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16810 Kenton Drive, Suite 240

Huntersville, NC 28078

May 12, 2014

Dear Fellow Stockholder:

On behalf of the Board of Directors, I cordially invite you to attend the 2014 Annual Meeting of Stockholders to be held at 9:00 a.m., local time, on Wednesday, June 25, 2014, at the Chicago Club, 81 E Van Buren Street, Chicago, Illinois. The formal notice of the Annual Meeting appears on the following page.

The attached Notice of Annual Meeting and Proxy Statement contain detailed information about the matters that we expect to act upon at the Annual Meeting.

Please sign, date and specify your choices on the enclosed proxy card and promptly return it in the enclosed business reply envelope. This will help insure that your shares are represented at the Annual Meeting, whether or not you plan to attend the Annual Meeting. If you attend the meeting, you may revoke your proxy and personally cast your vote.

We look forward to seeing you at the Annual Meeting and urge you to return your proxy card as soon as possible.

Sincerely,

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LIME ENERGY CO.

16810 Kenton Drive, Suite 240

Huntersville, NC 28078

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To be held June 25, 2014

To the Stockholders of

LIME ENERGY CO.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Lime Energy Co. will be held at the Chicago Club, 81 E Van Buren Street, Chicago, Illinois at 9:00 a.m. local time, on Wednesday, June 25, 2014, for the following purposes:

1.                                      To elect five directors to our Board of Directors;

2.                                      To approve the issuance of common stock upon the conversion of our preferred stock and the exercise of our outstanding warrants issued in connection with the sale of our Series B Preferred Stock;

3.                                      To approve an amendment to our 2010 Non-Employee Directors Stock Plan to increase the maximum number of shares of common stock currently available for awards under the Plan from 71,430 shares to 250,000 shares;

4.                                      To approve the 2014 Employee Stock Purchase Plan;

5.                                      To ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the fiscal year 2014.

Stockholders will also transact such other business as may properly come before the Annual Meeting or any adjournment thereof.  As of the date of this notice, our Board of Directors knows of no other proposals or matters to be presented.

The foregoing items of business are more fully described in the proxy statement accompanying this notice.  This proxy statement is accompanied by a copy of the annual report to stockholders.  The Board of Directors has fixed the close of business on April 30, 2014, as the record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting or any postponement or adjournment thereof.

The Board of Directors encourages you to complete, sign and date the enclosed proxy card and promptly return it in the enclosed postage prepaid envelope, regardless of whether you plan to attend the Annual Meeting.

Huntersville, North Carolina

May 12, 2014

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PROXY STATEMENT

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LIME ENERGY CO.

16810 Kenton Drive, Suite 240

Huntersville, NC 28078

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

To be held Wednesday, June 25, 2014

GENERAL INFORMATION

This proxy statement and the enclosed proxy card are being furnished to our stockholders in connection with the solicitation of proxies by the Board of Directors of Lime Energy Co., a Delaware corporation, for use at our Annual Meeting of Stockholders to be held at the Chicago Club, 81 E Van Buren Street, Chicago, Illinois at 9:00 a.m. local time, on Wednesday, June 25, 2014, and any adjournments thereof. This proxy statement and the accompanying form of proxy are first being mailed to stockholders on or about May 12, 2014.

A copy of our 2013 Annual Report on Form 10-K for the year ended December 31, 2013 has been mailed to you. Our proxy statement for the Meeting and the 2013 Annual Report on Form 10-K can be viewed on our website at https://materials.proxyvote.com/53261U.

We use the terms “Lime Energy,” the “Company,” “we,” “our” and “us” in this proxy statement to refer to Lime Energy Co. and its consolidated subsidiaries, unless the context otherwise requires.

Solicitation

The cost of this proxy solicitation will be borne by Lime Energy. We may request banks, brokers, fiduciaries, custodians, nominees and certain other record holders to send proxies, proxy statements and other materials to their principals at our expense. Those banks, brokers, fiduciaries, custodians, nominees and other record holders will be reimbursed by us for their reasonable out-of-pocket expenses of solicitation. We do not anticipate that costs and expenses incurred in connection with this proxy solicitation will exceed an amount normally expended for a proxy solicitation for an election of directors in the absence of a contest.  In addition to soliciting proxies by mail, we and our directors, officers and regular employees may also solicit proxies personally, by telephone or by other appropriate means. No additional compensation will be paid to directors, officers or other regular employees for such services.

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Record Date and Outstanding Shares

Our Board of Directors fixed the close of business on April 30, 2014, as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting or any postponements or adjournments thereof. As April 30, 2014, we had 3,731,705 shares of common stock with voting rights as to certain matters outstanding.  Each outstanding share of common stock on such date is entitled to one vote on each matter to be voted on at the Annual Meeting.

In addition to the holders of our common stock, the holders of our Series A Preferred Stock will be entitled to vote on the Proposals and the holders of our Series B Preferred Stock will be entitled to vote on all Proposals except Proposal 2 – Approval of the Issuance of Conversion and Warrant Shares. Each holder of an outstanding share of Series A Preferred Stock is entitled to cast 2,849 votes on any matter presented to our stockholders and each holder of an outstanding share of Series B Preferred Stock is entitled to cast 3.534 votes on any matter presented to our stockholders, in each case voting together as a single class with holders of our common stock, except as provided by law or by the provisions of our Certificate of Incorporation. As of April 30, 2014, there were 957,624 shares of Series A Preferred Stock outstanding and 601,232 shares of Series B Preferred Stock outstanding. Holders of Series A Preferred Stock, therefore, will be entitled to cast 2,728,271 votes on the Proposals and holders of Series B Preferred Stock, therefore, will be entitled to cast 2,124,754 votes on Proposal 1 and Proposals 3 to 5, together with the 3,731,705 shares of common stock oustanding.

Required Vote

The affirmative vote of a majority of the shares of common stock and preferred stock entitled to vote voted in person or by proxy at the Annual Meeting is required to elect the nominees to the Board of Directors, to approve each of Proposals 2, 3 and 4, and to ratify the appointment of our independent auditors (Proposal 65).  Stockholders do not have any rights to cumulate their votes in the election of directors.

Quorum; Abstentions and Broker Non-Votes

The required quorum for transaction of business at the Annual Meeting will be a majority of the total votes of the shares of common stock issued and outstanding as of the record date.  Votes cast by proxy or in person at the Annual Meeting will be tabulated by the election inspector appointed for the meeting and will be taken into account in determining whether or not a quorum is present. Abstentions and broker non-votes, which occur when a broker has not received customer instructions and indicates that it does not have the discretionary authority to vote on a particular matter on the proxy card, will be included in determining the presence of a quorum at the Annual Meeting.  Abstentions will have the effect of a vote against the election of the nominees to the Board of Directors, to approve each of Proposals 2, 3 and 4 and to ratify the appointment of our independent auditors.  Broker non-votes will not be counted, and therefore will have no effect on the outcome on the election of directors, any of the proposals or the ratification of our independent auditors.

If you own shares through a bank, broker, or other holder of record, you must instruct your bank, broker, or other holder of record how to vote in order for them to vote your shares so that your vote can be counted.  Unless you provide voting instructions to any broker holding shares on your behalf, your broker may not use discretionary authority to vote your shares on any of the matters to be considered at the annual meeting other than the ratification of our independent registered public accounting firm. Please vote your proxy so your vote can be counted.

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Voting of Proxies; Revocability of Proxies

Our Board of Directors selected Ms. Anne Berg and Mr. Richard Heidrich, the persons named as proxies on the proxy card accompanying this proxy statement, to serve as proxies. Ms. Berg is our general counsel and assistant secretary and Mr. Heidrich is our associate vice president of program design. The shares of common stock represented by each executed and returned proxy will be voted in accordance with the directions indicated thereon, or if no direction is indicated, the proxy will be voted in accordance with the recommendations of the Board of Directors contained in this proxy statement.

