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The Board of Directors believes that the 2004 Stock Plan and Employee Stock Purchase Plan provide significant benefits to the Company for the following reasons:

·The plans enhance the ability of the Company to attract, motivate and retain highly competent, effective and loyal team members in order to drive the Company’s growth strategy and create intrinsic value for shareholders.

·By encouraging the team to acquire an ownership interest in the Company, these plans further align the team’s interest with those of shareholders.

·The 2004 Stock Plan is the Company’s principal means of providing the team with the long-term incentives necessary to drive the Company’s growth strategy and create intrinsic value for shareholders.  Currently, there are only 123,775 shares of Common Stock available for future grant under the 2004 Stock Plan.  If the number of shares available for grant under the 2004 Stock Plan is not increased, the Company will need to use only cash-based incentive programs to motivate the team, which we believe will not be as effective as using both a stock-based plan like the 2004 Stock Plan and cash-based incentives.

·The Employee Stock Purchase Plan is structured as a benefit available to all eligible team members and encourages increased Common Stock ownership at all levels within the Company by providing eligible team members with an incentive to invest in the Company through payroll deductions.

·Grants under both the 2004 Stock Plan and Employee Stock Purchase Plan include a vesting or holding period requirement which require executive officers, directors and team members to contribute to the Company’s success over an extended period of time in order to benefit from these plans and tie their financial futures to the financial interests of the Company.

·We have active, hard-working and talented non-employee directors who are active in overseeing the strategic direction of the Company.  The Board and its committees held 27 meetings in fiscal 2013.  The 2004 Stock Plan is the Company’s only stock incentive plan available to non-employee directors.  The Company believes that these stock incentives are important elements of the Company’s efforts to attract and retain highly qualified outside directors.

·The 2004 Stock Plan permits non-employee directors to purchase shares of Common Stock through the 2004 Stock Plan at then current market values in exchange for all or a portion of the cash fees payable to them for serving as a director of the Company.  To date, non-employee directors have purchased 162,200 shares of Common Stock under the 2004 Stock Plan under this program.

The enclosed Proxy Statement offers a more complete description of the 2004 Plan and Employee Stock Purchase Plan Proposals.  The Board of Directors encourages you to read the Proxy Statement carefully.  We have also made available a copy of our Annual Report for fiscal year 2013.2014.  We encourage you to read the Annual Report, which includes information about our business and products, as well as our audited financial statements.

After the formal business session at the Annual Meeting of Shareholders, there will be a report to the shareholders on the progress of the Company along with a discussion period.  I look forward to seeing you at the Annual Meeting and hope you will make plans to attend.  Whether or not you plan to attend the meeting, I urge you to sign, date and return the accompanying proxy in the postage-paid envelope enclosed for your convenience so that as many shares as possible may be represented at the meeting.  No postage is required if the envelope is mailed in the United States.

Sincerely,

Harry T. Rittenour

Jeffrey M. Armstrong

President and Chief Executive Officer

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The 2004 Stock Plan also permits Eligible Directors to purchase shares of Common Stock through the 2004 Stock Plan in exchange for all or a portion of the cash fees payable to them for serving as a director of the Company (“Directors Stock Purchase Rights Option”).  By December 31 of each year, a director must make his or her election to purchase shares of Common Stock in exchange for all or a portion of a director’s fees payable from December 1 of that year to December 1November 30 of the next year.  No Eligible Director made an election under the Directors Stock Purchase Rights Option in fiscal 2014.

Directors fees are payable in cash on March 1, June 1, September 1 and December 1 of each year.  On each of these dates, we will determine the number of shares of the Common Stock each Director who has elected to participate in the Directors Stock Purchase Rights Option has earned on that date.  This determination will be made by dividing all director’s fees payable on each of those dates that the Director has elected to exchange for Common Stock, by the fair market value of the Common Stock on that date.  Any portion of the director’s fees payable on each of those dates that the Director has not elected to receive in Common Stock will be paid to the Director in cash.  The fair market value of the Common Stock will be determined by using the closing price of the Common Stock on

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the Audit Committee Report set forth below priorserved as Chairman from July 2013 to his resignation.  Due to Mr. Ratigan’s resignationOctober 2013 until he resigned from the Board on October 2, 2013, the Board has not appointed a third member to the Audit Committee nor has it determined whether Mr. Dabrowski or Mr. Oswald qualifies as an “audit committee financial expert” as defined by applicable SEC rules.Board.  The Board determined that all of the members of the Audit Committee are independent as required by the rules of the Securities and Exchange Commission (“SEC”) and NASDAQ listing standards for audit committee members.  In addition, the Board determined that Mr. RatiganNeely qualified as an “audit committee financial expert” as defined by applicable SEC rules and that each of the Audit Committee members satisfies all other qualifications for Audit Committee members set forth in the applicable NASDAQ rules.  The Audit Committee held eightfive meetings in fiscal 2013.2014.

On November 18, 2009 the Board approved and adopted the Audit Committee’s revised charter.  The Audit Committee’s primary responsibilities include the following:

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(ii)establish and administer the compensation programs and policies for the Company’s CEO and other officers and key employees under its purview;

(iii)administer the Company’s stock-based compensation plans;

(iv)review and recommend compensation for service on the Board;

(v)provide a compensation committee report for inclusion in the Company’s proxy statement;

(vi)monitor the Company’s succession planning; and

(vii)review and reassess annually the adequacy of the Management Development Committee’s charter and performance.

TenEleven employees are currently under the purview of the Management Development Committee, including all of the executive officers named in the Summary Compensation Table included herein.  Mr. RittenourArmstrong participates in meetings of the Management Development Committee and makes recommendations with respect to the annual compensation of employees under the Committee’s purview.  The Management Development Committee reviews and approves the compensation of employees under its purview other than Mr. Rittenour.Armstrong.  The Management Development Committee separately determines the compensation of Mr. RittenourArmstrong in executive session.  Pursuant to its charter, the Management Development Committee is authorized to retain anyits own compensation consultants orand outside legal, accounting, and other advisors as it deems appropriateadvisers at the Company’s expense.  Such consultants and advisers report directly to assist in compensation matters.  Thethe Management Development Committee and the committee has the sole authority to hire and fire any compensation consultant.consultants or advisers.  The Management Development Committee does not delegate its authority to such consultants or advisers. In Fiscal 2013,fiscal 2014, the Management Development Committee did not engage any independentengaged the services of Rahmberg, Stover and Associates, LLC (“Rahmberg”), a compensation consultant orconsulting firm, and has considered such

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individuals essential for the Company’s success.  A broader plan, such as the 2004 Stock Plan, gives the Company greater flexibility to design and manage equity-based compensation to meet the changing needs of its business over an extended period of time.

