SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act ofPROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/|X|
Filed by a partyParty other than the Registrant / /|_|
Check the appropriate box:
/ /|_| Preliminary Proxy Statement / /|_|: Confidential, for Use of the
|X| Definitive Proxy Statement Commission Onlyonly (as permitted
|_| Definitive Additional Materials by Rule 14a-6(e)(2)
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ /)
|_| Soliciting Material Under Rule 14a-12
AWARE, INC.
- ---------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------NOT APPLICABLE
-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/|X| No fee required.
/ /|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ /|_| Fee paid previously with preliminary materials.
/ /|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Formform or Scheduleschedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------previously paid:
(2) Form, Schedule or Registration Statement No.no.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------* * * * *
AWARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 200131, 2002
Aware, Inc. hereby gives notice that it will hold its annual meeting of
stockholders at the Renaissance Bedford Hotel, 44 Middlesex Turnpike, Bedford,
Massachusetts on Thursday,Friday, May 24, 2001,31, 2002, beginning at 10:00 a.m., local time, for
the following purposes:
1. To consider and vote upon the election of twoone Class II directors;III
director;
2. To act upon a proposal to amend the Company's Restated
Articles of Organization to increase the Company's authorized
common stock from 30,000,000 to 70,000,000 shares; and
2.3. To transact such other business as may properly come before
the annual meeting or any adjournment thereof.
The board of directors has fixed the close of business on March 30, 2001April 4, 2002
as the record date for the determination of the stockholders of Aware entitled
to receive notice of the annual meeting and to vote at the meeting. Only
stockholders of record on that date are entitled to receive notice of the annual
meeting and to vote at the meeting or any adjournment thereof.
By order of the board of directors,
Michael/s/ MICHAEL A. Tzannes
Chief Executive OfficerTZANNES
-----------------------------------
MICHAEL A. TZANNES
CHIEF EXECUTIVE OFFICER
April 10, 200115, 2002
Bedford, Massachusetts
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
AWARE, INC.
40 MIDDLESEX TURNPIKE
BEDFORD, MASSACHUSETTS 01730
(781) 276-4000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 200131, 2002
This proxy statement relates to the 20012002 annual meeting of stockholders
of Aware, Inc. The annual meeting will take place as follows:
DATE: May 24, 200131, 2002
TIME: 10:00 a.m.
PLACE: Renaissance Bedford Hotel
44 Middlesex Turnpike
Bedford, Massachusetts
The board of directors of Aware is soliciting proxies for the annual
meeting and adjournments of the annual meeting. If a stockholder returns a
properly executed proxy, the shares represented by the proxy will be voted in
accordance with the stockholder's directions. If a stockholder does not specify
a vote on any proposal, the shares covered by his or her proxy will be voted on
that proposal as management recommends. Aware encourages its stockholders to
vote on all proposals. A stockholder may revoke its proxy at any time before it
has been exercised.
Aware is mailing this proxy statement and the enclosed form of proxy to
stockholders on or about April 10, 2001.16, 2002.
PROXY STATEMENT
TABLE OF CONTENTS
PAGE
----
ANNUAL MEETING OF STOCKHOLDERS ............................................ 1STOCKHOLDERS...........................................2
Purpose of the annual meeting ........................................ 1meeting.........................................2
Record date .......................................................... 1
Quorum ............................................................... 1date...........................................................2
Quorum................................................................2
Vote required; tabulation of votes ................................... 1votes....................................2
Revocation of proxies ................................................ 1proxies.................................................3
Solicitation of proxies .............................................. 2proxies...............................................3
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING - ELECTIONMEETING...........................3
PROPOSAL 1--ELECTION OF DIRECTORS .... 2DIRECTORS........................................3
DIRECTORS AND EXECUTIVE OFFICERS .......................................... 2OFFICERS.........................................4
Directors and executive officers ..................................... 2officers......................................4
Committees and meetings of the board ................................. 4board..................................6
Compensation committee interlocks and insider participation .......... 4participation...........6
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS .......................... 5OFFICERS.........................7
Director compensation ................................................ 5compensation.................................................7
Executive compensation ............................................... 5compensation................................................7
REPORT OF THE COMPENSATION COMMITTEE ...................................... 7COMMITTEE....................................10
Compensation committee report on executive compensation .............. 8compensation..............10
Performance graph .................................................... 10graph....................................................12
REPORT OF THE AUDIT COMMITTEE ............................................. 11COMMITTEE...........................................13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ............ 12MANAGEMENT..........15
Principal stockholders ............................................... 12stockholders...............................................15
PROPOSAL 2--AMENDMENT OF THE COMPANY'S ARTICLES OF ORGANIZATION.........16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE ................... 13COMPLIANCE.................16
INDEPENDENT ACCOUNTANTS ................................................... 13ACCOUNTANTS.................................................17
Fees for professional services ....................................... 13services.......................................17
Attendance at annual meeting ......................................... 13
Change in independent auditors in 1999 ............................... 13meeting.........................................17
STOCKHOLDER PROPOSALS ..................................................... 14PROPOSALS...................................................17
AVAILABLE INFORMATION ..................................................... 14
ANNEX A - AWARE, INC. AUDIT COMMITTEE CHARTER ............................. A-1INFORMATION...................................................17
1
ANNUAL MEETING OF STOCKHOLDERS
PURPOSE OF THE ANNUAL MEETING
At the annual meeting, Aware will submit a proposaltwo proposals to the
stockholders tostockholders:
PROPOSAL 1: To elect twoone Class II directors, eachIII director for a three-year term.term; and
PROPOSAL 2: To amend the Company's Restated Articles of
Organization to increase the Company's authorized common
stock from 30,000,000 to 70,000,000 shares.
Currently, Aware does not intend to submit any other proposals to the
stockholders at the annual meeting. The board of directors was not aware, a
reasonable time before mailing this proxy statement to stockholders, of any
other business that may be properly presented for action at the annual meeting.
If any other business comes before the annual meeting, the persons present will
have discretionary authority to vote the shares they own or represent by proxy
in accordance with their judgment, to the extent authorized by applicable
regulations.
RECORD DATE
The board of directors of Aware has fixed the close of business on
Friday,
March 30, 2001Thursday, April 4, 2002 as the record date for the annual meeting. Only
stockholders of record at the close of business on that date are entitled to
receive notice of the meeting and to vote at the meeting or any adjournment of
the meeting. At the close of business on the record date, there were issued and
outstanding 22,618,30922,667,009 shares of Aware's common stock, which are entitled to
cast 22,618,30922,667,009 votes.
QUORUM
Aware's by-laws provide that a quorum at the annual meeting will be a
majority in interest of all stock issued, outstanding and entitled to vote at
the meeting. Aware will treat shares of common stock represented by a properly
signed and returned proxy as present at the meeting for purposes of determining
the existence of a quorum at the meeting. In general, Aware will count votes
withheld from any nominee for election as director, abstentions and broker
"non-votes" as present or represented for purposes of determining the existence
of a quorum.quorum at the meeting. A broker "non-vote" occurs when a broker or nominee
holding shares for a beneficial owner does not vote on a proposal because the
broker or nominee does not have discretionary voting power and has not received
instructions from the beneficial owner with respect to that proposal.
