<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
--------------------------------------------------------------------------------
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Aspen Technology, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, If Other Than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE> 2
ASPEN TECHNOLOGY, INC.
TEN CANAL PARK
CAMBRIDGE, MASSACHUSETTS 02141
[ASPEN TECHNOLOGY, INC. LOGO]
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
We invite you to attend our 2000 Annual Meeting of Stockholders, which is
being held as follows:
DATE: Tuesday, December 19, 2000
TIME: 3 P.M.
LOCATION: Royal Sonesta Hotel
Riverfront Room, East Tower, Second Floor
5 Cambridge Parkway
Cambridge, Massachusetts 02142
At the Meeting, we will ask you and our other stockholders to:
1. elect two directors to three-year terms;
2. approve the adoption of our 2001 Stock Option Plan;
3. approve an amendment to increase the number of shares of common stock
reserved under our 1998 Employees' Stock Purchase Plan from 1,000,000
to 3,000,000;
4. consider and act upon a stockholder proposal to rescind our
shareholder rights plan; and
5. consider any other business properly presented at the Meeting.
You may vote on these matters in person or by proxy. Whether you plan to
attend the Meeting or not, we ask that you complete and return the enclosed
proxy card promptly in the enclosed addressed, postage-paid envelope, so that
your shares will be represented and voted at the Meeting in accordance with your
wishes. If you attend the Meeting, you may withdraw your proxy and vote your
shares in person. Only stockholders of record at the close of business on
October 31, 2000 may vote at the Meeting.
By order of the board of directors,
------------------------------------
STEPHEN J. DOYLE
Secretary
Cambridge, Massachusetts
November , 2000
<PAGE> 3
PROXY STATEMENT
FOR THE
ASPEN TECHNOLOGY, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFORMATION ABOUT THE MEETING
This Proxy Statement........................................ 2
How to Vote................................................. 2
Quorum Required to Transaction Business..................... 3
Availability of Auditors.................................... 3
DISCUSSION OF PROPOSALS
Proposal One: Election of Class I Directors................. 4
Proposal Two: Approval of 2001 Stock Option Plan............ 4
Proposal Three: Amendment of 1998 Employees' Stock Purchase
Plan...................................................... 7
Proposal Four: Recission of Shareholder Rights Plan......... 8
Other Matters............................................... 11
Stockholder Proposals for 2001 Annual Meeting............... 12
ADDITIONAL INFORMATION ABOUT DIRECTORS
Background Information About Directors Continuing in
Office.................................................... 13
Board and Committee Meetings................................ 14
Compensation Committee Interlocks and Insider
Participation............................................. 15
Director Compensation....................................... 15
Related Party Transactions.................................. 15
INFORMATION ABOUT EXECUTIVE OFFICERS
Background Information About Executive Officers............. 16
Executive Officer Compensation.............................. 18
Change in Control Agreements................................ 19
Compensation Committee Report on Executive Compensation..... 20
INFORMATION ABOUT STOCK OWNERSHIP AND PERFORMANCE
Stock Owned by Directors, Executive Officers and
Greater-than-5% Stockholders.............................. 22
Compliance with Reporting Requirements...................... 23
Performance Graph........................................... 23
</TABLE>
<PAGE> 4
INFORMATION ABOUT THE MEETING
THIS PROXY STATEMENT
We have sent you this Proxy Statement and the enclosed proxy card because
our board of directors is soliciting your proxy to vote at our 2000 Annual
Meeting of Stockholders or any adjournment or postponement of the Meeting. The
Meeting will be held at 3 P.M., local time, on Tuesday, December 19, 2000, at
the Royal Sonesta Hotel, Riverfront Room, East Tower, Second Floor, 5 Cambridge
Parkway, Cambridge, Massachusetts.
- THIS PROXY STATEMENT summarizes information about the proposals to
be considered at the Meeting and other information you may find
useful in determining how to vote.
- THE PROXY CARD is the means by which you actually authorize another
person to vote your shares in accordance with your instructions.
Our directors, officers and employees may solicit proxies in person or by
mail, telephone, facsimile or electronic mail. We will pay the cost of
soliciting these proxies. We expect that the expense of any solicitation will be
nominal. We will reimburse brokers and other nominee holders of shares for
expenses they incur in forwarding proxy materials to beneficial owners of those
shares. We have not retained the services of any proxy solicitation firm to
assist us in this solicitation.
We are mailing this proxy statement and the enclosed proxy card to
stockholders for the first time on or about November , 2000. In this mailing,
we are including a copy of our Annual Report on Form 10-K for the fiscal year
ended June 30, 2000, as filed with the SEC, and our 2000 Annual Report to
Stockholders.
HOW TO VOTE
You are entitled to one vote at the Meeting for each share of common stock
registered in your name at the close of business on October 31, 2000. The proxy
card states the number of shares you are entitled to vote at the Meeting.
You may vote your shares at the Meeting in person or by proxy:
- TO VOTE IN PERSON, you must attend the Meeting, and then complete
and submit the ballot provided at the Meeting.
- TO VOTE BY PROXY, you must complete and return the enclosed proxy
card. Your proxy will be valid only if you sign, date and return it
before the Meeting. By completing and returning the proxy card, you
will direct the designated persons to vote your shares at the
Meeting in the manner you specify in the proxy card. If you complete
the proxy card with the exception of the voting instructions, then
the designated persons will vote your shares for the election of the
nominated directors, the approval of the 2001 Stock Option Plan and
the amendment of our 1998 Employees' Stock Purchase Plan, but will
not vote your shares for the recission of the Shareholder Rights
Plan. If any other business properly comes before the Meeting, the
designated persons will have the discretion to vote your shares as
they deem appropriate.
Even if you complete and return a proxy, you may revoke it at any time
before it is exercised by taking one of the following actions:
- send written notice to Stephen J. Doyle, our Secretary, at our
address appearing in the Notice appearing before this proxy
statement;
- send us another signed proxy with a later date; or
- attend the Meeting, notify the Secretary that you are present, and
then vote in person.
2
<PAGE> 5
QUORUM REQUIRED TO TRANSACT BUSINESS
At the close of business on October 31, 2000, shares of common stock
were outstanding. Our by-laws require that a majority of the common stock
outstanding on that date be represented, in person or by proxy, at the Meeting
in order to constitute the quorum we need to transact business. We will count
abstentions and broker non-votes in determining whether a quorum exists.
AVAILABILITY OF AUDITORS
The board of directors has selected Arthur Andersen LLP as independent
public accountants to audit our financial statements for the fiscal year ending
June 30, 2001. Arthur Andersen LLP has served as our auditors since 1982. We
expect that representatives of Arthur Andersen LLP will attend the Meeting, will
have an opportunity to make a statement, and will be available to respond to
appropriate questions.
3
<PAGE> 6
DISCUSSION OF PROPOSALS
PROPOSAL ONE: ELECTION OF CLASS I DIRECTORS
The first proposal on the agenda for the Meeting is the election of two
persons to serve as Class I directors for three-year terms beginning at the
Meeting and ending at our 2003 Annual Meeting of Stockholders.
Under our by-laws, our board of directors has the authority to fix the
number of directors. The number of directors currently is fixed at 7. Our
by-laws provide that the board is to be divided into three classes with each
class of directors serving for staggered three-year terms.
The board has nominated the two current Class I directors for re-election.
Brief biographies of the nominees, as of October 30, 2000, follow. You will find
information about their stock holdings on page 22.
LAWRENCE B. EVANS.......... Our principal founder, Dr. Evans has served as a
director since 1981 and has served as our Chairman
of the Board and Chief Executive Officer since
1984. He also served as our Treasurer from 1984
through February 1995 and as President from our
inception until 1984. Dr. Evans served as Professor
of Chemical Engineering at M.I.T. from 1962 to 1990
and was the principal investigator for the ASPEN
Project at M.I.T., which lasted from 1976 to 1981.
