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 (S)240.14a-11(c) or (S)240.14a-12
Exponent, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
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Notes:
2001 NOTICE OF
ANNUAL STOCKHOLDERS MEETING
AND PROXY STATEMENT
[LOGO OF EXPONENT(TM)]
Exponent, Inc.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 24, 2001
TO THE STOCKHOLDERS:
The Annual Meeting of Stockholders (the "Annual Meeting") of Exponent, Inc.,
a Delaware Corporation (the "Company"), will be held on Thursday, May 24,
2001, at 9:00 a.m., PDT, at 149 Commonwealth Drive, Menlo Park, California
94025, for the following purposes:
1. To elect eight directors for a term of one year.
2. To ratify the appointment of KPMG LLP as independent auditors for the
Company for the year ending December 28, 2001.
3. To attend to other matters that properly come before the meeting.
Stockholders owning the Company's shares at the close of business on April
9, 2001 (the "Record Date"), are entitled to notice of and to vote at the
Annual Meeting.
All stockholders of record as of the Record Date are cordially invited to
attend the Annual Meeting in person.
Please note that if you hold your shares in "street name", that is, through
a broker or other nominee, you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the Record Date. Check-in at
the registration desk will be required.
FOR THE BOARD OF DIRECTORS
/s/ Richard L. Schlenker
Richard L. Schlenker, Corporate
Secretary
Menlo Park, California
April 24, 2001
TABLE OF CONTENTS
Proxy Statement............................................................. 1
Questions and Answers..................................................... 1
How Do I Vote?............................................................ 1
Proposal No. 1--The Board of Directors.................................... 3
Board and Committee Meetings.............................................. 6
Director Compensation..................................................... 6
Report of the Audit Committee............................................. 7
Proposal No. 2--Ratification of Appointment of Independent Auditors....... 8
Stock Ownership........................................................... 9
Section 16(a) Beneficial Ownership Reporting Compliance................... 10
Executive Officer Compensation............................................ 11
Options Granted to Named Officers......................................... 12
The Value of Options Held by Named Officers............................... 12
The Company's Philosophy of Executive Compensation........................ 13
Performance Graph......................................................... 15
Other Matters............................................................. 16
EXPONENT, INC.
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PROXY STATEMENT
FOR THE
2001 ANNUAL MEETING OF STOCKHOLDERS
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ABOUT THE MEETING
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Exponent, Inc., a Delaware Corporation, for use at the Annual Meeting of
Stockholders, at the Company's principal executive office, 149 Commonwealth
Drive, Menlo Park, California 94025, on Thursday, May 24, 2001, at 9:00 a.m.,
PDT. The telephone number for this location is (650) 326-9400.
What is the Purpose of the Annual Meeting?
At the Company's Annual Meeting, stockholders will act upon matters outlined
in the accompanying notice of the meeting and transact such other business
that may properly come before the meeting. In addition, the Company's
management will report on the performance of the Company during fiscal 2000
and respond to questions from stockholders.
Who is Entitled to Vote?
Only stockholders of record at the close of business on the Record Date,
April 9, 2001, receive notice of the Annual Meeting and are entitled to vote
the shares of common stock that they hold as of that date. Each outstanding
share entitles its holder to cast one vote on each matter to be voted upon.
Please note that if you hold your shares in "street name," that is, through
a broker or other nominee, you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the Record Date. If you do not
vote your proxy, your brokerage firm may either vote your shares on routine
matters, such as election of directors or leave your shares without a vote. We
encourage you to provide instructions to your brokerage firm by voting your
proxy. This ensures your shares will be voted at the meeting.
The proxy solicitation materials were mailed on or about April 24, 2001,
together with the Company's Annual Report for the period ended December 29,
2000, to all stockholders entitled to vote at the meeting.
How Do I Vote?
You have three ways to vote. You may return the proxy card by mail, vote by
telephone, or vote in person. The Company is not offering Internet voting at
this time. To vote by mail, you must sign your proxy card and send it in the
enclosed prepaid, addressed envelope. If you mark your voting instructions on
the proxy card, your shares will be voted as you instruct. If you return a
signed card but do not provide voting instructions, your shares will be voted
as recommended by the Board of Directors:
. for the eight named nominees; and
. for the ratification of the appointment of KPMG LLP, as the Company's
auditors.
If you choose to vote by telephone, please review the back of the proxy card
for instructions on how to do so. You do not need to mail in your proxy card
if you vote by telephone. Some brokers may not provide telephone voting.
1
If you choose to vote in person, you will have an opportunity to do so at
the Annual Meeting. You may either bring your proxy card to the Annual
Meeting, or if you do not bring your proxy card, the Company will pass out
written ballots to anyone who was a stockholder as of the Record Date.
What if I Change My Mind After I Return My Proxy Card?
You may revoke your proxy and change your vote at any time before the polls
close at the Annual Meeting. You may do this by:
. signing another proxy with a later date, (the proxy with the latest date
is counted);
. voting by telephone (your latest telephone proxy is counted); or
. voting in person at the Annual Meeting.
What Does it Mean if I Receive More than One Proxy Card?
It means you have multiple accounts with the transfer agent and/or with
brokers. If you would like to cancel duplicate mailings, you may authorize the
Company to discontinue mailings of multiple annual reports by marking the
appropriate box on each proxy card, or if you are a stockholder of record
voting by telephone, you may stay on the line until you receive the
appropriate prompt.
