United States
Securities and Exchange Commission
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No.  )
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Soliciting Material Pursuant to § 240.14a-12
Ultralife Corporation
(Name of Registrant as Specified In Its Charter)
 
o Definitive Additional MaterialsNot Applicable
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ULTRALIFE CORPORATION
(Name of Registrant as Specified In Its Charter)
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(ULTRALIFE CORPORATION LOGO)
 
ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513


ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513
 
April 30, 201022, 2013
 
To Our Shareholders:
 
You are cordially invited to attend the 2013 Annual Meeting of Shareholders of Ultralife Corporation on Tuesday, June 8, 20104, 2013 at 10:309:00 A.M. local time at our corporate offices, 2000 Technology Parkway, Newark, New York 14513.the Westin Virginia Beach Town Center, 4535 Commerce Street, Virginia Beach, Virginia  23462.
 
The accompanyingThis year, we are again providing our proxy materials over the Internet.  Accordingly, we are mailing to many of our shareholders a Notice of Annual MeetingInternet Availability of Shareholders andProxy Materials instead of a paper copy of our Proxy Statement describe in detail the matters expectedand our 2012 Annual Report to be acted upon at the meeting. This packageShareholders.  The Notice of Internet Availability of Proxy Materials contains instructions about how to access those documents and vote online.  The Notice of Internet Availability of Proxy Materials also contains instructions about how each of our 2009shareholders can also receive a paper copy of our proxy materials, including the Proxy Statement, our 2012 Annual Report to Shareholders which includesand a form of proxy card or voting instruction card.  By taking advantage of this distribution process, we will not only conserve natural resources, but we will also reduce ourForm 10-K for the fiscal year ended December 31, 2009 costs of printing and which sets forth important business and financial information concerning your company.distributing proxy materials.
 
We hope that you will be ablelook forward to attend this year’s Annual Meeting.a productive annual meeting.
 
Very truly yours,
 
-s- John D. Kavazanjian
John D. Kavazanjian
President and Chief Executive Officer

ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513
Very truly yours,


Michael D. Popielec
President and Chief Executive Officer
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 2010
 

ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JUNE 4, 2013

Notice is hereby given that the 20102013 Annual Meeting of Shareholders of Ultralife Corporation will be held on Tuesday, June 8, 20104, 2013 at 10:309:00 A.M. local time at our corporate offices, 2000 Technology Parkway, Newark, New York 14513the Westin Virginia Beach Town Center, 4535 Commerce Street, Virginia Beach, Virginia  23462 for the following purposes:
 
1. to elect eight
1.  to elect six directors for a term of one year and until their successors are duly elected and qualified;
 
2. to ratify the selection of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010; and
2.  to ratify the selection of Bonadio & Co., LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2013;
 
3.  to approve an amendment to our Amended and Restated 2004 Long-Term Incentive Plan, as amended (“Restated LTIP”), which does not change the total shares available but which does include an increase in the number of shares that can be issued pursuant to awards other than stock options and stock appreciation rights and an increase in the number of shares that may be awarded to an individual during a calendar year and which authorizes Restricted Stock Units;
4.  to ratify the grants of stock awards in excess of the previous 200,000-share limitation on the number of awards other than stock options and stock appreciation rights set forth in our Restated LTIP; and
5.  to transact such other business as may properly come before the meeting and any adjournments thereof.
 
Only shareholders of record of our common stock, par value $.10 per share, at the close of business on April 15, 201012, 2013 are entitled to receive notice of, and to vote at and attend the meeting. Ifour Annual Meeting.  Your vote is important.  Whether or not you do not plan to attend the meeting in person, please complete, date and sign the enclosed proxy, which is solicitedour Annual Meeting, we hope that you will vote as soon as possible.  If you received only a Notice of Internet Availability of Proxy Materials by our Board of Directors, and return it promptly in the enclosed envelope. In the eventmail, you decide to attend the meeting in person, you may if you desire, revoke your proxy and vote your shares at the Internet site address listed on your Notice of Internet Availability.  You may also request a paper copy of our proxy materials by visiting the Internet site address listed on your Notice of Internet Availability, by calling the toll-free number or by sending an e-mail to the e-mail address listed on your Notice of Internet Availability.  If you received a paper copy of the proxy materials by mail, you may vote your shares by proxy by doing any one of the following: vote at the Internet site address listed on your proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or sign, date and return in person.the pre-addressed envelope provided the enclosed
 
Our 2009 Annual Report to Shareholders, which includes ourForm 10-K for the fiscal year ended December 31, 2009, is enclosed.
proxy or voting instruction card.
 
By Order of the Board of Directors
-s- Bradford T. Whitmore
Bradford T. Whitmore
By Order of the Board of Directors
Bradford T. Whitmore
Chair of the Board of Directors
 
Dated:  April 30, 201022, 2013

 
TABLE OF CONTENTS
Title
Title
Page
INFORMATION CONCERNING SOLICITATION AND VOTING
1
 
Quorum
1
2
Vote Required
2
Abstentions
3
Broker Non-Votes
3
QuorumPROPOSAL 1 ELECTION OF DIRECTORS
2
4
Vote Required
2
Abstentions
2
Broker Non-Votes
2
CORPORATE GOVERNANCE
7
 
General
3
7
General
3
Committees of the Board of Directors
7
 
Audit and Finance Committee
3
7
Governance Committee
8
Compensation and Management Committee
8
Strategy and Corporate Development Committee
8
Shareholder Recommendations and Standards for Director Nominations
9
 4
Annual Meeting Attendance
9
 5
Executive Sessions
9
 5
Communicating with the Board of Directors
9
 5
Code of Ethics
10
 
Related Party Transactions
5
10
Risk Management
10
Risk Management
6
PROPOSAL 1 ELECTION OF DIRECTORS
7
DIRECTOR COMPENSATION
11
 9
Director Cash Compensation
11
 10
Directors’ Stock-Based Incentive Compensation
11
 10
Director Compensation for 20092012
11
12
EXECUTIVE COMPENSATION
13
Compensation Overview
13
Retirement Benefits
19
Perquisites and Other Personal Benefits
19
Other 2012 Compensation Actions
19
Stock Ownership and Retention Guidelines for 2012
20
Deductibility of Executive Compensation
20
Accounting for Stock-Based Compensation
20
2012 Summary Compensation Table
21
Employment Arrangements
21
Mr. Popielec
21
Mr. Comerford
23
Other Executive Officers
24
Outstanding Equity Awards at December 31, 2012
24
PROPOSAL 2 RATIFY THE SELECTION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
26
 13
Principal Accountant Fees and Services
26
 
Audit Fees
13
26
EXECUTIVE OFFICERSAudit-Related Fees
26
 
Tax Fees
14
26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSAll Other Fees
15
26
SECURITY OWNERSHIP OF MANAGEMENT
15
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
17
EXECUTIVE COMPENSATION
17
Compensation Discussion and Analysis
17
Performance-Vested Restricted Shares
24
Time-Vested Restricted Stock Grants
26
Compensation and Management Committee Report
28
2009 Summary Compensation Table
29
2009 Grants of Plan-Based Awards
31
Outstanding Equity Awards at December 31, 2009
32
2009 Option Exercises and Stock Vested
36
EMPLOYMENT ARRANGEMENTS
37
Mr. Kavazanjian
37
Mr. Comerford
38
Messrs. Schmitz, Fishback and Casper
38
Other Executive Officers
39
Salary Adjustments
39
Potential Payments upon Termination and/or a Change in Control
40
401(k) PLAN
41
REPORT OF THE AUDIT AND FINANCE COMMITTEE
41
27
PROPOSAL 3 APPROVE AN AMENDMENT TO THE RESTATED LTIP
28
Equity Compensation Plan Information
29
Summary of Restated LTIP (as amended)
29
New Plan Benefits
33
Tax Status of Restated LTIP Awards
33
Stock Price
34
Required Vote and Board of Directors’ Recommendation
34
PROPOSAL 4 RATIFY THE GRANTS OF STOCK AWARDS IN EXCESS OF THE PREVIOUS 200,000-SHARE LIMITATION SET FORTH IN OUR RESTATED LTIP
35
Required Vote and Board of Directors’ Recommendation
35
OTHER MATTERS42
35
EXECUTIVE OFFICERS
36
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
37
SECURITY OWNERSHIP OF MANAGEMENT
38
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
39
SUBMISSION OF SHAREHOLDER PROPOSALS
39
IMPORTANT
 
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, WE ENCOURAGE
YOU TO VOTE IN ANY OF THE MANNERS DESCRIBED IN THIS PROXY STATEMENT.
WE ALSO ENCOURAGE BENEFICIAL OWNERS TO FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR BROKER REGARDING HOW TO VOTE. YOUR BROKER CANNOT VOTE YOUR SHARES FOR DIRECTOR NOMINEES OR PROPOSALS 3 AND 4 UNLESS YOU PROVIDE YOUR BROKER WITH VOTING INSTRUCTIONS.
 
42
ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513
(315) 332-7100
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 4, 2013
 

IMPORTANT
REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, WE ENCOURAGE YOU TO COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. WE ALSO ENCOURAGE BENEFICIAL OWNERS TO FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR BROKER REGARDING HOW TO VOTE. A RECENT RULE CHANGE PREVENTS YOUR BROKER FROM VOTING YOUR SHARES FOR DIRECTOR NOMINEES UNLESS YOU PROVIDE YOUR BROKER WITH VOTING INSTRUCTIONS.

ULTRALIFE CORPORATION
2000 Technology Parkway
Newark, New York 14513
(315) 332-7100
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
JUNE 8, 2010
INFORMATION CONCERNING SOLICITATION AND VOTING
 
We are furnishing this proxy statement to our shareholders in connection with our Board of Directors’ solicitation of proxies for use at our 20102013 Annual Meeting of Shareholders, which we refer to in this proxy statement as the Meeting, to be held on Tuesday, June 8, 2010,4, 2013, at 10:309:00 A.M. local time and at any adjournments thereof.  The Meeting will be held at the Westin Virginia Beach Town Center, 4535 Commerce Street, Virginia Beach, Virginia  23462.
In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission, which we refer to in this proxy statement as the SEC, instead of mailing a printed copy of our corporate offices, 2000 Technology Parkway, Newark, New York 14513.proxy materials to each shareholder of record, we are now furnishing proxy materials to our shareholders on the Internet.  If you received only a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request a copy.  Instead, the Notice of Internet Availability of Proxy Materials will instruct you how to access and review the proxy materials over the Internet.  The Notice of Internet Availability of Proxy Materials will also instruct you as to how you may submit your proxy over the Internet.  If you received only a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting those materials included in the Notice of Internet Availability of Proxy Materials.
 
The approximate date on which the enclosed formNotice of proxy and this proxy statement areInternet Availability of Proxy Materials is first being sent to our shareholders ison or about April 30, 2010.22, 2013 and our proxy materials are first being made available to our shareholders on or about April 22, 2013.
 
You may vote by proxy or in person at the Meeting.  If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares online by proxy at the Internet site address listed on your Notice of Internet Availability.  You may also request a paper copy of our proxy materials by visiting the Internet site address, calling the toll-free number or by sending an email to the email address listed on your Notice of Internet Availability of Proxy Materials, by calling the toll-free number or by sending an e-mail to the e-mail address listed on your Notice of Internet Availability.  If you received a paper copy of the proxy materials by mail, you may vote your shares by proxy by doing
any one of the following: vote at the Internet site address listed on your proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or mail your signed and dated proxy or voting instruction card to our tabulator in the self-addressed envelope provided.  Even if you plan to attend the Meeting in person, we recommend that you vote by proxy prior to the Meeting.  You can always change your vote as described below.
When a proxy card is returned properly signed and dated, the shares represented thereby will be voted in accordance with the shareholder’s directions.  If the proxy is signed, dated and returned without choices having been specified, the shares will be voted FOR the election of each director-nominee named therein and FOR the other proposalproposals identified therein.
You may receive more than one Notice of Internet Availability of Proxy Materials or more than one paper copy of the proxy materials, including multiple paper copies of this proxy statement and multiple proxy or voting instruction cards, depending on how you hold your shares.  For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice of Internet Availability of Proxy Materials, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold your shares.  If you are a shareholder of record and your shares are registered in more than one name, you may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail or more than one proxy card.  To vote all of your shares by proxy, you must vote at the Internet site address listed on your Notice of Internet Availability of Proxy Materials, proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or sign, date and return each proxy card and voting instruction card that you receive.
If for any reason any of the nominees for election as directors become unavailable for election, discretionary authority may be exercised by the proxies to vote for substitute nominees proposed by our Board of Directors.  A shareholder has the right to revoke a previously granted proxy at any time before it is voted by filing with theour Corporate Secretary of Ultralife Corporation, which we refer to in this proxy statement as we, our, or us, a written notice of revocation, or a duly executed later-dated proxy, or by requesting return of the proxy at the Meeting and voting in person.
 
We will bear the cost of soliciting proxies.  In addition to the solicitation of proxies by use of the mails, some of our officers, directors and regular employees, without extra remuneration, may solicit proxies personally or by telephone, telefaxemail or similar transmission.  We have not engaged a proxy solicitation firm, but we may decide to retain the services of a proxy solicitation firm if we believe it is appropriate under the circumstances.  We will reimburse record holders for expenses in forwarding proxies and proxy soliciting material to the beneficial owners of the shares held by them.
 
Only shareholders of record at the close of business on April 15, 201012, 2013 are entitled to notice of, and to vote at, the Meeting.  As of April 15, 2010,12, 2013, there were 17,021,25617,458,977 shares of our common stock, par value $.10 per share, issued and outstanding, each entitled to one vote per share at the Meeting.
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON JUNE 8, 2010Quorum
As required by the rules adopted by the Securities and Exchange Commission (“SEC”), we are making this proxy statement and our annual report to shareholders available on the Internet.
The proxy statement and annual report to shareholders are available athttp://investor.ultralifecorp.com.

Quorum
 
A majority of the outstanding shares of our common stock, represented in person or by proxy at the Meeting, will constitute a quorum for the transaction of all business.  For purposes of determining whether a quorum is present, shareholders of record who are present at the Meeting in person or by proxy are considered to be present at the Meeting.
 
Vote Required
 
The table below shows the vote required at the Meeting to approve each of the proposals described in this proxy statement, assuming the presence of a quorum:
 
2
ProposalVote Required
   
Proposal
1.
Vote Required
1. Election of directors Plurality of the votes duly castshares present in person or by proxy at the Meeting and entitled to vote
2.Ratification of the selection of BDO Seidman,Bonadio & Co., LLP as our independent registered public accounting firm for the fiscal year ending December 31, 20102013 Majority of the votes duly castshares present in person or by proxy at the Meeting*Meeting and entitled to vote*
3.Approval of an amendment to our Amended and Restated 2004 Long-Term Incentive Plan, as amended (“Restated LTIP”)Majority of the shares present in person or by proxy at the Meeting and entitled to vote
4.Ratification of grants of stock awards in excess of the Restated LTIP limitation of 200,000 sharesMajority of the shares present in person or by proxy at the Meeting and entitled to vote
*The selection of BDO Seidman,Bonadio & Co., LLP is being presented to our shareholders for ratification.  The Audit and Finance Committee will consider the outcome of this vote when selecting our independent registered public accounting firm for subsequent fiscal years.
 
Abstentions
 
Shares that abstain from voting on one or more proposals to be acted on at the Meeting are considered to be present for the purpose of determining whether a quorum exists and are entitled to vote on all proposals properly brought before the Meeting.
exists.  Abstentions will have no effect on the election of directors; however, abstentions will have the effect of voting against the proposal to ratify the selection of our independent registered public accounting firmother proposals set forth in this proxy statement, because abstentions are deemed to be present and entitled to vote but do not count toward the affirmative vote required to approve the proposal.
 
Broker Non-Votes
 
If you own your shares through a broker and do not provide your broker with specific voting instructions, your broker will have the discretion under the rules governing brokers who have record ownership of shares that they hold in street name for their clients to vote your shares on routine matters but not otherwise.As a result, of new rules applicable to director elections after January 10, 2010, brokers may no longernot vote shares they hold as nominee in their discretion in the election of directors.directors or other non-routine matters.  As a result, your broker may exercise discretion to vote your shares only with respect to the ratification of the selection of our independent registered public accounting firm, because that is considered a routine matter.If you want your broker-owned shares to be counted in the election of directors, and on Proposals 3 and 4, you must vote those shares or provide instructions to your broker on how to vote your shares.
 
A broker non-vote occurs when shares held by a broker are not voted on a non-routine proposal because the broker has not received voting instructions from the beneficial owner and the broker lacks discretionary authority to vote the shares in the absence of such instructions.  Shares subject to broker non-votes are considered to be present for the purpose of determining whether a quorum exists and thus count towards satisfying the quorum requirement but are not counted for purposes of determining the number of shares entitled to vote on non-routine matters.  A broker non-vote will have no effect on the election of directors or on Proposals 3 and 4 since they are not counted for purposes of determining the number of shares entitled to vote.


2

 
3
CORPORATE GOVERNANCEPROPOSAL 1
ELECTION OF DIRECTORS
 
Our Board of Directors currently has eight directors, six of whom have been nominated to serve for an additional one-year term.  One of our other directors, Patricia C. Barron, is not standing for re-election as she is now 70 years old and will be retiring from service at the Meeting pursuant to our policy set forth in our Corporate Governance Principles.  Another director, James A. Croce, was not nominated by our Governance Committee to stand for election to our Board of Directors at the Meeting.  If elected, each director standing for election shall serve until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified.  The names of, and certain information with respect to, the persons nominated for election as directors are presented below.
Name
Age
Present Principal Occupation, Employment History and Expertise
Steven M. Anderson56
Brigadier General (Ret.) Anderson has been a director since April 13, 2010.  General (Ret.) Anderson is currently Senior Vice President of Relyant, LLC, a service-disabled veteran-owned small business and global provider of solutions to complex projects.  Prior to joining Relyant, LLC in February 2011, General (Ret.) Anderson served as Chief Operating Officer for Synovision Solutions LLC, a service-disabled veteran-owned small business specializing in unique applications of emerging technology, many central to innovative energy solutions.  General (Ret.) Anderson, a career military officer who retired from active duty in November 2009, served for five years as a general officer in the US Army, including 15 months as the senior US and coalition logistician in Iraq in support of Operation Iraqi Freedom.  From 2004 to 2006, General (Ret.) Anderson served as the senior US logistician in Korea (Deputy C-4 for the United Nations Command/Combined Forces Command and J4, United States Forces Korea) and spearheaded the development of Camp Humphreys, the combined and US headquarters facility in Central Korea.  He served in various command positions including Commander, Division Support Command, 2nd Infantry Division, Korea (2000-02), and Commander, 725th Main Support Battalion, 25th Infantry Division (Light), Schofield Barracks, Hawaii (1995-97).  In his final military assignment, he served for two years on the Army Staff in the Pentagon as the Director, Operations and Logistics Readiness, Office of the Army Deputy Chief of Staff, G4 (logistics).  General (Ret.) Anderson is a 1978 graduate of the US Military Academy at West Point and earned a Masters of Science degree in Operations Research and Systems Analysis Engineering at the Naval Postgraduate School in 1987.  General (Ret.) Anderson has been nominated for re-election to our Board of Directors because of his familiarity with the US military.
Michael D. Popielec
51
Mr. Popielec was appointed as our President and Chief Executive Officer and as a director effective December 30, 2010.  Mr. Popielec has 25 years experience in growing domestic and international industrial businesses.  Prior to joining us, Mr. Popielec operated his own management consulting business in 2010 and was Group President, Applied Technologies in 2008 and 2009 and Group President, Diversified Components from 2005 to 2007 at Carlisle Companies, Inc., a $2.5 billion diversified global manufacturer.  Prior to that, from 2003 to 2005, he held various positions, including Chief
4
Name
Age
Present Principal Occupation, Employment History and Expertise
Operating Officer, Americas, for Danka Business Systems, PLC.  From 1985 to 2002, Mr. Popielec held positions of increasing responsibility at General Electric Company, most recently as a GE corporate officer and President and Chief Executive Officer of GE Power Controls, the European arm of GE Industrial Systems.  Mr. Popielec has a B.S. in Mechanical Engineering from Michigan State University.  Mr. Popielec has been nominated for re-election to our Board of Directors because of his operations expertise and his experience in growing domestic and international industrial businesses.
Thomas L. Saeli56Mr. Saeli has been a director since March 5, 2010.  Since March 2011, Mr. Saeli has served as the Chief Executive Officer and, since October 2011, as a director of JRB Enterprises, Inc., a manufacturer of commercial and industrial roofing systems.  Prior to that, Mr. Saeli was a business consultant to international corporate clients on matters involving business development strategies, consolidations, acquisitions and operations.  He previously served as Chief Executive Officer and a member of the Board of Directors of Noble International, Ltd., an auto supplier of engineered laser-welded steel blanks and roll-formed products, from March 2006 to April 13, 2009 when he resigned those positions.  Noble International, Ltd. filed for voluntary relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of Michigan on April 15, 2009.  From 1998 through 2006, Mr. Saeli served as Vice President of Corporate Development for Lear Corporation, an automotive supplier of seating, electronics and interior products, where he also served as Vice President of Mergers and Acquisitions.  Mr. Saeli also serves on the Boards of Directors of Advance Capital Management, a mutual fund, and The Oakwood Hospital System in Dearborn, Michigan.  Mr. Saeli has been nominated for re-election to our Board of Directors because of his manufacturing, corporate development, mergers and acquisitions and finance experience.  Mr. Saeli also qualifies as an audit committee financial expert.
Robert W. Shaw II56Mr. Shaw has been a director since June 8, 2010.  Mr. Shaw is currently the President of Hornblower Yachts, Inc., the largest dining and excursion boat operator in the United States, with over 50 vessels serving California and New York with the Hornblower, Alcatraz and Statue Cruises brands.  From 2007 to 2010, he was President of R.M. Thornton, Inc., a mechanical contracting company specializing in the Federal government and healthcare markets.  Prior to that, from 1995 to 2006, Mr. Shaw was Chief Executive Officer and Managing Partner at Odyssey Cruises/Premier Yachts, Inc., a leading U.S. dining and excursion boat operator, where he successfully led the company through a sale process to private equity firm ICV Capital Partners.  From 1989 to 1995, he served in Sodexho, S.A., one of the world’s largest contract services providers, as both President and Chief Executive Officer of Spirit Cruises, Inc., and Division President of The Seiler Corporation.  Mr. Shaw served in the US Marine Corps from 1978 to 1982 as an infantry Captain.  Mr. Shaw has consulted or
5
Name
Age
Present Principal Occupation, Employment History and Expertise
served on a number of boards of advisors of various non-public organizations and he has been nominated for re-election to our Board of Directors because of his management expertise and experience as an executive officer.
Ranjit C. Singh60Mr. Singh has been a director since August 2000, and served as Chair of the Board of Directors from December 2001 to June 2007.  Mr. Singh is currently Chief Executive Officer of CSR Consulting Group, which provides business and technology consulting services.  He previously served as President and Chief Executive Officer of Aptara, Inc. (formerly known as Tech Books), a content outsourcing services company, from February 2003 until July 2008.  From February 2002 to February 2003, Mr. Singh served as President and Chief Executive Officer of Reliacast Inc., a video streaming software and services company.  Prior to that, he was President and Chief Operating Officer of ContentGuard, which develops and markets digital property rights software.  Before joining ContentGuard earlier in 2000, Mr. Singh worked for Xerox as a corporate Senior Vice President in various assignments related to software businesses.  Mr. Singh joined Xerox in 1997, having come from Citibank where he was Vice President of Global Distributed Computing.  Prior to that, he was a principal at two start-up companies and also held executive positions at Data General and Digital Equipment Corporation.  Mr. Singh has been nominated for re-election to our Board of Directors because of his experience with technology-based companies.
Bradford T. Whitmore55Mr. Whitmore has been a director since June 2007 and Chair of the Board of Directors since March 2010.  Since 1985, he has been the Managing Partner of Grace Brothers, Ltd., an investment firm which holds approximately 3% of the outstanding shares of our common stock.  In addition, Mr. Whitmore holds slightly less than 27% of the outstanding shares of our common stock.  Within the past five years, Mr. Whitmore has served as a director of several non-public companies and not-for-profit organizations.  Mr. Whitmore has been nominated for re-election to our Board of Directors because of his corporate development expertise.

Our Board of Directors has approved the above-named nominees for directors.  Our Board of Directors recommends a vote FOR all of these nominees. Unless otherwise directed on your proxy, your shares will be voted FOR the above-named nominees for directors.
6
CORPORATE GOVERNANCE
General
 
Pursuant to the General Corporation Law of the State of Delaware, the state under which we were organized, and our By-laws, our business, property and affairs are managed by or under the direction of our Board of Directors.  Members of our Board of Directors are kept informed of company business through discussions with our President and Chief Executive Officer and other corporate officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees.
 
Our Board of Directors has determined that all of our directors (other than JohnMichael D. Kavazanjian,Popielec, who serves as our President and Chief Executive Officer) are “independent” for purposes of the listing standards of the Nasdaq Stock Market.  Our Board of Directors has also determined that the Chair of the Board of Directors should be an independent director.  We believe that the segregation of the roles of Board Chair and President and Chief Executive Officer ensures better overall governance of our company and provides meaningful checks and balances regarding our overall performance.  This structure allows our President and Chief Executive Officer to focus on our business while the Board Chair leads our Board of Directors in establishing corporate policy and complying with heightened regulatory scrutiny.
 
Our Board of Directors has four standing committees: an Audit and Finance Committee, a Governance Committee, a Compensation and Management Committee, and a Strategy and Corporate Development Committee (formerly the Mergers and Acquisitions Committee).Committee.  During 2009,2012, our Board of Directors held 12six meetings and the committees of our Board of Directors held a total of 30 meetings, five of which were non-mandatory, uncompensated status meetings of the Audit and Finance Committee.22 meetings.  During 2009, those individuals who2012, Bradford T. Whitmore served as our Board Chair.  As Board Chair, Patricia C. Barron and Daniel W. Christman,Mr. Whitmore served at their request as a non-voting ex-officio membersmember of all Board committees during their tenures as Board Chair. As previously disclosed, General (Ret.) Christman has retired as a director and accordingly will not be standing for re-election toof our Board of Directors. Upon General (Ret.) Christman’s retirement, our Board elected Bradford T. Whitmore as Board Chair. Mr. Whitmore continues to serve as a voting member of the committees on which he served at the time of General (Ret.) Christman’s retirement.committees.  Each director attended at least 75% of the aggregate of: (1) the total number of meetings of the Board; and (2) the total number of meetings held by all committees of the Board on which he or she served.
 
Our Board of Directors has adopted a charter for each of the four standing committees that addresses the composition and function of each committee and has also adopted Corporate Governance Principles that address the composition and function of the Board of Directors.  These charters and Corporate Governance Principles are available on our website athttp://investor.ultralifecorp.cominvestor.ultralifecorporation.com under the subheading “Corporate Governance.”  Pursuant to our Corporate Governance Principles, it is our policy that directors retire from service at the annual meeting following a director’s 70th70th birthday.
 
Our Board of Directors has determined that all of the directors who serve on these committees are “independent” for purposes of the listing standards of the Nasdaq Stock Market, and that the members of the Audit and Finance Committee are also “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, which we refer to in this proxy statement as the Exchange Act.  Our Board of Directors based these determinations primarily on a review of the responses of the directors to questions regarding employment, compensation history, affiliations and family and other relationships, and onfollow-up discussions.
 
Committees of the Board of Directors
 
The composition and the functions of our four standing committees of our Board of Directors are set forth below.  Our Board of Directors will meet after the Meeting to appoint members of the committees and designate Chairs of those committees from among those individuals elected at the Meeting to serve on our Board of Directors until the 2014 annual meeting of shareholders.
Audit and Finance Committee
 
The current members of the Audit and Finance Committee are Paula H.J. CholmondeleyThomas L. Saeli (Chair), Carole Lewis Anderson, Anthony J. CavannaPatricia C. Barron and Thomas L. Saeli. As previously disclosed, Ms. Cholmondeley and Ms. Anderson are not standing for re-election to our Board of Directors and Mr. Cavanna will be retiring from our Board of Directors.Robert W. Shaw II.  This committee selects our independent registered public
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accounting firm, subject to ratification of our full Board of Directors, and has oversight responsibility for reviewing the scope and results of the independent registered public accounting firm’s annual examination of our financial statements and the quality and integrity of those financial statements.  Further, the committee reviews the


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qualifications and independence of the independent registered public accounting firm, and meets with our financial management, including our Director of Internal Audit Manager, and the independent registered public accounting firm to review matters relating to internal accounting controls, our accounting practices and procedures and other matters relating to our financial condition.  The committee also reviews and monitors areas of financial risk that could have a material impact on our company.  The Audit and Finance Committee met 13nine times during 2009, with five of those meetings being non-mandatory, uncompensated status meetings.2012.
 
Our Board of Directors has determined that each of the members of the Audit and Finance Committee is “financially literate” in accordance with the listing standards of the Nasdaq Stock Market.  In addition, our Board of Directors has determined that each of Ms. Cholmondeley, Mr. Cavanna and Mr. Saeli qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) ofRegulation S-K.
 
Governance Committee
 
The current members of the Governance Committee are Carole LewisSteven M. Anderson (Chair), Patricia C. Barron and Bradford T. Whitmore. As previously disclosed, Ms. Anderson is not standing for re-election to our Board of Directors.Thomas L. Saeli.  This committee reviews the performance and compensation of our directors, makes recommendations to our Board of Directors for membership and committee assignments and for the compensation of our directors, and manages the annual evaluation of the performance of our President and Chief Executive Officer.  The Governance Committee met sixfour times during 2009.2012.
 
The Governance Committee identifies potential nominees for directors based on its own research for appropriate candidates as well as on recommendations received by directors or from shareholders as described below.  On occasion, the Governance Committee willmay retain an executive search firm to assist in the identification of potential director nominees.  The committee will also evaluate information provided by the National Association of Corporate Directors about prospective Board candidates.  The evaluation process and the factors considered in undertaking that evaluation are set forth under the caption “Shareholder“Shareholder Recommendations for Director Nominations”Nominations” below.
 
The Governance Committee also has overall responsibility for assessing and managing our exposure to various risks.
 
