ARROW FINANCIAL CORPORATION
250 Glen Street, Glens Falls, New York 12801
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of Arrow Financial Corporation:
Notice is hereby given that the Annual
Meeting of Shareholders of Arrow Financial
Corporation, a New York corporation (the
"Company"), will be held at the Queensbury
Hotel, Maple Street and Ridge Street, Glens
Falls, New York, on Wednesday, April 29, 1998,
at 2:00 p.m. for the purpose of considering and
voting upon the following matters:
1. The election of three directors to
Class C for a term of three years, or in each
case until his or her successor shall
have been elected and qualified.
2. To approve a new 1998 Long Term
Incentive Plan, which will authorize the
issuance of up to 300,000 shares of Common Stock
in the form of stock options and restricted
shares, replacing the Company's 1993 Long Term
Incentive Plan.
3. Any other business which may be
properly brought before the meeting or any
adjournment thereof.
By Order of the Board of Directors
GERARD R. BILODEAU
Secretary
March 27, 1998
YOU ARE REQUESTED TO SIGN AND RETURN THE
ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER
OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON.
YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
THE MEETING, OR IF YOU ATTEND THE MEETING, YOU
MAY REVOKE YOUR PROXY AT THAT TIME, IF YOU WISH.
ARROW FINANCIAL CORPORATION
250 Glen Street
Glens Falls, New York 12801
PROXY STATEMENT FOR ANNUAL MEETING OF
SHAREHOLDERS
April 29, 1998
This proxy statement is furnished in
connection with the solicitation by the Board of
Directors of Arrow Financial Corporation, a New
York corporation (the "Company"), of proxies to
be voted at the Annual Meeting of Shareholders
(the "Meeting") to be held on Wednesday, April
29, 1998 at 2:00 p.m., at the Queensbury Hotel,
Maple Street and Ridge Street, Glens Falls, New
York 12801, and at any adjournment thereof.
This proxy statement and the accompanying form
of proxy are first being sent to shareholders on
March 27, 1998.
At the Meeting, three directors will be
elected to Class C of the Company's Board of
Directors and shareholders will be requested to
approve a new 1998 Long Term Incentive Plan,
which will replace the 1993 Long Term Incentive
Plan, as discussed in Item 2 of this Proxy
Statement.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company has
fixed March 13, 1998, as the record date for
determination of the shareholders entitled to
notice of, and to vote at, the Meeting. At the
close of business on such date, there were
outstanding and entitled to vote 5,765,735
shares of common stock, $1.00 par value, of the
Company, which is the Company's only class of
stock outstanding. Holders of record of common
stock at the close of business on the record
date are entitled to one vote for each share
held on each matter submitted to a vote at the
Meeting.
A majority of the outstanding shares
present or represented by proxy will constitute
a quorum at the Meeting. Consistent with
applicable state law and the Company's
Certificate of Incorporation and Bylaws,
the Company will treat all shares represented by
proxy or in person at the Meeting as shares
present or represented at the Meeting for
purposes of determining a quorum. Shares
represented by proxies or voted in person
on ballots marked "WITHHOLD" or "ABSTAIN" on any
proposal will be treated as shares present or
represented at the Meeting for purposes of
determining a quorum but will not be treated as
shares voting on such proposal.
Shares held in "street name" by brokers which
are present or represented at the Meeting but
are not voted by such brokers, for any reason,
on a matter presented at the Meeting (so-called
"broker nonvotes") will be treated
as shares present in person or represented by
proxy at the Meeting for purposes of determining
a quorum but will not be treated as shares
voting on such matter. In the election of
directors, which requires the affirmative
vote of a plurality of the shares voting on such
matter at the Meeting, neither shares voted
"WITHHOLD" on the election of one or more
directors nor broker nonvotes on such election
will have the effect of a vote "against"
the election of one or more directors.
PROXIES
Any shareholder executing a form of proxy
which is solicited hereby has the power to
revoke it prior to exercise of the authority
conferred thereby. Revocation may be made
effective by attending the Meeting
and voting the shares of stock in person, or by
delivering to the Secretary of the Company at
the principal offices of the Company prior to
the Meeting a written notice of revocation or a
later-dated, properly executed proxy.
Proxies will be solicited by mail. They
may also be solicited by directors, officers and
regular employees of the Company and its
subsidiaries personally or by telephone or
telegraph, but such persons will receive
no additional compensation for such services.
The Company will bear all costs of soliciting
proxies. Should the Company, in order to
solicit proxies, utilize the services of other
financial institutions, brokerage houses or
other custodians, nominees or fiduciaries, the
Company will reimburse such persons for their
out-of-pocket expenses.
PRINCIPAL SHAREHOLDERS OF THE COMPANY
To the knowledge of the Board of Directors,
there were no persons who beneficially owned
more than five percent of the outstanding shares
of the Company's Common Stock as of December 31,
1997. Glens
Falls National Bank and Trust Company, in its
capacity as trustee of the Company's Employee
Stock Ownership Plan ("ESOP"), held 398,840
shares or 6.81% of the total number of such
shares outstanding as of such date
although, because most such shares were
allocated to ESOP participants, Glens Falls
National's beneficial ownership of the Common
Stock did not exceed five percent on such date.
SHAREHOLDER PROPOSALS
If a shareholder proposal is to be
considered for inclusion in the proxy statement
for a forthcoming meeting of the Company's
shareholders, such proposal must be submitted on
a timely basis and the proposal
and proponent thereof otherwise must meet the
requirements established by the Securities and
Exchange Commission for shareholder proposals.
Proposals for the Annual Shareholders' Meeting
to be held in 1999 will not
be deemed to be timely submitted unless they are
received by the Company at its principal
executive offices no later than December 1,
1998. Such proposals, together with any
supporting statements, should be directed
to the Secretary of the Company. For the
requirements applicable to shareholder input
into the nomination of directors, see the
discussion under Board Committees on page 6.
ITEM 1. ELECTION OF DIRECTORS AND
INFORMATION WITH RESPECT TO DIRECTORS AND
OFFICERS
The first item to be acted upon at the
Meeting is the election of three directors to
Class C of the Board of Directors each to hold
office for three years, or in each case until
his or her successor shall have been
elected and qualified. Directors will be
elected by a plurality of the shares voting at
the Meeting.
Under the Company's Certificate of
Incorporation and Bylaws, the Board of Directors
is divided into three classes, one class to be
elected each year for a term of three years. The
total number of directors is
fixed from time to time by the Board of
Directors. As of the Meeting, the number of
directors will be ten.
All proxies which are timely received by
the Secretary in proper form prior to the
election of directors at the Meeting, and which
have not been revoked, will be voted "FOR" the
Board's three nominees for
Class C listed below (unless any nominee is
unable to serve or for good cause will not
serve), subject to any specific voting
instructions received with any proxy, including
the withholding of authority to vote for any or
all
nominees.
