2019 Stock Option and Incentive Plan

Approval of 1997 Incentive Stock Option Plan

§18.103 To approve a Stock Incentive Plan which provides for the grant of Incentive Stock Options and Stock Appreciation Rights (with a copy of the Stock Incentive Plan)

In June 1986, shareholders authorized the 1986 Incentive Stock Option Plan of the Company. That plan for 150,000 shares expired in March 1996, although the Company has reserved 60,000 shares of its Common Stock for issuance under pre-existing options. At present, the Company has no means to issue options for freely tradeable, tax-favored shares of Common Stock to its officers and employees.

On January 9, 1997, the Board of Directors authorized, effective upon approval by the shareholders, the 1997 Incentive Stock Option Plan (the “ISO Plan”), a copy of which is Appendix A hereof. The ISO Plan permits the grant to officers and key employees of the Company and its subsidiaries of options to purchase up to 500,000 shares of the Common Stock. The purpose of the ISO Plan is to enable the Company and its subsidiaries to secure and retain the services of highly qualified persons and to promote in their employees additional interest in the successful operation of the business.

Rule 16b-3 under the Securities Exchange Act of 1934, as amended, provides that the acquisition of stock pursuant to a stock option is a transaction exempt from the provisions of Section 16(b) under such Act if, among other requirements, the affirmative vote of holders of at least a majority of the outstanding Common Stock is obtained for approval of the ISO Plan. The ISO Plan is being submitted for shareholder approval in order to comply with that requirement of Rule 16b-3 as well as certain federal tax law provisions. The Board of Directors recommends that shareholders vote for the ISO Plan.

Administration and Eligibility

The ISO Plan shall be administered by the Compensation and Stock Option Committee of the Board of Directors (the “Committee”), which shall consist of not less than three directors of the Company as appointed by the Board of Directors. The Committee has complete power and authority to make rules for administration of the ISO Plan and to make all determinations required under the ISO Plan.

Options may be awarded only to such key employees of the Company and its subsidiaries (including officers who are also directors of the Company, but not directors who are not also officers) who have substantial responsibility in the direction and management of the Company. The grant and exercise of options is governed by Section 422A of the Internal Revenue Code (the “Code”).

Terms and Conditions of Options

The exercise price of any option granted may not be less than the fair market value of the Common Stock on the date the option is granted. However, the exercise price for options granted to any employee (“Stockholder Employee”) owning stock (using the attribution of stock ownership rules of Section 425(d) of the Code), possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its affiliates on the date the option is granted, must be at least 110% of the fair market value of the Common Stock on the date the option is granted.

The term of options granted under the ISO Plan, and the vesting schedule thereof, shall be determined by the Committee but shall not exceed ten years. In the past, most incentive options have been exercisable in three to five equal annual installments, generally commencing on the first anniversary of the date of grant, and expired in six years. An option shall be exercisable at such time and upon such conditions as determined by the Committee at the time of grant by delivering payment to the Company of either or both of cash or shares of Common Stock equal in value to the exercise price. No option granted under the ISO Plan may be exercised by an optionee while there is outstanding any other incentive stock option previously granted to the optionee.

Options are non-transferable other than by will or the laws of descent and distribution. In the event an optionee’s employment terminates, including upon death or disability of the optionee, the option granted the employee terminates three months after such termination of employment, except the Committee may terminate an option of an optionee if his employment is terminated for cause.

Stock Appreciation Rights

Stock appreciation rights may be granted in connection with options granted under the ISO Plan upon such terms and conditions as the Committee may prescribe. However, the Committee does not intend to grant options containing stock appreciation rights. Stock appreciation rights provide a right to receive the excess of the fair market value of a share of the Common Stock on the date the appreciation right is exercised over the option price of the related option. A stock appreciation right terminates upon the expiration or termination of the related option. At the Committee’s discretion, stock appreciation rights may be paid in cash or in shares of Common Stock or a combination of cash and Common Stock.

Antidilution

In the event of a change in the Common Stock as a result of a recapitalization, reorganization, stock dividend or similar event, the number of authorized but unissued shares for which options may be granted under the ISO Plan, the number of shares subject to each option and the exercise price thereof shall be appropriately adjusted by the Committee.

In the event of a merger or consolidation in which the Company is not the surviving entity, the option holder shall receive, upon exercise of the option, the securities or property to which he would have been entitled had he been a shareholder before such merger or consolidation.

Miscellaneous Features of the ISO Plan

The ISO Plan will terminate on April 20, 2007, unless sooner terminated by the Board of Directors. Termination of the ISO Plan shall not alter or impair any of the rights or obligations or any option theretofore granted under the ISO Plan.

The ISO Plan may at any time be terminated, modified, or amended by the Board of Directors, except that the Board may not: (a) decrease the minimum exercise price; (b) extend the term of the ISO Plan beyond ten years or the terms of the options or rights granted beyond ten years; (c) alter any outstanding option or rights agreement to the detriment of the optionee without his consent; or (d) decrease the option price applicable to any option.

Federal Income Tax Consequences

The ISO Plan is intended to qualify as an incentive stock option plan under Section 422A of the Code. If the ISO Plan qualifies as such, then an employee who receives an incentive stock option will not be deemed to recognize income either at the time of the grant of the option or, assuming that the optionee has been an employee at all times during the period beginning on the date of grant and ending three months prior to the date of exercise, at the time of the exercise of the option.

In the case of an employee who is disabled within the meaning of Section 105(d)(4) of the Code, the optionee must have been an employee at all times during the period beginning on the date of grant and ending one year prior to the date of exercise. Gain or loss from the sale or exchange of stock acquired upon such exercise will generally be treated as capital gain or loss, provided that such sale or exchange of the shares does not occur within either the two year period after the date of the granting of the option or the one year period after such shares were acquired. Under these circumstances, no deduction will be allowable to the Company in connection with either the grant of such options or the issuance of shares upon exercise thereof.

If a disposition of shares acquired pursuant to the exercise of an incentive stock option is made within either the two year period after the date of granting of the option or the one year period after the shares were acquired, the optionee will generally recognize compensation income at the time of disposition to the extent of the excess over the option price of the lesser of the amount realized or the fair market value of the shares at the time of exercise.

Upon the exercise of an incentive stock option, the excess of the fair market value of the shares at the time of exercise over the option price will be an item of tax preference for purposes of the alternative minimum tax.

In the event that options granted under the ISO Plan do not qualify as incentive stock options (“non-incentive options”), the employee will recognize compensation income upon the exercise of the non-incentive option if the shares issued pursuant to such exercise are either transferable or not subject to substantial risk of forfeiture.

Any long term capital gain income recognized in connection with an incentive or non-incentive option would be a tax preference item for purposes of computing the “alternative minimum tax” to the extent of the excess of the holder’s net long term capital gains over his net short term capital losses in the year the shares are sold.

The above summary is based upon an interpretation of present federal income tax laws and regulations as of the date hereof. This summary is not intended to cover all aspects of federal law or any state or local tax law which may be applicable to the ISO Plan.

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