<PAGE> 1
================================================================================
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
FINGER LAKES FINANCIAL CORPORATION
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
FINGER LAKES FINANCIAL CORP.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 22, 1999
The Annual Meeting of Shareholders of FINGER LAKES FINANCIAL CORP. (the
"Company") will be held in the Board Room of its main office, located at 470
Exchange Street, Geneva, New York, on Thursday, April 22, 1999, at 11:00 a.m.,
Eastern Time, for the following purposes more fully described in the
accompanying Proxy Statement:
1. To elect three directors of the Company.
2. To consider and act upon a proposal to approve and ratify the
selection of KPMG LLP as the Company's independent auditors
for the year ending December 31, 1999.
3. To consider and act upon a shareholder's proposal to promptly
take the necessary steps to achieve a sale or merger of the
Company.
4. To transact such other business as may properly come before
the Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 12,
1999 as the record date for the determination of Shareholders entitled to notice
of and to vote at the Annual Meeting and any adjournments thereof.
BY ORDER OF THE BOARD OF DIRECTORS,
Terry L. Hammond
Secretary
Dated: March 22, 1999
- -------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN WRITING
OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- -------------------------------------------------------------------------------
<PAGE> 3
FINGER LAKES FINANCIAL CORP.
470 EXCHANGE STREET
GENEVA, NEW YORK 14456
(315) 789-3838
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished to Shareholders in connection with
the solicitation of proxies by the Board of Directors of Finger Lakes Financial
Corp. (the "Company"). The Company is a federally chartered stock holding
company and was organized in connection with the reorganization of the Company
in 1998 into a stock holding company form of organization (the "1998
Reorganization"). As a result of the 1998 Reorganization, each outstanding share
of the common stock of Savings Bank of the Finger Lakes, FSB (the "Bank"), was
converted into one share of the common stock, par value $.01 per share, of the
Company (the "Common Stock"), and the Bank became the wholly-owned subsidiary of
the Company. The Bank had been previously reorganized in 1994 into a mutual
holding company form of organization (together with the 1998 Reorganization, the
"Reorganizations"). As a result of the Reorganizations, Finger Lakes Financial
Corporation, M.H.C. (the "Mutual Holding Company") holds 2,389,948 shares of
Common Stock, which currently constitutes 66.9% of the Common Stock issued and
outstanding.
Proxies are being solicited on behalf of the Board of Directors of the
Company to be used at the Annual Meeting of Shareholders of the Company which
will be held on Thursday, April 22, 1999, and at any adjournments thereof (the
"Meeting"). This Proxy Statement and accompanying form of proxy are being first
mailed to Shareholders on or about March 22, 1999.
The accompanying proxy, when properly executed and received by the
Secretary of the Company prior to the Meeting, will be voted as therein
specified unless revoked prior to its use. UNLESS AUTHORITY TO VOTE FOR ONE OR
MORE OF THE DIRECTOR NOMINEES IS SPECIFICALLY WITHHELD ACCORDING TO THE
INSTRUCTIONS, A SIGNED PROXY WILL BE VOTED FOR THE ELECTION OF THE THREE
DIRECTOR NOMINEES NAMED HEREIN AND, UNLESS OTHERWISE INDICATED, FOR RATIFICATION
OF THE SELECTION OF KPMG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE YEAR
ENDING DECEMBER 31, 1999. UNLESS OTHERWISE INDICATED, A SIGNED PROXY WILL BE
VOTED AGAINST THE SHAREHOLDER PROPOSAL TO PROMPTLY TAKE THE NECESSARY STEPS TO
ACHIEVE A SALE OR MERGER OF THE COMPANY (THE "SHAREHOLDER PROPOSAL"). FURTHER, A
SIGNED PROXY WILL BE VOTED, UPON THE TRANSACTION OF SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING, IN ACCORDANCE WITH THE BEST JUDGMENT OF THE
PERSONS NAMED IN THE ENCLOSED PROXY. Any Shareholder giving a proxy has the
power to revoke it at any time before it is exercised by: (i) filing written
notice of revocation with the Secretary of the Company (Terry L. Hammond,
Secretary, Finger Lakes Financial Corp., 470 Exchange Street, Geneva, New York
14456); (ii) submitting a duly executed proxy bearing a later date; or (iii)
appearing at the Meeting and giving the Secretary notice of his or her intention
to vote in person. Proxies solicited hereby may be exercised only
<PAGE> 4
at the Meeting and will not be used for any other meeting.
The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by use of the mails, directors, officers or regular
employees of the Company, without extra compensation, may solicit proxies
personally or by telephone or other means of communication. The Company has
requested persons holding shares for others in their names or in the names of
nominees to forward soliciting material to the beneficial owners of such shares
and will, if requested, reimburse such persons for their reasonable expenses in
so doing.
VOTING
As of March 12, 1999, the record date for the Meeting, there were
3,570,000 shares of Common Stock outstanding, and the Company had no other class
of equity securities outstanding. Only Shareholders of record on the books of
the Company at the close of business on March 12, 1999 are entitled to notice of
and to vote at the Meeting. Each such Shareholder is entitled to one vote for
each share of Common Stock registered in his or her name. A majority of the
outstanding Common Stock, represented in person or by proxy at the Meeting, will
constitute a quorum for the transaction of all business. Directors are elected
by a plurality of the votes cast at the Meeting with a quorum present. The
affirmative vote of a majority of the shares present at the Meeting in person or
by proxy, without regard to broker non-votes, is required to ratify the
selection of the independent auditors and the Shareholder Proposal. Shares as to
which "Abstain" has been selected on the accompanying proxy will be counted as
shares present and entitled to vote for purposes of establishing a quorum, and
will have the same effect as a vote against the matter. Shareholders are not
entitled to cumulate votes in the election of directors.
As indicated immediately below, the Mutual Holding Company owns a
majority of the outstanding Common Stock. The Mutual Holding Company has
informed the Board of Directors that it intends to vote all of its shares in
favor of the election of the three nominees for director named herein, in favor
of the ratification of the selection of the independent auditors, and against
the Shareholder Proposal, thereby ensuring the presence of a quorum at the
Meeting and the likelihood of the election of such nominees and the ratification
of the selection of the independent auditors, and the defeat of the Shareholder
Proposal.
2
<PAGE> 5
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of March 12, 1999
regarding the only person or entity known to the Company to be the record or
beneficial owner of more than 5% of the Common Stock.
<TABLE>
<CAPTION>
NO. OF SHARES OF PERCENT OF ALL
NAME AND ADDRESS COMMON STOCK COMMON STOCK
OF BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING
------------------- ------------------ -----------
<S> <C> <C>
Finger Lakes Financial 2,389,948 66.9%
Corporation, M.H.C. (1)
470 Exchange Street
Geneva, New York 14456
</TABLE>
(1) The directors and executive officers of the Company are also the
directors and executive officers of the Mutual Holding Company.
The following table sets forth certain information as of March 12, 1999
regarding the Common Stock beneficially owned by each director and executive
officer of the Company and all directors and executive officers as a group.
