Neoware - The following table sets forth certain information...

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Item 402(b) of Regulation S-K with management; and based upon such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in Neoware’s annual report on Form 10-K for the fiscal year ended June 30, 2007.

Compensation and Stock Option Committee

John P. Kirwin, III, Chairman
John M. Ryan
Les Hayman

EXECUTIVE COMPENSATION

Executive Compensation Tables

The following table sets forth certain information concerning the compensation earned during the fiscal year ended June 30, 2007 by our named executive officers based on total compensation earned during the 2007 fiscal year.

Summary Compensation Table for the 2007 Fiscal Year

Neoware - Recent Material Event


								Non-Equity
Name and								Incentive Plan		All Other
Principal					Option			Compensation		Compensation
Position ⁽¹⁾	Year		Salary ($)		Awards ($) ⁽²⁾			($) ⁽⁵⁾		($) ⁽⁵⁾		Total

Klaus P. Besier		2007		335,481		664,829			160,313		1,000		1,161,623
President & Chief Executive Officer

Eric N. Rubino		2007		277,545		268,282			119,064		1,000		665,891
Chief Operating Officer

Keith D. Schneck		2007		223,941		274,298			84,027		1,000		583,266
Executive Vice President and Chief Financial Officer

Peter Bolton		2007		250,720		88,117			168,489		37,724		702,137
Executive Vice President of EMEA

James W. Kirby		2007		228,369		127,183			217,941		1,000		574,493
Vice President of Sales

Michael G. Kantrowitz		2007		209,019		1,217,779	⁽³⁾		—		782,772		1,775,989
Former President and Chief Executive Officer

Wei Ching		2007		92,443		347,305	⁽⁴⁾		—		250,300		690,048
Former Executive Vice President of Asia


⁽¹⁾		Mr. Besier became our President on July 12, 2006 and was subsequently named Chief Executive Officer on October 30, 2006. On October 30, 2006, Mr. Kantrowitz resigned from his position as our Chief Executive Officer and held the position of Executive Chairman of our Board of Directors until such position was terminated on January 15, 2007 pursuant to the terms of a Termination and Services Agreement, as amended, between Neoware and Mr. Kantrowitz. Mr. Ching resigned as our Executive Vice President of Asia on November 17, 2006.

⁽²⁾		Mr. Besier was granted 250,000 stock options on July 12, 2006 and 75,000 stock options on October 30, 2006. There were no other stock options grants to named executive officers during the fiscal 2007. On July 2, 2007, the following stock options were granted to the named executive officers: Mr. Besier, 50,000; Mr. Schneck, 35,000; Mr. Rubino, 50,000; Mr. Bolton, 35,000; and Mr. Kirby, 50,000. The amounts shown in the above table reflect the dollar expense recognized for financial reporting purposes with respect to the 2007 fiscal year for stock options granted to the named executive officers, in the 2007 fiscal year and in prior fiscal years (to the extent such awards remain unvested in whole or in part at the beginning of the


		2007 fiscal year), in accordance with SFAS 123R and do not correspond to the actual value that may be realized by the named executive officers. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. For information on the valuation assumptions made in the calculation of these amounts refer to the Equity-Based Compensation Note to Neoware’s financial statements for the fiscal year ended June 30, 2007, included in this Annual Report on Form 10-K. For information on the valuation assumptions with respect to grants made prior to the 2007 fiscal year, refer to the note on “Other Stock Related Information” for the Neoware financial statements in our Annual Report on Form 10-K for the respective fiscal year-end. See the table under “Grants of Plan-Based Awards in the 2007 Fiscal Year” for information on the options granted in the 2007 fiscal year to the named executive officers.

⁽³⁾		The expenses for option awards for Mr. Kantrowitz reflect the dollar expense recognized for financial reporting purposes as required under SFAS 123R, excluding the impact of estimated forfeitures as required by the SEC rules. According to the terms of the Termination and Services Agreement with Mr. Kantrowitz, as amended, all of his outstanding and unvested stock options became vested, and the period for which his outstanding options could be exercised was extended beyond 90 days from termination as is otherwise set forth in the Company’s equity incentive and stock option plans filed with the SEC. Without the acceleration of vesting and extension of the stock options, the option awards expense to Neoware for the 2007 fiscal year for Mr. Kantrowitz under SFAS 123R (excluding the impact of forfeitures as required by SEC rules) would have totaled $313,984.

