SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted
[X] Definitive Proxy Statement by Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
Arrhythmia Research Technology, Inc.
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(Name of Registrant as Specified In Its Charter)
Arrhythmia Research Technology, Inc.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
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was paid previously. Identify the previous filing by registration statement
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ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD FRIDAY, SEPTEMBER 28, 2001
----------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Annual
Meeting") of Arrhythmia Research Technology, Inc., a Delaware corporation (the
"Company"), will be held at the American Stock Exchange, 86 Trinity Place, New
York, New York 10006 on Friday September 28, 2001 at 11:00 a.m., local time,
for the following purposes:
1. To elect two directors, for a term of two years to expire at the 2003
Annual Meeting;
2. To approve the appointment of BDO Seidman, LLP to audit the
consolidated financial statements of the Company for the fiscal year ending
December 31, 2001,
3. To approve the adoption of the 2001 Stock Option Plan, reserving
200,000 shares of the Company's Common Stock for issuance thereunder, and
4. To transact such other business as may properly come before the
Annual Meeting or any adjournment(s) thereof.
The close of business on August 17, 2001 has been fixed by the Board of
Directors of the Company as the record date for determining the stockholders
entitled to notice of, and to vote at, the Annual Meeting.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you may insure your representation by
completing, signing, dating and promptly returning the enclosed proxy card. A
return envelope, which requires no postage if mailed in the United States, has
been provided for your use. If you attend the Annual Meeting and inform the
office of the Secretary of the Company in writing that you wish to vote your
shares in person, your proxy will not be used.
By Order of the Board of Directors
E. P. Marinos
Secretary
August 24, 2001
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
1101 Capital of Texas Highway South
Building G, Suite 200
Austin, Texas 78746
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PROXY STATEMENT
----------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 28, 2001
INFORMATION CONCERNING SOLICITATION AND VOTING
General
The enclosed Proxy is solicited by the Board of Directors on behalf of
Arrhythmia Research Technology, Inc. (the "Company") for use at the Annual
Meeting of Stockholders to be held on September 28, 2001, at 11:00 a.m. at the
American Stock Exchange, 86 Trinity Place, New York, New York 10006, or any
adjournment or adjournments thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting. When such Proxy is properly executed
and returned, the shares it represents will be voted at the meeting in
accordance with the directions noted thereon, or if no direction is indicated,
they will be voted in favor of the proposals set forth in the accompanying
Notice of Annual Meeting. Abstentions and broker non-votes will be considered
as present at the meeting for purposes of determining the presence of a quorum
but are not counted for or against proposals to be acted on by the
Stockholders. An automated system administered by Continental Stock Transfer &
Trust Company, the Company's transfer agent, is used to tabulate the votes.
This Proxy Statement and the enclosed Proxy are being sent to Stockholders
beginning on August 24, 2001. The Company will also supply brokers or other
persons holding stock in their names or in the names of their nominees with
such number of Proxies and proxy materials as they may require for mailing to
beneficial owners, and will reimburse them for their reasonable expenses
incurred in connection therewith. In addition to solicitation by mail, certain
Directors, officers, and regular employees of the Company may solicit proxies
by facsimile transmission, telephone, and personal interview.
The cost of the solicitation of proxies for the 2001 Annual Meeting will be
borne by the Company, including expenses in connection with the preparation and
mailing of this Proxy Statement and all papers that now accompany it.
Right to Revoke Proxy
Any Stockholder giving the Proxy enclosed with this Proxy Statement has the
power to revoke such Proxy at any time prior to the exercise thereof by filing
with the Company a written revocation thereof at or prior to the 2001 Annual
Meeting, by executing a Proxy bearing a later date, or by attending the Annual
Meeting and voting in person the shares of stock such Stockholder is entitled
to vote. The Proxies will be voted at the 2001 Annual Meeting and at any
adjournment thereof in the manner specified therein, but unless otherwise
indicated, such Proxy will be voted:
(1) FOR the election of the nominees listed under "Election of
Directors" as Directors of the Company;
(2) FOR the approval of appointment of BDO Seidman, LLP to audit the
consolidated financial statements of Arrhythmia Research Technology, Inc.
for the fiscal year ending December 31, 2001,
(3) FOR the approval of the adoption of the 2001 Stock Option Plan, and
1
(4) At the discretion of the Proxy holders, on any other matter that may
properly come before the 2001 Annual Meeting or any adjournment thereof.
Voting Securities
At the close of business on August 17, 2001, which is the record date for
the determination of Stockholders of the Company entitled to receive notice of
and vote at the 2001 Annual Meeting or any adjournment thereof, the Company had
outstanding 2,998,006 shares of Common Stock, $.01 par value per share (the
"Common Stock"), exclusive of 766,446 treasury shares which will not be
considered present or entitled to vote. Each share of Common Stock is entitled
to one vote.
The holders of record of a majority of the outstanding shares of Common
Stock will constitute a quorum for the transaction of business at the 2001
Annual Meeting.
Proposal No. 1
ELECTION OF DIRECTORS
General Information
The Company's By-Laws provide the number of Directors, as determined from
time to time by the Board of Directors, shall not be less than two or more than
six. The By-Laws further provide that Directors be divided into two classes
(Class I, and Class II) serving staggered two-year terms. Prior to the 2001
Annual Meeting, the By-Laws had provided that Directors be divided into three
classes (Class I, Class II and Class II) serving staggered three year terms.
The former Class I and Class III Directors will serve out the remainder of
their terms.
The Board of Directors has nominated E. P. Marinos and Julius Tabin for
election as Class II Directors for a two-year term expiring at the 2003 annual
meeting and until a successor is duly elected and qualified. Both nominees are
presently Directors of the Company whose terms expire at the Annual Meeting.
The Board of Directors has inquired of the nominees and has ascertained that
they will serve, if elected. In the event that the nominees should become
unavailable for election (which is unexpected), the Board of Directors may
designate a substitute nominee, in which event the shares represented by the
Proxy will be voted for such substitute nominee unless an instruction to the
contrary is indicated on the Proxy. In lieu thereof, the Board of Directors may
reduce the number of Directors in accordance with the By-Laws of the Company.
The affirmative vote of the holders of a majority of the shares of Common
Stock present (whether in person or by proxy) and entitled to vote is required
for the election of Mr. Marinos and Dr. Tabin.
The Board of Directors recommends a vote "FOR" the election of Mr. Marinos
and Dr. Tabin as Class II Directors of the Company.
Information About Nominees and Directors
Biographical information for each person nominated and for each person whose
term of office as a Director will continue after the 2001 Annual Meeting is set
forth below.
Nominees
Principal Occupation, Business
Experience, Director
Name and Age Past Five Years and Directorships Since
------------ -------------------------------------- --------
Class I (term expires 2002)
Russell C. Chambers, M.D. Dr. Chambers served as the Company's 1982
Age 58 Chairman of the Board until August
1990. For more than the past five
years, Dr. Chambers has been primarily
engaged in the management of his
personal investments.