<TABLE>
<CAPTION>
NO. OF SHARES OF PERCENT OF ALL PERCENT OF
COMMON COMMON PUBLICLY HELD
NAME OF STOCK BENEFICIALLY STOCK COMMON
BENEFICIAL OWNER OWNED (1) OUTSTANDING (1) STOCK (1) (2)
---------------- ------------------- -------------------- -------------
<S> <C> <C> <C>
G. Thomas Bowers 85,192 (3) 2.4% 7.1%
Michael J. Hanna 200 (4) --- ---
Chris M. Hansen 7,400 (5) 0.2 0.6
Richard J. Harrison 5,000 0.1 0.4
James E. Hunter 2,000 0.1 0.2
Ronald C. Long 5,205 (6) 0.1 0.4
Bernard G. Lynch 5,000 0.1 0.4
Arthur W. Pearce 5,000 0.1 0.4
Joan C. Rogers 5,100 0.1 0.4
Ralph E. Springstead 3,000 0.1 0.3
</TABLE>
3
<PAGE> 6
<TABLE>
<CAPTION>
NO. OF SHARES OF PERCENT OF ALL PERCENT OF
COMMON COMMON PUBLICLY HELD
NAME OF STOCK BENEFICIALLY STOCK COMMON
BENEFICIAL OWNER OWNED (1) OUTSTANDING (1) STOCK (1) (2)
---------------- ------------------- -------------------- -------------
<S> <C> <C> <C>
Terry L. Hammond 27,837 (7) 0.8 2.3
Thomas A. Mayfield 18,412 (8) 0.5 1.5
Leslie J. Zornow 6,369 (9) 0.2 0.5
All directors and executive
officers as a group (13
persons) 175,715 4.9 14.4
</TABLE>
(1) Includes shares which such persons have the right to acquire within 60
days of March 12, 1999. Unless otherwise indicated, each person has sole
voting and sole investment power with respect to all of the shares he or
she beneficially owns. The numbers of shares and percentages of
ownership are as reported by such persons as of March 12, 1999, with
percentages based on 3,570,000 shares outstanding except where the
issuance of shares pursuant to presently exercisable options indicated
in other footnotes to the table would increase the number of shares
outstanding. Percentages of less than 0.1% have been omitted from the
table.
(2) Reflects each person's percentage of ownership of the 1,180,052 shares
of Common Stock held as of March 12, 1999 by all Shareholders of the
Company other than the Mutual Holding Company.
(3) Includes (i) 4,000 shares owned by Mr. Bowers' wife; (ii) 2,897 shares
held in the Company's 401(k) profit-sharing plan (the "401(k) Plan") for
Mr. Bowers' account, as to which shares he has investment power only;
(iii) 2,360 shares which will vest within 60 days under the 1996
Management Recognition Plan; (iv) presently exercisable options to
purchase 17,700 shares; and (v) 3,548 shares held in the ESOP for Mr.
Bowers' account, as to which shares he has indirect voting power only.
See "Executive Compensation" below.
(4) Such shares are held jointly by Mr. Hanna and his daughter.
(5) Includes 3,980 shares held in a benefit plan of C.M. Hansen Farms, Inc.,
of which Mr. Hansen is a trustee and a beneficiary.
(6) Includes 1,289 shares owned by Mr. Long's wife.
(7) Includes (i) 7,772 shares held in the 401(k) Plan for Mr. Hammond's
account, as to which shares he has investment power only; (ii) 1,240
shares which will vest within 60 days under the 1996 Management
Recognition Plan; (iii) presently exercisable options to
4
<PAGE> 7
purchase 10,600 shares; and (iv) 4,211 shares held in the ESOP for Mr.
Hammond's account, as to which shares he has indirect voting power only.
See "Executive Compensation" below.
(8) Includes (i) 1,212 shares held in the 401(k) Plan for Mr. Mayfield's
account, as to which shares he has investment power only; (ii) 800
shares which will vest within 60 days under the 1996 Management
Recognition Plan; (iii) presently exercisable options to purchase 9,960
shares; and (iv) 1,039 shares held in the ESOP for Mr. Mayfield's
account, as to which shares he has indirect voting power only. See
"Executive Compensation" below.
(9) Includes (i) 97 shares held in the 401(k) Plan for Ms. Zornow's account,
as to which shares she has investment power only; (ii) 333 shares which
will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 3,800 shares; and (iv)
1,172 shares held in the ESOP for Ms. Zornow's account, as to which
shares she has indirect voting power only. See "Executive Compensation"
below.
PROPOSAL 1: ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the Board of Directors is divided
into three classes, which are to be as equal in number as possible; directors
are to be elected for three-year terms, with one class of directors being
elected each year.
Three of the Company's ten directors are to be elected by the
Shareholders at the Meeting, to hold office for a three-year term expiring in
2002, or until his or her successor is duly elected and qualifies. The Board of
Directors recommends the election of the three nominees named below, each of
whom is currently a director of the Company. Unless authority to vote for one or
more of the nominees is specifically withheld according to the instructions,
proxies in the enclosed form will be voted FOR the election of each of the three
nominees named below.
The Board of Directors does not contemplate that any of the nominees
will be unable to serve as a director, but if that contingency should occur
prior to the voting of the proxies, the persons named in the enclosed proxy
reserve the right to vote for such substitute nominee or nominees as they, in
their discretion, shall determine.
5
<PAGE> 8
PROPOSED FOR ELECTION AS DIRECTORS FOR A THREE-YEAR TERM EXPIRING IN 2002
<TABLE>
<CAPTION>
DIRECTOR
NAME AND BACKGROUND SINCE (1)
------------------- ---------
<S> <C>
CHRIS M. HANSEN, age 63, is the owner and operator of C.M. Hansen Farms, Inc., located 1983
in Hall, New York, which owns a citrus operation in LaBelle, Florida.
JOAN C. ROGERS, age 65, is retired from her position as Vice President of BJR 1993
Broadcasting, Seneca Falls, New York, where she served in such capacity for more than
the past five years.
RALPH E. SPRINGSTEAD, age 73, has served as Chairman of the Board of the Company since 1958
July 1995. Mr. Springstead joined the Company in 1951 and served as its President and
Chief Executive Officer from 1965 until June 1995.
</TABLE>
(1) Includes, as applicable, tenure as a director of the Company or the Bank
in its forms prior to the Reorganizations.
MEMBERS OF THE BOARD OF DIRECTORS CURRENTLY CONTINUING IN OFFICE
The following table sets forth certain information with respect to each
director of the Company whose term in office does not expire at the Meeting.
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AND BACKGROUND SINCE (1) EXPIRES
------------------- --------- -------
<S> <C> <C> <C>
G. THOMAS BOWERS, age 55, has served as the Company's President and Chief 1995 2001
Executive Officer since July 1995. He was President and Chief Executive
Officer of Citizens Savings Bank, FSB, Ithaca, New York, from July 1992 until
December 1994. Mr. Bowers was employed by Columbia Banking Savings and Loan
Association, Rochester, New York, from 1987 until June 1992, serving as
President and Chief Executive Officer from April 1991 until June 1992.
MICHAEL J. HANNA, age 53, has served as Director of Athletics at Hobart and 1994 2000
William Smith Colleges, Geneva, New York, since 1981.
RICHARD J. HARRISON, age 53, has served as Executive Vice President and 1997 2001
Director of Dominion Capital Corporation, Fairport, New York, since 1994. He
was also President of UnitedAuto Finance Inc., Fairport, New York, from 1994 to
</TABLE>
6
<PAGE> 9
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AND BACKGROUND SINCE (1) EXPIRES
------------------- --------- -------
December 1998. Prior to 1994, Mr. Harrison was employed by Rochester Community
Savings Bank, Rochester, New York, serving as President of its subsidiary,
American Credit Services, Inc.