VOTE REQUIRED; TABULATION OF VOTES
PROPOSAL 1. The election of eachthe Class IIIII director will require the
affirmative vote of a plurality of the shares of common stock properly cast on
the proposal. Abstentions, votes withheld from director-nominees,the director-nominee, and broker
non-votes will not count as votes cast for or against the election of the
director-nomineesdirector-nominee and accordingly will not affect the outcome of the vote.
PROPOSAL 2. The amendment of the Company's Restated Articles of
Organization to increase the Company's authorized common stock from 30,000,000
to 70,000,000 shares will require the affirmative vote of a majority of the
shares of common stock outstanding and entitled
2
to vote at the annual meeting. Abstentions, votes withheld and broker non-votes
will have the effect of a vote against the amendment of the Articles of
Organization.
Aware's transfer agent, EquiServe, will tabulate the votes at the
annual meeting. EquiServe will tabulate separately the vote on each matter
submitted to stockholders.
REVOCATION OF PROXIES
A stockholder who has executed a proxy may revoke the proxy at any time
before it is exercised as the annual meeting in three ways:
o by giving written notice of revocation to the Clerk of Aware
at the following address:
Aware, Inc.
40 Middlesex Turnpike
Bedford, Massachusetts 01730
Attention: Clerk
o by signing and returning another proxy with a later date; or
o by attending the annual meeting and informing the Clerk of
Aware in writing that he or she wishes to vote in person.
Mere attendance at the annual meeting will not in and of itself revoke the
proxy. Accordingly, stockholders who have executed and returned proxies in
advance of the annual meeting may change their votes at any time before or at
the annual meeting. Mere attendance at the annual meeting will not in and of itself revoke
the proxy.
SOLICITATION OF PROXIES
Aware will bear all costs incurred in connection with the solicitation
of proxies for the annual meeting. Aware will reimburse brokers, banks,
fiduciaries, nominees and others for the out-of-pocket expenses and other
reasonable clerical expenses they incur in forwarding proxy materials to
beneficial owners of common stock held in their names. In addition to this
solicitation by mail, Aware's directors, officers and employees may solicit
proxies, without additional remuneration, by telephone, facsimile, electronic
mail, telegraph and in person. Aware expects that the expenses of any special
solicitation will be nominal. At present, Aware does not expect to pay any
compensation to any other person or firm for the solicitation of proxies.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
ELECTIONPROPOSAL 1--ELECTION OF DIRECTORS
The annual meeting concerns the election of two Class II directors.
The board of directors, upon the recommendation of the nominating
committee, has nominated for election as a Class II directors
John K. Kerr and David Ehreth, each of whomIII director Edmund C. Reiter,
who is currently a Class IIIII director of Aware. Mr. KerrReiter also serves as Aware's chairman of the board. Eachour
president. The director elected at the annual meeting will hold office until the
annual meeting of stockholders in 20042005 and until his successor is duly elected
and qualified.
Each of the nominees3
The nominee has agreed to serve if elected, and Aware has no reason to
believe that eitherthe nominee will be unable to serve. If eitherthe nominee is unable or
declines to serve as a director at the time of the annual meeting, proxies will
be voted for another nominee that our boardboard's nominating committee will
designate at that time. Proxies cannot be voted for more than two nominees.one nominee.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
JOHN K.
---
KERR AND DAVID EHRETHEDMUND C. REITER AS A CLASS II DIRECTORSIII DIRECTOR OF AWARE.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding Aware's directors
and executive officers as of March 30, 2001:April 4, 2002:
NAME AGE POSITION
- ---- --- --------
John K. Kerr(1)Kerr (1)(2)(3) ............................... 63(4)................. 64 Chairman of the board of directors
Michael A. Tzannes(1) ............................... 39Tzannes (1).................... 40 Chief executive officer and director
Edmund C. Reiter .................................... 37Reiter.......................... 38 President and director
Richard P. Moberg ................................... 46Moberg......................... 47 Chief financial officer and treasurer
Richard W. Gross .................................... 43Gross.......................... 44 Senior vice president - strategic developmentpresident-engineering
David Ehreth(2)Ehreth (2)(3) .................................. 51(4).................... 52 Director
G. David Forney, Jr.(2) ............................. 61(4)............... 62 Director
- --------------------------------------------------
(1) Member of the executive committee (2) Member of the audit committee (3)
Member of the compensation committee 2
(4) Member of the nominating committee
JOHN K. KERR has been a director of Aware since 1990 and chairman of
the board of directors since March 1999. Mr. Kerr previously served as a
director of Aware from 1988 to 1989 and the chairman of the board of directors
from November 1992 to March 1994. Mr. Kerr has been general partner of Grove
Investment Partners, a private investment partnership, since 1990. Mr. Kerr
received an M.A. and a B.A. from Baylor University.
MICHAEL A. TZANNES has been Aware's chief executive officer since April
1998 and has served as a director of Aware since March 1998. Mr. Tzannes served
as Aware's president from April 1998 to March 2001. From September 1997 to April
1998, he served as Aware's chief technology officer and general manager of
telecommunications. Mr. Tzannes served as Aware's senior vice president,
telecommunications from April 1996 to September 1997, as Aware's vice president,
telecommunications from December 1992 to April 1996, as a senior member of
Aware's technical staff from January 1991 to November 1992, and as a consultant
to Aware from October 1990 to December 1990. From 1986 to 1990, he was a staff
engineer at Signatron, Inc., a telecommunications technology and systems
developer. Mr. Tzannes received a Ph.D. in electrical engineering from Tufts
University, an M.S. from the University of Michigan at Ann Arbor, and a B.S.
from the University of Patras, Greece.
EDMUND C. REITER has served as Aware's president since March 2001 and
as a director of Aware since December 1999. Mr. Reiter served as a senior vice
president from May 1998 to
4
March 2001, as Aware's vice president, advanced products from August 1995 to May
1998, as Aware's manager of product development for still image compression
products from June 1994 to August 1995, as a senior member of Aware's technical
staff from November 1993 to June 1994, and as a member of Aware's technical
staff from December 1992 to November 1993. Mr. Reiter served as senior scientist
at New England Research, Inc. from January 1991 to November 1992. Mr. Reiter
received a Ph.D. from the Massachusetts Institute of Technology and a B.S. from
Boston College.
RICHARD P. MOBERG joined Aware in June 1996 as chief financial officer
and treasurer. From December 1990 to June 1996, Mr. Moberg held a number of
positions at Lotus Development Corporation, a computer software developer,
including corporate controller from June 1995 to June 1996, assistant corporate
controller from May 1993 to June 1995, and director of financial services from
December 1990 to May 1993. Mr. Moberg received an M.B.A. from Bentley College
and a B.B.A. in accounting from the University of Massachusetts at Amherst.
RICHARD W. GROSS was appointed senior vice president - strategic
development in July 1999. Mr.
Gross served as vice president - strategic development from July 1998 to July
1999. Before the vice president position, he held various senior level
engineering positions from the time he joined Aware in September 1993 until July
1998, including director - communications technology, director - HFC systems and
communications systems manager. Before joining Aware, Mr. Gross was a senior
technical staff member at GTE Laboratories from 1987 to 1993,1993; a technical staff
member at the Heinrich Hertz Institute from 1984 to 1987,1987; and a programmer for
IBM, Federal Systems Division from 1980 to 1984. Mr. Gross received a Ph.D. and
M.S. in electrical engineering from the University of Rhode Island and a B.A. in
physics from Holy Cross College.
