To
the
Stockholders of Arrhythmia Research Technology, Inc.:
You
are
cordially invited to attend the Annual Meeting of Stockholders of Arrhythmia
Research Technology, Inc. on Friday, May 11, 2007. The Annual Meeting will
begin
at 10:00 a.m. local time at the Chocksett Inn, 59 Laurelwood Road, Sterling,
Massachusetts.
Information
regarding each of the matters to be voted on at the Annual Meeting is contained
in the attached Proxy Statement and Notice of Annual Meeting of Stockholders.
We
urge you to read the enclosed Proxy Statement carefully. Because it is important
that your shares be voted at the Annual Meeting, we urge you to complete, date
and sign the enclosed proxy card and return it as promptly as possible in the
accompanying envelope, whether or not you plan to attend in person. If you
are a
stockholder of record and do attend the meeting and wish to vote your shares
in
person, even after returning your proxy, you still may do so.
We
appreciate your continued support of and interest in Arrhythmia Research
Technology, Inc. and are working hard to build a company that we are all proud
to own.
We
look
forward to seeing you in Sterling on May 11, 2007.
Very
truly yours,
By:
/s/ E.P. Marinos
E. P. Marinos
Chairman
of the Board
ARRHYTHMIA
RESEARCH TECHNOLOGY, INC.
25
Sawyer Passway
Fitchburg,
MA 01420
NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
To
be held Friday, May 11, 2007
TO
THE
STOCKHOLDERS OF ARRHYTHMIA RESEARCH TECHNOLOGY, INC.:
NOTICE
IS
HEREBY GIVEN that the 2007 Annual Meeting of Stockholders of Arrhythmia Research
Technology, Inc., a Delaware corporation (the ”Company”),
will
be held at the Chocksett Inn, 59 Laurelwood Road, Sterling, Massachusetts,
on
Friday, May 11, 2007, at 10:00 a.m., local time, for the following purposes,
as
described in the accompanying Proxy Statement:
| 1. |
To
elect one Class III director to hold office for three years and until
his
successor is duly elected and
qualified.
|
| 2. |
To
approve the amendment of the Arrhythmia Research Technology, Inc.
2001
Stock Option Plan to increase the number of shares of common stock
available by 200,000 shares.
|
| 3. |
To
ratify the appointment of Carlin, Charron & Rosen LLP as the Company's
independent registered public accounting firm for the fiscal year
ending
December 31, 2007.
|
| 4. |
To
transact any other business which properly may be brought before
the
Annual Meeting or any adjournment or postponement
thereof.
|
All
stockholders are cordially invited to attend the Annual Meeting of Stockholders.
Only stockholders of record of the Company at the close of business on April
2,
2007 are entitled to notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof. A complete list of these stockholders
will
be open for the examination of any stockholder of record at the Company's
principal executive offices located at 25 Sawyer Passway, Fitchburg,
Massachusetts for a period of ten days prior to the Annual Meeting. The list
will also be available for the examination of any stockholder of record present
at the Annual Meeting.
WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED.
By
Order
of the Board of Directors,
ARRHYTHMIA
RESEARCH TECHNOLOGY, INC.
/s/
E.P. Marinos
E.
P.
Marinos
Secretary
Fitchburg,
Massachusetts
April
11,
2007
TABLE
OF CONTENTS
PROXY
STATEMENT
FOR
ANNUAL
MEETING OF STOCKHOLDERS
To
be held May 11, 2007
INFORMATION
ABOUT THE ANNUAL MEETING AND VOTING
This
proxy statement and the enclosed proxy card are furnished in connection with
the
solicitation of proxies by the Board of Directors of Arrhythmia Research
Technology, Inc., a Delaware corporation (“ART”
or
the
“Company”),
for
use at the Annual Meeting of ART stockholders to be held at the Chocksett Inn,
59 Laurelwood Road, Sterling, Massachusetts, on Friday, May 11, 2007 at 10:00
a.m., local time, and at any adjournments or postponements of the Annual
Meeting. This proxy statement summarizes the information you need to make an
informed vote on the proposals to be considered at the Annual Meeting. However,
you do not need to attend the Annual Meeting to vote your shares. Instead,
you
may simply complete, sign and return the enclosed proxy card using the envelope
provided.
We
will
address the following proposals at the Annual Meeting:
| 1. |
The
election of the nominee for Class III director identified below to
serve
for three years;
|
| 2. |
The
approval of the amendment of the Arrhythmia Research Technology,
Inc. 2001
Stock Option Plan to increase the number of shares of common stock
available by 200,000 shares;
|
| 3. |
The
ratification of the appointment of Carlin, Charron & Rosen LLP as the
Company's independent registered public accounting firm for the fiscal
year ending December 31, 2007; and
|
| 4. |
Transaction
of such other business as may properly come before the Annual Meeting
or
any adjournment or postponement of the Annual
Meeting.
|
Our
Board
of Directors has taken unanimous affirmative action with respect to each of
the
foregoing proposals and recommends that the stockholders vote in favor of each
of the proposals.
We
will
send this proxy statement, the attached Notice of Annual Meeting and the
enclosed proxy card on or about April 11, 2007 to all stockholders of the
Company. Stockholders who owned shares of ART voting stock at the close of
business on April 2, 2007 (the “Record
Date”)
are
entitled to vote at the Annual Meeting on all matters properly brought before
the Annual Meeting.
On
the
Record Date, the Company had 2,711,680 shares of issued and outstanding common
stock, par value $0.01 per share (“Common
Stock”).
Each
share of Common Stock is entitled to one vote on each matter presented at the
Annual Meeting.
The
Annual Meeting will be postponed if a quorum is not present on May 11, 2007.
The
presence in person or by proxy of a majority of the voting power of outstanding
shares of capital stock of the Company as of the Record Date will constitute
a
quorum and is required to transact business at the Annual Meeting. If a quorum
is not present, the Annual Meeting may be adjourned until a quorum is
obtained.
For
purposes of determining whether the stockholders have approved matters other
than the election of directors, abstentions are treated as shares present or
represented and voting, so abstaining has the same effect as a negative vote.
Shares held by brokers who do not have discretionary authority to vote on a
particular matter and who have not received voting instructions from their
customers are not counted or deemed to be present or represented for the purpose
of determining whether stockholders have approved that matter, but they are
counted as present for the purpose of determining the existence of a quorum
at
the Annual Meeting.
1
Whether
you plan to attend the Annual Meeting or not, we urge you to complete, sign
and
date the enclosed proxy card and return it promptly in the envelope provided.
Returning the proxy card will not affect your right to attend the Annual Meeting
and vote in person.
If
you
properly fill in your proxy card and send it to us in time to vote, your proxy
(one of the individuals named on your proxy card) will vote your shares as
you
have directed. If you sign the proxy card but do not make specific choices,
your
proxy will vote your shares as recommended by the Board of Directors as
follows:
| 1. |
FOR
the nominee for Class III director identified below;
|
| 2. |
FOR
approval of the amendment
of the 2001 Stock Option Plan to increase the shares of common stock
available by 200,000 shares;
and
|
| 3. |
FOR
the ratification of the appointment of Carlin, Charron & Rosen LLP as
the Company's independent registered public accounting firm for the
fiscal
year ending December 31, 2007.
|
If
any
other matters are presented, your proxy will vote in accordance with his or
her
best judgment. At the time this proxy statement went to press, we knew of no
matters that needed to be acted on at the Annual Meeting other than those
discussed in this proxy statement.
If
you
plan to attend the Annual Meeting and vote in person on May 11, 2007, or at
a
later date if the meeting is adjourned or postponed to a later date, we will
give you a ballot when you arrive. However, if your shares are held in the
name
of your broker, bank or other nominee, you must bring a power of attorney
executed by the broker, bank or other nominee that owns the shares of record
for
your benefit and authorizing you to vote the shares.
If
you
give a proxy, you may revoke it at any time before it is exercised. You may
revoke your proxy in three ways:
| 1. |
You
may send in another proxy with a later
date.
|
| 2. |
You
may notify ART in writing (by you or your attorney authorized in
writing,
or if the stockholder is a corporation, under its corporate seal,
by an
officer or attorney of the corporation) at our principal executive
offices
before the Annual Meeting, that you are revoking your
proxy.
|
| 3. |
You
may vote in person at the Annual
Meeting.
|
Proposal
1:
Election
of Directors.
A
plurality of the eligible votes cast is required to elect the director nominee.
A nominee who receives a plurality means he has received more votes than any
other nominee for the same director's seat.
Proposal
2:
Approval
of the amendment
of the 2001 Stock Option Plan to increase the shares of common stock available
by 200,000 shares.
The
approval of Proposal 2, the amendment of the 2001 Stock Option
Plan to increase the shares of common stock available by 200,000 shares requires
the affirmative vote of the majority of the shares present in person or
represented by proxy at the Annual Meeting and entitled to vote
thereon.
