UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENTS
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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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 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 21, 2004
To Our Shareholders:
The Annual Meeting of Shareholders of Arrow International, Inc. will be
held at the Company's corporate headquarters at 2400 Bernville Road, Reading,
Pennsylvania at 4:00 p.m. on January 21, 2004 for the following purposes:
(1) To elect three 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, 2004; 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 28, 2003
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 19, 2003
Reading, Pennsylvania
PROXY STATEMENT
2004 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 21, 2004, or any adjournments
thereof.
The Board of Directors has fixed the close of business on November 28, 2003
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 43,429,523
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 2004. 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 19, 2003.
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 T. Jerome Holleran, R. James Macaleer and
Alan M. Sebulsky, each of whom is currently a director, for election to the
Board of Directors. Each of the nominees for election to the Board has been
approved and recommended for nomination by a majority of the directors of the
Company who are "independent" as defined in the Marketplace Rules of the
National Association of Securities Dealers, Inc. (the "NASD"), which regulates
companies, like the Company, whose stock is traded on The Nasdaq Stock Market.
If elected, each of Messrs. Holleran, Macaleer and Sebulsky will serve
until the Annual Meeting of Shareholders to be held in 2008, 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 2008
T. Jerome Holleran 67 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 Arrow
Precision Products, Inc. ("Precision"), a corporation
formerly controlled by principal shareholders of the Company
until its dissolution in May 2002, 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
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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 69 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 44 Director of the Company since January 1997. Managing Partner
and Portfolio Manager of Apothecary Capital LLC, an
investment advisory firm specializing in health care, since
April 2003. Independent investor and consultant from May
2002 to March 2003. 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.
DIRECTORS WHOSE TERMS EXPIRE IN 2005
Carl G. Anderson, Jr. 58 Chairman of the Board and Chief Executive Officer of the
Company since September 1, 2003, and a director of the
Company since January 1998. Vice Chairman of the Board and
General Manager, Critical Care Business of the Company from
January 2002 to August 31, 2003. President and Chief
Executive Officer of ABC School Supply, Inc., a manufacturer
and marketer of materials
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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.
Director of Carpenter Technology Corporation, a manufacturer
of specialty steel.
John E. Gurski 62 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 to January 1999. President, Europe, Middle East
and Africa of AMP from July 1995 to December 1996, and
President, Global Operations of AMP from January 1997 to
January 1999. 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.
Marlin Miller, Jr. 71 Director of the Company since it was founded in 1975.
Chairman of the Board of Directors of the Company from
January 1999, and Chief Executive Officer of the Company
from 1975 until his retirement from the Company on August
31, 2003, 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
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Precision until its dissolution in May 2002.
DIRECTORS WHOSE TERMS EXPIRE IN 2006
Raymond Neag 72 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 64 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.
DIRECTORS WHOSE TERMS EXPIRE IN 2007
John H. Broadbent, Jr. 65 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
Precision until its dissolution in May 2002.
George W. Ebright 65 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 to January 1995 and President from February
1989 to August 1991. Prior thereto, President and Chief
Operating Officer and a director of SmithKline Beckman
-5-
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.
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 has determined
that each of Messrs. Broadbent, Ebright, Gurski, Macaleer, Neag, Niner and
Sebulsky is an independent director, as defined in the Marketplace Rules of the
NASD, for the reason that none of these persons is a director who:
o is, or during the past three years was, employed by the Company or by
any subsidiary of the Company;
o accepted, or who has a relative by blood, marriage or adoption or who
has the same residence as such director (a "Family Member") who
accepted, any payments from the Company or any subsidiary of the
Company in excess of $60,000 during fiscal 2003 or any of the past
three fiscal years, other than compensation for service on the Board,
payments arising solely from investments in the Company's securities
or, in the case of Messrs. Broadbent and Neag, benefits under a
tax-qualified retirement plan or non-discretionary compensation;
o is a Family Member of an individual who is, or during the past three
years was, employed by the Company or by any subsidiary of the Company
as an executive officer;
o is a partner in, or a controlling shareholder or an executive officer
of, any organization to which the Company made, or from which the
Company received, payments (other than those arising solely from
investments in the Company's securities) that exceed 5% of the
recipient's consolidated gross revenues for that year, or $200,000,
whichever is more, in fiscal 2003 or any of the past three fiscal
years;
o is employed as an executive officer of another entity where any of the
executive officers of the Company serve on the compensation committee
of such other entity, and no such relationship existed during fiscal
2003 or any of the past three years; or
o is or was a partner or employee of the Company's independent auditors,
and worked on the Company's audit, during fiscal 2003 or any of the
past three years.
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The Board of Directors held four meetings during fiscal 2003. All of the
directors attended at least 75% of the meetings of the Board and any committee
on which they served during fiscal 2003. The committees of the Board currently
are the Audit Committee and the Human Resources Committee. Each of these
committees has a written charter that may be found on the Company's website at
http://www.arrowintl.com. The Board recently amended the charters of both the
Audit Committee and the Human Resources Committee in response to new
requirements of the Sarbanes-Oxley Act of 2002 and related rules and regulations
issued by the Securities and Exchange Commission (the "SEC") and the NASD. The
charters of the Audit Committee and the Human Resources Committee are also
attached to this Proxy Statement as ATTACHMENTS A and B, respectively.
The primary function of the Audit Committee is to assist the Company's
Board of Directors in its oversight of the integrity of the Company's financial
statements and internal controls, its compliance with legal and regulatory
requirements, the qualification and independence of the Company's independent
auditors, and the performance of its internal audit function and independent
auditors. In discharging its duties, 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, approves the audit and non-audit
services provided by, 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 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. The Board of
Directors has determined that each of these persons is qualified to serve on the
Audit Committee in accordance with the criteria specified in rules and
regulations issued by the SEC and the NASD for the reason that: (a) each of them
is an independent director, as stated above; (b) none of them, other than in his
capacity as a member of the Audit Committee, the Board of Directors or any other
Board committee:
o accepts any consulting, advisory or other compensatory fee from the
Company, other than, in the case of Mr. Broadbent, the receipt of
fixed amounts of compensation under the Company's retirement plans for
prior service with the Company, which compensation is not contingent
in any way on his continued service; or
o is an affiliated person of the Company or any subsidiary of the
Company;
(c) none of them owns or controls 20% or more of the Company's voting
securities; and (d) each of them is able to read and understand financial
statements, including the Company's balance sheet, income statement and cash
flow statement. In addition, the Board of Directors has determined that Mr.
Broadbent is qualified to serve as the "audit committee financial expert" of the
Company as defined in Item 401(h) of SEC Regulation S-K. The Audit Committee met
seven times during the fiscal year ended August 31, 2003.
