UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No.  )

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FuelCell Energy, Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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3 Great Pasture Road
Danbury, CT 06813
203-825-6000

		February 9, 2011

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of FuelCell Energy, Inc. (“FuelCell”), which will be held on Thursday, April 7, 2011 at 10:00 a.m. Eastern Standard Time, at the Danbury Plaza Hotel & Conference Center located at 18 Old Ridgebury Road, Danbury, Connecticut. The formal Notice of Annual Meeting and Proxy Statement, fully describing the matters to be acted upon at the meeting, appear on the following pages.

On a personal note, I have been a member of the FuelCell Energy team for 10 years and its President for five years. During that time, the Company made great strides toward its objectives. We have significantly reduced our product costs, expanded our global market presence, and increased our product and service backlog to record levels while continuously improving the performance of our products. We now have the opportunity to move into a commercial period where we aggressively increase sales volume. I decided to retire as President and Chief Executive Officer of FuelCell Energy in February, but will remain as Chairman until the Annual Meeting of Shareholders. The Board of Directors has unanimously elected Arthur Bottone as its new President and Chief Executive Officer.

The Board of Directors recommends the approval of the proposals being presented at the Annual Meeting of Shareholders as being in the best interest of FuelCell. We urge you to read the Proxy Statement and give these proposals your careful attention.

Shareholders can help avoid the necessity and expense of further solicitation to ensure that a quorum is present at the Annual Meeting by promptly voting their shares.

Your vote is important regardless of the number of shares you own. Whether or not you plan to attend the meeting, please take the time to vote in one of these ways:

1.

Vote by Internet: Go to www.proxyvote.com. Have your 12-Digit Control Number from your proxy card or notice when you access the web site and follow the simple instructions.

2.

Vote by Telephone: Call toll-free 1-800-690-6903. Have your 12-Digit Control Number from your proxy card or notice when you call and follow the simple instructions.

3.

Vote by Mail: If you received a proxy card, please vote, sign, date and mail it without delay to ensure its receipt by 11:59 P.M. (Eastern Standard Time) on April 6, 2011.

You may attend the meeting and vote in person even if you have previously voted by proxy in one of the three ways listed above.

On behalf of the Company’s Board of Directors and management, I would like to thank you for your interest in FuelCell Energy.

		Sincerely yours,
		R. Daniel Brdar
		Chairman

CONTENTS

Section		Page
Notice of 2011 Annual Meeting of Shareholders
Proxy Statement			1
• Proposal No. 1 — Election of Directors			2
Biographies for Board of Directors and Director Nominee			3
Biographies for Executive Officers who are not Directors			7
Board of Directors and Committees			8
Executive Compensation			13
Compensation Committee Report			13
Compensation Discussion and Analysis			13
Summary Compensation Table			22
Grant of Plan-based Awards Table			24
Outstanding Equity Awards at Fiscal Year-End Table			26
Option Exercises and Stock Vested			27
Director Compensation			33
Director Compensation Table for Fiscal 2010			34
Security Ownership of Certain Beneficial Owners and Management			35
Equity Compensation Plan Information			38
Audit and Finance Committee Report			39
Independent Registered Public Accounting Firm Fees			39
• Proposal No. 2 — Ratification of Selection of Independent Registered Public Accounting Firm for fiscal 2011			40
• Proposal No. 3 — Amendment of the FuelCell Energy, Inc. Amended and Restated Section 423 Stock Purchase Plan			41
• Proposal No. 4 — Amendment of the FuelCell Energy, Inc. Articles of Incorporation			43
Executive Compensation
• Proposal No. 5 — Advisory Vote on Executive Compensation			45
• Proposal No. 6 — Advisory Vote on the Frequency of the Shareholder Advisory Vote on Executive Pay			45
Additional Information and Other Matters			46
Annex A — Amended & Restated Section 423 Stock Purchase Plan
• Item will be voted on at the meeting

FUELCELL ENERGY, INC.

3 Great Pasture Road
Danbury, CT 06813
203-825-6000

NOTICE OF 2011 ANNUAL MEETING OF SHAREHOLDERS

TO THE SHAREHOLDERS OF FUELCELL ENERGY, INC.

NOTICE IS HEREBY GIVEN that the Annual Shareholders’ Meeting of FuelCell Energy, Inc. (the “Company” or “FuelCell”), will be held at the Danbury Plaza Hotel & Conference Center located at 18 Old Ridgebury Road, Danbury, Connecticut on Thursday, April 7, 2011 at 10:00 a.m. Eastern Standard Time for the following purposes:

1.

To elect eight (8) directors to serve for the ensuing year and until their successors are duly elected and qualified;

2.

To ratify the selection of the independent registered public accounting firm for fiscal 2011;

3.

To amend the FuelCell Energy, Inc. Amended and Restated Section 423 Stock Purchase Plan;

4.

To amend the FuelCell Energy, Inc. Articles of Incorporation increasing its authorized common stock from 150,000,000 to 225,000,000 shares;

5.

To vote, on an advisory basis, on the compensation of the Company’s Named Executive Officers as set forth in the Executive Compensation section of this Proxy Statement;

6.

To vote, on an advisory basis, on the frequency with which future advisory votes on the compensation of the Company’s Named Executive Officers will be conducted; and

7.

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

Shareholders of record at the close of business on February 15, 2011 are entitled to vote at the meeting.

If you plan on attending the meeting, please call FuelCell at (203) 825-6102. Directions to the Danbury Plaza Hotel & Conference Center are available on the Company’s web site at www.fuelcellenergy.com.

Your attention is directed to the attached Proxy Statement. If you do not expect to be present at the meeting, please vote your shares according to the instructions on your Notice of Internet Availability of Proxy Materials (NOIA) or proxy card. Any proxy may be revoked by delivery of a later dated proxy. Shareholders of record who attend the annual meeting may vote in person even if they have previously delivered a signed proxy.

		BY ORDER OF THE BOARD OF DIRECTORS
		JOSEPH G. MAHLER
		CORPORATE SECRETARY

Danbury, Connecticut
February 9, 2011

FUELCELL ENERGY, INC.
3 Great Pasture Road
Danbury, CT 06813

		February 9, 2011

PROXY STATEMENT

This Proxy Statement is furnished to the shareholders of FuelCell Energy, Inc. (the “Company”) in connection with the solicitation of proxies by the Board of Directors of the Company to be voted at the 2011 Annual Meeting of Shareholders (the “Annual Meeting”) and at any adjournment thereof. The Annual Meeting will be held at the Danbury Plaza Hotel & Conference Center located at 18 Old Ridgebury Road, Danbury, Connecticut on Thursday, April 7, 2011 at 10:00 a.m. Eastern Standard Time. The Company is a Delaware corporation. The Board of Directors has set the close of business on February 15, 2011 as the record date for the determination of stockholders of the Company’s common stock, par value $0.0001 per share, who are entitled to notice of and to vote at the Annual Meeting. As of February 15, 2011 there were [     ] shares of common stock outstanding and entitled to vote on all matters at the Annual Meeting. Holders of common stock outstanding at the close of business on the record date will be entitled to one vote for each share held by them on the record date.

The approximate date on which this Proxy Statement and the accompanying proxy card are first being sent or given to shareholders is February 25, 2011.

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

Eight directors are to be elected at the Annual Meeting, each to hold office until the next annual meeting of shareholders and until a successor is elected and qualified. It is the intention of the persons named in the enclosed form of proxy to vote, if authorized, for the election of the eight nominees named below as directors. All of the nominees, with the exception of Arthur A. Bottone, are present directors of the Company. Messrs. Brdar and Kempner have determined not to stand for re-election as Directors at the 2011 Annual Meeting of Shareholders. If any nominee declines or is unable to serve as a director (which is not anticipated), the persons named as proxies reserve full discretion to vote for any other person who may be nominated.

Director Qualifications and Biographies

In nominating individuals to become members of the Company’s Board of Directors, the Nominating and Corporate Governance Committee strives to achieve Board participation that represents a diverse mix of skills, qualifications, experience, perspectives, talents, backgrounds and education that will assist the Board of Directors in fulfilling its responsibilities, oversee management’s execution of strategic objectives, and represent the interests of all of the Company’s stockholders.

No less than two-thirds of the Company’s Board of Directors are considered Independent Directors as such term is defined in Nasdaq Rule 4200(a)(15).

Further information about the Company’s corporate governance practices, the responsibilities and functioning of the Board and its committees, director compensation and related party transactions is found throughout this proxy statement.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE PROPOSAL TO ELECT EACH OF THE EIGHT NOMINEES LISTED BELOW AS DIRECTORS OF THE COMPANY.

Following are the names and ages of each nominee for election as a director, the principal occupation of each, the year in which first elected a director of the Company (for those nominees that are current directors), the business experience of each for at least the past five years and certain other information concerning each of the nominees.

ARTHUR A. BOTTONE
Principal Occupation: President and Chief Executive Officer
Director Nominee
Age 50

Mr. Bottone joined FuelCell Energy in February 2010 as Senior Vice President and Chief Commercial Officer and was promoted to President and CEO in February 2011. Prior to joining FuelCell Energy, Mr. Bottone was President of the Energy Systems business at Ingersoll Rand Company. Mr. Bottone’s focus is to accelerate revenue growth and profitability by capitalizing on heightened demand by the world’s industrialized and emerging nations for clean and renewable energy. He is responsible for developing and implementing strategies to further expand the Company’s market opportunities and growth potential. Mr. Bottone’s qualifications include 25 years of experience at Ingersoll Rand Company, a diversified global industrial concern. Mr. Bottone received an undergraduate degree in Mechanical Engineering from Georgia Institute of Technology in 1983, and received a Certificate of Professional Development from The Wharton School, University of Pennsylvania in 2004. Mr. Bottone has extensive experience in global commercialization activities that deliver profitable growth.

RICHARD A. BROMLEY
Principal Occupation: Retired Vice President — Law and Government for AT&T
Director since 2007
Age 76

Mr. Bromley retired as Vice President — Law and Government Affairs at AT&T. During his 38-year career at AT&T, he served as an attorney for Pacific Northwest Bell, Western Electric, Bell Labs, and as a general attorney in AT&T’s New York headquarters. As VP-Law and Government Affairs, Mr. Bromley was responsible for all of AT&T’s legal, regulatory and governmental matters west of the Mississippi. He is a member of the bar in California, New York, Washington, and Oregon, as well as the United States Supreme Court. Mr. Bromley brings executive leadership experience and valuable perspective due to his background in law and governmental affairs.

JAMES HERBERT ENGLAND
Principal Occupation: Chief Executive Officer of Stahlman-England Irrigation Inc.
Director since 2008
Age 64

Mr. England is a Corporate Director and the CEO of Stahlman-England Irrigation Inc., a multi-service company, and HEMS, LLC, an investment partnership. Prior to that, Mr. England spent 4 years as Chairman, President and CEO of Sweet Ripe Drinks, Ltd., a fruit beverage company. Prior to that, he spent 18 years at John Labatt Ltd., a $5 billon public company, and served as the company’s CFO from 1990-1993. Mr. England started his career with Arthur Andersen & Co. in Toronto after serving in the Canadian infantry. Mr. England is a director of Enbridge Inc., Enbridge Energy Management, LLC, Enbridge Energy Company, Inc. and is a past member of the board of directors of John Labatt Ltd., Canada Malting Co., Ltd., and the St. Clair Paint and Wallpaper Corporation. Among other qualifications, Mr. England has executive leadership experience including an in-depth understanding of corporate and international finance. He also has a deep insight into the energy industry and the needs, challenges and global opportunities of the Company in particular.

