<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
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 by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
- --------------------------------------------------------------------------------
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price of other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
[LETTERHEAD]
August 17, 1998
To our Shareholders:
Although Arrhythmia Research Technology, Inc. (the "Company") continues to
dedicate itself to delivering state-of-the-art solutions for diagnosing heart
disease, the financial results for 1997 were disappointing.
Sales of the Company's signal averaging products, which enable the physician
to detect and treat electrical malfunctions of the heart, decreased
significantly in 1997, reflecting the effects of the transitional stage of
product development. Sales of the Company's hemodynamic products were also less
than anticipated due to intense competition and rapid technological advancement.
The 1200 EPX-TM- and LP-Pac Q-TM- systems and PREDICTOR-Registered Trademark-
product line have defined the industry and clinical standards for
high-resolution electrocardiography and with the software upgrades to a Windows
format, we are hopeful of a sales turn-around. Modification of the cath lab
software to a Windows NT platform should also enhance salability.
The 1997 financial results were affected by the fact that the Company ceased
to report the gross sales and related costs of sales of the electrophysiology
lab. Total revenue decreased by $12,900,000, or 52%, for 1997 due mainly to such
reporting change. During 1997 and 1998, however, the Company will receive a 4%
commission on net sales of all CadioLabs sold, up to $10,000,000 and a lesser
commission rate thereafter.
The Company's subsidiary, Micron Products Inc., continues its commitment to
quality in the manufacture of ECG silver/silver chloride plated electrode sensor
components. With the dominant share of the products worldwide, Micron continued
to grow and to contribute significantly to earnings in 1997.
During 1997, Micron acquired from Newmark, Inc. the rights to a medical stud
and eyelet application machine. The electrode assembly machine will provide
Micron with a complimentary product, which it can lease to existing sensor and
snap customers.
The Company will seek other profitable opportunities and hopes to add new
products in 1998 and 1999.
We will again call upon the dedication of the Company's employees,
management team and the board of directors to revitalize the Company and
establish new goals for 1998 and 1999.
Anthony A. Cetrone
[SIGNATURE]
--------------------------------------
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, SEPTEMBER 29, 1998
------------------------
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 Four Points Hotel, 99 Erdman Way, Leominster,
Massachusetts 01453, on Tuesday, September 29, 1998 at 9:30 a.m., local time,
for the following purposes:
1. To elect two directors, each for a term of three years to expire at the
2001 Annual Meeting; and
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) thereof.
The close of business on August 28, 1998, 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
Nancy C. Arnold
SECRETARY
August 28, 1998
<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
5910 COURTYARD DRIVE, SUITE 300
AUSTIN, TEXAS 78731
------------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 29, 1998
------------------------
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 29, 1998, at 9:30 a.m. at the
Four Points Hotel, 99 Erdman Way, Leominster, Massachusetts 01453, 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 are counted as shares present in the
determination of whether the shares represented at the meeting constitute a
quorum, and are counted as votes against proposals to be acted on by the
Stockholders. Broker non-votes, however, will not be considered as present at
the meeting in determining the presence of a quorum and 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 28, 1998. 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 1998 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 or may
hereafter supplement it. The costs of the solicitation, preparation, and mailing
of Proxies are expected to be less than $10,000.
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 1998 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. Unless the persons named in the Proxy are prevented by circumstances
beyond their control from acting, the Proxy will be
1
<PAGE>
voted at the 1998 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 two nominees listed under "Election of Directors" as
Directors of the Company; and
(2) At the discretion of the Proxy holders, on any other matter that may
properly come before the 1998 Annual Meeting or any adjournment thereof.
VOTING SECURITIES
At the close of business on August 28, 1998, which is the record date for
the determination of Stockholders of the Company entitled to receive notice of
and vote at the 1998 Annual Meeting or any adjournment thereof, the Company had
outstanding 3,563,101 shares of Common Stock, $.01 par value per share (the
"Common Stock"), exclusive of 116,115 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 1998
Annual Meeting, but if a quorum should not be present, the meeting may be
adjourned from time to time until a quorum is obtained.
ITEM NO. 1
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 one nor more
than nine. The Board of Directors has fixed the number at five. The By-Laws
further provide that Directors shall be divided into three classes (Class I,
Class II, and Class III) serving staggered three-year terms, with each to be as
nearly equal as possible.
