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INVACARE CORPORATION
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[GRAPHIC OMITTED][GRAPHIC OMITTED]
Invacare Corporation
One Invacare Way
Elyria, Ohio 44035
April 8, 2005
To the Shareholders of
INVACARE CORPORATION:
This year's Annual Meeting of Shareholders will be held at 10:00 A.M.
(EDT), on Wednesday, May 25, 2005, 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
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Invacare Corporation
Notice of Annual Meeting of Shareholders
To Be Held On May 25, 2005
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 Wednesday, May 25, 2005, at 10:00 A.M. (EDT),
for the following purposes:
1. To elect four directors to the class whose three-year term will expire
in 2008;
2. To approve and adopt the Invacare Corporation Executive Incentive
Bonus Plan;
3. To ratify the appointment of Ernst & Young LLP as our independent
auditors for our 2005 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 Thursday, March 31, 2005 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 8, 2005
[GRAPHIC OMITTED][GRAPHIC OMITTED]
Invacare Corporation
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Proxy Statement
For the Annual Meeting of Shareholders
May 25, 2005
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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, 2005 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 8, 2005.
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, 2005, 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 30,427,381 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, 2005 and ten votes for each outstanding
Class B common share you own as of March 31, 2005.
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 blue
lined proxy 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 four nominated directors to the class
whose three-year term will expire in 2008;
o "For" the approval and adoption of the Invacare Corporation
Executive Incentive Bonus Plan; and
o "For" ratifying the appointment of Ernst & Young LLP as our
independent auditors for our 2005 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 other director or
directors indicated. Abstentions and broker non-votes will have
no effect on the election of directors.
o Approval and Adoption of the Invacare Corporation Executive
Incentive Bonus Plan (Proposal No. 2). The approval and adoption
of the Invacare Corporation Executive Incentive Bonus 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 Executive Incentive Bonus 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 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, 41,547,031 votes were outstanding;
therefore, shareholders representing at least 20,773,516 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
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.
2
ELECTION OF DIRECTORS
(Proposal No. 1)
At the annual meeting, four directors will be elected to serve a three-year
term until the annual meeting in 2008 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 four nominees or for
persons other than those named below and any substitute nominee for any of them.
Nominees for Terms Expiring in 2008
Michael F. Delaney, 56, has been a director since 1986. Since 1983, Mr.
Delaney has been the Associate Director of Development of the Paralyzed Veterans
of America, Washington, D.C. In October 2003, Mr. Delaney's title changed to
Development Officer, Corporate Marketing.
C. Martin Harris, M.D., 48, 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. Dr. Harris is a director of CareScience, Inc. (NasdaqNM),
Philadelphia, Pennsylvania, a provider of care management services.
Bernadine P. Healy, M.D., 60, has been a director since 1996. Dr. Healy has
been a Medical and Health Columnist 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 was appointed to 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 served as 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. Dr. Healy also serves as a director of Ashland,
Inc. (NYSE), Covington, Kentucky, a company in specialized petroleum products;
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. Dr. Healy also has been a Medical Contributor for CBS
News.
A. Malachi Mixon, III, 64, has been a director since 1979. Mr. Mixon has
been Chief Executive Officer since 1979 and Chairman of the Board since 1983 and
also served as President until 1996, when Gerald B. Blouch, Chief Operating
Officer, was elected 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.
Invacare's Board of Directors recommends that shareholders vote "FOR" the
election of the four directors to the class whose three-year term will expire in
2008.
3
Directors whose Terms Will Expire in 2007
Gerald B. Blouch, 58, 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, Cleveland, Ohio, a privately held company, which
develops and markets electromedical stimulation systems for stroke patients.
John R. Kasich, 52, 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 Instinet Group Inc. (NasdaqNM), New York, New York, an electronic agency
securities broker, and 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, 65, has been a director since 1980. Mr. Moore has been
President of Dan T. Moore Co. since 1979 and is Chairman of two advanced
materials manufacturing companies: Flow Polymers, Inc. and Team Wendy since
2002. He is a director of Hawk Corporation (AMEX), 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
Industries, Inc., a wholly owned subsidiary 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, 68, 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, Chairman
of the Board of Directors and CEO of NeuroControl Corporation, Cleveland, Ohio,
a privately held company, which develops and markets electromedical stimulation
systems for stroke patients, is a member of the Board of Trustees for Case
Western Reserve University and The Cleveland Clinic Foundation.
Directors Whose Terms Will Expire in 2006
James C. Boland, 65, 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. 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, The Goodyear Tire & Rubber Company (NYSE), Akron, Ohio, one of the
world's leading manufacturers of tires and rubber products, International Steel
Group, Inc. (NYSE), Cleveland, Ohio, a manufacturer and distributor of
diversified steel products, and is a Trustee of Bluecoats, Inc. and The Harvard
Business School Club of Cleveland.
Whitney Evans, 68, has been a director since 1980. From 1980 to the
present, Mr. Evans has been a private investor. From 1998 to 2000, Mr. Evans was
4
a director of Victory Technology, Inc. and was Chairman of its Board of
Directors. Victory Technology, Inc. was an Internet based distance learning
company based in Sonoma, California. From 1983 to 1997, Mr. Evans was an officer
and a director of Pine Tree Investments, Inc., Cleveland, Ohio, a business and
real estate investment firm.
William M. Weber, 65, has been a director since 1988. In 1994, Mr. Weber
became President of Roundcap L.L.C. and a principal of Roundwood Capital L.P., a
partnership that invests 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.
APPROVAL AND ADOPTION OF THE EXECUTIVE INCENTIVE BONUS PLAN
(Proposal No. 2)
General
We are asking our shareholders to approve the Invacare Corporation
Executive Incentive Bonus Plan (the "Executive Bonus Plan" or the "Plan"). The
Executive Bonus Plan was unanimously approved and adopted by the Compensation,
Management Development and Corporate Governance Committee of the Board of
Directors (the "Compensation Committee") as of March 2, 2005, subject to
shareholder approval. The Board of Directors recommends that shareholders
approve and adopt the Plan. The description of the Executive Bonus Plan below is
merely a summary of the Plan's provisions. The complete text of the Plan is
attached as Appendix A to this proxy statement.
If approved by our shareholders, the Plan will supercede and replace our
current executive bonus program for 2005 and subsequent years.
Reason for Seeking Shareholder Approval
We are seeking shareholder approval of the Executive Bonus Plan so that we
can continue to attract and retain qualified executives and so that amounts paid
under the Plan will be deductible for federal income tax purposes pursuant to
Section 162(m) of the Internal Revenue Code of 1986, as amended ( "Section
162(m)"). Section 162(m) limits the deductibility of compensation in excess of
$1 million to top executive officers, unless such compensation is "performance
based."