Proposal
3:
Ratification of independent registered public accounting firm.
The
approval of Proposal 3, the ratification of the appointment of our independent
registered public accounting firm, requires the affirmative vote of the majority
of the shares present in person or represented by proxy at the Annual Meeting
and entitled to vote thereon.
The
Board
of Directors is not proposing any action for which the laws of the State of
Delaware, the Certificate of Incorporation or the By-Laws of ART provide a
right
of a stockholder to dissent and obtain appraisal of or payment for such
stockholder's shares.
2
ART
will
bear the cost of soliciting proxies in the accompanying form and will reimburse
brokerage firms and others for expenses involved in forwarding proxy materials
to beneficial owners or soliciting their execution.
The
principal executive offices of ART are located at 25 Sawyer Passway, Fitchburg,
Massachusetts and our telephone number is (978) 345-5000.
Copies
of
the Company’s 2006 Annual Report on Form 10-KSB are being sent to all
stockholders along with this proxy statement. Additional copies will be
furnished without charge to stockholders upon written request. Exhibits to
the
Form 10-KSB will be provided upon written request and payment of an appropriate
fee. All written requests should be directed to Arrhythmia Research Technology,
Inc., 25 Sawyer Passway, Fitchburg, Massachusetts 01420.
ART
is
subject to the informational requirements of the Securities Exchange Act of
1934, as amended (the “Exchange
Act”)
which
requires that ART file reports, proxy statements and other information with
the
Securities and Exchange Commission (“SEC”).
The
SEC maintains a website on the Internet that contains reports, proxy and
information statements and other information regarding registrants, including
ART, that file electronically with the SEC. The SEC's website address is
http://www.sec.gov. In addition, ART's Exchange Act filings may be inspected
and
copied at the public reference facilities of the SEC located at Room 1580,
100 F
Street, N.E., Washington, DC 20549; and at the SEC's regional offices at 233
Broadway, New York, NY 10279 and Citicorp Center, 500 West Madison Street,
Room
1400, Chicago, IL 60661. Copies of the material may also be obtained upon
request and payment of the appropriate fee from the Public Reference Section
of
the SEC located at Room 1580, 100 F Street, N.E., Washington, DC
20549.
AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial
Owners of at Least Five Percent of our Common Stock
The
following table shows, as of the Record Date and to the best of our knowledge,
all persons we know to be beneficial owners of five percent or more of the
voting securities of the Company.
|
Name
and Address of Beneficial Owner
|
Common
Stock
Beneficially
Owned (1)
|
Percent
of Class (1)
|
|
Chambers
Medical Foundation
|
276,268
(2)
|
10.2%
|
|
Edwin
K. Hunter, Trustee
1807
Lake Street
Lake
Charles, LA 70601
|
||
|
HealthInvest
Global Long/Short Fund
|
247,250(3)
|
9.3%
|
|
c/o
HealthInvest Partners AB
Arsenalsgatan
4
SE-111
47 Stockholm
Sweden
|
|
(1)
|
Unless
otherwise noted in these footnotes, the Company believes that all
shares
referenced in this table are owned of record by each person named
as
beneficial owner and that each person has sole voting and dispositive
power with respect to the shares of Common Stock owned by each
of them. In
accordance with Rule 13d-3 under the Exchange Act, each person’s
percentage ownership is determined by assuming that the options
that are
held by that person, and which are exercisable within 60 days,
have been
exercised.
|
|
(2)
|
Based
on information included in a Schedule 13D/A filed with the SEC
on March 9,
2007 and a Form 4 filed with the SEC on April 5, 2007 by the Chambers
Medical Foundation.
|
|
(3)
|
Based
on information included in a Schedule 13G/A filed with the SEC
by
HealthInvest Global Long/Short Fund on February 12, 2007, pursuant
to
which it reported that HealthInvest Partners AB is the investment
advisor
and control person of the Fund.
|
3
Security
Ownership of Directors and Executive Officers
The
following table shows, as of the Record Date, the securities owned by each
director and nominee, the Named Executive Officers as defined below, and by
all
of the present executive officers and directors as a group.
|
Name
and Address of Beneficial Owner
|
Common
Stock
Beneficially
Owned(1)
|
Percent
of
Class(1)
|
|
Julius
Tabin, Ph.D.
|
116,824(2)
|
4.3%
|
|
Paul
F. Walter, M.D.
|
72,055(2)
|
2.7%
|
|
E.
P. Marinos
|
59,448(2)
|
2.2%
|
|
Jason
Chambers
|
38,549(3)(5)
|
1.4%
|
|
James
E. Rouse
|
23,000
|
*%
|
|
David
A. Garrison
|
23,000(4)
|
*%
|
|
All
Executive Officers and Directors as a Group (6 Persons)
|
332,876
|
12.0%
|
|
(1)
|
Unless
otherwise noted in these footnotes, the Company believes that all
shares
referenced in this table are owned of record by each person named
as
beneficial owner and that each person has sole voting and dispositive
power with respect to the shares of Common Stock owned by each
of them. In
accordance with Rule 13d-3 under the Exchange Act, each person’s
percentage ownership is determined by assuming that the options
that are
held by that person, and which are exercisable within 60 days,
have been
exercised. The address of all persons listed above is c/o Arrhythmia
Research Technology, Inc., 25 Sawyer Passway, Fitchburg, MA
01420.
|
|
(2)
|
Includes
10,000 shares issuable upon exercise of options.
|
|
(3)
|
Excludes
options to acquire 10,000 shares which are not exercisable.
|
|
(4)
|
Represents
23,000 shares issuable upon exercise of options; excludes options
to
acquire 10,000 shares which are not exercisable.
|
|
(5)
|
Includes
35,216 shares held in the EBC Charitable Remainder Trust, for which
Mr.
Chambers serves as trustee and as to which an immediate family
member is
beneficiary. Mr. Chambers disclaims beneficial ownership of the
shares
held by the EBC Charitable Remainder Trust.
|
Interest
of Directors and Executive Officers in the Matters to be Acted
Upon
Dr.
Paul
F. Walter has been nominated for re-election as a Class III director and
therefore has an interest in the outcome of Proposal 1.
Section
16(a) Beneficial Ownership Reporting Requirements
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who own more than ten percent of any publicly traded class of our equity
securities, to file reports of ownership and changes in ownership of equity
securities of the Company with the SEC and the American Stock Exchange.
Officers, directors, and greater-than-ten-percent stockholders are required
by
the SEC's regulations to furnish ART with copies of all Section 16(a) forms
that
they file.
Based
solely upon a review of Forms 3 and Forms 4 furnished to ART during the most
recent fiscal year, and Forms 5 with respect to its most recent fiscal year,
we
believe that all such forms required to be filed pursuant to Section 16(a)
of
the Exchange Act were timely filed, as necessary, by the officers, directors,
and security holders required to file the same during the fiscal year ended
December 31, 2006, except that due to a typographical error The Chambers Medical
Foundation inadvertently misreported one sale of 10 shares and due to an
inadvertent reporting error from a brokerage firm Dr. Tabin incorrectly reported
one 2004 transaction which he corrected in April of 2006.
4
Directors
and Executive Officers
The
directors and executive officers of the Company are as follows:
|
Name
|
Age
|
Title
|
|
|
E.
P. Marinos
|
65
|
Chairman
of the Board (1)
|
|
|
James
E. Rouse
|
52
|
President,
Chief Executive Officer and Director
|
|
|
David
A. Garrison
|
38
|
Executive
Vice President of Finance and
Chief
Financial Officer
|
|
|
Jason
Chambers
|
29
|
Director
(1)
|
|
|
Julius
Tabin, Ph.D.
|
87
|
Director
(1)
|
|
|
Paul
F. Walter, M.D.
|
70
|
Director
(1)
|
|
___________________________
| (1) |
E.
P. Marinos, Dr. Julius Tabin and Jason Chambers serve as members
of the
audit committee and, together with Dr. Paul F. Walter, serve as
independent directors.
|
Set
forth
below are descriptions of the backgrounds of the executive officers and
directors of the Company and their principal occupations for the past five
years.
E.
P.
Marinos.
Mr.
Marinos has served as a director of the Company since 1994. Mr. Marinos has
been
Chief Executive Officer of AMT/EPM Associates, a consulting company, since
June
1, 2001. Mr. Marinos was President and Chief Executive Officer of Midcoast
Interstate Transmission, Inc. (MIT), an interstate pipeline company, from June
1997 until June 2001. He also became Corporate Vice President of Administration
for Midcoast Energy Resources, Inc. (MRS), MIT's parent company, in June 1999
and President and Chief Executive Officer of Kansas Pipeline Co. in December
1999, a subsidiary of MRS, and held those positions until MRS was sold in June
2001. From March 1995 until June 1997, he was President and Chief Executive
Officer of the Company. He is a graduate of Wayne State University (B.S. in
Finance and Accounting, 1964) and a member of the AICPA. Mr. Marinos serves
as
Chairman of the Company's Board of Directors and Audit Committee.
