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**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, DC 20549**

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### **FORM 10-K/A**

 

**Amendment No. 2**

 

**(Mark One)**
| **x**                                                                                                                                                                                                  | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**     |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                   |                                                                                                     |
| **For fiscal year ended December 31, 2009**                                                                                                                                                       |
|                                                                                                                                                                                                   |
| **OR**                                                                                                                                                                                                 |
|                                                                                                                                                                                                   |                                                                                                     |
| **o**                                                                                                                                                                                                  | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|                                                                                                                                                                                                   |                                                                                                     |
| **For the transition period from                 to               ** |

 

**Commission File Number 1-14472**

** **

**CORNELL COMPANIES, INC.**

(Exact Name of Registrant as Specified In ItsCharter)

 
| **Delaware**                                               | ** ** | **76-0433642**       |
|------------------------------------------------------------|------------|----------------------|
| (State  or Other Jurisdiction                              |       | (I.R.S.  Employer    |
| of  Incorporation or Organization)                         |       | Identification  No.) |
|                                                       |       |                 |
| **1700 West  Loop South, Suite 1500, Houston, Texas** | ** ** | **77027**            |
| (Address  of Principal Executive Offices)                  |       | (Zip  Code)          |

 

Registrant’stelephone number, including area code:  **(713) 623-0790**

 

Securities registered pursuant to Section 12(b) ofthe Act:

 
| **Title of Each Class**  | ** ** | **Name of Each Exchange on Which Registered** |
|-----------------------------------------|------------|-----------------------------------------------------------------------------|
| Common Stock, $.001 par value per share |       | New York Stock Exchange                                                     |
| Preferred Stock Purchase Rights         |       | New York Stock Exchange                                                     |

 

Securities registeredpursuant to Section 12(g) of the Act: **None**

 

Indicate by check mark if the registrant is awell-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No x

 

Indicate by check mark if the registrantis not required to file reports pursuant to Section 13 or Section 15(d) ofthe Act.

Yes o No x

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the Registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes  x  No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  Yes  o  No  o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K (§229.405) is not containedherein, and will not be contained, to the best of Registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIof this Form 10-K or any amendment to this Form 10-K. x.

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmallerreporting company. See the definitions of “large accelerated filer,” “acceleratedfiler” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Check one.

 
| Large accelerated Filer o | Accelerated filer x         |
|---------------------------|-----------------------------|
|                      |                        |
| Non-accelerated filer o   | Smaller Reporting Company o |

 

Indicate by check mark whether the registrant is a shellcompany (as defined in Rule 12b-2 of the Exchange Act).

Yes o  Nox

 

The aggregate market value of voting stock held bynon-affiliates of the registrant was $191,785,600 on June 30, 2009. Theregistrant has 14,971,194 shares of common stock outstanding on February 19,2010.

 

 

 

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**CornellCompanies, Inc.**

** **

**Table ofContents**

 

**2009Form 10-K/A**

**Amendment No. 2**

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| ** **        | ** **                                                                                      | **Page** |
|-------------------|-------------------------------------------------------------------------------------------------|----------|
| Explanatory Note  | 3                                                                                               |
| **Part III** |                                                                                            |     |
| Item 10           | Directors, Executive Officers ad Corporate  Governance                                          | 3        |
| Item 11           | Executive Compensation                                                                          | 6        |
| Item 12           | Security Ownership of Certain  Beneficial Owners and Management and Related Stockholder Matters | 26       |
| Item 13           | Certain Relationships and  Related Transactions, and Director Independence                      | 28       |
| Item 14           | Principal Accountant Fees  and Services                                                         | 29       |
| **Part IV**  |                                                                                            |     |
| Item 15           | Exhibits and Financial  Statement Schedules                                                     | 30       |
|                   |                                                                                                 |          |  |

 

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**ExplanatoryNote**

 

This Amendment No. 2 on Form 10-K/A (the “Amendment”) isbeing filed to amend the Annual Report on Form 10-K of Cornell Companies, Inc.(the “Company”) filed with the Securities and Exchange Commission on February 26,2010 (as amended by the Annual Report on Form 10-K/A (Amendment No. 1)filed with the Securities and Exchange Commission on March 5, 2010, the “OriginalReport on Form 10-K”). The sole purpose of this Amendment is to includeItems 10, 11, 12, 13 and 14 of Part III previously intended to beincorporated by reference through the Company’s proxy statement for its 2010annual meeting of shareholders. The Company will not be filing its proxystatement for its 2010 annual meeting within 120 days following the end of itsfiscal year 2009 and, therefore, is filing this Amendment. Accordingly, Items10-14 of Part III are amended and restated in their entirety. Thereference on the cover page of the Original Report on Form 10-K tothe incorporation by reference of the registrant’s proxy statement relating toits 2010 Annual Meeting is also deleted. In addition, in connection with thefiling of this Amendment and pursuant to the rules of the Securities andExchange Commission, the Company is including with this Amendment certaincurrently dated certifications. Accordingly, Item 15 of Part IV has alsobeen amended to reflect the filing of these currently datedcertifications.  Except as otherwisestated herein, the Amendment does not amend any other disclosure in theOriginal Report on Form 10-K.  TheOriginal Report on Form 10-K continues to speak as of the date of theOriginal Filing, and the Company has not updated the disclosures containedtherein to reflect any events which occurred subsequent to the filing of theOriginal Filing, or to modify the disclosure contained in the Original Filingother than to reflect the changes described above.

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**PART III**

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**ITEM 10.               DIRECTORS,EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.**

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**Directors**.  The followingtable sets forth the name, age and principal position of our directors as of April 15,2010.  There are no family relationshipsbetween any of our officers or directors.

 
| **Name**                    | ** ** | **Age** | ** ** | **Principal****Position**                               |
|-----------------------------|------------|---------|------------|---------------------------------------------------------|
| Max Batzer                  |       | 66      |       | Director                                                |
| Anthony R. Chase            |       | 55      |       | Lead Director                                           |
| Richard Crane               |       | 63      |       | Director                                                |
| Zachary R. George           |       | 32      |       | Director                                                |
| Todd Goodwin                |       | 78      |       | Director                                                |
| James E. Hyman              |       | 50      |       | Chairman, Chief  Executive Officer & President |
| Andrew R. Jones             |       | 47      |       | Director                                                |
| Alfred Jay  Moran, Jr. |       | 66      |       | Director                                                |
| D. Stephen Slack            |       | 60      |       | Director                                                |

 

*Max Batzer* has served as a director of the Company since May 2007.  Since 1999, Mr. Batzer has been withWynnefield Capital, Inc., where he currently serves as a PortfolioManager.  From 1991 to January 1999,he was Chairman of the Board and CEO of Diagnostic Health Services.  From 1981 until 1988, he was director andexecutive committee member of Simmons Airlines Inc., a publicly traded regionalairline.  From 1981 through 1991, Mr. Batzerwas President of General Hide and Skin Corporation, a worldwide commodity tradingorganization.  Mr. Batzer receivedhis BSE from the Wharton School at the University of Pennsylvania and his MBAfrom the University of Arizona.  TheBoard believes that Mr. Batzer’s financial and business expertise,including his experience as an executive officer and director of several publicand private companies, give him the qualifications and skills to serve as adirector.

 

*Anthony R. Chase* has been a Director of the Company since October 1999and was appointed lead director in May 2008. Since 1991, Mr. Chasehas been a Professor of Law at the University of Houston Law Center, and he isalso Chairman & CEO of ChaseSource, a staffing & recruitingfirm.   From January 2009 through December 2009,Mr. Chase served as Executive Vice President of Crest Investment Company, a Houston-based private equity firmthat develops business opportunities worldwide and currently serves as aconsultant.   Prior to that position, he had most recently served as the Chairman and Chief ExecutiveOfficer of ChaseCom, a global customer relationshipmanagement and staffing services company until its sale in 2007 to AT&T.   He currently serves on the board of directors of the generalpartner of Western Gas Partners, L.P.   From July 2004 to July 2008, Mr. Chase served as a director of the FederalReserve Bank of Dallas, and also served as its Deputy Chairman from 2006until his departure in July 2008.  He received his JD from Harvard Law School,his MBA from Harvard Business School and his AB from Harvard College.  The Board believes that Mr. Chase’slegal, financial and business expertise, including his service as Director andDeputy Chairman of the Federal Reserve Bank of Dallas and his historicalperspective and knowledge of the Company’s operations, give him the qualificationsand skills to serve as a director.

 

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*Richard Crane*****has been a director of the Company since June 2005.As an attorney at law, Mr. Crane has been a sole practitioner since1988.  Mr. Crane representsindividual, corporate and government clients in corrections and sentencingmatters.  Mr. Crane has also been aconsultant in more than 30 corrections privatization projects and served on thePractitioners’ Advisory Group to the United States Sentencing Commission from1990 to 2009.  From 1984 through 1987, Mr. Craneserved as General Counsel for Corrections Corporation of America.  Mr. Crane also previously served asChief Legal Counsel for the Louisiana Department of Corrections and as Directorof the American Correctional Association’s Legal Issues Project.  Mr. Crane received his JD from LouisianaState University.  Mr. Crane hasauthored numerous articles on prison and privatization issues, including *Monitoring Correctional Services Provided by Private Firms*.  The Board believes that Mr. Crane’slegal and business experience, including his experience in corrections andprivatization issues, give him the qualifications and skills to serve as adirector.

 

*****Zachary R. George***** has been a director of the Company sinceJune 2005.  Mr. George was appointed President and CEO ofHuntingdon Real Estate Investment Trust in January 2010 andpreviously served as the President and CEO of IAT Air Cargo Facilities IncomeFund during 2009.  Mr. George has been a Managing Member ofFrontFour Capital Group LLC, since January 2007.  Prior to joiningFrontFour Capital Group LLC, Mr. George was a Senior InvestmentAnalyst at Pirate Capital LLC, covering private corrections and otherindustries, from 2004 to 2006.  From 2002 to 2004, Mr. George workedat Mizuho Corporate Bank LTD where he served as an Officer in PortfolioManagement.  Mr. George received his JD from Brooklyn Law School. Mr. George served on the boards of directors of Allied Defense Groupand PW Eagle Inc. from 2006 to 2007.  TheBoard believes that Mr. George’s financial and business experience,including his familiarity with the private corrections and real estatesectors, and his investment experience, give him thequalifications and skills to serve as a director.

 

*Todd Goodwin* has been a director of the Company since June 2005.  Mr. Goodwin retired in 2002 as a Partnerof Gibbons, Goodwin, van Amerongen, having spent 18 years with the privateequity firm. Mr. Goodwin previously served as a Managing Director ofMerrill Lynch.  Mr. Goodwin hasserved as a director on the boards of several companies, including SouthwestForest Industries, RT French Company, Rival Company, Schult Homes, SpecialtyEquipment, Horace Mann Education Corporation, Robert Half International,Riverwood International, Johns Manville Corporation, Ladish Company, EKCOHousewares, Merrill Lynch Institutional Fund, PW Eagle, Southampton Hospitaland the Peconic Health Corporation. Mr. Goodwin is a director of EricksonAir-Crane and a Trustee of the Madison Square Boys & Girls Club.  Mr. Goodwin received his AB from HarvardCollege.  The Board believes that Mr. Goodwin’sfinancial and business experience, including his strong financial backgroundand his years of service on the boards of directors of a number of publiccompanies, give him the qualifications and skills to serve as a director.

 

*****James E. Hyman***** has been the Chief Executive Officer ofthe Company since January 2005 and was named Chairman of the Board in February 2005and President of the Company in June 2007. Mr. Hyman was a SeniorManaging Director at FTI Palladium Partners from October 2004 to January 2005.From 2003 to 2004, Mr. Hyman was a Partner with Sandhurst Capital.  From 1999 to 2002, Mr. Hyman was withStarwood Hotels and Resorts Worldwide, where he served as Executive VicePresident.  Prior to that time, he heldsenior positions with GE Capital, Sequa Corporation and McKinsey &Co., and he started his career with JP Morgan. Since 2000, Mr. Hyman has also served as Chairman of thenot-for-profit Mega-Cities Project.  Mr. Hymanreceived an MBA, with distinction, from the Harvard Business School and an AB,with honors, from the University of Chicago. The Board believes that Mr. Hyman’s financial and businessexperience, including his experience as our Chairman, President and ChiefExecutive Officer, and his extensive insight into our operations, give him thequalifications and skills to serve as a director.

 

*Andrew R. Jones, CFA* has been a director of the Company since March 2007.Mr. Jones is the Managing Member of NS Advisors, LLC, the general partnerof North Star Partners, LP.   Mr. Jonesfounded North Star Partners, LP in 1996 and has directed its investmentactivities since inception.  From 1988 to1995, Mr. Jones was a Managing Director and Analyst at Tweedy, BrowneCompany.  From 1986 to 1988, Mr. Joneswas a Securities Analyst for Glickenhaus & Company.  He is a Chartered Financial Analyst and is amember of the New York Society of Securities Analysts.  The Board believes that Mr. Jones’financial and business experience, including his strong financial background,give him the qualifications and skills to serve as a director.

 

*Alfred Jay Moran, Jr.*****has been a director of the Company since June 2005.  Mr. Moran is Chairman and ChiefExecutive Officer of the Moran Group, LLC, a turnaround, value creationconsulting firm that he founded in 2003. He is currently Director of Administration & RegulatoryAffairs, for the City of Houston.  During2005 and 2006, he served as Director and Non-Executive Chief Strategy andRestructure Officer of Strome Investment Management, LP.  During 2004, he served as Chief Strategy andRestructuring Officer of Cooperheat MQS, Inc.  Throughout his career, Mr. Moran hasbeen responsible for the turnaround or value enhancement, as CEO or consultant,of over 50 companies in many industries. Prior to 2003, he was Senior Managing Director of the Value CreationPractice, as well as Principal and Member of the Executive Committee of Kibel,Green, Inc.  Mr. Moran receivedhis MBA from Harvard Business School, his BA from the University of NorthCarolina, and he attended the Stanford Corporate Directors College at StanfordUniversity.  The Board believes that 

 

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Mr. Moran’s financial and businessexperience, including his strong financial background and experience in thepublic sector, give him the qualifications and skills to serve as a director.

 

*D. Stephen Slack* has been a director of the Company sinceMarch 2003. Mr. Slack has been President and Chief Executive Officerof South Bay Resources, LLC, an energy exploration company, since March 2003.Mr. Slack was Chief Financial Officer and Principal of Andex Resources,LLC, an energy exploration and production company, from June 2000 to January 2003.From 1995 to 2000, Mr. Slack was Chief Financial Officer of InventoryManagement and Distribution Company, an independent manager of natural gasstorage and transportation assets. Mr. Slack previously served as ChiefFinancial Officer and a director of Pogo Producing Company.  Mr. Slack received his BS from theUniversity of Southern California and his MBA from Columbia University.  The Board believes that Mr. Slack’sfinancial, accounting and business experience, including his prior chieffinancial officer experience and his historical perspective and knowledge ofthe Company’s operations, give him the qualifications and skills to serve as adirector.

