<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 15, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ASPEN TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2739697
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
TEN CANAL PARK
CAMBRIDGE, MASSACHUSETTS 02141
(617) 949-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAWRENCE B. EVANS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
ASPEN TECHNOLOGY, INC.
TEN CANAL PARK
CAMBRIDGE, MASSACHUSETTS 02141
(617) 949-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
STEPHEN J. DOYLE, ESQ. MARK L. JOHNSON, ESQ.
VICE PRESIDENT, GENERAL COUNSEL, FOLEY, HOAG & ELIOT LLP
CHIEF LEGAL OFFICER AND SECRETARY ONE POST OFFICE SQUARE
ASPEN TECHNOLOGY, INC. BOSTON, MASSACHUSETTS 02109
TEN CANAL PARK
CAMBRIDGE, MASSACHUSETTS 02141
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
5 1/4% Convertible Subordinated Debentures
due June 15, 2005................................. $86,250,000 100% $86,250,000 $25,444
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Common Stock, $.10 par value........................ (2) -- -- (2)
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</TABLE>
(1) Calculated pursuant to Rule 457(i) under the Securities Act of 1933, as
amended.
(2) Such indeterminate number of shares of Common Stock as may be issuable upon
conversion of the Debentures registered hereunder, including such shares as
may be issuable pursuant to antidilution adjustments. Pursuant to Rule
456(i), no registration fee is required for these shares.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED SEPTEMBER 15, 1998
$86,250,000
[ASPEN LEAF LOGO] ASPEN TECHNOLOGY, INC.
5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE JUNE 15, 2005
This Prospectus relates to the resale from time to time by the holders (the
"Selling Securityholders") of up to $86,250,000 aggregate principal amount of
5 1/4% Convertible Subordinated Debentures due June 15, 2005 (the "Debentures")
of Aspen Technology, Inc., a Delaware corporation ("AspenTech" or the
"Company"), and the resale of shares of the Company's Common Stock, $.10 par
value per share ("Common Stock"), issued upon the conversion thereof (the
"Conversion Shares"). The Debentures were originally sold by the Company on June
17, 1998 in a private placement to the Initial Purchasers (as defined herein).
The Debentures were resold by the Initial Purchasers in transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), in the United States to persons reasonably believed to be "qualified
institutional buyers" as defined in Rule 144A under the Securities Act.
The Debentures are convertible into shares of Common Stock at any time prior
to the close of business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of approximately $52.97 per share (equivalent
to a conversion rate of 18.8791 shares per $1,000 principal amount of
Debentures), subject to adjustment in certain events. See "Description of the
Debentures -- Conversion Rights." The Debentures are eligible for trading in the
Private Offerings, Resales and Trading through Automated Linkages (PORTAL)
Market of the National Association of Securities Dealers, Inc. On September 11,
1998, the closing sale price of the Common Stock on the Nasdaq National Market
was $25.6875 per share.
Interest on the Debentures is payable on June 15 and December 15 of each
year, commencing December 15, 1998. The Debentures are redeemable in whole or in
part at the option of the Company at any time on or after June 15, 2001 at the
redemption prices set forth herein, plus accrued interest to the redemption
date. See "Description of Debentures -- Optional Redemption."
In the event of a Change of Control, each holder of Debentures may require
the Company to repurchase its Debentures, in whole or in part, for cash or, at
the Company's option, Common Stock (valued at 95% of the average closing prices
for the five Trading Days immediately preceding and including the third Trading
Day prior to the repurchase date) at a repurchase price of 100% of the principal
amount of Debentures to be repurchased, plus accrued interest to the repurchase
date. See "Description of Debentures -- Repurchase at Option of Holders Upon
Change of Control."
The Debentures are unsecured obligations subordinated in right of payment to
all existing and future Senior Debt of the Company and effectively subordinated
in right of payment to all indebtedness and other liabilities of the Company's
subsidiaries. As of June 30, 1998, the Company had approximately $3.8 million of
outstanding Senior Debt and the Company's subsidiaries had approximately $19.0
million of outstanding indebtedness and other liabilities (excluding
inter-company liabilities, indebtedness included in Senior Debt because it is
guaranteed by the Company and liabilities of a type not required to be reflected
on a balance sheet in accordance with generally accepted accounting principles).
See "Description of Debentures -- Subordination."
The Selling Securityholders may offer Debentures or Conversion Shares from
time to time to purchasers directly or through underwriters, dealers or agents.
Such Debentures or Conversion Shares may be sold at market prices prevailing at
the time of sale or at negotiated prices. Each Selling Securityholder will be
responsible for payment of any and all commissions to brokers, which will be
negotiated on an individual basis.
The Company will not receive any of the proceeds from the sale of any
Debentures or Conversion Shares by the Selling Securityholders. Expenses of
preparing and filing the registration statement to which this Prospectus relates
and all post-effective amendments will be borne by the Company. See "Plan of
Distribution" for a description of the indemnification arrangements between the
Company and the Selling Securityholders.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE DEBENTURES OR
CONVERSION SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is , 1998.
<PAGE> 3
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information may be
inspected and copies may be obtained (at prescribed rates) at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Room 1024, Washington D.C.
20549, and at the Commission's Regional Offices at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World
Trade Center, Suite 1300, New York, New York 10048. Electronic filings made by
the Company through the Commission's Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commission's world wide web
site (http://www.sec.gov).
This Prospectus constitutes part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act.
This Prospectus does not contain all of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement for further information with respect to the Company and the securities
offered hereby. Any statements contained herein concerning the provisions of any
document are not necessarily complete, and, in such instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement
or otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
INFORMATION INCORPORATED BY REFERENCE
The following documents heretofore filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (1) Annual
Report on Form 10-K for the fiscal year ended June 30, 1997; (2) Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997, Quarterly
Report on Form 10-Q for the fiscal quarter ended December 31, 1997 (as amended
by Amendment No. 1 thereto on Form 10-Q/A), and Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998 (as amended by Amendment No. 1
thereto on Form 10-Q/A); (3) Current Report on Form 8-K dated October 9, 1997,
Current Report on Form 8-K dated March 12, 1998 (as amended by Amendment No. 1
thereto on Form 8-K/A), Current Report on Form 8-K dated April 28, 1998, Current
Report on Form 8-K dated May 27, 1998, Current Report on Form 8-K dated June 17,
1998 and Current Report on Form 8-K dated July 27, 1998; and (4) definitive
Proxy Statement dated November 25, 1997 used in connection with its Annual
Meeting of Stockholders held on December 16, 1997.
All reports and other documents subsequently filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering made hereby shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of the filing of such reports and documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
Any person to whom a copy of this Prospectus is delivered may obtain,
without charge, upon written or oral request, a copy of any of the documents
incorporated by reference herein, except for the exhibits to such documents
(other than exhibits expressly incorporated by reference into such documents).
Requests for such documents should be addressed to the Manager of Investor
Relations of the Company, Ten Canal Park, Cambridge, Massachusetts 02141 or
directed to the Manager of Investor Relations at either telephone number (617)
949-1000 or e-mail address [email protected].
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<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference herein. This
Prospectus contains and incorporates by reference certain forward-looking
statements that involve risks and uncertainties. See "Risk Factors" and
"Forward-Looking Statements."
THE COMPANY
AspenTech is the leading supplier of software and service solutions used by
companies in the process industries to design, operate and manage their
manufacturing processes. The process industries include manufacturers of
chemicals, petrochemicals, petroleum products, pharmaceuticals, pulp and paper,
electric power, food and beverages, consumer products, and metals and minerals.
AspenTech offers a comprehensive, integrated suite of process manufacturing
optimization solutions that help process manufacturers enhance profitability by
improving efficiency, productivity, capacity utilization, safety and
environmental compliance throughout the entire manufacturing life-cycle, from
research and development to engineering, planning and scheduling, procurement,
production and distribution. In addition to its software solutions, AspenTech
offers systems implementation, advanced process control, real-time optimization
and other consulting services through its staff of more than 450 project
engineers. As part of its strategy to offer the broadest, most integrated suite
of process manufacturing optimization solutions, AspenTech has acquired
businesses from time to time to obtain technologies and expertise that
complement or enhance its core solutions. AspenTech currently has more than 750
customers worldwide, including 44 of the 50 largest chemical companies, 17 of
the 20 largest petroleum refiners and 16 of the 20 largest pharmaceutical
companies.
AspenTech believes its customers increasingly view their investments in its
solutions as strategic because of the substantial potential economic benefits
these solutions offer and the broad range of production issues they address. The
Company's competitive advantage is based upon its technology leadership, broad
suite of integrated solutions and substantial process industry expertise.
AspenTech believes that, through its research and development and strategic
acquisitions and partnerships, it has established itself as the technology
leader among providers of process manufacturing optimization solutions. The
Company's technologies have been applied to create what the Company believes is
the most complete suite of integrated software and service solutions available
for the design, operation and management of manufacturing processes in the
process industries. Over the past 17 years, AspenTech has developed a
significant base of chemical engineering and process manufacturing experience
and knowledge, which it has enhanced through extensive interaction with
customers that have performed millions of simulations using AspenTech's
software. To complement its software expertise, AspenTech has assembled a large
engineering team that the Company believes provides an important source of
competitive differentiation.
AspenTech's principal objective is to extend its leadership in providing
process management optimization solutions to the process industries. Key
elements of the Company's strategy to achieve this objective are to: (i) extend
its technology leadership position by continuing to invest in research and
development and to identify and pursue opportunities for strategic acquisitions;
(ii) leverage its installed customer base in the chemical, petrochemicals,
petroleum products, and pharmaceuticals industries by increasing the number of
users of software currently licensed by its existing customers and by licensing
complementary software and services to those customers; (iii) increase its
penetration of other process industries, particularly the pulp and paper,
electric power, and food and beverage industries, as well as the semiconductor
industry; (iv) pursue strategic acquisitions of complementary technologies and
services capabilities; and (v) selectively partner with providers of
complementary products and services to supplement the Company's ability to offer
enterprise-wide solutions.
The Company was incorporated as a Massachusetts corporation on August 11,
1981 and was reincorporated in Delaware on March 12, 1998. AspenTech's principal
executive offices are located at Ten Canal Park, Cambridge, Massachusetts 02141,
and its telephone number at that address is (617) 949-1000.
3
<PAGE> 5
THE OFFERING
This Prospectus relates to the resale from time to time by the Selling
Securityholders of up to $86,250,000 aggregate principal amount of Debentures,
as well as Conversion Shares issued upon the conversion of Debentures after the
date of this Prospectus. Upon issuance in accordance with the terms of the
Debentures, the Conversion Shares will be validly issued, fully paid and
nonassessable and will rank pari passu with other shares of Common Stock
outstanding from time to time. See "Description of Common Stock." Set forth
below is a summary of certain terms of the Debentures, which should be read in
conjunction with "Description of Debentures."
Debentures Offered............ $86,250,000 aggregate principal amount of
5 1/4% Convertible Subordinated Debentures due
June 15, 2005 with interest payable on June 15
and December 15 of each year, commencing
December 15, 1998.
Issuer........................ Aspen Technology, Inc., a Delaware corporation.
Conversion Price.............. Approximately $52.97 per share of Common Stock
(equivalent to a conversion rate of 18.9791
shares per $1,000 principal amount of
Debentures), subject to adjustment in certain
events.
Form and Denomination......... The Debentures are issuable only in fully
registered form in denominations of $100,000
and integral multiples of $1,000 in excess
thereof. The Debentures are represented by one
or more Global Debentures deposited with a
custodian for and registered in the name of a
nominee of DTC. Beneficial interests in the
Global Debentures are shown on, and transfers
thereof will be effected only through, records
maintained by DTC and its direct and indirect
participants. Except as described herein,
Debentures in certificated form will not be
issued in exchange for a Global Debenture or
interests therein. See "Description of
Debentures -- Form and Denomination."
Conversion Rights............. The Debentures are convertible into shares of
Common Stock at any time prior to the close of
business on the maturity date, unless
previously redeemed or repurchased, at the
conversion price set forth above. Holders of
Debentures called for redemption or repurchase
will be entitled to convert the Debentures
prior to and including, but not after, the
close of business on the fifth Trading Day
preceding the date fixed for redemption or the
second Trading Day preceding the date fixed for
repurchase, as the case may be.
Optional Redemption........... The Debentures are redeemable in whole or in
part, at the option of the Company, on and
after June 15, 2001 at the redemption prices
set forth herein plus accrued interest to the
redemption date. See "Description of
Debentures -- Optional Redemption."
Repurchase at Option of
Holders Upon Change of
Control....................... Upon a Change of Control (as defined herein
under "Description of Debentures -- Repurchase
at Option of Holders Upon Change of Control"),
holders of Debentures will have the right,
subject to certain conditions, to require the
Company to purchase their Debentures, in whole
or in part, at 100% of the principal amount
thereof, plus accrued interest to the
repurchase date. The repurchase price is
payable in cash or, subject to certain
conditions, at the option of the Company, in
Common Stock (valued at 95% of the average last
reported sales prices of the Common Stock for
the
4
<PAGE> 6
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five consecutive Trading Days ending on and
including the third Trading Day preceding the
repurchase date).
Subordination................. The Debentures are unsecured obligations
subordinated in right of payment to all
existing and future Senior Debt (as defined
herein under "Description of
Debentures -- Subordination") of the Company
and effectively subordinated in right of
payment to all indebtedness and other
liabilities of the Company's subsidiaries. As
of June 30, 1998, the Company had approximately
$3.8 million of outstanding Senior Debt and the
Company's subsidiaries had approximately $19.0
million of outstanding indebtedness and other
liabilities (excluding inter-company
liabilities, indebtedness included in Senior
Debt because it is guaranteed by the Company
and liabilities of a type not required to be
reflected on a balance sheet in accordance with
generally accepted accounting principles). The
Indenture does not restrict the incurrence of
Senior Debt by the Company or other
indebtedness or liabilities by the Company or
any of its subsidiaries.
