SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant |X|
Filed by a party other than the Registrant |_|
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Check the appropriate box:
[_] Preliminary Proxy Statement [X] Definitive Proxy Statement
[_] Definitive Additional Materials [_] Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a- 12
[_] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
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ARROW INTERNATIONAL, INC.
(Name of Registrant as Specified in Its Charter)
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Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1 N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
(1) Set forth the amount on which the filing fee is calculated
and state how it was determined.
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-1l(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.:
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(4) Date Filed:
<PAGE>
ARROW INTERNATIONAL, INC.
2400 Bernville Road
Reading, Pennsylvania 19605
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on January 20, 1999
To Our Shareholders:
The Annual Meeting of Shareholders of Arrow International, Inc. will be
held at the Sheraton Berkshire Inn, Route 422 West and Papermill Road Exit,
Wyomissing, Pennsylvania at 4:00 p.m. on January 20, 1999 for the following
purposes:
(1) To elect two directors;
(2) To act upon a proposal to ratify the appointment of
PricewaterhouseCoopers L.L.P. as the Company's independent accountants
for the fiscal year ending August 31, 1999; and
(3) To transact such other business, if any, as may properly come before
the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on November 30, 1998
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting and any adjournments thereof.
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE ANNUAL MEETING. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU
DECIDE TO ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
December 15, 1998
Reading, Pennsylvania
<PAGE>
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
OF
ARROW INTERNATIONAL, INC.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Arrow International, Inc. for the Annual
Meeting of Shareholders to be held on January 20, 1999, or any adjournments
thereof.
The Board of Directors has fixed the close of business on November 30, 1998
as the record date for the determination of the shareholders entitled to notice
of, and to vote at, the Annual Meeting. On that date there were 23,223,981
shares of Common Stock outstanding and entitled to vote at the Annual Meeting.
Each share of Common Stock is entitled to one vote. A majority of the
outstanding shares of Common Stock is required to establish a quorum at the
Annual Meeting. The affirmative vote of a plurality of the votes cast is
required for the election of directors. The affirmative vote of a majority of
the votes cast is required to ratify the appointment of independent accountants
for fiscal 1999. Shares represented by proxies will be voted in accordance with
the specifications made on the proxy card by the shareholder.
With regard to the election of directors, votes may be cast in favor or
withheld; votes that are withheld will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business at the
Annual Meeting, but will be excluded entirely from the vote and will have no
effect on the outcome of the voting. With regard to the ratification of the
appointment of independent accountants, abstentions may be specified. Since the
affirmative vote of a majority of the votes cast is required in respect of such
proposal, an abstention with respect to such proposal will have the same effect
as a vote against such proposal. Any proxy not specifying the contrary will be
voted in the election of directors for each of the Board of Directors' nominees
and in favor of the proposal to ratify the appointment of independent
accountants. A shareholder giving a proxy has the right to revoke it by a duly
executed proxy bearing a later date, by attending the Annual Meeting and voting
in person, or by otherwise notifying the Company prior to the Annual Meeting.
Under applicable Pennsylvania law, broker non-votes (that is, proxies from
brokers or nominees indicating that such persons have not received instructions
from the beneficial owners or other persons entitled to vote shares on a
particular matter as to which the brokers or nominees do not have discretionary
power) may be counted as present or represented for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not be
counted for purposes of determining whether any non-discretionary proposals to
be voted upon at the Annual Meeting have been approved. The Company believes
that the proposals to be considered at the Annual Meeting are proposals in
respect of which brokers and other nominees typically have discretionary power.
Accordingly, unless one or more beneficial owners of the Common Stock have
withheld discretionary authority from their brokers or nominees in respect of
these types of proposals, the Company does not anticipate that there will be any
broker non-votes in respect of such proposals. If there are any broker non-votes
in respect of the proposals, however, the Company intends to treat such broker
non-votes as stated above.
<PAGE>
The mailing address of the principal executive offices of the Company is
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612. This Proxy
Statement and the enclosed proxy card are being furnished to shareholders on or
about December 15, 1998.
PROPOSAL I - ELECTION OF DIRECTORS
The Board of Directors of the Company is currently composed of ten
directors, although up to 12 directors are permitted by the Company's Restated
Articles of Incorporation and By-Laws. Under the Company's Restated Articles of
Incorporation and By-laws, the Board is divided into four classes, as nearly
equal in number as possible. At each Annual Meeting of Shareholders, directors
constituting one class are elected for a four-year term (or for such lesser term
as may be specified in the proxy statement furnished in connection therewith).
The Board of Directors has nominated John H. Broadbent, Jr. and George W.
Ebright, each of whom is currently a director, for election to the Board of
Directors. If elected, each of Messrs. Broadbent and Ebright will serve until
the Annual Meeting of Shareholders to be held in 2003, or until such time as
their respective successors are elected. The remaining directors will continue
to serve as set forth below.
The Board believes that each of the nominees will be available and able to
serve as a director. If a nominee is unable to serve, the shares of Common Stock
represented by all valid proxies will be voted for the election of such
substitute as the Board may recommend, the Board may reduce the number of
directors to eliminate the vacancy or the Board may fill the vacancy at a later
date after selecting an appropriate nominee.
Certain information concerning the nominees and those directors whose terms
of office will continue following the Annual Meeting is set forth in the
following table:
Principal Occupation, Business
Name Age Experience and Directorship
- ---- --- ---------------------------
Nominees For Terms Expiring in 2003
John H. Broadbent, Jr. 60 Director of the Company since it was founded in
1975 and, until his retirement in August 1998,
Vice President - Finance and Treasurer of the
Company. From 1966 to 1975, served in several
capacities with Carpenter Technology Corporation,
a specialty steel manufacturer, the latest as
Manager-Market Planning & Development. From 1964
to 1966, consultant in the Management Advisory
Services Department of the international
accounting firm of Price Waterhouse & Co. Also,
Vice President-Finance, Treasurer and a director
of Arrow Precision Products, Inc., a corporation
controlled by principal shareholders of the
Company ("Precision").
George W. Ebright 60 Director of the Company since October 1993.
Director of Cytogen Corporation, a
biopharmaceutical company engaged in the
development of diagnostic and therapeutic
substances for human health care applications
("Cytogen"), from February 1989 until May 1995.
Chairman of the Board of Cytogen from February
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1990 until January 1995 and President from
February 1989 to August 1991. Prior thereto,
President and Chief Operating Officer and a
director of SmithKline Beckman Corporation, a
health care and life services company engaged in
the marketing of a broad line of prescription and
proprietary products for human and animal health
care, as well as diagnostic and analytical
products and services. From 1963 through 1987,
held several senior management positions with
SmithKline & French Laboratories and two of its
divisions. Director of NABI, Inc., a
biopharmaceutical company which develops products
for the prevention and treatment of infectious
diseases, and The West Company, a supplier of
specialized packaging systems to the health care
and consumer products industries. Also, a director
of Precision.
Directors Whose Terms Expire in 2000
T. Jerome Holleran 62 Secretary and a director of the Company since it
was founded in 1975 and, until September 1997, a
Vice President of the Company. Since July 1996,
President and Chief Executive Officer of Precision
Medical Products, Inc. ("PMP"), a former
subsidiary of Precision that manufactures and
markets certain non-catheter medical products that
was sold in August 1997 to certain management
employees of Precision (including Mr. Holleran).
