UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.___)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
THE ARISTOTLE CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
4. Proposed maximum aggregate value transaction:
5. Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration number, or
the Form or Schedule and the date of its filing.
1. Amount previously paid:
2. Form, Schedule or Registration Statement No.:
3. Filing Party:
4. Date Filed:
THE ARISTOTLE CORPORATION
-------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 18, 2004
-------------------
To the Stockholders of
THE ARISTOTLE CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of THE
ARISTOTLE CORPORATION (the 'Company') will be held on Friday, June 18, 2004 at
2:00 P.M., EDT, at the Hyatt Regency Greenwich, 1800 E. Putnam Avenue, Old
Greenwich, Connecticut for the following purposes:
1. To elect eight directors of the Company;
2. To vote upon a proposal to ratify the selection of independent
auditors; and
3. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only stockholders of record at the close of business on April 30, 2004 are
entitled to notice of, and to vote at, the Annual Meeting of Stockholders. A
list of these stockholders will be available at the Company's headquarters, 96
Cummings Point Road, Stamford, Connecticut, before the Annual Meeting.
Your attention is directed to the Proxy Statement submitted with this
notice. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, PLEASE DATE AND
SIGN THE ENCLOSED FORM(S) OF PROXY AND RETURN THEM PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU OWN BOTH SHARES OF COMMON STOCK AND SERIES I PREFERRED STOCK,
PLEASE COMPLETE AND RETURN EACH OF THE FORMS OF PROXY. THE WHITE FORM SHOULD BE
SIGNED WITH RESPECT TO YOUR SHARES OF COMMON STOCK AND THE FORM WITH THE BLACK
STRIPE SHOULD BE SIGNED WITH RESPECT TO YOUR SHARES OF SERIES I PREFERRED STOCK.
IF YOU DO NOT OWN SHARES OF BOTH CLASSES OF STOCK, ONLY ONE FORM OF PROXY IS
ENCLOSED, AND YOU SHOULD SIGN, DATE AND RETURN SUCH PROXY. IN THE EVENT A
STOCKHOLDER DECIDES TO ATTEND THE MEETING, SUCH STOCKHOLDER MAY REVOKE SUCH
PROXY AND VOTE SUCH SHARES IN PERSON. No postage need be affixed to the enclosed
envelope if mailed in the United States.
By Order of the Board of Directors
H. WILLIAM SMITH
H. William Smith
Secretary
April 29, 2004
THE ARISTOTLE CORPORATION
96 CUMMINGS POINT ROAD
STAMFORD, CT 06902
(203) 358-8000
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of The Aristotle Corporation (the 'Company') of proxies to be
used at the 2004 Annual Meeting of Stockholders to be held at the Hyatt Regency
Greenwich, 1800 E. Putnam Avenue, Old Greenwich, Connecticut on June 18, 2004 at
2:00 P.M., EDT. In addition to solicitation of proxies by mail, the directors,
officers and employees of the Company may solicit proxies personally, by
telephone, facsimile, or telegram. The expense of all such solicitation,
including the cost of preparing, printing and mailing this Proxy Statement, will
be borne by the Company. The Company will, upon request, reimburse brokers,
banks, or other persons for their reasonable out-of-pocket expenses in
forwarding proxy material to beneficial owners of the Company's shares. This
Proxy Statement and the accompanying proxy and the Company's Annual Report to
Stockholders, which contains financial statements for the year ended
December 31, 2003, will first be mailed to stockholders of the Company on or
about May 17, 2004.
If the enclosed form(s) of proxy are signed and returned, they will be voted
as directed by the stockholder. If no directions are given, proxies will be
voted (i) FOR the election as directors of all of the nominees specified therein
and (ii) FOR the ratification of the selection of KPMG LLP ('KPMG') as
independent auditors for the 2004 fiscal year. A proxy may be revoked at any
time, insofar as the authority granted thereby has not been exercised at the
meeting, by filing with the Secretary of the Company a written revocation or a
duly executed proxy bearing a later date. Any stockholder present at the meeting
may vote personally on all matters brought before the meeting and, in that
event, such stockholder's proxy will not be used at the meeting by holders of
the proxy.
Only stockholders of record as of the close of business on April 30, 2004
will be entitled to vote at the meeting. On March 31, 2004, the Company had
outstanding and entitled to one vote per share, 17,111,354 shares of Common
Stock, par value $.01 per share ('Common Stock'). The Company also had
outstanding as of March 31, 2004, 1,096,622 shares of Series I Preferred Stock,
par value $.01 per share ('Series I Preferred Stock'), currently entitled to
one-half (.5) of a vote per share. Shares representing a majority of votes
entitled to be cast will constitute a quorum at the meeting. Abstentions and
broker non-votes are counted for purposes of determining the presence or absence
of a quorum for the transaction of business. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
If no contrary instruction is indicated, shares represented by properly
executed proxies in the accompanying form(s) of proxy will be voted by the
persons designated in the printed portion thereof (i) FOR the election of the
nominees named below to serve as directors for a one-year term and (ii) FOR the
ratification of the selection of KPMG as independent auditors for the 2004
fiscal year. Each director must be elected by the affirmative vote of a
plurality of the votes cast at the meeting by the holders of shares of Common
Stock and Series I Preferred Stock, voting together as a single class,
represented in person or by proxy. Ratification of the selection of KPMG as
independent auditors requires the affirmative vote of a majority of the votes
cast by the holders of shares of Common Stock and Series I Preferred Stock,
voting together as a single class, represented in person or by proxy.
Management does not know of any other matters to be brought before the
meeting at this time; however, if any other matters are brought before the
meeting, the proxy holder shall vote in his discretion with respect to the
matter. In the event a stockholder specifies a different choice on the proxy,
such stockholder's shares will be voted or withheld in accordance with the
specifications so made. Should any nominee for director named herein become
unable or unwilling to accept nomination or election, it is intended that the
persons acting under proxy will vote for the election of such other person as
the Board of Directors of the Company may recommend unless the number of
directors is reduced by the Board of Directors. Each person named as a nominee
has consented to his or her nomination and the Company has no reason to believe
that any nominee will be unable or unwilling to serve if elected.
STOCK OWNED BY MANAGEMENT AND PRINCIPAL
STOCKHOLDERS OF THE COMPANY
The following table sets forth information as of March 31, 2004 regarding
beneficial ownership of the Company's Common Stock and Series I Preferred Stock
by:
each person who owns more than 5% of the outstanding voting shares of any
class of the Company's securities;
each individual who is a director of the Company;
the President and Chief Operating Officer of the Company (the Company's
principal executive officer), and the four other most highly compensated
executive officers of the Company (the 'Named Officers'); and
all Named Officers and directors of the Company as a group.
Unless otherwise indicated, all persons listed below have sole voting and
investment power with respect to their shares.
2
NUMBER OF SHARES
5% STOCKHOLDERS, DIRECTORS OF VOTING STOCK VOTING
AND EXECUTIVE OFFICERS BENEFICIALLY OWNED POWER(1)
---------------------- ------------------ --------
5% Stockholders:
Geneve Corporation(2)................................... 15,984,971 90.5%
John J. Crawford........................................ 204,815(3) *
Directors (excluding Mr. Crawford):
John Lahey.............................................. 10,296(4) *
Steven B. Lapin......................................... 242,663(5) 1.3%
Donald T. Netter........................................ 36,850(6) *
Edward Netter........................................... 15,984,971(7) 90.5%
Sharon M. Oster......................................... 115,346(8) *
James G. Tatum.......................................... 12,500(9) *
Roy T.K. Thung.......................................... 0(10) *
Named Officers (excluding Mr. Lapin):
Dean T. Johnson......................................... 27,883(11) *
W. Phillip Niemeyer..................................... 60,333(12) *
Brian R. Schlier........................................ 6,250(13) *
H. William Smith........................................ 31,167(14) *
All Named Officers and Directors as a Group (12 persons).... 16,733,074 94.2%
---------
* Less than 1%
(1) This column represents voting power rather than percentage of equity
interest as each share of Common Stock is entitled to one vote while each
share of Series I Preferred Stock is currently entitled to one-half (.5) of
a vote per share.
(2) Geneve Corporation ('Geneve') is a private diversified holding company
located at 96 Cummings Point Road, Stamford, Connecticut. Geneve is an
affiliate and the majority stockholder of the Company. Director Steven B.
