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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Rule 14a-6(e)(2))
___________________________________________
ARROW INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
___________________________________________
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ARROW INTERNATIONAL, INC.
2400 BERNVILLE ROAD
READING, PENNSYLVANIA 19605
_____________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 15, 2003
To Our Shareholders:
The Annual Meeting of Shareholders of Arrow International, Inc. will be
held at the Sheraton Reading Hotel, 1741 Paper Mill Road, Wyomissing,
Pennsylvania at 4:00 p.m. on January 15, 2003 for the following purposes:
(1) To elect two directors;
(2) To act upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent
accountants for the fiscal year ending August 31, 2003; and
(3) To transact such other business, if any, as may properly come
before the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 29,
2002 as the record date for the determination of shareholders entitled to notice
of and to vote at the Annual 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 ANNUAL MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN
PERSON IF YOU DECIDE TO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
December 13, 2002
Reading, Pennsylvania
PROXY STATEMENT
2003 ANNUAL MEETING OF SHAREHOLDERS
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. for the Annual
Meeting of Shareholders to be held on January 15, 2003, or any adjournments
thereof.
The Board of Directors has fixed the close of business on November 29,
2002 as the record date for the determination of the shareholders entitled to
notice of, and to vote at, the Annual Meeting. On that date there were
21,787,046 shares of Common Stock outstanding and entitled to vote at the Annual
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
Annual Meeting. The affirmative vote of a plurality of the votes cast is
required for the election of directors. The affirmative vote of a majority of
the votes cast is required to ratify the appointment of independent accountants
for fiscal 2003. Shares represented by proxies will be voted in accordance with
the specifications made on the proxy card by the shareholder.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business at the
Annual Meeting, but will be excluded entirely from the vote and will have no
effect on the outcome of the voting. With regard to the ratification of the
appointment of independent accountants, abstentions may be specified. Since the
affirmative vote of a majority of the votes cast is required to ratify the
appointment of independent accountants, an abstention with respect to such
proposal will have the same effect as a vote against such proposal. Any proxy
not specifying the contrary will be voted in the election of directors for each
of the Board of Directors' nominees and in favor of the proposal to ratify the
appointment of independent accountants. A shareholder giving a proxy has the
right to revoke it by a duly executed proxy bearing a later date, by attending
the Annual Meeting and voting in person, or by otherwise notifying the Company
prior to the Annual 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 Annual Meeting have been
approved. The Company believes that the proposals to be considered at the Annual
Meeting are proposals in respect of which brokers and other nominees typically
have discretionary power. Accordingly, unless one or more beneficial owners of
the Common Stock have withheld discretionary authority from their brokers or
nominees in respect of these types of proposals, the Company does not anticipate
that there will be any broker non-votes in respect of such proposals. If there
are any broker non-votes in respect of the proposals, however, the Company
intends to treat such broker non-votes as stated above.
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 December 13, 2002.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of the Company is currently composed of ten
directors, although up to 12 directors are permitted by the Company's Restated
Articles of Incorporation and By-Laws. Under the Company's Restated Articles of
Incorporation and By-laws, the Board is divided into four classes, as nearly
equal in number as possible. At each Annual Meeting of Shareholders, directors
constituting one class are elected for a four-year term (or for such lesser term
as may be specified in the proxy statement furnished in connection therewith).
The Board of Directors has nominated John H. Broadbent, Jr. and George W.
Ebright, each of whom is currently a director, for election to the Board of
Directors. If elected, each of Messrs. Broadbent and Ebright will serve until
the Annual Meeting of Shareholders to be held in 2007, or until such time as
their respective successors are elected. The remaining directors will continue
to serve as set forth below.
The Board believes that each of the nominees will be available and able
to serve as a director. If a nominee is unable to serve, the shares of Common
Stock represented by all valid proxies will be voted for the election of such
substitute as the Board may recommend, the Board may reduce the number of
directors to eliminate the vacancy or the Board may fill the vacancy at a later
date after selecting an appropriate nominee.
Certain information concerning the nominees and those directors whose
terms of office will continue following the Annual Meeting is set forth in the
following table:
PRINCIPAL OCCUPATION, BUSINESS
NAME AGE EXPERIENCE AND DIRECTORSHIP
- ---- --- ---------------------------
NOMINEES FOR TERMS EXPIRING IN 2007
John H. Broadbent, Jr. 64 Director of the Company since it was founded in 1975. Vice President -
Finance and Treasurer of the Company from 1975 until his retirement in
August 1998. From 1966 to 1975, served in several capacities with
Carpenter Technology Corporation, a specialty steel manufacturer, the
latest as Manager-Market Planning & Development. From 1964 to 1966,
consultant in the Management Advisory Services Department of the
international accounting firm of Price Waterhouse & Co. Also, Vice
President, Finance, Treasurer and a director of Arrow Precision
Products, Inc. ("Precision"), a corporation formerly controlled by
principal shareholders of the Company until its dissolution in May
2002.
George W. Ebright 64 Director of the Company since October 1993. Director of Cytogen
Corporation, a biopharmaceutical company engaged in the development of
diagnostic and therapeutic substances for human health care
applications ("Cytogen"), from February 1989 until May 1995. Chairman
of the Board of Cytogen from February 1990 until January 1995 and
President from February 1989 to August 1991. Prior thereto, President
and Chief Operating Officer and a director of SmithKline Beckman
Corporation, a health care and life services company engaged in the
marketing of a broad line of prescription and proprietary products for
human and animal health care, as well as diagnostic and analytical
products and services. From 1963 through 1987, held several senior
management positions with SmithKline & French Laboratories and two of
its divisions. Director of NABI, Inc., a biopharmaceutical company
which develops products for the prevention and treatment of infectious
diseases, and The West Company, a supplier of specialized packaging
systems to the health care and consumer products industries. Also, a
director of Precision until its dissolution in May 2002.
-2-
DIRECTORS WHOSE TERMS EXPIRE IN 2004
T. Jerome Holleran 66 Secretary and a director of the Company since it was founded in 1975
and, until September 1997, a Vice President of the Company. Chairman of
the Board of Directors of Precision Medical Products, Inc. ("PMP"), a
former subsidiary of Precision, since October 1999, Chief Executive
Officer of PMP since July 1996 and President of PMP from July 1996 to
October 1999. PMP manufactures and markets certain non-catheter medical
products and was sold in August 1997 to a group of management employees
of Precision (including Mr. Holleran). From February 1986 to September
1997, Vice President, Chief Operating Officer and a director of
Precision. President of Endovations, Inc., a former subsidiary of
Precision that manufactured and marketed certain gastroenterological
medical products ("Endovations"), from 1991 until the sale in June 1996
of a portion of Endovations' business to the Company and the remainder
to an unrelated third party. From 1971 to 1975, Director of Business
Planning-Textile Divisions of Rockwell International Corporation and a
Marketing Manager of the Arrow Products Division of Rockwell
International Corporation, the Company's predecessor (the "Rockwell
Division"). From 1969 to 1971, consultant with the management
consulting firm of Booz, Allen and Hamilton.
