Aware,
Inc.
Notice
of Annual Meeting of Stockholders
to
be held on May 21, 2008
Aware,
Inc. hereby gives notice that it will hold its annual meeting of stockholders at
the Bedford Glen Hotel, 44 Middlesex Turnpike, Bedford, Massachusetts on
Wednesday, May 21, 2008, beginning at 10:00 a.m., local time, for the following
purposes:
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1.
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To
consider and vote upon the election of two Class III
directors;
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2.
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To
transact such other business as may properly come before the annual
meeting or any adjournment thereof.
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The board
of directors has fixed the close of business on April 3, 2008 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.
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By order of the
board of directors, |
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/s/ Michael A.
Tzannes |
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Michael A.
Tzannes |
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Chief Executive
Officer |
April 4,
2008
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 21, 2008
This
proxy statement relates to the 2008 annual meeting of stockholders of Aware,
Inc. The annual meeting will take place as follows:
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Date:
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May
21, 2008
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Time:
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10:00
a.m
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Place:
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Bedford
Glen Hotel
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44
Middlesex Turnpike
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Bedford,
Massachusetts
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The board
of directors of Aware is soliciting proxies for the annual meeting and
adjournments of the annual meeting. If a stockholder returns a
properly executed proxy, the shares represented by the proxy will be voted in
accordance with the stockholder’s directions. If a stockholder does
not specify a vote on any proposal, the shares covered by his or her proxy will
be voted on that proposal as management recommends. Aware encourages
its stockholders to vote on all proposals. A stockholder may revoke
its proxy at any time before it has been exercised.
Aware is
mailing this proxy statement and the enclosed form of proxy to stockholders on
or about April 10, 2008.
table
of contents
Annual
Meeting of Stockholders
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3
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Purpose of the annual
meeting
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3
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Record date
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3
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Quorum
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3
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Vote required; tabulation of
votes
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3
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Revocation of
proxies
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4
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Solicitation of
proxies
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4
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Matters
To Be Considered At The Annual Meeting
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4
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Proposal—Election
of Directors
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4
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Corporate
Governance
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5
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Directors
and Executive Officers
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6
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Directors and executive
officers
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6
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Certain relationships and related
transacations
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8
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Committees and meetings of the
board
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9
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Policy regarding board
attendance
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10
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Communications with our board of
directors
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11
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Code of ethics
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11
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Compensation committee interlocks
and insider participation
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11
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Compensation
of Executive Officers and Directors
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11
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Compensation
Discussion and Analysis
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11
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Compensation
Committee Report
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17
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Executive
Compensation
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18
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Director
Compensation
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21
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Report
of the Audit Committee
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23
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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25
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Principal
stockholders
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25
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Equity compensation plan
information
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Notice
of Amendments to By-Laws
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28
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Section
16(a) Beneficial Ownership Reporting Compliance
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31
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Independent
Accountants
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32
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Fees for professional
services
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32
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Attendance at annual
meeting
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32
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Pre-approval policies and
procedures
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33
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Stockholder
Proposals
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33
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Available
Information
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Annex
A - Audit Committee Charter
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A-1
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Annex
B - Compensation Committee Charter
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B-1
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ANNUAL
MEETING OF STOCKHOLDERS
Purpose
of the annual meeting
At the
annual meeting, Aware will submit one proposal to the stockholders:
Proposal: To
elect two Class III directors for three-year terms.
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 3, 2008 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 23,914,966 shares
of Aware’s common stock, which are entitled to cast 23,914,966
votes. A list of stockholders entitled to notice of the 2008 annual
meeting is available for inspection by any stockholder at our principal office
at 40 Middlesex Turnpike, Bedford, MA.
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
The
election of each Class III 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.
Aware’s
transfer agent, Computershare Trust Co., Inc., will tabulate the votes at the
annual meeting. Computershare 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:
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by
giving written notice of revocation to the Secretary of Aware at the
following address:
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Aware,
Inc.
40
Middlesex Turnpike
Bedford,
Massachusetts 01730
Attention: Secretary
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by
signing and returning another proxy with a later date;
or
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by
attending the annual meeting and informing the Secretary of Aware in
writing that he or she wishes to vote in
person.
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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—ELECTION
OF DIRECTORS
The board
of directors, upon the recommendation of the nominating and corporate governance
committee, has nominated for election as Class III directors Edmund C. Reiter
and Adrian F. Kruse, each of whom is currently a Class III director of
Aware. Mr. Reiter serves as Aware’s president. The
directors elected at the annual meeting will hold office until the annual
meeting of stockholders in 2011 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 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
Edmund C. Reiter and Adrian F. Kruse, as Class III directors of
Aware.
CORPORATE
GOVERNANCE
In
designing its corporate governance structure, Aware seeks to identify and
implement the best practices that will serve the interests of Aware’s business
and stockholders, including practices mandated by the Sarbanes-Oxley Act of 2002
and related rules of the Securities and Exchange Commission and the Nasdaq Stock
Market. You can find Aware’s current corporate governance principles,
including Aware’s code of ethics and the charters for the standing committees of
Aware’s board of directors, on Aware’s website at www.aware.com. The
code of ethics applies to not only Aware’s principal executive officer,
principal financial officer and principal accounting officer, but also all other
employees, executive officers and directors of Aware. The code of
ethics includes, among other things, provisions covering compliance with laws
and regulations, conflicts of interest, insider trading, proper use of Aware’s
assets, confidentiality, discrimination and harassment, accounting and record
keeping, the reporting of illegal or unethical behavior, enforcement of the code
of ethics and discipline for violations of the code of ethics. Aware
intends to continue to modify its policies and practices to address ongoing
developments in the area of corporate governance. Many features
of Aware’s corporate governance principles are discussed in other sections of
this proxy statement. Some of the highlights of Aware’s corporate
governance principles are:
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Director and committee
independence. A majority of Aware’s directors are
independent directors under the rules of the Nasdaq Stock
Market. The board of directors has determined that Aware’s
independent directors are Frederick D. D’Alessio, G. David Forney, Jr.,
John K. Kerr , Mark G. McGrath and Adrian F. Kruse. On March
15, 2008, Frederick D. D’Alessio, a director of Aware since December 2002,
informed the board of Directors that he did not want to stand for election
for another term. Mr. D’Alessio’s tenure as a director of Aware
will end at the Annual Meeting of Stockholders on May 21,
2008. Each member of the audit committee, nominating and
corporate governance committee, and compensation committee meets the
independence requirements of the Nasdaq Stock Market for membership on the
committees on which he serves.
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Audit
committee. Aware’s audit committee is directly
responsible for appointing, compensating, overseeing, and, when necessary,
terminating Aware’s independent auditors. Aware’s independent auditors
report directly to the audit committee. The board of directors
has determined that Mr. Kruse is an audit committee financial expert under
the rules of the Securities and Exchange Commission. Prior
approval of the audit committee is required for all audit services and
non-audit services to be provided by Aware’s independent
auditors.
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Committee authority.
Aware’s audit committee, nominating and corporate governance
committee, and compensation committee each have the authority to retain
independent advisors and consultants, with all fees and expenses to be
paid by Aware.
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Whistleblower
procedures. Aware’s audit committee has adopted
procedures for the treatment of complaints regarding accounting, internal
accounting controls or auditing matters, including procedures for the
confidential and anonymous submission by Aware’s directors, officers and
employees of concerns regarding questionable accounting, internal
accounting controls or auditing
matters.
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DIRECTORS
AND EXECUTIVE OFFICERS
Directors
and executive officers
The
following table provides information regarding Aware’s directors and executive
officers as of March 31, 2008:
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John
K. Kerr
(1)(2)(3)(4)
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70
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Chairman
of the board of directors
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Michael
A. Tzannes
(1)
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46
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Chief
executive officer and director
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Edmund
C.
Reiter
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44
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President
and director
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Richard
P.
Moberg
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53
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Chief
financial officer
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Richard
W.
Gross
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50
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Senior
vice president—engineering
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Frederick
D. D’Alessio (2)(3)
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59
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Director
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G.
David Forney,
Jr.(3)(4)
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68
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Director
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Adrian
F. Kruse
(2)(4)
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68
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Director
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Mark
G. McGrath
(3)
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61
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Director
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_______________________________
(1) Member
of the executive committee
(2) Member
of the audit committee
(3) Member
of the compensation committee
(4) Member
of the nominating and corporate governance 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 was general partner of Grove Investment Partners, a
private investment partnership, until 2003. Mr. Kerr received an M.A.
and a B.A. from Baylor University.
Michael A. Tzannes has been
with Aware since 1990. He has served as Aware’s chief
executive officer since April 1998 and has served as a director of Aware since
March 1998. Mr. Tzannes was Aware’s president from April 1998 to
March 2001. From 1986 to 1990, he was a staff engineer at Signatron,
Inc. 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 been
with Aware since 1992. He has served as Aware’s president since March
2001 and as a director of Aware since December 1999. 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 has been
Aware’s chief financial officer since February 2008. Mr. Moberg
previously served as Aware’s chief financial officer from June 1996 to October
2003. Prior to rejoining Aware, Mr. Moberg served as chief financial
officer at Crossbeam Systems, Inc. from October 2003 to June
2006. From June 2006 to November 2007, Mr. Moberg served
as managing director at Fenway Consulting Group. From
January 2008 to February 2008, Mr. Moberg served as a consultant to Aware,
Inc. From December 1990 to June 1996, Mr. Moberg held a number of
positions at Lotus Development Corporation, 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 has been
with Aware since 1993. He has served as senior vice president of
engineering since July 1999. 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
been 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 currently serves as a director of Network Equipment Technologies and
SS8 Networks. 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.
G. David Forney, Jr. has been
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 prior to its acquisition by Motorola in
1977. Mr. Forney is currently 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.
Adrian F. Kruse has been a
director of Aware since October 2003. Mr. Kruse was an audit partner
of Ernst & Young LLP, serving clients principally in the financial services
industry, from 1976 until his retirement in March 1998. From 1967 to
1976, he served audit clients of Ernst & Young LLP in various
capacities. Mr. Kruse is a Certified Public Accountant and holds a
B.B.A. degree from the University of Wisconsin and a J.D. degree from the
University of Wisconsin School of Law. Mr. Kruse also serves as the
treasurer and as a director of the Presbyterian Homes and as a director of MEI,
Inc.
Mark G. McGrath has been a
director of Aware since September 2006. Mr. McGrath retired as a Director
of McKinsey & Company, a private management consulting firm, in December
2004, having served in that firm for twenty-seven years. Mr. McGrath led the
firm's Americas' Consumer Goods Practice from January 1998 until December 2003.