Lapin is the President and Chief Operating Officer of Geneve, director
Edward Netter is the Chairman and Chief Executive Officer of Geneve,
director Donald T. Netter is a Senior Vice President of Geneve, director
Roy T.K. Thung is the Executive Vice President of Geneve, Brian R. Schlier
is the Vice President -- Taxation of Geneve and H. William Smith is the
Vice President -- Legal and Secretary of Geneve.
(3) Consists of 106,145 shares of Common Stock, 72,003 shares of Series I
Preferred Stock, and 26,667 shares of Common Stock subject to options
granted to Mr. Crawford which are exercisable within 60 days after March
31, 2004. Mr. Crawford's address is 27 Elm Street, New Haven, Connecticut.
Mr. Crawford is the beneficial owner of .8% of the outstanding shares of
Common Stock and 6.6% of the outstanding shares of Series I Preferred
Stock. Mr. Crawford is a director of the Company.
(4) Consists of 4,898 shares of Common Stock, 4,898 shares of Series I
Preferred Stock, and 500 shares of Common Stock subject to options granted
to Mr. Lahey which are exercisable within 60 days after March 31, 2004.
(5) Consists of 10,665 shares of Common Stock, 23,665 shares of Series I
Preferred Stock, and 208,333 shares of Common Stock subject to options
granted to Mr. Lapin which are exercisable within 60 days after March 31,
2004. Does not include any shares beneficially owned by Geneve.
(footnotes continued on next page)
3
(footnotes continued from previous page)
(6) Consists of 36,850 shares of Series I Preferred Stock. Does not include any
shares beneficially owned by Geneve.
(7) Consists of 15,984,971 shares of Common Stock beneficially owned by Geneve.
Mr. Netter disclaims beneficial ownership of these shares.
(8) Consists of 18,273 shares of Common Stock and 18,273 shares of Series I
Preferred Stock held by Ms. Oster directly, 39,100 shares of Common Stock
and 35,700 shares of Series I Preferred Stock held by her husband, and
4,000 shares of Common Stock subject to options granted to Ms. Oster which
are exercisable within 60 days after March 31, 2004. Ms. Oster disclaims
beneficial ownership of the shares held by her husband.
(9) Consists of 7,000 shares of Common Stock, 3,000 shares of Series I
Preferred Stock, and 2,500 shares of Common Stock subject to options
granted to Mr. Tatum which are exercisable within 60 days after March 31,
2004.
(10) Does not include any shares beneficially owned by Geneve.
(11) Consists of 800 shares of Series I Preferred Stock, and 27,083 shares of
Common Stock subject to options granted to Mr. Johnson which are
exercisable within 60 days after March 31, 2004.
(12) Consists of 2,000 shares of Series I Preferred Stock, and 58,333 shares of
Common Stock subject to options granted to Mr. Niemeyer which are
exercisable within 60 days after March 31, 2004.
(13) Consists of 6,250 shares of Common Stock subject to options granted to Mr.
Schlier which are exercisable within 60 days after March 31, 2004. Does not
include any shares beneficially owned by Geneve.
(14) Consists of 2,000 shares of Common Stock, and 29,167 shares of Common Stock
subject to options granted to Mr. Smith which are exercisable within 60
days after March 31, 2004. Does not include any shares beneficially owned
by Geneve.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the 'Exchange Act')
requires the Company's executive officers and directors, and persons who
beneficially own more than ten percent (10%) of any class of equity securities
of the Company registered pursuant to Section 12 of the Exchange Act, to file
with the Securities and Exchange Commission ('SEC') and any national securities
exchange on which these securities are registered, initial reports of beneficial
ownership and reports of changes in beneficial ownership of equity securities of
the Company. Executive officers, directors and greater than ten percent (10%)
beneficial owners are required by SEC regulations to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely upon a review of the copies of such reports furnished to the Company, all
Section 16(a) filing requirements applicable to its executive officers,
directors and greater than ten percent (10%) beneficial owners were complied
with for the fiscal year ended December 31, 2003.
4
PROPOSAL 1
NOMINEES FOR ELECTION AS DIRECTORS
Eight directors will be elected at the meeting, each to hold office until
the next annual meeting of stockholders and until such director's successor
shall be elected and shall qualify.
It is intended that shares represented by proxies will be voted for the
election of the nominees named below. If at the time of the meeting any of the
nominees should be unwilling or unable to serve, the discretionary authority
provided in the proxy will be exercised to vote for a substitute or substitutes,
as the Board of Directors recommends. Each person named below has consented to
their nomination and has advised the Company that they intend to serve the
entire term if elected.
The persons named below have been nominated for election as directors. All
of such nominees presently serve as directors of the Company.
DIRECTOR
OF THE
COMPANY
NAME AGE SINCE POSITIONS HELD WITH THE COMPANY
---- --- ----- -------------------------------
John J. Crawford.............. 59 1989 Director(1)
John Lahey.................... 57 1999 Director(1)
Steven B. Lapin............... 58 1998 Director, President and Chief Operating Officer
Donald T. Netter.............. 42 2002 Director
Edward Netter................. 71 1998 Director
Sharon M. Oster............... 55 1992 Director(1)
James G. Tatum................ 62 2002 Director
Roy T.K. Thung................ 60 2002 Director
---------
(1) Pursuant to a Stockholders Agreement dated June 17, 2002 among the Company,
Geneve and Nasco Holdings, Inc. ('Holdings'), each of Geneve and Holdings
agreed, for a period of three years ending on June 17, 2005, to take such
action as may be required to cause Ms. Oster and Messrs. Crawford and Lahey
to be nominated and elected to the Company's Board of Directors.
-------------------
JOHN J. CRAWFORD has been the President of Strategem LLC, a human resources
consulting company, since January 2003. Mr. Crawford was President of the
Company from April 1990 until June 2002. Mr. Crawford became Chief Executive
Officer of the Company in April 1990 and retired as an officer of the Company in
December 2002. Mr. Crawford served as Chairman of the Board of the Company from
April 1993 through December 2002. From July 1994 through December 2000, Mr.
Crawford served the Company in a part-time capacity. From January 2001 until his
retirement in December 2002, Mr. Crawford served the Company in a full-time
capacity. Mr. Crawford was the Chief Executive Officer of the Regional Water
Authority, a utility located in New Haven, Connecticut, until December 2000. Mr.
Crawford is also a member of the Board of Directors of Webster Financial
Corporation, a financial holding company.
JOHN LAHEY has been the President of Quinnipiac University, a private
university located in Hamden, Connecticut, for the past 15 years. Mr. Lahey
serves on the Board of Trustees of Yale-New Haven Hospital and on the Board of
Directors of UIL Holdings Corporation and The United Illuminating Company,
publicly-held utility companies. Mr. Lahey also serves as a director of the New
5
York City St. Patrick's Day Parade, Inc. and the American Bar Association's
Council of the Section of Legal Education and Admissions to the Bar.
STEVEN B. LAPIN has served as President and Chief Operating Officer of the
Company since June 2002. Mr. Lapin has also been the President, Chief Operating
Officer and a director of Geneve for more than the past five years. Mr. Lapin is
Vice Chairman and a director of Independence Holding Company ('IHC'), a
publicly-held holding company engaged principally in the life and health
insurance business.
DONALD T. NETTER, for more than the past five years, has served as Chairman
and Chief Executive Officer of the managing member of the general partner of the
Dolphin Limited Partnerships, investment limited partnerships. Mr. Netter has
served as a Senior Vice President of Geneve for more than the past five years.
Donald T. Netter is the son of Edward Netter.
EDWARD NETTER has been Chairman, Chief Executive Officer and a director of
Geneve for more than the past five years. Mr. Netter is Chairman and a director
of IHC, and a director of American Independence Corp. ('AMIC'), a holding
company which, through its subsidiaries, is in the insurance and reinsurance
business. Edward Netter is the father of Donald T. Netter.
SHARON M. OSTER has been a Professor of Economics at the School of
Organization and Management, Yale University since 1982. Ms. Oster is a director
of two other publicly-held companies, Health Care REIT, a real estate investment
company, and TransPro, Inc., a manufacturer of automotive/industrial-related
products.
JAMES G. TATUM, C.F.A. has served as a registered investment advisor for
more than the past five years in Birmingham, Alabama, managing funds for
individual, corporate and trust clients. Mr. Tatum has been a Chartered
Financial Analyst for more than twenty-five years. Mr. Tatum is a director of
IHC.