R. James Macaleer 68 Director of the Company since January 1998. Chairman of the Board of
Shared Medical Systems Corporation, a provider of computer-based
information systems and associated services to the health industry in
North America and Europe ("SMS"), from 1969 to November 1997, and Chief
Executive Officer of SMS from 1969 to August 1995. Also, a director of
Precision until its dissolution in May 2002.
Alan M. Sebulsky 43 Director of the Company since January 1997. Independent investor and
consultant since May 2002. Managing Director from March 2000 to January
2002 and Executive Vice President and principal from July 1994 to March
2000 of Lincoln Capital Management, a private investment management
firm based in Chicago, Illinois, with responsibility for investments in
the health care industry. From 1988 to May 1994, Managing Director at
Morgan Stanley & Company, an international investment banking and
brokerage firm, with responsibility for equity research in the
pharmaceutical and medical device industries. From 1982 to 1988, held
various positions at T. Rowe Price & Associates, an investment
management firm, the latest as Vice President, with responsibility for
health care investment analysis and portfolio management.
-3-
DIRECTORS WHOSE TERMS EXPIRE IN 2005
Carl G. Anderson, Jr. 57 Vice Chairman of the Board and General Manager, Critical Care Business
of the Company since January 2002 and a director of the Company since
January 1998. President and Chief Executive Officer of ABC School
Supply, Inc., a manufacturer and marketer of materials and equipment
for public and private schools, from May 1997 to December 2001.
Consultant with the New England Consulting Group, a general management
and marketing consulting company, from May 1996 to May 1997. Vice
President, General Manager, Retail Consumer Products of James River
Corporation, a multinational company engaged in the development,
manufacture and marketing of paper-based consumer and commercial
products ("James River"), from August 1994 to March 1996, and Vice
President, Marketing, Consumer Brands of James River from May 1992 to
August 1994. From 1984 to May 1992, served in various capacities with
Nestle Foods Corporation, the latest as Vice President, Division
General Manager, Confections. Prior thereto, served in several
marketing capacities with Procter & Gamble.
John E. Gurski 61 Director of the Company since January 1997. Corporate Vice President of
AMP Incorporated, a multinational company engaged in the development,
manufacture and marketing of systems for electrical and electronic
applications ("AMP"), from 1989 until January 1999. President, Europe,
Middle East and Africa, of AMP since July 1995 and beginning January
1997, President, Global Operations, of AMP. Corporate Vice President,
Europe, of AMP from September 1993 to July 1995 and Corporate Vice
President, Business & Operations Planning International, of AMP from
January 1992 to September 1993. Corporate Vice President, Capital Goods
Business Sector, of AMP from 1989 to January 1992 and Divisional Vice
President, Operations, of AMP from 1987 to 1989. From 1972 to 1987,
served in various manufacturing and operating capacities with AMP.
Prior thereto, was employed by General Motors Corporation.
-4-
Marlin Miller, Jr. 70 Chairman of the Board of Directors of the Company since January 1999,
Chief Executive Officer and a director of the Company since it was
founded in 1975, and President of the Company from 1975 to January
1999. From 1972 to 1975, Vice President and a director of Connors
Investor Services, a research and investment management firm. From 1959
to 1972, served in several capacities with Glen Gery Corporation, a
manufacturer of building products, the latest as Executive Vice
President and a director. Director of Carpenter Technology Corporation,
a manufacturer of specialty steel, until his retirement from this
position in October 2002. Also, a director of Precision until its
dissolution in May 2002.
DIRECTORS WHOSE TERMS EXPIRE IN 2006
Raymond Neag 71 Director of the Company since it was founded in 1975. Vice Chairman of
the Company from January 1999 until his retirement in October 1999,
Executive Vice President of the Company from April 1992 to January 1999
and Senior Vice President of the Company from 1975 to April 1992. From
1973 until joining the Company, General Manager of the Rockwell
Division. From 1971 to 1973, President of Teledyne Dental Products, a
manufacturer of dental products and a division of Teledyne, Inc. Prior
to 1971, Vice President and Director of Marketing of Sherwood Medical,
Inc., a medical device company. Also, Secretary and a director of
Precision until its dissolution in May 2002.
Richard T. Niner 63 Director of the Company since 1982. General partner since January 1999
of Wind River Associates L.P., a private investment partnership.
General partner since 1988 of Brynwood Management II L.P., the general
partner of a private investment partnership based in Greenwich,
Connecticut. Director of Hurco Companies, Inc., a manufacturer and
marketer of computer numerical controls ("CNC") and CNC machine tools.
Also, a director of Precision until its dissolution in May 2002.
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 four
meetings during fiscal 2002. All of the directors attended at least 75% of the
meetings of the Board and any committee on which they served during fiscal 2002.
The committees of the Board are the Audit Committee and the Human Resources
Committee. The Board does not have a separate nominating committee but a
majority of the Company's independent directors acts in lieu of a nominating
committee in approving director nominations.
-5-
The Audit Committee, among other things, reviews with the Company's
management and outside auditors the Company's audited financial statements to be
included in its Annual Report on Form 10-K and its interim financial statements
to be included in its Quarterly Reports on Form 10-Q, assesses the effectiveness
and adequacy of the Company's internal accounting controls system and audit
procedures, reviews corporate compliance policies and evaluates the independence
of, and has the ultimate authority and responsibility to select or nominate for
shareholder approval, the firm to be appointed as independent accountants to
audit the Company's financial statements. The Audit Committee operates under a
written charter which was adopted by the Board of Directors in fiscal 2000, a
copy of which was attached to the Company's proxy statement relating to its
Annual Meeting of Stockholders held on January 17, 2001, and which remains
unchanged and in full force and effect as of the date of this Proxy Statement.