James
E. Rouse.
Mr.
Rouse was appointed President and Chief Executive Officer of the Company in
October 2002 after serving in the capacity of President and Chief Operating
Officer since October of 2001. Previously he had served as Vice President and
General Manager of the Company from December 2000 to October 2001. Mr. Rouse
has
also served as President, Chief Executive Officer and Chief Operating Officer
of
the Company’s subsidiary, Micron Products, since December 2000, Vice President
and General Manager from July 2000 to December 2000 and Plant Operations Manager
from December 1996 to July 2000. Prior to joining Micron Products Mr. Rouse
held
the position of Operations Manager from December 1995 to December 1996 for
Jarvis Surgical, Inc., a manufacturer of medical devices. He served in positions
of Biomedical Product Manager and Director of Quality Assurance during his
employment at KomTeK, Inc., a subsidiary of Kervick Enterprises, Inc., a
manufacturer of close tolerance forgings and investment castings, from 1983
to
1995. He is a graduate of the University of Massachusetts (Amherst) (B.A.
Political Science, 1977) and Worcester Polytechnic Institute, School of
Industrial Management (1997).
David
A. Garrison.
Mr.
Garrison was appointed Executive Vice President of Finance of the Company in
December 2004 and has served as Chief Financial Officer since November 2002.
He
joined the Company as Corporate Controller in September of 2002 after nine
years
as Controller and Chief Financial Officer of H & R 1871, Inc., a privately
held manufacturer of single-barrel shotguns. He is a graduate of Miami
University (B.S. in Finance, 1990) and Boston University (Masters in Business
Administration, 2001).
Jason
R. Chambers. Mr.
Chambers has served as a director of the Company since April 2006. Mr. Chambers
has served as Chief Executive Officer of Life Water, LLC d/b/a Mountain Brook
Water, a water bottling and distribution company, from June 14, 2002 to the
present, and from August 2001 to the present has served as a consultant
assisting The Chambers Medical Foundation, a private foundation, in assessing
medical grant applications. The Foundation beneficially owns approximately
10.8%
of the Company’s outstanding common stock. In addition, Mr. Chambers served from
July 2004 through December 2004 as Vice-President of Startbank Advisory
Services, a middle market financial services company. Since 1999, Mr. Chambers
has served as the President of Golden Blends, Inc., a wine distributor. Mr.
Chambers holds a Bachelor of Science from Vanderbilt University School of
Engineering and a Masters of Business Administration degree from Owen Graduate
School of Management, Vanderbilt University with a concentration in finance
and
marketing. Mr. Chambers is also a Dana-Farber Cancer Institute Hematologic
Oncology visiting committee member and a board member and treasurer of Global
Health Action, a non-profit organization focused on providing health
professionals with leadership, management and project planning
training.
5
Julius
Tabin, Ph.D.
Dr.
Tabin has served as a director of the Company since its founding in 1982. Prior
to his retirement in June 2006, Dr. Tabin was a partner in the law firm of
Fitch, Even, Tabin & Flannery. His practice focuses on client counseling,
litigation, and licensing in the areas of patents, trademarks, copyrights,
trade
secrets, related contract, and antitrust law. He is a graduate of the University
of Chicago (B.S., 1940; Ph.D. Physics, 1946) and Harvard Law School (LL.B.,
1949).
Paul
F. Walter, M.D.
Dr.
Walter has served as a director of the Company since its founding in 1982.
Dr.
Walter is an electrophysiologist and Professor of Medicine at Emory University
where he has served on the faculty since 1980. He specializes in cardiology
and
internal medicine with a focus on arrhythmias, cardiovascular disease and the
electrophysiology lab. He is a 1961 graduate of the University of Nebraska
College of Medicine with graduate studies at the University of
Michigan.
No
director is related to any other director or executive officer of the Company
or
its subsidiaries, and there are no arrangements or understandings between a
director and any other person pursuant to which such person was elected as
director.
Each
executive officer of ART is appointed by the Board of Directors and holds his
office(s) at the pleasure and discretion of the Board.
There
are
no material proceedings to which any director, director nominee, executive
officer or affiliate of ART, any owner of record or beneficial interest of
more
than five percent of any class of voting securities of ART, or any associate
of
any such director, officer, affiliate or security holder is a party adverse
to
ART or any of its subsidiaries or has a material interest adverse to ART or
any
of its subsidiaries.
No
director, director nominee, officer or affiliate of ART, owner of record or
beneficial interest of more than five percent of any class of voting securities
of ART has, to the Company’s knowledge, during the last five years (i) been
convicted of any criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, United States
federal or state securities laws or finding any violations with respect to
such
laws.
The
Board of Directors
The
Board
of Directors oversees the business affairs of ART and monitors the performance
of management. Pursuant to the ART By-Laws, the Board of Directors has
established that the Board of Directors shall consist of no less than two and
no
more than six members. Currently the number of seats on the Board is five.
The
Company’s By-Laws further provide that the Board of Directors be divided in
three classes serving staggered three year terms with each class to be as nearly
equal in number as possible. See Proposal 1.
Members
of the Board of Directors discussed various business matters informally on
numerous occasions throughout the year 2006. There were 14 formal Board meetings
in person or by teleconference during 2006. During 2006, all directors attended
at least 75% of the meetings of our Board and Board committees on which they
served. Directors are strongly encouraged to attend the Annual Meeting, and
all
of the Company’s directors in office at that time attended the 2006 Annual
Meeting. Independent directors meet on a regular basis as often as necessary
to
fulfill their responsibilities, including at least annually in executive session
without the presence of non-independent directors and management.
Committees
of the Board of Directors
The
Board
of Directors has established the following standing committees, namely, an
Audit
Committee, a Compensation Committee, an Executive Committee, a Nominating and
Corporate Governance Committee, and a Succession Committee.
Audit
Committee. The
Audit
Committee assists the Board of Directors in the oversight of the audit of the
Company’s financial statements and the quality and integrity of its accounting,
auditing and financial reporting processes. The Audit Committee also has the
responsibility of reviewing the qualifications, independence and performance
of
the Company’s independent registered public accounting firm and is responsible
for the appointment, retention, oversight and, where appropriate, termination
of
the independent registered public accounting firm. During the fiscal year 2006,
the Audit Committee held 7 formal meetings. Its current members are
Mr. E.P. Marinos (Chairman), Dr. Julius Tabin, and
Mr. Jason Chambers. The Board of Directors has determined that each of
the members of the Audit Committee meets the criteria for independence under
the
applicable listing standards of the American Stock Exchange, and that
Mr. E.P. Marinos also qualifies as an “audit committee financial
expert,” as defined by the rules adopted by the SEC. The Board of Directors has
adopted a written charter for the Audit Committee, which is reviewed annually
by
the Audit Committee. The current Audit Committee Charter is available on the
Company’s web site, namely, http://www.arthrt.com/corporategovernance.
6
Compensation
Committee.
The
principal functions of the Compensation Committee are to evaluate the
performance of the Company’s senior executives, to consider the design and
competitiveness of the Company’s compensation plans, to review and recommend
senior executive compensation and to administer the Company’s employee benefit
plans, including the Stock Option Plan and Stock Award Plan. Its current members
are Dr. Paul F. Walter (Chairman), Mr. E.P. Marinos and
Dr. Julius Tabin. During the fiscal year 2006, the Compensation
Committee held 7 formal meetings. The Compensation Committee does not currently
have a charter.
Executive
Committee.
The
Executive Committee is composed of three members: Mr. E. P. Marinos, Mr. James
E. Rouse and Dr. Julius Tabin. The principal functions of the Executive
Committee are reviewing and evaluating significant business and policy decisions
and making recommendations to the full Board of Directors. The Executive
Committee held 1 formal meeting in 2006.
Nominating
and Corporate Governance Committee.
The
Nominating and Corporate Governance Committee is presently composed of three
members of the board: Dr. Julius Tabin (Chairman),
Mr. E.P. Marinos, and Dr. Paul F. Walter, each of whom
is an independent director as independence is defined by the rules and
regulations of the American Stock Exchange. The Nominating and Corporate
Governance Committee assists the Board in identifying individuals qualified
to
be directors, oversees the composition, structure and evaluation of the Board
and its committees, and develops and maintains a set of corporate governance
guidelines. The Nominating and Corporate Governance Committee reviews these
guidelines regularly and recommends changes as necessary or appropriate. During
the fiscal year 2006, the Committee did not hold a formal meeting. The current
Nominating and Corporate Governance Committee Charter is available on
the Company’s website, http://www.arthrt.com/corporategovernance.
Succession
Committee.
The
Succession Committee is composed of five members: Mr. E.P. Marinos,
Mr. James E. Rouse, Dr. Julius Tabin,
Dr. Paul F. Walter, and Mr. Jason Chambers. The
Succession Committee assists the Board in monitoring the preparation and
adequacy of succession plans for executive officer positions. During the fiscal
year 2006, the Committee did not hold any formal meetings.
