ARROW FINANCIAL CORPORATION
1998 LONG TERM INCENTIVE PLAN
Section 1. Establishment and Purpose
Arrow Financial Corporation (the "Company") hereby
establishes an incentive compensation plan to be named the
Arrow Financial Corporation 1998 Long Term Incentive Plan
(the "Plan"), for certain employees of the Company and its
subsidiaries. The purpose of this Plan is to encourage those
employees who receive awards under the Plan to acquire and
maintain an interest in the Common Stock of the Company
and thus to have added incentives to work for the success of
the Company and its subsidiaries.
Section 2. Definitions
Whenever used herein, the following terms shall have
the respective meanings set forth below:
(a) Award means any Option or Restricted Stock
granted under the Plan.
(b) Award Agreement means the written
agreement evidencing an Award under the
Plan, which shall be executed by the Company
and the Participant.
(c) Board means the Board of Directors of the
Company.
(d) Code means the Internal Revenue Code of
1986, as amended and in effect from time to
time.
(e) Committee means the Personnel Committee
of the Board or any subcommittee thereof or
successor committee thereto charged from
time to time with the administration of this
Plan, or, in the absence of any such committee
or subcommittee thusly charged, the full
Board.
(f) Company means Arrow Financial
Corporation, a New York corporation.
(g) Disability means permanent and total
disability as defined in Section 22(e)(3) of the
Code, as determined by the Committee in
good faith upon receipt of and in reliance on
sufficient competent medical advice.
(h) Eligible Employee means any salaried full-
time employee (including officers and directors
who are also employees) of the Company or
any Subsidiary.
(i) Exercise Price of an Option means the
purchase price per share of Stock upon
exercise of the Option as fixed by the
Committee upon grant, subject to adjustment
thereafter under Section 12 of the Plan.
(j) Fair Market Value of the Stock as of any
particular date means (i) for any period during
which the price of the Stock shall be reported
by the National Market System of the National
Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the last
transaction price per share as quoted by
National Market System of NASDAQ on the
last preceding day on which the securities
markets were open, (ii) for any period during
which the price of the Stock shall not be
reported by the National Market System of
NASDAQ but shall be reported by NASDAQ,
the closing bid price per share as reported by
NASDAQ on the last preceding day on which
the securities markets were open, or (iii) for
any period during which the price of the Stock
is not reported on NASDAQ, the fair market
price per share of Stock for such date as
determined by the Board.
(k) Option means the right to purchase Stock at
the Exercise Price for a specified period of
time and subject to specified conditions; for
purposes of the Plan, an Option may be either
an Incentive Stock Option within the
meaning of Section 422 of the Code or a so-
called Nonqualified Stock Option, not
qualifying under Section 422 of the Code.
(l) Participant means any Eligible Employee
designated by the Committee to receive an
Award under the Plan.
(m) Period of Restriction means the period during
which an Award of Restricted Stock is
restricted pursuant to Section 10 of the Plan.
(n) Restricted Stock means shares of Stock
awarded to an Eligible Employee that are both
subject to certain restrictions on transfer and
are subject to forfeiture, as specified in Section
10 of the Plan.
(o) Retirement means retirement with eligibility
for normal or early retirement benefits under
the terms of the Company's principal
retirement plan in effect at such time.
(p) Stock means Common Stock of the Company.
(q) Subsidiary means a subsidiary corporation of
the Company as defined in Section 425 of the
Code.
(r) Taxable Event means an event requiring
Federal, state or local tax to be withheld with
respect to an Award hereunder, including but
not limited to the exercise of Nonqualified
Stock Options, the ending of a period of
Restriction with respect to Restricted Stock,
the making by a participant of an election
under Section 83(b) of the Code, or any of the
foregoing with respect to a Performance
Award.
Section 3. Administration
The Plan will be administered by the Committee. The
Committee will have sole authority and discretion to select
those Eligible Employees who will receive Awards under the
Plan and to determine the number and type of Awards to be
granted to such Eligible Employees and the conditions
applicable to such Awards, consistent with the terms of the
Plan, provided that the Committee shall have the authority
from time to time to designate a subcommittee consisting of
two or more directors or executive officers of the Company,
which subcommittee shall have such authority to make
determinations with respect to the Plan as the Committee shall
specify. Any determination of the Committee under the Plan
may be made without notice or meeting of the Committee, and
all actions made or taken by the Committee pursuant to the
provisions of the Plan shall be final and binding and conclusive
for all purposes and upon all persons.
