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INVACARE CORPORATION
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
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Invacare Corporation
One Invacare Way
Elyria, Ohio 44035
April 7, 2006
To the Shareholders of
INVACARE CORPORATION:
This year's Annual Meeting of Shareholders will be held at 10:00 A.M.
(EDT), on Thursday, May 25, 2006, at the Lorain County Community College,
Spitzer Conference Center, Grand Room, 1005 North Abbe Road, Elyria, Ohio. We
will be reporting on Invacare's activities and you will have an opportunity to
ask questions about its operations.
We hope that you are planning to attend the annual meeting personally and
we look forward to seeing you. Whether or not you expect to attend in person,
the return of the enclosed proxy as soon as possible would be greatly
appreciated and will ensure that your shares will be represented at the annual
meeting. If you do attend the annual meeting, you may, of course, withdraw your
proxy should you wish to vote in person.
On behalf of the Board of Directors and management of Invacare Corporation,
I would like to thank you for your continued support and confidence.
Sincerely yours,
/s/A. Malachi Mixon, III
A. Malachi Mixon, III
Chairman and
Chief Executive Officer
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Invacare Corporation
Notice of Annual Meeting of Shareholders
To Be Held On May 25, 2006
The Annual Meeting of Shareholders of Invacare Corporation will be held at
the Lorain County Community College, Spitzer Conference Center, Grand Room, 1005
North Abbe Road, Elyria, Ohio on Thursday, May 25, 2006, at 10:00 A.M. (EDT),
for the following purposes:
1. To elect three directors to the class whose three-year term will
expire in 2009;
2. To approve and adopt an amendment to increase the shares reserved for
issuance under the Invacare Corporation 2003 Performance Plan;
3. To ratify the appointment of Ernst & Young LLP as our independent
auditors for our 2006 fiscal year; and
4. To transact any other business as may properly come before the annual
meeting.
Holders of common shares and Class B common shares of record as of the
close of business on Friday, March 31, 2006 are entitled to vote at the annual
meeting. It is important that your shares be represented at the annual meeting.
For that reason, we ask that you promptly sign, date and mail the enclosed proxy
card in the return envelope provided. Shareholders who attend the annual meeting
may revoke their proxy and vote in person.
By Order of the Board of Directors,
Dale C. LaPorte
Secretary
April 7, 2006
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Invacare Corporation
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Proxy Statement
For the Annual Meeting of Shareholders
May 25, 2006
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Why am I receiving these materials?
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Invacare for use at the Annual Meeting of
Shareholders to be held on May 25, 2006 and any adjournments or postponements
that may occur. The time, place and purposes of the annual meeting are set forth
in the Notice of Annual Meeting of Shareholders, which accompanies this proxy
statement. This proxy statement is being mailed to shareholders on or about
April 7, 2006.
Who is paying for this proxy solicitation?
We will pay the expense of soliciting proxies, including the cost of
preparing, assembling and mailing the notice, proxy statement and proxy. In
addition to the solicitation of proxies by mail, our directors, officers or
employees, without additional compensation, may make solicitations personally
and by telephone. We may also reimburse brokerage firms, banks and other agents
for the cost of forwarding proxy materials to beneficial owners.
Who is entitled to vote?
Only shareholders of record at the close of business on March 31, 2006, the
record date for the meeting, are entitled to receive notice of and to vote at
the annual meeting. On this record date, there were 30,743,773 common shares and
1,111,965 Class B common shares outstanding and entitled to vote.
How many votes do I have?
On each matter to be voted on, you have one vote for each outstanding
common share you own as of March 31, 2006 and ten votes for each outstanding
Class B common share you own as of March 31, 2006.
How do I vote?
If you are a shareholder of record, you can vote in person at the annual
meeting or you can vote by signing and mailing in your proxy card in the
enclosed envelope. If you are a shareholder of record, the proxy holders will
vote your shares based on your directions.
If you sign and return your proxy card, but do not properly direct how your
shares should be voted on a proposal, the proxy holders will vote "FOR"
proposals 1, 2, and 3 and will use their discretion on any other proposals and
other matters that may be brought before the annual meeting.
If you hold common shares through a broker or nominee, you may vote in
person at the annual meeting only if you have obtained a signed proxy from your
broker or nominee giving you the right to vote your shares.
How do I vote my common shares held in the Invacare Retirement Savings Plan?
If you are a participant in the Invacare Retirement Savings Plan, the
voting instruction card should be used to vote the number of common shares that
you are entitled to vote under the plan. If you do not vote timely, your shares
will not be counted.
What are the voting recommendations of the Board of Directors?
Our Board of Directors recommends that you vote:
o "For" the election of the three nominated directors to the class whose
three-year term will expire in 2009;
o "For" the amendment to the Invacare Corporation 2003 Performance Plan
to increase the number of common shares reserved for issuance under
the plan from 2,000,000 to 3,800,000; and
o "For" ratifying the appointment of Ernst & Young LLP as our
independent auditors for our 2006 fiscal year.
What vote is required to approve each proposal?
Except as otherwise provided by Invacare's amended and restated articles of
incorporation or code of regulations, or required by law, holders of common
shares and Class B common shares will at all times vote on all matters,
including the election of directors, together as one class. No holder of shares
of any class has cumulative voting rights in the election of directors.
o Election of Directors (Proposal No. 1). The nominees receiving the
greatest number of votes will be elected. A proxy card marked
"Withhold Authority" with respect to the election of one or more
directors will not be voted with respect to the director or directors
indicated. Abstentions and broker non-votes will have no effect on the
election of directors.
o Approval and Adoption of the Amendment to the Invacare Corporation
2003 Performance Plan (Proposal No. 2). The approval and adoption of
the amendment to the Invacare Corporation 2003 Performance Plan
requires the affirmative vote of a majority of the votes cast. A proxy
card marked as "Abstain" with respect to the approval and adoption of
the amendment to the Invacare Corporation 2003 Performance Plan will
not be voted, although it will be counted for purposes of determining
the number of shares entitled to vote. Accordingly, if you "Abstain"
from voting, it will have the same effect as an "Against" vote. Broker
non-votes will have no effect on the approval and adoption of the
amendment to the plan.
o Ratification of Auditors (Proposal No. 3). Ratification of the
appointment of Ernst & Young LLP as our independent auditors requires
the affirmative vote of a majority of the votes cast. A proxy card
marked as "Abstain" with respect to the ratification of the
appointment of Ernst & Young LLP will not be voted, although it will
be counted for purposes of determining the number of shares entitled
to vote. Accordingly, if you "Abstain" from voting, it will have the
same effect as an "Against" vote. Broker non-votes will have no effect
on the ratification.
What constitutes a quorum?
A quorum of shareholders will be present at the annual meeting if at least
a majority of the aggregate voting power of common shares and Class B common
shares outstanding on the record date are represented, in person or by proxy, at
the annual meeting. On the record date, 41,863,423 votes were outstanding;
therefore, shareholders representing at least 20,931,712 votes will be required
to establish a quorum. Abstentions and broker non-votes will be counted towards
the quorum requirement.
Can I revoke or change my vote after I submit a proxy?
Yes. You can revoke your proxy or change your vote at any time before the
proxy is exercised at the annual meeting. This can be done by either submitting
another properly completed proxy card with a later date, sending a written
notice to our Secretary, or by attending the annual meeting and voting in
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person. You should be aware that simply attending the annual meeting will not
automatically revoke your previously submitted proxy, rather you must notify an
Invacare representative at the annual meeting of your desire to revoke your
proxy and vote in person.
ELECTION OF DIRECTORS
(Proposal No. 1)
At the annual meeting, three directors will be elected to serve a
three-year term until the annual meeting in 2009 or until their successors have
been elected and qualified. Each of the nominees is presently a director of
Invacare and has indicated their willingness to serve another term as a director
if elected. If any nominee should become unavailable for election, which is not
currently expected, it is intended that the shares represented by proxy will be
voted for any substitute nominee(s) as may be named by the Board of Directors.
In no event will the proxy holders vote for more than three nominees or for
persons other than those named below and any substitute nominee for any of them.
Whitney Evans currently serves as a director whose term will expire at the
annual meeting. Mr. Evans has elected to not stand for re-election. In order to
rebalance the composition of our Board of Directors, Gerald B. Blouch, who
currently serves as a director whose term will expire at the 2007 annual
meeting, will resign as a director whose term will expire at the 2007 annual
meeting, contingent and effective upon his election at this year's annual
meeting as a director whose term will expire in 2009.
Nominees for Terms Expiring in 2009
James C. Boland, 66, has been a director since 1998. Mr. Boland served as
President and Chief Executive Officer of CAVS/Gund Arena Company (the Cleveland
Cavaliers, a professional team, and Gund Arena) from January 1998 to December
31, 2002, at which time he became Vice-Chairman of the company. The name of the
company was changed to Cavaliers Operating Company, LLC in 2005. Before his
retirement from Ernst & Young LLP in 1998, Mr. Boland served for 22 years as a
partner of Ernst & Young in various roles, including Vice Chairman and Regional
Managing Partner, as well as a member of the firm's Management Committee from
1988 to 1996, and as Vice Chairman of National Accounts from 1997 to his
retirement. Mr. Boland is a director of The Sherwin-Williams Company (NYSE),
Cleveland, Ohio, a manufacturer and distributor of coatings and related products
and The Goodyear Tire & Rubber Company (NYSE), Akron, Ohio, one of the world's
leading manufacturers of tires and rubber products, and is a Trustee of
Bluecoats, Inc. and The Harvard Business School Club of Cleveland.
Gerald B. Blouch, 59, has been President and a director of Invacare since
November 1996. Mr. Blouch has been Chief Operating Officer since December 1994
and Chairman-Invacare International since December 1993. Previously, Mr. Blouch
was President-Homecare Division from March 1994 to December 1994 and Senior Vice
President-Homecare Division from September 1992 to March 1994. Mr. Blouch served
as Chief Financial Officer of Invacare from May 1990 to May 1993 and Treasurer
of Invacare from March 1991 to May 1993. Mr. Blouch is also a director of
NeuroControl Corporation, North Ridgeville, Ohio, a privately held company,
which develops and markets electromedical stimulation systems for stroke
patients.
William M. Weber, 66, has been a director since 1988. In August 2005, Mr.
Weber became President and CEO of Air Enterprises L.L.C., which designs and
manufactures custom high end air handling equipment for critical areas in the
hospital, drug and educational markets. Mr. Weber also serves as a director of
Air Enterprises L.L.C. From 1994 to 2005, Mr. Weber was President of Roundcap
L.L.C. and a principal of Roundwood Capital L.P., a partnership that invested in
public and private companies. From 1968 to 1994, Mr. Weber was President of
Weber, Wood, Medinger, Inc., Cleveland, Ohio, a commercial real estate brokerage
and consulting firm.
Invacare's Board of Directors recommends that shareholders vote
"FOR" the election of the three directors to the class whose
three-year term will expire in 2009.
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Directors whose Terms Will Expire in 2008
Michael F. Delaney, 57, has been a director since 1986. Since 1983, Mr.
Delaney has been the Associate Director of Development of the Paralyzed Veterans
of America, a national veterans' service organization in Washington, D.C. In
October 2003, Mr. Delaney's title changed to Development Officer, Corporate
Marketing.
C. Martin Harris, M.D., 49, has been a director since 2003. Since 1996, Dr.
Harris has been the Chief Information Officer and Chairman of the Information
Technology Division of The Cleveland Clinic Foundation in Cleveland, Ohio and a
Staff Physician for The Cleveland Clinic Hospital and The Cleveland Clinic
Foundation Department of General Internal Medicine. Additionally, since 2000, he
has been Executive Director of e-Cleveland Clinic, a series of e-health clinical
programs offered over the Internet. Nationally, Dr. Harris serves as the
Chairman of the National Health Information Infrastructure (NHII) Task Force of
the Healthcare Information and Management Systems Society (HIMSS), the largest
information and management systems society in the world. He is also the Chairman
of the Foundation Board for the e-Health Initiative, a public policy and
advocacy group that encourages the interoperability of information technology in
healthcare.
Bernadine P. Healy, M.D., 61, has been a director since 1996. Dr. Healy has
been a columnist and Health Editor for U.S. News & World Report since October
2002. She has served on The President's Council of Advisors on Science and
Technology (PCAST) since 2001, and served as a chair of the Ohio Commission to
Reform Medicaid in 2003. Dr. Healy was President and CEO, American Red Cross
from September 1999 to December 2001. From 1995 to August 1999, Dr. Healy served
as the Dean and Professor of Medicine of the College of Medicine and Public
Health of The Ohio State University, Columbus, Ohio. From 1994 to 1995, Dr.
Healy served as Director of Health and Science Policy at The Cleveland Clinic
Foundation, Cleveland, Ohio; and from 1991 to 1993, she served as Director of
the National Institutes of Health in Bethesda, Maryland. From 1985 to 1991, Dr.
Healy was the Chairman of the Research Institute of The Cleveland Clinic
Foundation, Cleveland, Ohio. Dr. Healy is a Trustee of the Battelle Memorial
Institute in Columbus, Ohio and is a director of Ashland, Inc. (NYSE),
Covington, Kentucky, a company in specialized chemicals; The Progressive
Corporation (NYSE), Cleveland, Ohio, an automobile insurance company; and
National City Corporation (NYSE), Cleveland, Ohio, a financial holding company
with assets over $100 billion, providing a full range of banking and financial
services.
A. Malachi Mixon, III, 65, has been a director since 1979. Mr. Mixon has
been our Chief Executive Officer since 1979 and Chairman of the Board since 1983
and also served as our President until 1996, when Gerald B. Blouch, Chief
Operating Officer, was elected as our President. Mr. Mixon serves as a director
of The Lamson & Sessions Co. (NYSE), Cleveland, Ohio, a supplier of engineered
thermoplastic products, and The Sherwin-Williams Company (NYSE), Cleveland,
Ohio, a manufacturer and distributor of coatings and related products. Mr. Mixon
also serves as Chairman of the Board of Trustees of The Cleveland Clinic
Foundation, Cleveland, Ohio, one of the world's leading academic medical
centers.
Directors whose Terms Will Expire in 2007
John R. Kasich, 53, has been a director since 2001. Mr. Kasich is a
Managing Director of Lehman Brothers' investment banking group. He spent 18
years as a member of the House of Representatives of the United States Congress,
and served as head of the House Budget Committee from 1995 to 2000. He was the
chief architect of the Balanced Budget Act of 1997, which eliminated the federal
budget deficits. As a committee chairman, he was the House's top negotiator with
the White House over details of the plan, setting spending limits for all
federal government agencies and cutting taxes. Mr. Kasich serves as a director
of Worthington Industries, Inc. (NYSE), Columbus, Ohio, a diversified steel
processor that focuses on steel processing and metals-related businesses. Mr.
Kasich is also the host of "Heartland" on the Fox News Channel.
Dan T. Moore, III, 66, has been a director since 1980. Mr. Moore has been
President of Dan T. Moore Co. since 1979 and is Chairman of four advanced
materials manufacturing companies: Flow Polymers, Inc., Soundwich, Inc., Team
Wendy LLC and Impact Ceramics LLC. He is a director of Hawk Corporation (AMEX),
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Cleveland, Ohio, a supplier of friction products for brakes, clutches, and
transmissions used in aerospace, industrial and specialty applications, and is a
director of Park-Ohio Holdings Corp (NasdaqNM), Cleveland, Ohio, a provider of
supply chain logistics and a manufacturer of engineered products. Mr. Moore is
also a Trustee of the Cleveland Clinic Foundation.
Joseph B. Richey, II, 69, has been a director since 1980. Mr. Richey has
been President-Invacare Technologies and Senior Vice President-Electronic and
Design Engineering since 1992. Previously, Mr. Richey was Senior Vice
President-Product Development from 1984 to 1992, and Senior Vice President and
General Manager-North American Operations from September 1989 to September 1992.
Mr. Richey also serves as a director of Steris Corporation (NYSE), Cleveland,
Ohio, a manufacturer and distributor of medical sterilizing equipment and as
Chairman of the Board of Directors and CEO of NeuroControl Corporation, North
Ridgeville, Ohio, a privately held company, which develops and markets
electromedical stimulation systems for stroke patients, and is a member of the
Board of Trustees for Case Western Reserve University and The Cleveland Clinic
Foundation.
