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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24786
ASPEN TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2739697
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
TEN CANAL PARK, CAMBRIDGE, MASSACHUSETTS 02141
(Address of principal executive offices) (Zip code)
(617) 949-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes _X_ No __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III to this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as at September 19, 1997 was $654,185,862 based on a total of
19,823,814 shares held by non-affiliates and the closing price reported on the
Nasdaq National Market on that date, which was $33.00.
Number of shares outstanding at September 19, 1997:
21,087,628 shares of Common Stock, par value $0.10 per share.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended June 30,
1997. Portions of such Proxy Statement are incorporated by reference in PART III
of this report.
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ASPEN TECHNOLOGY, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I PAGE
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Item 1. Business 2
Item 1a. Risk Factors 10
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 4a. Executive Officers of the Registrant 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports
on Form 8-K 27
SIGNATURES 29
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PART I
ITEM 1. BUSINESS
Aspen Technology, Inc. (the "Company" or "AspenTech") is a leading
supplier of off-the-shelf software products and services for the analysis,
design and automation of manufacturing facilities by companies in the process
industries, including the chemicals, petrochemicals, petroleum, pharmaceuticals,
pulp and paper, electric power, and food and consumer products industries.
Process manufacturers use AspenTech's solutions, a family of software products
and services, to design, operate and manage manufacturing processes more
efficiently, safely and profitably.
AspenTech provides a sophisticated, integrated family of
off-the-shelf software products for use across the entire process manufacturing
life-cycle, from "off-line" applications used primarily in research and
development, and engineering, to "on-line" applications used principally in
production. The Company's off-line software is used by engineers on desktop
computers primarily to simulate and predict the performance of manufacturing
processes in connection with the design of new facilities or processes and
the analysis of existing facilities or processes. AspenTech's on-line software,
which is connected directly to plant instrumentation, enables the real-time
adjustment of production variables in response to constantly changing
operating conditions to improve process efficiency, planning and scheduling.
AspenTech's product offerings are classified in four categories: modeling;
planning and scheduling; information management systems ("IMS"); and advanced
process control ("APC") and optimization. Chemical engineers who work in the
off-line research and development and engineering stages of plant and
process design and analysis are the principal users of modeling products,
while chemical and control engineers who work in the on-line stages of
real-time plant operation are the primary users of IMS, APC and optimization
software and services.
The Company's modeling software mathematically simulates and predicts
the performance of manufacturing processes under varying equipment
configurations and operating conditions, enabling chemical engineers to design
cost-effective, efficient processes that comply with environmental and safety
requirements. AspenTech's planning and scheduling software is used by petroleum
refiners and chemical manufacturers for feedstock selection, product mix
optimization, logistics, scheduling, process unit optimization, and investment
planning. AspenTech's IMS software is used by process manufacturers to gather
and analyze large volumes of real-time plant operations data in order to better
understand actual performance within a complex process manufacturing facility.
IMS software allows customers to compare actual performance with theoretical
benchmarks derived from models and to make appropriate adjustments on a
real-time basis. AspenTech's APC and optimization software products are designed
to enable customers to achieve superior operating performance by continuously
adjusting key process variables to maintain optimal target levels under
constantly changing conditions. The Company initially became a provider of IMS
software and services through its acquisition of Industrial Systems, Inc.
("ISI") in May 1995, and expanded its IMS capabilities through its acquisition
of Setpoint, Inc. ("Setpoint") in February 1996. AspenTech significantly
enhanced its APC and optimization software offerings through the Setpoint
acquisition as well as its acquisition of Dynamic Matrix Control Corporation
("DMCC") in January 1996. AspenTech further extended family of on-line
solutions to include economic planning and scheduling capabilities by acquiring
the assets of Bechtel Corporation's PIMS (Process Industries Modeling System)
business in December 1996.
AspenTech combines its integrated family of off-the-shelf software
products with design and implementation consulting services in order to market a
complete solution to its customers. The Company significantly strengthened its
on-line consulting services through its acquisitions of DMCC and Setpoint in
early 1996, and expanded the global reach of its consulting services
organization with the acquisition in October 1996 of the process control
division of Cambridge Control Ltd ("Cambridge Control"). AspenTech believes its
ability to offer a complete solution of both industry-leading software and
sophisticated process engineering expertise is an important source of
competitive differentiation.
AspenTech's customers span a broad range of process industry
segments. With more than 750 customers worldwide, AspenTech currently licenses
its software to 45 of the 50 largest chemical companies in the world and 18 of
the 20 largest petroleum refiners in the world.
INDUSTRY BACKGROUND
Companies in the process industries manufacture products such as bulk
solids, liquids and gases through operations involving chemical reactions,
combustion, mixing, separation, and heating and cooling. The process industries
include the chemicals, petrochemicals, petroleum, pharmaceuticals, pulp and
paper, electric power, and food and consumer products industries. Based on data
provided by industry trade groups, the Company estimates that the aggregate
worldwide revenues of the process industries exceed $3 trillion, of which the
chemicals industry has revenues that exceed $1 trillion and the petroleum
segment has revenues in excess of $500 billion.
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In recent years, several factors have dramatically affected the
competitiveness and profitability of many sectors of the process industries.
Companies in certain process industries, particularly the chemicals industry,
have experienced intensified global competition, especially from competitors
located close to raw materials sources. In addition, companies in many of the
process industries face more stringent environmental and safety regulations.
These competitive and regulatory factors, as well as cyclical economic
conditions, can have a significant negative effect on the revenues and profits
of process manufacturers. Furthermore, while labor-intensive businesses can
respond to difficult business conditions by downsizing their workforces,
capital-intensive process manufacturers must focus on improving their production
processes. Therefore, in order to significantly reduce costs and increase
profitability, a process manufacturer must design, manage and operate efficient
and cost-effective production processes. In response to competitive, regulatory
and economic pressures, companies in the process industries are adopting
increasingly sophisticated off-line and on-line tools and methodologies to
improve the performance of their facilities.
Chemical engineering analysis is the fundamental discipline behind
the improvement of production processes. Due to the number of variables
involved, chemical engineering analysis is complex and calculation intensive.
Without the use of process modeling and plant automation software, time and cost
constraints force engineers to make simplifying assumptions that may limit the
potential improvements to production processes. These constraints may also force
engineers to evaluate only parts of the process rather than the whole, or to
consider fewer alternative solutions. Process modeling and plant automation
software enables engineers to perform these complex calculations simultaneously
in order to arrive at better solutions quickly.
Sophisticated software tools for off-line use that can accurately
model a broad range of processes have been available to chemical engineers since
the 1980s. Although early versions of the tools required substantial modeling
expertise and were limited in scope and complicated to use, in recent years the
availability of affordable, powerful desktop computers and intuitive graphical
user interfaces has expanded the market of potential users of process modeling
software. Moreover, process modeling software can now reliably model highly
complex chemical processes, broadening the scope of projects where its use is
applicable. These software tools can generate savings significantly in excess of
their cost by enabling users to design manufacturing processes with lower raw
material usage, decreased energy and capital equipment costs, improved product
quality and operating safety, cost-effective regulatory compliance and enhanced
engineering productivity. As a result of this improved availability,
functionality and cost-efficiency, many companies that previously relied on
internally developed models are adopting software products developed by third
parties who are better equipped to maintain and enhance these increasingly
complex tools.
The use of off-line technology has been complemented by an increasing
demand for on-line applications for several reasons. First, the economic rewards
for making even small improvements in plant efficiency and safety can be
substantial. Second, the benefits of integrated process modeling, information
management, process control and optimization techniques are becoming
increasingly understood by customers. Third, while sophisticated tools and
expertise have not heretofore been widely available, commercial providers are
emerging to address these needs. Recent significant advances in software and
hardware technology, including the availability of more sophisticated
optimization algorithms and updatable graphical user interfaces, have made
on-line applications increasingly feasible for a growing number of process
manufacturers.
In recent years, there has been increasing demand for integration of
all manufacturing processes from research and development to design,
engineering, and process and manufacturing management. Customers are looking to
the advantages which integrated on-line and off-line applications can bring to
their management of all process manufacturing activities. This is similar to the
integration by enterprise resource planning ("ERP") vendors of financial,
materials management, production planning, human resource management, sales, and
accounting applications. Commercial providers are emerging to offer tools and
expertise to further connect this technology layer which consists of integrated
design, control and management applications for process manufacturing ("Smart
Manufacturing Systems") with the ERP applications and the distributed control
systems ("DCS") which control the plants.
As a result of the market dynamics in the process industries and the
rapidly evolving technology available to improve manufacturing processes,
process manufacturers increasingly seek a complete, integrated family of
software and services that can be used to design, operate and manage their
production processes more effectively.
THE ASPENTECH ADVANTAGE
The Company believes it is the largest independent supplier of
software and service solutions used by companies in the process industries to
design, operate and manage their manufacturing processes based on fundamental
chemical engineering principles. AspenTech offers its customers in-depth
technical expertise encompassing both off-line and on-line applications. By
combining its traditional process modeling and optimization capabilities with
acquired skills in economic planning and scheduling, IMS and APC, AspenTech has
created a complete solution designed to provide several key advantages to
customers.
Family of Products Across Full Manufacturing Life-Cycle. AspenTech
believes that it offers the most complete family of process modeling and plant
automation software tools used across every stage of the production process,
from research and development to engineering to production. The Company's
software products are designed to achieve improved process efficiency through
comparison of off-line predictive models with actual on-line production data and
through real-time adjustments to operating
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parameters in response to constantly changing conditions. The Company has
significantly integrated its on-line applications and intends to continue
integrating and enhancing both on-line and off-line applications.
Complete Software and Service Solution. Customers increasingly
require expert consulting services to take full advantage of the highly complex
software tools being designed for the process industries. AspenTech deploys what
it believes is the largest independent organization of control engineers to
design and implement solutions, in combination with IMS, APC and optimization
software products. AspenTech believes its ability to offer its customers a
complete solution will be an increasingly important source of competitive
differentiation.
Process Industry Expertise. Over the past 16 years, AspenTech has
built a reputation as a leader in process modeling expertise. AspenTech's
software products incorporate proprietary solution methods, physical property
models and data estimation techniques that enable users to model processes that
involve complex chemistry. AspenTech has refined these methods, models and
techniques based on continuing relationships with customers who have performed
millions of simulations using AspenTech software. The Company has expanded its
on-line expertise through its acquisitions of ISI, DMCC, Setpoint, Cambridge
Control and Bechtel PIMS, and the Company believes it is now the technological
leader in the planning and scheduling, IMS, APC and optimization markets.
AspenTech believes that the expertise underlying its software products and
services will assist it in maintaining and enhancing its reputation as a
technological leader across the manufacturing process.
STRATEGY
AspenTech's strategy is to expand the use of its products and
services to enable customers to improve the design, operation and management of
their manufacturing processes. The key elements of this strategy are:
Leverage Breadth and Depth of Customer Base. AspenTech considers its
relationships with its existing customers to be an important corporate asset.
AspenTech currently has more than 750 commercial customers worldwide, including
45 of the 50 largest chemical companies in the world and 18 of the 20 largest
petroleum refiners in the world. The Company has historically derived a
significant component of its revenue from additional sales to existing
customers. The Company believes it has a significant opportunity to expand its
existing customer relationships by adding new licensed users, by offering
additional product modules, and by providing consulting and support services.
These solutions are marketed by a single, integrated sales force organized by
customer account. AspenTech is capitalizing on the significant opportunities it
has created to cross-sell modeling products to traditional APC and optimization
customers and vice versa.
Leverage Lead in the Area of Smart Manufacturing Systems. AspenTech
believes that it has emerged as the leader in the area of integrated design,
control and management applications for process manufacturing ("Smart
Manufacturing Systems"). As the benefits of integrated applications across
process manufacturing design, control and management functions are more widely
understood and appreciated by process manufacturers, AspenTech is expanding its
integration efforts, developing relationships with enterprise resource planning
("ERP") vendors and distributed control system ("DCS") vendors, and offering
customers complete solutions which link the Smart Manufacturing Systems to the
ERP and DCS technology layers.
Increase Penetration of Process Industries. In recent years,
AspenTech has broadened its penetration of the process industries beyond its
traditional leadership in the chemicals segment to include significant shares of
the petroleum and pulp and paper markets. Many of the same imperatives and
opportunities confront participants in other process industry segments. As the
benefits of its solutions are becoming more widely understood by process
manufacturers, AspenTech is actively pursuing opportunities to expand the use of
its technology in additional vertical markets. For example, AspenTech's
introduction in March 1997 of BatchPlus, a solution for the modeling and
simulation of complex, recipe-based pharmaceutical and batch chemical processes,
has broadened the Company's historically limited presence in these large and
underpenetrated vertical market segments. AspenTech believes the continuous
broadening of its software product and service offerings through acquisition and
internal development will enable AspenTech to expand its reach further. Over
time, AspenTech will also seek to leverage these new customer relationships by
cross-selling its other software product and service offerings.
Offer Broadest, Integrated Family of Products and Services. AspenTech
offers customers a broad family of software products encompassing the full
manufacturing life-cycle, enabling customers to add compatible software
capabilities as their needs grow. These products can be used as stand-alone
solutions or in concert with other software modules. AspenTech offers process
manufacturers what it believes is the most advanced product functionality
available across a wide range of off-line and on-line applications. The Company
intends to integrate further the APC and optimization tools obtained through its
acquisitions into future generations of its software products. In addition,
AspenTech provides implementation consulting services to ensure that customers
can achieve a successful solution. In certain of AspenTech's projects,
functionality developed in connection with a solution has appeared applicable to
other customers and has been commercialized by AspenTech, such as BatchPlus,
developed in conjunction with Merck & Co.. The Company expects this to continue
to be one of its sources of new products and that its ability to offer its
customers a complete solution will be an increasingly important source of
competitive differentiation. Where acquisition represents the most
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efficient source of product line extension, AspenTech expects to continue to
acquire products and technologies opportunistically, as with its October 1996
purchase of B-JAC International, Inc., a leading supplier of specialized heat
exchanger modeling tools.
Extend Technology Leadership. AspenTech intends to extend its
reputation as the technology leader and believes its recent acquisitions
represent important opportunities to maintain and enhance its differentiating
capabilities in the marketplace. AspenTech believes its modeling software
solutions include a number of pioneering products and algorithms, and its
on-line offerings are technological leaders in real-time applications,
engineering and consulting solutions for APC and optimization. AspenTech's
reputation for technological leadership continues to be an important source of
attraction for scarce, highly talented engineers and technical personnel.
Focus on Long-Term Customer Relationships. AspenTech's operating
strategy is driven by a long-term approach to customer relationships. AspenTech
historically derives a substantial portion of its revenues from three- to
five-year software licenses and renewals of those licenses. Because a
significant portion of its revenues come from its installed base, AspenTech
focuses on long-term customer relationships in marketing its process modeling
and plant automation software products and services. Increasingly, cross-selling
opportunities are merging the customer bases of AspenTech's traditional modeling
users with those of the recently acquired companies, who traditionally focused
exclusively on on-line solutions. AspenTech intends to leverage these
relationships to an increasing extent, particularly as the product integrations
are completed. This includes alliances which provide for significant customer
involvement in product development and testing as well as customer sharing of
technology, such as the AspenTech Dow Chemical Co. alliance announced in June
1997.
Capitalize on Emerging On-Line Market. The Company believes that the
potential market for on-line applications for process industries, while less
mature than the off-line market, may be substantially larger than the potential
off-line market. On-line applications complement existing off-line applications
and afford recurring incremental savings in day-to-day operations. The Company
will seek to continue to develop and expand the market for its IMS, APC and
optimization software and services for the emerging on-line market.
Partner with Complementary Process Industry Suppliers. In recent
years, shifts toward open technologies, lower-cost and more powerful hardware
platforms, and intensifying global business pressures are causing process
industry customers to look increasingly at purchasing open, best-of-breed
solutions, rather than single-vendor proprietary approaches. In response to this
trend, AspenTech has embarked on a strategy to partner with leading technology
vendors, such as SAP A.G., Yokagawa Electric Corporation, and Elsag Bailey, Inc.
in order to broaden the reach of its marketing organization and to enable its
customers to create integrated solutions that best achieve their goals.
CUSTOMERS
AspenTech currently has over 750 commercial customers worldwide,
including 45 of the 50 largest chemical companies in the world and 18 of the 20
largest petroleum refiners in the world. The Company derived more than 50% in
fiscal 1995, approximately 45% in fiscal 1996, and more than 50% in fiscal 1997
of revenues from customers outside the United States.
CHEMICALS
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Air Products & Chemicals, Inc.
BASF AG
The Dow Chemical Company
E.I. du Pont de Nemours & Company, Inc.
Elf Atochem
Hoechst AG
Huls AG
Huntsman Corporation
Lyondell Petrochemical
Mitsubishi Chemical Corporation
Olin Corporation
Rhone-Poulenc Industrialisation
Sasol Industries (Pty.) Ltd.
Shell International Chemie Mij B.V.
Sumitomo Chemical Co. Ltd.
Union Carbide Chemicals and Plastics Company, Inc.
ENGINEERING AND CONSTRUCTION
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Bechtel Corporation
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Fluor Daniel, Inc.
John Brown Engineers and Constructors B.V.
Lurgi AG
The M.W. Kellogg Company
The Ralph M. Parsons Company
UOP
Zimmer AG
CONSUMER PRODUCTS
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The Procter & Gamble Company
3M Company
Unilever Research
ELECTRIC POWER
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ABB Stal AB
British Nuclear Fuels plc
Combustion Engineering, Inc.
GEC Alsthom
SGN
Westinghouse Electric Corporation
FOOD PRODUCTS
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Cargill Incorporated
General Mills, Inc.
PETROLEUM
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Arco Products Company
British Petroleum
Chevron Corporation
Citgo Petroleum Corporation
Conoco Inc.
Corpoven, S.A.
Marathon Oil Company
Mobil Oil Corporation
Neste Oy
Phillips Petroleum Company
Repsol Petroleo SA
Shell Oil Company
Star Enterprise
Sun Refining and Marketing Company
PHARMACEUTICALS
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Ciba-Geigy AG
Eli Lilly and Company
Fujisawa Pharmaceutical Co., Ltd.
Genentech, Inc.
Hoffman-LaRoche, Inc.
Kyowa-Hakko Kogyo Co., Ltd.
Merck & Co., Inc.
Sandoz Technologie AG
The Upjohn Company
PULP AND PAPER
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Union Camp Corporation
Weyerhaeuser Company
METALS AND MINERALS
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Phelps Dodge
No individual customer represented 10% or more of AspenTech's total
revenues for fiscal 1995, 1996 or 1997. There can be no assurance that any of
the customers listed will continue to license software or purchase services from
AspenTech beyond the term of any existing agreement.
PRODUCTS AND SERVICES
AspenTech is a leading supplier of software products and services for
the analysis, design and automation of manufacturing facilities by companies in
the process industries. AspenTech's integrated family of software products
enables customers to predict accurately and reliably the performance of a
manufacturing process in order to design, operate and manage manufacturing
processes more efficiently, safely and profitably. These tools are used both
off-line by engineers on desktop computers in connection with the design of new
facilities and processes and the analysis of existing facilities and processes,
and on-line connected directly to plant instrumentation to identify adjustments
that can be made on a real-time basis to optimize performance continually in
response to changing production conditions. In addition, AspenTech can provide
expert consulting, training and support services to augment its software
expertise and offer a complete solution to its customers.
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Products Description Category
OFF-LINE SOFTWARE
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ASPEN PLUS(R) Rigorous steady-state modeling Modeling
for chemicals, electrolytes, (steady state
solids, and petroleum assays processes)
SPEEDUP(R) Rigorous modeling environment Modeling
for dynamically simulating (dynamic processes)
chemical, hydrocarbon, and
petroleum processes
ADVENT(R) Simulation tool for designing Modeling
reduced cost processes for (process synthesis)
chemical plants and refineries
via process/utility heat
integration
BATCH PLUS(TM) Recipe-based simulation engine Modeling
that can model one batch or a (batch process)
whole plant
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ON-LINE SOFTWARE
InfoPlus.21(TM) A hierarchical, real-time, IMS
memory-resident configurable
database
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DMCplus(TM) Multivariable predictive APC
constraint process control
application
RT-OPT(R) Real-time closed-loop Optimization
optimization product
Aspen PIMS(TM) Linear programming product to Planning and
optimize an economic model of Scheduling
a manufacturing complex
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OFF-LINE SOFTWARE PRODUCTS
The Company offers a number of software products for off-line
applications. Off-line software is used primarily to simulate and predict
manufacturing processes in connection with the design of new facilities or
processes and the analysis of existing facilities or processes. ASPEN PLUS is
used to simulate steady state processes in which inputs and conditions are held
constant. ASPEN PLUS can be used in concert with SPEEDUP, dynamic process
modeling software that simulates processes in which inputs and conditions change
over time, such as during plant start-up and shutdown or when feedstocks are
adjusted. ADVENT is process synthesis software that minimizes energy consumption
and emissions from a manufacturing process. BATCH PLUS is modeling and
simulation software for recipe-based pharmaceutical and batch chemical process
manufacturing. Layered on top of these core, integrated off-line applications
are a number of separately sold modules that focus on specialized types of
analysis to model separation systems, batch distillation columns, bioprocess
operations, polymers processes, and other complex systems. All of these products
can operate in Windows. ASPEN PLUS, SPEEDUP, and ADVENT also run on UNIX and
both ASPEN PLUS and SPEEDUP run on DEC VMS. See "Item 1. Product Development"
and "Item 1a. Risk Factors - Migation to MicroSoft Windows; Emergence of Other
Standards".
AspenTech typically licenses its modeling software for a term of
either three or five years. Currently, the annualized cost for a single
U.S.-based user of one of AspenTech's off-line software modules ranges from
$10,000 to $30,000, depending on the product and the license term. The license
fees charged by AspenTech are typically based on the number of licensed users,
with the cost per user declining as the number of licensed seats increases. The
license fee includes a separate maintenance component that covers upgrades,
revisions or enhancements during the term of the license, as well as customer
support.
ON-LINE SOFTWARE PRODUCTS
For on-line applications, AspenTech offers a family of products and
services that enables customers to better understand and monitor highly complex
manufacturing processes on a real-time basis, and to automate the adjustment of
operating parameters in response to continually changing conditions for improved
process efficiency, safety and cost-effectiveness. AspenTech typically licenses
its on-line software for a term of 99 years. AspenTech's IMS products capture,
display and analyze plant-wide historical and real-time process data, in order
to compare the actual performance to theoretical benchmarks derived from models.
The U.S. list price for an entry-level 99-year IMS license is approximately
$50,000, and varies depending on the number of points of data being collected.
AspenTech's APC and optimization products enable customers to improve the
profitability of a manufacturing facility by determining optimal operating
parameters and simultaneously adjusting multiple process variables to achieve
these targets. The U.S. list price for a 99-year APC or optimization software
license for a single process unit or single facility ranges from $50,000 to
$200,000.
AspenTech's PIMS products provide economic planning and scheduling
tools to customers which are based on large linear programming models. They
enable customers to make both short-term and strategic decisions which help
identify optimum plant investments. AspenTech typically licenses its PIMS
software for a term of five years or 25 years. The U.S. list price for a license
of AspenTech's PIMS modules range from $10,000 to $200,000 depending on the
product and the license term.
All of these products can operate in Windows. InfoPlus.21, DMCplus,
and RT-OPT also run on DEC VMS, and both InfoPlus.21 and RT-OPT operate on a
UNIX platform. See "Item 1. Product Development" and "Item 1a. Risk Factors -
Migration to Microsoft Windows; Emergence of Other Standards".
CONSULTING SERVICES
AspenTech can combine its on-line off-the-shelf software products
with design and implementation consulting services in order to market a complete
solution to its customers. The emerging on-line market has fewer commercial
modeling tools than the off-line market. As a result, current on-line
applications typically consist of substantial consulting services combined with
a small component of standard commercial software. These services are
customarily provided pursuant to contracts with engagement terms of
approximately 9 to 24 months. The contracts may be priced on either a
time-and-materials or fixed-price basis. Customers can purchase such services
from other vendors or perform them in-house. The Company believes that, due to
customers' growing awareness of the economic benefits of on-line optimization
and related activities, the demand for services exceeds the number of
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trained control engineers that can provide these services. AspenTech's IMS, APC
and optimization services business, composed of approximately 330 people, which
AspenTech believes is the largest group of control engineers in the world,
represents a critical resource in its efforts to penetrate the on-line market.
The Company's services personnel are also available to support and maintain its
off-line software products.
MARKETING AND SALES
AspenTech employs a direct sales force located in key geographic
centers where there are high concentrations of potential business. The Company's
sales approach is designed to provide complete solutions to its customers.
AspenTech's worldwide sales organization is focused by customer account, with an
overall relationship executive responsible for coordinating with regional
account managers and sales engineers. In addition, each sales team includes
participants from the business development group who are responsible for
determining the scope and price of the product or service being offered.
