ARNOLD INDUSTRIES, INC.
AND SUBSIDIARIES
625 SOUTH FIFTH AVENUE
P. O. BOX 210
LEBANON, PENNSYLVANIA 17042-0210
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 6, 1998
TO THE SHAREHOLDERS:
The Annual Meeting of the Shareholders of Arnold Industries, Inc. (herein
called the "Company" or "Arnold Industries") will be held at the Lebanon
Country Club, 3375 West Oak Street, Lebanon, Pennsylvania, on Wednesday,
May 6, 1998, at 4:00 o'clock p.m., prevailing time, for the following purposes:
(1)To elect three (3) directors to serve until the Annual Meeting of
Shareholders in 2000;
(2)To consider and act upon a proposal to amend the Company's 1997 Stock
Option Plan in accordance with the form of amendment attached hereto as
Appendix 1; and
(3)To transact such other business as may properly come before the meeting or
any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 27, 1998,
as the record date for determination of shareholders entitled to notice of and
to vote at the Annual Meeting. Accordingly, only shareholders of record at
the close of business on that date will be entitled to vote at the meeting.
Management of the Company extends a cordial invitation to all shareholders to
attend the meeting.
The Annual Report of the Company for 1997 is enclosed herewith.
By Order of the Board of Directors,
HEATH L. ALLEN
Secretary
Lebanon, Pennsylvania
April 3, 1998
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE FILL IN, DATE, SIGN AND
RETURN YOUR PROXY PROMPTLY IN THE POSTAGE-PAID, PRE-ADDRESSED ENVELOPE
ENCLOSED FOR THAT PURPOSE. IF YOU ATTEND THE MEETING IN PERSON, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
ARNOLD INDUSTRIES, INC.
625 South Fifth Avenue
Lebanon, Pennsylvania 17042-0210
PROXY STATEMENT FOR
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 6, 1998
GENERAL
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of Registrant, Arnold Industries, Inc. (herein called
the "Company" or "Arnold Industries") of proxies for use at the Annual Meeting
of Shareholders to be held on Wednesday, May 6, 1998, at 4:00 p.m. prevailing
time, at the Lebanon Country Club, 3375 West Oak Street, Lebanon,
Pennsylvania, and at any adjournment or adjournments thereof. This proxy
statement and the accompanying form of proxy are being mailed to shareholders
on or about April 3, 1998.
A form of proxy is enclosed for use at the Annual Meeting. When the
enclosed form of proxy is signed, dated and returned, the shares represented
thereby will be voted in accordance with the instructions specified thereon.
If no instructions are given, the shares will be voted for the election of the
nominees for directors named below and, in the discretion of the proxies, upon
such other matters as may properly come before the Annual Meeting. Any
shareholder executing a form of proxy may revoke that proxy at any time before
it is voted at the meeting.
The entire cost of soliciting proxies will be borne by the Company,
including postage, printing and handling.
The Company's Annual Report for 1997, including financial statements,
accompanies this meeting notice, proxy statement and form of proxy.
VOTING SECURITIES AND RECORD DATE
The Board of Directors has fixed the close of business on March 27, 1998,
as the record date for the determination of the shareholders entitled to
notice of, and to vote at, the Annual Meeting of Shareholders or any
adjournment or adjournments thereof. Shareholders as of that date will
receive the Notice of Annual Meeting of Shareholders, the Proxy Statement, and
the Annual Report of the Company. As of March 27, 1998, there were 25,993,954
shares of Common Stock issued and outstanding and entitled to notice of, and
to vote at, the Annual Meeting of Shareholders. There are no other classes of
stock outstanding. Each share of Common Stock is entitled to one vote on each
matter properly submitted to the shareholders for action at the Annual
Meeting. Shareholders have cumulative voting rights with respect to the
election of directors. That is, every shareholder entitled to vote shall have
the right to multiply the number of shares which the shareholder is entitled
to vote by the total number of directors to be elected and to cast the total
number of such votes for one candidate or distribute them among any two or
more candidates.
VOTE REQUIRED
The presence, in person or by properly executed proxy, of the holders of
a majority of the outstanding shares of stock entitled to vote at the meeting
is necessary to constitute a quorum. The Company will treat shares of voting
stock represented by a properly signed, dated and returned proxy as present at
the meeting for purposes of determining a quorum, without regard to whether
the proxy is marked as casting a vote or abstaining. Likewise, the Company
will treat shares of voting stock represented by "broker non-votes" (i.e.,
shares of voting stock held in record name by brokers or nominees as to which
(i) instructions have not been received from the beneficial owners or persons
entitled to vote, (ii) the broker or nominee does not have discretionary
voting power, and (iii) the recordholder has indicated on the proxy card or
otherwise notified the Company that it does not have authority to vote such
shares on that matter) as present for purposes of determining a quorum.
