UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

R
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2007
or
   
£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to  

Commission file number 1-15103

INVACARE CORPORATION
(Exact name of Registrant as specified in its charter)

Ohio
95-2680965
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)

One Invacare Way, P.O. Box 4028, Elyria, Ohio 44036
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (440) 329-6000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class
Name of Exchange on which Registered
Common Shares, without par value
Rights to Purchase Preferred Shares, without par value
New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes  £       No  R

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  £       No  R

Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for the past 90 days.  Yes  R       No  £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  R       Accelerated filer  £       Non-accelerated filer  £

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).  Yes  £       No  R

As of June 30, 2007, the aggregate market value of the 28,037,040 Common Shares of the Registrant held by non-affiliates was $547,843,762 and the aggregate market value of the 30,991 Class B Common Shares of the Registrant held by non-affiliates was $605,564. While the Class B Common Shares are not listed for public trading on any exchange or market system, shares of that class are convertible into Common Shares at any time on a share-for-share basis. The market values indicated were calculated based upon the last sale price of the Common Shares as reported by The New York Stock Exchange on June 30, 2007, which was $19.54. For purposes of this information, the 2,814,361 Common Shares and 1,080,174 Class B Common Shares which were held by Executive Officers and Directors of the Registrant were deemed to be the Common Shares and Class B Common Shares held by affiliates.

As of February 22, 2008, 30,925,670 Common Shares and 1,110,565 Class B Common Shares were outstanding.

Documents Incorporated By Reference

Portions of the Registrant’s definitive Proxy Statement to be filed in connection with its 2008 Annual Meeting of Shareholders are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this report.

Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of December 31, 2007.

INVACARE CORPORATION
 
2007 ANNUAL REPORT ON FORM 10-K CONTENTS

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PART I

Item 1.  Business .

GENERAL

Invacare Corporation is the world’s leading manufacturer and distributor in the $8.0 billion worldwide market for medical equipment used in the home based upon its distribution channels, breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health care products for the non-acute care environment, including the home health care, retail and extended care markets. The company continuously revises and expands its product lines to meet changing market demands and currently offers numerous product lines. The company sells its products principally to over 25,000 home health care and medical equipment providers, distributors and government locations in the United States, Australia, Canada, Europe, New Zealand and Asia. Invacare’s products are sold through its worldwide distribution network by its sales force, telesales associates and various organizations of independent manufacturers’ representatives and distributors. The company also distributes medical equipment and disposable medical supplies manufactured by others.

Invacare is committed to design, manufacture and deliver the best value in medical products, which promote recovery and active lifestyles for people requiring home and other non-acute health care. Invacare pursues this vision by:

 
•
designing and developing innovative and technologically superior products;

 
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ensuring continued focus on our primary market — the non-acute health care market;

 
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marketing our broad range of products;

 
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providing the industry’s most professional and cost-effective sales, customer service and distribution organization;

 
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supplying superior and innovative provider support and aggressive product line extensions;

 
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building a strong referral base among health care professionals;

 
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continuously advancing and recruiting top management candidates;

 
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empowering all employees;

 
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providing a performance-based reward environment; and

 
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continually striving for total quality throughout the organization.

When the company was acquired in December 1979 by a group of investors, including some of its current officers and Directors, it had $19.5 million in net sales and a limited product line of standard wheelchairs and patient aids. In 2007, Invacare reached approximately $1.6 billion in net sales, representing a 17% compound average sales growth rate since 1979, and currently is the leading company in each of the following major, non-acute, medical equipment categories: power and manual wheelchairs, home care bed systems and home oxygen systems.

The company’s executive offices are located at One Invacare Way, Elyria, Ohio, 44036 and its telephone number is (440) 329-6000. In this report, “Invacare” and the “company” refer to Invacare Corporation and, unless the context otherwise indicates, its consolidated subsidiaries.



THE HOME MEDICAL EQUIPMENT INDUSTRY

North America Market

The home medical equipment market includes home health care products, physical rehabilitation products and other non-disposable products used for the recovery and long-term care of patients. The company believes that demand for domestic home medical equipment products will continue to grow during the next decade and beyond as a result of several factors, including:

Growth in Population over Age 65.   Globally, overall life expectancy continues to increase. Recent reports from the U.S. Department of Health and Human Services (DHHS) state that the average life expectancy in the United States for men and women who reach the age of 65 is now 82 and 85, respectively. Furthermore, life expectancy in the United States at birth is now an average of 78 for men and women together, a record high. The DHHS also reports that people age 65 or older represent the vast majority of home health care patients and will increase from 12% of the population in 2005 to 21% of the population by the year 2050.

Treatment Trends.   The company believes that many medical professionals and patients prefer home health care over institutional care because home health care results in greater patient independence, increased patient responsibility and improved responsiveness to treatment. Further, health care professionals, public payors and private payors appear to favor home care as a cost effective, clinically appropriate alternative to facility-based care. Recent surveys show that approximately 70% of adults would rather recover from an accident or illness in their home, while approximately 90% of the population aged 65 and over showed a preference for home-based, long-term care.  In addition, the number of hospital beds per capita has fallen over the past twenty-five years in the United States, from 4.4 beds per 1,000 population in 1980 to 2.7 in 2005, a trend which is expected to continue.  This decline has coincided with the reduction in average length of stays in hospitals.

Technological Trends.   Technological advances have made medical equipment increasingly adaptable for use in the home. Current hospital procedures often allow for earlier patient discharge, thereby lengthening recuperation periods outside of the traditional institutional setting. In addition, continuing medical advances prolong the lives of adults and children, thus increasing the demand for home medical care equipment.

Health Care Cost Containment Trends.   In 2005, health care expenditures in the United States totaled $2.0 trillion dollars or approximately 16% of the GDP, the highest among industrialized countries, and were paid by private health insurers (36%), the federal government (34%), state and local governments (11%), consumers (15%) and other private funds (4%). In 2014, the nation’s health care spending is projected to increase to $4.1 trillion, growing at an average annual rate of 6.9%. Over this same period, spending on health care is expected to increase to approximately 19.6% of GDP. The rising cost of health care has caused many payors of health care expenses to look for ways to contain costs. The company believes that home health care and home medical equipment will play a significant role in reducing health care costs.

Society’s Mainstreaming of People with Disabilities.   People with disabilities are increasingly a part of the fabric of society, in part due to the 1991 Americans with Disabilities Act, or the “ADA.” This legislation provides mainstream opportunities to people with disabilities. The ADA imposes requirements on certain components of society to make reasonable accommodations to integrate people with disabilities into the community and the workplace.

Distribution Channels.   The changing home health care market continues to provide new ways of reaching the end user. The distribution network for products has expanded to include not only specialized home health care providers and extended care facilities but retail drug stores, surgical supply houses, rental, hospital and HMO-based stores, home health agencies, mass merchandisers, direct sales and the Internet.


Europe/Asia/Pacific Market

The company believes that, while many of the market factors influencing demand in the U.S. are also present in Europe and Asia/Pacific — aging of the population, technological trends and society’s acceptance of people with disabilities — each of the markets of Europe and in Asia/Pacific have distinctive characteristics. The health care industry is more heavily socialized and, therefore, is more influenced by government regulation and fiscal policy. Variations in product specifications, regulatory approval processes, distribution requirements and reimbursement policies require the company to tailor its approach. Management believes that as the European markets become more homogenous and the company continues to refine its distribution channels, the company can more effectively penetrate these markets. Likewise, the company expects to increase its sales in the highly fragmented Australian, New Zealand and Asian markets.

The company is directly affected by government regulation and reimbursement policies in virtually every country in which the company operates. In the United States, the growth of health care costs has increased at rates in excess of the rate of inflation and as a percentage of GDP for several decades. A number of efforts to control the federal deficit have impacted reimbursement levels for government sponsored health care programs, and private insurance companies and state Medicaid programs peg their reimbursement levels to Medicare.

Similar efforts are being undertaken in other countries, including for example Germany. Reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end-user can obtain and, thus, affect the product mix, pricing and payment patterns of our customers who are medical equipment providers. The company believes its strong market position and technical expertise will allow it to respond to ongoing regulatory changes. However, the issues described above will likely continue to have significant impacts on the pricing of the company’s products.

GEOGRAPHICAL SEGMENTS AND PRODUCT CATEGORIES

North America

North America includes: North America/Home Medical Equipment (NA/HME), Invacare Supply Group (ISG) and Institutional Products Group (IPG).

North America/HME

This segment includes: Rehab, Standard and Respiratory product lines as discussed below.

REHAB PRODUCTS

Power Wheelchairs.   Invacare manufactures a complete line of power wheelchairs for individuals who require independent powered mobility. The range includes products that can be significantly customized to meet an individual’s specific needs, as well as products that are inherently versatile and meet a broad range of individual requirements. Power wheelchair lines are marketed under the Invacare®   Storm Series®   and TDX™ brand names and include a full range of powered mobility products. The Storm Series®   TDX™ line of power wheelchairs offer an unprecedented combination of power, stability and maneuverability. The Pronto®   Series Power Wheelchairs with SureStep™ feature center-wheel drive performance for exceptional maneuverability and intuitive driving. Power tilt and recline systems are offered as well.

Custom Manual Wheelchairs.   Invacare manufactures and markets a range of custom manual wheelchairs for everyday, sports and recreational uses. These lightweight chairs are marketed under the Invacare®   and Invacare Top End®   brand names. The chairs provide mobility for people with moderate to severe disabilities in their everyday activities as well as for use in various sports such as basketball, racing and tennis.


Personal Mobility.   Invacare manufactures the AT’m portable power wheelchair for consumers needing light duty powered mobility with the ability to quickly disassemble and be transported even in a compact or mid-sized vehicle. In addition, Invacare distributes two portable, compact scooters for consumers needing powered mobility and capable of operating a tiller. The Lynx model scooters are available in three-wheel and four-wheel versions.

Seating and Positioning Products.   Invacare markets seat cushions, back supports and accessories under three series. Invacare®   Absolute™ Series provides simple seating solutions for comfort, fit and function. Invacare InTouch™ Series includes versatile modular seating, providing optimal rehab solutions. Invacare PinDot™ Series offers custom seating solutions personalized for the most challenged clients. The company also has a product line of seating products and wheelchairs for the pediatric market.

STANDARD PRODUCTS

Manual Wheelchairs.   Invacare’s manual wheelchairs are sold for use inside and outside the home, institutional settings, or public places. Our clients include people who are chronically or temporarily disabled and require basic mobility performance with little or no frame modification. Examples of our manual wheelchair lines, which are marketed under the Invacare®   brand name, include the 9000 and Tracer®   product lines. These lines offer wheelchairs that are designed to accommodate the diverse capabilities and unique needs of the individual from petite to bariatric sizes.

Personal Care.   Invacare manufactures and/or distributes a full line of personal care products, including ambulatory aids such as crutches, canes, walkers and wheeled walkers. This category also features the Value Line Rollator, one of the latest Value Line products. Value Line products are products that are cost-effective, easy to use and contain the features and benefits that providers, clinicians and individuals require. Also available are safety aids such as tub transfer benches, shower chairs and grab bars, and patient care products such as commodes and other toilet assist aids.

Home Care Beds.   Invacare manufactures and distributes a wide variety of manual, semi-electric and fully electric beds for home use under the Invacare®   brand name. Home care bed accessories include bedside rails, mattresses, overbed tables, trapeze bars and traction equipment. Also available are new bariatric beds and accompanying accessories to serve the special needs of bariatric patients.

Low Air Loss Therapy Products.   Invacare manufactures and/or distributes a complete line of mattress overlays and replacement products, under the Invacare®   brand name. These products, which use air flotation to redistribute weight and move moisture away from patients, assist in the total care of those who are immobile and spend a great deal of time in bed.

Patient Transport.   Invacare manufactures and/or distributes products needed to assist in transferring individuals from surface to surface (bed to chair) or transporting from room to room. Designed for use in the home and institutional settings, these products include patient lifts and slings, and a new series of mobile, multi-functional recliners.

RESPIRATORY PRODUCTS

Invacare manufactures and/or distributes home respiratory products, including: oxygen concentrators, HomeFill™ oxygen transfilling systems, sleep apnea products, aerosol therapy and other respiratory products. The company’s home respiratory products are marketed predominantly under the Invacare®   brand name. The Invacare®   HomeFill™ II Oxygen Compressor enables people to safely and easily make compressed oxygen in their home and store it in cylinders for future use.

OTHER PRODUCTS

Invacare also manufactures markets and distributes many accessory products, including spare parts, wheelchair cushions, arm rests, wheels and respiratory parts. In some cases, the company’s accessory items are built to be interchangeable so that they can be used to replace parts on products manufactured by others.


Invacare Supply Group

Invacare distributes numerous lines of branded medical supplies including ostomy, incontinence, diabetic, interals, wound care, urology and miscellaneous home medical products, as well as home medical equipment aids for daily living. Invacare Supply Group (ISG) also sells through the retail market.

Institutional Products Group

Invacare, operating as Institutional Products Group (IPG), is a manufacturer and distributor of health care furnishings including beds, case goods and patient handling equipment for the long-term care markets, specialty clinical recliners for dialysis and oncology clinics and certain other home medical equipment and accessory products.

Asia/Pacific

The company’s Asia/Pacific operations consist of Invacare Australia, which distributes the Invacare range of products which includes: manual and power wheelchairs, lifts, ramps, beds, furniture and pressure care products; Dynamic Controls, a New Zealand manufacturer of electronic operating components used in power wheelchairs and scooters; Invacare New Zealand, a distributor of a wide range of home medical equipment; and Invacare Asia, which imports and distributes home medical equipment to the Asian markets.

Europe

The company’s European operations operate as a “common market” company with sales throughout Europe. The European operations currently sell a line of products providing room for growth as Invacare continues to broaden its product line offerings to more closely resemble those of its North American operations.

Most wheelchair products sold in Europe are designed locally to meet specific market requirements. The company manufactures and/or assembles both manual and power wheelchair products at the following European facilities: Invacare UK Ltd. in the United Kingdom, Invacare Poirier S.A.S. in France, Invacare (Deutschland) GmbH in Germany, and Ulrich Alber GmbH in Germany. Manual wheelchair products are also manufactured and/or assembled at Invacare Portugal, Kuschall AG in Switzerland (the Kuschall range), and Invacare Rea AB in Sweden, beds and patient lifts at EC-Hong A/S in Denmark and personal care products at Aquatec GmbH in Germany and Dolomite AB in Sweden. Oxygen products such as concentrators and homefill are imported from Invacare U.S. or China operations.

For information relating to net sales by product group, see Business Segments in the Notes to the Consolidated Financial Statements included in this report.

WARRANTY

Generally, the company’s products are covered from the date of sale to the customer by warranties against defects in material and workmanship for various periods depending on the product. Certain components carry a lifetime warranty.

COMPETITION

North America and Asia/Pacific

The home medical equipment market is highly competitive and Invacare products face significant competition from other well-established manufacturers. The company believes that its success in increasing market share is dependent on providing value to the customer based on the quality, performance and price of the company products, the range of products offered, the technical expertise of the sales force, the effectiveness of the company distribution system, the strength of the dealer and distributor network and the availability of prompt and reliable service for its products. Various manufacturers, from time to time, have instituted price-cutting programs in an effort to gain market share and may do so again in the future.


Europe

As a result of the differences encountered in the European marketplace, competition generally varies from one country to another. The company typically encounters one or two strong competitors in each country, some of them becoming regional leaders in specific product lines.

MARKETING AND DISTRIBUTION

North America and Asia/Pacific

Invacare’s products are marketed in the United States and Asia/Pacific primarily to providers who in turn sell or rent these products directly to consumers within the non-acute care setting. Invacare’s primary customer is the home medical equipment (HME) provider. The company also employs a “pull-through” marketing strategy to medical professionals, including physical and occupational therapists, who refer their patients to HME providers to obtain specific types of home medical equipment, as well as to consumers, who express a product or brand preference.

Invacare’s domestic sales and marketing organization consists primarily of a home care sales force, which markets and sells Invacare® branded products to HME providers. Each member of Invacare’s home care sales force functions as a Territory Business Manager (TBM) and handles all product and service needs for an account, thus saving customers’ valuable time. The TBM also provides training and servicing information to providers, as well as product literature, point-of-sale materials and other advertising and merchandising aids. In Canada, products are sold by a sales force and distributed through regional distribution centers in Quebec to health care providers throughout Canada.

The Inside Sales Department provides increased sales coverage of smaller accounts and complements the efforts of the field sales force. Inside Sales offers cost-effective sales coverage through a targeted telesales effort, and has delivered solid sales growth since its existence.

The company’s Technical Education department offers education programs that continue to place emphasis on improving the productivity of repair technicians. The Service Referral Network includes numerous providers who honor the company’s product warranties regardless of where the product was purchased. This network of servicing providers seeks to ensure that all consumers using Invacare products receive quality service and support that is consistent with the Invacare brand promise.

The company sells distributed products, primarily soft goods and disposable medical supplies, through ISG. ISG products include ostomy, incontinence, wound care and diabetic supplies, as well as other soft goods and disposables. ISG markets its products through field account managers, inside telesales, a customer service department and the Internet. Additionally, ISG entered the long-term care market on a regional basis and markets to those nursing homes utilizing a direct outside sales force. ISG also markets a Home Delivery Program to home medical equipment providers through which ISG drop ships supplies in the provider’s name to the customer’s address. Thus, providers have no products to stock, no minimum order requirements and delivery is made within 24 to 48 hours nationwide.

In 2007, Invacare ended its relationship with Arnold Palmer, its national spokesperson, as part of the company’s cost-cutting initiatives. Moving forward, Invacare, through the company’s co-op advertising program, developed new direct response television commercials designed to generate demand for Invacare Power Chairs and the HomeFill Oxygen System sold by the home medical equipment provider in the U.S. The Company’s North America HME Division also introduced a new marketing and advertising campaign, “Impossible Stops Here.” The goal of this new campaign is for providers to believe that if they align themselves with Invacare – the only company that has the right products, the right programs, and the right services – they will survive today’s seemingly impossible industry conditions.  This theme has been incorporated into all trade advertising and marketing ventures.  It also was the central theme of the 2007 Medtrade booth. Impossible Stops Here does not replace “Yes, You Can®.”  “Yes, You Can” continues to be Invacare’s global tagline, and it remains steadfast in the new HME ads and indicative of the company’s “can do” attitude.


The company continues to improve performance and usability on www.invacare.com. In 2008, the company will focus on the implementation of a new website platform and web interface for Invacare.com/Invacare.ca, and Invacare Pro. The goal will be to create a more usable web presence, concentrating on a customer-centric approach that will allow the company to field a user interface that more closely represents customer needs.

Also in 2007, the company continued its strategic advertising campaign in key trade publications that reach the providers of home medical equipment. The company also contributed extensively to editorial coverage in trade publications concerning the products the company manufactures and our representatives attended numerous trade shows and conferences on a national and regional basis in which Invacare products were displayed to providers, health care professionals and consumers.

The company continues to generate greater consumer awareness of its products. This was evidenced by the company’s sponsorship of a variety of wheelchair sporting events and support of various philanthropic causes benefiting the consumers of our products. For the fourteenth consecutive year, Invacare continued as a National Corporate Partner with Easter Seals, one of the most recognized charities in the United States that meets the needs of both children and adults with various types of disabilities. The company also continued its sponsorships of individual wheelchair athletes and teams, including several of the top-ranked male and female racers, hand cyclists, and wheelchair tennis players in the world. In addition, Invacare was the title sponsor for the ninth year in a row of the Invacare World Team Cup of Wheelchair Tennis Tournament, which took place in June in Sweden. The company also continued its support of disabled veterans through its sponsorship of the 27th National Veterans Wheelchair Games, the largest annual wheelchair sports event in the world. The games bring a competitive and recreational sports experience to military service veterans who use wheelchairs for their mobility needs due to spinal cord injury, neurological conditions or amputation.

Europe

The company’s European operations consist primarily of manufacturing, marketing and distribution operations in Western Europe and export sales activities through local distributors elsewhere in the world. The company has a sales force and where appropriate, distribution centers, in the United Kingdom, France, Germany, Belgium, Portugal, Spain, Italy, Denmark, Sweden, Switzerland, Austria, Norway and the Netherlands, and sells through distributors elsewhere in Europe. In markets where the company has its own sales force, product sales are typically made through dealers of medical equipment and, in certain markets, directly to government agencies. In 2007, the continued consolidation of big buying groups tending to develop their business on a European scale has confirmed itself. As a result, Invacare is generalizing the application of pan-European pricing policies.

The company’s top 10 customers accounted for approximately 10% of 2007 net sales. The loss of business of one or more of these customers or buying groups may have a significant impact on the company, although no single customer accounted for more than 3% of the company’s 2007 net sales. Providers who are part of a buying group generally make individual purchasing decisions and are invoiced directly by the company.

PRODUCT LIABILITY COSTS

The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in annual aggregate losses arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.


Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon third-party actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the third-party actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss award settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company accepts responsibility for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.
 
PRODUCT DEVELOPMENT AND ENGINEERING

Invacare is committed to continuously improving its existing product lines in a focused manner. In 2007, new product development continued to be a focus as part of Invacare’s strategy to gain market share and maintain a competitive advantage along with beginning to globally standardize certain product platforms. To this end, the company introduced several new products and product enhancements. The following are some of the most significant 2007 product developments:

North America/HME

The TDX®   Spree , the latest addition to the new TDX Series of power wheelchairs, gives children access to areas that were not previously reachable. It also ensures a smooth ride in everyday terrain. Its center-wheel drive technology gives the driver intuitive maneuverability.  Other distinguishing features include standard five-inch elevating seat, low starting seat-to-floor height of 14 and a 1/2 inches, transport tie-downs and an option of a manual or power tilt.

The Pronto® M51™ power wheelchair with Formula™ CG Powered Tilt offers a full 55-degrees of tilt with a 300 lb. weight capacity that helps to enhance comfort through positioning and pressure relief. True center-wheel drive offers intuitive driving while SureStep ® technology allows for smooth, stable driving over thresholds and transitions up to two-inches in height.

The Invacare® Intouch™ Propel™ back is a new general purpose back that is extremely lightweight and comfortable. Installation is easy with little hardware required. Also, the rigid shell coupled with a soft contoured foam cushion provides gentle support and facilitates postural symmetry.

The Lynx™ L-3X   compact scooter is a compact, yet powerful scooter that has all of the comforts of a larger scooter, including more travel range, foot space and comfort for a variety of consumers.

The Perfecto2™ oxygen concentrator is the smallest, lightest, quietest and most energy efficient 5-liter concentrator ever produced by Invacare. It is 75% quieter, 25% more energy efficient, 17% lighter and 33% smaller than the Platinum XL concentrator.

The new line of HomeFill® Post Valve cylinders gives portable oxygen patients more choices and flexibility than ever before. The new cylinders expand Invacare’s line of HomeFill cylinders, which already includes integrated continuous flow regulators and integrated pneumatic conservers, thereby meeting the needs of a variety of ambulatory oxygen patients.

The much anticipated XPO2™ portable concentrator recently received 510(K) clearance and is expected to be ready to launch in the first quarter of 2008. The XPO2 , named for its extreme portability, is a small, lightweight, durable portable concentrator that is also clinically robust. It will offer a pulse dose oxygen delivery system with settings from one to five, and weigh a mere six pounds.


The Invacare aerosol therapy product line is expanding to better meet both patient and provider needs. New to the line is the Invacare® select aerosol compressor, a simple, yet effective and reliable unit that will be economically priced and packaged with a disposable nebulizer. The select aerosol compressor joins the popular Stratos™ Compact aerosol compressor – now featuring a smaller footprint and reusable nebulizer – and the Stratos™ Portable Plus that now has a higher flow compressor that can drive a standard nebulizer.

Invacare Standard Products will launch a new line of Therapeutic Support Surfaces (TSS).  This line includes the Invacare® Solace™ Foam and Invacare® MicroAir™ Powered TSS Products . These products represent the first time that a complete line of TSS products has been available nationwide under a single trusted brand name. The products offer unique improvements resulting in a line that blends technology with comfort.

The Invacare® Knee Rollator is a great alternative for those who experience discomfort when using crutches.  The Knee Rollator features a comfortable knee pad for resting the injured limb, and it is easily maneuverable with its five-inch front swivel wheels.

The new Veranda™ standard wheelchairs have been designed with durability and value in mind to maximize the provider's return on their investment. Available with a choice of removable or permanent arm styles and a choice of front riggings, the Veranda wheelchairs accommodate the needs of the market. These economical wheelchairs are practical, yet sleek, with powder coated steel frames and durable nylon upholstery.

Asia/Pacific

Asia/Pacific continued various range extensions and design improvements to products during 2007 as well as new scooter controllers such as the controllers for Invacare’s MK6i™ product range.

Europe

During 2007, Europe introduced fourteen new products.  The following are some of the most significant 2007 product developments:
 
Action Vertic® is a new manually driven wheelchair featuring an electrically driven standing device. In fact, the wheelchair has been designed for active users who want to combine active drive and when needed, be able to stand up being supported by the standing device.

Action 3 Junior® is a lightweight, foldable pediatric wheelchair designed for children aged between 3 and 15 years. Action 3 Junior® has been developed to match the individual needs of the child and can grow as they grow. As a child’s needs change, the Action 3 Junior® offers a large range of options to accompany the child in their development to provide the necessary clinical support.

Rea® Azalea™ Tall is specially designed to meet the needs of tall users who require a “Tilt in Space Wheelchair” with a longer seat support. Adapted from the Rea® Azalea™, the Rea® Azalea™ Tall boasts all the advantages of a reliable, tilting wheelchair and offers a unique weight-shifting mechanism.

Kuschall’s R-33 is a new high active wheelchair based on K-Series’ concept with either an integrated central suspension or a fixed seat support, depending on the customer’s needs.

The Invacare® Rea Spin x™ is a lightweight foldable wheelchair for the middle active segment. The wheelchair features an inbuilt postural frame with a fully adjustable seat for ergonomic seating posture for the user. The wheelchair is made of lightweight materials and is equipped with a dual folding mechanism to allow transportation with ease.
 


Invacare® Leo™ is a 4-wheel scooter designed for all those that value their independence and wish to get out and about unaided. Safety is a key feature of the Invacare® Leo™, but this does not detract from its stylish and sporty looks. Invacare® Leo™ offers users the freedom and confidence to enjoy their essential daily outings and leisure excursions.

Invacare® Lynx™ is the portable micro scooter which eases your way to independency. The Invacare® Lynx™ helps to accomplish daily activities effortlessly. Thanks to its micro proportions and its light weight, it fits easily in the trunk of a car and is straightforward to dismantle.

The Invacare®  twilight™ Mask designed  by patients for patients is the ideal mask for users that require nasal ventilation with CPAP or BiPAP and offers optimum compliance for those suffering from sleep and breathing disorders. This uniquely comfortable design offers an innovative, multi-patented mask that not only maximizes comfort and ease of use but also has effective sealing and total stability. The Twilight™ is available in three sizes. Each mask can be easily altered to comfortably fit the face, thanks to an adjustable forehead support.

Alber’s Quix Q10 is the first auxiliary drive for manual wheelchairs that can steer with a handlebar like a bike. This makes it extremely simple to operate and highly maneuverable. It is a power add-on drive with tiller control and is easy to handle because of the new handle bar, fits to almost every wheelchair, driving range up to 15 km (9.4 miles), very swift for indoor use, easy to dismantle and ideal for transporting.

An “electronic spare part list” has been introduced across the European Invacare after sales service departments, which improves product spare part selection and improves customer service.

MANUFACTURING AND SUPPLIERS

The company’s objective is to continue to reduce costs through facility consolidation and headcount reductions along with reducing fixed costs through transitioning to more assembly operations while maintaining the highest quality supply chain in the industry. The company seeks to achieve this objective through a strategic combination of Invacare manufacturing facilities, contract manufacturing facilities, and key suppliers. The operational strategy further supports the marketing strategy with flexible providers of new and modified products that respond to the demands of the market.

The supply chain is focused on providing custom, configured, made-to-order products from facilities close to the customers in each of its major markets. As strategic choices are made globally, those facilities that remain in higher-cost regions of North America and Europe will be very focused factories that provide these specific competitive advantages to the marketing and sales teams.

The company continues to place specific emphasis on shifting production over the next few years to Asian sourcing opportunities, including China and India, which is a component of the company’s multi-year manufacturing and distribution strategy and supports the company-wide cost reduction goals. Access to sourcing opportunities has been facilitated by our establishment of a full test and design engineering facility in our location in Suzhou, China. In Asia, Invacare manufactures products with intellectual property and high value add margins that serve local market opportunities through our wholly owned factory in Suzhou, Jiangsu Province, China. The Suzhou facility supplies products to the major regions of the world served by Invacare: North America, Europe and Asia/Pacific.

Best practices in lean manufacturing are used throughout the operations to eliminate waste, shorten lead times, optimize inventory, improve productivity, drive quality and engage supply chain associates in the definition and implementation of needed change.


The company purchases raw materials, components, sub-assemblies, and finished goods from a variety of suppliers globally. The company’s Hong Kong-based Asian sourcing and purchasing office has proven to be a significant asset to our supply chain through its development and management of suppliers across Asia. Where appropriate, Invacare utilizes contracts with suppliers in all regions to increase the guarantees of delivery, cost, quality and responsiveness. In those situations where contracts are not advantageous, Invacare works to manage multiple sources of supply and relationships that provide increased flexibility to the supply chain.

North America

The company has focused its factories in North America on the final assembly of powered mobility and custom manual wheelchairs, the fully integrated manufacture of homecare and institutional care beds, the final assembly of respiratory products and the integrated component fabrication, painting, and final assembly of a variety of standard manual wheelchairs and commodes. The company operates four major factories located in Elyria, Ohio; Sanford, Florida; London, Ontario and Reynosa, Mexico.

Asia/Pacific

The company continues to aggressively integrate its operations in Australia to maximize the leverage of operational efficiencies.

Europe

The company has eleven manufacturing facilities spread throughout Europe with a capability to manufacture patient aid, wheelchair, powered mobility, bath safety, beds and patient transport products. The European manufacturing and logistics facilities are focused on accelerating opportunities for streamlining to gain significant synergies in cost and quality over the next few years.

GOVERNMENT REGULATION

The company is directly affected by government regulation and reimbursement policies in virtually every country in which it operates. Government regulations and health care policy differ from country to country, and within some countries (most notably the U.S., European Union, Australia, Canada and increasingly Asia), from state to state or province to province. Changes in regulations and health care policy take place frequently and can impact the size, growth potential and profitability of products sold in each market.

  In the U.S., the growth of health care costs has increased at rates in excess of the rate of inflation and as a percentage of GDP for several decades. A number of efforts to control the federal deficit have impacted reimbursement levels for government sponsored health care programs and private insurance companies often imitate changes made in federal programs. Reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end user can obtain and thus, affect the product mix, pricing and payment patterns of the company’s customers who are the HME providers.

The company continues its pro-active efforts to shape public policy that impacts home and community-based, non-acute health care. The company is currently very active with federal legislation and regulatory policy makers. Invacare believes that these efforts give the company a competitive advantage in two ways. First, customers frequently express appreciation for our efforts on behalf of the entire industry. Second, sometimes the company has the ability to anticipate and plan for changes in public policy, unlike most other HME manufacturers who must react to change after it occurs.

The Safe Medical Devices Act of 1990 and Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetics Act of 1938 (the “Acts”) provide for regulation by the United States Food and Drug Administration (the “FDA”) of the manufacture and sale of medical devices. Under the Acts, medical devices are classified as Class I, Class II or Class III devices. The company’s principal products are designated as Class I or Class II devices. In general, Class I devices must comply with labeling and record keeping requirements and are subject to other general controls. In addition to general controls, certain Class II devices must comply with product design and manufacturing controls established by the FDA. Domestic and foreign


manufacturers of medical devices distributed commercially in the U.S. are subject to periodic inspections by the FDA. Furthermore, state, local and foreign governments have adopted regulations relating to the design, manufacture and marketing of health care products. During the past two years, the company was inspected by the FDA at eight domestic and foreign locations, with no adverse inspectional findings noted. In addition, the management systems of all locations required to meet ISO 13485 requirements for Canada, Europe and other foreign markets were inspected during 2007 and found to be certifiable.

From time to time, the company may undertake voluntary recalls or field corrective actions of our products to maintain ongoing customer relationships and to enhance its reputation for adhering to high standards of quality and safety. None of the company’s actions has been classified by the FDA as high risk (Class I). The company continues to strengthen its programs to better ensure compliance with applicable regulations, particularly those which could have a material adverse effect on the company.

The company occasionally sponsors clinical studies, usually involving its respiratory or sleep products. These studies have historically been non-significant risk studies with human subjects. Effective December 27, 2007, such studies, their protocols, participant criteria and all results, must be registered in the Clinical Registry managed by the National Institutes of Health and available to the public via the Internet, according to a new law that was part of the FDA Amendments Act signed September 27, 2007 (Public Law 110-85).

Although there are a number of reimbursement related issues in most of the countries in which Invacare competes, the issues of primary importance are currently in the United States. There are two critical issues for Invacare: eligibility for reimbursement for power wheelchairs for elderly patients and the provisions of the 2003 legislation related to prescription drug coverage under Medicare. With regard to power wheelchairs, the Centers for Medicare and Medicaid Services, or “CMS,” implemented in late 2006 a series of changes to the eligibility, documentation, codes and payment rules that has impacted the predictability and access to this benefit. Invacare and the home care industry are working hard to convince the CMS and the Bush administration to make pragmatic changes that are consistent with industry practices, to afford seniors appropriate access to their home medical equipment. With regard to the 2003 legislation, CMS is now implementing a "competitive acquisition" program in ten large metropolitan areas, beginning July 1, 2008.  An additional 70 metropolitan areas also will participate in this program, beginning sometime in 2009.  See “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

In 2009, the competitive bidding program will be extended to 70 of the largest metropolitan regions. In early 2006, Congress passed the Deficit Reduction Act which includes payment cuts to home oxygen that will take effect in January 2009.

Although none of these changes are beneficial to the home care industry, the company believes that it can still grow and thrive in this environment. The home care industry has not received any cost-of-living adjustments over the last few years and will try to respond with improved productivity to address the lack of support from Congress. In addition, the company’s new products (for example, the HomeFill™ low-cost oxygen delivery system), can help address the cuts the home care provider has to endure. Moreover, effective January 1, 2007, Medicare provided for increased payment for this new technology which further enhances the cost advantages this technology offers.  The company will continue to focus on developing products that help the provider improve profitability.   Additionally, the company plans to accelerate our activities in China to make sure that the company is one of the lowest cost manufacturers and distributors to the home care provider.

BACKLOG

The company generally manufactures most of its products to meet near-term demands by shipping from stock or by building to order based on the specialty nature of certain products. Therefore, the company does not have substantial backlog of orders of any particular product nor does it believe that backlog is a significant factor for its business.

EMPLOYEES

As of December 31, 2007, the company had approximately 5,700 employees.


FOREIGN OPERATIONS AND EXPORT SALES

The company also markets its products for export to other foreign countries. In 2007, the company had product sales in over 80 countries worldwide. For information relating to net sales, operating income and identifiable assets of the company’s foreign operations, see Business Segments in the Notes to the Consolidated Financial Statements.

AVAILABLE INFORMATION

The company files Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments thereto, as well as proxy statements and other documents with the Securities and Exchange Commission (SEC). The public may read and copy any material that the company files with the SEC at the SEC’s Public Reference Room located at 100 F Street, NE, Washington D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website, www.sec.gov , which contains all reports, proxy statements and other information filed by the company with the SEC.

Additionally, Invacare’s filings with the SEC are available on or through the company’s website, www.invacare.com , as soon as reasonably practicable after they are filed electronically with, or furnished to, the SEC. Copies of the company’s filings also can be requested, free of charge, by writing to: Shareholder Relations Department, Invacare Corporation, One Invacare Way, P.O. Box 4028, Elyria, OH 44036-2125.

FORWARD-LOOKING INFORMATION

This Form 10-K contains forward-looking statements within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Terms such as “will,” “should,” “plan,” “intend,” “expect,” “continue,” “forecast”, “believe,” “anticipate” and “seek,” as well as similar comments, are forward-looking in nature. Actual results and events may differ significantly from those expressed or anticipated as a result of risks and uncertainties which include, but are not limited to, the following: possible adverse effects of being substantially leveraged, which could impact our ability to raise capital, limit our ability to react to changes in the economy or our industry or expose us to interest rate or event of default risks; changes in government and other third-party payor reimbursement levels and practices; consolidation of health care providers and our competitors; loss of key health care providers; ineffective cost reduction and restructuring efforts; inability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs; extensive government regulation of our products; lower cost imports; increased freight costs; failure to comply with regulatory requirements or receive regulatory clearance or approval for our products or operations in the United States or abroad; potential product recalls; uncollectible accounts receivable; difficulties in implementing a new Enterprise Resource Planning system; legal actions or regulatory proceedings and governmental investigations; product liability claims; inadequate patents or other intellectual property protection; incorrect assumptions concerning demographic trends that impact the market for our products; provisions of Ohio law or in our debt agreements, our shareholder rights plan or our charter documents that may prevent or delay a change in control; the loss of the services of our key management and personnel; decreased availability or increased costs of raw materials which could increase our costs of producing our products; inability to acquire strategic acquisition candidates because of limited financing alternatives; risks inherent in managing and operating businesses in many different foreign jurisdictions; exchange rate fluctuations, as well as the risks described from time to time in Invacare’s reports as filed with the Securities and Exchange Commission. Except to the extent required by law, we do not undertake and specifically decline any obligation to review or update any forward-looking statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments or otherwise.


Item 1A.  Risk Factors .

The company’s business, operations and financial condition are subject to various risks and uncertainties. You should carefully consider the risks and uncertainties described below, together with all of the other information in this annual report on Form 10-K and in the company’s other filings with the SEC, before making any investment decision with respect to the company’s securities. The risks and uncertainties described below may not be the only ones the company faces. Additional risks and uncertainties not presently known by the company or that the company currently deems immaterial may also affect the company’s business. If any of these known or unknown risks or uncertainties actually occur or develop, the company’s business, financial condition, results of operations and future growth prospects could change.

Changes in government and other third-party payor reimbursement levels and practices have negatively impacted and could continue to negatively impact the company’s revenues and profitability.

The company’s products are sold through a network of medical equipment and home health care providers, extended care facilities, hospital and HMO-based stores, and other providers. Many of these providers (the company’s customers) are reimbursed for the products and services provided to their customers and patients by third-party payors, such as government programs, including Medicare and Medicaid, private insurance plans and managed care programs. Many of these programs set maximum reimbursement levels for some of the products sold by the company in the United States. If third-party payors deny coverage, make the reimbursement process or documentation requirements more uncertain or further reduce their current levels of reimbursement (i.e., beyond the reductions described below), or if the company’s costs of production increase faster than increases in reimbursement levels, the company may be unable to sell the affected product(s) through its distribution channels on a profitable basis.

Reduced government reimbursement levels and changes in reimbursement policies have in the past added, and could continue to add, significant pressure to the company’s revenues and profitability. Effective November 15, 2006, the CMS reduced the maximum reimbursement amount for power wheelchairs under Medicare by up to 28%, and implemented a series of other administrative changes that makes it more difficult for customers to provide power wheelchairs. Additionally, the Deficit Reduction Act of 2005 includes payment cuts for home oxygen equipment that will take effect in January 2009.
 
Largely as a consequence of the announced reimbursement reductions and the uncertainty created thereby, North American net sales were lower in 2007 and 2006 as compared to 2005 and Asia/Pacific sales were also negatively impacted as the U.S. reimbursement uncertainty in the power wheelchair market resulted in decreased sales of microprocessor controllers by the company’s Dynamic Controls subsidiary. Sales of respiratory products were particularly affected by the changes. Small and independent provider sales declined as these dealers slowed their purchases of the company’s HomeFill™ oxygen system product line, in part, until they had a clearer view of future oxygen reimbursement levels. Furthermore, a study issued by the Office of Inspector General or “OIG,” in September 2006 suggested that $3.2 billion in savings could be achieved over five years by reducing the reimbursed rental period from three years (the reimbursement period under current law) to 13 months.

  During 2007, the U.S. House of Representatives and U.S. Senate each drafted Medicare provisions that were not passed into law.  The House package included a proposal to reduce the home oxygen rental cap to 18 months, with an exemption for new technology such as Invacare’s Homefill system and portable oxygen concentrators.  The Senate package would have made payment cuts to traditional home oxygen equipment, but would have retained current payment levels for new oxygen technology such as the Homefill system and portable oxygen concentrators.  While it is unclear whether Congress will pass a Medicare bill this year, we expect Congress to continue consideration of these proposals in 2008.  The uncertainty created by these announcements may negatively impact the home oxygen equipment market.


Similar trends and concerns are occurring in state Medicaid programs. These recent changes to reimbursement policies, and any additional unfavorable reimbursement policies or budgetary cuts that may be adopted, could adversely affect the demand for the company’s products by customers who depend on reimbursement by the government-funded programs. The percentage of the company’s overall sales that are dependent on Medicare or other insurance programs may increase as the portion of the U.S. population over age 65 continues to grow, making the company more vulnerable to reimbursement level reductions by these organizations. Reduced government reimbursement levels also could result in reduced private payor reimbursement levels because some third-party payors may index their reimbursement schedules to Medicare fee schedules. Reductions in reimbursement levels also may affect the profitability of the company’s customers and ultimately force some customers without strong financial resources to go out of business. The reductions announced recently may be so dramatic that some of the company’s customers may not be able to adapt quickly enough to survive. The company is the industry’s largest creditor and an increase in bankruptcies in the company’s customer base could have an adverse effect on the company’s financial results.

Medicare will institute a new competitive bidding program for various items in ten large metropolitan areas beginning July 1, 2008. This program is designed to reduce Medicare payment levels for items that the Medicare program spends the most money on under the home medical equipment benefit, including oxygen and power wheelchairs. This new program will eliminate some providers from the competitive bidding markets, because only those providers who are chosen to participate (based largely on price) will be able to provide beneficiaries with items included in the bid. Medicare will be expanding the program to an additional 70 metropolitan areas in 2009. In addition, in 2009, Medicare has the authority to apply bid rates from bidding areas in non-bid areas. The competitive bidding program will result in reduced payment levels, that will vary by product category and by metropolitan area, and will depend in large part upon the level of bids the company’s customers submit in an effort to ensure they become approved contract suppliers. It is difficult to predict the specific reductions in payment levels that will result from this process.

Outside the United States, reimbursement systems vary significantly by country. Many foreign markets have government-managed health care systems that govern reimbursement for new home health care products. The ability of hospitals and other providers supported by such systems to purchase the company’s products is dependent, in part, upon public budgetary constraints. Canada and Germany and other European countries, for example, have tightened reimbursement rates and other countries may follow. If adequate levels of reimbursement from third-party payors outside of the United States are not obtained, international sales of the company’s products may decline, which could adversely affect the company’s net sales and would have a material adverse effect on the company’s business, financial condition and results of operations.

The impact of all the changes discussed above is uncertain and could have a material adverse effect on the company’s business, financial condition and results of operations.

The consolidation of health care customers and the company’s competitors could result in a loss of customers or in additional competitive pricing pressures.

Numerous initiatives and reforms instituted by legislators, regulators and third-party payors to reduce home medical equipment costs have resulted in a consolidation trend in the home medical equipment industry as well as among the company’s customers, including home health care providers. Some of the company’s competitors have been lowering the purchase prices of their products in an effort to attract customers. This in turn has resulted in greater pricing pressures, including pressure to offer customers more competitive pricing terms, and the exclusion of certain suppliers from important market segments as group purchasing organizations, independent delivery networks and large single accounts continue to consolidate purchasing decisions for some of the company’s customers. Further consolidation could result in a loss of customers, including increased collectibility risks, or in increased competitive pricing pressures.

The industry in which the company operates is highly competitive and some of the company’s competitors may be larger and may have greater financial resources than the company does.

The home medical equipment market is highly competitive and the company’s products face significant competition from other well-established manufacturers. Any increase in competition may cause the company to lose market share or compel the company to reduce prices to remain competitive, which could materially adversely affect the company’s results of operations.


If the company’s cost reduction efforts are ineffective, the company’s revenues and profitability could be negatively impacted.

In response to the reductions in Medicare power wheelchair and oxygen reimbursement levels and other governmental and third party payor pricing pressures and competitive pricing pressures, the company initiated cost reduction efforts and continues to implement further reductions. The company may not be successful in achieving the operating efficiencies and operating cost   reductions expected from these efforts, including the estimated cost savings described above, and the company may experience business disruptions associated with the restructuring and cost reduction activities, including the restructuring activities previously announced and, in particular, the company’s facility consolidations initiated in connection with these activities. These efforts may not produce the full efficiency and cost reduction benefits that the company expects. Further, these benefits may be realized later than expected, and the costs of implementing these measures may be greater than anticipated. If these measures are not successful, the company intends to undertake additional cost reduction efforts, which could result in future charges. Moreover, the company’s ability to achieve other strategic goals and business plans and the company’s financial performance may be adversely affected and the company could experience business disruptions with customers and elsewhere if the company’s cost reduction and restructuring efforts prove ineffective.

The company’s success depends on the company’s ability to design, manufacture, distribute and achieve market acceptance of new products with higher functionality and lower costs.

The company sells products to customers primarily in markets that are characterized by technological change, product innovation and evolving industry standards and in which product price is increasingly the primary consideration in customers’ purchasing decisions. The company is continually engaged in product development and improvement programs. The company must continue to design and improve innovative products, effectively distribute and achieve market acceptance of those products, and reduce the costs of producing the company’s products, in order to compete successfully with the company’s competitors. If competitors’ product development capabilities become more effective than the company’s product development capabilities, if competitors’ new or improved products are accepted by the market before the company’s products or if competitors are able to produce products at a lower cost and thus offer products for sale at a lower price, the company’s business, financial condition and results of operation could be adversely affected.

The company is subject to extensive government regulation, and if the company fails to comply with applicable laws or regulations, the company could suffer severe criminal or civil sanctions or be required to make significant changes to the company’s operations that could have a material adverse effect on the company’s results of operations.

The company sells its products principally to medical equipment and home health care providers who resell or rent those products to consumers. Many of those providers (the company’s customers) are reimbursed for the Invacare®   products sold to their customers and patients by third-party payors, including Medicare and Medicaid. The federal government and all states and countries in which we operate regulate many aspects of the company’s business. As a health care manufacturer, the company is subject to extensive government regulation, including numerous laws directed at preventing fraud and abuse and laws regulating reimbursement under various government programs. The marketing, invoicing, documenting and other practices of health care suppliers and manufacturers are all subject to government scrutiny. Government agencies periodically open investigations and obtain information from health care suppliers and manufacturers pursuant to the legal process. Violations of law or regulations can result in severe criminal, civil and administrative penalties and sanctions, including disqualification from Medicare and other reimbursement programs, which could have a material adverse effect on the company’s business. The company has established policies and procedures that the company believes are sufficient to ensure that the company will operate in substantial compliance with these laws and regulations.


The company received a subpoena in 2006 from the U.S. Department of Justice seeking documents relating to three long-standing and well-known promotional and rebate programs maintained by the company. The company believes the programs described in the subpoena are in compliance with all applicable laws and the company is cooperating fully with the government investigation which is currently being conducted out of Washington, D.C. There can be no assurance that the company’s business or financial condition will not be adversely affected by the government investigation.

Health care is an area of rapid regulatory change. Changes in the law and new interpretations of existing laws may affect permissible activities, the costs associated with doing business, and reimbursement amounts paid by federal, state and other third-party payors. The company cannot predict the future of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations, or possible changes in health care policies in any country in which the company conducts business. Future legislation and regulatory changes could have a material adverse effect on the company’s business.

The company’s research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements.

The company’s research and development and manufacturing processes are subject to federal, state, local and foreign environmental requirements, including requirements governing the discharge of pollutants into the air or water, the use, handling, storage and disposal of hazardous substances and the responsibility to investigate and cleanup of contaminated sites. Under some of these laws, the company could also be held responsible for costs relating to any contamination at the company’s past or present facilities and at third-party waste disposal sites. These could include costs relating to contamination that did not result from any violation of law and, in some circumstances, contamination that the company did not cause. The company may incur significant   expenses relating to the failure to comply with environmental laws. The enactment of stricter laws or regulations, the stricter interpretation of existing laws and regulations or the requirement to undertake the investigation or remediation of currently unknown environmental contamination at the company’s own or third party sites may require the company to make additional expenditures, which could be material .

Lower cost imports could negatively impact the company’s profitability.

Lower cost imports sourced from Asia may negatively impact the company’s sales volumes. Competition from these products may force the company to lower our prices, cutting into the company’s profit margins and reducing the company’s overall profitability. Asian goods had a particularly strong negative impact on the company’s sales of Standard Products (this category includes products such as manual wheelchairs, canes, walkers and bath aids) during 2006 and 2007.

The company’s failure to comply with regulatory requirements or receive regulatory clearance or approval for the company’s products or operations in the United States or abroad could adversely affect the company’s business.

The company’s medical devices are subject to extensive regulation in the United States by the Food and Drug Administration, or the “FDA,” and by similar governmental authorities in the foreign countries where the company does business. The FDA regulates virtually all aspects of a medical device’s development, testing, manufacturing, labeling, promotion, distribution and marketing. In addition, the company is required to file reports with the FDA if the company’s products cause, or contribute to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious injury if the malfunction were to recur. In general, unless an exemption applies, the company’s wheelchair and respiratory medical devices must receive a pre-marketing clearance from the FDA before they can be marketed in the United States. The FDA also regulates the export of medical devices to foreign countries. The company cannot be assured that any of the company’s devices, to the extent required, will be cleared by the FDA through the pre-market clearance process or that the FDA will provide export certificates that are necessary to export certain of the company’s products.


Additionally, the company may be required to obtain pre-marketing clearances to market modifications to the company’s existing products or market its existing products for new indications. The FDA requires device manufacturers themselves to make and document a determination of whether or not a modification requires a new clearance; however, the FDA can review and disagree with a manufacturer’s decision. The company has applied for, and received, a number of such clearances in the past. The company may not be successful in receiving clearances in the future or the FDA may not agree with the company’s decisions not to seek clearances for any particular device modification. The FDA may require a clearance for any past or future modification or a new indication for the company’s existing products. Such submissions may require the submission of additional data and may be time consuming and costly, and may not ultimately be cleared by the FDA.

If the FDA requires the company to obtain pre-marketing clearances for any modification to a previously cleared device, the company may be required to cease manufacturing and marketing the modified device or to recall the modified device until the company obtains FDA clearance and the company may be subject to significant regulatory fines or penalties. In addition, the FDA may not clear these submissions in a timely manner, if at all. The FDA also may change its policies, adopt additional regulations or revise existing regulations, each of which could prevent or delay pre-market clearance of the company’s devices, or could impact the company’s ability to market a device that was previously cleared. Any of the foregoing could adversely affect the company’s business.

The company’s failure to comply with the regulatory requirements of the FDA and other applicable U.S. regulatory requirements may subject the company to administrative or judicially imposed sanctions. These sanctions include warning letters, civil penalties, criminal penalties, injunctions, product seizure or detention, product recalls and total or partial suspension of production.

In many of the foreign countries in which the company markets its products, the company is subject to extensive regulations that are similar to those of the FDA, including those in Europe. The regulation of the company’s products in Europe falls primarily within the European Economic Area, which consists of the 27 member states of the European Union, as well as Iceland, Liechtenstein and Norway. Only medical devices that comply with certain conformity requirements of the Medical Device Directive are allowed to be marketed within the European Economic Area. In addition, the national health or social security organizations of certain foreign countries, including those outside Europe, require the company’s products to be qualified before they can be marketed in those countries. Failure to receive or delays in the receipt of, relevant foreign qualifications in the European Economic Area or other foreign countries could have a material adverse effect on the company’s business.

The company’s products are subject to recalls, which could harm the company’s reputation and business.

The company is subject to ongoing medical device reporting regulations that require the company to report to the FDA or similar governmental authorities in other countries if the company’s products cause, or contribute to, death or serious injury, or if they malfunction and would be likely to cause, or contribute to, death or serious injury if the malfunction were to recur. The FDA and   similar governmental authorities in other countries have the authority to require the company to do a field correction or recall the company’s products in the event of material deficiencies or defects in design or manufacturing. In addition, in light of a deficiency, defect in design or manufacturing or defect in labeling, the company may voluntarily elect to recall or correct the company’s products. A government mandated or voluntary recall/field correction by the company could occur as a result of component failures, manufacturing errors or design defects, including defects in labeling. Any recall/field correction would divert managerial and financial resources and could harm the company’s reputation with its customers, product users and the health care professionals that use, prescribe and recommend the company’s products. The company could have product recalls or field actions that result in significant costs to the company in the future, and these actions could have a material adverse effect on the company’s business .



The company’s reported results may be adversely affected by increases in reserves for uncollectible accounts receivable.

The company has a large balance of accounts receivable and has established a reserve for the portion of such accounts receivable that the company estimates will not be collected because of the company’s customers’ non-payment. The reserve is based on historical trends and current relationships with the company’s customers and providers. Changes in the company’s collection rates can result from a number of factors, including turnover in personnel, changes in the payment policies or practices of payors or changes in industry rates or pace of reimbursement. As a result of recent changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of consumer power wheelchairs and custom power wheelchairs, the business viability of several of the company’s customers has become questionable. The company’s reserve for uncollectible receivables has fluctuated in the past and will continue to fluctuate in the future. Changes in rates of collection or fluctuations, even if they are small in absolute terms, could require the company to increase its reserve for uncollectible receivables beyond its current level. The company has reviewed the accounts receivables associated with many of its customers that are most exposed to these issues. As part of the company’s 2006 financial results, the company recorded an incremental accounts receivable reserve of $26.8 million and continues to closely monitor collections and the credit-worthiness of the company’s customers.  Total provision for bad debt for the company in 2006 was $37.7 million.  In addition, during 2007, the company provided for an additional bad debt reserve of $11.9 million.

Difficulties in implementing a new Enterprise Resource Planning system have disrupted the company’s business.

During the fourth quarter of 2005, the company implemented the second phase of the company’s Enterprise Resource Planning, or “ERP,” system. Primarily as a result of the complexities and business process changes associated with this implementation, the company encountered a number of issues related to the start-up of the system, including difficulties in processing orders, customer disruptions and the loss of some business. While the company believes that the difficulties associated with implementing and stabilizing the company’s ERP system were temporary and have been addressed, there can be no assurance that the company will not experience additional ongoing disruptions or inefficiencies in the company’s business operations as a result of this new system implementation, the final phases of which are to be completed in 2008 or 2009.

The company may be adversely affected by legal actions or regulatory proceedings.

The company may be subject to claims, litigation or other liabilities as a result of injuries caused by allegedly defective products, acquisitions the company has completed or in the intellectual property area. Any such claims or litigation against the company, regardless of the merits, could result in substantial costs and could harm the company’s business. Intellectual property litigation or claims also could require the company to:

 
•
cease manufacturing and selling any of the company’s products that incorporate the challenged intellectual property;
 
 
•
obtain a license from the holder of the infringed intellectual property right alleged to have been infringed, which license may not be available on commercially reasonable terms, if at all; or
 
 
•
redesign or rename the company’s products, which may not be possible, and could be costly and time consuming.

The results of legal proceedings are difficult to predict and the company cannot provide any assurance that an action or proceeding will not be commenced against the company, or that the company will prevail in any such action or proceeding. An unfavorable resolution of any legal action or proceeding could materially and adversely affect the company’s business, results of operations, liquidity or financial condition.


Product liability claims may harm the company’s business, particularly if the number of claims increases significantly or the company’s product liability insurance proves inadequate.

The manufacture and sale of home health care devices and related products exposes the company to a significant risk of product liability claims. From time to time, the company has been, and is currently, subject to a number of product liability claims alleging that the use of the company’s products has resulted in serious injury or even death.

Even if the company is successful in defending against any liability claims, these claims could nevertheless distract the company’s management, result in substantial costs, harm the company’s reputation, adversely affect the sales of all the company’s products and otherwise harm the company’s business. If there is a significant increase in the number of product liability claims, the company’s business could be adversely affected.

The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in annual aggregate losses arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits as applicable. There can be no assurance that the company’s current insurance levels will continue to be adequate or available at affordable rates.

Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from a third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon third-party actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the third-party actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates are adjusted on a regular basis and can be impacted by actual loss awards or settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company is responsible for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.

In addition, as a result of a product liability claim or if the company’s products are alleged to be defective, the company may have to recall some of its products, which could result in significant costs to the company and harm the company’s business reputation.

If the company’s patents and other intellectual property rights do not adequately protect the company’s products, the company may lose market share to its competitors and may not be able to operate the company’s business profitably.

The company relies on a combination of patents, trade secrets and trademarks to establish and protect the company’s intellectual property rights in its products and the processes for the development, manufacture and marketing of the company’s products.

The company uses non-patented proprietary know-how, trade secrets, undisclosed internal processes and other proprietary information and currently employs various methods to protect this proprietary information, including confidentiality agreements, invention assignment agreements and proprietary information agreements with vendors, employees, independent sales agents, distributors, consultants, and others. However, these agreements may be breached. The FDA or another governmental agency may require the disclosure of this information in order for the company to have the right to market a product. Trade secrets, know-how and other unpatented proprietary technology may also otherwise become known to or independently developed by the company’s competitors.


In addition, the company also holds U.S. and foreign patents relating to a number of its components and products and has patent applications pending with respect to other components and products. The company also applies for additional patents in the ordinary course of its business, as the company deems appropriate. However, these precautions offer only limited protection, and the company’s proprietary information may become known to, or be independently developed by, competitors, or the company’s proprietary rights in intellectual property may be challenged, any of which could have a material adverse effect on the company’s business, financial condition and results of operations. Additionally, the company cannot assure that its existing or future patents, if any, will afford the company adequate protection or any competitive advantage, that any future patent applications will result in issued patents or that the company’s patents will not be circumvented, invalidated or declared unenforceable.

Any proceedings before the U.S. Patent and Trademark Office could result in adverse decisions as to the priority of the company’s inventions and the narrowing or invalidation of claims in issued patents. The company could also incur substantial costs in any proceeding. In addition, the laws of some of the countries in which the company’s products are or may be sold may not protect the company’s products and intellectual property to the same extent as U.S. laws, if at all. The company may also be unable to protect the company’s rights in trade secrets and unpatented proprietary technology in these countries.

In addition, the company holds patent and other intellectual property licenses from third parties for some of its products and on technologies that are necessary in the design and manufacture of some of the company’s products. The loss of these licenses could prevent the company from, or could cause additional disruption or expense in, manufacturing, marketing and selling these products, which could harm the company’s business.

The company’s operating results and financial condition could be adversely affected if the company becomes involved in litigation regarding its patents or other intellectual property rights.

Litigation involving patents and other intellectual property rights is common in the company’s industry, and companies in the company’s industry have used intellectual property litigation in an attempt to gain a competitive advantage. The company currently is, and in the future may become, a party to lawsuits involving patents or other intellectual property. Litigation is costly and time consuming. If the company loses any of these proceedings, a court or a similar foreign governing body could invalidate or render unenforceable the company’s owned or licensed patents, require the company to pay significant damages, seek licenses and/or pay ongoing royalties to third parties, require the company to redesign its products, or prevent the company from manufacturing, using or selling its products, any of which would have an adverse effect on the company’s results of operations and financial condition. The company has brought, and may in the future also bring, actions against third parties for an infringement of the company’s intellectual property rights. The company may not succeed in these actions. The defense and prosecution of intellectual property suits, proceedings before the U.S. Patent and Trademark Office or its foreign equivalents and related legal and administrative proceedings are both costly and time consuming. Protracted litigation to defend or prosecute the company’s intellectual property rights could seriously detract from the time the company’s management would otherwise devote to running its business. Intellectual property litigation relating to the company’s products could cause its customers or potential customers to defer or limit their purchase or use of the affected products until resolution of the litigation.

The company’s business strategy relies on certain assumptions concerning demographic trends that impact the market for its products. If these assumptions prove to be incorrect, demand for the company’s products may be lower than expected.

The company’s ability to achieve its business objectives is subject to a variety of factors, including the relative increase in the aging of the general population. The company believes that these trends will increase the need for its products. The projected demand for the company’s products could materially differ from actual demand if the company’s assumptions regarding these trends and acceptance of its products by health care professionals and patients prove to be incorrect or do not materialize. If the company’s assumptions regarding these factors prove to be incorrect, the company may not be able to successfully implement the company’s business strategy, which could adversely affect the company’s results of operations. In addition, the perceived benefits of these trends may be offset by competitive or business factors, such as the introduction of new products by the company’s competitors or the emergence of other countervailing trends.


The loss of the services of the company’s key management and personnel could adversely affect its ability to operate the company’s business.

The company’s future success will depend, in part, upon the continued service of key managerial, research and development staff and sales and technical personnel. In addition, the company’s future success will depend on its ability to continue to attract and retain other highly qualified personnel. The company may not be successful in retaining its current personnel or in hiring or retaining qualified personnel in the future. The company’s failure to do so could have a material adverse effect on the company’s business. These executive officers have substantial experience and expertise in the company’s industry. The company’s future success depends, to a significant extent, on the abilities and efforts of its executive officers and other members of its management team. If the company loses the services of any of its management team, the company’s business may be adversely affected.

The company’s Chief Executive Officer and certain members of management own shares representing a substantial percentage of the company’s voting power and their interests may differ from other shareholders.

The company has two classes of common stock. The Common Shares have one vote per share and the Class B Common Shares have 10 votes per share. As of January 1, 2008 the company’s chairman and CEO, Mr. A. Malachi Mixon, III, and certain members of management beneficially own up to approximately 34% of the combined voting power of the company’s Common Shares and Class B Common Shares and could influence the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the company’s assets. They will also have the power to influence or make more difficult a change in control. The interests of Mr. Mixon and his relatives may differ from the interests of the other shareholders and they may take actions with which some shareholders may disagree.  Mr. Mixon, however, is committed to the long-term interests of all shareholders.

Decreased availability or increased costs of raw materials could increase the company’s costs of producing its products.

The company purchases raw materials, fabricated components and services from a variety of suppliers. Raw materials such as plastics, steel, and aluminum are considered key raw materials. Where appropriate, the company employs contracts with its suppliers, both domestic and international. In those situations in which contracts are not advantageous, the company believes that its relationships with their suppliers are satisfactory and that alternative sources of supply are readily available. From time to time, however, the prices and availability of these raw materials fluctuate due to global market demands, which could impair the company’s ability to procure necessary materials, or increase the cost of these materials. Inflationary and other increases in costs of these raw materials have occurred in the past and may recur from time to time. In addition, freight costs associated with shipping and receiving product and sales are impacted by fluctuations in the cost of oil and gas. A reduction in the supply or increase in the cost of those raw materials could impact the company’s ability to manufacture its products and could increase the cost of production. As an example, the increased inflation in China has and will probably continue to impact the faster appreciation of the Yuan as well as have an unfavorable impact on the cost of key commodities, such as steel and aluminum. These impacts can have a negative impact on the profits of the company if these increases cannot be passed onto our customers.

Since the company’s ability to obtain further financing may be limited, the company may be unable to acquire strategic acquisition candidates.

The company’s plans include identifying, acquiring, and integrating other strategic businesses. There are various reasons for the company to acquire businesses or product lines, including providing new products or new manufacturing and service capabilities, to add new customers, to increase penetration with existing customers, and to expand into new geographic markets. The company’s ability to successfully grow through acquisitions depends upon its ability to identify, negotiate, complete and integrate suitable acquisitions and to obtain any necessary financing. The costs of acquiring other businesses could increase if competition for acquisition candidates increases. If the company is unable to obtain the necessary financing, it may miss opportunities to grow its business through strategic acquisitions.


Additionally, the success of the company’s acquisition strategy is subject to other risks and costs, including the following:
 
 
•
the company’s ability to realize operating efficiencies, synergies, or other benefits expected from an acquisition, and possible delays in realizing the benefits of the acquired company or products;
 
 
•
diversion of management’s time and attention from other business concerns;
 
 
•
difficulties in retaining key employees of the acquired businesses who are necessary to manage these businesses;
 
 
•
difficulties in maintaining uniform standards, controls, procedures and policies throughout acquired companies;
 
 
•
adverse effects on existing business relationships with suppliers or customers;
 
 
•
the risks associated with the assumption of contingent or undisclosed liabilities of acquisition targets; and
 
 
•
ability to generate future cash flows or the availability of financing.
 
In addition, an acquisition could materially impair the company’s operating results by causing the company to incur debt or requiring the amortization of acquisition expenses and acquired assets.
 
The company is subject to certain risks inherent in managing and operating businesses in many different foreign jurisdictions.
 
The company has significant international operations, including operations in Australia, New Zealand, Asia and Europe. There are risks inherent in operating and selling products internationally, including:
 
 
•
difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;
 
 
•
foreign customers who may have longer payment cycles than customers in the United States;
 
 
•
tax rates in certain foreign countries that may exceed those in the United States and foreign earnings that may be subject to withholding requirements;
 
 
•
the imposition of tariffs, exchange controls or other trade restrictions including transfer pricing restrictions when products produced in one country are sold to an affiliated entity in another country;
 
 
•
general economic and political conditions in countries where the company operates or where end users of the company’s products reside;
 
 
•
difficulties associated with managing a large organization spread throughout various countries;
 
 
•
difficulties in enforcing intellectual property rights and weaker intellectual property rights protection in some countries;
 
 
•
required compliance with a variety of foreign laws and regulations;
 
 
•
different regulatory environments and reimbursement systems; and
 
 
•
differing consumer product preferences.


The company’s revenues and profits are subject to exchange rate fluctuations that could adversely affect its results of operations or financial position.

Currency exchange rates are subject to fluctuation due to, among other things, changes in local, regional or global economic conditions, the imposition of currency exchange restrictions and unexpected changes in regulatory or taxation environments. The functional currency of the company’s subsidiaries outside the United States is the predominant currency used by the subsidiaries to transact business. Through the company’s international operations, the company is exposed to foreign currency fluctuations, and changes in exchange rates can have a significant impact on net sales and elements of cost.

The company uses forward contracts to help reduce its exposure to exchange rate variation risk. Despite the company’s efforts to mitigate these risks, however, the company’s revenues and profitability may be materially adversely affected by exchange rate fluctuations. The company also is exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. The company uses interest swap agreements to mitigate its exposure to interest rate fluctuations, but those efforts may not adequately protect the company from significant interest rate risks.

Certain provisions of the company’s debt agreements, its charter documents, its shareholder rights plan and Ohio law could delay or prevent the sale of the company.

Provisions of the company’s debt agreements, its charter documents, its shareholder rights plan and Ohio law may make it more difficult for a third party to acquire, or attempt to acquire, control of the company even if a change in control would result in the purchase of shares of the company at a premium to market price.  In addition, these provisions may limit the ability of shareholders of the company to approve transactions that they may deem to be in their best interest.

Item 1B .  Unresolved Staff Comments.

None

Item 2.  Properties .

The company owns or leases its warehouses, offices and manufacturing facilities and believes that these facilities are well maintained, adequately insured and suitable for their present and intended uses. Information concerning certain leased facilities of the company as of December 31, 2007 is set forth in Leases and Commitments in the Notes to the Consolidated Financial Statements of the company included in this report and in the table below:
 
North American/HME Operations
Square
Feet
Ownership
  Or Expiration  
Date of Lease
Renewal
      Options        
Use
Alexandria, Virginia
230
September 2008
None
Offices
Alpharetta, Georgia
11,605
December 2008
None
Warehouse and Offices
Arlington, Texas
63,626
May 2011
None
Warehouse
Atlanta, Georgia
91,418
April 2011
One (3 yr.)
Warehouse and Offices
Augusta, Georgia
3,200
September 2008
Two (1 yr.)
Warehouse and Offices
Edison, New Jersey
75,291
March 2010
None
Warehouse and Offices
Elyria, Ohio
 
 
 
 
—Taylor Street
251,656
Own
—
Manufacturing and Offices
—Cleveland Street
141,657
November 2010
None
Warehouse
—One Invacare Way
50,000
Own
—
Headquarters
—1320 Taylor Street
30,000
January 2010
One (5 yr.)
Offices
—1160 Taylor Street
4,800
Own
—
Warehouse and Offices
Hong Kong, China
2,557
December 2009
None
Offices
Kirkland, Quebec
26,196
November 2010
One (5 yr.)
Manufacturing, Warehouse and Offices



North American/HME Operations
Square
Feet
Ownership
Or Expiration
 Date of Lease
Renewal
      Options       
Use
Marlboro, New Jersey
2,800
Month to Month
None
Offices
Mississauga, Ontario
26,530
November 2011
Two (5 yr.)
Warehouse and Offices
Morton, Minnesota
26,900
June 2009
Two (4 yr.)
Manufacturing, Warehouse and Offices
North Ridgeville, Ohio
152,861
Own
—
Manufacturing, Warehouses and Offices
North Ridgeville, Ohio
33,000
Month to Month
None
Offices
Pharr, Texas
2,672
Month to Month
—
Warehouse
Pinellas Park, Florida
11,400
July 2008
None
Manufacturing and Offices
Pinellas Park, Florida
3,200
July 2008
One (1 yr.)
Manufacturing
Reynosa, Mexico
152,256
Own
—
Manufacturing and Offices
Richardson, Texas
7,920
December 2008
None
Warehouse and Offices
Sacramento, California
26,900
May 2008
One (3 yr.)
Manufacturing, Warehouse and Offices
Sanford, Florida
116,272
Own
—
Manufacturing and Offices
Scarborough, Ontario
5,428
February 2011
None
Manufacturing and Offices
Simi Valley, California
38,501
February 2009
Two (5 yr.)
Manufacturing, Warehouse and Offices
Spicewood, Texas
6,500
Month to Month
None
Manufacturing and Offices
Suzhou, China
45,208
May 2008
None
Manufacturing and Offices
Tonawanda, New York
7,515
March 2008
None
Warehouse and Offices
Traverse City, Michigan
1,344
Month to Month
None
Manufacturing and Offices
Vaughan, Ontario
19,063
June 2008
None
Manufacturing and Offices
Vaughan, Ontario
7,574
December 2010
None
Manufacturing and Offices
Invacare Supply Group
 
 
 
 
Atlanta, Georgia
45,866
May 2008
None
Warehouse and Offices
Grand Prairie, Texas
43,754
April 2008
One (3 yr.)
Warehouse and Offices
Jamesburg, New Jersey
83,200
November 2009
One (5 yr.)
Warehouse and Offices
Milford, Massachusetts
28,700
December 2015
None
Offices
Rancho Cucamonga, California
55,890
June 2009
None
Warehouse and Offices
South Bend, Indiana
48,000
August 2008
Two (5 yr.)
Warehouse
Elkhart, Indiana
43,268
October 2009
Two (5 yr.)
Manufacturing, Warehouses and Offices
London, Ontario
103,200
Own
—
Manufacturing and Offices
London, Ontario
5,648
Month to Month
—
Warehouse
Overland, Missouri
7,500
Month to Month
None
Offices
Asia/Pacific Operations
 
 
 
 
Adelaide, Australia
9,601
December 2010
One (3 yr.)
Manufacturing, Warehouse and Offices
Auckland, New Zealand
30,518
September 2008
Two (3 yr.)
Manufacturing, Warehouse and Offices
Brisbane, Australia
2,640
December 2008
One (3 yr.)
Warehouse and Offices
Broadview, Australia
16,146
October 2011
One (5 yr.)
Manufacturing, Warehouse and Offices
Christchurch, New Zealand
15,683
December 2014
Two (6 yr.)
Offices
Christchurch, New Zealand
80,213
December 2008
One (3 yr.)
Manufacturing, Warehouse and Offices
Melbourne, Australia
16,006
December 2012
One (5 yr.)
Manufacturing, Warehouse and Offices
Newtown, Australia
721
March 2008
One (1 yr.)
Retail
North Olmsted, Ohio
2,280
October 2008
One (3yr.)
Offices
Southport, Australia
1,119
Month to Month
One (3 yr.)
Retail
Stafford, Australia
2,906
May 2008
Open
Warehouse



Asia/Pacific Operations
Square
Feet
Ownership
Or Expiration
Date of Lease
 
Renewal
      Options       
Use
Suzhou, China
41,290
June 2010
—
Manufacturing and Offices
Sydney, Australia
42,477
February 2009
Two (3 yr.)
Warehouse and Offices
Taipei, Taiwan
2,153
June 2008
—
Offices
Taipei, Taiwan
845
 July 2008
—
Offices
Windsor, Australia
20,312
October 2008
Open
Manufacturing, Warehouse and Offices
Windsor, Australia
883
October 2008
Open
Manufacturing
Windsor, Australia
1,119
March 2008
Open
Manufacturing
Windsor, Australia
3,014
October 2008
Open
Retail
Windsor, Australia
3,498
March 2008
Open
Warehouse
Worcester, United Kingdom
15,865
June 2013
Two (6 yr.)
Warehouse and Offices
European Operations
 
 
 
 
Albstadt, Germany
78,494
February 2018
Two (5 yr.)
Manufacturing, Warehouse and Offices
Anderstorp, Sweden
47,560
Own
—
Manufacturing, Warehouse and Offices
Bergen, Norway
1,076
April 2009
One (5 yr.)
Warehouse and Offices
Bridgend, Wales
131,522
Own
—
Manufacturing, Warehouse and Offices
Brondby, Denmark
8,342
June 2008
One (1 yr.)
Warehouse and Offices
Cardiff, Wales
31,000
December 2011
One (5 yr.)
Warehouse and Offices
Dio, Sweden
107,600
Own
—
Manufacturing, Warehouse and Offices
Dublin, Ireland
5,000
December 2024
Three (5 yr.)
Warehouse and Offices
Ede, The Netherlands
12,917
May 2009
One (5 yr.)
Warehouse
Ede, The Netherlands
4,628
November 2011
One (5 yr.)
Offices
Ede, The Netherlands
4,628
May 2011
One (5 yr.)
Offices
Fondettes, France
122,915
Own
—
Manufacturing
Fondettes, France
109,706
Own
—
Warehouse and Offices
Girona, Spain
13,600
November 2011
One (1 yr.)
Warehouse and Offices
Gland, Switzerland
5,533
September 2008
One (5 yr.)
Offices
Gland, Switzerland
1,292
September 2008
One (4 yr.)
Offices
Goteberg, Sweden
7,500
June 2009
One (3 yr.)
Warehouse and Offices
Hong, Denmark
155,541
Own
—
Manufacturing, Warehouse and Offices
Isny, Germany
40,000
Own
—
Manufacturing, Warehouses and Offices
Isny, Germany
885
November 2009
None
Warehouse
Landskrona, Sweden
3,099
April 2008
One (3 yr.)
Warehouse
Loppem, Belgium
17,539
March 2009
One (3 yr.)
Warehouse and Offices
Mondsee, Austria
2,153
March 2008
One (3 yr.)
Warehouse and Offices
Oporto, Portugal
27,800
Own
—
Manufacturing, Warehouse and Offices
Oskarshamn, Sweden
3,551
December 2008
One (1 yr.)
Warehouse
Oslo, Norway
36,414
August 2011
None
Warehouse and Offices
Porta Westfalica, Germany
134,563
October 2021
After 17 yrs
Manufacturing, Warehouse and Offices
Spanga, Sweden
3,228
June 2010
One (3 yr.)
Warehouse and Offices
Spanga, Sweden
16,140
Own
—
Warehouse and Offices
St. Cyr sur Loire, France
538
Own
—
Offices
Thiene, Italy
21,520
Own
—
Warehouse and Offices
Tours, France
6,626
Own
—
Warehouse and Offices
Trondheim, Norway
3,229
November 2010
One (3 yr.)
Services and Offices
Witterswil, Switzerland
40,328
March 2015
One (5 yr.)
Manufacturing, Warehouse, and Offices
Witterswil, Switzerland
1,954
February 2009
—
Warehouse


Item 3.  Legal Proceedings .

In the ordinary course of its business, Invacare is a defendant in a number of lawsuits, primarily product liability actions in which various plaintiffs seek damages for injuries allegedly caused by defective products. All of the product liability lawsuits have been referred to the company’s insurance carriers and generally are contested vigorously. The coverage territory of the company’s insurance is worldwide with the exception of those countries with respect to which, at the time the product is sold for use or at the time a claim is made, the U.S. government has suspended or prohibited diplomatic or trade relations. Management does not believe that the outcome of any of these actions will have a material adverse effect upon the company’s business or financial condition.

The company received a subpoena in 2006 from the U.S. Department of Justice seeking documents relating to three long-standing and well-known promotional and rebate programs maintained by the company. The company believes that the programs described in the subpoena are in compliance with all applicable laws and the company has cooperated fully with the government investigation.  The company has had no communication with the U.S, Department of Justice concerning this matter in over a year.

Item 4.  Submission of Matters to a Vote of Security Holders.

During the fourth quarter of 2007, no matter was submitted to a vote of the company’s security holders.

Executive Officers of the Registrant.*

The following table sets forth the names of the executive officers of Invacare, each of whom serves at the pleasure of the Board of Directors, as well as certain other information.

Name
Age
Position
A. Malachi Mixon, III
67
Chairman of the Board of Directors and Chief Executive Officer
Gerald B. Blouch
61
President, Chief Operating Officer and Director**
Gregory C. Thompson
52
Senior Vice President and Chief Financial Officer**
Dale C. LaPorte
66
Senior Vice President — Business Development, General Counsel and Secretary
Joseph B. Richey, II
71
President — Invacare Technologies, Senior Vice President — Electronics and Design Engineering and Director
Louis F.J. Slangen
60
Senior Vice President — Global Market Development
Joseph S. Usaj
56
Senior Vice President — Human Resources
____________
*
The description of executive officers is included pursuant to Instruction 3 to Section (b) of Item 401 of Regulation S-K.
**
As previously announced, Mr. Thompson has resigned from his employment with the company, effective as of March 1, 2008, for another opportunity.  Effective March 1, 2008, Mr. Blouch will assume the additional responsibilities of acting Chief Financial Officer.

A. Malachi Mixon, III 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 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.

Gerald B. Blouch 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.


Gregory C. Thompson was named Senior Vice President and Chief Financial Officer in November 2002. Before coming to Invacare, Mr. Thompson served as Senior Vice President and Chief Financial Officer of Sensormatic Electronics Corporation, a global manufacturer of electronic security products, from October 2000 to January 2002 and was Vice President and Controller from February 1997 to October 2000. Previously, Mr. Thompson was Vice President and Corporate Controller for Wang Laboratories from August 1994 to February 1997 and Assistant Corporate Controller from October 1990 to August 1994.

Dale C. LaPorte has been Senior Vice President for Business Development, General Counsel and Secretary since January 1, 2006. Previously, Mr. LaPorte was a partner in the law firm of Calfee, Halter & Griswold LLP from 1974 to 2005. He served as Chairman of that firm from 2000 through 2004.

Joseph B. Richey, II has been a director since 1980 and in September 1992 was named President — Invacare Technologies and Senior Vice President — Electronics and Design Engineering. Previously, Mr. Richey was Senior Vice President of Product Development from July 1984 to September 1992 and Senior Vice President and General Manager of North American Operations from September 1989 to September 1992. Mr. Richey also serves as a director of Steris Corporation (NYSE), Cleveland, Ohio, a manufacturer and distributor of medical sterilizing equipment and is a member of the Board of Trustees for Case Western Reserve University and The Cleveland Clinic Foundation.

Louis F. J. Slangen was named Senior Vice President — Global Market Development in June 2004. Previously, Mr. Slangen was Senior Vice President — Sales & Marketing from December 1994 to June 2004 and from September 1989 to December 1994 was Vice President — Sales and Marketing. Mr. Slangen was previously President — Rehab Division from March 1994 to December 1994 and Vice President and General Manager — Rehab Division from September 1992 to March 1994.

Joseph S. Usaj has been the Senior Vice President — Human Resources since May 2004. Before coming to Invacare, Mr. Usaj served as Vice President — Human Resources for Ferro Corporation, a global manufacturer of performance materials in the electronics, automotive, consumer products and pharmaceutical industries, from August 2002 to December 2003. Previously, Mr. Usaj was Vice President — Human Resources for Phillips Medical Systems from 1998 to 2002.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Invacare’s Common Shares, without par value, trade on the New York Stock Exchange (NYSE) under the symbol “IVC.” Ownership of the company’s Class B Common Shares (which are not listed on NYSE) cannot be transferred, except, in general, to family members. Class B Common Shares may be converted into Common Shares at any time on a share-for-share basis. The number of record holders of the company Common Shares and Class B Common Shares at February 22, 2008 was 3,707 and 24, respectively. The closing sale price for the Common Shares on February 22, 2008 as reported by NYSE was $24.27. The prices set forth below do not include retail markups, markdowns or commissions.



The range of high and low quarterly prices of the Common Shares and dividends in each of the two most recent fiscal years were as follows:
 
 
2007
 
 
2006
 
Quarter Ended:
 
High
 
 
Low
 
 
Cash Dividends
Declared
 
 
High
 
 
Low
 
 
Cash Dividends
Declared
 
December 31
 
$
27.48
 
 
$
23.18
 
 
$
0.0125
 
 
$
25.27
 
 
$
21.39
 
 
$
0.0125
 
September 30
 
 
25.51
 
 
 
18.00
 
 
 
0.0125
 
 
 
25.59
 
 
 
20.18
 
 
 
0.0125
 
June 30
 
 
19.32
 
 
 
17.35
 
 
 
0.0125
 
 
 
31.16
 
 
 
24.84
 
 
 
0.0125
 
March 31
 
 
24.45
 
 
 
17.42
 
 
 
0.0125
 
 
 
35.12
 
 
 
30.32
 
 
 
0.0125
 

During 2007 and 2006, the Board of Directors also declared dividends of $0.045 per Class B Common Share. For information regarding limitations on the payment of dividends in the company loan and note agreements, see Long Term Debt in the Notes to the Consolidated Financial Statements included in this report. The Common Shares are entitled to receive cash dividends at a rate of at least 110% of cash dividends paid on the Class B Common Shares.

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 Healthcare Equipment & Supplies Index*.
 


*
The S&P Healthcare Equipment & Supplies Index is a capitalization-weighted average index comprised of health care companies in the S&P 500 Index.

The graph assumes $100 invested on December 31, 2002 in the common shares of Invacare Corporation, S&P 500 Index, Russell 2000 Index and the S&P Healthcare Equipment & Supplies Index, including reinvestment of dividends, through December 31, 2007.



The following table presents information with respect to repurchases of common shares made by the company during the three months ended December 31, 2007. All of the repurchased shares were surrendered to the company by employees for tax withholding purposes in conjunction with the vesting of restricted shares held by the employees under the company’s 2003 Performance Plan.

Period
 
Total Number of
Shares Purchased
 
 
Average Price
Paid Per Share
 
 
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
 
 
Maximum Number
of Shares That May Yet
Be Purchased Under
the Plans or Programs
 
10/1/2007-10/31/07
 
 
—
 
 
$
—
 
 
 
—
 
 
 
—
 
11/1/2007- 11/30/07
 
 
6,226
 
 
 
25.46
 
 
 
—
 
 
 
—
 
12/1/2007-12/31/07
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total
 
 
6,226
 
 
$
25.46
 
 
 
—
 
 
 
—
 

On August 17, 2001, the Board of Directors authorized the company to purchase up to 2,000,000 Common Shares. To date, the company has purchased 637,100 shares with authorization remaining to purchase 1,362,900 more shares. The company purchased no shares pursuant to this Board authorized program during 2007.



Item 6.   Selected Financial Data.

The selected consolidated financial data set forth below with respect to the company’s consolidated statements of operations, cash flows and shareholders’ equity for the fiscal years ended December 31, 2007, 2006 and 2005, and the consolidated balance sheets as of December 31, 2007 and 2006 are derived from the Consolidated Financial Statements included elsewhere in this Form 10-K. The consolidated statements of earnings, cash flows and shareholders’ equity data for the fiscal years ended December 31, 2004 and 2003 and consolidated balance sheet data for the fiscal years ended December 31, 2005, 2004 and 2003 are derived from the company’s previously filed Consolidated Financial Statements. The data set forth below should be read in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the company’s Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.
 
 
 
2007 *
 
 
 
2006 **
 
 
 
2005 ***
 
 
2004
 
 
2003
 
 
 
(In thousands, except per share and ratio data)
 
Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Sales
 
$
1,602,237
 
 
$
1,498,035
 
 
$
1,529,732
 
 
$
1,403,327
 
 
$
1,247,176
 
Net Earnings (loss)
 
 
1,190
 
 
 
(317,774
)
 
 
48,852
 
 
 
75,197
 
 
 
71,409
 
Net Earnings (loss) per Share — Basic
 
 
0.04
 
 
 
(10.00
)
 
 
1.55
 
 
 
2.41
 
 
 
2.31
 
Net Earnings (loss) per Share — Assuming Dilution
 
 
0.04
 
 
 
(10.00
)
 
 
1.51
 
 
 
2.33
 
 
 
2.25
 
Dividends per Common Share
 
 
0.05
 
 
 
0.05
 
 
 
0.05
 
 
 
0.05
 
 
 
0.05
 
Dividends per Class B Common Share
 
 
0.04545
 
 
 
0.04545
 
 
 
0.04545
 
 
 
0.04545
 
 
 
0.04545
 
Balance Sheet
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
$
591,085
 
 
$
655,758
 
 
$
594,466
 
 
$
565,151
 
 
$
474,722
 
Total Assets
 
 
1,500,042
 
 
 
1,490,451
 
 
 
1,646,772
 
 
 
1,628,124
 
 
 
1,108,213
 
Current Liabilities
 
 
326,611
 
 
 
447,976
 
 
 
356,707
 
 
 
258,141
 
 
 
223,488
 
Working Capital
 
 
264,474
 
 
 
207,782
 
 
 
237,759
 
 
 
307,010
 
 
 
251,234
 
Long-Term Debt
 
 
513,342
 
 
 
448,883
 
 
 
457,753
 
 
 
547,974
 
 
 
232,038
 
Other Long-Term Obligations
 
 
106,046
 
 
 
107,223
 
 
 
78,619
 
 
 
67,566
 
 
 
34,383
 
Shareholders’ Equity
 
 
554,043
 
 
 
486,369
 
 
 
753,693
 
 
 
754,443
 
 
 
618,304
 
Other Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and Development Expenditures
 
$
22,491
 
 
$
22,146
 
 
$
23,247
 
 
$
21,638
 
 
$
19,130
 
Capital Expenditures
 
 
20,068
 
 
 
21,789
 
 
 
30,924
 
 
 
41,757
 
 
 
28,882
 
Depreciation and Amortization
 
 
43,717
 
 
 
39,892
 
 
 
40,524
 
 
 
32,316
 
 
 
27,235
 
Key Ratios
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on Sales %
 
 
0.1
 
 
 
(21.2
)
 
 
3.2
 
 
 
5.4
 
 
 
5.7
 
Return on Average Assets %
 
 
0.1
 
 
 
(20.3
)
 
 
3.0
 
 
 
5.5
 
 
 
7.1
 
Return on Beginning Shareholders’ Equity %
 
 
0.2
 
 
 
(42.2
)
 
 
6.5
 
 
 
12.2
 
 
 
14.9
 
Current Ratio
 
1.8:1
 
 
1.5:1
 
 
1.7:1
 
 
2.2:1
 
 
2.1:1
 
Debt-to-Equity Ratio
 
0.9:1
 
 
0.9:1
 
 
0.6:1
 
 
0.7:1
 
 
0.4:1
 
__________
*
Reflects restructuring charge of $11,408 ($10,478 after tax or $.33 per share assuming dilution), $13,408 expense related to finance charges, interest and fees associated with the company’s previously reported debt covenant violations ($13,408 after tax or $.42 per share assuming dilution).
**
Reflects restructuring charge of $21,250 ($18,700 after tax or $.59 per share assuming dilution), $3,745 expense related to finance charges, interest and fees associated with the company’s previously reported debt covenant violations ($3,300 after tax or $.10 per share assuming dilution), $26,775 expense related to accounts receivable collectibility issues arising primarily from Medicare reimbursement reductions for power wheelchairs announced on November 15, 2006 ($26,775 after tax or $.84 per share assuming dilution), $300,417 expense for an impairment charge related to the write-down of goodwill and other intangible assets ($300,417 after tax or $9.45 per share assuming dilution).
***
Reflects restructuring charge of $7,533 ($5,160 after tax or $0.16 per share assuming dilution).

The comparability of the Selected Financial Data provided in the above table is limited as acquisitions made, in particular the Domus acquisition in 2004, materially impacted the company’s reported results. See Acquisitions in the Notes to the Consolidated Financial Statements as provided in the company’s Form 10-K for the year ended December 31, 2004.


Item 7 .  Management’s Discussion and Analysis of Financial Condition and Results of Operations.   

OUTLOOK

Cost reduction initiatives were the company’s primary focus during 2007 and will continue to be a priority in 2008.  The successful implementation of the 2007 cost reductions improved the company’s operating margin by approximately $40 million.  These initiatives included:

·         Product line rationalization;

·         Expanded outsourcing;

·         Rationalization of facilities;

·         Supply chain simplification / rationalization; and

·         Organization and infrastructure rationalization.

The incremental annualized savings from these initiatives should improve the company’s operating margins in 2008 by approximately $15 million.  In addition, the company has identified new cost reduction initiatives which should result in additional savings in 2008 of at least $20 million.  However, it is anticipated that the benefit to operating margins realized from these initiatives will be tempered by continuing reimbursement uncertainties, primarily the implementation of competitive bidding in the U.S., and continued global pricing pressures in the industry.

With these factors in mind, the company anticipates organic net sales growth of 4% to 5%, excluding the impact from acquisitions and foreign currency translation adjustments.  Earnings and cash flow for 2008 are expected to be consistent with the guidance provided in the company’s January 30, 2008 press release.  In addition, quarterly earnings before taxes are expected to improve in each quarter of 2008 when compared to the same periods of 2007, with the majority of the earnings growth occurring in the second half of the year.

RESULTS OF OPERATIONS

2007 Versus 2006

Charge Related to Restructuring Activities.   The company achieved its cost reduction and profit improvement initiatives established at the beginning of 2007, which included:  product line rationalization, expanded outsourcing, rationalization of facilities, supply chain simplification and rationalization and organization infrastructure rationalization.  The benefits achieved from the cost reduction initiatives, principally related to product sourcing savings, headcount reductions and manufacturing consolidation, totaled $40 million for 2007, which was slightly better than the company’s expectations.  However, as expected, a significant portion of this benefit was offset by continued pricing pressures and product mix shift toward lower margin product, primarily in the U.S., as a result of Medicare related reimbursement changes.

Restructuring charges of $11,408,000 were incurred during 2007 of which $1,817,000 is recorded in cost of goods sold, since it relates to inventory markdowns and the remaining charge amount is included in the Charge Related to Restructuring Activities in the Consolidated Statement of Operations.  The costs incurred during 2007 were principally for severance, product line discontinuation and costs associated with facility closures.

Net Sales.   Consolidated net sales for 2007 increased 7.0% for the year, to $1,602,237,000 from $1,498,035,000 in 2006. Acquisitions accounted for a one percentage point increase in net sales while foreign currency translation increased net sales by three percentage points. The remaining increase was primarily driven by sales increases in the European and Invacare Supply Group (ISG) segments.  European net sales growth resulted from volume increases in most regions, while ISG growth was mainly due to home delivery program sales to large providers and volume increases in diabetic, incontinence and enterals product lines.  



North America/Home Medical Equipment

NA/HME net sales declined 1.2% in 2007 versus the prior year to $668,305,000 from $676,326,000 with foreign currency translation and acquisitions increasing net sales by one percentage point and less then one percentage point, respectively. These sales consist of Rehab (power wheelchairs, custom manual wheelchairs, personal mobility and seating and positioning), Standard (manual wheelchairs, personal care, home care beds, low air loss therapy and patient transport), and Respiratory (oxygen concentrators, HomeFill™ transfilling systems, sleep apnea, aerosol therapy and other respiratory) products. Standard product line net sales improved by 1.9% in 2007, driven by increased volumes in manual wheelchairs and beds, partially offset by pricing reductions.   Rehab product line net sales declined by 2.3% in 2007, primarily driven by volume declines in consumer power product line, primarily with national providers, along with competitive pricing reductions implemented in late 2006 due to Medicare reimbursement changes for custom and consumer power wheelchairs.  Respiratory product line sales declined by 9.0% in 2007 primarily attributable to reduced unit volumes of oxygen concentrators resulting from the loss of one large national provider, continued inventory utilization programs by providers and pricing declines in concentrators.  However, HomeFill® oxygen system net sales increased for the year by 30.4% due to increased purchases by two national providers.

Invacare Supply Group

ISG net sales increased 12.6% in 2007 over the prior year to $256,993,000 from $228,236,000. Acquisitions and foreign currency translation had no impact on the sales increase. These sales consist of ostomy, incontinence, diabetic, wound care and other medical supply product. The increase is primarily attributable due to home delivery program sales to large providers and volume increases in diabetic, incontinence and enterals product lines.  

Institutional Products Group

IPG net sales decreased 4.7% in 2007 over the prior year to $89,026,000 from $93,455,000. Foreign currency translation increased net sales by one percentage point while acquisitions had no impact net sales. These sales consist of bed, furniture, home medical equipment, and bathing equipment products sold into the long-term care market. The decrease is primarily attributable reduced purchasing by a national account.

Europe

European net sales increased 15.7% in 2007 compared to the prior year to $498,109,000 from $430,427,000 with foreign currency translation increasing net sales by eight percentage points. Net sales were strong in most of the regions as sales volumes increased with growth in Standard, Rehab and Respiratory product lines.

Asia/Pacific

Asia/Pacific net sales increased 29.0% in 2007 from the prior year to $89,804,000 from $69,591,000. Acquisitions increased net sales by nineteen percentage points and foreign currency translation increased net sales by thirteen percentage points. Performance in this region continues to be negatively impacted by U.S. reimbursement uncertainty in the consumer power wheelchair market.  This has resulted in decreased sales of microprocessor controllers by Invacare’s New Zealand subsidiary, along with negative foreign currency impacts as Asia/Pacific transacts a substantial amount of its business with customers outside of their region in various currencies other than their functional currencies. As a result, changes in exchange rates, particularly with the Euro and U.S. Dollar, can have a significant impact on sales and cost of sales.

Gross Profit. Consolidated gross profit as a percentage of net sales was 27.9% in 2007 as compared to 27.8% in 2006. The improvement in margin was primarily attributable to the company benefiting from cost reduction initiatives which was offset by continued competitive pricing pressures and increased freight costs.  Margins also benefited by .2 of a percentage point from the impact of insurance and asset recoveries related to an embezzlement at one of the company’s foreign locations which the company disclosed earlier in the year.  The situation was investigated by local authorities and the company’s internal audit department and a forensic audit was performed.  As a result of the investigation, it was determined that the company’s internal controls were circumvented by collusion.  The company was able to recover its loss through the receipt of $5,000,0000 received under an employee dishonesty insurance policy as well as asset recoveries from the individuals involved during the fourth quarter of 2007.


NA/HME gross profit as a percentage of net sales was 30.7% in 2007 versus 29.7% in 2006. The improvement was primarily attributable to cost reduction initiatives and the favorable impact from insurance and asset recoveries related to an embezzlement as noted above.  These benefits were partially offset by increases in freight costs and pricing reductions.

ISG gross profit as a percentage of net sales declined .5 of a percentage point from the prior year. The decline was primarily   attributable to continued unfavorable product mix toward lower margin product —diabetic and incontinence products, and an unfavorable customer mix toward larger providers who historically have lower margins.

IPG gross profit as a percentage of net sales decreased 2.2 percentage points in 2007 from the prior year. The decrease in margin is attributable to volume decreases, unfavorable foreign currency exchange rate movement of the Canadian dollar and incremental costs related to new product introductions.

Gross profit in Europe as a percentage of net sales declined 1.4 percentage points in 2007 from the prior year. The decrease was primarily attributable shift away from higher margin product, increased freight and duty costs, partially offset by the impact of cost reduction activities.

Gross profit in Asia/Pacific as a percentage of net sales improved by 5.6 percentage points in 2007 from the prior year. The increase was largely due to cost reduction activities and favorable impact from acquisitions finalized in the fourth quarter of 2006.

