SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X] Filed By a Party Other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
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[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule14a-6(e)(2))
ASPEN TECHNOLOGY, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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ASPEN TECHNOLOGY, INC.
TEN CANAL PARK
CAMBRIDGE, MASSACHUSETTS 02141
[Aspen Technology, Inc. Logo]
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We invite you to attend our 2001 Annual Meeting of Stockholders, which is being
held as follows:
DATE: Tuesday, December 11, 2001
TIME: 3 P.M.
LOCATION: Hale and Dorr LLP
Twenty-Sixth Floor
60 State Street
Boston, Massachusetts
At the Meeting, we will ask you and our other stockholders:
1. To elect two directors to three-year terms;
2. To approve a charter amendment to increase the number of
authorized shares of common stock;
3. To consider and act upon a stockholder proposal requesting the
rescission of our shareholder rights plan; and
4. To consider and act upon any other business properly presented at
the Meeting.
You may vote on these matters in person, via the Internet, by telephone or
by proxy. Unless you are voting via the Internet or by telephone, we ask that
you complete and return the enclosed proxy card promptly--whether you plan to
attend the Meeting or not--in the enclosed addressed, postage-paid envelope, so
that your shares will be represented and voted at the Meeting in accordance with
your wishes. If you attend the Meeting, you may withdraw your proxy and vote
your shares in person. Only stockholders of record at the close of business on
October 25, 2001 may vote at the Meeting.
By order of the board of directors,
/s/ MICHAEL J. MUSCATELLO
----------------------------------------
MICHAEL J. MUSCATELLO
Secretary
Cambridge, Massachusetts
November 5, 2001
PROXY STATEMENT
FOR THE
ASPEN TECHNOLOGY, INC.
2001 ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
Page
----
INFORMATION ABOUT THE MEETING
This Proxy Statement......................................................... 3
How to Vote.................................................................. 3
Quorum Required to Transact Business......................................... 4
Availability and Fees of Auditors............................................ 4
DISCUSSION OF PROPOSALS
Proposal One: Election of Class II Directors................................. 6
Proposal Two: Charter Amendment to Increase Number of Authorized
Shares of Common Stock ........................................ 7
Proposal Three: Request to Rescind Shareholder Rights Plan................... 9
Other Matters................................................................ 13
Stockholder Proposals for 2002 Annual Meeting................................ 13
ADDITIONAL INFORMATION ABOUT DIRECTORS
Background Information About Directors Continuing in Office.................. 14
Board and Committee Meetings................................................. 15
Compensation Committee Interlocks and Insider Participation.................. 15
Director Compensation........................................................ 15
Report of Audit Committee.................................................... 16
INFORMATION ABOUT EXECUTIVE OFFICERS
Background Information About Executive Officers.............................. 18
Executive Officer Compensation............................................... 19
Change in Control Agreements................................................. 21
Report of Compensation Committee............................................. 22
INFORMATION ABOUT STOCK OWNERSHIP AND PERFORMANCE
Stock Owned by Directors, Executive Officers and Greater-than-5%
Stockholders............................................................... 23
Compliance with Reporting Requirements....................................... 24
Performance Graph............................................................ 24
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INFORMATION ABOUT THE MEETING
THIS PROXY STATEMENT
We have sent you this Proxy Statement and the enclosed proxy card because
our board of directors is soliciting your proxy to vote at our 2001 Annual
Meeting of Stockholders or any adjournment or postponement of the Meeting. The
Meeting will be held at 3 P.M., local time, on Tuesday, December 11, 2001, at
the offices of Hale and Dorr LLP, Twenty-Sixth Floor, 60 State Street, Boston,
Massachusetts.
- THIS PROXY STATEMENT summarizes information about the proposals to be
considered at the Meeting and other information you may find useful in
determining how to vote.
- THE PROXY CARD is the means by which you actually authorize another
person to vote your shares in accordance with your instructions. The
proxy card also includes contact information in case you wish to vote
via the Internet or by telephone.
Our directors, officers and employees may solicit proxies in person or by
mail, telephone, facsimile or electronic mail. We will pay the cost of
soliciting these proxies. We expect that the expense of any solicitation will be
nominal. We will reimburse brokers and other nominee holders of shares for
expenses they incur in forwarding proxy materials to beneficial owners of those
shares. We have not retained the services of any proxy solicitation firm to
assist us in this solicitation. In the event we subsequently decide to engage a
proxy solicitation firm, we will pay all of the fees and reasonable
out-of-pocket expenses incurred by that firm in connection with our solicitation
of proxies for the Meeting. We expect that those fees would not exceed $15,000.
We are mailing this proxy statement and the enclosed proxy card to
stockholders for the first time on or about November 5, 2001. In this mailing,
we are including a copy of our 2001 Annual Report to Stockholders. Our Annual
Report on Form 10-K for the fiscal year ended June 30, 2001 may be accessed
electronically by means of the SEC's home page on the Internet at
http://www.sec.gov.
HOW TO VOTE
You are entitled to one vote at the Meeting for each share of common stock
registered in your name at the close of business on October 25, 2001. The proxy
card states the number of shares you are entitled to vote at the Meeting.
You may vote your shares by any of the following methods:
- TO VOTE IN PERSON, you should attend the Meeting, and then complete
and submit the ballot provided at the Meeting.
- TO VOTE VIA THE INTERNET, you should access the website for Internet
voting specified on your proxy card and follow the instructions
provided.
- TO VOTE BY TELEPHONE, you should call the toll-free telephone number
specified on your proxy card.
- TO VOTE BY PROXY, you should complete and return the enclosed proxy
card. Your proxy card will be valid only if you sign, date and return
it before the Meeting. By completing and returning the proxy card, you
will direct the designated persons to vote your shares at the Meeting
in the manner you specify in the proxy card. If you complete the proxy
card with the exception of the voting instructions, then the
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designated persons will vote your shares for the election of the
nominated directors, for the charter amendment to increase the number
of authorized shares of common stock, and against the shareholder
proposal to rescind the shareholder rights plan. If any other business
properly comes before the Meeting, the designated persons will have
the discretion to vote your shares as they deem appropriate. If you
vote via the Internet or by telephone, you should not return your
proxy card.
Even if you vote via the Internet or by telephone or if you complete and
return a proxy, you may change your vote or revoke your proxy before the Meeting
by taking one of the following actions:
- send written notice to Michael J. Muscatello, our Secretary, at our
address appearing in the Notice appearing before this proxy statement;
- vote via the Internet or by telephone after the date of your earlier
vote or proxy;
- send us a signed proxy with a later date; or
- attend the Meeting, notify the Secretary that you are present, and
then vote in person.
If you vote more than once on a single date or vote and send a proxy on the
same date and your actions reflect inconsistent votes on any proposal, no vote
will be counted on that matter unless you vote again or deliver a proxy on a
later date.
If your shares are held in the name of a bank, broker or other nominee
holder, you will receive instructions from the holder of record explaining how
your shares may be voted. Please note that, in such an event, you must obtain a
proxy, executed in your favor, from the holder of record to be able to vote at
the Meeting. The nominee holder is required to vote your shares in accordance
with your instructions. If you do not give instructions to the nominee holder,
the nominee holder will be entitled to vote the shares with respect to
"discretionary" items but will not be permitted to vote the shares with respect
to "non-discretionary" items (those shares are treated as "broker non-votes").
Proposals One and Two are "discretionary" items.
QUORUM REQUIRED TO TRANSACT BUSINESS
At the close of business on October 25, 2001, shares of common stock
were outstanding. Our by-laws require that a majority of the common stock
outstanding on that date be represented at the Meeting in order to constitute
the quorum we need to transact business. We will count abstentions and broker
non-votes in determining whether a quorum exists.
AVAILABILITY AND FEES OF AUDITORS
The board of directors has selected Arthur Andersen LLP as independent
public accountants to audit our financial statements for the fiscal year ending
June 30, 2002. Arthur Andersen LLP has served as our auditors since 1982. We
expect that representatives of Arthur Andersen LLP will attend the Meeting, will
have an opportunity to make a statement, and will be available to respond to
appropriate questions.