Code
of Conduct and Ethics
The
Company has adopted a Code of Conduct and Ethics that applies to all its
employees as well as its principal executive, financial and accounting officers.
A copy of the Code can be found on the Company’s website at http://www.arthrt.com/codeofethics.html.
The
Company intends to satisfy the disclosure requirements regarding any amendments
to or waivers from a provision of the Code that applies to its principal
executive, financial and accounting officers by posting such information on
its
website at the address set forth above.
7
REPORT
OF THE AUDIT COMMITTEE
The
information contained in this Proxy Statement with respect to the Audit
Committee Report and charter and the independence of the members of the Audit
Committee shall not be deemed to be “soliciting material” or to be “filed” with
the SEC, nor shall such information be incorporated by reference into any future
filing under the Securities Act of 1933, as amended (the “Securities
Act”),
or the Exchange Act, except to the extent that the Company specifically
incorporates it by reference in such filing.
The
Audit
Committee has reviewed and discussed with management and the Company’s
independent registered public accounting firm, Carlin, Charron & Rosen LLP,
the Company’s audited consolidated financial statements for the year ended
December 31, 2006 and discussed all material accounting issues.
Management
has the primary responsibility for the Company’s financial statements and the
Company’s accounting, auditing and financial reporting processes. The Audit
Committee appoints the accounting firm to be retained as independent external
auditors to audit the Company’s financial statements, and once retained, the
accounting firm reports directly to the Audit Committee. The Audit Committee
is
responsible for approving both audit and non-audit services to be provided
by
the independent external auditors. The Audit Committee is not providing any
expert or special assurance as to the Company’s financial statements. The
Company’s independent registered public accounting firm is responsible for
expressing an opinion on the conformity of the Company’s financial statements
with accounting principles generally accepted in the United States. The Audit
Committee is not providing any professional certification as to the independent
registered public accounting firm’s work product.
The
Audit
Committee’s review and discussion with the Company’s independent registered
public accounting firm included matters requiring discussion pursuant to
Statement on Auditing Standards No. 61 (Communications with Audit Committees).
Among
the
matters to be communicated to the Audit Committee are: (i) methods used to
account for significant unusual transactions; (ii) the effect of
significant accounting policies in controversial or emerging areas for which
there is a lack of authoritative guidance or consensus; (iii) the process
used by management in formulating particularly sensitive accounting estimates
and the basis for the auditor's conclusions regarding the reasonableness of
those estimates and (iv) disagreements with management over the application
of accounting principles, the basis for management's accounting estimates,
and
the disclosures in the financial statements in addition to discussing the
adequacy and effectiveness of the accounting and financial controls (including
our system to monitor and manage business risk) and legal and ethical compliance
programs. The
Audit
Committee further discussed with Carlin, Charron & Rosen LLP, matters
relating to its independence, and has received the written disclosures and
letter from it required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees).
On
the
basis of the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the Board approve the inclusion
of
the Company’s audited consolidated financial statements for the year ended
December 31, 2006 in the Company’s Annual Report on Form 10-KSB for the fiscal
year ended December 31, 2006 for filing with the SEC.
By
the
members of the Audit Committee:
Mr.
E.P.
Marinos, Chairman
Dr.
Julius Tabin
Mr.
Jason
Chambers
Audit
Committee Pre-Approval of Audit and Non-Audit Services
The
Audit
Committee pre-approves all audit and permissible non-audit services provided
to
the Company by the independent registered public accounting firm. These services
may include audit services, audit-related services, tax services and other
services. The Audit Committee has adopted policies and procedures for the
pre-approval of services provided by the independent registered public
accounting firm. Such policies and procedures provide that management and the
independent registered public accounting firm shall jointly submit to the Audit
Committee a schedule of audit and non-audit services for approval as part of
the
annual plan for each fiscal year. In addition, the policies and procedures
provide that the Audit Committee may also pre-approve particular services not
in
the annual plan on a case-by-case basis. Management must provide a detailed
description of each proposed service and the projected fees and costs (or a
range of such fees and costs) for the service. The policies and procedures
require management and the independent registered public accounting firm to
provide quarterly updates to the Audit Committee regarding services rendered
to
date and services yet to be performed.
As
permitted under the Sarbanes-Oxley Act of 2002, the Audit Committee may delegate
pre-approval authority to one or more of its members, for audit and non-audit
services to a subcommittee consisting of one or more members of the Audit
Committee. Any service pre-approved by a delegatee must be reported to the
Audit
Committee at the next scheduled meeting.
8
Nominees
to the Board of Directors
Dr.
Paul
F. Walter is the Board of Director’s nominee for re-election as Class III
director to the Board of Directors. See “Information about Directors and
Executive Officers” above for information relative to his business
experience.
The
Company’s Nominating and Corporate Governance Committee identifies new director
candidates through recommendations from members of the Committee, other Board
members and executive officers of the Company and will consider candidates
who
are recommended by security holders, as described below. The Committee and
the
Board will consider such factors as it deems appropriate to assist in developing
a Board and committees that are diverse in nature and comprised of experienced
and seasoned advisors. These factors may include decision-making ability,
judgment, personal integrity and reputation, experience with businesses and
other organizations of comparable size, experience as an executive with a
publicly traded company, and the extent to which the candidate would be a
desirable addition to the Board and any committees of the Board.
Security
holders who want to recommend to the Committee a candidate for director may
do
so by submitting to the Company’s Secretary in writing biographical information
about the candidate, a description of the candidate’s qualifications and the
candidate’s consent to the recommendation. If the candidate is to be considered
for nomination at the next annual meeting of stockholders, the submission must
be received by the date and in accordance with the procedures described under
“Stockholder Proposals and Submissions.”
The
Committee will evaluate new director candidates in view of the criteria
described above, as well as other factors the Committee deems to be relevant,
through reviews of biographical and other information, input from others,
including members of the Board and executive officers of the Company, and
personal discussions with the candidate when warranted by the results of these
other assessments. The Committee will evaluate any director candidates
recommended by security holders under the same process. In determining whether
to recommend to the Board the nomination of a director who is a member of the
Board, the Committee will review the Board performance of such director and
solicit feedback about the director from other Board members.
Communicating
with the Board
The
Board
desires to foster open communications with its security holders regarding issues
of a legitimate business purpose affecting the Company. Each Board member is
willing to accept correspondence. Communications from stockholders should be
in
the form of written correspondence and sent via registered mail or overnight
delivery to the Company’s corporate office, care of the Secretary. Electronic
submissions of security holder correspondence will not be accepted. The
correspondence shall include supporting documentation evidencing the security
holder’s stock or other holdings in the Company. The Secretary shall pass on any
such communication, other than a solicitation for a product or service or a
request for copies of reports filed with the Commission, to the appropriate
Board member. Any security holder correspondence addressed generically to the
Board of Directors will be forwarded to the Chairman of the Board.
9
Summary
Compensation Table
The
following table sets forth information regarding annual and long-term
compensation with respect to the fiscal years ended December 31, 2006 and 2005,
paid or accrued by the Company to or on behalf of those persons who were, during
the fiscal year ended December 31, 2006, the Company's Chief Executive Officer
and the Company's most highly compensated executive officers serving as such
as
of December 31, 2006 whose compensation was in excess of $100,000 (the
“Named
Executive Officers”).
|
Name
and Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)(1)
|
Non
Equity Incentive Plan Compensation
($)(2)
|
Nonqualified
Deferred Compensation Earnings
|
All
Other Compensation
($)
|
Total
($)
|
|||||||||||||||||||
|
James
E. Rouse (3)
|
2006
|
187,100
|
--
|
--
|
2,000
|
29,750
|
--
|
--
|
218,850
|
|||||||||||||||||||
|
President
and CEO
|
2005
|
175,000
|
--
|
--
|
50,000
|
--
|
--
|
--
|
225,000
|
|||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||
|
David
A.Garrison (4)
|
2006
|
125,000
|
--
|
--
|
3,300
|
21,250
|
--
|
--
|
149,550
|
|||||||||||||||||||
|
EVP
and CFO
|
2005
|
125,000
|
--
|
--
|
37,000
|
--
|
--
|
--
|
162,000
|
|||||||||||||||||||
__________________________
| (1) |
Represents
share-based compensation expense incurred for the year ended December
31,
2006, as well as prior fiscal years, computed in accordance with
SFAS
123R. The amounts shown exclude the impact of estimated forfeitures
related to service-based vesting conditions. For additional information
on
the valuation assumptions related to the calculation of the valuation,
see
Footnote 11 to the Consolidated Financial Statements for the fiscal
year
ended December 31, 2006, included in the Company’s Annual Report on Form
10-KSB captioned
“Stock Options”.
|
| (2) |
The
amounts shown in this column reflect payments made under the 2006
annual
performance-based incentive plan.
|
| (3) |
Mr.