Selling, General and Administrative.   Consolidated selling, general and administrative expenses as a percentage of net sales were 22.9% in 2007 and 24.9% in 2006. The overall dollar decrease was $7,000,000 or 1.9%, with foreign currency translation increasing expenses by $10,249,000 or three percentage points and acquisitions increasing expenses by approximately $4,845,000 or one percentage point. Excluding acquisitions and foreign currency translation impact, selling, general and administrative (SG&A) expenses decreased $22,094,000 or 5.9%. The decrease is primarily attributable to an incremental account receivable reserve of $26,775,000 recognized in the NA/HME segment in 2006, with no such incremental reserve in 2007.

Selling, general and administrative expenses excluding acquisitions, foreign currency translation and the incremental accounts receivable reserve in 2006 increased $4,681,000 in 2007 or 1.3% primarily as a result of additional bonus expense, bad debt expense and legal and professional expenses related to the embezzlement noted above. These increases were offset by a one-time gain of $3,981,000 resulting from debt cancellation related to a development stage company which the company consolidated as a variable interest entity in accordance with the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46).

Selling, general and administrative expenses for NA/HME decreased 12.9% or $27,230,000 in 2007 compared to 2006. Foreign currency translation increased expense by $942,000 while acquisitions increased expense by approximately $313,000. The SG&A expense decrease is primarily attributable to an incremental account receivable reserve of $26,775,000 recognized in 2006, with no such incremental reserve recorded in 2007.  The remaining decrease in expense is $455,000 or 0.2%.  The decline in expense is the result of cost reduction activities offset by increases in bonus expense, bad debt expense and legal and professional expenses related to the embezzlement noted above.

Selling, general and administrative expenses for ISG increased by 12.5% or $2,858,000 in 2007 compared to 2006. The increase is attributable to higher distribution costs associated with increased sales volumes.

Selling general and administrative expenses for IPG increased by 5.9% or $836,000 compared to 2006.  Foreign currency translation increased selling, general and administrative expense by approximately one percentage point or $132,000.  The remaining increase in expense of  $704,000 is due to investments in sales and marketing programs to drive growth and unfavorable currency transaction effects due to the strengthening of the Canadian dollar.

European selling, general and administrative expenses increased by 9.6% or $10,329,000 in 2007 compared to 2006. Foreign currency translation increased selling, general and administrative expense by approximately $6,975,000. The remaining increase in expense of $3,354,000 or 3.1% was primarily due to higher distribution costs and investment in marketing programs to drive sale growth.


Asia/Pacific selling, general and administrative expenses increased 34.8% or $6,207,000 in 2007 compared to 2006. Acquisitions increased selling, general and administrative expense by approximately $4,532,000 and foreign currency translation increased expense by $2,200,000. Excluding acquisitions and foreign currency translation impact, SG&A decreased $525,000 or 2.9% as a result of cost reduction activities.

Asset write-downs related to goodwill and other intangibles.   The company undertakes its annual impairment test of goodwill and intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets , in connection with the preparation of its fourth quarter results each year. No impairments were recognized in 2007.  However, as a result of the reduced profitability of its NA/HME operating segment, and uncertainty associated with future market conditions, the company recorded an impairment charge of $294,656,000 related to goodwill and $160,000 related to intangible assets of this segment in 2006.  In addition, an impairment charge of $5,601,000 was recorded related to the intangible related to NeuroControl, a consolidated variable interest entity, which is included in Other in the segment disclosure.

Debt Finance Charges, Interest and Fees Associated with Debt Refinancing.   In February 2007, the company completed its refinancing efforts which resulted in a Credit Agreement which provides for a $400 million senior secured credit facility consisting of a 6-year $250 million term loan facility and a five-year $150 million revolving credit facility with interest at LIBOR plus 2.25%, the issuance and sale of $135 million aggregate principal amount of 4.125% convertible senior subordinated debentures due 2027 and the issuance and sale of $175 million aggregate principal amount of 9.75% Senior Notes due 2015.  The company incurred $13,408,000 in 2007 and $3,745,000 in 2006 for debt finance charges, interest and fees associated with the debt refinancing.

Interest.   Interest expense increased to $44,309,000 in 2007 from $34,084,000 in 2006, representing a 30% increase. This increase was attributable to increased borrowing rates as a result of the company’s refinancing. Interest income in 2007 was $2,340,000, which was lower than the prior year amount of $2,775,000 primarily due to favorable finance terms provided to customers.

Income Taxes.   The company had an effective tax rate of 91.8% in 2007 and 2.7% in 2006. The company’s effective tax rate is higher than the expected rate at the U.S. federal statutory rate primarily due to domestic and certain foreign losses with no corresponding tax benefits due to a valuation allowance recorded against domestic and certain foreign deferred tax assets, partially offset by earnings abroad being taxed at rates lower than the U.S. federal statutory rate including in 2007 a benefit of $7,820,000 related to a tax rate change in Germany and corresponding reduction of the company’s net German deferred tax liability. The increase in the effective rate in 2007 compared to 2006 is primarily due to the losses without tax benefit.

Research and Development.   The company continues to invest in research and development activities to maintain its competitive advantage. The company dedicates funds to applied research activities to ensure that new and enhanced design concepts are available to its businesses. Research and development expenditures, which are included in costs of products sold, increased to $22,491,000 in 2007 from $22,146,000 in 2006. The expenditures, as a percentage of net sales, were 1.4% and 1.5% in 2007 and 2006, respectively.

2006 Versus 2005

Charge Related to Restructuring Activities.   The company progressed with the restructuring initiatives that it began in 2005 to drive cost reductions and improve profitability which was necessitated by the continued decline in reimbursement for medical equipment by U.S. government programs as well as similar reimbursement pressures abroad and continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations.

The cost reduction and profit improvement actions included: reduction in personnel, outsourcing improvements utilizing the company’s China manufacturing capability and third parties, shifting resources from product development to manufacturing cost reduction activities and product rationalization, reducing freight exposure through freight auctions and changing the freight policy, general expense reductions, and exiting facilities.



The company made substantial progress on its restructuring activities, including exiting four facilities and eliminating approximately 600 positions through December 31, 2006, including 300 positions during 2006. Restructuring charges of $21,250,000 were incurred during 2006 of which $3,973,000 was recorded in cost of products sold, since it relates to inventory markdowns, and the remaining charge amount was included in the Charge Related to Restructuring Activities in the Consolidated Statement of Operations. The costs incurred during 2006 were principally for severance, product line discontinuation and costs associated with facility closures. There were no material changes in accrued balances related to the charge, either as a result of revisions in the plan or changes in estimates, and the company expects utilized the accruals recorded as of December 31, 2006 during 2007.

Net Sales.   Consolidated net sales for 2006 decreased 2.1% for the year, to $1,498,035,000 from $1,529,732,000 in 2005. Acquisitions accounted for a one percentage point increase in net sales while foreign currency translation had less than a one percentage point impact. The overall decline was primarily driven by sales declines in the NA/HME and Asia/Pacific segments.

North America/Home Medical Equipment

NA/HME net sales declined 4.3% in 2006 versus the prior year to $676,326,000 from $706,555,000 with acquisitions and foreign currency translation each increasing net sales by one percentage point. Rehab product line net sales declined by .7% in 2006, primarily driven by the significant reimbursement changes in the U.S. market during the year. Standard product line net sales declined by 4.7% in 2006, driven by continued pricing pressures for these products which were somewhat offset by increased volumes. Respiratory product line sales declined by 11.1% in 2006 primarily attributable to lower pricing on oxygen concentrators, changes during the year regarding reimbursement for Respiratory product which hampered volumes, and reduced purchases from national and independent providers for HomeFill™ II oxygen systems.

Invacare Supply Group

ISG net sales increased 3.3% in 2006 over the prior year to $228,236,000 from $220,908,000. Acquisitions and foreign currency translation had no impact on the sales increase. The increase was primarily attributable to volume increases in the diabetic and incontinence product lines as well as increased volumes into the Retail market channel.

Institutional Products Group

IPG net sales increased 9.4% in 2006 over the prior year to $93,455,000 from $85,415,000. Acquisitions and foreign currency translation had no impact on the sales increase. The increase was primarily attributable to higher volumes in its core bed products as well as increases in bathing equipment.

Europe

European net sales declined .4% in 2006 compared to the prior year to $430,427,000 from $432,142,000 with acquisitions increasing net sales one percentage point and foreign currency translation decreasing net sales by one percentage point. Strong sales performance in most of the regions was offset by continued weakness in the German market related to reimbursement policy.

Asia/Pacific

Asia/Pacific net sales declined 17.8% in 2006 from the prior year to $69,591,000 from $84,712,000. Acquisitions increased net sales by five percentage points and foreign currency translation decreased net sales by four percentage points. Performance in this region was negatively impacted by U.S. reimbursement uncertainty in the consumer power wheelchair market, resulting in decreased sales of microprocessor controllers by Invacare’s New Zealand subsidiary and reduced volumes in the company’s Australian distribution business. In addition, the Asia/Pacific segment transacted a substantial amount of its business with customers outside of their region in various currencies other than their functional currencies. As a result, changes in exchange rates, particularly with the Euro and U.S. Dollar, have a significant impact on sales and cost of sales.


Gross Profit. Consolidated gross profit as a percentage of net sales was 27.8% in 2006 versus 29.2% in 2005. The margin decline was primarily attributable to continued reimbursement issues and competitive pricing pressures as well as inventory write-downs related to restructuring, increased freight costs and lower manufacturing volumes. The decline was partially offset by cost reduction initiatives.

NA/HME gross profit as a percentage of net sales was 29.7% in 2006 versus 33.8% in 2005. The decline was primarily attributable to pricing reductions experienced in Rehab, Standard and Respiratory product lines, inventory write-downs related to restructuring, reduced volumes as a result of reimbursement changes in Rehab and Respiratory product lines, and increased freight costs, all of which were partially offset by continued cost reduction efforts.

ISG gross profit as a percentage of net sales declined .7 of a percentage point from the prior year. The decline was primarily attributable to inventory write-downs related to restructuring and an unfavorable product mix toward lower margin product, including diabetic and incontinence products.

IPG gross profit as a percentage of net sales increased 1.9 percentage points in 2006 from the prior year. The increase in margin was attributable to volume increases and continued cost reduction activities.

Gross profit in Europe as a percentage of net sales improved 2.2 percentage points in 2006 from the prior year. The increase was primarily attributable to cost reduction activities.

Gross profit in Asia/Pacific as a percentage of net sales declined by .6 of a percentage point in 2006 from the prior year. The decrease was largely due to inventory write-downs related to restructuring.

Selling, General and Administrative.   Consolidated selling, general and administrative expenses as a percentage of net sales were 24.9% in 2006 and 22.4% in 2005. The overall increase was $31,807,000 or 9.3%, with acquisitions increasing selling, general and administrative costs by approximately $3,750,000 or one percentage point and foreign currency translation decreasing expenses by $2,424,000 or one percentage point. Excluding acquisitions and foreign currency translation impact, SG&A increased $30,481,000 or 8.9%. The primary driver of the increase is attributable to an incremental reserve against accounts receivable of $26,775,000 in the NA/HME segment as described below.

During 2006, Medicare proposed several significant changes to durable medical equipment and oxygen reimbursement, which dramatically impacted the company’s results and the profitability of our U.S. customers. The many changes to reimbursement, which were finalized in the fourth quarter of 2006, added complexity and uncertainty to the claims process and have eroded our customers’ ability to provide quality solutions. As a result of these changes in reimbursement, the company performed a review of its customers most vulnerable to changes in the reimbursement for power mobility products and, as part of its 2006 fourth quarter financial results, the company recorded an incremental reserve against accounts receivable of $26,775,000. In response to these regulatory changes, the company has implemented tighter credit policies and continues to work with certain customers in an effort to help them reduce costs and improve their financial viability.

Selling, general and administrative expenses excluding acquisitions, foreign currency translation and the incremental reserve against accounts receivable increased $3,706,000 in 2006 or 1% primarily as a result of increased information technology and distribution costs.

Selling, general and administrative expenses for NA/HME increased 17.7% or $31,699,000 in 2006 compared to 2005. Acquisitions increased selling, general and administrative expense by approximately $1,656,000 and foreign currency translation increased expense by $1,082,000. Selling, general and administrative expense also increased $26,775,000 attributable to the incremental reserve recorded for accounts receivable discussed above. The remaining increase in expense is $2,186,000 or 1.2%.

Selling, general and administrative expenses for ISG increased by 8.1% or $1,711,000 in 2006 compared to 2005. The increase was attributable to an increase in distribution and sales and marketing expenses. Selling general and administrative expenses for IPG increased by 3.4% or $463,000 compared to 2005. The increase was attributable to increased product liability and advertising expenses.


European selling, general and administrative expenses decreased by 1.5% or $1,620,000 in 2006 compared to 2005. Acquisitions increased selling, general and administrative expense by approximately $594,000 and foreign currency translation decreased expense by $2,647,000. The remaining increase in expense of $433,000 or .4% was primarily due to higher distribution costs.

Asia/Pacific selling, general and administrative expenses decreased 2.4% or $446,000 in 2006 compared to 2005. Acquisitions increased selling, general and administrative expense by approximately $1,500,000 and foreign currency translation decreased expense by $859,000. The remaining decline in expense of $1,087,000 or 5.9% is attributable to reduced cost structure.

Asset write-downs related to goodwill and other intangibles.   The company undertakes its annual impairment test of goodwill and intangible assets in accordance with SFAS No. 142, Goodwill and Other Intangible Assets , in connection with the preparation of its fourth quarter results each year. As a result of the reduced profitability of its NA/HME operating segment, and uncertainty associated with future market conditions, the company recorded an impairment charge related to goodwill and intangible assets of this segment of $300,417,000 in 2006.

The impairment of goodwill in the NA/HME operating segment was primarily the result of reduced government reimbursement levels and changes in reimbursement policies, which negatively affected revenues and profitability in the NA/HME operating segment. During 2006, changes announced by the Centers for Medicare and Medicaid Services, or “CMS,” affected eligibility, documentation, codes, and payment rules relating to power wheelchairs. These changes impacted the predictability of reimbursement of expenses for and access to power wheelchairs, created uncertainty in the market place, and thus had a negative impact on NA/HME’s revenues and related earnings. Effective November 15, 2006, CMS reduced the maximum reimbursement amount for power wheelchairs under Medicare by up to 28%. The reduced reimbursement levels have caused and continue to cause consumers to choose less expensive versions of the company’s power wheelchairs.

NA/HME sales of respiratory products were also negatively affected by the changes in 2006. Small and independent provider sales declined as these dealers slowed their purchases of the company’s HomeFill™ oxygen system product line, in part, until they had a clearer view of future oxygen reimbursement levels. Furthermore, a study issued by the Office of Inspector General or “OIG,” in September 2006 suggested that $3.2 billion in savings could be achieved over five years by reducing the reimbursed rental period from three years (the reimbursement period under current law) to 13 months. The uncertainty created by these announcements continues to negatively impact the home oxygen equipment market, particularly for those providers considering changing to the HomeFill™ oxygen system.

Medicare will also institute a new competitive bidding program for various items in ten of the largest metropolitan areas to be effective in 2008. This program is designed to reduce Medicare payment levels for items that the Medicare program spends the most money on under the home medical equipment benefit. This new program will likely eliminate some providers from the competitive bidding markets, because only those providers who are chosen to participate (based largely on price) will be able to provide beneficiaries with items included in the bid. Medicare will be expanding the program to an additional 80 metropolitan areas in 2009.

The impact of the above reimbursement changes were taken into consideration in reviewing the profitability of the company’s NA/HME operating segment and in evaluating impairment of goodwill and other intangibles.

Interest.   Interest expense increased to $34,084,000 in 2006 from $27,246,000 in 2005, representing a 25% increase. This increase was attributable to increased borrowing rates. Interest income in 2006 was $2,775,000, which was higher than the prior year amount of $1,683,000 primarily due to a decrease in interest received associated with financing provided to customers.

Income Taxes.   The company had an effective tax rate of 2.7% in 2006 and 31.5% in 2005. The company’s effective tax rate was higher than the expected benefit at the U.S. federal statutory rate primarily due to losses with no corresponding tax benefits due to a valuation reserve recorded against domestic deferred tax assets reduced by tax credits and earnings abroad being taxed at rates lower than the U.S. federal statutory rate. In 2005, the company had pretax earnings and benefited from foreign earnings taxed at less than the U.S. statutory rate.


Research and Development.   Research and development expenditures, which are included in costs of products sold, decreased to $22,146,000 in 2006 from $23,247,000 in 2005. The expenditures, as a percentage of net sales, were 1.5% in 2006 and 2005.

INFLATION

Although the company cannot determine the precise effects of inflation, management believes that inflation does continue to have an influence on the cost of materials, salaries and benefits, utilities and outside services. The company attempts to minimize or offset the effects through increased sales volume, capital expenditure programs designed to improve productivity, alternative sourcing of material and other cost control measures. In 2007, 2006 and 2005, the company was able to offset the majority of the impact of price increases from suppliers by productivity improvements and other cost reduction activities.

LIQUIDITY AND CAPITAL RESOURCES

The company continues to maintain an adequate liquidity position through its unused bank lines of credit (see Long-Term Debt in the Notes to Consolidated Financial Statements) included in this report and working capital management.

Total debt outstanding was $537,852,000 million at the end of 2007 down from $573,126,000 at the end of 2006, resulting in a debt-to-total-capitalization of 49.3% for 2007 versus 54.1% at the end of 2006. The debt-to-capitalization ratio improvement was driven by the company’s debt reduction during 2007.

On February 12, 2007, the company completed the refinancing of its existing indebtedness and put in place a long-term capital structure. The new financing program provides the company with total capacity of approximately $710 million, the net proceeds of which were utilized to refinance substantially all of the company’s existing indebtedness and pay related fees and expenses (the “Refinancing”). As part of the refinancing, the company entered into a $400 million senior secured credit facility consisting of a $250 million term loan facility and a $150 million revolving credit facility. The company’s obligations under the new senior secured credit facility are secured by substantially all of the company’s assets and are guaranteed by its material domestic subsidiaries, with certain obligations also guaranteed by its material foreign subsidiaries. Borrowings under the new senior secured credit facility will generally bear interest at LIBOR plus a margin of 2.25%, including an initial facility fee of 0.50% per annum on the facility.

The company also completed the sale of $175 million principal amount of its 9.75% Senior Notes due 2015. The notes are unsecured senior obligations of the company guaranteed by substantially all of the company’s domestic subsidiaries, and pay interest at 9.75% per annum on each February 15 and August 15. The net proceeds to the company from the offering of the notes were approximately $167 million.

Also, as part of the refinancing, the company completed the sale of $135 million principal amount of its 4.125% Convertible Senior Subordinated Debentures due 2027. The debentures are unsecured senior subordinated obligations of the company guaranteed by substantially all of the company’s domestic subsidiaries, pay interest at 4.125% per annum on each February 1 and August 1, and are convertible upon satisfaction of certain conditions into cash, common shares of the company, or a combination of cash and common shares of the company, subject to certain conditions. The initial conversion rate is 40.3323 shares per $1,000 principal amount of debentures, which represents an initial conversion price of approximately $24.79 per share. The debentures are redeemable at the company’s option, subject to specified conditions, on or after February 6, 2012 through and including February 1, 2017, and at the company’s option after February 1, 2017. On February 1, 2017 and 2022 and upon the occurrence of certain circumstances, holders have the right to require the company to repurchase all or some of their debentures. The net proceeds to the company from the offering of the debentures were approximately $132.3 million.

The company’s borrowing arrangements contain covenants with respect to, among other items, maximum amount of debt, minimum loan commitments, interest coverage, net worth, dividend payments, working capital, and funded debt to capitalization, as defined in the company’s bank agreements and agreement with its note holders. The company is currently in compliance with all covenant requirements. Under the most restrictive covenant of the company’s borrowing arrangements as of December 31, 2007, the company had the capacity to borrow up to an additional $130,512,000 via the company’s revolving credit facility; provided that this capacity is limited for the purpose of funding acquisitions by the company.  The company’s borrowing arrangements impose restrictions regarding the establishment of intercompany loans and thus cash transfers.  Those restrictions can have a negative impact the company’s ability to meet liquidity needs, particularly in the United States.

 
While there is general concern about the potential for rising interest rates, the company believes that its exposure to interest rate fluctuations is manageable given that portions of the company’s debt are at fixed rates for extended periods of time, the company has the ability to utilize swaps to exchange variable rate debt to fixed rate debt, if needed, and the company’s free cash flow should allow it to absorb any modest rate increases in the months ahead without any material impact on its liquidity or capital resources. As of December 31, 2007, the weighted average floating interest rate on borrowings was 7.22%.

CAPITAL EXPENDITURES

There are no individually material capital expenditure commitments outstanding as of December 31, 2007. The company estimates that capital investments for 2008 could approximate $25,000,000, compared to actual capital expenditures of $20,068,000 in 2007. The company believes that its balances of cash and cash equivalents, together with funds generated from operations and existing borrowing facilities, will be sufficient to meet its operating cash requirements and fund required capital expenditures for the foreseeable future.

CASH FLOWS

Cash flows provided by operating activities were $79,100,000 in 2007, compared to $62,454,000 in the previous year. The increase is due primarily to the collection of a tax receivable of $11,800,000 and $5,000,000 in insurance proceeds received on an embezzlement claim, as previously disclosed. Operating cash flows also benefited from improved accounts receivable and inventory management, which were offset by reduced accounts payable and accrued expenses. The payables and accrued expense balances at the end of 2006 were higher than normal because the company’s refinancing efforts were in process.

Cash flows used for investing activities were $22,058,000 in 2007, compared to $34,446,000 in 2006. The decrease in cash used was primarily attributable to lower acquisition costs compared to 2006 and a reduction in purchases of property and equipment and related proceeds for sale of assets as compared to the prior year.

Cash flows required by financing activities in 2007 were $79,545,000, compared to cash flows provided of $27,224,000 in 2006. Cash flows required by financing activities were much higher in 2007 as a result of the payment of debt financing costs related to the company’s refinancing and reduction of debt outstanding by utilization of cash on hand and cash flow generation.

During 2007, the company generated free cash flow of $72,539,000 compared to free cash flow of $52,898,000 in 2006. The increase is due primarily to the collection of a tax receivable of $11,800,000 and $5,000,000 in insurance proceeds received on an embezzlement claim.  Operating cash flows also benefited from improved accounts receivable and inventory management, which were offset by lower accounts payable and accrued expenses. The payables and accrued expense balances at the end of 2006 were higher than normal because the company’s refinancing efforts were in process. Free cash flow is a non-GAAP financial measure that is comprised of net cash provided by operating activities, excluding net cash impact related to restructuring activities, less net purchases of property and equipment, net of proceeds from sales of property and equipment. Management believes that this financial measure provides meaningful information for evaluating the overall financial performance of the company and its ability to repay debt or make future investments (including acquisitions, etc.). The non-GAAP financial measure is reconciled to the GAAP measure as follows (in thousands):
 
 
Twelve Months Ended
December 31,
 
 
 
2007
 
 
2006
 
Net cash provided by operating activities
 
$
79,100
 
 
$
62,454
 
Plus: Net Cash impact related to restructuring activities
 
 
13,006
 
 
 
9,935
 
Less: Purchases of property and equipment — net
 
 
(19,567
)
 
 
(19,491
)
Free Cash Flow
 
$
72,539
 
 
$
52,898
 


CONTRACTUAL OBLIGATIONS

 
 
Payments due by period
 
 
 
Total
 
 
Less than 1 year
 
 
1-3 years
 
 
3-5 years
 
 
More than 5 years
 
 
 
(In thousands)
 
Long-term debt obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Facility
 
$
266,600
 
 
$
31,727
* 
 
$
31,762
 
 
$
30,145
 
 
$
172,966
 
9.75% Senior Notes due 2015
 
 
296,571
 
 
 
17,063
 
 
 
34,125
 
 
 
34,125
 
 
 
211,258
 
4.125% Convertible Senior Subordinated Debentures due 2027
 
 
241,504
 
 
 
5,569
 
 
 
11,138
 
 
 
11,138
 
 
 
213,659
 
Operating lease obligations
 
 
49,601
 
 
 
20,361
 
 
 
19,007
 
 
 
5,144
 
 
 
5,089
 
Capital lease obligations
 
 
18,786
 
 
 
2,021
 
 
 
3,516
 
 
 
3,074
 
 
 
10,175
 
Purchase obligations (primarily computer systems contracts)
 
 
1,033
 
 
 
400
 
 
 
633
 
 
 
—
 
 
 
—
 
Product liability
 
 
21,136
 
 
 
3,556
 
 
 
8,447
 
 
 
3,999
 
 
 
5,134
 
SERP
 
 
33,920
 
 
 
424
 
 
 
2,074
 
 
 
2,074
 
 
 
29,348
 
Other, principally deferred compensation
 
 
10,464
 
 
 
473
 
 
 
1,374
 
 
 
285
 
 
 
8,332
 
Total
 
$
939,615
 
 
$
81,594
 
 
$
112,076
 
 
$
89,984
 
 
$
655,961
 

* Includes an estimated additional payment of $13,572,000 as required by the company’s credit facility based upon “excess cash flow” (as defined in the agreement).  While additional payments may be required based on excess cash flow, the above table does not include any additional such payments beyond the estimated payment for 2008.

 “Other” includes an estimated payment of $321,000 in less than 1 year and $959,000 in years 1-3 for liabilities recorded for uncertain tax positions.  The table does not include any other payments related to liabilities recorded for uncertain tax positions as the company can not make a reasonably reliable estimate as to any other payments.  See Income Taxes in the Notes to the Consolidated Financial Statements included in this report.

DIVIDEND POLICY

It is the company’s policy to pay a nominal dividend in order for its stock to be more attractive to a broader range of investors. The current annual dividend rate remains at $0.05 per Common Share and $0.045 per Class B Common Share. It is not anticipated that this will change materially as the company continues to have available significant growth opportunities through internal development and acquisitions. For 2007, dividends of $0.05 per Common Share and $0.045 per Class B Common Share were declared and paid.

CRITICAL ACCOUNTING POLICIES

The Consolidated Financial Statements included in the report include accounts of the company, all majority-owned subsidiaries and a variable interest entity for which the company is the primary beneficiary. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying Consolidated Financial Statements and related footnotes. In preparing these financial statements, management has made its best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. However, application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates.

The following critical accounting policies, among others, affect the more significant judgments and estimates used in preparation of our consolidated financial statements.


Revenue Recognition

Invacare’s revenues are recognized when products are shipped to unaffiliated customers. The SEC’s Staff Accounting Bulletin (SAB) No. 101, “Revenue Recognition,” as updated by SAB No. 104, provides guidance on the application of generally accepted accounting principles (GAAP) to selected revenue recognition issues. The company has concluded that its revenue recognition policy is appropriate and in accordance with GAAP and SAB No. 101.  Shipping and handling costs are included in cost of goods sold.

Sales are only made to customers with whom the company believes collection is reasonably assured based upon a credit analysis, which may include obtaining a credit application, a signed security agreement, personal guarantee and/or a cross corporate guarantee depending on the credit history of the customer. Credit lines are established for new customers after an evaluation of their credit report and/or other relevant financial information. Existing credit lines are regularly reviewed and adjusted with consideration given to any outstanding past due amounts.

The company offers discounts and rebates, which are accounted for as reductions to revenue in the period in which the sale is   recognized. Discounts offered include: cash discounts for prompt payment, base and trade discounts based on contract level for specific classes of customers. Volume discounts and rebates are given based on large purchases and the achievement of certain sales volumes. Product returns are accounted for as a reduction to reported sales with estimates recorded for anticipated returns at the time of sale. The company does not sell any goods on consignment.

Distributed products sold by the company are accounted for in accordance with Emerging Issues Task Force, or “EITF” No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent.   The company records distributed product sales gross as a principal since the company takes title to the products and has the risks of loss for collections, delivery and returns.

Product sales that give rise to installment receivables are recorded at the time of sale when the risks and rewards of ownership are transferred. The company utilizes a third party financing company to provide the majority of future lease financing to Invacare customers. As such, interest income is recognized based on the terms of the installment agreements. Installment accounts are monitored and if a customer defaults on payments, interest income is no longer recognized. All installment accounts are accounted for using the same methodology, regardless of duration of the installment agreements.

Allowance for Uncollectible Accounts Receivable

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of our receivables are due from health care, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. The estimated allowance for uncollectible amounts is based primarily on management’s evaluation of the financial condition of the customer. In addition, as a result of the third party financing arrangement, management monitors the collection status of these contracts in accordance with our limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts.  See Concentration of Credit Risk in the Notes to the Consolidated Financial Statements in this report.

In 2006, the company recorded an incremental accounts receivable reserve of $26,775,000 due to the increased collectibility risk to the company resulting from changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of power wheelchairs. The company has reviewed the accounts receivables associated with many of the company’s customers that are most exposed to these issues. The company is also working with certain of its customers in an effort to help them reduce costs and improve their profitability. In addition, the company has also implemented tighter credit policies with many of these accounts.


In 2007, the company continued to closely monitor the credit-worthiness of its customers and adhere to tighter credit policies.  Due to delays in the implementation of various government reimbursement policies initiated in 2007, there still remains significant uncertainly as to the impact that those changes will have on the company’s customers.

Inventories and Related Allowance for Obsolete and Excess Inventory

Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out method. Inventories have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on management’s review of inventories on hand compared to estimated future usage and sales. A provision for excess and obsolete inventory is recorded as needed based upon the discontinuation of products, redesigning of existing products, new product introductions, market changes and safety issues. Both raw materials and finished goods are reserved for on the balance sheet.

In general, the company reviews inventory turns as an indicator of obsolescence or slow moving product as well as the impact of new product introductions. Depending on the situation, the individual item may be partially or fully reserved for. No inventory that was reserved for has been sold at prices above their new cost basis. The company continues to increase its overseas sourcing efforts, increase its emphasis on the development and introduction of new product, and decrease the cycle time to bring new product offerings to market. These initiatives are sources of inventory obsolescence for both raw material and finished goods.

Goodwill, Intangible and Other Long-Lived Assets

Property, equipment, intangibles and certain other long-lived assets are amortized over their useful lives. Useful lives are based on management’s estimates of the period that the assets will generate revenue. Under SFAS No. 142, Goodwill and Other Intangible Assets , goodwill and intangible assets deemed to have indefinite lives are subject to annual impairment tests. Furthermore, goodwill and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The company completes its annual impairment tests in the fourth quarter of each year. As a result of reduced profitability in the NA/HME operating segment and uncertainty associated with future market conditions, the company recorded impairment charges in 2006 related to goodwill and an intangible in this segment of $294,656,000 and $160,000, respectively, while an impairment charge of $5,601,000 was recorded related to the intangible recorded associated with NeuroControl, which is part of Other in the segment disclosure. No impairment was recognized in 2007.  The discount rates used have a significant impact upon the discounted cash flow methodology utilized in our annual impairment testing as higher discount rates decrease the fair value estimates used in our testing.

The company utilizes a discounted cash flow method model to analyze reporting units for impairment in which the company forecasts income statement and balance sheet amounts based on assumptions regarding future sales growth, profitability, inventory turns, days’ sales outstanding, etc. to forecast future cash flows.  The cash flows are discounted using a weighted average cost of capital discount rate where the cost of debt is based on quoted rates for 20-year debt of companies of similar credit risk and the cost of equity is based upon the 20-year treasury rate for the risk free rate, a market risk premium, the industry average beta, a small cap stock adjustment and company specific risk premiums.  The assumptions used are based on a market participant’s point of view and yielded a discount rate of 9.25% in 2007 compared to 8.85% in 2006.  While no impairment was indicated in 2007 for any reporting units, a future potential impairment is possible for any or the company’s reporting units should actual results differ materially from forecasted results.

Product Liability

The company’s captive insurance company, Invatection Insurance Co., currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in annual aggregate losses arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.


Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon third-party actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the third-party actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss award settlements on claims. While actuarial analysis is used to help determine adequate reserves, the company accepts responsibility for the determination and recording of adequate reserves in accordance with accepted loss reserving standards and practices.

Warranty

Generally, the company’s products are covered from the date of sale to the customer by warranties against defects in material and workmanship for various periods depending on the product. Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale based upon actual experience. The company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the company’s warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does consider other events, such as a product recall, which could warrant additional warranty reserve provision. No material adjustments to warranty reserves were necessary in the current year. See Current Liabilities in the Notes to the Consolidated Financial Statements included in this report for a reconciliation of the changes in the warranty accrual.

Accounting for Stock-Based Compensation

Effective January 1, 2006, the company adopted Statement of Financial Accounting Standard No. 123 (Revised 2004), Share Based Payment (“SFAS 123R”) using the modified prospective application method. Under the modified prospective method, compensation cost was recognized for: (1) all stock-based payments granted subsequent to January 1, 2006 based upon the grant-date fair value calculated in accordance with SFAS 123R, and (2) all stock-based payments granted prior to, but not vested as of, January 1, 2006 based upon grant-date fair value previously calculated for previously presented pro forma footnote disclosures in accordance with the original provisions of SFAS No. 123, Accounting for Stock Based Compensation.

Upon adoption of SFAS 123R, the company did not make any other modifications to the terms of any previously granted options. However, the terms of new awards granted have been modified so that the vesting periods are deemed to be substantive for those who may be retiree eligible. No changes were made regarding the valuation methodologies or assumptions used to determine the fair value of options granted and the company continues to use a Black-Scholes valuation model. As of December 31, 2007, there was $9,570,000 of total unrecognized compensation cost from stock-based compensation arrangements granted under the plans, which is related to non-vested shares, and includes $3,904,000 related to restricted stock awards. The company expects the compensation expense to be recognized over a weighted-average period of approximately two years.

The majority of the options awarded have been granted at exercise prices equal to the market value of the underlying stock on the date of grant. Restricted stock awards granted without cost to the recipients are expensed on a straight-line basis over the vesting periods.

Income Taxes

As part of the process of preparing its financial statements, the company is required to estimate income taxes in various jurisdictions. The process requires estimating the company’s current tax exposure, including assessing the risks associated with tax audits, as well as estimating temporary differences due to the different treatment of items for tax and accounting policies. The temporary differences are reported as deferred tax assets and or liabilities. The company also must estimate the likelihood that its deferred tax assets will be recovered from future taxable income and whether or not valuation allowances should be established.  In the event that actual results differ from estimates, the company’s provision for income taxes could be materially impacted.


The company does not believe that there is a substantial likelihood that materially different amounts would be reported related to its critical accounting policies.

ACCOUNTING CHANGES

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes , an interpretation of FASB Statement No. 109, or “FIN 48.” FIN 48 prescribes recognition and measurement of a tax position taken or expected to be taken in a tax return as well as guidance regarding derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The company adopted the provisions of FIN 48 on January 1, 2007. Upon adoption, the company did not recognize an adjustment in the liability for unrecognized income tax benefits.  The company continues to recognize interest and penalties related to uncertain tax positions in income tax expense.  

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In September, 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157, Fair Value Measurements , which creates a framework for measuring fair value, clarifies the definition of fair value and expands the disclosures regarding fair value measurements.  Statement No. 157 does not require any new fair value measurements and is effective for fiscal years beginning after November 15, 2007, thus January 1, 2008.  The company adopted the new standard as of the effective date and currently does not believe the adoption will have a material impact on the company’s financial position or future results as the company is already performing its goodwill and intangible valuation calculations and estimating the fair value of the company’s financial instruments using methodology which is principally consistent with Statement No. 157.

On September 5, 2007, the FASB exposed for comment FASB Staff Position APB 14-a (FSP APB 14-a) to provide clarification of the accounting for convertible debt that can be settled in cash upon conversion.  The FASB believes this clarification is needed because the current accounting being applied for convertible debt does not fully reflect the true economic impact on the issuer since the conversion option is not captured as a borrowing cost and its full dilutive effect is not included in earnings per share.  The proposed FSP would require separate accounting for the liability and equity components of the convertible debt in a manner that would reflect Invacare’s nonconvertible debt borrowing rate.  The company would be required to bifurcate a component of its convertible debt as a component of stockholders’ equity and accrete the resulting debt discount as interest expense.  The comment period regarding the exposure draft ended October 15, 2007 and the exposure draft is currently being redeliberated by the FASB.  Should the proposed FSP become effective as drafted, the change could materially impact the company’s interest expense and earnings per share.  The most recent proposed effective date was January 1, 2008 with retrospective application required for all periods presented and no grandfathering for existing instruments.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141(R)), which changes the accounting for business acquisitions.  SFAS 141(R) requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes principles and requirements as to how an acquirer should recognize and measure in its financial statements the assets acquired, liabilities assumed, any non-controlling interest and goodwill acquired.  SFAS 141(R) also requires expanded disclosure regarding the nature and financial effects of a business combination.  SFAS 141(R) is effective for the company beginning January 1, 2009 and the company is currently evaluating the future impacts and disclosures of this standard.

Item 7A.  Quantitative and Qualitative Disclosure about Market Risk.   

The company is exposed to market risk through various financial instruments, including fixed rate and floating rate debt instruments. The company uses interest swap agreements to mitigate its exposure to interest rate fluctuations. Based on December 31, 2007 debt levels, a 1% change in interest rates would impact interest expense by approximately $620,000. Additionally, the company operates internationally and, as a result, is exposed to foreign currency fluctuations. Specifically, the exposure results from intercompany loans and third party sales or payments. In an attempt to reduce this exposure, foreign currency forward contracts are utilized. The company does not believe that any potential loss related to these financial instruments would have a material adverse effect on the company’s financial condition or results of operations.


Item 8 .  Financial Statements and Supplementary Data.   

Reference is made to the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Consolidated Statement of Operations, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders’ Equity, Notes to Consolidated Financial Statements and Financial Statement Schedule, which appear on pages FS -1 to FS-43 of this Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.   

None.

Item 9A.  Controls and Procedures.   

  (a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2007, an evaluation was performed, under the supervision and with the participation of the company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, the company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company’s disclosure controls and procedures were effective as of December 31, 2007, in ensuring that information required to be disclosed by the company in the reports it files and submits under the Exchange Act is (1) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (2) accumulated and communicated to the company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

  (b) Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining a system of adequate internal control over financial reporting that provides reasonable assurance that assets are safeguarded and that transactions are authorized, recorded and reported properly. The system includes self-monitoring mechanisms; regular testing by the company’s internal auditors; a Code of Conduct; written policies and procedures; and a careful selection and training of employees. Actions are taken to correct deficiencies as they are identified. An effective internal control system, no matter how well designed, has inherent limitations — including the possibility of the circumvention or overriding of controls — and therefore can provide only reasonable assurance that errors and fraud that can be material to the financial statements are prevented or would be detected on a timely basis. Further, because of changes in conditions, internal control system effectiveness may vary over time.

Management’s assessment of the effectiveness of the company’s internal control over financial reporting is based on the Internal Control — Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission.

In management’s opinion, internal control over financial reporting is effective as of December 31, 2007.

The company’s independent registered public accounting firm, Ernst & Young LLP, audited the company’s internal control over financial reporting and, based on that audit, issued an attestation report regarding the company’s internal control over financial reporting, which is included in this Annual Report on Form 10-K.

  (c) Changes in Internal Control Over Financial Reporting

There have been no changes in the company’s internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.

Item  9B.  Other Information.

None.


PART III

Item 10 .  Directors and Executive Officers of the Registrant.

Information required by Item 10 as to the executive officers of the company is included in Part I of this Annual Report on Form 10-K. The other information required by Item 10 as to the directors of the company, the Audit Committee, the audit committee financial expert, the procedures for recommending nominees to the Board of Directors, compliance with Section 16(a) of the Exchange Act and corporate governance is incorporated herein by reference to the information set forth under the captions “Election of Directors,” “Corporate Governance,” and “Section 16(a) Beneficial Ownership Compliance” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.

We submitted the New York Stock Exchange (“NYSE”) Section 12(a) Annual CEO Certification as to our compliance with the NYSE corporate governance listing standards to the NYSE in June 2007. In addition, we have filed the certifications of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 regarding the quality of our public disclosures as exhibits to this Annual Report on Form 10-K.

Item 11.   Executive Compensation.

The information required by Item 11 is incorporated by reference to the information set forth under the captions “Executive Compensation” and “Corporate Governance” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.

Item. 12 .  Security Ownership of Certain Beneficial Owners and Management.

The information required by Item 12 is incorporated by reference to the information set forth under the caption “Share Ownership of Principal Holders and Management” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.

Information regarding the securities authorized for issuance under the company’s equity compensation plans is incorporated by reference to the information set forth under the captions “Compensation of Executive Officers” and “Compensation of Directors” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.

Item 13 .  Certain Relationships and Related Transactions.

The information required by Item 13 is incorporated by reference to the information set forth under the caption “Certain Relationships and Related Transactions” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.

Item 14 .  Principal Accounting Fees and Services.

The information required by Item 14 is incorporated by reference to the information set forth under the caption “Independent Auditors” and “Pre-Approval Policies and Procedures” in the company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders.



PART IV

Item 15 .  Exhibits and Financial Statement Schedules.

(a)(1)   Financial Statements.

The following financial statements of the company are included in Part II, Item 8:

Consolidated Statement of Operations — years ended December 31, 2007, 2006 and 2005

Consolidated Balance Sheet — December 31, 2007 and 2006

Consolidated Statement of Cash Flows — years ended December 31, 2007, 2006 and 2005

Consolidated Statement of Shareholders’ Equity — years ended December 31, 2007, 2006 and 2005

Notes to Consolidated Financial Statements

(a)(2)   Financial Statement Schedules.

The following financial statement schedule of the company is included in Part II, Item 8:

Schedule II — Valuation and Qualifying Accounts

All other schedules have been omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.

(a)(3)   Exhibits.

See Exhibit Index at page number I-52 of this Report on Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized as of February 28, 2008.

INVACARE CORPORATION

By:  /s/  A. Malachi Mixon, III                     
A. Malachi Mixon, III
Chairman of the Board of Directors
and Chief Executive Officer





Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated as of February 28, 2008.

Signature
Title
 
 
/s/ A. Malachi Mixon, III
Chairman of the Board of Directors and Chief Executive
A. Malachi Mixon, III
Officer (Principal Executive Officer)
 
 
/s/ Gerald B. Blouch
President, Chief Operating Officer and Director
Gerald B. Blouch
 
 
 
/s/ Gregory C. Thompson
Senior Vice President, Chief Financial Officer
Gregory C. Thompson
(Principal Financial and Accounting Officer)
 
 
/s/ James C. Boland
Director
James C. Boland
 
 
 
/s/ Michael F. Delaney
Director
Michael F. Delaney
 
 
 
/s/ C. Martin Harris, M.D.
Director
C. Martin Harris, M.D.
 
 
 
/s/ Bernadine P. Healy, M.D
Director
Bernadine P. Healy, M.D
 
 
 
/s/ John R. Kasich
Director
John R. Kasich
 
 
 
/s/ Dan T. Moore, III
Director
Dan T. Moore, III
 
 
 
/s/ Joseph B. Richey, II
President – Invacare Technologies, Senior Vice President –
Joseph B. Richey, II
Electronics and Design Engineering and Director
 
 
/s/ William M. Weber
Director
William M. Weber
 
 
 
/s/ James L. Jones
Director
James L. Jones
 





INVACARE CORPORATION
Report on Form 10-K for the fiscal year ended December 31, 2007.

Exhibit Index

Official
Exhibit No.
Description
Sequential
Page No.
2.1
Sale and Purchase Agreement Regarding the Sale and Purchase of All Shares in WP Domus GmbH by and among WP Domus LLC, Mr. Peter Schultz and Mr. Wilhelm Kaiser, Invacare GmbH & Co. KG and Invacare Corporation dated as of July 31, 2004
(A)
2.2
Guarantee Letter Agreement of Warburg, Pincus Ventures, L.P. and Warburg, Pincus International, L.P. dated as of September 9, 2004
(A)
3(a)**
Amended and Restated Articles of Incorporation, as last amended May 25, 2007
 
3(b)
Code of Regulations, as amended on May 22, 1996
(F)
4(a)
Specimen Share Certificate for Common Shares
(M)
4(b)
Specimen Share Certificate for Class B Common Shares
(M)
4(c)
Rights agreement between Invacare Corporation and National City Bank dated as of July 8, 2005
(G)
4(d)
Indenture, dated as of February 12, 2007, by and among Invacare Corporation, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (including the Form of 4.125% Convertible Senior Subordinated Debenture due 2027 and related Guarantee attached as Exhibit A)
(O)
4(e)
Indenture, dated as of February 12, 2007, by and among Invacare Corporation, the Guarantors named therein and Wells Fargo Bank, N.A., as trustee (including the Form of 9.75% Senior Note due 2015 and related Guarantee attached as Exhibit A).
(O)
10(a)
1992 Non-Employee Directors Stock Option Plan adopted in May 1992
(F)
10(b)
Deferred Compensation Plan for Non-Employee Directors, adopted in May 1992
(F)
10(c)
Invacare Corporation 1994 Performance Plan approved January 28, 1994
(F)
10(d)
Amendment No. 1 to the Invacare Corporation 1994 Performance Plan approved May 28, 1998
(F)*
10(e)
Amendment No. 2 to the Invacare Corporation 1994 Performance Plan approved May 24, 2000
(B)*
10(f)
Amendment No. 3 to the Invacare Corporation 1994 Performance Plan approved March 13, 2003
(D)*
10(g)**
Invacare Retirement Savings Plan, effective January 1, 2001 as amended
 
10(h)
Agreement entered into by and between the company and Chief Operating Officer
(C)*
10(i)**
Invacare Corporation 401(K) Plus Benefit Equalization Plan,  effective January 1, 2003, as amended and restated
 
10(j)
Invacare Corporation Amended and Restated 2003 Performance Plan
(R)*
10(k)
Form of Change of Control Agreement entered into by and between the company and certain of its executive officers and Schedule of all such agreements with current executive officers
(M)
10(l)
Form of Indemnity Agreement entered into by and between the company and certain of its Directors and executive officers and Schedule of all such Agreements with Directors and executive officers
(C)*
10(m)
Employment Letter Agreement entered into by and between the company and Chief Financial Officer
(C)*
10(n)**
Invacare Corporation Deferred Compensation Plus Plan, effective January 1, 2005, as amended
 
10(o)**
Invacare Corporation Death Benefit Only Plan, effective January 1, 2005, as amended
 
10(p)
A. Malachi Mixon, III 10b5-1 Plan, effective February 14, 2005
(F)*
10(q)
Gerald B. Blouch 10b5-1 Plan, effective February 22, 2005
(F)*
10(r)
Gregory C. Thompson 10b5-1 Plan, effective February 21, 2005
(F)*
10(s)
Supplemental Executive Retirement Plan (As amended and restated effective February 1, 2000)
(F)*
10(t)
Form of Director Stock Option Award under Invacare Corporation 1994 Performance Plan
(F)*
10(u)**
Form of Director Stock Option Award under Invacare Corporation 2003 Performance Plan
 



Official
Exhibit No.
Description
Sequential
Page No.
10(v)**
Form of Director Deferred Option Award under Invacare Corporation 2003 Performance Plan
 
10(w)**
Form of Restricted Stock Option Award under Invacare Corporation 2003 Performance Plan
 
10(x)**
Form of Stock Option Award under Invacare Corporation 2003 Performance Plan
 
10(y)**
Form of Executive Stock Option Award under Invacare Corporation 2003 Performance Plan
 
10(z)**
Form of Switzerland Stock Option Award under Invacare Corporation 2003 Performance Plan
 
10(aa)**
Form of Switzerland Executive Stock Option Award under Invacare Corporation 2003 Performance Plan
 
10(ab)**
Director Compensation Schedule
 
10(ac)
Invacare Corporation Executive Incentive Bonus Plan, effective as of January 1, 2005
(H)*
10(ad)
Receivables Purchase Agreement, dated as of September 30, 2005, among Invacare Receivables Corporation, as Seller, Invacare Corporation, as Servicer, Park Avenue Receivables company, LLC and JPMorgan Chase Bank, N.A., as Agent
(I)
10(ae)
Note Purchase Agreement dated as of April 27, 2006, by and among Invacare Corporation and the various purchasers named therein, relating to $150,000,000 6.15% Senior Notes Due April 27, 2016.
(J)
10(af)
Amendment #1, dated as of September 28, 2006, to the Receivables Purchase Agreement, dated as of September 30, 2005, by and among Invacare Receivables Corporation, as Seller, Invacare Corporation, as Servicer, Park Avenue Receivables company, LLC and JPMorgan Chase Bank, N.A., as Agent
(J)
10(ag)
Omnibus Waiver, Amendment and Reaffirmation of Performance Undertaking dated as of November 14, 2006 to Receivables Purchase Agreement, dated as of September 30, 2005, among Invacare Receivables Corporation, as Seller, Invacare Corporation, as Servicer, Park Avenue Receivables company, LLC and JPMorgan Chase Bank, N.A., as Agent
(K)
10(ah)
Waiver and Amendment dated as of November 14, 2006 to Note Purchase Agreement dated as of April 27, 2006, by and among Invacare Corporation and the various purchasers named therein, relating to $150,000,000 6.15% Senior Notes Due April 27, 2016.
(K)
10(ai)
Second Omnibus Waiver, Amendment and Reaffirmation of Performance Undertaking dated as of November 14, 2006 to Receivables Purchase Agreement, dated as of September 30, 2005, among Invacare Receivables Corporation, as Seller, Invacare Corporation, as Servicer, Park Avenue Receivables company, LLC and JPMorgan Chase Bank, N.A., as Agent
(L)
10(aj)
Second Waiver and Amendment dated as of November 14, 2006 to Note Purchase Agreement dated as of April 27, 2006, by and among Invacare Corporation and the various purchasers named therein, relating to $150,000,000 6.15% Senior Notes Due April 27, 2016.
(L)
10(ak)
Credit Agreement, dated February 12, 2007, by and among Invacare Corporation, the Facility Guarantors named therein, the lenders named therein, Banc of America Securities LLC and KeyBank National Association as joint lead arrangers for the term loan facility, and National City Bank and KeyBank National Association as joint lead arrangers for the revolving loan facility.
(O)
10(al)
Purchase Agreement by and among Invacare Corporation, the Subsidiary Guarantors named therein, and the Initial Purchasers named therein dated as of February 5, 2007.
(N)
10(am)
Purchase Agreement by and among Invacare Corporation, the Subsidiary Guarantors named therein, and the Initial Purchasers named therein dated as of February 7, 2007.
(N)
10(an)
Amendment No. 1 to the Invacare Corporation 2003 Performance Plan
(P)
10(ao)
Gerald B. Blouch, Brian Ellacott, Dale C. LaPorte, Gregory C. Thompson, Joseph S. Usaj and Carl Will 10b5-1 Plan, effective August 2007
(P)
10(ap)
Doug Harper, A. Malachi Mixon, III, Joseph B. Richey II, Louis F. J. Slangen and Chris Yessayan 10b5-1 Plan, effective August 2007
(Q)
10(aq)**
A. Malachi Mixon, III Retirement Benefit Agreement
*



Official
Exhibit No.
Description
Sequential
Page No.
18
Letter re: Change in Accounting Principles
(M)
21**
Subsidiaries of the company
 
23**
Consent of Independent Registered Public Accounting Firm
 
31.1**
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2**
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1**
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2**
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
__________
*
Management contract, compensatory plan or arrangement
**
Filed herewith.
 


(A)
Reference is made to the appropriate Exhibit to the company report on Form 8-K, dated September 9, 2004, which Exhibit is incorporated herein by reference
   
(B)
Reference is made to the appropriate Exhibit of the company report on Form S-8, dated March 30, 2001, which Exhibit is incorporated herein by reference.
   
(C)
Reference is made to the appropriate Exhibit of the company report on Form 10-K for the fiscal year ended December 31, 2002, which Exhibit is incorporated herein by reference.
   
(D)
Reference is made to the appropriate Exhibit of the company report on Form 10-Q for the quarter ended March 31, 2003, which Exhibit is incorporated herein by reference.
   
(E)
Reference is made to Exhibit 10.1 of the company report on Form 10-Q for the quarter ended June 30, 2007.
   
(F)
Reference is made to the appropriate Exhibit of the company report on Form 10-K for the fiscal year ended December 31, 2004, which Exhibit is incorporated herein by reference.
   
(G)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated July 8, 2005, which is incorporated herein by reference.
   
(H)
Reference is made to the appropriate Exhibit to Appendix A to the company Definitive Proxy Statement on Schedule 14A dated April 8, 2005, which is incorporated herein by reference.
   
(I)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated September 29, 2005, which is incorporated herein by reference.
   
(J)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated April 27, 2006, which is incorporated herein by reference.
   
(K)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated November 14, 2006, which is incorporated herein by reference.
   
(L)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated December 15, 2006, which is incorporated herein by reference.
   
(M)
Reference is made to the appropriate Exhibit of the company report on Form 10-K for the fiscal year ended December 31, 2005, which Exhibit is incorporated herein by reference.
   
(N)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated February 5, 2007, which is incorporated herein by reference.
   
(O)
Reference is made to the appropriate Exhibit of the company report on Form 8-K, dated February 12, 2007, which is incorporated herein by reference.
   
(P)
Reference is made to the appropriate Exhibit of the company report on Form 10-Q, dated June 30, 2007, which is incorporated herein by reference.
   
(Q)
Reference is made to the appropriate Exhibit of the company report on Form 10-Q, dated September 30, 2007, which is incorporated herein by reference.
   
(R)
Reference is made to Exhibit 4.5 of Invacare Corporation Form S-8 filed on October 17, 2003, which is incorporated herein by reference.



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Invacare Corporation

We have audited the accompanying consolidated balance sheets of Invacare Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2007. Our audits also included the financial statement schedule listed in the Index at Item 15 (a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Invacare Corporation and subsidiaries at December 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with U. S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Accounting Policies in the notes to the consolidated financial statements, the Company adopted the provisions of SFAS No. 123(R), Share Based Payment , effective January 1, 2006; the provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) , effective December 31, 2006; and the provisions of SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements , applying the one-time special transition provisions, in 2006.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Invacare Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2008 expressed an unqualified opinion thereon.

/s/  ERNST & YOUNG LLP

Cleveland, Ohio
February 28, 2008





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Invacare Corporation

We have audited Invacare Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Invacare Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Invacare Corporation maintained, in all material aspects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Invacare Corporation and subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of operations, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2007 of Invacare Corporation, and the financial statement schedule for the three years in the period ended December 31, 2007 and our report dated February 28, 2008 expressed an unqualified opinion thereon.

/s/  ERNST & YOUNG LLP

Cleveland, Ohio
February 28, 2008





CONSOLIDATED STATEMENT OF OPERATIONS

INVACARE CORPORATION AND SUBSIDIARIES

 
 
Years Ended December 31,
 
 
 
2007
 
 
2006
 
 
2005
 
 
 
( In thousands, except per share data)
 
Net sales
 
$
1,602,237
 
 
$
1,498,035
 
 
$
1,529,732
 
Cost of products sold
 
 
1,155,933
 
 
 
1,080,965
 
 
 
1,083,533
 
Gross Profit
 
 
446,304
 
 
 
417,070
 
 
 
446,199
 
Selling, general and administrative expenses
 
 
366,846
 
 
 
373,846
 
 
 
342,039
 
Charges related to restructuring activities
 
 
9,591
 
 
 
17,277
 
 
 
7,295
 
Debt finance charges, interest and fees associated with debt refinancing
 
 
13,408
 
 
 
3,745
 
 
 
—
 
Asset write-downs related to goodwill and other intangibles
 
 
—
 
 
 
300,417
 
 
 
—
 
Interest expense
 
 
44,309
 
 
 
34,084
 
 
 
27,246
 
Interest income
 
 
(2,340
)
 
 
(2,775
)
 
 
(1,683
)
Earnings (loss) before Income Taxes
 
 
14,490
 
 
 
(309,524
)
 
 
71,302
 
Income taxes
 
 
13,300
 
 
 
8,250
 
 
 
22,450
 
Net Earnings (loss)
 
$
1,190
 
 
$
(317,774
)
 
$
48,852
 
Net Earnings (loss) per Share — Basic
 
$
.04
 
 
$
(10.00
)
 
$
1.55
 
Weighted Average Shares Outstanding — Basic
 
 
31,840
 
 
 
31,789
 
 
 
31,555
 
Net Earnings (loss) per Share — Assuming Dilution
 
$
.04
 
 
$
(10.00
)
 
$
1.51
 
Weighted Average Shares Outstanding — Assuming Dilution
 
 
31,927
 
 
 
31,789
 
 
 
32,452
 

See notes to consolidated financial statements.





CONSOLIDATED BALANCE SHEETS

INVACARE CORPORATION AND SUBSIDIARIES

 
 
December 31,
2007
 
 
December 31,
2006
 
 
 
(In thousands)
 
Assets
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
62,200
 
 
$
82,203
 
Marketable securities
 
 
255
 
 
 
190
 
Trade receivables, net
 
 
264,143
 
 
 
261,606
 
Installment receivables, net
 
 
4,057
 
 
 
7,097
 
Inventories, net
 
 
195,604
 
 
 
201,756
 
Deferred income taxes
 
 
2,478
 
 
 
13,512
 
Other current assets
 
 
62,348
 
 
 
89,394
 
Total Current Assets
 
 
591,085
 
 
 
655,758
 
Other Assets
 
 
91,662
 
 
 
67,443
 
Other Intangibles
 
 
104,736
 
 
 
102,876
 
Property and Equipment, net
 
 
169,376
 
 
 
173,945
 
Goodwill
 
 
543,183
 
 
 
490,429
 
Total Assets
 
$
1,500,042
 
 
$
1,490,451
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
Accounts payable
 
$
150,170
 
 
$
163,041
 
Accrued expenses
 
 
145,958
 
 
 
147,776
 
Accrued income taxes
 
 
5,973
 
 
 
12,916
 
Short-term debt and current maturities of long-term obligations
 
 
24,510
 
 
 
124,243
 
Total Current Liabilities
 
 
326,611
 
 
 
447,976
 
Long-Term Debt
 
 
513,342
 
 
 
448,883
 
Other Long-Term Obligations
 
 
106,046
 
 
 
107,223
 
Shareholders’ Equity
 
 
 
 
 
 
 
 
Preferred Shares (Authorized 300 shares; none outstanding)
 
 
—
 
 
 
—
 
Common Shares (Authorized 100,000 shares; 32,126 and 32,051 issued in 2007 and 2006, respectively) — no par
 
 
8,034
 
 
 
8,013
 
Class B Common Shares (Authorized 12,000 shares; 1,112, issued and outstanding in 2007 and 2006) — no par
 
 
278
 
 
 
278
 
Additional paid-in-capital
 
 
147,295
 
 
 
144,719
 
Retained earnings
 
 
276,344
 
 
 
276,750
 
Accumulated other comprehensive earnings
 
 
164,969
 
 
 
99,188
 
Treasury shares (1,200 and 1,186 shares in 2007 and 2006, respectively)
 
 
(42,877
)
 
 
(42,579
)
Total Shareholders’ Equity
 
 
554,043
 
 
 
486,369
 
Total Liabilities and Shareholders’ Equity
 
$
1,500,042
 
 
$
1,490,451
 

See notes to consolidated financial statements.
 



CONSOLIDATED STATEMENT OF CASH FLOWS

INVACARE CORPORATION AND SUBSIDIARIES

 
 
Years Ended December 31,
 
 
 
2007
 
 
2006
 
 
2005
 
 
 
(In thousands)
 
Operating Activities
 
 
 
 
 
 
 
 
 
Net earnings (loss)
 
$
1,190
 
 
$
(317,774
)
 
$
48,852
 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
 
43,717
 
 
 
39,892
 
 
 
40,524
 
Provision for losses on trade and installment receivables
 
 
11,927
 
 
 
37,711
 
 
 
14,168
 
Provision for deferred income taxes
 
 
6,030
 
 
 
4,285
 
 
 
(100
)
Provision for other deferred liabilities
 
 
3,570
 
 
 
3,429
 
 
 
3,571
 
Provision for stock-based compensation
 
 
2,554
 
 
 
1,587
 
 
 
881
 
Loss on disposals of property and equipment
 
 
1,686
 
 
 
2,219
 
 
 
297
 
Debt finance charges, interest and fees associated with debt refinancing
 
 
13,408
 
 
 
—
 
 
 
—
 
Write down of goodwill and intangibles
 
 
—
 
 
 
300,417
 
 
 
—
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Trade receivables
 
 
1,469
 
 
 
(4,035
)
 
 
(10,075
)
Installment sales contracts, net
 
 
(8,348
)
 
 
(5,997
)
 
 
(4,402
)
Inventories
 
 
14,542
 
 
 
(15,932
)
 
 
(12,919
)
Other current assets
 
 
31,377
 
 
 
(25,043
)
 
 
(7,046
)
Accounts payable
 
 
(18,298
)
 
 
22,857
 
 
 
(6,923
)
Accrued expenses
 
 
(15,661
)
 
 
18,414
 
 
 
9,185
 
Other long-term liabilities
 
 
(10,063
)
 
 
424
 
 
 
2,112
 
Net Cash Provided by Operating Activities
 
 
79,100
 
 
 
62,454
 
 
 
78,125
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(20,068
)
 
 
(21,789
)
 
 
(30,924
)
Proceeds from sale of property and equipment
 
 
501
 
 
 
2,298
 
 
 
5,365
 
Business acquisitions, net of cash acquired
 
 
(5,496
)
 
 
(15,296
)
 
 
(58,216
)
(Increase) decrease in other investments
 
 
155
 
 
 
252
 
 
 
(44
)
(Increase) decrease in other long-term assets
 
 
1,446
 
 
 
(850
)
 
 
(1,013
)
Other
 
 
1,404
 
 
 
939
 
 
 
(1,902
)
Net Cash Used for Investing Activities
 
 
(22,058
)
 
 
(34,446
)
 
 
(86,734
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving lines of credit, securitization facility and long-term borrowings
 
 
699,001
 
 
 
872,549
 
 
 
796,073
 
Payments on revolving lines of credit, securitization facility and long-term borrowings
 
 
(754,002
)
 
 
(846,100
)
 
 
(796,619
)
Proceeds from exercise of stock options
 
 
44
 
 
 
2,364
 
 
 
3,742
 
Payment of financing costs
 
 
(22,992
)
 
 
—
 
 
 
—
 
Payment of dividends
 
 
(1,596
)
 
 
(1,589
)
 
 
(1,580
)
Net Cash Provided (Used) by Financing Activities
 
 
(79,545
)
 
 
27,224
 
 
 
1,616
 
Effect of exchange rate changes on cash
 
 
2,500
 
 
 
1,347
 
 
 
50
 
Increase (decrease) in cash and cash equivalents
 
 
(20,003
)
 
 
56,579
 
 
 
(6,943
)
Cash and cash equivalents at beginning of year
 
 
82,203
 
 
 
25,624
 
 
 
32,567
 
Cash and cash equivalents at end of year
 
$
62,200
 
 
$
82,203
 
 
$
25,624
 

See notes to consolidated financial statements.


CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

INVACARE CORPORATION AND SUBSIDIARIES
 
(In thousands)
 
Common
Stock
   
Class B
Stock
 
Additional
Paid-in-
Capital
   
Retained
Earnings
   
Accumulated   Other
Comprehensive
Earnings (Loss)
   
Unearned
Compen-sation
   
Treasury
Stock
   
Total
 
January 1, 2005 Balance
$
7,803
 
$
278
$
124,798
 
$
550,753
 
$
104,629
 
$
(1,557
)
$
(32,261
)
$
754,443
 
Exercise of stock options, including tax benefit
 
117
 
 
 
 
14,133
 
 
 
 
 
 
 
 
 
 
 
(6,004
)
 
8,246
 
Restricted stock awards
 
5
 
 
 
 
1,011
 
 
 
 
 
 
 
 
(1,016
)
 
 
 
 
—
 
Restricted stock award expense
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
881
 
 
 
 
 
881
 
Net earnings
 
 
 
 
 
 
 
 
 
48,852
 
 
 
 
 
 
 
 
 
 
 
48,852
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
(56,176
)
 
 
 
 
 
 
 
(56,176
)
Unrealized losses on cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
(1,008
)
 
 
 
 
 
 
 
(1,008
)
Marketable securities holding gain
 
 
 
 
 
 
 
 
 
 
 
 
35
 
 
 
 
 
 
 
 
35
 
Total comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(8,297
)
Dividends
 
 
 
 
 
 
 
 
 
(1,580
)
 
 
 
 
 
 
 
 
 
 
(1,580
)
December 31, 2005 Balance
 
7,925
 
 
278
 
139,942
 
 
598,025
 
 
47,480
 
 
(1,692
)
 
(38,265
)
 
753,693
 
Cumulative effect adjustment, adoption of SAB 108, net of tax
 
 
 
 
 
 
 
 
 
(1,912
)
 
 
 
 
 
 
 
 
 
 
(1,912
)
Adjustment upon adoption of FAS 123R
 
 
 
 
 
 
(1,692
)
 
 
 
 
 
 
 
1,692
 
 
 
 
 
—
 
Exercise of stock options
 
59
 
 
 
 
4,911
 
 
 
 
 
 
 
 
 
 
 
(4,314
)
 
656
 
Non-qualified stock option expense
 
 
 
 
 
 
512
 
 
 
 
 
 
 
 
 
 
 
 
 
 
512
 
Restricted stock awards
 
29
 
 
 
 
1,046
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,075
 
Net loss
 
 
 
 
 
 
 
 
 
(317,774
)
 
 
 
 
 
 
 
 
 
 
(317,774
)
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
64,386
 
 
 
 
 
 
 
 
64,386
 
Unrealized gains on cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
2,303
 
 
 
 
 
 
 
 
2,303
 
Marketable securities holding loss
 
 
 
 
 
 
 
 
 
 
 
 
(41
)
 
 
 
 
 
 
 
(41
)
Total comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(251,126
)
Adjustment to initially apply   FASB Statement No. 158, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
(14,940
)
 
 
 
 
 
 
 
(14,940
)
Dividends
 
 
 
 
 
 
 
 
 
(1,589
)
 
 
 
 
 
 
 
 
 
 
(1,589
)
December 31, 2006 Balance
 
8,013
 
 
278
 
144,719
 
 
276,750
 
 
99,188
 
 
—
 
 
(42,579
)
 
486,369
 
Exercise of stock options
 
1
 
 
 
 
42
 
 
 
 
 
 
 
 
 
 
 
 
 
 
43
 
Non-qualified stock option expense
 
 
 
 
 
 
1,232
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,232
 
Restricted stock awards
 
20
 
 
 
 
1,302
 
 
 
 
 
 
 
 
 
 
 
(298
)
 
1,024
 
Net earnings
 
 
 
 
 
 
 
 
 
1,190
 
 
 
 
 
 
 
 
 
 
 
1,190
 
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
 
 
 
 
66,373
 
 
 
 
 
 
 
 
66,373
 
Unrealized loss on cash flow hedges
 
 
 
 
 
 
 
 
 
 
 
 
(3,334
)
 
 
 
 
 
 
 
(3,334
)
Defined benefit plans amortization of prior service costs and unrecognized losses
 
 
 
 
 
 
 
 
 
 
 
 
2,701
 
 
 
 
 
 
 
 
2,701
 
Marketable securities holding gain
 
 
 
 
 
 
 
 
 
 
 
 
41
 
 
 
 
 
 
 
 
41
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
66,971
 
Dividends
 
 
 
 
 
 
 
 
 
(1,596
)
 
 
 
 
 
 
 
 
 
 
(1,596
)
December 31, 2007 Balance
$
8,034
 
$
278
$
147,295
 
$
276,344
 
$
164,969
 
$
—
 
$
(42,877
)
$
554,043
 
See notes to consolidated financial statements.

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounting Policies

Nature of Operations:   Invacare Corporation is the world’s leading manufacturer and distributor in the $8.0 billion worldwide market for medical equipment used in the home based upon our distribution channels, breadth of product line and net sales. The company designs, manufactures and distributes an extensive line of health care products for the non-acute care environment, including the home health care, retail and extended care markets.

Principles of Consolidation:   The consolidated financial statements include the accounts of the company, its majority owned subsidiaries and a variable interest entity for which the company is the primary beneficiary. Certain foreign subsidiaries, represented by the European segment, are consolidated using a November 30 fiscal year end in order to meet filing deadlines. No material subsequent events have occurred related to the European segment, which would require disclosure or adjustment to the company’s financial statements. All significant intercompany transactions are eliminated.

Reclassifications:   The company reclassified $1,005,000 from other long-term obligations to additional paid-in-capital as of January 1, 2005 to properly reflect deferred compensation on the Consolidated Balance Sheet and Consolidated Statement of Shareholders’ Equity.  Certain lines of the Consolidated Statement of Cash Flows were also reclassified in 2006 and 2005 to conform to the presentation for 2007, including the proper presentation of the provision for stock option and award expense, and the changes increased net operating cash flows by $717,000 and $881,000, respectively, for 2006 and 2005.  Reclassifications were made to the company’s segment disclosures including reclassification of segment earnings (loss) before income tax amounts for 2006 and 2005 to be consistent with 2007 presentation of including the impact of the consolidated variable interest entity in “Other” versus “NA/HME.”  The reclassification decreased the loss in NA/HME and increased the loss in Other by $10,394,000 in 2006 and increased the earnings in NA/HME and the loss in Other in 2005 by $1,087,000.

Use of Estimates:   The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from these estimates.

Marketable Securities:   Marketable securities consist of short-term investments in repurchase agreements, government and corporate securities, certificates of deposit and equity securities. Marketable securities with original maturities of less than three months are treated as cash equivalents. The company has classified its marketable securities as available for sale. The securities are carried at their fair value and net unrealized holding gains and losses, net of tax, are carried as a component of accumulated other comprehensive earnings (loss).

Inventories:   Inventories are stated at the lower of cost or market with cost determined by the first-in, first-out method. Market costs are based on the lower of replacement cost or estimated net realizable value. Inventories have been reduced by an allowance for excess and obsolete inventories. The estimated allowance is based on management’s review of inventories on hand compared to estimated future usage and sales.

Property and Equipment:   Property and equipment are stated on the basis of cost. The company principally uses the straight-line method of depreciation for financial reporting purposes based on annual rates sufficient to amortize the cost of the assets over their estimated useful lives. Machinery and equipment as well as furniture and fixtures are generally depreciated using lives of 3 to 10 years, while buildings and improvements are depreciated using lives of 3 to 40 years. Accelerated methods of depreciation are used for federal income tax purposes. Expenditures for maintenance and repairs are charged to expense as incurred.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. The asset would be considered impaired when the future net undiscounted cash flows generated by the asset are less than its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Policies – Continued

Goodwill and Other Intangibles:   In accordance with SFAS No. 142, Goodwill and Other Intangible Assets , (“SFAS No. 142”) goodwill is subject to annual impairment testing. For purposes of the impairment test, the fair value of each reporting unit is estimated by forecasting cash flows and discounting those cash flows using appropriate discount rates. The fair values are then compared to the carrying value of the net assets of each reporting unit. No impairments were recognized in 2007. As a result of reduced profitability in the NA/HME operating segment and uncertainty associated with future market conditions, in 2006 the company recorded impairment charges related to goodwill and an intangible asset in this segment of $294,656,000 and $160,000, respectively, in addition, an impairment charge of $5,601,000 was recorded related to the intangible asset recorded associated with NeuroControl, which is included in Other in the segment disclosure, at December 31, 2006.

Accrued Warranty Cost:   Generally, the company’s products are covered by warranties against defects in material and workmanship for various periods depending on the product from the date of sale to the customer. Certain components carry a lifetime warranty. A provision for estimated warranty cost is recorded at the time of sale based upon actual experience. The company continuously assesses the adequacy of its product warranty accrual and makes adjustments as needed. Historical analysis is primarily used to determine the company’s warranty reserves. Claims history is reviewed and provisions are adjusted as needed. However, the company does consider other events, such as a product recall, which could warrant additional warranty reserve provision. No material adjustments to warranty reserves were necessary in the current year. See Current Liabilities in the Notes to the Consolidated Financial Statements for a reconciliation of the changes in the warranty accrual.

Product Liability Cost:   The company’s captive insurance company, Invatection Insurance Co., currently has a policy year that runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and $13,000,000 in the aggregate of the company’s North American product liability exposure. The company also has additional layers of external insurance coverage insuring up to $75,000,000 in annual aggregate losses arising from individual claims anywhere in the world that exceed the captive insurance company policy limits or the limits of the company’s per country foreign liability limits, as applicable. There can be no assurance that Invacare’s current insurance levels will continue to be adequate or available at affordable rates.

Product liability reserves are recorded for individual claims based upon historical experience, industry expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such valuations are conducted. Historical claims experience and other assumptions are taken into consideration by the third-party actuary to estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an indicator of future experience, that the distribution of exposures by geographic area and nature of operations for ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular basis and can be impacted by actual loss award settlements on claims.

Revenue Recognition:   Invacare’s revenues are recognized when products are shipped to unaffiliated customers. The SEC’s Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition , as updated by SAB No. 104, provides guidance on the application of GAAP to selected revenue recognition issues. The company has concluded that its revenue recognition policy is appropriate and in accordance with GAAP and SAB No. 101.

Sales are only made to customers with whom the company believes collection is reasonably assured based upon a credit analysis, which may include obtaining a credit application, a signed security agreement, personal guarantee and/or a cross corporate guarantee depending on the credit history of the customer. Credit lines are established for new customers after an evaluation of their credit report and/or other relevant financial information. Existing credit lines are regularly reviewed and adjusted with consideration given to any outstanding past due amounts.

The company offers discounts and rebates, which are accounted for as reductions to revenue in the period in which the sale is recognized. Discounts offered include: cash discounts for prompt payment, base and trade discounts based on contract level for specific classes of customers. Volume discounts and rebates are given based on large purchases and the achievement of certain sales volumes. Product returns are accounted for as a reduction to reported sales with estimates recorded for anticipated returns at the time of sale. The company does not sell any goods on consignment.


 
INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Policies – Continued

Distributed products sold by the company are accounted for in accordance with Emerging Issues Task Force (EITF) No. 99-19 Reporting Revenue Gross as a Principal versus Net as an Agent. The company records distributed product sales gross as a principal since the company takes title to the products and has the risks of loss for collections, delivery and returns.

Product sales that give rise to installment receivables are recorded at the time of sale when the risks and rewards of ownership are transferred. The company has an agreement with a third party financing company to provide the majority of future installment financing to Invacare customers. As such, interest income is recognized based on the terms of the installment agreements. Installment accounts are monitored and if a customer defaults on payments, interest income is no longer recognized. All installment accounts are accounted for using the same methodology, regardless of duration of the installment agreements.

 Research and Development:   Research and development costs are expensed as incurred and included in cost of products sold. The company’s annual expenditures for product development and engineering were approximately $22,491,000, $22,146,000, and $23,247,000 for 2007, 2006, and 2005, respectively.

Advertising:   Advertising costs are expensed as incurred and included in selling, general and administrative expenses. The company has a co-op advertising program in which the company reimburses customers up to 50% of their costs of qualifying advertising expenditures. Invacare product and brand logos must appear in all advertising. Invacare requires customers to submit proof of advertising with their claims for reimbursement. The company’s cost of the program is included in SG&A expense in the consolidated statement of operations at the time the liability is estimated. Reimbursement is made on an annual basis and within 3 months of submission and approval of the documentation. The company receives monthly reporting from those in the program of their qualified advertising dollars spent and accrues based upon information received. Advertising expenses amounted to $17,529,000, $20,869,000 and $26,621,000 for 2007, 2006 and 2005, respectively, the majority of which is incurred for advertising in the United States.

Stock-Based Compensation Plans:   Prior to the company’s adoption of Statement of Financial Accounting Standard No. 123 (Revised 2004), Share Based Payment (“SFAS 123R”), the company accounted for options under its stock-based compensation plans using the intrinsic value method proscribed in Accounting Principles Board Opinion (APBO) No. 25, Accounting for Stock Issued to Employees , and related Interpretations. Only compensation cost related to restricted stock awards granted without cost was reflected in net earnings, as all other options awarded were granted at exercise prices equal to the market value of the underlying stock on the date of grant.

Effective January 1, 2006, the company adopted SFAS No. 123R using the modified prospective application method. Under the modified prospective method, compensation cost has been recognized since January 1, 2006 for: 1) all stock-based payments granted subsequent to January 1, 2006 based upon the grant-date fair value calculated in accordance with SFAS No. 123R, and 2) all stock-based payments granted prior to, but not vested as of, January 1, 2006 based upon grant-date fair value as calculated for previously presented pro forma footnote disclosures in accordance with the original provisions of SFAS No. 123, Accounting for Stock Based Compensation. The amounts of stock-based compensation expense recognized were as follows (in thousands):

 
 
2007
 
 
2006
 
 
2005
 
Stock-based compensation expense recognized as part of selling, general and administrative expense
 
$
2,554
 
 
$
1,587
 
 
$
881
 

The 2007 and 2006 amounts above reflect compensation expense related to restricted stock awards and nonqualified stock options awarded under the 2003 Performance Plan. The 2005 amount reflects compensation expense recognized for restricted stock awards only, before SFAS No. 123R was adopted. Stock-based compensation is not allocated to the business segments, but is reported as part of All Other as shown in the company’s Business Segment Note to the Consolidated Financial Statements.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Policies – Continued

Pursuant to the modified prospective application method, results for periods prior to January 1, 2006 have not been restated to reflect the effects of adopting SFAS No. 123R. The pro forma information below is presented for comparative purposes, as required by SFAS No. 148, Accounting for Stock-Based Compensation —Transition and Disclosure, an amendment of FASB Statement No. 123 , to illustrate the pro forma effect on net earnings and related earnings per share for 2005, as if the company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation for 2005 (in thousands):

 
 
2005
 
Net earnings, as reported
 
$
48,852
 
Add: Stock-based compensation expense included in reported earnings, net of tax ($308)
 
 
573
 
Deduct: Total stock-based compensation expense determined under fair value-based method for all awards, net of tax ($7,993)
 
 
(14,845
)
Adjusted net earnings
 
$
34,580
 
Net earnings per share:
 
 
 
 
Basic — as reported
 
$
1.55
 
Basic — as adjusted for stock-based compensation expense
 
$
1.10
 
Diluted — as reported
 
$
1.51
 
Diluted — as adjusted for stock-based compensation expense
 
$
1.07
 

On December 21, 2005, the company’s Board of Directors, based on the recommendation of the Compensation, Management Development and Corporate Governance Committee, approved the acceleration of the vesting for substantially all of our unvested stock options, which were then underwater. The Board of Directors decided to approve the acceleration of the vesting of these stock options primarily to partially offset certain reductions in other benefits made by the company and to provide additional incentive to those employees critical to our cost reduction efforts.

The decision, which was effective as of December 21, 2005, accelerated the vesting for a total of 1,368,307 options on the company’s common shares, including 646,100 shares underlying options held by the company’s named executive officers. The stock options accelerated equated to 29% of the company’s total outstanding stock options. Vesting was not accelerated for the restricted stock awards granted under the company’s stock-based compensation plans and no other modifications were made to the awards that were accelerated. The exercise prices of the accelerated options, all of which were underwater, were unchanged by the acceleration of the vesting schedules. All of the company’s outstanding unvested options under our stock-based compensation plans which were accelerated, had exercise prices ranging from $30.91 to $47.80 which were greater than our stock market price of $30.75 as of the effective date of the acceleration.

Income Taxes:   The company uses the liability method in measuring the provision for income taxes and recognizing deferred tax assets and liabilities on the balance sheet. The liability method requires that deferred income taxes reflect the tax consequences of currently enacted rates for differences between the tax and financial reporting bases of assets and liabilities. Undistributed earnings of the company’s foreign subsidiaries are considered to be indefinitely reinvested and, accordingly, no provision for income taxes has been provided for unremitted earnings of foreign subsidiaries. The amount of the unrecognized deferred tax liability for temporary differences related to investments in foreign subsidiaries that are permanently reinvested is not practically determinable.

Derivative Instruments:   The company recognizes its derivative instruments as assets or liabilities in the consolidated balance sheet measured at fair value. A majority of the company’s derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. The remaining gain or loss on the derivative instrument in excess of the cumulative change in the fair value of the hedged item, if any, is recognized in current earnings during the period of change.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Policies – Continued

The company is a party to interest rate swap agreements that qualify as cash flow hedges and effectively convert floating-rate debt to fixed-rate debt, so the company can avoid the risk of changes in market interest rates.  Until the company refinanced its debt in February 2007, the company was also a party to interest rate swap agreements that qualified as fair value hedges and effectively converted fixed-rate debt to floating-rate debt, so the company could avoid paying higher than market interest rates.  The company recognized net losses of $394,000 and $696,000 in 2007 and 2006, respectively, and a net gain of $1,230,000 in 2005 related to its swap agreements, which is reflected in interest expense on the consolidated statement of operations.

To protect against increases/decreases in forecasted foreign currency cash flows resulting from inventory purchases/sales over the next year, the company utilizes cash flow hedges to hedge portions of its forecasted purchases/sales denominated in foreign currencies. The company recognized a net gain of $451,000 in 2007 and net losses of $240,000 and $280,000 in 2006 and 2005, respectively, on foreign currency cash flow hedges. The gains and losses are included in cost of products sold and selling, general and administrative expenses on the consolidated statement of operations.

The company recognized no gain or loss related to hedge ineffectiveness or discontinued cash flow hedges. If it is later determined that a hedged forecasted transaction is unlikely to occur, any gains or losses on the forward contracts would be reclassified from other comprehensive income into earnings. The company does not expect this to occur during the next twelve months.  The company has historically not recognized any ineffectiveness related to forward contract cash flow hedges because the company generally limits it hedges to 60% of total forecasted transactions for a given entity’s exposure to currency rate changes and the transactions hedged are recurring in nature.

Foreign Currency Translation:   The functional currency of the company’s subsidiaries outside the United States is the applicable local currency. The assets and liabilities of the company’s foreign subsidiaries are translated into U.S. dollars at year-end exchange rates. Revenues and expenses are translated at weighted average exchange rates. Gains and losses resulting from translation are included in accumulated other comprehensive earnings (loss).

Net Earnings Per Share:   Basic earnings per share are computed based on the weighted-average number of Common Shares and Class B Common Shares outstanding during the year. Diluted earnings per share are computed based on the weighted-average number of Common Shares and Class B Common Shares outstanding plus the effects of dilutive stock options and awards outstanding during the year.

Defined Benefit Plans:   In September 2006, the Financial Accounting Standards Board “FASB” issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and OtherPostretirement Plans , an amendment of FASB Statements No. 87, 88, 106 and 132(R), or “FAS 158.” FAS 158 requires plan sponsors to recognize the funded status of their defined benefit postretirement benefit plans in the consolidated balance sheet, measure the fair value of plan assets and benefit obligations as of the balance sheet date and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The company adopted the provisions of FAS 158 on December 31, 2006. The adoption required the company to recognize the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of our postretirement benefit plan in the December 31, 2006 balance sheet, with a corresponding adjustment of $14,940,000 to accumulated other comprehensive income on a pre-tax and after-tax basis. The adoption of FAS 158 did not affect the company’s consolidated statement of operations for the year ended December 31, 2006, or for any prior period presented.

In 2006, the company determined that the reported December 31, 2005 accumulated benefit for the company’s non-qualified defined benefit Supplemental Executive Retirement Plan (SERP) was understated by $2,941,000 ($1,912,000 after-tax), or $0.06 per share, as the result of accounting errors in which recorded expense in prior years was netted by SERP benefit payments. The company assessed the error amounts considering SEC Staff Accounting Bulletin No. 99 , Materiality , as well as SEC Staff Accounting Bulletin No. 108, Considering the Effects ofPrior Year Misstatements When Quantifying Misstatements in Current Year FinancialStatements , or “SAB 108.” The error was not material to any prior period reported financial statements, but was material in the current year. Accordingly, the company recorded the correction of the understatement of expense as an adjustment to beginning 2006 retained earnings pursuant to the special transition provision detailed in SAB 108.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounting Policies – Continued

Recent Accounting Pronouncements:   In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes , an interpretation of FASB Statement No. 109, or “FIN 48.” FIN 48 prescribes recognition and measurement of a tax position taken or expected to be taken in a tax return as well as guidance regarding derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The company adopted the provisions of FIN 48 on January 1, 2007. Upon adoption, the company did not recognize an adjustment in the liability for unrecognized income tax benefits.  The company continues to recognize interest and penalties related to uncertain tax positions in income tax expense.

In September, 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 (FAS 157), Fair Value Measurements , which creates a framework for measuring fair value, clarifies the definition of fair value and expands the disclosures regarding fair value measurements.  FAS 157 does not require any new fair value measurements and is effective for fiscal years beginning after November 15, 2007, thus January 1, 2008.  The company adopted the new standard as of the effective date and currently does not believe the adoption will have a material impact on the company’s financial position or future results as the company is already performing its goodwill and intangible valuation calculations and estimating the fair value of the company’s financial instruments using methodology which is principally consistent with Statement No. 157. The company continues to study the impact that FAS 157 will have on future disclosures of the fair values for investments, accounts receivable and debt as shown in the Fair Values of Financial Instruments footnote disclosure.

In December 2007, the FASB issued SFAS 141(R), Business Combinations (SFAS 141R), which changes the accounting for business acquisitions.  SFAS 141(R) requires the acquiring entity in a business combination to recognize all the assets acquired and liabilities assumed in the transaction and establishes principles and requirements as to how an acquirer should recognize and measure in its financial statements the assets acquired, liabilities assumed, any non-controlling interest and goodwill acquired.  SFAS 141(R) also requires expanded disclosure regarding the nature and financial effects of a business combination.  SFAS 141(R) is effective for the company beginning January 1, 2009 and the company is currently evaluating the future impacts and disclosures of this standard.

On September 5, 2007, the FASB exposed for comment FASB Staff Position APB 14-a (FSP APB 14-a) to provide clarification of the accounting for convertible debt that can be settled in cash upon conversion.  The FASB believes this clarification is needed because the current accounting being applied for convertible debt does not fully reflect the true economic impact on the issuer since the conversion option is not captured as a borrowing cost and its full dilutive effect is not included in earnings per share.  The proposed FSP would require separate accounting for the liability and equity components of the convertible debt in a manner that would reflect Invacare’s nonconvertible debt borrowing rate.  The company would be required to bifurcate a component of its convertible debt as a component of stockholders’ equity and accrete the resulting debt discount as interest expense.  The comment period regarding the exposure draft ended October 15, 2007 and the exposure draft is currently being redeliberated by the FASB.  Should the proposed FSP become effective as drafted, the change may materially impact the company’s interest expense and earnings per share.  The most recent proposed effective date was January 1, 2008 with retrospective application required for all periods presented and no grandfathering for existing instruments.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Receivables

Accounts receivable are reduced by an allowance for amounts that may become uncollectible in the future. Substantially all of the company’s receivables are due from health care, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid. In addition, the company has seen a significant shift in reimbursement to customers from managed care entities. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. The estimated allowance for uncollectible amounts ($39,135,000 in 2007 and $35,591,000 in 2006) is based primarily on management’s evaluation of the financial condition of the customer. The company’s allowance for uncollectible accounts contemplates the increased collectibility risk resulting from changes in Medicare reimbursement regulations, specifically changes to the qualification processes and reimbursement levels of power wheelchairs. The company has reviewed the accounts receivables associated with many of its customers that are most exposed to these issues. The company is also working with certain of its customers in an effort to help them reduce costs, including product line consolidations and introduction of simplified pricing. In addition, the company has also implementing tighter credit policies with many of these accounts.

Until February 2007, the company utilized a 364-day $100 million accounts receivable securitization facility which was entered into on September 30, 2005. The Receivables Purchase Agreement (the “Receivables Agreement”), provided for, among other things, the transfer from time to time by Invacare and certain of its subsidiaries of ownership interests of certain domestic accounts receivable on a revolving basis to the bank conduit, an asset-backed issuer of commercial paper, and/or the financial institutions named in the Receivables Agreement. Pursuant to the Receivables Agreement, the company and certain of its subsidiaries from time to time could transfer accounts receivable to Invacare Receivables Corporation (IRC), a special purpose entity and subsidiary of Invacare. IRC would then transfer interests in the receivables to the Conduit and/or the financial institutions named in the Receivables Agreement and receives funds from the conduit and/or the financial institutions raised through the issuance of commercial paper (in its own name) by the conduit and/or the financial institutions.

In accordance with U.S. Generally Accepted Accounting Principles (GAAP), Invacare accounted for the transaction as a secured borrowing. Borrowings under the facility were effectively repaid as receivables were collected, with new borrowings created as additional receivables were sold. As of December 31, 2006, Invacare had $71,750,000 in borrowings pursuant to the securitization facility at a borrowing rate of approximately 6.1% in 2006. The debt is reflected on the short-term debt and current maturities of long-term obligations line of the consolidated balance sheet at December 31, 2006.  In February 2007, the accounts receivable securitization facility was terminated and thus the company has no borrowings outstanding as of December 31, 2007 associated with the facility.

Installment receivables as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
 
 
Current
 
 
Long-
Term
 
 
Total
 
 
Current
 
 
Long-
Term
 
 
Total
 
Installment receivables
 
$
4,404
 
 
$
30,560
 
 
$
34,964
 
 
$
9,077
 
 
$
18,991
 
 
$
28,068
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unearned interest
 
 
(100
)
 
 
(3,176
)
 
 
(3,276
)
 
 
(1,401
)
 
 
(1,738
)
 
 
(3,139
)
Allowance for doubtful accounts
 
 
(247
)
 
 
(3,578
)
 
 
(3,825
)
 
 
(579
)
 
 
(1,463
)
 
 
(2,042
)
 
 
$
4,057
 
 
$
23,806
 
 
$
27,863
 
 
$
7,097
 
 
$
15,790
 
 
$
22,887
 

The increase in the allowance for doubtful accounts in 2007 was the result of additional provisions for doubtful accounts.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Receivables – Continued

In addition, as a result of the company’s third party financing arrangement, management monitors the collection status of these contracts in accordance with the company’s limited recourse obligations and provides amounts necessary for estimated losses in the allowance for doubtful accounts. See Concentration of Credit Risk in the Notes to the Consolidated Financial Statements for a description of the financing arrangement. Long-term installment receivables are included in “Other Assets” on the consolidated balance sheet.

Inventories

Inventories as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
Finished goods
 
$
116,808
 
 
$
118,323
 
Raw materials
 
 
63,815
 
 
 
66,718
 
Work in process
 
 
14,981
 
 
 
16,715
 
 
 
$
195,604
 
 
$
201,756
 

Other Current Assets

Other current assets as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
Value added taxes receivable
 
$
22,808
 
 
$
43,264
 
Recoverable income taxes
 
 
11,219
 
 
 
19,024
 
Prepaids and other current assets
 
 
28,321
 
 
 
27,106
 
 
 
$
62,348
 
 
$
89,394
 

Property and Equipment

Property and equipment as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
Machinery and equipment
 
$
308,904
 
 
$
276,062
 
Land, buildings and improvements
 
 
97,478
 
 
 
86,544
 
Furniture and fixtures
 
 
33,204
 
 
 
29,609
 
Leasehold improvements
 
 
16,390
 
 
 
15,943
 
 
 
 
455,976
 
 
 
408,158
 
Less allowance for depreciation
 
 
(286,600
)
 
 
(234,213
)
 
 
$
169,376
 
 
$
173,945
 
 

 
INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Acquisitions

On November 27, 2007, Invacare Corporation acquired RoadRunner Mobility, Inc., a Texas corporation and a leading repairer of power wheelchairs supporting the equipment service needs of the Medicare beneficiary through a national network of service centers and service technicians for $5,496,000 in cash.  The company’s results of operations include the impact of RoadRunner Mobility, Inc. since the date of the acquisition.

In 2006, Invacare Corporation acquired two businesses, which were individually immaterial and in the aggregate, at a total cost of $15,296,000, which was paid in cash.  The company acquired Home Health Equipment Pty Ltd, an Australian based company, and leading supplier of medical equipment in South Australia, providing high quality equipment and service to institutions and individual clients selling the full range of rehabilitation, mobility and continuing care products.  In addition, the company acquired Morris Surgical Pty Ltd, an Australian based company, and a leading supplier of medical equipment in Queensland, providing high quality equipment and service to institutions and individual clients selling the full range of rehabilitation, mobility, continuing care products as well as niche and made to order products.

On September 9, 2004, the company acquired 100% of the shares of WP Domus GmbH (Domus), a European-based holding company that manufactures several complementary product lines to Invacare’s product lines, including power add-on products, bath lifts and walking aids, from WP Domus LLC. Domus has three divisions: Alber, Aquatec and Dolomite. The acquisition allowed the company to expand its product line and reach new markets. The final purchase price was $226,806,000, including acquisition costs of $4,116,000, which was paid in cash.

In accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination , the company previously recorded accruals for severance and exit costs for facility closures and contract terminations. A progression of the accruals recorded in the purchase price allocation is as follows (in thousands):
 
 
 
Severance
 
 
Exit of
Product Lines
 
 
Sales Agency
Terminations
 
Balance at 1/1/05
 
$
561
 
 
$
—
 
 
$
—
 
Additional accruals
 
 
4,445
 
 
 
897
 
 
 
612
 
Payments
 
 
(1,957
)
 
 
—
 
 
 
(612
)
Balance at 12/31/05
 
 
3,049
 
 
 
897
 
 
 
—
 
Adjustments
 
 
(1,285
)
 
 
(897
)
 
 
—
 
Payments
 
 
(566
)
 
 
—
 
 
 
—
 
Balance at 12/31/06
 
$
1,198
 
 
$
—
 
 
$
—
 
Adjustments
 
 
(972
)
 
 
—
 
 
 
—
 
Payments
 
 
(226
)
 
 
—
 
 
 
—
 
Balance at 12/31/07
 
$
—
 
 
$
—
 
 
$
—
 
 
The adjustments represent reversals to goodwill for accruals not utilized.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Goodwill

The carrying amount of goodwill by operating segment is as follows (in thousands):

 
 
North
America / HME
 
Invacare Supply
Group
 
Institutional
Products Group
 
Europe
 
Asia/Pacific
 
Consolidated
 
Balance at January 1, 2006
 
$
331,938
 
$
—
 
$
—
 
$
367,151
 
$
21,784
 
$
720,873
 
Acquisitions
 
 
—
 
 
—
 
 
—
 
 
—
 
 
8,081
 
 
8,081
 
Foreign currency translation adjustments
 
 
4,366
 
 
—
 
 
—
 
 
51,983
 
 
1,964
 
 
58,313
 
Purchase accounting adjustments
 
 
—
 
 
—
 
 
—
 
 
(2,182
)
 
—
 
 
(2,182
)
Re-allocation
 
 
(41,648
)
 
23,541
 
 
18,107
 
 
—
 
 
—
 
 
—
 
Impairment charge
 
 
(294,656
)
 
—
 
 
—
 
 
—
 
 
—
 
 
(294,656
)
Balance at December 31, 2006
 
 
—
 
 
23,541
 
 
18,107
 
 
416,952
 
 
31,829
 
 
490,429
 
Acquisitions
 
 
2,822
 
 
—
 
 
—
 
 
—
 
 
—
 
 
2,822
 
Foreign currency translation adjustments
 
 
—
 
 
—
 
 
3,318
 
 
42,155
 
 
5,431
 
 
50,904
 
Purchase accounting adjustments
 
 
—
 
 
—
 
 
—
 
 
(972
)
 
—
 
 
(972
)
Balance at December 31, 2007
 
$
2,822
 
$
23,541
 
$
21,425
 
$
458,135
 
$
37,260
 
$
543,183
 
 
As a result of the RoadRunner Mobility, Inc. acquisition in 2007, additional goodwill of $2,822,000 was recorded, which is deductible for tax purposes. In the fourth quarter of 2006, the company expanded its number of reporting segments from three to five due to organizational changes within the former North American geographic operating segment in line with how the chief operating decision maker assesses performance and makes resource allocation decisions.  Accordingly, under the provisions of SFAS No. 142, the company reallocated the goodwill related to the former North American reporting unit to the three new reporting units which comprise the North America geographic region.

In accordance with SFAS No. 142, goodwill is subject to annual impairment testing. For purposes of Step I of the impairment test, the fair value of each reporting unit is estimated by forecasting cash flows and discounting those cash flows using appropriate discount rates. The fair values are then compared to the carrying value of the net assets of each reporting unit. Step II of the impairment test requires a more detailed assessment of the fair values associated with the net assets of a reporting unit that fails the Step I test, including a review for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”).

