-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Wm9+g8veJ8TCGgI5QmlCOSzCoMnSjApLFMdc8y79YI3aOvIYfpQkNuY7WGRM4B9Q Ku1trArvqbfHJWa6PHPyWg== 0000927016-02-005430.txt : 20021113 0000927016-02-005430.hdr.sgml : 20021113 20021113095800 ACCESSION NUMBER: 0000927016-02-005430 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ARRHYTHMIA RESEARCH TECHNOLOGY INC /DE/ CENTRAL INDEX KEY: 0000819689 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 720925679 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09731 FILM NUMBER: 02818608 BUSINESS ADDRESS: STREET 1: 25 SAWYER PASSWAY STREET 2: 25 SAWYER PASSWAY CITY: FITCHBURG STATE: MA ZIP: 01420 BUSINESS PHONE: 978-345-5000 MAIL ADDRESS: STREET 1: 25 SAWYER PASSWAY STREET 2: 25 SAWYER PASSWAY CITY: FITCHBURG STATE: MA ZIP: 01420 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 or [_] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ 1-9731 (Commission file No.) ARRHYTHMIA RESEARCH TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) DELAWARE 72-0925679 (State or other jurisdiction of (I.R.S. employer identification no.) incorporation or organization) 25 Sawyer Passway Fitchburg, Massachusetts 01420 (Address of principal executive office and zip code) (978) 345-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___. --- As of October 31, 2002 there were 2,748,413 shares of common stock outstanding. This report consists of 26 pages. ARRHYTHMIA RESEARCH TECHNOLOGY, INC. TABLE OF CONTENTS FORM 10-Q September 30, 2002 Page Part I - Financial Information ............................................ 3 Item 1. Financial Statements ............................................. 3 Consolidated Balance Sheets ............................................. 3 Consolidated Statements of Income ....................................... 4 Consolidated Statements of Changes in Shareholders' Equity .............. 5 Consolidated Statements of Cash Flows ................................... 6 Supplemental Notes to Consolidated Financial Statements ................. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 8 Item 3. Quantitative and Qualitative Disclosures and Market Risk ........ 10 Item 4. Evaluation of Disclosure Controls and Procedures ................ 10 Part II - Other Information ............................................... 10 Item 1. Legal Proceedings ............................................... 10 Item 4. Submission of Matters to a Vote of Security Holders ............. 10 Item 6. Exhibits and Reports on Form 8-K ................................ 10 SIGNATURES ................................................................ 11 CERTIFICATION ............................................................. 11 Exhibit 3.1 - Arrhythmia Research Technology, Inc. By-laws ............. 13 Exhibit 10.1 - Employment Agreement President James E. Rouse ............ 21 Exhibit 99.1 - Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 26 2 Part I - Financial Information Item 1. Financial Statements ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY Consolidated Balance Sheets (Unaudited)
ASSETS September 30, December 31, 2002 2001 --------------- -------------- Current assets: Cash and cash equivalents ......................................... $ 1,615,037 $ 1,860,822 Trade and other accounts receivable, net of allowance for doubtful accounts of $51,000 ................................. 923,208 854,426 Inventories, net .................................................. 1,286,612 897,087 Deposits, prepaid expenses and other current assets ............... 61,478 27,887 ------------ ----------- Total current assets ............................................ 3,886,335 3,640,222 Property and equipment, net of accumulated depreciation of $4,271,826 and $4,358,954 ......................................... 3,053,161 3,272,592 Goodwill, net of accumulated amortization of $1,079,073 and $1,147,326 ........................................................ 1,244,000 1,326,000 Deferred income taxes, net ........................................... 411,923 444,923 ------------ ----------- Total assets ...................................................... $ 8,595,419 $ 8,683,737 ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of 11% bonds payable ........................... - 113,028 Accounts payable .................................................. 242,231 343,010 Accrued expenses .................................................. 378,536 314,840 ------------ ----------- Total current liabilities ....................................... 620,767 770,878 Shareholders' equity: Preferred stock, $1 par value; 2,000,000 shares authorized, none issued ..................................................... - - Common stock, $.01 par value; 10,000,000 shares authorized, 3,888,131 and 3,758,181 issued .................................. 38,881 37,582 Additional paid-in-capital ........................................ 9,161,707 8,999,581 Common stock held in treasury, 1,059,718 and 869,305 shares at cost .................................................. (2,884,116) (2,357,279) Retained earnings ................................................. 1,658,180 1,232,975 ------------ ----------- Total shareholders' equity ...................................... 7,974,652 7,912,859 ------------ ----------- Total liabilities and shareholders' equity ...................... $ 8,595,419 $ 8,683,737 ============ ===========
The accompanying notes are an integral part of the consolidated financial statements. 3 ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Revenue .............................................................. $1,630,427 $1,637,050 $5,377,761 $5,265,686 Cost of sales ........................................................ 1,081,964 1,180,898 3,619,737 3,670,360 ---------- ---------- --------- ---------- Gross profit ....................................................... 548,463 456,152 1,758,024 1,595,326 ---------- ---------- --------- ---------- Selling and marketing ................................................ 13,062 10,748 36,541 51,943 General and administrative ........................................... 320,858 295,635 1,033,583 1,014,469 Research and development ............................................. 15,322 50,078 59,233 151,046 Amortization of goodwill ............................................. - 32,472 - 97,417 ---------- ---------- --------- ---------- Income from operations ............................................. 199,221 67,219 628,667 280,451 ---------- ---------- --------- ---------- Other income (expense) Interest expense ................................................... (2,656) (18,165) (13,532) (47,274) Other income, net .................................................. 5,179 8,712 11,070 20,293 ---------- ---------- --------- ---------- Income before income taxes and cumulative effect of change in accounting principle ..................................... 201,744 57,766 626,205 253,470 Income tax provision (benefit) ....................................... 23,000 (23,000) 144,000 36,000 ---------- ---------- --------- ---------- Income before cumulative effect of change in accounting principle ............................................... 178,744 80,766 482,205 217,470 Cumulative effect of change in accounting principle, net of tax ......................................................... - - (57,000) - ---------- ---------- --------- ---------- Net income ......................................................... $ 178,744 $ 80,766 $ 425,205 $ 217,470 ========== ========== ========= ========== Net income per share - basic ......................................... $ 0.06 $ 0.03 $ 0.15 $ 0.07 ========== ========== ========= ========== Weighted average common shares outstanding - basic ................... 2,905,804 2,976,724 2,915,089 3,034,481 ========== ========== ========= ========== Net income per share - dilutive ...................................... $ 0.06 $ 0.03 $ 0.14 $ 0.07 ========== ========== ========= ========== Weighted average common shares outstanding -dilutive ................. 2,927,540 3,150,890 2,955,486 3,202,341 ========== ========== ========= ==========
The accompanying notes are an integral part of the consolidated financial statements. 4 ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