2
Principal Occupation, Business
Experience, Director
Name and Age Past Five Years and Directorships Since
------------ ------------------------------------- --------
Class II (term expires 2003)
E. P. Marinos Mr. Marinos has been CEO of AMT/EPM 1994
Age 59 Associates, a consulting company,
since June, 2001. Mr. Marinos was
President and Chief Executive Officer
of Midcoast Interstate Transmission,
Inc. (MIT)
from June, 1997 until June, 2001. He
became Vice President of
Administration for Midcoast Energy
Resources, Inc. (MRS), MIT's parent
company, in June 1999 and President
of Kansas Pipeline Co. in December
1999, a subsidiary of MRS, and held
those positions until June, 2001.
From March 1995 until June 1997, he
was President and Chief Executive
Officer of the Company. Mr. Marinos
was appointed interim Vice President,
Chief Financial Officer and Chief
Operating Officer of the Company in
June 1994.
Julius Tabin Since 1949, Dr. Tabin has been a 1982
Age 81 partner in the law firm of Fitch,
Even, Tabin & Flannery.
Class III (term expires 2003)
Paul F. Walter, M.D Dr. Walter is an electrophysiologist 1982
Age 62 and Professor of Medicine at Emory
University.
Board of Directors Meetings and Committees
The business of the Company is managed by or under the direction of the
Board of Directors. The Board has established several committees whose
principal functions are briefly described below. During the fiscal year ended
December 31, 2000, the Board of Directors held fourteen meetings. Various
committees of the Board met a total of nineteen times. Average attendance by
incumbent directors at Board meetings was 93% and for all Board and committee
meetings average attendance was 95%.
Audit Committee. The Audit Committee reviews the adequacy of the internal
control systems accounting and reporting practices, and the quality and
integrity of the financial reports of the Company. The Audit Committee also has
the responsibility of reviewing the independence and performance of the
independent auditors and makes recommendations to the Board of Directors
regarding the appointment or termination of the independent auditors. It met
once during 2000. Its current members are E. P. Marinos (currently chairman of
the Audit Committee), Julius Tabin, and Dr. Paul Walter. All members of the
Audit Committee are independent as defined in the American Stock Exchange
listing standards.
Compensation Committee. During 2000, the one member of the Compensation
Committee was Dr. Russell C. Chambers, a non-employee Director. Dr. Russell C.
Chambers and Dr. Paul Walter have been elected to serve on the Compensation
Committee in 2001. The principal functions of the Compensation Committee are to
evaluate the performance of the Company's senior executives, to consider the
design and competitiveness of the Company's compensation plans, to review and
approve senior executive compensation and to administer the Company's Employee
Stock Option Plans. The Compensation Committee met once in fiscal year 2000.
Executive Committee. The Executive Committee is composed of two members: Dr.
Russell C. Chambers and E. P. Marinos. The principal functions of the Executive
Committee are reviewing and evaluating significant business and policy
decisions and making recommendations to the full Board of Directors. The
Executive Committee met six times in fiscal year 2000.
3
The Board has no standing Nominating Committee.
Directors' Compensation
Each non-employee Director receives cash compensation of $1,000 per quarter.
Additionally, each non-employee Director receives $500 cash for each meeting at
which such Director is present in person and $250 for each meeting at which
such Director is present by telephone. From time to time, the Board of
Directors grants stock options to non-employees. In fiscal year 2000, no grants
were made to any non-employees.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth all persons known by the Company to be the
beneficial owners of more than five percent (5%) of the outstanding Common
Stock of the Company as of August 17, 2001:
Beneficial
Ownership
-----------------
Name and Address of Beneficial Owner Number(4) Percent
------------------------------------ --------- -------
Russell C. Chambers, M.D.(2)............................... 487,691 16.27
772 Potato Patch
Vail, Colorado 81657
The following table sets forth beneficial ownership of Common Stock as of
August 17, 2001 for each director of the Company, each executive officer named
in the Summary Compensation Table under "EXECUTIVE COMPENSATION" herein and all
directors and executive officers as a group. Unless otherwise stated and
subject to applicable community property laws, each beneficial owner has sole
voting and investment powers with respect to the shares shown.
Beneficial
Ownership(1)
-----------------
Name and Address of Beneficial Owner Number(4) Percent
------------------------------------ --------- -------
Russell C. Chambers, M.D.(2).............................. 487,691 16.27
Julius Tabin, Ph.D........................................ 138,824 4.63
Paul F. Walter, M.D....................................... 82,055 2.74
E. P. Marinos............................................. 60,426 2.02
All officers and directors as a group (4 persons) (3)..... 821,587 27.40
--------
1. Unless otherwise noted, each person has sole voting and investment power
with respect to the shares of Common Stock beneficially owned.
2. Excludes Company shares owned by two trusts of which Dr. Chambers' son and
Dr. Chambers' wife have a beneficial interest. Dr. Chambers is neither a
beneficiary nor trustee of the two trusts and disclaims any beneficial
ownership of the common stock held by the trusts. Includes 2,500 shares over
which Dr. Chambers has voting power pursuant to an agreement, 12,500 shares
held as custodian for his son and 2,500 shares held as custodian for a
niece.
3. Includes 52,591 shares held by the Micron Employee Stock Ownership Plan
which an Officer of the Company has power as Trustee.
4. Includes options to purchase shares of Common Stock, all of which are
exercisable within the next sixty days as follows:
Name Number
---- -------
E. P. Marinos..................................................... 42,000
Russell C. Chambers, .M.D. ....................................... 18,000
Julius Tabin...................................................... 18,000
Paul F. Walter, M.D............................................... 18,000
-------
Total........................................................... 96,000
=======
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's officers and Directors, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission and the American Stock Exchange and to furnish the Company
with copies of such reports. Based on Company records and other information,
the Company believes that its executive officers, Directors, and ten percent
Stockholders timely complied with such filing requirements with respect to the
fiscal year ended December 31, 2000.
Based solely upon the Company's review of the copies of such forms it has
received, the Company believes that all its officers, directors and greater
than ten percent beneficial owners complied with the filing requirements
applicable to them pursuant to Section 16(a) of the Securities Exchange Act
during fiscal year 2000.
EXECUTIVE OFFICERS
The following list sets forth the names, ages and offices of the executive
officers of the Company. The periods during which such persons have served in
such capacities are indicated in the description of business experience of such
persons below.
Name Position Age
---- -------- ---
James E. Rouse Vice President/General Manager 46
Richard A. Campbell Vice President of Finance 58
Mr. Rouse was appointed Vice President/General manager of the Company in
December, 2000. He was Plant Manager of Micron Products Inc. from December,
1996 until December, 2000.
Mr. Campbell was appointed Vice President of Finance in June, 2000. Prior to
joining the Company, he was Vice President of Finance for Nichols & Stone
Company from 1992 until 1998.