The nominees for the Board of Directors receiving a plurality of the
votes cast will be elected as Directors. Abstentions and broker non-votes do
not have the effect of negative votes in respect to the foregoing matters.
SECURITY OWNERSHIP OF DIRECTORS, OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 2, 1998
(unless otherwise noted), with regard to persons with beneficial ownership of
five percent (5%) or more of Arnold Industries' outstanding stock:
Percent
Title of Name and Address of Beneficially of
Class Beneficial Owner Owned Class
Common Stock Edward H. Arnold
Lebanon, PA 4,814,703 (1) 18.0%
Common Stock Daniel R. Efroymson
Moriah Fund, Inc.
Real Silk Investments, Inc.
Indianapolis, IN 1,711,208 (2) 6.6%
Common Stock FMR Corp.
Boston, MA 2,588,400 (3) 10.0%
Common Stock Royce & Associates, Inc.
Royce Management Company
New York, NY 1,438,064 (4) 5.5%
Common Stock Mellon Bank Corp.
Pittsburgh, PA 1,331,280 (5) 5.1%
_________________________
(1)The shares shown include 175,000 non-qualified stock options granted to Mr.
Arnold during 1997.
(2)Based on information supplied pursuant to Form 13G for the year ended
12/31/97, management is advised that Moriah Fund, Inc., Real Silk Investments
and Daniel R. Efroymson exercise sole dispositive and voting power over
949,400, 600,000 and 36,130 shares, respectively, and that Daniel R. Efroymson
exercises shared voting and dispositive power over 125,678 shares.
(3)Based on information supplied pursuant to Form 13G for the year ended
12/31/97, management is advised that Edward C. Johnson 3rd and Abigail P.
Johnson, husband and wife, and other Johnson family members may be deemed,
under the Investment Company Act of 1940, to form a controlling group with
respect to FMR Corp. Neither FMR Corp. nor Edward C. Johnson 3rd, Chairman of
FMR Corp., has the sole power to vote or direct the voting of the shares
beneficially owned by FMR Corp. Said power resides with the Board of Trustees
of various investment funds controlled by FMR Corp., and FMR Corp. carries out
the voting of the shares pursuant to written guidelines provided by the funds'
Boards of Trustees.
(4)Based on information supplied pursuant to Form 13G for the year ended
12/31/97, management is advised that Royce & Associates, Inc. exercises sole
dispositive and voting power over 1,400,064 shares, and that Royce Management
Company exercises sole dispositive and voting power over 38,000 shares.
Management is further advised that Charles M. Royce may be deemed to
beneficially own the shares of stock in the Company owned by Royce &
Associates, Inc. and Royce Management Company as the controlling person of
said entities.
(5)Based on information supplied pursuant to Form 13G for the year ended
12/31/97, management is advised that Mellon Bank Corp. exercises sole
dispositive power over 1,240,580 shares and shared voting power of 90,700
shares.
The following table sets forth certain information as of March 2, 1998,
with respect to the beneficial ownership of the outstanding common stock of
Arnold Industries by the persons named therein who are board nominees or
directors who will continue in office, named executive officers and all
directors and executive officers as a group as reported by each person:
Amount Percent
Title of Name and Address Beneficially of
Class of Beneficial Owner Owned Class
Common Stock E.H. Arnold 4,814,703 (1) 18.0%
Common Stock Kenneth F. Leedy 422,100 (2) 1.6%
Common Stock Heath L. Allen 287,670 (3) 1.1%
Common Stock Ronald E. Walborn 323,840 (4) 1.2%
Common Stock Arthur L. Peterson 6,300 *
Common Stock Carlton E. Hughes 12,000 (5) *
Common Stock Donald G. Johnson 72,300 (6) *
Common Stock Directors and Officers as a
Group (7 in number) 5,938,913 (7) 22.2%
* less than 1.0%
_________________________
(1)See Note (1) of the immediately preceding table.
(2)The shares shown include 251,200 shares covered by incentive and
non-qualified stock option(s).
(3)The shares shown include 108,400 shares covered by incentive and
non-qualified stock option(s) and 109,870 shares held jointly by Mr. Allen and
his spouse.
(4)The shares shown include 108,400 shares covered by incentive and
non-qualified stock option(s) and shares held for Mr. Walborn's segregated
account of Walborn Shambach Associates Profit Sharing Trust.
(5)The shares shown include 2,000 shares covered by non-qualified stock
option(s).
(6)The shares shown include 66,600 shares covered by incentive stock options.
(7)The totals include the named individuals who exercise sole voting and
dispositive power over the shares shown unless otherwise indicated. See also
Notes (1) through (6) above.