Dr. Evans holds a B.S. in Chemical Engineering from
the University of Oklahoma and an M.S.E. and Ph.D.
in Chemical Engineering from the University of
Michigan. Dr. Evans is 66 years old.
JOAN C. MCARDLE............ Ms. McArdle has served as a director since 1994.
She currently serves as a member of the Audit
Committee. Since 1985 she has been a Vice President
of Massachusetts Capital Resource Company, an
investment company. Ms. McArdle holds an A.B. in
English from Smith College. Ms. McArdle is 49 years
old.
If for any reason either Mr. Evans or Ms. McArdle becomes unavailable for
election, the persons designated in the proxy card may vote the proxy for the
election of a substitute. Mr. Evans and Ms. McArdle have consented to serve as
directors if elected, and we have no reason to believe that either of them will
become unavailable for election.
The two nominees receiving the greatest number of votes cast will be
elected as directors. We will not count abstentions or broker non-votes when we
tabulate votes cast for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH OF
MR. EVANS AND MS. MCARDLE.
PROPOSAL TWO: ADOPTION OF 2001 STOCK OPTION PLAN
The board of directors has adopted a 2001 Stock Option Plan, subject to
stockholder approval. The 2001 Option Plan would replace the 1995 Stock Option
Plan and initially would cover 4,000,000 shares of common stock. At July 1, 2002
and July 1, 2003, the 2001 Option Plan would be expanded to cover an additional
5% of the common stock outstanding on the preceding June 30, rounded down to the
nearest number divisible by 10,000. In no event, however, may the number of
shares subject to incentive options exceed 8,000,000 unless the 2001 Option Plan
is amended and the amendment is approved by the stockholders.
An affirmative vote of a majority of the common stock voting on the matter,
in person or by proxy, is necessary to approve the 2001 Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
THE 2001 STOCK OPTION PLAN.
4
<PAGE> 7
Rationale for 2001 Stock Option Plan
The 2001 Option Plan is intended to advance the interests of our
stockholders by improving our ability to attract and retain qualified
individuals who are in a position to contribute to our management and growth and
to provide additional incentive for those individuals to contribute to our
future success.
The board of directors has determined that additional options are necessary
to meet our goals of:
- retaining key employees and attracting the best new employees by
providing competitive compensation;
- encouraging stock ownership by our employees, which will link their
individual financial results to the performance of our company; and
- rewarding the achievement of project milestones and other goals set
by the board of directors and senior management.
Over the past three years, our annual grants of stock options have
represented, on the average, 6.93% of the total number of shares of common stock
outstanding. Data compiled by Watson Wyatt & Company from 14 of our peer
companies and a sampling of high technology companies indicates that those
companies' annual grants of stock options, over the comparable period,
represented an average of 9.63% of their outstanding shares. We project the need
to grant stock options in fiscal years 2002, 2003 and 2004 representing
approximately 8% of shares outstanding, which would continue to be below the
average grants reported by Watson Wyatt & Company. Adoption of the 2001 Option
Plan will enable us to grant options in accordance with our projections, which
will further our goals of attracting and retaining the best qualified
individuals and thereby maximizing stockholder value.
Description of 2001 Stock Option Plan
The 2001 Option Plan provides that we may grant options for not more than
the stated number of shares of common stock, subject to increase or decrease in
the event of subsequent stock splits or other capital changes. In the event that
any option expires or terminates for any reason without being exercised in full,
the unpurchased shares covered thereby will be available for subsequent grants
under the 2001 Option Plan. We do not intend to begin issuing options under the
2001 Option Plan until all of the shares available for grant under the 1995
Option Plan have been granted. Options under the 2001 Option Plan may not be
granted after June 30, 2010.
Options under the 2001 Option Plan may be granted only to our employees or
advisors or to employees or advisors of one of our subsidiaries. Employees may
receive either incentive options or nonstatutory options, as decided by the
Compensation Committee, but advisors may receive only nonstatutory options. The
aggregate fair market value of common stock for which incentive options held by
any participant may first become exercisable in any calendar year, determined as
of the time the incentive option is granted, shall not exceed $100,000. No more
than 1,000,000 shares may be subject to options granted to any one employee or
advisor.
The exercise price of each incentive option granted pursuant to the 2001
Option Plan shall not be less than 100% of the fair market value on the date of
grant. The exercise price of each nonstatutory option is not so limited. An
option may be exercised in exchange for cash or shares of common stock equal in
value to the exercise price. An option may also be exercised through a cashless
exercise procedure pursuant to which the optionee provides irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
purchased shares and to remit to us, out of the sale proceeds, an amount equal
to the aggregate option price payable for the purchased shares plus all
applicable withholding taxes.
The 2001 Option Plan will be administered by the Compensation Committee.
The Compensation Committee has complete authority, subject to the limitations
described herein, to determine which employees and advisors will be granted
options, the time at which options will be granted, the number of shares covered
by each option, and the option period. The Compensation Committee may delegate
to the Chief Executive Officer the power to grant options to employees who are
not officers.
5
<PAGE> 8
Each option granted under the 2001 Option Plan will be evidenced by a
written option agreement in a form approved by the Compensation Committee. Each
option will become exercisable in one or more installments over time as provided
in the option agreement. Generally, one-sixteenth of the amount of shares
subject to the option will become exercisable at the end of each calendar
quarter, except that no incentive option may be exercised later than 10 years
from the date of its grant. In the event of a change of control, however, each
option will become immediately exercisable in full. In addition, the
Compensation Committee may accelerate the exercisability of options. Options
granted under the 2001 Option Plan generally will not be transferable other than
by will or the laws of descent and distribution, but may be transferred to
family members or family trusts or partnerships with the Compensation
Committee's permission. Options granted under the 2001 Stock Option Plan will
cease to vest upon the death or other termination of employment of an optionee,
and any vested but unexercised options will only be exercisable for a limited
period thereafter.
The 2001 Option Plan is intended to qualify as an "incentive stock option
plan" within the meaning of Section 422 of the Internal Revenue Code, but not
all options granted under the 2001 Option Plan are required to be incentive
options. Under the applicable Code provisions, an employee will recognize no
income subject to federal income taxation upon either the grant or exercise of
an incentive option under the 2001 Option Plan, and we will not be entitled to a
deduction for federal income tax purposes as a result of the grant or exercise
of the incentive option. Generally, if an optionee disposes of the incentive
option shares more than two years after the date the option was granted and more
than one year after the exercise of the option, the gain or loss on a sale of
the incentive option shares, equal to the difference between the sales price and
the option exercise price, will be treated as long-term capital gain or loss. In
that case, we will not be entitled to a deduction at the time the optionee sells
the option shares. If the optionee sells the incentive option shares within two
years after the date the option is granted or within one year after the date the
option is exercised, the optionee will generally be taxed on an ordinary income
basis on the sale of the shares on an amount equal to the difference between the
fair market value of the common stock at exercise and the incentive option
exercise price. We will be allowed a deduction at that time in an amount equal
to the ordinary income realized by the employee. In addition, some optionees may
be subject to a minimum tax on tax preference income.
No taxable income will be recognized by an individual upon the grant of a
nonstatutory option under the 2001 Option Plan. Upon the exercise of the
nonstatutory option, however, any amount by which the fair market value of the
common stock at exercise exceeds the option exercise price will be treated as
ordinary income to the individual in the year of exercise. In that case, we will
be allowed an income tax deduction in an amount equal to the amount the
individual recognizes as ordinary income.
Description of the 1995 Stock Option Plan
The 1995 Option Plan is identical in most respects to the 2001 Option Plan.
Under the 1995 Option Plan, 1,451,366 shares remain available for grant and
4,693,858 shares are subject to outstanding options. We intend to grant options
under the 1995 Option Plan until all the shares available for grant thereunder
have been issued and thereafter to grant options to employees exclusively under
the 2001 Option Plan.
