SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the registrant / /
Filed by a party other than the registrant /x/
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-1
COMMUNITY BANK SYSTEM, INC.
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(Name of Registrant as Specified in Its Charter)
COMMUNITY BANK SYSTEM, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies.
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(2) Aggregate number of securities to which transactions applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11:
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(4) Proposed maximum aggregate value of transaction:
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/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing of 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Dated filed:
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COMMUNITY BANK SYSTEM, INC.
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 18, 1994
TO THE SHAREHOLDERS OF COMMUNITY BANK SYSTEM, INC.:
At the direction of the Board of Directors of Community Bank System,
Inc., a Delaware corporation (the "Company" ), NOTICE IS HEREBY GIVEN that the
Annual Meeting of Shareholders of the Company (the Meeting ) will be held at
1:00 p.m. on Wednesday, May 4, 1994 at Drumlins, 800 Nottingham Road,
Syracuse, New York for the purpose of considering and voting upon the
following matters:
1. The election of five directors, each to hold office for a term
of three years and until their successors have been duly
elected.
2. The approval of the 1994 Long Term Incentive Compensation
Program.
3. The transaction of any other business which may properly be
brought before the Meeting or any adjournment thereof.
By Order of the Board of Directors
Loretta L. Marx
Secretary
YOUR VOTE IS IMPORTANT. YOU ARE THEREFORE REQUESTED TO SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, EVEN IF YOU EXPECT TO BE PRESENT
AT THE MEETING. YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE MEETING,
OR IF YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AT THAT TIME AND
VOTE IN PERSON IF YOU WISH.
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COMMUNITY BANK SYSTEM, INC.
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 4, 1994
This Proxy Statement is furnished as part of the solicitation of proxies
by the Board of Directors of Community Bank System, Inc. (the "Company"), the
holding company for Community Bank, N.A. (the "Bank"), for use at the Annual
Meeting of Shareholders of the Company (the "Meeting") to be held at 1:00 p.m.
on Wednesday, May 4, 1994, at Drumlins, 800 Nottingham Road, Syracuse, New
York. This Proxy Statement and the form of Proxy are first being sent to
Shareholders on approximately March 18, 1994.
At the Meeting, the Shareholders will be asked to vote for the election
of directors. Five of the total of fourteen directors who serve on the
Company's Board of Directors will stand for re-election to the Board at the
Meeting. The shareholders also will be asked to approve a Long Term Incentive
Compensation Program as fully described on page 8. In addition, voting will
be conducted on any other matters which are properly brought before the
Meeting.
VOTING RIGHTS AND PROXIES
The Board of Directors of the Company has fixed the close of business on
March 7, 1994 as the record date for determining which Shareholders are
entitled to notice of and to vote at the Meeting. At the close of business on
the record date, 2,748,918 shares of common stock, par value $1.25 per share,
were outstanding and entitled to vote at the Meeting. This is the Company's
only class of voting stock outstanding. Each share of outstanding common
stock is entitled to one vote with respect to each item to come before the
Meeting. There will be no cumulative voting of shares for any matter voted
upon at the Meeting. The Bylaws of the Company provide that one-third of the
outstanding shares of the Company, represented in person or by proxy, shall
constitute a quorum at a shareholder meeting. The Company is not aware of any
persons who beneficially own more than 5% of the outstanding voting stock of
the Company as of the record date for the Meeting.
If the enclosed form of Proxy is properly executed and returned to the
Company prior to or at the Meeting, and if the Proxy is not revoked prior to
its exercise, all shares represented thereby will be voted at the Meeting and,
where instructions have been given by a Shareholder, will be voted in
accordance with such instructions.
Any Shareholder executing a Proxy which is solicited hereby has the power
to revoke it at any time prior to its exercise. A Proxy may be revoked by
giving written notice to the Secretary of the Company at the Company's address
set forth above, by attending the Meeting and voting the shares of stock in
person, or by executing and delivering to the Secretary a later-dated Proxy.
The solicitation of Proxies will be by mail, but Proxies may also be
solicited by telephone, telegram, or in person by directors, officers, and
other regular employees of the Company or of the Bank. The Company will bear
all costs of soliciting Proxies. Should the Company, in order to solicit
Proxies, request the assistance of other financial institutions, brokerage
houses, or other custodians, nominees, or fiduciaries, the Company will
reimburse such persons for their reasonable expenses in forwarding proxy
materials to Shareholders and obtaining their Proxies.
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The Annual Report of the Company for the fiscal year ended December 31,
1993 is being sent to Shareholders with this Proxy Statement. Copies of the
Annual Report on Form 10-K filed with the Securities and Exchange Commission
will be distributed without charge to any Shareholder upon written request of
such person addressed to Mr. David G. Wallace, Treasurer, Community Bank
System, Inc., 5790 Widewaters Parkway, DeWitt, New York 13214.
SHAREHOLDER PROPOSALS
If shareholder proposals are to be considered by the Company for
inclusion in a proxy statement for a future meeting of the Company's
Shareholders, such proposals must be submitted on a timely basis and must meet
the requirements established by the Securities and Exchange Commission for
shareholder proposals. Shareholder proposals for the Company's 1995 Annual
Meeting of Shareholders will not be deemed to be timely submitted unless they
are received by the Company at its principal executive offices by November 16,
1994. Such shareholder proposals, together with any supporting statements,
should be directed to the Secretary of the Company. Shareholders submitting
proposals are urged to submit their proposals by certified mail, return
receipt requested.
ITEM 1: ELECTION OF DIRECTORS AND INFORMATION WITH
RESPECT TO DIRECTORS AND EXECUTIVE OFFICERS
The first Item to be acted upon at the Meeting is the election of five
directors, each to hold office for three years and until his successor shall
have been duly elected and qualified. The nominees receiving a plurality of
the votes represented in person or by proxy at the Meeting will be elected
directors.
All Proxies in proper form which are received by the Board prior to the
election of directors at the Meeting will be voted "FOR" the five nominees
listed below, unless authority is withheld in the space provided on the
enclosed Proxy. Each nominee is presently a director of the Company, and each
director of the Company is also a director of the Bank. In the event any
nominee declines or is unable to serve, it is intended that the Proxies will
be voted for a successor nominee designated by the Board. All nominees have
indicated a willingness to serve, and the Board knows of no reason to believe
that any nominee will decline or be unable to serve if elected. The other
nine members of the Board, who are listed below, presently are expected to
continue to serve on the Board until their respective terms expire.
The information on the following pages is furnished for each nominee for
director to be elected at the Meeting and each director of the Company whose
term of office continues after the Meeting.
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NOMINEES FOR DIRECTOR AND DIRECTORS CONTINUING IN OFFICE
Shares of
Company Common
Stock
Beneficially
Owned (c) as of
March 7, 1994 (d)
----------------
Director of Business
Name and the Company Experience During
Age(a) Since Past Five Years(b) Number Percent
-------- ----------- ------------------ ------ -------
Nominees (for terms to expire at Annual Meeting in 1997)
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Sanford A. 1992 President and Chief Executive 2,000 .07%
Belden Officer of the Company since
Age 51 October 1, 1992. From 1990
to 1992, Manager, Eastern
Region, Rabobank Nederland,
New York, New York. From
1985 to 1990, First Bank
System, Minneapolis,
Minnesota as President,
Community Banking (1990),
Regional Community Banking
(1989), Managing Director,
Minnesota Region (1988),
Senior Vice President, Credit
and Operations, (1985-1988).
Nicholas A. 1985 Partner, law firm of DiCerbo 16,402 .60%
DiCerbo and Palumbo, Olean, New York.
Age 47
Benjamin 1984 Of counsel, law firm of 35,088 1.28%
Franklin Franklin & Gabriel, Ovid, New
Age 68 York.
Lee T. Hirschey 1991 President and Chief Executive 8,356 .30%
Age 58 Officer, Climax Manufacturing
Company, converter and
manufacturer of paper
products with facilities in
Castorland, Lowville, and
West Carthage, New York.
David C. 1991 President and owner of Wight 2,646 .10%
Patterson and Patterson, Inc.,
Age 52 manufacturer and seller of
livestock feed located in
Canton, New York.