All stockholders may vote in person at the Annual Meeting. You may also be represented by another person at the Annual Meeting by executing a proper proxy designating that person. If you are a beneficial owner of shares, you must obtain a legal proxy from your broker, bank or other holder of record and present it to the inspectors of election with your ballot to be able to vote at the Annual Meeting.

You can revoke a proxy you have given at any time before the shares it represents are voted by giving our secretary either (1) an instrument revoking the proxy or (2) a duly executed proxy bearing a later date. Additionally, you may change or revoke a previously executed proxy by voting in person at the Annual Meeting. However, your attendance at the Annual Meeting will not, by itself, revoke your proxy.

Dissenter’s Right of Appraisal

There is no proposal or matter that will be acted upon in the meeting that would grant dissenting stockholders the right of appraisal.

Interest of Certain Officers and Directors in Matters to be Acted Upon

Richard Kiphart, the Chairman of our Board of Directors, holds 200,616 shares of our Series B Preferred Stock and warrants to purchase 282,686 shares of our common stock issued in connection with the sale of our Series B Preferred Stock.  Those shares of our Series B Preferred Stock will not be convertible into our common stock and those warrants may not be exercised unless Proposal 2 is approved by our stockholders.

Annual Report to Stockholders

We are simultaneously furnishing to you with this proxy statement our Annual Report to Stockholders for the fiscal year ended December 31, 2013, which contains financial and other information pertaining to us.

Multiple Stockholders Sharing the Same Address

Owners of common stock who hold their shares in a brokerage account may receive a notice from their broker stating that only one proxy statement will be delivered to multiple security holders sharing an address. This practice, known as “householding,” is designed to reduce printing and postage costs. However, if any stockholder residing at such an address wishes to receive a separate proxy statement, he or she may contact our Corporate Secretary at Lime Energy Co., 16810 Kenton Drive, Suite 240, Huntersville, NC 28078 or by telephone at (704) 892-4442.

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PROPOSAL 1

ELECTION OF DIRECTORS

At the Annual Meeting, five nominees to the Board of Directors will be elected to hold office for a term ending at our 2015 Annual Meeting of stockholders or until their respective successors are duly elected and qualified. All nominees listed below are currently members of our Board of Directors, except for Mr. Procell, and have consented to being named in this proxy statement and to serve as directors, if elected. If, at the time of the Annual Meeting, any nominee becomes unavailable or declines to serve as a director for any reason, the persons named in the proxy will vote for the substitute nominee(s) as the Board of Directors recommends, or vote to allow the vacancy created by the nominee who is unable or declines to serve to remain open until filled by the Board of Directors, as the Board of Directors recommends. The Board of Directors has no reason to believe that any nominee will be unable or decline to serve if elected to office.  The Board has set the size of the Board of Directors at seven members.  There are currently three vacancies, one of which the Board has nominated Mr. Procell to fill and the other two which it is seeking to fill.  To date it has not identified qualified candidates to fill these remaining two vacancies.  Under our by-laws, the Board may appoint directors to fill these vacancies until the next annual meeting of stockholders or set the size of the Board at a number of directors ranging from three to twelve.

Nominees for Director

The following table presents the names of the director nominees as well as certain information about them. Proxies cannot be voted for a greater number of persons than the number of nominees named.

(1)                                 Member of our Audit Committee.

(2)                                 Member of our Compensation Committee.

(3)                                 Member of our Governance and Nominating Committee.

Below, we provide the following information for each director and Board of Directors’ nominee:

·                  principal occupations for at least the past five years

·                  the names of any other public companies where the nominee or director currently serves as a director or has served during the past five years

·                  the particular experience, qualifications, attributes or skills that led the Board to conclude that the person should serve as a director for the company

Gregory T. Barnum is currently the vice president of finance, chief financial officer and corporate secretary of Datalink Corporation, a provider of data center infrastructure services.  Prior to joining Datalink in March 2006, Mr. Barnum was the vice president of finance, chief financial officer and corporate secretary of Computer Network Technology Corporation since July 1997.  From September 1992 to July 1997, Mr. Barnum served as senior vice president of finance and administration, chief financial officer and corporate secretary at Tricord Systems, Inc., a manufacturer of enterprise servers.  From May 1988 to September 1992,

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Mr. Barnum served as the executive vice president, finance, chief financial officer, treasurer and corporate secretary for Cray Computer Corporation, a development stage company engaged in the design of supercomputers.  Prior to that time, Mr. Barnum served in various accounting and financial management capacities for Cray Research, Inc.  Mr. Barnum is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants.  Mr. Barnum also serves on the Board of Wireless Ronin Technologies, Inc.  Mr. Barnum’s 20+ years of accounting experience and experience as a chief financial officer of publicly traded companies qualify him to serve on our board of directors and act as a financial expert.

Christopher W. Capps served as President and Chief Executive Officer of Advanced Biotherapy, Inc. from August 2006 until we acquired Advanced Biotherapy, Inc., on March 3, 2010.  Since September 2005, Mr. Capps has also served as President and CEO of KGC Partners, a private equity firm.  Mr. Capps’s experience working with small and mid-sized companies and knowledge of current corporate finance techniques and market activities qualifies him to serve on our board.

Stephen Glick has been one of our directors since July 2009.  Mr. Glick was the President of Applied Energy Management, Inc., a company he founded in 1984, until we acquired the company in June 2008. Mr. Glick’s 20+ years of experience running an energy efficiency business serving some of the nation’s largest ESCOs makes him qualified to serve on our board.

Richard P. Kiphart is currently the head of the Private Client Advisors group and a principal of William Blair & Company for over 48 years.  In addition, Mr. Kiphart is currently chairman of Ranir Corporation and the former chairman of Nature Vision, The Merit Music School and the Erikson Institute, and is currently the president and chief executive officer of the Lyric Opera of Chicago and serves on the board of Lurie Children’s Hospital, the Poetry Foundation, the Afrimax Group, Emmi Solutions, Trustwave Corporation and Wilshire Media Group.  Mr. Kiphart’s leadership skills and extensive investment banking experience, as well as his experience serving on numerous boards makes him qualified to serve on our board.

C. Adam Procell, has been our chief executive officer since November 2013 and our president and chief operating officer since September 2013.  From April 2009 to September 2013, he served as divisional president and as vice president of sales and marketing.  Prior to joining the Company in April 2009, Mr. Procell served as the national director of energy efficiency & carbon management for AECOM Technology Corporation (ACM: NYSE).  Mr. Procell’s industry experience and responsibility for executing the Company’s strategic plan qualify him for his position on the Lime Energy board.

The Board of Directors recommends that the stockholders vote

“FOR”

the election of all of the director nominees.

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Leadership Structure and Role in Risk Oversight

The Company’s board leadership structure separates the roles of board chair and principal executive officer roles.  When the board chair is not an independent director, an independent director is designated as the lead director.  At present, Richard Kiphart, whom the Company considers an independent director,  is the chairman of the board and C. Adam Procell is the president and chief executive officer. The Company determines the leadership structure it deems appropriate based on factors such as the experience and availability of the applicable individuals, the current business environment of the Company or other relevant factors. After considering these factors, the Company believes that separating the positions of chairman of the board and chief executive officer is the appropriate board leadership structure at this time, allowing our chief executive officer to focus on the business strategy and operations of the Company, while our board chair provides leadership to the Board necessary for the Board to fulfill its responsibilities and an independent perspective on the Board’s activities.  In the future, the Company may determine that combining some of these positions may be the best structure for operating the Company, based on the factors at that time or, if the board chair is not an independent director, to designate an independent director as lead director.