Mr. McGrath has served as a senior advisor with Gleacher Partners LLC, a firm
providing strategic advisory services to corporations, in a part time capacity
since January 2005. Mr. McGrath currently serves as a Director of
GATX Corporation, as a Director of the Lincoln Park Zoo, on the Advisory Council
for the University of Chicago's Graduate School of Business and on two Advisory
Councils at the University of Notre Dame:
the Kroc Peace Institute and as chair of the Kellogg International Studies
Institute. Mr. McGrath holds a B.B.A. in Accounting from the
University of Notre Dame and an M.B.A. in Finance from the University of
Chicago.
On March
15, 2008, Frederick D. D’Alessio, a director of Aware since December 2002,
informed the board of Directors that he did not want to stand for election for
another term. Mr. D’Alessio’s tenure as a director of Aware will end
at the Annual Meeting of Stockholders on May 21, 2008. Keith E.
Farris, the chief financial officer of Aware since April 2006, resigned from his
position as chief financial officer of Aware on February 15, 2008. Mr. Farris
was replaced by Richard P. Moberg who joined the Company as its chief financial
officer and treasurer on February 15, 2008.
The board
of directors is divided into three classes, referred to as Class I, Class II and
Class III, each consisting of approximately one-third of the
directors. One class is elected each year at the annual meeting of
stockholders to hold office for a term of three years and until their respective
successors have been duly elected and qualified. The number of
directors has been fixed at seven, and there are currently no vacancies on the
board of directors. The current terms of Messrs. Tzannes and Forney,
Aware’s Class I directors, will expire at the annual meeting to be held in 2009.
The current term of Messrs. Kerr and McGrath, Aware’s Class II directors, will
expire at the annual meeting to be held in 2010. The current terms of
Messrs. D’Alessio, Kruse, and Reiter, Aware’s Class III directors, will expire
at the annual meeting to be held on May 21, 2008.
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.
Certain
relationships and related transactions
In March
2007, the Board formally adopted a written policy with respect to related person
transactions to document procedures pursuant to which such transactions are
reviewed and approved. The policy applies to any transaction in which
(1) the Company is a participant, (2) any related person has a direct
or indirect material interest and (3) the amount involved exceeds $120,000,
but excludes any transactions available to all employees or shareholders of the
Company on the same terms. The Audit Committee, with assistance from
the Company’s General Counsel, is responsible for reviewing and approving any
related person transaction. The policy requires that the Audit Committee must
approve any related party transaction subject to the policy before commencement
of the related party transaction. The policy states that the
Audit Committee will approve only those related person transactions that
the Audit Committee determines are beneficial to the Company and the terms of
which are fair to the Company.
In 2007,
the Company had two transactions with related persons. Marcos
Tzannes, the brother of Michael Tzannes, Aware’s CEO, has been employed by Aware
since February 8, 1993 and currently serves in the role of Vice President,
Strategic Technology. In 2007, Marcos Tzannes’ total compensation was $255,021
which included salary based upon his position within the Company, background and
years of experience, income from the exercise and sale of company stock pursuant
to the Company stock option plans, the value of stock options granted pursuant
to the Company stock option plans (based on a Black-Scholes value), the value of
an unrestricted stock award as part of an employee unrestricted stock award
program and company contributions for standard company
benefits. Alexis Tzannes, the brother of Michael Tzannes, Aware’s
CEO, has been employed by Aware since August 2, 1999 and currently serves in the
role of Principal Engineer. In 2007, Alexis Tzannes’ total
compensation was $134,964 which included salary based upon his position within
the Company, background and years of experience, the value of stock options
granted pursuant to the Company stock option plans (based on a Black-Scholes
value), the value of an unrestricted stock award as part of an employee
unrestricted stock award program, and company contributions for standard company
benefits. The FAS 123(R) compensation expense recorded in 2007 for Marcos
Tzannes was $12,579 and for Alexis Tzannes was $5,873.
Committees
and meetings of the board
During
2007, the board of directors met five times and took action by written consent
four times. 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 and corporate governance
committee.
Executive
Committee. 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
secretary; 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. In 2007, the executive committee met
once and took no action by written consent.
Compensation
Committee. Aware’s compensation committee is currently
composed of four outside directors, Frederick D. D’Alessio, G. David Forney,
Jr., Mark G. McGrath and John K. Kerr who serves as chairman. On
March 18, 2008, Mark G. McGrath was appointed chairman of the compensation
committee, effective after the Annual Meeting of Stockholders on May 21,
2008. In 2007, the compensation committee held five meetings and took
action by written consent six times. In March 2004, Aware’s board of
directors adopted a Compensation Committee Charter, which it amended in March
2007. The Compensation Committee Charter, as amended, is available on
Aware’s website at www.aware.com.
Audit
Committee. Aware’s audit committee is currently composed of
Frederick D. D’Alessio, John K. Kerr and Adrian F. Kruse who serves as
chairman. On March 18, 2008, Mark G. McGrath was appointed to the
audit committee, effective after the Annual Meeting of Stockholders on May 21,
2008. Aware’s board of directors has determined that Mr. Kruse is an
audit committee financial expert under Securities and Exchange Commission
rules. In 2007, the audit committee met seven times and took action
by written consent once. In March, 2004, Aware’s board of directors adopted a
new Audit Committee Charter, which is available on Aware’s website at
www.aware.com.
Nominating and Corporate Governance
Committee. Aware’s nominating and corporate governance
committee is currently composed of three outside directors, John K. Kerr, Adrian
F. Kruse and G. David Forney, Jr. who serves as chairman. In 2007,
the nominating and corporate governance committee held two meetings and took no
action by written consent. In March 2004, Aware’s board of directors
adopted a Nominating and Corporate Governance Committee Charter, which is
available on Aware’s website at www.aware.com.
The
nominating and corporate governance committee, in consultation with our chief
executive officer and the chairman of the board, identifies and reviews
candidates for our board of directors and recommends to our full board
candidates for election to our board. In selecting new directors, the
committee considers any requirements of applicable law or listing standards, a
candidate’s strength of character, judgment, business experience and specific
area of expertise, factors relating to the composition of the board (including
its size and structure), principles of diversity, and such other factors as the
committee shall deem appropriate.
The
committee reviews from time to time the appropriate skills and characteristics
required of board members in the context of the current make-up of the board,
including such factors as business experience, diversity, and personal skills in
technology, finance, marketing, international business, financial reporting and
other areas that contribute to an effective board.
The
committee, in consultation with our chief executive officer and the chairman of
the board, considers and recruits candidates to fill positions on the board,
including as a result of the removal, resignation or retirement of any director,
an increase in the size of the board or otherwise. The committee also
reviews any candidate recommended by stockholders of Aware in light of the
committee’s criteria for selection of new directors. Stockholders may
make nominations for the election of directors by delivering notice in writing
to the Secretary 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. As part of this responsibility, the committee is
responsible for conducting, subject to applicable law, any and all inquiries
into the background and qualifications of any candidate for the board and such
candidate’s compliance with the independence and other qualification
requirements established by the committee or imposed by applicable law or
listing standards.
The
Committee also develops and recommends to the Board governance principles
applicable to the Company and is responsible for leading an annual review of the
performance of both the Board as a whole and its individual
members. The annual Board review took place in December
2007.
Policy
regarding board attendance
To the
extent reasonably practicable, directors are expected to attend board meetings
and meetings of committees on which they serve. Directors are
encouraged to attend Aware’s annual meeting of stockholders. Last
year, all but one of our directors attended the annual meeting.
Communications
with our board of directors
Aware’s
board of directors has established the following process for stockholders to
communicate directly with the board, and this process has been approved by a
majority of Aware’s independent directors. Stockholders wishing to
communicate with the board of directors should send correspondence to the
attention of the Chairman of the Board at Aware, Inc., 40 Middlesex Turnpike,
Bedford, Massachusetts 01730, and should include with the correspondence
evidence that the sender of the communication is one of Aware’s
stockholders. Satisfactory evidence would include, for example,
contemporaneous correspondence from a brokerage firm indicating the identity of
the stockholder and the number of shares held. Aware’s chairman will
review all correspondence confirmed to be from stockholders and decide whether
or not to forward the correspondence or a summary of the correspondence to the
board or a committee of the board. Accordingly, Aware’s chairman will
review all stockholder correspondence, but the decision to relay that
correspondence to the board or a committee of the board will rest entirely
within his discretion.
Code
of ethics
Aware has
adopted a code of ethics that applies to all employees, officers and
directors. The code of ethics also contains special ethical
obligations which apply to employees with financial reporting responsibilities,
including Aware’s principal executive officer, principal financial officer and
principal accounting officer. Aware’s code of ethics includes, among
other things, provisions covering compliance with laws and regulations,
conflicts of interest, insider trading, proper use of Aware’s assets,
confidentiality, discrimination and harassment, accounting and record keeping,
the reporting of illegal or unethical behavior, enforcement of the code of
ethics and discipline for violations of the code of ethics. Aware’s code of
ethics is available on Aware’s website at www.aware.com. Any waiver
of any provision of the code of ethics granted to an executive officer or
director may only be made by the board of directors and will be promptly
disclosed on our website at www.aware.com.
Compensation
committee interlocks and insider participation
Aware’s
compensation committee is currently composed of Messrs. D’Alessio, Forney,
McGrath and Kerr. Mr. Kerr formerly served as Aware’s assistant vice
president of marketing from June 1992 to November 1994. In 2007, 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 2007.
COMPENSATION
OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION
DISCUSSION AND ANALYSIS
Overview. The
Compensation Committee has the responsibility to review the performance and
development of Company management in achieving corporate goals and objectives
and to assure that senior executives of the Company are compensated effectively
in a manner consistent with the strategy of the Company, competitive practice,
and the requirements of the appropriate regulatory bodies. Toward
that end, the Compensation Committee oversees, reviews and administers all
compensation, equity and employee benefit plans and programs. The
Compensation Committee is responsible for reviewing annually and determining the
individual elements of total compensation for the Company’s chief executive
officer and all other corporate officers. The Compensation Committee may
delegate any of its responsibilities to a subcommittee of one or more members of
the Committee, the chief executive officer or to a committee of senior executive
officers when appropriate and consistent with applicable law. The
Compensation Committee acts pursuant to a charter that has been approved by the
board of directors.