APPROVAL AND ADOPTION OF AN AMENDMENT TO THE INVACARE CORPORATION 2003
PERFORMANCE PLAN (Proposal No. 2)
General
The Invacare Corporation 2003 Performance Plan (the "2003 Plan") was
adopted and approved by the shareholders on May 21, 2003. The 2003 Plan is
designed to advance the interests of the Company and its shareholders by
strengthening its ability to attract, retain and reward highly qualified
non-employee Directors, executive officers and other employees, to motivate them
to achieve business objectives established to promote the Company's long term
growth, profitability and success, and to encourage their ownership of common
shares.
In general, the 2003 Plan empowers the Company to grant stock options and
stock appreciation rights and to make restricted stock grants, and other stock
and performance-based grants and awards, to Non-employee Directors, executive
officers and other employees of the Company and its subsidiaries. The maximum
number of common shares currently reserved for issuance under the 2003 Plan is
2,000,000 common shares, which includes 300,000 shares that may be granted as
restricted awards and 200,000 that may be granted at a price of not less than
75% of the fair market value on the date of grant. Pursuant to the 2003 Plan,
none of the awards can be transferred to third parties for consideration. As of
March 15, 2006, options to purchase up to an aggregate of 1,643,058 of the
Company's common shares (7,048 of which had been exercised and 95,575 of which
had been cancelled as of that date) have been granted under the 2003 Plan out of
the 2,000,000 common shares currently reserved for issuance, which includes
restricted awards granted of 54,118 and awards granted at a discount totaling
55,417. Hence, only 452,517 common shares remain available for future grants
under the 2003 Plan of which 245,882 may be issued as restricted awards and
144,483 may be issued at a discount.
Proposed Amendment to the 2003 Plan
Proposed Amendment. On March 17, 2006, the Compensation, Management
Development and Corporation Governance Committee of the Board of Directors (the
"Committee") unanimously approved and recommended to the Board of Directors, and
the Board of Directors subsequently approved and recommended to the
shareholders, an amendment to the 2003 Plan that would, if approved by the
shareholders, increase the number of common shares authorized and reserved for
issuance under the 2003 Plan by 1,800,000 shares from 2,000,000 to 3,800,000
common shares (the "2003 Plan Amendment").
Purpose of the Amendment. Equity compensation has been a long-standing and
vital component of the Company's overall compensation philosophy; and the
Company believes that equity based awards have helped to successfully
incentivize key employees and Non-employee Directors to promote the interests of
the Company and its shareholders. Therefore, in order to enable the Company to
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continue to provide appropriate incentives in accordance with its compensation
philosophy, the Company is seeking shareholder approval of the 2003 Plan
Amendment. The Board of Directors believes that the 2003 Plan Amendment is in
the best interests of the Company and its shareholders and recommends that the
shareholders approve and adopt the 2003 Plan Amendment.
Summary of the 2003 Plan
The principal features of the 2003 Plan are summarized below. The summary
does not contain all information that may be important to you. You should read
the complete text of the 2003 Plan, as proposed to be amended, which is attached
as Appendix A to this proxy statement.
Plan Administration. The 2003 Plan is administered by the Committee, a
standing committee comprised entirely of Non-employee Directors that satisfy the
requirements for "disinterested persons" under Rule 16b-3 of the Exchange Act;
provided, however, that the Board of Directors may in its discretion administer
the 2003 Plan, in which case the term "Committee" shall be deemed to be the
Board of Directors. All employees and Non-employee Directors of Invacare and its
subsidiaries are eligible to be selected by the Committee for participation in
the 2003 Plan.
Authority of Committee. The Committee has authority to: select the
participants who will receive awards, grant awards, determine the terms,
conditions, and restrictions applicable to the awards (including the forms of
agreements for such awards); determine how the exercise price is paid, modify or
replace outstanding awards within the limits of the 2003 Plan, accelerate the
date on which awards become exercisable, waive the restrictions and conditions
applicable to awards, defer payout on awards and establish rules governing the
2003 Plan, including special rules applicable to awards made to participants who
are foreign nationals or are employed outside the United States.
The 2003 Plan establishes certain limits on the exercise price of awards,
but not on the earn-out or vesting periods, or termination provisions in the
event of termination of employment. Instead, the Committee is given broad
authority to establish these terms in order best to achieve the purposes of the
2003 Plan.
Within certain limits, the Committee may delegate its authority under the
2003 Plan to any other person or persons. Any decision made by the Committee in
connection with the administration, interpretation and implementation of the
2003 Plan and of its rules and regulations will be, to the extent permitted by
law, final and binding upon all persons. Neither the Committee nor any of its
members is liable for any act taken by the Committee pursuant to the 2003 Plan.
No member of the Committee is liable for the act of any other member.
Number of Common Shares. The aggregate number of common shares that
currently may be subject to awards, including incentive stock options, granted
under the 2003 Plan is 2,000,000 common shares, subject to certain adjustments.
If the 2003 Plan Amendment is approved by the shareholders, that number will
increase to 3,800,000 common shares. Class B common shares are not issuable
under the 2003 Plan. Common shares issued under the 2003 Plan may be either
newly-issued shares or treasury shares. The assumption of obligations in respect
of awards granted by an organization acquired by the Company, or the grant of
awards under the 2003 Plan in substitution for any such awards, will not reduce
the number of common shares available in any fiscal year for the grant of awards
under the 2003 Plan.
Common shares subject to an award that is forfeited, terminated, or
canceled without having been exercised (other than shares subject to a stock
option that are canceled upon the exercise of a related stock appreciation
right) will generally be available again for grant under the 2003 Plan, without
reducing the number of common shares available in any fiscal year for grant of
awards under the 2003 Plan.
Adjustments. In the event of a recapitalization, stock dividend, stock
split, reverse stock split, distribution to shareholders (other than cash
dividends), or similar transaction, the Committee can adjust, in any manner that
it deems equitable, the number and class of shares that may be issued under the
2003 Plan and the number and class of shares, and the exercise price, applicable
to outstanding awards.
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Performance Based Awards. The 2003 Plan is designed to enable the Company
to provide certain forms of performance based compensation to senior executive
officers that will meet the requirements for tax deductibility under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). Section
162(m) of the Code provides that, subject to certain exceptions, the Company may
not deduct compensation paid to any one of certain executive officers in excess
of $1 million in any one year. Section 162(m) excludes from the $1million
limitation on tax deductibility compensation that qualifies as performance based
compensation meeting certain requirements.
Types of Awards. The 2003 Plan provides for the grant of stock options
(incentive stock options or "non-qualified" stock options), restricted stock,
stock appreciation rights, stock equivalent units, and other stock or
performance-based incentives. These awards are payable in cash or common shares,
or any combination thereof, as determined by the Committee.
Grant of Awards. Awards may be granted singly or in combination or tandem
with other awards. Awards also may be granted in replacement of other awards
granted by the Company. If a participant pays all or part of the exercise price
or taxes associated with an award by the transfer of common shares or the
surrender of all or part of an award (including the award being exercised), the
Committee may, in its discretion, grant a new award to replace the award or
common shares that were transferred or surrendered. The Company also may assume
awards granted by an organization acquired by the Company or may grant awards in
replacement of any such awards.
The repricing of any stock options or stock appreciation rights at a lower
exercise price, whether by cancellation or amendment of the original grant, is
expressly prohibited under the 2003 Plan.
Certain Limits on Awards Under the 2003 Plan. The maximum aggregate number
of common shares that may be granted under the 2003 Plan pursuant to all awards
(i.e., restricted stock, stock appreciation rights, stock equivalent units,
etc.), other than stock options, is 300,000 common shares. The term of each
stock option shall be fixed by the Committee, but in no event shall the term
exceed ten years after the date of grant. The exercise price of a stock option
may not be less than 100% of the fair market value on the date of grant;
provided, that up to 200,000 common shares for which non-qualified stock options
may be granted may have an exercise price of not less than 75% of the fair
market value on the date of grant, which is primarily intended to allow for the
continuation of the Non-employee Directors' deferred compensation program
described under "How are directors Compensated?." The foregoing limits are
subject to adjustment as described above.
Certain Limits on Individual Awards. The maximum aggregate number of common
shares for which stock options may be granted to any particular employee during
any calendar year is 400,000 common shares. The maximum aggregate number of
common shares for each of (i) stock appreciation rights, and (ii) other
stock-based awards, respectively, which may be granted to any particular
employee during any calendar year is 50,000 common shares (or 100,000 common
shares in the aggregate). The foregoing limits also are subject to adjustment as
described above.
Payment of Exercise Price. The exercise price of a stock option (other than
an incentive stock option), and any other stock award for which the Committee
has established an exercise price may be paid in cash, by the transfer of common
shares, by the surrender of all or part of an award (including the award being
exercised), or by a combination of these methods, as and to the extent permitted
by the Committee. The exercise price of an incentive stock option may be paid in
cash, by the transfer of common shares, or by a combination of these methods, as
and to the extent permitted by the Committee, but may not be paid by the
surrender of an award. The Committee may prescribe any other method of paying
the exercise price that is determined to be consistent with applicable law and
the purpose of the 2003 Plan.
Deferrals. The Committee may defer the payment of any grant or award, or
permit participants to defer their receipt of payment, for such period or
periods and on such terms and conditions as the Committee may specify. Deferrals
may be in the form of cash or stock equivalent units, which may earn interest at
a rate or rates specified by the Committee.
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Termination of Awards. The Committee may cancel any awards if the
participant, without the Company's prior written consent, (i) within 18 months
after the date a participant terminates employment with the Company renders
services for an organization, or engages in a business, that is (in the judgment
of the Committee) in competition with the Company, or (ii) discloses to anyone
outside of Invacare, or uses for any purpose other than Invacare's business, any
confidential information relating to the Company. In addition, the Committee
may, subject to certain conditions in the 2003 Plan and in its discretion,
require the participant to return the economic value of any award that the
participant realized or obtained prior to and after such participant engaged in
any of the above activities.
Change in Control. In the event of a change in control of the Company, as
defined in the 2003 Plan, unless the Board of Directors determines otherwise,
(i) all outstanding stock options and stock appreciation rights will become
fully exercisable, and (ii) all restrictions and conditions applicable to
restricted stock and other awards exercisable for Common Shares will be deemed
to have been satisfied. Any other determination by the Board of Directors that
is made after the occurrence of the change in control will not be effective
unless a majority of the Directors then in office are "continuing directors" and
the determination is approved by a majority of the "continuing directors" for
this purpose (or is approved by a committee comprised solely of such "continuing
directors"). "Continuing directors" are Directors who were in office prior to
the change in control or were recommended or elected to succeed "continuing
directors" by a majority of the "continuing directors" then in office (or by a
committee comprised solely of such "continuing directors" then in office).
Amendment, Effective Date, and Termination. The Board of Directors may
amend, suspend, or terminate the 2003 Plan at any time. Shareholder approval for
any such amendment will be required if the amendment results in an increase,
subject to certain exceptions, in the maximum number of common shares that may
be subject to awards granted under the 2003 Plan. The Committee may amend any
outstanding award under the 2003 Plan to reduce the exercise price of any stock
option or stock appreciation right, except in accordance with an adjustment
described above.
Federal Income Tax Consequences of Awards. The anticipated income tax
treatment, under current provisions of the Code, of the grant and exercise of
awards is as follows:
Incentive Stock Options. In general, an employee will not recognize taxable
income at the time an incentive stock option is granted or exercised provided
the employee has been employed by the Company at all times from the date of
grant until the date three months before the date of exercise (one year in the
case of permanent disability). However, the excess of the fair market value of
the common shares acquired upon exercise of the incentive stock option over the
exercise price is an item of tax preference for purposes of the alternative
minimum tax. If the employee exercises an incentive stock option without
satisfying the employment requirement, the income tax treatment will be the same
as that for a non-qualified stock option, described below. Upon disposition of
the common shares acquired upon exercise of an incentive stock option, capital
gain or capital loss will be recognized in an amount equal to the difference
between the sale price and the exercise price, provided that the employee has
not disposed of the common shares within two years of the date of grant or
within one year from the date of exercise (a "Disqualifying Disposition"). If
the employee disposes of the shares in a Disqualifying Disposition, the employee
will recognize ordinary income at the time of the Disqualifying Disposition to
the extent of the difference between the exercise price and the lesser of the
fair market value of the shares on the date the incentive stock option is
exercised or the amount realized in the Disqualifying Disposition. Any remaining
gain or loss is treated as a capital gain or capital loss.
The Company is not entitled to a tax deduction either upon the exercise of
an incentive stock option or upon the disposition of the common shares acquired
thereby, except to the extent that the employee recognizes ordinary income in a
Disqualifying Disposition and subject to the applicable provisions of the Code.
Non-Qualified Stock Options. In general, participants will not recognize
taxable income at the time a stock option that does not qualify as an incentive
stock option (a "Non-qualified Stock Option") is granted. However, an amount
equal to the difference between the exercise price and the fair market value, on
the date of exercise, of the common shares acquired upon exercise of the
8
Non-qualified Stock Option will be included in the participant's ordinary income
in the taxable year in which the Non-qualified Stock Option is exercised. Upon
disposition of the common shares acquired upon exercise of the Non-qualified
Stock Option, appreciation or depreciation from the tax basis of the shares
acquired after the date of exercise will be treated as either capital gain or
capital loss.
Non-qualified Stock Options that are granted at an exercise price that is
less than the fair market value on the date of grant are subject to Section 409A
of the Code, which applies to arrangements involving the deferral of
compensation for employees and directors. Such grants are generally intended to
comply with Section 409A and are made under such terms and conditions as are
deemed necessary in order for the grant to comply with Section 409A.
Subject to the applicable provisions of the Code, including the
deductibility limitations under Section 162(m) of the Code, the Company
generally will be entitled to a tax deduction in the amount of the ordinary
income realized by the participant in the year the Nonqualified Stock Option is
exercised. Any amounts includable as ordinary income to a participant in respect
of a Non-qualified Stock Option will be subject to applicable withholding for
federal income and employment taxes.
Stock Appreciation Rights. The grant of stock appreciation rights will have
no immediate tax consequences to the Company or the participant receiving the
grant. In general, the amount of compensation that will be realized by a
participant upon exercise of a stock appreciation right is equal to the
difference between the grant date valuation of the common shares underlying the
stock appreciation right and the fair market value of the stock or cash received
on the date of exercise. The amount received by the participant upon the
exercise of the stock appreciation rights will be included in the participant's
ordinary income in the taxable year in which the stock appreciation rights are
exercised. Subject to the applicable provisions of the Code, including the
deductibility limitations under Section 162(m) of the Code, the Company
generally will be entitled to a deduction in the same amount in that year.
Restricted Stock. Unless a participant makes an election under Section
83(b) of the Code, the participant will recognize no income, and the Company
will be entitled to no deduction at the time restricted stock is awarded to the
participant. When the restrictions on the restricted stock lapse or are
otherwise removed, the participant will recognize compensation income equal to
the excess of the fair market value of the restricted stock on the date the
restrictions lapse or are otherwise removed over the amount, if any, paid by the
participant for the restricted stock, and, generally, the Company will be
entitled to a deduction in the same amount subject to the applicable provisions
of the Code, including the possible limitations under Section 162(m) of the
Code. Dividends paid on restricted stock during any restriction period will,
unless the participant has made an election under Section 83(b) of the Code,
constitute compensation income to the participant receiving the dividends; and
the Company generally will be entitled to a deduction in the same amount. Upon
disposition of common shares after the restrictions lapse or are otherwise
removed, any gain or loss realized by a participant will be treated as
short-term or long-term capital gain or loss depending upon the period of time
between the disposition and the earlier lapse or removal of the restrictions on
those common shares.
If a participant files an election under Section 83(b) of the Code with the
Internal Revenue Service within 30 days after the grant of restricted stock, the
participant will, on the date of the grant, recognize compensation income equal
to the excess of the fair market value of the common shares on that date over
the price paid for those common shares, and the Company generally will be
entitled to a deduction in the same amount, subject to the applicable provisions
of the Code. Dividends paid on the stock thereafter will be treated as dividends
for tax purposes, includable in the gross income of the participant and not
deductible by the Company. Any gain or loss recognized by the participant on a
disposition of restricted stock which was the subject of a Section 83(b)
election, other than on a redemption by the Company, will be capital gain or
loss. However, if the disposition is a forfeiture by the participant or a
redemption by the Company at the initial price of the restricted stock, the
disposition may constitute a "forfeiture" within the meaning of Section 83(b),
in which event the participant would not be entitled to deduct any loss which
otherwise would have been allowable. The potential for a nondeductible
9
forfeiture loss on the forfeiture of restricted property is a risk a participant
assumes by making a Section 83(b) election.