Moreover, if the amendment to the 2004 Stock Plan is not approved by shareholders, no further stock incentive awards will be available for non-employee directors and non-employee directors will no longer be able to elect to receive Common Stock in lieu of their cash directors fees once rights to the remaining shares under the 2004 Stock Plan have been granted.  The Company believes these stock incentives are important elements of the Company’s compensation package for non-employee directors and assist the Company in its efforts to attract and retain highly qualified outside directors.  Further, the Company believes that director stock awards and stock purchase rights align non-employee directors’ interests and interests of the Company’s shareholders by encouraging non-employee directors to acquire shares of Common Stock.

The closing price of a share of Common Stock on the NASDAQ Global Market on September 20, 2013 was $10.50.  The proceeds received by the Company upon exercise of the awards of participants in the 2004 Stock Plan will be used for the general corporate purposes of the Company.

The 2004 Stock Plan is available on the Company’s website at www.perceptron.com.  A copy of the 2004 Stock Plan along with the proposed amendment will be furnished to any shareholder upon written request to the Company’s Secretary at the Company’s executive offices in Plymouth, Michigan.

Eligible Participants

Participants in the 2004 Stock Plan shall be such employees (including employees who are directors), non-employee directors or consultants of the Company and its subsidiaries as the Management Development Committee in its sole discretion may select from time to time.

Summary of the 2004 Stock Plan

The following is a summary of key provisions of the 2004 Stock Plan.  This summary does not purport to be a complete description of all the provisions of the 2004 Stock Plan, and it is qualified in its entirety by reference to the full text of the 2004 Stock Plan.

General.  The 2004 Stock Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance share awards, including cash, director stock purchase rights and deferred stock units at any time prior to October 22, 2014 (August 27, 2023 if the 2004 Plan Proposal is approved by the Company’s shareholders).  A total of 1,400,000 shares of Common Stock (2,100,000 shares of Common Stock, if the 2004 Plan Proposal is approved by shareholders) have been set aside for issuance under the 2004 Stock Plan, all of which may be granted as incentive stock options.  This amount is subject to adjustment for stock splits and certain other corporate events.  Approximately 235 full time employees and seven (7) non-employee directors of the Company are eligible to receive grants under the 2004 Stock Plan.

Administration.  The Management Development, Compensation and Stock Option Committee (the “Management Development Committee”) or, if there is no such committee or similar committee, the Board of Directors, will administer the 2004 Stock Plan.  Unless otherwise specified in the 2004 Stock Plan, the Management Development Committee has the power to select the recipients of awards and, subject to Code Section 409A and the regulations thereunder (“Code Section 409A”) and Code Section 162(m), has broad power to determine the terms of awards and to change such terms in various ways subsequent to grant, including among others, accelerating the exercisability or vesting of awards or lapse of transfer restrictions, waiving or modifying performance conditions and transfer restrictions, and extending the post-termination exercise period of awards. Subject to applicable laws, the Management Development Committee may delegate to one or more officers or a committee of such officers the authority to grant awards and to otherwise act with respect to awards made to participants who are not officers or directors of the Company.  In accordance with current practice, the Management Development Committee has delegated such authority to the President, within parameters set by the committee from time to time.

Repricing Prohibition

The 2004 Stock Plan does not permit the cancellation of outstanding options or stock appreciation rights and the grant in substitution therefore of any new awards under the plan having a lower exercise price or the amendment of outstanding options or stock appreciation rights to reduce their exercise price without shareholder approval and compliance with the requirements of Code Section 409A.

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Types of Awards

Awards under the 2004 Stock Plan may be in the form of stock options (either incentive stock options or non-qualified options), stock appreciation rights, restricted stock or restricted stock units, performance share awards, director stock purchase rights and deferred stock units; or any combination thereof.  The terms of awards under the 2004 Stock Plan will generally be set forth in an agreement between the Company and the recipient and will be determined by the Management Development Committee, unless specified in the 2004 Stock Plan.

·Stock Options.  Stock options represent the right to purchase shares of Common Stock within a specified period of time at a specified price.  Options granted under the 2004 Stock Plan may be (i) incentive stock options under Section 422 of the Code, or (ii) non-qualified stock options.  The exercise price for a stock option will be not less than 100% (110% for an incentive stock option granted to a 10% or more shareholder) of the fair market value of Common Stock on the date of grant.  The fair market value per share of the Common Stock on September 20, 2013 was $10.50. Fair market value means the final reported sales price (or, if there is no reported sale on such date, the final reported sales price on the last preceding date for which such reported sales price exists) of the Common Stock on the principal United States securities exchange on which the Common Stock may at the time be listed on the grant date.  The aggregate fair market value of the stock for which any person may be granted incentive stock options which become exercisable for the first time by such person in any calendar year cannot exceed the sum of $100,000 (determined on the date such option is granted).  No incentive stock option will be granted to a person who is not an “employee” as defined in the applicable provisions of the Code and regulations issued thereunder.  An incentive stock option shall expire in ten years (five years in the case of an incentive stock option granted to a 10% or more shareholder) after the date of grant.  No incentive stock options can be granted under the 2004 Stock Plan after October 22, 2014 (August 27, 2023 if the 2004 Plan Proposal is approved by the Company’s shareholders), but options granted before that date may be exercised thereafter.  Options granted under the 2004 Stock Plan become exercisable and will expire at such times as the Management Development Committee may determine; provided that options will expire not later than ten years after grant.  The maximum number of shares that may be subject to option grants under the 2004 Stock Plan to any participant during any one fiscal year of the Company is 200,000 shares of Common Stock (subject to adjustment for stock splits and other corporate events).  Payment for shares to be acquired upon exercise of options granted under the 2004 Stock Plan may be made (i) in cash, (ii) by check, (iii) at the discretion of the Management Development Committee, through a cashless exercise procedure whereby the holder provides an option exercise notice to the Company and simultaneously irrevocably instructs a broker to sell a sufficient number of shares from the option exercise to pay the option exercise price and accompanying taxes, (iv) at the Management Development Committee’s discretion, shares held by the holder may be tendered to the Company to pay the exercise price and tax withholding obligations, if any, (v) any combination of the foregoing or (vi) other means determined by the Management Development Committee.

·Stock Appreciation Rights.  A stock appreciation right is an award which provides the holder with the ability to profit from the appreciation in value of a set number of shares of the Common Stock over a set period of time.  The 2004 Stock Plan provides for the grant of two types of stock appreciation rights: tandem stock appreciation rights, which are granted in conjunction with a stock option, and stand-alone stock appreciation rights, which are granted as independent instruments and are not necessarily issued in conjunction with any options.  The exercise price for a stock appreciation right shall not be less than 100% of the fair market value of the shares of Common Stock covered by the stock appreciation right on the grant date and the per share exercise price subject to a tandem stock appreciation right will be the same per share exercise price as the related option.  Stock appreciation rights granted under the 2004 Stock Plan become exercisable at such times as the Management Development Committee may determine or as set forth in the related option and shall not have a term of more than ten years.  If a tandem stock appreciation right, a stock appreciation right shall be exercisable only at such times and in such amounts as the related option may be exercised.  A tandem stock appreciation right shall terminate and cease to be exercisable no later than the date on which the related option expires or is terminated or canceled.  Upon the exercise of a tandem stock appreciation right with respect to some or all of the shares subject to such stock appreciation right, the related option shall be canceled automatically as to the number of shares with respect to which the tandem stock appreciation right was exercised.  Upon the exercise of an option related to a tandem stock appreciation right as to some or all of the shares subject to such Option, the related tandem stock appreciation right shall be canceled automatically as to the number of shares with respect to which the

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related option was exercised.  The maximum number of shares that may be subject to stock appreciation rights under the 2004 Stock Plan granted to any participant during any one fiscal year of the Company is 200,000 shares of Common Stock (subject to adjustment for stock splits and other corporate events).  Upon exercise of a stock appreciation right, a participant will be entitled to payment from the Company, in cash, shares of Common Stock, or partly in each, as determined by the Management Development Committee in accordance with any applicable terms of the agreement.