What Constitutes a Quorum?
The presence, in person or by properly executed proxy, of the holders of a
majority of the shares of common stock outstanding as of the Record Date
constitutes a quorum at the Annual Meeting. Shares that voted "For,"
"Against," or "Withheld" on the proposals are treated as being present at the
meeting for purposes of establishing a quorum and are deemed to be "votes
cast" at the Annual Meeting with respect to the proposals. Signed, unmarked
proxy cards are voted as recommended by the Board of Directors. A plurality of
the votes duly cast is required for the election of directors. The affirmative
vote of a majority of the votes duly cast is required for the ratification of
the appointment of auditors.
Abstentions and broker non-votes will be included for purposes of
determining whether a quorum of shares is present at the Annual Meeting.
However, abstentions and broker non-votes will not be included in the
tabulation of the voting results on the election of directors or on issues
requiring approval of a majority of the votes duly cast.
As of the Record Date, a total of 6,515,403 shares of the Company's common
stock, $.001 par value were issued and outstanding. For information regarding
security ownership by management and by the beneficial owners of more than 5%
of the Company's common stock, see "Stock Ownership." The closing price of the
Company's common stock on the Nasdaq National Market on the Record Date was
$11.03 per share.
2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Nominees
A Board of eight directors is to be elected at the Annual Meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's eight nominees named below. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. It is not
expected that any nominee will be unable or will decline to serve as a
director. The term of office of each person elected as a director will
continue until the next Annual Meeting, or until a successor has been elected
and qualified.
Required Vote
The eight nominees receiving the highest number of affirmative votes duly
cast shall be elected as directors. Votes withheld from any director are
counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but have no other legal effect under Delaware
law.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED BELOW:
Samuel H. Armacost
Age: 62
Director Since: 1989
Principal Occupation: Chairman of the Board of SRI International
Recent Business Experience: Mr. Armacost was a Principal of Weiss, Peck &
Greer, L.L.C., an investment firm, from l990 to
1997. In 1997, he was appointed Managing
Director until his departure in June 1998. He
was Managing Director of Merrill Lynch Capital
Markets of Merrill, Lynch, Pierce, Fenner &
Smith, Incorporated, from 1987 to August 1990,
and he was Director, President, and Chief
Executive Officer of Bank America Corporation
from 1981 to 1986.
Other Directorships: Member of the Boards of Chevron Corporation;
Scios, Inc.; SRI International; and The James
Irvine Foundation.
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Barbara M. Barrett
Age: 50
Director Since: 1997
Principal Occupation: President and Chief Executive Officer of Triple
Creek Guest Ranch since 1993
Recent Business Experience: Ms. Barrett served as President and CEO of the
American Management Association International,
Inc., in New York City from 1997 through 1998;
as Deputy Administrator of the Federal Aviation
Administration, from 1988 through 1989; and as
Vice Chairman of Civil Aeronautics Board from
1983 through 1984. Prior to 1984 she practiced
corporate, international, and business law.
Other Directorships: Chairman of Valley Bank of Arizona; member of
the Boards of Raytheon; Triple Creek Guest Ranch
and New Piper Aircraft Corporation 1996 through
1998.
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3
Leslie G. Denend, Ph.D.
Age: 60
Recent Business Experience: Dr. Denend was the President and CEO of Network General, Inc.,
Viralink Commuications, Inc., and a former partner of McKinsey
and Company. Dr. Denend served as a special assistant to the
President of National Security Affairs, The White House. He
was an advisor to the Chairman of the Joint Chiefs of Staff
and he served as a director of The Cabinet Council on Economic
Affairs, The White House.
Other Directorships: Director for Network Associates, Inc., Informix, Inc., Proxim,
Inc., Rational Software, Inc., the Silicon Valley Chapter of
the American Leadership Forum and The United Services
Automobile Association.
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Michael R. Gaulke
Age: 55
Director Since: 1994
Principal Occupation: President and Chief Executive Officer
Recent Business Experience: Mr. Gaulke joined the Company in 1992, as Executive Vice
President and Chief Financial Officer. He was named President
in March 1993, and he was appointed as a member of the Board
of Directors of the Company in January 1994. He assumed his
current role of President and Chief Executive Officer in June
1996. Prior to 1992, he held senior executive positions at
Raynet Corporation and Spectra Physics.
Other Directorships: Member of the Board of Cymer, Inc. and RockShox, Inc.; Board
of Trustees of the Palo Alto Medical Foundation; Board of
Advisors of the Whitehead Institute.
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Jon R. Katzenbach
Age: 68
Director Since: 1997
Principal Occupation: Founding Partner of Katzenbach Partners, L.L.C., since January
1999
Recent Business Experience: Mr. Katzenbach was with McKinsey & Company from 1959 until
January 1999. During his 39 years of service, Mr. Katzenbach
managed several of their offices, including McKinsey &
Company's San Francisco and New York offices for five years
each. Mr. Katzenbach served as Chairman of several governance
committees and was elected to the Shareholders' Committee in
1972, on which he served for nearly 20 years.