DAVID EHRETH has served as a director of Aware since November 1997.
Since April 1998, Mr. Ehreth has served as president, chief executive officer
and chairman of Westwave Communications, Inc., a telecommunications software
company. From June 1993 to August 1998, Mr. Ehreth served as division vice
president of the access division of DSC Communications Corporation, a
manufacturer of digital switching, access, transport and private network system
products for the telecommunications industry. From 1987 to June 1992, Mr. Ehreth
served as vice president of engineering of Optilink, Inc., a manufacturer of
access systems for the telecommunications industry. Optilink, Inc. was acquired
by DSC Communications Corporation in 1990. From 1977 to 1987, Mr. Ehreth held
numerous positions in the Digital Telephone Systems division of Harris
Corporation. 3
Mr. Ehreth received a degree in electrical engineering from College
of Marin.
G. DAVID FORNEY, JR. has served as a director of Aware since May 1999.
Mr. Forney is currently Bernard M. Gordon adjunct professorAdjunct Professor in the departmentDepartment of
electrical engineeringElectrical Engineering and computer scienceComputer Science at the Massachusetts Institute of
Technology. Mr. Forney was a vice president of Motorola from 1977 until his
retirement in January 1999. Mr. Forney was previously a vice presidentVice President of researchResearch
and developmentDevelopment and a director of Codex Corporation before its acquisition by
Motorola in 1977. Mr. Forney received an Sc.D. in electrical engineering from
the Massachusetts Institute of Technology in 1965 and a B.S.E. in electrical engineering
from Princeton University in 1961.University.
The board of directors is divided into three classes, referred to as
Class I, Class II and Class III, each consisting of approximately one-third of
the directors. One class is elected each
5
year at the annual meeting of stockholders to hold office for a term of three
years and until their respective successors have been duly elected and
qualified. The number of directors has been fixed at seven, and there are
currently two vacancies on the board of directors. The current terms of Messrs. Kerr and Ehreth, Aware's Class II directors, will
expire at the annual meeting to be held on May 24, 2001. The term of Aware's
sole Class III director, Mr. Reiter, will expire at the annual meeting to be
held inon May 31, 2002. The current terms of Messrs. Tzannes and Forney, Aware's
Class I directors, will expire at the annual meeting to be held in 2003. The
current terms of Messrs. Kerr and Ehreth, Aware's Class II directors, will
expire at the annual meeting to be held in 2004.
Executive officers are elected annually by the board of directors and
serve at the discretion of the board or until their respective successors have
been duly elected and qualified. There are no family relationships among Aware's
directors and executive officers.
COMMITTEES AND MEETINGS OF THE BOARD
During 2000,2001, the board of directors met sixseven times and took action by
written consent once. No incumbent director attended fewer than 75% of the total
number of meetings held by the board and committees of the board on which he
served.
Aware has a compensation committee, an audit committee, an executive
committee and a nominating committee. Aware's compensation committee is
currently composed of two outside directors, David Ehreth and anJohn. K. Kerr.
Aware's audit committee but does not have a nominatingis currently composed of John K. Kerr, David Ehreth and
G. David Forney, Jr.
Aware's executive committee or other committee performing
similar functions.is currently composed of John K. Kerr and
Michael A. Tzannes. The executive committee has all of the powers of the board
of directors except the power to: change the number of directors or fill
vacancies on the board of directors; elect or fill vacancies in the offices of
president, treasurer or clerk; remove any officer or director; amend the by-laws
of Aware; change the principal office of Aware; authorize the payment of any
dividend or distribution to shareholders of Aware; authorize the reacquisition
of capital stock for value; and authorize a merger.
Aware's nominating committee was established in May 2001 and is
currently composed of three outside directors, David Ehreth, G. David Forney,
Jr. and John K. Kerr. The nominating committee is responsible for reviewing the
qualifications of potential nominees for election to the Board of Directors and
recommending to the Board of Directors the election of directors to the Company.
Stockholders may make nominations for the election of directors by delivering
notice in writing to the Clerk of Aware not less than 60 days nor more than 90
days prior to any meeting of the stockholders called for the election of
directors.
In 2000,2001, the executive committee neither met nor took action by written
consent; the nominating committee neither met nor took action by written
consent; the compensation committee held three meetings and took action by
written consent 16nine times; and the audit committee met five times and took no
action by written consent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Aware's compensation committee is currently composed of Messrs. Kerr
and Ehreth. Mr. Kerr formerly served as Aware's assistant vice president of
marketing from June 1992 to November 1994. In 2000,2001, no officer or employee of
Aware participated in the deliberations of the compensation committee concerning
the compensation of Aware's executive officers. No
6
interlocking relationship existed between Aware's board of directors or
compensation committee and the board of directors or compensation committee of
any other company in 2000.
4
2001.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Aware reimburses each director for expenses incurred in attending
meetings of the board of directors but does not pay any separate fees for
serving as directors.
In 2000,2001, Aware compensated its directors through grants of nonqualified
options under its 19962001 Nonqualified Stock Option Plan. In accordance with the terms of the
plan, theThe exercise price of each
option is equal to the closing price of the common stock on the Nasdaq National
Market on the date of grant. Each option has a term of ten years and vestsyears. The options
granted in sixteen equal consecutive quarterly
installments.2001 vest on various schedules, as described in the notes to the
table below.
The following table provides information about these grants.
OPTION GRANTS TO DIRECTORS IN LAST FISCAL YEAR
NUMBER OF SECURITIES
UNDERLYING OPTIONS EXERCISE
NAME OPTIONS GRANTED PRICE ($/SH) EXPIRATION DATE
- ------ ---------- ---------- ------------------------ --------------- ------------ ---------------
David Ehreth ................................................ 5,000 $20.375 October 18, 2010
G. David Forney, Jr. ........................................ 5,000 63.000 February 29, 2010
5,000 40.563 May 24, 2010
5,000 20.375 October 18, 2010............................ 8,333 (1) $8.07 5/17/11
8,333 (2) 7.42 7/19/11
8,333 (3) 3.74 9/21/11
John K. Kerr ................................................ 5,000 31.250 January 14, 2010
5,000 20.375 October 18, 2010Kerr..................................... 10,000 (1) 8.07 5/17/11
10,000 (2) 7.42 7/19/11
10,000 (3) 3.74 9/21/11
- ----------------------------------------
(1) The options vested 50% on July 1, 2001, and the remaining 50% in eight
equal quarterly installments of 6.25%, beginning as of September 30, 2001.
(2) The options vested 25% on July 19, 2001, and the remaining 75% in 12 equal
quarterly installments of 6.25%, beginning as of September 30, 2001.
(3) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of September 30, 2001.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND OTHER COMPENSATION. The following table provides
summary information concerning compensation earned for services rendered to
Aware in all capacities during the last three fiscal years by Aware's chief
executive officer in 20002001 and each other executive officer of Aware.
Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of perquisites and other
personal benefits was less than $50,000 and constituted less than 10% of the
executive officer's total annual salary and bonus.
Long-term compensation awards represent stock options granted under
Aware's 1996 Stock Option Plan and Aware's 2001 Nonqualified Stock Plan. In
1998, 1999, 2000 and 2000,2001, Aware did not make any restricted stock awards, grant any
stock appreciation rights or make any long-term incentive plan payouts.
