UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 2006
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-20212
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ARROW INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1969991
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2400 Bernville Road, Reading, Pennsylvania 19605
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 378-0131
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes X No
---- ---
Indicate by check mark whether the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes No X
--- ---
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes: X No:
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [___]
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large Accelerated Filer X Accelerated Filer Non-Accelerated Filer
---- ---- ----
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes: No: X
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The aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 2006 was $ 902,149,592 (based on the last reported
sale price on the Nasdaq National Market on that date).
The number of shares of the registrant's common stock outstanding as of
October 1, 2006 was 44,915,818 shares.
DOCUMENTS INCORPORATED BY REFERENCE.
None
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A to our Annual Report on Form 10-K
for the fiscal year ended August 31, 2006 filed with the Securities and Exchange
Commission (the "SEC") on November 13, 2006 (the "Form 10-K") is being filed to
amend and restate only the following items of the Form 10-K: Items 10, 11, 12,
13 and 14 of Part III. Other than these items, none of the information contained
in the Form 10-K has been revised or amended.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MEMBERS OF THE BOARD OF DIRECTORS
The current directors of the Company, their ages and the term of
directorship with the Company are set forth below.
NAME AGE POSITION
- ---- --- --------
Carl G. Anderson, Jr. 61 Chairman of the Board,
President and Chief Executive
Officer and
Director
John H. Broadbent, Jr. 68 Director
John E. Gurski 65 Director
T. Jerome Holleran 70 Director
R. James Macaleer 72 Director
Marlin Miller, Jr. 74 Director
Raymond Neag 75 Director
Richard T. Niner 67 Director
Anna M. Seal 50 Director
Alan M. Sebulsky 47 Director
- ---------------
Mr. Anderson has served as Chairman and Chief Executive Officer of the
Company since September 2003 and as President since January 19, 2005. From
January 2002 to August 2003, Mr. Anderson served as Vice Chairman of the Board
and General Manager 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 the Company
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
1
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 and management
capacities with Procter & Gamble from 1972 to 1984. Mr. Anderson also serves as
a director of Carpenter Technology Corporation, a specialty steel manufacturer
and IWT Tesoro Corporation, a manufacturer and distributor of building tile.
Mr. Broadbent has served as a Director of the Company since it was
founded in 1975. From 1975 until his retirement in August 1998, Mr. Broadbent
served as Chief Financial Officer, Vice President - Finance and Treasurer of the
Company. From 1966 to 1975, Mr. Broadbent served in several positions with
Carpenter Technology Corporation, a specialty steel manufacturer, the latest as
Manager-Market Planning & Development. From 1964 to 1966, Mr. Broadbent served
as a consultant in the Management Advisory Services Department of the
international accounting firm of Price Waterhouse & Co. Mr. Broadbent also
serves as a director of Bioenergy, Inc., an integrated life sciences company.
Mr. Gurski has served as a Director of the Company since January 1997.
Prior to joining the Company, Mr. Gurski served as Corporate Vice President of
AMP Incorporated, a multinational company engaged in the development,
manufacture and marketing of systems for electrical and electronic applications
("AMP"), from 1989 until his retirement in January 1999. Mr. Gurski also served
in several executive positions during his tenure at AMP, including as President,
Europe, Middle East and Africa of AMP from July 1995 to December 1996,
President, Global Operations of AMP from January 1997 to August 1998, Corporate
Vice President, Administration of AMP from August 1998 to January 1999,
Corporate Vice President, Europe of AMP from September 1993 to July 1995,
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, Mr. Gurski served in
various manufacturing and operating capacities with AMP. Prior thereto, Mr.
Gurski was employed by General Motors Corporation.
Mr. Holleran has served as a Director of the Company since it was
founded in 1975. Mr. Holleran served as Secretary of the Company from 1975 until
April 2004 and a Vice President of the Company from 1975 until September 1997.
Prior to joining the Company, Mr. Holleran served as Chairman of the Board of
Directors of Precision Medical Products, Inc. ("PMP"), a former subsidiary of
Arrow Precision Products, Inc. ("Precision"), since October 1999. Mr. Holleran
also served in the following positions during his tenure at PMP, Chief Executive
Officer and President, from July 1996 to October 2000, Vice President, Chief
Operating Officer and a director of Precision, from February 1986 to September
1997. Mr. Holleran served as 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, Mr. Holleran served as Director of Business
Planning-Textile Divisions of Rockwell International Corporation and as a
Marketing Manager of the Arrow Products Division of Rockwell International
Corporation, the Company's predecessor. From 1969 to 1971, Mr. Holleran served
as a consultant with the management consulting firm of Booz, Allen and Hamilton.
2
Mr. Macaleer has served as a Director of the Company since January 1998.
Mr. Macaleer served as 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.
Mr. Miller has served as a Director of the Company since it was founded
in 1975. Mr. Miller served as 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 in August 2003, and President of the Company from
1975 to January 1999. From 1972 to 1975, Mr. Miller served as Vice President and
a director of Connors Investor Services, a research and investment management
firm. From 1959 to 1972, Mr. Miller served in several capacities with Glen Gery
Corporation, a manufacturer of building products, the latest as Executive Vice
President and a director. Mr. Miller served as a director of Carpenter
Technology Corporation, a manufacturer of specialty steel, until his retirement
from this position in October 2002.