Rouse was appointed President and Chief Executive Officer of the
Company
in October 2002. He served as President and Chief Operating Officer
of the
Company from October 2001 to October 2002.
|
| (4) |
Garrison
was appointed as Executive Vice President of Finance of the Company
in
December 2004, and has served as Chief Financial Officer of the
Company
since November 2002.
|
Narrative
Disclosure to Summary Compensation Table
Incentive
Compensation Program. The
Company’s 2006 incentive plan is designed to provide an incentive for employees
to achieve and surpass targeted performance goals. All of the Company’s regular
full time, non-union salaried employees, including the executive officers,
participate in this plan. The annual bonus amount for each participant is based
on one or more Company-wide performance measures. The cash bonuses payable
under
the program are determined as a percentage of a participant’s annual base salary
ranging from 3% to 17.5% for staff, managers and vice-president/manager
personnel and ranging from 15% to 20% for executive officers. The Compensation
Committee normally establishes the target level for performance-based cash
incentive compensation based on the Company’s internal budget targets, which are
reviewed and approved by the Board. The factors that the Compensation Committee
considers in establishing the performance target include the aggressiveness
of
the budget target, the revenue and earnings growth included in the budget target
as compared to the prior year, and any significant strategic initiatives that
may impact the budget target. This is usually done through discussions with
the
Company’s senior executives and with the Board. Upon completion of the fiscal
year, the Compensation Committee assesses the performance of the Company based
on the performance measures that it established for that year and approves
the
funding level of the cash incentive plan. For 2006 bonus levels for executive
officers were based on a percentage of base salary assuming targeted budgeted
operating profit levels were met or exceeded. The amounts paid in 2006 and
2007
to the Named Executive Officers under the 2006 incentive plan are reflected
in
the Summary Compensation Table under the column entitled, “Non-Equity Incentive
Plan Compensation.”
10
Employment
Agreements. The
Company entered into an Executive Employment Agreement as of December 4, 2006
with James E. Rouse, the Company’s President and Chief Executive Officer, for
the five year period commencing as of October 4, 2006. The agreement replaces
the prior five year employment agreement originally expiring October 4, 2006
and, as amended, extended to December 4, 2006. Under the terms of the agreement,
Mr. Rouse is to receive an annual base salary commencing as of October 5, 2006
of $230,000 subject to annual review and modification by the Board upon the
recommendation of the Compensation Committee subject to minimum increases of
$10,000 as of October 5, 2007 and 2008.
The
Company entered into an Executive Employment Agreement as of February 14, 2007,
with David A. Garrison, the Company’s Executive Vice President and Chief
Financial Officer, for the five year period commencing as of January 1, 2007.
Under the terms of the agreement, Mr. Garrison is to receive an annual base
salary commencing as of January 1, 2007 of $150,000.
Mr.
Rouse
and Mr. Garrison are entitled to participate in bonus compensation and employee
benefits plans as the Company may institute from time to time in the discretion
of the Compensation Committee, upon the approval of the Board of Directors.
The
Executive Employment Agreements provide confidentiality, non-competition and
non-solicitation restrictions following termination of employment. In the event
the Company terminates either Mr. Rouse or Mr. Garrison’s employment agreement
without “cause” or the executive terminates the agreement for “good reason” as
such terms are defined in the agreements, the Company will be required to pay
the greater of the executive’s then current annual base compensation for the
remaining period of employment as in effect immediately prior to such
termination or his then current annual base compensation for twenty-four months
and will provide certain medical benefits for up to 24 months. In the event
of a
“change of control,” including merger, consolidation, a sale of all or
substantially all of the Company's assets or a sale or transfer of the Company's
voting securities resulting in a change in the ownership of a majority of the
Company's voting securities, the Company may terminate the executive’s
employment, in which event he is entitled to the greater of his current base
compensation up to the date of termination or his base compensation for a period
of 24 months, as well as 18 months of medical and dental benefits.
Outstanding
Equity Awards at 2006 Fiscal Year End
|
Option
Awards
|
Stock
Awards
|
||||||||
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
Market
Value
of Shares or Units of Stock That Have Not Vested ($)
|
Equity
Incentive
Plan Awards:
Number
of
Unearned
Shares,
Units
or
Other Rights
That
Have Not Vested (#)
|
Equity
Incentive
Plan Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not Vested ($)
|
|
David
A. Garrison
|
8,000
|
--
|
--
|
9.86
|
12/19/2011
|
--
|
--
|
--
|
--
|
|
15,000
|
10,000(1)
|
--
|
4.85
|
7/31/2009
|
--
|
--
|
--
|
--
|
|
(1) Options
to acquire 5,000 shares vest on each of July 31, 2007 and July 31,
2008.
11
Director
Compensation in 2006
For
fiscal year 2006 each non-employee director receives cash compensation of $3,000
per quarter and an annual fee of $1,000 per committee membership. Additionally,
the chairpersons of the audit and compensation committees receive an annual
fee
of $4,000 and each non-employee director receives $1,000 cash for each meeting
(including committee meetings) attended in person and $500 for each meeting
(including committee meetings) attended by telephone. During fiscal year 2006,
our current directors who were serving in such capacity in 2006 received the
following fees:
|
Name(1)
|
Fees
Earned
or
Paid
in
Cash
($)(2)
|
Stock
Awards
($)
|
Option
Awards
($)(3)
|
Non-Equity
Incentive
Plan Compensation ($)
|
Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
|
Mr.
E.P. Marinos
|
$
|
36,500
|
--
|
--
|
--
|
--
|
--
|
$
|
36,500
|
|||||||||||||
|
Dr.
Julius Tabin
|
32,000
|
--
|
--
|
--
|
--
|
--
|
32,000
|
|||||||||||||||
|
Dr.
Paul F. Walter, M.D.
|
31,500
|
--
|
--
|
--
|
--
|
--
|
31,500
|
|||||||||||||||
|
Mr.
Jason R. Chambers
|
17,625
|
--
|
5,600
|
--
|
--
|
--
|
23,225
|
|||||||||||||||
__________________________
| (1) |
James
Rouse, President and CEO, serves as a director without any additional
compensation.
|
| (2) |
Includes
amounts earned from the annual retainer, board meeting fees, committee
meeting fees and chairperson fees.
|
| (3) |
Amounts
included in the “Option Awards” column reflect the aggregate dollar amount
recognized for financial statement reporting purposes for 2006
with
respect to stock options to purchase 10,000 shares of common stock
granted
to Mr. Chambers on August 4, 2006. The aggregate dollar amount was
determined in accordance with FAS 123R, but without regard to any
estimate
of forfeitures related to service-based vesting. See Note 11 to
the
Consolidated Financial Statements contained in the 2006 Annual
Report on
Form 10-KSB captioned “Stock Options” for an explanation of the
assumptions made by the Company in the valuation of these
awards.
|
Compensation
Committee Procedures
The
following information relating to the Compensation Committee is not soliciting
materials and as such is not deemed filed with the SEC nor incorporated by
reference in any filing of the Company under the Securities Act or 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 employee benefit
plans including the Stock Option Plan and Stock Award Plan. In 2006, the
Committee was comprised of Dr. Paul F. Walter, Chairman, Dr. Julius Tabin,
and
Mr. E.P. Marinos, each of whom is an independent director.
The
Compensation Committee works with management to develop relationships between
pay levels, financial performance and returns to stockholders, in order to
align
our compensation structure with our organizational objectives. By tying
compensation in part to particular goals, the Compensation Committee believes
that a performance-oriented environment is created for the Company’s employees
and executives. All decisions of the Committee relating to compensation of
the
President and Chief Executive Officer and other Named Executive Officers are
reviewed and approved by the other non-employee Directors.
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: (1) to attract,
motivate and retain executives of outstanding ability and character; (2) to
provide rewards based on each person’s individual performance and the Company’s
overall financial performance and growth during the prior year 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.
12
The
Compensation Committee has the authority under its charter to engage the
services of outside advisors, experts and others to assist the Compensation
Committee. In accordance with this authority, for fiscal year 2006, the
Compensation Committee engaged Delves Group as independent outside compensation
consultant. Delves provided data on competitive pay levels for executive
officers and directors. It also advised the Compensation Committee on matters
related to CEO, other executive officer and directors compensation matters
including current compensation trends and structural compensation issues
relating to the future hiring and growth. The consultant was engaged by, and
reported directly to, the Compensation Committee.
Base
Salary.
Base
salaries are intended to provide economic security for executive officers at
a
level sufficient to attract and retain talent. Initial salary levels are set
based on the executive officer’s experience and performance, pay levels for
similar positions and negotiations with individual named executive officers.
Thereafter, the Compensation Committee considers increases to base salaries
each
year based on its subjective assessment of our overall performance over the
preceding year, internal factors involving the executive's experience,
individual performance, and changes in responsibilities 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 which may vary from one named executive officer to another.
