Park National (PRK)

Federal Income Tax Consequences

The following summary of the federal income tax consequences of the grant of ISOs under the 2005 Plan is intended to reflect the current provisions of the Internal Revenue Code and applicable Treasury Regulations. This summary is not intended to be a complete statement of applicable law, nor does it address state or local tax laws or regulations.

In general, a key employee who is granted an ISO does not recognize taxable income on either the grant date or the exercise date. However, upon the exercise of an ISO, the difference between the fair market value of the common shares received and the exercise price is a tax preference item potentially subject to the alternative minimum tax.

Upon disposition of common shares acquired upon exercise of an ISO, long-term capital gain or loss is generally recognized in an amount equal to the difference between the amount realized on the sale or disposition and the exercise price. However, if a key employee disposes of the common shares within two years of the date of grant or within one year of the exercise (a “disqualifying disposition”), then the key employee will recognize ordinary income, as opposed to capital gain, at the time of disposition. In general, the amount of ordinary income recognized will be equal to the lesser of (i) the amount of gain realized on the disposition, or (ii) the difference between the fair market value of the common shares received on the exercise date and the exercise price. Any remaining gain or loss is treated as a short-term or long-term capital gain or loss, depending upon the period of time the common shares have been held.

Park is not entitled to a tax deduction upon either the exercise of an ISO or the disposition of common shares acquired upon exercise, except to the extent that the key employee recognizes ordinary income in a disqualifying disposition.