Each of the Board's nominees has consented
to being named in this proxy statement and to
serve if elected, and the Board knows of no
reason to believe that any nominee will decline
or be unable to serve
if elected. Each of the three nominees is
presently serving on the Board of Directors.
Also listed below are the current directors
whose terms do not expire at the Meeting and who
are expected to continue to serve on the
Board after the Meeting and until their
respective terms expire.
The following information is provided with
respect to each nominee for director to be
elected at the Meeting and each continuing
director of the Company whose term of office
extends beyond the date of
the Meeting:
<TABLE>
<CAPTION>
NOMINEES FOR DIRECTOR AND DIRECTORS CONTINUING IN OFFICE
Shares of Common
Stock of the Company
Beneficially Owned
Name and Principal Director of the as of December 31, 1997(d)
Occupation(a)(b)(c) Age Company Since Number Percent
Nominees for Director:
Class C (To be Elected
to Terms Expiring in 2001):
<S> <C> <C> <C> <C>
Thomas L. Hoy 49 1996 53,283 (1) -
President & CEO of the Company
and Glens Falls National Bank
and Trust Company
Dr. Edward F. Huntington 67 1983 10,749 (2) -
Adjunct Professor, SUNY
Albany & Plattsburgh-Retired
Doris E. Ornstein 67 1987 7,429 -
President, Wharton Business
Brokers (real estate specialists)
Directors Continuing in Office:
Class A (Terms Expiring in 1999):
Michael B. Clarke 51 1988 8,791 -
President & CEO, Glens Falls
Cement Co., Inc. (cement
production)
Kenneth C. Hopper, M.D 59 1983 33,703 (3) -
Chairman & CEO, Northeastern
Clinical and Toxicology
Laboratory, Inc.
(medical laboratory)
Michael F. Massiano 63 1983 90,416 (4) 1.56
Chairman of the Board of the
Company and Glens Falls National
Bank and Trust Company
Daniel L. Robertson 69 1983 8,004 (5) -
President, Loomis & LaPann, Inc.
(insurance agency)
Class B (Terms Expiring in 2000):
John J. Carusone, Jr 56 1996 42 -
Attorney, Carusone & Carusone
(law firm)
David G. Kruczlnicki 45 1989 12,385 (6) -
President & CEO, Glens Falls
Hospital (health care facility)
David L. Moynehan 52 1987 13,278 (7) -
President, Riverside
Gas & Oil Co.
(petroleum products distributor)
Shares Beneficially Owned By
Other Executive Officers:
John J. Murphy 46 N/A 54,465 (8) -
Executive Vice President,
Treasurer & CFO of the
Company and Glens Falls
National Bank and Trust Company
John C. Van Leeuwen 54 N/A 9,996 (9) -
Senior Vice President & Chief
Credit Officer of the Company and
Glens Falls National Bank
and Trust Company
Shares Beneficially Owned By
All 13 Director Nominees,
Continuing Directors and
Executive Officers as a Group 318,201 (10) 5.43
</TABLE>
NOTES:
(a) Certain of the nominees and directors
continuing in office also serve as directors of
one or more of the Company's subsidiary banks,
specifically, Glens Falls National Bank and
Trust Company or Saratoga National Bank and
Trust Company. Directors of the Company who
also serve as directors of Glens Falls National
Bank are Mr. Clarke, Dr. Hopper, Mr. Hoy, Dr.
Huntington, Mr. Kruczlnicki, Mr. Massiano, Mr.
Moynehan, Mrs. Ornstein and Mr. Robertson.
Mr. Carusone also serves as a director of
Saratoga National Bank. Of the nominees and
directors continuing in office, only Mr. Hoy is
currently an officer or employee of the Company
or its subsidiaries.
(b) The business experience of each director
during the past five years was that typical to a
person engaged in the principal occupation or
business listed for each. Except as noted, each
of the nominees and directors continuing in
office has held the same or another executive
position with the same employer during the past
five years.
(c) No family relationship exists between any
two or more of the nominees, directors or
executive officers of the Company or its
subsidiaries, except that David L. Moynehan, a
director of the Company, is the brother-in-law
of John J. Murphy, the Executive Vice President,
Treasurer & Chief Financial Officer of the
Company.
(d) Beneficial ownership of shares, determined
in accordance with applicable Securities and
Exchange Commission rules, includes shares as to
which a person, directly or indirectly, has or
shares voting power and/or investment power, and
all shares which the person has a right to
acquire within 60 days of the reporting date.
Unless otherwise noted below, each individual
has sole beneficial ownership of all shares
listed as beneficially owned by such individual.
Percentage of shares beneficially owned is
listed only for those with one percent or more
beneficial ownership.
(1) Includes 9,563 shares held in Mr.
Hoy's account under the Company's ESOP, 849
shares held by his wife directly, 398 shares
held by his son directly, 398 shares held by him
as custodian for his daughter and 29,151 shares
subject to exercisable options received by Mr.
Hoy under the Company's compensatory stock
option plans.
(2) Includes 9,052 shares held jointly by
Dr. Huntington with his wife and 548 shares held
in a Simplified Employee Pension Plan.
(3) Includes 23 shares held by a company
that Dr. Hopper controls.
(4) Includes 20,046 shares held in Mr. Massiano's
account under the Company's ESOP, 3,625 shares
held by his wife directly and 19,104 shares
subject to exercisable options received by Mr.
Massiano under the Company's compensatory stock
option plans.
(5) Includes 912 shares held by Mr.
Robertson's wife directly.
(6) Includes 462 shares held jointly by
Mr. Kruczlnicki with his wife.
(7) Includes 2,299 shares held jointly by
Mr. Moynehan with his wife.
(8) Includes 9,045 shares held in Mr.
Murphy's account under the Company's ESOP, 7,261
shares held jointly with his wife and 38,145
shares subject to exercisable options received
by Mr. Murphy under the Company's compensatory
stock option plans.
(9) Includes 4,482 shares held in Mr. Van
Leeuwen's account under the Company's ESOP, 120
shares held jointly with his wife, 182 shares
held by him as custodian for his sons and 4,551
shares subject to exercisable options received
by Mr. Van Leeuwen under the Company's
compensatory stock option plans.
(10) Includes 96,552 shares subject to
exercisable options received by such persons
under the Company's compensatory stock option
plans.
In 1997, the Board of Directors of the
Company met 6 times. During the year, each of
the directors attended at least 75 percent of
the total number of the meetings of both the
Board and all the committees of which the
director was a member.
BOARD COMMITTEES
The Company has an Audit Committee which
met once during 1997. Members of the Committee
are Directors Carusone, Clarke, Huntington,
Kruczlnicki and Massiano. Mr. Hoy is an
ex-officio member and as such is expected to
attend meetings and to provide information
requested by, and to respond to questions from
Committee members. The Audit Committee examines
the soundness and solvency of the Company and
its subsidiaries, causes suitable audits and
examinations to be made, ensures that adequate
fiscal controls and procedures are maintained,
and makes recommendations and reports to the
full Board of Directors.