Events of Default............. Events of Default include: (a) failure to pay
principal of, premium, if any, on, or the
redemption or repurchase price of any Debenture
when due, whether or not such payment is
prohibited by the subordination provisions of
the Indenture; (b) failure to pay any interest
on any Debenture when due, continuing for 30
days, whether or not such payment is prohibited
by the subordination provisions of the
Indenture; (c) failure to provide notice in the
event of a Change of Control; (d) failure to
perform any other covenant or warranty of the
Company in the Indenture, continuing for 60
days after written notice as provided in the
Indenture; (e) failure to pay any indebtedness
for money borrowed by the Company in an
aggregate principal amount in excess of
$5,000,000 at final maturity or acceleration of
the payment thereof, which default in payment
or acceleration is not cured or rescinded
within 30 days after written notice as provided
in the Indenture; and (f) certain events of
bankruptcy, insolvency or reorganization.
Use of Proceeds............... The Company will not receive any of the
proceeds from the sale of any Debentures or
Conversion Shares by the Selling
Securityholders.
Listing....................... The Debentures are eligible for trading on the
PORTAL Market of the National Association of
Securities Dealers, Inc. The Common Stock is
quoted on the Nasdaq National Market under the
symbol "AZPN."
Governing Law................. The laws of the State of New York.
---------------
"ASPENTECH" is a registered trademark of the Company.
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5
<PAGE> 7
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered in evaluating the Company and its business.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS AND CASH FLOW
The Company's operating results and cash flow 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 introductions of new solutions
and enhancements by the Company and its competitors, and fluctuating economic
conditions. Because license fees for the Company's software products are
substantial and the implementation of the Company's solutions often requires the
services of the Company's engineers over an extended period of time, the sales
process for the Company's solutions is lengthy and can exceed one year.
Accordingly, software revenue is difficult to predict, and the delay of any
order could cause the Company's quarterly revenues to fall substantially below
expectations. Moreover, to the extent that the Company succeeds in shifting
customer purchases away from individual software solutions and toward integrated
suites of its software and service solutions, the likelihood of delays in
ordering may increase and the effect of any delay may become more pronounced.
The Company ships software products within a short period after receipt of
an order and usually does not have a material backlog of unfilled orders of
software products. Consequently, revenues from software licenses in any quarter
are substantially dependent on orders booked and shipped in that quarter.
Historically, a majority of each quarter's revenues from software licenses has
been derived from license agreements that have been consummated in the final
weeks of the quarter. Therefore, even a short delay in the consummation of an
agreement may cause revenues to fall below expectations for that quarter. Since
the Company's expense levels are based in part on anticipated 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
disproportionately adverse effect on net income. The Company expects that these
factors will continue to affect its operating results for the foreseeable
future.
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 total 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. Although the Company has generated a
profit for the first quarter of each of fiscal 1997 and fiscal 1998, the Company
expects that it will continue to experience declines in total revenues and net
income in the first fiscal quarter as compared to the immediately preceding
fiscal quarter. Because of the foregoing factors, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is possible that in one or more
future quarters the Company's operating results will be below the expectations
of public market analysts and investors. In such event, the price of the Common
Stock would likely be materially adversely affected. As a result principally of
slower-than-anticipated growth in the Company's services revenue and
higher-than-expected levels of expenses throughout the AspenTech organization in
the fiscal quarter ended June 30, 1998, the Company's operating results in the
fiscal quarter and fiscal year ended June 30, 1998 were below the expectations
of certain public market analysts and investors. From July 27, 1998, the date on
which the Company preliminarily announced its results for the fiscal quarter and
year ended June 30, 1998, through the close of business on September 11, 1998,
the price per share of Common Stock, as reported by the Nasdaq National Market,
decreased from $48.25 to $25.6875.
The Company derives a substantial portion of its total revenues from
service engagements and a majority of these engagements have been undertaken on
a fixed-price basis. The Company bears the risk of cost overruns and inflation
in connection with fixed-price engagements, and as a result, any of these
engagements may be unprofitable.
6
<PAGE> 8
LIMITED SUPPLY OF QUALIFIED PROJECT ENGINEERS
The Company derives a substantial portion of its total revenues from
services, particularly projects involving advanced process control and
optimization and similar projects. These projects can be extremely complex and
in general only highly qualified, highly educated project engineers have the
necessary training and skills to complete these projects successfully. In order
to continue to staff its current and future projects, the Company will need to
attract, motivate and retain a significant number of highly qualified, highly
educated chemical and other project engineers. The Company primarily hires as
project engineers individuals who have obtained a doctoral or master's degree in
chemical engineering or a related discipline or who have significant relevant
industry experience. As a result, the pool of potential qualified employees is
relatively small, and the Company faces significant competition for these
employees, from not only the Company's direct competitors but also the Company's
clients, academic institutions and other enterprises. Many of these competing
employers are able to offer potential employees significantly greater
compensation and benefits or more attractive lifestyle choices, career paths or
geographic locations than the Company. The failure to recruit and retain a
significant number of qualified project engineers could have a material adverse
effect on the Company's business, operating results and financial condition.
Moreover, increasing competition for these engineers may also result in
significant increases in the Company's labor costs, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
INTEGRATION OF CHESAPEAKE AND OTHER RECENTLY ACQUIRED COMPANIES
Through its acquisitions of Chesapeake Decision Sciences, Inc.
("Chesapeake") and several smaller companies in 1998, the Company has expanded
its product and service offerings, has entered new markets and has increased its
scope of operations and the number of its employees. The successful and timely
integration of Chesapeake and these other companies into the Company's
operations is critical to the Company's future financial performance. This
integration will require that the Company, among other things, integrate the
companies' software products and technologies, retain key employees, assimilate
diverse corporate cultures, integrate management information systems,
consolidate the acquired operations and manage geographically dispersed
operations, each of which could pose significant challenges. To succeed in the
market for supply chain management solutions, the Company must also invest
additional resources, primarily in the areas of sales and marketing, to extend
name recognition and increase market share. The diversion of the attention of
management created by the integration process, any disruptions or other
difficulties encountered in the integration process, and unforeseen liabilities
or unanticipated problems with the acquired businesses could have a material
adverse effect on the business, operating results and financial condition of the
Company. The difficulty of combining these companies may be increased by the
need to integrate personnel, and changes effected in the combination may cause
key employees to leave. There can be no assurance that these acquisitions will
provide the benefits expected by the Company or that the Company will be able to
integrate and develop the operations of Chesapeake and these other companies
successfully. Any failure to do so could have a material adverse effect on the
Company's business, operating results and financial condition.
COMPETITION
The Company faces three primary sources of competition: commercial vendors
of software products for one or more elements in the design, operation and
management of manufacturing processes; vendors of hardware that offer software
solutions in order to add value to their proprietary DCS; and large companies in
the process industries that have developed their own proprietary software
solutions. Because of the breadth of its software and service offerings, the
Company faces competition from different vendors depending on the solution in
question. The Company competes with respect to the largest number of its
solutions with Simulation Sciences, Inc., a subsidiary of Siebe plc. With
respect to particular software solutions, the Company also competes with
Chemstations, Inc., Hyprotech, Ltd. (a subsidiary of AEA Technology plc), The
Foxboro Company and Wonderware Corporation (both of which are subsidiaries of
Siebe plc), OSI Software, Inc., the Simcon division of ABB Asea Brown Boveri
(Holding) Ltd., and several smaller competitors, such as Pavilion Technologies,
Inc. With the acquisition of Chesapeake, the Company now competes with
established commercial vendors of supply chain management software, including
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<PAGE> 9
i2 Technologies, Inc. and Manugistics Group, Inc. A number of vendors of ERP
software products, such as Baan Company N.V., J.D. Edwards Inc., Oracle
Corporation, PeopleSoft, Inc., and SAP A.G., have announced their intentions to
enter or expand their existing presence in the market for supply chain
management solutions. The Company also expects to encounter increasing
competition from DCS solution vendors, such as Honeywell Inc., as they expand
their software and service offerings to include additional aspects of process
manufacturing. Moreover, in recent years, there has been consolidation in the
markets in which the Company competes that has expanded the breadth of product
and service offerings by certain of the Company's competitors, such as the
acquisitions by Siebe plc of Simulation Sciences, Inc. and Wonderware
Corporation. As a result of this consolidation and the expansion of DCS and ERP
vendors into additional markets, the Company from time to time may compete with
divisions of companies with which it collaborates on other occasions, such as
Honeywell Inc. and Siebe plc. There can be no assurance that the Company's
efforts to compete and cooperate simultaneously with these or other companies
will be successful. The further consolidation of existing competitors or the
emergence of new competitors could have a material adverse effect on the
Company's business, operating results and financial condition. Certain
competitors also supply related hardware products to existing and potential
customers of the Company and may have established relationships that afford
those 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 can be no assurance that the Company will be
able to maintain its competitive position.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
An element of the Company's business strategy is to continue to pursue
strategic acquisitions that will provide it with complementary products,
services and technologies and with additional engineering personnel. The
identification and pursuit of these acquisition opportunities and the
integration of acquired personnel, products, technologies and businesses require
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. In light of the consolidation
trend in the Company's industry, the Company expects to face competition for
acquisition opportunities, which may substantially increase the cost of any
acquisition consummated by the Company. There can also be no assurance that any
future acquisition will not have a material adverse effect upon the Company's
operating results as a result of non-recurring charges associated with the
acquisition or as a result of integration problems in the fiscal quarters
following consummation of the acquisition. Acquisitions may also expose the
Company to additional risks, including diversion of management's attention,
failure to retain key acquired personnel, assumption of legal or other
liabilities and contingencies, and amortization of goodwill and other acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's business, operating results and financial condition. Moreover,
customer dissatisfaction with, or problems caused by, the performance of any
acquired technologies could have a material adverse impact on the reputation of
the Company as a whole. In addition, there can be no assurance that acquired
businesses will achieve anticipated revenues and earnings. The Company may use
Common Stock or Preferred Stock or may incur 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.
CONCENTRATION OF REVENUES IN THE CHEMICALS, PETROCHEMICALS AND PETROLEUM
INDUSTRIES
The Company derives a substantial majority of its total revenues from
companies in the chemicals, petrochemicals and petroleum industries.
Accordingly, the Company's future success depends upon the continued demand for
process manufacturing optimization software and services by companies in these
industries. The chemicals, petrochemicals and petroleum industries are highly
cyclical. The Company believes that worldwide economic downturns and pricing
pressures experienced by chemical, petrochemical and petroleum companies in
connection with cost-containment measures and environmental regulatory pressures
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<PAGE> 10
have in the past led to worldwide delays and reductions in certain capital and
operating expenditures by many of these companies. There can be no assurance
that these industry patterns, as well as general domestic and foreign economic
conditions and other factors affecting spending by companies in these
industries, will not have a material adverse effect on the Company's business,
operating results and financial condition.
PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE
The market for software and services for process manufacturing optimization
is characterized by rapidly changing technology and continuing improvements in
computer hardware, operating systems, programming tools, programming languages
and database technology. The Company's future success will depend on its ability
to enhance its current software products and services, integrate its current and
future software offerings, modify its products to operate on additional or new
operating platforms or systems, and develop in a timely and cost-effective
manner new software and services that meet changing market conditions, including
evolving customer needs, new competitive software and service offerings,
emerging industry standards and changing technology. The Company has announced
its intention to further integrate its software products with each other and to
integrate those products with ERP, DCS and other business software solutions.
The Company believes additional development will be necessary before its
products are fully integrated with each other and with these other solutions,
particularly with respect to ERP solutions. In the past, the Company has
experienced delays in the development and enhancement of new and existing
products, particularly the Windows version of Aspen Plus, and has on occasion
postponed scheduled delivery dates for certain of its products. There can be no
assurance that the Company will be able to meet customers' expectations with
respect to product development, enhancement and integration or that the
Company's software and services will otherwise address adequately the needs of
customers. Like many other software products, the Company's software has on
occasion contained undetected errors or "bugs." Because new releases of the
Company's software products are initially installed only by a selected group 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.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent on Lawrence B.
Evans, the principal founder of the Company and its Chairman and Chief Executive
Officer, its other executive officers, and certain engineering, 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-person life insurance on any of its executive officers
or other key employees. In addition to the need to recruit qualified project
engineers, the Company believes that its future success will also 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, motivating and retaining the personnel it requires to
continue to grow and operate profitably.
PRODUCT LIABILITY
The sale and implementation of certain of the Company's software products
and services, particularly in the areas of advanced process control and
optimization, may entail the risk of product liability claims. The Company's
software products and services are used in the design, operation and management
of manufacturing processes at large facilities, and any failure of 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 in the Company's
agreements may not be effective as a result of federal, state or local laws or
ordinances or
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<PAGE> 11
unfavorable judicial decisions. A substantial product liability claim against
the Company could have a material adverse effect upon the Company's business,
operating results and financial condition.
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, the 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 has 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.
The laws of certain countries in which the Company's products are licensed
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. In fiscal 1996,
fiscal 1997 and the nine months ended March 31, 1998, the Company derived
approximately 42.0%, 50.0% and 45.3% of its total revenues, respectively, 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
Company's business, operating results and financial condition. 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, if at
all.
MANAGEMENT OF GROWTH
The Company has experienced substantial growth in recent years 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. This
growth has resulted in increased responsibilities for the Company's management.
To manage its growth effectively, the Company must continue to expand its
management team, attract, motivate and retain employees, including qualified
project engineers, and implement and improve its operating and financial
systems. There can be no assurance that the Company's current management systems
will be adequate or that the Company will be able to manage the Company's recent
or future growth successfully. Any failure to do so could have a material
adverse effect on the Company's business, operating results and financial
condition.
INTERNATIONAL OPERATIONS
In fiscal 1996, fiscal 1997 and the nine months ended March 31, 1998, the
Company derived approximately 42.0%, 50.0% and 45.3% of its total revenues,
respectively, from customers outside the United States. The Company anticipates
that revenues from customers outside the United States will continue to
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<PAGE> 12
account for a significant portion of its total revenues for the foreseeable
future. The Company's operations outside the United States are subject to
additional 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. In addition, the Company currently is
unable to determine the effect, if any, that recent economic downturns in Asia,
particularly Japan, or the adoption and use of the euro, the single European
currency to be introduced in January 1999, will have on the Company's business.
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 operating results 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, operating results and financial
condition.
DEPENDENCE ON INCREASED MARKET PENETRATION
Increased use in the process industries of software and services for
process manufacturing optimization 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
increase market penetration. These factors include product performance, accuracy
of results, reliability, breadth and integration of product offerings, scope of
applications, and ease of implementation and use. 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.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software applications are
designed to accept only two digit entries in the date code field used to
identify years. These date code fields will need to be modified to recognize
twenty-first century years. As a result, computer systems and software
applications used by many companies may need to be upgraded to comply with "year
2000" requirements. Significant uncertainty exists in the software industry
concerning the potential effects of failure to comply with such requirements.