The Board of Directors is responsible for oversight of the Company’s risk management practices while management is responsible for the day-to-day risk management processes. In the Board’s opinion, this division of responsibilities is the most effective approach for addressing the risks facing the Company, and the Company’s board leadership structure supports this approach. The Board receives periodic reports from management regarding the most significant risks facing the Company.  In addition, the Audit Committee assists the Board in its oversight role by receiving periodic reports regarding the Company’s risk and control environment.

Diversity

The Board does not have a formal policy with respect to Board nominee diversity.  In recommending proposed nominees to the full Board, the Nominating Committee is charged with building and maintaining a board that has an ideal mix of talent and experience to achieve our business objectives in the current environment.  In particular, the Nominating Committee is focused on relevant subject matter expertise, depth of knowledge in key areas that are important to us, and diversity of thought, background, perspective and experience so as to facilitate robust debate and broad thinking on strategies and tactics pursued by us.

Family Relationships

The only family relationship between any of our directors and officers is that Mr. Kiphart is the father-in-law of Mr. Capps.

Director Attendance

During the fiscal year ended December 31, 2013, the Board of Directors held seven formal meetings. In addition, there were five meetings of the Audit Committee and ten meetings of the special subcommittee of the Audit Committee. During 2013, all members of the Board of Directors attended at least 75% of the total of all board meetings and applicable committee meetings.  We encourage our Board members to attend our Annual Meeting, but we do not have a formal policy requiring attendance.  Our independent directors met in executive session, without management directors present, one time during 2013, in conjunction with a formal meeting of the board.

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Independent Directors

Of the five directors currently serving on the Board, all of whom are director nominees at the next Annual Meeting, the Board has determined that each of Messrs. Barnum, Capps, Glick and Kiphart are independent as defined in NASDAQ Rule 5605(a)(2).  Mr. Procell is not considered independent because he also serves as one of our executive officers.

COMPENSATION OF DIRECTORS

Director Compensation Program

Effective April 1, 2000, we adopted a stock option plan for all non-employee directors that was separate and distinct from our employee incentive plans.  The plan was amended on July 11, 2006 to provide that eligible directors receive an initial option grant upon being appointed to our Board of Directors to purchase 2,041 shares of our common stock, and a grant of options to purchase an additional 1,020 shares on the first day of January beginning on the second January following the date the director became an eligible director.  These options had an exercise price equal to the closing price of our common stock on the grant date and a term of ten years.  The initial options vested on first day of January following the initial grant date or six months following the initial grant date, whichever is later, if the individual is still a director on the vesting date.

The Directors Plan was replaced in June 2010 by the 2010 Non-Employee Directors’ Stock Plan.  The 2010 Directors’ Plan provides for the granting of stock to Non-Employee directors to compensate them for their services to the Company.  The use of the shares available under the 2010 Directors’ Plan is administered by the Company’s Board of Directors, which has delegated its powers to the Compensation Committee of the Board of Directors.  The Compensation Committee has determined under the 2010 Directors’ Plan to grant non-employee directors restricted shares of Company stock with the following market values on the date of grant:

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Half of the shares received pursuant to this plan vest immediately and the remaining shares vest on the one year anniversary of the initial grant, or in the case of grants for committee service, on the date that the term of the service ends, typically the date of our annual meeting of stockholders.  Shares for Board service are granted on the first business day of the year and shares for committee service are granted upon appointment to the committee following the annual meeting of stockholders.  Newly appointed directors receive their initial grant on a prorated basis on their date of appointment.

During 2013, we granted 22,527 shares of restricted stock to directors for their service to the Board and 20,966 shares for service on Board committees.  Of these shares, 31,118 shares vested during 2013 and 10,482 are to vest in June 2014 and 1,893 were forfeited prior to vesting.

Directors who are also our employees receive no additional compensation for their services as directors.

Director Compensation Table

The following table provides compensation information for the year ended December 31, 2013 for each of our non-executive directors.

(1)                                 Represents the grant date market value of shares granted during 2013.

(2)                                 Mr. Asplund resigned from the Board effective March 1, 2013 at which time half of his 2013 stock award was forfeited.

(3)                                 Mr. O’Rourke was our Chief Executive Officer until November 25, 2013 and, although he was a director prior to that date, he became a non-executive director on that date.

(4)                                 The following table sets forth the (i) number of shares of stock granted through stock awards through December 31, 2013, and (ii) the number of options outstanding as of December 31, 2013 for each of our non-executive directors:

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Committees of the Board of Directors

The Board of Directors has an Audit Committee, Compensation Committee and a Governance and Nominating Committee.

Audit Committee

The Audit Committee, which is composed entirely of non-employee, independent directors, held five meetings during 2013 and ten meetings of the special subcommittee of the Audit Committee. Each of the members of the Audit Committee attended at least 75% of the meetings of the Committee held in 2013 and each member of the special subcommittee attended at least 75% of the meetings of the subcommittee held in 2013. The Audit Committee meets periodically and separately in executive sessions with management and the independent auditors to review the activities of each. The Audit Committee possesses and may exercise the powers of the Board of Directors relating to our accounting, auditing, and financial reporting matters, except when such powers are by statute, the Certificate of Incorporation or Bylaws reserved to the full Board or delegated to another committee of the Board. The Audit Committee reports regularly to the full Board on these matters. The Audit Committee is directly responsible for the appointment, compensation, and oversight of our independent auditors. Among other duties, the Audit Committee:

·                  recommends the independent auditors to the Board;

·                  pre-approves all audit and non-audit services provided to us by the independent auditors;

·                  monitors the independence of the independent auditors;

·                  reviews and approves:

·                  the scope and timing of work to be performed by the independent auditors

·                  compensation to be paid to the independent auditors

·                  financial accounting and reporting principles used by the Company

·                  results of the audit and the report of the independent auditors

·                  transactions involving the Company and our officers, directors, affiliates and significant stockholders

·                  discusses our annual audited financial statements and quarterly financial statements with management and the independent auditors;

·                  considers allegations made, if any, of possible financial fraud or other financial improprieties;

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·                  prepares an Audit Committee report as required by the SEC to be in this proxy statement; and

·                  reviews and reassesses the adequacy of the Audit Committee charter at least annually.

The Audit Committee’s current members are directors Greg Barnum (Committee Chairman), Christopher Capps and Stephen Glick. Our Board of Directors has determined that Mr. Barnum qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of SEC Regulation S-K. The Board also believes that Messrs. Barnum, Capps and Glick are “independent” as defined by NASDAQ Rule 5605(a)(2). The Board of Directors adopted an Audit Committee Charter effective April 19, 2000, which was amended effective January 31, 2001 to combine the Conflicts Committee with the Audit Committee.  A copy of the Audit Committee’s charter is available on our website (www.lime-energy.com) under the heading “Investors.”

Compensation Committee

The Compensation Committee, which is composed of three independent directors—Richard Kiphart (Committee Chairman), Greg Barnum and Stephen Glick, was formed in 2001 upon the Board of Directors’ adoption of a Compensation Committee charter. The Compensation Committee did not hold any meetings during 2013. A copy of the Compensation Committee’s charter is available on our website (www.lime-energy.com) under the heading “Investors.”  The Compensation Committee’s responsibilities are to:

·                  review and recommend to the Board of Directors the annual salary, bonus, stock options and other benefits of our senior executives;

·                  review executive compensation programs and the administration thereof;

·                  plan for executive development and succession;

·                  review expense accounts and fringe benefits of executive management;

·                  administer our stock option and stock incentive programs; and

·                  review and recommend to the Board of Directors the compensation of members of the Board of Directors.