The Human Resources Committee reviews and recommends to the Company's Board
of Directors for approval 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, among other things, reviews and recommends
to the Board employees to whom awards will be made under the Company's stock
incentive plans, determines the number of shares to be
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optioned or awarded, and the time, manner of exercise and other terms of the
awards. The Human Resources Committee also currently functions as the corporate
governance committee of the Board of Directors and, in such capacity, oversees
the Company's corporate governance and the organization and procedures of the
Board, including, among other matters, the size and composition of the Board and
its committees. 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 as defined in the
Marketplace Rules of the NASD. The Human Resources Committee met four times
during the fiscal year ended August 31, 2003.
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 2003, 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 10,000 shares of Common Stock and, on the date each year when
directors are elected to the Board, eligible directors receive options to
purchase an additional 3,000 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 numbers of shares underlying
option awards under the plan and the exercise prices applicable to such awards
have in each case been adjusted to reflect the two-for-one split of the Common
Stock effected on August 15, 2003.
The amendments to the Company's Directors Stock Incentive Plan approved by
the Company's shareholders at its 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 3,000 shares of Common Stock on the date each
year when directors are elected to the Board, instead of the 1,000 shares
previously provided for under the plan.
On January 15, 2003, the date of the Company's 2003 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., who was then
Chairman and Chief Executive Officer of the Company, and Carl G. Anderson, Jr.,
who was then Vice Chairman and General Manager, Critical Care Business of the
Company, was granted options under the plan to purchase 3,000 shares of Common
Stock, in each case at an exercise price of $20.525, the closing price per
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share of the Common Stock on such date as reported on The Nasdaq Stock Market,
as adjusted to reflect the August 15, 2003 two-for-one split of the Common
Stock. 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 Mr.
Anderson, will receive options to purchase an additional 3,000 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.
CORPORATE GOVERNANCE
The Company has adopted corporate governance policies and practices in
compliance with the new requirements of the Sarbanes-Oxley Act of 2002 and
related rules and regulations issued by the SEC and the NASD, including:
o A majority of the members of the Company's Board of Directors are
independent of the Company and its management;
o All members of the committees of the Board - the Audit Committee
and the Human Resources Committee - are independent;
o The independent members of the Company's Board of Directors meet
regularly without the presence of management;
o The Company has adopted a code of business conduct that applies
to all of its directors, officers and other employees and is
monitored by its human resources department;
o The charters of the committees of the Board clearly establish
their respective roles and responsibilities;
o The Company's Audit Committee is in the process of implementing
procedures for the anonymous submission of employee complaints on
accounting, internal controls or auditing matters, which the
Company expects will be in place prior to the date of the Annual
Meeting;
o The Company has adopted a code of ethics that applies to all of
its directors, officers and other employees, including its
principal executive officer, principal financial officer,
principal accounting officer and other members of its management
performing similar functions, which is posted on the Company's
website at http://www.arrowintl.com;
o The Company has established a Disclosure Committee, comprised of
executive officers and other key employees who are actively
involved in the disclosure process, to specify, coordinate and
oversee the procedures that the Company uses each quarter and at
fiscal year end to prepare its periodic reports filed with the
SEC; and
o The Company has in each case obtained shareholder approval before
adopting or making material amendments to its stock incentive
plans.
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EXECUTIVE OFFICERS
The executive officers of the Company and their ages and positions as of
November 1, 2003 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
- ---- ------ ---
Carl G. Anderson, Jr. Chairman and Chief Executive Officer 58
Philip B. Fleck President and Chief Operating Officer 59
Paul L. Frankhouser Executive Vice President - Global 58
Business Development
Frederick J. Hirt Vice President - Finance and Chief Financial 55
Officer
Carl W. Staples Vice President - Human Resources 52
John C. Long Vice President and Treasurer 38
T. Jerome Holleran Secretary 67
Carl N. Botterbusch Vice President and General Manager, 40
Cardiac Assist Division
Thomas D. Nickel Vice President - Regulatory Affairs 64
and Quality Assurance
Mr. Anderson was elected to the position of Chairman and Chief Executive
Officer of the Company effective September 1, 2003. Mr. Anderson succeeded
Marlin Miller, Jr., who retired from the Company on August 31, 2003, after
serving as its Chairman of the Board and Chief Executive Officer since it was
founded in 1975. From January 2002 to August 31, 2003. Mr. Anderson served as
Vice Chairman of the Board and General Manager, Critical Care Business of the
Company's Critical Care Division, 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 from 1972 to 1984. Mr. Anderson also serves as a director
of Carpenter Technology Corporation, a manufacturer of specialty steel.
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.
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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 and Chief Financial Officer
of the Company since August 1998. From August 1998 to January 2003, he served as
Treasurer of the Company. 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.
Mr. Staples has served as Vice President - Human Resources of the Company
since September 2002. Prior to joining the Company, Mr. Staples served as Vice
President Human Resources and in various other human resources capacities with
CIBA Specialty Chemicals from 1989 through August 2002. From 1974 to 1989, Mr.
Staples served in various human resources-related positions with Sara Lee
Corporation, Bausch & Lomb Incorporated, Rockwell International and Union
Carbide Corporation.
Mr. Long has served as Vice President and Treasurer of the Company since
January 2003, and served as Assistant Treasurer from 1995 to January 2003. Prior
to joining the Company, Mr. Long served as Controller for the Jaindl Companies,
a group of privately held companies involved in agribusiness and real estate
development, from 1989 to 1995. From 1986 to 1989, Mr. Long was employed in the
Allentown office of Concannon, Gallagher, Miller & Co., CPAs. Mr. Long also
serves as a director of American Bank Incorporated, a regional commercial bank.
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
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.
-11-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 28, 2003, the beneficial
ownership of Common Stock by (i) each director and nominee, (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...................... 7,576,505(1) 17.5%
Richard T. Niner....................... 6,307,170(2) 14.5%
Raymond Neag........................... 2,983,950(3) 6.9%
John H. Broadbent, Jr.................. 1,340,537(4) 3.1%
T. Jerome Holleran..................... 1,059,130(5) 2.4%
Philip B. Fleck........................ 335,224(6) *
Paul L. Frankhouser.................... 187,245(7) *
Carl G. Anderson, Jr................... 89,741(8) *
Frederick J. Hirt...................... 72,363(9) *
Carl N. Botterbusch.................... 43,108(10) *
R. James Macaleer...................... 36,830(11) *
Alan M. Sebulsky....................... 32,000(12) *
John E. Gurski......................... 28,455(13) *
George W. Ebright...................... 26,000(14) *
All directors and officers as a group
(17 persons)......................... 20,155,729(15) 45.6%
Robert L. McNeil, Jr................... 4,563,688(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........ 4,624,494 10.7%
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
- ------------------------
* Less than one percent.
(1) Includes 2,000 shares owned by Mr. Miller's wife, as to which Mr. Miller
disclaims beneficial ownership.
