SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant |X|
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|_| Preliminary Proxy Statement |_|: Confidential, for Use of the
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|_| Definitive Additional Materials by Rule 14a-6(e)(2))
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AWARE, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
NOT APPLICABLE
------------------------------------------------------------------------
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* * * * *
AWARE, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 2003
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 29, 2003, 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 act upon a proposal to approve the amendment to the Company's 1996
Employee Stock Purchase Plan, as amended, increasing the number of
shares available for issuance under the plan from 100,000 to 350,000;
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 April 1, 2003 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,
/s/ Michael A. Tzannes
----------------------
MICHAEL A. TZANNES
CHIEF EXECUTIVE OFFICER
April 15, 2003
Bedford, Massachusetts
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND RETURN THE ENCLOSED PROXY,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
AWARE, INC.
40 MIDDLESEX TURNPIKE
BEDFORD, MASSACHUSETTS 01730
(781) 276-4000
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 29, 2003
This proxy statement relates to the 2003 annual meeting of stockholders of
Aware, Inc. The annual meeting will take place as follows:
DATE: May 29, 2003
TIME: 10:00 a.m.
PLACE: Renaissance Bedford Hotel
44 Middlesex Turnpike
Bedford, Massachusetts
The board of directors of Aware is soliciting proxies for the annual
meeting and adjournments of the annual meeting. If a stockholder returns a
properly executed proxy, the shares represented by the proxy will be voted in
accordance with the stockholder's directions. If a stockholder does not specify
a vote on any proposal, the shares covered by his or her proxy will be voted on
that proposal as management recommends. Aware encourages its stockholders to
vote on all proposals. A stockholder may revoke its proxy at any time before it
has been exercised.
Aware is mailing this proxy statement and the enclosed form of proxy to
stockholders on or about April 15, 2003.
PROXY STATEMENT
TABLE OF CONTENTS
ANNUAL MEETING OF STOCKHOLDERS....................................................................................2
Purpose of the annual meeting..................................................................................2
Record date....................................................................................................2
Quorum.........................................................................................................2
Vote required; tabulation of votes.............................................................................2
Revocation of proxies..........................................................................................3
Solicitation of proxies........................................................................................3
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING....................................................................3
PROPOSAL 1--ELECTION OF DIRECTORS.................................................................................3
DIRECTORS AND EXECUTIVE OFFICERS..................................................................................4
Directors and executive officers...............................................................................4
Committees and meetings of the board...........................................................................6
Compensation committee interlocks and insider participation....................................................7
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS..................................................................7
Director compensation..........................................................................................7
Executive compensation.........................................................................................7
REPORT OF THE COMPENSATION COMMITTEE.............................................................................10
Compensation committee report on executive compensation.......................................................10
Performance graph.............................................................................................12
REPORT OF THE AUDIT COMMITTEE....................................................................................13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS..............................................................................................15
Principal stockholders........................................................................................15
Equity compensation plan information..........................................................................16
PROPOSAL 2--APPROVAL OF AN AMENDMENT TO THE 1996 EMPLOYEE STOCK PURCHASE PLAN....................................18
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..........................................................22
INDEPENDENT ACCOUNTANTS..........................................................................................22
Fees for professional services................................................................................22
Attendance at annual meeting..................................................................................22
STOCKHOLDER PROPOSALS............................................................................................23
AVAILABLE INFORMATION............................................................................................23
1
ANNUAL MEETING OF STOCKHOLDERS
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 for three-year terms; and
PROPOSAL 2: To approve the amendment of the Company's 1996 Employee
Stock Purchase Plan, as amended, to increase the number of
shares available for issuance under the plan from 100,000 to
350,000.
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, to the extent authorized by applicable
regulations.
RECORD DATE
The board of directors of Aware has fixed the close of business on April 1,
2003 as the record date for the annual meeting. Only stockholders of record at
the close of business on that date are entitled to receive notice of the meeting
and to vote at the meeting or any adjournment of the meeting. At the close of
business on the record date, there were issued and outstanding 22,698,171 shares
of Aware's common stock, which are entitled to cast 22,698,171 votes.
QUORUM
Aware's by-laws provide that a quorum at the annual meeting will be a
majority in interest of all stock issued, outstanding and entitled to vote at
the meeting. Aware will treat shares of common stock represented by a properly
signed and returned proxy as present at the meeting for purposes of determining
the existence of a quorum at the meeting. In general, Aware will count votes
withheld from any nominee for election as director, abstentions and broker
"non-votes" as present or represented for purposes of determining the existence
of a quorum at the meeting. A broker "non-vote" occurs when a broker or nominee
holding shares for a beneficial owner does not vote on a proposal because the
broker or nominee does not have discretionary voting power and has not received
instructions from the beneficial owner with respect to that proposal.
VOTE REQUIRED; TABULATION OF VOTES
PROPOSAL 1. The election of 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 the director-nominee, and broker
non-votes will not count as votes cast for or against the election of the
director-nominee and accordingly will not affect the outcome of the vote.
PROPOSAL 2. Approval of the amendment to our 1996 Employee Stock Purchase
Plan, as amended, increasing the authorized shares under the plan from 100,000
to 350,000 will require the affirmative vote of a majority of the shares of
common stock properly cast on the proposal. Abstentions, votes withheld and
broker non-votes will have the effect of a vote against approval of the
amendment of the 1996 Employee Stock Purchase Plan.
2
Aware's transfer agent, EquiServe Trust Company N.A., will tabulate the
votes at the annual meeting. EquiServe will tabulate separately the vote on each
matter submitted to stockholders.
REVOCATION OF PROXIES
A stockholder who has executed a proxy may revoke the proxy at any time
before it is exercised at the annual meeting in three ways:
o by giving written notice of revocation to the Clerk of Aware at
the following address:
Aware, Inc.
40 Middlesex Turnpike
Bedford, Massachusetts 01730
Attention: Clerk
o by signing and returning another proxy with a later date; or
o by attending the annual meeting and informing the Clerk of Aware
in writing that he or she wishes to vote in person.
Mere attendance at the annual meeting will not in and of itself revoke the
proxy. Accordingly, stockholders who have executed and returned proxies in
advance of the annual meeting may change their votes at any time before or at
the annual meeting.
SOLICITATION OF PROXIES
Aware will bear all costs incurred in connection with the solicitation of
proxies for the annual meeting. Aware will reimburse brokers, banks,
fiduciaries, nominees and others for the out-of-pocket expenses and other
reasonable clerical expenses they incur in forwarding proxy materials to
beneficial owners of common stock held in their names. In addition to this
solicitation by mail, Aware's directors, officers and employees may solicit
proxies, without additional remuneration, by telephone, facsimile, electronic
mail, telegraph and in person. Aware expects that the expenses of any special
solicitation will be nominal. At present, Aware does not expect to pay any
compensation to any other person or firm for the solicitation of proxies.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
PROPOSAL 1--ELECTION OF DIRECTORS
The board of directors, upon the recommendation of the nominating
committee, has nominated for election as Class I directors Michael A. Tzannes
and G. David Forney, Jr., each of whom is currently a Class I director of Aware.
Mr. Tzannes also serves as our chief executive officer. The directors elected at
the annual meeting will hold office until the annual meeting of stockholders in
2006 and until their successors are duly elected and qualified.
Each nominee has agreed to serve if elected, and Aware has no reason to
believe that a nominee will be unable to serve. If a nominee is unable or
declines to serve as a director at the time of the annual meeting, proxies will
be voted for another nominee that our board's
3
nominating committee will designate at that time. Proxies cannot be voted for
more than one nominee.
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.
DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding Aware's directors and
executive officers as of March 31, 2003:
NAME AGE POSITION
---- --- --------
John K. Kerr (1)(2)(3)(4)........... 65 Chairman of the board of directors
Michael A. Tzannes (1).............. 41 Chief executive officer and director
Edmund C. Reiter.................... 39 President and director
Richard P. Moberg................... 48 Chief financial officer and treasurer
Richard W. Gross.................... 45 Senior vice president--engineering
Frederick D. D'Alessio ............. 54 Director
David Ehreth (2)(3)(4).............. 53 Director
G. David Forney, Jr. (2)(4)......... 63 Director
------------------------------------
(1) Member of the executive committee
(2) Member of the audit committee
(3) Member of the compensation committee
(4) Member of the nominating committee
JOHN K. KERR has been a director of Aware since 1990 and chairman of the
board of directors since March 1999. Mr. Kerr previously served as a director of
Aware from 1988 to 1989 and as chairman of the board of directors from November
1992 to March 1994. Mr. Kerr has been general partner of Grove Investment
Partners, a private investment partnership, since 1990. Mr. Kerr received an
M.A. and a B.A. from Baylor University.
