In 2009, we established a 2009 Director Supplemental Defined Contribution Plan, or Director DC Plan, which is a non-qualified deferred compensation plan for our directors. Under the Director DC Plan, eligible directors can defer up to 100% of their cash retainer, attendance fees, and/or restricted share units for pre-tax savings opportunities. The investment options available to the eligible directors are the same investment options offered under our 401(k) Plan. Eligible directors’ contributions and earnings are always 100% vested. Distributions under the Director DC Plan may be made only upon a Separation of Service (as defined in the Director DC Plan). Distributions are paid in a lump sum or in annual installments over a maximum of 10 years. We do not pay above-market interest rates or provide preferential earnings.

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AUDIT COMMITTEE

Audit Committee Report

The Audit Committee oversees our accounting and financial reporting processes and the audits of financial statements. The Audit Committee selects our independent auditors. The Audit Committee is composed of three directors, each of whom is independent as defined under the rules of the Nasdaq Stock Market and SEC rules. Currently, the Audit Committee is composed of Messrs. Auletta, Greene and Wert. The Audit Committee operates under a written charter adopted by the Board.

Management is responsible for our internal controls and financial reporting process. The independent auditors are responsible for performing an independent audit of our consolidated financial statements in accordance with auditing standards generally accepted in the United States and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.

In connection with these responsibilities, the Audit Committee met with management and Ernst & Young LLP to review and discuss the audited consolidated financial statements for the year ended December 31, 2011. The Audit Committee discussed with Ernst & Young LLP its judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required by Statement on Auditing Standards No. 114 (Auditor’s Communication With Those Charged With Governance), as amended, as adopted by the Public Company Accounting Oversight Board. In addition, the Audit Committee has received the written disclosures and the letter from Ernst & Young LLP required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountants communications with the Audit Committee concerning independence, and has discussed with Ernst & Young LLP its independence from management and has considered the compatibility of non-audit services with the auditors’ independence.

The Audit Committee meets with the internal and independent auditors, with and without management present, to discuss the overall scope and plans for their respective audits, the results of audit examinations, their evaluations of our internal controls, and the overall quality of our financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

Patrick V. Auletta, Chair

Kevin R. Greene

James W. Wert

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PROPOSAL NO. 2

RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS

The Audit Committee has appointed Ernst & Young LLP our independent auditors to examine our financial statements and those of our subsidiaries for the fiscal year ending December 31, 2012. During fiscal year 2011, Ernst & Young LLP examined our financial statements and those of our subsidiaries, including those set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011. The Board recommends ratification of the appointment of Ernst & Young LLP.

Representatives of Ernst & Young LLP are expected to be present at the Annual Meeting and have an opportunity to make a statement at the Annual Meeting, if they so desire, and will be available to respond to appropriate shareholders’ questions.

Vote Required and Recommendation of the Board

Although shareholder approval of this appointment is not required by law or binding on the Audit Committee, the Audit Committee believes that shareholders should be given the opportunity to express their views. If the shareholders do not ratify the appointment of Ernst & Young LLP as our independent auditors, the Audit Committee will consider this vote in determining whether or not to continue the engagement of Ernst & Young LLP. Abstentions will have no effect on the ratification of the appointment of Ernst & Young LLP.

YOUR BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE RATIFICATION OF THIS APPOINTMENT.

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INDEPENDENT AUDITOR FEE INFORMATION

The following table presents fees for services rendered by Ernst & Young LLP in each of the last two fiscal years:

Audit fees included fees associated with the annual audit, the reviews of quarterly reports on Form 10-Q, statutory audits required internationally and the audit of management’s assessment of internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002. Audit-related fees principally included fees in connection with pension plan audits and accounting consultations. Tax fees included fees in connection with tax compliance and tax planning services.

Pre-approval policy

The Audit Committee has adopted a formal policy on auditor independence requiring the approval by the Audit Committee of all professional services rendered by our independent auditor prior to the commencement of the specified services.

All of the services described in “Audit-Related Fees” and “Tax Fees” were pre-approved by the Audit Committee in accordance with the Audit Committee’s formal policy on auditor independence.

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PROPOSAL NO. 3

FOURTH AMENDMENT AND RESTATEMENT OF THE PARK-OHIO HOLDINGS CORP.

