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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 000-21129
AWARE, INC.
----------
(Exact Name of Registrant as Specified in Its Charter)
MASSACHUSETTS 04-2911026
------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE OAK PARK, BEDFORD, MASSACHUSETTS, 01730
-------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(617) 276-4000
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES NO X
--- ---
Indicate the number of shares outstanding of the issuer's common stock as of
August 14, 1996:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Common Stock, par value $0.01 per share 18,392,397 shares
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AWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
Page
----
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Condensed Balance Sheets as of June 30, 1996
and December 31, 1995 ..................................... 3
Condensed Statements of Operations for the
Three and Six Months Ended June 30, 1996
and June 30, 1995 ......................................... 4
Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1996 and June 30, 1995 .......... 5
Notes to Condensed Financial Statements ................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ....... 13
Item 6. Exhibits and Reports on Form 8-K .......................... 15
Signatures ................................................ 15
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AWARE, INC.
<TABLE>
CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................................................... $ 2,694,112 $ 2,153,681
Accounts receivable (less allowance for doubtful
accounts of $15,300 in 1996 and $5,300 in 1995) ............................. 833,798 500,828
Unbilled accounts receivable ................................................... 109,648 116,261
Inventories .................................................................... 504,119 39,713
Deferred financing costs ....................................................... 371,240 -
Prepaid expenses ............................................................... 32,098 14,471
------------ ------------
Total current assets ..................................................... 4,545,015 2,824,954
Property and equipment, net of accumulated depreciation and
amortization of $1,594,669 in 1996 and $1,480,614 in 1995 ...................... 472,375 403,405
------------ ------------
Total assets ........................................................................ $ 5,017,390 $ 3,228,359
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................................... $ 777,215 $ 111,519
Accrued expenses ............................................................... 39,472 65,404
Accrued compensation ........................................................... 89,964 67,887
Accrued professional fees ...................................................... 18,926 14,000
Deferred revenue ............................................................... 50,000 50,000
------------ ------------
Total current liabilities .............................................. 975,577 308,810
Stockholders' equity:
Preferred stock, $1.00 par value; no shares authorized ......................... - -
Preferred stock, $1.00 par value:
Series B convertible preferred stock, 15,875 shares authorized,
15,875 issued and outstanding in 1995, none outstanding in 1996 ........ - 15,875
Series C convertible preferred stock, 13,525 shares authorized,
13,525 issued and outstanding in 1995, 5,410 outstanding in 1996 ....... 5,410 13,525
Series D convertible preferred stock, 74,800 shares authorized,
69,166 issued and outstanding in 1995, 13,012 outstanding in 1996 ...... 13,012 69,166
Series E convertible preferred stock, 45,000 shares authorized,
29,432 issued and outstanding in 1995 and 1996 ......................... 29,432 29,432
Common stock, $.01 par value; 30,000,000 shares authorized; issued
and outstanding, 1,166,960 in 1995 and 10,207,007 in 1996 .............. 102,070 11,670
Additional paid-in capital .................................................... 14,830,134 13,807,945
Accumulated deficit ........................................................... (10,485,283) (10,575,102)
Treasury stock ................................................................ (452,962) (452,962)
------------ ------------
Total stockholders' equity ............................................. 4,041,813 2,919,549
Total liabilities and stockholders' equity .......................................... $ 5,017,390 $ 3,228,359
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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AWARE, INC.
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product ....................................... $ 144,894 $ 23,100 $ 150,019 $ 224,801
License and royalty ........................... 792,169 55,159 1,439,605 392,511
Research and development ...................... 191,412 283,316 500,854 694,639
----------- ---------- ----------- ----------
Total revenue ............................. 1,128,475 361,575 2,090,478 1,311,951
Costs and expenses:
Cost of product revenue ....................... 94,460 14,567 98,580 99,008
Cost of research and development revenue ...... 144,973 242,046 392,587 605,390
Research and development ...................... 437,872 361,344 789,497 707,916
Selling and marketing ......................... 188,857 112,338 330,548 202,598
General and administrative .................... 244,013 193,794 443,315 375,390
----------- ---------- ----------- ----------
Total costs and expenses ................. 1,110,175 924,089 2,054,527 1,990,302
Income (loss) from operations ..................... 18,300 (562,514) 35,951 (678,351)
Interest income ................................... 30,368 32,232 53,868 60,856
----------- ---------- ----------- ----------
Net income (loss) ................................. $ 48,668 $ (530,282) $ 89,819 $ (617,495)
=========== ========== =========== ==========
Net income (loss) per share ....................... $ 0.00 $ (0.26) $ 0.01 $ (0.30)
=========== ========== =========== ==========
Weighted average common and common
equivalent shares outstanding .................... 16,590,304 2,049,149 16,194,736 2,040,782
=========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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AWARE, INC.
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................... $ 89,819 $ (617,495)
Depreciation and amortization ................................... 114,514 105,000
Increase (decrease) from changes in assets and liabilities:
Accounts receivable .......................................... (332,970) 281,492
Unbilled accounts receivable ................................. 6,613 257,448
Inventories .................................................. (464,406) 5,905
Prepaid expenses ............................................. (17,627) 26,092
Deferred offering costs ...................................... (371,240) -
Accounts payable ............................................. 665,696 (26,651)
Accrued expenses ............................................. 1,071 (396,267)
Deferred revenue ............................................. - (39,720)
---------- ----------
Net cash used in operating activities .............................. (308,530) (404,196)
Cash flows from investing activities:
Purchases of property and equipment ............................ (183,484) (121,985)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock ........................ 1,032,445 15,928
---------- ----------
Increase (decrease) in cash and cash equivalents ................... 540,431 (510,253)
Cash and cash equivalents, beginning of period ..................... 2,153,681 2,566,128
---------- ----------
Cash and cash equivalents, end of period ........................... $2,694,112 $2,055,875
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest .......................................... $ 628 $ 578
SUPPLEMENTAL NONCASH DISCLOSURES:
Conversion of preferred stock to common stock ................... $ 80,144 -
Repurchase of Series D preferred shares for
cancellation of notes ...................................... - $ 457,062
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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AWARE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A) BASIS OF PRESENTATION
The accompanying unaudited condensed balance sheets, statements of
operations, and statements of cash flows reflect all adjustments
(consisting only of normal recurring items) which are, in the opinion
of management, necessary for a fair presentation of financial position
at June 30, 1996, and of operations and cash flows for the interim
periods ended June 30, 1996 and 1995.
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions for Form 10-Q and
therefore do not include all information and footnotes necessary for a
complete presentation of operations, the financial position, and cash
flows of the Company, in conformity with generally accepted accounting
principles. The Company filed audited financial statements which
included all information and footnotes necessary for such presentation
for the years ended December 31, 1995 and December 31, 1994 in
conjunction with a Registration Statement on Form S-1 (SEC File No.
333-6807), as declared effective on August 8, 1996.
The results of operations for the interim period ended June 30, 1996
are not necessarily indicative of the results to be expected for the
year.
B) INVENTORY
Inventory consists primarily of raw materials to manufacture modems.
There were nominal amounts of work-in-process and finished goods
inventory on hand at December 31, 1995 and June 30, 1996.
C) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
common and dilutive common equivalent shares (common stock options and
convertible preferred stock) outstanding. Common equivalent shares are
not included in the per share calculations in fiscal 1995 periods
because the effect of their inclusion would be antidilutive, except in
accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83. The Bulletin requires all common shares issued and
options to purchase shares of common stock granted by the Company
during the twelve-month period prior to the filing of a proposed
initial public offering to be included in the calculation as if they
were outstanding for all periods.
