SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
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ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
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(Name of Registrant as Specified In Its Charter)
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
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ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held Friday, May 2, 2003
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 on Friday May 2, 2003 at 1:00 p.m. at the Boston Park
Plaza Hotel, 64 Arlington Street, Boston Massachusetts for the following
purposes:
1. To elect two Class II directors for three year terms to expire at the
2006 Annual Meeting;
2. To elect one Class III director for a one year term to expire at the
2004 Annual Meeting;
3. To approve the appointment of BDO Seidman, LLP to audit the
consolidated financial statements of the Company for the fiscal year
ending December 31, 2003, and;
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
Stockholders of record at the close of business on March 21, 2003 will be
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof.
You are cordially invited to attend the Annual Meeting in person. Stockholders
who are unable to attend the Annual Meeting in person are requested to complete
and date the enclosed form of proxy and return it promptly in the envelope
provided. No postage is required if mailed in the United States. Stockholders
who attend the Annual Meeting may revoke their proxy and vote their shares in
person.
E. P. Marinos
Secretary
April 4, 2003
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
25 Sawyer Passway
Fitchburg, Massachusetts 01420
Telephone (978) 345-5000
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
INFORMATION CONCERNING SOLICITATION AND VOTING
General
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders and proxy card are being furnished in connection with the
solicitation by the Board of Directors of Arrhythmia Research Technology, Inc.
(the "Company") of proxies to be voted the Annual Meeting of Stockholders to be
held on May 2, 2003, at 1:00 p.m. at the Boston Park Plaza Hotel, 64 Arlington
Street, Boston Massachusetts, or any adjournment thereof, for the purposes set
forth herein and in the accompanying Notice of Annual Meeting. When such proxy
card 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 as recommended by the Board of
Directors 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 in determining the presence of a quorum, but will not be 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 card are first being sent
to stockholders of the Company beginning on or about April 4, 2003. 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 proxy cards 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. Such persons will not receive any fees or other compensation for such
solicitation. All expenses incurred in connection with this solicitation will be
borne by the Company.
Right to Revoke Proxy
Any Stockholder executing the proxy card enclosed with this Proxy
Statement has the power to revoke such proxy at any time prior to the exercise
thereof by submitting to the Secretary of the Company a written revocation
thereof at or prior to the 2003 Annual Meeting, by executing a proxy card
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 2003 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 Class II nominees listed under "Election of
Directors" as Directors of the Company;
(2) FOR the election of the Class III nominee listed under "Election of
Directors" as a Director of the Company;
(3) 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, 2003, and;
(4) At the discretion of the proxy holders, on any other matter that may
properly come before the 2003 Annual Meeting or any adjournment
thereof.
1
Voting Securities
At the close of business on March 21, 2003, which is the record date
for the determination of stockholders of the Company entitled to receive notice
of and vote at the 2003 Annual Meeting or any adjournment thereof, the Company
had outstanding 2,614,484 shares of common stock, $.01 par value per share (the
"Common Stock"), exclusive of 1,287,918 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 entitled to vote at the meeting, in present or by proxy, will constitute a
quorum for the transaction of business at the 2003 Annual Meeting.
Proposals No. 1 and 2
ELECTION OF DIRECTORS
General Information
The Company's By-Laws provide that 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 the Board of Directors be
divided into three classes (Class I, Class II and Class III) serving staggered
three-year terms, with each class to be as nearly equal in number as possible.
The Company's By-laws were amended in 2001 to reduce the number of classes from
three to two and to reduce the term of each class from three years to two years.
The Board has determined to reinstitute the three classes, three-year term
structure and has amended the Company's By-laws accordingly. In accordance with
this strategy and in order to conform to the structure set forth in the
Company's By-laws, at this year's Annual Meeting, the stockholders of the
Company will elect two Class II directors to terms to expire at the 2006 Annual
Meeting and one Class III director to a term to expire at the 2004 Annual
Meeting. At the Company's 2004 Annual Meeting, the stockholders will elect the
Class III director or directors to a three year term expiring at the 2007 Annual
Meeting.
The Board of Directors has nominated E.P. Marinos and Julius Tabin,
PhD. for election as Class II Directors, each for a three year term expiring at
the 2006 Annual Meeting and until their successors are duly elected and
qualified. Mr. Marinos is presently the Chairman of the Board of Directors of
the Company and his term expires at the 2003 Annual Meeting. Dr. Tabin is
presently a Director of the Company and his term also expires at the 2003 Annual
Meeting.