For the fiscal year ending June 30, 2001, we paid or accrued fees for
services provided by Arthur Andersen LLP as follows:
- Audit Fees. We incurred approximately $180,000 of professional fees
related to the audit of our annual financial statements for the fiscal
year ended June 30, 2001.
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- Financial Information System Design and Implementation Fees. We
incurred approximately $120,000 of professional fees in connection
with the design or implementation of hardware or software systems
that aggregate source data underlying our financial statements or
generate information that is significant to our financial statements
taken as a whole. We did not incur any fees in connection with the
direct or indirect operation, or supervision of the operation of, our
information system or managing our local area network.
- Other Fees. We incurred approximately $570,000 of professional fees
related to the provision of services other than those described above.
These services consisted primarily of tax preparation, tax
consultation, business combination and other business consulting
services.
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DISCUSSION OF PROPOSALS
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
The first proposal on the agenda for the Meeting is the election of two
persons to serve as Class II directors for three-year terms beginning at the
Meeting and ending at our 2004 Annual Meeting of Stockholders.
Under our by-laws, our board of directors has the authority to fix the
number of directors. The number of directors currently is fixed at seven. Our
by-laws provide that the board is to be divided into three classes with each
class of directors serving for staggered three-year terms.
The board has nominated the two current Class II directors for re-election.
Brief biographies of the nominees, as of October 25, 2001, follow. You will find
information about their stock holdings on page 23.
JOSEPH F. BOSTON............ Dr. Boston, one of our founders, serves as our
Senior Corporate Advisor and has served as one of
our directors since 1981. He served as our
President from 1984 until January 2001. Dr. Boston
holds a B.S. in Chemical Engineering from
Washington University and a Ph.D. in Chemical
Engineering from Tulane University. Dr. Boston is
64 years old.
GRESHAM T. BREBACH, JR...... Mr. Brebach has served as one of our directors
since August 1995. He currently serves as a member
of the Compensation Committee. Mr. Brebach has
been Entrepreneur in Residence for Frontenac
Company, a private equity investment firm, since
June 2000 and Chairman and CEO of Seurat, Inc., a
consulting firm, since February 28, 2001. From
February 1998 to February 2000, Mr. Brebach was
President and Chief Executive Officer of Nextera
Enterprises, L.L.C., a consulting company. From
January 1995 to February 1998, Mr. Brebach was
Executive Vice President--Client Services of
Renaissance Solutions Inc., a supplier of
management consulting and client/server systems
integration services. Mr. Brebach holds a B.S. in
Engineering and an M.B.A. in Business
Administration from the University of Illinois.
Mr. Brebach is 61 years old.
The two nominees receiving the greatest number of votes cast will
be elected as directors. We will not count abstentions or broker
non-votes when we tabulate votes cast for the election of directors.
If for any reason either Dr. Boston or Mr. Brebach becomes
unavailable for election, the persons designated in the proxy card may
vote the proxy for the election of a substitute. Dr. Boston and Mr.
Brebach have consented to serve as directors if elected, and we have
no reason to believe that either of them will become unavailable for
election.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF
DR. BOSTON AND MR. BREBACH.
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PROPOSAL TWO: CHARTER AMENDMENT TO INCREASE NUMBER OF AUTHORIZED SHARES OF
COMMON STOCK
Our current authorized capital stock consists of 10,000,000 shares of
preferred stock, $.10 par value, and 40,000,000 shares of common stock, $.10 par
value. No shares of preferred stock have been issued or are outstanding. As of
October 25, 2001:
- shares of common stock were issued and outstanding;
- shares of common stock were reserved for issuance under
outstanding warrants,
- shares of common stock were reserved for issuance under
outstanding stock options; and
- shares were reserved for issuance pursuant to the Company's
stock option and purchase plans.
Accordingly, of the 40,000,000 shares of common stock authorized for issuance,
only shares had not been issued or reserved for future issuance.
Under the proposed amendment, the number of authorized shares of common
stock would be increased from 40,000,000 to 120,000,000. This change would be
effected by amending Article FOURTH of our certificate of incorporation to read
as set forth in Exhibit I to this proxy statement. The proposed amendment would
not otherwise change the provisions of Article FOURTH.
If the proposed amendment is approved, all or any part of the authorized
but unissued shares of common stock could thereafter be issued without further
approval from the stockholders, except as may be required by law or the policies
of the Nasdaq National Market, for such purposes and on such terms as the board
of directors may determine.
Rights of Holders of Common Stock
Holders of common stock are entitled to one vote per share on all matters
submitted to a vote of our stockholders and to receive ratably dividends, if
any, as may be declared from time to time by the board of directors from funds
legally available therefor, subject to the payment of any outstanding
preferential dividends declared with respect to any preferred stock that from
time to time may be outstanding. Upon our liquidation, dissolution or winding
up, holders of common stock are entitled to share ratably in any assets
available for distribution to stockholders after payment of all of our
obligations, subject to the rights to receive preferential distributions of the
holders of any preferred stock then outstanding.
The proposed amendment would not affect the rights of existing holders of
common stock except to the extent that future issuances of common stock will
reduce each existing stockholder's proportionate ownership. Holders of our
common stock do not have any preemptive rights to subscribe for the purchase of
any shares of common stock, which means that current stockholders do not have a
prior right to purchase any new issue of common stock in order to maintain their
proportionate ownership.
Reasons for Amendment
The board of directors believes that it is very important to have available
for issuance a number of authorized shares of common stock that will be adequate
to provide for our future corporate needs. The board believes that the shares
remaining available for issuance as of October 25, 2001 will not be sufficient
to meet our needs for the foreseeable future.
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The additional authorized shares would be available for issuance from time
to time in the discretion of the board of directors, without further shareholder
action except as may be required for a particular transaction by law or the
policies of the Nasdaq National Market. The shares would be issuable for any
proper corporate purpose, including future acquisitions, equity or convertible
debt financings, stock splits, or issuances under stock plans. We do not
currently have any plans, understandings or agreements for the issuance or use
of the proposed additional shares. The board of directors believes that the
additional shares will provide us with needed flexibility to issue shares in the
future without the potential expense or delay incident to obtaining the approval
of our stockholders by means of a special meeting to approve the specific
issuance.
Accordingly, on October 10, 2001, the board of directors voted to submit
Proposal Two to the stockholders at the Meeting in order to increase the
authorized number of shares of common stock from 40,000,000 to 120,000,000.
An affirmative vote of a majority of the common stock represented in
person, by electronic ballot or by proxy at the Meeting is necessary to approve
the proposal to increase the number of shares authorized for issuance under our
certificate of incorporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE FOREGOING PROPOSAL
TO AMEND OUR CHARTER TO INCREASE THE NUMBER OF AUTHORIZED SHARES.
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PROPOSAL THREE: REQUEST TO RESCIND SHAREHOLDER RIGHTS PLAN
Proponent's Proposal
Laura H. Rhoden, who was the record holder of shares of common
stock as of October 25, 2001, has submitted a letter to our Secretary requesting
that the following resolution be submitted to our stockholders for consideration
at the Meeting. Ms. Rhoden is a former employee of Chesapeake Decision Sciences,
Inc., which we acquired in 1998. In accordance with applicable SEC rules, we
have set forth the proposal of Ms. Rhoden below:
"Resolved: The shareholders of Aspen Technology, Inc. hereby request that
the Board of Directors rescind the Stockholder Rights plan
adopted on March 12, 1998 by redeeming the Rights in whole, but
not in part, at a price (in cash or Common Shares or other
securities of the Company deemed by the Board of Directors to be
at least equivalent in value) of $.01 per Right (the "Redemption
Price"). The shareholders also ask that the Board of Directors
agree not to reissue or extend these rights, or create a new
rights plan unless such action by the Board is approved by an
affirmative vote of a majority of the outstanding shares at a
meeting of the shareholders held as soon as is practicable."