5
EXECUTIVE COMPENSATION
Summary Compensation Table
The aggregate of all plan and non-plan compensation awarded to, earned by,
or paid to the Company's Chief Executive Officer (the "Named Executive
Officers") for services during the three fiscal years ended December 31, 2000
by the Company and its subsidiaries is shown in the following table:
SUMMARY COMPENSATION TABLE
Long-term
Compensation
-----------------
Annual Compensation Awards Payouts
---------------------------- ------- ---------
Stock Long-term All
Name and Principal Options Incentive Other
Position Year Salary Bonus Options (sh) Payouts Comp
------------------ ---- -------- ------ ------- ------- --------- -----
James E. Rouse,
President, Micron
Products, Inc.......... 2000 $ 82,500 5,000 -- -- -- --
Anthony A. Cetrone,
President, Micron
Products Inc.(1)....... 2000 $ 66,353 -- -- -- -- --
Nancy C. Arnold,
President Arrhythmia
Research Technology,
Inc.(2)................ 2000 $ 72,188 -- -- -- -- --
Anthony A. Cetrone,
President Micron
Products Inc........... 1999 $110,000 15,651 -- -- -- --
Nancy C. Arnold,
President, Arrhythmia
Research Technology,
Inc.................... 1999 $ 82,500 500 -- -- -- --
Anthony A. Cetrone,
President, Micron
Products, Inc.......... 1998 $ 98,000 5,282 -- -- -- --
Sidney M. Barbanel,
President and Chief
Executive Officer...... 1998 $ 70,833 -- -- -- -- --
--------
(1) Mr. Cetrone retired from the Company and resigned his position as Chairman
of the Board and Chief Executive Officer of the Company in July, 2000. The
Company has not named a replacement Chief Executive Officer for the Company
and the Board of Directors has served in this capacity since the
resignation of Mr. Cetrone. The Company has an arrangement to compensate
directors for time spent on these responsibilities. No amounts were paid in
fiscal year 2000.
(2) Ms. Arnold terminated her employment with the Company in November, 2000.
Option Grants Table
There were no option grants/SARS in fiscal year 2000.
Aggregated Option Exercises and Fiscal Year-End Options Values Table
There were no option exercises by any Named Executive Officers during fiscal
year 2000 and there was no unrealized value of unexercised options for any such
officer at December 31, 2000.
6
REPORT OF THE COMPENSATION COMMITTEE
The following report of the Compensation Committee (the "Committee"), as
well as the Performance Graph set forth herein, are not soliciting materials,
are not deemed filed with the Securities and Exchange Commission (the "SEC")
and are not incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended (the "Securities Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether made before or
after the date of this Proxy Statement and irrespective of any general
incorporation language in any such filing.
The Compensation Committee is responsible for establishing and reviewing the
Company's executive compensation policies, advising the full Board of Directors
on all compensation matters and administering the Company's stock option plans.
The Committee in 2000 was comprised exclusively of one Director,
Russell C. Chambers (see page 3). All decisions of the Committee relating to
compensation of the President and Executive Officers are reviewed and approved
by the other non-employee Directors.
Compensation Policy
The Company's executive compensation policies are designed to foster the
Company's business goals of achieving profitable growth and premium returns to
Stockholders. The principal objectives of these policies are as follows: (1) to
attract, motivate and retain executives of outstanding ability and character;
(2) to provide rewards that are closely related to the performance of the
Company and the individual executive by placing a portion of compensation at
risk; and (3) to align the interests of executives and Stockholders through
long-term, equity-based incentives and programs to encourage and reward stock
ownership.
This report discusses the manner in which base salaries, short-term
incentive compensation and long-term, equity-based incentives for the Company's
President and Executive Officers were determined for the 2000 fiscal year.
Executive Compensation
The key components of executive compensation are base salary, short-term
incentive compensation and long-term, equity-based incentives. Base salaries
are generally targeted to be competitive with the salaries paid at other
companies of similar size and complexity within and outside the medical device
manufacturing industries.
Base Salary
Salary level targets are established so that the Company can attract and
retain the most qualified employees. In determining an executive officer's
salary, the Compensation Committee considers, but does not assign specific
weights to, the following factors: internal factors involving the executive's
level of responsibility, experience, individual performance, and equity issues
relating to pay for other Company executives, as well as external factors
involving competitive positioning, overall corporate performance, and general
economic conditions. No specific formula is applied to determine the weight of
each factor.
Incentive Compensation Program
The Company maintains an incentive compensation program for substantially
all officers and executives designed to reward such individuals for their
contributions to corporate and individual objectives. In the past, the programs
have provided additional compensation based on performance and profits of those
operations for which the various executives have responsibility.
7
Long-Term Incentive Compensation
The Company also grants stock options and other equity incentives under the
Stock Option Plans in order to link compensation to the Company's long-term
growth and performance and to increases in Stockholder value. The Committee has
broad discretion to establish the terms of such grants to eligible employees of
the Company and it's subsidiaries. It grants awards to designated employees
upon commencement of employment or following a significant change in an
employee's responsibility or title. Awards are based on guidelines relating to
the employee's position in the Company which are set by the Committee, as well
as the employee's current performance and anticipated future contributions. The
Committee also considers the amount and terms of stock options previously
granted to each of the employees. The Committee individually evaluates these
factors with respect to each executive and then the Committee reaches a
consensus on the appropriate award. During fiscal year 2000, the Committee did
not recommend the grant of any stock options.
Compensation of President and Chief Executive Officer
Anthony A. Cetrone served as President and Chief Executive Officer of the
Company until November, 1999, however, he continued as Chairman of the Board
and President of Micron. Mr. Cetrone retired from the Company and resigned his
position as Chairman of the Board and President of Micron in July, 2000. Prior
to his retirement, his annual rate of base compensation was $110,000. Nancy C.
Arnold was named President of the Company in November, 1999. Ms. Arnold served
as President and General Counsel until she terminated her employment with the
Company in November, 2000. Prior to her termination, her annual rate of
compensation was $82,500.
This report on executive compensation is made by and on behalf of the
Company's Compensation Committee.
Russell C. Chambers, M.D.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To date, all transactions between the Company and its officers, directors,
or their affiliates have been approved or ratified by a majority of the
directors who did not have an interest in, and who were not employed by the
Company at the time of such transaction. The Company's Board of Directors
adopted resolutions providing that any transaction between the Company and its
officers, directors or their affiliates must be approved by a majority of the
Board of Directors who do not have an interest in and who are not employed by
the Company at the time of such transaction. The Company believes that all
transactions entered into with affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties.
In May 1983, the Company entered into an agreement with Cardiodigital
Industries, Inc. ("CDI") pursuant to which the Company granted an exclusive
license to CDI to utilize the technology covered by the Simson Patent in
connection with the research and development of signal-averaging devices. In
consideration of the license, CDI provided $175,000 in financing and received a
royalty of $150 per cardiac signal-averaging device sold by the Company, up to
a maximum of $1,250,000. Julius Tabin, a Director of the Company, is a
shareholder of CDI. In addition, the estate of G. Russell Chambers (Dr.
Chambers' father), is a shareholder of CDI. Royalties paid for the fiscal years
ended December 31, 2000, 1999, and 1998 were $6,100, $15,700 and $19,000,
respectively.