Section 4. Duration
No Award may be granted under the Plan after the
date that is ten (10) years after the date the Plan is approved
by the Board. The Plan, unless earlier terminated pursuant to
Section 16, will expire upon the forfeiture, cancellation or
vesting (including exercise, if appropriate) of the last Award
granted or that may be granted under the Plan.
Section 5. Shares Reserved Under the Plan
There is hereby reserved for issuance under the Plan an
aggregate of 300,000 shares of Stock, which is the maximum
number of shares available for Awards granted under the Plan,
subject to subsequent adjustment as provided in Section 12.
Such shares may be authorized and unissued shares or treasury
shares. Upon the grant of Awards under the Plan, the shares
of Stock underlying such Awards will be deducted from the
number of shares available for future Awards under the Plan,
provided that, (i) upon the forfeiture of outstanding Options
or shares of Restricted Stock prior to the exercise thereof (in
the case of Options) or the vesting thereof (in the case of
Restricted Stock), the shares underlying such forfeited Awards
will be added back to the number of shares available for future
Awards under the Plan, and (ii) in the event any Options
granted under the Plan are exercised and the purchase price
therefore is paid, in whole or in part, by the surrender of
shares of Stock to the Company, the number of shares thus
surrendered will be added back to the number of shares
available for future Awards under the Plan.
Section 6. Participation
In selecting Eligible Employees to receive Awards
under the Plan and in determining the type and amount of their
respective Awards, the Committee shall consider such factors
as it deems pertinent. The grant of an Award to an Eligible
Employee in any year shall not obligate the Committee to
grant an Award to any other Eligible Employee in such year or
to any Eligible Employee in any other year.
Section 7. Types of Awards
The following Awards may be granted under the Plan:
(a) Incentive Options, (b) Nonqualified Stock Options, and (c)
Restricted Stock, all as described below. Except as
specifically limited herein, the Committee shall have complete
discretion in determining the type and number of Awards to be
granted to any Participant and the terms and conditions of
such Awards, which terms and conditions need not be uniform
as between different Participants.
Section 8. Incentive Stock Options
(a) Options granted under the Plan may be
"incentive stock options" qualifying under Section 422 of the
Internal Code. Such Incentive Stock Options shall constitute
options to purchase shares of Stock at an Exercise Price
established by the Committee upon grant, which shall not be
less than, but may be more than, 100 percent of the Fair
Market Value of the Stock as of the date of grant. The
aggregate Fair Market Value (determined as the date of grant)
of the Stock with respect to which any Incentive Stock
Options granted under the Plan to any one Participant
(together with all other incentive stock options previously
granted to such Participant under the Plan and under all other
option plans of the Company and its Subsidiaries) are
exercisable for the first time during any calendar year shall not
exceed $100,000.
(b) The Committee shall establish upon grant of an
Incentive Stock Option the period of time during which such
Option will be exercisable by the Participant, provided that no
Incentive Stock Option will continue to be exercisable, in
whole or in part, more than ten years after the date of grant.
Subject to this limitation, the Committee may provide upon
grant that full exercisability of the Option will be phased in
and/or phased out over some designated period of time. The
Committee also may provide that exercisability of an Incentive
Stock Option will be accelerated, to the extent such Option is
not already then exercisable, upon the occurrence of a certain
event or events as specified by the Committee, such as the
Retirement of the Participant or a change in control of the
Company. Generally, exercisability of an Incentive Stock
Option granted under the Plan is conditioned upon continued
employment of the Participant by the Company and its
Subsidiaries, provided that the Committee may specify upon
grant that exercisability of such Option will continue for some
designated period of time after termination of employment.
The maximum period of time for exercisability of an Incentive
Stock Option after termination of employment (which shall be
the applicable period of time of exercisability after termination
of employment for each Incentive Stock Option granted under
the Plan if the Committee does not specify otherwise) is as
follows: (i) if employment is terminated other than due to the
death or Disability of the Participant, exercisability may be
extended for a maximum of 90 days after the date of
termination; (ii) if employment is terminated due to the
Disability of the Participant, exercisability may be extended for
a maximum of 12 months after the date of termination (unless
the Participant dies within such 12-month period, in which
event exercisability may be extended until the later of the date
3 months after the date of death or the last day of such 12-
month period); and (iii) if employment is terminated due to the
death of the Participant, exercisability may be extended until
the date ten years after the date of the original grant.