·Restricted Stock Awards and Restricted Stock Units.  Restricted stock is Common Stock that is subject to risk of forfeiture or other restrictions that will lapse upon satisfaction of specified conditions.  Restricted stock units represent the right to receive shares of Common Stock, or an equivalent value in cash, in the future, with the right to future delivery of the shares or cash subject to a risk of forfeiture or other restrictions that will lapse upon satisfaction of specified conditions.  Restricted shares and restricted stock units will initially be non-transferable but will become transferable upon fulfillment of conditions established by the Management Development Committee at the time of grant.  An award of restricted stock or restricted stock units may also be subject to vesting or other restrictions, which may include performance measures.  All of the terms relating to vesting or other restrictions, including performance measures, the length of any performance period, and the termination of the restriction period relating to a restricted stock award or restricted stock unit, will be determined by the Management Development Committee and set forth in the agreement relating to such restricted stock award or restricted stock unit.  The holder of restricted shares will have rights as a shareholder of the Company, including the right to vote and receive dividends with respect to such shares.  The holder of shares subject to a restricted stock unit will have no rights as a shareholder of the Company until share certificates are issued by the Company, but, at the discretion of the Management Development Committee, will have the right to receive a “Dividend Equivalent” (generally, a credit equal to the cash dividends paid on the number of shares subject to the award).

·Performance Share Awards.  The 2004 Stock Plan also provides for the grant of performance share awards.  A performance share award is a right, contingent upon the attainment of performance measures within a specified performance period, to receive cash, shares of Common Stock, which may be restricted stock, or a combination of both.  All of the terms relating to the satisfaction of performance measures, the length of any performance period, the amount of any performance share award granted, the amount of any payment or transfer to be made pursuant to any performance share award, and any other terms and conditions of any performance share award, will be determined by the Management Development Committee and included in an agreement between the recipient and the Company.  Awards must be paid within 30 days after the Management Development Committee certifies satisfaction of the performance measures.  The holder of performance share awards who receive the award in the form of restricted stock will have rights as a shareholder of the Company, including the right to vote and receive dividends with respect to such shares, but will be prohibited from transferring the stock until the satisfaction of the performance measures.  Performance share awards may also be granted in the form of units providing the right to receive shares of Common Stock, or an equivalent in cash, in the future.  The holder of a performance share award unit will have no right as a shareholder of the Company until share certificates are issued by the Company and, at the discretion of the Management Development Committee, will have Dividend Equivalent rights.

·Directors Stock Purchase Rights.  The 2004 Stock Plan also permits directors to purchase shares of Common Stock through the 2004 Stock Plan in exchange for all or a portion of the cash fees payable to them for serving as a director of the Company (“Directors Stock Purchase Rights Option”).  Only non-employee directors currently receive cash fees for serving as a director of the Company.  Under the terms of the 2004 Stock Plan, eligible non-employee directors are also eligible for awards under the 2004 Stock Plan in addition to their meeting fees.  See “Further Information – Compensation of Directors and Executive Officers – Directors.”

Under the Directors Stock Purchase Rights Option, directors may elect to use all or a portion of their annual directors fees payable in cash to purchase Common Stock in exchange for all or a portion of director fees payable from December 1 of that year to December 1 of the next year.

Directors fees are payable in cash on March 1, June 1, September 1 and December 1 of each year.  On each of these dates, the Company will determine the number of shares of the Common Stock each Director who has elected to participate in the Directors Stock Purchase Rights Option has earned on that date.  This

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determination will be made by dividing all director’s fees payable on each of those dates that the Director has elected to exchange for Common Stock, by the fair market value of the Common Stock on that date.  Any portion of the director’s fees payable on each of those dates that the Director has not elected to receive in Common Stock will be paid to the Director in cash.  The fair market value of the Common Stock will be determined by the final reported sales price (or, if there is no reported sale on such date, the final reported sales price on the last preceding date for which such reported sales price exists) of the Common Stock on the principal United States securities exchange on which the Common Stock may at the time be listed on the first day of the month in which the quarterly payment date for directors fees falls.  The Company will issue share certificates for all shares of Common Stock purchased in a calendar year by December 15th of such year unless a director requests to receive his or her share certificate at any time during the year by sending written notice to the Company.

·Deferred Stock Units.  The 2004 Stock Plan permits participants designated by the Management Development Committee who are among a select group of management or highly compensated team member of the Company to elect to reduce compensation otherwise payable in cash in exchange for a grant of deferred stock units (subject to minimums and maximums imposed by the Management Development Committee and the requirements of Code Section 409A).  Participants have no voting rights with respect to deferred stock units until the issuance of shares under the plan.  Participants are entitled to Dividend Equivalents with respect to cash dividends having a record date prior to the date on which deferred stock units are settled (paid by crediting such participant with additional deferred stock units).  Settlement of deferred stock units is made by issuance of fully vested Common Stock.

·Code Section 162(m) Awards and Performance Measures.  In its discretion, the Management Development Committee may designate any grant of restricted stock, restricted stock units, performance share award or performance share award units to any key employee as intended to satisfy the requirements of Code Section 162(m).  Such grants will be subject to certain additional requirements intended to satisfy the exemption for performance-based compensation under Code Section 162(m).  The performance criteria will be one or more of the following objective performance measures, either individually, or in any combination, based on performance of the Company as a whole or any division, business segment or unit selected by the Management Development Committee and measured over a designated performance period, in each case as specified by the Management Development Committee: (i) revenue; (ii) gross margin; (iii) operating margin; (iv) operating income; (v) pre-tax profit; (vi) earnings before interest, taxes, depreciation and/or depreciation, (vii) net income; (viii) cash flow; (ix) expenses; (x) stock market price of the Common Stock; (xi) earnings per share; (xii) operating income per share; (xiii) return on stockholder equity; (xiv) return on capital; (xv) return on net assets; (xvi) economic value added; (xvii) market share; (xviii) return on investment; (xix) profit after tax; (xx) product approval; (xxi) market capitalization; (xxii) new products; and (xxiii) research and development activity.  The restriction or performance period may be a one, two, three, four or five fiscal year period, determined by the Management Development Committee.  A performance-based restricted stock award, restricted stock unit, performance share award or performance share award unit shall not be paid until the Management Development Committee has certified in writing that the applicable performance measures have been attained.  The performance measures criteria stated above shall have the same meanings as used in the Company’s financial statements or, if such terms are not used in the Company’s financial statements, the meaning applied pursuant to generally accepted accounting principles, or as used generally in the Company’s industry.  The performance measures criteria stated above were originally approved by shareholders in connection with their approval of the 2004 Stock Plan on December 6, 2004 and subsequently re-approved by shareholders on November 18, 2008 and November 15, 2011 and are required to be reapproved by shareholders of the Company, to the extent required by Code Section 162(m), which currently requires such re-approval at the first shareholders meeting that occurs in the fifth year following the year in which shareholders previously approved the performance measures. Dividends paid on Code Section 162(m) restricted stock or performance share awards shall be automatically reinvested in additional shares of restricted stock.