Mr. Neag has served as a Director of the Company since it was founded in
1975. Mr. Neag served as Vice Chairman of the Company from January 1999 until
his retirement in October 1999, as 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, Mr. Neag served as General
Manager of the Arrow Products Division of Rockwell International Corporation,
the Company's predecessor. From 1971 to 1973, Mr. Neag served as President of
Teledyne Dental Products, a manufacturer of dental products and a division of
Teledyne, Inc. Prior to 1971, Mr. Neag served as Vice President and Director of
Marketing of Sherwood Medical, Inc., a medical device company.
Mr. Niner has served as a Director of the Company since 1982. Mr. Niner
has served as General Partner of Wind River Associates L.P., a private
investment partnership based in Greenwich, Connecticut, since January 1999. From
1988 to 1999, Mr. Niner served as General Partner of Brynwood Management II
L.P., the general partner of a private investment partnership based in
Greenwich, Connecticut. Mr. Niner is a director of Hurco Companies, Inc., a
manufacturer and marketer of computer numerical controls and related machine
tools.
Ms. Seal has served as a Director of the Company since September 2005.
Ms. Seal has served as Senior Vice President and Chief Financial Officer of the
Global Manufacturing and Supply Division of GlaxoSmithKline plc since December
2000. From March 1995 to November 2000, Ms. Seal served as Senior Vice President
and Chief Financial Officer of Worldwide Supply Operations of SmithKline Beecham
plc ("SmithKline"), Vice President and Chief Financial Officer of the Animal
Health Division of SmithKline from April 1991 to February 1995, Chief Auditor
and Vice President, Corporate Audits, of SmithKline from June 1988 to July 1991,
and Director, Corporate Audits, of SmithKline from October 1987 to May 1988.
From 1981 to September 1987, Ms. Seal served in various other accounting, audit
and financial reporting capacities with SmithKline. Prior thereto, Ms. Seal
served as an Audit Manager with Coopers & Lybrand from 1978 to 1981.
Mr. Sebulsky has served as a Director of the Company since January 1997.
Mr. Sebulsky has served as a Managing Partner and Portfolio Manager of
Apothecary Capital LLC, an investment advisory firm specializing in health care,
since April 2003. From May 2002 to March 2003, Mr. Sebulsky was an independent
investor and consultant. Prior thereto, Mr. Sebulsky served as 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
3
health care industry. From 1988 to May 1994, Mr. Sebulsky served as 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, Mr. Sebulsky 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.
EXECUTIVE OFFICERS
The current executive officers of the Company, their ages, positions and
terms of office with the Company, and brief summaries of their business
experience are set forth in Part I of the Form 10-K, beginning on page 13.
AUDIT COMMITTEE AND AUDIT COMMITTEE EXPERT
The Company has a separately-designated standing Audit Committee of its
Board of Directors established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The members of
the Audit Committee currently are John H. Broadbent, Jr., who acts as Chairman
of the Committee, Anna M. Seal and Alan M. Sebulsky, each of whom the Board of
Directors has determined is an independent director qualified to serve on the
Audit Committee in accordance with the applicable rules and regulations of the
SEC and the Nasdaq Stock Market, Inc. ("Nasdaq").
In addition, the Board of Directors has determined that each of Mr.
Broadbent and Ms. Seal is qualified to serve as an "audit committee financial
expert" of the Company, as defined in applicable SEC rules, and that each member
of the Audit Committee has sufficient knowledge in reading and understanding the
Company's financial statements to serve on the Audit Committee.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of 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, 2006 and written representations from certain reporting persons, that Marlin
Miller, Jr., a director of the Company, was inadvertently late in filing two
Forms 4 each reporting sales of 5,000 shares of the Company's common stock (the
"Common Stock") pursuant to an SEC Rule 10b5-1 trading plan on November 3, 2005
and July 14, 2006.
CODE OF ETHICS
The Company has adopted a code of ethics within the meaning of Item
406(b) of SEC Regulation S-K, which applies to all of its officers, directors
and employees, including its principal executive officer, principal financial
officer, principal accounting officer and other members of its management
performing similar functions. This document is available free of charge on the
Company's website at www.arrowintl.com.