Stock Equivalent Units. The grant of stock equivalent units will not have
any immediate tax consequences to the participant receiving the stock equivalent
units or to the Company. In general, at the time the Company pays any amount to
the participant with respect to the stock equivalent units, the participant will
recognize compensation income equal to the amount of that payment, and the
Company will be entitled to a deduction in that amount, subject to the other
applicable provisions of the Code, including the limitations under Section
162(m).
Withholding Taxes. Prior to the payment of an award, the Company may
withhold, or require a participant to remit to the Company, an amount of cash
sufficient to pay any federal, state, and local taxes associated with the award.
In addition, the Committee may permit participants to pay the taxes associated
with an award (other than an incentive stock option) by the transfer of common
shares, by the surrender of all or part of an award (including the award being
exercised), or by a combination of cash and/or one of these methods.
The discussion set forth above does not purport to be a complete analysis
of all potential tax consequences relevant to recipients of awards under the
2003 Plan or the Company or to describe tax consequences based on particular
circumstances. It is based on United States federal income tax law and
interpretational authorities as of the date of this proxy statement, which are
subject to change at any time. The discussion does not address state or local
income tax consequences or income tax consequences for taxpayers who are not
subject to taxation in the United States.
Certain Benefits
The 2003 Plan allows for awards to the Company's non-employee Directors,
executive officers and other employees. However, the amount of any future award
to any eligible participant under the 2003 Plan is not determinable at this time
and will be made in the discretion of the Committee or the Board of Directors.
Invacare's Board of Directors recommends that shareholders vote
"FOR" the approval and adoption of the amendment to the
2003 Performance Plan.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal No. 3)
The Audit Committee has appointed Ernst & Young LLP to continue as our
independent auditors and to audit our financial statements for the year ended
December 31, 2006. The Audit Committee and the Board of Directors are asking you
to ratify this appointment. During the year ended December 31, 2005, Ernst &
Young LLP served as our principal auditors and provided tax and other services.
See "Independent Auditors." Representatives of Ernst & Young LLP are expected to
be present at the annual meeting and will have an opportunity to make a
statement if they so desire and will be available to respond to appropriate
questions.
Invacare's Board of Directors recommends that shareholders vote
"FOR" the ratification of the appointment of Ernst & Young LLP as
our independent auditors.
10
SHARE OWNERSHIP OF PRINCIPAL HOLDERS AND MANAGEMENT
Who are the largest holders of Invacare's outstanding common shares and what is
their total voting power?
The following table shows, as of February 24, 2006, the share ownership of
each person or group known by Invacare to beneficially own more than 5% of
either class of common shares of Invacare:
Class B
Common Shares Common Shares
Beneficially owned Beneficially owned*
------------------ ------------------- Percentage of
Number Number total voting power
Name and business address of of beneficially
of beneficial owner Shares Percentage shares Percentage owned
------------------------ ---------- ---------- ---------- ---------- ----------
A. Malachi Mixon, III 2,607,848 8.1% 703,912 63.3% 22.2%
One Invacare Way,
Elyria, Ohio 44035 (1)
Joseph B. Richey, II 878,461 2.8% 376,262 33.8% 11.0%
One Invacare Way,
Elyria, Ohio 44035 (2)
Ariel Capital Management, LLC 7,752,975 25.3% - - 18.5%
200 E. Randolph Dr., Suite 2900,
Chicago, IL 60601 (3)(4)
FMR Corp. 1,956,400 6.4% - - 4.7%
82 Devonshire Street,
Boston, MA 02109 (3)(5)
* All holders of Class B common shares are entitled to convert any or all of
their Class B common shares to common shares at any time, on a
share-for-share basis. In addition, Invacare may not issue any additional
Class B common shares unless the issuance is in connection with share
dividends on, or share splits of, Class B common shares.
(1) Includes 1,601,650 common shares that may be acquired upon the exercise of
stock options during the 60 days following February 24, 2006. For purposes
of calculating the percentage of outstanding common shares beneficially
owned by Mr. Mixon and his percentage of total shares beneficially owned,
the common shares which he had the right to acquire during that period by
exercise of stock options are considered to be outstanding. The number of
shares shown as beneficially owned by Mr. Mixon also includes (i) 18,319
common shares owned by the trustee for Invacare Retirement Savings Plan,
(ii) 245,925 common shares owned of record by Mr. Mixon's spouse, (iii)
24,576 common shares owned by the trustee for a 1997 grantor retained
annuity trust created by Mr. Mixon, (iv) 24,577 common shares owned by the
trustee for a 1997 grantor retained annuity trust created by Mr. Mixon's
spouse, (v) 88,224 common shares owned by the trustee for a 2003 grantor
retained annuity trust created by Mr. Mixon, and (vi) 88,224 common shares
owned by the trustee for a 2003 grantor retained annuity trust created by
Mr. Mixon's spouse. Mr. Mixon disclaims beneficial ownership of the shares
held by his spouse and the grantor retained annuity trusts created by the
reporting person's spouse.
(2) Includes 223,500 common shares, which may be acquired upon the exercise of
stock options during the 60 days following February 24, 2006. For purposes
of calculating the percentage of outstanding common shares beneficially
owned by Mr. Richey and his percentage of total shares beneficially owned,
the common shares which he had the right to acquire during that period by
exercise of stock options are deemed to be outstanding.
(3) The number of common shares beneficially owned is based upon a Schedule 13G
filed by the holder with the SEC to reflect share ownership as of December
31, 2005.
(4) The Schedule 13G was filed by Ariel Capital Management, LLC, which has sole
voting power with respect to 6,229,453 of the 7,752,975 common shares held,
and sole dispositive power with respect to 7,752,075 of the 7,752,975
common shares held.
11
(5) The Schedule 13G was filed by FMR Corp., which has sole voting power with
respect to 146,300 of the 1,956,400 common shares held, and sole
dispositive power with respect to all 1,956,400 of the common shares held.
How many common shares do each of Invacare's directors and executive officers
hold and what is their level of total voting power?
The following table sets forth, as of February 24, 2006, the share
ownership of all directors, our Chief Executive Officer and our four other
highest paid executive officers and all directors and executive officers as a
group:
Class B
Common Shares Common Shares
beneficially owned beneficially owned** Percentage of
------------------------ ----------------------- total voting power
Number Number beneficially
Name of beneficial owner of shares Percentage of shares Percentage owned
------------------------ --------- ---------- --------- ---------- ----------
Gerald B. Blouch (3)....................... 821,950 2.6% - - 1.9%
James C. Boland (3)........................ 48,073 * - - *
Michael F. Delaney (3)..................... 23,584 * - - *
Whitney Evans (3).......................... 46,555 * - - *
C. Martin Harris, M.D. (3)................. 19,757 * - - *
Bernadine P. Healy, M.D. (3).............. 46,320 * - - *
John R. Kasich (3)......................... 31,079 * - - *
A. Malachi Mixon, III (1)..................2,607,848 8.1% 703,912 63.3% 22.2%
Dan T. Moore, III (3)...................... 177,399 * - - *
Joseph B. Richey, II (2)................... 878,461 2.8% 376,262 33.8% 11.0%
Louis F.J. Slangen (3)..................... 201,689 * - - *
Gregory C. Thompson (3).................... 174,649 * - - *
William M. Weber (3)....................... 71,125 * - - *
All executive officers and Directors as
a group (15 persons) (3).................5,212,589 15.4% 1,080,174 97.1% 35.7%
* Less than 1%.
** All holders of Class B common shares are entitled to convert any or all of
their Class B common shares to common shares at any time, on a
share-for-share basis. In addition, Invacare may not issue any additional
Class B common shares unless the issuance is in connection with share
dividends on, or share splits of, Class B common shares.
(1) See Footnote 1 to the preceding table.
(2) See Footnote 2 to the preceding table.
(3) The common shares beneficially owned by Invacare's executive officers and
directors as a group include an aggregate of 3,111,368 common shares which
may be acquired upon the exercise of stock options during the 60 days
following February 24, 2006. For purposes of calculating the percentage of
outstanding common shares beneficially owned by each of Invacare's
executive officers and directors, and all of them as a group, and their
percentage of total shares beneficially owned, common shares which they had
the right to acquire by exercise of stock options within 60 days of
February 24, 2006, are considered to be outstanding. The number of common
shares that may be acquired by the exercise of such stock options for the
noted individuals is as follows: Mr. Blouch, 695,900 shares; Mr. Boland,
47,065 shares; Mr. Delaney, 12,584 shares; Mr. Evans, 23,360 shares; Dr.
Harris, 19,757 shares; Dr. Healy, 41,320 shares; Mr. Kasich, 31,079 shares;
Mr. Moore, 28,953 shares; Mr. Slangen, 173,000 shares; Mr. Thompson,
159,100 shares; and Mr. Weber, 10,000 shares.
12
Section 16(a) Beneficial Ownership Compliance
The rules of the SEC require us to disclose late filings of reports of
stock ownership, and changes in stock ownership, by our directors and executive
officers. To the best of Invacare's knowledge, all of the filings were made on a
timely basis in 2005, except for (1) the two monthly purchases of an aggregate
of 11 phantom common shares by Mr. Richey during January 2005 pursuant to a
right to defer compensation under the Invacare Corporation Deferred Compensation
Plus Plan, which were reported on a Form 4, dated February 4, 2005; (2) the
surrender of 26,342 common shares on March 22, 2005 by Mr. Mixon for tax
withholding purposes in conjunction with the receipt of shares exercised but
deferred on March 22, 2000, which was reported on a Form 4, dated March 25, 2005
and amended on June 9, 2005; (3) the grant of stock options to purchase an
aggregate of 8,000 common shares to Daniel O'Driscoll on May 25, 2005, which was
reported on a Form 4, dated May 31, 2005; and (4) the surrender of 364 common
shares on November 4, 2005 by Mr. Thompson for tax withholding purposes in
conjunction with the vesting of restricted shares, which was reported on a Form
4, dated December 7, 2005.
CORPORATE GOVERNANCE
How many times did the Board meet in 2005?
The Board of Directors held five meetings during the fiscal year ended
December 31, 2005. Each director attended at least 75% of the aggregate of (1)
the total number of meetings of the Board of Directors held during the period he
or she served as a director and (2) the total number of meetings held by
committees of the Board on which he or she served, except for Dr. Harris who
attended 71% of the meetings. Board members are expected to attend Invacare's
annual meeting of shareholders, and each director, except for Dr. Harris,
attended last year's annual shareholder meeting. The non-management directors
meet in executive sessions after the end of each of the regularly scheduled
Board meetings. The chairpersons of the four standing committees of the Board
rotate presiding over such sessions.
What codes of ethics apply to directors, officers and employees?
We have adopted a Code of Business Conduct and Ethics that applies to all
directors, officers and employees. We also have adopted a separate Financial
Code of Ethics that applies to our Chief Executive Officer (our principal
executive officer) and our Chief Financial Officer (our principal financial
officer and principal accounting officer). You can find both codes on our
website at www.invacare.com by clicking on the link for Investor Relations. We
will post any amendments to the codes, as well as any waivers that are required
to be disclosed pursuant to the rules of the Securities and Exchange Commission
and the New York Stock Exchange, on our website. You also can obtain a printed
copy of these documents, free of charge, by writing to: Shareholder Relations
Department, Invacare Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH
44036-2125.
Has the Board adopted corporate governance guidelines?
The Board has adopted Corporate Governance Guidelines. This document can be
found on our website at www.invacare.com by clicking on the link for Investor
Relations. You also can obtain a printed copy of this document, free of charge,
by writing to: Shareholder Relations Department, Invacare Corporation, One
Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125.
13
Who are the current members of the different Board committees?
Compensation,
Audit Management Development and Nominating Investment
Director Committee Corporate Governance Committee Committee Committee
-------- --------- ------------------------------ ---------- ----------
Gerald B. Blouch
James C. Boland * **
Michael F. Delaney *
Whitney Evans * **
C. Martin Harris, M.D. *
Bernadine P. Healy, M.D. * *
John R. Kasich ** *
A. Malachi Mixon, III
Dan T. Moore, III * *
Joseph B. Richey, II
William M. Weber ** * *
--------
* Member
** Chairperson
What are the principal functions of the Board committees?
The Board has an Audit Committee; a Compensation, Management Development
and Corporate Governance Committee; a Nominating Committee; and an Investment
Committee.
Audit Committee. The Audit Committee assists the Board in monitoring (i)
Invacare's compliance with legal and regulatory requirements, (ii) the integrity
of Invacare's financial statements, and (iii) the independence, performance and
qualifications of Invacare's internal and independent auditors. The specific
functions and responsibilities of the Audit Committee are set forth in the Audit
Committee Charter adopted by the Board of Directors, a copy of which is
available at www.invacare.com by clicking on the link for Investor Relations.
You also can obtain a printed copy of this document, free of charge, by writing
to: Shareholder Relations Department, Invacare Corporation, One Invacare Way,
P.O. Box 4028, Elyria, OH 44036-2125. The Audit Committee met nine times during
2005.
Our Board has determined that each member of the Audit Committee satisfies
the current independence standards of the New York Stock Exchange listing
standards and Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended. The Board also has determined that each of James C. Boland and William
M. Weber qualify as an "audit committee financial expert" as that term is
defined in Item 401(h) of Regulation S-K. As audit committee financial experts,
each of Messrs. Boland and Weber satisfy the New York Stock Exchange accounting
and financial management expertise requirements.
Compensation, Management Development and Corporate Governance Committee.
The Compensation, Management Development and Corporate Governance Committee
assists the Board in developing and implementing (i) executive compensation
programs that are fair and equitable and that are effective in the recruitment,
retention and motivation of executive talent required to successfully meet
Invacare's strategic objectives, (ii) a management succession plan that meets
Invacare's present and future needs, and (iii) Invacare's corporate governance
policies and guidelines. Each of the current members of the Compensation,
Management Development and Corporate Governance Committee is independent within
the meaning of the New York Stock Exchange listing standards and Invacare's
Corporate Governance Guidelines. The Board of Directors has adopted a charter
for the Compensation, Management Development and Corporate Governance Committee,
which is available at www.invacare.com by clicking on the link for Investor
Relations. You also can obtain a printed copy of this document, free of charge,
by writing to: Shareholder Relations Department, Invacare Corporation, One
Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125. The Committee met four times
during 2005.
14
Nominating Committee. The Nominating Committee assists the Board in
identifying and recommending individuals qualified to become directors and will
consider all qualified nominees recommended by shareholders. Each of the current
members of the Nominating Committee is independent within the meaning of the New
York Stock Exchange listing standards and Invacare's Corporate Governance
Guidelines. The Board of Directors has adopted a charter for the Nominating
Committee, which is available at www.invacare.com by clicking on the link for
Investor Relations. You also can obtain a printed copy of this document, free of
charge, by writing to: Shareholder Relations Department, Invacare Corporation,
One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125. The Nominating Committee
did not meet during 2005.
Investment Committee. The Investment Committee assists the Board in
monitoring the investments of the Invacare Retirement Savings Plan and other
plans designated by the Board or the Investment Committee. Each of the current
members of the Investment Committee is independent within the meaning of the New
York Stock Exchange listing standards and Invacare's Corporate Governance
Guidelines. The Board of Directors has adopted a charter for the Investment
Committee, which is available at www.invacare.com by clicking on the link for
Investor Relations. You also can obtain a printed copy of this document, free of
charge, by writing to: Shareholder Relations Department, Invacare Corporation,
One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125. The Investment Committee
met two times during 2005.
How does the Board determine whether non-employee directors are independent?