Authored: Authored: Teams at the Top and Peak Performance
Co-authored: The Wisdom of Teams; Real Change Leaders; and
Discipline of Teams
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4
Edward J. Keith
Age: 67
Director Since: 1989
Principal Occupation: Chairman of the Board of Exponent, Inc., and Private Investor
Recent Business Experience: Mr. Keith has been Chairman of the Board of Directors of the
Company since March 1993, and he has been a member of the
Board of Directors of the Company since 1989, as well as a
member of the Board of Directors of FaAA since 1987. He was
advisor to FaAA in 1986. Mr. Keith has been a private investor
since 1982.
Other Directorships: Chairman of Vectra Technologies 1994 through 1998; Inlex 1990
through 1994.
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Subbaiah V. Malladi, Ph.D.
Age: 54
Director Since: 1996
Principal Occupation: Chief Technical Officer
Recent Business Experience: Dr. Malladi joined FaAA, in 1982 as a Senior Engineer,
becoming a Senior Vice President in 1988, a Corporate Vice
President of FaAA in 1993, and CTO in 1998. Dr. Malladi was a
member of the Board of Directors of the Company from 1991
through 1993, and was re-elected to the Board in 1996.
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Roger L. McCarthy, Ph.D.
Age: 52
Director Since: 1989
Principal Occupation: Chairman, Exponent Failure Analysis Associates
Recent Business Experience: Dr. McCarthy joined the Company in 1978. From June 1996 to
October 1998, he served as Chief Technical Officer of the
Company, director of the Company and Chairman of Exponent
Failure Analysis Associates, Inc. ("FaAA"). He has been a
director of the company since 1989 and a director of FaAA
since 1980. He was Chief Executive Officer of the company and
FaAA from 1982 to June 1996. He also served as Chairman and
President of the Company from 1986 to March 1993.
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5
Board Meetings and Committees
The Board held four regular meetings in 2000. Each director attended at
least 75% of all Board and applicable committee meetings during 2000. The
table below describes the Board's committees.
Committee Name/Number of
Members Function of Committee Meetings in 2000
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AUDIT COMMITTEE . Monitors the 3 regular meetings
Samuel H. Armacost-- independence and
Chairperson performance
Barbara M. Barrett of the Company's outside
Jon R. Katzenbach auditors
Edward J. Keith .Reviews audited financial
reports with
management and independent
auditors prior
to filing
.Monitors the integrity of
the Company's
financial reporting
process, system of
internal controls
regarding finance,
accounting and legal
compliance
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HUMAN RESOURCES COMMITTEE . Establishes the general 4 regular meetings
compensation 1 special meeting
policies for all
employees and oversees
Barbara M. Barrett-- the specific
Chairperson compensation plan for
Samuel H. Armacost officers of the
Jon R. Katzenbach Company, including the
Edward J. Keith President and CEO
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CORPORATE GOVERNANCE AND .Oversees corporate 2 regular meetings
NOMINATING COMMITTEE governance
.Processes and makes
recommendations to the
Board regarding
nominations for the Board
Jon R. Katzenbach--
Chairperson
Barbara M. Barrett
Samuel H. Armacost
Edward J. Keith
Compensation of Directors
Members of the Board of Directors who are employees of the Company do not
receive additional compensation for their services as directors of the
Company.
Non-employee members of the Board of Directors receive:
. an annual cash retainer of $24,000;
. $2,000 for attending each meeting of the Board of Directors;
. $5,000 for service on the Human Resources Committee;
. $5,000 for service on the Audit Committee;
. $1,000 for service on the Corporate Governance and Nominating Committee.
Furthermore, Mr. Keith received an additional retainer of $10,500 for his
duties associated with serving as Chairman of the Board of Directors. Non-
employee Board members were reimbursed for certain expenses related to travel
and incidentals. The reimbursement for Mr. Katzenbach was paid to Katzenbach
Partners, L.L.C.
6
REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
The following Report of the Audit Committee of the Board of Directors does
not constitute soliciting material and should not be considered filed or
incorporated by reference into any other Company filing under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent the
Company specifically incorporates this Report by reference therein.
The Audit Committee of the Board of Directors is responsible for general
oversight of the Company's financial accounting and reporting process. The
Committee's primary responsibilities fall into three broad categories:
. first, the committee is charged with monitoring the preparation of
quarterly and annual financial reports by the Company's management,
including discussions with management and the Company's outside auditors
about draft annual financial statements and key accounting and reporting
matters;
. second, the Committee is responsible for matters concerning the
relationship between the Company and its outside auditors, including
recommending their appointment or removal; reviewing the scope of their
audit services and related fees, as well as any other services being
provided to the Company; and determining whether the outside auditors
are independent (based in part on the annual letter provided to the
Company pursuant to Independence Standards Board Standard No. 1); and
. third, the Committee in consultation with management and the independent
auditors considers the integrity of the Company's financial reporting
processes and controls regarding finance, accounting and legal
compliance.
The Committee's responsibilities are presented in detail in the complete
charter of the Committee which is included in the appendix to this proxy
statement. The charter reflects standards set forth in the new Securities and
Exchange Commission ("SEC") regulations and the Nasdaq National Market rules.
Audit committee members are independent as defined by these regulations and
rules.
The Committee has implemented procedures to ensure that during the course of
each fiscal year it devotes the attention it considers necessary or
appropriate to each of the matters assigned to it under the Committee's
charter. To carry out it's responsibilities, the Committee met three times
during fiscal 2000.
