UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934

Date of report (Date of earliest event reported):
June 7, 2017

INVACARE CORPORATION

(Exact name of Registrant as specified in its charter)
Ohio
001-15103
95-2680965
(State or other Jurisdiction of
Incorporation or Organization)
(Commission File Number)
(I.R.S. Employer
Identification Number)

One Invacare Way, Elyria, Ohio 44035
(Address of principal executive offices, including zip code)

(440) 329-6000
(Registrant’s telephone number, including area code)

———————————————————————————————— 
(Former name, former address and former fiscal year, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨







Item 1.01.    Entry into a Material Definitive Agreement.

On June 7, 2017, Invacare Corporation (the “Company”) entered into a Waiver and Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement (the “Credit Agreement Amendment”), by and among the Company, certain of the Company’s direct and indirect domestic, Canadian and European subsidiaries, the lenders party thereto, PNC Bank, National Association, as the agent for the lenders, and J.P. Morgan Europe Limited, as the European agent for the lenders, which amends the Amended and Restated Revolving Credit and Security Agreement, dated as of September 30, 2015 and amended as of February 16, 2016, May 3, 2016, September 30, 2016 and November 30, 2016 (as so amended, the “Credit Agreement”).

The Credit Agreement Amendment provides for, among other things:

the amendment of the negative covenant regarding indebtedness to permit the issuance of the notes described under Item 7.01 of this Current Report on Form 8-K (the “2022 Notes”);

the amendment of various negative covenants to (i) permit the convertible bond hedge and warrant transactions to be entered into by the Company in connection with the issuance of the 2022 Notes and (ii) increase the investment amounts permitted with respect to the convertible bond hedge and warrant transactions entered into by the Company in connection with its issuance of convertible notes in 2016; and

the amendment of the mandatory prepayment provision to eliminate the prepayment requirement that would otherwise be required upon the receipt of proceeds from the issuance of the 2022 Notes and the related sale of warrants and the negative covenant regarding dividends to permit the issuance of certain equity interests, payment of interest on the 2022 Notes and certain payments to be made upon conversion of the 2022 Notes, as well as upon the exercise, settlement or termination of the related convertible bond hedge and warrant transactions, so long as the Company is not, and would not after giving pro-forma effect to any such transaction be, in default under the Credit Agreement and has had adequate undrawn availability under its North American-based credit facility for the period required under the Credit Agreement.

The foregoing description of the Credit Agreement Amendment is a summary and is qualified in its entirety by reference to the full text of the Credit Agreement Amendment, which is attached to this Current Report on Form 8-K as Exhibit 10.1 and is incorporated by reference into this Item 1.01.

Item 7.01.    Regulation FD Disclosure.

On June 7, 2017, the Company issued a press release announcing that it intends to privately offer, subject to market and other conditions, $100 million aggregate principal amount of convertible senior notes due 2022. The Company also expects to grant the initial purchaser of the 2022 Notes an option to purchase up to an additional $15 million aggregate principal amount of 2022 Notes. In connection with the offering of the 2022 Notes, the Company expects to enter into privately negotiated convertible note hedge and warrant transactions with the initial purchaser.





The offering of the 2022 Notes is not being registered under the Securities Act of 1933, as amended (“Securities Act”), or the securities laws of any other jurisdiction. The 2022 Notes may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirements of the Securities Act and any applicable state securities laws.

This Current Report on Form 8-K does not constitute an offer to sell or a solicitation of an offer to buy the 2022 Notes, nor shall there be any offer or sale of 2022 Notes in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

The full text of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

Item 8.01.    Other Events.

The Company is filing the risk factors attached to this Current Report on Form 8-K as Exhibit 99.2 to update and supersede the risk factors contained in its periodic reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, including those under the heading “Part I, Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017.






Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
 
 
 
Exhibit Number
Description of Exhibit
 
 
10.1
Waiver and Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of June 7, 2017, by and among the Company, the other borrowers party thereto, the guarantors party thereto, the lenders party thereto, PNC Bank, National Association, as agent for the lenders, and J.P. Morgan Europe Limited, as European agent for the lenders.
 
 
99.1
Press Release, dated June 7, 2017.
 
 
99.2
Risk Factors.





SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
INVACARE CORPORATION
 
(Registrant)
 
 
 
Date: June 7, 2017
By:
/s/ Robert K. Gudbranson
 
Name:
Robert K. Gudbranson
 
Title:
Senior Vice President and Chief Financial Officer







Exhibit Index

Exhibit Number
Description of Exhibit
 
 
10.1
Waiver and Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of June 7, 2017, by and among the Company, the other borrowers party thereto, the guarantors party thereto, the lenders party thereto, PNC Bank, National Association, as agent for the lenders, and J.P. Morgan Europe Limited, as European agent for the lenders.
 
 
99.1
Press Release, dated June 7, 2017.
 
 
99.2
Risk Factors.





Exhibit 10.1

WAIVER AND FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT

THIS WAIVER AND FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT (this " Amendment ") dated as of June 7, 2017, is made by and among the BORROWERS party hereto (the " Borrowers "), the GUARANTORS party hereto (the " Guarantors "), the financial institutions party hereto as LENDERS (collectively, " Lenders " and each individually a " Lender ") and PNC BANK, NATIONAL ASSOCIATION (" PNC "), as agent for the Lenders (PNC, in such capacity, " Agent "), and J.P. MORGAN EUROPE LIMITED (" JPM Europe "), as European agent for the Lenders (JPM Europe, in such capacity, the " European Agent ").
WITNESSETH:
WHEREAS, the Borrowers, the Guarantors, the Lenders, the Agent and the European Agent are parties to that certain Amended and Restated Revolving Credit and Security Agreement, dated as of September 30, 2015, as amended by (i) First Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of February 16, 2016, (ii) Waiver and Second Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of May 3, 2016, (iii) Release and Third Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of September 30, 2016, and (iv) Fourth Amendment to Amended and Restated Revolving Credit and Security Agreement, dated as of November 30, 2016 (as so amended, the " Credit Agreement "); and
WHEREAS, the Borrowers and the Guarantors have requested the Lenders to make certain amendments and other accommodations to the Credit Agreement as more fully set forth herein. The Lenders have agreed to such amendments and accommodations, subject to the terms and conditions set forth in this Amendment.
NOW THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows:
1. Recitals . The foregoing recitals are incorporated herein by reference.
2.      Defined Terms . Capitalized terms not otherwise defined in this Amendment have the meanings given to them in the Credit Agreement.
3.      Waiver . Pursuant to Section 7.4 of the Credit Agreement, the Loan Parties agreed, among other things, that they would not, pursuant to clause (F) of the definition of Permitted Investments contained in Section 1.2 [General Terms] of the Credit Agreement, enter into investments under the 2021 Convertible Notes Hedge Transaction, in an amount in excess of $20,000,000. The Loan Parties have advised the Agent that the aggregate investments under the 2021 Convertible Notes Hedge Transaction exceeded the limitation set forth in clause (F) of the

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definition of Permitted Investments contained in Section 1.2 [General Terms] of the Credit Agreement, which violated Section 7.4 of the Credit Agreement (the " Hedge Investment Overage "). As a result of the Hedge Investment Overage, an Event of Default has occurred under Section 10.5 [Noncompliance] of the Credit Agreement (the " Hedge Investment Default "). The Loan Parties have requested that the Agent and the Lenders waive the Hedge Investment Default. Subject to the terms and conditions hereof, the Agent and the Lenders hereby waive the Hedge Investment Default. The foregoing waiver is limited to the Hedge Investment Default and does not constitute a waiver of any other Event of Default or indicate an agreement on the part of the Agent or the Lenders to grant any such waiver in the future.
4.      Amendment of Section 1.2 – Deleted Definitions . The definition of "2027 Convertible Notes" is hereby deleted from Section 1.2 of the Credit Agreement in its entirety.
5.      Amendment of Section 1.2 – Added Definitions . The following definitions are hereby added in Section 1.2 of the Credit Agreement in their appropriate alphanumeric positions:
Canadian Reorganization shall mean the reorganization described on Schedule 1.2(c) .
2022 Convertible Notes shall mean the Company's unsecured senior convertible notes, issued in 2017 and due in 2022, in the aggregate original principal amount not to exceed $120,000,000 which may be guarantied by certain of the Loan Parties.
2022 Convertible Notes Call Spread Transaction shall mean all 2022 Convertible Notes Hedge Transactions and all 2022 Convertible Notes Warrant Transactions.
2022 Convertible Notes Hedge Transaction shall mean any call option (or substantially equivalent derivative transaction) on the Company's common shares (including, for the avoidance of doubt, any call option that may be settled in whole or in part in cash) purchased by the Company substantially concurrently with, and in connection with, any issuance or issuances of the 2022 Convertible Notes; provided that the purchase price for such 2022 Convertible Notes Hedge Transaction, less the proceeds received by the Company from the sale of any related 2022 Convertible Notes Warrant Transaction, does not exceed the net proceeds received by the Company from the sale of the related 2022 Convertible Notes.
2022 Convertible Notes Warrant Transaction shall mean any call option on, or any warrant or right to purchase (or substantially equivalent derivative transaction), the Company's common shares (including, for the avoidance of doubt, any net

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share settled call option or warrant) sold by the Company substantially concurrently with, and in connection with, the purchase by the Company of any 2022 Convertible Notes Hedge Transaction.
6.      Amendment of Section 1.2 – Subsection (d) of the Definition of Change of Control . Subsection (d) of the definition of Change of Control contained in Section 1.2 of the Credit Agreement is hereby amended and restated in its entirety as follows:
(d)    a "change of control" or any comparable term under, and as defined in the documents governing the the 2021 Convertible Notes, the 2022 Convertible Notes or any other material Indebtedness of the Company shall occur prior to the date such Indebtedness is repaid or redeemed in accordance with, or to the extent not prohibited by, the provisions of this Agreement; or
7.      Amendment of Section 1.2 –Definition of Indebtedness . The last sentence of the definition of Indebtedness contained in Section 1.2 of the Credit Agreement is hereby amended and restated as follows:
For the avoidance of doubt, the 2021 Convertible Notes Warrant Transaction and the 2022 Convertible Notes Warrant Transaction shall not constitute Indebtedness.
8.      Amendment of Section 1.2 – Subsection (F) of the Definition of Permitted Indebtedness . Subsection (F) of the definition of Permitted Indebtedness contained in Section 1.2 of the Credit Agreement is hereby amended and restated in its entirety as follows:
(F)    Indebtedness under the 2021 Convertible Notes and the 2022 Convertible Notes (in each case, including any guaranties thereof and subject to compliance with Section 7.19);
9.      Amendment of Section 1.2 – Subsection (F) of the Definition of Permitted Investments . Subsection (F) of the definition of Permitted Investments contained in Section 1.2 of the Credit Agreement is hereby amended and restated in its entirety as follows:
(F)    investments under the 2021 Convertible Notes Hedge Transaction, in an amount not to exceed $20,000,000 (net of the proceeds payable to the Company in respect of any related 2021 Convertible Notes Warrant Transaction) and investments under the 2022 Convertible Notes Hedge Transaction, in an amount not to exceed $20,000,000 (net of the proceeds payable to the Company in respect of any related 2022 Convertible Notes Warrant Transaction);