No participant may be granted a Code Section 162(m) restricted stock, restricted stock unit, performance share or performance share award unit during any one fiscal year of the Company for more than 200,000 shares of Common Stock (subject to adjustment for stock splits and other corporate events), or, if the performance share award unit is not based upon a set number of shares of Common Stock, then no

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In the event of a merger of the Company in which the Company is not the survivor, a reverse triangular merger in which the Company becomes a subsidiary of another company, a sale of all or substantially all of the assets of the Company or other similar transaction (a “Corporate Transaction”), it is intended that the awards will be assumed by the acquirer, subject to the requirements of Code Section 409A.  If the awards are not assumed, subject to the requirements of Section 409A, the awards shall become fully exercisable and all restrictions on such awards shall lapse and the Management Development Committee may provide for such awards to terminate on a date established by the committee.

Termination or Amendment

The 2004 Stock Plan shall continue in effect until the earlier of October 22, 2014 (August 27, 2023 if the 2004 Plan Proposal is approved by the Company’s shareholders), its termination by the Board or the issuance of all shares under the plan.  The Management Development Committee may at any time discontinue granting awards under the 2004 Stock Plan.

The Management Development Committee may amend the 2004 Stock Plan, except that no amendment may adversely affect the rights of any participant without his or her consent and no amendment will, without the approval of the shareholders of the Company, and without complying with Code Section 409A, materially increase the benefits accruing to participants under the 2004 Stock Plan, increase the number of shares of Common Stock available under the 2004 Stock Plan, change the group of persons eligible to receive awards, permit the repricing of options or stock appreciation rights in a fashion prohibited as described under “Repricing Prohibition” above, or permit the granting of options with exercise prices below fair market value.  The 2004 Stock Plan and agreements issued under the plan are subject to amendment, with or without notice to participants, on a prospective or retroactive basis, including amendments that adversely affect the rights of participants, to the extent necessary to comply with Code Section 409A.

So long as the Common Stock is listed on the NASDAQ Global Market, the Company will also be subject to NASDAQ requirements that prohibit the Company from materially amending the 2004 Stock Plan without the approval of shareholders.

Federal Income Tax Consequences

The following discussion outlines the current U.S. federal income tax consequences of the 2004 Stock Plan but does not purport to be a complete analysis of all of the potential tax effects of the 2004 Stock Plan.  Applicable tax laws and their interpretations are subject to change at any time and application of such laws may vary in individual circumstances.  No information is provided with respect to persons who are not citizens or residents of the United States, or foreign, state or local tax laws, or estate and gift tax considerations.  Each participant should rely on his or her own tax counsel for advice regarding U.S. federal income tax treatment under the 2004 Stock Plan.

Incentive Stock Options.  A participant who is granted an incentive stock option does not recognize taxable income upon the grant or exercise of the option.  However, the difference between the fair market value of the Common Stock received on the date of exercise and the option exercise price is a tax preference item that may subject the participant to alternative minimum tax.  A participant generally will receive long-term capital gain or loss treatment on the disposition of shares acquired upon exercise of the option, provided that the disposition occurs more than two years from the date the option is granted, and the participant holds the stock acquired for more than one year.  A participant who disposes of shares acquired by exercise prior to the expiration of the forgoing holding periods recognizes ordinary income upon the disposition equal to the difference between the option price and the lesser of the fair market value of the shares on the date of exercise and the disposition price.  Any appreciation between the fair market value of the shares on the date of exercise and the disposition price is taxed to the participant as long or short-term capital gain, depending on the length of the holding period.  To the extent that the participant recognizes ordinary income, the Company will receive a corresponding tax compensation deduction.

Non-qualified Stock Options.  A participant will not recognize income upon the grant of a non-qualified stock option.  Upon exercise, the participant will recognize ordinary income equal to the excess of the fair market value of the Common Stock received on the date of exercise over the price paid for the stock.  The Company is entitled to a tax compensation deduction equal to the ordinary income recognized by the participant.  Any taxable income recognized by an employee participant in connection with an option exercise is subject to income and employment tax withholding.  When the participant disposes of shares acquired by the exercise of an option, any amount received in excess of the fair market value of the shares on the date of exercise will be treated as long or short-term capital, depending upon the length of the holding period.

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Stock Appreciation Rights.  A participant will not recognize income upon the grant of a stock appreciation right.  Upon exercise, the participant will recognize ordinary income equal to the cash or fair market value of the shares of Common Stock received from the exercise, which will be subject to income and employment tax withholding for an employee participant.  The Company will receive a tax compensation deduction equal to the ordinary income recognized by the participant.  When the participant disposes of shares acquired by the exercise of a stock appreciation right, any amount received in excess of the  fair market value of the shares on the date of exercise will be treated as long or short-term capital gain, depending upon the length of the holding period.

Restricted Stock and Restricted Stock Units.  Generally, a participant who is granted restricted stock or restricted stock units will not be taxed on the grant.  However, the participant will recognize ordinary income equal to the fair market value of the shares of Common Stock or cash received when the restrictions lapse, at which time an employee participant also will be subject to income and employment taxes.  The Company will receive a compensation tax deduction equal to the ordinary income recognized by the participant.  If a participant receives a restricted stock or restricted stock unit award that is subject to  “substantial risk of forfeiture,” as defined in Section 83(b) of the Code, the participant may elect to accelerate his or her tax obligation by submitting a Code Section 83(b) election within 30 days after the grant date, pursuant to which the participant will be taxed on the fair market value of the award as of the grant date, and the Company will receive a tax compensation deduction as of the grant date equal to the ordinary income recognized by the participant. Upon disposition of any shares received from a restricted stock or restricted stock unit award, any excess over the fair market value of the shares when the restrictions lapsed (or the fair market value of the shares when a Code Section 83(b) election was filed) will be subject to long or short-term capital gain, depending upon the length of the holding period.