New Plan Benefits
Because the grant of options under the 2001 Option Plan is discretionary,
we are unable to determine the dollar value and number of options that we will
grant to any person, including any executive officer, director or
director-nominee, or any associate of any executive officer, director or
director-nominee, as a result of the proposed adoption of the 2001 Option Plan.
If the 2001 Option Plan had been in effect during fiscal 2000, it would not have
affected the determination of the number of options received by or allocated to
participants in fiscal 2000.
6
<PAGE> 9
PROPOSAL THREE: AMENDMENT OF 1998 EMPLOYEES' STOCK PURCHASE PLAN
The board of directors has approved, subject to stockholder approval, an
amendment to our 1998 Employees' Stock Purchase Plan that would increase the
number of shares covered from 1,000,000 to 3,000,000. In all other respects, the
1998 Purchase Plan would remain unchanged.
The purpose of the 1998 Purchase Plan is to encourage ownership of stock by
our employees and employees of our subsidiaries and to provide additional
incentive for those employees to promote our success.
An affirmative vote of a majority of the common stock voting on the matter,
in person or by proxy, is necessary to approve the amendment of the 1998
Purchase Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND
THE 1998 EMPLOYEES' STOCK PURCHASE PLAN.
Description of 1998 Employees' Stock Purchase Plan
The 1998 Purchase Plan provides that we may grant options for not more than
1,000,000 shares of common stock, subject to increase or decrease in the event
of stock splits or other capital changes. Options are granted to eligible
employees on each January 1 and July 1 that is designated as a grant date by the
Compensation Committee. As of June 30, 2000, there remained 196,388 shares of
common stock under the 1998 Purchase Plan. In order that we may continue to
grant options under the 1998 Purchase Plan, we propose to increase the number of
shares covered from 1,000,000 to 3,000,000.
All employees of our company and our participating subsidiaries who have
been employed for at least one month, for at least twenty hours per week and for
more than five months per year are eligible to participate in the 1998 Purchase
Plan as of the first enrollment date following employment. Participants may
elect to make contributions up to a maximum of 10% of base compensation. On the
last trading date of each purchase period, we apply the funds then in each
participant's account to the purchase of shares. The cost of each share
purchased is 85% of the lower of the closing prices for common stock on (1) the
first trading day in the enrollment period for which the purchase is made and
(2) the last such trading date. In addition, an employee's rights to purchase
stock will not accrue at a rate that exceeds $25,000 of fair market value of
common stock, determined as of the grant date, for any calendar year.
The 1998 Purchase Plan is administered by the Compensation Committee. The
1998 Purchase Plan may be amended or terminated at any time by the Compensation
Committee, but no amendments may, without stockholder approval, increase the
maximum number of shares purchasable under the 1998 Purchase Plan, change the
description of employees or classes of employees eligible to receive options,
change the manner of determining the exercise price of the options or extend the
period during which the options may be granted or exercised under the 1998
Purchase Plan.
The 1998 Purchase Plan is intended to qualify as an "employee stock
purchase plan" as defined by Section 423 of the Internal Revenue Code. Under the
applicable Code provision, an employee will incur no federal income tax upon
either the grant or the exercise of an option granted under the 1998 Purchase
Plan. If an employee sells or otherwise disposes of the shares within two years
after the date the option was granted or within one year after the date the
option was exercised, the employee will be taxed at ordinary income rates on an
amount equal to the difference between the exercise price and the fair market
value of the shares at the time the option was exercised, and we will be
entitled to a deduction of an equivalent amount. The difference between the
amount received on the disposition of the shares and the employee's tax basis in
the shares, which is equal to the exercise price plus the amount taxed as
ordinary income, will be recognized as a capital gain or loss. If an employee
sells or disposes of the shares more than two years after the option was granted
and more than one year after the option was exercised, the employee will be
taxed at ordinary income rates on the amount equal to the excess of the fair
market value of the shares at the time of the disposition over the exercise
price or 15% of the fair market value of the shares at the time the option was
granted, whichever is less, and we will not be entitled to a corresponding
deduction. The difference between the amount realized on the disposition of the
shares and the optionee's tax basis in the shares will be recognized as
long-term capital gain or loss.
7
<PAGE> 10
New Plan Benefits
Because purchases of shares under the 1998 Purchase Plan are subject to
decisions made by the individual participants, we are unable to determine the
dollar value and number of shares that we will grant as a result of the proposed
amendment to any executive officer or any associate of any executive officer. If
the amendment to the 1998 Purchase Plan had been in effect during fiscal 2000,
it would not have affected the determination of the number of options received
by or allocated to participants in fiscal 2000.
PROPOSAL FOUR: RECISSION OF SHAREHOLDER RIGHTS PLAN
Proponent's Proposal
Donald E. Shobrys submitted a letter to our Secretary requesting that the
following resolution be submitted to our stockholders for consideration at the
Meeting. In his letter dated June 26, 2000, Mr. Shobrys claimed to be the
beneficial owner of 17,407 shares of common stock. This proposal is identical to
the proposal submitted by Mr. Shobrys and included in our proxy statement for
1999 Annual Meeting of Stockholders. That proposal was defeated by the vote of
our stockholders.
Mr. Shobrys is a former employee of Chesapeake Decision Sciences, Inc. who
left Chesapeake shortly before we acquired Chesapeake. As a result of the
acquisition, Mr. Shobrys received 160,396 shares of common stock upon conversion
of his holdings of Chesapeake stock and received an additional 73,711 shares
through his participation in the Chesapeake Employee Stock Ownership Plan. In
accordance with applicable SEC rules, we have set forth the proposal of Mr.
Shobrys below:
Resolved: The stockholders of Aspen Technology, Inc. hereby request that
the Board of Directors rescind the Stockholder Rights plan
adopted on March 12, 1998 by redeeming the Rights in whole, but
not in part, at a price (in cash or Common Shares or other
securities of the Company deemed by the Board of Directors to be
at least equivalent in value) of $.01 per Right (the "Redemption
Price"). The shareholders also ask that the Board of Directors
agree not to reissue or extend these rights, or create a new
rights plan unless such action by the Board is approved by an
affirmative vote of a majority of the outstanding shares at a
meeting of the shareholders held as soon as is practicable.
The following is the supporting statement of Mr. Shobrys in connection with
his proposal:
"Last year over 49.2% of the Company's shareholders voted in favor of
this proposal, therefore, the Proponent is resubmitting its proposal.
"In March 1998, the Board of Directors of the company declared a
dividend of one "Right" for each outstanding share of common stock. These
Rights are a type of corporate anti-takeover device commonly known as a
"poison pill."
"The Proponent argues that anti-takeover (poison pill) provisions
diminish stockholder value and do not service the best long-term interests
of shareholders. The Stockholder Rights plan provides a mechanism for
diluting the holdings of a 3rd party trying to acquire Aspen Technology.
The Board of Directors controls this mechanism. The Proponent points out
that the Company has significantly under-performed relative to management's
own projections and as such, management should not be protected by such
anti-takeover devices.
"This proposal, if adopted, recommends that the Board of Directors of
the Company should redeem the Rights so that the Board of Directors cannot
use this poison pill to discourage or thwart an unwanted takeover of the
Company. It also recommends that the Board of Directors obtain the approval
of the stockholders before adopting another poison pill.
"I urge shareholders to vote FOR this resolution."
8
<PAGE> 11
Our Response to the Proponent's Proposal
We adopted the shareholder rights plan, referred to in the remainder of
this section as the Rights Plan, because we believed that it would enable us to
better represent the interests of our stockholders in the event of a hostile
takeover attempt. Before making our decision, we reviewed the arguments for and
against adopting a shareholder rights plan. In addition, we reviewed publicly
available consulting studies on the effect that shareholder rights plans have
had on stock prices and hostile takeover attempts.
A shareholder rights plan is an important tool for corporate governance.
A shareholder rights plan is a plan that generally results in the dilution
of the percentage stock ownership of any party who attempts to takeover control
of a company without first obtaining the approval of its board of directors.