JAMES D. GERSON
Principal Occupation: Private Investor
Director since 1992
Age 67

Mr. Gerson is a member of the Board of several public and private companies including I-Light Technologies, Zipcar, Inc. and VE Enterprises. He is also Chairman of the Board of Evercel, Inc., a holding company. Prior to its 2007 merger with Schneider Electric, Mr. Gerson served as a Director of American Power Conversion Corp. Mr. Gerson was previously a Vice President of Fahnestock & Co., Inc. (now Oppenheimer & Co.), where he held a variety of positions in corporate finance, research and portfolio management. Among other qualifications, Mr. Gerson brings senior leadership experience, including a substantial understanding of capital markets and asset management, and an in-depth understanding of technology industries.

WILLIAM A. LAWSON
Principal Occupation: Retired Chairman of the Board of Newcor, Inc.
Director since 1988
Age 77

Mr. Lawson was the Chairman of the Board of Newcor, which designed and manufactured products principally for the automotive, heavy-duty, agricultural and industrial markets and focused on two core competencies: precision machined components and molded rubber and plastic products. Newcor operated six companies with 1,000 employees and now operates as part of EXX, Inc. Mr. Lawson was also President of W.A. Lawson Associates, an industrial and financial consulting firm. Among other qualifications, Mr. Lawson has executive leadership experience as a chairman of a manufacturing company. He also has financial expertise and a broad understanding of industrial technology.

GEORGE K. PETTY
Former President and Chief Executive Officer of Telus Corporation
Director since 2003
Age 69

Mr. Petty was the President and Chief Executive Officer of Telus Corporation, which is Canada’s second largest telecommunications company. Previously, Mr. Petty was Vice President of Global Business Service for AT&T and Chairman of the Board of World Partners, the Global Telecom Alliance. Mr. Petty is a Director of Enbridge Inc., Enbridge Energy Partners, LLC, Enbridge Energy Management, LLC and Enbridge Energy Company, Inc. Enbridge is a global energy transportation and distribution company with $16.5 billion (Canadian) in sales. Among other qualifications, Mr. Petty has executive leadership experience including his service as Chairman of a public company, as well as extensive expertise in the telecommunications and energy industries.

JOHN A. ROLLS
Principal Occupation: Managing Partner Core Capital Group, a private investment partnership
Director since 2000
Lead independent director since 2007
Age 69

Mr. Rolls is Managing Partner of Core Capital Group, a private investment partnership. Previously, Mr. Rolls was the President and Chief Executive Officer of Deutsche Bank North America, Executive Vice President and Chief Financial Officer of United Technologies, Senior Vice President and Chief Financial Officer of RCA and Treasurer, Monsanto Company. Mr. Rolls is a Director of EDAC Technologies. Among other qualifications, Mr. Rolls has executive leadership experience as President and Chief Executive Officer of a leading global investment bank and Executive Vice President and Chief Financial Officer of a major public company. Mr. Rolls also has extensive financial expertise and a broad understanding of advanced technologies.

TOGO DENNIS WEST, JR.
Principal Occupation: Chairman of Noblis, Inc. and the TLI Leadership Group
Director since 2008
Age 68

Mr. West was U.S. Secretary of the Army from 1993 to 1998 and U.S. Secretary of Veterans Affairs from 1998-2000. He has practiced law as a partner in the New York law firm of Patterson Belknap Webb and Tyler and was counsel to the D.C. based law firm of Covington & Burling. Mr. West also served as General Counsel to the Departments of Defense and the Navy. Prior to his appointment with the Army, he was Senior Vice President for Government Affairs with Northrop Corporation. More recently, he was President and CEO of the Joint Center for Political and Economic Studies. Mr. West is Chairman of TLI Leadership Group and serves on the boards of Krispy Kreme Doughnuts, Inc., AbitibiBowater Inc. and Bristol-Myers Squibb. Among other qualifications, Secretary West has executive leadership experience as Senior Vice President of an international aircraft manufacturing company. He also brings an extensive background in the military, government, and legal profession to the Company.

Mr. R. Daniel Brdar and Mr. Thomas L. Kempner will not be standing for re-election to the Board of Directors of FuelCell Energy, Inc.

R. DANIEL BRDAR
Principal Occupation: Chairman of the Board of Directors
Director since 2005
Age 51

Mr. Brdar has been Chairman of the Board of Directors since January 2007, Chief Executive Officer since January 2006, and President since August 2005. Mr. Brdar, previously FuelCell Energy’s Executive Vice President and Chief Operating Officer, joined the Company in 2000. Mr. Brdar held management positions at General Electric Power Systems from 1997 to 2000 where he focused on new product introduction programs and was product manager for its gas turbine technology. Mr. Brdar was Associate Director, Office of Power Systems Product Management at the U.S. Department of Energy where he held a variety of positions from 1988 to 1997 including directing the research, development and demonstration of advanced power systems including gas turbines, gasification systems and fuel cells. Mr. Brdar received a B.S. in Engineering from the University of Pittsburgh in 1981. Among other qualifications, Mr. Brdar has executive leadership experience, including management positions at General Electric and his service as associate director within the U.S. Department of Energy. Mr. Brdar has extensive experience in research and development and manufacturing industries.

THOMAS L. KEMPNER
Principal Occupation: Chairman and Chief Executive Officer of Loeb Partners Corporation
Director since 1988
Age 83

Mr. Kempner has been Chairman and Chief Executive Officer of Loeb Partners Corporation, an investment firm, since 1979 and a general partner of Loeb Investors Co. LXXV, an investment partnership and an affiliate of Loeb Partners Corporation. Mr. Kempner is a Director of IGENE BioTechnology, Inc., Dyax Corporation, Intersections, Inc., Loeb Holding Corporation, Loeb Management Holding LLC, Carl M. Loeb & Co. LLC, Carl M. Loeb Management Holding LLC and Director Emeritus of Northwest Airlines, Inc. Mr. Kempner has executive leadership experience as chief executive officer of an investment firm, brings extensive experience in capital markets and has a broad understanding of advanced technology.

BIOGRAPHIES OF EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS

CHRISTOPHER R. BENTLEY
Principal Occupation: Executive Vice President, Government R&D Operations, Strategic Manufacturing Development
Age 68

Mr. Bentley has been responsible for Government Research and Development Operations and Strategic Manufacturing Development since January of 2005. He joined the Company in 1990 to develop manufacturing and operations capabilities in support of the Direct Fuel Cell commercialization initiative. He served on the Board of Directors from 1993 to 2004. Prior to joining the Company, he was Director of Manufacturing (1985), Vice-President and General Manager (1985-1988) and President (1989) of the Turbine Airfoils Division of Chromalloy Gas Turbine Corporation, a major manufacturer of gas turbine hardware. From 1960 to 1985 he was with the General Electric Company. Mr. Bentley received a B.S. in Mechanical Engineering from Tufts University in 1966.

JOSEPH G. MAHLER
Principal Occupation: Senior Vice President, Chief Financial Officer, Corporate Secretary, Treasurer, Corporate Strategy
Age 58

Mr. Mahler joined the Company in October 1998 as Vice President, Chief Financial Officer, Corporate Secretary, and Treasurer. Mr. Mahler’s responsibilities include finance, accounting, corporate governance, strategy, treasury, information systems and human resources. Mr. Mahler was Vice President-Chief Financial Officer at Earthgro, Inc. from 1993 to 1998 and worked at Ernst & Young in the New York and Hartford offices from 1974 to 1992. Mr. Mahler was a partner in the Hartford office’s Entrepreneurial Services Group. Mr. Mahler received a B.S. in Accounting from Boston College in 1974 and is a CPA.

ANTHONY F. RAUSEO
Principal Occupation: Senior Vice President and Chief Operating Officer
Age 51

Mr. Rauseo was appointed Chief Operating Officer in July 2010. In this position, Mr. Rauseo has responsibility for closely integrating the manufacturing operations with the supply chain, product development and quality initiatives. Mr. Rauseo joined the Company in 2005 as Vice President of Engineering and Chief Engineer. Prior to joining Fuel Cell Energy, Mr. Rauseo held a variety of key management positions in manufacturing, quality and engineering including five years with CiDRA Corporation. Prior to joining CiDRA, Mr. Rauseo was with Pratt and Whitney for 17 years where he held various leadership positions in product development, production and customer support of aircraft turbines. Mr. Rauseo received a Bachelor of Science in Mechanical Engineering from Rutgers University in 1983 and received a Masters of Science in Mechanical Engineering from Rensselaer Polytechnic Institute in 1987.

BOARD OF DIRECTORS AND COMMITTEES

Board Meeting Attendance

The Board of Directors held seven meetings during the fiscal year ended October 31, 2010. Each director attended at least 75% of the meetings of the Board of Directors and Board committees of which he was a member during the period he served as director.

Director Attendance at the Annual Meeting

The Company does not have a formal policy with respect to director attendance at annual meetings. In fiscal 2010, all directors attended the Company’s annual meeting.

Lead Independent Director

John Rolls serves in the role of Lead Independent Director, which was established by the Board of Directors in January 2007.

Independent Directors

The Board of Directors has determined that the following members of the Board are independent directors, in accordance with the director independence standards of the NASDAQ Stock Market, including in NASDAQ Rule 4200(a)(15): Richard A. Bromley, James Herbert England, James D. Gerson, Thomas L. Kempner, William A. Lawson, George K. Petty, John A. Rolls and Secretary Togo Dennis West Jr. The independent directors meet from time to time in executive session.

Board Committees

The Board of Directors has five standing committees: the Executive Committee, the Nominating and Corporate Governance Committee (the “Nominating Committee”), the Audit and Finance Committee, the Compensation Committee, and the Government Affairs Committee. These committees assist the Board of Directors to perform its responsibilities and make informed decisions. Messrs. Brdar and Kempner have determined not to stand for re-election as Directors at the 2011 Annual Meeting of Shareholders.

Nominating

Audit and

and Corporate

Government

Director

Finance

Compensation

Executive

Governance

Affairs

R. Daniel Brdar

Chair

Richard A. Bromley

X

Chair

J. H. England

X

X

James D. Gerson

Chair

X

Thomas L. Kempner

X

Chair

William A. Lawson

X

X

George K. Petty

X

Chair

John A. Rolls

X

X

Togo Dennis West, Jr.

X

X

Audit and Finance Committee

The Audit and Finance Committee is comprised of Messrs. Gerson (Chairman), England, Petty and Rolls. The principal duties of the Audit and Finance Committee are to oversee (i) management’s conduct of the Company’s financial reporting process, including reviewing the financial reports and other financial information provided by the Company, and reviewing the Company’s systems of internal accounting and financial controls, (ii) the Company’s independent auditors’ qualifications and independence and the audit and non-audit services provided to the Company and (iii) the performance of the Company’s independent auditors. The Audit and Finance Committee assists the Board in providing oversight as to the Company’s financial and related activities, including capital market transactions. The Audit and Finance Committee has a charter, a copy of which is available on the Company’s website at www.fuelcellenergy.com. The Audit and Finance Committee held eight meetings during fiscal 2010. The Audit and Finance Committee’s report appears on page 39 of this proxy statement.

Each of the Audit and Finance Committee members satisfies the definition of independent director and is financially literate as established in the NASDAQ Listing Standards. In accordance with Section 407 of the Sarbanes-Oxley Act of 2002, the Board has designated Mr. England as the Audit and Finance Committee’s “Audit Committee Financial Expert.”