MICHAEL A. TZANNES has been Aware's chief executive officer since April
1998 and has served as a director of Aware since March 1998. Mr. Tzannes served
as Aware's president from April 1998 to March 2001. From September 1997 to April
1998, he served as Aware's chief technology officer and general manager of
telecommunications. Mr. Tzannes served as Aware's senior vice president,
telecommunications from April 1996 to September 1997, as Aware's vice president,
telecommunications from December 1992 to April 1996, as a senior member of
Aware's technical staff from January 1991 to November 1992, and as a consultant
to Aware from October 1990 to December 1990. From 1986 to 1990, he was a staff
engineer at Signatron, Inc., a telecommunications technology and systems
developer. Mr. Tzannes received a Ph.D. in electrical engineering from Tufts
University, an M.S. from the University of Michigan at Ann Arbor, and a B.S.
from the University of Patras, Greece.
EDMUND C. REITER has served as Aware's president since March 2001 and as a
director of Aware since December 1999. Mr. Reiter served as a senior vice
president from May 1998 to March 2001, as Aware's vice president, advanced
products from August 1995 to May 1998, as
4
Aware's manager of product development for still image compression products from
June 1994 to August 1995, as a senior member of Aware's technical staff from
November 1993 to June 1994, and as a member of Aware's technical staff from
December 1992 to November 1993. Mr. Reiter served as senior scientist at New
England Research, Inc. from January 1991 to November 1992. Mr. Reiter received a
Ph.D. from the Massachusetts Institute of Technology and a B.S. from Boston
College.
RICHARD P. MOBERG joined Aware in June 1996 as chief financial officer and
treasurer. From December 1990 to June 1996, Mr. Moberg held a number of
positions at Lotus Development Corporation, a computer software developer,
including corporate controller from June 1995 to June 1996, assistant corporate
controller from May 1993 to June 1995, and director of financial services from
December 1990 to May 1993. Mr. Moberg received an M.B.A. from Bentley College
and a B.B.A. in accounting from the University of Massachusetts at Amherst.
RICHARD W. GROSS was appointed senior vice president - engineering 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. Prior to 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.
FREDERICK D. D'ALESSIO has served as a director of Aware since December
2002. Mr. D'Alessio is currently a general partner at Capitol Management
Partners, a business advisory partnership. Mr. D'Alessio served as president of
the Advanced Services Group for Verizon Communications from July 2000 to
November 2001. The Advanced Services Group included Verizon's Long Distance, DSL
and Internet Service Provider Businesses. From December 1998 to June 2000, Mr.
D'Alessio served as group president consumer services for Bell Atlantic
Communications, responsible for all aspects of Residential Services. From April
1995 to November 1998 Mr. D'Alessio served as president--consumer sales and
services for Bell Atlantic. Mr. D'Alessio received a B.S.E.E. and M.S. degree
from New Jersey Institute of Technology and a masters of business administration
from Rutgers University.
DAVID EHRETH has served as a director of Aware since November 1997. Since
April 1998, Mr. Ehreth has served as chairman of Westwave Communications, Inc.,
a telecommunications software company. From April 1998 to July 2002, Mr. Ehreth
also served as president and chief executive officer of Westwave. From June 1992
to August 1998, Mr. Ehreth served as division vice president of the access
division of DSC Communications Corporation, a manufacturer of digital switching,
access, transport and private network system products for the telecommunications
industry. From 1987 to June 1992, Mr. Ehreth served as vice president of
engineering of Optilink, Inc., a manufacturer of access systems for the
telecommunications industry. Optilink, Inc. was acquired by DSC Communications
Corporation in 1990. From 1977 to 1987, Mr. Ehreth held numerous positions in
the Digital Telephone Systems division of Harris Corporation. Mr. Ehreth
received a degree in electrical engineering from College of Marin.
G. DAVID FORNEY, JR. has served as a director of Aware since May 1999. Mr.
Forney was a vice president of Motorola, Inc. from 1977 until his retirement in
January 1999. Mr. Forney was previously vice president of research and
development, and a director of Codex Corporation
5
prior to its acquisition by Motorola in 1977. Mr. Forney is currently 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 the Massachusetts Institute of
Technology and a B.S.E. in electrical engineering from Princeton University.
The board of directors is divided into three classes, referred to as Class
I, Class II and Class III, each consisting of approximately one-third of the
directors. One class is elected each 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 is currently one vacancy 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 29, 2003. The current terms of Messrs. Kerr
and Ehreth, Aware's Class II directors, will expire at the annual meeting to be
held in 2004. The current term of Aware's Class III directors, Mr. Reiter and
Mr. D'Alessio, will expire at the annual meeting to be held in 2005.
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 2002, the board of directors met six times and took no action by
written consent. No incumbent director attended fewer than 75% of the total
number of meetings held by the board and committees of the board on which he
served.
Aware has a compensation committee, an audit committee, an executive
committee and a nominating committee. Aware's compensation committee is
currently composed of two outside directors, David Ehreth and John. K. Kerr.
Aware's audit committee is currently composed of John K. Kerr, David Ehreth and
G. David Forney, Jr.
Aware's executive committee is currently composed of John K. Kerr and
Michael A. Tzannes. The executive committee has all of the powers of the board
of directors except the power to: change the number of directors or fill
vacancies on the board of directors; elect or fill vacancies in the offices of
president, treasurer or clerk; remove any officer or director; amend the by-laws
of Aware; change the principal office of Aware; authorize the payment of any
dividend or distribution to stockholders of Aware; authorize the reacquisition
of capital stock for value; and authorize a merger.
Aware's nominating committee is currently composed of three outside
directors, David Ehreth, G. David Forney, Jr. and John K. Kerr. The nominating
committee is responsible for reviewing the qualifications of potential nominees
for election to the board of directors and recommending to the board of
directors the election of directors to the Company. Stockholders may make
nominations for the election of directors by delivering notice in writing to the
Clerk of Aware not less than 60 days nor more than 90 days prior to any meeting
of the stockholders called for the election of directors.
In 2002, the executive committee neither met nor took action by written
consent; the nominating committee held two meetings and took no action by
written consent; the
6
compensation committee held three meetings and took action by written consent
five times; and the audit committee met five times and took no action by written
consent.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Aware's compensation committee is currently composed of Messrs. Kerr and
Ehreth. Mr. Kerr formerly served as Aware's assistant vice president of
marketing from June 1992 to November 1994. In 2002, 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 2002.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
DIRECTOR COMPENSATION
Aware reimburses each director for expenses incurred in attending meetings
of the board of directors but does not pay any separate fees for serving as
directors.
In 2002, Aware compensated its directors through grants of nonqualified
options under its 1996 Stock Option Plan and its 2001 Nonqualified Stock Plan.
The exercise price of each option is equal to the closing price of the common
stock on the Nasdaq National Market on the date of grant. Each option has a term
of ten years. The options granted in 2002 vest on various schedules, as
described in the notes to the table below.
The following table provides information about these grants.
OPTION GRANTS TO DIRECTORS IN LAST FISCAL YEAR
NUMBER OF SECURITIES
UNDERLYING EXERCISE
NAME OPTIONS GRANTED PRICE ($/SH)) EXPIRATION DATE
---- --------------- ------------ ---------------
John K. Kerr......................... 10,000 (1) $3.39 7/05/12
G. David Forney, Jr. ................ 5,000 (1) 3.39 7/05/12
David Ehreth......................... 5,000 (1) 3.39 7/05/12
Frederick D. D'Alessio............... 25,000 (2) 2.48 12/11/12
----------------------------------------
(1) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of September 30, 2002.
(2) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of December 31, 2002.
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 2002 and each other executive officer of Aware.
Other annual compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of perquisites and other
personal benefits was less than $50,000 and constituted less than 10% of the
executive officer's total annual salary and bonus.
Long-term compensation awards represent stock options granted under Aware's
1996 Stock Option Plan and Aware's 2001 Nonqualified Stock Plan. In 2000, 2001
and 2002, Aware
7
did not make any restricted stock awards, grant any stock appreciation rights or
make any long-term incentive plan payouts.
