##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-K/A No. 1
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 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: 0-21352
 Applied Innovation Inc.
  Delaware
    
    31-1177192(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 5800 Innovation Drive, Dublin, Ohio 43016
 614-798-2000
  Title of each class:
    
    Name of exchange on which registered:Common Stock, $0.01 par value per share
    
    Nasdaq
 None
 o þ
 o þ
 þ o
 þ
 o o þ
 o þ




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TABLE OF CONTENTS  PART IIIITEM TEN | Directors, Executive Officers and Corporate GovernanceITEM ELEVEN | Executive CompensationITEM TWELVE | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder MattersITEM THIRTEEN | Certain Relationships and Related Transactions, and Director IndependenceITEM FOURTEEN | Principal Accountant Fees and ServicesITEM FIFTEEN | Exhibits and Financial Statement SchedulesSIGNATURESEX-31.1EX-31.2    Table of Contents  INTRODUCTORY NOTE:
  
 PART III
 
  Directors
  Directors  Terms to Expire 2007 (Class II)
 DirectorName and Age
    
    Continuously Since
    
    Principal OccupationThomas W. Huseby, 68
    
    
    1996
    
    

Retired as a director of
AT&T Network Systems, now
Alcatel-Lucent. His
experience includes a wide
range of manufacturing,
development and research
activities.Curtis A. Loveland, 60
    
    
    1991
    
    
    Partner, Porter, Wright,
Morris & Arthur LLP,
Attorneys at Law, since
1979 and Secretary of the
Company since April 1992.
Mr. Loveland is also a
director of Rocky Shoes &
Boots, Inc. and Max &
Ermas Restaurants, Inc.,
which each have a class of
equity securities
registered pursuant to the
Securities Exchange Act of
1934.
 2




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##### Table of Contents



Continuing Directors  Terms to Expire 2008 (Class III)
 DirectorName and Age
    
    Continuously Since
    
    Principal OccupationGerard B. Moersdorf, Jr., 55
    
    
    1986
    
    
    Chairman of the Board
of the Company since
1986. Mr. Moersdorf,
Jr. served as the
Companys President,
Chief Executive
Officer and Treasurer
from 1986 to 2000 and
as the Companys
President and Chief
Executive Officer
from August 2002 to
January 2005. Mr.
Moersdorf, Jr. is
also a director of
PECO II, Inc., which
has a class of equity
securities registered
pursuant to the
Securities Exchange
Act of 1934.Alexander B. Trevor, 61
    
    
    1997
    
    
    President of Nuvocom
Inc., Columbus, Ohio,
a computer technology
consulting company,
since 1996.
Previously, Mr.
Trevor was Executive
Vice President and
Chief Technology
Officer of CompuServe
Incorporated from
1983 to 1996. Prior
to 1983, Mr. Trevor
was employed in
various other
positions at
CompuServe
Incorporated,
including Vice
President of Computer
Technology and
Executive Vice
President of Network
Services. Mr. Trevor
is also a director of
State Auto Financial
Corp., which has a
class of equity
securities registered
pursuant to the
Securities Exchange
Act of 1934.
 Continuing Directors  Terms to Expire 2009 (Class I)
 DirectorName and Age
    
    Continuously Since
    
    Principal OccupationKenneth E. Jones, 58
    
    
    2005
    
    
    President of Chesapeake
Financial Advisors,
Columbus, Ohio, an
investment and financial
consulting company, since
April 2001. From 1993 to
April 2001, Mr. Jones
served as Vice President
and Chief Financial Officer
of Photonic Integration
Research, Inc., an advanced
fiber optic components
manufacturer that was
purchased by JDS Uniphase
Corp. Prior to that, Mr.
Jones was employed in
various business
development positions at
Battelle Memorial Institute
for seven years. Mr. Jones
has also held several
management positions for
ABB Process Automation,
Inc. (formerly AccuRay
Corp.) and was Manager,
Emerging Business Services
for PricewaterhouseCoopers.
 3




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##### Table of Contents



DirectorName and Age
    
    Continuously Since
    
    Principal OccupationWilliam H. Largent, 51
    
    
    1999
    
    
    Chief Executive Officer of
the Company since January
2005 and President of the
Company since April 2006.
Mr. Largent also served as
President from January 2005
until February 2006. Prior
to his election as
President and Chief
Executive Officer, Mr.
Largent served as a
consultant for Largent
Consulting LLC, Columbus,
Ohio, a consulting firm he
formed in June 2004. Mr.
Largent continues to
consult for Largent
Consulting on a limited
basis. Mr. Largent served
as Chief Operating Officer
and Chief Financial Officer
of Aelita Software
Corporation, Dublin, Ohio,
a company that develops
software for Fortune 1000
companies to manage
e-business network
infrastructures, from April
2001 to May 2004. From May
1999 to April 2001, Mr.
Largent served as Chief
Financial Officer and
Treasurer of Plug Power
Inc., Latham, New York, a
designer and developer of
on-site electricity
generation systems. Mr.
Largent served as the
Companys Senior Vice
President of Operations and
Chief Financial Officer
from April 1997 to June
1999. Prior to joining the
Company, Mr. Largent served
as the Executive Vice
President and Chief
Financial Officer of
Metatec Corporation, an
information services
company engaged in optical
disc manufacturing and
distribution, software
development and network
services, from 1993 to
1997.
 Executive Officers
   Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
   4




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##### Table of Contents



Material Changes to Procedures by Which Stockholders May Recommend Nominees to the Board of
Directors
  Audit Committee
  