The Board of Directors has nominated Paul F. Walter, M.D. for election
as a Class III Director for a one year term expiring at the 2004 Annual Meeting
and until his successor is duly elected and qualified. Dr. Walter is presently a
Director of the Company and his term expires at the 2003 Annual Meeting.
The Board of Directors has inquired of the nominees and has ascertained
that they will serve, if elected. In the event that any of 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 card. 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 at the
meeting is required for the election of Dr. Walter, Mr. Marinos and Dr. Tabin.
The Board of Directors recommends a vote "FOR" the election of Dr. Walter,
Mr. Marinos and Dr. Tabin as Directors of the Company.
2
Information About Nominees and Directors
Biographical information for the persons nominated and for each person
whose term of office as a Director will continue after the 2003 Annual Meeting
is set forth below.
Principal Occupation, Business Experience, Director
Name and Age Past Five Years and Directorships Since
------------ ------------------------------------------- ------
Class II Nominees (for terms expiring 2006)
E. P. Marinos Mr. Marinos has been CEO of AMT/EPM Associates, a 1994
Age 61 consulting company, since June 1, 2001. Mr. Marinos
was President and Chief Executive Officer of Midcoast
Interstate Transmission, Inc. (MIT) from June 1997 until
June 2001. He also became Corporate 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 MRS was sold in June 2001. From
March 1995 until June 1997, he was President and Chief
Executive Officer of the Company. Mr. Marinos serves
as Chairman of the Company's Board of Directors.
Julius Tabin, PhD Since 1949, Dr. Tabin has been a partner in the law firm 1982
Age 83 of Fitch, Even, Tabin & Flannery.
Class III Nominee (for term expiring 2004)
Paul F. Walter, M.D. Dr. Walter is an electro physiologist and Professor of 1982
Age 65 Medicine at Emory University where he has served on the
faculty since 1971.
Class I Incumbent Directors (terms expire 2005)
Russell C. Chambers, For more than the past five years, Dr. Chambers has been 1982
M.D. primarily engaged in the management of his personal
Age 59 investments and a private charitable foundation.
James E. Rouse President and Chief Executive Officer of the Company 2002
Age 48 since October 2002. President and Chief Operating Officer
of the Company from October 2001 to October 2002. Vice
President and General Manager of the Company from December
2000 to October 2001. President and Chief Operating Officer
of Micron Products from December 2000 to present.
Board of Directors Meetings and Committees
The Board has established several committees whose principal functions
are briefly described below. During the fiscal year ended December 31, 2002, the
Board of Directors held twelve meetings. Committees of the Board held nineteen
meetings. Average attendance by incumbent directors at Board and committee
meetings was 97%, and for all Board and committee meetings average attendance
was 98%.
Audit Committee.
The Audit Committee assists the Board of Directors in the oversight of
the quality and integrity of the Company's financial reports and its internal
accounting and financial controls. 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. During 2002, the Audit
Committee held five meetings. Its current members are E.P. Marinos (currently
chairman of the Audit Committee), Dr. Julius Tabin, and Dr. Paul Walter. The
Board of Directors has determined that each of the members of the Audit
Committee meets the criteria for independence under Section 121(A) of the
American Stock
3
Exchange's listing standards, and that Mr. Marinos also qualifies as an audit
committee financial expert, as defined by the regulations of the Securities and
Exchange Commission.
Compensation Committee.
During 2002, Dr. Russell C. Chambers and Dr. Paul F. Walter, both
non-employee Directors, served on the Compensation Committee. 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 Stock Option Plan. The Compensation
Committee met once in the fiscal year 2002.
Executive Committee.
The Executive Committee is composed of three members: Dr. Russell C.
Chambers, E. P. Marinos, and Dr. Julius Tabin. 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 twelve times in the fiscal year 2002.
Nominating Committee.
The Nominating Committee is composed of four members: Dr Paul Walter,
Dr. Russell C. Chambers, E. P. Marinos, and Dr. Julius Tabin. The Nominating
Committee assists the Board in identifying individuals qualified to be
directors, oversees the composition, structure and evaluation of the Board and
its Committees, and develops and maintains a set of corporate governance
guidelines. The Committee reviews these guidelines regularly and recommends
changes as necessary or appropriate.
Succession Committee.
The Succession Committee is composed of five members: Mr. James E.