To be considered independent under the New York Stock Exchange independence
criteria under Section 303A (the "NYSE Standards"), the Board of Directors must
determine that a director does not have a direct or indirect material
relationship with Invacare. The Board of Directors has adopted the following
guidelines (set forth in the Corporate Governance Guidelines) to assist it in
making such determinations:
A director will be considered independent if he or she, at any time that is
considered relevant under the NYSE Standards (subject to any applicable
transition rules of the NYSE Standards):
(i) has not been employed by Invacare or its affiliates;
(ii) has not had an immediate family member who has been employed by
Invacare or its affiliates as an executive officer;
(iii) has not received, and has not had an immediate family member who has
received, more than $100,000 per year in direct compensation from
Invacare, other than director and committee fees and pension or other
forms of deferred compensation for prior service (provided such
compensation is not in any way contingent on continued service);
(iv) has not been affiliated with or employed by a present or former
internal or external auditor of Invacare; (v) has not had an immediate
family member who has been affiliated with or employed in a
professional capacity (partner, principal or manager) by a former
internal or external auditor of Invacare;
(vi) has not been employed, and has not had an immediate family member who
has been employed, as an executive officer of another company where
any of Invacare's present executives serve on that company's
compensation committee; and
(vii) has not been an executive officer or an employee of another company,
and has not had an immediate family member who has been an executive
officer of another company, that does business with Invacare and makes
payments to, or receives payments from, Invacare for property or
services in an amount that, in the most recent fiscal year, exceeds
the greater of $1 million or 2% of such other company's consolidated
gross revenues.
15
Additionally, the following commercial and charitable relationships will be
considered immaterial relationships and a director will be considered
independent if he or she does not have any of the relationships described in
clauses (i) - (vii) above, and:
(i) is not an executive officer of another company, and does not have an
immediate family member who is an executive officer of another
company, that is indebted to the Company, or to which Invacare is
indebted, where the total amount of either company's indebtedness to
the other is more than 5% of the total consolidated assets of the
other company and exceeds $100,000 in the aggregate; and
(ii) does not serve, and does not have an immediate family member who
serves, as an officer, director or trustee of a foundation (other than
Invacare's foundation), university, charitable or other not for profit
organization, and Invacare's, or Invacare foundation's, annual
discretionary charitable contributions (any matching of employee
charitable contributions will not be included in the amount of
contributions for this purpose) to the organization, in the aggregate,
are more than 5% percent of that organization's total annual revenues
(or charitable receipts in the event such organization does not
generate revenues).
In the event that a director has a relationship of the type described in
clauses (i) or (ii) in the immediately preceding paragraph that falls outside of
the "safe harbor" thresholds set forth in such clauses (i) and (ii), or if the
director had any such relationship during the prior three years that fell
outside of such "safe harbor" thresholds, then in any such case, the Board of
Directors annually shall determine whether the relationship is material or not,
and therefore, whether the director would be independent or not. Invacare will
explain in its next proxy statement the basis for any Board of Directors
determination that a relationship is immaterial despite the fact that it does
not meet the categorical standards of immateriality set forth in clauses (i) and
(ii) in the immediately preceding paragraph.
In addition, any director serving on the Audit Committee of Invacare may
not be considered independent if he or she directly or indirectly receives any
compensation from Invacare other than director and committee fees and pension or
other forms of deferred compensation for prior service (provided such
compensation is not in any way contingent on continued service).
The Board examined the transactions and relationships between Invacare and
its affiliates and each of the directors, any of their immediate family members
and their affiliates. Based on this review, the Board affirmatively determined
that each of Messrs. Delaney, Boland, Evans, Weber, Kasich and Moore and Dr.
Harris and Dr. Healy (as of September 13, 2005) is independent and do not have
any direct or indirect material relationship with Invacare pursuant to the
categorical standards set forth in Invacare's Corporate Governance Guidelines.
How are proposed director nominees identified, evaluated and recommended for
nomination?
The Nominating Committee will seek candidates for an open director position
by soliciting suggestions from Committee members, the Chairman of the Board,
incumbent directors, senior management or others. The Committee also may retain
a third-party executive search firm to identify candidates from time to time.
Additionally, the Committee will consider any unsolicited recommendation for a
potential candidate to the Board from Committee members, the Chairman of the
Board, other Board members, management and shareholders. The Committee will
accept shareholder recommendations regarding potential candidates for the Board,
provided that shareholders send their recommendations to the Chairperson of the
Committee, c/o Executive Officers, Invacare Corporation, One Invacare Way,
Elyria, Ohio 44036, with the following information:
o The name and contact information for the candidate;
o A brief biographical description of the candidate, including his or
her employment for at least the last five years, educational history,
and a statement that describes the candidate's qualifications to serve
as a director;
16
o A statement describing any relationship between the candidate and the
nominating shareholder, and between the candidate and any employee,
director, customer, supplier, vendor or competitor of Invacare; and
o The candidate's signed consent to be a candidate and to serve as a
director if nominated and elected, including being named in Invacare's
proxy statement.
Once the Nominating Committee has identified a prospective candidate, the
Committee makes a determination whether to conduct a full evaluation of the
candidate. This initial determination is based primarily on the Board's need to
fill a vacancy or desire to expand the size of the Board, the likelihood that
the candidate can meet the Nominating Committee's evaluation criteria set forth
below, as well as compliance with all other legal and regulatory requirements.
The Nominating Committee will rely on public information about a candidate,
personal knowledge of any committee or Board member or member of management
regarding the candidate, as well as any information submitted to the Committee
by the person recommending a candidate for consideration. The Nominating
Committee, after consultation with the Chairman of the Board, will decide
whether additional consideration of the candidate is warranted.
If additional consideration is warranted, the Nominating Committee may
request the candidate to complete a questionnaire that seeks additional
information about the candidate's independence, qualifications, experience and
other information that may assist the Committee in evaluating the candidate. The
Committee may interview the candidate in person or by telephone and also may ask
the candidate to meet with senior management. The Committee then evaluates the
candidate against the standards and qualifications set out in the Nominating
Committee's charter. Additionally, the Nominating Committee shall consider other
relevant factors as it deems appropriate (including independence issues and
familial or related party relationships).
Before nominating an existing director for re-election at an annual
meeting, the Committee will consider:
o The director's value to the Board; and
o Whether the director's re-election would be consistent with Invacare's
governance guidelines.
After completing the Nominating Committee's evaluation of new candidates or
existing directors whose term is expiring, if the Committee believes the
candidate would be a valuable addition to the Board or the existing director is
a valued member of the Board, then the Nominating Committee will make a
recommendation to the full Board that such candidate or existing director should
be nominated by the Board. The Board will be responsible for making the final
determination regarding prospective nominees after considering the
recommendation of the Committee. These procedures were adhered to with respect
to nominees for election at this meeting, who were unanimously recommended by
the Nominating Committee and the entire Board of Directors.
How can shareholders communicate with the Board?
Shareholders may communicate their concerns directly to the entire Board or
specifically to non-management directors of the Board. Such communications may
be confidential or anonymous, if so designated, and may be submitted in writing
to the following address: Shareholder Communication, c/o Executive Offices,
Invacare Corporation, One Invacare Way, Elyria, Ohio 44036. The status of all
outstanding concerns addressed to the entire Board or only to non-management
directors will be reported to the Chairman of the Board or to the chair of the
Audit Committee, respectively, on a quarterly basis.
How are directors compensated?
Non-employee directors were paid a $30,000 annual retainer in 2005, which
was increased to $35,000 for 2006, $2,000 per Board meeting attended and $1,500
per committee meeting attended, or $2,000 per committee meeting for the
committee chairperson. If a committee meets via teleconference, they receive
half of the normal committee attendance fee. The Chairman of the Audit Committee
17
receives an additional retainer of $5,000 per year. In addition, all
non-employee directors received annual stock option grants to acquire up to
2,000 shares vesting over a four-year term, which was increased to 4,000 shares
for 2006 and thereafter.
Directors are eligible to defer compensation payable by Invacare for their
services as a director under the Invacare Corporation 2003 Performance Plan. Mr.
Boland deferred $51,000, Mr. Delaney deferred $4,100, Mr. Evans deferred
$22,500, Dr. Harris deferred $32,800, Mr. Kasich deferred $43,000 and Mr. Moore
deferred $24,250 of their 2005 compensation and, as a result, each was issued
stock options at a 25% discount based on the 2003 Plan.
Certain Relationships and Related Transactions
During 2005, Invacare purchased travel services from a third party private
aircraft charter company. One of the aircraft available for use by the charter
company is owned by an entity owned by Mr. Mixon and Mr. Richey. Invacare paid
approximately $869,000 to the charter company in 2005 for use of the aircraft
owned by Mr. Mixon and Mr. Richey. Invacare believes that the transactions were
on terms no less favorable than those Invacare would expect to obtain from
unrelated parties.
Since early 1995, Invacare has made investments in and loans to
NeuroControl Corporation ("NeuroControl"), a North Ridgeville, Ohio-based
privately-held company that develops and markets electromedical stimulation
systems for stroke patients. During 2005, Invacare loaned NeuroControl $965,000
to help support its efforts to obtain FDA approval to market its stimulation
systems in the United States. As of December 31, 2005, Invacare's net investment
in, and advances to, NeuroControl were approximately $3 million after write-offs
of approximately $21 million in prior periods. A substantial portion of
Invacare's investment and advances was made pursuant to a secured credit
facility. Mr. Richey is the Chairman of the Board and Chief Executive Officer of
NeuroControl and Mr. Blouch serves as a Director of NeuroControl. Each of Dr.
Bernadine Healy and Messrs. Evans, Moore, Weber (through his spouse), Mixon and
Richey own minority equity interests in NeuroControl Corporation, having
invested the following amounts in NeuroControl in 1997 or earlier: $50,000,
$50,000, $100,000, $100,000, $245,000 and $7,513, respectively. In addition, (i)
a private investment fund, the general partner of which is owned and controlled
by Messrs. Mixon and Weber, has invested $350,000 in NeuroControl, (ii) a
different private investment fund, in which Mr. Mixon is one of the three
managing members of the general partner, has invested an aggregate of $750,000
in NeuroControl, and (iii) The Cleveland Clinic, Dr. Martin Harris' employer,
has invested an aggregate of $750,001 in NeuroControl. Collectively, the
aforementioned Invacare directors and other related parties own an aggregate of
approximately 9.7% of the fully-diluted equity ownership of NeuroControl and
Invacare owns an additional 30.1% of NeuroControl's equity. Invacare formed a
committee in 2004, comprised of three disinterested directors, to evaluate the
appropriateness and/or terms of any additional future advances or other
investments in NeuroControl. The committee assessed the status of NeuroControl's
research and authorized an additional investment by the Company during 2005 in
an amount of up to $1 million and authorized an additional $1.1 million for
2006. For financial reporting purposes, Invacare started to consolidate its
investment in NeuroControl for periods beginning with the quarter ended March
31, 2005.
18
AUDIT COMMITTEE AND RELATED MATTERS
The following Report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, except to the extent the Company
specifically incorporates this Report by reference therein.
Report of the Audit Committee
The Audit Committee assists the Board of Directors in its oversight and
monitoring of:
o the integrity of the Company's financial statements;
o the independence, performance and qualifications of the Company's
internal and independent auditors; and
o the Company's compliance with legal and regulatory requirements.
The Audit Committee's activities are governed by a written charter adopted
by the Board of Directors which is available on the Company's website
(www.invacare.com) by clicking on the link for Investor Relations.
Each member of the Audit Committee satisfies the independence requirements
set forth in the New York Stock Exchange listing standards and Rule 10A-3 of the
Securities Exchange Act of 1934, as amended.
Management has the primary responsibility for the Company's financial
statements and the reporting process, including the system of internal and
disclosure controls. Ernst & Young LLP, the Company's independent registered
public accounting firm for 2005, audited the annual financial statements
prepared by management and expressed an opinion on the conformity of those
financial statements with accounting principles generally accepted in the United
States. Ernst & Young LLP also audited management's assessment of the Company's
internal control over financial reporting as of December 31, 2005, and expressed
an opinion with respect to the Company's internal control over financial
reporting as of December 31, 2005.
In December 2002, management established an internal audit function for the
Company. The Company engaged PricewaterhouseCoopers LLP to conduct internal
audit services and report its analyses, findings and recommendations directly to
the Audit Committee. During 2005, the Audit Committee met with
PricewaterhouseCoopers LLP and Ernst & Young LLP, with and without management
present, to discuss their examinations, their continuing evaluation of the
Company's internal and disclosure controls and the overall quality of the
Company's internal procedures and controls over financial reporting.
As part of its oversight responsibilities described above, the Audit
Committee met and held discussions with management, with Ernst & Young LLP and
with PricewaterhouseCoopers LLP relative to the Company's financial reporting.
Management represented to the Audit Committee that the Company's financial
statements were prepared in accordance with accounting principles generally
accepted in the United States, and the Audit Committee reviewed and discussed
the audited financial statements with management and Ernst & Young LLP,
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of specific judgments and the clarity
of disclosures in the financial statements. The Audit Committee also discussed
with Ernst & Young LLP such other matters as are required to be discussed with
the Audit Committee by Statement on Auditing Standards No. 61, as amended by
Statement on Auditing Standards No. 90, (Communication with Audit Committees).
In addition, Ernst & Young LLP provided to the Audit Committee the written
disclosures and letter required by Independence Standards Board Standard No. 1
(Independence Discussions With Audit Committees), and by all relevant
professional and regulatory standards, related to the auditors' independence.
The Audit Committee discussed with Ernst & Young LLP their independence from the
19
Company and its management and considered the compatibility of non-audit
services with the auditors' independence.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors, and the Board of Directors has approved,
that the audited financial statements be included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2005 for filing with the Securities
and Exchange Commission.
The Audit Committee has appointed Ernst & Young LLP as the Company's
independent auditors for its 2006 fiscal year and the Company is seeking
ratification for such appointment at the 2006 Annual Meeting of Shareholders.
AUDIT COMMITTEE
William M. Weber, Chairman
James C. Boland
Dan T. Moore, III
Independent Auditors
The Audit Committee and the Board of Directors have selected Ernst & Young
LLP to continue as our independent auditors and to audit the financial
statements of Invacare for the fiscal year ending December 31, 2006. The Audit
Committee is asking you to ratify this appointment.
Fees for services rendered by Ernst & Young LLP were:
2005 2004
---- ----
Audit Fees $4,166,000 $3,588,000
Audit-Related Fees 44,000 494,000
Tax Fees
Tax Compliance Services 611,000 1,138,000
Tax Advisory Services 753,000 2,989,000
--------- ---------
1,364,000 4,127,000
All Other Fees - -
--------- ---------
Total $5,574,000 $8,209,000
========= =========
Audit Fees. Fees for audit services include fees associated with the audit
of our annual financial statements and review of our quarterly financial
statements, including statutory audits required domestically and
internationally, and the auditors' attestation report on internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley Act.
Audit fees also include fees associated with providing consents and review of
documents filed with the SEC, other services in connection with statutory and
regulatory filings or engagements, as well as accounting consultations billed as
audit consultations and other accounting and financial reporting consultation
and research work necessary to comply with generally accepted auditing
standards.
Audit-Related Fees. Audit-related services principally include accounting
consultations, audits in connection with proposed or completed acquisitions and
advisory assistance with implementation of internal control reporting
requirements as required under Section 404 of the Sarbanes-Oxley Act.
Tax Fees. Fees for tax services include tax compliance, tax advice and tax
planning.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that requires advance approval for
all audit, audit-related, tax services, and other services performed by our
independent auditors. The policy provides for pre-approval by the Audit
Committee of specifically defined audit and non-audit services. Unless the
specific service has been previously pre-approved with respect to that year, the
20
Audit Committee must approve the permitted service before the independent
auditor is engaged to perform it. The Audit Committee has delegated to the
Chairperson of the Audit Committee authority to approve certain permitted
services, provided that the Chairperson reports any such decisions to the Audit
Committee at its next scheduled meeting.
EXECUTIVE COMPENSATION
The following Report on Executive Compensation and the performance graph
included elsewhere in this proxy statement do not constitute soliciting material
and should not be deemed filed or incorporated by reference into any other
Company filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent the Company specifically
incorporates this Report or the performance graph by reference therein.
Report of the Compensation, Management Development and Corporate Governance
Committee on Executive Compensation
The Compensation, Management Development and Corporate Governance Committee
of the Board of Directors is responsible for the approval and administration of
the Company's existing and proposed executive compensation plans. The Committee
makes determinations regarding the contents of these plans, authorizes the
awards to be made pursuant to such plans and operates under a written charter
adopted by the Board of Directors.