6
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D) SUBSEQUENT EVENT
On August 14, 1996, the Company completed an initial public offering
("IPO") whereupon 3,400,000 shares of Common Stock were sold at a price
of $10.00 per share. Net proceeds to the Company after underwriting
discounts and commissions and related expenses were approximately
$30,700,000. In addition, the Company granted to the underwriters of
the IPO a 30-day option to purchase up to an additional 510,000 shares
of Common Stock solely to cover over-allotments. Upon the closing of
the IPO, all outstanding shares of the Company's Preferred Stock were
automatically converted into shares of Common Stock.
7
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the following Management's Discussion and
Analysis of Financial Condition and Results of Operations which are not
historical are "forward looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events, however the
Company cautions that such statements are qualified by important factors. Such
factors, which are identified under the heading "Risk Factors" below, could
cause actual results to differ materially from those indicated in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
Product Revenue. Product revenue consists primarily of revenue from the
sale of tangible products, such as Asymmetric Digital Subscriber Line ("ADSL")
modems and video editing chipset products, which are manufactured by the Company
or third party suppliers. Product revenue increased by 527% from $23,100 in the
second quarter of 1995 to $144,894 in the current year quarter. Product revenue
as a percentage of total revenue was 13% in the second quarter of 1996 as
compared to 6% in the corresponding quarter of 1995. The dollar increase, as
well as the increase as a percentage of total revenue, is primarily due to the
following reasons. Revenue in the second quarter of 1995 period consisted
primarily of revenue from the sale of video editing chipset products, which the
Company discontinued in the fourth quarter of 1995. Revenue in the second
quarter of 1996 consisted primarily of revenue from the sale of ADSL modems,
which the Company began shipping in the first quarter of 1996. Accordingly, a
comparison of product revenue on a year over year basis is not particularly
meaningful due to differences in the composition of revenue.
For the six months ended June 30, product revenue decreased by 33% from
$224,801 in 1995 to $150,019 in 1996. Product revenue as a percentage of total
revenue was 7% for the first six months of 1996 as compared to 17% in the
corresponding period in 1995. The decrease in dollar revenue and as a percentage
of total revenue is primarily due to a large video editing chipset sale in the
first quarter of 1995 and a nominal amount of revenue from the sale of ADSL
modems in the first quarter of 1996.
License and Royalty Revenue. License and royalty revenue consists
primarily of revenue from the sale of intellectual property, such as hardware
and software technology licenses, compression software licenses, and royalties
from the sale of chipsets by customers who have licensed the Company's
technology. As such revenue has only a nominal cost of sale associated with it,
the Company does not report a separate cost of license and royalty revenue line
in its Statements of Operations.
8
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License and royalty revenue increased from $55,159 in the second quarter of 1995
to $792,169 in the current year quarter. License and royalty revenue as a
percentage of total revenue was 70% in the second quarter of 1996 as compared to
15% in the corresponding quarter of 1995. For the six months ended June 30,
license and royalty revenue increased from $392,511 in 1995 to $1,439,605 in
1996. License and royalty revenue as a percentage of total revenue was 69% for
the first six months of 1996 as compared to 30% in the corresponding period of
1995. The dollar increase as well as the increase as a percentage of total
revenue, in both the three and six month periods, is primarily due to an
increase in the sale of compression software licenses, and sales of ADSL and
other broadband technology licenses.
Research and Development Revenue. Research and development revenue
consists primarily of revenue from commercial contract engineering and
development, and government research contracts. Research and development revenue
decreased by 32% from $283,316 in the second quarter of 1995 to $191,412 in the
current year quarter. Research and development revenue as a percentage of total
revenue was 17% in the second quarter of 1996 as compared to 78% in the
corresponding quarter of 1995. For the six months ended June 30, research and
development revenue decreased from $694,639 in 1995 to $500,854 in 1996.
Research and development revenue as a percentage of total revenue was 24% for
the first six months of 1996 as compared to 53% in the corresponding period of
1995. The dollar decrease as well as the decrease as a percentage of total
revenue, in the three and six month periods, is primarily due to lower revenue
from commercial research and development contracts, which was partially offset
by a modest increase in revenue from U.S. government research contracts. The
decrease in research and development revenue as a percentage of total revenue
was also driven by the Company's decision to shift its business away from
contract research activities toward the sale of commercial technology licenses.
Cost of Product Revenue. Cost of product revenue consists primarily of
direct material, direct labor and overhead costs to produce the Company's
products, and cost of goods for purchases of finished goods inventory from third
party suppliers. Cost of product revenue as a percentage of product revenue was
65% in the second quarter of 1996 as compared to 63% in the prior year quarter.
Cost of product revenue as a percentage of product revenue was 66% for the first
six months of 1996 as compared to 44% in the corresponding 1995 period. In the
three and six month periods in 1996, the percentages primarily reflect the cost
of modem revenue. In the three and six month periods in 1995, the percentages
primarily reflect the cost of video editing chipset revenue. The lower cost of
product revenue in the first six months of 1995 reflects lower costs from the
Company's video editing chipset supplier due to a volume purchase.
Cost of Research and Development Revenue. Cost of research and
development revenue consists primarily of direct labor, direct material and
travel expenses associated with commercial contract engineering and development,
and government research contracts. As a percentage of research and development
revenue, related costs decreased from 85% in the second quarter of 1995 to 76%
in the current year quarter, and decreased from 87% in the first six months of
1995 to 78% in the corresponding 1996 period. The slight improvement in cost as
a percentage of research and development revenue is primarily attributable to
the mix of commercial and U.S. government research contracts.
Research and Development Expense. Research and development expense
consists primarily of employee and consultant costs, supplies and allocated
facilities costs related to the development and enhancement of the Company's
products and technology. Research and
9
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development expense increased by 21% from $361,344 in the second quarter of 1995
to $437,872 in the current year quarter. For the six month period ended June 30,
research and development expense increased 12% from $707,916 in 1995 to $789,497
in 1996. For the three and six month periods, the increase in research and
development expense is primarily attributable to higher spending on projects to
develop and enhance the Company's ADSL and Hybrid Fiber Coaxial technology.
Higher spending on these projects was partially offset by lower spending as a
result of the discontinuance of research involving audio compression technology
and lower facilities costs as a result of the relocation of the Company's
facilities in June 1995.
Selling and Marketing Expense. Selling and marketing expense consists
primarily of salaries for sales and marketing personnel, travel, product
advertising, and allocated facilities expense. Selling and marketing expense
increased 68% from $112,338 in the second quarter of 1995 to $188,857 in the
current year quarter. For the six month period ended June 30, sales and
marketing expense increased 63% from $202,598 in 1995 to $330,548 in 1996. For
the three and six month periods, the increase is primarily due to the addition
of sales personnel and increased product advertising related to the introduction
of the Company's ADSL modem.
General and Administrative Expense. General and administrative expense
consists primarily of salaries for administrative officers and support
personnel, allocated facilities costs, and professional services, such as legal
and audit expenses. General and administrative expense increased by 26% from
$193,794 in the second quarter of 1995 to $244,013 in the current year quarter.
For the six month period ended June 30, general and administrative expense
increased 18% from $375,390 in 1995 to $443,315 in 1996. For the three and six
month periods, the increase is primarily due to additions to the Company's
management team as well as legal expenses associated with patent filings and
other general matters.
Interest Income. Interest income decreased 6% from $32,232 in the
second quarter of 1995 to $30,368 in the current year quarter, primarily as a
result of lower average cash balances. For the six months ended June 30,
interest income decreased 11% from $60,856 in 1995 to $53,868 in 1996, also
primarily as a result of lower average cash balances.
