SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14a-(6e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (Section) 240.14a-11(c) or (Section)
240.14a-12
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):
[ ] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A.
[ ] $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 transaction 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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(5) Total fee paid:
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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 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:----------------------------------------------------------------
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COMMUNITY BANK SYSTEM, INC.
5790 Widewaters Parkway
DeWitt, New York 13214-1883
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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March 25, 1996
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 8, 1996 at the Ramada Inn, Watertown, New York for the purpose
of considering and voting upon the following matters:
1. The election of three directors, each to hold office for a term
of three years and until their successors have been duly elected.
2. Approval of Amendment to Long Term Incentive Compensation
Program.
3. Approval of Amendment to Certificate of Incorporation to
eliminate action by written consent.
4. 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
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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 13214-1883
-----------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 8, 1996
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 8, 1996, at the Ramada Inn, Watertown, New York. This Proxy
Statement and the form of Proxy are first being sent to Shareholders on
approximately March 25, 1996.
At the Meeting, the Shareholders will be asked to vote for the election of
directors. Three of the total of thirteen directors who serve on the Company's
Board of Directors will stand for re-election to the Board at the Meeting. The
Shareholders will also be asked to approve an amendment to the 1994 Long Term
Incentive Compensation Program as more fully described on page 7. In addition,
the Shareholders will be asked to approve an amendment to the Company's
Certificate of Incorporation as more fully described on page 13. Finally, 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 18, 1996 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, 3,682,315 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 stock, presently outstanding, that currently possesses a right to vote.
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.
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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.
The Annual Report of the Company for the fiscal year ended December 31,
1995 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 13214-1883.
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 1997 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 25, 1996. 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 three
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 three 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 Bylaws of the Company
require that a director who reaches age 70 retire from the Board prior to
commencement of the next annual meeting of the Company's shareholders. In
accordance with the Bylaws, Benjamin Franklin and William D. Stalder will retire
from the Board prior to commencement of the Meeting. Upon their retirement, the
size of the Board will be decreased from 13 to 11 directors. The remaining 11
members of the Board, who are listed below (including the nominees for
re-election at the 1996 Annual Meeting, if elected), 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
<TABLE>
<CAPTION>
Shares of Company Common
Stock Beneficially Owned (c)
as of March 18, 1996 (d)
-----------------------------------
Business
Name and Director of the Experience During
Age (a) Company Since Past Five Years (b) Number Percent
- ----------------------------- -------------------- ----------------------------------------- ------------------ ----------------
Nominees (for terms to expire
at Annual Meeting in 1999)
- ------------------------------
<S> <C> <C> <C> <C>
Richard C. Cummings 1983 Partner, law firm of Cummings, 6,680 .18%
Age 66 McGuire, Dunckel & Campany,
Lowville, New York.
William M. Dempsey 1984 Vice President of Finance and 800 .02%
Age 57 Administration, Rochester Institute of
Technology, Rochester, New York.
William N. Sloan 1991 Associate Professor of Mathematics, 742 .02%
Age 61 Potsdam College of the State University
of New York, Potsdam, New York.
Directors Continuing in Office
- ------------------------------
Terms expiring at Annual
Meeting in 1998:
John M. Burgess 1991 Retired. Prior to 1991, President of 5,210 .14%
Age 59 Kinney Drugs, Inc., a drug and retail
chain with stores located throughout
northern New York.
James A. Gabriel 1984 Owner, Franklin & Gabriel, Ovid, 12,247 .33%
Age 48 New York.
Earl W. MacArthur 1983 Vice President, WM Academic Search 1,960 .05%
Age 67 Specialists since 1993. From 1972-
1992, President, State University of
New York at Canton, New York.
Hugh G. Zimmer 1989 Retired. Prior to 1989, President, The 22,670(e) .62%
Age 69 Nichols National Bank, Nichols, New
York, which was consolidated into
Community Bank, N.A. as of
January 1, 1992.
</TABLE>
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<TABLE>
<CAPTION>
Shares of Company Common
Stock Beneficially Owned (c)
as of March 18, 1996 (d)
-------------------------------------
Business
Name and Director of the Experience During
Age (a) Company Since Past Five Years (b) Number Percent
- ----------------------------- -------------------- ----------------------------------------- ------------------ -----------------
Nominees (for terms to expire
at Annual Meeting in 1997)
- -----------------------------
<S> <C> <C> <C> <C>
Sanford A. Belden 1992 President and Chief Executive Officer 36,385(e) .98%
Age 53 of the Company since October 1, 1992.
From 1990 to 1992, Manager, Eastern
Region, Rabobank Nederland, New
York, New York.
Nicholas A. DiCerbo 1984 Partner, law firm of DiCerbo and 25,974 .71%
Age 49 Palumbo, Olean, New York.
Lee T. Hirschey 1991 President and Chief Executive Officer, 15,856 .43%
Age 60 Climax Manufacturing Company,
converter and manufacturer of paper
products with facilities in Castorland,
Lowville, and West Carthage, New
York.
David C. Patterson 1991 President and owner of Wight and 5,389 .15%
Age 54 Patterson, Inc., manufacturer and seller
of livestock feed
located in Canton, New
York.