8
Dr. Julius Tabin, a Director and shareholder of the Company, is a partner of
Fitch, Even, Tabin & Flannery, a law firm that represents the Company with
respect to patent and other intellectual property law matters. Fees for legal
services rendered by Fitch, Even, Tabin & Flannery were approximately $19,300,
$40,638, and $3,286 for the fiscal years ended December 31, 2000, 1999, and
1998, respectively.
Dr. Russell C. Chambers, a Director and shareholder of the Company,
consultants for the Company and in return the Company pays a portion of his
health insurance premiums. Health insurance premiums paid for Dr.Chambers' were
approximately $11,670, $8,500, and $8,300 for the fiscal years ended December
31, 2000, 1999, and 1998 respectively.
The Company also obtains consulting services from Mr. E.P. Marinos, a
Director and shareholder of the Company. No fees for services were paid to this
Director for fiscal years 2000, 1999, and 1998. The amounts owed to the
Director were approximately $4,275, $0 and $0 for December 31, 2000, 1999, and
1998, respectively.
REPORT OF THE AUDIT COMMITTEE
The Board of Directors has not adopted a written charter for the Audit
Committee. However, in 2000, the Audit Committee's primary tasks involved the
following areas.
Overseeing the preparation of the Company's financial statements. The
Committee reviewed and discussed with management and the Company's outside
auditors the financial statements prior to issuance and discussed significant
accounting issues. The Committee's review included matters to be discussed
pursuant to Statement on Auditing Standards No. 61 (Communication with Audit
Committees).
With respect to the Company's outside auditors, the Audit Committee
discussed with BDO Seidman, LLP, matters relating to its independence,
including disclosures made to the Audit Committee as required by the
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees).
The Committee reviewed the overall scope of and plans for the annual audit
by the Company's independent accountants. The Committee has also reviewed the
Company's financial reporting process and internal controls, as well as the
significant audit findings prepared by the independent accountants and, where
applicable, management's responses to suggestions raised by BDO Seidman, LLP.
On the basis of these reviews and discussions, the Committee recommended to
the Board of Directors that the Board approve the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2000 for filing with the Securities and
Exchange Commission.
E.P. Marinos Julius Tabin Paul Walter M.D.
9
STOCK PERFORMANCE GRAPH
The following Performance Table compares the Company's cumulative total
shareholder return on its Common Stock for a five-year period (from December
31, 1995 to December 31, 2000), with the cumulative total return of the
Standard & Poor's 500 Stock Index ("S&P 500") (which does not include the
Company), and the Standard & Poor's Medical Products and Supplies Stock Index
(which includes the Company)("S&P Med"). Dividend reinvestment has been
assumed. The Performance Graph assumes $100 invested in December 31, 1995 in
the Company's Common Stock, S&P 500, and S&P Med.
-----------------------------------------
Cumulative Total Return
-----------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
------ ------ ------ ------ ------ ------
ARRHYTHMIA RESEARCH TECHNOLOGY,
INC................................ 100.00 58.82 36.76 30.88 38.24 38.24
S & P 500........................... 100.00 122.96 163.98 210.84 255.22 231.98
S & P HEALTH CARE (MEDICAL PRODUCTS
& SUPPLIES......................... 100.00 114.77 143.09 206.25 191.03 275.56
10
Proposal No. 2
INDEPENDENT ACCOUNTANTS
The Directors of the Company have selected BDO Seidman, LLP as the auditors
of the Company for the fiscal year ending December 31, 2001, subject to the
approval of the stockholders. BDO Seidman, LLP has acted as the Company's
auditors since 1998.
Before the Audit Committee recommended the appointment of BDO Seidman, LLP,
to the Board, it considered the qualifications of that firm, including its
previous performance and its reputation for integrity and competence in the
fields of accounting and auditing.
The amount of the fees for audit and tax services performed by BDO Seidman,
LLP relating to fiscal year 2000 were approximately $88,750 and $20,500,
respectively. A representative of BDO Seidman, LLP is expected to be available
by telephone conference at the Meeting, to make a statement if they desire, and
to respond to any appropriate questions.
Recommendation and Vote
To be approved, this proposal requires the affirmative vote of the holders
of a majority of the voting stock of the Company present in person or
represented by proxy at the Annual Meeting entitled to vote thereon.
The Board of Directors recommends a vote "FOR" the appointment of BDO
Seidman, LLP as the Company's auditors for the fiscal year ending December 31,
2001.
Proposal No. 3
APPROVAL OF THE 2001 STOCK OPTION PLAN
General
On March 21, 2001, the Board of Directors of the Company adopted the 2001
Stock Option Plan (the "2001 Plan"), reserving 200,000 shares of the Company's
Common Stock, $.01 par value, for issuance thereunder. The 2001 Plan provides
for the grant of incentive stock options to employees and nonstatutory stock
options, (collectively, "Stock Awards") to employees, non-employee directors
and consultants. At the end of the Company's fiscal year 2000, there were
approximately 50 employees, 4 non-employee directors and no consultants of the
Company. The Company's 1987 Stock Option Plan (the "1987 Plan") expired in 1997
and no further grants were issued. Options granted previously under the 1987
Plan will continue to be governed by the terms of the 1987 Plan.
The Board of Directors believes that approval of the 2001 Plan is in the
best interests of the Company because it will provide the Company with
sufficient equity-based incentives to attract and retain qualified employees,
directors and consultants and to provide incentives for such persons to exert
maximum efforts for the success of the Company.
Approval by stockholders of the adoption of the 2001 Plan is sought in order
to meet the stockholder approval requirements of (i) Section 422 of the
Internal Revenue Code (the "Code"), which requires stockholder approval of an
incentive stock option plan, (ii) Rule 16b-3 under the 1934 Act, which, in the
case of certain option plans that have been approved by stockholders, prevents
the grant of options to directors, executive officers and certain other
affiliates from being deemed "purchases" for purposes of the profit recapture
provisions of Section 16(b) of that Act, (iii) Section 162(m) of the Code,
which among other qualifications requires stockholder approval of any option
plan to exempt the spread (the difference between the exercise price and the
market value at the time of exercise) of options from the limitation on
deductibility under that section, and (iv) the rules applicable to companies
whose shares are traded on the American Stock Exchange.
11
There follows a brief but not comprehensive summary of the 2001 Plan. A copy
of the 2001 Plan is attached as an exhibit at the end of this Proxy Statement.
Administration
The 2001 Plan provides that it is to be administered by a committee (the
"Committee") composed of not fewer than two members, all of whom will be "non-
employee directors" and "outside Directors" within the meanings of the
securities laws and the Code, respectively. Subject to the provisions of the
2001 Plan, the Committee has the authority to determine (i) which persons
eligible under the 2001 Plan will be granted Stock Awards; (ii) when and how
the Stock Awards will be granted; (iii) whether the Stock Award will be an
incentive stock option, a nonstatutory stock option, or a combination of the
foregoing; (iv) the number of shares involved; (v) the exercise or purchase
price; (vi) the type and duration of transfer or other restrictions; and
(vii) any other terms of a Stock Award.