Income Taxes. The Company has not provided for income taxes as it has a
history of net losses, which has resulted in tax loss carryforwards. As of
December 31, 1995, the Company had net operating loss carryforwards of
approximately $9,700,000 and approximately $576,000 of research and development
tax credit carryforwards to offset future federal taxable income. To the extent
not utilized, the net operating loss and tax credit carryforwards expire between
2003 and 2010.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $540,431 to $2,694,112 at June 30, 1996.
The primary source of cash flow in the first six months of 1996 was
approximately $1,000,000 of proceeds from the issuance of common stock under the
Company's stock option plans. Proceeds from the sale of common stock were offset
by $308,530 of cash used in operations, and $183,484 of cash invested in
property and equipment.
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Funds used in operations were principally attributable to an increase in
inventory. The Company purchased raw materials to manufacture ADSL modems in
anticipation of increased revenue from such products. The increase in property
and equipment was primarily related to purchases of computer and other equipment
used in research and development activities.
On August 14, 1996, the Company completed an initial public offering of its
common stock. The Company sold 3,400,000 shares and realized net proceeds of
approximately $30,700,000. The increase in deferred offering costs and accounts
payable at June 30, 1996 is primarily due to unpaid costs related to the public
offering. These financing costs will be paid and netted against the proceeds
from the public offering in the third quarter of 1996. While there can be no
assurance that the Company will not require additional financing, or that such
financing will be available to the Company, the Company believes that its
financial resources are adequate to meet its liquidity requirements over the
next twelve months.
RISK FACTORS
The Company believes that the occurrence of any one or some combination of the
following risk factors could have a material adverse effect on the Company's
business, financial condition and results of operations.
History of Operating Losses
The Company has incurred net losses in every fiscal year since
inception. Substantial additional research and development expenses to enhance
the performance and reduce the manufacturing costs of the Company's products
will be required before market acceptance can be determined. There can be no
assurance that the Company will achieve profitable operations in any future
period.
Dependence on Acceptance of ADSL Technology
The Company's future success is substantially dependent upon whether
ADSL technology gains widespread commercial acceptance by the telephone
companies ("telcos") and end users of telco services. The Company has invested
substantial resources in the development of ADSL technology implemented through
the Discrete Multi-Tone ("DMT") modulation technique. Telcos have only begun
evaluating DMT-based ADSL technology, and there can be no assurance that the
telcos will pursue the deployment of such ADSL technology.
Reliance on Telcos; Dependence on a Limited Number of Customers
Even if telcos adopt policies favoring full-scale implementation of
ADSL technology, there can be no assurance that sales of the Company's ADSL
products will become significant. The Company's customers, including Regional
Bell Operating Companies ("RBOCs"), OEMs and other telcos, are relatively few in
number and have significantly greater resources than that of the Company. The
Company has limited ability to influence or control decisions made by these
customers. There can be no assurance that these customers will not use their
size and bargaining power to demand unfavorable terms and conditions (including
price), seek alternative suppliers, or undertake internal development of
products comparable to those of the Company's.
11
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Substantial Dependence on Analog Devices, Inc.
The Company and Analog Devices, Inc. ("ADI") have entered into a series
of agreements to develop integrated chipsets based on the Company's technology.
The inability or refusal of ADI to manufacture, market and sell such chipsets in
substantial quantities would prevent telcos from adopting the Company's
technology and would have a material adverse effect on the Company's business.
There can be no assurance that ADI will succeed or, in the event that ADI is not
successful, that the Company would be able to find a substitute chipset
manufacturer without significant delays.
Proprietary Technology; Risk of Third Party Claims of Infringement
The Company's ability to compete effectively will depend to a
significant extent on its ability to protect it proprietary information and to
operate without infringing the intellectual property rights of others. Despite
the precautions the Company has taken to protect its intellectual property,
there can be no assurance that such steps will be adequate to prevent the
misappropriation of its technology. In addition, third parties may assert
exclusive patent, copyright and other intellectual property rights to
technologies that are important to the Company. There can be no assurance that
other third parties will not assert such claims against the Company in the
future.
Rapid Technological Change; Dependence on New Products
The markets for the Company's products are characterized by rapid
technological advances, evolving industry standards, changes in end-user
requirements, frequent new product introductions, and evolving telco offerings.
The Company's business will be materially adversely affected if technologies or
standards on which Company's products are based become obsolete, or if the
Company is unable to develop and introduce new products in a timely manner in
response to changing market conditions.
Competition
The markets for the Company's products are intensely competitive and
the Company expects competition to increase in the immediate future. Many of the
Company's competitors and potential competitors, including the RBOCs and AT&T
Paradyne Corporation, have significantly greater financial, technological,
manufacturing, marketing and personnel resources than the Company. There can be
no assurance that the Company will be able to compete successfully or that
competition will not adversely affect the Company's business.
Manufacturing
The Company has limited experience in manufacturing or in supervising
the manufacture of its products, including its ADSL Internet Access Modem. There
can be no assurance that the Company will not encounter significant difficulties
in manufacturing or controlling the quality of its products, or that its
products will be reliable in the field.
12
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PART II. OTHER INFORMATION
ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 23, 1996, the Company held a special stockholders' meeting in lieu of
an annual meeting of stockholders.
Matters voted on and the results of those votes are set forth below:
(1) The votes cast to adopt Amended and Restated Articles of Organization were:
For: 13,476,117 Against: 0 Abstain: 0 Broker non-vote: 0
(2) The votes cast to adopt Amended and Restated By-Laws were:
For: 13,476,117 Against: 0 Abstain: 0 Broker non-vote: 0
(3) The votes cast to ratify the selection of Deloitte & Touche LLP as the
Company's independent auditors were:
For: 13,476,117 Against: 0 Abstain: 0 Broker non-vote: 0
(4) The votes cast to adopt the Directors' Non-Statutory Option Plan were:
For: 588,800 Against: 1,346,500 Abstain: 11,540,817 Broker non-vote: 0
<TABLE>
(5) The votes cast to elect directors were:
<CAPTION>
Name For Against Abstain Broker non-vote
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
James C. Bender 13,476,117 0 0 0
John K. Kerr 13,175,317 0 300,800 0
William N. Sick, Jr. 13,175,317 0 300,800 0
John S. Stafford, Jr. 13,476,117 0 0 0
Charles K. Stewart 13,476,117 0 0 0
</TABLE>
(6) The votes cast to ratify and confirm all acts and deeds of all of the
officers and directors of the Company from inception to present were:
For: 13,175,317 Against: 0 Abstain: 300,800 Broker non-vote: 0
13
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PART II. OTHER INFORMATION
ITEM 4:
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(CONTINUED)
(b) On June 6, 1996, the Company held a special stockholders' meeting.
Matters voted on and the results of those votes are set forth below:
(1) The votes cast to adopt Amended and Restated Articles of Organization were:
For: 12,547,025 Against: 0 Abstain: 100 Broker non-vote: 0
(2) The votes cast to adopt the 1996 Stock Option Plan were:
For: 12,475,312 Against: 100 Abstain: 71,713 Broker non-vote: 0
(3) The votes cast to adopt the 1996 Employee Stock Purchase Plan were:
For: 12,544,525 Against: 2,500 Abstain: 100 Broker non-vote: 0
(4) The votes cast to adopt Amended and Restated Articles of Organization to be
effective following the closing of the Company's initial public offering were:
For: 12,547,025 Against: 0 Abstain: 100 Broker non-vote: 0
14
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PART II. OTHER INFORMATION
ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 3.3* - Amended and Restated By-Laws
Exhibit 11.1* - Computation of Net Income (Loss) per Share
(b) REPORTS ON 8-K
None.