 

**Changes To The Procedures ByWhich Securityholders May Recommend Nominees for Director. **On February 18,2010, following approval by our Board, we amended and restated in its entiretyour Second Amended and Restated Bylaws. Our Third Amended and Restated Bylaws now (i) provide that noticeof a proposed nomination by a stockholder of a person for election to the Boardmust be provided not less than 90 nor more than 120 days prior to the firstanniversary of the prior year’s annual meeting of stockholders and (ii) requiremore detailed information in a notice by a stockholder who intends to propose anomination, including the information specified in our Third Amended andRestated Bylaws about the stockholder submitting a nomination and each personbeing nominated.

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**Audit Committee; AuditCommittee Financial Expert. **We have a standing Audit Committee established in accordance with Section 3(a)(58)(A) ofthe Exchange Act.  The Audit Committee iscomposed of Alfred J. Moran, Jr. (chairman), Anthony R. Chase and D.Stephen Slack.  As required by theSarbanes-Oxley Act of 2002, the SEC adopted rules requiring that publiccompanies disclose whether or not its Audit Committee has an “audit committeefinancial expert”.  The Board ofDirectors has affirmatively determined that Mr. Alfred J. Moran, Jr.satisfies the definition of “audit committee financial expert,” and hasdesignated him as an “audit committee financial expert.”

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**ExecutiveOfficers. **The following table sets forth the names, ages andpositions of our executive officers as of April 15, 2010:

 
| **Name**          | ** ** | **Age** | ** ** | **Position**                                                    |
|-------------------|------------|---------|------------|-----------------------------------------------------------------|
| James E. Hyman    |       | 50      |       | Chairman, Chief  Executive Officer and President                |
| John R. Nieser    |       | 51      |       | Senior Vice President,  Chief Financial Officer and Treasurer   |
| Cathryn L. Porter |       | 54      |       | Senior Vice President,  General Counsel and Corporate Secretary |
| Patrick N. Perrin |       | 49      |       | Senior Vice President  and Chief Administrative Officer         |

 

*James E. Hyman* See “Proposal No. 1, Election of Directors —Nominees for Director” for Mr. Hyman’s biographical information.

 

*John R. Nieser* was named Treasurer in April 2004, ChiefFinancial Officer in February 2005 and Senior Vice President in March 2008.  Mr. Nieser served as Acting ChiefFinancial Officer from August 2004 to February 2005.  Prior to joining Cornell in April 2004, Mr. Nieserserved as Controller from December 2000 to June 2003 for a number oforganizations, including GE Aero Energy Products.  Prior to that time he held various seniorpositions including chief financial officer and treasurer in the financialservices industry.

 

*Cathryn L. Porter* was named General Counsel on January 5, 2009 andwas appointed to the positions of Senior Vice President and Corporate Secretaryin February 2009.  Ms. Porterwas Of Counsel with Thompson & Knight, LLP from January 2006until the time she joined the Company, and served as General Counsel andCorporate Secretary at Nevada Gold & Casinos, Inc. from June 2004until January 2006.

 

*Patrick N. Perrin* has served as Senior Vice President since June 2003,Vice President from June 2001 to June 2003 and Chief AdministrativeOfficer since November 1998. Prior to November 1998, Mr. Perrinserved as Corporate Director of Risk Management, Employee Benefits andRetirement Plans for Tracor, Inc. from November 1991 to October 1998.

 

**Code of Ethics. **We have aPolicy Governing Business Conduct that applies to all directors and allemployees, including the Chief Executive Officer, the Chief Financial Officerand the Principal Accounting Officer, a copy of which is posted on, and madeavailable free of charge through, our website at www.cornellcompanies.com**under “About Us - Corporate Governance.”  Amendments to the Policy Governing BusinessConduct and any waivers applicable to our directors or executive officers willbe posted on our website at www.cornellcompanies.com under “About Us -Corporate Governance”. 

 

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We have a separate Code of Ethics for Senior Financial Officers thatapplies to the Chief Executive Officer, Chief Financial Officer, PrincipalAccounting Officer and other financial professionals, a copy of which is postedon, and made available free of charge through, our website atwww.cornellcompanies.com**under “AboutUs - Corporate Governance.”  Thisseparate code of ethics is designed to promote honest and ethical conduct bysuch individuals, proper disclosure of financial information, and compliancewith applicable governmental laws, rules and regulations.  Any amendments to the Code of Ethics forSenior Financial Officers and any waivers which are applicable to our ChiefExecutive Officer, Chief Financial Officer or Principal Accounting Officer willbe posted on our website at www.cornellcompanies.com under “About Us - Corporate Governance”.

** **

**Section 16(a) BeneficialOwnership Reporting Compliance. **Section 16(a) of the Exchange Act requires the Company’sdirectors and executive officers to file with the SEC and the NYSE initialreports of ownership and reports of changes in ownership of common stock. Basedsolely on a review of the copies of such reports and amendments thereto furnishedto the Company and written representations that no other reports were required,the Company believes that all of its directors, executive officers andbeneficial owners of more than ten percent of a registered class of its equitysecurities during the year ended December 31, 2009 complied on a timelybasis with all applicable filing requirements under Section 16(a) ofthe Exchange Act.

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**ITEM 11.               EXECUTIVECOMPENSATION.**

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**Compensation Discussion and Analysis. ***The following compensationdiscussion and analysis contains information regarding measures applicable toperformance-based compensation and targets and other achievement levelsassociated with these measures. We caution investors not to regard thisinformation, to the extent it may relate to future periods or dates, asforecasts, projections or other guidance. The reasons for this caution includethe following: (i) the information regarding performance objectives andassociated achievement levels was not intended as guidance and does notnecessarily reflect predicted outcomes, (ii) the information is formulatedas of earlier dates and does not take into account subsequent developments, (iii) thetargets may include adjustments from, or otherwise may not be comparable to,financial and operating measures that are publicly disclosed and may beconsidered of significance to investors, and (iv) some achievement levels,such as those relating to incentives for superior performance, may be based onassumptions that differ from actual results.*

 

In this CompensationDiscussion and Analysis, we describe our process for setting executivecompensation, including a description of our Compensation Committee (the “Committee”)and its role in establishing and evaluating our executive compensation program,our overall executive compensation philosophy and objectives, the elements ofour executive compensation program, the performance goals that our program isintended to reward, and decisions we made for 2009 relating to the compensationwe paid our executive management team, including the executive officers namedin the Summary Compensation Table (our “named executive officers”).

 

**OurExecutive Compensation Philosophy**

 

Our executivecompensation program is designed to attract and retain qualified and effectiveexecutive talent and motivate behaviors that drive profitable growth and thecreation of long-term value for our shareholders. The primary elements includebase salary, short-term performance-based cash incentive compensation andlong-term performance-based and, for periods prior to 2009, time-based equityincentive compensation.

 

Our executivecompensation program is designed to be flexible and market competitive, rewardthe achievement of established performance criteria and enhance stock ownershipamong our executives. The following principles provide the framework forCornell’s executive compensation program*:*

 

*ShareholderAlignment. *Total compensation is tied to ourfinancial results and operational performance measures. To strengthen ourmanagement team’s alignment with shareholders, executives are encouraged tomanage from an owner’s perspective by accumulating an equity stake in theCompany. We also implemented an executive stock ownership policy in 2007, whichis described below under “-Executive Stock Ownership Policy.”

 

*TargetedTotal Compensation. *The competitive benchmarks describedbelow are determined by reviewing pay opportunities at companies with which wemay compete for executive talent, such as key management positions for adultand juvenile correctional institutions, skilled nursing-care facilities,psychiatric hospitals, hospitals and similar-sized companies in both annualrevenue and market capitalization, with the peer companies being those listedbelow.

 

Actual pay may vary aboveor below the benchmark for any of our executives based on a number of relevantfactors, including (i) local and national market conditions impactingtalent demands, (ii) retention needs, (iii) value to our 

 

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shareholders, (iv) future leadershippotential, (v) critical experience and skills, and (vi) levels ofsustained performance. This comprehensive market-based approach allows us tostrike the proper balance between competitive benchmarks and the attraction /retention of key management talent.

 

*2009Named Executive Officer Compensation*.  For 2009, ourfinancial performance resulted in salary and incentive compensation payments withintargeted levels based on the Company’s EPS performance.

 

*ChiefExecutive Officer*.The targeted compensation for our Chief Executive Officer is the 50th percentile forour peer companies for annual cash compensation opportunities and 75th percentile forour peer companies for long-term incentive opportunities.  Mr. Hyman’s contract was renegotiatedand extended in 2007. In connection with this modification, his annual salaryhas been set at $525,000 for the period through March 31, 2010. In 2007,this amount was above the targeted range, although we believed this fixedsalary would result in the target level generally being achieved over the threeyear period on average.

 

For long-term incentives,after careful consideration of the relevant factors listed above, we madeequity grants to Mr. Hyman with an annualized economic value well-abovethe targeted range. This equity grant was also made in connection with therenegotiation of Mr. Hyman’s employment agreement. These 2007 awards weredesigned to retain Mr. Hyman over multiple years. The grants employ both atime-based and performance-based component, and a portion of the 2007 economicvalue will be considered when determining future grants. We believe Mr. Hyman’spotential employment opportunities outside of the Company necessitatedsignificant 2007 equity grants, and that those grants, net of the unvestedshares Mr. Hyman agreed to cancel in 2007, were warranted.   In 2008 and 2009, we made equity grants to Mr. Hymanwhich were designed to retain Mr. Hyman over multiple years.  The grants employed both a time based andperformance-based component.  Awarddetails are summarized in the Grants of Plan-Based Awards table.

 

*KeyExecutives Other Than CEO*.  For 2009 and 2010, totalcompensation opportunities and individual program elements for our keyexecutives other than our Chief Executive Officer are targeted to thecompetitive 50th percentile.

 

*PeerCompanies*.  The peer group of companies includes: AdvocatInc., America Service Group, Brookdale Senior Living, Capital Senior LivingCorporation, Corrections Corporation of America, Emeritus Corporation, FiveStar Quality Care, The GEO Group, Hanger Orthopedic Group, Horizon HealthCorporation, National HealthCare Inc., Odyssey HealthCare Inc., The Provident ServiceCorporation and Psychiatric Solutions.

 

*TotalCompensation Mix. *Our targeted pay mix of salary andperformance-based incentives is designed to reflect a combination ofcompetitive market practices and strategic business needs. The degree ofperformance-based incentive pay (“at risk” compensation) and the level of totalcompensation opportunities increase with an executive’s responsibility level.

 

**CompensationCommittee’s Role**

 

The primaryresponsibility for designing, establishing and evaluating our executivecompensation program lies with the Committee. The Committee acts under awritten Compensation Committee Charter, which describes the Committee and itsprimary responsibilities.

 

Our Board of Directorsappoints the members of the Committee, which is made up of at least two Boardmembers, each of whom is determined to be “independent” under the rules ofthe New York Stock Exchange. Additionally, no director may serve on theCommittee unless he or she:

 

·                  Is a “non-employee director” for purposes of Rule 16b-3under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and

 

·                  Satisfies the requirements of an “outside director”for purposes of section 162(m) of the Internal Revenue Code of 1986, asamended (the “Code”).

 

The Board selects membersof the Committee based on their knowledge and experience in compensationmatters and is careful to avoid any conflicts of interest in naming theCommittee members. The members of the Committee are Andrew R. Jones, Chairman,Zachary R. George, and D. Stephen Slack.

 

The Committee meets asfrequently as appropriate under the circumstances. The Committee meetsseparately on at least an annual basis with our Chief Executive Officer, ourChief Administrative Officer and any other corporate officers as the Committeedeems appropriate to carry out the Committee’s responsibilities.

 

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The Committee reviews andapproves the compensation packages for our named executive officers, includingperformance goals, target and maximum incentive compensation levels and equityawards. The Committee also reviews and approves, with input and therecommendation of our Chief Executive Officer, the aggregate compensation ofour entire management team (consisting of our other executives in addition tothe executive officers and our senior managers). Specific compensation forindividual executives, other than our executive officers, is generally set byour Chief Executive Officer, subject to a review by the Committee of thecompensation for all executives.

 

The Committee isauthorized to engage independent compensation and benefits consultants, and toset the terms of such engagements. Based on this authorization, the Committeeengaged James F. Reda & Associates, LLC and Exequity, LLP (“Exequity”)to assist the Committee in analyzing and designing our executive compensationprogram, and to advise the Committee in establishing the compensation of ourexecutives for 2009.  In 2010, theCommittee engaged Exequity to assist the Committee in establishing thecompensation of our executives for 2010.

 

**Roleof Executives in Compensation Decisions**

 

Our executives,particularly including our Chief Executive Officer, also play a significantrole in the compensation-setting process, which includes evaluating employeeperformance, helping the Committee establish business performance targets andobjectives and recommending salary and other compensation levels for ourmanagement team. Our Chief Executive Officer and our Chief AdministrativeOfficer participate in Committee meetings from time to time at the request ofthe Committee to provide background information regarding business initiativesand goals and the performance of our executive officers; however, our ChiefExecutive Officer is not present for Committee discussions regarding hiscompensation. As discussed above, our Chief Executive Officer also determinesspecific compensation for executives other than executive officers subject tothe described parameters.

 

**Elementsof Our Executive Compensation Program**

 

While we strive to ensurethat our executive compensation program is fair and competitive, we have alsotried to maintain a program that can be clearly understood by our executives.Our approach consists of a comprehensive compensation package designed toreward individual performance based on the Company’s short-term and long-termperformance and how this performance links to our corporate strategy. For ourexecutives, including the named executive officers, we reward short-termperformance with a market competitive base salary for performing their day today duties and we reward their accomplishment of short-term financial andstrategic objectives measured over the current year through our incentivecompensation program. Our equity compensation for executive officers, includingthe named executive officers, are granted to retain executives, build executiveownership and align compensation with achievement of the Company’s long-termfinancial goals as measured over multi-year periods.