Governance & Nominating Committee

The Governance and Nominating Committee, which is composed of two independent directors—Stephen Glick (Committee Chairman) and Richard Kiphart, was formed in 2004 upon the Board of Directors’ adoption of a Governance and Nominating Committee Charter.  A copy of the Governance and Nominating Committee’s charter is available on our website (www.lime-energy.com) under the heading “Investors.”  The Board believes that Messrs. Glick and Kiphart are independent directors as defined by NASDAQ Rule 5605(a)(2). Prior to the establishment of the Governance and Nominating Committee, the recruitment and selection of candidates for Board of Directors was handled by the Compensation Committee.  The Governance and Nominating Committee did not meet during 2013.  The Governance and Nominating Committee’s responsibilities are to:

·                  develop and recommend to the Board of Directors policies and processes designed to provide for effective and efficient governance;

·                  plan Board education activities, including new member orientation;

·                  evaluate the size and composition of the Board of Directors, develop criteria for membership on the Board of Directors, and evaluate the independence of existing and prospective directors, and

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make recommendations to the Board concerning such matters;

·                  seek and evaluate qualified individuals to become directors;

·                  evaluate the nature, structure and composition of other committees of the Board of Directors and make recommendations to the Board concerning such matters; and

·                  assess the performance of the Board of Directors.

Selection of Board Nominees

Our Governance and Nominating Committee is responsible for identifying and evaluating Board candidates using one or more informal processes deemed appropriate for the circumstances. All of our directors and executive officers play a significant role in bringing potential candidates to the attention of the Committee. A determination of whether to pursue discussions with a particular individual will be made after discussion by the Committee and may be preceded by formal or informal discussions involving one or all of the other Board members. Information considered by the Committee may include information provided by the candidate, the chief executive officer and one or more Committee or Board members. The Committee seeks candidates whose qualifications, experience and independence complement those of existing Board members. Board candidates are expected to possess high personal and professional ethics, integrity and values, and relevant business experience and to be committed to representing the long-term interests of all stockholders. They are also expected to have an inquisitive and objective perspective, practical wisdom and good judgment.

Once appropriate candidates have been identified, the Committee will recommend nominations to our Board. Our Governance and Nominating Committee has not adopted a policy or procedure for the consideration of director candidates recommended by stockholders. Our Board does not recall an instance in which a stockholder (other than a stockholder serving as an officer or director) has recommended a director candidate; however, the Governance and Nominations Committee will consider all timely stockholder recommendations. For the 2015 Annual Meeting of Stockholders, nominations may be submitted to the Corporate Secretary, Lime Energy Co., 16810 Kenton Drive, Suite 240, Huntersville, NC 28078, which will forward them to the Chairman of the Governance and Nominating Committee. Recommendations must be in writing, must specify the candidate’s qualifications for serving as a director and must be received by us not later than March 25, 2015, in order for nominees to be considered for election at our 2015 Annual Meeting of Stockholders.

Codes of Conduct and Business Ethics

We have adopted a code of ethics as part of our compliance program.  This code of ethics applies to our chief executive officer and our chief financial officer.  In addition, we have a Code of Conduct and Business Ethics that applies to all of our officers, directors and employees. These codes of ethics are available on our website (www.lime-energy.com) under the heading “Investors.” We intend to post amendments to or waivers from the Code of Ethics which are applicable to our directors, principal executive officer and principal financial officer at this location on our website.

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EXECUTIVE OFFICERS

The table below identifies our executive officers who are not identified in the table under “Nominees for Director.”

(1)    Mr. Mistarz has informed the Company that he has decided to resign from the Company after the completion of the financial statements for the first quarter of 2014.

(2)    Ms. Brennan will become our Chief Financial Officer upon the effectiveness of Mr. Mistarz resignation.

Jeffrey R. Mistarz has been our chief financial officer since January 2000, our treasurer since October 2000, an executive vice president since November 2002, our assistant secretary since February 2003 and our secretary since June 2006. From January 1994 until joining us, Mr. Mistarz served as chief financial officer for Nucon Corporation, a privately held manufacturer of material handling products and systems, where he was responsible for all areas of finance and accounting, managing capital and stockholder relations. Prior to joining Nucon, Mr. Mistarz was with First Chicago Corporation (now JPMorgan Chase & Co.) for 12 years where he held several positions in corporate lending, investment banking and credit strategy.  Mr. Mistarz has informed the Company that he has decided to resign from the Company after the completion of the first quarter 2014 financial statements.

Mary Colleen Brennan was hired on April 21, 2014, to succeed Mr. Mistarz as our chief financial officer following his departure on or about May 15, 2014.  Ms. Brennan was a financial and business management consultant from April 2011 until joining us.  From December 2001 until March 2011 she was the chief financial officer and corporate treasurer of Han-Padron Associates, LLP, a subsidiary of Halcrow, Inc., a U.K. based design engineering firm. From December 2000 through October 2002, she was and executive director of business and operations management for Telcordia Technologies, Inc., a telecommunications research and development company, where she also served as a director of finance and group controller from April 1998 through November 2000.  Prior to this she worked for Burns and Roe Enterprises, Inc., an engineering and construction company, in various roles including manager of financial reporting and planning, controller of a joint venture company and manager of subsidiary and general ledger accounting.  Ms. Brennan is a certified public accountant in the state of New Jersey.

SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following tables set forth information regarding the beneficial ownership of our securities as of April 10, 2014 by:

·                  each person known by us to be the beneficial owner of more than 5% of the outstanding shares of our voting securities;

·                  each of our directors and named executive officers, and

·                  all of our directors and executive officers as a group (ten persons).

Each stockholder’s beneficial ownership is based on 3,726,705 shares of Lime common stock outstanding as of April 10, 2014.  Beneficial ownership is determined in accordance with the rules of the SEC. Except as otherwise noted, the persons or entities named have sole voting and investment power with respect to all shares shown as beneficially owned by them, and the address of each person listed in the following table is c/o Lime Energy Co., 16810 Kenton Drive, Suite 240, Huntersville, NC 28078.

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Beneficial Owners of Greater Than 5% of Our Common Stock:

Directors and Executive Officers:

*                             Denotes beneficial ownership of less than 1%.

(1)                     Represents warrants and options to purchase our common stock exercisable within 60 days of October 11, 2013.

(2)                     Until our shareholders approve the issuance of our common stock upon the exercise of the warrants that we issued on December 30, 2013, no shares are issuable upon the exercise of the warrants issued in connection with the sale of the Series B Preferred Stock. We are seeking such approval at the Annual Meeting.  See Proposal 2 — Approval of The Issuance of Conversion and Warrant Shares.  Absent such approval, the number of shares of common stock issuable upon exercise of warrants held by (a) The John Hurvis Revocable Trust is 319,425 and (b) Mr. Kiphart is 517,452.

(3)                      Until our shareholders approve the conversion of our series B preferred stock into our common stock, no shares are issuable upon conversion of Series B preferred stock.  We are seeking such approval at the Annual Meeting.  See Proposal 2 — Approval of The Issuance of Conversion and Warrant Shares . Absent such approval, the number of shares of common stock issuable upon conversion of the preferred stock held by (a) The John Hurvis Revocable Trust is 971,379 and (b) Mr. Kiphart is 1,413,219.

(4)                      Mr. O’Rourke resigned from the Board effective April 9, 2014.