Common Shares Additional -------------------- Paid-in Treasury Retained Number Amount Capital Stock Earnings Total ------ ------ ---------- -------- --------- ---------- December 31, 1999 ............ 3,711,883 $37,119 $8,946,293 $(1,151,892) $ 390,219 $8,221,739 Issuance of common stock ..... 17,798 178 26,322 - - 26,500 Value of warrants with bond renewal ............. - - 194,000 - - 194,000 Treasury stock purchase of 265,040 shares ........... - - - (502,772) - (502,772) Net income ................... - - - - 620,127 620,127 --------- -------- ---------- ----------- ---------- ---------- December 31, 2000 ............ 3,729,681 $37,297 $9,166,615 $(1,654,664) $1,010,346 $8,559,594 Issuance of common stock ..... 28,500 285 29,996 - - 30,281 Warrants repurchased ......... - - (197,030) - - (197,030) Treasury stock purchase of 305,859 shares ........... - - - (702,615) - (702,615) Net income ................... - - - - 222,629 222,629 --------- -------- ---------- ----------- ---------- ---------- December 31, 2001 ............ 3,758,181 $37,582 $8,999,581 $(2,357,279) $1,232,975 $7,912,859 Exercise of stock options and warrants ............. 129,950 1,299 162,126 - - 163,425 Treasury stock purchase of 190,413 shares ........... - - - (526,837) - (526,837) Net income ................... - - - - 425,205 425,205 --------- -------- ---------- ----------- ---------- ---------- September 30, 2002 ........... 3,888,131 $38,881 $9,161,707 $(2,884,116) $1,658,180 $7,974,652 ========= ======== ========== =========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 5 ARRHYTHMIA RESEARCH TECHNOLOGY, INC. AND SUBSIDIARY Consolidated Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2002 2001 ---- ---- Cash flows from operating activities: Net income ............................................................. $ 425,205 $ 217,470 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle, net of tax ........ 57,000 - Depreciation ........................................................... 466,575 496,033 Amortization ........................................................... 11,972 186,178 Deferred income tax provision .......................................... 33,000 20,000 Changes in assets and liabilities: Trade and other accounts receivable ................................. (68,782) 540,318 Inventories ......................................................... (389,525) (61,969) Deposits, prepaid expenses and other assets ......................... (33,591) 114,983 Accounts payable and accrued expenses ............................... (12,083) (192,206) ---------- ---------- Net cash provided by operating activities ......................... $ 489,771 $1,320,807 ---------- ---------- Cash flows from investing activities: Capital expenditures, net of disposals ................................. (247,144) (351,305) ---------- ---------- Net cash used in investing activities ............................. $ (247,144) $ (351,305) ---------- ---------- Cash flows from financing activities: Issuance of common stock ............................................... 163,425 30,281 Payment of bonds ....................................................... (125,000) - Principle payment of long term debt .................................... - (175,000) Purchase of treasury stock ............................................. (526,837) (551,192) ---------- ---------- Net cash used in financing activities ............................. $ (488,412) $ (695,911) ---------- ---------- Net increase (decrease) in cash and cash equivalents ...................... $ (245,785) $ 273,591 Cash and cash equivalents at beginning of period .......................... 1,860,822 1,999,292 ---------- ---------- Cash and cash equivalents at end of period ................................ $1,615,037 $2,272,883 ========== ==========
The accompanying notes are an integral part of the consolidated financial statements. 6 Supplemental Notes to Consolidated Financial Statements The unaudited interim consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's most recent Form 10-K covering the year ended December 31, 2001. The information furnished reflects, in the opinion of the management of Arrhythmia Research Technology, Inc. (the "Company") and its subsidiary Micron Products Inc., all adjustments necessary for a fair presentation of the financial results for the interim period presented. Interim results are subject to year-end adjustments and audit of year end results by independent certified public accountants. Inventories:
Inventories consist of the following as of: September 30, December 31, 2002 2001 ------------ ------------ Raw materials .................................................. $ 289,046 $166,835 Work-in-process ................................................ 315,829 318,070 Finished goods ................................................. 681,737 412,182 ---------- --------- Total ..................................................... $1,286,612 $897,087 ========== =========
Goodwill: Effective January 1, 2002 the Company adopted FASB Statement No.141, Business Combinations ("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interest method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but test goodwill for impairment at least annually. In addition, SFAS 142, requires that the Company identify reporting units for the purpose of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidelines in SFAS 142. SFAS 142 is required to be applied to all goodwill and other intangible assets regardless of when those assets were initially recognized. As of January 1, 2002, the Company's goodwill of $1,326,000 was composed of $82,000 associated with attaching machine assets purchased from Newmark, Inc. in 1997 and $1,244,000 associated with the acquisition of Micron Products Inc. in 1992. As a result of the transitional impairment tests, the goodwill associated with the Newmark agreement was determined to be impaired as determined by using the present value of future cash flows solely related to attaching machines. The balance of $82,000 ($57,000 net of tax) is being reported as the cumulative effect of change in accounting principle for the nine months ended September 30, 2002. The diminishing number of leases and sales of attaching machines used for the assembly of disposable medical electrodes in this mature industry lead to the impairment of Newmark goodwill. No adjustment to the $1,244,000 balance of goodwill associated with the Micron Products acquisition was deemed necessary as of September 30, 2002. 7 Goodwill - (continued) The continued effect on reported net income due to the cumulative effect of change in accounting principle, and the discontinuance of goodwill amortization is as follows:
Three Months Ended Nine Months Ended September September 30, 30, 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------- Reported net income $ 178,744 $ 80,766 $ 425,205 $ 217,470 Cumulative effect of change in accounting principle - - 57,000 - Goodwill amortization - 32,472 - 97,417 - ----------------------------------------------------------------------------------------------------------------- Adjusted net income before cumulative effect of $ $ $ $ change in accounting principle and discontinuance of goodwill amortization 178,744 113,238 482,205 314,887 ================================================================================================================= Basic net income per share as reported $ .06 $ .03 $ .15 $ .07 Cumulative effect of change in accounting principle - - .02 - Goodwill amortization - .01 - .03 - ----------------------------------------------------------------------------------------------------------------- Basic net income per share before cumulative effect of $ .06 $ .04 $ .17 $ .10 change in accounting principle and discontinuance of goodwill amortization ================================================================================================================= Diluted net income per share as reported $ .06 $ .03 $ .14 $ .07 Cumulative effect of change in accounting principle - - .02 - Goodwill amortization - .01 - .03 - ----------------------------------------------------------------------------------------------------------------- Diluted net income per share before cumulative effect $ .06 $ .04 $ .16 $ .10 of change in accounting principle and discontinuance of goodwill amortization =================================================================================================================
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Any forward looking statements made herein are based on current expectations of the Company that involves a number of risks and uncertainties and should not be considered as guarantees of future performance. These statements are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Forward looking statements may be identified by the use of words such as "expect," "anticipate," "believe," "intend," "plans," "predict," or "will." The factors that could cause actual results to differ materially include: interruptions or cancellation of existing contracts, impact of competitive products and pricing, product demand and market acceptance risks, the presence of competitors with greater financial resources than the Company, product development and commercialization risks and an inability to arrange additional debt or equity financing. Liquidity and Capital Resources Working capital was $3,265,568 at September 30, 2002 compared to $2,869,344 at December 31, 2001. The $396,224 increase in working capital for the first nine months of 2002 is attributed to the generation of $489,771 of operating cash flows in the nine months ending September 30, 2002. Cash of $113,028 ($125,000 face value) was consumed in the redemption of 11% bonds payable, which matured May 2002. Increased inventories were created to offset possible production delays as a result of the discontinued attempt to purchase certain business assets of a competitor of Micron Products Inc. These inventories are expected to be lower at year-end through sales to existing customers. The material for the new radio translucent ECG sensor contributed to the increase in raw material inventory and this product is expected to begin shipment in early 2003. The Company has a $1,000,000 revolving line of credit with a bank that has been extended until May 30, 2003. The credit line provides for borrowings to be collateralized by accounts receivable and inventory. However, the Company has not used the credit line due to sufficient liquidity provided by operations. 