Edgar Filing: AWARE INC /MA/

(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	-	-	-	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	Percent beneficially owned

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.

A - 1

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.

A - 2

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.

A - 3

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

	(i)	compensation to any independent auditor;
	(ii)	compensation to advisers employed by the Committee; and
	(iii)	ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

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

A - 4

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.

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.

B - 1

III. RESPONSIBILITIES AND DUTIES

In carrying out its purpose, the Committee will have the following responsibilities and duties:

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.

Review annually and approve corporate goals and objectives relevant to executive compensation and evaluate performance in light of those goals.

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.

Review and approve compensation for non-employee members of the Board, including stock compensation.

Review and make recommendations with respect to stockholder proposals relating to compensation matters.

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.

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.

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.

Approve for submission to the stockholders stock option or other equity incentive plans or amendments thereto.

Perform an evaluation of its performance at least annually to determine whether it is functioning effectively.

Carry out such other duties as may be delegated to it by the Board from time to time.

B - 2

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

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

B - 3

C123456789

o	Preliminary Proxy Statement	o	Confidential, for Use of the Commission
			only (as permitted by Rule 14a-6(e)(2))
x	Definitive Proxy Statement
o	Definitive Additional Materials
o	Soliciting Material Under Rule 14a-12

x	No fee required.
o	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

	(1)	Title of each class of securities to which transaction applies:

	(2)	Aggregate number of securities to which transaction applies:

	(3)	Per unit price or other underlying value of transaction computed
		pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
		filing fee is calculated and state how it was determined):

	(4)	Proposed maximum aggregate value of transaction:

	(5)	Total fee paid:

o	Fee paid previously with preliminary materials.

o	Check box if any part of the fee is offset as provided by Exchange Act
	Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
	paid previously. Identify the previous filing by registration statement
	number, or the form or schedule and the date of its filing.

	(1)	Amount previously paid:

	(2)	Form, Schedule or Registration Statement no.:

	(3)	Filing Party:

	(4)	Date Filed:

	Date:	May 21, 2008

	Time:	10:00 a.m

	Place:	Bedford Glen Hotel
		44 Middlesex Turnpike
		Bedford, Massachusetts

Pre-approval policies and procedures	33

Stockholder Proposals	33

Available Information	33

Annex A - Audit Committee Charter	A-1

Annex B - Compensation Committee Charter	B-1

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	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.

	By order of the board of directors,


	/s/ Michael A. Tzannes

	Michael A. Tzannes
	Chief Executive Officer

Annual Meeting of Stockholders	3

Purpose of the annual meeting	3
Record date	3
Quorum	3
Vote required; tabulation of votes	3
Revocation of proxies	4
Solicitation of proxies	4

Matters To Be Considered At The Annual Meeting	4

Proposal—Election of Directors	4

Corporate Governance	5

Directors and Executive Officers	6

Directors and executive officers	6
Certain relationships and related transacations	8
Committees and meetings of the board	9
Policy regarding board attendance	10
Communications with our board of directors	11
Code of ethics	11
Compensation committee interlocks and insider participation	11

Compensation of Executive Officers and Directors	11

Compensation Discussion and Analysis	11

Compensation Committee Report	17

Executive Compensation	18

Director Compensation	21

Report of the Audit Committee	23

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25

Principal stockholders	25
Equity compensation plan information	26

Notice of Amendments to By-Laws	28

Section 16(a) Beneficial Ownership Reporting Compliance	31

Independent Accountants	32

Fees for professional services	32
Attendance at annual meeting	32

Name	Age	Position
John K. Kerr (1)(2)(3)(4)	70	Chairman of the board of directors
Michael A. Tzannes (1)	46	Chief executive officer and director
Edmund C. Reiter	44	President and director
Richard P. Moberg	53	Chief financial officer
Richard W. Gross	50	Senior vice president—engineering
Frederick D. D’Alessio (2)(3)	59	Director
G. David Forney, Jr.(3)(4)	68	Director
Adrian F. Kruse (2)(4)	68	Director
Mark G. McGrath (3)	61	Director

	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	-	-	-	-

	The Compensation Committee

	John K. Kerr, Chairman
	G. David Forney, Jr.
	Frederick D. D’Alessio
	Mark G. McGrath

							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

								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


	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	-	-	-	-

	000004	000000000.000000 ext	000000000.000000 ext
MR A SAMPLE		000000000.000000 ext	000000000.000000 ext
DESIGNATION (IF ANY)		000000000.000000 ext	000000000.000000 ext
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	Annual Meeting Proxy Card

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1. Nominees:		For	Withhold		For	Withhold

	01 - Edmund C. Reiter			02 - Adrian F. Kruse

B	Non-Voting Items
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