DIRECTORS
The Board of Directors is the ultimate governing body of the Company. As
such, it has the responsibility for establishing broad corporate policies and
objectives and for the overall performance of the Company. Management is
accountable to the Board of Directors for the satisfactory conduct of the
Company's day-to-day business. Members of the Board are kept informed of the
Company's principal activities and plans by various reports and documents sent
to them each month, as well as by operating and financial reports and
analyses.
The Bylaws of the Company provide that the Board of Directors shall
consist of not less than three (3) nor more than seven (7) members, and that
the directors shall be divided into two classes as nearly equal in number as
possible. The term of office of each class of directors is two years, and the
term of office of the two classes overlap. Pursuant to the Company's Bylaws,
the Board of Directors has fixed its size at six (6). At the Annual Meeting,
three (3) directors are to be elected to hold office until the 2000 Annual
Meeting of Shareholders. After the election of three (3) directors at the
meeting, the Company will have six (6) directors, including three (3)
directors whose present terms extend until the 1999 Annual Meeting of
Shareholders.
In the absence of instructions to the contrary, proxies received pursuant
to this solicitation will be voted for the election of Edward H. Arnold,
Ronald E. Walborn and Arthur L. Peterson as directors to hold office until the
2000 Annual Meeting of Shareholders and until their successors are duly
elected and qualified. Each nominee is presently a director and was elected
to his present term of office by the stockholders. There are no arrangements
or understandings between any director and any other person pursuant to which
he was selected as a director.
If anyone other than the nominees named below should be nominated for
election as a director, the proxies may be voted cumulatively in accordance
with the judgment of the persons named therein, so as to elect as directors as
many of the nominees listed below as possible. In the event that any nominee
declines or is unable to serve as a director (which is not anticipated), the
persons named in the accompanying form of proxy shall have full discretion and
authority to vote or refrain from voting for such substitute nominee, if any,
as may be designated by the Board of Directors.
Set forth below is information regarding the nominees and the directors
who will continue in office on the Company's Board. Such information includes
their names and ages, the principal occupation or employment of each such
person during the past five years, including all positions and offices with
the Company, and directorships held by such persons in other public companies,
if any. Also shown is the year during which each incumbent began continuous
service as a director of Arnold Industries, Inc. and/or its predecessor, New
Penn Motor Express, Inc. (herein called "New Penn"). On April 1, 1982, each
person who was then a director of New Penn also became a director of the
Company as a result of the plan of reorganization and merger approved by New
Penn's shareholders on March 24, 1982, pursuant to which New Penn became a
wholly-owned subsidiary of the Company.
The Board of Directors of the Company meets on a regularly scheduled
basis and, during 1997, met on six separate occasions.
TO BE ELECTED FOR A TWO-YEAR TERM
EDWARD H. ARNOLD: 58, Director since 1969
President and Chairman of the Board (1982 to present) of Arnold Industries;
President (1974 to 1997) and Treasurer (1974 to 1982) of New Penn.
RONALD E. WALBORN: 61, Director since 1972
President and Treasurer of Walborn Shambach Associates (Accountants); CFO
(1997 to present); Treasurer (1982 to present) of Arnold Industries; Treasurer
(1982 to 1997) and Assistant Treasurer (1980 to 1982) of New Penn.; Secretary
and Treasurer of Arnold Transportation Services, Inc. (1997 to present).
ARTHUR L. PETERSON: 71, Director since 1988
Director and President of Center for the Study of the Presidency, New York,
New York (1997 to present); Executive Director of the Florida Association of
Colleges and Universities (1994 to 1997); Director of the Academy of Senior
Professionals, Eckerd College, St. Petersburg, Florida (1987 to 1994);
President of Lebanon Valley College, Annville, Pennsylvania (1983 to 1987).
TO CONTINUE IN OFFICE
HEATH L. ALLEN: 70, Director since 1972
Partner of Keefer Wood Allen & Rahal, LLP (Attorneys); Secretary (1982 to
present) of Arnold Industries; Secretary (1972 to present) of New Penn.
KENNETH F. LEEDY: 56, Director since 1980
Executive Vice President (1986 to 1996) and Vice President-Operations (1982 to
1986) of Arnold Industries; President (1996 to present), Executive Vice
President (1983 to 1996) and Vice President-Operations (1975 to 1983) of New
Penn.
CARLTON E. HUGHES: 66, Director since 1988
Chairman of Stewart-Amos Steel, Inc.; President and Treasurer of Stewart-Amos
Equipment Co. until 1993. Mr. Hughes is also a director of CoreStates
Financial Corp. and IREX Corp.