8 The Company has continued to execute the stock buy back program. During the quarter ended September 30, 2002, 100,000 shares were repurchased with an average share price of $2.65. In the first nine months of 2002, 190,413 shares were acquired at a total market cost of $526,837. The Board of Directors has authorized a continuation of the stock buy back program for another 50,000 shares in the 4th quarter. Results of Operations Revenue for the third quarter ended September 30, 2002 was $1,630,427 as the compared to $1,637,050 in the three months ended September 30, 2001. For the nine months ended September 30, 2002, the sales of Micron's standard ECG sensor products are 5% higher than in the same period of 2001. Micron has received notification that it has been chosen as the new supplier of the radio translucent ECG sensor from an existing customer, which will result in additional sales revenue beginning first quarter 2003. Sales of metal snap fasteners distributed by Micron to ECG electrode manufacturers continued to decline as major accounts switch to direct purchase. There were no significant sales of the Company's SAECG product in the first nine months of 2002. These latter two product lines have combined for less than 10% of revenue for the nine-month period ended September 30, 2002. Domestic and foreign sales, which includes sales to Canadian operations of $664,970 for the three months ended September 30, 2002 and $2,284,073 for the nine months ended September 30, 2002 are as follows:
Three Months Ended September 30, Nine Months Ended September 30, 2002 % 2001 % 2002 % 2001 % ---- - ---- - ---- - ---- - Foreign Sales $1,403,807 86 $1,326,656 81 $4,579,888 85 $4,355,652 83 Domestic Sales 226,620 14 310,394 19 797,873 15 910,034 17 ---------- --- ---------- --- ---------- --- ---------- --- Total $1,630,427 100 $1,637,050 100 $5,377,761 100 $5,265,686 100 ========== === ========== === ========== === ========== ===
Currency risk does not affect the Company's financial results because the Company's foreign sales contracts are denominated in U.S. Dollars. Cost of sales was 67% of revenue for the nine months ended September 30, 2002 compared to 70% of revenue for the same period in 2001. The improvement in 2002 was due to manufacturing efficiencies related to the increase in sales volume of Micron's ECG sensors. There have been no significant changes in material cost, wages, or production expenses over the last nine months and none are expected for the remainder of 2002. Selling and marketing expense was $15,402 lower in the first nine months of 2002 compared to the same period in 2001. In 2001, Micron initiated a program to expand sales of its ECG sensors in the Pacific Rim regions. This new venture has not resulted in a significant increase in the Company's revenue for the nine month period ended September 30, 2002 due to the limited availability of the Company's foreign agent. General and administrative expense includes approximately $111,000 of legal expenses and $25,600 in other professional and corporate expenses in the nine month period ended September 30, 2002, which was related to an attempt to acquire certain business assets of a competitor of Micron Products Inc. The negotiations to acquire the assets were discontinued in July 2002. The increase in legal, professional and corporate expenses was offset by a reduction of general and administrative expenses associated with the consolidation of the Company's Texas office to Micron's existing location in Massachusetts. The net effect is an increase of $19,114 in general and administrative expenses in the nine months ended September 30, 2002 compared to the same period in 2001. Research and development expense was $34,756 lower for the third quarter of 2002 and $91,813 lower for the first nine months of 2002 compared to similar periods in 2001 due to the elimination of the Company's in-house R&D staff and overhead as part of closing the Austin, Texas office in 2001. The redesign of the Predictor(R) 7 software has been completed and minor maintenance is contracted through outside parties, if and when needed. Interest expense is lower in both periods reported for 2002 when compared to 2001, principally as a result of the early redemption of $425,000 of 11% bonds payable in late 2001, and maturity of $125,000 in 2002. Other income includes interest earned on the Company's cash equivalents of $21,862 for the first nine months of 2002 compared to $76,806 for the nine months ended September 30, 2001. The reduction of interest income is due to the lower returns on fixed rate investments. Offsetting part of the loss of interest income was the elimination of amortization expense on debt discount when the 11% bonds were redeemed. 9 Income taxes as a percent of income for the quarters ended September 30, 2002 and 2001 were 11% and (40%) respectively. For the nine month period ended September 30, 2002 and September 30, 2001, income taxes as a percent of income before income taxes and cumulative effect of change in accounting principle (net of tax) were 23% and 14% respectively. No Federal income taxes were owed for 2001, and the Company expects to substantially reduce the Federal income taxes for 2002 by utilizing net operating loss carry forwards. Item 3. Quantitative and Qualitative Disclosures and Market Risk No material changes have occurred related to the Company's policies, procedures, controls or risk profile. Item 4. Evaluation of Disclosure Controls and Procedures Within ninety days prior to the filing date of this report, the management of the Company including James E. Rouse as President, Chief Operating Officer and Acting Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures. Under rules promulgated by the SEC, disclosure controls and procedures are defined as those "controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms." Based on the evaluation of the Company's disclosure controls and procedures, it was determined that such controls and procedures were effective as of the date of the conclusion of the evaluation. Further, there were no significant changes in the internal controls or in other factors that could significantly affect these controls after the date of the conclusion of their most recent evaluation. Part II - Other Information Item 1. Legal Proceedings From time to time the Company may be involved in disputes and litigation in the normal course of business. The Company is not presently involved in any disputes or litigation that reasonably could be expected to have a material impact on the Company's business, operating results, financial condition and cash flows. Item 4. Submission of Matters to a Vote of Security Holders On November 1, 2002, the Company held the 2002 Annual Meeting of Stockholders. At the meeting, stockholders voted the following: (1) The election of two Class I Directors, with terms expiring in 2005 For Withheld --- -------- Russell C. Chambers MD 2,502,659 2,455 James E. Rouse 2,502,459 2,655 (2) The Appointment of BDO Seidman to audit the consolidated financial statements of the Company for the year ended December 31, 2002. For Against Abstain --- ------- ------- 2,321,413 169,307 14,394 Item 6. Exhibits and Reports on Form 8-K Exhibit 3.1 - Arrhythmia Research Technology, Inc. By-laws Exhibit 10.1 - Employment Agreement President James E. Rouse Exhibit 99.1 - Certification pursuant to 18 U.S.C.ss.1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf the undersigned thereunto duly authorized. Arrhythmia Research Technology, Inc. /s/ James E. Rouse --------------------------------------- President, Chief Operating Officer and Acting Principal Financial Officer November 12, 2002 11 CERTIFICATION I, James E. Rouse, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Arrhythmia Research Technology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant issuer as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions in regard to significant deficiencies and material weaknesses. DATE: November 12, 2002 /s/ James E. Rouse ------------------------------------- James E. Rouse President and Chief Operating Officer 12 I, James E. Rouse, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Arrhythmia Research Technology, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant issuer as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions in regard to significant deficiencies and material weaknesses. DATE: November 12, 2002 /s/ James E. Rouse ------------------------------ James E. Rouse Acting Chief Financial Officer 13 EX-3.1 3 dex31.txt BY-LAWS Exhibit 3.1 - Arrhythmia Research Technology, Inc. By-laws AMENDED AND RESTATED BY-LAWS OF ARRHYTHMIA RESEARCH TECHNOLOGY, INC. November 11, 2002 ARTICLE I OFFICES 1. Principal office. The principle office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. 