ARROW INTERNATIONAL, INC.
1999 STOCK INCENTIVE PLAN
1. PURPOSE
The purpose of this 1999 Stock Incentive Plan (the "Plan") is to advance
the interests of Arrow International, Inc. (the "Company") and its shareholders
by granting the Company's directors, officers and other eligible key employees
stock options, stock appreciation rights ("SARs") and/or restricted stock
(collectively referred to as "grants") as provided herein. The Company seeks to
attract and retain people of experience, ability and training and to furnish
additional incentive to directors, officers and other key employees upon whose
judgment, initiative and efforts the successful conduct of the Company's
business largely depends.
2. ADMINISTRATION
The Plan shall be administered by a Human Resources Committee (the
"Committee") consisting of two or more members of the Board of Directors of the
Company, as determined from time to time by the Board of Directors, all of whom
shall, unless the Board determines otherwise, be "outside directors" as this
term is defined in Internal Revenue Code Section 162(m), and none of whom during
the twelve months prior to commencement of service on the Committee, or during
such service, has been granted or awarded any equity security or derivative
security of the Company pursuant to the Plan or, except as permitted by Rule
16b-3(c)(2)(i) pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any other plan of the Company or any of its affiliates. The
Board shall fill any vacancy on the Committee.
Subject to the provisions of the Plan, the Committee shall possess the
authority, in its discretion, (a) to determine the directors, officers and other
key employees of the Company to whom, and the time or times at which, restricted
stock, SARs and options shall be granted, whether such grants will be awarded
singly or in combination to each eligible employee, the price, if any, at which
such grants shall be offered and the number of shares to be subject to each such
grant and any other terms and conditions that may apply to each grant; (b) in
the case of options, the price at which an option may be purchased, to determine
whether the options shall be incentive or nonqualified options and the number of
shares included within an option that may be purchased by the optionee during
any annual (or other stated) period; (c) to interpret the Plan; (d) to make and
amend rules and regulations relating thereto; (e) to prescribe the form and
conditions of the grant agreements and any appropriate terms and conditions
applicable to the awards and to make any amendments to such agreements or
awards; and (f) to make all other determinations necessary or advisable for the
administration of the Plan. The Committee's determinations shall be conclusive
and binding upon the Company, the eligible employees and all other persons.
3. ELIGIBLE EMPLOYEES
Grants may be awarded under the Plan only to directors, officers and key
employees of the Company and its subsidiaries (which shall include all
corporations of which at least fifty percent of the voting stock is owned by the
Company directly or through one or more corporations at least fifty percent of
the voting stock of which is so owned). The members of the
<PAGE>
- 2 -
Committee shall not be eligible to receive any grant under the Plan during such
period of time as they serve on the Committee.
4. SHARES AVAILABLE IN THE AGGREGATE AND INDIVIDUALLY
The total of the issued or issuable shares of the Company's Common Stock
(no par value) available for grants under this Plan during any fiscal year of
the Company shall not exceed three percent (3%) of the number of issued shares
of Common Stock, including treasury shares, determined as of the first day of
such fiscal year. The number of shares of Common Stock available for incentive
options during the term of this Plan shall not exceed seven (7) million shares
(subject to substitution or adjustment as provided in Section 10). Shares used
for Plan grants may be authorized and unissued shares or may be treasury shares.
If a restricted stock grant is forfeited or if an option expires, terminates or
is canceled without being exercised, new restricted stock grants or options may
be thereafter granted covering such shares. Notwithstanding the foregoing,
shares attributable to the cancellation of an option because of the exercise of
a related SAR shall continue to be treated as outstanding and shall not be
available for subsequent grants under the Plan. No grant may be awarded more
than ten years after the effective date of the Plan.
The aggregate number of (1) shares with respect to which options are
granted, (2) restricted stock awards and (3) SARs that may be granted to any one
participant may not exceed 350,000 per fiscal year (subject to substitution or
adjustment as provided in Section 10).
5. TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS
Incentive stock options may be granted to officers and employees but not
to directors. Each incentive stock option granted under the Plan shall be
designated as such and shall be evidenced by a stock option agreement in such
form as the Committee shall approve from time to time, which agreement shall
conform with this Plan and which shall contain the following terms and
conditions:
(a) Number of Shares. The option agreement shall specify the number
of shares to which it pertains.
(b) Purchase Price. The purchase price for each option shall be not
less than the fair market value of the stock at the time such option is
granted. The Committee shall determine the purchase price. If an option is
granted to a director, officer or employee who at the time of grant owns
stock possessing more than ten percent of the total combined voting power
of all classes of stock of the Company (a "10-percent Shareholder"), the
purchase price shall be at least 110 percent of the fair market value of
the stock subject to the option.
