.
"Swing Line Facility" shall have the meaning specified in Section
2.1(b).
"Swing Line Loan" shall mean any borrowing under Section 2.6 and made
pursuant to Section 2.1(b).
"Swing Line Note" means the promissory note of the Company payable to
the order of the Agent, in substantially the form annexed hereto as Exhibit E,
as amended or modified from time to time and together with any promissory note
or notes issued in exchange or replacement therefor.
"Termination Date" shall mean the earlier to occur of (a) October 31,
2002, or such later date to which the Termination Date is extended pursuant to
Section 2.1(d), and (b) the date on which the Commitments shall be terminated
pursuant to Section 2.4 or 6.2.
"Total Capitalization" of any person shall mean the sum of Net Worth of
such person and Funded Debt of such person.
"Total Commitments" shall mean the aggregate amount of Commitments of
all Banks as set forth on the signature pages of this Agreement, as reduced or
modified from time to time pursuant to Section 2.4 or Section 8.6.
"Treasury Manager" includes any Affiliate of the Company appointed in
writing by the Company and the Borrowers as Treasury Manager under this
Agreement in the place of the person named above, and which is accepted by the
Agent for that purpose.
<PAGE>
15
"Unfunded Benefit Liabilities" shall mean, with respect to any Plan as
of any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
"Unrestricted Margin Stock" means any Margin Stock owned by the Company
or any of its Subsidiaries which is not Restricted Margin Stock.
1.2 Other Definitions; Rules of Construction. As used herein, the terms
"Agent", "Banks", "Company", "Borrowing Subsidiary", "Borrowing Subsidiaries"
and "this Agreement" shall have the respective meanings ascribed thereto in the
introductory paragraph of this Agreement. Such terms, together with the other
terms defined in Section 1.1, shall include both the singular and the plural
forms thereof and shall be construed accordingly. All computations required
hereunder and all financial terms used herein shall be made or construed in
accordance with generally accepted accounting principles unless such principles
are inconsistent with the express requirements of this Agreement. Use of the
terms "herein", "hereof", and "hereunder" shall be deemed references to this
Agreement in its entirety and not to the Section or clause in which such term
appears. References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided.
ARTICLE II
THE COMMITMENTS AND THE ADVANCES
2.1 Commitments of the Banks.
(a) Revolving Credit Advances. Each Bank agrees, for itself
only, subject to the terms and conditions of this Agreement, to make Revolving
Credit Loans to the Borrowers pursuant to Section 2.6 and to participate in
Letter of Credit Advances to the Borrowers pursuant to Section 2.6, from time to
time from and including the Effective Date to but excluding the Termination
Date, not to exceed in aggregate principal amount at any time outstanding the
amount determined pursuant to Section 2.1(c). On the date of each Advance, the
Dollar Equivalent on such date of all Advances outstanding, including the
Advances to be made or requested on such date, shall not exceed the aggregate
Commitments.
(b) Swing Line Loan.
(i) The Treasury Manager may request the Agent to make, and the Agent may,
in its sole discretion provided that the requirements of Section 2.8 are
complied with by the Borrowers at the time of such request, make, Swing Line
Loans to the Borrowers from time to time on any Business Day during the period
from the Effective Date until the Termination Date in an aggregate principal
amount not to exceed at any date the lesser of (A) $25,000,000 (the "Swing Line
Facility") and (B) the aggregate of the unused portions of the Commitments of
the Banks as of such date. Each Bank's Commitment shall be deemed utilized by an
amount equal to such Bank's pro rata share (based on such Bank's Commitment) of
each Swing Line Loan for purposes of determining the amount of Revolving Credit
Advances required to be made by such Bank. Swing Line Loans shall bear interest
at the Interbank Offered Rate or the Negotiated Rate, as the Borrowers may elect
hereunder. Within the limits of the Swing Line Facility, so long as the Agent,
in its sole discretion, elects to make Swing Line Loans, the Borrowers may
borrow and reborrow under this Section 2.1(b)(i).
<PAGE>
16
(ii) The Agent may at any time in its sole and absolute discretion require
that any Swing Line Loan be refunded by a Revolving Credit Loan which is an
Interbank Offered Rate Loan in the same Permitted Currency in which such Swing
Line Loan is denominated, and upon notice thereof by the Agent to the Company
and the Banks, the Borrowers shall be deemed to have requested a Revolving
Credit Loan bearing interest at the Interbank Offered Rate with an Interbank
Interest Period of one month in an amount equal to the amount of any such Swing
Line Loan in the same Permitted Currency in which such Swing Line Loan is
denominated, and such Revolving Credit Loan shall be made to refund such Swing
Line Loan. Each Bank shall be absolutely and unconditionally obligated (except
as set forth in Section 2.1(b)(i)) to fund its pro rata share (based on such
Bank's Commitment) of such Revolving Credit Loan and such obligation shall not
be affected by any circumstance, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense or other right which such Bank or the Company
or any of its Subsidiaries may have against the Agent, any Borrower or any of
their respective Subsidiaries or anyone else for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default; (iii) any adverse
change in the condition (financial or otherwise) of any Borrower or any of its
Subsidiaries; (iv) any breach of this Agreement by any Borrower or any of their
respective Subsidiaries or any other Bank; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing
(including any Borrower's failure to satisfy any conditions contained in Article
II or any other provision of this Agreement).
(c) Limitation on Amount of Advances. Notwithstanding anything
in this Agreement to the contrary, the aggregate principal amount of the
Revolving Credit Advances made by any Bank at any time outstanding shall not
exceed the amount of its respective Commitment as of the date any such Advance
is made, provided, however, that the aggregate principal amount of Letter of
Credit Advances outstanding at any time shall not exceed $10,000,000.
(d) Extensions.
The Banks shall consider annual requests for the extension of the
Termination Date. The Company shall deliver a notice in writing to the Agent on
or before August 31 of each year in the event the Company chooses not to extend
such Termination Date. The Agent shall provide notice to each of the Banks
within five (5) Business Days after August 31 of each year as to whether the
Agent has or has not received such election by the Company not to extend such
Termination Date. Each of the Banks agrees to provide notice in writing to the
Agent of its agreement or refusal to extend such Termination Date on or before
October 31 of each year; provided, however, that the failure of any Bank to so
communicate its agreement or refusal shall be deemed to be such Bank's refusal
to so extend the Termination Date. The determination to extend or not to extend
the Termination Date shall be given or withheld by each Bank in its absolute and
sole discretion and any such agreement or refusal once given shall not be
revocable by any Bank prior to the then applicable Termination Date. No
extension of the Termination Date shall in any event be effective until the
Agent shall have received agreements to so extend from each of the Banks;
provided, however, that if any Bank refuses to extend the Termination Date, the
Agent shall provide notice to the Company and (i) the Commitment of each Bank
shall remain unchanged and the Total Commitment shall be modified accordingly or
(ii) additional lenders, as selected by the Company, shall be added to the
Agreement.
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17
(e) Non-Pro Rata Loans.
(i) Each of the Banks shall deliver, on or before the Effective Date, a
list of all Permitted Currencies in which such Bank can fund Loans hereunder
free of withholding taxes, which list may be updated from time to time by any
Bank delivering an update of such list to the Agent. Notwithstanding anything
contained herein to the contrary, each of the Borrowers, the Banks and the Agent
agree that a Bank shall not fund its pro rata portion of any Revolving Credit
Loan if such Bank cannot make such Revolving Credit Loan free of withholding
taxes so long as one or more Banks is able to make such Revolving Credit Loan
free of withholding taxes. The non-pro rata funding of such Revolving Credit
Loans shall not affect the pro rata share of the aggregate amount of Advances
outstanding at any time.
(ii) Any funding Bank under Section 2.1(e)(i) above may at any time in its
sole discretion require that the non-funding Bank or Banks fund each of their
pro rata portion of the Revolving Credit Loans herein described. Each
non-funding Bank shall be absolutely and unconditionally obligated to fund its
pro rata share (based on such Bank's Commitment) of such Revolving Credit Loan
and such obligation shall not be affected by any circumstance, including,
without limitation (A) any set-off, counterclaim, recoupment, defense or other
right which such Bank or the Company or any of its Subsidiaries may have against
the Agent, any Borrower or any of their respective Subsidiaries or anyone else
for any reason whatsoever; (B) the occurrence or continuance of a Default or an
Event of Default; (C) any adverse change in the condition (financial or
otherwise) of any Borrower or any of its Subsidiaries; (D) any breach of this
Agreement by any Borrower or any of their respective Subsidiaries or any other
Bank; or (E) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing (including any Borrower's failure to satisfy
any conditions contained in Article II or any other provision of this
Agreement). Any Bank which requires payments from any Borrower pursuant to
Section 3.4 with respect to its making of any Loan described in this Section
2.1(e)(ii) may be replaced by the Company in its sole discretion.
2.2 Bid-Option Loans.
(a) The Bid-Option. From the Effective Date to but excluding the
Termination Date, the Treasury Manager may, as set forth in this Section 2.2,
request the Banks to make offers to make Bid-Option Loans to a Designated
Borrower. Each Bank may, but shall have no obligation to, make such offers and
such Designated Borrower may, but shall have no obligation to, accept any such
offers, in the manner set forth in this Section 2.2; furthermore, each Bank may
limit the aggregate amount of Bid-Option Loans when quoting rates for more than
one Bid-Option Interest Period in any Bid-Option Quote, provided that such
limitation shall not be less than the minimum amounts required hereunder for
Bid-Option Loans and the Designated Borrower may choose among the Bid-Option
Loans if such limitation is imposed; provided, that the aggregate outstanding
principal amount of Bid-Option Loans shall not at any time exceed the lower of
(i) the excess of (A) the aggregate amount of the Commitments over (B) the sum
of the aggregate outstanding principal amount of Revolving Credit Advances or
(ii) forty percent (40%) of the aggregate amount of the Commitments (as the same
may be reduced in accordance with the terms of this Agreement);
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18
(b) Bid-Option Quote Request. When the Treasury Manager wishes to request
offers to make Bid-Option Loans under this Section 2.2, it shall transmit to the
Agent by telex or telecopy a Bid-Option Quote Request substantially in the form
of Exhibit F hereto so as to be received no later than 11:00 a.m. Detroit time
on the Business Day next preceding the date of the Loan proposed therein
specifying:
(i) the proposed date of the Bid-Option Loan, which shall be a Business
Day;
(ii) the Designated Borrower;
(iii) the aggregate amount of such Bid-Option Loan, which shall be a
minimum of $5,000,000 or a larger multiple of $1,000,000; and
(iv) the duration of the Interest Period applicable thereto, subject to the
provisions of the definition of Interest Period.
A Borrower may request offers to make Bid-Option Loans for more than one
Bid-Option Interest Period in a single Bid-Option Quote Request.
(c) Invitation for Bid-Option Quotes. Promptly upon receipt of a Bid-Option
Quote Request, the Agent shall send to the Banks by telecopy (or telephone
promptly confirmed by telecopy) an Invitation for Bid-Option Quotes
substantially in the form of Exhibit G hereto, which shall constitute an
invitation by the Treasury Manager and the Designated Borrower to each Bank to
submit Bid-Option Quotes offering to make the Bid-Option Loans to which such
Bid-Option Quote Request relates in accordance with this Section 2.2.
(d) Submission and Contents of Bid-Option Quotes.
(i) Each Bank may submit a Bid-Option Quote containing an offer or offers
to make Bid-Option Loans in response to any Invitation for Bid-Option Quotes.
Each Bid-Option Quote must comply with the requirements of this subsection (d)
and must be submitted to the Agent by telecopy (or by telephone promptly
confirmed by telecopy) at its office referred to in Section 8.2 not later than
10:00 a.m. Detroit time on the proposed date of the Borrowing; provided that
Bid-Option Quotes submitted by the Agent (or any Affiliate of the Agent) in the
capacity of a Bank may be submitted, and may only be submitted, if the Agent or
such Affiliate notifies the Borrower of the terms of the offer or offers
contained therein not later than 9:45 a.m. Detroit time on the proposed date of
such Borrowing. Subject to Article VI, any Bid-Option Quote so made shall be
irrevocable except with the written consent of the Agent given on the
instructions of the Treasury Manager.
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19
(ii) Each Bid-Option Quote shall be in substantially the form of Exhibit H
hereto, but may be submitted to the Agent by telephone with prompt confirmation
by delivery to the Agent of such written Bid-Option Quote, and shall in any case
specify:
(A) the proposed date of the Borrowing;
(B) the principal amount of the Bid-Option Loan for which each such offer
is being made, which principal amount (x) must be in a minimum of $5,000,000 or
a larger multiple of $1,000,000, and (y) may not exceed the principal amount of
the Bid-Option Loans for which offers were requested;
(C) the Interest Period(s) for which each such Bid-Option Rate is offered;
(D) the rate of interest per annum (rounded to the nearest 1/100 of 1%)
(the "Bid-Option Rate") offered for each such Bid-Option Loan;
(E) the identity of the quoting Bank.
(iii) Any Bid-Option Quote shall be disregarded if it:
(A) is not substantially in the form of Exhibit H hereto (or is not
submitted by telephone to the Agent with prompt written confirmation to follow)
or does not specify all of the information required by clause (ii) of this
subsection (d);
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in the
applicable Invitation for Bid-Option Quotes; or
(D) arrives after the time set forth in Section 2.2(d)(i);
provided that a Bid-Option Quote shall not be disregarded pursuant to clause (B)
or (C) above solely because it contains an indication that an allocation that
might otherwise be made to it pursuant to Section 2.2(g) would be unacceptable.
The Agent shall notify the Treasury Manager of any disregarded Bid-Option Quote.
(e) Notice to Borrower. The Agent shall promptly notify the
Treasury Manager of the terms of any Bid-Option Quote submitted by a Bank that
is in accordance with Section 2.2(d). Any Bid-Option Quote not made in
accordance with Section 2.2(d) shall be disregarded by the Agent. The Agent's
notice to the Treasury Manager shall specify (i) the aggregate principal amount
of Bid-Option Loans for which offers have been received for each Bid-Option
Interest Period specified in the related Bid-Option Quote Request, and (ii) the
respective principal amounts and respective Bid-Option Rates so offered.
<PAGE>
20
(f) Acceptance and Notice by Borrower. Not later than 11:00
a.m. Detroit time on the proposed date of a Borrowing, the Treasury Manager
shall notify the Agent of the Designated Borrower's acceptance or non-acceptance
of the offers so notified to it pursuant to subsection (e) of this Section and
the Agent shall, promptly upon receiving such notice from the Treasury Manager,
notify each Bank whose Bid-Option Quote has been accepted. In the case of
acceptance, such notice (a "Notice of Bid-Option Loan") shall specify the
aggregate principal amount of offers for the applicable Interest Period(s) that
have been accepted. The Borrower may accept any Bid-Option Quote in whole or in
part; provided that:
(i) the aggregate principal amount of each Bid-Option Loan may
not exceed the applicable amount set forth in the related Bid-Option
Quote Request for the applicable Bid-Option Interest Period;
(ii) the principal amount of each Bid-Option Loan must be
$5,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of
ascending Bid-Option Rates; and
(iv) the Borrower may not accept any offer that is described in
Section 2.2(d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Banks with the
same Bid-Option Rates for a greater aggregate principal amount than the amount
in respect of which offers are accepted for the related Interest Period, the
principal amount of Bid-Option Loans in respect of which such offers are
accepted shall be allocated by the Agent among such Banks as nearly as possible
(in such multiples, not greater than $100,000, as the Agent may deem
appropriate) in proportion to the aggregate principal amount of such offers.
Determinations by the Agent of the amounts of Bid-Option Loans shall be
conclusive in the absence of manifest error.
2.3 Effect on Commitments. Notwithstanding anything in this Agreement to
the contrary, the sum of the aggregate outstanding principal amount of all
Revolving Credit Loans plus, all Letter of Credit Advances (being the maximum
amount available to be drawn under the related Letters of Credit plus the amount
of any draws under Letters of Credit that have not been reimbursed) plus, all
Bid-Option Loans plus, all Swing Line Loans shall not at any time exceed the
aggregate amount of the Commitments of all Banks. Each Bank's obligation to make
its pro rata portion of any subsequently requested Revolving Credit Loan or
Letter of Credit Advance shall not be affected by the making by such Bank of a
Bid-Option Loan, and the Bank which has outstanding Bid-Option Loans may be
obligated to exceed its Commitment, and provided, that, as stated above, the
aggregate principal amount of all Revolving Credit Loans, all Letters of Credit
Advances, all Swing Line Loans and all Bid-Option Loans shall not at any time
exceed the aggregate amount of the Commitments of all Banks.
<PAGE>
21
2.4 Termination and Reduction of Commitments.
(a) The Company shall have the right to terminate or reduce
the Commitments at any time and from time to time at its option, provided that
(i) the Treasury Manager shall give five days' prior written notice of such
termination or reduction to the Agent (with sufficient executed copies for each
Bank) specifying the amount and effective date thereof, (ii) each partial
reduction of the Commitments shall be in a minimum amount of $5,000,000 and in
integral multiples of $1,000,000 and shall reduce the Commitments of all of the
Banks proportionately in accordance with the respective commitment amounts for
each such Bank set forth in the signature pages hereof next to the name of each
such Bank, (iii) no such termination or reduction shall be permitted with
respect to any portion of the Commitments as to which a request for a Borrowing
pursuant to Section 2.6 is then pending and (iv) the Commitments may not be
terminated if any Advances are then outstanding and may not be reduced below the
principal amount of Advances then outstanding.
