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March 21, 2019

Dear Stockholder:

On behalf of the Board of Directors and management of Dimeco, Inc. (the “Company”), we cordially invite you to attend our 2019 Annual Meeting of Stockholders. The Annual Meeting will be held at the Community Room of the Chamber of the Northern Poconos located at 32 Commercial Street, Honesdale, Pennsylvania, on Thursday, April 25, 2019, at 2:00 p.m. local time. The attached Notice of Annual Meeting and Proxy Statement describe the formal business we expect to act upon at the Annual Meeting. Our directors and officers will be present to respond to any questions stockholders may have.

Your vote is important, regardless of the number of shares you own and regardless of whether you plan to attend the Annual Meeting. We encourage you to read the enclosed proxy statement carefully and vote your proxy as promptly as possible because a failure to do so could cause a delay in the Annual Meeting and result in additional expense to the Company. We offer multiple methods for you to vote your shares. You may vote in person on the day of the Annual Meeting, online, by telephone or by mail. A postage-paid return envelope is enclosed for your convenience if you choose to return your proxy vote by mail.

Returning your proxy will not prevent you from voting in person, but it will assure that your vote will be counted if you are unable to attend the Annual Meeting. If you do decide to attend the Annual Meeting and want to change your vote at that time, you will be able to do so. If you are planning to attend the Annual Meeting, kindly let us know when you cast your vote. 

Sincerely,


Gary C. Beilman 
President and Chief Executive Officer

DIMECO, INC. 
820 CHURCH STREET
HONESDALE, PENNSYLVANIA 18431

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 25, 2019

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Dimeco, Inc., will be held at the Community Room of the Chamber of the Northern Poconos located at 32 Commercial Street, Honesdale, Pennsylvania, on Thursday, April 25, 2019, at 2:00 p.m., local time, for the following purposes:

  1. To elect three directors;
  2. To approve the Dimeco, Inc. 2019 Equity Incentive Plan;
  3. To ratify the appointment of S.R. Snodgrass, P.C. as our independent auditors for the fiscal year ending December 31, 2019; and
  4. To transact any other business that may properly come before the Annual Meeting and any adjournments or postponements thereof.

The Board of Directors is not aware of any other business to come before the Annual Meeting. Stockholders of record at the close of business on February 28, 2019 are the stockholders entitled to vote at the Annual Meeting and at any adjournments thereof.

Your vote is very important, regardless of the number of shares you own. We encourage you to vote by proxy so that your shares will be represented and voted at the Annual Meeting even if you cannot attend. All stockholders of record can vote online, by telephone or by written proxy card,. To obtain directions to attend the Annual Meeting and vote in person, please call Effie Slattery at 570-253-1970. However, if you are a stockholder whose shares are not registered in your own name, you will need additional documentation from your record holder to vote in person at the Annual Meeting.

BY ORDER OF THE BOARD OF DIRECTORS 


John F. Spall 
Secretary

Honesdale, Pennsylvania 
March 21, 2019

PROXY STATEMENT OF DIMECO, INC. 
820 CHURCH STREET
HONESDALE, PENNSYLVANIA 18431

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 25, 2019

GENERAL

This Proxy Statement is being furnished to stockholders of Dimeco, Inc. by the Company’s Board of Directors in connection with its solicitation of proxies for use at the Annual Meeting of Stockholders to be held at the Community Room of the Chamber of the Northern Poconos located at 32 Commercial Street, Honesdale, Pennsylvania, on Thursday, April 25, 2019, at 2:00 p.m., local time, and at any adjournments thereof. The 2018 Annual Report to Stockholders, including financial statements for the fiscal year ended December 31, 2018 and a form of proxy accompany this Notice of Annual Meeting of Stockholders and Proxy Statement, which are first being mailed to stockholders on or about March 21, 2019.

VOTING AND PROXY PROCEDURES

Who Can Vote at the Annual Meeting

You are only entitled to vote at the Annual Meeting if our records show that you held shares of our common stock (the “Common Stock”) as of the close of business on February 28, 2019 (the “Record Date”). As of the Record Date, a total of 2,488,665 shares of Common Stock were outstanding. Each share of Common Stock has one vote in each matter presented.

Attending the Meeting

If you are a stockholder as of the close of business on February 28, 2019, you may attend the meeting. However, if you hold your shares in street name, you will need photo identification and proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank, broker or other nominee are examples of proof of ownership. If you want to vote your shares of the Company Common Stock held in street name in person at the meeting, you will have to get a written proxy in your name from the broker, bank or other nominee who holds your shares.

Quorum and Vote Required

Quorum. The Annual Meeting will be held only if there is a quorum. A quorum exists if a majority of the outstanding shares of Common Stock entitled to vote is represented at the meeting.

Votes Required for Proposals. In voting for the election of directors, you may vote for a nominee, against a nominee or abstain from voting for a nominee. There is no cumulative voting for the election of directors. Directors must be elected by a plurality of the votes cast at the Annual Meeting. The term “plurality” means that the three nominees receiving the largest number of votes cast for election will be elected as directors.

In voting to approve the Dimeco, Inc. 2019 Equity Incentive Plan, you may vote in favor of the proposal, against the proposal or abstain from voting. To be approved, this proposal requires the affirmative vote of a majority of the votes cast at the Annual Meeting. Broker non-votes and abstentions will not be counted as votes cast and will have no effect on the voting on this proposal.

In voting for the ratification of the appointment of S.R. Snodgrass, P.C., Certified Public Accountants (“S.R. Snodgrass, P.C.”), as our independent registered public accounting firm, you may vote in favor of the proposal, against the proposal or abstain from voting. This proposal will be decided by the affirmative vote of a majority of the votes cast at the Annual Meeting.

How We Count Votes. If you return valid proxy instructions, or attend the meeting in person, your shares will be counted for purposes of determining whether there is a quorum, even if you abstain from voting. Broker non-votes, if any, will also be counted for purposes of determining the existence of a quorum.

In the election of directors, the proposal to approve the 2019 Equity Incentive Plan and the proposal relating to the ratification of the selection of the independent registered public accounting firm, abstentions and broker non-votes will have no effect on the votes.

Voting By Proxy

The Board of Directors is making available this Proxy Statement for the purpose of requesting that you allow your shares of Common Stock to be represented at the Annual Meeting by the persons named in the proxy card. All shares of Common Stock represented at the Annual Meeting by properly executed and dated proxy cards, online or telephone will be voted according to the instructions indicated. If you sign, date and return a proxy card or submit your proxy online or by telephone without giving voting instructions, your shares will be voted as recommended by the Company’s Board of Directors.

If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered to be the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by your broker, bank or nominee. As the beneficial owner, you have the right to direct your broker, bank or other nominee on how to vote your shares by filling out the voting instruction form that accompanies your proxy materials.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE:

  • “FOR” the election of the Board’s nominees to serve for a three-year term or until their successors are duly elected and qualified;
  • “FOR” approval of the Dimeco, Inc. 2019 Equity Incentive Plan; and
  • “FOR” ratification of S.R. Snodgrass, P.C. as our independent registered public accounting firm.

If any matter not described in this Proxy Statement is properly presented at the Annual Meeting, the persons named on the proxy card will use their own best judgment to determine how to vote your shares.  The Company does not know of any other matters to be presented at the Annual Meeting.

You may revoke your proxy at any time before the vote is taken at the meeting. To revoke your proxy, you must either advise the Secretary of the Company in writing before your Common Stock has been voted at the Annual Meeting, deliver a signed later dated proxy or attend the meeting and vote your shares in person. Attendance at the Annual Meeting will not in itself constitute revocation of your proxy.

If your Common Stock is held in “street name,” you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares voted. Your broker, bank or other nominee may allow you to deliver your voting instructions via mail, the Internet or telephone. Please see the instruction form provided by your broker, bank or other nominee that accompanies this Proxy Statement. If you wish to change your voting instructions after you have returned your voting instruction form to your broker, bank or other nominee, you must contact your broker, bank or other nominee.

PRINCIPAL HOLDERS OF OUR COMMON STOCK

A person is the beneficial owner of shares of Common Stock if he or she has or shares voting or investment power over the shares, or has the right to acquire beneficial ownership of the shares at any time within 60 days from the Record Date. The following table sets forth information as of the Record Date with respect to the persons or groups known to the Company to beneficially own more than 5% of the Common Stock: 

DIMECO, INC. 
PRINCIPLE HOLDERS OF OUR COMMON STOCK

Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership (1) Percent of Shares of Common Stock Outstanding (%)
Henry M. Skier 820 Church Street Honesdale, Pennsylvania 18431
(1) See "Proposal 1. Election of Directors"
180,933 7.3%

PROPOSAL 1. ELECTION OF DIRECTORS

Our bylaws require that directors be divided into three classes, as nearly equal in number as possible. Each class serves for a three-year term, with approximately one-third of the directors elected each year. The Board of Directors currently consists of ten members, each of whom also serves as a director of The Dime Bank (the “Bank”). Three directors will be elected at the Annual Meeting, each to serve for a three-year term or until his successor has been elected and qualified.

