UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to § 240.14a-12
Aspect Medical Systems, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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TABLE OF CONTENTS
ASPECT
MEDICAL SYSTEMS, INC.
One Upland Road
Norwood, Massachusetts 02062
NOTICE OF 2009 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on June 5, 2009
To our stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders
of Aspect Medical Systems, Inc. will be held on Friday,
June 5, 2009 at 9:00 a.m., local time, at our
corporate offices, One Upland Road, Norwood, Massachusetts
02062. We refer to Aspect Medical Systems, Inc. herein as
Aspect, we, or us. At the
Annual Meeting of Stockholders, our stockholders will consider
and vote on the following matters:
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1.
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the election of three (3) members to our board of directors
to serve as Class III directors, each for a term of three
years;
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2.
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to approve a one-time stock option exchange program under which
eligible employees (excluding our executive officers and
directors) would be able to elect to exchange outstanding stock
options with an exercise price of $15.00 or greater issued under
our 1998 Stock Incentive Plan or our 2001 Stock Incentive Plan
for new lower-priced stock options;
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3.
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to approve an amendment to our Amended and Restated By-Laws, as
amended, which provides that, subject to limited exceptions,
future annual meetings of stockholders will be held no later
than May 25 in each year; and
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4.
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the ratification of the selection by the Audit Committee of our
board of directors of Ernst & Young LLP as our
independent registered public accounting firm for the fiscal
year ending December 31, 2009.
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The stockholders will also act on any other business that may
properly come before the Annual Meeting of Stockholders or any
adjournment thereof.
Stockholders of record at the close of business on
April 13, 2009, are entitled to notice of, and to vote at,
the Annual Meeting of Stockholders or any adjournment thereof.
Your vote is important regardless of the number of shares you
own. Our stock transfer books will remain open for the purchase
and sale of our common stock.
We hope that all stockholders will be able to attend the Annual
Meeting of Stockholders in person. However, in order to ensure
that a quorum is present at the annual meeting, please date,
sign and promptly return the enclosed proxy card whether or not
you expect to attend the Annual Meeting of Stockholders. A
postage-prepaid envelope, addressed to Computershare
Trust Company, N.A., our transfer agent and registrar, has
been enclosed for your convenience. Sending in your proxy will
not prevent you from voting your stock at the Annual Meeting of
Stockholders if you desire to do so, as your proxy is revocable
at your option.
All stockholders are cordially invited to attend the Annual
Meeting of Stockholders.
By Order of the Board of Directors,
J. Neal Armstrong
Secretary
Norwood, Massachusetts
April [ ], 2009
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN ORDER TO ASSURE
REPRESENTATION OF YOUR SHARES AT THE ANNUAL MEETING. NO POSTAGE
NEED BE AFFIXED IF THE PROXY CARD IS MAILED WITHIN THE UNITED
STATES.
ASPECT
MEDICAL SYSTEMS, INC.
One Upland Road
Norwood, Massachusetts 02062
PROXY
STATEMENT
for the
2009 Annual Meeting of Stockholders
To Be
Held on June 5, 2009
This Proxy Statement and the enclosed proxy card are being
furnished in connection with the solicitation of proxies by the
board of directors of Aspect Medical Systems, Inc. for use at
the 2009 Annual Meeting of Stockholders to be held on Friday,
June 5, 2009 at 9:00 a.m., local time, at the
corporate offices of Aspect Medical Systems, Inc., One Upland
Road, Norwood, Massachusetts 02062, and at any adjournment
thereof.
All proxies will be voted in accordance with the instructions
contained in those proxy cards. If no choice is specified, the
proxies will be voted in favor of the matters set forth in the
accompanying Notice of 2009 Annual Meeting of Stockholders. Any
proxy may be revoked by a stockholder at any time before it is
exercised by signing another proxy with a later date, by
delivery of written revocation to our Secretary or by appearing
at the annual meeting and voting in person.
Our Annual Report to Stockholders for the fiscal year ended
December 31, 2008 is being mailed to stockholders with the
mailing of the Notice of Annual Meeting of Stockholders and this
Proxy Statement on or about May 5, 2009.
Important Notice Regarding the Availability of Proxy
Materials for the Stockholder Meeting to be Held on June 5,
2009: The proxy statement and annual report to stockholders are
available at www.edocumentview.com/aspm.
A copy of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008 as filed with
the Securities and Exchange Commission, except for exhibits,
will be furnished without charge to any stockholder upon written
or oral request to our Investor Relations Department, Aspect
Medical Systems, Inc., One Upland Road, Norwood, Massachusetts
02062, telephone:
(617) 559-7000.
Voting
Securities and Votes Required
Stockholders of record at the close of business on
April 13, 2009 will be entitled to notice of, and to vote
at, the 2009 Annual Meeting of Stockholders. On that date,
17,415,429 shares of our common stock were issued and
outstanding. Each share of common stock entitles the holder to
one vote with respect to all matters submitted to stockholders
at the 2009 Annual Meeting of Stockholders. We have no other
securities entitled to vote at the meeting.
The representation in person or by proxy of at least a majority
of the shares of common stock issued, outstanding and entitled
to vote at the 2009 Annual Meeting of Stockholders is necessary
to establish a quorum for the transaction of business at the
2009 Annual Meeting of Stockholders. If a quorum is not present,
the annual meeting will be adjourned until a quorum is obtained.
Directors are elected by a plurality of votes cast by
stockholders entitled to vote at the 2009 Annual Meeting of
Stockholders. To be approved, the one-time stock option exchange
program requires the affirmative vote of the holders of a
majority of votes cast on the proposal. To be approved, the
amendment to our By-Laws requires the affirmative vote of the
holders of a majority of our shares issued, outstanding and
entitled to vote at the Annual Meeting of Stockholders. To be
approved, the ratification of Ernst & Young LLP as our
independent registered public accounting firm, requires the
affirmative vote of the majority of shares present in person or
represented by proxy at the 2009 Annual Meeting of Stockholders.
The votes will be counted, tabulated and certified by a
representative of Computershare Trust Company, N.A., who
will serve as the inspector of elections at the 2009 Annual
Meeting of Stockholders.
Shares which abstain from voting as to a particular matter, and
shares held in street name by banks, brokerage firms
or nominees who indicate on their proxy cards that they do not
have discretionary authority to vote such shares as to a
particular matter, which we refer to as broker
non-votes, will not be considered as present and entitled
to vote with respect to a particular matter and will not be
considered a vote cast on such matter. Accordingly, neither
abstentions nor broker non-votes will have any effect upon the
outcome of voting with respect to any matters voted on at the
2009 Annual Meeting of Stockholders, but will be counted for the
purpose of determining whether a quorum exists.
Stockholders may vote in person or by proxy. Execution of a
proxy will not in any way affect a stockholders right to
attend the annual meeting and vote in person. Any stockholder
voting by proxy has the right to revoke the proxy at any time
before it is exercised by giving our Secretary a duly executed
proxy card bearing a later date than the proxy being revoked at
any time before that proxy is voted, by giving our Secretary
written notice that you want to revoke your proxy or by
appearing at the annual meeting and voting in person. The shares
represented by all properly executed proxies received in time
for the annual meeting will be voted as specified in those proxy
cards. If the shares you own are held in your name, and you do
not specify in the proxy card how your shares are to be voted,
they will be voted:
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in favor of the election as Class III directors of those
persons named in this Proxy Statement;
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in favor of the approval of the one-time stock option exchange
program under which eligible employees (excluding our executive
officers and directors) would be able to elect to exchange
outstanding stock options with an exercise price of $15.00 or
greater issued under our 1998 Stock Incentive Plan or our 2001
Stock Incentive Plan for new lower-priced stock options;
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in favor of the approval of an amendment to our Amended and
Restated By-Laws, as amended, which provides that, subject to
limited exceptions, future annual meetings of stockholders will
be held no later than May 25 in each year;
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in favor of the ratification of Ernst & Young LLP as
our independent registered public accounting firm for the fiscal
year ending December 31, 2009; and
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with respect to any other items that may properly come before
the meeting.
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If the shares you own are held in street name, the
bank, brokerage firm or nominee, as the record holder of your
shares, is required to vote your shares in accordance with your
instructions. In order to vote your shares held in street
name, you will need to follow the directions your bank,
brokerage firm or nominee provides you. If you desire to vote
your shares held in street name at the Annual
Meeting by proxy, you will need to obtain a proxy card from the
holder of record.
Householding
of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be
participating in the practice of householding proxy
statements and annual reports. This means that only one copy of
our Proxy Statement and Annual Report to Stockholders may have
been sent to multiple stockholders in your household. We will
promptly deliver a separate copy of either document to you upon
written or oral request to our Investor Relations Department,
Aspect Medical Systems, Inc., One Upland Road, Norwood,
Massachusetts 02062, telephone:
(617) 559-7000.
If you want to receive separate copies of our Proxy Statement or
Annual Report to Stockholders in the future, or if you are
receiving multiple copies and would like to receive only one
copy per household, you should contact your bank, broker or
other nominee record holder, or you may contact us at the above
address and phone number.
2
STOCK
OWNERSHIP INFORMATION
The following table sets forth information regarding beneficial
ownership of our common stock as of January 31, 2009 by:
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each person or entity known to us to beneficially own more than
5% of the outstanding shares of our common stock,
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each of our directors and nominees for director,
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each of the executive officers named in the Executive
Compensation Summary Compensation Table below,
whom we refer to herein as our named executive officers, and
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all of our directors, nominees for director and executive
officers as a group.
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The number of shares of common stock beneficially owned by each
person or entity is determined in accordance with the applicable
rules of the Securities and Exchange Commission, or SEC, which
rules require us to include shares of our common stock over
which such person or entity has voting or investment power. The
information contained in the following table is not necessarily
indicative of beneficial ownership for any other purpose and the
inclusion of any shares in the table does not constitute an
admission of beneficial ownership of those shares. Shares of our
common stock issuable under stock options exercisable on or
before April 1, 2009 are deemed beneficially owned and such
shares are used in computing the percentage ownership of the
person holding the options, but are not deemed outstanding for
computing the percentage ownership of any other person. Unless
otherwise indicated, to our knowledge, all persons named in the
table have sole voting and investment power with respect to
their shares of common stock, except to the extent authority is
shared by spouses under community property laws. Unless
otherwise indicated, the address of all directors, nominees and
executive officers is
c/o Aspect
Medical Systems, Inc., One Upland Road, Norwood, Massachusetts
02062.
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Number of Shares
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Percentage of
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Name and Address
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Beneficially
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Common Stock
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of Beneficial Owner
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Owned(1)
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Beneficially Owned
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5% Stockholders
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Coghill Capital Management, L.L.C. ( 2)
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2,798,515
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16.1
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One North Wacker Drive Suite 4350
Chicago, IL 60606
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First Manhattan Co. (3)
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2,355,620
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13.6
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437 Madison Avenue
New York, NY 10022
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Ronald J. Juvonen (4)
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1,759,433
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10.1
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c/o Downtown
Associates, L.L.C
674 Unionville Road, Suite 105
Kennett Square, PA 19348
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Security Investors, LLC (5)
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937,463
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5.4
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One Security Benefit Place
Topeka, KS 66636
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Zazove Associates, LLC (6)
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1,211,119
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7.0
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1001 Tahoe Blvd.
Incline Village, NV 89451
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Directors, Nominees for Director and Named Executive
Officers
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Jon C. Biro
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0
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*
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Boudewijn L.P.M. Bollen (7)
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117,057
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*
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Nassib G. Chamoun (8)
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849,359
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4.8
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John Coolidge
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112,070
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*
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J. Breckenridge Eagle (9)
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489,190
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2.8
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Michael A. Esposito (10)
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16,167
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*
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Michael Falvey (11)
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27,068
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*
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David W. Feigal, Jr., M.D. (12)
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30,500
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*
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William H. Floyd
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297,139
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1.7
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Edwin M. Kania, Jr. (13)
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135,768
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*
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Melvin L. Keating
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0
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Scott D. Kelley, M.D. (14)
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287,254
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1.6
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James J. Mahoney, Jr. (15)
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47,501
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*
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John J. OConnor
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16,167
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Donald R. Stanski, M.D.
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48,000
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*
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All directors, nominees for director and executive officers as a
group (20 persons)
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3,264,501
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17.0
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3
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*
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Less than 1% of our outstanding common stock.
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(1)
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Includes the following number of shares of our common stock
issuable upon the exercise of outstanding stock options which
may be exercised on or before April 1, 2009 by
Mr. Bollen: 93,306; Mr. Chamoun: 463,021;
Mr. Coolidge: 77,002; Mr. Eagle: 173,342;
Mr. Esposito: 7,667; Mr. Falvey: 0; Dr. Feigal:
23,000; Mr. Floyd: 136,071; Mr. Kania: 23,000;
Dr. Kelley: 246,413; Mr. Mahoney: 22,500;
Mr. OConnor: 7,667; Dr. Stanski: 40,500; and all
directors and executive officers as a group: 1,888,760.
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(2)
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This information is taken from a Schedule 13G/A filed with
the SEC on February 17, 2009 by Coghill Capital Management,
L.L.C., jointly with its affiliates CCM Master Qualified Fund,
Ltd. and Clint D. Coghill. Of the 2,798,515 shares of
common stock deemed beneficially owned, each reporting person
reported sole voting power as to none of the shares.
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(3)
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This information is taken from a Schedule 13G/A filed with
the SEC on February 10, 2009.
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(4)
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This information is taken from a Schedule 13G/A filed with
the SEC on March 20, 2008. The shares of common stock are
held by Downtown Associates I, L.P., Downtown Associates
II, L.P., Downtown Associates III, L.P. and Downtown
Associates V, L.P. (collectively referred to as the
Downtown Funds). The general partner of the Downtown
Funds is Downtown Associates, L.L.C. Ronald J. Juvonen, as the
Managing Member of the General Partner, has sole voting power to
vote and direct the disposition of all shares and thus is deemed
to beneficially own all of such shares.
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(5)
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This information is taken from a Schedule 13G filed with
the SEC on February 13, 2009.
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(6)
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This information is taken from a Schedule 13G filed with
the SEC on February 13, 2009.
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(7)
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Mr. Bollen resigned as our director, effective immediately
prior to the Annual Meeting.
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(8)
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Includes 120,000 shares of common stock held by The Nassib
G. Chamoun 1998 Irrevocable Trust, a trust for the benefit of
Mr. Chamouns minor children. Mr. Chamoun
disclaims beneficial ownership of all shares held in this trust.
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(9)
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Includes 20,000 shares of common stock held by Jeanne
Warren Eagle, as Trustee for the Trust for John Warren Eagle, of
which Mr. Eagle disclaims beneficial ownership and
120,000 shares of common stock held by The Nassib G.
Chamoun 1998 Irrevocable Trust, of which Mr. Eagle is the
Trustee and disclaims beneficial ownership.
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(10)
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Mr. Esposito, a Class III director, is not standing
for re-election at the Annual Meeting.
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(11)
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Mr. Falvey resigned from his position as Vice President,
Chief Financial Officer and Secretary effective
December 31, 2008.
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(12)
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Dr. Feigal resigned as our director, effective immediately
prior to the Annual Meeting.
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(13)
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Includes 1,605 shares held by Mr. Kanias minor
children.
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(14)
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Includes 10,500 shares pledged to Merrill Lynch as security
for an outstanding loan.
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(15)
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Mr. Mahoney, a Class III director as of the date of
this proxy statement, is not standing for re-election and will
be elected to serve as a Class I director by our board of
directors to fill the vacancy created by Dr. Feigals
resignation.
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Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers and the holders of
more than 10% of our common stock to file with the SEC initial
reports of ownership of our common stock and other equity
securities on a Form 3 and reports of changes in such
ownership on a Form 4 or Form 5. Officers, directors
and 10% stockholders are required by SEC regulations to furnish
us with copies of all Section 16(a) forms they file. Based
solely on our review of copies of reports filed by the reporting
persons furnished to us, or written representations from
reporting persons, we believe that during the fiscal year ended
December 31, 2008, the reporting persons complied with all
Section 16(a) filing requirements, other than with respect
to two Forms 4 filed by Mr. Stanski on
January 12, 2009 to report purchases of an aggregate of
40,000 shares of common stock made between
December 16, 2008 through December 24, 2008 and a
Form 4 filed by Mr. Kania on May 29, 2008 to
report our grant to Mr. Kania on May 21, 2008 of
2,000 shares of common stock and a stock option to purchase
3,000 shares of common stock.
4
PROPOSAL ONE
ELECTION OF DIRECTORS
General
Information
We have a classified board of directors consisting of nine
members: three Class I Directors, three Class II
Directors and three Class III Directors. At each Annual
Meeting of Stockholders, one class of directors is elected for a
full term of three years to succeed those directors whose terms
are expiring. Based on the recommendation of the Corporate
Governance and Nominating Committee, the board of directors has
nominated Jon C. Biro, Nassib G. Chamoun, and Melvin L. Keating
to serve as Class III directors. The persons named in the
enclosed proxy card will vote to elect, as Class III
Directors, Jon C. Biro, Nassib G. Chamoun and Melvin L. Keating,
the three director nominees, unless the proxy card is marked
otherwise. Each Class III Director will be elected to hold
office until the 2012 Annual Meeting of Stockholders and until
his successor is elected and qualified. If a stockholder returns
a proxy card without contrary instructions, the persons named as
proxies will vote to elect as directors the nominees identified
below. Mr. Chamoun is the only nominee who is currently a member
of our board of directors. The nominees have indicated their
willingness to serve if elected. However, if any director
nominee should be unable to serve, the shares of common stock
represented by proxies may be voted for a substitute nominee
designated by our board of directors or our board of directors
may reduce the number of nominees. Our board of directors does
not believe that any of the nominees will be unable or unwilling
to serve if elected.
For each member of our board of directors as of the Annual
Meeting of Stockholders, including those who are nominees for
election as Class III Directors, there follows information
given by each such director concerning his age and length of
service as a member of our board of directors, principal
occupation and business experience during the past five years
and the names of other publicly-held companies of which he
serves as a director. No director or executive officer is
related by blood, marriage or adoption to any other director or
executive officer.