⁽⁴⁾		The expenses for option awards for Mr. Ching reflect the expense recognized for financial reporting purposes as required under SFAS 123R, excluding the impact of estimated forfeitures as required by the SEC rules. Upon Mr. Ching’s resignation on November 17, 2006, he forfeited 75,000 stock options resulting in actual option awards expense to Neoware of $133,213 for the 2007 fiscal year.

⁽⁵⁾		The amounts shown for Mr. Besier, Mr. Schneck, and Mr. Rubino reflect cash incentive awards earned by them under the Bonus Plan with respect to performance in the 2007 fiscal year. The amounts shown for Mr. Bolton and Mr. Kirby reflect cash incentive awards earned by them under their respective incentive compensations arrangement with respect to performance in the 2007 fiscal year. See page 48 of this Annual Report on Form 10-K under “Compensation Discussion and Analysis – Annual Cash Incentive Awards” for more detailed information on the Bonus Plan.

⁽⁶⁾		The amounts shown consist of the following items detailed in a separate table appearing on page 56:

	•		Contributions by the Company to the named executive officer’s 401(k) plan;

	•		Automobile allowances;

	•		Pension contributions; and

	•		Severance payments earned either disbursed or owed to former named executive officers.

All Other Compensation for the 2007 Fiscal Year

The table below presents an itemized account of “All Other Compensation” provided to our named executive officers during the 2007 fiscal year, regardless of the amount and any minimum thresholds provided under SEC rules and regulations. Consistent with our philosophy of “pay for performance,” perquisites and other compensation are limited in scope and amount.


	401(k) Matching
	Contributions		Auto			Pension			Severance		Total All Other
Name	($)		Allowance ($)			Contributions ($)			Pay ($)		Compensation ($)

Klaus Besier		1,000		—			—			—		1,000
Eric N. Rubino		1,000		—			—			—		1,000
Keith D. Schneck		1,000		—			—			—		1,000
Peter Bolton		—		17,391	⁽¹⁾		20,333	⁽²⁾		—		37,724
James W. Kirby		1,000		—			—			—		1,000
Michael G. Kantrowitz		1,000		5,696			—			776,076		782,772
Wei Ching		—		10,230			—			240,070		250,300


⁽¹⁾		The auto allowance for Mr. Bolton is a flat-monthly payment of £750 totaling £9,000 for the 2007 fiscal year. The exchange rate applied of 1.93233 was the average exchange rate for the entire fiscal year.

⁽²⁾		The annual pension contributions for Mr. Bolton totaled £10,522 for the fiscal year. The exchange rate applied of 1.93233 was the average exchange rate for the entire fiscal year.

Grants of Plan-Based Awards in the 2007 Fiscal Year

The following table sets forth information about equity awards and potential future non-equity incentive payouts provided to our named executive officers during the 2007 fiscal year under the 2004 Plan and the Bonus Plan.

Estimated Future Payouts Under Non-Equity Incentive Plan Awards


										All Other Option
										Awards:		Exercise or
										Number of		Base Price of		Grant Date
										Securities		Option		Fair Value
	Grant		Threshold		Target			Maximum		Underlying		Awards		of Option
Name	Date		($)		($)			($)		Options⁽²⁾		($/share)		Awards ($)

Klaus P. Besier				—		187,500	⁽¹⁾		—		—		—		—
		07/12/2006		—		—			—		250,000		13.60		2,317,500
		10/30/2006		—		—			—		75,000		13.34		627,000