 

*BaseSalary. *Base salary is a critical element of our overallexecutive compensation program because it provides our executive officers witha base level of annual income to perform their responsibilities on a sustainedbasis. In determining base salaries of each of our executives, we consider theexecutive’s past and current base salary and overall compensation, as well asthe executive’s position, experience, qualifications, past performance andpotential role in the future success of our company. We also review the basesalaries of comparable executives of other companies based on the data providedto us by our compensation consultants, the vulnerability of our executives torecruitment by other companies and the difficulty and costs associated withreplacing executive talent. Finally, we analyze the base salaries of ourexecutives in light of their overall compensation opportunities to ensure notonly that the executive has a reasonable guaranteed level of base salary, butalso that a significant and appropriate portion of his/her overall compensationis in the form of performance-based incentive compensation. In this way, weattempt to provide appropriate incentives for our executives to stay focused onour Company’s long-term performance, and to align the goals of our executiveofficers with the interests of our shareholders by rewarding outstandingcompany performance that increases value to our shareholders. Base salaries,effective as of April 1, 2010, for our named executive officers, whichwere determined in light of all of these factors, are:

 
| **Named Executive Officer**                                                           | ** ** | **Base Salary** | ** ** |
|---------------------------------------------------------------------------------------|------------|-----------------|------------|
| James E. Hyman, Chairman, President & Chief  Executive Officer               |       | $               | 525,000    |   |
| John R. Nieser, Senior Vice President, Chief  Financial Officer, & Treasurer |       | $               | 260,000    |   |
| Cathryn  L. Porter, Senior Vice President & Corporate Secretary              |       | $               | 245,000    |   |
| Patrick  N. Perrin, Senior Vice President & Chief Administrative Officer     |       | $               | 215,000    |   |

 

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*IncentiveCompensation Program. *As stated above, we believe that it iscritical to base a significant portion of the overall compensation of ourexecutives on the attainment of performance goals that are key to the successof our Company. We believe this helps ensure that the primary focus of ourexecutive management team will be on our success and shareholder value. Under theterms of our annual incentive compensation plan (“ICP”), eligible employees,including our named executive officers, can earn annual cash incentive awardsfor achieving established performance criteria. The annual incentivecompensation payments are based upon the attainment of specified performancegoals set each year by the Committee for our executive officers. Theperformance goals include both quantitative financial goals and qualitativeindividual goals.

 

The individual ICPopportunities are set as a part of the Committee’s review of the executiveofficer’s overall compensation. Mr. Hyman and our Chief AdministrativeOfficer review with the Committee the financial performance calculations andthe individual performances for the executive officers, and the Committee thenapproves the actual ICP amounts earned. The Committee, in determining the namedexecutive officer incentive compensation awards can consider a variety ofqualitative factors in which results were achieved in determining the amount ofthe award.

 

Threshold, target andmaximum payment opportunities for the financial goals are established for eachexecutive officer based on a percentage of the officer’s base pay. Thefinancial goals for 2009 were based upon a calculation of our earnings pershare (“EPS”). The ICP EPS calculation is adjusted for changes to applicableaccounting standards after the performance goal has been set, unbudgetedcapital transactions, and profit or loss attributable to a business acquired byus during the year.  For 2009, the ICPEPS calculation was adjusted from $1.64 EPS (as determined under GAAP andreported on our 10K) to $1.76 EPS based on the “carve out” of $2.9 million($0.12 EPS) of unbudgeted “start up” expenses (including, but not limited topersonnel and fringe benefits, inmate care, building and utilities) related tothe accelerated opening of the Hudson Correctional Facility in the fourthquarter of 2009.  The Board approved theadjustment so that management’s 2009 ICP results would not be penalized for theaccelerated opening of the Hudson facility. There were no other adjustments to the ICP EPS calculation for 2009.

 

EPS was chosen to focusmanagement on our net income, which we believed was the key area to drive ourfinancial performance for 2009. We also believe it was an appropriate metricbecause it is a commonly used measure of financial performance by the Company,our analysts and shareholders.

 

The qualitativeindividual goals are discussed below for our named executive officers.  The individual goals for Mr. Hyman areapproved by the Committee through a discussion and review with Mr. Hyman,and the individual goals for our other executive officers are determinedthrough a discussion and review between Mr. Hyman and the other executiveofficers.

 

The Committee hasdetermined that the financial performance measures for Mr. Hyman’s and theother executives’ incentive awards for the 2010 fiscal year will be based onearnings before interest, taxes, depreciation and amortization (“EBITDA”).  EBITDA is a commonly used non-GAAP measure offinancial performance by the Company, our analysts and shareholders. Formeasurement purposes, we determine EBITDA (earnings before interest, taxes,depreciation and amortization) as the summation of our income from operationsand depreciation and amortization, as both are readily available as they arereported in our periodic public filings (including our Annual Report on Form 10-Kand our Quarterly Reports on Form 10-Q. This reconciliation may also befound on our website, *www.cornellcompanies.com*.   The Company’s definition and/or calculationof EBITDA could be different from similarly titled measures at othercompanies.  While both EPS and EBITDA aregenerally used to measure the financial results of a company, we believe thatEBITDA will be a more appropriate measure in 2010 to focus management on ouroperating margin, which we believe is a key area to drive our financialperformance for 2010 (placing an emphasis on areas including capacityutilization and facility population transitions and activation).  We believe both measures are similar in termsof the difficulty to achieve actual performance.

 

The total award under theICP for 2009 for each of the named executive officers is set out in the SummaryCompensation Table. The components of such awards are discussed below.

 

*AnnualIncentive Compensation of Our Chief Executive Officer.* For 2009, the target annual incentiveaward for our Chief Executive Officer, James E. Hyman, was 100% of his basesalary.  70% of Mr. Hyman’s awardwas based on EPS, and the remaining 30% of his award was based on theachievement of specified Company operational measures and personalmilestones.  Mr. Hyman’s employmentagreement provides that, of the targeted amount of 100% of his base salary, aminimum of 60% shall be based solely on achievement of financial objectives,and the remainder shall be based solely on achievement of operational andpersonal milestone objectives.

 

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The following table setsforth the EPS performance criteria for the financial portion of the ICP for Mr. Hyman.   As described above, the EPS criteria isadjusted for changes to applicable accounting standards after the performancegoal has been set, unbudgeted capital transactions, and profit or lossattributable to a business acquired by us during the year.  The actual percentage of the portion earnedis determined on a pro-rata basis to the extent of the percentage of EPS earnedwithin the established range. No amount would be payable if the threshold wasnot met.

 
| ** **           | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Max**          | ** ** |
|----------------------|------------|---------------|------------|------------|------------|------------------|------------|
| EPS Criteria         |       | $1.50         |       | $1.77      |       | $2.04 or greater |       |
| Portion to Be Earned |       | 50%           |       | 100%       |       | 200%             |       |

 

These results were abovethe established threshold level and resulted in a payment to Mr. Hyman ofthe Company financial performance portion of the award in an amount of$360,694.  That amount is equal to 98.1%of the target for this portion of the award.

 

The maximum amount that Mr. Hymanwas entitled to receive for the qualitative portion of his annual incentiveaward (30% of the aggregate target annual incentive award) was payable if allpersonal milestones established by the Committee for Mr. Hyman were achieved.For 2009, this portion of Mr. Hyman’s award was based on the following(with the weighting relative to the overall individual component noted inparenthesis):

 

·                  Board’s qualitative assessment ofperformance within the following areas: Quality Assurance, Employee Engagement, Vulnerable Asset Plan, andInmate Medical Plan,   (20%); and

 

·                  Board’s qualitative assessment of overallperformance (10%).

 

For 2009, the Committeedetermined that Mr. Hyman’s individual performance resulted in a payout of$118,125, or 75% of the target for this portion of the award.

 

*AnnualIncentive Compensation for Other Executives.*  For our namedexecutive officers other than Mr. Hyman, a weighting of 65% was given tothe attainment of the Company financial goals and 35% to the achievement ofindividual qualitative goals. The weighting reflects the Committee’s and Mr. Hyman’sevaluation of the Company’s priorities and desired effect on results. Themaximum payout for these officers is 165% of the target award. This is equal to200% of the portion of the award that is based on our financial performance(65%), plus the maximum payable under the portion of the award (35%) that isbased on individual achievement of established personal goals.

 

The following table setsforth the EPS performance criteria for the financial portion of the ICP for ourother named executive officers.  Theactual percentage of the portion earned is determined on a pro-rata basis tothe extent of the percentage of EPS earned within the established range. Noamount would be payable if the threshold was not met.

 
| ** **           | ** ** | **Threshold** | ** ** | **Target** | ** ** | **Max**          | ** ** |
|----------------------|------------|---------------|------------|------------|------------|------------------|------------|
| EPS Criteria         |       | $1.50         |       | $1.77      |       | $2.04 or greater |       |
| Portion to Be Earned |       | 50%           |       | 100%       |       | 200%             |       |

 

Our actual EPS in 2009was $1.64 and after approved adjustments under the ICP was $1.76.  These results were above the establishedthreshold level and resulted in the payments described below to our other namedexecutive officers for the financial performance portion of the ICP.  The following table sets forth for each ofthe other named executive officers the ICP opportunity, information relating tothe financial portion of the ICP and information relating to the individualportion of the ICP. The individual goals and achievement of such goals arefurther discussed in the section following the table.

 

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| **Named  Executive  Officer** | ** ** | **2009 ICP  Opportunity  (As % of  Salary)** | ** ** | **% of  Financial  ICP Portion  Earned in  2009** | ** ** | **Amount of  Financial  Portion of  ICP Earned in  2009 ($)** | ** ** | **% of  Individual  ICP Portion  Earned in  2009** | ** ** | **Amount of  Individual ICP  Portion Earned  in 2009 ($)** | ** ** |
|-------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------|------------|---------------------------------------------------------------|------------|----------------------------------------------------|------------|------------------------------------------------------------|------------|
| Mr. Nieser               |       | 50                                           | %          | 98.1                                              | %          | 82,500                                                        |       | 100                                                | %          | 45,500                                                     |       |
| Ms. Porter               |       | 35                                           | %          | 98.1                                              | %          | 52,212                                                        |       | 100                                                | %          | 28,788                                                     |       |
| Mr. Perrin               |       | 35                                           | %          | 98.1                                              | %          | 47,662                                                        |       | 100                                                | %          | 26,338                                                     |       |

 

Individual qualitativegoals for Mr. Nieser in 2009 and their weighting relative to the overallindividual component for 2009 were:

 

·                  quality of our consolidated financial statements for2009 and the effectiveness of our internal controls over financial reporting(20%);

 

·                  successful implementation of financial system softwareconversion (20%);

 

·                  develop and implement leadership development actionplans for staff based on identified needs (20%);

 

·                  implement funding/financing strategy for effectivenessand efficiency; analyze and implement opportunities for reduction in tax rate(20%); and

 

·                  drive enhanced productivity in core financial andaccounting processes; reduce days sales outstanding; achieve certain savingstargets (20%).

 

Individual qualitativegoals for Ms. Porter in 2009 and their weighting relative to the overallindividual component for 2009 were:

 

·                  develop risk matrix to optimize corporate performancevis-à-vis legal issues; develop executive and key management legal awarenesstraining (25%);

 

·                  support development/strategic initiatives; measureexecution against objectives (20%);

 

·                  advise Board of Directors on governance and relevantissues and trends (20%);

 

·                  support development and implementation of AuthorityLevel Matrix and Record Retention Process (15%); and

 

·                  establish formal approach for each materiallawsuit/claim to maximize efficiencies and minimize costs (15%).

 

Individual qualitativegoals for Mr. Perrin in 2009 and their weighting relative to the overallindividual component for 2009 were:

 

·                  implement efficiency projects in human resourcesinformation system/payroll, resulting in improved time and attendancecollection and economic savings of $250,000 (15%);

 

·                  implement effectiveness projects in human resourcesinformation system/payroll administration, resulting in error elimination insoftware interfaces and achieving Employer Tax Credit Savings (prospectivelyand retrospectively) (20%);

 

·                  improve enterprise continuity and robustness, measuredby disaster preparedness plans, second generation Work Climate Survey (25%);

 

·                  develop strategic projects supporting business unitstrategic threats and opportunities processes, including long-term staffingmodels and development enhanced position/compensation structure in humanresources information system (20%); and

 

·                  improve divisional alignment of providing resources tooperations; implement customer scorecard; proactively monitor for early warningsigns of employee relation issues (20%).

 

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*EquityCompensation. *As stated above, we believe that the useof equity-based compensation links the compensation of our executive managementteam to the long-term interests of, and the value realized by, ourshareholders.

 

Our annual equity grantsto our executive officers are approved by the Committee for recommendation tothe full Board and then approved by the Board. For the annual equity grants toother executives and managers, the Board approves a pool through which ourChief Executive Officer is authorized to grant equity awards to suchindividuals.

 

In the past, we have usedboth time-based and performance-based awards, and we have granted both stockoptions and restricted shares. In 2009, we granted restricted shares toencourage retention and provide alignment with shareholders as value receivedwill be consistent with return to shareholders over the performanceperiod.  See Grants of Plan-Based Awardstable for information concerning the number of restricted shares granted to thenamed executive officers in 2009. These grants consisted of performance basedawards with certain time-based components. Equity awards to our executives are subject to achievement ofperformance targets over a three-year performance period, with sharesaccumulating in one-third increments upon the achievement of each target withrespect to any calendar year from 2009 up to and including 2011.  The shares, to the extent accumulated, willvest on April 1, 2012.  The targetsfor the performance based grants were based on EBITDA and are described in thefootnotes to the table.

 

For 2009, 100% of ourequity grants were performance based. The 2009 grants of performance-based restricted stock to our namedexecutive officers vest over time and are based upon achieving EBITDA targetsestablished by the Compensation Committee (achievable in increments or in theaggregate over the 3-year performance period beginning with fiscal year 2009and ending with fiscal year 2011).  Thethree separate EBITDA targets are $94 million, $102 million and $110million.  The EBITDA targets were basedon the Company’s December 2008 long-term plan for EBITDA performance.  Using the Company’s base 2009 operating plan/budget(output of the Company’s annual budget process), the initial tranche of $94million was created as a “stretch” goal for the 2009 calendar year in excess ofthe base EBITDA level (contained in the operating plan).  The remaining tranche levels were establishedin accordance with the long-term financial plan and successful achievement of acombined annual growth rate in EBITDA in excess of 18% over the four yearperiod performance period.  TheRestricted Shares vest (if at all) as follows: one-third of such shares vest upon the achievement of each of the EBITDAtargets set forth above with respect to a fiscal year of the Company during the3-year performance period.  By way ofillustration, if prior to any EBITDA targets being met for the 4-year performanceperiod, the EBITDA for a particular covered year were $102 million, thentwo-thirds of the Restricted Shares would vest (i.e. one-third for achievingthe EBITDA target of $94 million and an additional one-third for achieving theEBITDA target of $102 million).  If oneor more of the EBITDA targets have not been achieved during the 3-yearperformance period (2009 through 2011), then the unvested restricted shareswill be forfeited.