In overseeing the preparation of the Company's financial statements, the
Committee met with both management and the Company's outside auditors to
review and discuss all financial statements prior to their issuance and to
discuss significant accounting issues. Management advised the Committee that
all financial statements were prepared in accordance with generally accepted
accounting principles, and the Committee discussed the statements with both
management and the outside auditors. The Committee's review included
discussion with the outside auditors of matters required to be discussed
pursuant to Statement on Auditing Standards No. 61 (Communication With Audit
Committees).
With respect to the Company's outside auditors, the Committee, among other
things, discussed with KPMG LLP matters relating to its independence,
including the disclosures made to the Committee as required by the
Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees).
On the basis of these reviews and discussions, the committee recommended to
the Board of Directors that the Board approve the inclusion of the Company's
audited financial statements in the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 2000, for filing with the SEC.
Members of the Audit Committee
Samuel H. Armacost-Chairperson
Barbara M. Barrett
Jon R. Katzenbach
Edward J. Keith
7
AUDITORS FEES
Audit Fees
The aggregate fees billed for professional services rendered by KPMG LLP for
the audit of Exponent's annual financial statements for the fiscal year ended
December 29, 2000 and the reviews of the financial statements included in
Exponent's Forms 10Q for that fiscal year were $185,000.
Financial Information Systems Design and Implementation Fees
There were no fees billed for information technology services rendered by
KPMG LLP for the fiscal year ended December 29, 2000.
All Other Fees
The aggregate fees billed for services rendered by KPMG LLP, other than the
services covered in "Audit Fees" and "Financial Information Systems Design and
Implementation Fees" above, for the fiscal year ended December 29, 2000 were
$290,000.
The Audit Committee of the Board has considered the provision of non-audit
services is compatible with maintaining the principal accountant's
independence.
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed KPMG LLP, independent auditors, to
audit the financial statements of the Company for the year ending December 28,
2001. KPMG LLP, has audited the Company's financial statements since 1987. A
representative of KPMG LLP, is expected to be present at the meeting and is
expected to be available to respond to appropriate questions.
Required Vote
The Board of Directors has conditioned its appointment of the Company's
independent auditors upon the receipt of the affirmative vote of a majority of
the votes cast. In the event that the stockholders do not approve the
selection of KPMG LLP, the Board of Directors will reconsider the appointment
of the independent auditors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
8
STOCK OWNERSHIP
Who are the Largest Owners of the Company's Stock?
Michael R. Gaulke, President and CEO, Roger L. McCarthy, Chairman, Exponent
Failure Analysis Associates and Charlie A. Rau Jr., Corporate Vice President,
are the only insiders who beneficially own more than 5% of the Company's
stock.
How Much Stock does the Company's Directors, Officers and Greater than 5%
Stockholders Own?
The following table indicates beneficial ownership of the Company's common
stock as of April 9, 2001. It includes stockholders known by the Company to
beneficially own more than 5% of the Company's common stock, the Company's
directors, the executive officers of the Company named in the Executive
Compensation Table (see page 11), and the directors and executive officers of
the Company as a group. A total of 6,515,403 shares of the Company's common
stock were issued and outstanding as of April 9, 2001.
Number of
Name Shares(1) Percent of Total(1)
---- --------- -------------------
Roger L. McCarthy(2)............................. 580,136 8.9%
c/o Exponent, Inc.
149 Commonwealth Drive
Menlo Park, CA 94025
Palo Alto Investors, LLC(3)...................... 509,300 7.8%
431 Florence Street, Suite 200
Palo Alto, CA 94301
Dimensional Fund Advisors, Inc.(3)............... 489,800 7.5%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
Michael R. Gaulke(4)............................. 437,832 6.3%
c/o Exponent, Inc.
149 Commonwealth Drive
Menlo Park, CA 94025
Charlie A. Rau, Jr.(5)........................... 346,871 5.3%
c/o Exponent, Inc.
149 Commonwealth Drive
Menlo Park, CA 94025
Subbaiah V. Malladi(6)........................... 284,444 4.3%
Dennis J. Paustenbach(7)......................... 120,572 1.8%
Samuel H. Armacost(8)............................ 69,960 1.1%
Edward J. Keith(9)............................... 66,940 1.0%
Jack S. Mandel(10)............................... 35,819 *
Barbara M. Barrett(11)........................... 17,500 *
Jon R. Katzenbach(11)............................ 9,100 *
All Directors & Executive Officers(18
persons)(12).................................... 2,359,943 31.2%
--------
* Represents less than one percent of the outstanding common stock of the
Company.
(1) The number and percentage of shares beneficially owned is determined
under rules of the Securities and Exchange Commission ("SEC"), and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under SEC rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or investment
power and also any shares that the individual has the right to acquire
within sixty days of April 9, 2001, through the exercise of any stock
option or other right. The denominator of the calculation consists of the
named executive's options exercisable within sixty days of April 9, 2001,
plus the Company's total shares outstanding as of April 9, 2001. Unless
otherwise indicated in the footnotes, each person has sole voting and
investment power (or shares such powers with his or her spouse) with
respect to the shares shown as beneficially owned.
9
(2) Includes 529,704 shares of common stock held by Roger L. McCarthy and
50,432 shares of common stock held in trust for his two children.