AMENDED AND RESTATED 1998 LONG-TERM INCENTIVE PLAN

As described under “Executive Compensation — Equity Compensation” herein, we have in effect the Park-Ohio Holdings Corp. Amended and Restated 1998 Long-Term Incentive Plan, or the 1998 Plan, pursuant to which certain of our and our subsidiaries’ employees have been granted awards. The 1998 Plan was originally approved by our shareholders at the May 28, 1998 annual meeting of shareholders. An amendment to the 1998 Plan to increase the number of shares available for award to 1,650,000 and increase the limit to 500,000 the number of shares that may be granted to any individual participant in any one calendar year was approved by our shareholders at the May 24, 2001 annual meeting of shareholders. A second amendment to the 1998 Plan to increase the number of shares available for award to 2,650,000 was approved by our shareholders at the May 25, 2006 annual meeting of shareholders. A third amendment to the 1998 Plan to increase the number of shares available for award to 3,100,000 was approved by our shareholders at the May 28, 2009 annual meeting of shareholders.

The 1998 Plan provides an opportunity for our employees and directors and the employees of our subsidiaries to participate, through share ownership, in our long-term success and growth. This participation enhances our ability to attract and retain persons with desired abilities, provides additional incentives for such persons and furthers the common interests of our employees and shareholders.

In March 2012, our Board of Directors approved, subject to shareholder approval, additional amendments to the 1998 Plan. These amendments include the addition of 600,000 shares to the shares available under the 1998 Plan. The 1998 Plan has been amended and restated to reflect all of the terms of the 1998 Plan, including the amendments approved by our Board of Directors. We refer to the 1998 Plan, as further amended and proposed to be approved by our shareholders, as the Amended and Restated 1998 Plan.

A summary of the principal change to the 1998 Plan contained in the Amended and Restated 1998 Plan is set forth below under “Summary of Change,” followed by a summary description of the entire Amended and Restated 1998 Plan. The full text of the Amended and Restated 1998 Plan is attached to this Proxy Statement as Appendix A, and the following summaries are qualified in their entirety by reference to Appendix A.

Section 162(m)

To ensure that performance-based compensation over $1 million payable to our CEO and certain other highly compensated executive officers is tax-deductible and qualifies under Section 162(m) of the Internal Revenue Code, or the Code, the material terms of performance-based compensation plans, including the employees eligible to receive compensation under the plan, a description of the business criteria on which the performance goal is based and the maximum amount of compensation that could be paid to any employee under the plan (or the formula used to calculate the amount of compensation to be paid to the employee), must be approved by our shareholders. The Amended and Restated 1998 Plan is designed to provide for this type of performance-based compensation.

In accordance with current tax laws, shareholder approval lasts for approximately five years, and as such, we are also asking our shareholders to extend qualification of the Amended and Restated 1998 Plan under Section 162(m) of the Code for incentives established within the next five years.

Summary of Change

Available Shares.    The Amended and Restated 1998 Plan increases the number of shares of our Common Stock available by 600,000 shares to a total of 3,700,000 shares. The 1998 Plan, as amended in 2009, authorized the issuance of an aggregate of 3,100,000 shares of our Common Stock. As of March 30, 2012, 2,727,182 of

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these shares of Common Stock had been issued under the 1998 Plan, 228,334 shares of Common Stock were subject to outstanding awards and 144,484 shares of Common Stock were available for future awards. The Amended and Restated 1998 Plan provides that we may use shares available under a pre-existing, shareholder-approved plan of a company acquired by us for awards under the Amended and Restated 1998 Plan that are made prior to the expiration of the pre-existing plan to persons who were not employees or directors of ours or any subsidiary prior to such acquisition without decreasing the number of shares available for grant under the Amended and Restated 1998 Plan.

Summary of the Amended and Restated 1998 Plan

The following is a summary of the principal features of the Amended and Restated 1998 Plan.

Plan Participants.    All of our employees and directors and the employees of our direct and indirect subsidiaries and other persons whose selection the Compensation Committee determines to be in our best interests are eligible to receive awards. At present, there are approximately 3,000 persons who are eligible to participate in the 1998 Plan, including the named executive officers.