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Shares of
Company Common
Stock
Beneficially
Owned (c) as of
March 7, 1994 (d)
-----------------
Director of Business
Name and the Company Experience During
Age(a) Since Past Five Years(b) Number Percent
-------- ----------- ------------------ ------ -------
Directors Continuing in Office
Terms expiring at Annual Meeting in 1995:
-----------------------------------------
John M. Burgess 1991 Retired. Prior to 1991, 3,110 .11%
Age 57 President of Kinney Drugs,
Inc., a drug and retail chain
with stores located
throughout northern New York.
James A. Gabriel 1984 Partner, law firm of Franklin 8,348 .30%
Age 46 & Gabriel, Ovid, New York.
Earl W. 1983 Vice President, WM Academic 1,223 .04%
MacArthur Search Specialists since
Age 65 1993. From 1972-1992,
President, State University
of New York at Canton, New
York.
Hugh G. Zimmer 1989 Retired. Prior to 1989, 20,076 .73%
Age 67 President, The Nichols
National Bank, Nichols, New
York, which was consolidated
into Community Bank, N.A. as
of January 1, 1992.
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Shares of
Company Common
Stock
Beneficially
Owned (c) as of
March 7, 1994 (d)
-----------------
Director of Business
Name and the Company Experience During
Age(a) Since Past Five Years(b) Number Percent
-------- ----------- ------------------ ------ -------
Terms Expiring at Annual Meeting in 1996:
Richard C. 1983 Partner, law firm of 5,636 .21%
Cummings Cummings, McGuire, Dunckel &
Age 64 Campany, Lowville, New York.
William M. 1984 Vice President of Finance 400 .02%
Dempsey and Administration,
Age 55 Rochester Institute of
Technology, Rochester, New
York.
Edwin J. Lyons 1983 President and Chief 29,980 1.09%
Age 59 Executive Officer of the
Company until retirement on
September 30, 1992.
William N. 1991 Associate Professor of 226 .01%
Sloan Mathematics, Potsdam College
Age 59 of the State University of
New York, Potsdam, New York.
William D. 1983 Retired. Prior to 1990, 12,738 .46%
Stalder partner, firm of Witherbee
Age 68 and Whalen, retail cemetery
monument and burial vault
business.
In addition to the information provided above, the
following summarizes the security ownership of the highest
paid executive officers who are not also directors of the
Company:
James A. Wears Regional President 8,914 .32%
Northern Region
Michael A. Regional President 5,907 .22%
Patton Southern Region
David G. Senior Vice President 6,405 .23%
Wallace and Chief Financial Officer
Number of shares of Company stock
beneficially owned by all Directors and
Executive Officers of the Company as a 167,455 6.09%
group (17 persons)
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(a) No family relationships exist between any two or more of the nominees
for director or executive officers of the Company.
(b) No nominee for director or continuing director of the Company holds a
directorship with any company (other than the Company) which is
registered pursuant to Section 12 or subject to the requirements of
Section 15(d) of the Securities Exchange Act of 1934, or with any
company which is a registered investment company under the Investment
Company Act of 1940.
(c) Represents all shares as to which named individual possessed sole or
shared voting or investment power as of March 7, 1994, including
shares held by, in the name of, or in trust for, spouse and dependent
children of named individual and other relatives living in the same
household, even if beneficial ownership has been disclaimed as to any
of these shares by the nominee or director.
(d) The listed amounts include shares as to which certain directors are
beneficial owners but not the sole beneficial owners as follows: Mr.
Burgess wife holds 300 shares in her own name; Mr. Zimmer holds
16,737 shares jointly with his wife; Mr. Cummings wife holds 100
shares in her own name; Mr. Lyons wife holds 2,442 shares in her own
name; Mr. Sloan holds 64 shares jointly with his wife; Mr. DiCerbo
holds 3,392 shares jointly with his wife, 9,970 shares are held in
the name of the law partnership of DiCerbo and Palumbo, 400 shares
are held by his son, and 1,000 shares are held in trust for his
children; Mr. Franklin's wife holds 2,352 shares in her own name; Mr.
Hirschey's wife holds 1,000 shares in her own name; Mr. Stalder's
wife holds 122 shares in her name; and Mr. Patterson holds 1,190
shares jointly with his wife. Mr. Lyons also owns presently
exercisable stock warrants for 38,000 shares of common stock, and Mr.
Zimmer owns presently exercisable stock options to purchase 1,000
shares of common stock.
Board Committees and Meetings
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The Board of Directors of the Company held twelve regularly scheduled
meetings during the fiscal year ended December 31, 1993. During this period,
each director of the Company attended at least 75% of the aggregate of the
total number of meetings of the Board and the total number of meetings held by
committees of the Board on which he served.
Among its standing committees, the Board of the Bank has an
Audit/Compliance/Risk Management Committee which also serves as the Company's
Audit Committee. The Audit/Compliance/Risk Management Committee reviews
internal and external audits of the Company and the Bank and the adequacy of
the Company's and the Bank's accounting, financial, and compliance controls,
and investigates and makes recommendations to the Company's Board and the
Bank's Board regarding the appointment of independent auditors. During 1993,
this Committee held four meetings and its present members are directors Richard
C. Cummings (Chair), Lee T. Hirschey, and Edwin J. Lyons.
The Bank's Board also has a Personnel Committee which reviews and makes
recommendations to the Bank's Board regarding compensation adjustments and
employee benefits to be instituted and which also serves as the Company's
Personnel Committee. The Personnel Committee reviews the compensation of
nonofficer employees in the aggregate, and the salaries and performance of
executive officers are reviewed individually. The Personnel Committee held
seven meetings in 1993, and its present members are directors Nicholas A.
DiCerbo (Chair), John M. Burgess, Edwin J. Lyons, and William N. Sloan.
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The Company has a Nominating Committee which makes recommendations to the
Board for nominees to serve as directors. The Nominating Committee will
consider written recommendations from shareholders for nominees to serve on the
Board that are sent to the Secretary of the Company at the Company's main
office. The Nominating Committee held one meeting in 1993, and its present
members are James A. Gabriel (Chair), William M. Dempsey, and Hugh G. Zimmer.
The President and Chief Executive Officer of the Company serves as an
ex officio member of all Board committees and receives no compensation for
serving in this capacity. Mr. Stalder and Mr. MacArthur, as Chair and Vice
Chair of the Board, also serve as members of all Board Committees.
Compensation of Directors
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As directors of both the Company and the Bank, Board members receive an
annual retainer of $8,000; $500 for each Board meeting they attend; $500 for
each Executive Committee meeting they attend; and $350 for each committee
meeting they attend. Mr. Belden does not receive the annual retainer or
compensation for attending committee meetings of the Board. The Chair of the
Board receives a $28,000 retainer and the Vice Chair of the Board receives a
$23,000 retainer for serving in their respective capacities. The Chair of the
Loan Committee and the Personnel Committee each receives an annual retainer of
$2,500; and the Chair of the Investment Committee, the Trust Committee, and the
Audit/Compliance/Risk Management Committee each receives an annual retainer of
$750. The Company pays the travel expenses incurred by each director in
attending meetings of the Board.
Directors may elect to defer all or a portion of their director fees
pursuant to a Deferred Compensation Plan for Directors. Directors who elect to
participate in the Plan designate the percentage of their director fees which
they wish to defer (the "deferred fees") and the date to which they wish to
defer payment of benefits under the plan (the "distribution date"). The plan
administrator establishes an account for each participating director and
credits to such account (i) on the date a participating director would have
otherwise received payment of his deferred fees, the number of shares of
Company Common Stock which could have been purchased with the deferred fees,
and (ii) from time to time such additional number of shares of common stock
which could have been purchased with any dividends which would have been
received had shares equal to the number of shares credited to the account
actually been issued and outstanding. On the distribution date, the
participating director shall be entitled to receive either (i) shares of
Company Common Stock equal to the number of shares credited to the director's
account, or (ii) at the Company's election, cash equal to the fair market value
of the number of shares credited to the account as of the distribution date.
The effect of the plan is to permit directors to invest deferred director fees
in stock of the Company, having the benefit of any stock price appreciation and
dividends as well as the risk of any decrease in the stock price. To the
extent that directors participate in the plan, the interests of participating
directors will be more closely associated with the interests of shareholders in
achieving growth in the Company's stock price.
