<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT
OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Applied Extrusion Technologies, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Applied Extrusion Technologies, Inc.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(3).
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
4) Proposed maximum aggregate value of transaction:
* Set forth the amount on which the filing is calculated and state
how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
Notes:
<PAGE> 2
[AET LOGO]
Applied Extrusion Technologies, Inc.
3 Centennial Drive
Peabody, Massachusetts 01960
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 1998
---------------------
Notice is hereby given that the Annual Meeting of Stockholders (the
"Meeting") of Applied Extrusion Technologies, Inc. will be held at the 36th
Floor Conference Center, Ropes & Gray, One International Place, Boston,
Massachusetts at 10:30 a.m. on Wednesday, January 28, 1998 for the following
purposes:
1. To elect two Class III directors.
2. To increase the aggregate number of option shares available for
grant under the Company's 1994 Stock Option Plan.
3. To transact any other business that may properly come before the
Meeting or any adjournment thereof.
Stockholders of record at the close of business on December 5, 1997 are
entitled to notice of and to vote at the Meeting.
If you are unable to be present personally, please sign and date the
enclosed proxy and return it promptly in the enclosed envelope.
By Order of the Board of Directors,
Gerald M. Haines II
Secretary
December 29, 1997
<PAGE> 3
ANNUAL MEETING OF STOCKHOLDERS
JANUARY 28, 1998
---------
PROXY STATEMENT
---------
The enclosed form of proxy is solicited on behalf of the Board of
Directors of Applied Extrusion Technologies, Inc. ("AET" or the "Company") to be
voted at the Annual Meeting of Stockholders (the "Meeting") to be held at the
36th Floor Conference Center, Ropes & Gray, One International Place, Boston,
Massachusetts 02110 at 10:30 a.m. on Wednesday, January 28, 1998 or at any
adjournment thereof. A proxy may be revoked by a stockholder at any time before
it is voted (i) by returning to the Company another properly signed proxy
bearing a later date, (ii) by otherwise delivering a written revocation to the
Secretary of the Company or (iii) by attending the Meeting or any adjourned
session thereof and voting the shares covered by the proxy in person. Shares
represented by the enclosed form of proxy properly executed and returned, and
not revoked, will be voted at the Meeting.
The expense of soliciting proxies will be borne by the Company. Officers
and regular employees of the Company (who will receive no compensation therefor
in addition to their regular salaries) may solicit proxies. In addition to the
solicitation of proxies by use of the mails, the Company may use the services of
its directors, officers and regular employees to solicit proxies personally and
by mail, telephone or telegram from brokerage houses and other shareholders. The
Company has retained the services of MacKenzie Partners, Inc. to assist with the
solicitation of proxies on behalf of the Company, at an anticipated cost of
approximately $5,000 plus expenses. The Company will also reimburse brokers,
banks and other custodians, nominees and fiduciaries and other persons for their
reasonable charges and expenses in forwarding soliciting materials to their
principals.
In the absence of contrary instructions, the persons named as proxies
will vote in accordance with the intentions stated below. The holders of record
of shares of the common stock, $.01 par value (the "Common Stock"), of the
Company at the close of business on December 5, 1997 are entitled to receive
notice of and to vote at the Meeting. As of that date, the Company had issued
and outstanding 10,543,072 shares of Common Stock each of which is entitled to
one vote on each matter to come before the Meeting.
Consistent with state law and under the Company's by-laws, a majority of
the shares entitled to vote on a particular matter, present in person or
represented by proxy at a meeting, constitutes a quorum as to such matter. Votes
cast by proxy or in person at the Meeting will be counted by persons appointed
by the Company to act as election inspectors for the Meeting. The two nominees
for election as directors at the Meeting who receive the greatest number of
votes properly cast for the election of directors shall be elected directors.
The election inspectors will count shares represented by proxies that withhold
authority to vote for a nominee for election as a director, or that reflect
abstentions or "broker non-votes" (i.e., shares represented at the Meeting held
by brokers or nominees as to which (i) instructions have not been received from
the beneficial owners or persons entitled to vote and (ii) the broker or nominee
does not have the discretionary voting power on a particular matter) only as
shares that are present
<PAGE> 4
and entitled to vote on the matter for purposes of determining the presence of a
quorum, but neither abstentions nor broker non-votes will have any effect on the
outcome of voting on the election of directors.
The Annual Report to Stockholders for AET's fiscal year ended September
30, 1997 accompanies this proxy statement. This proxy statement and the enclosed
proxy are being mailed to Stockholders on the same date as the date of the
Notice of Annual Meeting. The principal executive offices of AET are located at
3 Centennial Drive, Peabody, Massachusetts 01960.
ITEM NO. 1
ELECTION OF DIRECTORS
The persons named in the enclosed proxy intend to vote each share as to
which a proxy has been properly executed and returned and not revoked in favor
of the election as directors of the two nominees named below, both of whom are
currently directors of the Company, unless authority to vote for the election of
one or both of such nominees is withheld by marking the proxy to that effect.