The company utilizes a discounted cash flow method model to analyze reporting units for impairment in which the company forecasts income statement and balance sheet amounts based on assumptions regarding future sales growth, profitability, inventory turns and days’ sales outstanding to forecast future cash flows.  The cash flows are discounted using a weighted average cost of capital discount rate where the cost of debt is based on quoted rates for 20-year debt of company’s of similar credit risk and the cost of equity is based upon the 20-year treasury rate for the risk free rate, a market risk premium, the industry average beta, a small cap stock adjustment and company specific risk premiums.  The assumptions used are based on a market participant’s point of view and yielded a discount rate of 9.25% in 2007 compared to 8.85% in 2006.  While no impairment was indicated in 2007 for any reporting units, a future potential impairment is possible for any or the company’s reporting units should actual results differ materially from forecasted results.

No impairment was evident based on the company’s 2007 fourth quarter review.  An impairment charge related to goodwill in the North America/HME segment of $294,656,000 was recorded in the fourth quarter of 2006 as a result of reduced profitability in the NA/HME operating segment and uncertainty associated with future market conditions.  As part of the impairment analysis in 2006, the company compared the forecasted un-discounted cash flows for each facility in the North America/HME segment to the carrying value of the net assets associated with a given facility, which calculated no impairment of any other long-lived assets pursuant to SFAS No. 144.



 
INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Goodwill – Continued

The 2006 impairment of goodwill in the NA/HME operating segment was primarily the result of reduced government reimbursement levels and changes in reimbursement policies, which negatively affected revenues and profitability in the NA/HME operating segment. The changes announced by the Centers for Medicare and Medicaid Services, or “CMS,” affected eligibility, documentation, codes, and payment rules relating to power wheelchairs impacted the predictability of reimbursement of expenses for and access to power wheelchairs and created uncertainty in the market place, thus decreasing purchases. Effective November 15, 2006, the CMS reduced the maximum reimbursement amount for power wheelchairs under Medicare by up to 28%. The reduced reimbursement levels may cause consumers to choose less expensive versions of the company’s power wheelchairs.

NA/HME sales of respiratory products were also negatively affected by the changes in 2006. Small and independent provider sales declined as these dealers slowed their purchases of the company’s HomeFill™ oxygen system product line, in part, until they had a clearer view of future oxygen reimbursement levels. Furthermore, a study issued by the Office of Inspector General or “OIG,” in September 2006 suggested that $3.2 billion in savings could be achieved over five years by reducing the reimbursed rental period from three years (the reimbursement period under current law) to thirteen months. The uncertainty created by these announcements continues to negatively impact the home oxygen equipment market, particularly for those providers considering changing to the HomeFill™ oxygen system.

Other Intangibles

All of the company’s other intangible assets have definite lives and continue to be amortized over their useful lives, except for $36,505,000 related to trademarks, which have indefinite lives. The changes in intangible balances reflected on the balance sheet from December 31, 2006 to December 31, 2007 were primarily the result of foreign currency translation.  The company’s intangibles consist of the following (in thousands):
 
 
 
December 31, 2007
 
 
December 31, 2006
 
 
 
Historical
Cost
 
 
Accumulated
Amortization
 
 
Historical
Cost
 
 
Accumulated
Amortization
 
Customer Lists
 
$
77,329
 
 
$
21,238
 
 
$
71,106
 
 
$
14,373
 
Trademarks
 
 
36,505
 
 
 
—
 
 
 
33,034
 
 
 
—
 
License agreements
 
 
4,559
 
 
 
4,335
 
 
 
4,489
 
 
 
3,821
 
Developed Technology
 
 
7,316
 
 
 
1,425
 
 
 
6,819
 
 
 
940
 
Patents
 
 
6,909
 
 
 
4,313
 
 
 
6,631
 
 
 
3,869
 
Other
 
 
8,650
 
 
 
5,221
 
 
 
8,005
 
 
 
4,205
 
 
 
$
141,268
 
 
$
36,532
 
 
$
130,084
 
 
$
27,208
 

Intangibles recorded as the result of an acquisition during 2007 were as follows (in thousands):

 
 
Fair Value
 
Weighted Average
Amortization Period
Customer lists
 
$
1,600
 
10 years
Other
 
 
100
 
5 years
Total
 
$
1,700
 
 
 
Amortization expense related to other intangibles was $8,985,000 and $9,311,000 for 2007 and 2006, respectively. Estimated amortization expense for each of the next five years is expected to be $8,640,000 for 2008, $8,315,000 in 2009, $8,173,000 in 2010, $7,750,000 in 2011 and $7,674,000 in 2012.  Amortized intangibles are being amortized on a straight-line basis for periods from 3 to 20 years with the majority of the intangibles being amortized over a life of between 10 and 13 years.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Intangibles – Continued

In accordance with SFAS No. 142, the company reviews intangibles for impairment. For purposes of the impairment test, the fair value of each unamortized intangible is estimated by forecasting cash flows and discounting those cash flows using appropriate discount rates. The fair values are then compared to the carrying value of the intangible. For amortized intangibles, the forecasted undiscounted cash flows were compared to the carrying value, and if impairment results, the impairment is measured based on the estimated fair value of the intangibles. As a result of the company’s 2007 intangible impairment review, there was no impairment to any intangible assets. As a result of the company’s 2006 intangible impairment review, an impairment charge of $160,000 was recorded associated with a trade name, which is part of the NA/HME segment and a charge of $5,601,000 was recorded related to the intangible recorded associated with NeuroControl, which is included in Other in the segment disclosure. See Investment in Affiliated Company in the Notes to the Consolidated Financial Statements included in this report below. The company has recorded a material amount of intangibles as the result of acquisitions which may become impaired if performance assumptions, primarily related to sales and operating cash flows estimates, made at the time of originally valuing the intangibles are not achieved.

Investment in Affiliated Company

FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which was revised in December 2003, requires consolidation of an entity if the company is subject to a majority of the risk of loss from the variable interest entity’s (VIE) activities or entitled to receive a majority of the entity’s residual returns, or both. A company that consolidates a VIE is known as the primary beneficiary of that entity.

Until the fourth quarter of 2007, the company consolidated NeuroControl, a company whose product is focused on the treatment of post-stroke shoulder pain in the United States. Certain of the company’s officers and directors (or their affiliates) have small minority equity ownership positions in NeuroControl. Based on the provisions of FIN 46 and the company’s analysis, the company had consolidated this investment on a prospective basis since January 1, 2005 and recorded an intangible asset for patented technology of $7,003,000. The other beneficial interest holders have no recourse against the company.
 
In the fourth quarter of 2006, the company’s board of directors made a decision to no longer fund the cash needs of NeuroControl. Based upon that decision, NeuroControl’s directors decided to commence a liquidation process and cease operations. Therefore, funding of this investment ceased on December 31, 2006. As a result of this decision, the company established a valuation reserve related to the NeuroControl intangible asset of $5,601,000 to fully reserve against the patented technology intangible as it was deemed to be impaired. In the fourth quarter of 2007, the company recognized a one-time gain of $3,981,000 due to the cancellation of debt owed by NeuroControl to two third parties.  As of December 31, 2007, all operations of NeuroControl had ceased.

Current Liabilities
 
Accrued expenses as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
Accrued salaries and wages
 
$
41,851
 
 
$
31,970
 
Accrued taxes other than income taxes, primarily Value Added Taxes
 
 
29,721
 
 
 
43,899
 
Accrued warranty cost
 
 
16,616
 
 
 
15,165
 
Accrued interest
 
 
11,926
 
 
 
10,893
 
Accrued freight
 
 
10,036
 
 
 
4,278
 
Accrued rebates
 
 
7,420
 
 
 
8,356
 
Accrued legal and professional
 
 
3,927
 
 
 
8,222
 
Accrued product liability, current portion
 
 
3,556
 
 
 
3,296
 
Accrued insurance
 
 
2,071
 
 
 
2,258
 
Accrued severance
 
 
1,224
 
 
 
6,457
 
Accrued derivative liability
 
 
78
 
 
 
435
 
Other accrued items, principally trade accruals
 
 
17,532
 
 
 
12,547
 
 
 
$
145,958
 
 
$
147,776
 


INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Current Liabilities – Continued

Accrued rebates relate to several volume incentive programs the company offers its customers. The company accounts for these rebates as a reduction of revenue when the products are sold in accordance with the guidance in EITF No. 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products). The company has experienced significant pricing pressure in the U.S. market for standard products in recent years and has partially reduced prices to our customers in the form of a volume rebate such that the rebates would typically apply only if customers increased their standard product purchases from the company.

Ch an ges in accrued warranty costs were as follows (in thousands):
 
 
 
2007
 
 
2006
 
Balance as of January 1
 
$
15,165
 
 
$
15,583
 
Warranties provided during the period
 
 
10,253
 
 
 
9,175
 
Settlements made during the period
 
 
(9,538
)
 
 
(10,252
)
Changes in liability for pre-existing warranties during the period, including expirations
 
 
736
 
 
 
659
 
Balance as of December 31
 
$
16,616
 
 
$
15,165
 

Long-Term Debt

Debt as of December 31, 2007 and 2006 consist of the following (in thousands):
 
 
2007
 
 
2006
 
$250,000,000 term loan facility at 2.25% above local interbank offered rates (LIBOR), expires February 12, 2013
 
$
197,500
 
 
$
-
 
$150,000,000 revolving credit facility at 2.25% above LIBOR, expires February 12, 2012
 
 
19,488
 
 
 
-
 
$175,000,000 senior notes at 9.75%, due in February 2015
 
 
172,896
 
 
 
-
 
$135,000,000 convertible senior subordinated debentures at 4.125%, due in February 2027
 
 
135,000
 
 
 
-
 
Revolving credit agreement ($500,000,000 multi-currency), at 0.675% to 1.40% above LIBOR, expires January 14, 2010, repaid February 12, 2007
 
 
-
 
 
 
157,465
 
$80,000,000 senior notes at 6.71%, due in February 2008, repaid February 12, 2007
 
 
-
 
 
 
80,000
 
$50,000,000 senior notes at 3.97%, due in October 2007, repaid February 12, 2007
 
 
-
 
 
 
49,565
 
$30,000,000 senior notes at 4.74%, due in October 2009, repaid February 12, 2007
 
 
-
 
 
 
30,000
 
$20,000,000 senior notes at 5.05%, due in October 2010, repaid February 12, 2007
 
 
-
 
 
 
20,000
 
$150,000,000 senior notes at 6.15%, due in April 2016, repaid February 12, 2007
 
 
-
 
 
 
150,000
 
Short-term borrowings secured by accounts receivable, repaid February 12, 2007
 
 
-
 
 
 
71,750
 
Other notes and lease obligations
 
 
12,968
 
 
 
14,346
 
 
 
 
537,852
 
 
 
573,126
 
Less short-term borrowings secured by accounts receivable
 
 
-
 
 
 
(71,750
)
Less current maturities of long-term debt
 
 
(24,510
)
 
 
(52,493
)
 
 
$
513,342
 
 
$
448,883
 

The 2006 carrying values of the senior notes have been adjusted by the gains/losses on the swaps accounted for as fair value hedges.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Long-Term Debt – Continued

On February 12, 2007, the company completed a new financing program which provides the company with total capacity of approximately $710 million, the net proceeds of which were used to refinance substantially all of the company’s then existing indebtedness and pay related fees and expenses.  The refinancing was made necessary, in part, because on November 6, 2006, the company determined that it was in violation of a financial covenant contained in three Note Purchase Agreements between the company and various institutional lenders (the “Note Purchase Agreements”). The Note Purchase Agreements related to an aggregate principal amount of $330 million in long-term debt of the company. The financial covenant limited the ratio of consolidated debt to consolidated operating cash flow. The company believed the limit was exceeded as a result of borrowings by the company in early October, 2006 under its $500 million credit facility dated January 14, 2005 with various banks (the “Credit Facility”). The violation of the covenant under the Note Purchase Agreements also may have constituted a default under both the Credit Facility and the company’s separate $100 million trade receivables securitization facility (collectively, all of these loan facilities are referred to as the “Loan Facilities”). The company obtained the necessary waivers of the covenants that were violated.

As part of the new financing, the company entered into a $400,000,000 senior secured credit facility consisting of a $250,000,000 term loan facility and a $150,000,000 revolving credit facility. The company’s obligations under the new senior secured credit facility are secured by substantially all of the company’s assets and are guaranteed by its material domestic subsidiaries, with certain obligations also guaranteed by its material foreign subsidiaries. Borrowings under the new senior secured credit facility will generally bear interest at LIBOR plus a margin of 2.25%, including an initial facility fee of 0.50% per annum on the facility.

The company also completed the sale of $175,000,000 principal amount of its 9.75% Senior Notes due 2015 to qualified institutional buyers pursuant to Rule 144A and to non-U.S. persons outside the United States in reliance on Regulation S under the Securities Act of 1933, as amended (the “Securities Act”). The notes are unsecured senior obligations of the company guaranteed by substantially all of the company’s domestic subsidiaries, and pay interest at 9.75% per annum on each February 15 and August 15. The net proceeds to the company from the offering of the notes, after deducting the initial purchasers’ discount and the estimated offering expenses payable by the company, were approximately $167,000,000.

Also, as part of the refinancing, the company completed the sale of $135,000,000 principal amount of its Convertible Senior Subordinated Debentures due 2027 to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The debentures are unsecured senior subordinated obligations of the company guaranteed by substantially all of the company’s domestic subsidiaries, pay interest at 4.125% per annum on each February 1 and August 1, and are convertible upon satisfaction of certain conditions into cash, common shares of the company, or a combination of cash and common shares of the company, subject to certain conditions, and at the company’s discretion. The company intends to settle any conversion with cash; therefore, no convertible debt effect is included in the company’s weighted average shares outstanding for the purpose of determining the company’s reported Net Earnings (loss) per Share – Assuming Dilution. The initial conversion rate is 40.3323 shares per $1,000 principal amount of debentures, which represents an initial conversion price of approximately $24.79 per share. Holders of the debentures can not convert the debt to common stock unless the company’s common stock price is at a level in excess of $32.23, a 30% premium to the conversion price for at least 20 trading days during a period of 30 consecutive trading days preceding the date on which the notice of conversion is given. The debentures are redeemable at the company’s option, subject to specified conditions, on or after February 6, 2012 through and including February 1, 2017, and at the company’s option after February 1, 2017. On February 1, 2017 and 2022 and upon the occurrence of certain circumstances, holders have the right to require the company to repurchase all or some of their debentures. The company evaluated the terms of the call, redemption and conversion features under the applicable accounting literature, including SFAS 133, Accounting for Derivative Instruments and Hedging Activities and EITF 00-19, Accounting for Derivative Financial Instruments Indexed to, and  Potentially Settled in, a Company’s Own Stock , and determined that the features did not require separate accounting as derivatives. The net proceeds to the company from the offering of the debentures, after deducting the initial purchasers’ discount and the estimated offering expenses payable by the company, were approximately $132,300,000.

The notes, debentures and common shares issuable upon conversion of the debentures have been registered under the Securities Act.

On April 27, 2006, the company consummated a Senior Notes offering for $150 million at a fixed rate of 6.15% due April 27, 2016. The proceeds were used to reduce debt outstanding under the company’s $500 million revolving credit facility.   The Senior Notes were repaid in full as part of the refinancing completed on February 12, 2007.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Long-Term Debt – Continued

On March 31, 2006, the company and the other parties to its $500 million Credit Agreement dated as of January 12, 2005, entered into certain amendments to the Agreement which among other things: (i) amended the definitions of Adjusted EBITDA and EBIT under the Credit Agreement to clarify the treatment of restructuring costs under the Credit Agreement, and (ii) amended the definition of Consolidated Interest Expense under the Credit Agreement to exclude any interest accrued under any Trade Receivables Securitization Transaction permitted pursuant to Section 5.2(n) of the Credit Agreement.  The debt outstanding related to the $500 million Credit Agreement was repaid in full as part of the refinancing completed on February 12, 2007.

On January 14, 2005, the company entered into a $450,000,000 multi-currency, long-term revolving credit agreement which was increased on April 4, 2005 by $50,000,000 to an aggregate amount of $500,000,000 and expires on January 14, 2010. The facility provided that Invacare, could, upon consent of its lenders, increase the amount of the facility by an additional $50,000,000. The agreement replaced the $325,000,000 multi-currency, long-term revolving credit agreement entered into in 2001 and a $100,000,000 bridge agreement entered into in 2004.  The debt outstanding related to the $450,000,000 multi-currency, long-term revolving credit agreement was repaid in full as part of the refinancing completed on February 12, 2007.

Borrowings denominated in foreign currencies aggregated $19,488,000 at December 31, 2007 and $115,964,000 at December 31, 2006. As of December 31, 2007 and 2006, the weighted average floating interest rate on borrowings was 7.22% and 5.90%, respectively.

The company’s borrowing arrangements contain covenants with respect to, among other items, maximum amount of debt, minimum loan commitments, interest coverage, net worth, dividend payments, working capital, and funded debt to capitalization, as defined in the company’s bank agreements and agreement with its note holders. The company is in compliance with all covenant requirements. Under the most restrictive covenant of the company’s borrowing arrangements as of December 31, 2007, the company had the capacity to borrow up to an additional $130,512,000.

In July 2007, the company entered into cash flow hedges that exchanged the LIBOR variable rate on $125,000,000 of term loan debt for a fixed rate of 5.0525% and in November exchanged the LIBOR variable on $30,000,000 of term loan debt for a fixed rate of 3.95%. In December 2006, $50,000,000 in fair value hedge swaps that exchanged fixed rates for floating rates were de-designated as hedges as the associated debt was to be paid off as part of the company’s refinancing, which was completed in February 2007.  In August 2006, $50,000,000 in fair value hedge swaps were also terminated.  All losses associated with the terminations of fair value hedge swaps were amortized over the remaining life of the previously hedged debt using the effective yield method.

The aggregate minimum maturities of long-term debt for each of the next five years are as follows: $24,510,000 in 2008, $3,351,000 in 2009, $3,030,000 in 2010, $3,074,000 in 2011, and $3,147,000 in 2012. The 2008 payment amount includes estimated additional mandatory payment of $13,572,000 as required by the company’s credit facility based upon excess cash flow as defined in the agreement.  Interest paid on borrowings was $42,053,000, $28,723,000 and $29,017,000 in 2007, 2006 and 2005, respectively.

Other Long-Term Obligations

Other long-term obligations as of December 31, 2007 and 2006 consist of the following (in thousands):

 
 
2007
 
 
2006
 
Supplemental Executive Retirement Plan liability
 
$
33,496
 
 
$
33,251
 
Product liability
 
 
17,580
 
 
 
19,335
 
Deferred income taxes
 
 
28,824
 
 
 
34,593
 
Other, principally deferred compensation
 
 
26,146
 
 
 
20,044
 
Total long-term obligations
 
$
106,046
 
 
$
107,223
 
 


INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Leases and Commitments

The company leases a portion of its facilities, transportation equipment, data processing equipment and certain other equipment. These leases have terms from 1 to 20 years and provide for renewal options. Generally, the company is required to pay taxes and normal expenses of operating the facilities and equipment. As of December 31, 2007, the company is committed under non-cancelable operating leases, which have initial or remaining terms in excess of one year and expire on various dates through 2024. Lease expenses were approximately $22,229,000 in 2007, $21,302,000 in 2006, and $18,718,000 in 2005.

The amount of buildings and equipment capitalized in connection with capital leases was $16,595,000 and $17,072,000 at December 31, 2007 and 2006, respectively. At December 31, 2007 and 2006, accumulated amortization was $3,789,000 and $5,461,000, respectively.   Future minimum operating and capital lease commitments as of December 31, 2007, are as follow (in thousands):

Year
 
Capital Leases
 
 
Operating Leases
 
2008
 
$
2,021
 
 
$
20,361
 
2009
 
 
1,942
 
 
 
12,179
 
2010
 
 
1,574
 
 
 
6,828
 
2011
 
 
1,537
 
 
 
3,514
 
2012
 
 
1,537
 
 
 
1,630
 
Thereafter
 
 
10,175
 
 
 
5,089
 
Total future minimum lease payments
 
 
18,786
 
 
$
49,601
 
Amounts representing interest
 
 
(5,980
)
 
 
 
 
Present value of minimum lease payments
 
$
12,806
 
 
 
 
 

Retirement and Benefit Plans

Substantially all full-time salaried and hourly domestic employees are included in the Invacare Retirement Savings Plan sponsored by the company. The company makes matching cash contributions up to 66.7% of employees’ contributions up to 3% of compensation, quarterly contributions based upon 4% of qualified wages and may make discretionary contributions to the domestic plans based on an annual resolution of the Board of Directors.

The company sponsors a Deferred Compensation Plus Plan covering certain employees, which provides for elective deferrals and the company retirement deferrals so that the total retirement deferrals equal amounts that would have contributed to the company’s principal retirement plans if it were not for limitation imposed by income tax regulations. Contribution expense for the above plans in 2007, 2006 and 2005 was $5,455,000, $5,514,000, and $5,811,000, respectively.

The company also sponsors a non-qualified defined benefit Supplemental Executive Retirement Plan (SERP) for certain key executives. The projected benefit obligation related to this unfunded plan was $33,920,000 and $33,676,000 at December 31, 2007 and 2006, respectively, and the accumulated benefit obligation was $22,842,000 and $20,236,000 at December 31, 2007 and 2006, respectively.  The projected benefit obligations were calculated using salary increases of 4% and 5% at December 31, 2007 and 2006, respectively. The assumed discount rate for 2007 was 6.0% based upon the discount rate on high-quality fixed-income investments without adjustment and the comparable rate was 6.75% for 2006. The retirement age was 65 for both 2007 and 2006. The salary increase rate was decreased to recognize the fact that salary increases have decreased over the last few years, while the discount rate was adjusted to give effect to current market data.  Expense for the plan in 2007, 2006 and 2005 was $3,031,000, $2,861,000, and $2,439,000, respectively of which $1,520,000, $1,407,000 and $1,278,000 was related to interest cost with the remaining portion related to service costs, prior service costs and other gains/losses. Benefit payments in 2007, 2006 and 2005 were $424,000, $952,000 and $424,000, respectively.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Retirement and Benefit Plans   – Continued

In 2005, the company began sponsoring a Death Benefit Only Plan for certain key executives that provides a benefit equal to three times the participant’s final earnings should the participant’s death occur while an employee and a benefit equal to one times the participant’s final earnings upon the participant’s death after normal retirement or post-employment.  Expense for the plan in 2007, 2006 and 2005 was $281,000, $252,000, and $209,000, respectively of which $254,000, $221,000 and $209,000 was related to service cost with the remaining portion related to interest costs. There were no benefit payments in 2007, 2006 or 2005.

Accumulated other comprehensive income associated with the SERP and Death Benefit Only Plan (Defined Benefit Plans) was $12,239,000 and $14,940,000 as of December 31, 2007 and 2006, respectively for a net change of $2,701,000 as $3,312,000 in net periodic benefit costs was recognized during the year offset by a net increase in the projected benefit obligations related to the Defined Benefit Plans of $611,000.  Amortization of prior service costs and unrecognized losses associated with the Defined Benefit Plans is expected to be approximately $2,313,000 in 2008.

In conjunction with these non-qualified plans, the company has invested in life insurance policies related to certain employees to satisfy these future obligations. The current cash surrender value of these policies approximates the current benefit obligations. In addition, the projected policy benefits exceed the projected benefit obligations.

Shareholders’ Equity Transactions

The company’s Common Shares have a $.25 stated value. The Common Shares and the Class B Common Shares generally have identical rights, terms and conditions and vote together as a single class on most issues, except that the Class B Common Shares have ten votes per share, carry a 10% lower cash dividend rate and, in general, can only be transferred to family members. Holders of Class B Common Shares are entitled to convert their shares into Common Shares at any time on a share-for-share basis.

The 2003 Performance Plan (the “2003 Plan”) allows the Compensation Committee of the Board of Directors (the “Committee”) to grant up to 3,800,000 Common Shares in connection with incentive stock options, non-qualified stock options, stock appreciation rights and stock awards (including the use of restricted stock). The 1994 Performance Plan (the “1994 Plan”), as amended, expired in 2004 and allowed the Compensation Committee of the Board of Directors (the “Committee”) to grant up to 5,500,000 Common Shares. The Committee has the authority to determine which employees and directors will receive awards, the amount of the awards and the other terms and conditions of the awards. During 2007 and 2006, the Committee granted 503,096 and 522,152, respectively, in non-qualified stock options for a term of ten years at the fair market value of the company’s Common Shares on the date of grant under the 2003 Plan. There were no stock appreciation rights outstanding at December 31, 2007, 2006 or 2005.

Restricted stock awards for 80,320, 115,932 and 21,304 shares were granted in years 2007, 2006 and 2005 without cost to the recipients. The restricted stock awards vest ratably over the four years after the award date. At December 31, 2007 and 2006, there were 175,294 and 147,085 shares, respectively for restricted stock awards that were unvested. Unearned restricted stock compensation of $3,904,000 in 2007, $3,512,000 in 2006 and $1,016,000 in 2005, determined as the market value of the shares at the date of grant, is being amortized on a straight-line basis over the vesting period. Compensation expense of $1,322,000, $1,075,000 and $881,000 was recognized in 2007, 2006 and 2005, respectively, related to restricted stock awards granted since 2001.

The 2003 Plan and the 1994 Performance Plan have provisions that allow employees to exchange mature shares to pay the exercise price and surrender shares for the options to cover the minimum tax withholding obligation. Under these provisions, the company acquired treasury shares of approximately 14,000 for $298,000 in 2007, 128,000 for $4,314,000 in 2006 and 124,000 for $6,004,000 in 2005.

On December 21, 2005, the Board of Directors of Invacare Corporation, based on the recommendation of the Compensation, Management Development and Corporate Governance Committee (the “Committee”), approved the acceleration of the vesting for substantially all of the company’s unvested stock options which were granted under the 1994 Plan, as amended, and the 2003 Plan, which were then underwater. The Board of Directors decided to approve the acceleration of the vesting of the company’s stock options primarily to partially offset the recent reductions in other benefits made by the company and to provide additional incentive to those critical to the company’s current cost reduction efforts.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Shareholders’ Equity Transactions   – Continued

The decision, which was effective as of December 21, 2005, accelerated the vesting for a total of 1,368,307 of the company’s common shares; including 646,100 shares underlying options held by the company’s named executive officers. The stock options accelerated equate to 29% of the company’s total outstanding stock options. Vesting was not accelerated for the restricted awards granted under the Plans and no other modifications were made to the awards that were accelerated. The exercise prices of the accelerated options, all of which were underwater, were unchanged by the acceleration of the vesting schedules.

All of the company’s outstanding unvested options under the Plans, which were accelerated, had exercise prices ranging from $30.91 to $47.80 which were greater than the company’s stock market price of $30.75 as of the effective date of the acceleration. As of December 31, 2007, an aggregate of 43,569,375 Common Shares were reserved for issuance upon the conversion of Class B Common Shares and future rights (as defined below), the exercise or grant of stock options or other awards under the company’s equity incentive plans and the conversion of the convertible debentures that were issued as part of the company’s Refinancing completed in February 2007.

The following table summarizes information about stock option activity form the three years ended December 31, 2007, 2006 and 2005:

 
 
2007
 
 
Weighted
Average Exercise
Price
 
 
2006
 
 
Weighted
Average Exercise
Price
 
 
2005
 
 
Weighted
Average Exercise
Price
 
Options outstanding at January 1
 
 
4,724,651
 
 
$
30.68
 
 
 
4,776,162
 
 
$
31.57
 
 
 
4,638,405
 
 
$
29.81
 
Granted
 
 
503,096
 
 
 
23.26
 
 
 
522,152
 
 
 
23.87
 
 
 
614,962
 
 
 
41.59
 
Exercised
 
 
(1,875
)
 
 
23.32
 
 
 
(231,448
)
 
 
24.61
 
 
 
(356,676
)
 
 
23.39
 
Canceled
 
 
(492,907
)
 
 
29.45
 
 
 
(342,215
)
 
 
36.83
 
 
 
(120,529
)
 
 
37.17
 
Options outstanding at
December 31
 
 
4,732,965
 
 
$
30.02
 
 
 
4,724,651
 
 
$
30.68
 
 
 
4,776,162
 
 
$
31.57
 
Options price range at
December 31
 
$
16.03 to
 
 
 
 
 
 
$
16.03 to
 
 
 
 
 
 
$
16.03 to
 
 
 
 
 
 
 
$
47.80
 
 
 
 
 
 
$
47.80
 
 
 
 
 
 
$
47.80
 
 
 
 
 
Options exercisable at
December 31
 
 
3,895,458
 
 
 
 
 
 
 
4,216,624
 
 
 
 
 
 
 
4,745,435
 
 
 
 
 
Options available for grant at December 31*
 
 
1,354,431
 
 
 
 
 
 
 
1,784,033
 
 
 
 
 
 
 
454,142
 
 
 
 
 
__________
*
Options available for grant as of December 31, 2007 reduced by net restricted stock award activity of 213,298.

The following table summarizes information about stock options outstanding at December 31, 2007:
 
     
Options Outstanding
   
Options Exercisable
 
Exercise Prices
   
Number
Outstanding
At 12/31/07
   
Weighted Average
Remaining
Contractual Life
   
Weighted Average
Exercise Price
   
Number
Exercisable
At 12/31/07
   
Weighted Average
Exercise Price
 
$
16.03 – $23.71
     
2,217,610
   
 4.5 years
   
$
22.43
     
1,439,503
   
$
22.11
 
$
24.43 – $36.40
     
1,170,930
     
4.2
   
$
31.11
     
1,111,530
   
$
31.10
 
$
37.70 – $47.80
     
1,344,425
     
6.7
   
$
41.60
     
1,344,425
   
$
41.60
 
Total
     
4,732,965
     
5.0
   
$
30.02
     
3,895,458
   
$
31.40
 



INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Shareholders’ Equity Transactions   – Continued

The company had utilized the disclosure-only provisions of SFAS No. 123 through December 31, 2005. Accordingly, no compensation cost was recognized for the stock option plans, except the expense recorded related to the 132,017 restricted stock awards granted in years 2001 through 2005.

The plans provide that shares granted come from the company’s authorized but unissued Common Shares or treasury shares. In addition, the company’s stock-based compensation plans allow participants to exchange shares for withholding taxes, which results in the company acquiring treasury shares. Pursuant to the plans, the Committee has established that the majority of the 2007 grants may not be exercised within one year from the date granted and options must be exercised within ten years from the date granted. Accordingly, the assumption regarding the stock options issued in 2007, 2006 and 2005 was that 25% of such options vested in the year following issuance. The stock options awarded during such years provided a four-year vesting period whereby options vest equally in each year. The 2007 and 2006 expense and 2005 pro forma disclosure may be adjusted for forfeitures of awards that will not vest because service or employment requirements have not been met.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 
 
2007
 
 
2006
 
 
2005
 
Expected dividend yield
 
 
.20
%
 
 
.93
%
 
 
.67
%
Expected stock price volatility
 
 
29.2
%
 
 
29.5
%
 
 
26.7
%
Risk-free interest rate
 
 
4.31
%
 
 
4.71
%
 
 
4.38
%
Expected life (years)
 
 
3.9
 
 
 
4.4
 
 
 
5.6
 
Forfeiture percentage
 
 
8.0
%
 
 
16.5
%
 
 
-
 
 
Expected stock price volatility is calculated at each date of grant based on historical stock prices for a period of time commensurate with the expected life of the option. The weighted-average fair value of options granted during 2007, 2006 and 2005, based upon an expected exercise year of 2010, was $7.01, $7.87 and $12.41, respectively. The weighted-average remaining contractual life of options outstanding at December 31, 2007, 2006 and 2005 was 5.0, 5.3 and 5.7 years, respectively. The weighted-average contractual life of options exercisable at December 31, 2007 was 4.2 years. The total intrinsic value of stock awards exercised in 2007, 2006 and 2005 was $3,000, $1,792,170 and $7,401,047, respectively. As of December 31, 2007, the intrinsic value of all options outstanding and of all options exercisable was $6,170,000 and $4,475,000, respectively.

The exercise of stock awards in 2007, 2006 and 2005 resulted in cash received by the company totaling $44,000, $2,364,000 and $3,742,000 for each period, respectively and tax benefits of $0, $0 and $4,545,000, respectively.  The total fair value of awards vested during 2007, 2006 and 2005 was $975,000, $0, and $15,341,000, respectively with 2005 vesting amount reflecting the company’s decision to accelerate vesting for substantially all of the company’s then unvested stock options that were below fair market value on December 21, 2005.  The vesting amount in 2006 was zero as vesting occurs 25% annually, thus none of the 2006 grants vested during 2006 and there were no previous grants to vest due to the acceleration in 2005.

As of December 31, 2007, there was $9,570,000 of total unrecognized compensation cost from stock-based compensation arrangements granted under the plans, which is related to non-vested options and shares, which includes $3,904,000 related to restricted stock awards. The company expects the compensation expense to be recognized over a weighted-average period of approximately 2 years. Prior to the adoption of SFAS 123R, the company presented all tax benefit deductions resulting from the exercise of stock options as a component of operating cash flows in the Consolidated Statement of Cash Flows. In accordance with SFAS 123R, tax benefits resulting from tax deductions in excess of the compensation expense recognized for those options is classified as a component of financing cash flows.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Shareholders’ Equity Transactions   – Continued

Effective July 8, 2005, the company adopted a new Rights Agreement to replace the company’s previous shareholder rights plan, which expired on July 7, 2005. In order to implement the new Rights Agreement, the Board of Directors declared a dividend of one Right for each outstanding share of the company’s Common Shares and Class B Common Shares to shareholders of record at the close of business on July 19, 2005. Each Right entitles the registered holder to purchase from the company one one-thousandth of a Series A Participating Serial Preferred Share, without par value, at a Purchase Price of $180.00 in cash, subject to adjustment. The Rights will not become exercisable until after a person (an “Acquiring Party”) has acquired, or obtained the right to acquire, or commences a tender offer to acquire, shares representing 30% or more of the company’s outstanding voting power, subject to deferral by the Board of Directors. After the Rights become exercisable, under certain circumstances, the Rights may be exercisable to purchase Common Shares of the company, or common shares of an acquiring company, at a price equal to the exercise price of the Right divided by 50% of the then current market price per Common Share or acquiring company common share, as the case may be. The Rights will expire on July 18, 2015 unless previously redeemed or exchanged by the company. The company may redeem and terminate the Rights in whole, but not in part, at a price of $0.001 per Right at any time prior to 10 days following a public announcement that an Acquiring   Party has acquired beneficial ownership of shares representing 30% or more of the company’s outstanding voting power, and in certain other circumstances described in the Rights Agreement.

Capital Stock

Capital stock activity for 2007, 2006 and 2005 consisted of the following (in thousands of shares):
 
 
 
Common Stock
Shares
 
 
Class B
Shares
 
 
Treasury
Shares
 
January 1, 2005 Balance
 
 
31,209
 
 
 
1,112
 
 
 
(934
)
Exercise of stock options
 
 
465
 
 
 
—
 
 
 
(124
)
Stock awards
 
 
21
 
 
 
—
 
 
 
—
 
December 31, 2005 Balance
 
 
31,695
 
 
 
1,112
 
 
 
(1,058
)
Exercise of stock options
 
 
240
 
 
 
—
 
 
 
(128
)
Stock awards
 
 
116
 
 
 
—
 
 
 
—
 
December 31, 2006 Balance
 
 
32,051
 
 
 
1,112
 
 
 
(1,186
)
Exercise of stock options
 
 
2
 
 
 
—
 
 
 
—
 
Stock awards
 
 
73
 
 
 
—
 
 
 
(14
)
December 31, 2007 Balance
 
 
32,126
 
 
 
1,112
 
 
 
(1,200
)
 
Stock awards for 8,000 shares were cancelled in 2007.  Stock option exercises in 2006 include deferred share activity, which increased common shares by 9,000 shares and treasury shares by 4,000 shares. Stock option exercises in 2005 include deferred share activity, which increased common shares by 108,000 shares and treasury shares by 14,000 shares.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other Comprehensive Earnings (Loss)

The components of other comprehensive earnings (loss) are as follows (in thousands):

 
Currency
Translation
Adjustments
 
Unrealized Gain
(Loss) on
Available-for-Sale
Securities
 
 
Defined Benefit
Plans
 
Unrealized Gain
(Loss) on
Derivative
Financial
Instruments
 
Total
 
Balance at January 1, 2005
$
104,470
 
$
666
 
 
 
 
$
(507
)
$
104,629
 
Foreign currency translation adjustments
 
(56,176
)
 
 
 
 
 
 
 
 
 
 
(56,176
)
Unrealized gain on available for sale securities
 
 
 
 
54
 
 
 
 
 
 
 
 
54
 
Deferred tax liability relating to unrealized gain on available for sale securities
 
 
 
 
(19
)
 
 
 
 
 
 
 
(19
)
Current period unrealized loss on cash flow hedges, net of reclassifications
 
 
 
 
 
 
 
 
 
 
(1,551
)
 
(1,551
)
Deferred tax benefit relating to unrealized loss on derivative financial instruments
 
 
 
 
 
 
 
 
 
 
543
 
 
543
 
Balance at December 31, 2005
 
48,294
 
 
701
 
 
 
 
 
(1,515
)
 
47,480
 
Foreign currency translation adjustments
 
64,386
 
 
 
 
 
 
 
 
 
 
 
64,386
 
Unrealized loss on available for sale securities
 
 
 
 
(63
)
 
 
 
 
 
 
 
(63
)
Deferred tax benefit relating to unrealized loss on available for sale securities
 
 
 
 
22
 
 
 
 
 
 
 
 
22
 
Adjustment to initially apply FASB Statement No. 158
 
 
 
 
 
 
 
 
(14,940
)
 
 
 
 
(14,940
)
Deferred tax benefit resulting from adjustment to initially apply FASB Statement No. 158
 
 
 
 
 
 
 
 
5,229
 
 
 
 
 
5,229
 
Valuation reserve resulting from adjustment to initially apply FASB Statement No. 158
 
 
 
 
 
 
 
 
(5,229
)
 
 
 
 
(5,229
)
Current period unrealized gain on cash flow hedges, net of reclassifications
 
 
 
 
 
 
 
 
 
 
 
3,543
 
 
3,543
 
Deferred tax liability relating to unrealized gain on derivative financial instruments
 
 
 
 
 
 
 
 
 
 
 
(1,240
)
 
(1,240
)
Balance at December 31, 2006
 
112,680
 
 
660
 
 
 
(14,940
)
 
788
 
 
99,188
 
Foreign currency translation adjustments
 
66,373
 
 
 
 
 
 
 
 
 
 
 
 
66,373
 
Unrealized gain on available for sale securities
 
 
 
 
63
 
 
 
 
 
 
 
 
 
63
 
Deferred tax liability relating to unrealized gain on available for sale securities
 
 
 
 
(22
)
 
 
 
 
 
 
 
 
(22
)
Defined benefit plan amortization of prior service costs and unrecognized losses
 
 
 
 
 
 
 
 
2,701
 
 
 
 
 
2,701
 
Deferred tax expense resulting from Defined benefit plan amortization of prior service costs and unrecognized losses
 
 
 
 
 
 
 
 
(945
)
 
 
 
 
(945
)
Valuation reserve reduction resulting from amortization of prior service costs and unrecognized losses related to Defined benefit plans
 
 
 
 
 
 
 
 
945
 
 
 
 
 
945
 
Current period unrealized loss on cash flow hedges, net of reclassifications
 
 
 
 
 
 
 
 
 
 
 
(3,786
)
 
(3,786
)
Deferred tax benefits relating to unrealized loss on derivative financial instruments
 
 
 
 
 
 
 
 
 
 
 
452
 
 
452
 
Balance at December 31, 2007
$
179,053
 
$
701
 
 
$
(12,239
)
$
(2,546
)
$
164,969
 
 
A net gain of $450,000 in 2007 and net losses of $240,000 and $283,000 were reclassified into earnings related to derivative instruments designated and qualifying as cash flow hedges in 2007, 2006 and 2005, respectively.

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Charges Related to Restructuring Activities

On July 28, 2005, the company announced multi-year cost reductions and profit improvement actions, which included: reducing global headcount, outsourcing improvements utilizing the company’s China manufacturing capability and third parties, shifting substantial resources from product development to manufacturing cost reduction activities and product rationalization, reducing freight exposure through freight auctions and changing the freight policy, general expense reductions and exiting four facilities.   The restructuring was necessitated by the continued decline in reimbursement by the U.S. government as well as similar reimbursement pressures abroad and continued pricing pressures faced by the company as a result of outsourcing by competitors to lower cost locations.
 
To date, the company has made substantial progress on its restructuring activities, including exiting facilities and eliminating positions through December 31, 2007, which resulted in restructuring charges of $11,408,000, $21,250,000 and $7,533,000 in 2007, 2006 and 2005, respectively, of which $1,817,000, $3,973,000 and $238,000, respectively is recorded in cost of products sold as it relates to inventory markdowns. There have been no material changes in accrued balances related to the charge, either as a result of revisions in the plan or changes in estimates, and the company expects to utilize the accruals recorded as of December 31, 2007 during 2008.   A progression by reporting segment of the accruals recorded as a result of the restructuring is as follows (in thousands):

 
 
Balance at
1/1/06
 
 
Accruals
 
 
Payments
 
 
Balance at
12/31/06
 
 
Accruals
 
 
Payments
 
 
Balance at
12/31/07
 
North America/HME
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
2,130
 
 
$
5,549
 
 
$
(6,320
)
 
$
1,359
 
 
$
3,705
 
 
$
(4,362
)
 
$
702
 
Product line discontinuance
 
 
—
 
 
 
2,719
 
 
 
(682
)
 
 
2,037
 
 
 
178
 
 
 
(2,183
)
 
 
32
 
Contract terminations
 
 
—
 
 
 
1,346
 
 
 
(789
)
 
 
557
 
 
 
(19
)
 
 
(172
)
 
 
366
 
Total
 
$
2,130
 
 
$
9,614
 
 
$
(7,791
)
 
$
3,953
 
 
$
3,864
 
 
$
(6,717
)
 
$
1,100
 
Invacare Supply Group
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
112
 
 
$
457
 
 
$
(403
)
 
$
166
 
 
$
67
 
 
$
(228
)
 
$
5
 
Product line discontinuance
 
 
—
 
 
 
552
 
 
 
(552
)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Contract terminations
 
 
165
 
 
 
—
 
 
 
(165
)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total
 
$
277
 
 
$
1,009
 
 
$
(1,120
)
 
$
166
 
 
$
67
 
 
$
(228
)
 
$
5
 
Institutional Products Group
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
—
 
 
$
38
 
 
$
(38
)
 
$
—
 
 
$
19
 
 
$
(19
)
 
$
—
 
Contract terminations
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
98
 
 
 
(98
)
 
 
—
 
Other
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
 
 
55
 
 
 
(55
)
 
 
—
 
Total
 
$
—
 
 
$
38
 
 
$
(38
)
 
$
—
 
 
$
172
 
 
$
(172
)
 
$
—
 
Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
799
 
 
$
5,208
 
 
$
(2,273
)
 
$
3,734
 
 
$
862
 
 
$
(4,591
)
 
$
5
 
Product line discontinuance
 
 
—
 
 
 
455
 
 
 
(455
)
 
 
—
 
 
 
386
 
 
 
(386
)
 
 
—
 
Other
 
 
—
 
 
 
2,995
 
 
 
(2,995
)
 
 
—
 
 
 
3,247
 
 
 
(3,202
)
 
 
45
 
Total
 
$
799
 
 
$
8,658
 
 
$
(5,723
)
 
$
3,734
 
 
$
4,495
 
 
$
(8,179
)
 
$
50
 
Asia/Pacific
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
63
 
 
$
621
 
 
$
(684
)
 
$
—
 
 
$
1,258
 
 
$
(746
)
 
$
512
 
Product line discontinuance
 
 
—
 
 
 
557
 
 
 
(557
)
 
 
—
 
 
 
1,253
 
 
 
(1,253
)
 
 
—
 
Contract terminations
 
 
—
 
 
 
745
 
 
 
(623
)
 
 
122
 
 
 
299
 
 
 
(382
)
 
 
39
 
Other
 
 
—
 
 
 
8
 
 
 
(8
)
 
 
—
 
 
 
—
 
 
 
—
 
 
 
—
 
Total
 
$
63
 
 
$
1,931
 
 
$
(1,872
)
 
$
122
 
 
$
2,810
 
 
$
(2,381
)
 
$
551
 
Consolidated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance
 
$
3,104
 
 
$
11,873
 
 
$
(9,718
)
 
$
5,259
 
 
$
5,911
 
 
$
(9,946
)
 
$
1,224
 
Product line discontinuance
 
 
—
 
 
 
4,283
 
 
 
(2,246
)
 
 
2,037
 
 
 
1,817
 
 
 
(3,822
)
 
 
32
 
Contract terminations
 
 
165
 
 
 
2,091
 
 
 
(1,577
)
 
 
679
 
 
 
378
 
 
 
(652
)
 
 
405
 
Other
 
 
—
 
 
 
3,003
 
 
 
(3,003
)
 
 
—
 
 
 
3,302
 
 
 
(3,257
)
 
 
45
 
Total
 
$
3,269
 
 
$
21,250
 
 
$
(16,544
)
 
$
7,975
 
 
$
11,408
 
 
$
(17,677
)
 
$
1,706
 

INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Income Taxes

Earnings (loss) before income taxes consist of the following (in thousands):

 
 
2007
 
 
2006
 
 
2005
 
Domestic
 
$
(40,369
)
 
$
(349,144
)
 
$
18,605
 
Foreign
 
 
54,859
 
 
 
39,620
 
 
 
52,697
 
 
 
$
14,490
 
 
$
(309,524
)
 
$
71,302
 

The company has provided for income taxes (benefits) as follows (in thousands):

 
 
2007
 
 
2006
 
 
2005
 
Current:
 
 
 
 
 
 
 
 
 
Federal
 
$
(2,340
)
 
$
(12,815
)
 
$
9,475
 
State
 
 
1,430
 
 
 
750
 
 
 
600
 
Foreign
 
 
8,180
 
 
 
16,030
 
 
 
12,475
 
 
 
 
7,270
 
 
 
3,965
 
 
 
22,550
 
Deferred:
 
 
 
 
 
 
 
 
 
 
 
 
Federal
 
 
3,230
 
 
 
11,695
 
 
 
(2,225
)
Foreign
 
 
2,800
 
 
 
(7,410
)
 
 
2,125
 
 
 
 
6,030
 
 
 
4,285
 
 
 
(100
)
Income Taxes
 
$
13,300
 
 
$
8,250
 
 
$
22,450
 

A reconciliation to the effective income tax rate from the federal statutory rate follows:

 
 
2007
 
 
2006
 
 
2005
 
Statutory federal income tax rate
 
 
35.0
%
 
 
(35.0
)%
 
 
35.0
%
State and local income taxes, net of federal income tax benefit
 
 
6.4
 
 
 
0.2
 
 
 
0.5
 
Tax credits
 
 
(37.9
)
 
 
(0.1
)
 
 
(0.8
)
Foreign taxes at less than the federal statutory rate excluding valuation allowances
 
 
(92.4
)
 
 
(2.0
)
 
 
(5.2
)
Asset write-downs related to goodwill and other intangibles, without tax benefit
 
 
—
 
 
 
30.2
 
 
 
—
 
Federal and foreign valuation allowance
 
 
176.2
 
 
 
9.3
 
 
 
—
 
Variable interest entity without  tax
 
 
(12.3
)
 
 
.9
 
 
 
.5
 
Withholding taxes
 
 
9.0
 
 
 
.5
 
 
 
1.0
 
Compensation
 
 
10.4
 
 
 
—
 
 
 
.3
 
Foreign branch activity
 
 
(20.3
)
 
 
(1.1
)
 
 
(.9
)
Other, net
 
 
17.7
 
 
 
(.2
) 
 
 
1.1
 
 
 
 
91.8
%
 
 
2.7
%
 
 
31.5
%

Included in 2007 foreign deferred tax expense is a $7,820,000 benefit related to a tax rate change in Germany corresponding to the reduction of the company’s net German deferred tax liability.



INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Income Taxes – Continued

Significant components of deferred income tax assets and liabilities at December 31, 2007 and 2006 are as follows (in thousands):

 
 
2007
 
 
2006
 
Current deferred income tax assets (liabilities), net:
 
 
 
 
 
 
Loss carryforwards
 
$
2,345
 
 
$
7,375
 
Bad debt
 
 
13,575
 
 
 
14,006
 
Warranty
 
 
3,837
 
 
 
3,365
 
State and local taxes
 
 
(1,441
)
 
 
3,154
 
Other accrued expenses and reserves
 
 
1,759
 
 
 
2,645
 
Inventory
 
 
2,557
 
 
 
2,337
 
Compensation and benefits
 
 
3,228
 
 
 
3,079
 
Product liability
 
 
292
 
 
 
292
 
Valuation allowance
 
 
(25,446
)
 
 
(22,552
)
Other, net
 
 
1,772
 
 
 
(189
)
 
 
$
2,478
 
 
$
13,512
 
Long-term deferred income tax assets (liabilities), net:
 
 
 
 
 
 
 
 
Goodwill & intangibles
 
 
(25,329
)
 
 
(29,480
)
Fixed assets
 
 
(13,441
)
 
 
(18,289
)
Compensation and benefits
 
 
15,943
 
 
 
16,541
 
Loss and credit carryforwards
 
 
39,374
 
 
 
6,453
 
Product liability
 
 
4,511
 
 
 
4,715
 
State and local taxes
 
 
16,128
 
 
 
10,619
 
Valuation allowance
 
 
(64,276
)
 
 
(27,721
)
Other, net
 
 
(1,734
)
 
 
2,569
 
 
 
$
(28,824
)
 
$
(34,593
)
Net Deferred Income Taxes
 
$
(26,346
)
 
$
(21,081
)

At December 31, 2007, the company had domestic federal loss carryforwards of $26,880,000 which expire in 2027, domestic charitable contribution carryforwards of $680,000 which expire in 2011 and 2012, federal foreign tax loss carryforwards of approximately $43,400,000 of which $32,500,000 are non-expiring, $5,850,000 expire in 2012, and $5,050,000 expire in 2013. The loss carryforward amounts include $10,600,000 of remaining federal foreign loss carryforwards associated with 2004 acquisitions. At December 31, 2007 the company also had a $12,960,000 domestic capital loss carryforward of which $8,960,000 expires in 2011 and $4,000,000 expires in 2012 and $350,200,000 of domestic state and local tax loss carryforwards, of which $170,100,000 expire between 2008 and 2011, $66,100,000 expire between 2012 and 2021 and $114,000,000 expire after 2021, all of which are fully offset by valuation allowances. The company has domestic federal tax credit carryforwards of $10,775,000 of which $8,575,000 expire between 2014 and 2017 and $2,200,000 expire between 2025 and 2027.  The company made income tax payments of $1,060,000, $14,370,000 and $10,435,000 during the years ended December 31, 2007, 2006 and 2005, respectively. The company recorded a valuation allowance for its domestic net deferred tax assets due to the domestic loss recognized in 2006 and 2007 and based upon near term domestic projections.  During 2007, the company also recorded valuation allowances for certain foreign country net deferred tax assets where recent performance results in a three year cumulative loss and near term projections indicate it is more likely than not that the deferred tax assets will not be realized.

The company adopted the provisions of FIN 48 on January 1, 2007.  As of December 31, 2007 and 2006, the company had a liability for uncertain tax positions, excluding interest and penalties of $8,085,000 and $8,875,000, respectively.  The company does not believe there will be a material change in its unrecognized tax positions over the next twelve months.

The total liabilities associated with unrecognized tax benefits that, if recognized, would impact the effective tax rates were $8,085,000 and $8,875,000 at December 31, 2007 and 2006, respectively.





INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Income Taxes – Continued

A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows (in thousands):


Balance at January 1, 2007
 
$
8,785
 
Additions to:
 
 
 
 
Positions taken during the current year
 
 
236
 
Positions taken during a prior year
 
 
338
 
Deductions due to:
 
 
 
 
Positions taken during the current year
 
 
(3
)
Positions taken during a prior year
 
 
(37
)
Settlements with taxing authorities
 
 
(966
)
Lapse of statute of limitations
 
 
(268
)
Balance at December 31, 2007
 
$
8,085
 
 
The Company recognizes interest and penalties associated with uncertain tax positions in income tax expense.  During 2007, 2006 and 2005 the provision for interest and penalties was $840,000, $150,000 and $250,000, respectively.  The Company had approximately $2,865,000 and $2,025,000 of accrued interest and penalties as of December 31, 2007 and 2006, respectively.

The company and its subsidiaries file income tax returns in the U.S. and certain foreign jurisdictions. The company is subject to U.S. federal income tax examinations for calendar years ending 2003 to 2007, and is subject to various U.S. state income tax examinations for similar periods. With regards to foreign income tax jurisdictions, the company is generally subject to examinations for the periods 2002 to 2007.

Net Earnings Per Common Share

The following table sets forth the computation of basic and diluted net earnings per common share.

 
 
2007
 
 
2006
 
 
2005
 
 
 
(In thousands except per share data)
 
Basic
 
 
 
 
 
 
 
 
 
Average common shares outstanding
 
 
31,840
 
 
 
31,789
 
 
 
31,555
 
Net earnings (loss)
 
$
1,190
 
 
$
(317,774
)
 
$
48,852
 
Net earnings (loss) per common share
 
$
.04
 
 
$
(10.00
)
 
$
1.55
 
Diluted
 
 
 
 
 
 
 
 
 
 
 
 
Average common shares outstanding
 
 
31,840
 
 
 
31,789
 
 
 
31,555
 
Stock options
 
 
87
 
 
 
—
 
 
 
897
 
Average common shares assuming dilution
 
 
31,927
 
 
 
31,789
 
 
 
32,452
 
Net earnings (loss)
 
$
1,190
 
 
$
(317,774
)
 
$
48,852
 
Net earnings (loss) per common share
 
$
.04
 
 
$
(10.00
)
 
$
1.51
 

At December 31, 2007, 2006, and 2005, 4,232,589, 4,724,651 and 813,191 shares associated with stock options, respectively were excluded from the average common shares assuming dilution, as they were anti-dilutive. In 2007, the majority of the anti-dilutive shares were granted at an exercise price of $23.71, which was higher than the average fair market value price of $21.35 for 2007. In 2006, all of the shares associated with stock options were anti-dilutive because of the company’s loss. In 2005, the majority of the anti-dilutive shares were granted at an exercise price of $41.87, which was higher than the average fair market value price of $41.46 for 2005.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Concentration of Credit Risk

The company manufactures and distributes durable medical equipment and supplies to the home health care, retail and extended care markets. The company performs credit evaluations of its customers’ financial condition. Prior to December 2000, the company financed equipment to certain customers for periods ranging from 6 to 39 months. In December 2000, Invacare entered into an agreement with DLL, a third party financing company, to provide the majority of future lease financing to Invacare’s customers. The DLL agreement provides for direct leasing between DLL and the Invacare customer. The company retains a limited recourse obligation ($32,795,000 at December 31, 2007) to DLL for events of default under the contracts (total balance outstanding of $94,945,000 at December 31, 2007). FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others , requires the company to record a guarantee liability as it relates to the limited recourse obligation. As such, the company has recorded a liability for this guarantee obligation within accrued expenses. The company monitors the collections status of these contracts and has provided amounts for estimated losses in its allowances for doubtful accounts in accordance with SFAS No. 5, Accounting for Contingencies. Credit losses are provided for in the financial statements.

Substantially all of the company’s receivables are due from health care, medical equipment dealers and long term care facilities located throughout the United States, Australia, Canada, New Zealand and Europe. A significant portion of products sold to dealers, both foreign and domestic, is ultimately funded through government reimbursement programs such as Medicare and Medicaid. In addition, the company has also seen a significant shift in reimbursement to customers from managed care entities. As a consequence, changes in these programs can have an adverse impact on dealer liquidity and profitability. In addition, reimbursement guidelines in the home health care industry have a substantial impact on the nature and type of equipment an end user can obtain as well as the timing of reimbursement and, thus, affect the product mix, pricing and payment patterns of the company’s customers.

Fair Values of Financial Instruments

The company in estimating its fair value disclosures for financial instruments used the following methods and assumptions:

Cash, cash equivalents and marketable securities:   The carrying amount reported in the balance sheet for cash, cash equivalents and marketable securities approximates its fair value.

Installment receivables:   The carrying amount reported in the balance sheet for installment receivables approximates its fair value. The interest rates associated with these receivables have not varied significantly since inception. Management believes that after consideration of the credit risk, the net book value of the installment receivables approximates market value.

Long-term debt:   Fair values for the company’s senior notes and convertible debt are based on quoted market prices as of December 31, 2007, while the term loan and revolving credit facility fair values are based upon the company’s estimate of the market for similar borrowing arrangements.

Interest Rate Swaps:   The company is a party to interest rate swap agreements, which are entered into in the normal course of business, to reduce exposure to fluctuations in interest rates. The agreements are with major financial institutions, which are expected to fully perform under the terms of the agreements thereby mitigating the credit risk from the transactions. The agreements are contracts to exchange floating rate payments for fixed rate payments without the exchange of the underlying notional amounts. The notional amounts of such agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The amounts to be paid or received under the interest rate swap agreements are accrued consistent with the terms of the agreements and market interest rates. Fair value for the company’s interest rate swaps are based on independent pricing models.

Other investments:   The company has made other investments in limited partnerships and non-marketable equity securities, which are accounted for using the cost method, adjusted for any estimated declines in value. These investments were acquired in private placements and there are no quoted market prices or stated rates of return.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Values of Financial Instruments   – Continued

The carrying amounts and fair values of the company’s financial instruments at December 31, 2007 and 2006 are as follows (in thousands):
 
 
 
2007
 
 
2006
 
 
 
Carrying
Value
   
Fair
Value
   
Carrying
Value
   
Fair
Value
 
Cash and cash equivalents
 
$
62,200
 
 
$
62,200
 
 
$
82,203
 
 
$
82,203
 
Marketable securities
 
 
255
 
 
 
255
 
 
 
190
 
 
 
190
 
Other investments
 
 
8,605
 
 
 
8,605
 
 
 
8,461
 
 
 
8,461
 
Installment receivables
 
 
27,863
 
 
 
27,863
 
 
 
22,887
 
 
 
22,887
 
Long-term debt (including short-term borrowings secured by accounts receivable and current maturities of long-term debt)
 
 
537,852
 
 
 
556,743
 
 
 
573,126
 
 
 
583,856
 
Interest rate swaps
 
 
(2,495
)
 
 
(2,495
)
 
 
(435
)
 
 
(435
)
Forward contracts
 
 
(78
)
 
 
(78
)
 
 
1,213
 
 
 
1,213
 
 
Forward Contracts:   The company operates internationally and as a result is exposed to foreign currency fluctuations. Specifically, the exposure includes intercompany loans and third party sales or payments. In an attempt to reduce this exposure, foreign currency forward contracts are utilized and accounted for as hedging instruments. The forward contracts in 2007 and 2006 were entered into to as hedges of the following currencies: AUD, GBP, CAD, CHF, DKK, EUR, NOK, NZD, SEK and USD. The company does not use derivative financial instruments for speculative purposes. Fair values for the company’s foreign exchange forward contracts are based on quoted market prices for contracts with similar maturities.

The gains and losses that result from the majority of the forward contracts are deferred and recognized when the offsetting gains and losses for the identified transactions are recognized. The company recognized a gain of $451,000 in 2007 and losses of $240,000 and $280,000 in 2006 and 2005, respectively, which were recognized in cost of products sold and selling, general and administrative expenses.

Business Segments

The company operates in five primary business segments: North America/Home Medical Equipment (NA/HME), Invacare Supply Group, Institutional Products Group, Europe and Asia/Pacific.

The NA/HME segment sells each of three primary product lines, which includes: standard, rehab and respiratory products. Invacare Supply Group sells distributed product and the Institutional Products Group sells health care furnishings and accessory products. Europe and Asia/Pacific sell the same product lines with the exception of distributed products. Each business segment sells to the home health care, retail and extended care markets.

The company evaluates performance and allocates resources based on profit or loss from operations before income taxes for each reportable segment. The accounting policies of each segment are the same as those described in the summary of significant accounting policies for the company’s consolidated financial statements. Intersegment sales and transfers are based on the costs to manufacture plus a reasonable profit element. Therefore, intercompany profit or loss on intersegment sales and transfers is not considered in evaluating segment performance.


 
INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Business Segments – Continued

The information by segment is as follows (in thousands):

 
 
2007
 
 
2006
 
 
2005
 
Revenues from external customers
 
 
 
 
 
 
 
 
 
North America/HME
 
$
668,305
 
 
$
676,326
 
 
$
706,555
 
Invacare Supply Group
 
 
256,993
 
 
 
228,236
 
 
 
220,908
 
Institutional Products Group
 
 
89,026
 
 
 
93,455
 
 
 
85,415
 
Europe
 
 
498,109
 
 
 
430,427
 
 
 
432,142
 
Asia/Pacific
 
 
89,804
 
 
 
69,591
 
 
 
84,712
 
Consolidated
 
$
1,602,237
 
 
$
1,498,035
 
 
$
1,529,732
 
Intersegment revenues
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
47,698
 
 
$
51,081
 
 
$
46,048
 
Invacare Supply Group
 
 
265
 
 
 
102
 
 
 
26
 
Institutional Products Group
 
 
1,151
 
 
 
—
 
 
 
2,305
 
Europe
 
 
10,394
 
 
 
12,599
 
 
 
12,019
 
Asia/Pacific
 
 
29,793
 
 
 
39,757
 
 
 
36,576
 
Consolidated
 
$
89,301
 
 
$
103,539
 
 
$
96,974
 
Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
20,109
 
 
$
18,433
 
 
$
18,266
 
Invacare Supply Group
 
 
375
 
 
 
383
 
 
 
448
 
Institutional Products Group
 
 
1,818
 
 
 
1,888
 
 
 
1,867
 
Europe
 
 
15,904
 
 
 
14,533
 
 
 
15,100
 
Asia/Pacific
 
 
5,494
 
 
 
4,645
 
 
 
4,829
 
All Other (1)
 
 
17
 
 
 
10
 
 
 
14
 
Consolidated
 
$
43,717
 
 
$
39,892
 
 
$
40,524
 
Net interest expense (income)
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
24,620
 
 
$
16,530
 
 
$
13,299
 
Invacare Supply Group
 
 
3,443
 
 
 
3,158
 
 
 
2,447
 
Institutional Products Group
 
 
4,377
 
 
 
3,852
 
 
 
1,620
 
Europe
 
 
8,808
 
 
 
8,398
 
 
 
8,628
 
Asia/Pacific
 
 
721
 
 
 
(629
)
 
 
(431
)
Consolidated
 
$
41,969
 
 
$
31,309
 
 
$
25,563
 




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Business Segments – Continued
 
 
2007
 
 
2006
 
 
2005
 
Earnings (loss) before income taxes
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
10,793
 
 
$
(310,162
)
 
$
54,390
 
Invacare Supply Group
 
 
3,198
 
 
 
3,291
 
 
 
6,428
 
Institutional Products Group
 
 
801
 
 
 
4,789
 
 
 
5,747
 
Europe
 
 
36,170
 
 
 
26,077
 
 
 
29,255
 
Asia/Pacific
 
 
(6,750
)
 
 
(7,318
)
 
 
(4,418
)
All Other (1)
 
 
(29,722
)
 
 
(26,201
)
 
 
(20,100
)
Consolidated
 
$
14,490
 
 
$
(309,524
)
 
$
71,302
 
Assets 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
385,532
 
 
$
430,121
 
 
$
719,366
 
Invacare Supply Group
 
 
88,106
 
 
 
90,086
 
 
 
81,895
 
Institutional Products Group
 
 
44,806
 
 
 
43,918
 
 
 
44,372
 
Europe
 
 
804,677
 
 
 
751,502
 
 
 
671,642
 
Asia/Pacific
 
 
104,297
 
 
 
98,737
 
 
 
74,101
 
All Other (1)
 
 
72,624
 
 
 
76,087
 
 
 
55,396
 
Consolidated
 
$
1,500,042
 
 
$
1,490,451
 
 
$
1,646,772
 
Long-lived assets 
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
119,866
 
 
$
101,464
 
 
$
403,758
 
Invacare Supply Group
 
 
24,853
 
 
 
25,163
 
 
 
24,712
 
Institutional Products Group
 
 
34,880
 
 
 
31,374
 
 
 
32,457
 
Europe
 
 
610,074
 
 
 
563,479
 
 
 
508,196
 
Asia/Pacific
 
 
56,024
 
 
 
50,760
 
 
 
38,866
 
All Other (1)
 
 
63,260
 
 
 
62,453
 
 
 
44,317
 
Consolidated
 
$
908,957
 
 
$
834,693
 
 
$
1,052,306
 
Expenditures for assets
 
 
 
 
 
 
 
 
 
 
 
 
North America/HME
 
$
7,138
 
 
$
9,478
 
 
$
19,242
 
Invacare Supply Group
 
 
148
 
 
 
853
 
 
 
338
 
Institutional Products Group
 
 
813
 
 
 
828
 
 
 
427
 
Europe
 
 
7,669
 
 
 
8,041
 
 
 
5,470
 
Asia/Pacific
 
 
4,272
 
 
 
2,559
 
 
 
5,438
 
All Other (1)
 
 
28
 
 
 
30
 
 
 
9
 
Consolidated
 
$
20,068
 
 
$
21,789
 
 
$
30,924
 
__________

(1)
Consists of un-allocated corporate selling, general and administrative costs and intercompany profits, which do not meet the quantitative criteria for determining reportable segments. In addition, the “All other” earnings (loss) before income taxes includes debt finance charges, interest and fees associated with debt refinancing and the gain (loss) associated with a consolidated variable interest entity.




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Business Segments – Continued

Net sales by product, are as follows (in thousands):
 
 
2007
 
 
2006
 
 
2005
 
North America/HME
 
 
 
 
 
 
 
 
 
Rehab
 
$
268,756
 
 
$
272,517
 
 
$
274,417
 
Standard
 
 
242,186
 
 
 
239,540
 
 
 
251,331
 
Respiratory
 
 
128,654
 
 
 
141,531
 
 
 
159,300
 
Other
 
 
28,709
 
 
 
22,738
 
 
 
21,507
 
 
 
$
668,305
 
 
$
676,326
 
 
$
706,555
 
Invacare Supply Group
 
 
 
 
 
 
 
 
 
 
 
 
Distributed
 
$
256,993
 
 
$
228,236
 
 
$
220,908
 
Institutional Products Group
 
 
 
 
 
 
 
 
 
 
 
 
Continuing Care
 
$
89,026
 
 
$
93,455
 
 
$
85,415
 
Europe
 
 
 
 
 
 
 
 
 
 
 
 
Standard
 
$
291,574
 
 
$
252,335
 
 
$
263,121
 
Rehab
 
 
195,182
 
 
 
170,138
 
 
 
161,082
 
Respiratory
 
 
11,353
 
 
 
7,954
 
 
 
7,939
 
 
 
$
498,109
 
 
$
430,427
 
 
$
432,142
 
Asia/Pacific
 
 
 
 
 
 
 
 
 
 
 
 
Rehab
 
$
41,310
 
 
$
39,027
 
 
$
47,730
 
Standard
 
 
20,655
 
 
 
13,070
 
 
 
10,125
 
Respiratory
 
 
8,980
 
 
 
7,111
 
 
 
8,304
 
Other
 
 
18,859
 
 
 
10,383
 
 
 
18,553
 
 
 
$
89,804
 
 
$
69,591
 
 
$
84,712
 
Total Consolidated
 
$
1,602,237
 
 
$
1,498,035
 
 
$
1,529,732
 

No single customer accounted for more than 3% of the company’s sales.

Supplemental Guarantor Information

Effective February 12, 2007, substantially all of the domestic subsidiaries (the “Guarantor Subsidiaries”) of the company became guarantors of the indebtedness of Invacare Corporation under its 9.75% Senior Notes due 2015 (the “Senior Notes”) with an aggregate principal amount of $175,000,000 and under its 4.125% Convertible Senior Subordinated Debentures due 2027 (the “Debentures”) with an aggregate principal amount of $135,000,000.  The majority of the company’s subsidiaries are not guaranteeing the indebtedness of the Senior Notes or Debentures (the “Non-Guarantor Subsidiaries”).  Each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium, and interest related to the Senior Notes and to the Debentures and each of the Guarantor Subsidiaries are directly or indirectly wholly-owned subsidiaries of the company.

Presented below are the consolidating condensed financial statements of Invacare Corporation (Parent), its combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries with their investments in subsidiaries accounted for using the equity method.  The company does not believe that separate financial statements of the Guarantor Subsidiaries are material to investors and accordingly, separate financial statements and other disclosures related to the Guarantor Subsidiaries are not presented. 



INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED STATEMENTS OF OPERATIONS

 (in thousands)
 
Year ended  December 31, 2007
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Net sales
 
$
332,668
 
 
$
629,217
 
 
$
701,990
 
 
$
(61,638
)
 
$
1,602,237
 
Cost of products sold
 
 
255,852
 
 
 
503,130
 
 
 
458,616
 
 
 
(61,665
)
 
 
1,155,933
 
Gross Profit
 
 
76,816
 
 
 
126,087
 
 
 
243,374
 
 
 
27
 
 
 
446,304
 
Selling, general and administrative expenses
 
 
105,678
 
 
 
113,828
 
 
 
147,340
 
 
 
-
 
 
 
366,846
 
Charge related to restructuring activities
 
 
3,365
 
 
 
7
 
 
 
6,219
 
 
 
-
 
 
 
9,591
 
Charges, interest and fees associated with debt refinancing
 
 
13,329
 
 
 
-
 
 
 
79
 
 
 
-
 
 
 
13,408
 
Income (loss) from equity investee
 
 
83,802
 
 
 
43,067
 
 
 
5,055
 
 
 
(131,924
)
 
 
-
 
Interest expense - net
 
 
28,111
 
 
 
707
 
 
 
13,151
 
 
 
-
 
 
 
41,969
 
Earnings (loss) before Income Taxes
 
 
10,135
 
 
 
54,612
 
 
 
81,640
 
 
 
(131,897
)
 
 
14,490
 
Income taxes
 
 
8,945
 
 
 
471
 
 
 
3,884
 
 
 
-
 
 
 
13,300
 
Net Earnings (loss)
 
$
1,190
 
 
$
54,141
 
 
$
77,756
 
 
$
(131,897
)
 
$
1,190
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
342,614
 
 
$
615,163
 
 
$
613,237
 
 
$
(72,979
)
 
$
1,498,035
 
Cost of products sold
 
 
265,844
 
 
 
486,469
 
 
 
401,584
 
 
 
(72,932
)
 
 
1,080,965
 
Gross Profit
 
 
76,770
 
 
 
128,694
 
 
 
211,653
 
 
 
(47
)
 
 
417,070
 
Selling, general and administrative expenses
 
 
103,167
 
 
 
113,922
 
 
 
156,757
 
 
 
-
 
 
 
373,846
 
Charge related to restructuring activities
 
 
5,597
 
 
 
637
 
 
 
11,043
 
 
 
-
 
 
 
17,277
 
Charges, interest and fees associated with debt refinancing
 
 
3,745
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,745
 
Asset write-downs related to goodwill and other intangibles
 
 
300,257
 
 
 
160
 
 
 
-
 
 
 
-
 
 
 
300,417
 
Income (loss) from equity investee
 
 
32,382
 
 
 
23,012
 
 
 
3,077
 
 
 
(58,471
)
 
 
-
 
Interest expense - net
 
 
17,025
 
 
 
10,177
 
 
 
4,107
 
 
 
-
 
 
 
31,309
 
Earnings (loss) before Income Taxes
 
 
(320,639
)
 
 
26,810
 
 
 
42,823
 
 
 
(58,518
)
 
 
(309,524
)
Income taxes (benefit)
 
 
(2,865
)
 
 
1,422
 
 
 
9,693
 
 
 
-
 
 
 
8,250
 
Net Earnings (loss)
 
$
(317,774
)
 
$
25,388
 
 
$
33,130
 
 
$
(58,518
)
 
$
(317,774
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
 
$
363,277
 
 
$
610,106
 
 
$
625,505
 
 
$
(69,156
)
 
$
1,529,732
 
Cost of products sold
 
 
263,005
 
 
 
473,178
 
 
 
416,164
 
 
 
(68,814
)
 
 
1,083,533
 
Gross Profit
 
 
100,272
 
 
 
136,928
 
 
 
209,341
 
 
 
(342
)
 
 
446,199
 
Selling, general and administrative expenses
 
 
96,342
 
 
 
88,948
 
 
 
156,749
 
 
 
-
 
 
 
342,039
 
Charge related to restructuring activities
 
 
3,546
 
 
 
408
 
 
 
3,341
 
 
 
-
 
 
 
7,295
 
Income (loss) from equity investee
 
 
52,273
 
 
 
7,167
 
 
 
3,161
 
 
 
(62,601
)
 
 
-
 
Interest expense - net
 
 
2,506
 
 
 
15,673
 
 
 
7,384
 
 
 
-
 
 
 
25,563
 
Earnings (loss) before Income Taxes
 
 
50,151
 
 
 
39,066
 
 
 
45,028
 
 
 
(62,943
)
 
 
71,302
 
Income taxes
 
 
1,299
 
 
 
306
 
 
 
20,845
 
 
 
-
 
 
 
22,450
 
Net Earnings (loss)
 
$
48,852
 
 
$
38,760
 
 
$
24,183
 
 
$
(62,943
)
 
$
48,852
 
 


INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED BALANCE SHEETS

 (in thousands)
 
December 31, 2007
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
27,133
 
 
$
1,773
 
 
$
33,294
 
 
$
-
 
 
$
62,200
 
Marketable securities
 
 
255
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
255
 
Trade receivables, net
 
 
93,533
 
 
 
52,996
 
 
 
121,431
 
 
 
(3,817
)
 
 
264,143
 
Installment receivables, net
 
 
-
 
 
 
1,841
 
 
 
2,216
 
 
 
-
 
 
 
4,057
 
Inventories, net
 
 
69,123
 
 
 
34,115
 
 
 
93,895
 
 
 
(1,529
)
 
 
195,604
 
Deferred income taxes
 
 
-
 
 
 
-
 
 
 
2,478
 
 
 
-
 
 
 
2,478
 
Other current assets
 
 
20,693
 
 
 
6,489
 
 
 
36,438
 
 
 
(1,272
)
 
 
62,348
 
Total Current Assets
 
 
210,737
 
 
 
97,214
 
 
 
289,752
 
 
 
(6,618
)
 
 
591,085
 
Investment in subsidiaries
 
 
1,393,220
 
 
 
640,178
 
 
 
-
 
 
 
(2,033,398
)
 
 
-
 
Intercompany advances, net
 
 
250,765
 
 
 
824,519
 
 
 
43,460
 
 
 
(1,118,744
)
 
 
-
 
Other Assets
 
 
66,616
 
 
 
23,482
 
 
 
1,564
 
 
 
-
 
 
 
91,662
 
Other Intangibles
 
 
934
 
 
 
11,315
 
 
 
92,487
 
 
 
-
 
 
 
104,736
 
Property and Equipment, net
 
 
57,984
 
 
 
10,231
 
 
 
101,161
 
 
 
-
 
 
 
169,376
 
Goodwill
 
 
-
 
 
 
23,531
 
 
 
519,652
 
 
 
-
 
 
 
543,183
 
Total Assets
 
$
1,980,256
 
 
$
1,630,470
 
 
$
1,048,076
 
 
$
(3,158,760
)
 
$
1,500,042
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
68,786
 
 
$
12,516
 
 
$
68,868
 
 
$
-
 
 
$
150,170
 
Accrued expenses
 
 
48,332
 
 
 
18,284
 
 
 
84,431
 
 
 
(5,089
)
 
 
145,958
 
Accrued income taxes
 
 
500
 
 
 
-
 
 
 
5,473
 
 
 
-
 
 
 
5,973
 
Short-term debt and current maturities of long-term obligations
 
 
23,500
 
 
 
-
 
 
 
1,010
 
 
 
-
 
 
 
24,510
 
Total Current Liabilities
 
 
141,118
 
 
 
30,800
 
 
 
159,782
 
 
 
(5,089
)
 
 
326,611
 
Long-Term Debt
 
 
481,896
 
 
 
7
 
 
 
31,439
 
 
 
-
 
 
 
513,342
 
Other Long-Term Obligations
 
 
61,370
 
 
 
-
 
 
 
44,676
 
 
 
-
 
 
 
106,046
 
Intercompany advances, net
 
 
741,829
 
 
 
326,028
 
 
 
50,887
 
 
 
(1,118,744
)
 
 
-
 
Total Shareholders’ Equity
 
 
554,043
 
 
 
1,273,635
 
 
 
761,292
 
 
 
(2,034,927
)
 
 
554,043
 
Total Liabilities and Shareholders’ Equity
 
$
1,980,256
 
 
$
1,630,470
 
 
$
1,048,076
 
 
$
(3,158,760
)
 
$
1,500,042
 





INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED BALANCE SHEETS

(in thousands)
 
December 31, 2006
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
35,918
 
 
$
2,202
 
 
$
44,083
 
 
$
-
 
 
$
82,203
 
Marketable securities
 
 
190
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
190
 
Trade receivables, net
 
 
651
 
 
 
15,888
 
 
 
248,667
 
 
 
(3,600
)
 
 
261,606
 
Installment receivables, net
 
 
-
 
 
 
5,513
 
 
 
1,584
 
 
 
-
 
 
 
7,097
 
Inventories, net
 
 
77,201
 
 
 
37,511
 
 
 
88,585
 
 
 
(1,541
)
 
 
201,756
 
Deferred income taxes
 
 
4,223
 
 
 
393
 
 
 
8,896
 
 
 
-
 
 
 
13,512
 
Other current assets
 
 
26,353
 
 
 
8,764
 
 
 
55,477
 
 
 
(1,200
)
 
 
89,394
 
Total Current Assets
 
 
144,536
 
 
 
70,271
 
 
 
447,292
 
 
 
(6,341
)
 
 
655,758
 
Investment in subsidiaries
 
 
1,293,046
 
 
 
607,559
 
 
 
-
 
 
 
(1,900,605
)
 
 
-
 
Intercompany advances, net
 
 
354,660
 
 
 
850,121
 
 
 
110,935
 
 
 
(1,315,716
)
 
 
-
 
Other Assets
 
 
50,443
 
 
 
15,566
 
 
 
1,434
 
 
 
-
 
 
 
67,443
 
Other Intangibles
 
 
1,016
 
 
 
13,150
 
 
 
88,710
 
 
 
-
 
 
 
102,876
 
Property and Equipment, net
 
 
65,016
 
 
 
11,550
 
 
 
97,379
 
 
 
-
 
 
 
173,945
 
Goodwill
 
 
-
 
 
 
23,541
 
 
 
466,888
 
 
 
-
 
 
 
490,429
 
Total Assets
 
 
1,908,717
 
 
$
1,591,758
 
 
$
1,212,638
 
 
$
(3,222,662
)
 
$
1,490,451
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
89,818
 
 
$
12,095
 
 
$
61,128
 
 
$
-
 
 
$
163,041
 
Accrued expenses
 
 
34,611
 
 
 
17,405
 
 
 
100,560
 
 
 
(4,800
)
 
 
147,776
 
Accrued income taxes
 
 
10,021
 
 
 
26
 
 
 
2,869
 
 
 
-
 
 
 
12,916
 
Short-term debt and current maturities of long-term obligations
 
 
51,773
 
 
 
-
 
 
 
72,470
 
 
 
-
 
 
 
124,243
 
Total Current Liabilities
 
 
186,223
 
 
 
29,526
 
 
 
237,027
 
 
 
(4,800
)
 
 
447,976
 
Long-Term Debt
 
 
321,263
 
 
 
70
 
 
 
127,550
 
 
 
-
 
 
 
448,883
 
Other Long-Term Obligations
 
 
52,039
 
 
 
2,040
 
 
 
53,144
 
 
 
-
 
 
 
107,223
 
Intercompany advances, net
 
 
862,823
 
 
 
370,452
 
 
 
82,441
 
 
 
(1,315,716
)
 
 
-
 
Total Shareholders’ Equity
 
 
486,369
 
 
 
1,189,670
 
 
 
712,476
 
 
 
(1,902,146
)
 
 
486,369
 
Total Liabilities and Shareholders’ Equity
 
$
1,908,717
 
 
$
1,591,758
 
 
$
1,212,638
 
 
$
(3,222,662
)
 
$
1,490,451
 





INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)
 
Year ended December 31, 2007
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Net Cash Provided (Used) by Operating Activities
 
$
(27,319
)
 
$
921
 
 
$
99,498
 
 
$
6,000
 
 
$
79,100
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(4,090
)
 
 
(1,350
)
 
 
(14,628
)
 
 
-
 
 
 
(20,068
)
Proceeds from sale of property and equipment
 
 
-
 
 
 
-
 
 
 
501
 
 
 
-
 
 
 
501
 
Business acquisitions, net of cash acquired
 
 
(5,496
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(5,496
)
Decrease in other investments
 
 
155
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
155
 
Decrease in other long-term assets
 
 
1,446
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,446
 
Other
 
 
1,404
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
1,404
 
Net Cash Used for Investing Activities
 
 
(6,581
)
 
 
(1,350
)
 
 
(14,127
)
 
 
-
 
 
 
(22,058
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving lines of credit, securitization facility and long-term borrowings
 
 
648,071
 
 
 
-
 
 
 
50,930
 
 
 
-
 
 
 
699,001
 
Payments on revolving lines of credit, securitization facility and long-term borrowings
 
 
(598,412
)
 
 
-
 
 
 
(155,590
)
 
 
-
 
 
 
(754,002
)
Proceeds from exercise of stock options
 
 
44
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
44
 
Payment of dividends
 
 
(1,596
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,596
)
Payment of financing costs
 
 
(22,992
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(22,992
)
Capital contributions
 
 
-
 
 
 
-
 
 
 
6,000
 
 
 
(6,000
)
 
 
-
 
Net Cash Provided (Used) by Financing Activities
 
 
25,115
 
 
 
-
 
 
 
(98,660
)
 
 
(6,000
)
 
 
(79,545
)
Effect of exchange rate changes on cash
 
 
-
 
 
 
-
 
 
 
2,500
 
 
 
-
 
 
 
2,500
 
Decrease in cash and cash equivalents
 
 
(8,785
)
 
 
(429
)
 
 
(10,789
)
 
 
-
 
 
 
(20,003
)
Cash and cash equivalents at beginning of year
 
 
35,918
 
 
 
2,202
 
 
 
44,083
 
 
 
-
 
 
 
82,203
 
Cash and cash equivalents at end of year
 
$
27,133
 
 
$
1,773
 
 
$
33,294
 
 
$
-
 
 
$
62,200
 




INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)
 
Year ended December 31, 2006
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Net Cash Provided (Used) by Operating Activities
 
$
(15,229
)
 
$
21,057
 
 
$
73,996
 
 
$
(17,370
)
 
$
62,454
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(6,974
)
 
 
(2,440
)
 
 
(12,375
)
 
 
-
 
 
 
(21,789
)
Proceeds from sale of property and equipment
 
 
-
 
 
 
11
 
 
 
2,287
 
 
 
-
 
 
 
2,298
 
Business acquisitions, net of cash acquired
 
 
-
 
 
 
-
 
 
 
(15,296
)
 
 
-
 
 
 
(15,296
)
(Increase) decrease in other investments
 
 
(7,604
)
 
 
(3,000
)
 
 
-
 
 
 
10,856
 
 
 
252
 
Increase in other long-term assets
 
 
(850
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(850
)
Other
 
 
673
 
 
 
-
 
 
 
266
 
 
 
-
 
 
 
939
 
Net Cash Used for Investing Activities
 
 
(14,755
)
 
 
(5,429
)
 
 
(25,118
)
 
 
10,856
 
 
 
(34,446
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving lines of credit, securitization facility and long-term borrowings
 
 
593,876
 
 
 
-
 
 
 
278,673
 
 
 
-
 
 
 
872,549
 
Payments on revolving lines of credit, securitization facility and long-term borrowings
 
 
(536,019
)
 
 
(122
)
 
 
(309,959
)
 
 
-
 
 
 
(846,100
)
Proceeds from exercise of stock options
 
 
2,364
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
2,364
 
Payment of dividends
 
 
(1,589
)
 
 
(17,370
)
 
 
-
 
 
 
17,370
 
 
 
(1,589
)
Capital contributions
 
 
-
 
 
 
3,020
 
 
 
7,836
 
 
 
(10,856
)
 
 
-
 
Net Cash Provided (Used) by Financing Activities
 
 
58,632
 
 
 
(14,472
)
 
 
(23,450
)
 
 
6,514
 
 
 
27,224
 
Effect of exchange rate changes on cash
 
 
-
 
 
 
-
 
 
 
1,347
 
 
 
-
 
 
 
1,347
 
Increase in cash and cash equivalents
 
 
28,648
 
 
 
1,156
 
 
 
26,775
 
 
 
-
 
 
 
56,579
 
Cash and cash equivalents at beginning of year
 
 
7,270
 
 
 
1,046
 
 
 
17,308
 
 
 
-
 
 
 
25,624
 
Cash and cash equivalents at end of year
 
$
35,918
 
 
$
2,202
 
 
$
44,083
 
 
$
-
 
 
$
82,203
 



INVACARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Supplemental Guarantor Information – Continued

CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)
 
Year ended December 31, 2005
 
The Company (Parent)
 
 
Combined Guarantor Subsidiaries
 
 
Combined Non-Guarantor Subsidiaries
 
 
Eliminations
 
 
Total
 
Net Cash Provided (Used) by Operating Activities
 
$
166,253
 
 
$
(2,878
)
 
$
(85,250
)
 
$
-
 
 
$
78,125
 
Investing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(17,646
)
 
 
(2,019
)
 
 
(11,259
)
 
 
-
 
 
 
(30,924
)
Proceeds from sale of property and equipment
 
 
51
 
 
 
4,680
 
 
 
634
 
 
 
-
 
 
 
5,365
 
Business acquisitions, net of cash acquired
 
 
(23,233
)
 
 
-
 
 
 
(34,983
)
 
 
-
 
 
 
(58,216
)
(Increase) decrease in other investments
 
 
(70,694
)
 
 
(70,650
)
 
 
-
 
 
 
141,300
 
 
 
(44
)
Increase in other long-term assets
 
 
(966
)
 
 
(14
)
 
 
(33
)
 
 
-
 
 
 
(1,013
)
Other
 
 
(1,579
)
 
 
-
 
 
 
(323
)
 
 
-
 
 
 
(1,902
)
Net Cash Used for Investing Activities
 
 
(114,067
)
 
 
(68,003
)
 
 
(45,964
)
 
 
141,300
 
 
 
(86,734
)
Financing Activities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds from revolving lines of credit, securitization facility and long-term borrowings
 
 
489,232
 
 
 
-
 
 
 
306,841
 
 
 
-
 
 
 
796,073
 
Payments on revolving lines of credit, securitization facility and long-term borrowings
 
 
(543,094
)
 
 
(178
)
 
 
(253,347
)
 
 
-
 
 
 
(796,619
)
Proceeds from exercise of stock options
 
 
3,742
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
3,742
 
Payment of dividends
 
 
(1,580
)
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(1,580
)
Capital contributions
 
 
-
 
 
 
70,650
 
 
 
70,650
 
 
 
(141,300
)
 
 
-
 
Net Cash Provided (Used) by Financing Activities
 
 
(51,700
)
 
 
70,472
 
 
 
124,144
 
 
 
(141,300
)
 
 
1,616
 
Effect of exchange rate changes on cash
 
 
-
 
 
 
-
 
 
 
50
 
 
 
-
 
 
 
50
 
Increase (decrease) in cash and cash equivalents
 
 
486
 
 
 
(409
)
 
 
(7,020
)
 
 
-
 
 
 
(6,943
)
Cash and cash equivalents at beginning of year
 
 
6,784
 
 
 
1,455
 
 
 
24,328
 
 
 
-
 
 
 
32,567
 
Cash and cash equivalents at end of year
 
$
7,270
 
 
$
1,046
 
 
$
17,308
 
 
$
-
 
 
$
25,624
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Interim Financial Information (unaudited)
 
 
QUARTER ENDED
(In thousands, except per share data)
 
2007
 
March 31,
 
 
June 30,
 
 
September 30,
 
 
December 31,
 
Net sales
 
$
374,905
 
 
$
393,267
 
 
$
407,303
 
 
$
426,762
 
Gross profit
 
 
99,056
 
 
 
109,946
 
 
 
115,451
 
 
 
121,851
 
Earnings (loss) before income taxes
 
 
(15,104
)
 
 
3,179
 
 
 
9,039
 
 
 
17,376
 
Net earnings (loss)
 
 
(17,504
)
 
 
54
 
 
 
11,639
 
 
 
7,001
 
Net earnings (loss) per share — basic
 
 
(0.55
)
 
 
.00
 
 
 
.37
 
 
 
.22
 
Net earnings (loss) per share — assuming dilution
 
 
(0.55
)
 
 
.00
 
 
 
.36
 
 
 
.22
 
2006
 
March 31,
 
 
June 30,
 
 
September 30,
 
 
December 31,
 
Net sales
 
$
361,704
 
 
$
371,764
 
 
$
379,462
 
 
$
385,105
 
Gross profit
 
 
101,296
 
 
 
105,565
 
 
 
111,065
 
 
 
99,144
 
Earnings (loss) before income taxes
 
 
7,437
 
 
 
6,848
 
 
 
12,193
 
 
 
(336,002
)
Net earnings (loss)
 
 
5,207
 
 
 
4,953
 
 
 
9,693
 
 
 
(337,627
)
Net earnings (loss) per share — basic
 
 
.16
 
 
 
.16
 
 
 
.31
 
 
 
(10.61
)
Net earnings (loss) per share — assuming dilution
 
 
.16
 
 
 
.15
 
 
 
.30
 
 
 
(10.61
)


INVACARE CORPORATION AND SUBSIDIARIES

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS


 
 
COL A.
 
 
COL B.
 
 
COL C.
 
 
COL D.
 
 
 
Balance At
Beginning of
Period
 
 
Charged To
Cost And
Expenses
 
 
Additions
(Deductions)
Describe
 
 
Balance
At End of
Period
 
 
 
(In thousands)
 
Year Ended December 31, 2007
 
 
 
 
 
 
 
 
 
 
 
 
Deducted from asset accounts —
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
37,633
 
 
$
11,927
 
 
$
(6,600
)
(A)
$
42,960
 
Inventory obsolescence reserve
 
 
12,143
 
 
 
5,998
 
 
 
(5,640
)
(B)
 
12,501
 
Investments and related notes receivable
 
 
8,339
 
 
 
—
 
 
 
(8,339
)
(D)
 
—
 
Tax valuation allowances
 
 
50,273
 
 
 
25,537
 
 
 
13,912
 
(E)
 
89,722
 
Accrued warranty cost
 
 
15,165
 
 
 
10,989
 
 
 
(9,538
)
(B)
 
16,616
 
Accrued product liability
 
 
22,631
 
 
 
8,360
 
 
 
(9,855
)
(C)
 
21,136
 
Year Ended December 31, 2006
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deducted from asset accounts —
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
23,094
 
 
$
37,711
 
 
$
(23,172
)
(A)
$
37,633
 
Inventory obsolescence reserve
 
 
8,591
 
 
 
5,325
 
 
 
(1,773
)
(B)
 
12,143
 
Investments and related notes receivable
 
 
8,339
 
 
 
—
 
 
 
—
 
 
 
8,339
 
Tax valuation allowances
 
 
7,100
 
 
 
28,785
 
 
 
14,388
 
(E)
 
50,273
 
Accrued warranty cost
 
 
15,583
 
 
 
9,834
 
 
 
(10,252
)
(B)
 
15,165
 
Accrued product liability
 
 
20,949
 
 
 
6,813
 
 
 
(5,131
)
(C)
 
22,631
 
Year Ended December 31, 2005
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deducted from asset accounts —
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for doubtful accounts
 
$
15,576
 
 
$
14,168
 
 
$
(6,650
)
(A)
$
23,094
 
Inventory obsolescence reserve
 
 
9,532
 
 
 
4,378
 
 
 
(5,319
)
(B)
 
8,591
 
Investments and related notes receivable
 
 
29,540
 
 
 
—
 
 
 
(21,201
)
(D)
 
8,339
 
Tax valuation allowances
 
 
7,100
 
 
 
—
 
 
 
—
 
 
 
7,100
 
Accrued warranty cost
 
 
13,998
 
 
 
10,516
 
 
 
(8,931
)
(B)
 
15,583
 
Accrued product liability
 
 
17,045
 
 
 
8,780
 
 
 
(4,876
)
(A)
 
20,949
 
 
Note (A) — Uncollectible accounts written off, net of recoveries.

Note (B) — Amounts written off or payments incurred.

Note (C) — Loss and loss adjustment.

Note (D) — Elimination of allowance for investments no longer reported in the consolidated balance sheet.

Note (E) — Other activity not affecting federal or foreign tax expense.




FS-43
 
Exhibit 3(a)
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
 
ARTICLE I
 
The name of the Corporation shall be Invacare Corporation.
 
ARTICLE II
 
The principal office of the Corporation shall be located in Elyria, Lorain County, Ohio.
 
ARTICLE III
 
The purposes of the Corporation shall be:
 
(1)            To manufacture, assemble, sell, lease, and distribute wheelchairs, patient aids and other health care products of every kind and nature; and
 
(2)            To enter into, promote or conduct any other kind of business, contract or undertaking permitted to corporations for profit organized under the General Corporation Law of the State of Ohio, to engage in any lawful act or activity for which corporations may be formed under Sections 1701.01 to 1701.98, inclusive, of the Revised Code of Ohio. and, in connection therewith, to exercise all express and incidental powers normally permitted such corporations.
 
ARTICLE IV
 
The authorized number of shares of capital stock of the Corporation shall be Thirty Million Three Hundred Thousand (30,300,000), of which Eighteen Million (18,000,000) shall be Common Shares, without par value, Twelve Million (12,000,000) shall be Class S Common Shares, without par value, and Three Hundred Thousand (300,000) shall be Serial Preferred Shares, without par value.
 
SUBDIVISION A
 
Provisions Applicable to Serial Preferred Shares
 
The Serial Preferred Shares may be issued, from time to time, in one or more series, with such designations. preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors. The Board of Directors, in such resolution or resolutions (a copy of which shall be filed and recorded as required by law), is also expressly authorized to fix:
 
(a)            The distinctive serial designations and the division of such shares Into series and the number of shares of a particular series, which may be Increased or decreased, but not below
 


the number of shares thereof then outstanding, by a certificate made. Signed, filed and recorded as required by law;
 
(b)            The annual dividend rate for the particular series, and the date or dates from which dividends on all shares of such series shall be cumulative, if dividends on shares of the particular series shall be cumulative.
 
(c)            The redemption price or prices, if any, for the particular series:
 
(d)            The right, if any, of the holders of a particular series to convert such stock into other classes of shares (except for Class B Common Shares), and the terms and conditions of such conversions: and
 
(e)            The obligation, if any, of the Corporation to purchase and retire and redeem shares of a particular series as a sinking fund or redemption or purchase account, the terms thereof and the redemption price or prices per share for such series redeemed pursuant to the sinking fund or redemption or purchase account.
 
All shares of any one series of Serial Preferred Shares shall be alike in every particular and all series shall rank equally and be identical in all respects except insofar as they may vary with respect to the matters which the Board of Directors is hereby expressly authorized to determine in the resolution or resolutions providing for the issue of any series of the Serial Preferred Shares.
 
In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, then before any distribution or payment shall have been made to the holders of the Common Shares or me Class Es Common Shares, the holders of the Serial Preferred Shares of each series shall be entitled to be paid, or to have set apart in trust for payment, an amount from the net assets of the Corporation equal to that stated and expressed in the resolution or resolutions adopted by the Board of Directors which provide for the issue of such series, respectively. The remaining net assets of the Corporation shall be distributed solely among the holders of the Common Shares and the Class B Common Shares according to their respective shares.
 