- --------------------
*filed herewith
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: August 29, 1996 AWARE, INC.
By: /s/ James C. Bender
----------------------------------------
James C. Bender, Chief Executive
Officer and President
Date: August 29, 1996 /s/ Richard P. Moberg
--------------------------------------------
Richard P. Moberg, Vice President and Chief
Financial Officer (Principal Financial and
Accounting Officer)
15
<PAGE> 1
EXHIBIT 3.3
AWARE, INC.
AMENDED AND RESTATED BY-LAWS
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I STOCKHOLDERS PAGE
- --------- ------------ ----
1.1 Annual Meeting 1
1.2 Special Meeting 1
1.3 Place of Meetings 1
1.4 Notice of Meeting 1
1.5 Quorum 2
1.6 Voting and Proxies 2
1.7 Action at Meeting 2
1.8 Vacancies 3
1.9 Voting List 3
1.10 Adjournments 3
ARTICLE II DIRECTORS
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2.1 Powers 3
2.2 Number and Election 3
2.3 Enlargement of the Board 4
2.4 Tenure 4
2.5 Resignation 4
2.6 Removal 4
2.7 Vacancies 4
2.8 Regular Meetings 4
2.9 Special Meetings 5
2.10 Notice of Special Meetings 5
2.11 Quorum 5
2.12 Action at Meetings 5
2.13 Action by Consent 5
2.14 Meetings by Telephone Conference Calls 5
2.15 Committees 6
2.16 Compensation of Directors 6
ARTICLE III OFFICERS
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3.1 Enumeration 6
3.2 Election 6
3.3 Qualification 6
3.4 Tenure 7
3.5 Resignation 7
3.6 Removal 7
3.7 Vacancies 7
3.8 Chairman and Vice Chairman of the Board 7
3.9 President and Vice President 8
3.10 Treasurer and Assistant Treasurers 8
3.11 Clerk and Assistant Clerks 8
3.12 Secretary and Assistant Secretary 8
3.13 Other Powers and Duties 9
3.14 Compensation 9
<PAGE> 3
ARTICLE IV STOCK PAGE
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4.1 Certificate of Stock 9
4.2 Transfer of Stock 9
4.3 Record of Date 10
4.4 Restrictions on Transfer 10
4.5 Replacement of Certificates 11
ARTICLE V MISCELLANEOUS PROVISIONS
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5.1 Fiscal Year 11
5.2 Seal 11
5.3 Execution of Instruments 11
5.4 Voting of Securities 11
5.5 Corporate Records 11
5.6 Articles of Organization 11
5.7 Amendments 12
5.8 Indemnification of Officers 12
and Directors
5.9 Contracting by Directors 12
and Officers
5.10 Evidence of Authority 13
5.11 Severability 13
5.12 Pronouns 13
5.13 Related Party Transactions 13
5.14 Control Share Acquisition 14
ARTICLE VI RIGHT OF FIRST REFUSAL
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6.1 Restrictions on Transfer 14
6.2 First Refusal Notice 14
6.3 Corporation's Right to Purchase 14
6.4 Settlement 14
6.5 Sale by Selling Shareholder 15
6.6 Exceptions 15
6.7 Notices 15
6.8 Waiver 15
6.9 Legend 15
6.10 Termination of Right of First Refusal 15
<PAGE> 4
ARTICLE I - STOCKHOLDERS
1.1 ANNUAL MEETING. The annual meeting of stockholders shall be held on the
second Tuesday in March in each year (or if that be a legal holiday in the place
where the meeting is to be held, on the next succeeding full business day) at
11:00 a.m. unless a different day or hour is fixed by the Board of Directors or
the President and stated in the notice of the meeting. The purposes for which
the annual meeting is to be held, in addition to those prescribed by law, the
Articles of Organization, or these By-Laws, may be specified by the Board of
Directors or the President. If no annual meeting is held in accordance with the
foregoing provisions, a special meeting may be held in lieu thereof, and any
action taken at such meeting shall have the same effect as if taken at the
annual meeting.
1.2 SPECIAL MEETINGS. Special meetings of stockholders may be called by the
President or by the Board of Directors. So long as the Corporation does not have
a class of voting stock registered under the Securities Exchange Act of 1934,
upon written application of one or more stockholders who hold at least ten (10%)
percent of the capital stock entitled to vote at the meeting, special meetings
shall be called by the Clerk, or in the case of the death, absence, incapacity
or refusal of the Clerk, by any other officer. If the Corporation does have a
class of voting stock registered under the Securities Exchange Act of 1934, upon
written application of one or more stockholders who hold at least thirty-five
(35%) percent of the capital stock entitled to vote at the meeting, special
meetings shall be called by the Clerk, or in the case of the death, absence,
incapacity or refusal of the Clerk, by any other officer. The call for the
meeting shall state the place, date, hour and purposes of the meeting. Business
transacted at any special meeting of the Stockholders shall be limited to
matters relating to the purpose or purposes stated in the notice of meeting.
1.3 PLACE OF MEETINGS. All meetings of stockholders shall be held at the
principal office of the corporation unless a different place within the United
States is fixed by the Board of Directors or the President and stated in the
notice of the meeting.
1.4 NOTICE OF MEETING. A written notice of each meeting of stockholders,
stating the place, date and hour thereof, and the purposes for which the meeting
is to be held, shall be given at least seven (7) days, and not more than sixty
(60) days, before the meeting by the Clerk or other person calling the meeting
to each stockholder entitled to vote thereat and to each stockholder who by law,
the Articles of Organization or these By-Laws is entitled to such notice, by
leaving such notice with him or at his residence or usual place of business, or
by mailing it postage prepaid and addressed to him at his address as it appears
upon the books of the corporation. All notices shall state the place, date and
hour of the meeting, and if it is a special meeting, the purposes for which the
meeting is called. No notice need be given to any stockholder if a written
waiver of notice, executed before or after the meeting
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by the stockholder or his authorized attorney, is filed with the records of the
meeting. In the case of a special meeting of stockholders requested by
stockholder(s) pursuant to Article I, Section 1.2 of these By-Laws, on payment
by those stockholder(s) to the Corporation of the costs of notice of the meeting
as provide in this Section 1.4, the Clerk shall send the written notice to each
stockholder entitled to vote thereat and to each stockholder who by law, the
Articles of Organization or these By-Laws is entitled to such notice.
1.5 QUORUM. The holders of a majority in interest of all stock issued,
outstanding and entitled to vote at a meeting, present in person or represented
by proxy, shall constitute a quorum. The vote of a majority in interest of any
quorum shall be sufficient to transact business unless otherwise provided by
law, the Articles of Organization, or these By-Laws. If two or more classes of
stock are outstanding and entitled to vote as separate classes, then in the case
of each such class, a quorum shall consist of the holders of a majority in
interest of the stock of that class issued, outstanding and entitled to vote,
present in person or represented by proxy.
1.6 VOTING AND PROXIES. Each stockholder shall have one vote for each share of
stock entitled to vote held by him of record according to the records of the
corporation, and a proportionate vote for each fractional share so held, unless
otherwise provided by the Articles of Organization. Stockholders may vote either
in person or by written proxy dated not more than six (6) months before the
meeting named therein. Proxies shall be filed with the Clerk of the meeting, or
of any adjournment thereof, before being voted. Except as otherwise limited
therein, proxies shall entitle the persons named therein to vote at any
adjournment of such meeting. A proxy with respect to stock held in the name of
two or more persons shall be valid if executed by one of them unless at or prior
to exercise of the proxy the corporation receives a specific written notice to
the contrary from any one of them. A proxy purporting to be executed by or on
behalf of a stockholder shall be deemed valid unless challenged at or prior to
its exercise.