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10.      Amendment of Section 2.19(b) – Mandatory Prepayments . Section 2.19(b) of the Credit Agreement is hereby amended and restated in its entirety as follows:
(b)    In the event of the issuance of any Equity Interests by or capital contributions to any Loan Party (other than any Equity Interests issued in connection with the issuance of the 2021 Convertible Notes or the 2022 Convertible Notes, any conversion of any of the 2021 Convertible Notes or the 2022 Convertible Notes, and/or entry into, exercise, settlement, early termination or other performance of obligations under (including by netting or set-off) the 2021 Convertible Notes Call Spread Transaction or the 2022 Convertible Notes Call Spread Transaction or issuances under either of the foregoing), such Loan Party shall, no later than ten (10) Business Days after the receipt by such Loan Party of the net cash proceeds of any issuance of Equity Interests, repay the Advances under the relevant Facility, in an amount equal to fifty percent (50%) of such net cash proceeds in the case of an issuance of Equity Interests by or capital contribution to any Loan Party. Such repayments will be applied in the same manner as set forth in Section 11.5.
11.      Amendment of Section 6.15 – Designation as Senior Debt . Section 6.15 of the Credit Agreement is hereby amended and restated as follows:
6.15     Reserved .
12.      Amendment of Section 7.1 – Merger, Consolidation, Acquisition and Sale of Assets . Section 7.1 of the Credit Agreement is hereby amended by adding a new clause (c) as follows:
(c)    For the avoidance of doubt, the Canadian Reorganization is expressly permitted.
13.      Amendment of Section 7.7 – Dividends . Clauses (d) through (j) of Section 7.7 of the Credit Agreement are hereby amended and restated in their entirety as follows:
(d)    repurchases, redemptions or reductions in number of shares issued (including, by utilization of the "net share" concept) by the Company of any Equity Interests in the Company made in connection with (I) the surrender of shares by employees to (x) facilitate the payment by such employees of the taxes associated with compensation received by such employees under the Company's stock-based compensation plans and, (y) to satisfy the purchase price of non-qualified stock options, in an amount not to exceed $2,000,000 in the aggregate (for both (x) and (y)) in any fiscal year and (II) the deduction by the Company, of a portion of

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restricted stock previously (i.e. prior to the date of the deduction) granted to employees under the Company's stock-based compensation plans to facilitate the payment by such employees of the taxes associated with the vesting of such restricted stock; provided, in each case, that prior to and after giving effect to such repurchases, redemptions or reductions no Default or Event of Default exists or is continuing;
(e)    any purchase by the Company of a 2021 Convertible Notes Hedge Transaction or a 2022 Convertible Notes Hedge Transaction; provided that prior to and after giving effect to such purchase (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada Undrawn Availability Test Amount for the thirty (30) consecutive days ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate;
(f)    purchases, redemptions or retirements by the Company of any Equity Interests upon exercise and settlement or termination of the 2021 Convertible Notes Hedge Transactions or the 2022 Convertible Notes Hedge Transactions;
(g)    distributions on the 2021 Convertible Notes or the 2022 Convertible Notes (including, without limitation, upon conversion thereof); provided that prior to and after giving effect to such distributions (other than the payment of interest on the 2021 Convertible Notes, the 2022 Convertible Notes and/or delivery of common shares of the Company (together with cash in lieu of any fractional shares) upon any conversion of the 2021 Convertible Notes or the 2022 Convertible Notes) (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada Undrawn Availability Test Amount for the thirty (30) consecutive days ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate;
(h)    purchases, redemptions or other retirements of any shares of common stock of the Company arising from the conversion of the 2021 Convertible Notes or the 2022 Convertible Notes; provided that prior to and after giving effect to such purchases, redemptions or retirements (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada Undrawn Availability Test Amount for the thirty (30) consecutive days

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ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate;
(i)    the issuance of, entry into, (including any payments of premiums in connection therewith), performance of obligations under (including any payments of interest), and conversion, exercise, repurchase, redemption, settlement or early termination or cancellation of (whether in whole or in part and including by netting or set-off) (in each case, whether in cash, common shares of the Company or any combination thereof) or the satisfaction of any condition that would permit or require any of the foregoing, any 2021 Convertible Notes, any 2021 Convertible Notes Call Spread Transaction, any 2022 Convertible Notes and any 2022 Convertible Notes Call Spread Transaction; and
(j)    [Reserved].
14.      Amendment of Section 7.17 – Prepayment of Indebtedness . Section 7.17 of the Credit Agreement is hereby amended and restated in its entirety as follows:
7.17     Prepayment of Indebtedness . At any time, directly or indirectly, prepay any Indebtedness in excess of $1,000,000 in the aggregate during the Term, (other than Indebtedness (a) to Lenders, (b) of a Loan Party to another Loan Party, (c) of an Excluded Subsidiary to a Loan Party, (d) of an Excluded Subsidiary to another Excluded Subsidiary, or (e) under the 2021 Convertible Notes or the 2022 Convertible Notes (including, for the avoidance of doubt, conversion, exercise, repurchase, redemption, settlement or early termination or cancellation); provided, that, in each case, prior to and after giving effect to such prepayment (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada Undrawn Availability Test Amount for the thirty (30) consecutive days ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate), or repurchase, redeem, retire or otherwise acquire any Indebtedness of any Loan Party in excess of $1,000,000 in the aggregate during the Term (other than Indebtedness (a) of a Loan Party to another Loan Party, (b) of an Excluded Subsidiary to a Loan Party, (c) of an Excluded Subsidiary to another Excluded Subsidiary, or (d) under the 2021 Convertible Notes or the 2022 Convertible Notes; provided, that, in each case, prior to and after giving effect to such repurchases, redemptions, retirements or acquisitions (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada

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Undrawn Availability Test Amount for the thirty (30) consecutive days ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate). Notwithstanding the above, no European Loan Party may, at any time that any amount of the European Facility Revolving Facility Usage is outstanding, directly or indirectly, repay any Indebtedness other than to another European Loan Party or acquire any Indebtedness other than of any other European Loan Party unless the European Undrawn Availability at that time, and immediately after making such repayment, exceeds (and has at all times in the preceding 30 day period exceeded) $3,000,000.
15.      Amendment of Section 7.19 – Covenants as to Certain Indebtedness . Section 7.19 of the Credit Agreement is hereby amended and restated in its entirety as follows:
7.19     Covenants as to Certain Indebtedness . Amend or modify any provisions of the documents governing the 2021 Convertible Notes or the 2022 Convertible Notes, in each case, in any material and adverse way (with any changes to the interest rate, redemption requirements, amortization schedule, negative covenants and events of default deemed to be material for purposes hereof, but without limiting any other changes which may be material) without providing at least fifteen (15) calendar days' prior written notice to Agent and Lenders, and obtaining the prior written consent of the Applicable Required Lenders, it being understood for the avoidance of doubt, that adjustments, amendments, and modifications expressly required to be made pursuant to the terms of the 2021 Convertible Notes or the 2022 Convertible Notes shall be permitted.
16.      Amendment of Section 7.21 – Designation of Senior Debt . Section 7.21 of the Credit Agreement is hereby amended and restated as follows:
7.21     Reserved .
17.      Amendment of Sub-clause (b) of Section 9.5 – Material Occurrences . Sub-clause (b) of Section 9.5 of the Credit Agreement is hereby amended and restated in its entirety as follows:
(b) any event which with the giving of notice or lapse of time, or both, would constitute an event of default under the 2021 Convertible Notes and/or the 2022 Convertible Notes;

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18.      Amendment of Section 9.16 – Notices Under Certain Indebtedness Documents . Section 9.16 of the Credit Agreement is hereby amended and restated in its entirety as follows:
9.16     Notices Under Certain Indebtedness Documents . At the same time sent or provided to the holders of the the 2021 Convertible Notes and/or the 2022 Convertible Notes (in each case, without duplication), deliver to Agent copies of all notices and reports provided in connection with the 2021 Convertible Notes and/or the 2022 Convertible Notes, it being understood that any such notices or reports that are filed by the Company with the SEC shall be deemed to be delivered to Agent on the date on which such notices or reports are posted on the SEC's website at www.sec.gov.
19.      Amendment of Section 10.10 – Cross Default . Section 10.10 of the Credit Agreement is hereby amended and restated in its entirety as follows:
10.10     Cross Default . Either (x) any specified "event of default" under any Indebtedness in excess of $1,000,000 (other than the Obligations) of any Loan Party, or any other event or circumstance which would permit the holder of any such Indebtedness of any Loan Party to accelerate such Indebtedness (and/or the obligations of such Loan Party thereunder) prior to the scheduled maturity or termination thereof, shall occur (regardless of whether the holder of such Indebtedness shall actually accelerate, terminate or otherwise exercise any rights or remedies with respect to such Indebtedness), other than any event or circumstance (including, without limitation, the passage of time) that results in the 2021 Convertible Notes or the 2022 Convertible Notes becoming convertible pursuant to their terms; provided that, solely to the extent such 2021 Convertible Notes or the 2022 Convertible Notes are converted in connection with such event or circumstance, prior to and after giving effect to such conversions (i) no Default or Event of Default exists or is continuing and (ii) US-Canada Undrawn Availability shall not be less than the US-Canada Undrawn Availability Test Amount for the thirty (30) consecutive days ending as of the date of the most recently delivered US-Canada Borrowing Base Certificate or (y) a default of the obligations of any Loan Party under any other agreement to which it is a party shall occur which has or is reasonably likely to have a Material Adverse Effect;

