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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 SEPTEMBER 30, 1997
COMMISSION FILE NUMBER 000-21129
AWARE, INC.
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(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)
40 MIDDLESEX TURNPIKE, BEDFORD, MASSACHUSETTS, 01730
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(Address of Principal Executive Offices)
(Zip Code)
(617) 276-4000
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(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 X NO
--- ---
Indicate the number of shares outstanding of the issuer's common stock as of
November 4, 1997:
CLASS NUMBER OF SHARES OUTSTANDING
- --------------------------------------- ----------------------------
Common Stock, par value $0.01 per share 19,443,511 shares
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AWARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 1997 and December 31, 1996.......................... 3
Consolidated Condensed Statements of Operations for the
Three and Nine Months Ended September 30, 1997
and September 30, 1996............................................ 4
Consolidated Condensed Statements of Cash Flows for the
Nine Months Ended September 30, 1997
and September 30, 1996............................................ 5
Notes to Consolidated Condensed Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................. 14
Item 2. Changes in Securities and Use of Proceeds......................... 14
Item 6. Exhibits and Reports on Form 8-K.................................. 15
Signatures........................................................ 15
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
AWARE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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ASSETS
Current assets:
Cash and cash equivalents................................................ $ 25,376,442 $ 31,092,273
Short-term investments................................................... 2,569,409 5,626,725
Accounts receivable (less allowance for doubtful
accounts of $50,000 in 1997 and $35,000 in 1996)...................... 1,037,503 1,654,980
Unbilled accounts receivable............................................. 31,870 110,722
Inventories.............................................................. 206,217 447,534
Prepaid expenses......................................................... 296,084 23,426
------------ ------------
Total current assets 29,517,525 38,955,660
Property and equipment, net of accumulated depreciation and
amortization of $1,131,605 in 1997 and $557,901 in 1996.................. 9,184,652 1,166,928
------------ ------------
Total assets............................................................... $ 38,702,177 $ 40,122,588
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 460,251 $ 337,339
Accrued expenses ........................................................ 97,018 60,091
Accrued compensation .................................................... 275,503 173,692
Accrued professional fees................................................ 48,829 65,000
Deferred revenue......................................................... 40,000 40,000
------------ ------------
Total current liabilities........................................ 921,601 676,122
Stockholders' equity:
Preferred stock, $1.00 par value; 1,000,000 shares authorized,
none outstanding................................................. -- --
Common stock, $.01 par value; 30,000,000 shares authorized; issued
and outstanding, 19,442,792 in 1997 and 18,959,897 in 1996...... 194,428 189,600
Additional paid-in capital.............................................. 51,052,476 50,025,548
Accumulated deficit.................................................... $(13,013,366) (10,315,720)
Treasury stock.......................................................... (452,962) (452,962)
------------ ------------
Total stockholders' equity...................................... 37,780,576 39,446,466
Total liabilities and stockholders' equity................................. $ 38,702,177 $ 40,122,588
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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AWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- --------------------------
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Revenue:
Product................................ $ 323,430 $ 379,926 $ 574,523 $ 529,945
License and royalty.................... 146,344 782,047 2,301,462 2,221,652
Research and development............... 252,726 343,847 1,518,017 844,701
----------- ----------- ----------- -----------
Total revenue 722,500 1,505,820 4,394,002 3,596,298
Costs and expenses:
Cost of product revenue............... 387,375 266,125 879,433 364,705
Research and development............... 1,815,765 808,826 4,681,977 1,990,910
Selling and marketing.................. 605,016 178,568 1,472,006 509,117
General and administrative............. 484,043 248,051 1,403,014 691,366
----------- ----------- ----------- -----------
Total costs and expenses 3,292,199 1,501,570 8,436,430 3,556,098
Income (loss) from operations.............. (2,569,699) 4,250 (4,042,428) 40,200
Interest income............................ 423,753 257,433 1,344,782 311,301
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes............................. (2,145,946) 261,683 (2,697,646) 351,501
Provision for income taxes................. -- -- -- --
----------- ----------- ----------- -----------
Net income (loss).......................... $(2,145,946) $ 261,683 $(2,697,646) $ 351,501
=========== =========== =========== ===========
Net income (loss) per share................ $ (0.11) $ 0.01 $ (0.14) $0.02
=========== =========== =========== ===========
Weighted average common and common
equivalent shares outstanding............. 19,430,032 19,071,834 19,257,651 17,544,989
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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AWARE, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
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1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................... $(2,697,646) $ 351,501
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization............................. 573,704 194,720
Increase (decrease) from changes in assets and
liabilities:
Accounts receivable...................................... 617,477 (524,951)
Unbilled accounts receivable............................. 78,852 (77,012)
Inventories.............................................. 241,317 (845,703)
Prepaid expenses......................................... (272,658) (66,895)
Accounts payable......................................... 122,912 462,898
Accrued expenses......................................... 122,567 189,835
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Net cash used in operating activities......................... (1,213,475) (315,607)
Cash flows from investing activities:
Purchases of property and equipment........................ (8,591,428) (510,415)
Net purchases of short-term investments.................... 3,057,316 (6,042,896)
----------- -----------
Net cash used in investing activities (5,534,112) (6,553,311)
Cash flows from financing activities:
Proceeds from issuance of common stock..................... 1,031,756 36,198,644
----------- -----------
Decrease in cash and cash equivalents......................... (5,715,831) 29,329,726
Cash and cash equivalents, beginning of period................ 31,092,273 2,153,681
----------- -----------
Cash and cash equivalents, end of period...................... $25,376,442 $31,483,407
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest..................................... -- $ 820
SUPPLEMENTAL NONCASH DISCLOSURES:
Conversion of preferred stock to common stock.............. -- $ 127,998
</TABLE>
The accompanying notes are an integral part of the financial statements.
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AWARE, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A) BASIS OF PRESENTATION
The accompanying unaudited consolidated 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 September 30, 1997, and of operations and cash
flows for the interim periods ended September 30, 1997 and 1996.
The accompanying unaudited consolidated 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, 1996 and December 31,
1995 in conjunction with its 1996 Annual Report on Form 10-K.
The results of operations for the interim period ended September 30,
1997 are not necessarily indicative of the results to be expected for
the year.
B) INVENTORY
Inventory consists primarily of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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Raw materials............................... $136,217 $408,643
Work-in-process............................. 70,000 38,891
Finished goods.............................. -- --
-------- --------
Total................................ $206,217 $447,534
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</TABLE>
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 for
the three months and nine months ended September 30, 1996 include the
effect of 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.
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In accordance with the provisions of Statement of Financial Accounting
Standard No. 128, "Earnings per Share", the Company was not permitted
to early adopt SFAS No. 128 for the quarter ended September 30, 1997.