The Audit Committee expects to recommend to the Board of Directors for its
adoption in fiscal 2003 certain amendments to the Audit Committee's charter and
possibly other changes to the Audit Committee to comply with applicable
requirements of the Sarbanes-Oxley Act of 2002 and related rules promulgated by
the Securities and Exchange Commission (the "SEC") and the National Association
of Securities Dealers, Inc. (the "NASD"), which regulates companies, like the
Company, whose stock is traded on The Nasdaq Stock Market, prior to the date
that such requirements and rules become effective. The members of the Audit
Committee currently are John H. Broadbent, Jr., Richard T. Niner, who acts as
Chairman of the Committee, and Alan M. Sebulsky, each of whom is an independent
director within the meaning of rules and regulations promulgated by the SEC and
the NASD currently in effect. The Audit Committee met four times during the
fiscal year ended August 31, 2002.
The Human Resources Committee determines the compensation for the
Company's Chief Executive Officer and all of its other executive officers,
including salaries, bonuses and grants of awards under, and administration of,
the Company's stock incentive plans. The Human Resources Committee selects
employees to whom awards will be made under the Company's stock incentive plans,
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, each of whom is an independent
director within the meaning of rules and regulations promulgated by the SEC and
the NASD currently in effect. The Human Resources Committee met three times
during the fiscal year ended August 31, 2002.
COMPENSATION OF DIRECTORS
The Company's directors who are not officers or employees of the
Company received a quarterly fee of $4,000 for Board membership in fiscal 2002,
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 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 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 these 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 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.
-6-
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.
On January 16, 2002, the date of the Company's 2002 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, and Carl G. Anderson, Jr., who was
elected as Vice Chairman and General Manager, Critical Care Business of the
Company on such date, was granted options under the plan to purchase 1,500
shares of Common Stock, in each case at an exercise price of $41.24, the closing
price per share of the Common Stock on such date as reported on The Nasdaq Stock
Market. In accordance with the amended terms of the plan, on the date of the
Annual Meeting, each of the directors of the Company, with the exception of
Messrs. Miller and Anderson, will receive options to purchase an additional
1,500 shares of Common Stock, in each case at an exercise price which is equal
to the closing price per share of the Common Stock on such date as reported on
The Nasdaq Stock Market.
EXECUTIVE OFFICERS
The executive officers of the Company and their ages and positions as
of November 1, 2002 are listed below. All executive officers are elected or
appointed annually and serve at the discretion of the Board of Directors. There
are no family relationships among the executive officers of the Company.
Name Office Age
- ---- ------ ---
Marlin Miller, Jr. Chairman and Chief Executive Officer 70
Carl G. Anderson, Jr. Vice Chairman and General Manager, 57
Critical Care Business
Philip B. Fleck President and Chief Operating Officer 58
Paul L. Frankhouser Executive Vice President - Global 57
Business Development
Frederick J. Hirt Vice President - Finance, Chief Financial 54
Officer and Treasurer
T. Jerome Holleran Secretary 66
Carl N. Botterbusch Vice President and General Manager, 39
Cardiac Assist Division
Thomas D. Nickel Vice President - Regulatory Affairs 63
and Quality Assurance
Scott W. Hurley Controller 44
Mr. Miller has served as Chief Executive Officer and a director of the
Company since it was founded in 1975, and as Chairman of the Board of Directors
since January 1999. He served as President of the Company from 1975 to January
1999. Mr. Miller also served as President and a director of Arrow Precision
Products, Inc. ("Precision"), a corporation controlled by principal shareholders
of the Company until its dissolution on May 1, 2002. During fiscal 2002, Mr.
Miller devoted none of his time to Precision. On October 28, 2002, Mr. Miller
retired as a director of Carpenter Technology Corporation, a manufacturer of
specialty steel.
-7-
Mr. Anderson has served as Vice Chairman of the Board and General
Manager, Critical Care Business of the Company since January 2002, with
responsibility for worldwide sales, marketing, research and development of the
Company's critical care products. Mr. Anderson has served as a director of Arrow
since January 1998 and, prior to his employment by the Company, served as
President and Chief Executive Officer of ABC School Supply, Inc., a producer of
materials and equipment for public and private schools, from May 1997 to
December 2001. Mr. Anderson served as Principal with the New England Consulting
Group, a general management and marketing consulting company, from May 1996 to
May 1997, as Vice President, General Manager, Retail Consumer Products of James
River Corporation, a multinational company engaged in the development,
manufacture and marketing of paper-based consumer products ("James River"), from
August 1994 to March 1996, and as Vice President, Marketing, Consumer Brands of
James River from May 1992 to August 1994, and in various capacities with Nestle
Foods Corporation, the latest as Vice President, Division General Manager,
Confections, from 1984 to May 1992. Prior thereto, Mr. Anderson served in
several marketing capacities with Procter & Gamble.
Mr. Fleck has served as President of the Company since January 1999.
From June 1994 to January 1999, he served as Vice President - Research and
Manufacturing of the Company. From 1986 to June 1994, Mr. Fleck served as Vice
President - Research and Engineering of the Company. From 1975 to 1986, Mr.
Fleck served as Engineering Manager of the Company.
Mr. Frankhouser has served as Executive Vice President - Global
Business Development of the Company since January 2002, with responsibility for
worldwide evaluation and acquisition of new business opportunities. From January
1999 to January 2002, Mr. Frankhouser served as Executive Vice President of the
Company, with responsibility for worldwide sales and marketing. He served as
Vice President - Marketing of the Company from 1986 until January 1999. From
1980 to 1986, Mr. Frankhouser served as Manager of Marketing of the Company.
Mr. Hirt has served as Vice President-Finance, Chief Financial Officer
and Treasurer of the Company since August 1998. Prior to joining the Company,
from 1980 to 1998, Mr. Hirt served in various capacities with Pharmacia &
Upjohn, Inc., the latest as Vice President, Accounting and Reporting.
-8-
Mr. Holleran has served as Secretary and a director of the Company
since its founding in 1975 and, until September 1997, also served as a Vice
President. From July 1996, Mr. Holleran served as President and Chief Executive
Officer of Precision Medical Products, Inc. ("PMP"), a former subsidiary of
Precision, which manufactures and markets certain non-catheter medical products
and was sold on August 29, 1997 to certain employees of Precision, including Mr.
Holleran. He is now the Chairman of PMP. From February 1986 to September 1997,
Mr. Holleran was also Vice President, Chief Operating Officer and a director of
Precision. From 1991 to 1996, Mr. Holleran served as President of Endovations,
Inc., a subsidiary of Precision that manufactured and marketed certain
gastroenterological medical products, until the sale in June 1996 of a portion
of the Endovations business to the Company and the remainder to an unrelated
third party.