ROY T.K. THUNG has served as Chief Executive Officer and President of IHC
since January 2000. From July 1999 through January 2000, he served as President
of IHC. For more than five years prior to July 1999, Mr. Thung served as
Executive Vice President and Chief Financial Officer of IHC. He has served as
the Executive Vice President of Geneve for more than the past five years. Mr.
Thung has served as a director of AMIC since July 2002 and as the Chief
Executive Officer and President of AMIC since November 2002.
BOARD OF DIRECTORS AND COMMITTEES AND SELECTION PROCESS
The Company's Board of Directors held eight meetings in 2003 and also took
action by unanimous written consent on one occasion during the year. Each
director attended at least 75% of the aggregate of: (i) the total number of
meetings of the Board of Directors held during the period in which such person
was a director, and (ii) the total number of meetings held by all committees of
the Board of Directors on which such person served.
Directors are elected annually and serve until their successors are duly
elected and qualified. Officers serve at the discretion of the Board of
Directors.
The Company qualifies as a 'controlled company' as defined in Rule
4350(c)(5) of the NASDAQ Marketplace Rules because more than 50% of the
Company's voting power is held by Geneve. Please see 'Stock Owned by Management
and Principal Stockholders of the Company' above. Therefore, the Company is not
subject to the requirements of Rule 4350(c) that would otherwise require the
Company to have (i) a majority of independent directors on the Board of
Directors; (ii) compensation of the Company's executive officers determined by a
majority of the independent directors or a compensation committee composed
solely of independent directors; (iii) director nominees selected, or
recommended for the Board of Director's selection, either by a majority of the
independent directors or a nominating
6
committee composed solely of independent directors; and (iv) adopted a formal
written charter or board resolution addressing the nominations process and
related matters.
In light of Geneve's voting power, the Board of Directors has determined
that the Board of Directors, rather than a nominating committee, is the most
appropriate body for identifying director candidates and selecting nominees to
be presented at the annual meeting of stockholders. The Board of Directors seeks
candidates who will bring outstanding business experience that will benefit all
of the stockholders of the Company. In connection with the merger of the Company
and Nasco International, Inc. ('Nasco') on June 17, 2002 (the 'Merger'), Geneve
and Holdings agreed, for a period of three years ending on June 17, 2005, to
take such action as may be required to cause Ms. Oster and Messrs. Crawford and
Lahey to be nominated and elected to the Company's Board of Directors.
The Board of Directors has further determined that a policy with respect to
consideration of candidates recommended by security holders would not be
appropriate.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has an Executive Committee, an Audit Committee and a
Compensation Committee. The Executive Committee and the Audit Committee were
established in June 2002, immediately following the Merger. The Compensation
Committee was established in January 2004. The Audit Committee is comprised
exclusively of independent directors. The Compensation Committee is comprised of
two independent directors and one non-employee director. The Company does not
have a standing nominating committee or a nominating committee charter.
EXECUTIVE COMMITTEE. The Executive Committee, which has all powers and
authority of the Board of Directors with respect to the management of the
business and affairs of the Company, currently consists of Messrs. Crawford,
Lapin and Edward Netter. The Executive Committee did not hold any meetings or
take any action by written consent in 2003.
COMPENSATION COMMITTEE. The principal functions of the Compensation
Committee are to (i) develop corporate goals and objectives relevant to the
compensation of the Company's President and Chief Operating Officer, evaluate
the President and Chief Operating Officer's performance in light of such goals
and objectives, and exercise sole authority to determine the President and Chief
Operating Officer's compensation based upon such evaluation; (ii) make
recommendations to the Board of Directors with respect to the compensation of
the Company's other executive officers; and (iii) administer the Company's 2002
Employee, Director and Consultant Stock Plan (the '2002 Stock Plan').
Ms. Oster and Messrs. Crawford and Tatum are the current members of the
Compensation Committee. The Compensation Committee was established in January
2004. A copy of the Compensation Committee Charter adopted by the Board of
Directors in March 2004 is attached to this Proxy Statement as Appendix A. The
entire Board of Directors made decisions regarding the compensation of the
Company's executive officers for 2003 and the administration of the 2002 Stock
Plan.
AUDIT COMMITTEE. The Audit Committee operates under an amended and restated
Audit Committee Charter adopted by the Board of Directors in March 2004, which
is attached to this Proxy Statement as Appendix B. The principal functions of
the Audit Committee are to: (i) select and engage the Company's independent
auditors; (ii) review and approve management's plan for engaging the Company's
independent auditors during the year to perform non-audit services and consider
what effect these services will have on the independence of the Company's
independent auditors; (iii) review the
7
Company's annual financial statements and other financial reports which require
approval by the Board of Directors; (iv) oversee the integrity of the Company's
financial statements, the Company's systems of disclosure controls and internal
controls and the Company's compliance with legal and regulatory requirements;
(v) review the scope of the Company's independent auditors' audit plans and the
results of their audit; and (vi) evaluate the performance of the Company's
internal audit function and independent auditors.
The Audit Committee met two times during 2003. The current members of the
Audit Committee are Ms. Oster and Messrs. Lahey and Tatum. Each of these
individuals meets the independence requirements of NASDAQ and applicable SEC
rules and regulations. The Audit Committee and the Board of Directors have
determined that each member of the Company's Audit Committee is financially
literate and that Mr. Tatum qualifies as an 'audit committee financial expert'
as defined by applicable SEC rules.
COMPENSATION OF DIRECTORS
Each of the three independent members of the Board of Directors, Ms. Oster
and Messrs. Lahey and Tatum, as well as Mr. Crawford, the Company's former Chief
Executive Officer, receives an annual retainer of $10,000. The Chairperson of
the Audit Committee, Ms. Oster, receives an additional annual retainer of
$5,000. In addition to the retainer, the members of the committees of the Board
of Directors receive $500 for each meeting attended.
Non-employee directors are eligible to receive grants of stock options under
the 2002 Stock Plan. The 2002 Stock Plan provides for the automatic grant of
non-qualified options to non-employee directors. Each non-employee director,
upon first being elected to the Board of Directors, receives an option to
purchase 2,500 shares of Common Stock, which will vest one year after the date
of the grant of the option, assuming uninterrupted service on the Board of
Directors. Additionally, the 2002 Stock Plan provides for a grant to each
non-employee director on the date of his or her reelection (provided that the
director has served as a director since his or her initial election) of an
option to purchase 500 shares of Common Stock, which will vest one year after
the date of the grant of the option, assuming uninterrupted service on the Board
of Directors.
Each of Messrs. Donald T. Netter, Edward Netter and Thung, due to their
positions with Geneve, have elected to waive their right to compensation as
directors of the Company.
OTHER INFORMATION ABOUT THE BOARD OF DIRECTORS
The Company provides an informal process for stockholders to send
communications to the Board of Directors. Stockholders who wish to contact the
Board of Directors or any of its members may do so by writing to The Aristotle
Corporation, Attn: Board of Directors, 96 Cummings Point Road, Stamford,
Connecticut 06902. At the direction of the Board of Directors, all mail received
will be opened and screened for security purposes. Correspondence directed to an
individual member of the Board of Directors is referred to that member.
Correspondence not directed to a particular member of the Board of Directors is
referred to the Company's General Counsel, Mr. Smith.
All of the members of the Board of Directors are encouraged to attend the
Company's annual meeting of stockholders. All of the Company's directors were in
attendance at the Company's 2003 Annual Meeting except for Ms. Oster and Mr.
Lahey.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE 'FOR' EACH OF
THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS.
8
EXECUTIVE OFFICERS
The following table sets forth the names of the Company's executive
officers, who are not directors, their ages at March 31, 2004 and their
positions currently held with the Company. The executive officers serve at the
discretion of the Board of Directors.
POSITIONS HELD
NAME AGE WITH THE COMPANY
---- --- ----------------
W. Phillip Niemeyer....................... 58 Vice President-Production Coordination and
President-Nasco Division
Dean T. Johnson........................... 48 Vice President and Chief Financial
Officer, and Chief Financial Officer-Nasco
Division
Brian R. Schlier.......................... 49 Vice President-Taxation
H. William Smith.......................... 41 Vice President, General Counsel and
Secretary
W. PHILLIP NIEMEYER has been the President-Nasco Division of the Company
since September 2002. Mr. Niemeyer has been the Vice President-Production
Coordination of the Company since the Merger. Mr. Niemeyer has held various
positions with Nasco for over 30 years.