Compensation and Management Committee
 
The current members of the Compensation and Management Committee are Ranjit C. Singh (Chair), Patricia C. Barron, Paula H.J. CholmondeleySteven M. Anderson and Bradford T. Whitmore. As previously disclosed, Ms. Cholmondeley is not standing for re-election to our Board of Directors.James A. Croce.  The Compensation and Management Committee has general responsibility for determining the compensation of officers elected by our Board of Directors, granting stock options and restricted stock awards and otherwise administering our equity compensation plans, and approving and administering any other compensation plans or agreements.  Our Restated 2004 Long-Term Incentive Plan, as amended, which we refer to in this proxy statement as the Restated LTIP, is administered by the Compensation and Management Committee.  The Compensation and Management Committee met sixfour times during 2009.2012.
 
Strategy and Corporate Development Committee
 
The current members of the Strategy and Corporate Development Committee are Robert W. Shaw II (Chair), James A. Croce and Ranjit C. Singh (Chair), Carole Lewis Anderson, Anthony J. Cavanna and Bradford T. Whitmore. As previously disclosed, Ms. Anderson is not standing for re-election to our Board of Directors and Mr. Cavanna will be retiring from our Board of Directors.Singh.  The Strategy and Corporate Development Committee is responsible for working with management to develop corporate strategy and for identifying and evaluating acquisition opportunities.  The Strategy and Corporate Development Committee met five times during 2009.2012.
 
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Shareholder Recommendations and Standards for Director Nominations
 
As noted above, the Governance Committee considers and establishes procedures regarding recommendations for nomination to our Board of Directors, including nominations submitted by shareholders.  Such recommendations, if any, should be sent to Corporate Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark,


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New York 14513.  Any recommendations submitted to the Corporate Secretary should be in writing and should include any supporting material the shareholder considers appropriate in support of that recommendation, but must include the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of such candidate and a signed consent of the candidate to serve as a director, if elected.  The Governance Committee evaluates all potential candidates in the same manner, regardless of the source of the recommendation.
 
Based on the information provided to the Governance Committee, it will make an initial determination whether to conduct a full evaluation of a candidate.  The Governance Committee considers the composition and size of the existing Board of Directors, along with other factors, in making its determination to conduct a full evaluation of a candidate.  As part of the full evaluation process, the Governance Committee may conduct interviews, obtain additional background information and conduct reference checks of candidates.  The Governance Committee may also ask the candidate to meet with management and other members of our Board of Directors.  In evaluating a candidate, our Board of Directors, with the assistance of the Governance Committee, takes into account a variety of factors as described in our Corporate Governance Principles, including the particular experience, attributes and skills that would qualify the candidate to serve as a director.  The criteria for selection to our Board of Directors include character and leadership skills, general business acumen and executive experience; and knowledge of strategy, finance, relations between business and government, internal business -– all to ensure an active Board of Directors whose members work well together and possess the collective knowledge and expertise required.  Our Governance Committee reviews the qualifications of any candidate with those of its current directors to augment and complement the skill sets of our current Board members.  We believe that it is important for our Board of Directors to be comprised of individuals with diverse backgrounds, skills and experiences.  Although we do not have a formal diversity policy and identify qualified potential candidates without regard to any particular classification, we believe that the breadth of experience and qualifications of our Board Membersmembers promotes Board diversity.
 
Annual Meeting Attendance
 
Our policy is that all of the directors, absent special circumstances, should attend our Annual Meeting of Shareholders.  A regular meeting of the Board of Directors is typically scheduled in conjunction with the Annual Meeting of Shareholders.  All directors but one attended last year’s Annual Meeting of Shareholders.
 
Executive Sessions
 
Our Corporate Governance Principles require our Board of Directors to meet in executive session regularly by requiring our independent directors to have at least four regularly-scheduled meetings per year without management present.  Our Board of Directors met in executive session tenfour times during 2009.2012.  In addition, our standing committees meet in executive session on a regular basis.
 
Communicating with the Board of Directors
 
Shareholders interested in communicating directly with our Board of Directors as a group or individually may do so in writing to our Corporate Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York 14513.  The Corporate Secretary will review all such correspondence and forward to our Board of Directors a summary of that correspondence and copies of any correspondence that, in his opinion, deals with the functions of the Board of Directors or that he otherwise determines
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requires their attention.  Directors may at any time review a log of all correspondence received by us that is addressed to members of the Board of Directors and request copies of any such correspondence.  Any concerns relating to accounting, internal controls or auditing matters will be brought to the attention of the Audit and Finance Committee and handled in accordance with the procedures established by the Audit and Finance Committee with respect to such matters.
 
Code of Ethics
 
We have a Code of Ethics applicable to all employees, including our Principal Executive Officer and our Principal Financial Officer (who is also our Principal Accounting Officer), and, to the extent it applies to their activities, all members of theour Board of Directors.  Our Code of Ethics incorporates the elements of a code of ethics


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specified in Item 406 ofRegulation S-K and also complies with the Nasdaq Stock Market requirements for a code of conduct. Shareholders can find a link to this Code of Ethics on our website athttp://investor.ultralifecorp.cominvestor.ultralifecorporation.com under the subheading “Corporate Governance.”  We intend to post amendments to or waivers (whether expressed or implied) from the Code of Ethics (to the extent applicable to our Principal Executive Officer or Principal Financial Officer) at the same location on our website as the Code of Ethics.
 
Our Code of Ethics emphasizes our commitment to conducting business in a legal and ethical manner and encourages prompt and confidential reporting of any suspected violations of law or the Code of Ethics.  As part of our Code of Ethics, directors and employees are expected to make business decisions and to take actions based upon the best interests of our company and not based upon personal relationships or benefits.  Any potential conflict of interest, and any transaction or relationship involving our officers or directors that could give rise to a conflict of interest, must be reviewed and resolved by our Governance Committee.
 
Related Party Transactions
We have adopted written policies and procedures for the review and approval or ratification of any “related party transaction,” defined by us as any transaction, or proposed transaction, in excess of $120,000 between us and any of our executive officers, directors or director nominees.   The policy provides that each related party transaction must be reviewed by our Audit and Finance Committee.   The committee reviews the relevant facts and circumstances of the transaction, including if the transaction is on terms comparable to those that could be obtained in arms’-lengtharms-length dealings with an unrelated third party and the extent of the related party’s interest in the transaction, taking into account the conflicts of interest and corporate opportunity provisions of our Code of Ethics, and either recommends that the Board of Directors approve or disapprove the related party transaction.  We will disclose all required related party transactions in our filings with the SEC.  To our knowledge, no reportable transaction existed during 2009,2012, and there are currently no such proposed transactions.
 
Risk Management
 
Our management team is responsible for assessing and managing our exposure to various risks.  We have an enterprise risk management process to identify, assess and manage the most significant risks facing our company.  Our Governance Committee has general responsibility to review management’s risk management process, including the policies and guidelines used by management to identify, assess and manage our exposure to risk.  Our Audit and Finance Committee has oversight responsibility for financial risks.risks and other risks that could have a material impact on our company.  Our management reviews these financial risks with our Audit and Finance Committee regularly and reviews the risk management process, as it affects financial risks, with our Audit and Finance Committee on an on-going basis. Our Compensation and Management Committee evaluates the extent to which our compensation policies expose us to risk that could threaten the value of our company. The Compensation and Management Committee has reviewed our incentive compensation arrangements and has made reasonable efforts to ensure that such arrangements do not encourage our employees to take unnecessary or excessive risks that threaten the value of our company.


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PROPOSAL 1
 
ELECTION OF DIRECTORS
 
Our Board of Directors currently has nine directors, six of whom have been nominated to serve for an additional one year term. Carole Lewis Anderson and Paula H.J. Cholmondeley are not standing for re-election, Daniel W. Christman has retired from our Board of Directors, and Anthony J. Cavanna will be retiring from our Board of Directors pursuant to our mandatory retirement guidelines set forth in our Corporate Governance Principles. We have two new nominees for election to our Board of Directors: James A. Croce and Robert W. Shaw II. If elected, each director standing for election shall serve until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified. The names of, and certain information with respect to, the persons nominated for election as directors are presented below.
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Name
Age
Present Principal Occupation, Employment History and Expertise
Steven M. Anderson
53Brigadier General (Ret.) Anderson has been a director since April 13, 2010. General (Ret.) Anderson is currently the chief operating officer for Synovision Solutions LLC, a service-disabled veteran-owned small business specializing in unique applications of emerging technology, many central to innovative energy solutions. General (Ret.) Anderson, a career military officer who retired from active duty in November 2009, served for five years as a general officer in the US Army, including 15 months as the senior US and coalition logistician in Iraq in support of Operation Iraqi Freedom. From 2004 to 2006, General (Ret.) Anderson served as the senior US logistician in Korea (Deputy C-4 for the United Nations Command/Combined Forces Command and J4, United States Forces Korea) and spearheaded the development of Camp Humphreys, the new combined and US headquarters facility in Central Korea. He served in various command positions including Commander, Division Support Command, 2nd Infantry Division, Korea (2000-02), and Commander, 725th Main Support Battalion, 25th Infantry Division (Light), Schofield Barracks, Hawaii(1995-97). In his final military assignment, he served for two years on the Army Staff in the Pentagon as the Director, Operations and Logistics Readiness, Office of the Army Deputy Chief of Staff, G4 (logistics). General (Ret.) Anderson is a 1978 graduate of the US Military Academy at West Point and earned a Masters of Science degree in Operations Research and Systems Analysis Engineering at the Naval Postgraduate School in 1987. General (Ret.) Anderson was initially recommended as a director by one of our former non-management directors and has been nominated for re-election to our Board of Directors because of his familiarity with the US military.
Patricia C. Barron
67Ms. Barron has been a director since December 2000 and served as Chair of the Board of Directors from June 2007 to August 29, 2009. Ms. Barron serves as lead director of Quaker Chemical Corporation, and as a director of Teleflex Incorporated and United Services Automobile Association, an insurance mutual corporation. She also serves on a number of non-profit organizations, with a focus on education and health. Ms. Barron had a28-year career in business. She was an Associate at McKinsey and Company and then moved to Xerox Corporation where she became a corporate officer and held the positions of Vice President of Business Operation Support, President of Engineering Systems and President of Office Document Products. Most recently, she has been a Clinical Associate Professor at the Leonard N. Stern School of Business of New York University, where she focused on issues of corporate governance and leadership. Ms. Barron has been nominated for re-election to our Board of Directors because of her longstanding business career and expertise in corporate governance.


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Name
Age
Present Principal Occupation, Employment History and Expertise
James A. Croce
47Mr. Croce is currently the President and CEO of the Nevada Institute for Renewable Energy Commercialization (NIREC), serving in that position since mid-2009. Prior to accepting his position at NIREC, from 2008 to 2009, Mr. Croce was President of Lipten Energy Services, an engineering and energy project development firm, whose primary focus was the development and execution of strategic growth initiatives in the alternative energy space, including power generation, biomass and waste-to-energy projects. From 2003 to 2008, Mr. Croce was President and CEO of NextEnergy, one of the nation’s leading clean energy technology commercialization catalysts. From 2001 to 2003, Mr. Croce was Vice President of Business Development at DTE Energy Technologies, a developer of distributed power generation technologies and energy products including fuel cells, internal combustion engines, turbines and energy information systems. From 1998 to 2001, he was Executive Director, Business Marketing and Sales at Michigan Consolidated Gas Company (MichCon), an integrated natural gas transportation and storage business where he was responsible for sales and marketing programs for the company’s commercial and industrial customers. Prior to that, from 1996 to 1998, he was General Manager at MichCon Pipeline Company, where he launched and managed new energy delivery services. Mr. Croce is co-founder of the Michigan Sustainable Energy Coalition, a renewable energy policy advocacy group, and has served on the board of directors of numerous nonprofit agencies. Mr. Croce was recommended as a director nominee by one of our non-management directors because of his expertise in the renewable energy industry.
John D. Kavazanjian
59Mr. Kavazanjian was elected as our President and Chief Executive Officer effective July 12, 1999 and as a director on August 25, 1999. Prior to joining us, Mr. Kavazanjian worked for Xerox Corporation from 1994 in several capacities, most recently as Corporate Vice President, Chief Technology Officer, Document Services Group. From 1992 until 1994, he was the Senior Vice President, Operations for Kendal Square Research Corporation, a high performance computer manufacturer. Mr. Kavazanjian also serves on the Board of Directors of Newark-Wayne Community Hospital. Mr. Kavazanjian has been nominated for re-election to our Board of Directors because of his operations expertise and his familiarity with our operations as our President and Chief Executive Officer.
Thomas L. Saeli
53Mr. Saeli has been a director since March 5, 2010. Mr. Saeli is currently a business consultant to international corporate clients on matters involving business development strategies, consolidations, acquisitions and operations. He previously served as Chief Executive Officer and a member of the Board of Directors of Noble International, Ltd., an auto supplier of engineered laser-welded steel blanks and roll-formed products, from March 2006 to April 13, 2009 when he resigned those positions. Noble International Ltd. filed for voluntary relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of Michigan, several days after Mr. Saeli’s resignation. The Chapter 11 reorganization proceeding was converted to a Chapter 7 liquidation in December 2009. From 1998 through 2006, Mr. Saeli served as Vice President of Corporate Development for Lear Corporation, an automotive supplier of seating, electronics and interior products, where he also served as Vice President of Mergers and Acquisitions. Mr. Saeli also serves on the Boards of Directors of Advance Capital Management, a mutual fund, and Oakwood Hospital in Dearborn, Michigan. Mr. Saeli was recommended as a director by one of our non-management directors and has been nominated for re-election to our Board of Directors because of his familiarity with the auto industry and his manufacturing, corporate development and finance experience. Mr. Saeli also qualifies as an audit committee financial expert.

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Name
Age
Present Principal Occupation, Employment History and Expertise
Robert W. Shaw II
53Mr. Shaw is currently the President of R.M. Thornton, Inc., a mechanical contracting company specializing in the Federal government and healthcare markets, serving in that position since 2007. Prior to that, from 1995 to 2006, Mr. Shaw was CEO and Managing Partner at Odyssey Cruises/Premier Yachts, Inc., a leading U.S. dining and excursion boat operator, where he successfully led the company through a sale process to private equity firm ICV Capital Partners. From 1989 to 1995, he served in Sodexho, S.A., one of the world’s largest contract services providers, as both President and CEO of Spirit Cruises, Inc., and Division President of The Seiler Corporation. Mr. Shaw served in the US Marine Corps from 1978 to 1982 as Captain. Mr. Shaw has consulted or served on a number of boards of advisors of various non-public organizations and was recommended as a director nominee by one of our non-management directors because of his management expertise and experience as an executive officer.
Ranjit C. Singh
57Mr. Singh has been a director since August 2000, and served as Chair of the Board from December 2001 to June 2007. Mr. Singh is currently Chief Executive Officer of CSR Consulting Group, which provides business and technology consulting services. He previously served as President and Chief Executive Officer of Aptara, Inc. (formerly known as Tech Books), a content outsourcing services company, from February 2003 until July 2008. From February 2002 to February 2003, Mr. Singh served as President and Chief Executive Officer of Reliacast Inc., a video streaming software and services company. Prior to that, he was President and Chief Operating Officer of ContentGuard, which develops and markets digital property rights software. Before joining ContentGuard earlier in 2000, Mr. Singh worked for Xerox as a corporate Senior Vice President in various assignments related to software businesses. Mr. Singh joined Xerox in 1997, having come from Citibank where he was Vice President of Global Distributed Computing. Prior to that, he was a principal at two start-up companies and also held executive positions at Data General and Digital Equipment Corporation. Since January 2005, Mr. Singh has served on the Board of Directors of Authentidate Holding Corp. Mr. Singh has been nominated for re-election to our Board of Directors because of his experience in the service industry and with technology-based organizations.
Bradford T. Whitmore
52Mr. Whitmore has been a director since June 2007. Since 1985, he has been the Managing Partner of Grace Brothers, Ltd., an investment firm which holds approximately 26.55% of the outstanding shares of our common stock. Mr. Whitmore and Grace Brothers, Ltd. collectively hold slightly less than 30% of the outstanding shares of our common stock. Within the past five years, Mr. Whitmore has served as a director of Ladish Co. as well as several non-public companies and not-for-profit organizations. Mr. Whitmore has been nominated for re-election to our Board of Directors because of his corporate development expertise.
Our Board of Directors has approved the above-named nominees for directors. Our Board of Directors recommends a voteFORall of these nominees.
DIRECTOR COMPENSATION
 
We use a combination of cash compensation and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors.  Our practice is to resurvey our peer group companies every two to three years to ascertain whether our overall director compensation is appropriate and balanced.  If we perceive that there has been a major change in our company or the market, we may conduct a more frequent survey.  In setting director compensation, we consider the amount of time that directors spend fulfilling their duties to us, the skill-level required by members of our Board of Directors, and, based on an independent review by our external compensation consultant and other publicly available director compensation data, the compensation paid to

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directors in similar sized organizations in our industry.  Our program remains designed to deliver annual director compensation at approximately the median of companies in similar industries and of similar size.  In 2008,As our directors are elected annually in June of each year, our annual director compensation program was changedperiod runs from July 1 to replace restricted share awards with awards of unrestricted common stock. The cash component of director compensation remained the same.
Director Cash CompensationJune 30.
 
During 2009, eachDirector Cash Compensation
Each non-employee director received a $3,000 quarterlyreceives an annual cash retainer andof $20,000, except for the Board Chair, receivedwho receives an annual cash retainer of $28,000. In addition, each director who is a $5,000member of a Board committee receives an additional cash retainer for such committee service as summarized in the tables below.
For the Period July 1, 2011 to June 30, 2012
 
Annual Retainer for
Committee Members
Annual Retainer for
Committee Chair
Audit and Finance Committee$6,750$16,750
Compensation and Management Committee$5,250$13,250
Governance Committee$4,500$9,500
Strategy and Corporate Development Committee$4,500$9,500
   
For the Period July 1, 2012 to June 30, 2013

 
Annual Retainer for
Committee Members
Annual Retainer for
Committee Chair
Audit and Finance Committee$6,750$16,750
Compensation and Management Committee$5,250$13,250
Governance Committee$4,500$9,500
Strategy and Corporate Development Committee$5,250$13,250

Annual retainers for both committee members and committee chairs are paid quarterly retainer. Each non-employee director also received $1,000 for each board meeting attended whether a regularly scheduled meeting or a specially called meeting, and regardless of whether attendance was in person or by telephone. Each non-employee director also received $750 for each meeting of the four standing committee meetings attended as a committee member, whether in person or by telephone. The Chair of the Audit and Finance Committee received a $2,500 quarterly retainer, the Chair of the Compensation and Management Committee received a $2,000 quarterly retainer and the Chairs of the Governance and the Strategy and Corporate Development Committees received a $1,250 quarterly retainer.cash. For Board and committee service during 2009,the fiscal year ended December 31, 2012, we paid our directors an aggregate $305,248.$241,640.
 
In addition, as described below, we decided that for the quarterly stock payments due directors on February 15, 2013 and May 15, 2013, we would pay our directors in cash rather than in shares of our common stock.  For each director other than the Board Chair, this would mean an additional $20,000 of cash compensation in lieu of shares of common stock valued at $20,000, and for the Board Chair an additional $33,000 of cash compensation in lieu of shares of common stock valued at $33,000.
Directors’ Stock-Based Incentive Compensation
 
Our Board of Directors stock-basedequity compensation program for directors provides each director with an annual award of shares of our common stock without any restrictions.  The aggregate value of the award for each non-employeenon-
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employee director is $40,000 and the aggregate value of the award for the Board Chair is $66,000.  Our directors are elected annually in June of each year.  Accordingly, these grants of common stock to our current directors other than General (Ret.) Anderson and Mr. Saeli, were scheduled for four equal installments on August 15, 2009,2012, November 15, 2009,2012, February 15, 20102013 and May 15, 2010. As General (Ret.) Anderson and Mr. Saeli were not appointed to our Board of Directors until April 13, 2010 and March 5, 2010, respectively, each of them will be receiving only the May 15, 2010 installment.2013.  In order to receive an installment of common stock, a director must be a current member of our Board of Directors on the scheduled installment payment date.  To determine the number of shares of common stock to award based on this valuation, the value of each quarterly award, which is $10,000 for each director other than the Board Chair and $16,500 for the Board Chair, is divided by the valuevolume weighted average price (“VWAP”) of the common stock on the grant date of the award.  On August 15, 2009,2012, each incumbent non-employee director received 1,5533,178 shares of common stock and the Board Chair received an additional 1,0102,065 shares of common stock.  On November 15, 2009,2012, each incumbent non-employee director received 2,529 shares of common stock and an additional 1,643 shares of common stock were split proportionately between Ms. Barron and General (Ret.) Christman, as General (Ret.) Christman became Board Chair effective August 29, 2009. On February 15, 2010, each incumbent non-employee director received 2,5293,367 shares of common stock and the Board Chair received an additional 1,643 shares.2,189 shares of common stock.
 
In October 2008,Recently we discovered that we had inadvertently issued stock awards to our Boardindependent directors in excess of Directors authorizedthe 200,000-share limitation under our Restated LTIP on the number of shares of our common stock that may be used for awards other than stock options or stock appreciation rights (the “Limitation’).  The issuances of shares of our common stock in excess of the Limitation (the “Excess Shares”) occurred during 2010 and after and were disclosed and were properly accounted for in our periodic reports and proxy statements filed with the SEC.  We issued a share repurchase programtotal of up179,512 Excess Shares to $10,000,000our independent directors in the form of outright stock grants or restricted stock awards as part of their annual retainers.  Since the Excess Shares were issued in excess of the Limitation, they were not issued pursuant to the Restated LTIP and hence the issuances of the Excess Shares were not registered under the Securities Act of 1933, as amended (the “Securities Act”) by our Form S-8 registration statement for the Restated LTIP.  Although the issuances of the Excess Shares were not registered under the Securities Act, the issuances of the Excess Shares qualified for an exemption under Section 4(2) of the Securities Act.  The issuances of the Excess Shares were exempt from registration under Section 4(2) of the Securities Act because those issuances did not involve a “public offering,” as defined in Section 4(2) of the Securities Act due to the small number of persons involved in the transaction, the size of the offering, the manner of the offering, the number of Excess Shares offered, the financial sophistication of our directors and their access to our financial information.  Because of the Excess Shares issue, we chose not to issue any additional shares of our common stock to be implemented over the course of a six-month period. While our share repurchase program was in effect, the Board of Directors adopted a policy to permitnon-employee directors to elect to receive their stock-based incentive compensation inand accordingly paid our non-employee directors cash or common stock, or a combination of both. Onon February 15, 2009,2013 and will pay them cash on May 15, 2013.  This cash compensation is $10,000 per quarter for each incumbent non-employee director was entitled to receive 1,202 shares of common stock andother than the Board Chair received an additional 782and $16,500 per quarter for the Board Chair.  We are submitting to our shareholders a proposal to amend our Restated LTIP to, among other things, increase the Limitation from 200,000 to 800,000 shares (see Proposal 3) and a separate proposal to ratify the grant of common stock. Ms. Anderson, Ms. Cholmondeley, General (Ret.) Christman and Mr. Singh each elected to receive their awards in cash so that each received a $10,000 cash award in lieu of their 1,202 share award.the Excess Shares (See Proposal 4).
 
Our directors also have sharestock ownership guidelines which require them to hold 2,000 shares.  Directors have two years to achieve the required ownership.  Furthermore, until the required sharestock ownership guidelines are met, directors are required to hold at least 50% of all vested after-tax shares and 50% of shares received on exercise of stock options. Currently, all of our non-employee directors other than General (Ret.) Anderson and Mr. Saeli, meet the sharestock ownership guidelines, and General (Ret.) Anderson and Mr. Saeli have two years from their dates of appointment to our Board of Directors to achieve the required ownership.guidelines.


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Director Compensation for 20092012
 
The table below summarizes the compensation paid by us to our non-employee directors for their service during the fiscal year ended December 31, 2009.
             
  Fees Earned or
 Stock Awards
 Total
Name (1)
 Paid in Cash ($) ($)(2)(3) ($)
 
Carole Lewis Anderson
  53,250   30,004   83,254 
Patricia C. Barron
  32,083   60,412   92,495 
Anthony J. Cavanna
  36,000   40,000   76,000 
Paula H.J. Cholmondeley
  54,500   30,004   84,504 
Daniel W. Christman
  44,749   35,592   80,341 
Ranjit C. Singh
  50,166   30,004   80,170 
Bradford T. Whitmore
  34,500   40,000   74,500 
2012.
 
Name (1) 
Fees Earned or
Paid in Cash
($)
 
Stock
Awards
($)(2)(3)
 
Total
($)
Steven M. Anderson 32,252 40,003 72,255
Patricia C. Barron 33,752 40,003 73,755
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James A. Croce 30,128 40,003 70,131
Thomas L. Saeli 41,252 40,003 81,255
Robert W. Shaw II 38,128 40,003 78,131
Ranjit C. Singh 38,128 40,003 78,131
Bradford T. Whitmore 28,000 66,004 94,004
 
(1)JohnMichael D. KavazanjianPopielec is ineligible to receive compensation for his service as a director because he is also an employee, serving as our President and Chief Executive Officer. Thomas L. Saeli did not become a director until March 5, 2010. Steven M. Anderson did not become a director until April 13, 2010.
(2)The amounts set forth in this column reflect the aggregate grant date fair value of stock awards granted during 2009.2012.  The Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC 718”) (formerly, Statement of Financial Accounting Standards No. 123(R),123R, Share-Based Payment)Payment), requires us to recognize compensation expense for stock options and other stock-related awards granted to our employees and directors based on the estimated fair value of the equity awards at the time of grant.  The compensation expense for such awards is expensed at the time of grant.  There was no stock option expense in 20092012 for directors’ options since no stock options were granted to directors during 2009.2012.  The assumptions used to determine the valuation of the awards are discussed in Note 7 to our audited consolidated financial statements included in our Annual Report onForm 10-K for the year ended December 31, 2009. The number of shares granted in 2009 and the grant date fair value of those grants determined in accordance with ASC 718 are set forth below.2012.
 
             
      Grant Date
                    Name Grant Date Shares (#) Fair Value ($)
 
Carole Lewis Anderson  5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   2,529   10,002 
Patricia C. Barron  2/15/09   1,984   16,499 
   5/15/09   2,313   16,504 
   8/15/09   2,563   16,502 
   11/15/09   2,758   10,907 
Anthony J. Cavanna  2/15/09   1,202   9,996 
   5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   2,529   10,002 
Paula H.J. Cholmondeley  5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   2,529   10,002 
Daniel W. Christman  5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   3,942   15,590 
Ranjit C. Singh  5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   2,529   10,002 
Bradford T. Whitmore  2/15/09   1,202   9,996 
   5/15/09   1,402   10,003 
   8/15/09   1,553   9,999 
   11/15/09   2,529   10,002 


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(3)The aggregate number of director stock options outstanding at December 31, 20092012 were as follows:
 
 Name Stock Options  
Name
Stock Options
Carole LewisSteven M. Anderson  6,000- 
Patricia C. Barron  25,5006,000 
Anthony J. CavannaJames A. Croce  28,500- 
Paula H.J. CholmondeleyThomas L. Saeli  30,000- 
DanielRobert W. ChristmanShaw II  28,500- 
Ranjit C. Singh  48,50010,000 
Bradford T. Whitmore  —


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PROPOSAL 2
RATIFY THE SELECTION OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of BDO Seidman, LLP, independent registered public accountants, served as our independent registered public accounting firm in connection with the audit of our financial statements for 2008 and 2009.
Our Audit and Finance Committee has selected BDO Seidman, LLP as our independent registered public accounting firm for 2010. This selection will be presented to our shareholders for their ratification at the Meeting. Our Board of Directors recommends a vote in favor of the proposal to ratify this selection, and the persons named in the enclosed proxy (unless otherwise instructed therein) will vote such proxiesFORthis proposal. If the shareholders do not ratify this selection, the Audit and Finance Committee will seek to identify and address the reason or reasons why the shareholders did not ratify the committee’s selection.
We have been advised by BDO Seidman, LLP that a representative will be present at the Meeting and will be available to respond to appropriate questions. In addition, we intend to give such representative an opportunity to make any statements if he or she should so desire.
Principal Accountant Fees and Services
Aggregate fees for professional services rendered for us by BDO Seidman, LLP for 2008 and 2009 were:
         
  2008  2009 
 
Audit Fees $592,672  $530,734 
Audit-Related Fees  0   0 
Tax Fees  12,500   6,250 
All Other Fees  0   0 
         
Total $605,172  $536,984 
         
Audit Fees
Audit fees for 2008 and 2009, respectively, were for professional services rendered for the audits of our consolidated financial statements, audits of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, consents, income tax provision procedures and assistance with review of documents filed with the SEC.
Audit-Related Fees
There were no audit-related fees for 2008 and 2009.
Tax Fees
Tax fees for 2008 and 2009 were for services related to tax compliance, including the preparation of tax returns and claims for refund, and tax planning and tax advice.
All Other Fees
There were no other fees for 2008 and 2009.
Our Audit and Finance Committee has not adopted pre-approval policies and procedures for audit and non-audit services. Accordingly, this proxy statement does not include disclosure regarding pre-approval policies and procedures and related information. The engagement of BDO Seidman, LLP for tax services during 2008 and 2009 was limited to circumstances where those services were considered integral to the audit services that it provided or where there was another compelling rationale for using BDO Seidman, LLP. All audit, audit-related and permitted non-audit services for which BDO Seidman, LLP was engaged were pre-approved by our Audit and Finance Committee in compliance with applicable SEC requirements.