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20.      Conditions Precedent . The effectiveness of this Amendment is subject to the receipt by the Agent of the following items, each in form and content satisfactory to the Agent:
(a)      the Agent shall have received this Amendment, duly executed by a duly authorized officer of each of the Loan Parties, each of the Applicable Required Lenders, the Agent and the European Agent;
(b)      no Potential Default or Event of Default (other than the Hedge Investment Default) shall have occurred; and
(c)      the Borrowers shall have paid all of (i) Agent's costs and expenses (including Agent's attorneys' fees) incurred in connection with the preparation of this Amendment and (ii) the amendment fee set forth in that certain fee letter dated June 7, 2017 among the Agent, PNC Capital Markets LLC and the Company.
21.      Representations and Warranties . Each Borrower and each Guarantor covenants and agrees with and represents and warrants to the Agent, the European Agent and the Lenders as follows:
(a)      each Borrower's and each Guarantor's obligations under the Credit Agreement, as modified hereby, are and shall remain secured by the Collateral pursuant to the terms of the Credit Agreement and the Other Documents;
(b)      each Borrower and each Guarantor possesses all of the powers requisite for it to enter into and carry out the transactions referred to herein and to execute, enter into and perform the terms and conditions of this Amendment, the Credit Agreement and the Other Documents and any other documents contemplated herein that are to be performed by such Borrower or such Guarantor; and that any and all actions required or necessary pursuant to such Borrower's or such Guarantor's organizational documents or otherwise have been taken to authorize the due execution, delivery and performance by such Borrower and such Guarantor of the terms and conditions of this Amendment, the Credit Agreement and the Other Documents, and that such execution, delivery and performance will not conflict with, constitute a default under or result in a breach of any applicable law or any agreement, instrument, order, writ, judgment, injunction or decree to which such Borrower or such Guarantor is a party or by which such Borrower or such Guarantor or any of its properties are bound, and that all consents, authorizations and/or approvals required or necessary from any third parties in connection with the entry into, delivery and performance by such Borrower and/or such Guarantor of the terms and conditions of this Amendment, the Credit Agreement, the Other Documents and the transactions contemplated hereby and thereby have been obtained by such Borrower and such Guarantor and are in force and effect;
(c)      this Amendment, the Credit Agreement, and the Other Documents constitute the valid and legally binding obligations of each Borrower and each Guarantor, enforceable against such Borrower and such Guarantor in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy,

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insolvency, reorganization, moratorium or similar laws and by general equitable principles, whether enforcement is sought by proceedings at law or in equity;
(d)      all representations and warranties made by each Borrower and each Guarantor in the Credit Agreement and the Other Documents are true and correct in all material respects as of the date hereof, with the same force and effect as if all such representations and warranties were fully set forth herein and made as of the date hereof and each Borrower and each Guarantor has complied with all covenants and undertakings in the Credit Agreement and the Other Documents;
(e)      this Amendment is not a substitution, novation, discharge or release of any Borrower's or any Guarantor's obligations under the Credit Agreement or any of the Other Documents, all of which shall and are intended to remain in full force and effect;
(f)      no Event of Default or Potential Default has occurred and is continuing under the Credit Agreement or the Other Documents (other than the Hedge Investment Default); there exist no defenses, offsets, counterclaims or other claims with respect to any Borrower's or any Guarantor's obligations and liabilities under the Credit Agreement or any of the Other Documents;
(g)      each Borrower and each Guarantor hereby ratifies and confirms in full its duties and obligations under the Credit Agreement, the Guaranty Agreement, and the Other Documents applicable to it, each as modified hereby; and
(h)      each Borrower and each Guarantor hereby agrees, as an independent obligation to the European Agent (to the extent such Guarantor or Borrower is party to the English Law Guaranty), to be bound by the terms of the English Law Guaranty as if it had been set out in full again here with such changes as are appropriate to fit this context, for the avoidance of doubt with references to the Credit Agreement and Other Documents each as modified hereby.
22.      Reimbursement of Expenses . The Borrowers, jointly and severally, shall pay or cause to be paid to the Agent all costs and expenses accrued through the date hereof and the costs and expenses of the Agent including, without limitation, fees of the Agent's counsel in connection with this Amendment.
23.      Document References . As used in the Credit Agreement and each of the Other Documents, the terms "this Credit Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar import shall, unless the context otherwise requires, mean the Credit Agreement as amended and modified by this Amendment. The term "Other Documents" as defined in the Credit Agreement shall include this Amendment.
24.      Integration . This Amendment, together with the Credit Agreement and the Other Documents, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter. In entering into this Amendment, each Borrower

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and each Guarantor acknowledges that it is relying on no statement, representation, warranty, covenant or agreement of any kind made by Agent or any Lender or any employee or agent of Agent or any Lender, except for the agreements of Agent and the Lenders set forth herein. This Amendment shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Amendment or any part hereof to be drafted.
25.      Successors and Assigns . This Amendment shall apply to and be binding upon the Borrowers and the Guarantors in all respects and shall inure to the benefit of each of the other parties hereto and their respective successors and assigns, provided that none of the Borrowers nor the Guarantors may assign, transfer or delegate its duties and obligations hereunder. Nothing expressed or referred to in this Amendment is intended or shall be construed to give any person or entity other than the parties hereto a legal or equitable right, remedy or claim under or with respect to this Amendment, the Credit Agreement or any Other Documents, it being the intention of the parties hereto that this Amendment and all of its provisions and conditions are for the sole and exclusive benefit of the parties hereto.
26.      Severability . If any one or more of the provisions contained in this Amendment, the Credit Agreement, or the Other Documents shall be held invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions contained in this Amendment, the Credit Agreement or the Other Documents shall not in any way be affected or impaired thereby, and this Amendment, the Credit Agreement and the Other Documents shall otherwise remain in full force and effect.
27.      Further Assurances . Each Borrower and each Guarantor agrees to execute such other and further documents and instruments as Agent may request to implement the provisions of this Amendment.
28.      Governing Law . This Amendment will be governed by the internal laws of the State of New York without reference to its conflicts of law principles.
29.      Waiver and Release . Each Borrower and each Guarantor, by signing below, hereby waives and releases Agent, the European Agent, Issuer and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which any Borrower or any Guarantor is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto.
30.      Counterparts; Electronically Delivered Signatures . This Amendment may be executed in any number of counterparts each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Delivery of executed signature pages hereof by facsimile or other means of electronic transmission from one party to another shall constitute effective and binding execution and delivery thereof by such party. Any party that delivers its original counterpart signature to this amendment by facsimile transmission hereby covenants to deliver its original counterpart signature promptly thereafter to the Agent.

11



31.      WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE CREDIT AGREEMENT OR ANY OTHER DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
[SIGNATURE PAGES FOLLOW]




12



[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]
Each of the parties has signed this Fifth Amendment to Amended and Restated Revolving Credit and Security Agreement as of the day and year first above written.

 
US BORROWERS:

 
Invacare Corporation , an Ohio corporation
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Senior Vice President and Chief Financial Officer

 
Freedom Designs, Inc. , a California corporation
Alber USA, LLC , an Ohio limited liability company
The Aftermarket Group, Inc. , a Delaware corporation
Medbloc, Inc. , a Delaware corporation
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Vice President and Treasurer

 
Invacare Continuing Care, Inc. , a Missouri corporation
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Vice President





[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

 
US GUARANTORS:

 
Adaptive Switch Laboratories, Inc. , a Texas corporation
The Helixx Group, Inc. , an Ohio corporation
Invacare Credit Corporation , an Ohio corporation
Invacare International Corporation , an Ohio corporation
Invacare Holdings, LLC , an Ohio limited liability company
Invacare Florida Holdings, LLC , a Delaware limited liability company
Invacare Florida Corporation , a Delaware corporation
Invamex Holdings LLC , a Delaware limited liability company
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Vice President and Treasurer

 
Invacare Canadian Holdings, Inc. , a Delaware corporation
Invacare Canadian Holdings, LLC , a Delaware limited liability company
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: President





[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

 
CANADIAN BORROWERS:
 
Invacare Canada L.P. , an Ontario limited partnership, by its general partner, Invacare Canada General Partner Inc.
Carroll Healthcare L.P. , an Ontario limited partnership, by its general partner, Carroll Healthcare General Partner, Inc.
Motion Concepts L.P. , an Ontario limited partnership, by its general partner, Carroll Healthcare Inc.
Perpetual Motion Enterprises Limited , an Ontario corporation
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Vice President and Treasurer

 
CANADIAN GUARANTORS:
 
Carroll Healthcare General Partner, Inc. , an Ontario corporation
Carroll Healthcare Inc. , an Ontario corporation
Invacare Canada General Partner Inc. , a Canada corporation
By: /s/ Robert K. Gudbranson    
Name: Robert K. Gudbranson
Title: Vice President and Treasurer
 




[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

 
ENGLISH BORROWERS:

 
Invacare Limited , a company incorporated in England and Wales with company number 05178693
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: Director

 
ENGLISH GUARANTORS:

 
Invacare Limited , a company incorporated in England and Wales with company number 05178693
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: Director

 
Invacare UK Operations Limited , a company incorporated in England and Wales with company number 03281202
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: Director





[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

 
FRENCH BORROWERS:

 
Invacare Poirier SAS
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: President Duly Authorised

 
FRENCH GUARANTORS:

 
Invacare Poirier SAS
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: President Duly Authorised

 
Invacare France Operations S.A.S.
By: /s/ Theodore Vassiloudis    
Name: Theodore Vassiloudis
Title: President Duly Authorised





[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

PNC BANK, NATIONAL ASSOCIATION , as Lender and as Agent
By: /s/ Todd Milenius    
Name:    Todd Milenius
Title:    Senior Vice President




[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

KEYBANK NATIONAL ASSOCIATION , as Lender
By: /s/ Jonathan Roe    
Name:    Jonathan Roe
Title:    Vice President




[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

JPMORGAN CHASE BANK, N.A. , as Lender
By: /s/ Lisa A. Morrison    
Name: Lisa A. Morrison
Title: Authorized Officer
J.P. MORGAN EUROPE LIMITED , as Lender
By: /s/ Matthew Sparkes    
Name:    Matthew Sparkes
Title:    Authorised Officer




[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

J.P. MORGAN EUROPE LIMITED , as European Agent
By: /s/ Matthew Sparkes    
Name: Matthew Sparkes
Title: Authorised Officer




[SIGNATURE PAGE TO FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND SECURITY AGREEMENT]

CITIZENS BUSINESS CAPITAL, A DIVISION OF CITIZENS ASSET FINANCE, INC. , as Lender
By: /s/ David Slattery    
Name:    David Slattery
Title:    Vice President





Schedule 1.2(c)
Canadian Reorganization
A reorganization consisting substantially of the following steps:
1.
Carroll Healthcare Inc., an Ontario corporation and a Canadian Guarantor (" Carroll Inc. ") will contribute its partnership units of Carroll Healthcare L.P., an Ontario limited partnership and a Canadian Borrower (" Carroll LP ") to Invacare Canada L.P., an Ontario limited partnership and a Canadian Borrower (" Invacare Canada ") for consideration consisting of additional partnership units of Invacare Canada;
2.
Carroll LP will be terminated in accordance with its limited partnership agreement and applicable law and an undivided interest in its assets will be distributed to its partners on a pro rata basis;
3.
Carroll Healthcare General Partner, Inc., an Ontario corporation and a Canadian Guarantor (" Carroll GP "), will sell its one percent (1%) undivided interest in the assets received from Carroll LP to Invacare Canada for cash consideration; and
4.
Carroll GP will then be dissolved and its assets will be distributed to its sole shareholder Invacare Canadian Holdings, Inc., a Delaware corporation and a US Guarantor.