DEAN T. JOHNSON has been a Vice President of the Company since June 2003 and
the Chief Financial Officer of the Company since October 2002. Mr. Johnson has
been Chief Financial Officer-Nasco division for more than the past five years.
BRIAN R. SCHLIER has been the Vice President-Taxation of the Company since
January 2003. Mr. Schlier has been the Vice President-Taxation of each of IHC
and Geneve for more than the past five years.
H. WILLIAM SMITH has been the Vice President, General Counsel and Secretary
of the Company since July 2002. Mr. Smith has been the Vice President-Legal and
Secretary of Geneve since July 2002. For more than five years prior to joining
the Company, Mr. Smith practiced law with the private law firms Paul, Hastings,
Janofsky & Walker LLP and Pillsbury Winthrop LLP.
9
EXECUTIVE COMPENSATION
The following table sets forth information for the periods indicated
regarding cash and other compensation paid or awarded to the Company's President
and Chief Operating Officer and the Named Officers whose salary and bonus
exceeded $100,000 during the last three fiscal years ended December 31, 2003,
2002 and 2001:
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ----------------------
SECURITIES
UNDERLYING LTIP ALL OTHER
SALARY BONUS OPTIONS/ PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) SARS(#) ($) ($)
------------------------------ ---- --- --- ------- --- ---
Steven B. Lapin(2)...................... 2003 235,000 50,000 150,000 -- --
President and Chief Operating Officer 2002 109,158 -- 250,000 -- --
W. Phillip Niemeyer(3).................. 2003 193,000 45,000 -- -- 955(6)
Vice President -- Production 2002 171,781 45,000 100,000 -- 960(6)
Coordination and President --
Nasco Division
Dean T. Johnson(4)...................... 2003 135,000 25,000 -- -- 887(7)
Vice President and 2002 107,500 25,000 50,000 -- 800(7)
Chief Financial Officer, and
Chief Financial Officer -- Nasco
Division
H. William Smith(5)..................... 2003 130,000 25,000 -- -- --
Vice President, General Counsel 2002 56,250 16,875 50,000
and Secretary
---------
(1) Each of the President and Chief Operating Officer and the Named Officers
listed became officers of the Company in 2002 following the Merger. Neither
the President and Chief Operating Officer nor any of the Named Officers was
employed by the Company in 2001.
(2) Following the retirement of Mr. Crawford on December 31, 2002, the Company
did not appoint a new chief executive officer. Since January 1, 2003,
Mr. Lapin has served as the Company's principal executive officer.
Mr. Lapin was appointed President and Chief Operating Officer of the Company
in June 2002. Amounts include payments and option grants made by the Company
for the entire 2002 year.
(3) Mr. Niemeyer was appointed Vice President -- Production Coordination of the
Company in June 2002 and President -- Nasco Division in September 2002.
Amounts include payments made by the Company and Nasco, and option grants
made by the Company, for the entire 2002 year.
(4) Mr. Johnson has been a Vice President since June 2003 and was appointed
Chief Financial Officer of the Company in October 2002. Amounts include
payments made by the Company and Nasco, and option grants made by the
Company, for the entire 2002 year.
(5) Mr. Smith was appointed Vice President, General Counsel and Secretary of the
Company in July 2002.
(footnotes continued on next page)
10
(footnotes continued from previous page)
(6) Other compensation for Mr. Niemeyer is comprised of the following: in 2003,
$955 paid for term life, AD&D and disability insurance; and in 2002, $960
for term life, AD&D and disability insurance.
(7) Other compensation for Mr. Johnson is comprised of the following: in 2003,
$887 paid for term life, AD&D and disability insurance; and in 2002, $800
for term life, AD&D and disability insurance.
-------------------
The Company has not entered into employment agreements with any of the
Company's executive officers.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding stock options granted
to the Company's President and Chief Operating Officer and the Named Officers
during the fiscal year ended December 31, 2003:
GRANT DATE
INDIVIDUAL GRANTS VALUE
-------------------------------------------------------------- -----------
(a) (b) (c) (d) (e) (f)
NUMBER OF PERCENTAGE OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE VALUE($)(1)
---- ---------- -------------- ------ ---- -----------
Steven B. Lapin................ 150,000 84.7 4.10 January 17, 2008 336,120
Brian R. Schlier............... 15,000 8.5 4.10 January 17, 2008 33,612
All Optionees as a Group....... 177,000 100.0 4.09 Various 395,780
---------
(1) Present value determinations were made using the Black-Scholes model of
theoretical options pricing, and were based on the following assumptions:
(i) weighted average volatility factor of 60.0%; (ii) risk-free weighted
average rate of return of 4.0%; (iii) expected dividend yield of 0.0%; and
(iv) a five-year expected life of the option. The weighted average fair
value of options granted during 2003 was $2.24. The actual value the
President and Chief Operating Officer or the Named Officer, as applicable,
receives is dependent on future stock market conditions, and there can be no
assurance that the amounts reflected in column (f) of the Option/SAR Grants
Table will actually be realized. No gain would be realized by the President
and Chief Operating Officer or the Named Officer, as applicable, without
appreciation in the market value of the Common Stock, which would benefit
all stockholders commensurately.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth information regarding the aggregate number of
shares underlying options exercised in 2003 and the value at December 31, 2003
of options, whether or not exercisable, held by the Company's President and
Chief Operating Officer and the Named Officers:
11
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES VALUE DECEMBER 31, 2003(#) DECEMBER 31, 2003($)(2)
ACQUIRED ON REALIZED ------------------------------ -----------------------------
EXERCISE(#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------ ----------- ------------- ----------- -------------
Steven B. Lapin....... -- -- 162,500 237,500 322,500 405,000
W. Phillip Niemeyer... -- -- 50,000 50,000 112,500 112,500
Dean T. Johnson....... -- -- 20,833 29,167 43,541 58,959
Brian R. Schlier...... -- -- 3,750 11,250 4,125 12,375
H. William Smith...... -- -- 20,833 29,167 39,791 55,709
---------
(1) 'Value Realized' is the difference between the exercise price and the market
price on the exercise date, multiplied by the number of options or SARs
exercised, as the case may be. 'Value Realized' numbers do not necessarily
reflect what the holder might receive if such holder sells the shares
acquired upon the option exercise, since the market price of the shares at
the time of sale may be higher or lower than the price on the exercise date
of the option.
(2) The value of both exercisable and unexercisable 'in-the-money' options at
December 31, 2003 is the difference between (a) the closing price of the
Common Stock on December 31, 2003, as reported by NASDAQ ($5.20) and
(b) the per share option exercise price, multiplied by the number of shares
of Common Stock underlying the options.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes the Company's Equity Compensation Plans as of
December 31, 2003:
(a) (b) (c)
NUMBER OF NUMBER OF SECURITIES
SECURITIES TO WEIGHTED REMAINING AVAILABLE
BE ISSUED UPON AVERAGE EXERCISE FOR FUTURE ISSUANCE
EXERCISE OF PRICE OF UNDER EQUITY
OUTSTANDING OUTSTANDING COMPENSATION PLANS
OPTIONS, OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND WARRANTS AND REFLECTED IN COLUMN
PLAN CATEGORY RIGHTS(#) RIGHT($) (a))(#)
------------- --------- -------- -------
Equity Compensation Plans Approved by
Security Holders
1997 Stock Plan.......................... 68,000(1) 5.58 --
2002 Stock Plan.......................... 855,167(2) 2.99 606,066
Equity Compensation Plans Not Approved by
Security Holders........................... -- -- --
------- ----- -------
923,167 3.31 606,066
------- ----- -------
------- ----- -------
---------
(1) Includes 34,000 shares of the Company's Common Stock and 34,000 shares of
the Company's Series I Preferred Stock to be issued upon the exercise of
outstanding options granted pursuant to
(footnotes continued on next page)
12
(footnotes continued from previous page)
the Company's 1997 Employee and Director Stock Plan (the '1997 Stock Plan').
The Company does not currently intend to grant any additional options under
the 1997 Stock Plan.
(2) Each option granted under the 2002 Stock Plan is exercisable for one share
of the Company's Common Stock.