(2) Includes an aggregate of 13,846 shares owned by Mr. Niner's wife and minor
child, as to which Mr. Niner disclaims beneficial ownership, 20,000 shares
held by a charitable
(footnotes continued on next page)
-12-
(footnotes continued from previous page)
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 4,624,494 shares held by Mertz &
Moyer, 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
12,000 shares issuable upon the exercise of vested options and options
which are deemed to be presently exercisable.
(3) Includes 12,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Also includes 2,000
shares owned by Mr. Neag's wife as to which Mr. Neag disclaims beneficial
ownership.
(4) Includes 24,000 shares owned by Mr. Broadbent's wife and 500 shares jointly
owned by Mr. Broadbent's wife and her adult son, as to which Mr. Broadbent
disclaims beneficial ownership. Also includes 24,600 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 20,000 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 12,000 shares issuable upon the exercise of vested
options and options which are deemed to be presently exercisable. Excludes
38,873 shares held by the John H. Broadbent, Jr. Charitable Remainder
Unitrust, of which Mr. Broadbent was the grantor but has no power to vote
or dispose of such shares, and as to which Mr. Broadbent disclaims
beneficial ownership.
(5) Includes 50,000 shares owned by Mr. Holleran's wife, as to which Mr.
Holleran disclaims beneficial ownership. Also includes 797,130 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 12,000 shares issuable upon the exercise of
vested options and options which are deemed to be presently exercisable.
(6) Includes 20,000 shares owned by Mr. Fleck's wife, as to which Mr. Fleck
disclaims beneficial ownership. Also includes 272,000 shares issuable upon
the exercise of vested options and options which are deemed to be presently
exercisable. Does not include 83,000 shares issuable upon the exercise of
options which are not deemed to be presently exercisable.
(7) Includes 200 shares owned by Mr. Frankhouser's children, as to which Mr.
Frankhouser disclaims beneficial ownership. Also includes 164,000 shares
issuable upon the exercise of vested options and options which are deemed
to be presently exercisable. Does not include 61,000 shares issuable upon
the exercise of options which are not deemed to be presently exercisable.
(8) Includes 77,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
490,000 shares issuable upon the exercise of options which are not deemed
to be presently exercisable.
(9) Includes 68,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
72,000 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(footnotes continued on next page)
-13-
(footnotes continued from previous page)
(10) Includes 39,600 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
57,400 shares issuable upon the exercise of options which are not deemed to
be presently exercisable.
(11) Includes 12,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(12) Includes 24,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(13) Includes 24,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(14) Includes 25,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(15) See footnotes (1) through (14) above.
(16) Includes 100,000 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 4,624,494 shares held by Mertz & Moyer,
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, or 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 those reports and amendments thereto furnished to the Company during
and with respect to the Company's fiscal year ended August 31, 2003 and written
representations from certain reporting persons, that there has been compliance
with all Section 16(a) filing requirements applicable to such officers,
directors and ten percent beneficial owners for such fiscal year.
-14-
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 executive officers of the Company other than the
Chief Executive Officer as of August 31, 2003 for services rendered to the
Company in all capacities.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION(1)
----------------------- -----------------------------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION($)(2)
- ------------------ ---- --------- -------- ------------- ------------------
Marlin Miller, Jr. (3) 2003 463,500 254,925 -0- 8,635(4)
Chairman and Chief 2002 450,000 -0- -0- 200,631(4)
Executive Officer 2001 376,459 75,668 -0- 203,945(4)
Carl Anderson(5) 2003 294,784 145,918 -0- 110,401(6)
Vice Chairman and 2002 179,059(7) -0- 150,000(8) 33,942(6)
General Manager, Critical
Care Business
Philip B. Fleck 2003 294,784 145,918 -0- 6,948(9)
President and Chief 2002 286,198 -0- 60,000(10) 6,757(9)
Operating Officer 2001 264,092 62,770 -0- 4,085(9)
Paul L. Frankhouser 2003 257,936 113,492 -0- 21,179(11)
Executive Vice 2002 250,423 -0- 40,000(12) 19,911(11)
President 2001 231,081 50,107 -0- 17,169(11)
Frederick J. Hirt 2003 257,936 113,492 -0- 6,579(13)
Vice President-Finance, 2002 250,423 -0- 40,000(14) 6,290(13)
Chief Financial Officer and 2001 231,081 50,107 -0- 3,999(13)
Treasurer
- ---------------------
(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) The numbers of shares underlying option awards, the exercise prices
applicable to such awards and the numbers of shares contributed by the
Company under its 401(k) Plan that are set forth in this table and in the
corresponding footnotes have in each case been adjusted to reflect the
two-for-one split of the Common Stock effected on August 15, 2003.
(3) Mr. Miller retired as Chairman and Chief Executive Officer of the Company
on August 31, 2003. He was succeeded by Mr. Anderson.
(4) Consists of (i) matching contributions in the amount of $4,000, $3,400 and
$3,400 made by the Company to Mr. Miller's account under the Company's
401(k) Plan in fiscal 2003, 2002 and 2001, respectively, (ii) contributions
made by the Company in fiscal 2003, 2002 and 2001 to Mr. Miller's account
under its 401(k) Plan of 120.73, 261.34 and 50.38
(footnotes continued on next page)
-15-
(footnotes continued from previous page)
shares of Common Stock having an aggregate fair market value of $4,635,
$5,257 and $941, respectively (for further description of the Company's
stock contribution program, see "Human Resources Committee Report on
Executive Compensation - Compensation Components - Incentive Bonuses"), and
(iii) insurance premiums in the amount of $191,974 and $199,604 paid by the
Company in fiscal 2002 (which were paid prior to July 30, 2002) and 2001,
respectively, in respect of term life insurance policies owned by certain
trusts established by Mr. Miller (see "Certain Transactions").
(5) Mr. Anderson was elected as Chairman and Chief Executive Officer of the
Company effective as of September 1, 2003. From January 16, 2002 to August
31, 2003, Mr. Anderson served as Vice Chairman of the Board and General
Manager of the Company's Critical Care Division, and was not an employee of
the Company prior thereto. Accordingly, no information is provided for
periods prior to January 16, 2002 for Mr. Anderson.
(6) Consists of (i) contributions made by the Company in fiscal 2003 and 2002
to Mr. Anderson's account under the Company's 401(k) Plan of 76.79 and
85.50 shares of Common Stock having an aggregate fair market value of
$2,948 and $1,791, respectively, and (ii) payments made by the Company in
fiscal 2003 and 2002 to or on behalf of Mr. Anderson in connection with his
relocation, including moving expenses and settlement and closing costs, of
$107,453 and $32,151, respectively.
(7) 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.
(8) Represents an award to Mr. Anderson on January 16, 2002 of options to
purchase 150,000 shares of Common Stock at an exercise price of $20.62 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., 30,000 options) will vest on each of the first through the
fifth anniversary of the date of such award (i.e., January 16). The options
are subject to immediate vesting upon the occurrence of certain change in
control events.