Exhibit 99.1
FOR IMMEDIATE RELEASE

Press Contact:
Lara Mahoney
Invacare Corporation
Phone: (440) 329-6393

INVACARE CORPORATION PROPOSED OFFERING OF $100 MILLION AGGREGATE PRINCIPAL AMOUNT OF CONVERTIBLE SENIOR NOTES

ELYRIA, Ohio (June 7, 2017) - Invacare Corporation (NYSE: IVC) (the “Company”) announced today that it intends to offer, subject to market conditions and other factors, $100 million aggregate principal amount of convertible senior notes due 2022 (the “notes”) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the offering, the Company expects to grant the initial purchaser an option to purchase (solely to cover over-allotments, if any) up to an additional $15 million aggregate principal amount of notes, which shall be delivered within a 13-day period beginning on, and including, the date the Company first issues the notes.

Final terms of the notes, including the initial conversion price, interest rate and certain other terms of the notes will be determined at the time of pricing. The notes will bear interest semi-annually and will mature on June 1, 2022, unless repurchased or converted in accordance with their terms prior to such date. Prior to December 1, 2021, the notes will be convertible only upon satisfaction of certain conditions and during certain periods, and thereafter, at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Subject to the Company’s determination upon pricing of the notes that shareholder approval of the issuance of the Company’s common shares upon conversion of the notes would be required under applicable NYSE rules, and until such time as the Company receives shareholder approval of the issuance of the Company’s common shares upon conversion of its 5.00% convertible senior notes due 2021 as required under applicable NYSE rules, the notes will be convertible, subject to certain conditions, into cash unless and until the Company obtains the requisite shareholder approval. If the requisite shareholder approval is obtained, the notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. Holders of the notes will have the right to require the Company to repurchase all or some of their notes at 100% of their principal, plus any accrued and unpaid interest, upon the occurrence of certain fundamental changes.

When issued, the notes will be the Company’s senior unsecured obligations and will rank senior in right of payment to any of the Company’s unsecured indebtedness that is expressly subordinated in right of payment to the notes; equal in right of payment to any of the Company’s unsecured indebtedness that is not so subordinated, including the Company’s 5.00% convertible senior notes due 2021; effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities (including trade payables) of the Company’s subsidiaries.

In connection with the offering of the notes, the Company expects to enter into a privately negotiated convertible note hedge transaction with Goldman Sachs & Co. LLC (the “option counterparty”). This transaction will cover, subject to customary anti-dilution adjustments, the number of the Company’s common shares that will initially underlie the notes, and is expected generally to reduce the potential equity dilution,





and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the notes. The Company also expects to enter into a separate, privately negotiated warrant transaction with the option counterparty at a higher strike price relating to the same number of the Company’s common shares, subject to customary anti-dilution adjustments, pursuant to which the Company will sell warrants to the option counterparty. The warrants could have a dilutive effect on the Company’s common shares and the Company’s earnings per share to the extent that the price of the Company’s common shares exceeds the strike price of those warrants.

If the initial purchaser exercises its over-allotment option, the Company expects to enter into an additional convertible note hedge transaction and an additional warrant transaction with the option counterparty, which will initially cover the number of the Company’s common shares that will initially underlie the additional notes sold to the initial purchaser.

The Company intends to use a portion of the net proceeds from this offering to pay the cost of the convertible note hedge transaction (after such cost is partially offset by the proceeds to the Company from the sale of the warrant transaction). The Company intends to use any remaining net proceeds from this offering for working capital and general corporate purposes, which may include funding portions of the Company’s ongoing turnaround and addressing potential risks and contingencies described in the Company’s periodic reports on Form 10-K and Form 10-Q and current reports on Form 8-K.

The Company has been advised that in connection with establishing its initial hedge of the convertible note hedge and warrant transactions, the option counterparty and/or its affiliates expect to enter into various derivative transactions with respect to the Company’s common shares concurrently with or shortly after the pricing of the notes. This activity could have the effect of increasing (or reducing the size of any decrease in) the market price of the Company’s common shares and/or the notes, and could result in a higher effective conversion price for the notes, at that time. The option counterparty and/or its affiliates may modify the option counterparty’s hedge positions by entering into or unwinding various derivatives with respect to the Company’s common shares and/or purchasing or selling the Company’s common shares or other securities of the Company in secondary market transactions following the pricing of the notes and prior to maturity of the notes (and the option counterparty and/or its affiliates are likely to do so during any observation period related to a conversion of the notes).

The potential effect, if any, of these transactions and activities on the market price of the Company’s common shares or the notes will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of the Company’s common shares, which could affect the ability to convert the notes, the value of the notes and the amount of cash, if any, and the number of and value of the Company’s common shares, if any, holders would receive upon conversion of the notes.

The offer and sale of the notes are not being registered under the Securities Act, or the securities laws of any other jurisdiction. The notes may not be offered or sold in the United States except in transactions exempt from, or not subject to, the registration requirements of the Securities Act and any applicable state securities laws.

This press release does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. Any offers of the notes will be made only by means of a private offering circular. The notes being offered have not been approved or disapproved by any regulatory authority, nor has any such authority passed upon the accuracy or adequacy of the applicable private offering circular.





About Invacare Corporation

Invacare Corporation (NYSE: IVC) is a leading manufacturer and distributor in its markets for medical equipment used in non-acute care settings. At its core, the Company designs, manufactures and distributes medical devices that help people to move, breathe, rest and perform essential hygiene. The Company provides medical device solutions for congenital (e.g., cerebral palsy, muscular dystrophy, spina bifida), acquired (e.g., stroke, spinal cord injury, traumatic brain injury, post-acute recovery, pressure ulcers) and degenerative (e.g., ALS, multiple sclerosis, chronic obstructive pulmonary disease (COPD), elderly, bariatric) ailments. The Company’s products are important parts of care for people with a wide range of challenges, from those who are active and heading to work or school each day and may need additional mobility or respiratory support, to those who are cared for in residential care settings, at home and in rehabilitation centers. The Company sells its products principally to home medical equipment providers with retail and e-commerce channels, residential care operators, distributors and government health services in North America, Europe and Asia/Pacific.

Forward-Looking Statements

This press release contains “forward-looking statements”. All statements, other than statements of historical facts, included in this press release may be deemed forward-looking statements. The Company uses the words “anticipate(s),” “believe(s),” “estimate(s),” “expect(s),” “intend(s),” “may,” “plan(s),” “project(s),” “will,” “would” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements relating to the proposed offering of the notes include, but are not limited to: whether the Company will offer the notes; whether the Company will consummate the offering on the proposed terms, or at all; whether the notes will be convertible into the Company’s common shares, or convertible at all; the anticipated use of the net proceeds of the offering; and whether the convertible note hedge and warrant transactions will become effective. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Specific risks and uncertainties that could cause actual results to differ materially from those expressed in the Company’s forward-looking statements include: changes in market conditions; demands on the Company’s cash; and final pricing of the notes and the convertible note hedge and warrant transactions. Other risks include those described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as updated by, and as otherwise described in, the Company’s subsequent reports filed with the SEC. Other risks to potential purchasers of the notes include those described in the applicable private offering circular. These risks and uncertainties may cause the Company’s actual future actions or results to differ materially from those expressed in the forward-looking statements. Forward-looking statements speak only as to the date on which they are made, and, except as may be required by law, the Company undertakes no obligation to update publicly or revise any forward-looking statement, regardless of whether new information becomes available, future developments occur or otherwise.





Exhibit 99.2
RISK FACTORS
Invacare Corporation (“we”, “us”, or “our”) is filing information for the purposes of updating and superseding the risk factor disclosure contained in its prior public filings, including those previously set forth in Part I, Item IA, “Risk Factors” of its Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2017.
Our business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in our filings with the SEC, before making any investment decision with respect to our securities. The risks and uncertainties described below may not be the only ones we face. Additional risks and uncertainties not presently known by us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties occur, develop or worsen, our business, financial condition, results of operations and future growth prospects could change substantially.
We are subject to a consent decree of injunction ("consent decree") with the U.S. Food and Drug Administration (“FDA”), the effects of which have been, and continue to be, costly to us and could result in continued adverse consequences to our business.
The consent decree, which was filed as an exhibit to our Form 8-K filed on December 20, 2012, became effective December 21, 2012. The injunction limits our manufacture and distribution of power and manual wheelchairs, wheelchair components and wheelchair sub-assemblies at or from our Taylor Street manufacturing facility in Elyria, Ohio. The decree also temporarily limited design activities related to wheelchairs and power beds that take place at the impacted Elyria, Ohio facilities. However, we are entitled to continue to produce from the Taylor Street manufacturing facility certain medically necessary wheelchairs provided that documentation and record-keeping requirements are followed, as well as ongoing replacement, service and repair of products already in use, under terms delineated in the consent decree. In addition, we were able to fulfill purchase orders and quotes that were in our order fulfillment system prior to the effective date of the decree. Under the terms of the consent decree, in order to resume full operations at the impacted facilities, we must successfully complete a third-party expert certification audit and receive written notification from the FDA. The certification audit is comprised of three distinct reports. The first two of the three certification reports were completed and accepted by the FDA during 2013. In February 2016, the third-party expert issued its third certification report indicating substantial compliance with the FDA’s Quality System Regulation (QSR), and the report was submitted to the FDA. Similar to the first and second certification processes, FDA has responded to this report with clarifying questions to which we and the independent expert have responded.
In December 2015, FDA issued Form 483 observations following a 2015 inspection of approximately five months at the Corporate and Taylor Street facilities in Elyria, Ohio which included a review of our compliance with the terms of the consent decree and the matters covered by the first and second expert certification reports previously accepted in 2013 (the “December 2015 Form 483”). We have filed our responses to this Form 483 and continue to work on addressing FDA’s observations.
In June 2016, we received a letter from FDA in follow up to the December 2015 Form 483 and our subsequent responses. To satisfy FDA’s design control requirements, the FDA letter outlined additional steps we must take. In particular, FDA clarified its requirement for us to complete the remediation of certain design history files (DHFs) referenced in the December 2015 Form 483 and in the consent decree.




