SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of Securities
Exchange Act of 1934 (Amendment No. )
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-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Alliance Financial Corporation
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ALLIANCE FINANCIAL CORPORATION
65 Main Street 160 Main Street
Cortland, New York 13045 Oneida, New York 13421
- -------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
- -------------------------------------------------------------------------------
March 19, 1999
To the Shareholders of Alliance Financial Corporation:
NOTICE IS HEREBY GIVEN that the ANNUAL MEETING OF SHAREHOLDERS of ALLIANCE
FINANCIAL CORPORATION, the parent company of First National Bank of Cortland and
Oneida Valley National Bank, will be held at the office of the Company at 160
Main Street, Oneida, New York, on April 28, 1999 at 4:00 p.m., for the purpose
of considering and voting upon the following matters:
1. The election of seven Directors to Class I of the Board of Directors, to
serve for a term of three years and until their successors are duly elected
and qualified.
2. The transaction of such other business as may properly come before the
meeting, or any adjournment thereof.
Only those shareholders of record at the close of business on March 12,
1999 shall be entitled to notice of the meeting and to vote at the meeting.
By Order of the Board of Directors
DONALD S. AMES
Secretary
YOUR VOTE IS IMPORTANT. YOU ARE THEREFORE REQUESTED TO SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, EVEN IF YOU EXPECT TO BE PRESENT AT
THE MEETING. YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE MEETING, OR IF
YOU DO ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AT THAT TIME AND VOTE IN
PERSON IF YOU WISH.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
65 Main Street 160 Main Street
Cortland, New York 13045 Oneida, New York 13421
-----------------------------------------------------
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS, APRIL 28, 1999
This Proxy Statement is furnished in connection with the solicitation
of proxies on behalf of the Board of Directors of Alliance Financial Corporation
(the "Company"), the holding company for First National Bank of Cortland and
Oneida Valley National Bank (each a "Bank," and collectively, the "Banks") for
use at the Annual Meeting of Shareholders to be held at the office of the
Company at 160 Main Street, Oneida, New York, on April 28, 1999 at 4:00 p.m.
This Proxy Statement and the accompanying Proxy are first being mailed to
shareholders on or about March 19, 1999.
If the enclosed Proxy is properly executed and returned, all shares
represented thereby will be voted according to the instructions set forth
thereon. If no such instructions are specified, the Proxy will be voted FOR the
election of the nominees named below. As to any other business which may
properly come before the meeting, the persons named on the Proxy are granted
discretionary authority to vote according to their best judgment.
Any proxy given by a shareholder may be revoked at any time before it
is voted by: (i) the shareholder attending the meeting and voting the shares of
stock in person; (ii) the execution and delivery of a later dated proxy; or
(iii) the execution and delivery of a written notice of revocation to Donald S.
Ames, Secretary, Alliance Financial Corporation, 65 Main Street, Cortland, New
York 13045. If not revoked, the Proxy will be voted in accordance with its
terms.
The cost of solicitation of proxies will be borne by the Company. In
addition to the use of the mails, some of the officers, Directors and regular
employees of the Company may solicit proxies in person and by telephone and
telegraph, and may solicit brokers and other persons holding shares beneficially
owned by others to procure from the beneficial owners consents to the execution
of proxies. The Company will reimburse such brokers and other persons for their
expenses incurred in sending proxy forms and other material to their principals.
NOTE REGARDING MERGER
Alliance Financial Corporation resulted from the merger, effective
November 25, 1998, of Oneida Valley Bancshares, Inc., ("Oneida Valley") with
Cortland First Financial Corporation ("Cortland First"), pursuant to the terms
of an Agreement and Plan of Reorganization dated July 10, 1998 (the "Merger
Agreement"). The merger was approved by the shareholders of Cortland First and
Oneida Valley at special shareholders' meetings held on November 16, 1998 and
November 17, 1998, respectively. Except as otherwise noted, information in this
Proxy Statement regarding Board and committee meetings during 1998 reflects
information regarding Cortland First prior to November 25, 1998 and Alliance
Financial Corporation thereafter. Because Oneida Valley was a separate and
distinct corporation prior to the merger, this Proxy Statement does not include
separate information regarding Oneida Valley Board and committee meetings during
1998.
The Merger Agreement provides for the merger of First National Bank of
Cortland and Oneida Valley National Bank under the name "Alliance Bank, N.A." as
soon as practicable. The Company presently anticipates that this merger will be
consummated on or about April 15, 1999.
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
At the close of business on March 12, 1999, the record date for the
determination of shareholders entitled to vote at the meeting, there were
outstanding and entitled to vote 3,594,811 shares of the Company's common stock.
Each share of common stock entitles the holder to one vote with respect to each
item to come before the meeting. There will be no cumulative voting of shares
for any matters voted upon at the meeting. No individual or group of individuals
owns of record or is known to the Company to own beneficially more than 5% of
the common stock of the Company.
ELECTION OF DIRECTORS
The Company's Board of Directors is divided into three classes as
nearly equal in number as possible. The members of each class are elected for
staggered terms of three years and until their successors are elected and
qualified. One class of Directors is elected annually. Information concerning
nominees to the Board of Directors and the Directors continuing in office is set
forth below. The seven Directors in Class I have been nominated to serve for a
term to expire at the annual meeting of the Company's shareholders in the year
2002. The nominees receiving a plurality of the votes represented in person or
by proxy at the Meeting will be elected to the stated positions. If any nominee
becomes unavailable for any reason before the election (which is not
anticipated), the Proxy may be voted for such other person as may be determined
by the Board of Directors of the Company. The shares represented by the enclosed
Proxy will be voted FOR the election of the seven nominees named below unless
otherwise specified.