(9) Consists of (i) matching contributions in the amount of $4,000, $3,400 and
$3,400 made by the Company to Mr. Fleck's account under the Company's
401(k) Plan in fiscal 2003, 2002 and 2001, respectively, and (ii)
contributions made by the Company in fiscal 2003, 2002 and 2001 to Mr.
Fleck's account under its 401(k) Plan of 76.79, 167.22 and 36.64 shares of
Common Stock having an aggregate fair market value of $2,948, $3,357 and
$685, respectively.
(10) Represents an award to Mr. Fleck on September 10, 2001 of options to
purchase 60,000 shares of Common Stock at an exercise price of $18.37 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., 12,000 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 $3,570, $3,400 and
$3,400 made by the Company to Mr. Frankhouser's account under the Company's
401(k) Plan in fiscal 2003, 2002 and 2001, respectively, (ii) contributions
made by the Company in
(footnotes continued on next page)
-16-
(footnotes continued from previous page)
fiscal 2003, 2002 and 2001 to Mr. Frankhouser's account under its 401(k)
Plan of 70.85, 150.54 and 32.06 shares of Common Stock having an aggregate
fair market value of $2,728, $3,024 and $599, respectively, and (iii)
payments of $14,881, $13,487 and $13,170 made to Mr. Frankhouser in fiscal
2003, 2002 and 2001, respectively, in respect of his accrued but unused
vacation allowance.
(12) Represents an award to Mr. Frankhouser on September 10, 2001 of options to
purchase 40,000 shares of Common Stock at an exercise price of $18.37 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., 8,000 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.
(13) Consists of (i) matching contributions in the amount of $4,000, $3,400 and
$3,400 made by the Company to Mr. Hirt's account under the Company's 401(k)
Plan in fiscal 2003, 2002 and 2001, respectively, and (ii) contributions
made by the Company in fiscal 2003, 2002 and 2001 to Mr. Hirt's account
under its 401(k) Plan of 67.19, 143.78 and 32.06 shares of Common Stock
having an aggregate fair market value of $2,579, $2,890 and $599,
respectively.
(14) Represents an award to Mr. Hirt on September 10, 2001 of options to
purchase 40,000 shares of Common Stock at an exercise price of $18.37 per
share under the Company's 1999 Stock Incentive Plan. Subject to Mr. Hirt's
continued employment with the Company, 20% of such stock option award
(i.e., 8,000 options) will vest on each of the first through fifth
anniversary of the date of such award (i.e., September 10). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
OPTION GRANTS
There were no grants of stock options made during the fiscal year ended
August 31, 2003 to the executive officers named in the Summary Compensation
Table above.
AGGREGATE OPTION EXERCISES IN FISCAL 2003 AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock options exercised
during fiscal 2003 and the number of unexercised options held by the executive
officers named in the Summary Compensation Table as of August 31, 2003. Also
reported are the values for unexercised, "in the money" options, which represent
the positive spread between the respective exercise prices of such options and
the fair market value of the Common Stock as of August 31, 2003.
-17-
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS
SHARES AUGUST 31, 2003(#) AT AUGUST 31, 2003 ($)(1)
ACQUIRED ON ---------------------------- ----------------------------
NAME EXERCISE (#) VALUE REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------------- ------------------ ----------- ------------- ----------- -------------
Marlin Miller, Jr. -- -- -- -- -- --
Carl Anderson -- -- 47,000 120,000 $284,563 $621,600
Philip B. Fleck -- -- 220,000 90,000 $2,630,870 $908,980
Paul L. Frankhouser -- -- 176,000 64,000 $2,071,630 $657,645
Frederick J. Hirt -- -- 60,000 40,000 $659,580 $328,320
- -----------------
(1) Based upon a closing sale price of the Common Stock of $25.80 per share on
August 29, 2003 as reported on The Nasdaq Stock Market.
RETIREMENT PLANS
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 of 1986, as amended (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
provisions have limited the amount of annual compensation that can be used for
calculating pension benefits. In 2003, 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 contributions made by the Company
to the Retirement Plan in respect of fiscal 2001, 2002 and 2003 were $1,484,494,
$3,477,612 and $9,876,263, respectively, equivalent to approximately 4.3%, 9.3%
and 29.3% of the covered compensation of all participants in the plan for fiscal
2001, 2002 and 2003, respectively. 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 28 years, Mr. Hirt has five years
and Mr. Anderson has two years. The following table shows the estimated annual
benefits payable upon retirement under the Retirement Plan at normal retirement
age for each level of remuneration specified at the listed years of service.
-18-
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.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Company's Defined Benefit
Supplemental Executive Retirement Plan (the "SERP") was established by the
Company on September 1, 2000 to provide non-discretionary pension benefits to
selected executive officers and retired executive officers of the Company in
addition to those benefits payable to them under the Retirement Plan. The SERP
is an unfunded pension plan not intended to be qualified under the Internal
Revenue Code. The SERP was amended as of September 2, 2003 to permit selected
additional executive officers of the Company to receive benefits thereunder and
to clarify the benefits that are payable to spouses of eligible members if the
members die before or while receiving benefits under the SERP. Additionally, the
SERP, as amended, provides that benefits thereunder will be paid to members who
attain age 65 or have five or more years of vesting service under the Retirement
Plan. The benefits payable under the SERP are coordinated with benefits payable
under the Retirement Plan and are calculated in accordance with one of two
formulae. The first formula, which applies to Messrs. Miller, Neag and
Broadbent, provides for an annual benefit, payable for the lesser of 20 years or
the life of the member, equal to twelve times the difference between: (a) 50% of
the member's monthly average compensation (as defined under the Retirement Plan,
but disregarding annual limitations on compensation under the Internal Revenue
Code used for calculating benefits under a qualified retirement plan); and (b)
the member's monthly benefit payable under the Retirement Plan. The second
formula, which applies to Messrs. Anderson, Fleck, Frankhouser, Hirt and Carl
Botterbusch, the Vice President and General Manager of the Company's Cardiac
Assist Division, provides for an annual benefit, payable for the lesser of 20
years or the life of the member, equal to twelve times the difference between:
(a) the member's credited service under the Retirement Plan (capped at 25 years)
times 2% of the member's monthly average compensation (as defined under the
Retirement Plan, but disregarding annual limitations on compensation under the
Internal Revenue Code used for calculating benefits under a qualified retirement
plan); and (b) the member's monthly benefit payable under the Retirement Plan.
Generally, a member's benefits under the SERP commence at the same time as the
member's benefits under the Retirement Plan. In fiscal 2003, the Company paid
$108,445 to Mr. Neag, the former Vice Chairman and a director of the Company,
and $89,051 to Mr. Broadbent, the former Vice President - Finance and Treasurer
of the Company, pursuant to the SERP.