Compensation
program objectives. The objectives
of the Company’s executive compensation programs are to attract, motivate and
retain executives who drive the Company’s success and to assure that senior
executives of the Company are compensated effectively in a manner consistent
with the strategy of the Company, competitive practice, and the requirements of
appropriate regulatory bodies. The executive compensation programs
are designed to reward individuals for advancing business strategies, further
developing the Company and its people, and the achievement of individual and
Company performance goals. In 2007, the Compensation Committee took into
consideration the Company’s achievement of certain financial and operational
goals in determining the potential bonus for Michael A. Tzannes, the Company’s
chief executive officer, Edmund C. Reiter, the Company’s president, Keith E.
Farris, the Company’s chief financial officer and Richard W. Gross, the
Company’s senior vice president of engineering. The Compensation
Committee also takes into consideration the individual’s performance in
determining the compensation elements for each of the Company’s Named Executive
Officers.
Role of executive
officers in determining executive compensation. The Company’s
CEO assists the Compensation Committee in determining executive compensation
including recommendations for executive officer compensation. The
Compensation Committee makes the final determination on executive compensation
for all the Company’s executives, including the Named Executive Officers shown
in the tables under Executive Compensation.
Corporate
performance goals. The Company utilizes corporate performance
goals in reviewing the overall compensation for executives. More
specifically, the Company utilizes corporate performance goals primarily in
determining the amount of the cash incentive award to give to
executives. The Company structures the cash incentive award program
to executives based upon a percentage attainment of certain corporate
performance goals. During 2007, the Company’s achievement of revenue
growth and certain earnings targets were deemed key
corporate performance goals and represented seventy percent (70%) of
the potential cash incentive compensation for the eligible executives. The
remaining thirty percent (30%) of the potential cash incentive compensation for
the eligible executives was based upon the attainment of certain operational
goals specific to each executive. The Compensation Committee may in
its discretion increase or reduce awards or payments based upon executive
performance. For 2008, the Compensation Committee has determined that
reaching certain operational targets and/or certain financial targets such as
revenue, operating income and/or earnings per share are key corporate
performance goals.
Option grant
timing/pricing. The Company’s practice with regard to the
granting of stock options is to typically grant stock options in the following
circumstances: 1) at regularly scheduled board meetings; 2) upon the new hire of
certain employees or directors; 3) subsequent to the annual performance or
compensation review of employees, soon after one of the Company’s quiet period
ends; 4) subsequent to the annual performance reviews for executives and
officers; and 5) at the annual meeting of stockholders for
directors. The Company’s quiet period begins two weeks prior to
the end of a fiscal quarter and ends two days after the Company announces
financial results for said fiscal quarter. Historically, it has been
the Company’s practice to price options based on the closing price of the Aware
common stock on the date that the Compensation Committee executes a Compensation
Committee consent granting the stock options.
Compensation
benchmarking. In 2007, the Compensation Committee contracted with Hewitt
Associates, a third party compensation consultant to compile compensation
benchmark data. Hewitt Associates gathered benchmark information with
respect to cash and equity-based compensation from a list of comparable
companies (the “Compensation Peer Group”). The Compensation Peer
Group is comprised of companies with similar products or business models and
comparable enterprise values to the Company. The Compensation Peer
Group was selected by the Company, reviewed by Hewitt Associates and was
approved by the Compensation Committee. The companies comprising the
Compensation Peer Group for 2007 were:
|
Ampex Corporation
|
MIPS
Technologies, Inc.
|
|
|
|
|
|
|
Captaris,
Inc.
|
Mosys,
Inc.
|
|
|
|
|
|
|
Catalyst
Semiconductor, Inc.
|
Nestor,
Inc.
|
|
|
|
|
|
|
Ceva,
Inc.
|
PCTEL,
Inc.
|
|
|
|
|
|
|
Centillium
Communications, Inc.
|
Supportsoft,
Inc.
|
|
|
|
|
|
|
Digimarc
Corporation
|
Tollgrade
Communications, Inc.
|
|
|
|
|
|
|
Endwave
Corporation
|
Transmeta
Corporation
|
|
|
|
|
|
|
Intelli-Check,
Inc
|
Transwitch
Corporation
|
|
|
|
|
|
|
Ikanos
Communications, Inc.
|
Tut
Systems, Inc.
|
|
|
|
|
|
The 2007
Compensation Peer Group differed from the 2006 Compensation Peer Group as
follows: Metasolv, Inc., Netopia, Inc. Netscout Systems, Inc. Optical
Communication Products, Inc. Seachange International, Terayon Communication
Systems and Watchguard Technologies, Inc. were removed while Catalyst
Semiconductor, Inc. Ceva, Inc., Digimarc Corporation, Intelli-Check, Inc.,
Ikanos Communications, Inc., and PCTEL, Inc., were added to the Compensation
Peer Group. Monolithic Systems, Inc. changed its name to Mosys,
Inc. Metasolv, Inc., Netopia, Inc. Optical Communication
Products, Inc. and Terayon Communications Systems were removed as each company
was acquired. The other companies were removed and added in order to
provide a Compensation Peer Group that represented a better mix of companies
representing the Company’s business in digital subscriber line (“DSL”)
technology licensing, DSL test & diagnostic products and biometric and
medical imaging software products.
The
following compensation elements were benchmarked: (i) total annual cash
compensation (base salary and bonus) and (ii) most recent grants of long-term
incentives (restricted stock and stock option grants). These
long-term incentives were valued using Black-Scholes for options and grant date
value for restricted shares. Stock option grants were also
benchmarked by reviewing (i) a three year average of the number of options
granted, (ii) a three year average of the number of shares granted as a
percentage of total shares outstanding and (iii) the number of shares held as a
percentage of total shares outstanding. The Compensation Committee
utilizes this information in determining the compensation and stock option
grants to its executive officers.
Compensation
program elements. The Company’s
executive compensation package for 2007 consisted of two principal elements:
cash and a stock-based equity incentive in the form of participation in the
Company’s stock option plans. The cash element includes base salary
and any cash incentive or bonus award earned for performance goals achieved
during the year.
Salary
The
salary element of the Company’s executive compensation policy is designed to
give executives assurance of a base level of compensation commensurate with the
executive’s position and duration of employment with the Company and competitive
with salaries for officers holding comparable positions in the
industry. In 2007, Mr. Tzannes, the Company’s chief executive
officer, was awarded a base salary increase from $375,000 to $400,000; Edmund C.
Reiter, the Company’s president, was awarded a base salary increase from
$310,000 to $335,000; Keith E. Farris, the Company’s chief financial officer,
was awarded a base salary increase from $210,000 to $225,000 and
Richard W. Gross, the Company’s senior vice president of engineering, was
awarded a base salary increase from $250,000 to $275,000 in recognition of their
individual contributions to the Company and compensation relative to others in
the industry. The
salary increases were also based upon a review of the salaries of comparable
positions in the Compensation Peer Group.
Mr.
Tzannes’ salary is above the 75th
percentile of other chief executive officers in the Compensation Peer
Group. Mr. Reiter’s salary is above the 75th
percentile of other presidents (or comparable executives) in the Compensation
Peer Group. Mr. Farris’ salary was below the 50th
percentile of other chief financial officers in the Compensation Peer
Group. Mr. Gross’ salary is above the 75th
percentile of comparable executives.
On
February 15, 2008, Keith E. Farris resigned from the Company as its chief
financial officer and treasurer. Mr. Farris was replaced by Richard
P. Moberg who joined the Company as its chief financial officer and treasurer on
February 15, 2008. Mr. Moberg was awarded a base salary of
$250,000.
For the
2008 executive compensation review, the Compensation Committee engaged
DolmatConnell & Partners, a third party compensation consultant to compile
compensation benchmark data. On March 18, 2008, the Compensation
Committee approved a salary of $416,000, $348,400 and $286,000 to Michael A.
Tzannes, CEO, Edmund C. Reiter, and Richard W. Gross, SVP, Engineering,
respectively, effective March 18, 2008.
Cash
Incentive Compensation
The
annual cash incentive program is designed to provide executives with competitive
compensation linked to Company performance goals. In February 2007,
the Compensation Committee approved a potential bonus for 2007 of up to
$125,000, $200,000, $35,000 and $25,000 to Michael A. Tzannes, CEO, Edmund C.
Reiter, President, Keith E. Farris, CFO, and Richard W. Gross, SVP, Engineering,
respectively, subject to the Board of Director’s discretion, based upon the
Company reaching certain revenue and/or earnings targets as well as each
executive achieving certain operational goals. For each executive, up
to 70% of the eligible bonus is earned by achieving certain revenue targets
and/or earnings targets and up to 30% for achieving certain operational goals
specific to each executive.
The award
granted to Mr. Tzannes based upon the Compensation Committee’s discretion
totaled $81,342, which consisted of $53,217 for achieving certain revenue
targets for the Company’s business and an additional $26,250 for achieving
certain operational goals. The award granted to Mr.
Tzannes was at 65% of the target bonus of $125,000. The compensation
was earned in 2007 and approved and paid in February 2008. Mr. Tzannes’ cash
incentive was between the 25th and the
50th
percentile of other chief executives in the Compensation Peer
Group. The award granted to Mr. Reiter based upon the Compensation
Committee’s discretion totaled $127,148, which consisted of an award of $85,148
for achieving certain revenue targets for the Company’s business and an
additional $42,000 for achieving certain operational goals. The award
granted to Mr. Reiter was at 64% of the target bonus of $200,000. The
compensation was earned in 2007 and approved and paid in February
2008. Mr. Reiter’s cash incentive was above the 75th
percentile of other presidents (or comparable executives) in the Compensation
Peer Group. The award granted to Mr. Gross based upon the
Compensation Committee’s discretion totaled $16,268, which consisted of an award
of $10,643 for achieving certain revenue targets for the Company’s business and
an additional $5,250 for achieving certain operational goals. The
award granted to Mr. Gross was at 65% of the target bonus of
$25,000. The compensation was earned in 2007 and approved and paid in
February 2008. Mr. Gross’ cash incentive was between the 25th and the
50th
percentile of comparable executives in the Compensation Peer
Group. On February 15, 2008, Mr. Farris resigned from the Company as
its chief financial officer and treasurer. As a result, the
Compensation Committee determined that no cash bonus would be awarded to Mr.
Farris.
The total
cash compensation (salary plus cash incentive compensation) for Mr. Tzannes was
at the 75th
percentile of other chief executives in the Compensation Peer
Group. The total cash compensation for Mr. Reiter was above the
75th
percentile of other presidents (or comparable executives) in the Compensation
Peer Group. The total cash compensation for Mr. Farris was just below
the median of other chief financial officers in the Compensation Peer
Group.