Had SFAS No. 128 been effective for the three and nine month periods
ended September 30, 1997 and 1996, pro forma net income (loss) per
common share amounts would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------
1997 1996
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<S> <C> <C>
Basic net income (loss) per share ($0.11) $0.02
Diluted net income (loss) per share ($0.11) $0.01
<CAPTION>
Nine Months Ended
September 30,
-----------------
1997 1996
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<S> <C> <C>
Basic net income (loss) per share ($0.14) $0.04
Diluted net income (loss) per share ($0.14) $0.02
</TABLE>
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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 Asymmetric Digital Subscriber Line ("ADSL") modems, transceiver modules,
and development systems. Product revenue decreased by 15% from $379,926 in the
third quarter of 1996 to $323,430 in the current year quarter. Product revenue
as a percentage of total revenue was 45% in the third quarter of 1997 as
compared to 25% in the corresponding quarter of 1996. The revenue decline in the
current quarter was due to lower modem shipments, which were partially offset by
new revenue from the sale of modules and development systems. The relatively low
level of product revenue is primarily due to a market for ADSL equipment that
remains in its early stages. The Company believes that volume deployment of ADSL
technology and equipment will not commence before the second half of 1998.
Further, the Company anticipates that product revenue will represent a greater
proportion of total revenue in future periods, if volume deployment of ADSL
technology occurs.
For the nine months ended September 30, product revenue increased by 8%
from $529,945 in 1996 to $574,523 in 1997. Product revenue as a percentage of
total revenue was 13% for the first nine months of 1997 as compared to 15% in
the corresponding period in 1996. The increase in dollar revenue in 1997 is
primarily due to the timing of ADSL product shipments. The Company began nominal
shipments of ADSL products in the first quarter of 1996, therefore the
year-to-date periods in 1997 and 1996 reflect essentially three and two quarters
of product shipments, respectively.
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.
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License and royalty revenue decreased by 81% from $782,047 in the third quarter
of 1996 to $146,344 in the current year quarter. License and royalty revenue as
a percentage of total revenue was 20% in the third quarter of 1997 as compared
to 52% in the corresponding quarter of 1996. The dollar decrease as well as the
decrease as a percentage of total revenue is primarily due to telecommunications
license and chipset royalty revenue that declined from $600,000 in the third
quarter of 1996 to $0 in the current year quarter. The Company anticipates that
license and royalty revenue will decline as a percentage of total revenue if
volume deployment of ADSL technology occurs and the Company is able to increase
product revenue.
For the nine months ended September 30, license and royalty revenue increased 4%
from $2,221,652 in 1996 to $2,301,462 in 1997. License and royalty revenue as a
percentage of total revenue was 52% for the first nine months of 1997 as
compared to 62% in the corresponding period of 1996. The dollar increase is
primarily due to an increase in compression software license sales, which was
partially offset by lower telecommunication license and chipset royalty revenue.
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 27% from $343,847 in the third quarter of 1996 to $252,726 in the
current year quarter. Research and development revenue as a percentage of total
revenue was 35% in the third quarter of 1997 as compared to 23% in the
corresponding quarter of 1996. The dollar decrease is primarily due to a
decrease in commercial contract engineering revenue this quarter, which was
partially offset by an increase in U.S. government research contract revenue.
For the nine months ended September 30, research and development revenue
increased by 80% from $844,701 in 1996 to $1,518,017 in 1997. Research and
development revenue as a percentage of total revenue was 35% for the first nine
months of 1997 as compared to 24% in the corresponding period of 1996. The
dollar increase as well as the increase as a percentage of total revenue is
primarily due to an increase in non-recurring engineering revenue and an
increase in U.S. government research contract revenue. The non-recurring
engineering revenue is primarily related to agreements with commercial
telecommunication customers who have engaged the Company to assist them with the
integration of the Company's technology into their products.
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 a
third party supplier, as well as provisions for excess and obsolete inventory.
Cost of product revenue as a percentage of product revenue was 120% in the third
quarter of 1997 as compared to 70% in the prior year quarter. The cost of
product revenue as a percentage of product revenue in the third quarter of 1997
primarily reflects: (i) high material and labor unit costs due to relatively low
production volumes, (ii) high fixed manufacturing costs relative to product
shipments, and (iii) a $50,000 provision for excess and obsolete inventory. In
the third quarter of 1997, the Company entered into an agreement with a contract
manufacturer, that will supply finished goods to the Company. The Company
anticipates that this arrangement will reduce per unit cost of sales,
particularly as product volumes increase.
Cost of product revenue as a percentage of product revenue was 153% for the
first nine months of 1997 as compared to 69% in the corresponding 1996 period.
The cost of product revenue as a percentage of product revenue for the first
nine months of 1997 primarily reflects: (i) high
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material and labor unit costs due to relatively low production volumes, (ii)
high fixed manufacturing costs relative to product shipments, and (iii) a
$225,000 provision for excess and obsolete inventory.
Research and Development Expense. Research and development expense
consists primarily of salaries for engineers, expenses for consultants,
recruiting, supplies, equipment, depreciation and facilities related to the
development and enhancement of the Company's products and technology. Research
and development expense increased by 124% from $808,826 in the third quarter of
1996 to $1,815,765 in the current year quarter. For the nine month period ended
September 30, research and development expense increased 135% from $1,990,910 in
1996 to $4,681,977 in 1996. For the three and nine month periods, the increase
in research and development expense is primarily driven by projects to
commercialize the Company's core technology and to add hardware and software
functionality to the Company's ADSL products. The Company anticipates that
research and development spending will continue to grow in future periods.
Selling and Marketing Expense. Selling and marketing expense consists
primarily of salaries for sales and marketing personnel, travel, advertising and
promotion, recruiting, and facilities expense. Selling and marketing expense
increased 239% from $178,568 in the third quarter of 1996 to $605,016 in the
current year quarter. For the nine month period ended September 30, sales and
marketing expense increased 189% from $509,117 in 1996 to $1,472,006 in 1997.
For the three and nine month periods, the increase is primarily due to: (i) the
addition of sales staff to establish channels of distribution for the Company's
products and technology, (ii) the addition of marketing staff, and (iii)
increased levels of advertising and promotion to create awareness for the
Company's products, including participation in major industry tradeshows. The
Company anticipates that selling and marketing spending will continue to grow in
future periods.
General and Administrative Expense. General and administrative expense
consists primarily of salaries for administrative personnel, facilities costs,
public company expenses, and professional services, such as legal and audit
expenses. General and administrative expense increased by 95% from $248,051 in
the third quarter of 1996 to $484,043 in the current year quarter. For the nine
month period ended September 30, general and administrative expense increased
103% from $691,366 in 1996 to $1,403,014 in 1997. For the three and nine month
periods, the increase is primarily due to: (i) additions to the Company's
finance, information systems and administrative organizations to support
organizational growth, and (ii) investor relations and public company expenses.
Interest Income. Interest income increased from $257,433 in the third
quarter of 1996 to $423,753 in the current year quarter. For the nine months
ended September 30, interest income increased from $311,301 in 1996 to
$1,344,782 in 1997. The increase in both periods is primarily a result of higher
cash balances due to the investment of net proceeds from the Company's initial
public offering.
