SCHEDULE 14A INFORMATION

                                                                                                                                                                                                      

 

 

TABLE OF CONTENTS

Title

 

INFORMATION CONCERNING SOLICITATION AND VOTING	1
Quorum	2
Vote Required	2
Abstentions	3
Broker Voting	3
PROPOSAL 1 ELECTION OF DIRECTORS	4
CORPORATE GOVERNANCE	7
General	7
Committees of the Board of Directors	7
Audit and Finance Committee	7
Corporate Development and Governance Committee	8
Compensation and Management Committee	8
Shareholder Recommendations and Standards for Director Nominations	9
Annual Meeting Attendance	9
Executive Sessions	9
Communicating with the Board of Directors	9
Code of Ethics	10
Related Party Transactions	10
Risk Management	10
DIRECTOR COMPENSATION	11
Director Cash Compensation	11
Directors’ Stock-Based Incentive Compensation	12
Director Compensation for 2013	13
Executive compensation	14
Compensation Overview	14
Retirement Benefits	20
Perquisites and Other Personal Benefits	20
Stock Ownership and Retention Guidelines	20
Deductibility of Executive Compensation	21
Accounting for Stock-Based Compensation	21
2013 Summary Compensation Table	21
Employment Arrangements	22
Mr. Popielec	22
Other Executive Officers	23
Outstanding Equity Awards at December 31, 2013	23
Proposal 2 Ratify the selection of our independent registered public accounting firm	26
Principal Accountant Fees and Services	26
Audit Fees	26
Audit-Related Fees	26
Tax Fees	26
All Other Fees	26

 

 

 

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REPORT OF THE AUDIT AND FINANCE COMMITTEE	27
PROPOSAL 3 APPROVE THE NEW 2014 LTIP	28
Equity Compensation Plan Information	28
Summary of New LTIP	28
New Plan Benefits	32
Tax Status of New LTIP Awards	32
Stock Price	33
Required Vote and Board of Directors’ Recommendation	33
Other Matters	34
EXECUTIVE OFFICERS	34
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS	35
SECURITY OWNERSHIP OF MANAGEMENT	36
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE	37
SUBMISSION OF SHAREHOLDER PROPOSALS	37

 

 

 

 

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IMPORTANT

REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE MEETING, WE ENCOURAGE YOU TO VOTE IN ANY OF THE MANNERS DESCRIBED IN THIS PROXY STATEMENT. WE ALSO ENCOURAGE BENEFICIAL OWNERS TO FOLLOW THE INSTRUCTIONS PROVIDED BY YOUR BROKER REGARDING HOW TO VOTE. YOUR BROKER CANNOT VOTE YOUR SHARES FOR DIRECTOR NOMINEES OR PROPOSALS 3 AND 4 UNLESS YOU PROVIDE YOUR BROKER WITH VOTING INSTRUCTIONS.  SEE “BROKER VOTING” FOR MORE INFORMATION.

ULTRALIFE CORPORATION

2000 Technology Parkway

Newark, New York 14513

(315) 332-7100

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

JUNE 3, 2014

INFORMATION CONCERNING SOLICITATION AND VOTING

 

We are furnishing this proxy statement to our shareholders in connection with our Board of Directors’ solicitation of proxies for use at our 2014 Annual Meeting of Shareholders, which we refer to in this proxy statement as the Meeting, to be held on Tuesday, June 3, 2014, at 9:00 A.M. local time and at any adjournments thereof.  The Meeting will be held at the Crystal City Marriott at Reagan National Airport, 1999 Jefferson Davis Highway, Arlington, VA 22202-3526.

 

In accordance with rules and regulations adopted by the U.S. Securities and Exchange Commission, which we refer to in this proxy statement as the SEC, instead of mailing a printed copy of our proxy materials to each shareholder of record, we are now furnishing proxy materials to our shareholders on the Internet.  If you received only a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials unless you request a copy.  Instead, the Notice of Internet Availability of Proxy Materials will instruct you how to access and review the proxy materials over the Internet.  The Notice of Internet Availability of Proxy Materials will also instruct you as to how you may submit your proxy over the Internet.  If you received only a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, please follow the instructions for requesting those materials included in the Notice of Internet Availability of Proxy Materials.

 

The Notice of Internet Availability of Proxy Materials is first being sent to our shareholders on or about April 21, 2014 and our proxy materials are first being made available to our shareholders on or about April 21, 2014.

 

You may vote by proxy or in person at the Meeting.  If you received only a Notice of Internet Availability of Proxy Materials by mail, you may vote your shares online by proxy at the Internet site address listed on your Notice of Internet Availability.  You may also request a paper copy of our proxy materials by (i) visiting the Internet site address, (ii) calling the toll-free number or (iii) by sending an email to the email address listed on your Notice of Internet Availability of Proxy Materials.  If you received a paper copy of the proxy materials by mail, you may vote your shares by proxy by doing any one of the following: vote at the Internet site address listed on your proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or mail your signed and dated proxy or voting instruction card to our tabulator in the self-addressed envelope provided.  Even if you plan to attend the Meeting in person, we recommend that you vote by proxy prior to the Meeting.  You can always change your vote as described below.

 

 

 

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When a proxy card is returned properly signed and dated, the shares represented thereby will be voted in accordance with the shareholder’s directions.  If the proxy is signed, dated and returned without choices having been specified, the shares will be voted FOR the election of each director-nominee named therein and FOR the other proposals identified therein.

 

You may receive more than one Notice of Internet Availability of Proxy Materials or more than one paper copy of the proxy materials, including multiple paper copies of this proxy statement and multiple proxy or voting instruction cards, depending on how you hold your shares.  For example, if you hold your shares in more than one brokerage account, you may receive a separate Notice of Internet Availability of Proxy Materials, a separate e-mail or a separate voting instruction card for each brokerage account in which you hold your shares.  If you are a shareholder of record and your shares are registered in more than one name, you may receive more than one Notice of Internet Availability of Proxy Materials, more than one e-mail or more than one proxy card.  To vote all of your shares by proxy, you must vote at the Internet site address listed on your Notice of Internet Availability of Proxy Materials, proxy or voting instruction card; call the toll-free number listed on your proxy or voting instruction card; or sign, date and return each proxy card and voting instruction card that you receive.

 

If for any reason any of the nominees for election as directors become unavailable for election, discretionary authority may be exercised by the proxies to vote for substitute nominees proposed by our Board of Directors.  A shareholder has the right to revoke a previously granted proxy at any time before it is voted by filing with our Corporate Secretary a written notice of revocation, or a duly executed later-dated proxy, or by requesting return of the proxy and voting in person at the Meeting.

 

We will bear the cost of soliciting proxies.  In addition to the solicitation of proxies by use of the mails, some of our officers, directors and regular employees, without extra remuneration, may solicit proxies personally or by telephone, email or similar transmission.  We have not engaged a proxy solicitation firm, but we may decide to retain the services of a proxy solicitation firm in the future if we believe it is appropriate under the circumstances.  In those situations where the beneficial owner of shares is not the record holder, we will reimburse record holders for reasonable expenses in forwarding proxies and proxy soliciting material to the beneficial owners of the shares.

 

Only shareholders of record at the close of business on April 11, 2014 are entitled to notice of, and to vote at, the Meeting.  As of April 11, 2014, there were 17,526,229 shares of our common stock, par value $.10 per share, issued and outstanding, each entitled to one vote per share at the Meeting.

 

  Quorum

 

A majority of the outstanding shares of our common stock, represented in person or by proxy at the Meeting, will constitute a quorum with respect to the voting of proposals submitted to the shareholders, as described in this proxy statement.  For purposes of determining whether a quorum is present, shareholders of record who are present at the Meeting in person or by proxy are considered to be present at the Meeting.

 

  Vote Required

 

The table below shows the vote required at the Meeting to approve each of the proposals described in this proxy statement, assuming the presence of a quorum:

 

 

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Proposal		Vote Required
1.  Election of directors		Plurality of the shares present in person or by proxy at the Meeting and entitled to vote
2.  Ratification of the selection of Bonadio & Co., LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2014		Majority of the shares present in person or by proxy at the Meeting and entitled to vote*
3.  Approval of a new 2014 Long-Term Incentive Plan (“LTIP”)		Majority of the shares present in person or by proxy at the Meeting and entitled to vote

 

*	The selection of Bonadio & Co., LLP is being presented to our shareholders for ratification. The Audit and Finance Committee will consider the outcome of this vote when selecting our independent registered public accounting firm for subsequent fiscal years.

 

Abstentions

 

Shares that abstain from voting on one or more proposals to be acted on at the Meeting are considered to be present for the purpose of determining whether a quorum exists.  Abstentions will have no effect on the election of directors; however, abstentions will have the effect of voting against the other proposals set forth in this proxy statement, because abstentions are deemed to be present and entitled to vote but do not count toward the affirmative vote required to approve the proposal.

 

Broker Voting

 

If you own your shares through a broker and do not provide your broker with specific voting instructions, your broker will have the discretion under the rules governing brokers who have record ownership of shares that they hold in street name for their clients to vote your shares on routine matters but not otherwise.  The only proposal being submitted to the shareholders which is considered routine and as to which brokers may exercise discretion to vote is ratification of the selection of our independent registered public accounting firm.  Brokers will not be permitted to vote shares they hold as nominee in their discretion in the election of directors or in approving the LTIP. If you want your broker-owned shares to be counted in the election of directors, and in approving the LTIP, you must provide instructions to your broker on how to vote your shares .

 

A broker non-vote occurs when shares held by a broker are not voted on a non-routine proposal because the broker has not received voting instructions from the beneficial owner and the broker lacks discretionary authority to vote the shares in the absence of such instructions.  Shares subject to broker non-votes are considered to be present for the purpose of determining whether a quorum exists and thus count towards satisfying the quorum requirement but are not counted for purposes of determining the number of shares entitled to vote on non-routine matters.  A broker non-vote will have no effect on the election of directors or on the approval of the LTIP since, with respect to non-routine matters, broker non-votes will not be counted for purposes of determining the number of shares entitled to vote on such proposals.

 

 

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PROPOSAL 1

ELECTION OF DIRECTORS

 

Our Board of Directors currently has six directors, six of whom have been nominated to serve for an additional one-year term.    If elected, each director standing for election shall serve until the next annual meeting of shareholders and until his or her successor shall have been elected and qualified.  The names of, and certain information with respect to, the persons nominated for election as directors are presented below.

 

Name	Age		Present Principal Occupation, Employment History and Expertise
Steven M. Anderson	57		Brigadier General (Ret.) Anderson has been a director since April 13, 2010.  General (Ret.) Anderson is currently Senior Vice President of Relyant, LLC, a service-disabled veteran-owned small business and global provider of solutions to complex projects.  Prior to joining Relyant, LLC in February 2011, General (Ret.) Anderson served as Chief Operating Officer for Synovision Solutions LLC, a service-disabled veteran-owned small business specializing in unique applications of emerging technology, many central to innovative energy solutions.  General (Ret.) Anderson, a career military officer who retired from active duty in November 2009, served for five years as a general officer in the US Army, including 15 months as the senior US and coalition logistician in Iraq in support of Operation Iraqi Freedom.  From 2004 to 2006, General (Ret.) Anderson served as the senior US logistician in Korea (Deputy C-4 for the United Nations Command/Combined Forces Command and J4, United States Forces Korea) and spearheaded the development of Camp Humphreys, the combined and US headquarters facility in Central Korea.  He served in various command positions including Commander, Division Support Command, 2 nd Infantry Division, Korea (2000-02), and Commander, 725 th Main Support Battalion, 25 th Infantry Division (Light), Schofield Barracks, Hawaii (1995-97).  In his final military assignment, he served for two years on the Army Staff in the Pentagon as the Director, Operations and Logistics Readiness, Office of the Army Deputy Chief of Staff, G4 (logistics).  General (Ret.) Anderson is a 1978 graduate of the US Military Academy at West Point and earned a Masters of Science degree in Operations Research and Systems Analysis Engineering at the Naval Postgraduate School in 1987.  General (Ret.) Anderson has been nominated for re-election to our Board of Directors because of his familiarity with the US military and knowledge of its procurement processes and policies, which is one of our important customer bases.
Michael D. Popielec	52		Mr. Popielec was appointed as our President and Chief Executive Officer and as a director effective December 30, 2010.  Mr. Popielec has 28 years experience in growing domestic and international industrial businesses.  Prior to joining us, Mr. Popielec operated his own management consulting business in 2009 to 2010 and was Group President, Applied Technologies in 2008 and 2009 and Group President, Diversified Components from 2005 to 2007 at Carlisle Companies, Inc., a $2.5 billion diversified global manufacturer.  Prior to that, from 2003 to 2005, he held various positions, including Chief Operating Officer, Americas, for Danka Business Systems, PLC.  From 1985 to 2002, Mr. Popielec held positions of increasing responsibility at General Electric Company, most recently as a GE corporate officer and President and Chief Executive Officer of GE Power Controls, the European arm of GE Industrial Systems.  Mr. Popielec has a B.S. in Mechanical Engineering from Michigan State University.  Mr. Popielec has been nominated for re-election to our Board of Directors because of his operations expertise and his experience in growing domestic and international industrial businesses.