AspenTech believes that its seasoned direct sales force, as well as its ability
to sell at senior levels within customer organizations, are important
competitive distinctions. AspenTech uses sales agents to leverage its direct
sales force and provide local coverage and first-line support in areas of lower
customer concentration. The Company also supplements its direct sales efforts
with a variety of marketing initiatives, including user groups and a triennial
conference, AspenWorld.
AspenTech devotes substantial resources to increasing the penetration
of its products within existing customers. AspenTech has developed global
technology partnerships with a select group of customers that use modeling
extensively, whereby they meet on a regular basis with AspenTech's senior
technical and managerial staffs to help shape technical direction.
AspenTech licenses its software products at a substantial discount to
universities that agree to use such products in teaching and research, in order
to stimulate future demand once the students enter the workplace. Currently,
more than 520 universities use its software products in undergraduate
instruction.
COMPETITION
The Company's software products and services compete with software
tools that are internally developed by companies in the process industries and
with certain modeling, planning and scheduling, IMS, APC and optimization
software products and services that are sold by a number of commercial
suppliers. Increasingly, companies in the process industries are recognizing
that it is inefficient and uneconomical for them to continue to develop and
support this software, and many of them are now deploying commercial software
products alongside their internally developed tools.
AspenTech's primary commercial competitors in the process modeling
software and services market are Simulation Sciences Inc., Hyprotech, Ltd. (a
subsidiary of AEA Technology plc), and Chemstations, Inc. In the planning and
scheduling market, the Company competes with Bonner and Moore Associates, Inc.
Haverly Systems, Inc. Chesapeake Decision Science, Inc., and Ernst & Young
Wright Killen. In the IMS market, AspenTech primarily competes with Oil Systems
Inc. and Biles and Associates (which entered into an agreement to be acquired by
Simulation Sciences, Inc. in August 1997) and, to a lesser extent, with
distributed control system vendors such as Honeywell Inc. In the APC and
optimization markets, AspenTech competes with the Industrial Automation and
Control business unit of Honeywell Inc., which primarily sells distributed
control system hardware, as well as with Pavilion Technologies, Inc. and the
Simcon division of ABB Asea Brown Boveri (Holding) Ltd. Several smaller
competitors, including Treiber Control, focus exclusively on the APC market.
Emergence of a new competitor or the consolidation of existing competitors could
adversely affect the Company's business, operating results and financial
condition. Certain competitors also supply related hardware products to existing
and potential customers of AspenTech, and may have established relationships
that afford the competitors an advantage in supplying software and services to
those customers.
AspenTech believes that it competes favorably by offering the
broadest range of integrated off-line and on-line modeling software and
services, and that its size, technology and industry expertise will continue to
provide it with a marketplace advantage over companies that are niche suppliers
focused on a single element of the solution or companies that primarily sell
hardware. The Company's continued success depends on its ability to compete
effectively with its commercial competitors and to persuade prospective
customers to use the Company's products and services instead of, or in addition
to, software developed internally or services provided by their own personnel.
In light of these factors, there is no assurance that the Company will be able
to maintain its competitive position. See "Item 1a. Risk Factors --
Competition."
PRODUCT DEVELOPMENT
AspenTech's most important product development objective is to build
upon the technical leadership of its software products both individually and as
an integrated solution. Product development activities focus on adding new
chemical engineering analysis and plant operations capabilities, developing new
ease-of-use features and enhancing the user interface, taking advantage of new
hardware capabilities and major new software industry developments, more tightly
integrating AspenTech's family of software products and integrating those
software products with other tools. AspenTech has focused significant efforts on
the development of Windows 95
8
<PAGE> 10
and Windows NT versions of all of its software products and continues to focus
on the continued integration of its family of software products, including
products acquired through past acquisitions.
AspenTech's approach to Windows is based on a client-server
architecture. AspenTech is developing Windows 95 and Windows NT clients for all
of its core software products not already Windows 95 or Windows NT compatible,
with simulation and database servers running on Windows NT, UNIX and DEC VMS.
The objective of the Windows development is to capitalize on Windows
interoperability and customization capabilities, as well as to provide highly
intuitive graphical user interfaces. A native Windows development environment is
used to ensure full support of all Windows features and object linking and
embedding (OLE) architecture. See "Item 1a. Risk Factors -- Migration to
Microsoft Windows; Emergence of Other Standards."
AspenTech has integrated overlapping products in each business area
by combining the best components from these products under a Windows graphical
user interface. AspenTech is continuing to work on the development of an open,
distributed object component architecture for all AspenTech products, with the
products sharing common components and allowing incorporation of customer or
third-party components. A central Software Engineering and Architecture
department has facilitated and coordinated component development.
AspenTech continues to invest in maintaining its technology
leadership through development and enhancement of existing products and
development of new products. The Company has successfully integrated closely
related products such as ASPEN PLUS and SPEEDUP, as well as products from
different divisions such as DMCplus and InfoPlus.21. Release 10 of ASPEN PLUS,
which includes Windows NT capability, is scheduled for release by the end of the
first calendar quarter of 1998 to be followed by Release 11, an
equation-oriented version of ASPEN PLUS, which does not yet have a scheduled
release date. In addition, the Company has completed integration of RT-OPT with
[DMO], AspenTech's dynamic matrix optimization software acquired with the
acquisition DMCC. The Company is also focusing certain resources on the
production of a complete, integrated solution between certain enterprise
resource planning ("ERP") products such as SAP's R/3 and distributed control
systems. Finally, the Company has also established a year 2000 compliance
program to test and, if necessary, modify software to enable it to handle the
date change on and after the year 2000. There can be no assurance that AspenTech
will be successful in enhancing and integrating these software products or that
it will release scheduled releases on time or that a full integrated product
offering will result in the benefits anticipated. See "Item 1a. Risk Factors -
Product Development and Technological Change" and "Migration to Microsoft
Windows; Emergence of Other Standards."
PROPRIETARY RIGHTS
The Company regards its software as proprietary and relies on a
combination of copyright, patent, trademark and trade secret laws, license and
confidentiality agreements, and software security measures to protect its
proprietary rights. AspenTech has United States patents for the expert guidance
system in its proprietary graphical user interface, simulation and optimization
methods in its optimization software, a process flow diagram generator in its
planning and scheduling software, and a process simulation apparatus in its
polymers software. The Company has registered or applied to register certain of
its significant trademarks in the United States and in certain other countries.
The Company generally enters into non-disclosure agreements with its
employees and customers, and historically has restricted access to its software
products' source codes, which it regards as proprietary information. In a few
cases, the Company has provided copies of the source code for certain products
to customers solely for the purpose of special customization of the products and
has deposited copies of the source code for certain products in third-party
escrow accounts as security for on-going service and license obligations. In
these cases, the Company relies on nondisclosure and other contractual
provisions to protect its proprietary rights.
AspenTech distributes its products under non-exclusive and typically
nontransferable license agreements that grant customers the right to use
AspenTech's products, typically for a term of either three or five years in the
case of modeling software products, five and twenty-five years for planning and
scheduling software, or for a term of 99 years in the case of IMS, APC and
optimization software products. The license agreements contain various
provisions that protect AspenTech's ownership of the products and the
confidentiality of the underlying technology.
The laws of certain countries in which the Company's products are
distributed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. The laws of many
countries in which the Company licenses its products protect trademarks solely
on the basis of registration. The Company currently possesses a limited number
of trademark registrations in certain foreign jurisdictions and does not
possess, and has not applied for, any foreign copyright or patent registrations.
The Company derived more than 50% in fiscal 1995, approximately 45% in fiscal
1996, and more than 50% in fiscal 1997 of its total revenues from customers
outside the United States.
There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to deter misappropriation of its
technology or independent development by others of technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation of the Company's technology or development of competitive
technologies could have a material adverse effect on the business, results of
operations and financial condition of the Company. The Company
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<PAGE> 11
could incur substantial costs in protecting and enforcing its intellectual
property rights. Moreover, from time to time third parties may assert patent,
trademark, copyright and other intellectual property rights to technologies that
are important to the Company. In such an event, the Company may be required to
incur significant costs in litigating a resolution to the asserted claims. There
can be no assurance that such a resolution would not require that the Company
pay damages or obtain a license of a third party's proprietary rights in order
to continue licensing its products as currently offered or, if such a license is
required, that it will be available on terms acceptable to the Company.
AspenTech believes that, due to the rapid pace of innovation within
the industry, factors such as the technological and creative expertise of its
personnel, the quality of its products, the quality of its technical support and
training courses, and the frequency of software product enhancements are more
important to establishing and maintaining a technology leadership position
within the industry than the various legal protections for its software products
and technology. See "Item 1a. Risk Factors- Dependence on Proprietary
Technology."
EMPLOYEES
As of June 30, 1997, AspenTech had a total of 1,239 full-time
employees. None of AspenTech's employees is represented by a labor union.
AspenTech has experienced no work stoppages and believes that its employee
relations are good.
While the Company has substantially expanded the breadth and depth of
its management team in recent years, AspenTech's future success depends to a
significant extent on the continued service of Lawrence B. Evans, the Company's
chief executive officer, its other executive officers and certain technical,
managerial and marketing personnel. The Company believes that its future success
will also depend on its continuing ability to attract and retain highly skilled
technical, managerial and marketing personnel. Competition for such personnel is
intense and there can be no assurance that AspenTech can retain its key
employees or that it can attract, assimilate or retain other highly qualified
technical and commercial personnel in the future. To date, six of the original
eight founders of AspenTech are still employed by AspenTech and are active in
its management. See "Item 1a. Risk Factors - Dependence on Key Personnel".
ITEM 1A. RISK FACTORS
Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
the results contemplated in the forward-looking statements as a result of a
number of factors, including the risk factors set forth below.
Dependence Upon Increased Market Penetration. Increased use in the
process industries, particularly the chemicals and petroleum industries, of
software and services for the analysis, design and automation of process
manufacturing plants in general and of the Company's software products and
services in particular is critical to the Company's future growth. The Company
believes that a number of factors will determine its ability to achieve
increased market penetration. These factors include product performance,
accuracy of results, ease of implementation and use, breadth and integration of
product offerings, reliability and scope of applications. Failure of the Company
to achieve increased market penetration in the process industries would
substantially restrict the future growth of the Company and could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Item 1. Business -- The AspenTech Advantage" and "--
Strategy."
Fluctuations in Quarterly Operating Results. The Company's operating
results have fluctuated in the past and may fluctuate significantly in the
future as a result of a variety of factors, including purchasing patterns,
timing of new products and enhancements by the Company and its competitors, and
fluctuating foreign economic conditions. In addition, the Company ships software
products within a short period after receipt of an order and typically does not
have a material backlog of unfilled orders of software products. Therefore,
revenues from software licenses in any quarter are substantially dependent on
orders booked in that quarter. Historically, a majority of each quarter's
revenues from software licenses has come from license contracts that have been
effected in the final weeks of that quarter. The revenues for a quarter
typically include a number of large orders. If the timing of any of these orders
is delayed, it could result in a substantial reduction in revenues for that
quarter. Since the Company's expense levels are based in part on its
expectations as to future revenues, the Company may be unable to adjust spending
in a timely manner to compensate for any revenue shortfall and any revenue
shortfalls would likely have a disproportionate adverse effect on net income.
Prior to fiscal 1996, the Company experienced a net loss for the first quarter
of each fiscal year, in part because a substantial portion of the Company's
revenues is derived from countries other than the United States where business
is slow during the summer months and also in part because of the timing of
renewals of software licenses. The Company expects that these factors will
continue to affect its operating results and that the Company may experience net
losses in the initial quarter of future fiscal years. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Quarterly Results."
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<PAGE> 12
Concentration of Revenues in the Chemicals and Petroleum Industries.
The Company derives a significant portion of its revenues from companies in the
chemicals and petroleum industries. Accordingly, the Company's future success is
dependent upon the continued demand for modeling software by companies in the
chemicals industry and for planning and scheduling, IMS, APC and optimization
software and services by companies in the chemical and petroleum industries. The
chemical and petroleum industries are highly cyclical. The Company believes that
economic downturns in the United States, Europe, Japan, Asia and South America
and pricing pressures experienced by chemical and petroleum companies in
connection with cost-containment measures have led to delays and reductions in
certain capital and operating expenditures by many of such companies worldwide.
The Company's revenues have in the past been, and may in the future be, subject
to substantial period-to-period fluctuations as a consequence of such industry
patterns, as well as general domestic and foreign economic conditions and other
factors affecting spending by companies in the Company's target process
industries. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results and financial
condition. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
Product Development and Technological Change. The market for software
and services for the analysis, design and automation of process manufacturing
plants is characterized by continual change and improvement in computer hardware
and software technology. The Company's future success will depend on its ability
to enhance its current software products and services, to introduce new software
products and services that keep pace with technological developments, and to
continue to address the changing needs of its customers. There can be no
assurance that the Company will be successful in developing and marketing new
and enhanced products and services, or that its products and services will
continue to address adequately the needs of the marketplace. Like many other
software products, the Company's products have on occasion contained undetected
errors or "bugs." In addition, because new releases of the Company's products
are initially installed only by a small number of customers, any errors or
"bugs" in those new releases may not be detected for a number of months after
the delivery of the software. If the Company's products do not perform
substantially as expected or are not accepted in the marketplace, the Company's
business, operating results and financial condition would be materially
adversely affected. See "Item 1. Business -- Product Development."
Dependence on Key Personnel. The Company's future success depends to
a significant extent on Lawrence B. Evans, the Company's chief executive
officer, its other executive officers, and certain key technical, managerial and
marketing personnel. The loss of the services of any of these individuals or
groups of individuals could have a material adverse effect on the Company's
business, operating results and financial condition. None of the Company's
executive officers has entered into an employment agreement with the Company,
and the Company does not have, and is not contemplating securing, any
significant amount of key-man life insurance on any of its executive officers or
other key employees. The Company believes that its future success also will
depend significantly upon its ability to attract, motivate and retain additional
highly skilled technical, managerial and marketing personnel. Competition for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining the personnel it requires to continue
to grow and operate profitably. See "Item 1. Business -- Employees."
Product Liability. The sale and implementation of on-line
applications by the Company may entail the risk of product liability claims. The
Company's APC and optimization software products and services are used in the
design, operation and management of manufacturing processes at large facilities,
and any failure by the software at those facilities could result in significant
claims for damages or for violations of environmental, safety and other laws and
regulations. The Company's agreements with its customers generally contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of federal, state or local laws or ordinances or unfavorable judicial
decisions. A successful product liability claim against the Company could have a
material adverse effect upon the Company's business, operating results and
financial condition.
Migration to Microsoft Windows; Emergence of Other Standards.
AspenTech believes that operating systems such as to Microsoft Windows, due to
their interoperability and customization capabilities, are increasingly the
preferred choice of certain of its customers. AspenTech has developed Windows 95
versions of its software products and Windows NT versions of most of its core
products. It has developed a Windows NT version of ASPEN PLUS which is in test
stages and is developing a Windows NT version of RT-OPT. There can be no
assurance of customer acceptance of Windows versions of all products, or that
they will be competitive with offerings form the Company's competition. Although
the Company does not believe that there are currently other operating platforms
which are in demand by customers, there can be no assurance that customers will
not migrate to or require compatibility with other systems such as Java(TM). The
Company is also aware of customer concerns that its products be able to handle
the date change on and after the year 2000 and has established a compliance
program to test and, if necessary, modify new versions of its products. Any such
failure or delay in developing and releasing new operating systems versions or
testing and/or modifying its software to be year 2000 compliant could affect the
Company's competitive position or lead to product obsolescence in the future.
See "Item 1. Business -- Product Development" and "-- Competition."
Dependence on Proprietary Technology. The Company regards its
software as proprietary and relies on a combination of copyright, patent,
trademark and trade secret laws, license and confidentiality agreements, and
software security measures to protect its proprietary rights. AspenTech has
United States patents for the expert guidance system in its proprietary
graphical user interface, simulation and optimization methods in its
optimization software, a process flow diagram generator in its planning and
scheduling
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<PAGE> 13
software, and a process simulation apparatus in its polymers software. The
Company has registered or applied to register certain of its significant
trademarks in the United States and certain other countries. The Company
generally enters into non-disclosure agreements with its employees and
customers, and historically has restricted access to its software products'
source codes, which it regards as proprietary information. In a few cases, the
Company has provided copies of the source code for certain products to customers
solely for the purpose of special customization of the products and has
deposited copies of the source code for certain products in third-party escrow
accounts as security for on-going service and license obligations. In these
cases, the Company relies on nondisclosure and other contractual provisions to
protect its proprietary rights.
The laws of certain countries in which the Company's products are
distributed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. The laws of many
countries in which the Company licenses its products protect trademarks solely
on the basis of registration. The Company currently possesses a limited number
of trademark registrations in certain foreign jurisdictions and does not possess
any foreign copyright or patent registrations. The Company derived more than 50%
in fiscal 1995, approximately 45% in fiscal 1996, and more than 50% in fiscal
1997 of its revenues from customers outside the United States.
There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to deter misappropriation of its
technology or independent development by others of technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation of the Company's technology or development of competitive
technologies could have a material adverse effect on the business, results of
operations and financial condition of the Company. The Company could incur
substantial costs in protecting and enforcing its intellectual property rights.
Moreover, from time to time third parties may assert patent, trademark,
copyright and other intellectual property rights to technologies that are
important to the Company. In such an event, the Company may be required to incur
significant costs in litigating a resolution to the asserted claims. There can
be no assurance that such a resolution would not require that the Company pay
damages or obtain a license of a third party's proprietary rights in order to
continue licensing its products as currently offered or, if such a license is
required, that it will be available on terms acceptable to the Company. See
"Item 1. Business -- Proprietary Rights."
Competition. The Company's software products compete with software
tools that are internally developed by companies in the process industries and
with certain process modeling, planning and scheduling, IMS, APC and
optimization software products that are sold by a number of commercial
suppliers. AspenTech's primary commercial competitors in the process modeling
software market are Simulation Sciences, Inc., Hyprotech, Ltd. (a subsidiary of
AEA Technology plc) and Chemstations, Inc. In the planning and scheduling
market, the Company competes with Bonner and Moore Associates, Inc., Haverly
Systems, Inc., Chesapeake Decision Science, Inc., and Ernst & Young Wright
Killen. In the IMS market, AspenTech primarily competes with Oil Systems Inc.
and Biles and Associates (which entered into an agreement to be acquired by
Simulation Sciences, Inc. in August 1997.) and, to a lesser extent, with
distributed control system vendors such as Honeywell Inc. In the APC and
optimization markets, AspenTech competes with the Industrial Automation and
Control business unit of Honeywell Inc., which primarily sell distributed
control system hardware, as well as with Pavilion Technologies, Inc. and the
Simcon division of ABB Asea Brown Boveri (Holding) Ltd. Several smaller
competitors, including Treiber Control, focus exclusively on the APC market.
There has also been a number of acquisitions and consolidations which expand the
breadth of product and service offerings by certain of these competitors
including the acquisition of both Interplant Consulting, Inc., a provider of
real-time database applications, and Measurex Corporation, a provider of control
systems in the pulp and paper industry, by Honeywell, Inc.; Hyprotech, Ltd. by
AEA Technologies plc; and Visual Solutions, Inc., a provider of simulation
software and services, the on-line technology division of Raytheon Engineers
Contractors, Inc. and Biles & Associates, a provider of information management
and control solutions, by Simulation Sciences, Inc. Emergence of a new
competitor or the consolidation of existing competitors could adversely affect
the Company's business, operating results and financial condition. Certain
competitors also supply related hardware products to existing and potential
customers of AspenTech, and may have established relationships that afford the
competitors an advantage in supplying software and services to those customers.
The Company's continued success depends on its ability to compete effectively
with its commercial competitors and to persuade prospective customers to use the
Company's products and services instead of, or in addition to, software
developed internally or services provided by their own personnel. In light of
these factors, there is no assurance that the Company will be able to maintain
its competitive position. See "Item 1. Business -- Competition."
Management of Growth. Since fiscal 1990, the Company has experienced
substantial growth in the number of its employees, the scope of its operating
and financial systems, and the geographic area of its operations. The Company's
operations have expanded significantly through both internally generated growth
and acquisitions, particularly the acquisitions of DMCC and Setpoint in the
third quarter of fiscal 1996. This growth has resulted in an increase in the
level of responsibility for management personnel. To manage its growth
effectively, the Company must continue to implement and improve its operating
and financial systems, and to retain and increase its employee base. There can
be no assurance that the management systems currently in place will be adequate
or that the Company will be able to manage the Company's recent or future growth
successfully, and any failure to do so could have material adverse effect on the
Company's business, operating results and financial condition. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
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<PAGE> 14
International Operations. The Company derived more than 50% in fiscal
1995, approximately 45% in fiscal 1996, and more than 50% in fiscal 1997 of its
revenues from customers outside the United States. The Company anticipates that
revenues from customers outside the United States will continue to account for a
significant portion of its total revenues in the foreseeable future. The
Company's operations outside the United States are subject to certain risks,
including unexpected changes in regulatory requirements, exchange rates, tariffs
and other barriers, political and economic instability, difficulties in managing
distributors or representatives, difficulties in staffing and managing foreign
subsidiary operations, difficulties or delays in translating products and
product documentation into foreign languages, and potentially adverse tax
consequences. There can be no assurance that any of these factors will not have
a material adverse effect on the Company's business, operating results and
financial condition.
The impact of future exchange rate fluctuations on the Company's
financial condition and results of operations cannot be accurately predicted. In
recent years, the Company has increased the extent to which it denominates
arrangements with customers outside the United States in the currencies of the
country in which the software or services are provided. From time to time the
Company has engaged in, and may continue to engage in, hedges of a significant
portion of installment contracts denominated in foreign currencies. There can be
no assurance that any hedging policies implemented by the Company will be
successful or that the cost of such hedging techniques will not have a
significant impact on the Company's business, results of operations or financial
condition. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated With Future Acquisitions. To expand its markets, the
Company's business strategy includes growth through additional acquisitions.
Identifying and pursuing acquisition opportunities and integrating acquired
products and businesses requires a significant amount of management time and
skill. There can be no assurance that the Company will be able to identify
suitable acquisition candidates, consummate any acquisition on acceptable terms
or successfully integrate any acquired business into the Company's operations.
There also can be no assurance that any future acquisition will not have an
adverse effect upon the Company's operating results, particularly in the fiscal
quarters immediately following consummation of the acquisition while the
acquired business is being integrated into the Company's operations. As a result
of acquisitions, the Company may encounter unexpected liabilities and
contingencies associated with the acquired businesses. The Company may use
Common Stock or Preferred Stock or may incur additional long-term indebtedness
or a combination thereof for all or a portion of the consideration to be paid in
future acquisitions. The issuance of Common Stock or Preferred Stock in
acquisitions could result in dilution to existing stockholders, while the use of
cash reserves or significant debt financing to fund acquisitions could reduce
the Company's liquidity.
Potential Volatility of Stock Price. The stock market has from time
to time experienced extreme price and volume fluctuations, particularly in the
high technology sector, and those fluctuations have often been unrelated to the
operating performance of particular companies. In addition, factors such as
announcements of technological innovations or new products by the Company or its
competitors, as well as market conditions in the computer software or hardware
industries, may have a significant impact on the market price of the Company's
Common Stock.
Effect of Certain Charter and By-Law Provisions and Anti-Takeover
Provisions; Possible Issuances of Preferred Stock. The Company's Restated
Articles of Organization, its by-laws and certain Massachusetts laws contain
provisions that may discourage acquisition bids for the Company and that may
reduce the temporary fluctuations in the trading price of the Company's Common
Stock which are caused by accumulations of stock, thereby depriving stockholders
of certain opportunities to sell their stock at temporarily higher prices or
receive a premium for their shares as part of an acquisition of the Company.
Preferred Stock may be issued by the Company in the future without stockholder
approval and upon such terms as the Board of Directors may determine. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of the outstanding stock
of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
ITEM 2. PROPERTIES
AspenTech's principal offices occupy the entire building
(approximately 110,000 square feet) of office space in Cambridge, Massachusetts,
where its principal offices are located. AspenTech's lease of the premises of
its principal offices expires on September 30, 2002. In addition, AspenTech and
its subsidiaries lease office space in Midlothian, Virginia, Brecksville and
Cincinnati, Ohio; Houston, Texas; Bothell, Washington; Brussels, Belgium;
Calgary, Alberta, Canada; Cambridge and Warrington, England; Hong Kong; Tokyo,
Japan; Best, The Netherlands; Singapore; and other locations of its sales and
customer support offices. AspenTech believes that its existing facilities are
adequate for its needs currently and for the reasonably foreseeable future and
that, if additional space is needed, such space will be available on acceptable
terms.