Income Taxes. The Company has made no provision for income taxes as it
has a history of net losses, which has resulted in tax loss carryforwards. As of
December 31, 1996, the Company had available federal net operating loss
carryforwards of approximately $9,773,000 which expire in 2004 through 2010, and
federal research and development credit carryforwards of approximately $493,000
which expire in 2003 through 2011. As of December 31, 1996, the Company also had
available state net operating loss carryforwards of approximately $5,448,000
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which expire in 1997 through 2000 and state research and development and
investment tax credit carryforwards of approximately $268,000 which expire in
2006 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had cash, cash equivalents and short-term
investments of $27,945,851, a decrease of $8,773,147 from December 31, 1996. The
decrease is primarily due to purchases of property and equipment. Cash used in
operations was essentially offset by proceeds from the issuance of common stock
under the Company's stock option plans.
Cash invested in property and equipment of $8,591,428 were primarily related to:
(i) the purchase and renovation of a 72,000 square foot commercial office
building for $6,944,264, and (ii) the acquisition of computers, software and
other equipment used in research and development activities.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income",
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", both of which will be effective for the Company in fiscal 1998.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general purpose financial statements. SFAS No. 131 establishes
standards for the way that public business enterprises report selected
information about operating segments in annual and interim financial reports.
SFAS No. 131 also established standards for related disclosures about products
and services, geographic areas, and major customers. The implementation of SFAS
No. 130 and 131 are not expected to have a material effect on the Company's
financial statements.
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 operating 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. Also, the Company
anticipates that substantial selling and marketing expenses will be required to
establish sales channels for the Company's products and technology. There can be
no assurance that the Company will achieve profitable operations in any future
period.
Dependence on Acceptance of ADSL Technology
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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. The Company believes
that volume deployment of ADSL technology and equipment will not commence before
the second half of 1998.
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.
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 its 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. In such an environment, product cycles
tend to be short, and therefore, the Company may need to write-off excess and
obsolete inventory from time-to-
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time. In the fourth quarter of 1996 and the first nine months of 1997, the
Company recorded provisions for excess and obsolete inventory of $350,000 and
$225,000, respectively.
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 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 modems, modules, and
development systems. 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.
Dependence on Hiring and Retaining Personnel
The Company believes that its future success will depend significantly
on its ability to attract, motivate and retain additional highly skilled
technical, managerial and marketing personnel. During the first nine months of
1997, the Company experienced difficulty in hiring the additional engineers it
contemplated in its business plans. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting,
assimilating and retaining the personnel required to grow and operate
profitably.
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PART II. OTHER INFORMATION
ITEM 1:
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is
a party or to which any of its properties are subject which, either individually
or in the aggregate, are expected by the Company to have a material adverse
effect in its business, financial position or results of operations.
ITEM 2:
CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds
The Company sold 3,910,000 shares of the Company's Common Stock, par
value $.01 per share, on August 14, 1996 and September 9, 1996, pursuant to a
Registration Statement on Form S-1 ( File No. 333-06807), which was declared
effective by the Securities and Exchange Commission on August 8, 1996 (the
"Effective Date"). The managing underwriters of the offering were BancAmerica
Robertson Stephens and Furman Selz LLC. The aggregate gross proceeds of the
offering were $39,100,000. The Company's total expenses in connection with the
offering were $3,937,000, of which $2,737,000 was for underwriting discounts and
commissions and $1,200,000 was for other expenses paid to persons other than
directors or officers of the Company, persons owning more than 10 percent of any
class of equity securities of the Company, or affiliates of the Company
(collectively, "Affiliates"). The Company's net proceeds from the offering were
$35,163,000. From the Effective Date through September 30, 1997, the Company
used (i) approximately $9,491,000 of such net proceeds to purchase and renovate
a commercial office building, which the Company now uses as its headquarters,
and to acquire computers, software and other equipment and (ii) approximately
$1,491,000 of such net proceeds for working capital. None of these payments were
made to Affiliates. As of September 30, 1997 the Company had approximately
$24,181,000 of proceeds remaining from the offering, and pending use of the
proceeds, the Company intends to invest such proceeds primarily in short-term,
interest-bearing, investment-grade securities, including money market
instruments.
14
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PART II. OTHER INFORMATION
ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 10.1* - Agreement of Purchase and Sale by and between Aware, Inc.
and The Mitre Corporation dated as of June 6, 1997
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.
AWARE, INC.
Date: November 14, 1997 By: /s/ James C. Bender
-------------------
James C. Bender, Chief Executive
Officer and President
Date: November 14, 1997 By: /s/ Richard P. Moberg
---------------------
Richard P. Moberg, Vice President and
Chief Financial Officer (Principal
Financial and Accounting Officer)
15
<PAGE> 1
EXHIBIT 10.1
AGREEMENT OF PURCHASE AND SALE
AGREEMENT dated as of June 6, 1997, by and between THE MITRE
CORPORATION, a Delaware corporation , with a place of business at 202 Burlington
Road, Bedford, Massachusetts, (the "Seller"), and AWARE, INC., a Massachusetts
corporation, with a principle place of business at One Oak Park, Bedford,
Massachusetts 01730-1413, (the "Purchaser").
In consideration of one dollar each to the other in hand paid, the
receipt of which is hereby acknowledged, and other good and valuable
consideration, the parties hereto agree as follows:
1 Agreement to Sell and Purchase.
1.1 Real Property. The Seller agrees to sell to the Purchaser,
and the Purchaser agrees to purchase from the Seller, subject to the terms and
conditions of this Agreement, the land (the "Land") with the buildings,
structures and improvements (the "Improvements") thereon located in Bedford,
Middlesex County, Massachusetts, known as and numbered 40 Middlesex Turnpike,
Bedford, Massachusetts, all as more particularly described in Exhibit A hereto,
and all rights, privileges, easements and appurtenances benefitting the Land and
the Improvements (the Land, the Improvements and all such rights and privileges,
easements and appurtenances are sometimes collectively hereinafter referred to
as the "Real Property"), together with all right, title and interest of the
Seller in and to all strips and gores, if any, and in and to any land lying in
the bed of any highway, street, road or avenue, open or proposed, in front of or
abutting or adjoining the Real Property.
1.2 Personal Property. The Seller agrees to sell to the
Purchaser and the Purchaser agrees to purchase from the Seller, subject to the
terms and conditions of this
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<PAGE> 2
Agreement, all fixtures, equipment, supplies and other personal property
attached or appurtenant to, or located in or used in connection with, the Real
Property, including, but not limited to, the items set forth in Exhibit B
annexed hereto and made a part hereof, but excluding such access and security
hardware and equipment and the like which are to be removed by the Seller prior
to the Closing Date and to be installed by the Seller on the third floor as set
forth more particularly in Exhibit B to the Lease, as hereinafter defined. All
of the foregoing fixtures, equipment, supplies and other personal property are
hereinafter referred to as the "Personal Property." The Real Property and the
Personal Property are hereinafter collectively referred to as the "Premises".
2 Purchase Price.
2.1 Purchase Price. The purchase price (the "Purchase Price")
for the Premises is SIX MILLION SIX HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED
FIFTY-FIVE AND 00/100 ($6,663,655.00) DOLLARS which shall be payable as follows:
$ 250,000.00 has been paid as a deposit (the "Deposit") this
day;
$6,413,655.00 subject to adjustment as provided in Section
12 hereof, shall be paid at the time of the
delivery of the deed in cash, or by
certified, cashier's, treasurer's or bank
check or, at the Seller's option, by wire
transfer of immediately available federal
funds to a bank account designated by the
Seller by written instructions delivered to
the Purchaser at least three (3) business
days prior to the Closing.