Changes in Control

We are not aware of any arrangements, including any pledge by any person of our stock, the operation of which may at a subsequent date result in a change of control of the Company.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16 of the Securities Exchange Act of 1934 requires our directors and officers (as defined in Section 16) and persons who beneficially own greater than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission. The required reports consist of initial statements on Form 3, statements of changes on Form 4 and annual statements on Form 5. Directors, officers and greater than 10% stockholders are required by Securities and Exchange Commission rules to furnish us with copies of all Section 16(a) reports filed.  Based solely on our review of the reports we have received and on written representations from our officers who are reporting persons, we believe that during 2013 all Section 16 filing requirements applicable to our directors, officers and 10% beneficial owners were complied with by these persons.

TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CONTROL PERSONS

On May 15, 2012, we sold Richard Kiphart 142,857 shares of our common stock at the then-most recent consolidated closing bid price on the NASDAQ Capital Market of $17.85 per share or $2,550,000 in the aggregate pursuant to a subscription agreement between us and him.  The sale of the shares was registered on the Company’s Registration Statement on Form S-3 (SEC File No. 333-176622).  Mr. Kiphart is our Chairman of the Board and holds more than five percent of our outstanding common stock.  Proceeds from the sale were used for general corporate purposes.

On October 22, 2012, we entered into a Convertible Note and Warrant Purchase Agreement with a group of investors including Mr. Kiphart and Christopher Capps, a member of our Board of Directors.  Pursuant to the terms of the purchase agreement, the investors loaned us $6,050,000 pursuant to Subordinated Secured Convertible Pay-In-Kind Notes. The notes had a term of five years and accrued interest at the rate of 12-1/2% per year, payable semi-annually at the Company’s election in cash or additional notes.  Mr. Kiphart purchased notes with a principal amount of $2,500,000 and Mr. Capps purchased noted with a principal amount of $50,000. No principal payments have been made.  As discussed below, all of the notes and accrued interest were converted into shares of convertible preferred stock on September 23, 2013.  During fiscal year 2012, we paid $59,932 of interest on the notes, all in the form of additional notes of like tenor.  In connection with the entry into the purchase agreement, we issued the investors warrants to purchase 644,991 shares of its common stock at $4.69 per share.  These warrants expire on the 5th anniversary of their issuance and contain a cashless-exercise option.  Mr. Kiphart received warrants to purchase 266,525 shares and Mr. Capps received warrants to purchase 5,331 shares.

On December 7, 2012, we entered into a Letter of Credit Agreement Mr. Kiphart.  Pursuant to the agreement, Mr. Kiphart agreed to cause the issuance of one or more letters of credit for the benefit of a surety at our request, up to an aggregate amount of $1,000,000.  Mr. Kiphart’s obligation to cause the issuance of, or leave in place, the letter of credit terminated on December 7, 2013, however he has agreed to leave them in place until the associated projects have been completed. We will indemnify Mr. Kiphart for any liability in connection with any payment or disbursement made under the letter of credit.  We also paid all of Mr. Kiphart’s fees and out-of-pocket expenses incurred in connection with the letter of credit.  As consideration for his obligations under the letter of credit agreement, we issued Mr. Kiphart a warrant to purchase 39,286 shares of the our common stock at an exercise price of $3.57 per share.  The warrant has a three year term and may be exercised on a cashless basis at Mr. Kiphart’s election.

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On September 23, 2013, we entered into a Preferred Stock and Warrant Purchase Agreement (the “Series A Purchase Agreement”) with a group of investors including Mr. Kiphart, and Mr. Capps (collectively with the other investors, the “Investors”).  Pursuant to the terms of the Series A Purchase Agreement, the Investors purchased 926,223 shares of our Series A Preferred Stock (the “Series A Preferred Shares”) at a price per Preferred Share of $10.00.  The purchase price was paid with (a) $2,500,000 in cash and (b) the exchange of $6,779,949.84 (principal amount and accrued interest) of our Subordinated Secured Convertible Pay-In-Kind Note (the “Notes”), representing all of the outstanding Notes and accrued interest through September 23, 2013.

The Series A Preferred Shares are entitled to an accruing dividend of 12.5% per annum of their original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations), payable semi-annually in arrears.  Such dividends shall be paid in additional shares of Series A Preferred Stock at the original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations) or, at the sole discretion of our board of directors, in cash.

The Series A Preferred Shares at the election of the holder of such share, into shares of our common stock at a conversion price equal to $3.78 per share (the “Series A Conversion Price’).  The Series A Conversion Price shall be proportionately adjusted for stock splits, combinations and similar recapitalizations, and, subject to a floor of $3.50, shall be adjusted for future issuance of common stock (excluding certain issuances) at a price per share less than the Conversion Price on a broad based, weighted average basis.  We can require conversion of the notes if the weighted average price for the our common stock is at least two hundred percent (200%) of the Conversion Price for at least 20 trading days during a 30 trading day period ending within 5 trading days prior to us sending a notice of forced conversion to the holders of the Series A Preferred Shares.  On December 30, 2013, as the result of the issuance of shares of series B convertible preferred stock, the Conversion Price of the Series A Preferred Shares was reduced to $3.58 per share.  The Conversion Price was further reduced to $3.51 per share on February 4, 2014, when the Company issued additional shares of series B convertible preferred stock.

We may redeem all or a portion of the Series A Preferred Shares at our option at any time unless prohibited by Delaware law governing distributions to stockholders.  The redemption price for each Series A Preferred Share shall be its original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations) plus any accrued but unpaid dividends multiplied by a factor based on the date of the notice of such redemption is sent to holders of the Preferred Shares. If such notice is sent before the first anniversary of the issuance of the Preferred Shares, the factor shall be 103%, if thereafter but before the second such anniversary, the factor shall be 102%, if thereafter but before the third such anniversary, the factor shall be 101% and thereafter, the facto shall be 100%.

In connection with the entry into the Series A Purchase Agreement, we issued the Investors warrants to purchase 264,551 shares of its common stock at $3.78 per share (the “Series A Warrants”).  These warrants expire on the fifth anniversary of their issuance and contain a cashless-exercise option.  Mr. Kiphart received warrants to purchase 211,641 shares of our stock as part of this transaction.

On December 30, 2013, we entered into a Series B Preferred Stock and Warrant Purchase Agreement (the “Initial Series B Purchase Agreement”) with a group of investors including Mr. Richard Kiphart, our Chairman and largest individual stockholder (collectively with the other investors, the “initial Series B Investors”).  Pursuant to the terms of the initial Series B Purchase Agreement, the Initial Series B Investors purchased 400,000 shares of our Series B Preferred Stock (the “Series B Preferred Shares”) at a price per Series B Preferred Share of $10.00.

The Series B Preferred Shares are entitled to an accruing dividend of 12.5% per annum of their original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations),

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payable semi-annually in arrears.  Such dividends shall be paid in additional shares of Series B Preferred Stock at the original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations) or, at the sole discretion of our board of directors, in cash.

The Series B Preferred Shares may be converted, at any time following the approval of such conversion by our stockholders, at the election of the holder of such shares, into shares of the Company’s common stock at a conversion price which was initially equal to $2.83 per share (the “Series B Conversion Price’).  The Series B Conversion Price shall be proportionately adjusted for stock splits, combinations and similar recapitalizations, and, subject to a floor of $2.50, shall be adjusted for future issuances of common stock (excluding certain issuances) at a price per share less than the Series B Conversion Price on a broad based, weighted average basis.  We can require conversion of the Series B Preferred Shares if the weighted average price for the our common stock is at least two hundred percent (200%) of the Conversion Price for at least 20 trading days during a 30 trading day period ending within 5 trading days prior to sending a notice of forced conversion to the holders of the Series B Preferred Shares.