   Compensation Discussion and Analysis
  
    
    the role of the Compensation Committee in setting executive compensation;
    
    our compensation philosophy and its underlying principles  including the objectives
of our executive compensation program and what it is designed to reward;
    
    our process for setting executive compensation; and
    
    the elements of our executive compensation program  including a discussion of why
we choose to pay each element of compensation, how we determine the amount of such
element, and how each element fits into our overall compensation objectives and total
compensation for our NEOs.
 The Compensation Committee
   
    
    discharge the Boards responsibilities relating to executive compensation;
 5




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##### Table of Contents




    
    review and discuss with management the disclosures in the CD&A to be included in the
annual proxy statement and any other regulatory filings and make a recommendation to
the Board as to whether such disclosures shall be included in the appropriate filing;
    
    prepare an annual report on executive compensation for inclusion in the proxy
statement as the Compensation Committee Report;
    
    review and approve on an annual basis the corporate goals and objectives with
respect to the chief executive officer, evaluate the chief executive officers
performance in light of such goals and objectives at least once a year, and, based on
such evaluation, set the chief executive officers annual compensation, including
salary, bonus, incentive and equity compensation;
    
    review and approve on an annual basis the evaluation process and compensation
structure for our other executive officers and to evaluate and approve the annual
compensation for such executive officers, including salary, bonus, incentive and equity
compensation;
    
    administer our compensation programs and plans, including, but not limited to,
incentive compensation, equity, and qualified and non-qualified benefit plans; and
    
    recommend to the Board the compensation arrangements with non-employee directors.
   Compensation Philosophy and Objectives
  
    
    to attract and retain qualified key executives;
    
    to reward, reinforce and provide incentives for individual performance and financial results; and
    
    to align our NEOs financial interests with our stockholders financial interests.
  6




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##### Table of Contents



Compensation Tax Philosophy
  Compensation Committee Process for Determining Executive Compensation
    Compensation Program Elements
  
    
    salary;
    
    non-equity incentive compensation;
    
    equity compensation;
    
    retirement benefits; and
    
    health and welfare benefits.
 7




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##### Table of Contents



Salary
   Bonus
  Non-Equity Incentive Compensation
   Payout as a Percentage of Base SalaryThreshold
    
    Target
    
    MaximumWilliam H. Largent
    
    
    32.5
    %
    
    
    50
    %
    
    
    80
    %Julia A. Fratianne
    
    
    26
    %
    
    
    40
    %
    
    
    64
    %Eric W. Langille
    
    
    26
    %
    
    
    40
    %
    
    
    64
    %John F. Petro
    
    
    26
    %
    
    
    40
    %
    
    
    64
    %
   8




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##### Table of Contents



Equity Compensation
   All Other Compensation
  401(k) plan
  Employment/severance agreements and change-in-control arrangements
  9




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##### Table of Contents



Summary Compensation Table
  SUMMARY COMPENSATION TABLE FOR FISCAL YEAR 2006
 Non-EquityStock
    
    Option
    
    Incentive Plan
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    TotalPrincipal Position
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)(1)
    
    ($)(2)
    
    ($)(3)
    
    ($)William H. Largent
President and
Chief Executive
Officer
    
    
    2006
    
    
    
    179,577
    
    
    
    
    
    
    
    
    
    
    
    4,348
    
    
    
    
    
    
    
    2,272
    
    
    
    186,197Julia A. Fratianne
Vice President,
Chief Financial
Officer and
Treasurer
    
    
    2006
    
    
    
    130,000
    
    
    
    10,000
    
    
    
    
    
    
    
    13,511
    
    
    
    
    
    
    
    3,900
    
    
    
    157,411Eric W. Langille
Vice President
of Sales and
Services
    
    
    2006
    
    
    
    179,680
    
    
    
    
    
    
    
    
    
    
    
    38,483
    
    
    
    
    
    
    
    5,390
    
    
    
    223,553John F. Petro
    
    
    2006
    
    
    
    100,936
    
    
    
    
    
    
    
    
    
    
    
    49,103
    
    
    
    
    
    
    
    104,175
    
    
    
    254,214Angela R. Pinette
    
    
    2006
    
    
    
    103,615
    
    
    
    
    
    
    
    
    
    
    
    7,345
    
    
    
    51,440
    
    
    
    103,108
    
    
    
    265,508
 
 (1)
    
    Represents the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with FAS 123R, disregarding any
estimate of forfeitures during the year, but accounting for any actual forfeitures by an NEO
during the fiscal year. For a discussion of the assumptions made in the valuation of the
dollar amount recognized, please refer to Footnote 1 to the Companys Financial Statements,
which are set forth in Item 8 of the Companys Annual Report on Form 10-K for the fiscal year
ended December 31, 2006. The amounts shown in the Option Awards column for Ms. Pinette include
deductions of $9,295 for forfeitures of such awards by Ms. Pinette during 2006 as a result of
her resignation, effective on July 7, 2006.(2)
    
    Represents the total of the performance-based incentive compensation earned, which
is discussed in further detail under the heading Executive Compensation  Compensation
Disclosure and Analysis  Non-Equity Incentive Compensation Plan above.(3)
    
    Represents: 
    
    the amount of the Companys match to its 401(k) Plan and Trust; and
    
    $101,003 and $100,000 of severance costs that were paid to each of Dr. Petro and Ms.
Pinette, respectively, in 2006; and
    
    $201 of severance costs that were accrued by the Company in 2006 for Dr. Petro that were
paid in 2007.
 10




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##### Table of Contents



Grants of Plan-Based Awards Table
  GRANT OF PLAN-BASED AWARDS TABLE FOR FISCAL 2006
 All OtherAll Other
    
    OptionStock
    
    Awards:
    
    Exercise
    
    
    
    
    
    Grant DateEstimated Possible Payouts
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards: Number of
    
    Number of
    
    or Base
    
    Market
    
    Fair Value ofUnder Non-Equity
    
    Estimated Future Payouts Under
    
    Shares of
    
    Securities
    
    Price of
    
    Price
    
    Stock andIncentive Plan Awards
    
    Equity Incentive Plan Awards
    
    Stock or
    
    Underlying
    
    Option
    
    on Date
    
    OptionThreshold
    
    Target
    
    Maximum
    
    Threshold
    
    Target
    
    Maximum
    
    Units
    
    Options
    
    Awards
    
    of Grant
    
    AwardsName
    
    Grant Date
    
    ($)(1)
    