1.7 ACTION AT MEETING. When a quorum is present, the holders of a majority of
the stock present or represented and voting on a matter, (or if there are two or
more classes of stock entitled to vote as separate classes, then in the case of
each such class, the holders of a majority of the stock of that class present or
represented and voting on a matter,) shall decide any matter to be voted on by
the stockholders, except where a larger vote is required by law, the Articles of
Organization or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election. No ballot shall be required for such election unless requested by a
stockholder present or represented at the meeting and entitled to vote in the
election. The corporation shall not directly or indirectly vote any share of its
stock.
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1.8 VACANCIES. The stockholders may, at a Special Meeting called for the
purpose, choose a successor to a Director or other officer whose office may have
become vacant by reason of his death, resignation, retirement, disqualification,
removal from office, or otherwise, and the person so chosen shall displace any
successor thereto chosen by the Board of Directors pursuant to Article II,
Section 2.7 hereof, and shall hold office until the next Annual Meeting of the
stockholders or the Special Meeting of the stockholders held in place of such
Annual Meeting following the expiration of his term, and until his successor is
chosen and qualified, or until his earlier death, resignation or removal.
1.9 VOTING LIST. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.10 ADJOURNMENTS. Any meeting of stockholders may be adjourned to any other
time and to any other place at which a meeting of stockholders may be held under
these By-Laws by the stockholders present or represented at the meeting and
entitled to vote, although less than a quorum, or, if no stockholder is present,
by any officer entitled to preside at or to act as Secretary of such meeting. It
shall not be necessary to notify any stockholder of any adjournment of less than
30 days if the time and place of the adjourned meeting are announced at the
meeting at which adjournment is taken, unless after the adjournment a new record
date is fixed for the adjourned meeting. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting.
ARTICLE II - DIRECTORS
2.1 POWERS. The business of the corporation shall be managed by a Board of
Directors which may exercise all the powers of the corporation except as
otherwise provided by law, the Articles of Organization, or these By-Laws. The
Board of Directors may issue any of the corporation's unissued capital stock
from time to time authorized under the Articles of Organization for such
consideration and in such amounts as it shall deem appropriate. In the event of
a vacancy in the Board of Directors, the remaining Directors, except as
otherwise provided by law, may exercise the powers of the full Board until the
vacancy is filled.
2.2 NUMBER AND ELECTION. A Board of Directors, of such number as shall be
fixed by the stockholders, shall be elected by the
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stockholders at the annual meeting, unless otherwise provided by law.
2.3 ENLARGEMENT OF THE BOARD. The number of Directors may be increased at any
meeting of the stockholders or by the Directors by a vote of a majority of the
Directors then in office.
2.4 TENURE. The directors shall be classified with respect to the time for
which they shall severally hold office by dividing them into three classes, each
consisting of one-third of the whole number of the board of directors, and all
directors shall hold office until their successors are chosen and qualified, or
until their earlier death, resignation, or removal. At the first meeting held
for election of the board of directors following adoption of these By Laws,
directors of the first class shall be elected for a term of one year; directors
of the second class shall be elected for a term of two years; directors of the
third class shall be elected for a term of three years; and at each annual
election thereafter, successors to the class of directors whose terms shall
expire that year shall be elected to hold office for a term of three years, so
that the term of office of one class of directors shall expire in each year.
2.5 RESIGNATION. Any Director may resign by delivering his written resignation
to the corporation at its principal office or to the President, Clerk or
Secretary, except that no Director shall resign by delivering such resignation
to himself. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.6 REMOVAL. Any Director may be removed from office with or without cause by
vote of the holders of a majority of the shares entitled to vote in the election
of Directors, provided that any Director elected by the holders of a particular
class of stock may be removed from office only by vote of the holders of a
majority of the shares of such class. In addition, a Director may be removed
from office for cause by vote of a majority of the Directors then in office. A
Director may be removed for cause only after reasonable notice and opportunity
to be heard before the body proposing to remove him.
2.7 VACANCIES. If the office of any Director, or any other office, becomes
vacant by reason of death, resignation, retirement, disqualification, removal
from office, or otherwise, including by enlargement of the Board of Directors,
the Board of Directors or remaining Directors if less than a quorum may, by
majority vote, choose a successor or successors, who shall hold office for the
unexpired term in respect of which such vacancy occurred and until his successor
be chosen and qualified, or until his earlier death, resignation or removal.
2.8 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held
without call or notice at such places and at such times
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<PAGE> 8
as the Board of Directors may from time to time determine, provided that any
Director who is absent when such determination is made shall be given notice of
the determination. A regular meeting of the Board of Directors may be held
without call or notice immediately following and at the same place as the annual
meeting of the stockholders or the special meeting held in lieu thereof.
2.9 SPECIAL MEETINGS. Special meetings of the Board of Directors may be held at
any time and place designated in a call by the Chairman of the Board, President,
Treasurer, two or more Directors, or one Director whenever he is the sole
Director in office.
2.10 NOTICE OF SPECIAL MEETINGS. Notice of each special meeting of the Board of
Directors shall be given to each Director by the Secretary, or if there be no
Secretary, by the Clerk or Assistant Clerk, or in the case of the death,
absence, incapacity or refusal of such person, by the officer or one of the
Directors calling the meeting. Notice shall be given to each Director in person
or by telephone or by telegram sent to his business or home address at least
forty-eight (48) hours in advance of the meeting. Notice may also be given by
mail provided it is mailed at least ninety-six (96) hours in advance of the
meeting. Notice need not be given to any Director if a written waiver of notice,
executed by him before or after the meeting, is filed with the records of the
meeting, or to any Director who attends the meeting without protesting prior
thereto or at its commencement the lack of notice to him. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.11 QUORUM. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. In the event that one or
more directors shall be disqualified to vote at any meeting, then the required
quorum shall be reduced by one for each such director so disqualified; provided,
however, that in no case shall less than one-third (1/3) of the total number of
directors constitute a quorum. Less than a quorum may adjourn any meeting from
time to time without further notice.
2.12 ACTION AT MEETINGS. At any meeting of the Board of Directors at which a
quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Articles of
Organization, or these By-Laws.
2.13 ACTION BY CONSENT. Any action required or permitted to be taken by the
Board of Directors may be taken without a meeting if all of the Directors
consent to the action by a writing filed with the records of the meetings of the
Board of Directors. Each such consent shall be treated for all purposes as a
vote at a meeting.
2.14 MEETINGS BY TELEPHONE CONFERENCE CALLS. Directors or any members of any
committee designated by the Directors may participate in a meeting of the Board
of Directors or such committee by means of conference telephone or similar
communications equipment by means of
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which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such meeting.
2.15 COMMITTEES. The Board of Directors may, by vote of a majority of the
whole Board then in office, elect from their number an executive committee, an
audit committee, a compensation committee, and other committees, and may by like
vote delegate thereto some or all of their powers except those which by law, the
Articles of Organization, or these By-Laws they are prohibited from delegating.
Each committee to consist of two or more directors. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member. Each such committee shall keep minutes and make such reports as the
Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted as nearly as is possible in
the same manner as is provided by these By-Laws for the Directors.
2.16 COMPENSATION OF DIRECTORS. Directors may be paid such compensation for
their services and such reimbursement for expenses of attendance at meetings as
the Board of Directors may from time to time determine. No such payment shall
preclude any Director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation
therefor.