For the
2008 executive compensation review, the Compensation Committee engaged
DolmatConnell & Partners, a third party compensation consultant to compile
compensation benchmark data. On March 18, 2008, the Compensation Committee
approved a potential bonus for 2008 of up to $150,000, $200,000, $50,000 and
$25,000 to Michael A. Tzannes, CEO, Edmund C. Reiter, President, Richard P.
Moberg, CFO, and Richard W. Gross, SVP, Engineering, respectively, subject to
the Compensation Committee’s discretion, based upon the Company reaching certain
revenue and/or earnings targets as well as each executive achieving certain
operational goals. For each executive, up to 50% of the eligible
bonus is earned by achieving certain revenue and/or earnings targets and up to
50% for achieving certain operational goals.
Stock-based
equity incentive compensation
The
Company emphasizes stock options in order to align the interests of management
with the stockholders’ interests in the financial performance of the Company for
fiscal quarters, the fiscal year and the longer term. In determining
stock option grants, the Company considers the three-year average value
resulting from long-term incentive compensation such as restricted stock grants,
performance plans and stock option grants made at companies in the Compensation
Peer Group. The value of stock options is based upon the
Black-Scholes formula. The Company also considers in part the value of options
held by the executive officers and the extent to which the Company believed
those options would provide sufficient motivation to the executive officers to
achieve the Company’s goals. In 2005, the Company granted stock
option awards to Mr. Tzannes of 800,000 options and Mr. Reiter of 600,000
options to give these executives a level of stock-based equity incentive
compensation commensurate with the executive’s position and competitive with the
stock-based equity incentive compensation of comparable executives at comparable
companies. In 2006 and 2007, the Compensation Committee determined
that given the 2005 stock option awards and a review of the three year average
stock-based equity incentive compensation of comparable executives at
Compensation Peer Group companies, that a stock option award in 2006 and 2007 to
either Mr. Tzannes or Mr. Reiter was not required . The three year
average value of stock-based equity incentive compensation for Mr. Tzannes
was at
the 75th
percentile of other chief executives in the Compensation Peer Group and for Mr.
Reiter was above the 75th
percentile of presidents (or comparable officers) in the Compensation Peer
Group. In February 2007, the Company granted stock options in the amount of
50,000 to Keith E. Farris, CFO in recognition of his individual contributions to
the Company. In February 2007, Richard W. Gross, SVP, Engineering was
granted 75,000 stock options in recognition of his individual contributions to
the Company.
In
determining the fair value of each option grant, the Company used the following
assumptions:
|
Year
ended December 31
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
Average
risk free interest rate
|
3.80
– 4.73%
|
|
4.55
– 4.99%
|
|
4.05%
|
|
3.74%
|
Expected
life of option grants
|
6.25
years
|
|
3.25
– 6.25 years
|
|
3 -
5 years
|
|
5
years
|
Expected
volatility of underlying stock
|
51%
- 56%
|
|
60%
- 67%
|
|
67%
- 87%
|
|
93%
|
Expected
dividend yield
|
-
|
|
-
|
|
-
|
|
-
|
Other
Compensation
The
Company’s executive officers are 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.
Salary
& Bonus in Proportion to Total Compensation
In 2007,
the salary and cash incentive compensation for Mr. Tzannes represented
approximately 98% of his total compensation. In 2007, the salary and cash
incentive compensation for Mr. Reiter represented approximately 98% of his total
compensation. Mr. Tzannes and Mr. Reiter did not receive any
stock-based compensation in 2007. In 2007, the salary and cash
incentive compensation for Mr. Gross represented approximately 76% of his total
compensation. In 2007, the salary and cash incentive compensation for Mr. Farris
represented approximately 66% of his total compensation. Mr. Farris
resigned from the Company on February 15, 2008 and did not receive any cash
incentive compensation for 2007.
Compensation
program elements rationale. In establishing compensation for
executives, the Company’s Compensation Committee monitors salaries, other cash
compensation and stock options at other companies, particularly companies with
similar enterprise value and companies in the same industry. In
addition, for each executive the Compensation Committee considers historic
salary levels, work responsibilities and compensation relative to other
executives at the Company. The Compensation Committee also considers
general economic conditions, the Company’s performance and each individual’s
performance. Finally, the Compensation Committee utilizes market
benchmark information described earlier in recommending the compensation and
stock option grants to its executive officers so that their overall compensation
is competitive with comparable companies.
The
Company’s selection of the cash and stock-based equity incentive as the primary
elements of executive compensation is in furtherance of the Company’s
compensation program objectives. The cash element, including the base
salary and cash incentive program, along with the stock-based equity incentive
element help the Company to achieve the objective of attracting, motivating and
retaining executives who drive the Company’s success. The Company has
determined that the aforementioned elements help to achieve the Company’s
compensation objectives and that additional compensation elements are not
required.
Impact of
accounting and tax treatments on compensation. The Company
reviews the compensation provided to executive officers in conjunction with the
potential tax consequences that may result with respect to certain compensation
elements. For example, Section 162(m) of the Internal Revenue Code
limits the Company’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 the Company (other than the chief
executive officer and chief financial officer) in any year, unless the
compensation qualifies as “performance-based compensation.” Equity
awards that the Company grants under its 2001 Nonqualified Stock Plan do not
qualify as "performance-based compensation" because the Plan has not been
approved by the Company's stockholders. In 2007, the aggregate base
salaries, bonuses and other non-equity compensation of the Company’s executive
officers did not exceed the $1.0 million limit. The Compensation
Committee does not expect that non-equity compensation will exceed the $1.0
million limit in the foreseeable future. With respect to equity
compensation, the Compensation Committee’s policy with respect to Section 162(m)
is that it would prefer to cause compensation to be deductible by the Company;
however, the Compensation Committee also weighs the need to provide appropriate
incentives to the Company’s executive officers against the potential adverse tax
consequences that may result under Section 162(m) from the grant of compensation
that does not qualify as performance-based compensation. The
Compensation Committee has authorized and may continue to authorize compensation
payments that do not qualify as performance-based compensation and that are in
excess of the limits in circumstances when the Compensation Committee believes
such payment is appropriate.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee of the
Company has reviewed and discussed the Compensation Discussion and Analysis with
management, and based on such review and discussion, the Compensation Committee
recommended to the Board of Directors that the Compensation Discussion and
Analysis be included in this Proxy Statement.
|
The Compensation
Committee |
|
|
|
John K. Kerr,
Chairman |
|
G. David Forney,
Jr. |
|
Frederick D.
D’Alessio |
|
Mark G.
McGrath |
EXECUTIVE
COMPENSATION
The
following table provides summary information concerning compensation earned for
services rendered to Aware in all capacities for the fiscal year ended December
31, 2007 by Aware’s chief executive officer, each person who served as Aware’s
chief financial officer during 2007 and each other executive officer of
Aware:
Summary
Compensation Table for 2007
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
in
Pension
|
|
|
|
|
|
|
|
|
|
|
|
Value
and
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
Non-Equity
|
Deferred
|
|
|
Name
and
|
|
|
|
|
|
Stock
|
Option
|
Incentive
Plan
|
Compensation
|
All
Other
|
|
Principal
Position
|
|
Year
|
|
Salary
($)
|
Bonus
($)
|
Awards
($)
|
Awards
($)(1)
|
Compensation
($)(2)
|
Earnings
($)
|
Compensation($)(3)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Tzannes
|
|
2007
|
|
397,692
|
-
|
-
|
-
|
81,342
|
-
|
7,200
|
486,234
|
Chief
Executive Officer
|
|
2006
|
|
364,327
|
-
|
-
|
84,244
|
113,130
|
-
|
7,050
|
568,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmund
C. Reiter
|
|
2007
|
|
332,692
|
-
|
-
|
-
|
127,148
|
-
|
7,050
|
466,890
|
President
|
|
2006
|
|
305,731
|
-
|
-
|
69,647
|
114,000
|
-
|
7,022
|
496,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
W. Gross
|
|
2007
|
|
272,692
|
-
|
-
|
83,126
|
16,268
|
-
|
7,051
|
379,137
|
Senior
Vice President, Engineering
|
|
2006
|
|
247,865
|
-
|
-
|
70,220
|
-
|
-
|
6,805
|
324,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
E. Farris (4)
|
|
2007
|
|
223,615
|
-
|
-
|
106,942
|
-
|
-
|
7,744
|
338,302
|
Chief
Financial Officer
|
|
2006
|
|
123,577
|
-
|
-
|
52,402
|
-
|
-
|
3,891
|
179,870
|
__________________________________
|
(1)
|
Represents
the dollar amount of expense recognized for financial statement reporting
purposes with respect to 2007 attributable to stock options in accordance
with FAS 123(R) but with no discount for estimated
forfeitures. For an explanation regarding the method of
valuation of the Company’s option awards, see the heading “Stock-based
equity incentive compensation” in our Compensation Discussion and
Analysis.
|
|
(2)
|
For
a discussion of the Non-Equity Incentive Plan Compensation, please see
“Cash Incentive Compensation” in our Compensation Discussion and
Analysis.
|
|
(3)
|
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 named
executive officers in 2007; Michael Tzannes-$6,750; Edmund
Reiter-$6,750; Richard Gross-$6,651; and Keith
Farris-$6,371. Perquisites and other benefits were less than
$10,000 in the aggregate for each named executive
officer.
|
|
(4)
|
Mr.
Farris became our chief financial officer on May 31,
2006. Mr. Farris resigned as our chief financial officer on
February 15, 2008.
|
Grants
of Plan-Based Awards in 2007
|
|
|
|
|
|
|
|
|
|
|
|
All
Other
|
All
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Awards:
|
Option
Awards:
|
Exercise
|
Grant
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
Number
of
|
or
Base
|
Fair
Value
|
|
|
|
|
Estimated
Future Payouts Under
|
|
Estimated
Future Payouts Under
|
|
Shares
of
|
Securities
|
Price
of
|
of
Stock
|
|
|
Grant
|
|
Non-Equity
Incentive Plan Awards
|
|
Equity
Incentive Plan Awards
|
|
Stock
or
|
Underlying
|
Option
|
and
Option
|
Name
|
|
Date
|
|
Threshold
($)
|
Target
($)
|
Maximum
($)(1)
|
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
|
Units
(#)
|
Option
(#)(2)
|
Awards
($/Sh)
|
Awards($)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Tzannes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
-
|
-
|
125,000
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmund
C. Reiter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
N/A
|
|
-
|
-
|
200,000
|
|
-
|
-
|
-
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
W. Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/12/2007
|
|
-
|
-
|
25,000
|
|
-
|
-
|
-
|
|
-
|
75,000
|
$5.06
|
222,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
E. Farris
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
02/12/2007
|
|
-
|
-
|
35,000
|
|
-
|
-
|
-
|
|
-
|
50,000
|
$5.06
|
148,280
|
(1) For a
discussion of the Non-Equity Incentive Plan Compensation, please see “Cash
Incentive Compensation” in our Compensation Discussion and
Analysis.