All other compensation represents group term life insurance premiums paid
by Aware on behalf of the executive officers and the following matching
contributions by Aware under its 401(k) plan for the benefit of the executive
officers in 2000, 2001 and 2002: Mr. Tzannes, $5,250, $5,100 and $5,500; Mr.
Reiter, $2,135, $2,262 and $2,262; Mr. Gross, $3,224, $3,224 and $3,331; and Mr.
Moberg, $3,978, $5,100 and $5,500.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
SECURITIES ALL OTHER
UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) SATION($)
--------------------------- ---- --------- -------- ---------- ---------
Michael A. Tzannes............. 2002 $300,000 -- 150,000 $5,800
Chief Executive Officer 2001 300,000 -- 174,999 5,388
2000 268,846 -- 120,000 5,412
Edmund C. Reiter............... 2002 280,000 -- 130,000 2,511
President 2001 280,000 $750 200,001 2,510
2000 251,442 -- 80,000 2,297
Richard W. Gross............... 2002 235,000 -- 100,000 3,553
Senior Vice President 2001 235,000 1,500 114,999 3,446
2000 209,038 750 75,000 3,373
Richard P. Moberg.............. 2002 225,000 -- 100,000 5,815
Chief Financial Officer and 2001 225,000 -- 105,000 5,415
Treasurer 2000 196,442 -- 80,000 4,202
OPTION GRANTS IN LAST FISCAL YEAR. The following table provides information
concerning stock options granted under the 2001 Nonqualified Stock Plan during
2002 to each of the executive officers.
The exercise price of each option is equal to the closing price of the
common stock on the Nasdaq National Market on the date of grant. Each option
vests in installments as described in the "Option grants in last fiscal year"
table below. In 2002, Aware granted employees and directors options to purchase
an aggregate of 1,521,100 shares of common stock under its 1996 Stock Option
Plan and 2001 Nonqualified Stock Plan.
The amounts reported in the last two columns represent hypothetical values
that the executive officers could realize upon exercise of the options
immediately before the expiration of their terms, assuming the specified
compounded rates of appreciation of the price of the common stock over the term
of the options. Aware has calculated these numbers based on the rules of the
Securities and Exchange Commission, and they do not represent Aware's estimate
of future stock price growth. Actual gains, if any, on stock option exercises
and common stock holdings will depend on the timing of the exercise and the
future performance of the common stock. The common stock may not achieve the
rates of appreciation assumed in this table and the executive officers may not
receive the amounts reflected in this table. This table does not take into
account any appreciation in the price of the common stock from the date of grant
to the current date. The values shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise.
8
OPTION GRANTS IN LAST FISCAL YEAR
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
OPTIONS TO EMPLOYEES IN PRICE -----------
NAME GRANTED (#) FISCAL YEAR(%) ($/SH) EXPIRATION DATE 5% ($) 10% ($)
----------------------- --------------- ---------------- ------- --------------- -------------------------
Michael A. Tzannes..... 150,000 (1) 9.86% $3.39 7/05/12 $319,793 $810,418
Edmund C. Reiter....... 130,000 (1) 8.55 3.39 7/05/12 277,154 702,362
Richard W Gross........ 100,000 (1) 6.57 3.39 7/05/12 213,195 540,279
Richard P. Moberg...... 100,000 (1) 6.57 3.39 7/05/12 213,195 540,279
-----------------------------------
(1) The options vest in 16 equal quarterly installments of 6.25%, beginning as
of September 30, 2002.
Each of the officers in the table above participated in a stock option
exchange with Aware in which they agreed to exchange all of their options with
exercise prices of $3.00 or more per share, including all of the options granted
to them in 2002, for new options to be granted by Aware on a date between
October 2, and November 13, 2003. Aware accepted the surrender of their existing
options on April 3, 2003.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES. The following table
provides information concerning stock options exercised during 2002 and stock
options held as of December 31, 2002 by the executive officers.
None of the executive officers exercised options in 2002. If they had,
however, the value realized upon the exercise of options would be based on the
last sale prices of the common stock on the respective dates of exercise, as
reported by the Nasdaq National Market, less the applicable option exercise
prices. The value of unexercised in-the-money options at fiscal year-end is
based on $2.18 per share, the last sale price of the common stock on December
31, 2002, as reported by the Nasdaq National Market, less the applicable option
exercise prices. Actual gains, if any, will depend on the value of the common
stock on the date of the sale of the shares.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR END($)
ACQUIRED ON VALUE ------------------------------- -------------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- ------------ ----------- -------------- ---------------- -------------- ----------------
Michael A. Tzannes...... 0 0 675,894 232,501 $788 $0
Edmund C. Reiter........ 0 0 432,014 221,251 0 0
Richard W. Gross........ 0 0 241,123 161,876 0 0
Richard P. Moberg....... 0 0 267,375 155,625 0 0
9
REPORT OF THE COMPENSATION COMMITTEE
The compensation committee established by the board of directors is
composed of two outside directors, David Ehreth and John K. Kerr. The
compensation committee has general responsibility for Aware's executive
compensation policies and practices, including responsibility for establishing
the specific compensation of Aware's executive officers and administering
Aware's stock plans. The following report summarizes Aware's executive officer
compensation policies for 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION OBJECTIVES. Aware's executive compensation programs are
generally designed to relate executive compensation to improvements in Aware's
financial performance and corresponding increases in stockholder value.
Decisions concerning executive compensation are intended to:
o establish incentives that will link executive officer compensation to
Aware's stock performance and motivate executives to attain Aware's
quarterly and annual financial targets and to promote Aware's
long-term financial success; and
o provide a total compensation package that is competitive within the
industry and that will assist Aware to attract and retain executives
who will contribute to the long-term financial success of Aware.
EXECUTIVE COMPENSATION. Aware's executive compensation package for 2002
consisted of two principal components: base salary and a stock-based equity
incentive in the form of participation in Aware's stock option plans. Aware's
executive officers were also eligible to participate in other employee benefit
plans, including health and life insurance plans and a 401(k) retirement plan,
on substantially the same terms as other employees who met applicable
eligibility criteria, subject to any legal limitations on the amounts that could
have been contributed or the benefits that could have been paid under these
plans. Aware 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 2002, the
compensation committee granted stock options under Aware's 2001 Nonqualified
Stock Plan to each of Michael A. Tzannes, Edmund C. Reiter, Richard P. Moberg
and Richard W. Gross. The options granted to Messrs. Tzannes, Reiter, Moberg and
Gross vest as indicated in the table captioned "Option grants in last fiscal
year" above.
In establishing base salaries for executives, the compensation committee
monitors salaries at other companies, particularly companies in the same
industry and companies located in the same geographic area as Aware. In
addition, for each executive the compensation committee considers historic
salary levels, work responsibilities and base salary relative to other
executives at Aware. To some extent, the compensation committee also considers
general economic conditions, Aware's financial performance and each individual's
performance. The
10
compensation committee did not increase the base salaries of Aware's executive
officers in 2002. In connection with an October 2002 workforce reduction by
Aware, each executive officer's salary was reduced by 10%, effective as of
January 1, 2003.
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 2002 was to be competitive with other
companies in the industry. The compensation committee believes that this
approach provided additional incentive to Mr. Tzannes to achieve Aware's
performance goals and enhance stockholder value. Mr. Tzannes' salary was
designed to give him assurance of a base level of compensation commensurate with
his position and duration of employment with Aware and competitive with salaries
for officers holding comparable positions in the industry.
POLICY REGARDING SECTION 162(M) OF THE INTERNAL REVENUE CODE. Section
162(m) of the Internal Revenue Code limits Aware's ability to deduct, for income
tax purposes, compensation in excess of $1.0 million paid to the chief executive
officer and the three most highly compensated executive officers of Aware (other
than the chief executive officer) in any year, unless the compensation qualifies
as "performance-based compensation." In 2002, the aggregate base salaries,
bonuses and other non-equity compensation of Aware's executive officers did not
exceed the $1.0 million limit. The compensation committee does not expect that
non-equity compensation will exceed the $1.0 million limit in the foreseeable
future. With respect to equity compensation, the compensation committee's policy
with respect to Section 162(m) is that it would prefer to cause compensation to
be deductible by Aware; however, the compensation committee also weighs the need
to provide appropriate incentives to Aware's executive officers against the
potential adverse tax consequences that may result under Section 162(m) from the
grant of compensation that does not qualify as performance-based compensation.