The Company has a Personnel Committee which
met two times during the last fiscal year.
Members of the Committee are Directors Clarke,
Huntington, Kruczlnicki and Massiano. Mr. Hoy
is an ex-officio member and as such is expected
to attend meetings and to provide information
requested by, and to respond to questions from
Committee members. The Committee performs the
functions of both a nominating and a
compensation committee. In addition to making
recommendations to the full Board on nominations
of candidates for director of the Company, the
Committee reviews, not less often than annually,
all compensation arrangements and benefit plans
covering officers and employees of the Company
and its subsidiaries and makes various
recommendations and determinations on such
matters. The Committee also makes final
determinations on all awards under the Company's
compensatory stock plans, including grants of
stock options to executives and other key
employees. See "Report of Personnel Committee
on Executive Compensation," beginning on page 11
of this proxy statement. Any shareholder who
wishes to nominate an individual for possible
election as a director of the Company at any
shareholders' meeting must follow the
requirements for shareholder nomination set
forth in Section 3.4 of the Bylaws of the
Company. Under that section, shareholders
wishing to nominate an individual for election
as a director must submit the name of the
candidate in writing to the Secretary of the
Company no later than 120 days prior to the date
of the forthcoming annual meeting of
shareholders, along with a brief resume of such
individual's qualifications to serve as a
director. Any such shareholder nomination for
the 1999 Annual Shareholders' Meeting must be
submitted to the Secretary of the Company not
later than December 31, 1998. The Personnel
Committee of the Board of Directors may, but
shall not be required to, consider
any such individual when it prepares its own
list of recommended nominees for consideration
by the full Board of Directors prior to the
annual meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
During 1997, the directors and executive
officers of the Company made timely filings of
all securities transaction reports required to
be filed by them with the Securities and
Exchange Commission under Section
16(a) of the Securities Exchange Act of 1934.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
No member of the Personnel Committee during
1997 was an officer or employee of the Company
or any of its subsidiaries during that year or a
former officer of the Company or any of its
subsidiaries, except for Mr. Massiano, who is
Chairman of the Board of the Company and Glens
Falls National Bank and formerly served as
President & CEO of the Company until his
retirement on December 31, 1996. Mr. Hoy, who
is President & CEO of the Company and Glens
Falls National Bank and Trust Company, is an
ex-officio member of the Committee. Ex-officio
members have certain duties relating to the
Committee, as described above under "Board
Committees", but do not participate in Committee
decisions.
EXECUTIVE COMPENSATION
The following table sets forth information
concerning total compensation and compensatory
awards received in the last three years by the
Chief Executive Officer of the Company and each
other executive officer whose salary and bonus
exceeded $100,000 in 1997:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Restricted No. Of
Other Annual Stock Options/ All Other
Name/Principal Year Salary Bonus Compensation Awards SARs Compensation
Position ( a ) ( b ) ( c ) ( d ) ( e ) ( f )
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas L. Hoy 1997 $180,000 $ 85,050 - - 12,000 $ 16,754
President & 1996 150,700 42,308 - - 12,600 15,515
Chief Executive Officer 1995 134,050 28,100 - - 8,085 11,422
John J. Murphy 1997 140,000 37,800 - - 7,000 13,485
Executive Vice President, 1996 126,500 52,600 - - 7,350 13,615
Treasurer & CFO 1995 118,000 26,500 - - 8,085 10,620
John C. Van Leeuwen 1997 93,000 15,120 - - 3,000 8,612
Senior Vice President & 1996 84,154 25,631 - - 4,200 8,581
Chief Credit Officer 1995 80,000 10,000 - - 3,696 7,391
</TABLE>
Notes to Summary Compensation Table (note
references are to columns):
(a) Salary: Includes base salary and any
amounts that are deferred at the election of the
officer under a 401(K) plan or otherwise.
(b) Bonus: Represents cash bonuses paid to
executives for such year under the Company's
Short-Term Incentive Award Plan whether such
amounts are deferred or paid immediately. Under
the Plan, annual bonuses are paid to key
employees, including executive officers of the
Company, provided certain pre-established
threshold and/or target earnings levels have
been attained. Bonuses typically are determined
and paid in January or February of the ensuing
calendar year.
(c) Other Annual Compensation: Excludes
perquisites and other benefits, unless the
aggregate amount of such compensation exceeds
the lesser of either $50,000 or 10 percent of
the total of annual salary and bonus reported
for the named executive officer. No executive
officers received perquisites having a value
greater than such amount in any of the last 3
years.
(d) The Company has not awarded any restricted
stock under its compensatory stock plan in the
past three years.
(e) Options: Represents the number of shares
subject to options granted to the named
executive officer (as adjusted for subsequent
stock dividends). For more information on
options, see the tables and notes under "Stock
Option Plans" below.
(f) All Other Compensation: Includes (i) the
value of the Company's contributions to the ESOP
for the named executive officer, and (ii)
amounts paid for premiums for term life
insurance benefitting the named executive
officer. In 1997, the amounts indicated for
each of the named executive officers consisted
of the following: Mr. Hoy, $15,654 for ESOP and
$1,100 for term life insurance; Mr. Murphy,
$12,494 for ESOP and $992 for term life
insurance; and Mr. Van Leeuwen, $7,708 for ESOP
and $904 for term life insurance.
STOCK OPTION PLANS
In past years, the Company has maintained
compensatory stock plans under which key
employees have been granted stock options,
including both tax qualified (incentive) stock
options and non-qualified stock options.
Information relative to stock option activity
for the named executive officers in the Summary
Compensation Table above for the year ending
December 31, 1997, is set forth in the following
tables:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS TABLE
Options/SAR Grants in Last Fiscal Year
Individual Grants
( a ) ( b ) ( c ) ( d )
No. Of Securities % of Total Options/SARs Grant Date
Underlying Options/ Granted to Employees Per Share Exercise Expiration Present Value
Name SARs Granted in Fiscal Year or Base Price Date (dollars)
<S> <C> <C> <C> <C> <C>
Thomas L. Hoy 12,000 27.59% $ 32.81 11/25/2007 $ 102,480
John J. Murphy 7,000 16.09 32.81 11/25/2007 59,780
John C. Van Leeuwen 3,000 6.90 32.81 11/25/2007 25,620
</TABLE>
Notes to Stock Option Table (note references are
to columns):
(a) All options listed were granted on November
26, 1997 without tandem stock appreciation
rights (SARs). Options awarded under the
Company's compensatory stock plans normally
become exercisable in stages (e.g., options
awarded in 1997 become exercisable in 25 percent
increments on each of the first four
anniversaries of the date of the grant).