    ($)
    
    ($)
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    (#)
    
    ($/Sh)
    
    ($)
    
    ($)William H. Largent
    
    
    04/11/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    4.14
    
    
    
    4.20
    
    
    
    30,054n/a
    
    
    
    58,500
    
    
    
    90,000
    
    
    
    144,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Julia A. Fratianne
    
    
    n/a
    
    
    
    33,800
    
    
    
    52,000
    
    
    
    83,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eric W. Langille
    
    
    04/11/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    4.14
    
    
    
    4.20
    
    
    
    30,054n/a
    
    
    
    46,800
    
    
    
    72,000
    
    
    
    115,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John F. Petro
    
    
    04/11/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    4.14
    
    
    
    4.20
    
    
    
    30,054n/a
    
    
    
    46,800
    
    
    
    72,000
    
    
    
    115,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Angela R. Pinette
    
    
    04/11/2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    4.14
    
    
    
    4.20
    
    
    
    30,054n/a
    
    
    
    15,000
    
    
    
    n/a
    
    
    
    n/a
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    For Ms. Pinette, there was no cap on the possible maximum payout. 11




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Outstanding Equity Awards at Fiscal Year-End Table
  OUTSTANDING EQUITY AWARDS AT FISCAL 2006 YEAR-END TABLE
 Option Awards(1)
    
    Stock AwardsEquity
    
    EquityIncentive
    
    Incentive PlanEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Plan
    
    Awards:Incentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    Market orPlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Number of
    
    Payout ValueNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Value of
    
    Unearned
    
    of UnearnedSecurities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Shares or
    
    Shares,
    
    Shares, UnitsUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Units of
    
    Units or
    
    or OtherUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    
    
    
    
    Stock That
    
    Stock That
    
    Other Rights
    
    Rights ThatOptions
    
    Options
    
    Unearned
    
    Exercise
    
    Option
    
    Have Not
    
    Have Not
    
    That Have
    
    Have Not(#)
    
    (#)
    
    Options
    
    Price
    
    Expiration
    
    Vested
    
    Vested
    
    Not Vested
    
    VestedName
    
    Exercisable
    
    Unexercisable
    
    (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)9,000
    
    
    
    
    
    
    
    
    
    
    
    8.3125
    
    
    
    01/01/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    11.70
    
    
    
    04/26/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    William H. Largent
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    5.15
    
    
    
    02/07/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    3.03
    
    
    
    01/01/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    6.73
    
    
    
    01/01/2014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    
    3.47
    
    
    
    01/01/2015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    4.14
    
    
    
    04/11/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Julia A. Fratianne
    
    
    6,000
    
    
    
    24,000
    
    
    
    
    
    
    
    3.64
    
    
    
    12/19/2015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    3.4375
    
    
    
    01/04/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    8.3125
    
    
    
    01/01/2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eric W. Langille
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    
    11.70
    
    
    
    01/01/2011
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    3,000
    
    
    
    
    
    
    
    5.15
    
    
    
    02/07/2012
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,000
    
    
    
    8,000
    
    
    
    
    
    
    
    3.03
    
    
    
    01/01/2013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    9,000
    
    
    
    
    
    
    
    6.73
    
    
    
    01/01/2014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    4.14
    
    
    
    04/11/2016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John F. Petro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Angela R. Pinette
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Unexercisable options vest as follows: 
    
    Mr. Largents unexercisable options vest 20% per year beginning on April 11, 2007;
    
    Ms. Fratiannes unexercisable options vest 25% per year beginning on December 19, 2007; and
    
    Mr. Langilles unexercisable options vest as follows: 7,000 options vested on January
1, 2007; 3,000 options vested on February 7, 2007; 3,000 options vested on April 11, 2007;
7,000 options vest on January 1, 2008; 3,000 options vest on April 11, 2008; 3,000 options
vest on January 1, 2009; 3,000 options vest on April 11, 2009; 3,000 options vest on April
11, 2010; and 3,000 options vest on April 11, 2011.
 12




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##### Table of Contents



Option Exercises and Stock Vested Table
  OPTION EXERCISES AND STOCK VESTED TABLE FOR FISCAL 2006
 Option Awards
    
    Stock AwardsNumber of Shares
    
    Value Realized
    
    Number of Shares
    
    Value Realized onAcquired on Exercise
    
    on Exercise
    
    Acquired on Vesting
    
    VestingName
    
    (#)
    
    ($)(1)
    
    (#)
    
    ($)William H. Largent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Julia A. Fratianne
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Eric W. Langille
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    John F. Petro
    
    
    12,000
    
    
    
    1,709
    
    
    
    
    
    
    
    Angela R. Pinette
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Value realized was calculated based on the number of shares exercised
multiplied by the excess of the fair market value of a share of the Companys common stock on
the date of exercise over the exercise price of the stock option. Agreements with NEOs and Potential Payments upon Termination or Change in Control
  Employment Agreements
   
    
    by reason of death or total disability;
    
    by our Company for cause (as defined below); or
    
    by the executive for any reason;
  13




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##### Table of Contents




    
    commission by the executive of an act of dishonesty involving our Company, business
or property, including, but not limited to, misappropriation of funds or any property;
    
    engagement by the executive in activities or conduct clearly injurious to the best
interests or reputation of our Company;
    
    willful and continued failure by the executive to substantially perform his or her
duties under the terms of the employment agreement (other than as a result of physical
or mental illness or injury), after the Board of Directors of our Company delivers to
the executive a written demand for substantial performance that specifically identifies
the manner in which the Board believes that the executive has not substantially
performed his or her duties;
    
    illegal conduct or gross misconduct that is willful and results in material and
demonstrable damage to the business or reputation of our Company;
    
    the clear violation of any of the material terms and conditions of the employment
agreement or any other written agreement or agreements the executive may from time to
time have with our Company;
    
    the clear violation of our code of business conduct or the clear violation of any
other rules of behavior as may be provided in any employee handbook which would be
grounds for dismissal of any employee of our Company; or
    
    commission of a crime which is a felony, a misdemeanor involving an act of moral
turpitude, or a misdemeanor committed in connection with the executives employment by
our Company which causes our Company a substantial detriment.
  
