SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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|_| Preliminary Proxy Statement |X| Definitive Proxy Statement
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|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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ARROW INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
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ARROW INTERNATIONAL, INC.
2400 Bernville Road
Reading, Pennsylvania 19605
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To be held on June 19, 2000
To Our Shareholders:
The Special Meeting of Shareholders of Arrow International, Inc. will be
held at the Company's corporate headquarters located at 2400 Bernville Road,
Reading, Pennsylvania at 10:00 a.m. on June 19, 2000 for the following purposes:
(1) To approve the adoption of the Company's 1999 Stock Incentive Plan;
and
(2) To transact such other business, if any, as may properly come before
the Special Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 28, 2000
as the record date for the determination of shareholders entitled to notice of
and to vote at the Special Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU
DECIDE TO ATTEND THE SPECIAL MEETING.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
May 15, 2000
Reading, Pennsylvania
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 19, 2000
OF
ARROW INTERNATIONAL, INC.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Arrow International, Inc., a Pennsylvania
corporation (the "Company"), for the Special Meeting of Shareholders of the
Company to be held on June 19, 2000, or any adjournments thereof.
The Board of Directors has fixed the close of business on April 28, 2000
as the record date for the determination of the shareholders entitled to notice
of, and to vote at, the Special Meeting. On that date there were 22,257,503
shares of Common Stock outstanding and entitled to vote at the Special Meeting.
Each share of Common Stock is entitled to one vote. A majority of the
outstanding shares of Common Stock is required to establish a quorum at the
Special Meeting. The affirmative vote of the holders of a majority of the shares
of Common Stock present in person or by proxy is required to approve the
adoption of the Company's 1999 Stock Incentive Plan. Shares represented by
proxies will be voted in accordance with the specifications made on the proxy
card by the shareholder.
Abstentions may be specified with regard to the proposal to approve the
adoption of the Company's 1999 Stock Incentive Plan. Since the affirmative vote
of a majority of the votes cast is required in respect of this proposal, an
abstention with respect to the proposal will have the same effect as a vote
against such proposal. Any proxy not specifying the contrary will be voted in
favor of the proposal to approve the adoption of the Company's 1999 Stock
Incentive Plan. A shareholder giving a proxy has the right to revoke it by a
duly executed proxy bearing a later date, by attending the Special Meeting and
voting in person, or by otherwise notifying the Company prior to the Special
Meeting. Under applicable Pennsylvania law, broker non-votes (that is, proxies
from brokers or nominees indicating that such persons have not received
instructions from the beneficial owners or other persons entitled to vote shares
on a particular matter as to which the brokers or nominees do not have
discretionary power) may be counted as present or represented for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining whether any
non-discretionary proposals to be voted upon at the Special Meeting have been
approved. The Company believes that the proposal to be considered at the Special
Meeting constitutes a proposal in respect of which brokers and other nominees
typically do not have discretionary power. Accordingly, broker non-votes will be
counted as present for purposes of determining whether a quorum is present, but
will not be treated as entitled to vote on this matter at the Special Meeting.
The mailing address of the principal executive offices of the Company is
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612. This Proxy
Statement and the enclosed proxy card are being furnished to shareholders on or
about May 15, 2000.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 28, 2000, the beneficial
ownership of Common Stock by (i) each director who is a shareholder, (ii) each
of the executive officers named in the Summary Compensation Table below, (iii)
all directors and officers as a group (including the named individuals), and
(iv) each beneficial owner of more than 5% of the outstanding Common Stock.
Except as otherwise indicated in the notes immediately following the table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
Amount Percent of
Name Beneficially Owned Class Owned
- ---- ------------------ -----------
Marlin Miller, Jr.............................. 4,091,525(1) 18.4%
Richard T. Niner............................... 3,149,737(2) 14.2
Raymond Neag................................... 1,872,100(3) 8.4
John H. Broadbent, Jr.......................... 920,590(4) 4.1
T. Jerome Holleran............................. 570,683(5) 2.6
Philip B. Fleck................................ 69,100(6) *
Paul L. Frankhouser............................ 63,934(7) *
Frederick J. Hirt.............................. 4,000(8) *
R. James Macaleer.............................. 39,375(9) *
Carl G. Anderson, Jr........................... 11,716(10) *
Alan M. Sebulsky............................... 10,000(11) *
John E. Gurski................................. 8,200(12) *
George W. Ebright.............................. 7,000(13) *
All directors and officers as a group (15
persons).................................... 10,833,920(14) 48.7
Robert L. McNeil, Jr........................... 2,303,744(15) 10.4
Richard T. Niner and Robert W. Cruickshank, as
Trustees of the Robert L. McNeil, Jr. 1983
Intervivos Trust dated November 30, 1983.... 2,312,247 10.4
c/o The Bank of New York
P.O. Box 11203
New York, New York 10249
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* Less than one percent.
(1) Includes 1,000 shares owned by Mr. Miller's wife, as to which Mr. Miller
disclaims beneficial ownership. Also includes 49,000 shares held by a
charitable foundation of which Mr. Miller is one of five trustees who have
shared power to vote and dispose of the shares of Common Stock held by
such foundation.
(footnotes continued on next page)
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(footnotes continued from previous page)
(2) Shares beneficially owned include an aggregate of 9,075 shares owned by
Mr. Niner's wife and two children, as to which Mr. Niner disclaims
beneficial ownership, 10,000 shares held by a charitable foundation of
which Mr. Niner is an officer and a director with power to vote and
dispose of the shares of Common Stock held by such foundation, as to which
shares Mr. Niner disclaims beneficial ownership, and 2,312,247 shares held
by Hare & Co., as nominee for the Robert L. McNeil, Jr. 1983 Intervivos
Trust (the "McNeil Trust"), of which Mr. Niner is one of two trustees who
have shared power to vote and dispose of the shares of Common Stock held
in such trust. Does not include 1,500 shares issuable upon the exercise of
options which are not deemed to be presently exercisable.
(3) Includes 31,700 shares held by the Raymond Neag Charitable Remainder
Unitrust #1 of which Raymond Neag is trustee with sole power to vote and
dispose of the shares of Common Stock held by such trust. Does not include
1,500 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(4) Includes 15,000 shares owned by Mr. Broadbent's wife, as to which Mr.
Broadbent disclaims beneficial ownership. Also includes 21,300 shares held
by a charitable foundation of which Mr. Broadbent is one of three trustees
who have shared power to vote and dispose of the shares of Common Stock
held by such foundation. Does not include 1,500 shares issuable upon the
exercise of options which are not deemed to be presently exercisable.
(5) Includes 25,000 shares owned by Mr. Holleran's wife, as to which Mr.
Holleran disclaims beneficial ownership. Also includes 41,700 shares held
by the T. Jerome and Carolyn Rae Holleran Charitable Remainder Unitrust of
which T. Jerome Holleran is trustee with sole power to vote and dispose of
the shares of Common Stock held by such trust. Does not include 1,500
shares issuable upon the exercise of options which are not deemed to be
presently exercisable.
(6) Includes 10,000 shares owned by Mr. Fleck's wife, as to which Mr. Fleck
disclaims beneficial ownership. Also includes 32,000 shares issuable upon
the exercise of vested options and options which are deemed to be
presently exercisable. Does not include 93,000 shares issuable upon the
exercise of options which are not deemed to be presently exercisable.
(7) Includes 300 shares owned by Mr. Frankhouser's children, as to which Mr.
Frankhouser disclaims beneficial ownership. Also includes 27,000 shares
issuable upon the exercise of vested options and options which are deemed
to be presently exercisable. Does not include 73,000 shares issuable upon
the exercise of options which are not deemed to be presently exercisable.
(8) Includes 2,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
28,000 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(9) Does not include 1,500 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(10) Includes 5,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
1,500 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(11) Includes 6,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
1,500 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(footnotes continued on next page)
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(footnotes continued from previous page)
(12) Includes 6,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
1,500 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(13) Includes 6,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
1,500 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(14) See footnotes (1) through (13) above. Also includes 7,600 shares issuable
upon the exercise of vested options and options which are deemed to be
presently exercisable granted to two executive officers. Does not include
an aggregate of 12,900 shares issuable upon the exercise of options
granted to two executive officers which are not deemed to be presently
exercisable.
(15) Includes 71,900 shares held by a charitable foundation of which Mr.
McNeil, a former director of the Company, is the president and one of
eleven directors who have shared power to vote and dispose of the shares
of Common Stock held by such foundation. Excludes 2,312,247 shares held by
Hare & Co., as nominee for the McNeil Trust, of which Mr. McNeil was the
grantor for the benefit of Mr. McNeil and his lineal descendants. Mr.
McNeil disclaims beneficial ownership of such shares held in the McNeil
Trust.
EXECUTIVE OFFICERS
The executive officers of the Company, their positions with the
Company, business history and certain other information, as of April 28, 2000,
are set forth below.
Name Office Age
- ---- ------ ---
Marlin Miller, Jr. Chairman and Chief Executive Officer 68
Philip B. Fleck President and Chief Operating Officer 55
Paul L. Frankhouser Executive Vice President 54
Frederick J. Hirt Vice President - Finance, Chief Financial 52
Officer and Treasurer
T. Jerome Holleran Secretary 64
Thomas D. Nickel Vice President - Regulatory Affairs and 61
Quality Assurance
Scott W. Hurley Controller 41
Marlin Miller, Jr. has served as Chairman of the Board of Directors
of the Company since January 20, 1999 and as Chief Executive Officer and a
director of the Company since it was founded in 1975. Mr. Miller served as
President of the Company from 1975 to January 20, 1999. From 1972 to 1975, Mr.
Miller served as Vice President and a director of Connors Investor Services, a
research and investment management firm. From 1959 to 1972, Mr. Miller served as
Executive Vice President and a director of Glen Gery Corporation, a manufacturer
of building products. Mr. Miller is also President and a director of Arrow
Precision Products, Inc., a corporation controlled by principal shareholders of
the Company ("Precision"). See "Certain Transactions." He is a director of
Carpenter Technology Corporation, a manufacturer of specialty steel.
Philip B. Fleck has served as President and Chief Operating Officer
of the Company since January 20, 1999, as Vice President-Research and
Manufacturing of the Company from June 1994 to January 20, 1999 and as Vice
President-Research and Engineering of the Company from 1986 to June 1994. From
1975 to 1986, Mr. Fleck served as
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Engineering Manager of the Company. From 1971 to 1975, Mr. Fleck served as
Equipment Design Manager and Engineering Manager of the Arrow Products Division
of Rockwell International Corporation, the Company's predecessor (the "Rockwell
Division"). From 1967 to 1971, Mr. Fleck served as Manufacturing Development
Engineer of Atlas Chemical Industries, a manufacturer of aerospace components.
