<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
AWARE, INC.
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing party:
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
AWARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
Aware, Inc. hereby gives notice that it will hold its annual meeting of
stockholders at the Renaissance Bedford Hotel, 44 Middlesex Turnpike, Bedford,
Massachusetts on Thursday, May 25, 2000, beginning at 10:00 a.m., local time,
for the following purposes:
1. To consider and vote upon the election of two Class I
directors;
2. To consider and vote upon a proposal to amend Aware's 1996
Stock Option Plan in order to increase the number of shares
of common stock that may be issued under the plan from
5,000,000 to 6,100,000; and
3. To transact such other business as may properly come before
the annual meeting or any adjournment thereof.
The board of directors has fixed the close of business on March 31, 2000 as
the record date for the determination of the stockholders of Aware entitled to
receive notice of the annual meeting and to vote at the meeting. Only
stockholders of record on that date are entitled to receive notice of the annual
meeting and to vote at the meeting or any adjournment thereof.
By order of the board of directors,
MICHAEL A. TZANNES
President and Chief Executive Officer
April 14, 2000
Bedford, Massachusetts
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE> 3
AWARE, INC.
40 MIDDLESEX TURNPIKE
BEDFORD, MASSACHUSETTS 01730
(781) 276-4000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
This proxy statement relates to the 2000 annual meeting of stockholders of
Aware, Inc. The annual meeting will take place as follows:
<TABLE>
<S> <C>
Date: May 25, 2000
Time: 10:00 a.m.
Place: Renaissance Bedford Hotel
44 Middlesex Turnpike
Bedford, Massachusetts
</TABLE>
The board of directors of Aware is soliciting proxies for the annual
meeting and adjournments of the annual meeting. If a stockholder returns a
properly executed proxy, the shares represented by the proxy will be voted in
accordance with the stockholder's directions. If a stockholder does not specify
a vote on any proposal, the shares covered by his or her proxy will be voted on
that proposal as management recommends. Aware encourages its stockholders to
vote on all proposals.
Aware is mailing this proxy statement and the enclosed form of proxy to
stockholders on or about April 14, 2000.
PURPOSE OF THE ANNUAL MEETING
At the annual meeting, Aware will submit two proposals to the stockholders:
Proposal 1: To elect two Class I directors, each for a three-year term;
and
Proposal 2: To amend Aware's 1996 Stock Option Plan in order to
increase the number of shares of common stock that may be
issued under the plan from 5,000,000 to 6,100,000.
Currently, Aware does not intend to submit any other proposals to the
stockholders at the annual meeting. The board of directors was not aware, a
reasonable time before mailing this proxy statement to stockholders, of any
other business that may be properly presented for action at the annual meeting.
If any other business comes before the annual meeting, the persons present will
have discretionary authority to vote the shares they own or represent by proxy
in accordance with their judgment.
RECORD DATE
The board of directors of Aware has fixed the close of business on Friday,
March 31, 2000 as the record date for the annual meeting. Only stockholders of
record on that date are entitled to receive notice of the meeting and to vote at
the meeting or any adjournment of the meeting. At the close of business on March
31, 2000, there were issued and outstanding 22,427,818 shares of Aware's common
stock, which are entitled to cast 22,427,818 votes.
QUORUM
Aware's by-laws provide that a quorum at the annual meeting will be a
majority in interest of all stock issued, outstanding and entitled to vote at
the meeting. Aware will treat shares of common stock
<PAGE> 4
represented by a properly signed and returned proxy as present at the meeting
for purposes of determining the existence of a quorum at the meeting. In
general, Aware will count votes withheld from any nominee for election as
director, abstentions and broker "non-votes" as present or represented for
purposes of determining the existence a quorum. A broker "non-vote" occurs when
a broker or nominee holding shares for a beneficial owner does not vote on a
proposal because the broker or nominee does not have discretionary voting power
and has not received instructions from the beneficial owner with respect to that
proposal.
TABULATION OF VOTES
Proposal 1. The election of each Class I director will require the
affirmative vote of a plurality of the shares of common stock properly cast on
the proposal. Abstentions, votes withheld from director-nominees, and broker
non-votes will not count as votes cast for or against the election of the
director-nominees and accordingly will not affect the outcome of the vote.
Proposal 2. The amendment of Aware's 1996 Stock Option Plan will require
the affirmative vote of a majority of the shares of common stock properly cast
on the proposal. Abstentions and broker non-votes will not count as votes cast
for or against the proposal and accordingly will not affect the outcome of the
vote.
EquiServe Trust Company, N.A., Aware's transfer agent, will tabulate votes
at the annual meeting. EquiServe Trust Company, N.A. will tabulate the vote on
each matter submitted to stockholders separately.
REVOCATION OF PROXIES
A stockholder who has executed a proxy may revoke the proxy at any time
before it is exercised as the annual meeting in three ways: (a) by giving
written notice of revocation to the Clerk of Aware at Aware's headquarters, 40
Middlesex Turnpike, Bedford, Massachusetts 01730; (b) by signing and returning a
later dated proxy; or (c) by attending the annual meeting and informing the
Clerk of Aware in writing that he or she wishes to vote in person. Mere
attendance at the annual meeting will not in and of itself revoke the proxy.
Accordingly, stockholders who have executed and returned proxies in advance of
the annual meeting may change their votes at any time before or at the annual
meeting.
SOLICITATION OF PROXIES
All costs of solicitation of proxies will be borne by Aware. Aware will
reimburse brokers, banks, fiduciaries, nominees and others for the out-of-pocket
expenses and other reasonable clerical expenses they incur in forwarding proxy
materials to beneficial owners of common stock held in their names. Certain
directors, officers and employees of Aware may solicit proxies, without
additional remuneration, by telephone, facsimile, electronic mail, telegraph and
in person. Aware expects that the expenses of this special solicitation will be
nominal. Aware may retain Corporate Investor Communications, Inc., 111 Commerce
Road, Carlstadt, New Jersey 07072, to assist in the solicitation of proxies for
the 2000 annual meeting at an estimated cost of $6,000, plus reasonable
out-of-pocket expenses. At present, Aware does not expect to pay any
compensation to any other person or firm for the solicitation of proxies.
DISSENTER'S RIGHTS OF APPRAISAL
Under Massachusetts law, holders of common stock of Aware are not entitled
to dissent from any of the proposals to be presented at the annual meeting or to
demand appraisal of their shares as a result of the approval of any of those
proposals.
2
<PAGE> 5
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
The board of directors has nominated for election as Class I directors
Michael A. Tzannes and G. David Forney, Jr., each of whom is currently a
director of Aware. Each director elected at the annual meeting will hold office
until the annual meeting of stockholders in 2003 and until his successor is duly
elected and qualified.
Each of the nominees has agreed to serve if elected, and Aware has no
reason to believe that either nominee will be unable to serve. If either nominee
is unable or declines to serve as a director at the time of the annual meeting,
proxies will be voted for another nominee designated by the board. Proxies
cannot be voted for more than two nominees.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF MICHAEL
A. TZANNES AND G. DAVID FORNEY, JR. AS CLASS I DIRECTORS OF AWARE.
3
<PAGE> 6
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding Aware's directors and
executive officers as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John K. Kerr(1)(2)(3)...................... 62 Chairman of the Board of Directors
Michael A. Tzannes(1)...................... 38 President, Chief Executive Officer and
Director
Richard P. Moberg.......................... 45 Chief Financial Officer and Treasurer
Edmund C. Reiter........................... 36 Senior Vice President and Director
Richard W. Gross........................... 42 Senior Vice President -- Strategic
Development
David Ehreth(2)(3)......................... 50 Director
G. David Forney, Jr.(2).................... 60 Director
</TABLE>
- ---------------
(1) Member of the executive committee
(2) Member of the audit committee
(3) Member of the compensation committee
John K. Kerr has been a director of Aware since 1990 and Chairman of the
board of directors since March 1999. Mr. Kerr previously served as a director of
Aware from 1988 to 1989 and the Chairman of the board of directors from November
1992 to March 1994. Mr. Kerr has been General Partner of Grove Investment
Partners, a private investment partnership, since 1990. Mr. Kerr received an
M.A. and a B.A. from Baylor University.
Michael A. Tzannes has been Aware's President and Chief Executive Officer
since April 1998 and has served as a director of Aware since March 1998. From
September 1997 to April 1998, he served as Aware's Chief Technology Officer and
General Manager of Telecommunications. Mr. Tzannes served as Aware's Senior Vice
President, Telecommunications from April 1996 to September 1997, as Aware's Vice
President, Telecommunications from December 1992 to April 1996, as a Senior
Member of Aware's Technical Staff from January 1991 to November 1992, and as a
consultant to Aware from October 1990 to December 1990. From 1986 to 1990, he
was a Staff Engineer at Signatron, Inc., a telecommunications technology and
systems developer. Mr. Tzannes received a Ph.D. in electrical engineering from
Tufts University, an M.S. from the University of Michigan at Ann Arbor, and a
B.S. from the University of Patras, Greece.
Richard P. Moberg joined Aware in June 1996 as Chief Financial Officer and
Treasurer. From December 1990 to June 1996, Mr. Moberg held a number of
positions at Lotus Development Corporation, a computer software developer,
including Corporate Controller from June 1995 to June 1996, Assistant Corporate
Controller from May 1993 to June 1995, and Director of Financial Services from
December 1990 to May 1993. Mr. Moberg received an M.B.A. from Bentley College
and a B.B.A. in accounting from the University of Massachusetts at Amherst.