</TABLE>
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:
<TABLE>
<CAPTION>
Shares of Company Common
Stock Beneficially Owned (c)
as of March 18, 1996 (d)
----------------------------------------
Number Percent
------------------ ------------------
<S> <C> <C> <C>
James A. Wears Regional President 19,558(e) .53%
Northern Region
Michael A. Patton Regional President 21,548(e) .58%
Southern Region
David G. Wallace Senior Vice President 15,612(e) .42%
and Chief Financial Officer
<S> <C> <C>
Number of shares of Company stock beneficially owned 190,631(e) 5.11%
by all Directors and Executive Officers of the Company
as a group (14 persons)
</TABLE>
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<PAGE>
(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 18, 1996,
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
and named executive officers are beneficial owners but not the
sole beneficial owners as follows: Mr. Burgess' wife holds 300
shares; Mr. Cummings' wife holds 144 shares; Mr. DiCerbo holds
11,587 shares jointly with his wife, 12,773 shares are held in the
name of the law partnership of DiCerbo and Palumbo, 191 shares are
held by his wife, 161 shares are held by his daughter, and 403
shares are held by his son; Mr. Hirschey's wife holds 1,000 shares
and Mr. Hirschey holds 7,000 shares as Trustee for the Retirement
Plan of Employees of Climax Manufacturing Company; Dr. MacArthur's
wife holds 650 shares; Mr. Patterson holds 1,190 shares jointly
with his wife and 600 shares as Trustee for the Wight and
Patterson Retirement Plan; Mr. Patton is the beneficial owner of
1,632 shares held by the Company's 401(k) plan, his wife holds 700
shares, and his daughters hold 606 shares; Mr. Sloan holds 69
shares jointly with his wife; Mr. Wallace is the beneficial owner
of 4,022 shares held by the Company's 401(k) plan; Mr. Wears is
the beneficial owner of 6,228 shares held by the Company's 401(k)
plan, he holds 2,590 shares jointly with his wife, and his wife
holds 2,307 shares in her own name; and Mr. Zimmer holds 17,737
shares jointly with his wife.
(e) Includes shares that the following individuals have the right to
acquire within 60 days of March 18, 1996 through exercise of stock
options issued by the Company: Mr. Zimmer, 1,000 shares; Mr.
Belden, 31,385 shares; Mr. Wears, 6,335 shares; Mr. Patton, 5,030
shares; and Mr. Wallace, 5,060 shares. These shares are included
in the total number of shares outstanding for the purpose of
calculating the percentage ownership of the foregoing individuals
and of the group as a whole, but not for the purpose of
calculating the percentage ownership of other individuals listed
in the foregoing table.
BOARD COMMITTEES AND MEETINGS
The Board of Directors of the Company held twelve regularly scheduled
meetings during the fiscal year ended December 31, 1995. 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 1995, this
Committee held four meetings and its present members are Directors Richard C.
Cummings (Chair), James A. Gabriel, Lee T. Hirschey, and William D. Stalder. As
noted above, Director Stalder will retire from the Board prior to the Meeting.
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<PAGE>
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
non-officer employees in the aggregate, and the salaries and performance of
executive officers are reviewed individually. The Personnel Committee held eight
meetings in 1995, and its present members are directors Nicholas A. DiCerbo
(Chair), John M. Burgess, and William N. Sloan.
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 1995, 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. Dr. MacArthur, as Chair of the Board, also serves as a member
of all Board Committees.
COMPENSATION OF DIRECTORS
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 an annual retainer or
compensation for attending Board and committee meetings. The Chair of the Board
receives an all inclusive $46,000 retainer for serving in that capacity. 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.
In 1995, the directors re-evaluated their total compensation arrangement,
in light of the increased responsibility associated with the changing nature of
the Company and the "Blue Ribbon Report" issued by the National Association of
Corporate Directors. Among other things, the Blue Ribbon Report suggests that
director compensation be structured so that it is specifically aligned with the
long-term interests of shareholders. In keeping with the spirit of the Blue
Ribbon Report, effective January 1, 1996, the Board adopted a "Stock Balance
Plan" for non-employee directors of the Company who have completed at least six
months of service as director. The plan establishes an account for each eligible
director. Amounts credited to those accounts reflect the value of 100 shares of
the Company's Common Stock for each year of service between 1981 and 1995 at the
December 31, 1995 market value, plus an annual amount equal to 100 additional
shares of Common Stock beginning in 1996, plus an annual earnings credit equal
to the three-year average total return on the Company's Common Stock. The
crediting of additional units beginning in 1996 is subject to an adjustment
factor which reflects the Company's asset quality, return on equity and CAMEL
rating. The account balance is payable to each director
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<PAGE>
in the form of an annuity following the later of age 55 or disassociation from
the Board, is subject to a six-year vesting schedule, and is forfeitable in the
event of termination from the Board for cause.
In addition, as noted more fully below, effective January 1, 1996 the Board
proposed to amend the Company's 1994 Long Term Incentive Compensation Program
(the "Incentive Plan"), in part to allow for the issuance of Non-Qualified Stock
Options to directors. Subject to shareholder approval of the amendments to the
Incentive Plan (and subject to adjustment as described below), eligible
directors will receive options representing 805 shares of Common Stock in 1996,
and options representing 1,000 shares of Common Stock in each year thereafter,
at a per share exercise price equal to the market value of the Company's Common
Stock on the date of grant.
ITEM 2: APPROVAL OF AMENDMENTS TO 1994 LONG TERM INCENTIVE
COMPENSATION PROGRAM
The Community Bank System, Inc. 1994 Long Term Incentive Compensation
Program (the "Incentive Plan") was originally approved by the Company's
shareholders at the Company's 1994 annual shareholders' meeting. The purpose of
the Incentive Plan is to enable the Company to attract, retain and reward
employees through a comprehensive equity-based incentive compensation program,
and to more closely align the interests of employees with the interests of the
Company's shareholders.