Pursuant to the terms of our agreement dated April 8, 2009
with First Manhattan Co., First BioMed Management Associates,
LLC and First BioMed, L.P., which we collectively refer to as
First Manhattan, the following changes will be made to our Board
of Directors prior to the Annual Meeting of Stockholders:
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Michael A. Esposito, a current Class III director, is not
standing for re-election at the Annual Meeting of Stockholders.
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Boudwijn L.P.M. Bollen, a Class II director, has resigned
effective immediately prior to the Annual Meeting of
Stockholders and the Board intends to elect Vincent P. Scialli
to the fill the vacancy created by his resignation, the election
of Mr. Scialli to be effective immediately prior to the
Annual Meeting of Stockholders.
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David W. Feigal Jr., M.D., a Class I director, has
resigned effective immediately prior to the Annual Meeting and
the Board intends to elect James J, Mahoney, a current
Class III director, to fill the vacancy created by
Dr. Feigals resignation, the election of
Mr. Mahoney to be effective immediately prior to the Annual
Meeting of Stockholders.
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We refer to this agreement as the Agreement. For a further
discussion of the Agreement, see Director Nomination and
Election Arrangements below.
Director
Nomination and Election Arrangements
Pursuant to the Agreement, we have agreed to the following
arrangements with respect to the nomination
and/or
election of directors:
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Jon C. Biro and Melvin L. Keating, whom we collectively refer to
as the designated directors, have been nominated as our
Class III directors, together with Nassib G. Chamoun, our
President and Chief Executive Officer, for election at the
Annual Meeting, for terms that will expire in 2012;
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David W. Feigal, Jr., M.D. and Boudewijn L.P.M Bollen,
have resigned from the class of directors up for election in
2010 and 2011, respectively, in each case effective immediately
prior to the Annual Meeting;
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James J. Mahoney, Jr., and Vincent P. Scialli will be
elected as directors for terms ending at the 2010 and 2011
annual meeting of stockholders, respectively, to fill the
vacancies created by the resignations of Dr. Feigal and
Mr. Bollen, in each case effective immediately prior to the
Annual Meeting;
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neither Aspect nor the Board will take any action that would
shorten the terms of the designated directors or
Mr. Scialli or any other nominee of First Manhattan
pursuant to the Agreement, provided that the board of directors
can recommend to stockholders that a given director be removed
for cause if directors, after consultation with counsel,
determine in good faith that their fiduciary duties require it;
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we have agreed to use all reasonable best efforts to ensure that
the designated directors are elected at the Annual Meeting and
have agreed to recommend to stockholders that they vote in favor
of the election of the designated directors;
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we have agreed to nominate Mr. Scialli for re-election in
2011, unless the Corporate Governance and Nominating Committee
of the Board determines that Mr. Scialli does not meet the
criteria for considering a candidate to be qualified to serve as
a director set forth in our Corporate Governance Guidelines and
Director Qualification Standards, in which case First Manhattan
will be entitled to designate another individual deemed to be
qualified by the Board who the Board will nominate for election
in 2011;
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if either of the designated directors or Mr. Scialli become
unable to serve prior to the Annual Meeting or ceases to serve
at some point before the 2012 election, First Manhattan will be
entitled to designate an individual deemed to be qualified by
the Board who the Board will then nominate for election or elect
to fill such vacancy;
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until the 2011 annual meeting of stockholders, the size of the
Board will not be increased beyond nine members unless at least
eight members approve the increase; and
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Mr. Biro will become a member of our Audit Committee,
Mr. Scialli will become a member of our Corporate
Governance and Nominating Committee and Mr. Keating will
become a member of our Compensation Committee.
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Pursuant to the terms of the Agreement, each of our officers and
directors has agreed to vote all of his or her shares for the
designated directors.
We have the right to terminate the Agreement by delivering a
written notice of termination at any time on or after the
earlier of:
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the date on which our 2012 annual meeting of stockholders is
held; and
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the first date on which First Manhattan no longer beneficially
owns at least 500,000 shares of our common stock, in which
case, First Manhattan would cause Mr. Scialli to
immediately offer his written resignation as a director of
Aspect.
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The foregoing is not a complete description of the terms of the
Agreement. For a copy of the Agreement, and a further
description of its terms, please see our Current Report on
Form 8-K,
which we filed with the SEC on April 9, 2009.
Board
Recommendation
Our board of directors believes that the election of Jon C.
Biro, Nassib G. Chamoun, and Melvin L. Keating to serve as
Class III directors is in the best interests of Aspect and
our stockholders and, therefore, the board of directors
unanimously recommends that the stockholders vote
FOR the nominees.
Nominees
for Term Expiring at the 2012 Annual Meeting (Class III
Directors)
Jon C. Biro
, age 43, is a director nominee.
Jon C. Biro
has served as Executive Vice President, Chief
Financial and Accounting Officer, Treasurer, Secretary and a
director of Consolidated Graphics, Inc., a commercial printer
with operations in the United States, Canada and the Czech
Republic, since January 2008. Prior to joining Consolidated
Graphics, Mr. Biro held several
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executive positions with ICO, Inc., a company specializing in
the manufacturing of specialty resins and concentrates. From
April 2002 to January 2008, Mr. Biro was the Chief
Financial Officer and Treasurer of ICO and served as its Interim
Chief Executive Officer from July 2003 to February 2004. From
September 1996 to April 2002, Mr. Biro was the Senior Vice
President, Chief Accounting Officer and Treasurer of ICO. From
October 1994 to September 1996, he was the Controller of ICO.
Prior to his employment with ICO, Mr. Biro was employed by
PriceWaterhouse Coopers LLP. Mr. Biro is a certified public
accountant.
Nassib G. Chamoun
, age 46, became a director in 1987.
Nassib G. Chamoun
is a founder of Aspect and has served
as a director since 1987. Mr. Chamoun has served as
President of Aspect since 1996 and Chief Executive Officer since
1995. He also served as Chairman of the board of directors from
1987 to 1996 and as Chief Scientific Officer from 1991 to 1995.
Prior to 1995, Mr. Chamoun also served as our President and
Chief Executive Officer at various times since founding Aspect
in 1987. From 1984 to 1987, Mr. Chamoun was a fellow in
cardiovascular physiology at the Lown Cardiovascular Laboratory
of the Harvard School of Public Health.
Melvin L. Keating
, age 62, is a director nominee.
Melvin L. Keating
was President and Chief Executive
Officer of Alliance Semiconductor Corporation, a worldwide
manufacturer and seller of semiconductors, from 2005 to 2008.
From 2004 to 2005, Mr. Keating served as Executive Vice
President, Chief Financial Officer and Treasurer of Quovadx
Inc., a healthcare software company. Mr. Keating was
employed as a Strategy Consultant for Warburg Pincus Equity
Partners from 1997 to 2004, providing acquisition and investment
target analysis and transactional advice. Mr. Keating also
was President and Chief Executive Officer of Sunbelt Management
Company, a private, European-owned real estate development firm,
from 1995 to 1997. From 1986 to 1995, Mr. Keating was
Senior Vice President, Financial Administration of
Olympia & York Companies/Reichmann International,
responsible for joint ventures, financial reporting and
acquisitions.
Directors
Whose Terms Expire at the 2010 Annual Meeting (Class I
Directors)
James J. Mahoney, Jr.
, age 65, became a
director in 2003.
As of the date of this proxy statement, Mr. Mahoney is a
Class III director, but is not standing for re-election and
will be elected to serve as a Class I director by our board
of directors to fill the vacancy created by
Dr. Feigals resignation. The election will become
effective immediately prior to the 2009 Annual Meeting of
Stockholders.
James J. Mahoney, Jr.
joined Aspect as a director in
March 2003 and has served as lead director since August 2005.
Since January 2004, Mr. Mahoney has served as President and
has managed The Mahoney Group, an investment firm.
Mr. Mahoney is a founding partner and principal of HLM
Management Company, a private equity firm that invested in small
entrepreneurially managed growth stocks and in privately-held
venture capital backed companies. From January 1999 to March
2002, Mr. Mahoney managed HLM Management Companys
venture capital program and, from April 2002 to April 2004, he
acted as a consultant to HLM Management Company. From 1984 to
December 1998, Mr. Mahoney co-managed the stock and venture
capital portfolios of, and served as Chief Investment Officer
of, HLM Management Company. Mr. Mahoney currently serves as
Chairman of the Board and a member of the audit committee of NMT
Medical, an advisor to four investment firms and a member of
investment committees of three charitable organizations.
John J. OConnor,
age 61, became a director in
2006.
John J. OConnor
joined Aspect as a director in
December 2006. Prior to his retirement in November 2006,
Mr. OConnor was a partner at PricewaterhouseCoopers
LLP, an independent public accounting firm, from 1982 to
November 2006, most recently serving as vice chairman of
services from June 2002 to November 2006. Mr. OConnor
served as the leader of the U.S. audit practice at
PricewaterhouseCoopers from September 2000 to June 2002, and
served as the managing partner of the firms Boston office
from 1995 to September 2000. Mr. OConnor also serves
as a director for LeMaitre Vascular, Inc.
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Donald R. Stanski, M.D.
, age 59, became a
director in 1996.
Donald R. Stanski
joined Aspect as a director in
1996. Since November 2005, Dr. Stanski has
served as Vice President and Global Head of Modeling and
Simulation, leading a group of scientists who apply quantitative
methods to optimize drug developments, at Novartis
Pharmaceuticals, a pharmaceutical company. Dr. Stanski has
been a Professor in the Department of Anesthesia at Stanford
University since 1979 and is trained as an
anesthesiologist/clinical pharmacologist. He became professor
emeritus at Stanford University in November 2005. From January
2004 until November 2005, Dr. Stanski was on public service
duty at the United States Food and Drug Administration as a
Scientific Advisor for the Director, Center for Drug Evaluation
and Research. He served as Chair of the Department of Anesthesia
at Stanford University from 1992 to 1997. From July 1998 to June
2001, Dr. Stanski served as the Vice President of
Scientific and Medical Programs for Pharsight Corporation, a
company that assists in the development of therapeutic products.
Directors
Whose Terms Expire at the 2011 Annual Meeting (Class II
Directors)
J. Breckenridge Eagle
, age 59, served as a director
from 1988 to 1991 and from 1996 to the present.
J. Breckenridge Eagle
joined Aspect as a director in 1988
and served in that position until 1991. He became a director
again in 1996 and has served as Chairman of the board of
directors since that date. Mr. Eagle served as President
and Chief Operating Officer of Aspect in 1996 and as a
consultant to Aspect in 1995. From 1989 to 1995, he was
President of ECS, Inc., a medical practice management company,
which he founded in 1989. From 1981 to 1988, Mr. Eagle was
Chief Financial Officer, Vice President and General Manager of
The Health Data Institute, Inc., a health care services company,
which he co-founded.
Edwin M. Kania
,
Jr.
age 51, became a director
in 1995.
Edwin M. Kania, Jr.
joined Aspect as a director in
1995. Since 2000, Mr. Kania has served as Managing Partner
and Chairman of Flagship Ventures, a venture capital firm, which
he co-founded. Previously, Mr. Kania served as the managing
partner of OneLiberty Ventures, a venture capital firm, which
was formed in 1995, and as a general partner at Morgan Holland
Ventures, a predecessor entity of OneLiberty Ventures, which he
joined in 1985. Mr. Kania also serves as a director of
EXACT Sciences Corporation.
Vincent P. Scialli
, age 39, will be elected as a
director by our board of directors immediately prior to the 2009
Annual Meeting to fill the vacancy created by
Mr. Bollens resignation.
Vincent P. Scialli
has been a Managing Director of First
Manhattan Co., a privately held investment manager, since 2005.
From 2001 to 2005, Mr. Scialli was Vice President and
Assistant Portfolio Manager at Lord Abbett & Co. LLC.,
a privately held money management firm. From 2000 to 2001,
Mr. Scialli was a Senior Research Analyst at Bear
Stearns & Co., Inc., an investment bank. Prior to
joining Bear Stearns, Mr. Scialli had been an Analyst at
Prudential Insurance, a multi-line insurance company and asset
management firm.
Executive
Officers of the Corporation
Margery Ahearn,
age 46, became an executive officer
in 2006.
Margery Ahearn
joined Aspect in April 1998 and has served
as Vice President of Human Resources since January 2006.
Ms. Ahearn served as our Director of Human Resources from
1998 to December 2005. From 1985 through 1998, Ms. Ahearn
held a variety of positions, including Senior Human Resource
Representative, at Wang Laboratories, Inc., Director of Human
Resources at Boston Business Group and Senior Employment
Specialist at GTE.
J. Neal Armstrong,
age 70, became an executive
officer in 2009
J. Neal Armstrong
has served as our Vice President, Chief
Financial Officer and Secretary since January 2009.
Mr. Armstrong served as Vice President of Investor
Relations of Aspect from 2005 to 2006 and prior to that, served
as Vice President, Chief Financial Officer, Secretary and
Treasurer of Aspect from 1996 until his retirement from that
position in 2005. Mr. Armstrong remained retired until his
return to Aspect in January 2009. From 1990 to 1996,
Mr. Armstrong served as Vice President of Finance, Chief
Financial Officer and as a director of Haemonetics,
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Inc., a manufacturer of blood processing systems.
Mr. Armstrong serves as a director, Chairman of the Audit
Committee and member of the Compensation Committee of deCODE
genetics, Inc. and also serves as a member of the Board of
Directors and the Audit Committee of TransMedics, Inc.,
AngioScore, Inc. and Vapotherm, Inc. Mr. Armstrong also
serves as a member of the Board of Directors, Audit Committee
and Compensation Committee of Salient Surgical Technologies, Inc.
John Coolidge
, age 48, became an executive officer
in 2004.
John Coolidge
joined Aspect in May 1997 and has served as
Vice President of Manufacturing Operations since January 2001.
Mr. Coolidge served as our Director of Manufacturing from
May 1997 to January 2001. From 1995 to 1997, he served as
Engineering Manager and was responsible for product development
and manufacturing engineering management for the Interventional
Vascular business of Medtronic, Inc., a medical technology
company. From 1987 to 1995, Mr. Coolidge held a variety of
engineering and manufacturing management positions at Johnson
and Johnson Medical, Inc., a manufacturer and provider of health
care products and services, the most recent of which was
Business Unit Manager.
Marc Davidson
, age 45, became an executive officer
in 2004.
Marc Davidson
joined Aspect in December 1999 and has
served as Vice President of Engineering since November 2001.
Mr. Davidson served as our Director of OEM Engineering from
December 1999 to November 2001. From 1985 through 1999,
Mr. Davidson held a variety of marketing, engineering,
sales and management positions at Hewlett-Packard Company, a
manufacturer of computers and medical devices.
Philip H. Devlin
, age 52, became an executive
officer in 1994.
Philip H. Devlin
joined Aspect in 1990 and has served as
Vice President of Emerging Technologies and General Manager of
Neuroscience since November 2001. From 1994 to November 2001,
Mr. Devlin served as Vice President of Research and
Development of Aspect, and from 1990 to 1994, he held the
position of Director of Product Development of Aspect. From 1984
to 1985 and from 1986 to 1990, Mr. Devlin served as
Software Engineer and Manager of Software Engineering at
Lifeline Systems, Inc., a medical products and communications
company. From 1980 to 1984, he held the position of Chief
Biomedical Engineer at Beth Israel Hospital in Boston,
Massachusetts and from 1985 to 1986, he served as Technical
Marketing Engineer in the Medical Product Group of
Hewlett-Packard Company, a manufacturer of computers and medical
devices.
William Floyd
, age 52, became an executive officer
in 2001.
William Floyd
joined Aspect in May 2001 and has served as
Vice President of Sales and Marketing since September 2002.
Mr. Floyd served as Vice President of Marketing from May
2001 to September 2002. From May 2000 to May 2001,
Mr. Floyd was Principal of Casco Scientific, LLC, a medical
device consulting group. From 1992 to 2000, Mr. Floyd held
a variety of positions with Boston Scientific Corporation, a
manufacturer of medical devices, the most recent of which was
Vice President of Marketing, Microvasive Division.
Scott D. Kelley, M.D.
, age 50, became an
executive officer in 2000.
Scott D. Kelley
joined Aspect in July 2000 and has served
as Vice President and Medical Director since that time. Prior to
joining Aspect, Dr. Kelley served as an Associate Professor
of Clinical Anesthesia and Director of Liver Transplant at the
University of California, San Francisco Medical School from
1990 to 2000.
Paul J. Manberg, Ph.D.
, age 54, became an
executive officer in 1991.
Paul J. Manberg
joined Aspect in 1991 and has served as
Vice President of Clinical, Regulatory and Quality Assurance
since that time. From 1984 to 1990, Dr. Manberg held a
variety of clinical research positions at Serono Laboratories, a
pharmaceutical company, including Vice President, Research and
Development. From 1979 to 1984, he was employed as a Clinical
Research Scientist at Burroughs Wellcome Company, a
pharmaceutical company, and served as an Adjunct Research
Scientist at the University of North Carolina.
For additional information relating to our executive officers,
see the disclosure regarding Messrs. Bollen, Eagle and
Chamoun set forth under the heading Election of
Directors. No arrangements or understandings exist
9
between any executive officer and any other person pursuant to
which such executive officer is to be selected as an executive
officer.
For information relating to shares of our common stock owned by
each of our directors, our chief executive officer, chief
financial officer and our three most highly compensated
executive officers and all directors and executive officers as a
group, see the disclosure set forth above under the heading
Stock Ownership Information.
CORPORATE
GOVERNANCE
Our board of directors has long believed that good corporate
governance is important to ensure that Aspect is managed for the
long-term benefit of our stockholders. This section describes
key corporate governance guidelines and practices that our board
of directors has adopted. Complete copies of our corporate
governance guidelines, board committee charters and code of
conduct described below are available on our website at
www.aspectms.com. Alternatively, you can request a copy of any
of these documents by contacting: Investor Relations Department,
Aspect Medical Systems, Inc., One Upland Road, Norwood,
Massachusetts 02062, telephone:
(617) 559-7000.