In April 2017, we received notification from FDA that it accepted the second certification report by the third-party expert relating to design control requirements, which permitted us to resume design activities at the Corporate and Taylor Street facilities. 
Also in April 2017, we submitted our written report to FDA in accordance with paragraph 5(H) of the consent decree. The "5(H) Report" details our actions to correct findings from prior FDA and third-party expert inspections and to ensure that the quality system and controls at the Corporate and Taylor Street facilities have achieved and will sustain compliance with applicable FDA requirements.
As a result of receiving our 5(H) Report, FDA initiated inspection of the Corporate and Taylor Street facilities. We cannot predict the length of the inspection, nor any remaining work that may be needed to meet FDA's requirements for resuming full operations at the impacted facilities. We will not be able to resume full operations at the Corporate and Taylor Street facilities until the FDA issues written notice that it has found the facilities to be in compliance.
We cannot predict any remaining work that may be needed to meet the FDA's requirements, or the timing or potential response of the FDA's inspection and subsequent written notification. Significant delays in the FDA's inspection or written notification to resume operations, or any need to complete significant additional remediation as a result of the FDA inspection could have a material adverse effect on our business, financial condition, liquidity or results of operations.
After resumption of full operations, we must undergo five years of audits by a third-party expert auditor, who will issue reports to us and the FDA identifying whether the facilities are operated and administered in continuous compliance with FDA regulations and the consent decree. Under the consent decree, the FDA has the authority to inspect the Corporate and Taylor Street facilities at any time. The FDA also has the authority to order us to take a wide variety of remedial actions if the FDA finds that we are not in compliance with the consent decree or FDA regulations. The FDA also has authority under the consent decree to assess liquidated damages for any violations of the consent decree, FDA regulations or the federal Food, Drug and Cosmetic Act. Any such failure by us to comply with the consent decree or FDA regulations, or any need to complete significant remediation as a result of any such audits or inspections, or actions taken by the FDA as a result of any such failure to comply, could have a material adverse effect on our business, financial condition, liquidity or results of operations.
During the pendency of the consent decree negotiations in 2012, and during its effectiveness since December 21, 2012, we have experienced significant pressures on our net sales and operating results. See “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and Quarterly reports on Form 10-Q. We expect to continue to experience pressure on net sales and profitability, particularly in the North America/HME and Asia/Pacific segments, until we have successfully completed the previously described FDA inspection and have received written notification from the FDA that we may resume full operations. Even after we receive the FDA notification, it is uncertain as to whether, or how quickly, we will be able to rebuild net sales and profitability to more typical historical levels, irrespective of market conditions. If we are unable to obtain FDA approval to resume full operations on a timely basis, we may be required to restructure our business strategy to rebuild profitability, and there can be no assurance that we would be successful in doing so.




Our failure to comply with medical device regulatory requirements or receive regulatory clearance or approval for our products or operations in the United States or abroad could adversely affect our business.
Our medical devices are subject to extensive regulation in the United States by the FDA, and by similar governmental authorities in the foreign countries where we do business. The FDA regulates virtually all aspects of a medical device’s development, testing, manufacturing, labeling, promotion, distribution and marketing. In addition, we are required to file reports with the FDA if our products may have caused, or contributed to, a death or serious injury, or if they malfunction and would be likely to cause, or contribute to, a death or serious injury if the malfunction were to recur. In general, unless an exemption applies, our mobility and respiratory therapy products must receive a pre-market clearance from the FDA before they can be marketed in the United States. The FDA also regulates the export of medical devices to foreign countries. We cannot be assured that any of our devices, to the extent required, will be cleared by the FDA through the pre-market clearance process or that the FDA will provide export certificates that are necessary to export certain of our products. Export certificates are required for us to have our products registered for sale in certain foreign countries. In connection with the FDA warning letter received by our Sanford, Florida facility in December 2010 (see “Business - Legal Proceedings” in our Annual Report on Form 10-K), the FDA has refused to provide new export certificates for our products until the matters covered in the warning letter are resolved. Currently, we cannot obtain new certificates of export for Sanford, Florida facility products until the warning letter has been closed and for Taylor Street facility products until we have exited the injunctive phase of the consent decree. The inability to obtain export certificates for products produced at our Taylor Street or Sanford facilities has limited our ability to support new foreign markets with such products.
Additionally, we are required to obtain pre-market clearances to market modifications to our existing products or market our existing products for new indications. The FDA requires device manufacturers themselves to make and document a determination as to whether or not a modification requires a new clearance; however, the FDA can review and disagree with a manufacturer’s decision. We have applied for, and received, a number of pre-market clearances for modifications to marketed devices. We may not be successful in receiving clearances in the future or the FDA may not agree with our decisions not to seek clearances for any particular device modification. The FDA may require a clearance for any past or future modification or a new indication for our existing products. Such submissions may require the submission of additional data and may be time consuming and costly, and ultimately, may not be cleared by the FDA.
If we are required by the FDA to obtain pre-market clearances for any modification to a previously cleared device, we may be required to cease manufacturing and marketing the modified device or to recall the modified device until we obtain FDA clearance, and we may be subject to significant regulatory fines or penalties. In addition, the FDA may not clear these submissions in a timely manner, if at all. The FDA also may change its policies, adopt additional regulations or revise existing regulations, each of which could prevent or delay pre-market clearance of our devices, or could impact our ability to market a device that was previously cleared. Any of the foregoing could adversely affect our business.
Our failure to comply with the regulatory requirements of the FDA and other applicable U.S. regulatory requirements may subject us to administrative or judicially imposed sanctions. These sanctions include warning letters, civil penalties, criminal penalties, injunctions, consent decrees, product seizure or detention, product recalls and total or partial suspension of production.




As part of its regulatory function, the FDA routinely inspects the sites of medical device companies, and from 2010 through 2016, the FDA inspected certain of our facilities. In December 2012, we and the FDA agreed to a consent decree of injunction affecting our Corporate facility and our Taylor Street manufacturing facility in Elyria, Ohio. See the previous Risk Factor regarding the FDA consent decree. In December 2015, the FDA issued Form 483 observations following a 2015 inspection of approximately five months at the Corporate and Taylor Street facilities in Elyria, Ohio which included a review of our compliance with terms of the consent decree and the matters covered by the first and second expert certification reports previously accepted in 2013. The FDA’s inspection included a review of our compliance with terms of the consent decree, and the matters covered by the first and second expert certification reports previously reviewed and accepted in 2013. We have timely responded to the FDA's inspectional findings and intend to incorporate the FDA’s observations into our ongoing quality system improvements. In June 2016, we received a letter from FDA in follow up to the Form 483 related to FDA's 2015 inspection of the Corporate and Taylor Street facilities and our subsequent responses, in which FDA clarified its requirements for us to complete remediation of certain DHFs before we could resume design of any new Taylor Street wheelchair devices or proceed further with the third expert certification report process. In addition, in December 2010, we received a warning letter from the FDA related to quality system processes and procedures at our Sanford, Florida facility. In October 2014, the FDA conducted an inspection at the Sanford facility and, at the conclusion, issued its Form 483 observations. We are executing a comprehensive quality systems remediation plan that is intended to address all of the FDA’s concerns regarding the Sanford facility in the warning letter and Form 483. In January 2014, the FDA conducted inspections at our manufacturing facility in Suzhou, China and at our electronic components subsidiary in Christchurch, New Zealand, covering quality systems and current Good Manufacturing Practice regulations. In August 2014, the FDA inspected Alber GmbH in Albstadt, Germany. The FDA issued its inspectional observations on Form 483 to us after these inspections, and we submitted our responses to the agency in a timely manner. In October 2014, FDA conducted an inspection at the Sanford facility and, at the conclusion, issued its Form 483 observations. In July 2016, FDA inspected Motion Concepts L.P. in Concord, Ontario, Canada and issued its inspectional observations on Form 483. We have timely filed our responses to these Forms 483 with FDA and continue to work on addressing FDA's observations. However, the results of regulatory claims, proceedings or investigations are difficult to predict. An unfavorable resolution or outcome of the FDA warning letter or the Form 483 observations, or any other matter that may arise out of any FDA inspection of our sites, could materially and adversely affect our business, financial condition, liquidity and results of operations.
In many of the foreign countries in which we manufacture or market our products, we are subject to extensive medical device regulations that are similar to those of the FDA, including those in Europe. The regulation of our products in Europe falls primarily within the European Economic Area, which consists of the 27 member states of the European Union, as well as Iceland, Liechtenstein and Norway. Only medical devices that comply with certain conformity requirements of the Medical Device Directive are allowed to be marketed within the European Economic Area. In addition, the national health or social security organizations of certain foreign countries, including those outside Europe, require our products to be qualified before they can be marketed in those countries. Failure to receive, or delays in the receipt of, relevant foreign qualifications in the European Economic Area or other foreign countries could have a material adverse effect on our business.




Being in the health care industry, we are subject to extensive government regulation, and if we fail to comply with applicable health care laws or regulations, we could suffer severe civil or criminal sanctions or may be required to make significant changes to our operations that could have a material adverse effect on our results of operations.
We sell our products principally to medical equipment and home health care providers who resell or rent those products to consumers. Many of those providers (our customers) are reimbursed by third-party payors, including Medicare and Medicaid, for our products sold to their customers and patients. The U.S. federal government and the governments in the states and other countries in which we operate regulate many aspects of our business and the business of our customers. As a part of the health care industry, we and our customers are subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, invoicing, documenting and other practices of health care suppliers and manufacturers are all subject to government scrutiny. Government agencies periodically open investigations and obtain information from health care suppliers and manufacturers pursuant to the legal process. Violations of law or regulations can result in severe administrative, civil and criminal penalties and sanctions, including disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on our business. While we have established numerous policies and procedures to address compliance with these laws and regulations, there can be no assurance that our efforts will be effective to prevent a material adverse effect on our business from noncompliance issues. For example, as discussed in the preceding Risk Factors, we are subject to a FDA consent decree affecting our Corporate facility and Taylor Street manufacturing facility in Elyria, Ohio and subject to a FDA warning letter related to our Sanford, Florida facility.
Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect permissible activities, the costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party payors, all of which may affect us and our customers. We cannot predict the future of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or possible changes in health care policies in any country in which we conduct business. Future legislation and regulatory changes could have a material adverse effect on our business.
If our business transformation efforts are ineffective, our strategic goals, business plans, financial performance or liquidity could be negatively impacted.
We are in the midst of a multi-year turnaround strategy intended to substantially transform our business and re-orient our resources to a more clinically complex mix of products and solutions. To date, this strategy has included actions to re-orient the company’s North American commercial team, restart the company’s innovation pipeline, shift its product mix, develop and expand our talent, and strengthen our balance sheet. As part of these actions, we have increased the size of our salesforce and support in North America, invested in product development, discontinued a significant amount of non-core product, and issued convertible debt. The strategy also will include steps to realign infrastructure and processes, such as restructuring actions, intended to drive efficiency and reduce costs.
We may not be successful in achieving the full long-term growth and profitability, operating efficiencies and cost reductions, and other benefits expected from these efforts. We also may experience business disruptions associated with these activities. Further, the benefits of the strategy, if realized, may be realized later than expected, the costs of implementing the strategy may be greater than anticipated, and we may lack adequate cash or capital to complete the transformation. If these measures are not