The Board of Directors has nominated Gregory J. Frigoletto, Henry M. Skier and Todd J. Stephens (collectively, the “Nominees”) for election as directors for additional three-year terms. The Nominees currently serve as directors of the Company. The persons named as proxies in the enclosed Proxy Card intend to vote for the election of the Nominees. If any of the Nominees withdraws or is unable to serve (which the Board of Directors does not expect), or should any other vacancy occur in the Board of Directors, the persons named in the enclosed Proxy Card intend to vote for the election of the person or persons that the Nominating Committee may recommend to the Board of Directors. If there is no substitute nominee, the size of the Board of Directors may be reduced.

The following table sets forth the names, ages, positions with the Company, terms of, and length of board service, numerical and percentage beneficial ownership of the Common Stock for each of the Nominees, each director continuing in office and each executive officer who is not a director.

Beneficial ownership of the directors and executive officers of the Company, as a group, is also set forth below: 

DIMECO, INC. 
BENEFICIAL OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS

Name and Positions with Company Age (1) Year First Elected or Appointed (2) Current Term To Expire Shares of Common Stock Beneficially Owned (1)(3) Percent Owned
BOARD NOMINEES FOR TERMS TO EXPIRE IN 2021
Gregory J. Frigoletto
Director
49 2018 2022 587 *
Henry M. Skier
Director
78 1993 2022 180,933 7.3%
Todd J. Stephens
Director, Vice Chairman of the Board
49 2010 2022 12,633 *
DIRECTORS CONTINUING IN OFFICE
Gary C. Beilman
President, Chief Executive Officer and Director
64 2005 2020 40,862

1.6%

Brian T. Kelly
Director
48 2018 2020 302 *
Thomas A. Peifer
Director
76 1993 2020 46,817 1.9%
Davis D. Reynolds, M.D.
Director
55 2015 2020 18,698 *
Barbara J, Genzlinger
Director
67 1998 2021 19,120 *
John S. Kiesendahl
Director, Chairman of the Board
72 1993 2021 74,775 3.0%
John F. Spall
Director, Secretary
72 1999 2021 71,660 2.9%
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Maureen H. Beilman
Senior Vice President, Chief Financial Officer, Treasurer and Asst. Secretary
63 - - 26,169 1.0%
Peter Bochnovich
Executive Vice President
57 - - 15,680 *
Directors, nominees and named executive officers of the Company
(12 persons)
      508,236 20.1%

(1) As of Record Date.
(2) Refers to the year the individual first became a director of the Company.
(3) The share amounts include 4,050 shares for Mr. Skier, 3,850 shares for Mr. Stephens, 8,450 shares for Mr. Beilman, 4,050 shares for Ms. Genzlinger, 4,050 shares for Mr. Kiesendahl, 2,025 shares for Mr. Spall, 6,950 shares for Ms. Beilman and 5,950 shares for Mr. Bochnovich that may be acquired through the exercise of stock options within sixty days of the Record Date under the stock option plans.
* Less than 1% of Common Stock outstanding.

Biographical Information

The biographies of each of the nominees and continuing directors below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, and information regarding involvement in certain legal or administrative proceedings, if applicable.

Nominees For Director:

Gregory J. Frigoletto is the District Superintendent of Wayne Highlands School District and long-time resident of Wayne County. He has an extensive background serving our community with twenty-five years in the field of education at Wayne Highlands School District, including nineteen as an administrator. He is actively involved in numerous local charitable and civic organizations.

Henry M. Skier is President of A.M. Skier Agency, Inc., an insurance agency, located in Hawley, Pennsylvania since 1973. Mr. Skier has been a member of the Bank’s Board of Directors since 1982. He has participated in many Board committees during his tenure on the board.  He is a lifelong resident of Honesdale and is involved in numerous community and civic affairs in Wayne County along with involvement in various summer camping organizations. His business, A.M. Skier Agency, Inc., is one of the largest independent insurers of children’s summer camps in the United States. Additionally, Mr. Skier has been a founder, director and officer in numerous camp related entities on both the state and national levels. As such, he brings to the Board an expertise regarding this industry in which the Bank has a loan concentration.

Todd J. Stephens was born and raised in Wayne County, Pennsylvania. He is the Chief Operating Officer for the Medical Shoppe, LTD, parent company of Stephens Pharmacy and Northeast Med-Equip., holding this position since 2007. He is also the founder and managing partner of Northeast Accessibility, a provider of specialty equipment and solutions for persons with limited mobility. Prior to that, he was employed with Boston Coach Corp., a wholly owned subsidiary of Fidelity Investments. During his 16-year tenure with that Company, he rose to the level of Senior Vice President with responsibilities for national operations, directing marketing and commerce efforts and managing a national sales organization.

The Board of Directors unanimously recommends a vote “FOR” the election of the above nominees.

Continuing Directors:

Gary C. Beilman is the President and Chief Executive Officer of the Company and Bank. Mr. Beilman was appointed President and Director on January 1, 2005. He was previously appointed Chief Executive Officer on January 1, 2002. Prior to January 2002, Mr. Beilman served the Company and Bank in various capacities. Mr. Beilman has been employed in the financial services industry since 1976, serving in various capacities in three institutions. He is actively involved in numerous community, charitable and civic organizations. Mr. Beilman is the brother-in-law of Maureen H. Beilman.

Brian T. Kelly is a Certified Public Accountant and owner of Brian T. Kelly CPA & Associates, LLC with offices in Carbondale, Honesdale and Old Forge. He has over twenty years of experience in public accounting, providing audit, tax and consulting services to various clients. He is actively involved in numerous professional organizations and youth sports programs including coaching youth soccer.

Thomas A. Peifer is retired. Prior to his retirement in 2001, Mr. Peifer was Superintendent of the Wallenpaupack Area School District in Hawley, Pennsylvania which provided him personal relationships with numerous area residents who comprise a significant portion of our marketplace. He was the President of Metlag, Inc., a franchised retail Agway store, a business that he sold in 2014. As a local businessman and lifetime resident of Pike County, he provides knowledge of this market area in which we operate two branch locations. This proficiency is further enhanced by his numerous community and civic affiliations.

David D. Reynolds, M.D. is the President and Chief Executive Officer of Northeastern Gastroenterology Associates, President, Chief Executive Officer and Medical Director of Mountain Laurel Surgical Center and Maple City Anesthesia, LLC and a partner of SGR Real Estate. He is board certified in gastroenterology and is active in numerous medical organizations. On a local level, Dr. Reynolds has been involved in several local youth sport programs including wrestling, soccer and baseball.

Barbara J. Genzlinger is one of the original founders in the early 1980s of The Settlers Inn, a country inn located in Hawley, Pennsylvania and currently serves as Co-chair of the Board of Settlers Hospitality Group. Ms. Genzlinger is personally involved in various hospitality businesses daily and interacts regularly with many area residents. She is active in numerous community and civic organizations along with a national innkeepers’ organization.

John S. Kiesendahl is the President and Chief Executive Officer of Woodloch Pines Inc., a resort located in Hawley, Pennsylvania since 1981. He is a principal in several businesses associated with the resort. Mr. Kiesendahl has been a member of the Bank’s Board of Directors since 1985 and has been an active member or chair of several committees. His extensive business experience in the operation of a family resort, its affiliated golf course and residential community includes all aspects of the business including hospitality operations, real estate development and financing.

John F. Spall is an attorney, practicing in Hawley, Pennsylvania since 1971. Mr. Spall has been active in all phases of the legal profession for over forty years with an emphasis on real estate transactions. He is a former solicitor for numerous municipalities and has been Assistant District Attorney for Wayne County. He currently serves as President of the Wallenpaupack Area School District Board of Education.

Business Background of Our Executive Officers Who Are Not Directors

The business experience for the past five years of each of the Company’s executive officers who is not a director is set forth below. Unless otherwise indicated, the executive officer has held his or her position for more than the past five years.

Peter Bochnovich is Executive Vice President of the Company and the Bank and is also Assistant Secretary of the Bank. He serves as the Chief Lending Officer of the Bank.