 

In determining the numberof restricted shares granted to our named executive officers in 2009, weemployed the following methodology:

 

·                  We obtained market data for comparablecompanies from 2008 public surveys and proxy statements.  Using this data we determined the annualvalue for long-term incentives at the 25th,50th and 75th percentiles.

 

·                  There was no formula used to determinethe size or mix of the long term incentive (“LTI”) award.  We determined the target market range foreach named executive officer by adjusting the market data based upon relevantfactors (without weight but considered when making each LTI award) including (i) localand national market conditions impacting talent demands (ii) retentionneeds, (iii) value to our shareholders, (iv) future leadershippotential, (v) critical experience and skills, and (vi) levels ofsustained performance.

 

·                  We computed the value for each restrictedshare and performance vested restricted share awards.

 

·                  To determine the number of shares togrant, we divided the target award level by the value of one restricted share.

 

·                  For each named executive officer we targetedthe award to fall about the 50th percentile of LTI awards made to executiveswithin the peer group.

 

For 2010, we havecontinued to use long-term equity compensation grants as an important part ofour overall executive compensation program and made the decision that 100% ofour long-term equity compensation grants will be performance based. Equityawards to our executives are subject to achievement of performance targets overa three-year performance period, with shares accumulating in one-third incrementsupon the achievement of each target with respect to any calendar year from 2010up to and including 2012.  The shares, tothe extent accumulated, will vest on April 1, 2013.

 

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*OtherBenefit Programs. *Our executives participate in otheremployee benefit plans generally available to our employees on a broad basis,including our 401(k) plan and health care benefit plans. Additionally, ourexecutives and other qualifying members of our senior management are eligibleto participate in a nonqualified deferred compensation plan, which permitseligible executives to defer a portion of their base salary and/or annualincentive pay until retirement, termination of employment or other events ortimes specified in the plan. Currently, none of our executives are activelyparticipating in this nonqualified deferred compensation plan; however, wecontinue to maintain the plan because we believe it can be advantageous to usin attracting and retaining key executives. Above-market rates of interest arenot offered under the deferred compensation plan. Beginning in 2007, ourexecutive officers became eligible to receive a company contribution under thenonqualified deferred compensation plan to make up for matching contributionsunder our 401(k) plan which the executive may be required to forfeit as aresult of the 401(k) plan not meeting the prescribed nondiscriminationtests applicable to 401(k) plans.

 

We do not provide anymaterial perquisites to our executives and none of our executive officersreceived perquisites in excess of $10,000 in the aggregate in any of the lastthree fiscal years.

 

**Executive Stock Ownership Policy**

 

We adopted an executivestock ownership policy effective May 2007 to align the interests ofmanagement with the interests of shareholders and further promote Cornell’scommitment to sound corporate governance. The policy applies to the followingofficers of the Company and each is required to accumulate the amount of stockset forth below:

 

·                  Executive Chairman and Chief ExecutiveOfficer – 3 x Base Salary;

·                  Executive Officers – 2 x Base Salary; and

·                  Vice Presidents – 1 x Base Salary.

 

Under the policy, thefollowing shall count towards satisfaction of the required ownership: (a) sharesheld directly or indirectly, (b) any restricted shares or shareequivalents held under an award under a long-term incentive plan (whether ornot vested), (c) shares owned jointly with or in trust for, theirimmediate family members residing in the same household, (d) shares heldthrough a Company employee stock purchase plan or any savings, deferredcompensation or other plan of the Company; and (e) shares underlying vestedbut unexercised stock options.  Thecovered officers are allowed a five year period to accumulate the requisiteownership. In determining whether an individual meets the required ownershiplevel at the end of the transition period, the stock price to be used shall bethe higher of (i) the average share price of the last trading day of eachof the four completed quarters prior to the determination, and (ii) theaverage closing price for the ten trading days prior to the determination. Asubsequent drop in the share price shall not result in any violation of thepolicy. Also, after the transition period, he or she may not sell shares unlessafter the sale, the ownership requirement would still be met. In making thisdetermination, a covered individual must meet the stated ownership levelimmediately after the transaction based upon the share price at which thetransaction is effected. The officers have five years from the date of adoptionof the policy, if covered at that time, or otherwise from the date he or shebecomes subject to the pertinent ownership requirement.

 

In the event a coveredofficer does not achieve his or her ownership level set forth above orthereafter sells shares in violation of the policy, the Board of Directorsshall consider all relevant facts and take such actions as it deems appropriateunder the circumstances.

 

All of our namedexecutive officers currently meet the stock ownership requirements.

 

**Accounting and Tax Considerations**

 

In designing andadministering the Company’s executive compensation program, the Committeeconsiders the accounting effects of the various elements on the Company and thetax effects on the Company and the executives. Our stock option grant policieshave been previously impacted by prior changes in authoritative guidance.  Under this guidance, we value stock optionsusing a Black-Scholes option pricing model and recognize related expense in ourincome statement over the stock option’s vesting period.

 

We generally haveintended to structure our compensation program to comply with Code Sections 162(m) and409A. Not all compensation historically awarded would meet the requirements ofsection 162(m), however. Under section 162(m) of the Code, a publicly-heldcorporation may not take an income tax deduction for individual compensationpaid to certain executives exceeding $1,000,000 in any taxable year, unless thecompensation is performance-based. Under section 409A of the Code, nonqualifieddeferred compensation arrangements must meet certain requirements regarding thetiming of deferrals 

 

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and distributions. If an arrangement does notcomply with the section 409A requirements, the nonqualified deferredcompensation becomes taxable to the executive in the first year it is notsubject to a substantial risk of forfeiture. In such case, the executiveofficer is also subject to interest and an additional excise tax of 20% on thebenefit includible in income.

 

**Effect of Restatements or Earnings Adjustments andRecovery of Incentive Pay**

 

In 2009, the Board ofDirectors adopted a policy regarding recoupment of compensation that goesbeyond the requirements of the Sarbanes-Oxley Act of 2002. Specifically, if theBoard determines that an accounting restatement was due, in whole or in part,to the fraudulent or intentional misconduct of an officer of the Company, thenthe Board shall, to the extent permitted by governing law and any applicablewritten employment agreements in effect at the time of a restatement, have theabsolute discretion and authority to recoup from that officer any bonus orother incentive-based or equity-based compensation received by such officerduring the 12-month period following the financial statement that has beenrestated.

 

**Employment and Severance Agreements**

 

We have entered into anemployment agreement with our Chief Executive Officer, James E. Hyman, and wehave severance/change in control agreements with certain of our other executiveofficers as described below. We believe that each of the employment andseverance/change in control agreements we have entered into with our executiveshave been critical in our ability to retain the individual and provide theindividual with reasonable financial security to focus on carrying out ourbusiness strategies. These agreements are described in the footnotes to the “PotentialPayments Upon Termination or Change in Control” table set forth below.

 

*JamesE. Hyman.* In connectionwith the hiring of Mr. Hyman, we entered into an employment agreement in March 2005under which he agreed to serve as our Chief Executive Officer and Chairman ofthe Board. The agreement was amended and restated in August 2007.  The agreement has a rolling two-year term(the “Employment Period”). Under the agreement, Mr. Hyman’s annual basesalary shall not be less than $525,000 and may be increased at the discretionof our Compensation Committee. He is also eligible for the ICP amount describedabove based upon the achievement of established performance objectives.

 

Pursuant to theagreement, if we terminate Mr. Hyman’s employment for cause (as defined inthe agreement) or if Mr. Hyman voluntarily terminates his employmentwithout good reason (as defined in the agreement), Mr. Hyman is entitledto receive his base salary accrued through the termination date, any annualbonus for the fiscal year prior to his termination and reimbursement of all ofhis reasonable business expenses under our normal expense reimbursementpolicy.  If Mr. Hyman’s employmentis terminated due to his death or disability (as defined in the agreement), Mr. Hymanor his estate will receive (i) his base salary accrued through the date ofdeath or disability, (ii) any annual bonus for the fiscal year prior tohis termination and a prorated bonus for the year in which the death ordisability occurs, (iii) reimbursement of all of his reasonable expensesand (iv) extended health care benefits (COBRA) at our expense for sixmonths.

 

If we terminate Mr. Hyman’semployment without cause or if he voluntarily terminates his employment withgood reason, he is entitled to receive the following: (i) base salaryaccrued through the termination date, (ii) any annual bonus for the fiscalyear prior to his termination and a prorated bonus for the year in which thetermination occurs, (iii) an amount equal to two times his base salaryplus his target bonus for the remainder of the Employment Period, (iv) reimbursementof all of his reasonable expenses, (v) extended health care benefits(COBRA) at our expense for eighteen months following his termination, and (vi) inaccordance with the restricted stock awards of August 2007, the immediatevesting of the restricted stock awarded to him in August 2007.  All cash payments that we owe Mr. Hymanupon termination, regardless of the reason for termination, must be paid to himor his estate in a lump sum within one month of the date of termination.

 

If Mr. Hymanvoluntarily terminates his employment within 180 days following a change incontrol, the termination will be considered to be with good reason, and Mr. Hymanwill be entitled to receive the same benefits described above. Pursuant to theterms of the Company’s long-term incentive plan, all of Mr. Hyman’sremaining unvested restricted stock awards will vest upon a change of controlas defined under such plan. A “change in control” means (i) a merger,consolidation or reorganization of the Company, if more than 50% of thecombined voting power of the surviving entity’s securities outstandingimmediately after such merger, consolidation or reorganization is owned bypersons who were not shareholders of the Company immediately prior to suchmerger, consolidation or other reorganization, (ii) the sale, transfer orother disposition of all or substantially all of the Company’s assets, or (iii) achange in the composition of the Board of Directors of the Company, as a resultof which fewer than two-thirds of the incumbent directors are directors whoeither (A) had been directors of the Company twelve (12) months prior tosuch change, or (B) were elected, or nominated for election, to the Boardof Directors with the affirmative votes of at least two-thirds of the directorswho had been directors of the Company twelve (12) months prior to such changeand who were still in office at the time of the election or nomination. Mr. Hyman

 

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will also receive reimbursement forrelocation expenses if his employment is terminated without cause or for goodreason within 180 days following a change in control.

 

Pursuant to theagreement, Mr. Hyman was granted options to purchase 50,000 shares of ourcommon stock under our Amended and Restated 1996 Stock Option Plan, with anexercise price equal to the closing price of the common stock on the date ofgrant. The options vested and became exercisable in one-third incrementsannually on each of January 24, 2006, 2007, and 2008.

 

Additionally, under theagreement, we entered into a Restricted Stock Award Agreement with Mr. Hymaneffective as of March 14, 2005. Under this agreement we granted Mr. Hyman85,000 shares of restricted stock, 25,000 shares of which vested on January 24,2008. The other 60,000 restricted shares were performance based and werecancelled in connection with the amendment of the agreement in August 2007.

 

Mr. Hyman would alsobe entitled to a gross-up payment, to the extent any payments to him weretreated as excess parachute payments subject to excise tax, so that the netamount received by Mr. Hyman after application of such tax would equal theamount he would have otherwise received had the excise tax not applied to him.

 

*JohnR. Nieser.* In March 2005,we entered into an employment/separation agreement with John R. Nieser, ourSenior Vice President, Chief Financial Officer, and Treasurer, which wasamended effective as of March 14, 2007 and April 16, 2010. Theagreement had a rolling two-year term until March 14, 2007, and beginning March 15,2007, switched to a rolling one-year term pursuant to its original terms. Mr. Nieseris eligible for an annual cash bonus at a targeted amount of 50% of his annualbase salary upon the attainment of performance criteria established by theCommittee under the ICP. Mr. Nieser’s initial base salary was set forth inthe agreement but has since been subject to annual increases resulting in thebase salary described above under “ — Elements of Our Executive CompensationProgram — Base Salary.”

 

If Mr. Nieser’semployment is terminated due to death or disability (as defined in theagreement), Mr. Nieser or his estate is entitled to his base salary andbonus earned through the date of termination (as defined in the agreement). If Mr. Nieser’semployment is terminated for cause (as defined in the agreement) or due tovoluntary resignation, Mr. Nieser is entitled to his base salary earnedthrough the date of termination. If Mr. Nieser is terminated withoutcause, he is entitled to his base salary and bonus through the date oftermination, plus an amount equal to his then current annual base salary.

 

If Mr. Nieser isterminated involuntarily by the Company within 180 days following a change incontrol (as defined above in the description of Mr. Hyman’s employmentagreement), Mr. Nieser is entitled to (i) base salary earned throughthe date of termination; (ii) any incentive compensation award that hasbeen earned but not paid; (iii) a pro rata portion of the target awardunder the Company’s ICP; and (iv) continuation of his base salary for 24months.  Mr. Nieser furthermorewould be entitled to additional payments equal to our contribution toward thecost of coverage under our health plan during the severance period for so longas Mr. Nieser remained covered by our health plan. All cash payments thatwe owe Mr. Nieser upon termination, other than the continuation of hisbase salary, must be paid to him or his estate in a lump sum within one monthof the date of termination.  Thecontinuation of his base salary will be paid in equal installments according tothe normal payroll practices of the Company during the severance period.

 

Mr. Nieser wouldfurthermore be entitled to a gross-up payment, to the extent any payments tohim were treated as excess parachute payments subject to excise tax, so thatthe net amount received by Mr. Nieser after application of such tax wouldequal the amount he would have otherwise received had the excise tax notapplied to him.

 

*CathrynL. Porter.* In January 2009,we entered into an employment agreement with Cathryn L. Porter, our Senior VicePresident, General Counsel and Corporate Secretary. Ms. Porter is eligiblefor an annual cash bonus at a targeted amount of 35% of her annual base salaryupon the attainment of performance criteria established by the Committee underthe ICP. If Ms. Porter’s employment is terminated due to death ordisability (as defined in the agreement), Ms. Porter or her estate isentitled to her base salary and bonus earned through the date of termination(as defined in the agreement). If Ms. Porter’s employment is terminatedfor cause (as defined in the agreement) or due to voluntary resignation, Ms. Porteris entitled to her base salary earned through the date of termination. If Ms. Porteris terminated without cause, she is entitled to her base salary and bonusthrough the date of termination, plus an amount equal to her then currentannual base salary.

 

If Ms. Porter isterminated involuntarily by the Company within 180 days following a change incontrol, Ms. Porter is entitled to (i) base salary earned through thedate of termination; (ii) any incentive compensation award that has beenearned but not paid; (iii) a pro rata portion of the target award underthe Company’s ICP; and (iv) continuation of her base salary for 18months.  Ms. Porter furthermorewould be entitled to additional payments equal to our contribution toward thecost of coverage under our health plan during the severance period for so longas Ms. Porter remained covered by our health plan.

