DEF 14A 1 formdef14a.htm ACTIVE POWER, INC DEF 14A 5-17-2012 formdef14a.htm


UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934


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ACTIVE POWER, INC.
 


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Logo 1
 
2128 W. Braker Lane, BK 12, Austin, Texas 78758

April 11, 2012

Dear Stockholder:

You are cordially invited to attend the 2012 Annual Meeting of Stockholders of Active Power, Inc., which will be held at our principal executive offices, located at 2128 W. Braker Lane, Austin, TX 78758, BK 12, on Thursday, May 17, 2012, at 2:00 p.m. Central Time.

Details of the business to be conducted at the Annual Meeting are given in the accompanying Notice of Annual Meeting of Stockholders and proxy statement.

After careful consideration, our Board of Directors has unanimously approved the proposals set forth in the proxy statement and recommends that you vote in favor of the proposal for the election of the directors nominated to the Active Power, Inc. Board of Directors, the proposal to ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012, the non-binding advisory vote on executive compensation and the increase in shares available for issuance under our 2010 Equity Incentive Plan.

You may vote your shares by telephone, by the Internet, or by signing, dating and returning the enclosed proxy promptly in the accompanying reply envelope. Telephone and Internet voting instructions can be found on the attached proxy. Representation of your shares at the Annual Meeting is very important. Accordingly, whether or not you plan to attend the Annual Meeting, we urge you to submit your proxy promptly by one of the methods offered. You may revoke your proxy at any time prior to the Annual Meeting. If you are able to attend the Annual Meeting and wish to change your proxy vote, you may do so simply by voting in person at the Annual Meeting.

Sincerely,
 
/s/ J. Douglas Milner
 
J. Douglas Milner
President, Chief Executive Officer & Director

 
 

 

[This page is intentionally left blank.]

 
 

 

ACTIVE POWER, INC.

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 2012

TO THE STOCKHOLDERS OF ACTIVE POWER, INC.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Active Power, Inc., a Delaware corporation (the “Company”), will be held on Thursday, May 17, 2012, at 2:00 p.m. Central Time, at our principal executive offices, located at 2128 W. Braker Lane, Austin, Texas 78758, BK 12, for the following purposes, as more fully described in the proxy statement accompanying this notice:

1.
To elect one Class II Director to serve until our 2014 Annual Meeting of Stockholders, or until his successor is duly elected and qualified, and to elect three Class III Directors to serve until our 2015 Annual Meeting of Stockholders, or until their successors are duly elected and qualified;

2.
To hold a non-binding advisory vote to approve executive compensation;

3.
To ratify the appointment of Grant Thornton LLP as our independent auditor for the fiscal year ending December 31, 2012;

4.
To approve an amendment to the Company’s 2010 Equity Incentive Plan to increase the number of shares available for issuance thereunder; and

5.
To transact such other business as may properly come before the meeting or any adjournment or adjournments thereof.

Only stockholders of record at the close of business on March 19, 2012 are entitled to notice of and to vote at the Annual Meeting. A list of stockholders entitled to vote at the Annual Meeting will be available for inspection at our principal executive offices.

All stockholders are cordially invited to attend the meeting in person. Whether or not you plan to attend, please sign and return the proxy in the envelope enclosed for your convenience, or vote your shares by telephone or by the Internet as promptly as possible. Telephone and Internet voting instructions can be found on the attached proxy. Should you receive more than one proxy because your shares are registered in different names and addresses, each proxy should be signed and returned to assure that all your shares will be voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote, your proxy will be revoked automatically and only your vote at the Annual Meeting will be counted.

Sincerely,

/s/ John K. Penver

John K. Penver
Vice President of Finance, Chief Financial Officer
& Company Secretary

Austin, Texas
April 11, 2012

YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE READ THE ATTACHED PROXY STATEMENT CAREFULLY, AND VOTE YOUR SHARES BY TELEPHONE, BY THE INTERNET OR BY COMPLETING, SIGNING AND DATING THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURNING IT IN THE ENCLOSED ENVELOPE.

 
 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 17, 2012

Our financial and other information is contained in our Annual Report to Shareholders for the fiscal year ended December 31, 2011. Pursuant to rules promulgated by the U.S. Securities and Exchange Commission, we have elected to provide access to our proxy materials both by sending you this full set of proxy materials, including a proxy card, and by notifying you of the availability of our proxy materials on the Internet. This proxy statement and our 2012 Annual Report to Shareholders, including our Form 10-K for the year ended December 31, 2011, are available at our website at www.activepower.com.

ACTIVE POWER, INC.
2128 W. Braker Lane, BK 12
Austin, Texas 78758

PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 17, 2012

General

The enclosed proxy is solicited on behalf of the Board of Directors of Active Power, Inc., a Delaware corporation (the “Company”), for use at the Annual Meeting of Stockholders to be held on May 17, 2012 (the “Annual Meeting”). The Annual Meeting will be held at 2:00 p.m. Central Time at our principal executive offices, located at 2128 W. Braker Lane, BK 12 Austin, Texas 78758. These proxy solicitation materials were mailed on or about April 17, 2012, to all stockholders entitled to vote at our Annual Meeting.

Voting

The specific proposals to be considered and acted upon at our Annual Meeting are summarized in the accompanying notice and are described in more detail in this proxy statement. On March 19, 2012, the record date for determination of stockholders entitled to notice of, and to vote at, the Annual Meeting, there were 95,334,305 shares of our common stock outstanding and no shares of our preferred stock were outstanding.

Each stockholder is entitled to one vote for each share of common stock held by such stockholder on March 19, 2012. The presence, in person or by proxy, of holders of a majority of our shares entitled to vote is necessary to constitute a quorum at this Annual Meeting. Stockholders may not cumulate votes in the election of directors. The vote of a plurality of the shares of our common stock present in person or represented by proxy at this meeting and entitled to vote on the election of directors is necessary for the election of a director. The nominees receiving the greatest number of votes at the Annual Meeting will be elected to our Board of Directors (the “Board”), even if they receive less than a majority of such shares. The proposals regarding the non-binding advisory vote on executive compensation, the ratification of the appointment of Grant Thornton LLP as our independent auditor for the fiscal year ending December 31, 2012, and the increase in shares available for issuance under our 2010 Equity Incentive Plan will each be approved upon the affirmative vote of the holders of a majority of the votes cast, excluding abstentions, at the Annual Meeting.

Abstentions in the election of directors or with respect to any of the other proposals will not affect the voting of such proposals. In addition, broker non-votes are not considered votes cast. Generally, broker non-votes occur on a matter when a broker is not permitted to vote on that matter without instructions from the beneficial owner and instructions are not given.

All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. Abstentions and broker non-votes are counted for purposes of determining the presence or absence of a quorum for the transaction of business.

Proxies

If the enclosed form of proxy is properly signed and returned or if you properly follow the instructions for telephone or Internet voting, the shares represented thereby will be voted at the Annual Meeting in accordance with the instructions specified thereon. If you sign and return your proxy without specifying how the shares represented thereby are to be voted, the proxy will be voted FOR the election of the directors proposed by our Board unless the authority to vote for the election of such directors is withheld and, if no contrary instructions are given, the proxy will also be voted FOR the approval of Proposal Two, FOR the approval of Proposal Three, and FOR the approval of Proposal Four, as described in this Notice of Annual Meeting and proxy statement. You may revoke or change your proxy at any time before the Annual Meeting by filing with our Corporate Secretary at our principal executive offices at 2128 W. Braker Lane, Austin, Texas 78758, BK 12, a notice of revocation or another signed proxy with a later date. You may also revoke your proxy by attending the Annual Meeting and voting in person.

 
 

 

Solicitation

We will bear the entire cost of solicitation, including the preparation, assembly, printing and mailing of this proxy statement, the proxy and any additional solicitation materials furnished to the stockholders. Copies of solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their costs in forwarding the solicitation materials to such beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by telephone, email or other means by our directors, officers or employees. No additional compensation will be paid to these individuals for any such services. Except as described above, we do not presently intend to solicit proxies other than by mail.

Householding of Annual Meeting Materials

Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one (1) copy of the proxy statement and annual report may have been sent to multiple stockholders in a stockholder’s household. The Company will promptly deliver a separate copy of either document to any stockholder who contacts the Company’s investor relations department at (512) 836-6464 or by mail addressed to Investor Relations, c/o Active Power, Inc., 2128 W. Braker Lane, BK 12, Austin, TX 78758, requesting such copies. If a stockholder is receiving multiple copies of the proxy statement and annual report at the stockholder’s household and would like to receive a single copy of the proxy statement and annual report for a stockholder’s household in the future, stockholders should contact their broker, other nominee record holder, or the Company’s investor relations department to request mailing of a single copy of the proxy statement and annual report.

Deadline for Receipt of Stockholder Proposals

Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Exchange Act”), stockholder proposals to be presented at our 2013 Annual Meeting of Stockholders and in our proxy statement and form of proxy relating to that meeting must be received by us at our principal executive offices in Austin, Texas, addressed to our Corporate Secretary, not later than December 13, 2012, the date which is 120 days prior to April 12, 2013. With respect to any stockholder proposal not submitted pursuant to Rule 14a-8 and unless notice is received by us in the manner specified in the previous sentence, the proxy holders shall have discretionary authority to vote against any proposal presented at our 2013 Annual Meeting of Stockholders. These proposals must comply with applicable Delaware law, the rules and regulations promulgated by the Securities and Exchange Commission and the procedures set forth in our Bylaws.

 
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MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL ONE: ELECTION OF DIRECTORS

Composition of the Board

The full Board currently consists of seven directors. The Board, in accordance with our certificate of incorporation, is divided into three classes, with Class I and Class II each having two directors and Class III having three directors. The terms of each class expire at successive annual meetings so that stockholders elect one class of directors at each annual meeting.

The current composition of the Board is:

Class I Directors (serving until the 2013 Annual Meeting)
Rodney S. Bond
Benjamin L. Scott
   
Class II Directors (serving until the 2014 Annual Meeting)
Jan H. Lindelow
J. Douglas Milner
   
Class III Directors (term expiring at this Annual Meeting)
Ake Almgren*
James E. J. deVenny III*
Robert S. Greenberg*

*term expiring at this Annual Meeting

The election of three Class III Directors will take place at this Annual Meeting. At its meeting on March 7, 2012, the Board approved the recommendation of the Nominating and Corporate Governance Committee that the full Board remains comprised of seven directors and that Mr. Milner and each of the Class III Directors be elected for a three-year term.

If elected at the Annual Meeting, each of the three Class III Director nominees will serve on the Board until the Annual Meeting of Stockholders in 2015, or, in each case, until their successors are duly elected and qualified in accordance with the Company’s Bylaws. If any of the three nominees should become unable to accept election, the persons named on the proxy card as proxies may vote for other person(s) selected by the Board or the named proxies. Management has no reason to believe that any of the nominees for election named below will be unable to serve. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named below.

J. Douglas Milner was elected to the Board in March 2012, shortly after his appointment as President and Chief Executive Officer of the Company. In accordance with our Bylaws, all directors must be nominated for election by our stockholders at the first annual meeting subsequent to their appointment to the Board. Accordingly, the election of Mr. Milner to the Board as a Class II Director will take place at this Annual Meeting. If elected, Mr. Milner will serve on the Board until the Annual Meeting of Stockholders in 2014, or until his successor is duly elected and qualified in accordance with the Company’s Bylaws.

Your Board Recommends Stockholders
 
Vote FOR each of the Four Nominees Listed Below

 
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Nominees for Election as Class III Directors with Terms Expiring at the 2015 Annual Meeting

Name
 
Age
 
Current Position
 
Proposed Class
of Director
             
Ake Almgren
 
65
 
Director
 
Class III
             
James E. J. deVenny III
 
64
 
Director
 
Class III
             
Robert S. Greenberg
 
58
 
Director
 
Class III

Nominee for Election as Class II Director with Term Expiring at the 2014 Annual Meeting

Name
 
Age
 
Current Position
 
Proposed Class
of Director
             
J. Douglas Milner
 
51
 
Director, President & CEO
 
Class II

Ake Almgren, 65, has served as a member of our Board since March 2004. From March 2009 until September 2011, Dr. Almgren served as the Chief Executive Officer and President of International Battery, a manufacturer of lithium ion cells and batteries. Since May 2003, Dr. Almgren has also served as President of his consultant company, ORKAS Corp. From July 1998 to May 2003, Dr. Almgren served as Chairman and Chief Executive Officer of Capstone Turbine Corp. Prior to his employment at Capstone, Dr. Almgren had a 26-year career at ASEA Brown Boveri Limited (ABB), a worldwide power solutions company, where he held the position of worldwide Business Area Manager for Distribution Transformers and managed the operation of 36 plants in 28 countries. He also was President of ABB Power T&D Company, President of ABB Power Distribution, and President of ABB Power Systems during his tenure at ABB. Dr. Almgren also serves on the board of managers of PJM Interconnect LLC. Dr. Almgren holds a Ph.D. in Engineering from Linkopings Tekniska Hogskola in Sweden and a Masters of Mechanical Engineering from the Royal Institute of Technology in Stockholm, Sweden.