To the extent practicable, we structure our compensation programs to
preserve the full deductibility of compensation paid to our executive officers
under Section 162(m). Accordingly, at the direction of the Compensation
Committee, the Executive Bonus Plan has been submitted to our shareholders for
approval so that compensation paid under the Plan may qualify for the
"performance based" compensation exception provided for in Section 162(m) and,
thus, be fully deductible by us.
Purpose
The Executive Bonus Plan is intended to reward participants based upon our
performance. Specifically, the Plan is intended to:
o To provide an incentive to our executive officers to improve our
operating results; and
o Enable us to recruit and retain key officers by making our
overall compensation program competitive with compensation
programs of other companies with which we compete for executive
talent.
Administration
The Plan will be administered by the Compensation Committee, or a committee
consisting of not less than three non-employee directors, each of whom satisfies
the requirements for an "outside director" as defined under Section 162(m) (the
"Committee"). The Committee generally has the authority to determine the manner
in which the Executive Bonus Plan will operate, to interpret the provisions of
the Plan and to make all determinations under the Plan.
6
Eligibility and Participation
All officers of Invacare will be eligible to be selected to participate in
the Executive Bonus Plan. The Committee will have the discretion to select those
officers who will participate in the Plan in any given year. A participant must
be employed by Invacare on the payment date in order to receive an award under
the Executive Bonus Plan, unless the officer's employment terminated prior to
the payment as a result of death, disability, or retirement. Unless the
Committee determines otherwise, an officer whose employment terminates for any
other reason prior to the payment date will not be eligible to receive a bonus
award.
For 2005, the Committee has determined that the eligible participants under
the Plan are Messrs. Mixon, Blouch, Thompson, Richey, Slangen and Usaj, if the
Plan is approved by our shareholders.
Awards under the Executive Bonus Plan
Awards under the Plan are designed to ensure that the compensation of our
officers is commensurate with their responsibilities and contribution to the
success of Invacare based on market levels indicated by compensation data
obtained from time to time by Invacare or its independent consultants. For each
calendar year or other predetermined performance period, the Committee will
establish a target bonus for each eligible officer, payable if a specified
performance goal is satisfied for such performance period.
Performance Goals
The performance goal for each performance period will provide for a
targeted level or levels of performance using one or more of the following
predetermined measurements:
o Stock price
o Net sales
o Income from operations
o Earnings before income tax
o Earnings per share
o Cost controls
o Return on assets
o Return on net assets employed
For 2005, the bonus award will be based upon satisfaction of an earnings per
share target.
The performance goal for a performance period will be established in
writing by the Committee on or before the latest date permissible to enable the
bonus award to qualify as "performance based compensation" under Section 162(m).
The Committee may during this same time period adjust or modify the calculation
of a performance goal for the performance period in order to prevent the
dilution or enlargement of the rights of participants (a) in the event of, or in
anticipation of, any unusual or extraordinary corporate item, transaction, event
or development; (b) in recognition of, or in anticipation of, any other unusual
or nonrecurring events affecting Invacare, or the financial statements of
Invacare, or in response to, or in anticipation of, changes in applicable laws,
regulations, accounting principles or business conditions; and (c) in view of
the Committee's assessment of our business strategy, performance of comparable
organizations, economic and business conditions, and any other circumstances
deemed relevant by the Committee. The Committee may establish various levels of
bonus depending upon relative performance toward a performance goal.
The target bonus payable to any officer for a performance period is a
specified percentage of the officer's compensation for the performance period,
6
but in no event will the target bonus payable to any officer for a performance
period exceed $5,000,000. This maximum bonus amount was set in part to permit
the Executive Bonus Plan to accommodate continued growth of Invacare. The Board
of Directors believes that this limit will provide the Committee with sufficient
flexibility to reward exceptional contributions toward our profits. As described
elsewhere in this proxy statement under the caption "Report of the Compensation,
Management Development and Corporate Governance Committee on Executive
Compensation," the Committee currently seeks to give each executive officer an
opportunity to earn an annual cash bonus that would result in annual total cash
compensation to the executive officer that falls within the 75th market
percentile of compensation paid by other employers which may compete with
Invacare for executive talent.
In the event of a change in control of Invacare, the amount payable to each
eligible participant in the Plan at the time of such change in control would be
equal to the greater of (1) the target bonus that would have been paid if the
performance goal for the calendar year in which the change in control occurs had
been achieved, or (2) the bonus that would have been paid to the participant if
the performance goal that was actually achieved during the portion of the
calendar year which occurs prior to the change in control is annualized for the
entire calendar year.
New Plan Benefits
The amount payable to an officer under the Executive Bonus Plan is subject
to discretion as to the target amount, the performance goals selected and
whether the amount resulting from achievement of such goal will actually be
paid, the amount that will be paid in the future to any eligible officer is not
presently determinable. For 2005, the bonus award will be based upon
satisfaction of an earnings per share target.
Amendment and Termination
The Company reserves the right, exercisable by the Compensation Committee,
to amend the Executive Bonus Plan at any time and in any respect, or to
terminate the Plan in whole or in part at any time and for any reason.
Amendments will be subject to the approval of the our shareholders in such
manner and with such frequency as is required under Section 162(m).
Approval of the Executive Bonus Plan
If the shareholders do not approve the Executive Bonus Plan, bonuses will
not be paid pursuant to the terms of the Plan. In such event, for the purposes
described above, the Compensation Committee may consider adopting alternative
cash compensation programs that may result in the payment of cash compensation
to officers that would not be deductible under Section 162(m).
Invacare's Board of Directors recommends that shareholders vote
"FOR" the approval and adoption of the Executive Bonus 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, 2005. The Audit Committee and the Board of Directors are asking you
to ratify this appointment. During the year ended December 31, 2004, 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.
7
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, 2005, 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 2,293,277 7.3% 703,912 63.3% 21.9%
One Invacare Way,
Elyria, Ohio 44035 (1)
Joseph B. Richey, II 826,260 2.7% 376,262 33.8% 11.0%
One Invacare Way,
Elyria, Ohio 44035 (2)
Ariel Capital Management, LLC 7,411,606 24.4% - - 17.9%
200 E. Randolph Dr., Suite 2900,
Chicago, IL 60601 (3)(4)
FMR Corp. 2,111,850 7.0% - - 5.1%
82 Devonshire Street,
Boston, MA 02109 (3)(5)
AXA Financial, Inc.