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EXECUTIVE OFFICERS
The names of, and certain information with respect to, our executive officers who are not director nominees are presented below.
-  
Name
Age
Present Principal Occupation and Employment History
Julius M. Cirin
56Mr. Cirin was named Vice President, Corporate Communications Officer in May 2009. He was previously appointed Vice President of Marketing and Technology in February 2006, having served as Vice President of Corporate Marketing since August 2000. He joined us as Director of Marketing in March 1991 at our founding. Prior to this, Mr. Cirin served as Quality Assurance Manager for Eastman Kodak Company in the Ultra Technologies Division from 1986 to 1989. From 1979 to 1986, Mr. Cirin worked at Duracell USA in several product, process engineering and quality management positions. Mr. Cirin serves on the Board of Directors of The New York Battery and Energy Storage Technology Consortium, Inc. Mr. Cirin has a B.S. in Interdisciplinary Studies from St. John Fisher College.
Peter F. Comerford
52Mr. Comerford was named Vice President of Administration and General Counsel on July 1, 1999 and was elected Corporate Secretary in December 2000. He joined us in May 1997 as Senior Corporate Counsel and was appointed Director of Administration and General Counsel in December of that year. Prior to joining us, Mr. Comerford was a practicing attorney for approximately fourteen years having worked primarily in municipal law departments including the City of Niagara Falls, New York where he served as the Corporation Counsel. Mr. Comerford has a B.A. from the State University of New York at Buffalo, an MBA from Canisius College and a J.D. from the University of San Diego School of Law.
Philip A. Fain
55Mr. Fain was named Chief Financial Officer in November 2009 and Treasurer in December 2009. He previously served as Vice President of Business Development, having joined us in February 2008. Prior to joining us, he was Managing Partner of CXO on the GO, LLC, a management-consulting firm, which he co-founded in November 2003 and which we retained in connection with our acquisition activity. Prior to founding CXO on the GO, LLC. Mr. Fain served as Vice President of Finance - RayBan Sunoptics for Luxottica, SpA. Prior to the acquisition of Bausch & Lomb’s global eyewear business by Luxottica, Mr. Fain served as B&L’s Senior Vice President Finance - Global Eyewear from 1997 to 1999 and as Vice President and Controller for the US Sunglass business from 1993 to 1996. From 1983 to 1993, Mr. Fain served in various positions with B&L including executive positions in corporate accounting, finance and audit. Mr. Fain began his career as a CPA and consultant with Arthur Andersen & Co. in 1977. He received his BA in Economics from the University of Rochester and an MBA from the William E. Simon Graduate School of Business Administration of the University of Rochester.
Patrick R. Hanna, Jr.
61Mr. Hanna was named Vice President, Corporate Compliance Officer in May 2009. He was previously appointed Vice President of Corporate Strategy and Business Integration in February 2006, having served as our Vice President of Corporate Strategy since December 2001. He joined us in February 2000 as Director of Strategic Planning after a 23 year career with Xerox Corporation. Mr. Hanna served in many capacities in the areas of strategic and business planning development, most recently as the Strategic Planning Manager of the Xerox Internet and Software Services organization. Mr. Hanna has a B.S. in electrical engineering from Howard University and an MBA from the William E. Simon Graduate School of Business Administration of the University of Rochester.


14

 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSEXECUTIVE COMPENSATION
Compensation Overview
We are currently for the first time considered a “smaller reporting company” for purposes of the SEC’s executive compensation and other disclosures.  As such, we have opted to take advantage of the scaled disclosure requirements afforded to smaller reporting companies and, as a result, have provided more limited (or, in some cases, eliminated) disclosures that we have provided in prior years’ proxy statements.  The executive compensation disclosures that follow comply with the SEC’s executive compensation disclosure rules for smaller reporting companies and therefore are generally more narrow in scope than the executive compensation disclosures and Compensation Discussion and Analysis that we have included in prior proxy statements.
Introduction
This proxy statement provides information about the compensation programs for those individuals we have identified as our Named Executive Officers for 2012 in accordance with the executive compensation disclosure rules and regulations of the SEC for smaller reporting companies. This proxy includes our compensation philosophy and the objectives of our executive rewards program,
13
descriptions of each of the key elements of our executive rewards program and the basis for the compensation decisions we made during 2012.
Our Named Executive Officers for 2012 are:
·Michael D. Popielec, President and Chief Executive Officer
·Philip A. Fain, Chief Financial Officer and Treasurer
·Peter F. Comerford, Vice President of Administration, Secretary and General Counsel
Compensation Overview
We engaged an independent executive compensation consulting firm, Grahall & Associates, to work with senior management and the Committee to establish an executive total rewards strategy, which was implemented in 2012. Grahall & Associates looked at the competitiveness of our pay practices by making peer group comparisons.  They augmented the core peer group that we had used in the past with several additional organizations as some of the organizations in our original peer group had been lost to mergers and acquisitions.  In addition to the core peer group analysis, they also provided analysis on a large sample of general technology organizations.  Grahall presented several different potential reward strategies to the Committee for consideration.
 
The table below shows certain information regardingbasic premise of Grahall’s proposal was that the beneficial ownership of shares of our common stock as of April 15, 2010 by each person known by uscompensation must be tied to beneficially ownthe overall business strategy and the program that is needed for today will more than five percentlikely not be the same program needed three years from now, again focusing on the business strategy.  The program that has been implemented is a transition model.  This new program more effectively allocates the scarce resources that we have across competing needs than does our previous program.  It recognizes that when resources are tight, resource allocation needs to be more surgical in nature.  This structure is designed to increase our capability to recruit for key competitive advantage positions motivate core executives to reposition our company and promote the retention of the outstanding shares ofhigh performers who can impact our common stock, with percentages based on 17,021,256 shares issued and outstanding.
         
  Number of Shares
 Percent of Class
Name and Address of Beneficial Owner
 Beneficially Owned Beneficially Owned
 
Grace Brothers, Ltd.(1)
1560 Sherman Avenue, Suite 900
Evanston, IL 60201		  4,518,616   26.55%
business going forward.
 
(1)This information as to the beneficial ownership of shares ofOur executive rewards philosophy is designed by our common stock is based on the Schedule 13D/A (Amendment No. 5) dated March 2, 2007 filed with the SEC by Grace Brothers, Ltd., an Illinois limited partnership, Bradford T. Whitmore (“Whitmore”) and Spurgeon Corporation (“Spurgeon”), its general partners, that reports beneficial ownership of 4,419,542 shares of our common stock, and on a March 15, 2007 Form 4 - Statement of Changes in Beneficial Ownership, filed with the SEC by Grace Brothers, Ltd. that reports the acquisition of an additional 99,074 shares of our common stock. Grace Brothers, Ltd., Whitmore and Spurgeon share voting and dispositive power with respect to all 4,518,616 shares. The amount reported in the table excludes 583,073 shares of our common stock held by Whitmore, who has sole voting and dispositive power with respect to such shares.
SECURITY OWNERSHIP OF MANAGEMENT
The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April 15, 2010 by (1) each of our directors and director nominees, (2) each of our named executive officers (as defined on page 17), and (3) all of our directors, director nominees and executive officers as a group.
         
  Number of Shares
  Percent of Class
 
Name of Beneficial Owner (1)
 Beneficially Owned (1)  Beneficially Owned (2) 
 
Carole Lewis Anderson (3)  23,276   * 
Steven M. Anderson  —   — 
Patricia C. Barron (4)  105,318   * 
Anthony J. Cavanna (5)  61,444   * 
Paula H.J. Cholmondeley (6)  48,802   * 
James A. Croce  —   — 
John D. Kavazanjian (7)  307,887   1.79%
Thomas L. Saeli  —   — 
Robert W. Shaw II  —   — 
Ranjit C. Singh (8)  89,846   * 
Bradford T. Whitmore (9)  5,101,689   29.97%
John C. Casper (10)  —   — 
Julius M. Cirin (11)  50,955   * 
Peter F. Comerford (12)  91,971   * 
James E. Evans (13)  32,106   * 
Philip A. Fain (14)  73,945   * 
Robert W. Fishback (15)  107,754   * 
Patrick R. Hanna, Jr. (16)  54,462   * 
William A. Schmitz (17)  31,959   * 
All directors, director nominees and executive officers as a group (19 persons) (18)  6,181,414   35.04%


15

* Less than 1%
(1)Except as otherwise indicated, the shareholders named in this table have sole voting and investment power with respect to the shares of our common stock beneficially owned by them. The information provided in this table is based upon information provided to us by such shareholders. The table reports beneficial ownership for our directors and executive officers in accordance withRule 13d-3 under the Exchange Act. This means all our securities over which directors and executive officers directly or indirectly have or share voting or investment power are listed as beneficially owned. The amounts also include shares that may be acquired by exercise of stock options prior to June 14, 2010, which shares are referred to in the footnotes to this table as “shares subject to options that may be exercised,” and, for executive officers, shares of restricted stock that are subject to vesting.
(2)Based on 17,021,256 shares issued and outstanding.
(3)The amount shown includes 6,000 shares subject to an option that may be exercised by Ms. Anderson.
(4)The amount shown includes (i) 1,200 shares held jointly by Ms. Barron and her husband; and (ii) 25,500 shares subject to options that may be exercised by Ms. Barron.
(5)The amount shown includes 28,500 shares subject to options that may be exercised by Mr. Cavanna.
(6)The amount shown includes 30,000 shares subject to options that may be exercised by Ms. Cholmondeley.
(7)The amount shown includes (i) 1,800 shares held by Mr. Kavazanjian’s wife; (ii) 188,872 shares subject to options that may be exercised by Mr. Kavazanjian; and (ii) 4,177 shares of restricted stock that are subject to time vesting.
(8)The amount shown includes 48,500 shares subject to options that may be exercised by Mr. Singh.
(9)The amount shown includes 4,518,616 shares beneficially owned by Grace Brothers, Ltd., an Illinois limited partnership. Mr. Whitmore is a general partner of Grace Brothers, Ltd. See “Security Ownership of Certain Beneficial Owners” on page 15 for more information about Grace Brothers, Ltd.
(10)Mr. Casper resigned as our Vice President of Finance and Chief Financial Officer in November 2009.
(11)The amount shown includes (i) 41,008 shares subject to options that may be exercised by Mr. Cirin; and (ii) 1,035 shares of restricted stock that are subject to time vesting.
(12)The amount shown includes (i) 57,630 shares subject to options that may be exercised by Mr. Comerford; and (ii) 1,194 shares of restricted stock that are subject to time vesting.
(13)Mr. Evans resigned as our Executive Vice President of Business Operations effective April 30, 2010. The amount shown includes (i) 26,000 shares subject to options that may be exercised by Mr. Evans.
(14)The amount shown includes 42,695 shares subject to options that may be exercised by Mr. Fain; and (ii) 1,924 shares of restricted stock subject to time vesting.
(15)The amount shown is based on Mr. Fishback’s April 20, 2009 Form 4 — Statement of Changes in Beneficial Ownership, and includes 84,988 shares subject to options that may be exercised by Mr. Fishback, our former Vice President of Finance and Chief Financial Officer. Mr. Fishback’s employment with us terminated in July 2009.
(16)The amount shown includes 38,308 shares subject to options that may be exercised by Mr. Hanna; and (ii) 1,035 shares of restricted stock subject to time vesting.
(17)Mr. Schmitz resigned as our Chief Operating Officer in November 2009. The amount shown includes 300 shares held by Mr. Schmitz’s wife.
(18)The amount shown includes (i) 618,001 shares subject to options that may be exercised by directors and executive officers; and (ii) 9,365 shares of restricted stock subject to time vesting.


16

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and our other equity securities. To our knowledge, based solely on the written representations of our directors and executive officers and the copies of such reports filed with the SEC during 2009, all Section 16(a) filings applicable to our officers, directors and more than 10% beneficial owners were filed in a timely manner, except for a Form 4 for Philip A. Fain that should have been filed in March 2008 to report the acquisition of a restricted stock award, that was inadvertently overlooked and that was subsequently filed in September 2009.
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Overview of Compensation Program
The Compensation and Management Committee, of the Board of Directors, referred to in this Executive Compensation section of our proxy statement as the Committee, has responsibility for establishing, implementing and monitoring adherence to our compensation philosophy. The following discussion focuses on the compensation of nine individuals: our Principal Executive Officer, our current Principal Financial Officer and our four other executive officers who were the most highly compensated during 2009; the two individuals who served as our Principal Financial Officer at some point in time during 2009; and the individual who served as our Chief Operating Officer until his resignation effective November 16, 2009. They are:
• John D. Kavazanjian, our President and Chief Executive Officer;
• Philip A. Fain, our current Chief Financial Officer and Treasurer, who served as our Vice President of Business Development until his appointment as our Chief Financial Officer effective November 9, 2009;
• James E. Evans, our former Executive Vice President of Business Operations;
• Peter F. Comerford, our Vice President of Administration, Secretary and General Counsel;
• Julius M. Cirin, our Vice President, Corporate Communications Officer;
• Patrick R. Hanna, Jr., our Vice President, Corporate Compliance Officer;
• Robert W. Fishback, our former Vice President of Finance and Chief Financial Officer who served in that capacity through June 1, 2009;
• William A. Schmitz, our former Chief Operating Officer; and
• John C. Casper, our former Chief Financial Officer who succeeded Mr. Fishback and preceded Mr. Fain.
Throughout this proxy statement, these nine individuals are referred to as the Named Executive Officers.
The following discussion explains the components of compensation that we paid to our Named Executive Officers during 2009, as presented in the 2009 Summary Compensation Table, the footnotes to that table and the narrative discussion relating thereto beginning on page 29 of this proxy statement. Although the discussion focuses primarily on 2009 compensation, it also includes certain information relating to prior years that we believe puts our overall 2009 compensation in better context.
Compensation Philosophy and Objectives
Our compensation philosophy is designed to align the interests of our executive officersNamed Executive Officers with those of our shareholders by rewarding performance that enhances the long-term objective of increasing shareholder value, significantly grows the business, and executes our business strategy.  Our executive rewards program is designed to motivate our executives, including our Named Executive Officers, to achieve strong financial, operational and strategic performance and to provide a link between the amounts earned by our executives and the creation of shareholder value.  The Committee establishes specific annual, long-term and strategic goals and rewards executive officerNamed Executive Officers for performance that meets andor exceeds those goals.  In addition, we expect our executive officersNamed Executive Officers to work to these objectives while maintaining the highest ethical standards.


17

We baseThe key components of our executive rewards program for our Named Executive Officers are base salary, annual short-term incentive plan (“STIP”) and long-term incentive plan (“LTIP”), combined with health and welfare benefits, retirement benefits and limited perquisites and other benefits.  We seek to ensure that total executive compensation policies onis aligned with corporate performance and the same principlescreation of shareholder value by emphasizing variable compensation that guide us in establishing allis at risk, subject to the achievement of our compensation programs. corporate and individual performance goals.
We design compensation programsour executive rewards program to attract, retain and motivate talented individuals.individuals, and to incentivize them to achieve our business strategy with strong financial, operational and strategic performance.  In particular:
 
14
• We base compensation decisions on a combination of the level of job responsibility, individual performance and our company performance. Generally, as employees progress to higher levels in our company, an increasing proportion of their pay is at risk because it is linked to our performance and shareholder returns.
•·  Our goal isfor 2012 was to have our compensationtotal rewards package reflect the value of the job not only in the marketplace. Tomarketplace but within the organization based on the ability of the executive to drive the success of our business strategy and leverage our future growth.  In reviewing market data, we looked not only at our peer group data but also at a group of technology-based organizations, recognizing that in order to attract and retain a skilled work force, we must remain competitive with the pay of other employers who compete with us for talent.
·  Our executive rewards program is also designed to support our pay-for-performance philosophy by aligning compensation with executing long-term business strategies (LTIP) and achieving near-term financial and operational targets (STIP).  We base compensation decisions on a combination of the criticality of the position in the achievement of our business strategy, individual performance and corporate performance.  Generally, as an individual’s level of responsibility increases, so does the amount of variable compensation that is at risk and that depends on achievement of such goals.
•·  We develop and administer our compensation programsexecutive rewards program to foster the long-term focus required for success in our industry, but we also work to achieve an appropriate balance between short-term and long-term compensation in order to adequately motivate our employees.executives.
 
To this end, the Committee reviews our executive compensationtotal rewards program annually to assess if we are achieving our business strategy and if we are able to attract and retain exceptionally talented executives, and to ensure that the total compensation paid to our executive officers,executives, including our Named Executive Officers, is fair, reasonable, competitive and where appropriate,  performance-based.  The Committee also ensures that our total compensation is linked to our ability to meet our annual financial and non-financial goals and, longer-term,longer term, to drive strong levels of shareholder return. Our President & CEO makes recommendations with respect to the awards of the other executive officers, and the Committee determines the actual awards of the executive officers, including the President & CEO.
 
Setting Executive Compensation
Based onOur fiscal 2012 financial performance, along with the foregoing objectives, the Committee has structured our annual and long-term incentive-based cash and non-cash executive compensation to motivate executives to achieve the business goals set by us and reward the executives for achieving such goals. The Committee makes recommendations to our Board of Directors regarding the base salary, cash (short-term) incentives and equity (long-term) incentives for our President and Chief Executive Officer. The compensationindividual performance of our President and ChiefNamed Executive Officer is developed by the Committee, based on input from our Vice President of Corporate Human Resources and, if retained, our compensation consultant.
The Committee reviews and approves, based on recommendations made by our President and Chief Executive Officer, the base salary, cash (short-term) incentives and equity (long-term) incentives for our other executive officers. The Committee can exercise its discretionOfficers, served as key factors in modifying any recommended adjustments or awards to executive officers.
In making compensation decisions, the Committee compares each element of total compensation against compensation data compiled initially by our outside compensation consultant, and updated by our Vice President of Corporate Human Resources, from companies of similar size and industry orientation. A significant percentage of compensation is allocated to incentive compensation in order to link executives’ compensation to our performance. The Committee reviews all of the compiled information to determine the appropriate level and mix of base salary with incentive compensation and benefits. The Committee then submits its recommendation to our Board of Directors for final review and approval.
Competitive Market Review
The Committee has periodically engaged DolmatConnell & Partners, an executive compensation consulting firm, to conduct a review of the total compensation program for our executives. DolmatConnell has provided the Committee with relevant market data and alternatives to consider when making compensation decisions for our President and Chief Executive Officer and other executive officers,2012, including the recommendation that we strive to achieve overall executive compensation that would put us in the 50th percentile of our peer group. DolmatConnell was engaged in September 2008 to conduct a survey and re-evaluate our overall executive compensation program for 2009. In addition, they revisited the composition of our peer group, in order to make the peer group more relevant to us and the markets we serve.


18

As a result of the survey conducted by DolmatConnell in September 2008, the Committee revised the composition of the peer group for 2009 to include companies of similar size within our industry. The peer group we used for establishing 2009 compensation for our Named Executive Officers was comprised of the following companies: •  Advanced Energy Industries, Inc., •  Aero Vironmento, Inc. •  AZZ, Inc. •  Bel Fuse, Inc. •  C&D Technologies, Inc. •  Electro Scientific Industries Inc. •  EMCORE Corp. •  Excel Technology, Inc. •  Greatbatch, Inc. •  LaBarge, Inc. •  Motorcar Parts of America, Inc. •  Performed Line Products Co. •  Quantum Fuel Systems Technologies Worldwide, Inc. •  SL Industries Inc. •  Spectrum Control, Inc. •  Vicor Corp.following:
 
Compensation and Management Committee Activity for 2009
·  Our 2012 Named Executive Officer STIP is aligned directly to an annual corporate financial target in line with our pay-for-performance philosophy.  For 2012, corporate operating profit from continuing operations, and corporate revenue were the key metrics for our Named Executive Officer annual cash incentive awards under the STIP. Corporate operating profit of $15 million comprised 90% of the STIP weighting and Corporate revenue of $163.4 million comprised the remaining 10% of the STIP weighting.  The threshold level of performance with respect to each of these metrics was not met in 2012.  Therefore, no short-term annual cash incentive awards were paid to our Named Executive Officers for 2012.
 
The Committee recognizes the importance of maintaining sound principles for the development and administration of executive compensation and took steps in 2008 and the beginning of 2009 to enhance the Committee’s ability to effectively carry out its responsibilities as well as to ensure that there are strong links between executive pay and performance. The Committee’s actions included:
·  
• ReviewLong-term equity incentive compensation continues to make up a significant portion of the evaluation of executives’ performance against personal and company goals and utilization of that evaluation to set compensation levels.
• Evaluation of base salary increases for the executive officers.
• Modification of employment agreements with certaineach of our Named Executive Officers.  During December 2011 (for the 2012 compensation year) and during 2012, long-term equity incentive compensation was granted solely in the form of stock options, as the Committee believed that stock options presented the best incentive to our Named Executive Officers to act in accordance with best practicesa manner designed to limitimprove our market value by rewarding them only if our market value increases over the term of the stock option.  Awards were determined individually and capwere based on the severance benefits payable upon a specifiedchange-in-control event.
• Meeting in executive sessions without management present.criticality of the position and the Named Executive Officer’s ability to initiate positive change and to be highly focused and leveraged on our future growth.
For purposes of setting executive compensation for 2009, the Committee relied upon the recommendations and survey from DolmatConnell and an analysis of the new peer group established in September 2008. The Committee continued to refine our short-term cash incentive plan, referred to in this proxy statement as the STIP, for executive officers, as more particularly set forth in the discussion and analysis that follow.
 
15
2009 Executive Compensation ComponentsBase Salary
 
ForOur President & CEO reviews the fiscal year ended December 31, 2009,performance of the principal components of compensation for theother Named Executive Officers were:
• base salary;
• STIP compensation; and
• long-term equity incentive compensation.
Base Salaryand then recommends base salary adjustments, if any, to the Committee.  In turn, the Committee independently reviews, adjusts where appropriate and approves the base salary adjustments, if any, based upon the subjective discretion of the Committee.  In our Board’s executive session, the Committee reviews and recommends to the full Board any base salary adjustment for our President & CEO.  If changes to base salaries are recommended and approved, the changes in the base salary are made based on a date range of anywhere from 12 to 15 months since the date of the last increase based upon an executive’s performance.
 
We provide our Named Executive Officers with aThe Committee typically reviews base salary to compensate them for services rendered duringlevels from the fiscal year. Base salary ranges for Named Executive Officers are determined based on their positions and responsibilities by usingcore peer group data where available and on a composite of published executive compensation surveys wherethe technology peer group data is not available.
During its review of base salaries for executives, the Committee primarily considers:
• competitive pay practices;
• the performance of the executive including any change in the responsibilities assumed by the executive; and
• our company performance.
Base salary levels are considered annually as part of our performance review process as well as upon any changes in job responsibility. Merit based increases to salaries of executive officers are based on the President and Chief Executive Officer’s recommendation and, where possible, the Committee’s review of the individual’s performance.an annual basis.  The Committee has endeavored to better align executive salaries with the market, moving them toward approximatelybetween the 25th and  the 50th percentile of our peer group, since base salaries for our executive officers have traditionally been


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significantly below market norms for comparable companies.  In fixing executives’ baseaddition to looking at the peer group data, salaries for 2009,our Named Executive Officers are determined based upon the following factors:
·  Individual performance
·  Impact of position on achievement of the business strategy
·  Company performance
·  Job responsibilities, including any significant change in responsibilities
·  Experience
·  Retention
In May 2012, the Committee recommended to the Board and the Board subsequently approved a base salary increase to Mr. Popielec in the amount of 3% ($450,000 to $463,500).
In March 2012, the Committee approved base salary increases designed to place those base salaries closerMessrs. Fain and Comerford of 4.0% ($250,000 to the 50th percentile of our new peer group as established at the end of 2008.
STIP Compensation
$260,000) and ($231,000 to $240,240), respectively.  The Committee implemented the STIP as a means to reward executive officers for their performance during the fiscal year and to assistmerit increases were approved by the Committee to achieve its stated goalbased on Company and individual performance and also in consideration of moving executive compensation to the 50thfact that both were positioned well below the 50th percentile of our peer group.  This elementFollowing their respective increases in base salary, Messrs. Fain and Comerford’s base salaries still remain below the 50th percentile of our peer group.  Other than these adjustments, no changes were made to the base salaries of our Named Executive Officers during 2012.
Short-Term Incentive Plan 2012
Typically, we establish a short-term incentive plan each fiscal year, which provides the Named Executive Officers an opportunity to receive an annual cash payment in addition to their base salaries.  The short-term incentive plan is designed to place “at risk” a significant portion of the annual total cash compensation of the Named Executive Officers by linking the amount of compensation promotesthat can be achieved under the Committee’s stated objective of keepingplan with our overall compensation competitive with that of our competitors. For 2009, we used adjusted operating income as our measure of objective financial performance.  Adjusted operating income for 2009 represented operating income before intangible amortizationWe believe that the STIP is a key component of maintaining a competitive executive compensation program because it motivates our Named Executive Officers to achieve our short-term financial and non-cash stock compensation expense. The Committeestrategic objectives while making progress towards our longer term growth.  Based on our new Total Rewards Strategy those Named Executive Officers and other executives who had the abilityopportunity for an immediate short term impact on the business and were instrumental in driving our operating results had more of their pay at risk in the STIP.   These individuals also were tasked with balancing short term results and decisions with creating long term value.
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President & CEO
Mr. Popielec was eligible to exclude or include any other itemsreceive an annual cash bonus outside of the control of management2012 Executive STIP if we exceeded certain performance metrics that were approvedto be agreed upon no later than January 31, 2012.  In 2012, Mr. Popielec’s bonus was based on delivering 2012 operating profit and corporate revenue goals.  His target bonus amount was 75% of his base salary or $337,500.  The STIP was structured such that  90% of the weighting would be based on operating profit and 10% on corporate revenue.  Bonus payout ranges were from 0% to 150% of the target bonus amount based on the satisfaction of one or more the bonus plan metrics.  Satisfaction of less than 75% of either or both of the bonus plan metrics would result in no bonus being paid.  Satisfaction of 75% up to 100% of  either or both the bonus plan metrics would in result in bonus ranges from 50% to 100% of the target bonus.  Satisfaction of 100% to 125% of either or both of the bonus plan metrics would result in bonus ranges from 100% to 150% of target bonus.  The target bonus of $337,500 would be paid if operating profit was  equal to or greater than $15 million and corporate revenue was  $163.4 million.  Due to our financial performance in 2012, no STIP or bonus was paid to our President & CEO.
Other Named Executive Officers
Initially, based on the recommendation from the President & CEO, the Committee establishes threshold, commitment and maximum bonus levels for each Named Executive Officer, which is expressed as a percentage of his base salary.  The percentages are determined by the Committee.position of the Named Executive Officers within the organization and based upon the review of peer data. In order2012, the target for Mr. Fain was 45% of base salary and the target for Mr. Comerford was 35% of base salary.  The threshold level for 2012 is the minimum level of performance required before any amount would be earned under the STIP, which is 75% of the Company performance targets of operating profit and corporate revenue.  The Committee also establishes a maximum bonus level under the STIP.  For 2012, that maximum bonus level was 150% of the target bonus level.
Generally, the Committee sets the target bonus level such that, assuming achievement of the corporate financial metrics, the combined base salary and annual STIP opportunity for our Named Executive Officers will be at or near the 50th percentile for comparable executives at the companies in our peer group.
In setting the 2012 executive compensation, the President and CEO recommended and the Committee approved that all Named Executive Officers would have their STIP based on our operating profit and corporate revenue goals.  The STIP potential for 2012 was based on a percentage of the Named Executive Officer’s salary based on using a surgical approach in which not every Named Executive Officer’s percentage of participation in the plan was the same.  The two metrics used for computation of the 2012 bonus for the Named Executive Officers were company operating profit and corporate revenue, with 90% of the weighting of the bonus based on 2012 operating profit commitment of $15 million and 10% of the weighting of the bonus based on 2012 corporate revenue commitment of $163.4 million.
Satisfaction of less than 75% of the bonus plan metrics of operating profit commitment or corporate revenue commitment resulted in no bonus being paid for that metric.  Satisfaction of 75% to 100% of the bonus plan metrics of operating profit commitment or corporate revenue commitment would result in a bonus range payout from 50% to 100% of the target bonus for that metric.  Payout of 100% of the target bonus under the plan would be achieved by meeting the targeted operating profit and corporate revenue commitments.  Satisfaction of over 100% to 125% of the bonus plan metrics of operating profit or corporate revenue commitment would result in a bonus range payout of 100% to 150% of the target bonus for that metric.  Named Executive Officers were eligible for a partial payment under the plan if one of the two metrics was achieved.  Payout under the plan is capped at 150% of the target bonus.  While the decisions to make STIP payouts as well as the amounts earned under the STIP are made at the sole discretion of the Committee, in making such determinations, the Committee relies on the
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recommendations from our President & CEO for all other Named Executive Officers.  Due to our financial performance in 2012, no STIP or bonus was paid to any of the Named Executive Officers.
Long-Term Incentive Compensation
Long-Term Equity Incentive Compensation – Named Executive Officers other than our President & CEO
We use equity awards to motivate our Named Executive Officers to increase the long-term value of our common stock and, thereby, align the interests of our Named Executive Officers with those of our shareholders.  Long-term equity incentive awards are intended to further our success by ensuring that sustainable value creation is a key factor in our Named Executive Officers’ management of the business and to help retain executives over time.
Long-term equity incentive compensation may consist of equity such as awards of stock options, performance vested restricted shares and time vested restricted shares that vest over a multi-year period.  This design approach helps align the interests of our Named Executive Officers with those of our shareholders in seeing long-term increases in the value of equity instruments.  We use stock options as one of our long-term incentives because, in addition to providing our executive officers with the opportunity to satisfydevelop a stock ownership stake in our 2009 financial performance componentcompany, they result in compensation only to the extent that the market price of our common stock increases over the term of the STIP, our 2009 adjusted operating income had to improve beyond certain predetermined levels, because we believe this measure best reflects the components of our 2009 financial performance that are within the control of management. For 2009, the predetermined operating income level was $21.88 million, which reflected our expected financial performance for 2009.stock option.
 
For 2009, uponThe size and form of these equity awards was determined by the recommendation of DolmatConnell, we continued to refineCommittee with recommendations from the President & CEO for the other Named Executive Officers.  Based on our STIP. For ourtotal rewards strategy, in late 2011 and early 2012 the President and Chief Executive Officer, our Chief Operating Officer, our former Vice President of Finance and Chief Financial Officer and our current Chief Financial Officer and Treasurer, the determination as to whether they would receive a STIP award and the amount of the award actually paid, if any, was based on whether we met predetermined targetsCEO recommended larger equity awards for our operating performance. With respect to our other Named Executive Officers as they were highly focused and leveraged on the determination asgrowth of the organization and meeting the organization’s strategic plan.
In December 2011 (for plan year 2012) and in January 2012, the Committee recommended to whether they received a STIP awardthe Board and the amountBoard approved the granting of the award actually paid, if any, was based on two factors, the satisfaction of either of which would entitle the executive officer to receive a cash award. The first factor was whether we met our predetermined target for operating performance. The second factor was the Committee’s subjective evaluation of the Named Executive Officer’s performance, based on an assessment of whether the Named Executive Officer satisfied predetermined performance goals specific to his duties. In every instance, where all or a portion of the STIP award was based on predetermined targets for our operating performance, our operating performance had to exceed 90% of the applicable targets in order for the Named Executive Officer to receive a STIP award. The operating performance targets at 100% and 120% and the percentage of 2009 salary eligible for STIP awards are set forth in the table below. If our operating performance came in between 90% and 100% of our targets, the STIP award would be prorated based on the amount by which our operating performance exceeded 90% expressed as a percentage of the 10% spread. Similarly, if our operating performance came in between 100% and 120% of our targets, the STIP award would be prorated based on the amount by which our operating performance exceeded 100% expressed as a percentage of the 20% spread. The Committee retains discretion not to make STIP awards even if the targets and performance goals are satisfied.