Mr. Botterbusch has served as Vice President and General Manager of the
Company's Cardiac Assist Division since March 2001. From January 1999 to March
2001, Mr. Botterbusch served as Vice President, Research and Engineering of the
Company. He served as Manager, Product Development, Research and Engineering
from 1993 to January 1999, as Group Leader, Research and Development from 1987
to 1993 and, from 1985, when he joined the Company, to 1987, as a Project
Engineer of the Company.
Mr. 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.
Mr. Hurley has served as Controller of the Company since April 1998.
Prior to joining the Company, from 1990 to 1998, he served in various capacities
with Rhone-Poulenc Rorer, the latest as a Director of Finance.
-9-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 29, 2002, 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 (whose
beneficial ownership has been rounded up or down to the nearest whole share of
Common Stock), (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.............................. 3,923,844(1) 18.0%
Richard T. Niner............................... 3,152,085(2) 14.5%
Raymond Neag................................... 1,526,075(3) 7.0%
John H. Broadbent, Jr.......................... 783,390(4) 3.6%
T. Jerome Holleran............................. 528,065(5) 2.4%
Philip B. Fleck................................ 141,517(6) *
Paul L. Frankhouser............................ 98,738(7) *
Carl G. Anderson, Jr........................... 29,773(8) *
Frederick J. Hirt.............................. 26,101(9) *
Carl N. Botterbusch............................ 14,796(10) *
R. James Macaleer.............................. 16,915(11) *
Alan M. Sebulsky............................... 14,500(12) *
John E. Gurski................................. 12,727(13) *
George W. Ebright.............................. 11,500(14) *
All directors and officers as a group
(16 persons).................................. 10,299,804(15) 46.6%
Robert L. McNeil, Jr........................... 2,281,844(16) 10.5%
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 10.6%
c/o The Bank of New York
P.O. Box 11203
New York, New York 10249
________________________
* 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 51,000 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 held by such
foundation.
(footnotes continued on next page)
-10-
(footnotes continued from previous page)
(2) Includes an aggregate of 6,923 shares owned by Mr. Niner's wife and minor
child, 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 held by such
foundation, as to which 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
held in such trust. Also includes 4,500 shares issuable upon the exercise
of vested options and options which are deemed to be presently
exercisable.
(3) Includes 4,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Also includes 1,000
shares owned by Mr. Neag's wife as to which Mr. Neag disclaims beneficial
ownership.
(4) Includes 12,000 shares owned by Mr. Broadbent's wife, as to which Mr.
Broadbent disclaims beneficial ownership. Also includes 12,300 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 held by
such foundation and 10,000 shares held by The Dana L. Bunting and Robert
L. Bunting Irrevocable Educational Trust, of which Mr. Broadbent is sole
trustee with power to vote and dispose of the shares held in such Trust.
In addition, includes 4,500 shares issuable upon the exercise of options
which are 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 398,565 shares
owned by the Thomas Jerome Holleran Revocable Trust, of which Mr.
Holleran is trustee with sole power to vote and dispose of the shares
held by such trust. In addition, includes 4,500 shares issuable upon the
exercise of vested options and options which are 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 109,000 shares issuable
upon the exercise of vested options and options which are deemed to be
presently exercisable. Does not include 46,000 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 87,000 shares
issuable upon the exercise of vested options and options which are deemed
to be presently exercisable. Does not include 33,000 shares issuable upon
the exercise of options which are not deemed to be presently exercisable.
(8) Includes 23,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
60,000 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(9) Includes 24,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
26,000 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(10) Includes 13,100 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
25,400 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)
(11) Includes 4,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(12) Includes 10,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(13) Includes 10,500 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(14) Includes 11,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(15) See footnotes (1) through (14) above. Also includes 11,300 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 15,400 shares issuable upon the exercise of options granted to
two executive officers which are not deemed to be presently exercisable.
(16) Includes 50,000 shares held by a charitable foundation of which Mr.
McNeil, a former director of the Company, is the president and one of
twelve directors who have shared power to vote and dispose of the shares
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), 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 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 Company's fiscal year ended August 31, 2002, and
(ii) written representations from certain reporting persons, that Paul L.
Frankhouser, the Executive Vice President of the Company, was inadvertently late
in filing a Form 4 reporting the sale of 4,800 shares of Common Stock on April
1, 2002.
-12-
EXECUTIVE COMPENSATION
The following table summarizes, for the Company's past three
fiscal years, all compensation paid to (i) the Company's Chief Executive
Officer, (ii) each of the four most highly compensated executive officers of the
Company other than the Chief Executive Officer as of August 31, 2002 for
services rendered to the Company in all capacities, and (iii) an additional
executive officer of the Company who would have been one of the four most highly
compensated executed officers of the Company other than the Chief Executive
Officer as of August 31, 2002 had this executive officer served in such capacity
for the full fiscal year then ended.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION(1)
--------------- ---------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ------------------ ---- --------- -------- ---------- ---------------
Marlin Miller, Jr. 2002 450,000 -0- -0- 200,631(2)
Chairman and Chief 2001 376,459 75,668 -0- 205,988(2)
Executive Officer 2000 361,980 120,901 -0- 200,752(2)
Philip B. Fleck 2002 286,198 -0- 30,000(3) 6,757(4)
President and Chief 2001 264,092 62,770 -0- 6,110(4)
Operating Officer 2000 250,800 90,043 -0- 4,657(4)
Paul L. Frankhouser 2002 250,423 -0- 20,000(5) 19,911(6)
Executive Vice 2001 231,081 50,107 -0- 19,172(6)
President 2000 219,450 71,666 -0- 17,283(6)
Frederick J. Hirt 2002 250,423 -0- 20,000(7) 6,290(8)
Vice President-Finance, 2001 231,081 50,107 -0- 6,002(8)
Chief Financial Officer and 2000 219,450 58,593 -0- 4,631(8)
Treasurer
Carl N. Botterbusch(9) 2002 188,365 -0- 10,000(10) 9,165(11)
Vice President and 2001 157,622 29,485 20,000(12) 3,254(11)
General Manager, Cardiac 2000 130,632 30,933 -0- 2,552(11)
Assist Division
Carl Anderson(13) 2002 179,059(14) -0- 75,000(15) 1,791(16)
Vice Chairman and
General Manager, Critical
Care Business
_____________________
(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) Consists of (i) matching contributions in the amount of $3,000, $3,400
and $3,200 made by the Company to Mr. Miller's account under the
Company's 401(k) Plan in fiscal 2002, 2001 and 2000, respectively, (ii)
contributions made by the Company in fiscal 2002 and
(footnotes continued on next page)
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(footnotes continued from previous page)
2001 to Mr. Miller's account under its 401(k) Plan of 130.67 and 25.19
shares of Common Stock having an aggregate fair market value of $5,257
and $941, respectively (for further description of the Company's share
repurchase program, see "Human Resources Committee Report on Executive
Compensation - Compensation Components - Annual Incentive Bonuses"),
and (iii) insurance premiums in the amount of $191,974, $199,604 and
$195,926 paid by the Company in fiscal 2002, 2001 and 2000,
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 the cash surrender value of such
policies or the death benefits of such policies.