Each of the current members of the Committee meets the definitions of (i)
"independent" within the meaning of the New York Stock Exchange listing
standards and the Company's Corporate Governance Guidelines, (ii) a
"non-employee director" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended, and (iii) an "outside director"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
Compensation Philosophy. The Committee has determined that the Company, as
a performance-driven business, should reward outstanding financial results with
appropriate compensation. The Committee's strategy for carrying out this
philosophy is to attempt to link executive compensation with the Company's
financial performance. The Committee includes stock ownership as a key component
of executive compensation, as it believes that equity-based compensation aligns
the long-term interests of employees with those of shareholders. The Committee
also recognizes the importance of maintaining compensation at competitive levels
in order to attract and retain talented executives.
The Committee engages an independent consulting firm to provide
recommendations on various facets of the Company's executive compensation
program and to assist in analyzing whether it is competitive. In order to gauge
the competitiveness of the Company's executive compensation levels, the
Committee receives market data from the independent consulting firm regarding
executive compensation paid by other companies having similar annual revenues,
as well as larger employers with which the Company must compete for talent. The
Committee relies on its independent consultant to identify a representative
group of potentially competitive employers. The Committee and its independent
consultant believe that the Company's most direct competitors for executive
talent are not necessarily the companies that would be included in the peer
group established to compare shareholder returns. Accordingly, in identifying
the group of surveyed employers, the independent consultant assembles market
data on companies having projected revenues similar to that of the Company, with
particular emphasis on durable goods manufacturers, and on larger employers
which may be significant competitors for executive talent. The assembled data is
then reviewed by management and the independent consulting firm and, with
respect to each of the top executive officer positions, adjusted for the scope
of responsibilities of the position within the Company as compared to the
equivalent responsibilities of positions within the companies included in the
survey data. The Committee then compares the Company's compensation practices
with those of the other companies included in the survey data and takes the
results into consideration when establishing compensation guidelines for
executives.
21
The Company's executive compensation program consists of three components:
base salary, an annual cash bonus and stock-based equity incentive awards. In
general, base salaries are established at or near market median levels for
comparable positions but an opportunity for significantly higher compensation is
provided through annual cash bonuses. These opportunities are dependent upon
material, year-to-year improvement in earnings per share. In addition, long-term
compensation is awarded in the form of stock options, restricted stock grants or
in other forms deemed appropriate by the Committee in order to provide key
executives with competitive financial benefits, to the extent that shareholder
value is enhanced.
Annual Base Salary. Generally, the Committee seeks to establish an annual
base salary range for each executive that falls at or near the 50th percentile
of ranges established by surveyed employers for executives having similar
responsibilities (as described above). In establishing appropriate salary levels
for each executive other than the CEO, the Committee considers annual survey
information from its independent consultant and also reviews annual
recommendations from the CEO. The Committee also takes into account whether each
executive met key objectives, and considers each executive's potential future
contributions to the Company. The Committee also determines whether each
executive's base salary provides an appropriate reward for the executive's role
in the Company's performance and incentive for the executive to contribute to
sustaining and enhancing the Company's long-term superior performance. Important
financial performance objectives that are considered by the Committee in
establishing base salary levels (some of which may not be applicable to all
executives) include net sales, income from operations, cost controls, earnings
before income tax, earnings per share, return on assets and return on net assets
employed. Operating objectives vary for each executive and typically change from
year-to-year. Financial and operating objectives are considered subjectively in
the aggregate by the Committee and are not specifically weighted in assessing
performance. Increases in 2005 base salaries were based on the subjective
judgment of the Committee, taking into account the CEO's input regarding each
executive's achievement of applicable 2004 operating and financial objectives
and the targeted salary ranges based on market salary information received from
the independent consultant. Resulting base salaries for the Company's seven
executive officers, including the CEO, averaged 117% of the targeted 50th
percentile range.
In determining the CEO's base salary for 2005, the Committee took into
account the survey results regarding the 50th percentile salary of chief
executive officers at comparable employers, as well as certain of the financial
performance objectives described above. The Committee noted that, under the
CEO's leadership, key manufacturing consolidation continued in the United
States, Europe, and Australia. For instance, in order to compete with cheap
foreign imports, the Company continued to accelerate various initiatives
(including internal manufacturing capabilities) to source certain products in
China. As a result, the Company continues to extend current product lines,
complement existing businesses, utilize and enhance its distribution strength,
streamline operations and expand its geographic presence. Additionally, the CEO
remained strongly committed to reenergizing the Company's research and
development activities. As a direct benefit of the CEO's focus and commitment on
these activities, the Company successfully introduced a number of new and/or
improved products into the marketplace. The CEO continued his role as the
leading industry spokesperson on behalf of the home medical equipment industry,
putting the Company in a position to help shape public policy instead of being
forced to react to policy changes and generating significant good will among the
Company's dealers. Further progress also was made in meeting the Company's
long-term strategic objectives as set by management and reviewed by the Board of
Directors each year. It is the Committee's opinion that meeting these objectives
is critical to the ongoing success of the Company and that the Company has
benefited from the progress toward meeting these objectives achieved under the
CEO's leadership. The Committee also believes that the CEO continued to keep the
Company's strategic direction in line with the ever-changing marketplace in
which the Company operates. This includes his leadership role in identifying
strategic initiatives on an annual basis that need to be accelerated to keep the
Company competitive and recognizing the costs and benefits associated with these
initiatives. The Committee noted the CEO's continuing commitment to geographic
expansion and focus on growing the respiratory business. Additionally, the CEO
has continued to take a proactive role in addressing corporate governance issues
presented by the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange
22
listing standards. These accomplishments and consideration of potential future
contributions resulted in the CEO's base salary at 129% of the targeted 50th
percentile salary.
Annual Cash Bonus. Consistent with its philosophy that executive
compensation should be linked with the Company's financial performance, the
Committee has determined that it should seek to give each executive an
opportunity to earn an annual cash bonus that would result in annual total cash
compensation (salary plus bonus) to the executive that falls at or near the 75th
market percentile of surveyed employers when the Company meets commensurately
challenging financial goals, as previously outlined if targeted earnings per
share objectives are achieved.
Based on competitive annual bonus opportunities provided by its independent
consultant, the Committee annually determines the appropriate bonus targets for
each executive officer (as a percentage of his or her salary) so that annual
total cash compensation for such executive officer will reach or slightly exceed
the 75th market percentile, but with the potential to receive additional bonus
amounts if such objectives are exceeded (subject to a $5,000,000 limit). During
this process, the Committee also may determine that an executive's performance
(taking into account the same factors discussed above with respect to base
salary) and level of responsibilities warrant a change in the bonus target
percentage from the market practices.
Each year, the Committee considers a recommendation from the CEO regarding
the appropriate target for that year's earnings per share at which target
bonuses will be earned. Targeted earnings per share before unusual items is
generally set at a level which the Committee believes is challenging but
achievable, and when achieved, the executives are deserving of compensation at
the 75th market percentile. Under normal conditions, no bonuses are payable if
earnings per share before unusual or non-recurring charges does not improve over
the prior year and bonuses increase on a linear basis if earnings per share
exceeds the minimum level up to the targeted level or higher. Earnings per share
for 2005 were below the previous year's results and, as a result, no cash
bonuses were paid for 2005.
The CEO's annual cash bonus was targeted to result in total cash
compensation to the CEO that would fall at or near the 75th percentile of total
cash compensation paid to chief executive officers by surveyed employers if the
Company's earnings per share objective set by the Committee was achieved. In
determining the level of total cash compensation to be targeted for the CEO in
2005, the Committee took into account the same factors and events described
above under "Annual Base Salary." Earnings per share for 2005 were below the
previous year's results and, as a result, no bonus was paid to the CEO for 2005.
Long-Term Compensation Program. The Company's long-term compensation
program is based on the award of stock options and selective restricted stock
awards, as well as other forms of stock and performance-based incentives as may
be deemed appropriate by the Committee from time to time. Total long-term
compensation is targeted at approximately the median for long-term compensation
by surveyed employers, but with unlimited potential based on the performance of
Invacare's stock. Stock options generally are issued as non-qualified options
under the Invacare Corporation 2003 Performance Plan, are granted at market
prices, vest in accordance with a schedule established by the Committee
(generally over four years) and expire after ten years.
Each year, the Committee determines the appropriate percentage of each
executive's salary which should be targeted as long-term compensation. The
targeted percentage of salary and the stock compensation proposed for each
executive officer also may be affected by the factors previously described in
establishing base salaries. The stock compensation granted to each executive
officer is determined based upon the previously agreed upon target level for
long-term compensation and upon the projected value of the stock compensation as
reflected by a valuation formula recommended by the independent consultant. The
stock compensation granted to each executive other than the CEO in 2005 was
based on the subjective judgment of the Committee, taking into account the CEO's
comments regarding the executive's achievement of the applicable 2004 objectives
(as described above under "Annual Base Salary") and the targeted range for
long-term compensation. No particular weight was assigned to any one objective.
Outstanding stock compensation held by an executive officer is generally not
considered when the Committee determines the new stock compensation to be
23
granted. Utilizing the valuation formula recommended by the Company's
independent consultant, the stock compensation granted to the Company's
executives (including the CEO) resulted in a value of long-term compensation at
or near the targeted range for each executive.
The Committee awarded stock compensation to the CEO in 2005 based upon the
foregoing targets and formula and taking into account the same factors and
events utilized in establishing the CEO's base salary for the year.
The Company made stock compensation grants (either in the form of stock
options or restricted stock) in March and August of 2005 with respect to
long-term compensation payable with respect to 2005.
Section 162(m) of the Internal Revenue Code. Section 162(m) of the Internal
Revenue Code generally provides that certain compensation in excess of $1
million per year paid to a public company's chief executive officer and any of
its four other highest paid executive officers is not deductible to the company
unless the compensation qualifies for an exception. Section 162(m) provides an
exception to the deductibility limit for performance-based compensation if
certain procedural requirements, including shareholder approval of the material
terms of the performance goal, are satisfied. The Company's equity incentive
plans have been submitted to and approved by the Company's shareholders. The
Committee therefore believes that (i) cash bonuses paid to key executives in
accordance with the 2005 Incentive Bonus Plan, and (ii) grants of stock options
to key executives under the Company's equity incentive plans pursuant to the
Company's long-term compensation programs qualify for full deductibility under
Section 162(m). However, restricted stock grants and certain cash bonus awards
paid to key executive officers may not qualify for the exception for
performance-based compensation. To the extent practicable in view of its
compensation philosophy, the Company seeks to structure its executive
compensation to satisfy the requirements for the performance-based compensation
exception under Section 162(m). Nevertheless, based upon the Company's current
compensation structure, the Committee believes that it is in the best interests
of the Company and its shareholders for the Committee to retain flexibility in
awarding incentive compensation in the form of restricted stock grants and cash
bonus awards that may not qualify for the exception for performance-based
compensation. The Committee will continue to review and evaluate, as necessary,
the impact of Section 162(m) on the Company and intends to make a determination
with respect to this issue on an annual basis.
Conclusion. The Committee has reviewed the CEO and key executives'
compensation, including salary, bonus and long-term incentive compensation as
described above and finds the CEO and key executives' total compensation in the
aggregate to be reasonable and not excessive. The Committee believes that the
relative difference between CEO compensation and the compensation of the
Company's other executives is consistent with such differences found in the
group of employers surveyed with the assistance of the Committee's independent
consultant.
COMPENSATION, MANAGEMENT DEVELOPMENT AND
CORPORATE GOVERNANCE COMMITTEE
James C. Boland, Chairman
Whitney Evans
William M. Weber
24
Summary Compensation Table
The table below shows the annual and long-term compensation for services in
all capacities to Invacare of the Chief Executive Officer and the four other
most highly compensated executive officers of Invacare.
Long-Term
Annual Compensation Compensation
---------------------------------- ----------------------------
Other Restricted All Other
Annual Securities Stock Compen-
Name and Salary Bonus Compen- Underlying Awards ($) sation ($)
Principal Position Year ($) ($) sation ($) Options (#) (2) (3)
-------------------------------- -------- --------- ---------- ------------- ------------- --------------- ------------
A. Malachi Mixon, III 2005 1,055,250 - 28,561 120,800 517,354 119,351
Chairman and Chief 2004 1,005,000 - 44,729 142,000 466,854 346,323
Executive Officer 2003 948,000 948,000 16,078 137,900 455,907 635,102
Gerald B. Blouch 2005 655,000 - 46,507 45,400 320,210 47,417
President and 2004 622,000 - 13,117 56,300 289,085 81,199
Chief Operating Officer 2003 585,833 557,650 11,244 58,700 282,213 45,187
Joseph B. Richey, II 2005 403,000 - 46,294 22,400 - 26,018
President-Invacare 2004 384,000 - 17,045 25,900 - 45,189
Technologies and Senior 2003 369,000 276,750 14,273 15,400 - 26,368
Vice President-Electronic
& Design Engineering
Louis F.J. Slangen 2005 367,000 - 14,918 22,400 - 28,443
Senior Vice President - 2004 347,256 - 20,928 25,900 - 40,303
Sales and Marketing 2003 327,000 245,700 31,910 21,500 - 24,720
Gregory C. Thompson, 2005 382,000 - 15,040 22,400 178,637 25,168
Chief Financial Officer 2004 347,000 - 13,258 25,900 155,115 31,525
2003 315,000 236,250 57,529 (1) 28,800 159,038 69,012
(1) Amount includes $47,387 in moving expenses.
(2) As described under "Compensation, Management Development and Corporate
Governance Committee Report on Executive Compensation," Invacare granted
21,304 restricted stock awards on March 2, 2005 that related to special
long-term compensation. The awards of 10,846 shares to Mr. Mixon, 6,713
shares to Mr. Blouch and 3,745 shares to Mr. Thompson vest 25% annually,
beginning May 1, 2006, and dividends accrue based on the total shares
awarded as of the date granted. The value of the restricted awards is equal
to the amounts disclosed above and is based on the stock price on the date
of grant. At the end of last year, restricted stock awards held were:
29,244 for Mr. Mixon, 18,103 for Mr. Blouch and 10,074 for Mr. Thompson.
(3) Includes: (a) Invacare contributions in the amount of $12,600 for Mr.
Mixon, Mr. Blouch, Mr. Richey, Mr. Slangen and Mr. Thompson under the
Invacare Retirement Savings Plan, a defined contribution plan; (b) Invacare
contributions of: $50,213 for Mr. Mixon, $26,370 for Mr. Blouch, $11,390
for Mr. Richey, $9,223 for Mr. Slangen and $9,970 for Mr. Thompson, under
Invacare's Deferred Compensation Plus Plan; (c) payments by Invacare,
related to premiums under Invacare's Executive Disability Income Plan, in
the amounts of $8,447 for Mr. Blouch, $2,028 for Mr. Richey, $6,620 for Mr.
Slangen and $2,598 for Mr. Thompson (Mr. Mixon does not participate in
Invacare's Executive Disability Income Plan); (d) payment by Invacare for
the premium of a disability insurance policy for Mr. Mixon amounting to
$1,933; (e) vested portion of Invacare's one-time contribution into the
401(k) Plus Plan for Mr. Mixon for his non-participation in the Executive
Life Insurance Plan since its inception equal to $54,605.
Effective January 1, 2005, a new Invacare Death Benefit Only Plan ("the
Plan") was implemented. Upon death of a participant, the plan is designed to
provide the participant's named beneficiary a benefit in accordance with the
requirements of the Plan and applicable law. Participants do not incur any cost
or imputed income for this benefit. Mr. Blouch, Mr. Richey, Mr. Slangen and Mr.
Thompson and other members of Invacare management participate in this new plan
while Mr. Mixon does not.
25
Equity Compensation Plan Information
The following table provides information as of December 31, 2005 about our
common shares that may be issued upon the exercise of options, warrants and
rights granted under all of our existing equity compensation plans, including
the Invacare Corporation 2003 Performance Plan, the Invacare Corporation 1994
Performance Plan and the Invacare Corporation 1992 Non-Employee Directors Stock
Option Plan.