1290 Avenue of the Americas
New York, NY 10104 (3)(6) 1,791,816 5.9% - - 4.3%
* 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 1,227,025 common shares that may be acquired upon the exercise of
stock options during the 60 days following February 24, 2005. 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) 18,073
common shares owned by the trustee for Invacare Retirement Savings Plan,
(ii) 222,830 common shares owned of record by Mr. Mixon's spouse, (iii)
17,578 common shares owned by Roundwood Capital, L.P., a limited
partnership of which Mr. Mixon is a managing member of its general partner,
(iv) 24,576 common shares owned by the trustee for a 1997 grantor retained
annuity trust created by Mr. Mixon, (v) 24,577 common shares owned by the
trustee for a 1997 grantor retained annuity trust created by Mr. Mixon's
spouse, (vi) 111,319 common shares owned by the trustee for a 2003 grantor
retained annuity trust created by Mr. Mixon, and (vii) 111,319 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, the grantor retained annuity trusts created
by the reporting person's spouse and the shares held by Roundwood Capital,
L.P.
(2) Includes 175,500 common shares, which may be acquired upon the exercise of
stock options during the 60 days following February 24, 2005. 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.
8
(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, 2004.
(4) The Schedule 13G was filed by Ariel Capital Management, LLC, which has sole
voting power with respect to 5,901,719 of the 7,411,606 common shares held,
and sole dispositive power with respect to 7,410,151 of the 7,411,606
common shares held.
(5) The Schedule 13G was filed by FMR Corp., which has sole voting power with
respect to 86,450 of the 2,111,850 common shares held, and sole dispositive
power with respect to all 2,111,850 of the common shares held.
(6) The Schedule 13G was filed by AXA Financial, Inc., which has sole voting
power with respect to 899,694 of the 1,791,816 common shares held, and sole
dispositive power with respect to 1,791,516 of the 1,791,816 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, 2005, 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:
Common Shares Class B 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)....................... 664,649 2.2% - - 1.6%
James C. Boland (3)........................ 38,893 * - - *
Michael F. Delaney (3)..................... 18,478 * - - *
Whitney Evans (3).......................... 43,647 * - - *
C. Martin Harris, M.D. (3)................. 10,770 * - - *
Bernadine P. Healy, M.D. (3).............. 41,570 * - - *
John R. Kasich (3)......................... 22,594 * - - *
A. Malachi Mixon, III (1)..................2,293,277 7.3% 703,912 63.3% 21.9%
Dan T. Moore, III (3)...................... 182,356 * - - *
Joseph B. Richey, II (2)................... 826,260 2.7% 376,262 33.8% 11.0%
Louis F.J. Slangen (3)..................... 121,206 * - - *
Gregory C. Thompson (3).................... 61,050 * - - *
William M. Weber (3)....................... 81,177 * - - *
All executive officers and Directors as
a group (14 persons) (3)...................4,433,052 13.6% 1,080,174 97.1% 34.8%
* 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 2,293,775 common shares which
may be acquired upon the exercise of stock options during the 60 days
following February 24, 2005. For purposes of calculating the percentage of
outstanding common shares beneficially owned by each of Invacare's
9
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, 2005, 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, 548,425 shares; Mr. Boland,
37,885 shares; Mr. Delaney, 7,478 shares; Mr. Evans, 16,656 shares; Dr.
Harris, 10,770 shares; Dr. Healy, 36,570 shares; Mr. Kasich, 22,594 shares;
Mr. Moore, 22,097 shares; Mr. Slangen, 92,675 shares; Mr. Thompson, 48,200
shares; and Mr. Weber, 5,250 shares.
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 2004, except for (1) the gifting of 17,000 common shares on
October 6, 2000 and 10,000 common shares on February 28, 2001 by Mr. Mixon,
which were reported on a Form 5, dated December 31, 2004; (2) the nine monthly
purchases of an aggregate of 327 phantom common shares by Mr. Richey during 2004
pursuant to a right to defer compensation under the Invacare Corporation 401(k)
Benefit Equalization Plus Plan, all of which were reported on a Form 4, dated
February 4, 2005; (3) the sale of 12,189 common shares on November 4, 2004 by
Mr. Slangen, which was reported on a Form 5, dated December 31, 2004; and (4)
the sale of 300 common shares on December 10, 2004 by Bridget A. Miller, which
was reported on a Form 5, dated December 31, 2004.
CORPORATE GOVERNANCE
How many times did the Board meet in 2004?
The Board of Directors held six meetings during the fiscal year ended
December 31, 2004. 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. Board members are expected to
attend Invacare's annual meeting of shareholders, and each director 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.
10
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
2004.
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 three
times during 2004.
11
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. John R. Kasich
replaced Bernadine P. Healy, M.D. as chairman in November 2004. 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 met twice during 2004.
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 three times during 2004.
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.
12
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 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;
13
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 are paid a $30,000 annual retainer, $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 receives an additional retainer of $5,000 per
year.
14
Directors are eligible to defer compensation payable by Invacare for their
services as a director under the Invacare Corporation 1994 Performance Plan. Mr.
Boland deferred $48,000, Mr. Delaney deferred $4,100, Mr. Evans deferred
$13,500, Dr. Harris deferred $32,800, Dr. Healy deferred $43,000, Mr. Kasich
deferred $41,000 and Mr. Moore deferred $45,500 of their 2004 compensation and,
as a result, each was issued stock options at a 25% discount based on the 1994
Plan. In addition, all non-employee directors receive annual stock option grants
to acquire up to 2,000 shares vesting over a four-year term.
Certain Relationships and Related Transactions
During 2004, 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 Mr. Mixon and Mr. Richey. Invacare paid approximately
$630,000 to the charter company in 2004 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 privately-held company that
develops and markets electromedical stimulation systems for stroke patients in
Cleveland, Ohio. During 2004, Invacare loaned NeuroControl $1,059,000 to help
support its efforts to obtain FDA approval to market its stimulation systems in
the United States. As of December 31, 2004, Invacare's net investment in, and
advances to, NeuroControl were approximately $3 million after writeoffs of
approximately $23 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 $750,000 in NeuroControl. Collectively, the aforementioned Invacare
directors and other related parties own an aggregate of approximately 10.4% of
the fully-diluted equity ownership of NeuroControl and Invacare owns an
additional 20.8% of NeuroControl's equity. Invacare has formed a committee
comprised of three disinterested directors to evaluate the appropriateness
and/or terms of any additional future advances or other investments in
NeuroControl. In February 2005, 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. For financial reporting purposes,
Invacare will consolidate its investment in NeuroControl for periods beginning
with the quarter ended March 31, 2005.
15
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 2004, 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 that the Company
maintained effective internal control over financial reporting as of December
31, 2004, and expressed an opinion that the Company did maintain effective
internal control over financial reporting as of December 31, 2004.
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. 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), related to the auditors'
independence. The Audit Committee discussed with Ernst & Young LLP their
independence from the Company and its management and considered the
compatibility of non-audit services with the auditors' independence.
16
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, 2004 for filing with the Securities
and Exchange Commission.
The Audit Committee has appointed Ernst & Young LLP as the Company's
independent auditors for its 2005 fiscal year and the Company is seeking
ratification for such appointment at the 2005 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, 2005. The Audit
Committee is asking you to ratify this appointment.