 

 

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Name	Age		Present Principal Occupation, Employment History and Expertise
Thomas L. Saeli	57		Mr. Saeli has been a director since March 5, 2010.  Since March 2011, Mr. Saeli has served as the Chief Executive Officer and, since October 2011, as a director of JRB Enterprises, Inc., a manufacturer of commercial and industrial roofing systems.  Prior to that, Mr. Saeli was a business consultant to international corporate clients on matters involving business development strategies, consolidations, acquisitions and operations.  He previously served as Chief Executive Officer and a member of the Board of Directors of Noble International, Ltd., an automotive supplier of engineered laser-welded steel blanks and roll-formed products, from March 2006 to April 13, 2009 when he resigned those positions.  Noble International, Ltd. filed for voluntary relief under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of Michigan on April 15, 2009.  From 1998 through 2006, Mr. Saeli served as Vice President of Corporate Development for Lear Corporation, an automotive supplier of seating, electronics and interior products, where he also served as Vice President of Mergers and Acquisitions.  Mr. Saeli also serves on the Boards of Directors of Advance Capital Management, a mutual fund, and The Oakwood Hospital System in Dearborn, Michigan.  Mr. Saeli has been nominated for re-election to our Board of Directors because of his manufacturing, corporate development, mergers and acquisitions and finance experience.  Mr. Saeli also qualifies as an audit committee financial expert under applicable SEC rules.
Robert W. Shaw II	57		Mr. Shaw has been a director since June 8, 2010.  From 2010 to 2013 Mr. Shaw was the President of Hornblower Yachts, Inc., the largest dining and excursion boat operator in the United States, with over 50 vessels serving California and New York with the Hornblower, Alcatraz and Statue Cruises brands.  From 2007 to 2010, he was President of R.M. Thornton, Inc., a mechanical contracting company specializing in the Federal government and healthcare markets.  Prior to that, from 1995 to 2006, Mr. Shaw was Chief Executive Officer and Managing Partner at Odyssey Cruises/Premier Yachts, Inc., a leading U.S. dining and excursion boat operator, where he successfully led the company through a sale process to private equity firm ICV Capital Partners.  From 1989 to 1995, he served in Sodexho, S.A., one of the world’s largest contract services providers, as both President and Chief Executive Officer of Spirit Cruises, Inc., and Division President of The Seiler Corporation.  Mr. Shaw served in the US Marine Corps from 1978 to 1982 as an infantry Captain.  Mr. Shaw has consulted or served on a number of boards of advisors of various non-public organizations and he has been nominated for re-election to our Board of Directors because of his management expertise and experience as an executive officer.

 

 

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Name	Age		Present Principal Occupation, Employment History and Expertise
Ranjit C. Singh	61		Mr. Singh has been a director since August 2000, and served as Chair of the Board of Directors from December 2001 to June 2007.  Mr. Singh is currently Chief Executive Officer of CSR Consulting Group, which provides business and technology consulting services.  He previously served as President and Chief Executive Officer of Aptara, Inc. (formerly known as Tech Books), a content outsourcing services company, from February 2003 until July 2008.  From February 2002 to February 2003, Mr. Singh served as President and Chief Executive Officer of Reliacast Inc., a video streaming software and services company.  Prior to that, he was President and Chief Operating Officer of ContentGuard, which develops and markets digital property rights software.  Before joining ContentGuard earlier in 2000, Mr. Singh worked for Xerox as a corporate Senior Vice President in various assignments related to software businesses.  Mr. Singh joined Xerox in 1997, having been employed by Citibank where he was Vice President of Global Distributed Computing.  Prior to that, he was a principal at two start-up companies and also held executive positions at Data General and Digital Equipment Corporation.  Mr. Singh has been nominated for re-election to our Board of Directors because of his experience as an executive of growing technology-based companies.
Bradford T. Whitmore	56		Mr. Whitmore has been a director since June 2007 and Chair of the Board of Directors since March 2010.  Since 1985, he has been the Managing Partner of Grace Brothers, Ltd., an investment firm which holds approximately 3% of the outstanding shares of our common stock.  Mr. Whitmore and Grace Brothers, Ltd. collectively hold slightly less than 30% of the outstanding shares of our common stock.  Within the past five years, Mr. Whitmore has served as a director of several non-public companies related to ownership of Grace Brothers, Ltd./affiliates investments as well as not-for-profit organizations.  Mr. Whitmore has been nominated for re-election to our Board of Directors because of his corporate development expertise.

Our Board of Directors has approved the above-named nominees for directors.  Our Board of Directors recommends a vote FOR all of these nominees. Unless otherwise directed on your proxy, your shares will be voted FOR the above-named nominees for directors.

 

 

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CORPORATE GOVERNANCE

 

General

 

Pursuant to the General Corporation Law of the State of Delaware, the state under which we were organized, and our By-laws, our business, property and affairs are managed by or under the direction of our Board of Directors.  Members of our Board of Directors are kept informed of Company business through regular discussions with our President and Chief Executive Officer and our Chief Financial Officer and Treasurer, by reviewing materials provided to them by the Company’s management and by participating in meetings of the Board and its committees.

 

Our Board of Directors has determined that all of our directors (other than Michael D. Popielec, who serves as our President and Chief Executive Officer) are “independent” for purposes of NASDAQ listing standards.  Our Board of Directors has also determined that the Chair of the Board of Directors should be an independent director.  We believe that the segregation of the roles of Board Chair from that of the President and Chief Executive Officer ensures better overall governance of our Company and provides meaningful checks and balances regarding our overall performance.  This structure allows our President and Chief Executive Officer to focus on our business while the Board Chair leads our Board of Directors in establishing corporate policy and enhancing our governance structure and practices.

 

Our Board of Directors has three standing committees: an Audit and Finance Committee, a Corporate Development and Governance Committee and a Compensation and Management Committee.  During 2013, our Board of Directors held eight meetings and the committees of our Board of Directors held a total of twenty-five meetings.  During 2013, Bradford T. Whitmore served as our Board Chair.  As Board Chair, Mr. Whitmore served as a non-voting ex-officio member of all of our Board committees.  Each director attended at least 75% of the aggregate of: (1) the total number of meetings of the Board; and (2) the total number of meetings held by all committees of the Board on which he or she served.

 

Our Board of Directors has adopted a charter for each of the three standing committees that addresses the composition and function of each committee and has also adopted Corporate Governance Principles that address the composition and function of the Board of Directors.  These charters and Corporate Governance Principles are available on our website at http://investor.ultralifecorporation.com under the subheading “Corporate Governance.”  Pursuant to our Corporate Governance Principles, it is our policy that directors retire from service at the annual meeting following a director’s 70 th birthday.

 

Our Board of Directors has determined that all of the directors who serve on these committees are “independent” for purposes of NASDAQ listing standards, and that the members of the Audit and Finance Committee are also “independent” for purposes of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended, which we refer to in this proxy statement as the Exchange Act.  Our Board of Directors based these determinations primarily on a review of the responses of the directors to questions regarding employment, compensation history, affiliations and family and other relationships, and on follow-up discussions.

 

Committees of the Board of Directors

 

The composition and the functions of our three standing committees of our Board of Directors are set forth below.  Our Board of Directors will meet after the Meeting to appoint members of the committees and designate Chairs of those committees from among those individuals elected at the Meeting to serve on our Board of Directors until the 2015 annual meeting of shareholders.

 

Audit and Finance Committee

 

The current members of the Audit and Finance Committee are Thomas L. Saeli (Chair), Steven M. Anderson and Robert W. Shaw II.  This committee selects our independent registered public accounting firm, subject to ratification of our full Board of Directors, and has oversight responsibility for reviewing the scope and results of the independent registered public accounting firm’s annual examination of our financial statements and the quality and integrity of those financial statements.  Further, the committee reviews the qualifications and independence of the independent registered public accounting firm, and meets with our Chief Financial Officer and Treasurer and the independent registered public accounting firm to review matters relating to internal accounting controls, our accounting practices and procedures and other matters relating to our financial condition.  The committee also reviews and monitors areas of financial risk that could have a material impact on our Company.  The Audit and Finance Committee met eleven times during 2013.

 

 

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Our Board of Directors has determined that each of the members of the Audit and Finance Committee is “financially literate” in accordance with NASDAQ listing standards.  In addition, our Board of Directors has determined that Mr. Saeli qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.

 

Corporate Development and Governance Committee

 

The current members of the Corporate Development and Governance Committee are Robert W. Shaw II (Chair), Steven M. Anderson and Ranjit C. Singh.  This committee works with management to develop corporate strategy and to identify and evaluate acquisition opportunities, reviews the performance and compensation of our directors, makes recommendations to our Board of Directors for membership and committee assignments and for the compensation of our directors, and manages the annual evaluation of the performance of our President and Chief Executive Officer.  The Corporate Development and Governance Committee met five times during 2013.  The Corporate Development and Governance Committee was formed on June 4, 2013 by merging the pre-existing Strategy and Corporate Development Committee with the Governance Committee. Prior to the merger of committees on June 4, 2013, the Strategy and Corporate Development Committee met one time and the Governance Committee met three times in 2013.

 

The Corporate Development and Governance Committee identifies potential nominees for directors based on its own research for appropriate candidates as well as on recommendations received by directors or from shareholders as described below.  The Corporate Development and Governance Committee may retain an executive search firm to assist in the identification of potential director nominees.  The evaluation process and the factors considered in undertaking that evaluation are set forth under the caption “Shareholder Recommendations for Director Nominations” below.

 

The Corporate Development and Governance Committee also has overall responsibility for assessing and managing our exposure to risks associated with the conduct of our business.

 

Compensation and Management Committee

 

The current members of the Compensation and Management Committee are Ranjit C. Singh (Chair), Steven M. Anderson and Thomas L. Saeli.  The Compensation and Management Committee has ultimate responsibility for determining the compensation of officers elected by our Board of Directors, granting stock options and restricted stock awards and otherwise administering our equity compensation plans, and approving and administering any other compensation plans or agreements.  The Compensation and Management Committee has the authority to retain outside experts in making compensation determinations.   Our proposed 2014 Long-Term Incentive Plan (LTIP), is administered by the Compensation and Management Committee.  The Compensation and Management Committee met five times during 2013.

 

 

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Shareholder Recommendations and Standards for Director Nominations

 

As noted above, the Corporate Development and Governance Committee considers and establishes procedures regarding recommendations for nomination to our Board of Directors, including nominations submitted by shareholders.  Such recommendations, if any, should be sent to Corporate Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York 14513.  Any recommendations submitted to the Corporate Secretary should be in writing and should include any material the shareholder considers appropriate in support of that recommendation, but must include the information that would be required under the rules of the SEC in a proxy statement soliciting proxies for the election of such candidate and a signed consent of the candidate to serve as a director, if elected.  The Corporate Development and Governance Committee evaluates all potential candidates in the same manner, regardless of the source of the recommendation.