The Company has developed a testing and compliance program to ascertain
whether and to what extent the Company may need to update its software products
to become year 2000 compliant. The Company does not intend to test or modify all
prior versions of its software products, current products used on year 2000 non-
compliant systems, custom applications developed by or for customers, or certain
current software products that the Company plans to replace with either new
software products or year 2000 compliant releases by the end of 1999. Certain of
the Company's software products are currently year 2000 compliant; however, the
Company has not completed testing on many of the other software products that it
intends to test. There can be no assurance that the Company will complete in a
timely manner the testing of such software products or the development of any
updates necessary to render such software products year 2000 compliant. Although
the Company has obtained representations as to year 2000 compliance from the
sellers of certain of its recently acquired technologies, there can be no
assurance that the Company will not encounter year 2000 problems arising from
these technologies or any other technologies that the Company may acquire in the
future. Moreover, the ability of the Company's software products to comply with
year 2000 requirements depends in part upon the availability of year 2000
compliant versions of operating systems and software applications used by or
with the Company's products. Any delay in developing or offering, or the failure
to develop or offer year 2000 compliant products or any necessary updates to
existing products, could result in delays in the purchasing
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<PAGE> 13
of the Company's products and services or in reduced demand for those products
and services, and could also result in errors that materially impair the utility
of one or more of the Company's products, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition. Although the Company does not expect the costs associated with its
year 2000 compliance program to be material, there can be no assurance that
unidentified year 2000 problems will not cause the Company to incur material
expenses in responding to such problems or otherwise have a material adverse
effect on the Company's business, operating results and financial condition.
Moreover, customer purchasing patterns may be affected by year 2000 issues as
customers delay purchases in anticipation of the future release of year 2000
compliant products or releases, and as customers expend significant resources to
upgrade their current software systems and applications for year 2000
compliance. These expenditures may result in reduced funds available to purchase
software products such as those offered by the Company.
The Company has reviewed certain internal systems and future system plans
on a preliminary basis to assess Year 2000 compliance. The Company expects that
its internal system development plans will address the Year 2000 issue and will
correct any existing non-compliant systems without the need to accelerate the
overall information systems implementation plans. The Company believes that the
cost of any modifications will not be material. The Company's ability to
implement its information systems plan and to make the necessary modifications
or replacements may be adversely affected by a number of factors outside the
control of the Company, including the availability and cost of trained personnel
and the ability of such personnel to acquire Year 2000 compliant systems and
otherwise to locate and correct all relevant computer codes. The Company is also
conducting an additional assessment of its systems and operations in order to
more fully identify and plan for any Year 2000 risks, although it believes that
its business would not be materially affected by the failure of any internal
systems to be Year 2000 compliant. If there are unidentified dependencies on
internal systems to operate the business, or if any required modifications are
not completed on a timely basis or are more costly to implement than currently
anticipated, the Company's business, financial condition or results of
operations could be materially adversely affected.
NEW ACCOUNTING STANDARD
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition," which the Company adopted for software license agreements entered
into with customers on or after January 1, 1998. This statement provides
accounting standards for software revenue recognition. The Company believes that
its revenue recognition policies comply with SOP 97-2; however, unanticipated
changes or new interpretations by the AICPA of SOP 97-2 could require changes in
the Company's revenue recognition practices, which could have a material adverse
effect on the Company's operating results and financial condition.
SUBORDINATION OF DEBENTURES
The Debentures are unsecured obligations subordinated in right of payment
to all existing and future Senior Debt of the Company. As a result, in the event
of the Company's liquidation or insolvency, a payment or covenant default with
respect to Senior Debt, or upon acceleration of the Debentures due to an event
of default, the assets of the Company will be available to pay obligations on
the Debentures only after all Senior Debt has been paid in full, and there may
not be sufficient assets remaining to repay in full all of the Debentures then
outstanding. The Debentures are also effectively subordinated in right of
payment to all indebtedness and other liabilities, including trade payables, of
the Company's subsidiaries. The incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could have a material adverse
effect on the Company's ability to pay its obligations on the Debentures. The
Indenture does not limit the ability of the Company to incur Senior Debt or the
ability of the Company and its subsidiaries to incur other indebtedness or
liabilities. As of June 30, 1998, the Company had approximately $3.8 million of
outstanding Senior Debt and the Company's subsidiaries had approximately $19.0
million of outstanding indebtedness and other liabilities (excluding
intercompany liabilities, indebtedness included in Senior Debt because it is
guaranteed by the Company and liabilities of a type not required to be reflected
on a balance sheet in
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accordance with generally accepted accounting principles). See "Description of
Debentures -- Subordination."
ABSENCE OF SINKING FUND; LIMITATIONS ON REPURCHASE UPON A CHANGE OF CONTROL
There is no sinking fund with respect to the Debentures, and at maturity,
the entire outstanding principal amount thereof will become due and payable by
the Company. In addition, in the event of a Change of Control, each holder of
Debentures will have the right, at the holder's option, to require the Company
to repurchase all or a portion of such holder's Debentures as described under
the caption "Description of Debentures -- Repurchase at Option of Holders Upon
Change of Control." The Company's ability to repurchase Debentures upon the
occurrence of a Change of Control is subject to limitations. There can be no
assurance that the Company would have the financial resources or be able to
arrange financing on acceptable terms, if at all, to pay the Repurchase Price
for all the Debentures as to which the purchase right is exercised. Further, a
Change in Control would constitute an event of default under the terms of the
Company's bank line of credit. Certain of the agreements relating to the
Company's current Senior Debt limit the Company's ability to repurchase the
Debentures. As a result, any repurchase in connection with a Change of Control
would, depending on the circumstances and absent a waiver from the holders of
Senior Debt, be blocked by the subordination provisions of the Debentures.
Failure by the Company to repurchase the Debentures when required may result in
an Event of Default with respect to the Debentures (and with respect to Senior
Debt) whether or not such repurchase is permitted by the subordination
provisions. The term "Change of Control" is limited to certain specified
transactions and may not include other events that might adversely affect the
financial condition of the Company nor would the requirement that the Company
repurchase the Debentures upon a Change of Control necessarily afford holders of
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect holders. See "Description of
Debentures -- Subordination" and "-- Events of Default."
ABSENCE OF TRADING MARKET FOR THE DEBENTURES;
POTENTIAL VOLATILITY OF PRICE OF DEBENTURES AND COMMON STOCK
There is no existing trading market for the Debentures, and there can be no
assurance as to the liquidity of any market that may develop, the ability of any
holder to sell Debentures, the price at which the holders of Debentures will be
able to sell them or whether a trading market, if it develops, will continue.
The Debentures may trade at prices that are higher or lower than their principal
amount depending on many factors, including prevailing interest rates, the
market for similar securities, the Company's operating results and the trading
price of the Common Stock.
The equity markets have 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 the financial performance of
the Company, 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 Common Stock, including the Conversion Shares. From July 27, 1998,
the date on which the Company preliminarily announced its results for the fiscal
quarter and year ended June 30, 1998, through the close of business on September
11, 1998, the price per share of Common Stock, as reported by the Nasdaq
National Market, decreased from $48.25 to $25.6875. See "-- Fluctuations in
Quarterly Operating Results and Cash Flow."
EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND ANTI-TAKEOVER PROVISIONS;
POSSIBLE ISSUANCES OF PREFERRED STOCK; STOCKHOLDER RIGHTS PLAN
The Company's Certificate of Incorporation, its By-Laws and certain
Delaware laws contain provisions that may discourage acquisition bids for the
Company and that may deprive stockholders of certain opportunities to 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
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<PAGE> 15
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 adopted a
stockholder rights plan, which may deter or delay attempts to acquire the
Company or accumulate shares of Common Stock. Except for the stockholder rights
plan, the Company has no present plans to designate or issue any shares of
Preferred Stock.
FORWARD-LOOKING STATEMENTS
This Prospectus contains and incorporates by reference certain
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, which are intended to be covered by the
safe harbors created thereby. For this purpose, any statements contained or
incorporated by reference herein that are not statements of historical fact may
be deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "expects," and similar expressions are
intended to identify forward-looking statements. Readers are cautioned that all
forward-looking statements involve risks and uncertainties, many of which are
beyond the Company's control, including the factors set forth under "Risk
Factors." Although the Company believes that the assumptions underlying the
forward-looking statements contained or incorporated by reference herein are
reasonable, any of the assumptions could be inaccurate and there can be no
assurance that actual results will be the same as those indicated by the
forward-looking statements included or incorporated by reference in this
Prospectus. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion or incorporation by
reference of such information should not be regarded as a representation by the
Company or any other person that the objectives and plans of the Company will be
achieved. Moreover, the Company assumes no obligation to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in other factors affecting such forward-looking statements.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the consolidated ratio of earnings to fixed
charges of the Company. The ratio of earnings to fixed charges is computed by
dividing earnings by fixed charges. For this purpose, "earnings" includes
pre-tax income from continuing operations plus fixed charges. "Fixed charges"
include interest, whether expensed or capitalized, amortization of debt expense,
and the portion of rental expense that is representative of the interest factor
in these rentals.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
- ----------------------------------------------- NINE MONTHS ENDED
1993 1994 1995 1996 1997 MARCH 31, 1998
---- ---- ---- ---- ---- -----------------
<S> <C> <C> <C> <C> <C>
3.42 x 6.03 x 10.16 x -- 14.35 x 12.82 x
</TABLE>
Fixed charges exceeded earnings available for fixed charges by $8.3 million
in the fiscal year ended June 30, 1996.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Debentures or
Conversion Shares by the Selling Securityholders.
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<PAGE> 16
DESCRIPTION OF DEBENTURES
The Debentures have been issued under an Indenture dated as of June 17,
1998 (the "Indenture") between the Company and The Chase Manhattan Bank, as
trustee (the "Trustee"), a copy of which is included as an exhibit to the
Registration Statement and is incorporated by reference herein. The Indenture
will be qualified under the Trust Indenture Act of 1939, as amended. Wherever
particular defined terms of the Indenture (including the Debentures and the
various forms thereof) are referred to below, such defined terms are
incorporated herein by reference (the Debentures and various terms relating to
the Debentures being referred to in the Indenture as "Securities"). References
in this section to the "Company" are solely to Aspen Technology, Inc. and not to
its subsidiaries. The following summaries of certain provisions of the Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the detailed provisions of the Debentures, the
Indenture and the Trust Indenture Act of 1939, as amended. Section references
below are references to sections of the Indenture.
GENERAL
The Debentures are unsecured subordinated obligations of the Company, are
limited to $86,250,000 aggregate principal amount, and will mature on June 15,
2005. The Debentures bear interest at the rate of 5 1/4% per annum from June 17,
1998 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually on June 15 and December 15 of each
year, commencing on December 15, 1998. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months. (Sections 3.1 and 3.10)
The Debentures are convertible into Common Stock initially at a conversion
rate of 18.8791 shares per $1,000 principal amount of Debentures (equivalent to
a conversion price of approximately $52.97 per share), subject to adjustment
upon the occurrence of certain events described under "-- Conversion Rights," at
any time prior to the close of business on the maturity date, unless previously
redeemed or repurchased. (Sections 2.3, 13.1 and 13.4)
The Debentures are redeemable at the option of the Company under the
circumstances and at the redemption prices set forth below under "-- Optional
Redemption," plus accrued interest to the redemption date. The Debentures also
are subject to repurchase by the Company at the option of the holders as
described under "-- Repurchase at Option of Holders Upon Change of Control."
FORM AND DENOMINATION
The Debentures initially have been represented by global Debentures in
fully registered form without coupons (collectively, the "Global Debentures" and
individually, a "Global Debenture") and were deposited with the Trustee as
custodian for The Depository Trust Company ("DTC") and registered in the name of
a nominee of DTC. (Section 2.1) The Global Debentures are (and any Debentures
issued in exchange therefor will be) subject to certain restrictions on transfer
set forth therein and in the Indenture. (Section 2.2)
Except in the limited circumstances described below under "--Global
Debentures," owners of beneficial interests in Global Debentures are not
entitled to receive physical delivery of certificated Debentures. The Debentures
are not issuable in bearer form.
The Debentures are issuable only in fully registered form, without
exception. The Debentures are issuable in denominations of $100,000 and integral
multiples of $1,000 in excess thereof. (Section 3.2) No service charge will be
made for any registration, transfer or exchange of Debentures, but the Company
may require payment of a sum sufficient to cover any tax or other government
charge payable in connection therewith. (Section 3.5)
The Company has appointed the Trustee at its Corporate Trust Office as
paying agent, transfer agent, registrar and conversion agent for the Debentures.
In such capacities, the Trustee is responsible for, among other things, (i)
maintaining a record of the aggregate holdings of Debentures represented by the
Global Debenture and accepting Debentures for exchange and registration of
transfer, (ii) ensuring that payments of principal, premium, if any, and
interest in respect of the Debentures received by the Trustee from the Company
are duly paid to DTC or its nominees, (iii) transmitting to the Company any
notices from holders,
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<PAGE> 17
(iv) accepting conversion notices and related documents and transmitting the
relevant items to the Company, and (v) delivering certificates for Common Stock
issued upon conversion of the Debentures.
The Company will cause each transfer agent to act as a registrar and will
cause to be kept at the office of each transfer agent a register in which,
subject to such reasonable regulations as it may prescribe, the Company will
provide for the registration of the Debentures and registration of transfers of
the Debentures. (Section 3.5) The Company may vary or terminate the appointment
of any paying agent, transfer agent or conversion agent, or appoint additional
or other such agents, or approve any change in the office through which any such
agent acts, provided that there shall at all times be a paying agent, a transfer
agent and a conversion agent in the Borough of Manhattan, The City of New York,
New York. The Company will cause notice of any registration, termination or
appointment of the Trustee or any paying agent, transfer agent or conversion
agent, and of any change in the office through which any such agent will act, to
be provided to holders of the Debentures. (Section 11.2)
GLOBAL DEBENTURES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them from time to time. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, "participants")
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical transfer and delivery of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system is available to other entities such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Upon the issuance of any Global Debenture, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Debenture to the accounts of DTC participants or
persons who hold interests through participants. Ownership of beneficial
interests in such Global Debenture will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) or by the participants and
the indirect participants (with respect to other owners of beneficial interests
in the Global Debentures).