We believe that Dr. Almgren’s qualifications to serve on our Board include his extensive background in executive management and leadership of companies in the power quality, alternative and clean technology sectors, and his extensive connections throughout the power quality industry. His current and prior CEO experience has qualified him to understand all aspects of managing and building a technology-based business, and his direct experience in financing the growth of these businesses as well as their overall financial management further qualifies him to serve as a member of our Audit Committee.

James E. J. deVenny III, 64, has served as a member of our Board since March 2008. From 1999 until March 2008, Mr. deVenny served as the co-founder, President and Chief Executive Officer of Dataside LLC, a Texas-based provider of enterprise data center space and managed network services. Mr. deVenny is now an independent consultant through his business, JD Investments. Prior to founding Dataside, Mr. deVenny co-founded Computex Support Systems, where he was employed for 15 years and was involved in the design and development of mission-critical data centers and telecommunications sites. Prior to this he spent five years as Vice President of Sales and Marketing for International Power Machines, a manufacturer of uninterruptible power supply systems. Mr. deVenny also serves on the boards of directors of Lumenate, a private technology consulting services company and Verado, an energy services software company. He holds a Bachelor of Science degree in Journalism and Communications from the University of Florida.

We believe that Mr. deVenny’s qualifications to serve on our Board include his extensive experience in the uninterruptible power supply, or UPS, industry, where he held senior sales and marketing positions for a rapidly growing UPS company, and experience gained from the founding and operating of hosted data center businesses, which are a primary target market for us. Mr. deVenny’s depth of industry knowledge and contacts uniquely positions him to provide valuable insights to our Board and management with respect to strategic and operational matters, as well as the markets for our products. Mr. deVenny also brings general financial and personnel management acumen to our Board, which he gained from owning and operating his own businesses, and this further qualifies him to serve as a member of our Compensation Committee.

 
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Robert S. Greenberg, 58, has served as a member of our Board since March 2009. Since January 2009, Mr. Greenberg has been the Chief Information Officer and Vice President for Agco Corporation, a global manufacturer and distributor of agricultural equipment. Prior to joining Agco Corporation, Mr. Greenberg was Vice President and Chief Information Officer for five years with Nissan Americas, the U.S. subsidiary of Nissan Motor Ltd, a global automotive manufacturer. Mr Greenberg also served in executive and CIO capacities over 20 years with Avaya, Inc., a global enterprise communications provider, Dell Inc. and Exxon Mobil, including time spent in Asia Pacific. Mr. Greenberg holds both Bachelor of Science and Masters of Engineering degrees in Operations Science and Industrial Engineering from Cornell University and an M.B.A. in Finance from the University of Maryland.

We believe that Mr. Greenberg’s qualifications to serve on our Board include his extensive international and multi-national management experiences as a Chief Information Officer for a number of global companies. This experience allows him to provide the Board with unique insights of the CIO community, a key target customer segment for the Company’s business, as well as important strategic and operational guidance with respect to information technology matters. As a key executive managing business operations and staffing levels significantly greater than ours, Mr. Greenberg is able to provide valuable perspective on human resource related matters, which further qualifies him to serve on our Compensation Committee.

J. Douglas Milner, 51, has served as a member of our Board since March 2012 when he was appointed President and Chief Executive Officer of the Company. From 2008 until 2011, Mr. Milner was most recently the Chief Operating Officer for Aquilex Corporation, a publicly traded energy services company. Between 2004 and 2008, Mr. Milner was the President of Stowe Woodward, a subsidiary of Xerium Technologies, Inc., a publicly traded provider of products and services to the pulp and paper industry. He has also held executive management positions with Ziptronix, Inc., Invensys PLC, Powerware Corporation and General Electric Company. Mr. Milner holds a B.A. in Physics and Mathematics from Ohio Wesleyan University, an M.S. in Electrical Engineering from Duke University and an M.B.A. from Duke University.

 As the only management representative on our Board, Mr. Milner provides an insider’s perspective to our Board discussions about the business and strategic direction of the Company. In addition, he has extensive senior management and executive experience within the global uninterruptible power industry having spent nine years with Powerware Corporation, a global UPS manufacturer and three years with Invensys PLC, where he was President of Invensys Power Systems, a billion-dollar global provider of UPS power systems and services.

Continuing Class I Directors with Terms Expiring at the 2013 Annual Meeting of Stockholders

Rodney S. Bond, 67, has served as a member of our Board since September 1994. From October 2000 to the present, Mr. Bond has served as a principal engaged in financial and strategic planning consulting at Sherman Partners, and until the sale of the company in January 2008, was also the Executive Vice President of UpLink Corporation, a privately held supplier of GPS business solutions for the golf industry. From May 1990 to October 2000, Mr. Bond served primarily as Chief Financial Officer of VTEL Corporation, a publicly traded digital video communications company. Prior to joining VTEL Corporation, Mr. Bond had served in executive financial and general management positions with both public and private emerging companies. Mr. Bond currently serves on the boards of directors of several private and non-profit enterprises, and holds a B.S. in Metallurgical Engineering from the University of Illinois and an M.B.A. from Northwestern University.

We believe that Mr. Bond’s qualifications to serve on our Board include previous general and financial management experience with rapidly growing and publicly traded technology companies, including specific experience as Chief Financial Officer for a public entity that provides financial expertise to our Board. Mr. Bond also has extensive board experience and has provided strategic and financial advice to emerging companies since 1990. His specific experience as a public company CFO and his advanced degree in business management, as well as his extensive business experience, qualify him as an “audit committee financial expert” and to serve as a member of our Audit Committee.

Benjamin L. Scott, 62, has served as a member of our Board since March 2002 and as Chairman of the Board since February 2007. During 2009 Mr. Scott co-founded LiveOak Venture Partners, a venture capital firm. Prior to this, Mr. Scott served as a Venture Partner with Austin Ventures, a venture capital firm, from May 2002 until June 2009. From January 2000 to May 2002, Mr. Scott served as a Partner with Quadrant Management, a venture capital firm. From October 1997 to November 1999, Mr. Scott served as the Chairman and Chief Executive Officer of IXC Communications, a public provider of data and voice communications services that is now known as Broadwing Communications. Mr. Scott has served as a senior executive with AT&T, PrimeCo and Bell Atlantic. Mr. Scott also serves on the boards of directors of several private companies and holds a B.S. in Psychology from Virginia Polytechnic Institute and State University.

 
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We believe that Mr. Scott’s qualifications to serve on our Board include his extensive general management experience with large and with rapidly growing technology companies, as well as more than 10 years of experience in the venture capital industry, where he routinely helps provide strategic and financial guidance to emerging technology companies. He routinely sits on the boards of emerging companies, and is involved with personnel management issues, including compensation and recruitment, which further qualifies him to serve as a member of our Compensation Committee.

Continuing Class II Director with Term Expiring at the 2014 Annual Meeting of Stockholders

Jan H. Lindelow, 67, has served as a member of our Board since February 1998 and served as our interim President and Chief Executive Officer between October 2011 and March 2012. Mr. Lindelow joined Tivoli, a unit of IBM Software Group, in June 1997 and served as Chairman and Chief Executive of Tivoli until the spring of 2001. He then became Vice President, Emerging Business Development for IBM until his retirement in 2002. Mr. Lindelow has executive experience in key markets and core technologies critical to the Company’s future success. From 1994 to 1995, Mr. Lindelow was President and Chief Operating Officer of Symbol Technologies, a leader in handheld computing and scanning technologies. He also served in several senior executive positions with Asea Brown Boveri (ABB), a global company delivering power, energy and automation technologies, from 1988 to 1994. Prior to ABB, Mr. Lindelow was President of Worldwide Sales and Service at Unisys/Sperry Computer Systems, a worldwide information technology services and solutions company. Mr. Lindelow serves as an active board member of several enterprises, primarily in the high technology industry. During 2011, Mr. Lindelow served as a director of the following private companies: Credant Technologies, and Troux Technologies. From 2007 until its sale in 2009, Mr. Lindelow served as Chairman of the Board of Directors of Vignette Corporation. Mr. Lindelow holds an M.S. in Electrical Engineering from the Royal Institute of Technology in Stockholm, Sweden.

We believe that Mr. Lindelow’s qualifications to serve on our Board include his significant management and board room experience leading small to mid-sized companies, both public and private, offering strategic insights into the high technology industry as well as the markets served by the Company, including the power industry, where he has direct management experience. He routinely sits on the boards of emerging companies, including other public entities, and is involved with overall financial reviews of company and management issues of those companies.

CORPORATE GOVERNANCE

Conflicts of Interest

On an annual basis, each director and executive officer is obligated to complete a Directors and Officers Questionnaire which requires disclosure of any transactions with the Company in which the director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest. Pursuant to the Code of Business Conduct and Ethics, the Board is charged with resolving any conflicts of interest involving the Chief Executive Officer, the Chief Financial Officer or any other executive officer of the Company.

Director Independence

In accordance with the Nasdaq listing requirements, the Board has determined the independence of each director and nominee for election as director in accordance with the guidelines it has adopted. Based on those standards, the Board determined that each of Messrs. Almgren, Bond, deVenny, Greenberg, Lindelow and Scott, our non-employee directors, is an “independent director” as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules, and has no relationship with the Company except as a director and stockholder of the Company, unless otherwise stated under “Certain Transactions” in the Compensation Discussion and Analysis section of this proxy statement.

Board Leadership Structure and Board’s Role in Risk Oversight

We separate the roles of Chief Executive Officer and Chairman of the Board in recognition of the differences between the two roles. The Chief Executive Officer is primarily responsible for developing and executing against the strategic plan adopted by the Board, and for the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer and sets the agenda for Board meetings and presides over meetings of the full Board. Our Board also allows independent directors to meet without the presence of management. The independent directors of our Board met twelve times during 2011. Benjamin Scott, our Chairman, leads these meetings. These meetings are held in conjunction with each regularly scheduled meeting of our Board. Any of our directors may request a session comprised of only independent directors at any time. We believe that this separation represents the appropriate structure for us at this time because it allows our Chairman of the Board to coordinate general oversight and strategic planning for the Company while the Chief Executive Officer focuses on managing the Company and optimizing operational efficiencies.

 
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Our Board oversees risk management in a number of ways. The Audit Committee oversees the management of financial and accounting related risks as an integral part of its duties. Similarly, the Compensation Committee considers risk management when setting the compensation policies and programs for our executives and other employees. The full Board receives reports on various risk-related items at its regular meetings including risks related to the Company’s manufacturing and sales operations, products, customer relationships and employees. The full Board considers these reports and provides feedback to management regarding our risk exposure, the potential impact on the Company, and steps being taken to mitigate such risks.

Nominations for Directors

The Nominating and Corporate Governance Committee is responsible for screening potential director candidates and recommending qualified candidates to the Board for nomination. The Nominating and Corporate Governance Committee believes that candidates for director should have certain attributes, including leadership, independence, interpersonal skills, financial acumen, business experience, industry knowledge, integrity, competence and dedication. The Nominating and Corporate Governance Committee also considers issues of diversity, such as diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board and the Nominating and Corporate Governance Committee believe that it is important that the Board represent diverse viewpoints. The Nominating and Corporate Governance Committee considers recommendations of potential candidates from current directors, management and stockholders. Stockholders’ nominations for directors must be made in writing and be addressed to the Chairman of the Nominating and Corporate Governance Committee in care of the Secretary of the Company at the Company’s headquarters address listed below, and must be received no later than December 14, 2012 in order to be considered for inclusion in the proxy statement for the next annual election of directors.

Chairman of the Nominating and Corporate Governance Committee
Active Power, Inc.
c/o Secretary
2128 West Braker Lane, BK 12
Austin, Texas 78758

Any such stockholder nomination notice should clearly indicate that it is a recommendation of a director candidate by a stockholder and must set forth (i) the name, age, business address and residential address of the recommended candidate; (ii) the principal occupation or employment of such recommended candidate; (iii) the class and number of shares of our stock that are beneficially owned by such recommended candidate; (iv) a description of all understandings or arrangements between the stockholder and the recommended candidate and any other person or persons pursuant to which the recommendations are to be made by the stockholder; and (v) any other information relating to such recommended candidate that is required to be disclosed in solicitations of proxies for the election of directors. In addition, such notice must contain (i) a representation that the stockholder is a holder of record of our common stock entitled to vote at such meeting; (ii) the name and address, as they appear on our books, of the stockholder proposing such nomination; (iii) the class and number of shares of our common stock that are beneficially owned by such stockholder; (iv) any material interest of the stockholder in such recommendation; and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Exchange Act, as amended, in such stockholder's capacity as proponent of a stockholder proposal. Assuming that a stockholder recommendation contains the information required above, the Nominating and Corporate Governance Committee will evaluate a candidate recommended by a stockholder by following substantially the same process, and applying substantially the same criteria, as for candidates identified through other sources.