Under the Rights Plan, if a stockholder acquires 15% or more of our common
stock, the Rights Plan would be automatically triggered and we are obligated to
grant additional stock to all stockholders other than the 15% stockholder. The
effect of the Rights Plan being triggered would be to dilute the percentage
ownership interest of the 15% stockholder and effectively increase the
acquisition price payable by the 15% stockholder. The rationale behind the
Rights Plan is to encourage potential acquirors to discuss potential
acquisitions with us before undertaking hostile takeover bids. We would then be
able to consider any offer which might result and decide whether accepting the
offer is in the best interests of our stockholders.
We passed the Rights Plan to enable us to properly carry out our duties as
directors.
We approved the Rights Plan in November 1997 because we believed that the
Rights Plan would enable us to better represent the interests of our
stockholders in the event of a hostile takeover bid. As directors, we have a
fiduciary duty to our stockholders to consider any legitimate offer for the
company and generally act in your best interests. We believed that, if there
were no rights plan in place, we would not be able to exercise proper diligence
or adequately consider an offer in the type of "crisis" environment that
typically occurs when a potential acquiror makes a hostile tender offer. The
Rights Plan allows us to carry out our fiduciary duties carefully and
thoughtfully, with time to consider all relevant information.
Before approving the Rights Plan, we carefully reviewed available
information pertaining to rights plans generally and considered various factors
for and against adopting a rights plan. Among the information that we examined
were certain publicly available consulting studies analyzing the effect that
shareholder rights plans historically have had on stock prices and hostile
takeover attempts. For example, one study that we reviewed was conducted by
Georgeson & Company Inc. The study analyzed the effect of shareholder rights
plans on company stock prices and takeover attempts based upon statistical data
from the period between 1992 and 1996 and concluded that:
- the presence of a shareholder rights plan did NOT increase the likelihood
that a friendly takeover bid would be withdrawn or that a hostile bid
would be defeated, and did NOT reduce the likelihood that a company would
become a takeover target; and
- premiums paid to acquire target companies with shareholder rights plans
were SEVEN TO TEN PERCENT HIGHER than for target companies that did not
have a plan.
In response to this year's shareholder proposal, we asked our outside
consultants to review the criteria we used to approve the Rights Plan. The
available data continue to support our belief that a shareholder rights plan can
help a board MAXIMIZE stockholder value. A shareholder rights plan is not
intended to and will not eliminate the obligation of the directors to exercise
their fiduciary duty.
We believe that, by providing us with a tool that allows us to consider
takeover offers carefully, the Rights Plan is in the best interests of our
stockholders, who would like a higher premium for their shares; our customers,
who want a stable environment with respect to their vendors; and our employees,
who want our company to grow without us or our management team being distracted
by inadequate offers, insufficiently funded offers or decision-making prompted
by crises.
9
<PAGE> 12
Shareholder rights plans do not prevent or inhibit legitimate takeover
offers, but do inhibit or prevent offers that are inadequate or
insufficiently funded.
Historically, shareholder rights plans have provided companies and their
boards of directors with considerable leverage to prevent unfair or insufficient
offers. Moreover, studies have shown that shareholder rights plans do not
necessarily prevent takeovers occurring. The following charts are based upon
such a study conducted by Jamiil Aboumen and Christopher Hayden, and support the
premise that companies with shareholder rights plans have experienced higher
takeover rates, and lower takeover bid withdrawal and failure rates, than
companies without shareholders rights plans. Their article entitled "Poison
Pills, Shareholder Value, and Voting on Rescission Proposals" can be found in a
1998 publication by Directorship, Inc.
<TABLE>
<S> <C>
TAKEOVER BID WITHDRAWAL RATE
-------------------------------------------------------------------
Firms Without Pills......................................... 11.2%
Firms With Pills............................................ 10.3%
HOSTILE BID FAILURE RATE
-------------------------------------------------------------------
Firms Without Pills......................................... 66.7%
Firms With Pills............................................ 45.0%
TAKEOVER RATE S&P 500/400
-------------------------------------------------------------------
Firms Without Pills......................................... 5.6%
Firms With Pills............................................ 7.7%
Source: Jamill Aboumen and Christopher Hayden
</TABLE>
The Rights Plan is designed to provide us with a tool to encourage
potential bidders to negotiate with us before attempting an acquisition of
control of the company. The Rights Plan provides us with such a tool and we
believe will allow us to discourage takeover attempts that we consider not to be
in the best interests of our stockholders. These include:
- stock acquisitions by market accumulators seeking to acquire a position
of substantial influence or control without paying remaining stockholders
a full and fair price;
- coercive two-tiered, front-end loaded or partial tender offers, in which
different prices are paid to different groups of stockholders so that
full and fair value is not paid to all stockholders; and
- inadequate offers that do not give our stockholders proper value for
their stock.
The Rights Plan is designed to address takeover tactics that do not treat all
stockholders equally, as well as insufficiently financed offers that may be
intended to put us "in play" for the purpose of permitting the bidder to realize
a profit on a block of common stock that the bidder already owns or otherwise
furthering the interests of the bidder without consideration of the interests of
other stockholders.
10
<PAGE> 13
Companies with shareholder rights plans command higher premiums in the event
of a takeover.
Shareholder rights plans such as ours appear to result on average in higher
premiums paid to companies' stockholders upon a change of control. The following
charts have been excerpted from a study conducted by Goldman Sachs & Co. and
support the proposition that rights plans generally result in higher premiums
paid for companies in the event of a takeover.
BY APPROACH
<TABLE>
<CAPTION>
HOSTILE FRIENDLY
------- --------
<S> <C> <C>
Firms Without Pills.............................. 56% 35%
Firms With Pills................................. 68% 45%
</TABLE>
BY ACQUISITION CURRENCY
<TABLE>
<CAPTION>
ALL CASH ALL STOCK MIXED
-------- --------- -----
<S> <C> <C> <C>
Firms Without Pills.................. 39% 24% 42%
Firms With Pills..................... 58% 45% 50%
</TABLE>
BY DEAL SIZE
<TABLE>
<CAPTION>
OVER $1 BILLION UNDER $1 BILLION
--------------- ----------------
<S> <C> <C>
Firms Without Pills..................... 34% 37%
Firms With Pills........................ 50% 54%
</TABLE>
BY YEAR ANNOUNCED
<TABLE>
<CAPTION>
1988 1989 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Firms Without Pills................ 41% 47% 23% 21%
Firms With Pills................... 63% 54% 45% 41%
---------------
Source: Goldman Sachs & Co. study "Poison Pills and Acquisition
Premiums, December 18, 1995."
</TABLE>
We believe the Rights Plan is in the best interest of our stockholders,
employees and customers.
The Rights Plan affords us the ability to negotiate terms with potential
bidders and discourages undesirable takeover tactics and inadequate offers.
Stockholders benefit from a more stable trading environment and from the
increased likelihood of receiving proper value and a higher premium in the event
of a change in control. Employees and customers benefit because we will not face
the myriad distractions caused by coercive, inadequate or insufficiently funded
offers. All of our constituents can be assured that any change in control will
be the result of careful consideration and not decisions forced to be made in
the heat of a crisis.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AGAINST THE PROPOSAL
RELATING TO OUR SHAREHOLDER RIGHTS PLAN.
OTHER MATTERS
Neither we nor the board of directors intends to propose any matters at the
Meeting other than the election of two Class I directors, the approval of the
2001 Stock Option Plan and the amendment of the 1998 Employees' Stock Purchase
Plan.
11
<PAGE> 14
STOCKHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
A stockholder who intends to present a proposal at the 2001 Annual Meeting
of Stockholders for inclusion in our 2001 proxy statement must submit the
proposal by , 2001. In order for the proposal to be included in the
proxy statement, the stockholder submitting the proposal must meet certain
eligibility standards and must comply with certain procedures established by the
SEC, and the proposal must comply with the requirements as to form and substance
established by applicable laws and regulations. The proposal must be mailed to
our Secretary at our address set forth on the Notice appearing before this proxy
statement.