ARTICLE III - OFFICERS
3.1 ENUMERATION. The officers of the corporation shall consist of a President,
a Treasurer, a Clerk, and such other officers as the Board of Directors may
determine, including, without limitation, a Secretary and one or more Vice
Presidents, Assistant Treasurers and Assistant Clerks.
3.2 ELECTION. The President, Treasurer and Clerk shall be elected annually by
the Board of Directors at its first meeting following the annual meeting of
stockholders. Other officers may be chosen by the Board of Directors at such
meeting or at any other meeting.
3.3 QUALIFICATION. Any officer may be a Director, stockholder, or both. No
officer need be a Director or a stockholder. Any or all offices may be held by
the same person. The Clerk shall be a resident of Massachusetts. Any officer may
be required by the Board of Directors to give bond for the faithful performance
of his duties
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to the corporation in such amount and with such sureties as the Board of
Directors may determine.
3.4 TENURE. Except as otherwise provided by law, the Articles of Organization,
or these By-Laws, the President, Treasurer and Clerk each shall hold office
until the first meeting of the Board of Directors following the annual meeting
of stockholders and thereafter until his successor is chosen and qualified, or
until his earlier death, resignation or removal. Except as otherwise provided by
law, the Articles of Organization, or these By-Laws, all other officers each
shall hold office until the first meeting of the Board of Directors following
the annual meeting of stockholders, unless a shorter term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 RESIGNATION. Any officer may resign by delivering his written resignation
to the corporation at its principal office or to the President, Clerk or
Secretary, except that no officer shall resign by delivering such resignation to
himself. Such resignation shall be effective upon receipt unless it is specified
to be effective at some other time or upon the happening of some other event.
3.6 REMOVAL. The Board of Directors may remove any officer with or without
cause by a vote of a majority of the entire number of Directors then in office.
However, an officer may be removed for cause only after reasonable notice and
opportunity to be heard by the Board of Directors prior to action thereon.
Except as the Board of Directors may otherwise determine, no officer who resigns
or is removed shall have any right to any compensation as an officer for any
period following his resignation or removal, or any right to damages on account
of such removal, unless such compensation is expressly provided for in a duly
authorized written agreement with the corporation.
3.7 VACANCIES. The Board of Directors may fill any vacancy occurring in any
office for any reason and may, in its discretion, leave unfilled for such period
as it may determine any offices other than those of President, Treasurer and
Clerk. Each such successor shall hold office for the unexpired term of his
predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.8 CHAIRMAN OF THE BOARD AND VICE-CHAIRMAN OF THE BOARD. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
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3.9 PRESIDENT AND VICE PRESIDENTS. The President shall be the chief operating
officer of the corporation. Unless the Board of Directors has designated the
Chairman of the Board as Chief Executive Officer, the President shall also be
the Chief Executive Officer of the corporation. Subject to the direction of the
Board of Directors, the President shall have general supervision and control of
its business. Unless otherwise provided by the Board of Directors he shall
preside, when present, at all meetings of stockholders and of the Board of
Directors. Any Vice President shall have such powers as the Board of Directors
or the President may from time to time designate, and shall report to the
President. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to the
direction of the President and the Board of Directors, have general charge of
the financial affairs of the corporation and shall cause to be kept accurate
books of account. He shall have custody of all funds, securities, and valuable
documents of the corporation, except as the President may otherwise provide. Any
Assistant Treasurer shall have such powers as the Board of Directors, the
President or the Treasurer may from time to time designate, and shall report to
the Treasurer.
3.11 CLERK AND ASSISTANT CLERKS. The Clerk shall keep a record of the meetings
of stockholders. Unless a transfer agent is appointed, the Clerk shall keep or
cause to be kept in Massachusetts, at the principal office of the corporation or
at his office, the stock and transfer records of the corporation in which are
contained the name and record address of and the amount of stock held by each
stockholder. In case a Secretary is not elected, the Clerk shall keep a record
of the meetings of the Board of Directors. Any Assistant Clerk shall have such
powers as the Board of Directors, the President, or the Clerk may from time to
time designate. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one is elected, and otherwise a temporary clerk designated by
the person presiding at the meeting, shall perform the duties of the Clerk.
3.12 SECRETARY AND ASSISTANT SECRETARY. If a Secretary is elected, he shall
keep a record of the meetings of the Board of Directors. If he is absent from
any such meeting, an Assistant Secretary if one is elected, and otherwise a
temporary secretary designated by the person presiding at such meeting, shall
keep a record of such meeting. Any Assistant Secretary shall have such powers as
the Board of Directors, the President, or the Secretary may from time to time
designate.
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3.13 OTHER POWERS AND DUTIES. In addition to the duties and powers
specifically set forth in these By-Laws and subject to these By-Laws, each
officer shall have such duties and powers as are customarily incident to his
office and such duties and powers as the Board of Directors or the President may
from time to time designate.
3.14 COMPENSATION. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE IV - STOCK
4.1 CERTIFICATE OF STOCK. Each stockholder shall be entitled to a certificate
of the capital stock of the corporation in such form as may be prescribed from
time to time by the Board of Directors, certifying the number and class of
shares owned by him in the corporation. The certificate shall be signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer.
When a certificate is signed by a transfer agent or a registrar other than a
Director, officer, or employee of the corporation, the signature(s) of any
President, Vice President, Treasurer or Assistant Treasurer on the certificate
may be a facsimiles, engraved or printed. In case any officer who has signed or
whose facsimile signature has been placed on such certificate shall have ceased
to be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the time of its
issue. Every certificate shall be sealed with the seal of the corporation or
shall bear a facsimile of the seal. Every certificate for shares of stock which
are subject to any restriction on transfer pursuant to the Articles of
Organization, these By-Laws, or any agreement to which the corporation is a
party, shall have noted conspicuously on the face or back of the certificate
either the full text of the restriction or a statement of the existence of such
restriction and a statement that the corporation will furnish a copy of the
restriction to the holder of such certificate upon written request and without
charge. Every certificate issued when the corporation is authorized to issue
more than one class or series of stock shall set forth on its face or back
either the full text of the preferences, voting powers, qualifications and
special and relative rights of the shares of each class and series authorized
to be issued or a statement of the existence of such class or series of stock
and the corporation will furnish a copy of the preferences, powers,
qualifications and rights of each class and series to the holder of such
certificate upon written request and without charge.
4.2 TRANSFER OF STOCK. Subject to the restrictions, if any, imposed by the
Articles of Organization, these By-Laws, or any stockholder agreement, shares of
stock may be transferred on the books of the corporation only by the surrender
to the corporation or its transfer agent of the certificate representing such
shares properly endorsed or accompanied by a written assignment or power of
attorney properly executed, and with such proof of authority or the authenticity
of signature as the corporation or its transfer agent
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may reasonably require. No transfer shall affect the right of the corporation to
pay any dividend upon the stock or to treat the holder of record as the holder
in fact until such transfer is recorded on the books of the corporation, and,
except only as may be otherwise required by law, the corporation shall not be
bound to recognize any equitable or other claim to or interest in shares on the
part of any other person. In anticipation of stockholder's meetings, the
declaration or payment of dividends, or the attachment to stock of any
subscription or other rights, the transfer books of the stock of the corporation
may be closed for such period as the Board of Directors may from time to time
determine. It shall be the duty of each stockholder to notify the corporation of
his post office address and of his taxpayer identification number and his
failure to do so shall constitute a waiver by him of the right to receive any
dividend or distribution or any notices given to the stockholders during the
period that such failure continues.