(2) The
option grant to Richard Gross vests in sixteen (16) quarterly installments
through December 31, 2009 with an expiration date of February 12, 2017. Mr.
Farris resigned as our chief financial officer on February 15,
2008.
(3)
The
value of option awards is calculated in accordance with FAS 123(R) and using a
Black-Scholes valuation model with the following assumptions: exercise price and
fair market value of $5.06, volatility of 56%, expected term of 6.25 years, and
risk-free interest rate of 4.65% for the option award to Mr. Gross, and exercise
price and fair market value of $5.06, volatility of 56%, expected term of 6.25
years, and risk-free interest rate of 4.65% for the option award to Mr.
Farris.
Outstanding
Equity Awards At December 31, 2007
The
following table summarizes the stock options outstanding as of December 31, 2007
held by our named executive officers. Our named executive officers
did not hold any restricted stock or other equity incentive plan awards as of
December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
|
|
|
Equity
|
|
|
|
|
|
Equity
|
Equity
|
|
|
|
|
|
Incentive
Plan
|
|
|
|
|
|
Incentive
Plan
|
Incentive
Plan
|
|
|
|
|
|
Awards:
|
|
|
|
|
|
Awards:
|
Awards:
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Number
of
|
Market
or
|
|
|
Number
of
|
Number
of
|
|
Securities
|
|
|
|
|
|
Unearned
|
Payout
Value
|
|
|
Securities
|
Securities
|
|
Underlying
|
|
|
|
Number
of
|
Market
Value of
|
Shares,
Units
|
of
Unearned
|
|
|
Underlying
|
Underlying
|
|
Unexercised
|
|
|
|
Shares
or
|
Shares
or Units
|
or
Other
|
Shares,
Units
|
|
|
Unexercised
|
Unexercised
|
|
Unearned
|
Option
|
Option
|
|
Units
of Stock
|
of
Stock That
|
Rights
That
|
or
Other Rights
|
|
|
Options
(#)
|
Options
(#)
|
|
Options
(#)
|
Exercise
|
Expiration
|
|
That
Have Not
|
Have
Not
|
Have
Not
|
That
Have
|
Name
|
|
Exercisable
|
Unexercisable
|
|
Unexercisable
|
Price
($)
|
Date
|
|
Vested
(#)
|
Vested
($)
|
Vested
(#)
|
Not
Vested ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
A. Tzannes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
453,752
|
-
|
|
-
|
$3.27
|
10/14/13
|
|
-
|
-
|
-
|
-
|
|
|
125,000
|
-
|
|
-
|
$2.95
|
09/08/14
|
|
-
|
-
|
-
|
-
|
|
|
800,000
|
-
|
|
-
|
$6.07
|
02/09/15
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmund
C. Reiter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,635
|
-
|
|
-
|
$3.27
|
10/14/13
|
|
-
|
-
|
-
|
-
|
|
|
100,000
|
-
|
|
-
|
$2.95
|
09/08/14
|
|
-
|
-
|
-
|
-
|
|
|
600,000
|
-
|
|
-
|
$6.07
|
02/09/15
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
W. Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
201,581
|
-
|
|
-
|
$3.27
|
10/14/13
|
|
-
|
-
|
-
|
-
|
|
|
50,000
|
-
|
|
-
|
$2.95
|
09/08/14
|
|
-
|
-
|
-
|
-
|
|
|
42,500
|
-
|
|
-
|
$6.07
|
02/09/15
|
|
-
|
-
|
-
|
-
|
|
|
20,000
|
20,000
|
(1)
|
-
|
$5.58
|
02/22/16
|
|
-
|
-
|
-
|
-
|
|
|
18,750
|
56,250
|
(2)
|
|
$5.06
|
02/12/17
|
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
E. Farris (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,812
|
42,188
|
|
-
|
$5.69
|
05/31/16
|
|
-
|
-
|
-
|
-
|
|
|
12,500
|
37,500
|
|
-
|
$5.06
|
02/12/17
|
|
-
|
-
|
-
|
-
|
|
(1)
|
Vests
in 8 quarterly installments on the last day of each quarter from March 31,
2008 through December 31, 2009.
|
|
(2)
|
Vests
in 12 quarterly installments on the last day of each quarter from March
31, 2008 through December 31, 2010.
|
|
(3)
|
Mr.
Farris resigned as our chief financial officer on February 15,
2008.
|
Option
Exercises and Stock Vested in 2007
The
following table summarizes the options exercised during the year ended December
31, 2007 and the value realized upon exercise:
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
Stock
Awards
|
|
|
Number
of Shares
|
Value
Realized
|
|
Number
of Shares
|
Value
Realized
|
Name
|
|
Acquired
on Exercise (#)
|
on
Exercise ($)
|
|
Acquired
on Vesting (#)
|
on
Vesting ($)
|
|
|
|
|
|
|
|
Michael
A. Tzannes
|
|
|
|
|
|
|
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edmund
C. Reiter
|
|
|
|
|
|
|
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
W. Gross
|
|
|
|
|
|
|
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith
E. Farris
|
|
|
|
|
|
|
|
|
-
|
-
|
|
-
|
-
|
|
|
|
|
|
|
|
Post-Employment
Compensation
Pension
Benefits Table
We do not
have any tax-qualified or non-qualified defined benefit plans or supplemental
executive retirement plans.
Non-qualified
Deferred Compensation Table
We do not
have any non-qualified defined contribution plans or other non-qualified
deferred compensation plans.
Potential
Payments Upon Termination or Change in Control
Aware’s
executive officers do not have any agreements different from other employees
with respect to payments or benefits received as a result of a termination,
retirement and change in control. The payments and benefits include
accrued vacation pay and health plan continuation. There are no
severance payments or acceleration in the vesting of stock options that are
required as a result of a termination, retirement or change in
control.
DIRECTOR
COMPENSATION
In 2006,
each non-employee director other than Mark G. McGrath received an annual
retainer of $15,000 for serving as a director. The retainer was paid
at the annual meeting of stockholders in May 2006. Mr. McGrath became
a director in September 2006. Members of the Board of Directors did
not receive an annual retainer in 2007. Aware also reimburses each
director for expenses incurred in attending meetings of the board of
directors. Members of the Board of Directors will not receive an
annual retainer for 2008.
In
February 2007, the Board of Directors of Aware approved a Compensation Committee
recommendation to compensate non-employee directors through grants of
nonqualified options under Aware’s 2001 Stock Option Plan. Each
non-employee director received a grant of 20,000 options for serving as a
director of Aware. Additional options were provided to the Board
chair as well as chairs of the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee. The exercise price of
each option is equal to the closing price of the common stock on the Nasdaq
Global Market on the date of grant. Each option has a term of ten
years. The options granted in 2007 vest over a period of four
years. The following table provides information about these
grants.
Non-Employee
Director Compensation Table for 2007
|
|
|
|
|
|
Change
in Pension
|
|
|
|
|
Fees
Earned
|
|
|
Non-
Equity
|
Value
and Nonqualified
|
|
|
|
|
or
Paid in
|
Stock
|
Option
|
Incentive
Plan
|
Deferred
Compensation
|
All
Other
|
|
Name
|
|
Cash
($)
|
Awards
($)
|
Awards
($)(6)
|
Compensation
($)
|
Earnings
($)
|
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
John
K. Kerr(1)
|
|
-
|
-
|
45,783
|
-
|
-
|
-
|
45,783
|
|
|
|
|
|
|
|
|
|
G.
David Forney, Jr.(2)
|
|
-
|
-
|
25,449
|
-
|
-
|
-
|
25,449
|
|
|
|
|
|
|
|
|
|
Frederick
D. D'Alessio(3)
|
|
-
|
-
|
19,474
|
-
|
-
|
-
|
19,474
|
|
|
|
|
|
|
|
|
|
Adrian
F. Kruse(4)
|
|
-
|
-
|
40,242
|
-
|
-
|
-
|
40,242
|
|
|
|
|
|
|
|
|
|
Mark
McGrath(5)
|
|
-
|
-
|
33,597
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
In
2007, John K. Kerr received 20,000 options for serving as a director of
Aware, 12,500 options for serving as chairman of the board of directors
and 4,000 options for serving as chairman of the compensation
committee. 221,250 options were outstanding as of 12/31/07, of
which 183,125 were exercisable as of
12/31/07.
|
|
(2)
|
In
2007, G. David Forney, Jr. received 20,000 options for serving as a
director of Aware and 3,000 options for serving as chairman of the
nominating and corporate governance committee. 145,999 options
were outstanding as of 12/31/07, of which 124,749 were exercisable as of
12/31/07.
|
|
(3)
|
In
2007, Frederick D. D’Alessio received 20,000 options for serving as a
director of Aware. 83,000 options were outstanding as of
12/31/07, of which 65,500 were exercisable as of
12/31/07.
|
|
(4)
|
In
2007, Adrian F. Kruse received 20,000 options for serving as a director of
Aware and 7,500 options for serving as chairman of the audit
committee. 95,000 options were outstanding as of 12/31/07, of
which 68,125 were exercisable as of
12/31/07.
|
|
(5)
|
In
2007, Mark G. McGrath received 20,000 options for serving as a director of
Aware. 45,000 options were outstanding as of 12/31/07, of which
14,375 were exercisable as of
12/31/07.
|
|
(6)
|
Represents
the dollar amount of expense recognized for financial statement reporting
purposes with respect to 2007 attributable to stock options in accordance
with FAS 123(R) but with no discount for estimated
forfeitures. For an explanation regarding the method of
valuation of the Company’s option awards, see the heading “Stock-based
equity incentive compensation” in our Compensation Discussion and
Analysis. The grant date fair value of stock and option
awards granted in 2007 were as follows: Mr. Kerr-$108,244.40;
Mr. Forney-$68,208.80; Mr. D’Alessio-$59,312; Mr. Kruse-$81,554 and Mr.