The Commitments or any portion thereof terminated or reduced pursuant to this
Section 2.4(a), whether optional or mandatory, may not be reinstated. The
Borrowers shall immediately prepay the Loans to the extent they exceed the
reduced aggregate Commitments pursuant hereto, and any reduction hereunder shall
reduce the Commitment amount of each Bank proportionately in accordance with the
respective Commitment amounts for each such Bank set forth on the signature
pages hereof next to the name of each such Bank.
(b) For purposes of this Agreement, a Letter of Credit Advance
(i) shall be deemed outstanding in an amount equal to the sum of the maximum
amount available to be drawn under the related Letter of Credit on or after the
date of determination and on or before the stated expiry date thereof plus the
amount of any draws under such Letter of Credit that have not been reimbursed
and (ii) shall be deemed outstanding at all times on and before such stated
expiry date or such earlier date on which all amounts available to be drawn
under such Letter of Credit have been fully drawn, and thereafter until all
related reimbursement obligations have been paid. Upon each payment made by the
Agent in respect of any draft or other demand for payment under any Letter of
Credit, the amount of any Letter of Credit Advance outstanding immediately prior
to such payment shall be automatically reduced by the amount of each Revolving
Credit Loan deemed advanced in respect of the related reimbursement obligation
of the Borrower.
2.5 Fees.
(a) The Company agrees to pay to the Banks a facility fee on
the daily average amount of the Commitments, whether used or unused, for the
period from the Effective Date to but excluding the Termination Date, at a rate
equal to the Applicable Margin for the facility fee. Accrued facility fees shall
be payable quarterly in arrears in Dollars within five (5) days of receipt of an
invoice prepared by the Agent containing a computation of facility fees due
computed on the basis of 360 days and assessed for the actual number of days
elapsed, which invoice shall be prepared as of the last Business Day of each
March, June, September and December, commencing on the first such Business Day
occurring after the date of this Agreement, and on the Termination Date.
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22
(b) The Borrowers agree to pay (i) with respect to S/L/Cs, a
fee to the Banks computed at the Applicable Margin on the maximum amount
available to be drawn from time to time under such S/L/C for the period from and
including the date of issuance of such S/L/C to and including the stated expiry
date of such S/L/C, which fee shall be paid annually in advance at the time such
S/L/C is issued or amended, a portion of which the Agent shall retain for its
own account to be negotiated between the Agent and the Banks at the time of the
initial request of a Letter of Credit Advance, and (ii) with respect to C/L/Cs,
a fee to the Banks to be negotiated at the time of issuance between the Agent
and the Borrower requesting such C/L/C, which fees shall be paid at each time as
any C/L/C is presented or drawn upon, in whole or in part. Such fees are
nonrefundable and the Borrowers shall not be entitled to any rebate of any
portion thereof if such Letter of Credit does not remain outstanding through its
stated expiry date or for any other reason. The Borrowers further agree to pay
to the Agent, on demand, such other customary and reasonable administrative
fees, charges and expenses of the Agent in respect of the issuance, negotiation,
acceptance, amendment, transfer and payment of such Letter of Credit or
otherwise payable pursuant to the application and related documentation under
which such Letter of Credit is issued in accordance with a schedule of fees
provided by the Agent to the Borrowers.
(c) The Borrowers agrees to pay to the Agent an agency fee for
its services as Agent under this Agreement in such amounts as may from time to
time be agreed upon by the Borrowers and the Agent.
2.6 Disbursement of Revolving Credit Advances.
(a) Except with respect to Swing Line Loans, the Treasury
Manager shall give the Agent notice of its request for each Revolving Credit
Advance in substantially the form of Exhibit I hereto at the Applicable Lending
Office of the Agent with respect to such Advance not later than 10:00 a.m. local
time of the Applicable Lending Office (i) three (3) Interbank Business Days
prior to the date such Advance is requested to be made if such Borrowing is to
be made as an Interbank Offered Rate Revolving Credit Borrowing, and (ii) three
(3) Business Days prior to the date any Letter of Credit Advance is requested to
be made and (iii) on the date such Revolving Credit Loan is requested to be made
if such Revolving Credit Loan is to be made as a Negotiated Rate Revolving
Credit Borrowing or a Floating Rate Revolving Credit Borrowing, which notice
shall specify the Designated Borrower for which such Advance is requested,
whether an Interbank Offered Rate Loan, Negotiated Rate Loan, Floating Rate Loan
or a Letter of Credit Advance is requested and, in the case of each requested
Fixed Rate Revolving Credit Loan, the Interest Period to be initially applicable
to such Loan and the Permitted Currency in which such Loan is to be denominated.
With respect to Swing Line Loans, the Treasury Manager shall give the Agent
notice of its request for each Swing Line Loan in substantially the form of
Exhibit I hereto at the Applicable Lending Office of the Agent with respect to
such Advance not later than 1:00 p.m. local time of the Applicable Lending
Office on the same Business Day any Swing Line Loan is requested to be made
which notice shall specify the Designated Borrower for which such Swing Line
Loan is requested. The Agent, on the same day any such notice is given, shall
provide notice of such requested Revolving Credit Loan to each Bank (which
notice shall be provided by 2:00 p.m. local time of the Applicable Lending
Office with respect to Floating Rate Loans or Negotiated Rate Loans). Subject to
the terms and conditions of this Agreement, the proceeds of each such requested
Revolving Credit Loan shall be made available to the Designated Borrower
requesting such Loan by depositing the proceeds thereof, in immediately
available, freely transferable cleared funds, in the case of any Revolving
Credit Loan denominated in Dollars in an account maintained and designated by
such Borrower, and, in all other cases, in an account maintained and designated
by such Borrower at a bank acceptable to the Agent in the principal financial
center of the country issuing the Permitted Currency in which such Loan is
denominated or in such other place specified by the Agent. Subject to the terms
and conditions of this Agreement, the Agent shall, on the date any Letter of
Credit Advance is requested to be made, issue the related Letter of Credit on
behalf of the Banks for the account of the Designated Borrower requesting such
Letter of Credit. Notwithstanding anything herein to the contrary, the Agent may
decline to issue any requested Letter of Credit on the basis that the
beneficiary, the purpose of issuance or the terms or the conditions of drawing
are unacceptable to it in its discretion.
<PAGE>
23
(b) Each Bank, on the date any Revolving Credit Loan is
requested to be made, shall make its pro rata share of such Revolving Credit
Loan available in immediately available, freely transferable cleared funds for
disbursement to the Designated Borrower requesting such Loan pursuant to the
terms and conditions of this Agreement, in the case of any Revolving Credit Loan
denominated in Dollars, at the principal office of the Agent and, in all other
cases, to the account of the Agent at its designated branch or correspondent
bank in the country issuing such Permitted Currency in which such Loan is
denominated or at such other place specified by the Agent. Unless the Agent
shall have received notice from any Bank prior to the date such Revolving Credit
Loan is requested to be made under this Section 2.6 that such Bank will not make
available to the Agent such Bank's pro rata portion of such Loan, the Agent may
assume that such Bank has made such portion available to the Agent on the date
such Loan is requested to be made in accordance with this Section 2.6. If and to
the extent such Bank shall not have so made such pro rata portion available to
the Agent, the Agent may (but shall not be obligated to) make such amount
available to such Designated Borrower, and such Bank agrees to pay to the Agent
forthwith on demand such amount together with interest thereon, for each day
from the date such amount is made available to such Designated Borrower by the
Agent until the date such amount is repaid to the Agent, at a rate per annum
equal to the Federal Funds Rate or the relevant market rate with respect to
Permitted Currencies other than Dollars then in effect. If such Bank shall pay
such amount to the Agent together with interest, such amount so paid shall
constitute a Revolving Credit Loan by such Bank as part of the related Borrowing
for purposes of this Agreement. The failure of any Bank to make its pro rata
portion of any such Borrowing available to the Agent shall not relieve any other
Bank of its obligation to make available its pro rata portion of such Loan on
the date such Loan is requested to be made, but no Bank shall be responsible for
failure of any other Bank to make such pro rata portion available to the Agent
on the date of any such Loan.
(c) (i) Each Bank shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of each Borrower to such
Bank resulting from each Loan of such Bank from time to time, including the
amounts of principal and interest payable thereon and paid to such Bank from
time to time under this Agreement.
(ii) The Agent shall maintain an account for each Borrower in its books and
records with a subaccount for each Bank, in which shall be recorded (a) the
amount of each Loan made hereunder, the type thereof and each Interest Period
applicable thereto, (b) the amount of any principal or interest due and payable
or to become due and payable from each Borrower to each Bank hereunder in
respect of the Loans and (c) both the amount of any sum received by the Agent
hereunder from each Borrower in respect of the Loans and each Bank's share
thereof.
(iii) The books and records of the Agent and of each Bank maintained
pursuant to this Section 2.6(c) shall, to the extent permitted by applicable
law, be prima facie evidence of the existence and amounts of the obligations of
each Borrower therein recorded; provided, however, that the failure of any Bank
or the Agent to maintain any such books and records or any error therein, shall
not in any manner affect the obligation of each Borrower to repay (with
applicable interest) the Loans made to such Borrower by such Bank in accordance
with the terms of this Agreement.
(iv) Each Borrower agrees that, upon the request to the Agent by any Bank,
such Borrower will execute and deliver to such Bank a Revolving Credit Note and
a Swing Line Note (if applicable) of such Borrower evidencing the Loans of such
Bank; provided, that the delivery of such Notes shall not be a condition
precedent to the Effective Date. Notwithstanding anything herein to the
contrary, any and all references in this Agreement or any other Loan Document to
any amounts due or outstanding under the Notes or evidenced by the Notes shall,
in the event Notes are not executed and delivered in accordance with this
Section 2.6(c), be deemed to refer to the Advances and all other amounts
outstanding under this Agreement.
(v) Subject to the terms and conditions of this Agreement, each Borrower
may borrow Revolving Credit Loans under this Section 2.6, prepay Revolving
Credit Loans pursuant to Section 3.1 and reborrow Revolving Credit Loans under
this Section 2.6.
(d) All Bid-Option Loans shall be disbursed directly by the Bank making
such Bid-Option Loan to the Designated Borrower by 1:30 p.m. Detroit time on the
date such Bid-Option Loan is requested to be made via wire transfer in
immediately available funds to NBD Bank, 611 Woodward Avenue, Detroit, Michigan
48226, ABA Number 072000326, Attention: Agency Administration, Reference:
Invacare Bid-Option, confirm to Agency Administration, Facsimile No. (313)
225-2747 or as otherwise directed by the Borrowers.
<PAGE>
24
(e) Nothing in this Agreement shall be construed to require or authorize
any Bank to issue any Letter of Credit, it being recognized that the Agent has
the sole obligation under this Agreement to issue Letters of Credit on behalf of
the Banks, and the Commitment of each Bank with respect to Letter of Credit
Advances is expressly conditioned upon the Agent's performance of such
obligations. Upon such issuance by the Agent, each Bank shall automatically
acquire a pro rata risk participation interest in such Letter of Credit Advance
based on the amount of its respective Commitment. If the Agent shall honor a
draft or other demand for payment presented or made under any Letter of Credit,
the Agent shall provide notice thereof to each Bank (which notice shall be
provided by 2:00 p.m. Detroit time) on the date such draft or demand is honored
unless a Borrower shall have satisfied its reimbursement obligation by payment
to the Agent on such date. Each Bank, on such date, shall make its pro rata
share of the amount paid by the Agent available in immediately available funds
at the principal office of the Agent for the account of the Agent. If and to the
extent such Bank shall not have made such pro rata portion available to the
Agent, such Bank and the Borrowers severally agree to pay to the Agent forthwith
on demand such amount together with interest thereon, for each day from the date
such amount was paid by the Agent until such amount is so made available to the
Agent at a per annum rate equal to the Federal Funds Rate or the relevant market
rate with respect to Permitted Currencies other than Dollars. If such Bank shall
pay such amount to the Agent together with such interest, such amount so paid
shall constitute a Revolving Credit Loan by such Bank as part of the Revolving
Credit Borrowing disbursed in respect of the reimbursement obligation of the
Company for purposes of this Agreement. The failure of any Bank to make its pro
rata portion of any such amount paid by the Agent available to the Agent shall
not relieve any other Bank of its obligation to make available its pro rata
portion of such amount, but no Bank shall be responsible for failure of any
other Bank to make such pro rata portion available to the Agent.
2.7 Conditions for First Disbursement. The obligation of each Bank to
make its first Advance hereunder is subject to receipt by each Bank and the
Agent of the following documents and completion of the following matters, in
form and substance reasonably satisfactory to each Bank and the Agent:
(a) Charter Documents. Certificates of recent date of the
appropriate authority or official of the Company's state of incorporation
listing all charter documents of the Company, on file in that office and
certifying as to the good standing and corporate existence of the Company,
together with copies of such charter documents of the Company, certified as of a
recent date by such authority or official and certified as true and correct as
of the Effective Date by a duly authorized officer of the Company;
(b) By-Laws and Corporate Authorizations. Copies of the
by-laws of the Company together with all authorizing resolutions and evidence of
other corporate action taken by the Company to authorize the execution, delivery
and performance by the Company of this Agreement, the Guaranty and the Notes and
the consummation by the Company of the transactions contemplated hereby,
certified as true and correct as of the Effective Date by a duly authorized
officer of the Company;
<PAGE>
25
(c) Incumbency Certificate. Certificates of incumbency of each
Borrower containing, and attesting to the genuineness of, the signatures of
those officers authorized to act on behalf of such Borrower in connection with
this Agreement and the Notes and the consummation by such Borrower of the
transactions contemplated hereby, certified as true and correct as of the
Effective Date by a duly authorized officer of each Borrower;
(d) Guaranty. The Guaranty duly executed by the Company
for the Banks;
(e) Legal Opinion. The favorable written opinion of
counsel for the Company in the form of Exhibit J attached hereto; and
(f) Consents, Approvals, Etc. Copies of all governmental and
nongovernmental consents, approvals, authorizations, declarations, registrations
or filings, if any, required on the part of the Company in connection with the
execution, delivery and performance of this Agreement, the Guaranty and the
Notes or the transactions contemplated hereby or as a condition to the legality,
validity or enforceability of this Agreement and the Notes, certified as true
and correct and in full force and effect as of the Effective Date by a duly
authorized officer of the Company, or, if none are required, a certificate of
such officer to that effect.
2.8 Further Conditions for Disbursement. The obligation of each Bank to
make any Advance (including its first Advance), or any continuation or
conversion under Section 2.9, is further subject to the satisfaction of the
following conditions precedent:
(a) The representations and warranties contained in Article IV
hereof and in any other Loan Document shall be true and correct in all material
respects on and as of the date such Advance is made, continued or converted
(both before and after such Advance is made, continued or converted) as if such
representations and warranties were made on and as of such date; and
(b) No Event of Default and no Default shall exist or shall
have occurred and be continuing on the date such Advance is made, continued or
converted (whether before or after such Advance is made, continued or
converted);
(c) Prior to the issuance of the initial Letter of Credit
Advance, the Borrowers, the Agent and the Banks shall have entered into an
agreement containing terms and conditions regarding Letters of Credit, which
agreement shall be mutually satisfactory to all parties thereto.
(d) In the case of any Letter of Credit Advance, the Borrower
requesting such Letter of Credit Advance shall have delivered to the Agent an
application for the related Letter of Credit and other related documentation
requested by and acceptable to the Agent and the Banks appropriately completed
and duly executed on behalf of such Borrower and the Agent and the Banks shall
have negotiated all fees described in Section 2.5(b).
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26
Each Borrower shall be deemed to have made a representation and warranty to the
Banks at the time of the making of, and the continuation or conversion of, each
Advance to the effects set forth in clauses (a) and (b) of this Section 2.8. For
purposes of this Section 2.8, the representations and warranties contained in
Section 4.6 hereof shall be deemed made with respect to the most recent
financial statements delivered pursuant to Section 5.1(d)(ii) and (iii).
2.9 Subsequent Elections as to Borrowings. The Treasury Manager may
elect (a) to continue a Fixed Rate Revolving Credit Borrowing of one type, or a
portion thereof, as a Fixed Rate Revolving Credit Borrowing of the then existing
type, or (b) may elect to convert a Fixed Rate Revolving Credit Borrowing, or a
portion thereof, to a Borrowing of another type or (c) elect to convert a
Floating Rate Borrowing, or a portion thereof, to a Fixed Rate Revolving Credit
Borrowing, in each case by giving notice thereof to the Agent in substantially
the form of Exhibit K hereto at the principal office of the Agent and at the
Applicable Lending Office of the Agent with respect to such Loan not later than
10:00 a.m. local time of the Applicable Lending Office (i) three (3) Interbank
Business Days prior to the date any such continuation of or conversion to a
Interbank Offered Rate Revolving Credit Borrowing is to be effective and (ii)
the date such continuation or conversion is to be effective in all other cases,
provided that an outstanding Fixed Rate Revolving Credit Borrowing may only be
converted on the last day of the then current Interest Period with respect to
such Borrowing, and provided, further, if a continuation of a Borrowing as, or a
conversion of a Borrowing to, a Fixed Rate Revolving Credit Borrowing is
requested, such notice shall also specify the Interest Period to be applicable
thereto upon such continuation or conversion. The Agent, on the day any such
notice is given, shall provide notice of such election to the Banks. If the
Treasury Manager shall not timely deliver such a notice with respect to any
outstanding Fixed Rate Revolving Credit Borrowing, the Borrower shall be deemed
to have elected to convert such Fixed Rate Revolving Credit Borrowing to a
Floating Rate Borrowing on the last day of the then current Interest Period with
respect to such Borrowing.