In addition, in accordance with our by-laws, a stockholder wishing to bring
an item of business before the 2001 Annual Meeting of Stockholders must deliver
notice of the item of business to us at our offices no later than sixty days and
no earlier than ninety days prior to that meeting, even if the item is not to be
included in our proxy statement.
12
<PAGE> 15
ADDITIONAL INFORMATION ABOUT DIRECTORS
BACKGROUND INFORMATION ABOUT DIRECTORS CONTINUING IN OFFICE
Our Class II and Class III directors will continue in office following the
Meeting. The terms of our Class II directors will expire upon the 2001 Annual
Meeting of Stockholders, and the terms of our Class III directors will expire
upon the 2002 Annual Meeting of Stockholders. Brief biographies of these
directors, as of October 30, 2000, follow. You will find information about their
holdings of common stock on page 22.
<TABLE>
<S> <C>
JOSEPH F. BOSTON..................... One of our founders, Dr. Boston has served as President of
our company since 1984 and as one of our Class II directors
since 1981. Dr. Boston served as both the Principal Engineer
and as an Associate Project Manager from 1977 to 1981 of the
ASPEN Project at M.I.T. Dr. Boston holds a B.S. in Chemical
Engineering from Washington University and a Ph.D. in
Chemical Engineering. Dr. Boston is 63 years old.
GRESHAM T. BREBACH, JR............... Mr. Brebach has served as one of our Class II directors
since 1995. He currently serves as a member of the Audit and
Compensation Committees. Since March 2000, Mr. Brebach has
served as Entreprenuer-In-Residence for the Frontenac
Company. From February 1997 to October 1999, Mr. Brebach was
Chairman, President and Chief Executive Officer of Nextera
Enterprises, Inc., a consulting company. From January 1995
to February 1997, Mr. Brebach was Executive Vice
President--Client Services of Renaissance Solutions Inc., a
supplier of management consulting and client/server systems
integration services. From August 1994 to December 1994, Mr.
Brebach operated Brebach and Associates, a consulting firm.
From April 1993 to August 1994, Mr. Brebach served as
Executive Vice President of Digital Consulting at Digital
Equipment Corporation. From December 1989 to April 1993, Mr.
Brebach was a Director in the Consumer and Industrial
Products sector of McKinsey & Company, a management
consulting firm. Mr. Brebach holds a B.S. in Engineering and
an M.B.A. in Business Administration from the University of
Illinois. Mr. Brebach is 59 years old.
DOUGLAS R. BROWN..................... Mr. Brown has served as one of our Class III directors since
1986. He currently serves as a member of the Compensation
Committee. Since January 1996, Mr. Brown has been the
President and Chief Executive Officer and a director of
Advent International Company, a venture capital investment
firm. Mr. Brown was the Chief Investment Officer of Advent
International Company from December 1993 to December 1995
and Senior Vice President and Managing Director--Europe of
Advent International Company from since June 1990 to
September 1994. Mr. Brown holds an S.B. in Chemical
Engineering from M.I.T. and an M.B.A. from the Harvard
Graduate School of Business Administration. Since May 1997,
Mr. Brown has served as a member of the board of directors
of Ionics, Incorporated, a separations technology company.
Mr. Brown is 46 years old.
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
STEPHEN L. BROWN..................... Mr. Brown has served as one of our Class III directors since
July 1, 2000. He currently serves as a member of the Audit
Committee. Mr. Brown has been the Chairman of the Board of
John Hancock Financial Services, Inc. since August 1999 and
also served as the Chief Executive Officer of John Hancock
Financial Services from August 1999 until June 2000. Since
1992, he has been the Chairman of the Board of John Hancock
Life Insurance Company and also served as the Chief
Executive Officer of John Hancock Life Insurance Company
from January 1992 to June 2000. Mr. Brown serves as a member
of the board of directors of Independence Investment
Associates, Inc., Independence International Associates,
Inc., Independence Fixed Income Associates, Inc., John
Hancock Financial Services, John Hancock Insurance Agency,
Inc., John Hancock Asset Management Company, The Berkeley
Financial Group, Inc., John Hancock Funds, Inc., John
Hancock Signature Services, Inc., John Hancock Advisers,
Inc., and John Hancock Subsidiaries, Inc., and as a member
of the executive committee of Massachusetts Capital Resource
Company, an investment company. Mr. Brown is 63 years old.
STEPHEN M. JENNINGS.................. Mr. Jennings has served as one of our Class III directors
since July 2000. He currently serves as a member of the
Compensation Committee. Mr. Jennings has been a Director of
Monitor Company, a strategy consulting firm, since June
1996. From 1992 to June 1996, Mr. Jennings was a consultant
to Monitor. He serves as a member of the board of directors
of LTX Corporation, a semiconductor test equipment
manufacturer. Mr. Jennings is 40 years old.
</TABLE>
BOARD AND COMMITTEE MEETINGS
The board of directors held eight meetings during fiscal year 2000,
including four regular meetings and four special meetings. All directors
attended at least 75% of the meetings of the board of directors.
We currently have an Audit Committee and a Compensation Committee. The
Audit Committee met six times during fiscal year 2000. The Audit Committee:
- reviews the scope and results of the annual audit of our consolidated
financial statements conducted by our independent accountants;
- reviews the scope of other services provided by our independent
accountants;
- reviews proposed changes in our financial and accounting standards and
principles and in our policies and procedures for our internal
accounting, auditing and financial controls; and
- makes recommendations to our board of directors on the engagement of the
independent accountants.
The Audit Committee currently consists of Gresham Brebach, Stephen Brown and
Joan McArdle.
The Compensation Committee met once and acted by unanimous written consent
on nine occasions during fiscal year 2000. The Compensation Committee
administers our compensation programs, including our 1995 Stock Option Plan,
1996 Special Stock Option Plan and 1998 Employees' Stock Purchase Plan and will
administer the 2001 Stock Option Plan, if approved by the stockholders. The
Compensation Committee also performs other duties that our board of directors
periodically assigns to it. The Compensation Committee currently consists of
Gresham Brebach, Douglas Brown and Stephen Jennings.
We do not have a standing nominating committee. The board performs
functions of a nominating committee in considering an increase in the number of
directors, and in identifying and screening potential candidates for nomination
and election to the board.
14
<PAGE> 17
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Gresham Brebach, Douglas Brown and
Stephen Jennings, none of whom has ever been an employee of our company. The
Compensation Committee is advised by Richard Harter, our Assistant Secretary,
who participates in the deliberations but does not vote on actions taken by the
Compensation Committee. None of our executive officers serves as a member of the
board of directors or compensation committee of any entity that has one or more
executive officers serving as members of our board of directors or Compensation
Committee.
DIRECTOR COMPENSATION
At the meeting of the Compensation Committee on October 18, 2000, it was
agreed by unanimous consent that the annual fee for directors who are not our
full-time employees would be increased from $15,000 to $25,000 and the $1,500
fee for each regular meeting of the board of directors would be eliminated. This
change was made to take into account the ever increasing demands upon the
directors' time and to more fairly compensate them for their attendance at both
regularly scheduled and special meetings of the board of directors. In addition,
at the election of any director, his or her annual fee may be converted to a
right to purchase shares of the Company's common stock.
Additionally, our 1995 Directors Stock Option Plan provides that each
non-employee director will be granted an option to purchase 24,000 shares of
common stock at fair market value upon his or her initial election as a director
or as of December 18, 1995, for directors serving when the plan began.
One-twelfth of the options granted upon initial election vests at the end of
each calendar quarter, but only if the optionee continues to be a director on
the vesting date. Subsequent options to purchase 8,000 shares of common stock at
fair market value following each annual meeting shall be granted to each
non-employee director who continues to serve as a director. These options become
exercisable in four quarterly installments, beginning with the third anniversary
of the grant date, but only if the optionee continues to be a director on the
vesting date.