(c) Duration of Option. Each option by its terms shall not be
exercisable after the expiration of ten years from the date such option is
granted. In the case of an incentive stock option granted to a 10-percent
Shareholder, the option by its terms shall not be exercisable after the
expiration of five years from the date such option is granted.
(d) Options Nontransferable. Each option by its terms shall be not
transferable by the optionee otherwise than by will or the laws of descent
and
<PAGE>
- 3 -
distribution, and shall be exercisable during his lifetime, only by the
optionee, the optionee's guardian or the optionee's legal representative.
(e) Exercise Period. Subject to the provisions of this Plan, the
exercise of each option shall be subject to such conditions as may be
imposed by the Committee and specified in the option agreement. The
Committee may, among other things, specify a minimum length of employment
and may stagger the period of exercise by providing that only a certain
percentage of options may be exercised each year.
(f) Payment of Option Price. An option shall be exercised upon
written notice to the Company accompanied by payment in full for the
shares being acquired. The payment shall be made in cash or by check or by
delivery of shares of Common Stock of the Company registered in the name
of the optionee, duly assigned to the Company with the assignment
guaranteed by a bank, trust company or member firm of the New York Stock
Exchange, or by a combination of the foregoing, any such shares so
delivered to be deemed to have a value per share equal to the fair market
value of the shares on such date.
(g) Maximum Value of Shares. No incentive stock option shall be
granted to an officer or employee under this Plan or any other incentive
stock option plan of the Company or its subsidiaries to purchase shares as
to which the aggregate fair market value (determined as of the date of
grant) of the Common Stock which first become exercisable by the employee
in any calendar year exceeds $100,000.
(h) Rights as a Shareholder. The optionee shall have no rights as a
shareholder with respect to any shares for which he is granted an option
until the date of issuance to him of a stock certificate for such shares
and no adjustment shall be made for any dividends or other rights the
record date for which is prior to the date such stock certificate is
issued.
(i) General Restriction. Each option shall be subject to the
requirement that, if at any time the Board of Directors shall determine,
in its discretion, that the listing, registration or qualification of the
shares subject to such option upon any securities exchange or under any
state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such option or the issuance or purchase
of shares thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not acceptable
to the Board of Directors.
6. TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS
Options other than incentive stock options may also be granted under this
Plan. Each such nonqualified option shall be evidenced by a nonqualified stock
option agreement, shall be designated as such and shall conform to the foregoing
provisions of Section 5 except the option price requirements of Section 5(b),
the 10-percent Shareholder restriction of Section 5(c) and the maximum value of
grants of Section 5(g). In addition, nonqualified options may be granted to
directors as well as officers and employees. The Committee may include, in its
discretion, any terms or conditions in addition to those specified in Section 5.
To the extent an option exceeds
<PAGE>
- 4 -
the limitations of Section 5(g), it shall be deemed a nonqualified option and
shall otherwise remain in full force and effect. A nonqualified option may have
a duration of 10 years and one day from the date such option is granted.
7. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
The Committee may, in its discretion, award stock appreciation rights to
any director, officer or other eligible employee of the Company who is subject
to Section 16(b) of the Exchange Act in conjunction with incentive stock options
or nonqualified stock options then being granted to him, or to be attached to
one or more such options theretofore granted and at the time held unexercised by
such employee which shall entitle him to receive payment from the Company in
accordance with the following provisions and such terms and conditions as the
Committee shall determine from time to time:
(a) An SAR granted hereunder may be made part of an option at the
time of grant of the option or at any time thereafter up to six months
prior to the expiration of the option.
(b) Such SAR will entitle the holder to elect to receive, in lieu of
exercising the option to which it relates, an amount (in cash or in Common
Stock, or a combination thereof, all in the sole discretion of the
Committee) equal to 100% of the excess of:
(1) the fair market value per share of the Company's Common
Stock on the date of exercise of such right, multiplied by the
number of shares with respect to which the right is being exercised,
over
(2) the aggregate option exercise price for such number of
shares.
(c) Such SAR will be exercisable only to the extent that it has a
positive value and the option to which it relates is exercisable, except
that no SAR shall be exercisable during the first six (6) months after the
date of its grant.
(d) Upon exercise of an SAR, the option (or portion thereof) with
respect to which such right is exercised shall be surrendered and shall
not thereafter be exercisable.
(e) The exercise of an SAR will reduce the number of shares
purchasable pursuant to the related option and available under the Plan to
the extent of the number of shares with respect to which the right is
exercised.