All other compensation represents group term life insurance premiums
paid by Aware on behalf of the executive officers and the following matching
contributions by Aware under its
7
401(k) plan for the benefit of the executive officers in 1998, 1999, 2000 and 2000:2001:
Mr. Tzannes, $1,991, $5,000, $5,250 and $5,250;$5,100; Mr. Reiter, $1,010, $2,019, $2,135 and $2,135;$2,262;
Mr. Gross, $3,071, $3,224 and $3,224; and Mr. Moberg, $1,369, $3,795, $3,978 and $3,978; and
Mr. Gross, $1,465, $3,071 and $3,224.
5
$5,100.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
------------------------------------ ------------
AWARDS
---------
OTHER---------------
SECURITIES ANNUALALL
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($SALARY($) BONUS ($)COMPENSATION ($BONUS($) OPTIONS (#) COMPENSATION ($OPTIONS(#) COMPENSATION($)
- ------------------------- --------------------------------- ---- --------- -------- ---------- --------- ------------- ------------ ---------------
Michael A. Tzannes .............. 2000 $268,846Tzannes............. 2001 $300,000 -- -- 120,000 $5,412174,999 $5,388
Chief Executive Officer 2000 268,846 -- 120,000 5,412
1999 219,548 -- -- 250,000 5,120
1998 190,235 -- -- 250,000 2,429
Edmund C. Reiter ................Reiter............... 2001 280,000 $ 750 200,001 2,510
President 2000 251,442 -- -- 80,000 2,297
President 1999 189,169 $ 1,500 -- 170,000 2,139
1998 154,239 --Richard W. Gross............... 2001 235,000 1,500 114,999 3,446
Senior Vice President 2000 209,038 750 75,000 3,373
1999 138,119 5,250 70,000 3,957
Richard P. Moberg.............. 2001 225,000 -- 105,000 1,414
Richard P. Moberg ...............5,415
Chief Financial Officer and 2000 196,442 -- -- 80,000 4,202
Chief Financial OfficerTreasurer 1999 159,779 -- -- 80,000 3,957
and Treasurer 1998 145,691 -- -- 35,000 1,797
Richard W. Gross ................ 2000 209,038 750 -- 75,000 3,373
Senior Vice President 1999 138,119 5,250 -- 70,000 3,957
1998 110,829 2,000 -- 27,500 1,797
OPTION GRANTS IN LAST FISCAL YEAR. The following table provides
information concerning stock options granted under the 19962001 Nonqualified Stock Option
Plan during 20002001 to each of the executive officers.
In accordance with the terms of the plan, theThe exercise price of each option is equal to the closing price of the
common stock on the Nasdaq National Market on the date of grant. Each option
vests in 16 equal quarterly installments of
6.25%.as described in the "Option grants in last fiscal year"
table below. In 2000,2001, Aware granted employees options to purchase an aggregate
of 1,631,3502,407,423 shares of common stock under its 1996 Stock Option Plan and 2001
Nonqualified Stock Plan.
The amounts reported in the last two columns represent hypothetical
values that the executive officers could realize upon exercise of the options
immediately before to the expiration of their terms, assuming the specified
compounded rates of appreciation of the price of the common stock over the term
of the options. Aware has calculated these numbers based on the rules of the
Securities and Exchange Commission, and they do not represent Aware's estimate
of future stock price growth. Actual gains, if any, on stock option exercises
and common stock holdings will depend on the timing of the exercise and the
future performance of the common stock. The common stock may not achieve the
rates of appreciation assumed in this table and the executive officers may not
receive the amounts reflected in this table. This table does not take into
account any appreciation in the price of the common stock from the date of grant
to the current date. The values shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise.
68
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT
VALUE AT ASSUMED
NUMBER OF OF TOTAL ANNUAL RATE OF STOCK
SECURITIES OPTIONSPERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED TOEXERCISE OPTION TERM
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION ------------------------PRICE -----------
NAME GRANTED(#)GRANTED (#) FISCAL YEAR(%) PRICE($($/SH) EXPIRATION DATE 5% ($) 10% ($)
- ----- ---------- ------------ ---------- ---------- ----------- ---------------------------------- --------------- ---------------- ----------------------------- -------------------------
Michael A. Tzannes .................... 100,000 6.13% $31.250 01/14/10 $1,965,296 $4,980,445
20,000 1.23 20.375 10/18/10 256,275 649,450Tzannes..... 58,333 (1) 2.42% $8.07 5/17/11 $296,050 $750,250
58,333 (2) 2.42 7.42 7/19/11 272,205 689,821
58,333 (3) 2.42 3.74 9/21/11 137,203 347,699
Edmund C. Reiter ...................... 60,000 3.68 31.250 01/14/10 1,179,177 2,988,267
20,000 1.23 20.375 10/18/10 256,275 649,450Reiter......... 66,667 (1) 2.77 8.07 5/17/11 338,347 857,438
66,667 (2) 2.77 7.42 7/19/11 311,095 788,375
66,667 (3) 2.77 3.74 9/21/11 156,805 397,375
Richard W Gross........ 38,333 (1) 1.59 8.07 5/17/11 194,547 493,020
38,333 (2) 1.59 7.42 7/19/11 178,877 453,310
38,333 (3) 1.59 3.74 9/21/11 90,162 228,488
Richard P. Moberg ..................... 60,000 3.68 31.250 01/14/10 1,179,177 2,988,267
20,000 1.23 20.375 10/18/10 256,275 649,450
Richard W. Gross ...................... 55,000 3.37 31.250 01/14/10 1,080,913 2,739,245
20,000 1.23 20.375 10/18/10 256,275 649,450Moberg........ 35,000 (1) 1.45 8.07 5/17/11 177,631 450,153
35,000 (2) 1.45 7.42 7/19/11 163,324 413,895
35,000 (3) 1.45 3.74 9/21/11 82,322 208,621
- -----------------------------------
(1) The options vested 50% on July 1, 2001, and the remaining 50% in eight equal
quarterly installments of 6.25%, beginning as of September 30, 2001.
(2) The options vested 25% on July 19, 2001, and the remaining 75% in 12 equal
quarterly installments of 6.25%, beginning as of September 30, 2001.
(3) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of September 30, 2001.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES. The following table
provides information concerning stock options exercised during 20002001 and stock
options held as of December 31, 20002001 by the executive officers.
The value realized upon the exercise of options is based on the last
sale prices of the common stock on the respective dates of exercise, as reported
by the Nasdaq National Market, less the applicable option exercise prices. The
value of unexercised in-the-money options at fiscal year-end is based on $17.75$8.30
per share, the last sale price of the common stock on December 31, 2000,2001, as
reported by the Nasdaq National Market, less the applicable option exercise
prices. Actual gains, if any, will depend on the value of the common stock on
the date of the sale of the shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END ($YEAR END($)
ACQUIRED ON VALUE ------------------------------------------------------------------------------------------- ---------------------
NAME EXERCISE(#)EXERCISE # REALIZED($) EXERCISABLE(#)UNEXERCISABLE(#)EXERCISABLE($)UNEXERCISABLE($)
- ----- -------------- ------------ ------------------------- ------------------------------- -------------- ------------ ------------------------------
Michael A. Tzannes ........... 163,173 $4,790,701 380,186 203,210 $715,408 $605,894Tzannes...... 0 0 546,726 211,669 $67,153 $269,867
Edmund C. Reiter ............. 30,000 1,017,047 160,555 162,709 233,494 320,342Reiter........ 0 0 310,971 212,294 69,720 308,420
Richard W. Gross........ 0 0 157,215 145,784 85,767 191,781
Richard P. Moberg ............ 42,000 1,169,875 103,457 114,543 227,269 143,731
Richard W. Gross ............. 18,000 585,500 67,467 120,533 203,478 171,147Moberg....... 0 0 190,915 132,085 37,231 161,919
9
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee established by the board of directors is
composed of two outside directors, David Ehreth and John K. Kerr. The
compensation committee has general responsibility for Aware's executive
compensation policies and practices, including responsibility for establishing
the specific compensation of Aware's executive officers and administering
Aware's stock plans. The following report summarizes Aware's executive officer
compensation policies for 2000.