2.10 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for a
Fixed Rate Revolving Credit Borrowing pursuant to Section 2.6, or a request for
a continuation of a Fixed Rate Revolving Credit Borrowing as a Fixed Rate
Revolving Credit Borrowing of the then existing type, or a request for
conversion of a Fixed Rate Revolving Credit Borrowing of one type to a Fixed
Rate Revolving Credit Borrowing of another type, or a request for a conversion
of a Floating Rate Borrowing to a Fixed Rate Revolving Credit Borrowing pursuant
to Section 2.9, (a) in the case of any Interbank Offered Rate Borrowing,
deposits in the relevant Permitted Currency for periods comparable to the
Interest Period elected by the Borrower are not available to any Bank in the
relevant interbank or secondary market and such Bank has provided to the Agent
and the Borrowers a certificate prepared in good faith to that effect, or (b)
any Bank reasonably determines that the applicable interest rate (net of the
Applicable Margin for the Interbank Offered Rate) will not adequately and fairly
reflect the cost to such Bank of making, funding or maintaining the related
Fixed Rate Revolving Credit Loan and such Bank has provided to the Agent and the
Borrowers a certificate prepared in good faith to that effect, or (c) by reason
of national or international financial, political or economic conditions or by
reason of any applicable law, treaty, rule or regulation (whether domestic or
foreign) now or hereafter in effect, or the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank with any directive of such
authority (whether or not having the force of law), including without limitation
exchange controls, it is impracticable, unlawful or impossible for any Bank (i)
to make or fund the relevant Fixed Rate Revolving Credit Borrowing or (ii) to
continue such Fixed Rate Revolving Credit Borrowing as a Fixed Rate Revolving
Credit Borrowing of the then existing type or (iii) to convert a Loan to such a
Fixed Rate Revolving Credit Loan, and such Bank has provided to the Agent and
the Borrowers a certificate prepared in good faith to that effect, then the
Borrowers shall not be entitled, so long as such circumstances continue, to
request a Fixed Rate Revolving Credit Borrowing of the affected type pursuant to
Section 2.6 or a continuation of or conversion to a Fixed Rate Revolving Credit
Borrowing of the affected type pursuant to Section 2.9. In the event that such
circumstances no longer exist, the Banks shall again honor requests, subject to
this Agreement, for Fixed Rate Revolving Credit Borrowings of the affected type
pursuant to Section 2.6, and requests for continuations of and conversions to
Fixed Rate Revolving Credit Borrowings of the affected type pursuant to Section
2.9.
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2.11 Minimum Amounts; Limitation on Number of Borrowings. Except for
(a) Borrowings and conversions thereof which exhaust the entire remaining amount
of the Commitments, and (b) conversions or payments required pursuant to Section
3.1(b) or Section 3.7, each Revolving Credit Loan and each continuation or
conversion pursuant to Section 2.9 and each prepayment thereof shall be in a
minimum amount of $1,000,000 and in integral multiples of $500,000 and each
Letter of Credit shall be in a minimum amount of $250,000. Notwithstanding
anything herein to the contrary, the Borrowers shall not be permitted to request
(a) that any Revolving Credit Loan be denominated in any currency other than a
Permitted Currency or (b) that any Revolving Credit Loan other than a Interbank
Offered Rate Loan be denominated in a currency other than Dollars.
2.12 Treasury Manager. Each Borrower authorizes the Treasury Manager to
act as its manager in making requests and in carrying out as its manager and on
its behalf all other functions conferred on the Treasury Manager under this
Agreement and all other ancillary functions. Each Borrower further agrees that
the Treasury Manager may nominate any Borrower as the Designated Borrower, and
agrees that the Advances allocated to it, and all other acts carried out by the
Treasury Manager falling within its authority, shall be conclusive and binding
on it and all parties. Neither any Bank nor the Agent is or shall be deemed to
be concerted as to the Treasury Manager's compliance or otherwise with
instructions from any Borrower. The content of each request and every other
notice delivered by the Treasury Manager shall be irrevocable, and the Agent and
the Banks shall be entitled to rely fully on their content.
ARTICLE III
PAYMENTS AND PREPAYMENTS
3.1 Principal Payments.
(a) Unless earlier payment is required under this Agreement, the
Borrowers shall pay to the Banks on the Termination Date the entire outstanding
principal amount of the Revolving Credit Loans.
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(b) Unless earlier payment is required under this Agreement, the
Borrowers shall, on the maturity date of any Bid-Option Loan, pay to the Bank of
such Bid-Option Loan the outstanding principal amount of such Loan.
(c) The Borrowers may at any time and from time to time prepay all or a
portion of the Loans without premium or penalty in the case of Revolving Credit
Loans, provided that (i) a Borrower may not prepay any portion of any Loan as to
which an election for continuation of or conversion to a Fixed Rate Revolving
Credit Loan is pending pursuant to Section 2.9, and (ii) unless earlier payment
is required under this Agreement or unless Borrower pays all amounts required
pursuant to Section 3.8, any Fixed Rate Revolving Credit Loan or Bid-Option Loan
may only be prepaid on the last day of the then current Interest Period with
respect to such Loan and (iii) such prepayment shall only be permitted if the
Treasury Manager shall have given notice thereof on the Business Day of such
prepayment with respect to prepayment of Floating Rate Loans and Negotiated Rate
Loans and not less than three (3) Interbank Business Days notice thereof with
respect to prepayment of Interbank Offered Rate Loans, such notice specifying
the Loan or portion thereof to be so prepaid and shall have paid to the Banks,
together with such prepayment of principal, all accrued interest to the date of
payment on such Loan or portion thereof so prepaid and all amounts owing to the
Banks under Section 3.8 in connection with such prepayment. Upon the giving of
such notice, the aggregate principal amount of such Loan or portion thereof so
specified in such notice, together with such accrued interest and other amounts,
shall become due and payable on the specified date.
(d) If, pursuant to Section 2.9, a Borrowing, or portion thereof, is
continued or converted, such Borrowing or portion thereof shall be repaid on the
last day of the related Interest Period in the Permitted Currency in which such
Borrowing is then denominated and (i) in the case of any conversion, the Agent
shall readvance to the Borrower making such request the Equivalent of the
Original Dollar Amount of the Borrowing or portion thereof as has been so repaid
by the Borrower in the Permitted Currency requested pursuant to Section 2.7, and
(ii) in the case of any continuation when the aggregate outstanding amount of
Revolving Credit Advances exceeds 90% of the aggregate Commitments, the Agent
shall readvance to the Borrower the same amount of such Permitted Currency as
has been so repaid. The Agent shall provide notice to the Company of the
activation of clause (ii) above. For purposes of effecting the repayment
required by this Section 3.1(d), the Agent shall apply the proceeds of such
readvance toward the repayment of such Borrowing or portion thereof on the last
day of the related Interest Period. In the case of any conversion, the Agent
shall be deemed to have applied the proceeds of such Advance toward the purchase
of the Permitted Currency to be repaid and to have applied the proceeds of such
purchase toward such repayment. If after any such application there shall remain
owing an amount of the Permitted Currency due to the Agent, for the benefit of
the Banks, or if an excess of such Permitted Currency shall result, such
Borrower shall pay to the Banks, or the Banks shall pay to such Borrower the
amount of such deficiency or such excess. In the case of any continuation
described in clause (ii) above, on the last day of such Interest Period, the
Original Dollar Amount of such Borrowing or portion thereof shall be adjusted to
the amount in Dollars resulting from the conversion of the amount of such
Permitted Currency so readvanced to Dollars determined two (2) Business Days
prior to such day. On the date of each such conversion or continuation, if the
Dollar Equivalent on such date of all Advances, including the Advances being
continued or converted, exceeds the aggregate Commitments of the Banks, the
Borrower shall take the following actions in the following order until such
excess of the Dollar Equivalent of all Advances over the aggregate Commitments
of the Banks is eliminated: (a) on such date, first, reduce or withdraw any
pending request for a new Advance in Dollars to be made on such date, second,
repay in Dollars any Floating Rate Loan denominated in Dollars then outstanding,
and third, reduce the amount of, or repay, in the Permitted Currency in which
such Borrowing is denominated, any Advance which the Borrower has requested to
be converted or continued on such date, and (b) on the last day of each
Interbank Interest Period ending thereafter, reduce the amount of, or repay in
the Permitted Currency in which such Borrowing is denominated, any Advance which
the Borrower has requested to be converted or continued on such last day.
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3.2 Interest Payments. The Borrowers shall pay interest to the Banks on
the unpaid principal amount of each Loan (other than Bid-Option Loans, for which
the interest shall be payable directly to the Bank of such Bid-Option Loan as
described in clause (b) below), for the period commencing on the date such Loan
is made until such Loan is paid in full, on each Interest Payment Date and at
maturity (whether at stated maturity, by acceleration or otherwise), and
thereafter on demand, at the following rates per annum:
(a) With respect to Revolving Credit Loans:
(i) During such periods that such Loan is a Floating
Rate Loan, the Floating Rate.
(ii) During such periods that such Loan is a
Negotiated Rate Loan, the Negotiated
Rate.
(iii) During such periods that such Loan is an
Interbank Offered Rate Loan, the
Interbank Offered Rate applicable to such Loan for each related Interbank
Interest Period.
(b) With respect to Bid-Option Loans, the Bid-Option Rate
quoted for such Loan by the Bank making such Loan.
(c) With respect to Swing Line Loans:
(i) During such periods that such Loan is an
Interbank Offered Rate Loan, the Interbank Offered Rate.
(ii) During such periods that such Loan is a
Negotiated Rate Loan, the Negotiated
Rate Loan.
Notwithstanding the foregoing paragraphs (a) through (c), the Borrowers shall
pay interest on demand at the Overdue Rate on the outstanding principal amount
of any Loan and any other amount payable by the Borrowers hereunder (other than
interest) on and after an Event of Default.
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3.3 Payment Method.
(a) All payments to be made by the Borrowers hereunder will be
made to the Agent for the account of the Banks (i) in the case of principal and
interest on any Loan, in the Permitted Currency in which such Loan is
denominated and (ii) in all other cases, in the otherwise specified or relevant
currency, and in all cases in immediately available, freely transferable,
cleared funds, in the case of any payment to be made in Dollars, not later than
2:00 p.m. at the place for payment on the date on which such payment shall be
come due and, in all other cases, on the date on which such payment shall become
due, (x) in the case of principal and interest on any Loan denominated in a
Permitted Currency other than Dollars, by credit to the account of the Agent at
its designated branch or correspondent bank in the country issuing the relevant
Permitted Currency or in such other place specified by the Agent with respect to
such Loan pursuant to Section 2.6(b), and (y) in all other cases to the Agent at
the address of its principal office specified in Section 8.2. Payments to be
made in Dollars received after 2:00 p.m. at the place for payment shall be
deemed to be payments made prior to 2:00 p.m. at the place for payment on the
next succeeding Business Day. Each Borrower hereby authorizes the Agent to
charge its account with the Agent in order to cause timely payment of amounts
due hereunder to be made (subject to sufficient funds being available in such
account for that purpose).
(b) At the time of making each such payment, a Borrower shall,
subject to the other terms and conditions of this Agreement, specify to the
Agent that Borrowing or other obligation of the Borrowers hereunder to which
such payment is to be applied. In the event that a Borrower fails to so specify
the relevant obligation or if an Event of Default shall have occurred and be
continuing, the Agent may apply such payments as it may determine in its sole
discretion to obligations of the Borrowers to the Banks arising under this
Agreement.
(c) On the day such payments are deemed received, the Agent
shall promptly remit to the Banks their pro rata shares of such payments in
immediately available funds, (i) in the case of payments of principal and
interest on any Borrowing denominated in a Permitted Currency other than
Dollars, at an account maintained and designated by each Bank at a bank in the
principal financial center of the country issuing the Permitted Currency in
which such Borrowing is denominated or in such other place specified by the
Agent and agreed to by the Banks and (ii) in all other cases, to the Banks at
their respective address in the United States specified for notices pursuant to
Section 8.2. Such pro rata shares shall be determined with respect to each such
Bank, (i) in the case of payments of principal and interest on any Borrowing, by
the ratio which the outstanding principal balance of its Loan included in such
Borrowing bears to the outstanding principal balance of the Loans of all of the
Banks included in such Borrowing and (ii) in the case of fees paid pursuant to
Section 2.5 and other amounts payable hereunder (other than the Agent's fees
payable pursuant to Section 2.5(c) and amounts payable to any Bank under Section
2.6 or 3.6) by the ratio which the Commitment of such Bank bears to the
Commitments of all the Banks.
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(d) This Agreement arises in the context of an international
transaction, and the specification of payment in a specific currency at a
specific place pursuant to this Agreement is of the essence. Such specified
currency shall be the currency of account and payment under this Agreement. The
obligations of the Borrowers hereunder shall not be discharged by an amount paid
in any other currency or at another place, whether pursuant to a judgment or
otherwise, to the extent that the amount so paid, on prompt conversion into the
applicable currency and transfer to the Banks under normal banking procedure,
does not yield the amount of such currency due under this Agreement. In the
event that any payment, whether pursuant to a judgment or otherwise, upon
conversion and transfer, does not result in payment of the amount of such
currency due under this Agreement, the Banks shall have an independent cause of
action against the Borrowers for the currency deficit.
(e) If for purposes of obtaining judgment in any court it
becomes necessary to convert any currency due hereunder into any other currency,
the Borrowers will pay such additional amount, if any, as may be necessary to
ensure that the amount paid in respect of such judgment is the amount in such
other currency which, when converted at the Agent's spot rate of exchange
prevailing on the date of payment, would yield the same amount of the currency
due hereunder. Any amount due from the Borrowers under this Section 3.3(e) will
be due as a separate debt and shall not be affected by judgment being obtained
for any other sum due under or in respect of this Agreement.
3.4 No Setoff or Deduction.
(a) All such payments shall be made free and clear of any
present or future taxes or withholdings and without any set-off or counter claim
or any restriction or condition or deduction whatsoever. The Designated Borrower
shall indemnify the Agent and each Bank against any taxes or charges (other than
taxes imposed on net overall income of the Bank or the Agent, by the
jurisdiction, or by any political subdivision or taxing authority of any such
jurisdiction, in which any Bank or the Agent, as the case may be, has its
principal office) which may be claimed from it in respect of the Advances or any
of them or any sum payable by the Borrowers or any of them hereunder and against
any costs, charges and expenses or liabilities in respect of such claim and such
indemnity shall survive the termination of the Commitments.
(b) If at any time any Borrower is required by law or by any
directive or order of any court of competent jurisdiction to make any deduction
or withholding of whatsoever nature from any payment due under this Agreement or
any of the Loan Documents, such Borrower will ensure that the same does not
exceed the minimum liability therefor and will (a) pay to any Bank on request
such additional amount as such Bank certifies will result in the net amount
received by it after all deductions being equal to the full amount which would
have been receivable had there been no deduction or withholding and (b) pay
forthwith to the relevant authorities the full amount of the deduction or
withholding and deliver to the Agent such an official receipt, certificate or
other proof evidencing the amount paid in respect of such deduction or
withholding. Any additional amount paid under this sub-clause shall not be
treated as interest but as agreed compensation.
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(c) If any payment by any Borrower is made to or for the
account of any Bank after deduction for or on account of tax, and additional
payments are made by the Designated Borrower then, if any Bank shall receive or
be granted a credit against or remission for such tax, such Bank shall, to the
extent that it can do so without prejudice to the retention of the amount of
such credit or remission, reimburse to the Designated Borrower such amount as
such Bank shall, in its absolute opinion, have concluded to be attributable to
the relevant tax or deduction or withholding. Nothing herein contained shall
interfere with the right of any Bank to arrange its affairs in whatever manner
it thinks fit and, in particular, the Banks shall not be under any obligation to
claim relief from its corporation profits or similar tax liability in respect of
such tax in priority to any other claims, reliefs, credits or deductions
available to it nor oblige any Bank to disclose any information relating to its
tax affairs. Such reimbursement shall be made as soon as reasonably practical
upon such Bank certifying that the amount of such credit or remission has been
received by it.
3.5 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan or any other amount due hereunder
becomes due and payable on a day which is not a Business Day, the maturity
thereof shall be extended to the next succeeding Business Day and, in the case
of any installment of principal, interest shall be payable thereon at the rate
per annum determined in accordance with this Agreement during such extension.
Computations of interest and other amounts due under this Agreement shall be
made on the basis of a year of 360 days, 365 or 366 days, as determined by the
Agent to be the custom and practice in the relevant market, for the actual
number of days elapsed, including the first day but excluding the last day of
the relevant period.