2. Other offices. The corporation may also establish offices in other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine, or the business of the corporation may require. ARTICLE II SHAREHOLDERS 3. Annual Meeting. A. The annual meeting of the shareholders of the Company shall be held on such date in each year and at such time and place as may be determined by the Board of Directors, for the purpose of electing Directors and for the transaction of such other proper business as may come before the meeting. Should the shareholders fail to elect Directors on the day designated for their annual meeting or before an adjournment thereof, the Board of Directors shall call a special meeting of the shareholders as soon thereafter as practical. B. Special meetings of the stockholders of the Corporation may be called by the Board of Directors or by the Chairman to be held on such date as the Board or the Chairman shall determine. The Secretary shall call a special meeting of the stockholders, to be held on such date as the Secretary shall determine, on the request in writing of the holders of shares of capital stock of the Corporation entitled to vote at such meeting which represent a majority of the total votes entitled to be cast at such meeting. Such notice shall set forth: (a) the action proposed to be taken at the meeting and the reasons for the action; (b) the name and address of each of such holders who intends to propose action to be taken at the meeting; (c) a representation that each is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose the action specified in the request; (d) any material interest of any stockholder in such action; and (e) in the event that any proposed action constitutes or includes a proposal to amend either the Certificate of Incorporation or the By-laws of the Corporation, the language of the proposed amendment. The Secretary may refuse to call a special meeting unless the request is made in compliance with the foregoing procedure. C. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the meeting by or at the direction of the Board of Directors or (iii) brought before the meeting by a stockholder in accordance with the procedure set forth below. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given written notice thereof, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation, not later than 90 days in advance of such meeting, provided, however, that if such annual meeting of stockholders is held on a date other than the second Tuesday on the fifth month following the close of the Corporation's fiscal year, such written notice must be given within ten days after the first public disclosure, which may include any public filing by the Corporation with the Securities and Exchange Commission, of the date of the annual meeting. Any such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and in the event that such business includes a proposal to amend either the Certificate of Incorporation or By-laws of the Corporation, the language of the proposed amendment, (b) the name and address of the stockholder proposing such business, (c) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business and (d) any 1 material interest of any stockholder in such business. No business shall be conducted at an annual meeting except in accordance with this paragraph, and the chairman of any annual meeting of stockholders may refuse to permit any business to be brought before such annual meeting without compliance with the foregoing procedures. D. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock of the Corporation as to dividends or upon liquidation, nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Any stockholder entitled to vote for the election of directors may nominate at a meeting persons for election as directors only if written notice of such stockholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, 90 days in advance of such meeting (provided that if such annual meeting of stockholders is held on a date other than the second Tuesday on the fifth month following the close of the Corporation's fiscal year, such written notice must be given within ten days after the first public disclosure, which may include any public filing of the Corporation with the Securities and Exchange Commission, of the date of the annual meeting), and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of each person to be nominated: (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice as directors; (c) a description of all arrangements or understandings between the stockholder and each proposed nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission were such nominee to be nominated by the Board of Directors; and (e) and consent of each proposed nominee to serve as a director of the Corporation if so elected. The chairman of any meeting of stockholders to elect directors may refuse to permit the nomination of any person to be made without compliance with the foregoing procedure. 4. Place of meetings. The Board of Directors may designate a place, either within or without the state of Delaware, as the place of meeting for the annual meeting or for a special meeting called by the Board of Directors; provided, however, that special meetings called at the written request of shareholders shall be held at the corporation's registered office. A waiver of notice signed by all shareholders entitled to vote at the meeting may designate a place, either within or without the State of Delaware, as the place for holding such meetings. Absent a designation, the shareholders will conduct their meeting at the corporation's registered office in the State of Delaware. 5. Notice of meetings. The corporation's secretary or corporate counsel, shall deliver to each shareholder of record entitled to vote at a meeting, not less than ten nor more than fifty days before the meeting date, a written or printed notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation. 6. Record dates. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or an adjournment thereof, or for the purpose of determining shareholders entitled to receive payment of a dividend, or in order to make a determination of shareholders for another corporate purpose, the Board of Directors may fix, in advance, a date as the record date for such determination. The Board of Directors shall fix this date as one not more than sixty days and not less than ten days, prior to the date of the particular action requiring determination. Absent a record date fixed by the Board of Directors, shareholders of record shall be fixed at the time the Secretary or corporate counsel, delivers the first notice of the meeting. Absent a record date fixed by the Board of Directors, shareholders entitled to receive payment of dividends shall be those of record on the date the Directors declare the dividend. 7. List of stockholders. Prior to every election of Directors, the Secretary shall prepare a complete list of shareholders entitled to vote at the election, arranged in alphabetical order, with the residence of each and the number of voting shares held by each. Any shareholder may examine this list at the corporation's principal office 2 during the ten days immediately preceding the election. This list shall be produced and kept at the place of election during the whole time thereof, and subject to inspection by any shareholder. 8. Business. The President shall preside at the shareholders' meeting, confine the business to the objects stated in the call, and, when in order, approve all minutes prepared by the Secretary. The President may specify a manual or other authority of parliamentary procedure as a guide for conducting the meeting; provided, that once a manual is selected, that manual shall control for all meetings. The President may rely upon the interpretations of corporate counsel in matters of parliamentary law. 9. Quorum. The holders of a majority of the shares of the stock issued and outstanding and entitled to vote there at, present or represented by proxy, shall be requisite for and shall constitute a quorum at all shareholders' meetings for the transaction of business, except as otherwise provided by statute, by the Certificate of Incorporation, or by these By-laws. If less than a majority of the outstanding shares are represented at a meeting, however, a majority of the shares so represented may adjourn the meeting, from time to time without notice other than by announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting, where a quorum shall be present or represented, all business may be transacted which might have been transacted at the meeting originally called. 10. Vote. When a quorum is present at a meeting, the vote of the holders of a majority of the stock having voting power present or represented by proxy shall decide questions brought before the meeting, unless the question is one which, by express provisions of the Delaware Statutes, the Certificate of Incorporation or by these By-laws, a different vote is required, in which case such express provision shall govern and control the decision of the question. 11. Proxy. At all shareholders' meetings, each shareholder having the right to vote shall be entitled to vote in person or by proxy appointed by a written instrument subscribed by the shareholder and bearing a date not more than three years prior to the meeting, unless the instrument specifically provides for a longer period. 12. Written consents. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, the shareholders may authorize action otherwise regarding the shareholders meeting by signing a unanimous consent to that effect, certified by the corporation's Secretary ARTICLE III DIRECTORS 1. General. The business, affairs and property of the Corporation shall be managed and controlled by a Board of directors, which, except as otherwise provided by law or the Certificate of Incorporation, shall exercise all the powers of the Corporation. The number, qualifications, term of office, manner of election, time and place of meeting, compensation and powers and duties of the directors of the Corporation shall be fixed from time to time by or pursuant to these By-laws. 2. Number of Directors. A. The number of directors which shall constitute the Board of Directors shall be fixed from time to time by a vote of a majority of the Board of Directors, provided, however, that the number of directors of the Corporation shall be not less than two or more than six. The directors shall be classified with respect to the time for which they shall severally hold office, by dividing them into three classes, as nearly equal in number as possible. Each class shall be elected at the annual meeting of stockholders held in 1988 for terms which will expire as follows: one class of directors to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1989, the second class of directors to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1990; and the third class of directors to be originally elected for a term expiring at the annual meeting of stockholders to be held in 1991. B. At each annual meeting of stockholders beginning in 1988, successors to the class of directors whose term just expired shall be elected to serve for a term expiring at the annual meeting of stockholders held in the third year following the year of their election and until their successors shall have been elected and qualified. The Board 3 of Directors shall increase or decrease the number of directors in one or more classes as may be appropriate whenever it increases or decreases the number of directors in order to ensure that those classes remain as nearly equal in number as possible. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. 3. Removal. Except as the law may otherwise provide, the stockholders shall not remove any director from office without cause prior to the expiration of his term of office unless holders of at least sixty-six and two-thirds percent (66-2/3%) of the shares of capital stock of the Corporation entitled to vote thereon, vote to remove the director from office. 4. Vacancy. In case of any vacancy in any class of directors through death, resignation, disqualification, removal, increase in the number of directors or other cause, the remaining directors, through less than a quorum, by affirmative vote of a majority thereof or by a sole remaining director, may fill such vacancy by the election of a director to hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until the election and qualification of his successor. Each election of directors by the stockholders shall be conducted by three judges appointed by the Board of Directors, or such lesser number (but not less than one) as the Board shall determine. If any or all of such appointees shall fail to appear or to act at the meeting, the vacancy or vacancies shall be filled by the chairman of the meeting or by the Board of Directors. No person who is candidate for office shall act as judge. MEETINGS OF THE BOARD 5. Place. Directors may hold their meetings, both regular and special, either within or without the State of Delaware. 6. First meeting. The first meeting of each newly elected Board shall be held at the time and place fixed by vote of the stockholders at the annual meeting, and no notice of such meeting shall be necessary to the newly elected Directors in order to legally constitute the meeting provided a quorum shall be present; or, the Directors may meet in such place and at such time as shall be fixed by written consent of all Directors. 7. Regular meetings. Regular Board meetings may be held, without notice, at such time and place as shall be, from time to time, determined by the Board. 8. Special meetings. Special Board meetings may be called by the President on 48 hours notice to each director, either personally or by mail or telegram. Special meetings shall be called by the President or Secretary in like manner and on like notice, on written request of two Directors. 9. Quorum. At all Board meetings, a majority of Directors shall constitute a quorum for transaction of business, except as otherwise provided by statute or in the Certificate of Incorporation. If less than a majority is present at a meeting, a majority of Directors present may adjourn the meeting without further notice until a majority is present. 10. Vote. The affirmative vote of a majority of Directors shall be required for Board action. 11. Deliberations. The Chairman of the Board shall conduct Directors' meetings, may designate a parliamentary manual or authority as a guide and may rely upon the parliamentary interpretations of corporate counsel. Upon demand of a Director, the Chairman shall exclude from the meeting all persons other than Directors, Shareholders, the corporation's Secretary and Corporate Counsel. 12. Compensation. By resolution of the Board, the Directors may receive reimbursement for their expenses, if any, for attendance at each Board meeting and may receive a regular sum fixed by them for attendance at each Board meeting, or a stated salary as Director. No such payment shall preclude directors from serving the corporation in other capabilities and receiving compensation thereof. 4 13. Written consent. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, action required or permitted to be taken at Board meetings or of Board committees may be taken without a meeting, if all members of the Board or Board committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board or committee. 14. Telephonic meetings. The members of the Board of Directors may participate in and hold a meeting of the Board by means of a conference telephone or similar communications equipment provided that all persons participating in the meeting can hear and communicate with each other. Participation by a person in the above manner shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. COMMITTEES OF DIRECTORS 15. Designation. The Board may, by resolution passed by a majority of the entire Board, designate one or more committees, each committee to consist of two or more corporate Directors, which, to the extent provided in the resolution, shall have and may exercise the powers of the Board in managing the corporate business and affairs, and may have power to authorize the seal of the corporation to be fixed to all papers which may require it. The committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. 16. Minutes. The committees shall keep regular minutes of their proceedings and report same to the Board when required. ARTICLE IV NOTICE 1. Method. Whenever notice is required to be given to a Director or shareholder under provisions of the statutes, Certificate of Incorporation, or of these By-laws, notice shall not be construed to mean personal notice, but may be given in writing, by mail or telegram, addressed to the Director or stockholder to the address which appears on the corporate books, and notice shall be deemed to be given at the time mailed or transmitted. 2. Waiver of notice. Whenever notice is required to be give under provisions of the statutes, Certificate of Incorporation, or of these By-laws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent thereto, and the waiver need not specify the purpose of or the business to be transacted at the meeting. ARTICLE V OFFICERS 1. Designation. The corporation officers shall be a Chairman of the Board, a President, one or more Vice-Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Any two offices may be held by the same person except that no one may hold the offices of President and Treasurer at the same time if the corporation has more than one shareholder of record. 2. Election. The Board of Directors, at its first meeting after each annual meeting of shareholders, shall choose a President and Chairman of the Board from among its members, and shall choose one or more Vice-Presidents, a Secretary and a Treasurer, none of whom need be a member of the Board. 3. Agents. The Board may appoint such agents on behalf of the Corporation as it shall deem necessary, for such terms and to exercise such powers and perform such duties as shall be determined from time to time by the Board, and not conflicting with these By-laws or the Certificate of Incorporation. 5 4. Salaries. Officers of the Corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Directors. 5. Term. The officers of the Corporation shall hold office until their successors are chosen and qualified, unless sooner removed or displaced. An officer elected or appointed by the Board may be removed at any time by affirmative vote of a majority of the entire Board whenever, in their judgment, the best interest of the Corporation would be served thereby. 