We may redeem all or a portion of the Series B Preferred Shares at our option at any time, unless prohibited by Delaware law governing distributions to stockholders.  The redemption price for each Series B Preferred Share shall be its original issue price (subject to adjustment for stock splits, combinations and similar recapitalizations) plus any accrued but unpaid dividends multiplied by a factor based on the date of the notice of such redemption is sent to holders of the Series B Preferred Shares. If such notice is sent before the first anniversary of the issuance of the Series B Preferred Shares, the factor shall be 103%, if thereafter but before the second such anniversary, the factor shall be 102%, if thereafter but before the third such anniversary, the factor shall be 101% and thereafter, the factor shall be 100%.

In connection with the entry into the Initial Series B Purchase Agreement, we issued the Initial Series B Investors warrants to purchase 565,372 shares of our common stock at $2.83 per share (the “Series B Warrants”).  These warrants expire on the fifth anniversary of their issuance and contain a cashless-exercise option.  The Warrants may not be exercised until the Company’s common stockholders approve the exercise of the Warrants. Mr. Kiphart received warrants to purchase 282,686 shares of our stock as part of this transaction.

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EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

It is our intent to compensate our executives by using a balanced approach, which combines fixed and performance-based compensation, annual and long-term compensation, and cash and equity compensation. We determine this mix by reviewing the mix offered by other companies of our size and in our industry. We do not have a specific policy for the allocation of compensation between fixed and performance-based compensation, annual and long-term compensation, and cash and equity compensation.

We manage our business with the long-term goal of creating and maximizing shareholder value, and, accordingly, a significant percentage or our executive compensation is at risk and weighted towards company performance, long-term incentives and stock price appreciation. We think this is a key to our long-term success. Due to turnover in our executive ranks during late 2013 and anticipated departure of Mr. Mistarz in early 2014, the components of the aggregate compensation paid during 2013 to our executive compensation was not representative of what we desire or expect we will pay our executive team in the future.  However, the components of Mr. Procell’s compensation probably most closely reflect what we would expect we will pay our executives in the future. The following chart illustrates the allocation of the principal compensation components for Mr. Procell for 2013. The percentages reflect the amounts of 2013 salary and targeted annual cash incentive compensation and the aggregate grant date fair values of shares of restricted stock granted in connection with Mr. Procell’s performance during 2013. For 2013, 32.7% of these principal compensation components for Mr. Procell was variable, including 21.8% which was tied to performance of our stock price.

Current Executive Officers

We currently have three executive officers:  C. Adam Procell, our Chief Executive Officer, President and Jeffrey R. Mistarz, our Chief Financial Officer and Mary Colleen Brennan, who will succeed Mr. Mistarz as Chief Financial Officer upon his departure in mid-May 2014.

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Overview of Executive Compensation Program

Prior to 2009, we did not have a formalized program for determining executive compensation.  Mr. Procell and Ms. Brennan receive the majority of their compensation pursuant to written employment agreements that were negotiated in connection with their hiring.  These employment agreements were approved and the terms were negotiated at the time in light of specific circumstances.

Notwithstanding the absence of a formalized compensation program, our executive officers have generally received compensation consisting of three components:

·                  a cash component, consisting of salary meant to be competitive with salaries such individuals could obtain from other employers;

·                  eligibility for annual cash bonuses determined by the Compensation Committee based on our performance and the executive’s achievement of individual objectives; and

·                  stock options intended to reward achievement of long-term goals and align the interests of our executive officers with those of our stockholders.

In addition, we also provide Mr. Procell with a monthly allowance due to the fact that he uses his cars extensively for Company business.  Executive officers participate in group health and disability insurance on the same basis as other full-time employees.

Except with respect to the current employment agreement with Mr. Procell, the Compensation Committee of the Board of Directors makes all compensation decisions for our executive officers.  Generally, compensation decisions for executive officers other than our chief executive officer have been made by the Compensation Committee pursuant to recommendations made by our chief executive officer.

In 2009 we retained the consulting firm of Towers Perrin (which has since changed its name to Towers Watson) to assist us in formalizing our executive compensation program and to help ensure that our compensation program is consistent with current market practices.  After consultation with Towers Perrin, on August 4, 2009, our Compensation Committee recommended to our board, and our board adopted, our 2009 Management Incentive Compensation Plan (the “2009 Plan”). Under the terms of the 2009 Plan, our executive officers are the initial group of participants eligible for cash awards and, in lieu of cash awards, equity-based awards (subject to the availability of shares of common stock and the other terms our 2008 Long-Term Incentive Plan) based upon specified criteria to be determined and approved of by our Compensation Committee, or as otherwise provided in the 2009 Plan.

Performance goals for 2009 Plan participants were set in various goal categories, including, but not necessarily limited to: (a) Company performance objectives, comprising revenue and earnings before interest, taxes, depreciation, amortization and stock-based compensation targets, and (b) individual performance objectives.  The relative weight among the performance goal categories vary based on the participant’s position within the Company.  The weighting will be reviewed annually and may be adjusted by our Compensation Committee.

Each participant is informed at the beginning of, or soon after the beginning of, each fiscal year, of his or her 2009 Plan base salary, which will be the basis for determining the award opportunity for that participant, and which amount will be allocated among the participant’s performance goal categories. In addition, the 2009 Plan provides that the Compensation Committee will set three performance levels, Threshold, Target and Maximum levels set as a percentage for each performance goal category.

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Objectives of Compensation Program

Compensation of our executive officers is intended to reward improved overall financial performance of the Company, and to reward performance achievements and increases in stockholder value over the long term.

·                  Annual salaries for executive officers have been established with the goal of attracting and retaining qualified individuals for the positions.  These salaries have been determined on a case-by-case basis.

·                  Short-term incentive compensation awards are intended to reward our Executives for the achievement of annual performance criteria and are flexible and change based on the needs of our business.  These awards are generally determined pursuant to our 2009 Plan, although the 2009 Plan does not prohibit discretionary bonuses in addition to those under the plan.  Short-term compensation has historically taken the form of cash bonuses and stock awards.

·                  Restricted stock grants and stock options awards are intended to reward achievement leading to increases in our profitability and stockholder value over the longer term.  The amounts awarded are determined as prescribed in the 2009 Plan.

To motivate executive officers to achieve the longer-term goal of increasing our profitability and stockholder value, and to reward them for achieving such long-term goals, stock awards and stock options have been included as part of the compensation structure for our executive officers.  These awards provide an increased opportunity for equity ownership by our executive officers, thereby further aligning their interest with those of our stockholders.  These grants are generally made in a manner consistent with the 2009 Plan, though the Compensation Committee has latitude to determine the amount of short-term incentive compensation to be paid in the form of cash versus stock grants.  All stock grants have been in the form of restricted stock, which vests ratably over a three-year period dependent on the executive’s continued employment by us.  A typical stock option grant has been structured to have a ten-year exercise period, to vest over a three year period, with vesting also depending upon the executive remaining employed by us, and to have an exercise price equal to the market price on the grant date.  We have not granted options with an exercise price that is less than the market price on the grant date.  As further incentive to achieve certain long-term objectives, during 2010 we granted nine employees, including the named executive officers, options that will only vest if certain specific financial and stock performance objectives are achieved within a five-year period.  These options are further described below.

We do not have a formula for allocating between cash and non-cash compensation.  The number of shares of restricted stock and stock options awarded to an executive officer has been decided on a case-by-case basis taking into consideration other components of compensation, not pursuant to any specific guidelines or program.

A copy of the 2009 Management Incentive Compensation Plan was filed as an exhibit to our Current Report on Form 8-K dated August 4, 2009 filed with the Securities and Exchange Commission on August 7, 2009.