Notwithstanding the preceding sentence, in no event may any
Incentive Stock Option granted under the Plan be exercised
after the date ten years after the date of grant. Leaves of
absence required by law or otherwise granted by the Company
and transfers of employment between the Company and/or its
Subsidiaries shall not constitute a termination of employment.
(c) Upon exercise of an Incentive Stock Option, in
whole or in part, the Exercise Price with respect to the number
of shares as to which the Option is then being exercised may
be paid by check or, if the Committee has so authorized (and
subject to any conditions imposed by the Committee) and if
the Participant so elects, in whole or in part by delivery to the
Company of shares of Stock then owned by the Participant.
Any Participant-owned Stock to be used in full or partial
payment of the Exercise Price shall be valued at the Fair
Market Value of the Stock on the date of exercise. Delivery
by the Company of the shares as to which an Incentive Stock
Option has been exercised shall be made to the person
exercising the Option or the designee of such person. If so
provided by the Committee upon the grant of an Incentive
Stock Option, the shares of Stock issuable upon exercise of
the Option may be subject to certain restrictions upon their
subsequent transfer or sale. In the event the Exercise Price is
to be paid in full or in part by surrender of Stock, in lieu of
actual surrender of shares of Stock by the Participant, the
Company may waive such surrender and instead deliver to or
on behalf of the Participant a number of shares equal to the
total number of shares as to which the Option is then being
exercised less the number of shares which would otherwise
have been surrendered by the Participant to the Company.
(d) The Committee may require reasonable
advance notice of exercise of an Incentive Stock Option,
normally not to exceed three calendar days, and may condition
exercise of such Option upon the availability of an effective
registration statement or exemption from registration under
applicable federal and state securities laws relating to the
Stock being issued upon exercise.
Section 9. Nonqualified Stock Options
(a) Options granted under the Plan may be so-called
"nonqualified stock options," that is, options that do not
qualify as "incentive stock options" under Section 422 of the
Code. Such Nonqualified Stock Options shall constitute
options to purchase shares of Stock at an Exercise Price
established by the Committee upon grant, which Exercise
Price shall not be less than, but may be more than, 100 percent
of the Fair Market Value of the Stock as of the date of grant.
(b) The Committee shall establish upon grant of a
Nonqualified Stock Option the period of time during which
such Option will be exercisable by the Participant, provided
that no Nonqualified Stock Option will continue to be
exercisable, in whole or in part, later than ten years after the
date of grant. Subject to this limitation, the Committee may
provide that full exercisability of the Option will be phased in
and/or phased out over some designated period of time. The
Committee also may provide that exercisability of a
Nonqualified Stock Option will be accelerated, to the extent
such Option is not already then exercisable, upon the
occurrence of a certain event or events as specified by the
Committee, such as the Retirement of the Participant or a
change in control of the Company. Generally, exercisability of
a Nonqualified Stock Option granted under the Plan is
conditioned upon continued employment of the Participant by
the Company and its Subsidiaries, provided that the
Committee may specify upon grant that exercisability of such
Option will continue for some designated period of time after
termination of employment. If the Committee does not
specify otherwise, a Nonqualified Stock Option granted under
the Plan will continue to be exercisable after termination of
employment of the Participant, to the extent such Option was
exercisable at termination of employment, as follows: (i) if
employment is terminated other than due to the death,
Disability or Retirement of the Participant, exercisability will
continue for 90 days after the date of termination; (ii) if
employment is terminated due to the Disability or Retirement
of the Participant, exercisability will continue for 12 months
after the date of termination (unless the Participant dies within
such 12-month period, in which event exercisability will
continue until the later of the date 3 months after the date of
death or the last day of such 12-month period); and (iii) if
employment is terminated due to the death of the Participant,
exercisability may be extended until the date ten years after the
date of the original grant. Notwithstanding the preceding
sentence, in no event may any Nonqualified Stock Option
granted under the Plan be exercised after the tenth anniversary
of the date of grant. Leaves of absence required by law or
otherwise granted by the Company and transfers of
employment between the Company and/or its Subsidiaries
shall not constitute a termination of employment.
(c) Upon exercise of a Nonqualified Stock Option,
in whole or in part, the Exercise Price with respect to the
number of shares as to which the Option is then being
exercised may be paid by check or, if the Committee has so
authorized (and subject to any conditions imposed by the
Committee) and if the Participant so elects, in whole or in part
by delivery to the Company of shares of Stock then owned by
the Participant. Any Participant-owned Stock to be used in
full or partial payment of the Exercise Price shall be valued at
the Fair Market Value of the Stock on the date of exercise.