Corporate
Governance Guidelines
Our board of directors has adopted corporate governance
guidelines to assist the board of directors in the exercise of
its duties and responsibilities and to serve the best interests
of Aspect and its stockholders. These guidelines, which provide
a framework for the conduct of the board of directors
business, provide, among other things, that:
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the principal responsibility of the directors is to oversee the
management of Aspect;
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a majority of the members of the board shall be independent
directors;
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the independent directors meet at least twice a year in
executive session;
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directors have full and free access to management and, as
necessary and appropriate, independent advisors;
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new directors participate in an orientation program and all
directors are expected to participate in continuing director
education on an ongoing basis; and
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at least annually the corporate governance and nominating
committee oversees a self-evaluation of the board of directors
and its committees to determine whether they are functioning
effectively.
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Executive
and Director Compensation Processes
The Compensation Committee has implemented an annual performance
review program for our executives, under which corporate and
individual performance goals are determined at the beginning of
each performance cycle. Annual salary, bonuses, stock options
and restricted stock awards granted to our executives are tied
to the achievement of these corporate and individual performance
goals.
In evaluating each executive officers performance, the
Compensation Committee generally conforms to the following
process:
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business and individual goals and objectives are set for each
performance cycle;
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at the end of the performance cycle, the accomplishment of the
executives goals and objectives and his or her
contributions to Aspect are evaluated;
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the executives performance is then compared with peers
within Aspect and the results are communicated to the
executive; and
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the comparative results, combined with comparative compensation
practices of other companies in the industry, are then used to
determine salary and stock compensation levels.
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The Compensation Committee does not rely on a formula that
assigns a pre-determined value to each of the criteria, but
instead evaluates an executive officers contribution in
light of all criteria.
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In addition, in accordance with the terms of our corporate
governance guidelines, our Compensation Committee is required to
annually review the compensation of our directors, consult with
the members of the Corporate Governance and Nominating Committee
on such findings and then make recommendations to the board of
directors with respect to director compensation.
Board
Determination of Independence
Under applicable Nasdaq Marketplace Rules, a director of Aspect
will only qualify as an independent director if, in
the opinion of the board of directors, that person does not have
a relationship which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director. The board of directors has determined that none of Jon
C. Biro, Michael A. Esposito, David W. Feigal, Jr., Edwin
M. Kania, Jr., Melvin L. Keating, James J.
Mahoney, Jr., John J. OConnor or Donald R. Stanski
has a relationship which would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director and that each of these directors and nominees for
director qualifies as an independent director as
defined under Rule 4200(a)(15) of the Nasdaq Marketplace
Rules.
Director
Nomination Process
The process followed by the Corporate Governance and Nominating
Committee to identify and evaluate director candidates includes
requests to board members and others for recommendations,
meetings from time to time to evaluate biographical information
and background material relating to potential candidates and
interviews of selected candidates by members of the Corporate
Governance and Nominating Committee and the board of directors.
Jon C. Biro and Melvin L. Keating have been nominated to serve
on our board of directors pursuant to the terms of the Agreement
we entered into with First Manhattan Co., First BioMed
Management Associates, LLC and First BioMed, L.P. For a further
discussion of the Agreement, see Director Nomination and
Election Arrangements beginning on page 5.
In considering whether to recommend any particular candidate for
inclusion in the board of directors slate of recommended
director nominees, the Corporate Governance and Nominating
Committee applies the criteria set forth in our Corporate
Governance Guidelines. These criteria include the
candidates integrity, business acumen, knowledge of
Aspects business and industry, experience, diligence,
conflicts of interest and the ability to act in the interests of
all stockholders. The Corporate Governance and Nominating
Committee does not assign specific weights to particular
criteria and no particular criterion is a prerequisite for each
prospective nominee. Our Corporate Governance Guidelines also
provide that any director who reaches the age of 75 while
serving as a director will retire from our board of directors
effective at the end of his or her then current term. We believe
that the backgrounds and qualifications of our directors,
considered as a group, should provide a composite mix of
experience, knowledge and abilities that will allow the board of
directors to fulfill its responsibilities.
Stockholders may recommend individuals to the Corporate
Governance and Nominating Committee for consideration as
potential director candidates by submitting their names,
together with appropriate biographical information and
background materials and a statement as to whether the
stockholder or group of stockholders making the recommendation
has beneficially owned more than 5% of our common stock for at
least a year as of the date such recommendation is made, to
Chairman, Corporate Governance and Nominating Committee,
c/o Aspect
Medical Systems, Inc., One Upland Road, Norwood, Massachusetts
02062. Assuming that appropriate biographical and background
material has been provided on a timely basis, the Corporate
Governance and Nominating Committee will evaluate
stockholder-recommended candidates by following substantially
the same process, and applying substantially the same criteria,
as it follows for candidates submitted by others.
Stockholders also have the right under our bylaws to directly
nominate director candidates, without any action or
recommendation on the part of the Corporate Governance and
Nominating Committee or the board of directors, by following the
procedures set forth in the second paragraph under
Stockholder Proposals below.
Communicating
with the Independent Directors
The board of directors will give appropriate attention to
written communications that are submitted by stockholders, and
will respond if and as appropriate. The Chairman of the
Corporate Governance and Nominating
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Committee is primarily responsible for monitoring communications
from stockholders and for providing copies or summaries to the
other directors as he considers appropriate.
Communications will be forwarded to all directors if they relate
to important substantive matters and include suggestions or
comments that the Chairman of the Corporate Governance and
Nominating Committee considers to be important for the directors
to know. In general, communications relating to corporate
governance and long-term corporate strategy are more likely to
be forwarded than communications relating to ordinary business
affairs, personal grievances and matters as to which we tend to
receive repetitive or duplicative communications.
Stockholders who wish to send communications on any topic to the
board of directors should address such communications to
Chairman, Corporate Governance and Nominating Committee,
c/o Aspect
Medical Systems, Inc., One Upland Road, Norwood, MA 02062.
Board
Meetings and Attendance
The board of directors met nine times during the fiscal year
ended December 31, 2008, either in person or by
teleconference. During the fiscal year ended December 31,
2008, each director attended at least 75% of the aggregate of
the number of board of director meetings and the number of
meetings held by all committees on which he or she then served.
Director
Attendance at Annual Meeting of Stockholders
Our corporate governance guidelines provide that directors are
encouraged to attend the annual meeting of stockholders in the
event that Aspect determines their attendance is warranted.
Three directors attended the 2008 Annual Meeting of Stockholders.
Board
Committees
Our board of directors has established three standing
committees Audit, Compensation and Corporate
Governance and Nominating each of which operates
under a charter that has been approved by the board of
directors. Current copies of each committees charter are
posted on the Investors Corporate
Overview section of our website, www.aspectms.com.
Our board of directors has determined that all of the members of
each of the boards three standing committees, including
Mr. Biro, Mr. Keating and Mr. Scialli, who will
join our standing committees at the time of the Annual Meeting,
are independent as defined under Nasdaq Marketplace Rules,
including, in the case of all members of the Audit Committee,
the independence requirements contemplated by
Rule 10A-3
under the Securities Exchange Act of 1934, as amended.
Audit
Committee
The Audit Committees responsibilities include:
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appointing, approving the compensation of, and assessing the
independence of our independent registered public accounting
firm;
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overseeing the work of our independent registered public
accounting firm, including through the receipt and consideration
of certain reports from our independent registered public
accounting firm;
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reviewing and discussing with management and our independent
registered public accounting firm our annual and quarterly
financial statements and related disclosures;
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monitoring our internal control over financial reporting,
disclosure controls and procedures and code of business conduct
and ethics;
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discussing our risk management policies;
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establishing policies regarding hiring employees from our
independent registered public accounting firm and procedures for
the receipt and retention of accounting related complaints and
concerns;
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meeting independently with our independent registered public
accounting firm and management; and
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preparing the audit committee report required by SEC rules
(which is included in this Proxy Statement).
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The current members of the Audit Committee are
Mr. OConnor (Chairman), Dr. Feigal and
Mr. Mahoney. Dr. Feigal has resigned from the board of
directors effective immediately prior to the Annual Meeting. If
elected, Mr. Biro will join the Audit Committee. Our board
of directors has determined that each of Mr. Mahoney and
Mr. OConnor is an audit committee financial
expert as defined by applicable SEC rules. The Audit
Committee met six times during the fiscal year ended
December 31, 2008.
Compensation
Committee
The Compensation Committees responsibilities include:
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annually reviewing and approving corporate goals and objectives
relevant to our Chief Executive Officers compensation;
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determining our Chief Executive Officers compensation;
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reviewing and approving, or making recommendations to the board
of directors with respect to, the compensation of our other
executive officers;
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overseeing an evaluation of our senior executives;
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overseeing and administering our cash and equity incentive plans;
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reviewing and making recommendations to the board of directors
with respect to director compensation;
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reviewing and discussing annually with management our
Compensation Discussion and Analysis; which is
included beginning on page 16 of this Proxy
Statement, and
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preparing the Compensation Committee report required by SEC
rules, which is included on page 23 of this Proxy Statement.
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The processes and procedures followed by our Compensation
Committee in considering and determining executive and director
compensation are described above under the heading
Executive and Director Compensation Processes.
The current members of the Compensation Committee are
Mr. Kania (Chairman), Mr. Esposito and
Dr. Stanski. Mr. Esposito is not standing for
re-election as a director. If elected, Mr. Keating will
join the Compensation Committee. The Compensation Committee met
three times during the fiscal year ended December 31, 2008.
Corporate
Governance and Nominating Committee
The Corporate Governance and Nominating Committees
responsibilities include:
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identifying individuals qualified to become members of our board
of directors;
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recommending to the board of directors the persons to be
nominated for election as directors and to each of the
boards committees;
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reviewing and making recommendations to the board of directors
with respect to management succession planning;
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developing and recommending to the board of directors corporate
governance principles; and
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overseeing the evaluation of the board of directors.
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The processes and procedures followed by the Corporate
Governance and Nominating Committee in identifying and
evaluating director candidates are described above under the
heading Director Nomination Process.
13
The current members of the Corporate Governance and Nominating
Committee are Dr. Stanski (Chairman), Mr. Kania and
Mr. OConnor. Upon his election as a director by the
board of directors, Mr. Scialli will join the Corporate
Governance and Nominating Committee. The Corporate Governance
and Nominating Committee met one time during the fiscal year
ended December 31, 2008.
Code of
Business Conduct and Ethics
We have adopted a written code of business conduct and ethics
that applies to our directors, officers and employees, including
our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons
performing similar functions. We have posted a current copy of
the code on our website, www.aspectms.com. In addition, we
intend to post on our website all disclosures that are required
by law or Nasdaq stock market listing standards concerning any
amendments to, or waivers from, any provision of the code.
Audit
Committee Report
Management is responsible for the preparation of the financial
statements and for maintaining an adequate system of disclosure
controls and procedures and internal control over financial
reporting for that purpose. The Companys independent
registered public accounting firm is responsible for conducting
an independent audit of the annual financial statements in
accordance with United States generally accepted accounting
principles and issuing a report on the results of their audit.
The Audit Committee is responsible for providing independent,
objective oversight of these processes.
In response to the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 and related rules and regulations,
management completed the documentation, testing and evaluation
of Aspects system of internal control over financial
reporting for the year ended December 31, 2008. The Audit
Committee provided oversight and guidance to management and
financial personnel during the testing and evaluation process.
In connection with this oversight, both management and the
independent registered public accounting firm regularly provided
updates to the Audit Committee at Audit Committee meetings. At
the conclusion of the process, management presented to the Audit
Committee for its review a report on the effectiveness of
Aspects internal control over financial reporting. The
Audit Committee also reviewed the independent registered public
accounting firms report included in the Annual Report on
Form 10-K
for the year ended December 31, 2008 related to their audit
of the effectiveness of internal control over financial
reporting. The Audit Committee will continue to oversee the
efforts pertaining to internal control over financial reporting
and managements preparations for the evaluation of
internal controls in the fiscal year ending December 31,
2009.
The Audit Committee also reviews, evaluates and discusses with
management, internal accounting and financial personnel and the
independent registered public accounting firm our annual and
quarterly financial statements and related disclosures.
The Audit Committee has reviewed the audited financial
statements for the fiscal year ended December 31, 2008, and
has discussed these financial statements with management and the
independent registered public accounting firm.
The Audit Committee has also received from, and discussed with,
our independent registered public accounting firm various
communications that our independent registered public accounting
firm is required to provide to the Audit Committee, including
the matters required to be discussed by Statement on Auditing
Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1, AU section 380), or SAS 61, as adopted
by the Public Company Accounting Oversight Board in
Rule 3200T. SAS 61 requires the independent registered
public accounting firm to discuss with the Audit Committee,
among other things, the following:
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all critical accounting policies and practices used; material
alternative treatment within United States Generally Accepted
Accounting Principles, or GAAP, that have been discussed with
management including the ramification of the alternative
treatment as well as the auditors preference; and other material
communications between the auditor and management;
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significant adjustments, management judgment and accounting
estimates, significant new accounting policies, and
disagreements with management;
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14
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discussion of the independent auditors judgments about the
quality, not just the acceptability, of the Companys
accounting principles; and
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any uncorrected misstatements pertaining to the current period
whose effects management believes are immaterial to the
financial statements as a whole.
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The Audit Committee has received the written disclosures and the
letter from the Companys independent registered public
accounting firm required by applicable requirements of the
Public Company Accounting Oversight Board regarding the
registered public accounting firms communications with the
audit committee concerning independence, and has discussed with
the independent registered public accounting firm the
independent registered public accounting firms
independence.
Based on the review and discussions referred to above, the Audit
Committee recommended to the Companys board of directors
that the audited financial statements be included in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2008.
By the Audit Committee of the Board of Directors of Aspect
Medical Systems, Inc.
John J. OConnor (Chairman)
David W. Feigal, Jr., M.D.(1)
James J. Mahoney, Jr.
(1) Dr. Feigal has resigned from the board of
directors effective immediately prior to the Annual Meeting. If
elected, Mr. Biro will join the Audit Committee.
Registered
Public Accounting Firms Fees
Ernst & Young LLP audited our financial statements for
the fiscal years ended December 31, 2008 and
December 31, 2007. The following table summarizes the fees
that Ernst & Young LLP billed to us for each of the
last two fiscal years for audit services and for other services:
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Fee Category
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2008
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2007
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Audit Fees
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$
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523,900
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$
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666,495
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Audit-Related Fees
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$
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$
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Tax Fees
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$
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$
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124,540
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All Other Fees
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$
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$
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Total Fees
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$
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523,900
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$
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791,035
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Audit
Fees
Audit fees consist of fees for the audit of our financial
statements, the audit of our internal control over financial
reporting, the review of the interim financial statements
included in our Quarterly Reports on
Form 10-Q,
accounting consultations related to the audited financial
statements and other professional services provided in
connection with statutory and regulatory filings or engagements.
Audit-Related
Fees
Audit-related fees consist of fees for assurance and related
services that are reasonably related to the performance of the
audit and the review of our financial statements and which are
not reported under Audit Fees. These services relate
to employee benefit audits. None of the audit-related fees
billed in the fiscal years ended December 31, 2008 and 2007
related to services provided under the de minimus exception
to the Audit Committee pre-approval requirements.
15
Tax
Fees
Tax fees consist of fees for tax compliance, tax advice and tax
planning services. There were no tax fees billed in the fiscal
year ended December 31, 2008. Tax compliance services,
which relate to preparation of original and amended tax returns,
accounted for $55,000 of the total tax fees paid for 2007. Tax
advice and tax planning services relate to assistance with tax
planning strategies, tax audits and appeals and employee benefit
plans. None of the tax fees billed in for the fiscal year ended
December 31, 2007 related to services provided under the
de minimus exception to the Audit Committee pre-approval
requirements.
All Other
Fees
We did not incur any fees that may be classified as All
Other Fees during the fiscal years ended December 31,
2008 or 2007.
The percentage of hours expended by Ernst & Young LLP
on the audit of our financial statements for the fiscal year
ended December 31, 2008 attributed to work performed by
persons other than Ernst & Young LLPs full-time,
permanent employees did not exceed fifty percent.
Pre-Approval
Policy and Procedures
The Audit Committee has adopted policies and procedures relating
to the approval of all audit and non-audit services that are to
be performed by our independent registered public accounting
firm. This policy generally provides that Aspect will not engage
its independent registered public accounting firm to render
audit or non-audit services unless the service is specifically
approved in advance by the Audit Committee or the engagement is
entered into pursuant to one of the pre-approval procedures
described below.
From time to time, the Audit Committee may pre-approve specified
types of services that are expected to be provided to Aspect by
its independent registered public accounting firm during the
following 12 months. Any such pre-approval is detailed as
to the particular service or type of services to be provided and
is also generally subject to a maximum dollar amount.
The Audit Committee may also delegate to each individual member
of the Audit Committee the authority to approve any audit or
non-audit services to be provided to Aspect by its independent
registered public accounting firm. Any approval of services by a
member of the Audit Committee pursuant to this delegated
authority is reported on at the next meeting of the Audit
Committee.
EXECUTIVE
AND DIRECTOR COMPENSATION
Compensation
Discussion and Analysis
This Compensation Discussion and Analysis describes
Aspects executive compensation program for 2008 and
program changes for 2009. We use this program to motivate and
reward those individuals whom our Board of Directors has
selected to lead our business.
Objectives
of Our Executive Compensation Program
Program
Objectives
The Compensation Committee of our Board of Directors, which we
generally refer to herein as the Committee, oversees our
executive compensation program. In this role, the Committee
annually reviews and approves all compensation decisions
relating to our named executive officers. Our goal is to align
executive officers compensation with Aspects
short-term and long-term performance. A significant portion of
each executive officers total compensation opportunity is
directly related to Aspects stock price performance as
well as to other performance factors measuring our progress
towards the goals of our long-term strategic plan.