From February 1986 to September 1997, Vice
President, Chief Operating Officer and a director
of Precision. President of Endovations, Inc., a
former subsidiary of Precision that manufactured
and marketed certain gastroenterological medical
products ("Endovations"), from 1991 until the sale
in June 1996 of a portion of Endovations' business
to the Company and the remainder to an unrelated
third party. From 1971 to 1975, Director of
Business Planning-Textile Divisions of Rockwell
International Corporation and a Marketing Manager
of the Arrow Products Division of Rockwell
International Corporation, the Company's
predecessor (the "Rockwell Division"). From 1969
to 1971, consultant with the management consulting
firm of Booz, Allen and Hamilton.
R. James Macaleer 64 Director of the Company since January 1998.
Chairman of the Board of Shared Medical Systems
Corporation, a provider of computer-based
information systems and associated services to the
health industry in North America and Europe
("SMS"), from 1969 to November 1997, and Chief
Executive Officer of SMS from 1969 to August 1995.
Also, a director of Precision.
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<PAGE>
Alan M. Sebulsky 39 Director of the Company since January 1997.
Principal of Lincoln Capital Management, a private
investment management firm based in Chicago,
Illinois, since July 1994, with responsibility for
investments in the health care industry. Also
serves on Lincoln Capital Management's equity
investment committee. From 1988 to May 1994,
Managing Director at Morgan Stanley & Company, an
international investment banking and brokerage
firm, with responsibility for equity research in
the pharmaceutical and medical device industries.
From 1982 to 1988, held various positions at T.
Rowe Price & Associates, an investment management
firm, the latest as Vice President, with
responsibility for health care investment analysis
and portfolio management.
Directors Whose Terms Expire in 2001
Carl G. Anderson, Jr. 53 Director of the Company since January 1998.
President and Chief Executive Officer of ABC
School Supply, Inc., a manufacturer and marketer
of materials and equipment for public and private
schools, since May 1997. Consultant with the New
England Consulting Group, a general management and
marketing consulting company, from May 1996 to May
1997. Vice President, General Manager, Retail
Consumer Products of James River Corporation, a
multinational company engaged in the development,
manufacture and marketing of paper-based consumer
and commercial products ("James River"), from
August 1994 to March 1996, and Vice President,
Marketing, Consumer Brands of James River from May
1992 to August 1994. From 1984 to May 1992, served
in various capacities with Nestle Foods
Corporation, the latest as Vice President,
Division General Manager, Confections. Prior
thereto, served in several marketing capacities
with Procter & Gamble.
John E. Gurski 57 Director of the Company since January 1997.
Corporate Vice President of AMP Incorporated, a
multinational company engaged in the development,
manufacture and marketing of systems for
electrical and electronic applications ("AMP"),
since 1989. President, Europe, Middle East and
Africa, of AMP since July 1995 and beginning
January 1, 1997, President, Global Operations, of
AMP. Corporate Vice President, Europe, of AMP from
September 1993 to July 1995 and Corporate Vice
President, Business & Operations Planning
International, of AMP from January 1992 to
September 1993. Corporate Vice President, Capital
Goods Business Sector, of AMP from 1989 to January
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<PAGE>
1992 and Divisional Vice President, Operations, of
AMP from 1987 to 1989. From 1972 to 1987, served
in various manufacturing and operating capacities
with AMP. Prior thereto, was employed by General
Motors Corporation.
Marlin Miller, Jr. 66 President and Chief Executive Officer and a
director of the Company since it was founded in
1975. From 1972 to 1975, Vice President and a
director of Connors Investor Services, a research
and investment management firm. From 1959 to 1972,
served in several capacities with Glen Gery
Corporation, a manufacturer of building products,
the latest as Executive Vice President and a
director. Director of Carpenter Technology
Corporation, a manufacturer of specialty steel.
Also, President and a director of Precision.
Directors Whose Terms Expire in 2002
Raymond Neag 67 Executive Vice President since April 1992 and
prior thereto Senior Vice President of the
Company. Officer and a director of the Company
since it was founded in 1975. From 1973 until
joining the Company, General Manager of the
Rockwell Division. From 1971 to 1973, President of
Teledyne Dental Products, a manufacturer of dental
products and a division of Teledyne, Inc. Prior to
1971, Vice President and Director of Marketing of
Sherwood Medical, Inc., a medical device company.
Also, Secretary and a director of Precision.
Richard T. Niner 59 Director of the Company since 1982. General
partner since 1985 of Brynwood Management and
since 1988 of Brynwood Management II L.P.,
entities that serve as general partners of two
private investment partnerships based in
Greenwich, Connecticut. Director of Air Express
International Corporation, an international air
freight forwarder, and Hurco Companies, Inc., a
manufacturer of computer numerical controls
("CNC") and CNC metal working machines. Also, a
director of Precision.
Board of Directors and Committees of the Board
The Board of Directors conducts its business through meetings of the Board
and through activities of its committees. The Board of Directors held seven
meetings during fiscal 1998. All of the directors attended at least 75% of the
meetings of the Board and any committee on which they served during fiscal 1998.
Among the committees of the Board are the Audit
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<PAGE>
Committee and the Human Resources Committee (formerly designated as the
Compensation Committee).
The Audit Committee, among other things, recommends the firm to be
appointed as independent accountants to audit the Company's financial
statements, discusses the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants the
Company's interim and year-end operating results, considers the adequacy of the
internal accounting controls and audit procedures of the Company and reviews the
non-audit services to be performed by the independent accountants. The members
of the Audit Committee currently are Carl G. Anderson, Jr., Richard T. Niner,
who acts as Chairman of the Committee, and Alan M. Sebulsky, none of whom are
employees of the Company. The Audit Committee met two times during the fiscal
year ending August 31, 1998.
The Human Resources Committee reviews and recommends the compensation
arrangements for executive management of the Company, including salaries,
bonuses and grants of awards under, and administration of, the Company's 1992
Stock Incentive Plan. The Human Resources Committee selects employees to whom
awards will be made under the 1992 Stock Incentive Plan, determines the number
of shares to be optioned or awarded, and the time, manner of exercise and other
terms of the awards. The members of the Human Resources Committee currently are
George W. Ebright, who acts as Chairman of the Committee, John E. Gurski, R.
James Macaleer and Mr. Niner. The Human Resources Committee met three times
during fiscal 1998.
Compensation of Directors
The Company's directors who are not officers or employees of the Company
receive a quarterly fee of $3,500 for Board membership, a fee of $1,000 for
attendance at each Board meeting and a fee of $500 for attendance at each
Committee meeting. Directors are reimbursed for reasonable expenses incurred in
connection with attending Board and Committee meetings. The Chairmen of the
Audit Committee and the Human Resources Committee each receive an additional fee
of $2,000 per year.
To promote the Company's ability to attract and retain outside directors
and to provide them with an incentive to maintain and enhance the Company's
long-term performance, stock awards are made to directors who are not also
employees or consultants of the Company and who were not shareholders of the
Company at the time of the Company's initial public offering on June 9, 1992.
The stock awards are made pursuant to the Company's Directors Stock Incentive
Plan in the form of non-qualified stock options. The plan was approved by the
Company's shareholders at the Company's Annual Meeting of Shareholders held on
January 17, 1996, on which date the plan became effective (the "Effective
Date"). On the later of the Effective Date or upon an eligible director's first
election to the Board, such eligible director receives options to purchase 5,000
shares of Common Stock. On the date each year when directors are elected to the
Board, eligible directors receive options to purchase an additional 500 shares
of Common Stock. The exercise price for each option is equal to the fair market
value of the Common Stock on the date of grant. Each option has a term of ten
years from the date of grant and vests on the first anniversary of the date of
grant.