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ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes, for the Company's past three fiscal
years, all compensation paid to the Company's Chief Executive Officer, each of
the four most highly compensated executive officers of the Company other than
the Chief Executive Officer as of August 31, 2006 (collectively, the "Named
Executive Officers") for services rendered to the Company in all capacities.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation(1) Compensation
------------------------ --------------------------------------
SECURITIES
NAME AND FISCAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(2) COMPENSATION($)(2)
- ------------------ ------ --------- -------- ------------- ------------------
Carl G. Anderson, Jr.(3) 2006 450,000 -0- 30,000(4) 4,500(5)
Chairman, President and 2005 418,752 -0- -0- 7,125(5)
Chief Executive Officer 2004 364,587 300,003 400,000(6) 5,105(5)
Frederick J. Hirt(7) 2006 285,500 -0- 30,000(8) 7,188(9)
Senior Vice President- Finance 2005 275,563 -0- 20,000(10) 9,491(9)
and Chief 2004 268,253 171,682 40,000(11) 7,931(9)
Financial Officer
Carl W. Staples(12) 2006 241,756 -0- 30,000(13) 13,626(14)
Senior Vice President- 2005 226,251 -0- 20,000(15) 17,865(14)
Human Resources 2004 200,004 96,002 40,000(16) 14,395(14)
James T. Hatlan(17) 2006 241,756 -0- 30,000(18) 11,476(19)
Senior Vice President- 2005 226,251 -0- 20,000(20) 11,731(19)
Manufacturing 2004 200,000 80,002 20,000(21) 26,300(19)
Kenneth E. Imler(22) 2006 195,833 -0- 20,000(23) 59,570(24)
Senior Vice President
Regulatory Affairs and
Quality Assurance
- ---------------------
(1) Column with respect to "Other Annual Compensation" has not been included
in this table because the aggregate amount of perquisites and other
personal benefits received from the Company by any of the Named
Executive Officers did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for each such Named Executive
Officer in the table.
(footnotes continued on next page)
5
(footnotes continued from previous page)
(2) The numbers of shares of Common Stock 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. Anderson was elected as Chairman and Chief Executive Officer of the
Company effective September 1, 2003 and as President on January 19,
2005. 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.
(4) Represents an award to Mr. Anderson on November 8, 2005 of options to
purchase 30,000 shares of Common Stock at an exercise price of $29.94
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., 6,000 options) will vest on each of the first
through fifth anniversaries of the date of such award (i.e., November
8). The options are subject to immediate vesting upon the occurrence of
certain change in control events.
(5) Consists of (a) contributions in fiscal 2006, 2005 and 2004 to Mr.
Anderson's account under the Company's 401(k) Plan of 145.55, 235.94 and
188.06 shares of Common Stock having an aggregate fair market value of
$4,500, $7,125 and $5,105, respectively.
(6) Represents an award to Mr. Anderson on September 1, 2003 of options to
purchase 400,000 shares of Common Stock at an exercise price of $25.80
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Anderson's continued employment with the Company, 25% of such stock
option award (i.e., 100,000 options) will vest on each of the first
through fourth anniversaries of the date of such award (i.e., September
1). The options are subject to immediate vesting upon the occurrence of
certain change in control events.
(7) Mr. Hirt was elected Senior Vice President - Finance and Chief Financial
Officer of the Company effective October 27, 2004.
(8) Represents an award to Mr. Hirt on November 8, 2005 of options to
purchase 30,000 shares of Common Stock at an exercise price of $29.94
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., 6,000 options) will vest on each of the first through fifth
anniversaries of the date of such award (i.e., November 8). The options
are subject to immediate vesting upon the occurrence of certain change
in control events.
(9) Consists of (a) matching contributions in the amount of $4,333, $5,027
and $4,114 made by the Company to Mr. Hirt's account under the Company's
401(k) Plan in fiscal 2006, 2005 and 2004, respectively, and (b)
contributions in fiscal 2006, 2005 and 2004 to Mr. Hirt's account under
the Company's 401(k) Plan of 92.29, 147.56 and 140.89 shares of Common
Stock having an aggregate fair market value of $2,855, $4,464 and
$3,817, respectively.
(footnotes continued on next page)
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(footnoted continued from previous page)
(10) Represents an award to Mr. Hirt on January 19, 2005 of options to
purchase 20,000 shares of Common Stock at an exercise price of $30.60
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hirt's continued employment with the Company, 20% of such stock option
award (i.e., 4,000 options) will vest on each of the first through fifth
anniversaries of the date of such award (i.e., January 19). The options
are subject to immediate vesting upon the occurrence of certain change
in control events.
(11) Represents an award to Mr. Hirt on October 14, 2003 of options to
purchase 40,000 shares of Common Stock at an exercise price of $25.00
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hirt's continued employment with the Company, 25% of such stock option
award (i.e., 10,000 options) will vest on each of the first through
fourth anniversaries of the date of such award (i.e., October 14). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(12) Mr. Staples was elected Senior Vice President - Human Resources of the
Company effective October 27, 2004.
(13) Represents an award to Mr. Staples on November 8, 2005 of options to
purchase 30,000 shares of Common Stock at an exercise price of $29.94
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Staples's continued employment with the Company, 20% of such stock
option award (i.e., 6,000 options) will vest on each of the first
through fifth anniversaries of the date of such award (i.e., November
8). The options are subject to immediate vesting upon the occurrence of
certain change in control events.
(14) Consists of (a) matching contributions of $3,620, $3,717 and $4,292 made
by the Company to Mr. Staples's account under the Company's 401(k) Plan
in fiscal 2006, 2005 and 2004, respectively, (b) contributions in fiscal
2006, 2005 and 2004 to Mr. Staples's account under the Company's 401(k)
Plan of 80.90, 107.99 and 89.23 shares of Common Stock having an
aggregate fair market value of $2,498, $3,302 and $2,411, respectively,
and (c) payments of $7,508, $10,846 and $7,692 made to Mr. Staples in
fiscal 2006, 2005 and 2004, respectively, in respect of his accrued but
unused vacation allowance.