(3) Represents an award to Mr. Fleck on September 10, 2001 of options to
purchase 30,000 shares of Common Stock at an exercise price of $36.73
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Fleck's continued employment with the Company, 20% of such stock option
award (i.e., 6,000 options) will vest on each of the first through
fifth anniversary of the date of such award (i.e., September 10). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(4) Consists of (i) matching contributions in the amount of $3,400, $3,400
and $3,200 made by the Company to Mr. Fleck's account under the
Company's 401(k) Plan in fiscal 2002, 2001 and 2000, respectively, and
(ii) contributions made by the Company in fiscal 2002 and 2001 to Mr.
Fleck's account under its 401(k) Plan of 83.61 and 18.32 shares of
Common Stock having an aggregate fair market value of $3,357 and $685,
respectively.
(5) Represents an award to Mr. Frankhouser on September 10, 2001 of options
to purchase 20,000 shares of Common Stock at an exercise price of
$36.73 per share under the Company's 1999 Stock Incentive Plan. Subject
to Mr. Frankhouser's continued employment with the Company, 20% of such
stock option award (i.e., 4,000 options) will vest on each of the first
through fifth anniversary of the date of such award (i.e., September
10). The options are subject to immediate vesting upon the occurrence
of certain change in control events.
(6) Consists of (i) matching contributions in the amount of $3,400, $3,400
and $3,200 made by the Company to Mr. Frankhouser's account under the
Company's 401(k) Plan in fiscal 2002, 2001 and 2000, respectively, (ii)
contributions made by the Company in fiscal 2002 and 2001 to Mr.
Frankhouser's account under its 401(k) Plan of 75.27 and 16.03 shares
of Common Stock having an aggregate fair market value of $3,024 and
$599, respectively, and (iii) payments of $13,487, $13,170 and $12,663
made to Mr. Frankhouser in fiscal 2002, 2001 and 2000, respectively, in
respect of his accrued but unused vacation allowance.
(7) Represents an award to Mr. Hirt on September 10, 2001 of options to
purchase 20,000 shares of Common Stock at an exercise price of $36.73
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hirt's continued employment with the Company, 20% of such stock option
award (i.e., 4,000 options) will vest on each of the first through
fifth anniversary of the date of such award (i.e., September 10). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(footnotes continued on next page)
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(footnotes continued from previous page)
(8) Consists of (i) matching contributions in the amount of $3,400, $3,400
and $3,200 made by the Company to Mr. Hirt's account under the
Company's 401(k) Plan in fiscal 2002, 2001 and 2000, respectively, and
(ii) contributions made by the Company in fiscal 2002 and 2001 to Mr.
Hirt's account under its 401(k) Plan of 71.89 and 16.03 shares of
Common Stock having an aggregate fair market value of $2,890 and $599,
respectively.
(9) Mr. Botterbusch was elected Vice President and General Manager, Cardiac
Assist Division, of the Company effective as of July 17, 2001.
Accordingly, information provided for periods prior to such date with
respect to Mr. Botterbusch reflects compensation paid to him by the
Company prior to his becoming an executive officer of the Company.
(10) Represents an award to Mr. Botterbusch on September 10, 2001 of options
to purchase 10,000 shares of Common Stock at an exercise price of
$36.73 per share under the Company's 1999 Stock Incentive Plan. Subject
to Mr. Botterbusch's continued employment with the Company, 20% of such
stock option award (i.e., 2,000 options) will vest on each of the first
through fifth anniversary of the date of such award (i.e., September
10). The options are subject to immediate vesting upon the occurrence
of certain change in control events.
(11) Consists of (i) matching contributions in the amount of $3,400, $2,795
and $2,552 made by the Company to Mr. Botterbusch's account under the
Company's 401(k) Plan in fiscal 2002, 2001 and 2000, respectively, and
(ii) contributions made by the Company in fiscal 2002 and 2001 to Mr.
Botterbusch's account under its 401(k) Plan of 53.19 and 12.29 shares
of Common Stock having an aggregate fair market value of $2,142 and
$459, respectively.
(12) Represents an award to Mr. Botterbusch on April 6, 2001 of options to
purchase 20,000 shares of Common Stock at an exercise price of $37.50
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Botterbusch's continued employment with the Company, 20% of such stock
option award (i.e., 4,000 options) will vest on each of the first
through the fifth anniversary of the date of such award (i.e., April
6). The options are subject to immediate vesting upon the occurrence of
certain change in control events.
(13) Mr. Anderson was elected Vice Chairman of the Board of Directors and
General Manager, Critical Care Business of the Company on January 16,
2002. Accordingly, no information is provided for periods prior to such
date for Mr. Anderson.
(14) Represents the pro rata portion of annual salary and bonus paid to Mr.
Anderson from January 16, 2002, the date he joined the Company as an
employee, to and including August 31, 2002.
(15) Represents an award to Mr. Anderson on January 16, 2002 of incentive
stock options to purchase 75,000 shares of Common Stock at an exercise
price of $41.24 per share under the Company's 1999 Stock Incentive
Plan. Subject to Mr. Anderson's continued employment with the Company,
20% of such stock option award (i.e., 15,000 options) will vest on each
of the first through the fifth anniversary of the date of such award
(i.e.,
(footnotes continued on next page)
-15-
(footnotes continued from previous page)
January 16). The options are subject to immediate vesting upon the
occurrence of certain change in control events.
(16) Contribution made by the Company in fiscal year 2002 to Mr. Anderson's
account under its 401(k) Plan of 42.75 shares of Common Stock having an
aggregate fair market value of $1,791.
OPTION GRANTS
The following table sets forth certain information, as of August 31,
2002, concerning individual grants of stock options made during the fiscal year
ended August 31, 2002 to the persons named in the Summary Compensation Table
above.