 

Based on the information provided to the Corporate Development and Governance Committee with respect to director candidates, the Corporate Development and Governance Committee will make an initial determination whether to conduct a full evaluation of a candidate.  The Corporate Development and Governance Committee considers the composition and size of the existing Board of Directors, along with other factors, in making its determination to conduct a full evaluation of a candidate.  As part of the full evaluation process, the Corporate Development and Governance Committee may conduct interviews, obtain additional background information and conduct reference checks of candidates.  The Corporate Development and Governance Committee may also ask the candidate to meet with management and other members of our Board of Directors.  In evaluating a candidate, our Board of Directors, with the assistance of the Corporate Development and Governance Committee, takes into account a variety of factors as described in our Corporate Governance Principles, including the particular experience, attributes and skills that would qualify the candidate to serve as a director.  The criteria for selection to our Board of Directors include character and leadership skills; general business acumen and executive experience; knowledge of strategy, finance and relations between business and government; and internal business – all to ensure an active Board of Directors whose members work well together and possess the collective knowledge and expertise required.  Our Corporate Development and Governance Committee reviews the qualifications of director candidates with those of its current directors to augment and complement the skill sets of our current Board members.  We believe that it is important for our Board of Directors to be comprised of individuals with diverse backgrounds, skills and experiences.  Although we do not have a formal diversity policy and identify qualified potential candidates without regard to any particular classification, we believe that the breadth of experience and qualifications of our Board members promotes Board diversity.

 

Annual Meeting Attendance

 

Our policy is that all of the directors, absent special circumstances, should attend our Annual Meeting of Shareholders.  A regular meeting of the Board of Directors is typically scheduled in conjunction with the Annual Meeting of Shareholders.  All directors but one attended last year’s Annual Meeting of Shareholders.

 

Executive Sessions

 

Our Corporate Governance Principles require our independent directors to meet in executive session regularly by requiring them to have at least four regularly-scheduled meetings per year without management present.  Our independent directors met in executive session six times during 2014.  In addition, our standing committees meet in executive session on a regular basis.

 

Communicating with the Board of Directors

 

Shareholders interested in communicating directly with our Board of Directors as a group or individually may do so in writing to our Corporate Secretary, Ultralife Corporation, 2000 Technology Parkway, Newark, New York 14513.  The Corporate Secretary will review all such correspondence and forward to our Board of Directors a summary of that correspondence and copies of any correspondence that, in his opinion, deals with the functions of the Board of Directors or that he otherwise determines requires their attention.  Directors may at any time review a log of all correspondence received by us that is addressed to members of the Board of Directors and request copies of any such correspondence.  Any concerns relating to accounting, internal controls or auditing matters will be brought to the attention of the Audit and Finance Committee and handled in accordance with the procedures established by the Audit and Finance Committee with respect to such matters.

 

 

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Code of Ethics

 

We have a Code of Ethics applicable to all employees, including our Principal Executive Officer and our Principal Financial Officer (who is also our Principal Accounting Officer) and all members of our Board of Directors.  Our Code of Ethics incorporates the elements of a code of ethics specified in Item 406 of Regulation S-K and also complies with NASDAQ requirements for a code of conduct. Shareholders can find a link to this Code of Ethics on our website at http://investor.ultralifecorporation.com under the subheading “Corporate Governance.”  We intend to post amendments to or waivers (whether express or implied) from the Code of Ethics (to the extent applicable to our Principal Executive Officer or Principal Financial Officer) at the same location on our website as the Code of Ethics.

 

Our Code of Ethics emphasizes our commitment to conducting business in a legal and ethical manner and encourages prompt and confidential reporting of any suspected violations of law or the Code of Ethics.  As part of our Code of Ethics, directors and employees are expected to make business decisions and to take actions based upon the best interests of our Company and not based upon personal relationships or benefits.  Any potential conflict of interest, and any transaction or relationship involving our officers or directors that could give rise to a conflict of interest, must be reviewed and resolved by our Corporate Development and Governance Committee.

 

Related Party Transactions

 

We have adopted written policies and procedures for the review and approval or ratification of any “related party transaction,” as defined by Regulation S-K, Item 404.  The policy provides that each related party transaction must be reviewed by our Audit and Finance Committee.   The Audit and Finance Committee reviews the relevant facts and circumstances of the transaction, including if the transaction is on terms comparable to those that could be obtained in arms-length dealings with an unrelated third party and the extent of the related party’s interest in the transaction, taking into account the conflicts of interest and corporate opportunity provisions of our Code of Ethics, and either recommends that the Board of Directors approve or disapprove the related party transaction.  We will disclose all related party transactions, as required, in our filings with the SEC.  To our knowledge, no reportable transaction existed during 2013, and there are currently no such proposed transactions.

 

Risk Management

 

Our management team is responsible for assisting the Corporate Development and Governance Committee in its assessment of our exposure to risks associated with the conduct of business.  We have an enterprise risk management process to identify, assess and manage the most significant risks facing our company.  Our Corporate Development and Governance Committee has overall responsibility to review management’s risk management process, including the policies and guidelines used by management to identify, assess and manage our exposure to risk.  Our Audit and Finance Committee has oversight responsibility for financial risks and other risks that could have a material impact on our Company.  Our management reviews these financial risks with our Audit and Finance Committee regularly and reviews the risk management process, as it affects financial risks, with our Audit and Finance Committee on an on-going basis.

 

 

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DIRECTOR COMPENSATION

 

We use a combination of cash compensation and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors.  Our practice is to resurvey our peer group companies every two to three years to ascertain whether our overall director compensation is appropriate and balanced.  If we perceive that there has been a major change in our Company or the market, we may conduct a more frequent survey.  In setting director compensation, we consider the amount of time that directors spend fulfilling their duties to us, the skill-level required by members of our Board of Directors, and, based on an independent review by our external compensation consultant and other publicly available director compensation data, the compensation paid to directors in similar sized organizations in our industry.  Our program is designed to deliver annual director compensation at the median levels of director compensation for companies in similar industries and of similar size.  As our directors are elected annually in June of each year, our annual director compensation period runs from July 1 to June 30.

 

Director Cash Compensation

 

Each non-employee director will receive an annual cash retainer of $20,000, except for the Board Chair, who will receive an annual cash retainer of $24,000 for the period July 1, 2013 through June 30, 2014. The annual cash retainers were identical to the year earlier period, except the annual cash retainer for the director compensation period ending June 30, 2013 for the Board Chair was $28,000.  In addition, each director who is a member of a Board committee receives an additional cash retainer for such committee service as summarized in the tables below.

 

For the Period July 1, 2012 to June 30, 2013

 

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

 

For the Period July 1, 2013 to June 30, 2014

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

Annual retainers for both committee members and committee chairs are paid quarterly in cash. For Board and committee service during the fiscal year ended December 31, 2013, we paid our directors an aggregate $230,268.

 

In addition, as described below, the Compensation and Management Committee approved that in lieu of  quarterly stock payments due directors on February 15, 2013 and May 15, 2013, we would pay our directors in cash rather than in shares of our common stock.  For each director other than the Board Chair, this would mean an additional $20,000 of cash compensation in lieu of shares of common stock valued at $20,000, and for the Board Chair an additional $33,000 of cash compensation in lieu of shares of common stock valued at $33,000.

 

 

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Directors’ Stock-Based Incentive Compensation

 

Our equity compensation program for directors provides each director with an annual award of shares of our common stock without any restrictions.  The aggregate value of the award for each non-employee director is $40,000 and the aggregate value of the award for the Board Chair is $66,000.  Our directors are elected annually in June of each year.  Accordingly, these grants of common stock to our current directors were scheduled for four equal installments on August 15, 2013, November 15, 2013, February 15, 2014 and May 15, 2014.  In order to receive an installment of common stock, a director must be a current member of our Board of Directors on the scheduled installment payment date.  To determine the number of shares of common stock to award based on this valuation, the value of each quarterly award, which is $10,000 for each director other than the Board Chair and $16,500 for the Board Chair, is divided by the volume weighted average price (“VWAP”) of the common stock on the trading day prior to the grant date of the award.  On August 15, 2013, each incumbent non-employee director received 2,703 shares of common stock and the Board Chair received an additional 1,757 shares of common stock.  On November 15, 2013, each incumbent non-employee director received 2,772 shares of common stock and the Board Chair received an additional 1,801 shares of common stock.

 

During 2013, we discovered that we had inadvertently issued stock awards to our independent directors in excess of the 200,000-share limitation under our Amended and Restated 2004 Long Term Incentive Plan (the “Restated LTIP”) on the number of shares of our common stock that may be used for awards other than stock options or stock appreciation rights (the “Limitation’).  The issuances of shares of our common stock in excess of the Limitation (the “Excess Shares”) occurred during 2010 and after and were disclosed and were properly accounted for in our periodic reports and proxy statements filed with the SEC.  We issued a total of 179,512 Excess Shares to our independent directors in the form of outright stock grants or restricted stock awards as part of their annual retainers.  Since the Excess Shares were issued in excess of the Limitation, they were not issued pursuant to the Restated LTIP and hence the issuances of the Excess Shares were not registered under the Securities Act of 1933, as amended (the “Securities Act”) by our Form S-8 registration statement for the Restated LTIP.  Although the issuances of the Excess Shares were not registered under the Securities Act, the issuances of the Excess Shares qualified for an exemption under Section 4(2) of the Securities Act.  The issuances of the Excess Shares were exempt from registration under Section 4(2) of the Securities Act because those issuances did not involve a “public offering,” as defined in Section 4(2) of the Securities Act due to the small number of persons involved in the transaction, the size of the offering, the manner of the offering, the number of Excess Shares offered, the financial sophistication of our directors and their access to our financial information.  Because of the limitation, we chose not to issue any additional shares of our common stock to our non-employee directors and accordingly paid our non-employee directors cash on February 15, 2013 and on May 15, 2013.  This cash compensation is $10,000 per quarter for each director other than the Board Chair and $16,500 per quarter for the Board Chair.  We  submitted to our shareholders a proposal to amend our Restated LTIP to, among other things, increase the Limitation from 200,000 to 800,000 shares and a separate proposal to ratify the grant of the Excess Shares at our June 4, 2013 Annual Meeting.  Both of these proposals were approved by our shareholders at the 2013 Annual Meeting.

 

 

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Our directors also have stock ownership guidelines which require them to hold 2,000 shares of the Company’s stock.  Directors have two years from election to achieve the required ownership.  Furthermore, until the required stock ownership guidelines are met, directors are required to hold at least 50% of all vested after-tax shares and 50% of shares received on exercise of stock options. Currently, all of our non-employee directors meet the stock ownership guidelines.

 

Director Compensation for 2013

 

The table below summarizes the compensation paid by us to our non-employee directors for their service during the fiscal year ended December 31, 2013.

 

Name (1)		Fees Earned or Paid in Cash ($)				Stock Awards ($)(3)(4)				Total ($)
Steven M. Anderson			55,753				20,002				75,755
Patricia C. Barron (2)			43,439				-				43,439
James A. Croce (2)			42,878				-				42,878
Thomas L. Saeli			61,440				20,002				81,442
Robert W. Shaw II			60,879				20,002				80,881
Ranjit C. Singh			58,879				20,002				78,881
Bradford T. Whitmore			60,000				32,951				92,951

(1)	Michael D. Popielec is ineligible to receive compensation for his service as a director because he is also an employee, serving as our President and Chief Executive Officer.

 

(2)	Patricia C. Barron and James A. Croce ceased being directors of the Company on June 3, 2013.

 

(3)

The amounts set forth in this column reflect the aggregate grant date fair value of stock awards granted during 2013.  The Financial Accounting Standards Board’s Accounting Standards Codification Topic 718 (“ASC 718”) (formerly, Statement of Financial Accounting Standards No. 123R, Share-Based Payment), requires us to recognize compensation expense for stock options and other stock-related awards granted to our employees and directors based on the estimated fair value of the equity awards at the time of grant.  The compensation expense for such awards is expensed at the time of grant.  There was no stock option expense in 2013 for directors’ options since no stock options were granted to directors during 2013.  The assumptions used to determine the valuation of the awards are discussed in Note 7 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013.

 

(4)	There were no non-employee director stock options outstanding at December 31, 2013.