Rouse, Dr Paul Walter, Dr. Russell C. Chambers, E. P. Marinos, and Dr. Julius
Tabin. The Succession Committee assists the Board monitoring the preparation,
and adequacy of succession plans for Executive Officer positions.
Directors' Compensation
Each non-employee Director receives cash compensation of $2,000 per
quarter and an annual fee of $1,000 per committee membership. Additionally, each
non-employee Director receives $500 cash for each meeting (including committee
meetings) at which such Director is present in person, and $250 for each meeting
(including committee meetings) at which such Director is present by telephone.
From time to time, the Board of Directors grants stock options to non-employee
Directors. In fiscal year 2002, no grants were made to any Directors.
Dr. Russell C. Chambers, a Director and shareholder of the Company,
performs consulting services for the Company and in exchange the Company pays a
portion of his health insurance premiums. Health insurance premiums paid by the
Company on behalf of Dr. Chambers were approximately $5,700, $7,800, and $11,670
for the fiscal years 2002, 2001, and 2000, respectively.
The Company also has obtained consulting services from Mr. E.P.
Marinos, a Director and shareholder of the Company. Fees incurred by the Company
during fiscal years 2002, 2001, and 2000 were $5,250, $8,048 and $0,
respectively. In July 2002, the Company terminated its consulting arrangements
with Mr. Marinos.
4
BENEFICIAL OWNERSHIP OF COMMON STOCK
Beneficial Owners of More Than 5% of Common Stock
The following table sets forth beneficial ownership of the Company's Common
Stock as of March 26, 2003 for 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. The information was provided by 5% beneficial owners on a
Schedule 13D filed with the SEC. 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.
Number of Shares Percent of
Name and Address of Beneficial Owner Beneficially Owned Class
------------------------------------ --------------------------------
Marsalled Cherubs Trust (1) 160,510 6.2
PO Box 1146
Decatur, GA 30030
Dr. Harold Snyder 150,100 5.8
411 Lister Street
Waycross, GA 31501
(1) The trust was established by Dr. Russell C. Chambers, as settlor,
for the benefit of his son. Dr. Chambers is not a trustee of the
trust and possesses neither the power to vote nor the power to
dispose of the shares held by the trust.
Security Ownership of Directors and Executive Officers
The following table sets forth information concerning the beneficial
ownership of the Company's common stock as of March 26, 2003 for: each Director
and each nominee for Director, each executive officer named in the Summary
Compensation Table, and all of the current Directors and executive officers as a
group. To the best of our knowledge, except as otherwise noted, the named
individual had sole voting and investment power with respect to these
securities.
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned(1) Class
------------------------ --------------------- -----
Russell C. Chambers, M.D. (2) .............................. 525,613 19.9
Julius Tabin, PhD .......................................... 138,824 5.3
Paul F. Walter, M.D ........................................ 82,055 3.1
E.P. Marinos (3) ........................................... 67,926 2.5
James E. Rouse (4) ......................................... 12,000 0.5
All officers and directors as a group (6 persons)(5) ....... 827,418 31.3
(1) Beneficial ownership is based on 2,636,213 outstanding shares of Common
Stock as of March 21, 2003. Under applicable rules promulgated under the
Securities Exchange Act of 1934, as amended, a person is deemed to be the
beneficial owner of shares of Common Stock if, among the other things, he
or she directly or indirectly has or shares voting power or investment
power with respect to such shares. A person is also considered to
beneficially own shares of Common Stock which he or she does not actually
own but has the right to acquire presently or within the next sixty (60)
days, by exercise of stock options or otherwise.
(2) Includes a total of 41,800 shares as follows: 2,500 over which Dr.
Chambers has voting power pursuant to an agreement, 12,500 held as
custodian for his son, 2,500 held as custodian for a niece and 24,300
held in a trust for which he is a trustee. Excludes 268,560 shares of
common stock owned by two trusts of which Dr. Chambers' son and Dr.
Chambers' wife have a beneficial interest. Dr. Chambers does not have any
power to vote the shares or dispose of the shares held by the two trusts
and disclaims any beneficial ownership of the common stock held by the
trusts. Also, excludes 30,302 shares owned by a Foundation of which Dr.
Chambers is a co-trustee and as to which Dr. Chambers has relinquished
voting power and the power to dispose of the common stock and as to which
Dr. Chambers disclaims beneficial ownership.