In June 1995, the National Association of Corporate Directors issued a Blue
Ribbon Report (the "Report") in which it outlined the principles of effective
director compensation programs. Among other things, the Report suggested that
director compensation be aligned with the long-term interests of shareholders,
be fully disclosed to shareholders, be used to motivate director behavior, and
be reflective of the time, effort, and skill required for effective service.
On December 20, 1995, the Board of Directors approved amendments to the
Incentive Plan, subject to approval by the Company's shareholders at the
Meeting. The purposes of these proposed amendments, which are described more
fully below, are (i) to add an element of performance and equity-based
compensation to the compensation arrangement for directors by enabling
non-employee directors to participate on a limited basis in the Incentive Plan,
and (ii) to further diversify the types of equity-based compensation available
to employees who are already eligible to participate under the Incentive Plan by
providing for the issuance of discounted Non-Statutory Stock Options to eligible
employees.
The Board believes that adoption of the proposed amendments is consistent
with the principles enunciated in the Report, and is necessary for the Company
to continue its ability to attract, retain, and motivate highly qualified
individuals to represent shareholder interests by serving as directors and
employees of the Company.
The following is a summary of the Incentive Plan, as in effect prior to the
proposed amendments, together with a summary of the material amendments proposed
to be made to the Incentive Plan. These summaries are qualified in their
entirety by reference to the specific provisions of the Incentive Plan, the full
text of which (after giving effect to the proposed amendments) is attached to
this Proxy Statement as Exhibit A.
GENERAL FEATURES OF THE INCENTIVE PLAN
The Incentive Plan presently empowers the Company to award to officers and
other key employees of the Company and its subsidiaries, from time to time, (i)
Incentive Stock Options within the meaning of Section 422 of the Internal
Revenue Code, (ii) Non-Statutory Stock Options (i.e., options that do not meet
the definition of Incentive Stock Options as set forth in Section 422 of the
Internal Revenue Code), (iii) Retroactive Stock Appreciation Rights, and (iv)
Restricted Stock, or any combination of such awards. The term of the Incentive
Plan is for ten years, and will expire on June 30, 2004 if not earlier
terminated by the Board.
The Incentive Plan is administered by the Personnel Committee or such other
committee as may be appointed by the Board, consisting of not less than three
disinterested directors of the Company (the "Committee"). Under the current
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<PAGE>
Incentive Plan (prior to giving effect to the proposed amendments), members of
the Committee are not eligible to participate in the Incentive Plan. The Company
has the authority to select participants from those individuals eligible under
the Incentive Plan, to establish the terms and conditions of any awards, to
authorize awards under the Incentive Plan, and to interpret and construe any
provisions of the Incentive Plan.
Presently, officers who are employees of the Company or its subsidiaries,
and other key employees of the Company and its subsidiaries, are eligible to
participate in the Incentive Plan. Participants who may receive awards under the
Incentive Plan are selected by the Committee, based upon such factors as the
individual's past and potential contributions to the success, profitability, and
growth of the Company. Whether an award may be exercised after a participant's
termination of employment is determined by the Committee, subject to limits set
forth below with respect to different types of awards under the Incentive Plan.
Subject to adjustments as noted below, and prior to giving effect to the
proposed amendments described below, the Incentive Plan currently authorizes the
issuance of a total of 130,000 shares of Common Stock over its ten-year term
(approximately 3.53% of the shares of Common Stock outstanding as of March 18,
1996), 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
Incentive Plan may be newly issued shares, treasury shares, or any combination
thereof. The 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, is assignable, or transferrable by a participant, except that option
rights may be transferred by will or the laws of descent and distribution. The
Board may amend or terminate the Incentive Plan at any time, except the Board
may not, without approval by the Company's shareholders, make any amendment
(including the proposed amendments) that would (i) increase the number of
available shares under the Incentive Plan, or (ii) change the definition of
persons eligible under the Incentive Plan.
Stock Options. Options granted 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 must be at least
100% of the fair market value of the Common Stock on the date of grant. Thus, a
participant 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, 1995, the average
price of a share of Common Stock was $32.00. The number of shares of Common
Stock in respect of which Incentive Stock Options are exercisable by any
optionee during any calendar year may not have a fair market value (determined
at the date of grant) in excess of $100,000. Incentive Stock Options granted
under the Incentive Plan are exercisable for such period or periods (not in the
excess of ten years) after the date of grant as are determined by the Committee,
except that no Incentive Stock Options may be made exercisable earlier than one
year following the date that they are granted.
Non-Statutory Stock Options may also be granted under the Incentive Plan,
and are exercisable for such period or periods and at such price as the
Committee may determine, provided that (prior to giving effect to the proposed
amendments described below) the exercise price may not be below the fair market
value of a share of Common Stock as of the date that the option is granted.
The Committee has the authority, in its discretion, to accelerate the time
at which a stock option becomes exercisable, provided that no Incentive Stock
Option may be exercisable earlier than one year following the date that it is
granted. If an option holder's employment is terminated within one year
following a change of control of the Company for any reason other than death or
disability, all stock options then held by the optionee become exercisable
automatically as of the later of the date of termination or one year after the
date the option was granted, and remain exercisable until the end of the
exercise period provided in the original grant of the stock option.
Stock options granted under the Incentive Plan are 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 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
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<PAGE>
with Common Stock issued by the Company upon exercise of an option under the
Incentive Plan or another stock option plan, unless the Common Stock has been
held for at least one year.