Edmund C. Reiter has been Senior Vice President of Aware since May 1998 and
has served as a director of Aware since December 1999. Prior to becoming a
Senior Vice President, he served as Aware's Vice President, Advanced Products
from August 1995 to May 1998, Aware's Manager of Product Development for still
image compression products from June 1994 to August 1995, as a Senior Member of
Aware's Technical Staff from November 1993 to June 1994, and as a Member of
Aware's Technical Staff from December 1992 to November 1993. Mr. Reiter served
as Senior Scientist at New England Research, Inc. from January 1991 to November
1992. Mr. Reiter received a Ph.D. from the Massachusetts Institute of Technology
and a B.S. from Boston College.
Richard W. Gross was appointed Senior Vice President -- Strategic
Development in July 1999. Mr. Gross served as Vice President -- Strategic
Development from July 1998 to July 1999. Prior to the Vice President position,
he held various senior level engineering positions from the time he joined Aware
in September 1993 until July 1998, including Director -- Communications
Technology, Director -- HFC
4
<PAGE> 7
Systems and Communications Systems Manager. Before joining Aware, Mr. Gross was
a senior technical staff member at GTE Laboratories from 1987 to 1993; a
technical staff member at the Heinrich Hertz Institute from 1984 to 1987; and a
programmer for IBM, Federal Systems Division from 1980 to 1984. Mr. Gross
received a Ph.D. and M.S. in electrical engineering from the University of Rhode
Island and a B.A. in physics from Holy Cross College.
David Ehreth has served as a director of Aware since November 1997. Since
September 1998, Mr. Ehreth has served as President and chief executive officer
of Westwave Communications, Inc., a telecommunications software company. From
June 1993 to August 1998, Mr. Ehreth served as Division Vice President of the
Access Division of DSC Communications Corporation, a manufacturer of digital
switching, access, transport and private network system products for the
telecommunications industry. From 1987 to June 1993, Mr. Ehreth served as a Vice
President of Engineering of Optilink, Inc., a manufacturer of access systems for
the telecommunications industry. Optilink, Inc. was acquired by DSC
Communications Corporation in 1990.
G. David Forney, Jr. has served as a director of Aware since May 1999. Mr.
Forney was a Vice President of Motorola from 1977 until his retirement in
January 1999. Mr. Forney was previously a Vice President of research and
development, and a director of Codex Corporation prior to its acquisition by
Motorola in 1977. Mr. Forney is currently a Bernard M. Gordon Adjunct Professor
in the Department of Electrical Engineering and Computer Sciences at the
Massachusetts Institute of Technology. Mr. Forney received an Sc.D. in
electrical engineering from Massachusetts Institute of Technology in 1965 and a
B.S.E. in electrical engineering from Princeton University in 1961.
The board of directors is divided into three classes, referred to as Class
I, Class II and Class III, each consisting of approximately one-third of the
directors. One class is elected each year at the annual meeting of stockholders
to hold office for a term of three years and until their respective successors
have been duly elected and qualified. The number of directors has been fixed at
seven, and there are currently two vacancies on the board of directors. The
current terms of Messrs. Tzannes and Forney, Aware's Class I directors, will
expire at the annual meeting to be held on May 25, 2000. The terms of Aware's
Class II directors, Messrs. Kerr and Ehreth, will expire at the annual meeting
to be held in 2001. The term of Aware's sole Class III director, Mr. Reiter,
will expire at the annual meeting to be held in 2002.
Executive officers are elected annually by the board of directors and serve
at the discretion of the board or until their respective successors have been
duly elected and qualified. There are no family relationships among Aware's
directors and executive officers.
COMMITTEES AND MEETINGS OF THE BOARD
During 1999, the board of directors met eight times and acted by unanimous
written consent once. No incumbent director attended fewer than 75% of the total
number of meetings held by the board and committees of the board on which he
served.
Aware has an executive committee, a compensation committee and an audit
committee but does not have a nominating committee or other committee performing
similar functions. The executive committee has all of the powers of the board of
directors except the power to: (a) change the number of directors or fill
vacancies on the board of directors; (b) elect or fill vacancies in the offices
of President, Treasurer or Clerk; (c) remove any officer or director; (d) amend
the By-Laws of Aware; (e) change the principal office of Aware; (f) authorize
the payment of any dividend or distribution to stockholders of Aware; (g)
authorize the reacquisition of capital stock for value; and (h) authorize a
merger. In 1999, the executive committee neither met nor took action by
unanimous written consent.
The compensation committee establishes salaries and incentive compensation
for senior management of Aware and administers Aware's stock option plans. In
1999, the compensation committee held one meeting and took action by unanimous
written consent 14 times.
The audit committee reviews the results and scope of the annual audit of
Aware's financial statements conducted by Aware's independent accountants, the
scope of other services provided by Aware's
5
<PAGE> 8
independent accountants, proposed changes in Aware's financial and accounting
standards and principles, and Aware's policies and procedures with respect to
its internal accounting, auditing and financial controls. The audit committee
also makes recommendations to the board of directors on the engagement of the
independent accountants, as well as other matters which may come before the
audit committee or at the direction of the board of directors. In 1999, the
audit committee met twice and took no action by unanimous written consent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Aware's compensation committee is currently composed of Messrs. Kerr and
Ehreth. Mr. Kerr formerly served as Aware's Assistant Vice President of
Marketing from June 1992 to November 1994. In 1999, no officer or employee of
Aware participated in the deliberations of the compensation committee concerning
the compensation of Aware's executive officers. No interlocking relationship
existed between Aware's board of directors or compensation committee and the
board of directors or compensation committee of any other company in 1999.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR'S COMPENSATION
Aware reimburses each director for expenses incurred in attending meetings
of the board of directors but does not pay any separate fees for serving as
directors.
Under Aware's 1996 Stock Option Plan, at the meeting of the board of
directors on March 5, 1999, Mr. Kerr was granted a nonqualified option to
purchase 30,000 shares of common stock at an exercise price of $34.0625 per
share, the closing price of the common stock on the Nasdaq National Market on
that date. The option has a term of ten years and was fully exercisable on March
5, 1999.
On May 4, 1999, the board elected Mr. Forney as a director of Aware and
granted him a nonqualified option to purchase 5,000 shares of common stock at an
exercise price of $53.125 per share, the closing price of the common stock on
the Nasdaq National Market on that date. The option has a term of ten years and
was fully exercisable on May 4, 1999. On September 9, 1999, the board granted
Mr. Forney a nonqualified option to purchase 5,000 shares of common stock at an
exercise price of $32.375 per share, the closing price of the common stock on
the Nasdaq National Market on that date. The option has a term of ten years and
vests in sixteen equal consecutive quarterly installments, the first of which
vested on September 30, 1999. On December 9, 1999, the board granted Mr. Forney
a nonqualified option to purchase 5,000 shares of common stock at an exercise
price of $42.9375 per share, the closing price of the common stock on the Nasdaq
National Market on that date. The option has a term of ten years and vests in
sixteen equal consecutive quarterly installments, the first of which vested on
December 31, 1999.
6
<PAGE> 9
EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation. The following table provides
summary information concerning compensation earned for services rendered to
Aware in all capacities during the last three fiscal years by Aware's chief
executive officer in 1999 and each other executive officer of Aware
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION> LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------- -------------
AWARDS
OTHER -------------
ANNUAL SECURITIES ALL OTHER
COMPEN- UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($)(1) OPTIONS(#)(2) SATION($)(3)
- --------------------------- ---- --------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Tzannes............... 1999 $219,548 -- -- 250,000 $5,120
President and Chief 1998 190,235 -- -- 250,000 2,429
Executive Officer 1997 172,152 $10,000 -- 20,000 438
Richard P. Moberg................ 1999 159,779 -- -- 80,000 3,957
Chief Financial Officer and 1998 145,691 -- -- 35,000 1,797
Treasurer 1997 134,042 10,000 -- 40,000 375
Edmund C. Reiter................. 1999 189,169 1,500 -- 170,000 2,139
Senior Vice President 1998 154,239 -- -- 105,000 1,414
1997 107,603 23,330 -- 50,000 262
Richard W. Gross................. 1999 138,119 5,250 -- 70,000 3,957
Senior Vice President -- 1998 110,829 2,000 -- 27,500 1,797
Strategic Development 1997 97,500 136 -- 20,000 89
David C. Hunter(4)............... 1999 192,097 -- -- 75,000 5,162
Former Senior Vice President 1998 186,543 -- -- 50,000 2,900
and former Chief Technology 1997 180,134 10,000 -- 20,000 438
Officer
</TABLE>
- ---------------
(1) Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of perquisites and
other personal benefits was less than $50,000 and constituted less than 10%
of the Named Executive Officer's total annual salary and bonus.
(2) Represents stock options granted under Aware's 1996 Stock Option Plan. In
1997, 1998 and 1999, Aware did not make any restricted stock awards, grant
any stock appreciation rights or make any long-term incentive plan payouts.
(3) The amounts reported represent group term life insurance premiums paid by
Aware on behalf of the Named Executive Officers and the following matching
contributions by Aware pursuant to its 401(k) Plan for fiscal 1999 for the
benefit of the Named Executive Officers: Mr. Tzannes, $5,000; Mr. Moberg,
$3,795; Mr. Reiter, $2,019; Mr. Gross, $3,071; Mr. Hunter, $5,000.
(4) Mr. Hunter resigned as Senior Vice President, Chief Technology Officer and
Director of Aware in December 1999.