The Board of Directors has established an Audit Committee. The functions
of the Audit Committee are to recommend the engagement of the Company's
independent auditors and to review with them the plan and scope of their audit
for each year, the status of their audit during the year, the results of such
audit when completed, and their fees for services performed. The Committee
will also review with the Company's accountants the plan, scope and results of
their operations and discuss with each group independently of the other any
recommendations or matters which either considers to be of significance. The
present members of the Audit Committee are Carlton E. Hughes (who is
Chairman), Arthur L. Peterson and Heath L. Allen. The Audit Committee met
once in 1997.
The Board has established a Compensation Committee. The primary function
of the Compensation Committee is to review and to make recommendations on
executive officer compensation. The present members of the Compensation
Committee are Carlton E. Hughes and Arthur L. Peterson. The Compensation
Committee met one time in 1997. The Board does not have a standing Nominating
Committee.
Heath L. Allen who serves as Secretary and Director, and Ronald E.
Walborn who serves as CFO, Treasurer and Director for the Company each
received a flat fee of $10,000 for their services in 1997. Directors who are
not also officers of the Company are paid $5,000 per year and a fee of $500
for each meeting of the Board of Directors attended, together with the
expenses of attendance.
EXECUTIVE OFFICERS
Executive officers are appointed by the Board of Directors and serve at
the pleasure of the Board. There are no arrangements or understandings
between any executive officer and any other person pursuant to which the
executive officers are selected. Set forth below is information on the
executive officers of the Company, including age and principal occupation or
employment during the past five years and all positions with the Company.
EDWARD H. ARNOLD: 58,
President and Chairman of the Board (1982 to present) of Arnold Industries;
President (1974 to 1997) and Treasurer (1974 to 1982) of New Penn.
KENNETH F. LEEDY: 56,
Executive Vice President (1986 to 1996) and Vice President-Operations (1982 to
1986) of Arnold Industries; President (1996 to present), Executive Vice
President (1983 to 1996) and Vice President-Operations (1975 to 1983) of New
Penn.
DONALD G. JOHNSON: 43,
Senior Vice President (1997 to present) of Arnold Industries, Inc.
HEATH L. ALLEN: 70,
Partner of Keefer Wood Allen & Rahal, LLP (Attorneys); Secretary (1982 to
present) of Arnold Industries; Secretary (1972 to present) of New Penn.
RONALD E. WALBORN: 61,
President and Treasurer of Walborn Shambach Associates (Accountants); CFO
(1997 to present); Treasurer (1982 to present) of Arnold Industries; Treasurer
(1982 to 1997) and Assistant Treasurer (1980 to 1982) of New Penn.; Secretary
and Treasurer of Arnold Transportation Services, Inc. (1997 to present).
EXECUTIVE COMPENSATION AND OTHER BENEFITS
The following table sets forth information concerning compensation paid or
accrued by the Company and its subsidiaries during the fiscal year ended
December 31, 1997, to or for the chief executive officer and each of the
executive officers of the Company whose cash compensation exceeded $100,000:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other Awards All other
Name and Year Salary ($) Bonus ($) annual compensa-
Principal compensa- Restricted Options tion <FN1>
Position tion(s) stock awards
($)
<S> <C> <C> <C> <C> <C> <C> <C>
EDWARD H. ARNOLD 1997 190,804 500,000 - - 175,000 15,930
President and 1996 187,200 200,000 - - - 14,865
Chairman of the 1995 187,200 433,000 - - - 14,940
Board
KENNETH F. LEEDY 1997 169,600 400,000 - - 100,000 15,930
Executive Vice 1996 166,400 300,000 - - - 14,865
President 1995 166,400 253,000 - - - 14,940
DONALD G. JOHNSON 1997 108,091 82,341 - - 25,000 15,930
Senior Vice
President
<FN>
<FN1>
(1) Represents amounts credited to the accounts of the named individuals
pursuant to their respective profit-sharing or retirement plan.
The amounts accrued under these plans are based on fair market value
of the assets of the trust as determined by the Trustee on December 31 of
the respective years for which the information is supplied.
</FN>
</TABLE>
Stock Options. At the 1997 Annual Meeting, the shareholders approved the
Arnold Industries, Inc. 1997 Stock Option Plan (the "1997 Plan"), which was
designed to promote continuity of management and to increase incentive for
those primarily responsible for the Company's long-range financial success.
The 1987 Plan expired March 31, 1997.
The aggregate number of shares for which options may be granted under the
1997 Plan is 2,000,000. As of December 31, 1997, options for 526,500 shares
were outstanding to approximately 30 employees under the 1997 Stock Option
Plan. Options for 904,866 shares remain outstanding under the 1987 Stock
Option Plan and are held by approximately 120 employees and/or consultants.