Paul L. Frankhouser has served as Executive Vice President of the
Company since January 20, 1999 and as Vice President-Marketing of the Company
from 1986 to June 1994. From 1980 to 1986, Mr. Frankhouser served as Manager of
Marketing of the Company, from 1977 to 1980, as Product Manager-Medical Devices
and, from 1975 to 1977, as Manager of Medical Products and Process Development
of the Company. Prior to 1975, Mr. Frankhouser served as a Project Engineer of
the Rockwell Division.
Frederick J. Hirt has served as Vice President-Finance, Chief
Financial Officer and Treasurer of the Company since August 1998. Prior to
joining the Company, Mr. Hirt served in various capacities with Pharmacia &
Upjohn, Inc. from 1980 through June 1998, where he most recently served as Vice
President, Accounting and Reporting. From 1972 to 1980, Mr. Hirt was employed in
the Chicago office of Coopers & Lybrand.
T. Jerome Holleran has served as Secretary and a director of the
Company since it was founded in 1975 and, until September 1997, also served as a
Vice President of the Company. Mr. Holleran has also served as Chairman of
Precision Medical Products, Inc. ("PMP"), a former subsidiary of Precision that
manufactures and markets certain non-catheter medical products that was sold in
August 1997 to certain management employees of Precision (including Mr.
Holleran), since October 1999 and as Chief Executive Officer of PMP since July
1996. Mr. Holleran served as President of PMP from July 1996 until October 1999.
See "Certain Transactions." From February 1986 to September 1997, Mr. Holleran
was also Vice President, Chief Operating Officer and a director of Precision.
Mr. Holleran also served as President of Endovations, Inc., a former subsidiary
of Precision that manufactured and marketed certain gastroenterological medical
products, from 1991 until the sale in June 1996 of a portion of the Endovations
business to the Company and the remainder to an unrelated third party. From 1971
to 1975, Mr. Holleran served as Director of Business Planning-Textile Divisions
of Rockwell International Corporation and as a Marketing Manager of the Rockwell
Division. From 1969 to 1971, Mr. Holleran was employed as a consultant by Booz,
Allen and Hamilton.
Thomas D. Nickel has served as Vice President-Regulatory Affairs and
Quality Assurance of the Company since 1991. From 1986 to 1991, Mr. Nickel
served as Director of Regulatory Affairs and Quality Assurance of the Company.
Prior to joining the Company, Mr. Nickel served as Director of Regulatory
Affairs and Quality Assurance of Omnis Surgical, Inc., a former subsidiary of
Baxter International, Inc. that manufactured anesthesiological and other related
products.
Scott W. Hurley has served as Controller of the Company since April
1998. Prior to joining the Company, Mr. Hurley served in various capacities with
Rhone-Poulenc Rorer from 1990 to April 1998, where he most recently served as a
Director of Finance.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
and the rules promulgated thereunder require the Company's officers and
directors and persons who beneficially own more than ten percent of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange
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Commission ("SEC") and to furnish to the Company copies of all such filings. The
Company has determined, based solely upon a review of (i) those reports and
amendments thereto furnished to the Company during and with respect to the
fiscal year ended August 31, 1999, and (ii) written representations from certain
reporting persons, that John E. Gurski, a director of the Company, was
inadvertently late in filing a Form 4 reporting the purchase of 1,200 shares and
1,000 shares of Common Stock on April 1, 1999 and April 8, 1999, respectively.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors conducts its business through meetings of the
Board and through activities of its committees. The Board of Directors held
seven meetings during the Company's fiscal year ended August 31, 1999. All of
the directors attended at least 75% of the meetings of the Board and any
committee on which they served during fiscal 1999. Among the committees of the
Board are the Audit Committee and the Human Resources Committee.
The Audit Committee, among other things, recommends the firm to be
appointed as independent accountants to audit the Company's financial
statements, discusses the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants the
Company's interim and year-end operating results, considers the adequacy of the
internal accounting controls and audit procedures of the Company and reviews the
non-audit services to be performed by the independent accountants. The members
of the Audit Committee currently are Carl G. Anderson, Jr., Richard T. Niner,
who acts as Chairman of the Committee, and Alan M. Sebulsky, none of whom are
employees of the Company. The Audit Committee met two times during fiscal 1999.
The Human Resources Committee reviews and recommends the
compensation arrangements for executive management of the Company, including
salaries, bonuses and grants of awards under, and administration of, the
Company's 1992 Stock Incentive Plan and, subject to the approval of the
Company's shareholders at the Special Meeting, its 1999 Stock Incentive Plan.
The Human Resources Committee selects employees to whom awards will be made
under the 1992 Stock Incentive Plan and, subject to the approval of the
Company's shareholders at the Special Meeting, 1999 Stock Incentive Plan,
determines the number of shares to be optioned or awarded, and the time, manner
of exercise and other terms of the awards. The members of the Human Resources
Committee currently are George W. Ebright, who acts as Chairman of the
Committee, John E. Gurski and R. James Macaleer. The Human Resources Committee
met three times during fiscal 1999.
COMPENSATION OF DIRECTORS
The Company's directors who are not officers or employees of the
Company received a quarterly fee of $3,500 for Board membership in fiscal 1999,
which has been increased to $4,000 for fiscal 2000, a fee of $1,000 for
attendance at each Board meeting and a fee of $500 for attendance at each
Committee meeting. Directors are reimbursed for reasonable expenses incurred in
connection with attending Board and Committee meetings. The Chairmen of the
Audit Committee and the Human Resources Committee each receive an additional fee
of $2,000 per year.
To promote the Company's ability to attract and retain outside
directors and to provide them with an incentive to maintain and enhance the
Company's long-term performance, stock awards are currently made to directors
who are not also employees or consultants of the Company. The stock awards are
made pursuant to the Company's Directors Stock Incentive Plan in the form of
non-qualified stock options. The plan was approved by the Company's shareholders
at the Company's Annual Meeting of Shareholders held on January 17, 1996, on
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which date the plan became effective, and amendments to the plan were approved
by the Company's shareholders at the Company's Annual Meeting of Shareholders
held on January 19, 2000, on which date such amendments became effective. Upon
an eligible director's first election to the Board, such eligible director
receives options to purchase 5,000 shares of Common Stock. On the date each year
when directors are elected to the Board, eligible directors currently receive
options to purchase an additional 1,500 shares of Common Stock. The exercise
price for each option is equal to the fair market value of the Common Stock on
the date of grant. Each option has a term of ten years from the date of grant
and vests on the first anniversary of the date of grant.
The amendments to the Company's Directors Stock Incentive Plan
approved by the Company's shareholders at the Company's 2000 Annual Meeting of
Shareholders enabled non-employee directors who were shareholders of the Company
at the time of the Company's initial public offering on June 9, 1992 to be
eligible to receive stock awards under the plan, whereas previously such
directors were not so eligible. In addition, these amendments to the plan
enabled eligible directors to receive options to purchase 1,500 shares of Common
Stock on the date each year when directors are elected to the Board, instead of
the 500 shares previously provided for under the plan.
Messrs. Anderson, Ebright, Gurski and Sebulsky were the only
directors eligible to receive awards under the plan during fiscal 1999. On
January 20, 1999, the date of the Company's 1999 Special Meeting of
Shareholders, each of Messrs. Anderson, Ebright, Gurski and Sebulsky was granted
options pursuant to the plan to purchase 500 shares of Common Stock at an
exercise price of $25.125. Messrs. Broadbent, Holleran, Macaleer and Niner did
not receive any stock awards under the plan on such date because each of them
was a shareholder of the Company at the time of its initial public offering on
June 9, 1992. On January 19, 2000, the date of the Company's 2000 Annual Meeting
of Shareholders, in accordance with the amended terms of the plan, each of the
directors of the Company, with the exception of Marlin Miller, Jr., the Chairman
and Chief Executive Officer of the Company, was granted options to purchase
1,500 shares of Common Stock, in each case at an exercise price of $34.75, the
closing price per share of the Common Stock on such date as reported on The
Nasdaq Stock Market.
EXECUTIVE COMPENSATION
The following table summarizes, for the Company's past three fiscal
years, all compensation paid to the Company's Chief Executive Officer and each
of the four most highly compensated other executive officers of the Company
other than the Chief Executive Officer as of August 31, 1999 for services
rendered to the Company in all capacities.
Summary Compensation Table
Annual Long-Term
Compensation(1) Compensation(1)
------------------------- -------------------------
Restricted Securities
Name and Fiscal Stock Underlying All Other
Principal Position Year Salary($) Bonus($)(2) Awards($) Options(#) Compensations($)
- ------------------ ---- --------- ----------- --------- ---------- ----------------
Marlin Miller, Jr. 1999 346,392 117,427 -0- -0- 198,298(3)
Chairman and Chief 1998 346,392(4) 106,931 -0- -0- 198,690(3)
Executive Officer 1997 313,397(4) 216,739 -0- -0- 198,674(3)
Raymond Neag(5) 1999 251,124 76,618 -0- -0- 109,340(6)
Vice Chariman and 1998 251,124 68,908 -0- -0- 119,842(6)
Executive Vice President 1997 239,160 139,669 -0- -0- 110,382(6)
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Annual Long-Term
Compensation(1) Compensation(1)
------------------------- -------------------------
Restricted Securities
Name and Fiscal Stock Underlying All Other
Principal Position Year Salary($) Bonus($)(2) Awards($) Options(#) Compensations($)
- ------------------ ---- --------- ----------- --------- ---------- ----------------
Philip B. Fleck 1999 219,997 75,850 -0- 105,000(7) 4,961(8)
President and Chief 1998 190,092 61,664 -0- 10,000(9) 4,888(8)
Operating Officer 1997 181,044 101,998 -0- -0- 3,000(8)
Paul L. Frankhouser 1999 202,497 69,991 -0- 80,000(10) 15,529(11)
Executive Vice 1998 190,092 61,664 -0- 10,000(12) 15,839(13)
President 1997 181,044 101,998 -0- -0- 3,009(14)
Frederick J. Hirt(15) 1999 206,667 71,501 -0- 20,000(16) 3,439(17)
Vice President-Finance, 1998 16,667(18) 3,430(18) -0- 10,000(19) -0-
Chief Financial Officer and
Treasurer
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(1) Column with respect to "Other Annual Compensation" has not been included
in this table because there has been no such Other Annual Compensation
awarded to, earned by or paid to any of the executive officers named above
for any fiscal year covered in the table.