 
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Communications with the Board

Stockholders and other interested parties may communicate with one or more members of the Board or the non-management directors as a group in writing by regular mail or via email. The following address may be used by those who wish to send such communications by regular mail:

[Board of Directors] or [Name of Individual Director(s)]
Active Power, Inc.
c/o Secretary
2128 West Braker Lane, BK 12
Austin, Texas 78758

Stockholders who wish to send such communications electronically may do so via the “Contact Us” tab on the Company’s website at www.activepower.com. You may leave a message to any one or a combination of directors. Any such communication must contain (i) a representation that the stockholder is a holder of record of stock of the Company, (ii) the name and address, as they appear on the Company’s books, of the stockholder sending such communication, and (iii) the class and number of shares of Active Power that are beneficially owned by such stockholder.

The Board has instructed the Secretary to review all communications so received (via regular or electronic mail), and to exercise his discretion not to forward to the Board correspondence that is inappropriate, such as business solicitations, frivolous communications, advertising and personal grievances. However, any director may at any time request the Secretary to forward any and all communications received by the Secretary and not forwarded to the Board.

Code of Ethics

The Company’s Code of Business Conduct and Ethics, which is the Company’s code of ethics applicable to all directors, officers, employees and consultants worldwide, embodies the Company’s global principles and practices relating to the ethical conduct of the Company’s business and its long-standing commitment to honesty, fair dealing and full compliance with all laws affecting the Company’s business. The Code of Business Conduct and Ethics is intended to comply with Item 406 of Regulation S-K of the Exchange Act and with Nasdaq listing requirements. Our Code of Business Conduct and Ethics is posted on our Internet website under the "Corporate Governance" link on our “Investor Relations” page.

The Board has established a means for employees, customers, suppliers, stockholders and other interested parties to submit confidential and anonymous reports of suspected or actual violations of the Company’s Code of Business Conduct and Ethics relating, among other things, to:

 
·
Accounting practices, internal accounting controls or auditing matters and procedures;
 
·
Theft or fraud of any amount;
 
·
Insider trading;
 
·
Performance and execution of contracts;
 
·
Conflicts of interest;
 
·
Violations of securities and antitrust laws; and
 
·
Violations of the Foreign Corrupt Practices Act.

Any stockholder, employee or interested party can call the following toll-free number to submit a report:

1-800-625-1731

The number is operational 24 hours a day, seven days a week.

MEETINGS AND COMMITTEES OF THE BOARD

Each director is expected to devote sufficient time, energy and attention to ensure diligent performance of his or her duties and to attend all Board, committee and stockholders’ meetings. In 2011, the Board met twelve times and did not act by written consent. All directors attended or participated in at least 75% of the meetings of the Board or committees on which they served during the period in which they served on the Board or such committees during the year ended December 31, 2011.

 
8

 

Committees of the Board

The Board has four standing committees to facilitate and assist the Board in the execution of its responsibilities. The standing committees are the Audit Committee, the Compensation Committee, the Nominating and Corporate Governance Committee and the Strategy Committee. In accordance with best practice and the Nasdaq listing requirements, all the standing committees are comprised solely of non-employee, independent directors. Charters for each of the standing committees are available on the Company’s website at www.activepower.com under the heading of “Investor Relations” and subheading of “Corporate Governance”. The charter of each standing committee is also available in print to any stockholder who requests it. The table below shows current membership of each of the standing Board committees:

Audit Committee
 
Compensation
Committee
 
Nominating and Corporate
Governance Committee
 
Strategy Committee
             
Rodney S. Bond *
 
Benjamin L. Scott *
 
Robert S. Greenberg *
 
James E. J. deVenny III *
Ake Almgren
 
Robert S. Greenberg
 
Jan H. Lindelow 
 
Robert S. Greenberg
James E. J. deVenny III
 
Jan H. Lindelow
 
Benjamin L. Scott
 
Ake Almgren
* - Committee Chairman

Audit Committee

The Audit Committee is responsible for the selection, retention and oversight of our independent auditors. In addition, the Audit Committee reports to the Board with regard to:

 
·
the scope of our annual audits and fees to be paid to auditors;

 
·
our compliance with legal and regulatory requirements;

 
·
the integrity of our financial statements and the compliance with our accounting and financial policies; and

 
·
management’s procedures and policies relative to the adequacy of our internal accounting controls.

The Audit Committee is further responsible for the pre-approval of all audit and non-audit services performed by our independent auditors. The members of the Audit Committee throughout 2011 were Messrs. Bond, Lindelow (through April 2011), deVenny (from April 2011) and Almgren. Mr. Bond serves as the Chairman of the Audit Committee. The Audit Committee held five meetings during 2011. The Board has determined that all members of the Audit Committee are “independent” as that term is defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules. The Board has determined that Mr. Bond is qualified as an “audit committee financial expert” under Item 407(d)(5) of Regulation S-K.

Compensation Committee

The Compensation Committee reviews and makes recommendations to the Board regarding our compensation policies and all forms of compensation to be provided to our executive officers. The Compensation Committee also manages the granting of stock options to new and existing employees. The Compensation Committee reviews bonus arrangements for all of our executive officers and stock compensation for our new and existing employees. The Compensation Committee also administers our equity incentive plan. The members of the Compensation Committee during 2011 were Messrs. Scott, deVenny (until February 10, 2011), Greenberg and Lindelow (Mr. Lindelow stepped down from the committee in October 2011 with his appointment as interim President and Chief Executive Officer of the Company and was re-appointed to the committee in March 2012 following his resignation as interim President and Chief Executive Officer). Mr. Scott serves as Chairman of the Compensation Committee. The Compensation Committee held ten meetings during 2011. The Board has determined that all members of the Compensation Committee are “independent” as that term is defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules.

 
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Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee was established to assist our Board in fulfilling its responsibilities for identifying qualified individuals to become members of the Board; determining the composition and compensation of the Board and its committees; monitoring the effectiveness of the Board and facilitating the measurement of the effectiveness of its committees; and developing, monitoring and evaluating sound corporate governance policies and procedures promoting honest and ethical conduct, including policies pertaining to the identification and treatment of conflicts of interest. The members of the Nominating and Corporate Governance Committee during 2011 were Messrs. Bond (until February 2011), Greenberg (from February 2011), Scott and Lindelow (Mr. Lindelow stepped down from the committee in October 2011 with his appointment as interim President and Chief Executive Officer of the Company and was re-appointed to the committee in March 2012 following his resignation as interim President and Chief Executive Officer). Mr. Lindelow was serving as the Chairman of the Committee until October 2011 at which point Mr. Greenberg became Chairman. The Nominating and Corporate Governance Committee held eight meetings during 2011. The Board has determined that each member of the Nominating and Corporate Governance Committee is an “independent director” as defined in Rule 5605(a)(2) of the Nasdaq Marketplace Rules.

Strategy Committee

In September 2010 the Board established a special Strategy Committee to assist the Company’s management team in the development of new strategic products for the Company. The members of the special Strategy Committee during 2011 were Messers. Almgren, DeVenny and Greenberg, with Mr. DeVenny serving as its Chairman. The special Strategy Committee met three times during 2011.

Attendance at Annual Meetings

We encourage, but do not require, the members of our Board to attend our annual meetings. Three of our seven directors attended our Annual Meeting of Stockholders held on May 12, 2011.

Compensation Committee Interlocks and Insider Participation

During the last fiscal year, all members of the Compensation Committee were independent directors, and none of them were past or present employees or officers of the Company or any of our subsidiaries. No member of our Compensation Committee has any relationship with us requiring disclosure under Item 404 of Regulation S-K under the Exchange Act. None of our executive officers has served on a board or compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers serves on our Board or our Compensation Committee.

 
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AUDIT COMMITTEE REPORT

The Audit Committee reports as follows with respect to the audit of our fiscal 2011 financial statements:

Management is responsible for Active Power’s internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of Active Power’s financial statements and internal controls in accordance with U.S. generally accepted auditing standards and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

In this context, the Audit Committee has met and held discussions with management and the independent auditors. Management represented to the Audit Committee that Active Power’s financial statements were prepared in accordance with U.S. generally accepted accounting principles, and the Audit Committee has reviewed and discussed the financial statements with management and the independent auditors. The Audit Committee has also met and held discussions with management and the independent auditors regarding Active Power’s internal controls. Management provided the Audit Committee management’s assessment of the Company’s internal controls, and the Audit Committee has reviewed and discussed the internal controls with management and the independent auditors. The Audit Committee discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61, as amended and as adopted by the Public Company Accounting Oversight Board in Rule 3200T (Communication with Audit Committees).

Active Power’s independent auditors also provided to the Audit Committee the written disclosures required by Rule 3526 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent auditors that firm’s independence and considered the compatibility of non-audit services with the independent auditors’ independence.

Based upon the Audit Committee’s discussion with management and the independent auditors and the Audit Committee’s review of the representation of management and the reports of the independent auditors to the Audit Committee, the Audit Committee recommended that the Board include the audited financial statements and assessment of internal controls in Active Power’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Securities and Exchange Commission.

Submitted by the Audit Committee of the Board:

 
Rodney S. Bond (Chair)
   
 
Ake Almgren
   
 
James E. J. deVenny III

 
11

 

EXECUTIVE COMPENSATION

Executive Officers

The following table sets forth certain biographical information concerning our current executive officers:

Name
 
Age
 
Position(s)
         
J. Douglas Milner
 
51
 
President, Chief Executive Officer and Director
         
John K. Penver
 
49
 
Vice President Finance, Chief Financial Officer and Secretary
         
Lisa M. Brown
 
46
 
Vice President Marketing & Sales Operations
         
J. Noel Foley
 
51
 
Vice President Engineering
         
Martin T. Olsen
 
34
 
Vice President Global Sales
         
Jason P. Rubin
 
43
 
Vice President Manufacturing
         
Uwe Schrader-Hausmann
 
57
 
Chief Technical Officer

Executive Officers

J. Douglas Milner. Reference is made to Mr. Milner’s biographical information included above with the other directors of the Company.

John K. Penver was hired in February 2005 as Chief Financial Officer and Vice President of Finance and oversees all of our accounting, finance, treasury, investor relations, human resources and IT operations. Prior to joining Active Power, Mr. Penver served as Chief Financial Officer or Vice President of Finance for a number of public and private technology and manufacturing-based organizations, including PerformanceRetail, Inc., a privately held retail management software company, Factory Logic, Inc., a privately held enterprise-application software company, Yclip Corporation, a privately held internet-marketing software company, and Silicon Gaming, Inc., a publicly traded manufacturer of high-technology slot machines for the gaming industry. Mr. Penver also had 12 years of audit experience with the international accounting firm of Deloitte & Touche LLP in both the U.S. and Australia. Mr. Penver is a Certified Public Accountant and a Chartered Accountant, and holds a Bachelor of Business in Accounting from Monash University in Australia and an M.B.A. from Santa Clara University in California.

Lisa M. Brown was hired in December 2005 as our Vice President of Marketing and Sales Operations. In this role she is responsible for all of our product and corporate marketing, , public relations and sales operations functions. Prior to joining Active Power, Ms. Brown spent 14 years with Broadwing Communications, a telecommunications infrastructure provider, where she held executive positions including Vice President of Marketing, Sales Operations and Customer Operations. Ms. Brown holds a Bachelor of Science degree in Business Administration, Finance, from Bloomsburg University in Pennsylvania.

J. Noel Foley joined Active Power in November 2011 as our Vice President of Engineering. In this role he is responsible for all of our product development and sustaining engineering activities. From November 2008 until joining Active Power, Mr. Foley was most recently Vice President Engineering for SolarBridge Technologies, Inc, a manufacturer of AC power products for the solar industry. Prior to this, from 2003 until 2008, Mr. Foley was employed by Dell Inc. most recently as the Senior Manager –AC/DC power supplies and DC/DC converters within Dell’s product development group. Prior to this Mr. Foley held a number of executive roles for companies including Lucent Technologies, Vicor Corporation, Computer Products/Artesyn Technologies in the U.S. and Ireland, and with GEC Corporation in the UK. Mr. Foley is a U.S. patent holder and holds a Bachelor of Electrical Engineering degree from University College, Cork, Ireland and a Masters degree in Business Administration from Boston College.