The compensation committee has authorized and may continue to authorize
compensation payments that do not qualify as performance-based compensation and
that are in excess of the limits in circumstances when the committee believes
such payment is appropriate.
The compensation committee
David Ehreth
John K. Kerr
11
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 published industry indexes, the RDG
Technology Composite Index and, through 2001, the J.P. Morgan H&Q Technology
Index (formerly known as the Hambrecht & Quist Technology Index). The J.P.
Morgan H&Q Technology Index was discontinued after 2001. The cumulative
stockholder returns for shares of Aware's common stock and for the market and
industry indices are calculated assuming $100 was invested on December 31, 1997.
Aware paid no cash dividends during the periods shown. The performance of the
market and industry indices is shown on a total return, or dividends reinvested,
basis.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG AWARE, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX,
THE JP MORGAN H & Q TECHNOLOGY INDEX
AND THE RDG TECHNOLOGY COMPOSITE INDEX
[PERFORMANCE GRAPH]
VALUE OF INVESTMENT ($)
-------------------------------------------------------------
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02
-------- -------- -------- -------- -------- --------
Aware, Inc.................................. $100.00 $265.24 $354.88 $173.17 $ 80.98 $ 21.27
J.P. Morgan H & Q Technology Index.......... 100.00 140.99 261.48 157.42 124.89 N/A
Nasdaq Stock Market - U.S................... 100.00 155.54 347.38 224.57 155.23 86.34
RDG Technology Composite.................... 100.00 176.09 348.88 216.36 158.21 93.38
12
REPORT OF THE AUDIT COMMITTEE
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 independent accountants, proposed
changes in Aware's financial and accounting standards and principles, and
Aware's policies and procedures with respect to its internal accounting,
auditing and financial controls. The audit committee also makes recommendations
to the board of directors on the engagement of the independent accountants, as
well as other matters which may come before the audit committee or at the
direction of the board of directors. The audit committee is governed by a
written charter adopted by the board of directors.
The audit committee currently consists of three non-employee directors.
Each member of the audit committee is "independent" within the meaning of the
Nasdaq Stock Market's marketplace rules.
Aware's management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation of financial
statements in accordance with generally accepted accounting principles. Aware's
independent auditors are responsible for auditing those financial statements.
The responsibility of the audit committee is to monitor and review these
processes. However, the members of the audit committee are not professionally
engaged in the practice of accounting or auditing and are not experts in the
fields of accounting or auditing, including with respect to auditor
independence. The audit committee has relied, without independent verification,
on the information provided to it and on the representations made by Aware's
management and independent auditors.
In fulfilling its oversight responsibilities, the audit committee discussed
with representatives of PricewaterhouseCoopers LLP, Aware's independent auditors
for 2002, the overall scope and plans for their audit of Aware's financial
statements for 2002. The audit committee met with them, with and without Aware's
management present, to discuss the results of their audit and their evaluations
of Aware's internal controls and the overall quality of Aware's financial
reporting.
The audit committee reviewed and discussed the unaudited financial
statements for March 31, June 30 and September 30, 2002 and the audited
financial statements for 2002 with management and the independent auditors.
The audit committee discussed with the independent auditors the matters
required to be discussed by Statement of Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended. In addition, the audit
committee received from the independent auditors the written disclosures
required by Independence Standards Board Standard No. 1, INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEES, and discussed their independence with them.
In evaluating the independence of our auditors, the audit committee considered
whether the services they provided to Aware beyond their audit and review of
Aware's financial statements were compatible with maintaining their
independence. The audit committee also considered the amount of fees they
received for audit and non-audit services.
Based on the audit committee's review and these meetings, discussions and
reports, and subject to the limitations on the audit committee's role and
responsibilities referred to above and
13
in the audit committee charter, the audit committee recommended to the board of
directors that Aware's audited financial statements for 2002 be included in
Aware's annual report on Form 10-K. The audit committee also recommended to the
board of directors that PricewaterhouseCoopers LLP be selected as Aware's
independent auditors for 2003.
The audit committee
David Ehreth
G. David Forney, Jr.
John K. Kerr
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
At the close of business on March 31, 2003, there were issued and
outstanding 22,698,171 shares of common stock entitled to cast 22,698,171 votes.
On March 31, 2003, the closing price of Aware's common stock as reported by the
Nasdaq National Market was $1.82 per share.
PRINCIPAL STOCKHOLDERS
The following table provides information about the beneficial ownership of
Aware's common stock as of March 31, 2003 by:
o each person known by Aware to own beneficially more than five percent
of Aware's common stock;
o each of Aware's directors;
o each of Aware's executive officers; and
o all of Aware's current executive officers and directors as a group.
In accordance with SEC rules, beneficial ownership includes any shares for
which a person has sole or shared voting power or investment power and any
shares of which the person has the right to acquire beneficial ownership within
60 days after March 31, 2003 through the exercise of any option or otherwise.
Except as noted below, Aware believes that the persons named in the table have
sole voting and investment power with respect to the shares of common stock set
forth opposite their names. The inclusion of shares listed as beneficially owned
does not constitute an admission of beneficial ownership. Percentage of
beneficial ownership is based on 22,698,171 shares of common stock outstanding
as of March 31, 2003. 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, 2003. All shares included in the "Right to acquire"
column represent shares subject to outstanding stock options exercisable within
60 days after March 31, 2003. The information as to each person has been
furnished by such person.
15
NUMBER OF SHARES BENEFICIALLY OWNED
----------------------------------- PERCENT
OUTSTANDING RIGHT TO TOTAL BENEFICIALLY
NAME SHARES ACQUIRE NUMBER OWNED
---- ------ ------- ------ -----
John Springs Stafford, III (1)................... 1,748,782 0 1,748,782 7.7%
230 S. LaSalle Street, Suite 688
Chicago, IL 60604
State of Wisconsin Investment Board (2).......... 1,651,000 0 1,651,000 7.3
P.O. Box 7842
Madison, WI 53707
Dimensional Fund Advisors Inc (3)................ 1,504,659 0 1,504,659 6.6
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
James M. Stafford (4)............................ 1,358,251 0 1,358,251 6.0
230 S. LaSalle Street, Suite 688
Chicago, IL 60604
John K. Kerr (5)................................. 741,626 61,186 802,812 3.5
Michael A. Tzannes (6) (7)....................... 104,238 704,643 808,881 3.5
Edmund C. Reiter (7)............................. 10,161 462,013 472,174 2.0
Richard P. Moberg (7)............................ 5,226 287,687 292,913 1.3
Richard W. Gross (7)............................. 8,000 263,622 271,622 1.2
David Ehreth..................................... 0 51,055 51,055 *
G. David Forney, Jr.............................. 0 43,121 43,121 *
Frederick D. D'Alessio........................... 0 3,125 3,125 *
All directors and executive officers
as a group (8 persons)........................ 869,251 1,876,452 2,745,703 11.2
------------------------------------
* Less than one percent.
(1) The number of shares beneficially owned by John Springs Stafford, III is
based upon information in a Schedule 13G filed by John Springs Stafford,
III on February 14, 2003.
(2) The number of shares beneficially owned by the State of Wisconsin
Investment Board is based upon information in a Schedule 13G filed by the
State of Wisconsin Investment Board on February 11, 2003.
(3) The number of shares beneficially owned by Dimensional Fund Advisors Inc.
is based upon information in a Schedule 13G filed by Dimensional Fund
Advisors Inc. on February 10, 2003.
(4) The number of shares beneficially owned by James M. Stafford is based upon
information in a Schedule 13G filed by James M. Stafford on February 14,
2003.
(5) Includes 240,193 shares held by Grove Investment Partners, of which Mr.
Kerr is a general partner.
(6) Includes 20,000 shares held by a private charitable foundation, of which
Mr. Tzannes and his wife are trustees.
(7) The number of shares listed in the "right to acquire" column includes
options which the holder has now agreed to exchange, as part of Aware's
stock option exchange offer, for new options to be granted on a date
between October 2, and November 13, 2003. Aware accepted the surrender of
the holder's eligible existing options on April 3, 2003.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth additional information as of December 31,
2002, regarding securities authorized for issuance under our existing equity
compensation plans and arrangements, divided between plans approved by our
stockholders and plans or arrangements that were not required to be and were not
submitted to our stockholders for approval.