Messrs. Anderson, Ebright, Gurski and Sebulsky were the only directors
eligible to receive awards under the plan during fiscal 1998. After being
elected to the Company's Board of Directors at the Company's Annual Meeting of
Shareholders held on January 21, 1998,
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<PAGE>
Mr. Anderson was granted options pursuant to the plan to purchase 5,000 shares
of Common Stock at an exercise price of $38.375. In addition, on such date, each
of Messrs. Ebright, Gurski and Sebulsky was granted options pursuant to the plan
to purchase 500 shares of Common Stock at such exercise price. Mr. Macaleer did
not receive any stock awards under the plan because he was a shareholder of the
Company at the time of its initial public offering on June 9, 1992. In
accordance with the terms of the plan, on the date of the Annual Meeting, each
of Messrs. Anderson, Ebright, Gurski and Sebulsky will receive options to
purchase an additional 500 shares of Common Stock, in each case at an exercise
price equal to the closing price per share of the Common Stock on such date as
reported on The Nasdaq Stock Market.
Executive Officers
The executive officers of the Company, their positions with the Company,
business history and certain other information, as of November 30, 1998, are set
forth below.
Name Office Age
- ---- ------ ---
Marlin Miller, Jr. President and Chief Executive Officer 66
Raymond Neag Executive Vice President 67
Frederick J. Hirt Vice President - Finance, Chief Financial 51
Officer and Treasurer
T. Jerome Holleran Secretary 62
Philip B. Fleck Vice President - Research and Manufacturing 54
Paul L. Frankhouser Vice President - Marketing 53
Thomas D. Nickel Vice President - Regulatory Affairs and Quality 59
Assurance
Scott A. Hurley Controller 40
Marlin Miller, Jr. has served as President and Chief Executive Officer and
a director of the Company since it was founded in 1975. From 1972 to 1975, Mr.
Miller served as Vice President and a director of Connors Investor Services, a
research and investment management firm. From 1959 to 1972, Mr. Miller served as
Executive Vice President and a director of Glen Gery Corporation, a manufacturer
of building products. Mr. Miller is also President and a director of Precision,
and during fiscal 1998 devoted approximately 1% of his business time to
Precision. See "Certain Transactions." He is a director of Carpenter Technology
Corporation, a manufacturer of specialty steel.
Raymond Neag has served as Executive Vice President since 1992 and prior
thereto served as Senior Vice President of the Company. Mr. Neag as been an
officer and a director of the Company since it was founded in 1975. From 1973
until joining the Company, Mr. Neag served as General Manager of the Rockwell
Division. From 1971 to 1973, Mr. Neag was President of Teledyne Dental Products,
a manufacturer of dental products, which was a division of Teledyne, lnc. Prior
to 1971, Mr. Neag was Vice President and Director of Marketing of Sherwood
Medical, Inc., a medical device company. Mr. Neag also serves as Secretary and a
director of Precision.
Frederick J. Hirt has served as Vice President-Finance, Chief Financial
Officer and Treasurer of the Company since August 1998. Prior to joining the
Company, Mr. Hirt served in various capacities with Pharmacia & Upjohn, Inc.
from 1980 through June 1998, where he most
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<PAGE>
recently served as Vice President, Accounting and Reporting. Prior thereto, Mr.
Hirt was employed in the Chicago office of Coopers & Lybrand from 1972 to 1980.
T. Jerome Holleran has served as Secretary and a director of the Company
since it was founded in 1975 and, until September 1997, also served as a Vice
President of the Company. Since July 1996, Mr. Holleran has also served as
President and Chief Executive Officer of PMP, a former subsidiary of Precision
that manufactures and markets certain non-catheter medical products that was
sold in August 1997 to certain management employees of Precision (including Mr.
Holleran). See "Certain Transactions." From February 1986 to September 1997, Mr.
Holleran was also Vice President, Chief Operating Officer and a director of
Precision. Mr. Holleran also served as President of Endovations, Inc., a former
subsidiary of Precision that manufactured and marketed certain
gastroenterological medical products, from 1991 until the sale in June 1996 of a
portion of the Endovations business to the Company and the remainder to an
unrelated third party. From 1971 to 1975, Mr. Holleran served as Director of
Business Planning-Textile Divisions of Rockwell International Corporation and as
a Marketing Manager of the Rockwell Division. From 1969 to 1971, Mr. Holleran
was employed as a consultant by Booz, Allen and Hamilton.
Philip B. Fleck has served as Vice President-Research and Manufacturing
since June 1994 and prior thereto served as Vice President-Research and
Engineering of the Company since 1986. From 1975 to 1986, Mr. Fleck served as
Engineering Manager of the Company. From 1971 to 1975, Mr. Fleck served as
Equipment Design Manager and Engineering Manager of the Rockwell Division. From
1967 to 1971, Mr. Fleck served as Manufacturing Development Engineer of Atlas
Chemical Industries, a manufacturer of aerospace components.
Paul L. Frankhouser has served as Vice President-Marketing of the Company
since 1986. From 1980 to 1986, Mr. Frankhouser served as Manager of Marketing of
the Company. From 1977 to 1980, Mr. Frankhouser served as Product
Manager-Medical Devices of the Company. From 1975 to 1977, Mr. Frankhouser
served as Manager of Medical Products and Process Development of the Company.
Prior to 1975, Mr. Frankhouser served as a Project Engineer of the Rockwell
Division.
Thomas D. Nickel has served as Vice President-Regulatory Affairs and
Quality Assurance of the Company since 1991. From 1986 to 1991, Mr. Nickel
served as Director of Regulatory Affairs and Quality Assurance of the Company.
Prior to joining the Company, Mr. Nickel served as Director of Regulatory
Affairs and Quality Assurance of Omnis Surgical, Inc., a former subsidiary of
Baxter International, Inc. that manufactured anesthesiological and other related
products.
Scott W. Hurley has served as Controller of the Company since April 1998.
Prior to joining the Company, Mr. Hurley served in various capacities with
Rhone-Poulenc Rorer from 1990 to April 1998, where he most recently served as a
Director of Finance.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of November 30, 1998, the beneficial
ownership of Common Stock by (i) each director and director nominee who is a
shareholder, (ii) each of the executive officers named in the Summary
Compensation Table below, (iii) all directors and officers as a group (including
the named individuals), and (iv) each beneficial owner of more than 5% of the
outstanding Common Stock. Except as otherwise indicated in the notes immediately
following
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the table, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable.
<TABLE>
<CAPTION>
Amount Percent of
Name Beneficially Owned Class Owned
- ---- ------------------ -----------
<S> <C> <C>
Marlin Miller, Jr ............................................ 4,150,100(1) 17.9%
Richard T. Niner ............................................. 3,149,737(2) 13.6
Raymond Neag ................................................. 1,992,000 8.6
John H. Broadbent, Jr ........................................ 940,940(3) 4.1
T. Jerome Holleran ........................................... 670,463(4) 2.9
Paul L. Frankhouser .......................................... 52,367(5) *
Philip B. Fleck .............................................. 45,100(6) *
Frederick J. Hirt ............................................ 1,000(7) *
R. James Macaleer ............................................ 39,375 *
George W. Ebright ............................................ 6,500(8) *
Alan M. Sebulsky ............................................. 7,500(9) *
John E. Gurski ............................................... 5,500(10) *
Carl G. Anderson, Jr ......................................... 6,750(11) *
All directors and officers as a group (15
persons) .................................................. 11,071,332(12) 47.7
Robert L. McNeil, Jr ......................................... 2,328,244(13) 10.0
Richard T. Niner and Robert W. Cruickshank, as
Trustees of the Robert L. McNeil, Jr. 1983
Intervivos Trust dated
November 30, 1983 ......................................... 2,312,247 10.0
c/o Morgan Guaranty Trust Company of New York
9 West 57th Street
New York, New York 10019
Attention: Mr. Eugene Wilks
</TABLE>
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* Less than one percent.