7
2001.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION OBJECTIVES. Aware's executive compensation programs are
generally designed to relate executive compensation to improvements in Aware's
financial performance and corresponding increases in stockholder value.
Decisions concerning executive compensation are intended to:
o establish incentives that will link executive officer
compensation to Aware's stock performance and motivate
executives to attain Aware's quarterly and annual financial
targets and to promote Aware's long-term financial success;
and
o provide a total compensation package that is competitive
within the industry and that will assist Aware to attract and
retain executives who will contribute to the long-term
financial success of Aware.
EXECUTIVE COMPENSATION. Aware's executive compensation package for 20002001
consisted of two principal components: base salary and a stock-based equity
incentive in the form of participation in Aware's stock option plans. Aware's
executive officers were also eligible to participate in other employee benefit
plans, including health and life insurance plans and a 401(k) retirement plan,
on substantially the same terms as other employees who met applicable
eligibility criteria, subject to any legal limitations on the amounts that could
have been contributed or the benefits that could have been paid under these
plans. Aware's executive officers may also participate in Aware's sales bonus
and patent bonus programs on substantially the same terms of other employees. Aware does not have a management incentive bonus program.
Aware's executive compensation policy emphasizes stock options in order
to align the interests of management with the stockholders' interests in the
financial performance of Aware for fiscal quarters, the fiscal year and the
longer term. In granting stock options, the compensation committee considered in
part the value of options held by the executive officers and the extent to which
the compensation committee believed those options would provide sufficient
motivation to the executive officers to achieve Aware's goals. In 2000,2001, the
compensation committee granted stock options under Aware's 19962001 Nonqualified
Stock Option Plan to each of Michael A. Tzannes, Edmund C. Reiter, Richard P. Moberg
and Richard W. Gross. As indicated in the section captioned "Option grants in last
fiscal year" above, all of theThe options granted to Messrs. Tzannes, Reiter, Moberg and
Gross vest over 16 calendar quarters.as indicated in the table captioned "Option grants in last fiscal
year" above.
In establishing base salaries for executives, the compensation
committee monitors salaries at other companies, particularly companies in the
same industry and companies located in the same geographic area as Aware. In
addition, for each executive the compensation committee considers historic
salary levels, work responsibilities and base salary relative to other
executives at Aware. To some extent, the compensation committee also considers
general
10
economic conditions, Aware's financial performance and each individual's
performance. The compensation committee increaseddid not increase the base salaries of
Aware's executive officers in 2000 in accordance with Aware's general policy of
adjusting salaries annually to reflect comparable executive salaries for
comparably sized companies and to accomplish Aware's compensation objectives as
outlined above.2001.
CHIEF EXECUTIVE OFFICER COMPENSATION. Consistent with Aware's overall
executive officer compensation policy, Aware's approach to the chief executive
officer's compensation package in 20002001 was to be competitive with other
companies in the industry. The compensation committee believes that this
approach provided additional incentive to Mr. Tzannes to achieve Aware's
performance goals and enhance stockholder value. Mr. Tzannes' salary was
designed to give him assurance of a base level of compensation commensurate with
his position and duration of employment with Aware and competitive with salaries
for officers holding comparable positions in the industry.
8
POLICY REGARDING SECTION 162(m) OF THE INTERNAL REVENUE CODE. Section
162(m) of the Internal Revenue Code limits Aware's ability to deduct, for income
tax purposes, compensation in excess of $1.0 million paid to the chief executive
officer and the three most highly compensated executive officers of Aware (other
than the chief executive officer) in any year, unless the compensation qualifies
as "performance-based compensation." The compensation committee believes that
options granted under Aware's 1996 Stock Option Plan qualify as
performance-based compensation and, as a result, are not subject to the $1.0
million limit. In 2000,2001, the aggregate base salaries,
bonuses and other non-equity compensation of Aware's executive officers did not
exceed the $1.0 million limit. The compensation committee does not expect that
non-equity compensation will exceed the $1.0 million limit in the foreseeable
future. With respect to equity compensation, the compensation committee's policy
with respect to Section 162(m) is that it would prefer to cause compensation to
be deductible by Aware; however, the compensation committee also weighs the need
to provide appropriate incentives to Aware's executive officers against the
potential adverse tax consequences that may result under Section 162(m) from the
grant of compensation that does not qualify as performance-based compensation.
The compensation committee has authorized and may continue to authorize
compensation payments that do not qualify as performance-based compensation and
that are in excess of the limits in circumstances when the committee believes
such payment is appropriate.
The compensation committee
David Ehreth
John K. Kerr
911
PERFORMANCE GRAPH
The following performance graph compares the performance of Aware's
cumulative stockholder return with that of a broad market index, the Nasdaq
Stock Market Index for U.S. Companies, and a published industry index, the J.P.
Morgan H&Q Technology Index (formerly known as the Hambrecht & Quist Technology
Index). The cumulative stockholder returns for shares of Aware's common stock
and for the market and industry indices are calculated assuming $100 was
invested on August 9, 1996, the date on which Aware's common stock commenced
trading on the Nasdaq National Market, and assuming shares of Aware's common
stock were purchased at the initial public offering price of the common stock.December 31, 1996. Aware paid no cash dividends during the periods
shown. The performance of the market and industry indices is shown on a total
return, or dividends reinvested, basis.
COMPARISON OF 53-MONTHFIVE YEAR CUMULATIVE TOTAL RETURN
AMONG AWARE INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE J.P. MORGAN H & Q TECHNOLOGY INDEX*
[PERFORMANCE GRAPH]
VALUE OF INVESTMENT ($)
------------------------------------------------------------------
8/9/96---------------------------------------------------------------
12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 -------12/31/01
-------- -------- -------- -------- -------- --------
Aware, Inc. ......................... $100 $101 $103 $272 $364 $178Inc.................................. $100.00 $101.23 $268.52 $359.26 $175.31 $ 81.98
J.P. Morgan H & Q Technology Index .. 100 118 139 216 482 311Index.......... 100.00 122.48 172.68 320.89 193.01 153.15
Nasdaq Stock Market - U.S. .......... 100 113 139 196 363 219U.S................... 100.00 117.24 182.36 407.27 263.28 181.99
1012
REPORT OF THE AUDIT COMMITTEE
The board of directors appointed an audit committee to reviewreviews the results and scope of the annual audit
of Aware's financial statements conducted by Aware's independent accountants,
the scope of other services provided by Aware's independent accountants,
proposed changes in Aware's financial and accounting standards and principles,
and Aware's policies and procedures with respect to its internal accounting,
auditing and financial controls. The audit committee also makes recommendations
to the board of directors on the engagement of the independent accountants, as
well as other matters which may come before the audit committee or at the
direction of the board of directors. The audit committee is governed by a
written charter adopted by the board of directors. A
copy of the charter is attached to this proxy statement.
