Limited provision for the granting of stock options to officers and employees is contained in the Bonus Plan; and, as described at pages 9-10 above, certain options were granted under the plan early in 1964. As of January 31, 1964, 42,570 unissued shares of the common stock of the company (being the same shares referred to in the immediately preceding paragraph) were available under the Bonus Plan for the granting of additional stock options. However, because the plan was first adopted more than ten years ago, it is uncertain whether the company could grant further options thereunder which would constitute “qualified stock options” under the Internal Revenue Code as amended by the Revenue Act of 1964.

Recommendations for awards under the Bonus Plan are acted upon by the executive committee or, in the case of Class A bonuses only, by the chairman of the board or the president. Such actions are taken pursuant to rules and regulations, as to eligibility and otherwise, prescribed by the board of directors. The granting of stock options under the Bonus Plan has been by action of a majority of the members of the board of directors not receiving such options.

The Bonus Plan authorizes the board of directors to make provision for the awarding of Class C bonuses to employees who equal or excel certain standards of performance. If this part of the plan should be implemented, such bonuses could be awarded without regard to the company’s earnings.

Final decisions with respect to questions arising under the Bonus Plan are made by the board of directors or the executive committee. The board of directors has the right to amend or repeal the plan but does not have the right to increase the amount which may be credited for any year to the Class B Bonus Fund.

If the Bonus Plan and the Management Incentive Plan are continued in effect, it is expected that, as in recent years, the number of annual participants under the Bonus Plan will be in the range of approximately 350-600 persons. It is also contemplated that recipients of Class B bonuses will, as in the past, be persons holding positions next in importance to those occupied by participants under the Management Incentive Plan.

Management Incentive Plan (Continuation of Which is Proposed)
The Management Incentive Plan permits the granting of a bonus award to any officer, employee or other person engaged in the business of the company who, during the year for which such award is granted, has rendered outstanding services to the company in an important managerial or other responsible position and has contributed significantly to the success of the company.

Awards under the Management Incentive Plan may be granted in the form of cash, participation units, participation units accompanied by a stock option, or a combination of cash and participation units with or without an accompanying stock option. Each participation unit entitles the recipient, or, in the event of death, his successors, to receive cash payments equivalent to the dividends, other than stock dividends, on one share of the common stock of the company from the time of the award of the participation unit until the time of the recipient’s death or the 85th anniversary of his birth, whichever is later. An award of participation units may be accompanied by an option to purchase common stock of the company at not less than the mean price of said stock on the New York Stock Exchange on the day of the granting of the option; however, the participation units accompanied by such stock option

are cancelled pro rata upon any exercise of the option. No such stock option may be for a number of shares greater than three times the number of the participation units in conjunction with which it is granted. Subject to adjustment in certain specified events, the maximum number of shares of the common stock of the company as to which stock options may be exercised by all participants under the Management Incentive Plan is 200,000, of which 153,029 shares were available as of January 31, 1964, for the granting of additional options.

The amount available with respect to any year for the granting of bonus awards under the Management Incentive Plan is stated in the plan to be the same amount as is credited to the Class B Bonus Fund for that year under the Bonus Plan. If the stockholders should vote to continue the Management Incentive Plan but not the Bonus Plan, the board of directors would amend the Management Incentive Plan by deleting that reference to the Bonus Plan and by substituting a formula pursuant to which the amounts thereafter available under the Management Incentive Plan would be determined on the same basis as that heretofore used to determine the amounts credited to the Class B Bonus Fund.

Of the total amount available for any year under the Management Incentive Plan, a portion specified by the board of directors is divided by the mean price of one share of the common stock of the company on the New York Stock Exchange on the last trading day of the year to determine the number of participation units awardable for such year, and the remainder of said amount is credited to a Management Incentive Account from which cash awards are made. Any amount credited to the Management Incentive Account for a particular year but not used for cash awards for that year may be carried forward and used for subsequent cash awards, but unawarded participation units may not be carried forward.