Delivery by the Company of the shares as to which a
Nonqualified Stock Option has been exercised shall be made
to the person exercising the Option or the designee of such
person. If so provided by the Committee upon the grant of a
Nonqualified Stock Option, the shares of Stock issuable upon
exercise of the Option may be subject to certain restrictions
upon their subsequent transfer or sale. In the event the
Exercise Price is to be paid in full or in part by surrender of
Stock, in lieu of actual surrender of shares of Stock by the
Participant, the Company may waive such surrender and
instead deliver to or on behalf of the Participant a number of
shares equal to the total number of shares as to which the
Option is then being exercised less the number of shares which
would otherwise have been surrendered by the Participant to
the Company.
(d) The Committee may require reasonable
advance notice of exercise of a Nonqualified Stock Option,
normally not to exceed three calendar days, and may condition
exercise of such an Option upon the availability of an effective
registration statement or exemption from registration under
applicable federal and state securities laws relating to the
Stock being issued upon exercise.
Section 10. Restricted Stock
(a) Restricted Stock shall consist of Stock or
rights to Stock awarded under the Plan by the Committee
which, during a Period of Restriction specified by the
Committee upon grant, shall be subject to (i) restriction on
sale or other transfer by the Participant and (ii) forfeiture by
the Participant to the Company if the Participant ceases to be
employed by the Company and its Subsidiaries, in each case as
further defined and described in this Plan and by the
Committee upon grant. Restricted Stock may be granted at
no cost to Participants or, if subject to a purchase price, such
price shall not exceed the par value of the Stock and shall be
payable by the Participant to the Company in cash or by any
other means that the Committee deems appropriate, including
recognition of past employment.
(b) Except as otherwise provided below, the
minimum Period of Restriction for Restricted Stock shall be
three years from the date of grant of the Award. The
Committee may provide upon grant of an Award of Restricted
Stock that different numbers or portions of the shares subject
to the Award shall have different Periods of Restriction. The
Committee also may specify upon grant of an Award of
Restricted Stock or thereafter while such Award is
outstanding that any Period of Restriction for the Restricted
Stock subject to the Award otherwise still in effect will
terminate immediately upon the occurrence of a specified
event or one of several specified events, such as the retirement
of the Participant or a change in control of the Company. The
Committee also may establish upon grant of an Award of
Restricted Stock that some or all of the shares subject thereto
shall be subject to additional restrictions upon transfer or sale
by the Participant (although not to forfeiture) after expiration
of the Period of Restriction.
(c) The Participant shall be entitled to all dividends
declared and paid on Stock with respect to all shares of
Restricted Stock held by the Participant, from and after the
date such shares are awarded to the Participant and
throughout the Period of Restriction except as otherwise
specified by the Committee upon grant, and the Participant
shall not be required to return any such dividends to the
Company in the event of forfeiture of the Restricted Stock.
(d) A Participant shall be entitled to vote all shares
of Restricted Stock awarded to the Participant from and after
the date of grant and throughout the Period of Restriction
except as otherwise specified by the Committee upon grant.
(e) Pending expiration of the Period of Restriction
for an Award of Restricted Stock, certificates representing
shares of Restricted Stock subject to the Award shall be held
by the Company or the transfer agent for the Stock. Upon
expiration of the Period of Restriction for any such shares,
certificates representing such shares shall be delivered to the
Participant or in the event of death of the Participant, to the
beneficiary of the Participant.
Section 11. Award Agreements
Within ten business days after the grant of an Award,
the Company shall notify the Participant of the grant, and as
soon as practicable thereafter, shall hand deliver or mail to the
Participant an Award Certificate, duly executed
by an officer on behalf of the Company.
Section 12. Adjustment Provisions
(a) If the Company shall at any time change the
number of issued shares of Stock without new consideration
to the Company (such as by stock dividends or stock splits),
the total number of shares reserved for issuance under the Plan
and reserved for issuance on the books of the Company
relating to the Plan shall be adjusted and the number of shares
(and, in the case of Options, the Exercise Price) covered by
each outstanding Award shall be adjusted so that the
aggregate consideration payable to the Company, if any, and
the value of each such Award to the Participant shall not be
changed. Awards may also contain provisions for their
continuation or for other equitable adjustments after changes
in the Stock resulting from reorganization, sale, merger or
consolidation involving the Company or any Subsidiary or any
issuance of stock rights or warrants by the Company or any
similar occurrence.