The Company has a consulting agreement with Mr. Edwin J. Lyons entered
into in 1991 in contemplation of Mr. Lyons retirement. The purpose of the
Agreement was to assure Mr. Lyons continued service following his retirement
as President and Chief Executive Officer in 1992. Pursuant to the agreement,
Mr. Lyons must be available at least 90 days per year at the Company offices or
other designated locations to provide consulting services as requested by the
Company. Mr. Lyons was paid $100,000 in 1993; and will be paid $50,000 in
1994, 1995, and 1996 under the agreement.
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ITEM 2: APPROVAL OF 1994 LONG TERM
INCENTIVE COMPENSATION PROGRAM
On February 16, 1994, the Board of Directors adopted, the Community Bank
System, Inc. 1994 Long Term Incentive Compensation Program (the "Incentive
Plan"), subject to approval by the shareholders at the 1994 Annual Meeting.
The purpose of the Incentive Plan is to promote the interests of the Company by
providing a comprehensive equity-based incentive compensation program designed
to enable the Company to attract, retain, and reward key employees through
performance based incentives. To the extent that current and future officers
(and other key employees) have an equity interest in the Company, the interests
of such employees will be more closely associated with the interests of
shareholders. Further, equity-based incentives can be used to reinforce the
relationship between shareholder gains and employee compensation.
Adoption of the Incentive Plan has been recommended by the Personnel
Committee and the Board of Directors. The only plan under which the Company
may currently grant incentive equity-based awards to key employees is the
Company's 1984 Long Term Incentive Compensation Program, and the 1984 plan
expires on June 30, 1994. The proposed Incentive Plan is intended to commence
on July 1, 1994 and provide the continued ability to grant equity-based
incentives to senior management and key employees of the Company and its
subsidiaries as appropriate from time to time, based on the objectives of the
Plan.
As noted in the Report of the Personnel Committee on page 15, an
equity-based incentive plan is an integral component of the Company's
compensation program. Accordingly, the Board of Directors believes that
adoption of the proposed Incentive Plan is necessary if the Company is to be
able to continue to attract, retain, and motivate highly qualified and talented
individuals.
The following is a summary of the material provisions of the Incentive
Plan. This summary is qualified in its entirety by reference to the specific
provisions of the Incentive Plan, the full text of which is attached to this
Proxy Statement as Exhibit A.
General Features Of The Incentive Plan
The Incentive Plan empowers the Company to award or grant, from time to
time, to officers and other key employees of the Company and its subsidiaries
(i) Incentive Stock Options within the meaning of Section 422 of the Internal
Revenue Code, (ii) Non-Qualified Stock Options, (iii) Retroactive Stock
Appreciation Rights, and (iv) Restricted Stock (further described below) and
any combination of such awards. The Incentive Plan is designed to provide the
Company with flexibility in the grant of equity-based incentive compensation to
achieve the overall goals of the Plan. The term of the Incentive Plan is for
ten (10) years and shall expire on June 30, 2004 if not earlier terminated by
the Board of Directors.
The Incentive Plan will be administered by the Personnel Committee or
such other committee appointed by the Board of Directors (the "Committee"),
which shall consist of not less than three disinterested directors of the
Company. Members of the Committee are not eligible to participate in the
Incentive Plan. The Committee has the authority to select participants from
those employees eligible under the Plan, to establish the terms and conditions
of any awards, to authorize awards under the Plan, and to interpret and
construe any provision of the Plan.
Officers who are employees of the Company or its subsidiaries, and other
key employees of the Company and its subsidiaries, shall be eligible to
participate in the Incentive Plan. Participants, who may receive awards
under the Plan, shall be selected by the Committee based upon such factors
as the employee's past and potential contributions to the success,
profitability, and growth of the Company. No determinations have yet been
made as to any awards that may be granted under the Plan to specific
individuals. Whether an award may be exercised after a participant's
termination
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of employment shall be determined by the Committee, subject to limits set
forth below with respect to different types of awards under the Plan.
Subject to adjustments noted below, 130,000 shares of Common Stock will be
available for issuance over the 10 year term of the Incentive Plan
(approximately 4.7% of the shares of Common Stock outstanding as of December
31, 1993), to be divided among the various components of the Incentive Plan in
such manner as the Committee shall determine. Shares of Common Stock issued
under the Plan may be newly issued shares, treasury shares, or any combination
thereof. Such maximum number of shares is subject to adjustment in the event
of a reorganization, stock split, stock dividend, combination of shares,
merger, consolidation or other recapitalization of the Company.
No award granted under the Incentive Plan, and no right or interest
therein, shall be assignable or transferable by a participant, except that
option rights may be transferred by will or the laws of descent and
distribution. The Board of Directors may amend or terminate the Incentive Plan
at any time, except that the Board of Directors may not, without approval by
the shareholders, make any amendment that would (i) increase the number of
available shares under the Plan, or (ii) change the definition of "eligible
employees" under the Plan.
Stock Options. Options designated as Incentive Stock Options within the
meaning of Section 422 of the Internal Revenue Code may be granted under the
Incentive Plan. The exercise price of an Incentive Stock Option shall be at
least 100% of the fair market value of the Common Stock on the date of grant.
Thus, an employee who is granted an Incentive Stock Option must pay a price per
share upon exercising the option which is at least equal to the fair market
price of a share at the time the option was granted. On December 31, 1993, the
average price of a share of Common Stock was $28.50. The number of shares of
Common Stock in respect of which Incentive Stock Options are first exercisable
by any optionee during any calendar year shall not have a fair market value
(determined at the date of grant) in excess of $100,000. Incentive Stock
Options shall be exercisable for such period or periods not in excess of
10 years after the date of grant as shall be determined by the Committee, except
that no Incentive Stock Option shall be exercisable earlier than one year
following the date the option is granted. Non-Qualified Stock Options may also
be granted under the Incentive Plan and will be exercisable for such period or
periods and at such price as the Committee shall determine, provided that the
price shall not be below the fair market value of a share of Common Stock as of
the date the option is granted.
The Committee shall have the authority, in its discretion, to accelerate
the time at which a stock option becomes exercisable, provided that no
Incentive Stock Option shall be exercisable earlier than one year following the
date the option is granted. If an option holder's employment is terminated
within one year following a change of control for any reason other than death
or disability, all stock options held by that optionee shall become exercisable
automatically as of the later of the date of termination or one year after the
date the option was granted and shall remain exercisable until the end of the
exercise period provided in the original grant of the stock option.
Stock options shall be exercisable only upon the payment in full to the
Company of the entire option exercise price (i) in cash, (ii) by the transfer
to the Company of shares of the Common Stock (at the fair market value thereof
on the date of exercise), or (iii) by a combination of such methods of payment.
Payment may not be made with Common Stock issued by Company upon exercise of an
option under the Plan or other stock option plan unless the Common Stock has
been held for at least one year.
Each grant of stock options shall be evidenced by an agreement between the
Company and optionee and shall contain such terms and provisions, consistent
with the Incentive Plan, as the Committee may approve.
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Retroactive Stock Appreciation Rights. Under the Incentive Plan, the
Committee may authorize the surrender of all or a portion of an option right in
exchange for which the optionee will receive a Stock Appreciation Right
("SAR"). An SAR will entitle the holder to receive an amount payable in cash,
Common Stock (valued at the fair market value on the date of exercise), or a
combination thereof (as determined by the Committee) up to the excess of the
fair market value of a share of the Common Stock on the date of exercise over
the option exercise price per share of such shares, multiplied by the number of
shares as to which the holder is exercising the SAR. To the extent an option
right is surrendered in exchange for an SAR, such option is canceled.
Conversely, if the optionee elects to exercise the option, the right to
receive the related SAR is canceled to the extent the option is exercised.
Restricted Stock. An award of Restricted Stock consists of a specified
number of shares of Common Stock that are transferred to a participant and
subject to forfeiture to the Company under such conditions and for such periods
of time as the Committee may determine. A participant may vote and receive
dividends on the shares of Restricted Stock awarded, but may not sell, assign,
transfer, pledge or otherwise encumber such shares of Restricted Stock during
the forfeiture period. Certificates for Restricted Stock shall bear a legend
specifying the restrictions and conditions which will cause forfeiture of the
stock. The Committee may also require that the Restricted Stock be held in
escrow until all restrictions and events of forfeiture have lapsed.