Shares Subject to the 2001 Plan
The aggregate number of shares of the Company's common stock that may be
issued under the 2001 Plan is 200,000 shares. On March 21, 2001 the average of
the closing bid and asked prices of the Company's common stock on the American
Stock Exchange was $2.00 per share.
If any Stock Award expires or is terminated without having been exercised in
full, the applicable shares will again be available for issuance under the 2001
Plan. No Stock Awards have been granted under the 2001 Plan during the year
ended December 31, 2000.
If there is any change in the shares of common stock subject to the 2001
Plan through stock dividends, splits or recapitalizations, the Board of
Directors is authorized to make appropriate adjustments to the number of shares
and price per share for each Stock Award and the number of common shares
available for Stock Awards. If the Company is acquired or liquidates or sells
substantially all of its assets while unexercised stock options remain
outstanding, the 2001 Plan provides that the Committee has the discretion to
accelerate all non-vested options.
Stock Options
The exercise price per share of each incentive stock option granted under
the 2001 Plan will be not less than the fair market value of the Common Stock
on the date of the grant of the option ("Fair Market Value"). The aggregate
Fair Market Value (determined at the time the option is granted) of the Common
Stock for which any employee may have incentive stock options vest in any
calendar year may not exceed $100,000.
Options granted under the 2001 Plan will vest (become exercisable) either
initially or in periodic installments as determined by the Committee. No option
will be exercisable after the expiration of six years from the date it was
granted.
During the optionee's lifetime, an incentive stock option will be
exercisable only by the optionee and will not be transferable except by will or
by the laws of descent and distribution. A nonstatutory stock option may be
transferred upon such terms and conditions as the Committee may determine in
its sole discretion. The optionee may designate a third party who, in the event
of the death of the optionee, will be entitled to exercise the vested options,
but only within the period ending on the earlier of (i) twelve months following
the date of death and (ii) the expiration of the term of the option in the
option agreement. In the event an optionee's status as an employee, director or
consultant terminates as a result of disability, the optionee's vested options
must be exercised within the same time frame.
In the event an optionee is terminated as an employee, director or
consultant (other than by death, disability or retirement), the optionee may
exercise his or her vested options only within the period of time
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ending on the earlier of (i) sixty days after termination or such period of
time set forth in the option agreement or (ii) expiration of the option's term.
The Committee may provide to an optionee the right to exercise his options
prior to vesting of the options, provided, however, any unvested options will
be subject to a repurchase right by the Company at the exercise price if the
optionee is terminated.
Amendment and Termination
The 2001 Plan authorizes the Board of Directors to discontinue, suspend or
amend the 2001 Plan, except that no amendment, suspension or termination of the
2001 Plan or amendment of a Stock Award by the Board of Directors may alter or
impair a grantee's rights under a Stock Award previously granted without the
grantee's written consent. The 2001 Plan will terminate on March 20, 2011.
Federal Income Tax Consequences under the 2001 Plan
Set forth below is a general summary of the federal income tax consequences
related to options awarded under the 2001 Plan. It is not intended to be
exhaustive, and in particular does not address any state, municipal or foreign
tax laws or the individual circumstances of participants. In addition,
administrative and judicial interpretations of the application of the federal
income tax laws are subject to change.
Tax Consequences to the Option Holder. There are no federal income tax
consequences to the option holder solely by reason of the grant of incentive
stock options or nonstatutory stock options under the 2001 Plan. The exercise
of an incentive stock option is not a taxable event for regular federal income
tax purposes if certain requirements are satisfied, including the restriction
providing that the option holder generally must exercise the option no later
than two months following termination of his employment. However, the exercise
of an incentive stock option may give rise to an alternative minimum tax
liability (see discussion below).
Upon the exercise of a nonstatutory stock option, the option holder will
generally recognize ordinary income in an amount equal to the excess of fair
market value of the shares at the time of exercise over the amount paid as the
exercise price. The ordinary income recognized in connection with the exercise
by an option holder of a nonstatutory stock option will be subject to both
income and employment tax withholding. The option holder's tax basis in the
shares acquired pursuant to the exercise of an option will be the amount paid
upon exercise plus, in the case of a nonstatutory stock option, the amount of
ordinary income recognized by the option holder upon exercise.
If any option holder disposes of shares acquired upon the exercise of an
incentive stock option in a taxable transaction, and such disposition occurs
more than two years from the date on which the option is granted and more than
one year after the date on which the shares are transferred to the option
holder pursuant to the exercise of the incentive stock option (a "qualifying
disposition"), the option holder will recognize long-term capital gain or loss
equal to the difference between the amount realized upon such disposition and
the option holder's adjusted basis in such shares (generally the exercise
price).
If the option holder disposes of shares acquired upon the exercise of an
incentive stock option (other than in certain tax-free transactions) within two
years from the date on which the incentive stock option is granted or within
one year after the transfer of the shares to the option holder pursuant to the
exercise of the incentive stock option (a "disqualifying disposition"), then at
the time of disposition the option holder will generally recognize ordinary
income equal to the lesser of (i) the excess of such shares' fair market value
on the date of exercise over the exercise price paid by the option holder or
(ii) the option holder's actual gain (i.e. the excess, if any, of the amount
realized on the disposition over the exercise price paid by the option holder).
If the total amount realized on a taxable disposition (including return of
capital and capital gain) exceeds the fair market value on the date of
exercise, then the option holder will recognize a capital gain in the amount of
such excess.
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If the option holder incurs a loss on the disposition (i.e., if the total
amount realized is less than the exercise price paid the option holder), then
the loss will be a capital loss.
If any option holder disposes of shares acquired upon exercise of a
nonstatutory stock option in a taxable transaction, the option holder will
recognize capital gain or loss in an amount equal to the difference between
his basis in the shares sold and the total amount realized upon disposition.
Any such capital gain or loss (and any capital gain or loss recognized on a
disqualifying disposition of shares acquired upon exercise of incentive stock
options as discussed above) will be long-term capital gain or loss if the
shares were held for more than one year from the date such shares were
transferred to the option holder.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the option holder's regular income tax for the taxable
year. Generally, AMT is computed at the rate of 26% on the excess of a
taxpayer's alternative minimum taxable income ("AMTI") over the exemption
amount, but only if such excess amount does not exceed $175,000 ($87,500 in
the case of married individuals filing separate returns). The AMT tax rate is
28% of such excess amount over the $175,000 ($87,500) amount. For these
purposes, the exemption amount is $49,000 for joint returns or returns of
surviving spouses ($35,750 for single taxpayers and $24,500 for married
individuals filing separate returns), reduced by 25% of the excess of AMTI
over $150,000 for joint returns or returns of surviving spouses ($112,500 for
single taxpayers and $75,000 for married individuals filing separate returns).
A taxpayer's AMTI is essentially the taxpayer's taxable income adjusted
pursuant to the AMT provisions and increased by items of tax preference.