(1) Includes 1,000 shares owned by Mr. Miller's wife, as to which Mr. Miller
disclaims beneficial ownership. Also includes 100,000 shares held by a
charitable foundation of which Mr. Miller is one of five trustees who have
shared power to vote and dispose of the shares of Common Stock held by such
foundation.
(2) Shares beneficially owned include an aggregate of 9,075 shares owned by Mr.
Niner's wife and two children, as to which Mr. Niner disclaims beneficial
ownership, 10,000 shares held by a charitable foundation of which Mr. Niner
is an officer and a director with power to vote and dispose of the shares
of Common Stock held by such foundation, as to which shares Mr. Niner
disclaims beneficial ownership, and 2,312,247 shares held by Hare & Co., as
nominee for the Robert L. McNeil, Jr. 1983 Intervivos Trust (the "McNeil
Trust"), of which Mr. Niner is one of two trustees who have shared power to
vote and dispose of the shares of Common Stock held in such trust.
(footnotes continued on next page)
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<PAGE>
(footnotes continued from previous page)
(3) Includes an aggregate of 16,350 shares owned by Mr. Broadbent's wife and
stepchild, as to which Mr. Broadbent disclaims beneficial ownership. Also
includes 31,300 shares held by a charitable foundation of which Mr.
Broadbent is one of three trustees who have shared power to vote and
dispose of the shares of Common Stock held by such foundation.
(4) Includes 25,000 shares owned by Mr. Holleran's wife, as to which Mr.
Holleran disclaims beneficial ownership.
(5) Includes 300 shares owned by Mr. Frankhouser's children, as to which Mr.
Frankhouser disclaims beneficial ownership. Also includes 8,000 shares
issuable upon the exercise of vested options and options which are deemed
to be presently exercisable. Does not include 12,000 shares issuable upon
the exercise of options which are not deemed to be presently exercisable.
(6) Includes 10,000 shares owned by Mr. Fleck's wife, as to which Mr. Fleck
disclaims beneficial ownership. Also includes 8,000 shares issuable upon
the exercise of vested options and options which are deemed to be presently
exercisable. Does not include 12,000 shares issuable upon the exercise of
options which are not deemed to be presently exercisable.
(7) Does not include 10,000 shares issuable upon the exercise of options which
are not deemed to be presently exercisable.
(8) Includes 6,000 shares issuable upon the exercise of vested options and
options which are deemed to be presently exercisable.
(9) Includes 5,500 shares issuable upon the exercise of options which are
deemed to be presently exercisable.
(10) Consists solely of shares issuable upon the exercise of options which are
deemed to be presently exercisable.
(11) Includes 5,000 shares issuable upon the exercise of options which are
deemed to be presently exercisable.
(12) See footnotes (1) through (11) above. Also includes 4,000 shares issuable
upon the exercise of vested options and options which are deemed to be
presently exercisable granted to an executive officer. Does not include an
aggregate of 10,000 shares issuable upon the exercise of options granted to
two executive officers which are not deemed to be presently exercisable.
(13) Includes 96,400 shares held by a charitable foundation of which Mr. McNeil,
a former director of the Company, is the president and one of four
directors who have shared power to vote and dispose of the shares of Common
Stock held by such foundation. Excludes 2,312,247 shares held by Hare &
Co., as nominee for the McNeil Trust, of which Mr. McNeil was the grantor
for the benefit of Mr. McNeil and his lineal descendants. Mr. McNeil
disclaims beneficial ownership of such shares held in the McNeil Trust.
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<PAGE>
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules promulgated thereunder require the Company's
officers and directors and persons who beneficially own more than ten percent of
a registered class of the Company's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
("SEC") and to furnish to the Company copies of all such filings. The Company
has determined, based solely upon a review of (i) those reports and amendments
thereto furnished to the Company during and with respect to the year ended
August 31, 1998, and (ii) written representations from certain reporting
persons, that there has been compliance with all Section 16(a) filing
requirements applicable to such officers, directors and ten percent beneficial
owners for such fiscal year.
EXECUTIVE COMPENSATION
The following table summarizes, for the Company's past three fiscal years,
all compensation paid to the Company's Chief Executive Officer and each of the
four most highly compensated other executive officers of the Company other than
the Chief Executive Officer as of August 31, 1998 for services rendered to the
Company in all capacities.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation(1) Compensation(1)
---------------------------- ------------------------
Restricted Securities
Name and Fiscal Stock Underlying All Other
Principal Position Year Salary($) Bonus($)(2) Awards($) Options(#) Compensations($)
------------------ ------ --------- ------------- ------------ ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Marlin Miller, Jr 1998 346,392(3) 106,931 -0- -0- 198,690(4)
President and Chief 1997 313,397(3) 216,739 -0- -0- 198,674(4)
Executive Officer 1996 284,116(3) -0- -0- -0- 197,355(4)
Raymond Neag 1998 251,124 68,908 -0- -0- 119,842(5)
Executive Vice 1997 239,160 139,669 -0- -0- 110,382(5)
President 1996 228,864 -0- -0- -0- 113,327(5)
John H. Broadbent, Jr.(6) 1998 216,492(7) 59,405 -0- -0- 75,033(8)
Vice President-Finance 1997 195,875(7) 120,411 -0- -0- 68,714(8)
and Treasurer 1996 177,574(7) -0- -0- -0- 70,734(8)
Philip B. Fleck 1998 190,092 61,664 -0- 10,000(9) 4,888(10)
Vice President-Research and 1997 181,044 101,998 -0- -0- 3,000(10)
Manufacturing 1996 173,250 24,272 -0- 10,000(11) 4,733(10)
Paul L. Frankhouser 1998 190,092 61,664 -0- 10,000(12) 15,839(13)
Vice President - Marketing 1997 181,044 101,998 -0- -0- 3,009(10)
1996 173,250 24,272 -0- 10,000(14) 4,556(10)
Frederick J. Hirt(15) 1998 16,667(16) 3,430(16) -0- 10,000(17) -0-
Vice President-Finance,
Chief Financial Officer and
Treasurer
</TABLE>
- ----------
(1) Column with respect to "Other Annual Compensation" has not been included in
this table because there has been no such Other Annual Compensation awarded
to, earned by or paid to any of the executive officers named above for any
fiscal year covered in the table.
(footnotes continued on next page)
-11-
<PAGE>
(footnotes continued from previous page)
(2) Includes annual incentive and profit sharing bonuses earned with respect to
fiscal 1997, part of which were paid in fiscal 1998.
(3) In addition, Precision paid $3,464, $16,495 and $31,568 as salary to Mr.
Miller in fiscal 1998, 1997 and 1996, respectively, in respect of Mr.
Miller's devotion of approximately 1%, 5% and 10% of his business time to
Precision during each of fiscal 1998, 1997 and 1996, respectively. See
"Certain Transactions."
(4) Consists of (i) matching contributions in the amount of $4,790, $3,000 and
$4,294 made by the Company to Mr. Miller's account under the Company's
401(k) Plan in fiscal 1998, 1997 and 1996, respectively, and (ii) insurance
premiums in the amount of $193,900, $195,674 and $193,061 paid by the
Company in fiscal 1998, 1997 and 1996, respectively, in respect of term
life insurance policies owned by certain trusts established by Mr. Miller,
which premium payments must be repaid to the Company from either (a) the
cash surrender value of such policies or (b) the death benefits of such
policies.