 

Name		Stock Options
Steven M. Anderson			-
Thomas L. Saeli			-
Robert W. Shaw II			-
Ranjit C. Singh			-
Bradford T. Whitmore			-

 

 

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EXECUTIVE COMPENSATION

 

Compensation Overview

 

We are currently considered a “smaller reporting company” for purposes of the SEC’s executive compensation and other disclosures.  As such, we have opted to take advantage of the scaled disclosure requirements afforded to smaller reporting companies and, as a result, have provided more limited (or, in some cases, eliminated) disclosures that we have provided in prior years’ proxy statements.  The executive compensation disclosures that follow comply with the SEC’s executive compensation disclosure rules for smaller reporting companies and therefore are generally more narrow in scope than the executive compensation disclosures and Compensation Discussion and Analysis that we have included in prior proxy statements.

 

Introduction

 

This proxy statement provides information about the compensation programs for those individuals we have identified as our “Named Executive Officers” for 2013 in accordance with the executive compensation disclosure rules and regulations of the SEC for smaller reporting companies. This proxy includes our compensation philosophy and the objectives of our executive rewards program, descriptions of each of the key elements of our executive rewards program and the basis for the compensation decisions we made during 2013.

 

Our Named Executive Officers for 2013 are:

 

·   Michael D. Popielec, President and Chief Executive Officer

 

·   Philip A. Fain, Chief Financial Officer, Treasurer and Secretary

 

On June 4, 2013, the Company and Peter F. Comerford, Vice President of Administration, Secretary and General Counsel, executed a Retirement and Consulting Agreement, Release and Waiver of All Claims pursuant to which Mr. Comerford’s retirement became effective on May 28, 2013.

 

Compensation Overview

 

We engaged an independent executive compensation consulting firm, Grahall & Associates, to work with senior management and the Compensation and Management Committee (the “Compensation Committee”) to establish an executive total rewards strategy, which was implemented in 2012. Grahall & Associates looked at the competitiveness of our pay practices by making peer group comparisons.  They augmented the core peer group that we had used in the past with several additional organizations as some of the organizations in our original peer group had been lost to mergers and acquisitions.  In addition to the core peer group analysis, they also provided analysis on a large sample of general technology organizations.  Grahall & Associates presented several different potential reward strategies to the Compensation Committee for consideration.

 

The basic premise of Grahall & Associates proposal was that compensation must be tied to overall business strategy and must be amended to align with changes in business strategy over time.  The program that has been implemented more effectively allocates the scarce resources that we have across competing needs than did our previous program.  It recognizes that when resources are tight, resource allocation needs to be more precisely targeted.  This structure is designed to increase our ability to recruit for key competitive advantage positions, motivate core executives to reposition our company and promote the retention of high performers who can impact our business going forward.

 

 

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Our executive rewards program was designed by our Compensation Committee to align the interests of our Named Executive Officers with those of our shareholders by rewarding performance that enhances the long-term objective of increasing shareholder value, significantly grows the business, and executes our business strategy.  Our executive rewards program is designed to motivate our executives, including our Named Executive Officers, to achieve strong financial, operational and strategic performance and to provide a link between the amounts earned by our executives and the creation of shareholder value.  The Committee establishes specific annual, long-term and strategic goals and rewards Named Executive Officers for performance that meets or exceeds those goals.  In addition, we expect our Named Executive Officers to work to these goals while maintaining the highest ethical standards.

 

The key components of our executive rewards program for our Named Executive Officers are base salary, annual short-term incentive plan (“STIP”) and long-term incentive plan (“LTIP”), combined with health and welfare benefits, retirement benefits, limited perquisites and other benefits.  We seek to ensure that total executive compensation is aligned with corporate performance and the creation of shareholder value by placing an appropriate portion of an executive’s total compensation at risk, based on financial and non-financial performance measures and subject to the achievement of corporate and individual performance goals.

 

Our executive rewards program is structured to attract, retain and motivate talented individuals, and to incentivize them to achieve our business strategy with strong financial, operational and strategic performance.  In particular:

 

·

Our goal for 2013 was to have our executive rewards program reflect the measure of responsibility associated with the position not only in the marketplace, but within the organization based on the ability of the executive to promote the success of our business strategy and leverage our future growth.  In reviewing market data, we looked not only at our peer group data but also at a broader group of technology-based organizations, recognizing that in order to attract and retain a skilled work force, we must remain competitive with the pay of other employers who compete with us for talent.

 

·

Our executive rewards program is also designed to support our pay-for-performance philosophy by aligning compensation with executing long-term business strategies (LTIP) and achieving near-term financial and operational targets (STIP).  We base compensation decisions on a combination of the criticality of the position in the achievement of our business strategy, individual performance and corporate performance.  Generally, as an individual’s level of responsibility increases, so does the amount of variable compensation that is at risk.

 

·

We administer our executive rewards program to foster the long-term focus required for success in our industry, but we also work to achieve an appropriate balance between short-term and long-term compensation in order to adequately motivate our executives.

 

To this end, the Compensation Committee reviews our executive total rewards program annually to assess if we are achieving our business strategy, if we are able to attract and retain talented executives, and to ensure that the total compensation paid to our executives, including our Named Executive Officers, is reasonable, competitive and appropriately performance-based.  The Compensation Committee also ensures that our total compensation is linked to the degree to which we meet our annual financial and non-financial goals and, longer term, to our success in improving shareholder return. Our President & CEO makes recommendations with respect to the awards of the other executive officer, and the Compensation Committee determines the actual awards of the executive officers, including the President & CEO.

 

Our fiscal 2012 financial performance, our 2013 annual operating plan, and the individual performance of our Named Executive Officers, served as key factors in making compensation decisions for 2013.

 

 

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We continued the linkage between our Named Executive Officer STIP and achievement of annual corporate financial targets in 2013, reflecting our pay for performance philosophy.  As a result for 2013, corporate operating profit from continuing operations, and corporate revenue were the key metrics for our Named Executive Officer annual cash incentive awards under the STIP. Corporate operating profit of $6.8 million comprised 90% of the STIP weighting and corporate revenue of $117.3 million comprised the remaining 10% of the STIP weighting.  The threshold levels of performance with respect to each of these metrics were not met in 2013 and therefore, no short-term annual cash incentive awards were paid to our Named Executive Officers for 2013.

 

Long-term equity incentive compensation continued to make up a significant portion of the compensation for each of our Named Executive Officers.  Awards are determined individually and are based on the relative criticality of the position and the Named Executive Officer’s ability to implement changes designed to promote future growth.

 

  Base Salary

 

Our President & CEO reviews the performance of the other Named Executive Officer and then recommends base salary adjustments, if any, to the Compensation Committee.  In turn, the Compensation Committee reviews, adjusts where appropriate and approves the base salary adjustments, if any, based upon the determination of the Compensation Committee.  In our Board’s executive session, the Committee reviews and recommends to the full Board any base salary adjustment for our President & CEO.  If changes to base salaries are recommended and approved, the changes in base salary are made to  be effective for a period ranging from twelve to fifteen months from the date of the last increase based upon an executive’s performance.

 

The Compensation Committee typically reviews base salary levels from the core peer group and the technology peer group on an annual basis.  The Committee has endeavored to better align executive salaries with the market, moving them between the 25 th and the 50 th percentile of our peer group, since base salaries for our executive officers have traditionally been significantly below market norms for comparable companies.  In addition to looking at the peer group data, salaries for our Named Executive Officers are determined based upon the following factors:

 

·

Individual performance

 

·

Impact of position on achievement of the business strategy

 

·

Company performance

 

·

Job responsibilities, including any significant change in responsibilities

 

·

Experience

 

·

Retention

 

In March 2013, the Committee approved a base salary increase to Mr. Fain of 5.0% ($260,000 to $273,000).  The merit increase was approved by the Committee based on Company and individual performance and also in consideration of the fact that Mr. Fain was positioned well below the 50th percentile of our peer group.  Following his increase in base salary, Mr. Fain’s base salary still remains below the 50th percentile of our peer group.  Other than these adjustments, no changes were made to the base salaries of our Named Executive Officers during 2013.

 

 

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  Short-Term Incentive Plan 2013

 

Typically, we establish a short-term incentive plan each fiscal year, which provides the Named Executive Officers an opportunity to receive an annual cash payment in addition to their base salaries.  The short-term incentive plan is designed to place “at risk” a significant portion of the annual total cash compensation of the Named Executive Officers by linking the amount of compensation that can be achieved under the plan with our financial performance.  We believe that the STIP is a key component of maintaining a competitive executive compensation program because it motivates our Named Executive Officers to achieve our short-term financial and strategic objectives while making progress toward our longer term growth.  Based on our total rewards strategy, those Named Executive Officers and other executives who, by virtue of their position in the Company, had the opportunity to make an immediate short term impact on the business and were instrumental in driving our operating results had more of their pay at risk in the STIP.   These individuals also were tasked with balancing short term results and decisions with creating long term value.

 

President & CEO

 

Mr. Popielec was eligible to receive an annual cash bonus in accordance with the 2013 Executive STIP if we exceeded certain performance metrics that were to be agreed upon no later than January 31, 2013.  In 2013, Mr. Popielec’s bonus was based on meeting pre-established 2013 operating profit and corporate revenue goals.  His target bonus amount was 75% of his base salary or $347,630.  The STIP was structured with 90% of the weighting of the bonus based on 2013 operating profit goal of $6.8 million and 10% of the weighting of the bonus based on 2013 corporate revenue goal of $117.3 million.  Achievement of less than 75% of the operating profit goal or corporate revenue goal resulted in no bonus being paid with respect to that metric.  Achievement of 75% to 100% of the operating profit goal or corporate revenue goal would result in a bonus range payout from 50% to 100% of the target bonus for the metric with respect to which the 75% to 100% performance was achieved.  Payout of 100% of the target bonus under the plan would be achieved by meeting the operating profit and corporate revenue goals.  Achievement of over 100% to 125% of operating profit or corporate revenue goals would result in a bonus payout ranging from 100% to 150% of the target bonus with respect to the metric for which such performance level had been achieved.  Mr. Popielec was eligible for a partial payment under the plan if one of the two metrics was achieved.  Payout under the plan is capped at 150% of the target bonus.   Due to our financial performance in 2013, no STIP bonus was paid to our President & CEO.

 

Other Named Executive Officers

 

Based on the recommendation from the President & CEO, the Compensation Committee establishes threshold, target and maximum bonus levels for each Named Executive Officer, which is expressed as a percentage of his base salary.  The percentages are determined by the position of the Named Executive Officer within the organization and based upon the review of peer data. In 2013, the target for Mr. Fain was 45% of base salary.  The threshold level for 2013 was the minimum level of performance required before any amount would be earned under the STIP, which is 75% of the Company performance targets of operating profit and corporate revenue.  The Compensation Committee also establishes a maximum bonus level under the STIP.  For 2013, that maximum bonus level was 150% of the target bonus level.

 

Generally, the Compensation Committee sets the target bonus level such that, assuming achievement of the corporate financial metrics, the combined base salary and annual STIP opportunity for our Named Executive Officers will be at or near the 50 th percentile for comparable executives at the companies in our peer group.

 

In establishing the 2013 total rewards strategy, the Compensation Committee approved the President & CEO’s recommendation that all Named Executive Officers would have their STIP based on our operating profit and corporate revenue goals.  The STIP potential for 2013 was based on a percentage of the Named Executive Officer’s salary.  The two metrics used for computation of the 2013 bonus for the other Named Executive Officers were company operating profit and corporate revenue, with 90% of the weighting of the bonus based on 2013 operating profit commitment of $6.8 million and 10% of the weighting of the bonus based on 2013 corporate revenue commitment of $117.3 million.

 

 

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Achievement of less than 75% of the bonus plan metrics of operating profit goal or corporate revenue goal resulted in no bonus being paid for that metric.  Achievement of 75% to 100% of the bonus plan metrics of operating profit goal or corporate revenue goal would result in a bonus range payout from 50% to 100% of the target bonus for that metric.  Payout of 100% of the target bonus under the plan would be achieved by meeting the operating profit and corporate revenue goals.  Satisfaction of over 100% to 125% of the bonus plan metrics of operating profit or corporate revenue goals would result in a bonus range payout of 100% to 150% of the target bonus for that metric.  Named Executive Officers were eligible for a partial payment under the plan if one of the two metrics was achieved.  Payout under the plan is capped at 150% of the target bonus.  While the decisions to make STIP payouts as well as the amounts earned under the STIP are made at the sole discretion of the Compensation Committee, in making such determinations, the Compensation Committee considers the recommendations from our President & CEO for all other Named Executive Officers.  Due to our financial performance in 2013, no STIP bonus was paid to the other Named Executive Officer.