8. TERMS AND CONDITIONS OF RESTRICTED STOCK AWARDS
The Committee may, evidenced by such written agreement as the Committee
shall from time to time prescribe, grant a specified number of shares of the
Company's Common Stock with an appropriate restrictive legend affixed thereto
("restricted stock"). Such award shall be neither an option nor a sale, but
shall be subject to the following conditions and restrictions:
(a) Restricted stock may not be sold or otherwise transferred by the
participant until ownership vests at such time and in such manner as
specified by the Committee. Ownership shall vest only following
satisfaction of one or more of the following criteria as the Committee may
prescribe:
<PAGE>
- 5 -
(1) the passage of such period of time as the Committee in its
discretion may provide, from the date of grant.
(2) the attainment of performance-based goals established by the
Committee as of the date of grant. If the participant's
compensation is subject to the $1 million cap of Internal
Revenue Code Section 162(m), the Committee may establish such
performance goals based on one or more of the following
targets:
i. total shareholder return
ii. earnings per share growth
iii. cash flow growth and/or
iv. return on equity
If the participant's compensation is not subject to the $1
million cap of Internal Revenue Code Section 162(m), the
Committee may establish the performance goal on the basis of
the preceding four targets or any other target it may from
time to time deem appropriate in its discretion.
(3) any other conditions the Committee may prescribe, including a
non-compete requirement.
(b) Unless the Committee shall determine otherwise with respect to
participants whose compensation is not governed by Internal Revenue Code
Section 162(m), the Committee shall grant and administer all
performance-based awards under (a)(2) above with the intent of meeting the
criteria of Internal Revenue Code Section 162(m) for performance-based
compensation. To this end, the outcome of all targeted goals shall be
substantially uncertain on the date of grant; the goals shall be
established no later than 90 days following the commencement of service to
which the goals relate; the minimum period for attaining each performance
goal shall be one year; and the Committee shall certify at the conclusion
of the performance period whether the performance-based goals have been
attained. Such certification may be made by noting the attainment of the
goals in the minutes of the Committee's meetings.
(c) Except as otherwise determined by the Committee, all rights and
title to restricted stock granted to a participant under the Plan shall
terminate and be forfeited to the Company upon failure to fulfill all
conditions and restrictions applicable to such restricted stock.
(d) Except for the restrictions set forth in this Plan and those
specified by the Committee in any restricted stock agreement, a holder of
restricted stock shall possess all the rights of a holder of the Company's
Common Stock (including voting and dividend rights); provided, however,
that prior to vesting the certificates representing such shares of
restricted stock (and the amount of any dividends issued with respect
thereto) shall be held by the Company for the benefit of the participant
and the participant shall deliver to
<PAGE>
- 6 -
the Company a stock power executed in blank covering such shares. As the
shares vest, certificates representing such shares shall be released to
the participant. Until such time as the restricted shares vest, all
dividends payable on such shares shall be reinvested in the Company's
Common Stock, treated as restricted stock until the underlying restricted
shares vest, and, upon such vesting, released to the participant. If the
underlying shares do not vest, all shares purchased with the reinvested
dividends shall be forfeited.
(e) All other provisions of the Plan not inconsistent with this
section shall apply to restricted stock or the holder thereof, as
appropriate, unless otherwise determined by the Committee.
9. TERMINATION OF EMPLOYMENT
If the employment of a participant holding an incentive stock option
terminates for any reason other than death or disability, any incentive stock
option may be exercised by him at any time prior to the earlier of the
expiration date of the option or the expiration of three months after the date
of termination, but only if, and to the extent that, he was entitled to exercise
the option at the date of such termination. Notwithstanding the foregoing, an
incentive stock option may not be exercised after termination of employment if
the Committee determines that the termination of employment of such optionee
resulted from willful acts, or failure to act, by the optionee detrimental to
the Company or any of its subsidiaries. The Committee shall determine whether an
authorized leave of absence shall constitute a termination of employment for
purposes of this Plan.
If the employment of a participant holding an incentive stock option
terminates by reason of disability (within the meaning of Section 105(d)(4) of
the Internal Revenue Code) or death, his incentive stock option may be exercised
at any time prior to the earlier of the expiration of the option or the
expiration of one year following the date employment terminated due to
disability or death, but only if, and to the extent that, he was entitled to
exercise the option at the time of such termination. If after termination of
employment but before the expiration of the earlier of the option period or the
three-month period, a participant holding an incentive stock option dies, the
incentive stock option shall continue to be exercisable only for the remainder
of either such period (whichever is shorter) and the one-year period shall not
be applicable.
Except as required by law, the Committee shall determine the terms and
conditions under which a nonqualified option may be exercised if the employment
of a participant holding a nonqualified option terminates for any reason.
If a participant terminates employment while holding an unexercised SAR,
the participant, or his legal representative in the event of his death, may
exercise the SAR to the same extent as the option to which it is related may be
exercised following termination of employment.
Unless otherwise provided in a restricted stock agreement, all unvested
restricted stock shall be forfeited upon a participant's termination of
employment for any reason.