6. Vacancy. Vacancy in an office because of death, resignation, removal, disqualification or otherwise may be filled by the Board for the unexpired portion of the term. 7. Chairman. It shall be the duty of the Chairman of the Board, if present, to preside at all meetings of the Board of Directors and the Executive Committee, and to exercise and perform such other powers and duties as may, from time to time, be assigned to him by the Board or prescribed by the By-laws. 8. President. The President shall be the chief executive officer of the corporation. Unless otherwise provided by the Directors, the President shall preside, when present, at all meetings of stockholders and of the Directors (except as provided in Section 7 above). The President shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe. 9. Vice-President. The Vice-President, or if there shall be more than one, the Vice Presidents in the order determined by the Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and shall perform such other duties and shall have such other powers as the Directors or the President may from time to time prescribe. The Directors may assign any Vice President the title of Executive Vice President, Senior Vice President, or any other title determined by the Directors. 10. Secretary and Assistant Secretaries. If a Secretary is appointed, he shall attend all meetings of the Directors and shall keep a record of the meetings of the Directors. He shall, when required, notify the Directors of their meetings, and shall have such other powers and shall perform such other duties as the Directors or the President may from time to time prescribe. The Assistant Secretary, or if there shall be more than one, the Assistant Secretaries in the order determined by the Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and shall have such other powers as the Directors, the President or the Secretary may from time to time prescribe. 11. Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Directors, have general charge of the financial affairs of the corporation and shall cause to be kept accurate books of account. He shall have charge of all funds, securities and valuable documents of the corporation, except as the Directors or the President may otherwise provide. The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Directors, shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and shall have such other powers as the Directors, the President or the Treasurer may from time to time prescribe. 12. Clerk and Assistant Clerks. The Clerk shall keep a record of the meetings of stockholders. Unless a transfer agent is appointed, the Clerk shall keep or cause to be kept in Massachusetts, at the principal office of the corporation or at his office, the stock and transfer records of the corporation, in which are contained the names of all stockholders and the record address, and the amount of stock held by each. If there is no Secretary or Assistant Secretary, the Clerk shall keep a record of the meetings of the Directors. The Clerk shall perform such other duties and shall have such other powers as the Directors or the President may from time to time prescribe. The Assistant Clerk, or if there shall be more than one, the Assistant Clerks in the order determined by the Directors, shall, in the absence or disability of the Clerk, perform the duties and exercise the powers of the Clerk and 6 shall perform such other duties and shall have such other powers as the Directors, the President or the Clerk may from time to time prescribe. In the absence of the Clerk or any Assistant Clerk from any meeting of stockholders, the person presiding at the meeting shall designate a Temporary Clerk to keep a record of the meeting. 13. Chief Operating Officer. The Chief Operating Officer shall be the chief operating officer of the Corporation. The Chief Operating Officer shall, subject to the direction of the Directors, have general supervision and control of the business of the corporation. The Chief Operating Officer shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe. 14. Other Powers and Duties. Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in the By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate. ARTICLE VI INDEMNIFICATION OF OFFICERS AND DIRECTORS Each person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Corporation to the full extent permitted or authorized by the General Corporation Law of the State of Delaware. The Corporation may, but shall not be obligated to, maintain insurance, at its expense, for its benefit in respect of such indemnification and that of any person whether or not the Corporation would otherwise have the power to indemnify such person. ARTICLE VII REIMBURSEMENT OR DISALLOWED DEDUCTIONS Payments made to a Corporate officerector (such as salary, commissions, bonus, interest, rent or expenses) which shall be disallowed by the Internal Revenue Service, in whole or in part, as a deductible expense for the purpose of corporate tax reporting, shall be reimbursed by such officer to the corporation to the full extent of such disallowance. The Board shall take all necessary steps to enforce this repayment. In lieu of repayment by the Officer or Directors, the Board, at its option, may withhold appropriate amounts from the Officer's or Director's future compensation until payment has been recovered, provided the amount withheld is sufficient to extinguish the indebtedness within five years. ARTICLE VIII CERTIFICATES OF STOCK 1. Form. Certificates representing shares of stock in the corporate name shall be in such form as determined by the Board. All certificates shall be signed by the President or Vice-President, and by the Secretary or Treasurer. All certificates for such shares shall be consecutively numbered, and the name and address of the person to whom the shares represented thereby are issued together with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. 2. Transfer Agents, Registrars. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employees, or, (2) by a registrar other than the corporation or its employees, any other signature on the certificate may be facsimile. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. 7 3. Lost certificates. Each person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of the fact and shall give the corporation a bond in such sum as the Board may require to indemnify the corporation against any claim that may be made against it on account of the alleged loss of the certificate. The Board may accept the affiant's personal bond if it should appear that he or she possesses unencumbered property of sufficient value to assure indemnification. A new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed shall then be issued. 4. Transfer of stock. Upon surrender to the corporation's transfer agent or registrar of the corporation's share certificates, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction on its books. 5. Holder. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact hereof and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have the express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE IX GENERAL PROVISIONS 1. Dividends. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may declare dividends upon the corporate capital stock, at a regular or special meeting, pursuant to law. Subject to the provisions of the Certificate of Incorporation, dividends may be paid in cash, in property or in shares of capital stock. 2. Reserve for contingencies. Before payment of a dividend, the Board of Directors may set aside out of corporate funds available for dividends, such sum or sums as the Directors may, from time to time and in their discretion, deem proper, as a reserve fund to meet contingencies or for repairing or maintaining the corporate property, or for such other purposes as the Directors shall deem to be in the corporation's best interest. The Directors may modify or abolish such reserve in the manner in which it was created. 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors, from time to time, designates. 4. Corporate seal. The Board of directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the Corporation and the State of Incorporation and "Corporate Seal." 5. Fiscal year. The corporation's fiscal year shall end on the last day of December each year. ARTICLE X AMENDMENTS Subject to the provisions of Article II hereof, the By-laws of the Corporation, regardless of whether adopted by the stockholders or by the Board of Directors, may be altered, amended or repealed by the Board of Directors or by the stockholders. Such action at a meeting of the Board of Directors shall be taken by the affirmative vote of a majority of the members of the Board of Directors in office at the time; and such action by the stockholders shall be taken by the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the shares of capital stock of the Corporation entitled to vote thereon. These By-laws are subject to any requirements of law, any provisions of the Certificate of Incorporation, as from time to time amended, and any terms of any series of preferred stock or any other securities of the Corporation. 