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On April 16, 2010, the Compensation Committee approved the grant of options (the “Cliff Options”) to purchase 102,857 shares of stock to a group of nine senior employees of the Company, including the three named executive officers.  These options were granted to provide additional incentive to these senior managers to achieve certain objectives within a set period of time which the Board believes will greatly benefit stockholders.  The significant terms of these options are as follows:

·                  Exercise price of $31.50 per share;

·                  The options will vest at any time prior to December 31, 2015 if:

·                  the closing market price for our common stock has exceeds $140 per share on any trading day,

·                  we have publicly reported annual revenue for any fiscal year in excess of $242 million, and

·                  our publicly reported adjusted EBITDA for any fiscal year in excess of $24 million;

·                  The options will immediately vest on a Change of Control in which more than 50% of the shares of our common stock are acquired by any individual, entity or group for a price in excess of $105 per share, excluding, subject to certain exceptions, acquisitions by the Company, acquisitions from the Company and acquisitions by employee benefit plans; and

·                  The options will terminate 10 years from the grant date or three months following the termination of the holder’s employment with the Company unless such termination is involuntary and not for Due Cause.

Messrs. Procell and Mistarz received Cliff Options to purchase 10,715 and 14,286 shares of our common stock under these terms, respectively.

A copy of the Form of these Cliff Options was filed as an exhibit to our Current Report on Form 8-K dated April 16, 2010 filed with the Securities and Exchange Commission on April 22, 2010.

Clawback Provisions

The Company does not currently have a policy requiring a fixed course of action with respect to compensation adjustments following later restatements of financial results beyond what is required under the Sarbanes-Oxley Act. Under those circumstances, the Compensation Committee would evaluate whether compensation adjustments are appropriate based upon the facts and circumstances surrounding the restatement. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), the Securities and Exchange Commission is required to promulgate new regulations to require companies to adopt a policy to recover certain compensation in the event of a material accounting restatement. The SEC has not yet issued these regulations, but we will adopt a policy after the regulations are finalized and their requirements are known.

Accounting and Tax Considerations

Financial Accounting Standards Board Accounting Standards Codification Topic 718, requires a charge to compensation expense for the fair value of equity compensation awards.  Grants of options and restricted stock are accounted for under ASC 718. The Compensation Committee considers the accounting implications of significant compensation decisions, particularly in connection with decisions that relate to the Company’s long-term incentive awards.

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2013 Summary Compensation Table

The following table sets forth the compensation earned, awarded or paid for services rendered to us for the year ended December 31, 2013 and the year ended December 31, 2012 by our principal executive officer (PEO), our principal financial officer (PFO), our executive chairman of the board and our former president.  These persons are referred to, collectively, as the “named executive officers.”

(1)                                 Mr. Asplund was our Chief Executive Officer until May 20, 2011 and was our Executive Chairman from May 20, 2011 until June 2, 2012. He took a leave of absence from his position as Executive Chairman on June 2, 2012 and has since passed away.

(2)                                 Mr. O’Rourke’s employment was terminated on November 25, 2013.  From September 30, 2013 until November 25, 2013 he was Chief Executive Officer.  From May 20, 2011 to September 23, 2013 he also held the title of President.

(3)                                 Mr. Procell was named President and Chief Executive Officer On November 25, 2013.  From September 23, 2013 to November 25, 2013 he served as President and Operating Officer.

(4)                                 Represents the value of restricted shares based on the market price of the shares on the date of grant.

(5)                                 Includes $18,443 for the cost of life and long-term disability insurance, $2,792 of auto-allowance and the $1,325 cost of membership to a business club provided to Mr. Asplund.

(6)                                 Represents the cost of life insurance and long-term disability insurance provided to Mr. Mistarz.

(7)                                 Includes $10,962 of accrued vacation, $8,100 for the cost of a leased vehicle provided to Mr. O’Rourke and $515 for the cost of group life and disability insurance provided to Mr. O’Rourke.

(8)                                 Includes $7,200 for the cost of a leased vehicle provided to Mr. O’Rourke and $512 cost of group life and disability insurance provided to Mr. O’Rourke

(9)                                 Includes $6,000 of auto allowance and $515 cost of group life and disability insurance provided to Mr. Procell.

(10)                          Includes $6,000 of auto allowance and $434 cost of group life and disability insurance provided to Mr. Procell.

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Employment Contracts, Termination of Employment and Change-in-Control Arrangements

Mr. Procell

Mr. Procell entered into an employment agreement with a subsidiary of the Company in March 2009. The employment agreement currently provides that Mr. Procell’s annual base salary shall be determined by the Company in its sole discretion and that he shall be eligible for an annual bonus of up to 50% of his annual base salary.  Mr. Procell’s current annual base salary is $240,000.  The employment agreement currently does not provide for any fixed period of employment or severance payments.  The agreement imposes non-competition, non-solicitation and confidentiality obligations, which are not separately compensated.  The non-competition obligation covers the employment period and extends for one year after termination.

Mr. Mistarz

We have an employment agreement with Mr. Mistarz that fixes his minimum base compensation, and the current annual salary for 2014 at $225,000.  This employment agreement terminates on December 31, 2014, and provides for the automatic renewal of the contract for an additional, successive two year period if the Company does not provide Mr. Mistarz with a notice of non-renewal before July 1st of the year in which the contract is scheduled to expire.

Under his employment agreement, Mr. Mistarz is entitled to certain benefits if his employment terminates for certain reasons.  If he should die during the term of his contract, most, if not all, of his unvested stock options would immediately vest.  In addition, all such stock options and any previously vested stock options would be exercisable for a period of one year following the date of his death.

If Mr. Mistarz were to become permanently disabled such that he could not perform his duties for 180 consecutive days or for 180 days in any period of 12 consecutive months, we would have the right to terminate his employment, in which event any stock options which were then already vested would be exercisable for a period of between 90 and 180 days following such termination.

If Mr. Mistarz were to terminate his employment during the term of the contract for reasons other than death, disability or uncured default by us under the agreement, then any vested stock options as of the date of termination shall be exercisable for 90 days following the date of termination.

If we should terminate Mr. Mistarz’s employment prior to the scheduled expiration of his respective contract, for any reason other than death, disability or “Due Cause,” as defined in the employment agreement, or if Mr. Mistarz should choose to terminate his employment because we defaulted in our obligations under the agreement and failed to cure such default after notice, then all of his unvested stock options will immediately vest and would be exercisable for a period of three months following the date of termination.  Additionally, we are obligated to pay Mr. Mistarz, as severance compensation, (i) six months’ salary at his then current rate, in installments in accordance with our regular payroll, plus (ii) any bonus earned as of the termination date, in accordance with the terms of such bonus, plus (iii) any accrued unused vacation, which will be paid on the next regular payroll date.

“Due Cause” is defined as any of (i) a material breach by Mr. Mistarz of his agreement not cured within 15 calendar days following written notice thereof, (ii) commission of a felony, or theft or embezzlement of our property, (iii) actions which result in material injury to our businesses, properties or reputation, (iv) refusal to perform or substantial neglect of the duties assigned to him not remedied within 15 calendar days following written notice thereof, or (v) any material violation of any statutory or common law duty of loyalty to us.

In addition to the foregoing, upon occurrence of a change of control, all the stock options granted to Mr. Mistarz shall immediately vest and become exercisable.  In addition, the Cliff Options will only vest if the change of control occurs at a stock price in excess of $105 per share.  In general, a “Change of

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Control” is deemed to have occurred when (i) we are merged or consolidated with another entity that is not then controlled by us and an unrelated entity acquires the ability to elect a majority of our Board of Directors or holds a majority of our common stock, or (ii) a majority of our assets are sold or otherwise transferred to another entity that is not then controlled by or affiliated with us.