Compensation Committee

The Compensation Committee is comprised of Messrs. Petty (Chairman), Bromley, Lawson and West. The members of the Compensation Committee are all independent directors under applicable NASDAQ rules and the Compensation Committee is governed by a Board-approved Charter stating its responsibilities. Members of the Compensation Committee are appointed by the Board of Directors.

Role and Responsibility. The Compensation Committee is responsible for reviewing and approving the compensation plans, policies and programs of the Company to compensate the officers and directors in a reasonable and cost-effective manner. The Compensation Committee’s overall objectives are to ensure the attraction and retention of superior talent, to motivate the performance of the executive officers in the achievement of the Company’s business objectives and to align the interests of the officers and directors with the long-term interests of the Company’s shareholders. To that end, it is the responsibility of the Compensation Committee to develop, approve and periodically review a general compensation policy and salary structure for executive officers of the Company, which considers business and financial objectives, industry and market pay practices and/or such other information as may be deemed appropriate. It is the responsibility of the Compensation Committee to review and recommend for approval by the independent directors of the Board the compensation (salary, bonus and other incentive compensation) of the Chief Executive Officer of the Company; review and approve the compensation (salary, bonus and other incentive compensation) of the other executive officers of the Company; review and approve perquisites offered to executive officers of the Company; review and approve corporate goals and objectives relevant to the compensation of executive officers of the Company and evaluate performance in light of the goals and objectives; and review and approve all employment, retention and severance agreements for executive officers of the Company. The Compensation Committee also reviews the management succession program for the Chief Executive Officer and selected executive officers of the Company.

The Compensation Committee acts on behalf of the Board in administering compensation plans approved by the Board, in a manner consistent with the terms of such plans (including, as applicable, the granting of stock options, restricted stock, stock units and other awards, the review of performance goals established before the start of the relevant plan year, and the determination of performance compared to the goals at the end of the plan year). The Committee reviews and makes recommendations to the Board with respect to new compensation incentive plans and equity-based plans; reviews and recommends the compensation (annual retainer, committee fees and other compensation) of the Directors of the Board to the full Board for approval; and reviews and makes recommendations to the Board on changes in major benefit programs of executive officers of the Company. The Compensation Committee has a charter, a copy of which is available on the Company’s website at www.fuelcellenergy.com.

Risk Assessment. To determine the level of risk arising from our compensation policies and practices, the Company conducted a compensation-related risk assessment and evaluation process during fiscal 2010 with oversight by the Compensation Committee. This assessment examined the compensation programs applicable to all of our employees, including, but not limited to, our executive officers. Areas of potential risk that were reviewed included: a) compensation program design; b) performance metrics and goal setting; c) administration procedures and controls; and d) communication and disclosure. The Company’s culture and values which emphasize ethical behavior, actions that contribute to building long-term value (rather than short-term performance), teamwork, the importance of non-financial and strategic performance and investment in people and infrastructure were also considered.

The Compensation Committee determined that base salaries, which represent fixed compensation, do not encourage excessive risk taking. The Compensation Committee reviewed the annual incentive award program and determined that while the focus of the annual incentive awards is on achievement of short-term goals, and short-term goals may encourage the taking of short-term risks at the expense of long-term results, the annual incentive compensation of NEOs represents a small portion of each employee’s total compensation package and is not likely to lead to outsized risk taking. Moreover, the Compensation Committee believes that the annual incentive awards appropriately balances risk and the desire to focus employees on specific short-term goals important to the Company’s success. Under the annual incentive award program for fiscal 2010, all payments were capped at 125% of target award opportunities and a minimum level of performance was clearly defined, below which awards would not be paid. The annual incentive award program is based on balanced, quantitative performance metrics that promote disciplined progress towards longer-term goals and, as such, are well-aligned with the business strategy and shareholder interests. For these reasons, the Compensation Committee determined that annual incentive awards do not encourage unnecessary or excessive risk taking.

The Compensation Committee also assessed the long-term equity incentive awards provided to our employees that are intended to align their interests with those of the Company’s shareholders. In reviewing the Company’s 2010 Equity Incentive Plan which governs the terms of such awards, the Compensation Committee noted the plan includes many provisions designed to mitigate risk and protect shareholder interests, including but not limited to the following:

•

Options and stock appreciation rights may not be priced at less than the fair market value of our common stock on the grant date;

•

The plan requires a minimum period for ratable vesting of options, shares of restricted stock and stock appreciation rights of three years for all time-based awards not issued to directors and one year for all performance-based awards, to the extent such awards may be paid in shares of our common stock. The minimum period for vesting is subject to the discretion of the Compensation Committee under certain circumstances (e.g., retirement, death, disability);

•

Re-pricing of options and stock appreciation rights requires shareholder approval;

•

Material amendments of the plan require shareholder approval; and

•

The plan is administered by an independent committee of our Board of Directors.

In addition, the Compensation Committee has adopted a Grant Administration Policy which imposes limits on the number of shares that can be granted to any employee.

With respect to the long-term equity incentive awards granted to our executives, the Compensation Committee identified a number of factors that discourage excessive risk taking including: the relative size of the awards as compared with the executive’s total compensation; the minimum vesting requirements; and the Company’s policy which prohibits all hedging transactions involving shares of the Company’s common stock so executives cannot insulate themselves from the effects of poor stock price performance. The Compensation Committee concluded that these awards do not encourage unnecessary or excessive risk taking since the ultimate value of the awards is tied to the Company’s stock price, and the awards are staggered and subject to long-term vesting schedules to help ensure that executives have significant value tied to long-term stock price performance.

Based upon the assessment, the Compensation Committee concluded that the risks arising from our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

Meetings. The Compensation Committee held six meetings during fiscal 2010. Compensation Committee agendas are established in consultation with the committee chair. The Compensation Committee meets in executive session after each meeting. The Compensation Committee’s report appears on page 13 of this proxy statement.

Executive Committee

The Executive Committee is comprised of Messrs. Brdar (Chairman), Kempner and Rolls. The Executive Committee, which held no meetings during fiscal 2010, is authorized to exercise the general powers of the Board between meetings of the Board of Directors.

Nominating and Corporate Governance Committee

The Nominating and Corporate Governance Committee is comprised of Messrs. Kempner (Chairman), Gerson, and Lawson. The members of the Nominating Committee are all independent directors under applicable NASDAQ rules. Members of the Nominating Committee are appointed by the Board of Directors. The principal duties of the Nominating Committee, in its capacity as a committee of the Board of Directors, are (i) to identify individuals qualified to become members of the Board of Directors and recommend the persons to be nominated by the Board of Directors for election as directors at the annual meeting of shareholders or elected as directors to fill vacancies, (ii) to review the Company’s corporate governance principles, assess and recommend to the Board any changes deemed appropriate, (iii) to periodically review, discuss and assess the performance of the Board and the Committees of the Board, (iv) to review the Board’s committee structure and make recommendations to the full Board concerning the number and responsibilities of Board committees and committee assignments, (v) to periodically review and report to the Board any questions of possible conflicts of interest or related party transactions involving Board members or members of senior management of the Company. The Nominating and Corporate Governance Committee has a charter, a copy of which is available on the Company’s website at www.fuelcellenergy.com.

The Nominating Committee will consider nominees for the Board of Directors recommended by shareholders. Nominations by shareholders must be in writing, and must include the full name of the proposed nominee, a brief description of the proposed nominee’s business experience for at least the previous five years, and a representation that the nominating stockholder is a beneficial or record owner of the Company’s common stock. Any such submission must also be accompanied by the written consent of the proposed nominee to be named as a nominee and to serve as director if elected. Nominations must be delivered to the Nominating Committee at the following address:

Nominating and Corporate Governance Committee
FuelCell Energy, Inc.
c/o Corporate Secretary
3 Great Pasture Road
Danbury, CT 06813

The Nominating Committee is required to review the qualifications and backgrounds of all directors and nominees (without regard to whether a nominee has been recommended by shareholders), as well as the overall composition of the Board of Directors, and recommend a slate of directors to be nominated for election at the annual meeting of shareholders, or, in the case of a vacancy on the Board of Directors, recommend a director to be elected by the Board to fill such vacancy. The Nominating Committee held two meetings during fiscal 2010.

Government Affairs Committee

The Government Affairs Committee is comprised of Messrs. Bromley (Chairman), England, and West. The principle purpose of the Government Affairs Committee is to (i) monitor and oversee the Company’s government affairs strategy and initiatives, including federal and state legislative and regulatory proceedings, as well as the Company’s ongoing relations with government agencies; and (ii) to advise the Board of the Company on performance in this regard. The Government Affairs Committee was established by the Board of Directors in December 2010 and therefore held no meetings in fiscal 2010.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee was an officer or employee of the Company during the fiscal year ended October 31, 2010. No executive officer or director of the Company had a relationship with the Company or any other company during fiscal 2010 which the SEC defines as a compensation committee interlock and requires disclosure to shareholders.

Mr. Petty, Chairman of the Compensation Committee, is a member of the Board of Directors of Enbridge Inc. (“Enbridge”), a distributor for the Company.

During fiscal year 2010, the Company recognized revenue of approximately $0.1 million related to spare part sales and power plant servicing provided to Enbridge. The Company believes that the terms of its transactions with Enbridge are no less favorable to the Company than it could have obtained from an unaffiliated third party. The Company also paid dividends to Enbridge of approximately $0.5 million under terms of the Series 1 Preferred Share agreement held by our Canadian subsidiary, FCE Ltd. In addition, we currently have an accrued dividend obligation totaling approximately $12.5 million due to Enbridge. The Company and Enbridge have been in negotiations to modify certain terms of the Series 1 preferred share agreement, and have agreed to extend the payment deadline to February 18, 2011 to continue these negotiations. Under the existing terms, FCE Ltd. has the option of meeting this obligation through a cash payment or with unregistered shares of FuelCell Energy, Inc. common stock. The Company is a guarantor of FCE Ltd’s obligations to Enbridge. Enbridge is currently negotiating new terms that, as proposed, may require payments in excess of those we believe we are obligated to pay. While the Company intends to achieve the most favorable outcome in light of its obligations under the Series 1 preferred shares, it can not presently predict the final terms of any agreement with Enbridge.

Risk Oversight

Our Board has overall responsibility for the oversight of risk management at our Company. Day to day risk management is the responsibility of management, which has implemented processes to identify, assess, manage and monitor risks that face our Company. Our Board, either as a whole or through its Committees, regularly discusses with management our major risk exposures, their potential impact on our Company, and the steps we take to monitor and control such exposures.

While our Board has general oversight responsibility for risk at our Company, the Board has delegated some of its risk oversight duties to the various Board Committees. The Nominating and Corporate Governance Committee oversees risks related to corporate governance. The Government Affairs Committee considers regulatory and policy risk. The Audit and Finance Committee is responsible for generally reviewing and discussing the Company’s policies and guidelines with respect to risk assessment and risk management. It focuses on the management of financial risk exposure and oversees financial statement compliance and control environment risk exposure overseeing policies with respect to financial risk assessment. The Audit and Finance Committee also considers financial risk management including, risks relating to liquidity, access to capital and macroeconomic trends and risks. The Compensation Committee assists our Board in overseeing the management of risks arising from our compensation policies, and programs related to assessment, selection, succession planning, training and development of executives of the Company. Each of the Board Committees reviews these risks and then discusses the process and results with the full Board.

EXECUTIVE COMPENSATION

Compensation Committee Report

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis (“CD&A”) as set forth in this Proxy Statement. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in the Company’s Annual Report on Form 10-K for its fiscal year ended October 31, 2010 and its 2011 Proxy Statement filed in connection with the Company’s 2011 Annual Meeting of Shareholders.