If a participant's employment terminates for any reason except death or
disability prior to the expiration of the forfeiture period, all of the
participant's Restricted Stock not already vested will be forfeited and
surrendered to the Company. If a participant dies or terminates employment
because of a disability prior to the expiration of the forfeiture period, the
forfeiture period shall lapse on the date of death or date of disability
provided that such date is at least four years following the date of the award.
If a participant's employment is terminated within one year following a change
of control for any reason other than death or disability, any remaining
forfeiture period shall automatically expire on the date employment is
terminated. Notwithstanding the foregoing, the Committee shall have the
authority to accelerate the time at which any or all restrictions applying to
the Restricted Stock shall lapse.
Federal Income Tax Consequences
The anticipated federal income tax consequences relating to the different
types of awards under the Incentive Plan are as described below.
Upon Grant of Options and SARs. An optionee will not recognize any
taxable income at the time a stock option or related SAR is granted and the
Company will not be entitled to a federal income tax deduction at that time.
Incentive Stock Options. No ordinary income will be recognized by the
holder of an Incentive Stock Option at the time of exercise. The excess of the
fair market value of the shares at the time of exercise over the aggregate
option price will be an adjustment to alternative minimum taxable income for
purposes of the federal "alternative minimum" tax at the date of exercise. If
the optionee holds the shares for the greater of two years after the date the
option was granted and one year after the acquisition of such shares, the
difference between the aggregate option price and the amount realized upon
disposition of the shares will constitute a long term capital gain or loss, as
the case may be, and the Company will not be entitled to a federal income tax
deduction. If the shares are disposed of in a sale, exchange or other
"disqualifying disposition" within two years after the date of grant or within
one year after date of exercise, the optionee will realize taxable ordinary
income in an amount equal to the excess of the fair market value of the shares
purchased at a time of exercise over the aggregate option price (the bargain
purchase element) and the Company will be entitled to a federal income tax
deduction equal to such amount. The amount of any gain in excess of the
bargain purchase element realized upon a "disqualifying disposition" will be
recognized as capital gain to the holder. The Company will not be entitled to
a federal income tax deduction for the capital gain amount.
-10-
<PAGE>
<PAGE>
Non-Qualified Stock Options. Upon the exercise of a Non-Qualified Stock
Option, ordinary income will be recognized by the holder in an amount equal to
the excess of the fair market value of the shares purchased at the time of such
exercise over the aggregate option price. The Company will be entitled to a
corresponding federal income tax deduction. Upon any subsequent sale of the
shares, the optionee will generally recognize a taxable capital gain or loss
based upon the difference between the per share fair market value at the time
of exercise and the per share selling price at the time of the subsequent sale
of the shares.
Retroactive Stock Appreciation Rights. Upon the exercise of an SAR the
holder will realize ordinary income on the amount of cash received and/or the
then current fair market value of the shares of Common Stock acquired and the
Company will be entitled to a corresponding federal income tax deduction. The
holder's basis in any shares of Common Stock acquired will be equal to the
amount of ordinary income which he or she recognized. Upon any subsequent
disposition of acquired shares, any gain or loss realized will be a capital
gain or loss.
Restricted Stock. Unless a participant makes the election described
below, a participant receiving a grant of Restricted Stock will not recognize
income and the Company will not be allowed a deduction at the time such shares
of Restricted Stock are granted. While the restrictions on the shares are in
effect, a participant will recognize ordinary income equal to the amount of any
dividends received. When the restrictions on the shares are removed or lapse,
the excess of fair market value of the shares will be ordinary income to the
participant and will be allowed as a deduction for federal income tax purposes
to the Company. Upon disposition of the shares, the gain or loss realized by
the participant will be taxable as capital gain or loss. However, by
filing a Section 83(b) election with the Internal Revenue Service within 30
days after the date of grant, a participant's ordinary income will be determined
as of the date of grant. In such a case, the amount of ordinary income
recognized by such a participant and deductible by the Company will be equal to
the excess of the fair market value of the shares as of the date of grant over
the amount paid, if any, by the participant for the shares. If such election
is made and a participant thereafter forfeits his or her stock, no deduction
will be allowed for the amount previously included in such participant's income.
Vote Required For Approval
The affirmative vote of the holders of a majority of all outstanding
shares of Common Stock entitled to vote at the 1994 Annual Meeting of
Shareholders is required for approval of the Incentive Plan.
The Board of Directors recommends that shareholders vote "FOR" this proposal.
-11-
<PAGE>
<PAGE>
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation paid
by the Bank to those persons who were, at December 31, 1993, (i) the chief
executive officer and (ii) the other four most highly compensated executive
officers whose annual salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
Long-Term
Compensa-
tion
Annual Compensation Awards
--------------------------------------------
Other
Annual All Other
Name and Compen- Stock Compensa-
Principal Salary Bonus sation Options tion
Position Year ($) ($)(1) ($)(2) (#) ($)(3)
-------- ---- ------ ------ ------ -------- ----------
Sanford A. Belden 1993 185,000 66,600 3,498 0 12,422
President and 1992 44,115 0 324 48,000 92,375(5)
Chief Executive
Officer (4)
James A. Wears 1993 113,971 29,633 3,706 0 9,498
Regional 1992 107,520 16,128 4,227 5,000 5,357
President 1991 100,628 25,000 0
Northern Region
Michael A. Patton 1993 112,896 29,353 3,085 0 9,704
Regional President 1992 107,520 16,128 1,535 5,000 5,624
Southern Region 1991 100,000 8,904 0
David G. Wallace 1993 106,937 27,804 2,939 0 9,419
Senior Vice 1992 100,883 15,132 1,733 3,000 5,498
President and 1991 92,533 6,477 0
Chief Financial
Officer
(1) The amounts shown in this column reflect payments under the
Company's Management Incentive Plan, an annual cash bonus plan based on
performance and designed to provide incentives for employees.
(2) The amounts disclosed in this column include: (a) the reportable
value of the personal use of Company-owned vehicles by Messrs. Belden, Wears,
and Patton, which amounted to $3,498, $3,706, and $3,085, respectively; and
(b) an amount received by Mr. Wallace as tax reimbursement for restricted
stock which vested in 1993 amounting to $2,939.
(3) Amounts in this column include: (a) the value of group term life
insurance benefits in excess of $50,000 under a plan available to all
full-time employees for which Messrs. Belden, Wears, Patton, and Wallace
received $1,296, $363, $612, and $570, respectively; and (b) Company
contributions to the Employee Savings and Retirement Plan, a defined
contribution plan, amounting to $11,126 for Mr. Belden, $9,135 for Mr. Wears,
$9,092 for Mr. Patton, and $8,849 for Mr. Wallace. The Company does not
maintain any "split-dollar" arrangements for any of the named executives.
(4) Mr. Belden was appointed President and Chief Executive Officer
effective October 1, 1992.
(5) This amount includes $55,000 as a relocation allowance, $35,000 as a
sign on bonus, and $2,375 pursuant to a stock purchase reimbursement
arrangement.
-12-
<PAGE>
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options or other stock appreciation
rights to the named executives in fiscal year 1993.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The following table provides information for the named executive
officers, with respect to (i) stock options exercised in fiscal year 1993,
(ii) the number of stock options held at the end of fiscal year 1993, and
(iii) the value of in the money stock options at the end of fiscal year 1993.
<TABLE>
<CAPTION>
Number of Unexercised Options Value of Unexercised
at 12/31/93 (#) In-The-Money Options
at 12/31/93 ($)(1)
Shares
Acquired on Value Unexer- Unexer-
Name Exercise (#) Realized ($) Exercisable cisable Exercisable cisable
-------- ------------- ------------ ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Sanford A. Belden 0 0 9,600 38,400 $ 33,600 $134,000
James A. Wears 0 0 4,000 4,000 53,759 54,000
Michael A. Patton 0 0 10,200 1,600 146,816 21,600
David G. Wallace 0 0 2,600 2,400 35,600 32,400
</TABLE>
(1) Based on the average price of the Company's Common Stock on December 31,
1993 of $28.50 per share.