The Board of Directors has nominated Julius Tabin and E. P. Marinos for
election as Class II Directors for a three-year term expiring at the 2001 annual
meeting and until their successors are duly elected and qualified. Mr. Marinos
and Dr. Tabin are presently Directors of the Company whose terms expire at the
Annual Meeting.
The Board of Directors has inquired of each nominee and has ascertained that
each will serve, if elected. In the event that any of these nominees should
become unavailable for election (which is unexpected), the Board of Directors
may designate substitute nominees, in which event the shares represented by the
Proxy will be voted for such substitute nominees 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 Dr.Tabin and Mr. Marinos. THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" THE ELECTION OF DR. TABIN AND MR. MARINOS AS CLASS II DIRECTORS OF
THE COMPANY.
2
<PAGE>
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 1998 Annual Meeting is set
forth below.
NOMINEES
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, BUSINESS EXPERIENCE, DIRECTOR
NAME AND AGE PAST FIVE YEARS AND DIRECTORSHIPS SINCE
- --------------------------------- -------------------------------------------------------------------- -----------
<S> <C> <C>
CLASS I (TERM EXPIRES 1999)
Anthony A. Cetrone .............. Mr. Cetrone has been President and Chief Executive Officer of Micron 1992
AGE 69 Products Inc., a wholly owned subsidiary of the Company, since
June 1990. Mr. Cetrone was President and Chief Executive Officer
of the Company from January 1993 until March 1995. He served as
President of Micron Medical Products Inc., a manufacturer of
silver/silver chloride coated sensors, from 1988 until December
1993, when Micron Medical Products Inc. was merged with and into
Micron Products Inc. From October 1991 to December 1993, Mr.
Cetrone served as Chairman of the Board of Micron Medical Products
Inc. From October 1991 to the March 1995, Mr. Cetrone served as
Chairman of the Board of Micron Products Inc. Micron Products Inc.
filed a bankruptcy petition in November 1991.
Russell C. Chambers, M.D. ....... Dr. Chambers served as the Company's Chairman of the Board until 1982
AGE 55 August 1990. For more than the past five years, Dr. Chambers has
been primarily engaged in the management of his personal
investments.
CLASS II (TERM EXPIRES 1998)
E. P. Marinos ................... Mr. Marinos has been President and Chief Executive Officer of 1994
AGE 56 Midcoast Interstate Transmission, Inc. since June 1997. 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. He was President and Chief Executive Officer of AMT/
EMP Associates, a consulting company providing services in the
areas of strategic planning, mergers and acquisitions, and
organizational restructuring from March 1991 until March 1995.
Julius Tabin .................... Since 1949, Dr. Tabin has been a partner in the law firm of Fitch, 1982
AGE 78 Even, Tabin & Flannery.
CLASS III (TERM EXPIRES 2000)
Paul F. Walter, M.D. ............ Dr. Walter is an electrophysiologist and Professor of Medicine at 1982
AGE 59 Emory University.
</TABLE>
3
<PAGE>
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,
1997, the Board of Directors held eight meetings. Various committees of the
Board met a total of ten times. Average attendance by incumbent directors at
Board and committee meetings was 99% and all of them attended 88% or more of the
meetings of the Board and the committees on which they served.
AUDIT COMMITTEE. The Audit Committee is composed of one non-employee
Director, E. P. Marinos. Among its functions, it reviews the scope and
effectiveness of audits of the Company by the independent public accountants;
selects and recommends to the Board of Directors the employment of independent
public accountants for the Company; reviews the audit plan of the independent
public accountants; reviews and approves the fees charged by the independent
public accountants; reviews the Company's annual financial statements before
their release; reviews the adequacy of the Company's system of internal controls
and recommendations of the independent public accountants with respect thereto;
reviews and acts on comments and suggestions by the independent public
accountants and by the internal auditors with respect to their audit activities;
and monitors compliance by employees of the Company with the Company's standards
of business conduct policies. The committee met one time in the 1997 fiscal
year.
COMPENSATION COMMITTEE. The one member of the Compensation Committee,
Russell C. Chambers, is a non-employee Director and is ineligible to participate
in any of the plans or programs which are administered by the 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 Employee Incentive
Stock Option Plan. The committee met one time during the 1997 fiscal year.
EXECUTIVE COMMITTEE. The Executive Committee is composed of two members:
Anthony A. Cetrone 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 eight times in fiscal year 1997.