3.6 Additional Costs.
(a) In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect and whether
or not presently applicable to any Bank or the Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Bank or the Agent
with any directive of any such authority (whether or not having the force of
law), shall (i) affect the basis of taxation of payments to any Bank or the
Agent of any amounts payable by any Borrower under this Agreement (other than
taxes imposed on the overall net income of the Bank or the Agent, by the
jurisdiction, or by any political subdivision or taxing authority of any such
jurisdiction, in which any Bank or the Agent, as the case may be, has its
principal office), or (ii) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by any Bank or the Agent, as the case may be,
or (iii) shall impose any other condition with respect to this Agreement, the
Commitments, the Notes or the Advances, and the result of any of the foregoing
is to increase the cost to any Bank or the Agent, as the case may be, of making,
funding or maintaining any Fixed Rate Loan or to reduce the amount of any sum
receivable by any Bank or the Agent, thereon, then the Borrowers shall pay to
such Bank or the Agent, as the case may be, from time to time, upon request by
such Bank (with a copy of such request to be provided to the Agent) or the
Agent, additional amounts sufficient to compensate such Bank or the Agent, as
the case may be, for such increased cost or reduced sum receivable to the
extent, in the case of any Fixed Rate Loan, such Bank or the Agent, as the case
may be, is not compensated therefor in the computation of the interest rate
applicable to such Fixed Rate Loan. Each Bank or the Agent, as the case may be,
seeking compensation hereunder shall deliver to the Borrowers a statement
setting forth (i) such increased cost or reduced sum receivable as such Bank or
the Agent, as the case may be, has calculated in good faith, (ii) a description
of the event giving rise thereto, (iii) a calculation in reasonable detail of
the amounts requested and (iv) a statement that such Bank or the Agent, as the
case may be, has not allocated to its Commitment, Borrowings or outstanding
Loans a proportionately greater amount than is attributable to each of its other
credit extensions that are affected similarly by compliance by such Bank or the
Agent, as the case may be, whether or not such Bank or the Agent, as the case
may be, allocates any portion of such amount to such other commitments or credit
extensions. Such statement as to the amount of such increased cost or reduced
sum receivable, prepared in good faith and in reasonable detail by such Bank or
the Agent, as the case may be, and submitted by such Bank or the Agent, as the
case may be, to the Borrowers, shall be conclusive and binding for all purposes
absent manifest error in computation.
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(b) In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect and whether
or not presently applicable to any Bank or the Agent, but applicable to banks or
financial institutions generally, or any interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by any Bank or the Agent with any
directive of any such authority (whether or not having the force of law),
including any risk-based capital guidelines, affects the amount of capital
required or expected to be maintained by such Bank or the Agent (or any
corporation controlling such Bank or the Agent) and such Bank or the Agent, as
the case may be, determines that the amount of such capital is increased by or
based upon the existence of such Bank's or the Agent's obligations hereunder and
such increase has the effect of reducing the rate of return on such Bank's or
the Agent's (or such controlling corporation's) capital as a consequence of such
obligations hereunder to a level below that which such Bank or the Agent (or
such controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank or the Agent to be material, then the Borrowers shall
pay to such Bank or the Agent, as the case may be, from time to time, upon
request by such Bank (with a copy of such request to be provided to the Agent)
or the Agent, additional amounts sufficient to compensate such Bank or the Agent
(or such controlling corporation) for any reduced rate of return which such Bank
or the Agent reasonably determines to be allocable to the existence of such
Bank's or the Agent's obligations hereunder. Each Bank or the Agent, as the case
may be, seeking compensation hereunder shall deliver to the Borrowers a
statement setting forth (i) such increased cost or reduced sum receivable as
such Bank or the Agent, as the case may be, has calculated in good faith, (ii) a
description of the event giving rise thereto, (iii) a calculation in reasonable
detail of the amounts requested and (iv) a statement that such Bank or the
Agent, as the case may be, has not allocated to its Commitment, Borrowings or
outstanding Loans a proportionately greater amount than is attributable to each
of its other credit extensions that are affected similarly by compliance by such
Bank or the Agent, as the case may be, whether or not such Bank or the Agent, as
the case may be, allocates any portion of such amount to such other commitments
or credit extensions. Such statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by such Bank or the Agent, as
the case may be, and submitted by such Bank or the Agent to the Borrowers, shall
be conclusive and binding for all purposes absent manifest error in computation.
3.7 Illegality and Impossibility. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Bank
with any directive of such authority (whether or not having the force of law),
including without limitation exchange controls, shall make it unlawful or
impossible for any Bank to maintain any Fixed Rate Loan under this Agreement or
shall make it impracticable, unlawful or impossible for, or shall in any way
limit or impair the ability of, any Borrower to make or any Bank to receive any
payment under this Agreement at the place specified for payment hereunder, or to
freely convert any amount paid into Dollars at market rates of exchange or to
transfer any amount paid or so converted to the address of its principal office
specified in Section 8.2, the Borrowers shall upon receipt of notice thereof
from such Bank, repay in full the then outstanding principal amount of each
Fixed Rate Loan so affected, together with all accrued interest thereon to the
date of payment and all amounts owing to such Bank under Section 3.8, (a) on the
last day of the then current Interest Period applicable to such Loan if such
Bank may lawfully continue to maintain such Loan to such day, or (b) immediately
if such Bank may not continue to maintain such Loan to such day.
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3.8 Indemnification. If any Borrower makes any payment of principal
with respect to any Loan on any other date than the last day of an Interest
Period applicable thereto, (whether pursuant to Section 3.7 or Section 6.2 or
otherwise), or if any Borrower fails to borrow, continue or convert any Loan
after notice has been given to the Banks in accordance with Section 2.6 or
Section 2.9, the Borrowers shall reimburse each Bank on demand for any resulting
net loss or expense incurred by each such Bank after giving credit for any
earnings or other quantifiable financial benefit to such Bank from such Bank's
investment or other amounts prepaid or not reborrowed, including without
limitation any loss incurred in obtaining, liquidating or employing deposits
from third parties, whether or not such Bank shall have funded or committed to
fund such Loan. A statement as to the amount of such loss or expense, prepared
in good faith and in reasonable detail by such Bank and submitted by such Bank
to the Borrowers, shall be conclusive and binding for all purposes absent
manifest error in computation, provided that before delivery of such statement,
each Bank shall use reasonable efforts in accordance with its normal practices
and procedures to reduce amounts payable under this Section. Calculation of all
amounts payable to such Bank under this Section 3.8 shall be made as though such
Bank shall have actually funded or committed to fund the relevant Loan through
the purchase of an underlying deposit in an amount equal to the amount of such
Loan and having a maturity comparable to the related Interest Period; provided,
however, that such Bank may fund any Loan in any manner it sees fit and the
foregoing assumption shall be utilized only for the purpose of calculation of
amounts payable under this Section 3.8.
3.9 Right of Banks to Fund Through Other Offices. Each Bank may perform
its Commitment to fund its pro rata share of any Loan or, with respect to the
Agent, any Swing Line Loan to the Borrowers by causing an affiliate of such Bank
to provide such funds in accordance with the terms of this Agreement. For all
purposes of this Agreement, any amounts so advanced shall be deemed to have been
advanced by such Bank, and the obligation of the Borrowers to repay such amounts
shall be as provided in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to the Agent and the Banks that:
4.1 Corporate Existence and Power. Each Borrower is a Person duly
organized, validly existing and in good standing under the laws of the state or
other political subdivision of its jurisdiction of incorporation or
organization, as the case may be, and is duly qualified to do business, and is
in good standing, in all additional jurisdictions where such qualification is
necessary under applicable law, except where the failure to be so qualified
would not have a material adverse effect on the business and financial condition
of the Company and its Subsidiaries taken as a whole. Each Borrower has all
requisite corporate power to own or lease the properties used in its business
and to carry on its business as now being conducted and as proposed to be
conducted, and to execute and deliver the Loan Documents to which it is a party
and to engage in the transactions contemplated by the Loan Documents.
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4.2 Corporate Authority. The execution, delivery and performance by
each Borrower of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action and are not in contravention of any
material law, rule or regulation, or any judgment, decree, writ, injunction,
order or award of any arbitrator, court or governmental authority, or of the
terms of such Borrower's charter or by-laws, or of any material contract or
undertaking to which the Borrower is a party or by which the Borrower or its
property is bound or affected and do not result in the imposition of any Lien
except for Permitted Liens.
4.3 Binding Effect. The Loan Documents when delivered hereunder will
be, legal, valid and binding obligations of each Borrower party thereto
enforceable against each Borrower in accordance with their respective terms;
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors' rights
and except that the remedy of specific performance and injunctive and other
forms of equitable relief are subject to equitable defenses and to the
discretion of the court before which any proceedings may be brought.
4.4 Subsidiaries. Schedule 4.4 hereto correctly sets forth the
corporate name, jurisdiction of incorporation and ownership of each Subsidiary
of the Company. Each Subsidiary and each corporation becoming a Subsidiary of
the Company after the date hereof is and will be a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and is and will be duly qualified to do business in each
additional jurisdiction where such qualification is or may be necessary under
applicable law, except where the failure to be so qualified would not have a
material adverse effect on the business or financial condition of the Company
and its Subsidiaries taken as a whole.
4.5 Litigation. Except as set forth in Schedule 4.5 hereto, there is no
action, suit or proceeding pending or, to the best of each Borrower's knowledge,
threatened against or affecting any Borrower or any of their respective
Subsidiaries before or by any court, governmental authority or arbitrator, which
if adversely decided would result, either individually or collectively, in any
material adverse change in the business, properties, operations or financial
condition of the Company and its Subsidiaries taken as a whole or in any
material adverse effect on the legality, validity or enforceability of any Loan
Document and, to the best of the Company's knowledge, there is no basis for any
such action, suit or proceeding.
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4.6 Financial Condition. The consolidated balance sheet of the Company
and its Subsidiaries and the consolidated statements of income and cash flow of
the Company and its Subsidiaries for the fiscal year ended December 31, 1996 and
reported on by Ernst & Young, independent certified public accountants, and the
interim consolidated statements of income, retained earnings and cash flow of
the Company and its Subsidiaries as of or for the six-month period ended June
30, 1997 and the earnings release of the Company and its Subsidiaries as of and
for the nine-month period ended September 30, 1997, copies of which have been
furnished to the Banks, fairly present, and the subsequent financial statements
of the Company and its Subsidiaries delivered pursuant to Section 5.1(d) will
fairly present the consolidated financial position of the Company and its
Subsidiaries as at the respective dates thereof, and the consolidated results of
operations of the Company and its Subsidiaries for the respective periods
indicated, all in accordance with generally accepted accounting principles
consistently applied (subject, in the case of said interim statements, to normal
year-end adjustments). There has been no material adverse change in the
financial condition of the Company and its Subsidiaries taken as a whole since
September 30, 1997. There is no material Contingent Liability of the Company
that is not reflected in such financial statements or in the notes thereto.
4.7 Use of Loans. Each Borrower will use the proceeds of the Loans for
its general corporate purposes, including repayment of certain Indebtedness
under the Existing Loan Agreements and Acquisitions negotiated between the
Company and prospective sellers.
4.8 Consents, Etc. Except for such consents, approvals, authorizations,
declarations, registrations or filings delivered by the Company pursuant to
Section 2.7(g), if any, each of which is in full force and effect, no consent,
approval or authorization of or declaration, registration or filing with any
governmental authority or any nongovernmental person, including without
limitation any creditor, lessor or stockholder of any Borrower, is required on
the part of any Borrower in connection with the execution, delivery and
performance of the Loan Documents or the transactions contemplated hereby or as
a condition to the legality, validity or enforceability of the Loan Documents,
except where the failure to obtain such consents, approvals, authorizations,
declarations, registrations or filings would not have a material adverse effect
on the Company and its Subsidiaries, taken as a whole.
4.9 Taxes. The Company has filed all material tax returns (federal,
state and local) required to be filed and have paid all taxes shown thereon to
be due, including interest and penalties, or have established adequate financial
reserves on their respective books and records for payment thereof, except where
the failure to file such returns, pay such taxes or establish such reserves
would not have a material adverse effect on the Company and its Subsidiaries,
taken as a whole.
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37
4.10 Title to Properties. Except as otherwise disclosed in the latest
balance sheet delivered pursuant to this Agreement, the Company or one or more
of its Subsidiaries have good and marketable fee simple title to all of the real
property to the best of the Company's knowledge absent manifest error, and a
valid and indefeasible ownership interest in all of the other properties and
assets reflected in said balance sheet or subsequently acquired by the Company
or any such Subsidiary material to the business or financial condition of the
Company and its Subsidiaries taken as a whole, except for title defects that do
not have a material adverse effect. All of such properties and assets are free
and clear of any Lien, except for Permitted Liens.
4.11 ERISA. The Borrowers, their respective Subsidiaries, their ERISA
Affiliates and their respective Plans are in substantial compliance in all
material respects with those provisions of ERISA and of the Code which are
applicable with respect to any Plan. No Prohibited Transaction and no Reportable
Event has occurred with respect to any such Plan which would cause an Event of
Default. No Borrower, any of their respective Subsidiaries nor any of their
ERISA Affiliates is an employer with respect to any Multiemployer Plan. The
Borrowers, their respective Subsidiaries and their ERISA Affiliates have met the
minimum funding requirements under ERISA and the Code with respect to each of
their respective Plans, if any, and have not incurred any liability to the PBGC,
other than premiums which are not yet due and payable. The execution, delivery
and performance of the Loan Documents does not constitute a Prohibited
Transaction. There is no material unfunded benefit liability, determined in
accordance with Section 4001(a)(18) of ERISA, with respect to any Plan of any
Borrower, their respective Subsidiaries or their ERISA Affiliates.
4.12 Environmental and Safety Matters. Except as disclosed on Schedule
4.12, to the best of each Borrower's knowledge, each Borrower and each
Subsidiary of each Borrower is in substantial compliance with all material
federal, state and local laws, ordinances and regulations relating to safety and
industrial hygiene or to the environmental condition, including without
limitation all material Environmental Laws in jurisdictions in which any
Borrower or any such Subsidiary owns or operates, or has owned or operated, a
facility or site, or arranges or has arranged for disposal or treatment of
hazardous substances, solid waste, or other wastes, accepts or has accepted for
transport any hazardous substances, solid wastes or other wastes or holds or has
held any interest in real property or otherwise. Except as disclosed on Schedule
4.12, no written demand, claim, notice, suit, suit in equity, action,
administrative action, investigation or inquiry whether brought by any
governmental authority, private person or otherwise, arising under, relating to
or in connection with any Environmental Laws is pending or, to the best of each
Borrower's knowledge, threatened against any Borrower or any such Subsidiary,
any real property in which any Borrower or any such Subsidiary holds or has held
an interest or any past or present operation of any Borrower or any such
Subsidiary which would have a material adverse effect on the Company and its
Subsidiaries, taken as a whole. Neither any Borrower nor any Subsidiary of any
Borrower (a) is the subject of any federal or state investigation evaluating
whether any remedial action is needed to respond to a release of any toxic
substances, radioactive materials, hazardous wastes or related materials into
the environment, or (b) has received any notice of any toxic substances,
radioactive materials, hazardous waste or related materials in, or upon any of
its properties in violation of any Environmental Laws. As to such matters
disclosed on Schedule 4.12, to the best of each Borrower's knowledge, none will
have a material adverse effect on the financial condition or business of the
Company and its Subsidiaries taken as a whole. Except as set forth on Schedule
4.12, to the best of each Borrower's knowledge, no release, threatened release
or disposal of hazardous waste, solid waste or other wastes is occurring or has
occurred on, under or to any real property in which any Borrower or any of their
respective Subsidiaries holds any interest or performs any of its operations, in
material violation of any Environmental Law.
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38
4.13 No Material Adverse Change. Neither the Company nor any of its
Subsidiaries has received any notice, citation or communication of the nature
referred to in Section 5.1(d)(i), except in respect of such matters as have been
or are being remediated in all material respects or are being contested or
remediated in good faith, and, in the case of any such matter being so contested
or remediated, and as of the date of this Agreement, adequate provision for all
material costs of any remediation is reflected in the financial statements
referred to in Section 4.6 of this Agreement, and in respect of any such notice,
citation or communication received after the date of this Agreement, will be
reflected in the subsequent financial statements furnished to the Agent and the
Banks pursuant to Sections 5.1(d)(ii) and 5.1(d)(iii).
ARTICLE V
COVENANTS
5.1 Affirmative Covenants. Each Borrower covenants and agrees that,
until the Termination Date and thereafter until irrevocable payment in full of
the principal of and accrued interest on the Notes and the performance of all
other obligations of the Borrowers under this Agreement, unless the Required
Banks shall otherwise consent in writing, it shall, and shall cause each of its
Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except to the extent permitted by Section 5.2(h),
and its qualification as a foreign corporation in good standing in each
jurisdiction in which such qualification is necessary under applicable law,
other than where failure to so qualify will not have a material adverse effect
on the Company and its Subsidiaries taken as a whole.
(b) Compliance with Laws, Etc. Comply in all material respects
with all applicable laws, rules, regulations and orders of any governmental
authority, whether federal, state, local or foreign (including without
limitation ERISA, the Code and Environmental Laws), in effect from time to time;
and pay and discharge promptly when due all taxes, assessments and governmental
charges or levies imposed upon it or upon its income, revenues or property,
before the same shall become delinquent or in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if unpaid, might
give rise to Liens upon such properties or any portion thereof, except to the
extent that payment of any of the foregoing is then being contested in good
faith by appropriate legal proceedings, and except where failure to comply would
not have a material adverse effect on the Company and its Subsidiaries taken as
a whole.