The options may be incentive stock options, which qualify for certain tax
benefits (relating primarily to the deferral of gain recognition until the
underlying stock is sold and the treatment of same as a capital gain as
opposed to ordinary income), or nonqualified options, which do not qualify as
incentive stock options. Incentive stock options must be granted at not less
than the fair market value of the stock on the date granted, and nonqualified
stock options must be granted at not less than one-half of the fair market
value of the stock on the date granted (subject to pending amendment). The
Company may take a deduction for gain realized by its employee upon the
exercise of a nonqualified option. Generally this is not so in the case of an
incentive stock option. Options generally are non-transferable, conditioned
upon continued employment with the Company and expire within 10 years of grant
or upon stated occurrences. Other option terms may vary depending upon
provisions of the specific option agreement. On June 28, 1991, and on July
13, 1995, the Company filed S-8 Registration Statements for Company stock
subject to the 1987 Plan.
Stock options were granted to and exercised by several of the Company's
executive officers in fiscal year 1997. The tables on the next page show
information regarding stock options held by the Company's executive officers.
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of Value of
unexercised unexercised
Shares Options/SARs in-the-money
Name acquired on Value realized at FY-End (#) Options/SARs
exercise (#) ($) exercisable/ at FY-End ($)
unexercisable exercisable/
<FN1> unexercisable
<S> <C> <C> <C> <C>
EDWARD H. ARNOLD - - 175,000/0 -
KENNETH F. LEEDY 17,400 223,283 218,898/32,302 637,729/80,755
HEATH L. ALLEN 10,860 136,202 116,766/10,774 545,033/0
RONALD E. WALBORN - - 122,239/16,161 683,950/0
DONALD G. JOHNSON 2,400 31,600 6,778/62,222 41,645/120,505
<FN>
<FN1>
(1) Adjusted for stock splits.
</FN>
</TABLE>
Supplemental Retirement Plan. In 1980, in order to recognize past effort
and to encourage future effort, New Penn implemented a supplemental retirement
plan. This plan provides to 62 individuals certain retirement, disability and
death benefits, which are available only if the individual is working for
Arnold Industries or one of its subsidiaries at retirement, disability or
death. Retirement benefits would commence five years after retirement, but
not before age 65, and are conditioned on an absence of competitive employment
for two years after retirement. Retirement benefits are payable monthly for
ten years. Monthly disability and pre-retirement death benefits are one-half
of retirement benefits, but are payable for twenty years. The Company is
responsible for the full cost of the plan, with no contributions from the
participants. The net pension cost for this plan was $145,911 for 1997.
The monthly retirement benefits involve six different categories: (1)
$1,666.67, (2) $1,250.00, (3) $1,041.67, (4) $833.33, (5) $625.00 and (6)
$416.67. Category (1) covers Messrs. Arnold and Leedy and 3 non-directors;
category (2) includes Messrs. Allen and Walborn and 6 non-directors; category
(3) covers 3 other individuals; and categories (4) through (6) cover 46
individuals. The Board of Directors may from time to time add additional
individuals to the plan, and may change the categories of participants to
increase benefits.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the
Company's cumulative total shareholder return on its common stock with: (i)
the cumulative total return of a broad market index (i.e. NASDAQ MARKET INDEX)
and (ii) the cumulative total return of a published industry or
line-of-business index weighted for market capitalization (i.e., the SIC CODE
4213 INDUSTRY GROUP - TRUCKING, EXCEPT LOCAL). This group is composed of the
following entities: Aasche Transport Service; Allied Holdings, Inc.; American
Freightways Corporation; Ampace Corporation; Arkansas Best Corporation; Arnold
Industries, Inc.; Boyd Bros. Transport, Inc.; Builders Transport, Inc.;
Caliber Systems, Inc.; Cannon Express CL A; CMP Transportation, Inc.; Consol
Delivery & Logistics; Consolidated Freightways CP; Covenant Transport CL A;
Frozen Food Express Industries; FRP Properties, Inc.; Heartland Express, Inc.;
Intrenet, Inc.; J.B. Hunt Transportation Services, Inc.; Jevic
Transportation; Kenan Transport Company; KLLM Transport Services, Inc.;
Knight Transportation; Landair Services, Inc.; Landstar Systems, Inc.; Lynch
Corporation; M.S. Carriers, Inc.; Mark VII, Inc.; Marten Transport, Ltd.;
Matlack Systems, Inc.; Morgan Group, Inc. CL A; Motor Cargo Industries, Inc.;
MTL, Inc.; Old Dominion Freight Line; OTR Express, Inc.; PAM Transportation
Services; Polar Express Corporation; PST Vans, Inc.; Roadway Express, Inc.;
Simon Transport Services CL A; Smith Motor Xpress A; Swift Transportation Co.;
Trailer Bridge, Inc.; Transfinancial Holdings, Inc.; Transport Corporation of
America; Trism, Inc.; U.S. Xpress Enterprises CL A; U.S. 1 Industries, Inc.;
USA Truck, Inc.; US Freightways Corporation; Vitran Corporation; Werner
Enterprises, Inc.; and Yellow Corporation. Cumulative returns for the Company
and both indices were calculated assuming dividend reinvestment.