-------------
$6,663,655.00 TOTAL
2.2 Deposits. All deposits made hereunder shall be held in
escrow by Nutter, McClennen & Fish, LLP, attorneys for the Seller, subject to
the terms of this Agreement and shall be duly accounted for at the time for the
performance of this Agreement. Nutter, McClennen & Fish, LLP, attorneys for
Seller, shall hold all deposits in an interest bearing FDIC
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insured account. The duties of the Escrow Agent are determined solely by this
Agreement and are purely ministerial in nature.
If any dispute arises between the parties as to whether or not the
Escrow Agent is obligated to deliver the deposits (or any interest on the
deposits), the Escrow Agent is not obligated to make any delivery, but may hold
the funds until receipt of a written authorization signed by all persons having
an interest in the dispute, directing the disposition of the funds. In the
absence of a written authorization, the Escrow Agent may hold the funds until
the rights of the parties have been finally determined in an appropriate
proceeding. Moreover, the Escrow Agent may bring an appropriate proceeding for
leave to deposit the funds pending a determination of the rights of the parties.
If threatened with litigation, the Escrow Agent may interplead all interested
parties in an appropriate action and may deposit the funds with the clerk of the
court; thereupon the Escrow Agent will have no further liability under this
Agreement. The Escrow Agent may retain counsel or act as its own counsel in any
action under this Agreement. The Seller and the Purchaser shall reimburse the
Escrow Agent for all costs and expenses incurred by it in connection with any
court proceeding under this Agreement, including reasonable attorney's fees and
disbursements. The Escrow Agent may retain out of the funds it holds under this
Agreement an amount sufficient to pay these costs and expenses.
The Escrow Agent is not liable for any mistake of fact or error of
judgment, or for any acts or omissions, unless caused by its willful misconduct.
The parties to this Agreement each release the Escrow Agent from any act done or
omitted to be done by the Escrow Agent in good faith in performance of its
obligations under this Agreement. The Escrow Agent is entitled to rely on any
documents or signature believed by it to be genuine and may assume that any
person
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purporting to give any writing or instruction in connection with this Agreement
is duly authorized to do so by the party on whose behalf such writing or
instruction is given.
The undersigned jointly and severally indemnify and protect the Escrow
Agent from and hold it harmless against any loss, liability, or expense incurred
without willful misconduct on the part of the Escrow Agent, arising out of its
duties under this Agreement, as well as the costs and expenses of defending
against any claim or liability arising under this Agreement.
The Escrow Agent shall pay all interest on the Deposit to the Purchaser
at the Closing, provided however, that interest shall be paid to the Seller upon
delivery of the Deposit to the Seller on account of the Purchaser's breach. If
the Purchaser is entitled to a refund of the Deposit under the terms of this
Agreement, the Escrow Agent shall pay the interest to the Purchaser at the time
of the refund. After delivering the funds in accordance with this Agreement, the
Escrow Agent will have no further liability under this Agreement.
Seller represents that Seller is a tax exempt entity under Section
501(c)(3) of the Internal Revenue Code. Purchaser represents that Purchaser's
federal tax identification number is ___________. Purchaser agrees to execute
and deliver to the Escrow Agent a W-9 form on or before the Closing certifying
as to its federal tax identification number.
3 The Closing. The consummation of the sale and purchase as
provided for in this Agreement and delivery of the Deed (herein referred to as
the "Closing") shall take place at 10:00 a.m. on August 5, 1997 (the "Closing
Date") at the offices of Foley, Hoag & Eliot, One Post Office Square, Boston,
Massachusetts, unless otherwise agreed upon in writing; provided, however, at
any time after June 20, 1997, the Purchaser may designate an earlier Closing
Date by written notice to Seller sent not less than ten (10) days prior to the
date specified in such written
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<PAGE> 5
notice by the Purchaser as the earlier Closing Date. It is agreed that time is
of the essence in this Agreement.
4 Title.
4.1 Title to Real Property. At the Closing, the Seller will
have, and will convey, deliver and transfer to the Purchaser, or to a nominee
designated by the Purchaser at least seven (7) days before the Closing, by
Quitclaim Deed, a good and clear record and marketable title to the Real
Property, free and clear of all encumbrances, liens, mortgages, security
interests, easements and other maters, except the matters set forth on Exhibit C
annexed hereto and a made a part hereof (the "Permitted Encumbrances").
4.2 Title to Personal Property. At the Closing, the Seller
shall have, and shall convey and transfer to the Purchaser, or to a nominee
designated by the Purchaser at least seven (7) days before the Closing, good and
clear record and marketable title to the Personal Property, free and clear of
all encumbrances, liens, mortgages and security interests, but without warranty,
express or implied, as to merchantability and fitness for any particular
purpose.
4.3 Title Insurance Policy. The title to the Premises shall
not be deemed to be in compliance with the provisions of Section 4.1 hereof
unless the Purchaser shall be able to obtain at the Closing from a nationally
recognized title insurance company (the "Title Company"), at normal premium
rates, an ALTA Owner's Policy (Form B-1970), in the amount of the Purchase Price
wherein the Title Company will insure that title to the Premises is vested in
the Purchaser and which title insurance policy shall contain no exceptions to
title except the Permitted Encumbrances together with such affirmative coverage
as is described in Exhibit C.
5 Condition of Premises. On the Closing Date, the Seller shall
deliver to the Purchaser full possession of the Premises, free of all tenants
and occupants except with respect to
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<PAGE> 6
the Seller's right to remain as a tenant pursuant to the Lease attached hereto
as Exhibit D (the "Lease"), the Premises to be then (i) (a) in the same
condition as they now are, reasonable use and wear thereof, (b) renovations
and/or improvements to be made by the Seller to the third floor for Seller's
occupancy thereof as provided in Exhibit B to the Lease, and (c) damage by fire
or other insured casualty not exceeding $50,000 in cost to repair (a "Minor
Insured Casualty"), all of which are excepted; (ii) broom clean and free of all
property not being purchased by the Purchaser hereunder except that the Seller
need not remove the Seller's personal property located on the third floor of the
Premises; (iii) [intentionally deleted]; and (iv) in compliance with the
provisions of all Permitted Encumbrances. In the event of a Minor Insured
Casualty between the date hereof and the Closing, at the Closing insurance
proceeds in an amount sufficient to effect the repair shall be paid to the
Purchaser or, at the Seller's option, a credit shall be made against the
Purchase Price in the amount necessary to so effect the repairs. If the Premises
shall be damaged by fire or casualty which is not a Minor Insured Casualty, the
provisions of Section 14.1, 14.2 and 14.3 shall be applicable.