DEFINED BENEFIT PENSION PLAN
The Company has a noncontributory defined benefit pension plan (the 'Pension
Plan') covering substantially all salaried employees, including certain Named
Officers. The Pension Plan's benefits are computed based on years of service and
average compensation. Average compensation is computed by averaging the
employee's highest five consecutive annual salaries, up to a maximum of
$180,000, in the ten years immediately before retirement. Compensation under the
Pension Plan is defined as base salary including overtime, bonuses and
commissions. As of December 31, 2003, the credited years of service for Messrs.
Niemeyer and Johnson were 32 years and 10 years, respectively. The remaining
Named Officers are not eligible to participate in the Pension Plan. The Pension
Plan benefits for single and married participants are computed as a 10-year
certain and life annuity and joint-and-survivor annuity, respectively. Benefits
payable under the Pension Plan are not reduced for Social Security or other
offsets.
The following table sets forth information regarding annual retirement
benefits based on years of service that would be payable at normal retirement
(age 65) on December 31, 2003:
YEARS OF SERVICE
--------------------------------------------------------------
FINAL AVERAGE PAY($) 10 15 20 25 30 35 40
-------------------- -- -- -- -- -- -- --
100,000........................... 16,000 24,000 32,000 40,000 48,000 56,000 62,000
120,000........................... 19,000 29,000 39,000 49,000 58,000 68,000 74,000
140,000........................... 23,000 34,000 46,000 57,000 68,000 80,000 87,000
160,000........................... 26,000 39,000 52,000 65,000 78,000 91,000 100,000
180,000........................... 29,000 44,000 59,000 73,000 88,000 103,000 112,000
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
GENERAL
The purpose of the Company's compensation policy is to offer compensation
packages to attract, retain and motivate the Company's executive officers over
the long term. The primary components of the Company's executive compensation
program are base salary and bonuses, and long-term incentive compensation in the
form of stock options and other awards offered under the 2002 Stock Plan. In
2003, the Board of Directors made decisions regarding compensation of the
Company's executive officers. The Board of Directors did not retain a
compensation consultant.
BASE SALARIES AND BONUSES
Annual base salaries paid to the Company's executive officers have
historically been at levels comparable to those generally paid to executive
officers with comparable experience and responsibilities in industries similar
to that of the Company or other similarly-sized companies. The Board of
Directors reviews and approves all adjustments to annual base salaries paid to
the Company's executive officers.
13
Compensation adjustments are generally based on recommendations from Mr. Lapin,
the Company's President and Chief Operating Officer. Compensation adjustments
for Mr. Lapin, the Company's principal executive officer, are based on
recommendations from Mr. Edward Netter. Factors considered by Messrs. Lapin and
Edward Netter in making their respective recommendations to the Board of
Directors include the perception of each individual's performance, the
individual's success in achieving Company and personal goals, and planned
changes in responsibilities. Messrs. Lapin and Edward Netter, respectively, also
considers an individual's extraordinary efforts resulting in tangible increases
in corporate, division or department success in recommending increases in base
salary and annual bonuses.
INCENTIVE COMPENSATION
The Company's Board of Directors believes that executive officers who are
able to contribute to the Company's long-term success and help build incremental
stockholder value should have a stake in that future success and value. This
stake focuses the executive officers' attention on managing the Company as
owners with equity positions in the Company and aligns their interests with the
long-term interests of the Company's stockholders. Stock options therefore
represent an important and significant component of the Company's compensation
program for executive officers.
Standard awards under the 2002 Stock Plan are based on a review of the
individual employee's performance, years of service, position with the Company
and long-term potential contribution to the Company. The number of options to be
granted at any one time is based upon consideration of the foregoing factors,
the employee's level of responsibility and the number of options previously
granted to the employee. The Company does not assign specific weights to these
factors, although the employee's position and a subjective evaluation of the
employee's performance are considered most important. To encourage executive
officers to remain in the Company's employ, options granted under the 2002 Stock
Plan generally vest on a quarterly basis over a period of three years and have
exercise prices not less than the fair market value of the Company's Common
Stock on the date of the grant.
COMPENSATION OF PRESIDENT AND CHIEF OPERATING OFFICER
Compensation paid to Mr. Lapin has primarily been based on achievement of
individual performance criteria established by the Board of Directors; such
criteria for 2003 included refinancing the Company's primary credit facility,
identifying and acquiring attractive complimentary businesses and matters
relating to the Company's revenues and earnings.
Respectfully submitted,
The Aristotle Corporation Board of
Directors
John J. Crawford Edward Netter
John Lahey Sharon M. Oster
Steven B. Lapin James G. Tatum
Donald T. Netter Roy T.K. Thung
The report of the Board of Directors and the information contained therein
shall not be deemed to be 'solicited material' or 'filed' or incorporated by
reference in any filing the Company makes under the Securities Act of 1933 (the
'Securities Act') or under the Exchange Act, irrespective of any general
statement incorporating by reference this Proxy Statement into any such filing,
or subject to the
14
liabilities of Section 18 of the Exchange Act, except to the extent that the
Company specifically incorporates this information by reference into a document
the Company files under the Securities Act or the Exchange Act.
OTHER COMPENSATION MATTERS
The Board of Directors determined to make compensation decisions for the
fiscal year ended December 31, 2003 collectively, rather than delegating such
responsibility to a compensation committee. Commencing in 2004, compensation
decisions will be made by the Company's Compensation Committee.
Mr. Lapin, the Company's President and Chief Operating Officer and a member
of the Board of Directors, did not participate in discussions related to, or
vote on matters relating to, his compensation.
Mr. Crawford, the Company's former Chief Executive Officer and Chairman of
the Board, is a member of the Company's Board of Directors and participated in
deliberations concerning executive officer compensation.
REPORT OF THE AUDIT COMMITTEE
The role of the Audit Committee is to assist the Company's Board of
Directors in its oversight of the Company's financial reporting process, as is
more fully described in its charter, which the Board of Directors has adopted
and which is attached as Appendix B to this Proxy Statement. The Company's
management is responsible for its financial reporting process, including its
system of internal controls, and for the preparation and presentation of its
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America ('GAAP'). The Company's
independent auditors are responsible for auditing those financial statements and
expressing an opinion as to their conformity with GAAP. The Audit Committee's
responsibility is to monitor and review these processes. It is not the Audit
Committee's duty or responsibility to conduct auditing or accounting reviews or
procedures. The members of the Audit Committee are not and may not be employees
of the Company. Therefore, the Audit Committee has relied without independent
verification on representations by the Company's management that its financial
statements have been prepared with integrity and objectivity and in conformity
with GAAP. The Audit Committee has also relied on representations of the
Company's independent auditors included in their report on its financial
statements. The Audit Committee's oversight does not provide the Audit Committee
with an independent basis to determine that management has maintained
appropriate accounting and financial reporting principles or policies or
appropriate internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. Furthermore, the Audit
Committee's considerations and discussions with the Company's management and
independent auditors do not assure that the Company's financial statements are
presented in accordance with GAAP, that the audit of the Company's financial
statements has been carried out in accordance with generally accepted auditing
standards or that the Company's independent auditors are in fact 'independent.'
In the performance of its oversight function, the Audit Committee reviewed
and discussed with the Company's management its audited financial statements for
the fiscal year ending December 31, 2003. The Audit Committee also discussed
these financial statements with the Company's independent auditors. The Audit
Committee's discussions with the independent auditors included the matters
required to be discussed by Statement of Auditing Standards No. 61,
'Communication with Audit Committees,' as currently in effect. The Audit
Committee also discussed with them their independence
15
and any relationship that might affect their objectivity or independence. In
connection with these discussions, the Audit Committee received and reviewed the
written disclosures from KPMG required by Independence Standards Board Standard
No. 1, 'Independence Discussions with Audit Committees.' Finally, the Audit
Committee considered whether the non-audit services provided by the independent
auditors are compatible with maintaining their independence.
Based on the reviews and discussions referred to above, the Audit Committee
is not aware of any relationship between the independent auditors and the
Company that affects the objectivity or independence of the independent
auditors. Based on these discussions and the Audit Committee's review discussed
above, and subject to the limitations on the role and responsibilities of the
Audit Committee referred to above and in the Audit Committee Charter attached as
Appendix B, the Audit Committee recommended to the Company's Board of Directors
that its audited financial statements for fiscal 2003 be included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003 for
filing with the SEC.