The holders of Serial Preferred Shares shall be entitled to one vote for each Serial Preferred Share upon all matters presented to the shareholders, and, except as otherwise provided by these Amended and Restated Articles of Incorporation or required by law, the holders of Serial Preferred Shares, the holders of Common Shares and the holders of Class B Common Shares shall vote together as one class on all matters. No adjustment of the voting rights of holders of Serial Preferred Shares shall be made in the event of an increase or decrease in the number of Common Shares or Class B Common Shares authorized or issued or in the event of a stock split or combination of the Common Shares or Class B Common Shares or in the event of a stock dividend on any class of stock payable solely in Common Shares or Class B Common Shares.
 
The affirmative vote of the holders of at least two-thirds of the Serial Preferred Shares at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of Serial Preferred Shares shall vote separately as a class, shall be necessary to adopt any
 


amendment to the Amended and Restated Articles of Incorporation (but so far as the holders of Serial Preferred Shares are concerned, such amendment may be adopted with such vote) which:
 
(i)            changes issued shares of Serial Preferred Shares of all series then outstanding into a lesser number of shares of the Corporation of the same class and series or into the same or a different number of shares of the Corporation of any other class or series; or
 
(ii)            changes the express terms of the Serial Preferred Shares in any manner substantially prejudicial to the holders of all series thereof then outstanding; or
 
(iii)            authorizes shares of any class, or any security convertible into shares of any class, or authorizes the conversion of any security into shares of any class, ranking prior to the Serial Preferred Shares; or
 
(iv)            changes the express terms of issued shares of any class ranking prior to the Serial Preferred Shares in any manner substantially prejudicial to the holders of all series of Serial Preferred Shares then outstanding:
 
and the affirmative vote of the holders of at least two-thirds of the shares of each affected series of Serial Preferred Shares at the time outstanding, given in person or by proxy at a meeting called for the purpose at which the holders of each affected series of Serial Preferred Shares shall vote separately as a series, shall be necessary to adopt any amendment to the Amended and Restated Articles of Incorporation (but so far as the holders of each such series of Serial Preferred Shares are concerned, such amendment may be adopted with such vote) which:
 
(i)            changes issued shares of Serial Preferred Shares of one or more but not all series then outstanding into a lesser number of shares of the Corporation of the same series or into the same or a different number of shares of the Corporation of any other class or series; or
 
(ii)            changes the express terms of any series of the Serial Preferred Shares in any manner substantially prejudicial to the holders of one or more but not all series thereof then outstanding; or
 
(iii)            changes the express terms of issued shares of any class ranking prior to the Serial Preferred Shares in any manner substantially prejudicial to the holders of one or more but not all series of Serial Preferred Shares then outstanding.
 
Whenever reference is made herein to shares “ranking prior to the Serial Preferred Shares,” such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof either as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation are given preference over the rights of the holders of Serial Preferred Shares; whenever reference is made to shares “on a parity with the Serial Preferred Shares,” such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof (i) neither as to the payment of dividends nor as to distributions in the event of a voluntary or involuntary
 


liquidation, dissolution or winding up of the Corporation are given preference over the rights of the holders of Serial Preferred Shares and (ii) either as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation rank on an equality (except as to the amounts fixed therefor) with the rights of the holders of Serial Preferred Shares; and whenever reference is made to shares “ranking junior to the Serial Preferred Shares,” such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof both as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation are junior and subordinate to the rights of the holders of the Serial Preferred Shares.
 
Subdivision B
 
Provisions Applicable to Common Shares and Class a Common Shares
 
In this Subdivision B of Article IV, any reference to a section or paragraph, without further attribution, within a provision relating to a particular class of shares is intended to refer solely to the specified section or paragraph of the other provisions relating to the same class of shares.
 
The Common Shares and Class B Common Shares shall be subject to the express terms of the Serial Preferred Shares and of any series thereof and shall have the following voting powers, designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations or restrictions thereof:
 
1.            Dividends.
 
1.1            Whenever the full dividends upon any outstanding Serial Preferred Shares for all past dividend periods shall have been paid and the full dividends thereon for the then current respective dividend periods shall have been paid, or declared and a sum sufficient for the respective payments thereof set apart, the holders of the Common Shares and Class B Common Shares shall be entitled to receive such dividends and distributions, payable in cash or otherwise, as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, provided that no cash dividend shall be declared and paid on the Class B Common Shares unless, simultaneously therewith, a cash dividend per share of at least one hundred and ten percent (110% of the amount per share of the dividend on the Class B Common Shares is declared and paid on the Common Shares. Notwithstanding the foregoing, in the event that any dividend shall be declared in Common Shares or Class B Common Shares, such dividend shall be declared at the same rate per share on Common Shares and Class B Common Shares, but the dividend payable on Common Shares shall be payable in Common Shares and the dividend payable on Class B Common Shares shall be payable in Class B Common Shares. If the Corporation shall in any manner split, subdivide or combine the outstanding Common Shares or Class B Common Shares, the outstanding shares of the other such class of shares shall be split, subdivided or combined in the same manner proportionately and on the same basis per share.
 


2.            Issuance of the Class B Common Shares.
 
2.1            The Board of Directors may authorize by resolution the manner in which Class B Common Shares shall initially be issued (the “Initial Issuance”) and may set such terms and conditions (including the determination of the record date for the Initial Issuance and to “Initial Issuance Date” for all purposes hereunder) as it deems appropriate or advisable with respect thereto, without any vote or other action by the shareholders, except as otherwise required by law.
 
2.2            Following the Initial Issuance, the Board of Directors may only issue Class B Common Shares in the form of a distribution or distributions pursuant to a stock dividend on or split-up of the Class B Common Shares and only to the then holders of the outstanding Class B Common Shares et conjunction with and in the same ratio as a stock dividend on or split-up of the Common Shares.
 
3.            Rights on Liquidation.
 
In the event of any liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, after the payment or setting apart for payment to the holders of any outstanding Serial Preferred Shares of the full preferential amounts to which such holders are entitled as herein provided or referred to, all of the remaining assets of the Corporation shall belong to and be distributable in equal amounts per share to the holders of the Common Shares and the holders of Class B Common Shares, as if such classes constituted a single class. For purposes of this paragraph 3, a consolidation or merger of the Corporation with any other corporation, or the sale, transfer or lease of all or substantially all its assets shall not constitute or be deemed a liquidation, dissolution or winding up of the Corporation.
 
4.            Conversion of Class B Common Shares.
 
4.1            The holders of Class B Common Shares shall have the right, at their option, to convert any or all such shares into Common Shares of the Corporation on the following terms and conditions:
 
(i)            Each Class B Common Share shall be convertible, at any time, at the office of any transfer agent for the Common Shares of the Corporation, and at such other place or places, if any, as the Board of Directors may determine, into one fully paid and nonassessable Common Share of the Corporation upon surrender at such office or other place of the certificate or certificates representing the Class B Common Shares so to be converted. In no event, upon conversion of any Class B Common Shares into Common Shares, shall any allowance or adjustment be made in respect of dividends on the Class B Common Snares or the Common Shares.
 
(ii)            Class B Common Shares shall be deemed to have been converted and the person converting the same shall become a holder of Common Shares for the purpose of receiving dividends and for all other purposes whatsoever as of the date when the certificate or certificates for the Class B Common Shares to be converted are surrendered to the Corporation as provided in paragraph 4.1(v).
 


(iii)            A number of Common Shares sufficient to provide, upon the basis hereinbefore set forth, for the conversion of all Class B Common Shares outstanding shall at all times be reserved by the Corporation for the exercise of the conversion rights of the holders of Class B Common Shares.
 
(iv)            If the Corporation shall, at any time, be consolidated or merged with, or shall sell its property as an entirety or substantially as an entirety to, any other corporation or corporations, or in the event of any recapitalization or reclassification of its shares, proper provisions shall be made as a part of the terms of each such consolidation., merger, sale, recapitalization or reclassification so that the holder of any of the Class B Common Shares outstanding immediately prior to such consolidation, merger, sale, recapitalization or reclassification shall thereafter be entitled to and only entitled to conversion rights upon the terms and with respect to such securities of the consolidated, merged or purchasing corporation, or with respect to such securities issued upon such recapitalization or reclassification, as such holder would have been entitled to receive upon such consolidation, merger, sale, recapitalization or reclassification if such holder had exercised the conversion privilege immediately prior thereto. The provisions of this paragraph 4.1(iv) shall similarly apply to successive consolidations, mergers, sales, recapitalizations or reclassifications.
 
(v)            Before any holder of Class B Common Shares shall be entitled to convert the same into Common Shares, he shall surrender his certificate or certificates for such Class B Common Shares to the Corporation at the office of a transfer agent for the Common Shares, or at such other piece or places, if any, as the Board of Directors may determine, duly endorsed or accompanied if appropriate by duly executed instruments of transfer and shall give written notice to the Corporation at said office or place that he elects so to convert the Class B Common Shares represented by _____ certificate or certificates so surrendered. Unless the Common Shares are to be issued in the name of the registered owner of the certificates surrendered, the holder shall state in writing the name or names in which he wishes the certificate or certificates for Common Shares to be issued, and shall furnish all requisite stock transfer and stock issuance tax stamps, or funds therefor. The Corporation shall as soon as practicable after such deposit of certificates for Class B Common Shares, accompanied by the written notice above prescribed, issue and deliver, at the office or place at which such certificates were deposited, to the person for whose account Class B Common Shares were so surrendered, or to his assignee or assignees, certificates for the number of full Common Shares to which he shall be entitled as aforesaid.
 
4.2            All outstanding Class B Common Shares shall automatically, without any act or deed on the part of the Corporation or any other person, be converted into Common Shares on a share-for-share basis (i) if at any time the Board of Directors, in its sole discretion, determines that there has been a material adverse change in the liquidity, marketability or market value of the outstanding Common Shares due to an actual or threatened delisting of the Common Shares from a national securities exchange or a national over-the-counter listing or due to requirements under applicable state securities laws in any such case attributable to the existence of the Class B Common Shares; or (ii) if the Board of Directors, in its sole discretion, elects to effect a conversion in connection with its approval of any sale or lease of all or substantially all of the
 


Corporation’s assets or any merger, consolidation, liquidation or dissolution of the Corporation. In the event of any such automatic conversion, each stock certificate theretofore representing Class B Common Shares will thereafter represent the same number of Common Shares.
 
4.3            The provisions of this paragraph 4 shall be in addition to the provisions of paragraphs 6.1(i) (A) (4), 6.1 (ii) and 6.1 (iv), which require automatic conversion of Class B Common Shares in the circumstances provided therein.
 
4.4            The Class B Common Shares converted into Common Shares as provided in paragraph 4 or paragraph 6 shall resume the status of authorized but unissued Class B Common Shares. Upon the automatic conversion of Class B Common Shares into Common Shares pursuant to paragraph 4.2, the Class B Common Shares shall no longer be authorized for issuance.
 
5.            Voting.
 
5.1            Each Common Share shall entitle the holder thereof to one vote.
 
5.2            Each Class B Common Share shall entitle the holder thereof to ten votes. Except as otherwise provided herein or required by law, holders of Common Shares, Class B Common Shares and Serial Preferred Shares shall at all times vote on all matters (including the election of directors) together as one class and together with the holders of any other series or class of shares of the Corporation accorded such class voting right.
 
5.3            The affirmative vote of the holders of a majority of the outstanding Common Shares and of Class B Common Shares, each voting separately as a class, shall be required to:
 
(i)            authorize additional Class B Common Shares;
 
(ii)            modify or eliminate paragraph 2 above; or
 
(iii)            adopt any other amendment hereof that alters or changes the designations or powers or the preferences, qualifications, limitations, restrictions or the relative or special rights of either the Common Shares or the Class B Common Shares so as to affect holders of shares of such class adversely; provided, that an increase in the number of authorized Common Shares shall not be deemed to affect the holders of Common Shares adversely for purposes of this paragraph 5.3(iii).
 
6.            Limitations on Transfer and issuance of Class B Common Shares.
 
6.1            (i)            Subject to the provisions of paragraph 6.5, no person holding any Class B Common Share may transfer, and the Corporation shall not register the transfer of, such Class B Common Share or any interest therein, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a “Permitted Transferee” of such person. The term “Permitted Transferee” shall mean only,
 


(A)            In the case of a holder of Class B Common Shares (a “Holder”) who is a natural person and the holder of record and beneficial owner of shares subject to a proposed transfer, “Permitted Transferee” means:
 
(1)            The Holder, the spouse of such Holder, any lineal descendant of a grandparent of such Holder, or any spouse of such lineal descendant (herein collectively referred to as “such Holder’s Family Members”);
 
(2)            The trustee of a trust solely for the benefit of such Holder or such Holder’s Family Members, provided that such trust may also grant a general or special power of appoint­ment to one or more of such Holder’s Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Holder’s Family Members payable by reason of the death of any of such Family Members;
 
(3)            The trustee of a trust which is not solely for the benefit of such Holder or such Holder’s Family Members so long as such Holder and/or one or more of such Holder’s Permitted Transferees (determined under this paragraph 6.1 (i) (A)) possess the power to vote or direct the vote of the Class B Common Shares held by such trustee:
 
(4)            A corporation if all of the outstanding capital stock of such corporation is beneficially owned by, or a partnership if all of the partners are and all of the partnership interests are beneficially owned by, the Holder and his Permitted Transferees determined under this paragraph 6.1(1)(A). provided that if by reason of any change in the ownership of such stock or partners or partnership interests, such corporation or partnership would no longer qualify as a Permitted Transferee of such Holder or his Permitted Transferees, all Class B Common Shares then held by such corporation or partnership shall immediately and automatically, without further act or deed on the part of the Corporation or any other person, be converted into Common Shares on a share-for-share basis, and stock certificates formerly representing such Class B Common Shares shall thereupon and thereafter be deemed to represent the like number of Common Shares;
 
(5)            An organization established by the Holder or such Holder’s Family Members, contributions to which are deductible for federal income, estate or gift tax purposes; or
 
(6)            The executor, administrator or personal representative of the estate of such Holder or the guardian or conservator of such Holder adjudged disabled by a court of competent jurisdiction, acting in his capacity as such.
 
(B)            In the case of a Holder holding the shares subject to a proposed transfer as trustee pursuant to a trust (ether than a trust described in paragraph 6.1(i) (C) below or a trust for an employee benefit or employee stock ownership plan), “Permitted Transferee” means (1) the person who established such trust and (2) any Permitted Transferee of any such person determined pursuant to paragraph 6.1(i) (A) above.
 
(C)            In the case of a Holder holding shares subject to a proposed transfer as trustee pursuant to a trust which was irrevocable on the Initial Issuance Date, “Permitted Transferee”
 


means (1) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise (excluding beneficiaries of any employee benefit plan) and (2) any Permitted Transferee of any such person determined pursuant to paragraph 6.1(i) (A) above.
 
(D)            In the case of a Holder which is a partnership holding shares subject to a proposed transfer, “Permitted Transferee” means (i) any partner owning more than ten percent (10%) of the equity of such partnership as of the Initial Issuance Date and (ii) any Permitted Transferee of such partner.
 
(E)            In the case of a Holder which is a corporation (other than an organization described in subsection 6.1 (i) (A) (5) above) holding shares subject to a proposed transfer, “Permitted Transferee” means (1) any stockholder owning more than ten percent (10%) of the equity of such corporation as of the Initial Issuance Date, (2) any Permitted Transferee of such stockholder, (3) the survivor of a merger or consolidation of such corporation or (4) any person who transferred to such corporation the Class B Common Shares that are the subject of the proposed transfer.
 
(F)            In the case of a Holder which is an employee benefit or employee stock ownership plan or a trustee therefor, “Permitted Transferee” shall include any beneficiary of such plan (or the Permitted Transferee of such beneficiary) but only as to shares distributable to such beneficiary pursuant to the plan.
 
(G)            In the case of a Holder who is the executor, administrator or personal representative of the estate of a deceased Holder, guardian or conservator of the estate of a disabled Holder or who is a trustee of the estate of a bankrupt or insolvent Holder, “Permitted Transferee” means a Permitted Transferee of such deceased, disabled, bankrupt or insolvent Holder as determined pursuant to this paragraph 6.1(i).
 
(ii)            Notwithstanding anything to the contrary set forth herein, any holder of Class B Common Shares may pledge his Class B Common Shares to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares may not be transferred to or registered in the name of the pledgee unless such pledgee is a Permitted Transferee. In the event of foreclosure or other similar action by the pledgee. such pledged Class B Common Shares shall automatically, without any act or deed on the part of the Corporation or any other person, be converted into Common Shares on a share-for-share basis, unless within five business days after such foreclosure or similar event such pledged shares are returned to the pledger or transferred to a Permitted Transferee of the pledger.
 
(iii)            For purposes of this paragraph 6.1.
 
(A)            The relationship of any person that is derived by or through legal adoption shall be considered a natural one.
 
(B)            Each joint owner of Class B Common Shares shall be considered a Holder of such shares.
 


(C)            A minor for whom Class B Common Shares are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Holder of such shares.
 
(D)            Unless otherwise specified, the term “person” means both natural persons and legal entities.
 
(E)            The giving of a proxy in connection with a solicitation of proxies subject to the provisions of Section 14 of the Securities Exchange Act of 1934 (or any successor provision thereof) and the rules and regulations promulgated thereunder shall not be deemed to constitute the transfer of an interest in the Class B Common Shares which are the subject of such proxy.
 
(iv)            Any purported transfer of Class B Common Shares other than to a Permitted Transferee shall automatically, without any further act or deed on the part of the Corporation or any other person, result in the conversion of such shares into Common Shares on a share-for-share basis, effective on the date of such purported transfer. The Corporation may, as a condition to transfer or registration of transfer of Class B Common Shares to a purported Permitted Transferee, require that the record holder establish to the satisfaction of the Corporation, by filing with the transfer agent an appropriate affidavit or certificate or such other proof as the Corporation shall deem necessary, that such transferee is a Permitted Transferee.
 
6.2            Anything in this Article IV to the contrary notwithstanding but subject to the provisions of paragraph 6.5, no Class B Common Share may be held of record but not beneficially by a broker or dealer in securities, a bank or voting trustee or a nominee of any such, or otherwise held of record but not beneficially by a nominee of the beneficial owner of such share other than (i) by an employee benefit or employee stock ownership plan or a trustee therefor or (ii) by a trustee of a trust which would be a Permitted Transferee pursuant to paragraph 6.1(i) (A) (2) or 6.1(i) (A) (3) (any such form of prohibited holding being referred to herein as holding in “street” or nominee name); provided, however, that if any person establishes to the satisfaction of the Corporation in accordance with this paragraph 6.2 that he is the beneficial owner of any such Class B Common Shares, the Corporation shall issue such share in the name of such beneficial owner. Any such beneficial owner who desires to have Class B Common Shares issued in his name in the circumstances described in this paragraph 6.2 shall file an affidavit or certificate with the Secretary of the Corporation setting forth the name and address of such beneficial owner and certifying that he is the beneficial owner of the Class B Common Shares in question.
 
6.3            The Corporation shall note on the certificates representing the Class B Common Shares that there are restrictions on transfer and registration of transfer to the extent imposed by paragraph 6.1.
 
6.4            (i)            For purposes of this paragraph 6, “beneficial ownership” shall mean possession of the power to vote or to direct the vote or to dispose of or to direct the disposition of the Class B Common Share in question, and a beneficial owner” of a Class B Common Share shall be the person having beneficial ownership thereof.
 


(ii)            The Board of Directors may, from time to time, establish practices and procedures and promulgate rules and regulations, in addition to those set forth in this Article IV, and amend or revoke any such, regarding the evidence necessary to establish entitlement of any transferee or purported transferee of Class B Common Shares to be registered as a Permitted Transferee. Should tee transferee or purported transferee of any share wish to contest any decision of the Corporation on the question whether the transferee or purported transferee has established entitlement to be registered as a Permitted Transferee of Class B Common Shares, then the Board of Directors shall in its sole discretion make the final determination.
 
6.5            The restrictions on transfer set forth in paragraph 6.1 and the remaining provisions of paragraph 6 (other than this paragraph 6.5) shall automatically, without any act or deed on the part of the Corporation or any other person, be cancelled (as to all but not less than all Class B Common Shares then outstanding or thereafter issued) and of no further force and effect if at any time the Board of Directors, in its sole discretion, determines that the restrictions oil transfer set forth in paragraph 6.1 have a material adverse effect on the liquidity, marketability or market value of the outstanding Common Shares. Such cancellation shall be effective as of the date of such determina­tion by the Board of Directors or as of such later date as the Board may determine. Written notice of such determination and rescission shall be given to all holders of Class B Common Shares as of such date as shown on the records of the Company or its transfer agent. No such determination by the Board of Directors shall affect the validity of any act or the effect of any provision of this Article IV which occurred prior to the effective date of such cancellation. In the event that a holder of Class B Common Shares transfers such shares after the effective date of such cancellation to a non-Permitted Transferee, such transfer shall presumptively be deemed to be an election by such holder to convert such Class B Common Shares into Common Shares immediately prior to the effective­ness of such transfer unless the transferring holder or his agent shall give written notice to the Company or its transfer agent at the time of delivery of the certificates representing the Class B Common Shares to be transferred that the holder and the transferee of such Class B Common Shares intend to transfer the Class B Common Shares and that no such conversion is intended.
 
7.            Other Matters.
 
7.1            In case the Corporation shall at any time issue to the holders of its Common Shares as such options or rights to subscribe for Common Shares (including shares held in the Corporation’s treasury) or any other security (whether of the Corporation or otherwise), the Corporation shall issue such options or rights to the holders of the Class B Common Shares in the respective amounts equal to the amounts that such holders would have been entitled to receive had their respective Class B Common Shares been converted into Common Shares on the day prior to the date for the determination of the holders of Common Shares entitled to receive such options or rights.
 


Subdivision C
 
Cumulative Voting
 
Notwithstanding the respective voting rights of the holders of the Common Shares, Class B Common Shares and Serial Preferred Shares, no holder of shares of any class shall have the right to vote cumulatively in the election of Directors.
 
ARTICLE V
 
The Corporation may purchase, from time to time, and to the extent permitted by the laws of Ohio, shares of any class of stock issued by it. Such purchases may be made either in the open market or at private or public sale, in such manner and amount, from such holder or holders and at such prices as the Board of Directors of the Corporation shall from time to time determine, and the Board of Directors is hereby empowered to authorize such purchases from time to time without any vote of the holders of any class of shares now or hereafter authorized and outstanding at the time of any such purchase.
 
ARTICLE VI
 
(a)            Notwithstanding any provisions of the laws of the State of Ohio now or hereafter in force requiring, for any purpose, the vote of the holders of shares entitling them to exercise two-thirds or any other proportion (but less than all) of the voting power of the Corporation or of any class or classes of shares thereof and subject to the provisions of Article VI (b) hereof, such action (unless otherwise expressly prohibited by statute) may be taken by a vote of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes.
 
(b)            If a shareholder vote is required by law, then except as provided in the last paragraph of this Article VI (b) the affirmative vote of the holders of shares entitling them to exercise at least two-thirds of the voting power of the Corporation, given in person or by proxy at a meeting called for the purpose, shall be necessary:
 
(i)            to approve the lease, sale, exchange, transfer or other disposition by the Corporation of all, or substantially all, of its assets or business to a Related Person (as hereinafter defined ), an affiliate of a Related Person or an associated person of a Related Person; or the lease, sale, exchange, transfer or other disposition to the Corporation or a subsidiary of the Corporation of all, or substantially all, of the assets of a Related Person, an affiliate of a Related Person or an associated person of a Related Person: or the consolidation of the Corporation with or its merger into a Related Person, an affiliate of a Related Person or an associated person of a Related Person; or the merger into the Corporation or a subsidiary of the Corporation of a Related Person, an affiliate of a Related Person or an associated person of a Related Person; or a combination or a majority share acquisition in which the Corporation is the acquiring corporation and its voting shares are issued or transferred to a Related Person, an affiliate of a Related Person, shareholders of a Related Person or an associated person,
 


(ii)            to approve any agreement, contract or other arrangement with a Related Person or an affiliate of a Related Person or an associated person of a Related Person providing for any of the transactions described in subparagraph (i) above;
 
(iii)            to adopt any amendment of the Amended and Restated Articles of Incorporation of the Corporation which changes the provisions of this Article VI (b ).
 
For the purpose of this Article VI (b), a “Related Person” in respect of a given transaction shall be any person, partnership, corporation or firm which, together with its affiliates and associated persons, owns of record or beneficially, directly or indirectly, ten percent (10%) or more of the shares of any outstanding class of shares of the Corporation entitled to vote upon such transaction, as of the record date used to determine the shareholders of the Corporation entitled to vote upon such transactions; and “affiliate” of a Related Person shall be any person, individual, joint venture, trust, partnership or corporation which, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the Related Person; and “associated person” of a Related Person shall be any officer or Director or any beneficial owner, directly or indirectly, of ten percent (10%) or more of any class of equity security of such Related Person or any of its affiliates; and the terms “persons,” “combinations,” “majority share acquisition” and “acquiring corporation” shall have the same meaning as that contained in Section 1701.01 of the Ohio General Corporation Law or any similar provision hereafter Mooted. The determination of the Board of Directors of the Corporation, based on information known to the Board of Directors and made in good faith, shall be conclusive as to whether any person, partnership, corporation or firm is a Related Person or affiliate or associated person as defined in this Article VI (b).
 
The provisions of this Article VI(b) shall not apply to any proposal submitted to shareholders if (i) such proposal has been approved and recommended by written resolution of the Board of Directors of the Corporation adopted prior to the acquisition of the ten percent (10%) interest in shares of the Corporation, as aforesaid, by the Related Person or its affiliates or associated persons, and (ii) the terms of any inducements made to officers or Directors of the Corporation, if any, which are not made available to an shareholders have been disclosed to all shareholders.
 
ARTICLE VII
 
The preemptive right to purchase additional shares or any other securities of the Corporation is hereby expressly denied to holders of shares of all classes.
 
ARTICLE VIII
 
These Amended and Restated Articles of Incorporation shall supersede the existing Articles of Incorporation of the Corporation.
 


CERTIFICATE OF AMENDMENT
 
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
INVACARE CORPORATION
 
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer, and DALE C. LaPORTE, Secretary, of INVACARE CORPORATION, an Ohio corporation (the “Company”), do hereby certify that at a meeting of the Company’s shareholders duly called and held on May 24, 1991, at which meeting a quorum of shareholders was present in person or by proxy, the following resolutions to amend the Amended and Restated Articles of Incorporation of the Company were duly adopted by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company:
 
RESOLVED, That Article IV of the Company’s Amended and Restated Articles of Incorporation is hereby amended to increase the number of authorized Common Shares, without par value, of the Company from Eighteen Million (18,000,000) to Twenty-Five Million (25,000,000) by deleting in its entirety the current first full, introductory paragraph of Article IV and replacing it with the following:
 
“The authorized number of shares of capital stock of the Corporation shall be Thirty-Seven Million Three Hundred Thousand (37,300,000), of which Twenty-Five Million (25,000,000) shall be Common Shares, without par value, Twelve Million (12,000,000) shall be Class B Common Shares, without par value, and Three Hundred Thousand (300,000) shall be Serial Preferred Shares, without par value.”
 
RESOLVED FURTHER, That the President and Secretary of the Company be and they are hereby authorized and directed to execute and file in the office of the Secretary of State of Ohio an appropriate Certificate of Amendment, pay any filing fees and take any and all other actions in order to carry out the intent and purposes of the preceding resolution and render effective such amendment to the Amended and Restated Articles of Incorporation.
 


IN WITNESS WHEREOF, said A. Malachi Mixon III, Chairman, President and Chief Executive Officer, and Dale C. LaPorte, Secretary, acting for and on behalf of the Corporation, have hereunto subscribed their names this 24th day of May, 1991.
INVACARE CORPORATION

By:         /s/ A. Malachi Mixon, III                                                                 
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer

And:      /s/ Dale C. LaPorte
Dale C. LaPorte, Secretary


CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
INVACARE CORPORATION
 
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer, and DALE C. LaPORTE, Secretary, of INVACARE CORPORATION, an Ohio corporation (the “Company”), do hereby certify that at a meeting of the Company’s shareholders duly called and held on May 27, 1992, at which meeting a quorum of shareholders was present in person or by proxy, the following resolutions to amend the Amended and Restated Articles of Incorporation of the Company were duly adopted by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company:
 
RESOLVED, That Article IV of the Company’s Amended and Restated Articles of Incorporation is hereby amended to increase the number of authorized Common Shares, without par value, of the Company from Twenty-Five Million (25,000,000) to Fifty Million (50,000,000) by deleting in its entirety the current first full, introductory paragraph of Article IV and replacing it with the following:
 
“The authorized number of shares of capital stock of the Corporation shall be Sixty-Two Million Three Hundred Thousand (62,300,000), of which Fifty Million (50,000,000) shall be Common Shares, without par value, Twelve Million (12,000,000) shall be Class B Common Shares, without par value, and Three Hundred- Thousand (300,000) shall be Serial Preferred Shares, without par value.”
 
RESOLVED FURTHER, That the President and Secretary of the Company be and they are hereby authorized and directed to execute and file in the office of the Secretary of Ste of Ohio an appropriate Certificate of Amendment, pay any filing fees and take any and all other actions in order to carry out the intent and purposes of the preceding resolution and render effective such amendment to the Amended and Restated Articles of Incorporation.
 

 

IN WITNESS WHEREOF, said A. Malachi Mixon III, Chairman, President and Chief Executive Officer, and Dale C. LaPorte, Secretary, acting for and on behalf of the Corporation, have hereunto subscribed their names this 27th day of May, 1992.
INVACARE CORPORATION

By:        /s/ A. Malachi Mixon, III                                                                 
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer

And:      /s/ Dale C. LaPorte
Dale C. LaPorte, Secretary


CERTIFICATE OF AMENDMENT
 
TO THE
 
AMENDED AND RESTATED ARTICLES OF INCORPORATION
 
OF
 
INVACARE CORPORATION
 
A. MALACHI MIXON III, Chairman, President and Chief Executive Officer, and THOMAS R. MIKLICH, Secretary, of INVACARE CORPORATION, an Ohio corporation (the “Company”), do hereby certify that at a meeting of the Company’s shareholders duly called and held on May 22, 1996, at which meeting a quorum of shareholders was present in person or by proxy , the following resolutions to amend the Amended and Restated Articles of Incorporation of the Company were duly adopted in accordance with the Ohio Revised Code by the affirmative vote of holders of shares entitling them to exercise a majority of the voting power of the Company:
 
RESOLVED, that Article IV of the Company’s Amended and Restated Articles of Incorporation is hereby amended to increase the number of authorized Common Shares, without par value, of the Company from Fifty Million (50,000,000) to One Hundred Million (100,000,000) by deleting in its entirety the current first full, introductory paragraph of Article IV and replacing it with the following:
 
“The authorized number of shares of capital stock of the Corporation shall be One Hundred Twelve Million Three Hundred Thousand (112,300,000), of which One Hundred Million (100,000,000) shall be Common Shares, without par value, Twelve Million (12,000,000) shall be Class B Common Shares, without par value, and Three Hundred Thousand (300,000) shall be Serial Preferred Shares, without par value.”
 
RESOLVED FURTHER, that the President and Secretary of the Company be and they are hereby authorized and directed to execute and file in the office of the Secretary of State of Ohio an appropriate Certificate of Amendment, pay any filing fees and take any and all other actions in order to carry out the intent and purposes of the preceding resolution and render effective such amendment to the Amended and Restated Articles of Incorporation.
 


IN WITNESS WHEREOF, said A. Malachi Mixon III, Chairman, President and Chief Executive Officer, and Thomas R. Miklich, Secretary, acting for and on behalf of the Corporation, have hereunto subscribed their names this 10th day of June, 1996.
INVACARE CORPORATION

By:        /s/ A. Malachi Mixon, III                                                                 
A. Malachi Mixon, III, Chairman,
President and Chief Executive
Officer

And:      /s/ Thomas R. Miklich
Thomas R. Miklich, Secretary


CERTIFICATE OF AMENDMENT
BY DIRECTORS OR INCORPORATORS TO ARTICLES
OF INVACARE CORPORATION
 

 
RESOLVED: That pursuant to the authority granted to and vested in the Board in accordance with the provisions of the Ohio General Corporation Law and by Article IV of the Amended and Restated Articles of Incorporation of the Corporation, as amended, such Article IV is hereby amended to add the following to the end of Subdivision A of Article IV providing that, of the three hundred thousand (300,000) authorized but unissued Serial Preferred Shares, without par value, of the Corporation (the “Serial Preferred Shares”), one hundred twelve thousand (112,000) of the Serial Preferred Shares shall be designated as a series of Serial Preferred Shares, and that the designation and number of such series of shares, and the relative rights, preferences and limitations thereof are as follows:
 
Series A Participating Serial Preferred Shares:
 
Designation and Amount .  The shares of such series shall be designated as “Series A Participating Serial Preferred Shares” (the “Series A Preferred Shares”) and the number of shares constituting the Series A Preferred Shares shall be one hundred twelve thousand (112,000).  Such number of shares may be increased or decreased by resolution of the Board prior to issuance; provided, that no decrease shall reduce the number of Series A Preferred Shares to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Shares.
 
Dividends and Distributions .
 
Subject to the rights of the holders of any shares of any series of Serial Preferred Shares (or any similar shares) ranking prior and superior to the Series A Preferred Shares with respect to dividends, the holders of Series A Preferred Shares, in preference to the holders of Common Shares, without par value, of the Corporation and Class B Common Shares, without par value, of the Corporation (collectively, the “Common Shares”), and of any other junior shares, shall be entitled to receive, when, as and if declared by the Board out of funds of the Corporation legally available for the payment of dividends, quarterly dividends payable in cash on the last day of each fiscal quarter of the Corporation in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a Series A Preferred Share or fraction of a Series A Preferred Share, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in Common Shares or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the Common Shares, without par value, of the Corporation since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any Series A Preferred Share or fraction of a Series A Preferred Share.  In the event the Corporation shall at any time declare or pay any dividend on
 


the Common Shares payable in Common Shares, or effect a subdivision, combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the amount to which holders of Series A Preferred Shares were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.  In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Shares payable in Series A Preferred Shares, or effect a subdivision, combination or consolidation of the outstanding Series A Preferred Shares (by reclassification or otherwise than by payment of a dividend in Series A Preferred Shares) into a greater or lesser number of Series A Preferred Shares, then in each such case the amount to which holders of Series A Preferred Shares were entitled immediately prior to such event under clause (b) of the first sentence of this Section 2(A) shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Series A Preferred Shares that were outstanding immediately prior to such event and the denominator of which is the number of Series A Preferred Shares outstanding immediately after such event.
 
The Corporation shall declare a dividend or distribution on the Series A Preferred Shares as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Shares (other than a dividend payable in Common Shares) and the Corporation shall pay such dividend or distribution on the Series A Preferred Shares before the dividend or distribution declared on the Common Shares is paid or set apart; provided that, in the event no dividend or distribution shall have been declared on the Common Shares during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series A Preferred Shares shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
 
Dividends shall begin to accrue and be cumulative on outstanding Series A Preferred Shares from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of Series A Preferred Shares entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date.  Accrued but unpaid dividends shall not bear interest.  Dividends paid on the Series A Preferred Shares in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.  The Board may fix a record date for the determination of holders of Series A Preferred Shares entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof.
 
Voting Rights .  The holders of Series A Preferred Shares shall have the following voting rights:
 


Each Series A Preferred Share shall entitle the holder thereof to one (1) vote on all matters submitted to a vote of the shareholders of the Corporation.  Fractional Series A Preferred Shares shall not entitle the holder thereof to any vote on any matter submitted to a vote of the shareholders of the Corporation.
 
Except as otherwise provided herein, in the Amended and Restated Articles of Incorporation, as amended, or Code of Regulations, as amended, the holders of Series A Preferred Shares and the holders of Common Shares and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of shareholders of the Corporation.
 
(i)            If at any time dividends on any Series A Preferred Shares shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series A Preferred Shares, voting as a separate series from all other series of Serial Preferred Shares and classes of capital stock, shall be entitled to elect two members of the Board in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of the Corporation shall, as soon as may be practicable, call a special meeting of holders of Series A Preferred Shares for the purpose of electing such members of the Board. Such special meeting shall in any event be held within 45 days of the occurrence of such arrearage.
 
During any period when the holders of Series A Preferred Shares, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then, and during such time as such right continues, (a) the then authorized number of Directors shall be increased by two, and the holders of Series A Preferred Shares, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of any existing class of the Board, but shall serve until the next annual meeting of shareholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3(C).
 
A Director elected pursuant to the terms hereof may be removed with or without cause by the holders, and only by the holders, of Series A Preferred Shares entitled to vote in an election of such Director.
 
If, during any interval between annual meetings of shareholders for the election of Directors and while the holders of Series A Preferred Shares shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board shall call a special meeting of the holders of Series A Preferred Shares for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting.  Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy.
 
At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any Series A Preferred Shares outstanding are paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant to this Section 3(C), or his successor, shall automatically terminate,
 


and the authorized number of Directors shall automatically decrease by two, the rights of the holders of Series A Preferred Shares to vote as provided in this Section 3(C) shall cease, subject to renewal from time to time upon the same terms and conditions, and the holders of Series A Preferred Shares shall have only the limited voting rights elsewhere herein set forth.
 
Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Shares shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Shares as set forth herein) for taking any corporate action.
 
Certain Restrictions .
 
Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Shares as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on Series A Preferred Shares outstanding shall have been paid in full, the Corporation shall not:
 
declare or pay dividends, or make any other distributions, on any shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares;
 
declare or pay dividends, or make any other distributions, on any shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except dividends paid ratably on the Series A Preferred Shares and all such parity shares on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
 
redeem or purchase or otherwise acquire for consideration any shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares, provided that the Corporation may at any time redeem, purchase or otherwise acquire any such junior shares in exchange for any shares of the Corporation ranking junior (as to dividends and upon dissolution, liquidation or winding up) to the Series A Preferred Shares; or
 
redeem or purchase or otherwise acquire for consideration any Series A Preferred Shares, or any shares ranking on a parity with the Series A Preferred Shares, except in accordance with a purchase offer made in writing or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
 
The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner.
 
Reacquired Shares .  Any Series A Preferred Shares purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the
 


acquisition thereof.  All such shares shall upon their cancellation become authorized but unissued Serial Preferred Shares and may be reissued as part of a new series of Serial Preferred Shares subject to the conditions and restrictions on issuance set forth herein, in the Amended and Restated Articles of Incorporation, as amended, or in any other Certificate of Amendment creating a series of Serial Preferred Shares or any similar shares or as otherwise required by law.
 
Liquidation, Dissolution or Winding Up .
 
Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Shares unless, prior thereto, the holders of Series A Preferred Shares shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of Series A Preferred Shares shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of Common Shares, or (2) to the holders of shares ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Shares, except distributions made ratably on the Series A Preferred Shares and all such parity shares in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.
 
Neither the consolidation, merger or other business combination of the Corporation with or into any other corporation nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6.
 
In the event the Corporation shall at any time declare or pay any dividend on the Common Shares payable in Common Shares, or effect a subdivision, combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the aggregate amount to which holders of Series A Preferred Shares were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.  In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Shares payable in Series A Preferred Shares, or effect a subdivision, combination or consolidation of the outstanding shares of Series A Preferred Shares (by reclassification or otherwise than by payment of a dividend in Series A Preferred Shares) into a greater or lesser number of Series A Preferred Shares, then in each such case the aggregate amount to which holders of Series A Preferred Shares were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Series A Preferred Shares that were outstanding immediately prior to such event and the denominator of which is the number of Series A Preferred Shares outstanding immediately after such event.
 


Consolidation, Merger, etc .  Notwithstanding anything to the contrary contained herein, in case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the Common Shares are exchanged for or changed into other shares or securities, cash and/or any other property, then in any such case each Series A Preferred Share shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of shares, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each Common Share is changed or exchanged.  In the event the Corporation shall at any time declare or pay any dividend on the Common Shares payable in Common Shares, or effect a subdivision, combination or consolidation of the outstanding Common Shares (by reclassification or otherwise than by payment of a dividend in Common Shares) into a greater or lesser number of Common Shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of Series A Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Common Shares outstanding immediately after such event and the denominator of which is the number of Common Shares that were outstanding immediately prior to such event.  In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Shares payable in Series A Preferred Shares, or effect a subdivision, combination or consolidation of the outstanding Series A Preferred Shares (by reclassification or otherwise than by payment of a dividend in Series A Preferred Shares) into a greater or lesser number of Series A Preferred Shares, then in each such case the amount set forth in the first sentence of this Section 7 with respect to the exchange or change of Series A Preferred Shares shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of Series A Preferred Shares that were outstanding immediately prior to such event and the denominator of which is the number of Series A Preferred Shares outstanding immediately after such event.
 
No Redemption .  The Series A Preferred Shares shall not be redeemable.
 
Rank .  The Series A Preferred Shares shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Serial Preferred Shares issued either before or after the issuance of the Series A Preferred Shares, unless the terms of any such series shall provide otherwise.
 
Amendment .  At such time as any Series A Preferred Shares are outstanding, the Amended and Restated Articles of Incorporation of the Corporation, as amended, shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Shares so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding Series A Preferred Shares, voting together as a single class.
 
Fractional Shares .  Series A Preferred Shares may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series A Preferred Shares.
 
*  *  *  *  *
 


CERTIFICATE OF AMENDMENT
BY SHAREHOLDERS OR MEMBERS
OF INVACARE CORPORATION

 
RESOLVED, that the Corporation’s Amended and Restated Articles of Incorporation be and hereby is amended as follows:
 
1.            Paragraph 4.1(i) of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“(i) Each Class B Common Share shall be convertible, at any time, at the office of any transfer agent for the Common Shares of the Corporation, and at such other place or places, if any, as the Board of Directors may determine, into one fully paid and nonassessable Common Share of the Corporation upon surrender at such office or other place of the certificate or certificates representing any certificated Class B Common Shares so to be converted or, in the case of non-certificated shares, upon written request in form and substance acceptable to the Corporation or any transfer agent for the shares, accompanied by such assurances as the Corporation or such transfer agent may require. In no event, upon conversion of any Class B Common Shares into Common Shares, shall any allowance or adjustment be made in respect of dividends on the Class B Common Snares or the Common Shares.”
 
2.            Paragraph 4.1(ii) of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“(ii) Class B Common Shares shall be deemed to have been converted and the person converting the same shall become a holder of Common Shares for the purpose of receiving dividends and for all other purposes whatsoever as of the date when the Class B Common Shares to be converted are surrendered to the Corporation as provided in paragraph 4.1(v).”
 
3.            Paragraph 4.1(v) of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“(v) Before any holder of Class B Common Shares shall be entitled to convert the same into Common Shares, he shall give written notice to the Corporation at the office of a transfer agent for the Common Shares, or at such other place or places, if any, as the Board of Directors may determine, that he elects so to convert Class B Common Shares in form and substance acceptable to the Corporation or such transfer agent, accompanied by a duly endorsed stock power and/or such other assurances as the Corporation or such transfer agent may require, including, if appropriate, endorsed certificate(s) (for certificated shares) and duly executed instruments of transfer. Unless the Common Shares are to be issued in the name of the registered owner of the Class B Common Shares so converted, the holder shall state in writing the name or names in which he wishes the Common Shares
 


to be issued, and shall  furnish all requisite stock transfer and stock issuance tax stamps, or funds therefor. The Corporation shall as soon as practicable after such deposit of Class B Common Shares, accompanied by the written notice above prescribed, issue and deliver, at the office or place at which such Class B Common Shares were deposited, to the person for whose account Class B Common Shares were so surrendered, or to his assignee or assignees, the number of full Common Shares to which he shall be entitled as aforesaid.”
 
4.            The last sentence of Paragraph 4.2 of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“In the event of any such automatic conversion, each certificated and non-certificated Class B Common Share will thereafter represent a Common Share.”
 
5.            Paragraph 6.1(i)(A)(4) of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“(4) A corporation if all of the outstanding capital stock of such corporation is beneficially owned by, or a partnership if all of the partners are and all of the partnership interests are beneficially owned by, the Holder and his Permitted Transferees determined under this paragraph 6.1(1)(A) provided that if by reason of any change in the ownership of such stock or partners or partnership interests, such corporation or partnership would no longer qualify as a Permitted Transferee of such Holder or his Permitted Transferees, all Class B Common Shares then held by such corporation or partnership shall immediately and automatically, without further act or deed on the part of the Corporation or any other person, be converted into Common Shares on a share-for-share basis, and certificated and non-certificated Class B Common Shares shall thereupon and thereafter be deemed to represent the like number of Common Shares;”
 
6.            Paragraph 6.3 of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“6.3  The Corporation shall note on certificates representing the Class B Common Shares and on written notices relating to non-certificated Class B Common Shares that there are restrictions on transfer and registration of transfer to the extent imposed by paragraph 6.1.”
 
7.            The last sentence of Paragraph 6.5 of Article IV, Subdivision B of the Corporation’s Amended and Restated Articles of Incorporation is hereby amended to read in its entirety as follows:
 
“In the event that a holder of Class B Common Shares transfers such shares after the effective date of such cancellation to a non-Permitted Transferee, such transfer shall presumptively be deemed to be an election by such holder to convert such Class B Common Shares into Common Shares immediately prior to the
 


effectiveness of such transfer unless the transferring holder or his agent shall give written notice to the Company or its transfer agent at the time of delivery of the Class B Common Shares to be transferred that the holder and the transferee of such Class B Common Shares intend to transfer the Class B Common Shares and that no such conversion is intended.”
 
8.            The following is hereby inserted as a new Paragraph (c) at the end of Article VI of the Corporation’s Amended and Restated Articles of Incorporation:
 
“(c)  Subject to and in a manner not inconsistent with applicable law, the Board of Directors may provide by resolution that some or all of any or all classes and series of shares of capital stock of the Corporation shall be non-certificated shares, provided that the resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation and the resolution shall not apply to certificated shares issued in exchange for non-certificated shares. Except as expressly provided by law, the rights and obligations of the holders of non-certificated shares and the rights and obligations of the holders of certificates representing shares of the same class and series shall be identical. Notwithstanding the foregoing, a shareholder of record shall have the right, so long as it may be required by applicable law, to receive one or more certificates representing some or all of the shares held of record by such shareholder by making a written request therefor to the Corporation or any transfer agent for the applicable class of shares, accompanied by such assurances as the Corporation or such transfer agent may require; provided, however, that shareholders holding shares of the Corporation under one or more of the Corporation’s benefit plans for officers, directors and/or employees shall have no such right to have certificates representing shares issued unless such a right is provided for under the applicable benefit plan, required by applicable law or otherwise ordered by the Board of Directors or a committee thereof.”
 
*   *   *   *   *

Exhibit 10(g)
 

 

 

 

 
INVACARE
RETIREMENT SAVINGS PLAN
 
Effective:  January 1, 2001



TABLE OF CONTENTS

 
 
  ARTICLE NO.
NAME AND PURPOSE
1
DEFINITIONS
2
PARTICIPATING EMPLOYERS
3
ELIGIBILITY AND PARTICIPATION
4
SALARY DEFERRAL CONTRIBUTIONS
5
PARTICIPATING EMPLOYER CONTRIBUTIONS
6
TRUST FUNDS AND DIRECTION OF INVESTMENT
7
ACCOUNTS
8
WITHDRAWALS FROM ACCOUNTS
9
HARDSHIP DISTRIBUTIONS
10
PARTICIPANT LOANS
11
TERMINATION OF EMPLOYMENT
12
RETIREMENT AND DISABILITY BENEFITS
13
DEATH BENEFITS
14
DISTRIBUTIONS
15
ADMINISTRATION
16
PROHIBITION AGAINST ALIENATION
17
AMENDMENT AND TERMINATION
18
LIMITATIONS ON CONTRIBUTIONS
19
LIMITATION ON ANNUAL ADDITIONS
20
ROLLOVERS AND TRANSFERS INVOLVING OTHER
 
   QUALIFIED RETIREMENT PLANS
21
SPECIAL PROVISIONS WITH RESPECT TO SHARES
22
TOP-HEAVY PROVISIONS
23
MISCELLANEOUS
24


 
TABLE OF CONTENTS
 
 
ARTICLE NO.
ACCOUNTS
8
ADMINISTRATION
16
AMENDMENT AND TERMINATION
18
DEATH BENEFITS
14
DEFINITIONS
2
DISTRIBUTIONS
15
ELIGIBILITY AND PARTICIPATION
4
HARDSHIP DISTRIBUTIONS
10
LIMITATION ON ANNUAL ADDITIONS
20
LIMITATIONS ON CONTRIBUTIONS
19
MISCELLANEOUS
24
NAME AND PURPOSE
1
PARTICIPANT LOANS
11
PARTICIPATING EMPLOYER CONTRIBUTIONS
6
PARTICIPATING EMPLOYERS
3
PROHIBITION AGAINST ALIENATION
17
RETIREMENT AND DISABILITY BENEFITS
13
ROLLOVERS AND TRANSFERS INVOLVING OTHER
 
   QUALIFIED RETIREMENT PLANS
21
SALARY DEFERRAL CONTRIBUTIONS
5
SPECIAL PROVISIONS WITH RESPECT TO SHARES
22
TERMINATION OF EMPLOYMENT
12
TOP-HEAVY PROVISIONS
23
TRUST FUNDS AND DIRECTION OF INVESTMENT
7
WITHDRAWALS FROM ACCOUNTS
9
 
 


AMENDMENT AND RESTATEMENT
OF THE
INVACARE CORPORATION
PROFIT SHARING AND SAVINGS TRUST AND PLAN
AS THE
INVACARE
RETIREMENT SAVINGS PLAN
THIS AMENDMENT AND RESTATEMENT is adopted by INVACARE CORPORATION, a corporation organized and existing under the laws of the State of Ohio  (hereinafter called the “Company”);
 
W I T N E S S E T H:
WHEREAS, effective January 1, 1988, the Company established the Invacare Corporation Profit Sharing and Savings Trust and Plan (hereinafter called the “Profit Sharing Plan”); and
WHEREAS, under the terms of the Plan, the Company reserved the right to amend the Plan by action of its Board of Directors; and
WHEREAS, it is the desire of the Company to amend and restate the Profit Sharing Plan in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Profit Sharing Plan, to bring the Profit Sharing Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make certain other desirable changes;


NOW, THEREFORE, in consideration of the mutual covenants, conditions and agreements herein contained, it is mutually agreed that the Profit Sharing Plan be amended and restated as the Invacare Retirement Savings Plan (hereinafter called the “Plan”), such Amendment and Restatement being generally effective as of the first day of January, 2001, as follows:



ARTICLE 1
 
NAME AND PURPOSE
 
1.1            Name and Purpose .  The name of this Plan shall be INVACARE RETIREMENT SAVINGS PLAN.  The purpose of this Plan is to provide benefits to the Participants in this Plan upon their retirement, termination of employment or the happening of certain contingencies as hereinafter described, to provide such other benefits to such Participants and their Beneficiaries as are hereinafter described and to provide such Participants with a method of acquiring a stock ownership interest in the Company, through the maintenance within this Plan of a stock bonus plan feature.


ARTICLE 2
 
DEFINITIONS
 
Unless the context otherwise indicates, the following terms used herein shall have the following meanings whenever used in this instrument:
2.1            Account or Accounts .  The word “Account” or “Accounts” shall mean “Salary Deferral Accounts”, “Matching Contribution Accounts”, “Stock Bonus Accounts”, “After-Tax Accounts”, “Profit Sharing Accounts”, “Employer Contribution Accounts”, and “Rollover Accounts”, as more fully described in Article 8 hereof.
2.2            Active Participant .  The words “Active Participant” shall mean, except as provided in Section 4.4, a Participant who is a Covered Employee.
2.3            Administrator .  The word “Administrator” shall mean the person or persons, corporation or partnership designated as Administrator under Article 16 hereof.
2.4            Adoption Date .  The words “Adoption Date” shall mean, with respect to a Participating Employer, the date as of which it shall have become a Participating Employer in accordance with Article 3 hereof.
2.5            Affiliate .  The word “Affiliate” shall mean any corporation or business organization during any period in which it is a member of a controlled group of corporations or trades or businesses which includes the Company within the meaning of Sections 414(b) and 414(c) of the Code, is a member of an affiliated service group which includes the Company within the meaning of Section 414(m) of the Code or is part of any other arrangement as defined in regulations under Section 414(o) of the Code which includes the Company, but, in each case, only during the periods any corporation or business organization would be so defined.


2.6            Allocation Date .  The words “Allocation Date” shall mean the last day of each calendar year quarter ending after the Restatement Date.
2.7            Alternate Payee .  The words “Alternate Payee” shall mean any spouse, former spouse, child or other dependent of a Participant or former Participant who is recognized by a Domestic Relations Order as having a right to receive all, or a portion of, such Participant’s or former Participant’s Account balances.
2.8            Annuity Elimination Date .  The words “Annuity Elimination Date” shall mean the later of:
 
(a)
September 1, 2001; and
 
 
(b)
ninety (90) days after a Summary of Material Modifications to this Plan is given to the Participants describing the elimination of annuity forms of payment.
 
2.9            Annuity Starting Date .  The words “Annuity Starting Date” shall mean for a Participant the first day of the first period for which he receives an amount as an annuity by reason of his retirement or Termination of Employment under the terms of this Plan, or in the case of a benefit which is not payable in the form of an annuity, the first day on which all events have occurred which entitled the Participant to such benefit.
2.10            Beneficiary .  The word “Beneficiary” shall mean any person, other than an Alternate Payee as defined in Section 2.7 hereof, who receives or is designated to receive payment of any benefit under the terms of this Plan because of the participation of another person in this Plan.
2.11            Board of Directors or Board .  The words “Board of Directors” or “Board” shall mean the board of directors of the Company.
2.12            Code .  The word “Code” shall mean the Internal Revenue Code of 1986, as such may be amended from time, and any lawful regulations or rulings thereunder.


2.13            Committee .  The word “Committee” shall mean the Administrative Committee which shall be invested by the Board of Directors with the power to administer the Plan as further provided in Article 16 hereof.
2.14            Company .  The word “Company” shall mean INVACARE CORPORATION or any successor corporation or business organization which shall assume the obligations of the Company under this Plan as provided herein with respect to the Participants.  Any actions which the Company is required or authorized to take hereunder shall be taken by the Board of Directors or any committee or officer duly authorized by the Board of Directors.
2.15            Compensation .  The word “Compensation” generally shall mean all remuneration paid in cash to a Participant during a Plan Year for services rendered to a Participating Employer, specifically including but not limited to wages, salaries, commissions, overtime, bonuses, whether discretionary or non-discretionary, incentive pay, vacation pay, severance (salary continuation) pay, holiday pay, and, short-term disability pay.  Compensation shall also be increased for salary reduction amounts which are excluded from the taxable income of the Participant under Sections 125, 132(f)(4), 402(e)(3) and 402(h) of the Code.
Compensation shall not include any of the following amounts:
 
(a)
expense reimbursements, expense allowances, or moving expenses;
 
 
(b)
any cash and non-cash fringe benefits and welfare benefits;
 
 
(c)
deferred compensation;
 
 
(d)
all amounts related to stock options, whether qualified or nonqualified;
 
 
(e)
miscellaneous earnings, including but not limited to periodic payments to certain Employees in lieu of a parking subsidy;
 
 
(f)
vacation pay in lieu of time off for Participants whose employment with the Participating Employers and Affiliates has terminated;
 


 
(g)
earnings or benefits paid on behalf of a deceased Participant;
 
 
(h)
prizes or awards;
 
 
(i)
unused sick pay;
 
 
(j)
automobile expenses;
 
 
(k)
tuition reimbursements; and
 
 
(l)
meal allowances.
 
Compensation also shall not include any remuneration paid to a Participant during a period in which he is not an Active Participant in this Plan.
In addition, a Participant’s Compensation shall not exceed One Hundred Seventy Thousand Dollars ($170,000.00) or, effective January 1, 2002, Two Hundred Thousand Dollars ($200,000) (plus any adjustment for cost-of-living or otherwise as shall be prescribed by the Secretary of the Treasury pursuant to Sections 401(a)(17)(B) and 415(d) of the Code).
2.16            Covered Employee .  The words “Covered Employee” shall mean any Employee of a Participating Employer, excluding:
 
(a)
an Employee whose terms and conditions of employment are covered by a collective bargaining agreement which does not require him to be included in this Plan;
 
 
(b)
an individual employed in a capacity categorized by the Company as a Leased Person, regardless of his status as may be determined otherwise by the Commissioner of the Internal Revenue Service or other government entity or any court or tribunal;
 
 
(c)
a temporary employee;
 
 
(d)
an Employee who is neither a resident nor a citizen of the United States of America and who receives no earned income, within the meaning of Code Section 911(b) from the Participating Employers or their Affiliates which constitutes income from sources within the United States, within the meaning of Code Section 861(a)(3) (“non-resident alien”);
 
 
(e)
an individual employed in a capacity categorized by the Company as an “independent contractor” pursuant to a written or oral
 


 
agreement with a Participating Employer, regardless of his status as may be determined otherwise by the Commissioner of the Internal Revenue Service or other government entity; and
 
 
(f)
an Employee who is employed in accordance with an employment, consulting or other arrangement, the terms and conditions of which preclude his participation in this Plan.
 
Any such Employee shall cease to be a Covered Employee upon the earliest to occur of:
 
(a)
his Termination of Employment;
 
 
(b)
his ceasing to be employed by a Participating Employer;
 
 
(c)
the terms and conditions of his employment becoming covered by a collective bargaining agreement which does not require him to be included in this Plan;
 
 
(d)
his becoming a non-resident alien; or
 
 
(e)
his becoming a Leased Employee, an independent contractor or an Employee who is employed in accordance with an employment, consulting or other arrangement, the terms and conditions of which preclude his participation in this Plan.
 
2.17            Date of Hire .  The words “Date of Hire” shall mean the first day during which an Employee performs an Hour of service for a Participating Employer or any Affiliate for which he is directly or indirectly compensated or the first day for which the Employee is paid any back pay pursuant to an award or agreement.  In the case of a rehired Employee, “Date of Hire” shall mean the first day following his previous Termination of Employment during which the Employee performs an Hour of service for a Participating Employer or any Affiliate for which he is directly or indirectly compensated or the first day following his previous Termination of Employment for which the Employee is paid any back pay pursuant to an award or agreement.


2.18            Domestic Relations Order .  The words “Domestic Relations Order” shall mean, with respect to any Participant or former Participant, any judgment, decree or order (including approval of a property settlement agreement) which both:
 
(a)
relates to the provisions of child support, alimony payments or marital property rights to a spouse, former spouse, child or other dependent of the Participant or former Participant; and
 
 
(b)
is made pursuant to a State domestic relations law (including a community property law).
 
2.19            Effective Date .  The words “Effective Date” of this Plan shall mean January 1, 1988.
2.20            Eligibility Break In Service .  The words “Eligibility Break In Service” shall mean a Plan Year, ending after an Employee’s Termination of Employment, during which he did not complete more than five hundred (500) Hours for a Participating Employer or an Affiliate.  Notwithstanding the foregoing provisions of this Section, in the event any Employee ceases to be actively employed by a Participating Employer or an Affiliate either:
 
(a)
by reason of the pregnancy of such Employee; or
 
 
(b)
by reason of the birth of a child of such Employee; or
 
 
(c)
by reason of the placement of a child with such Employee in connection with the adoption of such child by such Employee; or
 
 
(d)
by reason of caring for such child for a period beginning immediately following such birth or placement;
 
such Employee shall, solely for the purposes of determining whether such Employee has incurred an Eligibility Break In Service pursuant to this Section, be credited either with the Hours of service which otherwise would normally have been credited to such Employee but for such absence or, in any case in which the Administrator is unable to determine the Hours described in the preceding clause, eight (8) hours per day of such absence; provided, however,


that the total number of Hours of service which an Employee may be credited with by reason of any such pregnancy, birth or placement shall not exceed five hundred one (501) hours.  An Employee shall be credited with the Hours of service described in the preceding sentence only in the Plan Year in which the absence from work begins if the Employee would be prevented from incurring an Eligibility Break In Service in such Plan Year solely because the Employee is credited with Hours of service pursuant to the preceding sentence or, in any other case, in the immediately following Plan Year.
2.21            Eligibility Service .  The words “Eligibility Service” shall mean for any Employee his period of Service (as defined in Section 2.50 hereof), excluding any period of Service prior to a Termination of Employment if both of the following apply:
 
(a)
he shall have incurred at least five (5) consecutive Eligibility Breaks In Service since the last day of such Eligibility Service; and
 
 
(b)
his Eligibility Service is less than or equal to the number of consecutive Eligibility Breaks In Service which he had after the last day of such Eligibility Service.
 
2.22            Employee .  The word “Employee” shall mean any common law employee, whether compensated on a salaried basis, an hourly wage rate basis or a commission-only basis, of a Participating Employer or any Affiliate and shall also include a Leased Person.  The word “Employee” shall not include any person who renders service to a Participating Employer solely as a director or independent contractor.
2.23            Enrollment Date .  The words “Enrollment Date” shall mean for purposes of Article 4 hereof, the first day of any calendar month beginning on and after the Restatement Date.


2.24            ERISA .  The acronym “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as such may be amended from time to time, and any lawful regulations or rulings thereunder.
2.25            Fair Market Value .  The words “Fair Market Value” shall mean with respect to the Shares that price at which a Share would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts, including (but not limited to) the nature and history of the business, current and prospective economic conditions, book values, current asset values, earnings capacity, dividend-paying capacity, goodwill, rates of capitalization for comparable businesses, recent sales of Shares (if any), market value of comparable businesses, lack of established marketability, contractual conditions which restrict transfer and the effect of loss of key men.  In the event the Shares are not readily tradable on an established securities market, the Trustee shall rely, for all purposes under this Plan, upon an independent appraisal as described in Section 401(a)(28) of the Code.  In the event Shares are readily tradable on an established securities market, the Fair Market Value of a Share shall be determined with reference to appropriate market quotations.
2.26            Highly Compensated Employee .  The words “Highly Compensated Employee” shall mean an Employee who is a “highly compensated employee” for a Plan Year as described in Section 414(q) of the Code which is hereby incorporated by reference and who is described for informational purposes herein as an Employee during a Plan Year if either:
 
(a)
during the preceding Plan Year, he:
 
 
(i)
was at any time a five percent (5%) actual or constructive owner of a Participating Employer and its Affiliates; or
 
 
(ii)
received Testing Compensation from a Participating Employer and its Affiliates greater than Eighty Thousand
 


 
Dollars ($80,000.00) (plus any increase for cost of living after 1998 as determined by the Secretary of the Treasury or his delegate) and, if the Company so elects, was in the “Top Paid Group” of Employees of a Participating Employer and its Affiliates for such Plan Year; or
 
 
(b)
during the current Plan Year, he was at any time a five percent (5%) or more actual or constructive owner of a Participating Employer and its Affiliates.
 

2.27            Hour .  The word “Hour” shall mean for any Employee the actual number of hours for which he is directly or indirectly paid by a Participating Employer or any Affiliate for the performance of duties either as regular wages, salary or commissions, or for reasons other than the performance of duties such as vacation or holiday pay, and in either case, including payments pursuant to an award or agreement requiring a Participating Employer or an Affiliate to pay back wages, irrespective of mitigation of damages.  Hours due to a back pay award or agreement shall be credited in the year or years to which the award or agreement pertains, rather than in the year or years in which the award, agreement or payment is made and shall be credited only to the extent such hours are not otherwise credited.  For purposes of this Plan, any hours which are compensated at overtime or premium rates shall be computed as straight-time Hours.  Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2(b) and (c) of the Department of Labor Regulations which are incorporated herein by reference.  An Employee who is not paid on the basis of the actual number of hours worked shall be credited with 45 hours for each week during which such Employee is credited with at least one (1) Hour.  Notwithstanding the foregoing,
 
(a)
no Employee shall be credited with more than 501 hours with respect to payments he receives or is entitled to receive during any single continuous period (whether or not such period occurs in a single Plan Year) during which he performs no services for a Participating Employer or an Affiliate (irrespective of whether he has terminated employment) due to vacation, holiday, illness,
 


 
incapacity (including disability), layoff, jury duty, military duty, or Leave of Absence;
 
 
(b)
no Employee shall be credited with hours with respect to payments he receives or is entitled to receive during a period when he performs no services for a Participating Employer or an Affiliate under a plan maintained solely for the purpose of complying with applicable workers’ compensation, unemployment compensation, disability insurance or Federal Social Security laws; and
 
 
(c)
no Employee or former Employee shall be credited with hours with respect to payments he receives or is entitled to receive under a pension benefit plan to which a Participating Employer or an Affiliate has contributed during a period when he performs no services for a Participating Employer or an Affiliate.
 
2.28            Invacare Segregated Stock Fund .  The words “Invacare Segregated Stock Fund” shall mean a fund which is invested solely in whole Shares and cash for any fractional Share credited to such fund.  It is intended that only such cash as is needed to reflect a fractional Share credited to such fund and as is reserved to make cash distributions to Participants will be held in the Invacare Segregated Stock Fund.
2.29            Investment Fund .  The words “Investment Fund” shall mean a fund, other than the Invacare Segregated Stock Fund, established, maintained and administered by the Trustee pursuant to Articles 7 and 15 hereof.
2.30            Leased Person .  The words “Leased Person” shall mean, on and after January 1, 1997, any individual (other than a common-law Employee of a Participating Employer or an Affiliate) who, pursuant to an agreement between a Participating Employer or an Affiliate and any leasing organization, has performed services for the Participating Employer or an Affiliate or for related persons, as determined in accordance with Code Section 414(n)(6), on a substantially full-time basis for a period of at least one (1) year; provided, however, that such services are performed under the primary direction or control of such Participating Employer.  Contributions or benefits provided on behalf of a Leased Person by the leasing organization


which are attributable to services performed for the Participating Employer shall be treated as provided by the Participating Employer.
A Leased Person shall not be considered an Employee of a Participating Employer if:
 
(a)
such Leased Person is covered by a money purchase pension plan which provides the following:
 
 
(i)
a nonintegrated employer contribution formula of at least ten percent (10%) of a Leased Person’s Compensation, as defined in Section 2.15 hereof, together with amounts contributed on his behalf pursuant to a salary reduction agreement which are excludable from the Leased Person’s gross income pursuant to Code Section 125, 132(f)(4), 402(e)(3), 402(h) or 403(b);
 
 
(ii)
immediate participation in said money purchase pension plan; and
 
 
(iii)
full and immediate vesting under said money purchase pension plan; and
 
 
(b)
Leased Persons do not constitute more than twenty percent (20%) of the non-Highly Compensated Employees of the Company and its Affiliates.
 

2.31            Leave of Absence .  The words “Leave of Absence” shall mean:
 
(a)
that period of unpaid interruption of active employment of an Employee caused by entrance into the Armed Forces of the United States under such circumstances that he thereby becomes entitled to reemployment rights under the law; and
 
 
(b)
that period of unpaid interruption of active employment of an Employee authorized by a Participating Employer for a period not to exceed one (1) year, with the understanding that the Employee will return to active employment at the expiration of such period, such interruption to be for a specified purpose such as sickness, short term disability, research, study, pregnancy, family responsibilities and layoff.
 


 
All such unpaid Leaves of Absence shall be granted on a uniform and non-discriminatory basis. Except as provided below, a Participant on an unpaid Leave of Absence shall not be considered to be an Active Participant and shall not be allocated any portion of Participating Employer contributions or forfeitures.
 
Notwithstanding the foregoing, a Participant who is on an approved Leave of Absence under the Family and Medical Leave Act of 1993 shall be considered an Active Participant for the duration of such Leave of Absence and shall accrue Service for purposes of vesting under the terms of this Plan.
2.32            Merger Date .  The words “Merger Date” shall mean the beginning of the day on January 1, 2001.
2.33            Military Service .  The words “Military Service” shall mean duty in the  uniformed services of the United States, whether voluntary or involuntary, provided that the Employee serves not more than one voluntary enlistment or tour of duty, and further provided that such voluntary enlistment or tour of duty does not follow involuntary duty.
Notwithstanding any provision of this Plan to the contrary, effective December 12, 1994, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code, which, as applicable to this Plan, generally provides for certain periods of qualified military service to constitute, upon a Participant’s reemployment, Service hereunder.  In addition, upon such a Participant’s reemployment, he shall be permitted to make such salary deferral contributions in an amount not to exceed the maximum the Participant would have been permitted to contribute during the period of qualified military service if he had actually been employed by a Participating Employer during such period, in accordance with the provisions of Section 414(u) of the Code.  Matching contributions will be made on such salary deferral contributions, as applicable.  Finally, the Participant will be entitled to receive an employer contribution pursuant to Section 6.1 hereof as


though he had been employed during such period, in accordance with the provisions of Section 414(u) of the Code.
2.34            Normal Retirement Date .  The words “Normal Retirement Date” shall mean for any Participant the later of:
 
(a)
the date on which he attains age sixty-five (65); and
 
 
(b)
the date he completes five (5) years of Vesting Service.
 
Notwithstanding the preceding sentence, the Normal Retirement Date of any Participant who was a participant in the Invacare Corporation Profit Sharing Retirement Plan or the Mobilite Corporation Profit Sharing Plan as of December 31, 1987 shall be the date on which he attains age sixty-five (65).
 
2.35            Participant .  The word “Participant” shall mean any eligible Employee who has become a Participant in this Plan in accordance with Article 4 hereof.  The word “Participant” shall also include, as the context may require, any person who has ceased to be an Active Participant due to his no longer being a Covered Employee and any person who has become a former Participant due to his having incurred Termination of Employment, provided that such person has an Account balance.
2.36            Participating Employer .  The words “Participating Employer” shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.
2.37            Party in Interest .  The words “Party in Interest” shall mean any person who is a party in interest within the meaning of Section 3(14) of ERISA.  For purposes of determining whether a person is a Party in Interest under the loan provisions contained in Article


11, the words “Party in Interest” generally refer to a former Employee who is either an officer or director of the Company or an Affiliate.
2.38            Period of Severance .  The words “Period of Severance” shall mean for any Employee or former Employee a period commencing on his Termination of Employment and ending on the date such Employee or former Employee is rehired by a Participating Employer or any Affiliate.  A “One Year Period of Severance” shall mean a twelve (12) month Period of Severance during which an Employee is not credited with at least one (1) Hour for a Participating Employer or any Affiliate.  Notwithstanding the foregoing provisions of this Section, in the event any Employee ceases to be actively employed by a Participating Employer or an Affiliate either:
 
(a)
by reason of the pregnancy of such Employee; or
 
 
(b)
by reason of the birth of a child of such Employee; or
 
 
(c)
by reason of the placement of a child with such Employee in connection with the adoption of such child by such Employee; or
 
 
(d)
by reason of caring for such child for a period beginning immediately following such birth or placement;
 
such Employee’s Period of Severance shall be deemed to have commenced on the later of the first anniversary of the date he ceased to be actively employed or his Termination of Employment.  In addition, an Employee who is on a leave of absence due to Military Service will not incur a Period of Severance during or as a result of such leave of absence, to the extent required by Section 414(u) of the Code.
2.39            Plan .  The word “Plan” shall mean this instrument as originally executed and as it may be amended from time to time hereafter.
2.40            Plan Year .  The words “Plan Year” shall mean the calendar year.


2.41            Profit Sharing Plan .  The words “Profit Sharing Plan” shall mean the Invacare Corporation Profit Sharing and Savings Trust and Plan as constituted immediately prior to the Restatement Date.
2.42            Publicly Traded .  The words “Publicly Traded” shall mean with respect to any Shares that such Shares are listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934 or that such Shares are quoted on a system sponsored by a national securities association registered under Section 15(A)(b) of the Securities Exchange Act of 1934.
2.43            Qualified Domestic Relations Order .  The words “Qualified Domestic Relations Order” shall mean a Domestic Relations Order which satisfies the requirements of Section 414(p)(1)(A) of the Code.
2.44            Qualified Joint and Survivor Annuity .  The words “Qualified Joint And Survivor Annuity” shall mean an annuity, the actuarial equivalent of which is equal to the aggregate of the Participant’s distributable Accounts, and which for a married Participant is payable for the life of such Participant, with a survivor annuity for the remaining life of his spouse which is fifty percent (50%) of the amount of the annuity paid to such Participant during his life, and for an unmarried Participant is payable for the life of such Participant.
2.45            Qualified Participant .  The words “Qualified Participant” shall mean a Participant or former Participant who has attained age fifty-five (55) and has completed ten (10) years of Service.
2.46            Qualified Preretirement Survivor Annuity .  The words “Qualified Preretirement Survivor Annuity” shall mean an annuity for the life of a Participant’s surviving spouse or other Beneficiary, the actuarial equivalent of which is equal to one hundred percent


(100%) of the aggregate of the Participant’s distributable Accounts as of the date of his death, as determined in accordance with Article 14 hereof.
2.47            Related Employer .  The words “Related Employer” shall mean a corporation which would be defined as a member of a controlled group of corporations which includes a Participating Employer or any business organization which would be defined as a trade or business (whether or not incorporated) which is under “common control” with a Participating Employer within the meaning of Code Sections 414(b) and (c) and any lawful regulation issued thereunder, and after substituting the phrase “more than fifty percent (50%)” for the phrase “at least eighty percent (80%)” each place that the latter phrase appears in Code Section 1563(a)(1), and any member of an “affiliated service group,” as defined in Code Section 414(m), which includes a Participating Employer but, in each case, only during the periods any such corporation, business organization or member would be so defined.
2.48            Restatement Date .  The words “Restatement Date” shall mean the date on which this Amendment and Restatement generally became effective, which date is January 1, 2001.
2.49            Salary Deferral Contributions .  The words “Salary Deferral Contributions” generally shall mean contributions made to this Plan by a Participating Employer on behalf of an Active Participant pursuant to such Active Participant’s election under Section 5.1 hereof and paid to the Trustee pursuant to Section 5.3 hereof.
2.50            Service .  The word “Service” shall mean for any Employee the aggregate of the periods during which he is or was employed by a Participating Employer or any Affiliate.  Each such period shall be measured from his Date of Hire to the date of Termination of Employment which follows such Date of Hire.


Notwithstanding the foregoing, in no event shall an Employee’s Service be less than his Years of Service under the terms of the Plan or the Stock Bonus Plan prior to the Restatement Date.  Specifically, for periods prior to the Restatement Date, an Employee’s “Years of Service” shall mean the computation periods of twelve (12) consecutive months during which the Employee completed at least 1,000 Hours.  In addition, an Employee who had accounts transferred to the Profit Sharing Plan from a predecessor plan shall receive credit for his service under such predecessor plan.
In addition, if any Employee has a Termination of Employment and is rehired within twelve (12) months of:
 
(a)
the date of his Termination of Employment; or
 
 
(b)
if earlier, the first day of any period of Leave of Absence or Military Service after the end of which the Employee did not return to work for a Participating Employer or any Affiliate prior to his Termination of Employment;
 
such Employee’s “Service” shall include the Period of Severance measured from the date of his Termination of Employment until his subsequent Date of Hire.  Two (2) or more periods of employment or Periods of Severance that are included in an Employee’s Service and that contain fractions of a year (computed in months and days) shall be aggregated on the basis of twelve (12) months constituting a year and thirty (30) days constituting a month.
The “Service” of an Employee who shall be reemployed by a Participating Employer or any Affiliate following a Termination of Employment shall not include the length of any of his periods of Service rendered prior to the date of said Termination of Employment if all of the following apply:
 
(i)
he did not have a Vested Interest under this Plan or the Prior Plans on such date of Termination of Employment; and
 


 
(ii)
he shall have incurred five (5) consecutive One Year Periods of Severance; and
 
 
(iii)
his period of Service immediately prior to such Termination of Employment shall have been less than or equal to his Period of Severance after the last day of such period of Service.
 
In the event that a Participant returns to employment with a Participating Employer or an Affiliate immediately following a leave of absence due to Military Service, his period of Military Service shall be included in the calculation of his Service, to the extent required by Section 414(u) of the Code.
2.51            Share Adjustment .  The words “Share Adjustment” shall mean an event whereby the number of Shares held by the Trustee shall change by reason of a stock dividend, stock split or reverse stock split, or as a result of a reorganization or recapitalization of Invacare or an Affiliate.
2.52            Shares .  The word “Shares” shall mean shares of the common stock of Invacare, par value $.01 per share.
2.53            Stock Bonus Plan .  The words “Stock Bonus Plan” shall mean the Invacare Corporation Employees’ Stock Bonus Trust and Plan as constituted immediately prior to the Restatement Date.
2.54            Supplemental Agreement .  The words “Supplemental Agreement” shall mean an agreement adopted by the Company pursuant to Section 3.3 hereof setting forth special provisions applicable to specific groups of Employees, former Employees or Beneficiaries of deceased Employees.
2.55            Taxable Year .  The words “Taxable Year” shall mean the Company’s annual accounting period which presently is the calendar year.


2.56            Termination Date .  The words “Termination Date” shall mean the date on which any Participating Employer ceases to participate in the Plan, as set forth in Section 3.1 hereof.
2.57            Termination of Employment .  The words “Termination of Employment” shall mean for any Employee the occurrence of any one of the following events:
 
(a)
he is discharged unless he is subsequently reemployed by a Participating Employer or an Affiliate and given pay back to his date of discharge;
 
 
(b)
he voluntarily terminates his employment with a Participating Employer or any Affiliate;
 
 
(c)
he retires from employment with a Participating Employer or any Affiliate;
 
 
(d)
he fails to return to work:
 
 
(i)
at the end of any Leave of Absence other than one due to Military Service; or
 
 
(ii)
after a recall to work following a period of layoff; or
 
 
(iii)
within ninety (90) days following such Employee’s release from Military Service or within any other period following Military Service in which his right to reemployment with a Participating Employer or any Affiliate is guaranteed by law; or
 
 
(iv)
after the cessation of disability income payments under a program of a Participating Employer;
 
 
(e)
he has been continuously laid-off for twenty-four (24) months;
 
 
(f)
the stock or assets of the business unit by which the Employee is employed are sold to a person or entity which is not an Affiliate of a Participating Employer or are transferred to a joint venture which is not an Affiliate of a Participating Employer and this Plan is assumed by such person, entity or joint venture, his Termination of Employment (as defined in subparagraphs (a) through (d) above) with such person, entity or joint venture; or
 
 
(g)
the stock or assets of the business unit by which the Employee is employed are sold to a person or entity which is not an Affiliate of
 


 
a Participating Employer or are transferred to a joint venture which is not an Affiliate of a Participating Employer and this Plan is not assumed by such person, entity or joint venture, the date of sale of the stock or assets or the date of such transfer.
 
In the case of the occurrence of any event described in subparagraph (d) of this Section (except for Employees on approved Leave of Absence under subparagraph (d)(i) of this Section under the Family and Medical Leave Act of 1993), the date of such Employee’s Termination of Employment shall be deemed to be the earlier of (i) the first anniversary of the first day of any such period of Leave of Absence, layoff, Military Service, sick leave or disability leave or (ii) the last day of any such period of Leave of Absence, layoff, Military Service, sick leave, or disability leave.  An Employee on an approved Leave of Absence under subparagraph (d)(i) of this Section under the Family and Medical Leave Act of 1993 shall incur a Termination of Employment as of the last day of such Leave of Absence.
2.58            Testing Compensation .  The words “Testing Compensation” shall mean remuneration used for testing purposes under this Plan.  The words “Testing Compensation” shall be interpreted according to their context and:
 
(a)
when used to determine compliance with Section 415 of the Code pursuant to Article 20 hereof, Testing Compensation shall mean all amounts paid to a Participant as payment for services rendered by him to a Participating Employer or any Related Employer which may be taken into account for purposes of determining limitations on annual additions and benefits under Section 415 of the Code; and
 
 
(b)
when used to determine the identity of Highly Compensated Employees, Testing Compensation shall mean Compensation adjusted to include and exclude certain items of remuneration as required by Section 414(q) of the Code, including adding salary reduction amounts which are excluded from the taxable income of the Participant under Sections 125, 132(f)(4), 402(e)(3), 402(h) and 403(b) of the Code and adjusted to exclude remuneration from a Related Employer which is not a Participating Employer or Affiliate; and
 


 
(c)
when used to determine Top-Heavy status pursuant to Article 23 hereof, Testing Compensation shall mean Testing Compensation as defined in (a) above, adjusted to exclude remuneration from a Related Employer which is not a Participating Employer or an Affiliate.
 
2.59            Total and Permanent Disability .  The works “Total and Permanent Disability” shall mean a physical or mental condition of a Participant which shall qualify such Participant to receive benefits under the long-term disability program maintained by a Participating Employer.  In the event a Participant is not covered by a long-term disability program maintained by a Participating Employer, such Participant shall be considered totally and permanently disabled hereunder if the Participant has a physical or mental condition resulting from bodily injury, disease, or mental disorder which renders him incapable of continuing any gainful occupation and which condition constitutes total disability under the federal Social Security Act.
2.60            Trading Limitation .  The words “Trading Limitation” shall mean any restriction with respect to any Shares under any federal or state securities law, any regulation thereunder or an agreement affecting any Shares which would make them not as freely tradable as Shares not subject to such restriction.
2.61            Transition Period .  The words “Transition Period” shall mean the period during which withdrawals, loans, distributions and changes in investment direction cannot be processed due to the need to transfer and reconcile assets and Account records as a result of the merger of the Profit Sharing Plan and the Stock Bonus Plan with and into the Plan.
2.62            Trustee .  The word “Trustee”  shall mean the person or persons serving as the Trustee of this Plan as of the Restatement Date and any successor Trustee or Trustees.


2.63            Trust Fund .  The words “Trust Fund” shall mean the Trust established by one or more Trust Agreements between the Company and the Trustee, including the Investment Funds and the Invacare Segregated Stock Fund.
2.64            Unit .  The word “Unit” shall mean an accounting unit representing an interest in one of the Investment Funds established under Article 7 hereof.
2.65            Valuation Date .  The words “Valuation Date” shall mean the date or dates as of which Account balances are valued, which as of the Restatement Date shall be each business day.
2.66            Vested Interest .  The words “Vested Interest” shall mean, with respect to any Participant, (a) plus (b) minus (c) below, where:
 
(a)
equals the balances, if any, then credited to all Elective Accounts, After-Tax Accounts, and Rollover Accounts maintained on his behalf;
 
 
(b)
equals the sum of (i) and (ii) and (iii):
 
 
(i)
the balances, if any, then credited to his Matching Contribution Account, his Employer Contribution Account, his Profit Sharing Account and his Stock Bonus Account multiplied by his Vested Percentage; plus
 
 
(ii)
any distributions made to the Participant which have not been recontributed by the Participant pursuant to Section 12.5 hereof; plus
 
 
(iii)
any withdrawals by the Participant from the Accounts referenced in paragraph (i) above since his earliest Date of Hire which has not been followed by a five (5) year Period of Severance, multiplied by his Vested Percentage; and
 
 
(c)
equals the amount of any distributions made to the Participant and withdrawals by the Participant made from his Matching Contribution Account, Employer Contribution Account, Profit Sharing Account and Stock Bonus Account since his earliest Date of Hire which has not been followed by a five (5) year Period of Severance.
 


 
2.67
Vested Percentage .  The words “Vested Percentage” shall mean for any Participant a percentage determined on the basis of his number of years of Service in accordance with the following table:
 

Years of Service
Vesting Percentage
Less than 1 year 
0%
1 but less than 2 years 
20%
2 but less than 3 years 
40%
3 but less than 4 years 
60%
4 but less than 5 years 
80%
5 or more years 
100%

Notwithstanding the foregoing, a Participant’s Vested Percentage shall be one hundred percent (100%) if a Termination of Employment occurs as a result of his death or Total and Permanent Disability.


ARTICLE 3
 
PARTICIPATING EMPLOYERS
 
3.1            Designation of Participating Employers .  An Affiliate of the Company shall become a Participating Employer under this Plan by resolution of the Board of Directors of the Company and the ratification of the Board of Directors of the Affiliate.  By becoming a Participating Employer under this Plan, an Affiliate of the Company is deemed to approve this Plan in the form which is in effect as of its Adoption Date.  The Participating Employers as of the date of execution of this Amendment and Restatement are as follows:
PARTICIPATING EMPLOYER                  TERMINATION DATE
Invacare Corporation
 

 

 
The name of a new Participating Employer shall be added to this Section upon its becoming a Participating Employer.  The Termination Date of a Participating Employer which ceases to be a Participating Employer shall be added to this Section.
3.2            Contributions of Participating Employers .  Contributions made to the Plan by a Participating Employer shall be allocated only among the Active Employees of such Participating Employer.
3.3            Supplemental Agreements .  The Company may, in the sole discretion of its Board of Directors, determine that special provisions shall be applicable to specific groups of Employees, former Employees or Beneficiaries of deceased Employees, either in addition to, or in lieu of the provisions of this Plan, or may determine that certain Employees of a Participating Employer shall not be eligible to participate in this Plan.  In such event, the Company shall adopt a Supplemental Agreement with respect to such Employees, former Employees and Beneficiaries


of deceased Employees which shall specify the Employees, former Employees and Beneficiaries of deceased Employees covered by the Supplemental Agreement and the special provisions applicable to such Employees, former Employees and Beneficiaries of deceased Employees.  Supplemental Agreements shall be deemed to be a part of this Plan solely with respect to the Employees, former Employees and Beneficiaries of deceased Employees specified therein.
3.4            Amendment or Termination of Supplemental Agreements .  The Company may, from time to time amend, modify or terminate a Supplemental Agreement pursuant to Section 18.1 hereof provided, however, that no such action shall operate so as to deprive any Participant, former Participant or Beneficiary who was covered by such Supplemental Agreement of any vested rights to which he is entitled under this Plan or the Supplemental Agreement.
3.5            Delegation of Authority .  The Company is hereby fully empowered to act on behalf of itself and the other Participating Employers as it may deem appropriate in maintaining this Plan.  Without limiting the generality of the foregoing, such actions include obtaining and retaining tax qualified status for this Plan and appointing attorneys-in-fact in pursuit thereof.  Furthermore, the adoption by the Company of any amendment to this Plan or the termination thereof, will constitute and represent, without any further action on the part of any Participating Employer, the approval, adoption, ratification or confirmation by each Participating Employer of any such amendment or termination.  In addition, the appointment of or removal by the Company of any Administrator, Trustee, Investment Manager or other person under this Plan shall constitute and represent, without any further action on the part of any Participating Employer, the appointment or removal by each Participating Employer of such person or entity.


3.6            Terminating Participation .  A Participating Employer may terminate this Plan with respect to Participants employed by said Participating Employer by an instrument in writing executed on behalf of the Participating Employer and delivered to the Company and the Trustee.  The Trustee shall thereupon make distributions of the Accounts of the Participants employed by said Participating Employer in the manner provided in Section 18.2 of this Plan, or transfer such Account balances to a successor plan, or continue to hold and administer such Accounts until such time as an event occurs hereunder which would entitle any such Participant to receive a distribution from the Plan, as directed by said Participating Employer.


ARTICLE 4
 
ELIGIBILITY AND PARTICIPATION
 
4.1            Prior Participants .  Every Employee who was a Participant in this Plan or the Stock Bonus Plan immediately prior to the Restatement Date shall continue to be a Participant as of the Restatement Date.  Each person on whose behalf Account balances have been or will be transferred to the Trustee from the Stock Bonus Plan as a result of the merger of the Stock Bonus Plan into this Plan shall automatically become a Participant, terminated Participant, retired Participant, Beneficiary or Alternate Payee, as the case may be, in this Plan, effective as of the Restatement Date.
4.2            Eligibility Requirements .  On and after the Restatement Date, every other Employee who is a Covered Employee shall automatically become a Participant in this Plan on the Enrollment Date coinciding with or next following his Date of Hire.
4.3            Rehired Employees .  In the event that a former Employee is rehired, he shall become an Active Participant on the Enrollment Date coinciding with or next following his date of reemployment if he is a Covered Employee on such Enrollment Date.
4.4            Employees on Leave of Absence .  A Covered Employee who would be eligible to participate in this Plan, except that he is on an authorized unpaid Leave of Absence on his Enrollment Date, shall be enrolled on the date on which he ceases to be on the unpaid Leave of Absence, assuming he is then a Covered Employee.
4.5            Cessation of Covered Employee Status .  In the event that a Participant ceases to be a Covered Employee but continues in the employ of a Participating Employer, he will continue to be a Participant in this Plan and accrue Service until his date of Termination of Employment, but any distribution payable to such Participant under this Plan shall be computed


on the basis of his Account balances on the date he ceased to be a Covered Employee, plus any investment gains or losses thereon.


ARTICLE 5
 
SALARY DEFERRAL CONTRIBUTIONS
 
5.1            Election and Amount of Salary Deferral Contributions .  Pursuant to uniform rules and procedures prescribed by the Administrator, an Active Participant may elect that a portion of his unpaid Compensation for a Plan Year be paid by a Participating Employer to the Trustee hereunder as a Salary Deferral Contribution and be treated as a contribution by the Participating Employer.  An Active Participant who does not elect to make Salary Deferral Contributions pursuant to the preceding sentence shall be deemed to have elected to contribute zero percent (0%).  Any election by a Participant to contribute more than zero percent (0%) of his unpaid Compensation pursuant to this Section shall be expressed in one percent (1%) increments of his Compensation for a payroll period.  The Administrator may, from time to time, establish maximum percentage limits on the amount of Salary Deferral Contributions that Participants can make under this Plan and may establish maximum percentage limits which apply solely to Highly Compensated Employees.  As of the Restatement Date and until changed by the Administrator pursuant to this Section, the maximum percentage of an Active Participant’s Compensation (minus any salary reduction amounts which are excluded from the taxable income of the Participant under Section 125 of the Code) for a payroll period that is subject to election pursuant to this Section shall be fifteen percent (15%).  Effective as of January 1, 2002, the maximum percentage of an Active Participant’s Compensation (minus any salary reduction amounts which are excluded from the taxable income of the Participant under Section 125 of the Code) for a payroll period that is subject to election pursuant to this Section shall be twenty-five percent (25%).
5.2            Election Procedures .  A Participant’s election pursuant to Section 5.1 hereof shall be made in such form (including writing, orally, telephonically or electronically) as


is required by the Administrator, shall become effective at such time as the Administrator shall permit and shall be conditioned upon:
 
(a)
his right to defer the imposition of federal income tax on such contributions until a subsequent distribution of such amount under this Plan; and
 
 
(b)
the Participating Employer’s right to deduct such amounts for federal income tax purposes after taking into account any contributions made by the Participating Employer under any profit sharing, pension and stock bonus plans maintained by the Company or the Participating Employer which meet the requirements of Section 401(a) of the Code.
 
Any such election shall be deemed a continuing election and shall remain in effect until it is revoked or amended by the Participant in writing, or by such other procedures as shall be established by the Administrator from time to time, or the Participant ceases to be an Active Participant.  A Participant may revoke or amend his election at such times as the Administrator shall permit.  A Participant shall revoke or amend his election by providing such notice to the Administrator as the Administrator, in its sole discretion, shall require.
As of the Restatement Date and until changed by the Administrator pursuant to this Section, a Participant will be able to revoke his election as of any payroll payment date following his providing notice to the Administrator and may amend his election daily in accordance with such procedures (including writing, orally, telephonically or electronically) as shall be established by the Administrator from time to time.  In addition, as of the Restatement Date and until changed by the Administrator pursuant to this Section, an Employee who is a new Active Participant will be able to make an election pursuant to Section 5.1 hereof upon his Date of Hire or any date thereafter and such election shall be implemented as soon as administratively practicable after such election is received by the Administrator.


5.3            Payment to Trustee and Crediting of Accounts .  All amounts paid by a Participating Employer to the Trustee pursuant to Section 5.1 hereof shall be paid in cash not later than the date on which such amounts can reasonably be segregated from the Participating Employer’s general assets, which in no event shall be later than the fifteenth (15th) business day of the month following the month in which such amounts would have otherwise been payable to the Participants in cash.  Such amounts shall be credited to the Participants’ Salary Deferral Accounts.
5.4            Suspension and Limitation of Salary Deferral Contributions .  In the event a Participant receives a distribution from his Salary Deferral Account as a result of hardship as described in Article 10 hereof, such Participant’s Salary Deferral Contributions shall be suspended for:  (a) for Plan Years beginning before January 1, 2002, a twelve (12) month period after his receipt of such hardship distribution, and (b) for Plan Years beginning on or after January 1, 2002, a six (6) month period after his receipt of a hardship distribution.  In addition, with respect to hardship distributions made prior to January 1, 2002, for the taxable year of the Participant immediately following the Participant’s taxable year during which said hardship distribution occurs, such Participant shall be barred from making Salary Deferral Contributions in excess of (a) minus (b) below, where:
 
(a)
equals Ten Thousand Five Hundred Dollars ($10,500.00) (plus any cost of living increase after 2001 allowable under Section 402(g) of the Code for such immediately following taxable year of the Participant); and
 
 
(b)
equals the amount of such Participant’s Salary Deferral Contributions for the Participant’s taxable year during which said hardship distribution is made.
 
5.5            Catch-Up Contributions After Return From Military Service .  In the event that a Participant returns to employment with a Participating Employer or an Affiliate


immediately following a leave of absence due to Military Service and had failed to make Salary Deferral Contributions while on such leave of absence, the Participant may elect to make catch-up Salary Deferral Contributions relating to such period of Military Service, to the extent required by Section 414(u) of the Code.  The period during which such Participant may make such catch-up contributions shall commence on his date of rehire and shall continue for a period which is the lesser of five (5) years following such date of rehire or three (3) times the Participant’s period of Military Service.


ARTICLE 6
 
PARTICIPATING EMPLOYER CONTRIBUTIONS
 
6.1            Quarterly Employer Contributions .  For each calendar year quarter ending after the Restatement Date (“Allocation Dates”), the Participating Employers may make employer profit sharing contributions to this Plan on behalf of each Active Participant who has completed six (6) months of Service.  For purposes of this Section, an Active Participant shall be deemed to have completed six (6) months of Service if he is in the employ of a Participating Employer at any time six (6) months after his Date of Hire.  The amount of the Participating Employer’s quarterly contributions, if any, shall be determined by the Company in its sole discretion.  Such contribution may be made on or prior to each such Allocation Date as the Company shall determine in cash or Shares.  An Employer’s contributions for any Allocation Date shall be credited to the Employer Contribution Accounts of each Active Participant who:
 
(a)
is employed on such Allocation Date; or
 
 
(b)
is on a Leave of Absence under the Family Medical Leave Act of 1993 on such Allocation Date; or
 
 
(c)
is not employed on such Allocation Date due to a retirement, Total and Permanent Disability or death which occurred during the calendar year quarter for which such contribution is made,
 
in same proportion that each such Participant’s Compensation for the calendar year quarter to which the contribution relates bears to the total Compensation of all such Participants for such calendar year quarter.
6.2            Matching Contributions .  For each payroll period ending after the Restatement Date, the Participating Employers shall make matching contributions to this Plan on behalf of each Active Participant who has completed six (6) months of Service and on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching


contributions made on behalf of an Active Participant with respect to a particular payroll period shall be made as follows:
Salary Deferral                                                                                                Participating Employer
   Contribution Percentage                                                                                                  Matching Contribution Rate

  Up to 1% of Compensation                                                                                      100% of Salary Deferral Amount
  2% to 3% of Compensation                                                                                      50% of Salary Deferral Amount

No matching contributions will be made on deferrals in excess of three percent (3%) of an Active Participant’s Compensation.
Any matching contributions made on and after the Restatement Date shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.
6.3            Vesting of Participating Employer Contributions .  Any Shares or amounts credited to a Participant’s Employer Contribution Account and Matching Contribution Account pursuant to Sections 6.1 and 6.2 hereof shall be subject to the vesting schedule set forth in Section 2.67 hereof.


ARTICLE 7
 
TRUST FUNDS AND DIRECTION OF INVESTMENT
 
7.1            Investment Funds .  The Trustee shall maintain such investment funds within the Trust Fund as the Administrator may from time to time prescribe, including but not limited to the following:
 
(a)
money market funds;
 
 
(b)
mutual funds;
 
 
(c)
equity funds, including a fund holding qualified employer securities;
 
 
(d)
fixed income funds;
 
 
(e)
balanced funds;
 
 
(f)
any pooled investment fund established by a bank;
 
 
(g)
any insurance company’s general account;
 
 
(h)
any special account established and maintained by any insurance company; and
 
 
(i)
guaranteed investment contracts, including pooled funds of guaranteed investment contracts.
 