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39
(c) Maintenance of Properties; Insurance. Maintain, preserve
and protect all property that is material to the conduct of the business of any
Borrower or any of their respective Subsidiaries and keep such property in good
repair, working order and condition and from time to time make, or cause to be
made all needful and proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried on in
connection therewith may be properly conducted at all times in accordance with
customary and prudent business practices for similar businesses; and, maintain
in full force and effect insurance with responsible and reputable insurance
companies or associations in such amounts, on such terms and covering such
risks, as is usually carried by companies engaged in similar businesses and
owning similar properties similarly situated and maintain in full force and
effect public liability insurance, insurance against claims for personal injury
or death or property damage occurring in connection with any of its activities
or any properties owned, occupied or controlled by it, in such amount as it
shall reasonably deem necessary.
(d) Reporting Requirements. Furnish to the Banks and the Agent the
following:
(i) Promptly and in any event within five calendar days after becoming
aware of the occurrence of (A) any Event of Default or Default, or (B) the
commencement of any material litigation against, by or affecting any Borrower or
any of their respective Subsidiaries which the Company would be required to
report to the Securities and Exchange Commission, a statement of the chief
financial officer of the Company setting forth details of such Event of Default
or Default or such litigation and the action which such Borrower or such
Subsidiary, as the case may be, has taken and proposes to take with respect
thereto;
(ii) As soon as available and in any event within 50 days after the end of
each of the first three fiscal quarters of each fiscal year of the Company, the
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such quarter, and the related consolidated statements of income and cash flow
for the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of the preceding
fiscal year, all in reasonable detail and duly certified (subject to normal
year-end adjustments) by the chief financial officer of the Company as having
been prepared in accordance with generally accepted accounting principles,
together with a certificate of the chief financial officer of the Company
stating (A) that no Event of Default or Default has occurred and is continuing
or, if an Event of Default or Default has occurred and is continuing, a
statement setting forth the details thereof and the action which the Company has
taken and proposes to take with respect thereto, and (B) that a computation
(which computation shall accompany such certificate and shall be in reasonable
detail) showing compliance with Section 5.2(a), (b) and (c) hereof is in
conformity with the terms of this Agreement;
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(iii) As soon as available and in any event within 90 days after the end of
each fiscal year of the Company, a copy of the consolidated balance sheet of the
Company and its Subsidiaries as of the end of such fiscal year and the related
consolidated statements of income and cash flow of the Company and its
Subsidiaries for such fiscal year, with a customary audit report of Ernst &
Young, or other independent certified public accountants selected by the Company
and acceptable to the Required Banks, without qualifications unacceptable to the
Required Banks, together with (A) either (I) a written statement of the
accountants that is making the examination necessary for their report or opinion
they obtained no knowledge of the occurrence of any Default or Event of Default
under this Agreement or (II) if they know of any Default or Event of Default,
their written disclosure of its nature and status, provided that, the
accountants shall not be liable directly or indirectly to anyone for any failure
to obtain knowledge of any Default or Event of Default under this Agreement, and
(B) a certificate of the chief financial officer of the Company stating (I) that
no Event of Default or Default has occurred and is continuing or, if an Event of
Default or Default has occurred and is continuing, a statement setting forth the
details thereof and the action which the Company has taken and proposes to take
with respect thereto, and (II) that a computation (which computation shall
accompany such certificate and shall be in reasonable detail) showing compliance
with Section 5.2(a), (b) and (c) hereof is in conformity with the terms of this
Agreement;
(iv) Promptly after the sending or filing thereof, copies of all reports,
proxy statements and financial statements which the Company sends to or files
with any of their respective security holders or any securities exchange or the
Securities and Exchange Commission or any successor agency thereof;
(v) Promptly and in any event within 10 calendar days after receiving or
becoming aware thereof (A) a copy of any notice of intent to terminate any Plan
of any Borrower, their respective Subsidiaries or any ERISA Affiliate filed with
the PBGC, (B) a statement of the chief financial officer of such Borrower
setting forth the details of the occurrence of any Reportable Event with respect
to any such Plan, (C) a copy of any notice that any Borrower, any of their
respective Subsidiaries or any ERISA Affiliate may receive from the PBGC
relating to the intention of the PBGC to terminate any such Plan or to appoint a
trustee to administer any such Plan, or (D) a copy of any notice of failure to
make a required installment or other payment within the meaning of Section
412(n) of the Code or Section 302(f) of ERISA with respect to any such Plan; and
(vi) Promptly, such other information respecting the business, properties,
operations or condition, financial or otherwise, of any Borrower or any of their
respective Subsidiaries as any Bank or the Agent may from time to time
reasonably request.
(e) Accounting; Access to Records, Books, Etc. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
generally accepted accounting principles and to comply with the requirements of
this Agreement and, on and after an Event of Default, at any reasonable time and
from time to time with prior notice to the Company, permit any Bank or the Agent
or any agents or representatives thereof to examine and make copies of and
abstracts from the records and books of account of, and visit the properties of,
the Borrowers and their respective Subsidiaries, and to discuss the affairs,
finances and accounts of the Borrowers and their respective Subsidiaries with
their respective directors, officers, employees and independent auditors,
provided that representatives of the Company selected by the Company are present
during any such visit or discussion, and by this provision the Company does
hereby authorize such persons to discuss such affairs, finances and accounts
with any Bank or the Agent subject to the above terms and conditions.
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41
(f) Stamp Taxes. The Company will pay all stamp taxes and similar taxes, if
any, including interest and penalties, if any, payable in respect of the Notes.
The efficacy of this subsection shall survive the payment in full of the Notes.
(g) Further Assurances. Will execute and deliver within 30 days after
request therefor by the Required Banks or the Agent, all further instruments and
documents and take all further action that may be necessary, in order to give
effect to, and to aid in the exercise and enforcement of the rights and remedies
of the Banks and the Agent under, this Agreement and the Notes. In addition, the
Company agrees to deliver to the Agent and the Banks on each anniversary of the
Effective Date supplements to Schedule 4.4 listing any Subsidiary not listed in
Schedule 4.4 hereto.
5.2 Negative Covenants. Until the Termination Date and thereafter until
irrevocable payment in full of the principal of and accrued interest on the
Notes and the performance of all other obligations of each Borrower under this
Agreement, the Company agrees that, unless the Required Banks shall otherwise
consent in writing it shall not:
(a) Interest Coverage Ratio. Permit or suffer the Interest
Coverage Ratio to be less than (i) during any quarter in which the ratio of
Consolidated Funded Debt of the Company and its Subsidiaries to Consolidated
Total Capitalization of the Company and its Subsidiaries is greater than 0.575
to 1.00 but less than 0.65 to 1.00, 2.25 to 1.0 and (ii) at all other times, 3.0
to 1.0; in each case calculated as of the end of each fiscal quarter for the
four immediately preceding fiscal quarters.
(b) Net Worth. Permit or suffer Consolidated Net Worth of the
Company and its Subsidiaries at any time to be less than $200,000,000 plus 50%
of Cumulative Consolidated Net Income of the Company and its Subsidiaries for
each fiscal year of the Company commencing with the fiscal year ending December
31, 1998. For the purpose of calculating "Net Worth" under this Section 5.2 (b)
only (but not for calculating Net Worth for any other purpose under this
Agreement, including without limitation calculation of the Applicable Margin),
an amount shall be added back to Net Worth equal to the aggregate amount of
capital stock repurchases by the Company, not to exceed $100,000,000.
(c) Funded Debt to Total Capitalization. Permit or suffer the
ratio of Consolidated Funded Debt of the Company and its Subsidiaries to
Consolidated Total Capitalization of the Company and its Subsidiaries to exceed
.65 to 1.0.
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42
(d) Liens. Create, incur or suffer to exist any Lien on any of
the assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of the Company or any of
its Subsidiaries (except Unrestricted Margin Stock), other than:
(i) Liens for taxes not delinquent or for taxes being contested in good
faith by appropriate proceedings and as to which adequate financial reserves
have been established on its books and records;
(ii) Liens (other than any Lien imposed by ERISA) created and maintained in
the ordinary course of business which are not material in the aggregate, and
which would not have a material adverse effect on the business or operations of
the Company and its Subsidiaries taken as a whole and which constitute (A)
pledges or deposits under worker's compensation laws, unemployment insurance
laws or similar legislation, (B) good faith deposits in connection with bids,
tenders, contracts or leases to which the Company or any of its Subsidiaries is
a party for a purpose other than borrowing money or obtaining credit, including
rent security deposits, (C) liens imposed by law, such as those of carriers,
warehousemen and mechanics, if payment of the obligation secured thereby is not
yet due, (D) Liens securing taxes, assessments or other governmental charges or
levies not yet subject to penalties for nonpayment, and (E) pledges or deposits
to secure public or statutory obligations of the Company or any of its
Subsidiaries, or surety, customs or appeal bonds to which the Company or any of
its Subsidiaries is a party;
(iii) Liens affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor encumbrances, easements
or reservations of, or rights of others for, rights of way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of such real property, provided that all of the
foregoing, in the aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the operation of the
businesses of the Company and its Subsidiaries taken as a whole;
(iv) Liens existing on the date hereof upon the same terms as the date
hereof, but no extensions, renewals and replacements thereof shall be permitted,
with each existing Lien securing Indebtedness in excess of $5,000,000 described
in Schedule 5.2 hereto;
(v) Liens granted by any Subsidiary in favor of the Company or any other
Subsidiary;
(vi) The interest or title of a lessor under any lease otherwise permitted
under this Agreement with respect to the property subject to such lease to the
extent performance of the obligations of the Company or its Subsidiary
thereunder is not delinquent;
(vii) Liens existing on property at the time of its acquisition (other than
any such Lien created in contemplation of such acquisition), provided that the
Company promptly forwards a schedule of such Liens to the Agent after any such
acquisition; and
(viii) Liens, other than Liens described in clauses (i) through (vii)
above, securing Indebtedness in an aggregate amount not to exceed 10% of
Consolidated Net Worth.
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(e) Merger; Etc. Merge or consolidate or amalgamate with any
other person or take any other action having a similar effect, provided,
however, (i) a Subsidiary of the Company may merge with the Company, provided
that the Company shall be the surviving corporation, (ii) a Subsidiary of the
Company may merge or consolidate with another Subsidiary of the Company and
(iii) this Section 5.2(e) shall not prohibit any merger if the Company shall be
the surviving or continuing corporation and, immediately after such merger, no
Default or Event of Default shall exist or shall have occurred and be
continuing.
(f) Disposition of Assets; Etc. Sell, lease, license,
transfer, assign or otherwise dispose of all or a substantial portion of its
business, assets, rights, revenues or property, real, personal or mixed,
tangible or intangible, whether in one or a series of transactions, other than
inventory sold in the ordinary course of business upon customary credit terms
and sales of scrap or obsolete material or equipment and Unrestricted Margin
Stock, provided, however, that this Section 5.2(f) shall not prohibit (i) any
sale of the receivable portfolio of Invacare Credit Corporation, a wholly-owned
Subsidiary of the Company; or (ii) any such sale, lease, license, transfer,
assignment or other disposition if the aggregate book value (disregarding any
write-downs of such book value other than ordinary depreciation and
amortization) of all of the business, assets, rights, revenues and property
disposed of after the date of this Agreement shall be less than 33% of the
Consolidated Net Worth of the Company and its Subsidiaries, and if immediately
after such transaction, no Default or Event of Default shall exist or shall have
occurred and be continuing.
(g) Nature of Business. Engage in any business if, as a
result, the general nature of the business, taken on a consolidated basis, which
would then be engaged in by the Company and its Subsidiaries would be
substantially changed from the general nature of the business engaged in by the
Company and its Subsidiaries on the date of this Agreement which is the
manufacture, sale or lease of home medical and extended care equipment and
related products.
(h) Negative Pledge Limitation. Enter into any agreement, with
any person, other than the Banks pursuant hereto, which prohibits or limits the
ability of any Borrower or any Guarantor to create, incur, assume or suffer to
exist any Lien upon any of its assets, rights, revenues or property, real,
personal or mixed, tangible or intangible, whether now owned or hereafter
acquired, other than agreements evidencing Indebtedness in an aggregate amount
less than $5,000,000 or any Indebtedness assumed in connection with any
acquisition (provided that the Company shall provide notice to the Agent upon
the assumption of any Indebtedness in an aggregate amount exceeding $5,000,000
containing any such prohibition or limitation), but no renewal of such assumed
Indebtedness containing such restriction shall be permitted.
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44
ARTICLE VI
DEFAULT
6.1 Events of Default. The occurrence of any one of the following
events or conditions shall be deemed an "Event of Default" hereunder unless
waived by the Required Banks or the Banks, as required pursuant to Section 8.1:
(a) Nonpayment of Principal. Any Borrower shall fail
to pay when due any principal of the Notes and such failure shall remain
unremedied for five days; or
(b) Nonpayment of Interest. Any Borrower shall fail to pay
when due any interest or any fees or any other amount payable hereunder and such
failure shall remain unremedied for five days; or
(c) Misrepresentation. Any representation or warranty made by
any Borrower in Article IV hereof, any other Loan Document or any other
certificate, report, financial statement or other document furnished by or on
behalf of any Borrower in connection with this Agreement shall prove to have
been incorrect in any material respect when made or deemed made; or
(d) Certain Covenants. Any Borrower shall fail to
perform or observe any term, covenant or agreement contained in Section 5.2(a),
(e) or (f) hereof; or
(e) Other Defaults. Any Borrower shall fail to perform or
observe any other term, covenant or agreement contained in this Agreement or any
other Loan Document, and any such failure shall remain unremedied for 30
calendar days; or
(f) Cross Default. Any Borrower or any of their respective
Subsidiaries shall fail to pay any part of the principal of, the premium, if
any, or the interest on, or any other payment of money due under any of its
Indebtedness (other than Indebtedness hereunder), beyond any period of grace
provided with respect thereto, which individually or together with other such
Indebtedness as to which any such failure exists has an aggregate outstanding
principal amount in excess of $5,000,000; or any Borrower or any of their
respective Subsidiaries shall fail to perform or observe any other term,
covenant or agreement contained in any agreement, document or instrument
evidencing or securing any such Indebtedness having such aggregate outstanding
principal amount, or under which any such Indebtedness was issued or created,
beyond any period of grace, if any, provided with respect thereto and such
Borrower or such Subsidiary has been notified by the creditor of such default;
and the effect of any such failure is either (i) to cause, or permit the holders
of such Indebtedness (or a trustee on behalf of such holders) to cause, any
payment of such Indebtedness to become due prior to its due date or (ii) to
permit the holders of such Indebtedness (or a trustee on behalf of such holders)
to elect a majority of the board of directors of the Company; or
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(g) Judgments. One or more judgments or orders shall be
rendered against or shall affect any Borrower or any of their respective
Subsidiaries which causes or could cause a material adverse change in the
financial condition of the Company and its Subsidiaries taken as a whole or
which does or could have a material adverse effect on the legality, validity or
enforceability of any Loan Document, and either (i) such judgment or order shall
have remained unsatisfied or uninsured for a period of 21 days and such Borrower
or such Subsidiary shall not have taken action necessary to stay enforcement
thereof by reason of pending appeal or otherwise, prior to the expiration of the
applicable period of limitations for taking such action or, if such action shall
have been taken, a final order denying such stay shall have been rendered, or
(ii) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order; or
(h) ERISA. The occurrence of a Reportable Event that results
in or could result in material liability of any Borrower, any Subsidiary of any
Borrower or their ERISA Affiliates to the PBGC or to any Plan and such
Reportable Event is not corrected within thirty (30) days after the occurrence
thereof; or the occurrence of any Reportable Event which could constitute
grounds for termination of any Plan of any Borrower, their respective
Subsidiaries or their ERISA Affiliates by the PBGC or for the appointment by the
appropriate United States District Court of a trustee to administer any such
Plan and such Reportable Event is not corrected within thirty (30) days after
the occurrence thereof; or the filing by any Borrower, any Subsidiary of any
Borrower or any of their ERISA Affiliates of a notice of intent to terminate a
Plan or the institution of other proceedings to terminate a Plan; or any
Borrower, any Subsidiary of any Borrower or any of their ERISA Affiliates shall
fail to pay when due any material liability to the PBGC or to a Plan; or the
PBGC shall have instituted proceedings to terminate, or to cause a trustee to be
appointed to administer, any Plan of any Borrower, their respective Subsidiaries
or their ERISA Affiliates; or any person engages in a Prohibited Transaction
with respect to any Plan which results in or could result in material liability
of the any Borrower, any Subsidiary of any Borrower, any of their ERISA
Affiliates, any Plan of any Borrower, their respective Subsidiaries or their
ERISA Affiliates or fiduciary of any such Plan; or failure by any Borrower, any
Subsidiary of any Borrower or any of their ERISA Affiliates to make a required
installment or other payment to any Plan within the meaning of Section 302(f) of
ERISA or Section 412(n) of the Code that results in or could result in liability
of any Borrower, any Subsidiary of any Borrower or any of their ERISA Affiliates
to the PBGC or any Plan; or the withdrawal of any Borrower, any of their
respective Subsidiaries or any of their ERISA Affiliates from a Plan during a
plan year in which it was a "substantial employer" as defined in Section
4001(9a)(2) of ERISA; or any Borrower, any of their respective Subsidiaries or
any of their ERISA Affiliates becomes an employer with respect to any
Multiemployer Plan without the prior written consent of the Required Banks; or
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46
(i) Insolvency, Etc. Any Borrower shall be dissolved or
liquidated (or any judgment, order or decree therefor shall be entered), except
as otherwise provided pursuant to Section 5.2(e), or shall generally not pay its
debts as they become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute, or there shall be instituted against any
Borrower, any proceeding or case seeking to adjudicate it a bankrupt or
insolvent or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief or protection of
debtors or seeking the entry of an order for relief, or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its assets, rights, revenues or property, and, if such
proceeding is instituted against any Borrower and is being contested by such
Borrower in good faith by appropriate proceedings, such proceeding shall remain
undismissed or unstayed for a period of 60 days; or any Borrower shall take any
action (corporate or other) to authorize or further any of the actions described
above in this subsection; provided, however, that none of the foregoing acts or
occurrences in this Section 6.1(i) with respect to any Borrowing Subsidiary
shall constitute an Event of Default so long as there are no Advances
outstanding to such Borrowing Subsidiary at the time of such act or occurrence,
provided, that, the Commitment of the Banks to such Borrowing Subsidiary shall
automatically terminate without notice; or
(j) Change of Control. The Company shall experience a Change
of Control. For purposes of this Section 6.1(j), a "Change of Control" shall
occur if during any twelve-month period (i) any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended) shall have acquired beneficial ownership (within the meaning of Rule
13D-3 promulgated by the Securities and Exchange Commission under said Act) of
50% or more in voting power of the voting shares of the Company that were
outstanding as of the date of this Agreement and (ii) a majority of the board of
directors of the Company shall cease for any reason to consist of individuals
who as of a date twelve months prior to any date compliance herewith is
determined were directors of the Company.