-19-
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee reviews and recommends to the Board of
Directors for approval the compensation arrangements for the Chief Executive
Officer of the Company 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 is currently
composed of three directors of the Company, each of whom is independent as
defined in the Marketplace Rules of the NASD.
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 2003, in addition to consideration of industry
comparisons and individual performance, has taken particular note of the
Company's performance in fiscal 2003 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.
-20-
INCENTIVE BONUSES. Incentive bonuses during fiscal 2003 were based on two
plans: a stock contribution program in which all eligible employees of the
Company, including executive officers, are eligible to participate, and a pretax
income growth plan limited to executive officers and certain other
management-level employees of the Company.
Pursuant to the Company's stock contribution program, 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 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 Company's income growth bonus plan, at the discretion of
the Human Resources Committee, Messrs. Miller (prior to his retirement from the
Company on August 31, 2003), Anderson, Fleck, Frankhouser and Hirt are eligible
to receive annual incentive bonuses equal to 5.0, 4.5, 4.5, 4.0 and 4.0 times,
respectively, and other executive officers and eligible management-level
employees of the Company are eligible to receive annual incentive bonuses
ranging from 2.0 to 3.0 times the percentage growth in the Company's pretax
income, exclusive of extraordinary income and expense, over the previous fiscal
year times their respective base pay; provided that, in each case, such
year-over-year percentage growth equals or exceeds 5%. For fiscal 2003, the
Company's pre-tax income, exclusive of extraordinary income and expense,
increased by 11.0% over fiscal 2002, resulting in incentive bonuses of 55.0% of
base pay to Mr. Miller, 49.5% of base pay to each of Messrs. Anderson and Fleck,
44.0% of base pay to each of Messrs. Frankhouser and Hirt, and from 22.0 to
33.0% of base pay to the other executive officers and eligible management-level
employees of the Company. 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 2004 to the executive officers
and certain other management-level employees of the Company pursuant to its
income growth bonus plan to the extent that the Company in fiscal 2004 achieves
an increase of at least 5% in pretax income, exclusive of extraordinary income
and expense, over fiscal 2003.
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 pursuant to its
stock contribution program, 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.
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 (prior to his retirement from
the Company on August 31, 2003) already had 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,
although Mr. Miller will be eligible to receive non-discretionary stock awards
under the Company's Directors Stock
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Incentive Plan commencing on the date of the Annual Meeting, as discussed above
under "Compensation of Directors."
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 2003, none of Messrs. Anderson, Fleck, Frankhouser or
Hirt were awarded any options under the Company's 1999 Stock Incentive Plan.
Other executive officers of the Company were awarded options to purchase a total
of 16,000 shares of Common Stock under the 1999 Stock Incentive Plan during
fiscal 2003. No other employees of the Company were awarded any options under
the Company's 1999 Stock Incentive Plan during fiscal 2003. 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 2003 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 2003, 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 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 the Section 162(m) rules, 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
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended August 31, 2003, the Human Resources Committee
of the Board of Directors consisted of Messrs. Ebright, Gurski and Macaleer. No
member of this committee was at any time during fiscal 2003 or at any other time
an officer or employee of the Company, and no member had any relationship with
the Company requiring disclosure under Item 404 of SEC Regulation S-K. No
executive officer of the Company has served on the board of directors or
compensation committee of any other entity that has or has had one or more
executive officers who served as a member of the Company's Board of Directors or
the Human Resources Committee during fiscal 2003.
-22-
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, 2003 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, as amended. 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, 2003 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, 2004, 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, 2004.
Finally, as stated above under "Board of Directors and Committees of the
Board," the Board of Directors recently amended the Audit Committee's charter in
response to new requirements of the Sarbanes-Oxley Act of 2002 and related rules
and regulations issued by the SEC and the NASD, which charter, as amended, is
attached to this Proxy Statement as ATTACHMENT A.
-23-
Each of the Audit Committee members is independent as defined in rules and
regulations issued by the SEC and the NASD, and, in particular, as defined in
Rules 5200(a) and 5350(d)(2) of the NASD's Marketplace Rules.
AUDIT COMMITTEE
Richard T. Niner, Chairman
John H. Broadbent, Jr.
Alan M. Sebulsky
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, 1998 and ending on August
31, 2003. The comparison assumes $100 was invested on August 31, 1998 in the
Common Stock and in each of the foregoing indices and also assumes reinvestment
of all dividends.
[PERFORMANCE GRAPH]
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
August 31, August 31, August 31, August 31, August 31, August 31,
1998 1999 2000 2001 2002 2003
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
Arrow International, Inc. $100.00 $107.77 $133.39 $138.74 $132.80 $197.29
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
S&P 500 Stock Index $100.00 $139.82 $162.64 $122.96 $100.85 $113.01
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
S&P 500-Health Care $100.00 $134.91 $167.03 $147.65 $138.32 $173.30
Equipment Index
- ------------------------------ ------------ ------------ ------------ ------------ ------------ ------------
-24-
---------------------
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 Exchange
Act 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.
CERTAIN TRANSACTIONS
Arrow Precision Products, Inc. ("Precision") was a former subsidiary of the
Company which was formally dissolved in May 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, the former Vice President and Chief Operating Officer of
Precision and the Secretary and a director of the Company, Precision was engaged
in the business of manufacturing and marketing certain gastroenterological and
other non-catheter medical products, including ground needles and injection
sites primarily for use by the Company. Prior to Precision's dissolution in
fiscal 2002, certain officers, directors and principal shareholders of the
Company owned substantially all of Precision's outstanding common stock. 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.
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
entered into a written agreement with Precision whereby the Company assumed
these obligations in exchange for the transfer by Precision to the Company of
appropriate assets to satisfy such obligations. In addition, this agreement
expressly provided for the transfer by Precision, and the assumption by the
Company, with no additional payment by either party to the other, of all of
Precision's rights and obligations in respect of split-dollar life insurance
policies owned by certain trusts established by Mr. Holleran, including
Precision's obligation to pay future premiums on such policies. These premium
payments, which in fiscal 2003 amounted to $39,225, are required to be repaid
from either the cash surrender value or the death benefits of such policies.
In fiscal 2003, the Company made purchases amounting to $121,486 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 November 2003, the Company became aware that, because of its inadvertent
payment in July 2003 of premiums in the amounts of $78,975 and $34,150 in
respect of split-dollar life insurance policies owned by certain trusts
established by Mr. Miller and Mr. Broadbent, respectively, it may not have been
in compliance with the provisions of Section 13(k) of the Exchange Act. Mr.
Miller and Mr. Broadbent are the former Chairman and Chief Executive Officer and
the former Vice President-Finance and Treasurer, respectively, of the
-25-
Company, and each is a director of the Company. Neither of Mr. Miller nor Mr.