    
    the earned but unpaid portion of the executives base salary through the termination
date;
    
    base salary for an additional six months in the case of Mr. Langille and three
months in the case of Ms. Fratianne; and
    
    the pro-rated portion of any bonus earned in the case of Mr. Largent.
    14




---



##### Table of Contents




    
    any person (as that term is used in Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the Exchange Act) on the date hereof), including
any group as such term is used in Section 13(d)(3) of the Exchange Act on the date
hereof, shall acquire (or disclose the previous acquisition of) beneficial ownership
(as that term is defined in Section 13(d) of the Exchange Act and the rules thereunder
on the date hereof) of shares of the outstanding stock of any class or classes of the
Company which results in such person or group possessing more than 50% of the total
voting power of our Companys outstanding voting securities ordinarily having the right
to vote for the election of directors of our Company; or
    
    as the result of, or in connection with, any tender or exchange offer, merger or
other business combination, or contested election, or any combination of the foregoing
transactions (a Transaction), the owners of the voting shares of our Company
outstanding immediately prior to such Transaction own less than a majority of the
voting shares of our Company after the Transaction; or
    
    during any period of two consecutive years during the term of this Agreement,
individuals who at the beginning of such period constitute the Board of Directors of
our Company (or who take office following the approval of a majority of the directors
then in office who were directors at the beginning of the period) cease for any reason
to constitute at least one-half thereof, unless the election of each director who was
not a director at the beginning of such period has been approved in advance by
directors of our Company representing at least one-half of the directors then in office
who were directors at the beginning of the period; or
    
    the sale, exchange, transfer, or other disposition of all or substantially all of
the assets of our Company (a Sale Transaction) shall have occurred.
  
    
    a material change in the executives status, position or responsibilities which, in
the executives reasonable judgment, does not represent a promotion from his or her
existing status, position or responsibilities as in effect immediately prior to the
change in control; the assignment of any duties or responsibilities or the removal or
termination of duties or responsibilities (except in connection with the termination of
employment for total and permanent disability, death, or cause, or by the executive
other than for good reason), which, in the executives reasonable judgment, are
materially inconsistent with such status, position or responsibilities;
    
    a reduction by our Company in the executives base salary or our Companys failure
to increase (within twelve months of his or her last increase in Basic Salary) the
executives Basic Salary after a
 15




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##### Table of Contents



change in control in an amount which at least equals, on a percentage basis, the average
percentage increase in Basic Salary for all executive and senior officers of our Company,
in like positions, which were effected in the preceding twelve months;
    
    the relocation of our Companys principal executive offices to a location outside
the Columbus metropolitan area or the relocation of the executive by our Company to any
place other than the location at which he or she performed duties prior to a change in
control, except for required travel on Company business to an extent consistent with
business travel obligations at the time of a change in control;
    
    the failure of our Company to continue in effect, or continue or materially reduce
the executives participation in, any incentive, bonus or other compensation plan in
which he or she participates, including but not limited to our Companys stock option
plans, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan), has been made or offered with respect to such plan in connection
with a change in control;
    
    the failure by our Company to continue to provide the executive with benefits
substantially similar to those enjoyed or to which the executive is entitled under any
of our Companys pension, profit sharing, life insurance, medical, dental, health and
accident, or disability plans at the time of a change in control, the taking of any
action by our Company which would directly or indirectly materially reduce any of such
benefits or deprive the executive of any material fringe benefit enjoyed or to which he
or she is entitled at the time of the change in control, or the failure by our Company
to provide the number of paid vacation and sick leave days to which the executive is
entitled on the basis of years of service with our Company in accordance with our
Companys normal vacation policy;
    
    the failure of our Company to obtain a satisfactory agreement from any successor or
assign of the Company to assume and agree to perform the employment agreement;
    
    any request by our Company that the executive participate in an unlawful act or take
any action constituting a breach of his or her professional standard of conduct; or
    
    any breach of the executive agreement on the part of the Company.
 Potential Payments upon Termination or Change in Control Tables
  16




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##### Table of Contents



TABLE OF POTENTIAL PAYMENTS TO MR. LARGENT
 Termination byCompany with
    
    
    
    
    
    
    
    
    
    PaymentsCause or by Mr.
    
    Termination by
    
    Termination
    
    Upon aLargent without
    
    Company
    
    upon Death or
    
    Change inGood Reason
    
    without Cause
    
    Disability
    
    ControlExecutive Payments
    
    ($)
    
    ($)
    
    ($)
    
    ($)Base Salary (Severance Payment)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360,000
    (1)Incentive Compensation (Severance Payment)
    
    
    
    
    
    
    
    (2)
    
    
    
    
    
    
    Total Annual Compensation (Severance Payment)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock Options (Acceleration of Vesting)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360,000
 
 (1)
    
    Payable on or within three business days of a change in control.(2)
    
    Represents accrued but unpaid pro-rata incentive compensation of Mr. Largent, which
was $0 for 2006. TABLE OF POTENTIAL PAYMENTS TO MR. LANGILLE
 PaymentsTermination by
    
    
    
    
    
    
    
    
    
    Upon CertainCompany with
    
    
    
    
    
    
    
    
    
    TerminationsCause or by Mr.
    