Performance Share Awards.  Generally, a participant will not be taxed upon the grant of a performance share award that is subject to restrictions or performance measures.  However, the participant will recognize ordinary income equal to the cash or fair market value of the Common Stock, or combination thereof, received when the restrictions or other performance measures have been satisfied, at which time an employee participant also will be subject to income and employment tax withholding.  The Company will receive a tax compensation deduction equal to the amount of ordinary income recognized by the participant.  A participant who receives a performance share award that is subject to a “substantial risk of forfeiture,” as defined in Section 83 of the Code, may elect to accelerate his or her tax obligation by submitting a Code Section 83(b) election within 30 days after the grant date, pursuant to which the participant will be taxed on the fair market value of the award as of the date of grant, and the Company will receive a tax compensation deduction as of the grant date equal to the ordinary income recognized by the participant.

Deferred Stock Units.  Generally, a participant will not be taxed on the grant of a deferred stock unit.  When a deferred stock unit ultimately is settled in shares or cash and distributed from the 2004 Stock Plan, a participant will recognize ordinary income in the year of settlement equal to the fair market value of the Common Stock or cash received, and an employee participant will be subject to income and employment tax withholding on such amount at the time of settlement.  The Company will receive a tax compensation deduction equal to the ordinary income recognized by the participant.  Upon the sale of any shares received, any excess over the fair market value of the shares on the settlement date will taxed to the participant as long or short-term capital gain, depending upon the length of the holding period.

Directors Stock Purchase Rights.  A Director who elects to purchase shares of Common Stock under the 2004 Stock Plan using all or a part of his or her cash directors’ fees will recognize ordinary income at each quarterly payment date equal to the fair market value of the shares received, which generally will equal the cash directors’ fees used to purchase the shares.  The Company will receive a tax compensation deduction equal to the ordinary income recognized by the Director.  Upon the sale of shares received, any excess over the fair market value of the shares recognized on the original quarterly payment date will be taxed to the Director as long or short-term capital gain, depending upon the length of the holding period.

Code Section 162(m).  Code Section 162(m) denies a federal income tax deduction for certain compensation in excess of $1,000,000 per year paid to the chief executive officer and the three other most highly-paid executive officers of a publicly traded corporation (other than the chief financial officer).  Certain types of compensation, including compensation based on performance targets that are approved in advance by shareholders, are excluded from the deduction limit.  Awards of options and stock appreciation rights under the 2004 Stock Plan are intended to be exempt from the deduction limits under Code Section 162(m).  At the discretion of the Management

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Development Committee, restricted stock, restricted stock units, performance share award and performance share award units may be granted under the 2004 Stock Plan in a manner that exempts them from Code Section 162(m).

Code Section 409A.  We have also structured the 2004 Stock Plan with the intention that it comply with or be exempt from Section 409A of the Code which may impose additional taxes on our executives and other team members for certain types of deferred compensation that are not in compliance with Section 409A.  However, the Company does not generally assume responsibility for any additional tax, interest or penalties under Code Section 409A arising out of payments under the 2004 Stock Plan.

New Incentive Plan Benefits

The future benefits or amounts that would be received under the 2004 Stock Plan by executive officers and other team members are discretionary and are therefore not determinable at this time.  In addition, the benefits or amounts which would have been received by or allocated to such persons for the last completed fiscal year if the 2004 Stock Plan had been in effect cannot be determined.

Aggregate Awards Granted Under the 2004 Stock Plan from Plan Inception

The following table lists each person named in the Summary Compensation Table under “Further Information – Executive Compensation – Summary Compensation Table”, all director nominees, all current executive officers as a group, all current directors (other than executive officers) as a group, each associate of the foregoing persons, each other person who received or is to receive at least five percent of the shares granted or issued under the 2004 Stock Plan, and all current team members of the Company (other than executive officers) as a group, indicating, as of September 20, 2013, the aggregate number and weighted average exercise price of options granted under the 2004 Stock Plan and restricted stock awarded under the 2004 Stock Plan to each of the foregoing since the inception of the plan in 2004.  The table does not include options previously granted under the Company’s 1992 Stock Option Plan, 1998 Stock Option Plan or Directors Stock Option Plan.  The table also does not include the following shares purchased by non-employee Directors under the Directors Stock Purchase Rights Option: Mr. Marz 34,551 shares, Mr. Dabrowski 26,273 shares, Mr. DeCocco 52,643 shares and Mr. Oswald 48,733 shares.  The table also does not include up to 3,000 shares of restricted stock which could be issued to each of Messrs. Rittenour, Lowry and Hoefing and up to 28,500 shares of restricted stock which could be issued to current team members other than executive officers under the 2004 Stock Plan in fiscal 2015 pursuant to the 2014 Annual Incentive Compensation Plan.

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(1)All options are non-qualified stock options, except that 10,000 shares held by Mr. Hoefing are incentive stock options.  The exercise price of all options is equal to 100% of the fair market value of the Common Stock on the date of grant.

(2)Options for 12,500, 15,000, 100,000, 20,000, 20,000, 20,000 and 20,000 shares held by Mr. Rittenour, became or become exercisable in cumulative annual installments of 25% beginning January 2, 2007, June 1, 2008, February 1, 2009,  June 1, 2010, September 1, 2012, December 1, 2012 and December 3, 2013, respectively, and expire on the earlier of January 1, 2016, May 31, 2017, January 31, 2018, May 31, 2019, August 31, 2021, November 30, 2021 and December 2, 2022, respectively, or, if earlier, one year after Mr. Rittenour’s death or permanent disability or three months after Mr. Rittenour’s termination of employment.  As of September 20, 2013, Mr. Rittenour held unexercised options for 157,500 shares of Common Stock under the 2004 Stock Plan, of which 112,500 options are exercisable.

(3)Options for 10,000, 5,000, 8,000, 10,000, 10,000, 12,000, 15,000 and 15,000 shares held by Mr. Hoefing, became or become exercisable in cumulative annual installments of 25% beginning January 3, 2006, January 2, 2007, June 1, 2008, April 1, 2009, March 2, 2010, September 1, 2012, September 4, 2013 and September 3, 2014, respectively, and expire on the earlier of January 2, 2015, January 1, 2016, May 31, 2017, March 31, 2018, March 1, 2019, August 31, 2021, September 3, 2022 and September 2, 2023, respectively, or, if earlier, one year after Mr. Hoefing’s death or permanent disability or three months after his termination of employment.  As of September 20, 2013, Mr. Hoefing held unexercised options for 85,000 shares of Common Stock under the 2004 Stock Plan, of which 52,750 options are exercisable.

(4)Options for 25,000, 8,000, 5,000 and 5,000 shares held by Mr. Lowry, became or become exercisable in cumulative annual installments of 25% beginning July 2, 2008, March 2, 2010, September 1, 2012 and September 4, 2013, respectively, and expire on the earlier of July 1, 2017, March 1, 2019, August 31, 2021 and September 3, 2022, respectively, or, if earlier, one year after Mr. Lowry’s death or permanent disability or three months after his termination of employment.  As of September 20, 2013, Mr. Lowry held unexercised options for 6,250 shares of Common Stock under the 2004 Stock Plan, of which no options are exercisable.