GRAPH AND POINT DATA
5-YEAR CUMULATIVE TOTAL RETURN AMONG ARNOLD INDUSTRIES, INC.,
NASDAQ MARKET INDEX AND SIC CODE INDEX
-----------------------FISCAL YEAR ENDING---------------
COMPANY 1992 1993 1994 1995 1996 1997
ARNOLD IND INC 100 127.91 128.93 110.62 104.01 115.99
INDUSTRY INDEX 100 113.27 108.90 92.32 87.21 126.02
BROAD MARKET 100 119.95 125.94 163.35 202.99 248.30
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee's primary function is to review and to make
recommendations to the Board on executive officer compensation. The present
members of the Compensation Committee are Carlton E. Hughes and Arthur L.
Peterson, both of whom are non-employee "independent" directors of the
Company. The Compensation Committee has reviewed the Company's policies on
executive officer compensation and the compensation paid to the Company's
executive officers for fiscal year 1997 and reports as set forth below.
The Company's executive compensation policy is to provide competitive
levels of total compensation in order to attract, motivate and retain skilled
executive personnel, to recognize and reward individual initiative and
achievements and to promote above average corporate performance. The Company
also endorses the proposition that stock ownership in the Company by its
employees and executive personnel and stock-based compensation arrangements
are extremely beneficial in aligning the interests of its employees and
management with its shareholders in maximizing Company value.
The basic methods by which the Company compensates its executive officers
and implements the aforementioned policy are those of annual salary, annual
cash bonus and stock option grants made pursuant to the Company's 1997 Stock
Option Plan. The Company also maintains a supplemental retirement plan for
some 62 key employees (including its executive officers) to augment its
profit-sharing/retirement plan, generally available to all eligible employees.
Information on the Company's 1987 and 1997 Stock Option Plans can be found on
page 6 of the proxy statement. Further information on the supplemental
retirement plan and its benefits to the existing officers is found on page 7
of the statement. The Company has not yet adopted a policy with respect to the
$1,000,000 limitation on deductibility of executive compensation under Section
162(m) of the Internal Revenue Code of 1986, as amended.
The Committee believes that the base salaries of the Company's principal
executive officers are in the median range for the trucking industry. The
Company utilizes cash bonus and stock option elements to reward superior
performance. The Company considers the desires of the executive and the needs
of the Company in determining the overall compensation package and the
executive's stock and option holdings in adjusting the mixture between the
cash bonus and stock option elements on a yearly basis. In 1997, the Company
utilized annual salary, annual cash bonus awards and stock options.
The Company looks to both quantitative and qualitative factors in
determining the job performance of all of its employees, including executive
officers. The primary quantitative criteria applied to its executive officers
are Company return on shareholder investment, net earnings, revenue and cost
trends. Internal quantitative criteria such as adherence to, or improvement
on, operating budgets or Company specific goals, including revenue and
earnings targets and cost or claims reduction projects are also considered,
when applicable. Qualitative factors such as the ability to motivate others,
to adapt and accomplish new tasks and to assist in both short and long range
strategic planning for the Company, as well as the officer's internal
performance history, are also considered in arriving at appropriate overall
compensation levels. The Company has not established a specific mathematic
weighting or formula for application of these principles. These criteria are
applied on a subjective basis from year to year and were given roughly equal
weight in 1997's determinations.
Application of the foregoing criteria to Edward H. Arnold, the Company's
chief executive officer, continues to support placing Mr. Arnold's total
compensation package at the high end of his counterparts in the trucking
industry. Because the Company generated net earnings increases in 1997 as
compared to prior years, the Committee believes that Mr. Arnold's compensation
package for 1997 was appropriately increased from the prior year's total
compensation. In terms of qualitative factors, Mr. Arnold continues his
leadership role in strategic planning and remains an exceptional motivating
force among the Company's executive officers and personnel, emphasizing a
commitment to continuous improvement in customer service and cost efficiency.
In quantitative terms, the Company again achieved new highs in annual
revenues in 1997 and remained a stand-out performer among its trucking
counterparts. Due in part to intense competition and price-cutting throughout
the trucking industry in 1997, however, the Company, as a whole, did not reach
its internal earnings targets. New Penn and Arnold Logistics are performing to
management's expectations, but Arnold Transportation's performance lagged
during the year. Arnold Transportation nevertheless has been positioned to
improve its performance in 1998 and beyond. Accordingly, reflecting the
Company's above average performance in the trucking industry in 1997, and the
positive outlook for the future, Mr. Arnold's total compensation package was
increased from the 1996 compensation amount. Mr. Arnold also received a grant
of non-qualified stock options during 1997, which the Committee hopes will
encourage even greater efforts to increase return on shareholder investment.