As explained at page 11 above, no amount was credited to the Class B Bonus Fund for 1963, and, therefore, no amount became available with respect to that year for awards under the Management Incentive Plan. The amount which became available for 1962 was $145,204, of which 50% was specified by the board of directors as the amount determinative of the number of participation units awardable for that year, and the balance of $72,602 (plus $479 carried forward from a prior year) was distributed in the form of cash awards. As described at pages 9-10 above, stock options were granted early in 1963 to accompany participation units awarded for 1962.

A salary and bonus committee, appointed by the board of directors and composed of directors not eligible to receive awards, determines which persons are to be granted bonus awards under the Management Incentive Plan and the type and amount of each such award. Said committee also determines, subject to the provisions of the plan and of rules and regulations prescribed by the board of directors, the terms and conditions applicable to such awards.

Final decisions with respect to questions arising under the Management Incentive Plan are made by the board of directors or the salary and bonus committee. The board of directors has the right to modify or repeal the plan subject to limitations stated therein.

If the Management Incentive Plan and the Bonus Plan are continued in effect, it is expected that, as in recent years, the number of annual participants under the Management Incentive Plan will be substantially the same as the number of annual participants under the Bonus Plan.

Management Incentive Plan adopted in 1959. Information concerning these plans and the awards made thereunder is set forth below.

Each of the plans requires that the board of directors submit to the stockholders, at intervals of no more than five years, the question of whether the plan, in its existing form or a revised form, shall be continued in effect. That question with respect to each plan in its existing form will be submitted to the stockholders for their consideration at the forthcoming annual meeting.

In the judgment of the board of directors, these plans have worked well and have served the best interests of the company and its stockholders. At its meeting held January 8, 1964, the board passed a resolution declaring it advisable, and recommending to the stockholders, that the Bonus Plan and the Management Incentive Plan be continued in effect in their respective existing forms.

Bonus Plan (Continuation of Which is Proposed)
The Bonus Plan permits the granting of Class B bonus awards to those who have contributed most in a general way to the success of the company by their ability, industry and loyalty. Although any officer, employee or other person engaged in the business of the company may qualify for a Class B bonus, in practice such awards are not made to persons participating under the Management Incentive Plan for the same period.

Awards of Class B bonuses are made from a Class B Bonus Fund to which is credited for each year an amount fixed by the board of directors. Such amount for any year may not be more than 10% of the adjusted net income for such year in excess of 6% of the capital employed during that year. “Adjusted net income” for any year is the company’s consolidated net income, (a) less that portion of such income representing earnings retained, after income taxes, in respect of the amount determinative of the number of participation units awardable under the Management Incentive Plan, and (b) plus (i) the interest on long-term debt, (ii) the amount credited to the Class B Bonus Fund, and (iii) the amount available for bonus awards under the Management Incentive Plan. “Capital employed” is the aggregate of capital stock, earned surplus, capital surplus and long-term debt of the company, on a consolidated basis.

Because the adjusted net income for 1963 was less than 6% of the capital employed, no amount was available for crediting to the Class B Bonus Fund for that year. The average of the annual amounts credited to that fund for the four years 1959-1962 was $763,622.

Provision is made in the Bonus Plan for the granting of Class A bonuses for conspicuous service of any nature. Such awards may be granted irrespective of the company’s earnings. Awards of this type have been made from time to time, but the aggregate amount of such awards has not been large.

The Bonus Plan permits Class A and Class B awards to be made in cash or in newly issued shares of common stock of the company (42,570 shares having been available for issue for this purpose as of January 31, 1964) or in shares of such stock purchased in the market; however, all such awards have been made entirely in cash for many years. If newly issued shares of stock should be used for this purpose in the future, such shares could not be issued at prices less than 66-2/3% of the market value thereof as determined by the board of directors in accordance with the provisions of the plan.