Eric N. Rubino				—		139,256	⁽¹⁾		—		—		—		—

Keith D. Schneck				—		112,487	⁽¹⁾		—		—		—		—

Peter Bolton				153,000		170,000	⁽²⁾		—		—		—		—

James W. Kirby				186,300		207,000	⁽²⁾		—		—		—		—

Michael G. Kantrowitz⁽³⁾				—		—			—		—		—		—

Wei Ching⁽³⁾				—		—			—		—		—		—


⁽¹⁾		The amounts shown for Mr. Besier, Mr. Rubino, and Mr. Schneck reflect the potential value of the payouts under the Bonus Plan for the 2007 fiscal year if the target goals were satisfied for all performance goals. The potential payouts were performance-driven and therefore completely at risk. Under the plan, each year the Compensation Committee establishes a target bonus for each eligible executive expressed as a percentage of the executive’s base salary based on the executive’s position. As described in the Current Report on Form 8-K with the SEC on March 1, 2007, the Compensation Committee approved the fiscal year 2007 target bonus percentages for Mr. Besier, Mr. Rubino and Mr. Schneck, as follows: Mr. Besier, 50%; Mr. Rubino, 50%; and Mr. Schneck, 50%. The Compensation Committee approved performance objectives for the Mr. Besier, our Chief Executive Officer, and, upon the recommendation of Mr. Besier as to each of the eligible executives, also approved individual performance objectives for fiscal 2007 for Mr. Rubino and Mr. Schneck, which the executives must achieve to receive their full bonus payments. Each executive had between six and seven performance objectives tied to bonus payments. After the end of the fiscal year, the Compensation Committee, together with Mr. Besier, reviewed each of the other executives’ performance of his performance objectives, and the Compensation Committee reviewed Mr. Besier’s performance of his performance objectives and also overall job performance including functional area and departmental objectives. Under the Bonus Plan, if an executive fails to achieve his individual performance objectives, the Compensation Committee will reduce the executive’s bonus payment accordingly. The percent of the executive’s above assigned target bonus percentage will be equivalent to the percent of his performance objectives achieved, up to 100%, subject to the Compensation Committee’s discretion to adjust an executive’s bonus up or down based upon job performance, other than achievement of MBOs, and achievement of functional area and departmental objectives.

⁽²⁾		The amounts shown for Mr. Bolton and Mr. Kirby reflect the potential value of the payouts under their respective incentive compensations arrangement with respect to performance in the 2007 fiscal year if their target goals were satisfied for all performance goals. The potential payouts are performance-driven and therefore completely at risk. The performance criteria, performance goals and salary and incentive award percentages for determining the payouts are


		described under “Compensation Discussion and Analysis – Annual Cash Incentive Awards” beginning on page 48 of this Annual Report.

⁽³⁾		As reflected in the “Summary Compensation Table for the 2007 Fiscal Year,” no awards were paid to Messrs. Kantrowitz and Ching, as they did not meet the plan eligibility criterion requiring employment with Neoware on the date awards are paid, except by retirement, disability or death.

⁽⁴⁾		The Compensation Committee met and approved the grants of stock options under our 2004 Plan Equity Incentive to Mr. Besier on July 12 and October 30, 2006. All of the stock options detailed in the table have a term of 10 years and an exercise price set at the closing selling price of our common stock on the date of grant.

Outstanding Equity Awards at 2007 Fiscal Year-End

Number of Securities Underlying
Unexercised Options ⁽¹⁾


					Option		Option
					Exercise		Expiration
Name	Exercisable (#)		Unexercisable (#)		Price ($/Share)		Date ⁽²⁾

Klaus P. Besier		10,000		—		22.04		12/01/2015
		—		250,000		13.60		07/12/2016
		—		75,000		13.34		10/30/2016

Eric N. Rubino		113,250		—		17.15		12/09/2012
		6,250		—		10.55		04/28/2013
		5,000		10,000		6.48		08/04/2014
		17,500		35,000		9.26		12/01/2014
		5,000		15,000		11.15		08/11/2015

Keith D. Schneck		50,000		—		10.55		04/28/2013
		7,500		7,500		6.48		08/04/2014
		12,500		12,500		9.26		12/01/2014
		5,000		15,000		11.15		08/11/2015