ITEM 3. LEGAL PROCEEDINGS
AspenTech is not a party to any material litigation.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of the Company, and their ages as
of September 26, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
--------------------------- --- --------------------------------------
<S> <C> <C>
Lawrence B. Evans..... 62 Chairman of the Board of Directors
and
Chief Executive Officer
Joseph F. Boston...... 60 President and Director
Gresham T. Brebach, Jr. (2) 56 Director
Douglas R. Brown(2) 43 Director
Joan C. McArdle(1)(2) 45 Director
Alison Ross(1)........ 37 Director
David L. McQuillin 40 Executive Vice President,
Worldwide Sales & Marketing
Mary A. Palermo....... 40 Executive Vice President, Finance
and
Chief Financial Officer
Joel B. Rosen......... 39 Executive Vice President
John Ayala 42 Senior Vice President
Herbert I. Britt...... 52 Senior Vice President,
and
Chief Technical Officer
Michael Catt.......... 45 Senior Vice President
John Derbyshire....... 46 Senior Vice President
Vladimir Mahalec...... 50 Senior Vice President
David Mushin.......... 41 Senior Vice President
Stephen J. Doyle...... 44 Vice President, General Counsel
and
Chief Legal Officer
Lisa Zappala.......... 37 Treasurer
</TABLE>
- ----------
(1) Member of Audit Committee of the Board of Directors
(2) Member of Compensation Committee of the Board of Directors
Lawrence B. Evans, the principal founder of the Company, has served as
Chairman of the Board of Directors and Chief Executive Officer of the Company
since 1984. He also served as Treasurer of the Company from 1984 through
February 1995 and as President from the inception of the Company until 1984. Mr.
Evans was a Professor of Chemical Engineering at Massachusetts Institute of
Technology ("M.I.T.") from 1962 to 1990 and was the principal investigator for
the Advanced System for Process Engineering ("ASPEN") Project at M.I.T., which
extended from 1976 to 1981. Mr. 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.
Joseph F. Boston, a founder of the Company, has served as President of
the Company since 1984 and as a director since 1981. Mr. Boston served as both
the Principal Engineer and as an Associate Project Manager from 1977 to 1981 of
the ASPEN Project at M.I.T. Mr. Boston holds a B.S. in Chemical Engineering from
Washington University, and a Ph.D. in Chemical Engineering from Tulane
University.
Gresham T. Brebach, Jr. has served as a director of the Company since
August 1995. Since February 1997, Mr. Brebach has been President and Chief
Executive Office of Nextera Enterprises, L.L.C., a Lexington, Massachusetts
based consulting company. Between January 1995 and February 1997, Mr. Brebach
was Executive Vice President -- Client Services of Renaissance Solutions,
14
<PAGE> 16
Inc., a provider of management consulting and client/server systems integration
services. From August 1994 to December 1994, Mr. Brebach operated his own
consulting firm, Brebach and Associates. From April 1993 to August 1994, Mr.
Brebach served as Executive Vice President of Digital Consulting, the management
consulting division of Digital Equipment Corporation. From December 1989 to
April 1993, Mr. Brebach was a Director in the Consumer and Industrial Products
sector of McKinsey & Company, a management consulting firm.
Douglas R. Brown has served as a director of the Company since 1986.
Mr. Brown was appointed the President, Chief Executive Officer and Director of
Advent International Corporation, a venture capital investment firm, in January
1996. Mr. Brown previously served as Chief Investment Officer of Advent
International Corporation since 1994, as well as Senior Vice President and
Managing Director -- Europe since 1990. Mr. Brown holds a B.S. in Chemical
Engineering from M.I.T. and an M.B.A. from the Harvard Graduate School of
Business Administration.
Joan C. McArdle has served as a director of the Company since July
1994. Since 1985 she has been a Vice President of MCRC, a Boston-based
investment company that was a creditor and warrant holder of the Company. See
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources." Ms. McArdle holds an A.B. in
English from Smith College.
Alison Ross has been a director of the Company since February 1996. Ms.
Ross is the President of Smart Finance & Co., an investment banking consulting
firm she founded in January 1995. As described below, Smart Finance & Co.
provides advisory services to the Company from time to time. From September 1992
to January 1995, Ms. Ross was a Principal of Montgomery Securities. From
September 1991 through August 1992, Ms. Ross served as Special Assistant to the
Secretary of the Cabinet in the Executive Office of the President of the United
States, as part of a one-year appointment as a White House Fellow. From 1986 to
August 1991, she was a Vice President of Goldman, Sachs & Co. Ms. Ross holds an
S.B. in Economics and an S.M. in Management from M.I.T.
David L. McQuillin has served as Executive Vice President, Worldwide
Sales & Marketing since June 1997. Prior to joining the Company, Mr. McQuillin
held several positions at Honeywell, Inc. Mr. McQuillin holds a B.S., in Applied
Science from Miami University.
Mary A. Palermo has served as Chief Financial Officer since May 1989.
She joined the Company in November 1987 as Director of Finance, and was promoted
to Vice President in May 1989, to Senior Vice President, Finance in June 1993
and to Executive Vice President, Finance in December 1995. From 1979 to 1982,
Ms. Palermo held several positions at Arthur Andersen LLP. Ms. Palermo holds a
B.S. in Accounting from Boston College and is a C.P.A.
Joel B. Rosen has served as Executive Vice President, since December
1995. He joined the Company as Director of Marketing in August 1988, and was
promoted to Vice President, Marketing in April 1991, to Senior Vice President,
Marketing in June 1993 and to Senior Vice President, Marketing and New
Businesses in July 1994. From 1984 to 1988, Mr. Rosen held several positions at
Bain & Company. Mr. Rosen holds an A.B. in Economics from Harvard College and an
M.B.A. from the Harvard Graduate School of Business Administration.
John S. Ayala has served as Senior Vice President of the Company and
President, Advanced Control and Optimization Division since May 1997. Prior to
its merger with AspenTech in 1996, he served as Vice President, Optimization of
Dynamic Matrix Control Corporation. From 1987 to 1996, he served as Senior Vice
President of Optimization. Mr. Ayala holds B.S. and M.S. degrees in Chemical
Engineering from M.I.T.
Herbert I. Britt, a founder of the Company, has served as Senior Vice
President, Corporate Product Planning and Development since January 1996 and
Chief Technical Officer since April 1997. Since the Company's inception Mr.
Britt has led its product development efforts in various capacities. From 1981
to March 1991, he served as Vice President, Product Development, and from April
1991 to January 1996, he served as Senior Vice President, Product Management.
From 1977 to 1981, he was an Associate Project Manager for the ASPEN Project at
M.I.T. Mr. Britt holds a B.S. and Ph.D. in Chemical Engineering from the
University of Missouri.
Michael L. Catt has served as Senior Vice President, Production
Management Division since 1996. Prior to its merger with AspenTech, 1996, he
served as Vice President, Sales and Marketing of Setpoint, Inc. Mr. Catt holds a
B.S. in Chemical Engineering from Perdue University.
John Derbyshire has served as Senior Vice President, since January
1996. Prior to its merger with AspenTech, he served as Vice President and
General Manager of Software Products Division of Setpoint, Inc. Mr. Derbyshire
holds a B.S. in Chemical Engineering from University of Salford, United Kingdom.
Vladimir Mahalec has served as Senior Vice President, since January
1996. He joined the Company in October 1991 as Vice President and was promoted
to Vice President and General Manager of Optimization in 1994. Mr. Mahalec has
his dipl.Ing from the University of Zagreb Croatia and obtained a Ph.D. from the
University of Houston under a Fullbright Scholarship program.
15
<PAGE> 17
David Mushin has served as Senior Vice President and General Manager,
Information Management Division since January 1996. From 1991 to 1996, Mr.
Mushin served as Vice President and General Manager of Plant Operations. Prior
to its merger with AspenTech in 1991, he served as General Manager of Prosys
Technology. Mr. Mushin holds a Masters in Chemical Engineering from the
University of Cambridge, England.
Stephen J. Doyle has served as Vice President, General Counsel and
Chief Legal Officer since September 1996. Prior to joining the Company, Mr.
Doyle was a partner in Mirick, O'Connell, DeMallie & Lougee concentrating in
technology and international business law from 1994 to 1996. From 1986 to 1994,
Mr. Doyle was International Counsel to Prime Computer (renamed Computervision
Corporation) and from 1981 to 1985 was International Attorney for the Bank of
Boston. From 1978 to 1981, Mr. Doyle was an attorney in private practice. Mr.
Doyle holds a B.A. from Georgetown University and J.D. and M.B.A. degrees from
the University of Denver.
Lisa Zappala has served as Treasurer since 1985. She joined the company
in January 1993 as Director of Financial Operations and was promoted to
Treasurer in 1985. From 1981 to 1993, Ms. Zappala held several positions at
Arthur Andersen LLP. Ms. Zappala holds a B.S. in Accounting from Boston College
and is a C.P.A.
The Company's Board of Directors is divided into three classes, with
one class of directors elected each year at the annual meeting of stockholders
for a three-year term of office. All directors of one class hold their positions
until the annual meeting of stockholders at which the terms of the directors in
such class expire and until their respective successors are elected and
qualified. Mr. Evans and Ms. McArdle serve in the class whose terms expire in
1997; and Mr. Boston and Mr. Brebach serve in the class whose terms expire in
1998. Mr. Brown and Ms. Ross serve in the class whose terms expires in 1999.
Executive officers of the Company are elected annually by the Board of Directors
and serve at the discretion of the Board of Directors or until their successors
are duly elected and qualified.
The Company's future success depends to a significant extent on
Lawrence B. Evans, the Company's chief executive officer, its other executive
officers and certain technical, managerial and marketing personnel. The loss of
the services of any of these individuals or group of individuals could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Item 1a. Risk Factors - Dependence on Key Personnel."
Directors who are not full-time employees of the Company receive an
annual fee of $15,000 for their services, plus $1,500 for each regularly
scheduled meeting attended. Directors also participate in the 1995 Directors
Stock Option Plan.
The Company has adopted its 1995 Employees Stock Purchase Plan (the
"Stock Purchase Plan"), its 1995 Stock Option Plan (the "1995 Plan"), 1995
Directors Stock Option Plan (the "1995 Directors Plan") and 1996 Special Stock
Option Plan ("1996 Special Plan") which provided for the issuance of incentive
stock options and non-qualified options and its 401(k) Plan (the "401(k) Plan").
See Notes 9(c), (d) and (e) and Note 14 of Notes to Consolidated Financial
Statements.
The Board of Directors has appointed an Audit Committee and a
Compensation Committee. The Audit Committee reviews the scope and results of the
annual audit of the Company's consolidated financial statements conducted by the
Company's independent accountants, the scope of other services provided by the
Company's independent accountants, proposed changes in the Company's financial
and accounting standards and principles, and the Company's policies and
procedures with respect to its internal accounting, auditing and financial
controls. The Audit Committee also makes recommendations to the Board of
Directors on the engagement of the independent accountants, as well as other
matters which may come before it or as directed by the Board of Directors. The
Compensation Committee administers the Company's compensation programs,
including the Stock Purchase Plan, the 1995 Plan, the 1995 Directors Plan, the
1996 Special Plan and the 401(k) Plan, and performs such other duties as may
from time to time be determined by the Board of Directors.
16
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Since October 26, 1994, the Company's Common Stock has traded on the Nasdaq
National Market under the symbol "AZPN." The following table sets forth, for the
periods indicated, the high and low sale prices per share of the Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
- ----------- ---- ---
<S> <C> <C>
First Quarter ........ $15.00 $11.75
Second Quarter ....... 18.50 12.375
Third Quarter ........ 21.50 15.75
Fourth Quarter ...... 28.625 21.125
</TABLE>
<TABLE>
<CAPTION>
HIGH LOW
---- ---
FISCAL 1997
- -----------
<S> <C> <C>
First Quarter ....... $36.375 $20.00
Second Quarter ...... 42.50 29.625
Third Quarter ....... 41.00 25.75
Fourth Quarter ...... 39.625 24.75
</TABLE>
As of June 30, 1997, there were 826 holders of record of the Common
Stock. The Company has never declared or paid cash dividends on its capital
stock.
The Company currently intends to retain all of its earnings, if any,
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. In addition, under the terms of the Company's bank line of
credit, the Company is prohibited from paying any cash dividends. Any future
determination relating to dividend policy will be made at the discretion of the
Board of Directors of the Company and will depend on a number of factors,
including the future earnings, capital requirements, financial condition and
future prospects of the Company and such other factors as the Board of Directors
may deem relevant.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated balance sheet data as of June 30, 1996 and
1997 and the selected consolidated statement of income data for each of the
years ended June 30, 1995, 1996 and 1997 have been derived from the Company's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants, included elsewhere in this Form 10-K. The
selected consolidated balance sheet data as of June 30, 1993, 1994 and 1995 and
the selected consolidated statement of income data for the year ended June 30,
1993 have been derived from the Company's Consolidated Financial Statements,
which also have been audited by Arthur Andersen LLP, not included in this Form
10-K. The following selected consolidated financial data are qualified by
reference to the more detailed Consolidated Financial Statements of the Company
and Notes thereto included elsewhere in this Form 10-K, and should be read in
conjunction with such Consolidated Financial Statements and Notes and the
discussion under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
17
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues ..................................... $ 33,867 $ 44,975 $ 57,498 $ 103,609 $ 180,299
-------- -------- --------- --------- ---------
Cost of revenues ............................. 8,918 9,641 10,257 26,425 53,240
Selling and marketing ........................ 11,744 18,095 23,233 34,691 53,517
Research and development ..................... 7,268 8,159 11,375 20,208 31,153
General and administrative ................... 4,529 4,460 5,132 9,565 15,933
Charge for in-process research and development -- -- -- 24,421 8,664
Costs related to acquisition ................. -- -- 950 -- --
-------- -------- --------- --------- ---------
32,459 40,355 50,947 115,310 162,507
-------- -------- --------- --------- ---------
Income (loss) from operations ............. 1,408 4,620 6,551 (11,701) 17,792
Foreign currency exchange gain (loss ) ....... 47 (56) 34 (223) (236)
Income (loss) on equity in joint ventures .... -- (39) 22 10 26
Interest income .............................. 2,012 1,789 3,095 3,666 5,323
Interest expense ............................. (532) (529) (561) (1,323) (151)
-------- -------- --------- --------- ---------
Income (loss) from continuing operations
before provision for income taxes ....... 2,935 5,785 9,141 (9,571) 22,754
Provision for income taxes ................... 1,081 2,087 3,725 5,614 9,599
-------- -------- --------- --------- ---------
Income (loss) from continuing operations ..... 1,854 3,698 5,416 (15,185) 13,155
Discontinued operations:
Income (loss) from operations ............. (40) -- -- -- --
Loss on disposal .......................... (532) -- -- -- --
-------- -------- --------- --------- ---------
Net income (loss) ............................ $ 1,282 $ 3,698 $ 5,416 $ (15,185) $ 13,155
======== ======== ========= ========= =========
Net income (loss) per common and
common equivalent share (1)(2):
Continuing operations ........................ $ 0.14 $ 0.28 $ 0.35 $ (0.96) $ 0.63
======== ======== ========= ========= =========
Net income (loss) ............................ $ 0.10 $ 0.28 $ 0.35 $ (0.96) $ 0.63
======== ======== ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding(1) .... 12,938 13,090 15,562 15,857 20,967
======== ======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital ............................. $ 6,123 $ 7,774 $27,594 $ 68,917 $ 71,011
Total assets ................................ 32,764 42,009 75,697 160,167 192,264
Long-term debt and capital lease obligations,
less current portion ...................... 2,251 2,576 4,087 706 462
Total stockholders' equity .................. 13,402 17,156 41,789 99,835 131,441
</TABLE>
- --------------------------
(1) Computed as described in Note 2(i) of Notes to Consolidated Financial
Statements.
(2) The Company has never declared or paid cash dividends on its capital
stock.
18
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Since its founding in 1981, the Company has developed and marketed
software and services to the process industries. The Company's revenues have
grown each year since 1983, when the Company introduced the commercial version
of its ASPEN PLUS modeling software product. In addition to internally generated
growth, the Company has completed a number of acquisitions during the past three
fiscal years. In the fourth quarter of fiscal 1995, AspenTech acquired ISI, a
leading supplier of IMS software. In the third quarter of fiscal 1996, the
Company acquired DMCC and Setpoint, gaining additional expertise in IMS, APC,
and optimization software and services. In the second quarter of fiscal 1997,
AspenTech acquired four additional companies, B-Jac International, the process
control division of Cambridge Control Limited, the planning and scheduling
software division of Bechtel Corporation and Basil Joffe Associates, Inc.
gaining additional modeling, APC, planning, and scheduling expertise. The ISI
and B-Jac International acquisitions were accounted for as pooling of interest
transactions. The Company's financial statements, due to the immateriality of
the B-Jac acquisition, have been restated for ISI only. The remaining
acquisitions were accounted for as purchase transactions; therefore, only
the portion of their results of operations subsequent to the acquisition dates
is included in the Company's operating results. As a result, comparisons of
results for the years ended June 30, 1997, 1996, and 1995 are not meaningful.
The Company typically licenses its modeling software products to
customers for terms of either three or five years, planning and scheduling
software for five or twenty-five years, and its IMS, APC and optimization
software products for terms of 99 years. See "Item 1. Business -- Products and
Services." Because in all cases the licenses are noncancelable and do not impose
significant obligations on the Company, the Company recognizes software license
revenues upon shipment in accordance with generally accepted accounting
principles. In the case of license renewals, revenue is recognized upon
execution of a renewal license agreement. The Company recognizes revenues from
customer support ratably over the term of the license. If a customer elects to
pay for a license in annual installments, the Company charges an implicit amount
of interest and recognizes interest income over the term of the license. A
substantial majority of the Company's term licenses have been renewed upon
expiration. However, there can be no assurance that customers will continue to
renew expiring term licenses at the historical rate.
The Company's revenues historically have been derived principally from
the licensing of software products. Since the acquisitions of DMCC and Setpoint,
the Company has generated a significantly greater amount of consulting revenues
from services for the implementation of its off-the-shelf software products. The
Company recognizes service revenues as services are performed. Service revenues
from fixed-price contracts are recognized on the percentage-of-completion
method, measured by the portion of costs incurred to date as a percentage of the
estimated total (primarily labor) costs for each contract. Service revenues from
time and expense contracts are recognized as the related services are performed.
Training revenues are recognized as services are performed. Services that have
been performed but for which billings have not been made are recorded as
unbilled receivables, and billings for which services have not been performed
are recorded as unearned revenues on the Company's Consolidated Balance Sheets.
The Company licenses its software in U.S. dollars and certain foreign
currencies. The Company hedges all material foreign currency-denominated
receivables with specific hedge contracts in amounts equal to those receivables.
While the Company has experienced minor foreign currency exchange gains or
losses due to foreign exchange rate fluctuations, the impact of such movements
has not been material in any period. The Company does not expect fluctuations in
foreign currencies to have a significant impact on either its revenues or
expenses in the foreseeable future.
The Company's operating costs include the amortization of intangible
assets, including goodwill, arising from the acquisitions of DMCC, Setpoint, the
Process Control Division of Cambridge Control Limited, Bechtel Corporation PIMS
and Basil Joffe Associates, Inc. The net balance of these intangible assets as
of June 30, 1997 is approximately $12.8 million and is being amortized over
periods ranging from 18 months to 12 years. The amortization was approximately
$2,528,000 in fiscal 1997 and will be approximately $564,000 for each of the
next fourteen quarters.
On August 27, 1997 and August 28, 1997 the Company acquired 100% of
the outstanding shares of NeuralWare, Inc. (NeuralWare) and the SAST
Corporation Limited (SAST), both accounted for as pooling-of-interests.
NeuralWare is a provider of neural net technology and SAST is a provider of
dynamic simulation and operator training services. Since the transactions
occurred after the end of the 1997 fiscal year, they had no affect on
operations. See footnote 3(g) "Acquisitions Subsequent to Year End" to "Notes
to Consolidated Financial Statements".
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth the amount and percentage of total
revenues represented by certain consolidated statement of income data for the
periods indicated:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------------------
1995 1996 1997
-------------------- -------------------- ---------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses ................................. $ 45,649 79.4% $ 65,644 63.4% $ 97,240 53.9%
Maintenance and other services .................. 11,849 20.6 37,965 36.6 83,059 46.1
-------- ---- -------- ---- ------- ----
57,498 100.0 103,609 100.0 180,299 100.0
-------- ---- -------- ---- ------- ----
Expenses:
Cost of software licenses ....................... 2,799 4.9 3,476 3.4 4,538 2.5
Cost of services and other ...................... 7,458 13.0 22,949 22.1 48,702 27.0
Selling and marketing ........................... 23,233 40.4 34,691 33.5 53,517 29.7
Research and development ........................ 11,375 19.8 20,208 19.5 31,153 17.3
General and administrative ...................... 5,132 8.9 9,565 9.2 15,933 8.8
Charge for in-process research
and development ................................. -- -- 24,421 23.6 8,664 4.8
Costs related to acquisition .................... 950 1.6 -- -- -- --
-------- ---- -------- ---- ------- ----
50,947 88.6 115,310 111.3 162,507 90.1
-------- ---- -------- ---- ------- ----
Income (loss) from operations ... 6,551 11.4 (11,701) (11.3) 17,792 9.9
Foreign currency exchange gain (loss) ............. 34 0.1 (223) (0.3) (236) (0.1)
Income on equity in joint ventures ............... 22 -- 10 -- 26 --
Interest income ................................... 3,095 5.4 3,666 3.5 5,323 2.9
Interest expense .................................. (561) (1.0) (1,323) (1.2) (151) (0.1)
-------- ---- -------- ---- ------- ----
Income (loss) before provision for income taxes 9,141 15.9 (9,571) (9.3) 22,754 12.6
Provision for income taxes ........................ 3,725 6.5 5,614 5.4 9,599 5.3
-------- ---- -------- ---- ------- ----
Net income (loss) ............... $ 5,416 9.4% ($ 15,185) (14.7%) $13,155 7.3%
======== ==== ======== ==== ======= ====
</TABLE>
20
<PAGE> 22
COMPARISON OF FISCAL 1997 TO FISCAL 1996
The Company acquired DMCC and Setpoint in the third quarter of fiscal
1996 and have subsequently taken steps to integrate and reorganize the
operations. The operations of DMCC and Setpoint at the time of acquisition were
roughly the same size as AspenTech. As a result, the Company's operations for
fiscal 1997 and fiscal 1996 are not directly comparable. In addition the Company
acquired and subsequently integrated four companies in the second quarter of
fiscal 1997: B-Jac International, the Process Control Division of Cambridge
Controls Limited, the planning and scheduling software group of Bechtel
Corporation (PIMS), and Basil Joffe and Associates, Inc. The operations of all
these acquisitions individually and combined is immaterial to the Company's
historical statements.
Revenues. Revenues are derived from software licenses and services.
Total revenues for fiscal 1997 increased 74.0% to $180.3 million from $103.6 in
fiscal 1996.
Software license revenues represented 53.9% and 63.4% of total revenues
in fiscal 1997 and 1996, respectively. Revenues from software licenses in fiscal
1997 increased 48.1% to $97.2 million from $65.6 million in fiscal 1996. The
growth in software license revenues was attributable both to internal growth in
existing operations and to additional licenses entered into by the acquired
subsidiaries. The internal growth in software license revenues was attributable
to renewals of software licenses covering existing users, the expansion of
existing customer relationships through licenses covering additional users and
additional software products, and, to a lesser extent, the addition of new
customers. The decrease in software license as a percentage of total revenues
was attributable to the growth of service revenues resulting from the Company's
acquisitions of DMCC and Setpoint.
Total revenues from customers outside the United States were $94.3
million or 52.3% of total revenues and $47.1 million, or 45.4% of total revenues
for fiscal 1997 and 1996, respectively.
Revenues from services and other consist of consulting services,
post-contract support on software licenses, training and sales of documentation.
Since the acquisitions of DMCC and Setpoint, the Company has generated a
significantly greater amount of consulting services for the analysis, design and
automation of process manufacturing plants. As a result of the acquisitions and
the subsequent expansion of the combined services execution capability, revenues
from services and other for fiscal 1997 increased 118.8% to $83.1 million from
$38.0 million in fiscal 1996.
Neither the Company's joint venture and similar activities, nor any
discounting or similar activities has historically had a material effect on the
Company's revenues.
Cost of Software Licenses. Cost of software licenses consists of
royalties, amortization of previously capitalized software costs, costs related
to delivery of software (including disk duplication and third party software
costs), printing of manuals and packaging. Cost of software licenses for fiscal
1997 increased 30.6% to $4.5 million from $3.5 million in fiscal 1996. Cost of
software licenses as a percentage of revenues from software licenses decreased
to 4.7% in fiscal 1997 from 5.3% in fiscal 1996. This decrease was due to the
spreading of fixed production and delivery costs over a larger revenue base and
to the generation of a greater portion of sales having minimal third-party
royalty costs.
Cost of Services and Other. Cost of services and other consists of the
cost of execution of application consulting services, technical support
services, the cost of training services and the cost of manuals sold separately.