The audit committee currently consists of three non-employee directors.
Each member of the audit committee is "independent" within the meaning of the
Nasdaq Stock Market's marketplace rules.
Aware's management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation of financial
statements in accordance with generally accepted accounting principles. Aware's
independent auditors are responsible for auditing those financial statements.
The responsibility of the audit committee is to monitor and review these
processes. However, the members of the audit committee are not professionally
engaged in the practice of accounting or auditing and are not experts in the
fields of accounting or auditing, including with respect to auditor
independence. The audit committee has relied, without independent verification,
on the information provided to it and on the representations made by Aware's
management and independent auditors.
In fulfilling its oversight responsibilities, the audit committee
discussed with representatives of PricewaterhouseCoopers LLP, Aware's
independent auditors for fiscal 2000,2001, the overall scope and plans for their audit of
Aware's financial statements for fiscal 2000.2001. The audit committee met with them, with
and without Aware's management present, to discuss the results of their
examinations and their evaluations of Aware's internal controls and the overall
quality of Aware's financial reporting.
The audit committee reviewed and discussed the audited financial
statements for fiscal 20002001 with management and the independent auditors.
The audit committee discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61,
Communication with Audit Committees,COMMUNICATION WITH AUDIT COMMITTEES, as amended. In addition, the audit
committee received from the independent auditors the written disclosures
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees,INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEES, and discussed their independence with them.
In evaluating the independence of Aware'sour auditors, the audit committee considered
whether the services they provided to Aware beyond their audit and review of
Aware's financial statements were compatible with maintaining their
independence. The audit committee also considered the amount of fees they
received for audit and non-audit services.
Based on the audit committee's review and these meetings, discussions
and reports, and subject to the limitations on the audit committee's role and
responsibilities referred to above and in the audit committee charter, the audit
committee recommended to the board of directors that Aware's audited financial
statements for fiscal 20002001 be included in Aware's annual report on Form 10-K.10-
13
K. The audit committee also recommended to the board of directors that
PricewaterhouseCoopers LLP be selected as Aware's independent auditors for fiscal 2001.2002.
The audit committee
David Ehreth
G. David Forney, Jr.
John K. Kerr
1114
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on March 30, 2001,April 4, 2002, there were issued and
outstanding 22,618,30922,667,009 shares of common stock entitled to cast 22,618,30922,667,009 votes.
On March 30, 2001,April 4, 2002, the closing price of Aware's common stock as reported by
the Nasdaq National Market was $9.625$6.20 per share.
PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership
of Aware's common stock as of March 30, 2001April 4, 2002 by:
o each person known by Aware to own beneficially more than five
percent of Aware's common stock;
o each of Aware's directors;
o each of Aware's executive officers; and
o all of Aware's current executive officers and directors as a
group.
In accordance with SEC rules, beneficial ownership includes any shares
for which a person has sole or shared voting power or investment power and any
shares of which the person has the right to acquire beneficial ownership within
60 days after March 30, 2001April 4, 2002 through the exercise of any option or otherwise.
Except as noted below, Aware believes that the persons named in the table have
sole voting and investment power with respect to the shares of common stock set
forth opposite their names. The inclusion of shares listed as beneficially owned
does not constitute an admission of beneficial ownership. Percentage of
beneficial ownership is based on 22,618,30922,667,009 shares of common stock outstanding
as of March 30, 2001.April 4, 2002. In calculating a person's percentage ownership, Aware
has treated as outstanding any shares that the person has the right to acquire
within 60 days of March 30, 2001.April 4, 2002. All shares included in the "Right to
acquire" column represent shares subject to outstanding stock options
exercisable within 60 days after March 30, 2001.April 4, 2002. The information as to each
person has been furnished by such person.
NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------------------------------------------------- PERCENT
OUTSTANDING RIGHT TO TOTAL BENEFICIALLY
NAME SHARES ACQUIRE NUMBER OWNED
- ---- ------ ------- ----------- ---------- ----------- ---------------- -----
John S. Stafford, Jr.State of Wisconsin Investment Board (1) ...................................1,748,782.......... 1,255,000 -- 1,748,782 7.7%
230 S. LaSalle Street
Suite 688
Chicago, Illinois 606041,255,000 5.5%
P.O. Box 7842
Madison, WI 53707
John K. Kerr(2) ............................................. 719,626 33,686 753,312 3.3Kerr (2)................................ 741,626 49,311 790,937 3.5
Michael A. Tzannes(3) ....................................... 92,238 405,915 498,153 2.2Tzannes (3)........................... 103,238 583,059 686,297 3.0
Edmund C. Reiter ............................................ 6,661 180,659 187,320Reiter................................. 9,661 342,743 352,404 1.5
Richard W. Gross................................. 8,000 177,903 185,903 *
Richard P. Moberg ...........................................Moberg................................ 5,226 116,478 121,704 *
Richard W. Gross ............................................ 8,000 79,498 87,498209,832 215,058 *
David Ehreth ................................................ -- 30,951 30,951Ehreth..................................... 0 43,034 43,034 *
G. David Forney, Jr. ........................................ -- 12,499 12,499Jr.............................. 0 29,685 29,685 *
All directors and executive officers
as a group (7 persons) ................................... 831,751 859,686 1,691,437 7.2%........................ 867,751 1,435,567 2,303,318 9.6
- -------------------------------------------------------------
* Less than one percent.
(1) The number of shares beneficially owned by Mr. Staffordthe State of Wisconsin
Investment Board is based upon information in an amendeda Schedule 13G filed by
Mr. Staffordthe State of Wisconsin Investment Board on February 9,
2001.11, 2002.
15
(2) Includes 240,193 shares held by Grove Investment Partners, of which Mr.
Kerr is a general partner.
(3) Includes 20,000 shares held by a private charitable foundation, of
which Mr. Tzannes and his wife are trustees.
12
PROPOSAL 2--AMENDMENT OF THE COMPANY'S ARTICLES OF ORGANIZATION
On February 26, 2002, the Board approved, and voted to recommend to the
stockholders that they approve, an amendment to the Company's Restated Articles
of Organization to increase the authorized common stock from 30,000,000 to
70,000,000 shares. On April 4, 2002, there were 22,667,009 shares of common
stock outstanding, and an additional 7,164,430 shares were reserved for issuance
pursuant to the 1996 Stock Option Plan, the 2001 Nonqualified Stock Plan and the
1996 Employee Stock Purchase Plan.
The Board believes that the authorization of additional shares of
common stock is desirable to provide shares for issuance in connection with
possible financings, stock dividends, management and employee incentive plans,
acquisitions or other general corporate purposes. However, as of the date of
mailing of this proxy statement to stockholders, there is no plan, understanding
or agreement for the issuance of any shares of common stock with the exception
of the shares of common stock available for issuance under the 1996 Stock Option
Plan, the 2001 Nonqualified Stock Plan and the 1996 Employee Stock Purchase
Plan. If the amendment is approved by the stockholders, the Board of Directors
will have authority to issue additional shares of common stock without the
necessity of further stockholder action. The issuance of additional shares of
common stock, while providing desired flexibility in connection with possible
financings and other corporate purposes, could have the effect of diluting the
ownership interest of the Company's current stockholders. Holders of common
stock have no preemptive rights with respect to any shares which may be issued
in the future.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE INCREASE IN THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Aware's
executive officers and directors, as well as persons who beneficially own more
than ten percent of Aware's common stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Regulations of
the SEC require these executive officers, directors and stockholders to furnish
Aware with copies of all Section 16(a) forms they file.