(15) Represents an award to Mr. Staples on January 19, 2005 of options to
purchase 20,000 shares of Common Stock at an exercise price of $30.60
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Staples's continued employment with the Company, 20% of such stock
option award (i.e., 4,000 options) will vest on each of the first
through fifth anniversaries of the date of such award (i.e., January
19). The options are subject to immediate vesting upon the occurrence of
certain change in control events.
(16) Represents an award to Mr. Staples on October 14, 2003 of options to
purchase 40,000 shares of Common Stock at an exercise price of $25.00
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Staples's continued employment with the
(footnotes continued on next page)
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(footnotes continued from previous page)
Company, 25% of such stock option award (i.e. 8,000 options) will vest
on each of the first through fourth anniversaries of the date of such
award (i.e., October 14). The options are subject to immediate vesting
upon the occurrence of certain change in control events.
(17) Mr. Hatlan was elected Senior Vice President - Manufacturing of the
Company effective October 27, 2004. From September 2, 2003 to October
26, 2004, Mr. Hatlan served as Vice President - Strategic Planning of
the Company, and was not an employee of the Company prior thereto.
(18) Represents an award to Mr. Hatlan on November 8, 2005 of options to
purchase 30,000 shares of Common Stock at an exercise price of $29.94
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hatlan's continued employment with the Company, 20% of such stock option
award (i.e., 6,000 options) will vest on each of the first through fifth
anniversaries of the date of such award (i.e., November 8). The options
are subject to immediate vesting upon the occurrence of certain change
in control events.
(19) Consists of (a) matching contributions of $4,320, $4,133 and $4,267 made
by the Company to Mr. Hatlan's account under the Company's 401(k) Plan
in fiscal 2006, 2005 and 2004, respectively, (b) contributions in fiscal
2006, 2005 and 2004 to Mr. Hatlan's account under the Company's 401(k)
Plan of 79.77, 100.34 and 75.75 shares of Common Stock having an
aggregate fair market value of $2,464, $3,079 and $2,033, respectively,
(c) payments of $4,692 and $4,519 made to Mr. Hatlan in fiscal 2006 and
2005, respectively, in respect of his accrued but unused vacation
allowance, and (d) a payment of $20,000 made to Mr. Hatlan in fiscal
2004 as a sign-on bonus.
(20) Represents an award to Mr. Hatlan on January 19, 2005 of options to
purchase 20,000 shares of Common Stock at an exercise price of $30.60
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hatlan's continued employment with the Company, 20% of such stock option
award (i.e., 4,000 options) will vest on each of the first through fifth
anniversaries of the date of such award (i.e., January 19). The options
are subject to immediate vesting upon the occurrence of certain change
in control events.
(21) Represents an award to Mr. Hatlan on October 14, 2003 of options to
purchase 20,000 shares of Common Stock at an exercise price of $25.00
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Hatlan's continued employment with the Company, 25% of such stock option
award (i.e., 5,000 options) will vest on each of the first through
fourth anniversaries of the date of such award (i.e., October 14). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(22) Mr. Imler was elected Senior Vice President-Regulatory Affairs and
Quality Assurance effective November 1, 2005, and was not an employee of
the Company prior thereto. Accordingly, no information is provided for
periods prior to November 1, 2005 for Mr. Imler.
(footnotes continued on next page)
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(footnotes continued from previous page)
(23) Represents an award to Mr. Imler on November 1, 2005 of options to
purchase 20,000 shares of Common Stock at an exercise price of $29.41
per share under the Company's 1999 Stock Incentive Plan. Subject to Mr.
Imler's continued employment with the Company, 20% of such stock option
award (i.e., 4,000 options) will vest on each of the first through fifth
anniversaries of the date of such award (i.e., November 1). The options
are subject to immediate vesting upon the occurrence of certain change
in control events.
(24) Consists of (a) a matching contribution in the amount of $3,133 made by
the Company to Mr. Imler's account under the Company's 401(k) Plan in
fiscal 2006, (b) a contribution in fiscal 2006 to Mr. Imler's account
under the Company's 401(k) Plan of 69.00 shares of Common Stock having
an aggregate fair market value of $2,158, (c) relocation and related
travel expenses of $34,279 reimbursed to Mr. Imler in fiscal 2006, and
(d) a payment of $20,000 made to Mr. Imler in fiscal 2006 as a sign-on
bonus.
OPTION GRANTS
The following table sets forth certain information, as of August 31,
2006, concerning individual grants of stock options made during the fiscal year
ended August 31, 2006 to the Named Executive Officers.