Cost of services and other in fiscal 1997 increased 112.2% to $48.7 million from
$22.9 million in fiscal 1996. Cost of services and other as a percentage of
revenues from services and other decreased to 58.6% in fiscal 1997 from 60.4% in
fiscal 1996. The percentage decrease reflected not only a change in mix of
services provided by the Company but improvement in the efficiency of project
execution.
Selling and Marketing. Selling and marketing expenses in fiscal 1997
increased 54.3% to $53.5 million from $34.7 million in fiscal 1996 while
decreasing as a percentage of total revenues to 29.7% from 33.5%. The percentage
decrease in costs reflects the Company's leveraging of its worldwide sales and
technical sales force to market all of the Company's products and services. The
Company continues to invest in sales personnel and regional sales offices to
improve the Company's geographic proximity to its customers, to maximize the
penetration of existing accounts and to add new customers.
Research and Development. Research and development expenses consist
primarily of personnel and outside consultancy costs required to conduct the
Company's product development efforts. Capitalized research and development
costs are amortized over a three-year period. Research and development costs in
fiscal 1997 increased 54.2% to $31.2 million from $20.2 in fiscal 1996 while
decreasing as a percentage of total revenues to 17.3% from 19.5%. The increase
in costs principally reflects investment in a suite of next generation products
from overlapping technology purchased through the series of acquisitions and a
continued investment in the
21
<PAGE> 23
Company's core modeling products. The Company capitalized 7.1% and 4.3% of its
total research and development costs during 1997 and 1996 respectively.
General and Administrative. General and administrative expenses consist
primarily of salaries of administrative, executive, financial, and legal
personnel, outside professional fees and amortization of intangibles. General
and administrative expense in fiscal 1997 increased 66.6% to $15.9 million from
$9.6 million in fiscal 1996, and decreased as a percentage of total revenues to
8.8% from 9.2% in fiscal 1996. The decrease is the result of improvement in the
efficiency of the administrative group over an increasing revenue base.
Charge for In-Process Research and Development. In the second quarter
of fiscal 1997, the Company recognized a non-recurring charge of $8.7 million
for the write-off of in-process research and development in connection with the
acquisitions of the Process Control Division of Cambridge Controls, LTD., the
planning and scheduling software group of Bechtel Corporation , and Basil Joffe
and Associates, Inc. The Company recognized a similar charge during the third
quarter of fiscal 1996 of $24.4 million in connection with its acquisition of
DMCC and Setpoint.
Interest Income. Interest income is generated primarily from the sale
of software pursuant to installment contracts for off-line modeling software.
Under these contracts, the Company offers customers the option to make annual
payments for term licenses instead of a single license fee payment at the
beginning of the license term. A substantial majority of the off-line modeling
customers elect to license these products through installment contracts. The
Company believes this election is made principally because the customers prefer
to pay for the Company's off-line modeling products out of their operating
budget, rather than out of their capital budgets. Included in the annual
payments is an implicit interest charge based upon the interest rate established
by the Company at the time of the license. The Company sells a portion of the
installment contracts to unrelated financial institutions. The interest earned
by the Company on the installment contract portfolio in any one year is the
result of the implicit interest established by the Company on installment
contracts and the size of the contract portfolio. Interest income in fiscal 1997
increased 45.2% to $5.3 million from $3.7 million in fiscal 1996. Interest
income increased as a result of investment of the net proceeds of the Company's
public offering completed in June 1996 and a larger installment contract
portfolio.
Interest Expense. Interest expense is generated from interest charged
on the Company's line of credit, subordinated notes payable to the Massachusetts
Capital Resource Company, a promissory note issued in connection with the
Setpoint acquisition, and capital lease obligations. Interest expense in fiscal
1997 decreased to $0.2 million from $ 1.3 million in fiscal 1996. This decrease
reflects the repayment at the end of fiscal 1996 of borrowings under the
Company's line of credit, the subordinated notes and the promissory note issued
in connection with the acquisition of Setpoint.
Provision for Income Taxes. The effective tax rate in fiscal 1997 and
1996 is calculated as a percentage of income before taxes, exclusive of the
non-recurring charges for in-process research and development. The effective tax
rate decreased in fiscal 1997 to 36.0% of pretax income from 37.8% in fiscal
1996. This decrease is primarily due to utilization of various tax credits and
carryforwards.
COMPARISON OF FISCAL 1996 TO FISCAL 1995
The Company acquired DMCC and Setpoint in the third quarter of fiscal
1996 in purchase transactions and has subsequently taken steps to integrate and
reorganize the operations of AspenTech and its new subsidiaries. As a result,
the Company's operating results for fiscal 1996 and fiscal 1995 are not directly
comparable. The results of the Company's operations for fiscal 1996 are not
representative of results of operations of the combined entities for subsequent
periods. For fiscal 1996, on a pro forma basis giving effect to the acquisitions
of DMCC and Setpoint as of the beginning of the period, revenues from software
licenses and revenues from services and other represented 53% and 47%,
respectively, of total revenues.
Revenues. Revenues are derived from software licenses and services.
Total revenues for fiscal 1996 increased 80.2% to $103.6 million from $57.5
million in fiscal 1995.
Software license revenues represented 63.4% and 79.4% of total revenues
in fiscal 1996 and 1995, respectively. Revenues from software licenses in fiscal
1996 increased 43.8% to $65.6 million from $45.6 million in fiscal 1995. The
growth in software license revenues was attributable both to internal growth in
existing operations and to additional licenses entered into by the newly
acquired subsidiaries. The internal growth in software license revenues was
attributable to renewals of software licenses covering existing users, to the
expansion of existing customer relationships through licenses covering
additional users and additional software products, and, to a lesser extent, to
the addition of new customers. The decrease in software license revenues as a
percentage of total revenues was attributable to the growth in service revenues
resulting from AspenTech's acquisitions of DMCC and Setpoint.
Total revenues from customers outside the United States were $47.1
million or 45.4% of total revenues and $29.8 million or 51.9% of total revenues
for fiscal 1996 and 1995, respectively. The growth in dollar amount of total
revenues from customers outside
22
<PAGE> 24
the United States was attributable in part to revenues generated by Setpoint
and, to a lesser extent, to internal growth in existing operations.
Revenues from services and other consist of consulting services,
post-contract support on software licenses, training and sales of documentation.
Since the acquisitions of DMCC and Setpoint, the Company has generated a
significantly greater amount of consulting revenues from services for the
analysis, design and automation of process manufacturing plants. As a result,
revenues from services and other for fiscal 1996 increased 220.4% to $38.0
million from $11.8 million in fiscal 1995.
Cost of Software Licenses. Cost of software licenses for fiscal 1996
increased 24.2% to $3.5 million from $2.8 million in fiscal 1995. Cost of
software licenses as a percentage of revenues from software licenses decreased
to 5.3% in fiscal 1996 from 6.1% in fiscal 1995. This decrease was due to the
spreading of fixed production and delivery costs over a larger revenue base and
to the generation of a greater portion of sales having minimal third-party
royalty costs.
Cost of Services and Other. Cost of services and other in fiscal 1996
increased 207.7% to $22.9 million from $7.5 million in fiscal 1995. Cost of
services and other as a percentage of revenues from services and other decreased
to 60.4% in fiscal 1996 from 62.9% in fiscal 1995. The percentage decrease
reflected a change in the mix of services provided by the Company, primarily as
a result of the acquisitions of DMCC and Setpoint.
Selling and Marketing. Selling and marketing expenses in fiscal 1996
increased 49.3% to $34.7 million from $23.2 million in fiscal 1995 while
decreasing as a percentage of total revenues to 33.5% from 40.4%. The percentage
decrease in costs reflects the lower level of sales and marketing activities
historically supported by DMCC and Setpoint, as well as the Company's leveraging
of its existing worldwide sales and technical sales force to market the software
products and services of the newly acquired companies.
Research and Development. Research and development expenses in fiscal
1996 increased 77.7% to $20.2 million from $11.4 million in fiscal 1995 while
decreasing as a percentage of total revenues to 19.5% from 19.8%. The increase
in costs principally reflects continued investment in development of the
Company's core modeling products and a common software architecture encompassing
the Company's expanded family of software products, as well as a reduction in
the amount of research and development capitalized during the period. The
Company capitalized 4.3% and 8.1% of its total research and development costs
during fiscal 1996 and 1995, respectively.
General and Administrative. General and administrative expenses in
fiscal 1996 increased 86.4% to $9.6 million from $5.1 in fiscal 1995, and
increased as a percentage of total revenues to 9.2% from 8.9% in fiscal 1995.
The dollar increase principally reflected the growth in the scale and scope of
the Company's operations.
Charge for In-Process Research and Development. In the third quarter of
fiscal 1996, the Company recognized a non-recurring charge of $24.4 million for
the write-off of in-process research and development in connection with its
acquisitions of DMCC and Setpoint.
Interest Income. Interest income in fiscal 1996 increased 18.4% to $3.7
million from $3.1 million in fiscal 1995. Interest income increased as a result
of investment of the net proceeds of public offerings completed by the Company
in November 1994, February 1995, and June 1996, a larger installment contract
portfolio and an increase in the implicit interest rate charged to customers.
Interest Expense. Interest expense in fiscal 1996 increased to $1.3
million from $0.6 million in fiscal 1995. This increase principally reflected a
higher level of borrowings under the Company's bank line of credit as a result
of borrowings used for payment of a portion of the purchase price for the
Setpoint acquisition.
Provision for Income Taxes. The effective tax rate in fiscal 1996 is
calculated as a percentage of income before taxes, exclusive of the
non-recurring charge for in-process research and development. The effective tax
rate decreased in fiscal 1996 to 37.8% of pretax income from 40.8% in fiscal
1995. This percentage decrease related principally to non-deductible acquisition
costs incurred in connection with the ISI acquisition in fiscal 1995.
QUARTERLY RESULTS
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future. Because the Company ships software
products within a short period after receipt of an order, the Company typically
does not have a material backlog of unfilled orders for software products, and
revenues from software licenses in any quarter are substantially dependent on
orders for software products booked in the quarter. Historically, a majority of
each quarter's revenues from software licenses has come from license contracts
that have been effected in the final weeks of that quarter.
The revenues for a quarter typically include a number of large orders.
If the timing of any of these orders is delayed, it could result in a
substantial reduction in revenues for that quarter. Since the Company's expense
levels are based in part on its expectations as
23
<PAGE> 25
to future revenues, the Company may be unable to adjust spending in a timely
manner to compensate for any revenue shortfall. Accordingly, any revenue
shortfalls would likely have a disproportionate adverse effect on net income.
Prior to fiscal 1996, the Company experienced a net loss for the first
quarter of each fiscal year, in part because a substantial portion of the
Company's revenues is derived from countries other than the United States where
business is slow during the summer months, and also in part because of the
timing of contract renewals. The Company expects that these factors will
continue to affect its operating results. See "Item 1a. Risk Factors -
Fluctuations in Quarterly Operating Results."
In addition, in recent years the Company's revenues during the third
fiscal quarter, as compared to the immediately preceding quarter, have grown at
a slower rate than during the second and fourth fiscal quarters, as compared to
their respective immediately preceding quarters. The Company's operating results
for the third quarter of fiscal 1996 included a non-recurring charge for
in-process research and development of $24.4 million recorded in connection with
the acquisitions of DMCC and Setpoint.
The following table presents selected quarterly statement of income
data for fiscal 1995, fiscal 1996 and fiscal 1997. These data are unaudited but,
in the opinion of the Company's management, reflect all adjustments that the
Company considers necessary for a fair presentation of these data in accordance
with generally accepted accounting principles. As a result of the acquisitions
of DMCC and Setpoint in purchase transactions during the quarter ended March 31,
1996, the quarterly results presented below are not indicative of future results
of operations.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------
FISCAL 1996 FISCAL 1997
-----------------------------------------------------------------------------------
Sept.30 Dec.31 Mar.31 June 30 Sept.30 Dec.31 Mar.31 June 30
-------- -------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses .......................... $ 9,927 $ 13,980 $ 17,923 $ 23,814 $ 16,131 $ 23,928 $26,656 $ 30,525
Maintenance and other services ............. 3,342 3,960 13,169 17,494 18,737 20,273 21,320 22,729
-------- -------- -------- -------- -------- -------- ------- --------
13,269 17,940 31,092 41,308 34,868 44,201 47,976 53,254
Expenses:
Cost of software licenses .................. 591 972 938 975 816 1,268 1,183 1,271
Cost of maintenance and other services ..... 1,847 2,140 8,397 10,565 11,129 11,984 12,464 13,125
Selling and marketing ...................... 6,033 7,071 9,631 11,956 11,286 12,953 14,207 15,071
Research and development ................... 3,457 3,731 5,834 7,186 6,964 7,141 7,861 9,187
General and administrative ................. 1,288 1,375 3,133 3,769 3,721 3,959 4,342 3,911
Charge for in-process research
and development ........................... -- -- 24,421 -- -- 8,664 -- --
-------- -------- -------- -------- -------- -------- ------- --------
13,216 15,289 52,354 34,451 33,916 45,969 40,057 42,565
Income (loss) from operations ... 53 2,651 (21,262) 6,857 952 (1,768) 7,919 10,689
Other income (expense) ....................... (56) (17) (69) (71) (22) (88) -- (100)
Interest income, net ......................... 870 877 434 162 1,345 1,236 1,126 1,465
Income (loss) before provision for
income taxes ................................. 867 3,511 (20,897) 6,948 2,275 (620) 9,045 12,054
Provision for income
taxes ........................................ 329 1,349 1,339 2,597 865 1,341 3,418 3,975
-------- -------- -------- -------- -------- -------- ------- --------
Net income (loss) ........................... $ 538 $ 2,162 $(22,236) $ 4,351 $ 1,410 $ (1,961) $ 5,627 $ 8,079
======== ======== ======== ======== ======== ======== ======= ========
</TABLE>
24
<PAGE> 26
LIQUIDITY AND CAPITAL RESOURCES
In recent years, the Company has financed its operations principally
through cash generated from sales of securities through private placements and
public offerings of its Common Stock, operating activities, the sale of
installment contracts to third parties and, at certain times during the year,
borrowings under a bank line of credit.
In the fourth quarter of fiscal 1996 and in the second and third
quarters of fiscal 1995, the Company received a total of approximately $87.0
million of net proceeds from its initial public offering and subsequent public
offerings. A portion of the total net proceeds was used for working capital and
other general corporate purposes, to pay a portion of the purchase prices of
DMCC and Setpoint and to repay outstanding indebtedness under its bank line of
credit, subordinated notes and a promissory note issued in conjunction with the
purchase of Setpoint. The Company evaluates on an ongoing basis potential
opportunities to acquire or invest in technologies, products or businesses that
expand, complement or are otherwise related to the Company's current business
and products. See "Item 1a. Risk Factors - Risks Associated with Future
Acquisitions."
In fiscal 1997, operating activities provided $0.8 million of cash
primarily as a result of net income, increases in accounts payable, accrued
expenses and deferred revenue offset in part by increases in long-term
installments receivable and accounts receivable. In fiscal 1996 and 1995,
operating activities provided $18.4 million and $3.6 million of cash,
respectively, primarily related to net income and increases in accounts payable,
accrued expenses and deferred revenue, offset in part by increases in accounts
receivable.
In recent years, the Company has had arrangements to sell long-term
contracts to two financial institutions, General Electric Capital Corporation
and Sanwa Business Credit Corporation. These contracts represent amounts due
over the life of existing term licenses. During fiscal 1997, installment
contracts increased by $20.3 million to $50.0 million, net of $30.2 million of
installment contracts sold to General Electric Capital Corporation and Sanwa
Business Credit Corporation. During fiscal 1996, installment contracts decreased
by $1.8 million to $29.8 million, net of $28.9 million of installment contracts
sold to General Electric Capital Corporation and Sanwa Business Credit
Corporation. The Company's arrangements with these two financial institutions
provide for the sale of installment contracts up to certain limits and with
certain recourse obligations. At June 30, 1997 and June 30, 1996, the balance of
the uncollected principal portion of the contracts sold to these two financial
institutions was $57.8 million and $42.7 million, respectively, for which the
Company had partial recourse obligations of $6.6 million and $11.5 million,
respectively. The availability under these arrangements will increase as the
financial institutions receive payment on installment contracts previously sold.
See Note 12 of Notes to Consolidated Financial Statements.
The Company maintains a $30.0 million bank line of credit, expiring on
December 31, 1998, that provides for borrowings of specified percentages of
eligible accounts receivable and eligible current installment contracts.
Advances under the line of credit bear interest at a rate (8.5% at June 30,
1997) equal to the bank's prime rate plus a specified margin or, at the
Company's option, a rate (5.69% at June 30, 1996) equal to a defined LIBOR plus
a specified margin. The bank line of credit is secured by a pledge of
substantially all of the assets of the Company and its United States
subsidiaries. The line of credit agreement requires the Company to provide the
bank with certain periodic financial reports and to comply with certain
financial tests, including maintenance of minimum levels of consolidated net
income before taxes and of the ratio of current assets to current liabilities.
As of June 30, 1997, there were no outstanding borrowings under the line of
credit.
The Company's commitments as of June 30, 1997 consisted primarily of
leases on its headquarters and other facilities. See "Item 1. Business --
Facilities." There were no other material commitments for capital or other
expenditures. The Company believes its current cash balances, availability of
sales of its installment contracts, availability under its bank line of credit
and cash flows from its operations, will be sufficient to meet its working
capital and capital expenditure requirements for at least the next 12 months.
INFLATION
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have significant impact
during fiscal 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements of the Company are listed in the Index to Financial
Statements filed in Item 14(a)(i) as part of this Form 10-K.
25
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS OF ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Certain of the information concerning the directors of the Company
required under this Item is contained in "Item 4a. Executive Officers of the
Registrant," and the remainder of such information is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission not later than 120
days after June 30, 1997, under the heading "Election of Directors."
EXECUTIVE OFFICERS
Certain of the information concerning the executive officers of the
Company required under this Item is contained in "Item 4a. Executive Officers of
the Registrant," and the remainder of such information is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission not later than 120
days after June 30, 1997, under the heading "Election of Directors."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission not later than 120
days after June 30, 1997, under the heading "Executive Officer Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission not later than 120
days after June 30, 1997, under the heading "Share Ownership of Principal
Stockholders and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this Item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission not later than 120
days after June 30, 1997, under the heading "Certain Relationships and Related
Transactions.".
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements Page
-------------------- ----
- Report of Independent Public Accountants F-2
- Consolidated Financial Statements:
- Balance Sheets as of June 30, 1996 and 1997 F-3
- Statements of Operations for the years ended
June 30, 1995, 1996 and 1997 F-4
- Statements of Stockholders' Equity for the
years ended June 30, 1995, 1996 and 1997 F-5
- Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997 F-6
- Notes to Consolidated Financial Statements F-7
(a)(2) Financial Statement Schedules
-----------------------------
Report of Independent Public Accountants on Schedule S-1
II - Valuation and Qualifying Accounts S-2
All other schedules are omitted because they are not required or the required
information is shown in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
* 3.1 - Restated Articles of Organization of the Registrant.
** 3.2 - By-laws of Registrant.
*** 4.1 - Specimen Certificate for Shares of the Registrant's
Common Stock, $.10 par value.
*** 10.1 - Lease Agreement between Registrant and Teachers
Insurance and Annuity Association of America regarding
Ten Canal Park, Cambridge, Massachusetts.
*** 10.2 - System License Agreement between the Registrant and the
Massachusetts Institute of Technology, dated March 30,
1982, as amended.
***+ 10.3 - Non-Equilibrium Distillation Model Development and
License Agreement between the Registrant and Koch
Engineering Company, Inc., as amended.
***+ 10.3a. - Letter, dated October 19, 1994, from the Company to Koch
Engineering Company, Inc., pursuant to which the Company
elected to extend the term of the Company's license
under the Non-Equilibrium Distillation Model Development
and License Agreement.
***+ 10.4 - Batch Distillation Computer Program Development and
license agreement between Process Simulation Associates,
Inc. and Koch Engineering Company, Inc.
***+ 10.5 - Agreement between the Registrant and Imperial College of
Science, Technology and Medicine regarding Assignment of
SPEEDUP.
10.6 *** (a) Subordinated Note and Warrant Purchase
Agreement dated as of May 7, 1991 between the
Registrant and Massachusetts Capital Resource
Company.
*** (b) Subordinated Note due 1998 dated as of May 7, 1991
issued by Registrant to Massachusetts Capital
Resource Company.
*** (c) Common Stock Purchase Warrant No. 91-1.
*** (d) Common Stock Purchase Warrant No. 91-2.
*** (e) Subordinated Note Purchase Agreement dated as of
August 22, 1994 between the Registrant and
Massachusetts Capital Resource Company.
*** (f) Subordinated Note due 1997 dated as of August 22,
1994 issued by Registrant to Massachusetts Capital
Resource Company.
*** (g) Security Agreement dated as of July 24, 1989
between the Registrant and Massachusetts Capital
Resource Company, as amended.
*** 10.7 - Noncompetition, Confidentiality and Proprietary Rights
Agreement between the Registrant and Lawrence B. Evans.
*** 10.8 - Noncompetition, Confidentiality and Proprietary Rights
Agreement between the Registrant and Joseph F. Boston.
*** 10.9 - Noncompetition, Confidentiality and Proprietary Rights
Agreement between the Registrant and Paul W. Gallier.
*** 10.10 - Noncompetition, Confidentiality and Proprietary Rights
Agreement between the Registrant and Herbert I. Britt.
*** 10.11 - 1988 Non-Qualified Stock Option Plan, as amended.
++ 10.12 - 1995 Stock Option Plan
27
<PAGE> 29
++ 10.13 - 1995 Directors Stock Option Plan
++ 10.14 - 1995 Employees Stock Purchase Plan
10.15 + ***(a) Vendor Program Agreement between the
Registrant and General Electric Capital
Corporation.
*(b) Rider No. 1, dated December 14, 1994, to
Vendor Program Agreement between the
Registrant and General Electric Capital
Corporation.
***+ 10.16 - Letter Agreement between the Registrant and Sanwa
Business Credit Corporation.
*** 10.17 - Form of Employee Confidentiality and Non-Competition
Agreement.
*** 10.18 - Equity Joint Venture Contract between the Registrant and
China Petrochemical Technology Company.
**** 10.19 - Amended and Restated Agreement and Plan of
Reorganization, dated as of May 12, 1995, by and among
the Registrant, Industrial Systems, Inc. and the
stockholders of Industrial Systems, Inc.
***** 10.20 - Stock Purchase Agreement dated as of December 15, 1995,
among Aspen Technology, Inc., Dynamic Matrix Control
Corporation and Charles R. Cutler, June A. Cutler,
Charles R. Johnston and Cheryl Lynne Johnston, as
shareholders of Dynamic Matrix Control Corporation.
***** 10.21 - Share Purchase Agreement dated as of January 5, 1996
among Aspen Technology, Inc., Amelinc Corporation and
Cegelec S.A.
10.22 - Further Amended and Restated Revolving Credit Agreement
dated as of February 15, 1996 among the Registrant,
Prosys Modeling Investment Corporation, Industrial
Systems, Inc., Dynamic Matrix Control Corporation and
Setpoint, Inc., as the Borrowers, the Lenders Parties
thereto, and Fleet Bank of Massachusetts, N.A., as Agent
and Lender, together with related forms of the following
(each in the form executed by each of such Borrowers):
*****(a) Amended and Restated Revolving Credit Note
*****(b) Patent Conditional Assignment and Security
Agreement
*****(c) Trademark Collateral Security Agreement.
*****(d) Security Agreement.
10.23 - 1996 Special Stock Option Plan
10.24 - Change in Control Agreement between the Registrant and
Lawrence B. Evans dated August 12, 1997.
10.25 - Change in Control Agreement between the Registrant and
Joseph F. Boston dated August 12, 1997.
10.26 - Change in Control Agreement between the Registrant and
David McQuillin dated August 12, 1997.
10.27 - Change in Control Agreement between the Registrant and
Mary A. Palermo dated August 12, 1997.
10.28 - Change in Control Agreement between the Registrant and
Joel B. Rosen dated August 12, 1997.
10.29 - Change in Control Agreement between the Registrant and
Stephen J. Doyle dated August 12, 1997.
22.1 - Subsidiaries of the Registrant.
23.1 - Consent of Arthur Andersen LLP.
24.1 - Power of Attorney (included in signature page to
Form 10-K).
27 -Financial Data Schedules for fiscal year ended
June 30, 1997.
* Incorporated by reference to the corresponding Exhibit to the
Registration Statement on Form S-1 of the Registrant
(Registration No. 32-88734) filed on January 29, 1995.
** Incorporated by reference to Exhibit 3.3 to the Registration
Statement on Form S-1 of the Registrant (Registration No.
33-83916) filed on September 13, 1994.
*** Incorporated by reference to the corresponding Exhibit to the
Registration Statement on Form S-1 of the Registrant
(Registration No. 33-83916) filed on September 13, 1994.
**** Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on form 10-Q for the fiscal quarter ended
March 31, 1995.
***** Incorporated by reference to the corresponding Exhibit to the
Registrant's Current Report on Form 8-K dated January 5, 1996,
as amended, by Amendment Nos. 1,2,3 and 4 thereto.
Incorporated by reference to the corresponding Exhibit to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996. Incorporated by reference to the
corresponding Exhibit to the Registration Statement on Form
S-8 of the Registrant (Registration No. 333-11651) filed on
September 9, 1996.
+ Certain portions have been granted Confidential Treatment by
the Securities and Exchange Commission at the request of the
Company pursuant to Rule 406 under the Securities Act of 1933.
++ Incorporated by reference to the corresponding Exhibit to the
Registrant's Annual Report on Form 10-K for the fiscal year
ending June 30, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last fiscal
quarter of 1997.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 29th day of
September, 1997.
ASPEN TECHNOLOGY, INC.
/s/ Lawrence B. Evans
------------------------------------------
Lawrence B. Evans, Chairman of the Board of
Directors and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Lawrence B. Evans and
Mary A. Palermo and each of them severally, acting alone and without the other,
his/her true and lawful attorney-in fact with the authority to execute in the
name of each such person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report of Form 10-K necessary or advisable
to enable the Registrant to comply with the rules, regulations, and requirements
of the Securities Act of 1934, as amended, in respect thereof, which amendments
may make such other changes in the Annual Report as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on the 29th day of September, 1997.
29
<PAGE> 31
SIGNATURE TITLE(S)
- ------------------------------ -----------------------------------------------
/s/ Lawrence B. Evans Chairman of the Board and Chief Executive
- ------------------------------ Officer (Principal Executive Officer)
Lawrence B. Evans
/s/ Mary A. Palermo Executive Vice President, Finance and Chief
- ------------------------------ Financial Officer (Principal Financial and
Mary A. Palermo Accounting Officer)
/s/ Joseph F. Boston Director
- ------------------------------
Joseph F. Boston
/s/ Gresham T. Brebach, Jr. Director
- ------------------------------
Gresham T. Brebach, Jr.
/s/ Douglas R. Brown Director
- ------------------------------
Douglas R. Brown
/s/ Joan C. McArdle Director
- ------------------------------
Joan C. McArdle
/s/Alison Ross Director
- ------------------------------
Alison Ross
30
<PAGE> 32
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
JUNE 30, 1995, 1996 AND 1997 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
YEARS ENDED JUNE 30, 1995, 1996 AND 1997 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
JUNE 30, 1995, 1996 AND 1997 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-1
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Aspen Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Aspen
Technology, Inc. (a Massachusetts corporation) and subsidiaries as of June 30,
1996 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aspen Technology, Inc. and
subsidiaries as of June 30, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
Boston, Massachusetts
August 13, 1997 (Except
with respect to the matters
discussed in footnote 3(g)
as to which the date is
August 28, 1997)
F-2
<PAGE> 34
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
ASSETS 1996 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,524 $ 16,091
Short-term investments 38,559 15,843
Accounts receivable, net of reserves of $731 in 1996 and $720 in 1997 38,006 44,180
Unbilled services 7,634 12,444
Current portion of long-term installments receivable, net of unamortized
discount of $930 in 1996 and $815 in 1997 12,068 19,063
Prepaid expenses and other current assets 3,318 7,403
-------- --------
Total current assets 112,109 115,024
-------- --------
LONG-TERM INSTALLMENTS RECEIVABLE, NET OF UNAMORTIZED DISCOUNT OF $5,027 IN
1996 AND $7,386 IN 1997 17,708 30,963
-------- --------
PROPERTY AND LEASEHOLD IMPROVEMENTS, AT COST:
Building and improvements 3,741 3,922
Computer equipment 17,862 23,393
Purchased software 2,974 9,852
Furniture and fixtures 3,489 7,553
Leasehold improvements 698 2,618
-------- --------
28,764 47,338
Less--Accumulated depreciation and amortization 11,949 19,904
-------- --------
16,815 27,434
-------- --------
COMPUTER SOFTWARE DEVELOPMENT COSTS, NET OF ACCUMULATED AMORTIZATION OF $3,908
IN 1996 AND $5,051 IN 1997 1,817 3,058
-------- --------
LAND 925 925
-------- --------
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION
OF $819 IN 1996 AND $3,347 IN 1997 9,129 12,768
-------- --------
OTHER ASSETS 1,664 2,092
-------- --------
$160,167 $192,264
======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 425 $ 288
Accounts payable 6,037 6,712
Accrued expenses 16,012 16,572
Unearned revenue 8,967 4,294
Deferred revenue 8,953 14,372
Deferred income taxes 2,798 1,775
-------- --------
Total current liabilities 43,192 44,013
-------- --------
CAPITAL LEASE OBLIGATIONS,
LESS CURRENT PORTION 706 462
-------- --------
DEFERRED REVENUE, LESS CURRENT PORTION 8,279 9,441
-------- --------
OTHER LIABILITIES 1,757 942
-------- --------
DEFERRED INCOME TAXES 6,398 5,965
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 11, 12 and 13)
STOCKHOLDERS' EQUITY:
Common stock, $.10 par value-
Authorized--40,000,000 shares
Issued--19,382,360 shares and 20,359,892 shares in 1996 and
1997, respectively 1,938 2,036
Additional paid-in capital 109,857 127,578
Retained (deficit) earnings (11,094) 2,588
Cumulative translation adjustment (362) (255)
Treasury stock, at cost--230,396 shares and 230,330 shares of
common stock in 1996 and 1997, respectively (502) (502)
Unrealized loss on investments (2) (4)
-------- --------
Total stockholders' equity 99,835 131,441
-------- --------
$160,167 $192,264
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 35
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
REVENUES:
Software licenses $ 45,649 $ 65,644 $ 97,240
Services and other 11,849 37,965 83,059
------------ ------------ ------------
57,498 103,609 180,299
------------ ------------ ------------
EXPENSES:
Cost of software licenses 2,799 3,476 4,538
Cost of services and other 7,458 22,949 48,702
Selling and marketing 23,233 34,691 53,517
Research and development 11,375 20,208 31,153
General and administrative 5,132 9,565 15,933
Charge for in-process research and development -- 24,421 8,664
Costs related to acquisition 950 -- --
------------ ------------ ------------
50,947 115,310 162,507
------------ ------------ ------------
Income (loss) from operations 6,551 (11,701) 17,792
FOREIGN CURRENCY EXCHANGE GAIN (LOSS) 34 (223) (236)
INCOME ON EQUITY IN JOINT VENTURES 22 10 26
INTEREST INCOME 3,095 3,666 5,323
INTEREST EXPENSE ON SUBORDINATED NOTES PAYABLE TO A (369) (377) --
RELATED PARTY
OTHER INTEREST EXPENSE (192) (946) (151)
------------ ------------ ------------
Income (loss) before provision for income 9,141 (9,571) 22,754
taxes
PROVISION FOR INCOME TAXES 3,725 5,614 9,599
------------ ------------ ------------
Net income (loss) $ 5,416 $ (15,185) $ 13,155
============ ============ ============
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT $ 0.35 $ (0.96) $ 0.63
SHARE ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON 15,562,042 15,857,472 20,967,200
EQUIVALENT SHARES OUTSTANDING ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 36
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A, CLASS B COMMON STOCK
AND SERIES C-1 NUMBER $.10 '
CONVERTIBLE OF SHARES PAR VALUE
PREFERRED STOCK
NUMBER
OF SHARES PAR VALUE
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 356,986 $ 177 7,009,330 $ 701
Issuance of common stock in public offerings, -- -- 3,100,000 310
net of issuance costs of $1,223
Issuance of common stock under employee stock -- -- 72,064 7
purchase plans
Exercise of stock options and warrants -- -- 688,462 69
Liquidation of fractional shares -- -- -- --
Conversion of preferred stock to common stock (356,986) (177) 4,709,580 471
Purchase of treasury stock -- -- -- --
Repayment of receivable -- -- -- --
Translation adjustment -- -- -- --
Unrealized market gain on investments -- -- -- --
Tax benefit related to stock options -- -- -- --
Dividend distributions to stockholders relating -- -- -- --
to acquired Subchapter S corporation, net
Net income -- -- -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1995 -- -- 15,579,436 1,558
Issuance of common stock in a public offering, -- -- 2,907,820 291
net of issuance costs of $4,239
Issuance of common stock in a private placement -- -- 66,770 6
Issuance of common stock under employee stock -- -- 50,220 5
purchase plans
Exercise of stock options and warrants -- -- 778,114 78
Translation adjustment -- -- -- --
Realized gain on investments -- -- -- --
Unrealized market loss on investments -- -- -- --
Tax benefit related to stock options -- -- -- --
Net loss -- -- -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1996 -- -- 19,382,360 1,938
Issuance of common stock in an immaterial -- -- 104,162 10
pooling
Issuance of common stock in the purchase of -- -- 155,740 16
businesses
Issuance of common stock under employee stock -- -- 210,085 21
purchase plans
Exercise of stock options and warrants -- -- 507,545 51
Translation adjustment -- -- -- --
Issuance of treasury stock to charity -- -- -- --
Unrealized market loss on investments -- -- -- --
Tax benefit related to stock options -- -- -- --
Net income -- -- -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1997 -- $ -- 20,359,892 $ 2,036
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL RETAINED CUMULATIVE RECEIVABLE
PAID-IN EARNINGS TRANSLATION FROM
CAPITAL (DEFICIT) ADJUSTMENT STOCKHOLDER
FOR
STOCK
ISSUED
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 $ 17,578 $ (398) $ (390) $ (15)
Issuance of common stock in public offerings, 17,539 -- -- --
net of issuance costs of $1,223
Issuance of common stock under employee stock 238 -- -- --
purchase plans
Exercise of stock options and warrants 1,113 -- -- --
Liquidation of fractional shares -- -- -- --
Conversion of preferred stock to common stock (294) -- -- --
Purchase of treasury stock -- -- -- --
Repayment of receivable -- -- -- 15
Translation adjustment -- -- 90 --
Unrealized market gain on investments -- -- -- --
Tax benefit related to stock options 486 -- -- --
Dividend distributions to stockholders relating -- (927) -- --
to acquired Subchapter S corporation, net
Net income -- 5,416 -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1995 36,660 4,091 (300) --
Issuance of common stock in a public offering, 68,166 -- -- --
net of issuance costs of $4,239
Issuance of common stock in a private placement 1,058 -- -- --
Issuance of common stock under employee stock 469 -- -- --
purchase plans
Exercise of stock options and warrants 1,397 -- -- --
Translation adjustment -- -- (62) --
Realized gain on investments -- -- -- --
Unrealized market loss on investments -- -- -- --
Tax benefit related to stock options 2,107 -- -- --
Net loss -- (15,185) -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1996 109,857 (11,094) (362) --
Issuance of common stock in an immaterial 165 527 -- --
pooling
Issuance of common stock in the purchase of 5,892 -- -- --
businesses
Issuance of common stock under employee stock 3,549 -- -- --
purchase plans
Exercise of stock options and warrants 4,152 -- -- --
Translation adjustment -- -- 107 --
Issuance of treasury stock to charity -- -- -- --
Unrealized market loss on investments -- -- -- --
Tax benefit related to stock options 3,963 -- -- --
Net income -- 13,155 -- --
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1997 $ 127,578 $ 2,588 $ (255) $ --
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
TREASURY STOCK UNREALIZED TOTAL
NUMBER GAIN STOCKHOLDERS'
OF SHARES AMOUNT (LOSS) ON EQUITY
INVESTMENTS
<S> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 229,188 $ (497) $ -- $ 17,156
Issuance of common stock in public offerings, -- -- -- 17,849
net of issuance costs of $1,223
Issuance of common stock under employee stock -- -- -- 245
purchase plans
Exercise of stock options and warrants -- -- -- 1,182
Liquidation of fractional shares 64 -- -- --
Conversion of preferred stock to common stock -- -- -- --
Purchase of treasury stock 1,144 (5) -- (5)
Repayment of receivable -- -- -- 15
Translation adjustment -- -- -- 90
Unrealized market gain on investments -- -- 282 282
Tax benefit related to stock options -- -- -- 486
Dividend distributions to stockholders relating -- -- -- (927)
to acquired Subchapter S corporation, net
Net income -- -- -- 5,416
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1995 230,396 (502) 282 41,789
Issuance of common stock in a public offering, -- -- -- 68,457
net of issuance costs of $4,239
Issuance of common stock in a private placement -- -- -- 1,064
Issuance of common stock under employee stock -- -- -- 474
purchase plans
Exercise of stock options and warrants -- -- -- 1,475
Translation adjustment -- -- -- (62)
Realized gain on investments -- -- (282) (282)
Unrealized market loss on investments -- -- (2) (2)
Tax benefit related to stock options -- -- -- 2,107
Net loss -- -- -- (15,185)
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1996 230,396 (502) (2) 99,835
Issuance of common stock in an immaterial -- -- -- 702
pooling
Issuance of common stock in the purchase of -- -- -- 5,908
businesses
Issuance of common stock under employee stock -- -- -- 3,570
purchase plans
Exercise of stock options and warrants -- -- 4,203
Translation adjustment -- -- -- 107
Issuance of treasury stock to charity (66) -- -- --
Unrealized market loss on investments -- -- (2) (2)
Tax benefit related to stock options -- -- -- 3,963
Net income -- -- -- 13,155
---------- ---------- ---------- ----------
BALANCE, JUNE 30, 1997 230,330 $ (502) $ (4) $ 131,441
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 37
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,416 $(15,185) $ 13,155
Adjustments to reconcile net income (loss) to net
cash provided by operating activities -
Depreciation and amortization 2,748 5,641 11,301
Charge for in-process research and development -- 24,421 8,664
Deferred income taxes 2,573 (295) (1,646)
Changes in assets and liabilities -
Accounts receivable (3,061) (12,415) (9,501)
Prepaid expenses and other current assets (780) 1,053 (4,042)
Long-term installments receivable (8,503) 1,790 (20,251)
Accounts payable and accrued expenses 2,446 7,000 3,750
Unearned revenue 66 2,823 (7,835)
Deferred revenue 2,716 3,560 7,229
-------- -------- --------
Net cash provided by operating activities 3,621 18,393 824
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and leasehold improvements (2,565) (7,017) (18,093)
Increase in computer software development costs (1,026) (908) (2,384)
(Increase) decrease in other assets (154) 117 (549)
(Increase) decrease in short-term investments (18,364) (20,197) 22,715
Increase (decrease) in other liabilities 401 955 (815)
Cash acquired in an immaterial pooling -- -- 792
Cash used in the purchase of business, net of cash acquired -- (44,723) (6,232)
-------- -------- --------
Net cash used in investing activities (21,708) (71,773) (4,566)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 17,849 69,521 --
Issuance of common stock under employee stock 245 474 3,570
purchase plans
Exercise of common stock options and warrants 1,182 925 4,203
Purchase of treasury shares (5) -- --
Repayment of notes receivable for stock issued 15 -- --
Proceeds from subordinated note payable to related party 2,000 -- --
Payment of subordinated notes payable to related parties -- (3,450) --
Payments of long-term debt and capital lease obligations (661) (5,693) (571)
Dividend distributions to stockholders relating to
acquired Subchapter S corporation, net (927) -- --
-------- -------- --------
Net cash provided by financing activities 19,698 61,777 7,202
-------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 90 (62) 107
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 1,701 8,335 3,567
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,488 4,189 12,524
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,189 $ 12,524 $ 16,091
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 600 $ 1,861 $ 2,334
======== ======== ========
Cash paid for interest $ 524 $ 1,363 $ 199
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Increase in equipment under capital lease obligations $ -- $ 105 --
======== ======== ========
Increase in additional paid-in capital and $ 486 $ 2,107 $ 3,963
decrease in accrued expenses relating to the tax ========= ========= =========
benefit of exercise of nonqualified stock options
Increase in common stock and additional paid-in $ -- $ 550 $ --
capital and decrease in subordinated notes ========= ========= =========
payable to a related party relating to the
exercise of warrants
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO
ACQUISITIONS:
During 1996 and 1997, the Company acquired certain
companies as described in Note 3. These
acquisitions are summarized as follows -
Fair value of assets acquired, excluding cash $ -- $ 47,919 $ 15,469
Issuance of common stock related to acquisitions -- -- (5,908)
Payments in connection with the acquisitions, -- (44,723) (6,232)
net of cash acquired -------- -------- --------
Liabilities assumed $ -- $ 3,196 $ 3,329
======== ======== ========
</TABLE>
In May 1995, the Company acquired Industrial Systems, Inc., which was
accounted for as a pooling-of-interests. In September 1996, the Company
acquired B-JAC International, Inc., which was accounted for as a
pooling-of-interests.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 38
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) OPERATIONS
Aspen Technology, Inc. (the Company) develops and markets process modeling
and automation software and services internationally to the process
industries. The Company's principal products are used to analyze, design
and automate the manufacturing processes in the chemicals, petroleum,
pharmaceuticals, pulp and paper, electric power, and food and consumer
products industries. The Company's services include hot line assistance,
training courses and design and implementation consulting services on a
contract basis.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the results
of operations of the Company and its wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.
(b) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates
market, and consist of short-term, highly liquid investments with
original maturities of less than three months.
(c) Short-Term Investments
The Company accounts for short-term investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting
for Certain Investments in Debt and Equity Securities. Under SFAS No.
115, securities purchased to be held for indefinite periods of time,
and not intended at the time of purchase to be held until maturity, are
classified as available-for-sale securities. Securities classified as
available-for-sale are required to be recorded at market value in the
financial statements. Unrealized gains and losses have been accounted
for as a separate
F-7
<PAGE> 39
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
component of stockholders' equity. Available-for-sale investments as of
June 30, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
CONTRACTED MARKET VALUE AT JUNE 30,
DESCRIPTION MATURITY 1996 1997
<S> <C> <C> <C>
Commercial paper 1 - 11 months $ 38,559 $ 2,150
Corporate and foreign bonds 1 - 12 months - 3,030
Corporate and foreign bonds 1-5 years - 10,663
--------- ---------
$38,559 $ 15,843
========= =========
</TABLE>
The Company had no realized gains or losses for the years ended June
30, 1995 and 1997 and had realized gains of $282,000 for the year ended
June 30, 1996.
(d) Depreciation and Amortization
The Company provides for depreciation and amortization, computed using
the straight-line and declining balance methods, by charges to
operations in amounts estimated to allocate the cost of the assets over
their estimated useful lives, as follows:
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
Building and improvements 7 - 30 years
Computer equipment 3 - 10 years
Purchased software 3 years
Furniture and fixtures 3 - 10 years
Leasehold improvements Life of lease
(e) Land
In connection with the acquisition of Setpoint, Inc. (see Note 3(b)),
the Company acquired land that is being held for investment purposes.
The land was recorded at its appraised value at the date of
acquisition.
(f) Revenue Recognition
The Company recognizes revenue from software licenses upon the shipment
of its products, pursuant to a signed noncancelable license agreement.
In the case of license renewals, revenue is recognized upon execution
of the renewal license agreement. The Company has no other significant
vendor obligations or collectibility risk associated with its product
sales. The Company recognizes revenue from postcontract customer
support ratably over the period of the
F-8
<PAGE> 40
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
postcontract arrangement. The Company accounts for insignificant vendor
obligations by deferring a portion of the revenue and recognizing it
either ratably as the obligations are fulfilled or when the related
services are performed. If significant application development services
are performed in connection with the purchase of a license, the license
fees are recognized as the application development services are
performed.
Service revenues from fixed-price contracts are recognized using the
percentage-of-completion method, measured by the percentage of costs
(primarily labor) incurred to date as compared to the estimated total
costs (primarily labor) for each contract. When a loss is anticipated
on a contract, the full amount thereof is provided currently. Service
revenues from time and expense contracts and consulting and training
revenue are recognized as the related services are performed. Services
that have been performed but for which billings have not been made are
recorded as unbilled services, and billings that have been recorded
before the services have been performed are recorded as unearned
revenue in the accompanying consolidated balance sheets.
Installments receivable represent the present value of future payments
related to the financing of noncancelable term license agreements that
provide for payment in installments over a one- to five-year period. A
portion of each installment agreement is recognized as interest income
in the accompanying consolidated statements of operations. The interest
rates in effect in fiscal 1995, 1996 and 1997 were 11% to 12%, 11% to
12% and 8.5% to 11%, respectively.
(g) Computer Software Development Costs
In compliance with SFAS No. 86, Accounting for the Costs of Computer
Software To Be Sold, Leased or Otherwise Marketed, certain computer
software development costs are capitalized in the accompanying
consolidated balance sheets. Capitalization of computer software
development costs begins upon the establishment of technological
feasibility. Amortization of capitalized computer software development
costs are provided on a product-by-product basis using the
straight-line method over the remaining estimated economic life of the
product, not to exceed three years. Total amortization expense charged
to operations was approximately $630,000, $735,000 and $1,143,000 in
fiscal 1995, 1996 and 1997, respectively.
(h) Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated in accordance with SFAS No. 52, Foreign Currency
Translation. The determination of functional currency is based on the
subsidiaries' relative financial and operational independence from the
Company. Foreign currency exchange and translation gains or losses for
certain wholly owned subsidiaries are credited or charged to the
accompanying consolidated statements of operations since the functional
currency of the subsidiaries is the U.S. dollar. Gains and losses from
foreign currency translation related to entities whose functional
currency is their local currency are credited or
F-9
<PAGE> 41
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
charged to the cumulative translation adjustment account, included in
stockholders' equity in the accompanying consolidated balance sheets.
At June 30, 1996 and 1997, the Company had long-term installments
receivable of approximately $7,301,000 and $8,987,000 denominated in
foreign currencies. The June 1997 installments receivable mature
through January 2001 and have been hedged with specific foreign
currency contracts. The Company records a foreign currency gain or loss
at the time the Company enters into the foreign currency contract.
There have been no material gains or losses recorded relating to hedge
contracts for the periods presented.
(i) Net Income (Loss) per Share
Net income (loss) per common and common equivalent share is computed
using the weighted average number of common and dilutive common
equivalent shares outstanding during each period, assuming conversion
of all classes of convertible preferred stock into common stock. Shares
of stock issuable pursuant to stock options and warrants have been
included, using the treasury stock method, where their effect is
dilutive.
In March 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards
for computing and presenting earnings per share and applies to entities
with publicly traded common stock or potential common stock. This
statement is effective for fiscal years ending after December 15, 1997,
and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. The Company
will adopt this statement for its fiscal year ending June 30, 1998.
F-10
<PAGE> 42
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Pro forma calculations of basic and diluted earning per share, as
required by SFAS No. 128, are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996 1997
<S> <C> <C> <C>
Net income (loss) $ 5,416 $ (15,185) $ 13,155
========= ========= =========
Basic weighted average 13,770 15,857 19,628
shares outstanding
Weighted average
common equivalent
shares 1,792 - 1,339
--------- --------- ---------
Diluted weighted
outstanding
average shares 15,562 15,857 20,967
========= ========= =========
Basic earnings per $ 0.39 $ (0.96) $ 0.67
share
Diluted earnings per $ 0.35 $ (0.96) $ 0.63
share
</TABLE>
(j) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-11
<PAGE> 43
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Financial instruments
that potentially subject the Company to concentrations of credit risk
are principally cash and cash equivalents, investments, accounts
receivable and installments receivable. The Company places its cash and
cash equivalents and investments in highly rated institutions.
Concentration of credit risk with respect to receivables is limited to
certain customers (end users and distributors) to which the Company
makes substantial sales. To reduce risk, the Company routinely assesses
the financial strength of its customers, hedges specific foreign
receivables and routinely sells its receivables to financial
institutions with and without recourse. As a result, the Company
believes that its accounts and installments receivable credit risk
exposure is limited. The Company maintains an allowance for potential
credit losses but historically has not experienced any significant
losses related to individual customers or groups of customers in any
particular industry or geographic area.
(l) Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments.
Financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable and installments receivable. The
estimated fair value of these financial instruments approximates their
carrying value and, except for accounts receivable and installments
receivable, is based primarily on market quotes.
(m) Intangible Assets
Intangible assets consist of goodwill, existing products, trade names
and assembled work force of certain acquired entities. Intangible
assets are being amortized on a straight-line basis over estimated
useful lives of five to twelve years. At each balance sheet date, the
Company evaluates the realizability of intangible assets based on
profitability and cash flow expectations for the related asset or
subsidiary. Based on its most recent analysis, the Company believes
that no impairment of intangible assets exists at June 30, 1997.
Goodwill (net of accumulated amortization) was approximately $5,003,000
at June 30, 1997. Amortization of goodwill amounted to approximately
$40,000 and $279,000 for the years ended June 30, 1996 and 1997,
respectively.