Based solely upon a review of the Forms 3, 4 and 5 and amendments
thereto furnished to Aware with respect to 2000,2001, or written representations that
Form 5 was not required for 2000,2001, Aware believes that all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater-than-ten-percent stockholders were fulfilled in a timely manner.
16
INDEPENDENT ACCOUNTANTS
The board of directors has selected PricewaterhouseCoopers LLP as
independent accountants to audit the financial statements of Aware for the year
ending December 31, 2001.2002. PricewaterhouseCoopers LLP has served as Aware's
principal independent accountants since May, 1999.
FEES FOR PROFESSIONAL SERVICES
The following table provides the fees Aware paid to
PricewaterhouseCoopers LLP for professional services rendered for fiscal 2000.2001. Audit
fees consist of fees for services rendered by PricewaterhouseCoopers LLP in
connection with their audit of Aware's annual financial statements and their
review of Aware's interim financial statements included in Aware's quarterly
reports on Form 10-Q for fiscal 2000.
Audit fees ......................................................................... $87,500
Financial information systems design and implementation fees ....................... --
All other fees ..................................................................... 25,783
2001.
AUDIT FEES ...................................................... $75,000
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES .... 0
ALL OTHER FEES .................................................. 9,500
ATTENDANCE AT ANNUAL MEETING
Aware expects that representatives of PricewaterhouseCoopers LLP will
be present at the annual meeting. They will have an opportunity to make a
statement if they desire to do so and will be available to respond to
appropriate questions from stockholders.
CHANGE IN INDEPENDENT AUDITORS IN 1999
Aware's audit committee recommended, and Aware's board of directors
unanimously voted, effective May 25, 1999, to appoint PricewaterhouseCoopers LLP
as its independent accountants for the fiscal year ending December 31, 1999, and
to dismiss Deloitte & Touche LLP, which had served as Aware's independent
accountants since April 1996. During Aware's fiscal years ended December 31,
1997 and 1998, and the subsequent interim period prior to May 25, 1999, Deloitte
& Touche LLP did not have any disagreement with Aware on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, which disagreement, if not resolved to the satisfaction of
Deloitte & Touche LLP, would have caused it to make reference to the subject
matter of the disagreement in connection with its reports on Aware's financial
statements. The reports of Deloitte & Touche LLP on Aware's financial statements
for the period from January 1, 1997 through December 31, 1998 did not contain an
adverse opinion or a disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the period from
January 1, 1997 through May 25, 1999, there were no "reportable events" within
the meaning of Item 304(a)(1)(v) of Regulation S-K promulgated under the
Securities Act of 1933, as amended.
13
STOCKHOLDER PROPOSALS
If any stockholder would like to include any proposal in Aware's proxy
materials for its next annual meeting of stockholders or special meeting in lieu
thereof, the stockholder must comply with the requirements of Rule 14a-8 under
the Securities Exchange Act of 1934. Among other requirements, Aware must
receive the proposal at its executive offices no later than December 11, 2001.17, 2002.
If any stockholder would like to submit a proposal for that meeting outside the
processes of Rule 14a-8, notice of the proposal will be considered untimely
under Rule 14a-4(c)(1) if Aware receives the notice after February 24, 2002.March 2, 2003.
AVAILABLE INFORMATION
STOCKHOLDERS OF RECORD ON MARCH 30, 2001(RECORD DATE) WILL RECEIVE COPIES OF THIS
PROXY STATEMENT AND AWARE'S 20002001 ANNUAL REPORT TO STOCKHOLDERS, WHICH CONTAINS
DETAILED FINANCIAL INFORMATION CONCERNING AWARE. AWARE WILL MAIL, WITHOUT
CHARGE, A COPY OF AWARE'S ANNUAL REPORT ON FORM 10-K (EXCLUDING EXHIBITS) TO ANY
STOCKHOLDER WHOSE PROXY AWARE IS SOLICITING IF THE STOCKHOLDER REQUESTS IT IN
WRITING. PLEASE SUBMIT ANY SUCH WRITTEN REQUEST TO MR. RICHARD P. MOBERG, CHIEF
FINANCIAL OFFICER AND TREASURER, AWARE, INC., 40 MIDDLESEX TURNPIKE, BEDFORD,
MASSACHUSETTS 01730.
14
ANNEX A
AWARE, INC.
AUDIT COMMITTEE CHARTER
MISSION STATEMENT
The audit committee will assist the board of directors in fulfilling its
oversight responsibilities. The audit committee will review the financial
reporting process, the system of internal control, the audit process, and the
company's process for monitoring compliance with laws and regulations and with
the code of conduct. In performing its duties, the committee will maintain
effective working relationships with the board of directors, management, and the
external auditors. To effectively perform his or her role, each committee member
will obtain an understanding of the detailed responsibilities of committee
membership as well as the company's business, operations, and risks.
ORGANIZATION
Size of committee
-----------------
The audit committee shall be comprised of at least 3 members.
Membership qualifications
-------------------------
Each member should make a unique and valuable contribution to the
committee. A diverse outlook among members is also desirable, since a uniform
point of view could lead to overemphasis in one direction. Qualifications that
each committee member should possess include:
o Integrity;
o Recognition of audit committee's significant role;
o Dedication of time and energy;
o Understanding of the business, its products, and its services;
o Knowledge of the company's risks and controls, and the ability to offer
insights;
o Inquisitiveness and independent judgment (asking the right questions and
interpreting the answers); and
o Ability to offer new and different perspectives and constructive
suggestions.
The board of directors should ensure periodically that the mix of
characteristics, experiences, and skills of committee members provides an
appropriate balance necessary for the committee's successful performance.
Independence of members
-----------------------
To the extent practical, the audit committee shall be composed of
independent directors. In the event that all members of the audit committee are
not independent directors, then independent directors should be a majority of
the members of the committee.
A-1
Frequency of meetings
---------------------
The audit committee shall meet regularly and must carefully plan its
timetable, agendas, and participants. The number of meetings the committee holds
is influenced by the objectives established and the scope of activities. Above
all, the number and length of committee meetings shall be appropriate to ensure
that the committee meets its objectives.
Appointment of chairperson
--------------------------
In selecting a committee chairperson, the board of directors shall choose
someone with the requisite characteristics listed above, strong leadership
qualities, objectivity, and the ability to promote effective working
relationships.
ROLES AND RESPONSIBILITIES
INTERNAL CONTROL
o Evaluate whether management is setting the appropriate tone at the top by
communicating the importance of internal control and ensuring that all
individuals possess an understanding of their roles and responsibilities;
o Focus on the extent to which external auditors review computer systems
and applications, the security of such systems and applications, and the
contingency plan for processing financial information in the event of a
systems breakdown;
o Gain an understanding of whether internal control recommendations made by
external auditors have been implemented by management; and
o Ensure that the external auditors keep the audit committee informed about
fraud, illegal acts, deficiencies in internal control, and certain other
matters.