McGrath-$59,312. Option awards valued in each case calculated
in accordance with FAS 123(R) and using a Black-Scholes valuation model
with the following assumptions: exercise price and fair market value of
$5.06, volatility of 56%, expected term of 6.25 years, and risk-free rate
of 4.65% for the option awards to Messrs. Kerr, Forney, McGrath, D’Alessio
and Kruse.
|
REPORT
OF THE AUDIT COMMITTEE
The
purpose of the audit committee is to assist the board of directors in its
general oversight of Aware’s financial reporting process. The Audit Committee
Charter describes in greater detail the full responsibilities of the committee
and is included in this proxy statement as ANNEX A and is available on Aware’s
website at www.aware.com. The audit committee is comprised solely of independent
directors as defined by the listing standards of the Nasdaq Stock
Market.
Management
is responsible for the preparation, presentation and integrity of Aware’s
financial statements; accounting and financial reporting principles;
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rule 13a-15 (e)); establishing and maintaining internal control
over financial reporting (as defined in Exchange Act Rule 13a-15 (f));
evaluating the effectiveness of disclosure controls and procedures; evaluating
the effectiveness of internal control over financial reporting; and evaluating
any change in internal control over financial reporting that has materially
affected, or is reasonably likely to materially affect, internal control over
financial reporting. PricewaterhouseCoopers LLP is responsible for performing an
independent audit of the consolidated financial statements and expressing an
opinion on the conformity of those financial statements with accounting
principles generally accepted in the United States of America, as well as
expressing an opinion on the effectiveness of internal control over financial
reporting.
During
the course of 2007, management continued to document, test and evaluate of
Aware’s system of internal control over financial reporting in response to the
requirements set forth in Section 404 of the Sarbanes-Oxley Act of 2002 and
PCAOB Auditing Standard No. 5 regarding the audit of internal control over
financial reporting. The audit committee was kept apprised of the progress of
the evaluation and provided oversight to management during the process. In
connection with this oversight, the committee received periodic updates provided
by management and PricewaterhouseCoopers LLP at regularly scheduled committee
meetings. The committee reviewed the report of management contained in Aware’s
Annual Report on Form l0-K for the year ended December 31, 2007 filed with the
Securities and Exchange Commission, as well as PricewaterhouseCoopers LLP’s
Report of Independent Registered Public Accounting Firm included in Aware’s
Annual Report on Form l0-K related to its audit of (i) the
consolidated financial statements and financial statement schedule, (ii) the
effectiveness of internal control over financial reporting. The audit committee
continues to oversee Aware’s efforts related to its internal control over
financial reporting and management’s preparations for the evaluation in
2008.
The audit
committee has reviewed and discussed the consolidated financial statements with
management and PricewaterhouseCoopers LLP, Aware’s independent auditors.
The audit committee has discussed with PricewaterhouseCoopers LLP the matters
required to be discussed by Statement on Auditing Standards No. 61, as amended,
“Communication with Audit Committees” and PCAOB “Auditing Standard No. 5,
“An Audit of Internal Control Over Financial Reporting Performed that is
Integrated with an Audit of Financial Statements.” In addition,
PricewaterhouseCoopers LLP has provided the audit committee with the written
disclosures and the letter required by the Independence Standards Board Standard
No.1, as amended, “Independence Discussions with Audit Committees,” and the
audit committee has discussed with PricewaterhouseCoopers LLP their firm's
independence.
Based on
the review of the consolidated financial statements and discussions with and
representations from management and PricewaterhouseCoopers LLP referred to
above, the audit committee recommended to the board of directors that the
audited financial statements be included in Aware’s Annual Report on Form 10-K
for 2007, for filing with the Securities and Exchange Commission.
|
The audit
committee |
|
|
|
Adrian F. Kruse,
Chairman |
|
Frederick D.
D’Alessio |
|
John K.
Kerr |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND
RELATED STOCKHOLDER MATTERS
At the
close of business on March 31, 2008, there were issued and outstanding
23,914,966 shares of common stock entitled to cast 23,914,966
votes. On March 31, 2008, the closing price of Aware’s common stock
as reported by the Nasdaq Global Market was $3.68 per share.
Principal
stockholders
The
following table provides information about the beneficial ownership of Aware’s
common stock as of March 31, 2008 by:
|
·
|
each
person known by Aware to own beneficially more than five percent of
Aware’s common stock;
|
|
·
|
each
of Aware’s directors;
|
|
·
|
each
of Aware’s executive officers; and
|
|
·
|
all
of Aware’s current executive officers and directors as a
group.
|
In
accordance with Securities and Exchange Commission 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, 2008 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 23,914,966 shares of common stock outstanding
as of March 31, 2008. 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, 2008. All shares included in the
“Right to acquire” column represent shares subject to outstanding stock options
exercisable within 60 days after March 31, 2008. The information as
to each person has been furnished by such person.
|
|
|
Number
of shares beneficially owned
|
Percent
beneficially
owned
|
Name
|
|
|
Outstanding
shares
|
Right
to
acquire
|
Total
number
|
|
|
|
|
|
|
|
John
S. Stafford, Jr. (1)
230
S. LaSalle Street, Suite 688
Chicago,
IL 60604
|
|
|
3,254,234
|
0
|
3,254,234
|
13.6%
|
Dimensional
Fund Advisors Inc (2).
1299
Ocean Avenue, 11th Floor
Santa
Monica, CA 90401
|
|
|
1,506,168
|
0
|
1,506,168
|
6.3%
|
State
of Wisconsin Investment Board (3)
P.O.
Box 7842
Madison,
WI 53707
|
|
|
1,239,470
|
0
|
1,239,470
|
5.2%
|
John
K. Kerr
|
|
|
693,588
|
186,749
|
880,337
|
3.7%
|
Michael
A. Tzannes (4)
|
|
|
111,033
|
1,378,752
|
1,489,785
|
6.2%
|
Edmund
C. Reiter
|
|
|
10,161
|
1,026,635
|
1,036,796
|
4.3%
|
Richard
W. Gross
|
|
|
8,000
|
339,938
|
347,938
|
1.5%
|
Richard
P. Moberg
|
|
|
0
|
12,500
|
12,500
|
0.1%
|
Mark
G. McGrath
|
|
|
149,613
|
17,187
|
166,800
|
0.7%
|
G.
David Forney, Jr.
|
|
|
30,000
|
96,686
|
126,686
|
0.5%
|
Frederick
D. D’Alessio
|
|
|
0
|
67,062
|
67,062
|
0.3%
|
Adrian
F. Kruse
|
|
|
10,000
|
70,624
|
80,624
|
0.3%
|
|
|
|
|
|
|
|
All
directors and executive officers
as
a group (9 persons)
|
|
|
1,012,395
|
3,196,133
|
4,208,528
|
17.6%
|
____________________________________
* Less
than one percent.
(1)
|
The
number of shares beneficially owned by John S. Stafford, Jr. is based upon
information in a Form 4 filed by John S. Stafford, Jr. on April 1,
2008.
|
(2)
|
The
number of shares beneficially owned by Dimensional Fund Advisors Inc. is
based upon information in a Schedule 13G/A filed by Dimensional Fund
Advisors Inc. on February 6, 2008.
|
(3)
|
The
number of shares beneficially owned by the State of Wisconsin Investment
Board is based upon information in a Schedule 13G/A filed by the State of
Wisconsin Investment Board on February 2,
2008.
|
(4)
|
Includes
20,000 shares held by a private charitable foundation, of which Mr.
Tzannes and his wife are trustees.
|
Equity
compensation plan information
The
following table sets forth additional information as of December 31, 2007,
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 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.
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 Stock Option
Plan
|
|
|
3,252,420 |
|
$ |
4.94 |
|
|
– |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1996 Employee Stock Purchase
Plan
|
|
|
– |
|
|
– |
|
|
135,022 |
|
|
|
|
– |
|
|
– |
|
|
135,022 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not
|
|
|
|
|
|
|
|
|
|
|
approved
by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Nonqualified Stock
Plan
|
|
|
3,722,285 |
|
$ |
4.75 |
|
|
3,882,305 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
6,974,705 |
|
$ |
4.84 |
|
|
4,017,327 |
|
|
|
|
|
|
|
|
|
|
|
|
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 Messrs. D’Alessio, Forney,
McGrath 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.
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 (a) the number and kind of shares of stock or securities with
respect to which awards may thereafter be granted, (b) the number and kind of
shares remaining subject to outstanding awards under the plan, and (c) 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.
NOTICE
OF AMENDMENTS TO BY-LAWS
On
December 6, 2007, the Board of Directors of Aware (the “Board”) voted to amend
and restate the By-Laws of Aware (the “By-Laws”), primarily to implement certain
provisions of the Massachusetts Business Corporation Act, enacted as Chapter
156D of the Massachusetts General Laws, which became effective on July 1, 2004,
and in response to new NASDAQ listing requirements that mandate that all
NASDAQ-listed companies become eligible to participate in the “Direct
Registration System” for their outstanding securities. Prior to July
1, 2004, Aware was subject to the provisions of the Massachusetts Business
Corporation Law, which is Chapter 156B of the Massachusetts General
Laws.