6.2 Remedies.
(a) Upon the occurrence and during the continuance of any
Event of Default, the Agent may and, upon being directed to do so by the
Required Banks, shall by notice to the Company (i) terminate the Commitments or
(ii) declare the outstanding principal of, and accrued interest on, the Notes
and all other amounts owing under this Agreement to be immediately due and
payable, or (iii) demand immediate delivery of cash collateral, and the
Borrowers agree to deliver such cash collateral upon demand, in an amount equal
to the maximum amount that may be available to be drawn at any time prior to the
stated expiry of all outstanding Letters of Credit, or any one or more of the
foregoing, whereupon the Commitments shall terminate forthwith and all such
amounts, including cash collateral, shall become immediately due and payable,
provided that in the case of any event or condition described in Section 6.1(i)
with respect to any Borrower, the Commitments shall automatically terminate
forthwith and all such amounts, including cash collateral, shall automatically
become immediately due and payable without notice; in all cases without demand,
presentment, protest, diligence, notice of dishonor or other formality, all of
which are hereby expressly waived. Such cash collateral delivered in respect of
outstanding Letters of Credit shall be deposited in a special cash collateral
account to be held by the Agent as collateral security for the payment and
performance of the Borrowers' obligations under this Agreement to the Banks and
the Agent.
(b) The Agent may and, upon being directed to do so by the
Required Banks, shall, in addition to the remedies provided in Section 6.2(a),
exercise and enforce any and all other rights and remedies available to it or
the Banks, whether arising under this Agreement, the Notes or under applicable
law, in any manner deemed appropriate by the Agent, including suit in equity,
action at law, or other appropriate proceedings, whether for the specific
performance (to the extent permitted by law) of any covenant or agreement
contained in this Agreement or in the Notes or in aid of the exercise of any
power granted in this Agreement or the Notes.
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47
(c) Upon the occurrence and during the continuance of any
Event of Default, each Bank may at any time and from time to time exercise any
of its rights of set off or bankers lien that it may possess by common law or
statute without prior notice to the Borrowers, provided that each Bank may also
set off against any deposit whether or not it is then matured. Each Bank agrees
to promptly notify the Company after any such setoff and application, provided
that the failure to give such notice shall not effect the validity of such
setoff and application. The rights of such Bank under this Section 6.2(c) are in
addition to other rights and remedies which such Bank may have.
ARTICLE VII
THE AGENT AND THE BANKS
7.1 Appointment and Authorization. Each Bank hereby irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the Notes as are delegated to
the Agent by the terms hereof or thereof, together with all such powers as are
reasonably incidental thereto. The provisions of this Article VII are solely for
the benefit of the Agent and the Banks, and the Borrowers shall not have any
rights as a third party beneficiary of any of the provisions hereof. In
performing its functions and duties under this Agreement, the Agent shall act
solely as agent of the Banks and does not assume and shall not be deemed to have
assumed any obligation towards or relationship of agency or trust with or for
the Borrowers.
7.2 Agent and Affiliates. NBD Bank in its capacity as a Bank hereunder
shall have the same rights and powers hereunder as any other Bank and may
exercise or refrain from exercising the same as though it were not the Agent.
NBD Bank and its affiliates may (without having to account therefor to any Bank)
accept deposits from, lend money to, and generally engage in any kind of
banking, trust, financial advisory or other business with any Borrower or any
Subsidiary of any Borrower as if it were not acting as Agent hereunder, and may
accept fees and other consideration therefor without having to account for the
same to the Banks.
7.3 Scope of Agent's Duties. The Agent shall have no duties or
responsibilities except those expressly set forth herein, and shall not, by
reason of this Agreement, have a fiduciary relationship with any Bank, and no
implied covenants, responsibilities, duties, obligations or liabilities shall be
read into this Agreement or shall otherwise exist against the Agent. As to any
matters not expressly provided for by this Agreement (including, without
limitation, collection and enforcement actions under the Notes), the Agent shall
not be required to exercise any discretion or take any action, but the Agent
shall take such action or omit to take any action pursuant to the written
instructions of the Required Banks and may request instructions from the
Required Banks. The Agent shall in all cases be fully protected in acting, or in
refraining from acting, pursuant to the written instructions of the Required
Banks, which instructions and any action or omission pursuant thereto shall be
binding upon all of the Banks; provided, however, that the Agent shall not be
required to act or omit to act if, in the judgment of the Agent, such action or
omission may expose the Agent to personal liability or is contrary to this
Agreement, the Notes or applicable law.
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48
7.4 Reliance by Agent. The Agent shall be entitled to rely upon any
certificate, notice, document or other communication (including any cable,
telegram, telex, facsimile transmission or oral communication) believed by it to
be genuine and correct and to have been sent or given by or on behalf of a
proper person. The Agent may treat the payee of any Note as the holder thereof
unless and until the Agent receives written notice of the assignment thereof
pursuant to the terms of this Agreement signed by such payee and the Agent
receives the written agreement of the assignee that such assignee is bound
hereby to the same extent as if it had been an original party hereto. The Agent
may employ agents (including without limitation collateral agents) and may
consult with legal counsel (who may be counsel for the Borrowers), independent
public accountants and other experts selected by it and shall not be liable to
the Banks, except as to money or property received by it or its authorized
agents, for the negligence or misconduct of any such agent selected by it with
reasonable care or for any action taken or omitted to be taken by it in good
faith in accordance with the advice of such counsel, accountants or experts.
7.5 Default. The Agent shall not be deemed to have knowledge of the
occurrence of any Default or Event of Default, unless the Agent has received
written notice from a Bank or a Borrower specifying such Default or Event of
Default and stating that such notice is a "Notice of Default". In the event that
the Agent receives such a notice, the Agent shall give written notice thereof to
the Banks.
7.6 Liability of Agent. Neither the Agent nor any of its directors,
officers, agents, or employees shall be liable to the Banks for any action taken
or not taken by it or them in connection herewith with the consent or at the
request of the Required Banks or in the absence of its or their own gross
negligence or willful misconduct. Except for duties expressly accepted by the
Agent hereunder, neither the Agent nor any of its directors, officers, agents or
employees shall be responsible for or have any duty to ascertain, inquire into
or verify (i) any recital, statement, warranty or representation contained in
this Agreement or any Note or any Guaranty, or in any certificate, report,
financial statement or other document furnished in connection with this
Agreement, (ii) the performance or observance of any of the covenants or
agreements of any Borrower or any Guarantor, (iii) the satisfaction of any
condition specified in Article II hereof, or (iv) the validity, effectiveness,
legal enforceability, value or genuineness of this Agreement or the Notes or any
collateral subject thereto or any other instrument or document furnished in
connection herewith.
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49
7.7 Nonreliance on Agent and Other Banks. Each Bank acknowledges and
agrees that it has, independently and without reliance on the Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis of the Borrowers and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decision in
taking or not taking action under this Agreement. The Agent shall not be
required to keep itself informed as to the performance or observance by any
Borrower or any Guarantor of this Agreement, the Notes or any other documents
referred to or provided for herein or to inspect the properties or books of any
Borrower or any Guarantor and, except for notices, reports and other documents
and information expressly required to be furnished to the Banks by the Agent
hereunder, the Agent shall not have any duty or responsibility to provide any
Bank with any information concerning the affairs, financial condition or
business of the Borrowers or any of their respective Subsidiaries which may come
into the possession of the Agent or any of its affiliates.
7.8 Indemnification. The Banks agree to indemnify the Agent (to the
extent not reimbursed by the Borrowers, but without limiting any obligation of
the Borrowers to make such reimbursement), ratably according to the respective
principal amounts of the Advances then outstanding made by each of them (or if
no Advances are at the time outstanding, ratably according to the respective
amounts of their Commitments), from and against any and all claims, damages,
losses, liabilities, costs or expenses of any kind or nature whatsoever
(including, without limitation, fees and disbursements of counsel) which may be
imposed on, incurred by, or asserted against the Agent in any way relating to or
arising out of this Agreement or the transactions contemplated hereby or any
action taken or omitted by the Agent under this Agreement, provided, however,
that no Bank shall be liable for any portion of such claims, damages, losses,
liabilities, costs or expenses resulting from the Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Bank agrees to
reimburse the Agent promptly upon demand for its ratable share of any
out-of-pocket expenses (including without limitation fees and expenses of
counsel) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, to the extent that
the Agent is not reimbursed for such expenses by the Borrowers, but without
limiting the obligation of the Borrowers to make such reimbursement. Each Bank
agrees to reimburse the Agent promptly upon demand for its ratable share of any
amounts owing to the Agent by the Banks pursuant to this Section. If the
indemnity furnished to the Agent under this Section shall, in the judgment of
the Agent, be insufficient or become impaired, the Agent may call for additional
indemnity from the Banks and cease, or not commence, to take any action until
such additional indemnity is furnished.
7.9 Resignation of Agent. The Agent may resign as such at any time upon
thirty days' prior written notice to the Borrowers and the Banks. In the event
of any such resignation, the Company shall, by an instrument in writing
delivered to the Banks and the Agent, appoint a successor, which shall be a Bank
or any other commercial bank organized under the laws of the United States or
any State thereof and having a combined capital and surplus of at least
$500,000,000. If a successor is not so appointed or does not accept such
appointment before the Agent's resignation becomes effective, the resigning
Agent may appoint a temporary successor to act until such appointment by the
Company is made and accepted any successor to the Agent shall execute and
deliver to the Borrowers and the Banks an instrument accepting such appointment
and thereupon such successor Agent, without further act, deed, conveyance or
transfer shall become vested with all of the properties, rights, interests,
powers, authorities and obligations of its predecessor hereunder with like
effect as if originally named as Agent hereunder. Upon request of such successor
Agent, the Borrowers and the resigning Agent shall execute and deliver such
instruments of conveyance, assignment and further assurance and do such other
things as may reasonably be required for more fully and certainly vesting and
confirming in such successor Agent all such properties, rights, interests,
powers, authorities and obligations. The provisions of this Article VII shall
thereafter remain effective for such resigning Agent with respect to any actions
taken or omitted to be taken by such Agent while acting as the Agent hereunder.
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50
7.10 Sharing of Payments. The Banks agree among themselves that, in the
event that any Bank shall obtain payment in respect of any Advance or any other
obligation owing to the Banks under this Agreement through the exercise of a
right of set-off, banker's lien, counterclaim or otherwise in excess of its
ratable share of payments received by all of the Banks on account of the
Advances and other obligations (or if no Advances are outstanding, ratably
according to the respective amounts of the Commitments), such Bank shall
promptly purchase from the other Banks participations in such Advances and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all of the Banks share such payment in
accordance with such ratable shares. The Banks further agree among themselves
that if payment to a Bank obtained by such Bank through the exercise of a right
of set-off, banker's lien, counterclaim or otherwise as aforesaid shall be
rescinded or must otherwise be restored, each Bank which shall have shared the
benefit of such payment shall, by repurchase of participations theretofore sold,
return its share of that benefit to each Bank whose payment shall have been
rescinded or otherwise restored. The Borrowers agree that any Bank so purchasing
such a participation may, to the fullest extent permitted by law, exercise all
rights of payment, including set-off, banker's lien or counterclaim, with
respect to such participation as fully as if such Bank were a holder of such
Advance or other obligation in the amount of such participation. The Banks
further agree among themselves that, in the event that amounts received by the
Banks and the Agent hereunder are insufficient to pay all such obligations or
insufficient to pay all such obligations when due, the fees and other amounts
owing to the Agent in such capacity shall be paid therefrom before payment of
obligations owing to the Banks under this Agreement, other than agency fees
payable pursuant to Section 2.5(d) of this Agreement which shall be paid on a
pro rata basis with amounts owing to the Banks. Except as otherwise expressly
provided in this Agreement, if any Bank or the Agent shall fail to remit to the
Agent or any other Bank an amount payable by such Bank or the Agent to the Agent
or such other Bank pursuant to this Agreement on the date when such amount is
due, such payments shall be made together with interest thereon for each date
from the date such amount is due until the date such amount is paid to the Agent
or such other Bank at a rate per annum equal to the rate at which borrowings are
available to the payee in its overnight federal funds market. It is further
understood and agreed among the Banks and the Agent that if the Agent or any
Bank shall engage in any other transactions with any Borrower and shall have the
benefit of any collateral or security therefor which does not expressly secure
the obligations arising under this Agreement except by virtue of a so-called
dragnet clause or comparable provision, the Agent or such Bank shall be entitled
to apply any proceeds of such collateral or security first in respect of the
obligations arising in connection with such other transaction before application
to the obligations arising under this Agreement.
7.11 Local Custom. Notwithstanding anything herein to the contrary, if
requested by the Required Banks, all Loans made hereunder shall be made in
compliance with local market custom and legal practice as determined solely by
the Agent, whether or not such custom and legal practices have the force of law.
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51
7.12 Withholding Tax Exemption. Each Bank that is not organized and
incorporated under the laws of the United States or any State thereof agrees to
file with the Agent and the Company, in duplicate, (a) on or before the later of
(i) the Effective Date and (ii) the date such Bank becomes a Bank under this
Agreement and (b) thereafter, for each taxable year of such Bank (in the case of
a Form 4224) or for each third taxable year of such Bank (in the case of any
other form) during which interest or fees arising under this Agreement and the
Notes are received, unless not legally able to do so as a result of a change in
United States income tax enacted, or treaty promulgated, after the date
specified in the preceding clause (a), on or prior to the immediately following
due date of any payment by the Company hereunder, a properly completed and
executed copy of either Internal Revenue Service Form 4224 or Internal Revenue
Service Form 1001 and Internal Revenue Service Form W-8 or Internal Revenue
Service Form W-9 and any additional form necessary for claiming complete
exemption from United States withholding taxes (or such other form as is
required to claim complete exemption from United States withholding taxes), if
and as provided by the Code or other pronouncements of the United States
Internal Revenue Service, and such Bank warrants to the Company that the form so
filed will be true and complete; provided that such Bank's failure to complete
and execute such Form 4224 or Form 1001, or Form W-8 or Form W-9, as the case
may be, and any such additional form (or any successor form or forms) shall not
relieve the Company of any of its obligations under this Agreement, except as
otherwise provided in Section 3.4.
7.13 Co-Agent. The Co-Agent shall have all of the duties which may be
agreed upon or assigned to it from time to time by the Agent. In the event any
such duties are assigned to the Co-Agent, the Co-Agent shall be entitled to the
same indemnifications and other protections and held to the same standard of
care as provided in this Article VII for the Agent.
ARTICLE VIII
MISCELLANEOUS
8.1 Amendments, Etc.
(a) No amendment, modification, termination or waiver of any
provision of this Agreement nor any consent to any departure therefrom shall be
effective unless the same shall be in writing and signed by the Borrowers and
the Required Banks and, to the extent any rights or duties of the Agent may be
affected thereby, the Agent, provided, however, that no such amendment,
modification, termination, waiver or consent shall, without the consent of the
Agent and all of the Banks, (i) authorize or permit the extension of time for,
or any reduction of the amount of, any payment of the principal of, or interest
on, the Advances or any Letter of Credit reimbursement obligation, or any fees
or other amount payable hereunder, (ii) amend or terminate the respective
Commitment of any Bank set forth on the signature pages hereof or modify the
provisions of this Section regarding the taking of any action under this Section
or the provisions of Section 7.10, Section 8.6(a) or the definition of Required
Banks or (iii) amend or modify the Guaranty (other than any amendment solely for
the purpose of adding or deleting a Borrowing Subsidiary) or provide for the
release or discharge of the Company's obligations under the Guaranty.