    Termination by
    
    Termination
    
    Following aLangille without
    
    Company
    
    upon Death or
    
    Change inGood Reason
    
    without Cause
    
    Disability
    
    ControlExecutive Payments
    
    ($)
    
    ($)
    
    ($)
    
    ($)Base Salary (Severance Payment)
    
    
    
    
    
    
    90,000
    (1)
    
    
    
    
    
    
    Total Annual Compensation (Severance Payment)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    205,958
    (2)Stock Options (Acceleration of Vesting)(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,440Accrued Vacation Pay
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,538Earned but Unpaid Incentive Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Life Insurance, Medical, Health, Accident and Disability Benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,596Total value
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    222,532
 
 (1)
    
    Payable over six months in accordance with normal payroll practices.(2)
    
    Payable as follows: 50% in a lump-sump payment within 30 days after termination of
employment and 50% in 12 monthly installments beginning 30 days after termination of
employment.(3)
    
    Represents the value of unvested and accelerated stock options by multiplying the
number of such options by the excess of the fair market value of a share of the Companys
common stock on the date of termination over the exercise price of the stock option. 17




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##### Table of Contents



TABLE OF POTENTIAL PAYMENTS TO MS. FRATIANNE
 Termination by
    
    
    
    
    
    
    
    
    
    PaymentsCompany with
    
    
    
    
    
    
    
    
    
    Upon CertainCause or by Ms.
    
    
    
    
    
    
    
    
    
    TerminationsFratianne
    
    Termination by
    
    Termination
    
    Following awithout Good
    
    Company
    
    upon Death or
    
    Change inReason
    
    without Cause
    
    Disability
    
    ControlExecutive Payments
    
    ($)
    
    ($)
    
    ($)
    
    ($)Base Salary (Severance Payment)
    
    
    
    
    
    
    32,500
    (1)
    
    
    
    
    
    
    Total Annual Compensation (Severance Payment)
    
    
    
    
    
    
    --
    
    
    
    
    
    
    
    140,622
    (2)Stock Options (Acceleration of Vesting)(3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued Vacation Pay
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500Earned but Unpaid Incentive Compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Life Insurance, Medical, Health, Accident and Disability Benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,076Total value
    
    
    
    
    
    
    32,500
    
    
    
    
    
    
    
    154,198
 
 (1)
    
    Payable over three months in accordance with normal payroll practices.(2)
    
    Payable as follows: 50% in a lump-sump payment within 30 days after termination of
employment and 50% in 12 monthly installments beginning 30 days after termination of
employment.(3)
    
    Represents the value of unvested and accelerated stock options by multiplying the
number of such options by the excess of the fair market value of a share of the Companys
common stock on the date of termination over the exercise price of the stock option. Agreements with Departed Executives
     18




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##### Table of Contents



Director Compensation
   
    
    $1,500 for each Board meeting attended (provided such fee is reduced to $500 for
telephonic meetings lasting less than two hours);
    
    $750 for each committee meeting attended (provided such Committee meeting is not on
the same day as a Board meeting and provided that such fee is reduced to $500 for
telephonic meetings lasting less than two hours);
    
    an annual retainer of $25,000 for the Chairman of the Board of Directors;
    
    an annual retainer of $4,000 for the Chairman of the Audit Committee;
    
    an annual retainer of $2,000 for the Chairman of the Compensation Committee; and
    
    an annual retainer of $2,000 for the Chairman of the Nominating and Corporate
Governance Committee; and
   DIRECTOR COMPENSATION FOR 2006
 Fees Earned
    
    Optionin Cash
    
    Awards
    
    TotalName
    
    ($)
    
    ($)(1)
    
    ($)Thomas W. Huseby(2)
    
    
    12,500
    
    
    
    
    
    
    
    12,500Kenneth E. Jones(3)
    
    
    16,500
    
    
    
    
    
    
    
    16,500Curtis A. Loveland(4)
    
    
    9,000
    
    
    
    
    
    
    
    9,000Gerard B. Moersdorf, Jr.(5)
    
    
    25,750
    
    
    
    
    
    
    
    25,750Richard W. Oliver(6)
    
    
    1,500
    
    
    
    
    
    
    
    1,500Alexander B. Trevor(7)
    
    
    14,500
    
    
    
    
    
    
    
    14,500
 
 (1)
    
    Represents the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with FAS 123R, disregarding any
estimate of forfeitures during the year, but accounting for any actual forfeitures by a
non-employee director during the fiscal year. For a discussion of the assumptions made in the
valuation of the dollar amount recognized, please refer to Note 1 to the Companys 19




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##### Table of Contents



Financial Statements, which are set forth in Item 8 to the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2006.(2)
    
    Mr. Huseby has options to purchase 46,000 shares of the Companys common stock as of
December 31, 2006.(3)
    
    Mr. Jones has options to purchase 10,000 shares of the Companys common stock as of
December 31, 2006.(4)
    
    Mr. Loveland has options to purchase 46,000 shares of the Companys common stock as
of December 31, 2006.(5)
    
    Mr. Moersdorf, Jr. has options to purchase 10,000 shares of the Companys common
stock as of December 31, 2006.(6)
    
    Mr. Oliver was not nominated for reelection at the 2006 Annual Meeting of
Shareholders. Mr. Oliver has options to purchase 46,000 shares of the Companys common stock
as of December 31, 2006.(7)
    
    Mr. Trevor has options to purchase 46,000 shares of the Companys common stock as of
December 31, 2006. Compensation Committee Interlocks and Insider Participation
  Compensation Committee Report
   
 
  Equity Compensation Plan Information
  20




---



##### Table of Contents



Number of securitiesremaining availableNumber of Securities
    
    
    
    
    
    
    for issuance underto be issued upon
    
    
    Weighted-average
    
    
    equity compensationexercise of
    
    
    exercise price of
    
    
    plans (excludingoutstanding options,
    
    
    outstanding options,
    
    
    securities reflected inwarrants and rights
    
    
    warrants and rights
    
    
    column (a))(a)
    
    
    (b)
    
    
    (c)Equity
compensation plans
approved by
security
holders(1)
    
    
    1,209,350
    
    
    $
    6.13
    
    
    
    868,350Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,209,350
    
    
    $
    6.13
    
    
    
    868,350
 
 (1)
    
    Equity compensation plans approved by stockholders include the 2001 Stock Incentive
Plan, the Amended and Restated 1996 Stock Option Plan and the Employee Stock Purchase Plan. Security Ownership by Principal Stockholders
  Name of
    
    Number of Shares
    
    PercentageBeneficial Owner(1)
    
    Beneficially Owned(2)
    
    of Class(3)Gerard B. Moersdorf, Jr.
    