-13-
<PAGE>
<PAGE>
PENSION PLAN TABLE
YEARS OF SERVICE
Highest Five
Year Average
Compensation (1) 15 20 25 30 35
- --------------- ------ ------ ------ ------ ------
20,000 2,700 3,600 4,500 5,400 6,300
50,000 9,402 12,536 15,670 18,804 21,938
100,000 21,027 28,036 35,045 42,054 49,063
125,000 26,840 35,786 44,733 53,679 62,626
150,000 32,652 43,536 54,420 65,304 76,188
175,000 38,465 51,286 64,108 76,929 89,751
200,000 44,277 59,036 73,795 88,554 103,313
225,000 50,090 66,786 83,483 100,179 115,641
235,840 52,610 70,146 87,683 105,220 115,641
(1) For 1993, the Internal Revenue Code limits the annual benefit that
may be paid under the plan to $115,641 and limits the total
compensation that may be taken into account in calculating benefits
to $235,840.
The table above sets forth the estimated annual benefits under the
formula adopted for post-1988 years of service, payable upon retirement at age
65 in the form of a single life annuity. Benefits are computed based on the
average annual compensation for the highest consecutive five years in the 10
years preceding retirement. The amounts are not subject to any deduction for
Social Security. For purposes of calculating the benefit, an employee may not
be credited with more than 35 years of service. The salary and bonus amounts
in the Summary Compensation Table on page 12 reflect the covered compensation
under the plan for Messrs. Belden, Wears, Patton, and Wallace. Messrs.
Belden, Wears, Patton, and Wallace have been credited with 1, 23, 23, and 5
years of service, respectively, under the plan.
The pension plan maintained by the Company is a noncontributory defined
benefit plan which is funded by the Company and administered by a retirement
committee which consists of persons appointed by the Board of Directors. The
plan covers all employees of the Company who have completed one full year of
continuous service. The Company does not currently maintain any non-qualified
supplemental retirement plans for any of the named executives.
-14-
<PAGE>
<PAGE>
Employment Agreements
The Company has an employment agreement with Mr. Belden dated October 1,
1992 providing for his employment as the Company's President and Chief
Executive Officer until September 30, 1995. The agreement may be terminated
by the Board for good cause at any time. The agreement provides that
Mr. Belden devote his full business time and attention to the performance of
his duties for a base annual salary of not less than $205,000 for fiscal year
1994, subject to annual increases at the discretion of the Board. The
agreement also provided for issuance of 48,000 non-qualified stock options
at the option price of $25.00 per share ($4.50 above the then current market
price of $20.50). The options become exercisable over five years in equal
allotments on October 1, 1993, 1994, 1995, 1996, and 1997 and remain
exercisable until September 30, 2007. If upon expiration the Company elects
not to renew the agreement, Mr. Belden will be entitled to severance pay equal
to one year of his then current base salary, plus an amount equal to the
nonvested portion of benefits accrued under the Company's qualified retirement
plans, provided that such severance payments shall cease if Mr. Belden
subsequently obtains employment or becomes self-employed during the severance
period. If Mr. Belden's employment is terminated for reasons other than cause
within two years following a change of control, Mr. Belden shall receive an
amount equal to two times his base salary, be reimbursed for any loss incurred
on the sale of his home if he relocates from the Syracuse area, and all his
stock options shall become fully exercisable.
The Company also maintains one year employment agreements with Messrs.
Wears, Patton, and Wallace. These agreements, the terms of which are
substantially similar, provide for severance pay equal to the employee's
salary for the balance of the term of the agreement plus benefits under the
Company's regular severance policy, change of control benefits equal to two
times base salary, and accelerated vesting on all outstanding stock options.
The agreements may be terminated by the Board for good cause at any time.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Personnel Committee of the Bank's Board of Directors
during the last fiscal year were Nicholas A. DiCerbo, John M. Burgess, Edwin
J. Lyons, Earl W. MacArthur, William N. Sloan, and William D. Stalder. Mr.
Lyons is a former officer of the Company and Bank having served as President
and Chief Executive Officer until September 30, 1992, but did not serve as a
member of the Personnel Committee while serving as an officer of the Company.
The Personnel Committee reviews and makes recommendations regarding
compensation levels and employee benefits.
REPORT OF THE PERSONNEL COMMITTEE
ON EXECUTIVE COMPENSATION
The Company has adopted a multi-faceted approach towards compensating all
of its employees, including senior management. The underlying philosophy and
description of the major components of the total compensation program are
described below.
Philosophy
The total compensation program is intended to align compensation with
business objectives and enable the Company to attract and retain individuals
who are contributing to the long-term success of the Company. Towards this
end:
The Company pays competitively. The Company regularly compares its cash,
equity, and benefits based compensation practices with those of other
companies of similar size, operating in similar geographic market areas, many
of which are represented in the stock performance graph included on page 24,
and establishes compensation parameters based on that review.
-15-
<PAGE>
<PAGE>
The Company encourages teamwork. The Company recognizes that its
long-term success results from the coordinated efforts of employees working
towards common, well established objectives. While individual accomplishments
are encouraged and rewarded, the performance of the Company is a determining
factor in total compensation opportunities.
The Company strives for fairness in the administration of pay. The
Company strives to ensure that compensation levels accurately reflect the
level of accountability that each individual has within the Company; employees
are informed of the total compensation program; decisions made regarding
individual performance which affect compensation matters are based upon an
objective assessment of performance; and all employees have equal access to
positions within the Company which provide for increased levels of total
compensation.
The process of assessing performance involves the following:
1. Prior to the beginning of each fiscal year, the Chief Executive
Officer establishes and distributes written goals, which must be approved by
the full Board. These goals include specific financial targets relative to
return on assets, net income, and asset quality. The Company strives to
achieve financial results which are in the upper third of the results
published by its peer group.
2. Individuals at each successive level of management establish written
goals, which must be approved by their respective managers.
3. All goals are reviewed on an ongoing basis to ensure that the
Company is responding to changes in the marketplace and economic climate and
that accomplishment of retained goals is ensured.
4. At the end of the fiscal year, performance is evaluated against
goals and other key position responsibilities. Such evaluations affect
decisions on salary, bonus, and stock option matters.
Compensation Programs
The Company defines itself as a supercommunity bank which provides
products of a more comprehensive and advanced nature than those offered by
smaller institutions, while simultaneously providing a level of service which
exceeds the service quality delivered by larger regional and money-center
banks. The delivery of those products and services, in ways that enhance
shareholder value, requires that the Company attract key people, promote
teamwork, and reward results. In furtherance of those requirements, the
Company maintains the following compensation programs.
Cash-Based Compensation:
Salary. The Company sets base salary for employees by reviewing the
total cash compensation opportunities for competitive positions in the
market. Where practical, the Company maintains its salary levels
slightly below market and provides for total compensation opportunities
that may exceed those in other less flexible environments.
Management Incentive Plan. The Company maintains an annual bonus plan in
which 37% of its employees participate. The Company's performance to
budget and targeted return on assets, which are approved by the Board, is
the key factor in determining the payment of bonuses for all employees in
this group. Bonus levels, which amount to a percentage of salary, have
been established for different organizational levels within the Company.
For Mr. Belden, 100% of his bonus is determined by the Company's
performance relative to its earnings target. For Messrs. Wears, Patton,
and Wallace, 80% of their possible bonus amount is determined by the
Company's performance relative to its earnings target, and 20% of their
possible bonus amount is determined by performance to other quantitative
and qualitative goals specific to their areas of responsibility.
-16-
<PAGE>
<PAGE>
Equity-Based Compensation:
Stock Option Program. The purpose of this program is to provide
additional incentives to employees to maximize shareholder value.
The option program serves as an effective tool in recruiting key
individuals and utilizes vesting periods to encourage these individuals
to continue in the employ of the Company. The Board may award options
based on the degree to which the Company has achieved its annual and
long term financial targets. The number of stock options issued
generally reflects a percentage of salary and various percentages have
been established for different organizational levels within the Company.
Restricted Stock. The Company has, on occasion, issued limited amounts
of restricted stock to individuals to support a variety of business
objectives. Examples include: restricted shares have been issued in
start-up and turnaround assignments, with vesting schedules tied to
specific performance criteria; and restricted shares have been issued to
newly promoted and hired individuals who received initial stock option
awards with no in-the-money exercisable value.