The following is the supporting statement of Ms. Rhoden in connection with
her proposal:
"Last year over 54% of the votes cast voted in favor of a
proposal identical to this one; however, the Board of Directors
refused to rescind the poison pill. The proposal is being submitted
again to encourage the Board to reconsider the will of the
shareholders.
"The Council of Institutional Investors (www.cii.org) recommends
in its General Principles of Shareholder Rights and Board
Accountability that boards should take actions recommended in
shareholder proposals that receive a majority of votes cast for and
against.
"In March 1998, the Board of Directors of the Company declared a
dividend of one 'Right' for each outstanding share of common stock.
These Rights are a type of corporate anti-takeover device commonly
known as a 'poison pill.'
"The Proponent argues that anti-takeover (poison pill) provisions
diminish stockholder value, reduce management accountability, and do
not serve the best long-term interests of shareholders. The
Stockholder Rights plan provides a mechanism for diluting the holdings
of a 3rd party trying to acquire Aspen Technology. The Board of
Directors controls this mechanism. The Proponent points out that the
Company's performance, as measured by earnings per share, peaked in
1997 and has been substantially less in ensuing years. This record of
performance should not be protected by such anti-takeover devices.
"Earnings per Share, as reported by Standard and Poor's:
Fiscal Year EPS
1996 -0.96
1997 0.63
1998 0.59
1999 -1.04
2000 0.18
2001 -0.40*
*(first 3 quarters only)
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"This proposal, if adopted, recommends that the Board of
Directors of the Company should redeem the Rights so that the Board of
Directors cannot use this poison pill to discourage or thwart an
unwanted takeover of the Company. It also recommends that the Board of
Directors obtain the approval of the stockholders before adopting
another poison pill.
"I urge shareholders to vote FOR this resolution."
Our Response to the Proponent's Proposal
We adopted the shareholder rights plan, referred to in the remainder of
this section as the Rights Plan, because the board of directors believed that it
would enable the board to better represent the interests of our stockholders in
the event of a hostile takeover attempt. Before making its decision, the board
reviewed the arguments for and against adopting a shareholder rights plan as
well as publicly available consulting studies on the effect that shareholder
rights plans have had on stock prices and hostile takeover attempts. In
addition, the board reviewed recent decisions in cases dealing with shareholder
rights plans and the right of directors to implement such plans, including the
case of Leonard Loventhal Account v. Hilton Hotels Corp., Del., No. 584, 2000,
9/6/01. In this case, the Delaware State Supreme Court affirmed the authority of
a board of directors to adopt a rights plan without having to obtain shareholder
approval of the plan. Furthermore, based on the information and analyses
reviewed and after consultation with our legal and financial advisors, we
believe that the board's decision not to rescind the Rights Plan is a matter
properly within the business judgment of the board.
A shareholder rights plan is an important tool for corporate governance.
A shareholder rights plan is a plan that generally results in the dilution
of the percentage stock ownership of any party who attempts to take over control
of a company without first obtaining the approval of its board of directors.
Under the Rights Plan as originally drafted, if a stockholder acquires 15% or
more of our common stock, the Rights Plan would be automatically triggered and
we are obligated to grant additional stock to all stockholders other than the
15% stockholder. The effect of the Rights Plan being triggered would be to
dilute the percentage ownership interest of the 15% stockholder and effectively
increase the acquisition price payable by the 15% stockholder. The rationale
behind the Rights Plan is to encourage potential acquirors to discuss potential
acquisitions with us before undertaking hostile takeover bids. We would then be
able to consider any offer which might result and decide whether accepting the
offer is in the best interests of our stockholders. On October 10, 2001, the
board of directors voted to amend the Rights Plan to increase the threshold for
the automatic trigger to 20% or more of our common stock, allowing for the
purchase of up to 20% of our common stock before the Rights Plan would be
triggered.
We passed the Rights Plan to enable us to properly carry out our duties as
directors.
The board of directors approved the Rights Plan in November 1997 because it
believed that the Rights Plan would enable it to better represent the interests
of our stockholders in the event of a hostile takeover bid. Our directors have a
fiduciary duty to our stockholders to consider any legitimate offer for the
company and generally act in the best interests of the stockholders. The board
believed that, if there were no rights plan in place, it would not be able to
exercise proper diligence or adequately consider an offer in the type of
"crisis" environment that typically occurs when a potential acquiror makes a
hostile tender offer. The Rights Plan allows the board to carry out its
fiduciary duties carefully and thoughtfully, with time to consider all relevant
information.
Before approving the Rights Plan, the board of directors carefully reviewed
available information pertaining to stockholder rights plans generally and
considered various factors for and against adopting a stockholder rights plan.
Among the information that the board examined were certain publicly available
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consulting studies analyzing the effect that shareholder rights plans
historically have had on stock prices and hostile takeover attempts. For
example, one study that the board reviewed was conducted by Georgeson & Company
Inc. The study analyzed the effect of shareholder rights plans on company stock
prices and takeover attempts based upon statistical data from the period between
1992 and 1996 and concluded that:
- the presence of a shareholder rights plan did NOT increase the
likelihood that a friendly takeover bid would be withdrawn or that a
hostile bid would be defeated, and did NOT reduce the likelihood that
a company would become a takeover target; and
- premiums paid to acquire target companies with shareholder rights
plans were seven to ten percent higher than for target companies that
did not have a plan.
Last year, while a majority of the votes cast by stockholders approved the
proposal identical to the one being proposed this year, that number represented
only 46% of the shares of common stock outstanding. In response to last year's
shareholder vote, the board of directors engaged in a complete review of our
shareholder rights plan, including consultations with our outside financial and
legal consultants, to review the criteria the board used to approve the
shareholder rights plan. The available data continued to support the board's
belief that a shareholder rights plan will help it maximize stockholder value
and provided it with the flexibility and time to evaluate alternatives in the
event of an unsolicited hostile takeover bid. A shareholder rights plan is not
intended to and will not eliminate the obligation of the directors to exercise
their fiduciary duty.
We believe that, by providing us with a tool that allows the board of
directors to consider takeover offers carefully, the Rights Plan is in the best
interests of our stockholders, who would like a higher premium for their shares;
our customers, who want a stable environment with respect to their vendors; and
our employees, who want our company to grow without us or our management team
being distracted by inadequate offers, insufficiently funded offers or
decision-making prompted by crises.
Shareholder rights plans do not prevent or inhibit legitimate takeover offers,
but do inhibit or prevent offers that are inadequate or insufficiently funded.
Historically, shareholder rights plans have provided companies and their
boards of directors with considerable leverage to prevent unfair or insufficient
offers. Moreover, studies have shown that shareholder rights plans do not
necessarily prevent takeovers from occurring. The following charts are based
upon a study conducted by Jamill Aboumen and Christopher Hayden, and support the
premise that companies with shareholder rights plans have experienced higher
takeover rates, and lower takeover bid withdrawal and failure rates, than
companies without shareholders rights plans. Their article entitled "Poison
Pills, Shareholder Value, and Voting on Rescission Proposals" can be found in a
1998 publication by Directorship, Inc.
TAKEOVER BID WITHDRAWAL RATE
----------------------------
Firms Without Pills.......................................... 11.2%
Firms With Pills............................................. 10.3%
HOSTILE BID FAILURE RATE
------------------------
Firms Without Pills.......................................... 66.7%
Firms With Pills............................................. 45.0%
TAKEOVER RATE S&P 500/400
-------------------------
Firms Without Pills.......................................... 5.6%
Firms With Pills............................................. 7.7%
Source: Jamill Aboumen and Christopher Hayden
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The Rights Plan is designed to provide us with a tool to encourage
potential bidders to negotiate with us before attempting an acquisition of
control of the company. The Rights Plan provides us with such a tool and we
believe will allow us to discourage takeover attempts that we consider not to be
in the best interests of our stockholders. These include:
- stock acquisitions by market accumulators seeking to acquire a
position of substantial influence or control without paying remaining
stockholders a full and fair price;
- coercive two-tiered, front-end loaded or partial tender offers, in
which different prices are paid to different groups of stockholders so
that full and fair value is not paid to all stockholders; and
- inadequate offers that do not give our stockholders proper value for
their stock.