Peter Bolton		12,500		12,500		9.26		12/01/2014
		5,000		15,000		11.15		08/11/2015

James W. Kirby		—		10,000		8.78		10/06/2014
		—		12,500		9.26		12/01/2014
		5,000		15,000		11.15		08/11/2015

Michael G. Kantrowitz		100,000		—		14.55		01/15/2008
		50,000		—		16.41		01/15/2008
		21,598		—		9.26		12/31/2007
		50,000		—		11.15		12/31/2007

Wei Ching		—		—		—		—


⁽¹⁾		The stock options listed above represent the number of stock options, exercisable and unexercisable, that are held by the name executive officers as of June 30, 2007, the end of our last fiscal year.

⁽²⁾		All stock options listed above vest in 25% increments per year over four years with the following exceptions: Mr. Besier’s grant of 10,000 stock options on December 1, 2005 vested six months after the grant date; and the vesting of Mr. Kantrowitz’s stock options were accelerated pursuant to the terms of the Termination and Services Agreement with Neoware dated September 30, 2006, as amended. All stock options granted to the named executive officers as set forth above have 10-year terms, subject to earlier termination or expiration in the event of termination of service or as otherwise set forth in the 2004 Plan with the following exceptions: Mr. Kantrowitz’s stock options are subject to specific termination dates as set forth in the above table pursuant to the terms of the Termination and Services Agreement with Neoware.

Option Exercises During the 2007 Fiscal Year


	Option Awards
	Number of Shares		Value Realized
Name	Acquired on Exercise (#)		on Exercise ($)

Klaus P. Besier		—		—
Eric N. Rubino		—		—
Keith D. Schneck		—		—
Peter Bolton		—		—
James W. Kirby ⁽¹⁾		11,250		34,575
Michael G. Kantrowitz⁽²⁾		78,402		199,797
Wei Ching		—		—


⁽¹⁾		Mr. Kirby exercised options to acquire 5,000 shares on February 26, 2007, with an exercise price of $8.78 and a market price of $12.12 and options to acquire 6,250 shares on February 26, 2007, with an exercise price of $9.26 and a market price of $12.12.

⁽²⁾		Mr. Kantrowitz exercised 15,500 stock options on May 23, 2007, with an exercise price of $9.26 and a market price of $11.68 and 62,902 stock options on May 29, 2007, with an exercise price of $9.26 and a market price of $11.84.

Compensation of Directors

Each non-employee director receives a one-time automatic grant of options to purchase 10,000 shares of common stock under our 2004 Plan upon the director’s initial election. Thereafter, under the 2004 Plan, each non-employee director receives an automatic annual grant of options to purchase 7,500 shares of common stock. Non-employee directors are also eligible to receive equity awards at the discretion of the Board of Directors.

In addition, during the 2007 fiscal year, all non-employee members of the Board received an annual fee of $16,000 (increased from $7,500 effective January 2007) for services as a member of the Board, $1,500 for each regular or special Board meeting attended in person, $750 for each such meeting attended by telephone and $500 for each committee meeting attended. The chairman of the Audit Committee received an annual fee of $16,000 (increased from $5,000 effective January 2007), the chairman of the Compensation Committee received an annual fee of $6,000 (increased from $1,500 effective January 2007) and the chairman of the Governance and Nominating Committee received an annual fee of $2,000 (increased from $1,500 effective January 2007), for their services during the 2007 fiscal year as chairmen in addition to the applicable meeting fees, and the independent lead director or the independent chairman of the Board earned an annual fee of $10,000. Annual fees are payable quarterly.

Director Compensation Table

The following table shows the compensation earned by each non-employee director in the 2007 fiscal year.