Fees for services rendered by Ernst & Young LLP were:
2004 2003
---- ----
Audit Fees $3,588,000 $1,399,000
Audit-Related Fees 494,000 89,000
Tax Fees
Tax Compliance Services 1,138,000 538,000
Tax Advisory Services 2,989,000 614,000
--------- ---------
4,127,000 1,152,000
All Other Fees - -
--------- ---------
Total $8,209,000 $2,640,000
========== ==========
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 included with,
and assistance with 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 and 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
Audit Committee must approve the permitted service before the independent
auditor is engaged to perform it. The Audit Committee has delegated to the
17
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 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.
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 market median levels for comparable
18
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 within 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 2004 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 2003 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
executives, including the CEO, generally were slightly above the targeted 50th
percentile range.
In determining the CEO's base salary for 2004, the Committee took into
account the survey results regarding a 50th percentile salary range 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, the key manufacturing consolidation that has occurred in the
United States, Europe, and Australia in the past few years continued in 2004.
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 grow market share and 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 in 2004. 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. 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 in 2004
under the CEO's leadership. The Committee also believes that the CEO continued,
in 2004, 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, with the Domus acquisition and
the 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
listing standards. These accomplishments and consideration of potential future
contributions resulted in the CEO's base salary at the targeted 50th percentile
salary range.
19
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 within the 75th
market percentile of surveyed employers when the Company meets commensurately
challenging financial goals, as previously outlined and focusing on earnings per
share, in addition to subjective factors as the Committee deems appropriate.
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 if targeted earnings per share objectives are
achieved, 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. Despite the fact
that net sales and earnings for 2004 were above the previous year's results,
certain internal performance targets were not met, which resulted in middle
management not earning any bonuses. As a result, the key executives determined,
with the Committee's concurrence, that they should not be paid cash bonuses for
2004, but that the net sales and earnings increases that were achieved in 2004
should be considered by the Committee in determining the cash bonuses to be paid
to the executives, if any, for 2005.
The CEO's annual cash bonus was targeted to result in total cash
compensation to the CEO that would fall within 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
2004, the Committee took into account the same factors and events described
above under "Annual Base Salary." As described above, while net sales and
earnings for 2004 were above the previous year's results, certain internal
performance targets were not met, which resulted in middle management not
earning any bonuses. As a result, the CEO determined, with the Committee's
concurrence, that he should not be paid a cash bonus for 2004, but that the net
sales and earnings increases that were achieved in 2004 should be considered by
the Committee in determining the cash bonuses to be paid to the CEO, if any, 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
20
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 2004 was
based on the subjective judgment of the Committee, taking into account the CEO's
comments regarding the executive's achievement of the applicable 2003 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
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 2004 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 2004 with respect to
long-term compensation payable with respect to 2004.
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 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). Therefore, the Company has submitted its 2005 Incentive Bonus Plan to
its shareholders for approval and believes that, if approved, cash bonuses paid
to key executives in accordance with the plan will qualify for the exception for
performance-based compensation. At this time, however, 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
21
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 2004 1,005,000 - 44,729 142,000 466,854 346,323
Chairman and Chief 2003 948,000 948,000 16,078 137,900 455,907 635,102
Executive Officer 2002 903,000 - 15,590 122,400 430,124 366,471
Gerald B. Blouch 2004 622,000 - 13,117 56,300 289,085 81,199
President and 2003 585,833 557,650 11,244 58,700 282,213 45,187
Chief Operating Officer 2002 559,000 - 39,504 55,000 266,072 117,284
Joseph B. Richey, II 2004 384,000 - 17,045 25,900 - 45,189
President-Invacare 2003 369,000 276,750 14,273 15,400 - 26,368
Technologies and Senior 2002 355,000 - 43,587 17,000 - 42,660
Vice President-Electronic
& Design Engineering
Louis F.J. Slangen 2004 347,256 - 20,928 25,900 - 40,303
Senior Vice President - 2003 327,600 245,700 31,910 21,500 - 24,720
Sales and Marketing 2002 315,000 - 11,572 21,800 84,650 63,649
Gregory C. Thompson, 2004 347,000 - 13,258 25,900 155,115 31,525
Chief Financial Officer & 2003 315,000 236,250 57,529 (1) 28,800 159,038 69,012
President-Home Medical 2002 78,500 - - 82,000 150,420 263
Equipment Group
--------
(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
20,510 restricted stock awards on March 11, 2004 that related to special
long-term compensation. The awards of 10,510 shares to Mr. Mixon, 6,508
shares to Mr. Blouch and 3,492 shares to Mr. Thompson vest 25% annually,
beginning May 1, 2005, 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:
30,790 for Mr. Mixon, 19,054 for Mr. Blouch and 9,633 for Mr. Thompson.
(3) Includes: (a) Invacare contributions in the amount of $12,300 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: $104,310 for Mr. Mixon, $58,129 for Mr. Blouch, $27,195
for Mr. Richey, $23,081 for Mr. Slangen and $19,225 for Mr. Thompson, under
Invacare's 401(k) Plus Benefit Equalization Plan, a defined contribution
plan; (c) the dollar value of compensatory life insurance benefits, under
Invacare's Executive Life Insurance Plan, in the amounts of $5,385 for Mr.
Blouch, $2,847 for Mr. Richey and $2,461 for Mr. Slangen (Mr. Mixon is not
covered by a split-dollar life insurance benefit); (d) payments by
Invacare, related to premiums under Invacare's Executive Disability Income
Plan, in the amounts of $5,385 for Mr. Blouch, $2,847 for Mr. Richey and
$2,461 for Mr. Slangen, (Mr. Mixon and Mr. Thompson do not participate in
Invacare's Executive Disability Income Plan); (e) payment by Invacare for
the premium of a life insurance policy for Mr. Mixon amounting to $3,564;
(f) payment by Invacare for the premium of a disability insurance policy
for Mr. Mixon amounting to $7,730; (g) vested portion of Invacare's
one-time contribution for Mr. Mixon for his non-participation in the
Executive Life Insurance Plan since its inception equal to $218,419.
22
Equity Compensation Plan Information
The following table provides information as of December 31, 2004 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 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 4,638,405 $29.81 1,033,858 (1)
Equity compensation plans not
approved by security holders 12,102 (2) -- --
--------- --------- ---------
Total 4,650,507 $29.81 1,033,858
--------- --------- ---------
(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.
(2) Represents phantom share units in the Invacare Corporation 401(k) Plus
Benefit Equalization Plan ("401(k) Plus Plan").
The 401(k) Plus Plan, created in March 1994, is a non-qualified
contributory savings plan for highly compensated associates. The program is
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 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.
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, 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.