The Company shall have the sole discretion to determine the number of Investment Funds to be maintained hereunder and the nature of the funds and may change or eliminate the Investment Funds provided hereunder from time to time, except that if individual direction of investments is permitted, the number of such funds shall not be less than three (3), and of the funds selected, at least three (3) shall be diversified and have materially different risk and return characteristics, as determined by the Company.
Investment Funds maintained hereunder shall be held and administered in accordance with the powers and duties set forth in a Trust Agreement.


7.2            Invacare Segregated Stock Fund .  Effective as of the Restatement Date, the Trustee shall establish the Invacare Segregated Stock Fund, as described in Section 2.28 hereof, within the Trust Fund, to hold those Shares received from the Stock Bonus Plan.
7.3            Participant Direction of Investment .  Each Participant, former Participant or Beneficiary, by written direction to the Trustee or by such other procedures as shall be established by the Administrator from time to time, shall direct the investment of his Accounts (other than his Stock Bonus Account), and contributions being made to any such Accounts in the Investment Funds established hereunder; provided, however, that any such investment directions shall be made in accordance with such other rules as are established by the Administrator from time to time in its sole discretion, including rules requiring that investment selections be made in percentage increments.  Any investment direction with respect to contributions being made to any such Accounts of a Participant shall be deemed a continuing direction and shall remain in effect unless revoked or changed by the Participant, former Participant or Beneficiary.  A Participant, former Participant or Beneficiary may change his investment direction at such times and upon such notice as the Administrator, from time to time, may designate; provided, however, that directions shall be permitted to be made or changed at least once in each three (3) month period.  Each Participant, former Participant or Beneficiary shall indicate whether any change in investment direction shall apply only to contributions made to this Plan following such change or whether such change shall also operate to change the investment of Units of any Investment Fund already credited to his Accounts.  If a procedure for daily change of investment is offered by the Administrator, such investment direction may be changed on a daily basis, such change generally to be effective as of the end of the day of the change, subject to reasonable administrative delays.  Any rules established by the Administrator pursuant to this Section shall


apply to all Participants, former Participants and Beneficiaries in a uniform and nondiscriminatory manner.  It is intended that the total Account balances of all Salary Deferral Accounts, Matching Contribution Accounts, After-Tax Accounts, Profit Sharing Accounts, Employer Contribution Accounts, and Rollover Accounts, as well as the amounts other than Shares and cash for fractional Shares credited to Stock Bonus Accounts be invested in the Investment Funds established hereunder.  In the event that a Participant, former Participant or Beneficiary does not direct the investment of any portion of such Account balances, such undirected portion of such Account balances shall be invested in a managed income portfolio.  Other than as expressly provided in this Plan, no directions of investment with respect to Shares credited to Participants’ Stock Bonus Accounts shall be made pursuant to this Article 7.
7.4            Diversification of Stock Bonus Account .  Each Qualified Participant, by written direction to the Administrator or by such other procedures as shall be established by the Administrator from time to time, may direct the investment of his total Stock Bonus Account in any or all of the Investment Funds established hereunder; provided, however, that any such investment directions shall be made in accordance with such other rules as are established by the Administrator from time to time in its sole discretion, including rules requiring that investment selections be made effective as of specific investment dates and within a certain period of time prior to an investment date.  Any rules established by the Administrator pursuant to this Article 7 relating to Participant direction of investment shall apply to all Qualified Participants in a uniform and nondiscriminatory manner following such Qualified Participant’s election to direct the investment of his Stock Bonus Account.  Each Plan Year, each Active Participant who is not a Qualified Participant may direct the investment of up to the greater of:  (i) ten percent (10%) of the number of  Shares credited to his Stock Bonus Account as of the last day of the immediately


preceding Plan Year; and (ii) Shares having a Fair Market Value of One Hundred Dollars ($100.00) or less. It is intended that any remaining Shares continue to be fully invested in the Invacare Segregated Stock Fund.
7.5            Valuation of Investment Funds .  The interest of any Account in an Investment Fund shall be measured in terms of Units which shall be equal, undivided interests in the assets of the Investment Fund.  The initial value of a Unit of an Investment Fund shall be such uniform amount of money or uniform value as determined by the Trustee.  The value of a Unit in an Investment Fund shall be redetermined daily by the Trustee by dividing the fair market value of the Investment Fund (including any uninvested cash) as of the next preceding business day by the total number of Units of such Investment Fund then credited to the Accounts of Participants, former Participants and Beneficiaries who are then invested in the Investment Fund.  Fractional Units of the Investment Funds shall be credited to an Account to at least two (2) decimal places.  It is intended that this Section operate to adjust each Investment Fund to reflect all income attributable to such Investment Fund and changes in the value of such Investment Fund’s assets, as the case may be, as of any Valuation Date and, as a result of the adjustment of Unit values, to distribute among all Accounts and subaccounts having an interest in such Investment Fund, all such income and value changes.
7.6            Valuation and Adjustment of Invacare Segregated Stock Fund .  The interest of any Stock Bonus Account in the Invacare Segregated Stock Fund shall be measured in terms of whole Shares and an amount of cash for the value of a fractional Share.  The number of whole Shares, together with the cash value of a fractional Share, credited to each Stock Bonus Account shall be redetermined daily by the Trustee.  The cash value of a fractional Share shall be determined with reference to the Fair Market Value of a Share as of the next preceding business


day.  The Invacare Segregated Stock Fund shall consist of the Shares and cash (representing the value of a fractional Share) credited to all Stock Bonus Accounts.  The Trustee may in its discretion, maintain within the Invacare Segregated Stock Fund a cash reserve which is deemed sufficient to make anticipated cash distributions to Participants entitled to receive a distribution from the Plan.
In the event of a Share Adjustment or dividend payment, the Trustee shall credit each Stock Bonus Account, as of the date of such Share Adjustment or dividend payment, with that portion of the Share Adjustment which bears the same relationship to the Share Adjustment or dividend payment as the number of Shares credited to such Stock Bonus Account on said date bears to the total Shares then credited to all Stock Bonus Accounts.
7.7            Debiting and Crediting of Accounts .  If a Participant, former Participant or Beneficiary has made a proper change of investment direction pursuant to Section 7.3 hereof with respect to Units of any Investment Fund credited to his Accounts, other than his Stock Bonus Account, his Accounts shall be debited by the number of Units of any such Investment Fund which have been sold and credited with the number of Units of any such Investment Fund which have been purchased in order to accomplish such change of investment.  In addition, if a Qualified Participant or eligible Active Participant has made a proper change of investment direction pursuant to Section 7.4 hereof with respect to Shares credited to his Stock Bonus Account, his Stock Bonus Account shall be debited by the number of Shares which have been sold and his Stock Bonus Account shall be credited with the number of Units of any such Investment Fund which have been purchased in order to accomplish such change of investment.
7.8            Transferred Assets .  All assets which are transferred from the Stock Bonus Plan to Accounts hereunder as a result of the merger of the Stock Bonus Plan into this Plan shall


be credited to the appropriate Investment Funds and the Invacare Segregated Stock Fund maintained under this Plan effective as of the Restatement Date.
7.9            ERISA Section 404(c) and Related Restrictions on Investment Directions .  The investment direction procedures of this Article are and shall continue to be designed so as to comply, in the sole judgment of the Administrator, with the requirements imposed by Section 404(c) of ERISA and regulations thereunder, and  shall apply to all Participants, former Participants and Beneficiaries in a uniform and nondiscriminatory manner.  Notwithstanding anything to the contrary in this Article, the Trustee may decline to follow any investment direction which, if implemented:
 
(a)
would not be in accordance with the Plan documents;
 
 
(b)
would cause the indicia of ownership of Plan or Trust assets to be maintained outside the jurisdiction of the United States District Courts;
 
 
(c)
would jeopardize the Plan’s or the Trust’s tax-qualified status;
 
 
(d)
could result in a loss in excess of the balance of the Participant’s, former Participant’s, or Beneficiary’s Accounts;
 
 
(e)
would cause this Plan or the Trust to engage in:
 
 
(i)
a sale or exchange with a Participating Employer (except as with respect to certain qualifying employer securities as defined in Section 407(d)(5) of ERISA which meet the requirements of Section 408(e) of ERISA and 29 CFR §2550.404c-1(d)(2)(ii)(E)(4));
 
 
(ii)
a lease between this Plan or the Trust and a Participating Employer or a loan to a Participating Employer;
 
 
(iii)
acquisition or sale of real property of a Participating Employer; or
 
 
(iv)
acquisition or sale of securities of a Participating Employer other than certain qualifying employer securities as defined in Section 407(d)(5) of ERISA which meet the requirements of Section 408(e) of ERISA and 29 CFR §2550.404c-1(d)(2)(ii)(E)(4);
 


 
(f)
would result in a prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA; or
 
 
(g)
would generate income taxable to this Plan or to the Trust.
 
To the extent that Section 404(c) of ERISA is not applicable or the terms thereof are not satisfied, the Participants and Beneficiaries shall constitute named fiduciaries under ERISA with respect to their authority to direct investment of their Accounts.
7.10            Restrictions on Insider Trading .  Notwithstanding the foregoing provisions of this Article 7, the Administrator in its sole discretion, shall have the authority to place such restrictions upon the investment directions of any person who is subject to Section 16(b) of the Securities Exchange Act of 1934 as amended (“Insider”) as shall be appropriate to comply with such Section.  Such restrictions shall include, but shall not be limited to the following:  Insiders shall be permitted to submit investment directions relating to the Invacare Stock Fund only on a “semi-annual date” which is no less than six (6) months after the date of the most recent investment direction received from such Insider relating to the Invacare Stock Fund.  For purposes of this Section 7.10, the term “semi-annual date” shall mean a date which is within the period that begins the third business day following the date on which the Company’s first fiscal quarter and third fiscal quarter summary statements of sales and earnings shall be released and which ends on the twelfth business day following such release date.
In addition, an Insider who receives a distribution of Shares as part of a hardship withdrawal pursuant to Section 10.4 shall be prohibited from directing the investment of his Accounts into or out of the Invacare Stock Fund for the six (6) month period following the date of such hardship withdrawal.
7.11            Restrictions During Transition Period .  No changes in or revocations of investment directions, including reallocations between the Investment Funds and diversification


elections pursuant to Section 7.4 hereof, shall be accepted by the Administrator from existing Participants, former Participants and Beneficiaries during the Transition Period.


ARTICLE 8
 
ACCOUNTS
 
8.1            Accounts as of Restatement Date .  Accounts and subaccounts being maintained under this Plan and the Stock Bonus Plan immediately prior to the Restatement Date shall be reclassified as a result of the merger of the Stock Bonus Plan into this Plan as of the Restatement Date.  Such accounts and subaccounts shall be categorized, as of the Restatement Date, as follows:
 
(a)
except as specifically provided in this Section 8.1, if such an account or subaccount had been credited with a Participant’s Elective Contributions and earnings thereon under the Plan prior to the Restatement Date, such account shall be deemed to be a Salary Deferral Account;
 
 
(b)
if such an account or subaccount was classified as a Matching Contribution Account under the Plan prior to the Restatement Date, such account shall be deemed to be a Matching Contribution Account;
 
 
(c)
If such account or subaccount was credited with employer discretionary profit sharing contributions and earnings thereon, under this Plan prior to the Restatement Date, such account shall be deemed to be a Profit Sharing Account;
 
 
(d)
if such an account or subaccount was classified as an Employer Contribution Account under the Stock Bonus Plan prior to the Restatement Date, such account shall be deemed to be a Stock Bonus Account;
 
 
(e)
if such account or subaccount is credited with Participating Employer Contributions and earnings thereon on and after the Restatement Date, such account shall be deemed to be an Employer Contribution Account;
 
 
(f)
if such an account or subaccount had been credited with a Participant’s voluntary after-tax contributions and earnings thereon under the Plan prior to the Restatement Date, such account shall be deemed to be an After-Tax Account; and
 
 
(g)
if such an account or subaccount had been credited with a Participant’s or former Participant’s rollover contributions and earnings thereon under the Plan or the Stock Bonus Plan prior to
 


 
the Restatement Date, such account shall be deemed to be a Rollover Account.
 
8.2            Establishment of Accounts .  Upon an Employee becoming a Participant, the Administrator shall establish a Salary Deferral Account, a Matching Contribution Account and an Employer Contribution Account in the name of such Participant.  Salary Deferral, Matching Contribution and Employer Contribution Accounts established on behalf of a new Participant shall be deemed to have been established on the date upon which or as of which such individual became a Participant.
8.3            Crediting and Debiting of Accounts .  The Accounts of Participants shall be credited with contributions as specified in Articles 5 and 6 hereof and in Section 23.3 hereof and shall be debited to take into account any withdrawals or distributions made from such Accounts pursuant to Article 9, 10, or 15 hereof.  All such credits and debits to the Accounts of a Participant shall be made as of the dates specified in the appropriate Sections of this Plan.
8.4            Investment Fund Subaccounts .  In the event a Participant directs, pursuant to Article 7 hereof, that his Account or Accounts are to be invested in more than one (1) Investment Fund, the Administrator shall maintain subaccounts as a part of such Participant’s Account or Accounts.  Such subaccounts shall show the portion of an Account invested in a particular Investment Fund.


ARTICLE 9
 
WITHDRAWALS FROM ACCOUNTS
 
9.1            Restrictions on Withdrawals .  A Participant may not withdraw his Account balances prior to his Termination of Employment except as provided in this Article 9, in Article 10 and in Article 13 hereof.  Withdrawals made pursuant to this Article shall be subject to the following restrictions:
 
(a)
the minimum amount of any such withdrawal shall be the lesser of an amount set by the Administrator or the total of the Account balances which are available for withdrawal pursuant to this Article;
 
 
(b)
the withdrawing Participant shall make an application for withdrawal or shall follow such procedures as shall be specified by the Administrator from time to time;
 
 
(c)
any withdrawal shall be made in a single lump sum payment of cash in accordance with Article 15 hereof;
 
 
(d)
any withdrawal shall be made in accordance with the provisions of Section 15.11 hereof;
 
 
(e)
no amounts withdrawn pursuant to this Article may be recontributed to this Plan; and
 
 
(f)
any withdrawal shall be subject to such other reasonable and uniform rules and regulations, consistently applied, as may be established from time to time by the Administrator.
 
9.2            Withdrawals from After-Tax Account .  Subject to Section 9.1 hereof, a Participant may withdraw all or a portion of his After-Tax Account balance at any time and for any reason.
9.3            Withdrawals After Age 59-1/2 .  Subject to Section 9.1 hereof, on or after the date a Participant attains age fifty-nine and one-half (59-1/2), such Participant may withdraw all or a portion of his Accounts under the Plan.  Any such withdrawals shall be made from Accounts on a pro-rata basis.


                       Prior to the date on which a Participant attains age fifty-nine and one-half (59-1/2), such Participant may withdraw from his Salary Deferral Account only in the case of hardship as provided in Article 10 hereof.
9.4            Withdrawals by Qualified Participants .  Subject to Section 9.1 hereof, a Qualified Participant may withdraw all or a portion of his vested Stock Bonus Account balance which is invested in Shares within the Invacare Segregated Stock Fund.
9.5            Termination of Withdrawal Rights .  Upon an attempt by a Participant to use his interest in this Plan as security for any type of obligation, or to alienate, dispose of or in any manner encumber, or upon an attempt by any third person to attach, levy upon or in any manner convert the use or enjoyment of any such interest of a Participant, the right to withdraw any portion thereof pursuant to this Article shall automatically terminate.


ARTICLE 10
 
HARDSHIP DISTRIBUTIONS
 
10.1            Application for Hardship Distribution .  Subject to such uniform rules and procedures as the Administrator may prescribe, in the case of hardship, an Employee who is an Active Participant may apply to the Administrator for a hardship distribution from his Salary Deferral Account prior to his retirement or Termination of Employment.  For the purposes of this Section, a distribution shall be on account of hardship only if the distribution is made on account of an immediate and heavy financial need of the Participant, as described in Section 10.2 hereof, and is necessary, as described in Section 10.3 hereof, to satisfy such need.  Such distribution may be made only from the Accounts specified in Section 10.4 hereof.
10.2            Immediate and Heavy Financial Need .  A distribution will be made on account of an immediate and heavy financial need of a Participant only if the distribution is on account of:
 
(a)
the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;
 
 
(b)
purchase (excluding mortgage payments) of a principal residence for the Participant;
 
 
(c)
medical expenses described in Section 213(d) of the Code incurred by the Participant, the Participant’s spouse, or any dependents of the Participant (as defined in Section 152 of the Code);
 
 
(d)
payment of unreimbursable tuition, related educational fees and room and board for up to the next twelve (12) months of post-secondary education for the Participant, his or her spouse, children or dependents; or
 
 
(e)
any other circumstance specifically permitted under Code Section 401(k)(2)(B)(i)(IV).
 


 
10.3
Determination of An Amount Necessary to Satisfy an Immediate and Heavy Financial Need .  A distribution will be deemed to be necessary to satisfy an immediate and heavy financial need of a Participant only if all of the following requirements are satisfied:
 
 
(a)
the distribution is not in excess of the amount of the immediate and heavy financial need of the Participant, including any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from such distribution;
 
 
(b)
the Participant has obtained all distributions, other than hardship distributions, and all nontaxable (at the time of the loan) loans currently available under this Plan and all other plans maintained by the Participating Employers and any Affiliates, unless such distribution or loan would have the effect of increasing the amount of the financial need;
 
 
(c)
for hardship distributions made prior to January 1, 2002, this Plan and all other plans maintained by the Participating Employers and any Affiliates provide that the Participant may not make Salary Deferral Contributions for the Participant’s taxable year immediately following the taxable year of the Participant during which said hardship distribution occurs in excess of the applicable limit under Section 402(g) of the Code for such next taxable year of the Participant less the amount of such Participant’s Salary Deferral Contributions for the taxable year of the Participant during which said hardship distribution occurs; and
 
 
(d)
the Participant is prohibited under the terms of this Plan and all other plans maintained by the Participating Employers and any Affiliates (or other legally enforceable agreement), from making Salary Deferral Contributions and voluntary after-tax contributions, if applicable, to this Plan and such other plans for: (a) for Plan Years beginning before January 1, 2002, a twelve (12) month period after his receipt of such hardship distribution; and (b) for Plan Years beginning on or after January 1, 2002, a six (6) month period after his receipt of such hardship distribution.
 
By virtue of this Section and Section 5.4 hereof, this Plan provides for the restrictions contained above in subparagraphs (c) and (d).
10.4            Permitted Distributions .  If the Administrator determines that the criteria set forth in Sections 10.2 and 10.3 hereof have been satisfied with respect to a Participant, it may order a distribution of the lesser of:


           
 
(a)
his Salary Deferral Account balance; and
 
(b)
the sum of the aggregate amount of the contributions made to his Salary Deferral Account, plus earnings thereon, if any, credited prior to January 1, 1989.
 
No distributions shall be made from a Participant’s Accounts, other than his Salary Deferral Account, pursuant to this Article.
Such distribution shall be made in a cash lump sum and shall be made in accordance with the provisions of Section 15.11 hereof.  Any distribution from a Participant’s Accounts under this Article shall be deemed to be made in the order set forth above.
If the Administrator directs that a distribution be made hereunder, it may thereafter, if it determines that such hardship no longer exists or is no longer imminent or upon agreement with the Participant, direct that any such distribution not yet made not be made.
10.5            Administration of Hardship Provisions .  Neither the application for nor payment of any distribution in accordance with this Article shall have the effect of terminating a Participant’s participation in this Plan.  The Administrator may prescribe the use of such forms, conduct such investigation, and require the making of such representations and warranties, as it deems desirable to carry out the purpose of this Article.


ARTICLE 11
 
PARTICIPANT LOANS
 
11.1            Loan Application .   An Employee who is an Active Participant or a person who is a Party in Interest (“Borrower”) may request a loan from the Plan.  If the Borrower (and the proposed loan) satisfy the requirements set forth herein, the Trustee shall make a loan to such Borrower pro rata from his Accounts hereunder, other than his Employer Contribution Account and his Stock Bonus Account.  No Borrower shall be permitted to borrow from his Employer Contribution and Stock Bonus Accounts.
In the event an Employee shall request a loan from the Plan, such Employee shall receive an immediate distribution of his After-Tax Account.
11.2            Amount of Loan .  The amount of any such loan shall be determined by the Administrator; provided, however, that any such loan shall not, when combined with outstanding loans previously made from this Plan and outstanding loans made under other qualified retirement plans, if any, maintained by the Company or any Affiliate, cause the aggregate amount of all such loans to such Borrower to exceed the lesser of (a) or (b) below, where:
 
(a)
equals one-half (1/2) of all vested amounts held in such Borrower’s Accounts under this Plan other than his Employer Contribution and Stock Bonus Accounts; and
 
 
(b)
equals Fifty Thousand Dollars ($50,000.00) reduced by the remainder, if any, of:
 
 
(i)
the highest outstanding balance of loans to such Borrower from this Plan and all other qualified retirement plans maintained by a Participating Employer or any Affiliate during the twelve (12) month period preceding the date on which the loan is to be made; minus
 
 
(ii)
the outstanding balance of loans to such Borrower from the plans on the day the loan is to be made.
 

 
11.3            Loan Administration.  The following additional provisions shall be applicable to the loans under this Plan :
 
(a)
Loan Program Administration .  The loan program under the Plan shall be administered by the Administrator in accordance with the provisions of this Article and such additional or other procedures as the Administrator may from time to time adopt.
 
 
(b)
Loan Application Procedure .  A Borrower shall apply for a loan in such manner (including in writing, orally, telephonically, or electronically) as the Administrator may determine.
 
 
(c)
Basis for Approval or Denial of Loans .  Loans will be approved only if:
 
 
(i)
the Borrower does not currently have an outstanding loan from the Plan;
 
 
(ii)
the Administrator believes the Borrower intends and is able to repay the loan in accordance with its terms;
 
 
(iii)
the amount of such loan shall not be in excess of the amount which is credited to the Borrower’s Accounts, other than his Employer Contribution Account and his Stock Bonus Account, at the time of such loan and shall be made exclusively from such Accounts;
 
 
(iv)
the amount of such loan shall not be less than One Thousand Dollars ($1,000.00);
 
 
(v)
it is anticipated that repayment of the loan shall be made by payroll deduction by the Participating Employer employing the Borrower or any other Affiliate employing him; and
 
 
(vi)
the loan satisfies the requirements of Section 11.4 of the Plan.
 
11.4            Terms and Conditions of Loans .  Any loan made pursuant to this Article shall be considered an investment of the Account or Accounts of the Borrower and shall be subject to the following terms and conditions:
 
(a)
Interest .  Interest shall be charged at a reasonable rate, comparable to the rate charged by a commercial lender for a similar loan.  Unless otherwise determined by the Administrator, the interest rate shall be equal to one percentage point above the prime rate as it appears in The Wall Street Journal in effect on the last business
 


 
day of the calendar quarter prior to the calendar quarter in which the loan is made.
 
 
(b)
Loan Term and Repayment Schedule .  The term of any loan shall be arrived at by mutual agreement between the Borrower and the Administrator but shall not be less than one (1) year and shall not exceed five (5) years; provided, however, that if the proceeds of such loan are to be used to acquire any dwelling which within a reasonable time is to be used as the Borrower’s principal residence, such loan may be for a term of up to fifteen (15) years.  Subject to the conditions set forth in the immediately preceding sentence, the terms of the loan shall extend for any number of whole months as so agreed by the Borrower and the Administrator.  All loans shall provide for the substantially level amortization of the loan, with payments no less frequently than quarterly, over the term of the loan; provided, however, that the loan shall permit (unless the Administrator otherwise determines) a grace period for up to one (1) year from such repayments while a Borrower is on a leave of absence without pay, provided that such grace period shall not extend the due date of the loan beyond the maximum time period set forth above.
 
If a Borrower is on a military leave, loan repayments will be suspended under this Plan, as permitted under Section 414(u)(4) of the Code.
 
The Administrator may make such additional, nondiscriminatory rules regarding loan repayments as it deems necessary, including early repayments and any restrictions relating thereto.
 
 
(c)
Segregation of Accounts .  A Borrower’s Accounts, to the extent of such borrowing, shall be deemed segregated for investment purposes.  Both the note representing such loan and the Accounts of the Borrower, to the extent of such borrowing, shall not be taken into account in the valuation of the Plan pursuant to Article 8 hereof.
 
 
(d)
Repayment Procedures .  Except for early repayments of the outstanding balance, (i) repayment of any loan made to an Active Employee shall be by payroll deduction, (ii) repayment of any loan made to an Active Employee who has a Termination of Employment and is eligible for severance payments shall be by payroll deduction from said severance payments, and (iii) repayment of any loan made to a person who is no longer an Active Employee and is not eligible for severance payments shall be made as determined by the Administrator and communicated to such Borrower.  Repayments of any loan shall be credited to the
 


 
Accounts of the Borrower prorata. Loan repayments shall be directed back into the active Investment Fund based upon the Participant’s future contribution election percentages.
 
 
(e)
Documentation and Collateral .  Each Borrower shall indicate his acceptance of the terms of the loan in such manner as the Administrator shall determine.  Without limiting the foregoing sentence, executing on, endorsing, or depositing the check representing the loan proceeds shall automatically constitute acceptance of the terms of the loan and evidence the Borrower’s obligation to repay the loan in accordance with its terms.  Each loan shall bear interest payable to the order of the Trustee and shall be supported by adequate collateral.  Such collateral shall consist of an amount not to exceed fifty percent (50%) of the Borrower’s entire right, title, and interest in and to the Trust Fund, and any earnings attributable to such amounts.  The Administrator may require such other and further documentation as it deems appropriate.  Unless the Administrator otherwise determines, spousal consent to a loan or granting of collateral shall not be required unless the Borrower has previously elected to receive distribution of his benefits in the form of an annuity.
 
 
(f)
Default .  A Borrower shall be in default (i) if he fails to make any payment of principal or interest sufficient to meet the substantially level quarterly amortization requirement in paragraph (b) above, (ii) if he fails to make a required payment after a permitted one (1) year grace period as provided for in paragraph (b) above, or (iii) if his collateral becomes inadequate to secure the loan and he does not provide substitute collateral satisfactory to the Administrator within ten (10) days after a request therefor by the Administrator or if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan within sixty (60) days after his Termination of Employment, unless he remains a Party in Interest or receives severance payments from a Participating Employer after such Termination of Employment.  If a terminated Participant receives severance payments from a Participating Employer following his Termination of Employment, he shall be in default if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan by the earlier of the date on which the Borrower receives a distribution of his Accounts from the Plan or sixty (60) days after his severance payments from the Participating Employer cease.  In the event of default by a Borrower, his loan shall be accelerated, and:
 
 
(i)
if his collateral security in this Plan is adequate to cover all or part of the outstanding principal and interest, and if distribution of such amount would not, in the opinion of the
 


 
Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall take such steps as it deems appropriate to offset the loan balance against his Vested Interest or otherwise execute upon such Plan collateral; and
 
 
(ii)
if his collateral security described in paragraph (f)(1) is not adequate to cover all of the outstanding principal and interest, or if execution upon such collateral would, in the opinion of the Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall commence appropriate collection actions against the Borrower to recover the amounts owed.
 
Expenses of collection, including legal fees, if any, of any loan in default shall be borne by the Borrower or his Accounts.
 
 
(g)
Loan Origination and Maintenance Fee .  The Administrator may charge to the Account of each Borrower a loan origination fee.  The Administrator may adjust such charge from time to time to reflect the actual cost incurred in processing loans, and such fees shall be assessed to the Accounts of all Borrowers in a nondiscriminatory manner.  Annual maintenance fees shall also be charged to the Account of each Borrower.  All loan fees shall be used by the Administrator to pay administrative expenses of the Plan incurred in connection with such loans.
 
11.5            Terms of Prior Loans May Not Be Renegotiated or Extended .  Notwithstanding the foregoing provisions of this Article, the terms of outstanding loans may not be renegotiated and in the event the proceeds of any loan made hereunder shall be used directly or indirectly to pay off any obligations under a prior loan made hereunder, the term of the more recent loan shall not extend beyond the period of repayment under the prior loan.  For purposes of this Section, the Administrator shall be able to rely on a certification by the Participant or former Participant as to the use of the new loan’s proceeds.


ARTICLE 12
 
TERMINATION OF EMPLOYMENT
 
12.1            Vested Interest Distributable .  In the event of the Termination of Employment of a Participant for any reason other than death, Total and Permanent Disability, or retirement, he shall be entitled to receive a distribution of his Vested Interest.
12.2            Commencement of Distribution .  The Vested Interest of a terminated Participant shall be distributed to him in accordance with the rules and procedures set forth in Article 15 hereof.  Except as otherwise provided in Article 15 hereof, such distribution shall be made or shall commence to be made on such date on or after his date of Termination of Employment as shall be directed by the terminated Participant in his sole discretion; provided, however, that such distribution need not be made earlier than administratively practicable.  Notwithstanding anything contained in this Plan to the contrary, other than Section 15.7 hereof, if a Participant has a Termination of Employment pursuant to Section 2.57(f) hereof that does not meet the requirements of Section 401(k)(10) of the Code, such Participant shall not be eligible to receive a distribution from his Salary Deferral Account under this Plan until he terminates employment with the person, entity or joint venture acquiring the business unit or facility with which he was employed.
12.3            Forfeitures .  If a terminated Participant’s Vested Percentage is one hundred percent (100%) on his date of Termination of Employment, his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account  shall thereafter be held, administered and distributed in accordance with Articles 8 and 15 hereof.  If his Vested Percentage is greater than zero (0) but less than one hundred percent (100%), his Matching Contribution, Profit Sharing, Employer Contribution, and Stock Bonus Accounts shall


continue to be administered in accordance with the provisions of Articles 8 and 15 hereof until the earliest to occur of any of the following events:
 
(a)
he receives a distribution of his entire Vested Interest;
 
 
(b)
he has a five (5) year Period of Severance;
 
 
(c)
he dies; or
 
 
(d)
he is rehired by a Participating Employer or an Affiliate.
 
If the earliest to occur of said events is either the date of complete distribution of his Vested Interest, or his having had a five (5) year Period of Severance, or his death, the excess of:
 
(i)
his Account balances; over
 
 
(ii)
his Vested Interest;
 
shall be forfeited as of such date and shall be debited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account, respectively.  The balances remaining credited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account after said forfeiture shall thereafter be held, administered and distributed in accordance with Articles 8 and 15 hereof.  If a Participant terminates employment at a time when his Vested Percentage is zero (0), such terminated Participant shall be deemed to have received a lump sum distribution from his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and his Stock Bonus Account in such zero (0) amount in full discharge of this Plan’s liability with respect to such Accounts and his Matching Contribution, Profit Sharing, Employer Contribution, and Stock Bonus Account balances, if any, shall be forfeited pursuant to this Section.  Such distribution and forfeiture shall be deemed to have occurred on the date of Termination of Employment of such Participant.


If the earliest of said events shall be the terminated Participant’s rehire by a Participating Employer or an Affiliate, this Article shall not apply to him until a subsequent Termination of Employment described in Section 12.1 hereof.
12.4            Use of Forfeitures .  Any forfeitures pursuant to Section 12.3 hereof which remain after recrediting of prior forfeitures pursuant to Section 12.5 hereof shall be used in one of the following manners, as directed by the Company in its sole discretion:
 
(a)
to pay any expense incurred in connection with the administration of the Plan; or
 
 
(b)
to reduce future Participating Employer contributions under Sections 6.1 and 6.2 hereof.
 
12.5            Recrediting Accounts of Rehired Participants .  If a terminated Participant in this Plan or the Stock Bonus Plan shall be rehired by a Participating Employer or any Affiliate, he shall immediately be reinstated as a Participant in this Plan for purposes of this Section.  If a terminated Participant shall be rehired by a Participating Employer or any Affiliate at a time when his Period of Severance is five (5) or more years, no portion of his Matching Contribution Account balance, Profit Sharing Account balance, Employer Contribution Account balance, or Stock Bonus Account balance under this Plan or the Stock Bonus Plan which was forfeited and debited pursuant to the provision of this Plan or any provisions of the Stock Bonus Plan shall be recredited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account.  If a terminated Participant shall be rehired by a Participating Employer or any Affiliate at a time when his Period of Severance is less than five (5) years, the portion of his Matching Contribution Account balance, Profit Sharing Account balance, Employer Contribution Account balance or Stock Bonus Account balance under this Plan or the Stock Bonus Plan which was forfeited and debited pursuant to the provisions of this


Plan or the Stock Bonus Plan shall be recredited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account.
In order to balance the Accounts maintained under this Plan, after giving effect to the recrediting of prior forfeitures and/or earnings as provided above to a rehired Participant’s Matching Contribution Account, Profit Sharing Account, Employer Contribution Account and Stock Bonus Account, the Administrator shall use any forfeitures which would otherwise be used to reduce the Participating Employer contributions in accordance with Section 12.4 hereof.  To the extent that the current forfeited Shares and other forfeited cash amounts for any Plan Year are less than the aggregate previously forfeited Shares and other amounts which were recredited during the Plan Year to the Matching Contribution Accounts, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account of Participants who were entitled to restoration during the Plan Year, the Participating Employer which rehires the Participant shall contribute to this Plan the difference between the aggregate previously forfeited Shares or amounts which were recredited during the Plan Year to the Matching Contribution Accounts, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account of Participants who were entitled to restoration and the current forfeited Shares and amounts.  The Participating Employers, at their option, may also contribute the aggregate previously forfeited Shares or other amounts which were recredited during the Plan Year to the Matching Contribution Accounts, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account of Participants.  Such contribution shall be made by the Participating Employers no later than the due date (including extensions) of the tax return for the Taxable Year which includes the last day of the Plan Year during which the Shares and other amounts were restored.  For purposes of the limitations contained in Article 20 hereof, such contribution shall not be deemed to have been


contributed at the time it is recontributed pursuant to this Section, but shall be deemed to have been contributed at the time of the original contribution.


ARTICLE 13
 
RETIREMENT AND DISABILITY BENEFITS
 
13.1            Normal Retirement .  The Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account of a Participant who works for a Participating Employer or an Affiliate until he attains his Normal Retirement Date shall be fully vested and nonforfeitable.  A Participant who retires from the employ of a Participating Employer or an Affiliate on his Normal Retirement Date shall be entitled to receive a distribution of his total Account balances.  Subject to Section 15.1 hereof, such distribution shall be made or shall commence to be made on such date on or after the Participant’s retirement as the Participant shall elect.  Such distribution shall be made in accordance with the provisions of Article 15 hereof.
13.2            Early Retirement .  A Participant may elect to retire before reaching his Normal Retirement Date, but not before the later of his completion of ten (10) years of Vesting Service and his attainment of age fifty-five (55).  In the event of such early retirement, such Participant shall be entitled to receive an amount equal to the sum of the amounts then credited to all Accounts held for his benefit.  Such distribution shall be made in accordance with the provisions of Article 15 hereof.
13.3            Late Retirement .  In the event a Participant works for a Participating Employer or an Affiliate beyond his Normal Retirement Date, his retirement shall be deemed to have occurred on the date of his Termination of Employment with the Participating Employer or an Affiliate for any reason other than death.  In the event of such late retirement, such Participant shall be entitled to receive a distribution of his Account balances.  Subject to Section 15.1 hereof, such distribution shall be made or shall commence to be made on such date, on or after the Participant’s Termination of Employment, as the Participant shall elect.  Such distribution shall


be made in accordance with the provisions of Article 15 hereof.  Notwithstanding anything to the contrary contained in this Plan, a Participant who continues in the employ of a Participating Employer beyond his Normal Retirement Date shall be entitled to elect, upon providing such notice as the Administrator shall require, that all or a portion of his Account balances be distributed to him in accordance with Article 15 hereof as of a date coinciding with or following his Normal Retirement Date which shall be selected by the Participant.
13.4            Disability Retirement .  Upon receipt from a Participant, or a person authorized by him or on his behalf, of a request that distributions be made on account of such Participant’s Total and Permanent Disability, or upon its own motion, the Administrator shall determine the extent of the Participant’s disability.  If the Administrator shall determine that the Participant is totally and permanently disabled, his date of disability retirement shall be deemed to have been the earlier of the date on which his application for distribution under this Section was filed with the Administrator or the date on which the Administrator determined him to be totally and permanently disabled, and, except as provided in Sections 6.1 and 6.2 hereof, he will be deemed to have ceased to be an Active Participant on that date.  Such a disabled Participant shall be entitled to receive a distribution equal to his Account balances.  Such distribution shall be made or shall commence to be made as of such date, on or after the date such Participant is determined to be totally and permanently disabled, as the Participant, or a person authorized by him or on his behalf, shall select.  Such distribution shall be made in accordance with the provisions of Article 15 hereof.
13.5            Application for Benefits .  Each Participant who is eligible for benefits under this Article shall apply therefor on a form which shall be given to him for that purpose by the Administrator; provided, however that the foregoing requirement shall not apply in any case


in which a Participant shall be unable, for physical, mental or any other reason satisfactory to the Administrator to make such application.  Upon finding that such Participant satisfies the eligibility requirements for benefits under this Article, the Administrator shall promptly notify the Trustee in writing of his eligibility and of the method of distribution selected in accordance with Article 15.


ARTICLE 14
 
DEATH BENEFITS
 
14.1            Pre-Retirement Death Benefits .  In the event of the Termination of Employment of a Participant by reason of his death, or the death of a retired or terminated Participant prior to his Annuity Starting Date, his Beneficiary shall be entitled to receive a distribution of the deceased Participant’s vested Account balances.  Such amount shall be distributed or commence to be distributed as soon as practicable following such Participant’s death.
14.2            Death of a Retired or Terminated Participant After Commencement of Distribution .  In the event of the death of a retired or terminated Participant after his Annuity Starting Date, no benefits shall be payable to his Beneficiary except to the extent provided for by the method under which the retired or terminated Participant was receiving distributions under Article 15 hereof.
14.3            Form of Payment of Death Benefits .  Except as provided in Section 14.4, the Administrator shall direct the Trustee to distribute the Participant’s Account balance to his Beneficiary in accordance with Article 15 hereof.
14.4            Qualified Preretirement Survivor Annuity .  Except as provided in Section 15.6 hereof, if a death benefit should be payable to the Beneficiary of a Participant who is described in Section 15.3 pursuant to this Article, his spouse shall be entitled to receive a death benefit in the form of a Qualified Preretirement Survivor Annuity, which shall be the actuarial equivalent of such Participant’s distributable Accounts determined as of the date payment of benefits commence.
14.5            Waiver of Qualified Preretirement Survivor Annuity .  A Participant described in Section 15.3 may elect, at any time after the first day of the Plan Year in which he


attains age thirty-five (35) and subject to obtaining spousal consent pursuant to Section 24.8 hereof, to waive the Qualified Preretirement Survivor Annuity described in Section 14.4.  A Participant who has incurred a Termination of Employment may elect, at any time after his Termination of Employment and subject to obtaining spousal consent pursuant to Section 24.8 hereof, to waive the Qualified Preretirement Survivor Annuity described in Section 14.4 with respect to his Account balances accrued prior to his Termination of Employment.  Any election made under this Section 14.5 may be revoked at any time and, once revoked, may be made again.
14.6            Notification and Waiver Procedures .  The Administrator shall furnish to each Participant described in Section 15.3 a written notification of the terms of the Qualified Preretirement Survivor Annuity within the three (3) year period beginning with the first day of the Plan Year in which such Participant attains age thirty-two (32), or if such Participant commences participation in the Plan after he attains age thirty-two (32), no later than the close of the second Plan Year beginning after his commencement of participation.  Such notification shall contain a general description of the Qualified Preretirement Survivor Annuity, the circumstances under which it will be paid, the Participant’s right to make, and the effect of, an election to waive such coverage, the rights of such Participant’s spouse with respect thereto, and the Participant’s right to make, and the effect of, a revocation of such election.
14.7            Automatic Beneficiary .  Unless a Participant has designated a Beneficiary in accordance with the provisions of Section 14.8 hereof, his Beneficiary shall be deemed to be the person or persons in the first of the following classes in which there are any survivors of such Participant:
 
(a)
his spouse at the time of his death;
 
 
(b)
his issue, per stirpes;
 


 
(c)
his parents; and
 
 
(d)
the executor or administrator of his estate.
 
14.8            Designation of Beneficiary .  In lieu of having the benefits payable pursuant to this Article payable to a Beneficiary determined in accordance with the provisions of Section 14.7, a Participant who is not described in Section 14.5 hereof may sign a document designating a Beneficiary or Beneficiaries to receive such benefits.  Notwithstanding the foregoing, no designation of a Beneficiary or Beneficiaries by a married Participant under this Section 14.8 shall be valid unless:
 
(a)
the Participant’s surviving spouse has signed a document, witnessed by a notary public, consenting to such designation and acknowledging the effect of any such designation; or
 
 
(b)
it is established to the satisfaction of the Administrator that the signature of such spouse cannot be obtained because such spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations; or
 
 
(c)
it is established to the satisfaction of the Administrator that the Participant has no surviving spouse.
 
Any consent given by a surviving spouse pursuant to this Section shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such Participant.  In addition, any designations under this Section 14.8 shall be deemed to be automatically revoked in the event a Participant remarries.
14.9            Instructions to Trustee .  Upon the death of a Participant or a former Participant, the Administrator shall immediately advise the Trustee of the identity of such Participant’s or former Participant’s Beneficiary or Beneficiaries.  The Trustee shall be completely protected in making distributions to any person or persons in any sums in accordance with the instructions it receives from the Administrator.


14.10                       Incomplete Disposition .  In the event that a Participant or former Participant dies at a time when he has a designation on file with the Administrator which does not dispose of the total benefit distributable under this Plan upon his death, then the portion of such benefit distributable on behalf of said Participant or former Participant, the disposition of which was not determined by the deceased Participant’s or former Participant’s designation, shall be distributed to his spouse, if any, or to a Beneficiary determined under the provisions of Section 14.8 hereof.
14.11                       Resolution of Ambiguity .  Any ambiguity in a Participant’s or former Participant’s Beneficiary designation shall be resolved by the Administrator.  Subject to Section 24.8 hereof, the Administrator may direct a Participant or former Participant to clarify his designation and if necessary execute a new designation containing such clarification.


ARTICLE 15
 
DISTRIBUTIONS
 
15.1            Deferral of Distributions .  Distributions will normally commence as of the dates specified in Articles 12, 13, and 14 hereof.  However, subject to Sections 15.6 and 15.7 hereof, a Participant, former Participant or Beneficiary may elect in writing to defer any distributions until a later date.
15.2            Normal Method of Distribution .  Except as provided in Sections 14.4, 15.3 and 15.6 hereof, a Participant or Beneficiary shall elect to receive his distributable Account balances either in the form of a single lump sum payment or in nearly equal monthly, quarterly, semi-annual or annual installment payments over a period specified by such Participant or Beneficiary.  Notwithstanding the foregoing, a Participant or Beneficiary who has elected to receive and has commenced receiving his distributable Account balance in the form of installment payments may at any time prior to payment of the final installment payment make an election to receive his remaining Account balance in the form of a single lump sum payment as soon as practicable following his election.
All distributions under the Plan shall be in the form of cash, unless a Participant or Beneficiary shall elect to receive the Shares credited to his Stock Bonus Account in lieu of cash.  The value of any fractional Shares credited to a Participant’s Stock Bonus Account shall be distributed in the form of cash.
15.3            Annuity Methods of Distribution .  Subject to Section 15.6 hereof and prior to September 1, 2001, a Participant who was a Participant under this Plan prior to the Restatement Date or the Beneficiary of such a Participant shall receive the amounts distributable to him (other than amounts and shares credited to his Stock Bonus Account) in the form of the


following type of annuity contract purchased for him from an insurance company by the Administrator pursuant to Section 15.9 hereof:
 
(i)
an immediate Joint and Survivor Annuity contract issued on the joint lives of such Participant and his Beneficiary with the provision that after the Participant’s death fifty percent (50%) (or at the Participant’s election one hundred percent (100%)) of his monthly annuity payments shall continue during the life of and be paid to such Beneficiary; or
 
 
(ii)
an immediate Life Annuity contract issued on the life of such Participant or Beneficiary.
 
Only Participants who are described above (and the Beneficiaries of any such Participants) shall be able to receive an annuity method of distribution pursuant to this Section.
The foregoing provisions of this Section shall not apply to any Participants, former Participants or Beneficiaries whose distributions have not commenced prior to the Annuity Elimination Date.
15.4            Explanation of Annuity Method of Distribution .  The Administrator shall, no less than thirty (30) days and no more than ninety (90) days prior to the date the Accounts of a Participant or Beneficiary described in Section 15.3 become distributable pursuant to Article 12, 13 or 14 hereof, provide such individual with a written explanation of the terms and conditions of the Qualified Joint and Survivor Annuity method of distribution, the individual’s right to revoke such election or to elect a method of distribution described in Section 15.2, the effect of such revocation or election, the right of a Participant’s spouse under the Qualified Joint and Survivor Annuity method of distribution and the relative values of the methods of distribution available.
15.5            Election Against Annuity Method of Distribution .  To elect one of the optional methods of distribution set forth in Section 15.2, a Participant or Beneficiary described


in Section 15.3 shall notify the Administrator of such election in writing.  If a such a Participant is married, any such election of an optional form of payment shall be effective only if his spouse consents to such election in accordance with Section 24.8 hereof.
A Participant shall be allowed to make such election for ninety (90) days after having received a written explanation of the Qualified Joint and Survivor Annuity form of payment pursuant to Section 417(a)(3)(A) of the Code and any lawful regulations thereunder; provided, that a Participant’s distribution shall be delayed if necessary to insure that the Participant shall have at least thirty (30) days after he receives the information required by Section 417(a)(3)(A) of the Code within which to elect a form of payment.  In addition to the foregoing, a Participant may, subject to the spousal consent requirement, revoke a prior election and elect another optional method of distribution, if desired, prior to the date benefits will be paid or will commence to be paid to him, as long as such ninety (90) day period has not expired.
15.6            Cash-Out of Small Account Balances .  In the event that the value of a retired, terminated or deceased Participant’s distributable Account balances does not exceed Five Thousand Dollars ($5,000.00) at the time of distribution, or at the time of any prior distribution, the Administrator shall direct the Trustee to distribute such distributable Account balances in a single lump sum payment without the consent of the Participant, his spouse or his Beneficiary; provided, however, that the Trustee shall not make any such single lump sum payment after the date a Participant’s distribution has commenced unless the Participant and his spouse, if any, or in the case of a payment to the surviving spouse of a deceased Participant, the spouse, consent to the single lump sum payment in writing and provided further that any such lump sum payment shall be made in accordance with the provisions of Section 15.11 hereof.  Unless such a Participant or Beneficiary elects to receive a distribution which includes whole Shares, the


Trustee shall sell any Shares or other assets credited to his distributable Accounts as of the date distribution is to be made and distribute the amount of his distributable Account balances in a single lump sum payment of cash.  Any such single lump sum payment shall be in full settlement of such Participant’s, spouse’s or Beneficiary’s rights under this Plan.
15.7            Restrictions on Distributions .  Notwithstanding any other provisions of this Plan, distributions made hereunder shall be subject to the following restrictions:
 
(a)
in the case of a living Participant:
 
 
(i)
distribution must commence on or before the April 1 following the end of the calendar year in which:
 
 
(A)
he attains age seventy and one-half (70-1/2) or retires, whichever is later, if the Participant is not a five percent (5%) owner with respect to the Plan Year ending in such calendar year; or
 
 
(B)
he attains age seventy and one-half (70-1/2) if the Participant is a five percent (5%) owner with respect to the Plan Year ending in such calendar year;
 
 
(ii)
annuity payments shall not be made beyond the life of the Participant or the joint lives of the Participant and his spouse or Beneficiary;
 
 
(iii)
installment distributions shall not be payable over a period of years in excess of his life expectancy or the joint life expectancies of himself and his spouse or Beneficiary; and
 
 
(b)
in the case of a deceased Participant, distributions after his death shall be payable either:
 
 
(i)
within five (5) years of the date of his death; or
 
 
(ii)
if distribution commences to his Beneficiary, either:
 
 
(A)
within one (1) year of the date of his death or on a later date permitted under any lawful regulations issued by the Secretary of the Treasury; or
 


 
(B)
if his spouse is his Beneficiary, by the date such Participant would have attained age seventy and one-half (70-1/2);
 
over the life of such Beneficiary or over a period not extending beyond the life expectancy of such Beneficiary; or
 
 
(iii)
if the Participant’s distribution had commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) or (a)(iii) above, such distribution must be completed by the remainder of the period specified in said subparagraph (a)(ii) or (a)(iii); or
 
 
(iv)
if the Participant’s distribution had not commenced prior to his death under a form of payment meeting the requirements of subparagraph (a)(ii) or (a)(iii) above and the Participant’s spouse is entitled to a distribution hereunder but dies prior to the commencement of such distribution, then the limitations of this Section 15.7(b) shall be applied as if the spouse were the Participant; and
 
 
(c)
in the event payments are made to a Participant’s child, for purposes of this Section such payments shall be deemed to be paid to the Participant’s spouse if such payments will become payable to such spouse upon such child reaching majority or any other event permitted under any lawful regulations issued by the Secretary of the Treasury.
 
A Participant or Beneficiary may elect to have his life expectancy redetermined from time to time but no more frequently than annually.  In the event a Participant or Beneficiary fails to make such an election, then no recalculation shall be performed.  Notwithstanding the foregoing, with respect to distributions made on or after July 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on July 1, 2001.  This provision shall continue in effect until the end of last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service.


15.8            Incidental Death Benefit Requirements .  Except in the case of a joint and survivor annuity contract issued on the joint lives of a Participant and his spouse, any other method of distribution payable to a Participant shall conform to the incidental death benefit requirements of Section 1.401(a)(9)-2 of the Treasury Regulations.  Notwithstanding the foregoing, with respect to distributions made on or after January 17, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001.  This provision shall continue in effect until the end of last calendar year beginning before the effective date of final regulations under Section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service.
15.9            Purchase and Transfer of Annuity Contract .  In the event a Participant or Beneficiary shall be entitled to receive distribution of his Accounts in the form of an annuity, the Administrator shall direct the Trustee to sell any Shares and any other assets credited to his Accounts and the Administrator shall use the amount of his distributable Accounts to purchase an annuity contract from an insurance company.  If the Administrator obtains an annuity contract or contracts for the benefit of a Participant or a Beneficiary as provided above, the Administrator shall, after having selected such settlement options and placed such restrictive endorsements thereon as it deems necessary or desirable, transfer ownership of the contract or contracts to such Participant or Beneficiary and deliver said contract or contracts to him.
15.10                       Maintenance of Account .  As long as assets of this Plan remain credited to an Account of a Participant or Beneficiary, the Administrator shall continue to maintain and administer said Account in accordance with the terms and provisions of this Plan.


15.11                       Direct Rollover .  Any distribution made hereunder to a Distributee shall be made directly to such Distributee unless he elects a Direct Rollover pursuant to the second paragraph of this Section; provided, however, that the Distributee must acknowledge in writing that he understands that any payment which includes more than two hundred dollars ($200.00) in cash and which, under Code Section 402(c), is eligible to be rolled over to an Eligible Retirement Plan will be subject to withholding taxes.
Each Distributee shall have the right to direct that any distribution which, under Code Section 402(c), qualifies as an Eligible Rollover Distribution be transferred directly to an Eligible Retirement Plan.  A Distributee may direct that part of the distribution be transferred directly to an Eligible Retirement Plan and the balance be paid to him.  A Distributee is not permitted to direct that his distribution be transferred directly to more than one Eligible Retirement Plan.  In the event that a Distributee fails to make any direction, the distribution shall be paid directly to him after deduction of appropriate withholding taxes.
Unless the context otherwise indicates, the following terms shall have the following meanings whenever used in this Section:
 
(a)
“Eligible Rollover Distribution” shall mean any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include:
 
 
(i)
any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee’s designated Beneficiary, or for a specified period of ten (10) years or more;
 
 
(ii)
any distribution to the extent such distribution is required under Section 15.7 hereof which reflects the requirements under Section 401(a)(9) of the Code;
 
 
(iii)
the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net
 


 
unrealized appreciation with respect to employer securities), except that for distributions made on or after January 1, 2002, after tax contributions are included in a Participant’s Eligible Rollover Distribution; and
 
 
(iv)
effective for distributions occurring on or after January 1, 2002, any hardship distribution made in accordance with Article 10.
 
 
(b)
“Eligible Retirement Plan” shall mean:
 
 
(i)
an individual retirement account described in Section 408(a) of the Code;
 
 
(ii)
an individual retirement annuity described in Section 408(b) of the Code;
 
 
(iii)
an annuity plan described in Section 403(a) of the Code;
 
 
(iv)
a qualified trust described in Section 401(a) of the Code; or
 
 
(v)
effective for distributions made on or after January 1, 2002, an eligible deferred compensation plan described in Section 457(b) of the Code which is maintained by an eligible employer described in Section 457(e)(1)(A) of the Code; or
 
 
(vi)
effective for distributions made on or after January 1, 2002, an annuity contract described in Section 403(b) of the Code,
 
that accepts the Distributee’s Eligible Rollover Distribution.
 
Notwithstanding the foregoing, for Plan Years beginning before January 1, 2002, in the case of an Eligible Rollover Distribution to the surviving spouse of a deceased Employee, an Eligible Retirement Plan is limited to an individual retirement account or individual retirement annuity.
 
 
(c)
“Distributee” shall mean:
 
 
(i)
an Employee or former Employee; and
 
 
(ii)
an Employee’s or a former Employee’s surviving spouse and an Employee’s or former Employee’s spouse or former spouse who is the Alternate Payee under a Qualified Domestic Relations Order, as defined in Section 2.43 hereof, without regard to the interest of the spouse or former spouse.
 


 
(d)
“Direct Rollover” shall mean a payment by this Plan to the Eligible Retirement Plan specified by the Distributee.
 
15.12                       Missing Participants .  If, after reasonable efforts of the Administrator to locate a Participant or the Beneficiary of a deceased Participant, including sending a certified letter, return receipt requested, to the last known address of the Participant or Beneficiary, the Administrator is unable to locate the Participant or Beneficiary, then the amounts distributable to such Participant or Beneficiary shall, pursuant to applicable state or Federal laws, be treated as a forfeiture under the Plan.  In the event that such a Participant or Beneficiary is located subsequent to such a forfeiture, then, pursuant to applicable state or Federal laws, his benefit shall be reinstated (without earnings from the date of forfeiture except to the extent required by law) and shall not be used to determine his Annual Additions for the Plan Year in which it is reinstated.  If the Plan is joined as a party to any escheat proceedings involving an amount forfeited pursuant to this Section, the Plan shall comply with the final judgment as if it were a claim filed by the form Participant or Beneficiary and shall pay in accordance with said judgment.
15.13                       Pre-Restatement Date Methods of Distribution .  Notwithstanding any provisions of this Article to the contrary, the method of distribution being utilized, as of the date immediately prior to the Restatement Date, to distribute benefits to or with respect to Participants who had retired, died, become disabled, or terminated employment prior to the Restatement Date shall not be changed.


ARTICLE 16
 
ADMINISTRATION
 
16.1            Powers and Duties of Administrator .  The Board of Directors shall appoint the Administrator which shall be any person(s), corporation or partnership, (including the Company itself) as the Board of Directors shall deem desirable in its sole discretion.  The Company shall notify the Trustee of the identity of the Administrator and of any change therein.  As of the Restatement Date, the Administrator shall be the Company.  The Company, in its capacity as Administrator, shall have the power to delegate to agents or delegates, the right to exercise any powers given to the Administrator hereunder or under law and/or the obligation to carry out any or all of its duties as Administrator.  Any reference contained in the Plan to the Administrator shall be deemed to apply also to an agent or delegate, if the Company shall have delegated such duty or power to the agent or delegate.
Except as expressly set forth herein with respect to the duties and responsibilities of the Trustee, the Participating Employers or the Committee, the Administrator shall administer this Plan and shall have all powers and duties granted or imposed on an “administrator” by ERISA.  The Administrator shall determine any and all questions of fact, resolve all questions of interpretation of this instrument which may arise under any of the provisions of this Plan as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of this Plan which it is herein given or for which no contrary provision is made.  Subject to the provisions of Section 16.6 hereof, the Administrator’s decision with respect to any matter shall be final and binding upon the Trustee and all other parties concerned, and neither the Administrator nor any of its directors, officers or Employees, if applicable, shall be liable in that regard except for gross abuse of the discretion given it and them under the terms of this Plan.  In rendering its decisions hereunder, the


Administrator shall have full power and discretion to interpret this Plan, to resolve ambiguities, inconsistencies, and omissions, to determine any question of fact, and to determine the right to benefits of, and the amount, time and form of benefits, if any, payable to, the applicant in accordance with the provisions of this Plan.  No benefits shall be payable hereunder unless the Administrator (or, if the Administrator’s decision is appealed, the Committee acting in its review capacity hereunder) determines in its discretion such benefit is due under the terms of this Plan.  All determinations of the Administrator, and other exercises of the Administrator’s discretion hereunder shall be made in such manner as the Administrator determines to be in accord with applicable law and generally uniform, consistent, and nondiscriminatory with respect to all Participants and Beneficiaries in similar circumstances.  The Administrator, from time to time, may designate one or more persons or agents to carry out any or all of its duties hereunder.  All determinations of the Administrator and other exercises of the Administrator’s discretion hereunder shall be made in such a manner as the Administrator determines to be in accord with applicable law and generally uniform, consistent and nondiscriminatory with respect to all Participants, former Participants and Beneficiaries in similar circumstances.  The Administrator, from time to time, may designate one or more persons or agents to carry out any or all of its duties hereunder.
Without limiting any other powers expressly granted to the Administrator hereunder, the Administrator shall have the power to adopt and implement such rules and procedures regarding the administration of the Plan as the Administrator may deem appropriate.  Notwithstanding any provision of the Plan to the contrary, such rules and procedures may permit or require any elections by Participants, former Participants, or Beneficiaries regarding deferrals, after-tax contributions, investments, loans, withdrawals and distributions to be made in such


form (including in writing, orally, telephonically, or electronically) as the Administrator may determine.  In addition, the Administrator shall have the power to rename, combine, and separate Accounts, establish sub-Accounts, or otherwise restructure any Accounts under this Plan or any Supplement in such manner as the Administrator deems appropriate for the administration of the Plan, provided that such restructuring shall not change the balance of the Accounts of any Participant as of the time of such restructuring (disregarding the impact of any rounding).  Unless the Plan specifically provides otherwise, the provisions of the Plan with respect to vesting, distribution rights and restrictions, loan rights and restrictions, investment rights, and other features applicable to the balance of any Account of any Participant prior to such restructuring shall continue with respect to the portion of the Accounts of such Participant after the restructuring which are attributable to such balance.  All references in this Plan to any Account prior to such a restructuring shall thereafter be deemed to refer to the Account, Accounts, or portions thereof into which such prior Account was restructured.
16.2            Application for Retirement Benefits .  Each Participant or Beneficiary who is eligible for benefits under Article 12, 13, or 14 shall apply therefor on a form which shall be given to him for that purpose by the Administrator; provided, however, that the foregoing requirement shall not apply in any case in which a Participant or Beneficiary shall be unable, for physical, mental, or any other reason satisfactory to the Administrator to make such application.  The Administrator shall not process any application filed by a Participant or Beneficiary with respect to a retroactive claim for benefits.  Upon finding that such Participant or Beneficiary satisfies the eligibility requirements for benefits under Article 12, 13, or 14, the Administrator shall promptly notify the Trustee in writing of his eligibility and of the method of distribution selected in accordance with Article 15.


Notwithstanding anything contained herein to the contrary, a Participant must file a claim for disability retirement benefits pursuant to Article 13 hereof within one hundred twenty (120) days following such Participant’s Termination of Employment due to this Total and Permanent Disability.
16.3            Denial of Benefit Claim .  If any Participant, any former Participant, any Beneficiary or the authorized representative of a Participant, former Participant or Beneficiary shall file an application for benefits hereunder and such application is denied, in whole or in part, he shall be notified in writing of the specific reason or reasons for such denial unless the granting or denial of the application is in the sole discretion of the Administrator, in which event the notice to the applicant shall state that the Administrator has denied the application pursuant to the exercise of its discretionary powers under this Plan.  The notice shall also set forth the specific Plan provisions upon which the denial is based, an explanation of the provisions of Section 16.6 hereof and any other information deemed necessary or advisable by the Administrator.  Such notice shall be issued within ninety (90) days of the filing of a claim by a Participant, former Participant or Beneficiary; provided, however, that such ninety (90) day time period may be extended for a period of up to an additional ninety (90) days in the event that special circumstances require an extension of time for processing the claim.  If such an extension of time for processing the claim is required, written notice of such extension shall be furnished to the applicant prior to the end of the initial ninety (90) day period.  Such notice shall also indicate the special circumstances which make such extension necessary.
16.4            Administrative Committee .  The Board of Directors or the appropriate officers of the Company shall appoint the members of an Administrative Committee which shall consist of two (2) or more members.  The members of the Committee shall remain in office at


the will of the Board of Directors or the Company, and the Board of Directors or the Company, from time to time, may remove any of said members with or without cause.  A member of the Committee may resign upon written notice to the Board of Directors or appropriate officer of the Company.  The fact that a person is a Participant or a former Participant or a prospective Participant shall not disqualify him from acting as a member of the Committee.  In case of the death, resignation or removal of any member of the Committee, the remaining members shall act until a successor-member shall be appointed.  The Company shall notify the Trustee in writing of the names of the members of the Administrative Committee, of any and all changes in the membership of the Administrative Committee, of the member designated as Chairman and the member designated as Secretary, and of any changes in either office.  Until notified of a change, the Trustee shall be protected in assuming that there has been no change in the membership of the Administrative Committee since the last notification was filed with it.  All communications to the Committee shall be addressed to its Secretary at the address of the Company.
16.5            Committee Procedures .  The Committee may act on a matter of day-to-day administration of the Plan by decision of any two (2) or more of its members.  On all matters relating to claims review, the decision of a majority of the members of the Committee shall govern and control, but a meeting need not be called or held to make any decision.  The Committee shall appoint one of its members to act as its Chairman and another member to act as Secretary.  The terms of office of these members shall be determined by the Committee, and the Secretary and/or Chairman may be removed by the other members of the Committee for any reason which such other members may deem just and proper.  The Secretary shall do all things


directed by the Committee.  Any notice served or demand made on the Secretary shall be deemed to have been served or made upon the Committee.
16.6            Claims Review Procedures .  Any Participant, any former Participant, any Beneficiary or any authorized representative of a Participant, former Participant or Beneficiary whose application for benefits hereunder has been denied, in whole or in part, by the Administrator, may within sixty (60) days after receipt of written notice of denial of his claim and upon written notice to the Committee request a review by the Committee of such denial of his application.  Such review may be made by written briefs submitted by the applicant and the Administrator or at a hearing, or by both, as shall be deemed necessary by the Committee.  Any such hearing shall be held in the main offices of the Company, or at such other location as shall be agreed upon among the Administrator, the Committee and the applicant, on such date and at such time as the Committee shall designate upon not less than seven (7) days’ notice to the applicant and the Administrator unless both of them accept shorter notice.  The Committee shall make every effort to schedule the hearing on a day and at a time which is convenient to both the applicant and the Administrator.  No later than sixty (60) days after the review has been completed, the Committee shall render a decision in writing, a copy of which shall be sent to both the applicant and the Administrator.  In the event that the Committee does not reach a decision within said sixty (60) day period, the applicant shall be notified of the delay, in writing, and said decision shall be rendered no later than one hundred twenty (120) days following the applicant’s request for review.  In rendering its decision, the Committee shall have full power and discretion to interpret this Plan, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, to determine the right to benefits of, and the amount of benefits, if any, payable to, the applicant in accordance with the provisions of this Plan.  Such decision


shall set forth the specific reason or reasons for the decision and the specific Plan provisions upon which the decision is based.  Such decision shall be final and binding on the applicant, the Trustee, the Participating Employers and the Administrator.
No legal action may be commenced against the Plan, the Administrator or the Committee more than one hundred eighty (180) days after the Committee’s final decision has been rendered with respect to all or any portion of the claim.
16.7            Fees and Expenses .  No member of the Committee shall be disqualified from acting on any question because of his interest therein.  No fee or compensation shall be paid to any member of the Committee for his services as such, but the Committee shall be reimbursed for its expenses from the Trust Fund, unless such expenses are paid by the Participating Employers.  The Committee and the Administrator may hire such attorneys, accountants, agents, clerks, recordkeepers and secretaries as they deem desirable in the performance of their functions.
The expenses of administration of this Plan incurred by the Committee, the Administrator or the Trustee, including but not limited to, accountants’ fees, attorneys’ fees, and the fees charged by the Trustee or agents of the Committee or the Administrator, shall be paid in any one of the following manners as determined by the Company in its sole discretion:
 
(a)
out of the Trust Fund;
 
 
(b)
out of individual Participants’ Accounts, if such fees directly relate to such Participants Account activities;
 
 
(c)
out of the annual contributions of the Participating Employers, if any; or
 
 
(d)
directly by the Participating Employers.
 
16.8            Exhaustion of Review Procedures; Statute of Limitations .  The interpretations, determinations and decisions of the Administrator and the Committee shall,


except to the extent provided in Section 16.6 hereof, be final and binding upon all persons with respect to any right, benefit and privilege hereunder.  Except as otherwise provided in ERISA, the review procedures of said Section 16.6 shall be the sole and exclusive remedy and shall be in lieu of all actions at law, in equity, pursuant to arbitration or otherwise.  In any event, a Participant, former Participant or Beneficiary must exhaust the review procedures of Section 16.6 hereof prior to the commencement of any such action.  For claims incurred on or after the Restatement Date, no legal action may be commenced against the Plan, the Administrator or the Committee more than one hundred eighty (180) days after the Committee’s final decision has been rendered, in accordance with Section 16.6, with respect to all or any portion of the claim.
16.9            Delegated Duties and Responsibilities .  The Participating Employers, Administrator, Committee, Board of Directors, Trustee and their respective officers, members, Employees and agents shall have no duty or responsibility under this Plan other than the duties and responsibilities expressly assigned to them herein or delegated to them pursuant hereto or the Trust Agreement.  None of them shall have any duty or responsibility with respect to the duties or responsibilities assigned or delegated to another of them.  In no event shall the Participating Employers, Administrator, Committee, Board of Directors or their respective officers, members, Employees and agents be deemed to have any duty or responsibility with respect to the holding, safekeeping, investment, reinvestment and administration of the Trust Fund.
16.10                       Limitation of Liability and Indemnification .  Except as otherwise provided in ERISA, the Administrator, Committee, Board of Directors, and their respective officers and members shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in the administration of this Plan.  The Participating Employers shall indemnify, defend, and hold harmless the Administrator, Committee, Board of Directors, and


their respective officers, Employees, members and agents, for all acts taken or omitted in carrying out their responsibilities under the terms of this Plan or other responsibilities imposed upon such persons by ERISA.  This indemnification for all acts or omissions is intentionally broad, but shall not provide indemnification for embezzlement or diversion of Trust funds for the benefit of any such persons, nor shall it provide indemnification for excise taxes imposed under Section 4975 of the Code.  The Participating Employers shall indemnify such persons for expenses of defending an action by a Participant, former Participant, Beneficiary, government entity, or other persons, including all legal fees and other costs of such defense.  The Participating Employers will also reimburse such a person for any monetary recovery in a successful action against such person in any federal or state court or arbitration.  In addition, if the claim is settled out of court with the concurrence of the Company, the Participating Employers shall indemnify such person for any monetary liability under said settlement.


ARTICLE 17
 
PROHIBITION AGAINST ALIENATION
 
17.1            Non-Alienation of Benefits .  Neither any property nor any interest in any property held for the benefit of any Participant, former Participant or Beneficiary shall be alienated, disposed of or in any manner encumbered, voluntarily, involuntarily or by operation of law, while in the possession or control of the Trustee except by an act of the Trustee or the Participant, former Participant or Beneficiary specifically authorized hereunder.
17.2            Exception For Qualified Domestic Relations Order .  Section 17.1 hereof shall not apply to the creation, assignment or recognition of a right to any benefit under this Plan pursuant to a Qualified Domestic Relations Order and shall not apply to the payment of any benefits to an Alternate Payee pursuant to such an order.
17.3            Procedures For Determining Whether Order Is Qualified .  In the event this Plan is served with a Domestic Relations Order, the Administrator shall promptly notify the Participant or former Participant and any Alternate Payee to whom such order relates of the receipt of such order and this Plan’s procedures for determining whether such order is a Qualified Domestic Relations Order.  Within a reasonable time after receipt of such Domestic Relations Order, the Administrator shall determine whether such order is a Qualified Domestic Relations Order and shall notify the Participant or former Participant and each Alternate Payee of its determination.
17.4            Segregated Account .  During any period in which the issue of whether a Domestic Relations Order is a Qualified Domestic Relations Order is being determined, the Administrator shall direct the Trustee to credit the portion of the Participant’s or former Participant’s Account balances which would have been payable to an Alternate Payee during such period if the order had been determined to be a Qualified Domestic Relations Order during


such period to a segregated Account under this Plan and to debit the appropriate Accounts of the Participant or former Participant.  If the Domestic Relations Order is determined to be a Qualified Domestic Relations Order within eighteen (18) months after this Plan is served with such Domestic Relations Order, the Administrator shall hold and dispose of the segregated Account balance in accordance with the terms of the Qualified Domestic Relations Order.  If:
 
(a)
it is determined that such Domestic Relations Order is not a Qualified Domestic Relations Order; or
 
 
(b)
the issue with respect to whether such Domestic Relations Order is a Qualified Domestic Relations Order is not resolved within eighteen (18) months after this Plan is served with such Domestic Relations Order;
 
the Administrator shall transfer the segregated Account balance to the appropriate Accounts maintained for the benefit of the person who would have been entitled to such segregated Account balance if this Plan had never been served with such Domestic Relations Order.  If eighteen (18) months have elapsed since this Plan was served with such Domestic Relations Order and such order is subsequently determined to be a Qualified Domestic Relations Order, such order shall only be applied prospectively.
17.5            Investment of Segregated Account .  The balance credited to any segregated Account which has been created under Section 17.4 hereof after this Plan has been served with a Domestic Relations Order (other than Shares and other amounts credited to the Invacare Segregated Stock Fund) shall be invested in such of the Investment Funds established pursuant to Article 17 hereof as the Participant to whom the Order relates shall direct until it is determined whether such Domestic Relations Order is a Qualified Domestic Relations Order.  If the Order is determined to be a Qualified Domestic Relations Order, the Alternate Payee shall thereafter be entitled to direct the investment of such Account (other than Shares and other


amounts credited to the Invacare Segregated Stock Fund) as though the Alternate Payee were a Participant.
17.6            Distributions Pursuant to Qualified Domestic Relations Orders .  If a Qualified Domestic Relations Order so provides, the segregated Account established pursuant to Section 17.4 may be distributed to the Alternate Payee at the time specified in the Qualified Domestic Relations Order, regardless of whether the Participant is entitled to receive an immediate distribution from the Plan at such time.
17.7            Application of Loan Provisions to Alternate Payees .  An Alternate Payee on whose behalf a segregated Account has been established shall not be entitled to borrow from such Account.  If a Qualified Domestic Relations Order specifies that an Alternate Payee is entitled to any portion of the Accounts of a Participant who has an outstanding loan balance, all outstanding loans shall generally continue to be held in the Participant’s Accounts and shall not be divided between the Participant’s and Alternate Payee’s Accounts.
17.8            Review Procedures .  Any Participant, former Participant or Alternate Payee who is affected by a Domestic Relations Order served upon this Plan may, upon written notice to the Committee, request a review by such Committee of the Administrator’s determination with respect to the qualification or lack of qualification of such Domestic Relations Order.  Any such review by the Committee shall be subject to the rules and procedures set forth in Article 16 hereof.


ARTICLE 18
 
AMENDMENT AND TERMINATION
 
18.1            Power to Amend and Terminate .  This Plan may be modified, altered, amended, changed or terminated by the Company at any time generally by action of the Board of Directors.  Notwithstanding the foregoing, the proper officers of the Company shall have the power to amend the Plan in order to reflect desired changes in the administrative provisions thereof or to make such changes to the Plan as are required in order to maintain the tax qualification of the Plan pursuant to Code Sections 401(a), 401(k), 401(m), 409 and 501(a).  Any amendment to the Plan shall be evidenced by an instrument in writing executed in the name of the Company by one (1) or more duly authorized officers of the Company, but no rights of Participants, former Participants or Beneficiaries receiving benefits under this Plan and no other rights under this Plan which are protected rights under Code Section 411(d)(6) shall in any way be reduced except as permitted by the Code or the Secretary of the Treasury.  This Plan as amended and restated herein may be modified and amended retroactively, if necessary, to secure exemption effective on the Restatement Date under Code Sections 401(a), 401(k), 401(m), 409 and 501(a).   No amendment shall be binding on the Trustee until the receipt of such amendment by the Trustee.
18.2            Termination .  Upon termination of this Plan all assets of the Trust Fund after deduction therefrom of any accrued expenses and fees of the Trustee and any expenses and fees relating to such termination incurred or to be incurred by the Trustee shall be allocated among the then existing Accounts.  Each such Account shall be adjusted in accordance with Sections 7.5 and 7.6 hereof.  All Account balances of Participants and former Participants at the time of termination of this Plan shall be fully vested and nonforfeitable.   Such Account balances shall be forthwith distributed to the Participant or former Participant for whose benefit the


Accounts were established if he is living on the date of termination, or if he shall have died before distribution, in accordance with the provisions of Article 14 hereof.
Upon termination of this Plan all annuity policies held by the Trustee shall be delivered, and all rights therein shall be transferred to those persons then receiving benefits or entitled to receive benefits from them.
18.3            Partial Termination or Complete Discontinuance of Contributions .  Upon the partial termination of this Plan or upon complete discontinuance of contributions to this Plan by the Participating Employers, the Account balances of Participants affected by such partial termination or complete discontinuance shall be fully vested and nonforfeitable.  However, after any such partial termination or complete discontinuance of contributions, the Administrator shall continue to administer this Plan in the manner in which this Plan was administered before any such partial termination and a Participant shall only be entitled to receive benefits upon the occurrence of an event which under the terms of this Plan would entitle him to receive such benefits.  For purposes of this Section, no event shall be a “partial termination” unless:  (a) the Company has so designated such event in a writing delivered to the Trustee; or (b) such event has been finally and expressly determined to be a partial termination within the meaning of Section 411(d) of the Code in an administrative or judicial proceeding to which both the Company and the Commissioner of Internal Revenue or his delegate were parties.


ARTICLE 19
 
LIMITATIONS ON CONTRIBUTIONS
 
19.1            Contributions Are Subject to Limitations .  The amount and allocation of contributions under this Plan, including any contributions made pursuant to a Supplemental Agreement, shall be subject to several limitations.  Those limitations are as follows:
 
(a)
Salary Deferral Contributions shall be subject to the individual dollar limit described in Section 19.2 hereof;
 
 
(b)
Salary Deferral Contributions shall be subject to the Deferral Percentage limit set forth in Section 19.3 hereof;
 
 
(c)
Matching contributions and after-tax contributions shall be subject to the Contribution Percentage limit set forth in Section 19.4 hereof;
 
 
(d)
For Plan Years beginning before January 1, 2002, the contributions described in subparagraphs (b) and (c) above shall be subject to the limit on “multiple use” set forth in Section 19.5 hereof;
 
 
(e)
All contributions made pursuant to Articles 5 and 6 hereof shall, in the aggregate, be subject to the deductibility limit set forth in Section 19.6 hereof; and
 
 
(f)
The allocation of all of the foregoing contributions, in the aggregate, shall be subject to the limitation on annual additions set forth in Article 20 hereof.
 
In addition, the following rules and procedures shall apply for purposes of this Article:
 
(i)
For purposes of determining a Participant’s Deferral or Contribution Percentage pursuant to Section 19.8(b) or 19.8(c) hereof, all Salary Deferral Contributions that are made under two (2) or more plans (or after-tax and matching contributions, as appropriate) that are aggregated for purposes of Sections 401(a)(4) or 410(b) of the Code (other than Section 410(b)(2)(A)(ii) of the Code) shall be treated as made under a single plan.
 
 
(ii)
If two (2) or more plans are permissively aggregated for purposes of Section 401(k) or 401(m) of the Code, the
 


 
aggregated plans shall also satisfy Sections 401(a)(4) and 410(b) of the Code as though they were a single plan.
 
 
(iii)
The Deferral or Contribution Percentage of any Highly Compensated Employee shall be determined by treating all plans maintained by the Company and any Affiliates that are subject to Section 401(k) or 401(m) of the Code (other than those that may not be permissively aggregated) as a single plan.
 
19.2            The Dollar Limit .  The Salary Deferral Contributions with respect to the taxable year of a Participant plus similar amounts contributed on a similar basis by any other employer (whether or not related to a Participating Employer) required by law to be aggregated with his Salary Deferral Contributions under this Plan shall not exceed Ten Thousand Five Hundred Dollars ($10,500.00) or, effective as of the following dates:
Effective Date                                             Dollar Limit
January 1, 2002                                            Eleven Thousand Dollars ($11,000.00)
January 1, 2003                                            Twelve Thousand Dollars ($12,000.00)
January 1, 2004                                            Thirteen Thousand Dollars ($13,000.00)
January 1, 2005                                            Fourteen Thousand Dollars ($14,000.00)
January 1, 2006                                            Fifteen Thousand Dollars ($15,000.00)
plus any adjustment for cost-of-living after 2001 as determined pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code.
In the event that the Salary Deferral Contributions for a Participant’s taxable year exceed such limit, or in the event that the Administrator shall receive notice from a Participant by the March 1 next following the close of a Participant’s taxable year that his Salary Deferral Contributions, together with similar contributions under plans of other employers shall have exceeded such limit, the Administrator shall cause the amount of excess contributions, together with any earnings allocable to such excess contributions, to be refunded to the Participant by the


following April 15th.  Any such refund of excess contributions shall be debited from the Participant’s Salary Deferral Account.
19.3            Deferral Percentage Limit .  Salary Deferral Contributions made on behalf of a Participant for a Plan Year (hereinafter sometimes referred to as the “current Plan Year”) shall be limited so that the average Deferral Percentage for the Highly Compensated Employees who are Participants or who are eligible to become Participants for such Plan Year shall not exceed an amount determined based upon the average Deferral Percentage for the Employees who are Participants or who are eligible to become Participants but are not Highly Compensated Employees for the preceding Plan Year or, if the Company elects, for the current Plan Year, as follows:
 
(A)
 
(B)
Average Deferral
 
Limit on Average Deferral
Percentage for Employees
 
Percentage for Employees
Eligible to Participate
 
Eligible to Participate
who are not Highly
 
who are Highly
Compensated
 
Compensated
     
Less than 2%
 
2 times Column (A)
2% or more but less than 8%
 
Column (A) plus 2%
8% or more
 
1.25 times Column (A)
 
In the event the Company elects to determine the average Deferral Percentages of Employees who are not Highly Compensated Employees on the basis of the current Plan Year rather than the preceding Plan Year in accordance with Section 401(k)(3)(A) of the Code, such election by the Company may not be changed for Plan Years commencing after December 31, 1998, except as provided by the Secretary of the Treasury.
If, for any Plan Year, this Plan satisfies the requirements of Section 19.4 hereof, then the Company may elect, in such manner as the Secretary of the Treasury or his delegate


may provide, to take into account, as additional amounts for purposes of this Section, all or a part of the fully vested matching contributions, if any, made for the Plan Year.
19.4            Contribution Percentage Limit .  The contributions made for a Plan Year (hereinafter sometimes referred to as “current Plan Year”) as matching contributions shall be limited so that the average Contribution Percentage for the Highly Compensated Employees who are Participants or who are eligible to become Participants for such Plan Year shall not exceed an amount determined based upon the average Contribution Percentage for the Employees who are Participants or who are eligible to become Participants but are not Highly Compensated Employees for the preceding Plan Year or, if the Company elects, for the current Plan Year, in accordance with the table set forth in Section 19.3 hereof.
In the event the Company elects to determine the average Contribution Percentages of Employees who are not Highly Compensated Employees on the basis of the current Plan Year rather than the preceding Plan Year in accordance with Section 401(m)(2)(A) of the Code, such election by the Company may not be changed for Plan Years commencing after December 31, 1998, except as provided by the Secretary of the Treasury.
If, for any Plan Year, this Plan satisfies the requirements of Section 19.3 hereof, then the Company may elect, in such manner as the Secretary of the Treasury or his delegate may provide, to take into account, as additional amounts for purposes of this Section, all or a part of the Salary Deferral Contributions made to this Plan.
19.5            Pre-2002 Multiple Use Limit .  For Plan Years beginning prior to January 1, 2002, if the sum of the Deferral Percentage and the Contribution Percentage for one or more Highly Compensated Employees exceeds the Aggregate Limit defined in Section 19.8(a) hereof, the Contribution Percentage for such Employee or Employees shall be reduced in accordance


with Section 19.7 hereof so that the Aggregate Limit is not exceeded.  The amount by which a Highly Compensated Employee’s Contribution Percentage is reduced shall be treated as an excess contribution pursuant to Section 19.7.  The Deferral Percentage and Contribution Percentage of the Highly Compensated Employees shall be determined after any corrections are made to meet the Deferral Percentage and Contribution Percentage limits.  Multiple use does not occur if neither the average Deferral Percentage nor the average Contribution Percentage of the Highly Compensated Employees exceeds one and twenty-five hundredths (1.25) multiplied by the corresponding average Deferral Percentage or average Contribution Percentage of the Non-Highly Compensated Employees.
19.6            Deductibility Limit .  In no event shall the total of all contributions made pursuant to Articles 5 and 6 hereof exceed the maximum amount allowable as a deduction under Section 404(a)(3) of the Code or any statute of similar import, including the amount of any contribution carryforward allowable under said Section 404(a)(3) and, effective January 1, 2002, taking into account Section 616 of the Economic Growth and Tax Relief Reconciliation Act of 2001.  Notwithstanding the foregoing, effective January 1, 2002, amounts contributed by Participating Companies pursuant to Participants’ elections under Section 5.1 hereof, shall not be considered in determining the maximum amount allowable as a deduction.  This limitation shall not apply to contributions which may be required in order to provide the minimum contributions described in Article 24 hereof for any Plan Year in which this Plan is Top-Heavy.  Nor shall this limitation apply to contributions which may be required in order to recredit the Account of any rehired Participant whose Account is to be recredited with prior forfeitures as described in Section 12.5 hereof.


19.7            Distribution of Excess Contributions .  In the event that the limitations set forth in Section 19.2, 19.3, 19.4 or 19.5 hereof shall be exceeded, the Administrator shall take action to reduce future Salary Deferral Contributions made pursuant to Article 5 hereof and/or future matching contributions made pursuant to Article 6 hereof, as appropriate.  Such action may include a reduction in the future rate of Salary Deferral Contributions of any Highly Compensated Employee pursuant to any legally permissible procedure.  In the event that such action shall fail to prevent the excess, prior Salary Deferral Contributions made pursuant to Article 5 hereof, plus any income and minus any losses allocable thereto to the date of distribution, shall be distributed to the Participant on whose behalf such contributions were made.  In the event that any Salary Deferral Contributions made pursuant to Article 5 hereof are distributed to a Participant, any related matching contributions, plus any income and minus any losses allocable thereto to the date of distribution, shall be:
 
(a)
forfeited and disposed of if such matching contributions are not vested; and
 
 
(b)
distributed to the Participant if such matching contributions are vested.
 
In the event of such a distribution or forfeiture, the Salary Deferral Account, and if applicable the Matching Contribution Account, of such Participant shall be debited with the amount of such distribution or forfeiture.  Any such adjustments made in Participants’ Accounts shall be made in a uniform manner for similarly situated Participants.
In the event that distributions must be made in order to bring this Plan into compliance with Section 19.3, 19.4 or 19.5 hereof, the Administrator shall reduce the dollar amount of deferrals of Highly Compensated Employees in descending order, beginning with the Highly Compensated Employee(s) with the highest total deferral amount until such limitations have been satisfied.  In performing such reduction, the reduced deferral amount of any affected


Highly Compensated Employee shall, in no event, be lower than that of the Highly Compensated Employee with the next highest deferral amount.
Any excess Salary Deferral Contributions to be distributed to a Participant pursuant to this Section shall be reduced by any excess Salary Deferral Contributions previously distributed to such Participant for such Participant’s taxable year ending with or within the Plan Year in accordance with Code Section 402(g)(2).
Any excess matching contributions for a Plan Year, together with any income allocable to such excess matching contributions, which are distributable as described above shall be distributed to a Participant within one (1) year after the end of such Plan Year.  If such excess amounts are not distributed within two and one-half (2-1/2) months of the end of the Plan Year, a ten percent (10%) excise tax on such excess amounts shall be imposed on the Company.  Excess matching contributions shall be treated as annual additions under Article 20 hereof.
19.8            Definitions .  For purposes of this Article, the following definitions and special rules shall apply:
 
(a)
“Aggregate Limit” shall mean the greater of (i) or (ii), where:
 
 
(i)
equals the sum of:
 
 
(A)
one and twenty-five hundredths (1.25) times the greater of the Deferral Percentage or the Contribution Percentage for the Non-Highly Compensated Employees; and
 
 
(B)
two (2) percentage points plus the lesser of the Deferral Percentage or the Contribution Percentage for the Non-Highly Compensated Employees; and
 
 
(ii)
equals the sum of:
 
 
(A)
one and twenty-five hundredths (1.25) times the lesser of the Deferral Percentage or the Contribution Percentage for the Non-Highly Compensated Employees; and
 


 
(B)
two (2) percentage points plus the greater of the Deferral Percentage or the Contribution Percentage for the Non-Highly Compensated Employees.
 
In no event, however, shall the amounts set forth in subparagraphs (i)(B) and (ii)(B) above exceed twice the greater of the Deferral Percentage or the Contribution Percentage for the Non-Highly Compensated Employees.
 
 
(b)
“Contribution Percentage” shall mean for a Participant for any Plan Year a fraction:
 
 
(i)
the numerator of which shall equal matching contributions made on his behalf; and
 
 
(ii)
the denominator of which shall equal his Testing Compensation for such Plan Year;
 
provided, however, that the Company may elect to take into account additional contributions pursuant to Section 19.4 hereof.  In addition, “Contribution Percentage” shall mean zero percent (0%) for an Employee who is eligible to become a Participant but who is not a Participant.  In addition, matching contributions shall be considered to be made on a Participant’s behalf for a Plan Year if such matching contributions are made as a result of the Participant’s Salary Deferral Contributions, are allocated to the Participant’s Matching Contribution Account during such Plan Year and are paid to this Plan no later than twelve (12) months after the end of such Plan Year.
 
 
(c)
“Deferral Percentage” shall mean for a Participant for any Plan Year a fraction:
 
 
(i)
the numerator of which shall equal the total of the Salary Deferral Contributions made on his behalf for such Plan Year; and
 
 
(ii)
the denominator of which shall equal his Testing Compensation for such Plan Year;
 
provided, however, that the Company may elect to take into account additional contributions pursuant to Section 19.3 hereof.  In addition, “Deferral Percentage” shall mean zero percent (0%) for an Employee who is eligible to become a Participant but who is not a Participant.  In addition, Salary Deferral Contributions shall be considered to be made on a Participant’s behalf for a Plan Year if such Salary Deferral Contributions are not contingent on participation or performance of services after the end of such Plan
 


Year, such Salary Deferral Contributions would have been received (but for the deferral election) within two and one-half (2-1/2) months after the end of such Plan Year and are paid to this Plan no later than twelve (12) months after the end of such Plan Year.
 
 
(d)
“Top Paid Group” shall mean a group consisting of the top paid twenty percent (20%) of the Employees of a Participating Employer and all Affiliates ranked on the basis of Testing Compensation from a Participating Employer and all Affiliates paid during the Plan Year.  In determining the members of the Top Paid Group, the following Employees shall be excluded:
 
 
(i)
Employees who have not completed six (6) months service;
 
 
(ii)
Employees who normally work less than seventeen and one-half (17-1/2) hours per week;
 
 
(iii)
Employees who normally work during not more than six (6) months during any year;
 
 
(iv)
Employees who have not attained age twenty-one (21);
 
 
(v)
except to the extent provided in regulations, Employees who are included in a unit of Employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between Employee representatives and a Participating Employer or any Affiliate; and
 
 
(vi)
Employees who are nonresident aliens and who receive no earned income (within the meaning of Section 911(d)(2) of the Code) from a Participating Employer or any Affiliate which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code).
 
The Company may elect (in such manner as may be provided by the Secretary of the Treasury or his delegate) to apply subparagraph (i), (ii), (iii), or (iv) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) than that specified in such subparagraph.
 



ARTICLE 20
 
LIMITATION ON ANNUAL ADDITIONS
 
20.1            Code Section 415 Limitation .  Notwithstanding anything contained in this Plan to the contrary, in no event shall a Participant’s annual additions and annual amount of retirement benefits be greater than the maximum allowable amounts determined in accordance with Section 415 of the Code, taking into account (for periods prior to January 1, 2000) paragraph (e) of said Section 415, Section 1106 of the Tax Reform Act of 1986, Section 235(g) of the Tax Equity and Fiscal Responsibility Act of 1982, Section 2004(d) of ERISA and Sections 611 and 632 of the Economic Growth and Tax Relief Reconciliation Act of 2001, which are, respectively, incorporated herein by reference.
20.2            Adjustment Under Code Section 415 .  Adjustment under Section 415 of the Code shall be made in the following order:
 
(a)
first, annual additions which consist of quarterly employer contributions shall be reduced;
 
 
(b)
second, annual additions which consist of matching contributions shall be reduced; and
 
 
(c)
third, annual additions which consist of Salary Deferral Contributions shall be reduced.
 
20.3            Limitation Year and Compensation .  For purposes of calculating the maximum allowable amounts under Section 20.1 hereof, a Participant’s “Limitation Year” shall mean the calendar year and his compensation shall mean his “Testing Compensation” as defined in Article 2 hereof and paid and includible in gross income during the Limitation Year.
20.4            Application of Excess Contributions .  In the event that, after the application of any other provisions of this Plan, there still remain, as a result of an allocation of forfeitures, a reasonable error in estimating a Participant’s Compensation or other limited facts


and circumstances which the Commissioner of Internal Revenue finds justify the availability of the rules set forth in this Section, Participating Employer contributions which, if allocated to a Participant, would be in excess of the limits on annual additions set forth in Section 20.1 hereof, such excess shall be used as of the next Allocation Date and any succeeding Allocation Date, as necessary, to reduce the Participating Employer contributions which would otherwise be made for such Participant for the Taxable Years ending on such dates.  In the event such Participant is not an Active Participant on the next Allocation Date, or on any succeeding Allocation Date on which such excess still remains, such excess shall be used as of such Allocation Date and on any succeeding Allocation Date to reduce the Participating Employer contributions for all Participants who are Active Participants.  In the event that Salary Deferral Contributions made by a terminated Participant are used for the benefit of other Participants after the Participant terminates employment, the Company shall make a direct payment to the terminated Participant on whose behalf such Salary Deferral Contributions were made equal to the total of such amounts.
Until any excess described above is used to reduce Participating Employer contributions, it shall be held in a suspense account.  Such suspense account shall not be subject to the valuation procedures described in Sections 7.5 and 7.6 hereof.  Notwithstanding any other provisions of this Plan to the contrary (and specifically Section 24.7 hereof), in the event this Plan is terminated at a time when there are amounts credited to a suspense account pursuant to this Section, such excess shall be returned to the Company.  In the event that amounts representing Salary Deferral Contributions are returned to the Company hereunder, the Company shall make payments to the Participants on whose behalf such Salary Deferral Contributions were made equal to the total of such refunded amounts.


ARTICLE 21
 
ROLLOVERS AND TRANSFERS INVOLVING
 
OTHER QUALIFIED RETIREMENT PLANS
 
21.1            Rollovers and Transfers from Other Tax Qualified Plans .  In the event that:
 
(a)
any Covered Employee shall have been a Participant under another qualified retirement plan which met the requirements of Section 401(a) of the Code; and
 
 
(b)
the custodian or trustee of the assets held pursuant to said plan on behalf of said Covered Employee shall agree to transfer an amount of cash equal to the value of said assets to the Trustee hereunder; and
 
 
(c)
the cash to be so transferred shall not be made available to said Covered Employee in the course of the transfer; and
 
 
(d)
the Administrator consents to the transfer;
 
the Trustee hereunder shall accept such transferred cash and hold and administer it pursuant to the terms and provisions of this Plan and this Article.  Notwithstanding the foregoing, in no event shall any cash be transferred from another qualified retirement plan to this Plan if the transfer of such cash would require that the provisions of this Plan governing distributions be amended to comply with the provisions of Section 401(a)(11) of the Code.  Upon the receipt of said cash, the Trustee shall credit such cash to the Rollover Account of the Covered Employee on whose behalf the cash was so transferred.  If necessary, the Administrator shall establish a Rollover Account in order to accomplish the foregoing on behalf of such a Covered Employee.
During the period that a Covered Employee is not a Participant hereunder, he shall have only those rights hereunder as are necessary to effectuate his unique status as solely an Accountholder hereunder and permit the proper administration of this Plan.
21.2            Rollovers and Transfers to Other Tax Qualified Plans .  In the event that:


(a)            any Covered Employee shall terminate his employment and subsequently become a Participant under the qualified retirement plan of another employer, which plan satisfies the requirements of Section 401 of the Code;
 
(b)
said former Covered Employee shall have Account balances hereunder which have not have been distributed to him and which are distributable to him;
 
 
(c)
said former Covered Employee shall apply to the Administrator hereunder for transfer to such other plan of assets held pursuant to this Plan representing his Vested Account Balances;
 
 
(d)
the assets to be transferred shall not be made available to said former Covered Employee in the course of the transfer except to the extent permitted by Section 402(a)(5) of the Code; and
 
 
(e)
the Administrator shall consent to such transfer;
 
his Vested Account Balances shall be transferred to the trustee or custodian of such other qualified retirement plan.


ARTICLE 22
 
SPECIAL PROVISIONS WITH RESPECT TO SHARES
 
22.1            Voting Rights .  The Trustee shall vote all Shares held in the Accounts of Participants, terminated Participants, Beneficiaries and Alternate Payees as directed by the said Participants, terminated Participants, Beneficiaries and Alternate Payees.  Shares held in Accounts for which no instructions are received shall be voted by the Trustee in its sole discretion.
22.2            Proxy Materials, etc.   In order to implement the voting rights granted in this Article, the Company or the Trustee shall furnish each affected individual with proxy solicitation materials or other notices or an information statement which is distributed to the Company’s shareholders, in general, together with a form requesting confidential instructions as to the manner in which the Shares held in the individual’s Account are to be voted.  All such instructions shall be held in confidence and shall not be divulged to the Participating Employers, the Company, any subsidiary of the Participating Employers or the Company, any officer or Employee thereof or any other person.
22.3            Tender Offer .  Upon commencement of a tender or exchange offer for Shares, the Company or the Trustee shall notify each Participant, terminated Participant, Beneficiary and Alternate Payee for whom an Account is maintained of such tender offer and utilize its best efforts to timely distribute or cause to be distributed to such individual such information as is distributed to shareholders of the Company in connection with such tender or exchange offer, and shall provide a means by which such individual can instruct the Trustee whether or not to tender or exchange the Shares credited to his Accounts.  The Company shall provide the Trustee with a copy of any materials provided to Participants, terminated Participants, Beneficiaries and Alternate Payees.