The Rights Plan is designed to address takeover tactics that do not treat all
stockholders equally as well as insufficiently financed offers that may be
intended to put us "in play" for the purpose of permitting the bidder to realize
a profit on a block of common stock that the bidder already owns or otherwise
furthering the interests of the bidder without consideration of the interests of
other stockholders.
We believe the Rights Plan is in the best interest of our stockholders,
employees and customers.
The Rights Plan affords us the ability to negotiate terms with potential
bidders and discourages undesirable takeover tactics and inadequate offers.
Stockholders benefit from a more stable trading environment and from the
increased likelihood of receiving proper value and a higher premium in the event
of a change in control. Employees and customers benefit because we will not face
the many distractions caused by coercive, inadequate or insufficiently funded
offers. All of our constituents can be assured that any change in control will
be the result of careful consideration and not decisions forced to be made in
the heat of a crisis.
In addition, on October 10, 2001, the board of directors voted to amend the
Rights Plan to incorporate a Three Year Independent Director Evaluation, or
TIDE, provision that requires the Rights Plan to be reviewed every three years
by all of the board's independent directors. Upon completion of their review,
the TIDE Committee will communicate its conclusions to the full board of
directors, including any recommendation as to whether the Rights Plan should be
modified or whether the rights issued under the Rights Plan should be redeemed.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE PROPOSAL
RELATING TO OUR SHAREHOLDER RIGHTS PLAN.
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OTHER MATTERS
Neither we nor the board of directors intends to propose any matters at the
Meeting other than the election of two Class II directors and the charter
amendment to increase the number of authorized shares of common stock.
STOCKHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
A stockholder who intends to present a proposal at the 2002 Annual Meeting
of Stockholders for inclusion in our 2002 proxy statement must submit the
proposal by June 30, 2002. In order for the proposal to be included in the proxy
statement, the stockholder submitting the proposal must meet certain eligibility
standards and must comply with certain procedures established by the SEC, and
the proposal must comply with the requirements as to form and substance
established by applicable laws and regulations. The proposal must be mailed to
our Secretary at our address set forth on the Notice appearing before this proxy
statement.
In addition, in accordance with our by-laws, a stockholder wishing to bring
an item of business before the 2002 Annual Meeting of Stockholders must deliver
notice of the item of business to us at our offices no later than sixty days and
no earlier than ninety days prior to that meeting, even if the item is not to be
included in our proxy statement.
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ADDITIONAL INFORMATION ABOUT DIRECTORS
BACKGROUND INFORMATION ABOUT DIRECTORS CONTINUING IN OFFICE
Our Class I and Class III directors will continue in office following the
Meeting. The terms of our Class I directors will expire upon the 2002 Annual
Meeting of Stockholders, and the terms of our Class III directors will expire
upon the 2003 Annual Meeting of Stockholders. Brief biographies of these
directors, as of October 25, 2001, follow. You will find information about their
holdings of common stock on page 23.
LAWRENCE B. EVANS.......... Dr. Evans, our principal founder, has served as
one of our Class I directors since 1981 and has
served as our Chairman of the Board and Chief
Executive Officer since 1984 and as our President
since January 2001. He also served as our
Treasurer from 1984 through February 1995 and as
our President from our inception until 1984. Dr.
Evans holds a B.S. in Chemical Engineering from
the University of Oklahoma and an M.S.E. and Ph D.
in Chemical Engineering from the University of
Michigan. Dr. Evans is 67 years old.
DOUGLAS R. BROWN........... Mr. Brown has served as one of our Class III
directors since 1986. He currently serves as a
member of the Compensation Committee. Since
January 1996, Mr. Brown has been the President and
Chief Executive Officer and a director of Advent
International Company, a venture capital
investment firm. Mr. Brown holds an S.B. in
Chemical Engineering from M.I.T. and an M.B.A.
from the Harvard Graduate School of Business
Administration. Mr. Brown has served as a member
of the board of directors of Ionics, Incorporated,
a separations technology company, since May 1997.
Mr. Brown is 46 years old.
STEPHEN L. BROWN........... Mr. Brown has served as one of our Class III
directors since July 1, 2000. He currently serves
as a member of the Audit Committee. Mr. Brown has
been the Chairman of the Board of John Hancock
Financial Services, Inc. since August 1999 and
also served as the Chief Executive Officer of John
Hancock Financial Services from August 1999 to
June 2000. Since 1992, he has been the Chairman of
the Board of John Hancock Life Insurance Company
and also served as the Chief Executive Officer of
John Hancock Life Insurance Company from January
1992 to June 2000. Mr. Brown serves as a member of
the board of directors of Independence Investment
Associates, Inc., Independence International
Associates, Inc., Independence Fixed Income
Associates, Inc., Ionics, Incorporated, John
Hancock Financial Services, John Hancock Insurance
Agency, Inc., John Hancock Asset Management
Company, The Berkeley Financial Group, Inc., John
Hancock Funds, Inc., John Hancock Signature
Services, Inc., John Hancock Advisers, Inc., and
John Hancock Subsidiaries, Inc., and as a member
of the executive committee of Massachusetts
Capital Resource Company, an investment company.
Mr. Brown is 63 years old.
STEPHEN M. JENNINGS........ Mr. Jennings has served as one of our Class III
directors since July 1, 2000. He currently serves
as a member of the Compensation Committee. Mr.
Jennings has been a Director of Monitor Company, a
strategy consulting firm, since June 1996. He
serves as a member of the board of directors of
LTX Corporation, a semiconductor test equipment
manufacturer. Mr. Jennings is 40 years old.
14
JOAN C. MCARDLE............ Ms. McArdle has served as one of our Class I
directors since 1994. She currently serves as a
member of the Audit Committee. Since 1985 she has
been a Vice President of Massachusetts Capital
Resource Company, an investment company. Ms.
McArdle holds an A.B. in English from Smith
College. Ms. McArdle is 50 years old.
BOARD AND COMMITTEE MEETINGS
The board of directors held nine meetings during fiscal year 2001,
including five regular meetings and four special meetings. All directors
attended at least 75% of the meetings of the board of directors.
We currently have an Audit Committee and a Compensation Committee. The
Audit Committee met six times during fiscal year 2001. The Audit Committee:
- reviews the scope and results of the annual audit of our consolidated
financial statements conducted by our independent accountants;
- reviews the scope of other services provided by our independent
accountants;
- reviews proposed changes in our financial and accounting standards
and principles and in our policies and procedures for our internal
accounting, auditing and financial controls; and
- makes recommendations to our board of directors on the engagement of
the independent accountants.
The Audit Committee currently consists of Gresham T. Brebach, Jr., Stephen L.
Brown and Joan C. McArdle.
The Compensation Committee met once and acted by unanimous written consent
once during fiscal year 2001. The Compensation Committee administers our
compensation programs, including our 1995 Stock Option Plan, 1996 Special Stock
Option Plan, 1998 Employees' Stock Purchase Plan, and 2001 Stock Option Plan.
The Compensation Committee also performs other duties that our board of
directors periodically assigns to it. The Compensation Committee currently
consists of Gresham T. Brebach, Jr., Douglas R. Brown and Stephen M. Jennings.
We do not have a standing nominating committee. The board of directors
performs the functions of a nominating committee in considering an increase in
the number of directors and in identifying and screening potential candidates
for nomination and election to the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Gresham T. Brebach, Jr., Douglas R.
Brown and Stephen M. Jennings, none of whom has ever been an employee of our
company. None of our executive officers serves as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as members of our board of directors or Compensation Committee.