(3) Includes options to purchase 24,000 shares, all of which are currently
exercisable.
(4) Represents currently exercisable options to purchase 12,000 shares.
(5) Includes options to purchase 36,000 shares, all of which are currently
exercisable.
5
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 and the rules
hereunder 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
(collectively, "Reporting Persons"), 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 solely upon the Company's review of the copies of such forms it has
received or written or oral representations from Reporting Persons, the Company
believes that all beneficial ownership statements which were required to be
filed during fiscal year 2002 by officers and directors of the Company in their
personal capacity pursuant to Section 16(a) of the Securities Exchange Act were
filed in a timely manner with the following exceptions: a Form 4 filing required
by Russell Chambers was filed two days after the required accelerated submission
date and an initial Form 3 filing for the options granted to James Rouse in 2001
was filed in 2002.
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
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 was granted an exclusive
license from CDI to utilize the technology covered by the Simson Patent in
connection with signal-averaging devices. 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 to CDI totaled
$0, $450, and $6,100 for fiscal years ended 2002, 2001, and 2000, respectively.
Dr. Tabin, a Director and shareholder of the Company, is a partner of a
law firm that represents the Company with respect to patent and other
intellectual property law matters. Fees for services and patent costs paid to
this firm were approximately $19,000, $25,000 and $37,700 for fiscal years ended
2002, 2001, and 2000, respectively.
EXECUTIVE OFFICERS
The following list sets forth the names, ages and offices of the
executive officers of the Company during fiscal 2002. 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 President and Chief Executive Officer 48
David A. Garrison Chief Financial Officer 34
Mr. Rouse was appointed President and Chief Executive Officer of the
Company since October 2002. President and Chief Operating Officer of the Company
from October 2001 to October 2002. Vice President and General Manager of the
Company from December 2000 to October 2001. Mr. Rouse is currently President and
Chief Operating Officer of the subsidiary Micron Products where he has served
since December 2000. He was Plant Manager of Micron Products Inc. from December
of 1996 until December 2000. Mr. Rouse was Operations Manager for Jarvis
Surgical, Inc. prior to joining Micron in 1996. He served in positions of
Biomedical Product Manager and Director of Quality Assurance during his
employment at Kom TeK, Inc., a subsidy of Kervick Enterprises, Inc., from 1983
to 1995.
Mr. Garrison was appointed Chief Financial Officer of the Company in
November 2002. He joined the Company as Corporate Controller in September of
2002 after nine years as Controller and Chief Financial Officer of H & R 1871,
Inc., a privately held manufacturer of single-barrel shotguns.
6
EXECUTIVE COMPENSATION
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
Officer") for services during the three fiscal years ended December 31, 2002 by
the Company and its subsidiaries is shown in the following table:
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
-------------------------------------------- ----------------------
Securities Long-term
Other Annual Underlying Incentive All Other
Name and Principal Position Year Salary Bonus Compensation Options (#) Payouts Compensation
------------------------------------ -------- --------- --------- ------------- ------------ --------- --------------
James E. Rouse, President and Chief 2002 $ 112,500 $ 10,000 - - - -
Executive Officer, Arrhythmia 2001 100,000 - - 30,000 - -
Research Technology, Inc.(1) 2000 82,500 5,000 - - - -
(1) Mr. Rouse was appointed President and Chief Executive Officer of the
Company in October 2002. He served as President and Chief Operating Officer
of the Company from October 2001 to October 2002, and Vice President and
General Manager of the Company from December 2000 to October 2001. He
presently serves since December 2000 as President and Chief Operating
Officer of the wholly owned subsidiary Micron Products. He was Plant
Manager of Micron Products Inc. from December of 1996 until December 2000.
EMPLOYMENT AGREEMENT
In October 2001, the Company entered into a five year employment
agreement with Mr. Rouse, the Company's President and Chief Executive Officer,
under which he receives base compensation of $100,000 per year, subject to
annual review for raises in accordance with Company policy, and bonus
compensation and other benefits as the Company may institute. The Company also
provides Mr. Rouse with medical and dental benefits in accordance with the
Company's group plans. If the Company terminates Mr. Rouse's employment without
cause, Mr. Rouse is entitled to his then base compensation and medical and
dental benefits for a period of twelve months. In the event of a sale of all or
substantially all of the Company's assets or a sale or transfer of the Company's
voting securities resulting in a change in the ownership of a majority of the
Company's voting securities, the Company may terminate Mr. Rouse's employment,
in which event Mr. Rouse is entitled to the greater of his current base
compensation up to the date of termination or his base compensation for a period
of twenty-four months, as well as eighteen months of medical and dental
benefits. In addition, Mr. Rouse's employee stock options become immediately
vested and exercisable upon a change of control as described above.