(5)Options for 8,000, 8,000, 50,000, 8,000, 8,000 and 8,000 shares held by Mr. Marz, became or become exercisable in cumulative annual installments of 25% beginning September 1, 2007, September 4, 2008, February 1, 2009, January 2, 2010, September 1, 2012 and December 3, 2013, respectively, and expire on the earlier of August 31, 2016, September 3, 2017, January 31, 2018, January 1, 2019, August 31, 2021 and December 2, 2022, respectively, or, if earlier, one year after his death or permanent disability or three months after his termination of services.  As of September 20, 2013, Mr. Marz held unexercised options for 82,000 shares of Common Stock under the 2004 Stock Plan, of which 70,000 are exercisable.

(6)Options for 8,000, 8,000, 8,000, 8,000 and 8,000 shares held by Messrs. Beattie, Dabrowski, DeCocco, Oswald and Smith, became or become exercisable in cumulative annual installments of 25% beginning September 1, 2007, September 4, 2008, January 2, 2010, September 1, 2012 and December 3, 2013, respectively, and expire on the earlier of August 31, 2016, September 3, 2017, January 1, 2019, August 31, 2021 and December 2, 2022,  respectively, or, if earlier, one year after their death or permanent disability or three months after their respective termination of services.  As of September 20, 2013, Messrs. Beattie, Dabrowski, DeCocco, Oswald and Smith each held unexercised options for 40,000 shares of Common Stock under the 2004 Stock Plan, of which 28,000 are exercisable.

(7)Grant of restricted stock made on August 27, 2013. Risk of forfeiture and other restrictions will lapse on August 27, 2014 if Mr. Hoefing’s services or employment has not terminated on or prior to such date.

(8)Grants of restricted stock made on August 27, 2013.  Risk of forfeiture and other restrictions will lapse on August 27, 2014 if the team member’s services or employment has not terminated on or prior to such date.

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Equity Compensation Plan Information

The following table gives information about the Company’s Common Stock that may be issued upon the exercise of options, warrants and rights under all of the Company’s existing equity compensation plans as of June 30, 2013, including the 2004 Stock Plan, the 1992 Stock Option Plan, the Directors Stock Option Plan, the 1998 Global Team Member Stock Option Plan, and the Employee Stock Purchase Plan (together, the “Plans”):

(1)Awards under the 2004 Stock Plan may be in the form of stock options, stock appreciation rights, restricted stock or restricted stock units, performance share awards, director stock purchase rights and deferred stock units; or any combination thereof.

(2)After June 30, 2013, options and restricted stock for 103,550 shares of Common Stock were granted under the 2004 Stock Plan to executive officers, other officers and team members of the Company.  Does not include up to 37,500 shares of restricted stock which could be issued under the 2004 Stock Plan in fiscal 2015 to executive officers, other executives and director-level team members of the Company pursuant to the 2014 Annual Incentive Compensation Plan.

(3)The 2004 Stock Plan replaced the 1992 Stock Option Plan and Directors Stock Option Plan effective December 7, 2004.  No further grants under these plans will be made.

(4)Does not include an undeterminable number of shares subject to a payroll deduction election under the Employee Stock Purchase Plan for the period from July 1, 2013 until December 31, 2013, which will not be issued until January 2014.

(5)The 1998 Global Team Member Stock Option Plan expired on February 25, 2008.  No further grants under this plan will be made.

1998 Global Team Member Stock Option Plan

On February 26, 1998, the Company’s Board approved the 1998 Global Team Member Stock Option Plan (the “1998 Plan”), pursuant to which non-qualified stock options may be granted to employees who were not officers or directors or subject to Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The 1998 Plan was amended by the Board on several occasions thereafter.  The 1998 Plan expired on February 25, 2008.  No further grants under this plan will be made.  The expiration of the 1998 Plan does not affect any awards previously granted under the 1998 Plan.

The purpose of the 1998 Plan was to promote the Company’s success by linking the personal interests of non-executive employees to those of the Company’s shareholders and by providing participants with an incentive for outstanding performance.  The 1998 Plan authorized the granting of non-qualified stock options only.  The President of the Company administers the 1998 Plan and had the power to set the terms of any grants under the 1998 Plan.  The exercise price of an option could not have been less than the fair market value of the underlying stock on the

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EXECUTIVE OFFICERS

The executive officers listed below were appointed by the Board and serve in the capacities indicated. Executive officers are normally appointed annually by the Board and serve at the pleasure of the Board.

COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table

The following table sets forth certain information as to compensation paid by us for services rendered in all capacities to the Company and its subsidiaries during fiscal 2013 and 2012 to (i) our Chief Executive Officer, (ii) our Chief Financial Officer, and (iii) our other executive officer as of June 30, 2013 (collectively, the “named executive officers” or “NEOs”).  Please see below for additional narrative disclosure of the Company’s compensation philosophy, practices and fiscal 2013 compensation decisions.

SUMMARY COMPENSATION TABLE FOR FISCAL 2013 AND 2012

____________

(1)Represents the full grant date fair value associated with restricted stock awards under our 2013 Annual Incentive Plan made during the applicable fiscal year calculated in accordance with FASB ASC Topic 718, excluding any forfeiture reserves recorded for those awards.  As discussed under “Compensation of Executive Officers – Compensation Discussion and Analysis – Annual Profit Sharing/Incentive Plan – Fiscal 2013 Annual Incentive Plan,” the restricted stock awards are earned based on an individual’s achievement of performance goals during fiscal 2013 with a subsequent one year service vesting after the issuance date.  Compensation expense related to the restricted stock awards is based on the closing price of the Company’s Common Stock on November 13, 2012, the date of grant, multiplied by the number of restricted stock awards expected to be issued and is amortized over the combined performance and service periods.  Pursuant to the 2013 Annual Incentive Plan, Mr. Hoefing received a grant of 3,000 shares of restricted stock under the 2004 Stock Plan on August 27, 2013. Risk of forfeiture and other restrictions will lapse on those shares on August 27, 2014 if Mr. Hoefing’s

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services or employment has not terminated on or prior to such date.  Messrs. Rittenour and Lowry did not receive an award of restricted stock in August 2013.

(2)Represents the full grant date fair value associated with stock options awarded prior to the end of such fiscal year calculated in accordance with FASB ASC Topic 718, excluding any forfeiture reserves recorded for these awards. There can be no assurance that the FASB ASC Topic 718 option award amounts shown above will ever be realized. The assumptions we used to calculate these amounts are included in Note 8 to our audited consolidated financial statements included in our Annual Report on Form 10-K for fiscal 2013.

(3)The profit sharing payments were earned under our 2013 Annual Incentive Plan and paid in September 2013.  As discussed under “Compensation of Executive Officers – Compensation Discussion and Analysis – Annual Profit Sharing/Incentive Plan – 2013 Annual Incentive Plan,” the plan provides for annual profit sharing payments based on annual performance goals for fiscal 2013 which were partially achieved.