Plan Administration.    The Amended and Restated 1998 Plan is administered by the Compensation Committee, which has authority to interpret the Amended and Restated 1998 Plan, to grant waivers of the Amended and Restated 1998 Plan restrictions and to adopt such rules, regulations and policies for carrying out the Amended and Restated 1998 Plan as it may deem necessary or proper in order to further the purposes of the Amended and Restated 1998 Plan. In particular, the Compensation Committee has the authority to (i) select participants, (ii) determine the number and type of awards to be granted, (iii) determine the terms and conditions, not inconsistent with the terms of the Amended and Restated 1998 Plan, to any award granted, (iv) interpret the terms and provisions of the Amended and Restated 1998 Plan and any award granted, (v) prescribe the form of any agreement, instrument, or other evidence of an award, and (vi) establish, amend and rescind such rules, regulations and policies for the administration of the Amended and Restated 1998 Plan as it may deem advisable from time to time. At least three members of the Compensation Committee must qualify as “non-employee directors” within the meaning of Rule 16b-3 under the Exchange Act and “outside directors” within the meaning of Section 162(m) of the Code and must satisfy any applicable standards of independence under the federal securities and tax laws and the listing standards of the Nasdaq Stock Market. The Compensation Committee may delegate its duties and powers as it deems advisable. The Compensation Committee may authorize one or more of our officers to designate individuals to be recipients of awards and to determine the size of awards, but only if the authorization does not permit any officer to grant awards to an officer, director or person who is a more than 10% beneficial owner and the resolution provides the total number of shares to be granted. Any officer who is granted such power must periodically report to the Compensation Committee on the nature and scope of the awards granted.

No Repricing.    The Compensation Committee may not authorize the amendment of any outstanding stock option right or SAR to reduce the exercise price, and, except in connection with an adjustment involving a corporate transaction or event as provided for in the Amended and Restated 1998 Plan, no outstanding stock option right or SAR may be cancelled in exchange for other awards or cancelled in exchange for option rights or SARs having a lower exercise price or cancelled in exchange for cash, without the approval of our shareholders.

Awards Available under the 1998 Plan.    Awards under the Amended and Restated 1998 Plan may be in the form of stock options (either “incentive stock options” within the meaning of Section 422 of the Code or nonstatutory stock options), SARs, restricted shares, performance shares or stock awards.

Stock options will be exercisable in whole or in such installments and at such times and upon such terms as may be determined by the Compensation Committee, provided that no stock options will be exercisable more than ten years after the date of grant. The exercise price of any option may not be less than the fair market value of a share of Common Stock on the date of the grant. Participants may pay the exercise price of a stock option in cash, Common Stock, or a combination of cash and Common Stock.

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SARs entitle the recipient to receive a payment, in cash or Common Stock, equal to the appreciation in market value of a stated number of shares of Common Stock from the exercise price to the fair market value on the date of exercise or surrender. SARs may be granted either separately or in conjunction with other awards granted under the Amended and Restated 1998 Plan. The exercise price of any SAR may not be less than the fair market value of a share of Common Stock on the date of grant. Any SAR related to a nonstatutory stock option may be granted at the same time such option is granted or at any time thereafter before exercise or expiration of such option. Any SAR related to an incentive stock option must be granted at the same time such option is granted. Any SAR related to an option will be exercisable only to the extent the related option is exercisable and such SAR (or the applicable portion thereof) will terminate and will no longer be exercisable upon the termination or exercise of the related option. Similarly, upon exercise of a SAR as to some or all of the shares of Common Stock covered by a related option, the related option shall be canceled automatically to the extent of the SARs exercised, and such shares of Common Stock will not thereafter be eligible for grant. No SAR may be exercised more than 10 years after the date of grant.

Restricted shares of Common Stock may be awarded in such numbers and at such times as the Compensation Committee determines. Awards of restricted shares will be subject to such terms, conditions or restrictions as the Compensation Committee deems appropriate including, but not limited to, restrictions on transferability, requirements of continued employment, and certain individual and company performance measures. The period of vesting and forfeiture restrictions will be established by the Compensation Committee at the time of grant, except that no restriction period may be less than 12 months. During the period in which any restricted shares are subject to forfeiture restrictions, the Compensation Committee may, in its discretion, grant to the participant to whom such shares have been awarded all or any of the rights of a shareholder with respect to such restricted shares, including the right to vote such shares and to receive dividends with respect to such shares, but any dividends or other distributions issued on restricted shares based on performance measures will be deferred and reinvested in additional restricted shares until the achievement of the applicable performance measures. To the extent an award of restricted shares is intended to be “qualified performance-based compensation” under Section 162(m) of the Code, the achievement of any applicable performance measures will be certified by the Compensation Committee.

Awards may be made in the form of performance shares, which are shares of Common Stock that are earned only after the attainment of predetermined performance measures as established by the Compensation Committee at the time an award is made. At the end of the applicable performance period, performance shares will be converted into shares of Common Stock (or cash or a combination of shares of Common Stock and cash) and distributed to participants based upon the applicable performance entitlement. To the extent an award of performance shares is intended to be “qualified performance-based compensation” under Section 162(m) of the Code, the achievement of any applicable performance measures will be certified by the Compensation Committee. Award payments made in cash rather than the issuance of shares will not, by reason of such payment in cash, result in additional shares being available under the Amended and Restated 1998 Plan.