	Fees Earned or		Option Awards		All Other
Director	Paid in Cash ($)⁽¹⁾		($)⁽²⁾		Compensation ($)		Total ($)

Klaus P. Besier⁽³⁾		5,250		—		—		5,250
Dennis Flanagan		38,250		30,464		—		68,714
David D. Gathman		38,750		86,150		—		124,900
Leslie Hayman ⁽⁴⁾		4,250		25,503		—		29,753
John P. Kirwin, III		38,500		86,150		—		124,650
Christopher G. McCann		32,000		86,150		—		118,150
John M. Ryan		42,250		86,150		—		128,400


⁽¹⁾		Consists of the aggregate amount of all fees earned or paid in cash for services as a director, consisting of annual board and committee chair fees and board and committee meeting fees earned by non-employee directors, as described above.

⁽²⁾		The amounts shown reflect the dollar amount of options recognized for financial statement reporting purposes for the fiscal year ended June 30, 2007 for the stock options granted to the non-employee directors. The compensation expense reflected in the table is the same as the grant date fair value pursuant to SFAS 123R. The fair value was estimated using the Black-Scholes option pricing model in accordance with SFAS 123R using material assumptions as listed in the notes to our financial statements. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. The actual value of the options, if any, will depend on the extent that the market value of our common stock at exercise is greater than the exercise price of the option. Each non-employee director (other than Mr. Hayman) was automatically granted an option under the 2004 Plan to purchase 7,500 shares on November 30, 2006 with an exercise price of $11.17 per share. Mr. Hayman was granted an option to purchase 10,000 shares on April 27, 2007, the date on which he became a director, at an exercise price of $12.39 per share. As of June 30, 2007, the following non-employee directors held options to purchase the following number of shares:


Name	Number of Options Held
Mr. Flanagan		17,500
Mr. Gathman		47,500
Mr. Hayman		10,000
Mr. Kirwin		40,000
Mr. McCann		37,500
Mr. Ryan		37,500


⁽³⁾		Mr. Besier served as a non-employee director until July 12, 2006, the date on which he was appointed as our President.

⁽⁴⁾		Mr. Hayman was appointed as a director on April 27, 2007.

Compensation Committee Interlocks and Insider Participation

The Board of Directors has determined that at the time of service each member of the Compensation Committee satisfied the definition of independence described in Rule 4200(15)(a). The Board of Directors determines the compensation of members of the Compensation Committee. Prior to his appointment as President of Neoware in July 2006, Mr. Besier served as a member of our Compensation Committee.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

BENEFICIAL OWNERSHIP OF COMMON STOCK

The following table sets forth information regarding the beneficial ownership of Neoware common stock as of August 15, 2007 (unless otherwise noted), for:

	•		each person who is known by us to own beneficially more than 5% of the outstanding shares of Neoware common stock;

	•		each of our current directors and named executive officers; and

	•		all of our directors and executive officers as a group.

Unless otherwise indicated, the address of each person named in the table below is c/o Neoware, Inc., 3200 Horizon Drive, King of Prussia, Pennsylvania 19406, and except as indicated in the table, to Neoware’s knowledge, each beneficial owner named in the table has sole voting and sole investment power over the share indicated as owned by such person, subject to applicable community property laws. The percentage listed in the table is calculated based on 20,206,243 shares of Neoware common stock outstanding on August 15, 2007. The amounts and percentage of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days.


	Number of Shares			Percentage of Class
Name of Beneficial Owner	Beneficially Owned			Beneficially Owned

FMR Corp.		1,950,031	⁽¹⁾		9.7
82 Devonshire Street Boston, MA 02109

Central Securities Corporation		1,500,000	⁽²⁾		7.5
630 Fifth Avenue, Suite 820 New York, NY 10111