As long as DTC or its nominee is the registered holder of a Global
Debenture, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the Debentures represented by such Global Debenture for all
purposes under the Indenture and the Debentures. Unless DTC notifies the Company
that it is unwilling or unable to continue as depositary for a Global Debenture,
or ceases to be a "Clearing Agency" registered under the Exchange Act, or
announces an intention permanently to cease business or does in fact do so, or
an Event of Default has occurred and is continuing with respect to a Global
Debenture, owners of beneficial interests in a Global Debenture will not be
entitled to have any portions of such Global Debenture registered in their
names, will not receive or be entitled to receive physical delivery of
Debentures in definitive form and will not be considered the owners or holders
of the Global Debenture (or any Debentures represented thereby) under the
Indenture or the Debentures. In addition, no beneficial owner of an interest in
a Global Debenture will be able to transfer that interest except in accordance
with DTC's applicable procedures (in addition to those under the Indenture
referred to herein). In the event that owners of beneficial interests in a
Global Debenture become entitled to receive Debentures in definitive form, such
Debentures will be issued only in registered form in denominations of $100,000
and integral multiples of $1,000 in excess thereof.
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<PAGE> 18
EXCEPT AS DESCRIBED UNDER "TRANSFER, EXCHANGE, AND WITHDRAWAL," OWNERS OF
INTERESTS IN GLOBAL DEBENTURES WILL NOT HAVE DEBENTURES REGISTERED IN THEIR
NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF DEBENTURES IN CERTIFICATED FORM AND
WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE
INDENTURE FOR ANY PURPOSE.
Payments of the principal of and premium, if any, and interest on Global
Debentures will be made to DTC or its nominee as the registered owner thereof.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium or interest in respect of a Global Debenture representing any
Debentures held by DTC or its nominee, will immediately credit participants'
accounts with payment in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Debentures for such Debentures
as shown on the records of DTC or its nominee. The Company also expects that
payments by participants to owners of beneficial interests in such Global
Debentures held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name." Such payments will be
the responsibility of such participants. Neither the Company, the Trustee nor
any of their respective agents will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Debentures or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A. Transfers of beneficial interests in the Global Debentures between
participants will be effected in accordance with DTC's procedures and will trade
in DTC's Same-Day Funds Settlement System, and secondary market trading activity
in such interests will therefore settle in immediately available funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Debentures (including the presentation of Debentures for
exchange as described below) only at the direction of one or more participants
to whose account with DTC interests in the Global Debentures are credited and
only in respect of such portion of the aggregate principal amount of the
Debentures as to which such participant or participants has or have given such
direction. However, if there is an Event of Default (as defined below) under the
Debentures, DTC reserves the right to exchange the Global Debentures for
legended Debentures in certificated form and to distribute such Debentures to
its participants.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Debentures among
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, its participants or its indirect
participants of their respective obligations under the rules and procedures
governing DTC's operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Debentures.
CERTIFICATED DEBENTURES
If DTC is at any time unwilling or unable to continue as a depositary for
the reasons set forth above under "-- Global Debentures," is closed for business
for 14 continuous days or announces an intention to cease or permanently ceases
business, the Company will issue certificates for the Debentures in definitive,
fully registered, non-global form without interest coupons in exchange for each
Global Debenture. The holder of a Debenture in non-global form may transfer such
Debenture, subject to compliance with the provisions of such legend, by
surrendering it at the office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York, New York, which
initially will be the office of the Trustee. Upon the transfer, exchange or
replacement of Notes bearing a legend, or upon specific request for removal of a
legend on a Note, the Company will deliver only Notes that bear such legend, or
will refuse to remove such legend, as the case may be, unless there is delivered
to the Company such satisfactory evidence, which may include an opinion of
counsel, as reasonably may be required by the Company that neither the legends
nor the restrictions on transfer set forth therein are required to ensure
compliance with the provisions of the Securities Act.
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<PAGE> 19
Notwithstanding any statement herein, the Company and the Trustee reserve
the right to impose such transfer, certification, exchange or other
requirements, and to require such restrictive legends on certificates evidencing
Debentures, (i) as they may determine are necessary to ensure compliance with
the securities laws of the United States and the states and other jurisdictions
thereof and any other applicable laws or to ensure that the Shelf Registration
Statement, as it may be amended, is declared effective by the Commission or (ii)
as DTC may require.
REGISTRATION RIGHTS
The holders of the Debentures and the Conversion Shares are entitled to the
benefits of a Registration Rights Agreement, dated as of June 17, 1998, between
the Company and the Initial Purchasers (the "Registration Rights Agreement"), a
copy of which is included as an exhibit to this Registration Statement and is
incorporated by reference herein. The following summaries of certain provisions
of the Registration Rights Agreement do not purport to be complete and are
subject to, and qualified in their entirety by reference to, the detailed
provisions of the Registration Rights Agreement.
Pursuant to the Registration Rights Agreement, the Company has agreed for
the benefit of the holders from time to time of the Debentures and the
Conversion Shares issued or issuable upon conversion thereof that it will,
subject to certain exceptions, use its reasonable best efforts to keep the
Registration Statement continuously effective under the Securities Act until (i)
the second anniversary of the effective date of the Registration Statement or
(ii) such earlier date as is provided in the Registration Rights Agreement (the
earlier to occur of (i) and (ii) being referred to herein as the "Termination
Date").
In the event the Registration Statement ceases to be effective prior to the
Termination Date for a period in excess of 60 days, whether or not consecutive,
during any 12-month period, then the interest rate borne by the Debentures shall
increase by an additional one-half of one percent (0.50%) per annum on the
sixty-first day of the applicable 12-month period the Registration Statement
ceases to be effective to but excluding the earlier of the Termination Date or
the day on which the Registration Statement again becomes effective.
The Registration Rights Agreement can be amended by the Company and the
holders of a majority of the Debentures and Conversion Shares then entitled to
the benefits of the Registration Rights Agreement.
CONVERSION RIGHTS
The holder of any Debenture has the right, at the holder's option, to
convert any portion of the principal amount of a Debenture that is an integral
multiple of $1,000 into shares of Common Stock at any time prior to the close of
business on the maturity date, unless previously redeemed or repurchased, at a
conversion rate (the "Conversion Rate") of 18.8791 shares of Common Stock per
$1,000 principal amount of Debentures (equivalent to a conversion price of
approximately $52.97 per share of Common Stock), subject to adjustment as
described below. The right to convert a Debenture called for redemption or
delivered for repurchase will terminate at the close of business on the fifth
Trading Day preceding the Redemption Date for such Debenture or the second
Trading Day preceding the Repurchase Date for such Debenture, as the case may
be. (Sections 2.3 and 13.1)
The right of conversion attaching to any Debenture may be exercised by the
holder by delivering the Debenture at the specified office of the Conversion
Agent, accompanied by a duly signed and completed notice of conversion, a copy
of which may be obtained from the Trustee. The conversion date will be the date
on which the Debenture and the duly signed and completed notice of conversion
are so delivered. As promptly as practicable on or after the conversion date,
the Company will issue and deliver to the Trustee a certificate or certificates
for the number of whole shares of Common Stock issuable upon conversion,
together with payment in lieu of any fraction of a share or, at the Company's
option, rounded up to the next whole number of shares; such certificate will be
sent by the Trustee to the Conversion Agent (if other than the Trustee) for
delivery to the holder. Conversion Shares, in accordance with the provisions of
the Indenture, will be validly issued, fully paid and nonassessable and will
rank pari passu with other shares of Common Stock outstanding from time to time.
Any Debenture surrendered for conversion during the period from the close of
business on any Regular Record Date to the opening of business on the next
succeeding Interest Payment Date (the
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<PAGE> 20
"Record Date Period") (except Debentures surrendered for conversion for which
conversion rights would terminate during the Record Date Period as a result of a
call for redemption or a repurchase) must be accompanied by payment of an amount
equal to the interest payable on such Interest Payment Date relating to such
Record Date Period on the principal amount of such Debentures being surrendered
for conversion, and the interest payable on such Interest Payment Date in
respect of such Debenture (including Debentures surrendered for conversion for
which conversion rights would terminate during the Record Date Period as a
result of a call for redemption or a repurchase) shall be paid to the holder of
such Debenture as of the Regular Record Date. Interest payable in respect of any
Debenture surrendered for conversion on or after an Interest Payment Date shall
be paid to the holder of such Debenture as of the next preceding Regular Record
Date, notwithstanding the exercise of the right of conversion. (Section 13.2)
As a result of the above-described provisions of the Indenture, holders
that surrender Debentures for conversion on a date that is not an Interest
Payment Date will not receive any interest for the period from the Interest
Payment Date next preceding the date of conversion to the date of conversion or
for any later period, even if the Debentures are surrendered after a notice of
redemption (except for the payment of interest on Debentures called for
redemption on a Redemption Date or to be repurchased on a Repurchase Date in
either case, the result of which would cause the conversion rights of such
Debenture to terminate during the Record Date Period). No other payment or
adjustment for interest, or for any dividends in respect of Common Stock, will
be made upon conversion. Holders of Common Stock issued upon conversion will not
be entitled to receive any dividends payable to holders of Common Stock as of
any record time before the close of business on the conversion date. No
fractional shares will be issued upon conversion but, in lieu thereof, the
Company will calculate an appropriate amount to be paid in cash on the basis set
forth in the Indenture or, at its option, round up to the next whole number of
shares. (Sections 13.2 and 13.3)
A holder delivering a Debenture for conversion will not be required to pay
any taxes or duties in respect of the issue or delivery of Common Stock on
conversion but will be required to pay any tax or duty which may be payable in
respect of any transfer involved in the issue or delivery of the Common Stock in
a name other than that of the holder of the Debenture. Certificates representing
shares of Common Stock will not be issued or delivered unless the person
requesting such issue has paid to the Company the amount of any such tax or duty
or has established to the satisfaction of the Company that such tax or duty has
been paid. (Section 13.8)
The Conversion Rate is subject to adjustment in certain events, including,
without duplication: (a) dividends (and other distributions) payable in Common
Stock on shares of capital stock of the Company, (b) the issuance to all holders
of Common Stock of rights, options or warrants entitling them to subscribe for
or purchase Common Stock at less than the then-current market price of Common
Stock (determined as provided in the Indenture) as of the record date for
shareholders entitled to receive such rights, options or warrants, (c)
subdivisions, combinations and reclassifications of Common Stock, (d)
distributions to all holders of Common Stock of evidences of indebtedness of the
Company, shares of capital stock, cash or assets (including securities, but
excluding those dividends, rights, options, warrants and distributions referred
to above and excluding dividends and distributions paid exclusively in cash and
in mergers and consolidations to which the second succeeding clause applies),
(e) distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in (d) above or cash distributed upon a merger or
consolidation to which the second succeeding paragraph applies) to all holders
of Common Stock in an aggregate amount that, combined together with (i) other
such all-cash distributions made within the preceding 12 months in respect of
which no adjustment has been made and (ii) any cash and the fair market value of
other consideration payable in respect of any tender offer by the Company or any
of its subsidiaries for Common Stock concluded within the preceding 12 months in
respect of which no adjustment has been made, exceeds 10% of the Company's
market capitalization (being the product of the then-current market price,
determined as provided in the Indenture, per share of the Common Stock and the
number of shares of Common Stock then outstanding) on the record date for such
distribution, and (f) the successful completion of a tender offer made by the
Company or any of its subsidiaries for Common Stock which involves an aggregate
consideration that, together with (i) any cash and other consideration payable
in a tender offer by the Company or any of its subsidiaries for Common Stock
expiring within the 12 months preceding the expiration of such tender offer in
respect of which no adjustment has been made and (ii) the aggregate amount of
any such all-cash
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<PAGE> 21
distributions referred to in (e) above to all holders of Common Stock within the
12 months preceding the expiration of such tender offer in respect of which no
adjustments have been made, exceeds 10% of the Company's market capitalization
on the expiration of such tender offer. The Company may make such increases in
the Conversion Rate in addition to those required in the foregoing provisions as
it considers to be advisable in order that any event treated for federal income
tax purposes as a dividend or distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock will not be taxable to the
recipients. No adjustment of the Conversion Rate will be required to be made
until the cumulative adjustments amount to 1.0% or more of the Conversion Rate.
(Section 13.4)
Generally, Holders converting Debentures into Common Stock will be entitled
to receive upon such conversion, in addition to the Common Stock into which the
Debentures are converted, the associated rights (the "Rights") to purchase
Series A Participating Cumulative Preferred Stock of the Company, pursuant to
the Rights Agreement dated as of March 12, 1998 between the Company and American
Stock Transfer & Trust Company, as Rights Agent, as presently constituted or
under any similar plan. If for any reason converting holders of the Debentures
are not entitled to receive the Rights that would otherwise be attributable (but
for the date of conversion) to the shares of Common Stock received upon such
conversion or such Rights are not issued to them upon conversion for any reason,
then adjustment of the Conversion Rate shall be made under paragraph (d) of the
preceding paragraph as if the Rights were then being distributed to the
stockholders. If such an adjustment is made and the Rights are later redeemed,
invalidated, or terminated, then a corresponding reversing adjustment shall be
made to the Conversion Rate, on an equitable basis, to take account of such
event. (Section 13.4)
In case of any consolidation or merger of the Company with or into another
Person or any merger of another Person into the Company (other than a merger
which does not result in any reclassification, conversion, exchange or
cancellation of the Common Stock), or in case of any conveyance, sale, transfer
or lease of all or substantially all of the assets of the Company, each
Debenture then outstanding will, without the consent of the holder of any
Debenture, become convertible only into the kind and amount of securities, cash
and other property receivable upon such consolidation, merger, conveyance, sale,
transfer or lease by a holder of the number of shares of Common Stock into which
such Debenture was convertible immediately prior thereto (assuming such holder
of Common Stock failed to exercise any rights of election and that such
Debenture was then convertible). (Section 13.11)
The Company from time to time may increase the Conversion Rate by any
amount for any period of at least 20 days, in which case the Company shall give
at least 15 days' notice of such increase, if the Board of Directors has made a
determination that such increase would be in the best interests of the Company,
which determination shall be conclusive. No such increase shall be taken into
account for purposes of determining whether the closing price of the Common
Stock exceeds the Conversion Price by 105% in connection with an event that
otherwise would constitute a Change of Control. (Section 13.4) See
"-- Repurchase at Option of Holders Upon Change of Control."