<S> <C> <C> <C>
JAMES E. HUNTER, age 63, is a professor at Cornell University and the Director 1990 2000
of the New York State Agricultural Experiment Station, Geneva, New York.
RONALD C. LONG, age 62, is President of Long Milk Haulers, Inc., Penn Yan, New 1994 2000
York, which owns and operates a milk hauling and trucking operation.
BERNARD G. LYNCH, age 68, is retired from his position as President of the 1962 2001
Lynch Furniture Co., Inc., a retail furniture outlet with stores in Geneva and
Auburn, New York, where he served full-time in that position until 1992.
ARTHUR W. PEARCE, age 56, retired in July 1997 after over 20 years in mortgage 1998 2001
banking. From December 1994 until July 1997 he was Senior Vice President,
Community Banking, of M&T Bank, Ithaca, New York, and from December 1992 until
December 1994 he was Executive Vice President of Citizens Savings Bank, FSB,
Ithaca, New York.
</TABLE>
(1) Includes, as applicable, tenure as a director of the Company or the Bank
in its forms prior to the Reorganizations.
SHAREHOLDER NOMINATIONS
The Company's Bylaws govern nominations for election to the Board of
Directors and requires that all such nominations (other than those made by the
Nominating Committee of the Board) be made only by a Shareholder who has
complied with the notice provisions of the Bylaws. Shareholder nominations must
be made by timely notice in writing to the Secretary of the Company. To be
timely, a Shareholder's notice must be delivered to the Secretary of the Company
(Terry L. Hammond, Secretary, Finger Lakes Financial Corp., 470 Exchange Street,
Geneva, New York 14456) at least five days prior to the date of an annual
meeting. If notice is so delivered, the nominations will be posted in a
conspicuous place in the principal place of business of the Company. Ballots
bearing the names of all persons nominated by the Nominating Committee or by
Shareholders will be provided at the annual meeting.
7
<PAGE> 10
BOARD MEETINGS AND COMMITTEES OF THE BOARD
Regular meetings of the Board of Directors of the Company are held on a
monthly basis. The Board of Directors held a total of 14 meetings during the
1998 calendar year ("1998"). During 1998, each director attended at least 75% of
the total of such Board meetings and meetings of Board Committees on which he or
she served.
The Board of Directors has established various Committees, which are
described below:
The Executive Committee generally has the power and authority
to act on behalf of the Board of Directors between scheduled meetings of the
Board, unless specific Board of Directors' action is required or unless
otherwise restricted by the Company's Charter or Bylaws or the Board of
Directors. The Executive Committee also administers the investment policy
adopted by the Board of Directors. During 1998, the Executive Committee met six
times. The current members of the Executive Committee are Mr. Bowers (Chairman)
and Messrs. Hanna, Harrison, Hunter, Lynch and Pearce.
The Audit/Community Reinvestment Act ("CRA") Committee reviews
(i) reports from the internal audit department, (ii) the independent auditors'
reports and the results of their examination, prior to review by and with the
entire Board of Directors, and (ii) the Office of Thrift Supervision, Federal
Deposit Insurance Corporation and other regulatory reports, prior to review by
and with the entire Board of Directors. The Audit/CRA Committee also meets
periodically with the Company's CRA Officer to review the Company's CRA
activities. During 1998, the Audit/CRA Committee met four times. The current
members of the Audit/CRA Committee are Mr. Lynch (Chairman), Messrs. Long and
Pearce and Mrs. Rogers.
The Salary and Personnel Committee oversees the compensation
programs provided to the Company's management, including basic salaries, bonuses
and benefit plans. It also administers the 1996 Stock Option Plan and the 1996
Management Recognition Plan. See "Executive Compensation" below. During 1998,
the Salary and Personnel Committee met three times. The current members of the
Salary and Personnel Committee are Mr. Springstead (Chairman) and Messrs.
Hansen, Harrison and Hunter.
The Loan Committee (i) reviews and approves loan requests
exceeding certain dollar limitations, as defined in the Company's lending
policy, and (ii) reviews loan quality control and classification reports on a
monthly basis. During 1998, the Loan Committee met nine times. The current
members of the Loan Committee are Mr. Hansen (Chairman), Mrs. Rogers and Messrs.
Hanna, Long and Springstead.
The Nominating Committee nominates persons to serve as
directors of the Company. During 1998, the Nominating Committee met one time.
The current members of the Nominating Committee are Mr. Lynch (Chairman) and
Messrs. Bowers and Hunter.
8
<PAGE> 11
DIRECTORS' COMPENSATION
During 1998, the Company paid cash directors' fees aggregating $79,800
to the non-employee members of the Board of Directors, consisting of (i)
attendance fees of $250 for each meeting of the Board of Directors attended and
$150 for each meeting of a Board Committee attended, and (ii) a retainer of
$1,000 per calendar quarter. Directors who are also employees of the Company
(currently, only Mr. Bowers) are paid no additional compensation for their
services as directors.
Directors who are not employees of the Company are entitled to
participate in the 1998 Restated Deferred Compensation Plan for Directors (the
"Restated Plan"). The Restated Plan allows participating outside Directors to
defer up to 100% of their compensation from the Company into certain
"hypothetical" investment options designated by the Salary and Personnel
Committee, including Common Stock. The Restated Plan is unfunded and may require
the Company to issue Common Stock to the participating Directors at such time as
the Director has elected to receive a distribution, or upon the death of the
participating Director.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Since January 1, 1998, one executive officer of the Company, Ms.
Zornow, inadvertently filed late with the Securities and Exchange Commission
(the "SEC") one report disclosing her Common Stock holdings when she became an
executive officer of the Company. All of the Company's other directors and
executive officers are current in such filings. In making the foregoing
statements, the Company has relied on the written representations of its
directors and executive officers and copies of the reports they have filed with
the SEC.
EXECUTIVE OFFICERS
The Company is currently served by four executive officers, who are
elected annually by the Board of Directors and serve until their successors are
elected and qualify:
G. THOMAS BOWERS, age 55, has served as the Company's President and
Chief Executive Officer since July 1995. Further information about Mr. Bowers is
set forth under "Election of Directors" above.
TERRY L. HAMMOND, age 49, has served as the Company's Executive Vice
President, Chief Financial Officer and Secretary since January 1, 1999. Prior to
that, he served as Senior Vice President, Chief Financial Officer and Secretary
since joining the Company in 1990. Prior to that, Mr. Hammond was employed by
Monroe Savings Bank, Rochester, New York, in the same capacity.
THOMAS A. MAYFIELD, age 53, serves as the Company's Senior Vice
President and Senior Loan Officer. He joined the Company in that capacity in
April 1996. For two years prior to
9
<PAGE> 12
that, Mr. Mayfield served in a similar capacity at Savannah Bank, N.A.,
Savannah, New York. Prior to that, he was employed for 14 years by Central Trust
Company, Rochester, New York, last serving as Vice President and Manager, Metro
Banking Group.
LESLIE J. ZORNOW, age 34, has served as the Company's Senior Vice
President, Retail Banking, since January 1, 1999. Prior to that, she served as
Vice President, Branch Administration and Marketing from 1996 to 1998 and as
Vice President, Human Resources and Marketing since joining the Company in 1995.