    
    5,629,129
    (4)
    
    
    36.8
    %KEG Holdings, Inc.
    
    
    5,444,029
    (5)
    
    
    35.6
    %Linda S. Moersdorf
    
    
    2,122,779
    (6)
    
    
    13.9
    %FMR Corp.
    
    
    1,027,232
    (7)
    
    
    6.7
    %Systematic Financial Management, L.P.
    
    
    1,000,712
    (8)
    
    
    6.6
    %Thomas G. Berlin
    
    
    929,139
    (9)
    
    
    6.1
    %
 
 (1)
    
    The address of Gerard B. Moersdorf, Jr. is c/o Applied Innovation Inc., 5800
Innovation Drive, Dublin, Ohio 43016. The address for KEG Holdings, Inc. is 20010 Tanasbourne
Drive, Hillsboro, Oregon 97124. The address of Linda S. Moersdorf is 7091 Oakstream Court,
Worthington, Ohio 43235. The address for FMR Corp. is 82 Devonshire Street, Boston,
Massachusetts 02109. The address for Systematic Financial Management, L.P. is 300 Frank W.
Burr Blvd., Glenpointe East, 7th Floor, Teaneck, New Jersey 07666. The address of
Thomas G. Berlin is Berlin Financial, Ltd., 1325 Carnegie Ave., Cleveland, Ohio, 44115.(2)
    
    Beneficial ownership is determined in accordance with the rules of the Securities
and Exchange Commission which generally attribute beneficial ownership of securities to
persons who possess sole or shared voting power and/or investment power with respect to those
securities.(3)
    
    Percentage of Class is calculated by dividing the number of shares beneficially
owned by the total number of outstanding shares of the Company on March 19, 2007, plus the
number of shares such person has the right to acquire within 60 days of March 19, 2007. 21




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##### Table of Contents



(4)
    
    Includes 1,062 shares held in Mr. Moersdorf, Jr.s IRA and 10,000 shares which may
be purchased under stock options exercisable within 60 days of March 19, 2007. Under the rules
of the Securities and Exchange Commission, Mr. Moersdorf, Jr.s beneficial ownership of
5,629,129 shares also includes 2,121,716 shares held directly by his former spouse, Linda S.
Moersdorf, and 1,063 shares held by Linda S. Moersdorf in her IRA because he has been granted
an irrevocable proxy to vote such shares. Mr. Moersdorf, Jr. disclaims ownership of these
shares in which he has no pecuniary interest. Mr. Moersdorf, Jr. is also deemed to
beneficially own 185,100 shares held by a Voting Trust for the benefit of Mr. Moersdorf, Jr.s
children because he has been granted the right to vote such shares as Trustee of the Voting
Trust.(5)
    
    Based on information contained in a Schedule 13D filed with the Securities and
Exchange Commission on March 5, 2007, KEG Holdings, Inc. has shared voting power over
5,444,029 shares pursuant to certain Support Agreements, dated February 22, 2007, together
with an Irrevocable Proxy, with each of Gerard B. Moersdorf, Jr. and Linda S. Moersdorf.(6)
    
    Based on information contained in a Schedule 13G/A filed with the Securities and
Exchange Commission on February 12, 2004, and Ms. Moersdorfs Section 16(a) reports under the
Securities Exchange Act of 1934, as amended.(7)
    
    Based on information contained in a Schedule 13G/A filed with the Securities and
Exchange Commission on February 14, 2007, by FMR Corp. (FMR), Edward C. Johnson 3d, Fidelity
Management & Research Company (Fidelity) and Fidelity Low Priced Stock Fund (Fidelity
Fund). Fidelity is a wholly-owned subsidiary of FMR and, as an investment advisor, deemed to
beneficially own 1,027,232 shares or approximately 6.7% of the Companys common stock as a
result of acting as investment advisor to various investment companies including the Fidelity
Fund, which is deemed to beneficially own 1,027,232 shares or approximately 6.7% of the
Companys common stock. Mr. Johnson, along with other members of the Johnson family, through
their ownership of Class B voting common stock of FMR and the execution of a shareholders
voting agreement, are deemed to be a controlling group under the Investment Company Act of
1940 with respect to FMR and, thus, Mr. Johnson is deemed to beneficially own 1,027,232 shares
or 6.7% of the Companys common stock.(8)
    
    Based on information contained in a Schedule 13G filed with the Securities and
Exchange Commission on February 14, 2007.(9)
    
    Based on information contained in a Schedule 13D/A, filed with the Securities and
Exchange Commission on February 13, 2007 by Thomas G. Berlin (Mr. Berlin), who is the
managing member of the general partner of Berlin Capital Growth, L.P. (Berlin Capital
Growth) and the managing member of various privately managed accounts (the Privately Managed
Accounts). Mr. Berlin shares voting and dispositive power with Berlin Capital Growth, which
holds 311,877 shares and the Privately Managed Accounts, which collectively hold 617,262
shares of the Companys common stock. Security Ownership of Management
  22




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##### Table of Contents



Number of Shares
    
    PercentageName of Beneficial Owner
    
    Beneficially Owned(1)
    
    of Class(2)Gerard B. Moersdorf, Jr.(3)
    