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 nonvested benefits of participants in the 401(k)
Plus Plan as of December 31, 2004 were transferred to the Deferred Compensation
Plus Plan. In addition, the Deferred Compensation Plus Plan allows certain
participants to defer all or any portion of the their annual cash bonus
compensation and up to 50% of their salary earned on or after January 1, 2005 to
the plan. Invacare provides a matching contribution on amounts deferred, as well
as a quarterly contribution for the benefit of eligible participants. Employee
23
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
2004, which were granted under the Invacare Corporation 1994 and 2003
Performance Plans.
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 142,000 23.8% 44.30 8/24/14 3,956,000 10,026,000
Gerald B. Blouch 56,300 9.4% 44.30 8/24/14 1,569,000 3,975,000
Joseph B. Richey, II 25,900 4.3% 44.30 8/24/14 722,000 1,829,000
Louis F.J. Slangen 25,900 4.3% 44.30 8/24/14 722,000 1,829,000
Gregory C. Thompson 25,900 4.3% 44.30 8/24/14 722,000 1,829,000
All Shareholders (4) N/A N/A N/A N/A 869,400,000 2,219,100,000
(1) Options vest over four years at a rate of 25% per year, commencing in 2005
and become 100% exercisable on September 30, 2008.
(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 30,275,195
common shares and 1,111,965 Class B common shares outstanding at the
exercise price of $44.30 per share as of the grant date of August 24, 2004)
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 $72.00 per share at an assumed 5% annual
growth rate and would appreciate to approximately $115.00 at an assumed 10%
annual growth rate.
Each of the options issued under Invacare's stock option plans includes a
provision which provides that the option shall become immediately exercisable,
unless stated otherwise in the option agreements, upon the commencement of a
tender offer for Invacare's common shares or the establishment of a record date
for determining shareholders entitled to vote upon a dissolution, liquidation or
certain mergers or consolidations of Invacare. Upon the occurrence of the merger
or consolidation, the option may be adjusted or amended as the Compensation,
Management Development and Corporate Governance Committee of the Board of
24
Directors deems appropriate and equitable. Under the terms of Invacare's stock
option plans, the Committee also may grant reload options under any
circumstances as it deems appropriate.
Option Exercises And Year-End Value Table
The table below shows information with respect to options exercised by, and
the value of unexercised options under Invacare's stock option plans for the
Chief Executive Officer and the four other most highly compensated executive
officers.
Aggregated Option Exercises in 2004 and Option Value at Year-End 2004
Number of Securities Value of Unexercised
Number of Underlying Unexercised In-the-Money Options
Shares Value Options at 12/31/04 (#) at 12/31/04 (2)($)
Acquired on Realized ------------------------- ----------------------------
Name Exercise (#) (1) ($) Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------- -------- ----------- ------------- ----------- -------------
A. Malachi Mixon, III - - 1,300,425 334,825 28,233,923 2,126,902
Gerald B. Blouch 34,200 1,049,940 448,425 240,475 9,342,143 3,202,016
Joseph B. Richey, II 21,800 693,131 198,900 49,900 4,381,550 283,844
Louis F.J. Slangen 57,200 1,380,712 92,675 57,925 1,701,811 360,068
Gregory C. Thompson - - 48,200 88,500 617,592 791,620
(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 12/31/04" is equal to the
difference between the option exercise price and the closing price of
$46.26 of a common share on the NYSE on December 31, 2004.
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
annual benefit is a single-life annuity in an amount equal to a portion of final
earnings. The maximum benefit is 50% at 15 years of service. This annual benefit
is reduced by the annual value of Invacare contributions to the qualified
Invacare Retirement Savings Plan, Invacare contributions to the 401(k) Plus Plan
and Deferred Compensation Plus Plan, and one-half of the annual Social Security
benefit plus other offsets.
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.
25
The following table reflects the estimated annual single-life annuity
payment, without reductions for applicable offsets, payable to a participant
retiring in 2004 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, 2004, the current years of service credited are 24 for Mr.
Mixon, 15 for Mr. Blouch, 20 for Mr. Richey, 17 for Mr. Slangen and 7 for
Mr. Thompson.
(3) 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
Severance Pay 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 severance pay 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 is terminated
without cause or resigns for good reason (as those terms are defined) 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; and
(3) 401(k), 401(k) Plus Plan, 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 severance pay 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 severance pay agreements.
26
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 good reason, Mr. Blouch 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; and
(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.
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 401(k) Plus Plan and 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 401(k) Plus Plan
and 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 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. Bernadine P. Healy, M.D. was a member of the
committee until November 2004. There were no Compensation, Management
Development and Corporate Governance Committee interlocks or insider
participation activities in 2004.
27
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]
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Invacare 100 171 168 167 202 231
S&P 500 100 90 79 60 78 86
Russell 2000 100 96 97 76 112 132
S&P Healthcare Index 100 143 139 120 159 186
* 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, 1999 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, 2004.
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 2006 must do so no later than December 8, 2005. To be
eligible for inclusion in our 2006 proxy material, proposals must conform to the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended.
28
Unless we receive a notice of a shareholder proposal to be brought before
the 2006 annual meeting by February 21, 2006, 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 2004
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
29
Appendix A
[GRAPHIC OMITTED][GRAPHIC OMITTED]
INVACARE CORPORATION
EXECUTIVE INCENTIVE BONUS PLAN
ARTICLE I
THE PLAN AND ITS PURPOSE
1.1. Adoption of Plan. This Invacare Corporation Executive Incentive Bonus
Plan (hereinafter referred to as the "Plan") is hereby adopted by Invacare
Corporation (hereinafter referred to as the "Company"), effective as of January
1, 2005, in order to set forth the terms and provisions of the annual incentive
bonus program of the Company applicable to selected key employees of the Company
(as hereinafter defined) on and after such date.
1.2. Purpose. The purpose of the Plan is (a) to provide an incentive to
selected key employees of the Company in order to encourage them with short-term
financial awards to improve the Company's operating results, (b) to enable the
Company to recruit and retain such key employees by making the Company's overall
compensation program competitive with compensation programs of companies with
which the Company competes for executive talent and (c) to satisfy the
requirements of Section 162(m) of the Code (as hereinafter defined) so that the
deductibility of awards hereunder will not be limited by such Section 162(m).
ARTICLE II
DEFINITIONS
Unless the context otherwise indicates, the following words used herein
shall have the following meanings whenever used in this instrument:
2.1. "Affiliate" means, except as otherwise provided in Section 2.3, any
corporation, partnership, joint venture or other entity, directly or indirectly,
through one or more intermediaries, controlling, controlled by, or under common
control with the Company as determined by the Board in its discretion.
2.2. "Board of Directors" means the Board of Directors of the Company as it
may be constituted from time to time.