The equity compensation plans approved by our stockholders are our 1990
Stock Option Plan, 1996 Stock Option Plan and 1996 Employee Stock Purchase Plan.
Our 2001 Nonqualified Stock Plan was not approved by our stockholders. Our board
of directors approved the 2001 Nonqualified Stock Plan in April 2001 and amended
it in July 2002.
16
NUMBER OF SHARES TO WEIGHTED-AVERAGE NUMBER OF SHARES REMAINING
BE ISSUED UPON EXERCISE PRICE OF AVAILABLE FOR FUTURE ISSUANCE
EXERCISE OF OUTSTANDING OUTSTANDING UNDER EQUITY COMPENSATION
OPTIONS, WARRANTS AND OPTIONS, WARRANTS AND PLANS (EXCLUDING SHARES
PLAN CATEGORY RIGHTS (#) RIGHTS ($) REFLECTED IN COLUMN (A)) (#)
-------------------------------------- ----------------------- ------------------------ -----------------------------
(A) (B) (C)
EQUITY COMPENSATION PLANS
APPROVED BY STOCKHOLDERS:
1990 Stock Option Plan............ 896 $ 1.30 0
1996 Stock Option Plan............ 3,422,822 29.72 678,740
1996 Employee Stock
Purchase Plan................. -- -- 20,303
EQUITY COMPENSATION PLANS NOT
APPROVED BY STOCKHOLDERS:
2001 Nonqualified Stock Plan...... 3,418,828 5.20 4,573,925
-------------------------------------------------------------------------------
Total.............. 6,842,546 $17.47 5,272,968
On March 3, 2003, Aware initiated a stock option exchange offer in which
employees were offered the opportunity to exchange options granted under the
1996 Stock Option Plan and the 2001 Nonqualified Stock Plan, with exercise
prices of $3.00 or more, for new options to be granted by Aware on a date
between October 2, and November 13, 2003. Aware accepted the surrender of
options from participating employees on April 3, 2003. The cancellation of
surrendered options and the future grant of new options are not reflected in the
table above, which is accurate as of December 31, 2002.
DESCRIPTION OF THE 2001 NONQUALIFIED STOCK PLAN
The following summary of some of the provisions of the 2001 Nonqualified
Stock Plan, as amended, is qualified in its entirety by reference to the full
text of the plan. The 2001 plan permits the grant of (1) nonqualified stock
options, which are options that do not qualify as incentive stock options, (2)
restricted stock awards, (3) unrestricted stock awards and (4) performance share
awards. The maximum number of shares of common stock issuable in connection with
awards granted under the 2001 plan is 8,000,000 shares.
The 2001 plan is administered by a committee consisting of at least two
directors who are both "non-employee directors" within the meaning of Rule 16b-3
under the Securities Exchange Act. Except as specifically reserved to the board
under the terms of the 2001 plan, the committee has full and final authority to
operate, manage and administer the 2001 plan on behalf of Aware. Aware's
compensation committee, currently consisting of Mssrs. Ehreth and Kerr,
administers the 2001 plan.
The committee fixes the term of each stock option granted under the 2001
plan at the time of grant. No stock option shall be exercisable more than 10
years after the date of grant. The committee has the authority to determine the
time or times at which stock options granted under the plan may be exercised.
With respect to grants of restricted stock, the committee will specify at the
time of grant the dates or performance goals on which the non-transferability of
the restricted stock and Aware's right of repurchase shall lapse. With respect
to performance share awards, the committee shall determine the performance goals
applicable under each award and the time period over which performance is to be
measured.
17
The committee will determine at the time of grant the exercise price per
share of the common stock covered by an option grant, or the purchase price per
share of restricted or unrestricted stock. The exercise price per share of a
stock option and the purchase price per share of a restricted stock grant may
not be less than fair market value on the date of grant.
Except as otherwise provided, stock options granted under the 2001 plan are
not exercisable following termination of the holder's employment. The 2001 plan
provides that in the event of termination of an option holder's employment,
options will be exercisable, to the extent of the number of shares then vested,
(a) for one year following the termination of the holder's employment if such
termination is the result of permanent and total disability, (b) by the holder's
executors, administrators or any person to whom the option may be transferred by
will or by the laws of descent and distribution, for one year following the
termination of employment if such termination is the result of the holder's
death, (c) for 30 days after the date of termination of the holder's employment
by us without "cause," as defined in the 2001 plan, or (d) for 30 days after the
date of voluntary termination by the holder of the holder's employment. However,
in no event will a new option be exercisable after its expiration date.
In the event that Aware effects a stock dividend, stock split or similar
change in capitalization affecting its stock, the committee shall make
appropriate adjustments in (i) the number and kind of shares of stock or
securities with respect to which awards may thereafter be granted, (ii) the
number and kind of shares remaining subject to outstanding awards under the
plan, and (iii) the option or purchase price in respect of such shares. The 2001
plan provides that if Aware merges, consolidates, dissolves or liquidates, the
committee may, in its sole discretion, as to any outstanding award, make such
substitution or adjustment in the total number of shares reserved for issuance
and in the number and purchase price of shares subject to such awards as it may
determine, or accelerate, amend or terminate such awards upon such terms and
conditions as it shall provide.
The board of directors of Aware may amend or discontinue the 2001 plan at
any time. The committee may at any time amend or cancel an outstanding award
granted under the plan. In either case, no such action may adversely affect
rights under any outstanding award without the holder's consent.
PROPOSAL 2--APPROVAL OF AN AMENDMENT TO THE 1996 EMPLOYEE
STOCK PURCHASE PLAN
Aware's 1996 Employee Stock Purchase Plan was originally adopted by the
board of directors on May 23, 1996 and approved by Aware's stockholders on June
6, 1996. The plan was later amended by the board of directors on May 27, 1998.
On February 21, 2003, the board of directors amended the 1996 Employee
Stock Purchase Plan to eliminate the lockup provisions preventing employees from
selling or transferring shares purchased under the plan for a period of three
months and preventing directors and officers from selling or transferring shares
purchased under the plan for a period of six months, and to increase the number
of shares which an employee may be granted in any single offering period from
500 to 1000 shares. On February 21, 2003, the board of directors also amended
the 1996 Employee Stock Purchase Plan to increase the number of shares
authorized for issuance under the plan from 100,000 to 350,000, subject to
stockholder approval.
18
The plan authorizes the board of directors to amend the plan at any time.
The board of directors is seeking stockholder approval of the increase in the
number of shares authorized under the plan for the following reasons: (1) to
ensure that the plan will continue to be qualified under Section 423 of the
Internal Revenue Code, which provides favorable tax treatment to employees with
respect to shares purchased under the plan; (2) to enable Aware to deduct for
federal income tax purposes the full amount of any compensation expense arising
from the exercise of options granted under the plan; and (3) to comply with the
rules of the Nasdaq National Market.
As a publicly held corporation, Aware is subject to Section 162(m) of the
Internal Revenue Code, which prohibits Aware from claiming a deduction on its
federal income tax return for compensation in excess of $1 million paid in any
given fiscal year to the chief executive officer and the four most highly
compensated executive officers (other than the chief executive officer) at the
end of that fiscal year. The $1 million limitation does not apply to
"performance-based compensation." Under the rules promulgated by the Internal
Revenue Service, shares of common stock issued under a plan that has been
approved by the stockholders of a publicly held corporation and that meets
certain criteria will qualify as "performance-based compensation" under Section
162(m).
In addition, the Nasdaq Stock Market Marketplace Rules require Nasdaq
National Market Issuers to obtain stockholder approval of material amendments to
certain employee stock purchase plans. In order to ensure that Aware is
complying with these rules, Aware is submitting the amendment to the 1996
Employee Stock Option Plan increasing the number of shares that may be issued
under the plan for stockholder approval. If the stockholders do not approve
Proposal 2, the total number of shares that may be issued under the plan will
remain at 100,000.
The 1996 Employee Stock Purchase Plan is intended to provide a method of
broad-based equity compensation whereby employees of Aware will have an
opportunity to acquire an ownership interest, or increase an existing ownership
interest, in Aware through the purchase of shares of common stock. The board of
directors, including the members of the compensation committee, believes that
Aware will derive substantial benefits from increasing the aggregate number of
shares that Aware can issue under the 1996 Employee Stock Purchase Plan. The
board of directors believes that the proposed amendment, by enabling Aware to
issue additional shares under the plan, will enable Aware to further align the
interests of Aware's current executive officers and other employees with the
interests of the stockholders. The board also believes that the proposed
amendment will assist Aware in attracting and retaining key employees by
enabling it to offer competitive compensation packages.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSAL TO APPROVE
THE AMENDMENT TO AWARE'S 1996 EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED, TO
INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE UNDER THE PLAN FROM 100,000
TO 350,000.