OPTION GRANTS IN FISCAL 2006
Potential Realizable
Value at Assumed
Annual Rates of Stock Price
Appreciation
Individual Grants for Option Term ($)
--------------------------------------------------------------- ---------------------------
Percent Of
Total Options
Number Of Securities Granted To
Underlying Options Employees In Exercise Expiration
Name Granted (#) Fiscal Year(1) Price ($/sh) Date 5% 10%
---- -------------------- -------------- ------------ ---------- ------- ---------
Carl G. Anderson, Jr 30,000(2) 2.79% 29.94 11/8/15 564,873 1,431,499
Frederick J. Hirt 30,000(2) 2.79% 29.94 11/8/15 564,873 1,431,499
Carl W. Staples 30,000(2) 2.79% 29.94 11/8/15 564,873 1,431,499
James T. Hatlan 30,000(2) 2.79% 29.94 11/8/15 564,873 1,431,499
Kenneth E. Imler 20,000(3) 1.86% 29.41 11/1/15 369,916 937,439
- --------------------
(1) Based upon total grants of options in respect of 1,073,500 shares of
Common Stock during fiscal 2006.
(2) Granted under the Company's 1999 Stock Incentive Plan on November 8,
2005. Subject to continued employment by the Company, 20% of such
options (i.e., 6,000 options) will vest on each of the first through
fifth anniversaries of such date (i.e., November 8). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
(footnotes continued on next page)
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(footnotes continued from previous page)
(3) Granted under the Company's 1999 Stock Incentive Plan on November 1,
2005. Subject to continued employment by the Company, 20% of such
options (i.e., 4,000 options) will vest on each of the first through
fifth anniversaries of such date (i.e., November 1). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
AGGREGATE OPTION EXERCISES IN FISCAL 2006 AND FISCAL YEAR-END OPTION VALUES
The following table provides information concerning stock options
exercised during fiscal 2006 and the number of unexercised options held by the
Named Executive Officers as of August 31, 2006. 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, 2006.
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares August 31, 2006(#) At August 31, 2006($)(1)
Acquired on ---------------------------- ----------------------------
Name Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------- -------------- ------------------ ----------- ------------- ----------- -------------
Carl G. Anderson, Jr - - 337,000 260,000 7,943,838 2,944,633
Frederick J. Hirt 8,960 154,157 107,040 74,000 1,943,260 1,515,202
Carl W. Staples - - 22,200 68,400 569,438 147,844
James T. Hatlan - - 14,000 56,000 372,400 79,940
Kenneth E. Imler - - 0 20,000 0 58,000
- --------------------
(1) Based upon a closing sale price of the Common Stock of $32.31 per share
on August 31, 2006 as reported on the Nasdaq Global Select 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, September 1, 1997 and March
28, 2005 (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 2006, no more than $220,000 of annual salary
can be used to
10
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 2004, 2005 and 2006
were $3,058,289, $12,115,702 and $491,988, respectively, equivalent to
approximately 7.8%, 27.5% and 1.2% of the covered compensation of all
participants in the plan for fiscal 2004, 2005 and 2006, 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 Named Executive Officers currently have the
following years of credited service for purposes of the Pension Plan: Mr.
Anderson has five years, Mr. Hirt has eight years, Mr. Staples has four years,
Mr. Hatlan has three years and Mr. Imler has one year. 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.
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................... 41,250 55,000 68,750 82,500 96,250
300,000................... 41,250 55,000 68,750 82,500 96,250
350,000................... 41,250 55,000 68,750 82,500 96,250
400,000................... 41,250 55,000 68,750 82,500 96,250
450,000................... 41,250 55,000 68,750 82,500 96,250
500,000................... 41,250 55,000 68,750 82,500 96,250
550,000................... 41,250 55,000 68,750 82,500 96,250
- --------------------
(1) Under current Internal Revenue Code provisions, no more than $220,000 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
11
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
Marlin Miller, Jr., the former Chairman and Chief Executive Officer and a
director of the Company, Raymond Neag, the former Vice Chairman and a director
of the Company, and John H. Broadbent, Jr., the former Vice President - Finance
and Treasurer of the Company, 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 payable as a single life annuity. The second formula, which
applies to Messrs. Anderson and Hirt, and to Philip B. Fleck, the former
President and Chief Operating Officer of the Company, and Paul L. Frankhouser,
the former Executive Vice President - Global Business Development of the
Company, 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 payable
as a single life annuity. Generally, a member's benefits under the SERP commence
at the same time as the member's benefits under the Retirement Plan. In fiscal
2006, the Company paid $131,380 to Mr. Miller, $108,445 to Mr. Neag, $89,051 to
Mr. Broadbent, $131,767 to Mr. Fleck and $104,966 to Mr. Frankhouser pursuant to
the SERP.
COMPENSATION OF DIRECTORS
CASH COMPENSATION. The Company's directors who are not also employees of
the Company received a quarterly fee of $5,000 for Board membership in fiscal
2006 and a fee of $1,000 for attendance in person and $500 for attendance by
telephone at each Board meeting and each committee meeting. The Company's
directors who also serve as members of the Audit Committee, other than the Audit
Committee Chairman, received an additional quarterly fee of $1,250 in fiscal
2006. The Chairmen of each of the Compensation and Human Resources Committee and
the Corporate Governance and Nominating Committee received an additional
quarterly fee of $500, and the Chairman of the Audit Committee and the Company's
Lead Director received an additional quarterly fee of $2,500 in fiscal 2006.