Number of securities
Number of securities Weighted-average remaining available for
to be issued upon exercise price of future issuance under
exercise of outstanding equity compensation plans
outstanding options, options, warrants (excluding securities
Plan Category warrants and rights and rights reflected in column(a))
------------- ------------------- ---------- -----------------------
(a) (b) (c)
Equity compensation plans approved
by security holders 4,776,162 $31.57 454,142 (1)
Equity compensation plans not
approved by security holders 13,163 (2) - -
--------- ------ -------
Total 4,789,325 $31.57 454,142
(1) Represents shares available under the Invacare Corporation 2003 Performance
Plan. The Invacare Corporation 2003 Performance Plan allows for the
granting of no more than 300,000 shares at an exercise price of zero and no
more than 200,000 shares at an exercise price of not less than 75% of the
market value on the date the option is granted. All other option grants
must be made at not less than the market value on the date the option is
granted.
(2) Represents phantom share units in the Invacare Corporation 401(k) Plus
Benefit Equalization Plan ("401(k) Plus Plan") and the Invacare Corporation
Deferred Compensation Plus Plan.
The 401(k) Plus Plan was created in March 1994 as a non-qualified
contributory savings plan for highly compensated associates. The program was
offered to allow participants to defer compensation above the amount allowed in
the Invacare Retirement Savings Plan, our qualified retirement plan, and
provides the ability for additional pre-tax savings opportunities.
In addition to individual deferrals, Invacare provides a matching
contribution and a quarterly contribution. The 401(k) Plus Plan worked in tandem
with the Invacare Retirement Savings Plan, in that funds were allowed to be
transferred to the qualified plan on an annual basis, as determined by IRS
limitations. Participants may allocate contributions among an array of funds
representing a full range of risk/return profiles, including Invacare common
shares reflected in phantom share units.
The earnings in the deferral accounts are based on the net earnings of the
underlying fund. Thus, participant accounts are credited with hypothetical
appreciation, depreciation and dividends. Participants do not have any direct
interest or ownership of the funds. Participant's contributions are always 100%
vested in the plan and employer contributions vest according to a 5 year
graduated scale. All distributions from the plan are in the form of cash.
In order to address the requirements of the American Jobs Creation Act of
2004, IRC Section 409A, effective January 1, 2005, we froze the 401(k) Plus Plan
and prohibited further deferrals and contributions to the 401(k) Plus Plan for
compensation earned after December 31, 2004. All of the earned and vested
benefits of the participants in the 401(k) Plus Plan as of December 31, 2004
will be preserved under the existing plan provisions. The nonvested benefits of
participants in the 401(k) Plus Plan as of December 31, 2004 were segregated in
order to comply with new regulations.
In conjunction with the foregoing, a new Invacare Corporation Deferred
Compensation Plus Plan (the "Deferred Compensation Plus Plan") was established,
effective January 1, 2005. The Deferred Compensation Plus Plan allows certain
participants to defer all or any portion of their annual cash bonus compensation
and up to 50% of their salary earned on or after January 1, 2005 to the plan.
26
Invacare provides a matching contribution on amounts deferred, as well as a
quarterly contribution for the benefit of eligible participants. The Deferred
Compensation Plus Plan works in tandem with the Invacare Retirement Savings
Plan, in that funds may be transferred to the qualified plan on an annual basis,
as determined by IRS limitations. Employee deferrals and contributions by
Invacare for the benefit of each employee are credited with earnings, gains or
losses based on the performance of investment funds selected by the employee.
These funds generally are the same funds offered for investment under the
Invacare Retirement Savings Plan. Distributions under the Deferred Compensation
Plus Plan may be made only upon termination of the employee's employment, death,
disability or hardship, at certain times specified by the employee at the time
of deferral in accordance with the terms of the plan, or, if permitted by
applicable law, upon a change in control of Invacare. Elections to participate
in the Deferred Compensation Plus Plan must be made by the employee in
accordance with the requirements of the plan and applicable law.
Option Grants In Last Fiscal Year
The following table shows, for the Chief Executive Officer and the four
other most highly compensated executive officers, the stock options granted in
2005, which were granted under the Invacare Corporation 2003 Performance Plan.
Individual Grants
--------------------------------------------------------------------------------
Number % of Total Potential Realizable Value
of Options Exercise at Assumed Annual Rates
Securities Granted to Price of Share Price Appreciation
Underlying Employees (2) for Option Term (3)
Options in Fiscal ($ per Expiration -----------------------------------
Name Granted (1)(#) Year Share) Date 5% ($) 10% ($)
-------------------------- -------------- ------------- ----------- ------------- -----------------------------------
A. Malachi Mixon, III 120,800 21.0% 41.87 9/8/15 3,181,000 8,061,000
Gerald B. Blouch 45,400 7.9% 41.87 9/8/15 1,195,000 3,030,000
Joseph B. Richey, II 22,400 3.9% 41.87 9/8/15 590,000 1,495,000
Louis F.J. Slangen 22,400 3.9% 41.87 9/8/15 590,000 1,495,000
Gregory C. Thompson 22,400 3.9% 41.87 9/8/15 590,000 1,495,000
All Shareholders (4) N/A N/A N/A N/A 828,800,000 2,129,200,000
(1) Options granted with vesting over four years at a rate of 25% per year,
commencing in 2006. However, due to the acceleration by the Board of
Directors in December of 2005 of all options underwater on December 21,
2005 (below fair market value of $30.75), the options are 100% exercisable.
(2) The exercise price is equal to the fair market value of Invacare's common
shares as of the date of grant.
(3) Potential Realizable Value is based on assumed annual growth rates for the
10-year term of the option. The assumed rates of 5% and 10% are set by the
SEC and are not intended to be a forecast of Invacare's common share price
and are not necessarily indicative of the actual values, which may be
realized by the above executive officers or shareholders. Actual gains, if
any, on stock options exercised are dependent on the actual performance of
the stock.
(4) The potential gain realizable by all shareholders (based on 30,605,655
common shares and 1,111,965 Class B common shares outstanding at the
exercise price of $41.87 per share as of the grant date of September 8,
2005) at 5% and 10% assumed annual growth rates over a term of 10 years is
provided as a comparison to the potential gain realizable by each of the
above executive officers at the same assumed annual rates of appreciation
in share value over the same 10-year term. The value of a common share
would appreciate to approximately $68.00 per share at an assumed 5% annual
growth rate and would appreciate to approximately $109.00 at an assumed 10%
annual growth rate.
Each of the options issued includes a provision which provides that the
option shall become immediately exercisable, unless stated otherwise in the
27
option agreements, upon the commencement of a tender offer for Invacare's common
shares or the establishment of a record date for determining shareholders
entitled to vote upon a dissolution, liquidation or certain mergers or
consolidations of Invacare. Upon the occurrence of the merger or consolidation,
the option may be adjusted or amended as the Compensation, Management
Development and Corporate Governance Committee of the Board of Directors deems
appropriate and equitable. Under the terms of Invacare's stock option plans, the
Committee also may grant reload options under any circumstances as it deems
appropriate.
Option Exercises And Year-End Value Table
The table below shows information with respect to options exercised by, and
the value of unexercised options under Invacare's stock option plans for the
Chief Executive Officer and the four other most highly compensated executive
officers.
Aggregated Option Exercises in 2005 and Option Value at Year-End 2005
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Value Options at 12/31/05 (#) at 12/31/05 (2)($)
Acquired on Realized -------------------------- --------------------------
Name Exercise (#) (1) ($) Exercisable Unexercisable Exercisable Unexercisable
-------------------------- --------------- ------------ -------------------------- --------------------------
A. Malachi Mixon, III 73,400 2,179,246 1,682,650 - 8,647,708 -
Gerald B. Blouch - - 734,300 - 3,826,592 -
Joseph B. Richey, II 23,400 706,914 247,800 - 1,194,193 -
Louis F.J. Slangen - - 173,000 - 450,049 -
Gregory C. Thompson - - 159,100 - - -
(1) Represents the difference between the option exercise price and the
closing price of the common shares on the NYSE on the date of
exercise.
(2) The "Value of Unexercised In-the-Money Options at 12/31/05" is equal
to the difference between the option exercise price and the closing
price of $31.49 of a common share on the NYSE on December 31, 2005.
Pension Plans
We have established a Supplemental Executive Retirement Plan (SERP) for
certain executive officers to supplement other savings plans offered by Invacare
to provide a specific level of replacement compensation for retirement. The
normal benefit is a single-life annuity in an amount equal to a percentage of
final earnings. The maximum benefit is 50% of salary and bonus at 15 years of
service. This normal benefit is reduced by the annuitized value of Invacare
contributions to the qualified Invacare Retirement Savings Plan, Deferred
Compensation Plus Plan and past Invacare contributions to the 401(k) Plus Plan,
and one-half of the annual Social Security benefit plus other offsets. The
Company is finalizing a new SERP which is intended to work in tandem with the
original SERP to provide the same level and type of retirement benefits in
compliance with new IRC Section 409A regulations.
This plan is a nonqualified plan and thus, the benefits accrued under this
plan are subject to the claims of our general creditors if Invacare were to file
for bankruptcy. The benefits will be paid (1) from an irrevocable grantor trust
funded from our general funds or (2) directly from our general funds.
28
The following table reflects the estimated annual single-life annuity
payment, without reductions for applicable offsets, payable to a participant
retiring in 2005 at age 65.
Pension Table
Years of Service (2)(3)
----------------------------------
Remuneration (1) 5 10 15
---------------- ------- ------- -------
$200,000 $33,333 $66,667 $100,000
300,000 50,000 100,000 150,000
400,000 66,667 133,333 200,000
500,000 83,333 166,667 250,000
600,000 100,000 200,000 300,000
700,000 116,667 233,333 350,000
800,000 133,333 266,667 400,000
900,000 150,000 300,000 450,000
1,000,000 166,667 333,333 500,000
1,100,000 183,333 366,667 550,000
1,200,000 200,000 400,000 600,000
(1) Remuneration for purposes of calculating pension benefit is based on
final base salary and target bonus.
(2) These pension benefits represent annual single-life annuity values. As
of December 31, 2005, the current years of service credited are 25 for
Mr. Mixon, 16 for Mr. Blouch, 21 for Mr. Richey, 18 for Mr. Slangen
and 8 for Mr. Thompson.
(3) Mr. Blouch and Mr. Slangen were granted maximum level (50%) of
replacement compensation in recognition of valuable service to the
Company.
(4) Mr. Mixon's offset will be waived for successful management succession
planning and to recognize past contributions to Invacare.
Employment, Severance and Change in Control Agreements
Change of Control Severance Protection Agreements. To ensure continuity and
the continued dedication of key executives during any period of uncertainty
caused by the possible threat of a takeover, Invacare has entered into change of
control severance protection agreements with key executives, including each of
our five highest compensated officers. In the event there is a change of control
of Invacare and a key executive remains employed with Invacare on the first
anniversary of the change of control, the executive is entitled to receive a
retention bonus payment equal to one year's salary. If the key executive is
terminated without cause or resigns for good reason (as those terms are defined)
at any time during the three year period following a change of control under the
conditions set forth in the agreements, the executive will receive, in addition
to accrued salary, bonus and vacation pay, the following:
(1) a lump sum severance benefit equal to three times annual base salary
plus the executive's target bonus less any retention bonus paid to the
executive for being employed on the first anniversary after a change
in control;
(2) continued participation in Invacare's employee welfare benefit plans,
certain perquisites and other benefit arrangements for a period of
three years following termination or resignation;
(3) acceleration of exercisability of all stock options and a period
ending on the earlier of the expiration date of the option or two
29
years after termination or resignation, to exercise; and
(4) 401(k), Deferred Compensation Plus Plan, profit sharing and retirement
benefits (including under the SERP) so that the total retirement
benefits received will be equal to the retirement benefits which would
have been received had the executive's employment with Invacare
continued, assuming maximum compensation and contributions, during the
three year period following termination; and an additional amount
which will offset, on an after-tax basis, the effect of any excise tax
which the executive is subject to under Section 4999 of the Internal
Revenue Code relating to his receipt of "excess parachute payments."
The salary and other benefits provided by the change of control severance
protection agreements will be payable from Invacare's general funds. Invacare
has agreed to reimburse the executives for any legal expense incurred in the
enforcement of their rights under the change of control severance protection
agreements.
In October 2002, Invacare entered into a separate severance protection
agreement with Mr. Blouch as an additional incentive to retain and motivate him
as a key employee. The agreement provides that, upon Mr. Blouch's termination by
Invacare other than for cause or by Mr. Blouch for good reason, he shall be
entitled to the following amounts and benefits:
(1) compensation equal to three times the amount of his then applicable
annual base salary to be paid in three equal annual installments;
(2) 75% of his target bonus for the year in which employment ends to be
paid in three equal annual installments;
(3) any then-outstanding stock option grant or award shall immediately
vest in full as of the date of termination of employment, unless
stated otherwise in the option agreement;
(4) the exercise period of any unexercised stock option shall be extended
until the earlier of two years after the date of termination of
employment or expiration of the option, unless stated otherwise in the
option agreement. In addition, Mr. Blouch may exercise any options by
means of a cashless exercise program, so long as (a) the program is
legally allowed, and (b) Invacare is not required to recognize
additional compensation expense as a result of the exercise; and,
(5) an additional amount which will offset, on an after-tax basis, the
effect of any excise tax which Mr. Blouch is subject to under Section
4999 of the Internal Revenue Code relating to his receipt of "excess
parachute payments."
In September 2002, Invacare entered into an agreement with Mr. Thompson in
connection with the commencement of his employment. The agreement provides that,
upon Mr. Thompson's termination by Invacare other than for cause, he shall be
entitled to continuation of his then applicable base salary for one year, to
receive a pro rata portion of his target bonus for the year in which his
employment ends based on the date of termination, and to continuation of health
insurance benefits until the earlier of the end of the severance period or such
time as he obtains employment that provides such coverage.
Other Arrangements. Each of our five highest compensated executive officers
are included in the Invacare Retirement Savings Plan. Invacare makes matching
cash contributions up to 66.7% of employees' contributions up to a maximum of 3%
of such employee's compensation, makes quarterly contributions based upon 4% of
qualified wages and may make discretionary contributions to the domestic plans
based on an annual resolution by the Board. As described previously, Invacare
sponsors a non-qualified Deferred Compensation Plus Plan covering our executive
officers, which provides for employee elective deferrals and company retirement
deferrals so that the total retirement deferrals equal amounts that would have
been contributed to Invacare's principal retirement plans if it were not for
limitations imposed by income tax regulations. Furthermore, Invacare sponsors a
non-qualified defined benefit Supplemental Executive Retirement Plan (SERP) for
such executive officers. The SERP is a non-qualified plan that provides
retirement income to supplement income available from Invacare's qualified plans
and to supplement the Deferred Compensation Plus Plan, as further described
above under "Pension Plans." The target retirement benefit under the SERP is 50%
of final compensation, excluding certain enumerated offsets. The SERP also
provides a change of control benefit that accelerates vesting and service ratios
30
to allow maximum benefits to SERP participants, subject to certain offsets set
forth in the SERP.
Compensation Committee Interlocks and Insider Participation
The current members of the Compensation, Management Development and
Corporate Governance Committee of the Board of Directors are James C. Boland,
Whitney Evans and William M. Weber. There were no Compensation, Management
Development and Corporate Governance Committee interlocks or insider
participation activities in 2005.
31
SHAREHOLDER RETURN PERFORMANCE GRAPH
The following graph compares the yearly cumulative total return on
Invacare's common shares against the yearly cumulative total return of the
companies listed on the Standard & Poor's 500 Stock Index, the Russell 2000
Stock Index and the S&P Supercomposite Health Care Equipment & Supplies Index
(S&P Healthcare Index*).
[GRAPHIC OMITTED][GRAPHIC OMITTED]
2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ----
Invacare 100 98 98 121 129 93
S&P 500 100 88 69 88 98 103
Russell 2000 100 101 77 125 144 152
S&P Healthcare Index 100 97 91 127 128 131
* The S&P Supercomposite Health Care Equipment & Supplies Index is a
capitalization-weighted average index comprised of health care companies in
the S&P 1500 Index. This index contains companies that are affected by many
of the same health care trends as Invacare.