8 EX-10.1 4 dex101.txt JAMES F. ROUSE EMPLOYMENT AGREEMENT Exhibit 10.1 Employment Agreement President James E. Rouse EMPLOYMENT AGREEMENT AGREEMENT, dated as of the 5th day of October, 2001, by and between Micron Products Inc., a Massachusetts corporation having an office and place of business at 25 Sawyer Passway, Fitchburg, Massachusetts 01420 (hereinafter referred to as the "Company") and James E. Rouse, an individual residing at 5 Hickory Drive, Shrewsbury, Massachusetts 01545 (hereinafter referred to as "Employee"). W I T N E S S E T H WHEREAS, the Company desires that Employee continue to provide services to the Company and Employee desires to continue to render services to the Company; and WHEREAS, the parties desire to further the goals of stability and security, both with respect to the Company and with respect to the Employee; NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the Company and Employee hereby agree as follows: 1. Employment. The Company agrees to employ Employee, and Employee agrees to be so employed, in the capacity of President of Micron Products Inc. The term of the employment shall commence as of October 5th, 2001 and terminate on October 5th, 2006. This Agreement shall be renewed for successive one-year terms, unless one party notifies the other in writing within thirty (30) days of the expiration of the then-current term of its intention to terminate the Agreement. 2. Duties. Employee shall at all times discharge his duties in consultation with and under the supervision of the Company's Board of Directors. The parties have acknowledged that the Company is in a period of transition and that the duties of the Employee may change from time to time. 3. Time and Efforts. Employee shall conscientiously devote all of his time and attention and best efforts during working hours in the discharging of his duties. It is understood and agreed that Employee's present duties generally require forty (40) hours during each working week and that, on occasion, additional hours may be required to meet the Company's objectives. 4. Compensation. (a) Base Compensation. As compensation for his services hereunder, the Company shall pay to Employee base compensation at the rate of $100,000 per annum, which base compensation shall be paid to Employee in 52 weekly installments in accordance with the general practice of the Company. Salary payments shall be subject to withholding and other applicable taxes. Employee shall be entitled to an annual review for raises in accordance with then-current Company policy. (b) Bonus Compensation and Other Benefits. In addition to his base compensation set forth in Paragraph 4(a) above, Employee shall be entitled to participate in such bonus compensation and benefit plans as the Company may institute from time to time. 5. Medical and Dental Benefits. The Company agrees to provide to Employee such hospital, surgical, dental and medical benefits and at a cost that is normally provided to its other employees under the Company's group health plans. 6. Non-Disclosure of Trade Secrets and Confidential Information. (a) Employee acknowledges that the Company possesses and will continue to possess and develop information and knowledge that has or will become known to Employee in connection with the development, manufacture and marketing of the Company's products and the financing and administration of the Company. All such information, except such information as is known or becomes known to the public without violation of this Agreement or other restrictions on its use and disclosure, is hereinafter referred to as the "Confidential Information". By way of illustration, but not limitation, the Confidential Information may include trade secrets, manufacturing processes, formulas, data, engineering and manufacturing processes, know-how, improvements, discoveries, strategies, forecasts, projections, proprietary software programs, licenses, prices, costs and supplier lists, and 1 includes, such information with respect to the Company's proprietary processes for coating silver/silver chloride plated electrodes which is not in the public domain. (b) Any and all writings and other physical embodiments of Confidential Information, including, without limitation, drawings, specifications, recordings media for machine information-processing systems (such as disks, ROMs, and tapes), documentation of all types, contracts, reports, manuals, lists, quotations, proposals, correspondence, notebooks, and samples shall be and remain the exclusive property of the Company. (c) At all times, both during his employment by the Company and afterward, Employee will keep in confidence, and will not disclose, any Confidential Information to anyone, and will not transfer the physical embodiment of any Confidential Information to anyone, including employees of the Company, except as authorized by the Company. Employee will use any Confidential Information and any physical embodiment of Confidential Information to which he has access only in the course of his work for the Company and for its benefit and will not appropriate it for the benefit of himself or any third party. (d) Employee will return to the Company all physical embodiments of Confidential Information, including any copies, in his possession or under his control, (i) at any time upon the request of the Company, and (ii) without such a request at the termination for any reason of his employment by the Company. (e) Employee represents that he has not previously disclosed any information or knowledge that would have fallen within the definition of "Confidential Information", that he has not transferred the physical embodiment of such information or knowledge, and that he has not appropriated such information or knowledge for the benefit of himself or any third party. 7. Disclosure and Assignment of Inventions and Works of Authorship. (a) Any discovery, invention, improvement, process, formula, or technique, whether or not patentable, that Employee made, may make, conceived, or reduced to practice, either alone or with others, either (i) in the course of performing work for the Company or at the Company's expense, or (ii) that results from tasks assigned to him by the Company, or (iii) whose creation ordinarily would be associated with his then current responsibilities as an employee of the Company (hereinafter "Proprietary Inventions") shall be the exclusive property of the Company, and the Company shall be the owner of any patents and other rights related to Proprietary Inventions. Accordingly, Employee hereby assigns and conveys to the Company all of his right, title, and interest in and to any Proprietary Inventions. (b) Employee will promptly disclose to the Company all such Proprietary Inventions and will help the Company, at its expense, obtain and enforce patents or Proprietary Inventions in any countries it selects, and Employee will execute any related documents, including, without limitation, application papers for patents, assignments, affidavits and oaths of facts within his knowledge, and assignment of his right, title and interest in and to Proprietary Inventions and related patent applications and patents to the Company or its designee. Employee will do any other things the Company requests to convey to, or vest in, the Company the rights, titles, benefits, and privileges intended to be conveyed. Employee's obligation under this paragraph shall continue after the termination of his employment, subject to the Company's compensating him at a reasonable rate for time actually spent by him at the Company's request after termination. (c) Employee acknowledge that all works of authorship (including, without limitation, works or authorship that contain software program code) that Employee produces during, and within the scope of, his employment by the company, whether they are or are not created on the Company's premises or during hours in which he is supposed to be rendering services to the Company, are works made for hire and are the property of the Company, and that copyrights in those works of authorship are the property of the Company. If for any reason it appears that the Company is not the author of any such works of authorship for copyright purposes, Employee hereby expressly assigns all of his rights in and to that work to the Company and agrees to sign any instrument of specific assignment requested. (d) If Employee is identified as an inventor in any application for any United States or foreign patent where the invention (i) is claimed to have been made, conceived, or reduced to practice during the first year after termination of his employment by the Company and (ii) would have been a Proprietary Invention relating to the business of Micron if it occurred before the termination of his employment, then that invention shall be rebuttably presumed to be a Proprietary Invention. 2 (e) Employee represents that he has not previously disclosed any information or knowledge that would have fallen within the definition of "Confidential Information", that he has not transferred the physical embodiment of such information or knowledge, and that he has not appropriated such information or knowledge for the benefit of himself or any third party. 8. No Conflicting Agreements. Employee attaches to this Agreement, as Exhibit A, a complete list of any prior agreements with any other person related to intellectual property rights. If no such list is attached to this Agreement, Employee represents that there are no such prior agreements. Employee represents that his performance of all the terms of this Agreement and as an employee of the Company will not breach any other agreement related to intellectual property rights, including any agreement to keeping in confidence Information acquired by him prior to his employment with the Company. Employee has not previously and will not enter into any agreement, either written or oral, in conflict with this Agreement. 