Maureen H. Beilman is the Chief Financial Officer and Treasurer of the Bank and is also Assistant Secretary of the Company. Ms. Beilman is the sister-in-law of Gary C. Beilman.

CORPORATE GOVERNANCE

Committees of the Board of Directors

Nominating Committee. The Nominating Committee is comprised of Directors Reynolds, Skier, Stephens and Spall, each of whom is considered independent under the rules of The NASDAQ Stock Market. Although this is not a standing committee, the Board believes that its procedures are sufficient to ensure that its nominees are approved by a majority of the independent directors. The outside directors met five times as a Nominating Committee during the fiscal year ended December 31, 2018.

Compensation Committee. The 2018 Compensation Committee was comprised of Directors Kiesendahl, Skier and Stephens, each of whom was considered independent under the rules of The NASDAQ Stock Market. Decisions regarding the compensation of our executives are made by the Compensation Committee. They have the strategic and administrative responsibility for ensuring that key management employees are compensated effectively in addition to oversight of all executive compensation plans and employee benefits. The Committee met three times during the 2018 fiscal year.

Audit Committee. The Audit Committee was comprised of Directors Stephens, Kiesendahl, Peifer and Reynolds. The Audit Committee is a standing committee that is responsible for developing and maintaining the Company’s and the Bank’s audit program. The Company believes that all members of the Audit Committee qualify as independent directors under the rules of The NASDAQ Stock Market including the specific independence requirements for Audit Committee members. The Committee also meets with the independent auditors to discuss the results of the annual audit and any related matters. The Committee met four times in fiscal year 2018.

Communications with Directors

Stockholders who wish to communicate with the Board of Directors should send their communications to the Secretary at the Company’s main office, PO Box 509, Honesdale, Pennsylvania 18431. 

DIRECTOR COMPENSATION

Set forth below is a table providing information concerning the compensation of the non-employee directors of the Company for the last completed fiscal year. There was no other compensation paid during the last fiscal year.

DIMECO, INC. 
DIRECTOR COMPENSATION

Name(1)(2) Fees Earned or Paid in Cash
Gregory G, Frigoletto $ 33,000
Barbara J. Genzlinger $ 33,000
Brian T. Kelly(3) $   8,250
John S. Kiesendahl $ 33,000
Thomas A. Peifer $ 33,000
David D. Reynolds $ 33,000
Henry M. Skier $ 33,000
John F. Spall $ 33,000
Todd J. Stephens $ 33,000

(1) Director Gary C. Beilman, as the Company's President and Chief Executive Officer, does not receive any additional remuneration as a director.

(2) Non-employee directors.

(3) Brian T. Kelly was appointed to the Board in October 2018, therefore his compensation was pro-rated for the time he served.

For the year ended December 31, 2018, the annual retainer fee paid to each non-employee director was $33,000, regardless of attendance. There are no additional fees paid in connection with attendance at board or committee meetings. Directors’ fees are paid by the Bank, on whose board each director sits; no additional fees are paid for service as a director of the Company. There was no other compensation paid to the above-named directors in 2018.

PROPOSAL 2. APPROVAL OF THE 2019 EQUITY INCENTIVE PLAN

The Proposal

We currently maintain the Dimeco, Inc. 2010 Equity Incentive Plan (the "2010 Plan"), which was originally effective on April 22, 2010, upon approval of our shareholders. The 2010 Plan provides for the grant of stock options and restricted stock to officers, designated employees and directors of the Company and its subsidiary, The Dime Bank, who are eligible to participate in the 2010 Plan.

The 2010 Plan will expire by its own terms on April 22, 2020. As of December 31, 2018, there were 50,445 shares of our Common Stock remaining for issuance under the 2010 Plan upon the exercise of outstanding stock options. These outstanding awards under the 2010 Plan will continue to be governed by the terms of the 2010 Plan until expired or otherwise terminated or cancelled.

Our Board of Directors approved the 2019 Equity Incentive Plan (the "2019 Plan") on March 21, 2019, because they believe that our interests and the interests of our shareholders are advanced by our ability to offer our officers, key employees and directors the opportunity to increase their stock ownership in the Company by continuing to grant them awards under the 2019 Plan. Our Board of Directors believes that the 2019 Plan will further our compensation strategy and will enhance our ability to attract, retain and motivate top quality employees and directors, which is material to the Company's success. The 2019 Plan authorizes the issuance of up to 200,000 shares of our Common Stock in connection with awards granted under the 2019 Plan. Shareholder approval of the 2019 Plan is necessary for incentive stock options to meet the requirements of the Internal Revenue Code of 1986, as amended (the "Code") and as a matter of good corporate governance.

The material terms of the 2019 Plan are summarized below. A copy of the full text of the 2019 Plan is attached to this Proxy Statement as Appendix "A." This summary of the 2019 Plan is not intended to be a complete description of the 2019 Plan and is qualified in its entirety by the actual text of the 2019 Plan to which reference is made.

The proposal requires the affirmative vote of a majority of the votes cast on the proposal in person or represented by proxy at the Annual Meeting.

Description of the 2019 Equity Incentive Plan

General

The 2019 Plan reserves for issuance up to 200,000 shares of our Common Stock to employees and directors who are eligible to participate. The 2019 Plan provides that the maximum aggregate number of shares of our Common Stock with respect to which grants may be made to any individual during any calendar year is 25,000 shares, subject to adjustment as described below. Shareholder approval of this proposal will also constitute a reapproval of the foregoing 25,000 share limitation for purposes of section 162(m) of the Code. The share limitation will assure that any deductions to which we would otherwise be entitled, either upon the exercise of stock options or stock appreciation rights granted under the 2019 Plan with an exercise price per share equal to the fair market value of a share of our Common Stock on the grant date or upon the subsequent sale of the shares purchased under those options or issued upon exercise of those stock appreciation rights, will not be subject to the limitations on the income tax deductibility of compensation paid per covered executive officer imposed under section 162(m) of the Code.

If and to the extent stock options or stock appreciation rights granted under the 2019 Plan terminate, expire or are cancelled, forfeited, exchanged or surrendered without having been exercised or if and to the extent any restricted stock is forfeited or terminated or otherwise not paid in full, the shares subject to such grants shall again be available for issuance under the 2019 Plan. Shares of our Common Stock surrendered in payment of the option price of a stock option and shares of our Common Stock withheld or surrendered for payment of taxes, shall not be available for reissuance under the 2019 Plan.

Administration of the 2019 Plan

The 2019 Plan will be administered and interpreted by a committee of the Board which will be appointed by the Board from among its members who are "non-employee directors" of the Company. To the extent a Committee is not appointed, the full Board will act as the Committee for purposes of administering the 2019 Plan. The Committee has the authority to determine:

  • the persons to whom awards are to be granted under the 2019 Plan;
  • the type, size and terms of the awards;
  • the time when the awards are to be granted; and
  • any other matters arising under the 2019 Plan.

Grants

Incentives under the 2019 Plan consist of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock grants, deferred stock grants and performance awards (hereinafter collectively referred to as "grants"). Each grant is subject to the terms and conditions set forth in the 2019 Plan and to those other terms and conditions consistent with the 2019 Plan as the Committee deems appropriate and specifies in the written agreement memorializing the grant. 

Eligibility for Participation 

Officers, other designated employees and directors of the Company and the Bank are eligible to participate in the 2019 Plan. However, future benefits to directors and executive officers of the Company under the 2019 Plan cannot currently be determined. After receiving recommendations from the management of the Company, the Committee will select the persons to receive grants, normally on an annual basis, and will determine the number of shares of Common Stock subject to a particular grant.

Granting of Options

General.  The Committee may grant options qualifying as incentive stock options ("ISOs") within the meaning of section 422 of the Code and/or other non-qualifying stock options ("NQSOs") in accordance with the terms and conditions set forth in the 2019 Plan, or any combination of ISOs or NQSOs.

Term, Purchase Price, Vesting and Method of Exercise of Options.  The exercise price of any stock option granted under the 2019 Plan will not be less than the fair market value of a share of our Common Stock on the date the option is granted.

The Committee may determine the option exercise period for each option; provided, however, that the exercise period may not exceed ten (10) years from the date of grant. The Committee has discretion to accelerate the exercisability of any option at any time for any reason, including upon a Change of Control of the Company (within the meaning of such term under the 2019 Plan as described below). The 2019 Plan provides that each option shall fully vest upon the earliest of:

  • the grantee's normal retirement date;
  • the grantee's death or disability (within the meaning of the Company's long-term disability program); and
  • a Change of Control of the Company. 