7
<PAGE> 10
Option Grants in Last Fiscal Year. The following table provides
information concerning stock options granted under the 1996 Stock Option Plan
during 1999 to each of the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATE OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(4)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME GRANTED(#)(1) FISCAL YEAR(%)(2) ($/SH)(3) DATE 5%($) 10%($)
- ---- ------------- ----------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Tzannes...... 235,000(5) 16.82% $26.000 01/08/09 $3,842,546 $9,737,766
15,000(6) 1.07% 46.188 07/01/09 435,711 1,104,177
Richard P. Moberg....... 40,000(5) 2.86% 26.000 01/08/09 654,050 1,657,492
40,000(6) 2.86% 46.188 07/01/09 1,161,895 2,944,471
Edmund C. Reiter........ 100,000(5) 7.16% 26.000 01/08/09 1,635,126 4,143,730
70,000(6) 5.01% 46.188 07/01/09 2,033,317 5,152,824
Richard W. Gross........ 70,000(6) 5.01% 46.188 07/01/09 2,033,317 5,152,824
David C. Hunter......... 35,000(7) 2.51% 26.000 01/08/09 572,294 1,450,306
40,000(6) 2.86% 46.188 07/01/09 1,161,895 2,944,471
</TABLE>
- ---------------
(1) Represents shares of common stock issuable upon exercise of incentive stock
options and nonqualified stock options granted under Aware's 1996 Stock
Option Plan.
(2) In 1999, Aware granted employees options to purchase an aggregate of
1,397,043 shares of common stock under its 1996 Stock Option Plan.
(3) All options were granted at no less than fair market value as determined by
the compensation committee on the date of the grant.
(4) The amounts reported in this column represent hypothetical values that the
Named Executive Officers could realize upon exercise of the options
immediately prior to the expiration of their term, assuming the specified
compounded rates of appreciation of the price of the common stock over the
term of the options. Aware has calculated these numbers based on the rules
of the Securities and Exchange Commission, and they do not represent Aware's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and common stock holdings will depend on the timing of the
exercise and the future performance of the common stock. The common stock
may not achieve the rates of appreciation assumed in this table and the
Named Executive Officers may not receive the amounts reflected in this
table. This table does not take into account any appreciation in the price
of the common stock from the date of grant to the current date. The values
shown are net of the option exercise price, but do not include deductions
for taxes or other expenses associated with the exercise.
(5) The options vested in full on January 8, 1999.
(6) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of September 30, 1999.
(7) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of March 31, 1999.
8
<PAGE> 11
Option Exercises and Fiscal Year-End Option Values. The following table
provides information concerning stock options exercised during 1999 and stock
options held as of December 31, 1999 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(2)
ACQUIRED ON REALIZED --------------------------------- ---------------------------------
NAME EXERCISE(#) ($)(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
- ---- ----------- ---------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Tzannes..... 177,500 $7,092,326 446,589 179,980 $8,753,815 $4,118,406
Richard P. Moberg...... 60,000 1,950,188 102,187 77,813 1,874,634 1,036,742
Edmund C. Reiter....... 87,910 2,663,587 120,285 152,979 1,621,637 2,241,601
Richard W. Gross....... 65,500 2,352,738 42,056 88,944 877,896 791,854
David C. Hunter........ 151,000 5,114,252 205,896 103,104 5,368,649 1,024,632
</TABLE>
- ---------------
(1) Value is based on the last sale prices of the common stock on the respective
dates of exercise, as reported by the Nasdaq National Market, less the
applicable option exercise prices. Actual gains, if any, will depend on the
value of the common stock on the date of the sale of the shares.
(2) Value is based on the last sale price of the common stock ($36.375) on
December 31, 1999, as reported by the Nasdaq National Market, less the
applicable option exercise prices. Actual gains, if any, will depend on the
value of the common stock on the date of the sale of the shares.
EMPLOYMENT AGREEMENT
On December 9, 1999, David C. Hunter entered into a letter agreement with
Aware. The agreement was amended on February 15, 2000. Under the amended
agreement, Mr. Hunter resigned as Senior Vice President, Chief Technology
Officer and Director of Aware effective December 9, 1999, but agreed to continue
to serve as an employee of Aware in the capacity of DSL Consulting Engineer.
Under the agreement, the term of Mr. Hunter's employment ended on February 25,
2000. The agreement provided that Mr. Hunter would receive a weekly salary of
$200.00. In addition, Mr. Hunter was entitled until December 31, 1999 to
participate in Aware's insurance and other employee benefit programs on the same
basis as other employees.
Mr. Hunter and Aware also agreed to amend the Invention, Non-Disclosure and
Non-Competition Agreement dated May 14, 1996 between Aware and Mr. Hunter so as
to increase the term of the agreement from one to two years after termination of
Mr. Hunter's employment with Aware and to provide that Mr. Hunter would not
directly or indirectly hire any employees of Aware during that two-year period.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee established by the board of directors is
composed of two outside directors, David Ehreth and John K. Kerr. The
compensation committee has general responsibility for Aware's executive
compensation policies and practices, including responsibility for establishing
the specific compensation of Aware's executive officers. The following report
summarizes Aware's executive officer compensation policies for 1999.
9
<PAGE> 12
Compensation Objectives
Aware's executive compensation programs are generally designed to relate
executive compensation to improvements in Aware's financial performance and
corresponding increases in stockholder value. Decisions concerning executive
compensation are intended to:
- establish incentives that will link executive officer compensation
to Aware's stock performance and motivate executives to attain
Aware's quarterly and annual financial targets and to promote
Aware's long-term financial success; and
- provide a total compensation package that is competitive within the
industry and that will assist Aware to attract and retain executives
who will contribute to the long-term financial success of Aware.
Executive Compensation
Aware's executive compensation package for 1999 consisted of two principal
components: (1) base salary and (2) a stock-based equity incentive in the form
of participation in Aware's 1996 Stock Option Plan. Aware's executive officers
were also eligible to participate in other employee benefit plans, including
health and life insurance plans and a 401(k) retirement plan, on substantially
the same terms as other employees who met applicable eligibility criteria,
subject to any legal limitations on the amounts that could have been contributed
or the benefits that could have been paid under these plans. Aware's executive
officers also participated in Aware's sales bonus and patent bonus programs on
substantially the same terms as other employees. Aware does not have a
management incentive bonus program.
Aware's executive compensation policy emphasizes stock options in order to
align the interests of management with the stockholders' interests in the
financial performance of Aware for fiscal quarters, the fiscal year and the
longer term. In granting stock options, the compensation committee considered in
part the value of options held by the executive officers and the extent to which
the compensation committee believed those options would provide sufficient
motivation to the executive officers to achieve Aware's goals. In 1999, the
compensation committee granted stock options under Aware's 1996 Stock Option
Plan to each of Michael A. Tzannes, Richard P. Moberg, Edmund C. Reiter and
Richard W. Gross. As indicated in the table captioned "Option Grants in Last
Fiscal Year" above, a substantial number of the options granted to Messrs.
Tzannes, Moberg and Reiter were immediately exercisable on the date of grant.
The compensation committee believes that the granting of these immediately
exercisable stock options was necessary in order to align the equity holdings of
these executive officers with similarly situated executive officers in the same
industry as Aware, including, in the case of Mr. Tzannes, Aware's previous chief
executive officer. All of the options granted to Mr. Gross and the remaining
options granted to Messrs. Tzannes, Moberg and Reiter vest as to 6.25% of the
shares subject to the option on September 30, 1999, and the remaining shares
vest as to 6.25% of the shares subject to the option at the end of each of the
next succeeding 15 calendar quarters.
In establishing base salaries for executives, the compensation committee
monitors salaries at other companies, particularly companies in the same
industry and companies located in the same geographic area as Aware. In
addition, for each executive the compensation committee considers historic
salary levels, work responsibilities and base salary relative to other
executives at Aware. To some extent, the compensation committee also considers
general economic conditions, Aware's financial performance and each individual's
performance. The compensation committee increased the base salaries of Aware's
executive officers in 1999 in accordance with Aware's general policy of
adjusting salaries annually to reflect comparable executive salaries for
comparably sized companies and to accomplish Aware's compensation objectives as
outlined above.
Chief Executive Officer Compensation
Consistent with Aware's overall executive officer compensation policy,
Aware's approach to the Chief Executive Officer's compensation package in 1999
was to be competitive with other companies in the
10
<PAGE> 13
industry. The compensation committee believes that this approach provided
additional incentive to Mr. Tzannes to achieve Aware's performance goals and
enhance stockholder value. Mr. Tzannes' salary was designed to give him
assurance of a base level of compensation commensurate with his position and
duration of employment with Aware and competitive with salaries for officers
holding comparable positions in the industry.
Policy Regarding Section 162(m) of the Internal Revenue Code
Section 162(m) of the Internal Revenue Code limits Aware's ability to
deduct compensation in excess of $1.0 million paid to the chief executive
officer and the four most highly compensated officers of Aware (other than the
chief executive officer) in any year, unless the compensation qualifies as
"performance-based compensation." The compensation committee's policy with
respect to Section 162(m) is to make every reasonable effort to cause
compensation to be deductible by Aware while simultaneously providing executive
officers of Aware with appropriate rewards for their performance. The aggregate
base salaries and bonuses of Aware's executive officers have not historically
exceeded, and are not in the foreseeable future expected to exceed, the $1.0
million limit, and options under Aware's 1996 Stock Option Plan are intended to
qualify as performance-based compensation.
The Compensation Committee
David Ehreth
John K. Kerr
11
<PAGE> 14
PERFORMANCE GRAPH
The following performance graph compares the performance of Aware's
cumulative stockholder return with that of a broad market index, the Nasdaq
Stock Market Index for U.S. Companies, and a published industry index, the
Hambrecht & Quist Technology Index. The cumulative stockholder returns for
shares of Aware's common stock and for the market and industry indices are
calculated assuming $100 was invested on August 9, 1996, the date on which
Aware's common stock commenced trading on the Nasdaq National Market, and
assuming shares of Aware's common stock were purchased at the initial public
offering price of the common stock. Aware paid no cash dividends during the
periods shown. The performance of the market and industry indices is shown on a
total return, or dividends reinvested, basis.