successful, we may undertake additional transformation efforts, which could result in future expenses. If our business transformation efforts prove ineffective, our ability to achieve our strategic goals and business plans, and our financial performance, may be materially adversely affected.
If our business transformation efforts prove ineffective and we continue to experience negative cash flows and losses, we may require additional financing. Under these circumstances, such financing may be difficult or expensive to obtain and we can make no assurances that it would be available on terms acceptable to us, if at all.
Our products are subject to recalls, which could be costly and harm our reputation and business.
We are subject to ongoing medical device reporting regulations that require us to report to the FDA or similar governmental authorities in other countries if our products cause, or contribute to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious injury if the malfunction were to recur. In light of a deficiency, defect in design or manufacturing or defect in labeling, we may voluntarily elect to recall or correct our products. In addition, the FDA and similar governmental authorities in other countries could force us to do a field correction or recall our products in the event of material deficiencies or defects in design or manufacturing. A government mandated or voluntary recall or field correction by us could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. Any recall or field correction could divert managerial and financial resources and could harm our reputation with our customers, product users and the health care professionals that use, prescribe and recommend our products. We could have product recalls or field actions that result in significant costs to us in the future, and these actions could have a material adverse effect on our business. We will continue to review the adequacy of our recall accruals as the recalls progress, as our warranty reserves are subject to adjustment in future periods as new developments can impact our estimate of the cost of these matters.
Changes in government and other third-party payor reimbursement levels and practices have negatively impacted and could continue to negatively impact our revenues and profitability.
Our products are sold primarily through a network of medical equipment and home health care providers, extended care facilities and other providers. In addition, we sell directly to various government providers throughout the world. Many of these providers (our customers) are reimbursed for the products and services provided to their customers and patients by third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans and managed care programs. Most of these programs set maximum reimbursement levels for some of the products sold by us in the United States and abroad. If third-party payors deny coverage, make the reimbursement process or documentation requirements more uncertain or further reduce their current levels of reimbursement (i.e., beyond the reductions described below), or if our costs of production do not decrease to keep pace with decreases in reimbursement levels, we may be unable to sell the affected product(s) through our distribution channels on a profitable basis.
Reduced government reimbursement levels and changes in reimbursement policies have in the past added, and could continue to add, significant pressure to our revenues and profitability. For example, in 100 metropolitan areas, the Centers for Medicare and Medicaid Services (CMS) introduced a National Competitive Bidding program (NCB) which set new, lower payment rates for medical equipment and supplies. Round one of NCB for nine metropolitan areas in the U.S. went into effect in January 2011. The reimbursement rates for nine product categories were reduced by an average of 32 percent in these nine metropolitan areas. Effective July 2013, CMS commenced round two of the NCB program, which was




expanded to include an additional 91 metropolitan areas. In January 2016, CMS began the deployment of NCB rates to the remainder of the Medicare population that had not yet been impacted by the program, primarily to rural areas. CMS has divided the United States into eight regions and applied the average reimbursement reduction per NCB product category in each region from Round 1 and Round 2 to the rural providers in those eight regions. Fifty percent of the reimbursement reduction became effective in January 2016. The remaining half of the reduction was applied in July 2016, although in December 2016 Congress retroactively delayed that payment cut until January 1, 2017. CMS announced that the NCB program has resulted in $202.1 million in savings in its first year of implementation in the nine metropolitan areas with significant savings primarily in oxygen and oxygen supplies, mail-order diabetic supplies and standard power wheelchairs. The CMS Office of the Actuary estimates that this NCB program will save Medicare an estimated $25.8 billion, and beneficiaries an estimated $17.2 billion, over ten years.
Similar trends and concerns are occurring in state Medicaid programs. These recent changes to reimbursement policies, and any additional unfavorable reimbursement policies or budgetary cuts that may be adopted in the future, could adversely affect the demand for our products by customers who depend on reimbursement from the government-funded programs. The percentage of our overall sales that are dependent on Medicare or other insurance programs may increase as the portion of the U.S. population over age 65 continues to grow, making us more vulnerable to reimbursement level reductions by these organizations. Reduced government reimbursement levels also could result in reduced private payor reimbursement levels because some third-party payors index their reimbursement schedules to Medicare fee schedules. Reductions in reimbursement levels also may affect the profitability of our customers and ultimately force some customers without strong financial resources to become unable to pay their bills as they come due or go out of business. The reimbursement reductions may prove to be so dramatic that some of our customers may not be able to adapt quickly enough to survive. We are one of the industry’s largest creditors and an increase in bankruptcies or financial weakness in our customer base could have an adverse effect on our financial results.
Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have government-managed health care systems that govern reimbursement for home health care products. The ability of hospitals and other providers supported by such systems to purchase our products is dependent, in part, upon public budgetary constraints. Various countries have tightened reimbursement rates and other countries may follow. If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, international sales of our products may decline, which could adversely affect our net sales.
The impact of all the changes discussed above is uncertain and could have a material adverse effect on our business, financial condition, liquidity and results of operations.
The adoption of healthcare reform and other legislative developments in the United States may adversely affect our business, results of operations and/or financial condition.
The U.S. Affordable Care Act enacted in 2010 includes provisions intended to expand access to health insurance coverage, improve the quality and reduce the costs of healthcare over time. Specifically, as one means to pay for the costs of the Affordable Care Act, the law imposes a 2.3% sales-based excise tax on U.S. sales by manufacturers or importers of most medical devices. The excise tax is deductible by the manufacturer or importer on its federal income tax return. We have determined that most of our products are exempt from the tax based on the retail exemption provided in the Affordable Care Act as defined by the regulations. However, certain products that we sell for institutional use are subject to the excise tax.




Based on our interpretation of the regulations, the impact from the tax was immaterial for us in 2016, 2015 and 2014. However, the excise tax may increase our cost of doing business, particularly if the exemptions do not ultimately apply as we expect based on our interpretations of the regulations.
The Affordable Care Act and the programs implemented by the law may reduce reimbursements for our products may impact the demand for our products and may impact the prices at which we sell our products. In addition, various healthcare programs and regulations may be ultimately implemented at the federal or state level. Such changes could have a material adverse effect on our business, results of operations and/or financial condition.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) enacted in 2010, and the rules and regulations enacted thereunder by the SEC and the Commodity Futures Trading Commission (CFTC), institute a wide range of reforms, certain of which may impact us. Among other things, the Dodd-Frank Act contains significant corporate governance and executive compensation-related provisions that authorize or require the SEC to adopt additional rules and regulations in these areas, such as shareholder “say on pay” voting and proxy access. The Dodd-Frank Act also provides for new statutory and regulatory requirements for derivative transactions, including foreign exchange and interest rate hedging transactions, and new requirements will be implemented over time. We enter into foreign exchange contracts, interest rate swaps and foreign currency forward contracts from time to time to manage our exposure to commodity price risk, foreign currency exchange risk and interest rate risk. We do not enter into derivative transactions for speculative purposes. Any new statutory and regulatory requirements for derivative transactions could impact our ability to hedge or hedge in a cost-effective manner.
In addition, the Dodd-Frank Act contains provisions to improve transparency and accountability concerning the sourcing of “conflict minerals” from mines located in the conflict zones of the Democratic Republic of Congo (DRC) and its adjoining countries. The term “conflict minerals” currently encompasses tantalum, tin, tungsten (or their ores) and gold. Conflict minerals can be found in a vast array of products. This legislation requires manufacturers, such as us, to investigate and disclose their use of any conflict minerals originating in the DRC or adjoining countries in an annual filing with the SEC. It also implements guidelines to assist the manufacturer in preventing, by way of performing due diligence in its supply chain, any such sourcing from, or potentially financing or benefiting, armed groups in this area. As standards for the production of the annual conflict minerals report evolve, we may be required to undertake significant due diligence processes requiring considerable investments of human resources and finances in order to comply with the conflict minerals due diligence and disclosure requirements. If our suppliers are unable or unwilling to provide us with requested information and to take other steps to ensure that there is no financing or benefiting of armed groups in the DRC and there are no conflict minerals included in materials or components supplied to us, we may be forced to disclose in our SEC filings about the use of conflict minerals in our supply chain, which may expose us to reputational risks, which in turn could materially adversely affect our business, financial condition and results of operations. In addition, we could be negatively impacted by any changes made to the either the Affordable Care Act or the Dodd-Frank Act by the new United States administration.
Our revenues and profits are subject to exchange rate and interest rate fluctuations that could adversely affect our results of operations or financial position.
Currency exchange rates are subject to fluctuation due to, among other things, changes in local, regional or global economic conditions, the imposition of currency exchange restrictions and unexpected changes in regulatory or taxation environments. The predominant currency used by our subsidiaries




outside the United States to transact business is the functional currency used for each subsidiary. Through our international operations, we are exposed to foreign currency fluctuations, and changes in exchange rates can have a significant impact on net sales and elements of cost. We conduct a significant number of transactions in currencies other than the U.S. dollar. In addition, because certain of our costs and revenues are denominated in other currencies, in particular costs and revenues from our European operations, our results of operations are exposed to foreign exchange rate fluctuations as the financial results of those operations are translated from local currency into U.S. dollars upon consolidation. For example, the recent devaluation of the euro has had a negative impact on the translation of our European segment net income into U.S. dollars and the foreign currency impact of the Brexit referendum in the U.K. has had and is expected to have, a negative impact on acquisition of dollar and Euro denominated goods in the U.K. If other countries also exit the European Union, similar negative impacts may result.
We use foreign exchange forward contracts primarily to help reduce our exposure to transactional exchange rate risk. Despite our efforts to mitigate these risks, however, our revenues and profitability may be materially adversely affected by exchange rate fluctuations. We do not have any similar arrangements that mitigate our exposure to foreign exchange translation risk, and do not believe that any meaningful arrangement to do so is available to us.
We are also exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. We do at times use interest rate swap contracts to mitigate our exposure to interest rate fluctuations, but those efforts may not adequately protect us from significant interest rate risks. Interest on some of our debt is based on the London Interbank Offered Rate (LIBOR), which is currently historically low. Increases in LIBOR could have a significant impact on our reported interest expense, to the extent that we have outstanding borrowings subject to LIBOR-based interest rates.
If our information technology systems fail, or if we experience an interruption in the operation of our information technology systems, then our business, financial condition and results of operations could be materially adversely affected.
We rely upon the capacity, reliability and security of our information technology, or IT, systems across all of our major business functions, including research and development, manufacturing, sales, financial and administrative functions. Since we are geographically diverse, have various business segments and have grown over the years through various acquisitions, we also have many disparate versions of IT systems across our organization. As a result of these disparate IT systems, some of which may no longer be supported by the hardware or software vendors, we face the challenge of supporting these older systems, implementing upgrades or migrating to new platforms when necessary and aggregating data that is timely and accurate. The failure of our information technology systems, whether resulting from the disparate or older versions of IT systems across our various segments, business functions or otherwise, our inability to successfully maintain, enhance and/or replace our information technology systems, or any compromise of the integrity or security of the data that is generated from information technology systems, or any shortcomings in our disaster recovery platforms, could adversely affect our results of operations, disrupt business and make us unable, or severely limit our ability to respond to customer demands. In addition, our information technology systems are vulnerable to damage or interruption from: earthquake, fire, flood and other natural disasters; employee or other theft; attacks by computer viruses, malware or hackers; power outages; and computer systems, internet, telecommunications or data network failure.