(2) Includes annual incentive and profit sharing bonuses earned with respect
to fiscal 1998, part of which were paid in fiscal 1999.
(3) Consists of (i) matching contributions in the amount of $5,000, $4,790 and
$3,000 made by the Company to Mr. Miller's account under the Company's
401(k) Plan in fiscal 1999, 1998 and 1997, respectively, and (ii)
insurance premiums in the amount of $193,298, $193,900 and $195,674 paid
by the Company in fiscal 1999, 1998 and 1997, respectively, in respect of
term life insurance policies owned by certain trusts established by Mr.
Miller, which premium payments must be repaid to the Company from either
(a) the cash surrender value of such policies or (b) the death benefits of
such policies.
(4) In addition, Precision paid $3,464 and $16,495 as salary to Mr. Miller in
fiscal 1998 and 1997, respectively, in respect of Mr. Miller's devotion of
approximately 1% and 5% of his business time to Precision during each of
fiscal 1998 and 1997, respectively. See "Certain Transactions."
(5) Mr. Neag retired as Vice Chairman of the Board of the Company on October
31, 1999 and as Executive Vice President of the Company on January 20,
1999.
(6) Consists of (i) matching contributions in the amount of $4,072, $4,910 and
$3,000 made by the Company to Mr. Neag's account under the Company's
401(k) Plan in fiscal 1999, 1998 and 1997, respectively, and (ii)
insurance premiums in the amount of $105,268, $114,932 and $107,382 paid
by the Company in fiscal 1999, 1998 and 1997, respectively, in respect of
the term life insurance policies owned by certain trusts established by
Mr. Neag, which premium payments must be repaid to the Company from either
(a) the cash surrender value of such policies or (b) the death benefit of
such policies.
(7) Represents an award to Mr. Fleck on (i) January 20, 1999 of options to
purchase 100,000 shares of Common Stock at an exercise price of $25.125
per share under the Company's 1992 Stock Incentive Plan and (ii) August
31, 1999 of options to purchase
(footnotes continued on next page)
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(footnotes continued from previous page)
5,000 shares of Common Stock at an exercise price of $29.00 per share
under the Company's 1999 Stock Incentive Plan (subject to approval of such
plan by the Company's shareholders at the Special Meeting). Subject to Mr.
Fleck's continued employment with the Company, 20% (i.e., 20,000 and 1,000
options, respectively) of each of such stock option awards will vest on
each of the first through the fifth anniversary of the date of such awards
(i.e., January 20 and August 31, respectively). The options are subject to
immediate vesting upon the occurrence of certain change in control events.
(8) Represents matching contributions made by the Company to Mr. Fleck's
account under the Company's 401(k) Plan in fiscal 1999, 1998 and 1997,
respectively.
(9) Represents an award to Mr. Fleck on September 9, 1997 of options to
purchase 10,000 shares of Common Stock at an exercise price of $31.875 per
share under the Company's 1992 Stock Incentive Plan. Subject to Mr.
Fleck's continued employment with the Company, 20% (i.e., 2,000 options)
of such stock option award will vest on each of the first through the
fifth anniversary of the date of such award (i.e., September 9). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(10) Represents an award to Mr. Frankhouser on (i) January 20, 1999 of options
to purchase 75,000 shares of Common Stock at an exercise price of $25.125
per share under the Company's 1992 Stock Incentive Plan and (ii) August
31, 1999 of options to purchase 5,000 shares of Common Stock at an
exercise price or $29.00 per share under the Company's 1999 Stock
Incentive Plan (subject to approval of such plan by the Company's
shareholders at the Special Meeting). Subject to Mr. Frankhouser's
continued employment with the Company, 20% (i.e., 15,000 and 1,000
options, respectively) of each of such stock option awards will vest on
each of the first through the fifth anniversary of the date of such awards
(i.e., January 20 and August 31, respectively). The options are subject to
immediate vesting upon the occurrence of certain change in control events.
(11) Consists of a (i) matching contribution in the amount of $4,560 made by
the Company to Mr. Frankhouser's account under the Company's 401(k) Plan
in fiscal 1999 and (ii) a payment of $10,969 made to Mr. Frankhouser in
fiscal 1999 in respect of his accrued but unused vacation allowance.
(12) Represents an award to Mr. Frankhouser on September 9, 1997 of options to
purchase 10,000 shares of Common Stock at an exercise price of $31.875 per
share under the Company's 1992 Stock Incentive Plan. Subject to Mr.
Frankhouser's continued employment with the Company, 20% (i.e., 2,000
options) of such stock option award will vest on each of the first through
the fifth anniversary of the date of such award (i.e., September 9). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(13) Consists of (i) a matching contribution in the amount of $4,870 made by
the Company to Mr. Frankhouser's account under the Company's 401(k) Plan
in fiscal 1998 and (ii) a payment of $10,969 made to Mr. Frankhouser in
fiscal 1998 in respect of his accrued but unused vacation allowance.
(footnotes continued on next page)
-9-
(footnotes continued from previous page)
(14) Represents a matching contribution made by the Company to Mr.
Frankhouser's account under the Company's 401(k) plan in fiscal 1997.
(15) Mr. Hirt joined the Company as Vice President-Finance, Chief Financial
Officer and Treasurer on August 3, 1998. Accordingly, no information is
provided for periods prior to such date with respect to Mr. Hirt.
(16) Represents an award to Mr. Hirt on August 31, 1999 of options to purchase
20,000 shares of Common Stock at an exercise price of $29.00 per share
under the Company's 1999 Stock Incentive Plan (subject to approval of such
plan by the Company's shareholders at the Special Meeting). Subject to Mr.
Hirt's continued employment with the Company, 20% (i.e., 4,000 options) of
such stock option award will vest on each of the first through the fifth
anniversary of the date of such award (i.e., August 31). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
(17) Represents a matching contribution made by the Company to Mr. Hirt's
account under the Company's 401(k) plan in fiscal 1999.
(18) Represents the pro rata portion of annual salary and bonus paid to Mr.
Hirt from August 3, 1998, the date he joined the Company, to and including
August 31, 1998.
(19) Represents an award to Mr. Hirt on August 3, 1998 of options to purchase
10,000 shares of Common Stock at an exercise price of $27.75 per share
under the Company's 1992 Stock Incentive Plan. Subject to Mr. Hirt's
continued employment with the Company, 20% (i.e., 2,000 options) of such
stock option award will vest on each of the first through the fifth
anniversary of the date of such award (i.e., August 3). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
Option Grants
The following table sets forth certain information, as of August 31,
1999, concerning individual grants of stock options made during the fiscal year
ended August 31, 1999 to the persons named in the Summary Compensation Table
above.
Option Grants in Fiscal 1999
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
------------------------------------------------------------------ ------------------------------
Percent of
Total Options
Number of Securities Granted to
Underlying Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year (1) Price ($/sh) Date 5% 10%
- -------------------- -------------------- --------------- ------------ ---------- ----------- -----------
Philip B. Fleck 100,000(2) 21.7% $25.125 01/20/09 $1,580,098 $4,004,278
5,000(3) 29.00 08/31/09 $91,190 $231,093
Paul L. Frankhouser 75,000(2) 16.5 $25.125 01/20/99 $1,185,073 $3,003,208
5,000(3) 29.00 08/31/09 $91,190 $231,093
Frederick J. Hirt 20,000(3) 4.1 $29.00 08/31/09 $364,759 $924,371
- ----------
(footnotes appear on next page)
-10-
(1) Based upon total grants of options in respect of 483,500 shares of Common
Stock made during fiscal 1999.
(2) Granted pursuant to the Company's 1992 Stock Incentive Plan on January 20,
1999. Subject to continued employment by the Company, 20% (i.e., 20,000 in
the case of Mr. Fleck and 15,000 in the case of Mr. Frankhouser) of such
options will vest on each of the first through the fifth anniversary of
such date. The options are subject to immediate vesting upon the
occurrence of certain change in control events.
(3) Granted pursuant to the Company's 1999 Stock Incentive Plan on August 31,
1999 (subject to approval of such plan by the Company's shareholders at
the Special Meeting). Subject to continued employment by the Company, 20%
(i.e., 1,000 in the case of each of Messrs. Fleck and Frankhouser and
4,000 in the case of Mr. Hirt) of such options will vest on each of the
first through the fifth anniversary of such date. The options are subject
to immediate vesting upon the occurrence of certain change in control
events.
Aggregate Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values
The following table provides information concerning stock options
exercised during fiscal 1999 and the number of unexercised options held by the
individuals named in the Summary Compensation Table as of August 31, 1999. Also
reported are the values for unexercised, "in the money" options, which represent
the positive spread between the respective exercise prices of such options and
the fair market value of the Common Stock as of August 31, 1999.
Aggregated Option Exercises in Fiscal 1999 and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
August 31, 1999 (#) at August 31, 1999($)(1)
----------------------------- ----------------------------
Shares
Acquired on
Name Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------- ------------ ------------------ ----------- ------------- ----------- -------------
Philip B. Fleck -- -- 20,000 80,000 $77,500 $310,000
Paul L. Frankhouser -- -- 15,000 60,000 58,125 232,500
Frederick J. Hirt -- -- 2,000 8,000 2,500 10,000
- ----------
(1) Based upon a closing price of the Common Stock of $29.00 per share on
August 31, 1999 as reported on The Nasdaq Stock Market.
Retirement Plan
The Retirement Plan for Salaried Employees of Arrow International,
Inc. became effective on September 1, 1978, and was amended and restated as of
September 1, 1984 and September 1, 1989 (the "Retirement Plan"). The Retirement
Plan is a non-contributory defined benefit pension plan intended to be qualified
under Section 401(a) of the Internal Revenue Code. The Retirement Plan covers
salaried employees of the Company who have attained age 21 and completed one
year of service and provides benefits based upon years of service and
compensation. All of the executive officers of the Company participate in the
Retirement Plan. Benefits under the Retirement Plan are based on an annual rate
of 1.25% of a participant's final average earnings multiplied by such
participant's years of credited service with the Company after September 1,
1975. Final average earnings are defined under the Retirement Plan as the
participant's average annual compensation, excluding discretionary bonuses and
subject to annual limitations on compensation under the Internal Revenue Code,
during the 60
-11-
consecutive months in the final 120 months of the participant's employment which
produce the highest average. Since 1989, Internal Revenue Code provisions have
limited the amount of annual compensation that can be used for calculating
pension benefits. In 1999, no more than $160,000 of annual salary can be used to
determine an employee's annual benefit accrual. The Internal Revenue Service
adjusts this figure annually. Benefits under the Retirement Plan are payable
upon normal retirement, which is the later of age 65 or the fifth anniversary of
commencing plan participation, early retirement at age 55 following ten years of
service, death, disability or other termination of employment following five
years of vesting service, and may be paid under various annuity forms of
payment.