COMPARISON OF 41-MONTH CUMULATIVE TOTAL RETURN
AMONG AWARE INC., THE NASDAQ STOCK MARKET INDEX FOR U.S. COMPANIES
AND THE HAMBRECHT & QUIST TECHNOLOGY INDEX
<TABLE>
<CAPTION>
NASDAQ STOCK MARKET -
AWARE, INC. H&Q TECHNOLOGY INDEX U.S.
----------- -------------------- ---------------------
<S> <C> <C> <C>
8/9/96 100.00 100.00 100.00
12/31/96 101.00 118.00 113.00
12/31/97 103.00 139.00 139.00
12/31/98 272.00 216.00 195.00
12/31/99 364.00 482.00 353.00
</TABLE>
12
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on March 31, 2000, there were issued and
outstanding 22,427,818 shares of common stock entitled to cast 22,427,818 votes.
On March 31, 2000, the closing price of Aware's common stock as reported by the
Nasdaq National Market was $40.125 per share.
PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership of
Aware's common stock as of March 31, 2000 by:
- each person or entity known to own beneficially more than five percent of
Aware's common stock
- each of the Named Executive Officers
- each of Aware's directors
- all of Aware's executive officers and directors as a group
In accordance with SEC rules, beneficial ownership includes any shares for
which a person or entity has sole or shared voting power or investment power and
any shares of which the person or entity has the right to acquire beneficial
ownership within 60 days after March 31, 2000 through the exercise of any option
or otherwise. Except as noted below, Aware believes that the persons named in
the table have sole voting and investment power with respect to the shares of
common stock set forth opposite their names. The fact that Aware has reported a
stockholder as the beneficial owner of shares does not constitute an admission
that the stockholder is a direct or indirect beneficial owner of those shares.
Percentage of beneficial ownership is based on 22,427,818 shares of common stock
outstanding as of March 31, 2000. In calculating a person's percentage
ownership, Aware has treated as outstanding any shares that the person has the
right to acquire within 60 days of March 31, 2000. All shares included in the
"Right to Acquire" column represent shares subject to outstanding stock options
exercisable within 60 days after March 31, 2000. The information as to each
person has been furnished by such person.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------------- PERCENT
SHARES RIGHT TO TOTAL BENEFICIALLY
BENEFICIAL OWNERS HELD ACQUIRE NUMBER OWNED
- ----------------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
John S. Stafford, Jr.(1)....................... 1,761,215 -- 1,761,215 7.9%
230 S. LaSalle Street
Suite 688
Chicago, Illinois 60604
Richard J. Naegele(2).......................... 1,160,600 -- 1,160,600 5.2
401 S. LaSalle Street
Suite 1502
Chicago, Illinois 60605
John K. Kerr(3)................................ 724,293 44,147 768,440 3.4
Michael A. Tzannes............................. 143,440 356,338 499,778 2.2
Edmund C. Reiter............................... 6,174 119,409 125,583 *
Richard P. Moberg.............................. 10,769 102,228 112,997 *
Richard W. Gross............................... 14,000 41,734 55,734 *
David C. Hunter................................ 24,521 -- 24,521 *
David Ehreth................................... -- 21,329 21,329 *
G. David Forney, Jr. .......................... -- 6,875 6,875 *
All directors and executive officers as a group
(8 persons).................................. 923,197 692,060 1,615,257 7.0%
</TABLE>
- ---------------
* Less than one percent.
(1) The number of shares beneficially owned by Mr. Stafford is based upon
information in a Schedule 13G filed by Mr. Stafford on February 11, 2000.
13
<PAGE> 16
(2) The number of shares beneficially owned by Mr. Naegele is based upon
information in a Schedule 13G filed by Mr. Naegele on February 11, 2000.
(3) Includes 250,193 shares held by Grove Investment Partners, of which Mr. Kerr
is a general partner.
PROPOSAL 2
AMENDMENTS TO AWARE'S 1996 STOCK OPTION PLAN
On January 14, 2000, the board of directors amended Aware's 1996 Stock
Option Plan to increase the number of shares available for the grant of options
under the plan from 5,000,000 to 6,100,000, subject to adjustment in the event
of stock splits, stock dividends, recapitalizations and the like. The board of
directors is submitting this amendment to the 1996 Stock Option Plan to the
stockholders for approval. If the stockholders do not approve Proposal 2, the
total number of shares that may be issued pursuant to options granted under the
plan will remain at 5,000,000.
Options constitute a significant portion of the overall compensation of
Aware's employees, including its executive officers. Aware does not have a
management incentive bonus program for its executive officers. Options issued
under the 1996 Stock Option Plan also represent the only form of compensation
that Aware pays to its non-employee directors. The board of directors, including
the members of the compensation committee, believes that Aware will derive
substantial benefits from increasing the aggregate number of options that Aware
can issue under the 1996 Stock Option Plan. The board of directors believes that
the proposed amendment, by enabling Aware to issue additional options under the
plan, will enable Aware to further align the interests of Aware's current
directors, executive officers and other employees with the interests of the
stockholders. The board also believes that the proposed amendment will assist
Aware to attract and retain key executives by enabling it to offer competitive
compensation packages.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO AMEND
THE 1996 STOCK OPTION PLAN TO INCREASE THE TOTAL NUMBER OF SHARES THAT MAY BE
ISSUED PURSUANT TO OPTIONS GRANTED UNDER THE PLAN FROM 5,000,000 TO 6,100,000.
BACKGROUND
Aware's 1996 Stock Option Plan was adopted by the board of directors and
approved by the stockholders in May 1996. From that time to January 13, 2000,
Aware granted options to purchase an aggregate of 4,721,413 shares of common
stock and at January 13, 2000 had only 278,587 shares of common stock available
for the grant of options under the plan. After examining Aware's overall
employee compensation, the board of directors concluded that it was in Aware's
best interests to make additional shares of common stock available for the grant
of options under the plan. On January 14, 2000, the board adopted an amendment
to the 1996 Stock Option Plan to increase the total number of shares of common
stock that may be issued pursuant to options granted under the plan to
6,100,000. Under the terms of the plan, this amendment will not be effective
unless the stockholders approve the amendment within 12 months of its adoption.
Since the board of directors adopted the amendment to the 1996 Stock Option
Plan, Aware has granted options to purchase 55,960 shares of common stock in
excess of the current 5,000,000 share limit. If the stockholders do not approve
the amendment, these options will remain outstanding but will be deemed to have
been granted outside the plan. As of March 31, 2000, there were outstanding
options to purchase an aggregate of 3,236,224 shares of common stock under the
plan.
In March 2000, the board adopted the following amendments to the 1996 Stock
Option Plan:
- The board amended Section 2.2(c) of the 1996 Stock Option Plan to
prohibit the board and the compensation committee from reducing the
exercise price of or otherwise repricing any outstanding option granted
under the plan without stockholder approval.
14
<PAGE> 17
- The board amended Section 4.1 of the 1996 Stock Option Plan to limit the
persons eligible to receive options under the plan to directors, officers
and other employees of Aware and its subsidiaries. As amended, the plan
no longer permits the grant of options to consultants or other
non-employee advisors.
- The board amended Section 6.1 of the 1996 Stock Option Plan to establish
a maximum term for nonqualified options granted under the plan. The
amended plan provides that each option granted under the plan will expire
no later than 10 years after the date of grant, or in the case of an
option granted to a greater-than-ten-percent stockholder, five years
after the date of grant, unless in either case a shorter period is
specified in the option agreement.
General Plan Information
Unless otherwise determined by the board of directors, the 1996 Stock
Option Plan must be administered by a plan committee consisting of at least two
"outside directors," who may be members of the compensation committee. For
purposes of the plan, an "outside director" is a person who (a) is not an
employee of Aware or any affiliate, (b) is not a former employee of Aware or any
affiliate who is receiving compensation for prior services during the taxable
year of Aware or any affiliate, (c) has not been an officer of Aware or any
affiliate, and (d) does not receive remuneration from Aware or any affiliate in
any capacity other than as a director. The current members of the plan committee
are Messrs. Ehreth and Kerr. The members of the plan committee are "non-employee
directors" as that term is defined in the rules of the Securities and Exchange
Commission.
The plan committee selects the directors, officers and other employees who
will receive options and determines the option exercise price and other terms of
each option, subject to the provisions of the plan. The plan committee also has
the power to make changes to outstanding options under the plan, including the
power to accelerate the vesting schedule in the event of a change of control or
death or disability, and extend the expiration date of any option up to the
maximum period permitted by the plan.
The 1996 Stock Option Plan authorizes the grant of options to purchase
common stock intended to qualify as incentive stock options, as defined in
Section 422 of the Internal Revenue Code, and options that do not so qualify.
Options may be granted under the plan to directors, officers and other employees
of Aware or any subsidiary. As of March 31, 2000, approximately 112 such
individuals were eligible to participate in the plan, of which approximately 110
individuals had received options under the plan.
The exercise price of all options granted under the 1996 Stock Option Plan
must equal or exceed the fair market value of the common stock on the date of
grant. The exercise price of incentive options granted under the plan to a
person who owns more than 10% of the combined voting power of all classes of
outstanding capital stock of Aware or any subsidiary (a
"greater-than-ten-percent stockholder") must equal or exceed 110% of the fair
market value of the common stock on the date of grant.
Each option expires no later than ten years after the date of grant or, in
the case of an incentive option granted to a greater-than-ten-percent
stockholder, five years after the date of grant. The aggregate fair market value
(at the time of grant) of shares issuable pursuant to incentive options that are
exercisable for the first time in any calendar year may not exceed $100,000,
unless a greater amount is permitted by law. No person may be granted options
under the plan to purchase more than 250,000 shares of common stock in any
calendar year, including options that are subsequently forfeited, canceled or
otherwise terminated.