Each grant of stock options under the Incentive Plan must be evidenced by
an agreement between the Company and the optionee, which shall contain such
terms and provisions, consistent with the Incentive Plan, as the Committee may
approve.
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").
A 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 cancelled. Conversely, if the
optionee elects to exercise the option, the right to receive the related SAR is
cancelled 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, subject
to forfeiture to the Company upon such conditions and for such periods of time
as the Committee may determine. A participant may vote and receive dividends on
shares of Restricted Stock awarded, but may not sell, assign, transfer, pledge
or otherwise encumber such shares during the forfeiture period. 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 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 expiration of the forfeiture period, the
forfeiture period will 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 will automatically expire on the date employment is
terminated. Notwithstanding the foregoing, the Committee has the ability to
accelerate the time at which any and all restrictions applying to Restricted
Stock shall lapse.
FEDERAL INCOME TAX CONSEQUENCES
The anticipated federal income tax consequences relating the different
types of awards under the Incentive Plan are 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 or 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 the 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 a capital gain to the holder. The Company will not be entitled to a federal
income tax deduction for the capital gain amount.
-9-
<PAGE>
Non-Statutory Stock Options. Upon the exercise of a Non-Statutory 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 a 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 will be a taxable 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
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 the participant's income.
PROPOSED AMENDMENTS TO THE INCENTIVE PLAN
The proposed material amendments to the incentive plan which have been
approved by the Board of Directors, and upon which your vote will be requested
at the Meeting, are summarized below. If approved, the proposed amendments would
become effective as of January 17, 1996, the date on which they were approved by
the Board of Directors.
Eligibility. If approved by the Company's shareholders at the Meeting, the
Incentive Plan would be amended to permit non-employee members of the Board of
Directors (or of the board of directors of a subsidiary) to receive
formula-based awards of Non-Statutory Stock Options on an annual basis. Pursuant
to this amendment, on or about each January 1st occurring after 1995, each
eligible non-employee director would receive a Non-Statutory Stock Option to
purchase a fixed number of shares of the Company's Common Stock. Specifically,
each eligible non-employee director would receive an option to purchase 805
shares of Common Stock effective January 1, 1996, and would receive an option to
purchase 1,000 shares of Common Stock on or about each January 1st thereafter.
Notwithstanding the foregoing, to the extent that the Committee determines that
grants may be exempt from Section 16(b) of the Securities Exchange Act of 1934,
as amended, each Non-Statutory Stock Option granted pursuant to the preceding
sentence could be modified by a factor that reflects the financial performance
of the Company.
Each option granted to a non-employee director would be granted at an
option price per share equal to the market value per share of the Company's
Common Stock on the date of grant, and would be fully exercisable upon its date
of grant, provided that shares of Common Stock acquired pursuant to the exercise
of such option could not be sold or otherwise transferred by a director within
six months of the grant. Any such option would be exercisable until the earlier
of (i) ten years from the date of grant, or (ii) termination of the optionee's
service on the Board for cause (as defined in the Incentive Plan, as amended).
To be eligible to receive option grants as described above, a non-employee
member of the Board of Directors would need to (i) have attended at least 75% of
the Board of Directors or Board committee meetings that he or she was scheduled
to attend during the immediately preceding calendar year; (ii) have served as a
director of the Company or a subsidiary
-10-
<PAGE>
on the last day of such calendar year; and (iii) have completed at least six
months of service on the Board (or on the board of directors of a subsidiary).
Non-employee directors would not be eligible to receive any types of awards
other than Non-Statutory Stock Options pursuant to the Incentive Plan, as
amended.
The Board believes that providing for the grant of Non-Statutory Stock
Options to non-employee directors is in the best interests of the Company. In
the spirit of the Blue Ribbon Report, such a provision would more closely align
the interests of individual directors with the long-term interests of the
Company's shareholders, and would enable the Company to continue to attract
qualified individuals to serve on the Board of Directors.
Discounted Stock Options for Eligible Employees. As noted above, the
Incentive Plan currently requires that the per share exercise price for
Non-Statutory Stock Options granted to eligible employees be set at or above the
fair market value of a share of Common Stock on the date the option is granted.
If approved by the Company's shareholders at the Meeting, the Incentive Plan
would be amended to allow the award of discounted Non-Statutory Stock Options to
eligible employees by permitting the Committee to set a per share exercise price
for such options at not less than 50% of the fair market value per share of a
share of Common Stock on the date the option is granted.
The Board of Directors believes that there are occasions where shareholder
interests can be properly served through the issuance of discounted
Non-Statutory Stock Options to key employees. Non-vested discount options would
allow the Company to reward key employees for prior accomplishments, under
circumstances when the extent of such accomplishments are not then determinable.
In addition, the issuance of discounted options that have value would assist the
Company in rewarding and retaining key employees who do not currently have
in-the-money options. As noted below, subject to approval of the proposed
amendments, the Board has approved the issuance of certain discounted
Non-Statutory Stock Options to Messrs. Belden, Wears, Patton and Wallace to
reward them for their contributions to the Company's successful July 14, 1995
acquisition of 15 branch locations from The Chase Manhattan Bank, N.A.
Additional Shares Available Under the Incentive Plan. Finally, if approved
by the Company's shareholders at the Meeting, the Incentive Plan would be
amended to raise the amount of shares available for issuance under the Plan from
130,000 to 305,000. This proposed amendment reflects the increase in the number
of persons eligible to participate in the Incentive Plan, including non-employee
directors, if the amendments discussed above become effective.