Incentive
Compensation Program. The
Company’s annual cash incentive plan is designed to provide an incentive for
employees to achieve and surpass targeted performance goals. All of the
Company’s regular full time, salaried employees, including the executive
officers, participate in this plan. The annual bonus amount for each participant
is based on one or more Company-wide performance measures. The Compensation
Committee normally establishes the target level for performance-based cash
incentive compensation based on the Company’s internal budget targets, which are
reviewed and approved by the Board. The factors that the Compensation Committee
considers in establishing the performance target include the aggressiveness
of
the budget target, the revenue and earnings growth included in the budget target
as compared to the prior year, and any significant strategic initiatives that
may impact the budget target. This is usually done through discussions with
the
Company’s senior executives and with the Board. Upon completion of the fiscal
year, the Compensation Committee assesses the performance of the Company based
on the performance measures that it established for that year and approves
the
funding level of the cash incentive plan.
Long-Term
Incentive Compensation. The
Company also grants stock options and other equity incentives under its Stock
Option and Stock Award Plans in order to link compensation to the Company's
long-term growth and performance and to increase stockholder value. The
Committee has broad discretion to establish the terms of such grants to eligible
employees of the Company and its subsidiaries. It grants awards to designated
employees upon commencement of employment or following a significant change
in
an employee's responsibility or title based in part on the recommendation of
the
Company’s executive officers. Awards are based on guidelines relating to the
employee's position in the Company that are set by the Committee, as well as
the
employee's current performance and anticipated future contributions. The
Committee also considers the amount and terms of stock options and stock awards
previously granted to the employees and executive officers. The Committee
individually evaluates these factors with respect to the employees and each
executive officer and then the Committee reaches a consensus on the appropriate
award. There were no grants of stock options or other equity incentives to
executive officers in 2006.
Compensation
of President and Chief Executive Officer. James
E.
Rouse was named President and Chief Executive Officer of the Company in October
2002 and served pursuant to a five-year employment agreement through October
4,
2006 at an annual rate of compensation of $175,000. Based on advice received
from the consulting firm engaged by the Compensation Committee as to competitive
salaries for senior executive officers at similar public companies and on
negotiations with Mr. Rouse, a new five-year employment agreement was negotiated
and implemented providing annual compensation of $230,000 per year commencing
as
of October 5, 2006. A discussion of other terms and conditions of the employment
agreement are set forth elsewhere herein.
13
The
following paragraphs set forth the reportable transactions in the last fiscal
year between ART and its executive officers, directors or affiliates. See
“Compensation of Directors and Executive Officers”, “Narrative to Summary
Compensation Table”, and “Employment Agreements” for descriptions of the terms
of the employment agreement between ART and the Company’s President and
“Director Compensation in 2006” for a description of terms of compensation
arrangements with our directors.
Transactions
with Management and Others
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 Audit Committee reviews and oversees
transactions between the Company and its executive officers and
directors.
Dr.
Tabin, a Director and stockholder of the Company, is a partner of a law firm
that represents the Company with respect to patent and other intellectual
property law matters. Fees for services and patent costs paid to this firm
were
approximately $2,200 and $7,800 for fiscal years ended 2006, and 2005,
respectively.
On
February 3, 2006, BDO Seidman, LLP (“BDO”)
resigned as the Company’s independent registered public accounting firm. On that
same date, the Audit Committee of the Company’s Board of Directors recommended
and approved the engagement of Carlin, Charron & Rosen, LLP to serve as the
independent registered public accounting firm to audit the Company’s
consolidated financial statements as of and for the fiscal year ended December
31, 2005 and to serve as the Company’s independent registered public accounting
firm for the fiscal year ended December 31, 2006.
The
reports of BDO on the Company’s consolidated financial statements as of and for
the fiscal years ended December 31, 2004 and December 31, 2003 did not contain
any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principle.
During
the two fiscal years ended December 31, 2004 and December 31, 2003, and through
February 3, 2006, there were no (1) disagreements with BDO on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to BDOs satisfaction,
would have caused BDO to make reference thereto in its report on the financial
statements for such years, or (2) reportable events described under Item
304(a)(1)(iv)(B) of Regulation S-B. A letter from BDO is attached to the
Company’s Current Report on Form 8-K/A filed with the Commission on February 13,
2006 as Exhibit 16.1, indicating its agreement with the statements
herein.
In
deciding to select Carlin, Charron & Rosen, LLP, the Audit Committee
reviewed auditor independence issues and existing commercial relationships
with
Carlin, Charron & Rosen, LLP and concluded that Carlin, Charron & Rosen,
LLP has no commercial relationship with the Company that would impair its
independence for the fiscal year ending December 31, 2005.
During
the two fiscal years ended December 31, 2004 and December 31, 2003, and through
February 3, 2006, the Company did not consult with Carlin, Charron & Rosen,
LLP regarding any of the matters or events set forth in Item 304(a)(2)(i) and
(ii) of Regulation S-B.
14
ELECTION
OF DIRECTORS
The
Company’s By-Laws provide that the number of directors, as determined from time
to time, shall not be less than two or more than six. The By-Laws further
provide that the Board of Directors be divided into three classes (Class I,
Class II and Class III) serving staggered three-year terms, with each class
to
be as nearly equal in number as possible. The Board of Directors currently
consists of five seats, namely, James E. Rouse and Jason Chambers (Class I
with
term expiring at the 2008 Annual Meeting); E. P. Marinos and Julius Tabin (Class
II with terms expiring at the 2009 Annual Meeting) and Paul F. Walter (Class
III
with term expiring at the 2007 Annual Meeting).
The
Board
of Directors, based on the recommendation of the Nominating Committee, has
concluded that the nomination and re-election of Dr. Paul F. Walter as a Class
III director is in the best interest of the Company and recommends stockholder
approval of the re-election of Dr. Walter for a three-year term (expiring at
the
2010 Annual Meeting) and until his successor has been duly elected and shall
qualify.
The
remaining directors will continue to serve in their positions for the remainder
of their terms. Biographical information concerning Dr. Walter, and the other
ART directors can be found under “Information About Directors and Executive
Officers.”
The
persons named in the proxy will vote FOR the nominee, except where authority
has
been withheld as to the particular nominee.
The
nominee for director receiving a plurality of the votes represented by the
shares of Common Stock present in person or represented by proxy at the Annual
Meeting and entitled to vote thereon will be elected as director. The nominee
has consented to being named in this Proxy Statement and to serve his term
if
elected. As of the date of this Proxy Statement, the Board is not aware that
the
nominee is unable or will decline to serve as a director. If the nominee should
for any reason become unavailable for election, proxies may be voted with
discretionary authority by the persons appointed as proxies for any substitute
designated by the Board of Directors of the Company.
The
Board recommends that stockholders vote FOR the nominee for election to the
Board of Directors of the Company.
15
APPROVAL
OF THE AMENDMENT OF THE 2001 STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK AUTHORIZED FOR ISSUANCE BY 200,000 SHARES
General
On
April
9, 2007, the Company’s Board of Directors approved an amendment to the
Arrhythmia Research Technology, Inc. 2001 Stock Option Plan (the “Plan”) upon
the recommendation of the Compensation Committee. The amendment increases the
authorized number of shares of common stock that may be issued pursuant to
the
Plan by 200,000 shares. In the event the amendment is approved by stockholders,
there will be an aggregate of 230,000 shares available for issuance under the
Plan.
The
Plan
was adopted by the Board of Directors on March 21, 2001, reserving 200,000
shares of common stock for the issuance of incentive stock options to employees
and non-statutory stock options to employees, non-employee directors and
consultants. Stockholders approved the Plan on October 5, 2001. To date, options
to acquire 170,000 shares of common stock have been issued, leaving only 30,000
shares of common stock available for issuance upon exercise of future options
granted under the Plan. The Board of Directors believes that stock options
have
been and will continue to be an important compensation element in attracting,
motivating and retaining key employees and that the increase in authorized
shares is necessary to permit future awards under the Plan.
The
Plan
is not subject to the provisions of the Employment Retirement Income Security
Act and is not a “qualified plan” within the meaning of Section 401 of the
Internal Revenue Code, as amended (the “Code”).
The
Plan
is administered by the Company’s Compensation Committee.
Subject
to the provisions of the Plan, the Committee has the authority to determine
(i)
which persons eligible under the Plan will be granted options (each a
“Participant”); (ii) when and how the options will be granted; (iii) whether the
options will be incentive stock options, non-statutory stock options, or a
combination of the foregoing; (iv) the number of shares involved; (v) the
exercise or purchase price; (vi) the type and duration of transfer or other
restrictions; and (vii) any other terms of an option.