(3) As indicated on a Form 13G filed with the SEC on February 8, 2001, for
Palo Alto Investors, LLC, and February 2, 2001, for Dimensional Fund
Advisors, Inc.
(4) Includes 411,249 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(5) Includes 12,044 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(6) Includes 140,668 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(7) Includes 112,500 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(8) Includes 24,000 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(9) Includes 18,000 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(10) Includes 35,000 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(11) Includes 7,500 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
(12) Includes 1,051,683 shares of common stock subject to options exercisable
within sixty days of April 9, 2001.
Compliance with Section 16(a) of the Securities Exchange Act
The Company believes that during 2000, all filings with the Securities and
Exchange Commission (SEC), of its officers, directors, and 10% stockholders
complied with requirements for reporting ownership or changes in ownership of
Company common stock pursuant to Section 16(a) of the Securities Exchange Act
of 1934, except Roger L. McCarthy failed to timely file one Form 4 reporting
two transactions, Dennis J. Paustenbach failed to timely file two Forms 4
reporting five transactions and Piotr D. Moncarz failed to timely file one
Form 4 reporting one transaction.
Compensation Committee Interlocks and Insider Participation
During 2000, Ms. Barrett and Messrs. Armacost, Keith and Katzenbach, served
as members of the Human Resources Committee. No member of the Human Resources
Committee is or was formerly an officer or an employee of the Company or any
of its subsidiaries.
No interlocking relationship exists between the Company's Board of Directors
or Human Resources Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
10
EXECUTIVE OFFICER COMPENSATION
Executive Compensation Table
The following table shows compensation paid for services to the Company in
all capacities for the fiscal years indicated for the Chief Executive Officer
and each of the other four most highly compensated executive officers (the
"Named Officers"):
Long-term
Compensation
Annual Compensation Awards
---------------------- ------------
Securities
Underlying All Other
Salary Bonus Options Compensation
Name and Principal Position Year ($) (1) ($) (#) (2) ($)
--------------------------- ---- -------- -------- ------------ ------------
Roger L. McCarthy............ 2000 $499,990 $800,000 0 $17,000
Chairman, Exponent Failure
Analysis 1999 $499,990 $300,000 0 $16,170
Associates and Director of
the Company 1998 $499,990 $100,000 0 $19,939
Subbaiah V. Malladi.......... 2000 $499,990 $300,000 200,000 $20,854
Chief Technical Officer and
Director 1999 $497,302 $250,000 0 $21,837
of the Company(3) 1998 $502,756 $160,000 0 $34,777
Michael R. Gaulke............ 2000 $475,009 $500,000 100,000 $19,366
President, Chief Executive
Officer and 1999 $468,278 $250,000 75,000 $17,166
Director of the Company 1998 $436,546 $100,000 85,000 $18,782
Dennis J. Paustenbach(4)..... 2000 $347,101 $110,000 0 $77,324
Corporate Vice President 1999 $379,784 $ 30,000 0 $76,496
1998 $ 76,924 $ 0 225,000 $ 6,628
Jack S. Mandel(4) ........... 2000 $325,000 $120,000 15,000 $76,198
Group Vice President 1999 $194,609 $ 45,000 70,000 $38,655
1998 $ 0 $ 0 0 $ 0
--------
(1) Includes bonuses earned or accrued with respect to services rendered in
the year or period indicated, whether or not such bonus was actually paid
during such year.
(2) Represents contributions to the Company's defined contribution pension
plan and insurance premiums in 2000, respectively, as follows: R.L.
McCarthy, $11,900 and $5,100; S.V. Malladi, $11,900 and $8,954; M.R.
Gaulke, $11,900 and $7,466; D.J. Paustenbach, $11,900 and $7,426; J.S.
Mandel, $11,900 and $5,060. Additionally, D.J. Paustenbach and J.S. Mandel
were given loans, which are being amortized over five and six year
periods, respectively. Loan amortization for D.J. Paustenbach and J.S.
Mandel began in October 1998 and August 1999, respectively. The
amortization amounts for D.J. Paustenbach's loan for 2000, 1999 and 1998
was $57,998, $57,998 and $4,833, respectively. Amortization for J.S.
Mandel's loan for 2000 and 1999 was $59,238 and $24,682, respectively. All
loan amortization amounts include principal and interest.
(3) S.V. Malladi was paid for additional vacation in 1998.
(4) Salary represents a partial year for D.J. Paustenbach and J.S. Mandel for
1998 and 1999, respectively.
11
What Options were Granted to the Named Officers in 2000?
The following table offers information concerning stock options granted
during the year ended December 29, 2000, to the Named Officers.
Potential
Realizable
Value at
Assumed
Annual Rates
of
Individual Grants Stock Price
---------------------------------------------- Appreciation
Percent of Total for
Options Options Granted to Exercise Option Term(3)
Granted Employees in Price Expiration --------------
Name (#) (1) Year(2) ($/Sh) Date 5% ($) 10% ($)
---- ------- ------------------ -------- ---------- ------ -------
Michael R. Gaulke....... 100,000 17% $ 7.22 02/10/10 $11.76 $18.73
Roger L. McCarthy....... 0 -- -- -- -- --
Subbaiah V. Malladi..... 200,000 34% $ 7.22 02/10/10 $11.76 $18.73
Dennis J. Paustenbach... 0 -- -- -- -- --
Jack S. Mandel.......... 15,000 3% $ 8.38 07/13/10 $13.65 $21.74
--------
(1) All options in this table were granted under the 1999 Stock Option Plan.