 

  Long-Term Incentive Compensation

 

Long-Term Equity Incentive Compensation – Named Executive Officers Other Than our President & CEO

 

We use equity awards to motivate our Named Executive Officers to increase the long-term value of our common stock and, thereby, align the interests of our Named Executive Officers with those of our shareholders.  Long-term equity incentive awards are intended to further our success by ensuring that sustainable value creation is a significant factor to the amount of total compensation which our Named Executive Officers may receive.  We believe that linking long-term compensation to sustained value creation helps retain executives over time.

 

Long-term equity incentive compensation may consist of equity such as awards of stock options, performance vested restricted shares and time vested restricted shares that vest over a multi-year period.  This design approach helps align the interests of our Named Executive Officers with those of our shareholders by linking the compensation of our Named Executive Officers to long-term increases in the value of equity instruments.  We use stock options as one of our long-term incentives because, in addition to providing our executive officers with the opportunity to develop a stock ownership stake in our company, they result in compensation only to the extent that the market price of our common stock increases over the term of the stock option.

 

The size and form of these equity awards for the other Named Executive Officers was determined by the Compensation Committee in consultation with the President & CEO.  In late 2011 and early 2012 the Compensation Committee, based on recommendation of the President & CEO, issued large equity awards for our other Named Executive Officers as they were focused on the growth of the Company and meeting the Company’s strategic plan.  Due to the size of these large equity awards issued in 2011 and 2012, no equity awards were recommended or approved for our other Named Executive Officers in 2013.

 

 

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Long-Term Equity Incentive Compensation – President & CEO

 

Long-term equity incentive compensation is a significant component of the compensation package of our President & CEO.  Under his employment agreement, Mr. Popielec received the following options to purchase shares of our common stock:

 

Date of Grant	Number of Shares	Exercise Price	Vesting Schedule
December 30, 2010	50,000	$6.4218	Twenty five percent of the shares will vest on each of the four anniversaries of the date of grant.
January 3, 2011	50,000	$6.5820	Twenty five percent of the shares will vest on each of December 30, 2011, December 30, 2012, December 30, 2013 and December 30, 2014.

 

Mr. Popielec also received three additional stock option awards, each of which was conditioned upon shareholder approval of our Restated LTIP at our 2011 annual meeting.  This approval was obtained at our 2011 annual meeting.  As detailed below, most of these stock option awards were granted with an exercise price substantially above the grant date fair market value of our common stock.

 

Date of Grant	Number of Shares	Exercise Price	Vesting Schedule
December 30, 2010	250,000	$6.4218	Twenty five percent of the shares will vest on each of the four anniversaries of the date of grant.
December 30, 2010	200,000	$10.00	Vesting begins on the date our stock first reaches a closing price equal to the exercise price for 15 trading days in a 30 trading-day period, with such vesting in equal amounts over the four anniversary dates of that date.
December 30, 2010	200,000	$15.00	Vesting begins on the date the stock first reaches a closing price equal to the exercise price for 15 trading days in a 30 trading-day period, with such vesting in equal amounts over the four anniversary dates of that date.

 

On January 29, 2013, our Board of Directors, on recommendation of our Compensation Committee, granted 120,000 restricted stock units (RSU’s) to our President & Chief Executive Officer, Michael D. Popielec, which grant was approved by our shareholders at our June 4, 2013 Annual Meeting, which vest and will convert to shares of our common stock as follows:

 

(1)

30,000 shares of our common stock will be issued on the later of January 1, 2014 or the date when our common stock first reaches a closing price of $4.00 per share for 15 trading days in a 30 trading day period;

 

(2)

30,000 shares of our common stock will be issued on the later of January 1, 2014 or the date when our common stock first reaches a closing price of $5.00 per share for 15 trading days in a 30 trading day period;

 

(3)

30,000 shares of our common stock will be issued on the later of January 1, 2015 or the date when our common stock first reaches a closing price of $4.00 per share for 15 trading days in a 30 trading day period; and

 

 

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(4)

30,000 shares of our common stock will be issued on the later of January 1, 2015 or the date when our common stock first reaches a closing price of $5.00 per share for 15 trading days in a 30 trading day period.

 

The 30,000 shares of the Company’s common stock were issued as described in (1) above on January 1, 2014.

 

Retirement Benefits

 

We provide to all active employees a tax-qualified 401(k) plan that provides for both employer and employee contributions.  Under this plan, employees may defer a portion of their base salary to the plan up to annual IRS limits.  We provide a company match of 50% of an employee’s deferrals, up to a maximum of 4% of the employee’s annual salary.

 

Perquisites and Other Personal Benefits

 

We provide our Named Executive Officers with perquisites and other personal benefits that we and the Compensation Committee believe are reasonable and consistent with the objectives of our overall compensation program to better enable us to attract and retain superior employees for key positions.  The Compensation Committee periodically reviews the levels of perquisites and other personal benefits provided to our Named Executive Officers to determine if they remain at appropriate levels.

The aggregate incremental costs of the personal benefits provided to our Named Executive Officers are included in the “All Other Compensation” column of the 2013 Summary Compensation Table.

 

Stock Ownership and Retention Guidelines

 

In order to better align the interests of executive officers and shareholders, the Compensation Committee implemented stock ownership and retention requirements for executive officers.  The stock ownership requirements for executive officers are as follows:

 

President & CEO	1.00 times salary
Chief Financial Officer	0.50 times salary
Other Executive Officers	0.33 times salary

 

For 2013, the Compensation Committee established the presumed share price which is to be used for purposes of determining the minimum number of shares to be owned by the executive officers.  This presumed price was $4.41 per share, which was based on the VWAP of our common stock for the two-year period ended December 31, 2012.  Each year the Compensation Committee will establish a new price per share to be used to determine the minimum number of share required to be held which price per share will be based on the VWAP of our common stock for the preceding two-year period.  Executive officers have three years to achieve the required holdings, which are based on the price per share as calculated above.  Additionally, there are shareholding requirements which require that until the share ownership guidelines are met, executive officers are prohibited  from disposing of more than 50% of vested shares received from restricted share grants (on an after tax basis) and 50% of shares received on exercise of stock options.  Shares owned by an executive, as well as shares underlying awards of stock options and restricted stock are treated as owned by the executive for purposes of determining whether required ownership has been achieved.  All Named Executive Officers have met their applicable stock ownership requirement.

 

 

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Deductibility of Executive Compensation

 

As part of its responsibility, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Code which provides that unless we comply with certain shareholder approval procedures, we may not deduct compensation of more than $1,000,000 that is paid to certain individuals.  We believe that compensation paid under our executive compensation plans is fully deductible for federal income tax purposes.  However, the Compensation Committee may in the future approve compensation that will not meet these requirements in order to ensure competitive levels of total compensation for our executive officers.

 

Accounting for Stock-Based Compensation

 

Beginning on January 1, 2006, we began accounting for stock-based payments, including stock options and restricted stock awards, in accordance with the requirements of SFAS 123(R), now referred to as ASC 718.

 

  2013 Summary Compensation Table

 

The following table sets forth information concerning the compensation awarded to, paid to or earned by the Named Executive Officers for all services in all capacities to us and our subsidiaries during 2012 and 2013:

 

Name and Principal Position		Year		Salary ($)				Bonus ($)(2)				Option Awards ($)(3)				All Other Compensation ($)(4)				Total ($)
Michael D. Popielec		2013			463,507				0				-				36,487				499,994
President and Chief		2012			459,265				0				-				158,996				618,261
Executive Officer
Philip A. Fain		2013			267,500				10,000				-				21,686				299,186
Chief Financial Officer,		2012			256,801				0				37,418				10,892				305,111
Treasurer and Secretary
Peter F. Comerford (1)		2013			122,453				0				-				13,726				136,179
Vice President of		2012			236,535				0				-				8,064				244,599
Administration, Secretary  and General Counsel

(1)

On June 4, 2013, the Company and Peter F. Comerford executed a Retirement and Consulting Agreement, Release and Waiver of All Claims pursuant to which Mr. Comerford retired effective May 28, 2013.  Under this agreement, the Company agreed to pay Mr. Comerford his salary through July 27, 2013 and to continue to pay his medical and dental coverage at the Company’s cost through December 31, 2013.  Consistent with the Company’s retirement policy, Mr. Comerford will have the stock options granted during his tenure continue to vest and  retains all vested unexpired stock options until the relevant option term has expired.

(2)	Mr. Fain was awarded a $10,000 bonus for 2013 which was recommended by the Compensation Committee and approved by the Board of Directors.

(3)

The amounts reported in the Option Awards column represent the grant date fair value of stock option awards granted pursuant to our shareholder-approved Restated LTIP calculated in accordance with ASC 718.  See Note 7 to our audited financial statements included in our Annual Reports on Form 10-K for the fiscal years ended December 31, 2012 and 2013 for the assumptions we used in valuing and expensing these stock options in accordance with ASC 718.

 

 

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(4)	All Other Compensation for 2013 consists of the following:

 

 

		401(k) Plan Employer Match ($)				Other Benefits (a) ($)				Total ($)
Michael D. Popielec			5,100				31,387				36,487
Philip A. Fain			5,100				16,586				21,686
Peter F. Comerford			1,802				11,924				13,726

(a)	The “Other Benefits” column of the above table includes premiums paid for group medical and dental coverage and long-term care insurance, reimbursement for tax preparation and certain financial planning expenses.

 

Employment Arrangements

 

Mr. Popielec

 

On December 6, 2010, in connection with entering into an employment agreement with Mr. Popielec, effective December 30, 2010 Mr. Popielec became our President and Chief Executive Officer.  We set Mr. Popielec’s annual base salary at $450,000.  Mr. Popielec is also eligible to receive an annual cash bonus under our short-term cash bonus incentive plan if we exceed certain quantitative and qualitative performance metrics to be agreed upon and approved by the Compensation Committee no later than January 31 of the year for which the bonus applies.  The bonus goals and payout ranges for 2013 are set forth on Page 17 for Mr. Popielec.

 

Mr. Popielec is also a participant in our Restated LTIP.  Pursuant to the terms of his employment agreement, Mr. Popielec was granted options to purchase shares of our common stock.  Certain of the options granted on December 30, 2010 were conditional and were subject to shareholder approval to increase the number of shares available under our Restated LTIP.  Shareholder approval was obtained in June 2011.

 

Mr. Popielec’s employment agreement also provided that he shall be entitled to the following relocation benefits: (i) rent in and commute transportation to the Rochester, New York area for up to nine months, as needed, during 2011 for a total actual expense not to exceed $50,000; (ii) payment of all actual reasonable relocation and moving expenses in an aggregate amount not to exceed $60,000; and (iii) payment of all actual reasonable current house sale/closing costs incurred in 2011 and 2012.

 

Mr. Popielec is also entitled to receive the retirement benefits, perquisites and other personal benefits described in this proxy statement under the sections entitled “Retirement Benefits” and “Perquisites and Other Personal Benefits”.