Contributions to the Retirement Plan for any year depend on the
assumptions used by the actuary for the Retirement Plan, historic investment
experience and the level of prior years' funding. The annual contribution made
by the Company to the Retirement Plan for fiscal 1997, 1998 and 1999 was
$537,765, $392,476, and $1,341,588, respectively, equivalent to approximately
2.8% for fiscal 1997, 1.6% for fiscal 1998 and 5.6%% for fiscal 1999 of the
covered compensation of all participants in the plan. The amount of the
contribution, payment or account in respect of a specified person is not and
cannot readily be separately or individually calculated by the actuary of the
Retirement Plan. The executive officers of the Company named in the Summary
Compensation Table currently have the following years of credited service for
purposes of the Pension Plan: each of Messrs. Miller, Neag, Fleck and
Frankhouser has 24 years and Mr. Hirt has one year. The following table shows
the estimated annual benefits payable upon retirement at normal retirement age
for each level of remuneration specified at the listed years of service.
PENSION PLAN TABLE
Years of Service
-----------------------------------------------------------
Remuneration (1) 15 20 25 30 35
- --------------------------- ------- ------- ------- ------- -------
$100,000................... $18,750 $25,000 $31,250 $37,500 $43,750
150,000................... 28,125 37,500 46,875 56,250 65,625
200,000................... 30,000 40,000 50,000 60,000 70,000
250,000................... 30,000 40,000 50,000 60,000 70,000
300,000................... 30,000 40,000 50,000 60,000 70,000
350,000................... 30,000 40,000 50,000 60,000 70,000
400,000................... 30,000 40,000 50,000 60,000 70,000
450,000................... 30,000 40,000 50,000 60,000 70,000
500,000................... 30,000 40,000 50,000 60,000 70,000
550,000................... 30,000 40,000 50,000 60,000 70,000
- ----------
(1) Under current Internal Revenue Code provisions, no more than $160,000 of
annual salary can be used to determine an employee's annual benefit
accrual. The Internal Revenue Service adjusts this figure annually.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee reviews and establishes, subject to
approval of the Board of Directors, the compensation arrangements for executive
management of the Company, including salaries, bonuses and grants of awards
under, and administration of, the Company's 1992 Stock Incentive Plan and,
subject to the approval of the Company's shareholders at the Special Meeting,
its 1999 Stock Incentive Plan. The Human Resources Committee is currently
composed of three non-employee directors of the Company.
-12-
Compensation Philosophy
Arrow International's executive compensation program is designed to
attract, retain, motivate and reward effective executive officers and to link
executive compensation with the attainment of financial, operational and
strategic objectives. In establishing the program, the Human Resources Committee
assesses the performance of individuals and the Company relative to those
objectives.
The Company's compensation program generally provides incentives to
achieve annual and long-term objectives. The principal elements of the
compensation program are base salary, annual incentive bonuses and long-term
incentive awards in the form of stock options, stock appreciation rights and/or
grants of restricted Common Stock. These elements generally are blended in order
to formulate compensation packages which provide competitive pay, reward the
achievement of financial, operational and strategic objectives and align the
interests of the Company's executive officers and other higher level personnel
with those of the Company's shareholders.
Compensation Components
Base Salary. Base salary levels for executive officers are derived
from market comparisons with similarly-sized companies engaged in the
manufacture of medical products for the health care industry with which the
Company competes for executive talent. The Human Resources Committee believes
that the Company's most direct competitors for this purpose are not necessarily
all of the companies that would be included in a peer group established to
compare shareholder returns. Therefore, the compensation peer group is not the
same as the peer group index set forth in the Company Stock Performance Graph
included in this Proxy Statement. Based on information currently available to
the Human Resources Committee, the Human Resources Committee believes that base
salary levels for executive officers, including the Chief Executive Officer,
are, on average, at or near the median of base salary levels for executive
officers of similar companies. In determining executive officers' salaries, the
Human Resources Committee also considers individual experience and prior service
to the Company, level of responsibility and overall job performance. The Human
Resources Committee does not assign weights to these factors nor necessarily
consider any one more important than the others. The Human Resources Committee
reviews the performance of the Chief Executive Officer and, in determining his
level of compensation for fiscal 1999, in addition to consideration of industry
comparisons and individual performance, has taken particular note of the
Company's achievements in fiscal 1999 in the following key areas: management
efficiency; the successful introduction of new products into the market and the
advancement of products under development; continued expansion of the Company's
international production and marketing presence; and the Company's overall
growth and profitability.
Annual Incentive Bonuses. Annual incentive bonuses are based on two
plans: a Company-wide corporate profit sharing plan (the "Profit Sharing Plan")
and a pretax income growth plan limited to certain executive officers (the
"Income Growth Bonus Plan").
Each year of the Profit Sharing Plan begins on December 1st. For
purposes of determining the amounts available for distribution under the Profit
Sharing Plan, during each quarter of each plan year a fixed percentage of the
pre-tax income of the Company, excluding royalty revenue, profit sharing expense
and other extraordinary income and expense, is allocated to the Profit Sharing
Plan. The amount allocated to the Profit Sharing Plan is apportioned to each
participating employee on a monthly basis in proportion to the fraction that
such employee's compensation for that month represents of the total monthly
compensation for all plan participants. Each month the Company distributes to
each plan participant 75% of the
-13-
plan proceeds allocable to such participant, while the remainder of such amount
is accumulated for the benefit of such participant and paid out on an annual
basis in December of the immediately following plan year. Messrs. Miller and
Neag and the Company's field sales representatives do not participate in the
Profit Sharing Plan.
Pursuant to the Income Growth Bonus Plan, at the discretion of the
Human Resources Committee, Messrs. Miller, Neag (prior to his resignation as an
executive officer of the Company in October 1999), Fleck, Frankhouser and Hirt
are eligible to receive annual incentive bonuses equal to 5.0, 4.5, 4.0, 4.0 and
4.0 times, respectively, the percentage growth in pretax income, exclusive of
extraordinary income and expense, of the Company over the previous year times
their respective base pay. For fiscal 1999, the Company's pre-tax income,
exclusive of extraordinary income and expense, increased 6.8% over fiscal 1998,
resulting in an incentive bonus of 33.9% of base pay to Mr. Miller, 30.5% of
base pay to Mr. Neag and 27.1% of base pay to each of Messrs. Fleck, Frankhouser
and Hirt. The Human Resources Committee believes that payment of such bonuses
specifically linked to the growth in profitability of the Company provides
appropriate and effective rewards for successful individual performances that
contribute directly to the overall success of the Company. Therefore, it is the
present intention of the Human Resources Committee to approve payment of
incentive bonuses in fiscal 2000 to the eligible senior executive officers of
the Company pursuant to the Income Growth Bonus Plan to the extent that the
Company in fiscal 2000 achieves an increase in pretax income, exclusive of
extraordinary income and expense, over fiscal 1999.
Long-Term Incentive Awards. To promote the Company's long-term
objectives, stock awards are made to executive officers and other employees who
are in a position to make a significant contribution to the Company's long-term
success. The stock awards are made pursuant to the Company's 1992 Stock
Incentive Plan and, subject to the approval of the Company's shareholders at the
Special Meeting, its 1999 Stock Incentive Plan in the form of stock options,
stock appreciation rights ("SARs") and grants of restricted Common Stock. Up
until May 31, 1992 when such plan terminated, grants of restricted shares of the
Company's previously outstanding Class A Common Stock were made pursuant to the
Company's Restricted Stock Bonus Plan. Executive officers of the Company who
were shareholders of the Company other than through participation in the
Restricted Stock Bonus Plan, including Messrs. Miller, Neag, Broadbent and
Holleran, were ineligible to receive awards of restricted stock under this plan.
Since the stock options, SARs and restricted stock awards vest and
may grow in value over time, these components of the Company's compensation plan
are designed to reward performance over a sustained period. The Company intends
that these awards will strengthen the focus of its executives and other key
employees on managing the Company from the perspective of a person with an
equity stake in the Company. The Human Resources Committee believes that, as a
founder and principal shareholder of the Company, each of Messrs. Miller and
Neag currently has sufficient incentive to promote the long-term growth of the
Company and, therefore, none of such executive officers has, to date, received
any stock awards.
Stock awards are not granted each year. In selecting recipients and
the size of stock awards, the Human Resources Committee generally considers
various factors such as the overall job performance and potential of the
recipient, prior grants to and amount of Common Stock currently held by the
recipient, prior service to the Company, a comparison of awards made to
executives and key employees in comparable positions at similar companies, and
the Company's performance. In fiscal 1999, each of Messrs. Fleck, Frankhouser
and Hirt were awarded options to purchase 100,000, 75,000, and 0 shares of
Common Stock, respectively, under the Company's 1992 Stock Incentive Plan and
5,000, 5,000 and 20,000 shares of
-14-
Common Stock, respectively, under the Company's 1999 Stock Incentive Plan
(subject to approval of such plan by the Company's shareholders at the Special
Meeting). Other executive officers of the Company were awarded options to
purchase an aggregate of 6,500 shares of Common Stock under the 1999 Stock
Incentive Plan (subject to approval of such plan by the Company's shareholders
at the Special Meeting) during fiscal 1999. The Company awarded to executive
officers and other key employees of the Company options to purchase a total of
182,700 and 300,800 shares of Common Stock under the Company's 1992 Stock
Incentive Plan and 1999 Stock Incentive Plan (subject to approval of such plan
by the Company's shareholders at the Special Meeting), respectively, during
fiscal 1999. In selecting the recipients and size of these awards, the Human
Resources Committee placed particular emphasis on such executives' and key
employees' overall job performance, their potential for continued excellent
service and significant contribution to the Company's growth and profitability
during fiscal 1999 and awards to individuals who had previously not been
selected due to insignificant length of service to the Company. As a result of
such awards and stock awards made prior to fiscal 1999, each of the Company's
executive officers who were not also founders of the Company, as well as a
significant number of non-executive employees of the Company, have been afforded
the opportunity to enjoy an equity stake in the Company as part of their
long-term compensation.