Directors are reimbursed for reasonable expenses incurred in connection with
attending Board and committee meetings.
STOCK-BASED COMPENSATION. 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 in the form
of non-qualified stock options. These stock awards were previously made pursuant
to the Company's Directors Stock Incentive Plan, which was approved by the
Company's shareholders at its Annual Meeting of Shareholders held on January 17,
1996, with amendments thereto approved by the Company's shareholders at its
Annual Meeting of Shareholders held on January 19, 2000, and which expired in
accordance with its terms on January 17, 2006, ten years after the plan became
effective. At the Company's Annual Meeting of Shareholders held on January 18,
2006, the Company's shareholders approved its 2006 Directors Stock Incentive
Plan (the "2006 Plan") to replace the expired plan. Under the terms of the 2006
Plan, upon an eligible director's first election or appointment to the Board,
such eligible director receives options to purchase 10,000 shares of
12
Common Stock and, on the date of each Annual Meeting of Shareholders of the
Company, eligible directors are eligible to receive grants of options and/or
restricted stock, in each case at the discretion of and in such amount as may be
determined by the Board. 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.
On January 18, 2006, the date of the Company's 2006 Annual Meeting of
Shareholders, in accordance with the terms of the 2006 Plan, the Board of
Directors approved the grant to each of the directors of the Company, other than
Carl G. Anderson, Jr., the Chairman, President and Chief Executive Officer of
the Company, of options to purchase 3,000 shares of Common Stock, at an exercise
price of $30.97, the closing price per share of the Common Stock on such date as
reported on the Nasdaq National Market.
OTHER COMPENSATION. Members of the Company's Board of Directors and
their immediate families (when such family members are traveling with the
director or an executive officer of the Company) are permitted to use the
Company's aircraft. The aggregate incremental cost to the Company for all
directors' personal use of its turboprop aircraft was $81,075 in fiscal 2006,
which amount was reported and calculated in accordance with Internal Revenue
Service guidelines for imputed income for personal use of the Company's
aircraft.
COMPENSATION AND HUMAN RESOURCES COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation and 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 Compensation and Human Resources
Committee is currently composed of three directors of the Company, each of whom
is independent as defined in applicable Nasdaq rules.
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 Compensation and 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 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
13
manufacture of medical products for the health care industry with which the
Company competes for executive talent. The Compensation and 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 elsewhere in this Form 10-K/A. Based on information
currently available to the Compensation and Human Resources Committee, including
publicly available compensation information relating to direct competitors of
the Company, the Compensation and Human Resources Committee believes that base
salary levels for executive officers, including the Chief Executive Officer,
are, on average, below the median of base salary levels for executive officers
of similar companies. In determining executive officers' salaries, the
Compensation and Human Resources Committee also considers individual experience
and prior service to the Company, overall job performance and results, and level
of responsibility. The Compensation and Human Resources Committee does not
assign weights to these factors nor necessarily consider any one more important
than the others.
The Compensation and Human Resources Committee annually reviews the
performance of the Chief Executive Officer, and, in determining Mr. Anderson's
level of compensation for fiscal 2006, in addition to consideration of industry
comparisons and individual performance, has taken particular note of the
Company's performance in fiscal 2006 in the following key areas: management
efficiency; the successful introduction of new products into the market and the
advancement of products under development; the implementation and status of the
Company's previously reported Project Operational Excellence program; and the
Company's overall growth and profitability.
INCENTIVE BONUSES. Incentive bonuses during fiscal 2006 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
pre-tax 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 profitability and
growth.
The Compensation and Human Resources Committee believes 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. On
November 14, 2005, the Compensation and Human Resources Committee approved
modifications to the Company's income growth bonus plan, which became effective
for all executive officer incentive bonuses commencing in fiscal 2006, providing
that annual incentive bonuses will only become payable thereunder to the extent
that the percentage growth in the Company's pre-tax income, exclusive of
extraordinary income and expense, over the most recent fiscal year for which
such incentive bonuses were paid, equals or exceeds 5%. Under the income growth
bonus plan, at the discretion of the Compensation and Human Resources Committee,
Messrs. Anderson, Hirt, Staples, Hatlan and Imler are eligible to receive annual
incentive bonuses equal to 5.0, 4.5, 4.5, 4.5 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 1.0 to 3.0 times
the percentage growth in the Company's pre-tax income, exclusive of
extraordinary income and expense, over the most
14
recent fiscal year in which such bonuses were paid, times their respective base
pay; provided that, in each case, such year-over-year percentage growth equals
or exceeds 5%. For fiscal 2006, the Company's pre-tax income, exclusive of
extraordinary income and expense, decreased from fiscal 2004, which was the most
recent fiscal year for which such incentive bonuses were paid because no
incentive bonuses were paid in fiscal 2005 under the previous terms of the
income growth bonus plan. Consequently, none of the Company's executive officers
were paid any incentive bonuses in fiscal 2006. It is the present intention of
the Compensation and Human Resources Committee to approve payment of incentive
bonuses in fiscal 2007 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 2007 achieves an increase in
pre-tax income, exclusive of extraordinary income and expense, of at least 5%
over fiscal 2004.