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STIP Awards for 2009 Performance
    If Operating
  
  If Operating
 Performance is
  
  Performance Equals
 Greater than 120%
  
  100% of Targets, %
 of Targets, %
  
  of 2009 Salary
 of 2009 Salary
  
Named Executive Officer
 Eligible for STIP Eligible for STIP 
Comments
 
John D. Kavazanjian  60%  120%  
Philip A. Fain  45%  90%  
James E. Evans  —   —  Not eligible for STIP as he was on a commission plan
Peter F. Comerford  15%  30% Could have earned an additional 30% of base compensation, based on our President and Chief Executive Officer’s subjective evaluation of Mr. Comerford’s performance
Julius M. Cirin  15%  30% Could have earned an additional 30% of base compensation based on our President and Chief Executive Officer’s subjective evaluation of Mr. Cirin’s performance
Patrick R. Hanna, Jr.   15%  30% Could have earned an additional 30% of base compensation based on our President and Chief Executive Officer’s subjective evaluation of Mr. Hanna’s performance
William A. Schmitz  45%  90% Resigned in November 2009 and therefore was not eligible for a payout as he was not employed on 12/31/09
Robert W. Fishback  45%  90% Removed in June 2009 and therefore was not eligible for a payout as he was not employed on 12/31/09
John C. Casper  45%  90% Resigned in November 2009; received a $30,000 cash bonus pursuant to his offer of employment
Additional 2009 STIP Information
Mr. Evans was not eligible to receive a STIP award in 2009 because his compensation included a component based on sales commissions. This component was designed to have Mr. Evans focus solely on sales. Mr. Evans received as a sales commission 0.1 percent of all of our sales up to a predetermined amount and 0.125 percent of all of our sales above that predetermined amount. For 2009, the predetermined amount was $256 million, which reflected our expected sales for 2009. Our actual sales for 2009 were $172.1 million. Previously, Mr. Evans had received as a sales commission a certain percentage of all qualifying defense and government sales, but because he focused on all sales, not just military sales, we broadened the terms of his commission for 2009. Mr. Evans’s sales commission for 2009 was $172,136. Mr. Evans resigned as our Executive Vice President of Business Operations effective April 30, 2010.
Effective June 1, 2009, Mr. Fishback was removed from his position as our Vice President of Finance and Chief Financial Officer, although he stayed on as an employee for transition purposes through July 31,2009. Pursuant to the terms of his employment agreement, as a result of his involuntary termination, Mr. Fishback received a cash bonus in the amount of $99,000 which was paid in March, 2010.

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In connection with his appointment as our Vice President of Finance and Chief Financial Officer on June 1, 2009, Mr. Casper was entitled to participate in our STIP and was eligible to receive a cash bonus as set forth in the preceding table. As a condition of his offer of employment, we agreed that regardless of our adjusted operating income performance for 2009, Mr. Casper would be entitled to receive a cash bonus of $30,000. If the adjusted operating income goals were met, the bonus due to Mr. Casper would be offset by the $30,000 guaranteed cash payment. Effective November 9, 2009, Mr. Casper resigned as our Vice President of Finance and Chief Financial Officer. We entered into a Release and Waiver of all Claims with Mr. Casper pursuant to which he released us from all claims and we paid Mr. Casper the cash bonus in the amount of $30,000, which we had agreed to pay him upon his hiring.
As our operating performance for 2009 did not exceed 90% of the applicable targets, there were no STIP awards paid based on operating performance. For those Named Executive Officers whose STIP award was to be based, in part, on our President and Chief Executive Officer’s subjective evaluation of the performance of those Named Executive Officers, the Committee determined that because of the impact of our operating performance for 2009, it would exercise its discretion not to make any further STIP awards based on the second factor.
Long-Term Equity Incentive Compensation
The Committee has always believed that a portion of executive compensation should be based on a long-term incentive. The long-term incentive compensation component of our executive compensation program exists to promote both long-term performance by the executive officers, which increases the link to shareholder value, as well as our long-term retention of those executive officers. Generally, the Committee bases the overall long-term incentive compensation on the mid-point of those companies in our peer group. As with other compensation, however, the Committee can modify this target either upward or downward based on the Committee’s subjective evaluation of the long-term value of the individual executive officer to us.
Our 2009 long-term incentive compensation consisted of three components: (1) stock options; (2) performance-vested restricted shares; and (3) time-vested restricted shares. Awards under stock option and time-vested restricted share portions of this plan have historically been made in December of each year, but those awards that typically would have been made in December of 2008 were deferred to January of 2009. Each component is addressed below. By using a blend of these components based on recommendations from DolmatConnell, and by aligning long-term incentive compensation with the marketplace and with the value of the executive officer to us, the Committee believes it can reward retention and performance, align the executive officers’ goals with those of our shareholders and encourage executive officer stock ownership. This structure also allows the Board or the Committee to make adjustments to respond to market or employment pressures without having to make major changes to our compensation structure or compromising the philosophy behind it.
Stock Options
The stock option component of our long-term incentive compensation program encourages retention through the vesting period and encourages performance by aligning the value of the option, when vested, with the equity value of our common stock underlying the option. This aligns the goals of the executive officer better with the goals of our shareholders.
We want to provide our executives with significant upside potential based on increases in our stock price. Accordingly, we allocate approximately 50% of the value of the long-term incentive award to stock options. In January 2009, the Committee granted options to purchase shares of our common stock under our Restated LTIP to ourcertain Named Executive Officers other thanOfficers.  In December 2011, Mr. Evans, which options as noted earlier, would typically have been granted in December 2008. In connection with his hiring and appointment as our Vice President of Finance and Chief Financial Officer effective June 1, 2009, the Committee granted Mr. CasperFain received an option to purchase


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30,000acquire 50,000 shares at an exercise price of our common stock under our Restated LTIP. For$4.42 per share, with a seven-year term and vesting over a three-year period in equal installments, and Mr. Comerford received an option to purchase 26,000 shares at an exercise price of $4.42 per share, with a seven-year term and vesting over a three-year period in equal installments.  In January 2012, Mr. Fain received an additional information regarding these options, see the following table.
January 2009 Stock Option Grants
           
  Shares
   Exercise
Named Executive Officer
 Granted 
Information about Options
 Price (1)
 
John D. Kavazanjian  17,614  seven-year term; vests over a three-year period in equal installments $12.1848 
Philip A. Fain  7,976  seven-year term; vests over a three-year period in equal installments $12.1848 
Peter F. Comerford  3,988  seven-year term; vests over a three-year period in equal installments $12.1848 
Julius M. Cirin  3,323  seven-year term; vests over a three-year period in equal installments $12.1848 
Patrick R. Hanna, Jr.   3,323  seven-year term; vests over a three-year period in equal installments $12.1848 
William A. Schmitz (2)  11,964  seven-year term; vests over a three-year period in equal installments $12.1848 
Robert W. Fishback (3)  5,982  seven-year term; vests over a three-year period in equal installments $12.1848 
John C. Casper (4)  30,000  seven-year term; vests over a three-year period in equal installments $7.1845 
(1)Pursuant to our LTIP, this is the VWAP per share on the grant date.
(2)As a result of his resignation, effective November 16, 2009, Mr. Schmitz forfeited these stock options, all of which were unvested as of November 16, 2009.
(3)Pursuant to the terms of his employment agreement, Mr. Fishback was entitled to the acceleration of vesting of all outstanding stock options, and other time-vested equity arrangements and held by him, provided that the acceleration did not cover more than two years from the termination date of his employment (and in this regard, all such options and other exercisable rights held by Mr. Fishback remain exercisable for one year following such termination date).
(4)In connection with his hiring in June 2009, Mr. Casper received stock options. Upon his resignation as Vice President of Finance and Chief Financial Officer effective November 9, 2009, and his execution of a Release and Waiver of All Claims, Mr. Casper forfeited any rights he had to the options granted to him upon his hiring.


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In December 2009,option to purchase 20,000 shares at an exercise price of $3.98 per share, with a seven-year term and vesting over a three-year period in equal installments.  These grants were issued in accordance with our usual schedule,2012 executive total rewards strategy.  The determination of who receives long-term incentive awards and how many awards they receive is based on the Committee grantedcriticality of their role, their performance, their potential and their ability to drive our long-term business strategy.
Long-Term Equity Incentive Compensation – President & CEO
Long-term equity incentive compensation is a significant component of Mr. Popielec’s compensation package.  Under his employment agreement, Mr. Popielec received the following options to purchase shares of our common stock:
Date of Grant 
Number
of Shares
 
Exercise
Price
 Vesting Schedule
       
December 30, 2010 50,000 $6.4218 Twenty five percent of the shares will vest on each of the four anniversaries of the date of grant.
       
January 3, 2011 50,000 $6.5820 Twenty five percent of the shares will vest on each of December 30, 2011, December 30, 2012, December 30, 2013 and December 30, 2014.
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In addition, Mr. Popielec received three additional stock underoptions, each of which was conditioned upon shareholder approval of our Restated LTIP toat our Named Executive Officers who2011 annual meeting.  This approval was obtained at our 2011 annual meeting, which was held in June 2011.  As detailed below, most of these stock options were then employed by us. For additional information regarding these options, seegranted with an exercise price substantially above the following table.
December 2009 Stock Option Grants
       
  Shares
   Exercise
Named Executive Officer
 Granted 
Information about Options
 Price (1)
 
John D. Kavazanjian 23,500 seven-year term; vests over a three-year period in equal installments $3.9085
(December
options)
  26,500 (2)
(granted in
January 2010)		 seven-year term; vests over a three-year period in equal installments $4.7761 (2)
(January
options)
Philip A. Fain 33,000 seven-year term; vests over a three-year period in equal installments $3.9085
James E. Evans 33,000 seven-year term; vests over a three-year period in equal installments $3.9085
Peter F. Comerford 24,000 seven-year term; vests over a three-year period in equal installments $3.9085
Julius M. Cirin 12,000 seven-year term; vests over a three-year period in equal installments $3.9085
Patrick R. Hanna, Jr.  12,000 seven-year term; vests over a three-year period in equal installments $3.9085
(1)Pursuant to our LTIP, this is the VWAP per share on the grant date.
(2)Our Restated LTIP contains a 50,000 share annual limitation per person on option grants and stock awards without shareholder approval. Mr. Kavazanjian had previously received options and restricted stock awards for an aggregate 22,800 shares in 2009. The Committee determined that Mr. Kavazanjian was entitled to a 50,000 share option and decided to grant him an option for 23,500 shares in December 2009 and in January 2010 granted him an additional seven-year option which vests over a three-year period in equal installments, for 26,500 shares at an exercise price of $4.7761 per share.
Performance-Vested Restricted Shares
The performance-based component of our long-term incentive compensation plan rewards long-term performance by establishing a three-year set of operating performance goals. The Committee believes that establishing these three-year operating goals encourages our executive officers to focus on a longer term set of objectives to complement the annual performance goals which underlie our STIP. This also ties our compensation to our performance in the marketplace, once again aligning the interests of our executive officers with those of our shareholders.
In order to strengthen the link to performance while delivering restricted shares to reduce our financial accounting option expense, the Committee allocates approximately 25% of the long-term incentivegrant date fair market value to performance-vested restricted shares. In 2007, the Board or the Committee granted performance-vested restricted shares of our common stock under our Restated LTIP to our executive officers. These shares would vest in three equal installments and become unrestricted only if we met or exceeded predetermined targets for our operating performance for 2007, 2008 and 2009. For executive officers hired after 2007, the Committee granted performance-based restricted shares with vesting based on the number of years remaining under the original three-year plan. The plan also contemplates the ability to apply any excess operating performance to a prior year or a subsequent year for


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purposes of satisfying the vesting requirements. For additional information regarding these grants, see the following table.
           
  Number of
 Number of
  
  Performance-
 Shares Released
  
  Vested Shares
 for 2009
  
Named Executive Officer
 Granted Performance 
Comments
 
John D. Kavazanjian  15,000   0   
Philip A. Fain  5,000   0  Hired in February 2008
Peter F. Comerford  4,500   0   
Julius M. Cirin  3,000   0   
Patrick R. Hanna, Jr.   3,000   0   
William A. Schmitz (1)  7,500   0  Resigned in November 2009
Robert W. Fishback (1)  7,500   0  Terminated employment in July 2009
John C. Casper (2)  2,500   0  Hired in June 2009; resigned in November 2009
stock.
 
(1)As neither Mr. Schmitz nor Mr. Fishback was employed by us at December 31, 2009, neither was entitled to the release of any of the performance-vested restricted shares.
(2)Upon his resignation as Vice President of Finance and Chief Financial Officer effective November 9, 2009, and his execution of a Release and Waiver of All Claims, Mr. Casper forfeited any rights he had to the performance-vested restricted shares.
Time-Vested Restricted Shares
Date of Grant 
Number
of Shares
 
Exercise
Price
 Vesting Schedule
       
December 30, 2010 250,000 $6.4218 Twenty five percent of the shares will vest on each of the four anniversaries of the date of grant.
       
December 30, 2010 200,000    $10.00 Vesting begins on the date the stock first reaches a closing price equal to the exercise price for 15 trading days in a 30 trading-day period, with such vesting in equal amounts over the four anniversary dates of that date.
       
December 30, 2010 200,000    $15.00 Vesting begins on the date the stock first reaches a closing price equal to the exercise price for 15 trading days in a 30 trading-day period, with such vesting in equal amounts over the four anniversary dates of that date.
 
The time-vested restricted share component of our long-term incentive compensation program is designed to retain key executive officers. It enables the Committee to tie a portion of current compensation to the continued employment of the executive officer with us and spread that compensation over a three-year period. By basing this component on stock ownership, the Committee is also able to tie the compensation, when the time-based restrictions lapse, to our performance in the marketplace, thereby better aligning the interests of the executive officers with those of our shareholders.
To increase the retention of key executives, the Committee allocates approximately 25% of the long-term incentive value to time-vested restricted shares. As more particularly set forth in the table below, the Committee has granted time-vested restricted shares of our common stock under our Restated LTIP to our Named Executive Officers. These awards have historically been granted in December, but the awards that would typically have been granted in December 2008 were deferred to January 2009. These shares typically vest over a three-year period in equal installments. For purposes of the January 2009 grants, the Committee determined the number of shares of time-vested restricted stock to grant by dividing a predetermined dollar value for the restricted stock award by the VWAP of our common stock as quoted on the NASDAQ Global Market during the 30 trading days preceding the date the Committee approved the grant of the time-vested restricted stock ($11.33 per share).


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Retirement
Time-Vested Restricted Stock GrantsBenefits
Number of
Time-Vested Shares
Named Executive Officer
Granted in 2009
Comments
John D. Kavazanjian4,766
Philip A. Fain1,986
James E. Evans0Resigned in April 2010
Peter F. Comerford1,192
Julius M. Cirin953
Patrick R. Hanna, Jr. 953
William A. Schmitz3,575Resigned in November 2009
Robert W. Fishback1,192Terminated employment in July 2009
John C. Casper6,000Hired in June 2009; resigned in
November 2009
(1)As Mr. Schmitz was no longer employed by us after November 16, 2009, he forfeited any time-vested restricted shares that would have vested after that date.
(2)Pursuant to the terms of Mr. Fishback’s employment agreement, and as a result of his removal as our Vice President of Finance and Chief Financial Officer effective June 1, 2009, Mr. Fishback was entitled to the acceleration of the vesting of any time-vested restricted shares that would have vested after that date, provided that the acceleration did not cover more than two years from the termination date of his employment. Mr. Fishback was therefore entitled to all but 397 of his time-vested restricted shares.
(3)In connection with his appointment as our Vice President of Finance and Chief Financial Officer effective June 1, 2009, we awarded Mr. Casper 6,000 shares of time-vested restricted stock which would vest over a two-year period in equal installments. Upon his resignation as Vice President of Finance and Chief Financial Officer effective November 9, 2009, and his execution of a Release and Waiver of All Claims, Mr. Casper forfeited any rights he had to the time-vested restricted shares.
Stock Ownership and Retention Guidelines
 
We have implemented stock ownership guidelines in orderprovide to align betterall active employees a tax-qualified 401(k) plan that provides for both employer and employee contributions.  Employees may defer annually to the interests of our executive officers with those of our shareholders. The stock ownership guidelines for executive officers are as follows:
President and Chief Executive Officer1.0 times salary
Chief Financial Officer and
Executive Vice President of Business Operations		0.5 times salary
Other Executive Officers0.33 times salary
For 2009,plan up to the Committee established the presumed share price at $13.724 per share, which was based on VWAP of our common stock on December 31, 2008. Going forward, the Committee will establish a new presumed share price for the following year based on the VWAP of our common stock for the preceding two-year period. Executive officers have three years to achieve the required holdings. Additionally, until the stock ownership guidelines are met, executive officers must hold at least 50% of all vested restricted share grants (on an after tax basis) and 50% of shares received on exercise of stock options. Our executive officers have either met or are on target to meet their applicable stock ownership guidelines.
Retirement Benefits
Other than the qualified 401(k) Plan withIRS limits.  We provide a company match that we may make availableof 50% of an employee’s deferrals, up to all employees, we do not provide our executive officers with any other retirement benefits. The company match was suspended for the fourth quartera maximum of 2009 and was reinstated effective January 1, 2010. Currently, we match one-half (2%) of the first 4% of the employee contribution under our 401(k) Plan. See page 41 for more information about our 401(k) Plan.employee’s annual salary.


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Perquisites and Other Personal Benefits
 
We provide our executive officersNamed Executive Officers with perquisites and other personal benefits that we and the Committee believebelieves are reasonable and consistent with our overall compensation program to better enable us to attract and retain superior employees for key positions.  The Committee periodically reviews the levels of perquisites and other personal benefits provided to our executive officers.Named Executive Officers.

The Committee had approved a flexible supplemental benefits account that was established for each executive officer for 2009. The amount established for our President and Chief Executive Officer was $7,500 per annum and $5,000 for each of the other executive officers. Premiums for supplemental long-term disability insurance for executives were taken out of these amounts and the President and Chief Executive Officer presented the Committee with other offerings that executives can use with their account balances.
Attributedaggregate incremental costs of the personal benefits described above for theprovided to our Named Executive Officers for the fiscal year ended December 31, 2009, are included in the “All Other Compensation” column of the 20092011 Summary Compensation Table on page 29.Table.

Other 2012 Compensation Actions
 
Severance andChange-in-Control PaymentsRelocation Benefits – President & CEO

Under his employment agreement, Mr. Popielec was also entitled to the following relocation benefits:
 
We
·  Payment of all actual reasonable current house sale/closing costs, including deed preparation, tax stamps, reasonable attorneys’ fees, real estate transfer taxes and real estate commissions incurred in 2012.
19
Stock Ownership and Retention Guidelines for 2012
In order to better align the interests of executive officers and shareholders, several years ago the Committee implemented stock ownership and retention guidelines for executive officers.  The stock ownership requirements for executive officers are as follows:
President & CEO1.00 times salary
Chief Financial Officer0.50 times salary
Other Executive Officers0.33 times salary
For 2012, the Committee established the presumed share price at $4.88 per share, which was based on the volume weighted average price of our common stock for the two-year period ended December 31, 2011.  Each year the Committee will establish a new presumed share price for the following year based on the volume weighted average price of our common stock for the preceding two-year period.  Executive officers have employment agreements with Messrs. Kavazanjianthree years to achieve the required holdings, which are based on the presumed share price.  Additionally, there are shareholding requirements which require that until the share ownership guidelines are met, executive officers must hold at least 50% of all vested restricted share grants (on an after tax basis) and Comerford that containchange-in-control50% of shares received on exercise of stock options.  Shares owned by an executive, as well as shares underlying awards of stock options and severance provisions. The terms of these agreements are summarized on page 37 under “Employment Arrangements.” The severance provisions ofrestricted stock count towards the employment agreements are intended to address competitive concerns by providing theexecutive’s goal.  All Named Executive Officers with compensation that may alleviate the uncertainty of havinghave either met or are on target to leave for another employer or foregoing other opportunities. meet their applicable stock ownership guidelines.
Thechange-in-control provisions of the employment agreements are intended to allow us to rely upon the Named Executive Officers’ continued employment and objective advice, without concern that a Named Executive Officer might be distracted by the personal uncertainties and risks created by an actual or proposed change in control. These potential benefits provide our Named Executive Officers with important protections that we believe are necessary to attract and retain executive talent while, at the same time, requiring a trigger event after a change in control before any severance compensation Committee is paid. In accordance with best compensation practices, in July 2009 we modified the employment agreements of certain of our Named Executive Officers to cap the severance benefits payable upon a specifiedchange-in-control event and to eliminate the requirement of the prior agreements to make agross-up payment tocurrently reviewing the Named Executive Officer in the event a parachute payment was subjectStock Ownership Guidelines for 2013 to excise tax under Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”).ensure that best practices are being used.

Tax and Accounting Implications
Deductibility of Executive Compensation
 
As part of its role, the Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code which provides that we may not deduct compensation of more than $1,000,000 that is paid to certain individuals.  We believe that compensation paid under the executive compensation plans is fully deductible for federal income tax purposes.  However, in certain situations, the Committee may approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for our executive officers.
 
Nonqualified Deferred Compensation
On October 22, 2004, the American Jobs Creation Act of 2004 (the “Jobs Creation Act”) was signed into law, changing the tax rules applicable to nonqualified deferred compensation arrangements. The Committee does not believe that we currently have any nonqualified deferred compensation arrangements; however the Committee is mindful of the Jobs Creation Act and its related regulations when making compensation decisions. Effective December 31, 2008, we entered into Amended and Restated Employment Agreements with those of our executive officers with whom we had employment agreements in order to bring those agreements into compliance with Section 409A of the Code.


27

Accounting for Stock-Based Compensation
 
Beginning on January 1, 2006, we began accounting for stock-based payments, including stock options and restricted stock awards, in accordance with the requirements of SFAS 123(R), now referred to as ASC 718.
 
Conclusion
20
 
The Committee has reviewed all components of our President and Chief Executive Officer’s and other Named Executive Officers’ compensation, including base salary, short-term cash incentive compensation, long-term equity incentive compensation, accumulated vested and unvested stock option and restricted stock, and the dollar value to each Named Executive Officer and cost to us of all perquisites and other personal benefits. The elements of the President and Chief Executive Officer’s and Named Executive Officers’ compensation are reported in the 2009 2012 Summary Compensation Table on page 29.
Based on this review, the Committee finds the President and Chief Executive Officer’s and each other Named Executive Officer’s total compensation (including the potential payouts underchange-in-control and severance scenarios) in the aggregate to be reasonable. The Committee believes that the President and Chief Executive Officer’s and each Named Executive Officer’s compensation are appropriate given our performance in 2009.
Based on the company’s and the executive officers’ financial and non-financial performance in 2009, no non-equity incentive plan compensation was awarded to any of our executive officers.
The Committee believes that the long-term equity incentives that were awarded in January 2009, June 2009 and December 2009 (and in January 2010 with respect to Mr. Kavazanjian) were reasonable in light of the market and the fact that we and our shareholders benefit from the executive officers having an incentive to deliver increased shareholder return.
Total direct compensation for the Named Executive Officers remains conservatively positioned versus the market, and the incentive compensation for the Named Executive Officers continues to move toward the 50th percentile of peer group companies based on a 2008 survey and a current reassessment of our peer group. The strides made during the past several years in terms of increases to base salary and bonus targets, and more competitive long-term incentive compensation, have been designed to attract and retain executive talent while at the same time enhancing the long-term objective of increasing shareholder value.
COMPENSATION AND MANAGEMENT COMMITTEE REPORT
The Compensation and Management Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on such review and discussions, the Compensation and Management Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.
The Compensation and Management Committee:
Ranjit C. Singh, Chair
Patricia C. Barron
Paula H.J. Cholmondeley
Bradford T. Whitmore


28

The individuals named in the following tables include, as of December 31, 2009, our Principal Executive Officer, our Principal Financial Officer, two individuals who served as our Principal Financial Officer during 2009, an individual who served as our Chief Operating Officer during 2009, and our other Named Executive Officers.
2009 SUMMARY COMPENSATION TABLE
 
The following table sets forth information concerning the compensation awarded to, paid to or earned by the Named Executive Officers for all services in all capacities to us and our subsidiaries during 2007, 20082011 and 2009:
                                 
            Non-Equity
    
        Stock
 Option
 Incentive Plan
 All Other
  
    Salary
 Bonus
 Awards
 Awards
 Compensation
 Compensation
 Total
Name and Principal Position
 Year ($) ($) ($)(1) ($)(2) ($) ($)(3) ($)
 
John D. Kavazanjian
  2009   419,360   0   53,999   148,237   0   15,597   637,193 
President and Chief  2008   349,302   43,750   0   126,813   0   17,036   536,901 
Executive Officer  2007   330,293   0   40,470   0   0   7,391   378,154 
Philip A. Fain(4)
  2009   240,538   0   22,501   109,956   0   9,189   382,184 
Chief Financial Officer and Treasurer  2008   186,660   20,000   85,612   265,510   0   88,408(5)  646,190 
Robert W. Fishback(6)
  2009   149,750   0   13,505   35,055   0   189,116   387,426 
Former Vice President of  2008   219,334   30,000   0   67,634   0   11,583   328,551 
Finance and Chief  2007   200,392   0   24,282   0   0   7,757   232,431 
Financial Officer                                
John C. Casper(7)
  2009   140,386   30,000(8)  62,106   106,199   0   28,573   367,264 
Former Vice President of                                
Finance and Chief                                
Financial Officer                                
William A. Schmitz(9)
  2009   291,063   0   40,505   70,110   0   7,315   408,993 
Former Chief Operating  2008   263,659   30,000   0   67,634   0   10,540   371,833 
Officer  2007   229,639   0   24,282   0   0   5,763   259,684 
James E. Evans(10)
  2009   231,095   0   0   63,217   165,924(11)  9,785   470,021 
Former Executive Vice  2008   203,280   10,000   0   33,817   228,222   12,887   488,206 
President of Business  2007   217,036   0   134,900   45,575   0   1,230   398,741 
Operations                                
Peter F. Comerford(12)
  2009   210,066   0   13,505   69,345   0   11,529   304,445 
Vice President of  2008   194,411   12,000   0   33,817   0   9,670   249,898 
Administration and General Counsel  2007   178,552   0   16,188   0   0   3,429   198,169 
Julius M. Cirin(13)
  2009   190,347   0   10,797   42,460   0   11,306   254,910 
Vice President, Corporate Communications Officer                                
Patrick R. Hanna, Jr.(13)
  2009   190,655   0   10,797   42,460   0   9,883   253,795 
Vice President, Corporate Compliance Officer                                
2012:
 
Name and
Principal Position
 Year 
Salary
($)
 
Option
Awards
($)(1)(2)
 
All Other
Compensation
($)(3)
 
Total
($)
           
Michael D. Popielec 2012 459,265 - 158,996    618,261
President and Chief 2011 436,611 1,413,316   15,407 1,865,334
Executive Officer          
           
Philip A. Fain 2012 256,801       37,418   10,892    305,111
Chief Financial Officer 2011 249,608     101,492   15,711    366,811
and Treasurer          
           
Peter F. Comerford 2012 236,535 -     8,064    244,599
Vice President of 2011 228,717       52,775   11,500    292,992
Administration, Secretary
and General Counsel
          

(1)The amount in the Stock Awards column is the grant date fair value of restricted share awards granted pursuant to our shareholder-approved Restated LTIP calculated in accordance with ASC 718. See Note 7 to our audited consolidated financial statements included in our Annual Reports onForm 10-K for the fiscal years ended December 31, 2007, 2008 and 2009 for the assumptions we used in valuing and expensing these restricted share units in accordance with ASC 718.
(2)The amounts reported in the Option Awards column represent the grant date fair value of stock option awards granted pursuant to our shareholder-approved Restated LTIP calculated in accordance with ASC 718.  See Note 7 to our audited financial statements included in our Annual Reports onForm 10-K for the fiscal years ended December 31, 2007, 20082011 and 20092012 for the assumptions we used in valuing and expensing these stock options in accordance with ASC 718.