Any interruption of our information technology systems could result in decreased revenue, increased expenses, increased capital expenditures, customer dissatisfaction and potential lawsuits, any of which could have a material adverse effect on our results of operations, liquidity or financial condition.
The industry in which we operate is highly competitive and some of our competitors may have greater financial resources than we do, a more appropriate market strategy or better strategic execution.
The home medical equipment market is highly competitive and our products face significant competition from other well-established manufacturers. Reduced government reimbursement levels and changes in reimbursement policies, such as the National Competitive Bidding program implemented by CMS, may drive competitors, particularly those that have greater financial resources than ours to offer drastically reduced pricing terms in an effort to take market share from us or secure government acceptance of their products and pricing. Any increase in competition may cause us to lose market share or compel us to reduce prices to remain competitive, which could have a material adverse effect on our results of operations. Our failure to recognize changing market demands or a failure to develop or execute a strategy to meet such changes could also result in a material adverse effect on our results of operations.
The consolidation of health care customers and our competitors could result in a loss of customers or in additional competitive pricing pressures.
Numerous initiatives and reforms instituted by legislators, regulators and third-party payors to reduce home medical equipment costs have resulted in a consolidation trend in the home medical equipment industry as well as among our customers, including home health care providers. In the past, some of our competitors, which may include distributors, have been lowering the purchase prices of their products in an effort to attract customers. This in turn has resulted in greater pricing pressures, including pressure to offer customers more competitive pricing terms, and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to consolidate purchasing decisions for some of our customers. Further consolidation could result in a loss of customers, increased collectability risks, or increased competitive pricing pressures. In addition, as reimbursement pressures persist in the U.S. market, we are beginning to see some customers directly sourcing select lifestyle products to secure a low-cost advantage.
We maintain cash balances globally in various financial institutions.
While we monitor our accounts with financial institutions both domestically and internationally, recovery of funds cannot be assured in the event the financial institution would fail. In addition, we may be limited by foreign governments in the amount and timing of funds to be repatriated from foreign financial institutions. As a result, this could adversely impact our ability to fund normal operations, capital expenditures, or service debt, which could adversely affect our results.
We are subject to certain risks inherent in managing and operating businesses in many different foreign jurisdictions.
We have significant international operations, including operations in Australia, Canada, New Zealand, Mexico, Asia (primarily China) and Europe. There are risks inherent in operating and selling products internationally, including:
different regulatory environments and reimbursement systems;




difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
foreign customers who may have longer payment cycles than customers in the United States;
fluctuations in foreign currency exchange rates;
tax rates in certain foreign countries that may exceed those in the United States and foreign earnings that may be subject to withholding requirements;
the imposition of tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country;
potential adverse changes in trade agreements between the United States and foreign countries, including the North America Free Trade Agreement (NAFTA) among the United States, Canada and Mexico;
potential adverse changes general economic and political conditions in countries where we operate or where end users of our products reside, or in their diplomatic relations with the United States;
government control of capital transactions, including the borrowing of funds for operations or the expatriation of cash;
potential adverse tax consequences, including those that may result from any new United States tax laws, rules, regulations or policies, such as possible border-adjusted taxes on imported goods;
security concerns and potential business interruption risks associated with political and/or social unrest in foreign countries where our facilities or assets are located;
difficulties associated with managing a large organization spread throughout various countries;
difficulties in enforcing intellectual property rights and weaker intellectual property rights protection in some countries;
required compliance with a variety of foreign laws and regulations; and
differing consumer product preferences.
The factors described above also could disrupt our product manufacturing and assembling operations or our key suppliers located outside of the United States, or increase the cost to us of conducting those operations or using those suppliers. For example, we increasingly rely on our manufacturing and sourcing operations in China and Mexico to produce our products. Disruptions in, or increased costs related to, our foreign operations, particularly those in China or Mexico, may impact our revenues and profitability.
We may be adversely affected by legal actions or regulatory proceedings.
In addition to the risks associated with the impact of the FDA consent decree, we may be subject to claims, litigation, governmental or regulatory investigations, or other liabilities as a result of injuries




caused by allegedly defective products, or disputes arising out of acquisitions or dispositions we have completed or relating to our intellectual property. Any such claims or litigation against us, regardless of the merits, could result in substantial costs and could harm our business or our reputation.
The results of legal or regulatory actions or regulatory proceedings are difficult to predict and we cannot provide any assurance that an action or proceeding will not be commenced against us, or that we will prevail in any such action or proceeding. An unfavorable resolution of any legal action or proceeding could materially and adversely affect our business, results of operations, liquidity or financial condition or our reputation.
Product liability claims may harm our business, particularly if the number of claims increases significantly or our product liability insurance proves inadequate.
The manufacture and sale of medical devices and related products exposes us to a significant risk of product liability claims. From time to time, we have been, and currently are, subject to a number of product liability claims alleging that the use of our products has resulted in serious injury or even death.
Even if we are successful in defending against any liability claims, these claims could nevertheless distract our management, result in substantial costs, harm our reputation, adversely affect the sales of all our products and otherwise harm our business. If there is a significant increase in the number of product liability claims, our business could be adversely affected.
We are self-insured in North America for product liability exposures through our captive insurance company, Invatection Insurance Company, which currently has a policy year that runs from September 1 to August 31 and insures annual policy losses up to $10,000,000 per occurrence and $13,000,000 in the aggregate. We also have additional layers of external insurance coverage, related to all lines of insurance coverage, insuring up to $75,000,000 in aggregate losses per policy year arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of our per country foreign liability limits, as applicable. There can be no assurance that our current insurance levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to help determine adequate reserves, we are responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices. If our reserves are not adequate to cover actual claims experience, our financial results could be adversely affected.
In addition, as a result of a product liability claim or if our products are alleged to be defective, we may have to recall some of our products, may have to incur significant costs or may suffer harm to our business reputation.




Decreased availability or increased costs of materials could increase our costs of producing our products.
We purchase raw materials, fabricated components, some finished goods and services from a variety of suppliers. Raw materials such as plastics, steel and aluminum are considered key raw materials. Where appropriate, we employ contracts with our suppliers, both domestic and international. From time to time, however, the prices, availability, or quality of these materials fluctuate due to global market demands or economic conditions, which could impair our ability to procure necessary materials, or increase the cost of these materials.
Inflationary and other increases in costs of these materials have occurred in the past and may recur from time to time. In addition, freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of oil and gas. A reduction in the supply or increase in the cost or change in quality of those materials could impact our ability to manufacture our products and could increase the cost of production. Additionally, we may not be able to increase the prices of our products due to competitive pricing pressure or other factors. As an example, inflation in China has in the past and may in the future increase costs and an appreciation of the Yuan or an increase in labor rates could have an unfavorable impact on the cost of key components and some finished goods. Demand in China and other developing countries for raw materials may result in increases in the cost of key commodities and could have a negative impact on our profits if these increases cannot be passed onto our customers.
Lower cost imports could negatively impact our profitability.
Competition from lower cost imports sourced from low cost countries, such as countries in Asia, may negatively impact our sales volumes. In the past, competition from certain of these products has caused us to lower our prices, cutting into our profit margins and reducing our overall profitability.
Our success depends on our ability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs.
We sell products to customers primarily in markets that are characterized by technological change, product innovation and evolving industry standards, yet in which product price is increasingly a primary consideration in customers’ purchasing decisions. We historically have been engaged in product development and improvement programs. However, beginning in 2012 as a result of the FDA consent decree, which is described in our Annual Report on Form 10-K, our engineering resources had been focused primarily on quality remediation and not on the design of new products. In April 2017, we received the FDA's approval to resume design activities at the impacted Elyria facilities.
We must continue to design and improve innovative products, effectively distribute and achieve market acceptance of those products, and reduce the costs of producing our products, in order to compete successfully with our competitors. If competitors’ product development capabilities become more effective than our product development capabilities, if competitors’ new or improved products are accepted by the market before our products or if competitors can produce products at a lower cost and thus offer products for sale at a lower price, our business, financial condition and results of operation could be adversely affected.




Our business strategy relies on certain assumptions concerning demographic trends that impact the market for our products. If these assumptions prove to be incorrect, demand for our products may be lower than expected.
Our ability to achieve our business objectives is subject to a variety of factors, including the relative increase in the aging of the general population. We believe that these trends will increase the need for our products. The projected demand for our products could materially differ from actual demand if our assumptions regarding these trends and acceptance of our products by health care professionals and patients prove to be incorrect or do not materialize. If our assumptions regarding these factors prove to be incorrect, we may not be able to successfully implement our business strategy, which could adversely affect our results of operations. In addition, the perceived benefits of these trends may be offset by competitive or business factors, such as the introduction of new products by our competitors or the emergence of other countervailing trends, including lower reimbursement and pricing.
The terms of our debt facilities and financing arrangements may limit our flexibility in operating our business.
We have outstanding $150,000,000 aggregate principal amount of 5.00% Convertible Senior Notes due 2021 and are a party to an Amended and Restated Credit Agreement that provides for asset-based lending senior secured revolving credit facilities which mature in January 2021. The credit agreement provides us and certain of our U.S., Canadian, U.K. and French subsidiaries with the ability to borrow under senior secured revolving credit, letter of credit and swing line loan facilities. The aggregate borrowing availability under the credit facilities is determined based on borrowing base formulas set forth in the credit agreement. The credit facilities are secured by substantially all of our domestic and Canadian assets, other than real estate, and by substantially all of the personal property assets of our U.K. subsidiaries and all of the receivables of our French subsidiaries. The credit agreement contains customary default provisions, with certain grace periods and exceptions, that include, among other things, failure to pay amounts due, breach of covenants, representations or warranties, bankruptcy, the occurrence of a material adverse effect, exclusion from any medical reimbursement program, and an interruption of any material manufacturing facilities for more than ten consecutive days.
The restrictive terms of our credit agreement may limit our ability to conduct and expand our business and pursue our business strategies. Our ability to comply with the provisions of our credit agreements can be affected by events beyond our control, including changes in general economic and business conditions, or by government enforcement actions, such as, for example, adverse impacts from the FDA consent decree of injunction. If we are unable to comply with the provisions in the credit agreement, it could result in a default which could trigger acceleration of, or the right to accelerate, the related debt. Because of cross-default provisions in our agreements and instruments governing certain of our indebtedness, a default under the credit agreement could result in a default under, and the acceleration of, certain other of our indebtedness. In addition, our lenders would be entitled to proceed against the collateral securing the indebtedness.
Our ability to meet our liquidity needs will depend on many factors, including the operating performance of the business, our ability to successfully complete the FDA inspection contemplated under the consent decree and to obtain receipt of the written notification from the FDA permitting us to resume full operations, as well as our continued compliance with the covenants under our credit agreement. Notwithstanding our expectations, if our operating results decline more than we currently anticipate, or if we are unable to successfully complete the FDA inspection, we may be unable to comply with the