Equity
Compensation Plan Information
The
following table provides information, as of December 31, 2006, with respect
to
our equity compensation plans:
|
Plan
category
|
Number
of securities to be
issued
upon exercise
of
outstanding options,
warrants
and rights
(a)
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and rights
(b)
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans
(excluding
securities
reflected
in column (a))
(c)
|
|
Equity
compensation plans
approved
by security holders
|
93,000(1)
|
$
9.05
|
140,000(2)
|
|
Equity
compensation plans
not
approved by security holders
|
--
|
--
|
--
|
|
Total
|
93,000(1)
|
$
9.05
|
140,000(2)
|
(1) Excludes
20,000 shares not vested at December 31, 2006.
(2)
Includes
40,000 shares available under the 2001 Stock Option Plan and 100,000 shares
available under the 2005 Stock Award Plan.
In
May
2005 stockholders approved our 2005 Stock Award Plan (the “2005 Plan”) reserving
100,000 shares of common stock for the issuance of stock awards to employees,
directors and consultants. The 2005 Plan authorizes the issuance of bonus stock,
restricted stock, deferred stock or other stock-based awards. Additionally,
in
December 2003 we adopted the 2003 Stock Bonus Plan to provide a one-time award
of 3,000 shares in partial payment of cash bonuses for salaried and hourly
employees. The 2003 Stock Bonus Plan expired on December 31, 2003 in accordance
with its terms.
Shares
Subject to the Plan
Pursuant
to the Plan, the aggregate number of shares of common stock that may be issued
is currently 30,000 shares, subject to adjustment to prevent the dilution of
rights from stock dividends, stock splits, recapitalization or similar
transactions. Shareholders are being requested to approve the proposed amendment
of the Plan to increase the authorized shares by 200,000. If the amendment
is
approved by stockholders, an aggregate of 230,000 shares will be available
under
the Plan for future issuances. Shares issuable under the Plan shall be
authorized but unissued shares of common stock or shares of common stock
reacquired by the Company in any manner.
16
Awards
under the Plan
The
Plan
permits the granting of incentive stock options meeting the requirements of
Section 422 of the Code and “non-qualified options” that do not meet such
requirements.
The
exercise price per share of each incentive stock option granted under the Plan
will be not less than the fair market value of the common stock on the date
of
the grant of the option. Options may not be granted to an employee who, at
the
time of grant, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary,
as defined in section 424 of the Code, unless the price per share is not less
than 110% of the fair market value of the common stock on the date of grant.
The
aggregate fair market value (determined at the time the option is granted)
of
the common stock for which any employee may have incentive stock options vest
in
any calendar year may not exceed $100,000. Options granted under the Plan will
vest (become exercisable) either initially or in periodic installments as
determined by the Committee. No option will be exercisable after the expiration
of six years from the date it was granted.
The
duration of an Option shall be within the sole discretion of the Compensation
Committee but no more than six years after the date the Option is granted.
During the Participant’s lifetime, an incentive stock option will be exercisable
only by the Participant and will not be transferable except by will or by the
laws of descent and distribution. A non-statutory stock option may be
transferred upon such terms and conditions as the Committee may determine in
its
sole discretion. The Participant may designate a third party who, in the event
of the death of the Participant, will be entitled to exercise the vested
options, but only within the period ending on the earlier of (i) twelve months
following the date of death and (ii) the expiration of the term of the option
in
the option agreement.
Termination
of Employment
In
the
event a Participant is terminated as an employee, director or consultant (other
than by death, disability or retirement), the Participant may exercise his
or
her vested options only within the period of time ending on the earlier of
(i)
sixty days after termination or such period of time set forth in the option
agreement or (ii) expiration of the option’s term. In the event a Participant’s
status as an employee, director or consultant terminates as a result of
disability, the Participant’s vested options must be exercised within the period
ending on the earlier of (i) twelve months following the date of death and
(ii)
the expiration of the term of the option in the option agreement
Federal
Tax Consequences
The
federal income tax discussion set forth below is intended for general
information only. State and local income tax consequences are not discussed,
and
may vary from locality to locality. The federal income tax consequences arising
with respect to options granted under the Plan will depend on the type of the
option. The following provides only a general description of the application
of
federal income tax laws to options granted under the Plan.
Incentive
Stock Options. A Participant is not taxed at the time an incentive stock option
is granted. The tax consequences upon exercise and later disposition depend
upon
whether the Participant was an employee of the Company or its subsidiary at
all
times from the date of grant until three months preceding exercise (one year
in
the case of death or disability) and on whether the Participant holds the shares
for more than one year after exercise and two years after the date of grant
of
the option. If the Participant satisfies both the employment rule and the
holding rule, for regular tax purposes the Participant will not realize income
upon exercise of the option and the Company will not be allowed an income tax
deduction at any time. The difference between the option price and the amount
realized upon disposition of the shares by the Participant will constitute
a
long-term capital gain or a long-term capital loss, as the case may be. Neither
the employment rule nor the holding rule will apply to the exercise of an option
by the estate of a Participant, provided that the Participant satisfied the
employment rule as of the date of such Participant’s death. If the Participant
meets the employment rule but fails to observe the holding rule, a disqualifying
disposition, the Participant generally recognizes as ordinary income, in the
year of the disqualifying disposition, the excess of the fair market value
of
the shares at the date of exercise over the option price. Any excess of the
sales price over the fair market value at the date of exercise will be
recognized by the Participant as capital gain (long-term or short-term depending
on the length of time the stock was held after the option was exercised). If,
however, the sales price is less than the fair market value at the date of
exercise, then the ordinary income recognized by the Participant is generally
limited to the excess of the sales price over the option price. In both
situations, the Company’s tax deduction is limited to the amount of ordinary
income recognized by the Participant.
17
Nonqualified
Stock Options. Under present regulations, a Participant who is granted a
nonqualified stock option will not realize taxable income at the time the option
is granted. In general, a Participant will be subject to tax for the year of
exercise on an amount of ordinary income equal to the excess of the fair market
value of the shares on the date of exercise over the option price, and the
Company will receive a corresponding deduction. Income tax withholding
requirements apply upon exercise. The Participant’s basis in the shares so
acquired will be equal to the option price plus the amount of ordinary income
upon which he is taxed. Upon subsequent disposition of the shares, the
Participant will realize capital gain or loss, long-term or short-term,
depending upon the length of time the shares are held after the option is
exercised.
Different
consequences will apply for a Participant subject to the alternative minimum
tax.
Historical
Awards and New Plan Benefits
The
following table sets forth information with respect to stock option grants
to
the executive officers named in the Summary Compensation Table and the specified
groups set forth below pursuant to the Plan as of March 31, 2007.
|
Name
and Principal Position
|
Options
Granted
|
|
|
James
E. Rouse
President
and Chief Executive Officer
|
40,000
|
|
|
David
A. Garrison
Executive
Vice President and Chief Financial Officer
|
33,000
|
|
|
All
executive officers as a group (2 persons)
|
73,000
|
|
|
All
non-executive directors as a group (4 persons)
|
40,000
|
|
|
Each
associate of the above-mentioned executive officers and
directors
|
--
|
|
|
Each
other person who received or is to receive 5% of such awards
|
--
|
|
|
All
employees (other than executive officers) as a group (97
persons)
|
57,000
|
It
is not
possible to predict the individuals who will receive future options under the
Plan or the number of shares of common stock covered by any future option
because awards of stock options are wholly within the discretion of the
Compensation Committee. The last reported sales price of the common stock
underlying the Plan on March 30, 2007 was $26.22.
Termination
or Amendment of the Plan
The
Plan
authorizes the Board of Directors to discontinue, suspend or amend the Plan,
except that no amendment, suspension or termination of the Plan or amendment
of
a stock option by the Board of Directors may alter or impair a grantee’s rights
under a stock option previously granted without the grantee’s written consent.
The Plan will terminate on March 20, 2011 except as to options outstanding
on
that date.
Recommendation
and Vote
The
Board
seeks stockholder approval of the amendment of the Plan as required by the
Plan
and to satisfy certain other legal requirements, including requirements of
the
American Stock Exchange. In addition, the Board regards stockholder approval
of
the Plan as desirable and consistent with good corporate governance practices.
To
be
approved, this proposal requires the affirmative vote of the majority of the
shares present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon.
The
Board recommends that stockholders vote FOR the proposal to amend the Arrhythmia
Research Technology, Inc. 2001 Stock Option Plan to increase the authorized
shares of common stock available by 200,000 shares.
18
APPOINTMENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Audit
Committee has concluded that the continued engagement of Carlin, Charron &
Rosen LLP (“CCR”)
as our
independent registered public accounting firm is in the best interests of ART.
CCR has served as the Company’s registered public accounting firm since February
2006.
The
stockholders of the Company are being asked to ratify this appointment. The
Company has been informed that neither CCR nor any of its partners have any
direct financial interest or any material indirect financial interest in the
Company nor have had any connection during the past three years with the Company
in the capacity of promoter, underwriter, voting trustee, director, officer
or
employee. A representative of CCR is expected to be present at the Annual
Meeting, to make a statement if so desired, and to respond to any appropriate
questions.