Tax Deductibility of Executive Compensation. Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), imposes limitations on
the federal income tax deductibility of compensation paid to the Company's chief
executive officer and to each of the other four most highly compensated
executive officers of the Company. Under these limitations, the Company may
deduct such compensation only to the extent that during any fiscal year the
compensation does not exceed $1,000,000 or meets certain specified conditions
(such as certain performance-based compensation that has been approved by the
Company's shareholders). Based on the Company's current compensation plans and
policies and proposed regulations interpreting the Code, the Company and the
Human Resources Committee believe that, for the near future, there is not a
significant risk that the Company will lose any significant tax deduction for
executive compensation. The Company's compensation plans and policies will be
modified to ensure full deductibility of executive compensation if the Company
and the Human Resources Committee determine that such an action is in the best
interests of the Company.
HUMAN RESOURCES COMMITTEE
George W. Ebright, Chairman
John E. Gurski
R. James Macaleer
-15-
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the yearly cumulative
total shareholder return on the Common Stock with the cumulative total return of
the Standard & Poor's 500 Stock Index and the Standard & Poor's Medical Products
and Supplies Index for the period beginning on August 31, 1994 and ending on
August 31, 1999. The comparison assumes $100 was invested on August 31, 1994 in
the Common Stock and in each of the foregoing indices and also assumes
reinvestment of all dividends.
[GRAPHIC OMITTED]
- ----------------------------------------------------------------------------------------------------------------------
August 31, August 31, August 31, August 31, August 31, August 31,
1994 1995 1996 1997 1998 1999
- ----------------------------------------------------------------------------------------------------------------------
Arrow International, Inc. $ 100.00 $ 166.28 $ 108.95 $ 121.34 $ 111.75 $ 120.45
- ----------------------------------------------------------------------------------------------------------------------
S&P 500 Stock Index $ 100.00 $ 121.45 $ 144.19 $ 202.81 $ 219.22 $ 306.52
- ----------------------------------------------------------------------------------------------------------------------
S&P Medical Products and $ 100.00 $ 153.95 $ 175.16 $ 250.79 $ 277.83 $ 376.17
Supplies Index
- ----------------------------------------------------------------------------------------------------------------------
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, the preceding Human Resources
Committee Report on Executive Compensation and the Company Stock Performance
Graph will not be incorporated by reference into any of those prior filings, nor
will such report or graph be incorporated by reference into any future filings
made by the Company under those statutes.
-16-
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended August 31, 1999, the Human Resources
Committee of the Board of Directors consisted of Messrs. Ebright, Gurski and
Macaleer, none of whom is an officer or employee of the Company or any of its
subsidiaries. Each of Messrs. Ebright and Macaleer is a director of Precision.
See "Certain Transactions."
CERTAIN TRANSACTIONS
Arrow Precision Products, Inc. ("Precision") is a former subsidiary
of the Company which is currently in the process of being liquidated. Prior to
the sale of its remaining operating subsidiary, Precision Medical Products, Inc.
("PMP"), on August 29, 1997 to a company owned by certain management employees
of Precision (including Mr. Holleran), Precision was engaged in the business of
manufacturing and marketing certain gastroenterological and other non-catheter
medical products. Prior to the sale of PMP, Precision also manufactured certain
other products, such as ground needles and injection sites, primarily for use by
the Company. At April 28, 2000, pending the liquidation of Precision (which is
expected to be completed during calendar 2000), certain officers, directors and
principal shareholders of the Company continued to own substantially all of
Precision's outstanding common stock.
The directors of Precision include Messrs. Miller, Neag, Broadbent,
Ebright, Macaleer and Niner. During fiscal 1999, Messrs. Miller and Broadbent
served as the president and the vice president-finance and treasurer of
Precision, respectively. Prior to the sale of PMP, Mr. Holleran served as the
vice president and chief operating officer and a director of Precision. Since
July 1996, Mr. Holleran has served as the president and chief executive officer
of PMP. Following the sale of PMP, Mr. Holleran no longer provides any services
to Precision. In fiscal 1999, Messrs. Miller and Broadbent provided only minimal
services to Precision and, accordingly, they served without compensation.
Prior to the sale of PMP, the Company (i) purchased certain
non-catheter medical products from Precision, for which the Company solicited
competitive quotations from unrelated suppliers, (ii) provided certain operating
and administrative services to Precision at rates which the Company believed to
be comparable to those which would have been charged by unrelated third parties,
(iii) maintained employee benefit accounts, including medical benefits, for
Precision's employees, at Precision's expense, and (iv) leased to Precision, on
a net lease basis, office and manufacturing space at the Company's Wyomissing,
Pennsylvania facility at rates believed by the Company to represent then current
market rates.
Following the sale of PMP, in fiscal 1998 and fiscal 1999, the
Company no longer purchased any products from Precision, no longer provided any
operating or administrative services to Precision and discontinued leasing
office and manufacturing space to Precision.
Although no longer an operating company following the sale of PMP,
Precision remained responsible for certain employee benefits, including pension
and retirement health care, which were payable to individuals who are currently,
or previously had been, employees of the Company. To ensure that these benefit
obligations would be satisfied in the future, the Company agreed to assume these
obligations in exchange for the transfer by Precision to the Company of
appropriate assets to satisfy such obligations. Consequently, effective as of
January 26, 1998, Precision's two pension plans, both of which were overfunded
as of August 31, 1997, were merged with the Company's pension plans covering
comparable employees. In
-17-
connection with this transaction, the Company paid Precision $2,975,000, the
amount by which the value of Precision's pension plan assets exceeded the
actuarially determined present value of Precision's pension plan obligations. In
addition, Precision transferred to the Company, with no payment by either party
to the other, its rights and obligations (including, without limitation, its
obligation to pay premiums, which in fiscal 1999 amounted to $74,210) in respect
of term life insurance policies owned by certain trusts established by Mr.
Holleran, the former vice president and chief operating officer of Precision and
the Secretary and a director of the Company, which premium payments must be
repaid from either (i) the cash surrender value of such policies or (ii) the
death benefits of such policies.
In January 1999, the Company received $362,417 from Precision in
full payment of previous charges by the Company to Precision for utilization by
Precision, as described above, of certain of the Company's facilities, personnel
and services prior to Precision's sale of PMP. The Company had no receivables
from Precision at August 31, 1999.
In fiscal 1999, the Company made purchases amounting to $31,000 of
products from PMP that it had formerly purchased from Precision. The Company
solicits competitive quotations from unrelated suppliers for products it
purchases from PMP. In the future, the Company may continue to purchase products
from PMP, provided that the quotations the Company receives from PMP for such
products are competitive with those received from unrelated suppliers in terms
of product availability, price, quality and delivery considerations. In
addition, in fiscal 1999, the Company provided certain computer-related services
to PMP for $3,000. In the future, the Company does not expect to provide any
services to PMP.
PROPOSAL 1 - APPROVAL OF 1999
STOCK INCENTIVE PLAN
The Board of Directors has unanimously adopted and recommends that
the shareholders approve the adoption of the Company's 1999 Stock Incentive
Plan.
Since the adoption by the Company of its Restricted Stock Bonus Plan
in 1986, the Company has had a stock award program in place to attract, retain
and motivate officers and other key employees of the Company and strengthen
their focus on managing the Company from the perspective of a person with an
equity stake in the Company. In 1992, the Company expanded its stock award
program when the Board of Directors adopted and the Company's shareholders
approved the Company's 1992 Stock Incentive Plan. As of April 28, 2000, options
to purchase an aggregate of 482,520 shares of Common Stock were outstanding
under the 1992 Stock Incentive Plan. In the view of the Board of Directors, this
plan as well as its predecessor has been successful in achieving the Company's
objectives. In light of the Company's significant growth since the adoption of
the 1992 Stock Incentive Plan and the increased number of options the Board
believes is now necessary to reward and provide appropriate incentive to the
Company's key employees, the Board concluded that the aggregate number of shares
available for grants under the 1992 Stock Incentive Plan on an annual basis
(i.e., not to exceed 1% of the number of issued shares of Common Stock,
including treasury shares, as of the first day of the calendar year) is
insufficient to ensure that an adequate number of shares is available. For a
variety of reasons, including the fact that the 1992 Stock Incentive Plan will
expire in two years anyway and the enactment of tax legislation that is not now,
but may in the future, become applicable, the Board of Directors deemed it
advisable at its July 1999 meeting and at the August 1999 meeting of the Board's
Human Resources Committee to adopt a new plan, the Arrow International, Inc.
1999 Stock Incentive Plan, subject to the approval of the Company's
shareholders, rather than amend the 1992 Stock Incentive Plan.
-18-
The effective date of the 1999 Stock Incentive Plan will be August 31, 1999, the
date as of which the Board of Directors adopted the plan.
Required Vote
Approval of the adoption of the 1999 Stock Incentive Plan requires
the affirmative vote of the holders of a majority of the shares of Common Stock
present in person or by proxy and entitled to vote at the Special Meeting.
Abstentions and broker non-votes will be counted as present for purposes of
determining whether a quorum is present, and broker non-votes will not be
treated as entitled to vote on this matter at the Special Meeting.
New Plan Benefits
As of April 28, 2000, options to purchase an aggregate of 294,850
shares of Common Stock were outstanding under the 1999 Stock Incentive Plan,
subject to approval of the plan by the Company's shareholders at the Special
Meeting.
The table under the caption "Option Grants in Fiscal 1999" provides
information with respect to the grant of options under the 1999 Stock Incentive
Plan during fiscal 1999 to the executive officers of the Company appearing in
the Summary Compensation Table. The following table sets forth additional
information with respect to options granted under the 1999 Stock Incentive Plan
during fiscal year 1999 to certain groups:
Dollar Options
Identity of Group Value (1) Granted(#)
- ----------------- --------- ----------
All executive officers as a group (7 persons) $ 187,063 36,500
All non-executive officer directors as a group (7 persons) $ -- --
All non-executive officer employees as a group
(approximately 391 persons) $ 1,324,044 258,350
- ----------
(1) Based upon the $34.125 per share closing market price of the Common Stock
on April 28, 2000 less the exercise price of $29.00 at which the options
were granted on August 31, 1999.