22.4            Response to Tender Offer .  Each Participant, terminated Participant, Beneficiary and Alternate Payee shall have the right to instruct the Trustee as to the manner in which the Trustee is to respond to the tender or exchange offer with respect to any or all of the Shares allocated to such individual’s Accounts.  The Trustee shall respond to the tender or exchange offer with respect to the Shares as instructed by the Participant, terminated Participant, Beneficiary or Alternate Payee.  All such instructions received by the Trustee shall be held in confidence and shall not be divulged to the Participating Employers, the Company, any subsidiary of the Participating Employers or the Company, any officer or Employee thereof, or any other person.  Shares allocated to a Participant’s, terminated Participant’s, Beneficiary’s or Alternate Payee’s Accounts for which the Trustee has received no instructions from the affected individual shall be tendered or not by the Trustee in its sole discretion.
22.5            Withdrawal of Tendered Shares .  A Participant, terminated Participant, Beneficiary or Alternate Payee who has directed the Trustee to tender or exchange Shares allocated to such individual’s Accounts may, at any time prior to the tender or exchange offer withdrawal date, instruct the Trustee to withdraw, and the Trustee shall withdraw, such Shares from the tender or exchange offer prior to the withdrawal deadline.  The Committee or the Trustee may impose reasonable limits on the number of instructions to tender or exchange or withdraw which a Participant, terminated Participant, Beneficiary or Alternate Payee may give to the Trustee.
22.6            Crediting of Proceeds .  The Trustee shall credit the proceeds received in exchange for tendered or exchanged Shares to the appropriate Accounts of each Participant, terminated Participant, Beneficiary or Alternate Payee who instructed the Trustee to so tender or exchange.  The Trustee shall exercise its best efforts to invest the proceeds, whether cash or


securities, from such tender or exchange in conformity with the requirements of Code Section 4975.
22.7            Put Option Rights .  In the event that Shares which are credited to a Stock Bonus Account are distributed to a Participant, former Participant or Beneficiary and such Shares are not Publicly Traded or are subject to a Trading Limitation, the Company shall grant to certain holders of such Shares an option to require the Company to purchase and redeem such Shares.  Such option shall be granted to such Participant, former Participant or Beneficiary or to any donee of such Participant, former Participant or Beneficiary or to any person (including an estate or its distributee) to whom the Shares pass by reason of such Participant’s, former Participant’s or Beneficiary’s death.  Such option shall be exercisable by notice in writing given to the Company prior to the later of:
 
(a)
fifteen (15) months after the date on which the distribution of such Shares is made by this Plan; and
 
 
(b)
sixty (60) days after the holder of such Shares is notified of the Fair Market Value of such Shares computed as of the first day of the first Plan Year commencing more than sixty (60) days after the date of distribution of such Shares.
 
Such period of exercise shall be extended by a period of time equal to the amount of time during which any distributee of this Plan is unable to exercise the put option provided for herein due to the fact that the Company is prohibited from honoring such put option obligation by applicable law.  If necessary, the Company shall be required to amend its Certificate of Incorporation to reduce its stated capital or to make any other changes necessary to enable distributees to exercise the put option provided for under this Section.  In the event that Shares which are credited to a Stock Bonus Account are Publicly Traded without restriction when distributed but cease to be so traded within the period of exercise described above, the Company shall notify in writing, on or before the tenth (10th) day after the date the Shares cease to be Publicly Traded, any stockholder


or stockholders who would have been entitled to exercise the foregoing put option had the Shares not been Publicly Traded when distributed and shall grant to such stockholder or stockholders a put option in accordance with this Section for the remainder of the period of exercise described above.  Such notice shall inform such stockholder or stockholders of the terms of the put option extended to them and, if actually given later than the tenth (10th) day after the date on which the Shares ceased to be Publicly Traded, such notice shall provide that the put option shall be extended beyond the period of exercise by the number of days between such tenth (10th) day and the date on which notice is actually given.  If the foregoing option is not exercised within the exercise period and any extensions thereof, it shall lapse.
22.8            Price to be Paid For Shares .  The price at which Shares shall be purchased by the Company pursuant to Section 22.7 hereof shall be equal to their Fair Market Value.  In the case of a transaction between this Plan and a disqualified person (as defined in Section 4975 of the Code), such price must be determined as of the date of the transaction.  For all other purposes under this Plan, unless expressly stated otherwise, the Fair Market Value of Shares which are credited to a Stock Bonus Account may be determined as of the immediately preceding Allocation Date hereunder.
22.9            Put Option Payment Terms .  In the event any put option provided for pursuant to Section 22.7 hereof is exercised by a Participant, former Participant or Beneficiary who has received a single distribution of Shares pursuant to Section 15.2 hereof, payment by the Company pursuant to the exercise of such option shall be made in substantially equal annual installments over a period of time beginning no later than thirty (30) days after the option is exercised and ending no later than five (5) years thereafter.  The balance outstanding at any time with respect to payment by the Company pursuant to the exercise of such option shall be


adequately secured and bear interest at the prime rate determined as of the first day of each quarter of the Plan Year but, in any event, not in excess of the maximum rate permitted by law.  Notwithstanding the foregoing, the Company may, in its discretion, elect to make such payment in a single lump sum payment within thirty (30) days after the date on which the option is exercised.
In the event any put option provided for pursuant to Section 22.7 hereof is exercised by a Participant, former Participant or Beneficiary who is receiving installment distributions of Shares pursuant to Section 15.2 hereof, payment by the Company pursuant to the exercise of such option shall be made within thirty (30) days after the date on which the option is exercised.
22.10                       Put Option Conditions .  The Company’s obligation to pay, in total or in part, the price for any Shares as to which a put option is exercised pursuant to this Article shall be conditioned upon:
 
(a)
receipt by the Company of appropriate share certificates duly endorsed by the person exercising the put option; and
 
 
(b)
receipt of appropriate assurances that the Shares tendered for purchase pursuant to the put option are free and clear of any liens, encumbrances or adverse claims or that such liens, encumbrances or adverse claims will be paid and satisfied forthwith as a part of such purchase transaction.
 
22.11                       Restriction on Amendment or Termination of Put Option Rights .  Notwithstanding the provisions of Section 18.1 hereof to the contrary, the provisions of this Article with respect to the granting and exercise of put options shall not be amended or terminated in any way which would lessen the rights of a stockholder holding Shares to which the put option relates or would relate.  In addition, until distributed from this Plan, Shares subject


to a put pursuant to this Article shall not be subject to a put, call, or other option, or buy-sell or similar arrangement other than the put option described in Section 22.7 hereof.


ARTICLE 23
 
TOP-HEAVY PROVISIONS
 
23.1            Special Restrictions .  During any Plan Year that this Plan is Top-Heavy, as determined in accordance with Section 23.2 hereof, the special restrictions contained in Sections 23.3 and 23.4 hereof shall apply.
23.2            Determination of Top-Heavy Status .  This Plan shall be considered to be “Top-Heavy” in any Plan Year if, as of the Determination Date for such Plan Year, all the Aggregation Groups of which this Plan is a member are Top-Heavy Groups.  In the event that in any Plan Year this Plan is a member of an Aggregation Group which is not a Top-Heavy Group, this Plan shall not be considered to be Top-Heavy for such Plan Year.
For purposes of determining the foregoing, the following terms shall be defined as follows:
 
(a)
“Determination Date” shall mean for the first Plan Year, its last day, and shall mean, for any other Plan Year, the last day of the preceding Plan Year;
 
 
(b)
“Key Employee” shall mean a “key employee” as described in Section 416(i) of the Code which is hereby incorporated by reference and who is described for informational purposes herein as:
 
 
(i)
for Plan Years beginning prior to January 1, 2002, any Employee, former Employee or Beneficiary who at any time during the Plan Year or the four (4) preceding Plan Years is:
 
 
(A)
an officer of a Participating Employer or an Affiliate having Testing Compensation for the Plan Year of determination greater than fifty percent (50%) of the amount specified in Section 415(b)(1)(A) of the Code (plus any increase for cost-of-living after 1997 as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code);
 


 
(B)
a one-half of one percent (.5%) actual or constructive owner of a Participating Employer or any Affiliate who owns one of the ten (10) largest interests in the Participating Employer or any Affiliate and who is an Employee of the Participating Employer or an Affiliate having Testing Compensation greater than Thirty Thousand Dollars ($30,000.00) or, if greater, the amount specified in Section 415(c)(1)(A) of the Code (plus any increase for cost-of-living after 1997 as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate pursuant to Section 415(d) of the Code);
 
 
(C)
a five percent (5%) actual or constructive owner of a Participating Employer or any Affiliate; or
 
 
(D)
a one percent (1%) actual or constructive owner of a Participating Employer or any Affiliate having Testing Compensation from a Participating Employer and all Affiliates for the Plan Year of determination greater than One Hundred Fifty Thousand Dollars ($150,000.00) (plus any increase for cost-of-living after 1997 as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate);
 
provided that any such Employee also performed service for a Participating Employer or an Affiliate during the five (5) Plan Year period ending on the Determination Date; and provided that an amount held for the Beneficiary of a Key Employee who is deceased shall be deemed to be an amount held for a Key Employee; and
 
 
(ii)
for Plan Years beginning on or after January 1, 2002, any Employee, former Employee or Beneficiary who at any time during the Plan Year is:
 
 
(A)
an officer of a Participating Employer or an Affiliate having Testing Compensation for the Plan Year of determination greater than $130,000.00 (plus any increase for cost-of-living after 2002 as determined from time to time pursuant to regulations issued by the Secretary of the Treasury or his delegate) pursuant to Section 415(d) of the Code);
 


 
(B)
a five percent (5%) actual or constructive owner of a Participating Employer or any Affiliate; or
 
 
(C)
a one percent (1%) actual or constructive owner of a Participating Employer or any Affiliate having Testing Compensation from a Participating Employer and all Affiliates for the Plan Year of determination greater than One Hundred Fifty Thousand Dollars ($150,000.00);
 
provided that any such Employee also performed service for a Participating Employer or an Affiliate during the one (1) Plan Year period ending on the Determination Date; and provided that an amount held for the Beneficiary of a Key Employee who is deceased shall be deemed to be an amount held for a Key Employee;
 
 
(c)
“Non-Key Employee” shall mean any Employee, former Employee or Beneficiary who is not a Key Employee including any Employee or Beneficiary who was formerly a Key Employee;
 
 
(d)
“Permissive Aggregation Group” shall mean the Required Aggregation Group plus one (1) or more other plans to which a Participating Employer or any Affiliate makes contributions which, when considered as a group with the Required Aggregation Group, would continue to comply with Sections 401(a)(4) and 410 of the Code;
 
 
(e)
“Required Aggregation Group” shall mean each defined benefit plan and each defined contribution plan of a Participating Employer or any Affiliate in which a Key Employee is a Participant in the Plan Year containing the Determination Date or in any of the four (4) preceding Plan Years and each other defined benefit plan and each other defined contribution plan which, during said Plan Years, enables such plans to meet the requirements of Section 401(a)(4) or 410 of the Code, including for this purpose each defined benefit plan and each defined contribution plan of a Participating Employer or any Affiliate which was terminated during any of said Plan Years;
 
 
(f)
“Top-Heavy Group” shall mean any Aggregation Group if the sum, as of the Determination Date, of:
 
 
(i)
the aggregate value of the Account balances of Key Employees under all defined contribution plans included in such group; and
 


 
(ii)
the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans included in such group;
 
exceeds sixty percent (60%) of a similar sum determined for all Participants, former Participants and Beneficiaries permitted to be taken into account pursuant to Section 416(g) of the Code, with such values being determined for each plan as of the most recent Valuation Date occurring within the twelve (12) month period ending on the Determination Date and subject to appropriate adjustments under said Section 416(g) and lawful regulations issued thereunder, including the requirement that benefits and Accounts of a Participant be increased by :   (A) for Plan Years beginning before January 1, 2002, the aggregate distributions with respect to such Participant during the five (5) year period ending on the Determination Date; and (B) for Plan Years beginning on or after January 1, 2002, the in-service distributions with respect to such Participant during the five (5) year period ending on the Determination Date and all other distributions with respect to such Participant during the one (1) year period ending on the Determination Date; and
 
 
(g)
“Valuation Date” shall mean:
 
 
(i)
in the case of a defined contribution plan, a date as of which Account balances are valued; and
 
 
(ii)
in the case of a defined benefit plan, a date as of which liabilities and assets are valued for computing plan costs for purposes of determining the plan’s minimum funding requirements under Section 412 of the Code.
 
In making any of the aforementioned calculations, contributions due but unpaid as of the Determination Date shall be included in determining the value of Account balances.  In addition, the present value of cumulative accrued benefits shall be determined as if they accrued no more rapidly than the slowest rate of accrual permitted under the fractional rule of Section 411(b)(1)(C) of the Code utilizing the actuarial factors and assumptions set forth in the defined benefit plans included in the Aggregation Groups.  Furthermore, for purposes of making the aforementioned calculations with respect to defined benefit plans, proportional subsidies and benefits not relating to retirement benefits, such as pre-retirement death and disability benefits


and post retirement medical benefits, are to be disregarded but nonproportional subsidies are to be taken into account.
23.3            Minimum Contribution .  During any Plan Year that this Plan is Top-Heavy, the Participating Employers shall make a minimum contribution to this Plan on behalf of each Non-Key Employee who meets all of the following requirements:
 
(a)
he is not covered by a collective bargaining agreement;
 
 
(b)
he is a Participant on the last day of such Plan Year or was a Participant whose employment terminated on or as of said date, irrespective of whether he has completed one thousand (1,000) Hours for a Participating Employer or an Affiliate during such Plan Year; and
 
 
(c)
he is not a Participant in a defined benefit pension plan that provides him with a minimum accrued benefit (regardless of whether such accrued benefit is offset by benefits under this Plan) which satisfies the requirements of Section 416(c)(1) of the Code.
 
The minimum contribution to be made hereunder for such a Non-Key Employee shall be an amount, which includes employer matching contributions under Section 6.2 and which, when added to the contributions allocable to such Non-Key Employee under all other defined contribution plans of a Participating Employer or any Affiliate shall cause such total contributions to be at least equal to the lesser of:
 
(i)
three percent (3%) of the Non-Key Employee’s Testing Compensation during the Plan Year; or
 
 
(ii)
the largest percentage of Testing Compensation provided to any Key Employee by the contributions of a Participating Employer or any Affiliate for such Plan Year.
 
In determining the percentage set forth in subparagraph (ii) above, salary reduction amounts which are excluded from the taxable income of a Key Employee under Code Section 402(e)(3) shall be taken into account, but such amounts, together with any related matching contributions, shall not be taken into account with respect to Non-Key Employees in determining compliance


with this Section.  Any employer contributions made pursuant to this Section shall be credited to a Participant’s Matching Contribution Account and shall be subject to the applicable vesting schedule set forth in Section 2.67 hereof.  However, employer contributions made pursuant to Section 12.5 hereof shall not be taken into account when determining the employer contributions required under this Section.
23.4            Code Section 415 Limitation .  During any Plan Year ending prior to January 1, 2000 that this Plan is Top-Heavy the limitations on annual additions and annual benefits under Section 415 of the Code, described in Section 20.1 hereof, shall be reduced as described in Section 416(h) of the Code.  The Participating Employers will not make the additional contributions permitted by Section 416(h)(2) of the Code to increase the limits under Section 415(e) of the Code.


ARTICLE 24
 
MISCELLANEOUS
 
24.1            Exclusive Benefit .  This Plan has been adopted for the exclusive benefit of the Participants, their spouses and Beneficiaries.  No funds contributed to or held by the Trustee hereunder shall at any time revert to, or be used or enjoyed by the Participating Employers, nor shall any such funds or assets at any time be used other than for the benefit of the Participants, their spouses or Beneficiaries except as provided in Section 24.7 hereof.  Nothing herein contained shall be construed as giving to any Employee or any other person any legal or equitable right against the Participating Employers or the Trustee unless such right shall exist by reason of the express provisions of this Plan or any action taken pursuant thereto.
24.2            Qualified Military Service .  Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified Military Service will be provided in accordance with Section 414(u) of the Code.  In addition, loan repayments will be suspended under Article 11 hereof as permitted under Section 414(u)(4) of the Code.
24.3            Insurance Company .  No insurance company shall be deemed to be a party to this Plan for any purpose, nor shall it be responsible for the validity of this Plan.  No such company shall be required to look into the terms of this Plan or question any action of the Trustee or Administrator hereunder, nor be responsible to see that any action of the Trustee or Administrator is authorized by the terms of this Plan.  Any such insurance company shall be fully discharged from any and all liability for any amount paid to the Trustee or paid in accordance with the direction of the Administrator, or for any change made or action taken by such insurance company upon such direction, and no insurance company shall be obligated to see to the distribution or further application of any moneys so paid by it.  The certificate of the Administrator may be received by any insurance company as conclusive evidence of any of the


matters mentioned in this Plan, and each insurance company shall be fully protected in taking or permitting any action on the faith thereof and shall incur no liability or responsibility for doing so.
24.4            Bankruptcy or Insolvency .  In the event a Participating Employer shall at any time be judicially declared bankrupt or insolvent, or in the event of its dissolution, merger or consolidation without any provisions being made for the continuation of this Plan with respect to its employees, the Plan created hereunder shall terminate with respect to such Participating Employer and the Trustee shall make distributions as provided in Section 18.2 hereof.
24.5            Merger, Consolidation or Transfer of Assets and Liabilities .  In the event this Plan shall merge or consolidate with, or transfer any of its assets or liabilities to any other plan, each Participant shall be entitled to receive, if this Plan were terminated immediately thereafter, a benefit which is equal to or greater than the benefit he would have been entitled to receive immediately before the merger, consolidation or transfer if this Plan had then terminated, in accordance with Section 414(l) of the Code and Section 208 of ERISA.
24.6            No Employment Rights Created .  Neither anything contained herein, nor any contribution made hereunder, nor any other acts done in pursuance of this Plan, shall be construed as entitling any Participant to be continued in the employ of a Participating Employer or any Affiliate for any period of time nor as obliging the a Participating Employer or any Affiliate to keep any Participant in its employ for any period of time, nor shall any Employee of a Participating Employer or any Affiliate nor anyone else have any rights whatsoever, legal or equitable, against the Participating Employers or the Trustee as a result of this Plan except those expressly granted to him hereunder.
24.7            Return of Participating Employer Contributions .  No contributions or payments by the Participating Employers to the Trustee of this Plan, nor any income of the Trust


Fund, shall in any event revert or be credited to or be used for the benefit of the Participating Employers, and all such contributions, payments and income shall be used solely and exclusively for the benefit of the Participants and their Beneficiaries under this Plan, except that the Trustee shall return to the Participating Employers upon written request of the Company:
 
(a)
any contributions made by a Participating Employer by a mistake of fact, provided such contributions are returned to the Participating Employer within one (1) year after the date such contributions were made;
 
 
(b)
any contributions made for Plan Years during which this Plan did not initially qualify under Section 401(a) of the Code, provided such contributions are returned to the Participating Employers within one (1) year after the date of denial of qualification, but only if an application for determination was made with the Internal Revenue Service by the time prescribed by law for filing the original sponsor’s tax return for the Taxable Year in which this Plan was adopted, or on such later date as the Secretary of the Treasury may prescribe; and
 
 
(c)
any contributions, to the extent that their deduction is disallowed under Section 404 of the Code, provided that such disallowed contributions are returned to the Participating Employers within one (1) year after the disallowance of the deduction.
 
In the event that amounts representing Salary Deferral Contributions are returned to the Participating Employers pursuant to the provisions of this Section hereof, the Participating Employers shall make payments to the Participants on whose behalf such Salary Deferral Contributions were made equal to the total of such refunded amounts.
24.8            Spousal Consent .  Notwithstanding any provision of this Plan to the contrary, the Administrator, where required by law or where it deems appropriate in its sole discretion, may require spousal consent for any actions taken, elections made, or the exercise of any rights by a married Participant under this Plan.  Any consent by a spouse pursuant to this Section shall be made in accordance with Section 24.9 hereof.


24.9            Form of Spousal Consent .  If any provision of this Plan shall require the consent of the spouse of a Participant, such consent shall be in writing with the signature of the spouse notarized.  Notwithstanding any provision hereof to the contrary, the consent of the spouse shall not be necessary if it is established to the satisfaction of the Administrator that the signature of the spouse cannot be obtained either because the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations.  Any consent given by a spouse pursuant to this Section shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such Participant.
24.10                       Receipts and Releases .  Any payment to any Participant, or Beneficiary, or to his legal representative or spouse, in accordance with the provisions of this Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against the Administrator and the Participating Employers, any of whom may require such Participant, Beneficiary, legal representative or spouse, as a condition precedent to such payment, to execute a receipt and release therefor in such form as shall be determined by the Administrator or the Participating Employer, as the case may be.
24.11                       Savings Clause .  If any provision of this Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions, and this Plan shall be construed and enforced as if such provision had not been included.
24.12                       Compliance with ERISA .  All provisions of this Plan shall be interpreted and administered in accordance with the provisions of ERISA, and Section 401(a) of the Code and any successor section or sections, in a non-discriminatory manner and in a manner which will assure compliance of the Plan’s operation therewith.  Employees and Beneficiaries of


Employees in similar circumstances shall receive uniform, consistent and non-discriminatory treatment hereunder.
24.13                       Impossibility of Performance .  In the event that it becomes impossible for a Participating Employer, the Administrator or the Committee to perform any act under this Plan, that act shall be performed which, in the judgment of the Participating Employer, Administrator or Committee, as the case may be, will most nearly carry out the intent and purpose of this Plan.
24.14                       Singular-Plural .  The singular herein shall include the plural, or vide versa, wherever the context so requires.
24.15                       Gender .  Whenever any pronoun is used herein, it shall be construed to include the masculine pronoun, the feminine pronoun or the neuter pronoun as shall be appropriate.
24.16                       Applicable Law .  This Plan shall be construed under and in accordance with the laws of the State of Ohio and of the United States of America.
24.17                       Retroactive Amendment .  This Plan may be modified and amended retroactively, if necessary, to secure exemption under Section 401(a) of the Code.
24.18                       Applicability of Amendments Generally and to Participants Who Terminated Employment Prior to the Amendment Date or Effective Date .  This restatement is generally effective January 1, 2001, but also reflects certain changes which apply to earlier dates.  Except as otherwise provided herein, the terms and provisions of this restatement, and any other amendments to this Plan, apply with respect to the operation of the Plan and all rights, obligations and transactions hereunder on and after their effective dates.  However, with respect to a Participant who retired, terminated employment or otherwise ceased to be a Covered Employee prior to the effective date of a change to this Plan, or to any person claiming benefits hereunder relating to such a Participant, in general:


 
 
(a)
such change shall be applicable to such Participant or person to the extent such change relates to administrative procedures or the powers of the Company or Administrator, or if the Code, ERISA or other relevant law requires such change to apply to such Participants and persons; and
 
(b)
such change shall be not be applicable to such Participant or person if the change relates to any other items, including but not limited to an increase in the benefit which would be payable to such person, the vesting of such benefit, or the distribution rights or options related thereto.
 
Notwithstanding the foregoing, where the provisions of this Plan specify the extent to which any such change shall be effective, such provisions shall govern.
24.19                       Elimination of Family Aggregation Rules .  Effective January 1, 1997, the family aggregation rules required by Sections 414(q)(6) and 401(a)(17)(A) of the Code which required certain Participants, the spouses of such Participants, and any lineal descendants who have not attained age nineteen (19) before the close of the Plan Year to be treated as a single Participant for purposes of applying the limitation on Compensation for a Plan Year shall not apply to the Plan.  On and after January 1, 1997, the spouses of such Participants and any lineal descendants (including those descendants who have not attained age nineteen (19) before the close of the Plan Year) will be treated as separate Participants for purposes of applying the limitation on Compensation for a Plan Year.



IN WITNESS WHEREOF, INVACARE CORPORATION. by its appropriate officers duly authorized, has caused this Amendment and Restatement of the Plan to be executed as of the 9th day of October, 2002.
 
INVACARE CORPORATION
 
(“Company”)
 
By  /s/ A. Malachi Mixon, III
____________________________
 
And  /s/ Gerald B. Blouch
____________________________
 

 


AMENDMENT NO. 1
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 1 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to increase the percentage of an Active Participant’s Stock Bonus Account that can be diversified into other investments offered to Participants under the terms of the Plan, to exclude from participation in the Plan certain employees employed at a non-participating Affiliate of the Company, and to clarify the timing of loan applications under the Plan;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan as follows:


(1)            Effective March 3, 2003, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:
“2.36          Participating Employer.  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Notwithstanding anything to the contrary contained herein, Garden City Medical, Inc. shall not be a Participating Employer under the Plan.”
 
     (2)            Effective July 1, 2003, Section 7.4 of the Plan is hereby amended by the deletion of said Section 7.4 in its entirety and the substitution in lieu thereof of a new Section 7.4 to read as follows:
“7.4            Diversification of Stock Bonus Account .  Each Qualified Participant, by written direction to the Administrator or by such other procedures as shall be established by the Administrator from time to time, may direct the investment of his total Stock Bonus Account in any or all of the Investment Funds established hereunder; provided, however, that any such investment directions shall be made in accordance with such other rules as are established by the Administrator from time to time in its sole discretion, including rules requiring that investment selections be made effective as of specific investment dates and within a certain period of time prior to an investment date.  Any rules established by the Administrator pursuant to this Article 7 relating to Participant direction of investment shall apply to all Qualified Participants in a uniform and nondiscriminatory manner following such Qualified Participant’s election to direct the investment of his Stock Bonus Account.  Each Plan Year, an Active Participant who is not a Qualified Participant may direct the investment of up to the greater of (i) twenty percent (20%) of the number of Shares credited to his Stock Bonus Account as of the last


day of the immediately preceding Plan Year; and (ii) Shares having a Fair Market Value of One Hundred Dollars ($100.00) or less.  It is intended that any other Shares remaining credited to the Participant’s Stock Bonus Account continue to be fully invested in the Invacare Segregated Stock Fund.”
(3)            Effective June 1, 2003, paragraph (b) of Section 11.3 of the Plan is hereby amended by the deletion of said paragraph (b) in its entirety and the substitution in lieu thereof of a new paragraph (b) to read as follows:
 
“(b)
Loan Application Procedure.   A Borrower shall apply for a loan in such manner (including in writing, orally, telephonically, or electronically) as the Administrator may determine.  In the event that a Borrower repays a loan from the Plan in full, such Borrower may not apply for a new loan from the Plan earlier than fourteen (14) days following the date on which the last payment was received on the prior outstanding loan.”

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 1 this day 3rd of March , 2003.

INVACARE CORPORATION
(“Company”)

By:  /s/ Diane J. Davie                                                                

And: /s/ Gerald B. Blouch


AMENDMENT NO. 2
 
TO
 
INVACARE RETIREMENT SAVINGS PLAN
 
This Amendment No. 2 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
 
WITNESSETH :
 
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
 
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make certain other desirable changes; and
 
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
 
WHEREAS, the Company desires to amend the Plan in order to exclude from participation in the Plan certain employees employed at a non-participating Affiliate of the Company, and to clarify the timing of loan applications under the Plan;
 

 
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan as follows:
 
(1)            Effective August 19, 2003, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:
 
“2.36                       Participating Employer .  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Notwithstanding anything to the contrary contained herein, Garden City Medical, Inc. and Medbloc Inc. shall not be a Participating Employer under the Plan.”
 
IN WITNESS WHEREOF, the Company by its duly authorized officers, has executed this Amendment No. 2 this 18th day of August, 2003.
 
INVACARE CORPORATION
(“Company”)



By:  /s/ Diane J. Davie

 
And:   /s/ Gerald B. Blouch                                                               
 




AMENDMENT NO. 3
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 3 is executed as of the date set forth below by Invacare Corporation (the “Company”).
WITNESSETH :
       WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (f.k.a. the Invacare Corporation Profit Sharing Trust and Plan) (the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make certain other desirable changes, and was further amended on one prior occasion; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to bring it into compliance with certain additional provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 and the final and temporary regulations under Section 401(a)(9) of the Code, to modify the definition of compensation in accordance with IRS Revenue Ruling 2002-27, to update the Plan’s claims procedures for compliance with Department of Labor regulations and other pronouncements, and to make other changes to the Plan that the Company deems necessary and desirable;


NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan as follows:
1.            Effective January 1, 2002, Section 2.15 of the Plan is hereby amended by the deletion of the first paragraph of said Section and the substitution of a new first paragraph to read as follows:
“2.15                       Compensation .  The word “Compensation” generally shall mean all remuneration paid in cash to a Participant during a Plan Year for services rendered to a Participating Employer, specifically including but not limited to wages, salaries, commissions, overtime, bonuses, whether discretionary or non-discretionary, incentive pay, vacation pay, severance (salary continuation) pay, holiday pay, and, short-term disability pay.  Compensation shall also be increased for salary reduction amounts which are excluded from the taxable income of the Participant under Sections 125 (including, if applicable, any amounts not available to a Participant in cash in lieu of group heath coverage because the Participant is unable to certify that he or she has other health coverage), 132(f)(4), 402(e)(3) and 402(h) of the Code.”
2.            Effective January 1, 2002, Section 2.30 of the Plan is hereby amended by the deletion of paragraph (i) of subsection (a) of said Section and the substitution of a new paragraph (i) to read as follows:
 
“(i)
a nonintegrated employer contribution formula of at least ten percent (10%) of a Leased Person’s Compensation, as defined in Section 2.15 hereof, together with amounts contributed on his behalf pursuant to a salary reduction agreement which are excludable from the Leased Person’s gross income pursuant to Code Section 125 (including, if applicable, any amounts not available to a Participant in cash in lieu of group heath coverage because the Participant is unable to certify that he or she has other health coverage), 132(f)(4), 402(e)(3), 402(h) or 403(b);”
 
3.            Effective January 1, 2002, Section 2.58 of the Plan is hereby amended by the deletion of subsection (b) of said Section and the substitution of a new subsection (b) to read as


follows:
 
“(b)
when used to determine the identity of Highly Compensated Employees, Testing Compensation shall mean Compensation adjusted to include and exclude certain items of remuneration as required by Section 414(q) of the Code, including adding salary reduction amounts which are excluded from the taxable income of the Participant under Sections 125 (including, if applicable, any amounts not available to a Participant in cash in lieu of group heath coverage because the Participant is unable to certify that he or she has other health coverage), 132(f)(4), 402(e)(3), 402(h) and 403(b) of the Code and adjusted to exclude remuneration from a Related Employer which is not a Participating Employer or Affiliate; and”
 
4.            Effective January 1, 2003, the Plan is hereby amended by the addition of a new Article 15A to read as follows:
 
“ARTICLE 15A
 
REQUIRED MINIMUM DISTRIBUTIONS
 
15A.1                       General Rules .
 
(a)
Effective Date .  The provisions of this Article will apply for purposes of determining required minimum distributions for calendar years beginning with the 2003 calendar year.
 
 
(b)
Precedence .  The requirements of this Article will take precedence over any inconsistent provisions of the Plan except that no provision of this Article shall be deemed to require a distribution under the Plan in a form other than a lump sum.
 
 
(c)
Requirements of Treasury Regulations Incorporated .  All distributions required under this Article will be determined and made in accordance with the Treasury regulations under Section 401(a)(9) of the Code.
 
15A.2                       Time and Manner of Distribution .
 
(a)
Required Beginning Date .  The Participant’s entire interest will be distributed, or begin to be distributed, to the Participant no later than the Participant’s required beginning date.
 
 
(b)
Death of Participant Before Distributions Begin .  If the Participant dies before distributions begin, the Participant’s entire interest will be distributed, or begin to be distributed, no later than as follows:
 


 
(i)
If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, then, except as provided in the adoption agreement, distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died, or by December 31 of the calendar year in which the Participant would have attained age 70 1/2, if later.
 
 
(ii)
If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, then, except as otherwise provided in the Plan, distributions to the designated Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Participant died.
 
 
(iii)
If there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, the Participant’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
 
 
(iv)
If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary and the surviving spouse dies after the Participant but before distributions to the surviving spouse begin, this Section 15A.2(b), other than Section 15A.2(b)(1), will apply as if the surviving spouse were the Participant.
 
For purposes of this Section 15A.2(b) and Section  15A.4, unless Section  15A.2(b)(4) applies, distributions are considered to begin on the Participant’s required beginning date.  If Section 15A.2(b)(4) applies, distributions are considered to begin on the date distributions are required to begin to the surviving spouse under Section 15A.2(b)(1).  If distributions under an annuity purchased from an insurance company irrevocably commence to the Participant before the Participant’s required beginning date (or to the Participant’s surviving spouse before the date distributions are required to begin to the surviving spouse under Section 15A.2(b)(1)), the date distributions are considered to begin is the date distributions actually commence.
 
(c)
Forms of Distribution .  Unless the Participant’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance with Sections 15A.3 and 15A.4 of this Article.  If the Participant’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder
 


 
will be made in accordance with the requirements of Section 401(a)(9) of the Code and the Treasury regulations.
 
15A.3                       Required Minimum Distributions During Participant’s Lifetime .
 
(a)
Amount of Required Minimum Distribution For Each Distribution Calendar Year. During the Participant’s lifetime, the minimum amount that will be distributed for each distribution calendar year is the lesser of:
 
 
(i)
the quotient obtained by dividing the Participant’s Account balance by the distribution period in the Uniform Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s age as of the Participant’s birthday in the distribution calendar year; or
 
 
(ii)
if the Participant’s sole designated Beneficiary for the distribution calendar year is the Participant’s spouse, the quotient obtained by dividing the Participant’s Account balance by the number in the Joint and Last Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations, using the Participant’s and spouse’s attained ages as of the Participant’s and spouse’s birthdays in the distribution calendar year.
 
 
(b)
Lifetime Required Minimum Distributions Continue Through Year of Participant’s Death .  Required minimum distributions will be determined under this Section 15A.3 beginning with the first distribution calendar year and up to and including the distribution calendar year that includes the Participant’s date of death
 
15A.4                       Required Minimum Distributions After Participant’s Death .
 
(a)
Death On or After Date Distributions Begin.
 
 
(i)
Participant Survived by Designated Beneficiary .  If the Participant dies on or after the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account balance by the longer of the remaining life expectancy of the Participant or the remaining life expectancy of the Participant’s designated Beneficiary, determined as follows:
 
 
(A)
The Participant’s remaining life expectancy is calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
 


 
(B)
If the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, the remaining life expectancy of the surviving spouse is calculated for each distribution calendar year after the year of the Participant’s death using the surviving spouse’s age as of the spouse’s birthday in that year.  For distribution calendar years after the year of the surviving spouse’s death, the remaining life expectancy of the surviving spouse is calculated using the age of the surviving spouse as of the spouse’s birthday in the calendar year of the spouse’s death, reduced by one for each subsequent calendar year.
 
 
(C)
If the Participant’s surviving spouse is not the Participant’s sole designated Beneficiary, the designated Beneficiary’s remaining life expectancy is calculated using the age of the Beneficiary in the year following the year of the Participant’s death, reduced by one for each subsequent year.
 
 
(ii)
No Designated Beneficiary .  If the Participant dies on or after the date distributions begin and there is no designated Beneficiary as of September 30 of the year after the year of the Participant’s death, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account balance by the Participant’s remaining life expectancy calculated using the age of the Participant in the year of death, reduced by one for each subsequent year.
 
 
(b)
Death Before Date Distributions Begin .
 
 
(i)
Participant Survived by Designated Beneficiary .  Except as otherwise provided in the Plan, if the Participant dies before the date distributions begin and there is a designated Beneficiary, the minimum amount that will be distributed for each distribution calendar year after the year of the Participant’s death is the quotient obtained by dividing the Participant’s Account balance by the remaining life expectancy of the Participant’s designated Beneficiary, determined as provided in Section 15A.4(a).
 
 
(ii)
No Designated Beneficiary .  If the Participant dies before the date distributions begin and there is no designated Beneficiary as of September 30 of the year following the year of the Participant’s death, distribution of the
 


 
Participant’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death.
 
 
(iii)
Death of Surviving Spouse Before Distributions to Surviving Spouse Are Required to Begin .  If the Participant dies before the date distributions begin, the Participant’s surviving spouse is the Participant’s sole designated Beneficiary, and the surviving spouse dies before distributions are required to begin to the surviving spouse under Section 15A.2(b)(1), this Section 15A.4(b) will apply as if the surviving spouse were the Participant.
 
15A.5                       Definitions .
 
(a)
Designated Beneficiary .  The individual who is designated as the Beneficiary under Section 2.10 of the Plan and is the designated Beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.
 
 
(b)
Distribution Calendar Year .  A calendar year for which a minimum distribution is required.  For distributions beginning before the Participant’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Participant’s required beginning date.  For distributions beginning after the Participant’s death, the first distribution calendar year is the calendar year in which distributions are required to begin under Section  15A.2(b).  The required minimum distribution for the Participant’s first distribution calendar year will be made on or before the Participant’s required beginning date.  The required minimum distribution for other distribution calendar years, including the required minimum distribution for the distribution calendar year in which the Participant’s required beginning date occurs, will be made on or before December 31 of that distribution calendar year.
 
 
(c)
Life Expectancy .  Life expectancy as computed by use of the Single Life Table in Section 1.401(a)(9)-9 of the Treasury regulations.
 
 
(d)
Participant’s Account Balance .  The Account balance as of the last valuation date in the calendar year immediately preceding the distribution calendar year (valuation calendar year) increased by the amount of any contributions made and allocated or forfeitures allocated to the Account balance as of dates in the valuation calendar year after the valuation date and decreased by distributions made in the valuation calendar year after the valuation date.  The Account balance for the valuation calendar
 


 
year includes any amounts rolled over or transferred to the Plan either in the valuation calendar year or in the distribution calendar year if distributed or transferred in the valuation calendar year.
 
 
(e)
Required Beginning Date .  The date specified in Section 15.7 of the Plan.”
 
5.            Effective January 1, 2002, Article 16 of the Plan is hereby amended by the deletion of said Article in its entirety and the substitution of a new Article 16 to read as follows:
 
“ ARTICLE 16
 
ADMINISTRATION
 
24.1            The Administrator .  The Board of Directors shall appoint the Administrator which shall be any person(s), corporation or partnership, (including the Company itself) as the Board of Directors shall deem desirable in its sole discretion.  As of the Restatement Date, the Administrator shall be the Company.  The Company, in its capacity as Administrator, shall have the power to delegate to agents or delegates, the right to exercise any powers given to the Administrator hereunder or under law and/or the obligation to carry out any or all of its duties as Administrator.  Any reference contained in the Plan to the Administrator shall be deemed to apply also to an agent or delegate, if the Company shall have delegated such duty or power to the agent or delegate.
The Administrator may be removed or resign upon thirty (30) days’ written notice or such period of notice as is mutually agreeable.  The Company shall notify the Trustee of the identity of the Administrator and of any change therein.
24.2            Powers and Duties of the Administrator .  Except as expressly set forth herein with respect to the duties and responsibilities of the Trustee, the Participating Employers or the Committee, the investment manager or the Company, the Administrator shall administer this Plan and shall have all powers and duties granted or imposed on an “administrator” by ERISA.  The Administrator shall determine any and all questions of fact, resolve all questions of


interpretation of this instrument and related documents which may arise under any of the provisions of this Plan as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of this Plan which it is herein given or for which no contrary provision is made.  Subject to the provisions of Section 16.9 hereof, the Administrator’s decision with respect to any matter shall be final and binding upon Participants, former Participants, Beneficiaries, the Trustee and all other parties concerned, and neither the Administrator nor any of its directors, officers or Employees, if applicable, shall be liable in that regard except for gross abuse of the discretion given it and them under the terms of this Plan.  The determinations of the Administrator shall be nondiscriminatory and shall be made in a reasonably uniform and consistent manner with respect to all Participants, former Participants and Beneficiaries in similar circumstances.  The Administrator, from time to time, may designate one or more persons or agents to carry out any or all of its duties hereunder.
24.3            Engagement of Advisors .  The Administrator may engage actuaries, attorneys, accountants, brokers, employee benefit consultants, and other specialists to render advice concerning any responsibility the Administrator has under this Plan.  Such persons may also be advisors to any Participating Employer or Related Employer.  The fees and expenses incurred in engaging such advisors shall be paid as provided in Section 16.11 hereof.
24.4            Establishment of Administrative Committee .  The Board of Directors or the appropriate officers of the Company shall appoint the members of an Administrative Committee which shall consist of two (2) or more members.  The fact that a person is a Participant, a former Participant or a prospective Participant shall not disqualify him from acting as a member of the Committee.  The members of the Committee shall remain in office at the will of the Board of Directors or the Company, and the Board of Directors or the Company, from


time to time, may remove any of said members with or without cause.  A member of the Committee may resign upon written notice to the Board of Directors or appropriate officer of the Company.  In case of the death, resignation or removal of any member of the Committee, the remaining members shall act until a successor-member shall be appointed.  Upon request by the Administrator or Trustee, the Company shall notify the Administrator or Trustee, respectively, in writing of the names of the members of the Administrative Committee, of any and all changes in the membership of the Administrative Committee, of the member designated as Chairman and the member designated as Secretary, and of any changes in either office.  Until notified of a change, the Administrator and Trustee shall be protected in assuming that there has been no change in the membership of the Administrative Committee since the last notification was filed with it.  The Administrator and Trustee shall be under no obligation at any time to inquire into the membership of the Committee or its officers.  All communications to the Committee shall be addressed to its Secretary at the address of the Company.
24.5            Operations and Powers of the Committee .  The Committee may act on a matter of day-to-day administration of the Plan by decision of any two (2) or more of its members.  On all matters relating to claims review, the decision of a majority of the members of the Committee shall govern and control, but a meeting need not be called or held to make any decision.  Meetings may be held in person or by electronic means.  In lieu of a meeting, decisions may be made by written consent of a majority of the members.  The Committee shall appoint one of its members to act as its Chairman and another member to act as Secretary.  The terms of office of these members shall be determined by the Committee, and the Secretary and/or Chairman may be removed by the other members of the Committee for any reason which such other members may deem just and proper.  The Secretary shall do all things directed by the Committee.  Although the Committee shall act by decision of a majority of its members as above


provided, nevertheless in the absence of written notice to the contrary, every person may deal with the Secretary and consider his acts as having been authorized by the Committee.  Any notice served or demand made on the Secretary shall be deemed to have been served or made upon the Committee.
                       No member of the Committee shall be disqualified from acting on any question because of his interest therein, except that no member of the Committee may act on any claims which such member as brought as a Participant, former Participant or Beneficiary under this Plan. No fee or compensation shall be paid to any member of the Committee for his services as such, but the Committee shall be reimbursed for its expenses from the Trust Fund, unless such expenses are paid by the Participating Employers. The Committee and the Administrator may hire such attorneys, accountants, agents, clerks, recordkeepers and secretaries as they deem desirable in the performance of their functions, and the expense associated with the hiring or retention of any such person or persons shall be paid as provided in Section 16.11 hereof.
In addition to the powers specifically granted to the Committee elsewhere in this Article, the Committee shall have full administrative power to carry out its responsibilities under this Plan.  Without limiting the generality of the foregoing, the Committee shall have full power to determine all administrative matters concerning the handling of appeals including the holding of hearings and all rules attendant thereto, and all of its decisions on such matters shall be final and not appealable.  However, the Committee shall exercise its power with relative uniformity and in a nondiscriminatory manner in conformity with Section 503 of ERISA.
24.6            Claims for Benefits .  Claims for benefits shall be made by application of the Participant, former Participant or Beneficiary (the “claimant”) in such manner as the Administrator shall reasonably prescribe.  Such claim may be made by the claimant or by an authorized representative described in and subject to the rules contained in Section 16.7 hereof.


The Administrator shall process each such claim and determine entitlement to benefits within ninety (90) days of its receipt of a completed application for benefits unless special circumstances require an extension of time for processing the claim.  If such special circumstances exist, the Administrator may obtain a ninety (90) day extension of the time for processing the claim by providing the claimant written notice of the extension within the initial ninety (90) day period.  The extension notice must include an explanation of the special circumstances and the date by which the Administrator expects to render a final decision.
The Administrator shall notify a claimant in writing, delivered in person or mailed by first class mail to such claimant’s last known address, if any part of a claim for benefits under this has been denied, setting forth in such notice:
 
(a)
the specific reason for the denial;
 
 
(b)
a specific reference to pertinent provisions of the Plan or related documents upon which the denial is based;
 
 
(c)
a description of any additional material or information deemed necessary by the Administrator for such claimant to perfect his claim, and an explanation of why such material or information is necessary; and
 
 
(d)
an explanation of the claim review procedure under the Plan, including applicable time limits and the claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on appeal.
 
Such notice shall set forth the above information in a manner calculated to be understood by such claimant.  If the notice referred to above is not furnished and if the claim has not been granted within the time specified above for determination of such claim, the claim shall be deemed denied and shall be subject to review as set forth below.  The interpretations, determinations, and decisions of the Administrator shall be final and binding upon all persons with respect to any right, benefit and privilege hereunder, subject to the review procedures hereinafter set forth.


24.7            Authorized Representative .  The claimant may designate any authorized representative to act on his behalf in pursuing a benefit claim or appeal of an adverse benefit determination.  The Administrator and Committee may demand reasonable evidence that the representative has been duly authorized by the claimant, including evidence as to the scope of the representation and whether notices due the claimant under these claims procedures are to be given to the claimant, the representative or both.  Depending on the extent of authorization given to the representative hereunder, references to the claimant in these claims procedures may be deemed to refer to or include the authorized representative.
24.8            Request for Review of a Denial of a Claim for Benefits .  Any claimant whose claim for benefits has been denied or deemed denied, in whole or in part, by the Administrator, shall have sixty (60) days from the date the claim is deemed denied, or sixty (60) days from receipt of the notice denying the claim, as the case may be, in which to request a review by written application delivered to the Committee.  Such written application must specify the relief requested and the reason such claimant believes the denial should be reversed.
24.9            Review Procedure .  The Committee is hereby authorized to review the facts and relevant documents, including this Plan, to interpret this Plan and other relevant documents and to render a decision on the appeal of the claimant.  Such review may be made by written briefs submitted by the claimant and the Administrator or at a hearing, or by both, as shall be deemed necessary by the Committee.  If no hearing is to be held, the claimant and the Administrator shall have thirty (30) days following the filing of the request for review to submit written comments, documents, records and other information relating to the claim.  During this period, the claimant shall be provided, on request and free of charge, reasonable access to, and copies of, all documentation, records, and other information relevant to the claimant’s claim for benefits.  Whether a document, record or other information is relevant to a claim for benefits


shall be determined pursuant to Section 503 of ERISA.  The claimant and the Administrator may submit additional comments, etc., after the close of the thirty (30) day period only at the request or with the consent of the Committee.
Alternatively, upon receipt of a request for review, the Committee may schedule a hearing to be held (subject to reasonable scheduling conflicts) not more than forty-five (45) days from the receipt of such request.  The date and time of such hearing shall be designated by the Committee upon not less than fifteen (15) days’ notice to the claimant and the Administrator unless both of them accept shorter notice.  The notice shall specify that such claimant must indicate in writing, at least five (5) days in advance of the time established for such hearing, his intention to appear at the appointed time and place, or the hearing will automatically be canceled.  The reply shall specify any other persons who will accompany him to the hearing, or appear in his place, or such other persons will not be admitted to the hearing.  The Committee may limit attendance at the hearing.  The Committee shall make every effort to schedule the hearing on a day and at a time which is convenient to both the claimant and the Administrator.  The hearing will be scheduled at the Company’s headquarters unless the Committee determines that another location would be more appropriate.  The claimant shall be provided, on request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits in preparation for the hearing.  Whether a document, record or other information is relevant to a claim for benefits shall be determined pursuant to Section 503 of ERISA.  The claimant and the Administrator may submit written comments, documents, records and other information relating to the claim prior to or at the hearing.  The claimant and the Administrator may submit additional comments, etc., after the hearing only at the request or with the consent of the Committee.


24.10                       Decision upon Review of Denial of Claim for Benefits .  After the review has been completed, the Committee shall render a decision in writing, a copy of which shall be sent to both the claimant and the Administrator.  In making its decision, the Committee shall have full power, authority, and discretion to determine any and all questions of fact, resolve all questions of interpretation of this instrument or related documents which may arise under any of the provisions of this Plan or such documents as to which no other provision for determination is made hereunder, and exercise all other powers and discretions necessary to be exercised under the terms of this Plan or related documents which it is herein given or for which no contrary provision is made and to determine the right to benefits of, and the amount of benefits, if any, payable to, any person in accordance with the provisions of this Plan.  Further, in making its decision, the Committee shall take into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.  Subject to extension by agreement of the claimant and the Administrator or where due to delay beyond the control of the Administrator or the Committee, the Committee shall render a decision on the claim review not more than sixty (60) days after the receipt of the claimant’s request for review, unless a hearing is scheduled, in which case the sixty (60) day period shall be extended to thirty (30) days after the date scheduled for the hearing.  If special circumstances exist, the Committee may obtain a sixty (60) day extension by providing the claimant written notice of the extension within the initial sixty (60) day period (if there is no hearing) or within the initial thirty (30) day period following a hearing.  The extension notice must include an explanation of the special circumstances and the date by which the Committee expects to render a final decision.  Such decision shall be written in a manner calculated to be understood by the claimant, and shall:
 
(a)
set forth the specific reason or reasons for any adverse determination;
 


 
(b)
contain specific references to the provisions of the Plan and/or related documents on which the benefit determination was based; and
 
 
(c)
contain a statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claimant’s claim for benefits.  Whether a document, record or other information is relevant to a claim for benefits shall be determined pursuant to Section 503 of ERISA.
 
The decision on review shall be furnished to the claimant within the appropriate time described above.  If the decision on review is not furnished within such time, the claim shall be deemed denied on review at the end of such period.  There shall be no further appeal from a decision rendered by the Committee.  The decision of the Committee shall be final and binding in all respects on the Administrator, the Participating Employers, the Trustee, the claimant and all other persons.
24.11                       Payment of Costs and Expenses .  The expenses of administration of this Plan incurred by the Committee, the Administrator or the Trustee shall be paid in any one of the following manners as determined by the Company in its sole discretion:
 
(a)
out of the Trust Fund;
 
 
(b)
out of individual Participants’ Accounts, if such fees directly relate to such Participants Account activities;
 
 
(c)
out of the annual contributions of the Participating Employers, if any; or
 
 
(d)
directly by the Participating Employers.
 
The costs and expenses of administration of the Plan shall include, without limitation, (i) Trustee’s fees as such may from time to time be agreed upon between the Company and the Trustee, (ii) the costs of processing contributions, investments, accounts, loans, distributions and claims, including the cost of any equipment or other property used in connection therewith, (iii) the cost of preparing, distributing and filing any governmental submissions, filings, reports


or returns with respect to the Plan and any summary plan descriptions and other notices, reports, election forms or Account statements, (iv) the costs of any amendments necessary or desirable to maintain the Plan in compliance with any applicable laws or to reflect Plan operation, (v) the cost of any attorneys, accountants, actuaries, agents, clerks, secretaries, or third-party administrators or service providers hired or utilized by the Plan or by the Administrator or Committee in connection with the performance of their functions hereunder, or by the Company in connection with the administration of the Plan, and (vi) any other costs and expenses relating to plan administration.
24.12                       Exhaustion of Review Procedures; Statute of Limitations .  The interpretations, determinations and decisions of the Administrator and the Committee shall, except to the extent provided in Section 16.9 hereof, be final and binding upon all persons with respect to any right, benefit and privilege hereunder.  Except as otherwise provided in ERISA, the review procedures of said Section 16.9 shall be the sole and exclusive remedy and shall be in lieu of all actions at law, in equity, pursuant to arbitration or otherwise.  In any event, a Participant, former Participant or Beneficiary must exhaust the review procedures of Section 16.9 hereof prior to the commencement of any such action.  For claims incurred on or after the Restatement Date, no legal action may be commenced against the Plan, the Administrator or the Committee more than one hundred eighty (180) days after the Committee’s final decision has been rendered, in accordance with Section 16.9, with respect to all or any portion of the claim.
24.13                       Delegated Duties and Responsibilities .  The Participating Employers, Administrator, Committee, Board of Directors, Trustee and their respective officers, members, Employees and agents shall have no duty or responsibility under this Plan other than the duties and responsibilities expressly assigned to them herein or delegated to them pursuant hereto or the Trust Agreement.  None of them shall have any duty or responsibility with respect to the duties


or responsibilities assigned or delegated to another of them.  In no event shall the Participating Employers, Administrator, Committee, Board of Directors or their respective officers, members, Employees and agents be deemed to have any duty or responsibility with respect to the holding, safekeeping, investment, reinvestment and administration of the Trust Fund.
24.14                       Limitation of Liability and Indemnification .  Except as otherwise provided in ERISA, the Administrator, Committee, Board of Directors, and their respective officers and members shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in the administration of this Plan.  The Participating Employers shall indemnify, defend, and hold harmless the Administrator, Committee, Board of Directors, and their respective officers, Employees, members and agents, for all acts taken or omitted in carrying out their responsibilities under the terms of this Plan or other responsibilities imposed upon such persons by ERISA.  This indemnification for all acts or omissions is intentionally broad, but shall not provide indemnification for embezzlement or diversion of Trust funds for the benefit of any such persons, nor shall it provide indemnification for excise taxes imposed under Section 4975 of the Code.  The Participating Employers shall indemnify such persons for expenses of defending an action by a Participant, former Participant, Beneficiary, government entity, or other persons, including all legal fees and other costs of such defense.  The Participating Employers will also reimburse such a person for any monetary recovery in a successful action against such person in any federal or state court or arbitration.  In addition, if the claim is settled out of court with the concurrence of the Company, the Participating Employers shall indemnify such person for any monetary liability under said settlement.”


IN WITNESS WHEREOF, Invacare Corporation, by its proper officer, has caused this Amendment No. 3 to be executed as of the 30th day of December, 2003.
INVACARE CORPORATION

By:  /s/ Diane J. Davie           



AMENDMENT NO. 4
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 4 is executed as of the date set forth below by Invacare Corporation (the “Company”).
WITNESSETH :
WHEREAS, the Company maintains the Invacare Retirement Savings Plan (the “Plan”) to provide retirement benefits for certain employees of Participating Companies; and
WHEREAS, the Company most recently amended and restated the Plan, effective January 1, 2001, in order to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001 and to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan; and
WHEREAS, pursuant to Section 18.1 of the Plan, the Company has retained the right to make amendments thereto; and
WHEREAS, the Company desires to amend the Plan in order to permit participants to make catch-up contributions to the Plan in accordance with Section 414(u) of the Code, to increase the maximum salary deferral contributions that can be made to the Plan by employees, and to revise the investment provisions of the Plan to expand the group of participants subject to trading restrictions in the Invacare Stock Fund;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of April 1, 2004, as follows:


1.            Section 5.1 of Article 5 of the Plan is hereby amended by the deletion of said Section 5.1 in its entirety and the substitution in lieu thereof of a new Section 5.1 to read as follows:
“5.1            Election and Amount of Salary Deferral Contributions .  Pursuant to uniform rules and procedures prescribed by the Administrator, an Active Participant may elect that a portion of his unpaid Compensation for a Plan Year be paid by a Participating Employer to the Trustee hereunder as a Salary Deferral Contribution and be treated as a contribution by the Participating Employer.  An Active Participant who does not elect to make Salary Deferral Contributions pursuant to the preceding sentence shall be deemed to have elected to contribute zero percent (0%).  Any election by a Participant to contribute more than zero percent (0%) of his unpaid Compensation pursuant to this Section shall be expressed in one percent (1%) increments of his Compensation for a payroll period.  The Administrator may, from time to time, establish maximum percentage limits on the amount of Salary Deferral Contributions that Participants can make under this Plan and may establish maximum percentage limits which apply solely to Highly Compensated Employees.  Until changed by the Administrator pursuant to this Section, the maximum percentage of an Active Participant’s Compensation (minus any salary reduction amounts which are excluded from the taxable income of the Participant under Section 125 of the Code) for a payroll period that is subject to election pursuant to this Section shall be fifty percent (50%).
Pursuant to uniform rules and procedures prescribed by the Administrator, an Active Participant who is eligible to make Salary Deferral Contributions under this Plan and who has attained or will attain age fifty (50) before the close of the Plan Year may make additional catch-up Salary Deferral Contributions in accordance with, and subject to the limitations of, Section 414(v) of the Code.  Any such catch-up Salary Deferral


Contributions shall be credited to the Active Participant’s Salary Deferral Account.  The Participating Employers shall make matching contributions to the Plan on behalf of each Active Participant for whom catch-up Salary Deferral Contributions are made to the Plan pursuant to this Section 5.1, at the time and at the rate set forth in said Section 6.2 with respect to regular Salary Deferral Contributions.  Catch-up Salary Deferral Contributions shall not be taken into account for purposes of the provisions of this Plan implementing the required limitations of Sections 402(g) and 415 of the Code.  This Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 410(b) or 416 of the Code, as applicable, by reason of the making of such catch-up Salary Deferral Contributions.”
2.            Section 7.10 of Article 7 of the Plan is hereby amended by the deletion of said Section 7.1 in its entirety and the substitution in lieu thereof of a new Section 7.10 to read as follows:
“7.10                       Restrictions on Insider Trading .  Notwithstanding the foregoing provisions of this Article 7, the Administrator in its sole discretion shall have the authority to place such restrictions upon the investment directions into and out of the Invacare Stock Fund of any person subject to the Company’s Insider Trading Policy (as such Policy may be in effect from time to time hereafter).  As of the date hereof, such restrictions include the following:  Participants subject to the Insider Trading Policy may trade in Company stock under the Plan only during the period beginning after the second full trading day following the Company’s widespread public release of quarterly or year-end earnings, as applicable, and ending at the close of trading on the date that is three weeks (21 days) before the end of the next fiscal quarter, unless pursuant to the procedures of the Insider Trading Policy, a blackout window has been imposed during the normal trading window.


In addition, even during a trading window as described in the preceding sentence, any Participant who is in possession of material, nonpublic information concerning the Company may not submit an investment direction relating to the Invacare Stock Fund until after the second full trading day following the Company’s widespread release of such information.”
IN WITNESS WHEREOF, Invacare Corporation, by its proper officer, has caused this Amendment No. 4 to be executed as of the 6th day of April, 2004.

INVACARE CORPORATION


By:  /s/ Gregory C. Thompson





AMENDMENT NO. 5
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 5 is executed as of the date set forth below by Invacare Corporation (the “Company”).
WITNESSETH :
       WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (f.k.a. the Invacare Corporation Profit Sharing Trust and Plan) (the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Relief Reconciliation Act of 2001, and to make certain other desirable changes, and the Plan was further amended on four prior occasions; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to reduce the mandatory cash-out threshold from Five Thousand Dollars ($5,000.00) to One Thousand Dollars ($1,000.00);
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, effective March 28, 2005, Section 15.6 of the Plan is hereby amended by the deletion of said Section 15.6 in its entirety and the substitution in lieu thereof of a new Section 15.6 to read as follows:


“15.6 Cash-Out of Small Account Balances .  In the event that the value of a retired, terminated or deceased Participant’s distributable Account balances does not exceed One Thousand Dollars ($1,000.00) at the time of distribution, or at any time thereafter, the Administrator shall direct the Trustee to distribute such distributable Account balances in a single lump sum payment without the consent of the Participant, his spouse or his Beneficiary; provided, however, that the Trustee shall not make any such single lump sum payment after the date a Participant’s distribution has commenced unless the Participant and his spouse, if any, or in the case of a payment to the surviving spouse of a deceased Participant, the spouse, consent to the single lump sum payment in writing and provided further that any such lump sum payment shall be made in accordance with the provisions of Section 15.11 hereof.  Unless such a Participant or Beneficiary elects to receive a distribution which includes whole Shares, the Trustee shall sell any Shares or other assets credited to his distributable Accounts as of the date distribution is to be made and distribute the amount of his distributable Account balances in a single lump sum payment of cash.  Any such single lump sum payment shall be in full settlement of such Participant’s, spouse’s or Beneficiary’s rights under this Plan.”
IN WITNESS WHEREOF, Invacare Corporation, by its proper officer, has caused this Amendment No. 5 to be executed as of the 5th day of April, 2005.
INVACARE CORPORATION

By:  /s/ Joseph Usaj          



AMENDMENT NO. 6
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 6 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to add certain Affiliates as Participating Employers under the Plan, to include automatic enrollment procedures in the Plan, to provide for discretionary profit sharing contributions, to modify the loan default provisions of the Plan, to increase the percentage of the Stock Bonus Account which may be diversified by Participants on an annual basis, to adopt new Supplemental Agreements relating to certain Participants employed by MedBloc Inc. and Champion Manufacturing Inc. and to make certain other desired changes;


NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of the dates herein provided, as follows:
1.            Effective as of January 1, 2006, Section 2.2 of the Plan is hereby amended by the deletion of the cross reference to “Section 4.4” and the substitution of “Section 4.5” in lieu thereof.
2.            Effective as of March 1, 2004, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:
“2.36                       Participating Employer .  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Except as otherwise specifically provided in Section 3.1 hereof, Garden City Medical, Inc., Medbloc Inc. and Freedom Designs, Inc. shall not be Participating Employers under the Plan.”
3.            Effective as of July 19, 2004, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:
“2.36                       Participating Employer .  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Except as otherwise specifically provided in Section 3.1 hereof, Garden City Medical, Inc., Medbloc Inc., Freedom Designs, Inc., and Premier Designs shall not be Participating Employers under the Plan.”
4.            Effective as of October 15, 2004, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:


“2.36                       Participating Employer .  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Except as otherwise specifically provided in Section 3.1 hereof, Garden City Medical, Inc., Medbloc Inc., Freedom Designs, Inc., Premier Designs and Champion Manufacturing Inc. shall not be Participating Employers under the Plan.”
5.            Effective as of June 7, 2005, Section 2.36 of the Plan is hereby amended by the deletion of said Section 2.36 in its entirety and the substitution in lieu thereof of a new Section 2.36 to read as follows:
“2.36                       Participating Employer .  The words ‘Participating Employer’ shall mean the Company and any Affiliate which is or shall become a Participating Employer in this Plan pursuant to Article 3 hereof.  Except as otherwise specifically provided in Section 3.1 hereof, Garden City Medical, Inc., Medbloc Inc., Freedom Designs, Inc., Premier Designs, Champion Manufacturing Inc. and Altimate Medical, Inc. shall not be Participating Employers under the Plan.”
6.            Effective as of January 1, 2006, Section 3.1 of the Plan is hereby amended by the deletion of said Section 3.1 in its entirety and the substitution in lieu thereof of a new Section 3.1 to read as follows:
“3.1            Designation of Participating Employers .  An Affiliate of the Company shall become a Participating Employer under this Plan by resolution of the Board of Directors of the Company and the ratification of the Board of Directors of the Affiliate.  By becoming a Participating Employer under this Plan, an Affiliate of the Company is deemed to approve this Plan in the form which is in effect as of its Adoption Date.  The Participating Employers as of January 1, 2006 are as follows:
 
 

 
PARTICIPATING EMPLOYER                                                                                                            
ADOPTION DATE
Invacare Corporation                                                                                                           
1-Jan-88
Professional Medical Imports, Inc.                     
30-Jun-99
Champion Manufacturing Inc.                        
1-Jan-06
Medbloc Inc.                 
1-Jan-06
Pinnacle Medsources Inc.                
January 1, 2006”

7.            Effective as of January 1, 2006, Article 4 of the Plan is hereby amended by deletion of Sections 4.2, 4.3, 4.4 and 4.5 and the substitution in lieu thereof of new Sections 4.2, 4.3, 4.4, 4.5 and 4.6 to read as follows:
“4.2            Eligibility and Participation .  Every other Employee who is a Covered Employee shall automatically become a Participant in this Plan on the Enrollment Date coinciding with or next following his Date of Hire.  Every Covered Employee who meets such eligibility requirements may elect to make Salary Deferral Contributions as of any date coinciding with or next following his Enrollment Date.  An eligible Covered Employee who elects to make Salary Deferral Contributions shall agree, by such means (including writing, telephonically, or electronically) as the Administrator may determine to defer certain of his unpaid Compensation pursuant to Section 5.1 hereof and to have such amounts contributed to the Plan on his behalf as Salary Deferral Contributions.  An eligible Covered Employee may also become a Participant by virtue of a deemed election pursuant to Section 4.3.  A Participant may increase or decrease the amount of his Salary Deferral Contributions in accordance with the provisions of Article 5 hereof.
4.3            Automatic Participation; Election Not To Participate .In the event that an eligible Covered Employee fails to make an affirmative election in accordance with Section 4.2, he shall be deemed to have elected to have Salary Deferral Contributions made on his behalf in the amount of three percent (3%) of his Compensation.  Such contributions shall commence as soon as administratively practicable but not earlier than sixty (60) days following his Date of Hire.


An eligible Covered Employee who is automatically enrolled in the Plan pursuant to this Section 4.3 may decline to make Salary Deferral Contributions under the Plan by so electing in such manner (including writing, orally, telephonically, or electronically) as the Administrator may determine.  Such an eligible Covered Employee may later elect to make Salary Deferral Contributions to the Plan in accordance with the provisions of Section 4.2 and Article 5 hereof.  An Employee who declines to make Salary Deferral Contributions pursuant to this Section shall not be eligible to receive an allocation of any matching contribution made to the Plan by a Participating Employer, but shall receive an allocation of Participating Employer quarterly contributions and/or profit sharing contributions, provided he is otherwise eligible to receive such an allocation pursuant to Article 6 hereof.
4.4            Rehired Employees .  In the event that a former Employee is rehired, he shall become an Active Participant on the Enrollment Date coincident with or next following his date of reemployment if he is a Covered Employee on such Enrollment Date.  A former Employee who becomes an Active Participant on or after January 1, 2006 shall be subject to the deemed election provisions set forth in Section 4.3 above.
4.5            Employees on Leave of Absence .  A Covered Employee who would be eligible to participate in this Plan, except that he is on an authorized unpaid Leave of Absence on his Enrollment Date, shall be enrolled pursuant to Section 4.3 above on the date on which he ceases to be on the unpaid Leave of Absence, assuming he is then a Covered Employee.
4.6            Cessation of Covered Employee Status .  In the event that a Participant ceases to be a Covered Employee but continues in the employ of a Participating Employer, he will continue to be a Participant in this Plan and accrue Service until his


date of Termination of Employment, but any distribution payable to such Participant under this Plan shall be computed on the basis of his Account balances on the date he ceased to be a Covered Employee, plus any investment gains or losses thereon.”
8.            Effective January 1, 2006, Section 5.1 of the Plan is hereby amended by the deletion of the first paragraph of said Section 5.1 and the substitution in lieu thereof of a new first paragraph to read as follows:
“5.1            Election and Amount of Salary Deferral Contributions .  Pursuant to uniform rules and procedures prescribed by the Administrator, an Active Participant may elect that a portion of his unpaid Compensation for a Plan Year be paid by a Participating Employer to the Trustee hereunder as a Salary Deferral Contribution and be treated as a contribution by the Participating Employer.  An Active Participant who does not elect to make Salary Deferral Contributions pursuant to the preceding sentence shall be deemed to have elected to contribute three percent (3%) of his Compensation.  Any election by a Participant to contribute more than zero percent (0%) of his unpaid Compensation pursuant to this Section shall be expressed in one percent (1%) increments of his Compensation for a payroll period.  The Administrator may, from time to time, establish maximum percentage limits on the amount of Salary Deferral Contributions that Participants can make under this Plan and may establish maximum percentage limits which apply solely to Highly Compensated Employees.  Until changed by the Administrator pursuant to this Section, the maximum percentage of an Active Participant’s Compensation (minus any salary reduction amounts which are excluded from the taxable income of the Participant under Section 125 of the Code) for a payroll period that is subject to election pursuant to this Section shall be fifty percent (50%).”
9.            Effective as of January 1, 2006, Section 5.2 of the Plan is hereby amended by the


deletion of the first paragraph of said Section 5.2 and the substitution in lieu thereof of a new paragraph to read as follows:
“5.2            Election Procedures .  A Participant’s election pursuant to Section 5.1 hereof shall be made in such form (including writing, orally, telephonically or electronically) as is required by the Administrator and shall include deemed elections made pursuant to Section 4.3.  Any such election shall become effective at such time as the Administrator shall permit and shall be conditioned upon:
 
(a)
his right to defer the imposition of federal income tax on such contributions until a subsequent distribution of such amount under this Plan; and
 
 
(b)
the Participating Employer’s right to deduct such amounts for federal income tax purposes after taking into account any contributions made by the Participating Employer under any profit sharing, pension and stock bonus plans maintained by the Company or the Participating Employer which meet the requirements of Section 401(a) of the Code.
 
Any such election shall be deemed a continuing election and shall remain in effect until it is revoked or amended by the Participant in writing, or by such other procedures as shall be established by the Administrator from time to time, or the Participant ceases to be an Active Participant.  A Participant may revoke or amend his election at such times as the Administrator shall permit.  A Participant shall revoke or amend his election by providing such notice to the Administrator as the Administrator, in its sole discretion, shall require.”
10.            Effective as of January 1, 2006, Section 6.1 of the Plan is hereby amended by the deletion of said Section 6.1 and the substitution in lieu thereof of a new Section 6.1 to read as follows:
“6.1            Quarterly Employer Contributions .  For each calendar quarter ending after January 1, 2006 (“Allocation Dates”), a Participating Employer may make a discretionary profit sharing contribution to this Plan in cash or other property on behalf of each Active


Participant employed by such Participating Employer who has completed six (6) months of Service.  For purposes of this Section, an Active Participant shall be deemed to have completed six (6) months of Service if he is in the employ of a Participating Employer at any time six (6) months after his Date of Hire.  The amount of the Participating Employer’s quarterly contributions, if any, shall be determined by the Participating Company in its sole discretion.  Such contribution may be made on or prior to each such Allocation Date as the Participating Company shall determine.  A Participating Employer’s contribution for any Allocation Date shall be credited to the Employer Contribution Accounts of each Active Participant who:
(a)            is employed by the Participating Employer on such Allocation Date; or
 
(b)
is on a Leave of Absence under the Family and Medical Leave Act of 1993 on such Allocation Date; or

 
(c)
is not employed on such Allocation Date due to a retirement, Total and Permanent Disability or death which occurred during the calendar year quarter for which such contribution is made,
in the same proportion that each such Participant’s Compensation for the calendar year quarter to which the contribution relates bears to the total Compensation of all such Participants employed by such Participating Employer for such calendar year quarter.”
11.            Effective as of January 1, 2006, Article 6 of the Plan is hereby amended by the deletion of Section 6.3 in its entirety and the substitution in lieu thereof of new Sections 6.3 and 6.4 to read as follows:
“6.3            Profit Sharing Contributions .  For each Plan Year, a Participating Employer may, not later than the last day upon which it may make a contribution under this Plan and secure under the Code a deduction of such contribution in the computation of its Federal income taxes for the Plan Year for which such payment is made, make a contribution in cash or other property.  The amount of each such contribution shall be


approved, ratified or confirmed by the Board of Directors of the Participating Employer.
A Participating Employer’s contribution made pursuant to this Section 6.3 shall be allocated among the Employer Contribution Accounts of:
 
(a)
each Participant employed by the Participating Employer who was an Active Participant on the Allocation Date coinciding with the last day of the Plan Year; and
 
 
(b)
each Participant employed by the Participating Employer who ceased to be an Active Participant on the Allocation Date coinciding with the last day of the Plan Year; and
 
 
(c)
each Participant employed by the Participating Employer who retired after having attained his Normal Retirement Date or died or became disabled, during the Plan Year for which the allocation is made.
 
Except as set forth in subsection (c) above, the Employer Contribution Accounts of Participants whose employment terminated prior to such Allocation Date shall not be allocated any portion of said contribution.
The Employer Contribution Account of each Participant eligible to receive an allocation of a contribution made pursuant to this Section 6.3 hereof shall be credited with that portion of the Participating Employer’s contribution for such Plan Year which bears the same relationship to the Participating Employer’s contribution as such Participant’s Compensation during such Plan Year bears to the total Compensation of all Participants employed the Participating Employer during such Plan Year.
6.4            Vesting of Participating Employer Contributions .  Any Shares or amounts credited to a Participant’s Employer Contribution Account and Matching Contributions pursuant to Sections 6.1, 6.2 and 6.3 hereof shall be subject to the vesting schedule set forth in Section 2.67 hereof.”
12.            Effective January 1, 2006, Section 7.3 of the Plan is hereby amended by the deletion of the second to last sentence of said Section 7.3 and the substitution in lieu thereof of a


new sentence to read as follows:
“In the event that a Participant, former Participant or Beneficiary does not direct the investment of any portion of such Account Balances, such undirected portion of such Account balances shall be invested in the appropriate Fidelity Freedom Fund based upon the age of the Participant, former Participant or Beneficiary.”
13.            Effective January 1, 2006, Section 7.4 of the Plan is hereby amended by the deletion of said Section 7.4 in its entirety and the substitution in lieu thereof of a new Section 7.4 to read as follows:
“7.4            Diversification of Stock Bonus Account .  Each Qualified Participant, by written direction to the Administrator or by such other procedures as shall be established by the Administrator from time to time, may direct the investment of his total Stock Bonus Account in any or all of the Investment Funds established hereunder; provided, however, that any such investment directions shall be made in accordance with such other rules as are established by the Administrator from time to time in its sole discretion, including rules requiring that investment selections be made effective as of specific investment dates and within a certain period of time prior to an investment date.  Any rules established by the Administrator pursuant to this Article 7 relating to Participant direction of investment shall apply to all Qualified Participants in a uniform and nondiscriminatory manner following such Qualified Participant’s election to direct the investment of his Stock Bonus Account.  Each Plan Year, an Active Participant who is not a Qualified Participant may direct the investment of up to the greater of:  (i) fifty percent (50%) of the number of  Shares credited to his Stock Bonus Account as of the last day of the immediately preceding Plan Year; and (ii) Shares having a Fair Market Value of One Hundred Dollars ($100.00) or less. It is intended that any other Shares remaining


credited to the Participant’s Stock Bonus Account continue to be fully invested in the Invacare Segregated Stock Fund.”
14.            Effective September 27, 2005, Section 11.4 of the Plan is hereby amended by the deletion of subsection (b) of said Section 11.4 and the substitution in lieu thereof of a new subsection (b) to read as follows:
 
“(b)
Loan Term and Repayment Schedule .  The term of any loan shall be arrived at by mutual agreement between the Borrower and the Administrator but shall not be less than one (1) year and shall not exceed five (5) years; provided, however, that if the proceeds of such loan are to be used to acquire any dwelling which within a reasonable time is to be used as the Borrower’s principal residence, such loan may be for a term of up to fifteen (15) years.  Subject to the conditions set forth in the immediately preceding sentence, the terms of the loan shall extend for any number of whole months as so agreed by the Borrower and the Administrator.
 
All loans shall provide for the substantially level amortization of the loan, with payments no less frequently than quarterly, over the term of the loan; provided, however, that the loan shall permit (unless the Administrator otherwise determines) a grace period for up to one (1) year from such repayments while a Borrower is on a leave of absence without pay, provided that such grace period shall not extend the due date of the loan beyond the maximum time period set forth above.  In the event that the Borrower does not make loan payments while on a leave of absence, the term of his loan may be extended by the length of such leave of absence prior to reamortization of the loan; provided, however, that for a general purpose loan, such extension shall not extend the term of the loan beyond a five (5) year term measured from the date of the original loan, or for a home loan, a fifteen (15) year term measured from the date of the original loan.
 
If a Borrower is on a military leave, loan repayments will be suspended under this Plan, as permitted under Section 414(u)(4) of the Code.
 
The Administrator may make such additional, nondiscriminatory rules regarding loan repayments as it deems necessary, including early repayments and any restrictions relating thereto.”
 
15.            Effective May 15, 2005, Section 11.4 of the Plan is hereby further amended by the deletion of subsection (f) of said Section 11.4 and the substitution in lieu thereof of a new subsection (f) to read as follows:


“(f)            Default .  A Borrower shall be in default thirty (30) days after his last payment:

 
(i)
if he fails to make any payment of principal or interest sufficient to meet the substantially level quarterly amortization requirement in paragraph (b) above;

 
(ii)
if he fails to make a required payment after a permitted one (1) year grace period as provided for in paragraph (b) above;

 
(iii)
if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan within the term of the loan, as it may be extended as provided in paragraph (b) above; or

 
(iv)
if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan after his Termination of Employment, unless he remains a Party in Interest or receives salary continuation payments from a Participating Employer after such Termination of Employment. If a terminated Participant receives salary continuation payments from a Participating Employer following his Termination of Employment, he shall be in default if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan by the earlier of the date on which he receives a distribution of his Accounts from the Plan or sixty (60) days after his salary continuation payments from the Participating Employer cease.

 
In the event of default by a Borrower, his loan shall be accelerated, and:

 
(A)
if his collateral security in this Plan is adequate to cover all or part of the outstanding principal and interest, and if distribution of such amount would not, in the opinion of the Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall take such steps as it deems appropriate to offset the loan balance against his Vested Interest or otherwise execute upon such Plan collateral; and

 
(B)
if his collateral security described in paragraph (f)(iv) is not adequate to cover all of the outstanding principal and interest, or if execution upon such collateral would, in the opinion of the Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall commence appropriate collection actions against the Borrower to recover the amounts owed.

Expenses of collection, including legal fees, if any, of any loan in default shall be borne by the Borrower or his Accounts.


In the event of default, a Borrower shall not be permitted to request another loan from the Plan until the original, outstanding loan is repaid in full.”
16.            Effective January 1, 2006, Article 17 of the Plan is hereby amended by the addition at the end of said Article 17 of a new Section 17.9 to read as follows:
“17.9                       Costs Associated With Review of Domestic Relations Orders.   The Company reserves the right to charge the appropriate Participant and Alternate Payee the reasonable costs of reviewing a Domestic Relations Order for the purpose of determining whether such Order constitutes a Qualified Domestic Order.  Such charges may include, but are not limited to, reasonable attorney’s fees that are incurred by the Plan for such purpose.  Any such charges shall be divided equally between the Participant and the Alternate Payee and shall be debited to the Accounts maintained on behalf of such individuals under the Plan.”

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 6 this 3rd day of January, 2006.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
       

               


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT I
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF MEDBLOC INC.


This Supplemental Agreement I to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of January 1, 2006.
SECTION I-A
DEFINITIONS
I.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “MedBloc” shall mean MedBloc Inc.
 
 
(b)
The words “MedBloc Employee” shall mean an Employee who is employed by MedBloc and is a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Supplement I Participant” shall mean any individual who was employed by MedBloc as of December 31, 2005 and who becomes a Participant.

SECTION I-B
SERVICE AND VESTING
I.B.1.                       Service .  A MedBloc Employee’s Service shall be the sum of his Service under Section 2.50 of the Plan for the period after December 31, 2005, plus his Service with MedBloc prior to August 18, 2003.
I.B.2.                       Vesting .  Each Supplement I Participant shall be one hundred percent (100%) vested in the amounts credited to his Matching Contribution Account under the Plan.  Any amounts credited to the Matching Contribution Account and the Employer Contribution


Account of a MedBloc Employee who is hired on and after January 1, 2006, shall be subject to the vesting schedule set forth in Section 2.67 of the Plan.
SECTION I-C
ELIGIBILITY AND PARTICIPATION
I.C.1.   Election To Participate; Automatic Participation .  A MedBloc Employee who is eligible as of January 1, 2006 to participate in the Plan pursuant to Section 4.2 thereof, shall be provided written notification of the Plan’s enrollment provisions and shall have the option to elect to make Salary Reduction Contributions to the Plan or to decline to make Salary Reduction Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  In the event that such an employee fails to elect not to participate, the automatic contribution provisions of Section 4.3 of the Plan shall not be applied to such employee.  Salary Reduction Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.
SECTION I - D
EMPLOYER MATCHING CONTRIBUTIONS
I.D.1                       Matching Contributions .  For each payroll period ending after January 1, 2006, MedBloc shall make matching contributions to this Plan on behalf of each MedBloc Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of a MedBloc Participant with respect to a particular payroll period shall be equal to 100% of Salary Deferral Amounts up to three percent (3%) of Compensation.  No matching contributions will be made on deferrals in excess of three percent (3%) of a MedBloc Employee’s Compensation.
Any matching contributions made on and after January 1, 2006 shall be in the form of


cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT II
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF CHAMPION MANUFACTURING INC.


This Supplemental Agreement II to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of January 1, 2006.
SECTION 1I-A
DEFINITIONS
II.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “Champion” shall mean Champion Manufacturing Inc.
 
 
(b)
The words “Champion Employee” shall mean an Employee who is employed by Champion and is a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Supplement II Participant” shall mean any individual who was employed by Champion as of December 31, 2005 and who becomes a Participant.

SECTION II-B
SERVICE AND VESTING
II.B.1.                       Service .  A Champion Employee’s Service shall be the sum of his Service under Section 2.50 of the Plan for the period after December 31, 2005, plus his Service with Champion prior to October 15, 2004.
II.B.2.                       Vesting .  Each Supplement II Participant shall be one hundred percent (100%) vested in the amounts credited to his Matching Contribution Account under the Plan.  Any amounts credited to the Matching Contribution Account and the Employer Contribution


Account of a Champion Employee who is hired on and after January 1, 2006, shall be subject to the vesting schedule set forth in Section 2.67 of the Plan.
SECTION II-C
ELIGIBILITY AND PARTICIPATION
II.C.1.   Election To Participate; Automatic Participation .  A Champion Employee who is eligible as of January 1, 2006 to participate in the Plan pursuant to Section 4.2 thereof and who is participating in the Champion Manufacturing Inc. 401(k) Plan & Trust (“Champion Plan”) as of December 31, 2005 shall have Salary Reduction Contributions made to the Plan in accordance with the contribution election in effect as of that date under the Champion Plan.  Each other Champion Employee shall be provided written notification of the Plan’s enrollment provisions and shall have the option to elect to make Salary Reduction Contributions to the Plan or to decline to make Salary Reduction Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  In the event that such an employee fails to elect not to participate, the automatic contribution provisions of Section 4.3 of the Plan shall not be applied to such employee.  Salary Reduction Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.
SECTION II - D
EMPLOYER MATCHING CONTRIBUTIONS
II.D.1                       Matching Contributions .  For each payroll period ending after January 1, 2006, Champion shall make matching contributions to this Plan on behalf of each Champion Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of a Champion Participant with respect to a particular payroll period shall be equal to 100% of Salary Deferral Amounts on the first three


percent (3%) of Compensation which the Participant contributes to the Plan and 50% of the next two percent (2%) of Compensation which the Participant contributes to the Plan.  No matching contributions will be made on deferrals in excess of five percent (5%) of a Champion Employee’s Compensation.
Any matching contributions made on and after January 1, 2006 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.



AMENDMENT NO. 7
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 7 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to eliminate the restriction on diversification of the Participants’ stock bonus accounts;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of January 1, 2007, as follows:
1.            Section 7.4 of the Plan is hereby amended by the deletion of said Section 7.4 in its entirety and the substitution in lieu thereof of a new Section 7.4 to read as follows:


“7.4            Diversification of Stock Bonus Account .  Each Participant and Beneficiary, by written direction to the Administrator or by such other procedures as shall be established by the Administrator from time to time, may direct the investment of all or a portion of his Stock Bonus Account in any or all of the Investment Funds established hereunder.  Any such investment direction shall not be subject to restrictions or conditions which are not imposed on the other Investment Funds under the Plan, except as may be provided under rules established by the Administrator consistent with Code Section 401(a)(35), including restrictions or conditions imposed by reason of securities laws.  Any rules established by the Administrator pursuant to this Article 7 relating to Participant direction of investment shall apply to all Participants and Beneficiaries in a uniform and nondiscriminatory manner.  It is intended that any Shares remaining credited to the Participant’s or Beneficiary’s Stock Bonus Account shall continue to be fully invested in the Invacare Segregated Stock Fund.”

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 7 this 13th day of November, 2006.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
 

                 


AMENDMENT NO. 8
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 8 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company has amended the Plan from time to time since the amendment and restatement; and
WHEREAS, the Company desires to further amend the Plan in order to add Freedom Designs, Inc. and Altimate Medical, Inc. as Participating Employers under the Plan, to adopt new Supplemental Agreements relating to certain Participants employed by such Participating Employers and to make certain other desired changes;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends


the Plan, effective as of the dates herein provided, as follows:
1.            Effective as of August 1, 2006, Section 3.1 of the Plan is hereby amended by the deletion of said Section 3.1 in its entirety and the substitution in lieu thereof of a new Section 3.1 to read as follows:
“3.1            Designation of Participating Employers .  An Affiliate of the Company shall become a Participating Employer under this Plan by resolution of the Board of Directors of the Company and the ratification of the Board of Directors of the Affiliate.  By becoming a Participating Employer under this Plan, an Affiliate of the Company is deemed to approve this Plan in the form which is in effect as of its Adoption Date.  The Participating Employers as of January 1, 2006 are as follows:
 
PARTICIPATING EMPLOYER
 
ADOPTION DATE
Invacare Corporation
 
January 1, 1988
Professional Medical Imports, Inc.
 
June 30, 1999
Champion Manufacturing Inc.
 
January 1, 2006
MedBloc Inc.
 
January 1, 2006
Pinnacle Medsources Inc.
 
January 1, 2006
Freedom Designs, Inc.
 
January 1, 2006
Altimate Medical, Inc.
 
January 1, 2007"
 
2.            Effective January 1, 2006, Supplemental Agreements I and II of the Plan are hereby amended by the deletion of said Supplemental Agreements I and II in their entirety and the substitution in lieu thereof of new Supplemental Agreements I and II in the form attached hereto.
3.            Effective August 1, 2006, the Plan is hereby amended by the addition at the end thereof of a new Supplemental Agreement III in the form attached hereto.
4.            Effective January 1, 2007, the Plan is hereby amended by the addition at the end thereof of a new Supplemental Agreement IV in the form attached hereto.

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed


this Amendment No. 8 this 28th day of December, 2006.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
 


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT I
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF MEDBLOC INC.


This Supplemental Agreement I to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of January 1, 2006.
 
SECTION I-A
DEFINITIONS
I.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “MedBloc” shall mean MedBloc Inc.
 
 
(b)
The words “MedBloc Employee” shall mean an Employee who is employed by MedBloc and is a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Supplement I Participant” shall mean any individual who was employed by MedBloc as of December 31, 2005 and who becomes a Participant.

 
SECTION I-B
SERVICE AND VESTING
I.B.1.                       Service .  A MedBloc Employee’s Service shall be his Service as determined under Section 2.50 of the Plan including periods of employment with MedBloc prior to August 18, 2003, the date MedBloc became an Affiliate; provided however, in no event shall his Service as of January 1, 2006 be less than his years of vesting service under the MedBloc Plan as of December 31, 2005.
I.B.2.                       Vesting .  Each Supplement I Participant shall be one hundred percent (100%) vested in the amounts credited to his Matching Contribution Account under the Plan.  Any amounts credited to the Matching Contribution Account and the Employer Contribution Account of a MedBloc Employee who is hired on and after January 1, 2006, shall be subject to the vesting schedule set forth in Section 2.67 of the Plan.

SECTION I-C
ELIGIBILITY AND PARTICIPATION
I.C.1.   Election To Participate; Automatic Participation .  A MedBloc Employee who is eligible as of January 1, 2006 to participate in the Plan pursuant to Section 4.2 thereof, shall be provided written notification of the Plan’s enrollment provisions and shall have the option to elect to make Salary Deferral Contributions to the Plan or to decline to make Salary Deferral Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  Salary Deferral Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.  In the event that such an employee fails to elect not to participate, the automatic contribution provisions of Section 4.3 of the Plan shall be applied to such employee.
 
SECTION I - D
EMPLOYER MATCHING CONTRIBUTIONS
I.D.1                       Matching Contributions .  For each payroll period ending after January 1, 2006, MedBloc shall make matching contributions to this Plan on behalf of each MedBloc Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of a MedBloc Participant with respect to a particular payroll period shall be equal to 100% of Salary Deferral Contributions up to three percent (3%) of Compensation.  No matching contributions will be made on deferrals in excess of three percent (3%) of such MedBloc Employee’s Compensation.
Any matching contributions made on and after January 1, 2006 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT II
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF CHAMPION MANUFACTURING INC.


This Supplemental Agreement II to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of January 1, 2006.
 
SECTION II-A
DEFINITIONS
II.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “Champion” shall mean Champion Manufacturing Inc.
 
 
(b)
The words “Champion Employee” shall mean an Employee who is employed by Champion and is a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Supplement II Participant” shall mean any individual who was employed by Champion as of December 31, 2005 and who becomes a Participant.

 
SECTION II-B
SERVICE AND VESTING
II.B.1.                       Service .  A Champion Employee’s Service shall be his Service as determined under Section 2.50 of the Plan including periods of employment with Champion prior to October 15, 2004, the date Champion became an Affiliate; provided however, in no event shall his Service as of the January 1, 2006 be less than his years of vesting service under the Champion Plan as of December 31, 2005.
II.B.2.                       Vesting .  Each Supplement II Participant shall be one hundred percent (100%) vested in the amounts credited to his Matching Contribution Account under the Plan.  Any amounts credited to the Matching Contribution Account and the Employer Contribution Account of a Champion Employee who is hired on and after January 1, 2006, shall be subject to the vesting schedule set forth in Section 2.67 of the Plan.

SECTION II-C
ELIGIBILITY AND PARTICIPATION
II.C.1.   Election To Participate; Automatic Participation .  A Champion Employee who is eligible as of January 1, 2006 to participate in the Plan pursuant to Section 4.2 thereof and who is participating in the Champion Manufacturing Inc. 401(k) Plan & Trust (“Champion Plan”) as of December 31, 2005 shall have Salary Deferral Contributions made to the Plan in accordance with the contribution election in effect as of that date under the Champion Plan.  Each other Champion Employee who is eligible as of January 1, 2006 to participate in the Plan shall be provided written notification of the Plan’s enrollment provisions and shall have the option either to elect to make Salary Deferral Contributions to the Plan or to decline to make Salary Deferral Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  Salary Deferral Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.  In the event that such Champion Employee fails to make either such election effective as of January 1, 2006, the automatic participation and contribution provisions of Section 4.3 of the Plan shall not be applied to such Champion Employee.  After January 1, 2006, the automatic participation and contribution provisions of Section 4.3 of the Plan shall be applied to Champion Employees.
 
SECTION II - D
EMPLOYER MATCHING CONTRIBUTIONS
II.D.1                       Matching Contributions .  For each payroll period ending after January 1, 2006, Champion shall make matching contributions to this Plan on behalf of each Champion Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of a Champion Participant with respect to a particular payroll period shall be equal to 100% of Salary Deferral Contributions on the first three percent (3%) of Compensation which the Participant contributes to the Plan and 50% of the next two percent (2%) of Compensation which the Participant contributes to the Plan.  No matching contributions will be made on deferrals in excess of five percent (5%) of a Champion Employee’s Compensation.
Any matching contributions made on and after January 1, 2006 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT III
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF FREEDOM DESIGNS, INC.


This Supplemental Agreement III to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of August 1, 2006.
 
SECTION III-A
DEFINITIONS
III.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “Freedom” shall mean Freedom Designs, Inc.
 
 
(b)
The words “Freedom Employee” shall mean an Employee who is employed by Freedom and becomes a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Freedom Plan” shall mean the Freedom Designs, Inc. 410 (k) Plan as in effect on July 31, 2006.
 
 
(d)
The words “Merger Date” shall mean August 1, 2006, the date the Freedom Plan merged into the Plan.
 
 
(e)
The words “Supplement III Participant” shall mean any individual who was a participant in the Freedom Plan, was employed by Freedom as of July 31, 2006 and who becomes a Participant.

 
SECTION III-B
SERVICE AND VESTING
III.B.1.   Service .  A Freedom Employee’s Service under the Plan shall be his Service as determined under Section 2.50 of the Plan including periods of employment with Freedom prior to the date Freedom became an Affiliate; provided however, in no event shall his Service as of the Merger Date be less than his Years of Vesting Service under Section 5.06 of the Freedom Plan immediately prior to the Merger Date.

 
III.B.2.   Vesting .  As of the Merger Date, each Supplement III Participant, who has at least one Hour on or after the Merger Date and prior to his Termination of Employment, shall have his Vested Percentage determined in accordance with Section 2.67 of the Plan, based on his Service as determined in accordance with Section III.B.1 hereof.  In the event that a Supplement III Participant, does not work at least one Hour on or after the Merger Date and prior to his Termination of Employment, such Supplement III Participant shall have his Vesting determined in accordance with Article V of the Freedom Plan.
 
SECTION III -C
ELIGIBILITY AND PARTICIPATION
III.C.1.   Election To Participate; Automatic Participation .  A Freedom Employee who is eligible as of the Merger Date, to participate in the Plan shall be provided written notification of the Plan’s enrollment provisions and shall have the option either to elect to make Salary Deferral Contributions to the Plan or to decline to make Salary Deferral Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  Salary Deferral Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.  In the event that a Freedom Employee fails to complete an election, the automatic participation and contribution provisions of Section 4.3 of the Plan shall be applied to such Freedom Employee.
 
SECTION III - D
EMPLOYER MATCHING CONTRIBUTIONS
III.D.1                       Matching Contributions .  For each payroll period ending on or after the Merger Date, Freedom shall make matching contributions to the Plan in accordance with Section 6.2 of the Plan.
Any matching contributions made on and after August 1, 2006 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.


INVACARE RETIREMENT SAVINGS PLAN



SUPPLEMENTAL AGREEMENT IV
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF ALTIMATE MEDICAL, INC.


This Supplemental Agreement IV to the Invacare Retirement Savings Plan (the "Plan") relating only to certain Participants as set forth herein, is effective as of January 1, 2007.
 
SECTION IV-A
DEFINITIONS
IV.A.1.   Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “Altimate” shall mean Altimate Medical, Inc.
 
 
(b)
The words “Altimate Employee” shall mean an Employee who is employed by Altimate and is a Covered Employee as provided in Section 2.16 of the Plan.
 
 
(c)
The words “Altimate Plan” shall mean the Altimate Medical, Inc. Profit Sharing Plan as in effect on December 31, 2006.
 
 
(d)
The words “Merger Date” shall mean January 1, 2007, the date the Altimate Plan merged into the Plan.
 
 
(e)
The words “Supplement IV Participant” shall mean any individual who was a participant in the Altimate Plan, was employed by Altimate as of December 31, 2006, and who becomes a Participant under the Plan.

 
SECTION IV-B
SERVICE AND VESTING
IV.B.1.                       Service .  An Altimate Employee’s Service under the Plan shall be his Service as determined under Section 2.50 of the Plan including periods of employment with Altimate prior to the date Altimate became an Affiliate; provided however, in no event shall his Service as of the Merger Date be less than his Years of Vesting Service under Section 2.69 of the Altimate Plan immediately prior to the Merger Date.
IV.B.2.                       Vesting .  As of the Merger Date, each Supplement IV Participant, who has at least one Hour on or after the Merger Date and prior to his Termination of Employment, shall have his Vested Percentage determined in accordance with Section 2.67 of the Plan, based on his Service as determined in accordance with Section IV.B.1 hereof.  In the event that a Supplement IV Participant, does not work at least one Hour on or after the Merger Date and prior to his Termination of Employment, such Supplement IV Participant shall have his Vesting determined in accordance with Section 6 of the Altimate Plan.

SECTION IV-C
ELIGIBILITY AND PARTICIPATION
IV.C.1.   Election To Participate; Automatic Participation .  An Altimate Employee who is eligible as of the Merger Date, to participate in the Plan shall be provided written notification of the Plan’s enrollment provisions and shall have the option either to elect to make Salary Deferral Contributions to the Plan or to decline to make Salary Deferral Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  Salary Deferral Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.  In the event that an Altimate Employee fails to complete an election, the automatic participation and contribution provisions of Section 4.3 of the Plan shall be applied to such Altimate Employee
 
SECTION IV - D
EMPLOYER MATCHING CONTRIBUTIONS
IV.D.1.   Matching Contributions .  Notwithstanding anything contained in the Plan to the contrary, for each payroll period ending after the Merger Date, Altimate shall make matching contributions to the Plan with respect to such payroll period in accordance with this Section IV.D.1 on behalf of its Active Participants who meet the requirements set forth in Section 6.2 of the Plan.  Matching contributions made on behalf of each such Altimate Participant with respect to a particular payroll period shall be equal to 100% of the Salary Deferral Contributions on the first three percent (3%) of Compensation which such Altimate Participant contributes to the Plan.  No matching contributions will be made on deferrals in excess of three percent (3%) of such Altimate Participant’s Compensation.
Any matching contributions made on and after January 1, 2007 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.
 