(b) Represents 100 percent of the market value
of the Company's Common Stock on the date of
grant, based on the average of the closing bid
and asked prices per share of Common Stock
reported on NASDAQ for such date.
(c) Options awarded under the Company's
compensatory stock plans normally have 10 year
terms, subject to earlier termination in the
event of termination of employment with the
Company.
(d) The estimated grant date present value of
the options has been determined by using the
Black-Scholes option pricing model, a commonly
used method of valuing options on the date of
grant. The assumptions utilized in applying the
Black-Scholes model were as follows: (a) the
useful life of the options was estimated to be
seven years from the date of the grant; (b) the
risk-free discount rate applied for purposes of
the valuation, consistent with the seven-year
estimated life of the options, was the
seven-year Treasury Rate as of the date of
grant; (c) the volatility factor utilized was
the three-year volatility of the company's
Common Stock, or 20.5 percent (volatility is
calculated based on fluctuations of daily
closing stock prices); (d) the dividend yield on
the Common Stock was assumed to be 2.5 percent
for purposes of the analysis only; and (e) a
discount of 3 percent per year was utilized
reflecting estimated risk of forfeiture prior to
exercise.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregate Option/SAR Exercises in Last Fiscal
Year and FY-End Option/SAR Values
(a) (b) (c)
Number of Unexercised Value of Unexercised In-the
Options/SARs at FY-End Money Options/SARs at FY-End
Name Shares Acquired Value Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
<S> <C> <C> <C> <C>
Thomas L. Hoy 0 0 E - 29,151 E - $594,682
U - 28,496 U - 253,956
John J. Murphy 3,039 $ 65,833 E - 38,145 E - 899,967
U - 18,057 U - 173,905
John C.Van Leeuwen 0 0 E - 4,551 E - 81,146
U - 8,899 U - 90,817
</TABLE>
Notes to Option/SAR Exercises and Year-End Value
Table (note references are to columns):
(a) Represents the difference between the
market value of shares of Common Stock received
upon exercise of an option, based on the
average of the closing bid and asked prices for
the Company's Common Stock as reported by NASDAQ
on the date of exercise, and the exercise price
of such options.
(b) E = Exercisable, U = Unexercisable
(c) The dollar value of unexercised
in-the-money options at December 31, 1997, was
calculated by determining the difference between
the market value of the shares of Common Stock
underlying the options at year-end, based upon
the average of the closing bid and asked prices
for the Company's Common Stock as reported on
NASDAQ as of December 31, 1997, and the exercise
price of the options.
Notwithstanding anything to the contrary set
forth in any of the Company's previous filings
under the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended,
including language that might
be interpreted to incorporate by reference
future filings, including this proxy statement,
in whole or in part, in such previous filings,
the following Performance Graph and Report of
Personnel Committee on Executive
Compensation shall not be incorporated by
reference into any such filings.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR-CUMULATIVE TOTAL RETURNS
AMONG ARROW FINANCIAL CORPORATION,
THE NASDAQ STOCK MARKET (U.S. Companies), AND
NASDAQ BANK STOCKS
12/31/92 12/31/93 12/31/94 12/30/95 12/29/96 12/31/97
<S> <C> <C> <C> <C> <C> <C>
Arrow Financial Corporation 100 162.2 213.8 268.7 390.5 602.3
Nasdaq Stock Market 100 114.8 112.2 158.7 195.2 239.5
Nasdaq Bank Stocks 100 114.0 113.6 169.2 223.4 377.4
</TABLE>
Notes:
A. Data prepared by the Center for
Research in Security Prices.
B. The lines represent monthly indices
levels derived from compounded daily returns
that include all dividends.
C. The indices are reweighted daily, using
the market capitalization on the previous
trading day.
D. If the monthly interval, based on the
fiscal year-end, is not a trading day, the
preceding trading day is used.
E. The level of each index was set at $100
on 12/31/92.
REPORT OF PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
Introduction
The Personnel Committee of the Board of
Directors (the "Committee") is composed
exclusively of nonemployee directors. A
principal task of the Committee is to act on
compensation matters related to the Chief
Executive Officer (the "CEO") and other
executive officers of the Company. As part of
that process the Committee reviews survey data
regarding executive compensation paid by peer
banks plus additional input as may be sought
and received from compensation consultants. The
Committee then reviews compensation
recommendations from management and develops its
own recommendations, which it submits to the
full Board for review and ratification.
The Committee also has the discretion to make
final decisions on incentive compensation awards
to executive officers and other key employees,
including annual bonus awards under the
Company's short-term incentive plan
and stock-based awards under the Company's
long-term compensatory stock plans.
The Committee is submitting this report
summarizing its compensation policy for 1997 and
in particular its compensation recommendations
and decisions for President and CEO Thomas L.
Hoy and the other
executive officers.
Compensation Philosophy
The Committee supports a three part
approach to executive compensation consisting of
base salary, annual incentives (bonus) and
long-term incentives. Base salary is reviewed
and set annually within competitive
ranges established on the basis of survey data,
with the specific amounts to be determined based
on prior period individual and Company
performance. The annual incentive or bonus
component is payable through the Company's
Short-Term Incentive Award Plan, with awards
tied to the annual performance of the relevant
business unit and to the executive's individual
performance during the year. The long-term
incentive component of compensation
is addressed through the compensatory stock
plans, which provide for grants of stock options
or restricted stock.
The Committee reviews each component of
executive compensation on an annual basis and
makes recommendations to the full Board on any
adjustments among the component elements that it
believes are
appropriate.
The executive compensation program is
intended to attract and retain key executives
and to motivate them to help the Company achieve
increased profitability, strong credit quality
and enhanced shareholder
value. The long-term incentive feature also
encourages significant share ownership by key
executives. For individual officers, types and
amounts of executive compensation are
established based upon their varying levels of
responsibility, subjective and objective
evaluations of their performance and the
financial performance of their relevant business
unit. Attention is also given to the
compensation being paid to various levels of
executives by
other banking organizations in the Company's
peer group, particularly those organizations
doing business in the Company's geographic
market.
At the level of CEO, overall compensation
is based both on corporate performance factors,
which include earnings per share, capital
accumulation, strategic initiatives and new
products and markets, and upon
individual performance factors, such as
leadership, commitment to the community and
professional standing. In making its
recommendations on CEO compensation, the
Committee also takes into account CEO
compensation
at peer group banks.
Compensation Administration
Base salaries for executive officers,
including the CEO, are reviewed on an annual
basis. Any base salary increases will reflect
an executive's contributions to the overall
Company performance, the executive's position
within an appropriate salary range and median
increases in both the banking industry and
industry in general. Committee recommendations
for executive base salaries are reviewed and
ratified by the full Board.