Broadbent had an employment agreement or other written arrangement with the
Company that provided for the ongoing payment of these premiums, although the
terms of these split-dollar life insurance policies had been in place for many
years prior to the July 30, 2002 effective date of Section 13(k) of the Exchange
Act. Based on information from the trustees of the respective trusts owning
these policies, the Company expects to receive a full refund of these premium
payments from the owner trusts prior to December 31, 2003. While it is not clear
whether the Company's premium payments in respect of these policies were in fact
subject to the anti-loan provisions of Section 13(k) of the Exchange Act, the
Company believes that, upon its receipt of the refund of these premium payments,
it will be in compliance with Section 13(k) and that the exposure, if any,
resulting from this matter will not be material to its financial condition or
results of operations.
The Company reviews all related party transactions involving amounts in
excess of $60,000 for potential conflicts of interest on an ongoing basis and
all such transactions in which the Company is a party are approved by a majority
of the independent directors of the Company or the Audit Committee in accordance
with applicable requirements of the Marketplace Rules of the NASD.
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, 2004. The Audit Committee of the Board of Directors has
recommended that PricewaterhouseCoopers LLP be re-elected as independent
accountants for the 2004 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.
AUDIT FEES
The aggregate fees for professional services rendered by
PricewaterhouseCoopers LLP in connection with its audit of the Company's annual
consolidated financial statements, statutory audit of the Company's foreign
subsidiaries, and reviews of the interim financial statements included in the
Company's quarterly reports on Form 10-Q were $646,040 and $610,095 for the
fiscal years ended August 31, 2003 and 2002, respectively.
AUDIT-RELATED FEES
In addition to fees disclosed under "Audit Fees" above, the aggregate fees
for professional services rendered by PricewaterhouseCoopers LLP for assurance
and related services that are reasonably related to the performance of the audit
and reviews of the Company's financial statements were $69,400 and $224,240 for
the fiscal years ended August 31, 2003 and 2002, respectively. Such services
included accounting consultations and audits in connection with acquisitions,
and additional assurance and related services for the Company's foreign
subsidiaries.
-26-
TAX FEES
The aggregate fees for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax planning and tax advice for
the Company's U.S. and foreign subsidiaries were $737,973 and $352,160 for the
fiscal years ended August 31, 2003 and 2002, respectively.
ALL OTHER FEES
PricewaterhouseCoopers LLP did not provide the Company with any other
services during the fiscal years ended August 31, 2003 and 2002.
AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The Audit Committee of the Company's Board of Directors pre-approves on an
annual basis the audit, audit-related, tax and other non-audit services to be
rendered by the Company's accountants based on historical information and
anticipated requirements for the following fiscal year. The Audit Committee
pre-approves specific types or categories of engagements constituting audit,
audit-related, tax and other non-audit services as well as the range of fee
amounts corresponding to each such engagement. To the extent that the Company's
management believes that a new service or the expansion of a current service
provided by the Company's accountants is necessary or desirable, such new or
expanded services are presented to the Audit Committee for its review and
approval prior to the Company's engagement of its accountants to render such
services. No non-audit services were approved by the Audit Committee pursuant to
Rule 2-01, paragraph (c)(7)(i)(C) of SEC Regulation S-X during the fiscal year
ended August 31, 2003.
---------------------
In making its recommendation to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent accountants for the
fiscal year ending August 31, 2004, 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 2005 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 21, 2004.
Proposals should be directed to the Secretary of the Company at the
principal executive offices of the Company provided below.
-27-
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.
A copy of the Company's 2003 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 19, 2003
Reading, Pennsylvania
-28-
ATTACHMENT A
CHARTER
OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF
ARROW INTERNATIONAL, INC.
PURPOSE
The primary purpose of the Audit Committee (the "Committee") of Arrow
International, Inc. (the "Company") is to assist the Company's Board of
Directors (the "Board") in fulfilling its responsibility to oversee (a) the
integrity of the Company's financial statements and internal controls, (b) the
Company's compliance with legal and regulatory requirements, (c) the
qualifications and independence of the Company's independent auditors, and (d)
the performance of the Company's internal audit function and its independent
auditors.
In discharging its oversight role, the Committee is empowered to investigate any
matter brought to its attention with full access to all books, records,
facilities and personnel of the Company. The Committee also has the authority to
retain independent outside counsel or other experts as it determines necessary
to carry out its duties. The Committee shall determine the compensation for such
outside counsel or other experts and the Company shall make appropriate funds
available to the Committee for such purpose.
MEMBERSHIP
The Committee shall be comprised of not less than three directors appointed by
the Board. Each member of the Committee must satisfy the independence and
qualification requirements contained in the applicable rules and regulations of
the Securities and Exchange Commission (the "SEC") and The Nasdaq Stock Market,
and must be free of any relationship that, in the opinion of the Board, would
interfere with their exercise of independent judgment as a Committee member. In
addition, at least one member of the Committee must be a "financial expert" as
that term is defined in the rules promulgated by the SEC and as determined by
the Board. The Board shall appoint one person to act as Chair of the Committee.
The members of the Committee shall serve for a term of one year.
MEETINGS
The Committee shall meet as often as it deems necessary to fulfill its
responsibilities set forth in this Charter. A majority of the members of the
Committee shall constitute a quorum for the transaction of business. The vote of
a majority of the members present at any meeting at which a quorum is present
shall be the act of the Committee.
AUTHORITY
The Committee shall have the sole authority to select, evaluate, appoint and
replace the Company's independent auditors (subject to shareholder ratification)
and shall approve in advance all audit engagement fees and terms and all
non-audit engagements with the independent auditors. The Committee shall have
the authority, to the extent it deems necessary or appropriate, to retain
special legal, accounting or other consultants or advisors to advise the
Committee. The Company shall provide funding, as determined by the Committee,
for payment of compensation to the independent auditors and to any consultants
or advisors retained by the Committee. The Committee may form and delegate
authority to subcommittees, comprised of one or more members of the Committee,
as it deems necessary or
appropriate. Each subcommittee, when so designated, shall have the full power
and authority of the Committee.
RESPONSIBILITIES
The Company's management is responsible for preparing the Company's financial
statements and the Company's independent auditors are responsible for auditing
those financial statements. The Committee is responsible for overseeing these
activities. The Committee recognizes that the Company's financial management, as
well as the Company's independent auditors, have more time, knowledge and more
detailed information on the Company than do Committee members. Consequently, in
carrying out its oversight responsibilities, the Committee is not providing any
expert or special assurance as to the Company's financial statements or any
professional certification as to the independent auditors' work.
The following shall be the principal recurring processes of the Committee in
carrying out its oversight function.
OVERSIGHT OF INDEPENDENT AUDITORS
In the course of its oversight of the independent auditors as provided under
this Charter, the Committee will be guided by the premise that the independent
auditors are ultimately accountable to the Board and the Committee.
1. The Committee, subject to any action that may be taken by the full
Board, shall have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the independent auditors. The
Committee shall assist the Board in its oversight of the
qualifications, independence and performance of the independent
auditors.