Respectfully submitted by the Compensation Committee of the Board of Directors.

George Petty (Chairman)
Togo West, Jr.
William Lawson
Richard Bromley

Compensation Discussion and Analysis

Introduction

This CD&A describes the philosophy and objectives of our executive compensation program underlying the compensation which is reported in the executive compensation tables included in this Proxy Statement for the following NEOs:

•

R. Daniel Brdar, Chairman, Chief Executive Officer and President (“CEO”);

•

Joseph Mahler, Senior Vice President, Chief Financial Officer (“CFO”), Corporate Secretary, Treasurer, Corporate Strategy;

•

Christopher R. Bentley, Executive Vice President, Government R&D Operations, Strategic Manufacturing Development;

•

Arthur C. Bottone, Senior Vice President, Chief Commercial Officer; and

•

Anthony Rauseo, Senior Vice President, Chief Operating Officer.

The compensation of the NEOs is reported in the Summary Compensation Table presented on page 22 of this Proxy Statement. On February 8, 2011, Mr. Brdar resigned as Chief Executive Officer and President of the Company and Mr. Bottone was elected Chief Executive Officer and President.

Summary of Fiscal 2010 Compensation Actions

The Compensation Committee believes the executive compensation program is appropriate for our Company, and made no significant changes to the program in fiscal 2010. The executive compensation program consists of three primary components: base salary, annual performance-based incentive awards and long-term equity incentive awards in the form of restricted stock awards (“RSAs”).

A significant portion of the total compensation of our key employees, including the NEOs, is performance-oriented and “at risk” and, as described in this CD&A, demonstrates a transparent link between pay and performance. The key features of our fiscal 2010 executive compensation program are as follows:

•

base salaries for the NEOs including our CEO were not increased in fiscal 2010; the last base salary adjustment for the NEOs occurred in January 2008;

•

target annual incentive award opportunities (the amount of which is based on a percentage of base salary) were not increased in fiscal 2010, even though target award opportunities were determined to be below market based on a review of comparative market data;

•

the target annual incentive award opportunity for our CEO was equal to 50% of his base salary and for the other NEOs was equal to 30% of their base salaries. Under the terms of our fiscal 2010 Management Incentive Plan (“MIP”), the maximum annual incentive award payable was capped at 125% of the target award and the actual award was 45% of the CEO’s base salary;

•

the Compensation Committee believes that linking annual incentive awards to the achievement of pre-established Company objectives, or “milestones,” creates a performance-based compensation strategy consistent with shareholder interests; accordingly, the performance goals for the MIP awards were based on the following key “milestones”: a) orders; b) cash use; and c) gross margin on long-term service agreements. A discussion of the Company’s actual performance with respect to these milestones is included in the discussion of annual incentive compensation on page 10 of this Proxy Statement;

•

actual annual incentive awards for fiscal 2010 performance to be paid in 2011 were approved at 45% of target award levels for the NEOs;

•

long-term equity incentive awards for the NEOs including our CEO for fiscal 2010 were determined by reviewing comparative market data and then were reduced by 33% based on the Compensation Committee’s assessment of Company performance and prevailing economic conditions;

•

as a result of the downturn in our stock value in fiscal 2010, most of the stock options held by the NEOs (which had been granted in prior fiscal years) have no intrinsic value because the exercise price of these options is greater than the market price of our common stock;

•

the total compensation of our CEO, Mr. Brdar, decreased by 50% from fiscal 2008 to 2009 and remained unchanged in fiscal 2010;

•

the total compensation of Messrs. Mahler and Bentley decreased by 30% and 15%, respectively, from fiscal 2008 to 2009, and remained unchanged in fiscal 2010. Messrs. Bottone and Rauseo were not appointed as executive officers until fiscal 2010.

In addition, on March 25, 2010, shareholders approved the Company’s 2010 Equity Incentive Plan (the “EIP”) which includes many provisions designed to protect shareholder interests and promote effective corporate governance, and which is described in more detail in the discussion of “Risk Assessment” on page 10 of this Proxy Statement.

Compensation-Setting Process

Recruitment and retention of leadership to manage the Company requires a competitive compensation package. The Compensation Committee is responsible for implementing and reviewing our executive compensation plans, policies and practices in an effort to ensure the attraction and retention of executive officers in a reasonable and cost-effective manner, to motivate their performance in the achievement of the Company’s business objectives and to align the interest of the executive officers with the long-term interests of the Company’s shareholders.

Our executive compensation program includes (i) a fixed component, which consists of base salary and health and retirement benefits and (ii) a variable component, which consists of an annual incentive award (the target amount of which is based on a percentage of base salary and which typically is paid in cash and shares of common stock) and a long-term equity incentive award used to align a portion of each executive officer’s compensation with the long-term success of the Company and the interests of its shareholders.

Each year, the Compensation Committee reviews the base salary, target annual incentive award, long-term equity incentive award and total target compensation (which represents the sum of these three components) for each of the NEOs. Our CEO makes recommendations to the Compensation Committee for annual merit increases in base salary, the annual incentive award pool and long-term equity incentive awards for each of the NEOs (other than himself). The Compensation Committee has the final authority to approve annual merit increases in base salary, annual incentive award payments and long-term equity incentive awards for the NEOs, except with respect to our CEO whose compensation is approved by our Board of Directors.

Typically, the Compensation Committee makes any necessary adjustments to base salaries effective in January of each year. In addition, at the beginning of each fiscal year, our CEO develops an annual incentive award plan for the year for the Company’s key employees, including the NEOs MIP. The MIP, which emphasizes and rewards achievement of strategic initiatives and milestones, is then submitted to the Compensation Committee for consideration and approval. After the Company’s fiscal year-end audited financial results are available, the annual incentive award pool and individual annual incentive award payments for the NEOs for the just-completed fiscal year are approved by the Compensation Committee, except with respect to our CEO whose award payment is approved by our Board of Directors.

The Compensation Committee formulates its compensation decisions for the NEOs with input from our CEO, considering such factors as each individual executive officer’s professional experience, job scope, past performance, tenure and retention risk. The Compensation Committee also considers prior fiscal year adjustments to compensation and historical annual incentive award payments and long-term equity incentive awards. Finally, the Compensation Committee considers market practices, based on its review of executive compensation data for comparable companies, and trends to ensure that the compensation we pay to our executive officers is competitive.

Competitive Positioning

The Compensation Committee periodically reviews the executive compensation practices of peer companies (based on compensation data gathered from publicly-available SEC filings) and other resources (such as the Radford Global Technology compensation survey) to help ensure that the total compensation packages of our executive officers are within a reasonably competitive range. The compensation peer group used by the Compensation Committee is reviewed and, if necessary, updated at least every three years. The peer group was last reviewed in July 2008, and the compensation data derived from the peer group was used for fiscal 2009 and 2010 compensation planning purposes.

The peer group consists of the following 17 companies:

Advanced Energy Industries, Inc.		Evergreen Solar, Inc.		Robbins & Myers
American Superconductor Corp.		Medis Technologies		C&D Technologies
AZZ Incorporated		Plug Power, Inc.		Bel Fuse, Inc.
Ballard Power Systems, Inc.		Powell Industries, Inc.		CPI International, Inc.
Capstone Turbine Corp.		Photronics, Inc.		Spectrum Control
Ceradyne, Inc.		Power-One, Inc.

The Compensation Committee uses aggregated peer group data as a reference point (or “market check”) to ensure that our executive compensation program is competitive with market practice. In the case of each executive officer, the Compensation Committee compares the overall compensation of each individual executive officer against the aggregated peer group data, if his or her position is sufficiently similar to the positions identified in the data to make the comparison meaningful. An executive officer’s total compensation, and each individual compensation component, is driven primarily by Company and individual performance and internal equity, rather than the peer group data.

In 2010, the Compensation Committee determined that the base salaries and total compensation packages of our executive officers remained within a competitive range while noting that the annual target incentive award opportunities were somewhat below the market. A discussion of each of the elements of our executive compensation program follows.

Fixed Compensation

The principal components of fixed compensation not directly linked to Company or individual performance include a base salary and benefits, such as a Section 401(k) Retirement Savings plan, and health, life and disability insurance.

Base Salary

Under our executive compensation program, we view the purpose of base salary to fairly and competitively compensate our executive officers with a fixed amount of cash for the jobs they perform. In addition, base salaries are used to recognize the experience, skills, knowledge and responsibilities required of our executive officers. Accordingly, we seek to ensure that base salary levels are competitive and consistent with industry practices.

Initially, the base salaries for Mr. Brdar, Mr. Mahler and Mr. Bottone were set pursuant to the terms of their employment agreements with the Company. Messrs. Bentley and Rauseo do not have employment agreements.

The last base salary adjustment for the NEOs occurred in January 2008 and ranged from zero to six percent. In response to the ongoing global economic downturn and to manage cash compensation, the Compensation Committee has determined that the base salaries of our executive officers, including the NEOs, should be maintained at their current levels.

The base salaries of the NEOs for fiscal 2010 are reported in the Summary Compensation Table on page 22 of this Proxy Statement.

Benefits

We offer a Section 401(k) Retirement Savings plan, as well as health, life and disability insurance, to our executive officers, including the NEOs. The level of benefits and premiums under these programs are offered on the same basis as those offered to our non-executive employees.

Contributions to the Section 401(k) Retirement Savings plan are limited to an annual maximum amount as determined by the Internal Revenue Service. In February 2009, we suspended employer contributions to the Section 401(k) Retirement Savings plan due to concerns about the ongoing global economic downturn and its potential impact on the Company’s business. This decision remained in place during fiscal 2010. Participants are not permitted to receive or purchase shares of the Company’s common stock through the Section 401(k) Retirement Savings plan.

We offer medical and dental insurance to our executive officers and pay a portion of the premiums for these benefits consistent with the arrangements for our non-executive employees. We also provide our executive officers and other eligible employees, at Company expense, group life insurance and accidental death and dismemberment insurance benefits; and, short-term and long-term disability insurance benefits.

Variable Compensation

Annual Incentive Awards

Our executive officers, including the NEOs, are eligible to participate in an annual incentive plan, the MIP, which is intended to motivate their performance in the achievement of the Company’s business objectives. The Compensation Committee determines the level of target annual incentive awards under the MIP and considers the recommendations of our CEO with respect to the actual annual incentive award payments to be awarded to our executive officers (other than with respect to his own award). The size of the Company’s overall annual incentive award pool as well as the individual executive officers’ award payments reflects (i) the individual target annual incentive award opportunities for all participants (expressed as a percentage of base salary), (ii) performance against pre-established Company milestones; (iii) performance against strategic initiatives (for the NEO’s only); and (iv) adjustments for individual performance for all other executives except for the NEOs. The Compensation Committee periodically compares the target annual incentive award opportunities for each executive officer against market data in order to assess the competitiveness of the annual incentive opportunity.

The annual incentive award payments for the NEO’s are generally based on a review of actual performance against the Company milestones (which represents 75% of the total annual incentive award opportunity) and performance against specified Company strategic initiatives (which represent the remaining 25% of the award opportunity). The Compensation Committee may also exercise its discretion to adjust the size of potential award payments as it deems appropriate to take into account factors that enhance or detract from results achieved relative to the Company milestones and strategic initiatives. In this way, the Compensation Committee does not confine itself to a purely quantitative approach and retains discretion in determining award payments based on its review and assessment of results for the fiscal year. The Compensation Committee believes that linking annual incentive awards to Company milestones and strategic initiatives creates a performance-based compensation strategy consistent with shareholder interests.