4.3 RECORD DATE. The Board of Directors may fix in advance a time of not more
than sixty (60) days, nor less than seven (7) days, preceding the date of any
meeting of stockholders, or the date for the payment of any dividend or the
making of any distribution to stockholders, or the last day on which the consent
or dissent of stockholders may be effectively expressed for any purpose, as the
record date for determining which of the stockholders have the right to notice
of and to vote at such meeting, and any adjournment thereof, or the right to
receive such dividend or distribution or the right to give such consent or
dissent. In such case only stockholders of record on such record date shall have
such right, notwithstanding any transfer of stock on the books of the
corporation after the record date. Without fixing such record date the Board of
Directors may for any of such purposes close the transfer books for all or any
part of such period. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
4.4 RESTRICTIONS ON TRANSFER. These securities may not be offered, sold,
transferred, pledged or hypothecated in the absence of registration under the
Securities Act of 1933, as amended, or the availability of an exemption from
registration, under the Securities Act of 1933, as amended. Furthermore, no
offer, sale or transfer of such unregistered security is to take place without
the prior written approval of counsel of the issuer being affixed to the
certificate.
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4.5 REPLACEMENT OF CERTIFICATES. In case of the alleged loss or destruction or
the mutilation of a certificate of stock, a duplicate certificate may be issued
in place thereof, upon such terms as the Board of Directors may prescribe,
including the presentation of reasonable evidence of such loss, theft or
destruction and the giving of such indemnity as the Board of Directors may
require for the protection of the corporation or any transfer agent or
registrar.
ARTICLE V - MISCELLANEOUS PROVISIONS
5.1 FISCAL YEAR. Except as from time to time otherwise determined by the Board
of Directors, the fiscal year of the corporation shall be the twelve months
ending December 31 of each year.
5.2 SEAL. The seal of the corporation shall, subject to alteration by the Board
of Directors, bear its name, the word "Massachusetts" and the year of its
incorporation.
5.3 EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts, bonds,
notes and other obligations authorized to be executed by an officer of the
corporation in its behalf shall be signed by the President or Treasurer except
as the Board of Directors may generally or in particular cases otherwise
determine.
5.4 VOTING OF SECURITIES. Except as the Board of Directors may otherwise
designate, the President or Treasurer may waive notice of, and appoint any
person or persons to act as proxy or attorney in fact for this corporation (with
or without power of substitution) at any meeting of stockholders or shareholders
of any other corporation or organization, the securities of which may be held by
this corporation.
5.5 CORPORATE RECORDS. The original, or attested copies, of the Articles of
Organization, By-Laws, and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the corporation, or at
an office of its transfer agent or of the Clerk. Said copies and records need
not all be kept in the same office. They shall be available at all reasonable
times to the inspection of any stockholder for any proper purpose but not to
secure a list of stockholders for the purpose of selling said list of
stockholders, copies thereof, or of using the same for a purpose other than in
the interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
5.6 ARTICLES OF ORGANIZATION. All references in these By-Laws to the Articles
of Organization shall be deemed to refer to the Articles of Organization of the
corporation, as amended and in effect from time to time.
- 11 -
<PAGE> 15
5.7 AMENDMENTS. These By-Laws at any time may be amended by vote of the
stockholders, provided that notice of the substance of the proposed amendment is
stated in the notice of the meeting, or may be amended by vote of a majority of
the Directors then in office, except that no amendment may be made by the
Directors which alters the provisions of these By-Laws with respect to removal
of Directors, election of committees by Directors and delegation of powers
thereto, or amendment of these By-Laws. Not later than the time of giving notice
of the meeting of stockholders next following the making, amendment or repealing
by the Directors of any of these By-Laws, notice thereof stating the substance
of such change shall be given to all stockholders entitled to vote on amending
these By-Laws.
5.8 INDEMNIFICATION OF OFFICERS AND DIRECTORS. The corporation shall, to the
fullest extent permitted by law, indemnify and hold harmless each person, now or
hereafter an officer or Director of the corporation, from and against any and
all claims and liabilities to which he may be or become subject by reason of his
being or having been an officer or a Director of the corporation or by reason of
his alleged acts or omissions as an officer or Director of the corporation,
except in relation to matters as to which such officer or Director shall have
been guilty of wilful malfeasance, bad faith, gross negligence or reckless
disregard of his duties in the conduct of his office. The corporation shall
indemnify and reimburse each such officer and Director against and for any and
all legal and other expenses reasonably incurred by him in connection with any
such claims and liabilities, actual or threatened, whether or not, at or prior
to the time when so indemnified, held harmless and reimbursed, he had ceased
being an officer or a Director of the corporation, except in relation to matters
as to which such officer or Director shall have been guilty of wilful
malfeasance, bad faith, gross negligence or reckless disregard of his duties in
the conduct of his office; provided, however, that the corporation prior to such
final adjudication may compromise and settle any such claims and liabilities and
pay such expenses, if such settlement or payment or both appears, in the
judgment of a majority of the Board of Directors, to be for the best interest of
the corporation, evidenced by a resolution to that effect adopted after receipt
by the corporation of a written opinion of counsel for the corporation that such
officer or Director has not been guilty of wilful malfeasance, bad faith, gross
negligence or reckless disregard of his duties in the conduct of his office in
connection with the matters involved in such compromise, settlement and payment.
The right of indemnification herein provided shall not be exclusive of any other
rights to which any officer or Director may otherwise be lawfully entitled. The
right of indemnification herein provided may be incorporated into individual
indemnification agreements between the corporation and any director or officer.
5.9 CONTRACTING BY DIRECTORS AND OFFICERS. In the absence of fraud, no contract
or other transaction between this corporation and any other corporation, firm,
association, or partnership shall be affected or invalidated by the fact that
any Director or officer of
- 12 -
<PAGE> 16
this corporation is pecuniarily or otherwise interested in or is a Director,
member or officer of such other corporation, firm, association or partnership or
is a party to or is pecuniarily or otherwise interested in such contract or
other transaction or in any way connected with any person or persons, firm,
association, partnership or corporation that is pecuniarily or otherwise
interested therein, if:
(a) The material facts as to his relationship or interest and as to the contract
or transaction are disclosed or are known to the Board of Directors or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
(b) The material facts as to his relationship or interest and as to the contract
or transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; or
(c) The contract or transaction is fair as to the corporation as of the time it
is authorized, approved or ratified, by the Board of Directors, a committee of
the Board of Directors, or the stockholders. Any Director may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
of this corporation for the purpose of authorizing any such contract or
transaction with like force and effect as if he were not so interested, or were
not a Director, member or officer of such other corporation, firm, association
or partnership.
5.10 EVIDENCE OF AUTHORITY. A certificate by the Clerk or Secretary, or an
Assistant Clerk or Assistant Secretary, or a temporary Clerk or Secretary, as to
any action taken by the stockholders, directors, a committee or any officer or
representative of the corporation, shall as to all persons who rely on the
certificate in good faith be conclusive evidence of such action.
5.11 SEVERABILITY. Any determination that any provision of these By-Laws is for
any reason inapplicable, illegal or ineffective shall not affect or invalidate
any other provision of these By-Laws.
5.12 PRONOUNS. All pronouns used in these By-Laws shall be deemed to refer to
the masculine, feminine or neuter, singular or plural, as the identify of the
person or persons may require.
5.13 RELATED PARTY TRANSACTIONS. Any transaction between the corporation and
any of its directors, officers or affiliates shall be entered only if (a) the
terms of the transaction are no less favorable to the corporation than could be
obtained from unaffiliated third parties and (b) such transaction is approved
by a majority of the corporation's Board of Directors disinterested in such
transaction.