Prior to that, Ms. Zornow was employed by the Monroe County, New York,
Department of Communications as Deputy Director.
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to the Company in all capacities, for the
years ended December 31, 1998, 1997 and 1996, paid by the Company to its Chief
Executive Officer. No other executive officer of the Company received salary and
bonus in excess of $100,000 in 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
------------------- ------------
Other All
Annual Restricted Other
Compen- Stock Option Compen-
Name and Salary Bonus sation Awards Grants sation
PRINCIPAL POSITION YEAR ($) (1) ($) ($) (2) ($) (3) (#) (4) ($) (5)
------------------ ---- ------- --- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
G. THOMAS BOWERS, 1998 $174,585 $20,227 0 $54,250 0 $10,610
President and Chief 1997 168,562 0 0 128,469 0 24,160
Executive Officer 1996 158,000 0 0 94,400 29,500 10,874
</TABLE>
(1) The amounts shown include cash compensation earned and paid during the
year indicated as well as cash compensation deferred at Mr. Bowers'
election into the 401(k) Plan. The Company makes no contributions to the
401(k) Plan.
(2) Does not reflect the value of perquisites and other personal benefits
because the aggregate amount of such compensation for any year did not
exceed 10% of Mr. Bowers' annual salary and bonus for that year.
(3) The amounts shown reflect restricted awards of Common Stock under the
Company's 1996 Management Recognition Plan. See "Executive
Compensation--1996 Management Recognition Plan" below. The amounts shown
represent the aggregate market value of the shares awarded on the dates
of the awards (2,800 shares awarded in 1998; 9,500 shares awarded in
1997; 11,800 shares awarded in 1996). The awards vest, and the shares
are paid out to Mr. Bowers, over periods ranging from three to five
years, each commencing
10
<PAGE> 13
one year from the respective award date. The total number and dollar
value of shares credited to Mr. Bowers' award account at 1998 year-end,
based on the market value of the Common Stock on December 31, 1998
($11.50 per share), was 7,687 shares ($88,401). Dividends are payable on
such shares at the same rate as dividends are paid on other shares of
Common Stock.
(4) See "Executive Compensation --1996 Stock Option Plan" below.
(5) The amounts shown reflect: (i) the aggregate market value, on the date
of allocation, of shares of Common Stock allocated during the referenced
year to Mr. Bowers' account under the ESOP ($7,481 at December 31, 1998;
$23,066 at December 31, 1997; $10,010 at December 31, 1996) (see
"Executive Compensation--Employee Stock Ownership Plan" below); and (ii)
the compensatory value ($3,129 in 1998; $1,094 in 1997; $864 in 1996) of
life insurance premiums paid by the Company on Mr. Bowers' behalf.
1996 MANAGEMENT RECOGNITION PLAN
The objective of the Company's 1996 Management Recognition Plan (the
"Recognition Plan") is to enable the Company to provide certain of its officers
and other employees with a proprietary interest in the Company, through
restricted stock awards which vest at subsequent dates, as compensation for
their contributions to the Company as well as an incentive to make such
contributions in the future by continuing their employment with the Company. The
Recognition Plan has been funded with 47,200 shares of Common Stock (purchased
on the open market in 1996 with funds provided by the Company), which are held
by a third-party trustee until they are awarded, and thereafter vested and
distributed, to recipient employees in accordance with the terms of the
Recognition Plan.
The Recognition Plan is administered by the Salary and Personnel
Committee of the Board of Directors (the "Committee"), which consists solely of
disinterested directors. The Committee determines, among other things, the
employees who are to receive restricted stock awards under the Recognition Plan,
the number of shares covered by each award, and the vesting schedule by which
awarded share vest and are paid out by the trustee to each recipient. Under the
terms of the Recognition Plan, the trustee is authorized to vote, in its
discretion, all Recognition Plan shares which have not yet vested. Dividends are
payable on awarded shares, for the benefit of the respective recipients, at the
same rate as dividends are paid on other shares of Common Stock. The Recognition
Plan also contains customary anti-dilution provisions. The Board of Directors of
the Company can terminate the Recognition Plan at any time.
If an award recipient's employment with the Company is terminated by
reason of his or her death, disability or retirement, or in the event of a
change in control of the Company, all shares subject to the award become
immediately vested and payable to the recipient. However, upon any other
termination of an award recipient's employment, all rights to shares not yet
vested are forfeited.
11
<PAGE> 14
At December 31, 1998, an aggregate of 47,200 shares of Common Stock had
been awarded under the Recognition Plan to an aggregate of ten employees,
including the Chief Executive Officer and the Company's three other current
executive officers. Shares awarded under the Recognition Plan vest over periods
ranging from three to five years, each commencing one year from the respective
award date.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Option Plan") is designed to
improve the growth and profitability of the Company by providing its employees
with a proprietary interest in the Company as an incentive to contribute to the
success of the Company and to reward employees for outstanding performance. The
Option Plan is intended to be qualified under Section 422 of the Internal
Revenue Code of 1986, as amended, and provides for the grant of incentive stock
options, non-statutory stock options and stock appreciation rights. An aggregate
of 118,000 shares of Common Stock are available for option grants under the
Option Plan. The Option Plan terminates in 2006.
The Option Plan is administered by the Committee, which determines,
among other things, the employees who are to receive options under the Option
Plan, the types of options to be granted and the number of shares covered by
each option. The exercise price of each option must be at least equal to the
market value of the Common Stock on the option grant date (or 110% of such
market value in the case of an incentive stock option granted to a holder of 10%
or more of the outstanding Common Stock).
Options vest and become exercisable at the rate of 20% per year,
commencing one year from the option grant date. Options are only exercisable
upon vesting and until the earlier of ten years after the option grant date (or
five years after the option grant date in the case of an incentive stock option
granted to a holder of 10% or more of the outstanding Common Stock) or three
months after termination of the optionee's employment with the Company. However,
if an optionee's employment is terminated due to death, disability or
retirement, or in the event of a change in control of the Company, the optionee
or his estate has one year following termination in which to exercise an
otherwise exercisable option. Options are non-transferable except by will or the
laws of descent and distribution. The Option Plan also contains customary
anti-dilution provisions.
Under the Option Plan, the Committee is also authorized to grant stock
appreciation rights, under which an optionee may surrender an exercisable option
in return for payment by the Company of cash or Common Stock in an amount equal
to the excess of the then-current market value of the Common Stock over the
exercise price of the surrendered option.
At December 31, 1998, options to purchase an aggregate of 116,000
shares of Common Stock, at prices ranging from $6.75 to $20.00 per share, were
outstanding and held by an aggregate of 15 employees, including the Chief
Executive Officer and the three other current executive officers.
12
<PAGE> 15
Shown below is information with respect to the total unexercised
options to purchase Common Stock held by the Chief Executive Officer at December
31, 1998. No options were granted to or exercised by the Chief Executive Officer
during 1998.
AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Value of All Unexercised
Acquired Unexercised Options Held In-the-Money Options at
On Value At Year-end (#) Year-end ($) (1)
--------------- ----------------
Exercise Realized
NAME (#) ($)
---- --- ---
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers 0 0 11,800 17,700 $41,300 $61,950
</TABLE>
(1) Expressed as the excess of the per share market value of the Common
Stock at December 31, 1998 ($11.50) over the per share exercise price of
the options ($8.00).