If at any time the Company makes a distribution of property to its
stockholders that would be taxable to such stockholders as a dividend for
federal income tax purposes (for example, distributions of evidences of
indebtedness or assets of the Company, but generally not stock dividends on
Common Stock or rights to subscribe for Common Stock) and, pursuant to the
anti-dilution provisions of the Indenture, the number of shares into which
Debentures are convertible is increased, such increase may be deemed for federal
income tax purposes to be the payment of a taxable dividend to holders of
Debentures. See "Certain United States Federal Tax Considerations."
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Debentures (including any amounts payable upon the redemption or repurchase of
the Debentures permitted by the Indenture) is subordinated in right of payment,
to the extent set forth in the Indenture, to the prior payment in full of the
principal of, premium, if any, interest and other amounts in respect of all
Senior Debt of the Company. The Debentures also are effectively subordinated in
right of payment to all indebtedness and other liabilities of the
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Company's subsidiaries. As of June 30, 1998, the Company had approximately $3.8
million of Senior Debt outstanding and the Company's subsidiaries had
approximately $19.0 of indebtedness and other liabilities outstanding (excluding
inter-company liabilities, indebtedness included in Senior Debt because it is
guaranteed by the Company and liabilities of a type not required to be reflected
on a balance sheet in accordance with generally accepted accounting principles).
"Senior Debt" is defined in the Indenture to mean the principal of (and
premium, if any) and interest (including all interest accruing subsequent to the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) on, and
all fees and other amounts payable in connection with, the following, whether
direct or indirect, absolute or contingent, secured or unsecured, due or to
become due, outstanding on the date of the Indenture or thereafter created,
incurred or assumed: (a) indebtedness of the Company for money borrowed or
evidenced by credit or loan agreements, bonds, debentures, notes or similar
instruments, (b) all obligations of the Company evidenced by a note or similar
instrument or written agreement given in connection with the acquisition of any
businesses, properties or assets, including securities, (c) obligations of the
Company as lessee under leases capitalized on the balance sheet of the lessee
under generally accepted accounting principles, (d) obligations of the Company
under interest rate and currency swaps, caps, floors, collars, hedge agreements,
forward contracts, or similar agreements or arrangements intended to protect the
Company against fluctuations in interest or currency exchange rates or commodity
prices, (e) all reimbursement obligations of the Company with respect to letters
of credit, bankers' acceptances or similar facilities issued for the account of
the Company, (f) indebtedness of others of the kinds described in the preceding
clauses (a), (b), (c), (d) and (e) that the Company has assumed, guaranteed or
otherwise assured the payment thereof, directly or indirectly, and (g)
deferrals, renewals, extensions and refundings of, or bonds, debentures, notes
or other evidences of indebtedness issued in exchange for, or amendments,
modifications or supplements to, or covenants and other obligations of the
Company in connection with, the indebtedness described in the preceding clauses
(a) through (f), whether or not there is any notice to or consent of the holders
of Debentures; except (i) indebtedness and advances among the Company and its
direct and indirect subsidiaries; and (ii) any particular indebtedness,
deferral, renewal, extension or refunding, if it is expressly stated in the
governing terms or in the assumption thereof that the indebtedness involved is
not Senior Debt. (Section 1.1)
No payment on account of principal of, premium, if any, or interest on, or
redemption or repurchase of, the Debentures may be made if there shall have
occurred (i) a default in the payment of the principal, premium, if any, or
interest (including a default under any repurchase or redemption obligation)
with respect to any Senior Debt or (ii) any other event of default with respect
to any Senior Debt that permits the holders thereof to accelerate the maturity
thereof, which event of default shall not have been cured or waived or shall not
have ceased to exist after written notice of such event of default shall have
been given to the Company and the Trustee by any holder of Senior Debt. Upon the
acceleration of the principal due on the Debentures or payment or distribution
of assets of the Company to creditors upon any dissolution, winding up,
liquidation or reorganization, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership or other proceedings, all principal of and
premium, if any, and interest due on all Senior Debt must be paid in full before
the holders of the Debentures are entitled to receive any payment. By reason of
such subordination, in the event of insolvency, creditors of the Company who are
holders of Senior Debt may recover more, ratably, than the holders of the
Debentures, and such subordination may result in a reduction or elimination of
payments to the holders of the Debentures. (Sections 14.3 and 14.4)
The Indenture does not limit the Company's ability to incur Senior Debt or
any other indebtedness or the ability of any subsidiary of the Company to incur
any indebtedness or other liabilities.
OPTIONAL REDEMPTION
The Debentures may not be redeemed prior to June 15, 2001. Thereafter, the
Debentures may be redeemed, in whole or in part, at the option of the Company,
upon not less than 30 nor more than 60 days' prior notice as provided under
"-- Notices" below, at the redemption prices set forth below, in each case
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together with accrued interest to the date of redemption. (Section 2.3, Article
XII) Such redemption prices (expressed as a percentage of principal amount) are
as follows for the 12-month periods beginning on June 15 of each of the
following years:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2001....................................... 103.00%
2002....................................... 102.25
2003....................................... 101.50
2004....................................... 100.75
</TABLE>
No sinking fund is provided for the Debentures.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE OF CONTROL
If a Change of Control (as defined below) occurs, each holder of Debentures
shall have the right, at the holder's option, to require the Company to
repurchase all of such holder's Debentures, or any portion of the principal
amount thereof that is equal to $1,000 or an integral multiple of $1,000 in
excess thereof, on the date (the "Repurchase Date") that is 45 days after the
date of the Company Notice (as defined), at a price equal to 100% of the
principal amount of the Debentures to be repurchased, together with interest
accrued to the Repurchase Date (the "Repurchase Price"). (Section 15.1)
The Company may, at its option, in lieu of paying the Repurchase Price in
cash, pay the Repurchase Price in Common Stock valued at 95% of the average of
the last reported sale price of the Common Stock for the 5 consecutive Trading
Days ending on and including the third Trading Day preceding the Repurchase
Date; provided that payment may not be made in Common Stock unless the Company
satisfies certain conditions prior to the Repurchase Date as provided in the
Indenture. (Section 15.2)
Within 30 days after the occurrence of a Change of Control, the Company is
obligated to give to all holders of the Debentures notice, as provided in the
Indenture (the "Company Notice"), of the occurrence of such Change of Control
and of the repurchase right arising as a result thereof. The Company must also
deliver a copy of the Company Notice to the Trustee. To exercise the repurchase
right, a holder of Debentures must deliver on or before the 30th day after the
date of the Company Notice irrevocable written notice to the Trustee of the
holder's exercise of such right, together with the Debentures with respect to
which the right is being exercised. (Section 15.3)
A "Change of Control" shall be deemed to have occurred at such time after
the original issuance of the Debentures as there shall occur:
(a) the acquisition by any Person (including any syndicate or group
deemed to be a "person" under Section 13(d)(3) of the Exchange Act) of
beneficial ownership, directly or indirectly, through a purchase, merger,
or other acquisition transaction or series of transactions, of shares of
capital stock of the Company entitling such Person to exercise 50% or more
of the total voting power of all shares of capital stock of the Company
entitled to vote generally in elections of directors, other than any such
acquisition by the Company, any subsidiary of the Company, or any employee
benefit plan of the Company; or
(b) any consolidation of the Company with, or merger of the Company
into, any other Person, any merger of another Person into the Company, or
any conveyance, sale, transfer or lease of all or substantially all of the
assets of the Company to another Person (other than (i) any such
transaction (x) that does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of capital stock of the
Company and (y) pursuant to which the holders of the Common Stock
immediately prior to such transaction are entitled to exercise, directly or
indirectly, 50% or more of the total voting power of all shares of capital
stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such transaction, and
(ii) any merger that is effected solely to change the jurisdiction of
incorporation of the Company and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock solely into shares of
common stock);
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<PAGE> 24
provided, however, that a Change of Control shall not be deemed to have occurred
if the last reported sale price per share of the Common Stock for any 5 Trading
Days within the period of 10 consecutive Trading Days ending immediately after
the later of the Change of Control or the public announcement of the Change of
Control (in the case of a Change of Control under clause (a) above) or ending
immediately before the Change of Control (in the case of a Change of Control
under clause (b) above) shall equal or exceed 105% of the Conversion Price of
the Debentures in effect on each such Trading Day. "Beneficial owner" shall be
determined in accordance with Rule 13d-3 under the Exchange Act, as in effect on
June 17, 1998. (Section 15.4)
The Company's ability to repurchase Debentures upon the occurrence of a
Change of Control is subject to limitations. There can be no assurance that the
Company would have the financial resources or be able to arrange financing on
acceptable terms, if at all, to pay the Repurchase Price for all the Debentures
as to which the purchase right is exercised. Further, a Change of Control would
constitute an event of default under the terms of the Company's bank line of
credit. Certain of the agreements relating to the Company's current Senior Debt
limit the Company's ability to repurchase the Debentures. As a result, any
repurchase in connection with a Change of Control would, depending on the
circumstances and absent a waiver from the holders of Senior Debt, be blocked by
the subordination provisions of the Debentures. See "-- Subordination." Failure
by the Company to repurchase the Debentures when required may result in an Event
of Default with respect to the Debentures (and with respect to Senior Debt)
whether or not such repurchase is permitted by the subordination provisions. See
"Events of Default."
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the Debentures. The Company will comply with this rule to the extent applicable
at that time.
The foregoing provisions would not necessarily afford holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect holders.
MERGERS AND SALES OF ASSETS BY THE COMPANY
The Company may not consolidate with or merge into any other Person or,
directly or indirectly, convey, transfer, sell, lease, or otherwise dispose of
its properties and assets substantially as an entirety to any Person (other than
a conveyance, sale, transfer, or lease to a wholly owned subsidiary), and the
Company may not permit any Person (other than a wholly owned subsidiary) to
consolidate with or merge into the Company or convey, transfer, sell, lease, or
otherwise dispose of all or substantially all of its properties and assets
substantially as an entirety to the Company, unless (a) the Person formed by
such consolidation or into which the Company is merged or the Person to which
the properties and assets of the Company are so conveyed, transferred, sold, or
leased is a corporation, limited liability company, partnership or trust
organized and existing under the laws of the United States, any state thereof or
the District of Columbia and has expressly assumed the due and punctual payment
of the principal of and premium, if any, and interest on the Debentures and the
performance of the other covenants of the Company under the Indenture, (b)
immediately after giving effect to such transaction, no Event of Default, and no
event that, after notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing, and (c) the Company has provided
to the Trustee an Officer's Certificate and opinion of counsel. (Section 8.1)
EVENTS OF DEFAULT
The following constitute Events of Default under the Indenture: (a) failure
to pay principal of, premium on, or the Redemption Price or Repurchase Price of
any Debenture when due, whether or not such payment is prohibited by the
subordination provisions of the Indenture; (b) failure to pay any interest
(including Liquidated Damages) on any Debenture when due, continuing for 30
days, whether or not such payment is prohibited by the subordination provisions
of the Indenture; (c) failure to provide a Company Notice in the event of a
Change of Control; (d) failure to perform any other covenant or warranty of the
Company in the Indenture, continuing for 60 days after written notice as
provided in the Indenture; (e) failure to pay any indebtedness for money
borrowed by the Company in an aggregate principal amount in excess of $5,000,000
at
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final maturity or acceleration of payment thereof, which default in payment or
acceleration is not cured or rescinded within 30 days after written notice as
provided in the Indenture; and (f) certain events of bankruptcy, insolvency or
reorganization. (Section 5.1) Subject to the provisions of the Indenture
relating to the duties of the Trustee in case an Event of Default shall occur
and be continuing, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders, unless such holders shall have offered to the Trustee reasonable
security or indemnity. (Section 6.3) Subject to such provisions for the
indemnification of the Trustee, the holders of a majority in aggregate principal
amount of the Outstanding Debentures will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee. (Section
5.12)
If an Event of Default (other than an Event of Default specified in clause
(a), (b) or (f) above) occurs and is continuing, either the Trustee shall, at
the written request of the holders of not less than 25% in aggregate principal
amount of the Outstanding Debentures, or the holders of not less than 25% in
aggregate principal amount of the Outstanding Debentures may directly, by notice
in writing to the Company, declare the principal of all the Debentures to be due
and payable immediately, and upon any such declaration such principal and any
accrued interest and any unpaid Liquidated Damages thereon will become
immediately due and payable. If an Event of Default specified in clause (a) or
(b) occurs and is continuing, the holder of any Outstanding Debenture may, by
notice in writing to the Company (with a copy to the Trustee), declare the
principal of such Debenture to be due and payable immediately, and upon any such
declaration such principal and (subject to the Indenture) any accrued interest
and Liquidated Damages thereon will become immediately due and payable. If an
Event of Default specified in clause (f) occurs and is continuing, the principal
of and any accrued interest and any unpaid Liquidated Damages on all of the
then-Outstanding Debentures shall ipso facto become due and payable immediately
without any declaration or other Act on the part of the Trustee or any holder.
