option or be transferable by the optionee except by will or the laws of descent and distribution.
The maximum term of any such option would be five years, and the minimum option price would be the fair market value (or, if higher, the par value) of the optioned stock at the time of the granting of the option. On January 31, 1964, the fair market value of the common stock of the company (taken as the mean between the high and low prices of said stock on the New York Stock Exchange) was $47.125 per share.
The proposed plan would become effective on April 21, 1964, and would continue in effect until recalled or abolished. The board of directors would have the right to amend the plan subject to limitations stated therein.
It is expected that options under the plan would be granted upon the terms and conditions required for “qualified stock options” under Section 422(b) of the Internal Revenue Code as amended by the Revenue Act of 1964. Under the applicable provisions of said code, if the company grants an employee a “qualified stock option” specifying an option price not less than the fair market value of the optioned stock at the time of grant, and if the recipient exercises the option without having ceased to be an employee of the company or any of its subsidiaries at any time during the period from the grant of the option until three months before its exercise, and if no disposition of the stock transferred to the recipient upon exercise of the option is made by him within the three-year period beginning the day after such stock is so transferred, then, no taxable income will result at the time of the transfer of the stock to the recipient upon his exercise of the option, and any profit realized by the recipient from a sale or exchange of the stock (after the three-year holding period mentioned above) will be treated as a capital gain, and no deduction will be allowable at any time to the company with respect to the stock transferred to the recipient upon his exercise of the option.
No determination has yet been made as to the identity of the employees to whom options would be granted or as to the number of shares which would be optioned to any one person. The plan would permit more than one option to be granted to an employee, but in the aggregate not more than 6% of the shares available under the plan could be optioned to any one person.
Of the persons named in the Tables set forth above, only Messrs. H. E. Humphreys, Jr., George R. Vila and Frank J. McGrath, who are officers of the company, and Mr. James E. Lewis, who is an officer of a subsidiary, could qualify for options under the plan. No director, unless also an employee as defined in the plan, would be eligible.
Right of Appraisal of Dissenting Stockholders
Section 14:9-3 of the General Corporation Law of New Jersey provides that, if a corporation shall adopt a plan providing for the issue of new stock, any stockholder holding stock issued before April 15, 1920, not voting in favor of the plan, may obtain an appraisal of the market value of his stock, and the corporation thereafter shall pay to him the appraised value of such stock and the stock shall be transferred to the corporation. Any holder of such stock, wishing to avail himself of the right afforded by this statute upon the adoption of the proposed 1964 Stock Option Plan, must (a) give the company written notice of his dissent prior to the vote on the adoption of said plan at the forthcoming stock-