Awards may be made in shares of Common Stock or on a basis valued in whole or in part by reference to, or otherwise based upon, shares of Common Stock. Stock awards will be subject to conditions established by the Compensation Committee.

Performance Measures.    Performance measures are established by the Compensation Committee pursuant to the terms of the Amended and Restated 1998 Plan for participants who have received awards under the Amended and Restated 1998 Plan. Performance measures may be described in terms of company-wide objectives or objectives that are related to the performance of the individual participant or of the subsidiary or division, segment, department, region or function within the company or subsidiary of the company in which the participant is employed. The performance measures may be made relative to the performance of one or more other companies or an index. The performance measures applicable to any award intended to satisfy the requirements for “qualified performance-based compensation” under Section 162(m) of the Code will be based on specified levels of or growth or improvement in one or more of the following criteria: (i) revenues;

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(ii) operating income; (iii) net income; (iv) earnings per share; (v) return on equity; (vi) cash flow; (vii) shareholder total return; (viii) return on assets; (ix) return on investment; (x) asset turnover; (xi) liquidity; (xii) capitalization; (xiii) stock price; (xiv) expenses; (xv) operating profit and margin; (xvi) retained earnings; (xvii) market share; (xviii) sales to targeted customers; (xix) customer satisfaction; (xx) quality measures; (xxi) productivity; (xxii) safety measures; or (xxiii) educational and technical skills of employees. In the case of an award intended to be “qualified performance-based compensation” under Section 162(m) of the Code, each performance measure that is a financial measure will be determined in accordance with generally accepted accounting principles as consistently applied by us. If provided for in the evidence of an Award, if the Compensation Committee determines that a change in our business, operations, corporate structure or capital structure, or the manner in which we conduct our business, or other events or circumstances render the performance measures unsuitable, the Compensation Committee may in its discretion modify such performance measures or the related minimum acceptable level of achievement, in whole or in part, as the Compensation Committee deems appropriate and equitable, including to exclude the effects of extraordinary items, unusual or non-recurring events, cumulative effects of tax or accounting changes, discontinued operations, acquisitions, divestitures and material restructuring or asset impairment charges, except where such action would result in the loss of the otherwise available exemption of the award under Section 162(m) of the Code. In such case, the Compensation Committee will not make any modification of the performance measure or minimum acceptable level of achievement. Performance measures may vary from performance period to performance period and from participant to participant and may be established on a stand-alone basis, in tandem or in the alternative.

Shares Available for Issuance.    Subject to adjustment in the event of any change in the number of outstanding shares by reason of a reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation or any change in our corporate structure or capital stock, the aggregate number of shares of Common Stock that may be awarded under the Amended and Restated 1998 Plan is 3,700,000, assuming the Amended and Restated 1998 Plan described in this Proxy Statement is adopted by the shareholders, all of which may be incentive stock options, or ISOs. No more than 500,000 shares shall be the subject of awards to any individual participant in any one calendar year. Shares issuable under the Amended and Restated 1998 Plan may consist of authorized and unissued shares of Common Stock or shares of Common Stock held in treasury.

Shares of our Common Stock issued as substitution awards in connection with an acquisition of another entity by us will not decrease the number of shares available for awards under the Amended and Restated 1998 Plan. In addition, we may use shares under a pre-existing, shareholder-approved plan of a company acquired by us for awards under the Amended and Restated 1998 Plan, which shares will not decrease the number of shares available for grant under the Amended and Restated 1998 Plan. However, such shares may only be used for grants of awards made prior to the expiration of the pre-existing plan and to persons who were not employees or directors of ours or any of our subsidiaries prior to such acquisition. If shares subject to an award under the Amended and Restated 1998 Plan are forfeited or if the award otherwise terminates without the issuance of shares or cash in lieu of shares, the shares forfeited or subject to the termination will again be available for grant.