(4)“All Other Compensation” in fiscal 2013 is comprised of (i) contributions made by us to the accounts of the named executive officers under our 401(k) Plan with respect to fiscal 2013, (ii) the dollar value of any life insurance premiums we paid in fiscal 2013 with respect to term life insurance for the benefit of the named executives, (iii) the dollar value of any supplemental executive disability insurance premiums we paid in fiscal 2013 for the benefit of the named executives, and (iv) the aggregate incremental cost to the Company in fiscal 2013 for personal and business use by Messrs. Hoefing and Lowry of a company leased automobile including insurance, gasoline and maintenance expenses.  SEC rules require automobile related costs of commuting and other uses not directly and integrally related to our business to be disclosed as compensation to the executive.  Because we do not track automobile use in this way, the automobile related costs included in the table for Messrs. Hoefing and Lowry represent 100 percent of our actual expenditures for both personal and business use of the leased automobiles.

(5)Special discretionary bonuses were paid to Messrs. Rittenour and Lowry in recognition of the successful divestiture of the Company’s former Commercial Products Business Unit in August 2012.

Compensation Discussion and Analysis

The following narrative disclosureExecutive Summary.  This Compensation Discussion and Analysis (“CD&A”) is intended to provide additional information about our compensation objectives and policies for our principal executive officer, our principal financial officer and our other named executive officers ( the “NEOs”) included in the Summary Compensation Table that follows this discussion.  This CD&A is intended to place in perspective the compensation information contained in the Summarytables that follow this discussion.

During fiscal 2014, the Management Development Committee, after reviewing the Company’s executive compensation programs, determined not to make any significant changes to the Company’s executive compensation programs.  This approach was supported by the results of the advisory vote by shareholders of the Company at the Annual Meeting of Shareholders held on November 12, 2013 at which the “Say on Pay” Advisory Vote on Executive Compensation Tablewas approved by 98.9% of the shareholders voting on the proposal.

General Philosophy.   Our objective is to provide a superior return to shareholders.  To support this objective, we believe that precedeswe must attract, retain and motivate top quality executive talent.  Our executive compensation program is a critical tool in this discussion and in the Outstanding Equity Awards at 2013 Fiscal Year-End Table that follows this discussion.process.

Our executive compensation program consists of sixfive components:

·                                          Base salary;

·                                          Annual cash profit sharing incentive opportunities;

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Annual Incentive Plan, with the specific amount that such participant received dependent on company financial performance, a payout factor, their base salary and their predetermined participation level stated as a percentage of base salary.  In addition, certain  All of the participants in the 20132014 Annual Incentive Plan achieved some or all of their personal goals and so became eligible for grants of restricted stock under the 2004 Stock Plan in fiscal 2014.

Mr. Rittenour received a profit sharing payment of 41.7% of his base salary as of July 1, 2012Messrs. Armstrong and the other NEO’s received a profit sharing payment of 33.3% of their base salary as of July 1, 2012.  Mr. Hoefing wasMs. Smith were each awarded 3,000 restricted shares as hethey each achieved both of their personal goals.  Mr. Hoefing was awarded 2,000 restricted shares based upon his level of achievement of his personal goals.  NoMr. Marchiando was not eligible to participate in the 2014 Stock Incentive Plan because he did not join the Company until February 2014.  Due to their retirements, no restricted shares were awarded to Messrs. Rittenour or Lowry.  The “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table contained under “Compensation of Executive Officers – Summary Compensation Table – Fiscal 2013” sets forth the cash payments to the NEOs under the Company’s 2013 Annual Incentive Plan.  The “Stock Awards” column of the Summary Compensation Table contained under “Compensation of Executive Officers – Summary Compensation Table – Fiscal 2013”Table” sets forth the compensation cost incurred during fiscal 20132014 for restricted stock awards to NEOs under the Company’s 20132014 Annual Incentive Plan.

Special discretionary cash bonuses of $10,000 and $4,000, respectively, were paid to Messrs. Rittenour and Lowry, respectively, in September 2013 in recognition of the successful divestiture of the Company’s former Commercial Products Business Unit in August 2012.  No other discretionary bonuses were paid to Mr. Rittenour or the other NEOs in fiscal 2013.

Fiscal 2013 Profit Sharing Plan

For fiscal 2013, the Management Development Committee also adopted the Fiscal Year 2013 Profit Sharing Plan (the “2013 Profit Sharing Plan”), which applied to all eligible team members of the Company, other than those included in the 2013 Annual Incentive Plan.  Because our fiscal 2013 corporate operating income was above the applicable threshold level, cash bonuses under the 2013 Profit Sharing Plan were paid in September 2013 to eligible team members under the plan.  The cash bonus earned under the 2013 Profit Sharing Plan was 8.1% to 11.5% of the eligible team members’ aggregate potential payout.

Stock-Based Incentives.Incentives.  The 2004 Stock Plan permits the Management Development Committee to grant stock appreciation rights, restricted stock, restricted stock units, performance share awards and deferred stock units, in addition to incentive and non-qualified stock options.

Mr. Armstrong was granted options under the 2004 Stock Plan to purchase 100,000 shares of Common Stock when he was appointed President and Chief Executive Officer in November 2013.  The option grant was consistent with the level of options granted to others when they were appointed as the Company’s president.  In addition, as part of his offer letter, subject to and conditioned upon the future approval of the Management Development Committee, Mr. Armstrong will be awarded an option to purchase an additional 100,000 shares of Common Stock in each of the next two years so long as he remains employed as the Company’s President and Chief Executive Officer on those dates.

In March 2014, Mr. Marchiando was granted options to purchase 25,000 shares of Common Stock upon his joining the Company as Vice President – Finance and Chief Financial Officer, which is consistent with the level of options granted to other executive officers when they joined the Company.

During fiscal 2013, Messrs. Rittenour,2014, Mr. Hoefing and LowryMs. Smith were granted options under the 2004 Stock Plan to purchase 20,000, 15,000 and 5,0004,000 shares, respectively, of Common Stock.  The Management Development Committee Team believed that an additional option grant or grants to Messrs. Rittenour,Mr. Hoefing and LowryMs. Smith was appropriate to continue to more closely align their interests with those of our shareholders.  These options are non-qualified stock options.  The

Options granted to Messrs. Armstrong, Hoefing and Marchiando and Ms. Smith become exercisable in four equal annual installments, beginning one year from their date of initial grant, at an exercise price of the options is equal to 100% of the fair market value of the Common Stock on the date of grant.  The options become exercisable in cumulative annual installments of 25% and expire ten years from the date of grant, or if earlier, one year after the executive’s death or permanent disability or three months after the executive’s termination of employment.  In addition, any portion of these options that is not exercisable becomes exercisable immediately upon a Change in Control of the Company as described under “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control.”   All of the options granted were non-qualified stock options.

No other stock grants were made to Mr. RittenourArmstrong or the other executive officers in fiscal 2013.2014.  Under the terms of the 20132014 Annual Incentive Plan, Mr.Messrs. Armstrong and Hoefing and Ms. Smith became eligible for an

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would provide team members.  The decision to use non-qualified stock options was principally based upon the Committee’s determination that options provide greater incentive to team members because of the beneficial tax treatment for team members as compared to other alternatives and because team members are more familiar with this form of stock incentive.  The use of non-qualified stock options will provide the Company with a tax deduction upon exercise of the options not generally available with incentive stock options.  The Management Development Committee also believes that the use of non-qualified stock options will allow them to develop an attractive stock incentive program, while minimizing related accounting expense and maximizing the positive impact on the Company’s cash.