2.3. "Change in Control" means the happening of any of the following
events:
Any person or entity (other than any employee benefit plan or employee
stock ownership plan of the Company, or any person or entity 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 thirty percent (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 or publicly
announces an intent to commence a tender offer or exchange offer the
consummation of which would result in the person becoming the Beneficial
Owner of thirty percent (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 2.3, the terms
"Affiliates," "Associates," and "Beneficial Owner" will have the meanings
given them in the Rights Agreement, dated as of April 2, 1991, between the
Company and National City Bank, as Rights Agent, as amended from time to
time.
At any time during a period of twenty-four (24) consecutive months,
individuals who were directors at the beginning of the period no longer
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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 nomination and were either directors at the
beginning of the period or are continuing directors.
A record date is established for determining shareholders entitled to vote
upon:
A merger or consolidation of the Company with another corporation (which is not
an affiliate of the Company) in which the Company is not the surviving or
continuing company or in which all or part of the outstanding common shares are
to be converted into or exchanged for cash, securities, or other property;
a sale or other disposition of all or substantially all of the assets of the
Company; or
the dissolution or liquidation (but not partial liquidation) of the Company.
2.4. "Code" means the Internal Revenue Code of 1986, as amended, and any
lawful regulations or other pronouncements promulgated thereunder. Whenever a
reference is made herein to a specific Code Section, such reference shall be
deemed to include any successor Code Section having the same or a similar
purpose.
2.5. "Committee" means the Compensation, Management Development and
Corporate Governance Committee of the Board of Directors as it may be
constituted from time to time; provided that if at any time the Compensation,
Management Development and Corporate Governance Committee is not composed solely
of Outside Directors, "Committee" shall mean the committee consisting of at
least three (3) Outside Directors appointed by the Board of Directors to
administer the Plan.
2.6. "Company" means Invacare Corporation, an Ohio corporation, or any
successor organization.
2.7 "Director" means any member of the Board of Directors.
2.8. "Disability" means that a Participant (i) is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or can be expected to
last for a continuous period of not less than 12 months, or (ii) is, by reason
of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period
of not less than 12 months, receiving income replacement benefits for a period
of not less than 3 months under an accident and health plan covering employees
of the Company.
2.9. "Eligible Employee" has the meaning ascribed to such term in Section
3.1 hereof.
2.10. "Incentive Bonus" means the payment earned by a Participant under the
Plan as determined in accordance with Article VI.
2.11. "162(m) Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code, which, generally means an
individual who as of the last day of the Taxable Year is:
(a) the Chief Executive Officer of the Company, or
(b) among the four highest compensated officers of the Company other
than the Chief Executive Officer.
2.12. The words "Outside Director" mean any member of the Board who meets
the definition of "outside director" set forth in Section 162(m) of the Code and
the definition of "non-employee director" set forth in Rule 16b-3 under the
Exchange Act, or any successor definitions adopted by the Internal Revenue
Service and Securities and Exchange Commission, respectively.
2.13. "Participant" means an Eligible Employee selected by the Committee
for participation in the Plan pursuant to Section 3.2 hereof.
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2.14. "Performance Goals" has the meaning ascribed to such term in Section
5.1 hereof.
2.15. "Performance Goals Date" means the date on which the Committee
establishes the Performance Goals for a calendar year which date may be no later
than March 31 of such calendar year.
2.16. "Plan" means the Invacare Corporation Executive Incentive Bonus Plan
as adopted herein and as constituted from time to time hereafter.
2.17. "Retirement" means a Participant's retirement from active employment
with the Company or an Affiliate at or after his attainment of age sixty-five
(65) or "normal retirement age" as defined in the Company's qualified retirement
plan(s).
2.18 "Taxable Year" means the tax year of the Company which currently is
the calendar year.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1. Eligibility. All officers of the Company (each an "Eligible Employee")
are eligible to be selected to participate in the Plan.
3.2. Participation. The following rules shall be applicable to
participation in this Plan by an Eligible Employee:
(a) Designation. Subject to Subsection (c) of this Section 3.2, the
Committee shall, in its discretion, designate the Eligible Employees, if
any, who will participate in the Plan for each calendar year. Each Eligible
Employee approved for participation will be notified of his or her
selection as soon after approval as is practicable.
(b) Participation For Employees Hired After Commencement Of Calendar
Year. Subject to Subsection (c) of this Section 3.2, an Eligible Employee
whose employment with the Company commences after the first day of a
calendar year and who remains actively employed through the end of the
calendar year may, at the Committee's discretion, participate in the Plan
for the calendar year on a pro rata basis or on such other basis as the
Committee shall determine.
(c) No Right To Participate. No Participant or Eligible Employee has
or at any time will have any right hereunder to be selected for current or
future participation in the Plan. Notwithstanding the foregoing or any
other provision hereof, the Committee's right to select Participants shall
be subject to the terms of any employment agreement between the Company and
the Participant or Eligible Employee.
ARTICLE IV
PLAN ADMINISTRATION
4.1. Responsibility. The Committee has total and exclusive responsibility
to control, operate, manage and administer the Plan in accordance with its
terms.
4.2. Authority of the Committee. The Committee has and will have all the
authority that may be necessary or helpful to enable it to discharge its
responsibilities with respect to the Plan. Without limiting the generality of
the foregoing, the Committee has the exclusive right to (a) interpret the Plan,
(b) determine eligibility for participation in the Plan, (c) decide all
questions concerning eligibility for and the amount of Incentive Bonus payable
under the Plan, (d) determine Performance Goals under the Plan and, before
payment of any Incentive Bonus hereunder, evaluate performance and certify
whether Performance Goals and any other material terms were in fact satisfied,
(e) construe any ambiguous provision of the Plan, (f) correct any default, (g)
supply any omission, (h) reconcile any inconsistency, (i) issue administrative
guidelines as an aid to administer the Plan, (j) make such rules as it deems
necessary for carrying out the purpose of the Plan and to make changes in such
rules as it from time to time deems proper, (k) promulgate such administrative
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forms as it from time to time deems necessary or appropriate for administration
of the Plan, and (l) decide any and all questions arising in the administration,
interpretation and application of the Plan.
4.3. Discretionary Authority. The Committee shall have full discretionary
authority in all matters related to the discharge of its responsibilities and
the exercise of its authority under the Plan including, without limitation, its
construction of the terms of the Plan and its determination of eligibility for
participation and Incentive Bonus under the Plan. It is the intent of the
Company in establishing the Plan that the decisions of the Committee and its
action with respect to the Plan will be final, binding and conclusive upon all
persons having or claiming to have any right or interest in or under the Plan.
4.4. Section 162(m) of the Code. With regard to all 162(m) Employees, the
Plan shall for all purposes be interpreted and construed in order to assure
compliance with the provisions of Section 162(m) of the Code.