 

The employment agreement provides that Mr. Popielec’s employment is “at will.”  Mr. Popielec is entitled to certain severance benefits if we terminate his employment without Business Reasons or a Constructive Termination occurs (as those terms are defined in the employment agreement), including (i) salary continuation for a period of 12 months following the termination date; (ii) a pro rata amount (calculated on a per diem basis) of the full-year bonus which Mr. Popielec would have earned for the calendar year in which the termination of employment occurs; (iii) acceleration of vesting of all outstanding stock options and other equity awards, subject to the provision, however, that the acceleration shall not apply to the extent that the outstanding options and equity awards would otherwise have vested more than 18 months after the date of termination; (iv) continuation of health benefits for Mr. Popielec, his spouse and any dependent children for a period of 12 months after the termination date followed by 18 months of executive-paid COBRA eligibility.  In addition, if we terminate the employment of Mr. Popielec within 12 months following the occurrence of a Change in Control, without Business Reasons or if a Constructive Termination occurs (as those terms are defined in the employment agreement), then Mr. Popielec shall be entitled to receive a lump sum payment equal to (i) any earned but unpaid salary, any unpaid bonus from the prior year plus an amount equal to 18 months of his base salary as then in effect, payable immediately upon the termination date; (ii) one and one-half times his target bonus for the calendar year in which the termination date occurs; (iii) acceleration of vesting of all outstanding stock options, all such options to remain exercisable for 18 months following the termination date, or through the original expiration date of the stock options, if earlier; (iv) continuation of health benefits for Mr. Popielec, his spouse and any dependent children for a period of 24 months after the termination date.  To the extent the vesting and/or accelerated payment of outstanding stock options would subject Mr. Popielec to the imposition of tax and/or penalties under Section 409A of the Internal Revenue Code (the “Code”), the vesting and/or payment of such stock options and other equity shall be delayed to the extent necessary to avoid the imposition of such tax and/or penalties.  The employment agreement also provides for the continuation of certain benefits in the event Mr. Popielec’s employment is terminated for Disability (as defined in the employment agreement) or by his death.  Mr. Popielec has also executed an Employee Confidentiality Non-Disclosure, Non-Compete, Non-Disparagement and Assignment Agreement in our standard form.

 

 

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Other Executive Officers

 

We do not have an employment agreement with Mr. Fain.  Mr. Comerford, who did have an employment agreement, retired effective May 28, 2013, and his employment agreement was terminated by the Retirement and Consulting Agreement, Release and Waiver of All Claims which was executed on June 4, 2013.

 

Outstanding Equity Awards at December 31, 2013

 

The following table sets forth information concerning the number of shares underlying exercisable and non-exercisable options outstanding at December 31, 2013 for our Named Executive Officers.

 

		Option Awards				Stock Awards
Name		Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock that Have Not Vested  (#)	Market Value of Shares or Units of Stock that Have Not Vested ($)	Equity Incentive Plan Awards; Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)	Equity Incentive Plan Awards; Market or Payout Value of Unearned Shares, Units or Other Rights that Have Not Vested ($)
Michael D. Popielec		37,500	12,500 (1)	$6.4218	12/30/2017	30,000 (9)	106,500	60,000 (10)	213,000
		187,500	62,500 (2)	6.4218	12/30/2017
		37,500	12,500 (3)	6.5820	12/30/2017
		0	200,000 (4)	10.0000	01/24/2019
		0	200,000 (5)	15.0000	01/14/2020
Philip A. Fain		10,000	0	11.4217	09/07/2014
		50,000	0	12.7385	03/07/2015
		7,976	0	12.1848	01/14/2016
		33,000	0	3.9085	12/04/2016
		25,000	0	6.9061	12/03/2017
		33,333	16,667 (6)	4.4218	12/09/2018
		6,667	13,333 (7)	3.9797	01/03/2019
Peter F. Comerford		6,000	0	13.4338	12/07/2014
		3,988	0	12.1848	01/14/2016
		24,000	0	3.9085	12/04/2016
		20,000	0	6.9061	12/03/2017
		17,334	8,666 (8)	4.4218	12/09/2018

 

 

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(1)	This stock option will vest with respect to 12,500 shares on December 30, 2014.

 

(2)	This stock option will vest with respect to 62,500 shares on December 30, 2014.

 

(3)	This stock option will vest with respect to 12,500 shares on December 30, 2014.

 

(4)	This stock option will vest on the date our common stock first reaches a closing price of $10 for 15 trading days in a 30-day trading period, with such vesting in equal amounts over the four anniversary dates of that date.

 

(5)	This stock option will vest on the date our common stock first reaches a closing price of $15 for 15 trading days in a 30-day trading period, with such vesting in equal amounts over the four anniversary dates of that date.

 

(6)	This stock option will vest with respect to 16,667 shares on December 9, 2014.

 

(7)	This stock option vested with respect to 6,667 shares on January 3, 2014 and will vest with respect to 6,666 shares on January 3, 2015.

 

(8)	This stock option will vest with respect to 8,666 shares on December 9, 2014.

 

(9)	30,000 of these RSUs will vest on January 1, 2015.

 

(10)

If the closing price of our common stock is at or above $5.00 per share for a period of 15 trading days in any 30 day trading period, 30,000 of these RSUs will vest on the next business day. An additional 30,000 of these RSUs will vest on the later of January 1, 2015 or the first business day following a period of 15 trading days occurring in any 30 day trading period in which our common stock has closed at or above a price of $5.00 per share.

 

Retirement Benefits and Potential Payments upon Termination or Change in Control

 

The only arrangement that we maintain that provides for retirement benefits is our tax-qualified defined contribution 401(k) plan.  The material terms of our tax-qualified defined contribution 401(k) plan are summarized above under the heading “Retirement Benefits.”

 

 

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All of the potential payments and benefits payable by us to those of our Named Executive Officer who were employed by us during 2013 in the event of various scenarios involving either a termination of employment and/or change in control are pursuant to the employment agreement with Mr. Popielec or the Restated LTIP.  The employment agreement with Mr. Popielec is summarized above under the heading “Employment Arrangements.”  We do not have an employment agreement with Mr. Fain, and Mr. Comerford retired in 2013.  Under the award agreements issued under the Restated LTIP, outstanding unvested stock options, shares of restricted stock and restricted stock units immediately vest upon the occurrence of a “Change in Control.”

 

 

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PROPOSAL 2

RATIFY THE SELECTION OF OUR INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

 

The firm of BDO USA, LLP, independent registered public accountants, served as our independent registered public accounting firm in connection with the audit of our financial statements for 2012 and Bonadio & Co., LLP served as our independent registered public accounting firm for 2013.

 

This selection of Bonadio & Co., LLP to serve as our independent registered public accountant will be presented to our shareholders for their ratification at the Meeting.  Our Board of Directors recommends a vote in favor of the proposal to ratify this selection, and the persons named in the enclosed proxy (unless otherwise instructed therein) will vote such proxies FOR this proposal.  If the shareholders do not ratify this selection, the Audit and Finance Committee will seek to identify and address the reason or reasons why the shareholders did not ratify the committee’s selection and will consider such reason or reasons in selecting an independent public accounting firm for 2014.

 

We have been advised by Bonadio & Co., LLP that they will have a representative present at the Meeting who will be available to respond to appropriate questions.  In addition, we intend to give such representatives an opportunity to make any statements if they should so desire.

 

Principal Accountant Fees and Services

 

Aggregate fees for professional services rendered for us by BDO USA, LLP and Bonadio, & Co., LLP for 2012 and 2013 were:

 

		BDO USA, LLP								Bonadio & Co., LLP
		2012				2013				2012				2013
Audit Fees			$365,618				$49,929				$0				$172,878
Audit – Related Fees			0				0				0				8,250
Tax Fees			0				0				74,004				40,275
All Other Fees			0				0				84,370				0
Total			$365,618				$49,929				$158,374				$221,403

 

Audit Fees

 

Audit fees for 2012 and 2013, respectively, were for professional services rendered for the audits of our consolidated financial statements, consents and assistance with review of documents filed with the SEC.

 

Audit-Related Fees

 

Audit-related fees in 2013 were for the audit of our 401(k) defined contribution plan for the year ended December 31, 2012.

 

Tax Fees

 

Tax fees relate to corporate and expatriate tax compliance, including the preparation of tax returns and claims for refund, tax planning, and tax advice.

 

All Other Fees

 

In 2012, other fees were for services in support of our internal audit, the audit of our 401(k) defined contribution plan for the year ended December 31, 2011 and to prepare our quarterly and annual income tax provisions.  All of the services were completed prior to the appointment of Bonadio & Co., LLP as principal auditor for 2013 and were subject to audit by BDO USA, LLP.

 

 

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Our Audit and Finance Committee has not adopted pre-approval policies and procedures for audit and non-audit services.  Although no pre-approval policy was in effect, all audit, audit-related and permitted non-audit services for which BDO USA, LLP and Bonadio & Co., LLP were engaged were reviewed and approved prior to the commencement of the services by our Audit and Finance Committee in compliance with applicable SEC requirements.

 

REPORT OF THE AUDIT AND FINANCE COMMITTEE

 

The duties and responsibilities of the Audit and Finance Committee are set forth in our Audit and Finance Committee Charter, a copy of which is available on our website at http://investor.ultralifecorporation.com under the subheading “Corporate Governance.”  Among other things, the Audit and Finance Committee reviews the adequacy of our system of internal control regarding financial reporting, disclosure controls and procedures and preparing our consolidated financial statements.  In addition, the Audit and Finance Committee recommends to our Board of Directors that our audited financial statements be included in our Annual Report on Form 10-K, approves our quarterly filings on Form 10-Q and selects the independent registered public accounting firm to audit our books and records.

 

The Audit and Finance Committee has:

 

·

Reviewed and discussed our audited financial statements for 2013 with our management and with Bonadio & Co., LLP, our independent registered public accounting firm for 2013;

 

·

Discussed with Bonadio & Co., LLP, our independent registered public accounting firm, the matters required to be discussed by statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards , Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T; and

 

·

Received from Bonadio & Co., LLP the written disclosures and the letter from Bonadio & Co., LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit and Finance Committee concerning independence, and has discussed with Bonadio & Co., LLP their independence.

 

The Audit and Finance Committee met with our independent accountants with and without management present and discussed with them the results of their examinations, their evaluations of our internal control over financial reporting, our disclosure controls and procedures and the quality of our financial reporting.  Based on the review and discussions referred to above, the Audit and Finance Committee concluded that Bonadio & Co., LLP is independent and recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2013 for filing with the SEC.

 

The Audit and Finance Committee:

Thomas L. Saeli, Chair

Steven M. Anderson

Robert W. Shaw II

 

 

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PROPOSAL 3

APPROVE THE NEW 2014 LTIP

 

In order to provide adequate flexibility to meet future long-term compensation needs, our Board of Directors approved a new LTIP as the successor plan to the existing Restated LTIP which expires on June 10, 2014.  The new LTIP is substantially consistent with the Restated LTIP (as amended) which it replaces.

 

The description of the new LTIP set forth below is a summary, does not purport to be complete and is qualified in its entirety by reference to the provisions of the new LTIP itself.  The complete text of the new LTIP is attached as Appendix A to this proxy statement.  Unless otherwise defined in this summary, capitalized terms used in this summary have the meanings given such terms in the new LTIP.

 

The following table provides certain important information concerning our existing equity compensation plans of the Company as of December 31, 2013:

 

Equity Compensation Plan Information

 

Plan Category	Number of securities to be used upon exercise of outstanding options (a)	Weighted-average exercise price of outstanding options (b)	Number of securities remaining available for future issuance under equity compensation plans, excluding securities reflected in column (a) (c)
Equity Compensation Plans approved by security holders	2,079,622	$6.85	255,678
Equity compensation plans not approved by security holders	50,000 (1)	$12.74	—
Total	2,391,000	$7.24	255,678

(1)

On March 7, 2008, in connection with his becoming employed by us, we granted Mr. Fain an option to purchase 50,000 shares of our Common Stock at $12.74 per share outside any of our equity-based compensation plans.  This fully vested option expires on March 7, 2015.

 

Summary of New LTIP

 

Purpose :   The purpose of our new LTIP is to replace the Restated Plan and provide our Employees, Directors and Consultants who are in a position to contribute to our long-term success, with equity based incentive awards in accordance with the terms specified.    The incentive program which is available under the terms of the new LTIP will cause those persons to increase their interest in our welfare and aid in attracting and retaining Employees, Directors and Consultants of outstanding ability.

 

Term :   The effective date of the new LTIP shall be the date of such approval by the Corporation’s stockholders which is scheduled for June 3, 2014, the date of our 2014 Annual Meeting of Shareholders.  Awards may not be granted under the new LTIP after June 2, 2024, but awards theretofore granted may extend beyond that date.

 

 

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Administration :  The new LTIP is administered by our Compensation and Management Committee, or such other committee as may be designated by our Board of Directors (the “Committee”); provided, however, that the Committee shall consist of not less than two directors who are “non-employee directors,” within the meaning of Rule 16b-3 under the Exchange Act.