 
12

 

Martin T. Olsen joined Active Power in April 2007 as a Director of Product Management before being promoted in May 2008 to Vice President of Business Development. In January 2010 Mr. Olsen was promoted to Vice President—Channel Sales & Business Development. In December 2010, Mr. Olsen was promoted to Vice President Global Sales. In this role Mr. Olsen is responsible for our global sales activity, including channel sales business for our OEM partners and our IT channel sales partners, as well as our business development activities to expand our product and sales distribution channels. Prior to joining Active Power, Mr. Olsen was the Director for the data center group at Wright Line LLC, a global data center infrastructure provider for four years, and prior to that was a product marketing manager with American Power Conversion Corp., a global UPS manufacturer in the U.S., Europe and Asia. He also has prior product management experience with Siligen AS, a manufacturer of power availability products in Denmark. A U.S. patent holder, Mr. Olsen holds a Bachelor of Science degree in Marketing from the International Business College at Kolding, Denmark, and diplomas in Logistics and International Business Law from the International Business College at Kolding, Denmark.

Jason P. Rubin joined Active Power in March 2000 as a production planner and held various positions in our manufacturing group before being promoted to Vice President of Manufacturing in October 2005. In this role Mr. Rubin is responsible for the manufacture and testing of all Active Power products as well as managing all material and logistic requirements to support production and our global customer service activities. Mr. Rubin has over 15 years of manufacturing experience in multiple industries and immediately prior to joining Active Power was involved in managing operations and manufacturing systems for Windsport, Inc., a fabricated textile manufacturer. Mr. Rubin holds a Bachelor of Science degree in Industrial Engineering from the University of Oklahoma at Norman.

Uwe Schrader-Hausmann joined Active Power in August 2005 and held various positions in our EMEA sales engineering group and as Managing Director of Active Power (Germany) GmbH before being promoted to Vice President—Technical Services in October 2007 and then to Chief Technical Officer in January 2009. In this role he is responsible for all customer-facing technical service functions including management of our European applications engineering, project management, and project implementation activities, Mr. Schrader-Hausmann has over 30 years of experience in the UPS industry. Prior to joining Active Power, he spent 26 years with Piller Power Systems GmbH, a German-based rotary UPS manufacturer, most recently as Chief Technical Officer. He also has UPS experience with Max Mueller Gildemeister GmbH in Germany. Mr. Schrader-Hausman holds a Diplom-Ingeneur (the German equivalent of a Master of Science degree) from The University of Applied Science in Hanover, Germany.

 
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 COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The cornerstone of our compensation philosophy continues to be pay for performance. We closely align the compensation paid to our Named Executive Officers with our performance on both a short-term and long-term basis and set performance goals that do not promote excessive risk-taking and support our core financial goals of achieving our revenue growth and operating margin targets.

Although we have delivered year-over-year growth in direct sales on an annual basis since 2005, in 2011 we did not accomplish our goals with respect to revenue, operating margins, profitability or cash used.

In 2011, due to the failure to achieve planned operating results, there was a 77% reduction in the level of performance-based compensation paid to our Named Executive Officers.

The lack of progress in achieving our financial goals also contributed to a 73% decline in our stock price during 2011. As a result of this decline, the intrinsic value of vested stock options at year end and the percent of shares that were underwater at year end resulted in the value of options being less than 10% of current salaries for the Named Executive Officers. We believe that the large number of outstanding options held by our executives, including our Named Executive Officers, provides the opportunity to attain material value for our executives as our business results improve and our stock price increases.

Improving our results and continuing to position our business for future success in support of our mission of producing superior returns for our stockholders requires that we attract, retain and foster high caliber talent. We design our executive compensation program to provide a competitive and internally equitable compensation and benefits package that reflects company performance, job complexity and strategic value of position, while ensuring long-term retention and motivation. We believe the compensation programs for our Named Executive Officers supports us in these goals in a challenging global macroeconomic environment.

The Compensation Committee of the Board of Directors (the “Committee”) is responsible for all compensation decisions for the Named Executive Officers and for all of the executive officers of the Company. The Committee believes our executive compensation program is not only effective at driving the achievement of our performance goals and providing an appropriate reward for results, but also is reasonable in relation to the programs of our peer group companies and encourages our executives to work for meaningful stockholder returns without taking excessive risks. The highlights of our compensation program include:

 
·
Base salary is 33% of total compensation for our Chief Executive Officer and 40% of total compensation for our other Named Executive Officers, at target assuring that a majority of compensation for our executives is performance-based.
 
·
Our total compensation to our Named Executive Officers is generally targeted to compensate them at the 50th percentile of our peer-group companies for on-target performance.
 
·
We look at salary, annual bonus and total cash compensation, as well as equity, when evaluating the accomplishment of 50th percentile compensation.
 
·
Our annual cash bonus program encourages executives to focus on metrics we believe are important to our stockholders without introducing undue risk.
 
·
Our use of equity awards encourages retention through time-based vesting over a four-year period which provides a balance between short and long-term decisions.
 
·
Our change of control agreement with each of our officers is “double trigger,” meaning it provides severance or accelerated vesting benefits only upon termination of such officers, employment with the Company without cause or resignation of the executive for good reason within a certain time period following a change of control of the Company.

 
14

 

 
·
The change of control severance cash benefits offered to our executives do not exceed two times their annual target cash compensation.

The following compensation governance features underlie our compensation program:

 
·
The Committee is composed solely of independent directors. Additionally, the Committee’s independent compensation consultant is retained directly by the Committee.
 
·
Our compensation programs are designed to reward long-term value creation and avoid inappropriate risk taking by our executives. The Committee believes that the risks arising from our employee compensation program are reasonable, in the best interests of our stockholders, and not likely to have a material adverse effect upon us.
 
·
The Committee and the Board of Directors meet in executive session, without management to examine and make final decisions by the Committee.
 
·
The Committee meets with its external compensation consultants and advisors in executive session, without management.

Advisory Vote on Executive Compensation

In May 2011, we held a stockholder advisory vote on the compensation of our Named Executive Officers, commonly referred to as a say-on-pay vote. Our stockholders overwhelmingly approved the compensation of our Named Executive Officers, with approximately 98% of stockholder votes cast in favor of our 2011 say-on-pay resolution. As we evaluated our compensation practices and talent needs throughout 2011, we were mindful of the strong support our stockholders expressed for our pay for performance compensation philosophy. As a result, following our annual review of our executive compensation philosophy, the Committee decided to retain our general approach to executive compensation, with an emphasis on short- and long-term incentive compensation that rewards our most senior executives when they deliver value for our stockholders. In addition, the Committee considered ways to strengthen the pay for performance culture at the Company, including through the future use of performance-based long-term incentive awards for certain executives. In addition, when determining how often to hold a stockholder advisory vote on executive compensation, the Board took into account the strong preference for an annual vote expressed by our stockholders at our 2011 Annual Meeting. Accordingly, the Board determined that we will hold an annual advisory stockholder vote on the compensation of our Named Executive Officers until the next say-on-pay frequency vote.

Philosophy

All of our compensation programs are designed to satisfy the following objectives:

 
·
To attract, motivate and retain key employees, including highly qualified executive officers;
 
·
To make a substantial portion of their compensation dependent upon the Company’s attainment of measurable performance targets; and
 
·
To structure a substantial portion of executive compensation so that it aligns with our stockholders’ interests.

Our compensation programs are designed by the Committee in collaboration with management and input from an independent compensation consultant hired by the Committee and approved by the Board. Our compensation program for executive officers utilizes cash compensation for short-term incentives and equity compensation for long-term incentives. Cash compensation is paid in the form of a base salary and an annual performance incentive bonus (“annual bonus”), and long-term incentive compensation is typically paid in the form of stock options and restricted stock units.

Our executive compensation philosophy reflects our belief that the compensation of our executives should reflect their success as a management team, rather than as individuals, in attaining key operating objectives such as revenue growth, reductions in operating losses, achievement of operating profitability and positive cash flow, growth or maintenance of market share and long-term competitive advantage, and ultimately, in attaining an increased market price for our stock. We believe that the performance of our executives in managing the Company considered in light of general economic conditions and specific company, country, industry and competitive conditions, should be the basis for determining their overall compensation. We also believe that their compensation should not be based on the short-term performance of our stock, whether favorable or otherwise, but rather on factors that drive long-term value to our stockholders, as that will more accurately reflect the quality of our operating performance and, ultimately, the management of the Company by our executives. We also evaluate both performance and compensation to ensure that the Company maintains its ability to attract and retain superior executives in key positions and that compensation provided to key employees remains competitive relative to the compensation paid to similarly situated executives of similar or peer companies.

 
15

 

Throughout this proxy statement, the individuals who served as the Company’s Chief Executive Officer and Chief Financial Officer during 2011, as well as the other individuals included in the Summary Compensation Table on page 26, are referred to as “Named Executive Officers.”

Role of Compensation Committee in Compensation Decisions

The Committee makes all compensation decisions for the Named Executive Officers and for all of the executive officers of the Company.

The Committee retained the services of Radford, an Aon Hewitt Company (“Radford”), an outside human resources consulting organization, to assist it with executive compensation and other human resource-related subjects. In 2011, the Committee directly engaged Radford to provide independent advice to the Committee with respect to matters including executive compensation, executive incentive and equity compensation trends and programs, director compensation levels, assistance with the design of an appropriate peer group for establishing compensation benchmarks and with preparing for a stockholder vote on equity plan amendments. Management of the Company does not use Radford for any consulting services related to compensation matters, although the Company participates in annual salary surveys conducted by Radford, and is able to use the survey results as benchmarking data for establishing salary and benefits for all of its employees other than executive officers. Management’s only role with respect to the use of Radford is to provide company-specific data to Radford to enable it to complete its engagement for the Committee. The decision to use Radford for consulting services was in each case recommended and approved by the Committee, depending on the purpose of the engagement, and was not made or recommended by management in any case.

Setting Executive Compensation

Based on the above objectives, the Committee has structured the Company’s annual and long-term incentive-based cash and non-cash executive compensation to motivate executives to achieve the business goals set by the Company, and to reward the executives for achieving such goals. In furtherance of this, the Committee has directly retained the services of Radford to benchmark the total compensation program for all of its executive officers. Radford provides the Committee with relevant market data and alternatives and recommendations to consider when making compensation decisions for the Named Executive Officers and for all executive officers of the Company.

Elements of compensation for our executive officers include: base salary, annual bonus, stock incentive awards and employee benefits. Base salaries for our Named Executive Officers are set at the regularly scheduled meetings of the Committee in the first quarter of each year. At this meeting, the Committee also approves and adopts the management incentive plan for the new financial year, determines the level of achievement and actual awards from the previous year’s management incentive plan, and typically grants stock-based awards to all of our Named Executive Officers.

At the beginning of each year, it has been the practice of the Committee to review the history of all of the elements of each Named Executive Officer’s total compensation over each of the past three to four years, and compare the compensation of the Named Executive Officers with that of other executive officers in an appropriate market comparison group (discussed below), using comparative data supplied by Radford. The comparative data supplied by Radford pertains to base salary, annual bonus and equity awards and is derived from compensation data of other high-technology public companies in North America with similar revenue or expense levels to the Company. The purpose of this analysis is to determine whether the compensation offered to each Named Executive Officer, both in its totality and with respect to each of the constituent components, is competitive with the applicable market comparables that the Committee has reviewed for the corresponding period.

 
16

 

In 2011, the market comparables were derived from the following primary peer group companies:

A123 Systems
Allied Motion Technologies
Ballard Power Systems
Beacon Power
Capstone Turbine
Comverge
Ener1
Energy Recovery
FuelCell Energy
Hydrogenics
Maxwell
Pervasive Software
Plug Power
PowerSecure
Satcon
SL Industries
Technology Research
Ultralife
Valence Technologies
   

All of these companies had less than $200 million in revenues and/or similar market capitalizations to the Company. We have used this group of companies as there is an absence of other directly comparable and similarly sized publicly traded UPS companies in the U.S. with which we can benchmark ourselves, and because this population is reflective of the universe in which we compete for personnel. The Committee instructed Radford to include in our comparative peer group several local Austin companies and several other clean-technology or alternative energy companies with whom we are often compared by the financial community, which are included in the list above.

At the beginning of 2011, the Committee, with assistance from Radford, reviewed the companies that comprised the peer group used to benchmark our executive compensation. One company, Entorian Technologies was removed from the peer group that was used in 2010 as it no longer traded on a national stock exchange. Due to the increase in revenue and employee by the Company, additional companies met the required criteria for our peer group. As a result, we added A123 Systems, Allied Motion Technologies, Comverge, Ener1and PowerSecure to the peer group.

In addition, we used market information derived from the Radford Global Technology Survey and the Radford Global Sales Survey for establishing compensation benchmarks for our other employees. We customize these Radford surveys to select North American technology companies excluding life-science and biotechnology companies, with annual revenue of less than $200 million.