29

 
(2)Mr. Popielec’s 2011 stock option awards consist of stock options that were part of his compensation package that was approved by the Board of Directors in connection with the execution of his employment agreement, which was effective on December 30, 2010. Other than the two stock options for 50,000 shares each that were granted to Mr. Popielec on December 30, 2010 and January 3, 2011, the remaining stock options granted to Mr. Popielec in connection with his employment agreement were conditioned on shareholder approval of our Restated LTIP, which was approved at our annual meeting of shareholders on June 7, 2011.
(3)All Other Compensation for 2012 consists of the following:
                     
      401(k) Plan
    
    Moving
 Employer
 Other
  
  Severance
 Expenses
 Match
 Benefits (a)
 Total
  ($) ($) ($) ($) ($)
 
John D. Kavazanjian
  0   0   7,054   8,543   15,597 
Philip A. Fain
  0   0   3,224   5,965   9,189 
Robert W. Fishback
  183,616(b)  0   2,386   3,114   189,116 
John C. Casper
  20,770(c)  5,545   1,039   1,219   28,573 
William A. Schmitz
  0   0   1,588   5,727   7,315 
James E. Evans
  0   0   3,877   5,908   9,785 
Peter F. Comerford
  0   0   3,538   7,991   11,529 
Julius M. Cirin
  0   0   3,208   8,098   11,306 
Patrick R. Hanna, Jr. 
  0   0   3,208   6,675   9,883 
 
  
401(k) Plan
Employer Match
($)
 
Other
Benefits (a)
($)
 
Total
($)
       
Michael D. Popielec 4,893 154,103 158,996
Philip A. Fain 5,169 5,723 10,892
Peter F. Comerford 4,560 3,504 8,064

(a)The “Other Benefits” column of the above table includes premiums paid for group medical and dental coverage, annual physicals, physical rehabilitation, life insurance and long-term care insurance, and tax preparation.
(b)This amount includes (i) salary continuation payments received by Mr. Fishback for the period August 1, 2009 through December 31, 2009 in the case of Mr. Popeilec includes relocation benefits in the aggregate amount of $84,616, and (ii) $99,000, the amount of Mr. Fishback’s target bonus for 2009, all of$149,864 which was paid to Mr. Fishback in accordance with the provisions ofwere prescribed by his employment agreement as a result of his involuntary termination.
(c)This amount represents salary continuation paid to Mr. Casper in 2009 after his resignation in accordance with the provisions of the Release and Waiver of All Claims executed by us and Mr. Casper.agreement.
(4)Mr. Fain became a Named Executive Officer in 2008. Compensation information for Mr. Fain for 2007 is not provided because Mr. Fain was not a Named Executive Officer for that year.
(5)Prior to Mr. Fain’s employment with us, he was a partner with CXO on the GO, LLC, a management consulting firm, which we retained in connection with our acquisition activity. Disclosed in this column is $79,944 in consulting fees that we paid to CXO on the GO, LLC for services rendered by Mr. Fain and others during 2008.
(6)Mr. Fishback was removed as our Vice President of Finance and Chief Financial Officer effective June 1, 2009.
(7)Mr. Casper was hired as our new Vice President of Finance and Chief Financial Officer effective June 1, 2009 and resigned those positions effective November 9, 2009.
(8)This amount was paid to Mr. Casper pursuant to our offer of employment which was conditioned on Mr. Casper’s receipt of a guaranteed bonus of $30,000 regardless of our operating performance for 2009.
(9)Mr. Schmitz resigned as our Chief Operating Officer effective November 16, 2009.
(10)Mr. Evans resigned as our Executive Vice President of Business Operations effective April 30, 2010.
(11)Mr. Evans received sales commission incentive compensation based on a specified percentage of all of our qualifying defense and government sales in 2008. His sales commission for 2009 was based on a specified percentage of all of our sales.
(12)Mr. Comerford was previously a Named Executive Officer for 2007, was not a Named Executive Officer for 2008 and became a Named Executive Officer once again in 2009.
(13)Messrs. Cirin and Hanna each became a Named Executive Officer in 2009.


30

2009 GRANTS OF PLAN-BASED AWARDS
 
The following table sets forth information concerning grantsEmployment Arrangements
Mr. Popielec
On December 6, 2010, we entered into an employment agreement with Mr. Popielec which provides that, effective December 30, 2010, Mr. Popielec became our President and Chief Executive Officer, succeeding Mr. Kavazanjian.  In connection with his appointment as our President and Chief Executive Officer, we set Mr. Popielec’s annual base salary at $450,000.  Mr. Popielec is also eligible to receive an annual cash bonus outside our short-term cash bonus incentive plan if we exceed certain quantitative and qualitative performance metrics to be agreed upon no later than January 31 of plan-based awardsthe year for which the bonus applies.  Satisfaction of 80% to 99% of the bonus plan metrics will result in bonus
21
ranges from 20% to 100% of Mr. Popielec’s target bonus.  Satisfaction of 100% to 125% of the bonus plan metrics will result in bonus ranges from 100% to 140% of Mr. Popielec’s target bonus.  In no event will the bonus exceed 140% of Mr. Popielec’s target bonus, unless subsequently approved by the entire Board of Directors.  For 2011 and each year thereafter, Mr. Popielec’s target bonus shall not be less than 75% of his 2011 base salary.
Mr. Popielec is also a participant in our Restated LTIP.  Pursuant to the Named Executive Officers during 2009:
                                     
                           Grant
 
                  All Other
  All Other
     Date
 
                  Stock
  Option
  Exercise
  Fair
 
         Estimated Possible
  Awards:
  Awards:
  or
  Value
 
         Payouts Under
  Number of
  Number of
  Base
  of Stock
 
         Non-Equity Incentive
  Shares of
  Securities
  Price of
  and
 
         Plan Awards(1)  Stock or
  Underlying
  Option
  Option
 
  Type of
   Grant
  Threshold
  Target
  Maximum
  Units
  Options
  Awards
  Awards
 
Name
 Award 
Plan
 Date  ($)  ($)  ($)  (#)  (#)  ($/Sh) (2)  ($) 
 
John D. Kavazanjian
 Cash Incentive STIP  —  $226,800  $252,000  $504,000                 
  Option LTIP  01/14/09                   17,614   12.18   103,219 
  Option LTIP  12/04/09                   23,500   3.91   45,018 
  RSA LTIP  01/14/09               4,766           53,999 
Philip A. Fain
 Cash Incentive STIP  —   97,200   108,000   216,000                 
  Option LTIP  01/14/09                   7,976   12.18   46,739 
  Option LTIP  12/04/09                   33,000   3.91   63,217 
  RSA LTIP  01/14/09               1,986           22,501 
Robert W. Fishback
 Cash Incentive STIP  —   89,100   99,000   198,000                 
  Option LTIP  01/14/09                   5,982   12.18   35,055 
  RSA LTIP  01/14/09               1,192           13,505 
John C. Casper
 Cash Incentive STIP  —   109,350   121,500   243,000                 
  Option Non-Plan  06/01/09                   30,000   7.18   106,199 
  RSA LTIP  06/01/09               8,500           62,106 
William A. Schmitz
 Cash Incentive STIP  —   121,500   135,000   270,000                 
  Option LTIP  01/14/09                   11,964   12.18   70,110 
  RSA LTIP  01/14/09               3,575           40,505 
James E. Evans
 Cash Incentive Non-Plan  —   —   250,000(3)  —                 
  Option LTIP  12/04/09                   33,000   3.91   63,217 
Peter F. Comerford
 Cash Incentive STIP  —   28,350   31,500   126,000                 
  Option LTIP  01/14/09                   3,988   12.18   23,369 
  Option LTIP  12/04/09                   24,000   3.91   45,976 
  RSA LTIP  01/14/09               1,192           13,505 
Julius M. Cirin
 Cash Incentive STIP  —   25,650   28,500   114,000                 
  Option LTIP  01/14/09                   3,323   12.18   19,472 
  Option LTIP  12/04/09                   12,000   3.91   22,988 
  RSA LTIP  01/14/09               953           10,797 
Patrick R. Hanna, Jr. 
 Cash Incentive STIP  —   25,650   28,500   114,000                 
  Option LTIP  01/14/09                   3,323   12.18   19,472 
  Option LTIP  12/04/09                   12,000   3.91   22,988 
  RSA LTIP  01/14/09               953           10,797 
(1)Other than for Mr. Evans, amounts represent the potential threshold, target and maximum bonus under the STIP described on page 20 under the heading “STIP Compensation.” Under the terms of the STIP, the maximum award amount is payable as an overachievement award. For 2009, the financial performance component of the STIP was not met and accordingly there were no STIP incentive payments made to our Named Executive Officers.
(2)The exercise price of stock options granted on January 14, 2009 and December 4, 2009 is equal to the volume weighted average sales price of our common stock, as determined in accordance with the trading rules of the NASDAQ Global Market, on the respective date of grant and is in excess of the closing price of our common stock on each such day.
(3)Mr. Evans participated in a sales commission incentive compensation program, whereby he was entitled to receive a specified percentage of all of our sales. He received 0.1 percent of all sales up to our budgeted number and 0.125 percent of all sales above our budgeted number. There was no threshold award amount nor was there a maximum amount that Mr. Evans could earn under the sales commission incentive compensation program.


31

OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2009
The following table sets forth information concerningterms of his employment agreement, Mr. Popielec was granted options to purchase shares of our common stock.  Certain of the options granted on December 30, 2010 were conditional and were subject to shareholder approval to increase the number of shares underlying exercisable and non-exercisable options outstanding at December 31, 2009 and vested and unvested restricted stock awards outstanding at December 31, 2009 for the Named Executive Officers:
                                 
  Option Awards  Stock Awards 
                       Equity
 
                    Equity
  Incentive
 
                    Incentive
  Plan Awards:
 
                    Plan Awards:
  Market or
 
                 Market
  Number of
  Payout Value
 
  Number of
  Number of
        Number of
  Value of
  Unearned
  of Unearned
 
  Securities
  Securities
        Shares or
  Shares or
  Shares, Units
  Shares, Units
 
  Underlying
  Underlying
        Units of
  Units of
  or Other
  or Other
 
  Unexercised
  Unexercised
  Option
     Stock That
  Stock That
  Rights That
  Rights That
 
  Options
  Options
  Exercise
  Option
  Have Not
  Have Not
  Have Not
  Have Not
 
  (#)  (#)  Price
  Expiration
  Vested
  Vested
  Vested
  Vested
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)(1)  ($)(2)  (#)(3)  ($)(4) 
 
John D. Kavazanjian
                  6,766   29,299   10,000   43,200 
   50,000   0   15.0500   12/07/2011                 
   40,000   10,000(5)  12.9600   12/09/2012                 
   48,000   0   12.9600   06/08/2013                 
   30,000   0   10.5500   12/21/2013                 
   15,000   7,500(6)  13.4338   12/07/2014                 
   0   17,614(7)  12.1848   01/14/2016                 
   0   23,500(8)  3.9085   12/04/2016                 
Philip A. Fain
                  3,186   13,764   2,500(9)  10,800 
   6,667   3,333(10)  11.4217   09/07/2014                 
   16,667   33,333(11)  12.7385   03/07/2015                 
   0   7,976(12)  12.1848   01/14/2016                 
   0   33,000(13)  3.9085   12/04/2016                 
Robert W. Fishback(14)
                          5,000   21,600 
   1,000   0   5.1800   04/21/2010                 
   1,000   0   10.0000   06/30/2010                 
   12,000   0   13.4338   07/31/2010                 
   3,988   0   12.1848   07/31/2010                 
   15,000   0   10.5500   07/31/2010                 
   1,000   0   14.3800   07/31/2010                 
   1,000   0   12.3800   07/31/2010                 
   1,000   0   21.2800   07/31/2010                 
   1,000   0   19.3600   07/31/2010                 
   1,000   0   10.1700   07/31/2010                 
   20,000   0   15.0500   07/31/2010                 
   1,000   0   19.4500   07/31/2010                 
   1,000   0   17.1200   07/31/2010                 
   1,000   0   16.1500   07/31/2010                 
   1,000   0   12.9200   07/31/2010                 
   21,000   0   12.9600   07/31/2010                 
   1,000   0   12.0000   07/31/2010                 
   1,000   0   12.8500   07/31/2010                 
John C. Casper
  —   —   —   —   —   —   —   — 


32

                                 
  Option Awards  Stock Awards 
                       Equity
 
                    Equity
  Incentive
 
                    Incentive
  Plan Awards:
 
                    Plan Awards:
  Market or
 
                 Market
  Number of
  Payout Value
 
  Number of
  Number of
        Number of
  Value of
  Unearned
  of Unearned
 
  Securities
  Securities
        Shares or
  Shares or
  Shares, Units
  Shares, Units
 
  Underlying
  Underlying
        Units of
  Units of
  or Other
  or Other
 
  Unexercised
  Unexercised
  Option
     Stock That
  Stock That
  Rights That
  Rights That
 
  Options
  Options
  Exercise
  Option
  Have Not
  Have Not
  Have Not
  Have Not
 
  (#)  (#)  Price
  Expiration
  Vested
  Vested
  Vested
  Vested
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)(1)  ($)(2)  (#)(3)  ($)(4) 
 
William A. Schmitz(15)
  1,500   0   5.1800   02/13/2010                 
   1,500   0   10.0000   02/13/2010                 
   1,500   0   14.3800   02/13/2010                 
   1,500   0   12.3800   02/13/2010                 
   1,500   0   21.2800   02/13/2010                 
   1,500   0   19.3600   02/13/2010                 
   1,500   0   10.1700   02/13/2010                 
   25,000   0   15.0500   02/13/2010                 
   1,500   0   19.4500   02/13/2010                 
   1,500   0   17.1200   02/13/2010                 
   1,500   0   16.1500   02/13/2010                 
   1,500   0   12.9200   02/13/2010                 
   11,400   0   12.9600   02/13/2010                 
   1,500   0   12.0000   02/13/2010                 
   1,500   0   12.8500   02/13/2010                 
   10,000   0   10.5500   02/13/2010                 
   4,000   0   13.4338   02/13/2010                 
James E. Evans
                  3,300   14,256         
   12,000   0   9.8400   07/29/2010                 
   6,667   3,333(16)  9.7000   07/29/2010                 
   4,000   2,000(6)  13.4338   07/29/2010                 
   0   33,000(13)  3.9085                     
Peter F. Comerford
                  1,992   8,605   3,000   12,960 
   1,000   0   5.1800   04/21/2010                 
   1,000   0   10.0000   06/30/2010                 
   1,000   0   14.3800   09/30/2010                 
   1,000   0   12.3800   12/31/2010                 
   1,000   0   21.2800   03/31/2011                 
   1,000   0   19.3600   06/30/2011                 
   1,000   0   10.1700   09/30/2011                 
   15,000   0   15.0500   12/07/2011                 
   1,000   0   19.4500   12/31/2011                 
   1,000   0   17.1200   03/31/2012                 
   1,000   0   16.1500   06/30/2012                 
   1,000   0   12.9200   09/30/2012                 
   16,800   4,200(5)  12.9600   12/09/2012                 
   1,000   0   12.0000   12/30/2012                 
   1,000   0   12.8500   03/31/2013                 
   7,500   0   10.5500   12/21/2013                 
   4,000   2,000(6)  13.4338   12/07/2014                 
   0   3,988(12)  12.1848   01/14/2016                 
   0   24,000(13)  3.9085   12/04/2016                 

33

                                 
  Option Awards  Stock Awards 
                       Equity
 
                    Equity
  Incentive
 
                    Incentive
  Plan Awards:
 
                    Plan Awards:
  Market or
 
                 Market
  Number of
  Payout Value
 
  Number of
  Number of
        Number of
  Value of
  Unearned
  of Unearned
 
  Securities
  Securities
        Shares or
  Shares or
  Shares, Units
  Shares, Units
 
  Underlying
  Underlying
        Units of
  Units of
  or Other
  or Other
 
  Unexercised
  Unexercised
  Option
     Stock That
  Stock That
  Rights That
  Rights That
 
  Options
  Options
  Exercise
  Option
  Have Not
  Have Not
  Have Not
  Have Not
 
  (#)  (#)  Price
  Expiration
  Vested
  Vested
  Vested
  Vested
 
Name
 Exercisable  Unexercisable  ($)  Date  (#)(1)  ($)(2)  (#)(3)  ($)(4) 
 
Julius M. Cirin
                  1,753   7,573   2,000   8,640 
   500   0   10.0000   06/30/2010                 
   500   0   14.3800   09/30/2010                 
   500   0   12.3800   12/31/2010                 
   500   0   21.2800   03/31/2011                 
   500   0   19.3600   06/30/2011                 
   500   0   10.1700   09/30/2011                 
   10,000   0   15.0500   12/07/2011                 
   500   0   19.4500   12/31/2011                 
   500   0   17.1200   03/31/2012                 
   500   0   16.1500   06/30/2012                 
   500   0   12.9200   09/30/2012                 
   12,400   3,100(5)  12.9600   12/09/2012                 
   500   0   12.0000   12/30/2012                 
   500   0   12.8500   03/31/2013                 
   7,500   0   10.5500   12/21/2013                 
   4,000   2,000(6)  13.4338   12/07/2014                 
   0   3,323(12)  12.1848   01/14/2016                 
   0   12,000(13)  3.9085   12/04/2016                 
Patrick R. Hanna, Jr. 
                  1,753   7,573   2,000   8,640 
   500   0   5.1800   04/21/2010                 
   500   0   10.0000   06/30/2010                 
   500   0   14.3800   09/30/2010                 
   500   0   12.3800   12/31/2010                 
   500   0   21.2800   03/31/2011                 
   500   0   19.3600   06/30/2011                 
   500   0   10.1700   09/30/2011                 
   10,000   0   15.0500   12/07/2011                 
   500   0   19.4500   12/31/2011                 
   500   0   17.1200   03/31/2012                 
   500   0   16.1500   06/30/2012                 
   500   0   12.9200   09/30/2012                 
   9,200   2,300(5)  12.9600   12/09/2012                 
   500   0   12.0000   12/30/2012                 
   500   0   12.8500   03/31/2013                 
   7,500   0   10.5500   12/21/2013                 
   4,000   2,000(6)  13.4338   12/07/2014                 
   0   3,323(12)  12.1848   01/14/2016                 
   0   12,000(13)  3.9085   12/04/2016                 
available under our Restated LTIP.  Shareholder approval was obtained in June 2011.
 
We also agreed that Mr. Popielec shall be entitled to the following relocation benefits: (i) rent in and commute transportation to the Rochester, New York area for up to nine months, as needed, during 2011 for a total actual expense not to exceed $50,000; (ii) payment of all actual reasonable relocation and moving expenses, including expenses incurred by Mr. Popielec and his spouse for travel to the Rochester, New York area to locate living accommodations, packing and transporting of household items to the new household and meals, lodging and travel in connection with the move to the new household, incurred in 2011 in an aggregate amount not to exceed $60,000; and (iii) payment of all actual reasonable current house sale/closing costs, including deed preparation, tax stamps, reasonable attorneys’ fees, real estate transfer taxes and real estate commissions incurred in 2011 and 2012.
 
(1)The amounts set forth in this column represent awards of time-based restricted share awards granted to each Named Executive Officer in 2007 and 2009. Except for Mr. Evans, the 2007 awards vest in three equal installments, beginning on March 1, 2009. For Mr. Evans, the 2007 award vested in three equal installments, beginning on March 1, 2008. The 2009 awards vest in three equal installments, beginning on January 14, 2010. The number of 2007 awards is as follows: Mr. Kavazanjian - 2,000; Mr. Cirin - 800; Mr. Comerford - 800; Mr. Evans - 3,300; and Mr. Hanna - 800. The number of 2009 awards is as follows: Mr. Kavazanjian - 4,766, Mr. Fain - 1,986; Mr. Cirin - 953; Mr. Comerford - 1,192; and Mr. Hanna - 953. Mr. Fain also received an award of 1,800 time - based restricted shares in 2008, which vests in three equal installments beginning on March 1, 2009.

34

(2)The amounts set forth in this column equal the number of time-based restricted share awards indicated multiplied by the closing price of our common stock on December 31, 2009. The amounts assume the maximum percentage of shares of restricted stock will vest based upon the achievement of continued service with us through the vesting period. The amounts indicated are not necessarily indicative of the amounts that may be realized by the Named Executive Officers.
(3)The amounts set forth in this column reflect the number of performance-based restricted share awards granted in 2006, and in 2008 to Mr. Fain, under the Restated LTIP, which have not yet vested. These shares vest over a period of three years, except for Mr. Fain’s award which vests over a period of two years, based upon the achievement of performance goals set for each year.
(4)The amounts set forth in this column equal the number of performance-based restricted share awards indicated multiplied by the closing price of our common stock on December 31, 2009. The amounts assume the maximum percentage of shares of restricted stock will vest based upon the achievement of the specified performance goals. The amounts indicated are not necessarily indicative of the amounts that may be realized by the Named Executive Officers.
(5)This stock option will vest on December 9, 2010.
(6)This stock option will vest on December 7, 2010 for everyone except Mr. Evans. Because Mr. Evans resigned effective April 30, 2010, this option lapsed.
(7)This stock option vested on January 14, 2010 with respect to 5,872 shares and will vest in equal installments on January 14, 2011 and January 14, 2012 with respect to 11,742 shares.
(8)This stock option will vest on December 4, 2010 with respect to 7,834 shares and in equal installments on December 4, 2011 and December 4, 2012 with respect to 15,666 shares.
(9)This restricted stock award was granted in 2008 and will vest over a period of two years based on the achievement of the performance goals set for each year.
(10)This stock option will vest on September 7, 2010.
(11)This stock option vested on March 7, 2010 with respect to 16,667 shares and will vest on March 7, 2011 with respect to 16,666 shares.
(12)This stock option vested on January 14, 2010 with respect to 2,659 shares for Mr. Fain, 1,330 shares for Mr. Comerford, and 1,108 shares for Messrs. Cirin and Hanna, and will vest in equal installments on January 14, 2011 and January 14, 2012 with respect to the balance of shares subject to each option.
(13)This stock option will vest in equal installments on December 4, 2010, December 4, 2011 and December 4, 2012 for everyone except Mr. Evans. Because Mr. Evans resigned effective April 30, 2010, this option lapsed.
(14)Pursuant to the terms of Mr. Fishback’s employment agreement and as a result of the involuntary termination of Mr. Fishback’s employment, the vesting of all of Mr. Fishback’s stock options was accelerated (provided that the acceleration did not cover more than two years from the termination of employment), and all stock options which had an original expiration date after July 31, 2010 had their expiration dates set at July 31, 2010, the one-year anniversary of Mr. Fishback’s last day of employment.
(15)Pursuant to the terms of Mr. Schmitz’s employment agreement and as a result of Mr. Schmitz’s resignation, all of Mr. Schmitz’s vested stock options which had an original expiration date after February 13, 2010 had their expiration dates set at February 13, 2010, the 90th day after Mr. Schmitz’s last day of employment.
(16)This stock option would have vested on June 6, 2010, but because Mr. Evans resigned effective April 30, 2010, this option lapsed.


35

2009 OPTION EXERCISES AND STOCK VESTEDMr. Popielec is also entitled to receive the retirement benefits and fringe and other personal benefits described in this proxy statement under the sections entitled “Retirement Benefits” and “Perquisites and Other Personal Benefits”.
 
The following table sets forth certain information concerning the number of shares of our common stock acquired upon the exercise of stock options during 2009 and the value realized on exercise along with the number of shares acquired on vesting of restricted share awards and the value realized on vesting during 2009 by the Named Executive Officers:
                 
  Option Awards  Stock Awards 
  Number of Shares
  Value Realized
  Number of Shares
  Value Realized
 
  Acquired on Exercise
  on Exercise
  Acquired on Vesting
  on Vesting
 
  (#)  ($)(1)  (#)  ($)(2) 
 
John D. Kavazanjian
  —   —   6,666   44,478 
Philip A. Fain
  —   —   3,100   21,700 
Robert W. Fishback
  15,000   39,081   5,928   39,976 
John C. Casper
  —   —   —   — 
William A. Schmitz
  6,250   19,375   3,100   21,700 
James E. Evans
  —   —   3,300   23,100 
Peter F. Comerford
  15,000   45,150   2,400   15,160 
Julius M. Cirin
  —   —   1,733   11,039 
Patrick R. Hanna, Jr. 
  7,500   26,625   1,733   11,039 
(1)The value realized on the exercise of stock options is based on the difference between the exercise price and the market price (used for tax purposes) of our common stock on the date of exercise.
(2)The value realized on the vesting of stock awards is based on the closing price of our common stock on the vesting date multiplied by the number of shares acquired.


36

EMPLOYMENT ARRANGEMENTS
Mr. Kavazanjian
On April 27, 2007, we entered into a new employment agreement withprovides that Mr. Kavazanjian, which superseded his existingPopielec’s employment agreement. Annually, our Compensation and Management Committee reviewsis “at will.”  Mr. Kavazanjian’s salary and makes such adjustments as it deems appropriate in accordance with our executive compensation guidelines. The agreement automatically extends for successive one-year terms, unless either of the parties provides advance written notice of such party’s desire notPopielec is entitled to renew the agreement. Such written notice must be provided at least 90 days prior to the scheduled expiration date of the then current term of the agreement.
Ifcertain severance benefits if we terminate Mr. Kavazanjian’shis employment agreement without “Business Reasons”Business Reasons or a Constructive Termination occurs (as those terms are defined in the employment agreement), or ifincluding (i) salary continuation for a “Constructive Termination” (as defined in the employment agreement) occurs, then Mr. Kavazanjian will be entitled to theperiod of 18 months following benefits: (1) salary and the cash value of any accrued vacation (consistent with our vacation policies then in effect) through the termination date, of his employment plus continued salary for an additional 24 months; (2) anprovided, however, that such 18-month period shall be reduced to 12 months if the termination date is on or after June 30, 2012; (ii) a pro rata amount equal to the average(calculated on a per diem basis) of the bonuses paid to him duringfull-year bonus which Mr. Popielec would have earned for the two preceding fiscal years or, if no bonuses were paid during such period, an amount equal to his then current annual target bonus; and (3)calendar year in which the termination of employment occurs; (iii) acceleration of vesting of all outstanding stock options and other equity arrangements, subject to vesting and held by him, providedthe provision, however, that the acceleration shall not cover more than two years18 months from the termination datedate; (iv) continuation of his employment (and in this regard, all such options and other exercisable rights held by Mr. Kavazanjian shall remain exercisable for one year following such termination date). In such circumstances, Mr. Kavazanjian would also be entitled to continued health benefits for himMr. Popielec, his spouse and his family at his costany dependent children for a period of 12 months after the termination date followed by 18 months.
Ifmonths of executive-paid COBRA eligibility.  In addition, if we terminate the employment of Mr. Kavazanjian’s employment agreementPopielec within 1812 months of the date of a “ChangeChange in Control”Control, without Business Reasons or a Constructive Termination occurs (as those terms are defined in the employment agreement), then Mr. Kavazanjian will receive the same benefits as discussed above except that all of his outstanding stock options and equity arrangements will accelerate, even if the remaining vesting period is in excess of two years. If Mr. Kavazanjian’s employment agreement is terminated because he experiences a “Disability” (as defined in the employment agreement), then Mr. Kavazanjian willPopielec shall be entitled to the same benefits as described above except that he will only receive an amount equal to his then current annual target bonus, not the average of the bonuses paid to him during the two preceding fiscal years.
If Mr. Kavazanjian’s employment agreement is terminated because of his death, his representatives will be entitled to (1) an amount equal to his annual target bonus for the fiscal year in which he died (plus(i) salary, any unpaid bonus from the prior fiscal year);year plus an amount equal to 18 months of his salary as then in effect, payable immediately upon the termination date; (ii) one and (2)one-half times his target bonus for the calendar year in which the termination date occurs; (iii) acceleration in full of vesting of all outstanding stock options, all such options to remain exercisable for 18 months following the termination date, or through the original expiration date of the stock options, if earlier; (iv) continuation of health benefits for Mr. Popielec, his spouse and any dependent children for a period of 24 months after the termination date.  To the extent the vesting and/or accelerated payment of outstanding stock options would subject Mr. Popielec to the imposition of tax and/or penalties under Section 409A of the Internal Revenue Code (the “Code”), the vesting and/or payment of such stock options and other equity arrangements subjectshall be delayed to vesting and held by him, provided that the acceleration shall not cover more than two years fromextent necessary to avoid the termination dateimposition of his employment (and in this regard, all such options and other exercisable rights held by Mr. Kavazanjian’s representatives shall remain exercisable for one year following such termination date).
Mr. Kavazanjian’s employment agreement provided that we will make agross-up payment to him in the event that a parachute payment following a change in control is subject to excise tax under Sections 280G and 4999 of the Code. Mr. Kavazanjian’sand/or penalties.  The employment agreement also provides for Mr. Kavazanjian to be indemnified by us for any expenses he occurs defending himself from any legal proceeding or threatened legal proceeding arising outthe continuation of his service to us.
In December 2008, Mr. Kavazanjian’s employment agreement was amended to bring it into compliance with Section 409A of the Code. In July 2009, Mr. Kavazanjian’s employment agreement was amended and restated to cap the severancecertain benefits upon a specifiedchange-in-control event at no more than three times Mr. Kavazanjian’s average annual compensation for the previous five years to the extent necessary not to incur the excise tax under Section 4999 of the Code and not limit our tax deduction under Section 280G of the Code (the “Tax Limitations”). In the event a severance benefit owed to Mr. Kavazanjian exceeds the Tax Limitations, then we will determine which severance benefits are reduced so that such severance benefits are not subject to the Tax Limitations. Mr. Kavazanjian’s employment agreement was also amended to, among other things: (i) clarify that restricted stock awards and stock appreciation rights will be accelerated along with other equity arrangements (to the same extent described above) in the event of an (a) involuntary termination without business reasons or a constructive termination, (b) change in control or (c) termination upon death, as such terms areMr. Popielec’s employment is terminated for disability (as defined in the employment agreement) or by his employment


37

agreements; (ii) reflect our paid time off policy; and (iii) increase to 90 days the period of timedeath.  Mr. Kavazanjian can exercise vested stock options to coincide with the period of time set forth in the Restated LTIP.Popielec has also executed an Employee
 
22
Confidentiality Non-Disclosure No-Compete, Non-Disparagement and Assignment Agreement in our standard form.
Mr. Comerford
 
On April 27, 2007, we entered into an employment agreement with Mr. Comerford.  Annually, our Compensation and Management Committee reviews Mr. Comerford’s salary and makes such adjustments as it deems appropriate in accordance with our executive compensation guidelines.  The agreement automatically extends for successive one-year terms, unless either of the parties provides advance written notice of such party’s desire not to renew the agreement.  Such written notice must be provided at least 90 days prior to the scheduled expiration date of the then current term of the agreement.
��
If we terminate Mr. Comerford’s employment agreement without “Business Reasons” (as defined in the employment agreement) or because Mr. Comerford experiences a “Disability” (as defined in the employment agreement), or if a “Constructive Termination” (as defined in the employment agreement) occurs, then Mr. Comerford will be entitled to the following benefits: (1) salary and the cash value of any accrued vacation (consistent with our vacation policies then effect) through the termination date of his employment plus continued salary for an additional 18 months; (2) an amount equal to the average of the bonuses paid to him during the two preceding fiscal years or, if no bonuses were paid during such period, an amount equal to his then current annual target bonus; and (3) acceleration of vesting of all outstanding stock options, and other equity arrangements subject to vesting and held by him, provided that the acceleration shall not cover more than two years from the termination date of his employment (and in this regard, all such options and other exercisable rights held by Mr. Comerford shall remain exercisable for one year following such termination date).  In such circumstances, Mr. Comerford would also be entitled to continued health benefits at his cost for a period of 18 months.
 
If we terminate Mr. Comerford’s employment agreement within 18 months of the date of a “Change in Control” (as defined in the employment agreement), then Mr. Comerford will receive the same benefits as discussed above except that all of his outstanding stock options and equity arrangements will accelerate, even if the remaining vesting period is in excess of two years.  If Mr. Comerford’s employment agreement is terminated because he experiences a “Disability” (as defined in the employment agreement) then Mr. Comerford will be entitled to the same benefits as described above except that he will only receive an amount equal to his then current annual target bonus, not the average of the bonuses paid to him during the two preceding fiscal years.
 