SECTION IV - E
NORMAL RETIREMENT DATE
IV.E.1   Normal Retirement Date .  Notwithstanding anything contained in the Plan to the contrary, with respect to any Supplement IV Participant, the words “Normal Retirement Date” for purposes of the Plan shall mean the date on which such Supplement IV Participant attains age sixty-five (65).


AMENDMENT NO. 9
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 9 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to modify the loan procedures to provide a uniform event of default requiring repayment in full at termination of employment, to retroactively amend the Plan to reflect the early inclusion of Freedom Employees in the 401(m) portion of the Plan as provided under the Employee Plans Compliance Resolution System in Section 4.05(2) of Revenue Procedure 2006-27, and to waive the service requirement for Altimate Employees to participate in the 401(m) portion of the Plan;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of the dates herein provided, as follows:

 
1.            Effective as of January 1, 2007, Section 2.37 of the Plan is hereby amended by the deletion of said Section 2.37 and the substitution in lieu thereof of a new Section 2.37 to read as follows:
“2.37                       [ Reserved ]”
2.            Effective as of January 1, 2007, Section 11.1 of the Plan is hereby amended by the deletion of the first sentence of said Section 11.1 and the substitution in lieu thereof of a new sentence to read as follows:
“An Employee who is an Active Participant (“Borrower”) may request a loan from the Plan.”
3.            Effective as of January 1, 2007, Section 11.4 of the Plan is hereby amended by the deletion of subsection (d) of said Section 11.4 and the substitution in lieu thereof of a new subsection (d) to read as follows:
 
“(d)
Repayment Procedures .  Except for early repayments of the outstanding balance, (i) repayment of any loan made to an Active Employee shall be by payroll deduction, (ii) repayment of any loan made to an Active Employee who prior to January 1, 2007 had a Termination of Employment and was eligible for severance payments shall be by payroll deduction from said severance payments, and (iii) repayment of any other loan amount otherwise due on account of a Termination of Employment or other event of default shall be made as determined by the Administrator and communicated to such Borrower.  Repayments of any loan shall be credited to the Accounts of the Borrower pro rata.  Loan repayments shall be directed back into the active Investment Fund based upon the Participant’s future contribution election percentages.”
 

4.            Effective as of January 1, 2007, Section 11.4 of the Plan is hereby further amended by the deletion of subsection (f) of said Section 11.4 and the substitution in lieu thereof of a new subsection (f) to read as follows:
 
“(f)
Default .  A Borrower shall be in default thirty (30) days after his last payment:

 
(i)
if he fails to make any payment of principal or interest sufficient to meet the substantially level quarterly amortization requirement in paragraph (b) above;

 
(ii)
if he fails to make a required payment after a permitted one (1) year grace period as provided for in paragraph (b) above;

 
(iii)
if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan within the term of the loan, as it may be extended as provided in paragraph (b) above; or

 
(iv)
if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan after his Termination of Employment (unless, prior to January 1, 2007 he had a Termination of Employment and was eligible for severance payments from a Participating Employer after such Termination of Employment, in which case he shall be in default if he fails to repay in full the entire outstanding balance of the principal and interest accrued on such loan by the earlier of the date on which he receives a distribution of his Accounts from the Plan or sixty (60) days after his salary continuation payments from the Participating Employer cease).

 
In the event of default by a Borrower, his loan shall be accelerated, and:

 
(A)
if his collateral security in this Plan is adequate to cover all or part of the outstanding principal and interest, and if distribution of such amount would not, in the opinion of the Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall take such steps as it deems appropriate to offset the loan balance against his Vested Interest or otherwise execute upon such Plan collateral; and

 
(B)
if his collateral security described in paragraph (f)(iv) is not adequate to cover all of the outstanding principal and interest, or if execution upon such collateral would, in the opinion of the Administrator, put at risk the tax qualified status of the Plan or the Salary Deferral Contribution portion thereof, the Trustee shall commence appropriate collection actions against the Borrower to recover the amounts owed.

Expenses of collection, including legal fees, if any, of any loan in default shall be borne by the Borrower or his Accounts.


In the event of default, a Borrower shall not be permitted to request another loan from the Plan until the original, outstanding loan is repaid in full.”
 
5.            Effective as of August 1, 2006, Supplemental Agreement III of the Plan is hereby amended by the deletion of Section III.D.1 of said Supplemental Agreement III and the substitution in lieu thereof of a new Section III.D.1 to read as follows:
 
“III.D.1.                       Matching Contributions .  For each payroll period ending on or after the Merger Date, Freedom shall make matching contributions to the Plan on behalf of each Freedom Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of a Freedom Participant with respect to a particular payroll period shall be in the amount specified in Section 6.2 of the Plan.
Any matching contributions made on and after August 1, 2006 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.”

6.            Effective as of January 1, 2007, Supplemental Agreement IV of the Plan is hereby amended by the deletion of Section IV.D.1. of said Supplemental Agreement IV and the substitution in lieu thereof of a new Section IV.D.1. to read as follows:
 
“IV.D.1.                       Matching Contributions .  Notwithstanding anything contained in the Plan to the contrary, for each payroll period ending on or after the Merger Date, Altimate shall make matching contributions to this Plan on behalf of each Altimate Employee on whose behalf Salary Deferral Contributions are made with respect to such payroll period.  Matching contributions made on behalf of each such Altimate Participant with respect to a particular payroll period shall be equal to 100% of the Salary Deferral Contributions on the first three percent (3%) of Compensation which such Altimate Participant contributes to the Plan.  No matching contributions will be made on deferrals in excess of three percent (3%) of such Altimate Participant’s Compensation.

Any matching contributions made on and after January 1, 2007 shall be in the form of cash and shall be credited to the Matching Contribution Accounts of such Participants as of the date such contributions are received by the Trustee.”

 

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 9 this 19th day of January, 2007.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gerald B. Blouch  
    Gerald B. Blouch  
       
 



AMENDMENT NO. 10
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 10 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company has amended the Plan from time to time since the amendment and restatement; and
WHEREAS, the Company desires to further amend the Plan in order to bring the Plan into compliance with final Treasury regulations under Code Sections 401(k) and 401(m) which became generally effective January 1, 2006, and to make certain other desired changes;
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of the dates herein provided, as follows:

1.            Effective as of January 1, 2006, Section 2.50 of the Plan is hereby amended by the deletion of the fourth paragraph therein and the substitution in lieu thereof of a new fourth paragraph to read as follows:
“The ‘Service’ of an Employee who shall be reemployed by a Participating Employer or any Affiliate following a Termination of Employment shall not include the length of any of his periods of Service rendered prior to the date of said Termination of Employment if all of the following apply:
 
(i)
he had not made Salary Deferral Contributions, and had a Vested Percentage equal to Zero Percent (0%), under this Plan (and the Prior Plans) on such date of Termination of Employment; and
 
 
(ii)
he shall have incurred five (5) consecutive One Year Periods of Severance; and
 
 
(iii)
his period of Service immediately prior to such Termination of Employment shall have been less than or equal to his Period of Severance after the last day of such period of Service.”
 
2.            Effective as of January 1, 2006, Section 2.57 of the Plan is hereby amended by the addition at the end thereof of a new sentence to read as follows:
“An Employee shall not incur a Termination of Employment on account of a change in status from a common law employee to a Leased Person, unless the Leased Person is not considered an Employee under Section 2.30.”
3.            Effective as of January 1, 2001, Section 2.66 of the Plan is hereby amended by the deletion of the term “Elective Accounts” where it appears in subparagraph (a) of said Section 2.66 and the substitution in lieu thereof of the term “Salary Deferral Accounts”.
4.            Effective as of January 1, 2007, Section 3.1 of the Plan is hereby amended by the deletion of said Section 3.1 in its entirety and the substitution in lieu thereof of a new Section 3.1 to read as follows:

“3.1            Designation of Participating Employers .  An Affiliate of the Company shall become a Participating Employer under this Plan by resolution of the Board of Directors of the Company and the ratification of the Board of Directors of the Affiliate.  By becoming a Participating Employer under this Plan, an Affiliate of the Company is deemed to approve this Plan in the form which is in effect as of its Adoption Date.  The Participating Employers as of January 1, 2007 are as follows:
 
PARTICIPATING EMPLOYER
 
ADOPTION DATE
Invacare Corporation
 
January 1, 1988
Champion Manufacturing Inc.
 
January 1, 2006
MedBloc Inc.
 
January 1, 2006
Pinnacle Medsources Inc.
 
January 1, 2006
Freedom Designs, Inc.
 
August 1, 2006
Altimate Medical, Inc.
 
January 1, 2007"
 
5.            Effective as of January 1, 2006, of Section 4.3 of the Plan is hereby amended by the addition, at the end of the first paragraph thereof, of a new sentence to read as follows:
“Prior to the commencement date of such automatic Salary Deferral Contributions, the Administrator shall provide notice to the Covered Employee of his right to have a different percentage (including zero percent (0%)) of his Compensation contributed as a Salary Deferral Contribution and, after providing such notice, shall grant the Covered Employee a reasonable period of time before the commencement date of the automatic Salary Deferral Contribution to elect to instead receive cash in lieu of all or a portion of the automatic Salary Deferral Contribution.”
6.            Effective as of January 1, 2006, of Section 5.2 of the Plan is hereby amended by the addition at the end thereof of a new paragraph to read as follows:
            “In any event the Administrator shall provide a Participant with the effective opportunity to make or change a Salary Deferral Contribution at least once during each Plan Year.”

7.            Effective January 1, 2006, Section 5.3 of the Plan is hereby amended by the addition at the end thereof of a new paragraph to read as follows:
“No Salary Deferral Contributions shall be contributed to the Plan prior to the Participant’s election to make such contributions, or before the Participant actually performs the services upon which the Salary Deferral Contribution is based (or before the Compensation is currently available, if earlier).  Notwithstanding the preceding rules, Salary Deferral Contributions may be contributed prior to such events if such contributions are made in order to accommodate bona fide administrative considerations and are not contributed early with a principal purpose of accelerating deductions.”
8.            Effective January 1, 2006, Section 5.5 of the Plan is hereby amended by the addition at the end thereof of a new last sentence to read as follows:
“This Plan shall not be treated as failing to satisfy the provisions of the Plan implementing the requirements of Section 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 410(b) or 416 of the Code, as applicable, by reason of the making of such catch-up Salary Deferral Contributions.”
9.            Effective January 1, 2006, Section 6.2 of the Trust and Plan is hereby amended by the addition at the end thereof of a new paragraph to read as follows:
“No matching contributions shall be contributed to the Plan prior to the Participant’s election to make the underlying Salary Deferral Contribution or before the Participant actually performs the services upon which the Salary Deferral Contribution is based (or before the Compensation is currently available, if earlier).  Notwithstanding the preceding rules, matching contributions may be contributed prior to such events if such contributions are made in order to accommodate bona fide administrative considerations and are not paid early with a principal purpose of accelerating deductions.”

10.            Effective January 1, 2006, Section 10.2 of the Trust and Plan is hereby amended by the deletion of said Section and the substitution in lieu thereof of a new Section 10.2 to read as follows:
“10.2                       Immediate and Heavy Financial Need .  A distribution will be made on account of an immediate and heavy financial need of the Participant only if the distribution is on account of:
(a)
the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

(b)
purchase (excluding mortgage payments) of a principal residence for the Participant;

(c)
expenses for (or necessary to obtain) medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed seven and one-half percent (7.5%) of the Participant’s adjusted gross income); or

(d)
payment of tuition, related educational fees and room and board expenses for up to the next twelve (12) months of post-secondary education for the Participant, his or her spouse, children, or dependents (as defined in Code Section 152 without regard to Sections 152(b)(1), (b)(2) and (d)(1)(B)).”

11.            Effective as of January 1, 2006, Section 12.3 of the Plan is hereby amended by the deletion of said Section and the substitution in lieu thereof of a new Section 12.3 to read as follows:
“12.3                       Forfeitures .  If a terminated Participant’s Vested Percentage is one hundred percent (100%) on his date of Termination of Employment, his Accounts shall thereafter be held, administered and distributed in accordance with Articles 8 and 15 hereof.  If his Vested Percentage is less than one hundred percent (100%), his Accounts shall continue to be administered in accordance with the provisions of Articles 8 and 15 hereof until the earliest to occur of any of the following events:
 
(d)
he receives a distribution of his entire Vested Interest;
 
 
(e)
he has a five (5) year Period of Severance;
 
 
(f)
he dies; or
 
 
(g)
he is rehired by a Participating Employer or an Affiliate.
 
If the earliest to occur of said events is either the date of complete distribution of his Vested Interest, or his having had a five (5) year Period of Severance, or his death, the excess of:
 
(i)
his Account balances; over
 
 
(ii)
his Vested Interest;
 
shall be forfeited as of such date and shall be debited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account, respectively.  The balances remaining credited to such Accounts after said forfeiture shall thereafter be held, administered and distributed in accordance with Articles 8 and 15 hereof.  If a Participant terminates employment at a time when his Vested Percentage is zero (0) and such Participant made no Salary Deferral Contributions to the Plan, such terminated Participant shall be deemed to have received a lump sum distribution from his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and his Stock Bonus Account in such zero (0) amount in full discharge of this Plan’s liability with respect to such Accounts and his Matching Contribution, Profit Sharing, Employer Contribution, and Stock Bonus Account balances, if any, shall be forfeited pursuant to this Section.  Such distribution and forfeiture shall be deemed to have occurred on the date of Termination of Employment of such Participant.
If the earliest of said events shall be the terminated Participant’s rehire by a Participating Employer or an Affiliate, this Article shall not apply to him until a subsequent Termination of Employment described in Section 12.1 hereof.”

 
12.            Effective as of January 1, 2001, Section 12.5 of the Plan is hereby amended by the deletion of the first paragraph of said Section and the substitution in lieu thereof of a new first paragraph to read as follows:
“If a terminated Participant in this Plan or the Stock Bonus Plan shall be rehired by a Participating Employer or any Affiliate, he shall immediately be reinstated as a Participant in this Plan for purposes of this Section.  If a terminated Participant shall be rehired by a Participating Employer or any Affiliate at a time when his Period of Severance is five (5) or more years, no portion of his Matching Contribution Account balance, Profit Sharing Account balance, Employer Contribution Account balance, or Stock Bonus Account balance under this Plan or the Stock Bonus Plan which was forfeited and debited pursuant to the provision of this Plan or any provisions of the Stock Bonus Plan shall be recredited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account unless the Participant’s periods of Service rendered prior to the date of his Termination of Employment are included in his Service pursuant to Section 2.50 of the Plan.  If a terminated Participant’s periods of Service to the date of his Termination of Employment are so included, or if a Participant shall be rehired by a Participating Employer or any Affiliate at a time when his Period of Severance is less than five (5) years, the portion of his Matching Contribution Account balance, Profit Sharing Account balance, Employer Contribution Account balance or Stock Bonus Account balance under this Plan or the Stock Bonus Plan which was forfeited and debited pursuant to the provisions of this Plan or the Stock Bonus Plan shall be recredited to his Matching Contribution Account, Profit Sharing Account, Employer Contribution Account, and Stock Bonus Account.”
13.            Effective January 1, 2006, Section 19.1 of the Trust and Plan is hereby amended by the deletion of the last paragraph including subparagraphs (i) through (iii) thereof and the substitution thereof of a new last paragraph to read as follows:
 
 
“In addition, for purposes of this Article, the following rules and procedures shall apply to the extent and in the manner provided pursuant to regulations under Code Section 401(k) or Code Section 401(m):
 
(iii)
For purposes of determining the Deferral Percentage and the Contribution Percentage of a Highly Compensated Employee, all before-tax contributions, after-tax contributions and matching contributions, as applicable, allocated during a given Plan Year of this Plan to the accounts of any Highly Compensated Employee under all plans maintained by the Participating Employers or any Affiliate that are subject to Section 401(k) or 401(m) of the Code (other than those that may not be permissively aggregated) shall be determined as if such contribution amounts were made under a single plan or arrangement. (For Plan Years beginning before 2006, the before-tax contributions, after-tax contributions and matching contributions, as applicable, allocated during the respective plan years of all such plans and arrangements ending with or within the same calendar year were treated as provided under a single plan or arrangement for purposes of determining the Deferral Percentage and the Contribution Percentage of a Highly Compensated Employee.) However, and notwithstanding the foregoing, certain plans and arrangements (or portions of plans and arrangements) shall be treated as separate for purposes of testing if mandatorily disaggregated pursuant to regulations under Code Sections 401(k), 401(m), 401(a)(4), or 410(b).
 
 
(iv)
If this Plan and one or more other plans are aggregated for purposes of testing under Code Sections 401(a)(4), 401(k), 401(m) or 410(b) (other than Section 410(b)(2)(A)(ii)) of the Code), the actual Deferral Percentage test and the actual Contribution Percentage test (and any corrections related thereto) shall be determined as if such plans were a single plan. Plans may be aggregated in order to satisfy Code Section 401(k) (or Code Section 401(m)) only if they have the same plan year and use the same method for satisfying the actual Deferral Percentage test (or the actual Contribution Percentage test, respectively). If any portions of this Plan are treated as mandatorily disaggregated for purposes of Sections 401(a)(4) or 410(b), the actual Deferral Percentage test and the actual Contribution Percentage test (and any corrections related thereto) shall be determined as if such portions of the Plan constituted plans separate plans.

 
 
(v)
In the event of a plan coverage change as defined in Treasury Regulations Sections 1.401(k)-2(c)(4) or 1.401(m)-2(c)(4), then, to the extent required, adjustments to the average Deferral Percentage and the average Contribution Percentage of non-Highly Compensated Employees for the prior year shall be made in accordance with the regulations.
 
 
(vi)
Except as otherwise provided herein, the Administrator may use any testing methodology permitted under the Code and regulations to apply the actual Deferral Percentage test and the actual Contribution Percentage test, including without limitation the special testing procedures under Code Sections 401(k)(3)(F) and 401(m)(5)(C) and Treasury Regulations Sections 1.401(k)-2(a)(1)(iii) and 1.401(m)-2(a)(1)(iii) for plans permitting participation earlier than required under Code Section 410(a)(1)(A).”
 

IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 10 this 17th day of September, 2007.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gerald B. Blouch  
    Gerald B. Blouch  
       
 


AMENDMENT NO. 11
TO
INVACARE RETIREMENT SAVINGS PLAN


This Amendment No. 11 is executed as of the date set forth below by Invacare Corporation (hereinafter referred to as the “Company”);
WITNESSETH :
WHEREAS, effective January 1, 1988, the Company established the Invacare Retirement Savings Plan (previously called the Invacare Corporation Profit Sharing Trust and Plan and hereinafter referred to as the “Plan”); and
WHEREAS, the Company most recently amended and restated the Plan, effective as of January 1, 2001, in order to reflect the merger of the Invacare Corporation Employees’ Stock Bonus Trust and Plan into the Plan, to bring the Plan into compliance with the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, and the Economic Growth and Tax Reconciliation Act of 2001, and to make certain other desirable changes; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 18.1 thereof; and
WHEREAS, the Company has amended the Plan from time to time since the amendment and restatement; and
WHEREAS, the Company desires to further amend the Plan in order to add Roadrunner Mobility, Inc. as a Participating Employer, to provide for past service recognition for its employees, to delegate to the proper officers of the Company certain authority to designate Affiliates as Participating Employers, to permit the non-spouse beneficiary of a deceased participant to make a rollover of distributable amounts, and to make certain other changes to the Plan that it deems necessary or appropriate;

 
NOW, THEREFORE, pursuant to Section 18.1 of the Plan, the Company hereby amends the Plan, effective as of the dates set forth below, as follows:
1.            Effective December 1, 2007, Section 2.23 of the Plan is hereby amended by the deletion of said Section 2.23 in its entirety and the substitution in lieu thereof of a new Section 2 23 to read as follows:
“2.23                       Enrollment Date. The words ‘Enrollment Date’ shall mean for purposes of Article 4  hereof, the first day of any payroll period.”
2.            Effective January 1, 2008, Section 3.1 of the Plan is hereby amended by the deletion of said Section 3.1 in its entirety and the substitution in lieu thereof of a new Section 3.1 to read as follows:
“3.1            Designation of Participating Employers .  An Affiliate of the Company shall become a Participating Employer under this Plan by resolution of the Board of Directors of the Company and/or, where such authority has been delegated to the proper officers of the Company, by a writing executed by the Company by its proper officers, and the ratification of the Board of Directors of the Affiliate.  By becoming a Participating Employer under this Plan, an Affiliate of the Company is deemed to approve this Plan in the form which is in effect as of its Adoption Date.  The Participating Employers as of January 1, 2008 are as follows:

PARTICIPATING EMPLOYER
 
ADOPTION DATE
Invacare Corporation
 
January 1, 1988
Champion Manufacturing Inc.
 
January 1, 2006
MedBloc Inc.
 
January 1, 2006
Pinnacle Medsources Inc.
 
January 1, 2006
Freedom Designs, Inc.
 
August 1, 2006
Altimate Medical, Inc.
 
January 1, 2007
Roadrunner Mobility, Inc.
 
December 1, 2007"
 
3.            Effective December 1, 2007, the first two sentences of Section 4.2 are hereby amended to read as follows:
 
“Every other Employee who is a Covered Employee shall automatically become a Participant in this Plan on the Enrollment Date next following his Date of Hire.  Every Covered Employee who meets such eligibility requirements may elect to make Salary Deferral Contributions as of any Enrollment Date following his Date of Hire.”
 
4.            Effective December 1, 2007, the first paragraph of Section 4.3 is hereby amended to read as follows:
 
“In the event that an eligible Covered Employee fails to make an affirmative election in accordance with Section 4.2, he shall be deemed to have elected to have Salary Deferral Contributions made on his behalf in the amount of three percent (3%) of his Compensation.  Such contribution shall commence as soon as administratively practicable, but not earlier than the Enrollment Date that occurs at least sixty (60) days following his Date of Hire.”
 
5.            Effective December 1, 2007, the first sentence of Section 4.4 is hereby amended to read as follows:
 
“In the event that a former Employee is rehired, he shall become an Active Participant on his Date of Hire, and shall be subject to the deemed election provisions set forth in Section 4.3 above.”
 
6.            Effective December 1, 2007, Section 10.2 of the Trust and Plan is hereby amended by the deletion of said Section and the substitution in lieu thereof of a new Section 10.2 to read as follows:
 
“10.2                       Immediate and Heavy Financial Need .  A distribution will be made on account of an immediate and heavy financial need of the Participant only if the distribution is on account of:
(a)
the need to prevent the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant’s principal residence;

(b)
purchase (excluding mortgage payments) of a principal residence for the Participant;

(c)
expenses for (or necessary to obtain) medical care that would be deductible under Code Section 213(d) (determined without regard to whether the expenses exceed seven and one-half percent (7.5%) of the Participant’s adjusted gross income);

(d)
payment of tuition, related educational fees and room and board expenses for up to the next twelve (12) months of post-secondary education for the Participant, his or her spouse, children, or dependents (as defined in Code Section 152 without regard to Sections 152(b)(1), (b)(2) and (d)(1)(B));

 
(e)
payment of funeral or burial expenses for the Participant’s deceased spouse, parent, child or dependent (as defined in Code Section 152 without regard to Section 152(d)(1)(B)); or

(f)
payment of expenses to repair damage to the Participant’s principal residence that would qualify for a casualty loss deduction under Code Section 165 (determined without regard to whether the loss exceeds ten percent (10%) of the Participant’s adjusted gross income).”

7.            Effective December 1, 2007, the next to the last sentence of Section 7.3 is hereby amended to read as follows:
“In the event that a Participant, former Participant or Beneficiary does not direct the investment of any portion of such Account Balances, such undirected portion of such Account Balances shall be invested
 
 
 in such Investment Fund as the Company has designated.  It is generally intended that any such Investment Fund should be a ‘qualified default investment fund’ within the meaning of regulations issued under Section 404(c)(5) of ERISA, but the Company shall have authority to designate an Investment Fund other than a ‘qualified default investment fund’ if it determines that is appropriate.”
8.            Effective December 1, 2007, Section 14.8 is herby amended by the deletion of such Section in its entirety and the substitution in lieu thereof of a new Section 14.8 to read as follows:
“14.8                       Designation of Beneficiary .  In lieu of having the benefits payable pursuant to this Article payable to a Beneficiary determined in accordance with the provisions of Section 14.7, a Participant who is not described in Section 14.5 hereof may designate a Beneficiary or Beneficiaries to receive such benefits.  Any such designation shall be made by such methods as prescribed by the Administrator, which may include an electronic designation made in accordance with Treasury regulations relating to electronic notices and Participant elections.   Notwithstanding the foregoing, no designation of a Beneficiary or Beneficiaries by a married Participant under this Section 14.8 shall be valid unless:
 
(h)
the Participant’s surviving spouse has consented to such designation and acknowledged the effect of any such designation, and the surviving spouse’s consent is witnessed by a notary public; or
 
 
(i)
it is established to the satisfaction of the Administrator that the consent of such spouse cannot be obtained because such spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may prescribe by lawful regulations; or
 
 
(j)
it is established to the satisfaction of the Administrator that the Participant has no surviving spouse.

Any consent given by a surviving spouse pursuant to this Section shall be effective only with respect to such spouse and shall not be effective with respect to any other spouse of such Participant.  In addition, any designations under this Section 14.8 shall be deemed to be automatically revoked in the event a Participant remarries.”
9.            Effective December 1, 2007, Subsection (c) of Section 15.11 is herby amended by the deletion of such Subsection in its entirety and the substitution in lieu thereof of a new Subsection (c) to read as follows:
 
“(c)
‘Distributee’ shall mean:
 
 
(i)
an Employee or former Employee; and
 
 
(ii)
an Employee’s or a former Employee’s surviving spouse or other Beneficiary and an Employee’s or former Employee’s spouse or former spouse who is the Alternate Payee under a Qualified Domestic Relations Order, as defined in Section 2.43 hereof, without regard to the interest of the spouse or former spouse.”
 
10.            Effective January 1, 2008, the Plan is hereby further amended by the addition at the end thereof of a new Supplemental Agreement V in the form attached hereto.
IN WITNESS WHEREOF, the Company, by its duly authorized officers, has executed this Amendment No. 11 this 14th day of December, 2007.
INVACARE CORPORATION
(“Company”)
 
     
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
 

 

INVACARE RETIREMENT SAVINGS PLAN

 
SUPPLEMENTAL AGREEMENT V
RELATING TO CERTAIN PARTICIPANTS
WHO ARE EMPLOYEES OF ROADRUNNER MOBILITY, INC.

 

This Supplemental Agreement V to the Invacare Retirement Savings Plan (the “Plan”) relating only to certain Participants as set forth herein, is effective as of January 1, 2008.
SECTION I-A
DEFINITIONS
 
V.A.1.                       Definitions .  The following terms, when used herein, unless their context clearly indicates otherwise, shall have the following respective meanings:
 
(a)
The word “Roadrunner” shall mean Roadrunner Mobility, Inc.

 
(b)
The words “Roadrunner Employee” shall mean an Employee who was employed by Roadrunner as of the date Roadrunner became an Affiliate, and is a Covered Employee as provided in Section 2.16 of the Plan.

SECTION I-B
SERVICE

V.B.1.                       Service .  A Roadrunner Employee’s Service shall be his Service as determined under Section 2.50 of the Plan including periods of employment with Roadrunner prior to the date Roadrunner became an Affiliate.
SECTION I-C
ELIGIBILITY AND PARTICIPATION
I.C.1.   Election To Participate; Automatic Participation .  A Roadrunner Employee who becomes a Covered Employee on January 1,  2008, shall be provided written notification of the Plan’s enrollment procedures and shall have the option to elect to make Salary Deferral Contributions to the Plan or to decline to make Salary Deferral Contributions to the Plan at such time and in such manner (including in writing, orally, telephonically or electronically) as the Administrator may determine.  Salary Deferral Contributions shall commence as soon as practicable following the Administrator’s receipt of a Participant’s election to contribute.  In the event that such an employee fails to elect not to participate, the automatic contribution provisions of Section 4.3 of the Plan shall be applied to such employee as if his Date of Hire is the date Roadrunner became an Affiliate.
 

Exhibit 10(i)

                              INVACARE CORPORATION

                      401(K) PLUS BENEFIT EQUALIZATION PLAN

               (As amended and restated effective January 1, 2003)
 
                              INVACARE CORPORATION
                      401(K) PLUS BENEFIT EQUALIZATION PLAN
               (As amended and restated effective January 1, 2003)


Table of Contents

   
Page
Article I INTRODUCTION
1
 
1.1      Name of Plan
1
 
1.2      Purposes of Plan
1
 
1.3      "Top Hat" Pension Benefit Plan
1
 
1.4      Plan Unfunded
1
 
1.5      Effective Date
1
 
1.6      Administration
1
     
Article II DEFINITIONS AND CONSTRUCTION
2
 
2.1      Definitions
2
 
2.2      Number and Gender
5
 
2.3      Headings
5
     
Article III PARTICIPATION AND ELIGIBILITY
6
 
3.1      Participation
6
 
3.2      Commencement of Participation
6
 
3.3      Cessation of Active Participation
6
     
Article IV DEFERRALS, MATCHING & PROFIT SHARING CONTRIBUTIONS
7
 
4.1      Deferrals by Participants
7
 
4.2      Effective Date of Participation and Deferral Election Form
7
 
4.3      Modification or Revocation of Election by Participant
7
 
4.4      Matching Contributions
8
 
4.5      Make Whole Contributions
8
 
4.6      Discretionary Contributions
8
 
4.7      Hardship Distribution Under 401(k) Plan
8
     
Article V VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS
9
 
5.1      Vesting
9
 
5.2      Deferral Periods
9
 
5.3      Earnings Elections
9


Table of Contents

   
Page
Article VI ACCOUNTS
10
 
6.1      Establishment of Bookkeeping Accounts
10
 
6.2      Subaccounts
10
 
6.3      Hypothetical Nature of Accounts
10
     
Article VII PAYMENT OF ACCOUNT
11
 
7.1      Timing of Distribution of Benefits
11
 
7.2      Adjustment for Investment Gains and Losses Upon a Distribution
12
 
7.3      Form of Payment or Payments
12
 
7.4      Accelerated Distribution
12
 
7.5      Designation of Beneficiaries
13
 
7.6      Amendments
13
 
7.7      Change in Marital Status
13
 
7.8      No Beneficiary Designation
14
 
7.9      Unclaimed Benefits
14
 
7.10     Hardship Withdrawals
14
 
7.11     Withholding
14
     
Article VIII ADMINISTRATION
15
 
8.1      Committee
15
 
8.2      General Powers of Administration
15
 
8.3      Indemnification of Committee
15
     
Article IX DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION
16
 
9.1      Claims
16
 
9.2      Claim Decision
16
 
9.3      Request for Review
16
 
9.4      Review of Decision
17
 
9.5      Discretionary Authority
18
     
Article X MISCELLANEOUS
19
 
10.1     Plan Not a Contract of Employment
19
 
10.2     Non-Assignability of Benefits
19
 
10.3     Amendment and Termination
19
 
10.4     Unsecured General Creditor Status Of Employee
20
 
10.5     Severability
20
 
10.6     Governing Laws
20
 
10.7     Binding Effect
20
 
10.8     Entire Agreement
20
 
10.9     No Guaranty of Tax Consequences
20


                              INVACARE CORPORATION
                      401(K) PLUS BENEFIT EQUALIZATION PLAN
               (As amended and restated effective January 1, 2003)



                                   Article I
                                  INTRODUCTION

1.1      Name of Plan.

          Invacare Corporation (the "Company") hereby amends in its entirety and
     restates the Invacare  Corporation  401(k) Plus Benefit  Equalization  Plan
     (the "Plan").

1.2      Purposes of Plan.

          The purposes of the Plan are to provide  deferred  compensation  for a
     select group of management or highly  compensated  Employees of the Company
     and to  provide  eligible  Employees  the  opportunity  to  maximize  their
     elective contributions to the Invacare Retirement Savings Plan (the "401(k)
     Plan") notwithstanding certain limitations in the Code.

1.3      "Top Hat" Pension Benefit Plan.

          The Plan is an "employee  pension  benefit plan" within the meaning of
     ERISA Section 3(2). The Plan is maintained,  however, for a select group of
     management or highly compensated  employees and, therefore,  is exempt from
     Parts 2, 3 and 4 of Title 1 of ERISA.  The Plan is not  intended to qualify
     under Code Section 401(a).

1.4      Plan Unfunded.

          The Plan is  unfunded.  All  benefits  will be paid  from the  general
     assets of the Company,  which will  continue to be subject to the claims of
     the  Company's  creditors.  No amounts will be set aside for the benefit of
     Plan Participants or their Beneficiaries.

1.5      Effective Date and Restatement Date.

          The Plan was originally effective as of March 1, 1994. The amended and
     restated Plan is effective as of the Restatement Date.

1.6      Administration.



          The Plan shall be administered  by the Committee or its delegates,  as
     set forth in Section 8.1.

                                   Article II
                          DEFINITIONS AND CONSTRUCTION

2.1      Definitions.

          For purposes of the Plan,  the following  words and phrases shall have
     the  respective  meanings set forth below,  unless  their  context  clearly
     requires a different meaning:

          (a) "Account" means the bookkeeping  account maintained by the Company
     on behalf of each Participant pursuant to Section 6.1.

          (b) "Base Salary" means the base rate of cash compensation,  including
     commissions, paid by the Company to or for the benefit of a Participant for
     services  rendered or labor performed  while a Participant,  including base
     pay a  Participant  could have  received  in cash in lieu of (A)  deferrals
     pursuant  to Section  4.1 and (B)  contributions  made on his behalf to any
     qualified  plan  maintained by the Company or to any  cafeteria  plan under
     Section 125 of the Code maintained by the Company.

          (c) "Base Salary  Deferral" means the amount of a  Participant's  Base
     Salary which the Participant elects to have withheld on a pre tax basis and
     credited to his Account pursuant to Section 4.1.

          (d)  "Beneficiary"  means the  person  or  persons  designated  by the
     Participant  in  accordance  with  Section  7.5 or,  in the  absence  of an
     effective designation, the person or entity described in Section 7.8.

          (e) "Board" means the Board of Directors of the Company.

          (f) "Bonus Compensation" means the amount awarded to a Participant for
     a Plan Year under any bonus arrangement maintained by the Company.

          (g)  "Bonus  Deferral"  means  the  amount  of a  Participant's  Bonus
     Compensation  which the  Participant  elects to have  withheld on a pre tax
     basis and credited to his Account pursuant to Section 4.1.

          (h) "Change In Control"  means the  happening of any of the  following
     events:


               (i) Any person or entity (other than any employee benefit plan or
          employee stock ownership plan of Invacare  Corporation,  or any person
          or  entity   organized,   appointed,   or   established   by  Invacare
          Corporation,  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 Invacare Corporation,  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 Invacare Corporation as reflected by
          the power to vote in connection  with the election of  directors.  For
          purposes  of  this   Section   2.1(h)(i),   the  terms   "Affiliates,"
          "Associates," and "Beneficial Owner" will have the meanings given them
          in the Rights Agreement,  dated as of April 2, 1991,  between Invacare
          Corporation  and National City Bank, as Rights Agent,  as amended from
          time to time.

               (ii) At any time during a period of twenty-four  (24) consecutive
          months,  individuals who were directors at the beginning of the period
          no longer  constitute  a majority of the members of the Board,  unless
          the  election,   or  the  nomination  for  election  by  the  Invacare
          Corporation'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.

               (iii) A record date is established for  determining  shareholders
          entitled to vote upon:

                    (A) A merger or  consolidation  of the Invacare  Corporation
               with another  corporation  (which is not an affiliate of Invacare
               Corporation)  in which Invacare  Corporation 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;

                    (B) a sale or other  disposition of all or substantially all
               of the assets of Invacare Corporation; or

                    (C)  the   dissolution  or  liquidation   (but  not  partial
               liquidation) of Invacare Corporation.



          (i) "Code" means the Internal Revenue Code of 1986, as amended.

          (j) "Committee" means the administrative committee named to administer
     the Plan pursuant to Section 8.1.

          (k) "Company" means Invacare Corporation and any successor thereto.

          (l) "Deferral Period" means the period of time for which a Participant
     elects to defer receipt of the Base Salary  Deferrals  and Bonus  Deferrals
     credited to such Participant's Account.  Deferral Periods shall be measured
     on the basis of Plan  Years,  beginning  with the Plan Year that  commences
     immediately  following the Plan Year for which the  applicable  Base Salary
     Deferrals and Bonus Deferrals are credited to the Participant's Account.

          (m) "Directors" means the Board of Directors of the Company.

          (n) "Discretionary Contribution" means the Company's contribution,  if
     any, made pursuant to Section 4.6.

          (o) "Restatement Date" means January 1, 2003, except where a different
     date is specifically set forth. In addition, Section 4.7 and Article IX are
     each effective January 1, 2002.

          (p) "Employee" means any common-law employee of the Company.

           (q) "ERISA" means the Employee Retirement Income Security Act of 1974,
     as amended.

          (r) "401(k)  Plan" means the  Invacare  Retirement  Savings  Plan,  as
     amended from time to time.

          (s) "IQC Quarterly Employer  Contribution"  means a contribution equal
     to the  contribution  that would  have been made to the  401(k)  Plan for a
     Participant  but for the  limitation on  compensation  contained in Section
     401(a)(17) of the Code. Make Whole Contributions commenced as of January 1,
     2001.

          (t)  "Matching  Contribution"  means the amount,  as determined by the
     Company on an annual  basis,  that would be credited  to the  Participant's
     Base  Salary  Deferrals  and Bonus  Deferrals  if such  deferrals  had been
     deferred by the Participant  into the 401(k) Plan, which is credited by the
     Company to the Account of each Participant based on such Participant's Base
     Salary and Bonus Deferrals.

 
          (u)  "Participant"  means  each  Employee  who has been  selected  for
     participation  in the Plan and who has  become a  Participant  pursuant  to
     Article III.

          (v)  "Participation  and  Deferral  Election  Form"  means the written
     agreement  pursuant to which the Participant  elects the amount of his Base
     Salary and/or his Bonus  Compensation to be deferred  pursuant to the Plan,
     the Deferral Period,  if any, the deemed investment of amounts deferred and
     the time and form of payment of such amounts and such other  matters as the
     Committee shall determine from time to time.

          (w)  "Plan"  means  the  Invacare   Corporation  401(k)  Plus  Benefit
     Equalization Plan, as in effect on the Restatement Date and as amended from
     time to time hereafter.

          (x) "Plan Year" means the  twelve-consecutive  month period commencing
     January 1 of each year ending on the following December 31.

          (y)  "Profit  Sharing  Contribution"  means  the  amount,  if any,  as
     determined by the Company of non-elective  non-matching  contribution which
     would have been made for or  allocated  to a  Participant  under the 401(k)
     Plan for a Plan  Year,  but which is not made or  allocated  because of the
     limitation  on  compensation  which may be taken  into  account  under Code
     Section  401(a)(17)  and/or the  Participant's  participation in this Plan.
     Annual  Profit  Sharing  Contributions  ceased  as of  December  31,  2000.
     "Retirement"  means the  termination of employment  after the attainment of
     age  fifty-five  (55) and  upon  completion  of ten  (10) or more  years of
     service.

          (z)  "Retirement"  means  the  termination  of  employment  after  the
     attainment of age fifty-five  (55) and upon  completion of ten (10) or more
     years of service.

          (aa)  "Valuation  Date" means the last  business day of each  calendar
     month and each special valuation date designated by the Committee.

          (bb) "Years of Service"  shall have the same  meaning as in the 401(k)
     Plan.

2.2      Number and Gender.

          Wherever  appropriate  herein,  words  used in the  singular  shall be
     considered  to include  the  plural  and words used in the plural  shall be


     considered to include the singular.  The masculine gender,  where appearing
     in the Plan, shall be deemed to include the feminine gender.

2.3      Headings.

          The headings of Articles and Sections  herein are included  solely for
     convenience,  and if there is any conflict  between  such  headings and the
     rest of the Plan, the text shall control.

                                  Article III
                          PARTICIPATION AND ELIGIBILITY

3.1      Participation.

          Participants  in the Plan are those  Employees  who are (a) subject to
     the income tax laws of the United States,  (b) members of a select group of
     highly compensated or management Employees of the Company, and (c) selected
     by the Committee or its delegates, in its sole discretion, as Participants.
     The  Committee  shall  notify  each  Participant  of  his  selection  as  a
     Participant.

3.2 Commencement of Participation.

          Except as provided in the following sentence, an Employee shall become
     a Participant  effective as of the first day of the Plan Year following the
     date  on  which  his  Participation  and  Deferral  Election  Form  becomes
     effective.  A newly  hired  Employee  who  completes  a  Participation  and
     Deferral  Election Form within 30 days of the date on which his  employment
     commences  shall  become  a  Participant  as  of  the  date  on  which  his
     Participation  and Deferral  Election Form becomes  effective under Section
     4.2.

3.3      Cessation of Active Participation.

          Notwithstanding  any provision  herein to the contrary,  an individual
     who has become a  Participant  in the Plan shall cease to be a  Participant
     hereunder  effective as of any date  designated  by the  Committee.  In the
     event of such cessation, the last four sentences of Section 4.1 shall apply
     as if such  cessation  had  been a  termination  of  employment.  Any  such
     Committee  action shall be  communicated to such  Participant  prior to the
     effective date of such action.
 

                                   Article IV
               DEFERRALS, MATCHING & PROFIT SHARING CONTRIBUTIONS

4.1      Deferrals by Participants.

          Before the first day of each Plan Year,  a  Participant  may file with
     the Committee a Participation  and Deferral Election Form pursuant to which
     such  Participant  elects  to  make  Base  Salary  Deferrals  and/or  Bonus
     Deferrals.  Any such Participant  election shall be subject to a maximum of
     fifty percent (50%) of Base Salary and one hundred  percent (100%) of Bonus
     Compensation, an annual minimum of two thousand dollars ($2000), and to any
     other rules prescribed by the Committee in its sole discretion. Base Salary
     Deferrals  will be credited to the  Account of each  Participant  as of the
     last day of each calendar  month, if and to the extent that the Participant
     earned  such Base  Salary as an  Employee  in such  calendar  month.  Bonus
     Deferrals  will be credited to the  Account of each  Participant  as of the
     last day of the month in which such Bonus Compensation otherwise would have
     been paid to the  Participant in cash,  provided that the Participant is an
     Employee  at the time such  Bonus  Compensation  would  have been  paid.  A
     Participant  whose  employment  terminates  prior to or during the calendar
     month in which his Bonus  Compensation  would have been paid to him in cash
     will be paid his Bonus  Deferral in cash.  Such  termination  of employment
     shall not affect  Base  Salary  Deferrals  and Bonus  Deferrals  previously
     credited to the Account of a Participant whose employment terminates.

4.2      Effective Date of Participation and Deferral Election Form.

          A Participant's  annual Participation and Deferral Election Form shall
     become effective on the first day of the Plan Year to which it relates. The
     Participation  and  Deferral  Election  Form of  Employees  who  are  first
     employed by the Company during a Plan Year shall become effective as of the
     first 401(k) Plan enrollment date following his date of employment on which
     the  Employee is eligible to  participate  in the 401(k) Plan  provided the
     Participation  and Deferral  Election Form is completed prior to that date.
     If a Participant  fails to complete a Participation  and Deferral  Election
     Form before the first day of the Plan Year in which  Participant shall earn
     the  compensation  to which the  Participation  and Deferral  Election Form
     relates or if a newly hired  Employee  fails to complete the  Participation
     and Deferral  Election Form prior to the first 401(k) Plan  enrollment date
     following his date of hire, the  Participant  or Employee,  as the case may
     be,  shall be deemed to have  elected  not to make  Base  Salary  Deferrals
     and/or Bonus Deferrals for such Plan Year.

4.3      Modification or Revocation of Election by Participant.

          A  Participant  may  change  the  amount  of his Base  Salary or Bonus


     Deferrals  during a Plan Year as of the first day of each calendar  quarter
     provided  that  such  change  is made no  later  than  the day  immediately
     preceding  the first day of the  calendar  quarter or unless the  Committee
     determines that he has suffered a severe, sudden and unforeseeable hardship
     as is more fully described in Section 7.10.  Under no  circumstances  may a
     Participant's Participation and Deferral Election Form be made, modified or
     revoked retroactively.

   4.4      Matching Contributions.

          Each Participant who elects to make Base Salary and/or Bonus Deferrals
     to the Plan and who has  completed  at least six (6) months of service will
     receive a Matching Contribution equal to a certain percentage of the sum of
     Participant's  Base Salary and Bonus Deferrals.  The Matching  Contribution
     percentage  to be  contributed  to the Plan shall be equal to the  matching
     contribution percentage provided in the 401(k) Plan. Matching Contributions
     will be  credited  to the  Participant's  Account as of the last day of the
     calendar month in which the Base Salary and/or Bonus Deferrals to which the
     Matching Contributions relate are credited to the Participant's Account.

4.5      IQC Quarterly Employer Contributions.

          For each calendar  quarter,  the Account of each Participant  shall be
     credited with such Make Whole Contribution, if any, to which he is entitled
     under Section 2.1(s).

4.6      Discretionary Contributions.

          For each Plan Year, the Account of each Participant  shall be credited
     with such  Discretionary  Contribution,  if any,  as is  determined  by the
     Company for such Plan Year.

4.7      Hardship Distribution Under 401(k) Plan.

          If  required  by the  terms of the  401(k)  Plan,  a  Participant  who
     receives  a  hardship  distribution  under  the  401(k)  Plan  shall not be
     eligible to make  deferrals for a six (6) month period after receipt of the
     hardship distribution.

                                   Article V
                VESTING, DEFERRAL PERIODS AND EARNINGS ELECTIONS


5.1      Vesting.

          A  Participant  shall be 100% vested at all times in the amount of his
     Account  which is  attributable  to Base  Compensation  Deferrals and Bonus
     Deferrals. Matching Contributions, IQC Quarterly Employer Contributions and
     Profit Sharing Contributions shall vest in accordance with the terms of the
     401(k) Plan. Discretionary  Contributions shall vest in accordance with the
     Company's  determination  which shall be made when such  contributions  are
     made.  Notwithstanding the foregoing,  all Matching  Contributions,  Profit
     Sharing  Contributions,   Discretionary  Contributions  and  IQC  Quarterly
     Employer  Contributions  shall be 100% vested  immediately upon a Change in
     Control.  Any  provisions  of the Plan  relating to the  distribution  of a
     Participant's  Account shall mean only the vested  portion of such Account.
     Since the Plan is unfunded, the portion of a Participant's Account which is
     not vested and therefore  not  distributed  with the vested  portion of his
     Account  shall  remain  property  of the Company  and not be  allocated  to
     Accounts of other Participants or otherwise inure to their benefit.

5.2      Deferral Periods.

          A Deferral  Period may be (a) for any period of five (5) years or more
     but may not end later than the year in which the  Participant  would attain
     age  70  or  (b)  until  a  Participant's   termination  of  employment.  A
     Participant must specify on the  Participation  and Deferral  Election Form
     the Deferral Period for the Base Salary Deferrals and Bonus Deferrals to be
     made to the Plan for the Plan Year to which the  Participation and Deferral
     Election Form  relates,  subject to the  provisions  of Section  7.1(a) and
     rules  determined  by the  Committee  from  time to  time.  In the  event a
     Participant  does not elect a Deferral Period for any Base Salary Deferrals
     or Bonus  Deferrals for a Plan Year,  such  Participant  shall be deemed to
     have elected a Deferral Period of five (5) years. If the Participant elects
     a period of years (option (a)) and is entitled to a  distribution  pursuant
     to  such  election  prior  to the  events  listed  in  Sections  7.1(b)(i),
     7.1(b)(ii),  and 7.1(b)(iii),  distribution pursuant to such election shall
     not  include   Matching   Contributions,   Profit  Sharing   Contributions,
     Discretionary  Contributions  and Make Whole  Contributions and earnings on
     those amounts. Any such distribution must be in a lump sum.

5.3      Earnings Elections.

          Amounts  credited  to a  Participant's  Account  shall be  credited or
     charged with earnings and losses based on hypothetical  investments elected
     by  the   Participant.   A  Participant  may  elect  different   investment
     allocations for new  contributions  (contributions  made by the Participant
     and by the Company) and existing Account  balances.  Only whole percentages
     may be  elected,  and the total  elections  must  allocate  100% of all new


     contributions  and  100%  of  all  existing  Account  balances.  Investment
     elections  may be changed  once per calendar  quarter,  effective as of the
     first day of such quarter,  by written  direction given at least seven days
     before the start of such quarter. The hypothetical  investment alternatives
     and the procedures relating to the election of such investments, other than
     those set forth in this Section 5.3,  shall be  determined by the Committee
     from time to time.  A  Participant's  Account  shall be adjusted as of each
     Valuation Date to reflect investment gains and losses.

                                   Article VI
                                    ACCOUNTS

6.1      Establishment of Bookkeeping Accounts.

          A  separate   bookkeeping   Account  shall  be  maintained   for  each
     Participant.  Such account shall be credited with the Base Salary Deferrals
     and Bonus  Deferrals  made by the  Participant  pursuant  to  Section  4.1,
     Matching  Contributions  made by the Company  pursuant to Section  4.4, IQC
     Quarterly   Employer   Contributions   made   pursuant   to  Section   4.5,
     Discretionary Contributions made pursuant to Section 4.6 and Profit Sharing
     Contributions, if any, made prior to January 1, 2001, credited (or charged,
     as the case may be) with the  hypothetical  investment  results  determined
     pursuant to Section  5.3, and charged  with  distributions  made to or with
     respect to a Participant.

6.2      Subaccounts.

          Within each Participant's  bookkeeping  Account,  separate subaccounts
     shall be maintained to the extent necessary for the  administration  of the
     Plan.

6.3      Hypothetical Nature of Accounts.

          The Account established under this Article VI shall be hypothetical in
     nature and shall be maintained for bookkeeping  purposes only, so that Base
     Salary Deferrals,  Bonus Deferrals,  Matching Contributions,  Discretionary
     Contributions,  IQC Quarterly  Employer  Contributions  and Profit  Sharing
     Contributions  can be credited to the  Participant and so that earnings and
     losses on such amounts so credited can be credited (or charged, as the case
     may be).  Neither the Plan nor any of the Accounts (or  subaccounts)  shall
     hold any actual funds or assets.  The right of any person to receive one or
     more  payments  under the Plan  shall be an  unsecured  claim  against  the
     general  assets  of  the  Company.  Any  liability  of the  Company  to any
     Participant,  former Participant, or Beneficiary with respect to a right to


     payment shall be based solely upon contractual  obligations  created by the
     Plan. Neither the Company,  the Board, nor any other person shall be deemed
     to be a trustee of any amounts to be paid under the Plan. Nothing contained
     in the Plan, and no action taken pursuant to its  provisions,  shall create
     or be construed to create a trust of any kind, or a fiduciary relationship,
     between the Company and a Participant, former Participant,  Beneficiary, or
     any other person.

                                  Article VII
                               PAYMENT OF ACCOUNT

7.1      Timing of Distribution of Benefits.

          (a)   Distribution   of  Contribution  to  401(k)  Plan.  As  soon  as
     practicable, but in no event later than March 15 of the Plan Year following
     the Plan Year for which the  Participant  executed  the  Participation  and
     Deferral Election Form, the lesser of.

               (i) the allowable  before-tax  contribution  which may be made on
          behalf of the  Participant  to the  401(k)  Plan for the Plan Year for
          which the Participant executed the Participation and Deferral Election
          Form, and

               (ii) the sum of the Base Salary  Deferral and the Bonus  Deferral
          for the Plan Year for which the Participant executed the Participation
          and Deferral Election Form,

     shall be paid directly to  Participant as  compensation  earned in the Plan
     Year for which the  Participant  executed  the  Participation  and Deferral
     Election  Form,  unless the  Participant  previously  elected  (in both the
     Participation  and Deferral Election Form and his 401(k) Plan elections) to
     have such amount  contributed to the 401(k) Plan as an elective  before-tax
     contribution.

     If the  Participant  elected to have such amount  contributed to the 401(k)
     Plan as an elective before-tax  contribution,  such amount together with an
     amount equal to the applicable Matching  Contributions shall be transferred
     directly  to  the  Participant's   Account  in  the  401(k)  Plan  and  the
     appropriate   subaccounts  of   Participant's   Account  shall  be  charged
     accordingly.  Notwithstanding  the  preceding,  the  Plan  shall  not  make
     distributions  to the  Participant  or the  401(k)  Plan in  excess  of the
     Participant's  Account  balance.  Distributions  pursuant  to this  Section
     7.1(a) may be made in one or more  installments  in the sole  discretion of
     the Committee.

 
          (b) Distribution  After Deferral Period.  Distribution of that portion
     of a Participant's  Account which is not  distributed  under Section 7.1(a)
     shall be made as soon as practicable following the date the Deferral Period
     for such amounts ends and following the valuation described in Section 7.2.
     Notwithstanding  the foregoing,  the Participant's  entire Account shall be
     distributed  to him (or his  Beneficiary in the event of his death) as soon
     as  practicable  following the earliest to occur of the following and after
     the valuation described in 7.2:

               (i) the Participant's death;

               (ii) the  Participant's  permanent  disability (as defined in the
          Company's long-term disability program); or

               (iii) the Participant's termination of employment.

7.2      Adjustment for Investment Gains and Losses Upon a Distribution.

          Upon a distributable event described in Section 7.1(b), the balance of
     a  Participant's  Account  shall be  determined  as of the  Valuation  Date
     immediately following such event.

7.3      Form of Payment or Payments.

          Except  as  provided  below,  benefits  as a result  of death or other
     termination  of  employment  shall  be  paid  in the  form  elected  by the
     Participant.  The form  elected  shall  apply to the  entire  Account.  The
     election  may be  amended,  provided  that the  amended  election  does not
     increase the duration of payments in the previous  election.  Any amendment
     to the form of benefits  shall be effective  beginning in the calendar year
     following the  submission  of the  amendment.  If a Participant  terminates
     employment and qualifies as  "Retirement"  as defined under Section 2.1(z),
     the form of benefit shall be:

          (a) A lump  sum  amount  which  is  equal  to the  applicable  Account
     balance; or

          (b) Substantially  equal  installments of the Account amortized over a
     period of five (5),  ten (10) or  fifteen  (15)  years or sixty  (60),  one
     hundred twenty (120), or one hundred eighty (180) months.  Gains and losses
     on the unpaid  balance  shall  continue  to be  credited  or charged to the
     Account in accordance with the provisions of Section 5.3. The amount of the
     installments  payable  may be changed  periodically  to reflect  investment


     results.

          Notwithstanding  the  form  elected,   if  a  Participant   terminates
     employment  prior to qualifying for  "Retirement"  as defined under Section
     2.1(z)  or if the  Participant's  total  Account  is no  more  than  twenty
     thousand  dollars  ($20,000)  on  the  last  Valuation  Date  prior  to the
     commencement of distribution, the benefit shall be paid in a lump sum.

7.4      Accelerated Distribution.

          Notwithstanding  any other provision of the Plan, a Participant  shall
     be  entitled to  receive,  upon  written  request to the  Committee  or its
     delegates,  a lump sum distribution of his vested Account balance,  subject
     to the following penalty:

          (a) If the  distribution is requested  within  twenty-four (24) months
     following a Change in Control,  five percent  (5%) of the Account  shall be
     forfeited  and  ninety-five  percent  (95%)  of  the  Account  paid  to the
     Participant.

          (b)  If  the  distribution  is  requested  following   termination  of
     employment  and the  Account is in pay  status,  five  percent  (5%) of the
     previously unpaid Account shall be forfeited and ninety-five  percent (95%)
     of the previously unpaid Account paid to the Participant.

          (c) If the  distribution  is  requested at any time other than that in
     (a) or (b)  above,  five  percent  (5%)  of the  vested  Account  shall  be
     forfeited and ninety-five percent (95%) of the vested Account shall be paid
     to the Participant. The unvested portion of the Account shall be forfeited.

            The Account  balance  shall be  determined  as of the  Valuation  Date
     immediately  following the date on which the Committee receives the written
     request. A Participant who receives a distribution under this section shall
     forfeit  participation  in the Plan with  regard to his  election  to defer
     compensation  for the  remainder  of the Plan Year and the  following  Plan
     Year.  The amount payable under this section shall be paid in a lump sum as
     soon as  practical  following  the  receipt  of the  Participant's  written
     request by the Committee and the valuation of his Account.

7.5      Designation of Beneficiaries.

          Each  participant  shall have the right, at any time, to designate one
     (1) or more persons or an entity as  Beneficiary  (both  primary as well as
     secondary) to whom benefits under this Plan shall be paid in the event of a


     Participant's  death prior to complete  distribution  of the  Participant's
     Account. Each Beneficiary designation shall be in a written form prescribed
     by the Committee  and will be effective  only when filed with the Committee
     during the Participant's lifetime.  Designation by a married Participant of
     a Beneficiary  other than the  Participant's  spouse shall not be effective
     unless the spouse executes a written consent that  acknowledges  the effect
     of the  designation  and is  witnessed by a notary  public,  or the consent
     cannot be obtained because the spouse cannot be located.

7.6      Change of Beneficiary Designation.

          Except as provided  below,  any nonspousal  designation of Beneficiary
     may be changed by a Participant  without the consent of such Beneficiary by
     the filing of a new  designation  with the  Committee.  The filing of a new
     designation shall cancel all designations previously filed.

7.7      Change in Marital Status.

          If the Participant's  marital status changes after the Participant has
     designated a Beneficiary, the following shall apply:

          (a) If the  Participant is married at death but was unmarried when the
     designation was made, the  designation  shall be void unless the spouse has
     consented to it in the manner prescribed above.

          (b) If the  Participant is unmarried at death but was married when the
     designation was made:

               (i)The  designation  shall  be void if the  spouse  was  named as
          Beneficiary.

               (ii)The  designation  shall  remain  valid  if  a  nonspouse
          Beneficiary was named.

          (c) If the  Participant  was married when the designation was made and
     is married to a different  spouse at death,  the designation  shall be void
     unless the new spouse has consented to it in the manner prescribed above.
 
7.8      No Beneficiary Designation.

          If any  Participant  fails to  designate a  Beneficiary  in the manner
     provided above, or if the Beneficiary  designated by a deceased Participant
     dies  before  the  Participant  or  before  complete  distribution  of  the
     Participant's  benefits, the Participant's  Beneficiary shall be the person


     in the first of the following classes in which there is a survivor:

          (a) The Participant's surviving spouse;

          (b) The Participant's  children in equal shares, except that if any of
     the children  predeceases the Participant but leaves issue surviving,  then
     such issue shall take by right of representation the share the parent would
     have taken if living;

          (c) The Participant's parents;

          (d) The Participant's estate.


7.9      Unclaimed Benefits.

          In the case of a benefit  payable on behalf of a  Participant,  if the
     Committee is unable to locate the  Participant  or Beneficiary to whom such
     benefit is payable,  such benefit may be forfeited to the Company, upon the
     Committee's determination.  Notwithstanding the foregoing, if subsequent to
     any such  forfeiture the Participant or Beneficiary to whom such benefit is
     payable makes a valid claim for such benefit,  such forfeited benefit shall
     be paid by the Company or restored to the Plan by the Company.

7.10     Hardship Withdrawals.

          A  Participant  may apply in writing  to the  Committee  for,  and the
     Committee  may  permit,  a  hardship  withdrawal  of all or any  part  of a
     Participant's  Account  derived from Base Salary and Bonus Deferrals if the
     Committee,  in its sole  discretion,  determines  that the  Participant has
     incurred a severe financial hardship resulting from a sudden and unexpected
     illness or accident  of the  Participant  or of a dependent  (as defined in
     section 152(a) of the Code) of the Participant,  loss of the  Participant's
     property due to casualty,  or other similar extraordinary and unforeseeable
     circumstances  arising  as a result of events  beyond  the  control  of the
     Participant,  as  determined  by the  Committee,  in its sole and  absolute
     discretion. The amount that may be withdrawn shall be limited to the amount
     reasonably  necessary to relieve the hardship or financial  emergency  upon
     which the  request is based,  plus the  federal  and state taxes due on the
     withdrawal,  as  determined by the  Committee.  The Committee may require a
     Participant  who requests a hardship  withdrawal to submit such evidence as
     the Committee,  in its sole  discretion,  deems necessary or appropriate to
     substantiate  the  circumstances  upon which the  request is based.  In the
     event of a hardship  withdrawal,  a  Participant  shall not be permitted to
     make  deferrals for the  remainder of the Plan Year and the following  Plan
     Year



7.11     Withholding.

          All deferrals and  distributions  shall be subject to legally required
     income and employment tax withholding. Article VIII ADMINISTRATION

                                  Article VIII
                                 ADMINISTRATION
8.1      Committee.

          The Plan shall be administered by a Committee, which shall include the
     Senior Vice President of Human Resources and the Chief  Financial  Officer.
     The  Committee  shall  be  responsible   for  the  general   operation  and
     administration of the Plan and for carrying out the provisions thereof. The
     Committee  may delegate to others  certain  aspects of the  management  and
     operational  responsibilities  of the  Plan  including  the  employment  of
     advisors and the delegation of ministerial duties to qualified individuals,
     provided that such delegation is in writing. No member of the Committee who
     is a Participant  shall participate in any matter relating to his status as
     a Participant or his rights or entitlement to benefits as a Participant.

8.2      General Powers of Administration.

          The Committee shall have all powers necessary or appropriate to enable
     it to  carry  out its  administrative  duties.  Not in  limitation,  but in
     application  of the  foregoing,  the  Committee  shall  have  discretionary
     authority to construe and  interpret  the Plan and  determine all questions
     that  may  arise  hereunder  as to the  status  and  rights  of  Employees,
     Participants,  and  Beneficiaries.  The  Committee  may exercise the powers
     hereby  granted in its sole and  absolute  discretion.  The  Committee  may
     promulgate such  regulations as it deems  appropriate for the operation and
     administration  of the Plan. No member of the Committee shall be personally
     liable for any actions  taken by the Committee  unless the member's  action
     involves willful misconduct.

8.3      Indemnification of Committee.

          The Company shall  indemnify the members of the Committee  against any
     and all claims,  losses,  damages,  expenses,  including  attorney's  fees,
     incurred  by  them,  and  any  liability,  including  any  amounts  paid in
     settlement  with their  approval,  arising  from their action or failure to
     act,  except when the same is judicially  determined to be  attributable to
     their gross negligence or willful misconduct.


                                   Article IX
                           DETERMINATION OF BENEFITS,
                       CLAIMS PROCEDURE AND ADMINISTRATION

9.1      Claims.

          A Participant, Beneficiary or other person who believes that he or she
     is being  denied a  benefit  to  which he or she is  entitled  (hereinafter
     referred to as "Claimant"),  or his or her duly authorized  representative,
     may file a written  request for such  benefit  with the  Committee  setting
     forth his or her claim.  The request must be addressed to the  Committee at
     the Company at its then principal place of business.

9.2      Claim Decision.

          Upon receipt of a claim,  the Committee shall advise the Claimant that
     a reply  will be  forthcoming  within a  reasonable  period  of  time,  but
     ordinarily  not later than ninety days,  and shall,  in fact,  deliver such
     reply  within such  period.  However,  the  Committee  may extend the reply
     period for an additional  ninety days for  reasonable  cause.  If the reply
     period will be extended, the Committee shall advise the Claimant in writing
     during the initial  90-day  period  indicating  the  special  circumstances
     requiring  an  extension  and the date by which the  Committee  expects  to
     render the benefit determination.

          If the claim is denied in whole or in part,  the Committee will render
     a written  opinion,  using  language  calculated  to be  understood  by the
     Claimant, setting forth:

          (a) the specific reason or reasons for the denial;

          (b) the specific  references to pertinent Plan provisions on which the
     denial is based;

          (c) a description of any additional material or information  necessary
     for the  Claimant  to perfect the claim and an  explanation  as to why such
     material or such information is necessary;

          (d)  appropriate  information  as to  the  steps  to be  taken  if the
     Claimant  wishes to submit the claim for review,  including a statement  of
     the Claimant's  right to bring a civil action under Section 502(a) of ERISA
     following an adverse benefit determination on review; and

          (e) the time  limits  for  requesting  a review  of the  denial  under


     Section 9.3 and for the actual review of the denial under Section 9.4.

9.3      Request for Review.

          Within  sixty days after the  receipt by the  Claimant  of the written
     opinion  described  above,  the  Claimant  may request in writing  that the
     Senior  Vice  President  of  Human  Resources  of the  Company  ("Executive
     Officer") review the Committee's prior determination.  Such request must be
     addressed  to the  Executive  Officer at the Company at its then  principal
     place  of   business.   The   Claimant  or  his  or  her  duly   authorized
     representative  may submit written  comments,  documents,  records or other
     information  relating  to the  denied  claim,  which  information  shall be
     considered in the review under this Section  without regard to whether such
     information   was   submitted  or   considered   in  the  initial   benefit
     determination.
 
          The  Claimant or his or her duly  authorized  representative  shall be
     provided, upon request and free of charge, reasonable access to, and copies
     of, all documents,  records and other information which (i) was relied upon
     by the Committee in making its initial claims decision, (ii) was submitted,
     considered or generated in the course of the  Committee  making its initial
     claims  decision,  without  regard to whether such  instrument was actually
     relied upon by the  Committee in making its decision or (iii)  demonstrates
     compliance  by  the  Committee  with  its   administrative   processes  and
     safeguards   designed  to  ensure  and  to  verify  that   benefit   claims
     determinations  are made in accordance  with  governing  Plan documents and
     that, where appropriate, the Plan provisions have been applied consistently
     with  respect to similarly  situated  claimants.  If the Claimant  does not
     request  a review  of the  Committee's  determination  within  such  60-day
     period,  he or she shall be  barred  and  estopped  from  challenging  such
     determination.

9.4      Review of Decision.

          Within a reasonable  period of time,  ordinarily  not later than sixty
     days,  after the Executive  Officer's  receipt of a request for review,  it
     will review the Committee's prior determination.  If special  circumstances
     require that the sixty-day time period be extended,  the Executive  Officer
     will so notify the Claimant within the initial 60-day period indicating the
     special  circumstances  requiring  an  extension  and the date by which the
     Executive Officer expects to render its decision on review,  which shall be
     as soon as  possible  but not  later  than 120 days  after  receipt  of the
     request for review.  In the event that the  Executive  Officer  extends the
     determination  period  on  review  due to a  Claimant's  failure  to submit


     information  necessary to decide a claim, the period for making the benefit
     determination on review shall not take into account the period beginning on
     the date on which  notification  of  extension  is sent to the Claimant and
     ending  on the date on which  the  Claimant  responds  to the  request  for
     additional information.

          Benefits  under the Plan will be paid  only if the  Executive  Officer
     decides in its  discretion  that the Claimant is entitled to such benefits.
     The decision of the Executive  Officer  shall be final and  non-reviewable,
     unless found to be arbitrary and capricious by a court of competent review.
     Such decision will be binding upon the Company and the Claimant.

          If the Executive  Officer makes an adverse  benefit  determination  on
     review, the Executive Officer will render a written opinion, using language
     calculated to be understood by the Claimant, setting forth:

          (a) the specific reason or reasons for the denial;

          (b) the specific  references to pertinent Plan provisions on which the
     denial is based;

          (c) a statement that the Claimant is entitled to receive, upon request
     and free of charge,  reasonable  access  to, and copies of, all  documents,
     records and other  information  which (i) was relied upon by the  Executive
     Officer in making its decision, (ii) was submitted, considered or generated
     in the course of the Executive Officer making its decision,  without regard
     to whether  such  instrument  was  actually  relied  upon by the  Executive
     Officer in making its  decision  or (iii)  demonstrates  compliance  by the
     Executive Officer with its administrative processes and safeguards designed
     to ensure and to verify  that  benefit  claims  determinations  are made in
     accordance with governing Plan documents, and that, where appropriate,  the
     Plan  provisions have been applied  consistently  with respect to similarly
     situated claimants; and

          (d) a statement of the Claimant's  right to bring a civil action under
     Section 502(a) of ERISA following the adverse benefit determination on such
     review.

9.5      Discretionary Authority.

          The  Committee and  Executive  Officer  shall both have  discretionary
     authority to determine a Claimant's  entitlement to benefits upon his claim
     or his request for review of a denied claim, respectively.


                                   Article X
                                  MISCELLANEOUS

10.1     Plan Not a Contract of Employment.

          The adoption and  maintenance of the Plan shall not be or be deemed to
     be a contract between the Company and any person or to be consideration for
     the  employment of any person.  Nothing herein  contained  shall give or be
     deemed to give any  person  the right to be  retained  in the employ of the
     Company or to restrict the right of the Company to discharge  any person at
     any time;  nor shall  the Plan  give or be deemed to give the  Company  the
     right to require  any  person to remain in the employ of the  Company or to
     restrict any person's right to terminate his employment at any time.

10.2     Non-Assignability of Benefits.

          No Participant,  Beneficiary or distributee of benefits under the Plan
     shall have any power or right to transfer, assign, anticipate,  hypothecate
     or  otherwise  encumber any part or all of the amounts  payable  hereunder,
     which are expressly declared to be unassignable and  non-transferable.  Any
     such  attempted  assignment or transfer  shall be void.  No amount  payable
     hereunder shall, prior to actual payment thereof,  be subject to seizure by
     any creditor of any such Participant,  Beneficiary or other distributee for
     the payment of any debt, judgment, or other obligation,  by a proceeding at
     law or in equity,  nor transferable by operation of law in the event of the
     bankruptcy,  insolvency or death of such Participant,  Beneficiary or other
     distributee hereunder.

10.3     Amendment and Termination.

          The Board may from time to time, in its discretion, amend, in whole or
     in part, any or all of the provisions of the Plan; provided,  however, that
     no  amendment  may be made which would  impair the rights of a  Participant
     with  respect to amounts  already  credited to his  Account.  The Board may
     terminate the Plan at any time.  In the event that the Plan is  terminated,
     the balance in a Participant's Account shall be paid to such Participant or
     his  Beneficiary  in a lump sum or in equal monthly  installments  over the
     following period, unless the Committee determines otherwise:

           Account Balance                                   Payout Period
           ---------------                                   -------------
           $50,000 or less                                   Lump Sum
           More than $50,000 but less than $250,000          3 Years


           $250,000 or more                                  5 Years

          Gains and  Losses  shall  continue  to be  credited  or charged to the
     Account in  accordance  with the  provisions  of Section  5.3.  The Company
     reserves the right to pay each Account in a lump sum,  notwithstanding  the
     above schedule.

10.4     Unsecured General Creditor Status Of Employee.

          The  payments  to  a  Participant,   his   Beneficiary  or  any  other
     distributee  hereunder shall be made from assets which shall continue,  for
     all  purposes,  to be a part of the  general,  unrestricted  assets  of the
     Company;  no person  shall have nor acquire any interest in any such assets
     by virtue of the  provisions of this  Agreement.  The Company's  obligation
     hereunder  shall be an unfunded and  unsecured  promise to pay money in the
     future.  To the  extent  that  the  Participant,  a  Beneficiary,  or other
     distributee acquires a right to receive payments from the Company under the
     provisions  hereof,  such right  shall be no greater  than the right of any
     unsecured  general  creditor of the Company;  no such person shall have nor
     acquire  any  legal  or  equitable  right,  interest  or claim in or to any
     property or assets of the Company.

          In the  event  that,  in its  discretion,  the  Company  purchases  an
     insurance  policy or policies  insuring the life of a  Participant  (or any
     other  property) to allow the Company to recover the cost of providing  the
     benefits,  in whole, or in part,  hereunder,  neither the Participant,  his
     Beneficiary  or  other  distributee  shall  have  nor  acquire  any  rights
     whatsoever therein or in the proceeds  therefrom.  The Company shall be the
     sole owner and  beneficiary  of any such policy or  policies  and, as such,
     shall possess and may exercise all incidents of ownership therein.  No such
     policy,  policies  or  other  property  shall  be held in any  trust  for a
     Participant,  Beneficiary  or  other  distributee  or  held  as  collateral
     security for any obligation of the Company hereunder.

10.5     Severability.

          If any provision of this Plan shall be held illegal or invalid for any
     reason,  said  illegality  or  invalidity  shall not affect  the  remaining
     provisions hereof; instead, each provision shall be fully severable and the
     Plan  shall  be  construed  and  enforced  as if said  illegal  or  invalid
     provision had never been included herein.

10.6     Governing Laws.


          All  provisions of the Plan shall be construed in accordance  with the
     internal  laws (but not the  choice of laws) of Ohio,  except to the extent
     preempted by federal law.

10.7     Binding Effect.

          This Plan shall be binding on each Participant and his heirs and legal
     representatives and on the Company and its successors and assigns.

10.8     Entire Agreement.

          This document and any amendments  contain all the terms and provisions
     of the Plan and shall  constitute  the entire Plan, any other alleged terms
     or provisions being of no effect.

10.9     No Guaranty of Tax Consequences.

          While the Company has  established,  and will maintain,  the Plan, the
     Company  makes  no  representation,   warranty,   commitment,  or  guaranty
     concerning  the  income,   employment,   or  other  tax   consequences   of
     participation in the Plan under federal, state, or local law.
 
          IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
     this 13th day of May, 2004.


                                 INVACARE CORPORATION



                                 By:    /s/ Gregory C. Thompson
                                        ---------------------------------------
                                 Title: Senior Vice President and
                                        Chief Financial Officer
                                        ---------------------------------------


                                 By:    /s/ A. Malachi Mixon, III
                                        ---------------------------------------
                                 Title: Chairman and Chief Executive Officer
                                        ---------------------------------------

 

                               AMENDMENT NO. 1
                                       TO
INVACARE CORPORATION 401(k) PLUS BENEFIT EQUALIZATION PLAN


          This  Amendment  No. 1 is  executed  as of the date set forth below by
     Invacare Corporation (the "Company").

                                   WITNESSETH:

          WHEREAS,  the Company maintains the Invacare  Corporation  401(k) Plus
     Benefit  Equalization  Plan, as amended and restated  effective  January 1,
     2003 (the "Plan"), to provide nonqualified  retirement benefits for certain
     employees of the Company; and

          WHEREAS,  pursuant  to  Section  10.3 of the  Plan,  the  Company  has
     retained the right to make amendments thereto; and

          WHEREAS,  the  Company  desires  to amend  the Plan in order to permit
     participants to change their investment elections on a daily basis;

          NOW,  THEREFORE,  pursuant  to Section  10.3 of the Plan,  the Company
     hereby  amends  Section  5.3 of  Article  V of the  Plan,  effective  as of
     December 1, 2003,  by the  deletion of said Section 5.3 in its entirety and
     the substitution in lieu thereof of a new Section 5.3 to read as follows:

         5.3      Earnings Elections.
          Amounts  credited  to a  Participant's  Account  shall be  credited or
     charged with earnings and losses based on hypothetical  investments elected
     by  the   Participant.   A  Participant  may  elect  different   investment
     allocations for new contributions and existing Account balances. Only whole
     percentages  may be elected,  the minimum  percentage for any allocation is
     10%, and the total  elections  must allocate 100% of all new  contributions
     and 100% of all existing  Account  balances.  Investment  elections  may be
<page>
     changed  daily,  by  written   direction.   The   hypothetical   investment
     alternatives   and  the  procedures   relating  to  the  election  of  such
     investments,  other  than  those set forth in this  Section  5.3,  shall be
     determined  by the  Committee  from time to time. A  Participant's  Account
     shall be adjusted as of each Valuation Date to reflect investment gains and
     losses."

          IN WITNESS WHEREOF,  Invacare Corporation,  by its proper officer, has
     caused  this  Amendment  No. 1 to be  executed as of the 30th day of April,
     2004.




                                        INVACARE CORPORATION


                                        By: /s/ Gregory C. Thompson



AMENDMENT NO. 2
TO
INVACARE CORPORATION 401(K) PLUS BENEFIT EQUALIZATION PLAN

This Amendment No. 2 to the Invacare Corporation 401(k) Plus Benefit Equalization Plan is hereby adopted as of the date set forth below by Invacare Corporation, an Ohio corporation (the “Company”).
WITNESSETH:
WHEREAS, the Company has established a deferred savings plan known as the Invacare Corporation 401(k) Plus Benefit Equalization Plan (the “Plan”) to provide unfunded deferred compensation to certain management and highly compensated employees of the Company; and
WHEREAS, pursuant to Section 10.3 of the Plan, the Company has retained the right to make amendments thereto; and
WHEREAS, the Company desires to amend the Plan in order to prevent further deferrals thereunder;
NOW, THEREFORE, effective as of December 31, 2004, the Company hereby adopts this Amendment No. 2 as follows:
1.            Freeze of Plan .  Subject to Section 2 of this Amendment, effective December 31, 2004 (the “Freeze Date”), the Plan shall be frozen.  Thereafter, no additional deferrals may be made under the Plan.  Otherwise the Plan shall be administered after the Freeze Date as provided in the Plan, subject to permissible amendments to the Plan, including amendments made after the Freeze Date.


2.            Material Modification .  The provisions of Section 1 of this Amendment No. 2 are intended to prevent further deferral under the Plan so that all deferrals will be subject to rules in effect prior to the effective date of Section 409A of the Code.  If this Amendment No. 2 would otherwise be deemed a “material modification” of the Plan under such Section 409A, this Amendment No. 2 shall at all times be deemed void ab initio.

IN WITNESS WHEREOF, the Company, by its appropriate officers duly authorized, has caused this Amendment No. 2 to be executed as of this day of  December, 2004.
 
INVACARE CORPORATION
 
By  /s/ Gregory C. Thompson                                                                           
 
And  /s/ Joseph Usaj                                                                           
 



AMENDMENT NO. 3
TO
INVACARE CORPORATION 401(K) PLUS BENEFIT EQUALIZATION PLAN

This Amendment No. 3 to the Invacare Corporation 401(k) Plus Benefit Equalization Plan is hereby adopted as of the date set forth below by Invacare Corporation, an Ohio corporation (the “Company”).
WITNESSETH:
WHEREAS, the Company has established a deferred savings plan known as the Invacare Corporation 401(k) Plus Benefit Equalization Plan (the “Plan”) to provide unfunded deferred compensation to certain management and highly compensated employees of the Company; and
WHEREAS, Code Section 409A became effective January 1, 2005, to impose various restrictions on deferred compensation; and
 WHEREAS, effective December 31, 2004, the Company amended the Plan to cease further deferrals for the purpose of grandfathering the exemption from Code Section 409A of those deferrals which were vested as of that date; and
WHEREAS, those deferrals which were not vested under the Plan as of December 31, 2004 (the “Post-2004 Deferrals”) will be governed under the Plan as it will be amended to provide for a segregated component consistent with Code Section 409A for such Post-2004 Deferrals; and
WHEREAS, Code Section 409A generally requires that the time and form of payment of deferred compensation be fixed at the time the compensation is deferred,


and requires that any later election to change the time or form of payment be subject to restrictions which include a 12-month notice period and a 5-year postponement of the payment commencement date (the “Election Restrictions”);
WHEREAS, the Post-2004 Deferrals have been administered consistent with Code Section 409A and are paid in a single lump sum unless the participant: (a) terminates employment after reaching age fifty-five (55) and completing ten (10) years of service, (b) the participant’s account is more than twenty thousand dollars ($20,000), and (c) the participant has in effect an election to instead receive payment in substantially equal monthly installments over a period of five (5), ten (10), or fifteen (15) years; and
WHEREAS, the participants have not yet been afforded the opportunity to make a payment election with regard to their Post-2004 Deferrals; and
WHEREAS, Code Section 409A permits the Plan to provide a “transition election” in 2006 by which participants can, on or before December 31, 2006 and subject to certain conditions, elect to change the form of payment of their Post 2004 Deferrals without being subject to the Election Restrictions; and
WHEREAS, the Company desires to provide the Plan participants with such a transition election for 2006; and
WHEREAS, pursuant to Section 10.3 of the Plan, the Company has retained the right to make amendments thereto; and
NOW, THEREFORE, the Company hereby amends the Plan, effective as of the dates indicated below, as follows:
1.            Effective November 1, 2006, a new Section 7.3A is added after Section 7.3 as it pertains to Post-2004 Deferrals to read as follows:
 


“7.3A                       Special Transition Election in 2006.
 
Pursuant to the relief granted in IRS Notice 2005-1, Q&A-19(c)   as extended in the Proposed Treasury Regulations under Code Section 409A (Section XI.C. of the Preambles), a Participant shall be permitted to make a new election in 2006 regarding the form of distribution of the Participant’s Account, provided that such election is made in writing and filed with the Committee no later than December 31, 2006.  Such election shall be immediately effective; provided, however, that such election shall not operate to change the form of distribution of amounts that otherwise would be payable in 2006, nor will it operate to make payable in 2006 amounts that would not otherwise be payable in that year.”
 

IN WITNESS WHEREOF, the Company, by its appropriate officers duly authorized, has caused this Amendment No. 3 to be executed as of this 28th day of December, 2006.
 
INVACARE CORPORATION
 
By  /s/ Joseph Usaj                                                                           
 
By  /s/ Gregory C. Thompson                                                                           
 

 

Exhibit 10(n)
 
INVACARE CORPORATION
 
DEFERRED COMPENSATION PLUS PLAN
 
(Effective January 1, 2005)
 


INVACARE CORPORATION
DEFERRED COMPENSATION PLUS PLAN
(Effective January 1, 2005)
 

 
Table of Contents

   
Page
ARTICLE I. INTRODUCTION
1
1.2.
Name of Plan.
1
1.3.
Purposes of Plan.
1
1.4.
Top Hat Pension Benefit Plan.
1
1.5.
Plan Unfunded.
1
1.6.
Effective Date and Restatement Date.
1
1.7.
Administration.
1
ARTICLE II. DEFINITIONS AND CONSTRUCTION
2
2.1.
Definitions.
2
2.2.
Number and Gender.
5
2.3.
Headings.
6
ARTICLE III. PARTICIPATION AND ELIGIBILITY
7
3.1.
Participation.
7
3.2.
Commencement of Participation.
7
3.3.
Cessation of Active Participation.
7
ARTICLE IV. CONTRIBUTIONS AND VESTING
8
4.1.
Deferrals by Participants.
8
4.2.
Effective Date of Participation and Deferral Election Form.
8
4.3.
Modification or Revocation of Election by Participant.
9
4.4.
Matching Contributions.
9
4.5.
Make Whole Contributions.
9
4.6.
Discretionary Contributions.
9
4.7.
Suspension of Contributions.
9
4.8.
Transfer of Contributions to 401(k) Plan.
9
4.9.
Vesting.
10
ARTICLE V. ACCOUNTS
11
5.1.
Establishment of Bookkeeping Accounts.
11
5.2.
Subaccounts.
11
5.3.
Earnings Elections.
11
5.4.
Hypothetical Accounts and Creditor Status of Participants.
12
5.5.
Investments.
12

INVACARE CORPORATION
DEFERRED COMPENSATION PLUS PLAN
(Effective January 1, 2005)
 

 
Table of Contents

   
Page
ARTICLE VI. PAYMENT OF ACCOUNT
13
6.1.
Timing of Distribution of Accounts.
13
6.2.
Adjustment for Investment Gains and Losses Upon a Distribution.
13
6.3.
Form of Payment.
13
6.4.
Change in Date or Form of Distribution.
14
6.5.
Protective Distributions.
14
6.6.
Designation of Beneficiaries.
14
6.7.
Change of Beneficiary Designation.
15
6.8.
Change in Marital Status.
15
6.9.
No Beneficiary Designation.
15
6.10.
Unclaimed Benefits.
16
6.11.
Withdrawals for Unforeseeable Emergency.
16
6.12.
Withholding.
16
ARTICLE VII. ADMINISTRATION
17
7.1.
Committee.
17
7.2.
General Powers of Administration.
17
7.3.
Indemnification of Committee.
18
ARTICLE VIII. DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION
19
8.1.
Claims.
19
8.2.
Claim Decision.
19
8.3.
Request for Review of a Denied Claim.
20
8.4.
Review of Decision.
20
8.5.
Discretionary Authority.
21
ARTICLE IX. AMENDMENT AND TERMINATION
22
9.1.
Power to Amend or Terminate.
22
9.2.
Distribution Upon Plan Termination.
22
9.3.
Protective Amendments Due to Change in Law.
22
ARTICLE X. MISCELLANEOUS
24
10.1.
Plan Not a Contract of Employment.
24
10.2.
Non-Assignability of Benefits.
24
10.3.
Severability.
24
10.4.
Governing Laws.
24
10.5.
Binding Effect.
24
10.6.
Entire Agreement.
24
10.7.
No Guaranty of Tax Consequences.
25



INVACARE CORPORATION
DEFERRED COMPENSATION PLUS PLAN
(Effective January 1, 2005)
 
ARTICLE I.
 
INTRODUCTION
 
1.2.            Name of Plan.
 
Invacare Corporation (the “Company”) hereby adopts the Invacare Corporation Deferred Compensation Plus Plan (the “Plan”).
 
1.3.            Purposes of Plan.
 
The purposes of the Plan are to provide deferred compensation for a select group of management or highly compensated Employees of the Company and to provide eligible Employees the opportunity to maximize their elective contributions to the Invacare Retirement Savings Plan (the “401(k) Plan”) notwithstanding certain limitations in the Code.
 
1.4.            “Top Hat” Pension Benefit Plan.
 
The Plan is an “employee pension benefit plan” within the meaning of ERISA Section 3(2). The Plan is maintained, however, for a select group of management or highly compensated employees and, therefore, is exempt from Parts 2, 3 and 4 of Title 1 of ERISA. The Plan is not intended to qualify under Code Section 401(a).
 
1.5.            Plan Unfunded.
 
The Plan is unfunded. All benefits will be paid from the general assets of the Company, which will continue to be subject to the claims of the Company’s creditors. No amounts will be set aside for the benefit of Plan Participants or their Beneficiaries.
 
1.6.            Effective Date and Restatement Date.
 
The Plan is effective as of the Effective Date.
 
1.7.            Administration.
 
The Plan shall be administered by the Committee or its delegates, as set forth in Section 7.1.
 
ARTICLE II.

DEFINITIONS AND CONSTRUCTION
 
2.1.             Definitions.
 
For purposes of the Plan, the following words and phrases shall have the respective meanings set forth below, unless their context clearly requires a different meaning:
 
(a)            “Account” means the bookkeeping account or accounts maintained by the Company to reflect the Participant’s Base Salary Deferrals, Bonus Deferrals, Matching Contributions, Discretionary Contributions, Profit Sharing Contributions and IQC Contributions, together with all earnings, gains and losses thereon.  Accounts shall be further denominated as Retirement Accounts or In-Service Distribution Accounts.
 
(b)            “Base Salary” means the base rate of cash compensation, including commissions, paid by the Company to or for the benefit of a Participant for services rendered or labor performed while a Participant, including base pay a Participant could have received in cash in lieu of (A) deferrals pursuant to Section 4.1 and (B) contributions made on his behalf to any qualified plan maintained by the Company or to any cafeteria plan under Section 125 of the Code maintained by the Company.
 
(c)            “Base Salary Deferral” means the amount of a Participant’s Base Salary which the Participant elects to have withheld on a pre-tax basis and credited to his Account pursuant to Section 4.1.
 
(d)            “Beneficiary” means the person or persons designated by the Participant in accordance with Section 6.6 or, in the absence of an effective designation, the person or entity described in Section 6.9.
 
(e)            “Board” means the Board of Directors of the Company.
 
(f)            “Bonus Compensation” means the amount awarded to a Participant for a Plan Year under any bonus arrangement maintained by the Company.
 
(g)            “Bonus Deferral” means the amount of a Participant’s Bonus Compensation which the Participant elects to have withheld on a pre-tax basis and credited to his Account pursuant to Section 4.1.
 
(h)            “Change In Control” means the happening of any of the following events:
 
 
(i)
Any person or entity (other than any employee benefit plan or employee stock ownership plan of Invacare Corporation, or any person or entity organized, appointed, or established by Invacare Corporation, 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
 


 
Invacare Corporation, 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 Invacare Corporation as reflected by the power to vote in connection with the election of directors. For purposes of this Section 2.1(h)(i), the terms “Affiliates,” “Associates,” and “Beneficial Owner” will have the meanings given them in the Rights Agreement, dated as of April 2, 1991, between Invacare Corporation and National City Bank, as Rights Agent, as amended from time to time.
 
 
(ii)
At any time during a period of twenty-four (24) consecutive months, individuals who were directors at the beginning of the period no longer constitute a majority of the members of the Board, unless the election, or the nomination for election by the Invacare Corporation’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.
 
 
(iii)
A record date is established for determining shareholders entitled to vote upon:
 
 
(A)
A merger or consolidation of the Invacare Corporation with another corporation (which is not an affiliate of Invacare Corporation) in which Invacare Corporation 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;
 
 
(B)
a sale or other disposition of all or substantially all of the assets of Invacare Corporation; or
 
 
(C)
the dissolution or liquidation (but not partial liquidation) of Invacare Corporation.
 
(i)            “Code” means the Internal Revenue Code of 1986, as amended.
 
(j)            “Committee” means the administrative committee named to administer the Plan pursuant to Section 7.1.
 


(k)            “Company” means Invacare Corporation and any successor thereto.
 
(l)            “Deferral Period” means the period of time for which a Participant elects to defer receipt of the Base Salary Deferrals and Bonus Deferrals credited to such Participant’s Account.
 
(m)            “Directors” means the Board of Directors of the Company.
 
(n)            “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.
 
(o)            “Discretionary Contribution” means the Company’s contribution, if any, made pursuant to Section 4.6.
 
(p)            “Effective Date” means January 1, 2005, except where a different date is specifically set forth.
 
(q)            “Employee” means any common-law employee of the Company.
 
(r)            “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
 
(s)            “401(k) Plan” means the Invacare Retirement Savings Plan, as in effect on January 1, 2005, and as amended from time to time thereafter.
 
(t)            “In-Service Distribution Accounts” means an Account(s) to which a Participant’s Base Salary Deferrals and Bonus Deferrals are credited pursuant to the terms of the Plan and the election of a Participant.  Each of a Participant’s In-Service Distribution Accounts is distributable in a future calendar year which is not less than two (2) years following the deferral of compensation into the Plan and which is selected by the Participant pursuant to Section 4.2 hereof.  A Participant may have up to two (2) In-Service Distribution Accounts under the Plan at any one time.
 
(u)            “Contribution” or “IQC” means the amount, if any, of non-elective non-matching contribution made by the Company under the 401(k) Plan for a Plan Year.
 
(v)            “Make Whole IQC Contribution” means a contribution equal to the Invacare Quarterly Contribution that would have been made to the 401(k) Plan for a Participant but for the limitation on compensation contained in Code Section 401(a)(17).
 
(w)            “Matching Contribution” means the amount, as determined by the Company on an annual basis, that would be credited to the Participant’s Base Salary Deferrals
 


and Bonus Deferrals if such deferrals had been deferred by the Participant into the 401(k) Plan, and which is credited by the Company to the Retirement Account of each Participant based on such Participant’s Base Salary and Bonus Deferrals.
 
(x)            “Participant” means each Employee who has been selected for participation in the Plan and who has become a Participant pursuant to Article III.
 
(y)            “Participation and Deferral Election Form” means the written agreement pursuant to which the Participant elects the amount of his Base Salary and/or his Bonus Compensation to be deferred pursuant to the Plan, the Account to which such deferrals are to be credited, the Deferral Period, if applicable, the deemed investment of amounts deferred and the time and form of payment of such amounts and such other matters as the Committee shall determine from time to time.
 
(z)            “Plan” means the Invacare Corporation Deferred Compensation Plus Plan, as in effect on the Effective Date, and as amended from time to time hereafter.
 
(aa)            “Plan Year” means the twelve-consecutive month period commencing January 1 of each year ending on the following December 31.
 
(bb)            “Profit Sharing Contribution” means the amount credited to a Participant’s Account under the Invacare Corporation 401(k) Benefit Equalization Plus Plan prior to December 31, 2004 and which is transferred to the Participant’s Retirement Account under this Plan on or after the Effective Date.
 
(cc)            “Retirement” means a Participant’s termination of employment after either (I) the attainment of age fifty-five (55) and completion of ten (10) or more Years of Service, or (II) the attainment of age sixty-five (65).
 
(dd)            “Retirement Account” means an Account to which Base Salary Deferrals and Bonus Deferrals are credited pursuant to the terms of the Plan and the election of a Participant.  A Participant’s Retirement Account shall also be credited with any Matching Contributions, Make Whole IQC Contributions, Profit Sharing Contributions and Discretionary Contributions creditable to a Participant under the terms of the Plan.  A Participant’s Retirement Account is generally payable upon his Retirement.
 
(ee)            “Valuation Date” means each business day and each special valuation date designated by the Committee.
 
(ff)            “Years of Service” shall have the same meaning as in the 401(k) Plan.
 
2.2.            Number and Gender.
 
Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender.
 


2.3.            Headings.
 
The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the rest of the Plan, the text shall control.
 



 
ARTICLE III.
 
PARTICIPATION AND ELIGIBILITY
 
3.1.            Participation.
 
Participants in the Plan are those Employees who are (a) subject to the income tax laws of the United States, (b) members of a select group of highly compensated or management Employees of the Company, and (c) selected by the Committee or its delegates, in its sole discretion, as Participants. The Committee shall notify each Participant of his selection as a Participant.  An Employee who satisfies the eligibility requirements set forth in subsections (a) and (b) shall remain eligible to continue participation in the Plan for each Plan Year following his selection by the Committee as a Participant.
 
3.2.             Commencement of Participation .
 
Except as provided in the following sentence, an Employee shall become a Participant effective as of the first day of the Plan Year following the date on which his Participation and Deferral Election Form becomes effective. A newly hired Employee who completes a Participation and Deferral Election Form within 30 days of the date on which he is selected by the Committee to be eligible to participate shall become a Participant as of the date on which his Participation and Deferral Election Form becomes effective under Section 4.2.
 
3.3.            Cessation of Active Participation.
 
Notwithstanding any provision herein to the contrary, an individual who has become a Participant in the Plan shall cease to be a Participant hereunder effective as of any date designated by the Committee.  Any such Committee action shall be communicated to such Participant prior to the effective date of such action.
 



 
ARTICLE IV.
 
CONTRIBUTIONS AND VESTING
 
4.1.            Deferrals by Participants.
 
Before the first day of each calendar year, a Participant may file with the Committee a Participation and Deferral Election Form pursuant to which such Participant elects to make Base Salary Deferrals.  A Participant must file a Participation and Deferral Election form to make Bonus Deferrals at a time prescribed by the Committee which time shall be not later than six (6) months before the end of the 12 month period over which the services upon which the Bonus Compensation is based are performed.  A Participant shall be entitled to defer a whole percent of his Base Salary or Bonus Compensation, subject to a maximum deferral of fifty percent (50%) of Base Salary and one hundred percent (100%) of Bonus Compensation.  Deferral elections shall be subject to any other rules prescribed by the Committee in its sole discretion.
 
At the time a Participant completes a Participation and Deferral Election Form, he shall elect to have his Base Salary Deferrals and Bonus Deferrals credited to a Retirement Account or a In-Service Distribution Account.  An election to have amounts credited to a In-Service Distribution Account shall specify the calendar year in which payment of such amount shall be made or shall commence to be made.  In the event a Participant does not elect a Deferral Period for any Base Salary Deferrals or Bonus Deferrals for a Plan Year, such Participant shall be deemed to have elected to have such amounts credited to a In-Service Distribution Account with a Deferral Period of five (5) years.
 
Base Salary Deferrals will be credited to the Account of each Participant as soon as practicable following each pay date, if and to the extent that the Participant earned such Base Salary as an Employee for such pay date.  Bonus Deferrals will be credited to the Account of each Participant not later than the last day of the month in which such Bonus Compensation otherwise would have been paid to the Participant in cash, provided that the Participant is an Employee at the time such Bonus Compensation would have been paid.  A Participant whose employment terminates prior to or during the calendar month in which his Bonus Compensation would have been paid to him in cash will be paid his Bonus Deferral in cash.  Such termination of employment shall not affect Base Salary Deferrals and Bonus Deferrals previously credited to the Account of the affected Participant.
 