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, the Board of Directors is divided into three classes, as nearly equal
in number as possible, so that each director will serve for three years, with
one class of directors being elected each year. Robert H. Beeby will be retiring
from the Board upon the expiration of his current term as a Director, and
therefore has not been nominated for reelection. Pursuant to the Restated
Certificate of Incorporation and By-laws, the nominees include the two directors
standing for reelection and designated as Class III Directors, whose terms
expire at the 1998 Annual Meeting. The enclosed proxy cannot be voted for a
greater number of persons than two.
If Proposal I is approved, Richard G. Hamermesh and Joseph J. O'Donnell
will be elected as Class III Directors for a term of three years expiring at the
2001 Annual Meeting, and until their respective successors are elected and shall
qualify to serve.
It is expected that each of the nominees will be able to serve, but if
any nominee is unable to serve, the proxies reserve discretion to vote, or
refrain from voting, for a substitute nominee or nominees or to fix the number
of directors at a lesser number.
2
<PAGE> 5
NOMINEES
<TABLE>
<CAPTION>
NAME, AGE (AS OF DECEMBER 12, 1997), DIRECTOR TERM
BUSINESS AND CURRENT DIRECTORSHIPS SINCE EXPIRES
- ------------------------------------ -------- -------
<S> <C> <C>
RICHARD G. HAMERMESH, 49 -- Director of the Company; since August 1987, 1986 1998
Managing Partner, Center for Executive Development, an independent executive
education and training firm; Director of BE Aerospace, Inc., a manufacturer of cabin
interior products for commercial aircraft.
JOSEPH J. O'DONNELL, 53 -- Director of the Company; since 1978, Chairman of 1986 1998
the Board and Chief Executive Officer of Boston Concessions Group, Inc., a company
that manages food service operations in ski areas, amusement parks, restaurants and
theaters.
</TABLE>
3
<PAGE> 6
CURRENT DIRECTORS
<TABLE>
<CAPTION>
NAME, AGE (AS OF DECEMBER 12, 1997) DIRECTOR TERM
BUSINESS EXPERIENCE AND CURRENT DIRECTORSHIPS SINCE EXPIRES
- --------------------------------------------- -------- -------
<S> <C> <C>
AMIN J. KHOURY, 58 -- Founder and Chairman of the Board of Directors of the 1986 1999
Company since October 1986; from October 1986 to August 1993, Chief Executive
Officer of the Company; President of the Company from August 1988 through
November 1992; Founder and Chairman of the Board of Directors of BE Aerospace,
Inc., a manufacturer of cabin interior products for commercial aircraft; Director of
Brooks Automation, Inc., a leading worldwide independent supplier of vacuum substrate
handling robots, modules and cluster tool platforms for semiconductor and flat panel
display manufacturing.
THOMAS E. WILLIAMS, 51 -- Director, President and Chief Operating Officer of the 1992 1999
Company since December 1992; Chief Executive Officer of the Company since August
1993; from 1988 until 1992, President and Chief Executive Officer of Home
Innovations, Inc., a home furnishings company; from 1980 until 1988, held a number
of executive positions with PepsiCo, Inc.
MARK M. HARMELING, 44 -- Director of the Company since 1986; since 1997, an 1986 1999
executive of The A.G. Spanos Corporation, a leading developer of multi-family
residential complexes; since 1991, President of Bay State Reality Advisors, a real estate
consulting firm; from 1985 to 1991, President of Intercontinental Real Estate
Corporation, a real estate holding and development corporation; Director of Universal
Holding Corporation, an insurance holding company.
NADER A. GOLESTANEH, 37 -- Director of the Company; since 1990, President of 1986 2000
Centremark Properties, Inc., a real estate management and development company; since
1986, attorney in private practice in Boston, Massachusetts.
PAUL W. MARSHALL, 55 -- Director of the Company; since 1996, Professor of 1986 2000
Management, Harvard Business School; from 1992 to 1997, Chairman of the Board and
Chief Executive Officer of Rochester Shoe Tree Company, Inc., a manufacturer and
distributor of cedar shoe trees and other cedar and shoe care products; from 1989 to
1991, Chairman of Industrial Economics Company, a management consulting firm;
from 1989 to 1992, Adjunct Professor, Harvard Business School; Director of Raymond
James Financial Corporation, a regional brokerage firm.
</TABLE>
4
<PAGE> 7
BOARD MEETINGS AND COMMITTEES
The Board of Directors held four meetings during the fiscal year ended
September 30, 1997. Each incumbent director attended at least 75% of the Board
meetings and the meetings held by committees on which he served during such
fiscal year. The Board of Directors currently has two standing committees, the
Audit Committee and the Stock Option and Compensation Committee (the
"Compensation Committee"). The Company does not have a standing Nominating
Committee.
The Audit Committee, composed of Richard G. Hamermesh and Joseph J.
O'Donnell, held one meeting during the fiscal year ended September 30, 1997. The
Audit Committee recommends to the Board of Directors the independent auditors to
be engaged by the Company, reviews with management and with the independent
auditors the Company's internal accounting procedures and controls, and reviews
with the independent auditors the scope and results of their audit, as well as
the scope of the auditor's internal activities.