The exercise of incentive stock options (but not nonstatutory stock
options) will generally result in an upward adjustment to the option holder's
AMTI in the year of exercise by an amount equal to the excess, if any, of the
fair market value of the stock on the date of exercise over the exercise
price. The basis of the stock acquired for AMT purposes, will equal the
exercise price increased by the prior upward adjustment of the taxpayer's AMTI
due to the exercise of the option. This will result in a corresponding
downward adjustment to the option holder's AMTI in the year of disposition of
the stock. The AMT paid with respect to the exercise of an incentive stock
option is allowed as a credit against the regular tax liability of the option
holder in a subsequent year when he disposes of the stock; therefore,
imposition of the AMT at the time of exercise of an incentive stock option may
not increase the aggregate amount of income tax paid by the option holder, but
instead may only affect the timing of such payments.
Tax Consequences to the Company. There are no federal income tax
consequences to the Company by reason of the grant of incentive stock options
or nonstatutory stock options or the exercise of incentive stock options
(other than disqualifying dispositions). At the time the option holder
recognizes ordinary income from the exercise of a nonstatutory stock option,
the Company will be entitled to a federal income tax deduction in the amount
of the ordinary income so recognized (as described above), provided that the
Company satisfies its tax reporting obligations described below. To the extent
the option holder recognizes ordinary income by reason of a disqualifying
disposition of the stock acquired upon exercise of incentive stock options,
the Company will be entitled to a corresponding deduction in the year in which
the disposition occurs, provided that the Company satisfies a tax reporting
obligation described below. The Company will be required to report to the
Internal Revenue Service any ordinary income recognized by any option holder
by reason of the exercise of a nonstatutory stock option or the disqualifying
disposition of stock acquired upon exercise of incentive stock options. The
Company will be required to withhold income and employment taxes (and pay the
employer's share of employment taxes) with respect to ordinary income
recognized by the option holder upon the exercise of nonstatutory stock
options.
An affirmative vote of a majority of the shares present, in person or by
proxy, and entitled to vote at the Meeting, is required to approve the 2001
Plan.
The Board of Directors recommends a vote "FOR" the adoption of the 2001
Stock Option Plan.
14
STOCKHOLDER PROPOSALS FOR THE 2002 ANNUAL MEETING
Stockholders are entitled to submit proposals on matters appropriate for
Stockholder action consistent with regulations of the Securities and Exchange
Commission. Should a Stockholder intend to present a proposal at the 2002
Annual Meeting, it must be received by the Secretary of the Company (C/O Micron
Products, Inc., 25 Sawyer Passway, Fitchburg, MA 01420) not later than July 10,
2002 and must comply with all of the requirements of Rule 14a-8 under the
Securities Exchange Act of 1934 in order to be included in the Company's Proxy
Statement and form of Proxy relating to that meeting.
Stockholders proposals intended to be presented at the meeting, but not
included in the Company's Proxy materials, must be received by the Company
within 10 days after the first public disclosure date of the Annual Meeting.
OTHER BUSINESS
The Board of Directors knows of no other matters to be voted upon at the
Annual Meeting. However, if any other matters properly come before the meeting,
it is the intention of the persons named in the enclosed form of Proxy to vote
such Proxy in accordance with their judgment on such matters.
No person is authorized to give any information or to make any
representation other than that contained in this Proxy Statement, and if given
or made, such information may not be relied upon as having been authorized.
Copies of the Company's 2000 Annual Report on Form 10-K are being sent to
all Stockholders along with this Proxy Statement. Additional copies will be
furnished without charge to Stockholders upon written request. All written
requests should be directed to Arrhythmia Research Technology, Inc., Secretary,
c/o Micron Products, Inc., 25 Sawyer Passway, Fitchburg, MA 01420.
15
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
2001 STOCK OPTION PLAN
----------------
1. Purpose. This Arrhythmia Research Technology, Inc. 2001 Stock Option Plan
(the "Plan") is intended to provide incentives to (a) the officers and other
employees of Arrhythmia Research Technology, Inc. (the "Company"), its parent
(if any) and any present or future subsidiaries of the Company (each such
entity, including the Company, a "Related Company" and collectively, the
"Related Companies") by providing them with opportunities to purchase stock in
the Company pursuant to options which qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), granted hereunder ("ISO" or "ISOs") and (b) directors, officers,
employees and consultants of any Related Company by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which do not qualify as ISOs ("Non-Qualified Option" or Non-Qualified
Options"). Both ISOs and Non-Qualified Options are referred to hereafter
individually as an "Option" and collectively as "Options." As used herein, the
terms "parent" and "subsidiary" mean, respectively, "parent corporation" and
"subsidiary corporation" as those terms are defined in Section 425 of the Code.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board may appoint a Committee (the "Committee") of two or
more of its members to administer the Plan. Each member of the Committee shall
be a "Non-Employee Director" as defined in Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and shall be an "outside
director" within the meaning of Section 162(m) of the Code. Subject to
ratification of the grant of each Option by the Board (if so required by
applicable state law), and subject to the terms of the Plan, the Committee, if
so appointed, shall have the authority to (i) determine the employees of the
Related Companies (from among the class of employees eligible under paragraph 3
to receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under paragraph 3 to receive Non-
Qualified Options) to whom Non-Qualified Options may be granted, (ii) determine
the time or times at which Options may be granted, (iii) determine the option
price of shares subject to each Option, which price with respect to ISOs shall
not be less than the minimum specified in paragraph 6, (iv) determine whether
each Option granted shall be an ISO or a Non-Qualified Option, (v) determine
(subject to paragraph 7) the time or times when each Option shall become
exercisable, the circumstances under which the vesting for any options will be
automatically accelerated and the duration of the exercise period, (vi)
determine whether restrictions such as repurchase options are to be imposed on
shares subject to Options, and the nature of such restrictions, if any, and
(vii) interpret the Plan and prescribe and rescind rules and regulations
relating to it. If the Committee determines to issue a Non-Qualified Option, it
shall take whatever actions it deems necessary, under Section 422 of the Code
and the regulations promulgated thereunder, to ensure that such Option is not
treated as an ISO. The interpretation and construction by the Committee of any
provisions of the Plan or of any Option granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option granted
under it.
(b) The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a majority
of the Committee, or acts reduced to or approved in writing by a majority of
the members of the Committee, shall be the valid acts of the Committee. All
references in the Plan to the Committee shall mean the Board if there is no
Committee so appointed. From time to time the Board may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and thereafter
directly administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any officer or
other employee of any Related Company. Those directors of any Related Company
who are not employees may not be granted ISOs under the
1
Plan. Non-Qualified Options may be granted to any director (whether or not an
employee), officer, employee or consultant of any Related Company. The
Committee may take into consideration an optionee's individual circumstances in
determining whether to grant an ISO or a Non-Qualified Option. Granting of any
Option to any individual or entity shall neither entitle that individual or
entity to, nor disqualify such individual or entity from, participation in any
other grant of Options.