6 Due Diligence Period. The Purchaser shall have the opportunity
to inspect the Premises and make the following investigations within the Due
Diligence Period which shall expire on July 21, 1997:
6.1 The physical condition of the Premises, including
without limitation:
6.1.1 the structural integrity and physical condition
of the Improvements, the condition of the systems serving the Improvements, and
the fitness thereof for the Purchaser's intended use;
6.1.2 compliance of the Premises with all applicable
laws including, without limitation, Environmental Laws;
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<PAGE> 7
6.1.3 the status of the Premises as determined by an
Environmental Audit to determine whether there are Hazardous Substances on the
Premises;
6.1.4 soil, seismic, hydrological, geological and
topographical evaluation;
6.1.5 whether the Premises are in a special flood
hazard zone; and
6.1.6 public access and the availability of adequate
utilities including, but not limited to, gas service, and that all such
utilities run from the public highway or a publicly dedicated street to the
Premises, or if they run through private property their installation was
pursuant to recorded easements which permit their installation, maintenance and
repairs.
6.2 Applicable government ordinances, rules and
regulations and evidence of compliance therewith, including without limitation
zoning and building regulations;
6.3 All private restrictions applicable to the Premises,
including without limitation, declaration of covenants, conditions and
restrictions, reciprocal easements and operating agreements; and
6.4 Any and all other matters concerning the current and
future use, feasibility or value, or governmental permissions or entitlements
pertaining to the Premises, or any other matter or circumstance relevant to the
Purchaser in its reasonable discretion concerning the Purchaser's acquisition of
the Premises.
6.5 The Seller agrees to cooperate with the Purchaser
during the Due Diligence Period and shall respond to the Purchaser's requests,
in a timely manner without undue delay or expense, for access, documents and
records, and other relevant information.
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7 Expiration of Due Diligence Period.
7.1 If the Purchaser fails to notify the Seller in
writing of any objections to the matters set forth in Sections 6.1 through 6.4
within the Due Diligence Period, the Purchaser will be deemed to have approved
all matters referred to therein or otherwise deemed relevant to the Purchaser in
respect to the Premises.
7.2 If the Purchaser objects to any of the matters set forth
in Sections 6.1 through 6.4, the Purchaser may terminate this Agreement by
written notice to the Seller, such notice to be delivered prior to the
expiration of the Due Diligence Period, whereupon all Deposits made hereunder
shall be refunded forthwith, all obligations of the parties hereto shall cease
and this Agreement shall be void and without recourse to the parties thereto.
8 The Purchaser's Right of Entry. The Purchaser and the
Purchaser's representatives, agents and designees will have the right, at
reasonable times and upon reasonable notice to the Seller, (which notice must
describe the scope of the planned testing and investigations) to enter upon the
Premises, in connection with the Purchaser's proposed purchase of the Premises.
However, the Purchaser agrees that:
8.1 All tests and investigations will be at the
Purchaser's sole cost and expense;
8.2 The persons or entities performing such and
investigations will be properly licensed and qualified and will have obtained
all appropriate permits and insurance therefor;
8.3 The Purchaser will advise the Seller in advance
of the dates of all tests and investigations and will schedule all tests and
investigations during normal business hours whenever feasible.
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<PAGE> 9
8.4 The Seller will have the right to have a
representative of the Seller accompany the Purchaser and the Purchaser's
representatives, agents or designees while they are on the Premises;
8.5 Any entry by the Purchaser, its representative,
agents or designees will not interfere with the Seller's or any tenant's use of
the Premises; and
8.6 The Purchaser will restore those parts of the
Premises which are disturbed or damaged by the Purchaser, substantially to their
condition prior to the Purchaser's entry, at the Purchaser's sole cost and
expense if this transaction does not close. Until restoration is complete, the
Purchaser shall take all steps necessary to ensure that any conditions on the
Premises created by the Purchaser's testing will not interfere with the normal
operation of the Premises or create any dangerous, unhealthy, unsightly or noisy
conditions on the Premises. The Purchaser's obligation to restore such parts of
the Premises shall survive the termination of this Agreement.
9 Environmental Definitions. For the purposes of this Agreement,
the following terms have the following meanings:
9.1 "Environmental Law" means any law, statute, ordinance
or regulation pertaining to health, hygiene or the environment including,
without limitation CERCLA (Comprehensive Environmental Response, Compensation
and Liability Act of 1980), RCRA (Resources Conservation and Recovery Act of
1976), and Massachusetts General Laws c.21E.
9.2 "Hazardous Substances" means any substance, material
or waste which is, or becomes prior to the Closing, designated, classified or
regulated as being "toxic" or "hazardous" or a "pollutant" or which is, or prior
to the Closing becomes, similarly designated, classified or regulated, under any
Environmental Law, including asbestos, petroleum and petroleum products.
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<PAGE> 10
9.3 "Environmental Audit" means an environmental audit,
review or testing of the Premises performed by the Purchaser or any third party
or consultant engaged by the Purchaser to conduct such study.
10 Representations, Warranties and Certain Covenants of the
Seller. The Seller, to induce the Purchaser to enter into this Agreement and to
purchase the Premises, represents and warrants to the Purchaser as follows:
10.1 Insurance Notices. To the Seller's knowledge, no
written notice has been given by any insurance company which has issued a policy
with respect to the Premises or by any board of fire underwriters (or other body
exercising similar functions) claiming any defects or deficiencies or requesting
the performance of any repairs, alterations or other work.
10.2 Condemnation. To the Seller's knowledge, there is no
pending condemnation or similar proceeding affecting the Premises, or any
portion thereof. The Seller has not received any written notice, and has no
knowledge, that any such proceeding is contemplated, except that the Seller is
aware that the Tri-Town Commission has proposed a widening of Middlesex
Turnpike. Such a widening might involve minor takings of property fronting on
Middlesex Turnpike.
10.3 Licenses. To the Seller's knowledge, prior to the
Closing Date, permanent certificates of occupancy, all licenses, permits,
authorizations and approvals required by all governmental authorities having
jurisdiction and the requisite certificates of the local board of fire
underwriters (or other body exercising similar functions), will have been issued
for the Premises and will have been paid for and, to the extent required under
applicable law, will be in full force and effect.
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10.4 Betterment Assessments. To the Seller's knowledge, no
portion of the Premises is subject to, or is affected by, any betterment
assessments, whether or not presently a lien thereon, and no such assessment has
been proposed.
10.5 Power and Authority. The Seller has full power and
authority, in accordance with law to enter into this Agreement and to consummate
the sale provided for herein. Neither the entering into of this Agreement nor
the consummation of said sale will constitute a violation or breach by the
Seller of any contract or other instrument to which it is a party or to which it
is subject or by which any of its assets or properties may be affected, or any
judgment, order, writ, injunction or decree issued against or imposed upon it,
or will result in a violation of any applicable law, order, rule or regulation
of any governmental authority.
10.6 Hazardous Waste. To the Seller's knowledge, except as
may be set forth in the Environmental Reports (as hereinafter defined), the
Seller has not generated, stored, or disposed of Hazardous Substances on the
Premises and the Premises have never been used for industrial or manufacturing
purposes or for the generation, storage or disposal of Hazardous Substances by
the Seller or any third party. "Environmental Reports" as used in this Section
10.6 shall mean the following: (a) "Preliminary Site Assessment for the MITRE
Office Building, 40 Middlesex Turnpike, Bedford, Massachusetts", dated November
1989, prepared by Woodward-Clyde Consultants, as updated by "Update to
Preliminary Site Assessment, MITRE Office Building, 40 Middlesex Turnpike,
Bedford, Massachusetts", dated October 1991 and (b) "Asbestos Survey for Site
Number 6, Building G, 40 Middlesex Turnpike, Bedford, Massachusetts", dated
November 15, 1989, prepared by Hygienetics, Inc.