Aggregated Option Exercises in Fiscal 2002 and Fiscal Year-End Options Values
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options at Fiscal
Options at Fiscal Year-End Year-End (1)
-------------------------- ------------
Number of Shares Value
Name Acquired on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------------------- -------- ----------- ------------- ----------- -------------
James E. Rouse -0- $ -0- 6,000 24,000 $ 3,300 $13,200
(1) The value is computed by multiplying the number of options by the
difference between (i) the per share market of the Common Stock on
December 31, 2002 of $ 2.55 and (ii) the exercise price per share.
7
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 Plan. The Committee in 2002 was comprised of Russell C. Chambers and Paul
F. Walter. All decisions of the Committee relating to compensation of the
President and Executive Officer 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
executive officers, including the Company's President and Executive Officer,
were determined for the 2002 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.
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
8
change in an employee's responsibility or title. Awards are based on guidelines
relating to the employee's position in the Company that 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 2001, the
Committee recommended the grant of stock options under the 2001 Stock Option
Plan, exercisable for 30,000 shares to Mr. Rouse. No stock option grants were
made in fiscal 2002.
Compensation of President and Chief Executive Officer
James E. Rouse was named President and Chief Executive Officer of the
Company in November 2002. Pursuant to the terms of his employment agreement, his
annual rate of compensation in 2002 was $108,000 and the annual rate was
increased by $18,000 on October 1/st/, 2002. Mr. Rouse was awarded a cash bonus
of $10,000 in fiscal 2002 in recognition of the performance of the Company and
his contribution thereto.
This report on executive compensation is made by and on behalf of the
Company's Compensation Committee.
Russell C. Chambers, M.D. Paul F. Walter, M.D.
9
REPORT OF THE AUDIT COMMITTEE
The information contained in this Proxy Statement with respect to the
Audit Committee Report and charter and the independence of the members of the
Audit Committee shall not be deemed to be "soliciting material" or to be "filed"
with the Securities and Exchange Commissions, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), except to the extent that the Company
specifically incorporates it by reference in such filing.
The Audit Committee operates under a written charter adopted by the Board
of Directors. The Audit Committee has reviewed and discussed with management and
the Company's independent auditors, BDO Seidman, LLP, the Company's audited
consolidated financial statements and discussed any significant accounting
issues. The Audit Committee's review and discussion with the Company's
independent auditors included matters requiring discussion pursuant to
Statements on Auditing Standards No. 61 (Communications with Audit Committees).
The Audit Committee further discussed with BDO Seidman, LLP, matters relating to
its independence, and has received the written disclosures and letter from it
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). The Audit Committee reviewed the overall
scope and plans for the annual audit by the Company's independent auditors and
the Company's financial reporting process and internal controls, as well as any
significant audit findings by the independent auditor and management's responses
to any suggestions raised by the independent auditors.
On the basis of these reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the Board approve the
inclusion of the Company's audited consolidated financial statements in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002
for filing with the Securities and Exchange Commission. The Audit Committee is
not providing any expert or special assurance as to the Company's financial
statements, and is not providing any professional certification as to the
independent auditor's work product.
E.P. Marinos Julius Tabin Paul F. Walter M.D.
10
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,
1997 to December 31, 2002), 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, 1997 in the Company's Common Stock,
S&P 500, and S&P Health Care Index.
Cumulative Total Returns
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------------------------------------------------------- --------- --------- --------- --------- --------- ---------
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. 100.00 84.00 104.00 104.00 160.00 163.20
S & P 500 100.00 128.58 155.64 141.46 124.65 97.10
S & P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) 100.00 141.59 130.52 191.60 181.88 158.86
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ARRHYTHMIA RESEARCH TECHNOLOGY, INC., THE S & P 500
INDEX AND THE S & P HEALTH CARE EQUIPMENT INDEX
[GRAPH]
*$100 invested on 12/31/97 in stock or index-including reinvestment of
dividends. Fiscal year ending December 31.
Copyright (C) 2002, Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. All rights reserved.