The target annual incentive award opportunities for each NEO for fiscal 2010 (expressed as a percentage of base salary) were as follows:

•

Chief Executive Officer — 50 percent

•

Other Named Executive Officers — 30 percent.

Under the MIP for fiscal 2010 and 2009, performance against each of the Company milestones was evaluated based on pre-established levels of performance to obtain scores ranging from 0 percent to a maximum of 125 percent. As shown in the chart below, an aggregate score of 50% equated to a “Satisfactory” level of performance and generally represented the minimum level of acceptable performance required to earn an award payment. Performance above this threshold level represented the achievement of Company operating results that significantly improved our financial results and enhanced shareholder value and, accordingly, could potentially result in a higher award payment. Each Company milestone was assigned a weighting or level of importance relative to the other Company milestones. The aggregate weighted score (milestone weight multiplied by milestone score) for all Company milestones was used to determine the overall annual incentive award pool available to compensate our executive officers and, in the case of the NEO’s, the percentage of the target award payable for the portion of the annual incentive award linked to Company milestones, as shown in the following table:

				Percent of
				Target Award
Scale		Weighted Score		Payable
Satisfactory		50% – 69%			75	%
Commendable		70% – 89%			100	%
Outstanding		Greater than 90%			125	%

2010 MIP and Results

For fiscal 2010, the overall design of the MIP remained unchanged from fiscal 2009, except for the Company milestones and strategic initiatives. The pre-established Company milestones for fiscal 2010 involved: (1) securing international orders, (2) securing domestic orders, (3) achieving a favorable cost ratio on long-term service agreements, and (4) limiting cash use. The Compensation Committee developed target performance levels for these milestones that were consistent with our annual operating plan for fiscal 2010.

The Company’s actual performance with respect to each of the fiscal 2010 milestones was: (1) achieved 57% of domestic orders target, (2) did not achieve the international orders target; (3) achieved a favorable cost ratio on long-term service agreements equal to 115% of target, and (4) achieved 86% of cash use target after adjusting for $7.8 million of payments received immediately following the close of the fiscal year in connection with contracts executed in fiscal 2010.

A sliding scale was used to measure performance against each milestone and calculate the resulting weighted score. The overall performance for fiscal 2010 resulted in an aggregate weighted score of 50%, a “Satisfactory” rating, and a calculated payout percentage that would have yielded a 75% payout under the terms of the MIP. After evaluating the actual results attained the Compensation Committee approved the Payout Percentage for the Company milestones at the 50% level.

In addition to performance against the Company milestones, 25% of the annual incentive award for the NEO’s was linked to completion of the following four Company strategic initiatives for fiscal 2010: a) development and execution of a repeatable project finance transaction; b) completion of a capital raising transaction; c) execution on specified regulatory initiatives; and d) development of a new strategic partner. In reviewing progress against the fiscal 2010 strategic initiatives, the Compensation Committee determined that while significant progress was achieved against each of these initiatives the overall performance fell short of meeting the stated objectives, and the actual incentive award payments should be reduced.

After evaluating the overall performance against both the fiscal 2010 milestones and strategic initiatives, and the quality of the results achieved, the Compensation Committee approved the incentive award payments to the NEO’s for fiscal 2010 at 45 percent of the target award levels, and made a similar recommendation to the Board of Directors with respect to the bonus paid to the CEO.

The Compensation Committee also considered the form of payment and determined that the annual incentive award payments for fiscal 2010 should be made one-third in cash and two-thirds in fully vested shares of the Company’s common stock (the number of shares being determined by the closing market price of the stock ($2.00) on January 13, 2011 the date the annual incentive award was approved), as a means of conserving cash while providing the executive officers with sufficient liquidity to satisfy the withholding obligations arising in connection with the award. The following table summarizes the amounts paid to each of the NEO’s including the cash portion of the award and the fair market value of the portion paid in shares of the Company’s common stock for fiscal 2010:

Breakdown of FY-10 Bonus Payment (cash and stock)

Name		Total Bonus ($)				Cash Portion ($)				Stock Portion ($)				Number of Shares
R. Daniel Brdar			86,850				28,950				57,900				28,950
Joseph G. Mahler			37,598				12,533				25,066				12,533
Christopher R. Bentley			37,125				12,375				24,750				12,375
Arthur A. Bottone			33,750				11,250				22,500				11,250
Anthony F. Rauseo			29,025				9,675				19,350				9,675

The annual incentive award payments for the NEOs for fiscal 2010 are reported in the Summary Compensation Table on page 22 of this Proxy Statement.

2009 MIP and Results

The pre-established Company milestones for fiscal 2009 involved: (1) securing product orders, (2) managing new product development costs, (3) achieving a desired total product sales cost ratio, and (4) limiting cash use. The Compensation Committee developed target performance levels for these milestones that were consistent with our annual operating plan for fiscal 2009.

The Company’s actual performance with respect to each of the fiscal 2009 milestones was: (1) secured product orders totaling 76% of the order target; (2) achieved 90% of target for reducing new product development costs, (3) achieved 50% of the total product sales cost ratio target, and (4) actual cash use exceeded the target level.

A sliding scale was used to measure performance against each milestone and calculate the resulting weighted score. The overall performance for fiscal 2009 resulted in an aggregate weighted score of 55%, a “Satisfactory” rating, and a calculated payout percentage that would have yielded a 75% payout under the terms of the MIP. After evaluating the actual results attained, the Compensation Committee approved a Payout Percentage for the Company milestones at the 50% level.

In addition to performance against the Company milestones, 25% of the annual incentive award for the NEO’s was linked to completion of three or more of the following Company strategic initiatives for fiscal 2009: a) completion of a capital raising transaction; b) execution on specified regulatory initiatives; c) expansion into the California market; d) expansion into non-U.S. markets; and e) execution on specified new product initiatives. In reviewing progress against these strategic initiatives, the Compensation Committee determined that satisfactory progress was made and that at least three of the objectives had been achieved.

After evaluating performance against both the Company milestones and strategic initiatives, as well as the quality of the results achieved, the Compensation Committee determined that the annual incentive award payments for our executive officers, including the NEOs, should be reduced from the calculated award level (75 percent) to 50 percent of the target annual incentive award.

The Compensation Committee also considered the form of payment and determined that the annual incentive award payments for fiscal 2009 should be made one-third in cash and two-thirds in fully vested shares of the Company’s common stock (the total number of shares being determined by the closing market price of the stock ($2.88) on April 19, 2010, the date the annual incentive award was approved), as a means of conserving cash while providing the executive officers with sufficient liquidity to satisfy the tax withholding obligations arising in connection with the awards. The following table summarizes the fiscal 2009 annual incentive award payment for each of the NEO’s, including the cash portion of the award payment and the fair market value of the portion of the award paid in shares of common stock:

Breakdown of FY-09 Bonus Payment (cash and stock)

Name		Total Bonus ($)				Cash Portion ($)				Stock Portion ($)				Number of Shares
R. Daniel Brdar			96,500				32,167				64,333				22,338
Joseph G. Mahler			41,775				13,925				27,850				9,671
Christopher R. Bentley			41,250				13,750				27,500				9,549

The annual incentive award payments for the NEOs for fiscal 2009 are reported in the Summary Compensation Table on page 22 of this Proxy Statement.

Long-Term Incentive Compensation

Each of the NEOs is eligible to receive long-term equity incentive awards under the EIP. These awards are intended to align a portion of the NEOs’ compensation with shareholders’ interests and the long-term success of the Company by providing a direct link to future earnings potential and the market value of the Company’s common stock.

The Compensation Committee, in determining the long-term equity incentive awards to be granted to our executive officers, including the NEOs, considers relevant comparative market data as well as the recommendations of our CEO and other factors such as the individual’s job scope, past performance, tenure, and retention risk. The Compensation Committee approves all long-term equity incentive awards for the NEOs, except for awards to our CEO whose compensation is approved by our Board of Directors.

The Compensation Committee does not re-price and has not re-priced equity awards. The grant date for each long-term equity incentive award is based on the date the award is approved by the Compensation Committee or our Board of Directors, as applicable. Stock option exercise prices equal the closing market price of the Company’s common stock on the grant date.

Historically, our long-term equity incentive awards have primarily consisted of stock options which provide value to the executive officer if the Company’s stock price increases after the awards are made. Beginning in fiscal 2009, the Compensation Committee approved the granting of RSAs to our executives, including the NEOs, in lieu of stock options. The RSAs vest at a rate of 25% per year beginning on the first anniversary of the date of grant.

In determining the size of the awards granted to the NEOs, the Compensation Committee typically considers comparative market data as well as the recommendations of our CEO. For fiscal 2010, our CEO recommended the awards should be comparable in value to the awards granted in fiscal 2009 which were then reduced by 33% from the levels otherwise indicated by the comparative market data. On March 25, 2010, the Compensation Committee considered and approved the recommendations of our CEO relative to the long-term equity incentive awards for the NEOs. This decision was based on the Company’s overall performance for fiscal 2009 and the desire of the Compensation Committee to minimize the Company’s compensation expense during the current economic environment.

The number of shares of the Company’s common stock subject to each RSA granted to each of the NEOs was based on the dollar value of the award approved for each executive officer by the Compensation Committee (or our Board of Directors, in the case of our CEO) divided by the closing market price of the Company’s common stock on the date of grant. As a percent of base salary, the value of the awards in fiscal 2010 ranged from 29 percent to 72 percent of base salary for the NEOs.

Mr. Bottone’s fiscal 2010 RSA was granted to him in connection with his joining the Company. The number of shares of the Company’s stock subject to this RSA was based on a review of the job scope, comparative market data, Mr. Bottone’s professional experience, and the recommendations of our CEO.

The long-term equity incentive awards granted to the NEOs in fiscal 2010 are reported in the Summary Compensation Table under Stock Awards and the Grants of Plan-Based Awards Table on pages 22 and 24, respectively, of this Proxy Statement.

Employment Agreements and Change of Control and Severance

We have entered into employment agreements with Messrs. Brdar, Mahler and Bottone. These agreements are intended to provide each executive officer with job security for the term of the agreement by specifying the reasons pursuant to which their employment may be terminated by our Board of Directors and provide them with certain compensation and benefits upon termination of employment or a change in control of our Company. These employment agreements also protect the Company’s interests following termination of employment by providing specific reasons for termination and by prohibiting the executive officers from engaging directly or indirectly in competition with the Company, from soliciting any employees or from disclosing confidential Company information. We believe that these provisions help ensure our long-term success.

For a summary of the material terms and conditions of these employment agreements, as well as the material terms and conditions of these termination of employment and change in control provisions, see “Employment Agreements and Change of Control and Severance” below.

Tax and Accounting Considerations

Section 162(m) of the Internal Revenue Code generally prohibits public companies from taking a tax deduction for a taxable year for compensation in excess of $1,000,000 paid to its chief executive officer or each of the other three most highly compensated executive officers (not including the chief financial officer) who are employed by the Company as of the end of the year. Qualifying performance-based compensation is not subject to the deduction limitation if specified requirements are met. The Company structures its equity awards to comply with the exemption in Section 162(m) in order to ensure that such compensation remains tax deductible. The Company periodically reviews the potential consequences of Section 162(m) on the other components of its executive compensation program. Executive compensation paid during fiscal 2010 complied with Section 162(m) to the extent it was applicable and thus all such compensation was tax deductible for the Company.