 

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All cash payments that we owe Ms. Porterupon termination, other than the continuation of her base salary, must be paidto her or her estate in a lump sum within one month of the date oftermination.  The continuation of herbase salary will be paid in equal installments according to the normal payrollpractices of the Company during the severance period.  For purposes of Ms. Porter’s employmentagreement, a “change in control” shall mean (i) a merger or consolidationwith any other entity whereby the Company’s shareholders do not own at least50% of the voting capital stock of the surviving entity; (ii) a sale ofall or substantially all of the Company’s assets; (iii) a dissolution ofthe Company; or (iv) any person or entity, together with its affiliates,becomes, directly or indirectly, the beneficial owner of at least 51% of thevoting stock of the Company.

 

*PatrickN. Perrin.* In December 1999,we entered into a severance agreement with Patrick N. Perrin, our Senior VicePresident and Chief Administrative Officer, as amended March 14, 2007.

 

If Mr. Perrin’s employment is terminated for any reason within one year following a change in control, all stock options, restricted stock awards and similar awards granted to Mr. Perrin prior to the termination date will vest immediately on the date of termination, and we will pay to Mr. Perrin a severance payment equal to the sum of (i) his highest annual base salary as of the termination date or the change in control date, and (ii) the average bonus paid to him for the two most recent full fiscal years ending on or prior to the termination date. The severance amounts are payable in a lump sum in cash (a) on the termination date if we terminate Mr. Perrin or (b) within thirty days after the termination date if Mr. Perrin’s employment is terminated by him or upon his death or retirement.  For purposes of Mr. Perrin’s severance agreement, a “change in control” shall mean (i) a merger or consolidation with any other entity whereby the Company’s shareholders do not own at least 50% of the voting capital stock of the surviving entity; (ii) a sale of all or substantially all of the Company’s assets; (iii) a dissolution of the Company; (iv) any person or entity, together with its affiliates, becomes, directly or indirectly, the beneficial owner of at least 51% of the voting stock of the Company; or (v) the individuals who constitute the members of the Company’s Board of Directors cease for any reason to constitute at least a majority thereof.

 

If Mr. Perrin’semployment is terminated involuntarily by us, with or without cause, within 180days of a change in control, then in lieu of the rights and benefits describedin the preceding paragraph, he would be entitled to his base salary and bonusearned through the date of termination, and continuation of his salary for 18months. The continuation of his base salary will be paid in equal installmentsaccording to the normal payroll practices of the Company during the severanceperiod. Mr. Perrin furthermore would be entitled to additional paymentsduring the severance period, equal to our contribution toward the cost ofcoverage under our health plan for active employees, for so long as Mr. Perrinremained covered by our health plan.

 

**IndemnificationAgreements**

 

We have entered intoindemnification agreements with each of the named executive officers.  The indemnification agreements provide thatwe will indemnify the executive and hold him or her harmless from any lossesand expenses which, in type or amount, are not insured under our directors’ andofficers’ liability insurance, as a result of claims or allegations madeagainst him or her for any breach of duty, neglect, error, misstatement,misleading statement, omission or other act done or wrongfully attempted solelyby reason of being an officer or director of the Company.  Indemnification under these agreements ispermitted only to the extent that it is permitted under Delaware law, and theindemnification is subject to certain exclusions.  The indemnification agreements also providecertain procedures regarding the right to indemnification and for theadvancement of expenses.

 

**CompensationCommittee Report**

 

The Compensation Committee of the Company has reviewedand discussed the Compensation Discussion and Analysis required by Item 402(b) ofRegulation S-K with management and, based on this review and discussions, theCompensation Committee recommended to the Board that the CompensationDiscussion and Analysis be included in this Annual Report on Form 10-K/A.

 
|   | The Compensation  Committee: |
|--------|------------------------------|
|   | Andrew R. Jones,*Chairman*   |
|   | Zachary George               |
|   | D. Stephen Slack             |

 

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**SummaryCompensation Table**.  The following table includes informationconcerning compensation for our principal executive officer, our principalfinancial officer, and the two next most highly-compensated members of ourexecutive management team.  We had onlyfour named executive officers for 2009.

 
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **    | ** ** | ** **          | ** ** | **Change  in**    | ** ** | ** **       | ** ** | ** ** | ** ** |
|----------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------|------------|---------------|------------|---------------------|------------|-------------------|------------|------------------|------------|------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **    | ** ** | ** **          | ** ** | **Pension Value** | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **    | ** ** | ** **          | ** ** | **and**           | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **    | ** ** | **Non-Equity**      | ** ** | **Nonqualified**  | ** ** | ** **       | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **        | ** ** | ** **    | ** ** | **Incentive**       | ** ** | **deferred**      | ** ** | **All  Other**   | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Stock**         | ** ** | **Option**    | ** ** | **Plan**            | ** ** | **compensation**  | ** ** | **Compensation** | ** ** | ** ** | ** ** |
| **Name and Principal**           | ** ** | ** ** | ** ** | **Salary** | ** ** | **Bonus**  | ** ** | **Awards(1),(2)** | ** ** | **Awards(1)** | ** ** | **Compensation(3)** | ** ** | **earnings**      | ** ** | **(4)**          | ** ** | **Total**  | ** ** |
| **Position**                     | ** ** | **Year**   | ** ** | **($)**    | ** ** | **($)**    | ** ** | **($)**           | ** ** | **($)**       | ** ** | **($)**             | ** ** | **($)**           | ** ** | **($)**          | ** ** | **($)**    | ** ** |
|                             |       |       |       |       |       |       |       |              |       |          |       |                |       |              |       |             |       |       |       |
| James E. Hyman,                  |       | 2009       |       | 545,192    |       | —     |       | 533,440           |       | —        |       | 478,819             |       | —            |       | 8,421            |       | 1,565,872  |       |
| Chairman, President and          |       | 2008       |       | 525,000    |       | —     |       | 712,640           |       | —        |       | 826,875             |       | —            |       | 8,160            |       | 2,072,675  |       |
| Chief  Executive Officer         |       | 2007       |       | 515,375    |       | 6,250      |       | 3,980,695         |       | —        |       | 476,995             |       | —            |       | 8,918            |       | 4,988,233  |       |
|                             |       |       |       |       |       |       |       |              |       |          |       |                |       |              |       |             |       |       |       |
| John R. Nieser,                  |       | 2009       |       | 268,654    |       | —     |       | 366,740           |       | —        |       | 128,000             |       | —            |       | 7,880            |       | 771,274    |       |
| Senior Vice President,  Chief    |       | 2008       |       | 253,654    |       | —     |       | 445,400           |       | —        |       | 210,000             |       | —            |       | 6,182            |       | 915,236    |       |
| Financial Officer and  Treasurer |       | 2007       |       | 240,577    |       | —     |       | 421,600           |       | —        |       | 117,000             |       | —            |       | 8,330            |       | 787,507    |       |
|                             |       |       |       |       |       |       |       |              |       |          |       |                |       |              |       |             |       |       |       |
| Cathryn L. Porter,               |       | 2009       |       | 233,373    |       | 35,000     |       | 468,800           |       | —        |       | 83,000              |       | —            |       | 6,736            |       | 826,909    |       |
| General Counsel and              |       | 2008       |       | —     |       | —     |       | —            |       | —        |       | —              |       | —            |       | —           |       | —     |       |
| Corporate Secretary              |       | 2007       |       | —     |       | —     |       | —            |       | —        |       | —              |       | —            |       | —           |       | —     |       |
|                             |       |       |       |       |       |       |       |              |       |          |       |                |       |              |       |             |       |       |       |
| Patrick N. Perrin,               |       | 2009       |       | 219,523    |       | —     |       | 208,375           |       | —        |       | 74,000              |       | —            |       | 7,789            |       | 509,687    |       |
| Senior Vice-President  and       |       | 2008       |       | 206,462    |       | —     |       | 222,700           |       | —        |       | 120,000             |       | —            |       | 7,397            |       | 556,559    |       |
| Chief Administrative  Officer    |       | 2007       |       | 200,056    |       | —     |       | 210,800           |       | —        |       | 57,000              |       | —            |       | 8,231            |       | 476,087    |       |

 

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*(1)* Reflects the aggregate grant date fairvalue of awards of restricted stock (reported in the “Stock Awards” column) andstock options (reported in the “Option Awards” column) made in the yearindicated, computed in accordance with Financial Accounting Standards Board (“FASB”)Accounting Standard Codification Topic 718, Compensation — Stock Compensation(referred to herein as “FASB ASC Topic 718). The assumptions used in arriving at such amounts may be found asdiscussed in Note 3 to the consolidated financial statements in our AnnualReport on Form 10-K for the fiscal year ended December 31, 2009, inNote 2 to the consolidated financial statements in our Annual Report on Form 10-Kfor the fiscal year ended December 31, 2008 and in Note 2 to theconsolidated financial statements in our Annual Report on Form 10-K forthe fiscal year ended December 31, 2007. For more information about restricted stock and stock option awards, see“Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal Year-End”,and “Option Exercises and Stock Vested” tables.

 

*(2)* Contingent stock awards (contingentrestricted stock awards) with future payment subject to satisfaction ofcontinued employment for specified time periods and the achievement ofspecified performance-based conditions. Contingent restricted stock awards weremade for the performance periods beginning January 1, 2007 and ending December 31,2016, beginning January 1, 2008 and ending December 31, 2011, andbeginning January 1, 2009 and ending December 31, 2011.  The values presented reflect the most probableoutcome of such conditions.  Thecontingent restricted stock awards granted in 2007 included certainmarket-based (share price) awards for Mr. Hyman.  The value disclosed in the table abovereflects the most probable outcome of such conditions.  The maximum value of the total 2007 awards atthe grant dates assuming the highest level of performance was $4,617,155 forMr. Hyman.

 

*(3)* Cash payments made in the following yearfor performance in the year indicated under the annual incentive compensationplan (“ICP”).

 

*(4)* All amounts shown in this columnrepresent the total of matching contributions and life insurance premiums paidby the Company on each named executive officer’s behalf. No named executiveofficer received perquisites in excess of $10,000 in the aggregate.

 

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**Grants ofPlan-Based Awards**.  The following table sets forth certaininformation with respect to the options and non-equity incentive compensationawards granted during the fiscal year ended December 31, 2009 to each ofour named executive officers.

 
| ** **         | ** ** | **Grant  Date  (Board  approved** | ** ** | **Estimated  Future Payouts Under  Non-Equity Incentive Plan Awards(1)** | ** ** | **Estimated  Future Payouts Under  Equity  Incentive Plan Awards(2)** | ** ** | **All  Other  Stock  Awards:  Number  of  Shares  of Stock  or** | ** ** | **All  Other  Option  Awards:  Number of  Securities  Underlying** | ** ** | **Exercise  or Base  Price of   Option** | ** ** | **Grant  Date  Fair  Value  of Stock  and  Option  Awards** | ** ** |
|--------------------|------------|-----------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------------|------------|-------------------------------------------------------------|------------|
| **Name**           | ** ** | **date  2/26/09)**                | ** ** | **Threshold  ($)**                                                       | ** ** | **Target  ($)**                                                       | ** ** | **Maximum  ($)**                                                 | ** ** | **Threshold  (#)**                                                 | ** ** | **Target  (#)**                          | ** ** | **Maximum  (#)**                                            | ** ** | **Units(3)  (#)** | ** ** | **Options  (#)** | ** ** | **Awards  ($/Sh)** | ** ** | **(4)  ($)** | ** ** |
| James  E. Hyman    |       | 04/1/2009                         |       | 315,000                                                                  |       | 525,000                                                               |       | 892,500                                                          |       | 21,333                                                             |       | 32,000                                   |       | 32,000                                                      |       | — |   | — |   | — |   |   |   |
| John  R. Nieser    |       | 04/1/2009                         |       | 51,350                                                                   |       | 130,000                                                               |       | 214,500                                                          |       | 14,667                                                             |       | 22,000                                   |       | 22,000                                                      |       | — |   | — |   |   |   |   |   |
| Cathryn  L. Porter |       | 04/1/2009                         |       | 31,049                                                                   |       | 82,250                                                                |       | 135,713                                                          |       | 10,000                                                             |       | 15,000                                   |       | 15,000                                                      |       | 12,500 |   | — |   | — |   |   |   |
| Patrick  N. Perrin |       | 04/1/2009                         |       | 28,407                                                                   |       | 75,250                                                                |       | 124,163                                                          |       | 8,333                                                              |       | 12,500                                   |       | 12,500                                                      |       | — |   | — |   | — |   |   |   |

 

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*(1)*The estimated payouts of awards are basedon a percentage of base pay for each named executive officer, as in effect atthe end of the fiscal year.  For purposesof calculating threshold, target and maximum awards under our incentivecompensation plan (“ICP”), base salaries as in effect at our fiscal year-endand target bonus percentages were as follows: Mr. Hyman, $525,000 (100%); Mr. Nieser, $260,000  (50%); Ms. Porter, $235,000 (35%); and Mr. Perrin,$215,000 (35%).  The quantitative portionof the ICP contains specific threshold, target and maximum awards, while the qualitativeportion depends on subjective measures that could result in an award from 0% -100%.  For the qualitative portion, weassume that the threshold is equivalent to the achievement of the minimumpercentage weighted qualitative goal for each executive (which ranges from 10%to 20%), target is 100% and maximum is 100%. For a discussion of the criteria for these awards, including themethodology for the various payment levels, see “Compensation Discussion andAnalysis - Elements of Our Executive Compensation Program — Annual IncentiveCompensation of Our Chief Executive Officer” for Mr. Hyman and “CompensationDiscussion and Analysis — Elements of Our Executive Compensation Program—Annual Incentive Compensation for Other Executives” for the other namedexecutive officers.