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52
(b) Any such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(c) Notwithstanding anything herein to the contrary, no Bank
that is in default of any of its obligations, covenants or agreements under this
Agreement shall be entitled to vote (whether to consent or to withhold its
consent) with respect to any amendment, modification, termination or waiver of
any provision of this Agreement or any departure therefrom or any direction from
the Banks to the Agent, and, for purposes of determining the Required Banks at
any time when any Bank is in default under this Agreement, the Commitments and
Advances of such defaulting Banks shall be disregarded.
8.2 Notices.
(a) Except as otherwise provided in Section 8.2(c) hereof, all
notices and other communications hereunder shall be in writing and shall be
delivered or sent to the Borrowers in case of the Treasury Manager at One
Invacare Way, Elyria, Ohio 44035, Attention: Chief Financial Officer, Facsimile
No. (440) 366-9672, and to the Agent and the Banks at the respective addresses
and numbers for notices set forth on the signatures pages hereof, or to such
other address as may be designated by any Borrower, the Agent or any Bank by
notice to the other parties hereto. All notices and other communications shall
be deemed to have been given at the time of actual delivery thereof to such
address, or if sent by certified or registered mail, postage prepaid, to such
address, on the third day after the date of mailing, or if deposited prepaid
with Federal Express or other nationally recognized overnight delivery service
prior to the deadline for next day delivery, on the Business Day next following
such deposit, provided, however, that notices to the Agent shall not be
effective until received.
(b) Notices by the Treasury Manager or a Borrower to the Agent
with respect to terminations or reductions of the Commitments pursuant to
Section 2.4, requests for Advances pursuant to Section 2.6, requests for
continuations or conversions of Loans pursuant to Section 2.9 and notices of
prepayment pursuant to Section 3.1 shall be irrevocable and binding on the
Borrowers.
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53
(c) Any notice to be given by the Treasury Manager or a
Borrower to the Agent pursuant to Sections 2.6 or 2.9 and any notice to be given
by the Agent or any Bank hereunder, may be given by telephone, and all such
notices given by the Treasury Manager or a Borrower must be immediately
confirmed in writing in the manner provided in Section 8.2(a). Any such notice
given by telephone shall be deemed effective upon receipt thereof by the party
to whom such notice is to be given.
8.3 No Waiver By Conduct; Remedies Cumulative. No course of dealing on
the part of the Agent or any Bank, nor any delay or failure on the part of the
Agent or any Bank in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice the
Agent's or such Bank's rights and remedies hereunder; nor shall any single or
partial exercise thereof preclude any further exercise thereof or the exercise
of any other right, power or privilege. No right or remedy conferred upon or
reserved to the Agent or any Bank under this Agreement or the Notes or any
Guaranty is intended to be exclusive of any other right or remedy, and every
right and remedy shall be cumulative, except as limited by this Agreement, and
in addition to every other right or remedy granted thereunder or now or
hereafter existing under any applicable law. Every right and remedy granted by
this Agreement or the Notes or any Guaranty or by applicable law to the Agent or
any Bank may be exercised from time to time and as often as may be deemed
expedient by the Agent or any Bank and, unless contrary to the express
provisions of this Agreement or the Notes or such Guaranty, irrespective of the
occurrence or continuance of any Default or Event of Default.
8.4 Reliance on and Survival of Various Provisions. All terms,
covenants, agreements, representations and warranties of any Borrower or any
Guarantor made herein, in any Guaranty or in any certificate, report, financial
statement or other document furnished by or on behalf of any Borrower or any
Guarantor in connection with this Agreement shall be deemed to be material and
to have been relied upon by the Banks, notwithstanding any investigation
heretofore or hereafter made by any Bank or on such Bank's behalf, and those
covenants and agreements of the Borrowers set forth in Sections 3.6, 3.8, 5.1(f)
and 8.5 hereof shall survive the repayment in full of the Advances and the
termination of the Commitments for a period of one year from such repayment or
termination.
8.5 Expenses; Indemnification. (a) The Company agrees to pay, or
reimburse the Agent for the payment of, on demand, (i) the reasonable fees,
without premium, and expenses of counsel to the Agent, including without
limitation the reasonable fees and expenses of Dickinson, Wright, Moon, Van
Dusen & Freeman as agreed upon with the Company in connection with the
preparation, execution, delivery and administration of the Loan Documents and
the consummation of the transactions contemplated hereby, and in connection with
advising the Agent as to its rights and responsibilities with respect thereto,
and in connection with any amendments, waivers or consents in connection
therewith, and (ii) all stamp and other taxes and fees payable or determined to
be payable in connection with the execution, delivery, filing or recording of
this Agreement, the Notes and the consummation of the transactions contemplated
hereby, and any and all liabilities with respect to or resulting from any delay
in paying or omitting to pay such taxes or fees, and (iii) all reasonable costs
and expenses of the Agent (including without limitation reasonable fees and
expenses of counsel, which counsel shall be acceptable to the Required Banks,
including without limitation counsel who are employees of the Agent, and whether
incurred through negotiations, legal proceedings or otherwise) in connection
with any Default or Event of Default or the enforcement of, or the exercise or
preservation of any rights under the Loan Documents or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Agreement and (iv) all reasonable costs and expenses of the Agent and the Banks
(including reasonable fees and expenses of counsel) in connection with any
action or proceeding relating to a court order, injunction or other process or
decree restraining or seeking to restrain the Agent from paying any amount
under, or otherwise relating in any way to, any Letter of Credit and any and all
costs and expenses which any of them may incur relative to any payment under any
Letter of Credit.
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54
(b) Each Borrower hereby indemnifies and agrees to hold harmless the
Banks and the Agent, and their respective officers, directors, employees and
agents, from and against any and all claims, damages, losses, liabilities, costs
or expenses of any kind or nature whatsoever which the Banks or the Agent or any
such person may incur or which may be claimed against any of them by reason of
or in connection with entering into this Agreement or the transactions
contemplated hereby; provided, however, that no Borrower shall be required to
indemnify any such Bank and the Agent or such other person, to the extent, but
only to the extent, that such claim, damage, loss, liability, cost or expense is
attributable to the gross negligence or willful misconduct of such Bank or the
Agent, as the case may be.
8.6 Successors and Assigns; Additional Banks. (a) This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided that no Borrower may, without the
prior consent of the Banks, assign its rights or obligations hereunder or under
the Notes and the Banks shall not be obligated to make any Loan hereunder to any
entity other than the Borrowers.
(b) Any Bank may, without the prior consent of the Company
sell to any financial institution or institutions, and such financial
institution or institutions may further sell, a participation interest
(undivided or divided) in, the Loans and such Bank's rights and benefits under
this Agreement and the Notes, and to the extent of that participation interest
such participant or participants shall have the same rights and benefits against
the Borrowers under Section 3.6, 3.8 and 6.2(c) as it or they would have had if
such participant or participants were the Bank making the Loans to the Borrowers
hereunder, provided, however, that (i) such Bank's obligations under this
Agreement shall remain unmodified and fully effective and enforceable against
such Bank, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of its Notes for all purposes of this Agreement, (iv) the Borrowers, the
Agent and the other Banks shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Agreement,
and (v) such Bank shall not grant to its participant any rights to consent or
withhold consent to any action taken by such Bank or the Agent under this
Agreement other than action requiring the consent of all of the Banks hereunder.
<PAGE>
55
(c) The Agent from time to time in its sole discretion may
appoint agents for the purpose of servicing and administering this Agreement and
the transactions contemplated hereby and enforcing or exercising any rights or
remedies of the Agent provided under this Agreement, the Notes or otherwise. In
furtherance of such agency, the Agent may from time to time direct that the
Borrowers provide notices, reports and other documents contemplated by this
Agreement (or duplicates thereof) to such agent. Each Borrower hereby consents
to the appointment of such agent and agrees to provide all such notices, reports
and other documents and to otherwise deal with such agent acting on behalf of
the Agent in the same manner as would be required if dealing with the Agent
itself.
(d) Each Bank may, with the prior consent of the Company and
the Agent (which consent, in each case, will not be unreasonably withheld),
assign to one or more banks or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment, the Loans owing to it and the Note or Notes held by
it); provided, however, that (i) each such assignment shall be of a uniform, and
not a varying, percentage of all rights and obligations, (ii) except in the case
of an assignment of all of a Bank's rights and obligations under this Agreement,
(A) the amount of the Commitment of the assigning Bank being assigned pursuant
to each such assignment (determined as of the date of the Assignment and
Acceptance with respect to such assignment) shall in no event be less than
$5,000,000, and in integral multiples of $1,000,000 thereafter, or such lesser
amount as the Company and the Agent may consent to and (B) after giving effect
to each such assignment, the amount of the Commitment of the assigning Bank
shall in no event be less than $3,000,000, (iii) the parties to each such
assignment shall execute and deliver to the Agent, for its acceptance and
recording in the Register, an Assignment and Acceptance in the form of Exhibit L
hereto (an "Assignment and Acceptance"), together with any Note or Notes subject
to such assignment and a processing and recordation fee of $4,000, and (iv) any
Bank may without the consent of the Company or the Agent, and without paying any
fee, assign or sell a participation interest to any Affiliate of such Bank that
is a bank or financial institution all or a portion of its rights and
obligations under this Agreement. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment and
Acceptance, (x) the assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, have the rights and obligations of a Bank
hereunder and (y) the Bank assignor thereunder shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering all of
the remaining portion of an assigning Bank's rights and obligations under this
Agreement, such Bank shall cease to be a party hereto).
(e) By executing and delivering an Assignment and Acceptance,
the Bank assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Bank makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or document
furnished pursuant hereto; (ii) such assigning Bank makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of any Borrower or the performance or observance by any Borrower of any of its
obligations under this Agreement or any other instrument or document furnished
pursuant hereto; (iii) such assignee confirms that it has received a copy of
this Agreement, together with copies of the financial statements referred to in
Section 4.6 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Agent, such assigning Bank or any other Bank and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
this Agreement as are delegated to the Agent by the terms hereof, together with
such powers and discretion as are reasonably incidental thereto; and (vi) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement are required to be performed by
it as a Bank.
<PAGE>
56
(f) The Agent shall maintain at its address designated on the
signature pages hereof a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and addresses of
the Banks and the Commitment of, and principal amount of the Loans owing to,
each Bank from time to time (the "Register"). The entries in the Register shall
be conclusive and binding for all purposes, absent manifest error, and the
Company, the Borrowing Subsidiaries, the Agent and the Banks may treat each
person whose name is recorded in the Register as a Bank hereunder for all
purposes of this Agreement. The Register shall be available for inspection by
the Company or any Bank at any reasonable time and from time to time upon
reasonable prior notice.
(g) Upon its receipt of an Assignment and Acceptance executed
by an assigning Bank and an assignee, together with any Note or Notes subject to
such assignment, the Agent shall, if such Assignment and Acceptance has been
completed, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Company. Within five (5) Business Days after its receipt of such
notice, the Borrowers, at their own expense, shall execute and deliver to the
Agent in exchange for the surrendered Note or Notes a new Note to the order of
such assignee in an amount equal to the Commitment assumed by it pursuant to
such Assignment and Acceptance and, if the assigning Bank has retained a
Commitment hereunder, a new Note to the order of the assigning Bank in an amount
equal to the Commitment retained by it hereunder. Such new Note or Notes shall
be in an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note or Notes, shall be dated the effective date of such
Assignment and Acceptance and shall otherwise be in substantially the form of
Exhibit L hereto.
(h) No Borrower shall be liable for any costs or expenses of
any Bank in effectuating any participation or assignment under this Section 8.6.
(i) In addition, the Company and the Agent may from time to
time designate additional financial institutions (the "Additional Banks") to be
parties to this Agreement and to become a Bank hereunder upon the execution and
delivery to the Agent of an Assumption Agreement in the form of Exhibit M hereto
(an "Assumption Agreement"). Any Additional Bank shall become a party to this
Agreement and be considered a Bank hereunder for all purposes if (a) it shall
execute and deliver to the Agent an Assumption Agreement, (b) it shall make
Revolving Credit Advances to the Borrowers in the principal amount which bears
the same ratio to the amounts of the Revolving Credit Advances of the other
Banks then outstanding as the Commitment of such Additional Bank bears to the
then Commitments of such other Banks, and (c) a copy of such Assumption
Agreement and evidence satisfactory to the Agent of the making of such Revolving
Credit Advances hall be furnished to the Banks, together with a schedule showing
the Commitment amount of each Bank and the new Percentage of Total Commitment of
each Bank. In connection with adding Additional Banks, the aggregate Total
Commitments may be increased to an amount not to exceed $425,000,000 with the
consent of the Company and the Agent and without the consent of any Bank.
<PAGE>
57
(j) The Banks may, in connection with any assignment,
participation or addition of a bank or proposed assignment, participation or
addition pursuant to this Section 8.6, disclose to the assignee, participant or
Additional Bank or proposed assignee, participant or Additional Bank any
information relating to the Borrowers.
(k) Notwithstanding any other provision set forth in this
Agreement, any Bank may at any time create a security interest in, or assign,
all or any portion of its rights under this Agreement (including, without
limitation, the Loans owing to it and the Note or Notes held by it) in favor of
any Federal Reserve Bank in accordance with Regulation A of the Board of
Governors of the Federal Reserve System; provided that such creation of a
security interest or assignment shall not release such Bank from its obligations
under this Agreement.
8.7 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.8 Governing Law; Consent to Jurisdiction. This Agreement is a
contract made under, and shall be governed by and construed in accordance with,
the law of the State of Michigan applicable to contracts made and to be
performed entirely within such State and without giving effect to choice of law
principles of such State. Each Borrower further agrees that any legal action or
proceeding with respect to this Agreement or the Notes or the transactions
contemplated hereby shall be brought in any court of the State of Michigan, or
in any court of the United States of America sitting in Michigan, and each
Borrower hereby irrevocably submits to and accepts generally and unconditionally
the jurisdiction of those courts with respect to its person and property, and
irrevocably appoints Thomas R. Miklich, whose address is set forth in Section
8.2, as its agent for service of process and irrevocably consents to the service
of process in connection with any such action or proceeding by personal delivery
to such agent or to the Borrowers or by the mailing thereof by registered or
certified mail, postage prepaid to the Borrowers at the address set forth in
Section 8.2. Nothing in this paragraph shall affect the right of the Banks and
the Agent to serve process in any other manner permitted by law or limit the
right of the Banks or the Agent to bring any such action or proceeding against
the Borrowers or property in the courts of any other jurisdiction. Each Borrower
hereby irrevocably waives any objection to the laying of venue of any such suit
or proceeding in the above described courts.
<PAGE>
58
8.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of reference
only and shall in no way modify any of the terms or provisions hereof.
8.10 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
8.11 Integration and Severability. This Agreement and the Notes embody
the entire agreement and understanding between the Borrowers and the Agent and
the Banks, and supersede all prior agreements and understandings, relating to
the subject matter hereof. In case any one or more of the obligations of any
Borrower under this Agreement or the Notes shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining obligations of such Borrower and the other Borrowers shall not in
any way be affected or impaired thereby, and such invalidity, illegality or
unenforceability in one jurisdiction shall not affect the validity, legality or
enforceability of the obligations of the Borrowers under this Agreement or the
Notes in any other jurisdiction.
8.12 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenant, the fact that it would be permitted by an exception to, or
would be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
such condition exists.
8.13 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement or the Notes, in no event shall the amount of interest paid or agreed
to be paid by any Borrower exceed an amount computed at the highest rate of
interest permissible under applicable law. If, from any circumstances
whatsoever, fulfillment of any provision of this Agreement or the Notes at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, ipso facto, the obligations to be
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if for any reason whatsoever any Bank
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law such interest shall be automatically applied to the payment
of principal of such Bank's Advances outstanding hereunder (whether or not then
due and payable) and not to the payment of interest, or shall be refunded to the
Borrowers if such principal and all other obligations of the Borrowers to such
Bank have been paid in full.
8.14 Confidentiality. The Banks and the Agent shall hold all
confidential information obtained pursuant to the requirements of this Agreement
which has been identified as such by the Company in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to its examiners, affiliates, outside auditors, counsel and other
professional advisors in connection with this Agreement or as reasonably
required by any bona fide transferee or participant in connection with the
contemplated transfer of any Note or participation therein or as required or
requested by any governmental agency or representative thereof or pursuant to
legal process. Without limiting the foregoing, it is expressly understood that
such confidential information shall not include information which, at the time
of disclosure is in the public domain or, which after disclosure, becomes part
of the public domain or information which is obtained by any Bank or the Agent
prior to the time of disclosure and identification by the Company under this
Section, or information received by any Bank or the Agent from a third party.
Nothing in this Section or otherwise shall prohibit any Bank or the Agent from
disclosing any confidential information to the other Banks or the Agent or
render any of them liable in connection with any such disclosure.