F-12
<PAGE> 44
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(3) ACQUISITIONS
(a) Dynamic Matrix Control Corporation (DMCC)
On January 5, 1996, the Company acquired 80.7% of the outstanding
shares of common stock of DMCC, and on February 8, 1996, the Company
acquired the remaining 19.3% of DMCC common stock, for an aggregate
purchase price of $20,139,000 in cash and the assumption of certain
expenses related to the acquisition. DMCC is a supplier of on-line
automation and information management software and services to
companies in process manufacturing industries.
For financial statement purposes, this acquisition was accounted for as
a purchase, and accordingly, the results of operations of DMCC from
January 5, 1996 forward are included in the Company's consolidated
statements of operations. The fair market value of assets acquired and
liabilities assumed was based on an independent appraisal. The portion
of the purchase price allocated to in-process research and development
represents projects that had not yet reached technological feasibility
and had no alternative future uses as of January 5, 1996. The purchase
price was allocated to the fair value of assets acquired and
liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
<S> <C> <C>
Purchased in-process research and $ 9,521 -
development
Existing technology 1,740 5 years
Other intangibles 1,066 5 - 10 years
Building 627 30 years
Uncompleted contracts 596 Life of contracts
----------
13,550
Net book value of tangible assets
acquired, less liabilities assumed 8,080
----------
21,630
Less -- Deferred taxes 1,491
----------
$ 20,139
==========
</TABLE>
For tax purposes, this acquisition was accounted for as a purchase of
stock, and due to the different basis in assets for book and tax
purposes, deferred taxes were provided for as part of the purchase
allocation in accordance with SFAS No. 109.
F-13
<PAGE> 45
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(b) Setpoint, Inc. (Setpoint)
On February 9, 1996, the Company acquired all of the outstanding shares
of Setpoint for an aggregate purchase price of $27,780,000, after final
adjustment, in cash and the assumption of certain expenses related to
the acquisition. The purchase price was subject to certain downward
adjustments based on the net worth of Setpoint as of December 31, 1995.
In May 1996, this contingency was resolved, resulting in a $400,000
reduction of purchase price. Setpoint supplies on-line automation and
information management software and services to companies in process
manufacturing industries.
For financial statement purposes, this acquisition was accounted for as
a purchase, and accordingly, the results of operations of Setpoint from
February 9, 1996 forward are included in the Company's consolidated
statements of operations. The fair market value of assets acquired and
liabilities assumed was based on an independent appraisal. The portion
of the purchase price allocated to in-process research and development
represents projects that had not yet reached technological feasibility
and had no alternative future use as of February 9, 1996. The purchase
price was allocated to the fair value of assets acquired and
liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
<S> <C> <C>
Purchased in-process research and $ 14,900 -
development
Existing technology 3,308 5 years
Intangible assets 3,127 5 - 10 years
Uncompleted contracts 504 Life of contracts
----------
21,839
Net book value of tangible assets
acquired, less liabilities assumed 7,984
29,823
Less -- Deferred taxes 2,043
----------
$ 27,780
==========
</TABLE>
For tax purposes, this acquisition was accounted for as a purchase of
stock, and due to the different basis in assets for book and tax
purposes, deferred taxes were provided for as part of the purchase
allocation in accordance with SFAS No. 109.
F-14
<PAGE> 46
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(c) B-JAC International, Inc. (B-JAC)
On October 1, 1996, the Company acquired 100% of the outstanding shares
of common stock of B-JAC, a major supplier of detailed heat exchanger
modeling software. The Company exchanged 104,162 shares of its common
stock valued at $3.4 million for all outstanding shares of B-JAC common
stock. The acquisition has been accounted for as a
pooling-of-interests. This transaction is immaterial to the Company's
financial position and results of operations and, accordingly, the
historical financial statements have not been restated.
(d) Process Control Division of Cambridge Control Limited
On October 7, 1996, the Company acquired the process control division
of Cambridge Control Limited (the Cambridge Control Division) for $1.9
million, including $300,000 in related costs. The Cambridge Control
Division specializes in advanced process control solutions,
specifically aimed toward process manufacturing controls applications
for the refining, petrochemical and pulp and paper industries.
For financial statement purposes, this acquisition was accounted for as
a purchase, and accordingly, the results of operations of the process
control division from October 7, 1996 forward are included in the
Company's consolidated statements of operations. The fair market value
of assets acquired and liabilities assumed was based on an independent
appraisal. The portion of the purchase price allocated to in-process
research and development represents projects that had not yet reached
technological feasibility and had no alternative future use as of
October 7, 1996. The purchase price was allocated to the fair value of
assets acquired and liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
<S> <C> <C>
Purchased in-process research and $ 764 -
development
Existing technology 100 5 years
Intangible assets 1,437 5-10 years
--------
2,301
Net book value of tangible assets
acquired, less liabilities assumed (411)
--------
$ 1,890
========
</TABLE>
For tax purposes, this acquisition was accounted for as a purchase of
assets; accordingly, the basis in assets and liabilities for book and
tax purposes are primarily the same.
F-15
<PAGE> 47
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(e) Bechtel Corporation PIMS (Process Industries Modeling System) and Basil
Joffe Associates, Inc.
On December 31, 1996, the Company acquired the assets of Bechtel's PIMS
(Process Industries Modeling System) division for approximately $4.3
million in cash and an additional $2.2 million in assumed liabilities
and acquisition-related costs. On the same date, the Company acquired
all the outstanding shares of the related software development
organization, Basil Joffee Associates, Inc., for approximately 156,000
shares of its common stock valued at approximately $5,900,000. The
proprietary PIMS software developed and sold by these businesses is
used by companies in process industries for economic planning and
scheduling based on large linear programming models.
For financial statement purposes, these acquisitions have been
accounted for as purchases, and accordingly, the results of operations
of Bechtel Corporation PIMS and Basil Joffe Associates, Inc. from
December 31, 1996 forward are included in the Company's consolidated
statements of operations. The fair market value of assets acquired and
liabilities assumed was based on an independent appraisal. The portion
of the purchase price allocated to in-process research and development
represents projects that had not yet reached technological feasibility
and had no alternative future use as of December 31, 1996. The purchase
price was allocated to the fair value of assets acquired and
liabilities assumed as follows (in thousands):
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
<S> <C> <C>
Purchased in-process research and $ 7,900 -
development
Existing technology 500 5 years
Intangible assets 4,093 7 - 12 years
----------
12,493
Net book value of tangible assets
acquired, less liabilities assumed (2,018)
----------
10,475
Less -- Deferred taxes 148
----------
$ 10,327
==========
</TABLE>
For tax purposes, the acquisition of Process Industries Modeling System
is being accounted for as a purchase of assets and the acquisition of
Basil Joffe Associates is being accounted for as a purchase of stock.
Due to the different basis in assets and liabilities for book and tax
purposes, deferred taxes have been provided for as part of the purchase
allocation in accordance with SFAS No. 109.
F-16
<PAGE> 48
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(f) Unaudited Pro Forma Combined Results
The following table represents selected unaudited pro forma combined
financial information for the Company, DMCC and Setpoint, assuming the
companies had combined at the beginning of fiscal 1996 (in thousands,
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30,
1995 1996(1)
<S> <C> <C>
Pro forma revenue $ 114,730 $ 142,668
Pro forma net income $ 4,243 $ 8,599
Pro forma net income per common
and common equivalent share $ 0.27 $ 0.50
Pro forma weighted average common
and common equivalent shares 15,562 17,298
outstanding
</TABLE>
(1) Does not reflect the charge for in-process research and
development and nonrecurring acquisition charges.
The pro forma effect of the acquisition of B-JAC, the Cambridge Control
Division, Bechtel Corporation PIMS and Basil Joffe Associates, Inc. has
not been presented, as it is immaterial.
Pro forma results are not necessarily indicative of either actual
results of operations that would have occurred had the acquisitions
been made at the beginning of fiscal 1995 or of future results.
(g) Acquisitions Subsequent to Year End
On August 27, 1997 and August 28, 1997, the Company acquired 100% of
the outstanding shares of NeuralWare, Inc. (NeuralWare) and The SAST
Corporation Limited (SAST) respectively. SAST is a provider of dynamic
simulation and operator training services and applications, and
NeuralWare is a provider of neural network and related technologies.
The Company completed these acquisitions primarily through the exchange
of 314,000 shares of its common stock valued at approximately
$12,000,000 for all the outstanding shares of both entities. These
acquisitions will be accounted for as poolings-of-interests. As the
transactions are immaterial to the Company's financial position and
results of operations historical financial statements will not be
restated.
F-17
<PAGE> 49
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(4) LINE OF CREDIT
The Company has a revolving line-of-credit agreement with a bank, which
provides for borrowings up to $30,000,000, subject to existing limitations.
The commitment fee for the unused portion of the revolving line of credit
ranges from .25% to .50%, based on the financial position of the Company,
as defined, and is payable quarterly. At the Company's election, borrowings
bear interest on the basis of the applicable LIBOR, as defined (5.69% as of
June 30, 1997), or at the bank's prime rate (8.5% as of June 30, 1997). The
line is subject to certain covenants, including profitability and operating
ratios, as defined. As of June 30, 1997, the Company had an available
borrowing base of approximately $30,000,000, of which approximately
$744,000 was reserved for certain performance bonds relating to service
contracts. The line of credit expires on December 31, 1998.
(5) NOTE PAYABLE
In connection with the acquisition of Setpoint in February 1996, the
Company assumed approximately $5,200,000 of intercompany debt payable to
the former parent of Setpoint. Upon the closing of the acquisition, the
Company paid approximately $1,700,000 of this debt and signed a note for
the remaining balance of $3,500,000. The note accrued interest at a rate of
6% per year. This obligation was repaid on June 27, 1996.
(6) CAPITAL LEASE OBLIGATIONS
The Company has numerous capital lease arrangements. These obligations
accrue interest at rates ranging from 8.5% to 17.0% and are payable in
various monthly installments of principal and interest ranging from $149 to
$11,696, expiring on various dates through November 2002.
Maturities are as follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Years Ending June 30,
1998 $364
1999 196
2000 130
2001 131
2002 54
----
$875
Less -- Amount representing interest 125
-- Current maturities 288
----
$462
====
</TABLE>
F-18
<PAGE> 50
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(7) SUBORDINATED NOTES PAYABLE TO A RELATED PARTY
At June 30, 1995, the Company had $4,000,000 outstanding on subordinated
notes payable to an outside investor, of which a director of the Company is
an officer. The notes were repayable $2,000,000 on April 30, 1997 and
$2,000,000 on April 30, 1998, with interest at 9.6%, payable quarterly.
In December 1995 and June 1996, the lender exercised 77,500 and 60,000 of
warrants, respectively. The total proceeds due to the Company relating to
the exercise of the warrants of $550,000 were recognized as a reduction of
principal on the notes. The Company paid the remaining balance of
$3,450,000 on June 27, 1996.
(8) PREFERRED STOCK
The Company's Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue, from
time to time, up to an aggregate of 10,000,000 shares of preferred stock in
one or more series. Each such series of preferred stock shall have such
number of shares, designations, preferences, voting powers, qualifications
and special or relative rights or privileges, which may include, among
others, dividend rights, voting rights, redemption and sinking fund
provisions, liquidation preferences and conversion rights, as shall be
determined by the Board of Directors in a resolution or resolutions
providing for the issuance of such series. Any such series of preferred
stock, if so determined by the Board of Directors, may have full voting
rights with the common stock or superior or limited voting rights and may
be convertible into common stock or another security of the Company.
(9) COMMON STOCK
(a) Authorized and Outstanding Shares
On November 11, 1996, the Company increased its authorized shares of
$.10 par value common stock from 30,000,000 to 40,000,000. On February
14, 1997, the Company effected a two for one stock split through the
issuance of a stock dividend. All share and per share amounts affected
by this split have been retroactively adjusted for all periods
presented.
(b) Warrants
During fiscal 1990, the Company issued warrants to purchase 255,000
shares of common stock to the holder of the subordinated notes payable
to a related party (see Note 7). In February 1995, warrants to purchase
100,000 shares were exercised and sold as part of the Company's second
public offering of stock. The remaining warrants to purchase 155,000
shares of common stock
F-19
<PAGE> 51
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
were exercised in December 1995. During 1991, the Company issued an
additional warrant to purchase 120,000 shares of common stock to the
holder of the subordinated notes payable (see Note 7). These warrants
were exercised in June 1996.
During fiscal 1992, the Company issued warrants to purchase 60,000
shares of common stock to a research consultant at an exercise price of
$3.34 per share. In February 1995, warrants to purchase 27,000 shares
were exercised and sold as part of the Company's offering of common
stock. In 1996, warrants to purchase 1,150 shares were exercised. In
1997, warrants to purchase 5,700 shares were exercised and warrants to
purchase 774 shares were terminated. The remaining warrants to purchase
25,376 shares of common stock are exercisable through June 30, 2001.
During fiscal 1993, the Company issued warrants to purchase 12,000
shares of common stock to two research consultants at an exercise price
of $2.67 per share. In 1997, warrants to purchase 2,250 shares were
exercised. The remaining warrants to purchase 9,750 shares of common
stock are currently exercisable and expire June 10, 1998.
(c) Stock Options
In July 1987 and August 1988, the Company entered into stock option
agreements covering 120,000 shares of common stock. The purchase price
under the options is $0.93 to $1.05 based on the fair market value of
the common stock on the date of grant. In fiscal 1995, options covering
90,000 shares of common stock at $1.05 per share were exercised. During
fiscal 1997, options covering the remaining 30,000 shares of common
stock at an exercise price of $0.93 were exercised.
Prior to November 1995, options were granted under the 1988
Nonqualified Stock Option Plan (the 1988 Plan), which provided for the
issuance of nonqualified stock options. In November 1995, the Board of
Directors approved the establishment of the 1995 Stock Option Plan (the
1995 Plan) and the 1995 Directors Stock Option Plan (the 1995 Directors
Plan), which provided for the issuance of incentive stock options and
nonqualified options. Under these plans, the Board of Directors may
grant stock options to purchase up to an aggregate of 3,827,687 (as
adjusted) shares of common stock. Shares available for grant under
these plans were increased on July 1, 1996 and 1997 by an amount equal
to 5% of the outstanding shares as of the preceding June 30. As a
result of the adoption of the 1995 Plan, no additional options may be
granted pursuant to the 1988 Plan. In December 1996, the shareholders
of the Company approved the establishment of the 1996 Special Stock
Option Plan (the 1996 Plan). This plan provides for the issuance of
incentive stock options and nonqualified options to purchase up to
500,000 shares of common stock. The exercise price of options are
granted at a price not less than 100% of the fair market value of the
common stock on the date of grant. Stock options become exercisable
over varying periods and expire no later than 10 years from the date of
grant.
F-20
<PAGE> 52
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The following is a summary of stock option activity under the 1988
Plan, the 1995 Plan, the 1995 Directors Plan and the 1996 Plan:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE
EXERCISE PRICE
<S> <C> <C>
Outstanding, June 30, 1994 1,912,876 $ 2.13
Options granted 270,000 8.45
Options exercised (357,368) 2.22
Options terminated (145,336) 2.16
---------- -----------
Outstanding, June 30, 1995 1,680,172 3.12
Options granted 1,772,000 17.08
Options exercised (460,114) 1.90
Options terminated (51,300) 10.04
---------- -----------
Outstanding, June 30, 1996 2,940,758 11.65
Options granted 680,000 31.30
Options exercised (484,205) 8.21
Options terminated (157,616) 16.61
---------- -----------
Outstanding, June 30, 1997 2,978,937 $ 16.44
========== ========
</TABLE>
As of June 30, 1997 there were 1,923,203 and 342,000 shares of common
stock available for grant under the 1995 and 1996 plans, respectively.
In connection with the 1995 acquisition of Industrial Systems, Inc.
(ISI), the Company assumed the ISI option plan (the ISI Plan). Under
this Plan, the Board of Directors of ISI were entitled to grant either
incentive or nonqualified stock options for a maximum of 197,548 shares
of common stock (as converted to reflect the pooling of interests and
conversion to options to purchase Aspen common stock) to eligible
employees, as defined.
F-21
<PAGE> 53
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Activity under the ISI Plan is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE
EXERCISE
PRICE
<S> <C> <C>
Outstanding, June 30, 1994 131,174 $ .45
Exercised (105,094) .38
--------- ---------
Outstanding, June 30, 1995 26,080 .76
Exercised (13,040) .25
--------- ---------
Outstanding, June 30, 1996 13,040 1.26
Exercised (13,040) 1.26
--------- ---------
Outstanding, June 30, 1997 - $ -
========= =========
Exercisable, June 30, 1997 - $ -
========= =========
</TABLE>
No future grants are available under this Plan.
The following tables summarize information about stock options
outstanding at June 30, 1997:
<TABLE>
<CAPTION>
RANGE OF OPTIONS WEIGHTED WEIGHTED
EXERCISE OUTSTANDING AVERAGE AVERAGE
PRICES AT JUNE REMAINING EXERCISE
30, 1997 CONTRACTUAL PRICE
LIFE
<S> <C> <C> <C>
$ 1.05 228,660 1.9 $ 1.05
1.83 - 2.66 219,716 4.9 2.62
3.33 - 4.00 260,564 6.9 3.41
8.06 - 10.25 135,700 7.7 9.68
13.12 - 19.12 1,369,295 8.5 16.48
25.00 - 32.50 575,002 9.3 28.02
38.00 - 40.18 190,000 9.5 38.36
----------- --------
2,978,937 $ 16.44
=========== ========
</TABLE>
F-22
<PAGE> 54
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
<TABLE>
<CAPTION>
RANGE OF OPTIONS WEIGHTED
EXERCISE PRICES EXERCISABLE AVERAGE
EXERCISE
PRICE
<S> <C> <C>
$ 1.05 228,660 $ 1.05
1.83 - 2.66 229,466 2.63
3.33 - 4.00 171,302 3.40
8.50 - 10.25 61,300 9.86
13.62 - 19.12 363,403 16.36
25.00 - 32.50 96,250 27.42
38.00 9,877 38.00
--------- ---------
Exercisable, June 30, 1997 1,160,258 $ 9.47
========= ======
Exercisable, June 30, 1996 962,990 $ 4.58
========= ======
Exercisable June 30, 1995 1,046,572 $ 2.07
========= ======
</TABLE>
(d) Fair Value of Stock Options
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 requires the measurement of the
fair value of stock options to be included in the statement of income
or disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, and elect the
disclosure-only alternative under SFAS No. 123.
Had compensation cost for the Company's option plan been determined
based on the fair value at the grant dates, as prescribed in SFAS No.
123, the Company's net income (in thousands) and net income per share
would have been as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Net (loss) income (in thousands) -
As reported $ (15,185) $ 13,155
Pro forma (16,421) 8,474
Net (loss) income per share -
As reported $ (0.96) $ 0.63
Pro forma (1.16) 0.42
</TABLE>
F-23
<PAGE> 55
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions used for grants during the applicable period: no dividend
yield and volatility of 58% for all periods; risk-free interest rates
of 5.54% to 6.83% for options granted during fiscal 1996 and 6.42% to
6.76% for options granted during fiscal 1997; and a weighted average
expected option term of 7.5 years for all periods. The weighted average
fair value per share of options granted during 1996 and 1997 was $12.83
and $23.49, respectively.
(e) Employee Stock Purchase Plans
In February 1986, the Company's Board of Directors approved the 1986
Employees' Stock Purchase Plan, under which the Board of Directors
could grant stock purchase rights for a maximum of 1,1400,000 shares
through November 1995. In December 1995, the Company's Board of
Directors approved the 1995 Employees' Stock Purchase Plan, under which
the Board of Directors may grant stock purchase rights for a maximum of
500,000 shares through November 2005.
Participants are granted options to purchase shares of common stock on
the last business day of each semiannual payment period for 85% of the
market price of the common stock on the first or last business day of
such payment period, whichever is less. The purchase price for such
shares is paid through payroll deductions, and the current maximum
allowable payroll deduction is 10% of each eligible employee's
compensation. Under the plans, the Company issued 68,500 shares, 47,344
shares and 78,570 shares during fiscal 1995, 1996 and 1997,
respectively. As of June 30, 1997, 418,414 shares of common stock were
available for future issuance under the 1995 Plan.
In September 1992, the Company's Board of Directors approved the
establishment of a UK Employees' Stock Purchase Arrangement for all
eligible employees, as defined. Under this arrangement, the rights to
purchase shares of the Company's common stock are granted at fair
market value, as determined by the Board of Directors. The purchase
price for these shares is paid through payroll deductions over a
six-month period, and the employees are, in turn, paid a cash bonus
equal to 15% of the stock price after applicable taxes are withheld.
Under this arrangement, the Company issued 3,564 shares, 2,876 shares
and 3,016 shares during fiscal 1995, 1996 and 1997, respectively.
F-24
<PAGE> 56
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(10) INCOME TAXES
The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS
No. 109, a deferred tax asset or liability is measured based on the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates.
The provisions for income taxes shown in the accompanying consolidated
statements of operations are composed of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
Federal -
Current $ 1,132 $4,512 $ 6,550
Deferred 1,949 (295) 1,232
State -
Current - 892 901
Deferred 485 - 224
Foreign -
Current 159 505 692
------- ------ -------
$ 3,725 $5,614 $ 9,599
======= ====== =======
</TABLE>
The provision for income taxes differs from the federal statutory rate due
to the following:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1996(1) 1997(1)
<S> <C> <C> <C>
Federal tax at statutory rate 34.0% 35.0% 35.0%
State income tax, net of federal 5.3 5.0 5.2
tax benefit
Foreign tax (4.1) 2.4 (1.8)
Tax credits generated (2.5) (8.2) (4.2)
Permanent differences, net 5.6 4.3 2.6
Valuation allowance and other 2.5 (.7) (.9)
------ ------ ------
Provision for income taxes 40.8 % 37.8% 35.9%
====== ====== ======
</TABLE>
(1) Calculated based on pretax income, before nondeductible charges for
in-process research and development, of $14,850,000 and $26,704,000 for
1996 and 1997, respectively.
F-25
<PAGE> 57
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The components of the net deferred tax liability recognized in the
accompanying consolidated balance sheets are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
<S> <C> <C>
Deferred tax assets $ 7,418 $ 6,260
Deferred tax liabilities (15,189) (14,000)
--------- ---------
(7,771) (7,740)
Valuation allowance (1,425) -
--------- ---------
$(9,196) $(7,740)
========= =========
</TABLE>
The approximate tax effect of each type of temporary difference and
carryforwards are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
<S> <C> <C>
Revenue related $(6,974) $(7,665)
Foreign operating losses 1,425 1,063
Nondeductible reserves and 1,523 1,034
accruals
Intangible assets (3,819) (2,241)
Other temporary differences 74 69
-------- --------
$(7,771) $(7,740)
======== ========
</TABLE>
The decrease in valuation allowance during 1997 resulted from the
utilitization of previously reserved tax assets. The foreign operating loss
carryforwards expire at various dates through 2011.
F-26
<PAGE> 58
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(11) OPERATING LEASES
The Company leases its facilities and various office equipment under
noncancelable operating leases with terms in excess of one year. Rent
expense charged to operations was approximately $2,227,000, $3,346,000 and
$5,015,000 for the years ended June 30, 1995, 1996 and 1997, respectively.
Future minimum lease payments under these leases as of June 30, 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
AMOUNT
<S> <C>
Year Ending June 30,
1998 $ 4,266
1999 3,865
2000 3,704
2001 3,390
2002 3,379
Thereafter 3,954
---------
$22,558
=========
</TABLE>
(12) SALE OF INSTALLMENTS RECEIVABLE
The Company sold, with limited recourse, certain of its installment
contracts to two financial institutions for $28,895,000 and $30,210,000
during fiscal 1996 and 1997, respectively. The financial institutions have
partial recourse to the Company only upon nonpayment by the customer under
the installments receivable. The amount of recourse is determined pursuant
to the provisions of the Company's contracts with the financial
institutions and varies depending on whether the customers under the
installment contracts are foreign or domestic entities. Collections of
these receivables reduce the Company's recourse obligation, as defined.
At June 30, 1997, the balance of the uncollected principal portion of the
contracts sold with partial recourse was approximately $57,783,000. The
Company's potential recourse obligations related to these contracts is
approximately $6,594,000. In addition, the Company is obligated to pay
additional costs to the financial institutions in the event of default by
the customer.
(13) COMMITMENTS
The Company has entered into agreements with six executive officers
providing for the payment of cash and other benefits in certain events of
their voluntary or involuntary termination within three years following a
change in control. Payment under these agreements would consist of a lump
sum equal to approximately three years of each executive's annual taxable
compensation. The agreements also provide that the payment would be
increased in the event that it would subject the officer to excise tax as a
parachute payment under the federal tax code. The increase would be equal
to the additional tax liability imposed on the executive as a result of the
payment.