Annual incentive compensation is addressed
through the Company's Short-Term Incentive Award
Plan, with the payment of bonuses generally to
depend upon whether certain pre-established
financial performance
threshold levels for the year are met. If the
pre-established threshold levels are met, the
size of individual bonuses may then vary
depending on the extent to which those levels
are exceeded and on certain objective and
subjective measures of performance. The
Committee works with management at the beginning
of the fiscal year to establish the threshold
performance levels under the Plan for that year
plus any target levels beyond the
threshold. Typically, threshold and target
performance levels are based on budgeted
operating earnings. Final decisions on those
key employees entitled to Plan bonuses and the
amounts of those bonuses are made by the
Committee at the beginning of the following
fiscal year, after considering senior
management's recommendations. The full Board
reviews and ratifies the Committee's decisions.
Long-term incentive compensation for
executives and other employees is addressed
through the Company's compensatory stock plans.
These plans provide for the grant of stock-based
compensatory awards, such
as stock options, the value of which is directly
dependent on the market performance of the
Company Common Stock over an extended period of
time. The principal stock plan utilized in
recent years for the grant of
compensatory stock awards to executives has been
the Company's 1993 Long-Term Incentive Plan. At
this year's annual meeting, shareholders are
being asked to consider and vote upon a 1998
Long-Term Incentive Plan, which
is essentially an extension of the 1993 plan.
The number of shares authorized for future
awards under the 1998 plan would, the Committee
believes, meet the Company's needs for long-term
incentive compensation for another
five years, absent unusual developments. See
the discussion of the proposed 1998 plan under
"Item 2, Approval of the Arrow Financial
Corporation 1998 Long-Term Incentive Plan".
Under all compensatory stock plans, the
Committee has the sole discretion to select
which executives or other employees are to
receive awards, based on factors such as
attainment of Company financial goals
and individual performance, as well as the types
and amounts of those awards. Under both the
1993 plan and the proposed 1998 plan, awards may
take the form of stock options or shares of
restricted stock. Stock options
granted under the Plan must have an exercise
price not less than the market price of the
Company's Common Stock on the date of grant and
may be exercised only after a designated vesting
date and then only if the optionee
is still employed by the Company. Essentially,
this means that executives who receive options
realize gain only if the Company's stock price
improves over the life of the option and only if
the executive continues with the
Company. Heretofore, the Committee has not
granted any form of stock-based compensation
other than stock options and expects that stock
options will continue in the future to be the
predominant if not the exclusive means
of providing long-term incentive compensation to
executives.
In 1993, Congress adopted a new provision
of the Internal Revenue Code (the "Code"),
Section 162(m), which disallows a tax deduction
to public companies for any compensation
exceeding $1 million paid to certain
top executives. The Committee does not believe
the statutory ceiling on deductible compensation
will be relevant to the Company in the
foreseeable future.
Executive Compensation Decisions in 1997
The Committee noted after reviewing survey
data on executive compensation at other banks
that Mr. Hoy's base salary was considerably
below the median salary of CEOs at a group of
the Company's peer banks.
The Committee also considered the leadership
displayed by Mr. Hoy in directing the Company's
operations during his first year as CEO,
particularly his key role in the acquisition of
six branch offices from Fleet Bank and the
successful integration of these branches, which
was a major factor in the financial performance
of the Company during 1997 and positioned the
Company for continued growth in future years.
Accordingly the Committee
recommended and the Board granted to Mr. Hoy a
base salary increase in 1997, both to reflect
his expanded role and greater responsibilities
as President and CEO of the Company and to begin
to bring his salary in line with
the salaries of his counterparts at the other
banks. Considering the Company's solid earnings
record and the effective performance of senior
management generally in 1997, the Committee also
approved appropriate salary
increases for the other executive officers.
Operating earnings in 1997 exceeded both
the threshold and target levels previously
established under the Short-Term Incentive Award
Plan. As a result, the Committee approved
annual bonuses for key employees,
including the executive officers. These bonuses
were reviewed and ratified by the full Board.
The individual bonuses received by the executive
officers listed in the Summary Compensation
Table on page 7, which are shown
in column (b) of the table, averaged
approximately one-third of 1997 salaries for
this group.
Because of significant improvement in all
continuing key performance areas, the Committee
determined at year- end 1997, that grants of
stock options would be awarded to each executive
officer under the 1993
Long-Term Incentive Plan. Based on present
values ascribed to these stock options, the
awards constituted approximately one-fifth to
one-fourth of overall executive compensation for
1997. The number of options awarded
to each named executive in the Summary
Compensation Table on page 7 is included in
column (e) of the table and the estimated
present value of those options is included in
column (d) of the Option/SAR Grants Table on
page
8.
In reviewing executive compensation
specifically, as in prior years, the Committee
used as a basis of comparison the reported
executive compensation of a peer group of
publicly held bank holding companies
located in New York. This year there were 10
companies in that peer group. This peer group
is different from, but contains some of the same
banks as, the group of companies whose stocks
are included in the NASDAQ Bank
Stock Index represented on the Performance Graph
on page 10 of the proxy statement.
PERSONNEL COMMITTEE
Michael B. Clarke, Chairman
Dr. Edward F. Huntington
David G. Kruczlnicki
Michael F. Massiano
EMPLOYMENT CONTRACTS
Thomas L. Hoy, President and Chief
Executive Officer of the Company, and John J.
Murphy, Executive Vice President, Treasurer, and
Chief Financial Officer of the Company, are
serving under employment contracts
with the Company. Under these contracts, each
is guaranteed his current base annual salary,
and certain other benefits for the duration of
his contract. Mr. Hoy and Mr. Murphy first
entered into employment agreements
with the Company on December 31, 1990. In
November 1997, when the Board renewed their
contracts, it also amended each to extend the
term from two to three years and to increase the
payout amounts upon a change-in-control
(described below), from 200% to 299% of the base
amount. Each of these contracts will continue
until December 31 of the second year after that
year, if any, when the Board of Directors of the
Company elects not
to grant a one year extension of the contract.
Each contract provides that, in the event of a
change-in-control of the Company, or if the
officer in question is assigned less important
duties, the officer may within 1 year after
such occurrence, elect early retirement and
receive an amount payable in installments (or in
a lump sum, in the event of financial hardship)
equal to approximately three times his salary
under the contract. Also, during
1997 the Board added a death benefit to Mr.
Hoy's contract under which, in the event of his
death during the term of the contract, his
beneficiary will receive a payment equal to his
base salary at the time.
COMPENSATION OF DIRECTORS
Each director of the Company currently
receives for his or her services as a director a
fee of $500 per quarterly Board of Directors
meeting attended, $400 per meeting attended of
committees of the Board of
which he or she is a member, and an annual
retainer fee of $4,000. The Chairmen of the
Company's Audit and Personnel Committees receive
an additional annual retainer of $1,500.
Directors of the subsidiary banks receive
a fee of $400 per Board meeting attended and
also receive a fee of $350 for each meeting of
the bank board committee attended and an annual
retainer of $2,500. Directors who are also
Executive Officers receive no director's
fees, including retainer fees or fees for
attendance at Board or Committee meetings.