-11-
<PAGE>
AWARDS UNDER THE INCENTIVE PLAN
The following table sets forth stock options awarded in 1995 pursuant to
the Incentive Plan.
<TABLE>
<CAPTION>
Shares of
Common Stock Shares of
Name and Position Underlying Stock Options Restricted Stock
- ---------------------------------------------- ---------------------------- ------------------------
<S> <C> <C>
Sanford A. Belden 7,325 0
President and Chief Executive Officer
James A. Wears 2,575 0
Regional President
Northern Region
Michael A. Patton 2,550 0
Regional President
Southern Region
David G. Wallace 2,400 0
Senior Vice President and
Chief Financial Officer
Executive Group 14,850 0
Non-Employee Directors 0 0
Non-Executive Officer Employees 8,450 3,950
</TABLE>
As noted above, the decision as to whether awards will be granted under the
Incentive Plan to officers and employees, as well as the timing and amount of
any such awards, are within the sole discretion of the Committee. Accordingly,
the 1995 awards shown above as awarded to officers and employees may not be
indicative of any future awards which might be granted to such persons under the
Incentive Plan, as amended.
In June 1995, the Company successfully raised $27.5 million in equity in
connection with its July 14, 1995 purchase of 15 branches from The Chase
Manhattan Bank, N.A. In August 1995, the Board approved the issuance of
restricted stock to 42 non-executive officer employees who supported those
efforts; however, it elected to delay special remuneration for the named
executive officers listed above, pending evaluation of the post-acquisition
results. Having determined that the Company successfully integrated the new
branches and completed its planned divestiture of three of the acquired
branches, in January 1996 the Board approved the granting of discounted
Non-Statutory Stock Options to Messrs. Belden, Wears, Patton, and Wallace in the
amounts of 1,000, 1,000, 1,000, and 5,000 shares, respectively, subject to
shareholder approval of the proposed amendments to the Incentive Plan. The
exercise price for these options is the June 24 public offering price of $24.25,
and the options will vest at the rate of 20% per year, commencing on January 2,
1997. In addition, as discussed above (and subject to adjustment as noted
above), if the proposed amendments to the Incentive Plan are approved, each
eligible non-employee director will receive annual formula-based stock option
grants in the amount of 805 shares in 1996 and 1,000 shares per year thereafter.
Aside from the items described in this paragraph, it is not currently possible
to determine the amount or nature of awards that may be made in the future under
the Incentive Plan.
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 Meeting is required for approval of the
proposed amendments to the Incentive Plan. The Board of Directors recommends
that shareholders vote FOR this proposal. Proxies solicited will be so voted
unless shareholders specify a contrary vote or abstain.
-12-
<PAGE>
ITEM 3: APPROVAL OF AMENDMENT TO CERTIFICATE OF
INCORPORATION TO ELIMINATE ACTION BY
WRITTEN CONSENT.
The Board of Directors has unanimously recommended that the shareholders
approve an amendment to the Company's Certificate of Incorporation to require
that all shareholder action be taken at a meeting (either an annual or a special
meeting) and not by means of written consent in lieu of a meeting.
Pursuant to Delaware corporation law, unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
the shareholders of the Company may be taken without a meeting, without prior
notice and without a shareholder vote if a written consent setting forth the
action to be taken is signed by the holders of outstanding stock having the
requisite number of shares that would be necessary to authorize such action at a
meeting at which all shares entitled to vote thereon were present and voted. The
Company's Certificate of Incorporation does not presently preclude shareholder
action by written consent. This consent procedure is convenient and appropriate
in a closely-held corporation with a small number of shareholders, who may be
assumed to be knowledgeable about the affairs of the corporation. The Board has
concluded, however, after careful deliberation, that the consent procedure is
not appropriate for a large publicly-owned corporation like the Company which
has thousands of shareholders who may be effectively disenfranchised during a
consent solicitation.
The Board of Directors recommends the addition of a new paragraph 12 to the
Certificate of Incorporation stating that: "All action which is required by law
or which may be taken at any annual or special meeting of the stockholders of
the Corporation shall be taken at a meeting and may not be taken by consent or
consents in lieu of a meeting."
Prohibiting shareholder action by written consent would give all
shareholders of the Company the opportunity to participate in determining any
proposed action and would prevent holders of a majority of the voting stock of
the Company from using the written consent procedure to take shareholder action.
The prohibition would also have the effect of making more difficult action by
shareholders which does not have the support of the Board of Directors and also
could have the effect of discouraging a third party from making a tender offer
or otherwise attempting to gain control of the Company if the third party were
unwilling to submit its proposals to a vote of the shareholders at a meeting.
For example, the prohibition would prevent a third party from attempting to take
control of the Company by means of a solicitation of written consents to remove
directors and elect a new Board of Directors.
Approval of the proposed amendment to the Certificate of Incorporation
eliminating shareholder action by written consent requires the affirmative vote
of the holders of a majority of the outstanding shares of the Company's Common
Stock.
The Board of Directors unanimously recommends a vote FOR the proposal.
Proxies solicited will be so voted unless shareholders specify a contrary vote
or abstain.