We follow Financial Accounting Standards Board Accounting Standards Codification Topic 718, formerly known as SFAS 123(R), for our stock-based awards. ASC Topic 718 requires companies to measure the compensation expense for all share-based payment awards made to employees and directors, including stock options and restricted stock awards, based on the aggregate grant date “fair value” of these awards. This calculation is performed for accounting purposes and reported in the compensation tables below. ASC Topic 718 also requires companies to recognize the compensation cost of their stock-based compensation awards in their income statements over the period that an executive officer is required to render service in exchange for the option or other award.

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table presents summary information regarding the total compensation awarded to, earned by or paid to our Named Executive Officers for the fiscal years ended October 31, 2010, 2009 and 2008.

																						Non-Equity
														Stock				Option				Incentive Plan				All Other
Name and Principal						Salary				Bonus				Awards				Awards				Compensation				Compensation
Position		Year				($)(1)				(2)				($) (3)				($)(3)				($) (3)				($) (4)				Total ($)
R. Daniel Brdar			2010				386,005				—				277,001				—				86,850				—				749,856
Chairman, President			2009				386,005								276,450				—				96,500				4,899				763,854
and Chief Executive			2008				382,801								—				1,105,160				193,000				13,500				1,694,461
Officer
Joseph G. Mahler			2010				278,493				—				159,999				—				37,598				—				476,090
Senior Vice			2009				278,493								159,600				—				41,775				3,535				483,403
President, Chief			2008				276,191								—				303,919				83,500				13,500				677,110
Financial Officer, Corporate Secretary, Treasurer, Corporate Strategy
Christopher R. Bentley			2010				274,998				—				80,001				—				37,125				—				392,124
Executive Vice			2009				274,998								79,800				—				41,250				3,490				399,538
President, Government			2008				274,997								—				138,145				85,000				13,500				511,642
R&D Operations, Strategic Manufacturing Development
Arthur A. Bottone (5)			2010				173,074				20,000	(5)			199,999				—				33,750				—				426,823
Senior Vice President Chief Commercial Officer
Anthony Rauseo (6)			2010				191,270				—				136,249				—				29,025				—				356,544
Senior Vice President and Chief Operating Officer

Grants of Plan-based Awards Table in Fiscal 2010

The following table presents, for each of the Named Executive Officers, information with respect to the awards under our fiscal 2010 Management Incentive Plan and grants of long-term equity incentive awards made to the NEOs in fiscal 2010.

																		All Other
																		Stock				Grant
																		Awards:				Date Fair
																		Number				Value of
						Estimated Future Payouts Under Non-Equity												of Shares				Stock and
						Incentive Plan Awards (2) (3)												of Stock				Option
						Threshold				Target				Maximum				or Units				Awards
Name		Grant Date				($)				($)				($)				(#)				($)
R. Daniel Brdar
Annual Incentive Award for 2009 (1)			—				48,250				96,500				120,627				—				—
Annual Incentive Award for 2010 (1)			—				48,250				96,500				120,627				—				—
Restricted Stock Award			3/25/2010				—				—				—				95,848				277,000
Joseph G. Mahler
Annual Incentive Award for 2009 (1)			—				20,887				41,774				52,217				—				—
Annual Incentive Award for 2010 (1)			—				20,887				41,774				52,217				—				—
Restricted Stock Award			3/25/2010				—				—				—				55,363				160,000
Christopher R. Bentley
Annual Incentive Award for 2009 (1)			—				20,625				41,250				51,562				—				—
Annual Incentive Award for 2010 (1)			—				20,625				41,250				51,562				—				—
Restricted Stock Award			3/25/2010				—				—				—				27,682				80,000
Arthur A. Bottone
Annual Incentive Award for 2009 (1)			—				—				—				—				—				—
Annual Incentive Award for 2010 (1)			—				12,981				25,961				32,451				—				—
Restricted Stock Award			2/26/2010				—				—				—				71,174				200,000
Anthony F. Rauseo
Annual Incentive Award for 2009 (1)			—				—				—				—				—				—
Annual Incentive Award for 2010 (1)			—				14,345				28,691				35,863				—				—
Restricted Stock Award			4/30/2010				—				—				—				25,909				71,250
Restricted Stock Award			7/30/2010				—				—				—				49,618				65,000

Grants of Plan-Based Awards

The restricted stock awards granted to the NEOs in fiscal 2010 as reflected in the Grants of Plan-Based Awards Table were granted pursuant to the Company’s 2006 and 2010 Equity Incentive Plans. These awards were made on the same terms as the awards granted to all other eligible employees. The material terms and conditions of these awards are as follows:

	•		Each award vests at a rate of 25% per year beginning on the first anniversary of the date of grant.
	•		Our Board of Directors may determine the effect on an award of the disability, death, retirement or other termination of employment of a NEO and the extent to which, and the period during which, the NEO’s legal representative, guardian or designated beneficiary may receive payment of an award or exercise rights thereunder.
	•		The value of each award is based upon the number of shares of the Company’s common stock that could be purchased at the closing market price of the Company’s common stock on the date of grant.

For further information on the restricted stock awards included in the Grants of Plan Based Award Table, refer to the CD&A beginning on page 13 of this Proxy Statement.

Fiscal 2010 Outstanding Equity Awards at Fiscal Year-End Table

The following table presents for each of the Named Executive Officers, information with respect to the outstanding equity awards held by the NEOs at October 31, 2010

		Option Awards																				Stock Awards
		Number
		of																												Market
		Securities				Number of																								Value of
		Underlying				Securities																				Number of				Shares or
		Unexercised				Underlying																				Shares or				Units of
		Options				Unexercised				Option												Stock				Units of				Stock That
		(#)				Options				Exercise				Option				Option				Award				Stock That				Have Not
		Exercisable				(#)				Price				Grant				Expiration				Grant				Have Not				Vested
Name		(1)				Un-exercisable				($)(2)				Date				Date				Date (3)				Vested (#)				($)(4)
R. Daniel Brdar			34,000				—				13.76				12/19/2001				12/19/2011				3/25/2010				95,848				109,267
			50,000				—				5.45				2/11/2003				2/11/2013				3/25/2009				72,750				82,935
			35,000				—				13.78				3/30/2004				3/30/2014
			250,000				—				9.42				2/11/2005				2/11/2015
			250,000				—				8.65				12/19/2005				12/19/2015
			75,000				25,000				6.49				3/13/2007				3/13/2017
			100,000				100,000				8.74				1/30/2008				1/30/2018
Joseph G. Mahler			32,000				—				23.00				4/06/2001				4/06/2011				3/25/2010				55,363				63,114
			42,000				—				13.76				12/19/2001				12/19/2011				3/25/2009				42,000				47,880
			10,000				—				5.45				2/11/2003				2/11/2013
			20,000				—				13.78				3/30/2004				3/30/2014
			40,000				—				9.57				2/11/2005				3/29/2015
			40,000				—				10.45				12/19/2005				3/14/2016
			30,000				10,000				6.49				3/13/2007				3/13/2017
			27,500				27,500				8.74				1/30/2008				1/30/2018
Christopher R. Bentley			32,000				—				23.00				4/06/2001				4/06/2011				3/25/2010				27,682				31,557
			45,000				—				13.76				12/19/2001				12/19/2011				3/25/2009				21,000				23,940
			10,000				—				5.45				2/11/2003				2/11/2013
			20,000				—				13.78				3/30/2004				3/30/2014
			25,000				—				9.57				2/11/2005				3/29/2015
			25,000				—				10.45				12/19/2005				3/14/2016
			18,750				6,250				6.49				3/13/2007				3/13/2017
			12,500				12,500				8.74				1/30/2008				1/30/2018
Arthur A. Bottone			—				—				—				—				—				2/26/2010				71,174				81,138
Anthony F. Rauseo			10,000				—				9.95				8/15/2005				8/15/2015				7/30/2010				49,618				56,565
			10,000				—				8.75				1/15/2005				11/15/2015				4/30/2010				25,909				29,536
			7,500				—				10.45				3/14/2006				3/14/2016				3/25/2009				18,750				21,375
			18,000				6,000				6.99				2/05/2007				2/05/2017
			12,000				12,000				8.74				1/30/2008				1/30/2018

Fiscal 2010 Option Exercises and Stock Vested Table

The following table presents, for each of the Named Executive Officers, the number of shares of the Company’s common stock acquired upon the vesting of restricted stock awards during fiscal 2010, and the aggregate value realized upon the vesting of such awards. There were no stock options exercised by any of the NEOs during fiscal 2010. For purposes of this table, the value realized is based upon the fair market value of the Company’s common stock on each vesting date.

Option Awards

Stock Awards (1)

Number of

Number of

Shares

Shares

Acquired

Value Realized

Acquired

Value Realized

on Exercise

on Exercise

on Vesting

on Vesting

Name

(#)

($)

(#)

($)(2)

R. Daniel Brdar

N/A

N/A

24,250

(3)

70,083

Joseph G. Mahler

N/A

N/A

14,000

(4)

40,460

Christopher R. Bentley

N/A

N/A

7,000

(5)

20,230

Arthur A. Bottone

N/A

N/A

—

—

Anthony F. Rauseo

N/A

N/A

6,250

(6)

18,063

Employment Agreements and Change of Control and Severance

Messrs. Bottone, Brdar and Mahler have employment agreements with the Company, under which they are eligible to receive certain severance payments and benefits in connection with his termination of employment under various circumstances, including following a change of control of the Company.

The estimated potential payments and benefits payable to each NEO in the event of termination of employment as of October 31, 2010 pursuant to his employment agreement are described below.

The actual amounts that would be paid or distributed to the NEOs as a result of one of the termination events occurring in the future may be different than those presented below as many factors will affect the amount of any payments and benefits upon a termination of employment. For example, some of the factors that could affect the amounts payable include the NEO’s base salary and the market price of the Company’s common stock. In addition, although we have entered into written arrangements to provide severance payments and benefits to certain of the NEOs in connection with a termination of employment under particular circumstances, we may mutually agree with the NEOs on severance terms that vary from those provided in these pre-existing agreements. Finally, in addition to the amounts presented below, each NEO would also be able to exercise any previously-vested stock options that he held. For more information about the NEOs’ outstanding equity awards as of October 31, 2010, see “Fiscal 2010 Outstanding Equity Awards at Fiscal Year-End Table.”

In addition to the severance payments and benefits described in a NEO’s individual employment agreement, these executive officers are eligible to receive any benefits accrued under our broad-based benefit plans, such as accrued vacation pay, in accordance with those plans and policies.

Arthur A. Bottone

On February 8, 2011, the Company entered into a new employment agreement (the “Agreement”) with Mr. Bottone upon his promotion to President and CEO. Under the Agreement, which is terminable by either party upon 30 days notice, Mr. Bottone was entitled to an initial annual base salary of $340,000, to be reviewed at least annually by our Board of Directors, and an annual incentive award opportunity of up to 50% of Mr. Bottone’s base salary also to be determined and approved by our Board of Directors. Mr. Bottone was also granted restricted stock of the Company valued at $360,000, valued at the closing market price at date of grant. The Agreement also provides Mr. Bottone with the opportunity to participate in insurance plans and other employee benefits as may be generally available to other employees of the Company. The Agreement also contains non-disclosure provisions and prohibits Mr. Bottone from competing with the Company during the term of his employment and for a period of two years thereafter.

In the event of a change in control of the Company resulting in a voluntary resignation by Mr. Bottone or, in the event Mr. Bottone’s employment is terminated by the Company without cause, he is entitled to a severance payment in an amount equal to two years of his base salary as of the date of termination plus the average of the bonuses paid to him since the inception of his employment agreement. In the event of termination of Mr. Bottone’s employment by the Company for cause, the Company shall pay Mr. Bottone any base salary and vacation accrued but as yet unpaid on the effective date of such termination. Mr. Bottone’s stock options and restricted stock granted shall accelerate and immediately vest upon a change of control.