The Committee generally considers compensation to be competitive for our Named Executive Officers if it is at the 50th percentile for base salary, annual bonus and equity awards for the applicable market comparables. Where a specific component of compensation is not within this range, the Committee uses the competitive data as a factor for its compensation determination, but may also take into account factors specific to a Named Executive Officer in making its final compensation decisions, including such officer’s position and functional role, seniority, performance and overall level of responsibility. Overall, Radford found that the Company’s actual base salary and bonus and the value of long-term incentives, including equity awards for 2011 fell between the 25th to 50th percentile of the market comparables which was below the Company’s stated philosophy of the 50th percentile.

The amount of each element of compensation is determined by or under the direction of the Committee, which uses the following factors to determine the amount of salary and other benefits to pay each executive:

 
Ÿ
performance against corporate and individual objectives for the previous year;
 
Ÿ
difficulty of achieving desired results in the coming year;
 
Ÿ
value of their unique skills and capabilities to support the long-term growth of the Company;
 
Ÿ
performance of their general management capabilities; and
 
Ÿ
contribution as a member of the executive management team.

These elements fit into our overall compensation objectives by helping to secure the future potential of our operations, facilitating our entry into new markets, providing proper compliance and regulatory guidance, and helping to create and maintain a cohesive executive team.

Role of Executive Officers in Compensation Decisions

The Chief Executive Officer annually reviews the performance of all of the Company’s executive officers (other than the Chief Executive Officer, whose performance is reviewed by the Committee and discussed with the full Board). The conclusions reached and recommendations based on those reviews, including with respect to salary adjustments and annual bonus and equity award amounts, are presented to the Committee by the Chief Executive Officer. The Chief Executive Officer uses benchmark data from the Radford surveys that the Company participates in as he makes his recommendations to the Committee. Though the Committee is not obligated to follow the Chief Executive Officer’s recommendations, the Committee gives them great weight in making its decisions, as the Chief Executive Officer is in the best position to assess the performance of the other Named Executive Officers and identify key criteria for the Committee to consider in making its final decisions relating to compensation of the Named Executive Officers (other than the Chief Executive Officer). Neither our Chief Executive Officer nor any other member of executive management votes on items before the Committee; however, the Committee and Board solicit the views of the Chief Executive Officer and work with other members of management to determine the agenda for each of their meetings, as well as with our human resources department and outside advisors to prepare meeting materials.

 
17

 

Base Salary

We use the base salary element of executive compensation to provide the foundation of a fair and competitive compensation opportunity for each Named Executive Officer. We review base salaries annually and target salary compensation between the 25th and 50th percentile of base salary practices of our peer group, but maintain flexibility to deviate from market-median practices for individual circumstances, including qualifications, experience at the executive level, and responsibilities. Newly appointed Named Executive Officers, depending on prior experience, may be paid less than the median market salary with a goal of increasing such salary to median levels within a two or three-year period after their appointment. No such adjustments were made for these reasons for any of our Named Executive Officer’s base salaries in 2011. The Committee also considers an internal review of the Named Executive Officer’s compensation relative to other Named Executive Officers and the individual performance of the executive in establishing the base salary. Based on the benchmark data, the Committee increased salaries between 2.5% and 5% for our Named Executive Officers in 2011.

Annual Bonus

The management incentive program is an annual cash incentive program that is designed to motivate and reward our Named Executive Officers for their contributions toward the achievement of shorter-term financial and operating goals that we believe drive our operating results and/or create long-term stockholder value.

Under this program, the Committee, with recommendations provided by the Chief Executive Officer, establishes an annual target award for each Named Executive Officer, which is typically expressed as a percentage of the executive’s base salary. For 2011, this target award level was 100% of base salary for Mr. Clishem, 60% of base salary for Mr. Penver, 50% of base salary for Ms. Brown and 45% of base salary for Mr. Rubin. These targets were the same as the previous year for these Named Executive Officers, other than Mr. Penver, whose 2010 target was set at 50% of his base salary in that year, and Mr. Rubin whose 2010 target was set at 40% of his base salary in that year. Mr. Olsen headed our global sales operation and was compensated under an alternative arrangement. The target variable cash compensation level for him was 79% of his base salary for 2011 which compared to 60% of his base salary in 2010 when he was in charge of our global channel sales operation. The Committee makes the determination of the actual bonus earned by a Named Executive Officer and may choose to award a bonus or not, and determines the actual award, in light of all relevant factors after completion of the fiscal year.

For 2011, 80% of each of Mr. Clishem’s, Mr. Penver’s, Ms. Brown’s and Mr. Rubin’s target bonus awards were based upon achievement of corporate financial and operating objectives, which were the same objectives for each of these Named Executive Officers. The remaining 20% of each Named Executive Officer’s target bonus award was based upon achievement of individual objectives unique to each executive and his or her area of responsibility. Each objective was tied to the Company’s annual operating plan, including, for example, consummation of new strategic partnerships, implementation of strategies and procedures, improvement of brand awareness, completion of certain development programs, raising new equity and bank lending facilities, and the implementation of certain new accounting and reporting systems.

The weighting of corporate and individual objectives was reviewed and established by the Committee at the beginning of 2011 and the same weighting was used for all of our Named Executive Officers, reflecting our philosophy that the majority of the compensation of our executive team should reflect their success as a team, and not as individuals. Both the corporate and individual goals were established by the Committee at the beginning of 2011 and were all tied to our annual operating plan that was approved by the Board in January 2011.

 
18

 

For 2011, the corporate and financial goals, and the weights given to each for purposes of determining the amount of bonuses, were as follows:

Goals
 
Target
   
Actual
   
% of target
   
Weighting
 
Revenue
  $ 84,800,000     $ 75,484,000       89 %     35 %
Operating profit (loss)
  $ 878,000     $ (6,879,000 )     0 %     35 %
Product Quality
    92 %     95 %     103 %     10 %

The revenue goal that was set for 2011 represented an increase in total annual revenues of 16% from 2010. The Committee felt that after a year of very strong revenue growth in 2010, with an uncertain economic outlook in some of our key overseas markets, and with challenges growing our continuous power systems and infrastructure solutions, this was a challenging target for the Company to achieve. Based on the Company’s operating plan, achievement of this targeted revenue would result in an operating profit of $0.9 million, which would have represented the first annual profit in Company history. The Committee was also willing to offer potentially higher payouts to the Named Executive Officers for various levels of accomplishment greater than the target amount as an additional incentive to encourage better financial performance by the Company. The additional incentives approved by the Committee were as follows:

Revenue
   
Operating Profit
 
                     
% to Plan
   
Multiplier for Bonus
   
% to Plan
   
Multiplier for Bonus
 
  88.4 %  
Linear scale from 0.50
to 1.00
      50 %  
Linear scale from 0.50 to
1.00
 
  100 %     1.00       100 %     1.00  
  105 %     1.25       167 %     1.25  
  110 %     1.50       234 %     1.50  
  115 %     1.75       301 %     1.75  
  120 %     2.00       368 %     2.00  
  128.5 %     2.43       484 %     2.43  

In order to receive any payment for achieving the revenue goal for 2011, a threshold level of performance was established. This required that 88.4% of the revenue goal, or $75 million in revenue, or 115% of our total 2010 revenue, had to be achieved in order for any payment to be made. If actual revenue was between 88.4% and 100% of the revenue goal, then 50% of the target bonus amount attributable to the revenue target would be payable at 88.4% of the goal, with progressively higher amounts of bonus payments earned based on performance relative to the revenue target so that 100% of the target bonus would be payable at the operating plan revenue level. It was possible for up to a maximum of 243% of the target bonus amount attributable to the revenue goal to be achieved for greater than 128.5% achievement of the revenue goal. Because the Company achieved 89% of its 2011 revenue goal, the bonus attributable to the revenue target for 2011 was paid at 52% of the target bonus amount attributable to such goal.

The portion of the bonus attributable to the operating profit was payable upon the accomplishment of an annual operating profit of $878,000 for 2011. In order to receive any payment for achieving the operating profit target, a threshold level of performance was established. This required that we actually had positive annual operating profit, including payment of management incentives, before any payment would be made. This would have resulted in the first annual profits in Company history and compared to the approximately $3 million operating loss that the Company had in 2010. If our operating profit was between $439,000 and $878,000 then 50% of the target bonus attributable to the operating profit target would be payable at a profit of $439,000 and progressively higher amounts of the bonus payments would be earned so that 100% of the target bonus would be payable at the operating plan operating profit level of $878,000. The Committee approved operating profit accelerators up to 243% of the target bonus amount attributable to such goal for achievement of higher than planned levels of operating profit. Because the Company recorded an operating loss in 2011, the threshold amount for payment was not satisfied, and as a result, no payment was made to our executive officers attributable to our operating profits.

 
19

 

The portion of the bonus attributable to the product quality target was payable upon the achievement of 92% of the Company’s product quality measure, which is objectively determined based on product quality data. Because our product quality measure was 95% in 2011, 100% of the target bonus amount attributable to that goal was paid.

The net payout to our Named Executive Officers, excluding James A. Clishem and Martin T. Olsen, against these corporate objectives for 2011 was therefore paid out at 28% of the targeted bonus amount for each executive, computed as follows:

Goals
 
Weighting
   
Multiplier
   
Payout
 
Revenue
    35 %     0.52       18 %
Adjusted EBITDA loss
    35 %     0.00       0 %
Product Quality
    10 %             10 %
total
    80 %             28 %

Mr. James A. Clishem, the Company’s former Chief Executive Officer, terminated his employment with the Company in October 2011. The Compensation Committee at that time, and in accordance with the terms of a Severance Agreement between the Company and Mr. Clishem, made a determination of the amount of corporate objective achievement at the termination date by Mr. Clishem. Based on the Severance Agreement and Company results as of the termination date and expected full-year results, the Committee determined that Mr. Clishem was entitled to a payment equal to 29% of his target award, or $100,000. This amount was paid to him shortly after his termination.

The individual objectives for each of the Named Executive Officers included the following:

Named Executive Officer
 
Individual Objectives
James A. Clishem
President & Chief Executive Officer (until October 15, 2011)
 
-           Development milestones for next generation UPS product
-           Updating company strategic plan
-           Personal education and coaching requirements
-           Organizational development objectives and succession planning for executive staff
 
John K. Penver
Chief Financial Officer, Vice President Finance and Secretary
 
-           Cash Flow from Operations targets
-           Disaster recovery/business interruption planning
-           Implementation of financial systems and reporting
 
Lisa M. Brown
Vice President Marketing & Sales Operations
 
-           Development and marketing milestone requirements of next generation UPS product
-           Develop systems to support sales activities
-           Product definition requirements for new products
-           Personal education requirements
 
Jason P. Rubin
Vice President Manufacturing
 
-           Service department profit targets
-           Inventory turn and growth targets
-           Personal education requirements
 

 
20

 

For 2011, 88% of the target bonus award for Mr. Olsen, who was our global sales executive officer, was based upon sales performance compared to our operating plan, calculated as a percentage of actual sales to the plan, for performance against plan for the level of contribution margin on Company revenue, and performance of individual sales directors under his responsibility. For 2011, his specific goals, the relative weighting and achievement versus target were as follows:

Goal
 
 
Target
   
Actual
   
% of
target
   
Weighting
 
                         
Revenue
  $ 84,800,000     $ 75,484,000       89 %     45 %
                                 
Contribution Margin
    33 %     30 %     91 %     35 %
                                 
Sales team performance
    45 %     14 %     31 %     20 %

Based on the above weightings and results, Mr. Olsen achieved 41% of his target award amount.

The remaining 12% of Mr. Olsen’s target bonus award was based on a number of individual objectives relating to his area of responsibility, including signing additional sales channel partners, assisting with product development requirements for new products and some personal education requirements.

Mr. Lindelow’s compensation for his services as the Company’s interim President and Chief Executive Officer was not contingent upon any specific individual objectives.

At year end, the Company’s interim Chief Executive Officer prepared an analysis of accomplishments relative to the established corporate and individual goals for each executive officer (excluding Mr. Clishem) for presentation to the Committee. The Committee reviewed the analysis prepared by the interim Chief Executive Officer with respect to the results and computation of the bonus award for each of the Named Executive Officers before recommending all of the bonus award payments.