If Mr. Comerford’s employment agreement is terminated because of his death, his representatives will be entitled to (1) an amount equal to his annual target bonus for the fiscal year in which he died (plus any unpaid bonus from the prior fiscal year end); and (2) the acceleration of vesting of all outstanding stock options, and other equity arrangements subject to vesting and held by him, provided that the acceleration shall not cover more than two years from the termination date of his employment (and in this regard, all such options and other exercisable rights held by Mr. Comerford’s representatives shall remain exercisable for one year following such termination date).
 
If Mr. Comerford voluntarily terminates his employment or if he is terminated for Business Reasons, then he will be entitled to (1) salary and cash value of any accrued Paid Time Off through the termination date; (2) the right to exercise, for 90 days following the termination date or through the original expiration date of the stock options, if earlier, all stock options he holds, but only to the extent vested as of the termination date; and (3) continuation of health benefits at his cost for a period of 18 months after the termination date.
In December 2008, Mr. Comerford’s employment agreement was amended to bring it into compliance with Section 409A of the Code.  In July 2009, Mr. Comerford’s employment agreement was amended and restated to cap the severance benefits upon a specified change-in-control event at no more than three times Mr. Comerford’s average annual compensation for the previous five years to the extent
23
necessary not to incur the excise tax under Section 4999 of the Code and not limit our tax deduction under Section 280G of the Code (the “Tax Limitations”).  In the event a severance benefit owed to Mr. Comerford exceeds the Tax Limitations, then we will determine which severance benefits are reduced so that such severance benefits are not subject to the Tax Limitations.  Mr. Comerford’s employment agreement was also amended to, among other things: (i) clarify that restricted stock awards and stock appreciation rights will be accelerated along with other equity arrangements (to the same extent described above) in the same mannerevent of an (a) involuntary termination without Business Reasons or a Constructive Termination, (b) change in control or (c) termination upon death, as such terms are defined in his employment agreements; (ii) reflect our paid time off policy; and (iii) increase to 90 days the period of time Mr. Kavazanjian’s employment agreement.Comerford can exercise vested stock options to coincide with the period of time set forth in the Restated LTIP.
 
Messrs. Schmitz, Fishback and CasperOther Executive Officers
 
We previously entered into employment agreements with Messrs. Schmitz and Fishback, our former Chief Operating Officer and former Vice President of Finance and Chief Financial Officer, respectively.
Because Mr. Schmitz resigned his position, we were not required to provide him with any post-termination severance compensation or benefits. Mr. Schmitz was entitled to exercise, for 90 days following his resignation, or through the original expiration date of the stock options, if earlier, all stock options held by him, but only to the extent vested at the date of his resignation.
Pursuant to the terms of his employment agreement, Mr. Fishback was entitled to (i) salary continuation for a period of 18 months following the date of his termination, (ii) an amount equal to his then current annual target bonus, and (iii) acceleration of vesting of all outstanding stock options and other equity arrangements subject to


38

vesting, but subject to the provision that the acceleration not cover more than two years from the date of his termination and subject to the further provision that all options would remain exercisable for one year following the date of his termination. See “Potential Payments upon Terminationand/or a Change in Control” on page 40 for the amounts received by Mr. Fishback as a result of his involuntary termination of employment.
Although we diddo not have an employment agreement with Mr. Casper, as a condition of his offer of employment, we agreed that regardless of our operating performance for 2009, Mr. Casper would be entitled to receive a cash bonus of $30,000. Upon his resignation, we entered into a Release and Waiver of All Claims with Mr. Casper and paid him the $30,000 cash bonus. Pursuant to that Release and Waiver, we also agreed to pay Mr. Casper severance in the form of 12 weeks salary continuation and to continue his medical and dental coverage through February 28, 2010.
Other Executive OfficersFain.
 
We do not have employment agreements with Messrs. Fain, Evans, Cirin or Hanna. In conjunction with our acquisition of McDowell Research in 2006, Mr. Evans, one of the McDowell principals, entered into an Employee Confidentiality, Non-Disclosure, Non-Compete and Assignment Agreement with us.
Outstanding
Salary AdjustmentsEquity Awards at December 31, 2012
During its review of base salaries for executives, the Committee decided not to increase each Named Executive Officer’s base salary for 2010. The salary information set forth in the 2009 employment agreements therefore remains unchanged.


39

POTENTIAL PAYMENTS UPON TERMINATION AND/OR A CHANGE IN CONTROL
 
The following table below outlines certainsets forth information concerning the number of shares underlying exercisable and non-exercisable options outstanding at December 31, 2012 for our Named Executive Officers.
  Option Awards
Name 
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
  
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
  
Option
Exercise
Price
($)
  
Option
Expiration
Date
Michael D. Popielec  25,000   25,000(1) $6.4218  12/30/2017
   125,000   125,000(2)  6.4218  12/30/2017
   25,000   25,000(3)  6.5820  12/30/2017
   0   200,000(4)  10.0000  01/24/2019
   0   200,000(5)  15.0000  01/14/2020
               
Philip A. Fain              
   10,000   0   11.4217  09/07/2014
   50,000   0   12.7385  03/07/2015
   7,976   0   12.1848  01/14/2016
   33,000   0   3.9085  12/04/2016
   16,667   8,333(6)  6.9061  12/03/2017
   16,667   33,333(7)  4.4218  12/09/2018
   0   20,000(8)  3.9797  01/03/2019
Peter F. Comerford              
   1,000   0   12.8500  03/31/2013
   7,500   0   10.5500  12/21/2013
   6,000   0   13.4338  12/07/2014
   3,988   0   12.1848  01/14/2016
   24,000   0   3.9085  12/04/2016
   13,334   6,666(9)  6.9061  12/03/2017
   8,667   17,333(10)  4.4218  12/09/2018
(1)  This stock option was vested on December 30, 2012 with respect to 25,000 shares and will vest in equal installments of 12,500 shares on each of December 30, 2013 and 2014.
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(2)  This stock option was vested on December 30, 2012 with respect to 125,000 shares and will vest in equal installments of 62,500 shares on each of December 30, 2013 and 2014.
(3)  This stock option was vested on December 30, 2012 with respect to 25,000 shares and will vest in equal installments of 12,500 shares on each of December 30, 2013 and 2014.
(4)  This stock option will vest on the date our common stock first reaches a closing price of $10 for 15 trading days in a 30-day trading period, with such vesting in equal amounts over the four anniversary dates of that date.
(5)  This stock option will vest on the date our common stock first reaches a closing price of $15 for 15 trading days in a 30-day trading period, with such vesting in equal amounts over the four anniversary dates of that date.
(6)  This stock option will vest with respect to 8,333 shares on December 3, 2013.
(7)  This stock option will vest with respect to 16,666 shares on December 9, 2013 and 16,667 shares on December 9, 2014.
(8)  This stock option vested with respect to 6,667 shares on January 3, 2013 and will vest with respect to 6,667 shares on January 3, 2014 and with respect to 6,666 shares on January 3, 2015.
(9)  This stock option will vest with respect to 6,666 shares on December 3, 2013.
(10)  This stock option will vest with respect to 8,667 shares on December 9, 2013 and 8,666 shares on December 9, 2014.
Retirement Benefits and Potential Payments upon Termination or Change in Control
The only arrangement that we maintain that provides for retirement benefits is our tax-qualified defined contribution 401(k) plan.  The material terms of our tax-qualified defined contribution 401(k) plan are summarized above under the heading “Retirement Benefits.”
All of the potential payments and benefits payable by us to those of our Named Executive Officers who are currentlywere employed by us during 2012 in the event of various scenarios involving either a termination of employment and/or Change change in Control as if such event had occurred on December 31, 2009.control are pursuant to their employment agreements or the Restated LTIP.  The valueemployment agreements with Messrs. Popielec and Comerford are summarized above under the heading “Employment Arrangements.”  We do not have an employment agreement with Mr. Fain.  Under the award agreements issued under the Restated LTIP, outstanding unvested stock options and shares of restricted stock become immediately vested upon the stock awards is based on the closing priceoccurrence of our common stock as reported on the NASDAQ Global Market on December 31, 2009, which was $4.32. a “Change in Control.”
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PROPOSAL 2
RATIFY THE SELECTION OF OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The table below also includes actual payments and benefits paid to those individuals whofirm of BDO USA, LLP, independent registered public accountants, served as our Vice Presidentindependent registered public accounting firm in connection with the audit of Financeour financial statements for 2011 and Chief Financial Officer and our Chief Operating Officer at some time during 2009 but whose employment terminated before December 31, 2009.
                         
        Accelerated
          
  Salary
  Bonus
  Restricted
  Accelerated
  Gross-Up
    
  Continuation
  Payment
  Stock Awards
  Stock Options
  Payment
  Total
 
Triggering Event
 ($)  ($)  ($)  ($)  ($)  ($) 
 
John D. Kavazanjian(1)
                        
Involuntary Termination without Business Reasons or Constructive Termination
  840,000   252,000   22,369   6,423   —   1,120,792 
Involuntary Termination without Business Reasons or Constructive Termination within 18 months of the date of a Change in Control
  840,000(2)  252,000   72,429   9,635   —   1,174,064 
Change in Control
  —   —   72,429   9,635   —   82,064 
Disability
  840,000   252,000   22,369   6,423   —   1,120,792 
Death
  —   252,000   22,369   6,423   —   280,792 
Philip A. Fain(3)
                        
Change in Control
  —   —   24,564   13,530   —   38,094 
Robert W. Fishback(1)
                        
Involuntary Termination without Business Reasons or Constructive Termination
  330,000   99,000   —   —   —   429,000 
John C. Casper
                        
Voluntary Termination
  20,770   30,000   —   —   —   50,770 
William A. Schmitz(1)
                        
Voluntary Termination
  —   —   —   —   —   0 
James E. Evans(3)
                        
Change in Control
  —   —   14,256   13,530   —   27,786 
Peter F. Comerford(1)
                        
Involuntary Termination without Business Reasons or Constructive Termination
  315,000   31,500   6,890   6,560   —   359,950 
Involuntary Termination without Business Reasons or Constructive Termination within 18 months of the date of a Change in Control
  315,000(2)  31,500   72,429   9,635   —   428,564 
Change in Control
  —   —   21,565   9,635   —   31,200 
Disability
  315,000   31,500   6,890   6,560   —   359,950 
Death
  —   31,500   6,890   6,560   —   44,950 
Julius M. Cirin(3)
                        
Change in Control
  —   —   16,213   4,920   —   21,133 
Patrick R. Hanna, Jr.(3)
                        
Change in Control
  —   —   16,213   4,920   —   21,133 
2012.
 
(1)All amounts appearing in this table for Messrs. Kavazanjian and Comerford are made pursuant to their employment agreements with us. The employment agreements are summarized on pages 37 and 38 of this proxy statement under the heading “Employment Arrangements.” With respect to the acceleration of restricted stock awards and stock options, the acquisition of 51% of our outstanding shares of common stock by any one person or group will be deemed a “Change in Control” pursuant to the employment agreements. All amounts appearing in this table for Messrs. Schmitz and Fishback were made pursuant to their employment agreements.


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(2)Upon the occurrence of this event, this amount will be paid immediately in a lump sum payment to the Named Executive Officer.
(3)All amounts appearing in this table for Messrs. Fain, Evans, Cirin and Hanna are made pursuant to award agreements under our Restated LTIP. With respect to the acceleration of restricted stock awards and stock options, the acquisition of 30% of our outstanding shares of common stock by any one person or group will be deemed a “Change in Control” pursuant to award agreements under our Restated LTIP.
401(k) PLANOur Audit and Finance Committee has selected Bonadio & Co., LLP as our independent registered public accounting firm for 2013.  This selection will be presented to our shareholders for their ratification at the Meeting.  Our Board of Directors recommends a vote in favor of the proposal to ratify this selection, and the persons named in the enclosed proxy (unless otherwise instructed therein) will vote such proxies FOR this proposal.  If the shareholders do not ratify this selection, the Audit and Finance Committee will seek to identify and address the reason or reasons why the shareholders did not ratify the committee’s selection and will consider such reason or reasons in selecting an independent public accounting firm for 2013.
 
We establishedhave been advised by both BDO USA, LLP and Bonadio & Co., LLP that each will have a profit sharing plan under Sections 401(a)representative present at the Meeting who will be available to respond to appropriate questions.  In addition, we intend to give such representatives an opportunity to make any statements if they should so desire.
Principal Accountant Fees and 401(k)Services
Aggregate fees for professional services rendered for us by BDO USA, LLP for 2011 and 2012 were:
  2011  2012 
       
Audit Fees $363,736  $365,618 
Audit-Related Fees  7,000   0 
Tax Fees  0   0 
All Other Fees  0   0 
         
Total
 $370,736  $365,618 
Audit Fees
Audit fees for 2011 and 2012, respectively, were for professional services rendered for the audits of our consolidated financial statements, audits of internal controls over financial reporting pursuant to Section 404 of the Code (the “401(k) Plan”), effective asSarbanes-Oxley Act of June 1, 1992. The 401(k) Plan was amended effective as2002, consents, income tax provision procedures and assistance with review of January 1, 1994. All employees in active service who have completed 1,000 hours of service or were participating indocuments filed with the 401(k) Plan as of January 1, 1994, not otherwise covered by a collective bargaining agreement (unless such agreement expressly provides that those employees are to be included in the 401(k) Plan), are eligible to participate in the 401(k) Plan. Eligible employees may direct that a portion of their compensation, up to the maximum permitted by IRS limitations, be withheld and contributed to their account under the 401(k) Plan.SEC.
 
In January 2001, our Board of Directors authorized a company matching contribution up to a maximum of 4% (100% match of up to 3% of annual salary, and 50% match above 3% to a maximum of 5% of salary). In January 2002, our match was suspended in an effort to conserve cash. Beginning in February 2004, we reinstated our match up to a maximum of 2%. In November 2005, our match was once again suspended in an effort to conserve cash. For 2007, 2006, 2005 and 2004, we contributed $63,000, $0, $133,000, $174,000, respectively, pursuant to the matching program then in effect. In October 2007, we reinstated our match up to a maximum of 2% for our United States employees. For 2008, we contributed $363,000 pursuant to the matching program. We suspended our match for the fourth quarter of 2009 but reinstated that match effective January 1, 2010. For 2009, we contributed $333,000 pursuant to the matching program.Audit-Related Fees
 
All 401(k) contributions are placedThere were no audit-related fees for 2012.  Audit-related fees for 2011 consisted of fees incurred in connection with our filing of a trust fund to be invested at the trustees’ discretion, except that we may designate that the funds be placed and held in specific investment accounts managed by an investment manager other than the trustees. The trustees of our 401(k) Plan have retained an independent plan administrator for purposes of administering the plan. Amounts contributed to employee accounts by us or as compensation reduction payments, and any earnings or interest accruedregistration statement on employee accounts, are not subject to federal income tax until distributed to the employee, and may not be withdrawn (absent financial hardship) until death, retirement or termination of employment.Form S-8.
 
Tax Fees
There were no tax fees for 2011 and 2012.
All Other Fees
There were no other fees for 2011 and 2012.
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Our Audit and Finance Committee has not adopted pre-approval policies and procedures for audit and non-audit services.  Although no pre-approval policy was in effect, all audit, audit-related and permitted non-audit services for which BDO USA, LLP was engaged were pre-approved by our Audit and Finance Committee in compliance with applicable SEC requirements.
REPORT OF THE AUDIT AND FINANCE COMMITTEE
 
The duties and responsibilities of the Audit and Finance Committee are set forth in our Audit and Finance Committee Charter, a copy of which is available on our website athttp://investor.ultralifecorp.cominvestor.ultralifecorporation.com under the subheading “Corporate Governance.”  Among other things, the Audit and Finance Committee reviews the adequacy of our systems of internal controls regarding financial reporting, disclosure controls and procedures and preparing our consolidated financial statements.  In addition, the Audit and Finance Committee recommends to our Board of Directors that our audited financial statements be included in our Annual Report onForm 10-K, approves our quarterly filings onForm 10-Q and selects the independent registered public accounting firm to audit our books and records.
 
The Audit and Finance Committee has:
 
•·  Reviewed and discussed our audited financial statements for 20092012 with our management and with BDO Seidman,USA, LLP, our independent registered public accounting firm for 2009;2012;
·  
• 
Discussed with BDO Seidman,USA, LLP, our independent registered public accounting firm, the matters required to be discussed by statement on Auditing Standards No. 61, as amended (AICPA,Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and


41

 
•·  Received from BDO Seidman,USA, LLP the written disclosures and the letter from BDO Seidman,USA, LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit and Finance Committee concerning independence, and has discussed with BDO Seidman,USA, LLP their independence.
 
The Audit and Finance Committee met with our independent accountants with and without management present and discussed with them the results of their examinations, their evaluations of our internal control over financial reporting, our disclosure controls and procedures and the quality of our financial reporting.  Based on the review and discussions referred to above, the Audit and Finance Committee concluded that BDO Seidman,USA, LLP is independent and recommended to the Board of Directors that the audited financial statements be included in our Annual Report onForm 10-K for the year ended December 31, 20092012 for filing with the SEC.
 
The Audit and Finance Committee:Committee:
Paula H.J. Cholmondeley, Chair
Carole Lewis Anderson
Anthony J. Cavanna

Thomas L. Saeli, Chair
Patricia C. Barron
Robert W. Shaw II
 
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PROPOSAL 3
APPROVE AN AMENDMENT TO THE RESTATED LTIP
In order to provide adequate flexibility to meet future needs and to accommodate the conditional restricted stock units (“RSUs”) that our Compensation and Management Committee has recommended for grant to our President and Chief Executive Officer, Michael D. Popielec, on January 29, 2013, our Board of Directors approved an amendment to the Restated LTIP to authorize the grant of RSUs and to increase the limitation on the number of shares of our common stock available for awards other than stock options and stock appreciation rights from 200,000 to 800,000 and to increase the limitation on the number of shares of our common stock that may be awarded to an individual during a calendar year from 50,000 to 150,000.  The complete text of that amendment is attached as Appendix A to this proxy statement.
On January 29, 2013, our Board of Directors, on recommendation of our Compensation and Management Committee, granted 120,000 contingent RSUs to our Chief Executive Officer, Michael D. Popielec, subject to obtaining shareholder approval of this Proposal 3, which vest as follows:
(1)30,000 shares of our common stock will vest on the later of January 1, 2014 or the date when our common stock first reaches a closing price of $4.00 per share for 15 trading days in a 30 trading day period;
(2)30,000 shares of our common stock will vest on the later of January 1, 2014 or the date when our common stock first reaches a closing price of $5.00 per share for 15 trading days in a 30 trading day period;
(3)30,000 shares of our common stock will vest on the later of January 1, 2015 or the date when our common stock first reaches a closing price of $4.00 per share for 15 trading days in a 30 trading day period; and
(4)30,000 shares of our common stock will vest on the later of January 1, 2015 or the date when our common stock first reaches a closing price of $5.00 per share for 15 trading days in a 30 trading day period.
The description of the Restated LTIP (as amended) set forth below is a summary, does not purport to be complete and is qualified in its entirety by reference to the provisions of the Restated LTIP itself.  The complete text of the Restated LTIP (as amended) is attached as Appendix B to this proxy statement.  Unless otherwise defined in this summary, capitalized terms used in this summary have the meanings given such terms in the Restated LTIP.
The following table provides certain important information concerning our existing equity compensation plans of the Company as of December 31, 2012:
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Equity Compensation Plan Information
Plan Category
Number of securities to
be used upon exercise
of outstanding options
Weighted-average
exercise price of
outstanding options
Number of securities
remaining available
for future issuance
under equity
compensation plans,
excluding securities
reflected in column (a)
 (a)(b)(c)
Equity Compensation Plans approved by security holders2,161,488$7.35700,235
Equity compensation plans not approved by security holders
229,512(1)(2)
$6.23—
Total2,391,000$7.24700,235

(1)On March 7, 2008, in connection with his becoming employed by us, we granted Mr. Fain an option to purchase 50,000 shares of our Common Stock at $12.74 per share outside any of our equity-based compensation plans.  This option vests in annual increments of 16,667 shares over a three-year period which commenced March 7, 2009.  This option expires on March 7, 2015.
(2)As more fully described in Proposal 4, we inadvertently issued a total of 179,512 shares of our Common Stock to our independent directors in excess of the 200,000 share limitation under our Restated LTIP.
Summary of Restated LTIP (as amended)
Purpose.  The purpose of our Restated LTIP is to provide our employees, directors and consultants who are in a position to contribute to our long-term success, with Common Stock and options to acquire Common Stock, to increase their interest in our welfare and to aid in attracting and retaining employees, directors and consultants of outstanding ability.
Term.  The LTIP was adopted by our Board of Directors on April 27, 2004 and became effective on June 10, 2004 when it was approved by our shareholders.  The Restated LTIP was adopted by our Board of Directors on July 26, 2004 after the Annual Meeting of Shareholders.  Awards may not be granted under the Restated LTIP after June 9, 2014, but awards granted before then may extend beyond that date.  Our Restated LTIP was subsequently amended with shareholder approval on June 8, 2006 and June 5, 2008 so that now our Restated LTIP authorizes the issuance of 2,900,000 shares of our Common Stock.
Administration.  The Restated LTIP is administered by our Compensation and Management Committee, or such other committee as may be designated by our Board of Directors (the “Committee”); provided, however, that the Committee shall consist of not less than two directors who are “non-employee directors,” within the meaning of Rule 16b-3 under the Exchange Act.
The Committee may allocate all or any portion of its responsibilities and powers under the Restated LTIP to any one or more of its members, our Chief Executive Officer or other senior members
29
of management as the Committee deems appropriate; however, only the Committee may select and grant awards to participants who are subject to Section 16 of the Exchange Act.
The Committee has broad authority in its administration of the Restated LTIP, including, but not limited to, the authority to interpret the plan; to establish rules and regulations for the operation and administration of the plan; to select the persons to receive awards; to determine the type, size, terms, conditions, limitations, and restrictions of awards, including, without limitation, terms regarding vesting, exercisability, assignability, expiration and the effect of certain events, such as a change of control in the Company or the participant’s death, disability, retirement or termination as a result of breach of agreement; and to take all other action it deems necessary or advisable to administer the Restated LTIP.
Notwithstanding the Committee’s broad authority to administer the Restated LTIP and the awards issued under the Restated LTIP, the exercise price of any stock option or stock appreciation right granted pursuant to the Restated LTIP may not be subsequently “repriced” without shareholder approval.  The term “reprice” means: (1) the reduction, directly or indirectly, in the per-share exercise price of an outstanding stock option or stock appreciation right by amendment, cancellation or substitution; (2) the cancellation of a stock option or stock appreciation right when its exercise price exceeds the fair market value of the underlying Common Stock in exchange for another stock option, stock appreciation right or other equity security (unless the cancellation and exchange occurs in connection with a merger, acquisition, or similar transaction); or (3) the taking of any other action that is treated as a repricing under United States generally accepted accounting principles or by the rules or regulations of any stock exchange on which our securities are traded.  The term “reprice” shall not include adjustments made to awards by the Committee upon the occurrence of certain events (as described under “Adjustments Upon Certain Events’’ below).
To facilitate the granting of awards to participants who are employed or retained outside of the United States, the Committee will be authorized to modify and amend the terms and conditions of an award to accommodate differences in local law, policy or custom.
Eligibility.  All of our employees, directors and consultants are eligible to participate in the Restated LTIP; provided, however, only employees are eligible to receive incentive stock options.  Participants in the Restated LTIP will be selected by the Committee from those eligible persons who are in a position to have a material impact on our results of operations.  Participants may be selected and awards may be made at any time during the ten-year period following the effective date of the Restated LTIP.  As of December 31, 2012, approximately three executive officers, 120 other employees, and seven outside directors were eligible to participate in the Restated LTIP.
The selection of those persons within a particular class who will receive awards is entirely within the discretion of the Committee.  The Committee has not yet determined how many persons are likely to participate in the Restated LTIP.  The Committee intends, however, to grant most of the Restated LTIP’s awards to those persons who are in a position to have a significant direct impact on our growth, profitability and success of the Company, which would include the participants in our current equity compensation plans.
Shares Available.  A total of 644,367 shares of Common Stock remain available for grant of awards under the Restated LTIP.  In addition, any shares remaining available for issuance under our prior 2000 Stock Option Plan, or shares which become available upon the lapse, expiration, termination or cancellation of outstanding stock options under our 2000 Stock Option Plan or Restated LTIP, will be available for grant of awards under the Restated LTIP.  However, of the total number of shares of Common Stock available for awards under the Restated LTIP, no more than 200,000 shares of Common Stock may be used for awards other than stock options and stock appreciation rights.  (The Restated LTIP authorizes the Committee to make equitable adjustments to the authorized number and class of securities to be issued under the Restated LTIP upon the occurrence of certain events, as described under
30
“Adjustments Upon Certain Events’’ below.)  If our shareholders approve the proposed amendment to our Restated LTIP, the 200,000 share limitation described above will be increased to 800,000 shares.
Types of Awards.  Awards under the Restated LTIP may be in the form of stock options, stock appreciation rights, restricted stock, unrestricted stock and other stock-based awards, or any combination thereof.  If our shareholders approve the proposed amendment to our Restated LTIP, the form of awards under the Restated LTIP will also include Restricted Stock Units.  All awards granted to participants under the Restated LTIP shall be evidenced by an award agreement which specifies the type of award granted pursuant to the Restated LTIP, the number of shares of Common Stock underlying the award and all of the terms governing the award, including, without limitation, terms regarding the vesting, exercisability and expiration of the award.  The Committee has exclusive power and authority, consistent with the provisions of the Restated LTIP, to establish the terms and conditions of any award and to waive any such terms or conditions.
Award Limits.  The maximum number of shares with respect to which awards may be paid or granted during each calendar year to any given participant may not exceed 50,000 shares of Common Stock, except inducement grants to new executives and key employees in amounts not to exceed 700,000 shares are not subject to the 50,000 share annual limitation.  (The Restated LTIP authorizes the Committee to make equitable adjustments to the number of shares with respect to which awards may be paid or granted during each calendar year to any given participant under the Restated LTIP upon the occurrence of certain events, as described under “Adjustments Upon Certain Events’’ below.)  If our shareholders approve the proposed amendment to our Restated LTIP, the 50,000-share limitation described above will be increased to 150,000 shares.
Stock Options and Stock Appreciation Rights.  The Committee may grant awards under the Restated LTIP in the form of stock options to purchase shares of Common Stock, which stock options may be non-qualified stock options or incentive stock options for federal income tax purposes.  Any stock option granted in the form of an incentive stock option must satisfy the requirements of Section 422A of the Internal Revenue Code. Stock options shall be vested and exercisable at such times and upon such terms and conditions as may be determined by the Committee, but in no event shall a stock option be exercisable more than ten years (five years for incentive stock options issued to certain Control Persons) after the date it is granted.  The exercise price per share of Common Stock for any stock option awarded shall not be less than 100 percent (110 percent for incentive stock options issued to certain Control Persons) of the fair market value of a share of Common Stock on the day the stock option is granted, except for stock options granted in assumption or replacement of outstanding awards in connection with specified corporate transactions.
A stock option may be exercised by paying the exercise price in cash or its equivalent, or, to the extent permitted by the Committee, shares of Common Stock, a combination of cash and shares of Common Stock or through the delivery of irrevocable instruments to a broker to sell the shares of Common Stock obtained upon the exercise of the stock option and to deliver to us an amount equal to the exercise price.
The Committee may grant stock appreciation rights independent of (“Freestanding SARs”) or in conjunction with (“Tandem SARs”) a stock option.  The exercise price of a stock appreciation right shall be an amount determined by the Committee, but in no event shall such amount be less than the fair market value of the Common Stock on the date the stock appreciation right is granted or, in the case of Tandem SARs, the exercise price of the related stock option.  Each Freestanding SAR shall entitle the participant upon exercise to an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Common Stock over (B) the exercise price, times (ii) the number of shares of Common Stock as to which the stock appreciation right is exercised.  Each Tandem SAR shall entitle the participant to surrender the related stock option and to receive an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Common Stock over (B) the exercise price per share of Common Stock, times (ii) the number of shares of Common Stock covered by the related stock option
31
which is surrendered.  Payment of a stock appreciation right may be made by us in shares of Common Stock or in cash or partly in shares of Common Stock and partly in cash, as determined by the Committee.
Stock-Based Awards.  The Committee, in its sole discretion, may grant stock awards (shares of restricted stock or unrestricted stock) and other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of, the Common Stock.  If our shareholders approve the proposed amendment to our Restated LTIP, the form of awards under the Restated LTIP will also include Restricted Stock Units.  Such stock-based awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive, or vest with respect to, one or more shares of Common Stock (or the equivalent cash value of such shares of Common Stock) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives.  The restricted period specified in respect of any stock award shall not be less than three years, except that the Committee may (i) provide for the restricted period to terminate at any time after one year upon the attainment of performance-based objectives, and (ii) grant stock awards of up to 30,000 shares of Common Stock without regard to this limitation. Furthermore, the Committee may not terminate the restrictions applicable to outstanding stock awards except in connection with a Change in Control. The Committee may grant an unrestricted stock award only if the Committee determines that such stock award is made in lieu of all or a portion of salary or cash bonus of comparable value.
Withholding.  We are entitled to deduct from any payment to a participant under the Restated LTIP the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the participant to pay to us such tax prior to and as a condition of the making of such payment.  Subject to certain limitations, the Committee may allow a participant to pay the amount of taxes required by law to be withheld from an award by withholding shares of Common Stock to be paid under such award or by permitting the participant to deliver to us shares of Common Stock having a fair market value equal to the amount of such taxes.
Adjustments Upon Certain Events.  In the event of any reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants, rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares or any other change in corporate structure which in the judgment of the Committee materially affects the value of the Common Stock, the Committee may determine the substitutions or adjustments to the maximum number of shares available for the grant or issuance of awards under the Restated LTIP, the maximum award payable under the Restated LTIP, the number and class of shares and the exercise price per share set forth in any award theretofore granted, or any other affected terms of an award or the Restated LTIP as the Committee deems equitable or appropriate.
Effect of Certain Events.  The Committee will have the authority to promulgate rules and regulations to determine the treatment of a participant’s award in the event of the participant’s death, disability or termination.  In addition, the Committee shall have the right to extend the period for exercise of any stock option or stock appreciation right, provided such extension does not exceed the term for such stock option or stock appreciation right.
Unless otherwise decided by the Committee and provided in an award agreement, upon a participant’s death or disability prior to the complete exercise of the stock options or stock appreciation rights granted to him or her under the Restated LTIP, any such remaining stock options or stock appreciation rights may be exercised within one year after the date of the participant’s death or disability and prior to the expiration of the term thereof, to the extent exercisable on the date of the participant’s death or disability.
Unless otherwise decided by the Committee and provided in an award agreement, upon a participant’s termination for any reason other than death or disability prior to the complete exercise of the stock options or stock appreciation rights granted to him or her under the Restated LTIP, any such
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remaining stock options or stock appreciation rights may be exercised within three months after the date of the participant’s termination and prior to the expiration of the term thereof, to the extent exercisable on the date of the participant’s termination.
Amendment and Termination.  The Board of Directors may, at any time, alter, amend, suspend, discontinue or terminate the Restated LTIP; provided, however, that no such action shall adversely affect the rights of participants to awards previously granted hereunder and, provided further, however, that any shareholder approval necessary or desirable in order to comply with tax, securities, or other applicable laws or regulations, including, but not limited to, the listing requirements of the stock exchanges on which our securities are listed, shall be obtained in the manner required therein.  In addition, the Board of Directors may, at any time and for any reason, with or without prior notice, amend the Restated LTIP in any manner, but may not without shareholder approval, adopt any amendment which would: (1) increase the number of shares available under the Restated LTIP; (2) expand the types of awards available; (3) expand the class of persons eligible to participate; (4) extend the term of the Restated LTIP; (5) be a material amendment to the Restated LTIP, including, but not limited to, a change in the method of determining the exercise price of options issued under the Restated LTIP; (6) allow for repricing of options or SARs; or (vii) terminate restrictions applicable to awards (except in connection with a grantee’s death, disability or termination of employment or connection with a change in control).
New Plan Benefits
Because the benefits conveyed under the Restated LTIP will largely be at the discretion of the Committee, it is not possible to determine what benefits participants will receive under the Restated LTIP.
Tax Status of Restated LTIP Awards
Introduction.  The following discussion of the United States federal income tax consequences of awards under the Restated LTIP, as proposed, is based on present federal tax laws and regulations and does not purport to be a complete description of the federal income tax laws.  Participants may also be subject to certain foreign, state and local taxes which are not described below.
Incentive Stock Options.  Pursuant to the requirements of Section 422A of the Internal Revenue Code, only employees are eligible to receive incentive stock options.  If a stock option is an incentive stock option, no income is realized by the employee upon grant or exercise of the incentive stock option (except possibly for alternative minimum tax), and no deduction is available to us at such times.  If the Common Stock purchased upon the exercise of an incentive stock option is held by the employee for at least two years from the date of the grant of such incentive stock option and for at least one year after exercise, any resulting gain is taxed at long-term capital gains rates.  If the Common Stock purchased pursuant to the incentive stock option is disposed of before the expiration of that period, any gain on the disposition, up to the difference between the fair market value of the Common Stock at the time of exercise and the exercise price of the incentive stock option, is taxed at ordinary rates as compensation paid to the employee, and we are entitled to a deduction for an equivalent amount.  Any amount realized by the employee in excess of the fair market value of the Common Stock at the time of exercise is taxed at capital gains rates.
Non-Qualified Options.  If a stock option is a non-qualified option, no income is realized by the participant at the time of grant of the non-qualified stock option, and no deduction is available to us at such time.  At the time of exercise (other than by delivery of previously-owned shares of Common Stock to us), ordinary income is realized by the participant in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise, and the Company receives an income tax deduction for the same amount.  If a non-qualified stock option is exercised by delivering previously-owned shares of Common Stock to us, the number of shares received by the participant equal to the number of shares so delivered are received tax-free and have a tax basis and holding period equal to the shares so delivered.  The fair market value of the additional shares received by the participant are
33
taxable to the participant as ordinary income, and the participant’s tax basis in such shares is their fair market value on the date of exercise.  Upon disposition, any appreciation or depreciation of the Common Stock after the date of exercise may be treated as capital gain or loss depending on how long the shares have been held.
Stock Appreciation Rights.  No income is realized by a participant at the time a stock appreciation right is granted, and no deduction is available to us at such time.  When the stock appreciation right is exercised, ordinary income is realized in the amount of the cash or the fair market value at such time of the shares of Common Stock received by the participant, and we are entitled to a deduction of equivalent value.
Unrestricted Stock and Unrestricted Stock-Based Awards.  Upon the grant of an award of shares of unrestricted stock or another stock-based award which is not restricted, a participant realizes taxable income equal to the cash and fair market value at such time of the shares of Common Stock received by the participant under such award (less the purchase price, if any), and we are entitled to a corresponding tax deduction at that time.
Restricted Stock, Restricted Stock Units and Restricted Stock-Based Awards.  Upon the grant of an award of shares of restricted stock, restricted stock units or another stock-based award which is restricted, no income is realized by a participant (unless a participant timely makes an election under Section 83(b) of the Code to accelerate the recognition of the income under an award of restricted stock to the date of grant), and we are not allowed a deduction at that time.  When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the participant realizes taxable ordinary income in an amount equal to the cash and the fair market value at the time of vesting of the shares of Common Stock received by the participant under such award (less the purchase price therefor, if any), and we are entitled to a corresponding deduction at such time.  If a participant makes an election, as permitted under Section 83(b) of the Code, within 30 days after the date of the transfer by us to the participant of the shares of restricted stock, then the participant recognizes taxable ordinary income in an amount equal to the cash and the fair market value at the time of grant of the shares of Common Stock to be received by the participant under such award (less the purchase price therefor, if any), and we are entitled to a corresponding deduction at such time.
Stock Price
The closing price of our Common Stock reported on the Nasdaq Stock Market on April 12, 2013, was $4.05 per share.
Required Vote and Board of Directors’ Recommendation
We believe that our best interests will be served by the approval of Proposal 3.  Amending the Restated LTIP will enable us to be in a position to grant stock and other new forms of long-term incentive awards to employees, directors and consultants who can contribute materially to our success.
Approval of Proposal 3 requires the affirmative vote of a majority of shares of the common stock represented at the Meeting, provided that a majority of the outstanding shares of the common stock votes on the proposal.
Our Board of Directors recommends a vote in favor of the proposal to approve the amendment to the Restated LTIP, and the persons named in the enclosed proxy (unless otherwise indicated therein) will vote such proxies FOR this proposal.
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PROPOSAL 4
RATIFY THE GRANTS OF STOCK AWARDS IN EXCESS OF
THE PREVIOUS 200,000-SHARE LIMITATION SET FORTH IN
OUR RESTATED LTIP
As noted in Director Compensation, Directors’ Stock-Based Incentive Compensation, we recently we discovered that we had inadvertently issued stock awards to our independent directors in excess of the 200,000 share limitation under our Restated LTIP on the number of shares of our common stock that may be used for awards other than stock options or stock appreciation rights (the “Limitation’).  The issuances of shares of our common stock in excess of the Limitation (the “Excess Shares”) occurred during 2010 and after and were disclosed and were properly accounted for in our periodic reports and proxy statements filed with the SEC.  We issued a total of 179,512 Excess Shares to our independent directors in the form of outright stock grants or restricted stock awards as part of their annual retainers.