DIRECTOR COMPENSATION
At the meeting of the Compensation Committee on October 18, 2000, it was
agreed by unanimous consent that the annual fee for directors who are not our
full-time employees would be increased from $15,000 to $25,000 and the $1,500
fee for each regular meeting of the board of directors would be eliminated. This
change was made to take into account the increasing demands upon the directors'
time and to fairly compensate them for their attendance at both regularly
scheduled and special meetings of the board of
15
directors. In addition, at the election of any director, his or her annual fee
may be converted to a right to purchase shares of our common stock at the
then-current market price.
Additionally, our 1995 Directors Stock Option Plan provides that each
non-employee director will be granted an option to purchase 24,000 shares of
common stock at fair market value upon his or her initial election as a
director. One-twelfth of the options granted upon initial election vests at the
end of each calendar quarter, but only if the optionee continues to be a
director on the vesting date. Subsequent options to purchase 8,000 shares of
common stock at fair market value following each annual meeting will be granted
to each non-employee director who continues to serve as a director. These
options become exercisable in four quarterly installments, beginning with the
third anniversary of the grant date, but only if the optionee continues to be a
director on the vesting date.
REPORT OF AUDIT COMMITTEE
The following is the report of the Audit Committee of our board of
directors. This report does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any of our other filings under
the Securities Act or the Securities Exchange Act, except to the extent we
specifically incorporate this report by reference therein.
During fiscal 2000, the Audit Committee of our board of directors adopted a
new charter for the Audit Committee, which was approved by our board of
directors on August 18, 1999. The complete text of the charter, which reflects
standards set forth in new SEC regulations and Nasdaq National Market rules, is
reproduced in Exhibit II to this proxy statement.
Management is responsible for our internal controls and the financial
reporting process. Our independent accountants are responsible for performing an
independent audit of our financial statements in accordance with generally
accepted accounting principles and to issue a report on those financial
statements. The Audit Committee is responsible for overseeing these processes.
The Audit Committee's primary responsibilities fall into three broad categories:
- first, the Audit Committee is charged with overseeing the preparation
of quarterly and annual financial reports by our management, including
discussions with management and our independent accountants about
draft annual financial statements and key accounting and reporting
matters;
- second, the Audit Committee is responsible for matters concerning the
relationship between us and our independent accountants, including
recommending their appointment or removal, reviewing the scope of
their audit services and related fees, as well as any other services
being provided to us; and determining whether the independent
accountants are independent (based in part on the annual letter
provided to us pursuant to Independence Standards Board No. 1); and
- third, the Audit Committee oversees management's implementation of
effective systems of internal controls, including review of policies
relating to legal and regulatory compliance, ethics and conflicts of
interest.
The Audit Committee has implemented procedures to ensure that during the
course of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Audit Committee's
charter. To carry out its responsibilities, the Audit Committee met during the
months of August, October and December 2000 and January, April and May 2001. The
Audit Committee also met on August 6, 2001 to accept the report of our
independent accountants for the fiscal year ended June 30, 2001.
16
In overseeing the preparation of our financial statements, the Audit
Committee met with both management and our independent accountants to review and
discuss all financial statements prior to their issuance and to discuss
significant accounting issues. Management advised the Audit Committee that all
financial statements were prepared in accordance with generally accepted
accounting principles, and the Audit Committee discussed the statements with
both management and the independent accountants. The Audit Committee's review
included discussions with the independent accountants of matters required to be
discussed pursuant to Statement on Auditing Standards No. 61, Communication With
Audit Committees. SAS 61 requires our independent auditors to discuss with the
Audit Committee, among other things, the following:
- methods to account for significant and/or unusual transactions;
- the effect of significant accounting policies in controversial or
emerging areas for which there is a lack of authoritative guidance
over consensus;
- the process used by management in formulating particularly sensitive
accounting estimates and the basis for the auditors' conclusions
regarding the reasonableness of those estimates; and
- disagreements with management over the application of accounting
principles, the basis for management's accounting estimates and the
disclosures in the financial statements.
With respect to our independent accountants, the Audit Committee, among
other things, discussed with Arthur Andersen LLP matters relating to Arthur
Andersen's independence from us, including the disclosures made by Arthur
Andersen LLP to the Audit Committee as required by the Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees.
Independence Standards Board Standard No. 1 requires auditors annually to
disclose in writing all relationships that in the auditor's professional opinion
may reasonably be thought to bear on independence, confirm their perceived
independence and engage in a discussion of independence. The Audit Committee
also considered whether the independent auditors' provision of certain other
non-audit related services to us is compatible with maintaining such auditors'
independence.
On the basis of these reviews and discussions, the Audit Committee
recommended to our board of directors that the board approve the inclusion of
our audited financial statements in our Annual Report on Form 10-K for the
fiscal year ended June 30, 2001 for filing with the SEC.
AUDIT COMMITTEE
Joan C. McArdle
Gresham T. Brebach, Jr.
Stephen L. Brown
17
INFORMATION ABOUT EXECUTIVE OFFICERS
BACKGROUND INFORMATION ABOUT EXECUTIVE OFFICERS
Brief biographies of our executive officers follow. The ages of the
executive officers are given as of October 25, 2001. You will find information
about their holdings of common stock on page 23.
LAWRENCE B. EVANS..................... Dr. Evans, our principal founder, has
Chairman of the Board, President served as one of our Class I directors
and Chief Executive Officer since 1981 and has served as our
Chairman of the Board and Chief
Executive Officer since 1984 and as our
President since January 2001. He also
served as our Treasurer from 1984
through February 1995 and as our
President from our inception until 1984.
Dr. Evans holds a B.S. in Chemical
Engineering from the University of
Oklahoma and an M.S.E. and Ph.D. in
Chemical Engineering from the University
of Michigan. Dr. Evans is 67 years old.
DAVID L. MCQUILLIN.................... Mr. McQuillin has served as our
Executive Vice President, Executive Vice President, Worldwide
Worldwide Sales and Marketing Sales and Marketing since June 1997 and
and Co-Chief Operating Officer as a Co-Chief Operating Officer since
January 2001. Mr. McQuillin was employed
by Honeywell, Inc. as Vice President,
Eastern Region from January 1997 to May
1997 and as Vice President, Southeast
Region from July 1995 to December 1996.
Mr. McQuillin holds a B.S. in Applied
Science from Miami University. Mr.
McQuillin is 44 years old.
MARY A. PALERMO....................... Ms. Palermo has served as an Executive
Executive Vice President and Vice President since September 1998 and
Co-Chief Operating Officer as a Co-Chief Operating Officer since
January 2001. She joined us in November
1987 and served as our Executive Vice
President, Finance and Chief Financial
Officer from December 1995 to August
1998. Ms. Palermo holds a B.S. in
Accounting from Boston College. Ms.
Palermo is 43 years old.
STEPHEN J. DOYLE...................... Mr. Doyle has served as Senior Vice
Senior Vice President, Internet President, Internet Business Group since
Business Group August 2000. Mr. Doyle served as our
Senior Vice President and General
Counsel from September 1998 to August
2000 and as our Vice President, General
Counsel and Chief Legal Officer from
September 1996 to September 1998. He
also served as our Secretary from
October 1997 until February 2001. Mr.
Doyle holds an A.B. from Georgetown
University and J.D. and M.B.A. degrees
from the University of Denver. Mr. Doyle
is 48 years old.
HELEN MOYE............................ Ms. Moye has served as our Senior Vice
Senior Vice President, Human President, Human Resources since
Resources September 11, 2000. Ms. Moye served as
Vice President of Human Resources at
The Medstat Group from April 1992 until
October 1997. Ms. Moye was employed as a
consultant with MacKinnon Associates, a
strategy consulting firm, from November
1997 until September 2000. Ms Moye has
served on the board of directors for The
Bartech Group, a staffing solutions
company, from February 1996 to present.
Ms. Moye holds a B.A. in Psychology from
the University of Michigan and a
master's degree in Organizational
Development from Bowling Green State
University. Ms. Moye is 58 years old.