Stock option grants have historically been utilized by the Company as part of its compensation program for all levels of team members, including the Company’s executives.  The Company’s stock option program permits team members to buy a specific number of shares of Common Stock in the future, at the fair market value of such shares on the date the option is granted.  Since stock options gain value only if the price of the Common Stock increases above the option exercise price, this use of stock option grants reflects the Company’s philosophy of linking compensation to performance.  In addition, the Management Development Committee believes that stock option grants to team members help to provide an incentive for their continued employment and otherwise more closely align their interests with those of the Company and its shareholders.  We also utilize stock options as part of our standard compensation package developed to attract highly qualified candidates to the Company.

The Management Development Committee grants stock options to the NEOs, members of the Board of Directors and other team members periodically as they deem appropriate, although generally not more frequently than annually.  The exercise price of each stock option grant is established based upon the fair market of the Common Stock on the Grant Date, which typically is the first business day of the month following the month in which the grant was approved by the Management Development Committee.  Because the Management Development Committee generally meets just prior to the issuance of our quarterly or annual earnings press release, the Grant Date has generally been within two to three weeks following the announcement of an earnings press release by the Company.  The Management Development Committee generally provides for options to become exercisable immediately upon a Change in Control.  This provides executives with the appropriate incentives to act in the best interests of the Company and its shareholders, without concern for their own personal interests, and to provide for continuity of management during the pendency of a transaction that could result in a Change in Control of the Company.

In fiscal 2014 and 2013, the Management Development Committee determined to start usingused restricted stock grants as part of its long-term stock incentive program for the executive team.  In reaching this decision, the Management Development Committee considered the Company’s strategic goals, the NEO’s and team member’s personal goals which were to be aligned with the Company’s strategic goals and competitive market conditions.  To date, the Management Development Committee has granted restricted stock only after performance goals have been achieved by the team and then provide that the restricted stock be subject to forfeiture back to the Company if the team member does not remain employed by the Company for one year after the date of award.  The Management Development Committee believes that awarding restricted stock in this fashion directly links team member compensation to performance, provides an incentive for their continued employment and otherwise more closely aligns their interests with those of the Company and its shareholders.

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including those made by the NEOs and our other executives.  Effective July 1, 2012, the Company match was reinstated at a match of 50% of each team member’s voluntary contributioncontributions to the 401(k) Plan up to the annual maximum contribution limit set forth above, including those made by the NEOs and our other executives.

To facilitate the performance of their management responsibilities, we provide certain key employees selected perquisites and other personal benefits, such as either a company paid automobile lease and related expenses or allowance and relocation benefits, such as temporary housing and reimbursements of travel costs prior to relocation to key employees when they join us,us.  In addition, we may occasionally approve the payment of special personal benefits on behalf of the President and other personal benefits.Chief Executive Officer, such as those reported on the Summary Compensation Table under “Compensation of Executive Officers – Summary Compensation Table,” when we believe that the payment will benefit the Company by facilitating the President’s performance of his duties.

Severance Agreements.Agreements.  In fiscal 2005, the Board, upon recommendation of the Management Development Committee, authorized the implementation of formal severance agreements for the Company’s executive officers.  The terms of the severance agreements are described under “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control”.Control.”  The Board determined it appropriate to formalize the Company’s general severance policies and practices for its executive team and at the same time institute enhanced severance arrangements payable in the event of a termination of the executive’s employment following a Change in Control of the Company.  The Board and Management Development Committee believe that the enhanced severance arrangements are necessary in order to provide executives with the appropriate incentives to act in the best interests of the Company and its shareholders, without concern for their own personal interests, and to provide for continuity of management during the pendency of a transaction that could result in a Change in Control of the Company.  The Management Development Committee, in developing its recommendations to the Board, consulted with an outside compensation consultant hired by the Committee and the Company’s outside legal counsel.  Based upon the foregoing, the Management Development Committee believes that the severance agreements contain terms and conditions which are comparable to those used by other companies that are similar in size to the Company.

The NEOs have all entered into our standard executive agreement not to compete, restricting the executive’s right to compete with us for the longer of twelve months following the termination of employment or the period post-termination during which we are required to make payments to the executive, and standard employee proprietary information and inventions agreement, containing confidentiality provisions and a two-year post-termination restriction on soliciting our employees.  We have the right to cease all further payments under the NEO’s severance agreement in the event that the NEO violates the executive non-competition agreement.  The NEOs must sign a standard release to receive payments under the severance agreements, including standard non-disparagement provisions.

Payments under the severance agreements, when aggregated with any other “parachute payments” (defined under Internal Revenue Code of 1986, as amended (the “Code”), Section 280G as compensation that becomes payable or accelerated due to a Change in Control) payable under any of our other plans, agreements or policies, are capped so as to not be treated as “excess parachute payments” under Code Sections 280G and 4999.  See “Compensation of Executive Officers – Compensation Discussion and Analysis – Golden Parachute Excise Tax” below for a further discussion of our policy with respect to golden parachute amounts.

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would be required to be granted in any fiscal year to retain or attract a chief executive officer of the Company.  The stock option grants under the 2004 Stock Plan have been designed to be exempt from the restrictions on deductibility under Section 162(m).  While the restricted stock awards under the 2004 Stock Plan, to date, have not been designed to be exempt from the restrictions on deductibility under Section 162(m), they have been small in number and so not likely to result in payments to any executive officer in any year which would be subject to such restrictions.

We do not believe that other components of our compensation program are likely to result in payments to any executive officer in any year which would be subject to the restriction on deductibility under Section 162(m).  Accordingly, we believe that we have taken appropriate actions to preserve the deductibility of most of the annual performance bonuses and long-term performance incentive awards the Management Development Committee is likely to award in any given year.  We will continue to evaluate the advisability of qualifying future executive compensation programs for deductibility under the Code.

The Management Development Committee recognizes the need to retain flexibility to make compensation decisions that may not meet Section 162(m) standards to enable us to attract, retain and motivate highly qualified executives.  It has the authority to approve non-deductible compensation in appropriate circumstances.  Also, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the related regulations and guidance, no assurance can be given that compensation intended by us to satisfy the requirements for deductibility under Section 162(m) will in fact do so.

Stock Awards Expense.Expense.  We are required under FASB ASC Topic 718 to record compensation expense associated with stock awards to our employees, including the NEOs, as more fully discussed in Note 8 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013.2014.  As discussed above, the Management Development Committee does consider the impact of FASB ASC Topic 718 in determining to use grants of non-qualified stock options and restricted stock as our principal long-term incentive program for the executive team.  Further, the Management Development Committee does consider the amount of compensation expense required to be recorded in determining the size of stock option grants and

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