9. Non-Competition and Non-Solicitation. (a) While Employee is employed by the Company, he will not directly or indirectly perform services for or invest in any person, entity or organization competitive with the Company, whether as an individual, owner, partner, stockholder, director, officer, employee, representative or consultant. (b) For a period of one (1) year after Employee ceases for any reason to be employed by the Company he will not (i) directly or indirectly, perform services for or invest in any person, entity, or organization competitive with the Company, whether as an individual, owner, partner, stockholder, director, officer, employee, representative or consultant, or (ii) individually, or on behalf of or through any third party, directly or indirectly, solicit, entice or persuade any other employee of or consultant to the Company to leave the services of the Company for any reason. Notwithstanding any expiration of the post-employment prohibitions contained in this paragraph, the other provisions of this Agreement shall continue in full force and effect. 10. Termination. (a) Termination by the Company for Cause. The company may, at its option, terminate this Agreement by giving written notice of termination to the Employee without prejudice to any other remedy to which the Company may be entitled either at law, in equity or under this Agreement, if Employee: (i) shall have committed any material breach of any material provisions or covenants herein, or (ii) shall have committed any act of malfeasance or dishonesty against the Company; or (iii) shall have committed any act of gross negligence; or (iv) is certified by an independent licensed physician to be alcohol or drug dependent; or (v) engages in any pattern of prolonged unexcused absence. In the event of the termination of this Agreement prior to the Completion of the term of employment specified herein, for any of the reasons set forth in this Paragraph 10(a), the Company shall send written notice to Employee of such termination and describe in detail the action constituting the act of default or other reason. Employee shall be entitled to the compensation earned prior to the date of termination as provided for in this Agreement, computed pro rata up to and including the date of termination. Employee shall be entitled to no further compensation under this Agreement after the date of termination. (b) Termination for Other Specified Causes. This Agreement shall terminate immediately on the occurrence of any one of the following events: (i) The occurrence of circumstances that make it impossible or impracticable for the business of the Company to be continued; (ii) The death of Employee; (iii) The loss by Employee of legal capacity; or 3 (iv) The continued incapacity (due to a cause other than an industrial accident) on the part of Employee to perform his duties for a continuous period of 180 days, unless waived by the Company. In the event of the termination of this Agreement prior to the completion of the term of employment specified herein, for any of the reasons set forth in this Paragraph 10(b), Employee shall be entitled to the compensation earned prior to the date of termination as provided for in this Agreement, computed pro rata up to and including the date of termination. (c) Termination Without Cause by Current Ownership. The Company may terminate this Agreement at any time by giving thirty (30) days' notice to Employee. In that event, the Company shall pay to Employee his compensation for a period of twelve (12) months from the date of termination as provided in paragraph 4(a) above. Employee shall also be entitled, for a period of twelve (12) months, to all medical and dental benefits to which he would be entitled if he remained in the employ of the Company Employee shall not be entitled to any other severance payment. (d) Termination Without Cause by New Ownership. In the event of a sale of all or substantially all of the consolidated assets of the Company or a sale or other transfer of voting securities of the Company which result in the holders of a majority of the Company's voting securities prior to the transaction not holding a majority of the Company's voting securities after such transaction, the Company may terminate this Agreement at any time by giving thirty (30) days' notice to Employee. In that event, the Company shall pay to Employee the greater of his current annual base compensation up to the date of termination or his current annual base compensation for a period of twenty four (24) months. Employee shall also be entitled, for a period of eighteen (18) months, to all medical and dental benefits to which he would be entitled to if he remained in the employ of the Company. 11. Remedies for Breach. The parties recognize that the services to be performed by Employee are special and unique. Accordingly, if Employee breaches the terms and conditions of this Agreement, or shall threaten a breach of any such terms and conditions, then the Company shall be entitled to institute legal and equitable proceedings in any court of competent jurisdiction. The Company may seek to obtain damages for any breach of this Agreement, to enforce its specific performance by Employee, or to obtain injunctive relief, without the necessity of posting a bond, to protect itself from such breach. 12. Partial Invalidity. Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. Moreover, in the event that any one or more of the provisions hereof shall be held to be excessively broad as to duration, geographic scope, activity or subject, such provision shall be construed by limiting and reducing it in accordance with a judgment of a court of competent jurisdiction, so as to be enforceable under the specific circumstances of the particular case. Such holding shall, to the extent possible, not affect the validity or enforceability of any other provision hereof or of this Agreement as a whole. The parties acknowledge that they have closely examined and carefully negotiated the terms of this Agreement, deem such terms fair and adequate and wish them to be preserved. 13. Notices. Any notice to be delivered under this Agreement shall be deemed sufficiently given if in writing and delivered personally or mailed by certified mail, postage prepaid, to Employee at 5 Hickory Drive, Shrewsbury, MA 01545, and to the Company at 25 Sawyer Passway, Fitchburg, Massachusetts 01420, or to any changed address that either party may designate by like notice. The effective date of such notice shall be its mailing date. 14. Surviving Clauses. The provisions of Paragraphs 6 (regarding non-disclosure of trade secrets and confidential information) and 7 (regarding disclosure and of inventions and works of authorship) will survive the expiration or termination of this Agreement and will continue in full force and effect. 15. Miscellaneous. (a) Entire Agreement. This Agreement contains the entire agreement between the parties with respect to its subject matter and supersedes any previous oral or written communications, representations, understandings or agreements. Any amendment, modification or waiver of this Agreement shall be effective only if evidenced by a written instrument executed by both parties, and in the case of the Company, upon written authorization of the Company's Board of Directors. Employee's obligations, however, may not be delegated. (b) Binding Effect. All terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties, and their respective heirs, successors, assigns, and legal 4 representatives. The rights and benefits of the Company under this Agreement shall be transferable and assignable to any business entity with which the Company may merge or to which it may transfer all or a substantial part of its assets, and all the covenants and agreements hereunder shall be binding upon Employee's heirs, executors, administrators and legal representatives. (c) Non-Waiver. No delay or omission in enforcing any of the terms or conditions of this Agreement shall be construed as or constitute a waiver thereof or bar thereto; nor shall a waiver on any one occasion be construed as a bar to or waiver of any right or remedy on any future occasion. (d) Applicable Law. This Agreement shall be governed by, subject to, and interpreted in accordance with the laws of the Commonwealth of Massachusetts. (e) Headings. Headings in this Agreement shall not be used to interpret or construe its provisions. (f) Arbitration Any dispute arising out of or related to this Agreement shall be settled by arbitration in Boston, Massachusetts, by a panel of three arbitrators and pursuant to the rules and procedures of the American Arbitration Association. EXECUTED under seal on the date set forth above. MICRON PRODUCTS INC. By /s/ E. P. Marinos ----------------- E. P. Marinos Chairman of the Board /s/ James E. Rouse ------------------ James E. Rouse Employee 5 EX-99.1 5 dex991.txt CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Arrhythmia Research Technology, Inc. (the "Company") for the quarter ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned President, Chief Operating Officer and Acting Chief Financial Officer, certifies, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ James E. Rouse - ------------------- James E. Rouse President, Chief Operating Officer and Acting Chief Financial Officer Date: November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----