LISA W. ZAPPALA....................... Ms. Zappala has served as our Senior
Senior Vice President and Vice President and Chief Financial
Chief Financial Officer Officer since September 1998. Ms.
Zappala served as our Treasurer from
February 1995 to August 1998. Ms.
Zappala holds a B.S. in Accounting from
Boston College and is a C.P.A. Ms.
Zappala is 41 years old.
18
MICHAEL J. MUSCATELLO................. Mr. Muscatello has served as our Vice
Vice President, General Counsel President and General Counsel since
and Secretary August 2000 and as our Secretary since
February 2001. Mr. Muscatello served as
Vice President, Broadband Communications
Sector of Motorola, Inc. from January
2000 to March 2000, after Motorola
merged with General Instrument
Corporation. Prior to that time, Mr.
Muscatello was employed by General
Instrument Corporation as Vice President
and Group General Counsel, Commercial
Law Group from January 1999 to January
2000, Group General Counsel from January
1998 to January 1999, Associate General
Counsel from November 1996 to December
1997 and Assistant General Counsel from
September 1993 to October 1996. Mr.
Muscatello holds a B.A. in Psychology
from Yale University and a J.D. degree
from Villanova University. Mr.
Muscatello is 42 years old.
EXECUTIVE OFFICER COMPENSATION
The following table summarizes certain information with respect to the
annual and long-term compensation that we paid for the past three fiscal years
to the following persons (the "Named Officers"):
- Lawrence B. Evans, our only chief executive officer in fiscal 2001;
and
- David L. McQuillin, Mary A. Palermo, Stephen J. Doyle and Lisa W.
Zappala, our four most highly compensated executive officers (other
than Dr. Evans) who continued to serve as executive officers at June
30, 2001.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
--------------------------- ---- --------- -------- ----------
Lawrence B. Evans.......................... 2001 $325,000 -- 22,000
Chairman of the Board, President and 2000 316,250 $243,750 45,000
Chief Executive Officer 1999 290,000 -- 99,250
David L. McQuillin......................... 2001 395,285 -- 22,500
Executive Vice President, Worldwide 2000 740,880 -- 40,000
Sales and Marketing and Co-Chief 1999 319,840 -- 100,000
Operating Officer
Mary A. Palermo............................ 2001 285,000 -- 22,500
Executive Vice President and Co-Chief 2000 268,750 135,000 42,500
Operating Officer 1999 220,000 -- 65,250
Stephen J. Doyle........................... 2001 250,000 -- 10,000
Senior Vice President, Internet 2000 237,750 -- 30,000
Business Group 1999 188,000 -- 42,500
Lisa W. Zappala............................ 2001 225,000 -- 20,000
Senior Vice President and 2000 210,250 75,000 30,000
Chief Financial Officer 1999 155,500 -- 42,500
19
Mr. McQuillin's salary includes $79,840 of sales commissions in fiscal year
1999, $500,880 of sales commissions in fiscal year 2000 and $155,285 in sales
commissions in fiscal year 2001.
Each of the options granted to the Named Officers has a maximum term of ten
years, subject to earlier termination in the event of the optionee's cessation
of service with us. Each option is exercisable during the holder's lifetime only
by the holder; it is exercisable by the holder only while the holder is our
employee or advisor and for a certain limited period of time thereafter in the
event of termination of employment. The exercise price may be paid in cash or in
shares of common stock valued at fair market value on the exercise date.
One-sixteenth of each of the options vests at the end of each calendar quarter,
except that the following options granted in fiscal year 1999 were fully vested
on the date of grant: options to acquire 9,250 shares granted to Mr. Evans,
options to acquire 5,250 shares granted to Ms. Palermo and options to acquire
2,500 shares granted to Mr. Doyle. The exercisability of the options is
accelerated upon a change in control of our company.
The following table sets forth information regarding the options we granted
to the Named Officers during the fiscal year ended June 30, 2001.
OPTION GRANTS IN FISCAL YEAR 2001
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
------------------ ---------- ----------------- -------- ---------- -------- ---------
Lawrence B. Evans.......... 22,500 1.33% $14.05 4/10/11 $217,864 $530,002
David L. McQuillin......... 22,500 1.36% 14.05 4/10/11 222,815 542,047
Mary A. Palermo............ 22,500 1.36% 14.05 4/10/11 222,815 542,047
Stephen J. Doyle........... 10,000 0.61% 14.05 4/10/11 99,029 240,910
Lisa W. Zappala............ 20,000 1.21% 14.05 4/10/11 198,058 481,820
The amounts shown represent hypothetical gains that could be achieved for
the respective options if exercised at the end of their option terms. These
gains are based on assumed rates of stock appreciation of five percent and ten
percent, compounded annually from the date the respective options were granted
to the date of their expiration. The gains shown are net of the option price,
but do not include deductions for taxes or other expenses that may be associated
with the exercise. Actual gains, if any, on stock option exercises will depend
on future performance of the common stock, the optionholders' continued
employment through the option period, and the date on which the options are
exercised.
The following table sets forth information as to options exercised during
the fiscal year ended June 30, 2001, and unexercised options held at the end of
such fiscal year, by the Named Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2001
AND FISCAL 2001 YEAR-END OPTION VALUES
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT FISCAL YEAR-END(#) FISCAL YEAR-END($)
ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------ ----------- ----------- ----------- ------------- ----------- -------------
Lawrence B. Evans....... 6,500 $ 81,565 240,948 86,688 -- --
David L. McQuillin...... 30,000 891,875 130,625 91,875 -- --
Mary A. Palermo......... 20,000 647,325 254,069 75,157 -- --
Stephen J. Doyle........ 5,500 173,250 63,250 46,250 -- --
Lisa W. Zappala......... 8,000 252,000 64,478 56,785 -- --
20
The values in the value realized column are based on the closing sale
prices of common stock on the respective dates of exercise, as reported by the
Nasdaq National Market, less the respective option exercise price.
The closing sale price for the common stock as reported by the Nasdaq
National Market on June 30, 2001 was $24.20. Value of unexercised in-the-money
options is calculated on the basis of the difference between the option exercise
price and multiplied by the number of shares of common stock underlying the
option.
CHANGE IN CONTROL AGREEMENTS
On August 12, 1997, we entered into change in control agreements with
Lawrence B. Evans, David L. McQuillin, Mary A. Palermo and Stephen J. Doyle. We
subsequently entered into change in control agreements with Lisa W. Zappala on
November 3, 1999, Michael J. Muscatello on August 1, 2000 and Helen Moye on
September 1, 2000.
Each agreement is for an initial term expiring June 30, 2002 and is
automatically renewed thereafter on a yearly basis unless our board of directors
ends the self-renewing feature at least sixty days before the next renewal. In
the event of both a change in control and termination of employment (excluding
termination for cause but including constructive termination), each of these
executive officers will be entitled to a severance payment equal to three times
salary plus bonus plus cost of benefits. A "change in control" is generally
defined as any one person or group of persons purchasing 25% of the outstanding
stock. Each agreement provides that the payment will be increased in the event
that it would subject the executive to excise tax as a parachute payment under
Section 280G of the Internal Revenue Code. The increase would be equal to an
amount necessary for the executive to receive after payment of such tax cash in
an amount equal to the amount the executive would have received in the absence
of such tax. However, the increased payment will not be made if the total
severance payment, if so increased, would not exceed 110% of the highest amount
that could be paid without causing an imposition of the excise tax. In that
event, in lieu of an increased payment, the total severance payment will be
reduced to 110% of such highest amount.
We may enter into similar change in control agreements in the future with
other officers of our company.
21
REPORT OF COMPENSATION COMMITTEE
The following is the report of the Compensation Committee of our board of
directors. The report describes the compensation policies and rationales that
the Compensation Committee used to determine the compensation paid to our
executive officers.