- 13 -
<PAGE> 17
5.14 CONTROL SHARE ACQUISITION. Until such time as this section shall be
repealed or these By-Laws shall be amended to provide otherwise, including
without limitation, during any time in which the corporation shall be an
"issuing public corporation" as defined in Chapter 110D of the Massachusetts
General Laws, the provisions of Chapter 110D of the Massachusetts General Laws
shall not apply to "control share acquisitions," as defined in Chapter 110D, of
the shares of the corporation's stock.
ARTICLE VI - RIGHT OF FIRST REFUSAL
6.1 RESTRICTIONS ON TRANSFER. No shareholder of the corporation shall sell,
assign, pledge or in any manner transfer any of the shares of capital stock of
the corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this Article VI. Any sale or transfer, or
purported sale or transfer, of capital stock of the corporation shall be null
and void unless the terms, conditions, and provisions of this Article VI are
strictly observed and followed.
6.2 FIRST REFUSAL NOTICE. If a shareholder receives from anyone a bona fide
offer acceptable to the shareholder to purchase any of his shares of capital
stock of the corporation, then the shareholder shall first give written notice
(the "First Refusal Notice") thereof to the corporation. The First Refusal
Notice shall name and describe the proposed transferee (including a description
of any relationship or affiliation with the holder) and state the class and
number of shares to be transferred, the price per share (including how the price
was determined and if it was negotiated at arm's length) and all other terms and
conditions of the offer.
6.3 CORPORATION'S RIGHT TO PURCHASE. For fifteen (15) business days following
receipt of the First Refusal Notice, the corporation shall have the option to
purchase all of the shares specified in such First Refusal Notice at the price
and upon the terms set forth in such First Refusal Notice (subject to Section
6.4 below). The corporation may assign its rights hereunder to any third party
or parties. In the event the corporation (and, if applicable, its assignees)
elects to purchase all of the shares, it shall give written notice within such
fifteen (15) day period to the selling shareholder of its election and
settlement for said shares shall be made as provided below in Section 6.4.
6.4 SETTLEMENT. In the event the corporation elects to acquire all of the
shares of the selling shareholder as specified in the First Refusal Notice,
settlement thereof shall be made in cash within ten (10) business days after
the corporation's written notice to the selling shareholder indicating the
corporation's election under this Article VI; provided, however, that if the
terms of payment set forth in the First Refusal Notice are other than cash
against delivery, the corporation shall pay for said shares on the same terms
and conditions set forth in the First Refusal Notice.
- 14 -
<PAGE> 18
6.5 SALE BY SELLING SHAREHOLDER. In the event the corporation does not elect to
acquire all of the shares specified in the First Refusal Notice, the selling
shareholder may, within the sixty-day period following the expiration of the
rights granted to the corporation herein, sell the shares specified in the First
Refusal Notice which were not acquired by the corporation to the transferee
named in the First Refusal Notice, in accordance with the provisions of this
Article VI; provided that such sale shall not be on terms and conditions more
favorable to the purchaser than those contained in the First Refusal Notice. All
shares so sold by said selling shareholder shall continue to be subject to the
provisions of this Article VI in the same manner as before such transfer. If the
selling shareholder does not consummate such sale within such sixty (60) day
period, the right of first refusal provided in this Article VI shall be deemed
to be revived and the unsold shares shall not be offered or sold unless first
re-offered to the corporation in accordance with the provisions of this Article
VI.
6.6 EXCEPTIONS. Anything to the contrary contained herein notwithstanding, (a)
a shareholder's transfer by gift of any or all shares held either during such
shareholder's lifetime, or a transfer on death by will or intestacy, or (b) the
transfer by a shareholder which is a partnership or corporation to its partners
or stockholders, shall be exempt from the provisions of this Article VI,
provided, however, that any such transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this Article VI, and
there shall be no further transfer of such stock except in accordance with this
Article VI.
6.7 NOTICES. Any notice, election or other communication required or permitted
under this Article VI shall be in writing and shall be sent by certified or
registered mail, return receipt requested, postage prepaid, and addressed, in
the case of the corporation, to the attention of its President at the
corporation's then principal executive office, and, in the case of a
shareholder, to his address appearing on the record books of the corporation.
6.8 WAIVER. Any or all of the provisions of this Article VI for the benefit of
the corporation may be waived with respect to any transfer by the corporation,
upon duly authorized action of its Board of Directors.
6.9 LEGEND. The certificates representing shares of the corporation shall bear
the following legend so long as the foregoing right of first refusal remains in
effect: "The shares represented by this certificate are subject to a right of
first refusal option in favor of the corporation, as provided in the By-laws of
the corporation."
6.10 TERMINATION OF RIGHT OF FIRST REFUSAL. This Article VI shall terminate in
its entirety and cease to be in effect on the first to occur on the following:
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<PAGE> 19
(a) the effective date of the registration statement for the first firm
underwritten public offering of equity securities of the corporation resulting
in gross proceeds to the Company of not less than $7,500,000; or
(b) the merger or consolidation of the corporation into or with another
corporation (except if this corporation is the surviving entity), or the sale of
all or substantially all the assets of the corporation; or
(c) December 31, 2000.
- 16 -
<PAGE> 1
EXHIBIT 11.1
AWARE, INC.
<TABLE>
COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INOME (LOSS) PER SHARE
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net income (loss) .............................................................. $ 48,668 $ (530,282)
=========== ==========
Weighted average number of common and common stock
equivalent shares outstanding:
Common stock ............................................................. 7,248,575 1,166,860
Convertible preferred common stock equivalents ........................... 7,473,518 -
Option common stock equivalent shares .................................... 985,922 -
Effect of SAB 83 ......................................................... 882,289 882,289
----------- ----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share ....... 16,590,304 2,049,149
Incremental shares to reflect full dilution .............................. - -
----------- ----------
Total shares for purpose of calculating fully diluted net
income (loss) per share ......................................... 16,590,304 2,049,149
=========== ==========
Primary net income (loss) per share ............................................ $ 0.00 $ (0.26)
=========== ==========
Fully diluted net income (loss) per share ...................................... $ 0.00 $ (0.26)
=========== ==========
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- ----------
Net income (loss) .............................................................. $ 89,819 $ (617,495)
=========== ==========
Weighted average number of common and common stock
equivalent shares outstanding:
Common stock ............................................................. 4,299,939 1,158,493
Convertible preferred common stock equivalents ........................... 10,136,647 -
Option common stock equivalent shares .................................... 875,861 -
Effect of SAB 83 ......................................................... 882,289 882,289
----------- ----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share ....... 16,194,736 2,040,782
Incremental shares to reflect full dilution .............................. 110,061 -
----------- ----------
Total shares for purpose of calculating fully diluted net
income (loss) per share ......................................... 16,304,797 2,040,782
=========== ==========
Primary net income (loss) per share ............................................ $ 0.01 $ (0.30)
=========== ==========
Fully diluted net income (loss) per share ...................................... $ 0.01 $ (0.30)
=========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,694
<SECURITIES> 0
<RECEIVABLES> 959
<ALLOWANCES> 15
<INVENTORY> 504
<CURRENT-ASSETS> 4,545
<PP&E> 2,067
<DEPRECIATION> 1,595
<TOTAL-ASSETS> 5,017
<CURRENT-LIABILITIES> 976
<BONDS> 0
<COMMON> 102
48
0
<OTHER-SE> 3,892
<TOTAL-LIABILITY-AND-EQUITY> 5,017
<SALES> 150
<TOTAL-REVENUES> 2,090
<CGS> 99
<TOTAL-COSTS> 491
<OTHER-EXPENSES> 1,563
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 90
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