(5) Consists of (i) matching contributions in the amount of $4,910, $3,000 and
$4,765 made by the Company to Mr. Neag's account under the Company's 401(k)
Plan in fiscal 1998, 1997 and 1996, respectively, and (ii) insurance
premiums in the amount of $114,932, $107,382 and $108,562 paid by the
Company in fiscal 1998, 1997 and 1996, respectively, in respect of the term
life insurance policies owned by certain trusts established by Mr. Neag,
which premium payments must be repaid to the Company from either (a) the
cash surrender value of such policies or (b) the death benefit of such
policies.
(6) Mr. Broadbent retired as Vice President-Finance, Chief Financial Officer
and Treasurer of the Company effective as of August 4, 1998.
(7) In addition, Precision paid $2,165, $10,309 and $19,730 as salary to Mr.
Broadbent in fiscal 1998, 1997 and 1996, respectively, in respect of Mr.
Broadbent's devotion of approximately 1%, 5% and 10% of his business time
to Precision during each of fiscal 1998, 1997 and 1996, respectively. See
"Certain Transactions."
(8) Consists of (i) matching contributions in the amount of $4,887, $3,000 and
$4,745 made by the Company to Mr. Broadbent's account under the Company's
401(k) Plan in fiscal 1998, 1997 and 1996, respectively, and (ii) insurance
premiums in the amount of $70,146, $65,714 and $65,989 paid by the Company
in fiscal 1998, 1997 and 1996, respectively, in respect of term life
insurance policies owned by a certain trust established by Mr. Broadbent,
which premium payments must be repaid to the Company from either (a) the
cash surrender value of such policies or (b) the death benefits of such
policies.
(9) Represents an award to Mr. Fleck on September 9, 1997 of incentive stock
options to purchase 10,000 shares of Common Stock at an exercise price of
$31.875 per share under the Company's 1992 Stock Incentive Plan. Subject to
Mr. Fleck's continued employment with the Company, 20% (i.e., 2,000
options) of such stock option award will vest on each of the first through
the fifth anniversary of the date of such award (i.e., September 9). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(footnotes continued on next page)
-12-
<PAGE>
(footnotes continued from previous page)
(10) Represents matching contributions made by the Company to the account of
each of Messrs. Fleck and Frankhouser under the Company's 401(k) Plan in
fiscal 1998, 1997, and 1996, respectively.
(11) Represents an award to Mr. Fleck on January 17, 1996 of incentive stock
options to purchase 10,000 shares of Common Stock at an exercise price of
$38.00 per share under the Company's 1992 Stock Incentive Plan. Subject to
Mr. Fleck's continued employment with the Company, 20% (i.e., 2,000
options) of such stock option award will vest on each of the first through
the fifth anniversary of the date of such award (i.e., January 17). The
options are subject to immediate vesting upon the occurrence of certain
change in control events.
(12) Represents an award to Mr. Frankhouser on September 9, 1997 of incentive
stock options to purchase 10,000 shares of Common Stock at an exercise
price of $31.875 per share under the Company's 1992 Stock Incentive Plan.
Subject to Mr. Frankhouser's continued employment with the Company, 20%
(i.e., 2,000 options) of such stock option award will vest on each of the
first through the fifth anniversary of the date of such award (i.e.,
September 9). The options are subject to immediate vesting upon the
occurrence of certain change in control events.
(13) Consists of (i) a matching contribution in the amount of $4,870 made by the
Company to Mr. Frankhouser's account under the Company's 401(k) Plan in
fiscal 1998 and (ii) a payment of $10,969 made to Mr. Frankhouser in fiscal
1998 in respect of his accrued but unused vacation allowance.
(14) Represents an award to Mr. Frankhouser on January 17, 1996 of incentive
stock options to purchase 10,000 shares of Common Stock at an exercise
price of $38.00 per share under the Company's 1992 Stock Incentive Plan.
Subject to Mr. Frankhouser's continued employment with the Company, 20%
(i.e., 2,000 options) of such stock option award will vest on each of the
first through the fifth anniversary of the date of such award (i.e.,
January 17). The options are subject to immediate vesting upon the
occurrence of certain change in control events.
(15) Mr. Hirt joined the Company as Vice President-Finance, Chief Financial
Officer and Treasurer on August 3, 1998. Accordingly, no information is
provided for periods prior to such date with respect to Mr. Hirt.
(16) Represents the pro rata portion of annual salary and bonus paid to Mr. Hirt
from August 3, 1998, the date he joined the Company, to and including
August 31, 1998.
(17) Represents an award to Mr. Hirt on August 3, 1998 of incentive stock
options to purchase 10,000 shares of Common Stock at an exercise price of
$27.75 per share under the Company's 1992 Stock Incentive Plan. Subject to
Mr. Hirt's continued employment with the Company, 20% (i.e., 2,000 options)
of such stock option award will vest on each of the first through the fifth
anniversary of the date of such award (i.e., August 3). The options are
subject to immediate vesting upon the occurrence of certain change in
control events.
-13-
<PAGE>
Option Grants
The following table sets forth certain information, as of August 31, 1998,
concerning individual grants of stock options made during the fiscal year ended
August 31, 1998 to the persons named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998
Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
---------------------------------------------------------------------- --------------------------
Percent of
Total Options
Number of Securities Granted to
Underlying Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year (1) Price ($/sh) Date 5% 10%
---- -------------------- --------------- ------------ ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Philip B. Fleck 10,000(2) 5.5% $ 31.875 09/09/07 $200,460 $508,005
Paul L. Frankhouser 10,000(2) 5.5 31.875 09/09/07 200,460 508,005
Frederick J. Hirt 10,000(3) 5.5 27.75 08/03/08 174,518 442,264
</TABLE>
- ----------
(1) Based upon total grants of options in respect of 180,900 shares of Common
Stock made during fiscal 1998.
(2) Granted pursuant to the Company's 1992 Stock Incentive Plan on September 9,
1997. Subject to continued employment by the Company, 20% (i.e., 2,000) of
such options will vest on each of the first through the fifth anniversary
of such date. The options are subject to immediate vesting upon the
occurrence of certain change in control events.
(3) Granted pursuant to the Company's 1992 Stock Incentive Plan on August 3,
1998. Subject to continued employment by the Company, 20% (i.e., 2,000) of
such options will vest on each of the first through the fifth anniversary
of such date. The options are subject to immediate vesting upon the
occurrence of certain change in control events.
Aggregate Year-End Option Values
The following table provides information concerning stock options exercised
during fiscal 1998 and the number of unexercised options held by the individuals
named in the Summary Compensation Table as of August 31, 1998. As of August 31,
1998, there were no unexercised, "in the money" options because the respective
exercise prices of such options exceeded the fair market value of the Common
Stock as of such date.
-14-
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Fiscal 1998 and Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised Options In-the-Money Options
August 31, 1998 (#) at August 31, 1998($)(1)
------------------------------- -----------------------------
Shares
Acquired on
Name Exercise (#) Value Realized ($) Exercisable Unexercisable Exercisable Unexercisable
-------- -------------- ------------------ ------------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
Philip B. Fleck -- -- 8,000 12,000 -- --
Paul L. Frankhouser -- -- 8,000 12,000 -- --
Frederick J. Hirt -- -- -- 10,000 -- --
</TABLE>
- ----------
(1) Based upon a closing price of the Common Stock of $27.125 per share on
August 31, 1998 as reported on The Nasdaq Stock Market and option exercise
prices of $38.00 and $31.875, in the case of options held by Messrs. Fleck
and Frankhouser, and $27.75, in the case of options held by Mr. Hirt, none
of the options are currently "in the money."