The above graph assumes $100 invested on December 31, 2000 in the common
shares of Invacare Corporation, S&P 500 Index, Russell 2000 Index and the S&P
Supercomposite Health Care Equipment & Supplies Index, including reinvestment of
dividends, through December 31, 2005.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented at the
annual meeting other than those stated in the Notice of Annual Meeting of
Shareholders. However, if other matters properly come before the annual meeting,
it is the intention of the persons named in the accompanying proxy to vote based
on their best judgment on any other matters unless instructed to do otherwise.
Any shareholder who wishes to submit a proposal for inclusion in the proxy
material to be distributed by Invacare in connection with its annual meeting of
shareholders to be held in 2007 must do so no later than December 8, 2006. To be
eligible for inclusion in our 2007 proxy material, proposals must conform to the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended.
32
Unless we receive a notice of a shareholder proposal to be brought before
the 2007 annual meeting by February 21, 2007, then Invacare may vote all proxies
in their discretion with respect to any shareholder proposal properly brought
before such annual meeting.
Upon the receipt of a written request from any shareholder, Invacare will
mail, at no charge to the shareholder, a copy of Invacare's 2005 Annual
Report on Form 10-K, including the financial statements and schedules
required to be filed with the Securities and Exchange Commission, for
Invacare's most recent fiscal year. Written requests for any Reports should
be directed to:
Shareholder Relations Department
Invacare Corporation
One Invacare Way, P.O. Box 4028
Elyria, Ohio 44036-2125
You are urged to sign and return your proxy promptly in the enclosed return
envelope to make certain your shares will be voted at the annual meeting.
By Order of the Board of Directors,
Dale C. LaPorte
Secretary
33
Appendix A
[GRAPHIC OMITTED][GRAPHIC OMITTED]
INVACARE CORPORATION
AMENDED 2003 PERFORMANCE PLAN
1. Purpose
The Invacare Corporation 2003 Performance Plan (the "Plan"), is designed to
foster the long-term growth and performance of the Company by: (a) enhancing the
Company's ability to attract and retain highly qualified employees, (b)
motivating employees to serve and promote the long-term interests of the Company
and its shareholders through stock ownership and performance-based incentives,
and (c) strengthening the Company's ability to attract, retain and incentivize
highly qualified non-employee Directors and aligning the interests of such
Directors with the interests of shareholders through stock ownership. To achieve
this purpose, the Plan provides authority for the grant of Stock Options,
Restricted Stock, Stock Equivalent Units, Stock Appreciation Rights, and other
stock and performance-based incentives.
2. Definitions
(a) "Affiliate" -- means "Affiliate" within the meaning given such term in
Rule 12b-2 under the Exchange Act.
(b) "Award" -- means the grant of Stock Options, Restricted Stock, Stock
Equivalent Units, Stock Appreciation Rights, and other stock and
performance-based incentives under this Plan, or any combination thereof.
(c) "Award Agreement" -- means any agreement between the Company and a
Participant that sets forth terms, conditions, and restrictions applicable to an
Award.
(d) "Board of Directors" -- means the Board of Directors of the Company.
(e) "Change in Control" -- means, at any time after the date of the
adoption of this Plan, the occurrence of any one or more of the following:
(i) Any Person (other than any employee benefit plan or employee stock
ownership plan of the Company, or any Person organized, appointed, or
established by the Company, for or pursuant to the terms of any such plan),
alone or together with any of its Affiliates or Associates, becomes the
Beneficial Owner of 30% or more of the total outstanding voting power of
the Company, as reflected by the power to vote in connection with the
election of Directors, or commences a tender offer or exchange offer, the
consummation of which would result in the Person becoming the Beneficial
Owner of 30% or more of the total outstanding voting power of the Company
as reflected by the power to vote in connection with the election of
Directors. For purposes of this Section 2(e)(i), the terms "Affiliates,"
"Associates," and "Beneficial Owner," will have the meanings given to them
in the Rights Agreement, dated as of April 2, 1991, between Invacare
Corporation and National City Bank, as Rights Agent, as amended from time
to time, or in any restatement thereof, or in any replacement Rights
Agreement.
(ii) At any time during a period of 24 consecutive months, individuals
who were Directors at the beginning of the period no longer constitute a
majority of the members of the Board of Directors, unless the election, or
the nomination for election by the Company's shareholders, of each Director
who was not a Director at the beginning of the period is approved by at
least a majority of the Directors who are in office at the time of the
election or
A-1
nomination and who either were Directors at the beginning of the period or
are Continuing Directors (or such nomination is approved by a committee
comprised solely of such Directors).
(iii) A record date is established for determining shareholders
entitled to vote upon (A) a merger or consolidation of Invacare Corporation
with another corporation (which is not an affiliate of Invacare Corporation
in which Invacare Corporation is not the surviving or continuing
corporation or in which all or part of the outstanding Common Shares are to
be converted into or exchanged for cash, securities, or other property, (B)
a sale or other disposition of all or substantially all of the assets of
Invacare Corporation, or (C) the reorganization, dissolution or liquidation
(but not partial liquidation) of Invacare Corporation.
(iv) The occurrence of any other event or series of events, which, in
the opinion of the Board of Directors, will, or is likely to, if carried
out, result in a change of control of Invacare Corporation.
(f) "Code" -- means the Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time. A reference to any
provision of the Code includes a reference to any lawful regulation or
pronouncement promulgated thereunder and to any successor provision.
(g) "Committee" -- means the Compensation, Management Development and
Corporate Governance Committee of the Board of Directors, or any other committee
of the Board of Directors that the Board of Directors or the Compensation
Committee authorizes to administer all or any aspect of this Plan.
(h) "Common Shares" -- means Common Shares, without par value, of Invacare
Corporation, including authorized and unissued Common Shares and treasury Common
Shares.
(i) "Company" -- means Invacare Corporation, an Ohio corporation, and its
direct and indirect subsidiaries, or any successor entity.
(j) "Continuing Director" -- means a Director who was a Director prior to a
Change in Control or was recommended or elected to succeed a Continuing Director
by a majority of the Continuing Directors then in office (or by a committee
comprised solely of Continuing Directors).
(k) "Director" -- means any individual who is a member of the Board of
Directors of the Company.
(l) "Exchange Act" -- means the Securities Exchange Act of 1934, and any
law that supersedes or replaces it, as amended from time to time.
(m) "Fair Market Value" of Common Shares -- means the value of the Common
Shares determined by the Committee, or pursuant to rules established by the
Committee.
(n) "Incentive Stock Option" -- means a Stock Option that meets the
requirements of Section 422 of the Code, or any successor or replacement
provision.
(o) "Notice of Award" -- means any notice by the Committee to a Participant
that advises the Participant of the grant of an Award or sets forth terms,
conditions, and restrictions applicable to an Award.
(p) "Participant" -- means any person to whom an Award has been granted
under this Plan.
(q) "Performance Objectives" -- means the achievement of performance
objectives established pursuant to this Plan. Performance Objectives may be
described in terms of Company-wide objectives or objectives that are related to
the performance of the individual Participant or the subsidiary, division,
department or function within the Company in respect of which the Participant
performs services during a specified time period. Any Performance Objectives
applicable to Awards intended to qualify as "performance-based compensation"
under Section 162(m) of the Code (the "Performance-Based Exception") shall be
limited to specified levels of or increases in the Company's, or subsidiary's,
or division's, or department's, or function's return on equity, earnings per
Common Share, total earnings, earnings growth, return on capital, operating
measures (including, but not limited to, operating margin and/or operating
costs), return on assets, or increase in the Fair Market Value of the Common
A-2
Shares. Except in the case of such an Award intended to qualify under Section
162(m) of the Code, if the Committee determines that a change in the business,
operations, corporate structure or capital structure of the Company, or the
manner in which it conducts its business, or other events or circumstances
render the Performance Objectives unsuitable, the Committee may modify such
Performance Objectives or the related minimum acceptable level of achievement,
in whole or in part, as the Committee deems appropriate and equitable.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the pre-established Performance Objectives; provided,
however, that Awards which are designed to qualify for the Performance-Based
Exception, may not be adjusted upward (the Committee shall retain the discretion
to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
(r) "Person" -- means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a governmental authority.
(s) "Plan" -- means this Invacare Corporation 2003 Performance Plan, as set
forth herein and as hereafter may be amended from time to time in accordance
with the terms hereof.
(t) "Restricted Stock" -- means an Award of Common Shares that are subject
to restrictions or risk of forfeiture based on time and/or performance.
(u) "Rule 16b-3" -- means Rule 16b-3 under the Exchange Act, or any rule
that supersedes or replaces it, as amended from time to time.
(v) "Stock Appreciation Right" -- means any rights granted pursuant to an
Award described in Section 6(b)(i).
(w) "Stock Award" -- means Awards granted in Section 6(b)(ii).
(x) "Stock Equivalent Unit" -- means an Award that is valued by reference
to the value of Common Shares.
(y) "Stock Option" -- means an option to purchase Common Shares as
described in Section 6(b)(iii).
3. Eligibility
All Directors and employees of the Company and its Affiliates are eligible
for the grant of Awards. The selection of any such persons to receive Awards
will be within the discretion of the Committee. More than one Award may be
granted to the same person.
Notwithstanding the foregoing, any individual who renounces in writing any
right that he or she may have to receive Awards under the Plan shall not be
eligible to receive any Awards hereunder.
4. Common Shares Available for Awards; Adjustment
(a) Number of Common Shares. The aggregate number of Common Shares that may
be subject to Awards, including specifically Incentive Stock Options, granted
under this Plan during the term of this Plan will be equal to Three Million
Eight Hundred Thousand (3,800,000) Common Shares, subject to any adjustments
made in accordance with the terms of this Section 4.
A-3
The assumption of obligations in respect of awards granted by an
organization acquired by the Company, or the grant of Awards under this Plan in
substitution for any such awards, will not reduce the number of Common Shares
available in any fiscal year for the grant of Awards under this Plan.
Common Shares subject to an Award that is forfeited, terminated, or
canceled without having been exercised (other than Common Shares subject to a
Stock Option that is canceled upon the exercise of a related Stock Appreciation
Right) will again be available for grant under this Plan, without reducing the
number of Common Shares available in any fiscal year for grant of Awards under
this Plan, except to the extent that the availability of those Common Shares
would cause this Plan or any Awards granted under this Plan to fail to qualify
for the exemption provided by Rule 16b-3. In addition, any Common Shares which
are retained to satisfy a Participant's withholding tax obligations or which are
transferred to the Company by a Participant to satisfy such obligations or to
pay all or any portion of the exercise price of the Award in accordance with the
terms of the Plan, the Award Agreement or the Notice of Award, may be made
available for reoffering under the Plan to any Participant, except to the extent
that the availability of those Common Shares would cause this Plan or any Awards
granted under this Plan to fail to qualify for the exemption provided by Rule
16b-3.
(b) No Fractional Common Shares. No fractional Common Shares will be
issued, and the Committee will determine the manner in which the value of
fractional Common Shares will be treated.
(c) Adjustment. In the event of any change in the Common Shares by reason
of a merger, consolidation, reorganization, recapitalization, or similar
transaction, including any transaction described under Section 424(a) of the
Code, or in the event of a stock dividend, stock split, reverse stock split, or
distribution to shareholders (other than normal cash dividends), the Committee
will have authority to adjust, in any manner that it deems equitable, the number
and class of Common Shares that may be issued under this Plan, the number and
class of Common Shares subject to outstanding Awards, the per share exercise
price applicable to outstanding Awards, and the Fair Market Value of the Common
Shares and other value determinations applicable to outstanding Awards (i.e.,
Stock Equivalent Units, for example), including as may be allowed or required
under Section 424(a) of the Code.
5. Administration
(a) Committee. This Plan will be administered by the Committee; provided,
however, that the Board of Directors may, in its discretion, at any time and
from time to time, administer the Plan in which case the term "Committee" shall
be deemed to be the Board of Directors. The Committee will, subject to the terms
of this Plan, have the authority to: (i) select the eligible employees who will
receive Awards, (ii) grant Awards, (iii) determine the number and types of
Awards to be granted to eligible employees, (iv) determine the terms,
conditions, vesting periods, and restrictions applicable to Awards, including
timing, price, and, if applicable, Performance Objectives, subject to, and
consistent with, the provisions of the Plan, (v) adopt, alter, and repeal
administrative rules and practices governing this Plan, (vi) interpret the terms
and provisions of this Plan and any Awards granted under this Plan, including,
where applicable, determining the method of valuing any Award and certifying as
to the satisfaction of such Awards, (vii) prescribe the forms of any Notices of
Award, Award Agreements, or other instruments relating to Awards, (viii)
supervise the administration of this Plan, and (ix) make all other
determinations and take all other actions as the Committee deems necessary for
the administration and operation of the Plan. The Committee may employ
attorneys, consultants, accountants, or other professional advisors to assist it
in the administration of the Plan.
(b) Delegation. The Committee may delegate any of its authority to any
other person or persons that it deems appropriate.
(c) Decisions Final. All decisions by the Committee, and by any other
Person or Persons to whom the Committee has delegated authority, to the extent
permitted by law, will be final and binding on all Persons.
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(d) No Liability. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
6. Awards
(a) Grant of Awards. The Committee will determine the type or types of
Awards to be granted to each Participant and will set forth in the related
Notice of Award or Award Agreement the terms, conditions, vesting periods, and
restrictions applicable to each Award. Awards may be granted singly or in
combination or tandem with other Awards. Awards may also be granted in
replacement of, or in substitution for, other awards granted by the Company,
whether or not granted under this Plan; without limiting the foregoing, if a
Participant pays all or part of the exercise price or taxes associated with an
Award by the transfer of Common Shares or the surrender of all or part of an
Award (including the Award being exercised), the Committee may, in its
discretion, grant a new Award to replace the Common Shares that were transferred
or the Award that was surrendered. The Company may assume obligations in respect
of awards granted by any Person acquired by the Company or may grant Awards in
replacement of, or in substitution for, any such awards. In no event shall any
Stock Option or Stock Appreciation Right be granted to a Participant in exchange
for the Participant's agreement to permit the cancellation of one or more Stock
Options or Stock Appreciation Rights previously granted to such Participant if
the exercise price of the new grant is lower than the exercise price of the
cancelled grant. Moreover, in no event shall a previously granted Stock Option
or Stock Appreciation Right be amended to reduce the exercise price, except in
accordance with an adjustment pursuant to Section 4(c).
(b) Types of Awards. Awards may include, but are not limited to, the
following:
(i) Stock Appreciation Right -- means a right to receive a payment, in
cash or Common Shares, equal to the excess of (A) the Fair Market Value, or
other specified valuation, of a specified number of Common Shares on the
date the right is exercised over (B) the Fair Market Value, or other
specified valuation, of such Common Shares on the date the right is
granted, all as determined by the Committee. The right may be conditioned
upon the occurrence of certain events, such as a Change in Control of the
Company, or may be unconditional, as determined by the Committee.
(ii) Stock Award -- means an Award that is made in Common Shares,
Restricted Stock, or Stock Equivalent Units or that is otherwise based on,
or valued in whole or in part by reference to, the Common Shares, but does
not include Stock Options. All or part of any Stock Award may be subject to
conditions (including, but not limited to, the passage of time or the
achievement of Performance Objectives), restrictions, and risks of
forfeiture, as and to the extent established by the Committee. Stock Awards
may be based on the Fair Market Value of the Common Shares, or on other
specified values or methods of valuation, as determined by the Committee.
(iii) Stock Option -- means a right to purchase a specified number of
Common Shares, during a specified period, and at a specified exercise
price, all as determined by the Committee. A Stock Option may be an
Incentive Stock Option or a Stock Option that does not qualify as an
Incentive Stock Option. The term of each Stock Option shall be fixed by the
Committee, but in no event shall the term exceed ten years after the date
such Stock Option is granted. In addition to the terms, conditions, vesting
periods, and restrictions established by the Committee, Incentive Stock
Options must comply with the requirements of Section 422 of the Code and
regulations promulgated thereunder, including, but not limited to, the
requirements that Incentive Stock Options (A) may not be granted to
non-employee Directors, and (B) the aggregate Fair Market Value of the
Common Shares that first becomes exercisable in any calendar year shall not
exceed $100,000 (measured as of the effective grant date of the Award). The
exercise price of a Stock Option may not be less than 100% of the Fair
Market Value on the date the Stock Option is granted; provided, however, up
to 200,000 Common Shares for which Stock Options that do not qualify as
Incentive Stock Options may be granted may have an exercise price of not
less than 75% of the Fair Market Value on the date such Stock Option is
granted, subject to adjustment in accordance with Section 4(c) hereof.