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. Employee directors do not receive cash
compensation. In October 1994, the Stockholders approved the grant of options to
purchase 18,000 shares of the Company's Common Stock to each non-employee
Director. Such options became exercisable upon approval and were granted for a
term of ten years. The purchase price of each share of Common Stock covered by
an option is equal to the fair market value of a share of Common Stock on the
date the option was granted. In the event the fair market value of the Common
Stock reaches $6.00 per share, then the option price for one share shall be the
fair market value of the Common Stock on the date the option is granted, less
the difference between the average closing price of the Common Stock for the 20
trading days immediately preceding the date on which the Director gives notice
of his intention to exercise an option and $6.00 per share. Notwithstanding the
foregoing, the exercise price may never be less than $1 per share nor greater
than the fair market value on the date of grant.
4
<PAGE>
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 1, 1998:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
R.C. Chambers Irrevocable Trust (1) ..................................... 222,350- 5.68
1807 Lake Street
Lake Charles, Louisiana 70601
</TABLE>
- ------------------------
1. The beneficiaries of the trust are Dr. Chambers' son and the estate of Dr.
Chambers' wife. Both Dr. Chambers' son and the estate of his wife have a 50%
interest in the assets of the trust. Dr. Chambers disclaims any beneficial
ownership of the Common Stock held by the trust.
The following table sets forth beneficial ownership of Common Stock as of a
recent date 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.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
(1)
----------------------
PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER (2)
- ------------------------------------------------------------------------- --------- -----------
<S> <C> <C>
Anthony A. Cetrone (4)(5)................................................ 112,567- 3.01
Russell C. Chambers, M.D. (3)(5)......................................... 227,750- 6.09
E.P. Marinos(5).......................................................... 44,000- 1.18
Julius Tabin, Ph.D(5).................................................... 38,375- 1.03
Paul F. Walter, M.D(5)................................................... 69,375- 1.86
All officers and directors as a group (6 persons) (5).................... 520,542- 13.92
</TABLE>
- ------------------------
1. Unless otherwise noted, each person has sole voting and investment power
with respect to the shares of Common Stock beneficially owned.
2. The shares owned by each person, or by the group, and the shares included in
the total number of shares outstanding have been adjusted, and the
percentage owned has been computed in accordance with Rule 13d-3(d)(1) under
the Securities Exchange Act.
3. 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.
4. Includes 67,567 shares held by the Micron Employee Stock Ownership Plan over
which Mr. Cetrone shares voting power as Trustee.
5
<PAGE>
5. Includes shares which may be acquired upon the exercise of outstanding
options within the next sixty days as follows:
<TABLE>
<S> <C>
Anthony A. Cetrone......................................... 62,500
Russell C. Chambers, M.D................................... 18,000
E. P. Marinos.............................................. 42,000
Julius Tabin............................................... 18,000
Paul F. Walter, M.D........................................ 18,000
Nancy C. Arnold............................................ 17,000
---------
Total.................................................... 175,500
---------
---------
</TABLE>
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.
<TABLE>
<CAPTION>
NAME POSITION AGE
- -------------------------------------------- ------------------------------------------ ---
<S> <C> <C>
Anthony A. Cetrone.......................... Chairman of the Board and President 69
Nancy C. Garbade............................ Executive Vice President, Secretary 51
</TABLE>
MR. CETRONE has been Chairman of the Board since October 1996 and President
since July 1998. He is President of Micron Products Inc.
MS. ARNOLD has been Secretary of the Company since 1988 and General Counsel
since 1990.
6
<PAGE>
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, its Chief Financial Officer
and Chief Operating Officer (the "Named Executive Officers") for services during
the three fiscal years ended December 31, 1997 by the Company and its
subsidiaries is shown in the following table:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------
AWARDS PAYOUTS
--------- -------------
ANNUAL COMPENSATION STOCK LONG-TERM
-------------------------------------------- OPTIONS INCENTIVE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(1) (SH) PAYOUTS COMPENSATION
- --------------------------------- --------- --------- --------- ----------- --------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
E.P. Marinos, former President
and Chief Executive Officer.... 1997 62,800 $ 4,000 -- -- $ -- $ --
Anthony A. Cetrone, President and
Chief Executive Officer........ 1997 98,000 $ 13,569 -- -- $ -- $ --
Sidney M. Barbanel, former
President and Chief Executive
Officer........................ 1997 43,800 $ -- -- -- $ -- $ --
E. P. Marinos, former President
and Chief Executive Officer.... 1996 100,000 $ 2,000 -- -- $ -- $ --
Anthony A. Cetrone, President,
Micron Products Inc............ 1996 98,000 $ 17,118 -- -- $ -- $ --
E. P. Marinos, former President
and Chief Executive Officer.... 1995 92,300 $ -- -- -- $ -- $ --
Anthony A. Cetrone, President,
Micron Products Inc............ 1995 98,000 $ 21,907 5,250 $ 29,000 $ -- $ --
</TABLE>
- ------------------------
(1) Mr. Marinos and Mr. Cetrone were granted 60,000 and 20,000 options to
purchase shares, respectively, under the Option Plan in October 1995. The
shares vest at the rate of 20% per year for five years until fully vested.