4. Stock. The stock subject to Options shall be authorized but unissued
shares of Common Stock of the Company, $.01 par value per share (the "Common
Stock"), or shares of Common Stock re-acquired by the Company in any manner.
The aggregate number of shares which may be issued pursuant to the Plan is
200,000, subject to adjustment as provided in paragraph 13. Any such shares may
be issued as ISOs or Non-Qualified Options so long as the aggregate number of
shares so issued does not exceed such number, as adjusted. If any Option
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the shares subject to such expired or terminated Option shall again
be available for grants of Options under the Plan.
5. Grants Under the Plan. Options may be granted under the Plan at any time
on or after March 21, 2001 and prior to March 20,2011. The date of grant of an
Option under the Plan will be the date specified by the Committee at the time
it awards the Option; provided, however, that such date shall not be prior to
the date of award. The Committee shall have the right, with the consent of the
optionee, to convert an ISO granted under the Plan to a Non-Qualified Option
pursuant to paragraph 16.
6. Minimum Option Price: ISO Limitations.
(a) The price per share specified in the agreement relating to each ISO
granted under the Plan shall not be less than the fair market value per share
of Common Stock on the date of such grant. In the case of an ISO to be granted
to an employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of any Related Company, the price
per share specified in the agreement relating to such ISO shall not be less
than one hundred ten percent (110%) of the fair market value of Common Stock on
the date of grant.
(b) In no event shall the aggregate fair market value (determined at the
time the option is granted) of Common Stock for which ISOs granted to any
employee are exercisable for the first time by such employee during any
calendar year (under all stock plans of the Related Companies) exceed $100,000.
(c) If, at the time an Option is granted under the Plan, the Company's
Common Stock is publicly traded, "fair market value" shall be determined as of
the last business day for which the prices or quotes discussed in this sentence
are available prior to the date such Option is granted and shall mean (i) the
average (on that date) of the high and low prices of the Common Stock on the
principal national securities exchange on which the Common Stock is traded, if
such stock is then traded on a national securities exchange, (ii) the last
reported sale price (on that date) of the Common Stock on the Nasdaq National
Market, if the Common Stock is not then traded on a national securities
exchange, or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Common Stock is not reported on the Nasdaq National Market
or on a national securities exchange. However, if the Common Stock is not
publicly traded at the time an Option is granted under the Plan, "fair market
value" shall be deemed to be the fair value of the Common Stock as determined
in good faith by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and
offer prices of the Common Stock in private transactions negotiated at arm's
length.
7. Option Duration. Subject to earlier termination as provided in paragraphs
9 and 10, each Option shall expire on the date specified by the Committee, but
not more than six years from the date of grant and in the case of ISOs granted
to an employee owning stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of any Related Company, not more
than six years from date of grant. Subject to earlier termination as provided
in paragraphs 9 and 10, the term of each ISO shall be the term
2
set forth in the original instrument granting such ISO, except with respect to
any part of such ISO that is converted into a Non-Qualified Option pursuant to
paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through 12,
each Option granted under the Plan shall be exercisable as follows:
(a) The Option shall either be fully exercisable on the date of grant or
shall become exercisable thereafter in such installments as the Committee
may specify.
(b) Once an installment becomes exercisable it shall remain exercisable
until expiration or termination of the Option, unless otherwise specified
by the Committee.
(c) Each Option or installment may be exercised at any time or from time
to time, in whole or in part, for up to the total number of shares with
respect to which it is then exercisable.
(d) The Committee shall have the right to accelerate the date of
exercise of any installment, provided that the Committee shall not
accelerate the exercise date of any installment of any Option granted to
any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code which
provides generally that the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which ISOs granted
to any employee are exercisable for the first time by such employee during
any calendar year (under all stock plans of the Related Companies) shall
not exceed $100,000.
9. Termination of Employment.
(a) If an ISO optionee ceases to be employed by any Related Company other
than by reason of death or Disability as provided in paragraph 10, no further
installments of his ISOs shall become exercisable, and his ISOs shall terminate
after the passage of 60 days from the date of termination of his employment,
but in no event later than on their specified expiration dates except to the
extent that such ISOs (or unexercised installments thereof) have been converted
into Non-Qualified Options pursuant to paragraph 16. Leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under the Plan, provided that such written approval contractually
obligates such Related Company to continue the employment of the employee after
the approved period of absence. Employment shall also be considered as
continuing uninterrupted during any other bona fide leave of absence (such as
those attributable to illness, military obligations or governmental service),
provided that the period of such leave does not exceed 90 days or, if longer,
any period during which such optionee's right to reemployment is guaranteed by
statute. Nothing in the Plan shall be deemed to give any grantee of any Option
the right to be retained in employment or other service by any Related Company
for any period of time. ISOs granted under the Plan shall not be affected by
any change of employment within or among any Related Company, so long as the
optionee continues to be an employee of such Related Company. In granting any
Non-Qualified Option, the Committee may specify that such Non-Qualified Option
shall be subject to the restrictions set forth herein with respect to ISOs, or
to such other termination or cancellation provisions as the Committee may
determine.
(b) With respect to the holder of an Option, unless otherwise provided in
such holder's agreement establishing an Option or in any employment or
consulting agreement between such holder and any Related Company, the term
"Disability" shall mean, in the good faith determination of the Board, any
illness (mental or physical) or accident which results in such Holder being
unable to perform such holder's duties as an employee of, or consultant to, any
Related Company for three months during any 12-month period.
10. Death; Disability; Dissolution. If an optionee ceases to be employed by
a Related Company by reason of his death, any Option of his may be exercised,
to the extent of the number of shares with respect to which he could have
exercised it on the date of his death, by his estate, personal representative
or beneficiary who has acquired the Option by will or by the laws of descent
and distribution, at any time prior to the earlier of the Option's specified
expiration date or one year from the date of the optionee's death.
3
If an optionee ceases to be employed by (or provide services to) a Related
Company by reason of his Disability, he shall have the right to exercise any
Option held by him on the date of termination of his employment (or services),
to the extent of the number of shares with respect to which he could have
exercised it on that date, at any time prior to the earlier of the Option's
specified expiration date or one year from the date of the termination of the
optionee's employment (or services).
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by him.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including transfer and repurchase restrictions applicable to
shares of Common Stock issuable upon exercise of Options. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the happening of any of the following described
events, an optionee's rights with respect to Options granted to him hereunder
shall be adjusted as hereinafter provided:
(a) In the event there is any change in the shares of Common Stock of
the Company through the declaration of stock dividends or through any stock
split, combinations, recapitalizations or similar transactions (but
excluding any merger or consolidation with any entity that is not 100%
owned by the Company, directly or indirectly) effecting all outstanding
shares of the Company's capital stock, the number of shares subject to any
Option and the purchase price per share for such Option shall be
appropriately adjusted. Notwithstanding the foregoing, any adjustments made
pursuant to this subparagraph (a) shall be made only after the Committee,
after consulting with counsel for the Company, determines whether such
adjustments with respect to ISOs will constitute a "modification" of such
ISOs as that term is defined in Section 425 of the Code, or cause any
adverse tax consequences for the holders of such ISOs. No adjustments shall
be made for dividends paid in cash or in property other than securities of
the Company.