Purpose of the Compensation Committee. The Compensation Committee is
responsible for determining compensation levels for the executive officers for
each fiscal year based upon a consistent set of policies and procedures.
Elements of the Compensation Program. Each executive officer's compensation
package has three elements:
- base compensation, which reflects individual performance and is
designed primarily to be competitive with salary levels in a
comparative group;
- bonus compensation, payable in cash and based on achievement of
financial performance goals established by the Compensation Committee;
and
- stock options, designed to assure long-term alignment with the
interests of stockholders.
Based on the information reviewed by the Compensation Committee, including
a study previously commissioned from Westward Pay Strategies, Inc., they
determined that total executive compensation packages were authorized at levels
deemed by the Compensation Committee to be appropriate to continue alignment
with shareholder interests and to serve as a means to retain the services of the
executive officers.
Section 162(m) Limitations. The cash compensation to be paid to our
executive officers for the fiscal year ended June 30, 2001 is not expected to
exceed the $1,000,000 limit per officer imposed on the tax deductibility of such
compensation by Section 162(m) of the Internal Revenue Code. Because our 1995
Stock Option Plan and 2001 Stock Option Plan limit the maximum number of shares
of common stock for which any one participant may be granted stock options, any
compensation deemed paid to an executive officer when he or she exercises an
outstanding option under those plans will qualify as performance-based
compensation and will not count toward (or beyond) the $1,000,000 limitation.
COMPENSATION COMMITTEE
Gresham T. Brebach, Jr.
Douglas R. Brown
Stephen M. Jennings
22
INFORMATION ABOUT STOCK OWNERSHIP AND PERFORMANCE
STOCK OWNED BY DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-5% STOCKHOLDERS
The following table sets forth certain information as of October 25, 2001,
with respect to the beneficial ownership of the common stock by:
- each person or group that we know owns of record or beneficially more
than 5% of the outstanding shares of common stock;
- each of the Named Officers;
- each of our directors, including the nominees for re-election; and
- all of our executive officers and directors as a group.
A total of shares of common stock were outstanding as of October 25,
2001.
Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to shares subject to community property laws where
applicable. Shares under "Right to Acquire" represent shares subject to options
that were vested as of October 25, 2001 or will vest within 60 days of October
25, 2001. Shares under "Number" consist of shares outstanding as of October 25,
2001 as well as shares included under "Right to Acquire." Shares not outstanding
but deemed beneficially owned by virtue of the right of a person to acquire
those shares within 60 days of October 25, 2001 are treated as outstanding only
for purposes of determining the number and percent of shares owned by such
person or group. The address of all executive officers and directors is in care
of Aspen Technology, Inc., Ten Canal Park, Cambridge, Massachusetts 02141.
SHARES BENEFICIALLY OWNED
-------------------------------------
NAME OF STOCKHOLDER NUMBER RIGHT TO ACQUIRE PERCENT
------------------- --------- ---------------- -------
Massachusetts Financial Services Company.............. 3,122,207 --
500 Boylston Street
Boston, Massachusetts 02116
Lawrence B. Evans..................................... 900,052 252,636
Mary A. Palermo....................................... 280,157 263,757 *
David L. McQuillin.................................... 145,998 143,906 *
Lisa W. Zappala....................................... 75,422 71,353 *
Douglas R. Brown...................................... 71,270 51,270 *
Gresham T. Brebach, Jr................................ 51,270 51,270 *
Joan C. McArdle....................................... 51,270 51,270 *
Stephen L. Brown...................................... 12,270 12,270 *
Stephen M. Jennings................................... 12,270 12,270 *
Stephen J. Doyle...................................... 3,482 -- *
All executive officers and directors as a group
(13 persons)....................................... 1,803,675 1,059,015
------------
* Less than 1.0%.
23
The number of shares reflected as beneficially owned by Massachusetts
Financial Services Company is based upon information provided in an amended
Schedule 13G filed by Massachusetts Financial with the SEC on June 4, 2001.
The shares reflected as beneficially owned by Joan C. McArdle do not
include 175,000 shares held by Massachusetts Capital Resource Company, as to
which she disclaims beneficial interest. Ms. McArdle is one of our directors and
a Vice President of Massachusetts Capital Resource Company.
The shares reflected as beneficially owned by Stephen L. Brown do not
include 942,000 shares held by John Hancock Life Insurance Company, as to which
he disclaims beneficial interest. Mr. Brown is one of our directors and Chairman
of the Board at John Hancock Mutual Life Insurance Company.
COMPLIANCE WITH REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than ten percent of a
registered class of our equity securities, to file changes in ownership on Form
4 or 5 with the SEC. These executive officers, directors and ten-percent
stockholders are also required by SEC rules to furnish us with copies of all
Section 16(a) reports they file. Based solely on our review of the copies of
these forms, we believe that all Section 16(a) reports applicable to our
executive officers, directors and ten-percent stockholders with respect to
reportable transactions during the fiscal year ended June 30, 2001 were filed on
a timely basis.
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
common stock for the period from June 30, 1996 to June 30, 2001, to the
cumulative total return of the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Computer & Data Processing Index for the same period.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN*
AMONG ASPEN TECHNOLOGY, INC.
THE NASDAQ STOCK MARKET (U.S.) INDEX AND
THE NASDAQ COMPUTER & DATA PROCESSING INDEX
NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
ASPEN TECHNOLOGY, INC. (U.S.) INDEX PROCESSING INDEX
---------------------- ------------------- ----------------------
6/30/96 100.00 100.00 100.00
6/30/97 136.82 121.60 126.23
6/30/98 183.64 160.06 190.78
6/30/99 42.73 230.22 291.78
6/30/00 140.00 340.39 412.17
6/30/01 88.00 184.54 223.91
24
EXHIBIT I
ASPEN TECHNOLOGY, INC.
FORM OF PROPOSED CHARTER AMENDMENT
If Proposal Two is adopted, Article FOURTH of the certificate of
incorporation will be amended to read as follows:
The Corporation is authorized to issue two classes of capital stock, one of
which is designated as common stock, $.10 par value per share ("Common Stock"),
and the other of which is designated as preferred stock, $.10 par value per
share ("Preferred Stock"). The total number of shares of both classes of capital
stock that the Corporation shall have authority to issue is 130,000,000 shares,
consisting of 120,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. The Preferred Stock may be issued from time to time in one or
more series as set forth in Section (b) of this Article FOURTH.
(a) Common Stock
(1) General. The voting, dividend and liquidation rights of holders of
Common Stock are subject to and qualified by the rights of holders of
Preferred Stock of any series as may be designated in any resolution
or resolutions providing for the issue of such series as may be
adopted by the board of directors as hereinafter provided.
(2) Voting. Holders of Common Stock are entitled to one vote for each
share held at all meetings of stockholders. The number of authorized
shares of Common Stock may be increased or decreased (but not below
the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the capital stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2)
of the General Corporation Law of the State of Delaware.
(3) Dividends. Dividends may be declared and paid on Common Stock from
funds lawfully available therefor, as and when determined by the board
of directors and subject to any preferential dividend rights of any
series of Preferred Stock then outstanding.
(4) Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be
entitled to receive all assets of the Corporation available for
distribution to stockholders of the Corporation, subject to any
preferential rights of any series of Preferred Stock then outstanding.
(b) Preferred Stock
(1) Issuance. Preferred Stock may be issued from time to time in one or
more series, each of which series shall have such terms as are set
forth herein and in any resolution or resolutions providing for the
issue of such series as may be adopted by the board of directors as
hereinafter provided. Any shares of Preferred Stock that may be
redeemed, purchased or acquired by the Corporation may be reissued
except as otherwise expressly provided in this Certificate of
Incorporation or provided by law.
(2) Single Class. Different series of Preferred Stock shall not be
construed to constitute different classes of capital stock for the
purposes of voting by classes unless expressly provided.