The Compensation Committee, which in fiscal 1996 was composed of Nader
A. Golestaneh and Mark M. Harmeling, held one meeting and acted pursuant to
written consent on seven occasions during the fiscal year ended September 30,
1997. The Compensation Committee provides recommendations to the Board regarding
compensation matters and administers the Company's stock option and compensation
plans.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table and notes thereto set forth certain information
with respect to the beneficial ownership of the Company's Common Stock as of
December 12, 1997 by (i) each person who is known to the Company to beneficially
own more than 5% of the outstanding shares of Common Stock of the Company, (ii)
each of the chief executive officer and the Company's four other most highly
compensated executive officers who were serving at the end of fiscal 1997
(collectively, the "Named Executive Officers") and each director of the Company,
and (iii) all executive officers and directors of the Company as a group. Except
as otherwise indicated, each of the stockholders named below has sole voting and
investment power with respect to the shares of Common Stock beneficially owned:
5
<PAGE> 8
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
------------------
PERCENT OF
NUMBER OF OUTSTANDING
NAMES SHARES SHARES(1)
- ----- ------ ---------
<S> <C> <C>
T. Rowe Price Associates, Inc................................................... 927,500 7.52%
100 E. Pratt Street
Baltimore, MD 21202
T. Rowe Price Small Cap Value Fund, Inc......................................... 850,000 6.89%
100 E. Pratt Street
Baltimore, MD 21202
Mellon Bank Corporation......................................................... 693,000 5.62%
One Mellon Bank Center
Pittsburgh, PA 15258
Mellon Bank N.A. .............................................................. 568,000 4.61%
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
The Dreyfus Corporation ....................................................... 538,000 4.36%
c/o Mellon Bank Corporation
One Mellon Bank Center
Pittsburgh, PA 15258
Thomas E. Williams*+............................................................ 422,701(2) 3.43%
Amin J. Khoury*+................................................................ 296,500(3) 2.40%
David N. Terhune*............................................................... 233,381(4) 1.89%
Paul W. Marshall+............................................................... 64,382(5) **
Mark S. Abrahams*............................................................... 46,681(6) **
Joseph J. O'Donnell+............................................................ 42,500(7) **
Mark M. Harmeling+.............................................................. 42,500(8) **
Anthony J. Allott*.............................................................. 26,766(9) **
Richard G. Hamermesh+........................................................... 25,375(10) **
Nader A. Golestaneh+............................................................ 20,000(11) **
Robert H. Beeby+................................................................ 22,500(12) **
All directors and executive officers as a group (11 persons) 1,243,286(13) 10.08%
</TABLE>
6
<PAGE> 9
- ----------
* Named Executive Officer
+ Director of the Company
** Less than 1 percent
(1) The number of shares of Common Stock deemed outstanding includes: (i)
10,543,072 shares of Common Stock outstanding as of December 12, 1997
and (ii) 1,786,125 shares of Common Stock subject to outstanding stock
options which are exercisable currently or within sixty days after
December 12, 1997.
(2) Includes (i) common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 400,000 shares and (ii) 11,300 shares held by the AET
Executive Deferred Compensation Plan Trust for the benefit of Mr.
Williams.
(3) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 287,500 shares.
(4) Includes (i) common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 218,750 shares and (ii) 4,000 shares held by the AET
Executive Deferred Compensation Plan Trust for the benefit of Mr.
Terhune.
(5) Includes (i) 10,000 shares held by Mr. Marshall as trustee of the Paul
Marshall Self Employed Retirement Plan and (ii) common stock issuable
in connection with outstanding stock options exercisable currently or
within the next sixty days for an aggregate of 42,500 shares.
(6) Includes (i) common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 40,000 shares and (ii) 2,681 shares held by the AET
Executive Deferred Compensation Plan Trust for the benefit of Mr.
Abrahams.
(7) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 42,500 shares.
(8) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 42,500 shares. Excludes 87,057 shares held in trusts for
the benefit of Mr. Harmeling's children, of which Mr. Harmeling
disclaims all beneficial interest.
(9) Includes (i) common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 23,750 shares and (ii) 600 shares held by the AET
Executive Deferred Compensation Plan Trust for the benefit of Mr.
Allott.
(10) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 16,250 shares.
(11) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 20,000 shares.
(12) Includes common stock issuable in connection with outstanding stock
options exercisable currently or within the next sixty days for an
aggregate of 22,500 shares.
(13) Includes and excludes the shares described in notes (2) through (12).
7
<PAGE> 10
EXECUTIVE COMPENSATION
REPORT OF THE STOCK OPTION AND COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Stock Option and Compensation Committee (the "Compensation
Committee"), which is responsible for review and approval of compensation
matters relating to executive officers of the Company and administering the
Company's stock option plans, makes the following report on executive
compensation for fiscal 1997.
The Company's executive compensation program is designed to recruit,
retain, reward and motivate talented executives who are capable of leading the
Company in achieving its strategic and financial objectives in the competitive
and rapidly changing oriented polypropylene and apertured films industries.