OPTION GRANTS IN FISCAL 2002
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
OPTION TERM
------------------------------
INDIVIDUAL GRANTS
--------------------------------------------------------------------
PERCENT OF
TOTAL OPTIONS
NUMBER OF SECURITIES GRANTED TO
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED (#) FISCAL YEAR(1) PRICE ($/SH) DATE 5% 10%
- ------------------- ----------- -------------- ------------ ---- ----------- ------------
Marlin Miller, Jr. -- -- -- -- -- --
Carl Anderson 75,000 (2) 13.53% 41.24 1/16/12 $1,945,171 $4,929,445
Philip B. Fleck 30,000 (3) 5.41% 36.73 9/10/11 $692,979 $1,756,145
Paul L. Frankhouser 20,000 (4) 3.61% 36.73 9/10/11 $461,986 $1,170,763
Frederick J. Hirt 20,000 (4) 3.61% 36.73 9/10/11 $461,986 $1,170,763
Carl N. Botterbusch 10,000 (5) 1.80% 36.73 9/10/11 $230,993 $585,382
_________________
(1) Based upon the Company's grant of options to purchase a total of
554,415 shares of Common Stock during fiscal 2002.
(2) Granted pursuant to the Company's 1999 Stock Incentive Plan on January
16, 2002. Subject to continued employment by the Company, 20% of such
options (i.e., 15,000 options) will vest on each of the first through
the fifth anniversary of such date (i.e., January 16). 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
September 10, 2001. Subject to continued employment by the Company, 20%
of such options (i.e., 6,000 options) will vest on each of the first
through the fifth anniversary of such date (i.e., September 10). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(footnotes continued on next page)
-16-
(footnotes continued from previous page)
(4) Granted pursuant to the Company's 1999 Stock Incentive Plan on
September 10, 2001. Subject to continued employment by the Company, 20%
of such options (i.e., 4,000 options) will vest on each of the first
through the fifth anniversary of such date (i.e., September 10). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(5) Granted pursuant to the Company's 1999 Stock Incentive Plan on
September 10, 2001. Subject to continued employment by the Company, 20%
of such options (i.e., 2,000 options) will vest on each of the first
through the fifth anniversary of such date (i.e., September 10). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
AGGREGATE OPTION EXERCISES IN FISCAL 2002 AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock
options exercised during fiscal 2002 and the number of unexercised options held
by the individuals named in the Summary Compensation Table as of August 31,
2002. 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,
2002.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED ON AUGUST 31, 2002(#) AT AUGUST 31, 2002 ($)(1)
ACQUIRED ON ---------------------------- ----------------------------
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------------ ----------- ------------- ----------- -------------
Marlin Miller, Jr. -- -- -- -- -- --
Carl Anderson -- -- 8,500 75,000 $5,313 --
Philip B. Fleck -- -- 103,000 52,000 $839,250 $209,500
Paul L. Frankhouser -- -- 83,000 37,000 $641,750 $160,125
Frederick J. Hirt -- -- 20,000 30,000 $130,000 $62,500
Carl N. Botterbusch -- -- 11,100 27,400 $20,413 $8,400
_________________
(1) Based upon a closing price of the Common Stock of $35.00 per share on
August 31, 2002 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, September 1, 1989 and September 1, 1997 (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 consecutive months in the final 120 months of the participant's
employment which produce the highest average. Since 1989, Internal Revenue Code
-17-
provisions have limited the amount of annual compensation that can be used for
calculating pension benefits. In 2002, no more than $200,000 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 2000, 2001 and 2002 was
$1,220,044, $761,136 and $1,484,494, respectively, equivalent to approximately
4.9% for fiscal 2000, 2.3% for fiscal 2001 and 4.3% for fiscal 2002 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, Fleck and Frankhouser has
27 years, Mr. Hirt has four years, Mr. Botterbusch has 17 years and Mr. Anderson
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................... 37,500 50,000 62,500 75,000 87,500
250,000................... 37,500 50,000 62,500 75,000 87,500
300,000................... 37,500 50,000 62,500 75,000 87,500
350,000................... 37,500 50,000 62,500 75,000 87,500
400,000................... 37,500 50,000 62,500 75,000 87,500
450,000................... 37,500 50,000 62,500 75,000 87,500
500,000................... 37,500 50,000 62,500 75,000 87,500
550,000................... 37,500 50,000 62,500 75,000 87,500
____________________
(1) Under current Internal Revenue Code provisions, no more than $200,000 of
annual salary can be used to determine an employee's annual benefit
accrual. The Internal Revenue Service adjusts this figure annually.
-18-
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 stock incentive plans. The Human
Resources Committee is currently composed of three independent directors of the
Company who are independent within the meaning of rules and regulations
promulgated by the SEC and the NASD currently in effect.
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 components 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 manufacturing companies, including those
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, including publicly
available compensation information relating to direct competitors of the
Company, 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 2002, in addition to consideration of industry
comparisons and individual performance, has taken particular note of the
Company's performance in fiscal 2002 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.
-19-
ANNUAL INCENTIVE BONUSES. Annual incentive bonuses during fiscal 2002
were based on two plans: a profit sharing plan in which employees, including
executive officers, were eligible to participate (the "Profit Sharing Plan"),
and a pretax income growth plan limited to certain executive officers (the
"Income Growth Bonus Plan").
Under the Profit Sharing Plan, a fixed percentage of the pre-tax income
of the Company, excluding profit sharing expense and other extraordinary income
and expense, was allocated to the plan during each quarter of the plan year
(which began on December 1, 2000). The amount allocated to the Profit Sharing
Plan was apportioned to each participating employee on a monthly basis in
proportion to the fraction that such employee's compensation for that month
represented of the total monthly compensation for all plan participants. Each
month the Company distributed to each plan participant 75% of the plan proceeds
allocable to such participant, while the remainder of such amount was
accumulated for the benefit of such participant and paid out in June 2001
following the termination of the plan (as described below) rather than following
the end of the plan year, as was done in prior plan years. Mr. Miller and the
Company's field sales representatives did not participate in the Profit Sharing
Plan.