(3) Authority of Board. Authority is hereby expressly granted to the board
of directors to provide for the issuance of Preferred Stock from time
to time in one or more series, and in connection with the creation of
any such series, to determine and fix such voting powers, full or
limited, or no voting
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powers, and such designations, preferences and relative participating,
optional or other special rights thereof, and qualifications,
limitations or restrictions applicable thereto, as shall be stated and
expressed in such resolutions, all to the full extent now or hereafter
permitted by the General Corporation Law of the State of Delaware.
Without limiting the generality of the foregoing, a resolution or
resolutions providing for issuance of any series of Preferred Stock
may provide for dividend rights, conversion rights, redemption
privileges and liquidation preferences applicable to such series and
may provide that such series shall rank superior, equal or junior to
the Preferred Stock of any other series, in each case expect as
otherwise expressly provided in this Certificate of Incorporation or
as provided by law. Except as otherwise provided in this Certificate
of Incorporation, no vote of holders of Common Stock or holders of
Preferred Stock shall be a prerequisite to the designation or issuance
of any shares of any series of Preferred Stock authorized by and
complying with the conditions of this Certificate of Incorporation.
26
EXHIBIT II
ASPEN TECHNOLOGY, INC.
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation to
any governmental body or the public; the Corporation's systems of internal
control regarding finance, accounting, legal compliance and ethics that
management and the Board have established; and the Corporation's auditing,
accounting and financial reporting processes generally. Consistent with this
function, the Audit Committee should encourage continuous improvement of, and
should foster adherence to, the Corporation's policies, procedures and practices
at all levels. The Audit Committee's primary duties and responsibilities are to:
- Serve as an independent and objective party to review the
Corporation's financial reporting process and internal control system.
- Review and appraise the audit efforts of the Corporation's independent
accountants and internal auditing department.
- Confer with the independent accountants, financial and senior
management, the internal auditing department, and the Board of
Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board, each of whom shall be independent directors and free
from any relationship that, in the opinion of the Board, would interfere with
the exercise of his or her independent judgment as a member of the Committee.
All members of the Committee shall have a working familiarity with basic finance
and accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee members may
enhance their familiarity with finance and accounting by participating in
educational programs conducted by the Corporation or an outside consultant.
The members of the Committee shall be elected by the Board and shall serve
until their successors shall be duly elected and qualified. Unless a Chair is
elected by the full Board, the members of the Committee may designate a Chair by
majority vote of the full Committee membership.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. The Committee shall meet periodically with management
and the independent accountants in separate executive sessions to discuss any
matters that the Committee or each of these groups believes should be discussed
privately. In addition, the Committee should meet with the independent
accountants and management quarterly to review the Corporation's financials
consistent with IV.2 below.
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IV. Responsibilities and Duties
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
1. Review and update this Charter periodically, at least annually, as
conditions dictate and prior to the beginning of each fiscal year prepare a
work plan for the fiscal year.
2. Review the organization's annual financial statements and any report of
other financial information submitted to any governmental body, or the
public, including any certification, report, opinion or review rendered by
the independent accountants.
Independent Accountants
3. Recommend to the Board of Directors the selection of the independent
accountants, considering their independence and effectiveness and review
the fees and other compensation to be paid to the independent accountants.
On an annual basis, the Committee should review and discuss with the
accountants all significant relationships the accountants have with the
Corporation to determine whether such relationships could improperly affect
the accountants independence.
4. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances
warrant.
5. Periodically consult with the independent accountants out of the presence
of management about internal controls and the fullness and accuracy of the
organization's financial statements.
Financial Reporting Process
6. In consultation with the independent accountants and the internal auditors,
review the adequacy of the organization's financial reporting processes,
both internal and external.
7. Consider the independent accountants' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in
its financial reporting.
8. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
Process Improvements
9. Establish systems of reporting to the Audit Committee by management and the
independent accountants regarding any significant judgments made in
management's preparation of the financial statements and the view of each
as to appropriateness of such judgments.
10. Following the completion of the annual audit, review separately with each
of management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on
the scope of work or access to required information.
11. Review any significant disagreement between management and the independent
accountants with the preparation of the financial statements.
28
12. Review with the independent accountants and management the extent to which
changes or improvements in financial or accounting practices, as approved
by the Audit Committee, have been implemented.
Ethical and Legal Compliance
13. Establish, review and update periodically a Code of Ethical Conduct and
ensure that management has established a system to enforce this Code.
14. Review management's monitoring of the Corporation's compliance with the
organization's Ethical Code, and ensure that management has the proper
review system in place to ensure that the Corporation's financial
statements, reports and other financial information disseminated to
governmental organizations and the public satisfy legal requirements.
15. Review, with the organization's counsel, legal compliance matters including
corporate securities trading policies.
16. Review, with the organization's counsel, any legal matter that could have a
significant impact on the organization's financial statements or condition.
17. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
29
ASPEN TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 11, 2001
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic
delivery of information up until 11:59 P.M., Eastern time, the day before the
cut-off date or meeting date. Have your proxy card in hand when you access the
website. You will be prompted to enter your 12-digit Control Number, which is
located below, to obtain your records and to create an electronic voting
instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59
P.M., Eastern time, the day before the cut-off date or meeting date. Have your
proxy card in hand when you call. You will be prompted to enter your 12-digit
Control Number, which is located below, and then follow the instructions the
Vote Voice provides you.
--------------------------------------------------------------------------------
The undersigned hereby authorizes and appoints Michael J. Muscatello and
Lisa W. Zappala, and each of them, as proxies with full power of substitution in
each, to vote all shares of common stock, par value $.10 per share, of Aspen
Technology, Inc., held of record as of the close of business on Thursday,
October 25, 2001, by the undersigned at the Annual Meeting of Stockholders to be
held on Tuesday December 11, 2001, at 3 P.M., local time, at the offices of Hale
and Dorr LLP, 60 State Street, Twenty-Sixth Floor, Boston, Massachusetts, and at
any adjournments thereof, on all matters that may properly come before said
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED ON THE REVERSE
OR, IN THE ABSENCE OF SUCH DIRECTION, FOR THE SPECIFIED NOMINEES IN PROPOSAL
ONE, FOR PROPOSAL TWO, AGAINST PROPOSAL THREE, AND IN ACCORDANCE WITH THE
JUDGMENT OF THE PROXIES UPON OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING, INCLUDING ANY ADJOURNMENTS THEREOF.
(To be signed on reverse side) [X] Please mark your vote as in this example.
PROPOSAL ONE: ELECT TWO CLASS II DIRECTORS
Nominees: Joseph F. Boston Gresham T. Brebach, Jr.
[ ] FOR the nominees listed above [ ] WITHHOLD AUTHORITY for above
(except as marked to the contrary below)
To withhold authority to vote for a single nominee, write the name of the
nominee on the following line:__________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
---
PROPOSAL TWO: APPROVE AMENDMENT OF CERTIFICATE OF INCORPORATION TO
INCREASE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
[ ] FOR the proposal [ ] AGAINST the proposal [ ] WITHHOLD
THE BOARD OF DIRECTORS RECORDS A VOTE FOR THIS PROPOSAL.
---
PROPOSAL THREE: REQUEST THAT THE BOARD OF DIRECTORS RESCIND SHAREHOLDER
RIGHTS PLAN (AS SUCH PROPOSAL IS SET FORTH IN FULL IN THE PROXY STATEMENT
DATED NOVEMBER 5, 2001)
[ ] FOR the proposal [ ] AGAINST the proposal [ ] WITHHOLD
THE BOARD OF DIRECTORS RECORDS A VOTE AGAINST THIS PROPOSAL.
-------
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE,
WHICH REQUIRES POSTAGE IF NOT MAILED IN THE UNITED STATES.
Signature: ______________________ Signature: _______________________
(IF HELD JOINTLY)
Dated: _______________, 2001
NOTE: This Proxy Card must be signed exactly as the name of the stockholder(s)
appears on the label above. Executors, administrators, trustees, etc. should
give full title as such. If the signatory is a corporation, please sign full
corporate name by duly authorized officer.