The Company relies on three compensation components to motivate
executive performance: annual salary, incentive cash bonuses and stock-based
incentive compensation. Each of the Named Executive Officers has an annual base
salary, established by an employment agreement or otherwise, at a level the
Company believes is comparable to companies in its industry and consistent with
the range for growth companies traded on the Nasdaq National Market System. In
addition to base salary, each Named Executive Officer is eligible to receive an
incentive cash bonus at the end of each fiscal year based upon corporate
performance and that officer's individual performance. Corporate performance is
measured by the Company's strategic and financial performance in that fiscal
year, with particular reference to operating earnings for the year. Because the
Compensation Committee believes that short-term fluctuations in stock price do
not necessarily reflect the underlying strength or future prospects of the
Company, the Compensation Committee does not emphasize year-to-year changes in
stock price in its evaluation of corporate performance. Individual performance
is measured by the strategic and financial performance of the particular
officer's operational responsibility in comparison to targeted performance
criteria.
While skeptical about the significance of short-term fluctuations in
stock price, the Compensation Committee believes that long-term stock price
appreciation will reflect the Company's achievement of its strategic goals and
objectives. Accordingly, the Company seeks to create long-term performance
incentives for its key employees by aligning their economic interests with the
interests of the Company's long-term shareholders through the Company's
stock-based incentive compensation program. Stock options are granted to key
employees at a price equal to the fair market value on the date of grant, and
awards are based on the performance of such employees and anticipated
contributions by such employees in helping the Company achieve its strategic
goals and objectives. Stock option grants are also made by reference to the
number of stock options an employee already holds.
During its most recent fiscal year, despite achieving the majority of
its strategic objectives associated with its objective of creating long term
shareholder value, operating earnings did not meet the Company's projections as
a result of factors affecting the OPP Films industry as a whole, and therefore
for the second consecutive year, the Company did not pay cash bonuses to any of
its Named Executive Officers other than Mark S. Abrahams. The Company did grant
stock options to one Named Executive Officer and a number of other key employees
upon recommendation of management and approval of the Compensation Committee.
8
<PAGE> 11
The Company has entered into long-term employment agreements with Amin
J. Khoury, who serves as Chairman of the Board of the Company, Thomas E.
Williams, who serves as President and Chief Executive Officer of the Company,
David N. Terhune, who serves as Executive Vice President and Chief Operating
Officer of the Company, and Mark S. Abrahams, who serves as Vice President and
General Manager, Specialty Nets and Profiles Division of the Company. See
"Employment Contracts" below. Prior to entering into the employment agreements
with Messrs. Khoury and Williams, the Company engaged compensation consultants
who provided compensation survey information for executive officers of similarly
situated companies.
With respect to the above matters, the Compensation Committee submits
this report.
STOCK OPTION AND COMPENSATION COMMITTEE
Mark M. Harmeling
Nader A. Golestaneh
9
<PAGE> 12
The following tables set forth information with respect to the
compensation of the Named Executive Officers earned during fiscal 1997, 1996 and
1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------- ------------
OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Williams 1997 404,700 - - - 37,898(3)
President and 1996 396,128 - - 150,000(2) 36,242(3)
Chief Executive Officer 1995 377,708 378,000 - 150,000 32,718(3)
Amin J. Khoury 1997 404,700 - - - -
Chairman of the Board 1996 396,128 - - 200,000(2) -
1995 377,708 189,000 - 200,000 -
David N. Terhune 1997 310,000 - - - 113,829(4)
Executive Vice President 1996 241,667 - - 160,000(2) 11,250(4)
and Chief Operating Officer 1995 191,667 200,000 - 160,000 78,092(4)
Mark S. Abrahams 1997 184,000 117,000 - - 9,750(5)
Vice President and General 1996 178,143 78,000 - 20,000(2) 11,250(5)
Manager, Specialty Nets & 1995 161,831 128,000 - 20,000 71,625(5)
Profiles Division
Anthony J. Allott 1997 152,500 - - 20,000 9,750(6)
Vice President, Chief Financial 1996 127,994 - - 15,000(2) 50,370(6)
Officer and Treasurer 1995 106,058 69,000 - 15,000 54,080(6)
</TABLE>
- ----------
(1) Includes amounts earned but deferred by the executive officer at the
election of those officers pursuant to the Company's 401(k) Plan or
Executive Deferred Compensation Plan.
(2) Represents a repricing in fiscal 1996 of options originally granted in
fiscal 1995; no additional options were granted to Named Executive
Officers in fiscal 1996.
(3) Includes employer contributions under the Company's 401(k) savings and
profit sharing plan, and life and disability insurance premiums paid by
the Company pursuant to the terms of the employment agreement between the
Company and Mr. Williams.
(4) Includes employer contributions under the Company's 401(k) savings and
profit sharing plan, and moving and relocation expenses paid to Mr.
Terhune in 1995 and 1997.
(5) Includes employer contributions under the Company's 401(k) savings and
profit sharing plan, and moving and relocation expenses paid to Mr.
Abrahams in 1995.
(6) Includes employer contributions under the Company's 401(k) savings and
profit sharing plan, and amounts received in 1995 and 1996 in connection
with Mr. Allott's relocation.
10
<PAGE> 13
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF STOCK
OPTIONS PRICE APPRECIATION FOR
GRANTED TO OPTION TERM($)(1)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR PRICE($/SH) DATE 5% 10%
- ---- ---------- ----------- ----------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Thomas E. Williams - - - - - -
Amin J. Khoury - - - - - -
David N. Terhune - - - - - -
Mark S. Abrahams - - - - - -
Anthony J. Allott 20,000 9.28% $8.375 10/11/06 $105,340 $266,952
</TABLE>
- ----------
(1) These potential realizable values are based on assumed rates of
appreciation required by applicable regulations of the U.S. Securities
and Exchange Commission. The potential realizable values stated are not
discounted to their net present value.