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
The purpose of the ESOP is to recognize and reward the contributions
made to the Company by its employees. Employees who have at least one year of
credited service with the Company (including the Company and the Bank in its
forms prior to the Reorganizations) and who have attained age 21 are eligible to
participate in the ESOP.
The ESOP borrowed funds in 1994 from a third-party lender in order to
fund the purchase of 94,396 shares of Common Stock. Subsequent to the 1998
Reorganization, the third-party loan was repaid with the proceeds of a loan from
the Company. The loan to the ESOP, which bears interest at a fixed rate of 7.75%
per annum, will be repaid principally from the Company's contributions to the
ESOP over ten years. The Company may, in any year, make additional discretionary
contributions for the benefit of plan participants in either cash or shares of
Common Stock (which may be newly issued or acquired by the purchase of
outstanding shares). Such purchases, if made, may be funded through additional
borrowings by the ESOP or additional contributions from the Company. The timing,
amount and manner of future contributions to the ESOP will be affected by
various factors, including prevailing regulatory policies, the requirements of
applicable laws and regulations and market conditions.
The shares purchased by the ESOP with the proceeds of the loan are held
in a suspense account and released on a pro rata basis as debt service payments
are made. Discretionary contributions to the ESOP, and the release of shares
from the suspense account, are allocated among participants on the basis of
compensation. Forfeitures are reallocated among remaining participants and may
reduce any amount the Company might otherwise have contributed to the ESOP.
Allocations may be paid out to a participant, either in shares of Common Stock
or in cash, upon retirement, early retirement or separation from service. The
Company's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be
13
<PAGE> 16
estimated. Recipients of shares paid out under the ESOP must give the Company a
right of first refusal when selling the shares so acquired.
The trustees under the ESOP must vote all allocated shares held in the
ESOP in accordance with the instructions of the participating employees, and
unallocated shares, as well as allocated shares for which employees do not give
instructions, must be voted in the same ratio as the shares for which
instructions are given. The ESOP is subject to the Employee Retirement Income
Security Act of 1974, as amended, as well as the regulations of the Internal
Revenue Service and the Department of Labor.
EMPLOYMENT AGREEMENTS
During 1998, Mr. Bowers was compensated for his services as President,
Chief Executive Officer and a director of the Company pursuant to an Employment
Agreement with the Company dated January 26, 1995 (the "Employment Agreement").
The Employment Agreement provides for an annual base salary, subject to
increases in the sole discretion of the Company, and customary fringe benefits.
As an annual incentive, the Employment Agreement also provides for the payment,
in the sole discretion of the Board of Directors, of an annual bonus. In 1998,
Mr. Bowers received a bonus of $20,227.
The Employment Agreement may be terminated by either Mr. Bowers or the
Company at any time upon ten days' notice. However, if the Company terminates
the Employment Agreement without cause or fails to comply with any material
provision thereof, or if Mr. Bowers terminates the Employment Agreement for good
reason, Mr. Bowers will be entitled to severance pay amounting to 2.99 times the
average annual compensation paid him during the last five years of his
employment by the Company. In addition, Mr. Bowers may continue to participate
in employee benefit plans of the Company (other than retirement and stock
compensation plans) for three years following termination.
Pursuant to the Employment Agreement, Mr. Bowers is also the
beneficiary of a non-qualified, unfunded Supplemental Retirement Agreement with
the Company dated February 28, 1995 and amended June 22, 1998 (the "Retirement
Agreement"), which provides that, upon his reaching age 62, the Company will pay
Mr. Bowers or his surviving spouse up to $30,000 per year for 20 years (or, upon
their earlier deaths, a lump sum payment to their estates), subject to a
downward adjustment equal to 6% of the total cash value in all policies subject
to any split dollar agreement in effect as of Mr. Bower's 62nd birthday. Such
payments will be provided in part by premiums paid under an insurance policy on
Mr. Bowers' life maintained for the Company's benefit. The Retirement Agreement
vests at the rate of 20% per year on June 30 of each year. The Retirement
Agreement is currently 60% vested, and would pay Mr. Bowers, were his employment
to terminate currently, $18,000 per year upon his reaching age 62.
14
<PAGE> 17
REPORT OF SALARY AND PERSONNEL COMMITTEE WITH RESPECT TO EXECUTIVE COMPENSATION
The following report of the Salary and Personnel Committee required by
the rules of the SEC to be included in this Proxy Statement shall not be deemed
incorporated by reference by any statement incorporating this Proxy Statement by
reference into any filing under the Securities Act of 1933, as amended (the
"Securities Act"), or the Securities Exchange Act of 1934 (the "Exchange Act"),
except to the extent that the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under either such Act.
EXECUTIVE COMPENSATION PHILOSOPHY:
The fundamental compensation philosophy of the Board of Directors is
that there should be a substantial and meaningful connection between executive
compensation and shareholder value. Under the supervision of the Salary and
Personnel Committee of the Board of Directors (the "Committee"), which is
comprised of outside directors and which also administers the Recognition Plan
and the Option Plan, the Company has developed and implemented compensation
policies, plans and programs designed to increase shareholder value by aligning
closely the financial interests of the Company's executive officers with those
of its shareholders. In furtherance of these goals, annual base salaries are
intended to serve as a portion of an executive's total achievable compensation.
The Board of Directors believes that attracting and retaining executives of high
quality is essential to the Company's growth and success. The Board of Directors
further believes that the long term success of the Company is enhanced by a
comprehensive compensation program that includes different types of incentives
for motivating executives and rewarding outstanding service, including awards
that link compensation to applicable measures of Company performance. The
Company relies to a large degree on annual and long-term incentive compensation
to attract and retain executives of outstanding ability and to motivate them to
perform to the full extent of their abilities. Both the annual and long-term
components of the incentive compensation policy are closely tied to
profitability and shareholder value. In years of outstanding achievement,
executive officers are rewarded for their respective contributions to the
Company's success through a combination of cash and stock-based incentive
awards. However, currently no shares of Common Stock remain available for future
awards under the Recognition Plan, and only 2,000 shares remain available for
future awards under the Option Plan.
EXECUTIVE OFFICER COMPENSATION:
The Company's total compensation program for executive officers
consists of both cash and stock-based compensation. The annual cash compensation
consists of a base salary determined at the beginning of each calendar year and
the awarding of incentive bonuses. The base salaries are fixed at levels that
the Committee believes to be generally comparable to amounts paid to highly
qualified senior executives at other similar banks and bank holding companies.
Salaries are reviewed on an annual basis and may be increased at that time based
on (i) the Committee's consensus that the individual's contribution to the
Company has increased and (ii) increases in competitive pay levels.
15
<PAGE> 18
In general, annual cash incentive bonuses for executives are intended
to reflect the Company's belief that management's contributions to improving
shareholder return are related to earnings growth. Under the current employment
agreement between the Company and Mr. Bowers, an annual bonus may be paid to Mr.
Bowers, and this decision rests in the sole discretion of the Board of
Directors. In addition, the Company has a written Formula Bonus Plan (the "Bonus
Plan") that is designed to provide significant financial incentive to the
Company's executives and management personnel. Bonuses under the Bonus Plan are
paid to the Company's executives only if the Company meets its annual financial
goals. Bonuses range from 10% to 14% of annual salary if the Company meets its
financial goals, from 15% to 20% of annual salary if it exceeds its financial
goals by at least ten percent, and from 21% to 26% of annual salary if it
exceeds its financial goals by at least twenty percent. In 1998, all four of the
Company's current executive officers received bonuses that ranged from $4,280 to
$20,227.