2. The Committee shall:
(i) receive from the independent auditors annually, a formal written
statement delineating the relationships between the auditors and
the Company consistent with Independence Standards Board
Standard Number 1;
(ii) discuss with the independent auditors the scope of any such
disclosed relationships and their impact or potential impact on
the independent auditors' independence and objectivity; and
(iii) recommend that the Board take appropriate action in response to
the independent auditors' report to satisfy itself of the
auditors' independence.
3. The Committee shall review and pre-approve the proposed scope of the
annual independent audit of the Company's financial statements and the
associated engagement fees, as well as any significant variations in
the actual scope of the audit and the associated engagement fees, and
shall also review and pre-approve all audit-related and permissible
non-audit services to be provided by the independent auditors and the
associated engagement fees, as well as any significant variations in
such services and engagement fees. The Committee may establish
pre-approval policies and procedures, as permitted by Section 10A of
the Securities Exchange Act of 1934, as amended, and the related rules
and regulations issued by the SEC, for the engagement of the
independent auditors to render services to the Company, including but
not limited to policies that would allow the delegation of
pre-approval authority to one or more members of the Committee,
provided that any pre-approvals delegated to one or more members of
the Committee are reported to the Committee at its next scheduled
meeting.
2
4. The Committee shall set hiring policies for any employment by the
Company of employees or former employees of the independent auditors.
5. The Committee shall review the independent auditors' report relating
to reportable conditions in the internal control structure and
financial reporting practices.
6. The Committee shall review with the independent auditors any
difficulties the auditors encountered in the course of the audit work,
including restrictions on the scope of work or access to requested
information, and any significant disagreements with management.
OVERSIGHT OF INTERNAL AUDITORS
The Committee shall review and discuss with the Company's management and the
independent auditors:
1. The quality and adequacy of the Company's internal accounting
controls.
2. The organization of the internal audit function, the adequacy of its
resources and the competence and performance of the Company's internal
audit staff and/or outsource staff.
3. The audit risk assessment process and the proposed scope of the
internal audit for the upcoming year and the coordination of that
scope with the independent auditors.
4. Results of the internal auditors' examination of internal controls
including summaries of inadequate reports issued and/or management
improprieties together with management's response thereto.
OVERSIGHT OF MANAGEMENT'S CONDUCT OF THE COMPANY'S FINANCIAL REPORTING PROCESS
1. AUDITED FINANCIAL STATEMENTS. The Committee shall discuss with the
Company's management and the independent auditors the audited
financial statements to be included in the Company's Annual Report on
Form 10-K and review and consider with the independent auditors the
matters required to be discussed by the applicable Statement of
Auditing Standards ("SAS"). Based on these discussions, the Committee
will advise the Board whether it recommends that the audited financial
statements be included in the Annual Report on Form 10-K.
2. INTERIM FINANCIAL STATEMENTS. The Committee, through its Chairman or
the Committee as a whole, will review with management and the
independent auditors, prior to the filing thereof, the Company's
interim financial results to be included in the Company's quarterly
reports on Form 10-Q and the matters required to be discussed by the
applicable SAS.
3. REVIEW OF EARNINGS RELEASES AND INFORMATION PROVIDED TO ANALYSTS. The
Committee or the Chairman of the Committee shall review earnings
releases with management prior to their release, as well as the
Company's policies with respect to earnings releases and earnings
guidance provided to analysts and rating agencies.
4. FINANCIAL REPORTING PRACTICES. The Committee shall review:
(i) changes in the Company's accounting policies and practices and
significant judgments that may affect the Company's financial
results;
3
(ii) the nature of any unusual or significant commitments or
contingent liabilities together with the underlying assumptions
and estimates of management;
(iii) the effect of changes on accounting standards that may
materially affect the Company's financial reporting practices;
and
(iv) the Company's process for the completion of the SEC
certifications by the Company's Chief Executive Officer and
Chief Financial Officer.
OTHER ITEMS
1. The Committee shall review and monitor, as appropriate:
(i) results of compliance programs, including the Company's Code of
Conduct; and
(ii) litigation or other legal matters that could have a significant
impact on the Company's financial results.
2. The Committee shall establish and review procedures for the receipt,
retention and treatment of complaints received by the Company
regarding accounting, internal accounting control or auditing matters
and the confidential, anonymous submission by the Company's employees
of concerns regarding questionable accounting or auditing matters.
3. The Committee shall report regularly to the Board on its meetings and
discussions and review with the Board significant issues or concerns
that arise at Committee meetings.
4. The Committee shall conduct an annual evaluation of its performance in
fulfilling its duties and responsibilities under this Charter.
5. The adequacy of this Charter shall be reviewed by the Committee on an
annual basis. The Committee will recommend to the Board any
modifications to this Charter, which the Committee deems appropriate,
for approval by the Board.
MINUTES
The Committee shall keep minutes of its proceedings that shall be signed by the
person whom the Chairperson designates to act as secretary of the meeting. The
minutes of the meeting shall be approved by the Committee at its next meeting,
shall be available for review by the entire Board, and shall be filed as
permanent records with the Secretary of the Company.
AMENDMENTS
This Charter may be amended from time to time with the approval of a majority of
the Board.
Last Revised: November 21, 2003
4
ATTACHMENT B
CHARTER OF THE HUMAN RESOURCES COMMITTEE
OF THE
BOARD OF DIRECTORS OF ARROW INTERNATIONAL, INC.
PURPOSE
The primary purpose of the Human Resources Committee (the "Committee) of Arrow
International, Inc. (the "Company") is to (a) review and recommend to the
Company's Board of Directors (the "Board") the compensation for the Company's
chief executive officer ("CEO") and all of its executive officers, (b)
administer the Company's stock incentive plans, (c) produce a report on
executive compensation for inclusion in the Company's annual proxy statement in
accordance with applicable rules and regulations, and (d) until such time as the
Board may establish a separate Corporate Governance and Nominating Committee,
oversee the Company's corporate governance and the organization and procedures
of the Board.
MEMBERSHIP
The Committee shall be comprised of not less than three directors appointed by
the Board. Each member of the Committee must satisfy the independence
requirements contained in the applicable rules and regulations of the Securities
and Exchange Commission (the "SEC") and The Nasdaq Stock Market, and must be
free of any relationship that, in the opinion of the Board, would interfere with
their exercise of independent judgment as a Committee member. The Board shall
appoint one person to act as Chair of the Committee. The members of the
Committee shall serve for a term of one year.
MEETINGS
The Committee shall meet at least two times per year and as many other times as
it deems necessary to fulfill its duties and responsibilities set forth in this
Charter. A majority of the members of the Committee shall constitute a quorum
for the transaction of business. The vote of a majority of the members present
at any meeting at which a quorum is present shall be the act of the Committee.