Our executive compensation program is structured to provide the
compensation and incentives needed to attract, motivate and
retain key executives that are crucial to Aspects
long-term success.
16
Compensation
Principles
Our Compensation Committee arrives at its executive compensation
decisions based in part upon its goal of implementing a
compensation program that is built upon specific compensation
principles. These principles, and the ways in which the
Committee draws upon these principles can be summarized as
follows:
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Competitive and Fair Compensation
our policy
is to provide total compensation that is competitive for
comparable work and comparable corporate performance among other
public companies in our industry with whom we believe we compete
for such executive talent. In addition, the Committee seeks to
ensure fairness among the executive management team by
motivating and recognizing the contributions each executive
makes to our success.
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Sustained Performance
The Committee
recognizes the importance of improving long-term value and
maintaining alignment with shareholders. Therefore, our
compensation approach is more heavily weighted on long-term
incentives. We believe long-term incentives reinforce the focus
on sustained performance and provide a link between the
executives interests and shareholders long-term
success.
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Philosophy
Our executive compensation philosophy is intended to provide
flexible, yet consistent direction and guidance to the Committee
to assist in making decisions annually. It is not intended that
the philosophy will change dramatically from year to year;
however, it may change, where appropriate, as the focus of the
business changes.
Compensation
Mix
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Fixed versus Variable Compensation
The
Committee believes that the attainment of the above objectives
requires an appropriate mix of fixed and variable compensation,
with an emphasis on variable compensation. The mix between fixed
and variable compensation emphasizes our goals of providing fair
and competitive compensation packages and motivating executives
to achieve short- and long-term company objectives.
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Short versus Long-Term Compensation
The
Committee seeks to structure a meaningful balance between
achieving strong short-term annual results and ensuring
long-term viability and success. Therefore, the mix of
incentives is reviewed and determined each year by the Committee
based on the short- and long-term objectives of the business. In
general, our compensation approach is more heavily weighted
towards long-term incentives that we believe reinforce the focus
on sustained performance.
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17
Elements
of Total Compensation
We are committed to providing an executive compensation program
that helps us attract, motivate and retain highly qualified and
experienced executives. The primary elements, purpose and
determination factors of the three core elements of the
executive compensation program are:
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Compensation
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Purpose
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Determination Factor
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Deliverable
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Base Salary and Benefits
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Recognize the experience, skills, knowledge and responsibilities
required of the applicable position and to provide competitive
benefits programs.
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Individual responsibility and performance, tenure, executive
potential, historical compensation, competitive market data, and
internal equity.
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Base Salary
Fixed cash payments.
Benefits
health and welfare insurance and retirement savings programs.
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Short-Term Incentive Plan
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Create an incentive for the achievement of pre-defined annual
corporate and personal objectives.
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For target bonus
competitive market data and internal equity.
For actual bonus payouts
performance achievement against pre-established financial and individual goals.
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Annual variable cash payout.
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Long-Term Incentive Plan
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Align the interests of executives with shareholders to focus on
sustained performance while creating appropriate retention
incentives.
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Individual position and contribution, market data and trends,
ability to execute the Companys long-term strategy,
internal equity, and Company performance.
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Annual variable awards of stock options and restricted stock.
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In making recommendations regarding executive compensation, the
Committee considers competitive market data as further discussed
below, and seeks input from the Chief Executive Officer and the
Vice President of Human Resources. The Chief Executive Officer,
in turn, assesses each executive officers contributions to
the business and his or her ability to execute on our long-term
strategy when making any recommendations regarding compensation.
The Chief Executive Officer does not participate in the
determination of his own compensation.
Short-Term
Performance
Base Salary.
Base salary is designed to
provide a fixed amount of compensation for performing day-to-day
responsibilities. Salaries are used to recognize the experience,
skills, knowledge and responsibilities required of all our
employees, including our executives. When establishing base
salaries for 2008, the Compensation Committee considered a
variety of factors, including:
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the seniority of the individual;
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the level of the individuals responsibility;
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the ability to replace the individual;
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the base salary of the individual at his or her prior
employment, if applicable;
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the number of well qualified candidates to assume the
individuals role;
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compensation for comparable positions in our similarly situated
companies in our industry; and
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the historical compensation levels of our executives and actual
corporate and individual performance
vis-à-vis
the targeted performance criteria and subjective performance
criteria discussed above.
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In February 2008, the Board of Directors approved, upon
recommendation of the Compensation Committee, an increase to
2007 base salaries to bring salaries paid to our executives up
to the
50
th
percentile
of our peer group.
18
The peer group is further discussed below. The Compensation
Committee has determined not to increase base salaries in 2009.
Annual Incentive Plan.
Under the Annual
Incentive Plan, we award cash bonuses for achievement of
Aspects short-term financial goals and other strategic
objectives measured over the current year. Bonuses are
structured to provide competitively based incentives to our
executives to drive company performance. There are two
components to our short-term incentive plan:
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corporate revenue and profit targets, which account for up to
60% of the bonus amount; and
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the achievement of personal performance goals, such as
demonstrating effective leadership, successfully completing
difficult assignments, demonstrating integrity, teamwork,
excellence and accountability, contribution to staff development
and retention, contributing to the strategic planning process
and the achievement of personal objectives that are aligned with
each executives individual area of responsibility, which
account for up to 40% of the bonus amount.
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The individual performance component is based on the personal
performance goals established by the Chief Executive Officer at
the beginning of each calendar year after consultation with each
executive, other than the CEO. The Chief Executive
Officers individual performance goals are established at
the beginning of a calendar year in collaboration with the
Compensation Committee. The annual cash bonus incentive program
provides a direct link between the executives compensation
and our annual financial performance. The program is designed to
provide a competitive payout for appropriate levels of
performance achievement, which is in line with our compensation
philosophy and principles. In addition, the individual
performance component recognizes and rewards each
executives contributions to the success of the business,
which is in line with the fairness aspect of our
compensation principles.
In February 2008, the Committee adopted the 2008 Annual
Incentive Plan. Under the plan, the portion of each individual
executive bonus was calculated by a formula that compares
Aspects financial performance against the targets that
were established for the year. Depending on the executives
job function, the target bonus that an executive was eligible to
receive under the 2008 Annual Incentive Plan ranged between 41%
and 75% of his or her then annual base salary when 100% of the
corporate plan for both product revenue and profit targets
(before bonus and tax), for the year and all individual
performance goals were achieved. The table below shows for 2008
(1) the target award as a percentage of base salary
assuming achievement of 100% of the corporate plan for revenue
and profits and individual performance goals, (ii) actual
payouts, based upon the Committees assessment of the
degree to which corporate and individual performance objectives
had been achieved, and (iii) payouts as a percentage of the
target level for each of our named executive officers:
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2008 Incentive
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Target Incentive
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Compensation
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Compensation
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2008 Incentive
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Award
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as a Percentage of
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Compensation
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as a Percentage
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Name
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Base Salary
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Award ($)
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of Target (%)
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Nassib G. Chamoun
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75
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%
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207,188
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85
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%
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Michael Falvey(1)
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60
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%
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121,355
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85
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%
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William Floyd
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75
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%
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133,647
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85
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%
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Scott D. Kelley, M.D.
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41
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%
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94,886
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85
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%
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John Coolidge
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60
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%
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102,153
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85
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%
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(1)
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Michael Falvey resigned from the Company effective
December 31, 2008.
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Each executive achieved 100% of his individual performance goals
and 45% of the corporate financial goals were achieved, which
would have resulted in a payout of 45% of the target bonus
amount for each executive. The Committee in its discretion,
however, determined to pay each executive 85% of his target
bonus amount after considering the following three important
business initiatives:
Sales Force Expansion
In 2008, after Aspect
had set revenue and profit targets under the 2008 Plan, we
decided to expand the size of our sales force. The costs
associated with the sales force expansion had a
19
significant impact on our profitability. The Committee
recommended that these expenses be excluded when assessing
Aspects financial performance for the purpose of
determining bonus payouts;
Sales Retention Program
On March 13,
2008, the
New England Journal of Medicine
published an
article that compared BIS monitoring to an anesthetic regimen
based on predetermined dosing levels of volatile anesthetics as
a means of reducing the risk of anesthetic awareness. The
authors concluded that the study did not support routine BIS
monitoring as part of standard practice. Aspect management was
concerned that the article could have a potential negative
effect on the selling environment and a potential loss of key
sales personnel. As a result, Aspect implemented a sales
retention program that provided to members of its sales force
cash incentives both six months and a year after the
articles release. The Committee recommended that these
expenses be included when assessing Aspects financial
performance for the purpose of determining the actual bonus
payouts; and
Reduction in Force
During the 2009 planning
process, it was clear that several expenses needed to be reduced
or eliminated in order to protect our profitability.
Unfortunately, a reduction to our workforce was part of those
efforts. Considerable time was spent discussing the timing of
the staff reductions and it was determined that, in the best
interests of the company, these reductions would take place in
December rather than delay them until January 2009. The expenses
associated with the staff reductions affected our profitability
in the fourth quarter of 2008. The Committee recommended that
these costs be excluded when assessing Aspects financial
performance for the purpose of determining the actual bonus
payouts.
In February 2009, the Committee adopted the 2009 Annual
Incentive Plan (the 2009 Plan). In an effort to
reduce expenses and drive effective spending behaviors, the
Committee recommended, and the Board of Directors adopted, two
significant changes to the 2009 Plan. First, as part of our cost
reduction efforts, the 2009 target payouts have been reduced
such that upon achievement of 100% of both our revenue and
profit targets for 2009, participants will receive only 67% of
their targeted annual bonus. Second, in prior years, the annual
incentive plan gave equal weighting to both revenue and profit
achievements. The 2009 Plan will place a 33% weighting on
revenue goals and 67% on profit goals to focus on bottom
line results.
Long-Term
Performance
We currently utilize two long-term incentive instruments: stock
options and restricted stock, which are intended to provide
alignment with the interests of the shareholders. Stock options
and restricted stock encourage executives to focus on share
price appreciation and Aspects success the long term,
while the service-based restrictions serve as a retention tool.
The mix of stock options versus restricted stock is determined
annually by the Committee based on the needs of the business,
including such factors as the business strategy and objectives,
corporate governance, retention and dilution requirements.
Currently for 2008, the mix of long-term incentive compensation
for our named executive officers is 50 percent in stock
options and 50 percent in restricted stock. Because almost
all previously awarded stock options were significantly
underwater, these options offered our executive officers very
little value in terms of executive retention and incentives. We
believed a blend of both stock options and restricted stock
better align the interests of our executives with those of our
shareholders.
Each element of compensation outlined above is considered both
individually and collectively when considering compensation
adjustments. In addition, the Committee may apply discretion in
determining the specific compensation levels of individual
executives. The Committee evaluates compensation programs
annually in light of the evolving business strategies and plans
of the Company and seeks to ensure the compensation programs
align with shareholder interests and current market trends.
Competitive
Positioning
Competitive
Market Defined
Aspect has retained Pearl Meyers & Partners as an
independent consultant to help management and the Committee
design the appropriate mix of compensation and the amount of
compensation and to evaluate proposed compensation. The
Committee relies on Pearl Meyers to annually review and develop
a set of appropriate comparator firms called the peer
group and to identify and use industry-specific
compensation survey sources.
20
The Committee uses this combination of peer group analyses and
industry-specific compensation surveys to identify competitive
market compensation practices for base salaries, short and
long-term incentives and the Companys overall competitive
position. The Committee believes the most relevant talent pool
for its executives is specialty medical device and diagnostic
companies of similar size in terms of revenue and market
capitalization. Companies that meet at least two or more of the
selection criteria are included in the peer group.
The Committee reviews the peer group every year in order to
maintain its appropriateness for compensation comparison
purposes. In addition, the Committee reviews and validates the
selection criteria every year to ensure it is in line with our
business strategies. For 2008, these companies represented our
peer group:
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Abaxis, Inc.
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Cardiac Science Corp.
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Masimo Corp.
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Palomar Medical Technologies Inc.
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Abiomed Inc.
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Cerus Corp.
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Micrus Endovascular Corp.
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Possis Medical Inc.
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AngioDynamics Inc.
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Cyberonics Inc.
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Natus Medical Inc.
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Spectranetics Corp.
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Candela Corp.
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HealthTronics Inc.
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NeuroMetrix Inc.
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Zoll Medical Corp.
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In addition, the Committee also reviews the survey source(s)
used for corporate and group positions annually to ensure they
appropriately represent size-specific, specialty medical device
and diagnostics companies and provide reasonable and reliable
compensation data.
Positioning
of Compensation
It is our policy to provide total compensation that is
competitive for comparable work and comparable corporate
performance among our peer group. Our general executive
compensation competitive targeting strategy is to pay each
executive officer total direct compensation at the
75
th
percentile
of our peer group companies total direct compensation
levels. We target base salary to be at the
50
th
percentile
of our peer group companies total direct compensation
levels. We target base salary plus short-term incentive plan
payments to be at the
65
th
percentile
of our peer group companies total cash compensation
levels. Finally, we target the sum of base salary, short-term
incentive plan payments and long-term incentive plan payments to
be at the
75
th
percentile
of our peer group companies total direct compensation
levels.
Actual pay levels can be above or below targeted levels
depending on factors such as individual and company performance,
tenure and executive potential. In general, the Committee
desires to reward executives equitably from both a market
perspective and internally, but reserves the right to use
discretion to deviate when necessary to recruit executives
and/or
retain the right executive talent.
Individual performance criteria vary for each executive based on
his business group or area of responsibility, and may include:
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achievement of the operating budget for Aspect as a whole or of
a business group of Aspect;
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ability to identify and hire consistently high performing
employees, and to train them to contribute to our long-term
success;
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continued innovation in development and commercialization of our
technology;
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timely development, regulatory approval and commercial
introduction of new products or processes or expanded uses of
existing products;
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development and implementation of successful marketing and
commercialization strategies; and
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implementation of financing strategies and establishment of
strategic development alliances with third parties.
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Subjective performance criteria include:
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an executives ability to motivate, develop and challenge
others;
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the development of skills necessary to grow as our business
matures;
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the ability to recognize and pursue new business opportunities;
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21
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the ability to initiate programs to enhance our growth and
success; and
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the consistent demonstration of shared corporate values.
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Other
Executive Compensation Programs and Policies
Other
Employee Benefits
Executives are eligible to participate in all of the current
benefit plans, in each case on the same basis as other
employees, including health and dental insurance, life and
disability insurance and eligibility to participate in our
401(k) plan and an employee stock purchase plan.
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Health and Welfare Benefits
we recognize that
our greatest resource are our employees, and therefore believe
that it is appropriate to offer comprehensive and affordable
health and welfare benefits to all employees and their eligible
family members. Benefits in this category include medical,
dental and vision insurance, disability coverage and life
insurance.
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Retirement Benefits
we believe that
Aspects 401(k) savings plan assists executives in
preparing for retirement and are essential to attract and retain
senior talent.
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Employee Stock Purchase Plan
we believe in
the concept of own the business and it is important
to provide a program that helps link compensation to the value
created for the shareholders including the employees of the
Company, who own the business.
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We do not provide any supplemental benefits or perquisites to
our executive officers, with the exception of a company
automobile lease for the Chief Executive Officer.
Change in
Control Benefits
Pursuant to the terms of our stock incentive plans, in the event
of a change of control all unvested stock options held by our
executive officers will be assumed or equivalent options will be
substituted by the acquiring corporation and such awards will
become exercisable in full, and all restricted stock awards will
become free and clear of all restrictions and conditions, upon
the earlier of (1) the executives termination without
cause by the successor corporation or for good reason by the
executive, or (2) one year after such change in control, in
the case of our chief executive officer, and 15 months
after such change in control, in the case of our other executive
officers. This is a so-called double trigger change
of control arrangement because it provides for change of control
benefits only in the event of a change in control, the first
trigger, followed by the earlier of the termination of the
executive or the passage of a specified period of time, the
second trigger.
On September 24, 2008, we implemented the Key Employee
Change in Control Severance Benefits Plan. This plan was
established to offer additional protection in the form of cash
severance compensation and continuation of health and welfare
benefits for our named executive officers. As described earlier
in the Compensation Discussion and Analysis, the March 2008
release of the
New England Journal of Medicine
article
had an immediate adverse impact on our business. During the
months following the articles release, employees became
increasingly concerned about job security and the potential
corporate actions that could transpire. We implemented a program
designed to minimize these distractions and potential turnover
caused by the dramatic downturn in our stock price. The
Committee believes that the severance benefits payable under
these severance arrangements in connection with a change of
control align executive and shareholder interests by enabling
the executive officers to consider corporate transactions that
are in the best interests of our shareholders without undue
concern over whether the transactions may jeopardize the
officers own employment.
We have determined to provide for these change of control
benefits because we recognize that, as is the case with many
publicly-held corporations, the possibility of a change in
control of Aspect exists and such possibility, and the
uncertainty and questions which it may raise among our executive
officers, could result in the departure or distraction of
executive officers to the detriment of Aspect and our
shareholders. We believe a double trigger maximizes
shareholder value because it prevents an unintended windfall to
executives in the event of a friendly change in control, while
still providing them appropriate incentives to cooperate in
negotiating any change of
22
control in which they believe they may lose their jobs. We
believe that this plan is reasonable when compared with similar
arrangements adopted by other companies in our industry that are
of similar size.
We do not consider specific amounts payable under these
arrangements when establishing annual compensation. We do
believe, however, that these arrangements are necessary to offer
compensation packages that are competitive.
Tax and
Accounting Considerations
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally disallows a tax deduction for compensation in
excess of $1.0 million paid to our chief executive officer
and our other three named executive officers (other than the
chief financial officer) whose compensation is required to be
disclosed to our stockholders under the Exchange Act by reason
of being among our most highly compensated officers. Qualifying
performance-based compensation is not subject to the deduction
limitation if specified requirements are met. We periodically
review the potential consequences of Section 162(m), and we
generally intend to structure the performance-based portion of
our executive compensation, where feasible, to comply with
exemptions in Section 162(m) so that the compensation
remains tax deductible to us. However, the Compensation
Committee may, in its judgment, authorize compensation payments
that do not qualify for the exemptions in Section 162(m)
when it believes that such payments are appropriate to attract
and retain executive talent. The Company does not currently have
stock ownership or disposition guidelines in place for its
executives, nor does it currently seek tax deductibility of
performance-based compensation payouts above $1.0 million
for the short-term incentive plan under Internal Revenue
Codes section 162(m).