GENERAL PLAN INFORMATION
The following summary of the 1996 Employee Stock Purchase Plan is qualified
in all respects by reference to the full text of the 1996 Employee Stock
Purchase Plan, which is set forth in Annex A to this proxy.
19
The 1996 Employee Stock Option Plan is administered by the compensation
committee of the board of directors. The current members of the compensation
committee are Mssrs. Ehreth and Kerr. The members of the compensation committee
are "non-employee directors" as that term is defined in the rules of the
Securities and Exchange Commission. Aware intends that the 1996 Employee Stock
Purchase Plan will qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code. The provisions of the employee stock purchase
plan shall, accordingly, be construed so as to extend and limit participation in
a manner consistent with the requirements of that section of the Code.
All of Aware's employees who have completed six months of continuous
service are eligible to participate in the employee stock purchase plan.
Employees who own stock and hold outstanding options to purchase stock
representing 5 percent or more of the total combined voting power of all classes
of Aware stock are not eligible to participate in the employee stock purchase
plan. As of April 1, 2003, approximately 118 employees were eligible to
participate in the plan. No employee is allowed to purchase shares of common
stock worth more than $25,000, based on the fair market value of the common
stock at the time such option is granted, in any calendar year.
Eligible employees will have the right to purchase stock under the employee
stock purchase plan in a series of six month offerings. The compensation
committee is authorized to determine the applicable commencement date and
termination date of each offering. An employee may participate in any one or
more of the offerings without limiting or requiring participation in any other
offering.
During each offering period under the plan, participating employees will be
entitled to purchase shares of common stock through payroll deductions. At the
commencement of each designated offering period, an eligible employee may elect
to have deductions made between 1% and 6%, in increments of 1%, from his or her
pay on each payday during the offering period. On the last business day of the
offering period, the employee will be deemed to have exercised the option, at
the option price, to the extent of accumulated payroll deductions, provided
however, that the employee may in no event purchase a number of shares in excess
of the number equal to (i) the dollar amount held in the employee's account
under the plan, multiplied by 2, divided by (ii) 85% of the fair market value of
the common stock on the applicable offering commencement date. The option price
shall be the lower of (i) 85% of the last trading price of the common stock as
reported by the Nasdaq National Market System on the offering commencement date;
and (ii) 85% of the last trading price of the common stock as reported by the
Nasdaq National Market System on the offering termination date.
A participating employee may designate a beneficiary who is to receive
common stock issued under the employee stock purchase plan, and may change such
designation at any time by giving written notice to the Treasurer of Aware. Upon
the death of a participating employee, the beneficiary will receive any stock or
cash credited to the deceased participant under the employee stock purchase
plan. In the absence of a validly designated beneficiary, such common stock or
cash will be delivered to the executor or administrator of the estate of the
participant. No beneficiary shall, prior to the death of the participant by whom
he or she has been designated, acquire any interest in the common stock or cash
credited to the participant under the employee stock purchase plan.
20
AMENDMENT OF THE 1996 EMPLOYEE STOCK PURCHASE PLAN
The board of directors may at any time terminate or amend the plan. No such
termination shall affect options previously granted, nor may an amendment make
any change in any option theretofore granted which would adversely affect the
rights of any participant holding options under the plan.
FEDERAL INCOME TAX INFORMATION WITH RESPECT TO THE 1996 EMPLOYEE STOCK
PURCHASE PLAN
The following discussion is intended only as a brief overview of certain of
the current federal income tax laws applicable to the 1996 Employee Stock
Purchase Plan. Employees should consult their tax advisors concerning their own
federal income tax situations, as well as concerning state tax aspects of the
acquisition of shares of Common Stock pursuant to the plan. No state tax matters
are addressed in the following discussion.
If an employee acquires shares under the 1996 Employee Stock Purchase Plan
and does not dispose of them within two years after the commencement of the
offering pursuant to which the shares were acquired, nor within one year after
the date on which the shares were acquired, any gain realized upon subsequent
disposition will be taxable as a long-term capital gain, except that the portion
of such gain equal to the lesser of (a) the excess of the fair market value of
the shares on the date of disposition over the amount paid upon purchase of the
shares, or (b) the excess of the fair market value of the shares on the offering
commencement date over the amount paid upon purchase of the shares, is taxable
as ordinary income. There is no corresponding deduction for Aware, however. If
the employee disposes of the shares at a price less than the price at which he
or she acquired the shares, the employee realizes no ordinary income and has a
long-term capital loss measured by the difference between the purchase price and
the selling price.
If an employee disposes of shares acquired pursuant to the 1996 Employee
Stock Purchase Plan within two years after the commencement date of the offering
pursuant to which the shares were acquired, or within one year after the date on
which the shares were acquired, the difference between the purchase price and
the fair market value of the shares at the time of purchase will be taxable to
him or her as ordinary income in the year of disposition. In this event, Aware
may deduct from its gross income an amount equal to the amount treated as
ordinary income to each such employee. Any excess of the selling price over the
fair market value at the time the employee purchased the shares will be taxable
as long-term or short-term capital gain, depending upon the period for which the
shares were held. If any shares are disposed of within either the two-year or
one-year period at a price less than the fair market value at the time of
purchase, the same amount of ordinary income (i.e., the difference between the
purchase price and the fair market value of the shares at the time of purchase)
is realized, and a capital loss is recognized equal to the difference between
the fair market value of the shares at the time of purchase and the selling
price.
If a participating employee should die while owning shares acquired under
the 1996 Employee Stock Purchase Plan, ordinary income may be reportable on his
or her final income tax return.
21
The 1996 Employee Stock Purchase 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.
NEW PLAN BENEFITS
If the stockholders approve Proposal 2, 350,000 shares of Aware common
stock will be authorized for issuance under the plan. Because participation in
the plan is voluntary, we are unable to determine the dollar value and number of
shares or amounts that will be received by or allocated to any of the plan
participants as a result of the increase in the number of shares subject to
purchase under the plan. If the proposed amendment had been in effect in 2002,
it would not have affected the number of shares received by or allocated to
participants in that year.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Aware's
executive officers and directors, as well as persons who beneficially own more
than ten percent of Aware's common stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Regulations of
the SEC require these executive officers, directors and stockholders to furnish
Aware with copies of all Section 16(a) forms they file.
Based solely upon a review of the Forms 3, 4 and 5 and amendments thereto
furnished to Aware with respect to 2002, or written representations that Form 5
was not required for 2002, Aware believes that all Section 16(a) filing
requirements applicable to its executive officers, directors and
greater-than-ten-percent stockholders were fulfilled in a timely manner.
INDEPENDENT ACCOUNTANTS
The board of directors has selected PricewaterhouseCoopers LLP as
independent accountants to audit the financial statements of Aware for the year
ending December 31, 2003. PricewaterhouseCoopers LLP has served as Aware's
principal independent accountants since May, 1999.
FEES FOR PROFESSIONAL SERVICES
The following table provides the fees Aware paid to PricewaterhouseCoopers
LLP for professional services rendered for 2002. Audit fees consist of fees for
services rendered by PricewaterhouseCoopers LLP in connection with their audit
of Aware's annual financial statements and their review of Aware's interim
financial statements included in Aware's quarterly reports on Form 10-Q for
2002.
AUDIT FEES ........................................................ $98,750
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES ...... 0
ALL OTHER FEES .................................................... 26,750*
* Includes an audit of Aware's 401(k) plan.
ATTENDANCE AT ANNUAL MEETING
Aware expects that representatives of PricewaterhouseCoopers LLP will be
present at the annual meeting. They will have an opportunity to make a statement
if they desire to do so and will be available to respond to appropriate
questions from stockholders.
22
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 16, 2003.
If any stockholder would like to submit a proposal for that meeting outside the
processes of Rule 14a-8, notice of the proposal will be considered untimely
under Rule 14a-4(c)(1) if Aware receives the notice after March 1, 2004.