Respectfully submitted,
The Aristotle Corporation Audit Committee
Sharon M. Oster (Chairperson)
John Lahey
James G. Tatum
The report of the Audit Committee and the information contained therein
shall not be deemed to be 'solicited material' or 'filed' or incorporated by
reference in any filing the Company makes under the Securities Act or under the
Exchange Act, irrespective of any general statement incorporating by reference
this Proxy Statement into any such filing, or subject to the liabilities of
Section 18 of the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference into a document the
Company files under the Securities Act or the Exchange Art.
PERFORMANCE GRAPH
The following graph shows the changes in value over the five years ending
December 31, 2003 of an assumed investment of $100 in: (i) the Common Stock;
(ii) the stocks that comprise The NASDAQ Stock Market (U.S.) Index; and (iii) a
peer group index constructed by the Company (the 'Peer Group'). The Peer Group
is comprised of: Nobel Learning Communities, Inc. (NLCI), Plato Learning, Inc.
(TUTR), Renaissance Learning, Inc. (RLRN), Scholastic Corporation (SCHL) and
School Specialty, Inc. (SCHS). The value for assumed investments depicted on the
graph has been calculated assuming that cash dividends are reinvested. The
Series I Preferred Stock dividend distributed on the date of the Merger is
treated as a cash dividend and as reinvested.
16
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE PEER GROUP
[PERFORMANCE GRAPH]
NASDAQ STOCK MARKET
YEAR COMPANY (U.S.) INDEX PEER GROUP
---- ------- ------------ ----------
1998 $100 $100 $100
1999 64 185 70
2000 102 112 125
2001 123 89 133
2002* 152 71 115
2002 219 61 90
2003 269 92 106
-------
* June 17, 2002 (date of Merger)
RELATED PARTY TRANSACTIONS
The Company and Geneve operate under cost-sharing arrangements pursuant to
which certain administrative items, such as certain executive officer
compensation and benefits, are allocated between the companies. During fiscal
2003, the Company accrued and paid to Geneve approximately $818,000 under such
arrangements, and accrued approximately an additional $210,900 for the first
quarter of fiscal 2004. Included in these amounts is consideration paid by the
Company to Geneve for the Company's use of office space at Geneve's corporate
headquarters. The Company believes that the consideration paid for its use of
office space represents a fair market rate. In addition, certain directors,
officers and/or employees of the Company or its subsidiaries, who are also
directors, officers and/or employees of Geneve, received compensation and
benefits from Geneve for services rendered thereto since January 1, 2003.
On May 31, 2003, the Company acquired 100% of the outstanding ownership
interests in NHI, LLC ('NHI') from Holdings. This transaction was consummated in
satisfaction of a contractual obligation entered into in connection with the
Merger. The sole purpose of NHI is the ownership and management of a 300,000
square foot warehouse facility and 40,000 square foot office facility, which had
been leased to the Company. Prior to the acquisition of NHI by the Company in
May 2003, the total rental expense paid by the Company for these facilities was
$160,000 in fiscal 2003. In connection with the purchase of NHI, the Company
paid to Holdings an amount equal to the book value of NHI, which includes a $3.6
million mortgage related to the properties held by NHI and a $.5 million note
payable to Geneve, bearing interest at 5.84% per annum.
17
The Company (including certain qualifying domestic subsidiaries) is included
in the Federal income tax return and certain State income tax returns of Geneve.
The provision for income taxes for the Company is determined on a separate
return basis in accordance with the terms of a tax sharing agreement with
Geneve, and payments for Federal and certain State income taxes are made to
Geneve. The Company made income tax payments to Geneve under such arrangement of
$506,000 in fiscal 2003.
CORPORATE GOVERNANCE
CODE OF ETHICS. The Company has adopted a Code of Ethics which applies to
the Company's President and Chief Operating Officer, Chief Financial Officer,
principal accounting officer or controller and other Company employees
performing similar functions (the 'Code of Ethics'). The Company's Code of
Ethics can be found on the Company's website at www.aristotlecorp.net. The Board
of Directors does not anticipate modifying the Code of Ethics or granting any
waivers thereto.
CODE OF CONDUCT. The Company has adopted a Corporate Code of Business
Conduct and Ethics which applies to all employees, officers and directors of the
Company and its subsidiaries and affiliates (the 'Code of Conduct'). The Code of
Conduct can be found on the Company's website at www.aristotlecorp.net. The
Board of Directors does not anticipate modifying the Code of Conduct or granting
any waivers thereto.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF AUDITORS
The Company customarily requests that its stockholders ratify the
appointment of the Company's independent auditors at each annual meeting.
The Audit Committee of the Board of Directors has selected KPMG as the
independent auditors of the Company for 2004, and the Company is requesting that
its stockholders ratify this selection at the annual meeting. It is anticipated
that representatives of KPMG, who also served as the Company's auditors for
2003, will be present at the annual meeting and will have an opportunity to make
a statement if they so desire and to answer any appropriate questions.
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On August 8, 2002, the Company dismissed Arthur Andersen LLP ('Arthur
Andersen') as its independent auditors. The report of Arthur Andersen on the
Company's financial statements for the fiscal year ended June 30, 2001 did not
contain an adverse opinion, disclaimer of opinion or qualification or
modification as to uncertainty, audit scope or accounting principles. During the
fiscal year ended June 30, 2001, and during the subsequent period through
August 8, 2002, there were no disagreements with Arthur Andersen on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedures. During the fiscal year ended June 30, 2001, and
during the subsequent period through August 8, 2002, there were no reportable
events (as defined in Item 304(a)(1)(v) of Regulation S-K).
The Company requested that Arthur Andersen review the foregoing and Arthur
Andersen declined to review such disclosure. As a result, the Company is not
filing as an exhibit hereto a letter addressed to the SEC from Arthur Andersen
which would otherwise be required by Item 304(a)(3) of Regulation S-K.
Simultaneously with the dismissal of Arthur Andersen, the Company engaged
KPMG to act as its independent auditors. This action followed upon the
consummation of the Merger; Nasco's historical
18
auditors have been KPMG. During the fiscal year ended June 30, 2001 and during
the subsequent period through August 8, 2002, the Company did not consult with
KPMG regarding (i) either the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements; or
(ii) any matter that was either the subject of disagreement on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedures or a reportable event (as defined in Item 304(a)(1)(v) of
Regulation S-K).
The Board of Directors authorized management to dismiss Arthur Andersen and
to engage KPMG as the Company's independent auditors on the date deemed
appropriate by the Company's management. Upon consummation of the Merger, the
Company changed its fiscal year to a calendar year ended December 31.
The Audit Committee, in its discretion, may direct the appointment of
different auditors at any time during the year if the Audit Committee believes
that a change would be in the best interests of the Company's stockholders.
FEES BILLED BY PRINCIPAL ACCOUNTANT FOR 2003 AND 2002
The following table presents aggregate fees for professional services billed
to the Company for the year ended December 31, 2003, by KPMG and for the year
ended December 31, 2002 by KPMG and the Company's former principal accountant:
2003 2002
---- ----
Audit fees(1)................................... $236,000 $104,000
Audit related fees(2)........................... 35,000 184,000
Tax fees(3)..................................... 106,000 124,000
All other fees.................................. -- --
-------- --------
$377,000 $412,000
---------
(1) Audit fees consist of fees billed to the Company by KPMG and the Company's
former principal accountant for professional services for the audit of the
Company's financial statements filed with the Company's Annual Report on
Form 10-K, review of the financial statements included in the Company's
Quarterly Reports on Form 10-Q and services that are normally provided by
the independent auditors in connection with statutory and regulatory filings
or engagements.
(2) Audit related fees consist of fees billed to the Company by KPMG and the
Company's former principal accountant for professional services for
assurance and related services that are reasonably related to the audit or
review of the Company's financial statements for 2003 and 2002. These
services include employee benefit plan audits, reviews and consultations
related to the Merger and audits of acquired businesses as part of the
Company's due diligence procedures.
(3) Tax fees consist of fees billed to the Company by KPMG and the Company's
former principal accountant for professional services for tax compliance,
tax advice and tax planning.
POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR
The Audit Committee approved and adopted preapproval policies and procedures
for nonaudit services proposed to be performed by the Company's independent
auditor. The policies and procedures were implemented in 2002. Departmental
requests for non-audit services are reviewed by management
19
and, once approved, are forwarded to the Chairperson of the Audit Committee for
preapproval. In addition, the Audit Committee reviewed the professional fees
billed by KPMG and determined that the provision of non-audit services was
compatible with the maintenance of the auditors' independence.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE 'FOR' THE
RATIFICATION OF KPMG AS THE COMPANY'S INDEPENDENT AUDITORS FOR 2004.
-------------------
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
TO BE PRESENTED AT 2005 ANNUAL MEETING OF STOCKHOLDERS
Any proposal intended to be presented by any stockholder for action at the
2005 annual meeting of stockholders of the Company must be received by the
Company not later than December 31, 2004, in order for the proposal to be
considered for inclusion in the proxy statement and proxy relating to the 2005
annual meeting.
To be considered at the 2005 annual meeting, although not included in the
proxy statement and proxy relating to the meeting, notice of stockholder
proposals and nominations for director must be delivered to the Secretary of the
Company not less than thirty (30) days nor more than ninety (90) days prior to
the date of the meeting, unless notice or public disclosure of the date of the
meeting occurs less than forty-five (45) days prior to the date of the meeting,
in which event stockholders may deliver such notice not later than the fifteenth
(15th) day following the day on which notice of the date of the meeting was
mailed or public disclosure thereof was made. Proposals received after that date
will not be voted on at the 2005 annual meeting. If a proposal is received
before that date, the proxies that management solicits for the meeting may still
exercise discretionary voting authority on the proposal under circumstances
consistent with the proxy rules of the SEC.
Proposals should be sent to the attention of the Secretary at the Company's
offices at 96 Cummings Point Road, Stamford, Connecticut 06902.
OTHER INFORMATION
One or more persons will be appointed to act as the inspector of election at
the 2004 Annual Meeting of Stockholders. As of the date of this Proxy Statement,
the Board of Directors has no knowledge of any business that will be presented
for consideration at the meeting other than that described above. As to any
other business, if any, that may properly come before the meeting, the proxies
will vote in accordance with their judgment.
A copy of the Company's 2003 Annual Report to Stockholders is being sent
with this Proxy Statement. If, upon receiving the Proxy Statement, you have not
received the 2003 Annual Report to Stockholders, please contact H. William
Smith, Vice President, General Counsel and Secretary, at the Company's offices
at 96 Cummings Point Road, Stamford, Connecticut 06902 to request a copy. In
addition, a copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003, as filed with the SEC, is available without charge upon
written request.
By Order of the Board of Directors
H. WILLIAM SMITH
H. WILLIAM SMITH
Vice President, General Counsel and
Secretary
April 29, 2004
20
APPENDIX A
CHARTER OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
OF THE ARISTOTLE CORPORATION
The Board of Directors (the 'BOARD') of The Aristotle Corporation (the
'COMPANY') has constituted and established a Compensation Committee (the
'COMPENSATION COMMITTEE') with authority, responsibility, and specific duties as
described in this Compensation Committee Charter.
COMPOSITION
The Compensation Committee shall be appointed by the Board and shall consist
solely of directors who meet the independence requirements of The Nasdaq Stock
Market, Inc. ('NASDAQ') and applicable federal law or who are non-employee
directors determined by the Board to have no relationship with the Company that
may interfere with the exercise of their independence from management. The
Compensation Committee shall evaluate, no less frequently than annually, its own
performance and also shall be evaluated by the Board in accordance with any
corporate governance guidelines adopted by the Board. Members shall be subject
to removal from the Committee at any time by a majority of the Board. The
Compensation Committee may form subcommittees, as it deems appropriate, and
delegate to such subcommittees such of its authority as it deems appropriate.
PURPOSES AND PRINCIPAL FUNCTIONS
1. PURPOSES
The Compensation Committee's primary purposes are to:
(A) discharge the Board's responsibilities relating to compensation of the
Company's executives; and
(B) produce an annual report on executive compensation for inclusion in the
Company's proxy statement in accordance with applicable rules and
regulations (the 'COMPENSATION COMMITTEE REPORT').
2. FUNCTIONS
The following functions shall be the common recurring activities of the
Compensation Committee in carrying out its primary purposes outlined above.
These functions are set forth as a guide with the understanding that the
Compensation Committee may diverge from this guide as appropriate given the
circumstances:
President and Chief Operating Officer Compensation. Develop corporate goals
and objectives relevant to the compensation of the Company's President and
Chief Operating Officer (the 'PRESIDENT'), evaluate the President's
performance in light of those goals and objectives, and exercise sole
authority to determine the President's compensation level based on this
evaluation. In determining any long-term incentive component of the
President's compensation, the Compensation Committee will consider, among
other factors, the Company's performance and relative stockholder return,
the value of similar incentive awards to presidents and chief
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operating officers performing the duties of a chief operating officer and
other officers with similar functions at comparable companies, and awards
given to the President in past years.
Other Compensation and Compensation Plans. Make recommendations to the
Board with respect to non-President compensation, incentive compensation
plans and equity-based plans.
Stock Incentive Plan. Administer the Company's 2002 Employee, Director and
Consultant Stock Plan, as amended.
Annual Compensation Committee Report. Produce the Compensation Committee
Report.
Authority to Retain Compensation Consultants. Have sole authority to retain
compensation consultants to assist the Compensation Committee in its
evaluation of President and senior executive compensation including the
authority to terminate such consultants and approve their fees or other
retention terms.
Other Duties. Such other duties and responsibilities as may be assigned to
the Compensation Committee, from time to time, by the Board or as
designated in plan documents. The Compensation Committee is not precluded
from approving awards as may be required to comply with applicable tax laws
(e.g., Section 162(m) of the Internal Revenue Code).
MEETINGS
The Compensation Committee will meet at least once annually and as often as
necessary to carry out its responsibilities. A majority of the total number of
members shall constitute a quorum at any meeting of the Compensation Committee,
and the act of a majority of the members at any meeting shall be the act of the
Compensation Committee. Reports of meetings of the Compensation Committee shall
be made to the Board at its next regularly scheduled meeting following the
Compensation Committee meeting accompanied by any recommendations to the Board
approved by the Compensation Committee.
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APPENDIX B
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF THE ARISTOTLE CORPORATION
The Audit Committee (the 'AUDIT COMMITTEE'), appointed by and acting on
behalf of the Board of Directors of The Aristotle Corporation ('ARISTOTLE'), a
Delaware corporation, shall be responsible for overseeing Aristotle's
accounting, financial reporting processes, internal controls, and audit of
Aristotle's financial statements. Management is responsible for (a) the
preparation, presentation and integrity of Aristotle's financial statements;
(b) accounting and financial reporting principles; and (c) Aristotle's internal
controls and procedures designed to promote compliance with accounting standards
and applicable laws and regulations. Aristotle's independent auditing firm is
responsible for performing an independent audit of the consolidated financial
statements in accordance with generally accepted auditing standards.
MEMBERSHIP
The Audit Committee shall be composed of at least three directors determined
by the Board of Directors (the 'BOARD') to have no relationship with Aristotle
that may interfere with the exercise of their independence from management and
to meet the independence and financial literacy requirements of The Nasdaq Stock
Market, Inc. ('NASDAQ') and applicable federal law. At least one member must
have accounting or other relevant financial management expertise as required by
NASDAQ. If any member of the Audit Committee simultaneously serves on the audit
committees of more than three public companies, the Board must determine that
such simultaneous service would not impair the ability of such director to
effectively serve on the Audit Committee. Appointment to the Audit Committee,
including the designation of the Chairperson of the Audit Committee and the
designation of any members of the Audit Committee as 'audit committee financial
experts,' shall be made on an annual basis by the full Board.
RESPONSIBILITIES OF THE AUDIT COMMITTEE
The Audit Committee shall undertake such functions as it deems appropriate
to oversee Aristotle's accounting, financial reporting processes, internal
controls, and audit of Aristotle's financial statements. Without limiting its
scope of activities, the Audit Committee shall, among other things, be
responsible for:
The appointment, replacement, compensation and oversight of the work of
Aristotle's independent auditors.
Reviewing the adequacy and appropriateness of Aristotle's system of
internal financial controls, including the need for, and conduct of, an
internal auditing function.