    
    5,629,129
    
    
    
    36.8
    %Julia A. Fratianne(4)
    
    
    6,000
    
    
    
    *Thomas W. Huseby(5)
    
    
    58,000
    
    
    
    *Kenneth E. Jones(6)
    
    
    10,000
    
    
    
    *Eric W. Langille(7)
    
    
    69,738
    
    
    
    *William H. Largent(8)
    
    
    54,000
    
    
    
    *Curtis A. Loveland(9)
    
    
    83,600
    
    
    
    *Alexander B. Trevor(10)
    
    
    57,000
    
    
    
    *All directors and executive officers
as a group (8 persons)(11)
    
    
    5,967,467
    
    
    
    38.3
    %
 
 (1)
    
    For purposes of the above table, a person is considered to beneficially own any
shares with respect to which he exercises sole or shared voting or investment power or as to
which he has the right to acquire the beneficial ownership within 60 days of March 19, 2007.
Unless otherwise indicated, voting power and investment power are exercised solely by the
person named above or shared with members of that persons household.(2)
    
    Percentage of Class is calculated by dividing the number of shares beneficially
owned by the total number of outstanding shares of the Company on March 19, 2007, plus the
number of shares such person has the right to acquire within 60 days of March 19, 2007. An *
indicates less than 1%.(3)
    
    Includes 1,062 shares held in Mr. Moersdorf, Jr.s IRA and 10,000 shares which may
be purchased under stock options exercisable within 60 days of March 19, 2007. Under the rules
of the Securities and Exchange Commission, Mr. Moersdorf, Jr.s beneficial ownership of
5,629,129 shares also includes 2,121,716 shares held directly by his former spouse, Linda S.
Moersdorf, and 1,063 shares held by Linda S. Moersdorf in her IRA because he has been granted
an irrevocable proxy to vote such shares. Mr. Moersdorf, Jr. disclaims ownership of these
shares in which he has no pecuniary interest. Mr. Moersdorf, Jr. is also deemed to
beneficially own 185,100 shares held by a Voting Trust for the benefit of Mr. Moersdorf, Jr.s
children because he has been granted the right to vote such shares as Trustee of the Voting
Trust.(4)
    
    Includes 6,000 shares which may be purchased under stock options exercisable within
60 days of March 19, 2007.(5)
    
    Includes 55,000 shares which may be purchased under stock options exercisable
within 60 days of March 19, 2007.(6)
    
    Includes 10,000 shares which may be purchased under stock options exercisable within
60 days of March 19, 2007.(7)
    
    Includes 68,000 shares which may be purchased under stock options exercisable
within 60 days of March 19, 2007.(8)
    
    Includes 53,000 shares which may be purchased under stock options exercisable
within 60 days of March 19, 2007.(9)
    
    Includes 55,000 shares which may be purchased under stock options exercisable within
60 days of March 19, 2007 and 600 shares held in Mr. Lovelands IRA.(10)
    
    Includes 55,000 shares which may be purchased under stock options exercisable
within 60 days of March 19, 2007.(11)
    
    Includes 312,000 shares which may be purchased under stock options exercisable
within 60 days of March 19, 2007. 23




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##### Table of Contents



Changes in Control
    
  Transactions with Related Persons
 LLP
  Director Independence
  24




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##### Table of Contents



INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
  2006
    
    2005Audit Fees
    
    $
    171,000
    
    
    $
    144,000Audit-Related Fees
    
    $
    2,800
    (1)
    
    $
    2,000
    (1)Tax Fees
    
    $
    36,500
    (2)
    
    $
    33,000
    (2)All Other Fees
    
    $
    
    
    
    $
    
 
 (1)
    
    Consists of fees for additional services related to the Companys response to an SEC
comment letter.(2)
    
    Consists of fees for services related to tax compliance and tax planning. de
minimus de minimus
 
   EXHIBIT NO.
    
    DESCRIPTION2.1
    
    Amended and Restated Certificate of Incorporation of the Company. (Reference is
made to Appendix C to the Companys Definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders held on April 26, 2001, filed with the Securities and Exchange
Commission on March 23, 2001, and incorporated herein by reference).3.2
    
    By-laws of the Company, as amended. (Reference is made to Exhibit 3.2 to the
Companys Registration Statement on Form 10-SB, filed with the Securities and Exchange
Commission on March 10, 1993, and incorporated herein by reference).10.1
    
    Form of Indemnification Agreement between the Company and officers and
directors. (Reference is made to Exhibit 10.8 to the Companys Annual Report on Form
10-K, filed with the Securities and Exchange Commission on March 31, 1994, and
incorporated herein by reference).10.2
    
    Schedule of Indemnification Agreements. (Reference is made to Exhibit 10.2 to
the Companys Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 23, 2007, and incorporated herein by reference).
 25




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##### Table of Contents



EXHIBIT NO.
    
    DESCRIPTION10.3
    
    Companys Amended and Restated 1996 Stock Option Plan. (Reference is made to
Exhibit 10.11 to the Companys Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on March 30, 2000, and incorporated herein by reference).10.4
    
    Employment Agreement between the Company and Gerard B. Moersdorf, Jr.
(Reference is made to Exhibit 10.10 to the Companys Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 27, 2001, and incorporated herein
by reference).10.5
    
    Employment Agreement between the Company and Michael P. Keegan. (Reference is
made to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on May 12, 2004, and incorporated herein by
reference).10.6
    
    Employment Agreement between the Company and Eric W. Langille. (Reference is
made to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on November 14, 2001, and incorporated herein by
reference).10.7
    
    Companys 2001 Stock Incentive Plan. (Reference is made to Appendix B to the
Companys Definitive Proxy Statement for the 2001 Annual Meeting of Stockholders held
on April 26, 2001, filed with the Securities and Exchange Commission on March 23, 2001,
and incorporated herein by reference).10.8
    