The Company maintains an unfunded Directors
Deferred Compensation Plan, in which outside
directors of the Company and its subsidiaries
may participate. Under this plan, each such
director is able to make
an irrevocable election to defer, during his or
her term of office, all or a portion of the
directors' fees due. The account of a
participating director is credited with the
dollar amount of deferral and with quarterly
interest
payments on the balance at a rate equal to the
best rate being paid from time to time by Glens
Falls National Bank and Trust Company on its
Individual Retirement Account certificates of
deposit. Directors who participate
in the Directors Deferred Compensation Plan
receive payments from their accounts in cash,
either in lump sum or in annual installments,
commencing at a preselected deferral date. In
1997, 3 directors participated in the
plan.
PENSION PLAN
The Company maintains a tax-qualified
Defined Benefit Retirement Plan (the "Retirement
Plan") for eligible employees. The Retirement
Plan covers employees of the Company and all
subsidiaries who work
1,000 hours or more per year, have attained the
age of 21, and have completed one year of
service.
Annual retirement benefits under the
Retirement Plan are computed according to a
formula based on the employee's annual average
earnings for the highest consecutive five of the
last ten years of service and
his or her number of years of service and are
subject to certain limits under federal law,
specifically, the Employee Retirement Income
Security Act ("ERISA"). Covered compensation
under the Retirement Plan includes salary,
overtime, sick pay, bonuses, and certain other
cash and noncash benefits. Covered compensation
under the Plan during 1997 for the named
executive officers in the Summary Compensation
Table on page 7 includes all of the
compensation listed in columns (a) and (b) of
the Summary Compensation Table plus certain term
insurance premiums paid on behalf of the
executive officers (included in column (f) of
the Table) plus certain amounts not included
in the Table (i.e., the Company's matching
contributions to the officers' Employee Stock
Purchase Plan accounts, the dollar value of
limited perquisites provided by the Company to
the named executive officer, and any
compensation realized upon exercise of
nonqualified stock options).
The Company also maintains an unfunded
Select Executive Retirement Plan ("SERP"), which
contains both a pension supplement feature and a
special early retirement feature. The pension
supplement feature is structured so as to provide for a
supplemental payment, upon retirement, to those
senior officers who are selected to participate
in this feature of the SERP equal to any
pension benefits which would have been received
by them under the Company's Retirement Plan
described above were it not for the maximum
payment limitations for such plans established
under ERISA. Mr. Hoy and Mr. Murphy have been
selected to participate at such time in the pension
supplement feature of the SERP. Under the special early
retirement feature of the SERP, certain of the senior
officers who retire early may be approved by the Board at
such time to receive an additional retirement payment, in a
series of installments or, with the approval of the Board at
retirement, in a lump sum.
The following table represents estimated
annual retirement benefits payable under the
Company's Retirement Plan and SERP to persons
having specified final average earnings and
years of service, assuming such
persons have been selected to participate in the
SERP's pension supplement feature (but excluding
any amounts that might be receivable under the
SERP's special early retirement feature.)
<TABLE>
<CAPTION>
Estimated Annual Pension Based
on Years of Service Indicated
For Those Retiring at Age 65 in 1998
Average Annual Earnings
For Last 5 Years of
Service 15 20 25 30
<S> <C> <C> <C> <C>
$100,000 $23,916 $31,887 $ 39,860 $ 47,831
150,000 37,041 49,387 61,735 74,081
200,000 50,166 66,887 83,610 100,331
250,000 63,291 84,387 105,485 126,581
</TABLE>
The number of credited years of service
under the Retirement Plan as of December 31,
1997, for each of the named executive officers
in the Summary Compensation Table is as follows:
23 years for Mr. Hoy, 24 years for Mr. Murphy
and 12 years for Mr. Van Leeuwen.
Benefits under the Plan are computed as
straight-life annuity amounts although
participants may make certain alternative
elections upon or before retirement. Amounts
payable to executives under the Retirement
Plan and the SERP are not subject to offset for
Social Security benefits.
TRANSACTIONS WITH DIRECTORS, OFFICERS AND
ASSOCIATES
Some of the nominees for director,
continuing directors, and executive officers of
the Company (and members of their immediate
families and corporations, organizations, trusts
and estates with which these individuals are
associated) have, at some time since January 1,
1997, been indebted to one or more of the
Company's subsidiary banks in amounts of $60,000
or more. All such loans were made in the
ordinary course of business, did not involve
more than normal risk of collectability or
present other unfavorable features, and were
made on substantially the same terms, including
interest rates and collateral requirements, as
those prevailing at the same time for comparable
loan transactions by the lending bank with
unaffiliated persons. No such loan is
classified by the lending bank at present as a
non-accrual, past due, restructured or potential
problem loan.
Outside of these and other normal customer
relationships, none of these persons (or members
of their immediate families) presently maintains
or has maintained since January 1, 1997,
directly or indirectly, any significant business
or personal relationship with the Company other
than such as might arise by virtue of his/her
position with, or ownership interest in, the
Company.
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, Certified Public
Accountants, were the auditors for the Company
for the year ended December 31, 1997. The Audit
Committee and Board are in the process of
selecting the auditors for 1998. Representatives
of KPMG Peat Marwick LLP are expected to be
present at the Meeting and will have an
opportunity to make a statement if they so
desire, and it is expected that they will be
available to respond to appropriate questions
from shareholders.
ITEM 2. APPROVAL OF THE ARROW FINANCIAL
CORPORATION
1998 LONG TERM INCENTIVE PLAN
The second item to be acted upon at the
Meeting is a proposal to approve the Arrow
Financial Corporation 1998 Long Term Incentive
Plan (the "1998 Plan"). The 1998 Plan provides
for stock-based compensatory awards to employees
in the form of stock options and restricted
shares of the Company's Common Stock. In
structure, the 1998 Plan is much like the
Company's existing compensatory stock plan, the
Arrow Financial Corporation 1993 Long Term
Incentive Plan (the "1993 Plan"), which was
approved by the shareholders at the Company's
1993 annual meeting. The 1998 Plan is being
proposed as the successor to the 1993 Plan when
the latter runs out of authorized shares.
Although the Board of Directors believes that
the remaining number of shares still available
for stock awards under the 1993 Plan is
sufficient to meet the Company's needs for
compensatory awards in the immediate future, it
is expected that the 1993 Plan may run out of
shares at the beginning of next year, if not
sooner.
The total number of shares authorized for
stock awards under the 1998 Plan has been set at
300,000 (subject to adjustments), the same
number of shares that was initially authorized
under the 1993 Plan. Although it is not
possible to predict with certainty the number of
stock-based awards that the Company may elect to
grant in forthcoming periods under the 1998
Plan, due to the large number of variables that
affect determinations regarding such grants, the
Board of Directors currently anticipates that
the additional 300,000 shares of Common Stock
authorized for awards under the 1998 Plan should
be adequate to meet the Company's needs for
compensatory stock awards for at least another
five-year period, absent unusual developments.