11
<PAGE> 14
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED OPTIONS
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) AT FY-END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1)
- ---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
THOMAS E. WILLIAMS - - 237,500/162,500 $1,036,218/$213,281
AMIN J. KHOURY - - 125,000/200,000 $ 285,936/$240,624
DAVID N. TERHUNE - - 53,750/171,250 $ 122,733/$203,827
MARK S. ABRAHAMS - - 32,500/ 17,500 $ 107,656/$ 42,968
ANTHONY J. ALLOTT - - 18,750/ 31,250 $ 19,221/$ 30,702
</TABLE>
- ---------
(1) The closing price for the Company's Common Stock on the Nasdaq National
Market System on September 30, 1997, the last trading day of the fiscal
year, was $8.625 per share.
COMPENSATION OF DIRECTORS
Directors of the Company receive compensation of $2,500 per quarter, and
Directors who are also committee members receive an additional $1,250 per
quarter for each committee on which they serve. Directors who are not officers
of the Company (the "Eligible Directors") also receive a $1,000 attendance fee
for each meeting which they attend. In addition, Eligible Directors are entitled
to participate in the Company's 1991 Stock Option Plan for Directors (the
"Directors' Plan"). Under the Directors' Plan, each Eligible Director is awarded
an option covering 5,000 shares of Common Stock on June 30 of each year the plan
is in effect, provided he or she is an Eligible Director on that date. In
addition, each Eligible Director, excluding those individuals who are currently
directors of the Company, is awarded an initial grant covering 25,000 of Common
Stock as of the date of his or her first election as a director.
The exercise price of all options granted under the Directors' Plan may not
be less than 100% of the fair market value of the Common Stock on the date of
the grant. Options expire 10 years after the date of grant and become
exercisable, subject to certain conditions which accelerate vesting, as follows:
25% on the first anniversary of the date of grant and an additional 25% each
calendar year thereafter. On June 30, 1997, each Eligible Director was awarded
an option to purchase 5,000 shares of Common Stock at a price of $11.75 per
share.
12
<PAGE> 15
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
Thomas E. Williams. Mr. Williams and the Company have entered into an
employment agreement pursuant to which he currently serves as President and
Chief Executive Officer of the Company. The agreement became effective as of
April 26, 1994 and extends through April 25, 1999. Under the employment
agreement, Mr. Williams receives an annual base salary, and any bonus payable to
Mr. Williams is at the discretion of the Company. If the Company terminates Mr.
Williams' employment without cause (as defined in the agreement) after April 26,
1999, the Company will continue to pay his salary for the shorter of two years
or until he commences other comparable full-time employment. In the event of a
change of control of the Company, the employment agreement with Mr. Williams
will automatically renew for a period equal to its initial term.
Amin J. Khoury. Mr. Khoury and the Company have entered into an employment
agreement pursuant to which he currently serves as Chairman of the Board of
Directors of the Company. The agreement became effective as of April 26, 1994
and extends through April 25, 1999. Under the employment agreement, Mr. Khoury
receives an annual base salary, and any bonus payable to Mr. Khoury is at the
discretion of the Company. If the Company terminates Mr. Khoury's employment
without cause (as defined in the agreement) after April 26, 1999, the Company
will continue to pay his salary for the shorter of two years or until he
commences other comparable employment. Under the terms of his current agreement,
if Mr. Khoury dies, his designee or estate is entitled to receive his base
salary for the remainder of the term of the employment agreement. If he becomes
disabled, he is entitled to receive his base salary, plus all benefits owing
under the agreement, for the remainder of its term. In the event of a change of
control of the Company, the employment agreement with Mr. Khoury will
automatically renew for a period equal to its initial term.
David N. Terhune. Mr. Terhune and the Company have entered into an
employment agreement pursuant to which he currently serves as Executive Vice
President and Chief Operating Officer of the Company. The agreement became
effective as of February 1, 1996 and extends through January 31, 1999. Under the
agreement, Mr. Terhune receives an annual base salary, and any bonus payable to
Mr. Terhune is at the discretion of the Company. If the Company terminates Mr.
Terhune's employment without cause (as defined in the agreement) after July 31,
1997, the Company will continue to pay his base salary for the shorter of
eighteen months or until he commences full time employment with another
employer. In the event of a change of control of the Company, the employment
agreement with Mr.
Terhune will automatically renew for a period equal to its initial term.
Mark S. Abrahams. Mr. Abrahams and the Company have entered into an
employment agreement pursuant to which he currently serves as Vice President and
General Manager, Specialty Nets & Profiles Division. The agreement extends
through June 1, 1999. Under the agreement, Mr. Abrahams receives an annual base
salary, and any bonus payable to Mr. Abrahams is at the discretion of the
Company. If the Company terminates Mr. Abrahams' employment without cause (as
defined in the agreement) after June 1, 1998, the Company will continue to pay
his base salary for the shorter of one year or until he commences full time
employment with another employer.