We account for equity compensation paid to our employees under
the rules of Statement of Financial Accounting Standards
No. 123 (revised 2004), Share Based Payment, referred to as
SFAS No. 123(R), which requires us to measure and
recognize compensation expense in our financial statements for
all share-based payments based upon an estimate of their fair
value over the service period of the award. We record cash
compensation as an expense at the time the obligation is
accrued. Our Compensation Committee generally assesses the
accounting impact of restricted stock grants and option awards
to our executives, but has not historically factored such impact
into the nature or size of such awards.
Compensation
Committee Report
The Compensation Committee has reviewed and discussed the
Compensation Discussion and Analysis required by
Item 402(b) of SEC
Regulation S-K
with management. Based on such review and discussions, the
Compensation Committee recommended to the board of directors
that the Compensation Discussion and Analysis be included in the
registrants proxy statement on Schedule 14A.
By the Compensation Committee of the Board of
Directors of Aspect Medical Systems, Inc.
Edwin M. Kania, Jr. (Chairman)
Michael A. Esposito(1)
Donald R. Stanski, M.D.
(1) Mr. Esposito is not standing for re-election as a
director. If elected, Mr. Keating will join the
Compensation Committee.
Compensation
Committee Interlocks and Insider Participation
The current members of the Compensation Committee are
Mr. Kania (Chairman), Mr. Esposito and
Dr. Stanski. No member of the current Compensation
Committee was at any time during the fiscal year ended
December 31, 2008, or formerly, an officer or employee of
Aspect or any subsidiary of Aspect. No member of the current
Compensation Committee had any relationship with us during the
fiscal year ended December 31, 2008 requiring disclosure
under Item 404 of
Regulation S-K
under the Securities Exchange Act of 1934.
23
None of our executive officers has served as a director or
member of the compensation committee (or other committee serving
an equivalent function) of any other entity, one of whose
executive officers served as a director of or member of the
current Compensation Committee.
Summary
Compensation Table
The table below summarizes information regarding compensation
earned by our named executive officers for the years ended
December 31, 2008, 2007 and 2006 for our named executive
officers.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Non-Equity
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|
|
|
|
|
|
|
|
|
|
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Stock
|
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Option
|
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Incentive Plan
|
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All Other
|
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Name and Principal Position
|
|
Year
|
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Salary ($)
|
|
Bonus ($)
|
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Awards ($)(1)
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Awards ($)(2)
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Compensation(3)
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Compensation ($)
|
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Total ($)
|
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Nassib G. Chamoun
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2008
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325,000
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|
|
|
|
|
|
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280,762
|
|
|
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461,192
|
|
|
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207,188
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20,201
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(6)
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1,294,343
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Chief Executive Officer
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2007
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|
|
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281,216
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|
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30,000
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(5)
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226,037
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|
|
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581,411
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|
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185,603
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|
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19,626
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(6)
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1,323,893
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and President
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2006
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270,400
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|
|
|
|
|
|
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74,591
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|
|
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555,021
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|
|
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131,820
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|
|
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17,890
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(6)
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1,049,722
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Michael Falvey
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2008
|
|
|
|
237,950
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|
|
|
|
|
|
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106,452
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|
|
|
211,169
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|
|
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121,355
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340,078
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(7)
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1,017,004
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Vice President,
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2007
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228,800
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22,300
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(5)
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87,512
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|
|
|
361,146
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|
|
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120,806
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|
|
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6,750
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(8)
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827,314
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Chief Financial Officer
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2006
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|
|
|
220,000
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|
|
|
|
|
|
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24,664
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|
|
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337,333
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|
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85,800
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6,600
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(8)
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674,397
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and Secretary
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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William Floyd
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2008
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225,000
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|
|
|
|
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118,765
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|
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158,778
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|
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133,647
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6,900
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(8)
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643,090
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Vice President of Sales
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2007
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208,100
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23,100
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(5)
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87,512
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|
|
|
211,410
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|
|
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150,165
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|
|
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6,750
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(8)
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687,037
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and Marketing
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|
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2006
|
|
|
|
200,096
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|
|
|
|
|
|
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24,664
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|
|
|
216,709
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|
|
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143,702
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|
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6,600
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(8)
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591,771
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Scott D. Kelley, M.D.
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2008
|
|
|
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272,270
|
|
|
|
|
|
|
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106,452
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|
|
|
158,778
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|
|
|
94,886
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|
|
|
6,900
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(8)
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639,286
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Vice President and
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2007
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|
|
|
261,797
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|
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22,500
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(5)
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87,512
|
|
|
|
206,547
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|
|
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94,456
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|
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6,750
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(8)
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679,562
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Medical Director
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2006
|
|
|
|
244,227
|
|
|
|
|
|
|
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24,664
|
|
|
|
204,586
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|
|
|
76,296
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|
|
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6,600
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(8)
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556,373
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John Coolidge
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2008
|
|
|
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200,300
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|
|
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42,968
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(4)
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|
|
106,452
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|
|
|
158,778
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|
|
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102,153
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|
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6,900
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(8)
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617,551
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Vice President of Manufacturing
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|
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(1)
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The amounts included in the Stock Awards column
represents the compensation cost we recognized in 2008, 2007 and
2006 related to all outstanding restricted stock awards as
described in SFAS No. 123(R). For a discussion of the
valuation assumptions, see Note 10 to our consolidated
financial statements in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
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(2)
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The amounts included in the Options Awards column
represents the compensation cost we recognized in 2008, 2007 and
2006 related to all outstanding stock option awards as described
in SFAS No. 123(R). For a discussion of the valuation
assumptions, see Note 10 to our consolidated financial
statements in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
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(3)
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The amounts included in the Non-Equity Incentive Plan
Compensation column consist of amounts earned by the named
executive officer under the 2008 Plan, which were paid in
February 2009, with the exception of Mr. Floyds bonus
of which $32,709 was paid throughout the quarters in 2008.
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(4)
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Represents a relocation bonus paid to Mr. Coolidge.
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(5)
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Represents a one-time bonus for a 2007 base market adjustment
for the executive team.
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(6)
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Includes $12,296 in car lease payments we paid on behalf of
Mr. Chamoun, $6,900 we paid to match his 401(k)
contributions and approximately $1,000 we paid for insurance. In
2007, we paid approximately $11,871 in car lease payments,
$6,750 to match his 401(k) contributions and approximately
$1,000 for insurance. In 2006, we paid approximately $10,285 in
car lease payments, $6,600 to match his 401(k) contributions and
approximately $1,000 we paid for insurance.
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(7)
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Mr. Falvey resigned from his positions at Aspect effective
December 31, 2008. This amount includes a lump sum
severance payment of $237,950 paid to Mr. Falvey in January
2009 and a severance bonus payment of $95,228 to be paid in two
lump sums as follows (a) $75,228 to be paid following
execution of the severance agreement between Aspect and
Mr. Falvey, dated January 5, 2009, effective
December 31, 2008 and, (b) $20,000 to be paid
following the execution of the release of claims which he is
required to execute on or after April 1, 2009 but no later
than April 22, 2009. This amount also includes $6,900 paid
to match his 401 (k) contribution.
|
24
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|
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(8)
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Consists of amounts we paid to match such named executive
officers 401(k) contribution in 2008, 2007 and 2006.
|
Grants of
Plan-Based Awards
The table below sets forth information concerning grants of
compensation in the form of plan-based awards made to the named
executive officers during the fiscal year ended
December 31, 2008.
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|
|
|
|
|
|
|
|
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All Other
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
Option
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
Grant Date
|
|
|
|
|
Estimated Future Payouts Under Non-
|
|
Number of
|
|
Number of
|
|
Exercise or
|
|
Fair Value of
|
|
|
|
|
Equity Incentive Plan Awards(1)
|
|
Shares of
|
|
Securities
|
|
Base Price
|
|
Stock and
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Stock or
|
|
Underlying
|
|
of Option
|
|
Option
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
Units (#)(2)
|
|
Options (#)(3)
|
|
Awards ($/Sh)
|
|
Awards ($)(4)
|
|
Nassib G. Chamoun
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,556
|
|
|
|
11.82
|
|
|
|
307,780
|
|
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,222
|
|
|
|
|
|
|
|
0.01
|
|
|
|
262,664
|
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
243,750
|
|
|
|
365,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Falvey
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,231
|
|
|
|
11.82
|
|
|
|
106,540
|
|
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
|
|
|
|
|
|
0.01
|
|
|
|
90,919
|
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
142,770
|
|
|
|
214,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Floyd
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,231
|
|
|
|
11.82
|
|
|
|
106,540
|
|
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,692
|
|
|
|
|
|
|
|
0.01
|
|
|
|
150,019
|
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
168,750
|
|
|
|
253,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott D. Kelley, M.D.
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,231
|
|
|
|
11.82
|
|
|
|
106,540
|
|
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
|
|
|
|
|
|
0.01
|
|
|
|
90,919
|
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
111,631
|
|
|
|
167,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Coolidge
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,231
|
|
|
|
11.82
|
|
|
|
106,540
|
|
|
|
|
2/12/2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,692
|
|
|
|
|
|
|
|
0.01
|
|
|
|
90,919
|
|
|
|
|
n/a
|
|
|
|
0
|
|
|
|
120,180
|
|
|
|
180,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents amounts payable under our 2008 Plan.
|
|
(2)
|
|
Represents restricted stock awards granted under our 2001 Stock
Incentive Plan.
|
|
(3)
|
|
We granted these stock options on February 12, 2008 under
our 2001 Stock Incentive Plan with the exception of the grant to
Mr. Chamoun which was granted from our 1998 Stock Incentive
Plan. These stock options become exercisable as to one-eighth of
the shares of common stock underlying each option six months
after the date of grant, with the remaining seven-eighths
becoming exercisable in equal monthly installments thereafter
over a forty-two month period. Each option has an exercise price
equal to the closing price of our common stock on the date of
grant as reported on the Nasdaq Global Market.
|
|
(4)
|
|
Represents the grant date fair value of each award computed in
accordance with SFAS No. 123(R).
|
All stock option grants referenced in the foregoing table vest
ratably on a monthly basis over a four-year period beginning on
the last day of each month. Our right to repurchase shares
pursuant to restricted stock awards granted in 2008 lapses as to
100% of the shares four years from the date the shares were
issued.
Pursuant to the terms of our stock incentive plans, in the event
of a change in control all then-unexercisable stock options held
by our executive officers will be assumed or equivalent options
will be substituted by the acquiring corporation and such
options will become exercisable in full, and all restricted
stock awards will become free and clear of all restrictions and
conditions, upon the earlier of (1) the executives
termination without cause by the successor corporation or for
good reason by the executive, or (2) one year after such
change in control, in the case of our chief executive officer,
and 15 months after such change in control, in the case of
our other executive officers.
25
Outstanding
Equity Awards at Fiscal Year-End
The following table shows information regarding unexercised
stock options and unvested restricted stock held by the named
executive officers as of December 31, 2008.
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
|
|
Market Value
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
|
|
of Shares or
|
|
|
Unexercised
|
|
Unexercised
|
|
|
|
|
|
Number of Shares or
|
|
Units of Stock
|
|
|
Options (#)
|
|
Options (#)
|
|
Option Exercise
|
|
Option
|
|
Units of Stock That
|
|
That Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Expiration Date
|
|
Have Not Vested (#)
|
|
Vested ($)
|
|
Nassib G. Chamoun
|
|
|
50,000
|
|
|
|
|
|
|
|
10.20
|
|
|
|
10/5/2009
|
(1)
|
|
|
61,243
|
|
|
|
208,839
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
23.63
|
|
|
|
7/12/2010
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
11.69
|
|
|
|
2/21/2011
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
10.00
|
|
|
|
1/1/2012
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
5,000
|
|
|
|
|
|
|
|
3.85
|
|
|
|
7/5/2012
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
14,537
|
|
|
|
|
|
|
|
3.68
|
|
|
|
1/24/2013
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
15.66
|
|
|
|
2/4/2014
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
75,000
|
|
|
|
|
|
|
|
20.61
|
|
|
|
2/17/2015
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
33,750
|
|
|
|
11,250
|
|
|
|
29.25
|
|
|
|
2/14/2016
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
15,000
|
|
|
|
16.15
|
|
|
|
2/28/2017
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
10,417
|
|
|
|
45,139
|
|
|
|
11.82
|
|
|
|
2/12/2018
|
(11)
|
|
|
|
|
|
|
|
|
Michael Falvey
|
|
|
125,000
|
|
|
|
|
|
|
|
14.91
|
|
|
|
4/2/2014
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
20.61
|
|
|
|
2/17/2015
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
12,657
|
|
|
|
|
|
|
|
29.25
|
|
|
|
2/14/2016
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
|
|
|
|
16.15
|
|
|
|
2/28/2017
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
3,606
|
|
|
|
|
|
|
|
11.82
|
|
|
|
2/12/2018
|
(11)
|
|
|
|
|
|
|
|
|
William Floyd
|
|
|
26,000
|
|
|
|
|
|
|
|
12.50
|
|
|
|
5/28/2011
|
(13)
|
|
|
28,785
|
|
|
|
98,157
|
|
|
|
|
2,604
|
|
|
|
|
|
|
|
10.00
|
|
|
|
1/1/2012
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
3,646
|
|
|
|
|
|
|
|
3.85
|
|
|
|
7/5/2012
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
9,479
|
|
|
|
|
|
|
|
3.26
|
|
|
|
9/12/2012
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
4,640
|
|
|
|
|
|
|
|
3.68
|
|
|
|
1/24/2013
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
11,250
|
|
|
|
|
|
|
|
10.12
|
|
|
|
10/10/2013
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
15.66
|
|
|
|
2/4/2014
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
20.61
|
|
|
|
2/17/2015
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
12,657
|
|
|
|
4,218
|
|
|
|
29.25
|
|
|
|
2/14/2016
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
16.15
|
|
|
|
2/28/2017
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
3,606
|
|
|
|
15,625
|
|
|
|
11.82
|
|
|
|
2/12/2018
|
(11)
|
|
|
|
|
|
|
|
|
Scott D. Kelley, M.D.
|
|
|
75,000
|
|
|
|
|
|
|
|
23.63
|
|
|
|
7/12/2010
|
(2)
|
|
|
23,785
|
|
|
|
81,107
|
|
|
|
|
15,000
|
|
|
|
|
|
|
|
8.56
|
|
|
|
11/27/2010
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
13,433
|
|
|
|
|
|
|
|
12.50
|
|
|
|
5/28/2011
|
(13)
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
|
|
|
|
|
10.00
|
|
|
|
1/1/2012
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
|
|
|
|
|
|
|
3.85
|
|
|
|
7/5/2012
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
6,875
|
|
|
|
|
|
|
|
3.26
|
|
|
|
9/12/2012
|
(14)
|
|
|
|
|
|
|
|
|
|
|
|
7,028
|
|
|
|
|
|
|
|
3.68
|
|
|
|
1/24/2013
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
13,125
|
|
|
|
|
|
|
|
10.12
|
|
|
|
10/10/2013
|
(15)
|
|
|
|
|
|
|
|
|
|
|
|
30,000
|
|
|
|
|
|
|
|
15.66
|
|
|
|
2/4/2014
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
20.61
|
|
|
|
2/17/2015
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
12,657
|
|
|
|
4,218
|
|
|
|
29.25
|
|
|
|
2/14/2016
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
16.15
|
|
|
|
2/28/2017
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
3,606
|
|
|
|
15,625
|
|
|
|
11.82
|
|
|
|
2/12/2018
|
(11)
|
|
|
|
|
|
|
|
|
John Coolidge
|
|
|
1,875
|
|
|
|
|
|
|
|
10.00
|
|
|
|
1/22/2012
|
(16)
|
|
|
23,785
|
|
|
|
81,107
|
|
|
|
|
1,875
|
|
|
|
|
|
|
|
3.85
|
|
|
|
7/5/2012
|
(5)
|
|
|
|
|
|
|
|
|
|
|
|
4,687
|
|
|
|
|
|
|
|
3.68
|
|
|
|
1/24/2013
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
20,113
|
|
|
|
|
|
|
|
15.66
|
|
|
|
2/4/2014
|
(7)
|
|
|
|
|
|
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
20.61
|
|
|
|
2/17/2015
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
12,657
|
|
|
|
4,218
|
|
|
|
29.25
|
|
|
|
2/14/2016
|
(9)
|
|
|
|
|
|
|
|
|
|
|
|
6,250
|
|
|
|
6,250
|
|
|
|
16.15
|
|
|
|
2/28/2017
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
3,606
|
|
|
|
15,625
|
|
|
|
11.82
|
|
|
|
2/12/2018
|
(11)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning June 30, 1999.
|
|
(2)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning July 1, 2000.
|
26
|
|
|
(3)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2001.
|
|
(4)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2002.
|
|
(5)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning July 1, 2002.
|
|
(6)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2003.
|
|
(7)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2004.
|
|
(8)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2005.
|
|
(9)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2006.
|
|
(10)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2007.
|
|
(11)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning March 1, 2008.
|
|
(12)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning April 1, 2004.
|
|
(13)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning June 1, 2001.
|
|
(14)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning September 12, 2002.
|
|
(15)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning November 1, 2003.
|
|
(16)
|
|
Option vests over 48 months at a rate of
1/48
th
per month, beginning January 1, 2002.
|
Option
Exercises and Stock Vested
The following table shows amounts received by the named
executive officers upon exercise of stock options and vesting of
restricted stock during 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
Number of Shares
|
|
|
|
|
|
Number of Shares
|
|
Value Realized on
|
|
|
|
Acquired on
|
|
|
Value Realized on
|
|
|
Acquired on
|
|
Vesting
|
|
Name
|
|
Exercise (#)
|
|
|
Exercise ($)(1)
|
|
|
Vesting (#)
|
|
($)(2)
|
|
|
Nassib G. Chamoun
|
|
|
32,647
|
|
|
|
46,971
|
|
|
|
4,583
|
|
|
|
46,367
|
|
Michael Falvey
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
16,151
|
|
William Floyd
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
16,151
|
|
Scott D. Kelley, M.D.