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.
Since the stock option awards vest and may grow in value over time, this
component of the Company's compensation plan is 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.
Stock awards are not always granted each year. In selecting recipients
and the size of stock awards, the Compensation and 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 2006, each of Messrs. Anderson, Hirt,
Staples and Hatlan were awarded options to purchase 30,000 shares of Common
Stock under the Company's 1999 Stock Incentive Plan. Mr. Imler was awarded
options to purchase 20,000 shares of Common Stock under the 1999 Stock Incentive
Plan at the inception of his employment with the Company in November 2005. Other
key employees of the Company were awarded options to purchase a total of 933,500
shares of Common Stock under the 1999 Stock Incentive Plan during fiscal 2006,
resulting in a total grant of options in respect of 1,073,500 shares of Common
Stock under the plan during fiscal 2006. In selecting the recipients and size of
these awards, the Compensation and Human Resources Committee placed particular
emphasis on such executives' and key employees' overall job performance and
their potential for continued significant contribution to the Company's growth
and profitability. As a result of these awards and stock awards made prior to
fiscal 2006, each of the Company's executive officers, 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
15
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 Compensation and
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 Compensation and Human Resources Committee determine that such an action
is in the best interests of the Company.
COMPENSATION AND HUMAN RESOURCES COMMITTEE
R. James Macaleer, Chairman
John E. Gurski
Raymond Neag
COMPENSATION AND HUMAN RESOURCES COMMITTEE
INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended August 31, 2006, the Compensation and Human
Resources Committee of the Board of Directors consisted of Messrs. Gurski,
Macaleer and Neag. No member of this committee was at any time during fiscal
2006 or at any other time an officer or employee of the Company, other than Mr.
Neag, who served as an executive officer of the Company prior to his retirement
in October 1999, and no member had any relationship with the Company requiring
disclosure under SEC rules. 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 Compensation and Human Resources Committee during
fiscal 2006.
16
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, 2001 and ending on August
31, 2006. The comparison assumes $100 was invested on August 31, 2001 in the
Common Stock and in each of the foregoing indices and also assumes reinvestment
of all dividends.
[GRAPH APPEARS HERE]
August 31, August 31, August 31, August 31, August 31, August 31,
2001 2002 2003 2004 2005 2006
------------ ------------- ------------- -------------- -------------- ----------------
Arrow International, Inc. $100.00 $95.72 $142.21 $157.64 $167.66 $186.81
S&P 500 Stock Index $100.00 $82.02 $91.91 $102.44 $115.31 $125.55
S&P 500 - Health Care $100.00 $93.68 $117.37 $136.28 $152.14 $141.12
Equipment Index
------------------
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings made by the Company under
those statutes, none of the preceding Compensation and Human Resources Committee
Report on Executive Compensation or the Company Stock Price 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 statues.
17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth, as of November 30, 2006, the beneficial
ownership of Common Stock by (1) each director and nominee, (2) each of the
Named Executive Officers in the Summary Compensation Table in Item 11 of this
report (whose beneficial ownership has been rounded up or down to the nearest
whole share of Common Stock), (3) all directors and officers as a group
(including the named individuals), and (4) 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
------ ------------------ -----------
Richard T. Niner.................................... 6,316,980 (1) 14.0%
Marlin Miller, Jr................................... 4,316,209 (2) 9.6%
Raymond Neag........................................ 2,132,151 (3) 4.7%
T. Jerome Holleran.................................. 1,064,727 (4) 2.4%
John H. Broadbent, Jr............................... 556,609 (5) 1.2%
Carl G. Anderson, Jr................................ 493,298 (6) 1.1%
Frederick J. Hirt................................... 144,725 (7) *
R. James Macaleer................................... 45,830 (8) *
James T. Hatlan..................................... 31,123 (9) *
Alan M. Sebulsky.................................... 31,000 (10) *
Carl W. Staples..................................... 23,828 (11) *
John E. Gurski...................................... 22,454 (12) *
Anna M. Seal ....................................... 13,000 (13) *
Kenneth E. Imler.................................... 4,121 (14) *
All directors and officers as a group
(15 persons)................................... 15,237,059 (15) 33.8%
Robert L. McNeil, Jr................................ 4,563,688 (16) 10.1%
Richard T. Niner and Robert W.
Cruickshank, as Trustees of the Robert L.
McNeil, Jr. 1983 Trust dated November 30, 1983 4,624,494 10.3%
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-0001
- ------------------------
* Less than one percent.
(1) Includes an aggregate of 14,656 shares owned by Mr. Niner's wife, as to
which Mr. Niner disclaims beneficial ownership, 20,000 shares held by a
charitable foundation of which Mr. Niner is an officer and a director
with power to vote and dispose of the shares held by such foundation, as
to which Mr. Niner disclaims beneficial ownership, and 4,624,494 shares
held by Mertz & Moyer, as nominee for the Robert L. McNeil, Jr. 1983
Trust (the
(footnotes continued on next page)
18
(footnotes continued from previous page)
"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 21,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(2) Includes 2,000 shares owned by Mr. Miller's wife, as to which Mr. Miller
disclaims beneficial ownership. Also includes 9,000 shares issuable upon
the exercise of vested options and options which are deemed to be
presently exercisable.