Adjustments.    The Compensation Committee must make adjustments in the numbers of shares covered by outstanding awards, and in the kind of shares covered, as the Compensation Committee, in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of participants that otherwise would result from any stock dividend, stock split, combination of shares, recapitalization or other change in our capital structure, any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation, extraordinary cash dividend or other distribution of assets or issuance of rights or warrants to purchase securities, or any other corporate transaction or any similar event. In the event of any such transaction or a change in control, the Compensation Committee, in its discretion, may provide in substitution for any or all outstanding awards under the Amended and Restated 1998 Plan such alternative consideration (including cash), if any, as it, in good faith, may determine to be equitable in the circumstances and may require in connection therewith the surrender of all awards so replaced in a manner that complies with Section 409A of the Code. In addition, for each stock option or SAR with an exercise price or base

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price greater than the consideration offered in connection with any such transaction or event or change in control, the Compensation Committee may in its sole discretion elect to cancel such stock option or SAR without any payment to the person holding such stock option or SAR. The Compensation Committee must also make or provide for such adjustments in the numbers of shares provided for under the Amended and Restated 1998 Plan and the maximum number of shares that may be awarded to any individual participant in a calendar year as the Compensation Committee in its sole discretion, exercised in good faith, may determine is appropriate to reflect any transaction or event described above; provided, that any such adjustment to the number provided for under the Amended and Restated 1998 Plan regarding incentive stock options will be made only if and to the extent that such adjustment would not cause any stock option intended to qualify as an incentive stock option to fail so to qualify. Additionally, we may eliminate fractional shares or settle fractional shares in cash.

Effect of a Change in Control.    In the event of a Change in Control (as defined in the Amended and Restated 1998 Plan), and except as the Board may expressly provide otherwise, (i) all stock options or SARs then outstanding will become fully exercisable as of the date of the Change in Control, whether or not then otherwise exercisable, (ii) all restrictions and conditions of all awards of restricted shares or other stock-based awards then outstanding shall be deemed satisfied as of the date of the Change in Control, and (iii) all awards of performance shares will be deemed to have been fully earned as of the date of the Change in Control. A definition of “Change in Control” is included in the Amended and Restated 1998 Plan, which is attached hereto as Appendix A.

Amendment of the Amended and Restated 1998 Plan.    The Board may amend, suspend or terminate the Amended and Restated 1998 Plan at any time, provided that no such action shall be taken that would impair the rights under an outstanding award without the participant’s consent. Similarly, the Board may amend the terms of any outstanding award, prospectively or retroactively, but no such amendment shall impair the rights of any participant without the participant’s consent and no such amendment shall have the effect, with respect to any award that is intended to be “qualified performance-based compensation” under Section 162(m) of the Code, of increasing the amount of any award from the amount that would otherwise be payable pursuant to the formula and/or goals previously established for such participant. In addition, if an amendment to the Amended and Restated 1998 Plan must be approved by the Company’s shareholders to comply with applicable law or the rules of the Nasdaq Stock Market, then such amendment will be subject to shareholder approval and will not be effective until the shareholder approval is obtained. Also, the Board may not amend Section 13 of the Amended and Restated 1998 Plan containing the above limitation and the “no repricing” limitation described above without shareholder approval.

Non-Assignability.    Except as may be otherwise provided in the relevant award agreement, no award or any benefit under the Amended and Restated 1998 Plan will be assignable or transferable, or payable to or exercisable by, anyone other than the participant to whom it was granted.

Duration of the 1998 Plan.    The Amended and Restated 1998 Plan shall continue in effect until terminated by the Board, at which time all outstanding awards shall remain outstanding in accordance with their applicable terms and conditions.

Compliance with Section 409A of the Code.    The American Jobs Creation Act of 2004, enacted on October 22, 2004, revised the federal income tax law applicable to certain types of awards that may be granted under the Amended and Restated 1998 Plan. To the extent applicable, it is intended that the Amended and Restated 1998 Plan and any awards made thereunder comply with the provisions of Section 409A of the Code. The Amended and Restated 1998 Plan and any awards made thereunder will be administrated in a manner consistent with this intent.

Recoupment and Restricted Covenants.    Any evidence of award may allow us to recoup all or any portion of an award if our financial statements are required to be restated in connection with the participant’s misconduct, and may include restrictive covenants that must be complied with during employment and within a specified period of time after termination of employment as a condition to receipt or retention of all or any portion of an award.

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Plan Benefits.    It is not possible to determine specific amounts and types of awards that may be awarded in the future under the Amended and Restated 1998 Plan because the grant and actual pay-out of awards under the Amended and Restated 1998 Plan are discretionary.

Certain Federal Income Tax Consequences

The following summary generally describes the principal federal income tax consequences under current tax laws of certain events under the Amended and Restated 1998 Plan. The summary is general in nature and is not intended to cover all tax consequences that may apply to a particular participant or to us, nor does it describe foreign, state or local tax consequences.