In December 1993, the full Board formally reviewed Mr. Belden's
performance for fiscal year 1993, his first full year as the Company's
President and CEO. Having determined that the Company's level of
performance relative to its previously approved annual and long term
financial targets had been met and surpassed, the Board, operating under
the terms of the Management Incentive Plan described in this Report,
authorized the payment of Mr. Belden's bonus for 1993, which amounted to
$66,000. Mr. Belden's $185,000 base salary level for 1993 reflected the
terms of his initial Employment Agreement with the Company dated October
1, 1992.
Personnel Committee
Nicholas A. DiCerbo (Chair)
John M. Burgess
Edwin J. Lyons
Earl W. MacArthur
William N. Sloan
William D. Stalder
-17-
<PAGE>
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total shareholder returns on the
Company's stock over the last seven fiscal years to the NASDAQ Index and the
NASDAQ Bank Stock Index. Total return values were calculated assuming $100
investment on January 1, 1987 and reinvestment of dividends.
1987 1988 1989 1990 1991 1992 1993
---- ---- ---- ---- ---- ---- ----
Community Bank, 100 99.78 112.18 62.18 119.81 213.77 261.55
N.A.
NASDAQ Stock 100 118.83 143.86 122.51 197.67 230.69 246.96
Market Index
NASDAQ Bank 100 118.17 131.76 96.80 159.09 230.18 261.21
Stocks Index
-18-
<PAGE>
<PAGE>
TRANSACTIONS WITH MANAGEMENT
Some of the directors and executive officers of the Company and the Bank
(and the members of their immediate families and corporations, organizations,
trusts, and estates with which these individuals are associated) are indebted
to the Bank. However, all such loans were made in the ordinary course of
business, do not involve more than the normal risk of collectibility or
present other unfavorable features, and were made on substantially the same
terms, including interest rate and collateral requirements, as those
prevailing at the same time for comparable loan transactions with unaffiliated
persons. No such loan is nonperforming at present. The Company expects that
the Bank will continue to have banking transactions in the ordinary course of
business with the Company's executive officers and directors and their
associates on substantially the same terms, including interest rates and
collateral, as those then prevailing for comparable transactions with others.
Outside of these normal customer relationships, none of the directors or
executive officers of the Company or the Bank and no 5% shareholders of the
Company (or members of the immediate families of any of the above or any
corporations, organizations, or trusts with which such persons are associated)
maintains any significant business or personal relationship with the Company
or the Bank, other than as arises by virtue of his ownership interest in the
Company or his position with the Company or the Bank. The law firms of (i)
Cummings, McGuire, Dunckel & Campany, of which director Cummings is a partner,
provided legal services to the Bank's operations in Lowville, New York,
(ii) Franklin & Gabriel, of which director Gabriel is a partner and director
Franklin is associated, provided legal services to the Bank's operations in
Ovid, New York, and (iii) DiCerbo & Palumbo, of which director DiCerbo is a
partner, provided legal services to the Bank's operations in Olean, New York.
For services rendered during 1993 and for related out-of-pocket disbursements,
DiCerbo & Palumbo received $134,992 from the Bank. The amount received by
Cummings, McGuire, Dunckel & Campany and by Franklin & Gabriel from the
Company or Bank was less than 5% of the gross revenues of each of these law
firms last fiscal year.
INDEPENDENT AUDITORS
Coopers & Lybrand, Independent Certified Public Accountants, were
retained by the Company at the direction of the Board of Directors. The
independent auditors have audited the financial statements of the Company for
the fiscal year ended December 31, 1993 and performed such other nonaudit
services as the Board requested.
A representative of Coopers & Lybrand will be present at the Meeting.
This representative will have the opportunity to make a statement, if she so
desires, and will be available to respond to appropriate questions from
Shareholders.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters
that may come before the Meeting. However, the Proxies may be voted with
discretionary authority with respect to any other matters that may properly
come before the Meeting.
Date: March 18, 1994 By Order of the Board of Directors
Loretta L. Marx
Secretary
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<PAGE>
<PAGE>
Exhibit A
---------
COMMUNITY BANK SYSTEM, INC.
1994 LONG-TERM INCENTIVE COMPENSATION PROGRAM
---------------------------------------------
1. Preamble. Effective as of July 1, 1984, the Board of Directors of
Community Bank System, Inc. adopted the Community Bank System, Inc. Long Term
Incentive Compensation Program ("1984 Program"). The 1984 Program provided
for the granting of incentive stock options, non-statutory stock options,
retroactive stock appreciation rights, and restricted stock awards. The 1984
Program also provided that no option could be granted under that program after
June 30, 1994.
This document sets forth the terms of the Community Bank System,
Inc. 1994 Long Term Incentive Compensation Program ("1994 Program"), which
shall become effective as of July 1, 1994, contingent upon the approval of the
1994 Program by the shareholders of Community Bank System, Inc. Options and
other rights granted prior to July 1, 1994 pursuant to the 1984 Program shall
remain subject to the terms of the 1984 Program and any implementing
agreements. Options and other rights described in this 1994 Program document
shall be granted after June 30, 1994 in accordance with the terms of this 1994
Program document.
2. Purpose. The purpose of the 1994 Program is to promote the
interests of the Bank by providing current and future officers and other key
employees with an equity or equity-based interest in the Bank, so that the
interests of such employees will be closely associated with the interests of
shareholders by reinforcing the relationship between shareholder gains and
employee compensation. Pursuant to this 1994 Program, eligible employees may
receive (a) Incentive Stock Options, (b) Non-Statutory Stock Options, (c)
Retroactive Stock Appreciation Rights, and/or (d) Restricted Stock Awards.
3. Eligibility. Officers who are employees of the Bank or its
Subsidiaries, and other key employees of the Bank or its Subsidiaries, shall
be eligible to participate in the 1994 Program. Participants shall be
selected by the Committee based upon such factors as the employee's past and
potential contributions to the success, profitability, and growth of the Bank.
4. Definitions. As used in this 1994 Program,
(a) "Bank" shall mean Community Bank System, Inc.
(b) "Board of Directors" shall mean the Board of Directors of the
Bank.
(c) "Committee" shall mean the committee appointed by the Board of
Directors to administer the 1994 Program in accordance with Paragraph 15.
(d) "Common Stock" shall mean the Common Stock, par value $5.00 per
share, of the Bank.
(e) "Disinterested Director" shall mean a member of the Board of
Directors who has not, at any time within one year prior to the member's
participating in the administration of the 1994 Program, received stock, stock
options, stock appreciation rights or any other equity security of the Bank
pursuant to the 1994 Program or any other plan of the Bank or its affiliates.
(f) "Eligible Employees" shall mean persons described in
Paragraph 3.
(g) "Incentive Stock Option" shall mean the right granted to an
Eligible Employee to purchase Commn Stock under this 1994 Program, the grant,
exercise and disposition of which are intended to comply with, and to be
governed by, Internal Revenue Code Section 422.
(h) "Market Value per Share" shall mean, at any date, the fair
market value per share of the shares of Common Stock, as determined in good
faith by the Committee.
A-1
<PAGE>
<PAGE>
(i) "Non-Statutory Stock Option" shall mean the right granted to an
Eligible Employee to purchase Common Stock under this 1994 Program, the grant,
exercise and disposition of which are not intended to be subject to the
requirements and limitations of Internal Revenue Code Section 422.
(j) "Optionee" shall mean the Eligible Employee to whom an Option
Right is granted pursuant to an agreement evidencing an outstanding Incentive
Stock Option or Non-Statutory Stock Option.
(k) "Option Right" shall mean the right to purchase a share of
Common Stock upon exercise of an outstanding Incentive Stock Option or
Non-Statutory Stock Option.
(l) "Restricted Stock Award" shall mean an award of Common Stock to
an Eligible Employee that is subject to the restrictions described in Para-
graph 10 and subject to tax under Internal Revenue Code Section 83.
(m) "Retroactive Stock Appreciation Rights" shall mean an Eligible
Employee's right to receive payments described in Paragraph 9.
(n) "Subsidiary" shall mean any corporation in which (at the time
of determination) the Bank owns or controls, directly or
indirectly, 50 percent or more of the total combined voting power of all
classes of stock issued by the corporation.
5. Shares Available Under the 1994 Program.
(a) The shares of Common Stock which may be made the subject of
Option Rights or Restricted Stock Awards pursuant to this 1994 Program may be
treasury shares or shares of original issue or a combination of the foregoing.