Options are not transferable except by will or by the laws of descent and
distribution, and during the holder's lifetime are exercisable only by the
holder. Options generally may not be exercised after the earliest of (a) the
expiration of the option, (b) termination of the holder's employment by Aware
for cause or by the holder voluntarily, (c) thirty days after termination of the
holder's employment by Aware without cause, and (d) one year after the holder's
death or permanent and total disability, if the holder's death or permanent and
total disability occurs before the termination of the holder's employment with
Aware.
15
<PAGE> 18
The holder of an option may pay the purchase price for the shares subject
to the option with (a) cash or a check, bank draft or money order in an amount
equal to the exercise price for such shares, (b) with the consent of the plan
committee, shares of common stock having a fair market value equal to the
exercise price for such shares, (c) with the consent of the plan committee, a
personal recourse note in a principal amount equal to the exercise price for
such shares and with an interest rate not less than the lowest applicable
federal rate, as defined in Section 1274(d) of the Internal Revenue Code, (d)
with the consent of the plan committee, other consideration that is acceptable
to the plan committee and has a fair market value equal to the exercise price
for such shares, or (e) with the consent of the plan committee, any combination
of the foregoing.
Shares of common stock issuable upon exercise of options granted under the
1996 Stock Option Plan to executive officers, directors and beneficial owners of
more than ten percent of the common stock may not be sold or transferred by such
officers, directors and beneficial owners for a period of six months following
the date of grant.
The 1996 Stock Option Plan terminates in May 2006, subject to earlier
termination by the board of directors or the earlier issuance of all shares
issuable under the plan. After the termination of the plan, Aware may not grant
options under the plan but options that are outstanding on the date of
termination are not affected by the termination.
New Plan Benefits
On January 14, 2000, the board of directors amended the 1996 Stock Option
Plan to increase the number of shares available for the grant of options under
the plan to 6,100,000. On January 14, 2000, Aware granted options under the plan
in reliance on those amendments. In order for those options to be issued under
the plan, the amendments must be approved by stockholders. If the stockholders
do not approve Proposal 2, those options will be deemed to have been granted
outside the plan. If the options are deemed to have been granted outside the
plan, options that would have otherwise qualified as incentive options will not
so qualify.
Because the grant of options under the plan is discretionary, Aware is
unable to determine the dollar value and number of options that Aware will grant
as a result of the proposed amendment to any person, except as set forth below.
The proposed amendment to the 1996 Stock Option Plan will not affect the manner
in which Aware will determine the number of options that will be received by or
allocated to participants in the plan. If the proposed amendment had been in
effect during 1999, it would not have affected the determination of the number
of options received by or allocated to participants in 1999.
Michael A. Tzannes, Aware's President and Chief Executive Officer, has
received options to purchase 750,000 shares of common stock under the 1996 Stock
Option Plan. Richard P. Moberg, Aware's Chief Financial Officer and Treasurer,
has received options to purchase 300,000 shares of common stock under the 1996
Stock Option Plan. Edmund C. Reiter, Aware's Senior Vice President, has received
options to purchase 415,000 shares of common stock under the 1996 Stock Option
Plan. Richard W. Gross, Aware's Senior Vice President -- Strategic Development,
has received options to purchase 240,000 shares of common stock under the 1996
Stock Option Plan. David C. Hunter, Aware's former Senior Vice President and
former Chief Technology Officer, received options to purchase 475,000 shares of
common stock under the 1996 Stock Option Plan. G. David Forney, Jr., a director
of Aware, has received options to purchase 20,000 shares of common stock under
the 1996 Stock Option Plan. All current executive officers of Aware as a group
have received options to purchase 1,705,000 shares of common stock under the
1996 Stock Option Plan. All current directors who are not also executive
officers of Aware as a group have received options to purchase 130,821 shares of
common stock under the 1996 Stock Option Plan. All employees who are not
executive officers of Aware as a group have received options to purchase
2,110,182 shares of common stock under the 1996 Stock Option Plan. As of March
31, 2000, 3,236,224 shares of common stock were subject to outstanding options
granted under the 1996 Stock Option Plan, as amended, 1,819,736 shares of common
stock had been purchased upon exercise of options granted thereunder and
1,044,040 shares of common stock remained available for future grants. As of
March 31, 2000, option
16
<PAGE> 19
prices and expiration dates for outstanding options granted under the 1996 Stock
Option Plan ranged from $5.50 to $63.00 per share and from May 23, 2006 to March
14, 2010, respectively.
Amendment of 1996 Stock Option Plan
The board of directors may amend or terminate the 1996 Stock Option Plan at
any time and from time to time. If an amendment would increase the number of
shares of common stock that may be issued under the plan or would change the
provisions regarding eligibility to participate in the plan, the amendment will
not be effective unless approved by the stockholders within 12 months before or
after the adoption of the amendment. The plan also expressly authorizes the
board of directors to amend the plan to conform it to the provisions of Rule
16b-3 under the Securities Exchange Act of 1934, as it may be amended from time
to time.
Federal Income Tax Information With Respect to the 1996 Stock Option Plan
The holder of a nonqualified option recognizes no income for federal income
tax purposes on the grant of the option. On the exercise of a nonqualified
option, the difference between the fair market value of the underlying shares of
common stock on the exercise date and the option exercise price is treated as
compensation to the holder of the option taxable as ordinary income in the year
of exercise. Such fair market value becomes the basis for the underlying shares
which will be used in computing any capital gain or loss upon disposition of
such shares.
The holder of an incentive option recognizes no income for federal income
tax purposes on the grant of the option. Except as provided below with respect
to the alternative minimum tax, there is no tax upon exercise of an incentive
option. If the holder does not dispose of the shares acquired upon exercise of
the incentive option within two years from the date of the grant of the
incentive option or within one year after exercise of the incentive option, any
gain realized by the option holder on the subsequent sale of those shares will
be treated for federal income tax purposes as long-term capital gain. If the
holder sells the shares before the expiration of such two-year and one-year
periods (a "disqualifying disposition"), the difference between the lesser of
the value of the shares at the date of exercise or at the date of sale and the
exercise price of the incentive option will be treated as compensation to the
option holder taxable as ordinary income and the excess gain, if any, will be
treated as capital gain. That capital gain will be long-term capital gain if the
shares were held for more than 12 months.
The excess of the fair market value of the underlying shares of common
stock over the exercise price at the time of exercise of an incentive option
will constitute an item of tax preference for purposes of the alternative
minimum tax. Taxpayers who incur the alternative minimum tax will be allowed a
credit which may be carried forward indefinitely to be used as a credit against
the taxpayer's regular tax liability in a later year; however, the alternative
minimum tax credit can not reduce the regular tax below the alternative minimum
tax for that carryover year.
Generally, subject to certain limitations, Aware may deduct on its
corporate income tax returns, in the year in which an option holder recognizes
ordinary income upon (1) the exercise of a nonqualified option or (2) a
disqualifying disposition of an incentive option, an amount equal to the amount
recognized by the option holder as ordinary income upon the occurrence of such
exercise or disqualifying disposition.
The 1996 Stock Option Plan is not subject to the provisions of the Employee
Retirement Income Security Act of 1974, nor is the plan qualified under Section
401(a) of the Internal Revenue Code.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Aware's
executive officers and directors, as well as persons who own more than 10% of a
registered class of Aware's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission.
17
<PAGE> 20
Regulations of the SEC require these executive officers, directors and
stockholders to furnish Aware with copies of all Section 16(a) forms they file.
Based solely upon a review of the Forms 3, 4 and 5 and amendments thereto
furnished to Aware with respect to 1999, or written representations that Form 5
was not required for 1999, Aware believes that all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater-than-10% stockholders were fulfilled in a timely manner.
INDEPENDENT ACCOUNTANTS
The board of directors has selected PricewaterhouseCoopers LLP as
independent accountants to audit the financial statements of Aware for the
fiscal year ending December 31, 2000.
Aware expects that representatives of PricewaterhouseCoopers LLP will be
present at the annual meeting, will have an opportunity to make a statement if
they desire to do so, and will be available to respond to appropriate questions
from stockholders.
Aware's audit committee recommended, and Aware's board of directors
unanimously voted, effective May 25, 1999, to appoint PricewaterhouseCoopers LLP
as its independent accountants for the fiscal year ended December 31, 1999, and
to dismiss Deloitte & Touche LLP, which had served as Aware's independent
accountants since April 1996. During Aware's fiscal years ended December 31,
1997 and December 31, 1998, and the subsequent interim period prior to May 25,
1999, Deloitte & Touche LLP did not have any disagreement with Aware on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Deloitte & Touche LLP, would have caused it to make reference to
the subject matter of the disagreement in connection with its reports on Aware's
financial statements. The reports of Deloitte & Touche LLP on Aware's financial
statements for the period from January 1, 1997 through December 31, 1998 did not
contain an adverse opinion or a disclaimer of opinion, and were not qualified or
modified as to uncertainty, audit scope or accounting principles. During the
period from January 1, 1997 through May 25, 1999, there were no "reportable
events" within the meaning of Item 304(a)(1)(v) of Regulation S-K promulgated
under the Securities Act of 1933, as amended.
STOCKHOLDER PROPOSALS
If any stockholder would like to include any proposal in Aware's proxy
materials for its next annual meeting of stockholders or special meeting in lieu
thereof, the stockholder must comply with the requirements of Rule 14a-8 under
the Securities Exchange Act of 1934. Among other requirements, Aware must
receive the proposal at its executive offices no later than December 15, 2000.