(Section 5.2)
At any time after a declaration of acceleration has been made but before a
judgment or decree based on acceleration, the holders of a majority in aggregate
principal amount of Outstanding Debentures may, under certain circumstances,
rescind and annul such acceleration if, among other things, all Events of
Default, other than the nonpayment of accelerated principal and interest, have
been cured or waived as provided in the Indenture. (Section 5.2)
No holder of any Debenture has any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the Outstanding Debentures shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the Outstanding Debentures a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. (Section 5.7) However, such limitations do not apply
to a suit instituted by a holder of a Debenture for the enforcement of payment
of the principal of or premium, if any, or interest on such Debenture or the
Redemption Price or the Repurchase Price on or after the respective due dates
expressed in such Debenture or of the right to convert such Debenture in
accordance with the Indenture. (Section 5.8)
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (Section 11.9)
MEETINGS, MODIFICATION AND WAIVER
The Indenture contains provisions for convening meetings of the holders of
Debentures to consider matters affecting their interests. (Article X)
Modifications and amendments of the Indenture may be made, and certain past
defaults by the Company may be waived, (i) with the written consent of the
holders of not less than a majority in aggregate principal amount of the
Debentures at the time Outstanding or (ii) by the adoption of a Resolution, at a
meeting of
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holders of the Debentures at which a quorum is present, by the holders of at
least 66 2/3% in aggregate principal amount of the Outstanding Debentures
represented at such meeting. However, no such modification or amendment may,
without the consent of the holder of each Outstanding Debenture affected
thereby, (a) change the Stated Maturity of the principal of, or any installment
of interest on, any Debenture, (b) reduce the principal amount of or the
premium, if any, or rate of interest on any Debenture, (c) reduce the amount
payable upon redemption or repurchase, (d) modify the provisions with respect to
the repurchase right of the holders in a manner adverse to the holders, (e)
change the place or currency of payment of principal of or premium, if any, or
interest on, any Debenture (including any payment of any Liquidated Damages or
the Repurchase Price in respect of such Debenture), (f) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Debenture, (g) modify the obligation of the Company to maintain an office or
agency in The City of New York, New York, (h) except as otherwise permitted by
the Indenture or contemplated by provisions concerning consolidation, merger,
conveyance, transfer, sale or lease of all or substantially all of the property
and assets of the Company, adversely affect the right of holders to convert any
of the Debentures or to require the Company to repurchase any Debenture other
than as provided in the Indenture, (i) modify the subordination provisions in a
manner adverse to the holders of the Debentures, (j) reduce the above-stated
percentage of Outstanding Debentures necessary to modify or amend the Indenture,
(k) reduce the percentage of aggregate principal amount of Outstanding
Debentures necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults, (l) reduce the percentage in
aggregate principal amount of Debentures Outstanding required for the adoption
of a Resolution or the quorum required at any meeting of holders of Debentures
at which a Resolution is adopted, (m) modify the obligation of the Company to
deliver information required by Rule 144A under the Securities Act to permit
resales of Debentures and Common Stock issued upon conversion thereof in the
event the Company ceases to be subject to certain reporting requirements under
United States federal securities laws or (n) modify any provisions relating to
subordination of the Debentures, conversion of the Debentures or repurchase upon
a Change of Control in a manner adverse to the holders of the Debentures.
(Section 9.2) The quorum at any meeting called to adopt a Resolution will be
persons holding or representing a majority in aggregate principal amount of the
Debentures at the time Outstanding and, at any reconvened meeting adjourned for
lack of quorum, 25% of such aggregate principal amount. (Section 10.4)
The holders of a majority in aggregate principal amount of the Outstanding
Debentures may waive compliance by the Company with certain restrictive
provisions of the Indenture. (Section 11.11) The holders of a majority in
aggregate principal amount of the Outstanding Debentures also may waive any past
default under the Indenture, except a default in the payment of principal,
premium, if any, or interest. (Section 5.13)
TRANSFER, EXCHANGE AND WITHDRAWAL
The Company has appointed the Trustee as security registrar and transfer
agent, acting through its Corporate Trust Office in The City of New York, New
York. The Company reserves the right to vary or terminate the appointment of the
security registrar or of any transfer agent or to appoint additional or other
transfer agents or to approve any change in the office through which any
security registrar or any transfer agent acts. (Sections 3.5 and 11.2)
In the event of a redemption of the Debentures for any of the reasons set
forth above under "-- Optional Redemption," the Company will not be required (a)
to register the transfer or exchange of Debentures for a period of 15 days
immediately preceding the date notice is given identifying the serial numbers of
the Debentures called for such redemption or (b) to register the transfer or
exchange of any Registered Debenture, or portion thereof, called for redemption.
(Section 2.2)
PURCHASE AND CANCELLATION
The Company or any subsidiary may at any time and from time to time
purchase Debentures at any price in the open market or otherwise.
All Debentures surrendered for payment, redemption, repurchase,
registration of transfer, exchange or conversion shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee. All
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Debentures so delivered to the Trustee shall be canceled promptly by the
Trustee. No Debentures shall be authenticated in lieu of or in exchange for any
Debentures canceled as provided in the Indenture. Unless otherwise requested by
the Company and confirmed in writing, the Trustee shall, from time to time but
not less than once annually, destroy all canceled Debentures and deliver to the
Company a certificate of destruction, which certificate shall specify the
number, principal amount and, in the case of Debentures, the form of each
canceled Debenture so destroyed. (Section 3.9)
TITLE
The Company and the Trustee may treat the registered owner (as reflected in
the Security Register) of any Debenture as the absolute owner thereof (whether
or not such Debenture shall be overdue) for the purpose of making payment and
for all other purposes.
NOTICES
Notice to holders of the Debentures will be given by mail to the addresses
of such holders as they appear in the Security Register. Such notices will be
deemed to have been given on the date of such mailing. (Section 1.6)
REPLACEMENT OF DEBENTURES
Debentures that become mutilated, destroyed, stolen or lost will be
replaced by the Company at the expense of the holder upon delivery to the
Trustee of the mutilated Debentures or evidence of the loss, theft or
destruction thereof satisfactory to the Company and the Trustee. In the case of
a lost, stolen or destroyed Debenture, indemnity satisfactory to the Trustee and
the Company may be required at the expense of the holder of such Debenture
before a replacement Debenture will be issued. (Section 3.6)
PAYMENT OF STAMP AND OTHER TAXES
The Company shall pay all stamp and other duties, if any, which may be
imposed by the United States or any political subdivision thereof or taxing
authority thereof or therein with respect to the issuance of the Debentures. The
Company will not be required to make any payment with respect to any other tax,
assessment or governmental charge imposed by any government or any political
subdivision thereof or taxing authority therein.
SATISFACTION AND DISCHARGE
The Company may discharge its payment obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures have become due
and payable or will become due and payable at their scheduled maturity within
one year, (b) all Outstanding Debentures are scheduled for redemption within one
year or (c) all Outstanding Debentures are delivered to the Trustee for
conversion in accordance with the Indenture and in the case of (a) or (b) above,
the Company has deposited with the Trustee an amount sufficient to pay and
discharge the entire indebtedness on all Outstanding Debentures on the date of
their scheduled maturity or the scheduled date of redemption. (Section 4.1)
GOVERNING LAW
The Indenture and the Debentures are governed by and to be construed in
accordance with the laws of the State of New York. (Section 1.11)
THE TRUSTEE
In case an Event of Default shall occur (and shall not be cured), the
Trustee is required to use the degree of care of a prudent person in the conduct
of his own affairs in the exercise of its powers. Subject to such provisions,
the Trustee is under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the holders of Debentures,
unless they shall have offered to the Trustee reasonable security or indemnity.
(Sections 6.1 and 6.3)
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DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.10 par value per share, and 10,000,000 shares of Preferred
Stock, $.10 par value per share. As of September 1, 1998, there were 24,902,218
shares of Common Stock outstanding and no shares of Preferred Stock outstanding.
In addition, there were outstanding stock options to acquire 5,280,668 shares of
Common Stock and outstanding warrants to acquire 41,560 shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders and do not
have cumulative voting rights. Accordingly, holders of a majority of the shares
of Common Stock entitled to vote in any election of Directors may elect all of
the Directors standing for election. Subject to preferential dividend rights
with respect to any outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared by the
Board of Directors out of funds legally available therefor. Upon liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share ratably in the assets of the Company legally available for distribution
to the holders of Common Stock, subject to any prior rights of any outstanding
Preferred Stock. Holders of Common Stock have no cumulative voting rights nor
any preemptive, subscription, redemption or conversion rights. All outstanding
shares of Common Stock are, and the Conversion Shares will be when issued in
accordance with the terms of the Debentures, validly issued, fully paid and
non-assessable. The rights, preferences and privileges of holders of Common
Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock that the Company may
designate and issue in the future.
PREFERRED STOCK
The 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.
The Company has granted the Board of Directors the authority to issue
Preferred Stock and to determine its rights and preferences in order to
eliminate delays associated with a stockholder vote on specific issuances. 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 voting stock of the
Company. The Company has designated and reserved an aggregate of 400,000 shares
of authorized but unissued Preferred Stock for issuance as Series A
participating cumulative preferred stock, $.10 par value per share, of the
Company ("Series A Preferred Stock") pursuant to the Company's Stockholder
Rights Plan. See "-- Rights Plan." Except as contemplated by such Plan, the
Company has no present plans to issue any shares of Preferred Stock. See "Risk
Factors -- Effect of Certain Charter and By-Law Provisions and Anti-Takeover
Provisions; Possible Issuances of Preferred Stock; Stockholder Rights Plan."
WARRANTS
As of September 1, 1998, there were outstanding warrants to purchase an
aggregate of 41,560 shares of Common Stock. All of the warrants are currently
exercisable, and they have a weighted average exercise price of $34.37 per
share.
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REGISTRATION RIGHTS
The Company currently has two shelf registration statements on Form S-3
effective under the Securities Act, each of which has been filed and is being
kept effective pursuant to registration rights granted in connection with
acquisitions made by the Company. Under the first of these shelf registration
statements, the Company has registered an aggregate of 127,645 shares of Common
Stock issued to the former stockholders of Cimtech S.A./N.V. and Contas Process
Control s.r.l. The Company is obligated to keep this shelf registration
statement in effect until September 22, 1998, although the Company may elect, in
its discretion, to keep the shelf registration statement until a later date.
Under the second of these shelf registration statements, the Company has
registered an aggregate of 322,944 shares of Common Stock issued to the former
stockholders of Zyqad Limited and Treiber Controls Inc. The Company is obligated
to keep this shelf registration statement in effect until November 29, 1998,
although the Company may elect, in its discretion, to keep the shelf
registration statement until a later date.
The Company has granted certain rights with respect to the registration of
an aggregate of 2,961,959 shares of Common Stock (the "Chesapeake Shares")
issued in connection with the Company's acquisition of Chesapeake. Pursuant to
these rights:
(1) Initial Shelf. The Company intends to file on or shortly after
September 16, 1998 a shelf registration statement on Form S-3 with respect
to 100,000 of the Chesapeake Shares. This shelf registration statement will
also include 14,000 shares of Common Stock that have been issued to the
former stockholder of Treiber Controls Inc., but are currently being held
in escrow under the terms of the share exchange agreement entered into in
connection with AspenTech's acquisition of Treiber Controls Inc. Former
stockholders of Chesapeake may elect to increase the number of Chesapeake
Shares registered under this shelf registration statement subsequent to the
filing date, but the Company expects that fewer than 100,000 additional
Chesapeake Shares will be registered. The Company will be obligated to keep
this shelf registration statement in effect for a period of ninety days.
(2) Second Shelf. The Company has agreed to file with the Commission,
as soon as practicable on or after January 4, 1999 (or, in certain
circumstances, a later date on or before February 26, 1999), a shelf
registration statement on Form S-3 covering up to 500,000 of the Chesapeake
Shares, as may be requested by the former stockholders of Chesapeake, and
to use its reasonable best efforts to cause such registration to become
effective as promptly as practicable and to remain effective through March
31, 1999.
(3) Third Shelf. The Company has also agreed to file with the
Commission, as soon as practicable on or after April 1, 1999 (or, in
certain circumstances, a later date on or before May 29, 1999), a
registration statement on Form S-3, covering up to an additional 500,000 of
the Chesapeake Shares, as may be requested to the former stockholders of
Chesapeake, and to use its reasonable best efforts to cause such
registration to become effective as promptly as practicable and to remain
effective through June 30, 1999.
(4) Demand Underwriting. The former stockholders of Chesapeake may,
between April 1, 1999 or July 30, 1999, require that the Company file with
the Commission one registration statement on Form S-3 covering between
500,000 and 1,000,000 of the Chesapeake Shares, for sale in an underwritten
public offering. Upon such a demand, the Company shall use its reasonable
best efforts to prepare and file such a registration statement with the
Commission and to cause such registration to become effective as promptly
as practicable.
(5) Piggyback Underwriting. In addition, the former stockholders of
Chesapeake shall have certain incidental, or "piggyback," rights to include
up to 500,000 of the Chesapeake Shares in a primary or secondary
underwritten offering for which the Company proposed to registered shares
of Common Stock (except for certain specified registrations, including
registrations to be effected on Form S-4 or S-8). These incidental
registration rights for the benefit of each former Chesapeake stockholder
apply with respect to any such registration by the Company occurring (A)
after November 29, 1998 and (B) before the date on which such stockholder
is eligible to sell all of such stockholder's Chesapeake
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Shares, without volume limitation, pursuant to Rule 144 under the
Securities Act (or on such earlier date on which the demand registration
described above shall be completed).
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Certificate of Incorporation of the Company provides for the division
of the Board of Directors into three classes as nearly equal in size as possible
with staggered three-year terms. In addition, the Certificate of Incorporation
provides that directors may be removed only for cause by the affirmative vote of
the holders of two-thirds of the shares of capital stock of the corporation
entitled to vote. Under the Certificate of Incorporation, any vacancy on the
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may only be filled by vote of a majority of the
directors then in office. The classification of the Board of Directors and the
limitations on the removal of directors and filling of vacancies could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company.
The Certificate of Incorporation also provides that any action required or
permitted to be taken by the stockholders of the Company at any annual meeting
or special meeting of stockholders may only be taken if it is properly brought
before such meeting and may not be taken by written consent in lieu of a
meeting. The Certificate of Incorporation further provides that special meetings
of the stockholders may only be called by Chairman of the Board of Directors,
the Chief Executive Officer or, if none, the President of the Company or by the
Board of Directors. Under the Company's By-Laws, in order for any matter to be
considered properly brought before a meeting, a stockholder must comply with
certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders'
meeting stockholder actions which are favored by the holders of a majority of
the outstanding voting securities of the Company. These provisions may also
discourage another person from making a tender offer for the Common Stock,
because such person, even if it acquired a majority of the outstanding voting
securities of the Company, would be able to take action as a stockholder (such
as electing new directors or approving a merger) only at a duly called
stockholders' meeting, and not by written consent.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Company's Certificate of Incorporation
and By-Laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.
The Certificate of Incorporation contains certain provisions permitted
under the General Corporation Law of Delaware relating to the liability of
directors. The provisions eliminate a director's liability for monetary damages
for a breach of fiduciary duty, except in certain circumstances involving
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions which involve intentional misconduct or a knowing violation of law.