(b) Subject to adjustments in accordance with Paragraph 12 of this
1994 Program, the maximum number of shares of Common Stock that may be the
subject of Option Rights, Retroactive Stock Appreciation Rights or Restricted
Stock Awards granted pursuant to this 1994 Program shall be 130,000 shares of
Common Stock which are made available by virtue of this 1994 Program.
6. Grants of Option Rights Generally. The Committee may, from time to
time and upon such terms and conditions as it may determine, authorize the
granting of Option Rights to Eligible Employees. Each such grant may utilize
any or all of the authorizations, and shall be subject to all of the
limitations, contained in the following provisions:
(a) Each grant shall specify whether it is intended as a grant of
Incentive Stock Options or Non-Statutory Stock Options.
(b) Each grant shall specify the number of shares of Common Stock
to which it pertains.
(c) Each grant shall specify an option price per share not less
than the Market Value per Share on the date the Option Right is granted.
(d) Successive grants may be made to the same Eligible Employee
whether or not any Option Rights previously granted to such Eligible Employee
remain unexercised.
(e) Upon exercise of an Option Right, the entire option price shall
be payable (i) in cash, (ii) by the transfer to the Bank by the Optionee of
shares of Common Stock with a value (Market Value per Share times the number
of shares) equal to the total option price, or (iii) by a combination of such
methods of payment. Payment may not be made with Common Stock issued to the
Optionee by the Bank upon his or her prior exercise of an option under this
1994 Program or any other option plan unless the Common Stock received upon
that prior exercise shall have been held by the Optionee for at least one
year.
A-2
<PAGE>
<PAGE>
(f) Each grant of Option Rights shall be evidenced by an agreement
executed on behalf of the Bank by any officer designated by the Committee for
this purpose and delivered to and accepted by the Eligible Employee and shall
contain such terms and provisions, consistent with this 1994 Program, as the
Committee may approve.
7. Special Rules for Grants of Incentive Stock Options.
(a) Notwithstanding Paragraph 6(c), if an Incentive Stock Option is
granted to any Eligible Employee who, immediately after such option is
granted, is considered to own stock possessing more than ten percent of the
combined voting power of all classes of stock of the Bank, or any of its
subsidiaries, the option price per share shall be not less than 110 percent of
the Market Value per Share on the date of the grant of the option, and such
option may be exercised only within five years of the date of the grant.
(b) The period of each Incentive Stock Option by its terms shall be
not more than ten years from the date the option is granted as specified by
the Committee.
(c) The Committee shall establish the time or times within the
option period when the Incentive Stock Option may be exercised in whole or in
such parts as may be specified from time to time by the Committee, except that
Incentive Stock Options shall not be exercisable earlier than one year, nor
later than 10 years, following the date the option is granted. The date of
grant of each Option Right shall be the date of its authorization by the Com-
mittee.
(d) Except as provided in Paragraph 13, or as may be provided by
the Committee at the time of grant, (i) in the event of the Optionee's
termination of employment due to any cause, including death or retirement,
rights to exercise Incentive Stock Options shall cease, except for those which
are exercisable as of the date of termination, and (ii) rights that are
exercisable as of the date of termination shall remain exercisable for a
period of three months following a termination of employment for any cause
other than death or disability, and for a period of one year following a
termination due to death or disability. However, no Incentive Stock Option
shall, in any event, be exercised after the expiration of ten years from the
date such option is granted, or such earlier date as may be specified in the
option.
(e) No Incentive Stock Options shall be granted hereunder to any
Optionee that would allow the aggregate fair market (determined at the time
the option is granted) of the stock subject of all post-1986 incentive stock
options, including the Incentive Stock Option in question, which such Optionee
may exercise for the first time during any calendar year, to exceed $100,000.
The term "post-1986 incentive stock options" shall mean all rights, which are
intended to be "incentive stock options" under the Internal Revenue Code,
granted on or after January 1, 1987 under any stock option plan of the Bank or
its Subsidiaries. If the Bank shall ever be deemed to have a "parent", as such
term is used for purposes of Section 422 of the Internal Revenue Code,
then rights intended to be "incentive stock options" under the Internal
Revenue Code, granted after January 1, 1987 under such parent's stock option
plans, shall be included with the terms of the definition of "post-1986
incentive stock options".
8. Special Rules for Grants of Non-Statutory Stock Options.
(a) Except as provided in Paragraph 13, or as may be provided by
the Committee at the time of grant, (i) in the event of the Optionee's
termination of employment due to death or disability, rights to exercise
Non-Statutory Stock Options that are exercisable as of the date of termination
shall remain exercisable for two years following termination, (ii) in the
event of the Optionee's termination of employment due to any other reason, the
rights to exercise Non-Statutory Stock Options that are exercisable as of the
date of termination shall remain exercisable for three months following
termination, and (iii) the right to exercise Non-Statutory Stock Options that
are not exercisable as of the date of termination shall be forfeited.
(b) The Bank shall not issue stock certificates to an Optionee who
exercises a Non-Statutory Stock Option, unless payment of the required lawful
withholding taxes has been made to the Bank by check, payroll deduction or
other arrangements satisfactory to the Committee.
9. Retroactive Stock Appreciation Rights. Upon such conditions and
limitations it deems advisable, the Committee may authorize (a) the surrender
of the right to exercise all or a portion of an Option Right granted under the
1994 Program that is exercisable at the time of surrender, and (b) the payment
in exchange for the surrender of an amount of up to the excess of the Market
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Value per Share at the time of surrender of the shares covered by the option,
or portion thereof, surrendered over the option price of such shares. Such
payment may be made in shares of Common Stock valued at fair market value or
in cash or partly in cash and partly in shares of Common Stock, at the Commit-
tee's sole discretion. The shares of Common Stock covered by any Option
Right, or portion thereof, as to which the right to purchase has been so
surrendered shall not again be available for purposes of Option Rights under
the 1994 Program.
10. Restricted Stock Awards.
(a) Shares of Common Stock granted pursuant to a Restricted Stock
Award issued under the 1994 Program (except as otherwise provided in the 1994
Program) shall not be sold, exchanged, transferred, assigned, pledged,
hypothecated, or otherwise disposed of, for the period of time determined by
the Committee in its absolute direction (the "Forfeiture Period"). Except as
provided in Paragraph 13, or as may be provided by the Committee at the time
of grant, if the recipient's employment with the Bank or any of its
Subsidiaries terminates prior to the expiration of the Forfeiture Period for
any reason other than death or disability, the recipient shall, on the date
employment terminates, forfeit and surrender to the Bank the number of shares
of Common Stock with respect to which the Forfeiture Period has not expired
as of the date employment terminates. If Common Stock is forfeited, dividends
paid on those shares during the Forfeiture Period may be retained by
the recipient.
(b) Upon each grant of a Restricted Stock Award, the Committee
shall fix the Forfeiture Period. Each certificate of Common Stock issued
pursuant to the Restricted Stock Award shall bear a legend to reflect the
Forfeiture Period until the Forfeiture Period expires. As a condition to
issuance of Common Stock to an Eligible Employee, the Committee may require
the Eligible Employee to enter into an agreement providing for the Forfeiture
Period and such other terms and conditions that it prescribes, including, but
not limited to, a provision that Common Stock issued to the Eligible Employee
shall be held by an escrow agent until the Forfeiture Period lapses. The
Committee also may require a written representation by the Eligible Employee
that he or she is acquiring the shares for investment.
(c) When the Forfeiture Period with respect to shares of Common
Stock lapses, a certificate for such shares shall be issued, free of any
escrow; such certificate shall not bear a legend relating to the Forfeiture
Perid.
(d) Each Eligible Employee shall agree, at the time he or she
receives a Restricted Stock Award and as a condition thereof, to pay or make
arrangements satisfactory to the Committee regarding the payment to the Bank
of any federal, state or local taxes of any kind required by law to be
withheld with respect to any award or with respect to the lapse of any
restrictions on shares of restricted Common Stock awarded under this 1994
Program, or the waiver of any forfeiture hereunder, and also shall agree that
the Bank may, to the extent permitted by law, deduct such taxes from any
payments of any kind due or to become due to such recipient from the Bank,
sell by public or private sale, with ten days notice or such longer notice as
may be required by applicable law, a sufficient number of shares of Common
Stock so awarded in order to cover all or part of the amount required to be
withheld, or pursue any other remedy of law or in equity. In the event that
the recipient of shares of Common Stock under this 1994 Program shall fail to
pay to the Bank all such federal, state and local taxes, or to make
arrangements satisfactory to the Committee regarding the payment of such
taxes, the shares to which such taxes relate shall be forfeited and returned
to the Bank.