-13-
<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, 1995, (i) the chief
executive officer and (ii) the other most highly compensated executive officers
whose annual salary and bonus exceeded $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------------------- ------------- -------------
Other Annual All Other
Compensation Stock Options Compensation
Year Salary ($) Bonus ($) (1) ($) (2) (#) ($)(3)
---- ---------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Sanford A. Belden 1995 240,000 86,400 4,082 7,325 67,273
President and Chief 1994 205,000 74,107 2,180 5,300 11,986
Executive Officer 1993 185,000 66,600 3,498 0 12,422
James A. Wears 1995 129,000 33,550 3,249 2,575 9,201
Regional President 1994 119,669 31,293 4,193 2,050 9,075
Northern Region 1993 113,971 29,633 3,706 0 9,498
Michael A. Patton 1995 129,000 33,550 3,956 2,550 9,675
Regional President 1994 118,539 30,998 2,156 2,050 8,988
Southern Region 1993 112,896 29,353 3,085 0 9,704
David G. Wallace 1995 119,000 30,950 0 2,400 8,861
Senior Vice President 1994 111,750 29,222 0 1,950 8,858
and Chief Financial 1993 106,937 27,804 2,939 0 9,419
Officer
</TABLE>
(1) The amounts shown in this column reflect payments under the Company's
Management Incentive Plan, an annual cash award 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 for Messrs. Belden, Wears, and
Patton, which amounted to $4,082, $3,249, and $3,956 in 1995, respectively; and
(b) wages received by Mr. Wallace as tax reimbursement for restricted stock
which vested in 1993 and amounted to $2,939.
(3) The 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 $2,477,
$724, $1,198, and $1,041 in 1995, respectively; (b) Company contributions to the
Employee Savings and Retirement Plan, a defined contribution plan, amounting to
$9,848 for Mr. Belden, $8,477 for Mr. Wears, $8,477 for Mr. Patton, and $7,820
for Mr. Wallace during 1995; and (c) the 1995 expense associated with Mr.
Belden's supplemental retirement plan, which amounted to $54,948. The Company
does not maintain any "split-dollar" arrangements for any of the named
executives.
-14-
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table provides further information on grants of stock options
pursuant to the Company's Long-Term Incentive Compensation Program in fiscal
year 1995 to the named executives as reflected in the Summary Compensation Table
on page 14.
<TABLE>
<CAPTION>
% of Total Market Potential Realizable Value at
Options Exercise Value Assumed Annual Rates of
Granted to or on Stock Price
Options Employees Base Expir- Grant Appreciation for Option Term
Granted in Price ation Date
Name (#) Fiscal Year ($/Sh) Date ($/Sh) 0% 5% 10%
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sanford A. Belden 7,325 32% 26.25 1/2/05 26.25 None 120,925 306,447
James A. Wears 2,575 11% 26.25 1/2/05 26.25 None 42,509 107,727
Michael A. Patton 2,550 11% 26.25 1/2/05 26.25 None 42,097 106,681
David G. Wallace 2,400 10% 26.25 1/2/05 26.25 None 39,620 100,406
</TABLE>
On January 1, 1995, the Board of Directors issued incentive stock options
to Messrs. Belden, Wears, Patton, and Wallace at the then current market price
of $26.25 per share. These options become exercisable over the course of five
years, with one-fifth of the options becoming exercisable on January 2, 1996,
1997, 1998, 1999, and 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
The following table provides information for the named executive officers,
with respect to (i) stock options exercised in fiscal year 1995, (ii) the number
of stock options held at the end of fiscal year 1995, and (iii) the value of
in-the-money stock options at the end of fiscal year 1995.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at 12/31/95 (#) In-the-Money Options
at 12/31/95 ($) (1)
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Sanford A. Belden 0 0 29,860 30,765 205,310 191,359
James A. Wears 400 3,500 5,410 6,215 84,435 54,546
Michael A. Patton 2,800 68,271 4,110 4,990 61,835 34,003
David G. Wallace 0 0 4,190 5,160 66,465 39,660
</TABLE>
(1) Based on the average price of the Company's Common Stock on December
31, 1995 of $32.00 per share.
-15-
<PAGE>
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
Highest Five
Year Average
Compensation (1) 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
20,000 2,700 3,600 4,500 5,400 6,300
50,000 9,110 12,146 15,183 18,219 21,256
100,000 20,735 27,646 34,558 41,469 48,381
125,000 26,385 35,180 44,975 52,770 61,565
150,000 32,360 43,146 53,933 64,719 75,506
</TABLE>
(1) For 1995, the Internal Revenue Code limits the total compensation that
may be taken into account in calculating benefits to $150,000.
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 base salary and cash award amounts in the
Summary Compensation Table on page 14 reflect the covered compensation under the
plan for Messrs. Belden, Wears, Patton, and Wallace. Messrs. Belden, Wears,
Patton, and Wallace have been credited with 3, 25, 25, and 7 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 first entered into a nonqualified supplemental
retirement plan agreement with Mr. Belden in January 1995. The Company does not
currently maintain any nonqualifed retirement plans for any of the other named
executives.
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Belden dated January 1,
1995 providing for his employment as the Company's President and Chief Executive
Officer until December 31, 1997. The agreement may be terminated by the Board
for good cause at any time. The agreement requires that Mr. Belden devote his
full business time and attention to the performance of his duties for a base
salary of $240,000 for 1995, $275,000 for 1996, and $300,000 for 1997. In the
event the Company's average assets during any monthly reporting period reach
$1.75 billion, Mr. Belden's base salary will by reviewed by the Board. The
agreement also provides Mr. Belden with a supplemental retirement benefit which
amounts to 4% of his final five year average salary, times years of service (15
year maximum), payable at age 65 in the form of an actuarially reduced joint and
50% survivor benefit. Benefits payable prior to age 65, or in another form, are
subject to the same actuarial adjustments as benefits payable under the
Company's pension plan. The supplemental retirement payments are reduced by the
benefit payable under the Company's pension plan, his Social Security benefit,
and the benefits payable from two other pension plans that Mr. Belden
participated in prior to his joining the Company in 1992. If upon expiration of
the agreement the Company elects not to renew, Mr. Belden will be entitled to
severance pay equal to one year of his then current base salary, 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, the Company will retain him as a consultant for two years
at an annual consulting fee equal to his base salary, reimburse him for any loss
incurred on the sale of his home, and all of his stock options shall become
fully exercisable. Additionally, in the event of a change of control, Mr.