AVAILABLE INFORMATION
STOCKHOLDERS OF RECORD ON MARCH 31, 2000 WILL RECEIVE COPIES OF THIS PROXY
STATEMENT AND AWARE'S 1999 ANNUAL REPORT TO STOCKHOLDERS, WHICH CONTAINS
DETAILED FINANCIAL INFORMATION CONCERNING AWARE. AWARE WILL MAIL, WITHOUT
CHARGE, A COPY OF AWARE'S ANNUAL REPORT ON FORM 10-K (EXCLUDING EXHIBITS) TO ANY
STOCKHOLDER WHOSE PROXY AWARE IS SOLICITING IF THE STOCKHOLDER REQUESTS IT IN
WRITING. PLEASE SUBMIT ANY SUCH WRITTEN REQUEST TO MR. RICHARD P. MOBERG, CHIEF
FINANCIAL OFFICER AND TREASURER, AWARE, INC., 40 MIDDLESEX TURNPIKE, BEDFORD,
MASSACHUSETTS 01730.
18
<PAGE> 21
ANNEX A
AWARE, INC.
1996 STOCK OPTION PLAN
SECTION 1. Purpose
This 1996 Stock Option Plan (the "Plan") of Aware, Inc., a Massachusetts
corporation (the "Company"), is designed to provide additional incentive to
directors, executives and other key employees of the Company and its
subsidiaries. The Company intends that this purpose will be effected by the
granting of incentive stock options ("Incentive Stock Options") as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonqualified stock options ("Nonqualified Options") under the Plan which afford
such directors, executives and key employees an opportunity to acquire or
increase their proprietary interest in the Company through the acquisition of
shares of its Common Stock. The Company intends that Incentive Stock Options
issued under the Plan will qualify as "incentive stock options" as defined in
Section 422 of the Code and the terms of the Plan shall be interpreted in
accordance with this intention. The term "subsidiary" shall have the meaning set
forth in Section 424 of the Code.
SECTION 2. Administration
2.1 The Committee. Unless otherwise determined by the Company's Board of
Directors (the "Board"), the Plan shall be administered by a Committee (the
"Committee") consisting of at least two (2) "Outside Directors" who may also be
members of the Compensation Committee. As used herein, the term "Outside
Director" means any director who (i) is not an employee of the Company or of any
"affiliated group," as such term is defined in Section 1504(a) of the Code,
which includes the Company (an "Affiliate"), (ii) is not a former employee of
the Company or any Affiliate who is receiving compensation for prior services
(other than benefits under a tax-qualified retirement plan) during the Company's
or any Affiliate's taxable year, (iii) has not been an officer of the Company or
any Affiliate and (iv) does not receive remuneration from the Company or any
Affiliate, either directly or indirectly, in any capacity other than as a
director. It is the intention of the Company that the Plan shall be administered
by "non-employee directors" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934 (the "Exchange Act"), but the authority and
validity of any act taken or not taken by the Committee shall not be affected if
any person administering the Plan is not a non-employee director. Except as
specifically reserved to the Board under the terms of the Plan, the Committee
shall have full and final authority to operate, manage and administer the Plan
on behalf of the Company. Action by the Committee shall require the affirmative
vote of a majority of all members thereof.
2.2 Powers of the Committee. Subject to the terms and conditions of the
Plan, the Committee shall have the power:
(a) To determine from time to time the persons eligible to receive
options and the options to be granted to such persons under the Plan and to
prescribe the terms, conditions, restrictions, if any, and provisions
(which need not be identical) of each option granted under the Plan to such
persons;
(b) To construe and interpret the Plan and options granted thereunder
and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option agreement, in the manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective. All decisions
and determinations by the Committee in the exercise of this power shall be
final and binding upon the Company and optionees;
A-1
<PAGE> 22
(c) To make, in its sole discretion, changes to any outstanding option
granted under the Plan, including changes:
(i) To accelerate the vesting schedule of any option, but only (A)
upon the death, retirement or disability of the optionee, (B) in
connection with any change in control of the Company described in
Section 8.5, (C) in the case of any option vesting according to the
lapse of time, to vest not more quickly than ratably over a period of
three years, or (D) in the case of any option vesting according to
performance criteria established by the Committee or the Board, to vest
no earlier than the later of the first anniversary of the date of grant
or the satisfaction of such performance criteria; or
(ii) To extend the expiration date of any option;
provided, however, that the Committee shall not, without stockholder
approval, reduce the exercise price of or otherwise reprice any outstanding
option granted under the Plan; and
(d) Generally, to exercise such powers and to perform such acts as are
deemed necessary or expedient to promote the best interests of the Company
with respect to the Plan.
SECTION 3. Stock
3.1 Stock to be Issued. The stock subject to the options granted under
the Plan shall be shares of the Company's authorized but unissued Common Stock,
$.01 par value (the "Common Stock"), or shares of the Company's Common Stock
held in treasury. The total number of shares that may be issued pursuant to
options granted under the Plan shall not exceed an aggregate of 6,100,000 shares
of Common Stock; provided, however, that the class and aggregate number of
shares which may be subject to options granted under the Plan shall be subject
to adjustment as provided in Section 8 hereof.
3.2 Expiration, Cancellation or Termination of Option. Whenever any
outstanding option under the Plan expires, is canceled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to the
unexercised portion of such option may again be the subject of options under the
Plan.
3.3 Limitation on Grants. In no event may any Plan participant be granted
options with respect to more than 250,000 shares of Common Stock in any calendar
year. The number of shares of Common Stock issuable pursuant to an option
granted to a Plan participant in a calendar year that is subsequently forfeited,
canceled or otherwise terminated shall continue to count toward the foregoing
limitation in such calendar year. In addition, if the exercise price of an
option is subsequently reduced, the transaction shall be deemed a cancellation
of the original option and the grant of a new one so that both transactions
shall count toward the maximum shares issuable in the calendar year of each
respective transaction.
SECTION 4. Eligibility
4.1 Persons Eligible. Incentive Stock Options under the Plan may be
granted only to officers and other employees of the Company or its subsidiaries.
Nonqualified Options under the Plan may be granted only to officers and other
employees of the Company or its subsidiaries, and to members of the Board of the
Company or its subsidiaries (regardless of whether they are also employees).
4.2 Greater-Than-Ten-Percent Stockholders. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive Stock
Option shall be granted to an individual who, at the time the option is granted,
owns (including ownership attributed pursuant to Section 424 of the Code) more
than ten percent of the total combined voting power of all classes of stock of
the Company or any subsidiary (a "greater-than-ten-percent stockholder"), unless
such Incentive Stock Option provides that (i) the purchase price per share shall
not be less than one hundred ten percent of the fair market value of the Common
Stock at the time such option is granted, and (ii) such option shall not be
exercisable to any extent after the expiration of five years from the date it is
granted.
4.3 Maximum Aggregate Fair Market Value. The aggregate fair market value
(determined at the time the option is granted) of the Common Stock with respect
to which Incentive Stock Options are
A-2
<PAGE> 23
exercisable for the first time by any optionee during any calendar year (under
the Plan and any other plans of the Company or its subsidiary for the issuance
of incentive stock options) shall not exceed $100,000 (or such greater amount as
may from time to time be permitted with respect to incentive stock options by
the Code or any other applicable law or regulation).
SECTION 5. Termination of Employment or Death of Optionee
5.1 Termination of Employment. Except as may be otherwise expressly
provided herein, options shall terminate on the earlier of:
(a) the date of expiration thereof,
(b) the date of termination of the optionee's employment with or
services to the Company by it for cause (as determined by the Company), or
voluntarily by the optionee; or
(c) thirty days after the date of termination of the optionee's
employment with or services to the Company by it without cause;
provided that Nonqualified Options granted to members of the Board of the
Company or its subsidiaries need not, unless the Committee determines otherwise,
be subject to the provisions set forth in clauses (b) and (c) above.
An employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by the
Company or any subsidiary. Whether authorized leave of absence, or absence on
military or government service, shall constitute termination of the employment
relationship between the Company and the optionee shall be determined by the
Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the optionee
of any agreement to which the optionee and the Company are both parties, (y) any
act or omission to act by the optionee which may have a material and adverse
effect on the Company's business or on the optionee's ability to perform
services for the Company, including, without limitation, the commission of any
crime (other than ordinary traffic violations), or (z) any material misconduct
or material neglect of duties by the optionee in connection with the business or
affairs of the Company or any affiliate of the Company.
5.2 Death or Permanent Disability of Optionee. In the event of the death
or permanent and total disability of the holder of an option prior to
termination of the optionee's employment with or services to the Company and
before the date of expiration of such option, such option shall terminate on the
earlier of such date of expiration or one year following the date of such death
or disability. After the death of the optionee, his/her executors,
administrators or any person or persons to whom his/her option may be
transferred by will or by the laws of descent and distribution, shall have the
right, at any time prior to such termination, to exercise the option to the
extent the optionee was entitled to exercise such option immediately prior to
his/her death. Permanent and total disability shall be determined in accordance
with Section 22(e)(3) of the Code and the regulations issued thereunder.
SECTION 6. Terms of the Option Agreements
Each option agreement shall be in writing and shall contain such terms,
conditions, restrictions, if any, and provisions as the Committee shall from
time to time deem appropriate. Such provisions or conditions may include without
limitation restrictions on transfer, repurchase rights, or such other provisions
as shall be determined by the Committee; provided that such additional
provisions shall not be inconsistent with any other term or condition of the
Plan and such additional provisions shall not cause any Incentive Stock Option
granted under the Plan to fail to qualify as an incentive option within the
meaning of Section 422 of the Code. Option agreements need not be identical, but
each option agreement by appropriate language shall include the substance of all
of the following provisions:
6.1 Expiration of Option. Notwithstanding any other provision of the Plan
or of any option agreement, each option shall expire on the date specified in
the option agreement, which date shall not be
A-3
<PAGE> 24
later than the tenth anniversary (fifth anniversary in the case of an Incentive
Stock Option granted to a greater-than-ten-percent stockholder) of the date on
which the option was granted, or as specified in Section 5 hereof.