Long-term incentives have been provided through the grant of stock
options under the Option Plan and contingent stock awards under the Recognition
Plan. Under the Option Plan (see "Executive Compensation -- 1996 Stock Option
Plan" above), the Committee has the authority to determine the individuals to
whom stock options are granted, the terms on which option grants are made, and
the term of and the number of shares subject to each option. Through the grant
of stock options, the objective of aligning executive officers' long-range
interests with increasing shareholder return are met by providing the executive
officers with the opportunity to build a meaningful stake in the Company. In
granting stock options to the Company's senior management, the Committee has
reviewed and considered the individual awards, taking into account the
respective scope of accountability, strategic and operational goals, and
anticipated performance requirements and contributions of each option grantee.
Under the Recognition Plan (see "Executive Compensation -- 1996
Management Recognition Plan" above), the Committee has the authority to award
shares of Common Stock to officers and other key employees with a proprietary
interest in the Company. In making such awards, the Committee has considered all
of the factors discussed, and has followed the procedure described, in the
previous paragraph.
However, currently no shares of Common Stock remain available for
future awards under the Recognition Plan, and only 2,000 shares remain available
for future awards under the Option Plan.
Executive officers may also participate in the Company's 401(k) Plan,
which includes only employee contributions.
16
<PAGE> 19
CHIEF EXECUTIVE OFFICER COMPENSATION:
The key performance measure used to determine Mr. Bowers' 1998
compensation was the Committee's assessment of his ability and dedication to
provide the leadership and vision necessary to enhance the long-term value of
the Company.
Pursuant to the terms of his employment agreement with the Company (see
"Executive Compensation -- Employment Agreements" above), which was approved by
the Board of Directors in 1995, Mr. Bowers' annual base salary is fixed, subject
to increases by the Board of Directors in its sole discretion. For 1998, his
salary amounted to $174,585. The Committee believes that Mr. Bowers' salary is
fixed at a level which is comparable to the amounts paid to other chief
executive officers with comparable qualifications, experience, responsibilities
and proven results at other similar banks and bank holding companies.
Consistent with the Company's executive compensation philosophy, Mr.
Bowers' total compensation package depends largely on annual and long-term
incentive compensation. The annual incentive component is currently made up of
the possibility of a cash bonus under the terms of his employment agreement,
determined by the Board of Directors. The long-term incentive component has
taken the form of stock options granted under the Option Plan and contingent
stock awards granted under the Recognition Plan. Both the annual and long-term
components of Mr. Bowers' incentive compensation are variable and closely tied
to corporate performance in a manner that encourages dedication to building
shareholder value.
Mr. Bowers' short-term and long-term incentive compensation for 1998
included a cash bonus of $20,227 and a contingent stock award of 2,800 shares.
In evaluating the performance and setting the compensation of Mr.
Bowers as the Company's Chief Executive Officer, the Committee has taken
particular note of the Company's success since he was hired in July 1995. Since
1995 year-end, total assets of the Company have increased 68%, total loans have
increased 70% and total deposits have increased 39%. Excluding a special charge
in the fourth quarter of 1998, earning have increased by more than 25% in each
of the last two years. In March 1998 the Company paid its shareholders a 2-for-1
stock split in the form of a 100% stock dividend. Further, the Company has
opened three new branches since March 1996.
17
<PAGE> 20
In addition to leading the Company to these financial achievements, Mr.
Bowers has established a strong record in the areas of innovation and management
efficiency, and has built a strong management team and aggressively pursued new
areas for growth.
SALARY AND PERSONNEL COMMITTEE:
Ralph E. Springstead, Chairman
Chris M. Hansen
Richard J. Harrison
James E. Hunter
STOCK PRICE PERFORMANCE GRAPH
The following graph sets forth a comparison of the cumulative total
shareholder return on the Common Stock since the Company's public offering on
November 11, 1994, based on the market price thereof and taking into account all
cash and stock dividends paid through December 31, 1998, with the cumulative
total return of the companies comprising the Nasdaq Composite Total Return Index
(US) and the companies comprising the SNL MHC Thrift Index.
18
<PAGE> 21
<TABLE>
<CAPTION>
[TOTAL RETURN PERFORMANCE GRAPH]
PERIOD ENDING
-----------------------------------------------------
INDEX 11/11/94 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Finger Lakes Financial Corp. (MHC) 100.00 95.60 197.98 171.91 409.36 298.86
NASDAQ - Total US 100.00 98.86 139.82 171.94 210.94 296.52
MHC Thrifts 100.00 97.70 154.51 199.88 447.64 307.31
</TABLE>
ASSUMES $100 INVESTED ON NOVEMBER 11, 1994 IN THE COMMON STOCK, THE
COMPANIES COMPRISING THE NASDAQ COMPOSITE TOTAL RETURN INDEX (US) AND
THE COMPANIES COMPRISING THE SNL MHC THRIFT INDEX. TOTAL RETURN ASSUMES
REINVESTMENT OF DIVIDENDS. INFORMATION SHOWN INCLUDE STOCK PRICES OF
THE COMPANY AND THE BANK IN ITS FORMS PRIOR TO THE REORGANIZATIONS.
SOURCE OF GRAPH: SNL SECURITIES LC.
There can be no assurance that the Company's stock performance will
continue into the future with the same or similar trends depicted in the graph
above. The Company will neither make nor endorse any predictions as to future
stock performance.
The Stock Price Performance Graph above shall not be deemed
incorporated by reference by any general statement incorporating by reference
this Proxy Statement into any filing under
19
<PAGE> 22
the Securities Act or the Exchange Act, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under either Act.
RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
The Financial Institutions Reform, Recovery, and Enforcement Act of
1989 requires that all loans or extensions of credit to executive officers and
directors must be made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
the general public, and must not involve more than the normal risk of repayment
or present other unfavorable features. In addition, loans made to a director or
executive officer in excess of the greater of $25,000 or 5% of the Company's
capital and surplus (up to a maximum of $500,000) must be approved in advance by
a majority of the disinterested members of the Board of Directors.