10. ADJUSTMENT OF SHARES
<PAGE>
- 7 -
In the event of any change in the Common Stock of the Company by reason of
any stock dividend, recapitalization, reorganization, merger, consolidation,
split-up, combination, or exchange of shares, or rights offering to purchase
Common Stock at a price substantially below fair market value, or of any similar
change affecting the Common Stock, the number and kind of shares which
thereafter may be granted, optioned and sold under the Plan and the number and
kind of shares subject to grant or option in outstanding restricted stock, SAR
or option agreements and, in the case of an option, the purchase price per share
thereof shall be appropriately adjusted consistent with such change in such
manner as the Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, participants in the
Plan.
11. NO EMPLOYMENT RIGHTS
Neither the Plan nor any grants under the Plan shall confer upon any
recipient any right with respect to continuance of employment by the Company or
any subsidiary, nor shall they interfere in any way with the right of the
Company or any subsidiary by which a recipient is employed to terminate his
employment at any time.
12. WITHHOLDING TAXES
All grants are subject to Federal, state and local withholding
requirements to which grants of this type are normally subject. In the case of
any cash payment pursuant to the exercise of an SAR, the Company shall withhold
from such payment the appropriate amount of withholding taxes due. Prior to the
delivery of any certificate or certificates for shares acquired pursuant to the
exercise of an option or SAR or the vesting of restricted stock, the holder must
satisfy applicable Federal, state and local withholding tax obligations by
either (a) delivering to the Company shares of the same class as the shares as
to which the certificate is to be delivered, or (b) directing the Company to
withhold certain of such shares, or (c) remitting to the Company a sufficient
amount of cash to satisfy the withholding requirements. If withholding is to be
satisfied under either (a) or (b), the stock used for payment shall have a fair
market value (as determined by the Committee) equal to the amount of the taxes
to be withheld. Any election by the holder to satisfy withholding under (a) or
(b) in the case of the exercise of a stock option or SAR must be made prior to
the date the amount of the withholding tax is determined, is subject to
disapproval by the Committee, and, in the case of an officer of the Company
subject to the provisions of Section 16 of the Exchange Act must be made after
six months following the grant and must be made during the period beginning on
the third business day following the date of release for publication by the
Company of financial data specified under Rule 16b-3(e)(1)(ii) under the
Exchange Act and ending on the twelfth business day following such date. Any
such election shall be irrevocable. The portion of any withholding tax
represented by a fractional share must be paid in cash.
13. CHANGE IN CONTROL
Upon acquisition of thirty percent or more of the Company's outstanding
shares of stock having general voting rights by an unaffiliated person, entity
or group, the Committee shall notify, in writing, each holder of an outstanding
option, SAR or restricted stock of such change in control. Notwithstanding any
other provision of this Plan or any option or SAR agreement, all options and
SARs shall become fully exercisable on receipt of such notice and all forfeiture
<PAGE>
- 8 -
conditions on restricted stock shall be removed. All outstanding options shall
expire if not exercised within 30 days of receipt of the notice of a change of
control.
14. AMENDMENT AND DISCONTINUANCE
This Plan may be amended, modified or terminated by the shareholders of
the Company or by the Board of Directors, except that the Board may not, without
approval of the shareholders, materially increase the benefits accruing to
participants under the Plan, materially increase the maximum number of shares as
to which restricted stock or options may be granted under the Plan, change the
basis for making performance-based awards for participants whose compensation is
subject to Internal Revenue Code Section 162(m), modify the requirements as to
eligibility for participation in the Plan, change the minimum option price,
change the class of eligible persons, extend the period for which options may be
granted or exercised, or withdraw the authority to administer the Plan from a
Committee consisting of directors not eligible to receive options under the
Plan. Notwithstanding the foregoing, to the extent permitted by law, the
Committee may amend the Plan without the approval of shareholders, to the extent
it deems necessary to cause the Plan to comply with Securities and Exchange
Commission Rule 16b-3 or any successor rule, as it may be amended from time to
time. Except as required by law, no amendment, modification, or termination of
the Plan may, without the written consent of a participant to whom any grant
shall theretofore have been awarded, adversely affect the rights of such
participant under such grant.
15. EFFECTIVE DATE
The effective date of the Plan is August 31, 1999, provided that the Plan
is adopted by the shareholders of the Company within twelve months of such date.
16. GOVERNING LAW
To the extent not inconsistent with the provisions of the Internal Revenue
Code that relate to incentive stock options, nonqualified stock options, SARs
and restricted stock, this Plan and any agreements adopted pursuant to it shall
be construed under the laws of the Commonwealth of Pennsylvania without
reference to its principles of conflicts of law.
Dated as of August 31, 1999 ARROW INTERNATIONAL, INC.
By___________________________________
Marlin Miller, Jr.
Chairman and Chief Executive Officer