A grantee may exercise an option by delivering notice of exercise to the Secretary of the Company with accompanying full payment of the option price. Generally, payment of the option price may be made in cash or by delivering shares of our common stock already owned by the grantee and having a fair market value on the date of exercise equal to the option price, or with a combination of cash and shares. In addition, a grantee may exercise an option through a broker assisted cashless exercise or pursuant to a net exercise procedure pursuant to which a portion of the shares otherwise issuable upon the exercise of the option are automatically withheld by the Company and applied to the payment of the aggregate option price for the gross number of shares for which the option is exercised and the satisfaction of the federal and state income and employment withholding taxes applicable to such exercise. The grantee must pay the option price and the amount of withholding tax due, if any, at the time of exercise.

Stock Appreciation Rights

The Committee may grant stock appreciation rights ("SARs") in tandem with a stock option, for all or a portion of the applicable stock option, to any grantee.  Upon a grantee's exercise of a SAR, the grantee receives in settlement of such SAR, in the discretion of the Committee, either cash or a number of shares of Common Stock with a fair market value equal to the difference between the fair market value of the Common Stock underlying the SAR on the date of grant and the fair market value of the Common Stock underlying the SAR on the date of exercise.

Restricted Stock Grants

The Committee may grant restricted shares of Common Stock (a "Restricted Stock Grant") pursuant to the 2019 Plan subject to restrictions or no restrictions. If a grantee's employment or service as a director terminates during the period designated in the Grant Instrument as the period during which the shares are restricted (the "Restriction Period"), the shares will be forfeited. During the Restriction Period, a grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of Common Stock to which such Restriction Period applies, except to a successor grantee in the event of the grantee's death.

Amendment and Termination of the 2019 Equity Incentive Plan

Our Board of Directors may amend or terminate the 2019 Plan at any time, provided however, that any amendment that increases the aggregate number (or individual limit for any grantee) of shares of Common Stock that may be issued or transferred under the 2019 Plan, or modifies the requirements as to eligibility for participation, will be subject to approval by the shareholders of the Company. The 2019 Plan will terminate ten (10) years from the date of shareholder approval.

Federal Income Tax Consequences under the 2019 Equity Incentive Plan

The federal income tax consequences of grants under the 2019 Plan will depend on the type of grant. The following description provides only a general description of the application of federal income tax laws to grants under the 2019 Plan. This discussion is intended for the information of shareholders considering how to vote at the Annual Meeting and not as tax guidance to grantees, as the consequences may vary with the types of grants made, the identity of the grantees and the method of payment or settlement. The summary does not address the effects of other federal taxes (including possible "golden parachute" excise taxes) or taxes imposed under state, local or foreign tax laws.

From the grantees' standpoint, as a general rule, ordinary income will be recognized at the time of delivery of shares of our Common Stock or payment of cash under the 2019 Plan. Future appreciation on shares of our Common Stock held beyond the ordinary income recognition event will be taxable as capital gain when the shares of our Common Stock are sold. The tax rate applicable to capital gain will depend upon how long the grantee holds the shares. We, as a general rule, will be entitled to a tax deduction that corresponds in time and amount to the ordinary income recognized by the grantee, and we will not be entitled to any tax deduction with respect to capital gain income recognized by the grantee.

Exceptions to these general rules arise under the following circumstances:

  • If the grantee makes a special election to accelerate taxation under section 83(b) of the Code.
  • If an employee exercises a stock option that qualifies as an ISO, no ordinary income will be recognized, and we will not be entitled to any tax deduction, if shares of our common stock acquired upon exercise of the stock option are held until the later of: (A) one year from the date of exercise and (B) two years from the date of grant. However, if the employee disposes of the shares acquired upon exercise of an ISO before satisfying both holding period requirements, the employee will recognize ordinary income to the extent of the difference between the fair market value of the shares on the date of exercise (or the amount realized on the disposition, if less) and the exercise price, and we will be entitled to a tax deduction in that amount. The gain, if any, in excess of the amount recognized as ordinary income will be long-term or short-term capital gain, depending upon the length of time the employee held the shares before the disposition.

We have the right to require that grantees pay to us an amount necessary for us to satisfy our federal, state or local tax withholding obligations with respect to grants. We may withhold from other amounts payable to a grantee an amount necessary to satisfy these obligations. The Committee may permit a grantee to satisfy our withholding obligation with respect to grants paid in shares of our Common Stock by having shares withheld, at the time the grants become taxable, provided that the number of shares withheld does not exceed the individual's minimum applicable withholding tax rate for federal, state and local tax liabilities.

Our Board of Directors unanimously recommends that shareholders vote for the approval of the 2019 Stock Incentive Plan.

PROPOSAL 3. RATIFICATION OF INDEPENDENT AUDITORS

S.R. Snodgrass, P.C. was the Company’s independent public accountants for the 2018 fiscal year. The Board of Directors has appointed Snodgrass to be its accountants for the fiscal year ending December 31, 2019 and is seeking ratification by the Company’s stockholders of such appointment. A representative of S.R. Snodgrass, P.C. is expected to be available at the Annual Meeting to respond to stockholders’ questions and will have the opportunity to make a statement if they so desire.

The Board of Directors unanimously recommends that stockholders vote “FOR” the ratification of the appointment of S.R. Snodgrass, P.C. as the Company’s independent auditors for the 2019 fiscal year.

STOCKHOLDER PROPOSALS

In order to be considered for possible action by stockholders at the 2020 Annual Meeting of Stockholders, stockholder nominations for director and stockholder proposals must be submitted to the Secretary at the Company’s main office, PO Box 509, 820 Church Street, Honesdale, Pennsylvania 18431, no later than February 24, 2020.

STOCKHOLDERS SHARING A SINGLE ADDRESS

Only one copy of this Proxy Statement and the accompanying Annual Report to Stockholders is being delivered to multiple stockholders sharing an address unless the Company has previously received contrary instructions from one or more of such stockholders. On written or oral request to Dimeco, Inc., PO Box 509, 820 Church Street, Honesdale, Pennsylvania 18431, (570) 253-1970, the Company will deliver promptly a separate copy of this Proxy Statement and the Annual Report to Stockholders at a shared address to which a single copy of the documents was delivered. Stockholders sharing an address who wish, in the future, to receive separate copies or a single copy of our proxy statements and annual reports should provide written or oral notice to the Secretary at the address and telephone number set forth above.

MISCELLANEOUS

The cost of soliciting proxies will be borne by the Company. The Company will reimburse brokerage firms and other custodians, nominees and fiduciaries for reasonable expenses incurred by them in sending proxy materials to the beneficial owners of Common Stock. In addition to solicitations by mail, directors, officers and regular employees of the Company may solicit proxies personally or by e?mail or telephone without additional compensation. 

BY ORDER OF THE BOARD OF DIRECTORS


John F. Spall
Secretary

Honesdale, Pennsylvania
March 21, 2019

APPENDIX A

DIMECO, INC. 
2019 EQUITY INCENTIVE PLAN

The purpose of the Dimeco, Inc. 2019 Equity Incentive Plan (the “Plan”) is to provide: (i) designated officers (including officers who are also directors) and other designated employees of Dimeco, Inc., a Pennsylvania corporation (the “Company”), and its subsidiaries, and (ii) non-employee members of the board of directors of the Company, and its subsidiaries (the “Board”), with additional incentive to further the success of the Company. The Company believes that the Plan will cause the designated participants to contribute materially to the growth of the Company, thereby benefiting the Company's shareholders and will align the economic interests of the participants with those of the shareholders.

Article 1. Administration

1.1 The Committee.  The Plan shall be administered and interpreted by a committee (the "Committee"), which shall consist of: (i) either the Board itself or (ii) two or more directors appointed by the Board, all of whom (unless the Board determines otherwise) shall be "non-employee directors" of the Board as defined under Rule 16b-3 under the Securities Exchange Act of 1934 (the "Exchange Act") and "outside directors" as defined under section 162 (m) of the Internal Revenue Code of 1986, as amended (the "Code") and related Treasury regulations.  The Board, in its discretion, may appoint separate committees to administer the Plan with respect to a designated portion of participants (e.g., participants subject to Section 16 of the Exchange Act or Section 162(m) of the Code).  If the Board does not appoint a committee to administer all or any portion of the Plan, then the Board shall be the Committee.