13
<PAGE> 16
Anthony J. Allott. Mr. Allott and the Company have entered into an
agreement pursuant to which, in the event that the Company terminates Mr.
Allott's employment without cause (as defined in the agreement), the Company
will continue to pay his base salary for the shorter of eighteen months or until
he commences comparable full time employment with another employer.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Supply Agreement dated April 17, 1990 with BE
Aerospace, Inc., a Delaware corporation ("BE Aerospace"), which was terminated
effective September 16, 1997 concurrent with the sale of related manufacturing
assets by the Company. Pursuant to the Supply Agreement, the Company sold to BE
Aerospace its requirements of certain injection-molded plastic components at a
price which resulted in a 33 1/3% gross margin to the Company, after including
in the Company's standard cost for such products all direct and indirect costs
of labor, materials, equipment and overhead. Purchases by BE Aerospace and its
affiliates under the Supply Agreement during the fiscal year ended September 30,
1997 were approximately $1,715,000. Amin J. Khoury is a director and officer of
BE Aerospace and Richard G. Hamermesh is a director of BE Aerospace.
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on its Common Stock with the cumulative
total return on the Nasdaq Stock Market - US Index, the Dow Jones Industrial
Technology Index and the Standard & Poors Manufacturing (Diversified Industry)
Index from September 30, 1992 through September 30, 1997, the last trading day
of fiscal 1997. The cumulative total shareholder return is based on $100
invested in Common Stock of the Company and in the stocks comprising the
respective indices on September 30, 1992 (including reinvestment of dividends).
[GRAPHIC]
<TABLE>
<CAPTION>
Cumulative Total Return
---------------------------------------
9/92 9/93 9/94 9/95 9/96 9/97
<S> <C> <C> <C> <C> <C> <C> <C>
APPLIED EXTRUSION TECHN INC AETC 100 89 170 272 135 128
NASDAQ STOCK MARKET (U.S.) INAS 100 131 132 182 216 297
D J INDUSTRIAL TECHNOLOGY IITC 100 98 109 137 147 172
S & P MANUFACTURING (DIVERSIFIED) IMNV 100 119 132 175 226 315
</TABLE>
The stock prices on the Performance Graph are not necessarily indicative of
future stock price performance. Each of the Report of the Compensation Committee
of the Board of Directors and the Performance Graph shall not be deemed
incorporated by reference by any general statement incorporating this proxy
statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such acts.
15
<PAGE> 18
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
ten percent of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Officers, directors and greater than ten percent shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended September 30, 1997, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with by those parties.
In making the above statements, the Company has relied on the written
representations of its directors and officers and copies of the reports that
have been filed with the Commission.
ITEM NO. 2
Under the Company's 1994 Stock Option Plan (the "1994 Plan"), an aggregate
of 1,350,000 shares of Common Stock have been reserved for issuance. The Board
of Directors has unanimously approved, subject to stockholder approval, an
increase in the shares available for grants of options under the 1994 Plan from
1,350,000 to 1,850,000. The market value of the 1,350,000 shares presently
reserved for issuance under the 1994 Plan was $9,112,500 as of December 12,
1997.
Management believes that additional shares of Common Stock are needed for
issuance under the 1994 Plan so that sufficient awards can continue to be made
to attract and retain key employees of the Company and its subsidiaries.
Consistent with this philosophy, and subject to shareholder approval of an
increase in the number of shares available under the 1994 Plan for stock option
grants, the Stock Option and Compensation Committee has approved a grant of
options to purchase an aggregate of 202,500 shares of Common Stock, covering
over 100 employees of the Company at a variety of managerial and supervisory
levels. In weighing the necessity of this grant, the Committee considered a
number of factors, including the following: (i) The fiscal year ending September
30, 1997 was the second consecutive year without bonuses for virtually all
managers of the Company and zero to negligible bonuses for the vast majority of
other bonus plan participants. While bonuses are earned and not an entitlement,
the Company's compensation program (including bonuses) is designed to be
competitive in its industry, given a reasonable expectation of achieving target
bonus levels. Therefore, without bonuses, overall compensation levels at the
Company will be below the 50th percentile of the industry standard for the
second consecutive year, in a labor market that is very tight; (ii) The
preponderance of options outstanding under the 1994 Plan were issued to
managerial employees joining the Company in conjunction with the acquisition of
the Films division from Hercules, Incorporated in 1994 and, under
16
<PAGE> 19
the standard four year phased vesting schedule, will become fully vested early
in 1998. As a result, the retention aspect offered by these stock options will
disappear without new options being granted; (iii) A significant number of
options have been granted under the 1994 Plan in connection with new hires made
by the Company in connection with the 60% increase in the size of its
manufacturing base, and the associated need to attract experienced managers
across all functional areas of the organization; (iv) Typically, stock option
programs are designed with new option grants at periodic intervals during the
vesting schedule, and the Company has largely refrained from granting additional
options except in conjunction with promotions and new hires; and (v) Generally,
these new grants represent 25% or less of the current number of options held by
individuals in any particular position.