Retirement Plan
The Retirement Plan for Salaried Employees of Arrow International, Inc.
became effective on September 1, 1978, and was amended and restated as of
September 1, 1984 and September 1, 1989 (the "Retirement Plan"). The Retirement
Plan is a non-contributory defined benefit pension plan intended to be qualified
under Section 401(a) of the Internal Revenue Code. The Retirement Plan covers
salaried employees of the Company who have attained age 21 and completed one
year of service and provides benefits based upon years of service and
compensation. All of the executive officers of the Company participate in the
Retirement Plan. Benefits under the Retirement Plan are based on an annual rate
of 1.25% of a participant's final average earnings multiplied by such
participant's years of credited service with the Company after September 1,
1975. Final average earnings are defined under the Retirement Plan as the
participant's average annual compensation, excluding discretionary bonuses and
subject to annual limitations on compensation under the Internal Revenue Code,
during the 60 consecutive months in the final 120 months of the participant's
employment which produce the highest average. Since 1989, Internal Revenue Code
provisions have limited the amount of annual compensation that can be used for
calculating pension benefits. In 1998, no more than $160,000 of annual salary
can be used to determine an employee's annual benefit accrual. The Internal
Revenue Service adjusts this figure annually. Benefits under the Retirement Plan
are payable upon normal retirement, which is the later of age 65 or the fifth
anniversary of commencing plan participation, early retirement at age 55
following ten years of service, death, disability or other termination of
employment following five years of vesting service, and may be paid under
various annuity forms of payment.
Contributions to the Retirement Plan for any year depend on the assumptions
used by the actuary for the Retirement Plan, historic investment experience and
the level of prior years' funding. The annual contribution made by the Company
to the Retirement Plan for fiscal 1996, 1997 and 1998 was $549,199, $537,765,
and $392,476, respectively, equivalent to approximately 3.1% for fiscal 1996,
2.8% for fiscal 1997 and 1.6% for fiscal 1998 of the covered compensation of all
participants in the plan. The amount of the contribution, payment or account in
respect of a specified person is not and cannot readily be separately or
individually calculated by the actuary of the Retirement Plan. The executive
officers of the Company named in the Summary
-15-
<PAGE>
Compensation Table currently have the following years of credited service for
purposes of the Pension Plan: each of Messrs. Miller, Neag, Broadbent, Fleck and
Frankhouser has 23 years and Mr. Hirt has no years. The following table shows
the estimated annual benefits payable upon retirement at normal retirement age
for each level of remuneration specified at the listed years of service.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Years of Service
---------------------------------------------------------------------------------------
Remuneration (1) 15 20 25 30 35
---------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000 ....................... $18,750 $25,000 $28,750 $28,750 $28,750
150,000 ....................... 28,125 37,500 43,125 43,125 43,125
200,000 ....................... 30,000 40,000 46,000 46,000 46,000
250,000 ....................... 30,000 40,000 46,000 46,000 46,000
300,000 ....................... 30,000 40,000 46,000 46,000 46,000
350,000 ....................... 30,000 40,000 46,000 46,000 46,000
400,000 ....................... 30,000 40,000 46,000 46,000 46,000
450,000 ....................... 30,000 40,000 46,000 46,000 46,000
500,000 ....................... 30,000 40,000 46,000 46,000 46,000
550,000 ....................... 30,000 40,000 46,000 46,000 46,000
</TABLE>
- ----------
(1) Under current Internal Revenue Code provisions, no more than $160,000 of
annual salary can be used to determine an employee's annual benefit
accrual. The Internal Revenue Service adjusts this figure annually.
HUMAN RESOURCES COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Human Resources Committee reviews and establishes, subject to approval
of the Board of Directors, the compensation arrangements for executive
management of the Company, including salaries, bonuses and grants of awards
under, and administration of, the Company's 1992 Stock Incentive Plan. The Human
Resources Committee is currently composed of four non-employee directors of the
Company.
Compensation Philosophy
Arrow International's executive compensation program is designed to
attract, retain, motivate and reward effective executive officers and to link
executive compensation with the attainment of financial, operational and
strategic objectives. In establishing the program, the Human Resources Committee
assesses the performance of individuals and the Company relative to those
objectives.
The Company's compensation program generally provides incentives to achieve
annual and long-term objectives. The principal elements of the compensation
program are base salary, annual incentive bonuses and long-term incentive awards
in the form of stock options, stock appreciation rights and/or grants of
restricted Common Stock. These elements generally are blended in order to
formulate compensation packages which provide competitive pay, reward the
achievement of financial, operational and strategic objectives and align the
interests of the
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<PAGE>
Company's executive officers and other higher level personnel with those of the
Company's shareholders.
Compensation Components
Base Salary. Base salary levels for executive officers are derived from
market comparisons with similarly-sized companies engaged in the manufacture of
medical products for the health care industry with which the Company competes
for executive talent. The Human Resources Committee believes that the Company's
most direct competitors for this purpose are not necessarily all of the
companies that would be included in a peer group established to compare
shareholder returns. Therefore, the compensation peer group is not the same as
the peer group index set forth in the Company Stock Performance Graph included
in this Proxy Statement. Based on information currently available to the Human
Resources Committee, the Human Resources Committee believes that base salary
levels for executive officers, including the Chief Executive Officer, are, on
average, at or near the median of base salary levels for executive officers of
similar companies. In determining executive officers' salaries, the Human
Resources Committee also considers individual experience and prior service to
the Company, level of responsibility and overall job performance. The Human
Resources Committee does not assign weights to these factors nor necessarily
consider any one more important than the others. The Human Resources Committee
reviews the performance of the Chief Executive Officer and, in determining his
level of compensation for fiscal 1998, in addition to consideration of industry
comparisons and individual performance, has taken particular note of the
Company's achievements in fiscal 1998 in the following key areas: management
efficiency; the successful introduction of new products into the market and the
advancement of products under development; continued expansion of the Company's
international production and marketing presence; and the Company's overall
growth and profitability.
Annual Incentive Bonuses. Annual incentive bonuses are based on two plans:
a Company-wide corporate profit sharing plan (the "Profit Sharing Plan") and a
pretax income growth plan limited to certain executive officers (the "Income
Growth Bonus Plan").
Each year of the Profit Sharing Plan begins on November 1st. For purposes
of determining the amounts available for distribution under the Profit Sharing
Plan, during each month of each plan year the pre-tax income of the Company,
excluding royalty revenue, profit sharing expense and other extraordinary income
and expense, for the current and two immediately preceding months is averaged,
and a fixed percentage of this average is allocated to the Profit Sharing Plan.
The amount allocated to the Profit Sharing Plan is apportioned to each
participating employee in proportion to the fraction that such employee's
compensation for that month represents of the total monthly compensation for all
plan participants. Each month the Company distributes to each plan participant
75% of the plan proceeds allocable to such participant, while the remainder of
such amount is accumulated for the benefit of such participant and paid out on
an annual basis in December of the immediately following plan year. Messrs.
Miller, Neag and Broadbent and the Company's field sales representatives do not
participate in the Profit Sharing Plan.
Pursuant to the Income Growth Bonus Plan, at the discretion of the Human
Resources Committee, Messrs. Miller, Neag, Broadbent (prior to his resignation
as an executive officer of the Company in August 1998), Hirt, Fleck and
Frankhouser are eligible to receive annual incentive bonuses equal to 4.5, 4.0,
4.0, 3.0, 3.0 and 3.0 times, respectively, the percentage growth in pretax
income, exclusive of extraordinary income and expense, of the Company over the
-17-
<PAGE>
previous year times their respective base pay. For fiscal 1998, the Company's
pre-tax income, exclusive of extraordinary income and expense, increased 6.9%
over fiscal 1997, resulting in an incentive bonus of 30.9% of base pay to Mr.