6.2 Exercise. Subject to Section 7.3 hereof, each option may be
exercised, so long as it is valid and outstanding, from time to time in part or
as a whole, subject to any limitations with respect to the number of shares for
which the option may be exercised at a particular time and to such other
conditions as the Committee in its discretion may specify upon granting the
option.
6.3 Purchase Price. The purchase price per share under each option shall
be determined by the Committee at the time the option is granted; provided,
however, that the option price shall not be less than the fair market value of
the Common Stock on the date the option is granted (110% of the fair market
value in the case of an Incentive Stock Option granted to a
greater-than-ten-percent stockholder). For the purpose of the Plan, the fair
market value of the Common Stock shall be the closing price per share on the
date of grant of the option as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as reported
on the Nasdaq National Market, or, if the Common Stock is not quoted on the
Nasdaq National Market, the fair market value as determined by the Committee.
6.4 Transferability of Options. Options shall not be transferable by the
optionee otherwise than by will or under the laws of descent and distribution,
and shall be exercisable, during his or her lifetime, only by him or her.
6.5 Rights of Optionees. No optionee shall be deemed for any purpose to
be the owner of any shares of Common Stock subject to any option unless and
until the option shall have been exercised pursuant to the terms thereof, and
the Company shall have issued and delivered the shares to the optionee.
6.6 Repurchase Right. The Committee may in its discretion provide upon
the grant of any option hereunder that the Company shall have an option to
repurchase upon such terms and conditions as determined by the Committee all or
any number of shares purchased upon exercise of such option. The repurchase
price per share payable by the Company shall be such amount or be determined by
such formula as is fixed by the Committee at the time the option for the shares
subject to repurchase is granted. In the event the Committee shall grant options
subject to the Company's repurchase option, the certificates representing the
shares purchased pursuant to such option shall carry a legend satisfactory to
counsel for the Company referring to the Company's repurchase option.
6.7 "Lockup" Agreement. The Committee may in its discretion specify upon
granting an option that the optionee shall agree for a period of time (not to
exceed 180 days) from the effective date of any registration of securities of
the Company (upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities), not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
shares issued pursuant to the exercise of such option, without the prior written
consent of the Company or such underwriters, as the case may be.
SECTION 7. Method of Exercise; Payment of Purchase Price
7.1 Method of Exercise. Any option granted under the Plan may be
exercised by the optionee by delivering to the Company on any business day a
written notice specifying the number of shares of Common Stock the optionee then
desires to purchase and specifying the address to which the certificates for
such shares are to be mailed (the "Notice"), accompanied by payment for such
shares.
7.2 Payment of Purchase Price. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made by:
(a) cash in an amount, or a check, bank draft or postal or express
money order payable in an amount, equal to the aggregate exercise price for
the number of shares specified in the Notice;
A-4
<PAGE> 25
(b) with the consent of the Committee, shares of Common Stock of the
Company owned by the optionee for a period of at least six months and
having a fair market value (as defined for purposes of Section 6.3 hereof)
equal to such aggregate exercise price;
(c) with the consent of the Committee, a personal recourse note issued
by the optionee to the Company in a principal amount equal to such
aggregate exercise price and with such other terms, including interest rate
and maturity, as the Committee may determine in its discretion; provided
that the interest rate borne by such note shall not be less than the lowest
applicable federal rate, as defined in Section 1274(d) of the Code;
(d) with the consent of the Committee, such other consideration that
is acceptable to the Committee and that has a fair market value, as
determined by the Committee, equal to such aggregate exercise price,
including any broker-directed cashless exercise/resale procedure adopted by
the Committee; or
(e) with the consent of the Committee, any combination of the
foregoing.
As promptly as practicable after receipt of the Notice and accompanying payment,
the Company shall deliver to the optionee certificates for the number of shares
with respect to which such option has been so exercised, issued in the
optionee's name; provided, however, that such delivery shall be deemed effected
for all purposes when the Company or a stock transfer agent of the Company shall
have deposited such certificates in the United States mail, addressed to the
optionee, at the address specified in the Notice.
7.3 Special Limits Affecting Section 16(b) Option Holders. Shares
issuable upon exercise of options granted to a person who in the opinion of the
Committee may be deemed to be a director or officer of the Company within the
meaning of Section 16(b) of the Exchange Act and the rules and regulations
thereunder shall not be sold or disposed of until after the expiration of six
months following the date of grant.
SECTION 8. Changes in Company's Capital Structure
8.1 Rights of Company. The existence of outstanding options shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize, without limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of Common
Stock, or any issue of bonds, debentures, preferred or prior preference stock or
other capital stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
8.2 Recapitalization, Stock Splits and Dividends. If the Company shall
effect a subdivision or consolidation of shares or other capital readjustment,
the payment of a stock dividend, or other increase or reduction of the number of
shares of the Common Stock outstanding, in any such case without receiving
compensation therefor in money, services or property, then (i) the number,
class, and price per share of shares of stock subject to outstanding options
hereunder shall be appropriately adjusted in such a manner as to entitle an
optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he or she would have
received as a result of the event requiring the adjustment had he or she
exercised his or her option in full immediately prior to such event; (ii) the
number and class of shares with respect to which options may be granted under
the Plan shall be adjusted by substituting for the total number of shares of
Common Stock then reserved for issuance under the Plan that number and class of
shares of stock that the owner of an equal number of outstanding shares of
Common Stock would own as a result of the event requiring the adjustment; and
(iii) the number and class of shares set forth in Section 3.3 shall be adjusted
by substituting for the total number of shares of Common Stock then provided for
in Section 3.3 that number and class of shares of stock that the owner of an
equal number of outstanding shares of Common Stock would own as a result of the
event requiring the adjustment.
A-5
<PAGE> 26
8.3 Merger Without Change of Control. After a merger of one or more
corporations into the Company, or after a consolidation of the Company and one
or more corporations in which (i) the Company shall be the surviving
corporation, and (ii) the stockholders of the Company immediately prior to such
merger or consolidation own after such merger or consolidation shares
representing at least fifty percent of the voting power of the Company, each
holder of an outstanding option shall, at no additional cost, be entitled upon
exercise of such option to receive in lieu of the number of shares as to which
such option shall then be so exercisable, the number and class of shares of
stock or other securities to which such holder would have been entitled pursuant
to the terms of the agreement of merger or consolidation if, immediately prior
to such merger or consolidation, such holder had been the holder of record of a
number of shares of Common Stock equal to the number of shares for which such
option was exercisable.
8.4 Sale or Merger with Change of Control. If the Company is merged into
or consolidated with another corporation under circumstances where the Company
is not the surviving corporation, or if there is a merger or consolidation where
the Company is the surviving corporation but the stockholders of the Company
immediately prior to such merger or consolidation do not own after such merger
or consolidation shares representing at least fifty percent of the voting power
of the Company, or if the Company is liquidated, or sells or otherwise disposes
of substantially all of its assets to another corporation while unexercised
options remain outstanding under the Plan, (i) subject to the provisions of
clause (iii) below, after the effective date of such merger, consolidation,
liquidation, sale or disposition, as the case may be, each holder of an
outstanding option shall be entitled, upon exercise of such option, to receive,
in lieu of shares of Common Stock, shares of such stock or other securities,
cash or property as the holders of shares of Common Stock received pursuant to
the terms of the merger, consolidation, liquidation, sale or disposition; (ii)
the Committee may accelerate the time for exercise of all unexercised and
unexpired options to and after a date prior to the effective date of such
merger, consolidation, liquidation, sale or disposition, as the case may be,
specified by the Committee; or (iii) all outstanding options may be canceled by
the Committee as of the effective date of any such merger, consolidation,
liquidation, sale or disposition provided that (x) notice of such cancellation
shall be given to each holder of an option and (y) each holder of an option
shall have the right to exercise such option to the extent that the same is then
exercisable or, if the Committee shall have accelerated the time for exercise of
all unexercised and unexpired options, in full during the 30-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition.
8.5 Adjustments to Common Stock Subject to Options. Except as
hereinbefore expressly provided, the issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, for cash
or property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock then subject to
outstanding options.
8.6 Miscellaneous. Adjustments under this Section 8 shall be determined
by the Committee, and such determinations shall be conclusive. No fractional
shares of Common Stock shall be issued under the Plan on account of any
adjustment specified above.
SECTION 9. General Restrictions
9.1 Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws.
9.2 Compliance with Securities Laws. The Company shall not be required to
sell or issue any shares under any option if the issuance of such shares shall
constitute a violation by the optionee or by the
A-6
<PAGE> 27
Company of any provisions of any law or regulation of any governmental
authority. In addition, in connection with the Securities Act of 1933, as now in
effect or hereafter amended (the "Act"), upon exercise of any option, the
Company shall not be required to issue such shares unless the Committee has
received evidence satisfactory to it to the effect that the holder of such
option will not transfer such shares except pursuant to a registration statement
in effect under such Act or unless an opinion of counsel satisfactory to the
Company has been received by the Company to the effect that such registration is
not required. Any determination in this connection by the Committee shall be
final, binding and conclusive. In the event the shares issuable on exercise of
an option are not registered under the Act, the Company may imprint upon any
certificate representing shares so issued the following legend or any other
legend which counsel for the Company considers necessary or advisable to comply
with the Act and with applicable state securities laws:
The shares of stock represented by this certificate have not
been registered under the Securities Act of 1933 or under the
securities laws of any State and may not be sold or
transferred except upon such registration or upon receipt by
the Corporation of an opinion of counsel satisfactory to the
Corporation, in form and substance satisfactory to the
Corporation, that registration is not required for such sale
or transfer.
