O.S.C. & Associates, Inc. d.b.a. Olympic Screen Crafts - Page 4

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               In 1985, Mr. Rosi drafted an incentive compensation plan               
          (the plan), applicable only to Messrs. Blazick and Richter, which           
          was approved by the board of directors on October 7, 1985.  The             
          plan provided for the payment, after the close of the fiscal                
          year, of compensation in cash and/or promissory notes.                      
               Pursuant to the terms of the plan, the first step is to                
          calculate the "Adjusted Industry Gross Margin".  The adjusted               
          industry gross margin, or hypothetical gross profit, is the gross           
          profit petitioner would have made on its sales if its gross                 
          profit margin had equaled the printing industry's average gross             
          profit margin (i.e., petitioner's sales x industry average gross            
          profit percentage = hypothetical gross profit).  This                       
          hypothetical gross profit is then compared to petitioner's actual           
          gross profit for the year.  The amount by which petitioner's                
          actual gross profit exceeds the hypothetical gross profit                   
          constitutes the incentive compensation pool.  The plan allocates            
          the incentive compensation pool to Messrs. Blazick and Richter              
          "According to Stock Ownership" (i.e., 90 percent to Mr. Blazick             
          and 10 percent to Mr. Richter).                                             
               Under the plan, each allocation is reduced if certain                  
          contingencies occur.  Mr. Blazick's allocation is reduced by                
          inventory shortages in excess of $100,000 and by bad debts.  Mr.            
          Richter's allocation is reduced by inventory spoilage in excess             
          of $100,000 and production rerun costs in excess of $100,000.               

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