 

The Committee may allocate all or any portion of its responsibilities and powers under the Restated LTIP to any one or more of its members, our Chief Executive Officer or other senior members of management as the Committee deems appropriate; however, only the Committee may select and grant awards to participants who are subject to Section 16 of the Exchange Act.

 

The Committee has broad authority in its administration of the new LTIP, including, but not limited to, the authority to interpret the plan; to establish rules and regulations for the operation and administration of the plan; to select the plan participants to receive awards; to determine the type, size, terms, conditions, limitations, and restrictions of awards, including, without limitation, terms regarding vesting, exercisability, assignability, expiration and the effect of certain events, such as a change of control in the Company or the participant’s death, disability, retirement or termination from the Company or breach of agreement by a participant; and to take all other action it deems necessary or advisable to administer the new LTIP.

 

Notwithstanding the Committee’s broad authority to administer the new LTIP and the awards issued under the new LTIP, the exercise price of any stock option or stock appreciation right granted pursuant to the new LTIP may not be subsequently “repriced” without shareholder approval.  The term “reprice” means: (1) the reduction, directly or indirectly, in the per-share exercise price of an outstanding stock option or stock appreciation right by amendment, cancellation or substitution; (2) the cancellation of a stock option or stock appreciation right when its exercise price exceeds the fair market value of the underlying Common Stock in exchange for another stock option, stock appreciation right or other equity security (unless the cancellation and exchange occurs in connection with a merger, acquisition, or similar transaction); or (3) the taking of any other action that is treated as a repricing under United States generally accepted accounting principles or by the rules or regulations of any stock exchange on which our securities are traded.  The term “reprice” shall not include adjustments made to awards by the Committee upon the occurrence of certain events (as described under “Adjustments Upon Certain Events’’ below).

 

To facilitate the granting of awards to participants who are employed or retained outside of the United States, the Committee will be authorized to modify and amend the terms and conditions of an award to accommodate differences in local law, policy or custom.

 

Eligibility :  All of our employees, directors and consultants are eligible to participate in the new LTIP; provided, however, only employees are eligible to receive incentive stock options.  Participants in the new LTIP will be selected by the Committee from those eligible persons who are in a position to have a material impact on our results of operations.  Participants may be selected and awards may be made at any time during the ten-year period following the effective date of the new LTIP.  As of December 31, 2013, approximately two executive officers, 80 other employees, and five outside directors were eligible to participate in the current LTIP.

 

The selection of those persons within a particular class who will receive awards is entirely within the discretion of the Committee.  The Committee has not yet determined how many persons are likely to participate in the new LTIP.  The Committee intends, however, to grant most of the new LTIP’s awards to those persons who are in a position to have a significant direct impact on our growth, profitability and success of the Company, which would include the participants in our Restated LTIP.

 

 

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Shares Available :  A total of 1,750,000 shares of Common Stock will be available for grant of awards under the new LTIP. However, of the total number of shares of Common Stock available for awards under the new LTIP, no more than 800,000 shares of Common Stock may be used for awards other than stock options and stock appreciation rights.  The new LTIP authorizes the Committee to make equitable adjustments to the authorized number and class of securities to be issued under the new LTIP upon the occurrence of certain events, as described under “Adjustments Upon Certain Events’’ below.

 

Types of Awards :  Awards under the new LTIP may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock and other equity-based awards, or any combination thereof.   All awards granted to participants under the new LTIP shall be evidenced by an award agreement which specifies the type of award granted pursuant to the new LTIP, the number of shares of Common Stock underlying the award and all of the terms governing the award, including, without limitation, terms regarding the vesting, exercisability, forfeiture and expiration of the award.  The Committee has exclusive power and authority, consistent with the provisions of the new LTIP, to establish the terms and conditions of any award and to waive any such terms or conditions.

 

Award Limits .  The maximum number of shares with respect to which awards may be paid or granted during each calendar year to any given participant may not exceed 150,000 shares of Common Stock, except inducement grants to new executives and key employees in amounts not to exceed 700,000 shares are not subject to the 150,000 share annual limitation.  The new LTIP authorizes the Committee to make equitable adjustments to the number of shares with respect to which awards may be paid or granted during each calendar year to any given participant under the new LTIP upon the occurrence of certain events, as described under “Adjustments Upon Certain Events’’ below.

 

Stock Options and Stock Appreciation Rights .  The Committee may grant awards under the new LTIP in the form of stock options to purchase shares of Common Stock, which stock options may be non-qualified stock options or incentive stock options for federal income tax purposes.  Any stock option granted in the form of an incentive stock option must satisfy the requirements of Section 422 of the Internal Revenue Code. Stock options shall be vested and exercisable at such times and upon such terms and conditions as may be determined by the Committee, but in no event shall a stock option be exercisable more than ten years (five years for incentive stock options issued to certain Control Persons) after the date it is granted.  The exercise price per share of Common Stock for any stock option awarded shall not be less than 100 percent (110 percent for incentive stock options issued to certain Control Persons) of the fair market value of a share of Common Stock on the day the stock option is granted, except for stock options granted in assumption or replacement of outstanding awards in connection with specified corporate transactions.

 

A stock option may be exercised by paying the exercise price in cash or its equivalent, or, to the extent permitted by the Committee, shares of Common Stock, a combination of cash and shares of Common Stock or through the delivery of irrevocable instruments to a broker to sell the shares of Common Stock obtained upon the exercise of the stock option and to deliver to us an amount equal to the exercise price.

 

The Committee may grant stock appreciation rights independent of (“Freestanding SARs”) or in conjunction with (“Tandem SARs”) a stock option.  The exercise price of a stock appreciation right shall be an amount determined by the Committee, but in no event shall such amount be less than the fair market value of the Common Stock on the date the stock appreciation right is granted or, in the case of Tandem SARs, the exercise price of the related stock option.  Each Freestanding SAR shall entitle the participant upon exercise to an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Common Stock over (B) the exercise price, times (ii) the number of shares of Common Stock as to which the stock appreciation right is exercised.  Each Tandem SAR shall entitle the participant to surrender the related stock option and to receive an amount equal to (i) the excess of (A) the fair market value on the exercise date of one share of Common Stock over (B) the exercise price per share of Common Stock, times (ii) the number of shares of Common Stock covered by the related stock option which is surrendered.  Payment of the exercise price of a stock appreciation right may be made to us in shares of Common Stock or in cash or partly in shares of Common Stock and partly in cash, as determined by the Committee.

 

 

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Stock-Based Awards and Restricted Stock Units :  The Committee, in its sole discretion, may grant stock awards (shares of restricted stock or unrestricted stock) or RSU’s and other awards that are valued in whole or in part by reference to, or are otherwise based on the fair market value of, the Common Stock.   Such stock-based awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive, or vest with respect to, one or more shares of Common Stock (or the equivalent cash value of such shares of Common Stock) upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives.  The restricted period specified in respect of any stock award shall not be less than three years, except that the Committee may (i) provide for the restricted period to terminate at any time after one year upon the attainment of performance-based objectives, and (ii) grant stock awards of up to 30,000 shares of Common Stock without regard to this limitation. Furthermore, the Committee may not terminate the restrictions applicable to outstanding stock awards except in connection with a Change in Control. The Committee may grant an unrestricted stock award only if the Committee determines that such stock award is made in lieu of all or a portion of salary or cash bonus of comparable value.

 

Withholding :  We are entitled to deduct from any payment to a participant under the new LTIP the amount of all applicable income and employment taxes required by law to be withheld with respect to such payment or may require the participant to pay to us such tax prior to and as a condition of the making of such payment.  Subject to certain limitations, the Committee may allow a participant to pay the amount of taxes required by law to be withheld from an award by withholding shares of Common Stock to be paid under such award or by permitting the participant to deliver to us shares of Common Stock having a fair market value equal to the amount of such taxes.

 

Adjustments Upon Certain Events:   In the event of any reclassification, recapitalization, merger, consolidation, reorganization, issuance of warrants, rights or debentures, stock dividend, stock split or reverse stock split, cash dividend, property dividend, combination or exchange of shares, repurchase of shares or any other change in corporate structure which in the judgment of the Committee materially affects the value of the Common Stock, the Committee may determine the substitutions or adjustments to the maximum number of shares available for the grant or issuance of awards under the new LTIP, the maximum award payable under the new LTIP, the number and class of shares and the exercise price per share set forth in any award theretofore granted, or any other affected terms of an award or the new LTIP as the Committee deems equitable or appropriate.

 

Effect of Certain Events :  The Committee will have the authority to promulgate rules and regulations to determine the treatment of a participant’s award in the event of the participant’s death, disability or termination.  In addition, the Committee shall have the right to extend the period for exercise of any stock option or stock appreciation right, provided such extension does not result in an exercise period for any such stock option or Tandem SAR, which exceeds ten years from the date of grant.

 

Unless otherwise decided by the Committee and provided in an award agreement, upon a participant’s death or disability prior to the complete exercise of the stock options or stock appreciation rights granted to him or her under the new LTIP, any such remaining stock options or stock appreciation rights may be exercised within one year after the date of the participant’s death or disability and prior to the expiration of the term thereof, to the extent exercisable on the date of the participant’s death or disability.

 

Unless otherwise decided by the Committee and provided in an award agreement, upon a participant’s termination for any reason other than death or disability prior to the complete exercise of the stock options or stock appreciation rights granted to him or her under the new LTIP, any such remaining stock options or stock appreciation rights may be exercised within three months after the date of the participant’s termination and prior to the expiration of the term thereof, to the extent exercisable on the date of the participant’s termination.

 

 

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Amendment and Termination .: The Board of Directors may, at any time, alter, amend, suspend, discontinue or terminate the new LTIP; provided, however, that no such action shall adversely affect the rights of participants to awards previously granted hereunder and, provided further, however, that any shareholder approval necessary or desirable in order to comply with tax, securities, or other applicable laws or regulations, including, but not limited to, the listing requirements of the stock exchanges on which our securities are listed, shall be obtained in the manner required therein.  In addition, the Board of Directors may, at any time and for any reason, with or without prior notice, amend the new LTIP in any manner, but may not without shareholder approval, adopt any amendment which would: (1) increase the number of shares available under the new LTIP; (2) expand the types of awards available; (3) expand the class of persons eligible to participate; (4) extend the term of the new LTIP; (5) materially amend the new LTIP, including, but not limited to, changing the method of determining the exercise price of options issued under the new LTIP; (6) allow for repricing of options or SARs; or (vii) terminate restrictions applicable to awards (except in connection with a grantee’s death, disability or termination of employment or connection with a change in control).

 

New Plan Benefits

 

Because the benefits conveyed under the new LTIP will largely be at the discretion of the Committee, it is not possible to determine what benefits participants will receive under the new LTIP.

 

Tax Status of New LTIP Awards

 

Introduction :  The following discussion of the United States federal income tax consequences of awards under the new LTIP, as proposed, is based on present federal tax laws and regulations and does not purport to be a complete description of the federal income tax laws.  Participants may also be subject to certain foreign, state and local taxes which are not described below.

 

Incentive Stock Options :  Pursuant to the requirements of Section 422 of the Internal Revenue Code, only employees are eligible to receive incentive stock options.  If a stock option is an incentive stock option, no income is realized by the employee upon grant or exercise of the incentive stock option (except possibly for alternative minimum tax), and no deduction is available to us at such times.  If the Common Stock purchased upon the exercise of an incentive stock option is held by the employee for at least two years from the date of the grant of such incentive stock option and for at least one year after exercise, any resulting gain is taxed at long-term capital gains rates.  Any amount realized by the employee in excess of the fair market value of the Common Stock at the time of exercise is taxed at capital gains rates. If the Common Stock purchased pursuant to the incentive stock option is disposed of before the expiration of that period, any gain on the disposition, up to the difference between the fair market value of the Common Stock at the time of exercise and the exercise price of the incentive stock option, is taxed at ordinary rates as compensation paid to the employee, and we are entitled to a deduction for an equivalent amount.