In June 2001, the Company terminated the Profit Sharing Plan because
the Company believed the results it produced in recent years did not provide a
sufficiently consistent incentive to employees on a company-wide basis to focus
their efforts on the Company's long-term future success. The Company replaced
the plan with an increase in base pay that slightly exceeded the accrued but
unpaid interest of each participant in the plan and a new program under which
the Company contributes to each participant's account under the Company's 401(k)
Plan an additional 1% of the participant's monthly base pay in the form of
vested shares of Common Stock. With this stock contribution program, employees
continue to have the opportunity to benefit from the Company's potential future
success and should be additionally motivated to help the Company achieve
long-term profitable growth.
Pursuant to the Income Growth Bonus Plan, at the discretion of the
Human Resources Committee, Messrs. Miller, Anderson, Fleck, Frankhouser, Hirt
and Botterbusch are eligible to receive annual incentive bonuses equal to 5.0,
4.5, 4.5, 4.0, 4.0 and 3.0 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 2002, the Company's
pre-tax income, exclusive of extraordinary income and expense, decreased from
fiscal 2001. Consequently, none of the Company's executive officers were paid
any incentive bonuses in fiscal 2002. The Human Resources Committee continues to
believe that payment of bonuses specifically linked to the growth in
profitability of the Company provides appropriate and effective rewards for
successful individual executive 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 2003
to the eligible senior executive officers of the Company pursuant to the Income
Growth Bonus Plan to the extent that the Company in fiscal 2003 achieves an
increase in pretax income, exclusive of extraordinary income and expense, over
fiscal 2002.
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. In addition to the shares of Common Stock that the Company contributes
each month to the accounts of its employees under its 401(k) Plan (as described
above), stock awards are currently made pursuant to the Company's 1999 Stock
Incentive Plan in the form of stock options and grants of restricted Common
Stock.
-20-
Since the stock options 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, Mr. Miller currently has sufficient
incentive to promote the long-term growth of the Company and, therefore, such
executive officer has, to date, not received any awards under the Company's
stock incentive plans.
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 2002, each of Messrs. Anderson, Fleck, Frankhouser, Hirt
and Bottersbusch were awarded options to purchase 75,000, 30,000, 20,000, 20,000
and 10,000 shares of Common Stock, respectively, under the Company's 1999 Stock
Incentive Plan. Other executive officers of the Company were awarded options to
purchase a total of 15,000 shares of Common Stock under the 1999 Stock Incentive
Plan during fiscal 2002. The Company awarded to executive officers and other key
employees of the Company options to purchase a total of 554,415 shares of Common
Stock under the Company's 1999 Stock Incentive Plan during fiscal 2002. 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 2002 and
awards to individuals who had previously not been selected due to insignificant
length of service to the Company. As a result of this award and stock awards
made prior to fiscal 2002, each of the Company's executive officers who was not
also a founder 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
-21-
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors oversees the Company's
financial reporting process on behalf of the Board of Directors. The Company's
management has the primary responsibility for the Company's financial statements
and reporting process, including its systems of internal controls. In fulfilling
its responsibilities, the Audit Committee reviewed and discussed the audited
financial statements in the Company's Annual Report on Form 10-K for the year
ended August 31, 2002 with management, including a discussion of the quality and
acceptability of the accounting principles, the reasonableness of significant
judgments and the clarity of disclosures in the financial statements.
The Audit Committee also met with the Company's independent auditors,
with and without management present, to discuss the overall scope of their
audit, the results of their examinations, the cooperation received by the
auditors during the audit examination, the auditor's evaluation of the Company's
internal controls and the overall quality of the Company's financial reporting.
The Company's independent auditors are responsible for expressing an
opinion on the conformity of the Company's audited financial statements with
generally accepted accounting principles. The Audit Committee reviewed and
discussed with the Company's independent auditors their judgments as to the
quality and acceptability of the Company's accounting principles and such other
matters as are required to be discussed under generally accepted auditing
standards pursuant to Statement of Auditing Standards No. 61. In addition, the
Audit Committee received from the Company's independent auditors the written
disclosure and letter regarding their independence as required by the
Independence Standards Board Standard No. 1. The Audit Committee also discussed
with the Company's independent auditors the auditors' independence from
management and the Company, and whether the non-audit services provided by the
independent auditors are compatible with maintaining the auditors' independence.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board of Directors
approved) that the Company's audited financial statements be included in the
Company's Annual Report on Form 10-K for the year ended August 31, 2002 for
filing with the SEC.
In addition, the Audit Committee approved the appointment of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending August 31, 2003, and the Board of Directors concurred with such
selection. The Audit Committee has recommended to the shareholders that they
ratify the selection of PricewaterhouseCoopers LLP as the Company's independent
auditors for the fiscal year ending August 31, 2003.
Finally, the Audit Committee has reviewed and reassessed the adequacy
of the Audit Committee charter in light of the applicable requirements of the
Sarbanes-Oxley Act of 2002. As a result, as stated above under "Board of
Directors and Committees of the Board," the Audit Committee expects to recommend
to the Board of Directors certain amendments to the Audit Committee's charter
and possibly other changes to the Audit Committee to comply with these
requirements and related rules promulgated by the SEC and the NASD prior to the
date that they become effective.
-22-
Each of the Audit Committee members is independent, as defined in rules
and regulations promulgated by the SEC and the NASD currently in effect, and, in
particular, under the definition contained in Rule 4200(a) of the NASD's listing
standards.
AUDIT COMMITTEE
Richard T. Niner, Chairman
John H. Broadbent, Jr.
Alan M. Sebulsky
-23-
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 500 Health Care
Equipment Index for the period beginning on August 31, 1997 and ending on August
31, 2002. The comparison assumes $100 was invested on August 31, 1997 in the
Common Stock and in each of the foregoing indices and also assumes reinvestment
of all dividends. The Standard & Poor's Medical Products and Supplies Index,
which had previously been used for comparison purposes, was discontinued in
December 2001.
[graph of stock price performance here]
August 31, August 31, August 31, August 31, August 31, August 31,
1997 1998 1999 2000 2001 2002
- ------------------------------ -------------- ------------ -------------- ------------ --------------- -------------
Arrow International, Inc. $100.00 $92.10 $99.26 $122.77 $127.73 $122.28
- ------------------------------ -------------- ------------ -------------- ------------ --------------- -------------
S&P 500 Stock Index $100.00 $108.10 $151.13 $175.79 $132.94 $109.03
- ------------------------------ -------------- ------------ -------------- ------------ --------------- -------------
S&P 500-Health Care $100.00 $109.30 $147.46 $182.57 $161.39 $151.19
Equipment 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, none of the preceding Human
Resources Committee Report on Executive Compensation, the Audit Committee Report
or the Company Stock Performance Graph will be incorporated by reference into
any of those prior filings, nor will any of such reports or graph be
incorporated by reference into any future filings made by the Company under
those statutes.