(b) No fractional shares shall actually be issued under the Plan. Any
fractional shares which, but for this subparagraph (b), would have been
issued to an optionee pursuant to an Option, shall be deemed to have been
issued and immediately sold to the Company for their fair market value, and
the optionee shall receive from the Company cash in lieu of such fractional
shares.
(c) Upon the happening of any of the foregoing events described in
subparagraph (a) above, the class and aggregate number of shares set forth
in paragraph 4 hereof which are subject to Options which previously have
been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events specified in such
subparagraphs. The Committee shall determine the specific adjustments to be
made under this paragraph 13, and subject to paragraph 2, its determination
shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address. Such notice shall identify the Option being exercised
and specify the number of shares as to which such Option is being exercised,
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through delivery of shares of Common Stock having fair market value equal as of
the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee, by
4
delivery of the optionee's personal recourse note bearing interest payable not
less than annually at no less than 100% of the lowest applicable Federal rate,
as defined in Section 1274(d) of the Code, (d) at the discretion of the
Committee, in consideration of services rendered or to be rendered to any
Related Company, or (e) at the discretion of the Committee, by any combination
of (a), (b), (c) and (d) above. If the Committee exercises its discretion to
permit payment of the exercise price of an ISO by means of the methods set
forth in clauses (b), (c), (d) and (e) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of an Option shall not have the rights of a shareholder
with respect to the shares covered by his Option until the date of issuance of
a stock certificate to him for such shares. Except as expressly provided above
in paragraph 13 with respect to a change in capitalization of the Company and
stock dividends, no adjustment shall be made for dividends or similar rights
for which the record date is before the date such stock certificates are
issued.
15. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The
Committee, at the written request of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
any Related Company at the time of such conversion. Such actions may include,
but not be limited to, extending the exercise period or reducing the exercise
price of the appropriate installments of such Options. At the time of such
conversion, the Committee (with the consent of the optionee) may impose such
conditions on the exercise of the resulting Non-Qualified Options as the
Committee in its discretion may determine, provided that such conditions shall
not be inconsistent with the Plan. Nothing in the Plan shall be deemed to give
any optionee the right to have such optionee's ISOs converted into Non-
Qualified Options, and no such conversion shall occur until and unless the
Board takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
16. Term and Amendment of Plan. The Plan was adopted by the Board on March
21, 2001, and subsequently approved by the holders of a majority of the
stockholders of the Company entitled to vote thereon on or about September 28,
2001. The Plan shall expire on March 20, 2011 (except as to Options outstanding
on that date). The Board may terminate or amend the Plan in any respect at any
time, except that, any amendment that (a) increases the total number of shares
that may be issued under the Plan (except by adjustment pursuant to paragraph
13); (b) changes the class of persons eligible to participate in the Plan, or
(c) materially increases the benefits to participants under the Plan, shall be
subject to approval by the Company's stockholders obtained within 12 months
before or after the Board adopts a resolution authorizing any of the foregoing
amendments, and shall be null and void if such approval is not obtained. Except
as provided in the third sentence of this paragraph 17, in no event may action
of the Board or the Company's stockholders alter or impair the rights of an
optionee without his consent, under any Option previously granted to him.
17. Application of Funds. The proceeds received by the Company from the sale
of shares pursuant to Options authorized under the Plan shall be used for
general corporate purposes.
18. Securities Law Requirements, etc. Shares of Common Stock shall not be
issued under the Plan unless the issuance and delivery of such shares comply
with (or are exempt from) all applicable requirements of law including, without
limitation, the Securities Act of 1933, as amended, and the rules and
regulations of any stock exchange or other securities market on which the
Company's securities may then be traded.
19. Withholding of Additional Income Taxes. The Company, in accordance with
the Code, may (a) upon exercise of a Non-Qualified Option, (b) the purchase of
Common Stock for less than its fair market value, (c) the making of a
Disqualifying Disposition (as defined in paragraph 21) or (e) any other similar
event then required by law, require an optionee to pay additional withholding
taxes in respect of the amount that is considered compensation includible in
such person's gross income.
20. Notice to Company of Disqualifying Disposition. Each employee who
receives ISOs shall agree to notify the Company in writing immediately after
the employee makes a disqualifying disposition of any
5
Common Stock received pursuant to the exercise of an ISO (a "Disqualifying
Disposition"). Disqualifying Disposition means any disposition (including any
sale) of such stock before the later of (a) two years after the employee was
granted the ISO under which he acquired such stock, or (b) one year after the
employee acquired such stock by exercising such ISO. If the employee has died
before such stock is sold, these holding period requirements do not apply and
no Disqualifying Disposition will thereafter occur.
21. Governing Laws; Construction. The validity and construction of the Plan
and the instruments evidencing Options shall be governed by the laws of The
Commonwealth of Massachusetts, without giving effect to its choice of law
principles. In construing the Plan, the singular shall include the plural and
the masculine gender shall include the feminine and neuter, unless the context
otherwise requires.
6
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS FOR STOCKHOLDERS
MEETING ON SEPTEMBER 28, 2001
The undersigned hereby appoints Richard A. Campbell and James E. Rouse and
each or either of them, as true and lawful agents and proxies with full power of
substitution in each to represent the undersigned in all matters coming before
the 2001 Annual Meeting of Stockholders of Arrhythmia Research Technology, Inc.
to be held at the American Stock Exchange, 86 Trinity Place, New York, New York
10006 at 11:00 a.m. local time, and any adjournment thereof, and to vote as
follows:
1. Election of Directors: Nominees: E.P. Marinos Julius Tabin
[_] VOTE FOR all nominees listed above, except withhold from following OR [_] VOTE WITHHELD from all nominees listed above
nominees (if any):
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2. Approval of the Appointment of BDO Seidman, LLP [_] VOTE FOR [_] VOTE AGAINST [_] ABSTAIN
3. Adoption of 2001 Stock Option Plan [_] VOTE FOR [_] VOTE AGAINST [_] ABSTAIN
4. Other Matters
In their discretion, to vote with respect to any other matters that may
come before the Meeting or any adjournment thereof, including matters incident
to its conduct.
Please sign and date on the reverse side
When properly executed, this proxy will be voted in the manner specified
above by the stockholder. To the extent contrary specifications are not given,
this proxy will be voted for the nominees listed in item 1, for items 2 and 3,
with the discretionary authority set forth in the accompanying proxy statement
for item 4.
PLEASE SIGN AND DATE
Dated: , 2001
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Signature
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Printed Name
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Signature
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Printed Name
(Joint Owners Should Each Sign,
Attorneys-In-Fact, Executors,
Administrators, Custodians, Partners, or
Corporate Officers Should Give Their Full
Title.)
PLEASE DATE, SIGN AND RETURN THIS PROXY
NO POSTAGE NECESSARY IF MAILED IN THE UNITED STATES