(3) Includes 3,000 shares owned by Mr. Neag's wife, as to which Mr. Neag
disclaims beneficial ownership, and 2,108,151 shares held by the Raymond
Neag Revocable Trust, of which Mr. Neag is trustee with sole power to
vote and dispose of the shares held in such trust. Also includes 21,000
shares issuable upon the exercise of vested options and options which
are deemed to be presently exercisable.
(4) Includes 50,000 shares owned by Mr. Holleran's wife, as to which Mr.
Holleran disclaims beneficial ownership, and 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.
Also includes 15,000 shares issuable upon the exercise of vested options
and options which are deemed to be presently exercisable.
(5) 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 trustee with sole power to vote and dispose of the shares held in
such trust. In addition, includes 21,000 shares issuable upon the
exercise of vested options and options which are deemed to be presently
exercisable. Excludes 61,048 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.
(6) Includes 473,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
124,000 shares issuable upon the exercise of options which are not
presently exercisable.
(7) Includes 135,040 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
46,000 shares issuable upon the exercise of options which are not
presently exercisable.
(8) Includes 21,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(9) Includes 29,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
41,000 shares issuable upon the exercise of options which are not
presently exercisable.
(10) Includes 23,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(footnotes continued on next page)
19
(footnotes continued from previous page)
(11) Includes 22,838 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
47,200 shares issuable upon the exercise of options which are not
presently exercisable.
(12) Includes 18,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(13) Includes 13,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(14) Includes 4,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable. Does not include
16,000 shares issuable upon the exercise of options which are not
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.
EQUITY COMPENSATION PLANS
Certain additional information regarding Common Stock issued under the
Company's equity compensation plans is set forth in Item 12 of the Form 10-K in
the table entitled "Equity Compensation Plan Information" on page 72.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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 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 and served as
Chief Executive Officer and President of PMP from July 1996 to October 2000.
In fiscal 2006, the Company made purchases amounting to $136,745 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
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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.
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 Nasdaq rules.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The Company's registered independent accounting firm is
PricewaterhouseCoopers LLP. PricewaterhouseCoopers LLP has served as the
Company's independent accountants and auditors since fiscal 1985.
AUDIT FEES
The aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP in connection with its audit of the Company's annual
consolidated financial statements, audit of management's assessment of the
Company's internal control over financial reporting and the effectiveness of the
Company's internal control over financial reporting, 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 $2,242,754 and
$2,734,560 for the fiscal years ended August 31, 2006 and 2005, respectively.
AUDIT-RELATED FEES
In addition to fees disclosed under "Audit Fees" above, the aggregate
fees billed 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 $2,000 and
$5,000 for the fiscal years ended August 31, 2006 and 2005, respectively. Such
services included accounting consultations.
TAX FEES
TAX COMPLIANCE. The aggregate fees billed for professional services
rendered by PricewaterhouseCoopers LLP for tax and transfer pricing compliance
assistance in connection with the tax preparation and tax computations for the
Company's U.S. and foreign subsidiaries were $179,000 and $197,043 for the
fiscal years ended August 31, 2006 and 2005, respectively.
TAX AUDIT. The aggregate fees billed for professional services rendered
by PricewaterhouseCoopers LLP for tax audit assistance and defense, including
transfer pricing for the Company's U.S. and foreign subsidiaries, were $180,252
and $101,187 for the fiscal years ended August 31, 2006 and 2005, respectively.
TAX PLANNING. The aggregate fees billed for professional services
rendered by PricewaterhouseCoopers LLP for miscellaneous tax planning and
advice, including U.S. federal, state and international taxes, for the Company's
U.S. and foreign subsidiaries were $59,235 and $95,003 for the fiscal years
ended August 31, 2006 and 2005, respectively.
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ALL OTHER FEES
The aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for other services for the Company's U.S. and foreign
subsidiaries, consisting of consulting services relating to the Company's
compliance with international financial reporting standards, were $3,760 and $0
for the fiscal years ended August 31, 2006 and 2005, respectively.
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 registered independent accounting firm 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 registered independent
accounting firm 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 registered independent accounting firm to render
such services. No non-audit, review or attest 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 years ended August 31, 2006 and 2005, respectively. Both
the Company's Senior Vice President-Finance and Chief Financial Officer and its
Vice President and Treasurer report regularly to the Audit Committee on the
services rendered by the Company's registered independent public accounting firm
and related fees for audit, audit-related, tax and permitted non-audit services.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) (3) See Exhibit Index on page 24 of this report for a list
of the exhibits furnished as part of this report.
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SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ARROW INTERNATIONAL, INC.
By: /s/ Frederick J. Hirt
-------------------------------------
Frederick J. Hirt
Chief Financial Officer and
Senior Vice President of Finance
Dated: December 15, 2006
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EXHIBIT NO. EXHIBIT
- ----------- -------
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive
Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial
Officer.
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