* *

*(2)*Represents the contingent restrictedshare equity incentive plan awards granted under our 2006 Incentive Plan duringthe fiscal year ended December 31, 2009, half of which are based onachievement of EBITDA performance targets and the other half of which are basedon time plus profitability performance. Portions of the total award will accumulate for each target achieved andaccumulated amounts will vest on April 1, 2012.  The EBITDA performance criteria of the awardsare based on EBITDA for a calendar year during the performance period,consisting of the following targets:

 
| **Named  Executive  Officer** | ** ** | **Date of Grant**  | ** ** | **Amount of Grant** | ** ** | **EBITDA Targets********(In Millions)** | ** ** | **Portion of Total********Award Accumulated  for********Each Target Achieved** | ** ** |
|-------------------------------|------------|--------------------|------------|---------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| James  E. Hyman               |       | April 1, 2009 |       | 16,000 share  grant |       | $94, $102 &  $110              |       | One-Third                                                                      |       |
| John  R. Nieser               |       | April 1, 2009 |       | 11,000 share  grant |       | $94, $102 &  $110              |       | One-Third                                                                      |       |
| Cathryn  L. Porter            |       | April 1, 2009 |       | 7,500 share  grant  |       | $94, $102 &  $110              |       | One-Third                                                                      |       |
| Patrick  N. Perrin            |       | April 1, 2009 |       | 6,250 share  grant  |       | $94, $102 &  $110              |       | One-Third                                                                      |       |

 

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The time plusprofitability performance criteria of the awards are based on positive netincome for each fiscal year during the performance period:

 
| **Named  Executive  Officer** | ** ** | **Date of Grant**  | ** ** | **Amount of Grant** | ** ** | **Profitability Targets********(for each fiscal year)** | ** ** | **Portion of Total********Award Accumulated  for********Each Target Achieved** | ** ** |
|-------------------------------|------------|--------------------|------------|---------------------|------------|---------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| James  E. Hyman               |       | April 1, 2009 |       | 16,000 share  grant |       | Positive Net  Income                                    |       | One-Third                                                                      |       |
| John  R. Nieser               |       | April 1, 2009 |       | 11,000 share  grant |       | Positive Net  Income                                    |       | One-Third                                                                      |       |
| Cathryn  L. Porter            |       | April 1, 2009 |       | 7,500 share  grant  |       | Positive Net  Income                                    |       | One-Third                                                                      |       |
| Patrick  N. Perrin            |       | April 1, 2009 |       | 6,250 share  grant  |       | Positive Net  Income                                    |       | One-Third                                                                      |       |

 

The Threshold number ofshares is based on the achievement of only the first EBITDA target and allthree time plus profitability targets, since this would be the minimum targetperformance over the 3-year performance period. The Maximum number of shares is based on the achievement of all threeEBITDA targets and all three time plus profitability targets.  The Target number of shares is also based onthe achievement of all three EBITDA targets and all three time plusprofitability targets since amounts paid based on Target would also representthe maximum payout possible under the grant.

 

One-third of theEBITDA-based share grant will accumulate upon the achievement of each of thethree EBITDA targets.  The accumulationdate is the date that the Company certifies that it has achieved the EBITDAperformance under any or all of the EBITDA targets during any of fiscal years2009, 2010 or 2011.  For example, if thefirst two targets are achieved based on the EBITDA performance in fiscal year2010, then 2/3 of the share grant will accumulate upon final certification ofthe fiscal year 2010 results.  If theremaining target is achieved based on the EBITDA performance in fiscal year2011, then the remaining 1/3 of the share grant will accumulate upon finalcertification of the fiscal year 2011 results. All accumulated shares will vest on April 1, 2012.

 

For a discussion of howEBITDA is determined and other aspects of our executive equity compensation,see “Compensation Discussion and Analysis-Elements of Our ExecutiveCompensation Program.”

 

*(3)* The vesting schedule for the 2009 timevested plan-based award to Ms. Porter consisting of restricted stock whichwas granted under our 2006 Incentive Plan as follows:

 
| **Named Executive Officer** | ** ** | ** **       | ** ** | ** **        | ** ** | ** **                                                    |
|-----------------------------|------------|------------------|------------|-------------------|------------|---------------------------------------------------------------|
| **And Grant Date**          | ** ** | **Grant Date**   | ** ** | **Type of Award** | ** ** | **Vesting Schedule**                                          |
| Cathryn L. Porter           |       | January  5, 2009 |       | Restricted  Stock |       | Equal  25% Tranches Vest April 1, 2010, 2011, 2012 & 2013 |

 

*(4)* Grant date fair value of each equityaward is calculated in accordance with current authoritative guidance by(i) in the case of restricted stock awards, multiplying the number ofshares by the closing price of our common stock on the grant date, and(ii) in the case of options, applying the applicable Black Scholesvaluation methodology.

 

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**OutstandingEquity Awards at Fiscal Year-End**.  The followingtable sets forth information regarding restricted stock and option awardsoutstanding as of December 31, 2009 with respect to each of our namedexecutive officers listed in the Summary Compensation Table.

 
| ** **         | ** ** | **Option  Awards**                                                             | ** ** | **Stock  Awards**                                                                   | ** ** |
|--------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| **Name**           | ** ** | **Number  of  Securities  Underlying  Unexercised  Options  (#)  Exercisable** | ** ** | **Number  of  Securities  Underlying  Unexercised  Options(1)  (#)  Unexercisable** | ** ** | **Equity  Incentive  Plan  Awards:  Number  of  Securities  Underlying  Unexercised  Unearned  Options  (#)** | ** ** | **Option  Exercise  Price  ($)** | ** ** | **Option  Expiration  Date** | ** ** | **Number  of Shares  or Units  of Stock  That Have  Not  Vested  (#)** | ** ** | **Market  Value  of  Shares  or Units  of Stock  That  Have  Not  Vested(2)  ($)** | ** ** | **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(1)  ($)** | ** ** |
| James  E. Hyman    |       | 50,000                                                                         |       |                                                                                |       |   |   | 13.34 |   | 03/14/2015 |   | 70,000 | (2) | 1,589,000 |   | 5,000 | (4) | 113,500 |   |
|               |       | 20,000                                                                         |       |                                                                                |       |   |   | 14.15 |   | 04/07/2016 |   | 45,000 | (3) | 1,021,500 |   | 10,000 | (5) | 227,000 |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   | 12,000 | (10) | 272,400 |   | 23,000 | (6) | 522,100 |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   | 22,500 | (7) | 510,750 | (4) |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   | 10,667 | (11) | 242,141 |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   | 32,000 | (12) | 726,400 |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| John  R. Nieser    |       | 10,000                                                                         |       |                                                                                |       |   |   | 13.59 |   | 06/03/2014 |   | 5,000 | (8) | 113,500 |   | 4,000 | (9) | 90,800 |   |
|               |       | 10,000                                                                         |       |                                                                                |       |   |   | 12.26 |   | 08/12/2014 |   | 7,500 | (10) | 170,250 |   | 6,667 | (11) | 151,341 |   |
|               |       | 29,900                                                                         |       |                                                                                |       |   |   | 12.60 |   | 03/31/2015 |   |   |   |   |   | 22,000 | (12) | 499,400 |   |
|               |       | 11,000                                                                         |       |                                                                                |       |   |   | 14.15 |   | 04/07/2016 |   |   |   |   |   |   |   |   |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cathryn  L. Porter |       | —                                                                         |       | —                                                                              |       |   |   | — |   | — |   | 12,500 | (12) | 283,750 |   | 15,000 | (12) | 340,500 |   |
|               |       |                                                                           |       |                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Patrick  N. Perrin |       | 7,500                                                                          |       |                                                                                |       |   |   | 4.00 |   | 12/08/2010 |   | 2,500 | (8) | 56,750 |   | 2,000 | (9) | 45,400 |   |
|               |       | 10,000                                                                         |       |                                                                                |       |   |   | 12.80 |   | 04/30/2012 |   | 3,750 | (10) | 85,125 |   | 3,334 | (11) | 75,682 |   |
|               |       | 3,730                                                                          |       |                                                                                |       |   |   | 8.40 |   | 03/12/2013 |   |   |   |   |   | 12,500 | (12) | 283,750 |   |
|               |       | 10,000                                                                         |       |                                                                                |       |   |   | 13.68 |   | 06/18/2014 |   |   |   |   |   |   |   |   |   |
|               |       | 8,500                                                                          |       |                                                                                |       |   |   | 14.15 |   | 04/07/2016 |   |   |   |   |   |   |   |   |   |

 

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*(1)* Based on the closing price per share ofour common stock on December 31, 2009 of $22.70.

 

*(2)* Restricted shares awarded in 2007 wereawarded under our 2006 Incentive Plan. The restricted shares all vest on May 3, 2010.

 

*(3)* Restricted shares awarded in 2007 wereawarded under our 2006 Incentive Plan. The restricted shares all vest on March 8, 2010.

 

*(4)* The original share award vests inone-third increments upon our attainment of certain EBITDA performance goalswhich are $70 million, $85 million, and $105 million of EBITDA.  One-third of this award vested based on 2008performance and one-third of this award vested based on 2009 performance.

 

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*(5)* The original share award vests inone-third increments upon our attainment of certain share price performancegoals which are $25, $30, and $35 (20-day average NYSE Closing Price).  One-third of this award vested on October 31,2007.

 

*(6)* The original share award vests inone-third increments upon our attainment of certain EBITDA performance goalswhich are $80 million, $95 million, and $110 million of EBITDA.  One-third of this award vested based on 2008performance.

 

*(7)* The original share award vests inone-third increments upon our attainment of certain share price performancegoals which are $28, $32, and $36 (20-day average NYSE Closing Price).

 

(8) The original shareaward vests annually in one-fourth increments. The first increment vested on April 1, 2008, and the remainingshown in this table vest annually thereafter.

 

(9) The original shareaward vests in one-fifth increments upon our attainment of certain EBITDAperformance goals which are $69.1 million, $78 million, $86 million, $94million and $102 million of EBITDA.  Twoone-fifth increments vested based on 2008 performance, and one-fifth vestedbased on 2009 performance.

 

(10) The original shareaward vests annually in one-fourth increments, beginning April 1, 2009.

 

(11) The original shareaward vests in one-third increments upon our attainment of certain EBITDAperformance goals which are $85 million, $105 million, and $125 million ofEBITDA.  One-third of this award vestedbased on 2009 performance.

 

(12) The original shareaward vests based on our achievement of certain time plus profitabilityperformance and EBITDA performance goals, as described in footnote 2 to theGrants of Plan-Based Awards table above.

 

**OptionExercises and Stock Vested**.  The followingtable sets forth information regarding the exercise of stock options and thevesting of restricted stock during fiscal 2009 for each of the named executiveofficers listed in the Summary Compensation Table:

 
| ** **         | ** ** | **Option Awards**                               | ** ** | **Stock Awards**                    | ** ** |
|--------------------|------------|-------------------------------------------------|------------|-------------------------------------|------------|
| **Name**           | ** ** | **Number of Shares  Acquired on  Exercise (#)** | ** ** | **Value Realized on  Exercise ($)** | ** ** | **Number of Shares  Acquired on  Vesting (#)** | ** ** | **Value Realized  on Vesting ($)** | ** ** |
| James  E. Hyman    |       | —                                          |       | —                              |       | 14,333 |   | 259,287 |   |
| John  R. Nieser    |       | —                                          |       | —                              |       | 10,333 |   | 182,757 |   |
| Cathryn  L. Porter |       | —                                          |       | —                              |       | — |   | — |   |
| Patrick  N. Perrin |       | —                                          |       | —                              |       | 5,166 |   | 91,369 |   |

 

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**PensionBenefits**.  The Company does not provide any benefits ofthe type required to be disclosed under the caption “Pension Benefits.”

 

**NonqualifiedDeferred Compensation**.  Currently, all of the namedexecutive officers are eligible to participate in our Deferred CompensationPlan.  However, none of the namedexecutive officers have elected to defer any amount of his or her compensationto the plan, nor have we made any Company contributions.  Therefore, no benefits or related liabilitieshad accrued under this plan with respect to the named executive officers duringthe year ended December 31, 2009.

 

Beginning with the2006 fiscal year, that portion of the Company matching contribution under our401(k) plan that an executive officer would otherwise forfeit due to thelimitations on compensation or the nondiscrimination testing applicable to our401(k) plan, may be credited to our nonqualified deferred compensationplan.  We anticipate that the namedexecutive officers may have an amount credited to this plan in 2010 relating tothe 2009 fiscal year.  However, we willnot make this determination until we have completed all testing under our 401(k) planand the annual audit for the 2009 plan year of our 401(k) plan iscomplete.  Any such amounts credited tothe named executive officer’s account will be reported in the year in whichsuch amounts are credited to the account.

 

**PotentialPayments Upon Termination of Change in Control**.  The followingtables set forth the compensation payable to each of the named executiveofficers who were employed at the end of 2009 in the event of termination ofsuch executive’s employment.  See “CompensationDiscussion and Analysis — Employment and Severance Arrangements” for additionalinformation regarding the payments to be made to each of the named executiveofficers upon termination of his or her employment.

 

The type and amount ofcompensation payable in connection with each of the events described below isset forth in the table. The amounts assume that termination was effective as ofDecember 31, 2009 and are estimates of the awards and amounts that wouldbe paid to the executives upon their termination.  Stock prices used in the following tables arebased on the closing price on December 31, 2009.  The amounts do not include payment of basesalary earned up to the date of termination. For purposes of a “change in control,” we have assumed that the changein control provisions were triggered in all applicable plans andagreements.  The amount for COBRAcontinuation was determined on the basis of our cost of providing thecontinuation coverage.

 

Each of the agreementsunder which the termination payments are provided includes a covenantprohibiting the executive from disclosing our confidential information and acovenant restricting competition and solicitation of our employees by theexecutive.

 

**James E.Hyman**

** **
| ** **                      | ** ** | **Death or  Disability********($)** | ** ** | **Voluntary  Resignation********($)** | ** ** | **Resignation for  Good Reason or  Termination  without Cause********($)** | ** ** | **Voluntary  Resignation for Good  Reason or  Termination without  Cause Following  Change in Control  ($)** | ** ** | **Termination  for Cause  ($)** | ** ** |
|---------------------------------|------------|-------------------------------------|------------|---------------------------------------|------------|----------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
| Severance  Pay                  |       |                                |       |                                  |       | 1,050,000                                                                  |       | 1,050,000                                                                                                    |       | 0                               |       |
| 2009  ICP                       |       | 478,819                             |       |                                  |       | 478,819                                                                    |       | 478,819                                                                                                      |       | 0                               |       |
| Severance  ICP @ Target         |       |                                |       |                                  |       | 1,050,000                                                                  |       | 1,050,000                                                                                                    |       | 0                               |       |
| COBRA  Continuation             |       | 9,718                               |       |                                  |       | 29,153                                                                     |       | 29,153                                                                                                       |       | 0                               |       |
| Unvested  Restricted Stock      |       |                                |       |                                  |       | 2,054,350                                                                  |       | 5,224,791                                                                                                    |       | 0                               |       |
| Vested  Options                 |       | 639,000                             |       | 639,000                               |       | 639,000                                                                    |       | 639,000                                                                                                      |       | 0                               |       |
| Unvested  Options               |       |                                |       |                                  |       |                                                                       |       |                                                                                                         |       | 0                               |       |
| Relocation  Expense             |       |                                |       |                                  |       |                                                                       |       | *                                                                                                            |       | 0                               |       |
| Tax  Gross Up (280G Excise Tax) |       |                                |       |                                  |       |                                                                       |       | 1,812,329                                                                                                    |       | 0                               |       |
| *TOTAL*                         |       | 1,127,537                           |       | 639,000                               |       | 5,301,322                                                                  |       | 10,284,092                                                                                                   |       | 0                               |       |

 

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----

* Mr. Hyman iseligible for relocation expense reimbursement in the event he has relocated hisfamily prior to a change in control event.