The Compensation Committee
Carlton E. Hughes
Arthur L. Peterson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Hughes and Mr. Peterson are independent directors of the Company.
They are not, and have not been, officers or employees of the Company or any
of its subsidiaries.
AMENDMENT TO THE 1997 STOCK OPTION PLAN
The Company's Board of Directors has recommended adoption of an amendment
to the Stock Option Plan approved by the shareholders at the 1997 annual
meeting. The form of amendment is attached hereto as Appendix 1. The 1997
Stock Option Plan became effective on April 1, 1997, and will expire by its
terms on March 31, 2007. Article X of the Plan permits the Company's Board of
Directors to amend the Plan from time to time without shareholder approval,
except under certain circumstances identified in the Plan, which
circumstances, if present, require shareholder approval of the amendment. One
circumstance requiring shareholder approval of an amendment is any change in
the manner of determining Option Price (Article X, Item (b)). The amendment
recommended by the Board of Directors would change the manner of determining
the Option Price for Non-Qualified Stock Options. Accordingly, the Board of
Directors is seeking shareholder approval of the proposed amendment.
Article VII, Section 7.2 of the 1997 Stock Option Plan states that the
Option Price per share for each Non-Qualified Stock Option shall be set by a
committee of the Board of Directors, but may not be set at an amount less than
50% of the current fair market value of the Company's stock. Non-Qualified
Stock Options are the type of stock option that does not qualify for favorable
tax treatment under the Internal Revenue Code. Incentive Stock Options
receive favorable tax treatment under the Internal Revenue Code. The Board of
Directors has recommended that the Plan be amended to provide that the
committee of the Board of Directors may not set an Option Price for
Non-Qualified Stock Options at an amount less than 100% of the current fair
market value of the stock. The Board's recommendation favors existing
shareholders by eliminating the possibility of dilution of share price through
issuance of new shares at less than fair market value. However, the proposed
amendment would curtail a management tool whereby deductible compensation can
be paid to employees in the form of stock options without depletion of Company
cash.
The Board of Directors of the Company recommends a VOTE FOR approval of
the proposed amendment to the 1997 Stock Option Plan. Proxies solicited by
the Company will be so voted unless shareholders specify a contrary choice in
their proxies.
CERTAIN TRANSACTIONS
The firm of Keefer Wood Allen & Rahal, LLP, of which Heath L. Allen, a
director of the Company, is a partner, received legal fees of approximately
$381,000 for services performed in 1997 for the Company and its subsidiaries.
It is anticipated that the Company and its subsidiaries will make payments to
Keefer Wood Allen & Rahal, LLP through 1998 for legal services to be
performed.
The firm of Walborn Shambach Associates, of which Ronald E. Walborn, a
director of the Company, is President and Treasurer, received fees for
management and other accounting services of approximately $522,000 for
services performed in 1997 for the Company and its subsidiaries. It is
anticipated that the Company and its subsidiaries will make payments to
Walborn Shambach Associates through 1998 for management and accounting
services to be performed.
INDEPENDENT ACCOUNTANTS
The firm of Coopers & Lybrand L.L.P. has served as independent certified
public accountants to audit the books, records and accounts of the Company and
its subsidiaries since 1991, the Company's last seven fiscal years.
A representative of Coopers & Lybrand L.L.P. will be present at the
Annual Meeting, will be afforded an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate
questions.
The Company presently intends to utilize Coopers & Lybrand L.L.P. to
serve as independent auditor for its 1998 fiscal year but has opted not to
submit ratification of same to a vote of shareholders so as to maintain Board
discretion in this matter.
SHAREHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
The 1999 Annual Meeting of Shareholders will be held on or about May 5,
1999. Proposals of shareholders intended to be presented for action at that
meeting must be submitted in writing and received by the Company at its
corporate headquarters, 625 South Fifth Avenue, P. O. Box 210, Lebanon, PA,
17042-0210, Attn: Corporate Secretary, not later than December 22, 1998, in
order to be considered for inclusion in the Company's proxy statement and form
of proxy relating to that meeting, in accordance with regulations governing
the solicitation of proxies. It is suggested that a shareholder making a
proposal submit the proposal by Certified Mail - Return Receipt Requested.
The Bylaws provide that nominations of candidates for election to the
Board at an annual meeting, other than those made by or on behalf of existing
management, must be made in writing and delivered or mailed to the Corporate
Secretary not less than fifteen (15) nor more than fifty (50) days prior to
that annual meeting.