Belden's years of service for supplemental retirement benefit purposes shall
include his consultation period plus an additional three years.
-16-
<PAGE>
The Company also maintains one year employment agreements with Messrs.
Wears, Patton, and Wallace. These agreements provide for severance pay equal to
the employee's base salary for the balance of the term of the agreement plus
benefits under the Company's regular severance policy, and change of control
benefits which include a two year consulting engagement, accelerated vesting on
all outstanding stock options, and in the case of Mr. Wallace, crediting for
retirement funding purposes in the greater amount of actual years of service or
20 years.
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 (Chair), John M. Burgess,
Earl W. MacArthur, and William N. Sloan. The Personnel Committee reviews and
makes recommendations regarding compensation levels and employee benefits. As
noted below on page 20, the law firm of DiCerbo and Palumbo, of which director
DiCerbo is a partner, provided legal services to the Bank's operations in Olean,
New York during 1995.
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 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 19, and
establishes compensation parameters based on that review.
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. Those goals include specific financial targets relative to earnings 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.
-17-
<PAGE>
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, cash award, and stock option matters.
Compensation Programs
The Company defines itself as a super-community 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
organizations. 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 salaries for employees by reviewing the
total cash compensation opportunities for competitive positions in the market.
Where practical, the Company maintains its base salary levels slightly below
market and provides for total compensation opportunities that may exceed those
in comparable companies which do not generate comparable financial results.
Management Incentive Plan. The Company maintains an annual incentive
plan in which 37% of its employees participate. The Company's performance to
targeted return on equity and budget, which targets are approved by the Board,
triggers the payment of cash awards for all employees in this group. Award
levels, which amount to a percentage of salary, have been established for
different organizational levels within the Company. For Mr. Belden, 100% of his
award is determined by the Company's performance relative to its Return on
Equity and Net Income targets. For Messrs. Wears, Patton, and Wallace, 80% of
their respective award opportunities reflect the Company's performance relative
to its financial targets, and 20% of their respective award opportunities
reflect performance to other quantitative and qualitative goals specific to
their areas of responsibility.
Equity-Based Compensation
Stock Option Program. The purpose of this program is to provide
additional incentives to employees to work 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 frequently awards options in years during
which the Company has achieved its 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: performance unit 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.
CEO Compensation
In December 1995, the full Board formally reviewed Mr. Belden's performance
for fiscal year 1995, his third 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 surpassed,
the Board, operating under the terms of the Management Incentive Plan disclosed
in this Report, authorized the payment of Mr. Belden's cash award for 1995,
which amounted to $86,400. Mr. Belden's $240,000 base salary level for 1995 is
well supported by competitive
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<PAGE>
wage survey data, and the increase over his 1994 base salary level is well
supported by the Company's strategic accomplishments and financial performance
during the 1994 evaluation period.
The foregoing report has been provided by Nicholas A. DiCerbo (Chair), John
M. Burgess, Earl W. MacArthur, and William N. Sloan, members of the Personnel
Committee.
STOCK PERFORMANCE GRAPH
The following graph compares cumulative total shareholder returns on the
Company's stock over the last five fiscal years to the NASDAQ Index and the
NASDAQ Bank Stocks Index. Total return values were calculated assuming $100
investment on January 1, 1990 and reinvestment of dividends.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Community Bank System, Inc. 100.00 192.84 343.97 420.65 402.79 511.62
NASDAQ Stock Market Index 100.00 160.56 160.56 214.51 209.69 296.30
NASDAQ Bank Stocks Index 100.00 164.09 238.85 272.39 271.41 404.35
</TABLE>
-19-
<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, owned by Director Gabriel, 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 1995 and for related
out-of-pocket disbursements, DiCerbo & Palumbo received $56,448 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 L.L.P., 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, 1995 and performed such other nonaudit
services as the Board requested.
A representative of Coopers & Lybrand L.L.P. will be present at the
Meeting. This representative will have the opportunity to make a statement, if
he 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 25, 1996 By Order of the Board of Directors
Loretta L. Marx
Secretary
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<PAGE>
Exhibit A
COMMUNITY BANK SYSTEM, INC.
1994 LONG-TERM INCENTIVE COMPENSATION PROGRAM
(Including Proposed Amendments to be Voted Upon
at 1996 Annual Shareholders' Meeting)
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 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 directors, officers and other key
employees with an equity or equity-based interest in the Bank, so that the
interests of such directors and employees will be closely associated with the
interest of shareholders by reinforcing the relationship between shareholder
gains and compensation. Pursuant to this 1994 Program, eligible directors may
receive formula awards and 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. Employee 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.
Notwithstanding the foregoing, each non-employee member of the Board of
Directors (or of the board of directors of a Subsidiary whom the Board of
Directors has specifically selected, in a written resolution, for participation
in this 1994 Program) shall be eligible for a formula award pursuant to
Paragraph 6, but shall be ineligible for discretionary grants pursuant to
Paragraphs 6, 9, or 10.