1.2 Determinations with respect to Grants.  The Committee shall have the sole authority to: (i) determine the individuals to whom Grants (as defined in Section 2.1) shall be made under the Plan, (ii) determine the type, size and terms of the Grants to be made to each such individual, (iii) determine the time when the Grants will be made and the duration of any applicable exercise or restriction period, including the criteria for vesting and the acceleration of vesting, (iv) accelerate the vesting of any Grants and reduce or waive any restrictions on the exercise or vesting of any Grants, and (v) deal with any other matters arising under the Plan.  The Committee may, if it so desires, base any of the foregoing determinations upon the recommendations of management of the Company.

1.3 Action by the Committee.  A majority of the Committee shall constitute a quorum thereof, and the actions of a majority of the Committee at a meeting at which a quorum is present, or actions unanimously approved in writing by all members of the Committee, shall be actions of the Committee.

1.4 Delegation.  The Committee may appoint one of its members to be chairman and any person, whether or not a member of the Committee, to be its secretary or agent.  Furthermore, the Committee may delegate any ministerial duties in connection with the Plan to one or more officers of the Company.

1.5 Interpretation of Plan.  The Committee shall have full power and authority to administer and interpret the Plan, to make factual determinations and to adopt or amend such rules, regulations, agreements and instruments for implementing the Plan and for the conduct of its business as it deems necessary or advisable, to waive requirements relating to formalities or other matters that do not modify the substance of rights of Grantees (as defined in Section 4.2) or constitute a material amendment of the Plan, to correct any defect or supply any omission of the Plan or any Grant Instrument (as defined in Section 2.2) and to reconcile any inconsistencies in the Plan or any Grant Instrument.  The Committee's interpretations of the Plan and all determinations made or actions taken by the Committee pursuant to the powers vested in it hereunder shall be conclusive and binding on all persons having any interests in the Plan or in any awards granted hereunder. All powers of the Committee shall be exercised in its sole discretion, in the best interest of the Company and in keeping with the objectives of the Plan and need not be uniform as to similarly situated individuals.

1.6 No Liability.  No member of the Committee shall be liable for any act or omission (whether or not negligent) taken or omitted in good faith, or for the good faith exercise of any authority or discretion granted in the Plan to the Committee, or for any act or omission of any other member of the Committee.

1.7 Costs.  All costs incurred in connection with the administration and operation of the Plan shall be paid by the Company.  Except for the express obligations of the Company under the Plan and under Grants (as defined in Section 2.1) in accordance with the provisions of the Plan, the Company shall have no liability with respect to any Grant, or to any Grantee or any transferee of shares of Company Stock from any Grantee, including, but not limited to, any tax liability, capital losses, or other costs or losses incurred by any Grantee, or any such transferee.

Article 2. Grants

2.1 Type of Grants.  Incentives under the Plan shall consist of grants of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, deferred stock and performance awards (hereinafter collectively referred to as "Grants").

2.2 Grant Instruments.  All Grants shall be subject to the terms and conditions set forth herein and to those other terms and conditions consistent with the Plan as the Committee deems appropriate.  Each Grant shall be evidenced by a written instrument (the “Grant Instrument”) specifying the number of shares of Company Stock to which it relates and containing such other terms and conditions as the Committee shall approve that are not inconsistent with the Plan.  Grants under a particular section of the Plan need not be uniform as among the grantees.  The Committee shall have the authority to waive any condition of an outstanding Grant or amend an outstanding Grant, provided that an amendment of an existing Grant may not be made without the consent of the Grantee if such amendment would have an adverse effect on the rights of the Grantee. 

Article 3. Shares Subject to the Plan

3.1 Number of Shares.  Subject to the adjustment specified below, the aggregate number of shares of the common stock of the Company, par value $.50 per share (the "Company Stock"), that may be issued or transferred under the Plan is 200,000 shares. Notwithstanding anything in the Plan to the contrary, the maximum aggregate number of shares of Company Stock that shall be subject to Grants made under the Plan to any one individual during any calendar year shall be 25,000. The shares may be authorized but unissued shares of Company Stock or reacquired shares of Company Stock, including shares purchased by the Company on the open market. If and to the extent Grants under the Plan terminate, expire, or are cancelled, forfeited, exchanged or surrendered without Company Stock being delivered pursuant thereto, or if any shares of Restricted Stock are forfeited, the shares subject to such Grants, including forfeited shares, shall again be available for purposes of the Plan.

3.2 Anti-Dilution Adjustments.  If there is any change in the number or kind of shares of Company Stock outstanding by reason of a stock dividend, recapitalization, stock split, or combination or exchange of shares, or a merger, reorganization or consolidation in which the Company is the surviving corporation, or a reclassification or by reason of any other extraordinary or unusual events affecting the outstanding Company Stock as a class without the Company's receipt of consideration, or if the value of outstanding shares of Company Stock is substantially reduced due to the Company's payment of an extraordinary dividend or distribution, the kind of shares, the maximum number of shares of Company Stock available for Grants, the maximum number of shares of Company Stock that may be subject to Grants to any one individual under the Plan in any calendar year, the number of shares covered by outstanding Grants, and the price per share or the applicable fair market value of such Grants shall be equitably adjusted by the Committee to reflect any increase or decrease in the number or kind of issued shares of Company Stock to preclude the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional shares resulting from such adjustment shall be eliminated by rounding any portion of a share equal to .500 or greater up, and any portion of a share equal to less than .500 down, in each case to the nearest whole number. For purposes of this Section 3.2, "shares of Company Stock" and "shares" include referenced shares with respect to SARs. The adjustments determined by the Committee shall be final, binding and conclusive. Notwithstanding the foregoing, no adjustment shall be authorized or made pursuant to this Section to the extent that such authority or adjustment would cause any incentive stock option to fail to comply with Section 422 of the Code.

Article 4. Eligibility for Participation

4.1 Eligible Participants.

4.1.1 All employees of the Company and its present or future subsidiaries ("Employees"), including Employees who are officers or members of the Board, shall be eligible to participate in the Plan.

4.1.2 Members of the Board who are not employees of the Company or any of its subsidiaries ("Non-Employee Directors") shall also be eligible to participate in the Plan and may receive Grants in the discretion of the Committee; provided, however, that only Employees shall be eligible to receive Incentive Stock Options (as defined in Section 5.1.1).

4.2 Selection of Grantees.  The Committee shall select the individuals to receive Grants and determine the number of shares of Company Stock subject to a particular Grant in such manner as the Committee determines.  Any individuals who receive Grants under this Plan shall hereinafter be referred to as "Grantees".

Article 5. Granting of Options

5.1 Type of Option and Price.

5.1.1 The Committee may grant options intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code ("Incentive Stock Options") or options which are not intended to so qualify ("Nonqualified Stock Options") or any combination of Incentive Stock Options and Nonqualified Stock Options (hereinafter collectively the "Stock Options"), all in accordance with the terms and conditions set forth herein.

5.1.2 The purchase price of Company Stock subject to a Stock Option shall be determined by the Committee and shall not be less than 100% of the Fair Market Value (determined in accordance with Section 5.1.3) of a share of such Stock on the date such Stock Option is granted.

5.1.3 If the Company Stock is traded in a public market, then the Fair Market Value per share shall be, if the principal trading market for the Company Stock is a national securities exchange or The NASDAQ Stock Market, the last reported sale price thereof on the relevant date or (if there were no trades on that date) the latest preceding date upon which a sale was reported, or, if the Company Stock is not principally traded on such exchange or market, the average between the high and low sale prices for trades for that date as reported on the OTC Bulletin Board, or the OTC Pink Tier, the OTCQX Tier or the OTCQB Tier of the OTC Markets Group's interdealer quotation system; provided that, if there are no reported sales during such date, then the Fair Market Value shall be equal to the average between the closing bid and ask prices quoted on the OTC Bulletin Board or the relevant tier of the OTC Markets Group for such date.  If the Company Stock is not traded in a public market or subject to reported transactions or quotations as set forth above, the Fair Market Value per share shall be as determined by the Board; provided, however, that no determination of Fair Market Value with respect to an Incentive Stock Option shall be inconsistent with Section 422 of the Code or the regulations thereunder.  Notwithstanding the foregoing, if the Board determines that prices quoted on the OTC Bulletin Board or on the relevant tier of the OTC Markets Group do not reflect the true Fair Market Value of the Company Stock due to the limited number and volume of trades; i.e., the lack of liquidity with regard to the Company Stock, then the Fair Market Value per share shall be as determined by the Board, in the exercise of its reasonable discretion.

5.2 Option Term.  The Committee shall determine the term of each Stock Option; provided, however, that the term of a Stock Option shall not exceed ten years from the date of grant.

5.3 Exercisability of Options.  Stock Options shall become exercisable in accordance with the terms and conditions determined by the Committee, in its sole discretion.  The Committee, in its sole discretion, may accelerate, in whole or in part, the exercisability of any or all outstanding Stock Options at any time for any reason. In addition, all outstanding Stock Options automatically shall become fully and immediately exercisable upon a Change of Control (as defined in Section 9.1).

5.4 Vesting of Options and Restrictions on Shares.

5.4.1 The vesting period for Stock Options shall commence on the date of grant and shall end on the date or dates, determined by the Committee, that shall be specified in the Grant Instrument.

5.4.2 Notwithstanding any other provision of the Plan, except as otherwise provided by the Committee in the Grant Instrument, all outstanding Stock Options shall become immediately exercisable upon the earliest to occur of the following, if at such time the Grantee is an Employee or a Non-Employee Director:  (i) the Grantee's Retirement (as defined in Section 5.6.4), (ii) the Grantee's death or Disability (as defined in Section 5.6.4), or (iii) the occurrence of a Change of Control (as defined in Section 9.1).

5.5 Manner of Exercise.

5.5.1 A Grantee may exercise a Stock Option which has become exercisable, in whole or in part, by delivering a duly completed notice of exercise, in such form as is acceptable to the Committee, to the Secretary or other officer of the Company designated by the Committee, with accompanying payment of the option price in accordance with Section 5.7 below.  A notice of exercise must be for at least 50 shares of Common Stock.

5.5.2 Unless otherwise provided by the Committee, such notice may instruct the Company to deliver shares of Company Stock due upon the exercise of the Stock Option to any registered broker or dealer previously approved or designated by the Committee ("Designated Broker") in lieu of delivery to the Grantee.  The Committee may suspend the ability of a Grantee to exercise a Stock Option through a Designated Broker at any time that the Committee, in its sole discretion, determines appropriate.

5.6 Termination of Employment or Service.

5.6.1 General.  Except as provided below, a Stock Option may only be exercised while the Grantee is employed by the Company or a subsidiary of the Company or is serving as a Non-Employee Director.

5.6.2 Nonqualified Stock Options.  In the event of a Grantee’s termination of employment or service for any reason other than death, Disability or Retirement (as such terms are defined in Section 5.6.4) or following a Change of Control, the Nonqualified Stock Options shall be exercisable only as to those shares that were immediately purchasable on the date of termination and only for a period of three (3) months following termination or for such other period as the Committee shall establish in its sole discretion.  If the Grantee’s termination of employment or service is due to death, Disability or Retirement or following a Change of Control, all Nonqualified Stock Options held by the Grantee shall vest and become immediately exercisable upon such event and shall be thereafter exercisable by the Grantee or the Grantee’s legal representative or beneficiaries, as applicable, for a period of three (3) years following the date of such event, provided that in no circumstance shall the period extend beyond the expiration of the Nonqualified Stock Option term set forth in the Grant Instrument.

5.6.3 Incentive Stock Options.  In the event of a Grantee’s termination of employment for any reason other than death, Disability, Retirement, or following a Change of Control, the Grantee’s Incentive Stock Options shall be exercisable only as to those shares that were immediately purchasable by such Grantee at the date of termination and only for a period of three (3) months following termination.  In the event of a termination of a Grantee’s employment due to death, Disability, Retirement or following a Change of Control, all Incentive Stock Options held by such Grantee shall vest and become immediately exercisable and shall thereafter be exercisable by the Grantee or the Grantee’s legal representative or beneficiaries, as applicable, for a period of three (3) years following the date of such cessation of employment, provided, however, that any such Option shall not be eligible for treatment as an Incentive Stock Option in the event such Option is exercised more than three (3) months following the date of Grantee’s Retirement or termination of employment following a Change of Control; and provided further, that no Option shall be eligible for treatment as an Incentive Stock Option in the event such Option is exercised more than one (1) year following termination of employment due to Disability; and providedfurther, in order to obtain Incentive Stock Option treatment for Options exercised by heirs or devisees of a deceased Grantee, the Grantee’s death must have occurred while employed or within three (3) months of termination of employment.  Notwithstanding anything herein to the contrary, in no event shall the period within which an Incentive Stock Option may be exercised extend beyond the expiration of the Option term set forth in the Grant Instrument.

5.6.4 Definitions.  For purposes of the Plan: (i) the term "Company" shall include the Company's subsidiaries; (ii) the term "Disability" or "Disabled" shall mean any physical or mental impairment which qualifies an individual for disability benefits under the applicable long-term disability plan maintained by the Company, or, if no such plan applies, which would qualify such individual for disability benefits under the long-term disability plan maintained by the Company, if such individual were covered by that plan, or, if no such plan exists, as determined in good faith by the Committee; and (iii) “Retirement” or “Retired” shall mean a termination of employment which constitutes a “retirement”, whether normal or otherwise, under any applicable qualified pension benefit plan maintained by the Company, or, if no such plan is applicable, which would constitute “retirement” under the Company’s pension benefit plan, if such individual were a participant in that plan or, in the case of a Non-Employee Director, the Grantee ceases to be such after attaining the age of 70 or such other age as shall be established as a retirement age by the Committee.

5.7 Payment of Option Price.  The Grantee shall pay the option price specified in the Grant Instrument in cash, including through the broker assisted cashless exercise procedure described in Section 5.5.2, or the Grantee also may pay the option price specified in the Grant Instrument by delivering shares of Company Stock owned by the Grantee (including Company Stock acquired in connection with the exercise of a Stock Option, subject to such restrictions as the Committee deems appropriate) and having a Fair Market Value on the date of exercise equal to the option price or through a combination of cash and shares of Company Common Stock owned by the Grantee.  Unless permitted by the Committee, no tendered shares of Company Stock which were acquired by the Grantee pursuant to, or upon the previous exercise of, a Grant under the Plan, or an award under any other award plan of the Company or its subsidiaries, shall be accepted in payment unless the Grantee has held such shares (without restriction imposed by the applicable plan or award) for at least six months prior to delivery in payment.  Subject to Article 13, the Grantee shall pay the option price and the amount of withholding tax due, if any, at the time of exercise. Shares of Company Stock shall not be issued or transferred upon exercise of a Stock Option until the option price is fully paid and any required withholding obligations are satisfied.

5.8 Limits on Incentive Stock Options.

5.8.1 Each Incentive Stock Option shall provide that, to the extent that the aggregate Fair Market Value of the Company Stock on the date of the grant with respect to which Incentive Stock Options are exercisable for the first time by a Grantee during any calendar year under the Plan or any other stock option plan of the Company exceeds $100,000, then such option as to the excess shall be treated as a Nonqualified Stock Option.

5.8.2 An Incentive Stock Option shall not be granted to any participant who is not an Employee of the Company or any "subsidiary" within the meaning of Section 424 (f) of the Code.

5.8.3 An Incentive Stock Option shall not be granted to any Employee who, at the time of grant, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or any "parent" or "subsidiary" of the Company within the meaning of Section 424 (e) and (f) of the Code, unless the option price per share is not less than 110% of the Fair Market Value of Company Stock on the date of grant and the option exercise period is not more than five years from the date of grant.

5.8.4 No Incentive Stock Option granted under this Plan is transferable except by will or the laws of descent and distribution and is exercisable during the Grantee’s lifetime only by the Grantee.

5.9 Notice of Disposition; Withholding; Escrow.  A Grantee of an Incentive Stock Option shall immediately notify the Company in writing of any sale, transfer, assignment or other disposition (or action constituting a disqualifying disposition within the meaning of Section 421 of the Code) of any shares of Company Stock acquired through exercise of an Incentive Stock Option, within two (2) years after the grant of such Incentive Stock Option or within one (1) year after the acquisition of such shares, setting forth the date and manner of disposition, the number of shares disposed of and the price at which such shares were disposed of.  The Company shall be entitled to withhold from any compensation or other payments then or thereafter due to the Grantee such amounts as may be necessary to satisfy any withholding requirements of Federal (including payroll taxes) or state law or regulation and, further, to collect from the Grantee any additional amounts which may be required for such purpose.  The Committee may, in its sole discretion, require shares of Company Stock acquired by an Optionee upon exercise of an Incentive Stock Option to be held in an escrow arrangement for the purpose of enabling compliance with the provisions of this Section 5.9.

5.10 No ISO Warranty.  The Company makes no warranty that Stock Options granted under this Plan that are intended to qualify as Incentive Stock Options will, in fact, so qualify or that any qualification will not be lost in the future, including by acts or omissions of the Company or the Committee or by other cause.  If a Stock Option granted hereunder for any reason fails for whatever reason to comply with the provisions of Section 422 of the Code, and such failure is not or cannot be cured, such Option shall be a Nonqualified Stock Option.

Article 6. Stock Appreciation Rights

6.1 General Requirements.  The Committee may grant stock appreciation rights ("SARs") to any Grantee: (i) independently or (ii) in tandem with, any Stock Option, for all or a portion of the applicable Stock Option.  Tandem SARs may be granted, either at the time the Stock Option is granted or at any time thereafter while the Stock Option remains outstanding; provided, however, that in the case of an Incentive Stock Option, such tandem rights may be granted only at the time of the Grant of such Stock Option. Unless the Committee determines otherwise, the base price of each SAR shall be equal to the greater of: (i) the exercise price of the related Stock Option, if any, or (ii) the Fair Market Value of a share of Company Stock as of the date of grant of such SAR.

6.2 Exercise.

6.2.1 No SAR shall be exercisable more than 10 years after the date of its grant.

6.2.2 A SAR not granted in tandem with a Stock Option will become exercisable at such time or times, and on such terms and conditions, as the Committee shall specify.  Unless the Committee provides otherwise in the Grant Instrument, the provisions of Article 5 applicable to Nonqualified Stock Options, including, without limitation, those related to exercise upon termination of employment or service, shall be applicable to non-tandem SARs; provided, however, that all such SARs shall become immediately exercisable upon the occurrence of a Change of Control of the Company.

6.2.3 A SAR granted in tandem with a Stock Option will be exercisable only at such time or times, and to the extent, that the related Stock Option is exercisable and will be exercisable only in accordance with the exercise procedure for the related Stock Option.  Upon the exercise of a Stock Option, the SARs relating to the Company Stock covered by the related Stock Option shall terminate.  Upon the exercise of SARs, the related Stock Option shall terminate to the extent of an equal number of shares of Company Stock.

6.3 Value of SARs.  Upon a Grantee's exercise of some or all of the Grantee's SARs, the Grantee shall receive in settlement of such SARs an amount equal to the value of the stock appreciation for the number of SARs exercised, payable in cash, Company Stock or a combination thereof. The stock appreciation for an SAR is the difference between the base price of the SAR as described in Section 6.1 and the Fair Market Value of the underlying Company Stock on the date of exercise of such SAR.

6.4 Form of Payment.  Upon exercise of a SAR, payment shall be made in the form of shares of Company Stock, valued at their Fair Market Value on the date of exercise, in cash, or in a combination thereof, as the Committee, in its sole discretion, shall determine.  Payment by the Company of SARs shall be subject to withholding of applicable taxes in accordance with Article 13. 

Article 7. Restricted and Deferred Stock Grants and Performance Awards

7.1 Restricted Stock.  The Committee may issue or transfer shares of Company Stock to an eligible participant under a Grant (a "Restricted Stock Grant"), upon such terms as the Committee deems appropriate. The following provisions are applicable to Restricted Stock Grants:

7.1.1 Shares of Company Stock issued pursuant to Restricted Stock Grants may be issued for cash consideration or for no cash consideration, at the sole discretion of the Committee. The Committee shall establish conditions under which restrictions, if any, on the transfer of shares of Company Stock shall lapse over a period of time or according to such other criteria as the Committee deems appropriate. The period of time during which the Restricted Stock Grant will remain subject to restrictions will be designated in the Grant Instrument as the "Restriction Period."

7.1.2 If the Grantee ceases to be employed by the Company or, in the case of a Non-Employee Director, to serve or be engaged as such, during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Restricted Stock Grant shall terminate as to all shares covered by the Grant as to which restrictions on transfer have not lapsed and those shares of Company Stock must be immediately returned to the Company. The Committee may, however, in its sole discretion, provide for complete or partial exceptions to this requirement as it deems appropriate, including, without limitation, upon death, Disability or Retirement (as defined in Section 5.6.4).

7.1.3 During the Restriction Period, a Grantee may not sell, assign, transfer, pledge or otherwise dispose of the shares of Company Stock to which such Restriction Period applies except to a Successor Grantee under Article 8. Each certificate for a share issued or transferred under a Restricted Stock Grant shall contain a legend giving appropriate notice of the restrictions in the Grant. The Grantee shall be entitled to have the Restricted Stock legend pursuant to this Section 7.1 removed from the stock certificate or certificates covering any of the shares subject to restrictions when all restrictions on such shares have lapsed.

7.1.4 During the Restriction Period, unless the Committee determines otherwise, the Grantee shall have the right to vote shares subject to the Restricted Stock Grant and to receive any dividends or other distributions paid on such shares, subject to any restrictions deemed appropriate by the Committee.

7.1.5 Except as provided by Article 14, all restrictions imposed under the Restricted Stock Grant shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of any conditions imposed by the Committee. The Committee may determine, as to any or all Restricted Stock Grants, that all the restrictions shall lapse without regard to any Restriction Period. All restrictions under all outstanding Restricted Stock Grants shall automatically and immediately lapse upon a Change of Control.

7.2 Deferred Stock.

7.2.1 The Committee may grant a participant the right to receive shares of Company Stock to be delivered in the future (a “Deferred Stock Grant”).  Delivery of the Company Stock pursuant to a Deferred Stock Grant will take place at such time or times, and on such terms and conditions, as the Committee may determine.  The Committee may provide at the time of the Deferred Stock Grant that the stock to be delivered will be restricted stock pursuant to Section7.1.  The Committee may at any time accelerate the time at which delivery of all or any part of the Company Stock will take place; provided, however, that unless otherwise provided by the Committee at the time of grant, the time of delivery of the deferred stock will automatically accelerate to the date of a Change of Control.

7.2.2 During any deferral period, the Grantee shall not have any rights as a shareholder with respect to the deferred shares.

7.3 Performance Awards.  The Committee may grant a participant the right to receive, without payment, a grant of Restricted or Deferred Stock, as determined by the Committee, following the attainment of such performance goals, during such measurement period or periods, and on such other terms and conditions, as the Committee may determine (a “Performance Award”).  Performance goals may be related to personal performance, corporation performance, group or departmental performance or any such other category of performance as the Committee may determine.  The Committee shall have the authority to determine the performance goals, the period or periods during which performance is to be measured and all other terms and conditions applicable to the Performance Award.  Unless otherwise determined by the Committee at the time of grant, all performance goals shall be deemed satisfied and the Performance Award shall vest upon the occurrence of a Change of Control.

7.4 Tax Withholdings.  Delivery of stock pursuant to this Article 7 shall be subject to withholding of applicable taxes in accordance with Article 13.

Article 8. Transferability of Grants

8.1 Limitation.  During a Grantee’s lifetime, only the Grantee may exercise rights under a Grant and Grants may not be transferred, assigned, pledged or hypothecated in any manner, by operation of law or otherwise, except by will or by the laws of descent and distribution or, with respect to Grants other than Incentive Stock Options, if permitted in any specific case by the Committee, in its sole discretion.

8.2 Successor Grantee.  When a Grantee dies, the representative or other person entitled to succeed to the rights of the Grantee may exercise such rights. A successor Grantee must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Grantee's will or under the applicable laws of descent and distribution.

Article 9. Change of Control of the Company

9.1 Definitions.  As used herein, a "Change of Control" shall be deemed to have occurred if:

(i) a liquidation or dissolution of the Company (excluding transfers to subsidiaries) or the sale of all or substantially all of the Company's assets occurs;

(ii) as a result of a tender offer, stock purchase, other stock acquisition, merger, consolidation, recapitalization, reverse split or sale or transfer of assets, any person or group (as such terms are used in and under Section 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner (as defined in Rule 13-d under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the common stock of the Company or the combined voting power of the Company's then outstanding securities; provided, however, that for purposes of this Section 9.1, a person or group shall not include the Company or any subsidiary or any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary;

(iii)  if at least a majority of the Board at any time does not consist of individuals who were elected, or nominated for election, by directors in office at the time of such election or nomination; or

(iv)  the Company merges or consolidates with any other corporation (other than a wholly owned subsidiary) and is not the surviving corporation (or survives only as a subsidiary of another corporation); or

(v) the occurrence of such other event as the Committee, in its sole discretion, shall designate at any time as a Change of Control.

Notwithstanding the foregoing, if it is determined that an award hereunder is subject to the requirements of Section 409A of the Code and payable upon a Change of Control, the Company will not be deemed to have undergone a Change of Control unless the Company is deemed to have undergone a “change of control event” pursuant to the definition of such term in Section 409A.