The
changes to the By-Laws include the following:
|
·
|
Aware
amended Section 1.1 of the By-Laws to change the date and time of the
annual shareholder meeting to the third Wednesday in May at 10:00 a.m. and
to give the Board the power to change the date, time and place of any
special or annual shareholder
meeting.
|
|
·
|
Aware
amended Section 1.3 of the By-Laws to give the Board the power to
authorize shareholders to participate in shareholder meetings by means of
remote communications.
|
|
·
|
Aware
amended Section 1.4 of the By-Laws to permit shareholders to receive
notice of shareholder meetings by means of electronic transmission
authorized by the new act.
|
|
·
|
Aware
added a new Section 1.5 to the By-Laws to govern the notice of shareholder
business and conduct of business at any shareholder
meeting.
|
|
·
|
Aware
amended Section 1.6 of the By-Laws (now designated as Section 1.7) to move
language regarding proxies into the new Section 1.10 of the
By-Laws.
|
|
·
|
Aware
added a new Section 1.9 to the By-Laws to address the authority of
shareholders to submit a vote, consent, waiver, proxy appointment or other
action by electronic means, rather than in writing, under the new
act.
|
|
·
|
Aware
deleted Section 1.9 of the By-Laws to comply with the requirements of
voting lists under the new act.
|
|
·
|
Aware
added a new Section 1.10 to the By-Laws to create a separate section
regarding proxies, and amended the By-Laws to permit shareholders to
appoint proxies for a period longer than six months and otherwise to
address the requirements relating to the appointment of proxies under the
new act.
|
|
·
|
Aware
amended Section 1.10 of the By-Laws (now designated as Section 1.12) to
address the requirements relating to the adjournment of shareholder
meetings under the new act.
|
|
·
|
Aware
added a new Section 1.13 to the By-Laws to govern the conduct of business
at any shareholder meeting.
|
|
·
|
Aware
amended Section 2.1 of the By-Laws to enumerate typical powers of the
Board and to move language regarding the issuance of shares into the new
Section 4.1 of the By-Laws.
|
|
·
|
Aware
amended Section 2.2 of the By-Laws to address the requirements relating to
the number, election, and term of office of directors under the new
act.
|
|
·
|
Aware
added a new Section 2.3 to the By-Laws to move Section 3.8 of the By-Laws
to the appropriate By-Laws Article regarding
directors.
|
|
·
|
Aware
amended Section 2.10 of the By-Laws to provide that directors may receive
notice of director special meetings by means of electronic transmission
authorized under the new act.
|
|
·
|
Aware
amended Section 2.13 of the By-Laws to permit the Board to take action by
means of electronic transmission and otherwise to address the requirements
relating to Board action under the new
act.
|
|
·
|
Aware
amended Section 2.14 of the By-Laws to provide that directors may
participate in shareholder meetings by means of a conference telephone or
similar communications equipment.
|
|
·
|
Aware
added a new Section 2.17 to the By-Laws to reflect standards and
procedures contained in the new act regarding conflicts of interest
involving directors.
|
|
·
|
Aware
added a new Section 3.8 to the By-Laws to set forth the duties and
obligations of the Chief Executive
Officer.
|
|
·
|
Aware
added a new Section 4.1 to the By-Laws to permit the Board to issue shares
for additional types of consideration authorized under the new
act.
|
|
·
|
Aware
amended Section 4.1 of the By-Laws (now designated as Section 4.2) to
clarify that outstanding shares of Aware may exist in certificated or
uncertificated form.
|
|
·
|
Aware
amended Section 4.3 of the By-Laws (now designated as Section 4.4) to give
the Board the flexibility to set a record date seventy days before an
event, rather than the previously authorized sixty days. Aware
also amended this section to require the Board, in accordance with the new
act, to set a new record date if a meeting of shareholders is adjourned to
a date more than 120 days after the original date of the meeting, and
otherwise to address the requirements relating to the setting of record
dates under the new act.
|
|
·
|
Aware
added a new Section 4.6 to the By-Laws to give the Board the power to
appoint a transfer agent or
registrar.
|
|
·
|
Aware
amended Section 5.8 of the By-Laws to follow the indemnification
procedures set forth in the new act and generally to provide the maximum
indemnification permitted under the new
act.
|
|
·
|
Aware
deleted Section 5.9 of the By-Laws and replaced it with the new Section
2.17 of the By-Laws which reflects the standards and procedures contained
in the new act regarding conflicts of interest involving
directors.
|
|
·
|
Aware
added a new Section 5.9 to the By-Laws to follow the advancement of
expenses procedures set forth in the new act and generally to provide the
maximum advancement of expenses permitted under the new
act.
|
|
·
|
Aware
deleted Section 5.13 of the By-Laws with respect to directors because
director conflict of interest transactions are addressed by the new
Section 2.17 of the By-Laws, and with respect to officers and affiliates
because standards and procedures regarding related party transactions are
not required in the By-Laws by
statute.
|
|
·
|
Aware
added a new Section 5.14 to the By-Laws to give the Board the power to
declare and pay dividends.
|
|
·
|
Aware
added a new Section 5.15 to the By-Laws to permit shareholder or Board
ratification of actions taken by directors, officers or representatives
requiring shareholder or Board
authorization.
|
|
·
|
Aware
added a new Section 5.16 to the By-Laws to permit directors and officers
to rely on books, records and reports under specified
circumstances.
|
|
·
|
Aware
deleted Article VI in its entirety because one or more of the triggering
events for termination of Article VI, set forth in Section 6.10 of the
By-Laws, have been met.
|
|
·
|
In
addition, Aware made certain other changes to conform the By-Laws to the
provisions of the new act. For example, the new act generally
uses the terms “share” and “shareholder” instead of “stock” and
“stockholder,” and the new act changed the title of “clerk” to
“secretary.” Aware uses this new statutory terminology
throughout its Amended and Restated
By-Laws.
|
The
amendments to the By-Laws took effect immediately upon adoption. The
descriptions of the provisions of the Amended and Restated By-Laws contained in
this proxy statement are qualified in their entirety by reference to the full
text of the Amended and Restated By-Laws available on Aware’s website at
www.aware.com.
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 Securities
and Exchange Commission 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 2007, or written representations that Form 5 was not
required for 2007, 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 audit
committee has selected PricewaterhouseCoopers LLP as independent accountants to
audit the financial statements of Aware for the year ending December 31,
2008. 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 2007 and 2006. Audit Fees consist
of aggregate fees billed for professional services rendered for the audit of our
annual financial statements and review of the interim financial statements
included in quarterly reports or services that are normally provided by the
independent auditor in connection with statutory and regulatory filings or
engagements for the fiscal years ended December 31, 2007 and December 31, 2006,
respectively. In 2006 & 2007, audit fees also include fees for
professional services rendered for the audits of the effectiveness of internal
controls over financial reporting. Audit-Related Fees consist of
aggregate fees billed for assurance and related services, such as assisting with
the implementation of new accounting principles, that are reasonably related to
the performance of the audit or review of our financial statements, and review
of regulatory matters and are not reported under “Audit Fees.” Tax
Fees consist of aggregate fees billed for professional services for tax
compliance, tax advice and tax planning. All Other Fees consist
of aggregate fees billed for products and services provided by the independent
auditor, other than those disclosed above. All Other Fees in
2007 included $7,000 related to financial reporting of income tax disclosures,
$5,000 related to the review of certain revenue contracts and $1,500 related to
Audit Committee professional development services.
|
|
|
2007 Fees
|
|
|
2006 Fees
|
|
|
Audit
Fees
|
|
$ |
216,000 |
|
|
$ |
242,600 |
|
|
Audit-Related
Fees
|
|
|
0 |
|
|
|
0 |
|
|
Tax
Fees
|
|
|
0 |
|
|
|
0 |
|
|
All
Other Fees
|
|
|
13,500 |
|
|
|
57,555 |
|
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.
Pre-approval
policies and procedures
At
present, our audit committee approves each engagement for audit or non-audit
services before we engage PricewaterhouseCoopers LLP to provide those
services. However, the audit committee may delegate to members of the
committee the authority to pre-approve audit and non-audit
services. The decisions of any committee member to whom pre-approval
authority is delegated must be presented to the full audit committee at its next
scheduled meeting.
Our audit
committee has not established any pre-approval policies or procedures that would
allow our management to engage PricewaterhouseCoopers LLP to provide any
specified services with only an obligation to notify the audit committee of the
engagement for those services. None of the services provided by
PricewaterhouseCoopers LLP for 2006 or 2007 was obtained in reliance on the
waiver of the pre-approval requirement afforded in SEC regulations.
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 12,
2008. If any stockholder would like to submit a proposal for that
meeting outside the processes of Rule 14a-8, notice of the proposal will be
considered untimely under Rule 14a-4(c)(1) if Aware receives the notice after
February 26, 2009.
AVAILABLE
INFORMATION
Stockholders
of record on April 3, 2008 will receive copies of this proxy statement and
Aware’s 2007 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, Aware, Inc., 40 Middlesex Turnpike, Bedford,
Massachusetts 01730.
ANNEX
A
Aware,
Inc.
Audit
Committee Charter
I. Organization
Charter. This
charter governs the operations of the Audit Committee (the
“Committee”). The Committee shall review and reassess the charter at
least annually and obtain the approval of the Board of Directors (the
“Board”). This charter supersedes all prior charters of the
Committee.
Members. The
Committee members shall be members of, and appointed by, the Board and shall
consist of at least three directors, each of whom shall meet the independence
and other requirements of applicable law and the listing standards of The Nasdaq
Stock Market, Inc. (“Nasdaq”). Committee members shall be subject to
annual reconfirmation and may be removed by the Board at any
time. The Board shall also designate a Committee
Chairperson.
Meetings. In order
to discharge its responsibilities, the Committee shall each year establish a
schedule of meetings; additional meetings may be scheduled as
required.
Quorum; Action by
Committee. A quorum of any Committee meeting shall be at least
two members. All determinations of the Committee shall be made by a
majority of its members present at a meeting duly called and held, except as
specifically provided herein (or where only two members are present, by
unanimous vote). A decision or determination of the Committee reduced
to writing and signed by all of the members of the Committee shall be fully as
effective as if it had been made at a meeting duly called and held.
Agenda, Minutes and
Reports. An agenda, together with materials relating to the
subject matter of each meeting, shall be sent to members of the Committee prior
to each meeting. Minutes for all meetings of the Committee shall be
prepared to document the Committee’s discharge of its
responsibilities. The minutes shall be circulated in draft form to
all Committee members to ensure an accurate final record, shall be approved at a
subsequent meeting of the Committee and shall be distributed periodically to the
full Board. The Committee shall make regular reports to the
Board.
II. Purpose
The
Committee shall provide assistance to the Board in fulfilling their oversight
responsibility to the shareholders, the investment community, and others
relating to: the integrity of the Company’s financial statements; the
systems of disclosure controls and internal controls over financial reporting;
the performance of the Company’s independent auditor; the independent auditor’s
qualifications and independence; and the Company’s compliance with ethics
policies and legal and regulatory requirements. In so doing, it is
the responsibility of the Committee to maintain free and open communication
between the Committee, independent auditor, and management of the
Company.
III. Duties
and Responsibilities
The
primary responsibility of the Committee is to oversee the Company’s financial
reporting process on behalf of the Board and report the results of their
activities to the Board. While the Committee has the responsibilities
and powers set forth in this charter, it is not the duty of the Committee to
plan or conduct audits or to determine that the Company’s financial statements
are complete and accurate and are in accordance with generally accepted
accounting principles, nor can the Committee certify that the independent
auditor is “independent” under applicable rules. Management is
responsible for the preparation, presentation, and integrity of the Company’s
financial statements and for the appropriateness of the accounting principles
and reporting policies that are used by the Company. The independent
auditor is responsible for auditing the Company’s financial statements and for
reviewing the Company’s unaudited interim financial statements.