AVAILABLE INFORMATION
STOCKHOLDERS OF RECORD ON APRIL 1, 2003 WILL RECEIVE COPIES OF THIS PROXY
STATEMENT AND AWARE'S 2002 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.
23
ANNEX A
AWARE, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
(as amended May 27, 1998 and February 21, 2003)
1. PURPOSE
The 1996 Aware, Inc. Employee Stock Purchase Plan (the "Plan") is
intended to provide a method whereby employees of Aware, Inc. (the "Company")
will have an opportunity to acquire an ownership interest (or increase an
existing ownership interest) in the Company through the purchase of shares of
the Common Stock of the Company. It is the intention of the Company that the
Plan qualify as an "employee stock purchase plan" under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the
Plan shall, accordingly, be construed so as to extend and limit participation in
a manner consistent with the requirements of that section of the Code.
2. DEFINITIONS
(a) "Board" means the Board of Directors of the Company.
(b) "Code" shall have the meaning set forth in Paragraph 1.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Common Stock" means the common stock, par value $.01 per
share, of the Company.
(e) "Company" shall also include any Subsidiary (as hereinafter
defined) of Aware, Inc. designated as a participant in the Plan by the Board,
unless the context otherwise requires.
(f) "Compensation" means, for the purpose of any Offering pursuant
to this Plan, base pay in effect as of the Offering Commencement Date (as
hereinafter defined). Compensation shall not include any deferred compensation
other than contributions by an individual through a salary reduction agreement
to a cash or deferred plan pursuant to Section 401(k) of the Code or to a
cafeteria plan pursuant to Section 125 of the Code.
(g) "Employee" means any person who is customarily employed by the
Company for more than 20 hours per week and more than five months in any
calendar year.
(h) "Offering" shall have the meaning set forth in Paragraph 4.
(i) "Offering Commencement Date" shall have the meaning set forth
in Paragraph 4.
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(j) "Offering Termination Date" shall have the meaning set forth in
Paragraph 4.
(k) "Plan" shall have the meaning set forth in Paragraph 1.
(l) "Subsidiary" shall mean any present or future corporation which
is or would constitute a "subsidiary corporation" as that term is defined in
Section 425 of the Code.
3. ELIGIBILITY
(a) Participation in the Plan is completely voluntary.
Participation in any one or more of the Offerings under the Plan shall neither
limit, nor require, participation in any other Offering (as hereinafter
defined).
(b) Each employee of the Company shall be eligible to participate
in the Plan on the first Offering Commencement Date, as hereinafter defined,
following the completion of six months of continuous service with the Company.
Notwithstanding the foregoing, no employee shall be granted an option under the
Plan:
(i) if, immediately after the grant, such employee would
own stock, and/or hold outstanding options to purchase stock, possessing 5% or
more of the total combined voting power or value of all classes of stock of the
Company or any Subsidiary; for purposes of this Paragraph, the rules of Section
424(d) of the Code shall apply in determining the stock ownership of any
employee;
(ii) which permits his rights to purchase stock under
all Section 423 employee stock purchase plans of the Company and its
Subsidiaries to exceed $25,000 of the fair market value of the stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8)
of the Code shall apply; or
(iii) which permits his rights to purchase stock under all
Section 423 employee stock purchase plans of the Company and its Subsidiaries to
exceed 1,000 shares of Common Stock during any single Offering.
4. OFFERING DATES
The right to purchase stock hereunder shall be made available by a
series of six-month offerings (the "Offering" or "Offerings") to employees
eligible in accordance with Paragraph 3 hereof. The Committee will, in its
discretion, determine the applicable date of commencement ("Offering
Commencement Date") and termination date ("Offering Termination Date") for each
Offering. Participation in any one or more of the Offerings under the Plan shall
neither limit, nor require, participation in any other Offering.
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5. PARTICIPATION
Any eligible employee may become a participant by completing a
payroll deduction authorization form provided by the Company and filing it with
the Company's Treasurer 20 days prior to each applicable Offering Commencement
Date, as determined by the Committee pursuant to Paragraph 4.
6. PAYROLL DEDUCTIONS
(a) At the time a participant files an authorization for a payroll
deduction, the participant shall elect to have deductions made from his or her
pay on each payday during any Offering in which he or she is a participant, at a
specified percentage of his or her Compensation as determined on the applicable
Offering Commencement Date; said percentage shall be in increments of one
percent up to a maximum percentage of six percent.
(b) Payroll deductions for a participant shall commence on the
Offering Commencement Date when the applicable authorization for a payroll
deduction becomes effective and shall end on the Offering Termination Date of
the Offering to which such authorization is applicable, unless sooner terminated
by the participant as provided in Paragraph 9.
(c) All payroll deductions made for a participant shall be credited
to his or her account under the Plan. A participant may not make any separate
cash payment into such account.
(d) A participant may withdraw from the Plan at any time during the
applicable Offering period; provided, however, that a participant who is an
officer or director of the Company and who withdraws from the Plan during any
Offering period will not be eligible for the grant of any subsequent option
under the Plan for a period of six months.
7. GRANTING OF OPTION
(a) Except as set forth in Paragraph 7(c) hereof, on the Offering
Commencement Date of each Offering, a participating employee shall be deemed to
have been granted an option to purchase a maximum number of shares of the Common
Stock equal to an amount determined as follows: (i) 85% of the market value per
share of the Common Stock on the applicable Offering Commencement Date shall be
divided into an amount equal to the sum of (x) the percentage of the employee's
Compensation which he or she has elected to have withheld (multiplied by the
employee's Compensation over the Offering period) plus (y) any amounts in the
employee's account on the Offering Commencement Date that have been carried
forward from prior Offerings; multiplied by (ii) two. Such market value per
share of the Common Stock shall be determined as provided in clause (i) of
Paragraph 7(b).
(b) The option price of the Common Stock purchased with payroll
deductions made during each such Offering for a participant therein shall be the
lower of:
(i) 85% of the average of the bid and the asked prices as
reported by the Nasdaq Stock Market in the Wall Street Journal, or, if the
Common Stock is designated as a
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national market security by the National Association of Securities Dealers, Inc.
("NASD"), the last trading price of the Common Stock as reported by the Nasdaq
National Market System in the Wall Street Journal, or, if the Common Stock is
listed on an exchange, the closing price of the Common Stock on the exchange on
the Offering Commencement Date applicable to such Offering (or on the next
regular business date on which shares of the Common Stock shall be traded, in
the event that no shares of the Common Stock have been traded on the Offering
Commencement Date); or if the Common Stock is not quoted on Nasdaq, not
designated as a Nasdaq national market security and not listed on an exchange,
85% of the fair market value on the Offering Commencement Date as determined by
the Committee; and
(ii) 85% of the average of the bid and the asked prices as
reported by Nasdaq in the Wall Street Journal, or, if the Common Stock is
designated as a national market security by the NASD, the last trading price of
the Common Stock as reported by the Nasdaq National Market System in the Wall
Street Journal, or, if the Common Stock is listed on an exchange, the closing
price of the Common Stock on the exchange on the Offering Termination Date
applicable to such Offering (or on the next regular business date on which
shares of the Common Stock shall be traded, in the event that no shares of the
Common Stock shall have been traded on the Offering Termination Date); or if the
Common Stock is not quoted on Nasdaq, not designated as a Nasdaq national market
security and not listed on an exchange, 85% of the fair market value on the
Offering Termination Date as determined by the Committee.
(c) A participant who is an officer or director of the Company and
who elects pursuant to Paragraph 8(a) with respect to any Offering not to
exercise an option deemed to have been granted pursuant to this Paragraph 7,
shall not be eligible for the grant of an option hereunder for a period of six
months.
8. EXERCISE OF OPTION
(a) Unless a participant gives written notice to the Treasurer of
the Company as hereinafter provided, his or her option for the purchase of
Common Stock with payroll deductions made during any Offering will be deemed to
have been exercised automatically on the Offering Termination Date applicable to
such Offering for the purchase of the number of full shares of Common Stock
which the accumulated payroll deductions in his or her account at that time
(plus any amounts in his or her account that have been carried forward from
prior Offerings) will purchase at the applicable option price (but not in excess
of the number of shares for which options have been granted to the employee,
pursuant to Paragraph 7(a)), and any excess in his account at that time, other
than amounts representing fractional shares, will be returned to him.
(b) Fractional shares will not be issued under the Plan and any
accumulated payroll deductions which would have been used to purchase fractional
shares shall be automatically carried forward to the next Offering unless the
participant elects, by written notice to the Treasurer of the Company, to have
the excess cash returned to the participant.