The Committee used its discretion to allow for certain individual objectives for Mr. Rubin as the original targets reflected the Company’s operating plan and did not take into account the impact of lower than plan results achieved by the Company in 2011 and the impact of changes in sales mix upon the manufacturing organization. The Committee awarded him a higher bonus commensurate with the other executive officers and reflecting his incremental management and product responsibilities assumed during 2011. The results for each of our Named Executive Officers for 2011 were as follows:

Named Executive Officer
 
Target Bonus Award
   
Actual Bonus
Award
   
% of Target
 
James A. Clishem
President & Chief Executive Officer (until October 15, 2011)
  $ 344,000     $ 100,000       29 %
                         
John K. Penver
Chief Financial Officer, Vice President Finance and Secretary
  $ 140,700     $ 60,163       43 %
                         
Martin T. Olsen
Vice President Global Sales
  $ 170,000     $ 70, 150       41 %
                         
Lisa M. Brown
Vice President Marketing & Sales Operations
  $ 102,500     $ 49,405       48 %
                         
Jason P. Rubin
Vice President Manufacturing
  $ 84,330     $ 50,000       59 %

 
21

 

Stock Option and Equity Incentive Programs

The Committee believes that the interests of our stockholders are best served when a significant proportion of an executive’s compensation is comprised of equity-based or other long-term incentives that appreciate in value contingent upon increases in the price of our common stock. This is consistent with our philosophy that in the long term, our stock price will reflect our operating performance and that our management team’s compensation should be in a large part driven by our long-term results. Therefore, it has been our practice to make annual grants of equity-based awards to our Named Executive Officers. The Committee uses benchmark equity data provided annually by Radford to assist in determining the value and level of annual equity awards to make and usually targets at or around the median value level of equity grants relative to our peer group. The ultimate amount and mix of equity awards vary among Named Executive Officers based on their positions within the Company, individual performance and other factors the Committee deems relevant. The Committee approved the following annual grants of stock options to our Named Executive Officers in February 2011:

Named Executive Officer
 
 
No. of Options
Awarded
   
Option
Exercise Price
 
Date of Grant
James A. Clishem
President & Chief Executive Officer (until October 15, 2011)
    275,000     $ 2.25  
2/28/2011
John K. Penver
Chief Financial Officer, Vice President Finance and Secretary
    100,000     $ 2.25  
2/28/2011
Martin T. Olsen
Vice President Global Sales
    100,000     $ 2.25  
2/28/2011
Lisa M. Brown
Vice President Marketing & Sales Operations
    80,000     $ 2.25  
2/28/2011
Jason P. Rubin
Vice President Manufacturing
    100,000     $ 2.25  
2/28/2011

In addition to the above grants, Mr. Olsen was also awarded a further 7,500 options with an option exercise price of $2.52 in February 2011 in connection with sales incentives programs for which he was eligible in 2010, based on his 2010 sales performance when he was in charge of our global channel business.

Policy Regarding Tax Deductibility of Compensation

Within its performance-based compensation program, the Company aims to compensate the senior executive management team in a manner that is tax effective for the Company. However, the Committee may determine that it is appropriate to pay compensation which is not deductible from time-to-time.

Timing of Grants

Equity awards to our executive officers and other key employees are typically granted annually in conjunction with the review of their respective individual performance. This review takes place at regularly scheduled meetings of the Committee, which are typically held in conjunction with the meetings of our Board during the first quarter of each year. Equity awards are automatically granted to our non-executive directors on the date of our Annual Meeting of Stockholders, in accordance with the terms of our director compensation policy. Grants to newly hired employees are made in meetings of the Committee or Board, with effect from the date of the meeting. Grants to newly hired executive officers are made at the next regularly scheduled Committee meeting or at a special meeting on or following their hire date. The exercise price of all stock options is set at the closing price of our common stock on The Nasdaq Global Market on the date of grant of the award.

 
22

 

Stock Ownership Guidelines

We have a stock ownership policy that requires our non-executive directors to obtain a minimum level of stock ownership in the Company within five years of their appointment to the Board. The stock ownership policy requires the following for our non-executive directors:

 
Ÿ
With respect to all individuals who were non-executive directors on February 1, 2007 (the date of the initial adoption of the Company’s current equity ownership policy), by February 1, 2012 the directors should own stock with a value equal to three times the annual Board retainer; or

 
Ÿ
With respect to non-executive directors first appointed or elected to the Board after February 1, 2007, by the fifth-year anniversary of such date of initial appointment or election the director should own stock with a value equal to three times the annual Board retainer.

 
Ÿ
The value of this stock is measured by the higher of the original purchase price paid or the current fair market value of the shares at the time of evaluation.

All of our non-executive directors were in compliance with this policy at December 31, 2011. There currently are no stock ownership guidelines for our Named Executive Officers.

Our insider trading policy prohibits all directors and executive officers of the Company from making short sales of our stock, engaging in hedging transactions and other derivative securities involving our stock, using securities of the Company as collateral for loans, and holding Company securities in margin accounts.

Perquisites and Other Personal Benefits

The Committee does not believe that providing an executive perquisite is consistent with our pay-for-performance compensation philosophy. We have not provided any benefits to our executives that are not provided or otherwise available to all of our employees. In this regard it should be noted that we do not provide pension arrangements, post-retirement health coverage, or similar benefits for our executives or employees.

We provide employee benefits including a 401(k) plan without any matching contributions at this time, and coverage under health and insurance plans, which are the same for all employees. We also offer life insurance for all employees that provides coverage up to an employee’s salary or a maximum of $200,000. We also provide an automobile allowance to a European-based executive officer, Uwe Schrader-Hausmann, and to European-based sales and service employees that is part of the normal competitive compensation package in those markets. We do not provide such allowances to our U.S.-based executives or sales employees.

Employment Agreements with Officers

Refer to the information under Potential Payments Upon Termination or Change in Control - Termination and Change in Control Agreements for details of the employment agreements in place with our executive officers and details regarding the Separation Agreement and Release we entered into with Mr. Clishem upon his departure from the Company in October 2011.

The Committee relies on recommendations made to it by Radford with respect to competitive compensation amounts provided to executive officers, the nature and type of contractual arrangements with executive officers, including severance agreements and change of control provisions, and which executive officers will be eligible for such benefits. The Committee also asked Radford for benchmark data on severance benefits and change in control provisions relating to equity awards for executive officers. Radford provided benchmark data using the same peer group of companies that is used to guide compensation decisions, to provide specific guidelines to the Committee Based on its review of the benchmark data provided by Radford, the Committee believed it was necessary for the retention of officers and to remain competitive in employment markets for the Company to enter into such agreements with its executive officers.

In March 2010 the Company entered into severance agreements with all of its executive officers other than its Chief Executive Officer and Chief Financial Officer who were already subject to separate severance agreements. These agreements with our remaining executive officers provide that if the executive’s employment is terminated for reasons other than cause, as defined therein, or by the executive for good reason, as defined therein, then: (i) the executive shall be entitled to receive continued severance pay equal to six months of the executive’s base salary payable over such period, as well as reimbursement of health benefits during such period, (ii) the vesting under all unvested options, restricted stock, and restricted stock units shall be accelerated by six months and (iii) the executive shall be entitled to all or a pro-rated portion of the bonus under the Company’s management incentive program for the year of such severance based on the pro rata achievement of those corporate or individual objectives that are measured over a period of time, and the actual achievement of those corporate or individual objectives that are based on the occurrence of a specific event. The severance agreements further provide that such executives shall be subject to a covenant not to compete during their employment with the Company and for a period of up to six months following their employment.

 
23

 

Each of these severance agreements also provides that if within twelve months following a change in control, as defined therein, the executive officer’s employment is terminated for reasons other than cause, or by the executive for good reason, then any unvested options or shares of restricted stock or restricted stock units held by the executive on the date of such change in control would accelerate and vest in full as of the date of the termination.

 
24

 

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis (the “CD&A”) for the year ended December 31, 2011, with management. In reliance on the reviews and discussions referred to above, the Compensation Committee recommended to the Board, and the Board has approved, that the CD&A be included in the proxy statement for the year ended December 31, 2011, for filing with the Securities and Exchange Commission.

Submitted by the Compensation Committee of the Board:

 
Benjamin L. Scott (Chair)
   
 
Robert S. Greenberg
   
 
Jan H. Lindelow

 
25

 

SUMMARY COMPENSATION TABLE

Name and Principal
Position
 
Year
 
 
Salary
   
Stock
Awards
   
Option
Awards
   
Non-
Equity
Incentive
Plan
Compensation
   
All Other
Compen-
sation
   
Total
Compensation
 
     
[2]
   
[3]
   
[4]
   
[5]
   
[6]
       
Jan H. Lindelow, interim President & Chief Executive Officer (from October 16, 2011 untill March 1, 2012)  (Principal Executive Officer) [1]
2011
  $ 87,500             -       -       -     $ 87,500  
                                                 
James A. Clishem, President and Chief Executive Officer (until October 15, 2011)(Principal Executive Officer)
2011
  $ 453,006       -     $ 426,113     $ 100,000       -     $ 979,119  
 
2010
  $ 354,187       -     $ 418,938[7 ]   $ 648,900       -     $ 1,422,025  
 
2009
  $ 330,743       -     $ 242,352     $ 88,200       -     $ 661,295  
                                                   
John K. Penver, Chief Financial Officer, Vice President Finance and Company Secretary (Principal Financial Officer)
2011
  $ 230,272       -     $ 154,950     $ 60,163       -     $ 445,385  
 
2010
  $ 232,054       -     $ 209,469[7 ]   $ 210,002       -     $ 651,525  
 
2009
  $ 217,736       -     $ 130,152     $ 22,880       -     $ 370,768  
                                                   
Martin T. Olsen, Vice President Global Sales
2011
  $ 188,601       -     $ 167,966     $ 70,150       -     $ 426,717  
 
2010
  $ 169,423       -     $ 197,495[7 ]   $ 231,441     $ 35,724     $ 634,083  
 
2009
  $ 156,929       -     $ 49,368     $ 40,000       -     $ 246,297  
                                                   
Lisa M. Brown, Vice President Marketing and Sales Operations
2011
  $ 197,398       -     $ 123,960     $ 49,405       -     $ 370,763  
 
2010
  $ 197,143       -     $ 112,791[7 ]   190,575             $ 500,509  
 
2009
  $ 187,952       -     $ 76,296     37,000       -     $ 301,248  
                                                   
Jason P. Rubin, Vice President Manufacturing
2011
  $ 187,272       -     $ 154,950     $ 50,000       -     $ 392,222  
 
2010
  $ 185,990       -     $ 112,791[7 ]   $ 138,244       -     $ 437,025  
 
2009
  $ 172,668       -     $ 76,296     $ 21,760       -     $ 270,724  

[1]
Represents amount paid to Mr. Lindelow in his capacity as interim President and Chief Executive Officer. Amounts paid to Mr. Lindelow for board-related services are included under Director Compensation.

[2]
Represents total salary earned during the calendar years 2011, 2010 and 2009.

[3]
The amounts reported in this column represent the aggregate value of the stock awards granted to the Named Executive Officers during 2011, 2010 and 2009, respectively, based upon their grant date fair value, as determined in accordance with the share-based payment accounting guidance under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). Refer to the section titled “Stock-Based Compensation Expense” under Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on March 1, 2012 for the relevant assumptions used to determine the valuation of our restricted stock awards.

 
26

 

[4]
The amounts reported in this column represent the aggregate value of the stock options granted to the Named Executive Officers during 2011, 2010 and 2009, respectively, based upon their grant date fair value, as determined in accordance with the share-based payment accounting guidance under ASC 718. Refer to the section titled “Stock-Based Compensation Expense” under Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on March 1, 2012 for the relevant assumptions used to determine the valuation of our stock option awards.

[5]
Represents cash bonuses earned under the Company’s 2011 management incentive plan that were paid out in March 2012, amounts earned under the Company’s 2010 management incentive plan that were paid out in March 2011 and amounts earned under the Company’s 2009 management incentive plan that were paid out in February 2010. Also includes amounts earned under the Company’s sales incentive plan for Mr. Olsen for the applicable periods.

[6]
Represents moving and storage expenses paid to Mr. Olsen in 2010.

[7]
Included in the value of stock awards granted to Named Executive Officers during 2010 is the grant-date fair value of performance-based stock awards that were awarded in 2010. The value of the performance awards is based on the expected number of performance awards that were expected, at the time of grant, to be earned by the Named Executive Officers.

 
27

 

FISCAL 2011 GRANTS OF PLAN-BASED AWARDS

                           
All other
             
         
Estimated future payouts under non-
   
option awards.
   
Exercise or
   
Grant Date
 
         
equity incentive plan awards [1]
   
Number of
   
base price
   
Fair Value
 
                           
securities
   
of option
   
of Stock or
 
   
Grant
                     
underlying
   
awards
   
Option
 
Name and Principal Position
 
Date
   
Threshold
   
Target
   
Maximum
   
options.
   