T. Rowe Price Associates, Inc.		1,335,300	⁽³⁾		6.6
100 E. Pratt Street Baltimore, MD 21202

Putnam, LLC		1,001,240	⁽⁴⁾		5.1
One Post Office Square Boston, MA 02109

Klaus P. Besier		73,500	⁽⁵⁾		*

Dennis Flanagan		13,750	⁽⁵⁾		*

David D. Gathman		46,350	⁽⁵⁾⁽⁶⁾		*

Leslie Hayman		—			*

John P. Kirwin, III		45,750	⁽⁵⁾		*

Christopher G. McCann		38,750	⁽⁵⁾		*

John M. Ryan		88,750	⁽⁵⁾		*

Eric N. Rubino		157,000	⁽⁵⁾		*

Keith D. Schneck		83,750	⁽⁵⁾		*

Peter Bolton		22,500	⁽⁵⁾		*

James W. Kirby		15,000	⁽⁵⁾		*

All executive officers and directors as a group (11 persons)		585,100	⁽⁵⁾		2.9


*		Less than 1%

⁽¹⁾		FMR Corp. filed a Schedule 13G on January 10, 2007, upon which Neoware has relied in making this disclosure. Fidelity Management & Research Company, an investment advisor to various investment companies that comprise the Fidelity Funds that own the shares of Neoware’s common stock and a wholly-owned subsidiary of FMR Corp. beneficially owns 1,950,031 shares (or 9.7%) of Neoware’s common stock. Edward C. Johnson III, Chairman of FMR Corp., along with other members of his family, collectively own 49% of the voting power of FMR Corp. The power to vote or direct the voting of the shares of common stock held by the Fidelity Funds resides with the board of trustees of the Fidelity Funds. FMR Corp. through its control of Fidelity Management & Research Company and the Fidelity Funds, and Mr. Johnson each has sole power to dispose of 1,950,031 shares.


⁽²⁾		Central Securities Corporation filed a Schedule 13G on January 29, 2007, upon which Neoware has relied in making this disclosure.

⁽³⁾		T. Rowe Price Associates, Inc. filed a Schedule 13G on February 14, 2007, upon which Neoware has relied in making this disclosure. T. Rowe Price Associates, Inc. has sole voting power of 77,800 shares of Neoware’s common stock and the sole power to direct the disposition of 1,335,300 shares (or 6.6%) of Neoware’s common stock.

⁽⁴⁾		Putnam, LLC (d/b/a/ Putnam Investments) filed a Schedule 13G on February 13, 2007, upon which Neoware has relied in making this disclosure. Putnam, LLC wholly owns two registered investment advisers — Putnam Investment Management, LLC., which is the investment adviser to the Putnam family of mutual funds and beneficially owns 529,198 (or 2.7%) of the shares of Neoware commons stock subject to the Schedule 13G, and The Putnam Advisory Company, LLC, which is the investment adviser to Putnam’s institutional clients and beneficially owns 482,060 (or 2.4%) of the shares of Neoware commons stock subject to the Schedule 13G. Both subsidiaries have dispositive power over 1,001,240 shares of Neoware’s common stock as investment managers, but each of the mutual fund’s trustees has voting power over the shares held by each fund, and The Putnam Advisory Company, LLC. has shared voting power over 305,160 shares of Neoware’s common stock held by the institutional clients.

⁽⁵⁾		Includes options exercisable within 60 days of August 15, 2007 to purchase Neoware’s common stock issued pursuant to Neoware’s equity incentive plans as follows: Mr. Besier, 72,500 shares; Mr. Flanagan, 13,750 shares; Mr. Gathman, 43,750 shares; Mr. Kirwin, 36,250 shares; Mr. McCann, 33,750 shares; Mr. Ryan, 33,750 shares; Mr. Rubino, 157,000 shares; Mr. Schneck, 83,750 shares; Mr. Bolton, 22,500 shares; Mr. Kirby, 15,000 shares; and all executive officers and directors as a group, 507,000 shares.

⁽⁶⁾		Mr. Gathman beneficially owns 2,600 shares of common stock jointly with his wife.

Equity Compensation Plan Information

The following table sets forth information about the shares of our common stock that may be issued as of June 30, 2007 upon the exercise of options under the Amended and Restated 2004 Equity Incentive Plan (the “2004 Plan”) and the 1995 Stock Option Plan (the “1995 Plan”), which were approved by the stockholders, and shares that may be issued under options under the 2002 Stock Option Plan (the “2002 Plan”), which was not approved by our stockholders.