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(c) Limits on Awards under the Plan. The maximum aggregate number of Common
Shares that may be granted during the term of this Plan pursuant to all Awards,
other than Stock Options, is 300,000 Common Shares, subject to adjustment in
accordance with Section 4(c) hereof.
(d) Limits on Individual Awards. The maximum aggregate number of Common
Shares for which Stock Options may be granted to any particular employee during
any calendar year during the term of this Plan is 400,000 Common Shares, subject
to adjustment in accordance with Section 4(c) hereof. The maximum aggregate
number of Common Shares for each of (i) Stock Appreciation Rights and (ii) other
Stock Awards which may be granted to any particular employee during any calendar
year during the term of this Plan is 50,000 Common Shares (or 100,000 Common
Shares in the aggregate), subject to adjustment in accordance with Section 4(c)
hereof.
7. Deferral of Payment
With the approval of the Committee, the delivery of the Common Shares,
cash, or any combination thereof subject to an Award, or the Award itself, may
be deferred, either in the form of installments or a single future delivery. The
Committee also may permit selected Participants to defer the receipt of some or
all of their Awards, as well as other compensation, in accordance with
procedures established by the Committee, including to assure that the
recognition of taxable income is deferred under the Code. Deferred amounts may,
to the extent permitted by the Committee, be credited as cash or Stock
Equivalent Units. The Committee also may establish rules and procedures for the
crediting of interest on deferred cash payments and dividend equivalents on
Stock Equivalent Units.
8. Payment of Exercise Price
The exercise price of a Stock Option (other than an Incentive Stock Option)
and any Stock Award for which the Committee has established an exercise price
may be paid in cash, by the transfer of Common Shares, by the surrender of all
or part of an Award (including the Award being exercised), or by a combination
of these methods, as and to the extent permitted by the Committee. The exercise
price of an Incentive Stock Option may be paid in cash, by the transfer of
Common Shares, or by a combination of these methods, as and to the extent
permitted by the Committee but may not be paid by the surrender of all or part
of an Award. The Committee may prescribe any other method of paying the exercise
price that it determines to be consistent with applicable law and the purpose of
this Plan.
In the event Common Shares that are Restricted Stock are used to pay the
exercise price of a Stock Award to the extent provided by the Committee, then
that number of the Common Shares issued upon the exercise of the Award equal to
the number of Common Shares that are Restricted Stock that have been used to pay
the exercise price will be subject to the same restrictions as the Restricted
Stock.
9. Taxes Associated with Award
Prior to the payment of an Award or upon the exercise or release thereof,
the Company may withhold, or require a Participant to remit to the Company, an
amount sufficient to pay any Federal, state, and local taxes associated with the
Award. The Committee may, in its discretion and subject to such rules as the
Committee may adopt, permit a Participant to pay any or all taxes associated
with the Award (other than an Incentive Stock Option) in cash, by the transfer
of Common Shares, by the surrender of all or part of an Award (including the
Award being exercised), or by a combination of these methods. The Committee may
permit a Participant to pay any or all taxes associated with an Incentive Stock
Option in cash, by the transfer of Common Shares, or by a combination of these
methods or by any other method which does not disqualify the option as an
Incentive Stock Option under applicable provisions of the Code. If Common Shares
are used to satisfy withholding tax obligations, such Common Shares shall be
valued based on the Fair Market Value thereof as of the date when the
withholding for taxes is required to be made. Notwithstanding the foregoing,
except as otherwise provided by the Committee or in the terms of the Award, the
Company shall have the right to require a Participant to pay cash to satisfy
withholding taxes as a condition to the payment of any Award (whether in cash or
Common Shares) under the Plan.
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10. Termination of Employment
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid only in
accordance with rules established by the Committee or as specified in the
particular Award Agreement or Notice of Award. Such rules may provide, as the
Committee deems appropriate, for the expiration, continuation, or acceleration
of the vesting of all or part of the Awards, provided that any such rules shall
comply with Section 422 of the Code to the extent such Award is intended to
qualify as an Incentive Stock Option.
11. Termination of Awards Under Certain Conditions
The Committee may cancel any unexpired, unpaid, or deferred Awards at any
time if the Participant is not in compliance with all applicable provisions of
this Plan or with any Notice of Award or Award Agreement. Further, if the
Participant, without the prior written consent of the Company, engages in any of
the following activities:
(i) Within eighteen (18) months after the date a Participant
terminates his or her employment with the Company or its Affiliates for any
reason, the Participant then accepts employment with any competitor of the
Company, or otherwise renders services for an organization, or engages in a
business, that is, in the judgment of the Committee, in competition with
the Company, or
(ii) Discloses to anyone outside of the Company, or uses for any
purpose other than the Company's business any confidential information or
material relating to the Company, whether acquired by the Participant
during or after employment with the Company, in a fashion or with a result
that the Committee, in its judgment, deems is or may be injurious to the
best interests of the Company;
then the Committee may, in its discretion, at any time thereafter, cancel any
unexpired, unpaid or deferred Awards or may require the Participant to return
the economic value of any Award that the Participant realized or obtained (as of
the date of exercise, vesting or payment) during the time period commencing six
months prior to such Participant's termination date and ending after the date
when all of the Committee members discover that the Participant engaged in any
activities referred to in clauses (i) and (ii) above.
The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and of any Notice of
Award or Award Agreement and has not engaged in any activities referred to in
clauses (i) and (ii) above.
12. Change in Control
In the event of a Change in Control of the Company, unless and only then to
the extent otherwise determined by the Board of Directors or as otherwise
prescribed in an Award Agreement, (i) all Stock Appreciation Rights and Stock
Options then outstanding will become fully exercisable as of the date of the
Change in Control, and (ii) all restrictions and conditions applicable to
Restricted Stock and other Stock Awards will be deemed to have been satisfied as
of the date of the Change in Control. Any such determination by the Board of
Directors that is made after the occurrence of a Change in Control will not be
effective unless a majority of the Directors then in office are Continuing
Directors and the determination is approved by a majority of the Continuing
Directors.
13. Amendment, Suspension, or Termination of this Plan; Amendment of
Outstanding Awards
(a) Amendment, Suspension, or Termination of this Plan. The Board of
Directors may amend, suspend, or terminate this Plan at any time and from time
to time in such respects as the Board of Directors may deem necessary or
appropriate; provided, however, that in no event, without the approval of the
Company's shareholders, shall any action of the Committee or the Board of
A-7
Directors result in increasing, except as provided in Section 4(c) hereof, the
maximum number of Common Shares that may be subject to Awards granted under the
Plan.
(b) Amendment of Outstanding Awards. The Committee may, in its discretion,
amend the terms of any Award, prospectively or retroactively, but no such
amendment may impair the rights of any Participant without his or her consent,
or reduce the exercise price of any Stock Option or Stock Appreciation Right,
except in accordance with an adjustment pursuant to Section 4(c). The Committee
may, in whole or in part, waive any restrictions or conditions applicable to, or
accelerate the vesting of, any Award.
14. Awards to Foreign Nationals and Employees Outside the United States
To the extent that the Committee deems appropriate to comply with foreign
law or practice and to further the purpose of this Plan, the Committee may,
without amending this Plan, (i) establish special rules applicable to Awards
granted to Participants who are foreign nationals, are employed outside the
United States, or both, including rules that differ from those established under
this Plan, and (ii) grant Awards to such Participants in accordance with those
rules.
15. Miscellaneous Terms
(a) Nonassignability. Unless and except to the extent otherwise determined
by the Committee (which may be contained in the applicable Award Agreement or
Notice of Award), (i) no Award granted under the Plan may be transferred or
assigned by the Participant to whom it is granted other than by will or pursuant
to the laws of descent and distribution, and (ii) an Award granted under this
Plan may be exercised, during the Participant's lifetime, only by the
Participant or guardian or other legal representative.
(b) No Rights as Employees/Shareholders. Nothing in the Plan or in any
Award Agreement or Notice of Award shall confer upon any Participant any right
to continue in the employ of the Company or an Affiliate, or to serve as a
member of the Board of Directors or to be entitled to receive any remuneration
or benefits not set forth in the Plan or such Award Agreement or Notice of
Award, or to interfere with or limit either the right of the Company or an
Affiliate to terminate the employment of such Participant at any time or the
right of the shareholders of the Company to remove him or her as a member of the
Board of Directors with or without cause. Nothing contained in the Plan or in
any Award Agreement or Notice of Award shall be construed as entitling any
Participant to any rights of a shareholder as a result of the grant of an Award
until such time as Common Shares are actually issued to such Participant
pursuant to the exercise of a Stock Option, Stock Appreciation Right or other
Stock Award.
(c) Unfunded Plan. The Plan shall be unfunded and the Company shall not be
required to segregate any assets that may at any time be represented by Awards
under the Plan. Any liability of the Company to any person with respect to any
Award under the Plan shall be based solely upon any contractual obligations that
may be effected pursuant to the Plan. No such obligation of the Company shall be
deemed to be secured by any pledge of, or other encumbrance on, any property of
the Company.
(d) Other Company Benefit and Compensation Programs. Payments and other
benefits received by a Participant under an Award made pursuant to the Plan
shall not be deemed a part of a Participant's regular, recurring compensation
for purposes of any termination indemnity or severance pay law of any country
and shall not be included in, nor have any effect on, the determination of
benefits under any pension or other employee benefit plan or similar arrangement
provided by the Company or any Affiliate, unless (i) expressly so provided by
such other plan or arrangement or (ii) the Committee expressly determines that
an Award or a portion thereof should be included as recurring compensation.
Nothing contained in the Plan shall prohibit the Company or any Affiliate from
establishing other special awards, incentive compensation plans, compensation
programs and other similar arrangements providing for the payment of
performance, incentive or other compensation to employees. Payments and benefits
A-8
provided to any employee under any other plan shall be governed solely by the
terms of such other plan.
(e) Securities Law Restrictions. In no event shall the Company be obligated
to issue or deliver any Common Shares or other Awards if such issuance or
delivery shall constitute a violation of any provisions of any law or regulation
of any governmental authority or securities exchange. No Common Shares or other
Awards shall be issued under the Plan unless counsel for the Company shall be
satisfied that such issuance will be in compliance with all applicable Federal
and state securities laws and regulations and all requirements of any securities
exchange on which the Common Shares are listed.
(f) Invalidity. In the event any provision of the Plan shall be held to be
invalid or unenforceable for any reason, such invalidity or unenforceability
shall not affect the remaining provisions of the Plan.
(g) Successors. All obligations of the Company with respect to Awards
granted under the Plan are binding on any successor to the Company, whether as a
result of a direct or indirect purchase, merger, consolidation or otherwise of
all or substantially all of the business and/or assets of the Company.
(h) Governing Law. The interpretation, validity, and enforcement of this
Plan will, to the extent not otherwise governed by the Code or the securities
laws of the United States, be governed by the laws of the State of Ohio.
16. Effective and Termination Dates
(a) Effective Date. This Plan will be effective on May 21, 2003, upon
approval by the shareholders of the Company at the 2003 annual meeting of
shareholders.
(b) Termination Date. This Plan will continue in effect until midnight on
May 20, 2013; provided, however, that Awards granted on or before that date may
extend beyond that date and restrictions and other terms and conditions imposed
on Restricted Stock or any other Award granted on or before that date may extend
beyond such date.
IN WITNESS WHEREOF, the undersigned by its duly authorized officer, has
hereunto set forth its signatures as of the effective date of the Plan.
INVACARE CORPORATION
By: /s/ A. Malachi Mixon, III
-------------------------
A. Malachi Mixon, III,
Chairman of the Board and
Chief Executive Officer
By: /s/ Gregory C. Thompson
-------------------------
Gregory C. Thompson,
Senior Vice President and
Chief Financial Officer
A-9
Appendix B
PROXY FOR COMMON SHARES AND CLASS B COMMON SHARES
Annual Meeting of Shareholders --- May 25, 2006
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby (i) appoints GERALD B. BLOUCH, GREGORY C. THOMPSON and
DALE C. LAPORTE, and each of them, as Proxy holders and attorneys, with full
power of substitution, to appear and vote all the Common Shares and Class B
Common Shares of INVACARE CORPORATION (the "Company"), which the undersigned
shall be entitled to vote at the Annual Meeting of Shareholders of the Company,
to be held at the Lorain County Community College, Spitzer Conference Center,
Grand Room, 1005 North Abbe Road, Elyria, Ohio on Thursday, May 25, 2006 at
10:00 A.M. (EDT) and at any adjournments thereof, hereby revoking any and all
Proxies heretofore given, and (ii) authorizes and directs said Proxy holders to
vote all the Common Shares and Class B Common Shares of the Company represented
by this Proxy on the reverse side.
Dated: ______________________________________ , 2006
______________________________________
Signature
______________________________________
(Signature if held jointly)
Your signature to the Proxy form should be
exactly the same as the name imprinted hereon.
Persons signing as executors,administrators,
trustees or in similar capacities should so
indicate. For joint accounts, the name of each
joint owner must be signed.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ACCOMPANYING ENVELOPE.
--------------------------------------------------------------------------------
INVACARE CORPORATION PROXY
This proxy, when properly executed, will vote shares with the understanding that
if no directions are given below, said shares will be voted "FOR" the election
of the three Directors nominated by the Board of Directors and "FOR" each of the
other proposals.
(1) ELECTION of Directors each to serve a three year term ending in 2009.
( ) FOR all nominees listed ( ) WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
James C. Boland Gerald B. Blouch William M. Weber
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.)
--------------------------------------------------------------------------
(2) PROPOSAL to approve and adopt an amendment to the Invacare Corporation 2003
Performance Plan.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(3) PROPOSAL to ratify appointment of Ernst & Young LLP as the Company's
independent auditors.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(4) In their discretion to act on any other matters which may properly come
before the Annual Meeting.
(Continued and to be signed on other side)
Appendix C
COMMON SHARES AND CLASS B COMMON SHARES
VOTING INSTRUCTION CARD
Annual Meeting of Shareholders --- May 25, 2006
This Card is solicited on behalf of the trustees of the
Invacare Retirement Savings Plan
The undersigned hereby instructs the trustees of the Invacare Retirement Savings
Plan to vote the Common Shares and Class B Common Shares of INVACARE CORPORATION
(the "Company") which the undersigned is entitled to vote as a participant in an
employee benefit plan which may be funded by the Invacare Retirement Savings
Plan at the Annual Meeting of Shareholders of the Company, to be held at the
Lorain County Community College, Spitzer Conference Center, Grand Room, 1005
North Abbe Road, Elyria, Ohio on Thursday, May 25, 2006 at 10:00 A.M. (EDT) and
at any adjournments thereof. The undersigned authorizes and directs the trustees
of the Invacare Retirement Savings Plan to vote all the Common Shares and Class
B Common Shares of the Company represented by this Card on the reverse side.
Dated: ______________________________________ , 2006
______________________________________
Signature
______________________________________
(Signature if held jointly)
Your signature to the Instruction Card form
should be exactly the same as the name
imprinted hereon. Persons signing as
executors,administrators, trustees or in
similar capacities should so indicate. For
joint accounts, the name of each joint owner
must be signed.
PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ACCOMPANYING ENVELOPE.
--------------------------------------------------------------------------------
INVACARE CORPORATION VOTING INSTRUCTION CARD
This voting instruction card, when properly executed, will vote shares with the
understanding that if no directions are given below, said shares will be voted
"FOR" the election of the three Directors nominated by the Board of Directors
and "FOR" each of the other proposals.
(1) ELECTION of Directors each to serve a three year term ending in 2009.
( ) FOR all nominees listed ( ) WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed
James C. Boland Gerald B. Blouch William M. Weber
(Instruction: To withhold authority to vote for any individual nominee,
write that nominee's name on the following line.)
--------------------------------------------------------------------------
(2) PROPOSAL to approve and adopt an amendment to the Invacare Corporation 2003
Performance Plan.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(3) PROPOSAL to ratify appointment of Ernst & Young LLP as the Company's
independent auditors.
( ) FOR ( ) AGAINST ( ) ABSTAIN
(4) In their discretion to act on any other matters which may properly come
before the Annual Meeting.
(Continued and to be signed on other side)