financial covenants, and our lenders could demand repayment of the amounts outstanding under our credit facility.
We also have an agreement with De Lage Landen, Inc. (“DLL”), a third party financing company, to provide financing to our customers. Either party could terminate this agreement with 180 days' notice or 90 days' notice by DLL upon the occurrence of certain events. Should this agreement be terminated, our borrowing needs under the credit agreement could increase.
Our capital expenditures could be higher than anticipated.
Unanticipated maintenance issues, changes in government regulations or significant investments in technology and new product development could result in higher than anticipated capital expenditures, which could impact our debt, interest expense and cash flows.
Our operating results and financial condition could be adversely affected if we become involved in litigation regarding our patents or other intellectual property rights.
Litigation involving patents and other intellectual property rights is common in our industry, and other companies within our industry have used intellectual property litigation in an attempt to gain a competitive advantage. We in the past have been, and in the future may become, a party to lawsuits involving patents or other intellectual property. If we were to receive an adverse judgment in any such proceeding, a court or a similar foreign governing body could invalidate or render unenforceable our owned or licensed patents, require us to pay significant damages, seek licenses and/or pay ongoing royalties to third parties, require us to redesign our products, or prevent us from manufacturing, using or selling our products, any of which could have an adverse effect on our results of operations and financial condition. We in the past have brought, and may in the future also bring, actions against third parties for infringement, misappropriation or other violation of our intellectual property rights. We may not succeed in these actions. Intellectual property lawsuits, proceedings before the U.S. Patent and Trademark Office or its foreign equivalents and related legal and administrative proceedings are both costly and time consuming. Protracted litigation to defend or enforce our intellectual property rights could seriously detract from the time our management would otherwise devote to running our business. Intellectual property litigation relating to our products could cause our customers or potential customers to defer or limit their purchase or use of the affected products until resolution of the litigation.
If we are unable to protect our intellectual property rights or resolve successfully claims of infringement brought against us, our product sales and business could be affected adversely.
Our business depends in part on our ability to establish, protect, safeguard and enforce our intellectual property and contractual rights and to defend against any claims of infringement, both of which involve complex legal, factual and marketplace uncertainties. We rely on a combination of patent, trade secret, copyright and trademark law and security measures to protect our intellectual property, but effective intellectual property protection may not be available in all places that we sell our products or services, particularly in certain foreign jurisdictions, and patents provide protection for finite time periods. In addition, we use nondisclosure, confidentiality agreements and invention assignment agreements with many of our employees, and nondisclosure and confidentiality agreements with certain third parties, in an effort to help protect our proprietary technology and know-how. If these agreements are breached or our intellectual property is otherwise infringed, misappropriated or violated, we may have to rely on litigation to enforce our intellectual property rights. If any of these measures are unsuccessful in protecting our intellectual property, our business may be affected adversely.




In addition, we may face claims of infringement, misappropriation or other violation of third parties’ intellectual property that could interfere with our ability to use technology or other intellectual property rights that are material to our business operations. In the event that a claim of infringement, misappropriation or other violation against us is successful, we may be required to pay royalties or license fees to continue to use technology or other intellectual property rights that we were using, or we may be unable to obtain necessary licenses from third parties at a reasonable cost or within a reasonable time. If we are unable to obtain licenses on reasonable terms, we may be forced to cease selling or using the products that incorporate the challenged intellectual property, or to redesign or, in the case of trademark claims, rename our products to avoid infringing the intellectual property rights of third parties, which may not be possible, or if possible, may be time-consuming. Any litigation of this type, whether successful or unsuccessful, could result in substantial costs to us and adversely affect our business and financial condition.
We also hold patent and other intellectual property licenses from third parties for some of our products and on technologies that are necessary in the design and manufacture of some of our products. The loss of these licenses could prevent us from, or could cause additional disruption or expense in, manufacturing, marketing and selling these products, which could harm our business.
Our research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements.
Our research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements, including requirements governing the discharge of pollutants into the air or water, the use, handling, storage and disposal of hazardous substances and the responsibility to investigate and clean up contaminated sites. Under some of these laws, we also could be held responsible for costs relating to any contamination at our past or present facilities and at third-party waste disposal sites. These could include costs relating to contamination that did not result from any violation of law and, in some circumstances, contamination that we did not cause. We may incur significant expenses relating to the failure to comply with environmental laws. The enactment of stricter laws or regulations, the stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at our own or third-party sites may require us to make additional expenditures, which could be material.
We may be unable to make strategic acquisitions without obtaining amendments to our credit agreement.
Our business plans historically included identifying, analyzing, acquiring, and integrating other strategic businesses. There are various reasons for us to acquire businesses or product lines, including providing new products or new manufacturing and service capabilities, to add new customers, to increase penetration with existing customers, and to expand into new geographic markets. The provisions of our credit agreement restrict us from undertaking certain acquisitions unless we are able to negotiate and obtain amendments with regard to those provisions. If we are unable to obtain the necessary amendments, we may miss opportunities to grow our business through strategic acquisitions.
In addition, an acquisition could materially impair our operating results by causing us to incur debt or requiring the amortization of acquisition expenses and acquired assets.




Additional tax expense or additional tax exposures could affect our future profitability and cash flow.
We are subject to income taxes in the United States and various non-U.S. jurisdictions. The domestic and international tax liabilities are dependent upon the allocation of income among these different jurisdictions. Our tax expense includes estimates of additional tax which may be incurred for tax exposures and reflects various other estimates and assumptions. In addition, the assumptions include assessments of our future earnings that could impact the valuation of our deferred tax assets. Our future results of operations could be adversely affected by changes in our effective tax rate which could result from changes in the mix of earnings in countries with differing statutory tax rates, changes in our overall profitability, changes in tax legislation and rates, changes in generally accepted accounting principles, changes in the valuation of deferred tax assets and liabilities, the results of audits and examinations of previously filed tax returns and continuing assessments of our tax exposures. Corporate tax reform and tax law changes continue to be analyzed in many jurisdictions, including the potential impacts of any new United States tax laws, rules, regulations or policies, such as possible border-adjusted taxes on imported goods.
Our reported results may be adversely affected by increases in reserves for uncollectible accounts receivable.
We have a large balance of accounts receivable and have established a reserve for the portion of such accounts receivable that we estimate will not be collected because of our customers’ non-payment. The specific reserve is based on historical trends and current relationships with our customers and providers. Changes in our collection rates can result from a number of factors, including turnover in personnel, changes in the payment policies or practices of payors, changes in industry rates or pace of reimbursement or changes in the financial health of our customers. As a result of past changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of consumer power wheelchairs and custom power wheelchairs, the business viability of some of our customers may be at risk. Further, as National Competitive Bidding is implemented in additional areas, the number of start-up or new providers who have three-year contracted pricing will increase. Our reserve for uncollectible receivables has fluctuated in the past and will continue to fluctuate in the future. Changes in rates of collection, even if they are small in absolute terms, could require us to increase our reserve for uncollectible receivables beyond its current level. We have reviewed the accounts receivables, including those receivables financed through DLL, associated with many of our customers that are most exposed to these issues. If the business viability of certain of our customers deteriorates or our credit policies are ineffective in reducing our exposures to credit risk, additional increases in reserves for uncollectible accounts may be necessary, which could adversely affect our financial results.
The inability to attract and retain, or loss of the services of, our key management and personnel could adversely affect our ability to operate our business.
Our future success will depend, in part, upon the continued service of key managerial, research and development staff and sales and technical personnel. In addition, our future success will depend on our ability to continue to attract and retain other highly qualified personnel, including personnel experienced in quality systems and regulatory affairs. If we are not successful in retaining our current personnel or in hiring or retaining qualified personnel in the future, our business may be adversely affected. Our future success depends, to a significant extent, on the abilities and efforts of our executive officers and other members of our management team, such as our Chairman, President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer, as well as other members of our management team. We




had significant turnover in our management team in recent years and cannot be certain that our executive officers and other key employees will continue in their respective capacities for any period of time, and these employees may be difficult to replace. If we lose the services of any of our management team, our business may be adversely affected.
Certain provisions of our debt agreements, our charter documents, and Ohio law could delay or prevent a sale or change in control.
Provisions of our credit agreement, our charter documents, and Ohio law may make it more difficult for a third party to acquire, or attempt to acquire, control of us even if a change in control would result in the purchase of our shares at a premium to market price. In addition, these provisions may limit the ability of our shareholders to approve transactions that they may deem to be in their best interest.
Difficulties in implementing or upgrading our Enterprise Resource Planning systems may disrupt our business.
We are in the process of upgrading our Enterprise Resource Planning, or “ERP,” system in Europe. The complexities and business process changes associated with such an ERP upgrade can potentially result in various difficulties including problems processing and fulfilling orders, customer disruptions and lost business. While we believe the potential difficulties associated with upgrading our primary ERP system in Europe have been addressed or can be mitigated, there can be no assurance that we will not experience disruptions or inefficiencies in our business operations as a result of the upgrade which could have a material adverse effect on our business, financial condition, liquidity or results of operations.
We May Experience Volatility in the Market Price of our Common Shares
The market price of our common shares may be influenced by lower trading volume and concentrated ownership relative to many other publicly-held companies. Because several of our shareholders own significant amounts of our outstanding common shares, our common shares are relatively less liquid and therefore more susceptible to price fluctuations than many other companies’ shares. If any one or more of these shareholders were to sell all or a portion of their holdings of our common shares at once or within short periods of time, or there was an expectation that such a sale was imminent, then the market price of our common shares could be negatively affected.