Further, the Certificate of Incorporation contains provisions to indemnify the
Company's directors and officers to the fullest extent permitted by the General
Corporation Law of Delaware. The Company believes that these provisions will
assist the Company in attracting and retaining qualified individuals to serve as
directors and officers.
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RIGHTS PLAN
On March 12, 1998, the Board of Directors of the Company adopted a
Stockholder Rights Agreement (the "Rights Plan") and distributed one Right for
each outstanding share of Common Stock. The Rights were issued to holders of
record of Common Stock outstanding on March 12, 1998. Each share of Common Stock
issued after March 28, 1998 will also include one Right, subject to certain
limitations. Each Right when it becomes exercisable will initially entitle the
registered holder to purchase from the Company one one-hundredth (1/100th) of a
share of Series A Preferred Stock at a price of $175.00 (the "Purchase Price").
The terms of the Rights Plan are substantially equivalent to the terms of a
Stockholder Rights Agreement adopted on October 9, 1997 by the Board of
Directors of Aspen Technology, Inc., a Massachusetts corporation and predecessor
of the Company.
Currently the Rights are attached to outstanding shares of Common Stock.
The Rights are not now exercisable and cannot be transferred separately. The
Rights will become exercisable and separately transferable when the Company
learns that any person or group has acquired beneficial ownership of 15% or more
of the outstanding Common Stock or on such other date as may be designated by
the Board of Directors following the commencement of, or first public disclosure
of an intent to commence, a tender or exchange offer for outstanding Common
Stock that could result in the offeror becoming the beneficial owner of 15% or
more of the outstanding Common Stock. In such circumstances, holders of the
Rights will be entitled to purchase, for the Purchase Price, a number of
hundredths of a share of Series A Preferred Stock equivalent to the number of
shares of Common Stock (or, in certain circumstances, other equity securities)
having a market value of twice the Purchase Price. Beneficial holders of 15% or
more of the outstanding Common Stock, however, would not be entitled to exercise
their Rights in such circumstances. As a result, their voting and equity
interests in the Company would be substantially diluted if the Rights were to be
exercised.
The Rights expire in March 2008, but may be redeemed earlier by the Company
at a price of $.01 per Right, in accordance with the provisions of the Rights
Plan.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company.
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CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the
Debentures and the Conversion Shares, but does not purport to be a complete
analysis of all the potential tax considerations relating thereto. This summary
is based on current provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations thereunder and administrative and judicial
interpretations thereof, all of which are subject to change, with possible
retroactive effect. This summary only addresses the tax consequences to holders
("Holders") that are United States persons holding Debentures and Conversion
Shares as "capital assets" (within the meaning of Section 1221 of the Code).
This summary does not address tax considerations applicable to (i) investors
that are not United States persons, (ii) investors that may be subject to
special tax rules, such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies, (iii) persons that hold Debentures as a
position in a hedging transaction, "straddle" or "conversion transaction" for
tax purposes, and (iv) persons that have a "functional currency" other than the
U.S. dollar. As used herein, the term "United States person" means (i) a citizen
or resident of the United States, (ii) an entity created or organized in or
under the laws of the United States or any political subdivision thereof that is
classified as a corporation or as a partnership, (iii) an estate the income of
which is subject to United States federal income taxation regardless of its
source, and (iv) a trust if (a) a court within the United States is able to
exercise primary supervision over the trust's administration and (b) one or more
U.S. fiduciaries have the authority to control all the trust's substantial
decisions. The Company has not sought any ruling from the Internal Revenue
Service (the "IRS") with respect to the statements made and the conclusions
reached in the following summary, and there can be no assurance that the IRS
will agree with such statements and conclusions.
INVESTORS CONSIDERING THE PURCHASE OF DEBENTURES OR CONVERTIBLE SHARES
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS,
AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR
FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
PAYMENT OF INTEREST
Interest on a Debenture generally will be includable in the income of a
Holder as ordinary income at the time such interest is received or accrued, in
accordance with such Holder's method of accounting for United States federal
income tax purposes.
MARKET DISCOUNT
If a Holder purchases a Debenture for an amount that is less than its
stated redemption price at maturity, such Holder will be treated as having
purchased such Debenture at a "Market Discount." The Market Discount with
respect to a Debenture will equal the difference between (i) the stated
redemption price of the Debenture at maturity, over (ii) the basis of the
Debenture immediately after its acquisition by the Holder, provided, however,
that if the Market Discount is less than one-fourth of one percent of the stated
redemption price of the Debenture at maturity, multiplied by the number of
complete years to maturity (after the Holder acquired the Debenture), the Market
Discount shall be zero.
A Holder with a cash basis method of accounting for United States federal
income tax purposes is not required to include the Market Discount with respect
to a Debenture in income currently as it accrues, but may make an election to so
include such Market Discount. If the Holder makes such an election, such
included Market Discount is treated as interest income for United States federal
income tax purposes. Such an election will apply to all debt instruments with
market discount acquired by the Holder on or after the first day of the taxable
year to which such election applied and may be revoked only with the consent of
the IRS.
A Holder of a Debenture with a Market Discount will be required to treat
any partial payment on a Debenture, or any gain realized on the sale, exchange,
retirement or other disposition of a Debenture, as interest income to the extent
of the lesser of (i) the amount of such payment or gain realized and (ii) the
31
<PAGE> 33
Market Discount which has not previously been included in income and is treated
as having accrued on such Debenture at the time of such payment or disposition.
Any such amounts treated as ordinary income will increase the Holder's adjusted
tax basis in the Debenture. Those Holders who elect to include the Market
Discount with respect to a Debenture in income currently as it accrues should
not be required to treat any such amounts as interest income.
BOND PREMIUM
If a Holder purchases a debt instrument for an amount in excess of its
stated redemption price at maturity, the Holder will be considered to have
purchased the debt instrument with "amortizable bond premium," generally equal
in amount to such excess, but reduced by the value of any conversion features
attached to the debt instrument. A Holder may elect to amortize bond premium
using a constant yield method over the remaining term of the debt instrument.
Any election to amortize bond premium applies to all taxable debt obligations
then owned and thereafter acquired by the Holder on or after the first day of
the taxable year to which such election applies, and may be revoked only with
the consent of the IRS.
The conversion features of the Debentures and the Company's option to
redeem the Debentures at the Redemption Price prior to maturity will affect a
Holder's calculation of amortizable bond premium. As noted in the preceding
paragraph, the amount of amortizable bond premium generally equals the excess of
the Holder's tax basis in the debt instrument over the debt instrument's stated
redemption price at maturity, but reduced by the value of the conversion
features of the debt instrument. Accordingly, the value of the conversion
features of the Debentures must be excluded from the calculation of amortizable
bond premium. Treasury regulations provide that the value of the conversion
features of a particular debt instrument is determined as of the time of
acquisition by subtracting from the cost of the debt instrument the assumed
price at which the debt instrument would be purchased on the open market if it
did not have the conversion features. This assumed price of the debt instrument
without conversion features is determined by comparing the yields on which debt
instruments of a similar character, but not having conversion features, are sold
on the open market and adjusting the price of the debt instrument in question to
this yield.
In the case of instruments like the Debentures that may be redeemed prior
to maturity, the regulations provide that the premium is calculated by assuming
that the Company will exercise or not exercise its redemption rights in the
manner that maximizes the Holder's yield. If the assumption based on maximizing
the Holder's yield is that the Company's redemption rights will be exercised at
a particular redemption date, and contrary to that assumption the Company does
not exercise its redemption rights on that date, the Debentures will be treated
(for purposes of the bond premium rules only) as retired and reacquired by the
Holder at the redemption price at which the Debentures could have been redeemed
on such date. The Debentures deemed to have been reissued will again be subject
to the amortizable bond premium rules with respect to the remaining dates on
which the Debentures are redeemable. On the other hand, if the assumption based
on maximizing the Holder's yield is that the Company's redemption rights will
not be exercised on a particular redemption date, and contrary to that
assumption the Company does in fact exercise its redemption rights on that date,
the Holder may deduct the excess (if any) of the adjusted acquisition price
(cost minus previously amortized bond premium) over the redemption price.
A Holder amortizes bond premium by offsetting the interest income allocable
to that period by the premium allocable to that period on a constant-year basis.
If the bond premium allocable to an accrual period exceeds the qualified stated
interest allocable to such period, the excess is treated by the Holder as a bond
premium deduction. However, the bond premium deduction for the accrual period is
limited to the amount by which the Holder's total interest inclusions on the
debt instrument in prior accrual periods exceed the total amount treated by the
Holder as a bond premium deduction on the debt instrument in prior accrual
periods. Any amounts not deductible in an accrual period may be carried forward
to the next accrual period and treated as bond premium allocable to that period.
SALE, EXCHANGE OR REDEMPTION OF THE DEBENTURES
Upon the sale, exchange or redemption of a Debenture, a Holder generally
will recognize capital gain or loss equal to the difference between (i) the
amount of cash proceeds and the fair market value of any property received on
the sale, exchange or redemption (except to the extent such amount is
attributable to accrued
32
<PAGE> 34
interest income, which is taxable as ordinary income) and (ii) the Holder's
adjusted tax basis in the Debenture. A Holder's adjusted tax basis in a
Debenture generally will equal the cost of the Debenture to such Holder, less
any principal payments received by the Holder plus any accrued Market Discount.
The tax rate applicable to such a capital gain will depend, among other things,
upon the Holder's holding period for the Debentures that are sold, exchanged or
redeemed. Such gain or loss will be long-term capital gain or loss if the
Holder's holding period in the Debenture is more than 12 months at the time of
sale, exchange or redemption. Such gain or loss will be short-term gain or loss
if the holding period is equal to or less than 12 months. Long-term capital
gains are taxed at a maximum rate of 20%, and short-term capital gains are taxed
at a maximum rate of 39.6%. In taxable years beginning after December 31, 2000,
the rate of tax applicable to long-term capital gains in certain circumstances
may be reduced below 20% for property held for more than five years.
CONVERSION OF THE DEBENTURES
A Holder generally will not recognize any income, gain or loss upon
conversion of a Debenture into Common Stock except to the extent of ordinary
income recognized with respect to accrued and unpaid interest, including Market
Discount, on the Debenture at that time. A Holder also will recognize capital
gain or loss upon the receipt of cash in lieu of a fractional share of Common
Stock equal to the amount of cash received less the Holder's tax basis in such
fractional share. A Holder's tax basis in the Common Stock received on
conversion of a Debenture will be the same as the Holder's adjusted tax basis in
the Debenture at the time of conversion (including any accrued Market Discount,
and reduced by any basis allocable to a fractional share interest), and the
holding period for the Common Stock received on conversion will generally
include the holding period of the Debenture converted.
DIVIDENDS
Distributions made by the Company with respect to Common Stock will
generally be includable in the gross income of a Holder as dividend income to
the extent that such distributions are paid out of the Company's current or
accumulated earnings and profits. To the extent, if any, that the amount of any
such distribution exceeds the Company's current or accumulated earnings and
profits, it will first reduce the Holder's tax basis in its Common Stock to the
extent thereof, and to the extent in excess of such tax basis, will be treated
as gain from the sale or exchange of such stock.
In general, a dividend distribution to a corporate Holder will qualify for
the 70% dividends received deduction if such Holder owns less than 20% of the
voting power and value of the Company's stock (other than certain non-voting,
non-convertible, non-participating preferred stock). A corporate Holder that
owns 20% or more of the voting power and value of the Company's stock (other
than certain non-voting, non-convertible, non-participating preferred stock)
generally will qualify for an 80% dividends received deduction. The dividends
received deduction is subject, however, to certain holding period, taxable
income and other limitations.
SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) the Holder's adjusted tax basis in the Common Stock. The tax
rate applicable to such capital gain will depend, among other things, upon the
Holder's holding period for the Common Stock that is sold or exchanged. A
Holder's basis and holding period in Common Stock received upon conversion of a
Debenture are determined as discussed above under "-- Conversion of the
Debentures."
ADJUSTMENT OF CONVERSION PRICE
Treasury regulations promulgated under Section 305 of the Code would treat
Holders of the Debentures as having received a constructive distribution from
the Company upon an adjustment in the conversion ratio if (i) as a result of
such adjustment, the proportionate interest (measured by the number of shares of
Common Stock into which the Debentures are convertible) of the Holders of the
Debentures in the assets or earnings
33
<PAGE> 35
and profits of the Company were increased, and (ii) the adjustment was not made
pursuant to a bona fide, reasonable anti-dilution formula. An adjustment in the
conversion ratio would not be considered made pursuant to such an anti-dilution
formula if the adjustment was made to compensate the Holders of the Debentures
for certain taxable distributions made with respect to the Common Stock. Thus,
under certain circumstances, a reduction in the conversion price for the Holders
may result in deemed dividend income to such Holders to the extent of the
Company's current or accumulated earnings and profits. Holders of Debentures
could therefore have taxable income as a result of an event in connection with
which they received no cash or property.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Debenture, payments of dividends
on Common Stock, payments of the proceeds of the sale of a Debenture and
payments of the proceeds of the sale of Common Stock to certain noncorporate
Holders, and a 31% backup withholding tax may apply to such payments if (i) the
Holder fails to furnish or certify his correct taxpayer identification number to
the payor in the manner required, (ii) the Company is notified by the IRS that
the Holder has failed to report payments of interest and dividends properly or
that the taxpayer identification number furnished to the Company is incorrect,
or (iii) under certain circumstances, the Holder fails to certify that he has
not been notified by the IRS that he is subject to backup withholding for
failure to report interest and dividend payments. Any amounts withheld under the
backup withholding rules from a payment to a Holder will be allowed as a credit
against such Holder's United States federal income tax and may entitle such
Holder to a refund, provided that the required information is furnished to the
IRS.
EFFECT OF RECENT LEGISLATION
Under section 163(l) of the Code, no deduction is allowed for any interest
paid or accrued on a "disqualified debt instrument." A disqualified debt
instrument is defined generally as indebtedness of a corporation that is payable
in equity of the issuer or a related party. Certain convertible debt instruments
that are convertible at the holder's option when it is substantially certain
that the conversion right will be exercised may constitute disqualified debt
instruments. It is not expected, however, that section 163(l) of the Code will
affect a debt instrument with a conversion feature where the conversion price is
significantly higher than the market price of the stock on the date of the debt
issuance, as is the case of the Debentures. Accordingly, the Company does not
believe that its interest deduction with respect to the Debentures will be
adversely affected by these rules.
