8. EQUITY AND STOCK COMPENSATION PLANS

Stock Option Plan – On January 17, 2024, our shareholders approved the Aware, Inc. 2023 Equity and Incentive Plan (the “2023 Plan”), which replaced the 2001 Nonqualified Plan (the "2001 Plan"). The 2023 Plan provides for the grant of various equity-based awards, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, dividend equivalent rights, and cash awards. The 2023 Plan authorizes the issuance of an aggregate of 1,277,130 shares of common stock, plus an additional number of shares equal to the number of shares subject to outstanding awards under the 2001 Plan that are forfeited, expire unexercised, or are repurchased or withheld to cover taxes or exercise prices, up to a maximum of 2,590,000 shares. As of December 31, 2025, there were 601,048 shares available for grant under the 2023 Plan.

Options are granted with exercise prices as determined by the Board of Directors and have a maximum term of ten years. Options generally vest over three to five years.

Stock-based compensation expense in the preceding table includes expenses associated with grants of: i) stock options, ii) unrestricted shares of our common stock; and iii) performance share awards. The methods used to determine stock-based compensation expense for each type of equity grant are described in the following paragraphs.

Stock Option Grants. During the years ended December 31, 2025 and 2024, we granted 1,613,322 and 640,000 common stock options to purchase our common stock under the 2023 plan, respectively. We estimate the fair value of stock options using the Black-Scholes valuation model.

The Black-Scholes valuation model takes into account the exercise price of the award, as well as a variety of significant assumptions. The assumptions used to estimate the fair value of stock options include the expected term, the expected volatility of our stock over the expected term, the risk-free interest rate over the expected term, and our expected annual dividend yield. We account for forfeitures as they occur. We believe that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of stock options granted. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity awards.

Included in the stock options granted during the year ended December 31, 2025 were 212,040 performance-based stock options awarded to Mr. Amlani, divided equally into two tranches based on bookings growth thresholds for fiscal years 2025 and 2026. In each case, vesting was contingent upon continued service through December 31 of the applicable performance year. Expense recognition for these awards is based on the grant-date fair value and reflects management’s assessment of the probability of achieving the specified performance conditions.

During 2025, the performance condition for the 2025 tranche was not achieved and the related options were cancelled. Any compensation expense previously recognized for that tranche was reversed during 2025. Compensation expense related to the 2026 tranche, if any, will be recognized over the applicable service period in 2026.

On January 17, 2024, our stockholders approved a stock option exchange program (the “Exchange Offer”) pursuant to which eligible employees, primarily consisting of our executive officers and senior management, were able to exchange certain stock options (the “Eligible Options”) for replacement stock options with modified terms (the “New Options”) as described below. We commenced the Exchange Offer on January 19, 2024.

The Exchange Offer expired on February 20, 2024. Pursuant to the Exchange Offer, nine employees elected to exchange their Eligible Options, and we accepted for cancellation Eligible Options to purchase an aggregate of 2,180,000 shares of common stock, representing approximately 96% of the total shares of common stock underlying the Eligible Options. Following the expiration of the Exchange Offer, on February 20, 2024, we granted New Options to purchase 933,073 shares of Common Stock, pursuant to the terms of the Exchange Offer and our 2023 Plan.

The exercise price per share of the New Options granted pursuant to the Exchange Offer was $2.21 per share. Each New Option will vest and become exercisable, with respect to 50% of the shares of common stock underlying such New Option on the first anniversary of the grant date and, with respect to the remaining shares of common stock underlying such New Option, in twelve equal monthly installments thereafter, subject to the continuous service of the holder. The other terms and conditions of the New Options will be governed by the terms and conditions of the 2023 Plan and the nonstatutory stock option agreements entered into thereunder.

There was no incremental expense for the New Options as calculated using the Black-Scholes option pricing model. The unamortized expense remaining on the Eligible Options, as of the modification date, will be recognized over the new vesting schedule.

During the year ended December 31, 2024 we expensed an incremental $0.3 million in stock based compensation expense related to the accelerated vesting of stock options of our former Chief Executive Officer.

Restricted Stock Units. The 2023 Plan permits us to grant restricted stock units to our directors, officers, and employees. Upon vesting, each restricted stock unit entitles the recipient to receive a number of shares of common stock as set forth in the relevant restricted stock unit agreement. Stock-based compensation expense for restricted stock units is determined based on the fair market value of our stock on the date of grant, provided the number of shares in the grant is fixed on the grant date, and the related expense is recognized over the requisite service period as the awards vest.