Miller, 27.4% of base pay to each of Messrs. Neag and Broadbent and 20.6% of
base pay to each of Messrs. Fleck, Frankhouser and Hirt. The Human Resources
Committee believes that payment of such bonuses specifically linked to the
growth in profitability of the Company provides appropriate and effective
rewards for successful individual performances that contribute directly to the
overall success of the Company. Therefore, it is the present intention of the
Human Resources Committee to approve payment of incentive bonuses in fiscal 1999
to the eligible senior executive officers of the Company pursuant to the Income
Growth Bonus Plan to the extent that the Company in fiscal 1999 achieves an
increase in pretax income, exclusive of extraordinary income and expense, over
fiscal 1998.
Long-Term Incentive Awards. To promote the Company's long-term objectives,
stock awards are made to executive officers and other employees who are in a
position to make a significant contribution to the Company's long-term success.
The stock awards are made pursuant to the Arrow International, Inc. 1992 Stock
Incentive Plan in the form of stock options, stock appreciation rights ("SARs")
and grants of restricted Common Stock. Up until May 31, 1992 when such plan
terminated, grants of restricted shares of the Company's previously outstanding
Class A Common Stock were made pursuant to the Company's Restricted Stock Bonus
Plan. Executive officers of the Company who were shareholders of the Company
other than through participation in the Restricted Stock Bonus Plan, including
Messrs. Miller, Neag, Broadbent and Holleran, were ineligible to receive awards
of restricted stock under this plan.
Since the stock options, SARs and restricted stock awards vest and may grow
in value over time, these components of the Company's compensation plan are
designed to reward performance over a sustained period. The Company intends that
these awards will strengthen the focus of its executives and other key employees
on managing the Company from the perspective of a person with an equity stake in
the Company. The Human Resources Committee believes that, as a founder and
principal shareholder of the Company, each of Messrs. Miller, Neag and Broadbent
currently have sufficient incentive to promote the long-term growth of the
Company and, therefore, none of such executive officers has, to date, received
any stock awards.
Stock awards are not granted each year. In selecting recipients and the
size of stock awards, the Human Resources Committee generally considers various
factors such as the overall job performance and potential of the recipient,
prior grants to and amount of Common Stock currently held by the recipient,
prior service to the Company, a comparison of awards made to executives and key
employees in comparable positions at similar companies, and the Company's
performance. In fiscal 1998, each of Messrs. Fleck, Frankhouser and Hirt were
awarded incentive stock options to purchase 10,000 shares of Common Stock under
the Company's 1992 Stock Incentive Plan. Other executive officers of the Company
were awarded incentive stock options to purchase an aggregate of 9,000 shares of
Common Stock under the plan during fiscal 1998. The Company awarded to executive
officers and other key employees of the Company incentive stock options to
purchase a total of 180,900 shares of Common Stock under the plan during fiscal
1998. In selecting the recipients and size of these awards, the Human Resources
Committee placed particular emphasis on such executives' and key employees'
overall job performance, their potential for continued excellent service and
significant contribution to the Company's growth and profitability during fiscal
1998 and awards to individuals who had previously not been selected due to
insignificant length of service to the Company. As a result of such awards and
stock awards made prior to fiscal 1998, each of the Company's executive officers
who were not also founders of the Company, as well as a significant number of
non-
-18-
<PAGE>
executive employees of the Company, have been afforded the opportunity to enjoy
an equity stake in the Company as part of their long-term compensation.
Tax Deductibility of Executive Compensation. Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), imposes limitations on the
federal income tax deductibility of compensation paid to the Company's chief
executive officer and to each of the other four most highly compensated
executive officers of the Company. Under these limitations, the Company may
deduct such compensation only to the extent that during any fiscal year the
compensation does not exceed $1,000,000 or meets certain specified conditions
(such as certain performance-based compensation that has been approved by the
Company's shareholders). Based on the Company's current compensation plans and
policies and proposed regulations interpreting the Code, the Company and the
Human Resources Committee believe that, for the near future, there is not a
significant risk that the Company will lose any significant tax deduction for
executive compensation. The Company's compensation plans and policies will be
modified to ensure full deductibility of executive compensation if the Company
and the Human Resources Committee determine that such an action is in the best
interests of the Company.
HUMAN RESOURCES COMMITTEE
George W. Ebright, Chairman
John E. Gurski
R. James Macaleer
Richard T. Niner
-19-
<PAGE>
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the yearly cumulative total
shareholder return on the Common Stock with the cumulative total return of the
Standard & Poor's 500 Stock Index and the Standard & Poor's Medical Products and
Supplies Index for the period beginning on August 31, 1993 and ending on August
31, 1998. The comparison assumes $100 was invested on August 31, 1993 in the
Common Stock and in each of the foregoing indices and also assumes reinvestment
of all dividends.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
August 31, August 31, August 31, August 31, August 31, August 31,
1993 1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arrow International, Inc. $ 100.00 $ 107.01 $ 177.93 $ 116.58 $129.85 $ 119.59
S&P 500 Stock Index $ 100.00 $ 105.47 $ 128.09 $ 152.08 $ 213.90 $ 231.21
S&P Medical Products and $ 100.00 $ 116.89 $ 179.95 $ 204.75 $ 293.15 $ 324.75
Supplies Index
</TABLE>
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings made by
the Company under those statutes, the preceding Human Resources Committee Report
on Executive Compensation and the Company Stock Performance Graph will not be
incorporated by reference into any of those prior filings, nor will such report
or graph be incorporated by reference into any future filings made by the
Company under those statutes.
-20-
<PAGE>
HUMAN RESOURCES COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended August 31, 1998, the Human Resources Committee
of the Board of Directors consisted of Messrs. Ebright, Gurski, Macaleer and
Niner, none of whom is an officer or employee of the Company or any of its
subsidiaries. Each of Messrs. Ebright, Macaleer and Niner is a director of
Precision. See "Certain Transactions."
CERTAIN TRANSACTIONS
Arrow Precision Products, Inc. ("Precision") is a former subsidiary of the
Company which, prior to the sale of Precision Medical Products, Inc., the
remaining operating subsidiary of Precision ("PMP"), on August 29, 1997 to a
company owned by certain management employees of Precision (including Mr.
Holleran), was engaged in the business of manufacturing and marketing certain
gastroenterological and other non-catheter medical products. Prior to the sale
of PMP, Precision also manufactured certain other products, such as ground
needles and injection sites, primarily for use by the Company. At November 30,
1998, certain officers, directors and principal shareholders of the Company
continued to own substantially all of Precision's outstanding common stock.
The directors of Precision include Messrs. Miller, Neag, Broadbent,
Ebright, Macaleer and Niner. During fiscal 1998, Messrs. Miller and Broadbent
served as the president and the vice president-finance and treasurer of
Precision, respectively. Prior to the sale of PMP, Mr. Holleran served as the
vice president and chief operating officer and a director of Precision. Since
July 1996, Mr. Holleran has served as the president and chief executive officer
of PMP. Following the sale of PMP, Mr. Holleran no longer provides any services
to Precision. In fiscal 1998, Precision reimbursed the Company for 1% of the
salary of Messrs. Miller and Broadbent, each of whom devoted approximately 1% of
his business time to Precision. In fiscal 1998, reimbursement payments for the
services of Messrs. Miller and Broadbent amounted to $3,464 and $2,165,
respectively.
Prior to the sale of PMP, the Company (i) purchased certain non-catheter
medical products from Precision, for which the Company solicited competitive
quotations from unrelated suppliers, (ii) provided certain operating and
administrative services to Precision at rates which the Company believed to be
comparable to those which would have been charged by unrelated third parties,
(iii) maintained employee benefit accounts, including medical benefits, for
Precision's employees, at Precision's expense, and (iv) leased to Precision, on
a net lease basis, office and manufacturing space at the Company's Wyomissing,
Pennsylvania facility at rates believed by the Company to represent current
market rates.