The 1998 Plan was adopted by the Board of
Directors on January 28, 1998, subject to
approval by the shareholders of the Company.
Shareholder approval requires the affirmative
vote of a majority of all the outstanding shares
of Common Stock. Dissenting votes do not give
rise to any rights on the part of dissenters.
On March 18, 1998, the last sale price of the
Company's Common Stock, as reported on the
NASDAQ National Market System, was $31.50 per
share.
It is not possible to estimate the number
of stock options or shares of restricted stock
that may be awarded under the 1998 Plan in the
remainder of this calendar year or in any future
period to the named executive officers in the
Summary Compensation Table in this proxy
statement, to all officers of the Company as a
group, or to all Company employees as a group.
The Board of Directors does not believe that the
number or type of stock awards actually granted
to the named executive officers or the other
officers or employees of the Company in 1997
would have been affected at all if the 1998 Plan
had been in place during that year.
The discussion of the 1998 Plan set forth
below addresses the key elements of the proposed
new plan, and describes each type of award
authorized by the plan. For a copy of the full
text of the 1998 Plan, please send a written
request to Mr. Gerard R. Bilodeau, Corporate
Secretary, Arrow Financial Corporation, 250 Glen
Street, Glens Falls, New York 12801, or call Mr.
Bilodeau at (518) 745-1000, Ext. 243.
Principal Features of Plan
The 1998 Plan authorizes the grant of stock
options to purchase shares of the Company's
Common Stock and the grant of restricted shares
of Common Stock. The stock options may be
either so-called "incentive stock options",
qualifying for special federal income tax
treatment, or nonqualified stock options. The
number of shares authorized for issuance under
the 1998 Plan may be divided up in any fashion
among incentive stock options, nonqualified
stock options and restricted shares.
Awards under the new plan may be granted to
executives and other selected employees of the
Company and its subsidiaries. The determination
of those persons who are to receive awards and
the number and type of awards that they are to
receive will be at the discretion of the
Personnel Committee of the Board of Directors
(the "Committee"), which will administer the
plan. Stock-based compensatory awards of this
type are generally considered to be effective in
retaining the services of executive and other
employees and motivating them to work for the
success of the Company, by tying their overall
compensation to long-term corporate performance.
Generally, awards granted under the 1998 Plan
vest at some designated future date to be
established by the Committee upon grant, and the
awards will vest on that date (and in the case
of options, will continue to be exercisable
thereafter) only if and as long as the employee
remains in the employment of the Company. In
the case of options, the plan permits certain
grace periods following termination of
employment during which the option holder will
continue to have the right to exercise the
option. See the discussion of vesting and
exercise periods for each type of award set
forth in the summary of each below.
The 1998 Plan will expire ten years after
the date of Board approval, or on January 28,
2008. No awards may be granted under the plan
after that date, although outstanding options
may still be exercised thereafter in accordance
with their terms. The Board of Directors may
terminate the plan prior to that date, or
otherwise modify or amend it, subject to
applicable law.
Incentive Stock Options
The 1998 Plan provides for the grant of
incentive stock options as defined in Section
422 of the Code. An incentive stock option
differs from a nonqualified stock option in that
the optionee exercising an incentive
stock option is not subject to federal income
taxation upon exercise but only upon subsequent
disposition of the shares. The optionee
exercising a nonqualified stock option is
subject to federal income taxation upon
exercise. These differences in tax treatment
are described in more detail in the section
"Federal Income Tax Consequences" below.
Under the terms of the 1998 Plan and
applicable tax law, the exercise price per share
for incentive stock options may not be less than
the fair market value of the shares --
basically, the market price of the
Company's Common Stock -- on the date of grant.
An incentive stock option may be exercised only
during an exercise period established by the
Committee upon grant. Under the 1998 Plan and
tax law, this exercise period may not begin
earlier than six months after the date of grant
and must end not later than ten years after the
date of grant. Historically, in granting
incentive stock options, the Committee has
established staggered vesting dates, that is,
the date of first exercise of the options has
been spread over several years, with the options
to become exercisable in twenty-five percent
increments over the first four anniversaries of
the date of grant. The Committee may, but need
not, follow a similar approach and provide for
staggered vesting of incentive stock options
granted under the 1998 Plan. Under applicable
provisions of the tax law, which are
incorporated in the 1998 Plan, incentive stock
options may be exercised up to, but not after,
the date three months after the optionee's
termination of employment, except in the case of
death or disability, where the grace period for
exercise may be extended.
If the optionee exercising an incentive
stock option is to receive favorable federal
income tax treatment, the optionee may not sell
the shares received upon exercise until the
later of (i) one year after the date
of exercise, or (ii) two years after the date of
grant. A sale within this holding period will
result in tax disqualification of the option,
that is, loss of the special tax benefits.
Full payment for shares acquired upon
exercise of an incentive stock option must be
made at the time of exercise. Payment may be
made in cash or, if authorized by the Committee
upon grant, in whole or in part by surrender of
shares of Common Stock of the Company previously
owned by the optionee, valued at their fair
market value on the date of exercise.
There are certain quantity limitations on
the number of incentive stock options first
exercisable in any one calendar year that may be
granted to a single employee.
Nonqualified Stock Options
The 1998 Plan also provides for the grant
of nonqualified stock options ("NQSOs"). Unlike
incentive stock options, NQSOs are not subject
to any restrictions under federal tax law, but
are limited only by the terms of the 1998 Plan.
Generally, however, the 1998 Plan imposes many
of the same limitations on NQSOs that apply to
incentive stock options. The maximum exercise
period for an NQSO, like that for an incentive
stock option, may not commence earlier than six
months after the date of grant and may not
extend more than ten years after the date of
grant. The limitations on exercise of an NQSO
following termination of employment of the
optionee are substantially identical to the
limitations applicable to incentive stock
options (although in the case of retirement of
an optionee, an NQSO may be exercised up to
twelve months after retirement, as compared to
three months in the case of an incentive stock
option). Also, the provisions in the 1998 Plan
specifying the manner of exercise for NQSOs are
identical to the comparable provisions for
incentive stock options. As is true for
incentive stock options, the exercise price per
share for NQSOs may not be less than the fair
market value of the shares (the market value of
the Common Stock) on the date of grant.
One difference under the 1998 Plan between
NQSOs and incentive stock options is that the
plan does not absolutely prohibit
transferability of all NQSOs granted thereunder,
whereas both tax law and the 1998
Plan prohibit transfer of incentive stock
options during the life of the optionee. It is
anticipated that the Committee may permit
lifetime transferability of certain NQSOs
granted under the 1998 Plan, but, if so, only
for senior executives of the Company and then
only in limited instances and subject to
significant restrictions.
Restricted Shares
The 1998 Plan also authorizes the grant of
restricted shares of the Company's Common Stock,
as does the 1993 Plan (although the Committee
has never elected to grant any restricted shares
thereunder). Restricted shares are merely
shares which the grantee is not entitled to sell
or otherwise transfer, and which are
forfeitable, until ownership of the shares vests
in the grantee. Under the plan, the minimum
vesting period is three years, with the vesting
schedules to be determined by the Committee on a
case by case basis upon grant. If the grantee
of restricted shares ceases to be employed by
the Company or its subsidiaries prior to the
vesting date, the restricted shares are
forfeited back to the Company.
Typically, restricted shares are granted at
no purchase price, although the 1998 Plan
provides that the Committee may elect to charge
the grantee a de minimis purchase price upon
grant (such as the par value of the shares), if
it is required by law to do so or deems it
appropriate in a particular case. Under the
1998 Plan, recipients of restricted shares will
receive the right to vote the shares immediately
upon grant, as well as the right to receive any
dividends declared on Common Stock from the date
of grant, prior to the vesting date for the
shares.
Federal Income Tax Consequences
The following is a brief summary of the
federal income tax consequences of the various
awards which may be granted under the 1998 Plan.
The discussion is for purposes of general
information only and does not address the
specific facts and circumstances that may apply
to individual award recipients. All persons who
receive awards under the 1998 Plan should
consult their own tax advisor to determine the
particular tax consequences to them of their
1998 Plan awards.
Incentive Stock Options: Persons receiving
incentive stock options under the 1998 Plan will
not recognize any income for federal income tax
purposes upon grant to them of the options, nor
will the Company receive any tax deductions at
the time of grant. Moreover, if upon exercise
of the option the optionee complies with all
provisions of the Code relating to incentive
stock options and subsequently complies with the
Code provisions governing required holding
period before disposing of the shares, the
optionee will not recognize any taxable income
upon exercise. Upon subsequent disposition of
the shares, the optionee will recognize capital
gain or loss equal to the difference between the
sale price of the shares and the purchase price
paid therefor upon exercise, and the Company
will receive no tax deduction. If an optionee
exercising an incentive stock option disposes of
the option shares before expiration of the
required holding period under the Code (the
later of one year after exercise or two years
after grant), the exercise will be treated for
federal income purpose as the exercise of a
nonqualified stock option.
Nonqualified Stock Options: Persons
receiving nonqualified stock options under the
1998 Plan will not recognize any income for
federal income tax purposes upon grant to them
of the options, nor will the Company
receive any tax deduction at the time of grant.
Upon exercise of a nonqualified option, in cash
or by surrender of stock already owned, the
difference between the fair market value of the
shares acquired at exercise and the
purchase price paid therefor will be treated as
ordinary income received as additional
compensation, subject to federal income tax
withholding and employment taxes, and the
Company will receive a corresponding tax
deduction. Generally, subsequent disposition of
the option shares will result in recognition by
the holder of capital gain or loss equal to the
difference between the sale price and the fair
market value of the shares on the date of
exercise.
Restricted Shares: Under Section 83 of the
Code, persons receiving restricted shares under
the 1998 Plan will not recognize any income for
federal income tax purposes upon grant, and the
Company will not receive any tax deduction, as
long as the restricted shares are subject to a
substantial risk of forfeiture and are
non-transferable. At such time as the
substantial risk of forfeiture ceases to exist
and the shares become transferable,
the shares will be taxable to the recipient as
ordinary income received as compensation in an
amount equal to the then fair market value of
the shares (less the purchase price of the
shares, if any), subject to federal income
tax withholding and employment taxes, and the
Company will be entitled to a corresponding tax
deduction.
* * * * *
The Board of Directors believes that
adoption of the 1998 Plan will be in the best
interests of the shareholders and, accordingly,
recommends a vote FOR this proposal, which is
ITEM 2 on the Proxy Card. Proxies received in
response to the Board's solicitation will be
voted "FOR" approval of the 1998 Plan if no
specific instructions are included thereon for
Item 2.
OTHER MATTERS
The Board of Directors of the Company is
not aware of any other matters that may come
before the Meeting. However, the proxies may be
voted with discretionary authority with respect
to any other matters that may properly come
before the Meeting.
By Order of the Board of Directors
GERARD R. BILODEAU
Secretary
March 27, 1998
PROXY
ARROW FINANCIAL CORPORATION
250 GLEN STREET
GLENS FALLS, NY 12801
ANNUAL MEETING OF SHAREHOLDERS - APRIL 29, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS OF ARROW
FINANCIAL CORPORATION
The undersigned shareholder(s) of Arrow
Financial Corporation, a New York Corporation
(the "Company") hereby appoint(s) Robert G.
Landry and Bernard F. McPhillips, or either of
them, with full power to act alone, the proxies
of the undersigned, with full power of
substitution and revocation, to vote all the
shares of Common Stock of the Company, which the
undersigned is entitled to vote, at the Annual
Meeting of Shareholders of the Company to be
held at the Queensbury Hotel, Maple and Ridge
Streets, Glens Falls, New York 12801, at 2:00
p.m. on Wednesday, April 29, 1998, and at any
adjournment thereof, with all powers the
undersigned would possess if personally present
as follows:
(To be Signed on Reverse Side)
[ X ] Please mark your votes as in this example
using dark ink only.
1. Election of Directors
[ ] FOR all nominees listed at right (except
as limited below)
[ ] WITHHOLD authority to vote for all
nominees listed at right:
Instruction: To withhold authority to vote for
any individual nominee(s), write the name(s) in
the space provided.
- ---------------------------
Nominees: Class C: Thomas L. Hoy
Edward F. Huntington
Doris E. Ornstein
2. To approve a new 1998 Long Term Incentive
Plan of the Company which will authorize the
issuance of up to 300,000 shares of the Common
Stock in the form of stock options and
restricted stock.
[ ] FOR
[ ] AGAINST
[ ] ABSTAIN
You are requested to complete, date and sign
this card and return this Proxy promptly to:
American Stock Transfer & Trust Company
40 Wall Street, 46 Fl.
New York, N.Y. 10269-0436
This Proxy will be voted as directed herein. IF
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1 AND 2. If any other business
is properly presented at the Annual Meeting, or
any adjournments thereof, this Proxy will be
voted at the discretion of Arrow's Board of
Directors. The undersigned hereby revoke(s) any
proxies heretofore given by the undersigned to
vote at the Annual Meeting, or any adjournments
thereof.
- -----------------
DATE
- -----------------------------
SIGNATURE
- -----------------------------
SIGNATURE
IF HELD JOINTLY
Note: If the shares are registered in more than
one name, each joint owner or fiduciary should
sign personally. Persons signing as executors,
administrators, trustees, corporate officers, or
in other representative capacities should so
indicate.
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 or Agreement, duly executed
by and 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.