AUTHORITY
The Committee shall have the authority, to the extent it deems necessary or
appropriate, to retain special legal, accounting or other consultants or
advisors to advise the Committee. The Company shall provide funding, as
determined by the Committee, for payment of compensation to any consultants or
advisors retained by the Committee. The Committee may form and delegate
authority to subcommittees, comprised of one or more members of the Committee,
as it deems necessary or appropriate.
RESPONSIBILITIES
The Committee shall have the following duties and responsibilities:
1. Review and recommend to the Board periodically the Company's executive
compensation program and strategy to assure that it (i) supports the
Company's financial, operational and strategic objectives, (ii)
attracts, motivates and retains key executive officers, (iii) links
executive compensation with the Company's business objectives and
performance to promote shareholder interest, and (iv) provides for
appropriate and competitive rewards and incentives for the Company's
executive officers and other higher level employees.
2. Review and recommend to the Board the Company's overall compensation
policy for all employees.
3. Review and recommend to the Board corporate goals and objectives
relevant to the compensation of the CEO, evaluate the CEO's
performance and recommend the CEO's compensation level, including
salary, bonus and grants of awards under the Company's stock incentive
plans and any other executive compensation plans, based on this
evaluation.
4. Review and recommend to the Board corporate goals and objectives
relevant to compensation of the Company's executive officers, other
than the CEO, evaluate the executive officers' performance and review
and approve their compensation level, including salary, bonus and
grants of awards under the Company's stock incentive plans and any
other executive compensation plans, based on this evaluation.
5. Review and recommend to the Board employees to whom awards will be
made under the Company's stock incentive plans, determine the number
of shares to be optioned or awarded, and the time, manner of exercise
and other terms of the awards.
6. Administer the Company's stock incentive plans and any other executive
compensation plans to the extent required by the terms of such plans.
7. Annually produce the report on the Company's executive compensation
required under the SEC's rules to be included in the Company's annual
proxy statement.
8. In consultation with management of the Company, oversee the Company's
compliance with regulatory requirements relating to compensation of
its officers and employees, including overseeing the Company's
policies on structuring compensation programs to preserve tax
deductibility and, as and when required, recommending performance
goals and certifying the performance goals have been attained for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
9. Review and recommend to the Board employment, severance,
change-in-control, termination and retirement agreements and
arrangements for all executive officers.
10. Perform such other duties and responsibilities pertaining to the
Company's compensation matters as may be assigned to the Committee by
the Board and/or the Chairman of the Board.
11. Oversee the Company's corporate governance and the organization and
procedures of the Board, including the size and composition of the
Board and the structure and makeup of its committees, and review and
recommend to the Board the compensation of Board and committee
members, including option or restricted stock awards and other cash or
equity-based compensation.
MINUTES
The Committee shall keep minutes of its proceedings that shall be signed by the
person whom the Chairperson designates to act as secretary of the meeting. The
minutes of the meeting shall be approved by the Committee at its next meeting,
shall be available for review by the entire Board, and shall be filed as
permanent records with the Secretary of the Company.
2
PERFORMANCE EVALUATION
The Committee shall conduct an annual evaluation of its performance in
fulfilling its duties and responsibilities. The adequacy of this Charter shall
be reviewed by the Committee on an annual basis. The Committee will recommend to
the Board any modifications to this Charter, which the Committee deems
appropriate, for approval by the Board.
AMENDMENTS
This Charter may be amended from time to time with the approval of a majority of
the Board.
Last Revised: November 21, 2003
3
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE ARROW INTERNATIONAL, INC.
WITH-
SOLICITED BY THE BOARD OF DIRECTORS FOR THE FOR HOLD EXCEPT
ANNUAL MEETING OF SHAREHOLDERS ON JANUARY 21, 2004.
1. Election of Directors, Nominees: / / / / / /
The undersigned hereby appoints John H. Broadbent, Jr., For terms expiring in 2008:
Marlin Miller, Jr. and Carl G. Anderson, Jr., and each or
any of them, his/her Proxies, each with full power to T. JEROME HOLLERAN
appoint his/her substitute, and hereby authorizes them to R. JAMES MACALEER
represent and to vote, as designated hereon, all shares of ALAN M. SEBULSKY
common stock of ARROW INTERNATIONAL, INC. (the "Company")
held of record by the undersigned on November 28, 2003 at INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
the Annual Meeting of Shareholders to held on January 21, NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME
2004, 4:00 p.m. at the Company's corporate headquarters at IN THE SPACE PROVIDED BELOW.
2400 Bernville Road, Reading, Pennsylvania and any
adjournments thereof, and hereby further authorizes each of --------------------------------------------------------------
them, in their discretion, to vote upon any other business FOR AGAINST ABSTAIN
that may properly come before the meeting.
2. Ratification of appointment of / / / / / /
PricewaterhouseCoopers L.L.P. as
independent accountants.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND --------> / /
THE MEETING.
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
Please be sure to sign and date Date thereof.
this Proxy in the box below.
- -----------------------------------------------------------
- --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 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 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.
- --------------------------------------
- --------------------------------------
- --------------------------------------
/X/ PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS EXAMPLE ARROW INTERNATIONAL, INC.
WITH-
SOLICITED BY THE BOARD OF DIRECTORS FOR THE FOR HOLD EXCEPT
ANNUAL MEETING OF SHAREHOLDERS ON JANUARY 21, 2004.
1. Election of Directors, Nominees: / / / / / /
The undersigned hereby appoints John H. Broadbent, Jr., For terms expiring in 2008:
Marlin Miller, Jr. and Carl G. Anderson, Jr., and each or
any of them, his/her Proxies, each with full power to T. JEROME HOLLERAN
appoint his/her substitute, and hereby authorizes them to 4 R. JAMES MACALEER
represent and to vote, as designated hereon, all shares of ALAN M. SEBULSKY
common stock of ARROW INTERNATIONAL, INC. (the "Company") 0
held of record by the undersigned on November 28, 2003 at INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
the Annual Meeting of Shareholders to held on January 21, 1 NOMINEE, MARK "FOR ALL EXCEPT" AND WRITE THAT NOMINEE'S NAME
2004, 4:00 p.m. at the Company's corporate headquarters at IN THE SPACE PROVIDED BELOW.
2400 Bernville Road, Reading, Pennsylvania and any K
adjournments thereof, and hereby further authorizes each of --------------------------------------------------------------
them, in their discretion, to vote upon any other business FOR AGAINST ABSTAIN
that may properly come before the meeting.
2. Ratification of appointment of / / / / / /
PricewaterhouseCoopers L.L.P. as
independent accountants.
PLEASE CHECK BOX IF YOU PLAN TO ATTEND --------> / /
THE MEETING.
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
Please be sure to sign and date Date thereof.
this Proxy in the box below.
- -----------------------------------------------------------
- --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 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 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.
- --------------------------------------
- --------------------------------------
- --------------------------------------