RELATED PARTY TRANSACTIONS
Since April 1995, Smart Finance & Co., of which Alison Ross is the sole
owner, has provided us with investment banking consulting services. Until
October 27, 2000, Ms. Ross was a Class III director. During fiscal year 2000, we
paid to Smart Finance & Co. consulting fees totaling $96,100, excluding expense
reimbursements, for services rendered during fiscal 2000 under a consulting
agreement.
On September 30, 1999, we entered into a Software License Distribution and
Strategic Relationship Agreement with Extricity, Inc. The President and Chief
Executive Officer of Extricity, Kenneth Ross, is the spouse of Ms. Ross. The
agreement was reviewed and approved by the unanimous vote of the five non-
affiliated directors on October 16, 1999.
On May 3, 2000, we entered into a Series F Preferred Stock Purchase
Agreement with Extricity and other investors. Under this agreement, we purchased
310,077 shares of Series F preferred stock of Extricity for an aggregate
purchase price of $2,000,000. The price per share and other terms governing our
purchase of these shares were identical to the terms under which other investors
purchased an aggregate of 7,441,860 shares of Series F preferred stock of
Extricity on the same date. The purchase agreement was reviewed and approved by
the unanimous vote of the five non-affiliated directors on May 3, 2000.
We have a policy that transactions with affiliated entities or persons will
be on terms no less favorable than could be obtained from unrelated parties and
that all transactions between us and our officers, directors, principal
stockholders and affiliates will be approved by a majority of our independent
directors.
15
<PAGE> 18
INFORMATION ABOUT EXECUTIVE OFFICERS
BACKGROUND INFORMATION ABOUT EXECUTIVE OFFICERS
Brief biographies of our executive officers follow. The ages of the
executive officers are given as of October 30, 2000. You will find information
about their holdings of common stock on page 22.
LAWRENCE B. EVANS.............
Chairman of the Board and
Chief Executive Officer You will find background information about Dr.
Evans on page 4.
JOSEPH F. BOSTON..............
President You will find background information about Dr.
Boston on page 13.
DAVID L. MCQUILLIN............
Executive Vice President,
Worldwide Sales & Marketing Mr. McQuillin has served as our Executive Vice
President, Worldwide Sales & Marketing since
June 1997. Prior to joining us, Mr. McQuillin
was employed by Honeywell, Inc. as Vice
President, Eastern Region from January 1997 to
May 1997, Vice President, Southeast Region from
July 1995 to December 1996 and as Director and
General Manager, European Region from 1992 to
June 1995. From 1989 to 1992, Mr. McQuillin was
President and Chief Executive Officer of Aeonic
Systems, Inc. Mr. McQuillin holds a B.S. in
Applied Science from Miami University. Mr.
McQuillin is 42 years old.
DAVID MUSHIN..................
Executive Vice President Mr. Mushin has served as an Executive Vice
President of our company since July 1999. He
served as our Senior Vice President of
Operations from November 1998 to June 1999. Mr.
Mushin served as our Senior Vice President and
General Manager, Information Management
Division, from January 1996 to November 1999
and as our Vice President and General Manager
of Plant Operations from 1991 to January 1996.
He holds a Masters in Chemical Engineering from
the University of Cambridge, England. Mr.
Mushin is 43 years old.
MARY A. PALERMO...............
Executive Vice President Ms. Palermo has served as an Executive Vice
President of our company since September 1998.
She joined us in November 1987 as Director of
Finance, and was promoted to Vice President and
Chief Financial Officer in May 1989 and to
Senior Vice President, Finance and Chief
Financial Officer in June 1993. She then served
as our Executive Vice President, Finance and
Chief Financial Officer from December 1995 to
August 1998. From 1979 to 1982, Ms. Palermo
held several positions at Arthur Andersen & Co.
Ms. Palermo holds a B.S. in Accounting from
Boston College and is a C.P.A. Ms. Palermo is
42 years old.
STEPHEN J. DOYLE..............
Senior Vice President,
Internet Business Group
and Secretary Mr. Doyle has served as Senior Vice President,
Internet Business Group and Secretary since
August 2000. Mr. Doyle served as our Senior
Vice President, General Counsel and Secretary
from September 1998 to August 2000 and as our
Vice President, General Counsel and Chief Legal
Officer from September 1996 to September 1998.
He began serving as our Secretary in October
1997. From July 1994 to September 1996, Mr.
Doyle was a partner in Mirick, O'Connell,
DeMallie & Lougee concentrating in technology
and international business law. From 1986 to
16
<PAGE> 19
June 1994, Mr. Doyle was International Attorney
for the Bank of Boston. From 1978 to 1981, Mr.
Doyle was an attorney in private practice. Mr.
Doyle holds an A.B. from Georgetown University
and J.D. and M.B.A. degrees from the University
of Denver. Mr. Doyle is 47 years old.
LISA W. ZAPPALA...............
Senior Vice President and
Chief Financial Officer Ms. Zappala has served as our Senior Vice
President and Chief Financial Officer since
September 1998. Ms. Zappala served as our
Treasurer from February 1995 to August 1998.
She served as Director of Financial Operations
from January 1993 to February 1995. From 1981
to January 1993, Ms. Zappala held several
positions at Arthur Andersen & Co. Ms. Zappala
holds a B.S. in Accounting from Boston College
and is a C.P.A. Ms. Zappala is 40 years old.
17
<PAGE> 20
EXECUTIVE OFFICER COMPENSATION
The table on the following page summarizes certain information with respect
to the annual and long-term compensation that we paid for the past three fiscal
years to the following persons (the "Named Officers"):
- Lawrence Evans, our only chief executive officer in fiscal 2000; and
- Joseph Boston, David L. McQuillin, Mary Palermo and David A. Mushin, our
four most highly compensated executive officers (other than Dr. Evans)
who continued to serve as executive officers at June 30, 2000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)(1)
--------------------------- ---- --------- ---------- -------------
<S> <C> <C> <C> <C>
Lawrence B. Evans................. 2000 $316,250 $243,750 45,000(2)
Chairman of the Board and 1999 290,000 -- 30,000(3)
Chief Executive Officer 9,250(4)
60,000(5)
1998 290,000 -- 7,886(6)
30,000(7)
Joseph F. Boston.................. 2000 252,500 90,000 20,000(2)
President 1999 230,000 -- 12,000(3)
5,000(4)
30,000(5)
1998 230,000 -- 4,263(6)
18,000(7)
David L. McQuillin(8)............. 2000 562,971 -- 40,000(2)
Executive Vice President, 1999 319,840 -- 100,000(5)
Worldwide Sales & Marketing 1998 360,000 -- 50,000(7)
Mary A. Palermo................... 2000 268,750 135,000 42,500(2)
Executive Vice President 1999 220,000 -- 10,000(3)
5,250(4)
50,000(5)
1998 220,000 -- 4,476(6)
30,000(7)
David A. Mushin................... 2000 246,560 112,500 40,000(2)
Executive Vice President 1999 221,130 -- 3,750(4)
40,000(5)
1998 189,470 -- 3,197(6)
35,000(7)
</TABLE>
---------------
(1) Each option has a maximum term of ten years, subject to earlier termination
in the event of the optionee's cessation of service with us. Each option is
exercisable during the holder's lifetime only by the holder; it is
exercisable by the holder only while the holder is our employee or advisor
and for a certain limited period of time thereafter in the event of
termination of employment. The exercise price may be paid in cash or in
shares of common stock valued at fair market value on the exercise date.
(2) Options were granted on September 2, 1999 under our 1995 Stock Option Plan.
One-sixteenth of the options granted vests at the end of each calendar
quarter.
(3) Options were granted on August 5, 1998 under our 1995 Stock Option Plan.