Since the Excess Shares were issued in excess of the Limitation, they were not issued pursuant to the Restated LTIP and hence the issuances of the Excess Shares were not registered under the Securities Act by our Form S-8 registration statement for the Restated LTIP.  Although the issuances of the Excess Shares were not registered under the Securities Act, the issuances of the Excess Shares qualified for an exemption under Section 4(2) of the Securities Act.  In Proposal 3, we are submitting to our shareholders a proposal to amend our Restated LTIP to, among other things, increase the Limitation from 200,000 to 800,000 shares.  In this Proposal 4, we are submitting to our shareholders a proposal to ratify the grants of the Excess Shares.  Although the Excess Shares were not issued under the Restated LTIP, we plan to treat the Excess Shares as being issued under the Restated LTIP and we will therefore count the Excess Shares against the 2.9 million shares of our common stock authorized for grant under the Restated LTIP.  As a result, the issuance of the Excess Shares will not result in us granting more than 2.9 million shares of our common stock to our directors, executive officers, employees, or consultants.
Required Vote and Board of Directors’ Recommendation
Approval of Proposal 4 requires the affirmative vote of a majority of the shares of common stock represented at the Meeting, provided that a majority of the outstanding shares of our common stock votes on the proposal.
Our Board of Directors recommends a vote in favor of the proposal to ratify the grants of stock awards in excess of the previous 200,000-share limitation set forth in our Restated LTIP, and the persons named in the enclosed proxy (unless otherwise instructed therein) will vote such proxies FOR this proposal.
OTHER MATTERS
 
Our Board of Directors does not intend to present, and has not been informed that any other person intends to present, any matters for action at the Meeting other than those specifically referred to in this proxy statement.  If any other matters properly come before the Meeting, it is intended that the holders of the proxies will act in respect thereof in accordance with their best judgment.
 
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EXECUTIVE OFFICERS
The names of, and certain information with respect to, our executive officers who are not director nominees are presented below.
NameAgePresent Principal Occupation and Employment History
Peter F. Comerford55Mr. Comerford was named Vice President of Administration and General Counsel on July 1, 1999 and was elected Corporate Secretary in December 2000.  He joined us in May 1997 as Senior Corporate Counsel and was appointed Director of Administration and General Counsel in December of that year.  Prior to joining us, Mr. Comerford was a practicing attorney for approximately fourteen years having worked primarily in municipal law departments including the City of Niagara Falls, New York where he served as the Corporation Counsel.  Mr. Comerford has a B.A. from the State University of New York at Buffalo, an MBA from Canisius College and a J.D. from the University of San Diego School of Law.
Philip A. Fain58Mr. Fain was named Chief Financial Officer in November 2009 and Treasurer in December 2009.  He previously served as Vice President of Business Development, having joined us in February 2008. Prior to joining us, he was Managing Partner of CXO on the GO, LLC, a management-consulting firm, which he co-founded in November 2003 and which we retained in connection with our acquisition activity. Prior to founding CXO on the GO, LLC, Mr. Fain served as Vice President of Finance - RayBan Sunoptics for Luxottica, SpA.  Prior to the acquisition of Bausch & Lomb’s global eyewear business by Luxottica, Mr. Fain served as Bausch & Lomb’s Senior Vice President Finance - Global Eyewear from 1997 to 1999 and as Vice President and Controller for the US Sunglass business from 1993 to 1996.  From 1983 to 1993, Mr. Fain served in various positions with Bausch & Lomb including executive positions in corporate accounting, finance and audit. Mr. Fain began his career as a CPA and consultant with Arthur Andersen & Co. in 1977. He received his B.A. in Economics from the University of Rochester and an MBA from the William E. Simon Graduate School of Business Administration of the University of Rochester.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April 12, 2013 by each person known by us to beneficially own more than five percent of the outstanding shares of our common stock, with percentages based on 17,458,977 shares issued and outstanding.
Name and Address of Beneficial Owner 
Number of Shares
Beneficially Owned
 
Percent of Class
Beneficially Owned
     
Bradford T. Whitmore (1) 5,142,726 29.5%
1560 Sherman Avenue, Suite 900    
Evanston, IL 60201    
     
Eliot Rose Asset Management, LLC (2) 1,585,956 9.1%
1000 Chapel View Boulevard, Suite 240    
Cranston, RI 02920    
     
NGP Energy Technology Partners II, L.P. (3) 950,721 5.4%
1700 K Street NW, Suite 750    
Washington, D.C. 20006    
________________________
(1)This information as to the beneficial ownership of shares of our common stock is based on the Schedule 13D/A (Amendment No. 7) dated December 17, 2012 filed with the SEC by Grace Brothers, Ltd., an Illinois limited partnership, Bradford T. Whitmore individually and as general partner of Grace Brothers, Ltd. and as manager and sole voting member of Sunray I, LLC, Spurgeon Corporation, as general partner of Grace Brothers, Ltd. and Sunray I, LLC, a Delaware limited liability company that reports beneficial ownership of 5,142,726 shares of our common stock.  In the Schedule 13D/A dated December 17, 2012, Mr. Whitmore reports sole voting and dispositive power with respect to 4,624,110 of such shares, of which 4,452,283 shares are held in the name of Sunray I, LLC.  Grace Brothers, Ltd., Mr. Whitmore and Spurgeon Corporation report shared voting and dispositive power with respect to 518,616 of such shares.
(2)This information as to the beneficial ownership of shares of our common stock is based on Amendment No. 1 to Schedule 13G dated January 30, 2013 filed with the SEC by Eliot Rose Asset Management, LLC, a Rhode Island limited liability company, and Gary S. Siperstein.  Eliot Rose Asset Management, LLC is deemed to be the beneficial owner of the reported securities pursuant to separate arrangements whereby it acts as investment adviser to certain persons.  Gary S. Siperstein is deemed to be the beneficial owner of the reported securities pursuant to his ownership interest in Eliot Rose Asset Management, LLC.  Eliot Rose Asset Management, LLC and Gary S. Siperstein each report sole voting and sole dispositive power with respect to all 1,585,956 shares.
(3)This information as to the beneficial ownership of shares of our common stock is based on Amendment No. 2 to Schedule 13G dated February 14, 2013 filed with the SEC by NGP Energy Technology Partners II, L.P. (a Delaware limited partnership which owns the reported securities), NGP ETP II, L.L.C., the general partner of NGP Energy Technology Partners II, L.P, Energy Technology Partners, L.L.C., the sole manager of NGP ETP II, L.L.C., and Philip J. Deutch, the sole member and manager of Energy Technology Partners, L.L.C. and the manager of NGP ETP II, L.L.C.  Mr. Deutch is also a member of the investment committee of NGP ETP II, L.L.C.  NGP Energy Technology Partners II, L.P. reports sole voting and dispositive power with respect to all 950,721 shares.  By virtue of the relationships between and among the reporting persons, NGP ETP II, L.L.C., Energy Technology Partners, L.L.C. and Mr. Deutch may be deemed to have the power
37
to direct the voting and disposition of the shares of common stock beneficially owned by NGP Energy Technology Partners II, L.P.  NGP ETP II, L.L.C., Energy Technology Partners, L.L.C. and Mr. Deutch disclaim beneficial ownership of the reported securities except to the extent of their pecuniary interest therein.
SECURITY OWNERSHIP OF MANAGEMENT
The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April 12, 2013 by (1) each of our directors, (2) each of our Named Executive Officers (as defined under the heading “Executive Compensation”), and (3) all of our directors and executive officers as a group.
Name of Beneficial Owner (1)
Number of Shares
Beneficially Owned (1)
Percent of Class
Beneficially Owned (2)
Steven M. Anderson24,872*
Patricia C. Barron137,690 (3)*
James A. Croce22,730*
Michael D. Popielec350,000 (4)*
Thomas L. Saeli30,122*
Robert W. Shaw II26,497*
Ranjit C. Singh71,218 (5)*
Bradford T. Whitmore5,142,726 (6)29.5%
Peter F. Comerford97,830 (7)*
Philip A. Fain192,263 (8)*
All directors and executive officers
as a group (10 persons)
6,095,948 (9)34.2%
________________________
*Less than 1%
(1)  Except as otherwise indicated, the shareholders named in this table have sole voting and investment power with respect to the shares of our common stock beneficially owned by them.  The information provided in this table is based upon information provided to us by such shareholders.  The table reports beneficial ownership for our directors and executive officers in accordance with Rule 13d-3 under the Exchange Act.  This means all our securities over which directors and executive officers directly or indirectly have or share voting or investment power are listed as beneficially owned.  The amounts also include shares that may be acquired by exercise of stock options prior to June 12, 2012, which shares are referred to in the footnotes to this table as “shares subject to options that may be exercised.”
(2)  Based on 17,458,977 shares issued and outstanding.
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(3)  The amount shown includes (i) 6,200 shares held jointly by Ms. Barron and her husband; (ii) 20,000 shares held in the Patricia C. Barron Profit Sharing Plan; and (iii) 3,000 shares subject to an option that may be exercised by Ms. Barron.
(4)  The amount shown includes 175,000 shares subject to options that may be exercised by Mr. Popielec.
(5)  The amount shown includes 5,000 shares subject to an option that may be exercised by Mr. Singh.
(6)  The amount shown includes 518,616 shares beneficially owned by Grace Brothers, Ltd., an Illinois limited partnership, held in a margin account, and Spurgeon Corporation, which is a general partner of Grace Brothers, Ltd.  Mr. Whitmore is a general partner of Grace Brothers, Ltd.  See “Security Ownership of Certain Beneficial Owners” above for more information about Grace Brothers, Ltd.
(7)  The amount shown includes 63,489 shares subject to options that may be exercised by Mr. Comerford.
(8)  The amount shown includes 140,977 shares subject to options that may be exercised by Mr. Fain.
(9)  The amount shown includes 387,466 shares subject to options that may be exercised by directors and executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and our other equity securities.  To our knowledge, based solely on the written representations of our directors and executive officers and the copies of such reports filed with the SEC during 2012, all Section 16(a) filings applicable to our officers, directors and more than 10% beneficial owners were filed in a timely manner.
SUBMISSION OF SHAREHOLDER PROPOSALS
 
UnderRule 14a-8 of the Exchange Act, shareholder proposals intended for inclusion in the proxy statement for our 20112014 Annual Meeting of Shareholders must be submitted in writing to us to our Corporate Secretary at 2000 Technology Parkway, Newark, New York 14513, and must be received by January 1, 2011.December 23, 2013.
 
Any shareholder proposal submitted for consideration at our 20112014 Annual Meeting of Shareholders butnot submitted for inclusion in the proxy statement for that meeting that is received by us after March 17, 20118, 2014 will not be considered filed on a timely basis with us underRule 14a-4(c)(1) of the Exchange Act.  For such proposals that are not timely filed, we retain discretion to vote proxies we receive.  For such proposals that are timely filed, we retain discretion to vote proxies we receive provided that we include in our proxy statement advice on the nature of the proposal and how we intend to exercise our voting discretionand the proponent of any such proposal does not issue its own proxy statement.
 
Our Annual Report onForm 10-K for the year ended December 31, 2009,2012, as filed with the SEC, is included in the 20092012 Annual Report to Shareholders which accompanies this proxy statement.
 
By Order of the Board of Directors
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-s- Bradford T. Whitmore
April 22, 2013
By Order of the Board of Directors
Bradford T. Whitmore
Chair of the Board of Directors
April 30, 2010


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␔▄
PROXY
ULTRALIFE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JUNE 8, 2010
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
     The undersigned hereby appoints John D. Kavazanjian and Peter F. Comerford, or either of them, as proxy for the undersigned, with full power of substitution, to vote all shares of the common stock of Ultralife Corporation owned by the undersigned at the Annual Meeting of Shareholders to be held on June 8, 2010 at 10:30 A.M. local time, at our corporate offices, which are located at 2000 Technology Parkway, Newark, New York 14513, and at any adjournments of such meeting, on the matters listed in this proxy and described in the notice of annual meeting and proxy statement and upon such other business as may properly come before such meeting and any adjournments thereof. This proxy revokes any prior proxy given by the undersigned.
(Continued and to be signed on the reverse side)

 
▄14475▄

ANNUAL MEETING OF SHAREHOLDERS OF
ULTRALIFE CORPORATION
June 8, 2010
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON JUNE 8, 2010:
The proxy statement and annual report to shareholders
are available at http://investor.ultralifecorp.com.
For instructions on how to attend the annual meeting and vote in person,
see the “Information Concerning Solicitation and Voting” section in the proxy statement that accompanies this proxy card.
Please sign, date and mail
your proxy card in the
envelope provided as soon
as possible.
¯ Please detach along perforated line and mail in the envelope provided.¯
  ▄20830000000000001000 3060810
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF DIRECTORS AND “FOR” PROPOSAL 2.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HEREý
1. Election of Directors.
NOMINEES:
oFOR ALL NOMINEESOSteven M. Anderson
OPatricia C. Barron
oWITHHOLD AUTHORITY
FOR ALL NOMINEES		OJames A. Croce
OJohn D. Kavazanjian
OThomas L. Saeli
oFOR ALL EXCEPT
(See instructions below)		ORobert W. Shaw II
ORanjit C. Singh
OBradford T. Whitmore
INSTRUCTIONS:To withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and fill in the circle next to each nominee you wish to withhold, as shown here:l
 
To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.o
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FORAGAINSTABSTAIN
2.Proposal to ratify the selection of BDO Seidman, LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.ooo
3.In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting and any adjournments thereof.
You acknowledge receipt with this proxy of a copy of the notice of annual meeting and proxy statement dated April 30, 2010, describing more fully the proposals listed in this proxy.
This proxy will be voted as specified by you. Unless you withhold authority to vote for one or more of the nominees according to the instructions, your signed proxy will be voted FOR the election of the named nominees for directors and, unless you specify otherwise, FOR the other proposal listed herein and described in the accompanying proxy statement.Appendix A
I plan to attend the meeting in person.
Amendment No. 6
To The
Ultralife Corporation
Amended And Restated 2004 Long-Term Incentive Plan