Mr. Mistarz’s employment agreement imposes non-competition, non-solicitation and confidentiality obligations, which are not separately compensated.  The non-competition obligation covers the employment period and extends for two years after termination.

Ms. Brennan

We have an employment agreement with Ms. Brennan that fixes her minimum base compensation, and the current annual salary for 2014 at $220,000 and provides for a hiring bonus of $10,000 and a grant of 5,000 shares of restricted stock that will vest in three equal installments at the end of each of the next three years if she is still an employee of the Company on the vesting date.  This employment agreement terminates on December 31, 2016, and provides for the automatic renewal of the contract for an additional, successive one year period if the Company does not provide Ms. Brennan with a notice of non-renewal before November 1st of the year prior to the year in which the contract is scheduled to expire.

The Company or Ms. Brennan can terminate her employment at any time prior to the scheduled expiration of her respective contract, for any reason by delivery of a 30-day written notice to the other party.  Upon such termination the Company will have no further obligation to Ms. Brennan other than the payment of (i) her base salary through the date of termination, plus (ii) any bonus earned as of the termination date, in accordance with the terms of such bonus, plus (iii) any retirement, incentive or other payments and benefits earned and vested as of the date of her termination, except that if the Company terminates Ms. Brennan without “Due Cause” after December 31, 2014, in addition to the foregoing amounts, the Company will pay Ms. Brennan an amount equal to six months of her then-current base salary.

“Due Cause” is defined as any of (i) a material breach by Ms. Brennan of her agreement not cured within 10 calendar days following written notice thereof, or, if the breach cannot be remedied within ten (10) days, within such longer time (not to exceed forty-five (45) days) as we, in our sole and absolute discretion, may deem to be reasonably necessary for Ms. Brennan to remedy the breach if we, in our sole and absolute discretion, determines that she has promptly commenced and is diligently and continuously pursuing her best efforts to remedy the breach as quickly as possible, (ii)  conviction, or plea of guilty or nolo contendere, or commission of a felony or any other crime that has, or is likely to have, a materially adverse impact upon the Company, our reputation, or our relationship with our employees, suppliers, or customers, (iii) actions or inaction which results in material injury to our businesses, properties or reputation, (iv) refusal to perform or substantial neglect of the duties assigned to her not remedied within 10 calendar days following written notice thereof, (v) the commission of any act constituting embezzlement, fraud, misappropriation, willful misconduct, or breach of fiduciary duty or duty of loyalty owed to us, (vi) any material misrepresentation of education or prior work experience, (vii) a material violation of ours employment policies, including all policies set forth in our Employee Handbook and all drug and alcohol and anti-discrimination policies, or (viii) commission of an act of moral turpitude.

Under her employment agreement, if Ms. Brennan dies or becomes disabled (as defined in the Company’s 2008 Long Term Incentive Plan) during the term of her contract all of her unvested restricted stock would immediately vest.

In addition to the foregoing, upon occurrence of a change of control (as defined in the Company’s 2008 Long Term Incentive Plan), all the restricted stock granted to Ms. Brennan shall immediately vest and become exercisable.

Ms. Brennan’s employment agreement imposes non-competition, non-solicitation and confidentiality obligations, which are not separately compensated.  The non-competition and non-solicitation obligations cover the employment period and extends for two years after termination.

Potential Payments Upon Termination or Change In Control

The following table show potential payments to the current named executive officers under existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change-in-control or termination of employment assuming a December 31, 2013 termination date and, where applicable, using the closing price of our common stock of $2.89 per share on that date.

(1)                                 None of the listed persons are entitled to more than accrued but unpaid salary and vacation upon a voluntary termination of their employment.

(2)                                 Under the terms of their employment contracts, Mr. Mistarz is entitled to any accrued but unpaid salary and vacation as well as six months severance pay for an involuntary termination of his employment without cause.

(3)                                 None of the listed persons are entitled to more than accrued but unpaid salary and vacation upon an involuntary termination for cause.

(4)                                 None of the listed persons would be entitled to any payments upon a change of control unless they were involuntarily terminated without cause, but upon a change of control certain unvested options held by Mr. Mistarz and Procell would immediately vest.  As of December 31, 2013 the intrinsic value of executives’ options were as follows:

* Calculated as the excess, if any, of the market value on December 31, 2013 of $2.89 per share over the option strike price

(5)                                 None of the listed persons are entitled to more than accrued but unpaid salary and vacation upon their death or permanent disability.

(6)           Ms. Brennan was not an employee of the Company on December 31, 2013.

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Grants of Plan-Based Awards for 2013

There were no equity grants to any of the named executives for 2013.  Restricted stock was granted on January 7, 2014, to Mr. Procell in connection with his 2013 compensation.

Outstanding Equity Awards at Fiscal Year-End 2013

The following table includes certain information with respect to the value of all unexercised options previously awarded to the named executive officers at December 31, 2013:

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(1)         The vesting dates for the options which were not exercisable are as follows:

(1)               These options will vest if prior to December 31, 2015 the following conditions have been met:

·            the closing market price for our common stock has exceeds $140 per share on any trading day,

·            we have publicly reported annual revenue for any fiscal year in excess of $242 million, and

·            our publicly reported adjusted EBITDA for any fiscal year in excess of $24 million.

·            Additionally, these options will immediately vest on a Change of Control in which more than 50% of the shares of our common stock are acquired by any individual, entity or group for a price in excess of $105 per share, excluding, subject to certain exceptions, acquisitions by the Company, acquisitions from the Company and acquisitions by employee benefit plans.

Stock Options and Incentive Compensation

On June 4, 2008, our stockholders approved the adoption of the 2008 Stock Incentive Plan (the “2008 Plan”), which replaced the 2001 Stock Incentive Plan, as amended.  The 2008 Plan provided that up to 40,000 shares of our common stock could be delivered under the Plan to certain of our employees and to consultants and directors who are not employees.  In addition, the 2008 Plan originally provided for an additional number of shares of our common stock to be reserved for issuance under the plan on January 1st of each succeeding year, beginning January 1, 2010, in an amount equal to 14,286 shares.  On November 26, 2008, our Compensation Committee approved amendments the 2008 Plan to i) increase the maximum number of shares of Common Stock authorized for issuance under the 2008 Plan by 50,000 shares, from 40,000 shares to 90,000 shares, and (ii) raise the automatic increases in the number of shares available for awards by 21,429 shares, from 14,286 to 35,715, each year beginning in 2010.  The holders of a majority of our outstanding capital stock approved the Plan Amendment pursuant to a consent dated November 26, 2008.  On March 25, 2010, the Compensation Committee approved a second amendment to the 2008 Plan to increase the shares available under the plan by an additional 245,714 shares, from 161,429 shares to 407,143 shares.  The second amendment was approved by our stockholders on June 3, 2010.

The awards to be granted under the Plan may be incentive stock options eligible for favored treatment under Section 422 of the Internal Revenue code of 1986, as amended from time to time, or non-qualified options that are not eligible for such treatment, or stock of the Company, which may be subject to contingencies or restrictions, as well as grants of stock appreciation rights or grants of shares of common stock.  Approximately 120 employees and officers of the Company and our subsidiaries are currently eligible to participate in the Plan.

As of December 31, 2013, there were 304,299 shares of common stock reserved under the Plan for outstanding options and shares of restricted stock. We granted 49,319 shares of restricted stock and options to purchase 2,859 shares under the Plan during 2013, and options to purchase 218,086 shares were outstanding under the Plan as of December 31, 2013.

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Option Exercises and Stock Vested During 2013

The following table shows all stock options exercised and the value realized upon exercise, and all stock awards vested and the value realized upon vesting, by our Named Executive Officers during fiscal 2013: