Key Component of Compensation

The 2015 Restatement, including any predecessors, is a key component of our incentive compensation program for our Leadership Team. The Company has had a stock incentive plan in place for such purposes continually since 1996, approved in each case applicable by the shareholders – most recently in 2013. The 2015 Restatement is designed to benefit the Company and its shareholders by aligning the long-term interests of non-employee Directors, executive officers and other key employees, and other service providers with the interests of our shareholders, and to enable the Company to attract, motivate and retain the best available individuals for service to the Company. The key features of the Company’s equity compensation program are as follow:

Requested Shares Authorization

For burn rate calculation purposes, a summary of the Company’s stock incentive awards made or earned over the last three fiscal years follows:

The term “shares” in the table above means our Common Shares.

Key Featuresof the2015 Restatement

Important aspects of the 2015 Restatement and our historical award practices include:

The complete text of the Amended Plan is attached asAppendix A.

This summary is not intended to be a complete description of the2015 Restatement and is qualified in its entirety by the actual text of the2015 Restatement set forth in Appendix A.

Summary of Changes

The Company’s 2011 Stock Incentive Plan was originally approved by the Company’s shareholders at the annual meeting of the shareholders held on March 29, 2011. The first amendment and restatement of the 2011 Stock Incentive Plan was adopted by the Company’s Board of Directors on February 15, 2013 and by the Company’s shareholders at the annual meeting of shareholders held on March 26, 2013 (together, the “2011 Amended Plan”). The 2015 Restatement replaces the Company’s previously existing 2004 Non-employee Directors Stock Plan and incorporates its relevant terms with the 2011 Stock Incentive Plan, as amended. The 2015 Restatement was adopted by the Company’s Board of Directors on February 13, 2015, subject to the approval of the Company’s shareholders at the annual meeting of shareholders scheduled to be held on March 31, 2015. If approved by the shareholders, the Company will reserve an additional 550,000 shares of Common Shares of the Company for issuance under the 2015 Restatement.

The purpose of the 2015 Restatement is intended to secure for the Company, subsidiaries and its shareholders the benefits arising from ownership of the Company’s common shares by the employees and other service providers of the Company and its subsidiaries who are and will be responsible for the Company’s future growth. The Company intends to use the 2015 Restatement to provide the Company’s service providers, including employees, Directors, and consultants with long-term incentives and rewards tied to the price of the Company’s Common Shares, to align the long-term interest of employees, Directors, and consultants with those of shareholders, and to enable the Company to attract, motivate, and retain the best available individuals for service to the Company.

If the 2015 Restatement is approved, the 550,000 additional shares reserved for issuance under the 2015 Restatement will be added to the approximately 148,000 existing Common Shares previously reserved and remaining available for issuance under the 2015 Restatement (which is the total of the number of shares remaining available for issuance as of February 2, 2015, as previously approved by the shareholders).

Over the course of the last three fiscal years, the Company has issued an average annual total of 405,094 Common Shares per year which is less than 6.2% of the Company’s average outstanding common shares.

During the last three fiscal years, the Company has purchased and retired 440,964 Common Shares, minimizing the impact of dilution on our shareholders of equity issuances from the Company’s stock incentive plans.

We believe that the Company’s equity usage is consistent with the broader market as well as with our competitors’ executive compensation programs. In addition, we believe that the number of shares available for future grants, as a percentage of total shares outstanding, is low as compared to the broader market and our competitors, thus demonstrating a clear need for us to reserve additional shares to make equity compensation awards in the future.

 Similar to other companies in our industry, we believe equity compensation is integral to providing a competitive total compensation package necessary to recruit, retain and reward key employees. Equity awards are an essential component of our executive and Director compensation programs, which enable us to attract and retain key talent and to incentive that talent to deliver shareholder value. Therefore, it is imperative that we be able to continue to provide long-term incentive awards as a component of the Company’s compensation program. The Company will continue to maintain an appropriate balance between meeting employee hiring, retention, and compensation goals and avoiding excessive shareholder dilution.

It is essential to provide a long-term link between compensation and shareholder value creation and rely on equity compensation as one of the most efficient and effective means to create such a relationship. The Company’s equity incentive program is designed to align the interests of the Company’s executive officers and other key employees with those of shareholders, motivate the executive officers to achieve key financial goals, and reward superior performance over a multi-year period. The Company has historically utilized restricted share grants to create this link between pay and performance.

If shareholders do not approve the reservation of additional Common Shares under the Plan, our ability to create long-term incentives for key employees will be substantially diminished.

The remaining material terms and provisions of the2015 Restatement are summarized below.

Background

The 2015 Restatement is integral to the Company’s compensation strategy and programs. The Board believes that the 2015 Restatement will help the Company recruit, motivate and retain the caliber of Directors, consultants and employees essential to the Company’s success, and will further align the interests of those persons with the interests of the Company’s shareholders.

The 2015 Restatement permits grants of shares of restricted stock, restricted stock units, options, stock appreciation rights, performance grants and stock awards. Shareholder approval of the 2015 Restatement will permit performance-based awards, as discussed below, to qualify for deductibility under Section 162(m) of the Internal Revenue Code (the “Code”).

Awards and grants under the 2015 Restatement are referred to as “Incentive Awards.” Incentive Awards may be made to any employee, Director or consultant employed by or providing bona fide services to the Company, its parent or its subsidiaries. Those persons who receive Incentive Awards under the 2015 Restatement are referred to as “Participants.”

Effective Date of the Plan

The 2015 Restatement will become effective on March 31, 2015 if approved by the Company’s shareholders, as described below. The 2015 Restatement will automatically terminate at the close of business on February 10, 2025.

Eligibility

All present and future employees, Directors and consultants of the Company and its subsidiaries are eligible to receive Incentive Awards under the 2015 Restatement if the Compensation Committee determines that they have contributed, or can be expected to contribute, significantly to the Company or any of its subsidiaries. The Compensation Committee has the power and complete discretion to select eligible employees and other eligible service providers to receive Incentive Awards and to determine the type of award and its terms and conditions. As of January 31, 2015, the Company estimates that there are less than 500 employees and other service providers (2 of whom are executive officers and 4 of whom are Directors) who may be eligible for Incentive Awards under the 2015 Restatement.

Administration

The 2015 Restatement will be administered by the Compensation Committee. The Compensation Committee will have full authority, subject to the provisions of the 2015 Restatement to, among other things, determine the Participants to whom Incentive Awards will be granted, the type of Incentive Awards to be granted, the number of shares to be made subject to Incentive Awards, the exercise price and other terms and conditions of the Incentive Awards and to interpret the 2015 Restatement. The Compensation Committee may prescribe, amend and rescind the rules and regulations relating to the 2015 Restatement, and may delegate certain administrative powers to officers of the Company.

The 2015 Restatement is intended to comply with the provisions of SEC Rule 16b-3, which permit Incentive Awards granted under the plan to be exempt from the short-swing profit liability rules under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). In addition, the 2015 Restatement is designed to comply with the requirements for “performance-based compensation” under Section 162(m) of the Code, thereby allowing us to maximize our federal income tax deductions with respect to Incentive Awards granted under the 2015 Restatement, and to allow Incentive Awards to comply with the requirements of Section 409A of the Code regarding deferred compensation arrangements, to the extent applicable.

Common Shares Available for Incentive Awards

If this Proposal No. 2 is approved, the number of Common Shares of the Company available for issuance under the 2015 Restatement, will be 550,000 Common Shares plus the total number of shares remaining available for issuance under the 2011 Amended Plan as of the effective date of the 2015 Restatement (the “Previously Reserved Shares”). The Previously Reserved Shares were authorized by the Company’s shareholders for reservation under the 2011 Amended Plan.

As of February 2, 2015, the effective date of the 2015 Restatement:

In addition, no incentive awards remain outstanding and no shares of common stock remain available for issues under the Company’s 2004 Non-employee Directors Stock Plan.

The number of shares available for issuance under the 2015 Restatement will be subject to adjustment upon the occurrence of any stock dividend or other distribution, stock split, merger, consolidation, combination, share repurchase or exchange or other similar corporate transaction or event. In addition, no more than 250,000 Common Shares may be allocated to the Incentive Awards that are granted during any single taxable year of the Company to any Participant. The aggregate maximum cash amount payable under the 2015 Restatement in any single taxable year of the Company to any Participant cannot exceed $2,000,000. The aggregate maximum number of Common Shares that may be allocated to grants of Incentive Awards to all Directors as a group during any single calendar year shall be 75,000 shares.

In the event that Proposal No. 2 is approved, the number of shares reserved and available for issuance under the 2015 Restatement will be increased by an additional 550,000 shares—which is in addition to the total number of shares still available for issuance under the Amended Plan all of which were previously authorized for reservation by the Company’s shareholders.

Common Shares covered by an Incentive Award granted under the 2015 Restatement will not be counted as used under the 2015 Restatement unless and until they are actually issued and delivered to a Participant. Shares withheld by the Company from any type of Incentive Award, other than an option or stock appreciation right, to pay taxes with respect to such award may be used for new Incentive Awards or to increase the total number of shares reserved under the 2015 Restatement. None of the following shares may be added back to the number of shares reserved for issuance under the 2015 Restatement or otherwise applied to any new Incentive Award under the 2015 Restatement; (i) shares issued upon the exercise, vesting or distribution under an Incentive Award, (ii) shares tendered by the Participant or withheld by the Company in payment of the purchase price of an option, (iii) shares subject to a stock appreciation right that are not issued in connection with its stock settlement when exercised, and (iv) shares reacquired by the Company on the open market or otherwise using cash proceeds from the exercise of options. Finally, shares covered by a stock appreciation right shall be counted as used only if the shares are actually issued to the Participant.

The number of shares that may be issued under the 2015 Restatement will be proportionately adjusted in the event of a recapitalization event like a stock dividend, stock split or other similar event affecting the Company’s Common Shares. The 2015 Restatement prohibits repricing of stock options or stock appreciation rights without shareholder approval, except in connection with a recapitalization event. A repricing generally includes any change to reduce the exercise price of outstanding options or stock appreciation rights, the cancellation of outstanding options or stock appreciation rights in exchange for cash or other incentive awards (except for an exchange in connection with a corporate event involving the Company) or any other action that is treated as a repricing under generally accepted accounting principles.

The Company’s Common Shares are traded on the NASDAQ Global Market. The last reported sales price of the Company’s Common Shares on February 20, 2015 was $5.13 per share.

Types of Incentive Awards That May Be Granted Under the2015 Restatement.

The following types of Incentive Awards may be granted under the 2015 Restatement:

Stock Options and Stock Appreciation Rights. The Compensation Committee may grant options to eligible employees and other service providers, and establish the terms and conditions for exercising an option. Stock appreciation rights may be granted on all or any part of an option, and also are subject to terms and conditions set by the Compensation Committee. Stock appreciation rights also may be granted separately from an option. No dividend equivalents may be paid with respect to options or stock appreciation rights.

The exercise price of an option will be at least 100% of the fair market value of Company Common Shares on the date that the option is granted. No option may be exercised more than 10 years after the date on which it was granted, or after such shorter period as may be required by the Code. The options may be either incentive stock options or nonstatutory options. Incentive stock options are options which satisfy Section 422 of the Code and the regulations thereunder. Nonstatutory options do not satisfy Section 422 of the Code. For purposes of the 2015 Restatement, fair market value means the closing sales price of a Common Share (as reported by the exchange on which the Company’s shares are listed or other manner permitted by the 2015 Restatement) as of the date of grant or such other date for which the value of Company Common Shares must be determined.

Payment for shares purchased upon exercise of an option must be made in full in cash, or if permitted by the Compensation Committee, by delivery of shares owned by the Participant having a fair market value on the date of transfer equal to the exercise price, or in such other manner as may be authorized by the Compensation Committee.

A stock appreciation right entitles the Participant to receive an amount equal to (i) the fair market value on the date of exercise of Company Common Shares covered by the surrendered stock appreciation right the excess of (ii) the fair market value of Company Common Shares on the date the stock appreciation right was granted. The award may be paid in Company Common Shares or cash, or both.

Restricted Stock and Stock Awards. The Compensation Committee may grant restricted stock under the 2015 Restatement, which will be Company Common Shares subject to certain terms and conditions. The Participant will not be able to sell or transfer the restricted stock until the restrictions stated in the award agreement have been met, which may include the achievement of performance goals (as described below under the headingPerformance Grants). The restricted stock will be forfeited if the restrictions are not met. The minimum vesting period for an award of restricted stock to an employee or consultant which vests solely on continued service and the passage of time shall not be less than three consecutive years in length on either a graded (not less frequently than annually) basis or cliff basis, as determined by the Compensation Committee. The minimum performance period for an award of restricted stock to an employee or consultant which vests based in whole or in part on the achievement of performance conditions, or the vesting period for a restricted stock award to a Director, shall not be less than one year in length. Unless the grant agreement provides otherwise, any stock dividends or other distributions with respect to any outstanding shares of restricted stock shall be issued subject to the same vesting conditions and transferability restrictions as the underlying shares of restricted stock, and any cash dividends or other distributions with respect to any outstanding shares of restricted stock shall be distributed on the dividend payment date to the holder of the shares of restricted stock.

Stock awards may be granted to Directors or consultants. Unless otherwise determined by the Compensation Committee, shares subject to a stock award will be issued as soon as practicable following the date granted and the holder of the shares shall have all rights of a shareholder of the Company. Stock Awards granted to Directors (“Director Stock Awards”) may not be sold, assigned, transferred, pledged, hypothecated, or otherwise encumbered or disposed of until the passage of six (6) months beginning on the date of grant unless otherwise determined by the Compensation Committee. However, the Compensation Committee may establish as to each Director Stock Award the terms and conditions upon which such restriction (or any other restrictions) shall lapse. The terms and conditions may include, without limitation, lapsing of such restrictions as a result of the disability, death or retirement of the Participant or the occurrence of a change of control. The Compensation Committee may at any time waive or remove any restrictions. The Participant (and not the Company) will be responsible for any tax liability that may arise as a result of a Director Stock Award.

Restricted Stock Unit Awards. The Compensation Committee may grant restricted stock units, which will be the right to receive Company Common Shares or cash subject to certain terms and conditions. Unlike grants of restricted stock, no shares are issued at grant. Such restrictions may include the achievement of performance goals (as described below under the headingPerformance Grants). Similar to restricted stock, restricted stock units cannot be sold or transferred by a Participant until the applicable restrictions expire or have been met. Upon the lapse of restrictions, a restricted stock unit entitles a Participant to receive Common Shares or cash equal to the fair market value of a Common Share on the date the restrictions lapse. The minimum period over which the restrictions of any award of restricted stock units (not subject to a performance goal) may lapse is three years from the date of grant on a graded (not less frequently than annually) basis or cliff basis, as determined by the Compensation Committee. The minimum restriction period applicable to any award of restricted stock units to an employee or consultant which vests subject to a performance goal, or the vesting period of a restricted stock unit award to a Director, is one year from the date of grant. The Compensation Committee may provide that a Participant shall be entitled to receive dividend equivalents on outstanding restricted stock units. Dividend equivalents with respect to dividends or other distributions that are paid in Company Common Shares or cash are credited to the Participant as additional restricted stock units subject to the same restrictions. Unless otherwise provided in a grant agreement, dividend equivalents, if any, are credited with respect to an award of restricted stock units as follows: (i) in the case of a stock dividend or other distribution, by crediting the Participant with an additional number of restricted stock units equal to the number of shares of Company Common Shares the Participant would have received in the dividend with respect to his or her restricted stock units had the Restricted Stock Units been outstanding shares of Company Common Shares on the dividend payment date; and (ii) in the case of a cash dividend or other distribution, by crediting the Participant with an additional number of restricted stock units equal to the quotient of (A) the aggregate cash amount the Participant would have received in the dividend with respect to his or her restricted stock units had the restricted stock units been outstanding shares of Company Common Shares on the dividend payment date, divided by (B) the Fair Market Value of a share of Company Common Shares on the dividend payment date, rounded down to the nearest whole share. Any additional restricted stock units issued as dividend equivalents are subject to the same vesting and other terms and conditions as the underlying restricted stock units.

Performance Grants. Performance grants are the right to receive an amount denominated in cash (but payable in cash or common stock), subject to the achievement of pre-established performance goals. Performance grants shall be granted and administered to comply with the requirements of Section 162(m) of the Code. Performance goals are based on objective and quantifiable performance criteria. The performance criteria that the Compensation Committee may use in establishing performance goals are total shareholder return, stock price, revenue, gross profit, EBITDA (earnings before interest, taxes, depreciation and amortization), EBIT (earnings before interest and taxes), operating income, pre-tax earnings, net operating profit after taxes, net income, earnings per share, gross margin, operating margin, net margin, operating cash flow, free cash flow, return on assets, return on invested capital, return on equity, or return on some defined set of assets, capital or equity as defined by the Compensation Committee. Performance criteria may be used to measure the performance of the Company on a consolidated basis or any segment, sector, one or more customers, subsidiary, affiliate, division or business unit of the Company. The performance criteria may be applied either individually, alternatively, or in any combination and measured on as reported (GAAP), gross, net or operating basis, on a total or continuing basis, on an annual or cumulatively over a defined period of time basis, and can be measured on an absolute, relative, growth, or per-share basis. The performance criteria may be measured including or excluding extraordinary items such as restructuring charges, casualty losses, insurance recoveries, and other one-time, non-recurring items.

The Compensation Committee sets the threshold, target and maximum amounts payable under the performance grant. The Participant receives the appropriate payments at the end of the performance period if the performance goals (and other terms and conditions of the award) are met. The actual payments under a performance grant can be made in cash, Company Common Shares, or both, as determined by the Compensation Committee. Any payments in Common Shares will be based on the fair market value of Common Shares on the payment date.

Applicable Withholding Taxes.

The Company shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy the Company’s obligation to withhold applicable withholding taxes with respect to any exercise, lapse of restriction or other taxable event arising as a result of the 2015 Restatement. The obligations of the Company under the 2015 Restatement is conditioned on such payment or arrangements and the Company will have, to the extent permitted by law, the right to deduct any such taxes from any payment of any kind otherwise due to the Participant. Unless otherwise determined by the Compensation Committee at the time the Incentive Award is made or thereafter, any such withholding requirement may be satisfied, in whole or in part, by withholding from the Incentive Award shares of Company Common Shares having a fair market value on the date of withholding equal to the amount that the Company determines is necessary to satisfy its withholding obligation. All such elections shall be subject to any restrictions or limitations that the Compensation Committee, in its sole discretion, deems appropriate.

Change of Control

If the Company undergoes a Change of Control and the Company is not the surviving entity and the successor to the Company does not agree in writing prior to the occurrence of the change of control to continue and assume the award following the change of control, or if for any other reason the award would not continue after the change of control, then if the award is an option or stock appreciation right, it will vest fully, any and all restrictions on exercisability shall lapse; and if the award is a non-option award, it will immediately vest fully, and all restrictions shall lapse, and the award shall be paid; except that, that if the award is performance-based, any payment under the award will be computed based on the performance terms of the award and based on actual performance achieved to the date of the change of control. No acceleration of vesting, exercisability and/or payment of an outstanding Incentive Award will occur in connection with a change of control if either the Company is the surviving entity, or the successor to the Company agrees prior to the change of control to assume the award. However, individual awards may provide for acceleration under these circumstances. If an option or stock appreciation right is fully vested but is not exercised or paid prior to the change of control and the Company is not the surviving entity and the successor to the Company does not agree to continue and assume the award following the change of control, or if for any other reason the award would not continue after the change of control, then the Compensation Committee may provide for the settlement in cash of the award. An option or stock appreciation right settled by the Compensation Committee shall automatically terminate. If, in such circumstances, the Compensation Committee does not provide for the cash settlement of an option or stock appreciation right, then upon the change of control such option or stock appreciation right shall terminate; provided that the Participant shall be given reasonable notice of such intended termination and an opportunity to exercise the option or stock appreciation right prior to or upon the change of control.

Termination of the2015 Restatement

The Board may terminate the 2015 Restatement at any time. Termination will not adversely affect any Incentive Award outstanding at the time of termination. If not sooner terminated, the 2015 Restatement will terminate on February 10, 2025.

Amendment of the2015 Restatement or Incentive Awards

The Board may amend or terminate the 2015 Restatement in any manner as it deems advisable. However, if and to the extent required by the Code or NASDAQ, shareholders must approve amendments that would (i) increase the number of Common Shares that are reserved and available for issuance under the 2015 Restatement; (ii) materially modify the requirements as to eligibility to participate in the 2015 Restatement; (iii) materially increase the benefits that Participants may receive under the 2015 Restatement, or (iv) expand the types of Incentive Awards provided for under the 2015 Restatement. The Board can amend unilaterally the 2015 Restatement (subject to the foregoing limitations) and Incentive Awards as it deems appropriate (to the extent set forth in the 2015 Restatement) to ensure that the 2015 Restatement and Incentive Awards comply with any section of the Code and with SEC Rule 16b-3.

Transferability of Incentive Awards

Participants’ interests in performance grants, restricted stock units and stock appreciation rights are not transferable prior to payment, or exercise of the awards, as the case may be. Restricted stock is not transferable until the restrictions have lapsed or been removed. Nonstatutory stock options are transferable only to the extent provided by the Compensation Committee in the award agreement and permitted by applicable securities laws. Incentive stock options are not transferable except by will or the laws of descent and distribution. Stock awards are generally transferrable upon issuance.

New Plan Benefits

It is not possible at this time to determine the benefits that will be received by executive officers or other employees of the Company under the 2015 Restatement if the plan is approved by our shareholders. Such benefits will depend on future actions of the Compensation Committee and on the fair market value of the Company Common Shares at various future dates and the extent to which performance goals set by the Compensation Committee are met.

Federal Income Tax Consequences

Stock Options and Stock Appreciation Rights.  Upon exercise of a nonstatutory stock option a Participant generally will recognize ordinary income equal to the difference between the fair market value of the Common Shares acquired on the date of the exercise and the exercise price. Upon exercise of a stock appreciation right, a Participant generally will recognize ordinary income equal to the difference between the fair market value on the date of exercise of Common Shares covered by the surrendered stock appreciation right over the fair market value of Common Shares on the date the stock appreciation right was granted. Generally, such amounts will be included in the Participant's gross income in the taxable year in which exercise occurs. The purchase price paid by the Participant (in the case of a nonstatutory stock option), plus the amount included in the Participant’s income as a result of exercise, will become the Participant's basis in the shares. If the Participant is an employee, this income is subject to applicable tax withholding. Any profit or loss realized on the later sale or exchange of the Common Shares relative to the Participant's basis in the shares will be treated as a capital gain or a capital loss.

Upon exercise of an incentive stock option, a Participant generally will not recognize income subject to tax, unless the Participant is subject to the alternative minimum tax. The purchase price paid by the Participant will become the Participant's basis in the shares. If the Participant holds the Common Shares purchased upon exercise of an incentive stock option until the later of two years after the option was awarded to the Participant or one year after the Common Shares were issued to the Participant (the "Holding Period"), then any profit or loss realized on the later sale or exchange of the Common Shares relative to the Participant's basis in the shares will be capital gain or loss. If the Participant sells or exchanges the Common Shares prior to expiration of the Holding Period, the Participant generally will recognize ordinary income at the time of the sale or exchange equal to the excess of the fair market value of the shares at the time of exercise (or, if less, the amount realized upon the sale or exchange) over the exercise price. This income will become the Participant's new basis in the shares. Any additional profit or loss relative to this basis will be treated as a capital gain or a capital loss.

If the grant agreement so provides, a Participant may pay the exercise price of a nonstatutory stock option or an incentive stock option by delivery of Common Shares. Usually when a Participant delivers Common Shares in satisfaction of all or any part of the exercise price, no taxable gain is recognized on any appreciation in the value of the delivered shares, unless the shares were previously acquired upon the exercise of an incentive stock option and the applicable Holding Period with respect to the shares has not expired. In that case, the Participant will recognize ordinary income with respect to the delivered shares in accordance with the principles described above. Special rules apply to determine the basis of Common Shares purchased upon the exercise of an option by the delivery of previously owned shares.

Restricted Stock and Stock Awards.  A Participant generally will not incur federal income tax when he or she is awarded a share of restricted stock unless the Participant makes a valid election under Section 83(b) of the Code with respect to the award. If a Participant makes such an election, the Participant generally will recognize ordinary income equal to the fair market value of the Common Shares subject to the award on the date of grant, and the Participant generally will not recognize any additional income at the time the restrictions lapse in the case of a restricted stock award. If the Participant does not make a valid election under Section 83(b) of the Code, the Participant generally will recognize compensation income with respect to the restricted stock equal to the fair market value of the Common Shares subject to the award at the time or times the restrictions lapse.

A Participant generally will incur federal income tax (in the form of ordinary income) when he or she receives a stock award. The income is equal to the fair market value of the Common Shares subject to the stock award on the date of grant.

The amount included in a Participant's income under a restricted stock award or a stock award will become the Participant's basis in the shares subject to that award. If the Participant is an employee, this income is subject to applicable tax withholding. Any profit or loss realized on the later sale or exchange of the Common Shares relative to the Participant's basis in the shares will be treated as a capital gain or a capital loss.

Restricted Stock Units andPerformance Grants.  Generally, a Participant who receives restricted stock units will not incur federal income tax, and the Company will not be allowed a deduction, at the time the award is granted. When the Participant receives payment for such awards in cash or Common Shares, the amount of the cash and the fair market value of the Common Shares received will be ordinary income to the employee and will be allowed as a deduction for federal income tax purposes to the Company. The Company generally will be entitled to a deduction equal in amount to the ordinary income realized by the recipient in the year paid.

Impact of Section 409Aof the Code.  The discussion above is subject to the applicable provisions of Internal Revenue Code Section 409A. If at any time the 2015 Restatement, any incentive award under the 2015 Restatement, or any arrangement required to be aggregated with the 2015 Restatement or any incentive award under the 2015 Restatement fails to comply with the applicable requirements of Section 409A of the Code, all amounts (including earnings) deferred under the 2015 Restatement or the award for the taxable year and all preceding taxable years by any Participant with respect to whom the failure relates are includible in that Participant 's gross income for the taxable year, to the extent the amounts are not subject to a substantial risk of forfeiture and have not previously been included in the Participant 's gross income. These amounts are also subject to an additional income tax equal to twenty percent of the amount required to be included in gross income and to interest equal to the underpayment rate specified by the Internal Revenue Service plus one percentage point, imposed on the underpayments that would have occurred had the compensation been included in income for the taxable year when first deferred, or if later, when no longer subject to a substantial risk of forfeiture.

Our Income Tax Deduction.  Assuming that a Participant's compensation is otherwise reasonable and that the statutory limitations on compensation deductions do not apply (including the limitations under Sections 162(m) and 280G of the Code), the Company usually will be entitled to a business expense deduction when and for the amount that a Participant recognizes as ordinary compensation income in connection with an incentive award, as described above. The Company generally does not receive a deduction in connection with the exercise of an incentive stock option, unless the Participant disposes of the Common Shares purchased on exercise before satisfying the Holding Period requirements.

The above description of tax consequences is general in nature and does not purport to be complete. Moreover, statutory provisions and the rules and regulations promulgated thereunder are subject to change, as are their interpretations, and their application may vary in individual circumstances. Additionally, the consequences under applicable state and local income tax laws, rules and regulations may not be the same as under federal income tax laws, rules and regulations.

Approval by Shareholders

In order for the 2015 Restatement to be effective, including the reservation of an additional 550,000 Common Shares of the Company for issuance under the 2015 Restatement, the 2015 Restatement must be approved by the affirmative vote of a majority of the total votes cast on the proposal at the annual meeting in person or by proxy. Accordingly, while abstentions and broker non-votes, if any, will count for purposes of establishing a quorum with respect to this matter at the annual meeting, neither abstentions nor broker non-votes will have the effect of a negative vote with respect to this matter.

In the event this Proposal No. 2 is not approved by the shareholders, the 2011 Amended Plan (previously approved by the shareholders) will remain in effect and all shares still available for issuance under that stock incentive plan will still be available for issuance.

THE BOARD OF DIRECTORS RECOMMENDS A VOTEFOR APPROVAL OF THE OPTICAL CABLE CORPORATION SECOND AMENDED AND RESTATED 2011 STOCK INCENTIVE PLAN (THE “2015 RESTATEMENT”), ANDTHE RESERVATION OF AN ADDITIONAL550,000 COMMON SHARES OF THE COMPANY FOR ISSUANCE UNDER THE2015 RESTATEMENT.

PROPOSAL NO. 3

2
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM FOR FISCAL YEAR 20152018

The Audit Committee has selected, subject to ratification by the shareholders, the firm of KPMG LLPBrown, Edwards & Company, L.L.P. as the Company’s independent registered public accounting firm for fiscal year 2015.2018. Although action by the shareholders in this matter is not required, the Board of Directors believes that it is appropriate to seek shareholder ratification of this appointment. In the event the shareholders do not ratify the selection of KPMG LLP,Brown, Edwards & Company, L.L.P., the selection of another independent registered public accounting firm will be considered by the Audit Committee.

A representative of KPMG LLPBrown, Edwards & Company, L.L.P. is expected to attend the annual meeting of shareholders. The representative will have the opportunity to make a statement, if he so desires, and will be available to respond to appropriate questions from shareholders.

THE BOARD OF DIRECTORSUNANIMOUSLY RECOMMENDS A VOTEFOR RATIFICATION OF KPMG LLP BROWN, EDWARDS & COMPANY, L.L.P.AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR FISCAL YEAR 2015.2018.

PROPOSAL NO. 4

3
NON-BINDING SHAREHOLDER ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, enables our shareholders to vote to approve, on an advisory (non-binding)(non-binding) basis, the compensation of our named executive officers as disclosed in this proxy statement in accordance with Section 14A of the Exchange Act. SeeExecutive Compensation below for additional information related to the compensation of the Company’s named executive officers.

We believe that our executive compensation is competitive within our industry, consistent with executive compensation of companies similarly sized and with similar complexities, and strongly aligned with the long-term interests of our shareholders. Our executive compensation has been designed to promote a performance-based culture and ensure long-term value creation by aligning the interests of our executive officers with those of our shareholders by linking a substantial portion of their compensation to the Company’s performance. The Compensation Committee annually reviews the compensation programs for our named executive officers to ensure they achieve the desired goals of aligning our executive compensation structure with our shareholders’ interests and current market practices.

As an advisory vote, this proposal is not binding upon the Company or our Board of Directors. However, our Board of Directors and Compensation Committee value the opinions expressed by shareholders in their vote on this proposal. Consequently, the Compensation Committee intends to take into account the outcome of the vote when considering future executive compensation decisions for our executive officers.

THE BOARD OF DIRECTORS UNANIMOUSLYRECOMMENDS A VOTEFOR APPROVAL OF NAMED EXECUTIVE OFFICER COMPENSATION. COMPENSATION.

BENEFICIAL OWNERSHIP OF SECURITIES

Except as noted below, the following table sets forth information as of January 23, 2015,26, 2018, regarding the beneficial ownership of the Company’s Common Shares of (i) each person made known to the Company through public filings made with the SEC to be the beneficial owner, within the meaning of Section 13(d) of the Exchange Act of more than 5% of the outstanding Common Shares, (ii) each director and nominee of the Company, (iii) each current executive officer of the Company named in the Summary Compensation Table (see “Executive Compensation”) and (iv) all executive officers and Directors and nominees of the Company as a group. Unless otherwise indicated, the address of each named beneficial owner is c/o Optical Cable Corporation, 5290 Concourse Drive, Roanoke, Virginia 24019.

Except to the extent indicated in the footnotes, each of the beneficial owners named below has sole voting and investment power with respect to the shares listed.In computing the number and percentage of shares beneficially owned by each person, the Company has included any shares of common stock that could be acquired within 60 days of January 26, 2018.

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As of January 26, 2018, employees of the Company and members of the Board of Directors owned at least 37.5% of the shares issued and outstanding, including shares still subject to potential forfeiture based on vesting requirements.

EXECUTIVE OFFICERS

The current executive officers of the Company are: Neil D. Wilkin, Jr., Chairman of the Board, President and Chief Executive Officer and Tracy G. Smith, Senior Vice President and Chief Financial Officer. Please see the “Election of Directors” section of this proxy statement for certain information concerning Mr. Wilkin.

Tracy G. Smith, age 47,50, became the Senior Vice President and Chief Financial Officer on July 9, 2008. Prior to becoming Senior Vice President and Chief Financial Officer, Ms. Smith served as the Company’s Vice President and Chief Financial Officer from September 16, 2003 through July 8, 2008. Prior to becoming Vice President and Chief Financial Officer, Ms. Smith served as the Company’s Controller from May 1, 2002 through September 15, 2003. Ms. Smith was named Corporate Secretary of the Company effective June 22, 2004. Prior to joining the Company, Ms. Smith was the Corporate Controller for RBX Corporation. Ms. Smith is a CPA and has over 12 years of experience in public accounting with KPMG LLP. Ms. Smith left KPMG LLP in December of 2001. Ms. Smith holds a bachelor of science degree in business with a major in accounting from Virginia Polytechnic Institute and State University.

There are no family relationships among the directors or executive officers of the Company.

DIRECTOR COMPENSATION

Overview

The Company seeks to EXECUTIVE COMPENSATIONrecruit and retain qualified non-employee Board members that are able to positively contribute to the success of the Company for the benefit of the Company’s various stakeholders, the most important of which are its shareholders, but also includes the Company’s customers, its employees, and the communities in which the Company operates.

Non-employee directors of the Company receive cash and share-based compensation for their service to OCC. Share-based compensation is granted under the CompanySummary Compensation Table’s 2017 Plan, and previously under predecessor plans.

The following table sets forth information concerningCompensation Committee of the Board of Directors recommends annual compensation paidfor non-employee Board members, administers the 2017 Plan and successor stock incentive plans, and administered the 2011 Plan, and other predecessor stock incentive plans. The Board approves compensation for non-employee Board members, typically each year after the annual meeting of shareholders, including stock award grants to non-employee directors.

Share-based compensation is an important part of non-employee Board member compensation, since it aligns the financial interests of the members of the Board with the shareholders.

The 2017 Plan permits various methods of providing share-based compensation to non-employee directors. The Compensation Committee and the Board prefer that share-based compensation for non-employee directors be in the form of stock awards. The Compensation Committee and the Board believe that the use of stock awards, rather than stock options (by way of example), tends to be less dilutive to shareholders and also may tend to result in a lower expense to the Company under current U.S. generally accepted accounting principles. Stock award grants require the non-employee directors to pay cash taxes on non-cash taxable income unlike stock options (by way of example), which also demonstrates a financial commitment by the non-employee directors.

The Compensation Committee engages a compensation consultant to assist in establishing appropriate compensation levels for non-employee directors. Typically, such a compensation consultant is engaged every year.

Methodology of Determining Non-Employee Director Compensation

An outside compensation consultant with a nationally recognized firm was engaged by the Compensation Committee to make recommendations regarding appropriate compensation levels for non-employee directors for fiscal year 2017.

Prior to the engagement of the compensation consultant, the Compensation Committee and the Company determined that no conflict of interest existed between the Company and its employees and the compensation consultant and its employees. The outside consultant is also engaged by the Company to assist with benefits administration related to the Chief Executive OfficerCompany’s 401(k) Plan and with the annual Directors and Officers Insurance renewal.

The compensation consultant created a revenue-based peer group by considering similar-sized public companies, as well as considering industry and company type (i.e., manufacturing and/or technology companies), which was reviewed and approved by the Compensation Committee. In addition to allrevenue, other executive officersfinancial factors are considered in evaluating the appropriateness of the Company whose total salarypeer group including EBITDA, net income, market capitalization, and bonus exceeded $100,000return on equity.

The peer group contained 12 companies in addition to OCC. The peer group used by the compensation consultant for recommendations regarding non-employee director compensation is the same peer group used by the compensation consultant for recommendations regarding executive compensation. The compensation consultant provided data regarding ranges of retainers for members of the Board and the committees, retainers for committee chairman, meeting fees, and share-based compensation.

The compensation consultant also provided data to the Compensation Committee regarding two additional peer groups (both with ten or more public companies in addition to OCC) for purposes of evaluating the appropriateness of the peer group selected for use for fiscal year ended October 31, 2014.2017 and the recommendations made by the compensation consultant.

For purposes of this table and subsequent tables,The Compensation Committee decided to target non-employee Board member compensation for fiscal year 2014 means November 1, 2013 through October 31, 2014 and fiscal year 2013 means November 1, 2012 through October 31, 2013.2017 at or about the 25^th percentile of the revenue-based peer group recommended by the compensation consultant. Using this approach, the Compensation Committee decided on recommended non-employee director compensation.