Following the sale of PMP, in fiscal 1998, the Company no longer purchased
any products from Precision, no longer provided any operating or administrative
services to Precision and discontinued leasing office and manufacturing space to
Precision.
Although no longer an operating company following the sale of PMP,
Precision remained responsible for certain employee benefits, including pension
and retirement health care, which were payable to individuals who are currently,
or previously had been, employees of the Company. To ensure that these benefit
obligations would be satisfied in the future, the Company agreed to assume these
obligations in exchange for the transfer by Precision to the Company of
appropriate assets to satisfy such obligations. Consequently, effective as of
January 26, 1998,
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<PAGE>
Precision's two pension plans, both of which were overfunded as of August 31,
1997, were merged with the Company's pension plans covering comparable
employees. In connection with this transaction, the Company paid Precision
$2,975,000, the amount by which the value of Precision's pension plan assets
exceeded the actuarially determined present value of Precision's pension plan
obligations. In addition, Precision transferred to the Company, with no payment
by either party to the other, its rights and obligations (including, without
limitation, its obligation to pay premiums, which in fiscal 1998 amounted to
$74,829) in respect of term life insurance policies owned by certain trusts
established by Mr. Holleran, the former vice president and chief operating
officer of Precision and the Secretary and a director of the Company, which
premium payments must be repaid from either (i) the cash surrender value of such
policies or (ii) the death benefits of such policies.
In addition, in fiscal 1998, the Company made payments on behalf of
Precision in the amount of $170,000 relating to activities of Precision prior to
the sale of PMP, for which reimbursement to the Company was offset by credits of
$37,000 issued by the Company to Precision against previous charges for
utilization by Precision, as described above, of certain of the Company's
facilities, personnel and services during fiscal 1997. The Company had a net
receivable from Precision amounting to $374,629 at August 31, 1998, which the
Company expects to be paid on or prior to December 31, 1998.
In fiscal 1998, the Company made purchases amounting to $118,964 of
products from PMP that it had formerly purchased from Precision. The Company
solicits competitive quotations from unrelated suppliers for products it
purchases from PMP. In the future, the Company may continue to purchase products
from PMP, provided that the quotations the Company receives from PMP for such
products are competitive with those received from unrelated suppliers in terms
of product availability, price, quality and delivery considerations. In
addition, in fiscal 1998, the Company provided certain computer-related services
to PMP for $7,500. In the future, the Company does not expect to provide any
services to PMP.
PROPOSAL 2 - RATIFICATION OF APPOINTMENT
OF INDEPENDENT ACCOUNTANTS
The Company's independent accountants and auditors are Pricewaterhouse
Coopers L.L.P., certified public accountants. PricewaterhouseCoopers L.L.P. has
served as the Company's independent accountants and auditors since fiscal 1985.
At the Annual Meeting, the shareholders will consider and vote upon a proposal
to ratify the appointment of independent accountants for the Company's fiscal
year ending August 31, 1999. The Audit Committee of the Board of Directors has
recommended that PricewaterhouseCoopers L.L.P. be re-elected as independent
accountants for the 1999 fiscal year. The Board of Directors unanimously
recommends that shareholders vote FOR this proposal. Proxies solicited by the
Board of Directors will be voted FOR the foregoing proposal unless otherwise
indicated.
Representatives of PricewaterhouseCoopers L.L.P. will be present at the
Annual Meeting to make a statement, if desired, and to respond to appropriate
questions from shareholders.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
intend to present any matter for action at the Annual Meeting other than as set
forth in the Notice of Annual
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<PAGE>
Meeting. If any other matters properly come before the Annual Meeting, it is
intended that the holders of the proxies will act in accordance with their
judgment on such matters.
In order to be eligible for inclusion in the proxy materials for the
Company's 2000 Annual Meeting of Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's principal executive
offices by August 17, 1999.
Proposals should be directed to the Secretary of the Company at the
principal executive offices of the Company.
The cost of the solicitation of proxies will be borne by the Company. In
addition to the solicitation of proxies by mail, certain of the officers and
employees of the Company, without extra compensation therefor, may solicit
proxies personally or by telephone or telegraph. The Company will also request
brokers, banks and other nominees, custodians and fiduciaries to forward
soliciting materials to their principals and to request authority for the
execution of proxies and will reimburse such persons for forwarding such
materials.
A copy of the 1998 Annual Report accompanies this Proxy Statement.
Additional copies may be obtained from the Secretary, Arrow International, Inc.,
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612.
By Order of the Board of Directors,
T. Jerome Holleran,
Secretary
December 15, 1998
Reading, Pennsylvania
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<PAGE>
[X] Please mark your vote as in this example.
This proxy when properly executed will be voted in the manner directed therein.
If no direction is given with respect to a particular proposal, this proxy will
be voted FOR such proposal.
- --------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" proposal 2.
- --------------------------------------------------------------------------------
1. Election of Directors. (see reverse)
FOR [ ] WITHHELD [ ]
For, except vote witheld from the following nominee(s):
_____________________________________ _________________________________
2. Ratification of appointment of PricewaterhouseCoopers L.L.P. as Independent
accountants.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
- --------------------------------------------------------------------------------
Change of
Address/Comments
on Reverse Side. [ ]
The signer hereby revokes all
proxies heretofore given by the
signer to vote at said meeting
or any adjournments thereof.
NOTE: Please sign exactly as
name appears hereon. If shares
are registered in more than one
name, the signatures of all such
persons are required. A
corporation should sign its full
corporate name by a duly
authorized officer, stating
his/her title. Trustees,
guardians, executors and
administrators should sign in
their offical capacity giving
their full title as such. If a
partnership, please sign in the
partnership name by authorized
persons.
SIGNATURE(S)____________________________ DATE _______________
^ FOLD AND DETACH HERE ^
ARROW(R)
INTERNATIONAL, INC.
Annual Meeting of Shareholders
January 20, 1999
4:00 p.m.
Sheraton Berkshire Inn
Route 422 West and Papermill Road Exit
Wyomissing, Pennsylvania
<PAGE>
PROXY
ARROW INTERNATIONAL, INC.
P.O. Box 12888, 2400 Bernville Road, Reading, Pennsylvania 19612
SOLICITED BY THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF SHAREHOLDERS ON JANUARY 20, 1999
The undersigned hereby appoints Raymond Neag and T. Jerome Holleran, and each or
either of them, his/her Proxies, each with full power to appoint his/her
substitute, and hereby authorizes them to represent and to vote, as designated
hereon, all shares of capital stock of ARROW INTERNATIONAL, INC. (the "Company")
held of record by the undersigned on November 30, 1998, at the Annual Meeting of
Shareholders to be held on January 20, 1999 and any adjournments thereof, and
hereby further authorizes each of them, in their discretion, to vote upon any
other business that may properly come before the meeting.
Election of Directors, Nominees: (Change of address/Comments)
For terms expiring in 2003: ________________________________
John H. Broadbent, Jr.
George W. Ebright ________________________________
________________________________
________________________________
(If you have written in the
above space, please mark the
corresponding box on the
reverse side of this card)
You are encouraged to specify your choices by marking the appropriate boxes, SEE
REVERSE SIDE, but you need not mark any box with regard to a particular proposal
if you wish to vote FOR such proposal. The proxies cannot vote your shares
unless you sign and return this card.
-----------
SEE REVERSE
SIDE
-----------
^ FOLD AND DETACH HERE ^