4.5. Delegation of Authority. Only the Committee may select for
participation, set Performance Goals for, and determine satisfaction of
Performance Goals and other material facts with respect to Participants who are
162(m) Employees. Except for such limitation and to the extent not otherwise
prohibited by law, the Committee may delegate some or all of its authority under
the Plan to any person or persons.
ARTICLE V
PERFORMANCE GOALS AND MEASUREMENT
5.1. Definition of Performance Goals. Incentive Bonuses under this Plan
will be paid solely on account of the attainment of one or more preestablished
(as provided in Section 5.2 hereof), objective Performance Goals for a calendar
year or other predetermined period. A Performance Goal is a target level or
levels of performance. A Performance Goal is objective if a third party having
knowledge of the relevant facts could determine whether the Performance Goal has
been met. Performance Goals can be based on one or more business criteria that
apply to the Participant, a business unit, or the Company and related entities
as a whole. Such business criteria could include, for example, stock price, net
sales, income from operations, earnings before income tax, earnings per share,
cost controls, return on assets, or return on net assets employed. A Performance
Goal need not, however, be based upon an increase or positive result under a
business criterion and may include, for example, maintaining the status quo or
limiting economic losses (measured, in each case, by reference to a specific
business criterion). A Performance Goal shall not include the mere continued
employment of the Participant.
The Performance Goal shall state, in terms of an objective formula or
standard, the method of computing the amount of the Incentive Bonus payable to
the Participant if the Performance Goal is attained. A formula or standard is
objective if a third party having knowledge of the relevant performance results
could calculate the amount of the Incentive Bonus. In addition, the formula or
standard must specify the individual Participants or class or group of
Participants to which it applies.
The terms of the objective formula or standard shall preclude discretion to
increase the amount of Incentive Bonus that would otherwise be due upon
attainment of the goal except to the extent the amount is related to other
compensation and then only to the extent permitted by Section 162(m) of the Code
to the extent applicable. The objective formula may grant the Committee
discretion to reduce or eliminate the Incentive Bonus otherwise due upon
attainment of the Performance Goal, provided that such negative discretion is
expressly set forth at the time of establishment of the Performance Goal and
provided that exercise of such negative discretion with respect to a Participant
does not result in an increase in the Incentive Bonus to another Participant.
The Plan's Performance Goals shall be established by action of the
Committee not later than the time specified in Section 5.2 hereof. The Committee
shall retain the discretion to change the targets under the Performance Goals
subject to the restrictions of Section 162(m) of the Code, to the extent
applicable.
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5.2. Establishment of Performance Goals. Except as hereinafter provided in
this Section 5.2, the Committee will, on or before the 90th day of the calendar
year, and while the outcome is substantially uncertain, establish in writing (a)
the Performance Goal or Goals applicable to such calendar year and identify the
Participant or group of Participants to whom such Performance Goal or Goals are
applicable and (b) if more than one Performance Goal for such calendar year is
established, the weighting of the Performance Goals. If, for a given calendar
year, the Committee shall not establish new Performance Goals for a Participant
or group of Participants on or before the 90th day of the calendar year, the
Performance Goals for the immediately preceding calendar year shall be deemed to
be the Performance Goals established by the Committee for such calendar year for
such Participant or group of participants.
In addition to, or in lieu of, use of the calendar year as a performance
period to measure attainment of a Performance Goal, the Committee may, not later
than the 90th day after the commencement of the period of service to which the
Performance Goal relates, establish one or more Performance Goals for one or
more Participants or groups of Participants for such other period. Any such
Performance Goal may not be established after 25% of the performance period (as
scheduled in good faith at the time the Performance Goal is established) has
elapsed, and while the outcome is substantially uncertain.
5.3. Adjustments to Performance Goals. The Committee may, at any time
during the first 90 days of a calendar year (or such other period as provided in
Section 5.2 hereof), or, subject to the second paragraph of this Section 5.3
hereof, at any time thereafter in its sole and absolute discretion, adjust or
modify the calculation of a Performance Goal for such calendar year (or such
other period) in order to prevent the dilution or enlargement of the rights of
Participants (a) in the event of, or in anticipation of, any unusual or
extraordinary corporate item, transaction, event or development; (b) in
recognition of, or in anticipation of, any other unusual or nonrecurring events
affecting the Company, or the financial statements of the Company, or in
response to, or in anticipation of, changes in applicable laws, regulations,
accounting principles or business conditions; and (c) in view of the Committee's
assessment of the business strategy of the Company, performance of comparable
organizations, economic and business conditions, and any other circumstances
deemed relevant.
Notwithstanding the foregoing, to the extent the exercise of such authority
after the first 90 days of a calendar year (or such other period as provided in
Section 5.2 hereof) would cause the Incentive Bonuses granted to the 162(m)
Employees for the calendar year (or such other period) to fail to qualify as
"performance-based compensation" under Section 162(m) of the Code, then such
authority shall only be exercised with respect to those Participants who are not
162(m) Employees.
ARTICLE VI
INCENTIVE BONUS AWARDS
6.1. Incentive Opportunity. During the applicable period specified in
Section 5.2 hereof, the Committee shall determine and set forth in writing the
amount of, or method for, calculating the Incentive Bonus that may be payable to
each Participant under the Plan. The amount of an Incentive Bonus payable to a
Participant will depend upon the level of attainment of the Performance Goals
for such calendar year (or such shorter period as provided in Section 5.2
hereof) or whether the Performance Goals for such calendar year were attained.
6.2. Certification of Attainment of Performance Goals. The Committee shall
certify attainment of Performance Goals, and other material facts, and shall
calculate the amount of Incentive Bonus and authorize payment in accordance with
the following procedure. As soon as practicable after the Company's financial
results for the relevant calendar year or other performance period have been
finalized, the Committee will certify in writing the attainment of the
Performance Goals established for the calendar year (or other performance
period) and other material facts and will calculate (or certify the calculation
of) the Incentive Bonus, if any, payable to each Participant pursuant to Section
6.1 hereof. Such Incentive Bonus shall be paid to the Participant as soon
thereafter as reasonably practicable but not later than the March 15 following
the calendar year which served as the performance period upon which the
Incentive Bonus is based.
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6.3. Form of Payment. All Incentive Bonuses under the Plan will be paid in
cash and shall be subject to such terms, conditions, restrictions and
limitations (including, but not limited to, restrictions on alienation and
vesting) as the Committee may determine, provided that such terms, conditions,
restrictions and limitations are not inconsistent with the terms of the Plan.
6.4. Termination of Employment Due to Disability, Death or Retirement. If a
Participant's employment is terminated prior to the date upon which an Incentive
Bonus is paid pursuant to Section 6.2 hereof by reason of his Disability,
Retirement or death, the Participant shall be eligible to receive a prorated
Incentive Bonus for the calendar year in which such termination of employment
occurs.