<PAGE>
59
8.15 Relationship of this Agreement to the Existing Loan Agreements. This
Agreement shall become effective on the Effective Date. On the Effective Date,
all amounts outstanding under the Existing Loan Agreements shall be considered a
part of the Advances under this Agreement for all purposes, as if made in
accordance with and pursuant to the terms of this Agreement. On and after the
Effective Date, (i) no further fees shall accrue to the Agent or Banks under the
Existing Loan Agreements and all fees accrued under the Existing Loan Agreements
to (but excluding) the Effective Date shall constitute accrued fees hereunder
and be payable in accordance with the terms hereof and (ii) the rights and
obligations of the parties hereto shall be governed solely by this Agreement,
except in respect of any rights or obligations arising prior to the Effective
Date and which shall survive the Effective Date. This Agreement amends and
restates in full the terms and provisions of the 1994 Loan Agreement and the
1997 Loan Agreement and is not intended to constitute a novation or satisfaction
of or a renunciation or cancellation or other discharge or the indebtedness and
other liabilities and obligations created under and evidenced by the Existing
Loan Agreements.
8.16 Waiver of Jury Trial. The Borrowers, the Banks and the Agent,
after consulting or having had the opportunity to consult with counsel,
knowingly, voluntarily and intentionally waive any right either of them may have
to a trial by jury in any litigation based upon or arising out of this Agreement
or any other Loan Document or any of the transactions contemplated by this
Agreement or any course of conduct, dealing, statements (whether oral or
written) or actions of any of them. Neither any Borrower, any Bank nor the Agent
shall seek to consolidate, by counterclaim or otherwise, any such action in
which a jury trial has been waived with any other action in which a jury trial
cannot be or has not been waived. These provisions shall not be deemed to have
been modified in any respect or relinquished by any party hereto except by a
written instrument executed by such party.
8.17 Unification of Certain Currencies. If the "Euro" (or some other
similar unit of account) becomes a currency in its own right in connection with
the European Monetary Union contemplated by the Maastricht Treaty, then each of
the Borrowers, the Banks, the Agent and the Co-Agent agrees to negotiate in good
faith any required amendment or modification to this Agreement satisfactory in
form and substance to the Borrowers, the Banks, the Agent and the Co-Agent to
account therefor.
<PAGE>
60
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered on the _____ day of November, 1997, which shall be
the Effective Date of this Agreement, notwithstanding the day and year first
above written.
INVACARE CORPORATION
By: Thomas R. Miklich
----------------------------
Its: Chief Financial Officer
INVACARE INTERNATIONAL CORPORATION
By: By: Thomas R. Miklich
-----------------------------
Its: Treasurer and Secretary
INVACARE (UK) LIMITED
By: Thomas R. Miklich
---------------------------
Its: Director
INVACARE (DEUTSCHLAND) GmbH
By: Otmar Sackerlotzky
--------------------------
Its: Director
BENCRAFT LIMITED
By: Thomas R. Miklich
--------------------------
Its: Director
<PAGE>
61
KUSCHALL DESIGN AG
By: Gerald B. Blouch
--------------------------
Its: President
INVACARE AUSTRALIA PTY. LTD.
By: Thomas R. Miklich
----------------------------
Its: Director
INVACARE CANADA INC.
By: Thomas R. Miklich
---------------------------
Its: Treasurer and Secretary
QUANTRIX CONSULTANTS LIMITED
By: Thomas R. Miklich
------------------------------
Its: Director
<PAGE>
62
DYNAMIC CONTROLS LIMITED
By: Thomas R. Miklich
------------------------------
Its: Director
POIRIER GROUPE INVACARE
By: Frederic M. Dyevre
-----------------------------
Its: Director
REHADAP S.A.
By: Frederic M. Dyevre
-----------------------------
Its: Director
CONTROLS DYNAMIC LIMITED
By: Otmar Sackerlotzky
----------------------------
Its: Director
INVACARE AB
By: Gerald B. Blouch
---------------------------
Its: Director
<PAGE>
63
Address for Notices: NBD BANK, as a Bank and as Agent
611 Woodward Avenue By: Winifred S. Pinet
Detroit, Michigan 48226 ----------------------------
Attention: Commercial and Institutional Its: First Vice President
Banking
Facsimile No.: /313/ 225-1671
Telephone No.: /313/ 225-1313
Commitment Amount: $85,000,000
Initial Percentage of
Total Commitments: 23.62%
Address for Notices: KEYBANK NATIONAL ASSOCIATION, as
Co-Agent and as a Bank
127 Public Square, 6th Floor By: Richard A. Pohle
Cleveland, Ohio 44114-1306 -----------------------------
Attention: Brendan Lawler Its: Vice President
Facsimile No.: /216/ 689-4981
Telephone No.: /216/ 689-5642
Commitment Amount: $75,000,000
Initial Percentage of
Total Commitments: 20.84%
<PAGE>
64
Address for Notices: NATIONAL CITY BANK
1900 E. 9th, 10th Floor By: Michael P. McCuen
Cleveland, Ohio 44114 -----------------------
Attention: Michael McCuen Its: Vice President
Facsimile No.: /216/ 575-9396
Telephone No.: /216/ 575-9401
Commitment Amount: $50,000,000
Initial Percentage of
Total Commitments: 13.9%
Address for Notices: SOCIETE GENERALE
181 W. Madison, Suite 3400 By: Joseph A. Philbin
Chicago, Illinois 60602 ------------------------
Attention: Joseph Philbin Its: Vice President
Facsimile No.: /312/ 578-5099
Telephone No.: /312/ 578-5005
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
<PAGE>
65
Address for Notices: SUN TRUST BANK, CENTRAL FLORIDA, N.A.
200 S. Orange Avenue By: Ronald Rueve
Orlando, Florida 32801 ----------------------------
Attention: Steve Leister Its: Vice President
Facsimile No.: /407/ 237-6894
Telephone No.: /407/ 237-4705
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
Address for Notices: WACHOVIA BANK OF GEORGIA, NA
191 Peachtree Street, NE By: Holger B. Ebert
Atlanta, GA 30303 -------------------------------
Attention: Eero Maki Its: Senior Vice President
Facsimile No.: /404/ 332-6898
Telephone No.: /404/ 332-5275
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
<PAGE>
66
Address for Notices: PNC BANK, NATIONAL ASSOCIATION
1375 E. Ninth Street, #1250 By: Bryon A. Pike
Cleveland, OH 44114 ----------------------------
Attention: Bryon Pike Its: Vice President
Facsimile No.: /216/ 348-8594
Telephone No.: /216/ 348-8560
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
Address for Notices: COMMERZBANK, AKTIENGESELLSCHAFT,
CHICAGO BRANCH
311 S. Wacker Drive By: Arne Jahn William J. Binder
Chicago, IL 60606 -------------------------------------
Attention: William Binder Its: Assistant Treasurer and Vice
Facsimile No.: /312/ 435-1486 President
Telephone No.: /312/ 408-6920
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
<PAGE>
67
Address for Notices: THE BANK OF NEW YORK
One Wall Street, 22ND Floor By: Edward J. Dougherty III
New York, New York 10286 -----------------------------
Attention: Ed Dougherty Its: Vice President
Facsimile No.: /212/ 635-6434
Telephone No.: /212/ 635-1066
Commitment Amount: $25,000,000
Initial Percentage of
Total Commitments: 6.94%
Total Commitment of all of the Banks:
$360,000,000
<PAGE>
68
EXHIBIT M
ASSUMPTION AGREEMENT
Reference is made to the Loan Agreement dated as of November 18, 1997
(as now or hereafter amended or modified from time to time, the "Loan
Agreement") among INVACARE CORPORATION, an Ohio Corporation (the "Company"),
each of the Borrowing Subsidiaries designated therein from time to time
(collectively with the Company, the "Borrowers" and each individually a
"Borrower"), the Banks named therein (the "Banks"), NBD BANK, as agent for the
Banks (the "Agent") and KEYBANK NATIONAL ASSOCIATION, as co-agent for the Banks.
Terms defined in the Loan Agreement are used herein with the same meaning.
1. Bank of Montreal, ("New Bank") has decided to become a Bank under
the Loan Agreement, with its Commitment, Percentage of Total Commitments and
address for notice as described next to its signature below. The New Bank (i)
confirms that it has received a copy of the Loan Agreement, together with copies
of the financial statements referred to in Section 4.6 thereof and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assumption Agreement; (ii) agrees that
it will, independently and without reliance upon the Agent, the Co-Agent or any
Bank and based on such documents and information as it shall deem appropriate at
the time, continue to make its own credit decisions in taking or not taking
action under the Loan Agreement; (iii) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers and discretion
under the Loan Agreement as are delegated to the Agent by the terms thereof,
together with such powers and discretion as are reasonably incidental thereto;
(iv) agrees that it will perform in accordance with their terms of all of the
obligations that by the terms of the Loan Agreement are required to be performed
by it as a Bank; and (v) if the New Bank is organized under the laws of a
jurisdiction outside the United States, attaches the forms prescribed by the
Internal Revenue Service of the United States certifying as to the New Bank's
status for purposes of determining exemption from United States withholding
taxes with respect to all payments to be made to the New Bank under the Loan
Agreement and the Notes or such other documents as are necessary to indicate
that all such payments are subject to such taxes at a rate reduced by an
applicable tax treaty.
2. Following the execution of this Assumption Agreement, it will be
delivered to the Agent and the Company for acceptance by the Agent and the
Company and recording by the Agent. The effective date for this Assumption
Agreement (the "Effective Date") shall be the date of acceptance hereof by the
Agent and the Company.
<PAGE>
69
3. Upon such acceptance by the Agent and the Company and recording by
the Agent, as of the Effective Date, the New Bank shall be a party to the Loan
Agreement and, to the extent provided in this Assumption Agreement, have the
rights and obligations of a Bank thereunder. On the Effective Date, the New Bank
shall, in fulfillment of its obligations as a Bank under the Loan Agreement,
fund its share of outstanding Revolving Credit Advances in accordance with its
Percentage of Total Commitment by making available such amount to the Agent in
immediately available funds at the principal office of the Agent. The Agent
shall promptly adjust the balance of outstanding Revolving Credit Advances owing
to each Bank in accordance with each Bank's new Percentage of Total Commitment
and promptly remit to each Bank any repayment due such Bank as a result of such
adjustment. In the event any Eurodollar Rate Loans are outstanding on the
Effective Date and the repayment of such Eurodollar Rate Loans prior to the last
day of the applicable Eurodollar Interest Period would result in costs and
expenses to any Bank as described in Section 3.8 of the Loan Agreement, the New
Bank shall purchase a participation interest in any outstanding Eurodollar Rate
Loans from each Bank which would suffer such costs and expenses. The amount of
the participation interest purchased by the New Bank from any Bank under this
paragraph shall be equal to the amount of the repayment such Bank would have
received with respect to such Eurodollar Rate Loan as a result of the adjustment
described in this paragraph.
4. This Assumption Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
5. This Assumption Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
6. Upon acceptance and recording by the Agent, the Agent shall notify
each Bank and the Company of the Percentage of Total Commitments of each Bank,
which shall be binding on all parties.
<PAGE>
70
IN WITNESS WHEREOF, the New Bank has caused this Assumption Agreement
to be executed by its officer thereunto duly authorized as of the date specified
thereon.
Bank of Montreal
- ------------------------------
- ------------------------------
Attention: By: /S/ Irene Geller
- ------------------------------ --------------------------------------
Facsimile No. /___/ ___-____ Irene Geller
Its:
--------------------------------------
Commitment Amount $25,000,000
Percentage of Total Commitments: 5.88%
Accepted and Agreed:
NBD BANK, as Agent
By: /S/ Winifred S. Pinet
------------------------------------
Its: First Vice President
------------------------------------
INVACARE CORPORATION, as Treasury
Manager on behalf of the Borrowers
By: /S/ Thomas R. Miklich
------------------------------------
Its: Chief Financial Officers
------------------------------------
<PAGE>
71
EXHIBIT M
ASSUMPTION AGREEMENT
Reference is made to the Loan Agreement dated as of November 18, 1997
(as now or hereafter amended or modified from time to time, the "Loan
Agreement") among INVACARE CORPORATION, an Ohio Corporation (the "Company"),
each of the Borrowing Subsidiaries designated therein from time to time
(collectively with the Company, the "Borrowers" and each individually a
"Borrower"), the Banks named therein (the "Banks"), NBD BANK, as agent for the
Banks (the "Agent") and KEYBANK NATIONAL ASSOCIATION, as co-agent for the Banks.
Terms defined in the Loan Agreement are used herein with the same meaning.
1. Michigan National Bank, ("New Bank") has decided to become a Bank
under the Loan Agreement, with its Commitment, Percentage of Total Commitments
and address for notice as described next to its signature below. The New Bank
(i) confirms that it has received a copy of the Loan Agreement, together with
copies of the financial statements referred to in Section 4.6 thereof and such
other documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assumption Agreement; (ii)
agrees that it will, independently and without reliance upon the Agent, the
Co-Agent or any Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Agreement; (iii) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under the Loan Agreement as are delegated to the
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto; (iv) agrees that it will perform in accordance
with their terms of all of the obligations that by the terms of the Loan
Agreement are required to be performed by it as a Bank; and (v) if the New Bank
is organized under the laws of a jurisdiction outside the United States,
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying as to the New Bank's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to the New Bank under the Loan Agreement and the Notes or such other
documents as are necessary to indicate that all such payments are subject to
such taxes at a rate reduced by an applicable tax treaty.
2. Following the execution of this Assumption Agreement, it will be
delivered to the Agent and the Company for acceptance by the Agent and the
Company and recording by the Agent. The effective date for this Assumption
Agreement (the "Effective Date") shall be the date of acceptance hereof by the
Agent and the Company.
<PAGE>
72
3. Upon such acceptance by the Agent and the Company and recording by
the Agent, as of the Effective Date, the New Bank shall be a party to the Loan
Agreement and, to the extent provided in this Assumption Agreement, have the
rights and obligations of a Bank thereunder. On the Effective Date, the New Bank
shall, in fulfillment of its obligations as a Bank under the Loan Agreement,
fund its share of outstanding Revolving Credit Advances in accordance with its
Percentage of Total Commitment by making available such amount to the Agent in
immediately available funds at the principal office of the Agent. The Agent
shall promptly adjust the balance of outstanding Revolving Credit Advances owing
to each Bank in accordance with each Bank's new Percentage of Total Commitment
and promptly remit to each Bank any repayment due such Bank as a result of such
adjustment. In the event any Eurodollar Rate Loans are outstanding on the
Effective Date and the repayment of such Eurodollar Rate Loans prior to the last
day of the applicable Eurodollar Interest Period would result in costs and
expenses to any Bank as described in Section 3.8 of the Loan Agreement, the New
Bank shall purchase a participation interest in any outstanding Eurodollar Rate
Loans from each Bank which would suffer such costs and expenses. The amount of
the participation interest purchased by the New Bank from any Bank under this
paragraph shall be equal to the amount of the repayment such Bank would have
received with respect to such Eurodollar Rate Loan as a result of the adjustment
described in this paragraph.
4. This Assumption Agreement shall be governed by, and construed in
accordance with, the laws of the State of Michigan.
5. This Assumption Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
6. Upon acceptance and recording by the Agent, the Agent shall notify
each Bank and the Company of the Percentage of Total Commitments of each Bank,
which shall be binding on all parties.
<PAGE>
73
IN WITNESS WHEREOF, the New Bank has caused this Assumption Agreement
to be executed by its officer thereunto duly authorized as of the date specified
thereon.
Michigan National Bank
- ------------------------------
- ------------------------------
Attention: By: /S/ Christopher J. Mayone
- ------------------------------ ---------------------------------------
Facsimile No. /___/ ___-____ Christopher J. Mayone
Its:
---------------------------------------
Commitment Amount $25,000,000
Percentage of Total Commitments: 5.88%
Accepted and Agreed:
NBD BANK, as Agent
By: /S/ Winifred S. Pinet
--------------------------------------
Its: First Vice President
--------------------------------------
INVACARE CORPORATION, as Treasury
Manager on behalf of the Borrowers
By: /S/ Thomas R. Miklich
--------------------------------------
Its: Chief Financial Officer
--------------------------------------
<PAGE>
74
NBD Bank, as Agent
611 Woodward Avenue
Detroit, Michigan 48226
December 23, 1997
Invacare Corporation
899 Cleveland Street
P.O. Box 4028
Elyria, OH 44036-2125
Attention: Chief Financial Officer
Re: Loan Agreement dated as of November 18, 1997 (the "Loan
Agreement") among Invacare Corporation (the "Company") and
certain other Borrowers named therein, the Banks named
therein, NBD Bank, as Agent, and KeyBank National Association,
as Co-Agent.
Ladies and Gentlemen:
The Borrowers have requested that NBD Bank increase its Commitment
under the Loan Agreement from $85,000,000 to $92,500,000 and that KeyBank
National Association increase its Commitment under the Loan Agreement from
$75,000,000 to $82,500,000. NBD Bank and KeyBank National Association each
hereby agree to increase their respective Commitments to such respective amounts
as set forth next to their respective name on the Schedule of Commitments
attached hereto. By its acceptance below, Invacare Corporation hereby consents
and agrees to the Schedule of Commitments attached hereto.
The agreements set forth herein shall not become binding on any party
hereto until a duly authorized officer of each party hereto shall have executed
a counterpart of this letter and delivered such counterpart to the Agent. The
terms used but not defined herein shall have their respective meanings ascribed
thereto in the Loan Agreement.
NBD BANK, As Agent and as a Bank
By: /S/ Winifred S. Pinet
---------------------------
Its: First Vice President
---------------------------
KEYBANK NATIONAL ASSOCIATION,
as Co-Agent and as a Bank
By: /S/ Richard A. Pohle
---------------------------
Its: Vice President
---------------------------