The
Committee, in carrying out its responsibilities, believes its policies and
procedures should remain flexible, in order to best react to changing conditions
and circumstances. The Committee should take appropriate actions to
set the overall corporate “tone” for quality financial reporting, sound business
risk practices, and ethical behavior. The following shall be the
principal duties and responsibilities of the Committee. These are set
forth as a guide with the understanding that the Committee may supplement them
as appropriate.
The
Committee shall be directly responsible for the appointment, compensation,
retention, and termination of the independent auditor, and the independent
auditor must report directly to the Committee. The Committee also
shall be directly responsible for the oversight of the work of the independent
auditor, including resolution of disagreements between management and the
auditor regarding financial reporting. The Committee shall
pre-approve all audit and non-audit services provided by the independent auditor
and shall not engage the independent auditor to perform the specific non-audit
services proscribed by law or regulation. The Committee may delegate
pre-approval authority to a member of the Committee. The decisions of
any Committee member to whom pre-approval authority is delegated must be
presented to the full Committee at its next scheduled meeting.
At least
annually, the Committee shall obtain and review a report or reports by the
independent auditor describing:
The
firm’s internal quality control procedures; and
All
relationships between the independent auditor and the Company consistent with
Independence Standards Board Standard 1 (to assess the auditor’s
independence).
The
Committee will actively engage in a dialogue with the auditor with respect to
any disclosed relationships or services that may impact the objectivity and
independence of the auditor and take appropriate action to oversee the
independence of the auditor.
The
Committee shall set clear hiring policies for employees or former employees of
the independent auditor that meet the SEC regulations and stock exchange listing
standards.
The
Committee shall discuss with the independent auditor the overall scope and plans
for the audit, including the adequacy of staffing and compensation, the result
of the annual audit examination and accompanying management letters, and the
results of the independent auditor’s procedures with respect to interim
periods. Also, the Committee shall discuss with management and the
independent auditor (a) the adequacy and effectiveness of the Company’s internal
control over financial reporting (including any significant deficiencies and
significant changes in internal control over financial reporting reported to the
Committee by the independent auditor or management); and (b) the adequacy and
effectiveness of the Company’s disclosure controls and procedures, and
management reports thereon.
The
Committee shall meet separately periodically with management and the independent
auditor to discuss issues and concerns warranting Committee
attention. The Committee shall provide sufficient opportunity for the
independent auditor to meet privately with the members of the
Committee. The Committee shall review with the independent auditor
any audit problems or difficulties and management’s response.
The
Committee shall receive and review reports from the independent auditor, prior
to the filing of its audit report with the SEC, on all critical accounting
policies and practices of the Company, all material alternative treatments of
financial information within generally accepted accounting principles that have
been discussed with management, including the ramifications of the use of such
alternative treatments and disclosures and the treatment preferred by the
independent auditor, and other material written communications between the
independent auditor and management.
The
Committee shall review and discuss with management and the independent auditor
earnings press releases, as well as financial information and earnings guidance
provided to analysts and rating agencies.
The
Committee shall review with management and the independent auditor the year end
audited financial statements and interim financial statements, and disclosures
under Management’s Discussion and Analysis of Financial Condition and Results of
Operations to be included in the Company’s Annual Reports on Form 10-K and
Quarterly Reports on Form 10-Q, including their judgment about the quality, not
just the acceptability, of accounting principles, the reasonableness of
significant judgments, and the clarity of the disclosures in the financial
statements. Also, the Committee shall discuss the results of the
annual audit and the quarterly review and any other matters required to be
communicated to the Committee by the independent auditor under generally
accepted auditing standards. If deemed appropriate, the Committee
shall recommend to the Board that the audited financial statements be included
in the Annual Report on Form 10-K for the year.
The
Committee shall inquire of management of the Company as to any material
violations of securities laws, breaches of fiduciary duty or violations of the
Company’s code of ethics.
The
Committee shall review and approve all related party
transactions. For these purposes, the term “related party
transaction” shall refer to transactions required to be disclosed pursuant to
Securities and Exchange Commission Regulation S-K, Item 404.
The
Committee shall establish procedures for the receipt, retention, and treatment
of complaints received by the Company regarding accounting, internal accounting
controls, or auditing matters, and the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters.
The
Committee shall receive corporate attorneys’ reports of evidence of a material
violation of securities laws or breaches of fiduciary duty.
The
Committee shall prepare its report to be included in the Company’s annual proxy
statement as required by SEC regulations.
The
Committee shall perform an evaluation of its performance at least annually to
determine whether it is functioning effectively.
IV. Other
Access to Records, Advisers and
Others. In discharging its responsibilities, the Committee
shall have full access to any relevant records of the Company and may retain, at
Company expense, independent advisers (including legal counsel, accountants and
consultants) as it determines necessary to carry out its duties. The
Committee shall have the ultimate authority and responsibility to engage or
terminate any such independent advisers and to approve the terms of any such
engagement and the fees to be paid to any such adviser. The Committee
may also request that any officer or other employee of the Company, the
Company’s outside counsel or any other person meet with any members of, or
independent advisers to, the Committee.
Funding. The
Company shall provide for appropriate funding, as determined by the Committee,
for payment of
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(i)
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compensation
to any independent auditor;
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(ii)
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compensation
to advisers employed by the Committee; and
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(iii)
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ordinary
administrative expenses of the Committee that are necessary or appropriate
in carrying out its
duties.
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Delegation. The
Committee may delegate any of its responsibilities to a subcommittee comprised
of one or more members of the Committee.
Committee
Members
Adrian
Kruse (Chair)
Frederick
D. D’Alessio
John K.
Kerr
ANNEX
B
Aware,
Inc.
Compensation
Committee Charter
as
Approved by the Board of Directors
(as
amended March 15, 2007)
I. Organization
Charter. At least
annually, this charter shall be reviewed and reassessed by the Compensation
Committee (the “Committee”) and any proposed changes shall be submitted to the
Board of Directors (the “Board”) for approval. This charter
supersedes all prior charters of the Committee.
Members. The
members of the Committee shall be appointed by the Board and shall meet the
independence and other requirements of applicable law and the listing standards
of The Nasdaq Stock Market, Inc., the requirements of an “outside director” for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended, and
the requirements of a “non-employee director” for purposes of Rule 16b-3 under
the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). The Committee shall consist of at least two
members. Committee members will be subject to annual reconfirmation
and may be removed by the Board at any time.
Meetings. In order
to discharge its responsibilities, the Committee shall each year establish a
schedule of meetings; additional meetings may be scheduled as
required.
Quorum; Action by
Committee. A quorum of any Committee meeting shall be at least
two members. All determinations of the Committee shall be made by a
majority of its members present at a meeting duly called and held, except as
specifically provided herein (or where only two members are present, by
unanimous vote). Any decision or determination of the Committee
reduced to writing and signed by all of the members of the Committee shall be
fully as effective as if it had been made at a meeting duly called and
held.
Agenda, Minutes and
Reports. An agenda, together with materials relating to the
subject matter of each meeting, shall be sent to members of the Committee prior
to each meeting. Minutes for all meetings of the Committee shall be
prepared to document the Committee’s discharge of its
responsibilities. The minutes shall be circulated in draft form to
all Committee members to ensure an accurate final record, shall be approved at a
subsequent meeting of the Committee and shall be distributed periodically to the
full Board. The Committee shall make regular reports to the
Board.
II. PURPOSE
The
Committee’s basic responsibility is to review the performance and development of
Company management in achieving corporate goals and objectives and to assure
that senior executives of the Company are compensated effectively in a manner
consistent with the strategy of the Company, competitive practice, and the
requirements of the appropriate regulatory bodies. Toward that end,
the Committee will oversee, review and administer all compensation, equity and
employee benefit plans and programs.
III. RESPONSIBILITIES
AND DUTIES
In
carrying out its purpose, the Committee will have the following responsibilities
and duties:
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Review
annually and approve the Company’s compensation strategy to ensure that
employees of the Company are rewarded appropriately for their
contributions to the Company’s financial performance and corresponding
increases in stockholder value.
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Review
annually and approve corporate goals and objectives relevant to executive
compensation and evaluate performance in light of those
goals.
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·
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Review
annually and determine the individual elements of total compensation for
the Chief Executive Officer and all other corporate officers, review and
discuss with the Company’s management the Compensation Discussion and
Analysis (CD&A) to be included in the Company’s annual proxy statement
and whether to recommend to the Board that the CD&A be included in the
proxy statement and communicate in the annual Board Compensation Committee
Report to stockholders the factors and criteria on which the Chief
Executive Officer and all other corporate officers’ compensation for the
last year was based.
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Review
and approve compensation for non-employee members of the Board, including
stock compensation.
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Review
and make recommendations with respect to stockholder proposals relating to
compensation matters.
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Make
and approve stock option grants and other discretionary awards under the
Company’s stock option or other equity incentive plans to all persons who
are Board members or executive
officers.
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Grant
stock options and other discretionary awards under the Company’s stock
option or other equity incentive plans to all other eligible individuals
in the Company’s service.
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Amend
the provisions of the Company’s stock option or other equity incentive
plans, to the extent authorized by the Board, and make recommendations to
the Board with respect to incentive compensation and equity-based
plans.
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·
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Approve
for submission to the stockholders stock option or other equity incentive
plans or amendments thereto.
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Perform
an evaluation of its performance at least annually to determine whether it
is functioning effectively.
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Carry
out such other duties as may be delegated to it by the Board from time to
time.
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Notwithstanding
the foregoing, any action of the Committee may be subject to Board review and
may be revised, modified or rescinded by the Board.
IV. Other
Access to Records, Advisers and
Others. In discharging its responsibilities, the Committee
shall have full access to any relevant records of the Company and may retain, at
Company expense, independent advisers (including legal counsel, accountants and
consultants) as it determines necessary to carry out its duties. The
Committee shall have the ultimate authority and responsibility to engage or
terminate any such independent advisers and to approve the terms of any such
engagement and the fees to be paid to any such adviser. The Committee
may also request that any officer or other employee of the Company, the
Company’s outside counsel or any other person meet with any members of, or
independent advisers to, the Committee.
Delegation. The
Committee may delegate any of its responsibilities to a subcommittee comprised
of one or more members of the Committee, the Chief Executive Officer or to a
committee of senior executive officers when appropriate and consistent with
applicable law except that the Committee shall not delegate its responsibilities
with respect to the grant of stock options under the Company’s stock option
plans to any person who is an “officer” of the Company for purposes of Section
16 of the Exchange Act.
COMMITTEE
MEMBERS
John K.
Kerr (Chair)
Fred
D’Alessio
G. David
Forney
Mark G.
McGrath