    Form of Option Agreement under the Companys 2001 Stock Incentive Plan
(Reference is made to Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the Securities and Exchange Commission on January 5, 2005, and incorporated herein
by reference).10.9
    
    Companys Employee Stock Purchase Plan. (Reference is made to Appendix A to the
Companys Definitive Proxy Statement for the 2002 Annual Meeting of Stockholders held
on April 25, 2002, filed with the Securities and Exchange Commission on March 22, 2002,
and incorporated herein by reference).10.10
    
    Employment Agreement between the Company and John F. Petro. (Reference is made
to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on August 14, 2002, and incorporated herein by
reference).10.11
    
    Employment Agreement between the Company and Thomas R. Kuchler. (Reference is
made to Exhibit 10.12 to the Companys Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 8, 2004, and incorporated herein by
reference).10.12
    
    Employment Agreement between the Company and Andrew J. Dosch. (Reference is
made to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q, filed with the
Securities and Exchange Commission on May 12, 2004, and incorporated herein by
reference).10.13
    
    Employment Agreement between the Company and Angela R. Pinette. (Reference is
made to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the
Securities and Exchange Commission on October 4, 2004, and incorporated herein by
reference).10.14
    
    Letter Agreement between the Company and Michael P. Keegan (Reference is made
to Exhibit 10.14 of the Companys Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on March 7, 2005, and incorporated herein by reference).10.15
    
    Letter Agreement between the Company and Gerard B. Moersdorf, Jr. (Reference
is made to Exhibit 10.15 of the Companys Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 7, 2005, and incorporated herein by
reference).10.16
    
    Material Terms of the Consulting Arrangement between the Company and Gerard B.
Moersdorf, Jr. (Reference is made to Exhibit 10.1 to the Companys Current Report on
Form 8-K, filed with the Securities and Exchange Commission on February 11, 2005, and
incorporated herein by reference).10.17
    
    Employment Agreement between the Company and William H. Largent (Reference is
made to Exhibit 10.1 to the Companys Current Report on Form 8-K/A, filed with the
Securities and Exchange Commission on February 11, 2005, and incorporated herein by
reference).
 26




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##### Table of Contents



EXHIBIT NO.
    
    DESCRIPTION10.18
    
    Separation Agreement and Release of All Claims between the Company and Michael
P. Keegan (Reference is made to Exhibit 10.1 to the Companys Current Report on Form
8-K, filed with the Securities and Exchange Commission on March 11, 2005, and
incorporated herein by reference).10.19
    
    Description of the Material Terms of the Companys 2005 Management Bonus
Program (Reference is made to Exhibit 10.1 to the Companys Current Report on Form 8-K,
filed with the Securities and Exchange Commission on July 20, 2005, and incorporated
herein by reference).10.20
    
    Separation Agreement and Release of All Claims between the Company and Andrew
J. Dosch (Reference is made to Exhibit 10.1 to the Companys Current Report on Form
8-K, filed with the Securities and Exchange Commission on September 8, 2005, and
incorporated herein by reference).10.21
    
    Separation Agreement and Release of All Claims between the Company and Thomas
R. Kuchler (Reference is made to Exhibit 10.1 to the Companys Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 30, 2005, and
incorporated herein by reference).10.22
    
    Employment Agreement between the Company and Julia Fratianne (Reference is
made to Exhibit 10.1 to the Companys Current Report on Form 8-K, filed with the
Securities and Exchange Commission on December 21, 2005, and incorporated herein by
reference).10.23
    
    Form of Restricted Stock Award Agreement under the Companys 2001 Stock
Incentive Plan (Reference is made to Exhibit 10.1 to the Companys Current Report on
Form 8-K filed with the Securities and Exchange Commission on February 9, 2006, and
incorporated herein by reference).10.24
    
    Employment Agreement between the Company and William L. Pollack (Reference is
made to Exhibit 10.2 to the Companys Current Report on Form 8-K, filed with the
Securities and Exchange Commission on February 9, 2006, and incorporated herein by
reference).10.25
    
    Description of Base Salaries and the Material Terms of the Companys 2006
Management Bonus Program (Reference is made to Exhibit 10.1 to the Companys Current
Report on Form 8-K, filed with the Securities and Exchange Commission on February 15,
2006, and incorporated herein by reference).23
    
    Consent of KPMG LLP (Reference is made to Exhibit 23 to the Companys Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on March 23,
2007, and incorporated herein by reference).24
    
    Power of Attorney (Reference is made to Exhibit 24 to the Companys Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on March 23,
2007, and incorporated herein by reference).31.1*
    
    Rule 13a-14(a) Certification of Principal Executive Officer.31.2*
    
    Rule 13a-14(a) Certification of Principal Financial Officer
 
 *
    
    Filed with this Amendment No. 1 to Annual Report on Form 10-K/A. 27




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##### Table of Contents



SIGNATURES
  APPLIED INNOVATION INC.
 Date: April 30, 2007
    By:
    /s/ William H. LargentWilliam H. LargentChief Executive Officer and Director  Signature
    
    Title/s/ William H. Largent
    
    William H. Largent
Chief Executive Officer and Director
(Principal Executive Officer)
April 30, 2007/s/ Julia A. Fratianne
    
    Julia A. Fratianne 
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Principal Accounting Officer)
April 30, 2007* Gerard B. Moersdorf, Jr.
    
    Gerard B. Moersdorf, Jr. |  Chairman of the Board   |  April 30, 2007* Thomas W. Huseby
    
    Thomas W. Huseby   |  Director  |  April 30, 2007* Kenneth E. Jones
    
    Kenneth E. Jones  |   Director |  April 30, 2007* Curtis A. Loveland
    
    Curtis A. Loveland   |  Director  |  April 30, 2007* Alexander B. Trevor
    
    Alexander B. Trevor | Director   |  April 30, 2007*By: /s/ William H. Largent
    
    William H. Largent (Attorney-in-Fact)
 28