($/share)
   
Awards
 
                                           
                                 
[2]
   
[3]
 
Jan H. Lindelow, interim President & Chief Executive Officer (from October 16, 2011 until March 1, 2012) (Principal Executive Officer) [4]
    N/A       N/A       N/A       N/A       N/A       N/A       N/A  
                                                         
James A. Clishem, President and Chief Executive Officer (until October 15, 2011) (Principal Executive Officer)
 
2/28/2011
    $ 60,200     $ 344,000     $ 825,600                          
                                                         
   
2/28/2011
                              275,000     $ 2.25     $ 426,113  
                                                         
John K. Penver, Chief Financial Officer, Vice President Finance and Company Secretary (Principal Financial Officer)
 
2/28/2011
    $ 24,623     $ 140,700     $ 337,680                          
                                                         
   
2/28/2011
                              100,000     $ 2.25     $ 154,950  
                                                         
Martin T. Olsen, Vice President Global Sales
 
2/28/2011
    $ -     $ 169,850     $ 371,429                          
                                                         
   
2/28/2011
                              100,000     $ 2.25     $ 154,950  
                                                         
   
2/18/2011
      [5 ]                     7,500     $ 2.52     $ 13,016  
                                                         
Lisa M. Brown, Vice President Marketing and Sales Operations
 
2/28/2011
    $ 17,938     $ 102,500     $ 246,000                          
                                                         
   
2/28/2011
                              80,000     $ 2.25     $ 123,960  
                                                         
Jason P. Rubin, Vice President Manufacturing
 
2/28/2011
    $ 14,758     $ 84,330     $ 202,392                          
                                                         
   
2/28/2011
                              100,000     $ 2.25     $ 154,950  

[1]
These columns show the awards that were possible at the threshold, target and maximum levels of performance under the annual management incentive plan. The target estimated future payout amount was the amount that each Named Executive Officer would earn if they accomplished 100% of the corporate and individual objectives under the annual management incentive plan. Refer to “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table for amounts actually earned for 2011.

[2]
The exercise price of the stock option awards is equal to the closing price of the common stock as reported by The Nasdaq Global Market on the date of grant of the award.

 
28

 

[3]
Refer to the section titled “Stock-Based Compensation Expense” under Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on March 1, 2012 for the relevant assumptions used to determine the valuation of our option awards.

[4]
Amounts awarded to Mr. Lindelow for his services as a director are included under Director Compensation.

[5]
Represents sales reward granted to Mr. Olsen in connection with his activities as Vice President – Channel Sales during 2010.

 
29

 

     OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END  
             
   
Option Awards
   
Stock Awards
 
   
Number of securities underlying unexercised options (#) Exercisable
   
Number of securities underlying unexercised options (#) Unexercisable
   
Option exercise price ($)
 
Option expiration date
 
Number of options vested at 12/31/11
   
Number of shares of stock that have not vested (#)
   
Market value of shares or units of stock that have not vested ($)
 
                                      [1 ]
Jan H. Lindelow, interim President & Chief Executive Officer (from October 16, 2011 until March 1, 2012) (Principal Executive Officer) [13]
                                       
                                         
James A. Clishem, President and Chief Executive Officer (until October 15, 2011) (Principal Executive Officer)
    125,000       -       2.76  
6/7/2015
    125,000[2 ]     -     $ -  
      300,000       -       3.34  
11/10/2015
    300,000[2 ]     -     $ -  
      200,000       -       4.41  
5/16/2016
    200,000[2 ]     -     $ -  
      75,000       -       2.29  
2/7/2017
    75,000[3 ]     -     $ -  
      168,800       -       1.88  
2/28/2018
    168,800[4 ]     -     $ -  
      193,750       -       0.79  
2/25/2020
    193,750[5 ]     -     $ -  
      338,750       -       0.79  
2/25/2020
    338,750[6 ]     -     $ -  
      103,125       -       2.25  
2/28/2011
    103,125[7 ]     -     $ -  
      1,504,425       -                 1,504,425       -     $ -  
                                                   
John K. Penver, Chief Financial Officer, Vice President Finance and Company Secretary (Principal Financial Officer)
    110,000       -       3.78  
2/28/2015
    110,000[2 ]     -     $ -  
      85,000       -       4.20  
2/3/2016
    85,000[2 ]     -     $ -  
      50,000       -       2.29  
2/7/2017
    50,000[3 ]     -     $ -  
      77,344       5,156       1.88  
2/28/2018
    77,344[4 ]     -     $ -  
      99,688       45,312       0.48  
2/4/2019
    99,688[8 ]     -     $ -  
      85,313       109,687       0.79  
2/25/2020
    85,313[5 ]     -     $ -  
      146,250       146,250       0.79  
2/25/2010
    146,250[6 ]     -     $ -  
      -       100,000       2.25  
2/28/2011
    -[7 ]     -     $ -  
      653,595       406,405                 653,595       -       -  
                                                   
Martin T. Olsen, Vice President Global Sales
    20,000       -       1.54  
5/18/2017
    20,000[2 ]     -     $ -  
      5,000       -       1.67  
6/7/2017
    5,000[2 ]     -     $ -  
      11,666       1,666       1.36  
4/30/2018
    11,666[9 ]     -     $ -  
      21,875       3,125       1.39  
5/21/2018
    21,875[10 ]     -     $ -  
      37,813       17,187       0.48  
2/4/2019
    37,813[8 ]     -     $ -  
      32,813       42,187       0.79  
2/25/2010
    32,813[5 ]     -     $ -  
      56,250       56,250       0.79  
2/25/2010
    56,250[6 ]     -     $ -  
      25,000       75,000       1.74  
11/3/2020
    25,000[11 ]     -     $ -  
      -       7,500       2.52  
2/18/2011
    -[12 ]     -     $ -  
      -       100,000       2.25  
2/28/2011
    -[7 ]     -     $ -  
      210,417       302,915                 210,417       -     $ -  


 
30

 

   
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
 
   
Option Awards
   
Stock Awards
 
   
Number of securities underlying unexercised options (#) Exercisable
   
Number of securities underlying unexercised options (#) Unexercisable
   
Option exercise price ($)
 
Option expiration date
 
Number of options vested at 12/31/11
   
Number of shares of stock that have not vested (#)
   
Market value of shares or units of stock that have not vested ($)
 
                                      [1 ]
Lisa M. Brown, Vice President Marketing and Sales Operations
    75,000       -       3.70  
12/1/2015
    75,000[2 ]     -     $ -  
      30,000       -       2.29  
2/7/2017
    30,000[3 ]     -     $ -  
      52,734       3,516       1.88  
2/28/2018
    52,734[4 ]     -     $ -  
      58,438       26,562       0.48  
2/4/2019
    58,438[8 ]     -     $ -  
      45,938       59,062       0.79  
2/25/2020
    45,938[5 ]     -     $ -  
      78,750       78,750       0.79  
2/25/2020
    78,750[6 ]     -     $ -  
      -       80,000       2.25  
2/28/2011
    -[7 ]     -     $ -  
      340,860       247,890                 340,860       -     $ -  
                                                   
Jason P. Rubin, Vice President Manufacturing
    625       -       2.20  
7/24/2002
    625[2 ]     -     $ -  
      15,000       -       3.51  
2/13/2014
    15,000[2 ]     -     $ -  
      30,000       -       3.59  
2/14/2015
    30,000[2 ]     -     $ -  
      40,000       -       4.20  
2/3/2016
    40,000[2 ]     -     $ -  
      30,000       -       2.29  
2/7/2017
    30,000[2 ]     -     $ -  
      42,188       2,812       1.88  
2/28/2018
    42,188[4 ]     -     $ -  
      15,938       26,562       0.48  
2/4/2019
    15,938[8 ]     -     $ -  
      45,938       59,062       0.79  
2/25/2020
    45,938[5 ]     -     $ -  
      78,750       78,750       0.79  
2/25/2020
    78,750[6 ]     -     $ -  
      -       100,000       2.25  
2/28/2011
    -[7 ]     -     $ -  
      298,439       267,186                 298,439       -       -  

[1]           Based on the closing market value of the Company’s common stock of $0.66 per share at December 30, 2011.

[2]
This option originally vested over a four-year period and is now fully vested.

[3]
This option vests over a four-year period from February 7, 2007, with 25% of the award vesting on February 7, 2008 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[4]
This option vests over a four-year period from February 28, 2008, with 25% of the award vesting on February 28, 2009 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

 
31

 

[5]
This option vests over a four-year period from February 25, 2010, with 25% of the award vesting on February 25, 2011 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[6]
This option vests over a three-year period from February 25, 2010, with 50% of the award vesting on February 25, 2011 and then 25% of the total award vesting on February 25, 2011 and 25% of the total award vesting on February 25, 2012, in each case subject to continued service with the Company.

[7]
This option vests over a four-year period from February 28, 2011, with 25% of the award vesting on February 28, 2012 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[8]
This option vests over a four-year period from February 4, 2009, with 25% of the award vesting on February 4, 2010 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[9]
This option vests over a four-year period from April 30, 2008 with 25% of the award vesting on April 30, 2009 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[10]
This option vests over a four-year period from May 21, 2008, with 25% of the award vesting on May 21, 2009 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[11]
This option vests over a four-year period from November 3, 2010, with 25% of the award vesting on November 3, 2011 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[12]
This option vests over a four-year period from February 18, 2011, with 25% of the award vesting on February 18, 2012 and then 1/16th of the total award vesting in 12 quarterly installments over the subsequent three-year period, in each case subject to continued service with the Company.

[13]
Amounts outstanding for Mr. Lindelow are included under Director Compensation.

 
32

 

OPTION EXERCISES AND STOCK VESTED

The following table shows options exercised and restricted stock vested for our Named Executive Officers during 2011:

   
Option Awards
   
Stock Awards
 
             
Name
 
Number of shares acquired on exercise
   
Value realized on exercise
   
Number of shares acquired on vesting
   
Value realized on vesting
 
                         
Jan H. Lindelow, interim President & Chief Executive Officer (from October 16, 2011 until March 1, 2012) (Principal Executive Officer)
    -     $ -       -     $ -  
                                 
James A. Clishem, President and Chief Executive Officer (until October 15, 2011) (Principal Executive Officer)
    386,250     $ 83,779       7,500     $ 16,875  
                                 
John K. Penver, Chief Financial Officer, Vice President Finance and Company Secretary (Principal Financial Officer)
    -     $ -       3,667     $ 8,249  
                                 
Martin T. Olsen, Vice President Global Sales
    -     $ -       -     $ -  
                                 
Lisa M. Brown, Vice President Marketing and Sales Operations
    -     $ -       2,500     $ 5,625  
                                 
Jason P. Rubin, Vice President Manufacturing
    46,937     $ 88,929       2,000     $ 4,500  

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

2010 Equity Incentive Plan

In the event of a Change in Control (as defined in the 2010 Plan), each outstanding Award (as defined in the 2010 Plan) will be treated as the Administrator (as defined in the 2010 Plan) determines without a participant’s consent, including, without limitation, that (i) Awards will be assumed, or substantially equivalent Awards will be substituted, by the acquiring or succeeding corporation (or an affiliate thereof) with appropriate adjustments as to the number and kind of shares and prices; (ii) upon written notice to a participant, that the participant’s Awards will terminate upon or immediately prior to the consummation of such merger or Change in Control; (iii) outstanding Awards will vest and become exercisable, realizable, or payable, or restrictions applicable to an Award will lapse, in whole or in part prior to or upon consummation of such merger or Change in Control, and, to the extent the Administrator determines, terminate upon or immediately prior to the effectiveness of such merger of Change in Control; (iv) (A) the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the participant’s rights as of the date of the occurrence of the transaction, or (B) the replacement of such Award with other rights or property selected by the Administrator in its sole discretion; or (v) any combination of the foregoing.

In the event that the successor corporation does not assume or substitute for the Award (or portion thereof), the participant will fully vest in and have the right to exercise all of his or her outstanding options and stock appreciation rights that are not assumed or substituted for, including shares as to which such Awards would not otherwise be vested or exercisable, all restrictions on Restricted Stock, Restricted Stock Units, and Performance Shares/Units (each as defined in the 2010 Plan) not assumed or substituted for will lapse, and, with respect to Awards with performance-based vesting not assumed or substituted for, all performance goals or other vesting criteria will be deemed achieved at one hundred percent (100%) of target levels and all other terms and conditions met. In addition, if an option or stock appreciation right is not assumed or substituted for in the event of a Change in Control, the Administrator will notify the participant in writing or electronically that the option or stock appreciation right will be fully vested and exercisable for a period of time determined by the Administrator in its sole discretion, and the option or stock appreciation right will terminate upon the expiration of such period.