F-27
<PAGE> 59
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(14) RETIREMENT PLAN
The Company maintains a defined contribution retirement plan under Section
401(k) of the Internal Revenue Code covering all eligible employees, as
defined. Under the plan, a participant may elect to defer receipt of a
stated percentage of his or her compensation, subject to limitation under
the Internal Revenue Code, which would otherwise be payable to the
participant for any plan year. The Company may make discretionary
contributions to this Plan. No such contributions were made during 1995,
1996 and 1997. During 1997, the plan was modified to provide, among other
changes, for the Company to make matching contributions equal to 25% of
pretax employee contributions up to a maximum of 6% of an employee's
salary. During 1997, the Company made matching contributions of
approximately $385,000.
The Company does not provide postretirement benefits to any employees as
defined under SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions.
(15) JOINT VENTURES
In May 1993, the Company entered into an Equity Joint Venture agreement
with China Petrochemical Technology Company to form a limited liability
company governed by the laws of the People's Republic of China. This
company has the nonexclusive right to distribute the Company's products
within the People's Republic of China. The Company invested $300,000 on
August 6, 1993, which represents a 30% equity interest in the joint
venture.
In November 1993, the Company invested approximately $100,000 in a
Cyprus-based corporate joint venture, representing approximately a 14%
equity interest. The Company had a two-year option to purchase additional
shares in the joint venture corporation, which would increase its equity
interest to 22.5%. In December 1995, the Company exercised its option to
acquire these additional shares for approximately $125,000.
The Company is accounting for these investments using the equity method.
The net investments are included in other assets in the accompanying
consolidated balance sheets. In the accompanying consolidated statements of
operations for the years ended June 30, 1995, 1996 and 1997, the Company
has recognized approximately $22,000, $10,000 and $26,000, respectively, in
net income as its portion of the income from these joint ventures.
F-28
<PAGE> 60
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(16) ACCRUED EXPENSES
Accrued expenses in the accompanying consolidated balance sheets consist of
the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
1996 1997
<S> <C> <C>
Income taxes $ 2,728 $ 6,711
Payroll and payroll-related 4,743 3,302
Royalties and outside commissions 4,149 2,051
Other 4,392 4,508
--------- ---------
$16,012 $16,572
========= =========
</TABLE>
(17) RELATED PARTY TRANSACTION
Smart Finance & Company, a company of which a director of the Company is
the President provides advisory services to the Company from time to time. In
fiscal 1996 and 1997, payments of approximately $72,000 and $222,000,
respectively, were made by the Company to Smart Finance & Company as
compensation for services rendered.
(18) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
Domestic and export sales as a percentage of total revenues are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
United States 48.1% 54.6% 47.7%
Europe 30.6 26.7 32.4
Japan 12.3 9.6 9.2
Other 9.0 9.1 10.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
F-29
<PAGE> 61
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Revenues, income (loss) from operations and identifiable assets for the
Company's United States, European and Asian operations are as follows (in
thousands). The Company has intercompany distribution arrangements with its
subsidiaries. The basis for these arrangements, disclosed below as
transfers between geographic locations, is cost plus a specified percentage
for services and a commission rate for sales generated in the geographic
region.
<TABLE>
<CAPTION>
UNITED EUROPE ASIA ELIMINATIONS CONSOLIDATED
STATES
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1995 -
Revenues $ 56,951 $ 547 $ -- $ -- $ 57,498
Transfers between -- 10,912 4,463 (15,375) --
geographic locations --------- --------- --------- --------- ---------
Total revenues $ 56,951 $ 11,459 $ 4,463 $ (15,375) $ 57,498
========= ========= ========= ========= =========
Income from operations $ 5,126 $ 1,112 $ 313 $ -- $ 6,551
========= ========= ========= ========= =========
Identifiable assets $ 71,143 $ 4,087 $ 416 $ 51 $ 75,697
========= ========= ========= ========= =========
Year ended June 30, 1996 -
Revenues $ 100,958 $ 2,643 $ 8 $ -- $ 103,609
Transfers between -- 13,474 4,645 (18,119) --
geographic locations --------- --------- --------- --------- ---------
Total revenues $ 100,958 $ 16,117 $ 4,653 $ (18,119) $ 103,609
========= ========= ========= ========= =========
Income (loss) from $ (11,449) $ (267) $ 15 $ -- $ (11,701)
operations ========= ========= ========= ========= =========
Identifiable assets $ 183,550 $ 11,172 $ 414 $ (45,948) $ 149,188
========= ========= ========= ========= =========
Year ended June 30, 1997 -
Revenues $ 171,644 $ 8,611 $ 44 $ -- $ 180,299
Transfers between -- 22,812 8,099 (30,911) --
geographic locations --------- --------- --------- --------- ---------
Total revenues $ 171,644 $ 31,423 $ 8,143 $ (30,911) $ 180,299
========= ========= ========= ========= =========
Income (loss) from $ 14,620 $ 2,578 $ 594 $ -- $ 17,792
operations ======== ======== ====== ======== =======
Identifiable assets $ 221,544 $ 7,094 $ 1,191 $ (53,391) $ 176,438
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Aspen Technology, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Aspen Technology, Inc. and subsidiaries,
included in this Form 10-K, and have issued our report thereon dated August 13,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)-2 is
the responsibility of the Company's management, is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 13, 1997 (Except
with respect to the matters
discussed in footnote 3(g)
as to which the date is
August 28, 1997)
S-1
<PAGE> 63
SCHEDULE II
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE, CHARGED DEDUCTIONS OTHER BALANCE,
BEGINNING TO COSTS END OF
OF PERIOD AND PERIOD
EXPENSES
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
June 30, 1995 $ 84,000 $ - $ - $ - $ 84,000
June 30, 1996 84,000 200,000 (2,315) 449,000(1) 730,685
June 30, 1997 730,685 - (222,850) 211,882(2) 719,717
</TABLE>
(1) Relates to amounts acquired in the acquisitions of Setpoint and DMCC.
(2) Relates to amounts acquired in the acquisitions of B-JAC and Bechtel PIMS.
S-2
<PAGE> 1
EXHIBIT 10.23
ASPEN TECHNOLOGY, INC.
1996 SPECIAL STOCK OPTION PLAN
1. Definitions. As used in this 1996 Special Stock Option Plan of
Aspen Technology, Inc., the following terms shall have the following meanings:
1.1. Change in Corporate Control means the date on which any
individual, corporation, partnership or other person or entity (together
with its "Affiliates" and "Associates," as defined in Rule 12b-2 under the
Securities Exchange Act of 1934) "beneficially owns" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934) in the aggregate 20% or
more of the outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors of the Company.
1.2. Code means the Internal Revenue Code of 1986, as amended.
1.3. Committee means the Compensation Committee of the Company's
Board of Directors.
1.4. Company means Aspen Technology, Inc., a Massachusetts
corporation.
1.5. Date of Acquisition means the closing date of an acquisition,
and if a business is acquired in more than one purchase transaction, the
last closing date to occur, provided such closings are related
transactions under a plan for the acquisition of such business by the
Company.
1.6. Director means any person on the board of directors of an
acquired business, excluding however persons who were employed by the
Company prior to and on the date of acquisition of such business by the
Company.
1.7. Employee means any person employed by an acquired business
prior to and on the date of acquisition of such business by the Company.
1.8. Fair Market Value means the value of a share of Stock of
the Company on any date as determined by the Committee.
1.9. Grant Date means the date on which an Option is granted, as
specified in Section 7.
1.10. Incentive Option means an option which qualifies for tax
treatment under Section 422 of the Code.
<PAGE> 2
1.11. Major Shareholder means a person who, within the meaning of
Section 422(b)(6) of the Code, is deemed to own stock possessing more than
10% of the total combined voting power of all classes of stock of the
Company (or of its parent or subsidiary corporations).
1.12. Option means an option to purchase shares of the Stock
granted under the Plan.
1.13. Option Agreement means an agreement between the Company and
an Optionee, setting forth the terms and conditions of an Option.
1.14. Option Price means the price paid by an Optionee for a
share of Stock under this Plan.
1.15. Option Share means any share of Stock of the Company
transferred to an Optionee upon exercise of an Option pursuant to this
Plan.
1.16. Optionee means a person eligible to receive an Option, as
provided in Section 6, to whom an Option shall have been granted under the
Plan.
1.17. Plan means this 1996 Special Stock Option Plan of the
Company.
1.18. Related Corporation means a Parent Corporation or a
Subsidiary Corporation, each as defined in Section 424 of the Code.
1.19. Stock means common stock, $.10 par value, of the Company.
2. Purpose. This 1996 Special Stock Option Plan is intended to encourage
ownership of the Stock by Employees, consultants and Directors of businesses
acquired by the Company and to provide additional incentive for them to promote
the success of the Company's business. The Plan is intended to be an incentive
stock option plan within the meaning of Section 422 of the Code, but not all the
Options must be Incentive Options.
3. Term of the Plan. Options under the Plan may be granted not
later than November 30, 2006.
4. Stock Subject to the Plan. Subject to the provisions of Section 16 of
the Plan, the number of shares of the Stock attributable to the exercise of
Options granted under the Plan plus the number of shares then issuable upon
exercise of outstanding options granted under the Plan shall at no time exceed
250,000. Shares to be issued upon the exercise of Options granted under the Plan
may be either authorized but unissued shares or shares held by the Company in
its treasury. If any Option expires or terminates for any reason without having
been exercised in full, the shares not purchased thereunder shall again be
available for Options thereafter to be granted.
<PAGE> 3
5. Administration. The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall have complete
authority, in its discretion, to make the following determinations with respect
to each Option to be granted by the Company: (a) the Employee or consultant or
Director of an acquired business to receive the Option; (b) the time of granting
the Option; (c) the number of shares subject thereto; (d) the Option Price; (e)
the Option period; and (f) if the Optionee is an employee after the acquisition
is effected, whether the Option is an Incentive Option. In making such
determinations, the Committee may take into account the nature of the services
rendered by the Employees and consultants and Directors, their present and
potential contributions to the success of the Company and its Related
Corporations, and such other factors as the Committee in its discretion shall
deem relevant. Subject to the provisions of the Plan, the Committee shall also
have complete authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to it, to determine the terms and provisions of
the respective Option Agreements (which need not be identical), and to make all
other determinations necessary or advisable for the administration of the Plan.
The Committee's determinations on the matters referred to in this Section 5
shall be conclusive.
6. Eligibility. An Option may be granted only to an Employee, consultant
or Director of a business acquired by the Company. A Major Shareholder shall be
eligible to receive an Incentive Option only if the Option Price is at least
110% of the Fair Market Value on the Grant Date and only if the Incentive Option
expires, to the extent not theretofore exercised, on the fifth anniversary of
the Grant Date.
7. Time of Granting Options. The granting of an Option shall take place at
the time specified by the Committee, but not later than six months after the
Date of Acquisition with respect to which the grant is made. Only if expressly
so provided by the Committee, shall the Grant Date be the date on which an
Option Agreement shall have been duly executed and delivered by the Company and
the Optionee.
8. Option Price. The Option Price under each Incentive Option shall be not
less than 100% of the Fair Market Value of the Stock on the Grant Date except
that the Option Price under an Incentive Option granted to a Major Shareholder
must be not less than 110% of the Fair Market Value.
9. Option Period. No Option may be exercised later than the tenth
anniversary of the Grant Date or, for an Incentive Option granted to a Major
Shareholder, the fifth anniversary of the Grant Date. Unless the Committee
otherwise determines, all Options granted hereunder shall permit the Optionee to
purchase, cumulatively, one-sixteenth of the Option Shares at the end of each
calendar quarter beginning after the Grant Date. Upon a Change in Corporate
Control, each outstanding Option shall immediately become fully exercisable.
10. Maximum Size of Option. To the extent that the aggregate Fair Market
Value of Stock for which an Incentive Option becomes exercisable by an Optionee
for the first time in any calendar year exceeds $100,000, the Option shall be
treated as a
<PAGE> 4
nonstatutory option, and not an Incentive Option. For purposes of this Section
10, all Options granted to an Optionee by the Company shall be considered in the
order in which they were granted, and the Fair Market Value shall be determined
as of the Grant Dates.
11. Exercise of Option. An Option may be exercised only by giving written
notice, in the manner provided in Section 20 hereof, specifying the number of
shares as to which the Option is being exercised, accompanied by (a) full
payment for such shares in the form of check or bank draft payable to the order
of the Company, or (b) certificates representing shares of the Stock with a
current Fair Market Value equal to the Option Price of the shares to be
purchased, or (c) irrevocable instructions to a brokerage firm to sell a
sufficient number of the Option Shares to generate the full exercise price plus
all applicable withholding taxes and to pay over to the Company such proceeds of
sale. Receipt by the Company of such notice and payment shall constitute the
exercise of the Option or a part thereof. The Company shall thereafter deliver
or cause to be delivered to the Optionee a certificate or certificates for the
number of shares then being purchased by the Optionee. Such shares shall be
fully paid and nonassessable. If any law or applicable regulation of the
Securities and Exchange Commission or other body having jurisdiction in the
premises shall require the Company or the Optionee to take any action in
connection with shares being purchased upon exercise of the option, exercise of
the option and delivery of the certificate or certificates for such shares shall
be postponed until completion of the necessary action, which shall be taken at
the Company's expense.
12. Notice of Disposition of Stock Prior to Expiration of Specified
Holding Period. The Company may require that the person exercising an Incentive
Option give a written representation to the Company, satisfactory in form and
substance to its counsel and upon which the Company may reasonably rely, that he
or she will report to the Company any disposition of shares purchased upon
exercise prior to the expiration of the holding periods specified by Section
422(a)(1) of the Code. If and to the extent that the disposition imposes upon
the Company federal, state, local or other withholding tax requirements, or any
such withholding is required to secure for the Company an otherwise available
tax deduction, the Company shall have the right to require that the person
making the disposition remit to the Company an amount sufficient to satisfy
those requirements.
13. Transferability of Options. Options shall not be transferable,
otherwise than by will or the laws of descent and distribution, and may be
exercised during the life of the Optionee only by the Optionee.
14. Stock Purchase Agreement. Each Optionee exercising an option, at the
request of the Company, will be required to sign a Stock Purchase Agreement
representing in form satisfactory to counsel for the Company that he or she will
not transfer, sell or otherwise dispose of the Option Shares at any time
purchased by him or her, upon the exercise of any portion of the Option, in a
manner which would violate the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission thereunder; and the
Company may, at its discretion, make a notation on any
<PAGE> 5
certificates issued upon exercise of options to the effect that such certificate
may not be transferred except after receipt by the Company of an opinion of
counsel satisfactory to it to the effect that such transfer will not violate
such Act and such regulations, and may issue "stop transfer" instructions to its
transfer agent, if any, and make a "stop transfer" notation on its books as
appropriate. Such Stock Purchase Agreement shall include such other provisions
as the Committee may determine are appropriate.
15. Termination of Employment. In the event that the Optionee's employment
or consulting relationship is terminated for any reason other than death or the
Optionee's employer is no longer the Company or a Related Corporation, the
Option, to the extent exercisable at termination, may be exercised by the
Optionee at any time within 30 days after termination unless terminated earlier
by its terms. If termination results from the death of the Optionee, the Option,
to the extent exercisable at the date of death, may be exercised by the person
to whom the Option is transferred by will or the applicable laws of descent and
distribution, at any time within 12 months after the date of death, unless
terminated earlier by its terms. Military or sick leave shall not be deemed a
termination of employment provided that it does not exceed the longer of 90 days
or the period during which the absent employee's re-employment rights are
guaranteed by statute or by contract.
16. Adjustment of Number of Shares. Each Option Agreement shall provide
that in the event of any capital adjustments including stock splits, stock
contractions, stock dividends, reclassifications, exchanges and substitutions,
occurring after the date of the option and prior to the exercise in full of the
option, the number of shares for which the option may be exercised and the price
per share shall be proportionately adjusted and in the event of any resulting
changes in the outstanding Stock, the number of shares of the Stock available
for the purpose of the Plan as stated in Section 4 hereof shall be
correspondingly adjusted.
17. Stock Reserved. The Company shall at all times during the term of the
Option reserve and keep available such number of shares of the Stock as will be
sufficient to satisfy the requirements of this Plan and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
18. Limitation of Rights in the Option Shares. An Optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the Option Shares except to the extent that the Option shall have been exercised
with respect thereto and, in addition, a certificate shall have been issued
therefor and delivered to the Optionee.
19. Termination and Amendment of the Plan. The Board of Directors of the
Company may at any time terminate the Plan or make such amendment to the Plan as
it shall deem advisable, provided that, except as provided in Section 16, it may
not, without the approval by the holders of a majority of the Stock, change the
classes of persons eligible to receive Options, increase the maximum number of
shares available for option under the Plan or extend the period during which
Options may be granted or exercised.
<PAGE> 6
No termination or amendment of the Plan may, without the consent of the Optionee
to whom any Option shall theretofore have been granted, adversely affect the
rights of such Optionee under such Option. The Company may also, in its
discretion, permit any option to be exercised prior to the date on which it
vests.
20. Notices. Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered in hand, if to the Company, to its Chief Financial Officer at Ten
Canal Park, Cambridge, MA 02141 and, if to the Optionee, to the address as the
Optionee shall last have furnished to the Company.
<PAGE> 1
EXHIBIT 10.24
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and Lawrence B. Evans (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel;
and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties with
the Company without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control (as defined
herein);
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other valuable consideration, the Company and the
Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through June 30, 2002. Thereafter, this Agreement shall
be automatically renewed for successive one year terms unless the Company sends
written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
<PAGE> 2
-2-
in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later than
the fifth day following the Date of Termination.
<PAGE> 3
-3-
3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Company's accountants or such other certified public
accounting firm reasonably acceptable to the Company as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the term
of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason (determined by treating the Potential Change in Control as a Change in
Control in applying the definition of Good Reason), by reason of death or
Retirement; or (iv) the termination by the Company of the Executive's employment
for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives. If the Executive shall die while
any amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
Lawrence B. Evans
29 Coolidge Hill Road
Cambridge, MA 02138
10. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board
and shall be in writing. Any denial by the Board of a claim for benefits under
this Agreement shall be delivered to the Executive in writing and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms
shall have the-meanings indicated below:
"Beneficial owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to
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substantially perform the Executive's duties with the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive)
after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties, or (ii) the willful engaging by the
Executive in gross misconduct which is demonstrably and materially
injurious to the Company or any of its subsidiaries, monetarily or
otherwise. No act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or less of the
membership of the Board, whether as the result of a proxy contest or
for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner, directly or
indirectly, of securities of the Company representing twenty-five
percent or more of the combined voting power of the Company's then
outstanding voting securities; or
(c) There is a change in control of the Company of a nature
that would be required to be reported on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form
under the Exchange Act, as in effect at the time of the change,
whether or not the Company is then subject to such reporting
requirement, including without limitation any merger or
consolidation of the Company with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
fifty-one percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
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election of directors) of the Company or such surviving or parent
entity outstanding immediately after such merger or consolidation
and which would result in those persons who are Continuing Directors
immediately prior to such merger or consolidation constituting more
than two-thirds of the membership of the Board or the board of such
surviving or parent entity immediately after, or subsequently at any
time as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar transaction)
in which no Person acquired twenty-five percent or more of the
combined voting power of the Company's then outstanding securities;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the Code.
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"Executive" shall mean the individual named in the first paragraph of
this Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a meaningful alteration, adverse to the Executive, in the
nature or status of the Executive's responsibilities (other than
reporting responsibilities) from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based anywhere
other than the Boston Metropolitan Area (or, if different, the
metropolitan area in which the Company's principal executive offices
are located immediately prior to the Change in Control) except for
required travel on the Company business to an extent substantially
consistent with the Executive's present business travel obligations;
(d) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within fourteen days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates
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immediately prior to the Change in Control which is material to the
Executive's total compensation, or the failure by the Company to
continue the Executive's participation therein on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the Company' s pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section 5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d). thereof; however, a
Person shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to a registered offering of such securities in accordance
with an agreement with the Company, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
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(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change
in Control;
(b) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing fifteen
percent or more of the combined voting power of the Company's then
outstanding securities (entitled to vote generally for the election
of directors); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4 hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:_______________________________________
_______________________________________
Lawrence B. Evans
<PAGE> 1
Exhibit 10.25
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and Joseph F. Boston (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties with the Company without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change in Control (as
defined herein);
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other valuable consideration, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through June 30, 2002. Thereafter, this Agreement
shall be automatically renewed for successive one year terms unless the Company
sends written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
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in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later
than the fifth day following the Date of Termination.
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3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's accountants or such other
certified public accounting firm reasonably acceptable to the Company as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the
term of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six months from
the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason), by
reason of death or Retirement; or (iv) the termination by the Company of the
Executive's employment for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
<PAGE> 5
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives. If the Executive shall die
while any amount would still be payable to the Executive hereunder (other than
amounts which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
Joseph F. Boston
19 Battle Flagg Road
Bedford, MA 01730
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. Any further dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms
shall have the-meanings indicated below:
"Beneficial owner" shall have the meaning defined in
Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the
Company.
"Cause" for termination by the Company of the
Executive's employment, after any Change in Control, shall mean (i) the
willful and continued failure by the Executive to
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substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in gross misconduct which is
demonstrably and materially injurious to the Company or any of its
subsidiaries, monetarily or otherwise. No act, or failure to act, on
the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best
interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or
less of the membership of the Board, whether as the result of
a proxy contest or for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner,
directly or indirectly, of securities of the Company
representing twenty-five percent or more of the combined
voting power of the Company's then outstanding voting
securities; or
(c) There is a change in control of the Company of a
nature that would be required to be reported on Form 8-K or
item 6(e) of Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act, as in effect at
the time of the change, whether or not the Company is then
subject to such reporting requirement, including without
limitation any merger or consolidation of the Company with any
other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) fifty-one
percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
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election of directors) of the Company or such surviving or
parent entity outstanding immediately after such merger or
consolidation and which would result in those persons who are
Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds of the
membership of the Board or the board of such surviving or
parent entity immediately after, or subsequently at any time
as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar
transaction) in which no Person acquired twenty-five percent
or more of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar
effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the
Code.
<PAGE> 9
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"Executive" shall mean the individual named in the first paragraph of
this Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company or a meaningful alteration, adverse to
the Executive, in the nature or status of the Executive's
responsibilities (other than reporting responsibilities) from
those in effect immediately prior to the Change in Control;
(b) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time except for
across-the-board salary reductions similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company;
(c) the Company's requiring the Executive to be based
anywhere other than the Boston Metropolitan Area (or, if
different, the metropolitan area in which the Company's
principal executive offices are located immediately prior to
the Change in Control) except for required travel on the
Company business to an extent substantially consistent with
the Executive's present business travel obligations;
(d) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of
the Executive's current compensation, or to pay to the
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within fourteen days of the date such compensation is
due;
(e) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
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immediately prior to the Change in Control which is material
to the Executive's total compensation, or the failure by the
Company to continue the Executive's participation therein on a
basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at
the time of the Change in Control;
(f) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company' s pension,
life insurance, medical, health and accident, or disability
plans in which the Executive was participating at the time of
the Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in
Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section
5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d). thereof;
however, a Person shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to a registered offering of such securities in
accordance with an agreement with the Company, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
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(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(b) the Company or any Person publicly announces
an intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
fifteen percent or more of the combined voting power of the
Company's then outstanding securities (entitled to vote
generally for the election of directors); or
(d) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control
has occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4
hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:
---------------------------------
---------------------------------
Joseph F. Boston
<PAGE> 1
Exhibit 10.26
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and David L. McQuillin (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties with the Company without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change in Control (as
defined herein);
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other valuable consideration, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through June 30, 2002. Thereafter, this Agreement
shall be automatically renewed for successive one year terms unless the Company
sends written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
<PAGE> 2
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in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later
than the fifth day following the Date of Termination.
<PAGE> 3
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3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's accountants or such other
certified public accounting firm reasonably acceptable to the Company as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the
term of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
<PAGE> 4
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six months from
the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason), by
reason of death or Retirement; or (iv) the termination by the Company of the
Executive's employment for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
<PAGE> 5
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives. If the Executive shall die
while any amount would still be payable to the Executive hereunder (other than
amounts which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
David L. McQuillin
2017 Kinderton Manor Drive
Duluth, GA 30155
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
<PAGE> 6
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. Any further dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms
shall have the-meanings indicated below:
"Beneficial owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to
<PAGE> 7
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substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in gross misconduct which is
demonstrably and materially injurious to the Company or any of its
subsidiaries, monetarily or otherwise. No act, or failure to act, on
the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best
interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or
less of the membership of the Board, whether as the result of
a proxy contest or for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner,
directly or indirectly, of securities of the Company
representing twenty-five percent or more of the combined
voting power of the Company's then outstanding voting
securities; or
(c) There is a change in control of the Company of a
nature that would be required to be reported on Form 8-K or
item 6(e) of Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act, as in effect at
the time of the change, whether or not the Company is then
subject to such reporting requirement, including without
limitation any merger or consolidation of the Company with any
other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) fifty-one
percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
<PAGE> 8
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election of directors) of the Company or such surviving or
parent entity outstanding immediately after such merger or
consolidation and which would result in those persons who are
Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds of the
membership of the Board or the board of such surviving or
parent entity immediately after, or subsequently at any time
as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar
transaction) in which no Person acquired twenty-five percent
or more of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar
effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the Code.