The
Audit
Committee, prior to recommending the appointment of CCR in connection with
the
audit for the fiscal year ended December 31, 2006 and its reappointment for
the
fiscal year ended December 31, 2007, considered the qualifications of that
firm,
including its performance previously, its reputation for integrity, competence
in the fields of accounting and auditing and its independence.
Fees
earned by CCR for services rendered in connection with the fiscal years ended
December 31, 2006 and 2005 are set forth below. All fees earned by our
independent registered public accounting firm were pre-approved by the Audit
Committee.
|
2006
|
2005
|
||||||
|
Audit
fees
|
$
|
87,600
|
$
|
68,000
|
|||
|
Audit-related
fees
|
--
|
--
|
|||||
|
Tax
fees
|
30,100
|
12,000
|
|||||
|
All
other fees
|
--
|
--
|
|||||
Fees
earned by BDO Seidman for services rendered in connection with the fiscal year
ended December 31, 2005 are set forth below. All fees paid to such firm were
pre-approved by the Audit Committee.
|
2005
|
||||
|
Audit
fees
|
$
|
54,500
|
||
|
Audit-related
fees
|
--
|
|||
|
Tax
fees
|
--
|
|||
|
All
other fees
|
--
|
|||
Audit
Fees
Audit
Fees for 2006 and 2005 consist of fees for the audit of the Company’s annual
financial statements, the review of financial statements included in the
Company’s quarterly reports, and audit services provided in connection with
other statutory or regulatory requirements and amounted to $87,600 and $122,500,
respectively.
Audit-Related
Fees
There
were no Audit-Related Fees for 2006 and 2005.
Tax
Fees
Tax
Fees
for 2006 and 2005 consist of tax service fees for compliance work, as well
as
tax planning and tax advice and amounted to $ 30,100 and $12,000, respectively,
all of which was approved by the Audit Committee of the Board of
Directors.
All
Other Fees
There
were no Other Fees for 2006 and 2005.
Recommendation
and Vote
To
be
approved, Proposal 3 requires the affirmative vote of the majority of the
shares present in person or represented by proxy at the Annual Meeting and
entitled to vote thereon.
The
Board recommends that stockholders vote FOR the ratification of the appointment
of Carlin, Charron & Rosen LLP, together with any successor firm, as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2007.
19
Stockholder
Proposals and Submissions
Stockholders
are entitled to submit proposals on matters appropriate for stockholder action
and have that proposal included in the Company's proxy statement consistent
with
the Company’s By-Laws and the regulations of the SEC. Should a stockholder
intend to present a proposal at the 2008 Annual Meeting and have that proposal
included in the Company's proxy statement, it must be received by the Secretary
of the Company c/o Arrhythmia Research Technology, Inc., 25 Sawyer Passway,
Fitchburg, MA 01420 not later than January 5, 2008 and must comply with all
of
the requirements of Rule 14a-8 under the Exchange Act in order to be included
in
the Company's Proxy Statement and proxy card relating to that
meeting.
Stockholders
of the Company may nominate candidates for election to the Board of Directors
and submit other matters for consideration at the Company's annual meeting
by
providing written notice to the Company not later than 90 days in advance of
the
annual meeting, unless the annual meeting is held on a date other than the
second Tuesday of May, in which case the stockholder notice must be given within
ten days after the first public disclosure of the scheduled date of the annual
meeting. Nominations for elections of directors to take place at a special
meeting are required to be received by the close of business on the seventh
day
following the date on which notice of such meeting is given to stockholders.
In
the case of director nominations, the notice must contain the stockholder's
and
nominee's name and address, a representation that the stockholder is a holder
of
record of the Company entitled to vote at the meeting and intends to appear
at
the meeting (in person or by proxy) to nominate the nominee, a description
of
any arrangements or understanding between the stockholder and the nominee,
the
consent of the nominee to serve if so elected and such other information as
would be required by the rules of the SEC to be included in a proxy
statement.
Notices
of other business must contain a brief description of the business to be brought
before the meeting, the stockholder's name and address, a representation as
to
stockholder status and intent to appear at the meeting to propose the business,
and a description of any material interest of the stockholder in the
matter.
A
copy of
the relevant By-Law provisions containing the requirements for making
stockholder proposals may be obtained by contacting the Company's Secretary
at
the executive offices of the Company.
No
Incorporation by Reference
In
the
Company’s filings with the SEC, information is sometimes “incorporated by
reference.” This means that we are referring you to information that has
previously been filed with the SEC and the information should be considered
as
part of the filing. Based on SEC regulations, the “Audit Committee Report” and
the Compensation Committee Procedures, Interlocks and Insider Participation”
specifically are not incorporated by reference into any other filings with
the
SEC. In addition, this proxy statement includes website addresses. These website
addresses are intended to provide inactive, textual references only. The
information on these websites is not part of this proxy statement.
Householding
of Proxy Statements
The
SEC
has adopted rules that permit companies and intermediaries (e.g., brokers)
to
satisfy the delivery requirements for proxy statements and annual reports with
respect to two or more stockholders sharing the same address by delivering
a
single proxy statement addressed to those stockholders. This process, which
is
commonly referred to as “householding,” potentially means extra convenience for
stockholders and cost savings for companies.
A
number
of brokers with account holders who are our stockholders may “household” our
proxy materials. In that event, a single proxy statement will be delivered
to
multiple stockholders sharing an address unless contrary instructions have
been
received from the affected stockholders. Once you have received notice from
your
broker that they will be householding communications to your address,
householding will continue until you are notified otherwise or until you revoke
your consent. If, at any time, you no longer wish to participate in householding
and would prefer to receive a separate proxy statement and annual report, please
notify your broker and our Secretary in writing at 25 Sawyer Passway, Fitchburg,
MA 01420 or by telephone at (978) 345-5000. Stockholders who currently receive
multiple copies of the proxy statement at their address and would like to
request householding of their communications should contact their
broker.
20
Other
Proposed Action
The
Board
of Directors does not intend to bring any other matters before the Annual
Meeting, nor does the Board of Directors know of any matters which other persons
intend to bring before the Annual Meeting. If, however, other matters not
mentioned in this proxy statement properly come before the Annual Meeting,
the
persons named in the accompanying form of proxy will vote thereon in accordance
with the recommendation of the Board of Directors.
By
Order of the Board
of Directors,
ARRHYTHMIA
RESEARCH
TECHNOLOGY, INC.
/s/
E. P.
Marinos_________
E.
P. Marinos
Secretary
Fitchburg,
Massachusetts
April
11,
2007
21
ARRHYTHMIA
RESEARCH TECHNOLOGY, INC.
This
proxy is solicited by the Board of Directors
for
the Annual Meeting of Stockholders to be held on
May
11, 2007
The
undersigned stockholder acknowledges receipt of the Notice of Annual Meeting
of
Stockholders and the Proxy Statement, each dated April 11, 2007, and hereby
appoints Judy Lucier and David Garrison, or either of them, proxies for the
undersigned, each with full power of substitution, to vote all of the
undersigned's shares of common stock of Arrhythmia Research Technology, Inc.
(the “Company”) at the Annual Meeting of Stockholders of the Company to be held
at Chocksett Inn, 59 Laurelwood Road, Sterling, Massachusetts, on Friday, May
11, 2007 at 10:00 a.m., local time, and at any adjournments or postponements
thereof.
| 1. |
Election
of Class III Director (3 year term) Nominee:Dr.
Paul F. Walter
|
o
VOTE
FOR
or o VOTE
WITHHELD
|
2.
|
To
approve the amendment of the Arrhythmia Research Technology, Inc.
2001
Stock Option Plan to increase the number of shares of common stock
available by 200,000 shares.
|
o
VOTE
FOR
o VOTE
WITHHELD o ABSTAIN
|
3.
|
To
ratify the appointment of Carlin, Charron & Rosen LLP as the Company’s
independent registered public accounting firm for the year ending
December
31, 2007.
|
o
VOTE
FOR
o VOTE
WITHHELD o ABSTAIN
4. Other
Matters
In
their
discretion, to vote with respect to any other matters that may come before
the
Annual Meeting or any adjournment thereof, including matters incident to its
conduct.
Please
sign and date on the reverse side.
The
board
of directors recommends a vote FOR the nominee and proposals above and if no
specification is made, the shares will be voted for such nominee and
proposals.
|
PLEASE
SIGN AND DATE.
|
|
|
Dated
_______________________ ,
2007
|
|
|
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.)
|
Signature
should agree with name printed hereon. If stock is held in the name of more
than
one person, EACH joint owner should sign. Executors, administrators, trustees,
guardians, and attorneys should indicate the capacity in which they sign.
Attorneys should submit powers of attorney.
PLEASE
DATE, SIGN AND RETURN THIS PROXY
NO
POSTAGE NECESSARY IF MAILED IN THE UNITED STATES
I-1