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
16,151
|
|
John Coolidge
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
16,151
|
|
|
|
|
(1)
|
|
Represents the difference between the exercise price and the
fair market value of our common stock on the date of exercise.
|
|
(2)
|
|
The value realized on vesting of restricted stock awards is
determined by multiplying the number of shares that vested by
the fair market value of our common stock on the vesting date.
|
Potential
Payments Upon Termination or Change in Control
The following tables were prepared as though our named executive
officers were terminated on December 31, 2008 using that
days closing stock price of $3.41. The amounts under the
column labeled Termination by the Company without Cause or
by the Executive Officer with Good Reason on or after a Change
of Control assumed a change in control occurred and that
the executive was terminated as of December 31, 2008.
However, the named executive officers included in this analysis
were not terminated and a change in control did not occur on
this date. As a result there can be no assurance that a
termination of employment, a change in control or both would
produce the same or similar results as those described below on
any other date or at any other stock price.
For the purpose of this analysis, we have made the following
assumptions with respect to payments and benefits provided for
termination following a change in control for a named executive
officer:
All the arrangements listed below are per the Key Employee
Change in Control Severance Benefits Plan, or the
Severance Benefits Plan.
27
Cash
Severance
|
|
|
|
|
A change in control was assumed to have occurred on
December 31, 2008, although no change in control actually
occurred on this date.
|
|
|
|
All the executives are assumed to have terminated their
employment on December 31, 2008, although none of the
executives included in this analysis actually terminated their
employment on this date. Mr. Falveys employment was
terminated (not following a change in control) on
December 31, 2008 under a separate severance arrangement;
therefore, we did not include Mr. Falvey in this analysis.
|
|
|
|
Per the terms of the Severance Benefits Plan, Mr. Chamoun,
our chief executive officer, is eligible to receive a cash
severance payment equal to two times (2x) base salary plus a
bonus equal to the average sum of the actual bonuses paid over
the last three years. All other named executive officers are
eligible to receive a cash severance payment equal to one and
one quarter times (1.25x) base salary plus a bonus equal to the
average sum of the actual bonuses paid over the last three years.
|
|
|
|
For this analysis, we have assumed that severance payments
include a pro-rata bonus payout for time worked in the year of
termination. Since we assumed a termination date of
December 31, 2008, the pro-rata bonus is equal to 100% of
the target bonus.
|
|
|
|
We have assumed that none of the executives have any accrued or
unused vacation remaining at the time of termination and all
base salary amounts have been paid for time worked as of
December 31, 2008.
|
Benefits
Continuation
|
|
|
|
|
Mr. Chamoun is eligible to receive 24 months
continuation, and all other named executive officers are
eligible to receive 15 months continuation, of all
medical and dental benefits that such executive participated in
prior to termination.
|
|
|
|
For this analysis, all executives would receive continuation of
both medical and dental benefits.
|
Equity
|
|
|
|
|
The 1998 and 2001 Stock Incentive Plans provide for full
acceleration of all unvested stock options and restricted shares
upon the employment termination within a specified period of
time following a change in control. For this analysis, we
assumed that employment termination occurs on the date of the
change in control, so all awards accelerate.
|
|
|
|
The analysis reflects the value of all unvested stock options
and restricted shares as of December 31, 2008 based on the
closing price of $3.41 on December 31, 2008. This amount
does not reflect the value of any vested and outstanding stock
options.
|
|
|
|
This analysis excludes the value associated with the potential
acceleration of shares purchased under the Employee Stock
Purchase Plan. Acceleration would be based on a present value of
the 5% discount at the time of the change in control and
termination.
|
28
Golden
Parachute (280G
Gross-up)
The Severance Benefits Plan provides each executive with the
same treatment for the Golden Parachute excise tax.
|
|
|
|
|
The agreement provides for a Best Net Benefit
treatment. This means that the total severance payments should
be total compensatory payments that are contingent on the
Company sale, reduced to the extent so that no portion of the
payment shall be subject to the excise tax, but only if, the
executives net after-tax benefit shall exceed
what the net after-tax benefit would have been if such reduction
were not made and the executive paid such excise tax.
|
|
|
|
|
|
|
|
Termination by the Company
|
|
|
|
Without Cause or by the Named
|
|
|
|
Executive Officer with Good Reason
|
|
Name
|
|
on or After Change of Control
|
|
|
Nassib G. Chamoun
|
|
|
|
|
Cash Severance(1)
|
|
$
|
1,029,186
|
|
Pro-rata bonus(2)
|
|
$
|
243,750
|
|
Accelerated Vesting of Unvested Equity(3)(4)
|
|
$
|
208,839
|
|
Benefits Continuation(5)
|
|
$
|
26,727
|
|
280G Payment Reduction(6)
|
|
$
|
|
|
Total(7)
|
|
$
|
1,508,502
|
|
William Floyd
|
|
|
|
|
Cash Severance(1)
|
|
$
|
489,154
|
|
Pro-rata bonus(2)
|
|
$
|
168,750
|
|
Accelerated Vesting of Unvested Equity(3)(4)
|
|
$
|
98,157
|
|
Benefits Continuation(5)
|
|
$
|
16,704
|
|
280G Payment Reduction(6)
|
|
$
|
|
|
Total(7)
|
|
$
|
772,765
|
|
Scott D. Kelley, M.D.
|
|
|
|
|
Cash Severance(1)
|
|
$
|
459,633
|
|
Pro-rata bonus(2)
|
|
$
|
111,631
|
|
Accelerated Vesting of Unvested Equity(3)(4)
|
|
$
|
81,107
|
|
Benefits Continuation(5)
|
|
$
|
16,704
|
|
280G Payment Reduction(6)
|
|
$
|
|
|
Total(7)
|
|
$
|
669,075
|
|
John Coolidge
|
|
|
|
|
Cash Severance(1)
|
|
$
|
358,765
|
|
Pro-rata bonus(2)
|
|
$
|
120,180
|
|
Accelerated Vesting of Unvested Equity(3)(4)
|
|
$
|
81,107
|
|
Benefits Continuation(5)
|
|
$
|
16,704
|
|
280G Payment Reduction(6)
|
|
$
|
|
|
Total(7)
|
|
$
|
576,756
|
|
|
|
|
(1)
|
|
Per the terms of the Severance Benefits Plan, Mr. Chamoun
is eligible to receive a cash severance payment equal to two
times (2x) base salary plus a bonus equal to the average sum of
the actual bonuses paid over the last three years. All other
named executive officers are eligible to receive a cash
severance payment equal to one and one quarter times (1.25x)
base salary plus a bonus equal to the average sum of the actual
bonuses paid over the last three years.
|
29
|
|
|
(2)
|
|
Reflects the pro-rata bonus based on each executives
target bonus award opportunity. Since we assumed a termination
date of December 31, 2008, the pro-rata bonus reflects 100%
of each executives target bonus award opportunity.
|
|
(3)
|
|
Reflects the value of all unvested stock options and restricted
shares as of December 31, 2008 based on the closing price
of $3.41 on December 31, 2008. This amount does not reflect
the value of any vested and outstanding stock options.
|
|
(4)
|
|
Represent the in-the-money value of any outstanding and unvested
stock options and unvested restricted shares that accelerate and
become fully exercisable upon a
change-in-control
as defined in the Aspect Medical Systems 1998 and 2001 Stock
Incentive Plans.
|
|
(5)
|
|
Represents 24 months (CEO) and 15 months (all other
named executive officers) of medical and dental benefits
continuation.
|
|
(6)
|
|
Per the terms of the Severance Benefits Plan, this value
reflects the estimated payments that would be reduced so that no
excise tax is triggered, if such a reduction results in a better
net after-tax benefit for the executives.
|
|
(7)
|
|
Does not include the accelerated value of the ESPP benefit since
the parachute values are likely to be immaterial.
|
Compensation
of Directors
We reimburse our non-employee directors for reasonable
out-of-pocket expenses incurred in attending meetings of the
board of directors or any committee of the board of directors.
Non-employee directors also receive:
|
|
|
|
|
a $15,000 annual retainer;
|
|
|
|
a $10,000 annual retainer for service as lead director;
|
|
|
|
a $10,000 annual retainer for service as chair of the Audit
Committee;
|
|
|
|
a $6,000 annual retainer for service as chair of the
Compensation Committee;
|
|
|
|
a $4,000 annual retainer for service as chair of the Corporate
Governance and Nominating Committee;
|
|
|
|
$1,500 for each board meeting attended in person;
|
|
|
|
$500 for each board meeting attended by telephone;
|
|
|
|
$1,000 for each meeting of the Audit Committee, Compensation
Committee or Corporate Governance and Nominating Committee
attended in person; and
|
|
|
|
$500 for each meeting of the Audit Committee, Compensation
Committee or Corporate Governance and Nominating Committee
attended by telephone.
|
No director who also serves as an employee receives compensation
for services rendered as a director. If all of our director
nominees are elected we will have seven non-employee directors
on our board of directors as of the date of the Annual Meeting:
Mr. Biro, Mr. Kania, Mr. Keating,
Mr. Mahoney, Mr. OConnor, Mr. Scialli and
Dr. Stanski.
In addition, our non-employee directors are eligible to receive
non-statutory stock options, restricted stock and other
stock-based awards under our Amended and Restated
1998 Director Equity Incentive Plan, which we refer to as
our 1998 restated director plan. Our 1998 restated director plan
was initially adopted by our board of directors and stockholders
in February 1998, was amended in December 1999 to increase the
number of shares of common stock authorized under the plan from
100,000 to 200,000 shares and was amended and restated in
May 2005 to (i) increase the number of shares of common
stock authorized under the plan from 200,000 to
350,000 shares, (ii) permit restricted stock grants,
and (iii) provide for automatic awards of a fixed number of
options upon initial election and subsequent re-election to our
board of directors and, in lieu of such automatic awards, permit
the board discretion in determining the timing, type of award
and number of shares issuable pursuant to awards granted under
this plan.
Pursuant to our 1998 restated director plan, each non-employee
director, on the date of his or her election to the board of
directors, is eligible to receive (i) a non-statutory stock
option to purchase 8,000 shares of our common
30
stock, which we refer to as an initial option, and (ii) a
restricted stock award to purchase 3,000 shares of our
common stock, which we refer to as the initial restricted stock
award. The initial option is exercisable as to 50% of the shares
underlying such initial option immediately upon such
directors initial election and the remainder becomes
exercisable in equal annual installments on each of the first,
second and third anniversaries of the date of grant, provided
that the holder of the initial option continues to serve as a
director on each such anniversary of the grant date. We have a
right of repurchase with respect to the shares of common stock
subject to the initial restricted stock award, which right of
repurchase lapses as to one-third of the shares on each of the
first, second and third anniversaries of the date of grant,
provided that the holder of the initial restricted stock award
continues to serve as a director on each such anniversary of the
grant date.
Additionally, pursuant to our 1998 restated director plan, each
non-employee director serving as a director on the date of our
annual meeting of stockholders (provided that such director has
served as a director for at least six months prior to such
annual meeting), is eligible to receive (i) a non-statutory
stock option to purchase 4,000 shares of common stock,
which we refer to as an annual option, and, together with an
initial option, a director option and (ii) a restricted
stock award to purchase 4,500 shares of common stock, which
we refer to as an annual restricted stock award, and, together
with an initial restricted stock award, a director restricted
stock award. The annual option is exercisable in equal annual
installments on each of the first, second and third
anniversaries of the date of grant, provided that the holder of
the annual option continues to serve as a director on each such
anniversary of the grant date. We have a right of repurchase
with respect to the shares of common stock subject to the annual
restricted stock award, which right of repurchase lapses as to
one-third of the shares on each of the first, second and third
anniversaries of the date of grant, provided that the holder of
the annual restricted stock award continues to serve as a
director on each such anniversary of the grant date.
The following table summarizes the compensation of each of our
directors for the year ended December 31, 2008.
DIRECTOR
COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
Non-Equity
|
|
|
All Other
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Incentive Plan
|
|
|
Compensation
|
|
|
Total
|
|
Name
|
|
($)
|
|
|
($)(1)(2)
|
|
|
($)(3)(4)
|
|
|
Compensation($)
|
|
|
($)
|
|
|
($)
|
|
|
Michael A. Esposito(5)
|
|
|
25,750
|
|
|
|
33,605
|
|
|
|
21,714
|
|
|
|
|
|
|
|
|
|
|
|
81,069
|
|
David W. Feigal, Jr., M.D. (76
|
|
|
22,750
|
|
|
|
27,801
|
|
|
|
18,678
|
|
|
|
|
|
|
|
|
|
|
|
69,229
|
|
Edwin M. Kania, Jr.
|
|
|
30,250
|
|
|
|
27,801
|
|
|
|
33,332
|
|
|
|
|
|
|
|
|
|
|
|
91,383
|
|
James J. Mahoney, Jr.
|
|
|
38,750
|
|
|
|
27,801
|
|
|
|
33,332
|
|
|
|
|
|
|
|
|
|
|
|
99,883
|
|
John J. OConnor
|
|
|
37,250
|
|
|
|
33,605
|
|
|
|
21,714
|
|
|
|
|
|
|
|
|
|
|
|
92,569
|
|
Donald R. Stanski, M.D.
|
|
|
28,250
|
|
|
|
27,801
|
|
|
|
33,332
|
|
|
|
|
|
|
|
|
|
|
|
89,383
|
|
Boudewijn L.P.M. Bollen(7)
|
|
|
|
|
|
|
30,845
|
|
|
|
138,209
|
|
|
|
29,400
|
(8)
|
|
|
|
|
|
|
169,054
|
|
J. Breckenridge Eagle(9)
|
|
|
|
|
|
|
123,272
|
|
|
|
185,783
|
|
|
|
85,085
|
(10)
|
|
|
|
|
|
|
309,055
|
|
|
|
|
(1)
|
|
These amounts reflect compensation cost recognized by us in 2008
for a portion of the current and prior year restricted stock
awards to directors as described in SFAS No. 123R. For
a discussion of the valuation assumptions, see Note 10 to
our consolidated financial statements in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
|
|
(2)
|
|
All stock awards referenced had a purchase price of $0.01 per
share.
|
|
(3)
|
|
These amounts reflect compensation cost recognized by us in 2008
for a portion of the current and prior year stock option awards
to directors as described in SFAS No. 123R. For a
discussion of the valuation assumptions, see Note 10 to our
consolidated financial statements in our Annual Report on
Form 10-K
for the year ended December 31, 2008.
|
|
(4)
|
|
All option awards referenced were granted with an exercise price
equal to the closing price of our common stock on the Nasdaq
Global Market on the date of grant.
|
|
(5)
|
|
Mr. Esposito will not be standing for re-election as a
director at the Annual Meeting.
|
31
|
|
|
(6)
|
|
Dr. Feigal resigned as our director, effective immediately
prior to the Annual Meeting.
|
|
(7)
|
|
Mr. Bollen resigned as our director, effective immediately
prior to the Annual Meeting.
|
|
(8)
|
|
Represents commission payment to Mr. Bollen.
|
|
(9)
|
|
Mr. Eagle is an employee of the Company and also serves as
Chairman of the Board of Directors.
|
|
(10)
|
|
Represents bonus pursuant to the 2008 Annual Bonus Plan.
|
The following table shows the aggregate number of outstanding
stock options and unvested shares of restricted stock held by
each of our directors as of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Shares of
|
|
Name
|
|
Stock Options (#)
|
|
|
Restricted Stock (#)
|
|
|
Michael A. Esposito
|
|
|
14,000
|
|
|
|
5,833
|
|
David W. Feigal, Jr.
|
|
|
29,000
|
|
|
|
5,499
|
|
Edwin M. Kania, Jr.
|
|
|
29,000
|
|
|
|
5,499
|
|
James J. Mahoney, Jr.
|
|
|
28,500
|
|
|
|
5,499
|
|
John J. OConnor
|
|
|
14,000
|
|
|
|
5,833
|
|
Donald R. Stanski, M.D.
|
|
|
46,500
|
|
|
|
5,499
|
|
Boudewijn L.P.M. Bollen
|
|
|
104,250
|
|
|
|
4,593
|
|
J. Breckenridge Eagle(1)
|
|
|
200,204
|
|
|
|
27,655
|
|
|
|
|
(1)
|
|
Mr. Eagle is an employee of the Company and also serves as
Chairman of the Board of Directors.
|
Securities
Authorized for Issuance Under Equity Compensation
Plans
The following table provides information as of December 31,
2008 about the securities authorized for issuance under our
equity compensation plans, consisting of our 2001 Stock
Incentive Plan, as amended, our 1998 Stock Incentive Plan, as
amended, our 1998 director plan, as amended, and our 1999
Employee Stock Purchase Plan. All of our equity compensation
plans were adopted with the approval of our stockholders.
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities
|
|
|
|
|
|
Future Issuance Under
|
|
|
|
to be Issued Upon
|
|
|
Weighted-average
|
|
|
Equity Compensation
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
Plans (Excluding
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Column (a))
|
|
|
Equity compensation approved by stockholders
|
|
|
4,264,588
|
|
|
$
|
17.02
|
|
|
|
1,369,403
|
|
Equity compensation plans not approved by stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,264,88
|
|
|
$
|
17.02
|
|
|
|
1,369,403
|
|
Policies
and Procedures for Related Party Transactions
In accordance with the terms of the charter of our Audit
Committee, our Audit Committee is required to review all related
person transactions on an ongoing basis and all such
transactions must be approved by the audit committee. A related
person transaction, as defined in Item 404(a) of
Regulation S-K
is any transaction, arrangement or relationship in which Aspect
is a participant, the amount involved exceeds $120,000, and one
of our executive officers, directors, director nominees or 5%
stockholders (or their immediate family members), each of whom
we refer to as a related person, has a direct or
indirect material interest.