<PAGE> 9
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"Executive" shall mean the individual named in the first paragraph of
this Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company or a meaningful alteration, adverse to
the Executive, in the nature or status of the Executive's
responsibilities (other than reporting responsibilities) from
those in effect immediately prior to the Change in Control;
(b) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time except for
across-the-board salary reductions similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company;
(c) the Company's requiring the Executive to be based
anywhere other than the Boston Metropolitan Area (or, if
different, the metropolitan area in which the Company's
principal executive offices are located immediately prior to
the Change in Control) except for required travel on the
Company business to an extent substantially consistent with
the Executive's present business travel obligations;
(d) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of
the Executive's current compensation, or to pay to the
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within fourteen days of the date such compensation is
due;
(e) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
<PAGE> 10
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immediately prior to the Change in Control which is material
to the Executive's total compensation, or the failure by the
Company to continue the Executive's participation therein on a
basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at
the time of the Change in Control;
(f) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company' s pension,
life insurance, medical, health and accident, or disability
plans in which the Executive was participating at the time of
the Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in
Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section 5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d). thereof;
however, a Person shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to a registered offering of such securities in
accordance with an agreement with the Company, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
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(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(b) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
fifteen percent or more of the combined voting power of the
Company's then outstanding securities (entitled to vote
generally for the election of directors); or
(d) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control
has occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4
hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:_______________________________________
________________________________________
David L. McQuillin
<PAGE> 1
EXHIBIT 10.27
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and Mary A. Palermo (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel;
and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties with
the Company without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control (as defined
herein);
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other valuable consideration, the Company and the
Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through June 30, 2002. Thereafter, this Agreement shall
be automatically renewed for successive one year terms unless the Company sends
written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
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in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later than
the fifth day following the Date of Termination.
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3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Company's accountants or such other certified public
accounting firm reasonably acceptable to the Company as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the term
of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason (determined by treating the Potential Change in Control as a Change in
Control in applying the definition of Good Reason), by reason of death or
Retirement; or (iv) the termination by the Company of the Executive's employment
for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives. If the Executive shall die while
any amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
Mary A. Palermo
55 Sawyer Drive
Dedham, MA 02026
10. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board
and shall be in writing. Any denial by the Board of a claim for benefits under
this Agreement shall be delivered to the Executive in writing and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms shall
have the-meanings indicated below:
"Beneficial owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to
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substantially perform the Executive's duties with the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive)
after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties, or (ii) the willful engaging by the
Executive in gross misconduct which is demonstrably and materially
injurious to the Company or any of its subsidiaries, monetarily or
otherwise. No act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or less of the
membership of the Board, whether as the result of a proxy contest or
for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner, directly or
indirectly, of securities of the Company representing twenty-five
percent or more of the combined voting power of the Company's then
outstanding voting securities; or
(c) There is a change in control of the Company of a nature
that would be required to be reported on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form
under the Exchange Act, as in effect at the time of the change,
whether or not the Company is then subject to such reporting
requirement, including without limitation any merger or
consolidation of the Company with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
fifty-one percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
<PAGE> 8
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election of directors) of the Company or such surviving or parent
entity outstanding immediately after such merger or consolidation
and which would result in those persons who are Continuing Directors
immediately prior to such merger or consolidation constituting more
than two-thirds of the membership of the Board or the board of such
surviving or parent entity immediately after, or subsequently at any
time as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar transaction)
in which no Person acquired twenty-five percent or more of the
combined voting power of the Company's then outstanding securities;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the Code.
<PAGE> 9
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"Executive" shall mean the individual named in the first paragraph of this
Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a meaningful alteration, adverse to the Executive, in the
nature or status of the Executive's responsibilities (other than
reporting responsibilities) from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based anywhere
other than the Boston Metropolitan Area (or, if different, the
metropolitan area in which the Company's principal executive offices
are located immediately prior to the Change in Control) except for
required travel on the Company business to an extent substantially
consistent with the Executive's present business travel obligations;
(d) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within fourteen days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates
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immediately prior to the Change in Control which is material to the
Executive's total compensation, or the failure by the Company to
continue the Executive's participation therein on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the Company' s pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section 5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d). thereof; however, a
Person shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to a registered offering of such securities in accordance
with an agreement with the Company, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
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(a) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing fifteen
percent or more of the combined voting power of the Company's then
outstanding securities (entitled to vote generally for the election
of directors); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4 hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:__________________________________________
_____________________________________________
Mary A. Palermo
<PAGE> 1
Exhibit 10.28
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and Joel B. Rosen (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of
its stockholders to foster the continuous employment of key management
personnel; and
WHEREAS, the Company has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties with the Company without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change in Control (as
defined herein);
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and for other valuable consideration, the Company
and the Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through June 30, 2002. Thereafter, this Agreement
shall be automatically renewed for successive one year terms unless the Company
sends written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
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in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later
than the fifth day following the Date of Termination.
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3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the
event that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the Company's accountants or such other
certified public accounting firm reasonably acceptable to the Company as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the
term of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
<PAGE> 4
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the
terms and conditions of this Agreement, in the event of a Potential Change in
Control during the term of this Agreement, the Executive will remain in the
employ of the Company until the earliest of (i) a date which is six months from
the date of such Potential Change of Control, (ii) the date of a Change in
Control, (iii) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control as a Change in Control in applying the definition of Good Reason), by
reason of death or Retirement; or (iv) the termination by the Company of the
Executive's employment for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
<PAGE> 5
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives. If the Executive shall die
while any amount would still be payable to the Executive hereunder (other than
amounts which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
Joel B. Rosen
840-3 Old Road To Nine Acre Corner
Concord, MA 01742
10. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. Any further dispute or controversy arising under or
in connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
"Beneficial owner" shall have the meaning defined in
Rule 13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the
Company.
"Cause" for termination by the Company of the
Executive's employment, after any Change in Control, shall mean (i) the
willful and continued failure by the Executive to
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substantially perform the Executive's duties with the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination for Good Reason by the
Executive) after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically
identifies the manner in which the Board believes that the Executive
has not substantially performed the Executive's duties, or (ii) the
willful engaging by the Executive in gross misconduct which is
demonstrably and materially injurious to the Company or any of its
subsidiaries, monetarily or otherwise. No act, or failure to act, on
the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable
belief that the Executive's act, or failure to act, was in the best
interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or
less of the membership of the Board, whether as the result of
a proxy contest or for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner,
directly or indirectly, of securities of the Company
representing twenty-five percent or more of the combined
voting power of the Company's then outstanding voting
securities; or
(c) There is a change in control of the Company of a
nature that would be required to be reported on Form 8-K or
item 6(e) of Schedule 14A of Regulation 14A or any similar
item, schedule or form under the Exchange Act, as in effect at
the time of the change, whether or not the Company is then
subject to such reporting requirement, including without
limitation any merger or consolidation of the Company with any
other corporation, other than (i) a merger or consolidation
which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into
voting securities of the surviving or parent entity) fifty-one
percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
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election of directors) of the Company or such surviving or
parent entity outstanding immediately after such merger or
consolidation and which would result in those persons who are
Continuing Directors immediately prior to such merger or
consolidation constituting more than two-thirds of the
membership of the Board or the board of such surviving or
parent entity immediately after, or subsequently at any time
as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar
transaction) in which no Person acquired twenty-five percent
or more of the combined voting power of the Company's then
outstanding securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets (or any transaction having a similar
effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the
Code.
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"Executive" shall mean the individual named in the first paragraph of
this Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties
inconsistent with the Executive's status as a senior executive
officer of the Company or a meaningful alteration, adverse to
the Executive, in the nature or status of the Executive's
responsibilities (other than reporting responsibilities) from
those in effect immediately prior to the Change in Control;
(b) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the
same may be increased from time to time except for
across-the-board salary reductions similarly affecting all
senior executives of the Company and all senior executives of
any Person in control of the Company;
(c) the Company's requiring the Executive to be based
anywhere other than the Boston Metropolitan Area (or, if
different, the metropolitan area in which the Company's
principal executive offices are located immediately prior to
the Change in Control) except for required travel on the
Company business to an extent substantially consistent with
the Executive's present business travel obligations;
(d) the failure by the Company, without the
Executive's consent, to pay to the Executive any portion of
the Executive's current compensation, or to pay to the
Executive any portion of an installment of deferred
compensation under any deferred compensation program of the
Company, within fourteen days of the date such compensation is
due;
(e) the failure by the Company to continue in effect
any compensation plan in which the Executive participates
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immediately prior to the Change in Control which is material
to the Executive's total compensation, or the failure by the
Company to continue the Executive's participation therein on a
basis not materially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at
the time of the Change in Control;
(f) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those
enjoyed by the Executive under any of the Company' s pension,
life insurance, medical, health and accident, or disability
plans in which the Executive was participating at the time of
the Change in Control, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in
Control, or the failure by the Company to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control; or
(g) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section 5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d). thereof;
however, a Person shall not include (i) the Company or any of its subsidiaries,
(ii) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries, (iii) an underwriter temporarily
holding securities pursuant to a registered offering of such securities in
accordance with an agreement with the Company, or (iv) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
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(a) the Company enters into an agreement, the
consummation of which would result in the occurrence of a
Change in Control;
(b) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
fifteen percent or more of the combined voting power of the
Company's then outstanding securities (entitled to vote
generally for the election of directors); or
(d) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control
has occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4
hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:
-------------------------------
-------------------------------
Joel B. Rosen
<PAGE> 1
EXHIBIT 10.29
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 12, 1997 by and between Aspen Technology,
Inc., a Massachusetts corporation (the "Company"), and Stephen J. Doyle (the
"Executive").
WHEREAS, the Company considers it essential to the best interests of its
stockholders to foster the continuous employment of key management personnel;
and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the continued attention and dedication of members of
the Company's management, including the Executive, to their assigned duties with
the Company without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control (as defined
herein);
NOW THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other valuable consideration, the Company and the
Executive hereby agree as follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last section hereof.
2. Term of Agreement. This Agreement shall commence on the date hereof and
shall continue in effect through June 30, 2002. Thereafter, this Agreement shall
be automatically renewed for successive one year terms unless the Company sends
written notice of termination to the Executive at least 60 days before the
expiration date of this Agreement, which termination will be effective at that
expiration date. If a Change in Control shall have occurred during the term of
this Agreement, however, this Agreement shall continue in effect for a period of
three years beyond the last day of the month in which the Change in Control
occurred. Notwithstanding the foregoing provisions of this Section 2, this
Agreement shall terminate, unless earlier terminated in accordance with this
Agreement, (i) one year after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee, upon recommendation of the
Company's chief executive officer, has voted to terminate this Agreement or (ii)
if earlier, immediately after the Executive is notified in accordance with
Section 9 hereof that the Compensation Committee has determined that the
Executive's level of responsibility (other than reporting responsibility) has
substantially changed from the Executive's current level of responsibility,
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in either case only if the notification occurs prior to a Potential Change in
Control that results in a Change in Control.
3. Payments After Change in Control.
3.1 If the Executive's employment shall be terminated for any reason
following a Change in Control and during the term of this Agreement, the Company
shall pay the Executive's full salary to the Executive through the Date of
Termination at the rate in effect at the time the Notice of Termination is
given, together with all compensation and benefits payable to the Executive
through the Date of Termination under the terms of any compensation or benefit
plan, program or arrangement maintained by the Company during such period.
3.2 Subject to Section 3.3, the Company shall pay to the Executive the
payments described in this Section 3.2 (the "Severance Payments") upon the
termination of the Executive's employment following a Change in Control and
during the term of this Agreement, in addition to the payments and benefits
described in Section 3.1, unless such termination is (i) by the Company for
Cause, (ii) by reason of death, (iii) by the Executive without Good Reason, or
(iv) after the Executive shall have attained age 70. In lieu of any further
salary payments to the Executive for periods subsequent to the Date of
Termination and in lieu of any severance benefits otherwise payable to the
Executive under any then existing broad-based employee severance plan, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (x) the higher of the Executive's annual base salary
in effect immediately prior to the occurrence of the event or circumstance upon
which the Notice of Termination is based or in effect immediately prior to the
Change in Control and (y) the higher of the average of the annual bonuses paid
to the Executive for the three years (or the number of years employed, if less)
immediately preceding the occurrence of the event or circumstance upon which the
Notice of Termination is based or the Change in Control. In lieu of any further
life, disability, accident and health insurance benefits otherwise due to the
Executive, the Company shall pay to the Executive a lump sum amount, in cash,
equal to the cost to the Company (as determined by the Company in good faith
with reference to its most recent actual experience) of providing such benefits,
to the extent that the Executive is eligible to receive such benefits
immediately prior to the Notice of Termination, for a period of three years
commencing on the Date of Termination.
3.3 The payments provided for in Section 3.2 shall be made not later than
the fifth day following the Date of Termination.
<PAGE> 3
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3.4 The Company also shall pay to the Executive all legal fees and
expenses incurred by the Executive in seeking to obtain or enforce any benefit
or right provided by this Agreement, payable within five business days after
delivery of the Executive's written requests for payment accompanied with such
evidence of fees and expenses incurred as the Company reasonably may require.
4. Certain Additional Payments by the Company.
4.1 Notwithstanding any other provisions of this Agreement, in the event
that any payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the Executive's
employment (all such payments and benefits, including the Severance Payments,
the "Total Payments") is determined to be subject (in whole or part) to the
Excise Tax, then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including without limitation any income taxes and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount equal to the
Total Payments. Notwithstanding the foregoing provisions of this Section 4.1, if
it shall be determined that the Executive is entitled to a Gross-Up Payment, but
that the Total Payments do not exceed 110% of the greatest amount (the "Reduced
Amount") that could be paid to the Executive such that the receipt thereof would
not give rise to any Excise Tax, then no Gross-Up Payment shall be made to the
Executive and the Total Payments shall be reduced to the Reduced Amount.
4.2 All determinations required to be made under this Section 4, including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by the Company's accountants or such other certified public
accounting firm reasonably acceptable to the Company as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive.
5. Termination Procedures.
5.1 Notice of Termination. After a Change in Control and during the term
of this Agreement, any purported termination of the Executive's employment
(other than by reason of death) shall be communicated by written Notice of
Termination from one party hereto to the other party hereto in accordance with
Section 8. Further, a Notice of Termination for Cause is required to include a
copy of a resolution duly adopted by the
<PAGE> 4
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affirmative vote of not less than three-quarters of the entire membership of the
Board at a meeting of the Board which was called and held for the purpose of
considering such termination (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the Board) finding that, in the good faith opinion of the Board,
the Executive was guilty of conduct set forth in the definition of Cause.
5.2 Date of Termination. "Date of Termination", with respect to any
purported termination of the Executive's employment after a Change in Control
and during the term of this Agreement, shall mean the date specified in the
Notice of Termination (which, in the case of a termination by the Company
otherwise than for Cause, shall not be less than thirty days and, in the case of
a termination by the Executive, shall not be less than fifteen days nor more
than sixty days, respectively, from the date such Notice of Termination is
given).
6. No Mitigation. If the Executive's employment by the Company is
terminated during the term of this Agreement, the Executive is not required to
seek other employment or to attempt in any way to reduce any amounts payable to
the Executive by the Company pursuant to Section 3. Further, the amount of any
payment or benefit provided for in Section 3 shall not be reduced by any
compensation earned by the Executive as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by the Executive to the Company, or otherwise.
7. Executive's Covenants. The Executive agrees that, subject to the terms
and conditions of this Agreement, in the event of a Potential Change in Control
during the term of this Agreement, the Executive will remain in the employ of
the Company until the earliest of (i) a date which is six months from the date
of such Potential Change of Control, (ii) the date of a Change in Control, (iii)
the date of termination by the Executive of the Executive's employment for Good
Reason (determined by treating the Potential Change in Control as a Change in
Control in applying the definition of Good Reason), by reason of death or
Retirement; or (iv) the termination by the Company of the Executive's employment
for any reason.
8. Successors; Binding Agreement.
8.1 In addition to any obligations imposed by law upon any successor to
the Company, the Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the
<PAGE> 5
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Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession shall
be a breach of this Agreement and shall entitle the Executive to compensation
from the Company in the same amount and on the same terms as the Executive would
be entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control, except that, for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.
8.2 This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives. If the Executive shall die while
any amount would still be payable to the Executive hereunder (other than amounts
which, by their terms, terminate upon the death of the Executive) if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's representatives.
9. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth below, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
actual receipt:
To the Company:
Aspen Technology, Inc.
Ten Canal Park
Cambridge, MA 02141
Attention: General Counsel
To the Executive:
Stephen J. Doyle
16 Ledge Hill Road
Southborough, MA 01772
10. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or
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discharge is agreed to in writing and signed by the Executive and such officer
as may be specifically designated by the Board. Except as expressly provided
herein, no waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the Commonwealth of Massachusetts, and this Agreement shall be an
instrument under seal. All references to sections of the Exchange Act or the
Code shall be deemed also to refer to any successor provisions to such sections.
Any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law and any additional
withholding to which the Executive has agreed.
11. Settlement of Disputes; Arbitration. All claims by the Executive for
benefits under this Agreement shall be directed to and determined by the Board
and shall be in writing. Any denial by the Board of a claim for benefits under
this Agreement shall be delivered to the Executive in writing and shall set
forth the specific reasons for the denial and the specific provisions of this
Agreement relied upon. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator' s award
in any court having jurisdiction. The Executive shall, however, be entitled to
seek specific performance of the Executive's right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
12. Definitions. For purposes of this Agreement, the following terms shall
have the-meanings indicated below:
"Beneficial owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
"Board" shall mean the Board of Directors of the Company.
"Cause" for termination by the Company of the Executive's
employment, after any Change in Control, shall mean (i) the willful and
continued failure by the Executive to
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substantially perform the Executive's duties with the Company (other than
any such failure resulting from the Executive's incapacity due to physical
or mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination for Good Reason by the Executive)
after a written demand for substantial performance is delivered to the
Executive by the Board, which demand specifically identifies the manner in
which the Board believes that the Executive has not substantially
performed the Executive's duties, or (ii) the willful engaging by the
Executive in gross misconduct which is demonstrably and materially
injurious to the Company or any of its subsidiaries, monetarily or
otherwise. No act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not
in good faith and without reasonable belief that the Executive's act, or
failure to act, was in the best interest of the Company.
A "Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have
been satisfied:
(a) Continuing Directors constitute two-thirds or less of the
membership of the Board, whether as the result of a proxy contest or
for any other reason or reasons; or
(b) Any Person is or becomes the Beneficial owner, directly or
indirectly, of securities of the Company representing twenty-five
percent or more of the combined voting power of the Company's then
outstanding voting securities; or
(c) There is a change in control of the Company of a nature
that would be required to be reported on Form 8-K or item 6(e) of
Schedule 14A of Regulation 14A or any similar item, schedule or form
under the Exchange Act, as in effect at the time of the change,
whether or not the Company is then subject to such reporting
requirement, including without limitation any merger or
consolidation of the Company with any other corporation, other than
(i) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
fifty-one percent or more of the combined voting power of the voting
securities (entitled to vote generally for the
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election of directors) of the Company or such surviving or parent
entity outstanding immediately after such merger or consolidation
and which would result in those persons who are Continuing Directors
immediately prior to such merger or consolidation constituting more
than two-thirds of the membership of the Board or the board of such
surviving or parent entity immediately after, or subsequently at any
time as contemplated by or as a result of, such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the company (or similar transaction)
in which no Person acquired twenty-five percent or more of the
combined voting power of the Company's then outstanding securities;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time.
"Company" shall mean Aspen Technology, Inc. and any successor to its
business and/or assets which assumes or agrees to perform this Agreement, by
operation of law or otherwise.
"Compensation Committee" shall mean the Compensation and Nominating
Committee of the Board.
"Continuing Director" shall mean any director (i) who has continuously
been a member of the Board since not later than the date of a Potential Change
in Control or (ii) who is a successor of a director described in clause (i), if
such successor (and any intervening successor) shall have been recommended or
elected to succeed a Continuing Director by a majority of the then Continuing
Directors.
"Date of Termination" shall have the meaning stated in Section 5.2 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Excise Tax" shall mean the tax imposed by Section 4999 of the Code.
<PAGE> 9
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"Executive" shall mean the individual named in the first paragraph of this
Agreement.
"Good Reason" for termination by the Executive of the Executive's
employment shall mean the occurrence (without the Executive's express written
consent) of any one of the following acts or failures to act by the Company
unless, in the case of any act or failure to act described in paragraph (a),
(e), (f) or (g) below, such act or failure to act is corrected prior to the Date
of Termination specified in the Notice of Termination given in respect thereof
or, in the case of paragraph (c) below, such act is not objected to in writing
by the Executive within four months after notification by the Company to the
Executive of the Company's intention to take the action contemplated by such
paragraph (c):
(a) the assignment to the Executive of any duties inconsistent
with the Executive's status as a senior executive officer of the
Company or a meaningful alteration, adverse to the Executive, in the
nature or status of the Executive's responsibilities (other than
reporting responsibilities) from those in effect immediately prior
to the Change in Control;
(b) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person in control of the Company;
(c) the Company's requiring the Executive to be based anywhere
other than the Boston Metropolitan Area (or, if different, the
metropolitan area in which the Company's principal executive offices
are located immediately prior to the Change in Control) except for
required travel on the Company business to an extent substantially
consistent with the Executive's present business travel obligations;
(d) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation, or to pay to the Executive any portion of an
installment of deferred compensation under any deferred compensation
program of the Company, within fourteen days of the date such
compensation is due;
(e) the failure by the Company to continue in effect any
compensation plan in which the Executive participates
<PAGE> 10
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immediately prior to the Change in Control which is material to the
Executive's total compensation, or the failure by the Company to
continue the Executive's participation therein on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(f) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the Company' s pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control,
the taking of any action by the Company which would directly or
indirectly materially reduce any of such benefits or deprive the
Executive of any material fringe benefit enjoyed by the Executive at
the time of the Change in Control, or the failure by the Company to
provide the Executive with the number of paid vacation days to which
the Executive is entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change in Control; or
(g) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 5.1.
"Notice of Termination" shall have the meaning stated in Section 5.1.
"Person" shall have the meaning given in Section 3(a)(9) of the Exchange
Act, as modified and used in Sections 13(d) and 14(d). thereof; however, a
Person shall not include (i) the Company or any of its subsidiaries, (ii) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any of its subsidiaries, (iii) an underwriter temporarily holding
securities pursuant to a registered offering of such securities in accordance
with an agreement with the Company, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
"Potential Change in Control" shall be deemed to have occurred if the
conditions set forth in any one of the following paragraphs shall have been
satisfied:
<PAGE> 11
-11-
(a) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(b) the Company or any Person publicly announces an intention
to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing fifteen
percent or more of the combined voting power of the Company's then
outstanding securities (entitled to vote generally for the election
of directors); or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
"Severance Payments" shall mean those payments described in Section 3.2
hereof.
"Total Payments" shall mean those payments described in Section 4 hereof.
IN WITNESS WHEREOF, the Company and the Executive have executed and
delivered this Agreement on the date first written above.
ASPEN TECHNOLOGY, INC.
By:__________________________________________
_____________________________________________
Stephen J. Doyle
<PAGE> 1
Exhibit 22.1
------------
Aspen Technology, Inc.
As of September 29, 1997
Subsidiary
Aspen Technology, Inc Process Modeling Investment Corporation
Industrial Systems, Inc.
AspenTech Securities Corporation
AspenTech Uk, Ltd.
AspenTech, Inc.
B-Jac International, Inc.
NeuralWare, Inc.
The SAST Corporation Limited
Process Modeling Investment AspenTech Japan Co. Ltd.
Corporation AspenTech Asia, Ltd.
AspenTech Europe S.A./N.V.
AspenTech Europe S.A./N.V. AspenTech Europe B.V.
AspenTech, Inc. Setpoint Canada, Ltd.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-88298, 33-88300, 33-97094, 333-11651
and 333-21593.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 INCLUDED IN THE COMPANY'S
FORM 10-K FOR SUCH PERIOD, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 16,091
<SECURITIES> 15,843
<RECEIVABLES> 56,624
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,024
<PP&E> 47,338
<DEPRECIATION> (19,904)
<TOTAL-ASSETS> 192,264
<CURRENT-LIABILITIES> 44,013
<BONDS> 0
0
0
<COMMON> 2,036
<OTHER-SE> 129,405
<TOTAL-LIABILITY-AND-EQUITY> 192,264
<SALES> 97,240
<TOTAL-REVENUES> 180,299
<CGS> 4,538
<TOTAL-COSTS> 53,240
<OTHER-EXPENSES> 31,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,754
<INCOME-TAX> 9,599
<INCOME-CONTINUING> 17,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,155
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
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