(a)

Number of

(c)

securities to be

Number of securities

issued upon

(b)

remaining available for

exercise of

Weighted-average

future issuance under

outstanding

exercise price of

equity compensation

options,

outstanding

plans (excluding

warrants and

options, warrants

securities reflected in

Plan category

Rights

and rights

column (a)

Equity compensation plans approved by security holders⁽¹⁾

1,626,871

13.08

1,438,645

Equity compensation plans not approved by security holders⁽²⁾

283,324

13.00

—

1,910,195

13.08

1,438,645


⁽¹⁾		The 2004 Plan, designed to provide equity compensation to certain of our employees, officers, directors and independent contractors, authorizes the grant of incentive and non-qualified options, stock appreciation rights, restricted shares and restricted share units. The 1995 Stock Option Plan, which was replaced by the 2004 Plan, authorized the granting of incentive and non-qualified stock options. The 1995 Plan was terminated on December 1, 2004 as to any shares available for future grant. Options granted under the 1995 Plan that terminate, expire or are canceled without having been exercised after December 1, 2004 will be available for grant under the 2004 Plan.

⁽²⁾		The 2002 Plan, which was designed to provide equity compensation to certain of our employees, officers, directors and independent contractors, authorized the granting of non-qualified stock options. A total of 700,000 shares were reserved for issuance under the 2002 Plan. The option price per share for any stock option granted under the 2002 Plan was not less than the last reported trade of Neoware’s common stock on the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System on the date of grant or the day immediately preceding the date of grant. Upon the occurrence of a change in control, as defined under the 2002 Plan, the Board of Directors or committee appointed by the Board to administer the plan may, on a case-by-case basis, provide for the individual vesting of any unvested stock options held by a plan participant. The 2002 Plan did not permit the granting of incentive stock options or provide for automatic grants of options to non-employee directors. The 2002 Plan was not approved by our stockholders and was terminated on December 1, 2004 as to any shares available for future grant. Options granted under the 2002 Plan that terminate, expire or are canceled without having been exercised after December 1, 2004 will be available for grant under the 2004 Plan.

Changes in Control

On July 23, 2007, we entered into an Agreement and Plan of Merger, or merger agreement, with HP and Narwhal Acquisition Corporation, the merger sub, pursuant to which HP has agreed to acquire all of the issued and outstanding shares of our common stock for a cash purchase price of $16.25 per share, which will result in a change in control of Neoware. For additional information regarding the pending merger, please see the information under the caption “Overview” within Part I, Item 1, which is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Review and Approval of Related Person Transactions

We review all relationships and transactions in which Neoware and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest. All of our Board members and our executive officers must certify on an annual basis in a written questionnaire as to the existence of related person transactions as that term is defined in Item 404 of Regulation S-K. Our Audit Committee, with the advice of our General Counsel and outside counsel, then determines, based on the facts and circumstances, whether Neoware or a related person has a direct or indirect material interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material to Neoware or a related person are disclosed in our proxy statement. In addition, the Audit Committee reviews and approves or ratifies any related person transaction that is required to be disclosed. In the course of its review and approval or ratification of a disclosable related party transaction, the Committee considers:

	•		the nature of the related person’s interest in the transaction;

	•		the material terms of the transaction, including, without limitation, the amount and type of transaction;

	•		the importance of the transaction to the related person;

	•		the importance of the transaction to Neoware;

	•		whether the transaction would impair the judgment of a director or executive officer to act in the best interest of Neoware; and

	•		any other matters the Committee deems appropriate.

Since the beginning of the 2007 fiscal year, we have not engaged in any transaction or series of similar transactions, or any currently proposed transaction or series of similar transactions, to which Neoware or any of its subsidiaries was or is to be a participant (1) in which the amount involved exceeds $120,000 and (2) in which any of our directors, executive officers or persons known to us to be beneficial owners of more than 5% of our common stock, or members of the immediate families of those individuals, had or will have, a direct or indirect material interest.

Director Independence

Please see the disclosure regarding director independence under the caption “Director Independence and Expertise” in Part III, Item 10, which is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table shows the fees billed to Neoware by its independent registered public accounting firm for services provided to us during the 2007 and 2006 fiscal years:

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