(b) Notwithstanding any other provision of this
Plan, and without affecting the number of shares reserved for
issuance hereunder, the Board may authorize the issuance or
assumption of benefits in connection with any merger,
consolidation, acquisition of property or stock, or
reorganization, upon such terms and conditions as it may
deem appropriate.
Section 13. Nontransferability
Except if the Committee shall provide otherwise with
respect to an Award of a Nonqualified Stock Option, each
Award granted under the Plan to a Participant shall not be
transferable by the Participant otherwise than by will or the
laws of descent and distribution, and shall be exercisable,
during the Participant's lifetime, only by the Participant. In the
event of the death of a Participant holding an unexercised
Option, any exercise of the Option thereafter, if otherwise
permitted, may be effected only by the executor or
administrator of the estate of the deceased Participant or the
person or persons to whom the deceased Participant's rights
under the Option shall pass by will or the laws of descent and
distribution.
Section 14. Taxes
The Company shall be entitled to withhold, and shall
withhold, the minimum amount of any federal, state or local
tax attributable to any Award granted under the Plan, whether
upon exercise of a Nonqualified Stock Option or expiration or
termination of a Period of Restriction for Restricted Stock or
the occurrence of any other Taxable Event, after giving notice
to the Participant affected by such tax withholding as far in
advance of the Taxable Event as practicable, and in any such
case in which repayment or indemnification of such amount by
or on behalf of the Participant is required, the Company may
defer making delivery as to any Award until such repayment
or indemnification is completed. Such withholding obligation
of the Company may be satisfied by any reasonable method,
including, if the Committee so provides, by reducing the
number of shares otherwise deliverable to or on behalf of the
Participant on such Taxable Event by a number of shares
having a fair value, based on the Fair Market Value of the
Stock on the date of such Taxable Event, equal to the amount
of such withholding obligation.
Section 15. No Right to Employment
A Participant's right, if any, to continue to serve the
Company or any Subsidiary as an officer, employee, or
otherwise, shall not be enhanced or otherwise affected by the
designation of such person as a Participant under the Plan.
Section 16. Amendment and Termination
The Committee or the Board may amend the Plan from
time to time or terminate the Plan at any time, provided that
no such amendment may increase the number of shares
reserved for issuance under the Plan unless such amendment
has been approved by the shareholders of the Company. No
amendment of the Plan shall reduce the amount of any existing
Award or change the terms and conditions thereof in any
manner adverse to the interests of the Participant without the
Participant's consent. By mutual agreement between the
Company and a Participant, one or more Awards may be
granted to such Participant in substitution and exchange for,
and in cancellation of, any Awards previously granted such
Participant under this Plan, provided that any such substitution
Award shall be deemed a new Award for purposes of
calculating any applicable exercise periods for Options or
Period of Restriction for Restricted Stock. To the event that
any Awards that may be granted within the terms of the Plan
would qualify under present or future laws for tax treatment
that is beneficial to a Participant and not detrimental to the
Company, any such beneficial treatment shall be considered
within the intent, purpose and operational purview of the Plan
and the discretion of the Committee, and to the extent that any
such Awards would so qualify within the terms of the Plan, the
Committee shall have full and complete authority to grant
Stock Awards that so qualify (including the authority to grant,
simultaneously or otherwise, Awards that do not so qualify)
and to prescribe the terms and conditions (which need not be
identical as among recipients) in respect to the grant or
exercise of any such Awards under the Plan.
Section 17. Miscellaneous Provisions
(a) Naming of Beneficiaries. In connection with
an Award, a Participant may name one or more beneficiaries
to receive the Participant's benefits, to the extent permissible
pursuant to the various provisions of the Plan, in the event of
the death of the Participant.
(b) Successors. All obligations of the Company
under the Plan will respect to Awards issued hereunder shall
be binding on any successor to the Company.
(c) Governing Law. The provisions of the Plan
and all Award Agreements under the Plan shall be construed
in accordance with, and governed by, the laws of the State of
New York without reference to applicable conflict of laws
provisions, except insofar as such provisions may be expressly
made subject to the laws of any other state or federal law.
Section 18. Shareholder Approval
The Plan, in order to become and remain effective,
must be approved by the shareholders of the Company by the
minimum requisite vote under all applicable law, if any.