32
We have also adopted a policy providing that all material
transactions between us and our officers, directors and other
affiliates must be:
|
|
|
|
|
approved by a majority of the members of our board of directors
and by a majority of the disinterested members of our board of
directors; and
|
|
|
|
on terms no less favorable to us than could be obtained from
unaffiliated third parties.
|
PROPOSAL TWO
APPROVAL OF A ONE-TIME STOCK OPTION EXCHANGE PROGRAM
Introduction
We are seeking stockholder approval of an option exchange
program that would allow us to cancel significantly
underwater stock options currently held by some of
our employees, excluding our officers and directors, in exchange
for the issuance of new stock options exercisable for fewer
shares of our common stock, with a lower exercise price that
equals the current fair market value of our common stock and
extended vesting terms. Underwater stock options have an
exercise price which is greater than the market price of the
underlying stock. We are proposing this program because we
believe that it will provide a more cost-effective retention and
incentive tool to our key contributors than issuing incremental
equity or paying additional cash compensation to offset the
adverse affect of these underwater stock options. Assuming we
receive stockholder approval of our option exchange program, we
estimate a reduction in outstanding stock options of
approximately 892,163 shares, assuming full participation
in the option exchange program.
Overview
In February 2009, the compensation committee recommended to our
board of directors, and our board subsequently authorized, a
one-time stock option exchange program, or the Option Exchange
Program, subject to stockholder approval.
Stock options will be eligible for exchange if they have an
exercise price per share greater than or equal to $15.00 and
were granted under our 1998 Stock Incentive Plan, as amended, or
our 2001 Stock Incentive Plan, as amended, collectively referred
to as the Plans. We refer to such options as Eligible Options.
The opportunity to participate in the Option Exchange Program
will be offered to all of our domestic and certain of our
foreign employees, excluding our executive officers and
directors, collectively referred to as the Eligible
Participants. Eligible Options surrendered for exchange under
the Option Exchange Program will, upon the closing of the
exchange offer, be exchanged for new options, which we refer to
as New Options, granted under the 2001 Stock Incentive Plan, as
amended.
Under the proposed Option Exchange Program, each New Option will
have: (1) an exercise price per share equal to the closing
price of our common stock as reported on the Nasdaq Global
Market on the day that our exchange offer expires; (2) a
new expiration date of six years from the date of grant; and
(3) the following vesting schedule:
|
|
|
|
|
new Options granted in exchange for Eligible Options that were
fully vested and exercisable as of the day that our exchange
offer expires shall vest with respect to 100% of the underlying
shares on the one year anniversary of the New Options
grant date; and
|
|
|
|
new Options granted in exchange for Eligible Options that were
not fully vested as of the day that our exchange offer expires
shall be subject to one additional year of vesting pursuant to
the original terms of the Eligible Option for which such New
Option was exchanged.
|
The ratio of shares underlying exchanged Eligible Options to
shares underlying New Options is expected to fall within a range
of 3:1 to 350:1, with the majority of shares underlying
exchanged options being within a range of 3:1 to 5:1, based on
the relative fair value of the exchanged Eligible Options to the
New Options. We intend for the fair value of the New Options to
be approximately equal to the fair value of the Eligible Options
surrendered based on valuation assumptions made as of the close
of the Option Exchange Program. We expect that this exchange
should result in no adverse impact on our reported earnings. All
New Options will be nonstatutory options regardless of whether
the Eligible Options exchanged therefor were incentive stock
options or nonstatutory stock
33
options. Please see Description of the Option
Exchange Program Accounting Treatment and
US Federal Income Tax Treatment below
for a further discussion of certain accounting and tax aspects
of the Option Exchange Program.
We believe that, if approved by our stockholders, the Option
Exchange Program will permit us to:
|
|
|
|
|
enhance long-term stockholder value by restoring competitive
incentives to Eligible Participants so they are further
motivated to complete and deliver the important strategic and
operational initiatives of our company, as underwater options
undermine the effectiveness of options as employee performance
and retention incentives; and
|
|
|
|
reduce the number of shares issuable upon the vesting and
exercise of currently outstanding stock options and other stock
awards, by reducing the total number of currently outstanding
stock options.
|
If our stockholders approve this proposal, our board of
directors intends to close the exchange offer at 5:00 p.m.
on or about July 7, 2009. If we do not obtain stockholder
approval of this proposal, we will not be able to implement the
Option Exchange Program.
Reasons
for the Option Exchange Program
We believe that an effective and competitive employee incentive
program is imperative for the future growth and success of our
business. We rely on highly skilled and educated technical and
managerial employees to implement our strategic initiatives,
expand and develop our business and satisfy customer needs.
Competition for these types of employees, particularly in the
medical devices industry, is intense and many companies use
stock options as a means of attracting, motivating and retaining
their best employees. At Aspect, stock options constitute a key
part of our incentive and retention programs because our board
of directors believes that equity compensation encourages
employees to act like owners of the business, motivating them to
work toward our success and rewarding their contributions by
allowing them to benefit from increases in the value of our
shares.
Many of our employees now hold stock options with exercise
prices significantly higher than the current market price of our
common stock. For example, on March 31, 2009, the closing
price of our common stock on the Nasdaq Global Market was $4.19
per share and Eligible Participants held outstanding stock
options exercisable for approximately 1,147,325 shares of
our common stock that had exercise prices of $15.00 or more.
These options were generally issued at varying times prior to
November 2007. Although we continue to believe that stock
options are an important component of our employees total
compensation, many of our employees view these existing
underwater options that have exercise prices in excess of $15.00
per share as having little or no value due to the significant
difference between the exercise prices and the current market
price of our common stock. As a result, for many employees,
these options are ineffective at providing the incentive and
retention value that our board believes is necessary to motivate
our employees to increase long-term stockholder value. We
believe that the opportunity to exchange Eligible Options for
New Options exercisable for fewer shares, together with a new
minimum vesting requirement, represents a reasonable and
balanced exchange program with the potential for a significant
positive impact on employee retention, motivation and
performance.
In addition to the underwater options having little or no
retention value, they also would remain outstanding until they
are exercised or expire unexercised. These outstanding options
expose our stockholders to potential dilution and may place
downward pressure on our stock price even if they are underwater
and not likely to be exercised. This potential dilution and
downward pressure caused by outstanding stock options is
referred to as overhang. If approved by our stockholders, the
Option Exchange Program will reduce outstanding stock options by
eliminating underwater options that are currently outstanding.
Under the proposed Option Exchange Program, Eligible
Participants will receive stock options covering fewer shares
than the options surrendered. As a result, the number of shares
subject to all outstanding equity awards will be reduced. If all
Eligible Options were exchanged, then based on the number of
Eligible Options outstanding on March 31, 2009, options to
purchase approximately 1,147,325 shares would be
surrendered and cancelled, while New Options covering
approximately 255,162 shares would be issued. This would
result in a net reduction in outstanding stock options by
approximately 892,163 shares, or approximately 5.1% of the
number of shares of our common stock outstanding as of
March 31, 2009. The actual reduction in the number of stock
options outstanding that may result from the Option Exchange
Program could vary
34
significantly and is dependent upon the actual level of
participation in the Option Exchange Program. All Eligible
Options that are not exchanged will remain outstanding and in
effect in accordance with their existing terms.
In addition, if we are unable to implement the Option Exchange
Program, we may determine it is necessary to issue additional
options to our employees at current market prices, thereby
increasing the aggregate number of stock options outstanding.
These grants would deplete the current pool of options available
for future grants under the 2001 Stock Incentive Plan and could
also result in decreased reported earnings which could
negatively impact our stock price.
Consideration
of Alternatives
Our compensation committee reviewed and evaluated various
strategies to address the issue of underwater stock options and
concluded, based on the reasons discussed above, that a program
under which employees could exchange stock options with an
exercise price greater than or equal to $15.00 is the best
alternative for both our employees and our stockholders.
Description
of the Option Exchange Program
Implementing the Option Exchange
Program.
Eligible Participants will be offered
the opportunity to participate in the Option Exchange Program
pursuant to an Offer to Exchange which will be filed with the
Securities and Exchange Commission, or the SEC on
Schedule TO. From the time the Offer to Exchange commences,
Eligible Participants will be given at least 20 business days to
make an election to surrender all of their Eligible Options in
exchange for New Options. The New Options will be granted on the
day the Offer to Exchange expires, which we expect will be on or
about July 7, 2009. Even if the Option Exchange Program is
approved by our stockholders, our board will retain the
authority, in its sole discretion, to terminate or postpone the
program at any time prior to the closing of the Offer to
Exchange or to exclude certain Eligible Options or Eligible
Participants from participating in the Option Exchange Program
due to tax, regulatory or accounting reasons or because
participation would be inadvisable or impractical. Stockholder
approval of the Option Exchange Program applies only to this
specific exchange program. If we were to implement a different
stock option exchange program in the future, we would once again
need to seek stockholder approval.
Outstanding Options Eligible for the Option Exchange
Program.
To be eligible for exchange under the
Option Exchange Program, an option must have an exercise price
that is greater than or equal to $15.00. As of March 31,
2009, options to purchase approximately 4,674,793 shares of
our common stock were outstanding, of which options to purchase
approximately 1,147,325 shares would be eligible for
exchange under the Option Exchange Program.
Eligibility.
The Option Exchange Program will
be open to all of our domestic and certain of our foreign
employees, excluding our executive officers and directors, who
hold Eligible Options. Our directors and executive officers are
not eligible to participate in the Option Exchange Program. To
be eligible, an employee must be employed by us at the time the
Offer to Exchange commences. Additionally, in order to receive
the New Options, an Eligible Participant who surrenders his or
her Eligible Options for exchange must be an employee on the
date the New Options are granted. As of March 31, 2009,
approximately 197 employees held Eligible Options.
Exchange Ratios.
In the proposed exchange
offer, Eligible Participants would be offered a one-time
opportunity to exchange all of their Eligible Options for New
Options covering a smaller number of
35
shares. The actual number of shares subject to New Options will
be determined in accordance with exchange ratios that reflect a
value approximately equal to that of the exchanged Eligible
Options. We intend for the fair value of the New Options to be
approximately equal to the fair value of the Eligible Options
surrendered based on a Black-Scholes valuation methodology
calculated by an independent third party as of the close of the
Option Exchange Program. The ratio of Eligible Options to New
Options is expected to be in a range of 3:1 to 350:1, with the
majority of the shares underlying exchanged options being within
a range of 3:1 to 5:1.
The following table shows (a) the number of shares
underlying outstanding Eligible Options in each exercise price
range above $15.00 per share as of March 31, 2009,
(b) a hypothetical example of the exchange ratios that
would be applied to calculate the number of shares subject to
New Options upon to be granted in exchange for surrendered
Eligible Options, and (c) the number of New Options to be
issued based up such assumed exchange ratios. The exchange
ratios set forth in the table were determined based upon a
Black-Scholes calculation of the assumed fair value of the
Exchange Options and New Options. This Black-Scholes calculation
takes into account factors that include original grant price,
remaining vesting period, remaining option term and volatility.
1998
Stock Plan Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Eligible
|
|
|
|
|
|
Number of New
|
|
Price
|
|
Options (1)
|
|
|
Exchange Ratio (2)
|
|
|
Options
|
|
|
$15.000
|
|
|
1,625
|
|
|
|
15:1
|
|
|
|
108
|
|
$23.625
|
|
|
59,045
|
|
|
|
15:1
|
|
|
|
3,936
|
|
$24.500
|
|
|
7,500
|
|
|
|
15:1
|
|
|
|
500
|
|
$28.625
|
|
|
38,500
|
|
|
|
40:1
|
|
|
|
963
|
|
$47.875
|
|
|
7,500
|
|
|
|
350:1
|
|
|
|
21
|
|
TOTALS
|
|
|
114,170
|
|
|
|
|
|
|
|
5,528
|
|
2001
Stock Plan Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Number of New
|
|
Price
|
|
Eligible Options (1)
|
|
|
Exchange Ratio (2)
|
|
|
Options
|
|
|
$15.230
|
|
|
8,250
|
|
|
|
4:1
|
|
|
|
2,063
|
|
$15.590
|
|
|
9,025
|
|
|
|
3:1
|
|
|
|
3,008
|
|
$15.660
|
|
|
158,236
|
|
|
|
4:1
|
|
|
|
39,559
|
|
$16.150
|
|
|
196,850
|
|
|
|
3:1
|
|
|
|
65,617
|
|
$16.980
|
|
|
39,800
|
|
|
|
3:1
|
|
|
|
13,267
|
|
$17.000
|
|
|
3,083
|
|
|
|
4:1
|
|
|
|
771
|
|
$17.300
|
|
|
479
|
|
|
|
4:1
|
|
|
|
120
|
|
$17.990
|
|
|
27,391
|
|
|
|
4:1
|
|
|
|
6,848
|
|
$18.200
|
|
|
7,728
|
|
|
|
4:1
|
|
|
|
1,932
|
|
$20.610
|
|
|
222,872
|
|
|
|
5:1
|
|
|
|
44,574
|
|
$26.790
|
|
|
36,181
|
|
|
|
5:1
|
|
|
|
7,236
|
|
$27.000
|
|
|
32,500
|
|
|
|
4:1
|
|
|
|
8,125
|
|
$29.250
|
|
|
203,960
|
|
|
|
5:1
|
|
|
|
40,792
|
|
$31.800
|
|
|
30,150
|
|
|
|
5:1
|
|
|
|
6,030
|
|
$32.330
|
|
|
7,500
|
|
|
|
5:1
|
|
|
|
1,500
|
|
$34.900
|
|
|
49,150
|
|
|
|
6:1
|
|
|
|
8,192
|
|
TOTALS
|
|
|
1,033,155
|
|
|
|
|
|
|
|
249,634
|
|
|
|
|
(1)
|
|
Excludes options grant to our executive officers and members of
our board of directors. Such options are not eligible for
exchange pursuant to the Option Exchange Program.
|
(2)
|
|
The weighted average of these exchange ratios is 4.5:1
|
36
The actual exchange ratios will be determined once the closing
price of our common stock on the day prior to the closing of the
exchange offer is reported by the Nasdaq Global Market. We
currently expect to close the exchange offer on or about
July 7, 2009, assuming the Option Exchange Program is
approved by our stockholders. New Options granted in accordance
with the actual exchange ratios will be rounded down to the
nearest whole share on a
grant-by-grant
basis. Adjustments to any of the assumptions used to calculate
the information in the above table will result in a change to
the number of shares underlying New Options that may be granted
under the Option Exchange Program.
Election to Participate.
Participation in the
Option Exchange Program will be voluntary. Eligible Participants
will only be permitted to exchange all or none of their Eligible
Options for New Options.
Exercise Price of New Options.
All New Options
will be granted with an exercise price equal to the closing
price of our stock on the Nasdaq Global Market on the day of the
close of the exchange offer.
Vesting of New Options.
The New Options will
vest as follows:
|
|
|
|
|
New Options granted in exchange for Eligible Options that were
vested and exercisable as of the day that our exchange offer
expires shall vest monthly until 100% of the underlying shares
are vested on the one year anniversary of the New Options
grant date; and
|
|
|
|
New Options granted in exchange for Eligible Options that were
unvested as of the day that our exchange offer expires shall be
subject to an additional one-year of vesting pursuant to the
original terms of the Eligible Option for which such New Option
was exchanged. For example, if a New Option is granted in
exchange for an Eligible Option that vests monthly and has two
years of vesting remaining, such New Option would vest monthly
over three years.
|
Term of the New Options.
The New Options will
have a new expiration date of six years from the date of grant.
Other Terms and Conditions of the New
Options.
Other terms and conditions of the New
Options will be set forth in option agreements to be entered
into as of the New Option grant date. Any additional terms and
conditions will be comparable to the existing terms and
conditions of the Eligible Options. All New Options will be
nonstatutory stock options granted under our Plan regardless of
the tax status of the Eligible Options tendered for exchange.
Return of Surrendered Eligible Options to
Plan.
Consistent with the terms of the 2001 Plan,
the pool of shares available for the grant of future awards
under our 2001 Stock Incentive Plan will be increased by that
number of shares equal to the difference between (a) the
number of shares underlying surrendered Eligible Options granted
under the 2001 Stock Incentive Plan and (b) the number of
shares underlying all New Options granted under the 2001 Stock
Incentive Plan. Because we are making no further grants under
the 1998 Plan, the shares underlying surrendered Eligible
Options granted under the 1998 Stock Incentive Plan will be
cancelled.
Accounting Treatment.
We have adopted the
provisions of Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (Revised), or
SFAS 123(R), regarding accounting for share-based payments.
Under SFAS 123(R), we are required to recognize any
incremental compensation cost of the stock options granted in
the Option Exchange Program. Incremental compensation cost is
measured as the excess, if any, of the fair value of each New
Option granted to employees in exchange for surrendered Eligible
Options, measured as of the date the New Options are granted,
over the fair value of the Eligible Options surrendered in
exchange for the New Options, measured immediately prior to the
cancellation. Such incremental compensation cost, if any, is
recognized ratably over the vesting period of the New Options.
However, because the exchange ratios will be calculated to
result in the fair value of Eligible Options surrendered being
equal to the fair value of the New Options replacing them, we do
not expect to recognize any incremental compensation expense for
financial reporting purposes as a result of the Option Exchange
Program. As would be the case with Eligible Options, in the
event that
37
any of the New Options are forfeited prior to their vesting due
to termination of service, the compensation cost for the
forfeited New Options will not be recognized.
U.S. Federal Income Tax Consequences.
The
following is a summary of the material United States federal
income tax consequences of the Option Exchange Program for those
Eligible Participants who are subject to United States
federal income tax. This summary is based on the federal tax
laws in effect as of the date of this proxy statement. Changes
to these laws could alter the tax consequences described below.