The exercise price approximated the market price on the date of grant. Mr.
Marinos relinquished 36,000 options in June 1997. Mr. Marinos and Mr.
Cetrone were granted 20,000 and 9,000 options, respectively, to purchase
shares outside the Option Plan at an exercise price of $3.00. Twenty-five
percent of the shares vested immediately and the remainder vest at
twenty-five percent on each anniversary date, until fully vested. The shares
granted outside the Option Plan were approved by the Stockholders. The
market price at the date of grant was $3.00. Mr. Marinos relinquished all
20,000 options in June 1997.
7
<PAGE>
OPTION GRANTS TABLE
There were no option grants/SARS in fiscal year 1996.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTIONS VALUES TABLE
The realized value of aggregated option exercises during 1997 and the value
of unexercised in-the-money options at December 31, 1997 held by the Named
Executive Officers are shown in the following table:
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
(MARKET PRICE OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES AT EXERCISE DECEMBER 31, 1997 DECEMBER 31, 1997 (1)
ACQUIRED ON LESS EXERCISE -------------------------- ----------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------ ----------- --------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
E.P. Marinos........................ -- -- 42,000 -- $ -- $ --
Anthony A. Cetrone.................. -- $ -- 76,100 17,400 $ -- $ --
</TABLE>
- ------------------------
(1) Calculated on the basis of the closing sale price per share for the Common
Stock on the American Stock Exchange of $1 9/16 on December 31, 1997.
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, 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 is comprised exclusively of outside Directors (see page 6). All
decisions of the Committee relating to compensation of the President and Chief
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. The Committee utilizes the services of an independent executive
compensation consultant in developing and evaluating compensation plans in order
to achieve the foregoing objectives.
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 Chief Executive Officer and other executive officers were
determined for the 1997 fiscal year.
8
<PAGE>
EXECUTIVE COMPENSATION
The key components of executive compensation are base salary, short-term
incentive compensation and long-term, equity-based incentives. Base salary
levels are generally targeted to be competitive with the average salaries paid
at other companies of similar size and complexity both within and outside the
medical device distribution and manufacturing industries. The Committee works
with an independent executive compensation consultant to analyze competitive
compensation levels at comparable companies.
BASE SALARY
Salary level targets are established so that the Company can attract and
retain the most qualified employees. The Compensation Committee approves the
individual salaries of executive officers. 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. During fiscal
1997, $13,569 was paid to Anthony A. Cetrone as a bonus, based on the
performance of Micron Products Inc., pursuant to an agreement between Mr.
Cetrone and Micron. E. P. Marinos received $4,000 as a bonus in 1997. Such
amount was actually earned in 1996, but paid in 1997.
LONG-TERM INCENTIVE COMPENSATION
The Company also grants stock options and other equity incentives under the
1987 Employee Stock Option Plan in order to link compensation to the Company's
long-term growth and performance and to increases in Stockholder value. Under
the 1987 Employee Incentive Stock Option Plan, the Committee may grant stock
options to eligible employees of the Company and its subsidiaries. The Committee
has broad discretion to establish the terms of such grants. It typically grants
awards on an annual basis and may also grant 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. Each member of 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 1997, the
Committee did not recommend the grant of any options to any Executive Officers.
COMPENSATION OF PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Marinos served as President and Chief Executive Officer of the Company
until June 1997. In accordance with the terms of his Employment Contract, Mr.
Marinos earned base compensation at the rate of $100,000 per annum. He also
received a cash bonus in the amount of $4,000, which was actually earned in
1996. The rate of compensation established by Mr. Marinos' employment contract
was the same as that of the former Chief Operating Officer. Mr. Marinos resigned
as President and Chief Executive in June 1997 and Sidney M. Barbanel was named
to succeed him on an interim basis. From June 1997 until September 1997, Mr.