The approximate number of persons in the class of persons eligible
to receive awards under the 1999 Stock Incentive Plan is 425, representing
essentially all of the Company's salaried-exempt employees, laboratory employees
and executive assistants, in each case, having at least two years of service to
the Company, subject to the discretion of the Human Resources Committee to
determine the specific persons to whom awards will be granted. It is not
possible to determine or state the benefits which will be received under the
plan in fiscal 2000 by the executive officers of the Company appearing in the
Summary Compensation Table, by all current executive officers as a group, or by
all other employees of the Company as a group, since the recipients and size of
awards under the plan are at the discretion of the Human Resources Committee. It
is not expected, absent special circumstances, that any non-executive officer
directors of the Company will be granted any awards under the plan.
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General
The purpose of the 1999 Stock Incentive Plan is to enable the
Company to attract and retain directors, officers and key employees of the
Company and its subsidiaries and provide them with an incentive to maintain and
enhance the Company's long-term performance record through the grant of (a)
options to purchase shares of Common Stock, (b) restricted shares of Common
Stock, and (c) stock appreciation rights. Awards may be made under the plan
during any fiscal year of the Company to the extent that the total number of
shares of Common Stock relating thereto during any fiscal year outstanding does
not exceed three percent (3%) of the number of issued shares of Common Stock,
including treasury shares, determined as of the first day of such fiscal year.
No awards may be made under the plan after the tenth anniversary of the plan.
Summary of Plan Features
The following is a summary of certain features of the 1999 Stock
Incentive Plan. The summary is qualified in its entirety by reference to the
plan, a copy of which is annexed hereto as Exhibit A.
Administration. The plan is administered by the Human Resources
Committee of the Board of Directors, none of the members of which, during the
one-year period prior to commencement of service thereon or during such service,
has been or will be granted any awards pursuant to the plan.
The Human Resources Committee has the power to determine the persons
to whom, and the time or times at which, awards shall be granted, the type of
award to be granted and the number of shares to be subject to each award, to
interpret the plan and to prescribe rules, regulations and procedures in
connection with the operation of the plan. All questions of interpretation and
application of the plan, or as to awards granted under the plan, are subject to
the determination of the Human Resources Committee, which will be conclusive and
binding.
Awards. Awards granted under the plan are evidenced by agreements
between the individual grantee and the Company. Incentive stock options within
the meaning of Section 422 of the Internal Revenue Code as well as options which
do not meet the requirements of that section may be granted alone or in tandem
with stock appreciation rights. All options will expire not more than 10 years
after the date of grant except for incentive stock options granted to holders of
more than 10% of the voting power of the Company, which will expire not more
than five years after the date of grant. The exercise price for any option
issued under the plan shall be equal to the fair market value of the Company's
Common Stock at the time such option is granted provided that, in the case of
incentive stock options granted to holders of more than 10% of the voting power
of the Company, the exercise price shall equal at least 110% of fair market
value. Payment of an option's exercise price may be made in cash, by check or,
in certain circumstances, by delivery of shares of Common Stock assigned to the
Company, or by a combination of the foregoing. Options are not transferable
other than by will or by the laws of descent and distribution. Options may be
exercised only by the optionee, his or her guardian, his or her legal
representative or his or her permitted transferee.
Stock appreciation rights may be granted in tandem with options
granted under the plan. Upon exercise of a stock appreciation right, the grantee
will receive from the Company cash, Common Stock or a combination thereof (at
the discretion of the Human Resources Committee) having a value equal to the
excess of the fair market value per share of the Company's Common Stock on the
exercise date multiplied by the number of shares with
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respect to which the right is being exercised over the option exercise price for
such number of shares.
Restricted stock also may be granted under the plan. The Human
Resources Committee will determine the restrictions that apply to each such
grant. During the restricted period, the grantee may not sell, pledge, assign or
otherwise transfer the restricted stock, but will have the right to vote the
restricted stock and to receive dividends, if any.
Upon the acquisition of beneficial ownership of 30% or more of the
Company's Common Stock by any person, entity or group not affiliated with the
Company, all outstanding options and stock appreciation rights shall become
fully exercisable and all forfeiture conditions on all restricted stock awards
shall lapse.
Amendments. The plan may be amended by the Board of Directors or the
shareholders, provided that the Board of Directors may not, without shareholder
approval, materially increase the benefits accruing to participants under the
plan, materially increase the maximum number of shares as to which awards may be
granted under the plan, change the basis of making performance-based awards for
participants whose compensation is subject to Section 162(m) of the Internal
Revenue Code, change the minimum exercise price of options or stock appreciation
rights, change the class of eligible persons, extend the period for which awards
may be granted or exercised or withdraw the authority to administer the plan
from the Human Resources Committee.
Certain Income Tax Consequences. A participant who is awarded a
stock option will not realize any income, nor will the Company be entitled to
any deduction, at the time of grant. If a participant who is not an "insider"
subject to Section 16(b) of the Securities Exchange Act of 1934 exercises a
non-qualified option, he or she will realize ordinary income equal to the
difference between the option price and the fair market value of the shares on
the date of exercise and the holding period for capital gain and loss purposes
will begin on the date of exercise. In the case of a participant who is a
Section 16(b) insider, upon exercise of an option, he or she will realize
ordinary income on the first day on which a sale of shares at a profit would not
expose the participant to Section 16(b) liability (the "date of taxation"). The
amount of income recognized will be equal to the excess of the fair market value
of the shares on the date of taxation over the option price and the holding
period for capital gains and losses will begin on the date of taxation. An
insider may elect to be taxed according to the rules applicable to non-insiders
by filing an election with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code within 30 days from the date of exercise.
If the exercise price of a non-qualified option is paid by
surrendering stock of the Company, the participant will recognize no gain or
loss on the shares that he or she surrenders to pay the option price (the
"surrendered shares"). The number of shares that the participant receives upon
exercise of the option in excess of the surrendered shares are considered
"additional shares." The participant will recognize ordinary income upon
exercise equal to the fair market value of the additional shares on the date of
exercise, less any cash paid towards the exercise price. The basis of the
additional shares will be equal to their fair market value on the date of
exercise, and their holding period will begin on that date. The shares that the
participant receives upon exercise equal to the surrendered shares will have a
basis and holding period equal to that of the surrendered shares.
If a participant exercises an incentive stock option, he or she will
not recognize any income at that time (although the difference between the
option price and the fair market value of shares may be subject to the
alternative minimum tax) and the Company will not be
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entitled to any tax deduction. If the option price of an incentive stock option
is paid by surrendering stock of the Company, the Internal Revenue Service
treats such an exchange as if there were two transactions. The first transaction
is treated as a non-taxable exchange of the previously acquired shares for an
equal number of new shares, both having the same market value. The basis of the
new shares will be the same as that of the shares surrendered and the holding
period will include the holding period of the shares surrendered. The second
transaction concerns the additional shares that a participant will receive
pursuant to the exercise. This exchange also results in no gain or loss being
recognized at the time of the exchange. The basis of these additional shares,
however will equal zero (i.e., the participant is treated as having paid nothing
for these shares). The holding period for the additional shares begins on the
date of the exchange.
The Company will be entitled to a deduction for federal tax purposes
at the same time and in the same amount as the participant is considered to have
realized ordinary income with respect to any option. When a participant disposes
of Common Stock acquired through the exercise of a non-qualified option, any
amount received in excess of the fair market value of the shares on the date of
exercise will be subject to taxation as long-term or short-term capital gains,
depending on the holding period of the shares. If the amount received is less
than such fair market value of the shares, the difference will be treated as a
capital loss for tax purposes. When a participant ultimately sells Common Stock
acquired through exercise of an incentive stock option, he or she will recognize
long-term capital gain or loss on the difference between the amount received
upon disposition and the option price of the shares on the date of exercise
provided that the requisite holding periods are satisfied.
Under current federal tax laws, no income will be recognized by a
participant at the time a stock appreciation right is granted to the
participant. Ordinary income will be recognized by the participant upon exercise
of a stock appreciation right equal to the amount of cash received plus the fair
market value, on the date of exercise, of any shares issued. The Company will be
entitled to a deduction equal to the amount the participant recognizes as
ordinary income and at the time the participant recognizes income.
The basis of a share acquired pursuant to the exercise of a stock
appreciation right will be the amount included in income due to receipt of the
share. When the participant disposes of shares acquired pursuant to the exercise
of a stock appreciation right, any amount realized in excess of the basis of the
shares will be treated as long-term or short-term capital gain, depending on the
holding period of the shares. If the amount realized is less than the basis of
the shares, the loss will be treated as long-term or short-term capital loss,
depending on the holding period of the shares.
Unless the participant otherwise elects, receipt of a grant of
restricted shares of Common Stock will not result in the recognition of income
by the participant. At the time of vesting of ownership of any such shares, the
participant will recognize ordinary income equal to the fair market value of
such shares. At that time, the Company will be entitled to a deduction equal to
the amount which is taxable to the participant as ordinary income.
The participant may elect to recognize ordinary income at the time
of grant. Any such election must be made within 30 days of grant pursuant to
regulations issued under Section 83(b) of the Internal Revenue Code. The amount
of such income will be equal to the fair market value of the shares of stock
without regard to the restrictions. In such a case, the Company would be
entitled to a deduction equal to the amount which is taxable to the participant
as ordinary income.
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The basis of a share acquired under a restricted stock grant will be
the amount included in ordinary income due to receipt of the share. When the
participant disposes of shares acquired under a restricted stock grant, any
amount realized in excess of the basis of the shares will be treated as
long-term or short-term capital gain, depending on the holding period of the
shares (measured from the time the participant recognized ordinary income from
the receipt of such shares). If the amount realized is less than the basis of
the shares, the loss will be treated as long-term or short-term loss, depending
on the holding period of the shares.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE ADOPTION BY THE BOARD OF DIRECTORS OF THE 1999 STOCK INCENTIVE
PLAN.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does
not intend to present any matter for action at the Special Meeting other than as
set forth in the Notice of Special Meeting. If any other matters properly come
before the Special Meeting, it is intended that the holders of the proxies will
act in accordance with their judgment on such matters.
In order to be eligible for inclusion in the proxy materials for the
Company's 2001 Annual Meeting of Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's principal executive
offices by August 18, 2000.
Proposals should be directed to the Secretary of the Company at the
principal executive offices of the Company.
The cost of the solicitation of proxies will be borne by the
Company. In addition to the solicitation of proxies by mail, certain of the
officers and employees of the Company, without extra compensation therefor, may
solicit proxies personally or by telephone or telegraph. The Company will also
request brokers, banks and other nominees, custodians and fiduciaries to forward
soliciting materials to their principals and to request authority for the
execution of proxies and will reimburse such persons for forwarding such
materials.