One-sixteenth of the options granted vests at the end of each calendar
quarter.
(4) Options were granted on October 9, 1998 under our 1995 Stock Option Plan.
These options were fully vested on the date of grant.
(5) Options were granted on January 19, 1999 under our 1995 Stock Option Plan.
One-sixteenth of the options granted vests at the end of each calendar
quarter.
(6) Options were granted on September 12, 1997 under our 1995 Stock Option Plan.
These options were fully vested upon grant.
18
<PAGE> 21
(7) Options were granted on December 22, 1997 under our 1995 Stock Option Plan.
One-sixteenth of the options granted vests at the end of each calendar
quarter.
(8) Mr. McQuillin's salary includes $79,840 of sales commissions in fiscal 1999
and $322,971 of sales commissions in fiscal year 2000.
The following table sets forth information regarding the options we granted
to the Named Officers during the fiscal year ended June 30, 2000.
OPTION GRANTS IN FISCAL YEAR 2000
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ---------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Lawrence B. Evans............. 45,000 2.11% $8.50 9/01/09(2) 245,133 616,901
Joseph F. Boston.............. 20,000 .94 8.50 9/01/09(2) 108,948 274,178
David L. McQuillin............ 40,000 1.87 8.50 9/01/09(2) 217,896 548,357
Mary A. Palermo............... 42,500 1.99 8.50 9/01/09(2) 231,515 582,629
David A. Mushin............... 40,000 1.87 8.50 9/01/09(2) 217,896 548,357
</TABLE>
---------------
(1) The amounts shown represent hypothetical gains that could be achieved for
the respective options if exercised at the end of their option terms. These
gains are based on assumed rates of stock appreciation of five percent and
ten percent, compounded annually from the date the respective options were
granted to the date of their expiration. The gains shown are net of the
option price, but do not include deductions for taxes or other expenses that
may be associated with the exercise. Actual gains, if any, on stock option
exercises will depend on future performance of the common stock, the
optionholders' continued employment through the option period, and the date
on which the options are exercised.
(2) Option grant pursuant to our 1995 Stock Option Plan. One-sixteenth of the
options granted vests at the end of each calendar quarter. The
exercisability of these options is accelerated upon the occurrence of a
change in control of our company.
The following table sets forth information as to options exercised during
the fiscal year ended June 30, 2000, and unexercised options held at the end of
such fiscal year, by the Named Officers.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2000
AND FISCAL 2000 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
ACQUIRED AT FISCAL YEAR-END(#) FISCAL YEAR-END($)(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Lawrence B. Evans........ -- -- 201,197 110,939 $3,260,826 $2,459,595
Joseph F. Boston......... -- -- 108,388 52,875 1,791,719 1,157,234
David L. McQuillin....... 10,000 $ 374,375.00 100,625 129,375 1,252,422 2,850,703
Mary A. Palermo.......... 42,830 1,159,622.25 237,818 88,908 5,728,498 2,064,973
David A. Mushin.......... 5,000 166,875.00 59,821 73,125 1,108,083 1,749,609
</TABLE>
---------------
(1) The values in this column are based on the closing sale prices of common
stock on the respective dates of exercise, as reported by the Nasdaq
National Market, less the respective option exercise price.
(2) The closing sale price for the common stock as reported by the Nasdaq
National Market on June 30, 2000 was $38.50. Value is calculated on the
basis of the difference between the option exercise price and $38.50,
multiplied by the number of shares of common stock underlying the option.
Change in Control Agreements
On August 12, 1997, we entered into change in control agreements with
Lawrence Evans, our Chairman of the Board and Chief Executive Officer; Joseph
Boston, our President; David McQuillin, our Executive Vice President, Worldwide
Sales & Marketing; Mary Palermo, an Executive Vice President; and Stephen
19
<PAGE> 22
Doyle, our Senior Vice President, General Counsel, Chief Legal Officer and
Secretary. On November 3, 1999, we entered into a Change of Control Agreement
with Lisa W. Zappala, our Senior Vice President and Chief Financial Officer. On
December 30, 1998 we entered into a Change of Control Agreement with David A.
Mushin, an Executive Vice President. On August 1, 2000. we entered into a Change
in Control Agreement with Michael J. Muscatello, our Vice President and General
Counsel. On September 1, 2000, we entered into a Change in Control Agreement
with Helen Moye, our Senior Vice President, Human Resources. Each agreement is
for an initial term expiring June 30, 2002 and is automatically renewed
thereafter on a yearly basis unless our board of directors ends the
self-renewing feature at least sixty days before the next renewal. In the event
of both a change in control and termination of employment (excluding termination
for cause but including constructive termination), each of these executive
officers will be entitled to a severance payment equal to three times salary
plus bonus plus cost of benefits. A "change in control" is generally defined as
any 1 person or group of persons purchasing 25% of the outstanding stock. Each
agreement provides that the payment will be increased in the event that it would
subject the executive to excise tax as a parachute payment under Section 280G of
the Internal Revenue Code. The increase would be equal to an amount necessary
for the executive to receive after payment of such tax cash in an amount equal
to the amount the executive would have received in the absence of such tax.
However, the increased payment will not be made if the total severance payment,
if so increased, would not exceed 110% of the highest amount (the "reduced
amount") that could be paid without causing an imposition of the excise tax. In
that event, in lieu of an increased payment, the total severance payment will be
reduced to such reduced amount.
We may enter into similar change in control agreements in the future with
other officers of our company.
Compensation Committee Report on Executive Compensation
The following is the report of the Compensation Committee of our board of
directors. The report describes the compensation policies and rationales that
the Compensation Committee used to determine the compensation paid to our
executive officers.
Purpose of the Compensation Committee. The Compensation Committee is
responsible for determining compensation levels for the executive officers for
each fiscal year based upon a consistent set of policies and procedures.
Elements of the Compensation Program. Each executive officer's
compensation package has three elements:
- base compensation, which reflects individual performance and is designed
primarily to be competitive with salary levels in a comparative group;
- bonus compensation, payable in cash and based on achievement of financial
performance goals established by the Compensation Committee; and
- stock options, designed to assure long-term alignment with the interests
of stockholders.
At the request of the Compensation Committee an independent compensation
consultant, Westward Pay Strategies, Inc., was retained and a study was
commissioned which resulted in a report dated April 20, 2000. The analysis
included an assessment of base salaries, target total cash compensation (base
salary plus target annual incentive opportunity), stock option valuation, and
total direct compensation. Westward Pay Strategies gathered and reviewed
compensation data and stock option present values from published surveys, and
executive compensation data from the then most recent proxy statements of 10
high-technology companies. Westward Pay Strategies prepared a report which
compared our compensation levels with the compensation levels of a group of peer
companies. The report placed our compensation levels at the 75th percentile,
which was determined by the Compensation Committee to be appropriate in view of
the high-growth, high-technology environment in which we operate. On average,
base salaries and total cash compensation for our executive positions were found
to be 4% and 17%, respectively, above the 75th percentile of competitive levels,
but both considered to fall within the competitive range. On average, stock
option present values and total direct compensation levels were found to be 60%
and 27%, respectively, below the 75th percentile of competitive levels and
therefore below the 75th percentile of competitive levels.
20
<PAGE> 23
Total compensation packages were authorized at levels deemed by the
Compensation Committee to be appropriate to continue alignment with shareholder
interests and to serve as a means to retain the services of the executive
officers.
Section 162(m) Limitations. The cash compensation to be paid to our
executive officers for the fiscal year ended June 30, 2000 is not expected to
exceed the $1,000,000 limit per officer imposed on the tax deductibility of such
compensation by Section 162(m) of the Internal Revenue Code. Because our 1995
Stock Option Plan and 2001 Stock Option Plan, if approved by the stockholders,
limit the maximum number of shares of common stock for which any one participant
may be granted stock options, will have been approved by the stockholders, and
will be administered by the Compensation Committee, any compensation deemed paid
to an executive officer when he or she exercises an outstanding option under
those plans will qualify as performance-based compensation and will not count
toward (or beyond) the $1,000,000 limitation.