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10.7 Personal Property. Personal Property included in the
sale is owned by the Seller free and clear of any conditional bills of sale,
chattel mortgages, security agreements, financing statements and other security
interests of any kind.
10.8 Contracts. To the Seller's knowledge, no brokerage
commission or compensation of any kind is due or will become due relating to any
prior or existing lease of the Premises, or any extensions or renewals thereof,
or this Agreement (except as otherwise specifically provided for herein) or
otherwise. There are no contracts, oral or in writing, affecting the Premises,
which will be binding upon the Purchaser or affect the Premises in any manner
after the delivery of the deed hereunder.
10.9 No Violations. To the Seller's knowledge, as of the
date hereof, the Seller has not received any written notification of any
governmental authority of any violation of federal, state or municipal laws,
ordinances, orders, regulations or requirements affecting any portion of the
Premises.
10.10 Breach of Agreements. To the Seller's knowledge, the
Seller does not know and has not received written notice of any default or
breach by the Seller under any of the covenants, conditions, restrictions,
rights of way or easements, if any, affecting the Premises or any portion
thereof, and, to the best of the Seller's knowledge, no such default or breach
now exists, and no event has occurred and is continuing which with notice or the
passage of time, or both, would constitute a default thereunder.
10.11 Mechanics' Liens. No work has been performed or is in
progress at, and no materials have been furnished to the Premises or any portion
thereof which, though not presently the subject of, may give rise to mechancis',
materialmen's or other liens against the Premises or any portion thereof.
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10.12 Actions. There is no action, suit or proceeding
pending or, to the Seller's knowledge, threatened against or affecting the
Premises or any portion thereof or relating to or arising out of the ownership
of the Premises or any portion thereof in any court or before or by any
governmental authority. To the Seller's knowledge, there is no proceeding
pending for the reduction of the assessed valuation of the Premises or any
portion thereof.
10.13 Outstanding Agreements. There are no outstanding
options or purchase and sale agreements with respect to the sale of the Premises
or any part thereof, to any person, corporation, firm, governmental authority or
other entity.
10.14 Non-Foreign Status. The Seller is not a foreign
person, as defined in Section 1445 of the Internal Revenue Code, and the
Purchaser is not required to deduct and withhold any portion of the Purchase
Price pursuant to said Section 1445.
10.15 The Seller's Documents. To the Seller's knowledge,
the Seller has, prior to the date hereof, delivered to the Purchaser copies of
all reports, studies, investigations and other documents which the Seller has in
its possession with respect to the compliance or non-compliance of the Premises
with all Environmental Laws and the condition of the Premises with respect to
Hazardous Substances.
10.16 Physical Condition of the Premises. [Intentionally
deleted.]
10.17 Warranties at Closing. The obligations of the
Purchaser hereunder shall be subject to the fulfillment prior to or at the
Closing, of each of the following conditions (any or all of which may be waived,
in writing, by the Purchaser in its sole discretion):
10.17.1 The representations and warranties made by
the Seller in this Agreement shall be true and correct in all material respects
on and as of the date of the Closing, and shall be and be deemed to be made on
and as of such date. The truth and
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correctness of each of such representations and warranties shall be of the
essence of this Agreement.
10.17.2 The Seller shall have performed all
covenants, undertakings and obligations and complied with all conditions
required by this Agreement to be performed or complied with by the Seller.
10.18 [Intentionally deleted.]
10.19 Knowledge of the Seller. References to the
"knowledge" of Seller shall refer only to the actual knowledge of George W.
Auclair, Jr., Director of MITRE Facilities and Bedford Administrative Operations
for The MITRE Corporation, and shall not be construed, by imputation or
otherwise, to refer to the knowledge of any other officer, agent, manager,
representative or employee of the Seller or to impose upon said George W.
Auclair, Jr. any duty to investigate the matter to which such actual knowledge,
or the absence thereof, pertains. Further, the Purchaser understands that George
W. Auclair, Jr. has made no investigation with respect to any such matter in
order to make any representation or statement contained herein.
11 Provisions with Respect to the Closing.
11.1 Closing Deliveries. At the Closing, the Seller shall
deliver to the Purchaser the following:
11.1.1 Quitclaim Deed (the "Deed") running to the
Purchaser, or a nominee designated by the Purchaser, conveying a good and clear
record and marketable title, free from encumbrances except for the Permitted
Encumbrances, in proper form for recording. In addition to the foregoing, if the
title to the Real Estate is registered, said deed shall be in a form sufficient
to entitle the Purchaser to a Certificate of Title of said Real Estate, and the
Seller
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shall deliver with said deed all instruments, if any, necessary to enable the
Purchaser to obtain such Certificate of Title.
11.1.2 A bill of sale or bills of sale for the
Personal Property running to the Purchaser, or a nominee designated by the
Purchaser, conveying a good and clear, record and marketable title, free from
encumbrances, liens, mortgages and security interests but without warranty,
express or implied, as to merchantability and fitness for any purpose.
11.1.3 An assignment or assignments, duly executed by
the Seller, assigning to the Purchaser all existing, assignable guaranties and
warranties issued in connection with the construction, improvement, alteration
and repair of the Premises, together with the original of each such guaranty or
warranty, if in the Seller's possession.
11.1.4 The original of each certificate, license,
permit, authorization and approval, if any, required by law, in the Seller's
possession, with respect to the Premises and issued by all governmental
authorities having jurisdiction, together with an assignment thereof, duly
executed by the Seller, if the same is assignable.
11.1.5 A complete set of "as-built" plans and
specifications for all buildings and other improvements at the Premises
(including architectural, structural, mechanical and electrical) and all surveys
prepared in connection therewith, to the extent the same exists and are in the
possession of the Seller.
11.1.6 The original of each bill, if not yet due and
payable prior to the Closing, for current real estate, ad valorem and personal
property taxes, sewer charges and assessments, water charges and other
utilities, or if payable prior to the Closing but after the date of any
Municipal Lien Certificate obtained by the Purchaser, a copy of such bill,
together with proof of payment.
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<PAGE> 16
11.1.7 Such affidavits or letters of indemnity as the
Purchaser's Title Insurance Company shall reasonably require in order to omit
from its title insurance policy all exceptions for mechanic's, materialmen's or
similar liens and for parties in possession.
11.1.8 A certificate by the Seller to the effect that
all of the representations and warranties set forth in Section 10 remain true
and correct as of the Closing Date.
11.1.9 The keys to the Premises, except keys or
access passes to the Leased Premises (as defined in the Lease) to be occupied by
the Seller.
11.1.10 An affidavit stating that the Seller is not a
"foreign person", and therefore, not subject to the withholding of any portion
of the Purchase Price pursuant to Section 1445 of the Internal Revenue Code.
11.1.11 Clerk's Certificate which recites that the
execution and delivery of the Deed hereunder by officers of the Seller has been
voted and is duly authorized by the Seller's Board of Directors and which
further identifies such officers by name and certifies that they were duly
elected and at the time they executed the deed they were acting in their
official capacity.