A copy of the Company's 1999 Annual Report may be obtained upon
request directed to the Secretary, Arrow International, Inc., P.O. Box 12888,
2400 Bernville Road, Reading, Pennsylvania 19612. According to SEC rules, the
information presented in this Proxy Statement under the captions "Human
Resources Committee Report on Executive Compensation" and "Stock Price
Performance" shall not be deemed to be "soliciting material" or to be filed with
the SEC under the Securities Act of 1933 or the Securities Exchange Act of 1934
and nothing contained in any previous filings made by the Company under such
Acts shall be interpreted as incorporating by reference the information
presented under the specific captions.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
May 15, 2000
Reading, Pennsylvania
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EXHIBIT A
ARROW INTERNATIONAL, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1999 Stock Incentive Plan (the "Plan") is to advance
the interests of Arrow International, Inc. (the "Company") and its shareholders
by granting the Company's directors, officers and other eligible key employees
stock options, stock appreciation rights ("SARs") and/or restricted stock
(collectively referred to as "grants") as provided herein. The Company seeks to
attract and retain people of experience, ability and training and to furnish
additional incentive to directors, officers and other key employees upon whose
judgment, initiative and efforts the successful conduct of the Company's
business largely depends.
2. ADMINISTRATION
The Plan shall be administered by a Human Resources Committee (the
"Committee") consisting of two or more members of the Board of Directors of the
Company, as determined from time to time by the Board of Directors, all of whom
shall, unless the Board determines otherwise, be "outside directors" as this
term is defined in Internal Revenue Code Section 162(m), and none of whom during
the twelve months prior to commencement of service on the Committee, or during
such service, has been granted or awarded any equity security or derivative
security of the Company pursuant to the Plan or, except as permitted by Rule
16b-3(c)(2)(i) pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any other plan of the Company or any of its affiliates. The
Board shall fill any vacancy on the Committee.
Subject to the provisions of the Plan, the Committee shall possess the
authority, in its discretion, (a) to determine the directors, officers and other
key employees of the Company to whom, and the time or times at which, restricted
stock, SARs and options shall be granted, whether such grants will be awarded
singly or in combination to each eligible employee, the price, if any, at which
such grants shall be offered and the number of shares to be subject to each such
grant and any other terms and conditions that may apply to each grant; (b) in
the case of options, the price at which an option may be purchased, to determine
whether the options shall be incentive or nonqualified options and the number of
shares included within an option that may be purchased by the optionee during
any annual (or other stated) period; (c) to interpret the Plan; (d) to make and
amend rules and regulations relating thereto; (e) to prescribe the form and
conditions of the grant agreements and any appropriate terms and conditions
applicable to the awards and to make any amendments to such agreements or
awards; and (f) to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall be conclusive
and binding upon the Company, the eligible employees and all other persons.
3. ELIGIBLE EMPLOYEES
Grants may be awarded under the Plan only to directors, officers and key
employees of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock is owned by the
Company directly or through one or more corporations at least fifty percent of
the voting stock of which is so owned). The members of the Committee shall not
be eligible to receive any grant under the Plan during such period of time as
they serve on the Committee.
4. SHARES AVAILABLE IN THE AGGREGATE AND INDIVIDUALLY
The total of the issued or issuable shares of the Company's Common
Stock (no par value) available for grants under this Plan during any fiscal year
of the Company shall not exceed three percent (3%) of the number of issued
shares of Common Stock, including treasury shares, determined as of the first
day of such fiscal year. The number of shares of Common Stock available for
incentive options during the term of this Plan shall not exceed seven (7)
million shares (subject to substitution or adjustment as provided in Section
10). Shares used for Plan grants may be authorized and unissued shares or may be
treasury shares. If a restricted stock grant is forfeited or if an option
expires, terminates or is canceled without being exercised, new restricted stock
grants or options may be thereafter granted covering such shares.
Notwithstanding the foregoing, shares attributable to the cancellation of an
option because of the exercise of a related SAR shall continue to be treated as
outstanding and shall not be available for subsequent grants under the Plan. No
grant may be awarded more than ten years after the effective date of the Plan.
The aggregate number of (1) shares with respect to which options are
granted, (2) restricted stock awards and (3) SARs that may be granted to any one
participant may not exceed 350,000 per fiscal year (subject to substitution or
adjustment as provided in Section 10).
5. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Incentive stock options may be granted to officers and employees but not
to directors. Each incentive stock option granted under the Plan shall be
designated as such and shall be evidenced by a stock option agreement in such
form as the Committee shall approve from time to time, which agreement shall
conform with this Plan and which shall contain the following terms and
conditions:
(a) Number of Shares. The option agreement shall specify the number
of shares to which it pertains.
(b) Purchase Price. The purchase price for each option shall be not
less than the fair market value of the stock at the time such option is
granted. The Committee shall determine the purchase price. If an option is
granted to a director, officer or employee who at the time of grant owns
stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company (a "10-percent Shareholder"), the
purchase price shall be at least 110 percent of the fair market value of
the stock subject to the option.
(c) Duration of Option. Each option by its terms shall not be
exercisable after the expiration of ten years from the date such option is
granted. In the case of an incentive stock option granted to a 10-percent
Shareholder, the option by its terms shall not be exercisable after the
expiration of five years from the date such option is granted.
(d) Options Nontransferable. Each option by its terms shall be not
transferable by the optionee otherwise than by will or the laws of descent
and distribution, and shall be exercisable during his lifetime, only by
the optionee, the optionee's guardian or the optionee's legal
representative.
(e) Exercise Period. Subject to the provisions of this Plan, the
exercise of each option shall be subject to such conditions as may be
imposed by the Committee and specified in the option agreement. The
Committee may, among other things,
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specify a minimum length of employment and may stagger the period of
exercise by providing that only a certain percentage of options may be
exercised each year.
(f) Payment of Option Price. An option shall be exercised upon
written notice to the Company accompanied by payment in full for the
shares being acquired. The payment shall be made in cash or by check or by
delivery of shares of Common Stock of the Company registered in the name
of the optionee, duly assigned to the Company with the assignment
guaranteed by a bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing, any such shares so
delivered to be deemed to have a value per share equal to the fair market
value of the shares on such date.
(g) Maximum Value of Shares. No incentive stock option shall be
granted to an officer or employee under this Plan or any other incentive
stock option plan of the Company or its subsidiaries to purchase shares as
to which the aggregate fair market value (determined as of the date of
grant) of the Common Stock which first become exercisable by the employee
in any calendar year exceeds $100,000.
(h) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to any shares for which he is granted an option
until the date of issuance to him of a stock certificate for such shares
and no adjustment shall be made for any dividends or other rights the
record date for which is prior to the date such stock certificate is
issued.
(i) General Restriction. Each option shall be subject to the
requirement that, if at any time the Board of Directors shall determine,
in its discretion, that the listing, registration or qualification of the
shares subject to such option upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such option or the issuance or purchase
of shares thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable
to the Board of Directors.
6. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Options other than incentive stock options may also be granted under this
Plan. Each such nonqualified option shall be evidenced by a nonqualified stock
option agreement, shall be designated as such and shall conform to the foregoing
provisions of Section 5 except the option price requirements of Section 5(b),
the 10-percent Shareholder restriction of Section 5(c) and the maximum value of
grants of Section 5(g). In addition, nonqualified options may be granted to
directors as well as officers and employees. The Committee may include, in its
discretion, any terms or conditions in addition to those specified in Section 5.
To the extent an option exceeds the limitations of Section 5(g), it shall be
deemed a nonqualified option and shall otherwise remain in full force and
effect. A nonqualified option may have a duration of 10 years and one day from
the date such option is granted.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, award stock appreciation rights to
any director, officer or other eligible employee of the Company who is subject
to Section 16(b) of the Exchange Act in conjunction with incentive stock options
or nonqualified stock options then being granted to him, or to be attached to
one or more such options theretofore granted and at
A-3
the time held unexercised by such employee which shall entitle him to receive
payment from the Company in accordance with the following provisions and such
terms and conditions as the Committee shall determine from time to time:
(a) An SAR granted hereunder may be made part of an option at the
time of grant of the option or at any time thereafter up to six months
prior to the expiration of the option.
(b) Such SAR will entitle the holder to elect to receive, in lieu of
exercising the option to which it relates, an amount (in cash or in Common
Stock, or a combination thereof, all in the sole discretion of the
Committee) equal to 100% of the excess of:
(1) the fair market value per share of the Company's Common
Stock on the date of exercise of such right, multiplied by the
number of shares with respect to which the right is being exercised,
over
(2) the aggregate option exercise price for such number of
shares.
(c) Such SAR will be exercisable only to the extent that it has a
positive value and the option to which it relates is exercisable, except
that no SAR shall be exercisable during the first six (6) months after the
date of its grant.
(d) Upon exercise of an SAR, the option (or portion thereof) with
respect to which such right is exercised shall be surrendered and shall
not thereafter be exercisable.
(e) The exercise of an SAR will reduce the number of shares
purchasable pursuant to the related option and available under the Plan to
the extent of the number of shares with respect to which the right is
exercised.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
The Committee may, evidenced by such written agreement as the Committee
shall from time to time prescribe, grant a specified number of shares of the
Company's Common Stock with an appropriate restrictive legend affixed thereto
("restricted stock"). Such award shall be neither an option nor a sale, but
shall be subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise transferred by the
participant until ownership vests at such time and in such manner as
specified by the Committee. Ownership shall vest only following
satisfaction of one or more of the following criteria as the Committee may
prescribe:
(1) the passage of such period of time as the Committee in its
discretion may provide, from the date of grant.
(2) the attainment of performance-based goals established by
the Committee as of the date of grant. If the participant's
compensation is subject to the $1 million cap of Internal Revenue
Code Section 162(m), the Committee may establish such performance
goals based on one or more of the following targets:
i. total shareholder return
ii. earnings per share growth
A-4
iii. cash flow growth and/or
iv. return on equity
If the participant's compensation is not subject to the
$1 million cap of Internal Revenue Code Section 162(m),
the Committee may establish the performance goal on the
basis of the preceding four targets or any other target
it may from time to time deem appropriate in its
discretion.
(3) any other conditions the Committee may prescribe,
including a non-compete requirement.
(b) Unless the Committee shall determine otherwise with respect to
participants whose compensation is not governed by Internal Revenue Code
Section 162(m), the Committee shall grant and administer all
performance-based awards under (a)(2) above with the intent of meeting the
criteria of Internal Revenue Code Section 162(m) for performance-based
compensation. To this end, the outcome of all targeted goals shall be
substantially uncertain on the date of grant; the goals shall be
established no later than 90 days following the commencement of service to
which the goals relate; the minimum period for attaining each performance
goal shall be one year; and the Committee shall certify at the conclusion
of the performance period whether the performance-based goals have been
attained. Such certification may be made by noting the attainment of the
goals in the minutes of the Committee's meetings.