We granted 771,184 restricted stock units to directors and officers during the year ended December 31, 2025. The aggregate grant-date fair value of these awards was $1.3 million, which will be recognized as stock-based compensation expense over the applicable vesting periods.

Of these restricted stock units, 122,818 shares vested shortly after June 30, 2025 and 127,537 vested shortly after December 31, 2025. 166,229 restricted stock units were granted on March 13, 2025 to Mr. Amlani in connection with an amendment to his employment agreement, all of which vested during 2025. Also, 354,600 restricted stock units were granted on June 13, 2025 to Mr. Amlani in connection with a further amendment to his employment agreement.

The March 13, 2025 amendment provided that 80% of Mr. Amlani's base salary for his service as our chief executive officer for the period from March 16, 2025 through December 31, 2025 was paid in restricted stock units. The award represented the right to receive 166,229 shares and vested in nine equal monthly installments beginning on April 16, 2025 and continuing on the 16th of each month through December 16, 2025.

The June 13, 2025 amendment provides that 75% of Mr. Amlani's base salary for his service as our chief executive officer for the period from January 1, 2026 through December 31, 2027 will be paid in restricted stock units. The award represents the right to receive 354,600 shares and will vest in twenty four equal monthly installments beginning on January 16, 2026 and continuing on the 16th of each month through December 16, 2027. All awards are subject to Mr. Amlani's continued service through the applicable vesting dates.

We granted 284,814 restricted stock units to directors, officers, and employees during the year ended December 31, 2024. The aggregate grant-date fair value of these awards was $0.5 million, which will be recognized as stock-based compensation expense over the applicable vesting periods.

Of the restricted stock units granted in 2024, 70,406 vested shortly after June 30, 2024 and 70,408 vested shortly after December 31, 2024. Of the remaining 144,000 restricted stock units, 15,000 vested in November 2024, 6,000 vested in December 2024 and 18,000 are scheduled to vest in June 2025, 2026 and 2027 in 6,000 increments. The remaining 105,000 restricted stock units were forfeited in 2024 as a result of employee terminations.

As of December 31, 2025, unrecognized compensation cost related to restricted stock units was approximately $0.6 million which is expected to be recognized over a weighted-average period of approximately 0.6 years.

Unrestricted Stock Grants. Our 2001 Plan, which was replaced by our 2023 Plan, permitted us to grant shares of unrestricted stock to our directors, officers, and employees. Stock-based compensation expense for stock grants is determined based on the fair market value of our stock on the date of grant; provided the number of shares in the grant is fixed on the grant date.

Stock Options. Total options outstanding at December 31, 2025 and 2024 were as follows:

At December 31, 2025, the weighted average remaining contractual term for total options outstanding and total options exercisable was approximately 7.90 and 7.64 years, respectively.

At December 31, 2025, the aggregate intrinsic value of options outstanding and exercisable was $0.2 million. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

At December 31, 2025, unrecognized compensation expense related to non-vested stock options was approximately $1.4 million, which is expected to be recognized over a weighted average period of 2.9 years.

We issue common stock from previously authorized but unissued shares to satisfy option exercises and purchases under our Employee Stock Purchase Plan.

Employee Stock Purchase Plan – In May 2021, we adopted the 2021 Employee Stock Purchase Plan (“2021 ESPP”) under which eligible employees could purchase common stock at a price equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month offering period. Participation in the 2021 ESPP is limited to $25,000 worth of stock for each calendar year, may be terminated at any time by the employee, and automatically ends on termination of employment. A total of 1,000,000 shares of common stock were reserved for issuance under the 2021 ESPP, and as of December 31, 2025, there were 691,238 shares available for future issuance thereunder. We issued 56,166 and 53,440 shares under the 2021 ESPP Plan during the years ended December 31, 2025 and 2024, respectively.

Share Purchases – On March 1, 2022, our Board of Directors authorized a stock repurchase program pursuant to which we may purchase up to $10.0 million of our common stock. On November 30, 2023, our Board of Directors extended the program through December 31, 2025. The stock repurchase program expired on December 31, 2025 and was not extended. As of December 31, 2025 we have repurchased $2.1 million of our common stock pursuant to this program. During the years ended December 31, 2025 and 2024 we repurchased 75,457 and 137,086 shares of our common stock, respectively. The program did not obligate us to acquire any particular amount of common stock.

Dividends – We did not pay dividends in the years ended December 31, 2025 and 2024.