The Company's policy regarding loans to directors and executive
officers complies with Section 22(h) of the Federal Reserve Act. The following
table sets forth information as to all directors and executive officers,
including members of their immediate families and affiliated entities, who had
loans with the Company aggregating $60,000 or more outstanding between January
1, 1998 and February 28, 1999:
<TABLE>
<CAPTION>
Highest Principal
Year Balance Principal Interest
Name and Nature of Loan Outstanding Balance Rate at
Relationship Indebtedness Made 1/1/98 to 2/28/99 at 2/28/99 2/28/99
- -------------------------- ------------------- ---------- -------------------- --- -------------- ------------
<S> <C> <C> <C> <C>
Bernard G. Lynch, Mortgage loan 1989 $79,428 $14,810 10.0%
Director Mortgage loan 1996 $61,878 $55,462 7.75%
- -------------------------- ------------------- ---------- -------------------- --- -------------- ------------
Michael J. Hanna Mortgage loan 1996 $76,677 $68,322 7.0%
Director Mortgage loan 1998 $12,159 $12,159 6.75%
Consumer loan 1997 $3,500 $2,300 12.0%
Consumer loan 1997 $17,677 $11,909 7.9%
- -------------------------- ------------------- ---------- -------------------- --- -------------- ------------
Ronald C. Long Commercial loan 1999 $95,504 $83,330 8.5%
Director
- -------------------------- ------------------- ---------- -------------------- --- -------------- ------------
Leslie J. Zornow Mortgage loan 1997 $125,211 $123,578 6.875%
Senior Vice President Consumer loan 1997 $8,553 $6,327 7.90%
Consumer loan 1998 $1,448 $1,448 18.0%
</TABLE>
20
<PAGE> 23
OTHER TRANSACTIONS
Ralph E. Springstead, a director of the Company and its former
President and Chief Executive Officer, retired from the Company's employ on
January 1, 1996. He and the Company are party to a Modified Supplemental Pension
Agreement, dated December 31, 1985 and amended December 26, 1995 and June 22,
1998, which provides for payments to Mr. Springstead or his designated
beneficiary of $45,000 per year for 20 years (or, upon his earlier death, a lump
sum payment to his estate), subject to a downward adjustment equal to the annual
dividend payable on all policies subject to any split dollar agreement in effect
as of Mr. Springstead's 62nd birthday. Such payments are provided in part by
premiums paid under an insurance policy on Mr. Springstead's life maintained for
the Company's benefit.
PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The firm of KPMG LLP, certified public accountants, served as the
independent auditors of the Company for 1998. The Board of Directors has
selected KPMG LLP as the Company's independent auditors for the year ending
December 31, 1999. This selection will be presented to the Shareholders for
their ratification at the Meeting.
The Company has been advised by KPMG LLP that neither that firm nor any
of its associates has any relationship with the Company or its subsidiaries
other than the usual relationship which exists between independent certified
public accountants and clients. A representative of KPMG LLP will be present at
the Meeting and will be available to respond to appropriate questions. In
addition, the Company intends to give such representative an opportunity to make
any statements if he should so desire.
The Board of Directors recommends a vote in favor of the proposal to
approve and ratify this selection, and the persons named in the enclosed proxy
(unless otherwise instructed therein) will vote such proxies FOR such proposal.
If the Shareholders do not ratify this selection, the Board of Directors will
reconsider its choice.
PROPOSAL 3: SALE OR MERGER OF THE COMPANY
A Shareholder (the "Proponent") has requested the Company to include
the following resolution in the proxy material for the Annual Meeting. The name
and address of the Proponent and the number of shares owned will be promptly
furnished upon any oral or written request to the Secretary of the Company.
"RESOLVED, that the Board of Directors of Finger Lakes Financial
Corporation ("SBFL") promptly take the necessary steps to achieve a
sale or merger of SBFL on terms that will maximize shareholder value."
21
<PAGE> 24
The Proponent provided this supporting statement:
"We believe the value of SBFL is far greater than reflected by the
current stock price and that the sale or merger of SBFL will maximize
shareholder value. SBFL is a stock thrift with a majority of its shares
retained by a Mutual Holding Company ("MHC"). In our opinion, SBFL
could be sold at a substantial premium to its current market price of
$12 on 11/19/98. The following valuation methodologies of a book value
approach and an earnings approach, derived from relevant peer group
analyses, are based on the sale or merger of 100% of SBFL to a third
party(1). All book value and earnings per share analyses are
adjusted(2).
<TABLE>
<CAPTION>
BOOK VALUE APPROACH
<S> <C> <C> <C>
SBFL price (11/19/98) $12.00
SBFL most recent quarter adjusted book value(1) $11.51
SBFL Adjusted Price/Book 104.26%
Average Price/Book for Mid-Atlantic thrifts sold 208.90%
in 1998 as of 11/5/98
POTENTIAL SBFL PRICE PER SHARE $24.04
Average Price/Book for thrifts sold in 1998 with 221.70%
deal values between $50 million and $100 million
as of 11/5/98
POTENTIAL SBFL PRICE PER SHARE $25.52
EARNINGS APPROACH
SBFL price (11/19/98) $12.00
SBFL most recent last twelve months (ltm) adjusted $ .54
earnings per share (eps)(1)
SBFL Adjusted Price/LTM EPS 22.22x
</TABLE>
22
<PAGE> 25
<TABLE>
<S> <C> <C> <C>
Median Price/LTM EPS for Mid-Atlantic thrifts sold 26.60x
in 1998 as of 11/5/98
POTENTIAL SBFL PRICE PER SHARE $14.36
Median Price/LTM EPS for thrifts sold in 1998 with 26.80x
deal values between $50 million and $100 million
as of 11/5/98
POTENTIAL SBFL PRICE PER SHARE $14.47
</TABLE>
"It is our opinion that the potential acquisition price of SBFL is
valued in the range of $14.36 to $25.52 per share depending on the
valuation methodology utilized. Although the valuation methodologies
used herein are not the only ways to predict acquisition price, in our
opinion, these acquisition valuation models provide a reasonable basis
for estimating a potential sales price well in excess of the current
stock price.
"Vote YES on this proposal.
"(1) This is a simple mathematical analysis which relates SBFL's
financial information to regional and market capitalization size peer
group statistics as reported. This analysis does not consider
unrecognized expenses or cost savings associated with the announced
transaction.
"(2) The ratios reflect a hypothetical sale of the MHC retained shares
and a hypothetical return earned by the new capital. MHC's shares are
sold conservatively at 93% of their current stock price, 90% of the
proceeds are retained as capital, and this capital earns an after-tax
return of 4%. Adjusted last twelve months earnings per share is
calculated as follows: [(After-tax return earned by the hypothetical
new capital) / (Average diluted shares)] + (ltm diluted eps). Adjusted
book value is calculated as follows: [(Current common equity + Capital
earned from hypothetical sale) / (Current common equity)] x (Current
book value)."
23
<PAGE> 26
RESPONSE OF THE BOARD OF DIRECTORS
The Company is served by an independent Board of Directors. Eight of
the ten current Board members have never been employed by the Company; only one
of the two other Board members is currently employed by the Company. This Board,
consistent with its fiduciary duties to all shareholders, frequently considers
actions, policies and opportunities that it believes will maximize value for all
shareholders. In the exercise of its fiduciary duties, the Board will carefully
consider all bona fide proposals for acquisitions or mergers of, or by, the
Company as they arise. Accordingly, we believe that the Shareholder Proposal
calls for redundant and unnecessary Board activity.
In addition, the Board of Directors believes that a "fire-sale"
atmosphere could be created if the Shareholder Proposal is approved. In our
judgment, this would disadvantage any efforts to accomplish a merger or
acquisition of, or by, the Company, whether now (as suggested by the Proponent)
or in the future. Approval of the Shareholder Proposal might be regarded as a
signal that the Board of Directors, under pressure from dissident shareholders,
has lost its ability to determine the appropriateness of the timing of a merger
or acquisition of the Company, and thus has little bargaining power and could be
pressured into accepting less advantageous financial terms than the Board and
management might otherwise negotiate. In the Board's view, this would be a
disservice to our shareholders, our depositors and the communities we serve.
In the 90-year history of the Company's wholly-owned subsidiary,
Savings Bank of the Finger Lakes, FSB (the "Bank"), we have weathered many
business cycles. Under the leadership of our management and our independent
Board of Directors, we are developing our niche as a bank that intends to
prosper by remaining close to the communities it serves and still offer a broad
range of financial products. To accomplish this, we have defined our markets
carefully in order to deliver efficient, competitive service. The Board of
Directors believes that shareholder value will be maximized by continuing to
implement the Company's strategic plans and allowing the Board of Directors to
evaluate merger and acquisition opportunities as they arise.