Section 3(a) of the Ultralife Corporation Amended and Restated 2004 Long-Term Incentive Plan (as last amended effective as of May 25, 2011) (the “Plan”) is hereby amended to read in its entirety as follows:
“(a)          “Award” shall mean any Option, SAR, Stock Award, Restricted Stock Unit or other incentive award granted under the Plan, whether singly, in combination, or in tandem, to a Grantee by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish by the Award Agreement or otherwise.”
The first sentence of Section 4(a) of the Plan is hereby amended to read in its entirety as follows:
“(a)           In General. The maximum number of shares of Stock which shall be available for the grant or issuance of Awards under the Plan (including ISOs) during its term shall not exceed 2,900,000 (plus any shares of Stock which are or become available under Section 2 hereof, which shares shall also be available for the grant or issuance of Awards under the Plan); provided, however, that no more than 800,000 shares of Stock may be used for Awards other than Options or SARs.”
Section 4(b) of the Plan is hereby amended to read as follows:
“(b)           Maximum Awards Payable. Subject to Section 4(c) hereof, and notwithstanding any provision contained in the Plan to the contrary, the maximum Award payable (or granted, if applicable) to any one Grantee under the Plan for a calendar year is 150,000 shares of Stock; provided, however, that the 150,000 share limitation shall not apply to inducement grants to Grantees who are new executives or key employees that do not exceed 700,000 shares of Stock.”
The first sentence of Section 6(b) of the Plan is hereby amended to read in its entirety as follows:
“(b)           In General.  Awards may, at the Committee’s sole discretion, be paid in the form of Options pursuant to Section 7 hereof, SARs pursuant to Section 8 hereof, Stock Awards or Restricted Stock Units pursuant to Section 9 hereof, or a combination thereof.”
Section 9 of the Plan is hereby amended to read in its entirety as follows:
“Section 9.                      Stock Awards and Restricted Stock Units
(a)In General.  Awards may be granted in the form of Stock Awards or Restricted Stock Units.  Stock Awards and Restricted Stock Units shall be awarded in such numbers and at such times during the term of the Plan as the Committee shall determine.  “Restricted Stock Unit” means an Award that is valued by reference to Stock, which value may be paid to the Grantee by delivery of such property as the Committee shall determine, including, without limitation, cash or Stock, or any combination thereof, and that has such restrictions as the Committee, in its sole discretion, may impose.
(b)Restrictions.  The Committee may condition, restrict or limit the grant of a Stock Award or Restricted Stock Units on the achievement of enumerated performance objectives or, with respect to Stock Awards or Restricted Stock Units issued to an Employee or a Consultant, on such Employee’s or Consultant’s continued employment or service to the Corporation through a specified period of time.  The restricted period specified in respect of any Stock Award or Restricted Stock Unit shall not be less than three years, except that the Committee may (i) provide for the restricted period to terminate at any time after one year upon the attainment of performance-based objectives, and (ii) grant Stock Awards or Restricted Stock Units of up to 30,000 shares of Stock without regard to this limitation.  Furthermore, the Committee may not terminate the restrictions applicable to outstanding Stock Awards or Restricted Stock Units except in connection with a Change in Control.  The Committee may grant an unrestricted Stock Award or Restricted Stock Units only if the Committee determines that such Stock Award is made in lieu of all or a portion of salary or cash bonus of comparable value.
(c)Rights of Holders of Restricted Stock.  During the period in which any shares of Stock received pursuant to a Stock Award are subject to any restrictions, the Committee may, in its sole and absolute discretion, deny the Grantee to whom such shares have been awarded all or any of the rights of a stockholder with respect to such shares, including, but not by way of limitation, limiting the right to vote such shares or the right to receive dividends on such shares.
(d)           Rights of Holders of Restricted Stock Units.  A Grantee receiving an Award of Restricted Stock Units shall not possess voting rights, nor the right to receive cash dividends with respect to such Award, unless a right to Dividend Equivalents is included in the Award Agreement for such Award of Restricted Stock Units.  If a right to Dividend Equivalents is included in the Award Agreement for an Award of Restricted Stock Units, then any Stock or any other property distributed as a dividend or otherwise with respect to the Stock underlying such Award as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Award of Restricted Stock Units, and may
2
either be automatically deemed invested in additional Restricted Stock Units or held by the Company in escrow for the Grantee, and shall be paid to the Grantee at the same time as the Restricted Stock Units.  “Dividend Equivalents” means an amount credited under a Grantee’s Restricted Stock Unit, which amount is equal to the dividends paid on the Stock, if any, determined as if the Restricted Stock Unit was shares of Stock on the record date of any such dividend.”
 The other provisions of the Plan shall remain the same.
This Amendment No. 6 shall be effective upon approval of the stockholders of the Company at its 2013 Annual Meeting. If this Amendment is not so approved at such meeting, then the Amendment shall be null and void.
3
Appendix B
ULTRALIFE CORPORATION
AMENDED AND RESTATED
2004 LONG-TERM INCENTIVE PLAN
Original Plan Effective June 10, 2004
As Amended by the Board on July 26, 2004
As Further Amended by Company Shareholders on June 8, 2006
As further Amended by the Board on September 7, 2007
As Further Amended by Company Shareholders on June 5, 2008
As Further Amended by the Board on May 25, 2011
As Further Amended by Company Shareholders on June 7, 2011
As Further Amended by Company Shareholders on __________, 2013
Section 1.  Purpose.
The Plan authorizes the Committee to provide Employees, Directors and Consultants of the Corporation and its Subsidiaries, who are in a position to contribute to the long-term success of the Corporation, with Stock and options to acquire Stock, in accordance with the terms specified herein.  The Corporation believes that this incentive program will cause those persons to increase their interest in the Corporation’s welfare and aid in attracting and retaining Employees, Directors and Consultants of outstanding ability.
Section 2.  Successor Plan.
This Plan shall serve as the successor to the Ultralife Batteries, Inc. Amended and Restated 2000 Stock Option Plan (the “Predecessor Plan”), and no further stock options shall be made under the Predecessor Plan from and after the effective date of the Plan.  All outstanding stock options under the Predecessor Plan immediately prior to the effective date of the Plan are hereby incorporated into the Plan and shall accordingly be treated as outstanding stock options under the Plan; provided, however, each such stock option shall continue to be governed solely by the terms and conditions of the instrument evidencing such stock option and interpreted under the terms of the Predecessor Plan, and, except as otherwise expressly provided herein, no provision of the Plan shall affect or otherwise modify the rights or obligations of holders of such incorporated stock options with respect to their acquisition of Stock, or otherwise modify the rights or the obligations of the holders of such stock options.  Any Stock reserved for issuance under the Predecessor Plan in excess of the number of shares as to which stock options have been granted thereunder, plus any such shares as to which stock options granted under the Predecessor Plan may lapse, expire, terminate or be cancelled, shall be deemed available for issuance or reissuance under Section 4(a) hereof.
Section 3.  Definitions.
Unless the context clearly indicates otherwise, the following terms, when used in the Plan, shall have the meanings set forth in this Section 3:
(a)           “Award” shall mean any Option, SAR, Stock Award, Restricted Stock Units or other incentive award granted under the Plan, whether singly, in combination, or in tandem, to a Grantee by the Committee pursuant to such terms, conditions, restrictions and/or limitations, if any, as the Committee may establish by the Award Agreement or otherwise.
(b)           “Award Agreement” shall mean the document establishing the terms, conditions, restrictions and limitations of an Award in addition to those established by the Plan and by the Committee’s exercise of its administrative powers.
(c)           “Board” shall mean the Board of Directors of the Corporation.
(d)           “CEO” shall mean the Chief Executive Officer of the Corporation.
(e)           “Change in Control” shall mean the occurrence of any of the following:  (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 30% or more of the voting power of the then outstanding securities of the Corporation; (ii) during any period of two consecutive calendar years there is a change of 25% or more in the composition of the Board in office at the beginning of the period except for changes approved by at least two-thirds of the Directors then in office who were Directors at the beginning of the period; (iii) the consummation of (A) a merger or consolidation of the Corporation with another corporation where the stockholders of such corporation, immediately after the merger or consolidation, own shares entitling such stockholders to 50% or more of all votes (without consideration of the rights of any class of stock to elect Directors by separate class vote) to which all stockholders of the corporation issuing cash or securities in the merger or consolidation would be entitled in the election of directors or where the members of the board of directors of such corporation, immediately after the merger or consolidation, constitute a majority of the board of directors of the corporation issuing cash or securities in the merger or consolidation, or (B) the sale or other disposition of all or substantially all the assets of the Corporation, or a liquidation, dissolution or statutory exchange of the Corporation; or (iv) the consummation of a tender offer or exchange offer for 30% or more of the voting power of the then-outstanding securities of the Corporation.
(f)           “Code” shall mean the Internal Revenue Code of 1986 as it may be amended from time to time.
(g)           “Committee” shall mean the Compensation and Management Committee of the Board, or such other Board committee as may be designated by the Board to administer the Plan; provided that the Committee shall consist of not less than two Directors who are “Non-Employee Directors,” as that term is defined and interpreted pursuant to Rule 16b-3 under the Exchange Act.  The Committee shall be appointed by and serve at the pleasure of the Board.
(h)           “Consultant” shall mean any consultant, advisor or independent contractor retained by the Corporation or its Subsidiaries.
(i)           “Control Person” shall mean any person who, as of the date of grant of an Option, owns (within the meaning of Section 422A(b)(6) of the Code) stock possessing more
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than 10% of the total combined voting power or value of all classes of stock of the Corporation or of any Parent or Subsidiary.
(j)           “Corporation” shall mean Ultralife Corporation, a Delaware corporation.
(k)           “Director” shall mean any member of the Board.
(l)           “Disability” shall mean permanent and total disability as defined by Section 22(e)(3) of the Code.
(m)           “Employee” shall mean any person employed by the Corporation or its Subsidiaries on a full or part-time basis, including Directors who are otherwise employed by the Corporation or its Subsidiaries.
(n)           “Exchange Act” shall mean the Securities Exchange Act of 1934 as it may be amended from time to time, including the rules thereunder and any successor provisions and the rules thereto.
(o)           “Fair Market Value” shall mean for any day (i) if the Corporation is a registrant under Section 12 of the Exchange Act, the volume weighted average price (“VWAP”) of the Stock in the over-the-counter market, as determined in accordance with the trading rules of the National Association of Securities Dealers Automated Quotation System or, if the Stock is listed or admitted to trading on any national securities exchange, the VWAP as determined in accordance with the trading rules on such exchange or, (ii) if the Corporation is not a registrant under Section 12 of the Exchange Act, the price of the Stock will be determined by the Board on the date of grant but will not be less than the par value of such Stock.
(p)           “Grantee” shall mean an Employee, Director or Consultant granted an Award under the Plan.
(q)           “Immediate Family Member” shall mean the transferor and his or her spouse, children or grandchildren, whether natural, step or adopted children or grandchildren.
(r)           “ISO” shall mean an Option granted pursuant to the Plan to purchase shares of Stock and intended to qualify as an incentive stock option under Section 422 of the Code, as now or hereafter constituted.
(s)           “NQSO” shall mean an Option granted pursuant to the Plan to purchase shares of the Stock that is not an ISO.
(t)           “Non-Employee Director” shall mean a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
(u)           “Options” shall refer collectively to NQSOs and ISOs subject to the Plan.
(v)           “Parent” shall mean any parent (as defined in Section 425 of the Code) of the Corporation.
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(w)             “Plan” shall mean this 2004 Long-Term Incentive Plan as set forth herein and as amended from time to time.
(x)              “SAR” shall mean a stock appreciation right granted pursuant to Section 8 hereof; a stock appreciation right shall entitle the Grantee to receive a payment equal to the appreciation in a stated number of shares of Stock from the exercise price for that stock appreciation right to the Fair Market Value of the stated number of shares of Stock on the date of exercise.
(y)             “Securities Act” shall mean the Securities Act of 1933 as it may be amended from time to time, including the rules thereunder and any successor provisions and the rules thereto.
(z)              “Stock” shall mean shares of the Common Stock, par value $.10 per share, of the Corporation.
(aa)           “Stock Award” shall mean an award of shares of Stock or restricted shares of Stock granted pursuant to Section 9 hereof.
(bb)           “Subsidiary” shall mean any subsidiary (as defined in Section 425 of the Code) of the Corporation.
Section 4.  Shares of Stock Subject to the Plan.
(a)           In General.  The maximum number of shares of Stock which shall be available for the grant or issuance of Awards under the Plan (including ISOs) during its term shall not exceed 2,900,000 (plus any shares of Stock which are or become available under Section 2 hereof, which shares shall also be available for the grant or issuance of Awards under the Plan); provided, however, that no more than 800,000 shares of Stock may be used for Awards other than Options or SARs.  Such amounts shall be subject to adjustment as provided in Section 4(c) hereof.  Any shares of Stock related to Awards which terminate by expiration, forfeiture, cancellation or otherwise without the issuance of such shares, are settled in cash in lieu of Stock, or are exchanged with the Committee’s permission for Awards not involving Stock, shall be available again for grant under the Plan.  Moreover, if the exercise price of any Award granted under the Plan or the tax withholding requirements with respect to any Award granted under the Plan are satisfied by tendering shares of Stock to the Corporation (by either actual delivery or by attestation), only the number of shares of Stock issued net of the shares of Stock tendered will be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan.  The shares of Stock available for issuance under the Plan may be authorized and unissued shares or treasury shares, including shares purchased in open market or private transactions.  For the purpose of computing the total number of shares of Stock granted under the Plan, where one or more types of Awards, both of which are payable in shares of Stock, are granted in tandem with each other, such that the exercise of one type of Award with respect to a number of shares cancels an equal number of shares of the other, the number of shares granted under both Awards shall be deemed to be equivalent to the number of shares under one of the Awards.
(b)           Maximum Awards Payable.  Subject to Section 4(c) hereof, and notwithstanding any provision contained in the Plan to the contrary, the maximum Award payable (or granted, if applicable) to any one Grantee under the Plan for a calendar year is 150,000 shares of Stock;
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provided, however, that the 150,000 share limitation shall not apply to inducement grants to Grantees who are new executives or key employees that do not exceed 700,000 shares of Stock.
(c)           Adjustment Upon Changes in Capitalization.  In the event of any reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants, rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares or any other change in corporate structure which in the judgment of the Committee materially affects the value of shares, then the Committee may determine the substitutions or adjustments to the maximum number of shares available for the grant or issuance of Awards under the Plan pursuant to Section 4(a) hereof, the maximum Award payable under Section 4(b) hereof, the number and class of shares and the exercise price per share set forth in any Award theretofore granted, or any other affected terms of an Award or the Plan as the Committee, in its sole discretion and without liability to any person, deems equitable or appropriate; provided, however, that no such adjustments shall be made to any ISO without the Grantee’s consent, if such adjustment would cause such ISO to fail to qualify as such.
Section 5.  Administration of the Plan.
(a)           In General.  The Committee shall have total and exclusive responsibility to control, operate, manage and administer the Plan in accordance with its terms.  The Committee may act only by a majority of its members.  Any determination of the Committee may be made, without a meeting, by a writing or writings signed by all of the members of the Committee.  The decisions of the Committee and its actions with respect to the Plan shall be final, binding and conclusive upon all persons having or claiming to have any right or interest in or under the Plan.
(b)           Authority.  The Committee shall have all the authority that may be necessary or helpful to enable it to discharge its responsibilities with respect to the Plan.  Without limiting the generality of the preceding sentence, the Committee shall have the exclusive right to:
(i)           determine eligibility for participation in the Plan;
(ii)           select the Grantees and determine the type of Awards to be made to Grantees, the number of shares of Stock subject to Awards and the terms, conditions, restrictions and limitations of the Awards, including, but not by way of limitation, restrictions on the transferability of Awards and conditions with respect to continued employment or performance criteria;
(iii)           interpret the Plan or any Award Agreement;
(iv)           construe any ambiguous provision, correct any default, supply any omission, and reconcile any inconsistency of the Plan or an Award Agreement;
(v)           issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it from time to time deems proper;
(vi)           promulgate regulations for carrying out the Plan and make changes in such regulations as it from time to time deems proper;
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(vii)           to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions, and limitations;
(viii)           promulgate rules and regulations regarding treatment of Awards of a Grantee under the Plan in the event of such Grantee’s death, disability, retirement, termination from the Corporation or breach of agreement by the Grantee, or in the event of a Change in Control of the Corporation;
(ix)             to the extent permitted under the Plan, accelerate the vesting, exercise, or payment of an Award when such action or actions would be in the best interest of the Corporation;
(x)             subject to Section 5(d) hereof, grant Awards in replacement of Awards previously granted under the Plan or any other executive compensation plan of the Corporation;
(xi)            determine the terms and provisions of any Award Agreements entered into hereunder, including, a provision in an Award Agreement that requires, upon the occurrence of a Change in Control specified in Section 3(e)(iii) hereof, the cancellation for cash of outstanding Awards or the issuance of comparable replacement Awards granted by the successor entity in such event;
(xii)            take any and all other action it deems necessary or advisable for the proper operation or administration of the Plan; and
(xiii)          make all other determinations it deems necessary or advisable for the administration of the Plan, including factual determinations.
(c)           Delegation.  The Committee may allocate all or any portion of its responsibilities and powers under the Plan to any one or more of its members, the CEO or other senior members of management as the Committee deems appropriate and may delegate all or any part of its responsibilities and powers to any such person or persons, provided that any such allocation or delegation be in writing; provided, however, that only the Committee, or other committee consisting of two or more Non-Employee Directors may select and grant Awards to Grantees who are subject to Section 16 of the Exchange Act.  The Committee may revoke any such allocation or delegation at any time for any reason with or without prior notice.
(d)           Repricing.  Except for adjustments pursuant to Section 4(c) hereof, the Committee shall not reprice any Options or SARs unless such action is approved by the stockholders of the Corporation.  For purposes of the Plan, the term “reprice” shall mean:  (i) the reduction, directly or indirectly, in the per-share exercise price of an outstanding Option or SAR by amendment, cancellation or substitution; (ii) any action that is treated as a repricing under United States generally accepted accounting principles; (iii) canceling an Option or SAR when its exercise price exceeds the fair market value of the underlying Stock in exchange for another Option, SAR or other equity security (unless the cancellation and exchange occurs in connection with a merger, acquisition, or similar transaction); and (iv) any other action that is treated as a repricing by the rules or regulations of any stock exchange on which the securities of the Corporation are traded.  Any amendment or repeal of this provision shall require the affirmative vote of a
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majority of shares of voting capital stock present at a stockholders meeting in person or by proxy and entitled to vote thereon.
Section 6.  Awards.
(a)           Eligibility.  Subject to Section 5 hereof, all Employees, Directors and Consultants are eligible to participate in the Plan; provided, however, only Employees are eligible to receive ISOs.  The Committee shall determine and designate from time to time those Employees, Directors and Consultants who are to be granted Awards, the nature of each Award granted and the number of shares of Stock subject to each such Award.
(b)           In General.  Awards may, at the Committee’s sole discretion, be paid in the form of Options pursuant to Section 7 hereof, SARs pursuant to Section 8 hereof, Stock Awards or Restricted Stock Units pursuant to Section 9 hereof, or a combination thereof.  Each Award shall be subject to the terms, conditions, restrictions and limitations of the Plan and the Award Agreement for such Award.  Awards under a particular Section of the Plan need not be uniform and Awards under two or more Sections may be combined into a single Award Agreement.  Any combination of Awards may be granted at one time and on more than one occasion to the same Grantee.
(c)           Foreign Jurisdictions.  With respect to Grantees who reside or work outside of the United States, the Committee may, in its sole and absolute discretion, amend the terms of the Plan or Awards with respect to such Grantees in order to conform such terms with the provisions of local law and practice or otherwise as deemed necessary or desirable by the Committee.
Section 7.  Stock Options.
(a)           In General.  Awards may be granted in the form of Options.  Options granted under the Plan may be of two types:  ISOs and NQSOs.  The Committee shall have the authority and discretion to grant to an eligible Employee either ISOs, NQSOs, or both, but shall clearly designate the nature of each Option at the time of grant.  Consultants and Directors shall only receive NQSOs.
(b)           Terms of Options.  An Option shall be exercisable in accordance with such terms and conditions and at such times and during such periods as may be determined by the Committee.  In addition to any such terms and conditions, the following terms and conditions shall apply to all Options granted under the Plan:
(i)           The exercise price per share of Stock subject to an Option shall be not less than 100% of the Fair Market Value of a share of the Stock on the date such Option is granted, except for Options granted in assumption of or substitution for outstanding awards previously granted by the Corporation or its affiliates or an entity that the Corporation acquires or with which the Corporation combines, in any case in a transaction contemplated by Section 4(c); provided, however, that the exercise price for any ISO granted to a Control Person shall not be less than 110% of such Fair Market Value.
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(ii)           The term of each Option shall be determined by the Committee, provided that no Option shall be exercisable more than ten years from the date such Option is granted, and provided further that no ISO granted to a Control Person shall be exercisable more than five years from the date of Option grant.
(iii)           Notwithstanding any other provisions hereof, the aggregate Fair Market Value (determined at the time the ISO is granted) of the Stock with respect to which ISOs are exercisable for the first time by any Employee during any calendar year under all plans of the Corporation and any Parent or Subsidiary corporation shall not exceed $100,000.
(c)           Exercise of Options.  Except as provided in Section 11 hereof, no Option granted to an Employee or Consultant shall be exercised unless at the time of such exercise the Grantee is then an Employee or Consultant.  Upon exercise, the exercise price of an Option may be paid in cash, or, to the extent permitted by the Committee, by tendering, by either actual delivery of shares or by attestation, shares of Stock, a combination of the foregoing, or such other consideration as the Committee may deem appropriate.  The Committee shall establish appropriate methods for accepting Stock, whether restricted or unrestricted, and may impose such conditions as it deems appropriate on the use of such Stock to exercise an Option.  Options awarded under the Plan may also be exercised by way of a broker-assisted stock option exercise program, if any, provided such program is available at the time of the Grantee’s exercise.  Notwithstanding the foregoing or the provision of any Award Agreement, a Grantee may not pay the exercise price of an Option using shares of Stock if, in the opinion of counsel to the Corporation, (i) the Grantee is, or within the six months preceding such exercise was, subject to reporting under Section 16(a) of the Exchange Act, (ii) there is a substantial likelihood that the use of such form of payment or the timing of such form of payment would subject the Grantee to a substantial risk of liability under Section 16 of the Exchange Act, or (iii) there is a substantial likelihood that the use of such form of payment would result in accounting treatment to the Corporation under generally accepted accounting principles that the Committee reasonably determines is adverse to the Corporation.
Section 8.  Stock Appreciation Rights.
(a)           In General.  Awards may be granted in the form of SARs.  SARs granted under the Plan may be of two types:  an SAR granted in tandem with all or a portion of a related Option under the Plan (“Tandem SARs”) or granted separately (“Freestanding SARs”).  A Tandem SAR may be granted either at the time of the grant of the related Option or at any time thereafter during the term of the Option.
(b)           Tandem SARs.  A Tandem SAR shall be exercisable to the extent, and only to the extent, that the related Option is exercisable, and the “exercise price” of such a SAR (the base from which the value of the SAR is measured at its exercise) shall be the exercise price under the related Option.  However, at no time shall a Tandem SAR be issued if the exercise price of its related Option is less than the Fair Market Value of the Stock, as determined by the Committee, on the date that the Tandem SAR is granted.  If a related Option is exercised as to some or all of the shares covered by the Award, the related Tandem SAR, if any, shall be canceled automatically to the extent of the number of shares covered by the Option exercise.  Upon
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exercise of a Tandem SAR as to some or all of the shares covered by the Award, the related Option shall be canceled automatically to the extent of the number of shares covered by such exercise.  All Tandem SARs shall expire not later than ten years from the date of the grant of the SAR.
(c)           Freestanding SARs.  Freestanding SARs shall be exercisable or automatically mature in accordance with such terms and conditions and at such times and during such periods as may be determined by the Committee.  The exercise price of a Freestanding SAR shall be defined in the Award Agreement for that SAR and shall be not less than 100% of the Fair Market Value of a share of Stock on the date of the grant of the Freestanding SAR.  All Freestanding SARs shall expire not later than ten years from the date of grant of the SAR.
(d)           Exercise of SARs.  Except as provided in Section 11 hereof, no SAR granted to an Employee or Consultant shall be exercised unless at the time of such exercise the Grantee is then an Employee or Consultant.  The Committee may provide that an SAR shall be deemed to be exercised at the close of business on the scheduled expiration date of such SAR if at such time the SAR by its terms remains exercisable and, if so exercised, would result in a payment to the holder of such SAR.  Unless otherwise provided in an Award Agreement, an SAR may be paid in cash, shares of Stock or any combination thereof, as determined by the Committee, in its sole and absolute discretion, at the time that the SAR is exercised.
Section 9.  Stock Awards and Restricted Stock Units
(a)           In General.  Awards may be granted in the form of Stock Awards or Restricted Stock Units.  Stock Awards and Restricted Stock Units shall be awarded in such numbers and at such times during the term of the Plan as the Committee shall determine.  “Restricted Stock Unit” means an Award that is valued by reference to Stock, which value may be paid to the Grantee by delivery of such property as the Committee shall determine, including, without limitation, cash or Stock, or any combination thereof, and that has such restrictions as the Committee, in its sole discretion, may impose.
(b)           Restrictions.  The Committee may condition, restrict or limit the grant of a Stock Award or Restricted Stock Units on the achievement of enumerated performance objectives or, with respect to Stock Awards or Restricted Stock Units issued to an Employee or a Consultant, on such Employee’s or Consultant’s continued employment or service to the Corporation through a specified period of time.  The restricted period specified in respect of any Stock Award or Restricted Stock Unit shall not be less than three years, except that the Committee may (i) provide for the restricted period to terminate at any time after one year upon the attainment of performance-based objectives, and (ii) grant Stock Awards or Restricted Stock Units of up to 30,000 shares of Stock without regard to this limitation.  Furthermore, the Committee may not terminate the restrictions applicable to outstanding Stock Awards or Restricted Stock Units except in connection with a Change in Control.  The Committee may grant an unrestricted Stock Award or Restricted Stock Units only if the Committee determines that such Stock Award is made in lieu of all or a portion of salary or cash bonus of comparable value.
(c)           Rights of Holders of Restricted Stock.  During the period in which any shares of Stock received pursuant to a Stock Award are subject to any restrictions, the Committee may, in
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its sole and absolute discretion, deny the Grantee to whom such shares have been awarded all or any of the rights of a stockholder with respect to such shares, including, but not by way of limitation, limiting the right to vote such shares or the right to receive dividends on such shares.
(d)           Rights of Holders of Restricted Stock Units.  A Grantee receiving an Award of Restricted Stock Units shall not possess voting rights, nor the right to receive cash dividends with respect to such Award, unless a right to Dividend Equivalents is included in the Award Agreement for such Award of Restricted Stock Units.  If a right to Dividend Equivalents is included in the Award Agreement for an Award of Restricted Stock Units, then any Stock or any other property distributed as a dividend or otherwise with respect to the Stock underlying such Award as to which the restrictions have not yet lapsed shall be subject to the same restrictions as such Award of Restricted Stock Units, and may either be automatically deemed invested in additional Restricted Stock Units or held by the Company in escrow for the Grantee, and shall be paid to the Grantee at the same time as the Restricted Stock Units.  “Dividend Equivalents” means an amount credited under a Grantee’s Restricted Stock Unit, which amount is equal to the dividends paid on the Stock, if any, determined as if the Restricted Stock Unit was shares of Stock on the record date of any such dividend.”
Section 10.  Payment of Awards.
(a)           In General.  Absent a Plan or Award Agreement provision to the contrary, payment of Awards may, at the discretion of the Committee, be made in cash, Stock, a combination of cash and Stock, or any other form of property as the Committee shall determine.  In addition, payment of Awards may include such terms, conditions, restrictions and/or limitations, if any, as the Committee deems appropriate, including, in the case of Awards paid in the form of Stock, restrictions on transfer and forfeiture provisions; provided, however, such terms, conditions, restrictions and/or limitations are not inconsistent with the Plan.
(b)           Withholding.  The Corporation shall be entitled to deduct from any payment under the Plan, regardless of the form of such payment, the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the Grantee to pay to the Corporation such tax prior to and as a condition of the making of such payment.  In accordance with any applicable administrative guidelines it establishes, the Committee may allow a Grantee to pay the amount of taxes required by law to be withheld from an Award by withholding from any payment of shares of Stock due as a result of such Award, or by permitting the Grantee to deliver to the Corporation, shares of Stock having a Fair Market Value equal to the minimum amount of such required withholding taxes.  Notwithstanding the foregoing or the provision of any Award Agreement, a Grantee may not pay the amount of taxes required by law to be withheld using shares of Stock if, in the opinion of counsel to the Corporation, (i) the Grantee is, or within the six months preceding such exercise was, subject to reporting under Section 16(a) of the Exchange Act, (ii) there is a substantial likelihood that the use of such form of payment or the timing of such form of payment would subject the Grantee to a substantial risk of liability under Section 16 of the Exchange Act, or (iii) there is a substantial likelihood that the use of such form of payment would result in accounting treatment to the Corporation under generally accepted accounting principles that the Committee reasonably determines is adverse to the Corporation.
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Section 11.  Effect of Termination of Relationship with the Corporation.
(a)           Committee Rules.  The Committee shall have the authority to promulgate rules and regulations to determine the treatment of a Grantee’s Awards under the Plan in the event of such Grantee’s death, Disability, and termination.  In addition, notwithstanding the provisions of this Section 11, the terms of an Award Agreement or the rules and regulations promulgated by the Committee and in effect from time to time, the Committee shall have the right to extend the period for exercise of any Option or SAR, provided such extension does not exceed the term of such Option or SAR.
(b)           Death.  Unless otherwise decided by the Committee and provided in an Award Agreement, upon a Grantee’s death prior to the complete exercise of the Options or SARs granted to him or her under the Plan, any remaining Options or SARs may be exercised in whole or in part within one year after the date of the Grantee’s death and then only:
(i)            by the beneficiary designated by the Grantee in a writing submitted to the Corporation prior to the Grantee’s death, or in the absence of same, by the Grantee’s estate or by or on behalf of such person or persons to whom the Grantee’s rights pass under his or her will or the laws of descent and distribution,
(ii)           to the extent that the Grantee would have been entitled to exercise the Option or SAR at the date of his or her death and subject to all of the conditions on exercise imposed by the Plan and the Award Agreement, and
(iii)          prior to the expiration of the term of the Option or SAR.
(c)           Disability.  Unless otherwise decided by the Committee and provided in an Award Agreement, upon a Grantee’s Disability prior to the complete exercise of the Options or SARs granted to him or her under the Plan, any remaining Options or SARs may be exercised in whole or in part within one year after the date of the Grantee’s Disability and then only:
(i)            by the Grantee or his or her legal representative,
(ii)           to the extent that the Grantee would have been entitled to exercise the Option or SAR on the date of his or her Disability, subject to all of the conditions on exercise imposed by the Plan and the Award Agreement, and
(iii)          prior to the expiration of the term of the Option or SAR.
(d)           Other Termination.  Unless otherwise decided by the Committee and provided in an Award Agreement, the termination of a Grantee’s employment, consulting relationship or term of directorship with the Corporation for a reason other than the Grantee’s death or Disability and prior to the complete exercise of the Options or SARs granted to him or her under the Plan, any remaining Options or SARs may be exercised in whole or in part within three months after the date of the Grantee’s termination and then only:
(i)            by the Grantee or his or her legal representative,
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(ii)            to the extent that the Grantee would have been entitled to exercise the Option or SAR on the date of his or her termination, subject to all of the conditions on exercise imposed by the Plan and the Award Agreement, and
(iii)           prior to the expiration of the term of the Option or SAR.
(e)           Treatment of Intra-Corporation Transfers.  In the case of an Employee or Consultant, the transfer between the Corporation and any Subsidiary shall not be deemed to be a termination of employment or consulting relationship, and a change from the status of an Employee to a Consultant or from a Consultant to an Employee shall not be deemed to be a termination of employment or consulting relationship.
Section 12.  General Provisions.
(a)           Award Agreement.  Each Award grant shall be evidenced by a written Award Agreement containing such terms and conditions, not inconsistent with the Plan, as the Committee shall approve.  The terms and provisions of Award Agreements may vary among Grantees and among different Awards granted to the same Grantee.  Any Stock Award granted under the Plan may be evidenced in such manner as the Committee deems appropriate, including, without limitation, book-entry registration or issuance of a stock certificate or certificates, with such restrictive legends and/or stop transfer instructions as the Committee deems appropriate.
(b)           No Right to Further Awards or Continued Service.  The grant of an Award in any year shall not give the Grantee any right to similar grants in future years or any right to continue such Grantee’s employment or consultant relationship with the Corporation or its Subsidiaries.  All Grantees shall remain subject to discharge to the same extent as if the Plan were not in effect.
(c)           No Right, Title, or Interest in Corporation Assets.  No Grantee shall have any rights as a stockholder as a result of participation in the Plan until the date of issuance of a stock certificate in his or her name, and, in the case of restricted shares of Stock, such rights are granted to the Grantee under the Plan.  To the extent any person acquires a right to receive payments from the Corporation under the Plan, such rights shall be no greater than the rights of an unsecured creditor of the Corporation and the Grantee shall not have any rights in or against any specific assets of the Corporation.  All of the Awards granted under the Plan shall be unfunded and the Corporation shall not be required to establish any fund or make any other segregation of assets to assure the payment of any Award.
(d)           Nonassignability.
(i)            Except as otherwise determined by the Committee or as otherwise provided in Section 12(d)(ii) hereof, no Award or other right under the Plan shall be subject to anticipation, sale, assignment, pledge, encumbrance, or charge except by will or the laws of descent and distribution, and an Award shall be exercisable during the Grantee’s lifetime only by the Grantee.
(ii)           The Committee shall have the discretionary authority to grant NQSOs or amend outstanding NQSOs to provide that they be transferable, subject to such terms and
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conditions as the Committee shall establish.  In addition to any such terms and conditions, the following terms and conditions shall apply to all transfers of NQSOs:
(A)           Except as otherwise permitted by the Committee, in its sole and absolute discretion, only Directors and corporate officers of the Corporation shall be permitted to transfer their NQSOs, and such individuals must be a Director or a corporate officer on the date of transfer.
(B)           Transfers shall only be permitted to:  (1) the transferor’s Immediate Family Members; (2) a trust or trusts for the exclusive benefit of the transferor’s Immediate Family Members; or (3) a family partnership or family limited partnership in which each partner is, at the time of transfer and all time subsequent thereto, either an Immediate Family Member or a trust for the exclusive benefit of one or more Immediate Family Members.
(C)           All transfers shall be made for no consideration.
(D)           Once a NQSO is transferred, any subsequent transfer of such transferred NQSO shall, notwithstanding Section 12(d)(i) hereof to the contrary, be permitted; provided, however, such subsequent transfer complies with all of the terms and conditions of this Section 12(d)(ii), with the exception of Section 12(d)(ii)(A) hereof.
(E)           In order for a transfer to be effective, the Committee’s designated transfer agent must be used to effectuate the transfer.  The costs of such transfer agent shall be borne solely by the transferor.
(F)           In order for a transfer in accordance with Section 12(d)(ii) to be effective, the transferor must agree in writing prior to the transfer on a form provided by the Corporation to pay any and all payroll and withholding taxes due upon exercise of the transferred NQSO.  In addition, prior to the exercise of the transferred NQSO by the transferee, arrangements must be made by the Grantee with the Corporation for the payment of any and all payroll and withholding taxes.
(G)           Upon transfer, a NQSO continues to be governed by and subject to the terms and conditions of the Plan.  A transferee of a NQSO is entitled to the same rights as the Grantee to whom such NQSO was originally granted, as if no transfer had taken place.  Accordingly, the rights of the transferee are subject to the terms and conditions of the original grant of the NQSO, including provisions relating to expiration date, exercisability, exercise price and forfeiture.
(H)           The Corporation shall be under no obligation to provide a transferee with any notice regarding the transferred NQSO held by the transferee upon forfeiture or any other circumstance.
(e)    ��      Regulatory Approvals and Listings.  Notwithstanding any other provision of the Plan or Award Agreements made pursuant thereto, the Corporation shall not be required to issue
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or deliver any certificate or certificates for shares of Stock under the Plan prior to fulfillment of all of the following conditions:
(i)            The listing, or approval for listing upon notice of issuance, of such shares on any securities exchange on which the Stock may then be traded;
(ii)            Any registration or other qualification of such shares under any state or federal law or regulation, or other qualification which the Board shall, in its absolute discretion and upon the advice of counsel, deem necessary or advisable;
(iii)           The obtaining of any other consent approval or permit from any state or federal government agency which the Board shall, in its absolute discretion and upon the advice of counsel, determine to be necessary or advisable; and
(iv)           The execution by the Grantee (or the Grantee’s legal representative) of such written representation that the Committee may in its sole discretion deem necessary or advisable to the effect that the shares then being purchased are being purchased for investment with no present intention of reselling or otherwise disposing of such shares in any manner which may result in a violation of the Securities Act and the placement upon certificates for such shares of an appropriate legend in connection therewith.
(f)           In the case of a grant of an Option to any Employee or Consultant of a Subsidiary, the Corporation may, if the Committee so directs, issue or transfer the shares covered by the Option to the Subsidiary, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the Employee or Consultant in accordance with the terms of the Plan and the Award Agreement relating to such Option.
(g)           Governing Law.  The Plan shall be governed by and construed in accordance with the laws of the State of New York, except as superseded by applicable federal law, without giving effect to its conflicts of law provisions.
(h)           No Guarantee of Tax Consequences.  No person connected with the Plan in any capacity, including, but not limited to, the Corporation and its directors, officers, agents and employees, makes any representation, commitment, or guarantee that any tax treatment, including, but not limited to, federal, state and local income, estate and gift tax treatment, will be applicable with respect to the tax treatment of any Award, or that such tax treatment will apply to or be available to a Grantee on account of participation in the Plan.
(i)           Amendment or Termination.  The Board may, at any time and for any reason, with or without prior notice, suspend, discontinue or terminate the Plan; provided, however, that no such action shall adversely affect the rights of Grantees to Awards previously granted hereunder.  In addition, the Board may, at any time and for any reason, with or without prior notice, amend the Plan in any manner, but may not without stockholder approval, adopt any amendment which would:  (i) increase the number of shares available under the Plan; (ii) expand the types of Awards available under the Plan; (iii) expand the class of persons eligible to participate in the Plan; (iv) extend the term of the Plan; (v) be a material amendment to the Plan, including, but not limited to, a change in the method of determining the exercise price of Options issued under the
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Plan; (vi) allow for repricing of Options or SARs issued under the Plan; (vii) terminate restrictions applicable to Awards (except in connection with a Grantee’s death, Disability or termination of employment or in connection with a Change in Control); or (viii) require the vote of the stockholders if such approval is necessary or desirable in order to comply with tax, securities, or other applicable laws or regulations, including, but not limited to, the listing requirements of the stock exchanges on which the securities of Corporation are listed.
(j)           Duration of Plan.  The Plan was approved by the Board on April 27, 2004, and became effective on June 10, 2004, upon the approval by the stockholders of the Corporation at the 2004 Annual Meeting of the Stockholders.  Awards may not be granted under the Plan after June 9, 2014, but Awards theretofore granted may extend beyond that date.
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Signature of ShareholderDate:Signature of ShareholderDate:
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