Section 409A of the Code generally became effective January 1, 2005, and primarily covers most programs that defer receipt of compensation to a succeeding year. It provides strict rules for elections to defer (if any) and for timing of payouts. There are significant penalties placed on the individual employee for failure to comply with Section 409A of the Code. However, it does not impact our ability to deduct deferred compensation.

Section 409A of the Code generally does not apply to ISOs, non-qualified option rights and appreciation rights, and restricted shares. Section 409A of the Code may apply to performance shares and other awards.

No income will result to a participant upon the grant or exercise of an ISO provided that: (i) there is no disposition of stock received upon exercise of an ISO within two years from the date the ISO is granted or within one year from the date the ISO is exercised, which we refer to as the ISO holding periods; and (ii) the participant is our employee or an employee of a subsidiary of ours at all times during the period commencing on the date of grant and ending on the date three months (or one year in the case of a participant who is totally and permanently disabled) prior to the date of exercise. The exercise of an ISO, however, may result in alternative minimum tax liability.

In the event of a disposition of stock received upon exercise of an ISO after the ISO holding periods have been satisfied, any gain or loss, equal to the difference between the amount realized upon such disposition and the option price, generally will be taxable as capital gain or loss. In the event of a disposition of stock received upon exercise of an ISO prior to the expiration of the ISO holding periods, the participant will generally recognize ordinary income equal to the excess of the fair market value of such stock at the time of exercise (or, if less, the amount realized upon such disposition if a sale or exchange) over the option price. If the amount realized upon such disqualifying disposition exceeds the fair market value of such stock at the time of exercise, the excess will be taxable as capital gain.

We will not be entitled to a tax deduction upon the grant or exercise of an ISO. In the event that a participant recognizes ordinary income as a result of a disposition of stock received upon exercise of an ISO prior to the expiration of the ISO holding periods, we generally will be entitled to a deduction in an amount equal to the ordinary income recognized by the participant.

No income is recognized upon the grant of a nonstatutory stock option to a participant. The participant recognizes ordinary income upon exercise of the nonstatutory stock option equal to the excess of the fair market value of the stock received upon exercise of the stock option on the date of exercise over the option price. Such ordinary income is subject to withholding if the participant is an employee. The participant’s tax basis in these shares will be their fair market value when purchased. On subsequent sale of such shares, gain or loss will be recognized in an amount equal to the difference between the tax basis thereof and the amount realized on such sale.

A participant will not be taxed upon the award of a SAR. Upon exercise of the SAR, the participant will recognize ordinary income equal to the amount of cash received. In the event a participant receives shares upon the exercise of a SAR, the participant will recognize ordinary income equal to the value of the shares at such time. If the participant is an employee, any ordinary income recognized upon the exercise of a SAR is treated as wages subject to withholding.

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A participant generally will not recognize taxable income upon the grant of restricted shares, and the recognition of any income will be postponed until the time that the restrictions on the shares lapse, at which time the participant will recognize ordinary income (subject to withholding if the participant is an employee) equal to the fair market value of the restricted shares at the time that such restrictions lapse. A participant may elect to be taxed at the time of the grant of restricted stock and, if this election is made, the participant will recognize ordinary income equal to the fair market value of the restricted shares at the time of grant determined without regard to any of the restrictions thereon.

When performance shares are earned and stock is issued therefor, a participant will realize ordinary income (subject to withholding if the participant is an employee) equal to the fair market value of the performance shares.

Generally, a participant will recognize ordinary income upon the receipt of a stock award (other than an award of performance shares or restricted shares) equal to the fair market value of such stock on the date of such award less the amount, if any, the participant paid for such award. If the participant is an employee, any ordinary income recognized as a result of a stock award is treated as wages subject to withholding.

We generally will be entitled to a deduction equal to the ordinary income recognized by the participant in the same taxable year in which the participant recognizes ordinary income in the circumstances described above, provided that, among other things, the income meets the test of reasonableness, is an ordinary and necessary business expense, is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the $1 million limitation on certain executive compensation under Section 162(m) of the Code.

Vote Required and Recommendation of the Board of Directors

The affirmative vote of a majority of our shares of Common Stock represented at the Annual Meeting is required to approve the amendment and restatement of the 1998 Plan. Abstentions will have the effect of a vote against and broker non-votes will have no effect with respect to the approval of this Proposal.

YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 1998 PLAN.

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Equity Compensation Plan Information

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