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority.
9.3 Employment Obligation. The granting of any option shall not impose
upon the Company any obligation to employ or continue to employ any optionee;
and the right of the Company to terminate the employment of any officer or other
employee shall not be diminished or affected by reason of the fact that an
option has been granted to him or her.
SECTION 10. Withholding Taxes
10.1 Rights of Company. The Company may require an employee exercising a
Nonqualified Option, or disposing of shares of Common Stock acquired pursuant to
the exercise of an Incentive Stock Option in a disqualifying disposition (as
defined in Section 421(b) of the Code), to reimburse the Company for any taxes
required by any government to be withheld or otherwise deducted and paid by the
Company in respect of the issuance or disposition of such shares. In lieu
thereof, the Company shall have the right to withhold the amount of such taxes
from any other sums due or to become due from the Company to the employee upon
such terms and conditions as the Company may prescribe. The Company may, in its
discretion, hold the stock certificate to which such employee is otherwise
entitled upon the exercise of an option as security for the payment of any such
withholding tax liability, until cash sufficient to pay that liability has been
received or accumulated.
10.2 Payment in Shares. An employee may elect to have such tax
withholding obligation satisfied, in whole or in part, by (i) authorizing the
Company to withhold from shares of Common Stock to be issued pursuant to the
exercise of a Nonqualified Option a number of shares with an aggregate fair
market value (as defined in Section 6.3 hereof determined as of the date the
withholding is effected) that would satisfy the minimum withholding amount due
with respect to such exercise, or (ii) transferring to the Company shares of
Common Stock owned by the employee for a period of at least six months with an
aggregate fair market value (as defined in Section 6.3 hereof determined as of
the date the withholding is effected) that would satisfy the withholding amount
due. With respect to any employee who is subject to Section 16 of the Exchange
Act, the following additional restrictions shall apply:
(a) the election to satisfy tax withholding obligations relating to an
option exercise in the manner permitted by this Section 10.2 shall be made
either (1) during the period beginning on the third business day following
the date of release of quarterly or annual summary statements of sales
A-7
<PAGE> 28
and earnings of the Company and ending on the twelfth business day
following such date, or (2) at least six (6) months prior to the date of
exercise of the option;
(b) such election shall be irrevocable;
(c) such election shall be subject to the consent or approval of the
Committee; and
(d) the Common Stock withheld to satisfy tax withholding, if granted
at the discretion of the Committee, must pertain to an option which has
been held by the employee for at least six (6) months from the date of
grant of the option.
10.3 Notice of Disqualifying Disposition. Each holder of an Incentive
Stock Option shall agree to notify the Company in writing immediately after
making a disqualifying disposition (as defined in Section 421(b) of the Code) of
any Common Stock purchased upon exercise of the Incentive Stock Option.
SECTION 11. Amendment or Termination of Plan
11.1 Amendment. The Board may terminate the Plan and may amend the Plan
at any time, and from time to time, subject to the limitation that, except as
provided in Section 8 hereof, no amendment shall be effective unless approved by
the stockholders of the Company in accordance with applicable law and
regulations, at an annual or special meeting held within 12 months before or
after the date of adoption of such amendment, in any instance in which such
amendment would: (i) increase the number of shares of Common Stock that may be
issued under, or as to which options may be granted pursuant to, the Plan; or
(ii) change in substance the provisions of Section 4 hereof relating to
eligibility to participate in the Plan. Without limiting the generality of the
foregoing, the Board is expressly authorized to amend the Plan, at any time and
from time to time, to conform it to the provisions of Rule 16b-3 under the
Exchange Act, as that Rule may be amended from time to time.
Except as provided in Section 8 hereof, the rights and obligations under
any option granted before amendment of this Plan or any unexercised portion of
such option shall not be adversely affected by amendment of this Plan or such
option without the consent of the holder of such option.
11.2 Termination. This Plan shall terminate as of the tenth anniversary
of its effective date. The Board may terminate this Plan at any earlier time for
any or no reason. No option may be granted after the Plan has been terminated.
No option granted while this Plan is in effect shall be altered or impaired by
termination of this Plan, except upon the consent of the holder of such option.
The power of the Committee to construe and interpret this Plan and the options
granted prior to the termination of this Plan shall continue after such
termination.
SECTION 12. Nonexclusivity of Plan
Neither the adoption of this Plan by the Board of Directors nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including the granting of
stock options otherwise than under this Plan, and such arrangements may be
either applicable generally or only in specific cases.
SECTION 13. Effective Date and Duration of Plan
This Plan shall become effective upon its adoption by the Board, provided
that the stockholders of the Company shall have approved this Plan within twelve
months prior to or following the adoption of this Plan by the Board. Subject to
the foregoing, options may be granted under the Plan at any time subsequent to
its effective date; provided, however, that (a) no such option shall be
exercised or exercisable unless the stockholders of the Company shall have
approved the Plan within twelve months prior to or following the adoption of
this Plan by the Board, and (b) all options issued prior to the date of such
stockholders' approval shall contain a reference to such condition. No option
may be granted under
A-8
<PAGE> 29
the Plan after the tenth anniversary of the effective date. The Plan shall
terminate (i) when the total amount of the Common Stock with respect to which
options may be granted shall have been issued upon the exercise of options or
(ii) by action of the Board of Directors pursuant to Section 11 hereof,
whichever shall first occur.
SECTION 14. Provisions of General Application
14.1 Severability. The invalidity or unenforceability of any provision of
this Plan shall not affect the validity or enforceability of any other provision
of this Plan, each of which shall remain in full force and effect.
14.2 Construction. The headings in this Plan are included for convenience
only and shall not in any way affect the meaning or interpretation of this Plan.
Any term defined in the singular shall include the plural, and vice versa. The
words "herein," "hereof" and "hereunder" refer to this Plan as a whole and not
to any particular part of this Plan. The word "including" as used herein shall
not be construed so as to exclude any other thing not referred to or described.
14.3 Further Assurances. The Company and any holder of an option shall
from time to time execute and deliver any and all further instruments, documents
and agreements and do such other and further acts and things as may be required
or useful to carry out the intent and purpose of this Plan and such option and
to assure to the Company and such option holder the benefits contemplated by
this Plan; provided, however, that neither the Company nor any option holder
shall in any event be required to take any action inconsistent with the
provisions of this Plan.
14.4 Governing Law. This Plan and each option shall be governed by the
laws of The Commonwealth of Massachusetts.
* * *
A-9
<PAGE> 30
AWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 25, 2000
The undersigned stockholder of Aware, Inc. (the "Company"), revoking all prior
proxies, hereby appoints Michael A. Tzannes, Richard P. Moberg and William R.
Kolb, or any of them acting singly, proxies, with full power of substitution, to
vote all shares of capital stock of the Company which the undersigned is
entitled to vote at the Annual Meeting of Stockholders to be held at the
Renaissance Bedford Hotel, 44 Middlesex Turnpike, Bedford, Massachusetts, on
Thursday, May 25, 2000, beginning at 10:00 A.M., local time, and at any
adjournments thereof, upon the matters set forth in the Notice of Annual Meeting
of Stockholders dated April 14, 2000 and the related Proxy Statement, copies of
which have been received by the undersigned, and in their discretion upon any
business that may properly come before the Annual Meeting or any adjournments
thereof. Attendance of the undersigned at the Annual Meeting or any adjournment
thereof will not be deemed to revoke this proxy unless the undersigned shall
affirmatively indicate in writing the intention of the undersigned to vote the
shares represented hereby in person prior to the exercise of this proxy.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS GIVEN WITH RESPECT TO EITHER OF THE PROPOSALS SET FORTH ON THE
REVERSE SIDE, WILL BE VOTED FOR EACH SUCH PROPOSAL OR OTHERWISE IN ACCORDANCE
WITH THE RECOMMENDATION OF THE BOARD OF DIRECTORS.
Please promptly date and sign this proxy and mail it in the enclosed envelope to
ensure representation of your shares. No postage need be affixed if mailed in
the United States.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
Please sign exactly as your name(s) appear(s) on stock certificate. If shares
are held as joint tenants, both should sign. If stockholder is a corporation,
please sign full corporate name by president or other authorized officer and, if
a partnership, please sign full partnership name by an authorized partner or
other authorized person. If signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ---------------------------------- -------------------------------------
- ---------------------------------- -------------------------------------
- ---------------------------------- -------------------------------------
<PAGE> 31
<TABLE>
<S> <C>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
For All With- For All
Nominees hold Except
AWARE, INC. 1. To elect each of (01) Michael A. [ ] [ ] [ ]
Tzannes and (02) G. David Forney, Jr.
as Class I directors of the Company.
INSTRUCTIONS: To withhold authority to vote for a particular nominee,
the "For All Except" box and strike a line through the nominee's name
in the list above. Your shares will be voted for the remaining nominee.
For Against Abstain
2. To approve the amendment to the [ ] [ ] [ ]
Aware, Inc. 1996 Stock Option Plan.
RECORD DATE SHARES:
Mark box at right if you plan to attend the Annual [ ]
Meeting.
Please be sure to sign and date this Proxy. Date______ Mark box at right if an address change or comment [ ]
has been noted on the reverse side of this card.
- ------------------------------ -----------------------------
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
- ---------------------------------------------------------------------------------------------------------------------------------
Please complete and return the proxy card above.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AWARE, INC.
A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS
NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
</TABLE>