FINANCIAL REPORTING
General
-------
o Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements, and understand their impact
on the financial statements; and
o Ask management and the external auditors about significant risks and
exposures and the plans to minimize such risks.
Annual Financial Statements
---------------------------
o Review the annual financial statements and determine whether they are
complete and consistent with the information known to committee members,
and assess whether the financial statements reflect appropriate
accounting principles;
o Pay particular attention to complex and/or unusual transactions such as
restructuring charges and derivative disclosures;
o Focus on judgmental areas such as those involving valuation of assets and
liabilities, including, for example, the accounting for and disclosure of
obsolete or slow-moving inventory; loan losses; warranty, product, and
environmental liability; litigation reserves; and other commitments and
contingencies;
A-2
o Meet with management and the external auditors to review the financial
statements and the results of the audit;
o Consider management's handling of proposed audit adjustments identified
by the external auditors;
o Review the MD&A and other sections of the annual report before its
release and consider whether the information is adequate and consistent
with members' knowledge about the company and its operations; and
o Ensure that the external auditors communicate certain required matters
to the committee.
Interim Financial Statements
----------------------------
o Be briefed on how management develops and summarizes quarterly financial
information, the extent to which the external auditors review quarterly
financial information, and whether that review is performed on a pre- or
post-issuance basis;
o Meet with management and, if a pre-issuance review was completed, with
the external auditors, either telephonically or in person, to review the
interim financial statements and the results of the review. (This may be
done by the committee chairperson or the entire committee);
o To gain insight into the fairness of the interim statements and
disclosures, obtain explanations from management and from the internal
and external auditors on whether:
o Actual financial results for the quarter or interim period varied
significantly from budgeted or projected results;
o Changes in financial ratios and relationships in the interim
financial statements are consistent with changes in the company's
operations and financing practices;
o Generally accepted accounting principles have been consistently
applied;
o There are any actual or proposed changes in accounting or
financial reporting practices;
o There are any significant or unusual events or transactions;
o The company's financial and operating controls are functioning
effectively;
o The company has complied with the terms of loan agreements or
security indentures; and
o The interim financial statements contain adequate and appropriate
disclosures.
o Ensure that the external auditors communicate certain required matters to
the committee.
COMPLIANCE WITH LAWS AND REGULATIONS
o Review the effectiveness of the system for monitoring compliance with
laws and regulations and the results of management's investigation and
follow-up (including disciplinary action) on any fraudulent acts or
accounting irregularities;
o Periodically obtain updates from management, general counsel, and tax
director regarding compliance;
A-3
o Be satisfied that all regulatory compliance matters have been considered
in the preparation of the financial statements; and
o Review the findings of any examinations by regulatory agencies such as
the Securities and Exchange Commission.
COMPLIANCE WITH CODE OF CONDUCT
o Ensure that a code of conduct is formalized in writing and that all
employees are aware of it;
o Evaluate whether management is setting the appropriate tone at the top by
communicating the importance of the code of conduct and the guidelines
for acceptable business practices;
o Review the program for monitoring compliance with the code of conduct;
and
o Periodically obtain updates from management and general counsel regarding
compliance.
EXTERNAL AUDIT
o Review the external auditors' proposed audit scope and approach;
o Review the performance of the external auditors and recommend to the
board of directors the appointment or discharge of the external auditors;
and
o Review and confirm the independence of the external auditors by reviewing
the nonaudit services provided and the auditors' assertion of their
independence in accordance with professional standards.
OTHER RESPONSIBILITIES
o Meet with the external auditors and management in separate executive
sessions to discuss any matters that the committee or these groups
believe should be discussed privately;
o Ensure that significant findings and recommendations made by the external
auditors are received and discussed on a timely basis;
o Review, with the company's counsel, any legal matters that could have a
significant impact on the company's financial statements;
o Review the policies and procedures in effect for considering officers'
expenses and perquisites;
o If necessary, institute special investigations and, if appropriate, hire
special counsel or experts to assist;
o Perform other oversight functions as requested by the full board; and
o Review and update the charter; receive approval of changes from the
board.
REPORTING RESPONSIBILITIES
o Regularly update the board of directors about committee activities and
make appropriate recommendations.
A-417
AWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 24, 200131, 2002.
The undersigned stockholder of Aware, Inc. (the "Company"), revoking all
prior proxies, hereby appoints Michael A. Tzannes, Richard P. Moberg and Kevin T.
Russell,William
R. Kolb, or any of them acting singly, proxies, with full power of substitution,
to vote all shares of capital stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at the
Renaissance Bedford Hotel, 44 Middlesex Turnpike, Bedford, Massachusetts, on
Thursday,Friday, May 24, 2001,31, 2002, beginning at 10:00 A.M., local time, and at any
adjournments or postponements thereof, upon the matters set forth in the Notice of Annual Meeting of
Stockholders dated April 10, 200115, 2002 and the related Proxy Statement, copies of
which have been received by the undersigned, and in their discretion upon any
business that may properly come before the Annual Meeting or any adjournments
or postponements thereof. Attendance of the undersigned at the Annual Meeting or any adjournment or postponement
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate in writing the intention of the undersigned to vote the
shares represented hereby in person prior to the exercise of this proxy.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN WITH RESPECT TO EITHER OF THE PROPOSALPROPOSALS SET FORTH ON THE
REVERSE SIDE, WILL BE VOTED FOR THEEACH SUCH PROPOSAL OR OTHERWISE IN ACCORDANCE
WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
Please promptly date and sign this proxy and mail it in the enclosed envelope to
ensure representation of your shares. No postage need be affixed if mailed in
the United States.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on your stock certificate.certificate(s). If
shares are held as joint tenants, both should sign. If stockholder is a
corporation, please sign full corporate name by president or other authorized
officer and, if a partnership, please sign full partnership name by an
authorized partner or other authorized person. If signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------------- -------------------------------------
- ---------------------------------- -------------------------------------
- ---------------------------------- -------------------------------------
AWARE, INC.
c/o EQUISERVE
P.O. BOX 9398
BOSTON, MA 02205-9398
Please complete and return the proxy card below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AWARE, INC.
A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS NEED ONLY SIGN AND DATE
THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
DETACH HERE
- --------------------------------------------------------------------------------
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
- -------------------------------------
AWARE, INC.
- -------------------------------------
1. To elect each of (01) David Ehreth and (02) John K. KerrEdmund C. Reiter as a Class II
DirectorsIII director of the Company.
[ ] FOR ALL NOMINEESTHE NOMINEE
[ ] WITHHELD FROM ALL NOMINEESTHE NOMINEE
2. To amend the Company's Restated Articles of Organization to increase
the Company's authorized common stock from 30,000,000 to 70,000,000
shares.
[ ] ---------------------------------
For all nomineess except as noted aboveFOR
[ ] AGAINST
[ ] ABSTAIN
RECORD DATE SHARES:
Mark box at right if you plan to attend the Annual Meeting. [ ]
Mark box at right if an address change or comment has been noted on [ ] the
reverse side of this card. [ ]
Please be sure to sign and date this Proxy. Signature: Date: Signature: Date:
------------- ---------- ------------- ----------
-2-Date_______________
- ------------------------------ -----------------------------
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
- -------------------------------------------------------------------------