-24-
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended August 31, 2002, 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 was a director of Precision
prior to its dissolution in May 2002. See "Certain Transactions."
CERTAIN TRANSACTIONS
Arrow Precision Products, Inc. ("Precision") was a former subsidiary of
the Company which was formally dissolved on May 1, 2002 (all of its assets had
previously been liquidated and distributed to shareholders). Prior to the sale
of its remaining operating subsidiary, Precision Medical Products, Inc. ("PMP"),
in August 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. Prior to Precision's dissolution, certain officers, directors and
principal shareholders of the Company owned substantially all of Precision's
outstanding common stock.
Prior to Precision's dissolution, the directors of Precision included
Messrs. Miller, Neag, Broadbent, Ebright, Macaleer and Niner. During fiscal
2002, Messrs. Miller and Broadbent served as the president and the vice
president-finance and treasurer of Precision, respectively. In fiscal 2002, due
to the pending dissolution of Precision, Mr. Miller provided no services to
Precision and Mr. Broadbent provided only minimal services to Precision and,
accordingly, they served without compensation. Prior to the sale of PMP, Mr.
Holleran served as the vice president and chief operating officer and a director
of Precision. Mr. Holleran has served as chairman of the board of PMP since
October 1999, chief executive officer of PMP since July 1999 and president of
PMP from July 1996 to October 1999. Since the sale of PMP, Mr. Holleran has
provided no services to Precision.
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.
Since the sale of PMP, the Company has not purchased any products from
Precision, has not provided any operating or administrative services to
Precision and has discontinued leasing any 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, in January 1998, the Company
assumed these obligations in exchange for the transfer by Precision to the
Company of appropriate assets to satisfy such obligations. In addition,
-25-
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 2002 amounted to $80,508) 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 fiscal 2002, the Company made purchases amounting to $89,195 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 fiscal 2002, the Company paid insurance premiums in the amount of
$70,146 in respect of term life insurance policies owned by a certain trust
established by Mr. Broadbent, the former Vice President-Finance, Chief Financial
Officer and Treasurer, 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 fiscal 2002, the Company also paid $108,445 to Mr. Neag, the former
Vice Chairman and a director of the Company, pursuant to the Company's Defined
Benefit Supplemental Executive Retirement Plan (SERP). The SERP was established
by the Company on September 1, 2000 to provide pension or retirement benefits to
selected executive officers and retired executive officers of the Company in
addition to those benefits payable to them under the Retirement Plan described
above under "Executive Compensation - Retirement Plan."
PROPOSAL 2 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Company's independent accountants and auditors are Pricewaterhouse
Coopers LLP, certified public accountants. PricewaterhouseCoopers LLP has served
as the Company's independent accountants and auditors since fiscal 1985. At the
Annual Meeting, the shareholders will consider and vote upon a proposal to
ratify the appointment of independent accountants for the Company's fiscal year
ending August 31, 2003. The Audit Committee of the Board of Directors has
recommended that PricewaterhouseCoopers LLP be re-elected as independent
accountants for the 2003 fiscal year.
Representatives of PricewaterhouseCoopers LLP will be present at the
Annual Meeting to make a statement, if desired, and to respond to appropriate
questions from shareholders.
-26-
The following table shows the fees paid or accrued by the Company for
the audit and other professional services provided by PricewaterhouseCoopers LLP
for fiscal 2002.
Audit Fees (1)..................................................... $412,330
All Other Fees (2)................................................. $563,880
Total..................................................... $976,210
_____________________
(1) Includes $260,000 for U.S. and $152,330 for non-U.S. audit services
consisting of the examination of the consolidated financial statements of
the Company and the review of the interim financial statements included in
the Company's Quarterly Reports on Form 10-Q.
(2) Includes $254,160 for tax consulting and related accounting services,
$177,525 for benefit plan consulting and $132,195 for audit-related
services.
In making its recommendation to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year ending August 31, 2003, the Audit Committee considered whether the
non-audit services provided by PricewaterhouseCoopers LLP are compatible with
maintaining the independence of PricewaterhouseCoopers LLP.
The Board of Directors recommends that shareholders vote FOR this
proposal. Proxies solicited by the Board of Directors will be voted FOR this
proposal unless otherwise indicated.
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 Annual Meeting other than as set
forth in the Notice of Annual Meeting. If any other matters properly come before
the Annual 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 2004 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 16, 2003.
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 telecopy. 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.
-27-
A copy of the 2002 Annual Report accompanies this Proxy Statement.
Additional copies may be obtained from the Secretary, Arrow International, Inc.,
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
December 13, 2002
Reading, Pennsylvania
-28-
REVOCABLE PROXY
ARROW INTERNATIONAL, INC.
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON JANUARY 15, 2003.
The undersigned hereby appoints R. James Macaleer and Raymond Neag, 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 November 29, 2002 at the Annual Meeting of
Shareholders to held on January 15, 2003, 4:00 p.m. at the Sheraton Reading
Hotel, 1741 Paper Mill Road, Wyomissing, Pennsylvania 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.
WITH- FOR ALL
FOR HOLD EXCEPT
1. Election of Directors, Nominees: | | | | | |
For terms expiring in 2007: | | | | | |
JOHN H. BROADBENT, JR.
GEORGE W. EBRIGHT
INSTRUCTION: To withhold authority to vote for any individual nominee, mark "For
All Except" and write that nominee's name in the space provided below.
________________________________________________________________________________
FOR AGAINST ABSTAIN
2. Ratification of appointment of | | | | | |
PricewaterhouseCoopers L.L.P. as | | | | | |
independent accountants.
The Board of Directors recommends a vote "FOR" proposal 2.
You are encouraged to specify your choices by marking the appropriate
boxes above, 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.
This proxy when properly executed will be voted in the manner directed
therein. If no direction is given with respect to a particular proposal, this
proxy will be voted for such proposal.
The signer hereby revokes all proxies heretofore given by the signer to
vote at said meeting or any adjournments thereof.
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.
Please be sure to sign and date ______________________________
this Proxy in the box below. |Date |
__________________________________________________________________
| |
| |
|________________________________________________________________|
Stockholder sign above Co-holder (if any) sign above
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
ARROW INTERNATIONAL, INC.
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612
________________________________________________________________________________
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
________________________________________________________________________________
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
_____________________________________
_____________________________________
_____________________________________