Before the approval of the proposed increase in the number of shares
available for grants under the 1994 Plan, and excluding all grants that are
subject to such shareholder approval (see footnotes 1 and 2 to the Option Grant
Summary Table, below), there were 28,500 remaining shares available for such
grants.
The following table sets forth information with respect to the options
granted pursuant to the 1994 Plan through December 12, 1997:
1994 STOCK OPTION PLAN
<TABLE>
<CAPTION>
OPTION GRANT SUMMARY
-----------------------------------------------------------------------------------------
OPTIONS WEIGHTED AVERAGE
NAME GRANTED(#) EXERCISE PRICE
---- ---------- --------------
<S> <C> <C>
Thomas E. Williams.................................. 150,000 $8.25
Amin J. Khoury...................................... 150,000 $8.25
David N. Terhune.................................... 165,000 $8.25
Mark S. Abrahams.................................... 32,500(1) $8.30
Anthony J. Allott................................... 62,500(1) $8.32
Executive Officers, as a group...................... 580,000(1) $8.26
Non-Executive Directors, as a group................. 0 -
Non-Executive employees, as a group................. 936,000(2) $7.69
</TABLE>
- -----------
(1) Includes 12,500 options granted to each of Messrs. Allott and Abrahams
subject to stockholder approval of an increase in the number of shares
available for grants under the 1994 Plan from 1,350,000 to 1,850,000.
(2) Includes 177,500 options granted to over 100 employees subject to
stockholder approval of an increase in the number of shares available for
grants under the 1994 Plan from 1,350,000 to 1,850,000.
17
<PAGE> 20
The 1994 Plan is administered by the Compensation Committee and provides
for the grant of incentive stock options pursuant to Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code"), and non-statutory stock
options to officers, employees, consultants or advisors of the Company and its
subsidiaries (in total, approximately 1,350 persons as of September 30, 1997).
Directors who are also employees, consultants or advisors are eligible to
participate in the 1994 Plan.
The exercise price of options granted under the 1994 Plan is determined by
the Committee; provided that the exercise price of incentive stock options may
not be less that 100% (110% in the case of incentive options granted to an owner
of more than 10% of the Company's Common Stock) of the fair market value of the
Common Stock on the date of grant. Options expire no more than 10 years after
the date of grant (5 years after the date of grant for owners of more than 10%
of the Company's Common Stock in the case of incentive stock options). Options
generally vest and become exercisable 25% per year over a four year period from
the date of grant. Unvested options expire upon termination of employment or
death. Generally, vested options expire three months after the termination of
employment, subject to special provisions in the case of death.
Federal Tax Effects. The following general summary of federal income tax
consequences, based on the law as currently in effect, does not purport to be a
complete description of federal or other tax aspects of the 1994 Plan. Moreover,
the following summary does not discuss possible foreign, state, estate or other
tax consequences.
Incentive Stock Options. Neither the grant nor, in general, the exercise of
an incentive stock option produces taxable ordinary income to the employee or a
deduction to the Company. However, upon exercise of an incentive stock option,
the participant's "alternative minimum taxable income" will be increased,
generally by the excess of the fair market value of the shares at time of
exercise over the option price, and the employee may be required to pay the
alternative minimum tax ("AMT"). Any AMT attributable to the exercise of an
incentive stock option may be applied as a credit against the participant's
regular tax liability in subsequent years, subject to certain limitations.
If the participant does not dispose of stock received upon the exercise of
an incentive stock option within two years from the date the option was granted
or within one year after the date of exercise, any later sale of the shares will
result in a long-term capital gain or loss. However, if shares received upon
exercise of an incentive stock option are disposed of before these holding
period requirements have been satisfied (a "disqualifying disposition"), the
participant will realize ordinary income, and the Company will be entitled to a
deduction, equal in general to the difference between the option price and the
value of the shares on the date of exercise. In the case of a disqualifying
disposition that is a sale with respect to which loss (if sustained) would be
recognized, the amount of ordinary income will not exceed the excess of the
amount realized on such sale over the adjusted basis for the stock. A
disqualifying disposition of shares acquired upon exercise of an incentive stock
option that occurs in the same taxable year of the participant as the date his
or her AMT income was increased by reason of such exercise will eliminate the
AMT effect, if any, of such exercise.
In the event a participant pays the option price of an incentive stock
option by surrendering shares of previously owned stock, the surrender will not,
in general, result in the recognition of gain. However, the exercise of an
18
<PAGE> 21
incentive stock option by the surrender of shares which were themselves acquired
by the participant upon exercise of an incentive stock option will be a
disqualifying disposition of the surrendered shares if it takes place within two
years after the grant or one year after the exercise of the incentive option
pursuant to which the surrendered shares were acquired.
Incentive stock options granted pursuant to the 1994 Plan are treated for
tax purposes as non-statutory options (see below) to the extent that the
aggregate fair market value of Common Stock with respect to which such options
are exercisable for the first time by an individual during any calendar year
exceeds $100,000. For purposes of the preceding sentence, incentive stock
options under all option plans of the Company and its subsidiaries are
aggregated, and fair market value is determined as of the time of grant of the
option.