 

**John R.Nieser**

** **
| ** **                      | ** ** | **Death or  Disability  $** | ** ** | **Voluntary  Resignation  $ ** | ** ** | **Resignation  for  Good Reason  $** | ** ** | **Termination  with  or without Cause  Following Change  in Control  $** | ** ** | **Termination  without Cause  $ ** | ** ** | **Termination  for  Cause  $** | ** ** |
|---------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| Severance  Pay                  |       |                        |       |                                |       |                                 |       | 520,000                                                                  |       | 260,000                                 |       | 0                              |       |
| 2009  ICP                       |       | 128,000                     |       |                                |       |                                 |       |                                                                     |       | 128,000                                 |       | 0                              |       |
| Severance  ICP @ Target         |       |                        |       |                                |       |                                 |       | 130,000                                                                  |       |                                    |       | 0                              |       |
| COBRA  Continuation             |       |                        |       |                                |       |                                 |       | 26,822                                                                   |       |                                    |       | 0                              |       |
| Unvested  Restricted Stock      |       |                        |       |                                |       |                                 |       | 1,025,291                                                                |       |                                    |       | 0                              |       |
| Vested  Options                 |       | 591,540                     |       | 591,540                             |       | 591,540                              |       | 591,540                                                                  |       | 591,540                                 |       | 0                              |       |
| Unvested  Options               |       |                        |       |                                |       |                                 |       |                                                                     |       |                                    |       | 0                              |       |
| Tax  Gross Up (280G Excise Tax) |       |                        |       |                                |       |                                 |       | 468,784                                                                  |       |                                    |       | 0                              |       |
| *TOTAL*                         |       | 719,540                     |       | 591,540                             |       | 591,540                              |       | 2,762,437                                                                |       | 979,540                                 |       | 0                              |       |

 

**CathrynL. Porter**

** **
| ** **                 | ** ** | **Death or  Disability  $** | ** ** | **Voluntary  Resignation  $ ** | ** ** | **Resignation  for  Good Reason  $** | ** ** | **Termination  with  or without Cause  Following Change  in Control  $** | ** ** | **Termination  without Cause  $ ** | ** ** | **Termination  for  Cause  $** | ** ** |
|----------------------------|------------|-----------------------------|------------|-------------------------------------|------------|--------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| Severance  Pay             |       |                        |       |                                |       |                                 |       | 352,500                                                                  |       | 235,000                                 |       | 0                              |       |
| 2009  ICP                  |       | 81,000                      |       |                                |       |                                 |       |                                                                     |       | 81,000                                  |       | 0                              |       |
| Severance  ICP @ Target    |       |                        |       |                                |       |                                 |       | 82,250                                                                   |       |                                    |       | 0                              |       |
| COBRA  Continuation        |       |                        |       |                                |       |                                 |       | 13,411                                                                   |       |                                    |       | 0                              |       |
| Unvested  Restricted Stock |       |                        |       |                                |       |                                 |       | 624,250                                                                  |       | 283,750                                 |       | 0                              |       |
| Vested  Options            |       |                        |       |                                |       |                                 |       |                                                                     |       |                                    |       | 0                              |       |
| Unvested  Options          |       |                        |       |                                |       |                                 |       |                                                                     |       |                                    |       | 0                              |       |
| *TOTAL*                    |       | 81,000                      |       | 0                                   |       |                                 |       | 1,072,411                                                                |       | 599,750                                 |       | 0                              |       |

 

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**PatrickN. Perrin**

** **
| ** **                                        | ** ** | **Death or  Disability  $** | ** ** | **Voluntary  Resignation  $ ** | ** ** | **Resignation  or  Separation  Within One Year  Following  Change in  Control  $** | ** ** | **Termination  with  or without Cause  Following Change  in Control  $** | ** ** | **Termination  without Cause  $ ** | ** ** | **Termination  for  Cause  $** | ** ** |
|---------------------------------------------------|------------|-----------------------------|------------|-------------------------------------|------------|------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------|------------|
| Severance  Pay                                    |       |                        |       |                                |       | 215,000                                                                            |       | 322,500                                                                  |       |                                    |       | 0                              |       |
| Severance  ICP at Target                          |       |                        |       |                                |       |                                                                               |       | 75,250                                                                   |       |                                    |       | 0                              |       |
| Severance  ICP (Average of FY08 and FY09 Payouts) |       |                        |       |                                |       | 97,000                                                                             |       |                                                                     |       |                                    |       | 0                              |       |
| COBRA  Continuation                               |       |                        |       |                                |       |                                                                               |       | 20,116                                                                   |       |                                    |       | 0                              |       |
| Unvested  Restricted Stock                        |       |                        |       |                                |       | 546,707                                                                            |       | 546,707                                                                  |       |                                    |       | 0                              |       |
| Vested  Options                                   |       | 455,464                     |       | 455,464                             |       | 455,464                                                                            |       | 455,464                                                                  |       | 455,464                                 |       | 0                              |       |
| Unvested  Options                                 |       |                        |       |                                |       |                                                                               |       |                                                                     |       |                                    |       | 0                              |       |
| *TOTAL*                                           |       | 455,464                     |       | 455,464                             |       | 1,314,171                                                                          |       | 1,420,037                                                                |       | 455,464                                 |       | 0                              |       |

** **

**Note: No gross up payment on IRC Section 4999compensation excise tax for either Ms. Porter or Mr. Perrin.**

 

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**DirectorCompensation**.  The following table provides compensationinformation for the fiscal year ended December 31, 2009 for each non-employeemember of our Board of Directors.  Mr. Hymandoes not receive any additional compensation for his service as a director.

 
| ** **                  | ** ** | **Fees Earned or Paid in  Cash** | ** ** | **Stock Awards(1)** | ** ** | **Option Awards(2)** | ** ** | **Total** | ** ** |
|-----------------------------|------------|----------------------------------|------------|---------------------|------------|----------------------|------------|-----------|------------|
| **Name**                    | ** ** | **($)**                          | ** ** | **($)**             | ** ** | **($)**              | ** ** | **($)**   | ** ** |
| Max  Batzer                 |       | —                           |       | 76,500              |       | 86,395               |       | 162,895   |       |
| Anthony  R. Chase           |       | —                           |       | 78,250              |       | 44,450               |       | 122,700   |       |
| Richard  Crane              |       | 35,000                           |       | 45,000              |       | 44,450               |       | 124,450   |       |
| Zachary  R. George          |       | —                           |       | 72,500              |       | 44,450               |       | 116,950   |       |
| Todd  Goodwin               |       | —                           |       | 76,500              |       | 44,450               |       | 120,950   |       |
| Andrew  R. Jones            |       | —                           |       | 76,000              |       | 82,300               |       | 158,300   |       |
| Alfred  Jay Moran, Jr. |       | 74,000                           |       | —              |       | 44,450               |       | 118,450   |       |
| D.  Stephen Slack           |       | 41,000                           |       | 45,000              |       | 44,450               |       | 130,450   |       |

 

----

(1) Each of the directorsmay elect to receive his fees in cash or common stock.  The amounts listed in this column representthe director fees that each director elected to receive in common stock of theCompany in lieu of cash.  The grant-datefair value of the stock awards computed in accordance with authoritativeguidance for each director was as follows:

 
| **Director**                | ** ** | **Grant-Date Fair Value** | ** ** |
|-----------------------------|------------|---------------------------|------------|
| Max  Batzer                 |       | 81,024                    |       |
| Anthony  R. Chase           |       | 82,393                    |       |
| Richard  Crane              |       | 47,584                    |       |
| Zachary  R. George          |       | 76,516                    |       |
| Todd  Goodwin               |       | 81,024                    |       |
| Andrew  R. Jones            |       | 80,205                    |       |
| Alfred  Jay Moran, Jr. |       | —                    |       |
| D.  Stephen Slack           |       | 47,584                    |       |

 

(2) The amount shown inthis column includes $44,450, which is the value, as determined for purposes ofreporting under authoritative guidance, of the annual grants received by eachdirector in 2009.  Any additional amountwould constitute the amount recognized as expense under authoritative guidancerelated to the vesting in 2009 of options received upon initially being electedto the Board.  The assumptions used inarriving at such values are discussed in Note 2 to the consolidated financialstatements in our Annual Report on Form 10-K for the fiscal year ended December 31,2009.

 

As of December 31,2009, the directors had options to purchase shares of our common stock in thefollowing amounts and vesting on varying dates: Max Batzer, 21,250; Anthony R. Chase, 39,350; Richard Crane, 26,250;Zachary R. George, 23,750; Todd Goodwin, 33,750; Andrew Jones, 21,250; AlfredJay Moran, Jr., 21,250 and D. Stephen Slack, 23,750.

 

At the election ofeach director, fees may be paid in either cash or in common stock under the2000 Directors Stock Plan.  Under theplan, each director may make a separate election to receive cash or stock withrespect to (i) the base annual retainer, and (ii) all other retainerand meeting fees as described below. Employee directors are not paid for their service on our Board or anycommittee of the Board.  We currently paynon-employee directors a base annual retainer of $35,000 (cash election) or$45,000 (stock election) plus reimbursement of expenses for all services as adirector, including committee participation or special directorassignments.  The Lead Director receivesan additional annual retainer of $3,500. All annual retainers are paid in quarterly installments.  All committee members receive an additionalannual retainer of $3,500 per committee. The Chairman of the Governance Committee and Compensation Committee eachreceive $3,500 annually in addition to the committee retainer, and the Chairmanof the Audit Committee receives $7,500 annually in addition to the committeeretainer.

 

In addition to theannual retainers, non-employee directors receive the following fees forattendance at meetings:

 

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·                 for each Board meeting, including committee meetingsheld in conjunction with such meetings, all non-employee directors inattendance receive a meeting fee of $3,000; and

 

·                 for committee meetings not held in conjunction with aregular Board meeting, committee members in attendance receive $2,000.

 

For amounts paidin stock, the number of shares awarded is based upon the average of the closingprices of our common stock on the last trading day of each month in the quarterwith respect to which such stock is awarded.

 

Each non-employeedirector also receives an annual stock option award covering 5,000 shares ofour common stock.  For 2009, the optionswere granted under our 2006 Incentive Plan. The options are generally granted in January of each year, and theexercise price is equal to the closing price of shares of our common stock onthe date of grant.  Annual awards ofstock options are 25% vested when granted, and vest an additional 25% on thefirst day of April, July and October for the remainder of theyear.  All options expire on the tenthanniversary of the date of grant.

 

Additionally, uponfirst being elected to the Board, each non-employee director is granted anoption to purchase 15,000 shares of our common stock.  The exercise price is equal to the closingprice of shares of our common stock on the date of grant.  The options are 25% vested when granted, andvest an additional 25% on the first, second and third anniversaries of the dateof grant.

 

**CompensationCommittee Interlocks and Insider Participation. **The members of the Compensation Committeeare Andrew R. Jones, chairman, Zachary R. George and D. Stephen Slack. None ofthese directors has at any time been an officer or employee of the Company, andnone of these directors serve as a member of the Board of Directors orCompensation Committee of any entity that has one or more executive officersserving as a member of the Company’s Board or Compensation Committee.

** **

**ITEM 12.               SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.**

** **

**More than Five Percent Holders**. The following table shows, as of April 15, 2010, each person who,to our knowledge based upon their most recent filings or correspondence withthe SEC,beneficiallyowns more than 5% of our common stock.

 
| **Name and Address of Beneficial Owner**                        | ** ** | **Amount and Nature of  Beneficial Ownership (1)** | ** ** | **Percentage (2)** | ** ** |
|-----------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------|------------|
|                                                            |       |                                               |       |               |       |
| Wynnefield Capital Inc. (3)                                     |       | 1,998,119                                          |       | 13.4               | %          |
| 450  Seventh Avenue, Suite 509New York, NY 10004           |       |                                               |       |               |       |
|                                                            |       |                                               |       |               |       |
| Dimensional Fund Advisors LP (4)                                |       | 838,055                                            |       | 5.61               | %          |
| Palisades  West, Building One6300 Bee Cave RoadAustin, TX 78746 |       |                                               |       |               |       |
|                                                            |       |                                               |       |               |       |
| North Star Partners, L.P. (6)                                   |       | 749,066                                            |       | 5.01               | %          |
| 274  Riverside AvenueWest Port, CT 06880                        |       |                                               |       |               |       |
|                                                            |       |                                               |       |               |       |
| Albert Fried, Jr. (5)                                      |       | 1,029,685                                          |       | 6.9                | %          |
| 60  Broad Street, 39th FloorNew York, NY 10004             |       |                                               |       |               |       |

 

----

(1)          Beneficial ownership is defined by rules ofthe Securities and Exchange Commission and includes shares for which the personhas voting or investment power. A decision to disclaim beneficial ownership orto include shares held by others is made by the shareholder, not by theCompany.

 

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(2)          Calculated by the Company based uponshares reported as beneficially owned by the listed persons and 14,936,828shares of the Company’s common stock outstanding at April 15, 2010.

 

(3)          Based solely upon information provided ina Schedule 13D/A filed jointly with the SEC on November 18, 2009 byWynnefield Partners Small Cap Value, L.P. (“Wynnefield Partners”); WynnefieldSmall Cap Value Offshore Fund, Ltd. (“Wynnefield Offshore”); WynnefieldPartners Small Cap Value L.P. I (“Wynnefield I”); Channel Partnership II, L.P.(“Channel”); Wynnefield Capital Management, LLC (“Wynnefield Management”);Wynnefield Capital, Inc. (“Wynnefield Capital”); Nelson Obus; and JoshuaLandes (collectively with Wynnefield Partners, Wynnefield Offshore, WynnefieldI, Channel, Wynnefield Management, Wynnefield Capital and Mr. Obus, the “WynnefieldReporting Persons”), the Wynnefield Reporting Persons beneficially owned1,998,119 shares of Common Stock.  Basedsolely upon such information (a) Wynnefield Partners has sole voting anddispositive power over 576,200 shares, (b) Wynnefield Offshore has solevoting and dispositive power over 797,600 shares, (c) Wynnefield I hassole voting and dispositive power over 624,319 shares, (d) Channel hassole voting and dispositive power over 30,800 shares, (e) WynnefieldManagement has sole voting and dispositive power over 1,200,519 shares, (f) WynnefieldCapital has sole voting and dispositive power over 797,600 shares, (g) NelsonObus has sole voting and dispositive power over 30,800 shares and shared votingand dispositive power over 1,998,119 shares, and (h) Joshua Landes hasshared voting and dispositive power over 1,998,119 shares.