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 number 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 (except for formula awards pursuant to the last paragraph of Paragraph 6
hereof), 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.
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<PAGE>
(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 Common 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 described in good faith by the
Committee.
(i) "Non-Statutory Stock Option" shall mean the right granted to an
Eligible Employee or Director 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 or Director 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 Paragraph 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 either
(i) shares of original issue, (ii) treasury shares, (iii) shares held in a
grantor trust maintained by the Bank, or (iv) 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 305,000 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 not less than 50% of the
Market Value per Share on the date the Option Right is granted.
A-2
<PAGE>
(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.
(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.
As soon as practicable after each January 1 occurring after 1995, each
non-employee member of the Board of Directors (or of the board of directors of a
Subsidiary whom the Board of Directors has specifically selected, in a written
resolution, for participation in this 1994 Program) who has (i) attended at
least 75% of the Board of Directors or Board committee meetings he or she was
scheduled to attend during the immediately preceding calendar year, (ii) served
as a director of the Bank or a Subsidiary on the last day of such calendar year,
and (iii) completed at least six months of service on the Board of Directors (or
on the board of directors of a Subsidiary) shall be granted a Non-Statutory
Stock Option, provided that the first such annual grant of a Non-Statutory Stock
Option shall be to purchase 805 shares of Common Stock, and each subsequent
annual grant of a Non-Statutory Stock Option shall be to purchase 1000 shares of
Common Stock. Notwithstanding the foregoing, to the extent that the Committee
determines that grants may be exempt from Section 16(b) of the Securities
Exchange Act of 1934, as amended ("Rule 16b-3"), each Non-Statutory Stock Option
granted pursuant to the preceding sentence shall relate to a number of shares of
Common Stock which shall be determined based on the financial performance of the
Bank. Such financial performance of the Bank shall be determined based on
factors including but not limited to the Bank's return on equity, measures of
the Bank's asset quality, and the Bank's CAMEL rating. Each Non-Statutory Stock
Option granted pursuant to this paragraph shall be granted at an option price
per share equal to the Market Value per share on the date of grant and be fully
exercisable upon its date of grant, provided that shares of Common Stock
acquired pursuant to the exercise of such a Non-Statutory Stock Option may not
be sold or otherwise transferred by a director within six months of such grant.
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 Committee.
(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
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<PAGE>
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 value (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.
(c) Notwithstanding any other provision of this 1994 Program to the
contrary and except as provided in Paragraph 13 hereof, Non-Statutory Stock
Options issued pursuant to the last paragraph of Paragraph 6 shall be
exercisable until the earlier of (i) ten years from the date of grant of such
Non-Statutory Stock Option, or (ii) termination of the Optionee's service on the
Board of Directors for Just Cause. For the purposes of this Paragraph 8(c),
"Just Cause" shall mean, in the good faith determination of the Committee, the
Optionee's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, or willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease and desist order. Additionally,
in the event that the Committee, in its sole discretion, determines that an
Optionee who has left service with the Bank or Subsidiary engaged in misconduct
which would have constituted Just Cause for dismissal if the Optionee were then
serving with the Bank or a Subsidiary, then the Committee may rescind, without
the consent of the Optionee, any or all unexercised Option Rights held by the
Optionee.
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 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 Committee'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-4
<PAGE>
(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 discretion (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 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 to 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 Period.
(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 or 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 awards, 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.
12. Adjustments. The Committee may make or provide for such adjustments in
the maximum number 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
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<PAGE>
Committee in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the rights of Optionees
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 in 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 in
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 purpose 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 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 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.
14. Fractional Shares. The Bank shall not be required to issue any
fractional shares 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.
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<PAGE>
(a) This 1994 Program shall be administered by the Committee, which
shall consist of not less than three Disinterested Directors. No right (other
than a formula award pursuant to the last paragraph of Paragraph 6 hereof) 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 resolutions
of the Board of Directors, provided that no such amendment shall (i) increase
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 stockholders 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
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
COMMUNITY BANK SYSTEM, INC.
5790 WIDEWATERS PARKWAY
DEWITT, NEW YORK 13214-1883
The undersigned hereby appoints Charles M. Ertel and Loretta L. Marx
proxies, with power to act without the other and with power of substitution, and
hereby authorizes them to represent and vote, as designated on the other side,
all the shares of stock of Community Bank System, Inc. standing in the name of
the undersigned with all powers which the undersigned would possess if present
at the Annual Meeting of Shareholders of the Company to be held May 8, 1996 or
any adjournment thereof.
(Continued, and to be marked, dated and signed, on the other side)
- -------------------------------------------------------------------------------
Please mark your votes as indicated in this example [x]
The Board of Directors recommends a vote FOR
Items 1, 2 and 3.
ITEM 1: ELECTION OF DIRECTORS FOR WITHHELD
Nominees: Richard C. Cummings, William M. Dempsey, FOR ALL
William N. Sloan
[ ] [ ]
WITHHELD FOR: (Write that nominee(s) name in the
space provided below.)
ITEM 2: Approval of amendment to long term FOR AGAINST ABSTAIN
incentive compensation program [ ] [ ] [ ]
ITEM 3: Approval of amendment to certificate of
incorporation to eliminate action by written consent [ ] [ ] [ ]
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, 2 AND 3.
Please check below to indicate whether you plan to attend Annual Meeting.
will attend will not attend
[ ] [ ]
Signature______________________Signature______________________Date_____________
Note: Please sign as names appear herein. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full name as such.