11
Proposal No. 3
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, 2003, subject to
the approval of the stockholders. BDO Seidman, LLP has acted as the Company's
auditors since 1998. A representative of BDO Seidman, LLP is expected to be at
the Meeting, to make a statement if so desired, and to respond to any
appropriate questions.
Before the Audit Committee recommended the appointment of BDO Seidman,
LLP, to the Board, it considered the qualifications of that firm, including its
performance previously, its reputation for integrity, and competence in the
fields of accounting and auditing. The Audit Committee has determined that the
provisions of the services set forth under "All Other Fees" are compatible with
maintaining the principal accountants independence.
Audit Fees
The amount of the fees for audit services performed by BDO Seidman, LLP
during fiscal year 2002 was approximately $89,000. These fees include $15,000
for quarterly financial review of the Forms 10-Q.
Financial Information Systems Design and Implementation Fees
BDO Seidman provided no services with respect to financial information
systems design and implementation during fiscal year 2002.
All Other Fees
The amount of fees for tax and other services performed by BDO Seidman
LLP during fiscal year 2002 was approximately $21,000 including $8,000 for the
preparation of annual tax returns, and $13,000 for other tax and related
services.
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,
2003.
STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
Stockholders are entitled to submit proposals on matters appropriate
for stockholder action and have that proposal included in the Company's proxy
statement consistent with regulations of the Securities and Exchange Commission.
Should a Stockholder intend to present a proposal at the 2004 Annual Meeting and
have that proposal included in the Company's proxy statement, it must be
received by the Secretary of the Company (C/O Arrhythmia Research Technology,
Inc., 25 Sawyer Passway, Fitchburg, MA 01420) not later than December 5, 2003
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 proxy card relating to that meeting.
Stockholders of the Company may nominate candidates for election to the
Board of Directors and submit other matters for consideration at the Company's
annual meeting by providing written notice to the Company not later than 90 days
in of advance of the annual meeting, unless the annual meeting is held on a date
other than the second Tuesday of May, in which case the stockholder notice must
be given within ten days after the first public disclosure of the scheduled date
of the annual meeting. Nominations for elections of directors to take place at a
special meeting are required to be received by the close of business on the
seventh day following the date on which notice of such meeting is given to
stockholders. In the case of director nominations, the notice must contain the
stockholder's and nominee's name and address, a representation that the
stockholder is a holder of record of the Company entitled to vote at the meeting
and intends to appear at the meeting (in person or by proxy) to nominate the
nominee, a description of any
12
arrangements or understanding between the stockholder and the nominee, the
consent of the nominee to serve if so elected and such other information as
would be required by the rules of the SEC to be included in a proxy statement.
Notices of other business must contain a brief description of the business to be
brought before the meeting, the stockholder's name and address, a representation
as to stockholder status and intent to appear at the meeting to propose the
business, and a description of any material interest of the stockholder in the
matter.
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 proxy card to
vote such Proxy in accordance with their judgment.
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 2002 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.
Submitted by Order of the Board of Directors
E.P. Marinos
Secretary
13
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
Proxy Solicitation on Behalf of the Board of Directors for Stockholders Meeting
on May 2, 2003.
The undersigned hereby appoints David A. Garrison and Judith Lucier 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 2003 Annual Meeting of Stockholders of Arrhythmia Research Technology, Inc.
to be held on Friday, May 2, 2003 at The Boston Park Plaza Hotel, 64 Arlington
Street, Boston, Massachusetts at 1:00 pm local time, and any adjournment
thereof, and to vote as follows:
1.Election of Class II Directors (3 year term): Nominees: E.P.
Marinos Julius Tabin, PhD
[_] VOTE FOR all nominees listed above, except withhold from
following OR [_] VOTE WITHHELD from all nominees listed
above.
nominees (if any): __________________________________________________
2.Election of Class III Director (1 year term): Nominee: Paul F. Walter, M.D.
[_] VOTE FOR or [_] VOTE WITHHELD
3.Approval of the Appointment of BDO Seidman,
LLP [_] 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 and timely returned, this proxy will be voted in the
manner specified above by the stockholder. If no direction is given, this proxy
will be voted FOR the nominees listed in Proposals 1 and 2 and FOR Proposal 3.
The signer hereby revokes all proxies heretofore given by the signer to vote at
the meeting or any adjournments thereof.
PLEASE SIGN AND DATE
Dated: ________________, 2003
_____________________________
Signature
_____________________________
Printed Name
_____________________________
Signature
_____________________________
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