Barbanel was compensated at the rate of $50,000 per annum for providing services
9
<PAGE>
on a part-time basis. In September 1997, Mr. Barbanel's salary was increased to
$100,000 per annum and he began to provide services on a full-time basis. There
was no increase in the rate of compensation for the President and Chief
Executive Officer in 1997 due to a continued effort to contain costs.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M).
Section 162(m) of the Internal Revenue Code of 1986, as amended, currently
imposes a $1 million limitation on the deductibility of certain compensation
paid to the Company's five highest paid executives. Excluded from the limitation
is compensation that is "performance based". For compensation to be performance
based, it must meet certain criteria, including being based on predetermined
objective standards approved by the Stockholders of the Company. The Committee
intends to take into account the potential application of Section 162(m) with
respect to incentive compensation awards and other compensation decisions made
by it in the future. The Committee does not currently anticipate that Section
162(m) will limit the deductibility of any compensation paid by the Company to
its executive officers during 1995.
This report on executive compensation is made by and on behalf of the
Company's Compensation Committee.
Russell C. Chambers, M.D.
10
<PAGE>
STOCK PERFORMANCE GRAPH
The following Performance Graph compares the Company's cumulative total
shareholder return on its Common Stock for a five-year period (from January,
1992 to December 31, 1997), 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, 1992 in the Company's Common Stock,
S&P 500, and S&P Med.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG ARRHYTHMIA RESEARCH TECHNOLOGY, INC., THE S&P 500 INDEX
AND THE S&P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES) INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC. S & P 500 S & P HEALTH CARE (MEDICAL PRODUCTS & SUPPLIES)
<S> <C> <C> <C>
12/92 $100.00 $100.00 $100.00
12/93 115.79 110.08 76.26
12/94 35.09 111.53 90.43
12/95 59.65 153.45 152.84
12/96 35.09 188.68 175.42
12/97 21.93 251.64 218.70
</TABLE>
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 granted the
Company the option to
11
<PAGE>
acquire any technology developed by CDI on an exclusive basis in consideration
of either a lump-sum payment of $1,250,000 or a royalty of $150 per cardiac
signal-averaging device sold by the Company, up to a maximum of $1,250,000. The
Company elected to pay to CDI a royalty of $150 per device sold. Dr. Chambers is
the son of the late G. Russell Chambers whose estate is a shareholder in CDI.
Julius Tabin, a Director of the Company, is a shareholder of CDI. Royalty fees
for the fiscal year ended December 31, 1997 were $7,300.
Dr. Tabin, a Director 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 $20,000 in 1997. Fitch, Even,
Tabin & Flannery received customary compensation in connection with its services
to the Company.
Dr. Russell C. Chambers, a director and shareholder of the Company, is
engaged as a consultant to the Company. For the year ended December 31, 1997,
health insurance premiums paid on Dr.Chambers' behalf amounted to approximately
$8,900.
CERTAIN FILINGS
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, 1997.
STOCKHOLDER PROPOSALS FOR THE 1999 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 1998 Annual
Meeting, it must be received by the Secretary of the Company (5910 Courtyard
Drive, Suite 300, Austin, Texas 78731) not later than April 30, 1999 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.
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 1997 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,
5910 Courtyard Drive, Suite 300, Austin, Texas 78731.
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<PAGE>
ARRHYTHMIA RESEARCH TECHNOLOGY, INC.
PROXY SOLICITATION ON BEHALF OF THE BOARD OF DIRECTORS
FOR STOCKHOLDERS MEETING ON SEPTEMBER 29, 1988
The undersigned hereby appoints Douglas Johnson and Kathleen Watt 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 1998 Annual Meeting of Stockholders of Arrhythmia Research Technology, Inc.
to be held at the Four Points Hotel, 99 Erdman Way, Leominster, Massachusetts
01453 on Tuesday, September 29, 1998 at 9:30 a.m. local time, and any
adjournment thereof, and to vote as follows:
1. ELECTION OF DIRECTORS:
Nominees: E. P. Marinos and Julius Tabin.
/ / VOTE FOR all nominees listed above, except withhold from following
nominees (if any): _____________________________________________________________
OR
/ / VOTE WITHHELD from all nominees listed above.
2. 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.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED AND 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, WITH
THE DISCRETIONARY AUTHORITY SET FORTH IN THE ACCOMPANYING PROXY STATEMENT FOR
ITEM 2.
PLEASE SIGN AND DATE ON THE REVERSE SIDE.
<PAGE>
PLEASE SIGN AND DATE:
Dated: ______________________, 1998
___________________________________
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