34
<PAGE> 36
SELLING SECURITYHOLDERS
The Debentures were originally issued by the Company in a private placement
on April 9, 1998 to Goldman, Sachs, & Co., NationsBanc Montgomery Securities LLC
and William Blair & Company, L.L.C. (the "Initial Purchasers"). The Debentures
were resold by the Initial Purchasers in transactions exempt from the
registration requirements of the Securities Act in the United States to persons
reasonably believed by the Initial Purchasers to be "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act).
The resale of the Debentures and Conversion Shares has been registered
pursuant to a Registration Rights Agreement requiring the Company to file this
Registration Statement covering the Debentures and the Conversion Shares by
September 15, 1998 and to use its best efforts to keep this Registration
Statement effective for two years after the filing date, subject to certain
exceptions. See "Description of Debentures -- Registration Rights."
None of the Selling Securityholders has, or within the past three years has
had, any position, office or other material relationship with the Company or any
of its predecessors or affiliates. Because the Selling Securityholders may,
pursuant to this Prospectus, offer all or some portion of the Debentures or
Conversion Shares, no estimate can be given as to the amount of the Debentures
or Conversion Shares issuable upon conversion thereof that will be held by the
Selling Securityholders upon termination of any such sales. In addition, the
Selling Securityholders may have sold, transferred or otherwise disposed of all
or a portion of their Debentures since the date on which they provided the
information regarding their Debentures included herein in transactions exempt
from the registration requirements of the Securities Act. See "Plan of
Distribution."
The following table sets forth information, as of , 1998,
with respect to the Selling Securityholders and the respective principal amount
of Debentures and Conversion Shares beneficially owned by each Selling
Securityholder that may be offered pursuant to this Prospectus. Except as
otherwise indicated, to the knowledge of the Company, all persons listed below
have sole voting and investment power with respect to their securities. Such
information has been obtained from the Selling Securityholders and the Trustee.
The term "Selling Securityholders" includes the holders listed below and the
beneficial owners of the Debentures and their transferees, pledgees, donees or
other successors.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF PRINCIPAL SHARES OF SHARES OF
DEBENTURES AMOUNT OF COMMON STOCK COMMON STOCK
OWNED PRIOR DEBENTURES OWNED PRIOR OFFERED
SELLING SECURITYHOLDER TO THE OFFERING OFFERED HEREBY TO THE OFFERING HEREBY
- ---------------------- --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
[INFORMATION TO BE PROVIDED BY AMENDMENT]
</TABLE>
Although none of the Selling Securityholders (other than those Selling
Securityholders named above) have advised the Company that they currently intend
to sell all or any of the Debentures or Conversion Shares pursuant to this
Prospectus, the Selling Securityholders may choose to sell the Debentures or
Conversion Shares from time to time upon notice to the Company. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
The Debentures and Conversion Shares may be sold from time to time to
purchasers directly by the Selling Securityholders. Alternatively, the Selling
Securityholders may from time to time offer the Debentures and Conversion Shares
to or through underwriters, brokers/dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders or the purchasers for whom they may act as
agents. The Selling Securityholders and any underwriters, dealer/broker or
agents that participate in the distribution of Debentures and Conversion Shares
may be deemed to be
35
<PAGE> 37
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, broker/dealer or agent may be
deemed to be underwriting discounts and commissions under the Securities Act.
The Debentures and Conversion Shares may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices at the time of
sale, at varying prices determined at the time of sale or at negotiated prices.
Sales of Debentures and Conversion Shares may be effected in transactions (which
may involve crosses or block transactions) (i) on any national securities
exchange or quotation service on which the Debentures and Conversion Shares may
be listed or quoted at the time of sale, (ii) in the over-the-counter market,
(iii) in transactions otherwise than on such exchanges or in the
over-the-counter market or (iv) through the writing and exercise of options. At
the time a particular offering of Debentures or Conversion Shares is made, a
Prospectus Supplement, if required, will be distributed, which will set forth
the aggregate amount and type of Debentures and Conversion Shares being offered
and the terms of the offering, including the name or names of any underwriters,
broker/dealers or agents, any discounts, commissions and other terms
constituting compensation from the Selling Securityholders, and any discounts,
commissions or concessions allowed or reallowed to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
Debentures and Conversion Shares will be offered or sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Debentures and the Conversion Shares may not be offered or
sold unless they have been registered or qualified for sale in such
jurisdictions or an exemption from registration or qualification is available
and is complied with.
The Selling Securityholders will be subject to applicable provisions of the
Exchange Act and rules and regulations thereunder, which provisions may limit
their timing of purchases and sales of Debentures and Conversion Shares and
therefore may affect the marketability of such securities.
Pursuant to the Registration Rights Agreement, the Company will pay all
expenses of the registration of the Debentures and Conversion Shares, including
all registration and filing fees and expenses and fees and expenses of
compliance with federal securities or state blue sky laws; provided, however,
that the Selling Securityholders will pay all brokers' commissions and
underwriting discounts and commissions, if any. The Selling Securityholders will
be indemnified by the Company against certain civil liabilities, including
certain liabilities under the Securities Act or the Exchange Act or otherwise,
or will be entitled to contribution in connection therewith. The Company will be
indemnified by the Selling Securityholders severally against certain civil
liabilities, including certain liabilities under the Securities Act or
otherwise, or will be entitled to contribution in connection therewith.
LEGAL MATTERS
The validity of the Debentures and Conversion Shares offered hereby has
been passed upon for the Company by Foley, Hoag & Eliot LLP, Boston,
Massachusetts.
EXPERTS
The consolidated and supplemental consolidated balance sheets of the
Company as of June 30, 1996 and 1997 and the related consolidated and
supplemental consolidated statements of operations, stockholders' equity and
cash flows for the years ended June 30, 1995, 1996 and 1997 incorporated by
reference herein from the Company's Current Report on Form 8-K dated May 27,
1998 have been audited by Arthur Andersen LLP, independent public accountants,
to the extent and for the periods indicated in their reports included in such
Form 8-K, and are incorporated by reference herein in reliance upon the
authority of that firm as experts in giving those reports.
36
<PAGE> 38
================================================================================
NO BROKER, DEALER OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE SELLING SECURITYHOLDERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 2
Information Incorporated by
Reference........................... 2
Prospectus Summary.................... 3
Risk Factors.......................... 6
Forward-Looking Statements............ 14
Ratio of Earnings to Fixed Charges.... 14
Use of Proceeds....................... 14
Description of Debentures............. 15
Description of Capital Stock.......... 27
Certain United States Federal Income
Tax Considerations.................. 31
Selling Securityholders............... 35
Plan of Distribution.................. 35
Legal Matters......................... 36
Experts............................... 36
</TABLE>
================================================================================
$86,250,000
ASPEN TECHNOLOGY, INC.
5 1/4% CONVERTIBLE SUBORDINATED
DEBENTURES DUE JUNE 15, 2005
------------------------
PROSPECTUS
------------------------
, 1998
================================================================================
<PAGE> 39
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses to be paid by the
Registrant in connection with the issuance and distribution of the shares of
Common Stock being registered. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee. The Registrant will pay all
expenses in connection with the distribution of the shares of Common Stock being
sold by the Selling Stockholders (including fees and expenses of counsel for the
Company), except for any discounts, concessions, commissions or other
compensation due to any broker or dealer in connection with the sale of any of
the shares offered hereby.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $25,444
Accounting fees and expenses................................ 1,000
Legal fees and expenses..................................... 20,000
Printing, EDGAR formatting and mailing expenses............. 15,000
Miscellaneous............................................... 1,056
-------
Total............................................. $62,500
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article SEVENTH of the Registrant's Certificate of Incorporation, as
amended (the "Certificate of Incorporation"), provides that no director of the
Registrant shall be personally liable for any monetary damages for any breach of
fiduciary duty as a director, except to the extent that the Delaware General
Corporation Law prohibits the elimination or limitation of liability of
directors for breach of fiduciary duty.
Article EIGHTH of the Certificate of Incorporation provides that a director
or officer of the Registrant shall be indemnified by the Registrant against (a)
all expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement incurred in connection with any litigation or other legal proceeding
(other than an action by or in the right of the Registrant) brought against him
or her by virtue of his or her position as a director or officer of the
Registrant if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Registrant, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful and (b) all expenses (including
attorneys' fees) and amounts paid in settlement incurred in connection with any
action by or in the right of the Registrant brought against him or her by virtue
of his or her position as a director or officer of the Registrant if he or she
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the Registrant, except that no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the Registrant, unless a court
determines that, despite such adjudication but in view of all of the
circumstances, he or she is entitled to indemnification of such expenses.
Notwithstanding the foregoing, to the extent that a director or officer has been
successful, on the merits or otherwise, including the dismissal of an action
without prejudice, he or she is required to be indemnified by the Registrant
against all expenses (including attorneys' fees) incurred in connection
therewith. Expenses shall be advanced to a director or officer at his or her
request, provided that he or she undertakes to repay the amount advanced if it
is ultimately determined that he or she is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the Registrant fails to make an indemnification payment
within sixty days after such payment is claimed by such person, such person is
permitted to petition the court to make an independent determination as to
whether
II-1
<PAGE> 40
such person is entitled to indemnification. As a condition precedent to the
right of indemnification, the director or officer must give the Registrant
notice of the action for which indemnity is sought and the Registrant has the
right to participate in such action or assume the defense thereof.
Article EIGHTH of the Certificate of Incorporation further provides that
the indemnification provided therein is not exclusive, and provides that in the
event that the Delaware General Corporation Law is amended to expand the
indemnification permitted to directors or officers the Registrant must indemnify
those persons to the fullest extent permitted by such law as so amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he or she is or is threatened
to be made a party by reason of such position, if such person shall have acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his or her conduct
was unlawful; provided that, in the case of actions brought by or in the right
of the corporation, no indemnification shall be made with respect to any matter
as to which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the adjudicating court determines that such
indemnification is proper under the circumstances.
The Company maintains a directors' and officers' insurance policy that
covers certain liabilities of directors and officers of the Company, including
liabilities under the Securities Act. The Company maintains a general liability
insurance policy that covers certain liabilities of directors and officers of
the Company arising out of claims based on acts or omissions in their capacities
as directors or officers.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
4.1 Indenture dated as of June 17, 1998 between Aspen
Technology, Inc. and The Chase Manhattan Bank, as trustee,
with respect to up to $86,250,000 principal amount of 5 1/4%
Convertible Subordinated Debentures due June 15, 2005 of
Aspen Technology, Inc. (incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K dated June
17, 1998)
4.2 Form of 5 1/4% Convertible Subordinated Debentures due June
15, 2005 of Aspen Technology, Inc. (included in Sections
2.2, 2.3 and 2.4 of the Indenture filed as Exhibit 4.1)
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated June 17, 1998)
5.1* Opinion of Foley, Hoag & Eliot LLP
10.1 Registration Rights Agreement, dated as of June 17, 1998,
between Aspen Technology, Inc. and Goldman, Sachs & Co.,
Nationsbanc Montgomery Securities LLC and William Blair &
Company, L.L.C. (incorporated by reference to Exhibit 10.1
to the Company Current Report on Form 8-K dated June 17,
1998)
12.1 Statement Regarding Computation of Ratios of Earnings to
Fixed Charges
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-4)
25.1* Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 on Form T-1
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
II-2
<PAGE> 41
(i) To include any prospectus required to Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3, Form S-8, or Form F-3, and
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration, by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference to the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 42
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, as of
September 14, 1998.
ASPEN TECHNOLOGY, INC.
By: /s/ LAWRENCE B. EVANS
------------------------------------
Lawrence B. Evans
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Aspen Technology, Inc.,
hereby severally constitute and appoint Lawrence B. Evans, Lisa W. Zappala and
Stephen J. Doyle, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-3 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b) under the Securities Act of 1933
and generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable Aspen Technology, Inc. to comply
with the provisions of the Securities Act of 1933 and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under said Rule
462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated as of September 14, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ LAWRENCE B. EVANS Chairman of the Board and Chief Executive
- --------------------------------------------------- Officer
Lawrence B. Evans (Principal Executive Officer)
/s/ LISA W. ZAPPALA Chief Financial Officer
- --------------------------------------------------- (Principal Financial and Accounting Officer)
Lisa W. Zappala
/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
Director
- ---------------------------------------------------
Joan C. McArdle
/s/ ALISON ROSS Director
- ---------------------------------------------------
Alison Ross
</TABLE>
II-4
<PAGE> 1
Exhibit 12.1
ASPEN TECHNOLOGY, INC., AND SUBSIDIARIES
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
Aspen Technology, Inc. and Subsidiaries for each of the five years in the period
ended June 30, 1997 and the nine months ended March 31, 1998. The ratio of
earnings to fixed charges is computed by dividing net fixed charges (interest
expense, amortization of debt issuance costs, accretion and noncash dividends
and the portion of rental expense that is representative of the interest factor)
into earnings before income taxes and fixed charges.
<TABLE>
<CAPTION>
Nine
Year Ended June 30, Months Ended
-------------------------------------------------- March 31,
1993 1994 1995 1996 1997 1998
------- ------ ------- ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Earnings before
income taxes
excluding accretion
and non cash
dividends $2,635 $5,858 $11,963 $(8,241) $24,370 $20,268
Interest expense
including interest
portion of rental
expense 1,088 1,165 1,303 2,462 1,823 1,711
Undistributed earnings
of unconsolidated
subsidiaries -- -- (22) (10) (26) (45)
------ ------ ------- ------ ------- -------
Earnings before fixed
charges 3,723 7,023 13,244 (5,789) 26,167 21,934
------ ------ ------- ------ ------- -------
Fixed Charges:
Interest expense
including interest
portion of rental
expense 1,088 1,165 1,303 2,462 1,823 1,711
------ ------ ------- ------ ------- -------
Fixed charges 1,088 1,165 1,303 2,462 1,823 1,711
------ ------ ------- ------ ------- -------
Ratio of earnings to
fixed charges 3.42x 6.03x 10.16x -- 14.35x 12.82x
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement on Form S-3 of our reports included
in the Current Report on Form 8-K of Aspen Technology, Inc. dated May 27, 1998
and to the reference to our firm in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 14, 1998