A more detailed summary of the applicable tax considerations to
Eligible Participants will be provided in the Exchange Offer.
This summary does not discuss all of the tax consequences that
may be relevant to an Eligible Participant in light of his or
her personal circumstances, nor is it intended to be applicable
in all respects to all categories of Eligible Participants.
We believe that the exchange of Eligible Options for New Options
pursuant to the Option Exchange Program should be treated as a
non-taxable exchange, and no income should be recognized for
United States federal income tax purposes by the Eligible
Participants upon the issuance of the New Options. All New
Options will be nonstatutory stock options, even if the
exchanged options are incentive stock options. As a result, upon
the exercise of the New Options, the Eligible Participants will
recognize ordinary compensation income equal to the excess, if
any, of the fair market value of the purchased shares on the
exercise date over the exercise price paid for those shares.
Upon disposition of the shares, the Eligible Participants will
recognize capital gain or loss (which will be short-term or
long-term depending on whether the shares were held for more
than one year from the date of exercise) equal to the difference
between the selling price and the fair market value of the
shares on the date of exercise. The holding period for the
shares acquired through the exercise of an option will begin on
the day after the date of exercise. If Eligible Options that are
incentive stock options are not exchanged in the Option Exchange
Program, then such options may be deemed to be newly granted for
United States federal income tax purposes, depending on the
final terms of the Option Exchange Program.
There will be no tax consequences to us with respect to the
Option Exchange Program or the exercise of New Options (or
Eligible Options not exchanged) except that we will be entitled
to a deduction when an Eligible Participant has compensation
income. Any such deduction will be subject to the limitations of
Section 162(m) of the Internal Revenue Code.
Potential Modifications to Terms to Comply with Governmental
Requirements.
The terms of the Option Exchange
Program will be described in an Offer to Exchange that we will
file with the SEC. Although we do not anticipate that the SEC
will require us to modify the terms significantly, it is
possible we will need to alter the terms of the Option Exchange
Program to comply with comments from the SEC. Changes in the
terms of the Option Exchange Program may also be required for
tax purposes for participants in the United States as the tax
treatment of the Option Exchange Program is not entirely certain.
Effect on
Stockholders
We are not able to predict the impact the Option Exchange
Program will have on your interests as a stockholder, as we are
unable to predict how many participants will exchange their
Eligible Options or what the future market price of our common
stock will be on the date that the New Options are granted. If
the Option Exchange Program is approved, the exchange ratios
should result in (1) the issuance of fewer shares subject
to the New Options than were subject to the cancelled Eligible
Options tendered in the exchange offer and (2) the fair
value of Eligible Options surrendered being approximately equal
to the fair value of the New Options replacing them. As a
consequence, we do not expect to recognize any incremental
compensation expense for financial reporting purposes from the
Option Exchange Program. In addition, the Option Exchange
Program is intended to reduce both the number of outstanding
stock options and our need to issue supplemental stock options
in the future to remain competitive with other employers.
While we cannot predict how many Eligible Options will be
exchanged, assuming full participation in the Option Exchange
Program, a market price of our common stock of $4.19 per share,
an exercise price of the New Options of $4.19 per share and
exchange ratios that result in the fair value of the New Options
being less than the fair to the fair value of the Eligible
Options surrendered based on valuation assumptions made as of
the close of the Option Exchange Program, the total number of
shares underlying our outstanding options would be reduced by
approximately 892,163 shares, which represents a reduction
of approximately 5.1% of the number of shares of our
38
common stock outstanding as of March 31, 2009. The actual
reduction in the number of outstanding stock options that could
result from the Option Exchange Program could vary significantly
and is dependent upon a number of factors, including the actual
level of participation in the Option Exchange Program.
Board
Recommendation
Our Board of Directors unanimously recommends that the
stockholders vote FOR the approval of the stock
option exchange program for employees (excluding our executive
officers and directors).
PROPOSAL THREE
AMENDMENT OF BY-LAWS
General
Information
Our board of directors has unanimously adopted resolutions,
subject to stockholder approval, approving and declaring the
advisability of amending our Amended and Restated By-Laws, as
amended (the By-Laws) to provide that, subject to
limited exceptions, future annual meetings will be held no later
than May 25 in each year.
Section 1.2 of our By-Laws currently provides that our
board of directors, the chairman of our board of directors or
our President may designate the date and time of our annual
meeting of stockholders and that a special meeting may be held
in lieu of the annual meeting of stockholders.
The proposed amendment requires that the date of the annual
meeting of stockholders shall not be later than May 25 in any
year, unless the filing date of our
Form 10-K
is delayed beyond March 31, in which case the annual
meeting of stockholders may be extended by up to a number of
days equal to the number of days between March 31 and the date
the
Form 10-K
is actually filed, but in no event may the date be extended
beyond June 9 of that year. The amendment allows for the
extension of the date of the annual meeting of stockholders
beyond May 25 if our board of directors reasonably determines
that we have material non-public information, the premature
disclosure of which would be against our interests, but in no
event may our board of directors extend the deadline beyond June
9 of that year. The amendment also requires the affirmative vote
by stockholders holding at least 50% of our shares of capital
stock entitled to vote or by a number of directors at least
equal to 80% of the full size of the board in order to amend,
repeal or adopt any provision inconsistent with
Section 1.2. The amendment also eliminates the clause in
Section 1.2 that permitted a special meeting to be held in
lieu of the annual meeting.
Reason
for Proposal
Our board of directors approved the amendment to our By-Laws,
subject to stockholder approval, pursuant to our Agreement with
First Manhattan, which is described in part above under the
heading Director Nomination and Election
Arrangements and is more fully described in our Current
Report on
Form 8-K,
filed on April 8, 2009 with the SEC.
Amendment
to By-Laws
The proposed amendment of our By-Laws is set forth in
Appendix A in its entirety, and we have also shown the
changes to the relevant sections resulting from the amendment,
with deletions indicated by strike-outs and additions indicated
by underlining. If this proposal is approved, it will become
effective upon such approval.
Board
Recommendation
Our board of directors unanimously recommends that the
stockholders vote FOR the amendment to our
By-Laws.
39
PROPOSAL FOUR
RATIFICATION OF SELECTION
OF REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our board of directors has selected the
firm of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending
December 31, 2009. Although stockholder approval of the
Audit Committees selection of Ernst & Young LLP
is not required by law, our board of directors believes that it
is advisable to give stockholders an opportunity to ratify this
selection. If this proposal is not approved at the 2009 Annual
Meeting of Stockholders, our Audit Committee will reconsider its
selection of Ernst & Young LLP. Representatives of
Ernst & Young LLP are expected to be present at the
annual meeting and will have the opportunity to make a
statement, if they desire to do so, and will be available to
respond to appropriate questions from our stockholders.
Board
Recommendation
Our board of directors unanimously recommends that the
stockholders vote FOR the ratification of the
selection of Ernst & Young LLP as Aspects
registered public accounting firm for the fiscal year ending
December 31, 2009.
OTHER
MATTERS
Our board of directors does not know of any other matters which
may come before the annual meeting. However, if any other
matters are properly presented to the meeting, it is the
intention of the persons named in the accompanying proxy card to
vote, or otherwise act, in accordance with their judgment on
those matters.
SOLICITATION
OF PROXIES
The cost of solicitation of proxies will be borne by Aspect. In
addition to the solicitation of proxies by mail, officers and
employees of Aspect may solicit proxies in person or by
telephone. We may reimburse brokers or persons holding stock in
their names, or in the names of their nominees, for their
expenses in sending proxies and proxy material to beneficial
owners.
REVOCATION
OF PROXY
Subject to the terms and conditions set forth in this proxy
statement, all proxies received by us will be effective,
notwithstanding any transfer of the shares to which those
proxies relate, unless prior to the closing of the polls at the
annual meeting, our Secretary receives a written notice of
revocation signed by the person who, as of the record date, was
the registered holder of those shares, our Secretary receives a
duly executed proxy card bearing a later date than the proxy
being revoked at any time before that proxy is voted or the
registered holder appears at the meeting and votes in person.
STOCKHOLDER
PROPOSALS
In order to be included in the proxy materials for our 2010
Annual Meeting of Stockholders, stockholders proposed
resolutions must be received by us at our principal executive
offices, One Upland Road, Norwood, Massachusetts 02062 no later
than December 12, 2009. We suggest that proponents submit
their proposals by certified mail, return receipt requested,
addressed to our Secretary.
If a stockholder wishes to present a proposal at our 2010 Annual
Meeting of Stockholders, but does not wish to have the proposal
considered for inclusion in the Proxy Statement and proxy card,
the stockholder must also give written notice to our Secretary
at the address noted above. The required notice must be given
within a prescribed time frame, which is generally calculated by
reference to the date of our most recent annual meeting.
Assuming that our 2010 Annual Meeting of Stockholders is held on
or after May 1, 2010 and on or before June 9, 2010 (as
we currently anticipate), our bylaws would require notice to be
provided to our Secretary at our principal executive offices no
earlier than February 14, 2010 and no later than
March 14, 2010. If a stockholder fails to provide timely
40
notice of a proposal to be presented at the 2010 Annual Meeting
of Stockholders, the proxies designated by our board of
directors will have discretionary authority to vote on that
proposal.
By Order of the Board of Directors,
J. Neal Armstrong
Secretary
Norwood, Massachusetts
April [ ], 2009
OUR BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND
THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE
URGED TO COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY
CARD IN THE ACCOMPANYING ENVELOPE. A PROMPT RESPONSE WILL
GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING AND YOUR
COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE
ANNUAL MEETING MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY
HAVE SENT IN THEIR PROXY CARDS.
41
APPENDIX A
AMENDMENT
TO AMENDED AND RESTATED BY-LAWS
Section 1.2 of Article 1 of the By-Laws of Aspect
Medical Systems, Inc., as amended (the By-Laws), is
deleted in its entirety and the following substituted therefor:
Annual Meeting.
The annual meeting of
stockholders for the election of directors and for the
transaction of such other business as may properly be brought
before the meeting shall be held on a date and at a time
designated by the Board of Directors, the Chairman of the Board
or the President, which date shall not be a legal holiday in the
place where the meeting is to be held and which date shall not
be later than May 25 in any year, and shall not be adjourned
without the vote of the holders of a majority in voting power of
the shares represented in person or by proxy at such meeting;
provided, however, that (a) if the filing of the
corporations
Form 10-K
is delayed beyond March 31 in any year, the Board of Directors
may extend the May 25 deadline in that year by up to a number of
days equal to the number of days between March 31 and the date
that
Form 10-K
is actually filed, but in no event may the Board of Directors
extend the deadline beyond June 9 of that year, and (b) the
Board of Directors may extend the May 25 deadline in any year if
the Board of Directors, after consulting with counsel and
financial advisers, reasonably determines in good faith that the
corporation has material non-public information the premature
disclosure of which would be against the best interests of the
corporation and its stockholders and that the delay is necessary
(and is no longer than necessary) in order to avoid a premature
disclosure that would be against the best interests of the
corporation and its stockholders, but in no event may the Board
of Directors extend the deadline beyond June 9 of that year.
Notwithstanding Section 6.1 of these By-Laws, and
notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, either the affirmative vote of
the holders of at least fifty percent (50%) of the shares of the
capital stock of the corporation issued and outstanding and
entitled to vote or approval by a number of directors at least
equal to 80% of the full size of the board (counting any vacant
seats as part of the full board for this purpose) shall be
required to amend or repeal, or to adopt any provision
inconsistent with, this Section 1.2.
The changes to Section 1.2 of the By-Laws are shown as
follows, with deletions indicated by strike-outs and additions
indicated by underlining :
1.2 Annual Meeting.
The annual meeting of
stockholders for the election of directors and for the
transaction of such other business as may properly be brought
before the meeting shall be held on a date and at a time
designated by the Board of Directors, the Chairman of the Board
or the President,
(which date shall not be a legal
holiday in the place where the meeting is to be held). If no
annual meeting is held in accordance with the foregoing
provision, a special meeting may be held in lieu of the annual
meeting, and any action taken at that special meeting shall have
the same effect as if it had been taken at the annual meeting,
and in such case all references in these By-Laws to the annual
meeting of the stockholders shall be deemed to refer to such
special meeting.,
which date shall not be a legal
holiday in the place where the meeting is to be held and which
date shall not be later than May 25 in any year, and shall not
be adjourned without the vote of the holders of a majority in
voting power of the shares represented in person or by proxy at
such meeting; provided, however, that (a) if the filing of
the corporations
Form 10-K
is delayed beyond March 31 in any year, the Board of Directors
may extend the May 25 deadline in that year by up to a number of
days equal to the number of days between March 31 and the date
that
Form 10-K
is actually filed, but in no event may the Board of Directors
extend the deadline beyond June 9 of that year, and (b) the
Board of Directors may extend the May 25 deadline in any year if
the Board of Directors, after consulting with counsel and
financial advisers, reasonably determines in good faith that the
corporation has material non-public information the premature
disclosure of which would be against the best interests of the
corporation and its stockholders and that the delay is necessary
(and is no longer than necessary) in order to avoid a premature
disclosure that would be against the best interests of the
corporation and its stockholders, but in no event may the Board
of Directors extend the deadline beyond June 9 of that year.
Notwithstanding Section 6.1 of these By-Laws, and
notwithstanding any other provision of law, the Certificate of
Incorporation or these By-Laws, either the affirmative vote of
the holders of at least fifty percent (50%) of the shares of the
capital stock of the corporation issued and outstanding and
entitled to vote or approval by a number of directors at least
equal to 80% of the full size of the board (counting any vacant
seats as part of the full board for this purpose) shall be
required to amend or repeal, or to adopt any provision
inconsistent with, this Section 1.2.
A-1
ASPECT MEDICAL SYSTEMS, INC. C/O COMPUTERSHARE LIMITED P.O. BOX 8694 EDISON, NJ 08818-8694 Dear
Stockholder: Please take note of the important information enclosed with this proxy card. There are
matters related to the operation of the Company that require your prompt attention. Your vote
counts, and you are strongly encouraged to exercise your right to vote your shares. Please mark the
boxes on the proxy card to indicate how your shares will be voted. Then sign and date the card,
detach it and return your proxy in the enclosed postage paid envelope. Thank you in advance for
your prompt consideration of these matters. Sincerely, Aspect Medical Systems, Inc. Please mark
votes as in this example DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSALS 1, 2 and 3. 1. To elect the following three (3) nominees as Class
III directors of the Company Nominees: (01) Jon C. Biro (02) Nassib G. Chamoun (03) Melvin L.
Keating FOR WITHHELD ALL FROM ALL NOMINEES NOMINEES FOR ALL EXCEPT: (INSTRUCTION: To withhold
authority to vote for one nominee, write such nominees name in the space provided above.) 2. To
approve a one-time stock option exchange program under which eligible employees (excluding our
executive officers) would be able to elect to exchange outstanding stock options with an exercise
price of $15.00 or greater issued under our 1998 Stock Incentive Plan or our 2001 Stock Incentive
Plan for new lower-priced stock options. 3. To approve the amendment of our Amended and Restated
By-Laws, as amended, which provides that, subject to limited exceptions, future annual meetings
will be held no later than May 25 in each year. 4. To ratify the selection by the Audit Committee
of the Board of Directors of Ernst & Young LLP as the Companys registered independent accounting
firm for the fiscal year ending December 31, 2009. FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR
AGAINST ABSTAIN 5. To transact such other business as may properly come before the meeting or any
adjournment thereof. MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT NOTE: Please sign exactly as
name appears on this proxy indicating, where proper, official position or representative capacity.
When signing as executor, administrator, trustee, guardian, attorney or other fiduciary, please
give your full title as such. Joint owners should each sign personally. If a corporation, please
sign in full corporate name, by duly authorized officer. If a partnership, please sign in
partnership name, by authorized person, giving full title. If the person named on the stock
certificate has died, please submit evidence of your authority. Signature: Date: Signature: Date:
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DETACH HERE PROXY ASPECT MEDICAL SYSTEMS, INC. PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON FRIDAY, JUNE 5, 2009 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ASPECT
MEDICAL SYSTEMS, INC. The undersigned, having received notice of the annual meeting of stockholders
and the proxy statement therefor and revoking all prior proxies, hereby appoints Nassib G. Chamoun
and J. Neal Armstrong, as proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and vote, as designated on the reverse side, all shares of Common
Stock of Aspect Medical Systems, Inc. (the Company) held of record by the undersigned on
April 13, 2009 at the Annual Meeting of Stockholders to be held on Friday, June 5, 2009 at
9:00 a.m., Eastern time, at the Companys corporate headquarters located at One Upland Road,
Norwood, Massachusetts 02062, and any adjourned or postponed session thereof. The undersigned
hereby directs Nassib G. Chamoun and J. Neal Armstrong to vote in accordance with their best
judgment on any matters which may properly come before the Annual Meeting, all as indicated in the
Notice of Annual Meeting, receipt of which is hereby acknowledged, and to act on the matters set
forth in such Notice as specified by the undersigned. Stockholders of record at the close of
business on April 13, 2009 are entitled to vote at the Annual Meeting of Stockholders or any
adjournment thereof. Your vote is important regardless of the number of shares you own. Sending in
your proxy will not prevent you from voting your stock at the Annual Meeting of Stockholders if you
desire to do so, as your proxy is revocable at your options. THIS PROXY, WHEN PROPERLY EXECUTED,
WILL BE VOTED AS DIRECTED. IF NO DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS
PROXY WILL BE VOTED FOR SUCH PROPOSAL. ATTENDANCE OF THE UNDERSIGNED AT THE ANNUAL MEETING OR AT
ANY ADJOURNMENT THEREOF WILL NOT BE DEEMED TO REVOKE THE PROXY UNLESS THE UNDERSIGNED REVOKES THIS
PROXY IN WRITING. Important Notice Regarding the Availability of Proxy Materials for the
Shareholder Meeting to be Held on June 5, 2009. The proxy statement and annual report to security
holders are available at www.aspectms.com. PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD
PROMPTLY, USING THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. SEE
REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
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