4.2.            Effective Date of Participation and Deferral Election Form.
 
Except as provided below with respect to a new Participant, a Participant’s Participation and Deferral Election Form shall become effective on the first day of the Plan Year to which it relates.  The Participation and Deferral Election Form of an Employee who first becomes eligible to participate in the Plan during a Plan Year shall become effective with respect to services to be performed subsequent to the election which shall be made within thirty (30) days after the date the Employee first becomes eligible to participate in the Plan.  If an Employee fails to timely complete a Participation and Deferral Election Form, the Employee shall be
 


deemed to have elected not to make Base Salary Deferrals and/or Bonus Deferrals for such Plan Year.
 
4.3.            Modification or Revocation of Election by Participant.
 
A Participant may not prospectively change the amount of his Base Salary Deferrals or Bonus Deferrals during a Plan Year unless the Committee determines that he has suffered an unforeseeable emergency as is more fully described in Section 6.11.  Unless required or permitted by law, under no circumstances may a Participant’s Participation and Deferral Election Form be made, modified or revoked retroactively.
 
4.4.             Matching Contributions .
 
Each Participant who elects to make Base Salary Deferrals and/or Bonus Deferrals to the Plan and who has completed at least six (6) months of service will receive a Matching Contribution equal to a certain percentage of the sum of Participant’s Base Salary Deferrals and Bonus Deferrals.  The Matching Contribution percentage to be contributed to the Plan shall be equal to the matching contribution percentage provided under the 401(k) Plan.  Matching Contributions will be credited to the Participant’s Retirement Account as of the day on which the Base Salary Deferrals and/or Bonus Deferrals to which the Matching Contributions relate are credited to the Participant’s Account.
 
4.5.             Make Whole IQC Contributions .
 
For each calendar quarter, the Retirement Account of each eligible Participant shall be credited with the Make Whole IQC Contribution, if any, to which he is entitled under Section 2.1(v).
 
4.6.            Discretionary Contributions.
 
For each Plan Year, the Retirement Account of each eligible Participant shall be credited with such Discretionary Contribution, if any, as is determined by the Company for such Plan Year.
 
4.7.            Suspension of Contributions.
 
Anything contained herein to the contrary notwithstanding, a Participant who receives a distribution from the Plan due to an unforeseeable emergency shall not be eligible to make deferrals hereunder for a six (6) month period after receipt of such distribution.  If required by the terms of the 401(k) Plan, a Participant who receives a hardship distribution under the 401(k) Plan shall not be eligible to make deferrals under this Plan for a six (6) month period after receipt of the hardship distribution.
 
4.8.            Transfer of Contributions to 401(k) Plan.
 
As soon as practicable following the end of each Plan Year, but in no event later than March 15 of the Plan Year following the Plan Year for which the Participant executed the relevant Participation and Deferral Election Form, the lesser of:
 


(i)            the allowable pre-tax contribution which may be made on behalf of the Participant to the 401(k) Plan for the Plan Year for which the Participant executed the Participation and Deferral Election Form, and
 
 
(ii)
the sum of the Base Salary Deferral and the Bonus Deferral for the Plan Year for which the Participant executed the Participation and Deferral Election Form,
 
shall be paid directly to the Participant as compensation earned in the Plan Year for which the Participant executed the Participation and Deferral Election Form, unless the Participant previously elected (in both the Participation and Deferral Election Form and his 401(k) Plan elections) to have such amount contributed to the 401(k) Plan as an elective pre-tax contribution.
 
If the Participant elected to have such amount contributed to the 401(k) Plan as an elective pre-tax contribution, such amount together with an amount equal to the applicable Matching Contributions shall be transferred directly to the Participant’s account(s) in the 401(k) Plan and the appropriate Accounts and subaccounts of the Participant under the Plan shall be charged accordingly.  Notwithstanding the preceding, the Plan shall not make distributions to the Participant or the 401(k) Plan in excess of the Participant’s Account balance.  Distributions pursuant to this Section 4.8 may be made in one or more installments in the sole discretion of the Committee.
 
4.9.            Vesting.
 
A Participant shall be 100% vested at all times in that portion of his Account which is attributable to Base Salary Deferrals and Bonus Deferrals.  Matching Contributions, Make Whole IQC Contributions, Profit Sharing Contributions and Discretionary Contributions shall vest in accordance with the vesting schedule contained in the 401(k) Plan.  Notwithstanding the foregoing, if permitted by the Secretary of the Treasury in regulations or rulings, all Matching Contributions, Make Whole IQC Contributions, Profit Sharing Contributions and Discretionary Contributions shall be 100% vested immediately upon a Change in Control. Any provisions of the Plan relating to the distribution of a Participant’s Account shall mean only the vested portion of such Account. Since the Plan is unfunded, the portion of a Participant’s Account which is not vested and therefore not distributed with the vested portion of his Account shall remain property of the Company and shall not be allocated to the Accounts of other Participants or otherwise inure to their benefit.
 



 
ARTICLE V.
 
ACCOUNTS
 
5.1.            Establishment of Bookkeeping Accounts.
 
A separate bookkeeping Account or Accounts shall be maintained for each Participant. Such Account(s) shall be credited with the Base Salary Deferrals and Bonus Deferrals made by the Participant pursuant to Section 4.1, Matching Contributions made by the Company pursuant to Section 4.4, Make Whole IQC Contributions made pursuant to Section 4.5, Discretionary Contributions made pursuant to Section 4.6 and any unvested amounts held under the Invacare Corporation 401(k) Plus Benefit Equalization Plan prior to January 1, 2005 and transferred to this Plan, credited (or charged, as the case may be) with the hypothetical investment results determined pursuant to Section 5.3, and charged with distributions made to or with respect to a Participant.
 
5.2.            Subaccounts.
 
Within each Participant’s bookkeeping Account, separate subaccounts shall be maintained to the extent necessary or desirable for the administration of the Plan.  In particular, separate bookkeeping accounts shall be maintained for distributions to be made upon a Participant’s Retirement and for distributions to be made upon attainment of the future calendar year distribution dates selected by the Participant.
 
5.3.            Earnings Elections.
 
Amounts credited to a Participant’s Account shall be credited or charged with earnings and losses based on hypothetical investments elected by the Participant.  A Participant may elect different investment allocations for new contributions and existing Account balances.  Only whole percentages may be elected, the minimum percentage for any allocation is 1%, and the total elections must allocate 100% of all new contributions and 100% of all existing Account balances.  Investment elections may be changed daily, by written direction.  The hypothetical investment alternatives and the procedures relating to the election of such investments, other than those set forth in this Section 5.3, shall be determined by the Committee from time to time.  A Participant’s Account shall be adjusted as of each Valuation Date to reflect investment gains and losses.
 
Notwithstanding the foregoing provisions of this Section 5.3, if investment in Invacare Stock is permitted hereunder, the Company in its sole discretion, shall have the authority to place such restrictions upon the investment directions of any person who is subject to Section 16(b) of the Securities Exchange Act of 1934 as amended (“Insider”) as shall be appropriate to comply with such section.  Such restrictions shall include, but shall not be limited to the following:  Insiders shall be permitted to submit investment directions relating to Invacare Stock only on a “semi-annual date” which is no less than six (6) months after the date of the most recent investment direction received from such Insider relating to Invacare Stock.  For purposes of this Section 5.3, the term “semi-annual date” shall mean a date which is within the period that begins the third business day following the date on which the Company’s first fiscal
 


quarter and third fiscal quarter summary statements of sales and earnings shall be released and which ends on the twelfth business day following such release date.
 
5.4.            Hypothetical Accounts and Creditor Status of Participants.
 
The Accounts established under this Article V shall be hypothetical in nature and shall be maintained for bookkeeping purposes only, so that Base Salary Deferrals, Bonus Deferrals, Matching Contributions, Discretionary Contributions, Make Whole IQC Contributions and Profit Sharing Contributions can be credited to the Participant and so that earnings and losses on such amounts so credited can be credited (or charged, as the case may be).  Neither the Plan nor any of the Accounts (or subaccounts) shall hold any actual funds or assets.  The right of any person to receive one or more payments under the Plan shall be an unsecured claim against the general assets of the Company.  Any liability of the Company to any Participant, former Participant, or Beneficiary with respect to a right to payment shall be based solely upon contractual obligations created by the Plan.  Neither the Company, the Board, nor any other person shall be deemed to be a trustee of any amounts to be paid under the Plan.  Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Company and a Participant, former Participant, Beneficiary, or any other person.
 
5.5.            Investments.
 
The Company may, in its sole discretion, acquire insurance policies, annuities or other financial vehicles for the purpose of providing future assets to the Company to meet its anticipated liabilities under the Plan.  Such policies, annuities, or other investments, shall at all times be and remain unrestricted general property and assets of the Company or property of a trust established pursuant to this Plan.  Participants and Beneficiaries shall have no rights, other than as general creditors, with respect to any such policies, annuities or other acquired assets.
 



 
ARTICLE VI.
 
PAYMENT OF ACCOUNT
 

 
6.1.            Timing of Distribution of Accounts.
 
Distribution of a Participant’s Retirement Account shall be made or shall commence to be made as soon as practicable following the Participant’s Retirement.  Distribution of a Participant’s In-Service Distribution Accounts shall be made or shall commence to be made as soon as practicable following the expiration of the Deferral Period selected by the Participant for such Accounts.  Notwithstanding the foregoing, the Participant’s entire Account shall be distributed to him (or his Beneficiary in the event of his death) as soon as practicable following the earliest to occur of the following:
 
(i)            the Participant’s death;
 
(ii)            the Participant’s disability; or
 
(iii)            the Participant’s separation from service.
 
In the event of distribution upon separation from service (for reasons other than disability, death or Change in Control), actual payment of the Participant’s Accounts shall not occur until six (6) months after the date of separation from service, if the Participant is a “key employee” (as defined under Internal Revenue Code Section 416(i) without regard to paragraph (5) thereof), and the Company’s stock is publicly traded on an established securities market or otherwise.
 
6.2.            Adjustment for Investment Gains and Losses Upon a Distribution.
 
Upon a distributable event described in Section 6.1, the balance of a Participant’s Account shall be determined as of the Valuation Date immediately following such event.
 
6.3.            Form of Payment.
 
Except as provided below, a Participant’s Retirement Account shall be paid in one of the following forms as elected by the Participant:
 
 
(a)
A lump sum amount which is equal to the applicable Account balance; or
 
 
(b)
Substantially equal annual installments amortized over a period of years not to exceed fifteen (15) years. Gains and losses on the unpaid balance shall continue to be credited or charged to the Account in accordance with the provisions of Section 5.3. The
 


 
amount of the installments payable may be changed annually to reflect investment results.
 
Except as provided below, a Participant’s In-Service Distribution Accounts shall be paid in one of the following forms as elected by the Participant:
 
 
(a)
A lump sum amount which is equal to the applicable Account balance; or
 
 
(b)
Substantially equal annual installments amortized over a period of years not to exceed five (5) years. Gains and losses on the unpaid balance shall continue to be credited or charged to the Account in accordance with the provisions of Section 5.3. The amount of the installments payable may be changed annually to reflect investment results.
 
The form elected by a Participant with respect to his Retirement Account and/or his In-Service Distribution Account(s) shall apply to each such entire Account.
 
Notwithstanding the form elected, if a Participant incurs a separation from service prior to his Retirement, disability, or death or if the Participant’s total Account value is not more than Ten Thousand Dollars ($10,000) on the last Valuation Date prior to the commencement of distribution, the benefit shall be paid in a single lump sum as soon as practicable following his separation from service.
 
6.4.            Change in Date or Form of Distribution.
 
A Participant’s election with respect to the date or form of distribution may be revised at the Committee’s sole discretion, provided that the revised election does not accelerate the distribution of his Account.  Any revision to the date or form of payment shall be made at least 12 months prior to the original distribution date and any new payment commencement date must be at least five (5) years after the original commencement date.
 
6.5.            Protective Distributions.
 
If the Administrator determines, in its sole discretion, that a Participant is not, or may not be, a member of a “select group of management or highly compensated employees” within the meaning of Section 201(2), 301(a)(3), 401(a)(1) or 4021(b)(6) of ERISA, then the Administrator may, in its sole discretion, terminate the Participant’s participation in the Plan.  In such event, if permitted by law and regulations, the Administrator may distribute all amounts credited to the Participant’s Accounts in a single lump sum payment at such time as the Administrator shall determine in its sole discretion.
 
6.6.            Designation of Beneficiaries.
 
Each Participant shall have the right, at any time, to designate one (1) or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under this Plan shall be paid in the event of a Participant’s death prior to complete distribution of the
 


Participant’s Account. Each Beneficiary designation shall be in a written form prescribed by the Committee and will be effective only when filed with the Committee during the Participant’s lifetime. Designation by a married Participant of a Beneficiary other than the Participant’s spouse shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation and is witnessed by a notary public, or the consent cannot be obtained because the spouse cannot be located.
 
6.7.            Change of Beneficiary Designation.
 
Except as provided below, any nonspousal designation of Beneficiary may be changed by a Participant without the consent of such Beneficiary by the filing of a new designation with the Committee. The filing of a new designation shall cancel all designations previously filed.
 
6.8.            Change in Marital Status.
 
If the Participant’s marital status changes after the Participant has designated a Beneficiary, the following shall apply:
 
 
(a)
If the Participant is married at death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed above.
 
 
(b)
If the Participant is unmarried at death but was married when the designation was made:
 
 
(i)
The designation shall be void if the spouse was named as Beneficiary. The designation shall remain valid if a nonspouse Beneficiary was named.
 
 
(ii)
If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed above.
 
6.9.            No Beneficiary Designation.
 
If any Participant fails to designate a Beneficiary in the manner provided above, or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participant’s benefits, the Participant’s Beneficiary shall be the person in the first of the following classes in which there is a survivor:
 
(a)            The Participant’s surviving spouse;
 
 
(b)
The Participant’s children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take by right of representation the share the parent would have taken if living;
 


 
(c)
The Participant’s parents;
 
(d)            The Participant’s estate.
 
6.10.                       Unclaimed Benefits.
 
In the case of a benefit payable on behalf of a Participant, if the Committee is unable to locate the Participant or Beneficiary to whom such benefit is payable, such benefit may be forfeited to the Company, upon the Committee’s determination. Notwithstanding the foregoing, if subsequent to any such forfeiture the Participant or Beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit shall be paid by the Company or restored to the Plan by the Company.
 
6.11.                       Withdrawals for Unforeseeable Emergency.
 
A Participant may apply in writing to the Committee for, and the Committee may permit, a withdrawal of all or any part of a Participant’s Account derived from Base Salary and Bonus Deferrals if the Committee, in its sole discretion, determines that the Participant has incurred an unforeseeable emergency resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Code) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The amount that may be withdrawn shall be limited to the amount reasonably necessary to relieve the emergency upon which the request is based, plus the federal and state taxes due on the withdrawal, as determined by the Committee. The Committee may require a Participant who requests a withdrawal on account of an unforeseeable emergency to submit such evidence as the Committee, in its sole discretion, deems necessary or appropriate to substantiate the circumstances upon which the request is based.
 
6.12.                       Withholding.
 
All deferrals and distributions shall be subject to legally required income and employment tax withholding.
 



 
ARTICLE VII.
 
ADMINISTRATION
 
7.1.            Committee.
 
The Plan shall be administered by a Committee, which shall include the Senior Vice President of Human Resources and the Chief Financial Officer. The Committee shall be responsible for the general operation and administration of the Plan and for carrying out the provisions thereof. The Committee may delegate to others certain aspects of the management and operational responsibilities of the Plan including the employment of advisors and the delegation of ministerial duties to qualified individuals, provided that such delegation is in writing. No member of the Committee who is a Participant shall participate in any matter relating to his status as a Participant or his rights or entitlement to benefits as a Participant.
 
7.2.            General Powers of Administration.
 
The Committee shall be the Plan Administrator under ERISA.  The Administrator will be responsible for the general administration of the Plan and will have all powers as may be necessary to carry out the provisions of the Plan and may, from time to time, establish rules for the administration of the Plan and the transaction of the Plan’s business.  In addition to any powers, rights and duties set forth elsewhere in this Plan, it will have the following powers and duties:
 
 
(a)
To enact rules, regulations, and procedures and to prescribe the use of such forms as it deems advisable;
 
 
(b)
To appoint or employ agents, attorneys, actuaries, accountants, assistants or other persons (who may also be Participants in this Plan or be employed by or represent the Company) at the expense of the Company, as it deems necessary to keep its records or to assist it in taking any other action authorized or required under the Plan;
 
 
(c)
To interpret the Plan, and to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, to determine the right to benefits of, and the amount of benefits, if any, payable to, any person in accordance with the provisions of the Plan and resolve all questions arising under the Plan;
 
 
(d)
To administer the Plan in accordance with its terms and any rules and regulations it establishes; and
 
 
(e)
To maintain records concerning the Plan as it deems sufficient to prepare reports, returns and other information required by the Plan or by law; and
 


 
(f)
To direct the Company to pay benefits under the Plan, and to give other directions and instructions as may be necessary for the proper administration of the Plan.
 
Any decision, interpretation or other action made or taken by the Administrator arising out of or in connection with the Plan, will be within the absolute discretion of the Administrator, and will be final, binding and conclusive on the Company, and all Participants and Beneficiaries and their respective heirs, executors, administrators, successors and assigns.  The Administrator’s determinations under the Plan need not be uniform, and may be made selectively among Participants, whether or not they are similarly situated.
 
7.3.            Indemnification of Committee.
 
The Company shall indemnify the members of the Committee against any and all claims, losses, damages, expenses, including attorney’s fees, incurred by them, and any liability, including any amounts paid in settlement with their approval, arising from their action or failure to act, except when the same is judicially determined to be attributable to their gross negligence or willful misconduct.
 



 
ARTICLE VIII.
 
DETERMINATION OF BENEFITS, CLAIMS PROCEDURE AND ADMINISTRATION
 
8.1.            Claims.
 
A Participant, Beneficiary or other person who believes that he or she is being denied a benefit to which he or she is entitled (hereinafter referred to as “Claimant”), or his or her duly authorized representative, may file a written request for such benefit with the Committee setting forth his or her claim. The request must be addressed to the Committee at the Company at its then principal place of business.
 
8.2.            Claim Decision.
 
Upon receipt of a claim, the Committee shall advise the Claimant that a reply will be forthcoming within a reasonable period of time, but ordinarily not later than ninety days, and shall, in fact, deliver such reply within such period. However, the Committee may extend the reply period for an additional ninety days for reasonable cause. If the reply period will be extended, the Committee shall advise the Claimant in writing during the initial 90-day period indicating the special circumstances requiring an extension and the date by which the Committee expects to render the benefit determination.
 
If the claim is denied in whole or in part, the Committee will render a written opinion, using language calculated to be understood by the Claimant, setting forth:
 
(a)            the specific reason or reasons for the denial;
 
 
(b)
the specific references to pertinent Plan provisions on which the denial is based;
 
 
(c)
a description of any additional material or information necessary for the Claimant to perfect the claim and an explanation as to why such material or such information is necessary;
 
 
(d)
appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review, including a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following an adverse benefit determination on review; and
 
 
(e)
the time limits for requesting a review of the denial under Section 8.3 and for the actual review of the denial under Section 8.4.
 
If no notice is provided, the claim will be deemed denied.  The interpretations, determinations and decisions of the Administrator will be final and binding upon all persons with respect to any right, benefit and privilege hereunder, subject to the review procedures set forth in this Article.
 


8.3.            Request for Review of a Denied Claim.
 
Within sixty days after the receipt by the Claimant of the written opinion described above, the Claimant may request in writing that the Senior Vice President of Human Resources of the Company (“Executive Officer”) review the Committee’s prior determination. Such request must be addressed to the Executive Officer at the Company at its then principal place of business. The Claimant or his or her duly authorized representative may submit written comments, documents, records or other information relating to the denied claim, which information shall be considered in the review under this Section without regard to whether such information was submitted or considered in the initial benefit determination.
 
The Claimant or his or her duly authorized representative shall be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (i) was relied upon by the Committee in making its initial claims decision, (ii) was submitted, considered or generated in the course of the Committee making its initial claims decision, without regard to whether such instrument was actually relied upon by the Committee in making its decision or (iii) demonstrates compliance by the Committee with its administrative processes and safeguards designed to ensure and to verify that benefit claims determinations are made in accordance with governing Plan documents and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants. If the Claimant does not request a review of the Committee’s determination within such 60-day period, he or she shall be barred and estopped from challenging such determination.
 
8.4.            Review of Decision.
 
Within a reasonable period of time, ordinarily not later than sixty days, after the Executive Officer’s receipt of a request for review, it will review the Committee’s prior determination. If special circumstances require that the sixty-day time period be extended, the Executive Officer will so notify the Claimant within the initial 60-day period indicating the special circumstances requiring an extension and the date by which the Executive Officer expects to render its decision on review, which shall be as soon as possible but not later than 120 days after receipt of the request for review. In the event that the Executive Officer extends the determination period on review due to a Claimant’s failure to submit information necessary to decide a claim, the period for making the benefit determination on review shall not take into account the period beginning on the date on which notification of extension is sent to the Claimant and ending on the date on which the Claimant responds to the request for additional information.
 
Benefits under the Plan will be paid only if the Executive Officer decides in its discretion that the Claimant is entitled to such benefits. The decision of the Executive Officer shall be final and non-reviewable, unless found to be arbitrary and capricious by a court of competent review. Such decision will be binding upon the Company and the Claimant.
 
If the Executive Officer makes an adverse benefit determination on review, the Executive Officer will render a written opinion, using language calculated to be understood by the Claimant, setting forth:
 


(a)            the specific reason or reasons for the denial;
 
 
(b)
the specific references to pertinent Plan provisions on which the denial is based;
 
 
(c)
a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information which (i) was relied upon by the Executive Officer in making its decision, (ii) was submitted, considered or generated in the course of the Executive Officer making its decision, without regard to whether such instrument was actually relied upon by the Executive Officer in making its decision or (iii) demonstrates compliance by the Executive Officer with its administrative processes and safeguards designed to ensure and to verify that benefit claims determinations are made in accordance with governing Plan documents, and that, where appropriate, the Plan provisions have been applied consistently with respect to similarly situated claimants; and
 
 
(d)
a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA following the adverse benefit determination on such review.
 
8.5.            Discretionary Authority.
 
The Committee and Executive Officer shall both have discretionary authority to determine a Claimant’s entitlement to benefits upon his claim or his request for review of a denied claim, respectively.
 

 
ARTICLE IX.

 
AMENDMENT AND TERMINATION
 

 
9.1.            Power to Amend or Terminate.
 
The Company reserves the right, by action of its Board in its sole discretion, to retroactively or prospectively amend, modify or terminate this Plan at any time.
 
9.2.            Distribution Upon Plan Termination.
 
In the event that the Plan is terminated and distribution is permitted by law or regulation, the balance in a Participant’s Account shall be paid to such Participant or his Beneficiary in a lump sum or in equal monthly installments over the following period, unless the Committee determines otherwise:
 
Account Balance                                                                     Payout Period
 
$50,000 or less                                                                              Lump Sum
 
More than $50,000 but less than $250,000                                                                                      3 Years
 
$250,000 or more                                                                              5 Years
 
Gains and losses shall continue to be credited or charged to the Account in accordance with the provisions of Section 5.3. The Company reserves the right to pay each Account in a lump sum, notwithstanding the above schedule.
 
9.3.            Protective Amendments Due to Change in Law.
 
 
(a)
Change in Tax Laws .  Without limiting the generality of the amendment and termination provisions in Section 9.1, the Company may, by action of its Board in its sole discretion, unilaterally amend, modify or terminate the Plan, retroactively or prospectively, to address or reflect changes in the actual or anticipated federal, state or local income or payroll tax consequences (or any other tax consequences) affecting either the Company, or any Participant or Beneficiary, including without limitation, those due to any of the following:
 
 
(i)
the enactment or amendment of any federal, state or local tax or revenue law;
 
 
(ii)
the promulgation or publication of any regulation, ruling or similar announcement by the Secretary of the Treasury Department, the Internal Revenue Service or any other relevant federal, state or local tax authority;
 


 
(iii)
a decision by a court of competent jurisdiction involving a Participant or Beneficiary;
 
 
(iv)
a closing agreement made under Code Section 7121 that is approved by the Internal Revenue Service and involves a Participant, or any similar agreement involving any state or local tax authority; or
 
 
(v)
any similar type of change or any alteration in the expectations of the Company regarding the income or payroll tax impacts of the Plan.
 
Any such amendment or modification should be consistent, as determined by the Company in its sole discretion, with the changes in tax consequences and may include the transfer of unanticipated tax burdens to Participants and Beneficiaries.
 
 
(b)
Change in Securities Laws .  Without limiting the generality of the amendment and termination provisions in Section 9.3, the Company may, by action of its Board in its sole discretion, unilaterally amend, modify or terminate the Plan, retroactively or prospectively, to address or reflect changes in the securities laws or changes in the expectations of the Company regarding the application of securities laws to the Plan or the Company with regard to the Plan.  Any such amendment, modification or termination should be consistent, as determined by the Company in its sole discretion, with the changes in the actual or anticipated securities law impacts of the Plan and may include limiting the rights of individuals to make deferrals, refunding deferred amounts, distributing Accounts or allowing Participants to rescind deferral elections.
 



 
ARTICLE X.
 
MISCELLANEOUS
 
10.1.                       Plan Not a Contract of Employment.
 
The adoption and maintenance of the Plan shall not be or be deemed to be a contract between the Company and any person or to be consideration for the employment of any person. Nothing herein contained shall give or be deemed to give any person the right to be retained in the employ of the Company or to restrict the right of the Company to discharge any person at any time; nor shall the Plan give or be deemed to give the Company the right to require any person to remain in the employ of the Company or to restrict any person’s right to terminate his employment at any time.
 
10.2.                       Non-Assignability of Benefits.
 
No Participant, Beneficiary or distributee of benefits under the Plan shall have any power or right to transfer, assign, anticipate, hypothecate or otherwise encumber any part or all of the amounts payable hereunder, which are expressly declared to be unassignable and non-transferable. Any such attempted assignment or transfer shall be void. No amount payable hereunder shall, prior to actual payment thereof, be subject to seizure by any creditor of any such Participant, Beneficiary or other distributee for the payment of any debt, judgment, or other obligation, by a proceeding at law or in equity, nor transferable by operation of law in the event of the bankruptcy, insolvency or death of such Participant, Beneficiary or other distributee hereunder.
 
10.3.                       Severability.
 
If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein.
 
10.4.                       Governing Laws.
 
All provisions of the Plan shall be construed in accordance with the internal laws (but not the choice of laws) of Ohio, except to the extent preempted by federal law.
 
10.5.                       Binding Effect.
 
This Plan shall be binding on each Participant and his heirs and legal representatives and on the Company and its successors and assigns.
 
10.6.                       Entire Agreement.
 
This document and any amendments contain all the terms and provisions of the Plan and shall constitute the entire Plan, any other alleged terms or provisions being of no effect.
 


10.7.                       No Guaranty of Tax Consequences.
 
While the Company has established, and will maintain, the Plan, the Company makes no representation, warranty, commitment, or guaranty concerning the income, employment, or other tax consequences of participation in the Plan under federal, state, or local law.
 


IN WITNESS WHEREOF, the Company has caused this Plan to be executed on this 28th day of December, 2004.
 

INVACARE CORPORATION

By /s/ Gregory C. Thompson

 
And /s/ Joseph Usaj



AMENDMENT NO. 1
TO
INVACARE CORPORATION DEFERRED COMPENSATION PLUS PLAN
 
This Amendment No. 1 to the Invacare Corporation Deferred Compensation Plus Plan is hereby adopted as of the date set forth below by Invacare Corporation, an Ohio corporation (the “Company”).
WITNESSETH:
 
WHEREAS, effective January 1, 2005, the Company established a deferred savings plan known as the Invacare Corporation Deferred Compensation Plus Plan (the “Plan”) to provide unfunded deferred compensation to certain management and highly compensated employees of the Company; and
WHEREAS, also on January 1, 2005, Internal Revenue Code Section 409A became effective to impose new requirements on deferred compensation, including the requirement that the form of payment be fixed at the time income is deferred, and the requirement that any later election to change that form of payment be subject to restrictions which include a 12-month notice period and a 5-year postponement of the payment commencement date (the “Election Restrictions”); and
WHEREAS, the Plan is permitted to provide a “transition election” in 2006 by which the participants can elect, on or before December 31, 2006, to change the designated time and form of payment of their deferrals without being subject to the Election Restrictions; and
WHEREAS, the Company desires to provide the Plan participants with such a transition election; and


WHEREAS, the Company desires to make certain additional changes to the Plan to allow employees of the Company’s affiliates to participate, to modify a participant’s eligibility to make bonus deferrals, to modify a participant’s eligibility for the transfer of deferrals to the Invacare Retirement Savings Plan, and to clarify certain forfeiture and contribution suspension provisions applicable to in-service withdrawals;  and
WHEREAS, pursuant to Section 9.1 of the Plan, the Company has retained the right to make amendments thereto; and
NOW, THEREFORE, the Company hereby amends the Plan, effective as of the dates indicated below, as follows:
1.            Effective January 1, 2006, Section 1.3 of the Plan is amended by the deletion of said Section and the substitution, in lieu thereof, of a new Section 3.1 to read as follows:
“1.3.                       Purposes of Plan.
 
The purposes of the Plan are to provide deferred compensation for a select group of management or highly compensated Employees and to provide eligible Employees the opportunity to maximize their elective contributions to the Invacare Retirement Savings Plan (the ‘401(k) Plan’) notwithstanding certain limitations in the Code.”

2.            Effective January 1, 2006, Section 2.1 of the Plan is amended by the deletion of the paragraph (g) therein, and the substitution, in lieu thereof, of a new paragraph (g) to read as follows:
“(g)            ‘Employee’ means any common-law employee of the Company or any person with whom the Company would be considered a single employer under Code Section 414(b) or (c).”

3.            Effective January 1, 2006, Section 3.1 of the Plan is amended by the deletion of said Section and the substitution, in lieu thereof, of a new Section 3.1 to read as follows:


“3.1.                       Participation.
Participants in the Plan are those Employees who are (a) subject to the income tax laws of the United States, (b) members of a select group of highly compensated or management Employees, and (c) selected by the Committee or its delegates, in its sole discretion, as Participants. The Committee shall notify each Participant of his selection as a Participant.  An Employee who satisfies the eligibility requirements set forth in subsections (a) and (b) shall remain eligible to continue participation in the Plan for each Plan Year following his selection by the Committee as a Participant.”
 
4.            Effective January 1, 2007, Section 4.1 of the Plan is amended by the deletion of the first paragraph therein, and the substitution, in lieu thereof, of a new paragraph to read as follows:
“Before the first day of each calendar year, a Participant may file with the Committee a Participation and Deferral Election Form pursuant to which such Participant elects to make Base Salary Deferrals.  A Participant must file a Participation and Deferral Election form to make Bonus Deferrals at a time prescribed by the Committee which time shall be not later than six (6) months before the end of the 12 month period over which the services upon which the Bonus Compensation is based are performed.  A Participant shall be entitled to defer a whole percent of his Base Salary or Bonus Compensation, subject to a maximum deferral of fifty percent (50%) of Base Salary and one hundred percent (100%) of Bonus Compensation.  The prior provisions notwithstanding, an Employee who first becomes eligible to participate in the Plan during a Plan Year shall not be entitled to make Bonus Deferrals until the first day of the calendar year beginning on or after becoming eligible.  Deferral elections shall be subject to any other rules prescribed by the Committee in its sole discretion.”
 
5.            Effective   January 1, 2007, Section 4.8 of the Plan is amended by the deletion of the last paragraph therein, and the substitution, in lieu thereof, of a new paragraph to read as follows:
“If the Participant elected to have such amount contributed to the 401(k) Plan as an elective pre-tax contribution, and the Participant is an Employee on the last day of the Plan Year (or terminated during the Plan Year due to death, Disability or Retirement), such amount together with an amount equal to the applicable Matching Contributions shall be transferred directly to the Participant’s account(s) in the 401(k) Plan and the appropriate Accounts and subaccounts of the Participant under the Plan shall be charged accordingly.  If the Participant made such election but failed to qualify for such transfer because of a failure to remain an Employee on the last day of the Plan Year, such amount shall not be
 


transferred but rather shall remain in the Participant’s Account under the Plan.  In no event shall the Plan make distributions to the Participant or transfers the 401(k) Plan in excess of the Participant’s Account balance.  Distributions pursuant to this Section 4.8 may be made in one or more installments in the sole discretion of the Committee.”
 
6.            Effective January 1, 2005, a new Section 4.10 is added to the Plan to read as follows:
 
“4.10
Suspension and Forfeiture Following Accelerated Distribution of Grandfathered Deferrals   
 
A Participant who elects to receive an accelerated distribution from the Participant’s account under the Benefit Equalization Plan shall forfeit the unvested portion of his Account under the Plan and shall be suspended from making contributions to the Plan for the two (2) consecutive Plan Years which begin on or after the date of such distribution.”
 
7.            Effective December 31, 2006, Section 6.1 of the Plan is amended by the deletion of the last paragraph therein, and the substitution, in lieu thereof, of a new paragraph to read as follows:
“In the event of distribution upon separation from service (for reasons other than disability, death or Change in Control) which occurs at a time that the Company’s stock is publicly traded on an established securities market or otherwise, actual payment of the Participant’s Accounts shall not occur until six (6) months after the date of the separation from service if the Participant is a key employee as defined under Code Section 416(i) without regard to paragraph (5) thereof (a ‘Key Employee’).  The Committee shall identify those individuals who constitute the Key Employees on each December 31 (beginning with December 31, 2006) for its use in determining those Participants who shall be considered Key Employees during the 12-month period beginning on the April 1 following such December 31.”
 
8.            Effective November 1, 2006, Section 6.4 of the Plan is amended by the deletion of said Section and the substitution, in lieu thereof, of a new Section 6.4 to read as follows:
“ 6.4.                        Change in Date or Form of Distribution.

A Participant’s election with respect to the date or form of distribution may be revised at the Committee’s sole discretion, provided that the revised election does not accelerate the distribution of his Account in a manner prohibited under Code Section 409A.  Any revision to the date or form of payment shall be made at least 12 months prior to the original distribution date and any new payment commencement date must be at least five (5) years after the original commencement date.
 
The prior provisions of this Section notwithstanding, pursuant to the relief granted in IRS Notice 2005-1, Q&A-19(c)   as extended in the Proposed Treasury Regulations under Code Section 409A (Section XI.C. of the Preambles), a Participant shall be permitted to make a new election in 2006 regarding the form of distribution of the Participant’s Account, provided that such election is made in writing and filed with the Committee no later than December 31, 2006.  Such election shall be immediately effective; provided, however, that such election shall not operate to change the form of distribution of amounts that otherwise would be payable in 2006, nor will it operate to make payable in 2006 amounts that would not otherwise be payable in that year.”

IN WITNESS WHEREOF, the Company, by its appropriate officers duly authorized, has caused this Amendment No. 1 to be executed as of this 28th day of December, 2006.
 
  INVACARE CORPORATION  
       
 
By:
/s/ Joseph Usaj  
    Joseph Usaj  
       
       
 
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
       



Exhibit 10(o)

 

 

 

 

 

 
INVACARE CORPORATION
 
DEATH BENEFIT ONLY PLAN
 

 

 

 

 

 

 
Effective:  January 1, 2005
 



 
DEATH BENEFIT ONLY PLAN
 
THIS PLAN is adopted by INVACARE CORPORATION, an Ohio corporation (hereinafter referred to as the “Company”);
W I T N E S S E T H :
 
WHEREAS, certain of the Company’s key executives previously have participated in Company-sponsored life insurance programs which is being terminated by the Company; and

WHEREAS, the Company desires to provide all or certain of such key executives with a plan providing only death benefits effective as of January 1, 2005, provided that such key executives satisfy the conditions for participation as determined by the Company in its sole and absolute discretion; and

WHEREAS, the Board of Directors of the Company has approved the establishment of this Plan.

NOW, THEREFORE, effective as of January 1, 2005, the Company hereby adopts the Invacare Corporation Death Benefit Only Plan, as follows:

 
ARTICLE I
 
DEFINITIONS
 
1.1             Affiliate .  The word “affiliate” shall mean any corporation or business organization during any period during which it is a member of a controlled group of corporations or trades or businesses which includes the Company within the meaning of Sections 414(b) and 414(c) of the Internal Revenue Code.

1.2             Beneficiary .  The word “beneficiary” shall mean any person who receives or is designated to receive payment of a benefit under the terms of this Plan on the death of a participant.

1.3             Bonus Plan .  The words “Bonus Plan” shall mean the Management Incentive Plan of Invacare Corporation, as in effect on the date hereof and as it may be amended from time to time hereafter.

1.4            Committee .  The word “Committee” shall mean chief financial officer, and the Company’s Human Resources officer or director.
 


1.5            Company .  The word “Company” shall mean Invacare Corporation, an Ohio corporation, or any successor corporation or other business organization which shall assume the obligations of the Company under this Plan as provided herein with respect to the participants and their beneficiaries.
 

1.6             Director .  The word “Director” shall mean a member of the Company’s Board of Directors.

1.7             Earnings .  The word “Earnings” shall mean the Participant’s annual base salary in effect on the immediately preceding April 1st or on the date of the Termination of Service of a Participant, if the Termination of Service occurs on April 1st, plus the Participant’s Target Bonus.

1.8             Effective Date .  The words “Effective Date” of this Plan shall mean January 1, 2005.

1.9             Employee .  The word “Employee” shall mean an individual who receives salary for personal services rendered to the Company.

1.10             Final Earnings .  The words “Final Earnings” shall mean the Participant’s highest annual Earnings in effect for each of the three years ending on his Termination of Service.

1.11             Normal Retirement Date .  The words “Normal Retirement Date” shall mean the date the Participant attains age 65.

1.12             Participant .  The word “Participant” shall mean any person who becomes a participant in this Plan and remains a participant in this Plan in accordance with Article II hereof.  A participant shall cease to be a participant upon the occurrence of an event described in Section 2.4 hereof.

1.13             Plan .  The word “Plan” shall mean Invacare Corporation Death Benefit Only Plan as set forth herein and as amended from time to time hereafter.

1.14             Plan Administrator .  The words “Plan Administrator” shall mean the Committee.

1.15             Target Bonus .  The words “Target Bonus” shall mean the annual base salary in effect on the immediately preceding April 1st or on the date of the Termination of Service of a Participant, if Termination of Service occurs on April 1st, times the Target Bonus percentage in effect on that same date under the Company’s Bonus Plan.

1.16             Termination of Service .  The words “Termination of Service” shall mean the Participant ceasing employment with the Company for any reason whatsoever whether voluntarily or involuntarily, including by reasons of retirement, death, or disability.



ARTICLE II
 
ELIGIBILITY AND PARTICIPATION
 
2.1             Eligibility to Participate .  An Employee shall be qualified to become a participant under this Plan at such time as he is designated eligible to participate in the Plan by the Committee.  The Committee shall notify an eligible Employee in writing of his eligibility and of the actions necessary to become a participant hereunder, and shall provide him with the opportunity to become a participant.  Such Employee shall, within such time as the Committee shall determine:

 
(a)
furnish to the Committee all information requested by it;
 
 
(b)
execute such documents and such instruments as the Committee may require to facilitate the administration of this Plan;
 
 
(c)
agree in such form and manner as the Committee may require to be bound by the terms of this Plan and by the terms of such Amendments as may be made hereto; and
 
 
(d)
truthfully and fully answer any questions and supply any information which the Committee deems necessary or desirable for the proper administration of this Plan, without any reservations whatsoever.
 
2.2             Date of Participation .  An eligible Employee who shall have timely done all acts required of him to become a participant shall become a participant on or as of such date as shall be specified by the Committee.

2.3             Cessation of Participation .  A participant shall cease his participation under this Plan in the event of the termination of this Plan pursuant to Section 6.1.

2.4            Participation in Other Death Benefit Plans .  By becoming a Participant in this Plan, the Participant agrees to limit his coverage under the Group Life Insurance Plan, and all other group life insurance plans provided by the Company whether currently or in the future to $50,000.  Any Participant in this Plan may still participate in any accidental death and dismemberment plan offered by the Company.
 

 
ARTICLE III
 
DEATH BENEFITS
 


3.1            Death During Employment .  If a Participant’s death occurs while he/she is in the employ of the Company and prior to his Normal Retirement Date, his beneficiary shall receive a death benefit equal to three (3) times the Participant’s Earnings.
 

3.2             Post-Termination Death Benefit .  A death benefit equal to one (1) times Final Earnings shall be payable on behalf of a Participant whose death occurs subsequent to either his Normal Retirement Date or his Termination of Employment.

3.3             Beneficiary Designation .  A participant shall designate a beneficiary or beneficiaries to receive any amount due under this Article III by executing a written notice thereof to the Committee at any time prior to his death and may revoke or change the beneficiary designated therein without the consent of any person previously designated as beneficiary by written notice delivered to the Committee at any time and from time to time prior to his death.  If a participant shall have failed to designate a beneficiary, or if no designated beneficiary shall survive him, then such amount shall be paid to his spouse, if his spouse survives him, or, if his spouse doesn’t survive him, to the executor or administrator of his estate for distribution as part of his estate.

3.4             Restriction on Payment .  Notwithstanding anything contained in this Plan to the contrary, no payment shall be made to the beneficiaries of a Participant under this Plan in the event that, within one year of the date of the Participant’s participation in the Plan, the Participant dies by suicide, whether sane or insane.

 
ARTICLE IV
 
FINANCING OF BENEFITS
 
4.1             Funding .  The undertakings of the Company herein constitute merely the unsecured promise of the Company to provide the benefits set forth herein.  No property of the Company is or shall, by reason of this Plan, be held in trust for a participant, any designated beneficiary or any other person, and neither the participant nor any designated beneficiary nor any other person shall have, by reason of this Plan, any rights, title or interest of any kind in or to any property of the Company.



 
ARTICLE V
 
ADMINISTRATION
 
5.1             Rights and Duties of Committee .  The Committee shall be responsible for the general administration of this Plan and shall have all such powers as may be necessary to carry out the provisions of this Plan and may, from time to time, establish rules for the administration of this Plan and the transaction of this Plan’s business.  The Committee shall have the following powers and duties:

 
(a)
To enact such rules, regulations, and procedures and to prescribe the use of such forms as it shall deem advisable.
 
 
(b)
To appoint or employ such agents, attorneys, actuaries, and assistants at the expense of the Company, as it may deem necessary to keep its records or to assist it in taking any other action.
 
 
(c)
To interpret this Plan, and to resolve ambiguities, inconsistencies, and omissions, to determine any question of fact, to determine the right to benefits of, and amount of benefits, if any, payable to, any person in accordance with the provisions of this Plan.
 
5.2            Claims Denial .  If any beneficiary or the authorized representative of a beneficiary shall file an application for benefits hereunder and such application is denied by the Committee, in whole or in part, he shall be notified in writing of the specific reason or reasons for such denial.  The notice shall also set forth the specific Plan provisions upon which the denial is based, an explanation of the provisions of Section 6.3 hereof, and any other information deemed necessary or advisable by the Committee.

5.3             Review of Benefit Denial .  Any beneficiary or any authorized representative of a beneficiary whose application for benefits hereunder has been denied, in whole or in part, by the Committee may, upon written notice to the Committee, request a review by the Board of Directors of the Company of such denial of his application.  Such review may be made by written briefs submitted by the applicant and the Committee or at a hearing, or by both, as shall be deemed necessary by the Committee.  If the applicant requests a hearing, the Board of Directors shall appoint from its members an Appeal Examiner to conduct such hearing.  Any hearing conducted by an Appeal Examiner shall be held in such location as shall be reasonably convenient to the applicant.  The date and time of any such hearing shall be designated by the Appeal Examiner upon not less than seven (7) days’ notice to the applicant and the Committee unless both of them accept shorter notice.  The Appeal Examiner shall make every effort to schedule the hearing on a day and at a time which is convenient to both the applicant and the Committee.  If the applicant does not request a hearing, the Board of Directors may review the


denial of such benefits or may appoint an Appeal Examiner to review the denial.  After the review has been completed, the Board of Directors or the Appeal Examiner shall render a decision in writing, a copy of which shall be sent to both the applicant and the Committee.  In rendering its decision, the Board of Directors and the Appeal Examiner shall have full power and discretion to interpret this Plan, to resolve ambiguities, inconsistencies and omissions, to determine any question of fact, to determine the right to benefits of the applicant in accordance with the provisions of this Plan.  Such decision shall set forth the specific reason or reasons for the decision and the specific Plan provisions upon which the decision is based and, if the decision is made by an Appeal Examiner, the rights of the applicant or the Committee to request a review by the entire Board of Directors of the decision of the Appeal Examiner.  Either the applicant or the Committee may request a review of an adverse decision of the Appeal Examiner by filing a written request with the Board of Directors within thirty (30) days after they receive a copy of the Appeal Examiner’s decision.  The review of a decision of an Appeal Examiner shall be based solely on the written record and shall be conducted in accordance with the procedures of this Section 6.3.  Except as provided in Section 6.4 hereof, there shall be no further appeal from a decision rendered by a quorum of the Board of Directors.

5.4             Exclusive Remedy .  The interpretations, determinations and decisions of the Committee, Appeal Examiner and Board of Directors shall, except to the extent provided in Section 6.3 hereof and in this Section 6.4, be final and binding upon all persons with respect to any right, benefit and privilege hereunder.  The review procedures of said Section 6.3 shall be the sole and exclusive remedy and shall be in lieu of all actions at law, in equity, pursuant to arbitration or otherwise.

5.5             Limitation of Duties .  The Company, Committee, Appeal Examiner, Board of Directors, and their respective officers, members, employees and agents shall have no duty or responsibility under this Plan other than the duties and responsibilities expressly assigned to them herein or delegated to them pursuant hereto.  None of them shall have any duty or responsibility with respect to the duties or responsibilities assigned or delegated to another of them.

5.6             No Personal Liability .  The Committee, Board of Directors, Appeal Examiner, and their respective officers, employees, members and agents shall incur no personal liability of any nature whatsoever in connection with any act done or omitted to be done in the administration of this Plan.  The Company shall indemnify, defend, and hold harmless the Committee, Board of Directors, Appeal Examiner, and their respective officers, employees, members and agents, for all acts taken or omitted in carrying out their responsibilities under the terms of this Plan.  The Company shall indemnify such persons for expenses of defending an action by a participant, beneficiary, government entity, or other persons, including all legal fees and other costs of such defense.  The Company will also reimburse such a person for any monetary recovery in a successful action against such person in any federal or state court or arbitration.  In addition, if the claim is settled out of court with the concurrence of the Company, the Company shall indemnify such person for any monetary liability under said settlement.


ARTICLE VI
 
AMENDMENT AND TERMINATION
 
6.1             Power to Amend and Terminate .  Subject to the provisions of Section 7.2 hereof, this Plan may be amended by the Company (by action of the Committee) at any time, or from time to time, and may be terminated by the Company (also by action of the Committee) at any time, but no such amendment or termination will:

 
(a)
deprive any beneficiary of a totally and permanently disabled participant of his right to receive death benefits as provided in Article III hereof, or reduce the amount of such death benefits, without his consent; or
 
 
(b)
deprive any beneficiary of a participant who is a retired Employee of his right to receive death benefits as provided by Article III hereof, or reduce the amount of such death benefits, without his consent.

Any such amendment or termination may, however, reduce or eliminate the death benefits provided by Article III hereof with respect to any participant (and the designated beneficiary of such participant) who is an Employee at the date of such amendment or termination of this Plan.

 

 
ARTICLE VII
 
MISCELLANEOUS
 
7.1             No Guarantee of Employment .  Neither anything contained herein, nor any acts done in pursuance of this Plan, shall be construed as entitling any participant to be retained as an Employee for any period of time nor as obliging the Company to retain any participant as an Employee for any period of time, nor shall any participant nor anyone else have any rights whatsoever, legal or equitable, against the Company as a result of this Plan except those expressly granted to him hereunder.

7.2             Taxes .  The Company shall deduct from each Participant’s compensation all applicable Federal or State taxes that may be required by law to be withheld resulting from the Company’s funding of the benefits payable under the Plan.

7.3             Gross-Up Due to Taxable Income .  The Company may, in its sole discretion, increase the Participant’s compensation in an amount as determined by the Company


to provide additional compensation to the Participant to pay some or all of the income taxes on the taxable income referred to in Section 7.2 above.

7.4             Construction Rules .  Whenever any pronoun is used herein, it shall be construed to include the masculine pronoun, the feminine pronoun or the neuter pronoun as shall be appropriate.

7.5             Governing Law .  This Plan shall be construed under and in accordance with and governed by the laws of the State of Ohio and the United States of America.

7.6             Savings Clause .  In the event that any provisions or terms of this Plan, or any agreement or instrument required by the Committee hereunder, is determined by any judicial, quasi-judicial or administrative body to be void or not enforceable for any reason, all other provisions or terms of this Plan or such agreement or instrument shall remain in full force and effect and shall be enforceable as if such void or nonenforceable provision or term had never been a part of this Plan, or such agreement or instrument.

7.7             Non-Alienation .  No benefits under this Plan shall be subject in any manner to be anticipated, alienated, sold, transferred, assigned, pledged, encumbered or charged, and any attempt to so anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the same shall be void; nor shall any such benefits in any manner be liable for or subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefits as are herein provided for him.

7.8             Satisfaction of Claims .  Any payment to or for the benefit of any beneficiary, in accordance with the provisions of this Plan, shall to the extent thereof be in full satisfaction of all claims hereunder against this Plan, the Committee and the Company, any of whom may require such beneficiary, as a condition precedent to such payment, to execute a receipt and release therefor in such form as shall be determined by the Committee or the Company, as the case may be.

7.9             Payment to Third Party .  If the Committee shall find that any person to whom any amount is payable under this Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by the Committee to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Committee may determine.

7.10             Successors and Assigns .  The Company’s obligations under this Plan shall be binding on the Company’s successors and assigns.


IN WITNESS WHEREOF, INVACARE CORPORATION, by its duly authorized officers, has caused this Plan to be executed as of this 28th day of December, 2004.

 
INVACARE CORPORATION
 
(“Company”)
 

By /s/ Gregory C. Thompson
 

 




AMENDMENT NO. 1
TO
INVACARE CORPORATION
DEATH BENEFIT ONLY PLAN


This Amendment No. 1 is executed as of the date set forth below by Invacare Corporation (the “Company”).
WITNESSETH :
WHEREAS, effective January 1, 2005, the Company established the Invacare Corporation Death Benefit Only Plan (the “Plan”) for the purpose of providing death benefits to certain key executives of the Company; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 6.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to provide coverage for executives who are age sixty-three (63) and older when they become employees of the Company;
NOW, THEREFORE, pursuant to Section 6.1 of the Plan, effective as of January 1, 2006, the Company hereby amends Section 1.11 of the Plan by the deletion of said Section 1.11 in its entirety and the substitution in lieu thereof of a new Section 1.11 to read as follows:
“1.11                       Normal Retirement Date .  The words “Normal Retirement Date” shall mean (a)  with respect to a Participant whose date of hire with the Company occurs prior to his attainment of age 63, the date such Participant attains age 65, and (b) with respect to a Participant whose date of hire with the Company occurs after the date such Participant attains age 63, the date such Participant attains age 70.”


IN WITNESS WHEREOF, Invacare Corporation, by action of the Committee established under the Plan, has caused this Amendment No. 1 to be executed as of the 30th day of August, 2006.
 
 
  INVACARE CORPORATION  
       
 
By:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
       
 
     
       
 
And:
/s/ Joseph S. Usaj  
    Joseph S. Usaj  
       
 



AMENDMENT NO. 2
TO
INVACARE CORPORATION
DEATH BENEFIT ONLY PLAN


This Amendment No. 2 is executed as of the date set forth below by Invacare Corporation (the “Company”).
WITNESSETH :
WHEREAS, effective January 1, 2005, the Company established the Invacare Corporation Death Benefit Only Plan (the “Plan”) for the purpose of providing death benefits to certain key executives of the Company; and
WHEREAS, the Company reserved the right to amend the Plan pursuant to Section 6.1 thereof; and
WHEREAS, the Company desires to amend the Plan in order to revise the benefit for executives who terminate employment prior to a Change of Control;
NOW, THEREFORE, pursuant to Section 6.1 of the Plan, effective as of the dates indicated below, the Company hereby amends the Plan as follows:
1.            Effective December 31, 2006, Article I of the Plan is amended by the addition of a new Section 1.3A to read as follows:
“1.3A                       Change of Control . A “Change of Control” shall be deemed to have occurred at the first time on which, after December 31, 2006:
 
There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as adopted under the Securities Exchange Act of 1934, as amended, disclosing the acquisition, in a transaction or series of transactions, by any person (as the term “person” is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended), other than A. Malachi Mixon and/or any Affiliate of A. Malachi Mixon, of such number of shares of Invacare as entitles that person to exercise 30% or more of the voting power of Invacare in the election of Directors; or
 


During any period of 24 consecutive calendar months, individuals who at the beginning of such period constitute the Directors of Invacare cease for any reason to constitute at least a majority of the Directors of Invacare unless the election of each new Director of Invacare (over such period) was approved or recommended by the vote of at least two-thirds of the Directors of Invacare then still in office who were Directors of Invacare at the beginning of the period; or
 
There is a merger, consolidation, combination (as defined in Section 1701.01(Q), Ohio Revised Code), majority share acquisition (as defined in Section 1701.01(R), Ohio Revised Code), or control share acquisition (as defined in Section 1701.01(Z)(1), Ohio Revised Code, or in Invacare’s Articles of Incorporation) involving Invacare and, as a result of which, the holders of shares of Invacare prior to the transaction become, by reason of the transaction, the holders of such number of shares of the surviving or acquiring corporation or other entity as entitles them to exercise less than fifty percent (50%) of the voting power of the surviving or acquiring corporation or other entity in the election of Directors; or
 
There is a sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of Invacare, but only if the transferee of the assets in such transaction is not an Affiliate of Invacare; or
 
The shareholders of Invacare approve any plan or proposal for the liquidation or dissolution of Invacare, but only if the transferee of the assets of Invacare in such liquidation or dissolution is not an Affiliate of Invacare.
 
If an event described in any of Clauses (a), (b), (c), (d), and (e) occurs, a Change of Control shall be deemed to have occurred for all purposes of this Plan.”
 
2.            Effective December 31, 2006, Section 2.3 of the Plan is amended and restated in its entirety to read as follows:
“2.3             Cessation of Participation .  A participant shall cease his participation under this Plan in the event of the termination of this Plan pursuant to Section 6.1 or in the event of a Termination of Service prior to a Change of Control (other than a Termination of Service that entitles him to benefits under Section 3.2) .”

3.            Effective December 31, 2006, Section 3.2 of the Plan is amended and restated in its entirety to read as follows:
“3.2            Death After Termination of Employment or During Employment On or After Normal Retirement Date .  A death benefit equal to one (1) times Final Earnings shall be payable on behalf of a Participant whose death occurs either:


(a)            while the Participant is in the employ of the Company and on or after the Participant’s Normal Retirement Date; or

(b)            on or after a Termination of Service that occurs at any time on or after a Change in Control.

For purposes of the foregoing, any Termination of Service that is effected before and primarily in contemplation of a Change of Control which actually occurs after the date of the Termination of Service shall be deemed to be a Termination of Service of the participant as of the date of the Change of Control.”
 
4.            Effective as of the date of execution of this Amendment, Section 6.1 of the Plan is amended and restated in its entirety to read as follows:
"6.1        Power to Amend and Terminate .  This Plan may be amended or terminated by the Company (by action of the Committee) at any time, or from time to time, prior to a Change of Control, but no such amendment or termination will reduce or eliminate the death benefits to which any beneficiary of a deceased participant is entitled under the Plan as of the date of such Committee action without the beneficiary's consent.  Any such amendment or termination may, however, reduce or eliminate the death benefits provided under the Plan with respect to any participant (and the designated beneficiary of such participant) whose death has not occurred as of the date of such Committee action.  This Plan may be amended after a Change of Control only with regard to participants who provide their written consent."


IN WITNESS WHEREOF, Invacare Corporation, by action of the Committee established under the Plan, has caused this Amendment No. 2 to be executed as of the 16th day of April 2007.
 
  INVACARE CORPORATION  
       
 
By:
/s/ Joseph S. Usaj  
    Joseph S. Usaj  
       
       
 
     
       
 
And:
/s/ Gregory C. Thompson  
    Gregory C. Thompson  
       
       

 
Exhibit 10(u)
 

 
[Missing Graphic Reference]
AWARD AGREEMENT
(For Non-Qualified Stock Option)

To:            Number:
(Name of Optionee)
Date of Grant:


There hereby is granted to you, as a Director of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase _____ Invacare Common Shares, no par value, at an option price of $____ per Share. This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”)  and is subject to the terms and conditions set forth below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.
 
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       
 
I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

Cumulative Maximum
Percentage of Optioned
Shares which may be
purchased by exercise                        Date beginning on which
       of the Option                                  Option may be exercised
          25%                                           
          50%                                           
          75%                                           
         100%                                           

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares at any time or from time to time prior to the expiration of the option.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are a Director at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421- 7(h) of the Federal Income Tax Regulations.  If you cease to be a Director for any reason other than death, you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be a Director and which have not been exercised.  Upon your ceasing to be a Director, other than by Retirement as defined by Invacare’s Compensation Committee (the “Committee”) (in which case you shall become a Retired Director), such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be a Director, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be a Director, or (b) the last day of the term of the option.  If you become a  Retired Director, as defined, you retain your purchase rights as may exist  pursuant to Paragraph I as of the date you cease to be a Director and which have not been exercised, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are a Director, a Retired Director or within three (3) months of your having ceased to be a Director, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired Director in which case you shall have one (1) year subsequent to your death; or (ii)  the last day of the term of the option.

    (c)  If the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.
 
 
III. TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES

      The Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.  Such Notice shall be accompanied by either  payment in full for the  shares, or the execution of a cashless exercise in accordance with the procedures established by the Committee .

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall not be transferable other than by  Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may, if so required by tax regulations, make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE
The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003 Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)
 





Exhibit 10(v)

 

[Missing Graphic Reference]

AWARD AGREEMENT
(For Non-Qualified Stock Option)

To:                                             Number:
(Name of Optionee)
                                        Date of Grant:


There hereby is granted to you, as a Director of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase ______ Invacare Common Shares, no par value, at an option price of $ _______ per Share. This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”)  and is subject to the terms and conditions set forth below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

   Cumulative Maximum
Percentage of Optioned
  Shares which may be
 purchased by exercise                        Date beginning on which
       of the Option                                  Option may be exercised
                  100%                                

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares based upon the exercise date(s) you have elected as of the date of this grant and are attached to this option agreement, or at such other dates as provided in Section II (b) or Section V.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are a Director at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421-7(h) of the Federal Income Tax Regulations.  If you cease to be a Director for any reason other than death, you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be a Director and which have not been exercised.  Upon your ceasing to be a Director, other than by Retirement as defined by Invacare’s Compensation Committee (the “Committee”) (in which case you shall become a Retired Director), such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be a Director, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be a Director, or (b) the exercise date you have elected as of the date of this grant.   If you become a  Retired Director, as defined, you retain your purchase rights as may exist pursuant to Paragraph I, as of the date you cease to be a Director and which have not been exercised, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are a Director, a Retired Director or within nine (9) months of your having ceased to be a Director, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired Director in which case you shall have one (1) year subsequent to your death; or (ii)  the exercise date you have elected as of the date of this grant.

   (c)  In the event you cease to serve on the Board during the applicable period your option shall be pro-rated for the percent of time served.  If you do not attend a meeting of the Board and would not have received a cash payment for such meeting, then your option grant shall be proportionately reduced.

    (d) If permitted by law, in the event the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.
 
III.  TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES

If permitted by law, the Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.  Such Notice shall be accompanied by either  payment in full for the  shares, or the execution of a cashless exercise in accordance with the procedures established by the Committee .

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan as in effect at the time of such event), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall not be transferable other than by  Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may, if so required by tax regulations, make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE

The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003 Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)

Exhibit 10(w)


[Missing Graphic Reference]
AWARD AGREEMENT
(For Restricted Stock Award)

To:            Number:
(Name of Award Recipient)
            Date of Grant:


There hereby is granted to you, as a key employee of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, a restricted award for ______ Invacare Common Shares, no par value, at an award price of $0.0 per Share. This award is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”) and is subject to the terms and conditions set forth below.  This award is granted for valuable future services to be rendered by you to Invacare Corporation. Please acknowledge your acceptance of the terms of this award by signing on  the reverse side.
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   VESTING AND DELIVERY OF SHARES
    You shall vest and will receive a certificate for  the percentage of shares indicated on the date shown opposite such percentage, rounded to the nearest whole share:

  Percentage of Award
  Shares to be delivered
On the corresponding
       Date indicated                                             Date of Delivery of Shares
          25%                                           
          25%                                           
          25%                                           
          25%                                

Except as provided herein, the award will not vest, and you shall not receive a certificate on each vesting date indicated above unless you are a current employee of Invacare or a subsidiary on a continuous basis from the date hereof through such vesting date.

II.   TERM OF AWARD
     Your award shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421-7(h) of the Federal Income Tax Regulations.  If you cease to be an employee for any reason other than death, you  will forfeit any unvested shares you have not received as of the date you terminate your employment.

    If you die while you are an employee, your estate or personal representative shall receive the award and be entitled to all remaining award rights pursuant to Paragraph I, until the award has fully vested and your estate or personal representative has received all of the remaining shares not delivered to you as of the date of your death.
 
    If the Invacare Compensation Committee (the “Committee”) finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.

 
III. TERMINATION OF AWARD UNDER
 
       CERTAIN CIRCUMSTANCES

      The Committee may cancel your award at any time, in which case you shall forfeit any unvested shares as of the date of such cancellation, if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the continuance of this award, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.
 
IV.   DIVIDENDS
      You shall  be entitled to all dividends with respect to all of the shares comprising this award as of the date of the grant of this award, irrespective of whether the shares have become vested.  Such amount shall be paid to you and treated appropriately for tax purposes.

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, the vesting of this award will accelerate and you shall receive all shares not previously vested and delivered to you.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your award shall not be transferable other than by  Will or the laws of descent and distribution.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, there shall automatically be substituted for each Invacare common share subject to the unvested portion of the award, the amount of cash or other securities or property into which each outstanding Invacare Common Share shall be converted or exchanged. Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to the award and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which shares shall vest), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your receipt of the shares awarded hereunder,  Invacare may make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

XI.   EXECUTION OF STOCK POWERS
      Four stock certificates, each prepared in your name, shall be produced as of the date of this award.  Each certificate shall correspond to the number of shares you shall receive on a specific vesting date pursuant to paragraph I, and will be retained by Invacare until such vesting date.  You agree that, as a condition to your receipt of this award, that you will execute a blank stock power  to be referenced to and attached to each certificate, and you further agree and understand that in the event you forfeit any unvested shares for any reason as further described in this award, Invacare will use such stock power you have exercised to transfer title of the certificate to Invacare Corporation.  Upon delivery of any certificate on the appropriate vesting date, the related executed stock power shall also be delivered to you, or in the event of your death, to your estate or personal representative.


ACCEPTANCE

The undersigned hereby accepts the terms of the restricted stock award granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003 Performance Plan.

_________________________        ___________________
(Signature of Award Recipient)                                            (Date)
Exhibit 10(x)
[Missing Graphic Reference]


AWARD AGREEMENT
(For Non-Qualified Stock Option)

To:                        Number:
(Name of Optionee)
Date of Grant:

There hereby is granted to you, as a key employee of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase ______ Invacare Common Shares, no par value, at an option price of $_____ per Share. This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”) and is subject to the terms and conditions set forth below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

   Cumulative Maximum
Percentage of Optioned
  Shares which may be
 purchased by exercise                       Date beginning on which
       of the Option                                  Option may be exercised
          25%                                           
          50%                                           
          75%                                           
         100%                                            

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares at any time or from time to time prior to the expiration of the option.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are an employee at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421- 7(h) of the Federal Income Tax Regulations.  If you cease to be an employee for any reason other than death or   retirement as defined by Invacare’s Compensation Committee (the “Committee”), (in which case you shall become a Retired employee), you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised.  Upon your ceasing to be an employee, other than by Retirement as defined by the Committee, such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be an employee, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be an employee, or (b) the last day of the term of the option.  If you become a  Retired employee, as defined, you retain your purchase rights  pursuant to Paragraph I, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are an employee, a Retired employee or within three (3) months of your having ceased to be an employee, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired employee in which case you shall have one (1) year subsequent to your death; or (ii)  the last day of the term of the option.

    (c)  If the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.
 
 
III. TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES
      The Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.  Such Notice shall be accompanied by either  payment in full for the  shares, or the execution of a cashless exercise in accordance with the procedures established by the Committee .

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall not be transferable other than by  Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE

The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003 Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)
Exhibit 10(y)


[Missing Graphic Reference]
AWARD AGREEMENT
(For Non-Qualified Stock Option)


To:                                                        Number:
(Name of Optionee)
Date of Grant:

There hereby is granted to you, as a key employee of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase ______ Invacare Common Shares, no par value, at an option price of $_____ per share.  This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”)  and is subject to the terms and conditions set forth below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.      
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

   Cumulative Maximum
Percentage of Optioned
  Shares which may be
 purchased by exercise                       Date beginning on which
       of the Option                                  Option may be exercised
          25%                                           
          50%                                                   
          75%                                                   
         100%                                                    

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares at any time or from time to time prior to the expiration of the option.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are an employee at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421- 7(h) of the Federal Income Tax Regulations.  If you cease to be an employee for any reason other than death, you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised.  Upon your ceasing to be an employee, other than by Retirement as defined by Invacare’s Compensation Committee (the “Committee”) (in which case you shall become a Retired Employee), such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be an employee, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be an employee, or (b) the last day of the term of the option.  If you become a  Retired employee, as defined, you retain your purchase rights as may exist  pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are an employee, a Retired employee or within three (3) months of your having ceased to be an employee, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired employee in which case you shall have one (1) year subsequent to your death; or (ii)  the last day of the term of the option.

    (c)  If the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.
 
III.  TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES

      The Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.  Such Notice shall be accompanied by either  payment in full for the  shares, or the execution of a cashless exercise in accordance with the procedures established by the Committee .

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall be transferable to (1) certain people or entities that you designate, in accordance with and pursuant to procedures established by the Committee, or by (2) Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you, or such permitted transferee under clause (1) of the preceding sentence, provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE
The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003 Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)
Exhibit 10(z)

[Missing Graphic Reference]
AWARD AGREEMENT
(For Non-Qualified Stock Option)

To:            Number:
(Name of Optionee)
Date of Grant:


There hereby is granted to you, as a key employee of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase ____ Invacare Common Shares, no par value, at an option price of $____ per Share. This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”) and is subject to the terms and conditions set forth  below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

   Cumulative Maximum
Percentage of Optioned
  Shares which may be
 purchased by exercise                       Date beginning on which
       of the Option                                  Option may be exercised
          25%                                           
          50%                                           
          75%                                
         100%                                            

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares at any time or from time to time prior to the expiration of the option.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are an employee at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421-7(h) of the Federal Income Tax Regulations.  If you cease to be an employee for any reason other than death, you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised.  Upon your ceasing to be an employee, other than by Retirement as defined by Invacare’s Compensation Committee (the “Committee”) (in which case you shall become a Retired Employee), such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be an employee, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be an employee, or (b) the last day of the term of the option.  If you become a  Retired employee, as defined, you retain your purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are an employee, a Retired employee or within three (3) months of your having ceased to be an employee, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired employee in which case you shall have one (1) year subsequent to your death; or (ii)  the last day of the term of the option.

    (c)  If the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.
 
III.  TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES

      The Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.   The option may be exercised only on a full cashless exercise basis, meaning that you must simultaneously exercise the option and sell the shares, using the proceeds from such sale to pay the purchase price and any applicable income taxes or other taxes, and receive the remaining proceeds, if any, in cash.

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall not be transferable other than by Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you, provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE

The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003  Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)


Exhibit 10(aa)


 

[Missing Graphic Reference]
AWARD AGREEMENT
(For Non-Qualified Stock Option)

To:                                             Number:
(Name of Optionee)
Date of Grant:

There hereby is granted to you, as a key employee of Invacare Corporation ( “Invacare” ) or  of  a subsidiary, an option to purchase _____ Invacare Common Shares, no par value, at an option price of $____ per Share. This option is granted to you pursuant to the Invacare Corporation 2003 Performance Plan (the “Plan”) and is subject to the terms and conditions set forth below.  This option is not an incentive stock option as defined in Section 422 of the Internal Revenue  Code (the “Code”).  Please acknowledge your acceptance of the terms of this option by signing on  the reverse side.
     
       
 
 
/s/ A. Malachi Mixon, III
 
   
A. Malachi Mixon, III
 
   
Chairman and Chief Executive Officer
 
       

I.   PURCHASE RIGHTS & EXERCISE DATES
    You shall be entitled to exercise this option with respect to the percentage of shares indicated on or after the date shown opposite such percentage, rounded to the nearest whole share:

   Cumulative Maximum
Percentage of Optioned
  Shares which may be
 purchased by exercise                       Date beginning on which
       of the Option                                  Option may be exercised
          25%                                           
          50%                                           
          75%                                           
         100%                                            

    To the extent that the option becomes exercisable with respect to any shares, as shown above, the option may thereafter be exercised by you either with respect to all or any number of such shares at any time or from time to time prior to the expiration of the option.  However, no fractional shares may be purchased.  Except as provided herein, the option may not be exercised unless you are an employee at the time of exercise.

II.   TERM OF OPTION
     The term of the option shall be for a period of ten (10) years commencing on the Date of Grant as set forth above.  The option shall expire at the close of regular business hours at Invacare's principal office on the last day of the term of the option, or, if earlier, on the applicable expiration date provided in this Agreement.

     (a)  Your option shall not be affected by any temporary leave of absence approved in writing by Invacare and described in Section 1.421-7(h) of the Federal Income Tax Regulations.  If you cease to be an employee for any reason other than death, you may exercise your option only to the extent of such purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised.  Upon your ceasing to be an employee, other than by Retirement as defined by Invacare’s Compensation Committee (the “Committee”) (in which case you shall become a Retired Employee), such purchase rights shall in any event terminate upon the earlier of (a) three (3) months [one (1) year if you ceased to be an employee, because of a disability (as such term is defined in Section 72(m) (7) of the Code)] after the date you ceased to be an employee, or (b) the last day of the term of the option.  If you become a  Retired employee, as defined, you retain your purchase rights as may exist pursuant to Paragraph I as of the date you cease to be an employee and which have not been exercised, until the option terminates pursuant to Paragraph II.

     (b)  If you die while you are an employee, a Retired employee or within three (3) months of your having ceased to be an employee, a personal representative may exercise the option to the extent of your purchase rights as may exist pursuant to Paragraph I at the date of your death and which have not been exercised; provided , however, that such purchase rights shall in any event terminate upon the earlier of:  (i)  one (1) year after you cease to be an employee, unless you are a Retired employee in which case you shall have one (1) year subsequent to your death; or (ii)  the last day of the term of the option.

    (c)  If the Committee finds that you intentionally committed an act materially inimical to the interests of Invacare or a subsidiary, your unexercised purchase rights will terminate as of the time you committed such act, as determined by the Committee.

 
III.  TERMINATION OF OPTION UNDER
 
       CERTAIN CIRCUMSTANCES

      The Committee may cancel your option at any time if you are not in compliance with all applicable provisions of this Agreement or the Plan or if you, without the prior written consent of the Committee, engage in any of the following activities:  (i)  you render services for an organization, or engage in a business, that is, in the judgment of the Committee, in competition with Invacare; or (ii) you disclose to anyone outside of Invacare, or use for any purpose other than Invacare's business, any confidential  information or material relating to  Invacare, whether acquired by you during or after employment with Invacare, in a fashion or with a result that is or may be injurious to the best interests of Invacare, as determined by the Committee.

   The Committee may, in its discretion and as a condition to the exercise of your option, require you to represent in writing that you are in compliance with all applicable provisions of this Agreement and the Plan and have not engaged in any activities referred to in clauses (i) and (ii) above.

IV.   EXERCISE OF OPTION
      The option may be exercised by delivering to the Invacare Finance Department, at Invacare's principal office, a completed Notice of Exercise of Option (obtainable from the Finance Department) setting forth the number of shares with respect to which your option is being exercised.   The option may be exercised only on a full cashless exercise basis, meaning that you must simultaneously exercise the option and sell the shares, using the proceeds from such sale to pay the purchase price and any applicable income taxes or other taxes, and receive the remaining proceeds, if any, in cash.

V.   CHANGE IN CONTROL
     Upon  a change in control (as such term is defined in the Plan), unless and to the extent otherwise determined by Invacare's Board of Directors, you may exercise your option with respect to all shares covered therein.

VI.   TRANSFERABILITY
       This Agreement shall be binding upon and inure to the benefit of any successor of Invacare and your heirs, estate and personal representative.  Your option shall be transferable to (1) certain people or entities that you designate, in accordance with and pursuant to procedures established by the Committee, or by (2) Will or the laws of descent and distribution, and your option may be exercised during your lifetime only by you, or such permitted transferee under clause (1) of the preceding sentence, provided that a guardian or other legal representative, who has been duly appointed may,  except as otherwise provided in the Plan, exercise the option on your behalf.  Your personal representative shall act in your place with respect to exercising the option or taking any other action pursuant to the Agreement.

VII.   ADJUSTMENTS OR AMENDMENTS
        In the event that, subsequent to the date of this Agreement, the outstanding common shares of Invacare are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange of other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, liquidation, dissolution, sale of assets or other such change, including, without limitation, any transaction described in Section 424(a) of the Code, increased, decreased, changed into or exchanged for a different number or kind of shares of stock or other securities of Invacare or another entity or converted into cash, then, except as otherwise provided below, (i) there shall automatically be substituted for each Invacare common share subject to an unexercised option, the amount of cash or other securities into which each outstanding Invacare common share shall be converted or exchanged and (ii) the option price per common share or unit of securities shall be increased or decreased proportionally so that the aggregate purchase price for any securities subject to the option shall remain the same as immediately prior to such event.  Notwithstanding the preceding provisions of this Article VII, the Committee may, in its sole discretion, make other adjustments or amendments to the securities subject to options and/or amend the provisions of the Plan and/or this Agreement (including, without limitation, accelerating the date on which unexercised options shall expire or terminate), to the extent appropriate, equitable and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment or amendment shall be final, binding and conclusive.  Any such adjustment or amendment shall provide for the elimination of fractional shares.

VIII.   PROVISIONS OF PLAN CONTROL
         This Agreement is subject to all of the terms, conditions and provisions of the Plan (all of which are incorporated herein by reference) and to such rules, regulations, and interpretations related to the Plan as may be adopted by the Committee and as may be in effect from time to time.  In the event and to the extent that this Agreement conflicts or is inconsistent with the terms, conditions, and provisions of the Plan, the Plan shall control, and this Agreement shall be deemed to be modified accordingly.  The Committee has authority to interpret and construe any provision of this Agreement and its interpretation and construction shall be binding and conclusive.

IX.    LIABILITY
        The liability of Invacare under this Agreement and any distribution of shares made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of this Agreement shall be construed to impose any liability on Invacare, its officers, employees or any subsidiary with respect to any loss, cost or expense which you may incur in connection with or arising out of any transaction in connection with this Agreement.

X.   WITHHOLDING
      You agree that, as a condition to your exercise of this Option,  Invacare may make appropriate provision for tax withholding with respect to the transactions contemplated by this Agreement.

ACCEPTANCE

The undersigned hereby accepts the terms of the stock option granted herein and acknowledges receipt of a copy of the Invacare Corporation 2003  Performance Plan.

_________________________        ___________________
(Signature of Optionee)                                 (Date)h
Exhibit 10(ab)
INVACARE CORPORATION
 
BOARD OF DIRECTORS COMPENSATION
 

 
Retainer Fee
$35,000
   
Regular Meeting Fees
$2,000
   
Committee Meeting Fees
Member - $1,500
Chair - $2,000
Audit Chair - $5,000
   
Telephonic Meetings
50% for interim conference calls that are conducted between scheduled meetings
   
Stock Components
Option grant of 4,000 shares
 
For new directors - option grant to purchase $150,000 in shares based on market price on date elected
   
Non-Employee Director Elective Stock Option Program
Non-employee directors may elect to defer all or a portion of their director fees into discounted stock options.

Exhibit 10(aq)

RETIREMENT BENEFIT AGREEMENT


This Retirement Benefit Agreement (the “Agreement”) is made this 4th day of February, 2008, by and between Invacare Corporation, an Ohio corporation (the “Company” or “Invacare”) and A. Malachi Mixon III (the “Executive”).

      WITNESSETH

WHEREAS , Executive has served since 1979 as the Chief Executive Officer of the Company and has devoted many years of valuable service to the Company;

WHEREAS , on March 6, 2000, the Compensation, Management Development and Corporate Governance Committee (formerly, and hereafter in this Agreement, referred to as the “Compensation Committee”) of the Board of Directors of the Company received and reviewed a report from The Giles Organization, an independent compensation consultant, which described a retirement package for the Executive, as well as a proposed benefit equalization plan to compensate the Executive for his non-participation in certain then-existing plans maintained by the Company for the benefit of certain senior executives;

WHEREAS , in reliance on such report and subject to the satisfaction of the conditions described below, the Compensation Committee approved certain retirement benefits and a benefit equalization plan for Executive (the “Plan”); and

WHEREAS , certain of the provisions of the Plan have been completed and, in order to clarify the intent of the parties and avoid possible uncertainties, the Company and Executive desire to memorialize the remaining provisions of the Plan in this Agreement;

NOW THEREFORE , for good and valuable consideration, the receipt of which is mutually acknowledged by Executive and the Company, the parties agree as follows:


1.            Executive Spending Account.

           (a)              In the event of Executive’s death prior to the termination of his full-time employment with the Company for any reason including, without limitation, his voluntary retirement (any such termination other than by death being hereafter referred to as the “Retirement”), the Company shall not be required to provide any spending account pursuant to this paragraph 1.

(b)            Upon Retirement, the Executive will be provided with a $1 million spending account from which he will be entitled to be reimbursed for expenses incurred by him, during the five calendar years following the date of Retirement, for: (i) office and clerical support; (ii) financial and estate planning; and (iii) such other reasonable out


of-pocket expenses that Executive may incur in connection with providing consulting services requested by the Company pursuant to paragraph 5 below.  In no event shall the aggregate amount reimbursed to Executive pursuant to this paragraph 1(b) exceed $200,000 in any single calendar year (the “Annual Spending Account”).  Reimbursement under this paragraph 1(b) shall occur  on the last day of each calendar quarter during which Executive has submitted reasonable documentation for such expenses.

            (c)            Upon the end of each calendar year during which an Annual Spending Account is available under Section 1(b), any amount remaining in the Annual Spending Account for such year shall be promptly paid to Executive. In the event of Executive’s death at any time during the five calendar years following Retirement, the amount remaining in the Annual Spending Account for the year of Executive’s death plus the amounts of any Annual Spending Accounts for the balance of the five years remaining on the Company’s commitment shall be paid to such beneficiary or beneficiaries as Executive may designate pursuant to paragraph 13 below.

2.            Reimbursement of Other Expenses.   In addition to any amounts payable pursuant to paragraph 1 above, during the five-year period following Retirement (or, in the case of subparagraphs (b) and (c) below, following Retirement or Executive’s death), Executive shall be entitled to reimbursement for the following expenses:

(a)            The cost of private or first-class airfare for Executive up to a maximum of $30,000 per year during each of the five calendar years following the Executive’s Retirement;

(b)            Home security costs not to exceed $2000 per year for each of the five years; and

(c)            The annual premium cost for medical insurance (substantially similar to that maintained by the Company on behalf of Executive immediately prior to his Retirement or death) covering Executive and his spouse for each of the five years.

Reimbursement of the above expenses shall be made on the last day of each calendar quarter during which Executive has submitted reasonable documentation for such expenses.  In addition, during such five-year period, Executive shall continue to be eligible to participate, at the Company’s cost, in such personal umbrella insurance coverage and medical check-up benefit plans as may be maintained, from time to time, by the Company for its senior executives.  The benefits provided under subparagraphs 2(b) and 2(c) above shall be payable for five years commencing on the earlier of Retirement or Executive’s death and shall continue for the five-year period whether or not Executive survives for the entire period.  The benefits provided by paragraph 2(a) above and participation in the Company’s personal umbrella insurance coverage and medical check-up benefit plan shall not be payable if Executive dies prior to Retirement and, if otherwise payable, shall terminate in any event on the earlier to occur of Executive’s death or the expiration of five years after Retirement.



3.            Term; Change of Control .  The term of this Agreement shall begin on the date stated above and shall terminate at the end of the fifth calendar year following the Executive’s Retirement; provided, however, that this Agreement shall immediately terminate if, prior to Retirement:  (a) a Change of Control of the Company as defined in the Change of Control Agreement between Executive and the Company dated as of April 1, 2000 , as the same may be amended or restated from time to time (“Change of Control Agreement”) occurs; and (b) Executive’s employment by the Company terminates at a time and under circumstances in which Executive becomes entitled to receive all of  the benefits provided by the Change of Control Agreement.


4.            Completed Portions of Plan .  The parties acknowledge and agree that (i) the “Company Contribution Offset” to the Company’s SERP plan (including any successor SERP plan) has been waived by the Company as contemplated by the action of the Compensation Committee on March 6, 2000, (ii) all other portions of the Plan contemplated by such Committee action (other than those described in paragraphs 1 and 2 above) have been completed, (iii) all applicable conditions have been satisfied and (iv) all vesting periods have run.

5.            Consulting Services.   During the five-year period commencing on the date of Retirement, Executive and the Company may enter into a consulting arrangement on terms mutually acceptable to each.  Executive agrees to negotiate in good faith the terms of any such arrangement.

6.            Successor to Invacare .  The Company shall not consolidate with or merge into or with any other corporation, or transfer all or substantially all of its assets to another corporation, unless such other corporation shall assume this Agreement in a signed writing and deliver a copy thereof to Executive.  Upon such assumption, the successor corporation shall become obligated to perform the obligations of the Company under this Agreement and the term “Company” as used in his Agreement shall be deemed to refer to such successor corporation.

7.            Notices .  Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or by confirmed facsimile transmission (Chairman of the Board of the Company in the case of notices to the Company and to Executive in the case of notices to the Executive) or mailed by United States registered mail, return receipt requested, postage prepared, addressed as follows (or to such other address as may be specified in accordance herewith):

If to Company:

Invacare Corporation
One Invacare Way
P.O. Box 4028


Elyria, Ohio  44036
Attention:  Senior Vice President—Human Resources

If to Executive:

A. Malachi Mixon, III
[omitted]
 

8.            Post-Mortem Payments; Designation of Beneficiary .  In the event that, following the date of Retirement, the Executive is entitled to receive any payments pursuant to this Agreement and Executive dies, such payments shall be made to the Executive’s beneficiary designated hereunder.  At any time after the execution of this Agreement, the Executive may prepare, executive, and file with the Secretary of the Company a copy of the Designation of Beneficiary form attached to this Agreement as Exhibit A.  Executive shall thereafter be free to amend, alter or change such form; provided , however, that any such amendment, alteration or change shall be made by filing a new Designation o Beneficiary form with the Secretary of the Company.  In the event Executive fails to designate a beneficiary, following the death of Executive all payments of the amounts specified by this Agreement which would have been paid to the Executive’s designated beneficiary pursuant to this Agreement shall instead be paid to Executive’s spouse, if any, if she survives Executive or, if there is no spouse or she does not survive Executive, to Executive’s estate.

9.            Governing Law .  All questions concerning the construction, validity and interpretation of this Agreement and the exhibits hereto will be governed by and construed in accordance with the internal laws of the State of Ohio, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Ohio or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Ohio.


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.



/s/ A. Malachi Mixon III                                                                                                 INVACARE CORPORATION
A. Malachi Mixon III


APPROVED:                                                                                      By /s/ Joseph Usaj
                     Senior Vice President--
/s/ James C. Boland                                                                                     Human Resources
Chairman, Compensation, Management
Development and Corporate Governance
Committee 


Exhibit A
to Retirement Benefit Agreement

DESIGNATION OF BENEFICIARY


To:            Invacare Corporation
Attn:  Secretary


I, the undersigned, A. Malachi Mixon, III, am a party to a certain Retirement Benefit Agreement with Invacare Corporation, an Ohio corporation, dated as of February 4, 2008 (the “Agreement”).  Pursuant to the agreement, I have the right to designate a person or persons to receive, in the event of my death, any amounts that might become payable to me under the Agreement.  I hereby exercise this right and direct that, upon my death, any amounts payable to me under the Agreement shall be distributed in the proportions set forth below to the following person(s) if he, she or they survive me, namely:


Beneficiary
Relationship
Percent Share
 Barbara Mixon
 Wife
 100%
     
     
     
     


If none of the above-designated person (s) survives me, any amounts payable under the Agreement shall be distributed to A. Malachi Mixon IV (50%) and Elizabeth Ewig (50%).

Any and all previous designations of beneficiary made by me are hereby revoked, and I hereby reserve the right to revoke this designation of beneficiary.
 
     
       
Date February 4, 2008 
 
/s/  A. Malachi Mixon, III  
    A. Malachi Mixon, III    
       
       
Exhibit 21
Invacare Corporation Subsidiaries

1.
1207273 Alberta ULC, an Alberta, Canada corporation and wholly owned subsidiary.
 
 
2.
2083806 Ontario Inc., an Ontario corporation and wholly owned subsidiary.
 
 
3.
6123449 Canada, Inc., a Canadian corporation and wholly owned subsidiary.
 
 
4.
Adaptive Switch Laboratories, Inc., a Texas corporation and wholly owned subsidiary.
 
 
5.
Adelaide Scooters & Wheelchairs Pty. Ltd., an Australian corporation and wholly owned subsidiary.
 
 
6.
Alber GmbH, a Swiss corporation and wholly owned subsidiary.
 
 
7.
Altimate Medical, Inc., a Minnesota corporation and wholly owned subsidiary.
 
 
8.
Aquatec GmbH, a German limited liability company.
 
 
9.
Australian Healthcare Equipment Pty Ltd., an Australian corporation and wholly owned subsidiary.
 
 
10.
Carroll Healthcare, Inc., an Ontario corporation and wholly owned subsidiary.
 
 
11.
Champion Manufacturing Inc., a Delaware corporation and wholly owned subsidiary.
 
 
12.
Dolomite AB, a Swedish corporation and wholly owned subsidiary.
 
 
13.
Dolomite Holding AB, a Swedish corporation and wholly owned subsidiary.
 
 
14.
Dynamic Controls, a New Zealand corporation and wholly owned subsidiary.
 
 
15.
Dynamic Europe Ltd., a UK corporation and wholly owned subsidiary.
 
 
16.
Freedom Designs, Inc., a California corporation and wholly owned subsidiary.
 
 
17.
Garden City Medical Inc., a Delaware corporation and wholly owned subsidiary.
 
 
18.
Healthtech Products, Inc., a Missouri corporation and wholly owned subsidiary.
 
 
19.
HealthcareEquipment WA Pty Ltd, an Australian corporation and wholly owned subsidiary.
 
 
20.
Home Health Equipment Pty Ltd, an Australian corporation and wholly owned subsidiary.
 
 
21.
Invacare AB, a Swedish corporation and wholly owned subsidiary.
 
 
22.
Invacare A/S, a Danish corporation and wholly owned subsidiary.
 
 
23.
Invacare AS, a Norwegian corporation and wholly owned subsidiary.
 
 
24.
Invacare Asia Ltd., a Hong Kong company and wholly owned subsidiary.
 
 
25.
Invacare Australia Pty Limited, an Australian corporation and wholly owned subsidiary.
 
 
26.
Invacare BV, a Netherlands corporation and wholly owned subsidiary.


1
 


Invacare Corporation Subsidiaries – (Continued)
 
 
27.
Invacare Canada General Partner Inc., a Canadian corporation and wholly owned subsidiary.
 
 
28.
Invacare Canada LP, an Ontario, Canada partnership and wholly owned subsidiary.
 
 
29.
Invacare Canadian Holdings, Inc., a Delaware corporation and wholly owned subsidiary.
 
 
30.
Invacare Credit Corporation, an Ohio corporation and wholly owned subsidiary.
 
 
31.
Invacare Dolomite AB, a Swedish corporation and wholly owned subsidiary.
 
 
32.
Invacare (Deutschland) GmbH, a German corporation and wholly owned subsidiary.
 
 
33.
Invacare EC-Hong A/S, a Danish corporation and wholly owned subsidiary.
 
 
34.
Invacare GmbH, a German corporation and wholly owned subsidiary.
 
 
35.
Invacare Florida Corporation, a Delaware corporation and wholly owned subsidiary.
 
 
36.
Invacare Florida Holdings, LLC, a Florida limited liability company and wholly owned subsidiary.
 
 
37.
Invacare France Operations SAS, A French corporation and wholly owned subsidiary.
 
 
38.
Invacare Germany Holding GmbH, a German corporation and wholly owned subsidiary.
 
 
39.
Invacare Holdings AB, a Swedish corporation and wholly owned subsidiary.
 
 
40.
Invacare Holdings Two AB, a Swedish corporation and wholly owned subsidiary.
 
 
41.
Invacare Holdings AS, a Norwegian corporation and wholly owned subsidiary.
 
 
42.
Invacare Holdings CV, a Netherlands wholly owned partnership subsidiary.
 
 
43.
Invacare Holdings LLC, an Ohio limited liability corporation and wholly owned subsidiary.
 
 
44.
Invacare Holdings NZ, a New Zealand corporation and wholly owned subsidiary.
 
 
45.
Invacare Holdings Two BV, a Netherlands corporation and wholly owned subsidiary.
 
 
46.
Invacare International Corporation, an Ohio corporation and wholly owned subsidiary.
 
 
47.
Invacare International SARL, a Swiss corporation and wholly owned subsidiary.
 
 
49.
Invacare Limited, a UK corporation and wholly owned subsidiary.
 
 
50.
Invacare Mauritius Holdings, a Republic of Mauritius company and wholly owned subsidiary.
 
 
51.
Invacare MeccSan SarL, an Italian corporation and wholly owned subsidiary.
 
 
52.
Invacare Medical Equipment (Suzhou) Company, Ltd., a Chinese company and wholly owned subsidiary.
 
 
53.
Invacare New Zealand, a New Zealand corporation and wholly owned subsidiary.
 
 
54.
Invacare NV, a Belgium corporation and wholly owned subsidiary.


2
 


Invacare Corporation Subsidiaries – (Continued)

55.
Invacare Operations SAS, a French corporation and wholly owned subsidiary.
 
 
56.
Invacare Poirier SAS, a French corporation and wholly owned subsidiary.
 
 
57.
Invacare (Portugual) — Sociedade Industrial e Comercial de Ortopedia., Lda., a Portugal company and wholly owned subsidiary.
 
 
58.
Invacare (Portugual) II —Material Ortopudico, Lda., a Portugal company and wholly owned subsidiary.
 
 
59.
Invacare Rea AB, a Swedish corporation and wholly owned subsidiary.
 
 
60.
Invacare, S.A., a Spanish corporation and wholly owned subsidiary.
 
 
61.
Invamex S.A. de R.L. de C.V., a Mexican corporation and wholly owned subsidiary.
 
 
62.
Invacare Supply Group, Inc., a Massachusetts corporation and wholly owned subsidiary.
 
 
63.
Invacare Trading Company, Inc., a United States Territory of the Virgin Islands corporation and wholly owned subsidiary.
 
 
64.
Invacare UK Operations Ltd., a UK corporation and wholly owned subsidiary.
 
 
65.
Invacare Verwaltungs GmbH, a German corporation and wholly owned subsidiary.
 
 
66.
Invatection Insurance Company, a Vermont corporation and wholly owned subsidiary.
 
 
67.
Kuschall AG, a Switzerland corporation and wholly owned subsidiary.
 
 
68.
Kuschall, Inc., a Delaware corporation and wholly owned subsidiary.
 
 
69.
Medbloc, Inc., a Delaware corporation and wholly owned subsidiary.
 
 
70.
Mobitec Mobilitatshilfen GmbH, an Austrian corporation and wholly owned subsidiary.
 
 
71.
Mobitec Rehab AG, a Swiss corporation and wholly owned subsidiary.
 
 
72.
Mobitec SARL, a French corporation and wholly owned subsidiary.
 
 
73.
Morris Surgical Pty Ltd, an Australian corporation and wholly owned subsidiary.
 
 
74.
Motion Concepts, L.P., an Ontario wholly owned limited partnership.
 
 
75.
Perpetual Motion Enterprises Limited, an Ontario corporation and wholly owned subsidiary.
 
 
76.
RoadRunner Mobility, Inc., a Texas corporation and wholly owned subsidiary.
 
 
77.
Scandinavian Mobility GmbH, a German corporation and wholly owned subsidiary.
 
 
78.
Scandinavian Mobility International ApS, a Danish corporation and wholly owned subsidiary.
 
 
79.
SCI Des Hautes Roches, a French partnership and wholly owned subsidiary.
 
 
80.
The Aftermarket Group, Inc., a Delaware corporation and wholly owned subsidiary.
 
 


3
 


Invacare Corporation Subsidiaries – (Continued)

81.
The Helixx Group, Inc., an Ohio corporation and wholly owned subsidiary.
 
 
82.
Ulrich Alber GmbH, Albstadt, a German limited liability company and wholly owned subsidiary.

__________
Note, “Wholly owned subsidiary” refers to indirect, as well as direct, wholly owned subsidiaries.

 
 

4
 
Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the incorporation by reference in the following Registration Statements:

 
(1)
Registration Statement (Form S-8, No. 33-87052) dated December 5, 1994 pertaining to the Invacare Corporation stock option plans,
 
(2)
Registration Statement (Form S-8, No. 333-57978) dated March 30, 2001 pertaining to the Invacare Corporation stock option plans,
 
(3)
Registration Statement (Form S-8, No. 333-109794) dated October 17, 2003 pertaining to the Invacare Corporation stock option plans,
 
(4)
Registration Statement (Form S-8, No. 333-136391) dated August 8, 2006 pertaining to the Invacare Corporation stock option plans,
 
(5)
Registration Statement (Form S-3/A, No. 333-142311) of Invacare Corporation dated May 24, 2007, and
 
(6)
Registration Statement (Form S-4/A, No. 333-142306) of Invacare Corporation dated May 24, 2007

of our reports dated February 28, 2008, with respect to the consolidated financial statements and schedule of Invacare Corporation and subsidiaries and the effectiveness of internal control over financial reporting of Invacare Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2007.



/s/  ERNST & YOUNG LLP

Cleveland, Ohio
February 28, 2008

Exhibit 31.1
CERTIFICATIONS

I, A. Malachi Mixon, III, certify that:

1.
I have reviewed this annual report on Form 10-K of Invacare Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b) 
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

INVACARE CORPORATION

 /s/  A. Malachi Mixon, II
A. Malachi Mixon, III
Chief Executive Officer
(Principal Executive Officer)

Date: February 28, 2008


Exhibit 31.2
CERTIFICATIONS

I, Gregory C. Thompson, certify that:

1.
I have reviewed this annual report on Form 10-K of Invacare Corporation;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

INVACARE CORPORATION

/s/  Gregory C. Thompson
Gregory C. Thompson
Chief Financial Officer
(Principal Financial Officer)

Date: February 28, 2008

Exhibit 32.1

Certification
Pursuant to Section 18 U.S.C. Section 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Invacare Corporation (the “company”) on Form 10-K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, A. Malachi Mixon, III, Chief Executive Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.


 /s/  A. Malachi Mixon, II
A. Malachi Mixon, III
Chief Executive Officer

Date: February 28, 2008

A signed original of this written statement required by Section 906 has been provided to Invacare Corporation and will be retained by Invacare Corporation and furnished to the Securities and Exchange Commission or its staff upon request.



Exhibit 32.2

Certification
Pursuant to Section 18 U.S.C. Section 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

In connection with the Annual Report of Invacare Corporation (the “company”) on Form 10-K for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gregory C. Thompson, Chief Financial Officer of the company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 
(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.

/s/  Gregory C. Thompson
Gregory C. Thompson
Chief Financial Officer

Date: February 28, 2008

A signed original of this written statement required by Section 906 has been provided to Invacare Corporation and will be retained by Invacare Corporation and furnished to the Securities and Exchange Commission or its staff upon request.