Should Mr. Bottone be unable to fulfill his duties as a result of incapacity or disability, the Company may terminate his employment. In the event of such incapacity or disability, the Company shall continue to pay full compensation to Mr. Bottone in accordance with the terms of his employment agreement until the date of such termination. In the event of death, the Company shall pay Mr. Bottone’s estate any base salary and other compensation or benefits accrued but as yet unpaid on the date of death.

The following table sets forth the potential (estimated) payments and benefits to which Mr. Bottone would be entitled upon termination of employment or following a change in control of the Company, as specified under his Agreement assuming each circumstance described below occurred on February 8, 2011.

Potential Payments and Benefits Upon a Termination of Employment
or a Change in Control of the Company for Mr. Bottone

Termination without

Following

Cause or Resignation

Death or

Change in Control

Executive Payments and Benefits(1)

for Good Reason(2)

Disability(2)

of the Company(2)

Accelerated vesting:

Stock options(3)

N/A

N/A

N/A

Restricted Shares(4)

N/A

N/A

502,348

Payment for annual incentive award

—

—

—

Severance payment(5)

720,000

—

720,000

TOTAL:

720,000

—

1,222,348

R. Daniel Brdar

On January 12, 2006, the Company entered into an employment agreement (the “Agreement”) with Mr. Brdar upon his promotion to President and CEO. Under the Agreement, which is terminable by either party upon 30 days notice, Mr. Brdar was entitled to an initial annual base salary of $350,000, to be reviewed at least annually by our Board of Directors, and an annual incentive award opportunity of up to 50% of Mr. Brdar’s base salary also to be determined and approved by our Board of Directors. Mr. Brdar retained options to purchase 250,000 shares of the Company’s common stock granted under his prior employment arrangement and was granted a stock option to purchase an additional 250,000 shares of the Company’s common stock in December 2005. The Agreement also provides Mr. Brdar with the opportunity to participate in insurance plans and other employee benefits as may be generally available to other employees of the Company. The Agreement also contains non-disclosure provisions and prohibits Mr. Brdar from competing with the Company during the term of his employment and for a period of two years thereafter.

In the event of a change in control of the Company resulting in a voluntary resignation by Mr. Brdar or, in the event Mr. Brdar’s employment is terminated by the Company without cause, he is entitled to a severance payment in an amount equal to two years of his base salary as of the date of termination plus the average of the bonuses paid to him since the inception of his employment agreement. In the event of termination of Mr. Brdar’s employment by the Company for cause, the Company shall pay Mr. Brdar any base salary and vacation accrued but as yet unpaid on the effective date of such termination. Mr. Brdar’s stock options and restricted stock granted shall accelerate and immediately vest upon a change of control.

Should Mr. Brdar be unable to fulfill his duties as a result of incapacity or disability, the Company may terminate his employment. In the event of such incapacity or disability, the Company shall continue to pay full compensation to Mr. Brdar in accordance with the terms of his employment agreement until the date of such termination. In the event of death, the Company shall pay Mr. Brdar’s estate any base salary and other compensation or benefits accrued but as yet unpaid on the date of death.

The following table sets forth the potential (estimated) payments and benefits to which Mr. Brdar would be entitled upon termination of employment or following a change in control of the Company, as specified under his Agreement assuming each circumstance described below occurred on October 31, 2010.

Potential Payments and Benefits Upon a Termination of Employment
or a Change in Control of the Company for Mr. Brdar

		Termination without								Following
		Cause or Resignation				Death or				Change in Control
Executive Payments and Benefits(1)		for Good Reason(2)				Disability(2)				of the Company(2)
Accelerated vesting:
Stock options(3)			N/A				N/A				N/A
Restricted Shares(4)			N/A				N/A			$	192,202
Payment for annual incentive award			—				—				—
Severance payment(5)		$	902,430				—			$	902.430
TOTAL:		$	902,430			$	—			$	1,094,632

(1)		For purposes of this analysis, we have assumed the executive’s compensation is as follows: current base salary equal to $386,000, a targeted annual incentive award opportunity equal to 50% of his base salary, and outstanding restricted stock awards as reflected in the Outstanding Equity Awards at Fiscal Year-End Table, on page 26 of this Proxy Statement.
(2)		Assumes the executive’s date of termination of employment was October 31, 2010. The market price of the Company’s common stock on October 29, 2010 (the last trading date of the fiscal year) was $1.14 per share.
(3)		Mr. Brdar’s employment agreement provides for accelerated vesting of his outstanding stock options and restricted shares upon a change in control of the Company. As of October 31, 2010 all stock options were out-of-the-money.
(4)		The value of the restricted shares is based on 168,598 shares at $1.14 per share at October 29, 2010 (the last trading date of the fiscal year) that had not vested.
(5)		Mr. Brdar is entitled to two years of his base salary plus a bonus payment for the Severance Period equal to the average of the bonuses awarded to him since the inception of his employment agreement.

Mr. Brdar voluntarily resigned from the Company in February 2011. Accordingly, Mr. Brdar is not entitled to any severance or similar benefits under the terms of his Agreement. Mr. Brdar will be paid a fee of $15,000 for his continued participation on the Board of Directors as Chairman through the Annual Meeting on April 7, 2011.

Joseph G. Mahler

In October 1998, the Company entered into an employment agreement with Mr. Mahler upon hiring him as its CFO, Treasurer and Corporate Secretary. Under the agreement, which is terminable by either party upon 30 days notice, Mr. Mahler is entitled to a minimum annual salary and a bonus. In addition, upon entering into the agreement, the Company granted Mr. Mahler options to purchase 300,000 shares of Common Stock. The agreement also provides Mr. Mahler with the opportunity to participate in insurance plans and other employee benefits as may be generally available to other employees of the Company. The agreement contains non-disclosure provisions and prohibits Mr. Mahler from competing with the Company during the term of his employment and for a period of two years thereafter.

In the event of a change in control of the Company or the failure of the Company to comply with its obligations under the employment agreement resulting in a voluntary resignation by Mr. Mahler, he is entitled to a severance payment in an amount equal to one year of his base salary as of the date of termination plus an amount equal to his bonus if any, for the immediately preceding year and any incentive compensation awarded to him but not yet paid.

In the event of termination of Mr. Mahler’s employment by the Company without cause, Mr. Mahler shall be entitled to a severance payment in an amount equal to one year of his base salary as of the date of termination plus an amount equal to his bonus, if any, for the immediately preceding year plus the full amount of his special bonus referred to below. In the event of termination of Mr. Mahler’s employment by the Company for cause, the Company shall pay Mr. Mahler any base salary accrued but as yet unpaid on the effective date of such termination plus any incentive compensation awarded to him but not yet paid. In the event Mr. Mahler voluntarily terminates his employment (other than as a result of a change of control), Mr. Mahler will not be entitled to any severance or other unpaid special bonus payments.

Should Mr. Mahler be unable to fulfill his duties as a result of incapacity or disability, the Company may terminate his employment. Mr. Mahler shall receive his base salary through the date of termination, provided, however, that to the extent Mr. Mahler is receiving disability benefits pursuant to the Company’s disability insurance policy, the amount of such benefits shall be credited against Mr. Mahler’s base salary during the period prior to the date of termination. In addition, upon any termination based upon disability, the Company shall pay Mr. Mahler any incentive compensation awarded to him but not yet paid. In the event of death, the Company shall pay Mr. Mahler’s estate any base salary through the last day of the calendar month plus any incentive compensation awarded to Mr. Mahler but not yet paid.

The following table sets forth the potential (estimated) payments and benefits to which Mr. Mahler would be entitled upon termination of employment or following a change in control of the Company, as specified under his employment agreement with the Company assuming each circumstance described below occurred on October 31, 2010.

Potential Payments and Benefits Upon a Termination of Employment
or a Change in Control of the Company for Mr. Mahler

		Termination without								Following
		Cause or Resignation				Death or				Change in Control
Executive Payments and Benefits(1)		for Good Reason(2)(4)				Disability(2)				of the Company(2)
Accelerated vesting:
Stock options			N/A				N/A				N/A
Restricted Shares			N/A				N/A				N/A
Payment for annual incentive award			—				—				—
Severance payment(3)		$	316,091				—			$	316,091
TOTAL:		$	316,091			$	—			$	316,091

The Company has agreed to pay Mr. Mahler a special bonus in the amount of $90,000 in connection with his assumption of certain additional duties. The special bonus is payable on February 8, 2012. The information set forth in the table above does not reflect (i) payment of the special bonus, or (ii) an agreement between the Company and Mr. Mahler pursuant to which all stock options and restricted stock held by Mr. Mahler would immediately vest upon a change of control of the Company, each of which were entered into after October 31, 2010.

Mr. Bentley and Mr. Rauseo do not have employment agreements and are not entitled to any potential payments and benefits upon termination of employment or a change in control of the Company.

DIRECTOR COMPENSATION

Our Board of Directors periodically reviews director compensation. The compensation and benefit program for non-employee directors described below was approved by our Board of Directors in fiscal 2005 and was amended by the Board in fiscal 2008. In recommending this program to our Board of Directors, the Compensation Committee was guided by the following goals: compensation should fairly pay directors, compensation should align directors’ interests with the long-term interests of shareholders and the structure of the compensation should be simple, transparent and easy for shareholders to understand.

The compensation of our directors includes a combination of both cash and equity. Directors receive an annual retainer and committee member and chair fees. Directors may elect to receive these fees in cash, shares of the Company’s common stock or stock options. In addition, directors also receive an annual long-term equity incentive award. Following is a description of the components of our director compensation program.

New Board Members

Upon election to our Board of Directors, a non-employee director is granted a non-qualified stock option for 40,000 shares of the Company’s common stock.

Annual Director Compensation

The standard fee arrangements for our non-employee directors include a retainer of $30,000 per year for service as a director. In addition, committee fees have been established based upon the expected number of meetings and level of activity during the year. Non-Chairman committee fees are $5,000 for the first committee of which the director is a member and $2,500 for each additional committee of which the director is a member. Chair fees are $12,500 for the Compensation, Audit and Finance, Executive, Government Affairs and Nominating and Corporate Governance Committees.

In 2008, the Compensation Committee engaged AXIA Profit & Growth (“AXIA”), a compensation consulting firm, to perform a competitive market analysis of each component of our director compensation program. AXIA developed a Director Compensation Peer Group consisting of the following 18 publicly traded companies:

Advanced Energy Industries, Inc.,		Evergreen Solar, Inc.		Robbins & Myers
American Superconductor Corp.		Medis Technologies		Baldor Electric Co.
AZZ Incorporated		Plug Power, Inc.		Ener1 Inc.
Ballard Power Systems, Inc.		Powell Industries, Inc.		Energy Conversion Devices
Capstone Turbine Corp.		Vicor Corp.		KEMET Corp
Ceradyne, Inc.		Power-One, Inc.		Maxwell Technologies, Inc.

These companies were selected on the basis of revenue, market capitalization, total employees, growth rate and industry focus. Using data obtained from annual Proxy Statements filed with the SEC, AXIA compared the cash fee structure including retainer fees, committee fees and meeting fees paid to our non-employee directors with the peer group median values as well as the equity compensation provided to our directors. Based on this review, the Compensation Committee determined that the base cash retainer fees and the total average cash fees (including retainers, committee and chair fees, and meeting fees) were in line with the peer group median values.