FORWARD-LOOKING STATEMENTS - RISK FACTORS
The nature of the Company's operations subject it to changing economic,
competitive, regulatory and technological conditions, risks and
uncertainties. In accordance with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company provides the following
cautionary remarks regarding important factors which, among others, could
cause future results to differ materially from the forward-looking statements,
expectations and assumptions expressed or implied herein. Those include
statements about our management confidence and strategies for performance;
expectations for new and existing technologies and opportunities; and
expectations for market segment and industry growth.
These factors include, but are not limited to: (1) changes in the
business environment in which the Company operates, including licensing
restrictions, interest rates and capital costs; (2) changes in governmental
laws and regulations, including taxes; (3) market and competitive changes,
including market demand and acceptance for new services and technologies; and
(4) other risk factors listed from time to time in the Company's SEC reports.
The Company does not intend to update this information and disclaims any legal
liability to the contrary.
OTHER MATTERS
The Board of Directors does not intend to bring any matters before the
Annual Meeting other than those specifically set forth in the notice of the
Annual Meeting and knows of no matters to be brought before the meeting by
others. If any other matters properly come before the meeting, it is the
intention of the persons named in the enclosed proxy, or their substitutes, to
vote said proxy in accordance with their best judgment on such matters.
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WILL BE AVAILABLE AT THE ANNUAL MEETING.
ANY SHAREHOLDER, UPON WRITTEN REQUEST TO THE CORPORATE SECRETARY, MAY OBTAIN A
COPY OF THE COMPANY'S 10-K WITHOUT CHARGE.
By Order of the Board of Directors,
HEATH L. ALLEN
Secretary
Lebanon, Pennsylvania
April 5, 1998
APPENDIX 1
AMENDMENT NO. 1 TO
STOCK OPTION PLAN FOR
ARNOLD INDUSTRIES, INC.
Effective date: May 6, 1998
1. Article VII, Section 7.2 of the Stock Option Plan for Arnold
Industries, Inc. effective April 1, 1997, is hereby deleted in its entirety,
and the following new Article VII, Section 7.2 is substituted in its place:
7.2 Option Price. The Option Price per share of the Stock
subject to each Non-Qualified Stock Option shall be determined
by the Committee, but the per share price shall not be less
than the Fair Market Value of the Stock on the date the
Non-Qualified Stock Option is granted.
2. All provisions of the Stock Option Plan for Arnold Industries,
Inc. effective April 1, 1997, that are not modified by this Amendment shall
remain in full force and effect for the balance of the term of the Plan or
until amended by the Board of Directors or shareholders of the Company.
3. This Amendment shall become effective immediately upon approval by
the shareholders.
APPENDIX 2
REVOCABLE PROXY
ARNOLD INDUSTRIES, INC.
X PLEASE MARK VOTES
AS IN THIS EXAMPLE
ANNUAL MEETING OF SHAREHOLDERS
May 6, 1998
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Shareholders of Arnold Industries, Inc., to be held on Wednesday,
May 6, 1998, at 4:00 p.m., at the Lebanon Country Club, 3375 West Oak Street,
Lebanon, Pennsylvania, and the proxy statement for said meeting attached
thereto, and hereby appoints Kenneth F. Leedy or Heath L. Allen, or either of
them, proxies to vote and act at the 1998 Annual Meeting of Shareholders or
at any adjournment or adjournments thereof, on any business that may properly
come before such meeting, including taking action on Items 1 and 2 set forth
in the next column.
With- For All
1. Election of Directors For hold Except
of the Company: _____ _____ _____
Edward H. Arnold, Kenneth F. Leedy and Arthur L. Peterson
INSTRUCTION: To withhold authority to vote for any nominee, mark "For All
Except" and write that nominee's name in the space provided below.
________________________________________________________________
2. With respect to the For Against Abstain
amendment to the 1997 _____ _____ _____
Stock Option Plan
3. With respect to the use of For Against Abstain
their discretion in such _____ _____ _____
other business as may come
before the meeting or any
adjournments thereof.
The stock covered by this proxy will be voted in accordance with
specifications made. IF NO SPECIFICATION IS MADE, THE PROXIES ARE APPOINTED
WITH AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS AND IN FAVOR OF PROPOSALS
2 and 3.
Please sign your proxy exactly as your name appears on the certificate.
When signing as attorney, executor, administrator, trustee or guardian, give
full title as such. If owner is a corporation, sign full corporate name by a
duly authorized officer.
If two or more persons are named as owners, both or all should sign.
Please be sure to sign and date Date
this Proxy in the box below. ___________________
THIS PROXY IS SOLICITED ON BEHALF
OF THE REGISTRANT'S BOARD OF DIRECTORS.
______________________________________________________________________
Shareholder sign above Co-holder (if any) sign above