Reviewing and discussing the written statement from the independent auditor
concerning any relationship between the auditor and Aristotle or any other
relationships that may adversely affect the independence of the auditor,
and, based on such review, assessing and assuring the independence of the
auditor.
Establishing policies and procedures for the review and pre-approval by the
Audit Committee of all auditing services and permissible non-audit services
(including the fees and terms thereof) to
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be performed by the independent auditor, with exceptions provided for de
minimis amounts under certain circumstances as described by law.
Reviewing, discussing and assessing with the independent auditor: (a) its
audit plans, and audit procedures, including the scope, fees and timing of
the audit; (b) the results of the annual audit examination and accompanying
management letters; and (c) the results of the independent auditors'
procedures with respect to interim periods.
Reviewing and discussing reports from the independent auditors on (a) all
critical accounting policies and practices used by Aristotle; (b)
alternative accounting treatments within GAAP related to material items
that have been discussed with management, including the ramifications of
the use of the alternative treatments and the treatment preferred by the
independent auditor; and (c) other material written communications between
the independent auditor and management.
Reviewing with the independent auditor its judgment as to the quality, not
just the acceptability, of Aristotle's accounting principles and such
matters as are required to be discussed with the Audit Committee under
generally accepted auditing standards.
Reviewing and granting prior approval authority for related party
transactions (as defined in the relevant NASDAQ requirements).
Reviewing the filings made on behalf of Aristotle with the Securities and
Exchange Commission (the 'SEC'), the Nasdaq National Market System and such
other exchange(s) upon which the securities of Aristotle are listed.
Reviewing Aristotle's audited financial statements and Aristotle's
quarterly financial information, in each case prior to the filing with the
SEC.
Reviewing and discussing with management, the independent auditor, and
senior financial and accounting employees: (a) the adequacy and
effectiveness of Aristotle's internal controls (including any significant
deficiencies and significant changes in internal controls reported to the
Audit Committee by the independent auditor or management); (b) Aristotle's
internal audit procedures; and (c) the adequacy and effectiveness of
Aristotle's disclosures controls and procedures, and management reports
thereon.
Reviewing the procedures established by Aristotle, and actions undertaken
on Aristotle's behalf, to protect Aristotle's proprietary intellectual
property.
Reviewing the findings of investigations, examinations, and similar
reviews, if any, issued or conducted by regulatory authorities which
pertain to Aristotle's internal financial controls and financial reporting
functions.
Establishing procedures for the receipt, retention and treatment of
complaints received by Aristotle regarding accounting, internal accounting
controls, or auditing matters, and the confidential, anonymous submission
by employees of concerns regarding questionable accounting or auditing
matters.
Publishing the report of the Audit Committee required by the rules of the
SEC to be included in Aristotle's annual proxy statement.
Further, the Audit Committee shall conduct special investigations at its
discretion and shall perform such other functions as may be requested from time
to time by the Board.
B-2
In the conduct of its responsibilities, the Audit Committee is authorized to
communicate directly with any employee of Aristotle or any third party
conducting business with Aristotle; to engage professionals, including lawyers,
accountants and other advisers who have or have not previously rendered services
to Aristotle on terms (including financial) that the Audit Committee deems
appropriate in its discretion; and to undertake such other actions as the Audit
Committee deems appropriate in order to fulfill its responsibilities.
MEETINGS
The Audit Committee shall meet at the discretion of its Chairperson or a
majority of its members, but shall meet not less frequently than quarterly and
as often as necessary to carry out its responsibilities. A majority of the
members of the Audit Committee shall constitute a quorum and shall be empowered
to act on behalf of the Audit Committee. The Audit Committee shall meet at least
annually with Aristotle's independent auditors without management present. The
Audit Committee may delegate its authority to any subcommittee or member where
appropriate and permitted by relevant law and the rules and regulations of the
SEC, NASDAQ and any other exchange(s) upon which the securities of Aristotle are
listed. The Audit Committee shall maintain minutes of its proceedings.
REPORTING RESPONSIBILITIES
The Audit Committee shall report to the Board as the Chairperson, a majority
of the members, or the Board may request. The Audit Committee may, acting on its
own initiative, report to, or otherwise communicate with, one or more members of
management, including those persons responsible for financial reporting and
internal auditing, and Aristotle's independent auditors.
Aristotle's independent auditors shall report directly to the Audit
Committee but shall be responsible to the entire Board.
PROCEDURES FOR DISCHARGING COMMITTEE RESPONSIBILITIES
The Audit Committee shall discuss and review:
The independent auditors' proposed audit plan for the current year, and
discuss with the independent auditors its scope, staffing, location,
reliance upon management and general audit approach.
Significant findings during the year, including the status of previous
audit recommendations.
Any difficulties encountered in the course of audit work, including any
restrictions on the scope of activities or access to required information.
The adequacy of the Audit Committee charter, annually.
Any matters raised by the audit that the Audit Committee believes should be
discussed privately without the presence of management; the Audit Committee
shall meet at least annually with Aristotle's independent auditors without
management.
Inquiries as to the auditor's independent qualitative judgments about the
appropriateness, not just the acceptability, of the accounting principles
and the clarity of the financial disclosure practices used or proposed to
be used by Aristotle.
B-3
THE CHAIRPERSON
The Chairperson shall have the authority and responsibility to call the
meetings of the Audit Committee, to oversee the conduct of meetings, to report
on the deliberations of the Audit Committee to the Board and, as appropriate, to
others. The Chairperson shall have the authority to engage, on behalf of the
Audit Committee, counsel, accountants, and others in the furtherance of the
Chairperson's and the Audit Committee's duties. The Audit Committee, acting by
majority of its members, may overrule or modify any decision of the Chairperson,
or initiate any action on its own.
B-4
APPENDIX 1
THE ARISTOTLE CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR
THE 2004 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JUNE 18, 2004
Whether or not you expect to attend the meeting, you are urged to sign
and return this proxy, which may be revoked at any time prior to its use.
Steven B. Lapin and Dean T. Johnson, and each of them, with full power of
substitution, are hereby authorized to represent and to vote the shares of The
Aristotle Corporation's Common Stock and Series I Preferred Stock held of record
by the undersigned on April 30, 2004, as directed on the reverse side and, in
their discretion, on all other matters which may properly come before the 2004
Annual Meeting of Stockholders to be held at the Hyatt Regency Greenwich, 1800
E. Putnam Avenue, Old Greenwich, Connecticut on June 18, 2004 at 2:00 P.M, EDT,
and at any adjournment thereof, which matters were unknown to the Board of
Directors prior to making this solicitation, as if the undersigned were present
and voting at the meeting. The undersigned hereby revokes all previous proxies.
The shares represented by this proxy, when properly signed, will be voted
as directed by the stockholder. Where no direction is given when the duly signed
proxy is returned, such shares will be voted FOR all items, and in the case of
other matters that legally come before the meeting, as said proxies may deem
advisable.
CONTINUED ON THE REVERSE SIDE
The Board of Directors recommends a vote FOR all items.
Proposal I. ELECTION OF DIRECTORS DULY NOMINATED AND LISTED BELOW:
For All Nominees [ ] TO WITHHOLD AUTHORITY[ ] Exception[ ] *
to vote for all nominees listed below
Nominees: John J. Crawford, John Lahey, Steven B. Lapin, Donald T. Netter,
Edward Netter, Sharon M. Oster, James G. Tatum and Roy T.K. Thung
*INSTRUCTION: To withhold authority to vote for any nominee(s), write that
nominee's name on the space provided below and check Exception box above.
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Proposal 2. RATIFICATION OF APPOINTMENT OF AUDITORS: Ratify the appointment
of KPMG LLP as independent auditors of the Company for fiscal 2004.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Please note any address changes or comments below and mark here [ ]:
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DATED , 2004
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Signature
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Signature if held jointly
(NOTE: Signature(s) should
agree with the name(s)
stenciled hereon. When signing
as executor, administrator,
trustee, guardian or attorney,
please give full title as such.
For joint accounts or
co-fiduciaries, all joint
owners or co-fiduciaries should
sign. For an account in the
name of two or more persons,
each should sign or if one
signs, he or she should attach
evidence of authority.)
Votes must be indicated (x) in Black or Blue ink [ ]
Mark here if you plan to attend the 2004 Annual Meeting of Stockholders [ ]
Sign, Date and Return this Proxy Promptly Using the Enclosed Envelope