11.1.12 [Intentionally deleted.]
11.1.13 A lease of the Premises, which the Purchaser
agrees to execute, such lease to be in the form attached hereto as Exhibit D.
11.2 [Intentionally Deleted.]
12 Adjustment, Special Assessments, Etc. The following shall be
adjusted between the Seller and the Purchaser and shall be prorated on a per
diem basis as of 11:59 p.m. of the day preceding the Closing Date:
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12.1 Real Estate, ad valorem and personal property taxes,
water and sewer charges and charges and other state, county and municipal taxes,
charges and assessments affecting the Premises or any portion thereof, on the
basis of the fiscal year for which the same are levied, imposed or assessed. If
the rate of any such taxes, rents, charges or assessments shall not be fixed
prior to the Closing Date, the adjustment thereof at the Closing shall be upon
the basis of the rate for the preceding fiscal year applied to the latest
assessed valuation (or other basis of valuation) and the same shall be further
adjusted when the rate for the current fiscal year is fixed.
12.2 If, on the Closing Date, the Premises or any part
thereof shall be, or shall have been affected by or shall be subject to, any
betterment assessment, then, whether or not any such assessment is then a lien
on the Premises or any portion thereof, or is payable prior to, on or after the
Closing Date, all unpaid installments of any such assessment (including those
which are to become due and payable after the Closing), shall be deemed to be
due and payable prior to the Closing and shall not be apportioned between the
Seller and the Purchaser but shall be paid and discharged by the Seller at the
Closing.
13 Insurance. Until the Closing the Seller shall keep the
Premises insured against fire and other hazards covered by extended coverage
endorsement as currently insured. The risk of loss in and to the Premises shall
remain vested in the Seller until the Purchaser accepts and records the Deed.
14 Failure to Perform.
14.1 Extension to Perfect Title. If the Seller shall be
unable to give title or to make conveyance, or to deliver possession of the
Premises, all as herein stipulated, or if at the time of the Closing the
Premises do not conform with the provisions hereof, then the Seller shall
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<PAGE> 18
use reasonable efforts, not to exceed the expenditure of more than $25,000 by
the Seller, to remove any defects in title, or to deliver possession as provided
herein, or to make the Premises conform to the provisions hereof, as the case
may be, in which event, the Seller shall give written notice thereof to the
Purchaser at or before the time of the Closing, and thereupon the time of the
Closing shall be extended for a period of not more than thirty (30) days, as
specified by the Seller in such notice.
14.2 Failure to Perfect Title. If at the expiration of the
extended time of the Closing, the Seller shall be unable to remove any defects
in title, deliver possession, or make the Premises conform, as the case may be,
all as herein agreed, then the Deposit and all accrued interest thereon shall be
forthwith refunded to the Purchaser and all other obligations of all parties
hereto shall cease and this Agreement shall be void and without recourse to the
parties hereto.
14.3 Purchaser's Election to Accept Title. The Purchaser
shall have the election, at either the original or any extended time for
performance, to accept such title as the Seller can deliver to the Premises in
its then condition and to pay therefor the Purchase Price, without deduction, in
which case the Seller shall convey such title.
14.4 Acceptance of Deed. The acceptance by the Purchaser
of the Deed to the Premises shall be deemed to be a full performance and
discharge of every agreement and obligation of the Seller herein contained or
expressed, except such, if any, as are, by the express terms hereof, to be
performed after the delivery of said Deed.
14.5 Use of Purchase Money to Clear Title. To enable the
Seller to make the conveyance as herein provided, the Purchaser agrees that the
Seller shall have the right to use all or a portion of the Purchase Price to
remove or discharge any or all mortgages, liens, interests or
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<PAGE> 19
other encumbrances affecting the title of the Premises or any portion thereof
provided that all such instruments so procured are delivered at the Closing or,
with respect to mortgages to institutional lenders, arrangements are made to
obtain and record such mortgages within a reasonable period of time following
the Closing in accordance with customary conveyancing practice.
15 Seller's Remedies. The parties acknowledge that in the event
the Purchaser fails to fulfill its obligations hereunder it is impossible to
compute exactly the damages which would accrue to the Seller in such event. The
parties have taken these facts into account in setting the amount of the Deposit
hereunder and hereby agree that (i) the Deposit is the best estimate of such
damages which would accrue to the Seller; (ii) the Deposit represents damages
and not any penalty against the Purchaser; and (iii) if this Agreement shall be
terminated by the Seller by reason of the Purchaser's failure to fulfill the
Purchaser's obligations hereunder, the Deposits shall be paid to the Seller as
its full and liquidated damages in lieu of all other rights and remedies which
the Seller may have against the Purchaser at law or in equity.
16 Further Assurances.
In addition to the obligations required to be performed
hereunder by the Seller at the Closing, the Seller agrees from time to time to
perform such other acts, and to execute, acknowledge and/or deliver subsequent
to the Closing such other instruments, documents and other materials, as the
Purchaser may reasonably request in order to effectuate the consummation of the
transactions contemplated herein and to vest title to the Premises in the
Purchaser.
17 Taxes and Other Expenses.
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<PAGE> 20
At the Closing, the Seller shall pay all federal, state and
local transfer and sales taxes imposed upon or relating to the deed or the bills
of sale or the transactions provided for herein.
18 [Intentionally deleted.]
19 Notices. Unless otherwise specifically provdied herein, all
noices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given shall be
in writing, sent by United States mail, by nationally recognized courier
service or by hand, or by facsimile communication followed by such courier
service delivery, and any such notice shall become effective two (2) business
days after being deposited in the mail, certified or registered with
appropriate postage prepaid or one (1) business day after deliver to a
nationally recognized courier service specifying overnight delivery or, if
delivered by facsimile communication or by hand, when received, and shall be
directed to the address set forth below. From time to time any party may
designate a new address for purposes of notice hereunder by notice to the
other party:
To Purchaser: Richard Moberg
Chief Financial Officer
Aware, Inc.
One Oak Park Drive
Bedford, MA 01730
Phone No.: (617) 276-4000
Fax No.: (617) 276-4001
With a copy to: Jacob N. Polatin, Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Phone No.: (617) 832-1000
Fax No.: (617) 832-7000
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<PAGE> 21
To Seller: Linda G. Begen, Esquire
Corporate Legal Counsel
Mail Stop A209
202 Burlington Road
Bedford, MA 01730
Phone No.: (617) 271-2000
Fax No.: (617) 271-2175
With a copy to: Robert A. Fishman, Esquire
Nutter, McClennen & Fish, LLP
One International Place
Boston, MA 02110
Phone No.: (617) 439-2000
Fax No.: (617) 973-9748
20 Brokers. The Seller represents to the Purchaser that it was
not represented by a broker other than Spaulding & Slye, Inc. with respect to
this transaction. The Purchaser represents to the Seller that it was not
represented by a broker other than James F. McCaffrey, Meredith & Grew,
Incorporated, and Avalon Partners, Inc. Upon the recording of the Deed and the
payment of the Purchase Price, the Seller shall pay commissions to the aforesaid
brokers as follows: Spaulding & Sly, Inc., $141,500; Meredith & Grew,
Incorporated, $111,500; and Avalon Partners, Inc., $30,000.00. The party
breaching such representation hereby agrees to indemnify, protect, defend (with
counsel chosen by the nonbreaching party) and hold the non-breaching party free
and harmless from and against any and all commissions or other claims such
broker may assert in connection with the parties entering into, or consummating
the transactions contemplated by, this Agreement. The provisions of this Section
shall survive the Closing or the earlier termination of this Agreement.