9.2 Business Combination Transaction.  Any agreement to which the Company or any of its subsidiaries is a party which provides for any merger, consolidation, share exchange, or similar transaction of the Company with or into another corporation or other association whereby the Company is not to be the surviving or parent corporation may provide, without limitation, for the assumption of any outstanding Grants by the surviving corporation or association or its parent or for an equitable mandatory settlement of any outstanding Grants in cash based on the consideration paid to shareholders in such transaction and all outstanding Grants shall be subject to such agreement.  In any case where Grants are assumed by another corporation, appropriate equitable adjustments as to the number and kind of shares or other securities and the purchase or exercise price(s) shall be made.

Article 10. Amendment and Termination of the Plan

10.1 Amendment.  The Board may amend, suspend or terminate the Plan at any time, in its discretion, subject to any required shareholder approval or any shareholder approval which the Board deems advisable for any reason, such as for the purpose of obtaining or retaining any statutory or regulatory benefits under tax, securities or other laws or satisfying any stock listing requirement.

10.2 Termination of Plan.  The Plan shall terminate on the day immediately preceding the tenth anniversary of its effective date unless terminated earlier by the Board or unless extended by the Board with the approval of the shareholders.

10.3 Termination and Amendment of Outstanding Grants.  A termination, suspension or amendment of the Plan that occurs after a Grant is made shall not materially impair the rights of a Grantee unless the Grantee consents or unless the Committee acts under Section 16.2 hereof. The termination of the Plan shall not impair the power and authority of the Committee with respect to an outstanding Grant.  Whether or not the Plan has terminated, an outstanding Grant may be terminated or amended under Section 16.2 hereof or may be amended by agreement of the Company and the Grantee consistent with the Plan.

10.4 Plan Provisions Binding.  The Plan shall be the controlling document. No other statements, representations, explanatory materials or examples, oral or written, may amend the Plan in any manner. The Plan shall be binding upon and enforceable against the Company and its successors and assigns.  In the event of any conflict between the Plan and any Grant Instrument, the Plan shall control. 

Article 11. Funding of the Plan

11.1 Unfunded Plan.  This Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants. 

Article 12. Rights of Participants

12.1 No Right to Grant.  Nothing in this Plan shall entitle any Grantee or other person to any claim or right to be granted a Grant under the Plan.

12.2 No Right to Employment or Retention.  Neither the Plan nor any action taken hereunder shall be construed as giving any individual any rights to be retained by or in the employ of the Company or any other employment or retention rights.

12.3 No Restriction on Company.  Nothing contained in the Plan shall be construed to (i) limit the right of the Company to make Grants under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including Grants to employees thereof who become Employees of the Company, or for other proper corporate purpose, or (ii) limit the right of the Company to grant stock options or make other awards outside of the Plan.

Article 13. Withholding of Taxes

13.1 Right to Withhold.  The Company shall have the right to deduct from all Grants paid in cash, or from other wages paid to an employee of the Company, any federal, state or local taxes required by law to be withheld with respect to such cash awards and, in the case of Grants paid in Company Stock, the Grantee or other person receiving such shares shall be required to pay to the Company the amount of any such taxes which the Company is required to withhold with respect to such Grants or the Company shall have the right to deduct from other wages paid to the employee by the Company the amount of any withholding due with respect to such Grants.  The Company also may withhold or collect amounts with respect to a disqualifying disposition of shares of Company Stock acquired pursuant to exercise of an Incentive Stock Option.   

13.2 Tender of Company Stock.  If approved by the Committee, a Grantee may elect to satisfy all or part of any withholding or income tax obligations arising in connection with such Grants by having the Company withhold all or a portion of any shares of Company Stock that otherwise would be issued to the Grantee or by surrendering all or a portion of any shares of Company Stock previously acquired by the Grantee.  Such shares of Company Stock shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash.  Any payment of withholding taxes by assigning shares of Company Stock to the Company may be subject to such additional restrictions as the Committee at any time deems appropriate.  If the holder of shares of Company Stock purchased in connection with the exercise of an ISO disposes of such shares within two years of the date such ISO was granted or within one year of such exercise, he shall notify the Company of such disposition and remit an amount necessary to satisfy applicable withholding requirements including those arising under federal income tax laws.  If such holder does not remit such amount, the Company may withhold all or a portion of any salary then or in the future owed to such holder as necessary to satisfy such requirement.  The Committee may, from time to time, make or impose, in its discretion, such additional restrictions, rules or regulations as it deems appropriate with respect to withholding of any taxes.

Article 14. Requirements for Issuance of Shares

14.1 Compliance with Law.  The obligations of the Company to offer, sell, issue, deliver or transfer Common Stock under the Plan shall be subject to all applicable laws, regulations, rules and approvals, including, but not by way of limitation, the effectiveness of any registration statement under applicable securities laws if deemed necessary or appropriate by the Company. The Company’s obligation to offer, sell, issue, deliver or transfer its shares under the Plan is further subject to the approval of any governmental authority required in connection therewith and is further subject to the Company receiving, should it determine to do so, the advice of its counsel that all applicable laws and regulations have been complied with.  Certificates for shares of Common Stock issued hereunder may be legended as the Committee shall deem appropriate.

14.2 Restrictions on Grants.  The Committee shall have the right to condition any Grant made to any Grantee hereunder on such Grantee's undertaking in writing to comply with such restrictions on his or her subsequent disposition of such shares of Company Stock as the Committee shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof and certificates representing such shares may be legended to reflect any such restrictions.

14.3 Share Certificates.  Certificates representing shares of Company Stock issued under the Plan will be subject to such stop-transfer orders and other restrictions as may be applicable under such laws, regulations and other obligations of the Company, including any requirement that a legend or legends be placed thereon.  A Grantee may request that shares of Common Stock be issued jointly in the name of husband and wife.

14.4 No Fractional Shares.  No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan or any Grant. The Committee shall determine whether cash, other awards or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 

Article 15. Forfeiture

15.1Misconduct.  Notwithstanding anything to the contrary in the Plan, if the Committee finds, after consideration of the facts presented on behalf of the Company and the involved Grantee, that the Grantee has been engaged in fraud, embezzlement, theft, commission of a felony, or dishonesty in the course of the Grantee’s employment by or service with the Company or by any subsidiary, or that the Grantee has disclosed trade secrets of the Company or  its affiliates, and that such actions have damaged the Company or any subsidiary in any significant manner, in the discretion of the Committee, then the Grantee shall forfeit all rights under and to all unexercised Grants, and under and to all Grants to the Grantee with respect to which the Company has not yet delivered payment or certificates for shares of Stock (as the case may be), all of which Grants and rights shall be automatically canceled.

15.2Finality of Committee Decision.  The decision of the Committee as to the cause of the Grantee’s discharge from employment with the Company and any subsidiary shall be final for purposes of the Plan but shall not affect the finality of the Grantee’s discharge or removal by the Company or subsidiary for any other purposes.  The preceding provisions of this Section 15 shall not apply to any Incentive Stock Option to the extent such application would result in disqualification of the stock option as an incentive stock option under Sections 421 and 422 of the Code. 

Article 16. Miscellaneous

16.1 Substitute Grants.  The Committee may make a Grant to an employee or director of another corporation who becomes an Employee or Non-Employee Director by reason of a corporate merger, consolidation, acquisition of stock or property, reorganization or liquidation involving the Company or any of its subsidiaries in substitution for a stock option or restricted stock grant made by such corporation ("Substituted Stock Incentives"). The terms and conditions of the substitute grant may vary from the terms and conditions required by the Plan and from those of the Substituted Stock Incentives. The Committee shall prescribe the provisions of the substitute grants.

16.2 Section 16 Limitations.  With respect to persons subject to Section 16 of the Exchange Act, it is the intent of the Company that the Plan and all transactions under the Plan comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act.  The Committee, as it deems advisable, may revoke any Grant if it is contrary to law or modify a Grant to bring it into compliance with any valid and mandatory government regulation.

16.3 Ownership of Stock.  A Grantee or successor Grantee shall have no rights as a shareholder with respect to any shares of Company Stock covered by a Grant until the shares are issued or transferred to the Grantee or successor Grantee on the stock transfer records of the Company.

16.4 Headings.  Section headings are for reference only. In the event of a conflict between a title and the content of a Section, the content of the Section shall control.

16.5 Governing Law. The validity, construction, interpretation and effect of the Plan and Grant Instruments issued under the Plan shall exclusively be governed by and determined in accordance with the law of the Commonwealth of Pennsylvania.

Article 17. Effective Date of the Plan

17.1 The Plan shall be effective as of the date of the approval of the Plan by the Company's shareholders.