6.5. Other Terminations of Employment. Unless the Committee shall determine
otherwise in its sole discretion, if a Participant's employment is terminated
prior to the date on which Incentive Bonuses for the calendar year, or other
performance period, are paid (other than as provided in Section 6.4 and 6.6
hereof), the Participant's participation in the Plan shall end, and the
Participant shall not be entitled to any Incentive Bonus for such calendar year.
6.6. Payment Following a Change in Control. In the event of a Change in
Control, notwithstanding anything contained herein to the contrary, the Company
shall pay each Participant who is participating in the Plan at the time of such
Change in Control a single sum cash payment equal to the greater of (a) the
target-level Incentive Bonus that would have been paid if the Performance Goal
for the calendar year in which the Change in Control occurs had been achieved,
or (b) the Incentive Bonus that would have been paid to the Participant if the
Performance Goal that was actually achieved during the portion of the calendar
year which occurs prior to the Change in Control is annualized for the entire
calendar year. Further, all terms, conditions, restrictions and limitations in
effect on any outstanding Incentive Bonus shall immediately lapse on the date of
such Change in Control. For purposes of this Plan, the Committee has and will
have the sole discretion to determine whether and the date on which a Change in
Control occurred or is occurring. Notwithstanding the foregoing, a Participant
shall receive no additional payment pursuant to this Section 6.6 if, pursuant to
any employment or similar agreement between the Company or other Affiliate and
such Participant, the Participant is entitled to receive any payment under this
Plan in connection with such Change in Control.
6.7. Limitations on Payments. Notwithstanding any provision herein to the
contrary, (a) no Incentive Bonus will be paid for a calendar year, or other
performance period, in which performance fails to attain or exceed any minimum
level established for any of the Performance Goals; and (b) no Incentive Bonus
payable to a Participant for a calendar year shall exceed $5,000,000.
ARTICLE VII
MISCELLANEOUS
7.1. Employment. Nothing in this Plan will interfere with or limit in any
way the right of the Company to terminate a Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company or any Affiliate.
7.2. Nonassignability. No Incentive Bonus under this Plan may be subject in
any manner to alienation, anticipation, sale, transfer (except by will or the
laws of descent and distribution), assignment, pledge or encumbrance, nor may
any Incentive Bonus be payable to anyone other than the Participant to whom it
was granted (other than by will or the laws of descent and distribution).
7.3. Laws Governing. This Plan is to be construed in accordance with and
governed by the laws of the State of Ohio.
7.4. Withholding Taxes. The Company may deduct from all payments under this
Plan any federal, state or local other taxes or other amounts required by law to
be withheld with respect to such payments.
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7.5. Plan Binding on Company and Successors. This Plan will be binding upon
and inure to the benefit of the Company, its successors and assigns and each
Participant and his or her beneficiaries, heirs, executors, administrators and
legal representatives.
7.6. Amendment and Termination. The Committee may suspend or terminate this
Plan at any time with or without prior notice. In addition, the Committee may,
from time to time and with or without prior notice, amend this Plan in any
manner but may not without shareholder approval adopt any amendment that would
require the vote of the shareholders of the Company pursuant to applicable laws,
regulations or exchange requirements, specifically including Section 16 of the
Exchange Act or Section 162(m) of the Code.
7.7. Compliance with Section 162(m). If any provision of this Plan would
cause the Incentive Bonuses granted to a 162(m) Employee to fail to constitute
qualified "performance-based compensation" under Section 162(m) of the Code for
any calendar year, that provision, insofar as it pertains to the 162(m)
Employee, shall be severed from, and shall be deemed not to be a part of this
Plan, but the other provisions hereof shall remain in full force and effect.
7.8. Shareholder Approval Pursuant to 162(m). The material terms under
which Incentive Bonuses are to be paid, including the Performance Goals, will be
disclosed to shareholders of the Company in advance of the 2005 annual meeting
of shareholders. Unless, at that meeting, in a separate shareholder vote, this
Plan is approved by a majority of the vote in such separate shareholder vote, no
Incentive Bonus shall be paid hereunder to any 162(m) Employee. Furthermore, no
Incentive Bonus shall be payable under this Plan to any 162(m) Employee prior to
such vote.
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INVACARE CORPORATION
PROXY FOR COMMON SHARES AND CLASS B COMMON SHARES
Annual Meeting of Shareholders --- May 25, 2005
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby (i) appoints A. MALACHI MIXON, III, GERALD B. BLOUCH
and GREGORY C. THOMPSON, 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 Wednesday, May 25, 2005 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 as follows, with the understanding that if no directions are given
below, said shares will be voted "FOR" the election of the four 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 2008.
( ) FOR all nominees listed ( ) WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed
contrary below)
Michael F. Delaney, C. Martin Harris, M.D., Bernadine P. Healy,
M.D. and A. Malachi Mixon, III
(2) PROPOSAL to approve and adopt the Invacare Corporation Executive
Incentive Bonus Plan.
( ) FOR the Proposal ( ) AGAINST the Proposal
( ) ABSTAIN from the Proposal
(3) PROPOSAL to ratify appointment of Ernst & Young LLP as the Company's
independent auditors.
( ) FOR the Proposal ( ) AGAINST the Proposal
( ) ABSTAIN from the Proposal
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.)
--------------------------------------------------------------------------------
(Continued and to
be signed on other side)
(Proxy --- continued from other side)
(4) In their discretion to act on any other matters which may properly
come before the Annual Meeting.
Dated ____________________________ , 2005
--------------------------------------
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
COMMON SHARES AND CLASS B COMMON SHARES
VOTING INSTRUCTION CARD
Annual Meeting of Shareholders --- May 25, 2005
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 Wednesday, May 25, 2005 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
as follows, with the understanding that if no directions are given below, said
shares will be voted "FOR" the election of the four 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 2008.
( ) FOR all nominees listed ( ) WITHHOLD AUTHORITY to vote for
(except as marked to the all nominees listed
contrary below)
Michael F. Delaney, C. Martin Harris, M.D., Bernadine P. Healy,
M.D. and A. Malachi Mixon, III
(2) PROPOSAL to approve and adopt the Invacare Corporation Executive
Incentive Bonus Plan.
( ) FOR the Proposal ( ) AGAINST the Proposal
( ) ABSTAIN from the Proposal
(3) PROPOSAL to ratify appointment of Ernst & Young LLP as the Company's
independent auditors.
( ) FOR the Proposal ( ) AGAINST the Proposal
( ) ABSTAIN from the Proposal
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the following line.)
--------------------------------------------------------------------------------
(Continued and to
be signed on other side)
(Proxy --- continued from other side)
(4) In their discretion to act on any other matters which may properly
come before the Annual Meeting.
Dated ____________________________ , 2005
--------------------------------------
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.