All options under this plan have exercise prices equal to the fair market
value on the date of grant. The options generally become exercisable over
a period of four years at a rate of 25% per year and expire 10 years from
the date of grant.
(2) In 2000, the Company granted options to employees to purchase 580,500
shares of common stock.
(3) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual
rate specified (5% and 10%). Annual compounding results in total
appreciation of 63% (at 5% per year) and 159% (at 10% per year). The
assumed annual rates of appreciation are specified in SEC rules and do not
represent the Company's estimate or projection of future stock price
growth. The Company does not necessarily agree that this method can
properly determine the value of an option.
What is the Value of the Options held by the Named Officers?
The following table shows information concerning the shares exercised and
the number of shares exercisable and unexercisable as of December 29, 2000.
Also reported are values for "in-the-money" options that represent the
positive spread between the respective exercise prices of outstanding stock
options and the fair market value of the Company's common stock as of December
29, 2000.
Number of Unexercised Value of Unexercised
Number of Value Options at In-the-Money Options at
Shares Acquired Realized December 29, 2000 December 29, 2000(2)
Upon Exercise Upon ------------------------- -------------------------
of Option Exercise(1) Exercisable Unexercisable Exercisable Unexercisable
--------------- ----------- ----------- ------------- ----------- -------------
Michael R. Gaulke....... 0 -- 327,499 217,501 $974,637 $514,303
Roger L. McCarthy....... 0 -- 0 0 0 0
Subbaiah V. Malladi..... 67,900 $57,823 90,668 200,000 $258,776 $468,214
Dennis J. Paustenbach... 0 -- 0 0 0 0
Jack S. Mandel.......... 0 -- 17,500 67,500 $ 68,863 $224,362
--------
(1) The value realized upon exercise is determined by subtracting the exercise
price from the fair market value at the time the option is exercised.
(2) The value of underlying securities is based on the closing price of
Company's common stock on December 29, 2000, $9.56 (the last trading day
of the period), on the Nasdaq National Market, minus the exercise price of
the option.
12
REPORT OF THE HUMAN RESOURCES COMMITTEE OF THE BOARD OF DIRECTORS
The Human Resources Committee of the Board of Directors establishes the
general compensation policies for all employees and oversees the specific
compensation plans for officers of the Company, including the President and
CEO. The Committee is composed of the four non-employee directors; no
executive officers of the Company are included on the Human Resources
Committee.
What is the Company's Philosophy of Executive Compensation?
The Company's compensation program for executives consists of three
elements:
. base salary,
. bonus based on performance, and
. stock option grants.
The compensation of the Company's officers, including the President and CEO,
is based on the profitability of the Company, the individual achievements of
the officers, and the competitive environment for such employees. Individual
performance assessments are based on both objective and subjective appraisals
of: financial performance, professional accomplishments, and leadership that
meet the level of excellence demanded by the Company.
What is the Timing of Compensation Changes?
The performance reviews of officers and employees are typically completed
within three months after the close of each year. Hence, compensation changes
for 2001 were based on 2000 results. These compensation changes went into
effect April 1, 2001. Bonuses based on 2000 performance were paid out on March
15, 2001.
What is the basis for determining the Executive's Compensation?
Salaries. The Company strives to provide base salaries commensurate with
comparable executives and private consultants. However, the unique nature of
the Company's business makes direct comparisons difficult as many competitors
are sole practitioners or in private partnerships. In consideration of their
responsibilities for both managing the Company and/or providing direct
consulting services which generate significant Company revenue, the Human
Resources Committee believes the officers' salaries are comparable to those
earned by executives and consultants of similar background, capability, and
technical expertise.
Bonuses. For the year ended December 29, 2000, the bonus plan was continued
for all employees, including officers. The Company bonus pool was tied to
corporate profitability. Mr. Gaulke, President and CEO, recommends individual
officer bonuses based on the officer's financial performance, professional
accomplishments, and leadership. The Human Resources Committee reviews and
approves the bonuses for each officer and the bonus pool. Additionally, they
determine the bonuses for all inside directors, including the President and
CEO, the Chairman, Exponent Failure Analysis Associates, and the CTO.
Stock Options. The Human Resources Committee believes that stock ownership
provides significant opportunity to assure that officers are motivated to
maximize stockholder value. The fiscal 2000 options were granted at the market
price on the date of grant and vest over a four-year period to encourage
retention of key employees.
13
Executive Compensation. The Human Resources Committee reviewed the
performance of the President and CEO, Michael R. Gaulke; the Chairman, Exponent
Failure Analysis Associates, Roger L. McCarthy; and the CTO, Subbaiah V.
Malladi, during 2000. The Committee decided to leave base salaries unchanged
for all three individuals. The Human Resources Committee reviewed the 2000
performance of all other officers, and select base salary increases were
approved.
Human Resources Committee
Barbara M. Barrett-Chairperson
Samuel H. Armacost
Jon R. Katzenbach
Edward J. Keith
14
COMPANY STOCK PRICE PERFORMANCE GRAPH
Historically, the Company has compared its stock price performance to the
S&P 500 Index and a peer group constructed by the Company (the "Peer Group").