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9. WITHDRAWAL AND TERMINATION
(a) Prior to the Offering Termination Date for an Offering, any
participant may withdraw the payroll deductions credited to his or her account
under the Plan for such Offering by giving written notice to the Treasurer of
the Company. All of the participant's payroll deductions credited to such
account will be paid to the participant promptly after receipt of notice of
withdrawal, without interest, and no future payroll deductions will be made from
his or her pay during such Offering. The Company will treat any attempt to
borrow by a participant on the security of accumulated payroll deductions as an
election to withdraw such deductions.
(b) Except as set forth in Paragraphs 6(d) and 7(c), a
participant's election not to participate in, or withdrawal from, any Offering
will not have any effect upon his or her eligibility to participate in any
succeeding Offering or in any similar plan which may hereafter be adopted by the
Company.
(c) Upon termination of the participant's employment for any
reason, including retirement but excluding death, the payroll deductions
credited to his or her account will be returned to the participant, or, in the
case of his or her death, to the person or persons entitled thereto under
Paragraph 13.
(d) Upon termination of the participant's employment because of
death, his or her beneficiary (as defined in Paragraph 13) shall have the right
to elect, by written notice given to the Company's Treasurer prior to the
expiration of a period of 90 days commencing with the date of the death of the
participant, either:
(i) to withdraw all of the payroll deductions credited to
the participant's account under the Plan; or
(ii) to exercise the participant's option for the purchase
of stock on the Offering Termination Date next following the date of the
participant's death for the purchase of the number of full shares which the
accumulated payroll deductions in the participant's account at the date of the
participant's death will purchase at the applicable option price (subject to the
limitation contained in Paragraph 7(a)), and any excess in such account will be
returned to said beneficiary. In the event that no such written notice of
election shall be duly received by the office of the Company's Treasurer, the
beneficiary shall automatically be deemed to have elected to withdraw the
payroll deductions credited to the participant's account at the date of the
participant's death and the same will be paid promptly to said beneficiary.
10. INTEREST
No interest will be paid or allowed on any money paid into the Plan
or credited to the account of any participating employee.
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11. STOCK
(a) The maximum number of shares of Common Stock available for
issuance and purchase by employees under the Plan, subject to adjustment upon
changes in capitalization of the Company as provided in Paragraph 16, shall be
350,000 shares of Common Stock, $.01 par value per share, of the Company. If the
total number of shares for which options are exercised on any Offering
Termination Date in accordance with Paragraph 8 exceeds the number of shares
that remain available for issuance and purchase by employees under the Plan, the
Company shall make a PRO RATA allocation of the shares available for delivery
and distribution in an equitable manner, with the balances of payroll deductions
credited to the account of each participant under the Plan carried forward to
the next Offering or returned to the participant at his or her discretion, by
giving written notice to the Treasurer to this effect.
(b) The participant will have no interest in the stock covered by
his or her option until such option has been exercised.
12. ADMINISTRATION
The Plan shall be administered by the Committee. The interpretation
and construction of any provision of the Plan and adoption of rules and
regulations for administering the Plan shall be made by the Committee.
Determinations made by the Committee with respect to any matter or provision
contained in the Plan shall be final, conclusive and binding upon the Company
and upon all participants, their heirs or legal representatives. Any rule or
regulation adopted by the Committee shall remain in full force and effect unless
and until altered, amended, or repealed by the Committee.
13. DESIGNATION OF BENEFICIARY
A participant shall file with the Treasurer of the Company a
written designation of a beneficiary who is to receive any Common Stock and/or
cash under the Plan. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence of a
beneficiary validly designated by the participant under the Plan, the Company
shall deliver such Common Stock and/or cash to such beneficiary. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such Common Stock and/or cash to the executor or
administrator of the estate of the participant. No beneficiary shall, prior to
the death of the participant by whom he or she has been designated, acquire any
interest in the Common Stock and/or cash credited to the participant under the
Plan.
14. TRANSFERABILITY
Neither payroll deductions credited to a participant's account nor
any rights with regard to the exercise of an option or to receive Common Stock
under the Plan may be assigned, transferred, pledged, or otherwise disposed of
in any way by the participant other than by will or the laws of descent and
distribution. Any such attempted assignment, transfer, pledge, or other
A-6
disposition shall be without effect, except that the Company may treat such act
as an election to withdraw funds in accordance with Paragraph 8(b).
15. USE OF FUNDS
All payroll deductions received or held by the Company under this
Plan may be used by the Company for any corporate purpose, and the Company shall
not be obligated to segregate such payroll deductions.
16. EFFECT OF CHANGES OF COMMON STOCK
If the Company shall subdivide or reclassify the Common Stock which
has been or may be optioned under this Plan, or shall declare thereon any
dividend payable in shares of such Common Stock, or shall take any other action
of a similar nature affecting such Common Stock, then the number and class of
shares of Common Stock which may thereafter be optioned (in the aggregate and to
any participant) shall be adjusted accordingly and in the case of each option
outstanding at the time of any such action, the number and class of shares which
may thereafter be purchased pursuant to such option and the option price per
share shall be adjusted to such extent as may be determined by the Committee,
following consultation with the Company's independent public accountants and
counsel, to be necessary to preserve the rights of the holder of such option.
17. AMENDMENT OR TERMINATION
The Board may at any time terminate or amend the Plan. No such
termination shall affect options previously granted, nor may an amendment make
any change in any option theretofore granted which would adversely affect the
rights of any participant holding options under the Plan.
18. NOTICES
All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received by the Treasurer of the Company.
19. MERGER OR CONSOLIDATION
If the Company shall at any time merge into or consolidate with
another corporation, the holder of each option then outstanding will thereafter
be entitled to receive at the next Offering Termination Date, upon the exercise
of such option and for each share as to which such option shall be exercised,
the securities or property which a holder of one share of the Common Stock was
entitled to upon and at the time of such merger or consolidation. In accordance
with this Paragraph and Paragraph 16, the Committee shall determine the kind and
amount of such securities or property which such holder of an option shall be
entitled to receive. A sale of all or substantially all of the assets of the
Company shall be deemed a merger or consolidation for the foregoing purposes.
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20. APPROVAL OF STOCKHOLDERS
The Plan is subject to the approval of the stockholders of the
Company by written consent or at their next annual meeting or at any special
meeting of the stockholders for which one of the purposes of such a special
meeting shall be to act upon the Plan.
21. GOVERNMENTAL AND OTHER REGULATIONS
The Plan, and the grant and exercise of the rights to purchase
shares hereunder, and the Company's obligation to sell and deliver shares upon
the exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may, in the opinion of counsel for the
Company, be required. The Plan shall be governed by, and construed and enforced
in accordance with, the provisions of Sections 421, 423 and 424 of the Code and
the substantive laws of the Commonwealth of Massachusetts. In the event of any
inconsistency between such provisions of the Code and any such laws, said
provisions of the Code shall govern to the extent necessary to preserve the
favorable federal income tax treatment afforded employee stock purchase plans
under Section 423 of the Code.
* * *
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AWARE, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 29, 2003.
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 29, 2003, beginning at 10:00 A.M., local time, and at any
adjournments thereof, upon matters set forth in the Notice of Annual Meeting of
Stockholders dated April 15, 2003 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?
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Please complete and return the proxy card below.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AWARE, INC.
A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS NEED ONLY SIGN AND DATE
THIS PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
DETACH HERE
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[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
------------------------
AWARE, INC.
------------------------
1. To elect Michael A. Tzannes and G. David Forney, Jr. as Class I directors
of the Company.
[ ] FOR ALL NOMINEES
[ ] WITHHELD FROM ALL NOMINEES
[ ]:________________________________
FOR ALL NOMINEES EXCEPT AS WRITTEN ABOVE
2. To approve an amendment to the Company's 1996 Employee Stock Purchase Plan
to increase the number of shares of common stock authorized for issuance
under the plan from 100,000 to 350,000 shares.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
RECORD DATE SHARES:
Mark box at right if you plan to attend the Annual Meeting. [ ]
Mark box at right if an address change or comment has been noted on [ ]
the reverse side of this card.
Please be sure to sign and date this Proxy. Date
-------------------
------------------------------ ------------------------------
Stockholder sign here Co-owner sign here
DETACH CARD DETACH CARD
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