 

(4)          Based solely upon information set forthin a Schedule 13G/A filed with the SEC on February 8, 2010 by DimensionalFund Advisors LP (“Dimensional”), Dimensional has sole voting power with respectto 815,352 shares of common stock and sole dispositive power with respect to838,055 shares.  In its capacity asinvestment advisor and manager, Dimensional is deemed to beneficially own theshares held by its clients.  Dimensionaldisclaims beneficial ownership of such securities.

 

(5)          Based solely upon information set forth in a Schedule13G/A filed with the SEC on February 10, 2010 by Albert Fried, Jr.  The Schedule 13G/A indicates that AlbertFried, Jr. has sole voting power and sole dispositive power with respectto 1,029,685 shares of common stock.

 

(6)          Based solely upon Form 4s filed withthe SEC on June 9, 2009 and January 12, 2010, North Star Partners,L.P., North Star Partners II, L.P.; and Andrew R. Jones may be deemed tobeneficially own 420,479 shares of common stock. Mr. Jones is manager ofNS Advisors, LLC, which is the general partner of North Star Partners,L.P.  According to the reports, NorthStar Partners, L.P. beneficially owns 339,599 shares of common stock; NorthStar Partners II, L.P. beneficially owns 369,264 shares of common stock; and Mr. Jonesowns 11,616 shares of common stock.

 

**Officer and Director Stock Ownership**. The following table shows the number of shares of Company common stockbeneficially owned as of April 15, 2010, by each Director, each executiveofficer named in the Summary Compensation Table included in this Annual Reporton Form 10-K/A and all Directors and executive officers as a group.

 
| **Name and Address of Beneficial Owner**                                    | ** ** | **Amount and Nature of  Beneficial Ownership (1)** | ** ** | **Percentage (2)** | ** ** |
|-----------------------------------------------------------------------------|------------|----------------------------------------------------|------------|--------------------|------------|
| Max Batzer (3)                                                              |       | 39,278                                             |       | *                  |       |
| Anthony R. Chase                                                            |       | 64,961                                             |       | *                  |       |
| Richard Crane                                                               |       | 37,684                                             |       | *                  |       |
| Zachary R. George (4)                                                       |       | 140,371                                            |       | *                  |       |
| Todd Goodwin                                                                |       | 61,606                                             |       | *                  |       |
| James E. Hyman                                                              |       | 361,214                                            |       | 2.42               | %          |
| Andrew R. Jones (5)                                                         |       | 749,066                                            |       | 5.01               | %          |
| Alfred J. Moran, Jr.                                                   |       | 25,918                                             |       | *                  |       |
| D. Stephen Slack                                                            |       | 48,450                                             |       | *                  |       |
| John R. Nieser                                                              |       | 135,493                                            |       | *                  |       |
| Patrick N. Perrin (6)                                                       |       | 124,104                                            |       | *                  |       |
| Cathryn L. Porter                                                           |       | 39,802                                             |       | *                  |       |
| **All directors, nominees and executive officers as  a group (12 persons)** |       | 1,827,947                                          |       | 12.2               | %          |

 

----

*          Less than 1.0%.

 

(1)           Includes (i) shares of common stock issuableupon the exercise of stock options exercisable within 60 days (27,500 for Mr. Batzer,41,850 for Mr. Chase, 28,750 for Mr. Crane, 26,250 for Mr. George,36,250 for Mr. Goodwin, 

 

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70,000 for Mr. Hyman, 27,500 for Mr. Jones, 21,918 for Mr. Moran,60,900 for Mr. Nieser, 39,730 for Mr. Perrin, 26,250 for Mr. Slackand 406,898 for all the above as a group), and (ii) unvested restrictedshares held by Mr. Hyman (204,167), Mr. Nieser (60,167), Mr. Perrin(31,584), Ms. Porter (37,375) and 333,293 for all the above as a group.

 

(2)          The percentages in this column are based on 14,936,828shares outstanding as of April 15, 2010. In addition, pursuant to SEC rules, shares of the Company’s common stockthat an individual owner has a right to acquire within 60 days pursuant to theexercise of stock options are deemed to be outstanding for the purpose ofcomputing the ownership of that owner and for the purpose of computing theownership of all directors and executive officers as a group, but are notdeemed outstanding for the purpose of computing the ownership of any other owner.

 

(3)          Mr. Batzer is a Portfolio Manager of WynnefieldCapital, Inc.  See Footnote 2 to thetable of More than Five Percent Holders.

 

(4)          Mr. George is a member and Portfolio Manager ofFrontFour Capital Group, LLC (“FrontFour”). These holdings include 101,365shares reported in FrontFour’s most recent Form 4 report filed May 27,2009. Based upon such report (i) the securities beneficially owned byFrontFour are held directly by FrontFour Master Fund, Ltd. (the “Master Fund”)and Distressed Securities & Special Situations-1 a series ofUnderlying Funds Trust (collectively with the Master Fund, the “Funds”) whichare advised and sub-advised, respectively, by FrontFour, (ii) FrontFour isdeemed to be the indirect beneficial owner of the securities reported thereinby reason of its position as investment adviser and sub-adviser of the Fundsand may be deemed to hold a fractional pecuniary interest in such shares, and (iii) Mr. Georgemay also be deemed to be the indirect beneficial owner of such securities. Accordingto the report, both Mr. George and FrontFour disclaimed beneficialownership of all such securities in excess of their actual pecuniary interest,if any.

 

(5)          Mr. Jones is manager of NS Advisors, LLC, whichis the general partner of North Star Partners, L.P.  Based solely upon Form 4s filed with theSEC on June 9, 2009 and January 12, 2010, North Star Partners, L.P.,North Star Partners II, L.P.; and Andrew R. Jones may be deemed to beneficiallyown 420,479 shares of common stock. According to the reports, North Star Partners, L.P. beneficially owns339,599 shares of common stock; North Star Partners II, L.P. beneficially owns369,264 shares of common stock; and Mr. Jones owns 11,616 shares of commonstock.

 

(6)          Includes 2,000 shares owned by his wife, as to which Mr. Perrindisclaims beneficial ownership.

** **

**Securities Authorized ForIssuance Under Equity Compensation Plans. **See Part II, Item 5, “Market forRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities”, included in the Original Report on Form 10-K for adiscussion of securities authorized for issuance under the Company’s equitycompensation plans.

** **

**ITEM 13.               CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.**

** **

**Transactions with Related Persons**.  Since the beginning of the last fiscal year,we are aware of no related party transactions between us and any of ourdirectors, executive officers, greater than 5% shareholders or their familymembers which require disclosure under Item 404 of Regulation S-K under theSecurities Exchange Act of 1934.

** **

**Review Policy. **We have a written policy relating to the review andapproval of transactions with related persons, including those that arerequired to be disclosed in annual reports on Form 10-K or proxystatements by SEC regulations, which are commonly referred to as “RelatedPerson Transactions.”  A “related person”is defined under the applicable SEC regulation and includes our Directors,executive officers and greater than 5% beneficial owners of our commonstock.  The Governance Committee (oranother Board committee comprised of at least three independent directors) mustreview and either ratify, approve or disapprove all related party transactions,which are generally defined to include any transaction, arrangement orrelationships (including any indebtedness or guarantee of indebtedness) inwhich (a) the Company is or will be a participant and the amount exceeds$10,000 and (b) any related person had, has or will have a direct or indirectinterest.  In approving or ratifying anyrelated person transaction, the Governance Committee must consider all of therelevant facts and circumstances and determine that the transaction is fair andreasonable to the Company.  TheGovernance Committee is required to review previously approved or ratifiedrelated person transactions that remain ongoing.  Based on all relevant facts andcircumstances, taking into consideration the Company’s contractual obligations,the Committee determines if it is in the best interests of the Company and itsshareholders to continue, modify or terminate the related person transaction.

 

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**Board Independence**.  The Board evaluates the independence of eachdirector in accordance with applicable laws, regulations, listing standards andour corporate governance guidelines. The director independence standards of theNYSE require a Board determination that the director has no materialrelationship with the listed company and has no specific relationships thatpreclude independence. The Board considers all relevant facts and circumstancesin assessing whether a director is independent.

 

The Board has carefully considered the criteria ofthe NYSE and our corporate governance guidelines and believes that each of Messrs. Batzer,Chase, Crane, George, Goodwin, Jones, Moran and Slack is independent. The Boardhas carefully considered Mr. Jones’ relationship with North Star Partners,L.P., which owns approximately 5.01% of our common stock (as of April 15, 2010), and has determined thatthis relationship does not prevent Mr. Jones from being an independentdirector under NYSE rules. In addition, the Board has carefully considered Mr. Batzer’srelationship with Wynnefield Capital, Inc., which owns approximately 13.4% of our common stock (as of April 15,2010), and has determined that this relationship does not prevent Mr. Batzerfrom being an independent director under NYSE rules. The Board believes thatthe Compensation, Audit and Governance Committees are composed solely ofdirectors who meet these independence requirements.

** **

**ITEM 14.               PRINCIPALACCOUNTANT FEES AND SERVICES.**

** **

**Principal Accountant Fees.**  The following table sets forth theaggregate fees billed to us by PricewaterhouseCoopers LLP (“PwC”) for the yearsended December 31, 2009 and 2008:

** **
| ** **         | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------|------------|----------|------------|----------|------------|
| Audit fees         |       | $        | 1,182,370  |     | $          | 1,245,000 |   |
| Audit related fees |       | —   |       | —   |       |
| Tax fees           |       | —   |       | —   |       |
| All other fees     |       | 72,705   |       | 73,150   |       |
|               |       | $        | 1,255,075  |     | $          | 1,318,150 |   |

 

*Audit Fees*. Audit fees represent the aggregate fees billed orestimated to be billed to us for professional services rendered for the auditof our annual financial statements, the audit of our internal control overfinancial reporting, review of financial statements included in our quarterlyreports on Form 10-Q and, with respect to 2009, services normally providedby our accountants in connection with statutory and regulatory filings orengagements, such as comfort letters, statutory audits, attest services,consents, and reviews of documents filed with the SEC, including registrationstatements.

* *

*Audit Related Fees*.  Audit relatedfees represent the aggregate fees billed to us or estimated to be billed to usfor assurance and related services that were reasonably related to theperformance of the audit or review of our financial statements and are notreported under “Audit Fees” above.  PwCrendered no such services to the Company during the 2009 and 2008 fiscal years.

* *

*Tax Fees*.  Tax feesrepresent the aggregate fees billed to us or estimated to be billed to us forprofessional services rendered for tax compliance, tax advice and taxplanning.  The nature of the servicescomprising these fees were to support compliance with federal and state taxreporting and payment requirements, including tax return review and review oftax laws, regulations or cases.  PwCrendered no tax services to the Company during the 2009 and 2008 fiscal years.

* *

*All Other Fees*.  All otherfees represent the aggregate fees billed to us or estimated to be billed to usfor products or services provided to us by PwC, other than the servicesreported in the above categories.  Thefees in 2009 and 2008 related primarily to assistance with employeesurveys.  The Audit Committee hasconsidered whether the provision of non-audit services by PwC is compatiblewith maintaining auditor independence and has determined that auditorindependence has not been compromised.

** **

**Pre-approvalPolicies and Procedures**.  The Audit Committee charter provides that theAudit Committee is responsible for pre-approving all audit services andpermitted non-audit services to be performed for the Company by the independentregistered public accounting firm. The charter allows the Audit Committee todelegate to subcommittees consisting of one or more members of the AuditCommittee the authority to grant pre-approvals of audit and permitted non-auditservices between Audit Committee meetings, so long as the subcommittee reportsany pre-approval decisions to the full Audit Committee at the Committee’s nextscheduled meeting.  The Audit Committeehas adopted policies and procedures for pre-approving all audit and non-auditservices performed by the independent registered public accounting firm.  The policy requires advance approval by theAudit Committee of all audit and non-audit work.  Unless the specific service has beenpreviously pre-approved with respect to the 12-month period following theadvance approval, the Audit Committee must approve a service before theindependent registered public accounting firm is engaged to perform theservice.  The Audit Committee delegatedpre-approval authority to its Chairman who in turn reports any pre-approvaldecisions to the Audit 

 

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Committee at its next meeting.  The Audit Committee has given advanceapproval for specified audit, audit-related and tax services for 2010.  Requests for services that have received thispre-approval are subject to specified fee or budget restrictions as well asinternal management controls. All of the fees paid to the independentregistered public accounting firm in 2009 and 2008 were pre-approved by theAudit Committee in accordance with its charter, its policies and procedures,and pursuant to applicable rules of the SEC.

** **

**PART IV**

** **

**ITEM 15.****       ****EXHIBITSAND FINANCIAL STATEMENT SCHEDULES**

 

(a)

 

1. and 2.  No financialstatements or schedules are filed with this report on Form 10-K/A.

 

3.  Exhibits filed herewith:

 
| **Exhibit  No.** | ** ** | **Description**                                            |
|------------------|------------|------------------------------------------------------------|
| 31.1             |       | Section 302 Certification of Chief Executive Officer. |
|             |       |                                                       |
| 31.2             |       | Section 302 Certification of Chief Financial Officer. |
|             |       |                                                       |
| 32.1             |       | Section 906 Certification of Chief Executive Officer. |
|             |       |                                                       |
| 32.2             |       | Section 906 Certification of Chief Financial Officer. |

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, this Amendment No. 2 to the Annual Report on Form 10-K/A hasbeen signed below by the following persons on behalf of the registrant and inthe capacities indicated on April 30, 2010.

 
|   |   | CORNELL COMPANIES, INC. |
|--------|--------|-------------------------|
|   |   |                    |
|   |   | By:                     | /s/ James E. Hyman |
|   |   |                    | James E. Hyman |
|   |   |                    | Chief Executive Officer, President and |
|   |   |                    | Chairman of the Board |
|   |   |                    | (Principal Executive Officer) |
|   |   |                    |   |
|   |   |                    |   |
|   |   | By:                     | /s/ John R. Nieser |
|   |   |                    | John R. Nieser |
|   |   |                    | Chief Financial Officer, Senior Vice |
|   |   |                    | President and Treasurer |
|   |   |                    | (Principal Financial Officer and Principal |
|   |   |                    | Accounting Officer) |

 

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