The remaining company in the Peer Group was Harding Lawson Associates, Inc.,
which was acquired and became a private Company in fiscal 2000; therefore this
data is no longer presented. The Company considers the most appropriate peer
group comparison to be the S&P Small Cap 600. Note that historic stock price
performance is not necessarily indicative of future stock price performance.
The graph below compares the Company's cumulative total stockholder return,
the S&P 500 Index and the S&P Small Cap 600 Index, the Company's new peer
group.
[PERFORMANCE GRAPH APPEARS HERE]
INDEXED RETURNS
Company / Index
------------------------------------------------------
Years Ending EXPONENT INC. S&P 500 INDEX S&P SMALLCAP 600 INDEX
------------ ------------- ------------- ----------------------
Base Period--
December 1995 $100.00 $100.00 $100.00
December 1996 92.45 122.96 121.32
December 1997 158.49 163.98 152.36
December 1998 90.57 210.85 150.37
December 1999 100.00 255.21 169.02
December 2000 144.33 231.98 188.96
15
OTHER MATTERS
The Company knows of no other matters that will be brought before the
meeting. However, if any such matters are properly presented before the
meeting, it is the intention of the persons named in the enclosed proxy card
to vote the shares they represent as the Board of Directors may recommend. It
is important that your shares be represented at the meeting, regardless of the
number of shares that you hold. You are, therefore, urged to execute and
return, or vote by phone, at your earliest convenience your proxy results.
Stockholder Proposals for the 2001 Annual Meeting. Stockholders are entitled
to present proposals for action at a forthcoming meeting if they comply with
the requirements of the proxy rules promulgated by the Securities and Exchange
Commission. Stockholders interested in presenting a proposal for consideration
at the Company's Annual Meeting of stockholders for the year 2002 may do so by
submitting the proposals to the Company's Corporate Secretary, no later than
December 28, 2001.
Proxy Solicitation Costs. The cost of soliciting proxies will be borne by
the Company. The Company has retained the services of ChaseMellon Shareholder
Services to assist in obtaining proxies from brokers and nominees of
stockholders for the Annual Meeting. The estimated cost of such services is
$4,000, plus out-of-pocket expenses. In addition, the Company may reimburse
brokerage firms and other persons representing beneficial owners of shares for
their expenses in forwarding solicitation materials to such beneficial owners.
Proxies by certain Company directors, officers, and regular employees may be
solicited, without additional compensation, by personal conversation,
telephone, telegram, letter, electronically, or by facsimile.
FOR THE BOARD OF DIRECTORS
/s/ Richard L. Schlenker
Richard L. Schlenker, Corporate
Secretary
Menlo Park, California
April 24, 2001
16
Appendix
Exponent, Inc.
Charter of the Audit Committee
of the Board of Directors
A-1
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee (the "Committee") is appointed by the Board of Directors
(the "Board") to assist the Board in fulfilling its oversight
responsibilities. The Committee's primary duties and responsibilities are to:
. Monitor the integrity of Exponent's (the "Company's") financial
reporting process and systems of internal controls regarding finance,
accounting, and legal compliance.
. Monitor the independence and performance of the Company's outside
auditors.
. Provide an avenue of communication among the independent auditors,
management, and the Board.
The Committee has the authority to conduct any investigation appropriate to
fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Committee has the ability
to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it considers necessary in the performance of its
duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq National
Market Exchange. The Committee shall be comprised of three or more directors,
as determined by the Board, each of whom shall be independent nonexecutive
directors free from any relationship that would interfere with the exercise of
his or her independent judgment. All members of the Committee shall have a
basic understanding of finance and accounting and be able to read and
understand the fundamentals of financial statements, and at least one member
of the Committee shall have accounting or related financial management
expertise.
Committee members shall be appointed by the Board. If an Audit Committee
Chair (the "Chair") is not designated or present, the members of the Committee
may designate a Chair by majority vote of the Committee membership.
The Committee shall meet with such frequency and at such intervals, as it
shall determine is necessary to carry out its duties and responsibilities. The
Chair shall work with management to establish the agenda for the Committee
meetings. The Committee should meet at least annually with management, the
independent auditors, and as a committee in separate executive sessions to
discuss any matters that the Committee or each of these groups believe should
be discussed. In addition, the Committee, or at least its Chair, should
communicate with management and the independent auditors quarterly to review
the Company's financial statements and significant findings based upon the
auditor's limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board for approval and have the document
published at least every three years in accordance with the Securities
and Exchange Commission (the "SEC") regulations.
2. Review the Company's annual audited financial statements prior to filing
or distribution. Review should include discussion with management and
independent auditors of significant issues regarding accounting
principles, practices, and judgments.
3. In consultation with the management and the independent auditors
considers the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the steps
management has taken to monitor, control, and report such exposures.
Review significant findings prepared by the independent auditors
together with management's responses.
A-2
4. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of earnings
and/or the Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with Statement on Auditing Standards
No. 61 ("SAS 61") (see item 9). The Chair may represent the entire
Committee for purposes of this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Committee and
the Board. The Committee shall review the independence and performance
of the auditors and annually recommend to the Board the appointment of
the independent auditors or approve any discharge of auditors when
circumstances warrant.
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
8. Review the independent auditors audit plan: discuss scope, reliance upon
management, and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required to
be communicated to committees in accordance with American Institute of
Certified Public Accountants ("AICPA") SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Other Audit Committee Responsibilities
11. Annually prepare a report to shareholders as required by the SEC. The
report should be included in the Company's annual proxy statement.
12. Maintain minutes of meetings and periodically report to the Board on
significant results of the foregoing activities.
A-3
--------------------------------------------------------------------------------
EXPONENT, INC.
ANNUAL MEETING OF SHAREHOLDERS, MAY 24, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 2001 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Exponent, Inc. a Delaware corporation (the
"Company"), hereby acknowledges receipt of the Notice of Annual Meeting of
Stockholders and Proxy Statement, each dated April 24, 2001, and hereby appoints
Michael R. Gaulke, Roger L. McCarthy and Richard L. Schlenker and any of them,
each with power of substitution and revocation, proxies and attorneys-in-fact of
the undersigned to represent the undersigned and vote all shares of Common
Stock of the Company which the undersigned would be entitled to vote if
personally present at the Company's Annual Meeting of Stockholders to be held
at 149 Commonwealth Drive, Menlo Park, California 94025, at 9:00 a.m., PDT, on
Thursday, May 24, 2001 and at any adjournment thereof, upon the following
matters.
(Continued and to be signed on the reverse side)
--------------------------------------------------------------------------------
Detach here from proxy voting card.
You can now access your Exponent, Inc. account online.
Access your Exponent, Inc. shareholder/stockholder account online via
Investor ServiceDirect/sm (ISD).
Mellon Investor Services LLC agent for Exponent, Inc., now makes it easy and
convenient to get current information on your shareholder account. After a
simple, and secure process of establishing a Personal Identification Number
(PIN), you are ready to log in and access your account to:
. View account status . View Payment history for dividends
. View certificate history . Make address changes
. View book-entry information . Obtain a duplicate 1099 tax form
. Establish/change your PIN
Visit us on the web at http://www.mellon-investor.com
and follow the instructions shown on this page.
Step 1: FIRST TIME USERS -- Establish a PIN
You must first establish a Personal Identification Number (PIN) online by
following the directions provided in the upper right portion of the web screen
as follows. You will also need your Social Security Number (SSN) available to
establish a PIN.
Investor ServiceDirect/sm is currently only available for domestic individual
and joint accounts.
. SSN
. PIN
. Then click on the Establish PIN button
Please be sure to remember your PIN, or maintain it in a secure place for future
reference.
Step 2: Log in for Account Access
You are now ready to log in. To access your account please enter your:
. SSN
. PIN
. Then click on the Submit button
If you have more than one account, you will now be asked to select the
appropriate account.
Step 3: Account Status Screen
You are now ready to access your account, information. Click on the appropriate
button to view or initiate transactions.
. Certificate History
. Book-Entry Information
. Issue Certificate
. Payment History
. Address Change
. Duplicate 1099
For Technical Assistance Call 1-877-978-7778
9am-7pm Monday-Friday Eastern Time
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
THIS PROXY, WHEN PROPERLY EXECUTED WILL BE VOTED AS Please mark [X]
DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S), IF NO your votes
DIRECTIONS ARE INDICATED THIS PROXY WILL BE VOTED FOR as indicated
ITEMS 1 AND 2, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
__________________________________________________________________________
***IF YOU WISH TO VOTE BY TELEPHONE, PLEASE READ THE INSTRUCTIONS BELOW***
__________________________________________________________________________
1. Election of all nominees listed below to the Board of Directors to serve
until the next Annual Meeting or until their successors have been duly
elected and qualified, except as noted (write the names, of any nominees
for whom you withhold authority to vote).
Nominees: 01 - Samuel H. Armacost, 02 - Barbara M. Barrett, 03 - Leslie G.
Denend, 04 - Michael R. Gaulke, 05 - Jon R. Katzenbach, 06 - Edward J. Keith,
07- Subbaiah V. Malladi and 08 - Roger L. McCarthy.
_________________________________________
FOR ALL NOMINEE'S EXCEPT AS NOTED ABOVE
[_] FOR [_] WITHHELD
2. To ratify the appointment of KPMG LLP as independent public accountants
for the Company for the fiscal year ending December 28, 2001.
[_[ FOR [_] AGAINST [_] ABSTAIN
3. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
DATE _______________, 2001
__________________________________
Signature
__________________________________
Signature, if Jointly Held
If acting as Attorney, Executor,
Trustee or in other representative
capacity, please sign name and
title.
--------------------------------------------------------------------------------
Detach here form proxy voting card
Vote by Telephone or Mail
24 Hours a Day, 7 Days a Week
Your telephone vote authorizes the named proxies to vote your shares in the same
manner as if you marked, signed and returned your proxy card.
-------------------------------- ---------------------------------
Telephone Mail
1-800-840-1208
Use any touch-tone telephone to Mark, sign and date
vote your proxy. Have your proxy your proxy card
card in hand when you call. You and
will be prompted to enter your return it in the
control number, located in the enclosed postage-paid
box below, and then follow the envelope.
directions given.
-------------------------------- ---------------------------------
If you vote your proxy by telephone,
you do NOT need to mail back your proxy card.