Since 1994, we have taken several major steps in furtherance of our
strategic plan and enhancement of shareholder value. In particular:
- The Company reorganized in 1998 as a federally chartered stock
holding company, in the belief that the reorganization will have
the following positive results:
- greater operating flexibility
- the ability to facilitate mergers and acquisitions
involving the Bank or other operating entities at
appropriate times
- the ability to conduct activities and make investments
that should ultimately benefit all shareholders of the
Company
- the ability, when appropriate, to repurchase Company
stock in order to enhance shareholder value and invest
capital resources.
24
<PAGE> 27
- The Company has been successful in leveraging the
capital raised in its 1994 public offering through a
combination of de novo branching and wholesale funding
strategies. Since the public offering, total assets of
the Company have increased 68%, total loans have
increased 70% and total deposits have increased 39%.
Excluding a special charge in the fourth quarter of
1998, earnings have increased by more than 25% in each
of the last two years
- Since its public offering in 1994, the Company has
increased cash dividends paid to shareholders by 20%.
- In March 1998 the Company paid its shareholders a
2-for-1 stock split in the form of a 100% stock
dividend.
- The Company opened three new branches between March 1996
and June 1998.
RECOMMENDATION
The Board of Directors of the Company believes that it and the
Company's management should continue to have the flexibility to evaluate merger
and acquisition opportunities as they arise while continuing to pursue the
Company's strategic plans. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY
REJECTED THE SHAREHOLDER PROPOSAL AND RECOMMENDS THAT THE SHAREHOLDERS VOTE
"AGAINST" APPROVAL OF THE SHAREHOLDER PROPOSAL.
VOTE REQUIRED
Approval of the Shareholder Proposal requires the affirmative vote of a
majority of the shares present at the Meeting in person or by proxy, without
regard to broker non-votes. Failure to vote or a vote to abstain is equivalent
to voting against the Shareholder Proposal.
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Any proposal which a Shareholder wishes to have included in the proxy
materials of the Company relating to the next annual meeting of Shareholders of
the Company, which is currently anticipated to be held in April 2000, must be
received at the principal executive offices of the Company, 470 Exchange Street,
Geneva, New York 14456, Attention: Terry L. Hammond, Secretary, no later than
November 22, 1999. If such proposal is in compliance with all of the
requirements of Rule 14a-8 under the Exchange Act, it will be included in the
Proxy Statement and set forth on the form of proxy issued for such annual
meeting of Shareholders. It is urged that any such proposals be sent certified
mail, return receipt requested.
Shareholder proposals which are not submitted for inclusion in the
Company's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to the Company's Bylaws. The Bylaws
provide that any new business to be
25
<PAGE> 28
taken up at an annual meeting must be stated in writing and filed with the
Secretary of the Company at least 30 days before the annual meeting. No other
proposal may be acted upon at the annual meeting. However, any shareholder may
make any other proposal at the annual meeting and the proposal may be discussed
and considered, but not acted upon, if the proposal is stated in writing and
filed with the Secretary of the Company at least five days before the meeting.
Proposals that are not stated in writing and filed with the Secretary of the
Company at least five days before the meeting will be laid over for action at
the next annual meeting (or at an adjournment, special or annual meeting of the
shareholders taking place at least 30 days later).
ANNUAL REPORTS
A copy of the Company's Annual Report to Shareholders for the year
ended December 31, 1998 accompanies this Proxy Statement. Such Annual Report is
not part of the proxy solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST, THE COMPANY WILL FURNISH TO ANY
SHAREHOLDER WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998, AS FILED WITH THE SEC UNDER THE EXCHANGE
ACT. SUCH WRITTEN REQUESTS SHOULD BE DIRECTED TO THE COMPANY AT 470 EXCHANGE
STREET, GENEVA, NEW YORK 14456, ATTENTION: TERRY L. HAMMOND, SECRETARY. The Form
10-K is not part of the proxy solicitation materials.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to
be presented for action at the Meeting. Should any other matter come before the
Meeting, however, the persons named in the enclosed proxy will have
discretionary authority to vote all proxies with respect to such matter in
accordance with their judgment.
BY ORDER OF THE BOARD OF DIRECTORS,
Terry L. Hammond
Secretary
Dated: March 22, 1999
26
<PAGE> 29
REVOCABLE PROXY
FINGER LAKES FINANCIAL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FINGER LAKES FINANCIAL CORP. FOR USE AT THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 22, 1999 AND AT ANY ADJOURNMENTS THEREOF.
The undersigned, being a shareholder of Finger Lakes Financial Corp. (the
"Company") as of March 12, 1999, hereby authorizes the Board of Directors of the
Company or any successors thereto as proxies with full power of substitution, to
represent the undersigned at the Annual Meeting of Shareholders of the Company
to be held in the Board Room of its main office located at 470 Exchange Street,
Geneva, New York on Thursday, April 22, 1999, at 11:00 a.m., Eastern Time, and
at any adjournments of said meeting, and thereat to act with respect to all
votes that the undersigned would be entitled to cast, if then personally
present, as follows:
SHARES OF THE COMPANY'S COMMON STOCK WILL BE VOTED AS SPECIFIED. IF NOT
OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE BOARD OF
DIRECTORS' THREE NOMINEES FOR ELECTION AS DIRECTORS, FOR THE PROPOSAL IN ITEM 2,
AGAINST THE PROPOSAL IN ITEM 3, AND OTHERWISE AT THE DISCRETION OF THE PROXIES.
YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED AT THE
ANNUAL MEETING.
(Continued and to be signed on the reverse side)
<PAGE> 30
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
FINGER LAKES FINANCIAL CORP.
APRIL 22, 1999
- Please Detach and Mail in the Envelope Provided -
- -------------------------------------------------------------------------------
A. [X] PLEASE MARK YOUR
VOTES AS INDICATED
IN THIS EXAMPLE
<TABLE>
<CAPTION>
For all nominees
listed to the right WITHHOLD AUTHORITY
(except as marked for all nominees THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
to the contrary) listed to the right A VOTE FOR PROPOSALS 1 AND 2. FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C> <C> <C> <C>
1. ELECTION OF [ ] [ ] Nominees: Chris M. Hansen 2. PROPOSAL to ratify [ ] [ ] [ ]
DIRECTORS Joan C. Rogers the selection of
Ralph E. Springstead KPMG LLP as the
Company's independent
(INSTRUCTIONS: To withhold authority to vote for auditors for the year
any individual nominee, write the name of the ending December 31,
nominee in the space provided below.) 1999.
- -------------------------------------------------- THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS A
VOTE AGAINST SHAREHOLDER
PROPOSAL 3. FOR AGAINST ABSTAIN
3. SHAREHOLDER PROPOSAL to [ ] [ ] [ ]
promptly take the
necessary steps to
achieve a sale or merger
of the Company.
4. In their discretion, the proxies are
authorized to vote upon such other business
as may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
</TABLE>
Signature(s):_______________________________________________ Dated:______, 1999
Note: Please sign this exactly as your name(s) appear(s) on this proxy. When
signing in a representative capacity, please give full title. When shares
are held jointly, only one holder need sign.