(e) The Committee shall have the authority at any time to
accelerate the time at which any or all or the restrictions set
forth in this 1994 Program with respect to any or all shares of restricted
Common Stock awarded hereunder shall lapse.
(f) If an Eligible Employee dies, or terminates employment with the
Bank because of disability before the expiration of a Forfeiture Period, the
Forfeiture Period on any Common Stock owned by the Eligible Employee shall
lapse on the date of death or on the date that employment terminates because
of disability, provided such date is not less than four years subsequent to
the date of the award. If the date of death or disability is within four
years of the date of the award, the Committee, in its sole discretion, can
waive the Forfeiture Period as to any or all of the stock.
11. Transferability. No Option Right shall be transferable by an
Optionee other than by will or the laws of descent and distribution. Option
Rights shall be exercisable during the Optionee s lifetime only by the
Optionee. Other rights granted pursuant to this 1994 Program also shall not
be subject to assignment, alienation, lien, transfer, sale or exchange.
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12. Adjustments. The Committee may make or provide for such adjustments
in the maximum numbers of shares of Common Stock specified in Paragraph 5 of
this 1994 Program, in the numbers of shares of Common Stock covered by other
rights granted hereunder, and in the prices per share applicable under all
such rights, as the Committee in its sole discretion, exercised in good faith,
may determine is equitably required to prevent dilution or enlargement of the
rights of Eligible Employees that otherwise would result from any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Bank, merger, consolidation, spin-off,
reorganization, partial or complete liquidation, issuance of rights or
warrants to purchase securities, or any other transaction or event having an
effect similar to any of the foregoing.
13. Change of Control.
(a) Notwithstanding any other term or provision of this 1994
Program, in the event the employment of an Eligible Employee is terminated,
for any reason other than death or disability, within one year following a
"Change of Control" (as defined in (b) below):
(i) all Option Rights granted to the Eligible Employee under
this 1994 Program prior to the date of termination, but not exercisable
as of such date, shall become exercisable automatically as of the later
of the date of termination or one year after the date the Option Right
was granted;
(ii) any Option Right that is exercisable as of the date of
termination, or that becomes exercisable pursuant to (i) above, shall
remain exercisable until the end of the exercise period provided in the
original grant of the Option Right (determined without regard to the
Eligible Employee s termination of employment); and
(iii) any Forfeiture Period (with respect to a Restricted Stock
Award) that shall be unexpired as of the date of termination shall expire
automatically as of such date.
(b) For purposes of this 1994 Program, a "Change of Control" shall
be deemed to have occurred if:
(i) any person, including a "group" as determined in
accordance with the Section 13(d)(3) of the Securities Exchange Act of
1934 ("Exchange Act"), is or becomes the beneficial owner, directly or
indirectly, of securities of the Bank representing 30 percent or more of
the combined voting power of the Bank's then outstanding securities;
(ii) as a result of, or in connection with, any tender offer or
exchange offer, merger or other business combination (a "Transaction"),
the persons who were directors of the Bank before the Transaction shall
cease to constitute a majority of the Board of Directors of the Bank or
any successor to the Bank;
(iii) the Bank is merged or consolidated with another
corporation and as a result of the merger or consolidation less than 70
percent of the outstanding voting securities of the surviving or
resulting corporation shall then be owned in the aggregate by the former
stockholders of the Bank, other than (A) affiliates within the meaning of
the Exchange Act, or (B) any party to the merger or consolidation;
(iv) a tender offer or exchange offer is made and consummated
for the ownership of securities of the Bank representing 30 percent or
more of the combined voting power of the Bank's then outstanding voting
securities; or
(v) the Bank transfers substantially all of its assets to
another corporation which is not controlled by the Bank.
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14. Fractional Shares. The Bank shall not be required to issue any
fractional share of Common Stock pursuant to this 1994 Program. The Committee
may provide for the elimination of fractions or for the settlement of
fractions in cash.
15. Administration of the 1994 Program.
(a) This 1994 Program shall be administered by the Committee, which
shall consist of not less than three Disinterested Directors. No right shall
be granted under this 1994 Program to any member of the Committee so long as
membership continues.
(b) The Committee shall have the power to interpret and construe
any provision of this 1994 Program. The interpretation and construction by
the Committee of any provision of this 1994 Program or of any agreement
evidencing the grant of rights hereunder, and any determination by the
Committee pursuant to any provision of this 1994 Program or of any such
agreement, shall be final and binding. No member of the Committee shall be
liable for any such action or determination made in good faith.
16. Amendments, Termination, Etc.
(a) This 1994 Program may be amended from time to time by resolu-
tions of the Board of Directors, provided that no such amendment shall (i) in-
crease the maximum numbers of shares of Common Stock specified in Paragraph 5
of this 1994 Program (except that adjustments authorized by Paragraph 12 of
this 1994 Program shall not be limited by this provision), or (ii) change the
definition of "Eligible Employees", without further approval by the stock-
holders of the Bank.
(b) The Committee may, with the concurrence of the affected
Optionee, cancel any agreement evidencing Option Rights granted under this
1994 Program. In the event of such cancellation, the Committee may authorize
the granting of new Option Rights (which may or may not cover the same number
of shares which had been the subject of the prior agreement) in such manner,
at such option price and subject to the same terms and conditions as, under
this 1994 Program, would have been applicable had the cancelled Option Rights
not been granted.
(c) In the case of any Option Right not immediately exercisable in
full, the Committee in its discretion may accelerate the time at which the
Option Right may be exercised, subject to the limitation described in
Paragraph 7(c).
(d) Notwithstanding any other provision of the 1994 Program to the
contrary, (i) the 1994 Program may be terminated at any time by resolutions of
the Board of Directors, and (ii) no rights shall be granted pursuant to this
1994 Program after June 30, 2004.
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Form of Proxy Card
PROXY
COMMUNITY BANK SYSTEM, INC.
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214
ANNUAL MEETING OF SHAREHOLDERS--MAY 4, 1994
THIS PROXY IS SOLICITED
BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned shareholder(s) of Community Bank System, Inc., a Delaware
corporation (the "Company"), hereby appoints Charles M. Ertel and Loretta L.
Marx, and each of them, attorneys-in-fact and proxies of the undersigned, with
full power of substitution to represent and to vote all shares of common stock
of the Company which the undersigned is entitled to vote at the annual meeting
of shareholders to be held on Wednesday, May 4, 1994, and at any adjournment
thereof as follows:
(Continued on reverse side)
- ----------- ---------------------
COMMON DIVIDEND REINVESTMENT
1. Election of Directors:
/ / FOR all nominees / / WITHHOLD AUTHORITY
listed (except as marked to vote for all
to the contrary below) nominees listed
Sanford A. Belden, Nicholas A. DiCerbo, Benjamin Franklin, Lee T. Hirschey,
and David C. Patterson
INSTRUCTION: To withhold authority for any individual nominee, write
that nominee's name in the space provided below.
- -----------------------------------------------------------------------------
2. Approval of the 1994 Long Term Incentive Compensation Program.
FOR / / AGAINST / / ABSTAIN / /
In their discretion, such attorneys-in-fact and proxies are authorized to vote
upon such other business as may properly come before the meeting.
This Proxy, when properly executed, will be voted as directed herein by the
undersigned. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED "FOR"
proposals 1 and 2.
Date , 1994
----------------------------
--------------------------------------
Signature
--------------------------------------
Signature
YOU ARE REQUESTED TO COMPLETE, DATE,
SIGN AND RETURN THIS PROXY PROMPTLY.
ALL JOINT OWNERS MUST SIGN. PERSONS
SIGNING AS EXECUTORS, ADMINISTRATORS,
TRUSTEES, CORPORATE OFFICERS, OR IN
OTHER REPRESENTATIVE CAPACITIES SHOULD
SO INDICATE.
Please check box to indicate whether you plan to attend Annual Meeting:
/ / will attend. / / will not attend.