21 Legal Fees. [Intentionally deleted.]
22 Assignment. The Purchaser may not assign, transfer or convey
its rights or obligations under this Agreement without the prior written consent
of the Seller, and then only if
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<PAGE> 22
the Purchaser's assignee assumes in writing all of the Purchaser's obligations
hereunder; provided, however, the Purchaser shall in no event be released from
its obligations hereunder by reason or such assignment. The Purchaser, without
being relieved of liability hereunder and without obtaining the Seller's
consent, shall have the right to nominate another person or entity in whom title
to the Premises shall vest.
23 Miscellaneous.
23.1 Entire Agreement; Modifications. This Agreement
embodies and constitutes the entire understanding between the parties with
respect to the transactions contemplated herein, and all prior or
contemporaneous agreement, understandings, representations and statements, oral
or written, are merged into this Agreement. Neither this Agreement nor any
provision hereof may be waived, modified, amended, discharged or terminated
except by an instrument in writing signed by the party against which the
enforcement of such waiver, modification, amendment, discharge or termination is
sought, and then only to the extent set forth in such instrument.
23.2 Applicable Law. This Agreement shall be governed by,
and construed in accordance with, the law of the Commonwealth of Massachusetts.
23.3 Captions. The captions in this Agreement are inserted
for convenience or reference only and in no way define, describe or limit the
scope or intent of this Agreement or any of the provisions hereof.
23.4 Binding Effect. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
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<PAGE> 23
23.5 No Partnership. This Agreement shall not be construed
to create or be a partnership or joint venture between the parties and the
Seller shall not be construed to be the agent of the Purchaser.
23.6 Number and Gender. As used in this Agreement, the
masculine shall include the feminine and neuter, the singular shall include the
plural and the plural shall include the singular, as the context may require.
23.7 Computation of Time Periods. Wherever herein the
words, "date of this Agreement", "the date hereof," "the date of execution
hereof" or similar phrases are used, such phrases shall mean that date upon
which two (2) fully executed copies of this Agreement with all exhibits attached
thereto are delivered to the Purchaser. If the date upon which the Due Diligence
Period expires, the Closing Date or any other date or time period provided for
in this Agreement is or ends on a Saturday, Sunday or federal, state or legal
holiday, then such date shall automatically be extended until 5 p.m. Eastern
Daylight Time of the next day which is not a Saturday, Sunday or federal, state
or legal holiday.
23.8 Counterparts. This Agreement may be executed in
multiple counterparts (and by multiple counterpart signature pages), each of
which shall be deemed an original, but all of which, together, shall constitute
but one and the same instrument.
23.9 No Obligations to Third Parties. Except as otherwise
expressly provided herein, the execution and delivery of this Agreement shall
not be deemed to confer any rights upon, nor obligate any of the parties hereto,
to any person or entity other than the parties hereto.
23.10 Exhibits and Schedules. The Exhibits attached hereto
are hereby incorporated herein by this reference for all purposes.
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<PAGE> 24
23.11 Waiver. The waiver or failure to enforce any
provision of this Agreement shall not operate as a waiver of any future breach
of any such provision or any other provision thereof.
23.12 Fees and Other Expenses. Except as otherwise provided
herein, each of the parties hereto shall pay its own fees and expenses in
connection with this Agreement.
23.13 Construction. The parties hereto hereby acknowledge
and agree that (i) each party hereto is of equal bargaining strength, (ii) each
such party has actively participated in the drafting, preparation and
negotiation of this Agreement, (iii) each such party has consulted with such
party's own, independent counsel, and such other professional advisors as such
party has deemed appropriate, relative to any and all matters contemplated under
this Agreement, (iv) each such party and such party's counsel and advisors have
reviewed this Agreement, (v) each such party has agreed to enter into this
Agreement following such review and the rendering of such advice, and (vi) any
rule of construction to the effect that ambiguities are to be resolved against
the drafting parties shall not apply in the interpretation of this Agreement, or
any portions hereof, or any amendments hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal on the date first above written.
SELLER:
THE MITRE CORPORATION
By: /s/ Victor DeMarines
---------------------------------------
Victor A. DeMarines
President and Chief Executive Officer
PURCHASER:
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<PAGE> 25
AWARE, INC.
By: /s/ James C. Bender
---------------------------------------
-25-
<PAGE> 1
EXHIBIT 11.1
AWARE, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED
NET INOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net income (loss).................................................... $(2,145,946) $ 261,683
=========== ===========
Weighted average number of common and common stock equivalent shares
outstanding:
Common stock...................................................... 19,430,032 15,014,883
Convertible preferred common stock equivalents.................... -- 2,058,232
Option common stock equivalent shares............................. -- 1,998,719
Effect of SAB 83.................................................. -- --
----------- -----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share 19,430,032 19,071,834
Incremental shares to reflect full dilution....................... -- 335,411
----------- -----------
Total shares for purpose of calculating fully diluted net
income (loss) per share................................... 19,430,032 19,407,245
=========== ===========
Primary net income (loss) per share.................................. $ (0.11) $ 0.01
=========== ===========
Fully diluted net income (loss) per share............................ $ (0.11) $ 0.01
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net income (loss)....................................................... $(2,697,646) $ 351,501
=========== ===========
Weighted average number of common and common stock equivalent shares
outstanding:
Common stock...................................................... 19,257,651 8,145,160
Convertible preferred common stock equivalents.................... -- 7,289,474
Option common stock equivalent shares............................. -- 1,710,345
Effect of SAB 83.................................................. -- 400,010
----------- -----------
Common and common stock equivalent shares outstanding for
purpose of calculating primary net income (loss) per share 19,257,651 17,544,989
Incremental shares to reflect full dilution....................... -- 614,609
----------- -----------
Total shares for purpose of calculating fully diluted net
income (loss) per share................................... 19,257,651 18,159,598
=========== ===========
Primary net income (loss) per share..................................... $ (0.14) $ 0.02
=========== ===========
Fully diluted net income (loss) per share............................... $ (0.14) $ 0.02
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 27,946
<SECURITIES> 0
<RECEIVABLES> 1,119
<ALLOWANCES> 50
<INVENTORY> 206
<CURRENT-ASSETS> 29,518
<PP&E> 10,317
<DEPRECIATION> 1,132
<TOTAL-ASSETS> 38,702
<CURRENT-LIABILITIES> 922
<BONDS> 0
0
0
<COMMON> 194
<OTHER-SE> 37,586
<TOTAL-LIABILITY-AND-EQUITY> 38,702
<SALES> 575
<TOTAL-REVENUES> 4,394
<CGS> 879
<TOTAL-COSTS> 879
<OTHER-EXPENSES> 7,557
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,698)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,698)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)
</TABLE>