 
33

 

An Award will be considered assumed if, following the merger or Change in Control, the Award confers the right to purchase or receive, for each share subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash, or other securities or property) or, in the case of a stock appreciation right upon the exercise of which the Administrator determines to pay cash or a Restricted Stock Unit, Performance Share or Performance Unit which the Administrator can determine to pay in cash, the fair market value of the consideration received in the merger or Change in Control by holders of the common stock of the Company for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of an option or stock appreciation right or upon the payout of a Restricted Stock Unit, Performance Unit or Performance Share, for each share subject to such Award (or in the case of an Award settled in cash, the number of implied shares determined by dividing the value of the Award by the per share consideration received by holders of common stock in the merger or Change in Control), to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control.

For purposes of the 2010 Plan, “Change in Control” means the occurrence of any of the following events: (i) a change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, together with the stock held by such Person, constitutes more than fifty percent (50%) of the total voting power of the stock of the Company; provided, however, that for purposes of this subsection (i), the acquisition of additional stock by any one Person, who is considered to own more than fifty percent (50%) of the total voting power of the stock of the Company will not be considered a Change in Control, (ii) if the Company has a class of securities registered pursuant to Section 12 of the Exchange Act, a change in the effective control of the Company which occurs on the date that a majority of members of the Board is replaced during any twelve (12) month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this subsection (ii), if any Person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or, or (iii) a change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the twelve (12) month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for purposes of this subsection (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets: (A) a transfer to an entity that is controlled by the Company’s stockholders immediately after the transfer, or (B) a transfer of assets by the Company to: (1) a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company’s stock, (2) an entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by the Company, (3) a Person, that owns, directly or indirectly, fifty percent (50%) or more of the total value or voting power of all the outstanding stock of the Company, or (4) an entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a Person described in subsection (iii)(B)(3). For purposes of this subsection (iii), gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. Persons will be considered to be acting as a group if they are owners of a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company. Notwithstanding the foregoing, a transaction shall not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Section 409A of the Internal Revenue Code of 1986, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time. Further and for the avoidance of doubt, a transaction shall not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that shall be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

 
34

 

Termination and Change in Control Agreements

Except as otherwise noted, we have formal written severance agreements with all of our executive officers that provide for certain benefits if severance arises in connection with a change in control of the Company. Mr. Lindelow was not eligible for any severance benefits in connection with his service as interim President and Chief Executive Officer of the Company.

Mr. Penver’s severance agreement provides that if his employment is terminated for reasons other than cause, as defined below, or by Mr. Penver for good reason, as defined below, then he shall be entitled to receive continued severance pay equal to nine months of his then-current base salary payable over such period, as well as reimbursement of health benefits during such period. In addition, Mr. Penver’s severance agreement provides that the vesting under all unvested options and restricted stock would be accelerated by nine months. He also would be entitled to his bonus under the Company’s management incentive program (i) as to a prorated portion, with respect to performance objectives that are measured over a period of time to the extent the objectives (as prorated for his period of employment during such performance period) are actually achieved prior to the date of employment termination, and (ii) as to the full amount with respect to performance objectives that are measured on the basis of the occurrence of an event, to the extent such objective is actually achieved prior to the date of employment termination. Mr. Penver’s severance agreement further provides that Mr. Penver execute a release of claims in favor of the Company, and be subject to noncompetition and non-solicitation covenants for a period of up to nine months following his employment.

Mr. Penver’s severance agreement also provides that if within twelve months following a change in control his employment is terminated for reasons other than cause, or by him for good reason, then any unvested options or shares of restricted stock granted to him prior to the date of such change in control would accelerate and vest in full, to the extent outstanding, as of the date of the termination.

In March 2010, the Board approved the execution by the Company of a severance agreement (the “Severance Agreements”) with each executive officer of the Company, other than John Penver, including Martin Olsen, Jason Rubin and Lisa Brown. Each of the Severance Agreements provides that if within twelve months following a change in control the executive’s employment is terminated for reasons other than cause, as defined below, or by the executive for good reason, as defined below, then the executive shall be entitled to receive continued severance pay equal to six months of their then-current base salary payable over such period, as well as reimbursement of health benefits during such period. In addition, the Severance Agreements provide that the vesting under all unvested options and restricted stock would be accelerated by six months. Each executive would also be entitled to his or her annual bonus under the Company’s management incentive program (i) as to a prorated portion, with respect to performance objectives that are measured over a period of time to the extent the objectives (as prorated for the period of employment during such performance period) are actually achieved prior to the date of employment termination, and (ii) as to the full amount with respect to performance objectives that are measured on the basis of the occurrence of an event, to the extent such objective is actually achieved prior to the date of employment termination. The Severance Agreements further provide that each executive execute a release of claims in favor of the Company, and be subject to noncompetition and non-solicitation covenants for a period of up to six months following his or her employment.

Each of the Severance Agreements also provides that if within twelve months following a change in control, as defined therein, the executive officer’s employment is terminated for reasons other than cause, or by the executive for good reason, then any unvested options or shares of restricted stock held by the executive on the date of such change in control would accelerate and vest in full as of the date of the termination.

For the purposes of each of the Severance Agreements, “cause” means (i) the executive’s continued failure to substantially perform the duties and obligations of executive’s position (for reasons other than death or disability (as defined in the Severance Agreements)), which failure, if curable within the discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice from the Company of such failure; (ii) the executive’s failure or refusal to comply with reasonable written policies, standards and regulations established by the Company from time to time which failure, if curable in the discretion of the Company, is not cured to the reasonable satisfaction of the Company within thirty (30) days after receipt of written notice of such failure from the Company; (iii) any act of personal dishonesty, fraud, embezzlement, misrepresentation, or other unlawful act committed by the executive that results in a substantial gain or personal enrichment of the executive at the expense of the Company; (iv) the executive’s violation of a federal or state law or regulation applicable to the Company’s business, which violation was or is reasonably likely to be materially injurious to the Company; (v) the executive’s violation of, or a plea of nolo contendere or guilty to, a felony under the laws of the U.S. or any state; or (vi) the executive’s material breach of certain terms of that executive’s agreements with the Company, including confidentiality obligations.

 
35

 

For purposes of each of the Severance Agreements, “good reason” means, without the executive’s written consent: (i) there is a material reduction of the level of the executive’s compensation (excluding any bonuses) (except where there is a general reduction applicable to the management team generally); (ii) there is a material reduction in the executive’s overall responsibilities or authority, or scope of duties, it being understood that a reduction in the executive’s responsibilities or authority following a change in control shall not constitute good reason unless there also occurs a demotion in the executive’s title or position; or (iii) a material change in the geographic location at which the executive must perform his services; provided that in no instance will the relocation of the executive to a facility or a location of fifty (50) miles or less from the executive’s then current office location be deemed material for purposes of the agreement.

Had their employment been terminated on December 31, 2011 by us for reasons other than cause or by the executive for good reason, these Named Executive Officers would have been eligible to receive the payments set forth in the table below. These payments include amounts earned through such time and are only estimates of the amounts that would be paid to these executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

POTENTIAL PAYMENTS UNDER TERMINATION ARRANGEMENTS

Name
 
 
Salary
   
Benefits
   
Accrued
Vacation
Pay
   
Accelerated
Vesting of
Restricted
Stock [1]
   
Accelerated
Vesting of
Stock Options
[2]
   
Total
 
John K. Penver
  $ 177,885     $ 12,304     $ 34,762     $ -     $ 6,525     $ 231,476  
                                                 
Martin T. Olsen
  $ 109,686     $ 8,203     $ 33,077     $ -       2,475     $ 153,441  
                                                 
Lisa M. Brown
  $ 104,585     $ 5,481     $ 16,605     $ -     $ 3,825     $ 130,496  
                                                 
Jason P. Rubin
  $ 95,585     $ 8,989     $ 31,707     $ -     $ 1,434     $ 137,715  

[1]
Based upon the closing price of the Company’s common stock at December 30, 2011 of $0.66 per share.

[2]
Represents the value realized upon accelerated vesting of options in the event of a termination for reasons other than cause or by the executive for good reason and is based upon the difference between the exercise price of accelerated options for our Named Executive Officers at December 30, 2011 and the closing price of the Company’s common stock at that date of $0.66.

If their employment had been terminated on December 31, 2011 by us for reasons other than cause or by the executive for good reason as a result of a change in control of the Company, these Named Executive Officers would have been eligible to receive the payments set forth in the table below. These payments include amounts earned through such time and are only estimates of the amounts that would be paid to these executives upon their termination. The actual amounts to be paid out can only be determined at the time of such executive’s separation from the Company.

 
36

 


Name
 
 
Salary
   
Benefits
   
Accrued
Vacation
Pay
   
Accelerated
Vesting of
Restricted
Stock [1]
   
Accelerated
Vesting of
Stock Options
[2]
   
Total
 
John K. Penver
  $ 177,885     $ 12,304     $ 34,762     $ -     $ 8,156     $ 233,107  
                                                 
Martin T. Olsen
  $ 109,686     $ 8,203     $ 33,077     $ -     $ 3,094     $ 154,060  
                                                 
Lisa M. Brown
  $ 104,585     $ 5,481     $ 16,605     $ -     $ 4,781     $ 131,452  
                                                 
Jason P. Rubin
  $ 95,585     $ 8,989     $ 31,707     $ -     $ 4,781     $ 141,062  

[1]
Based upon the closing price of the Company’s common stock at December 30, 2011 of $0.66 per share.

[2]
Represents the value realized upon accelerated vesting of options in the event of a change in control and is based upon the difference between the exercise price of all outstanding options for our Named Executive Officers at December 30, 2011 and the closing price of the Company’s common stock at that date of $0.66.

Separation Agreement with Mr. Clishem

On October 15, 2011, James A. Clishem resigned from his role as Chief Executive Officer and President of the Company and from the Board. In connection with Mr. Clishem’s resignation, in accordance with the Severance Benefits Agreement dated April 14, 2010 by and between the Company and Mr. Clishem, the Company and Mr. Clishem entered into a Separation Agreement and Release, which, among other things, provides the following:

 
·
Continuation of payment of Mr. Clishem’s base salary of $344,000, at the rate of $28,666.67 per month, less applicable withholding, for twelve (12) months in accordance with the Company’s regular payroll practices;

 
·
reimbursement for continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended for a period of twelve (12) months, or until Mr. Clishem has secured other employment, whichever occurs first;

 
·
payment to Mr. Clishem of a lump sum of $100,000, less applicable withholding, for his 2011 bonus; and

 
·
acceleration of the vesting of 435,475 shares (equivalent to an additional one (1) year of vesting) under all outstanding stock option agreements between the Company and Mr. Clishem that would have otherwise remained unvested as of the date of Mr. Clishem’s resignation, such that Mr. Clishem will be vested in a total of 1,890,675 shares pursuant to such stock option agreements.

The foregoing is subject to (i) a release of the Company by Mr. Clishem for all claims (other than for payment of the foregoing), (ii) Mr. Clishem’s compliance with non-competition and non-solicitation covenants for 12 months post-termination and continued observance of his obligations to the Company under his current proprietary information and nondisclosure agreement, and (iii) Mr. Clishem’s compliance with customary non-disparagement covenants.

 
37

 

DIRECTOR COMPENSATION

Name
 
Fees earned or
paid in cash $
   
Stock awards
$
   
Option awards
$
   
Total
compensation
 
               
[1]
       
James A. Clishem
 
Included in executive compensation table
 
                         
Ake Almgren
  $ 42,500     $ -     $ 48,783     $ 91,283  
                                 
Rodney Bond
  $ 50,000     $ -     $ 48,783     $ 98,783  
                                 
James E. J. deVenny III
  $ 43,750     $ -     $ 48,783     $ 92,533  
                                 
Robert S. Greenberg
  $ 43,750             $ 48,783     $ 92,533  
                                 
Jan Lindelow
  $ 35,000     $ -     $ 48,783     $ 83,783  
                                 
Benjamin Scott
  $ 70,000     $ -     $ 48,783     $ 118,783  
                                 
total - all directors
  $ 285,000     $ -     $ 292,698     $ 577,698  

[1]
Represents the amount of fair value of the option award on the date that such option award was granted to our directors by the Company during 2011. Refer to the section titled “Stock-Based Compensation Expense” under Note 1, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K filed on March 1, 2012 for the relevant assumptions used to determine the valuation of our stock option awards.

The following table shows the aggregate number of option awards outstanding for each of our directors as of December 31, 2011 as well as the number of shares underlying option awards during 2011 and the grant date fair value of option grants made to directors during 2011:

   
Aggregate number
of options
outstanding at
December 31, 2011
   
Option awards
made during
2011
   
Grant date fair
value of option
awards made
during 2011
 
                   
James A. Clishem
  Included in executive compensation table  
       
Ake Almgren
    150,000       30,000     $ 48,783  
                         
Rodney Bond
    172,500       30,000     $ 48,783  
                         
James E. J. deVenny III
    105,000       30,000     $ 48,783  
                         
Robert S. Greenberg
    90,000       30,000     $ 48,783