COMPENSATION COMMITTEE
Gresham T. Brebach, Jr.
Douglas R. Brown
Stephen M. Jennings
21
<PAGE> 24
INFORMATION ABOUT STOCK OWNERSHIP AND PERFORMANCE
STOCK OWNED BY DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-5% STOCKHOLDERS
The following table sets forth certain information as of September 30,
2000, with respect to the beneficial ownership of the common stock by:
- each person or group that we know owns of record or beneficially more
than 5% of the outstanding shares of common stock;
- each of the Named Officers;
- each of our directors, including the nominees for re-election; and
- all of our executive officers and directors as a group.
A total of 29,662,267 shares of common stock were outstanding as of
September 30, 2000.
Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to shares subject to community property laws where
applicable. Shares under "Right to Acquire" represent shares subject to options
that were vested as of September 30, 2000 or will vest within 60 days of
September 30, 2000. Shares under "Number" consist of shares outstanding as of
September 30, 2000 as well as shares included under "Right to Acquire." Shares
not outstanding but deemed beneficially owned by virtue of the right of a person
to acquire those shares within 60 days of September 30, 2000 are treated as
outstanding only for purposes of determining the number and percent of shares
owned by such person or group. The address of all executive officers and
directors is in care of Aspen Technology, Inc., Ten Canal Park, Cambridge,
Massachusetts 02141.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------
RIGHT TO
NAME OF STOCKHOLDER NUMBER ACQUIRE PERCENT
------------------- --------- -------- -------
<S> <C> <C> <C>
Massachusetts Financial Services Co. ....................... 3,196,017 -- 10.8%
6 St. James Avenue
Boston, Massachusetts 02116
Lawrence B. Evans........................................... 867,833 216,511 2.9
Joseph F. Boston............................................ 390,635 115,888 1.3
Mary A. Palermo............................................. 265,697 249,226 *
David McQuillin............................................. 107,298 105,625 *
David A. Mushin............................................. 67,128 67,008 *
Douglas R. Brown............................................ 57,000 37,000 *
Gresham T. Brebach, Jr...................................... 37,000 37,000 *
Joan C. McArdle............................................. 37,000 37,000 *
Stephen L. Brown............................................ 2,000 2,000 *
Stephen M. Jennings......................................... 2,000 2,000 *
All executive officers and directors as a group (12
persons).................................................. 1,833,591 869,258 8.9%
</TABLE>
---------------
* Less than 1.0%.
The number of shares reflected as beneficially owned by Massachusetts
Financial Services Co. is based upon information provided in Schedule 13F filed
by Massachusetts Financial with the SEC on June 30, 2000.
The shares reflected as beneficially owned by Joan C. McArdle do not
include 175,000 shares held by Massachusetts Capital Resource Company, as to
which she disclaims beneficial interest. Ms. McArdle is one of our directors and
a Vice President of Massachusetts Capital Resource Company.
The shares reflected as beneficially owned by Stephen L. Brown do not
include 942,000 shares held by John Hancock Life Insurance Company, as to which
he disclaims beneficial interest. Mr. Brown is one of our directors and Chairman
of the Board at John Hancock Mutual Life Insurance Company.
22
<PAGE> 25
COMPLIANCE WITH REPORTING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and persons who own more than ten percent
of a registered class of our equity securities, to file changes in ownership on
Form 4 or 5 with the SEC. These executive officers, directors and ten-percent
stockholders are also required by SEC rules to furnish us with copies of all
Section 16(a) reports they file. Based solely on our review of the copies of
these forms, we believe that all Section 16(a) reports applicable to our
executive officers, directors and ten-percent stockholders with respect to
reportable transactions during the fiscal year ended June 30, 2000 were filed on
a timely basis.
PERFORMANCE GRAPH
The following graph compares the cumulative total return to stockholders of
common stock for the period from June 30, 1995 to June 30, 2000, to the
cumulative total return of the Nasdaq Stock Market (U.S.) Index and the Nasdaq
Computer & Data Processing Index for the same period.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG ASPEN TECHNOLOGY, INC., NASDAQ STOCK MARKET (U.S.) INDEX
AND NASDAQ COMPUTER & DATA PROCESSING INDEX
COMPARISON GRAPH
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET NASDAQ COMPUTER & DATA
ASPEN TECHNOLOGY, INC. (U.S.) INDEX PROCESSING INDEX
---------------------- ------------------- ----------------------
<S> <C> <C> <C>
6/30/95 100.00 100.00 100.00
6/96 215.69 128.39 132.82
6/97 295.10 156.14 167.66
6/98 396.08 205.58 253.22
6/99 92.16 296.03 387.49
6/00 301.96 437.27 550.96
</TABLE>
* $100 invested on June 30, 1995 in stock or index, including reinvestment of
dividends.
23
<PAGE> 26
ASPEN TECHNOLOGY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD DECEMBER 19, 2000
The undersigned hereby authorizes and appoints Michael J. Muscatello and
Lisa W. Zappala, and each of them, as proxies with full power of substitution in
each, to vote all shares of common stock, par value $.10 per share, of Aspen
Technology, Inc. held of record as of the close of business on Tuesday, October
31, 2000, by the undersigned at the Annual Meeting of Stockholders to be held on
Tuesday, December 19, 2000, at 3 P.M., local time, at the Royal Sonesta Hotel,
Riverfront Room, East Tower, Second Floor, 5 Cambridge Parkway, Cambridge,
Massachusetts, and at any adjournments thereof, on all matters that may properly
come before said meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED ON THE REVERSE
OR, IN THE ABSENCE OF SUCH DIRECTION, FOR THE SPECIFIED NOMINEES IN PROPOSAL
ONE, FOR PROPOSALS TWO AND THREE, AGAINST PROPOSAL FOUR, AND IN ACCORDANCE WITH
THE JUDGMENT OF THE PROXIES UPON OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENTS THEREOF.
(To be signed on reverse side) [X] Please mark your vote as in this example.
PROPOSAL ONE: ELECT TWO CLASS I DIRECTORS
NOMINEES: Lawrence B. Evans Joan C. McArdle
<TABLE>
<S> <C>
[ ] FOR the nominees listed above [ ] WITHHOLD AUTHORITY for above
(except as marked to the contrary below)
</TABLE>
To withhold authority to vote for a single nominee, write the name of the
nominee on the following line:
--------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NOMINEE.
PROPOSAL TWO: APPROVE 2001 STOCK OPTION PLAN
<TABLE>
<S> <C> <C>
[ ] FOR the proposal [ ] AGAINST the proposal [ ] WITHHOLD authority
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL THREE: APPROVE AMENDMENT OF 1998 EMPLOYEES' STOCK PURCHASE PLAN
TO INCREASE THE NUMBER OF RESERVED SHARES OF COMMON STOCK FROM 1,000,000
TO _______
<TABLE>
<S> <C> <C>
[ ] FOR the proposal [ ] AGAINST the proposal [ ] WITHHOLD authority
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL FOUR: REQUEST THAT THE BOARD OF DIRECTORS RESCIND SHAREHOLDER
RIGHTS PLAN (AS SUCH PROPOSAL IS SET FORTH IN FULL IN THE PROXY STATEMENT
DATED NOVEMBER , 2000)
<TABLE>
<S> <C> <C>
[ ] FOR the proposal [ ] AGAINST the proposal [ ] WITHHOLD authority
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL.
<PAGE> 27
PLEASE SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
Signature: Signature:
-------------------------- --------------------------
(IF HELD JOINTLY)
Dated: , 2000
-----------------------
NOTE: This Proxy Card must be signed exactly as the name of the stockholder(s)
appears on the label above. Executors, administrators, trustees, etc.
should give full title as such. If the signatory is a corporation, please
sign full corporate name by duly authorized officer.