 

Non-Qualified Options :  If a stock option is a non-qualified option, no income is realized by the participant at the time of grant of the non-qualified stock option, and no deduction is available to us at such time.  At the time of exercise (other than by delivery of previously-owned shares of Common Stock to us), ordinary income is realized by the participant in an amount equal to the difference between the exercise price and the fair market value of the shares on the date of exercise, and the Company receives an income tax deduction for the same amount.  If a non-qualified stock option is exercised by delivering previously-owned shares of Common Stock to us, the number of shares received by the participant equal to the number of shares so delivered are received tax-free and have a tax basis and holding period equal to the shares so delivered.  The fair market value of the additional shares received by the participant is taxable to the participant as ordinary income, and the participant’s tax basis in such shares is their fair market value on the date of exercise.  Upon disposition, any appreciation or depreciation of the Common Stock after the date of exercise may be treated as capital gain or loss depending on how long the shares have been held.

 

 

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Stock Appreciation Rights :   No income is realized by a participant at the time a stock appreciation right is granted, and no deduction is available to us at such time.  When the stock appreciation right is exercised, ordinary income is realized in the amount of the cash or the fair market value at such time of the shares of Common Stock received by the participant, and we are entitled to a deduction of equivalent value.

 

Unrestricted Stock and Unrestricted Stock-Based Awards :  Upon the grant of an award of shares of unrestricted stock or another stock-based award which is not restricted, a participant realizes taxable income equal to the cash and fair market value at such time of the shares of Common Stock received by the participant under such award (less the purchase price, if any), and we are entitled to a corresponding tax deduction at that time.

 

Restricted Stock, Restricted Stock Units and Restricted Stock-Based Awards :  Upon the grant of an award of shares of restricted stock, restricted stock units or another stock-based award which is restricted, no income is realized by a participant (unless a participant timely makes an election under Section 83(b) of the Internal Revenue Code to accelerate the recognition of the income under any such award to the date of grant), and we are not allowed a deduction at that time.  When the award vests and is no longer subject to a substantial risk of forfeiture for income tax purposes, the participant realizes taxable ordinary income in an amount equal to the cash and the fair market value at the time of vesting of the shares of Common Stock received by the participant under such award (less the purchase price therefor, if any), and we are entitled to a corresponding deduction at such time.  If a participant makes an election, as permitted under Section 83(b) of the Internal Revenue Code, within 30 days after the date of the transfer by us to the participant of the shares of restricted stock, then the participant recognizes taxable ordinary income in an amount equal to the cash and the fair market value at the time of grant of the shares of Common Stock to be received by the participant under such award (less the purchase price therefor, if any), and we are entitled to a corresponding deduction at such time.

 

Stock Price

 

The closing price of our Common Stock reported on the Nasdaq Stock Market on April 11, 2014, was $3.61 per share.

 

Required Vote and Board of Directors’ Recommendation

 

We believe that our best interests will be served by the approval of Proposal 3.  The new LTIP will enable us to grant stock and other new forms of long-term incentive awards to employees, directors and consultants which will enhance our ability to retain and compete for new talent.

 

Approval of Proposal 3 requires the affirmative vote of a majority of shares of the Common Stock represented at the Meeting.

 

Our Board of Directors recommends a vote in favor of the proposal to approve the new LTIP, and the persons named in the enclosed proxy (unless otherwise indicated therein) will vote such proxies FOR this proposal.

 

 

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OTHER MATTERS

 

Our Board of Directors does not intend to present, and has not been informed that any other person intends to present, any matters for action at the Meeting other than those specifically referred to in this proxy statement.  If any other matters properly come before the Meeting, it is intended that the holders of the proxies will act in respect thereof in accordance with their best judgment.

 

EXECUTIVE OFFICERS

 

Other than Mr. Popielec, whose information is set forth with the other directors standing for election, the names of, and certain information with respect to, our executive officers are presented below.

 

Name	Age	Present Principal Occupation and Employment History
Philip A. Fain	59	Mr. Fain was named Chief Financial Officer in November 2009,  Treasurer in December 2009 and Corporate Secretary in April 2013.  He previously served as Vice President of Business Development, having joined us in February 2008. Prior to joining us, he was Managing Partner of CXO on the GO, LLC, a management-consulting firm, which he co-founded in November 2003 and which we retained in connection with our acquisition activity. Prior to founding CXO on the GO, LLC, Mr. Fain served as Vice President of Finance - RayBan Sunoptics for Luxottica, SpA.  Prior to the acquisition of Bausch & Lomb’s global eyewear business by Luxottica, Mr. Fain served as Bausch & Lomb’s Senior Vice President Finance - Global Eyewear from 1997 to 1999 and as Vice President and Controller for the US Sunglass business from 1993 to 1996.  In these roles, he led the process to acquire some of the World’s most sought after sunglass companies and brands for Bausch & Lomb.  From 1983 to 1993, Mr. Fain served in various positions with Bausch & Lomb including executive positions in corporate accounting, finance and audit. Mr. Fain began his career as a CPA and consultant with Arthur Andersen & Co. in 1977. He received his B.A. in Economics from the University of Rochester and an MBA from the William E. Simon Graduate School of Business Administration of the University of Rochester.
Peter F. Comerford	56	Mr. Comerford retired effective May 28, 2013.  He was named Vice President of Administration and General Counsel on July 1, 1999 and was elected Corporate Secretary in December 2000.  He joined us in May 1997 as Senior Corporate Counsel and was appointed Director of Administration and General Counsel in December of that year.  Prior to joining us, Mr. Comerford was a practicing attorney for approximately fourteen years having worked primarily in municipal law departments including the City of Niagara Falls, New York where he served as the Corporation Counsel.  Mr. Comerford has a B.A. from the State University of New York at Buffalo, an MBA from Canisius College and a J.D. from the University of San Diego School of Law.

 

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April 11, 2014 by each person known by us to beneficially own more than five percent of the outstanding shares of our common stock, with percentages based on 17,526,229 shares issued and outstanding.

 

Name and Address of Beneficial Owner		Number of Shares Beneficially Owned		Percent of Class Beneficially Owned
Bradford T. Whitmore (1)		5,156,034		29.4%
1560 Sherman Avenue, Suite 900
Evanston, IL 60201
NGP Energy Technology Partners II, L.P. (2)		950,721		5.4%
1700 K Street NW, Suite 750
Washington, D.C. 20006

 

_______________________

 

(1)

This information as to the beneficial ownership of shares of our common stock is based on the Form 4 dated February 18, 2014 filed with the SEC by Grace Brothers, Ltd., an Illinois limited partnership, Bradford T. Whitmore individually and as general partner of Grace Brothers, Ltd. and as manager and sole voting member of Sunray I, LLC, Spurgeon Corporation, as general partner of Grace Brothers, Ltd. and Sunray I, LLC, a Delaware limited liability company that reports beneficial ownership of 5,156,034 shares of our common stock.  In the Schedule 13D/A dated February 17, 2014, Mr. Whitmore reports sole voting and dispositive power with respect to 4,637,418 of such shares, of which 4,452,283 shares are held in the name of Sunray I, LLC.  Grace Brothers, Ltd., Mr. Whitmore and Spurgeon Corporation report shared voting and dispositive power with respect to 518,616 of such shares.

 

(2)

This information as to the beneficial ownership of shares of our common stock is based on Amendment No. 2 to Schedule 13G dated February 14, 2013 filed with the SEC by NGP Energy Technology Partners II, L.P. (a Delaware limited partnership which owns the reported securities), NGP ETP II, L.L.C., the general partner of NGP Energy Technology Partners II, L.P, Energy Technology Partners, L.L.C., the sole manager of NGP ETP II, L.L.C., and Philip J. Deutch, the sole member and manager of Energy Technology Partners, L.L.C. and the manager of NGP ETP II, L.L.C.  Mr. Deutch is also a member of the investment committee of NGP ETP II, L.L.C.  NGP Energy Technology Partners II, L.P. reports sole voting and dispositive power with respect to all 950,721 shares.  By virtue of the relationships between and among the reporting persons, NGP ETP II, L.L.C., Energy Technology Partners, L.L.C. and Mr. Deutch may be deemed to have the power to direct the voting and disposition of the shares of common stock beneficially owned by NGP Energy Technology Partners II, L.P.  NGP ETP II, L.L.C., Energy Technology Partners, L.L.C. and Mr. Deutch disclaim beneficial ownership of the reported securities except to the extent of their pecuniary interest therein.

 

 

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SECURITY OWNERSHIP OF MANAGEMENT

 

The table below shows certain information regarding the beneficial ownership of shares of our common stock as of April 12, 2014 by (1) each of our directors, (2) each of our Named Executive Officers (as defined under the heading “Executive Compensation”), and (3) all of our directors and executive officers as a group.

 

Name of Beneficial Owner (1)		Number of Shares Beneficially Owned (1)				Percent of Class Beneficially Owned (2)
Steven M. Anderson			32,938				*
Michael D. Popielec			466,280	(3)			1.2	% (7)
Thomas L. Saeli			42,188				*
Robert W. Shaw II			34,563				*
Ranjit C. Singh			74,284				*
Bradford T. Whitmore			5,156,034	(4)			29.4	%
Philip A. Fain			227,262	(5)			*
All Directors and Executive Officers as a group (7 persons)			6,038,549	(6)			32.0	% (7)

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*Less than 1%

 

(1)

Except as otherwise indicated, the shareholders named in this table have sole voting and investment power with respect to the shares of our common stock beneficially owned by them.  The information provided in this table is based upon information provided to us by such shareholders.  The table reports beneficial ownership for our directors and executive officers in accordance with Rule 13d-3 under the Exchange Act.  This means all our securities over which directors and executive officers directly or indirectly have or share voting or investment power are listed as beneficially owned.  The amounts also include shares that may be acquired by exercise of stock options prior to June 11, 2014, which shares are referred to in the footnotes to this table as “shares subject to options that may be exercised.”

 

(2)	Based on 17,526,229 shares issued and outstanding.

 

(3)	The amount shown includes 262,500 shares subject to options that may be exercised by Mr. Popielec prior to June 11, 2014.

 

(4)

The amount shown includes 518,616 shares beneficially owned by Grace Brothers, Ltd., an Illinois limited partnership, held in a margin account, and Spurgeon Corporation, which is a general partner of Grace Brothers, Ltd.  Mr. Whitmore is a general partner of Grace Brothers, Ltd.  See “Security Ownership of Certain Beneficial Owners” above for more information about Grace Brothers, Ltd.

 

 

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(5)	The amount shown includes 165,976 shares subject to options that may be exercised by Mr. Fain.

 

(6)	The amount shown includes 433,476 shares subject to options that may be exercised by Directors and Executive Officers.

 

(7)	Percentages exclude shares subject to options that may be exercised by Directors and Executive Officers.

 

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of our common stock to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of our common stock and our other equity securities.  To our knowledge, based solely on the written representations of our directors and executive officers and the copies of such reports filed with the SEC during 2013, all Section 16(a) filings applicable to our officers, directors and more than 10% beneficial owners were filed in a timely manner.

 

SUBMISSION OF SHAREHOLDER PROPOSALS

 

Under Rule 14a-8 of the Exchange Act, shareholder proposals intended for inclusion in the proxy statement for our 2015 Annual Meeting of Shareholders must be submitted in writing to us to our Corporate Secretary at 2000 Technology Parkway, Newark, New York 14513, and must have been received by December 22, 2014.

 

Any shareholder proposal submitted for consideration at our 2014 Annual Meeting of Shareholders but not submitted for inclusion in the proxy statement for that meeting that is received by us after December, 2014 will not be considered filed on a timely basis with us under Rule 14a-4(c)(1) of the Exchange Act.  For such proposals that are not timely filed, we retain discretion to vote proxies we receive.  For such proposals that are timely filed, we retain discretion to vote proxies we receive provided that we include in our proxy statement advice on the nature of the proposal and how we intend to exercise our voting discretion and the proponent of any such proposal does not issue its own proxy statement.

 

Our Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC, is included in the 2013 Annual Report to Shareholders which accompanies this proxy statement.

 

April 21, 2014

By Order of the Board of Directors Bradford T. Whitmore Chair of the Board of Directors

 

 

 

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APPENDIX A