Non-Statutory Stock Options. The grant of a non-statutory stock option does
not produce taxable income to the employee or a deduction to the Company. When a
participant exercises a non-statutory stock option, he or she realizes, for
federal income tax purposes, ordinary income, subject to withholding, in the
amount of the difference between the option price and the then-market value of
the shares, and the Company is entitled to a corresponding deduction (subject to
satisfying its obligation to withhold with respect to such income). The tax is
due regardless of whether the optionee sells the stock acquired upon exercise of
the option.
If a participant exercises a non-statutory stock option in whole or in part
by surrendering previously acquired stock (whether acquired upon exercise of an
incentive or non-statutory stock option or otherwise), no gain or loss is
recognized on the exchange of the previously acquired shares for an equivalent
number of new shares.
Special Rules Applicable to Executive Officers and Directors. The tax rules
described above are subject to modification in the case of optionees subject to
the so-called "short-swing profit" rules of Section 16(b) of the Securities
Exchange Act of 1934, as amended ("Restricted Parties"). In the case of an
option exercised by a Restricted Party within six months of the date of grant of
the option, the ordinary income (or increased AMT income, in the case of an ISO)
associated with exercise will in general be recognized six months following the
date of grant and will be measured by the excess (if any) of the fair market
value of the shares over the option price at that time, rather than being
recognized and measured at time of exercise. Any deduction available to the
Company in connection with the exercise will be similarly deferred. However, a
Restricted Party exercising an option within six months of the date of the
option grant may elect under Section 83(b) of the Code to have the income
associated with exercise measured and taken into account at that time. An
election under Section 83(b) of the Code must be made not later than 30 days
after exercise and must satisfy certain other requirements.
An affirmative vote of a majority of the shares present, in person or by
proxy, and entitled to vote at the Meeting, is required to approve the amendment
to the 1994 Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
PROPOSAL NO. 2.
---------------
19
<PAGE> 22
AUDIT MATTERS
Deloitte & Touche has been selected to audit the financial statements of
the Company for the fiscal year ending September 30, 1998, and to report the
results of their examination.
A representative of Deloitte & Touche is expected to be present at the
Meeting and will be afforded the opportunity to make a statement if he or she
desires to do so and to respond to appropriate questions from stockholders.
STOCKHOLDER PROPOSALS
Proposals of stockholders submitted for consideration at the Annual Meeting
of Stockholders in 1999 must be received by the Company no later than August 1,
1998.
OTHER BUSINESS
The Board of Directors knows of no business that will come before the
meeting for action except as described in the accompanying Notice of Meeting.
However, as to any such business, the persons designated as proxies will have
discretionary authority to act in their best judgment.
FORM 10-K
A COPY OF AET'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE BY WRITING TO: APPLIED EXTRUSION
TECHNOLOGIES, INC., ATTN: GERALD M. HAINES II, SECRETARY, 3 CENTENNIAL DRIVE,
PEABODY, MASSACHUSETTS 01960.
20
<PAGE> 23
DETACH HERE
ANNUAL MEETING OF APPLIED EXTRUSION TECHNOLOGIES, INC.
JANUARY 28, 1998
The undersigned hereby constitutes and appoints Messrs. Anthony J. Allott
and Gerald M. Haines, II, or either of them, with power of substitution to
each, proxies to vote and act at the Annual Meeting of Stockholders of Applied
Extrusion Technologies, Inc. to be held on January 28, 1998 at the Conference
Center, 36th Floor, Ropes & Gray, One International Place, Boston,
Massachusetts 02110 at 10:30 a.m., and at any adjournments thereof, upon and
with respect to the number of shares of Common Stock, par value $.01 per share,
that the undersigned would be entitled to vote if personally present. The
undersigned instructs such proxies, or their substitutes, to vote in such manner
as they may determine on any matters which may come before the meeting, all as
indicated in the accompanying Notice of Meeting and Proxy Statement, receipt of
which is acknowledged, and to vote on the following as specified by the
undersigned. All proxies heretofore given by the undersigned in respect of said
meeting are hereby revoked.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. Unless
otherwise specified in the boxes provided on the reverse side hereof, the proxy
will be voted IN FAVOR of all nominees for director, and in the discretion of
the named proxies as to any other matter that may come before this meeting or
any adjournments thereof.
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
<PAGE> 24
APPLIED EXTRUSION TECHNOLOGIES, INC.
(NASDAQ NMS-AETC)
DETACH HERE
PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.
<TABLE>
<S> <C>
PLEASE DO NOT FOLD THIS PROXY. FOR AGAINST ABSTAIN
1. Election of Directors 2. To approve an increase in the [ ] [ ] [ ]
The undersigned hereby GRANTS authority to elect number of option shares
the following nominees: available for grant under the
Richard G. Hamermesh and Joseph J. O'Donnell Company's 1994 Stock Option
Plan.
FOR BOTH WITHHELD FROM
NOMINEES BOTH NOMINEES
[ ] [ ]
[ ]
--------------------------------------------------
For both nominees except as noted above
MARK HERE FOR ADDRESS CHANGE AND [ ]
NOTE AT LEFT
Please sign exactly as name(s) appear hereon. When
signing as attorney, executor, administrator, trustee, or
guardian, please sign your full title as such. Each joint
owner should sign.
Signature: Date: Signature: Date:
</TABLE>