In addition to the fees described above, our non-employee directors also receive a long-term equity incentive award valued at $28,000 per year which may be delivered in the form of shares of the Company’s common stock or stock options (at the election of the director). All director fees are payable, at the option of the non-employee director, in cash, shares of the Company’s common stock or a stock option to purchase shares of the Company’s common stock.

If a non-employee director chooses to receive his long-term equity incentive award or his director fees in the form of a stock option to purchase shares of the Company’s common stock, the total number of shares of common stock subject to the stock option is based on a Black-Scholes calculation as determined on or about the date of the Company’s annual meeting of shareholders. The exercise price of any such stock option will be equal to the closing market price of the Company’s common stock on such date. These stock options vest at the rate of 25% per quarter from the date of grant.

In March 2010, our Board of Directors agreed to extend the 33 percent reduction in all director fees first initiated in March 2009 for the period beginning March 2010 and ending March 2011. This decision was consistent with the actions taken by the Compensation Committee in fiscal 2009 relative to the compensation of the NEOs described in the CD&A beginning on page 13 of this Proxy Statement. This action is reflected in the Director Compensation Table for fiscal 2010.

Directors Deferred Compensation Plan

Pursuant to the Company’s Directors Deferred Compensation Plan, directors may elect to defer until a predetermined date or until they leave our Board of Directors, receipt of all or a portion of their fees paid in cash or shares of common stock. The election to defer receipt of all or a portion of their fees must be made by the director prior to December 31^st of each calendar year or, with respect to a newly eligible director, within 30 days after such director becomes eligible to participate in the Directors Deferred Compensation Plan.

Reimbursement of Expenses

The Company reimburses directors for reasonable expenses incurred in connection with the performance of their duties as directors.

Fiscal 2010 Director Compensation Table

		Fees Earned or
		Paid in				Stock				Option				All Other
		Cash				Awards				Awards				Compensation				Total
Directors		($)				($)				($)(1)				($)				($)(2)
Richard Bromley			—				—				48,667				—				48,667
James Herbert England			—				—				43,667				—				43,667
James Gerson			30,000				—				18,667				—				48,667
Thomas Kempner			—				—				48,667				—				48,667
William Lawson			—				—				43,667				—				43,667
George K. Petty			—				—				48,667				—				48,667
John A. Rolls			—				—				48,667				—				48,667
Togo West			—				—				43,667				—				43,667

The following table sets forth the non-employee director compensation for fiscal 2010 by fee type.

		Long-Term
		Incentive Equity				Annual Retainer				Committee
		Award				Fees				Participation Fees				Total
Name of Director		($)				($)				($)				($)(1)
Richard Bromley			18,667				20,000				10,000				48,667
James Herbert England			18,667				20,000				5,000				43,667
James Gerson			18,667				20,000				10,000				48,667
Thomas Kempner			18,667				20,000				10,000				48,667
William Lawson			18,667				20,000				5,000				43,667
George K. Petty			18,667				20,000				10,000				48,667
John A. Rolls			18,667				20,000				10,000				48,667
Togo West			18,667				20,000				5,000				43,667

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of February 9, 2011 with respect to: (a) the shareholders known to us to own beneficially more than 5% of the outstanding common stock of FuelCell; (b) each of our directors; (c) each of our executive officers named in the Summary Compensation Table under the heading “Executive Compensation”; and (d), all of our directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and dispositive power with respect to all shares of common stock they beneficially own. Applicable percentage ownership is based on 124,013,034 shares of common stock outstanding. In computing the number of shares of common stock beneficially owned by a person and the applicable percentage ownership of that person, we deemed outstanding shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of February 1, 2011. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than one percent is denoted with an asterisk (“*”).

Unless indicated otherwise the address of each holder is in care of FuelCell Energy, Inc., 3 Great Pasture Road, Danbury, Connecticut 06813-1305.

								Number of
								Shares				Percentage
								Beneficially				Beneficially
Name		Position						Owned (1)				Owned
R. Daniel Brdar		Chairman of the Board of Directors			(2)				1,176,763				*
Christopher R. Bentley		Executive Vice President,
		Government R&D Operations,
		Strategic Manufacturing
		Development			(3)(4)				531,114				*
Arthur A. Bottone		President and Chief Executive
		Officer; Director Nominee							262,424				*
Joseph G. Mahler		Senior Vice President, Chief
		Financial Officer, Corporate
		Secretary, Treasurer, Corporate
		Strategy			(5)				574,685				*
Anthony F. Rauseo		Senior Vice President and Chief
		Operating Officer			(6)				206,725				*
Richard A. Bromley		Director			(8)				82,012				*
James Herbert England		Director			(7)(9)				295.652				*
James D. Gerson		Director			(10)				1,312,191				1.06	%
Thomas L. Kempner		Director			(11)				1,145,379				*
William A. Lawson		Director			(12)				169,475				*
George K. Petty		Director			(7)(13)				339,093				*
John A. Rolls		Director			(14)				528,136				*
Togo Dennis West, Jr.		Director			(15)				73,132				*
Capital Ventures International Heights Capital Management, Inc. 101 California Street, Suite 3250 San Francisco, CA 94111					(16)				10,160,428				8.19	%
Heartland Advisors, Inc. 789 N. Water St. Suite 500 Milwaukee, WI 53202					(17)				7,709,950				6.22	%
POSCO Power Posteel Tower, 20th Floor 735-3 Yeoksam-Dong, Gangnam-Gu Seoul 135-080, Korea					(18)				10,786,418				8.70	%
All Directors and Executive Officers as a Group		(13 persons)			(19)				6,503,671				5.23	%

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers, directors and persons who own more than ten percent of the issued and outstanding shares of Common Stock to file reports of beneficial ownership and changes in beneficial ownership with the SEC and to furnish copies of all Section 16(a) forms to the Company. To our knowledge, based solely on a review of the copies of such reports furnished to us and on written representations that no other reports were required, filings for the fiscal year ended October 31, 2010 were made on a timely basis with the exception of one late Form 4 filing for Mr. Kempner on March 30, 2010 and one late Form 4 filing for Mr. Rolls on March 29, 2010.

Certain Relationships and Related Transactions

It is the Company’s policy that related-party transactions are reviewed to ensure that the terms of such transactions are no less favorable to the Company than it could have obtained from an unaffiliated third party. The Audit and Finance Committee receives reviews related party transactions and any modifications thereto and consults with management, legal counsel, and the independent auditors to ensure that such transactions are effected and disclosed in conformity with applicable legal requirements and the Company’s Code of Ethics and Conduct Code of Conduct.

The below information is to the Company’s knowledge, based solely on a review of copies of reports furnished to the Company and representations of certain officers, directors and shareholders owning more than 5% of the Company’s Common Stock.

Enbridge Inc.

Messrs. England and Petty are each directors of Enbridge.

Enbridge is a global leader in energy transportation and distribution. We have a market development agreement for North America that includes current DFC product distribution and the DFC-ERG^® power plant that they co-developed with us. A 2.2 MW DFC-ERG unit was installed at Enbridge’s headquarters in Toronto during the fiscal fourth quarter of 2008. We also received final approval by the Connecticut Department of Public Utility Control under Connecticut’s Renewable Portfolio Standards program for a total of 18.8 MW of DFC-ERG power plants to be located at four natural gas distribution stations.

During fiscal year 2010, the Company recognized revenue of approximately $0.1 million related to spare part sales and power plant servicing provided to Enbridge. The Company believes that the terms of its transactions with Enbridge are no less favorable to the Company than it could have obtained from an unaffiliated third party.

The Company also has a Series 1 Preferred Share agreement held by our Canadian subsidiary, FCE Ltd with Enbridge. In 2010 we paid dividends to Enbridge of approximately $0.5 million under terms of thereof. In addition, we currently have an accrued dividend obligation totaling approximately $12.5 million due to Enbridge. The Company and Enbridge have been in negotiations to modify certain terms of the Series 1 preferred share agreement, and have agreed to extend the payment deadline to February 18, 2011 to continue these negotiations. Under the existing terms, FCE Ltd. has the option of meeting this obligation through a cash payment or with unregistered shares of FuelCell Energy, Inc. common stock. The Company is a guarantor of FCE Ltd’s obligations to Enbridge. Enbridge is currently negotiating new terms that, as proposed, may require payments in excess of those we believe we are obligated to pay. While the Company intends to achieve the most favorable outcome in light of its obligations under the Series 1 preferred shares, it can not presently predict the final terms of any agreement with Enbridge.

POSCO Power

POSCO Power, a subsidiary of our South Korean strategic distribution partner, POSCO, holds 10,786,418 shares; approximately 8.70% of the Company’s common stock of which 3,822,630 shares were acquired in February 2007 and 6,963,788 shares were acquired in October 2009. On October 27, 2009, we entered into a Stack Technology Transfer and License Agreement (the “2009 Agreement”) with POSCO Power allowing POSCO Power to produce fuel cell stack modules from cells and components provided by us. These fuel cell modules will be combined with balance of plant manufactured and locally sourced in South Korea to complete electricity-producing fuel cell power plants for sale in South Korea. The 2009 Agreement provided for an upfront license fee of $10.0 million as well as an ongoing royalty, initially set at 4.1 percent of the revenues generated by sales of the fuel cell stack modules manufactured and sourced by POSCO Power.

During the fiscal year 2010, the Company recognized revenue of approximately $40.1 million for power plant sales and long-term service agreements with POSCO Power. The Company believes that the terms of its transactions with POSCO Power are no less favorable to the Company than it could have obtained from an unaffiliated third party.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information with respect to the Company’s equity compensation plans and warrants as of the end of the fiscal year ended October 31, 2010.

Number of

Number of

securities

Common Shares

Weighted-

remaining

to be issued

average

available for

upon exercise of

exercise price

future

outstanding

of outstanding

issuance

options,

options,

under equity

warrants and

warrants and

compensation

Plan Category

rights

rights

plans

Plans approved by shareholders:

Equity incentive plans

5,116,601

$

10.15

2,005,181

Employee stock purchase plan

60.082

.97

127,703

Plans not approved by shareholders:

—

—

—

Total

5,176,683

$

11.12

2,132,884

AUDIT AND FINANCE COMMITTEE REPORT

During fiscal year 2010, the Audit and Finance Committee of the Board reviewed the quality and integrity of the Company’s consolidated financial statements, the effectiveness of its system of internal control over financial reporting, its compliance with legal and regulatory requirements, the qualifications and independence of KPMG LLP, its independent registered public accounting firm, the performance of KPMG LLP and other significant audit matters as required by the Company.

In performing its responsibilities, the Audit and Finance Committee has reviewed and discussed with management and KPMG LLP, the audited consolidated financial statements in FuelCell’s Annual Report on Form 10-K for the year ended October 31, 2010. The Audit and Finance Committee has also discussed with KPMG LLP matters required to be discussed by Statement of Auditing Standards 61, as amended (Codification of Statements on Auditing Standards, AU 380), as adopted by the Public Company Accounting Oversight Board (the “PCAOB”) in Rule 3200 T.

Pursuant to the applicable requirements of the PCAOB regarding the independent auditors’ communication with the Audit and Finance Committee concerning independence, the Audit and Finance Committee received written disclosure and the letter from the independent auditors, and discussed with the auditors their independence. The Audit Committee has concluded that KPMG’s independence had not been impaired.

Based on the review and discussions noted above, the Audit and Finance Committee recommended to the Board that the Company’s audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010 and be filed with the U.S. Securities and Exchange Commission.

Submitted by:

Audit and Finance Committee
James D. Gerson (Chairman)
J. H. England
George K. Petty
John A. Rolls