(c) Except as otherwise determined by the Committee, all rights and
title to restricted stock granted to a participant under the Plan shall
terminate and be forfeited to the Company upon failure to fulfill all
conditions and restrictions applicable to such restricted stock.
(d) Except for the restrictions set forth in this Plan and those
specified by the Committee in any restricted stock agreement, a holder of
restricted stock shall possess all the rights of a holder of the Company's
Common Stock (including voting and dividend rights); provided, however,
that prior to vesting the certificates representing such shares of
restricted stock (and the amount of any dividends issued with respect
thereto) shall be held by the Company for the benefit of the participant
and the participant shall deliver to the Company a stock power executed in
blank covering such shares. As the shares vest, certificates representing
such shares shall be released to the participant. Until such time as the
restricted shares vest, all dividends payable on such shares shall be
reinvested in the Company's Common Stock, treated as restricted stock
until the underlying restricted shares vest, and, upon such vesting,
released to the participant. If the underlying shares do not vest, all
shares purchased with the reinvested dividends shall be forfeited.
(e) All other provisions of the Plan not inconsistent with this
section shall apply to restricted stock or the holder thereof, as
appropriate, unless otherwise determined by the Committee.
9. TERMINATION OF EMPLOYMENT
If the employment of a participant holding an incentive stock option
terminates for any reason other than death or disability, any incentive stock
option may be exercised by him at any time prior to the earlier of the
expiration date of the option or the expiration of three months after
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the date of termination, but only if, and to the extent that, he was entitled to
exercise the option at the date of such termination. Notwithstanding the
foregoing, an incentive stock option may not be exercised after termination of
employment if the Committee determines that the termination of employment of
such optionee resulted from willful acts, or failure to act, by the optionee
detrimental to the Company or any of its subsidiaries. The Committee shall
determine whether an authorized leave of absence shall constitute a termination
of employment for purposes of this Plan.
If the employment of a participant holding an incentive stock option
terminates by reason of disability (within the meaning of Section 105(d)(4) of
the Internal Revenue Code) or death, his incentive stock option may be exercised
at any time prior to the earlier of the expiration of the option or the
expiration of one year following the date employment terminated due to
disability or death. If after termination of employment but before the
expiration of the earlier of the option period or the three-month period, a
participant holding an incentive stock option dies, the incentive stock option
shall continue to be exercisable only for the remainder of either such period
(whichever is shorter) and the one-year period shall not be applicable.
Except as required by law, the Committee shall determine the terms and
conditions under which a nonqualified option may be exercised if the employment
of a participant holding a nonqualified option terminates for any reason.
If employment of an optionee terminates for any reason other than
disability, retirement or death, any unpaid balance remaining on any promissory
note used in the purchase of stock shall become due and payable upon not less
than three months' notice from the Company, which notice may be given at any
time after such termination; provided, however, that such unpaid balance on such
promissory note shall become due and payable five years from the date of such
termination, unless the note has an earlier due date. In the case of termination
due to death, any unpaid balance remaining on such note on the date of death
shall become due and payable one year from such date. "Retirement" shall mean
early or normal retirement as defined in the Company's retirement plan or, in
the event there is no such plan, age 65.
If a participant terminates employment while holding an unexercised SAR,
the participant, or his legal representative in the event of his death, may
exercise the SAR to the same extent as the option to which it is related may be
exercised following termination of employment.
Unless otherwise provided in a restricted stock agreement, all unvested
restricted stock shall be forfeited upon a participant's termination of
employment for any reason.
10. ADJUSTMENT OF SHARES
In the event of any change in the Common Stock of the Company by reason of
any stock dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering to purchase
Common Stock at a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares which
thereafter may be granted, optioned and sold under the Plan and the number and
kind of shares subject to grant or option in outstanding restricted stock, SAR
or option agreements and, in the case of an option, the purchase price per share
thereof shall be appropriately adjusted consistent with such change in such
manner as the Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in the
Plan.
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11. NO EMPLOYMENT RIGHTS
Neither the Plan nor any grants under the Plan shall confer upon any
recipient any right with respect to continuance of employment by the Company or
any subsidiary, nor shall they interfere in any way with the right of the
Company or any subsidiary by which a recipient is employed to terminate his
employment at any time.
12. WITHHOLDING TAXES
All grants are subject to Federal, state and local withholding
requirements to which grants of this type are normally subject. In the case of
any cash payment pursuant to the exercise of an SAR, the Company shall withhold
from such payment the appropriate amount of withholding taxes due. Prior to the
delivery of any certificate or certificates for shares acquired pursuant to the
exercise of an option or SAR or the vesting of restricted stock, the holder must
satisfy applicable Federal, state and local withholding tax obligations by
either (a) delivering to the Company shares of the same class as the shares as
to which the certificate is to be delivered, or (b) directing the Company to
withhold certain of such shares, or (c) remitting to the Company a sufficient
amount of cash to satisfy the withholding requirements. If withholding is to be
satisfied under either (a) or (b), the stock used for payment shall have a fair
market value (as determined by the Committee) equal to the amount of the taxes
to be withheld. Any election by the holder to satisfy withholding under (a) or
(b) in the case of the exercise of a stock option or SAR must be made prior to
the date the amount of the withholding tax is determined, is subject to
disapproval by the Committee, and, in the case of an officer of the Company
subject to the provisions of Section 16 of the Exchange Act must be made after
six months following the grant and must be made during the period beginning on
the third business day following the date of release for publication by the
Company of financial data specified under Rule 16b-3(e)(1)(ii) under the
Exchange Act and ending on the twelfth business day following such date. Any
such election shall be irrevocable. The portion of any withholding tax
represented by a fractional share must be paid in cash.
13. CHANGE IN CONTROL
Upon acquisition of thirty percent or more of the Company's outstanding
shares of stock having general voting rights by an unaffiliated person, entity
or group, the Committee shall notify, in writing, each holder of an outstanding
option, SAR or restricted stock of such change in control. Notwithstanding any
other provision of this Plan or any option or SAR agreement, all options and
SARs shall become fully exercisable on receipt of such notice and all forfeiture
conditions on restricted stock shall be removed. All outstanding options shall
expire if not exercised within 30 days of receipt of the notice of a change of
control.
14. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the shareholders of
the Company or by the Board of Directors, except that the Board may not, without
approval of the shareholders, materially increase the benefits accruing to
participants under the Plan, materially increase the maximum number of shares as
to which restricted stock or options may be granted under the Plan, change the
basis for making performance-based awards for participants whose compensation is
subject to Internal Revenue Code Section 162(m), modify the requirements as to
eligibility for participation in the Plan, change the minimum option price,
change the class of eligible persons, extend the period for which options may be
granted or exercised, or withdraw the authority to administer the Plan from a
Committee consisting of directors not eligible to receive options under the
Plan. Notwithstanding the foregoing, to the extent permitted by law, the
Committee may amend the Plan without the approval of shareholders, to the extent
it deems
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necessary to cause the Plan to comply with Securities and Exchange Commission
Rule 16b-3 or any successor rule, as it may be amended from time to time. Except
as required by law, no amendment, modification, or termination of the Plan may,
without the written consent of a participant to whom any grant shall theretofore
have been awarded, adversely affect the rights of such participant under such
grant.
15. EFFECTIVE DATE
The effective date of the Plan is August 31, 1999, provided that the Plan
is adopted by the shareholders of the Company within twelve months of such date.
16. GOVERNING LAW
To the extent not inconsistent with the provisions of the Internal Revenue
Code that relate to incentive stock options, nonqualified stock options, SARs
and restricted stock, this Plan and any agreements adopted pursuant to it shall
be construed under the laws of the Commonwealth of Pennsylvania without
reference to its principles of conflicts of law.
Dated as of August 31, 1999 ARROW INTERNATIONAL, INC.
By: /s/ Marlin Miller, Jr.
------------------------------------
Marlin Miller, Jr.
Chairman and Chief Executive Officer
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PROXY
ARROW INTERNATIONAL, INC.
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON JUNE 19, 2000
The undersigned hereby appoints Raymond Neag and John H. Broadbent, Jr., and
each or either of them, his/her Proxies, each with full power to appoint his/her
substitute, and hereby authorizes them to represent and to vote, as designated
hereon, all shares of common stock of ARROW INTERNATIONAL, INC. (the "Company")
held of record by the undersigned on April 28, 2000, at the Special Meeting of
Shareholders to be held on June 19, 2000 and any adjournments thereof, and
hereby further authorizes each of them, in their discretion, to vote upon any
other business that may properly come before the meeting.
(Change of address/Comments)
----------------------------------
----------------------------------
----------------------------------
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(If you have written in the above space, please mark the
corresponding box on the reverse side of this card)
You are encouraged to specify your choices by marking the appropiate boxes, SEE
REVERSE SIDE, but you need not mark any box with regard to a particular proposal
if you wish to vote FOR such proposal. The proxies cannot vote your shares
unless you sign and return this card.
-----------
SEE REVERSE
SIDE
-----------
FOLD AND DETACH HERE
|X| Please mark your vote as in this example. 0395
This proxy when properly executed will be voted in the manner directed therein.
If no direction is given with respect to the proposal, this proxy will be voted
FOR the proposal.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" proposal 1.
- --------------------------------------------------------------------------------
1. Approval of the adopton of the 1999 Stock Incentive Plan.
FOR |_| AGAINST |_| ABSTAIN |_|
- --------------------------------------------------------------------------------
Change of Address/Comments on Reverse Side. |_|
The signer hereby revokes all proxies
heretofore given by the signer to vote at
said meeting or any adjournments thereof.
NOTE: Please sign exactly as name appears hereon. If
shares are registered in more than one name, the
signatures of all such persons are required. A corporation
should sign its full corporate name by a duly authorized
officer, stating his/her title. Trustees, guardians, executors
and administrators should sign in their official capacity
giving their full title as such. If a partnership,
please sign in the partnership name by authorized persons.
SIGNATURE(S)____________________________________ DATE__________________________
FOLD AND DETACH HERE
ARROW(R) INTERNATIONAL, INC.
Special Meeting of Shareholders
June 19, 2000
10:00 a.m.
Arrow International, Inc.
2400 Bernville Road
Reading, Pennsylvania