<TABLE>
<CAPTION>
INFORMATION CONCERNING NOMINEES FOR DIRECTORS AND OTHER DIRECTORS
Shares
Beneficially % of Total
Business Experience Director Owned as of Common
Name and Age and Directorships Since* 3/12/99 (1) Stock (12)
- --------------------------- ------------------------------------------- -------------- ---------------------- --------------
NOMINEES FOR ELECTION (CLASS I)
<S> <C> <C> <C> <C>
David R. Alvord President, Co-Chief Executive Officer 1979 5,652 (2) .16
(58) and Director of Company; President,
Chief Executive Officer and Director -
First National Bank of Cortland.
Donald S. Ames Director of Company; President - 1986 76,050 2.16
(56) Cortland Laundry, Inc.; Chairman -
Cortland Line Company, Inc.
John W. Bailey Director of Company; Chief Executive 1995 1,404 .04
(57) Officer - Bailey & Haskell Associates,
Inc.; Director - Vanguard Risk Managers,
Inc.; Director - Private Industry Council;
Director - Madison County Development
Corp.
-2-
<PAGE>
Shares
Beneficially % of Total
Business Experience Director Owned as of Common
Name and Age and Directorships Since* 3/12/99 (1) Stock (12)
- --------------------------- ------------------------------------------- -------------- ---------------------- --------------
NOMINEES FOR ELECTION (CLASS I) (continued)
Peter M. Dunn Director of Company; Attorney - Dunn, 1968 72,068 (3) 2.00
(62) Vindigni & Bruno; Director - Oneida
Healthcare Foundation; Director - Oneida
Valley Securities Corporation.
Treasurer, CFO and Director of 1994 2,688 .07
David P. Kershaw Company; Executive Vice President -
(50) Oneida Valley National Bank.
Director of Company; Chairman of the 1998 66,400 (4) 1.85
Garrison A. Marsted Board, CEO, Treasurer and Principal
(58) Owner - Overhead Door Company of
Cortland, Inc.; (1998-Present); President,
CEO, Treasurer and Principal Owner -
Overhead Door Company, Inc. (1993 -
1997).
Director of Company; President and 1993 4,500 .13
David J. Taylor Director - Prosco Products, Inc.
(55)
OTHER DIRECTORS**
Donald H. Dew Director of Company; President and 1988 1,481 .04
(47) Chief Executive Officer - Diemolding
Corporation; Director - M.A.C.N.Y.
Robert H. Fearon, Jr. Director of Company; Former Chairman 1958 133,924 (5) 3.73
(71) of the Board - Oneida Valley Bancshares,
Inc. (1993 - 1998); Director - Oneida
Valley Securities Corporation.
Director of Company; Former Chairman,
Robert H. Kuiper Madison County Board of Supervisors; 1988 3,817 (6) .11
(65) Former Supervisor - Town of Hamilton.
Director of Company; Consultant -
Healthcare; President - Cortland
Robert M. Lovell Memorial Hospital (4/86 to 6/96). 1988 1,687 (7) .05
(52)
Director of Company; Partner -
Riehlman, Shafer & Shafer (Attorneys at
Charles E. Shafer Law); Director - Marathon Boat Group, 1998 11,026 (8) .31
(49) Inc.; Director - Applied Concepts, Inc.
-3-
<PAGE>
Shares
Beneficially % of Total
Business Experience Director Owned as of Common
Name and Age and Directorships Since* 3/12/99 (1) Stock (12)
- --------------------------- ------------------------------------------- -------------- ---------------------- --------------
OTHER DIRECTORS (continued)
Richard J. Shay Director of Company; Administrative 1988 1,636 .05
(66) Law Judge (1997 - Present); District
Attorney - Cortland County, Cortland,
New York (1995-1997).
Richard G. Smith Director of Company; CEO - Oneida 1991 3,171 .09
(55) Health Care Center.
Charles H. Spaulding Director of Company; President and 1993 3,514 (9) .10
(50) Director - George B. Bailey Agency, Inc.;
Director - J.M. Murray Center, Inc.;
Director - Cortland College Foundation.
Director of Company; Mayor - Village of
Mary Alice Bellardini Homer; Director - Blue Cross and Blue 1994 329 .01
(65) Shield of Central New York (1984 to
1994); Director - HMO-CNY, Inc.
(1995).
Director of Company; President - Buck
John H. Buck Environmental Laboratories, Inc.; 1994 3,038 .08
(53) President - Genegantslett Assoc., Inc.;
Chairman of the Board - Marathon Boat
Group, Inc.
Director of Company; President - Central
Samuel J. Lanzafame Locating Service, Ltd. 1988 6,924 (10) .19
(48)
Co-Chief Executive Officer and Director
John C. Mott of Company; President, Chief Executive 1991 5,000 .14
(60) Officer and Director - Oneida Valley
National Bank
Director of Company; Former President -
Harry D. Newcomb Newcomb Motors, Inc. 1979 5,672 (11) .16
(70)
Director of Company; Senior Vice
Edward W. Thoma President, Finance - Oneida Ltd. 1992 871 .02
(53)
Director of Company; Partner - Spruce-
Stuart E. Young Eden Farms; President and Director - 1991 1,058 .03
(49) Cortland Bulk Milk Producers
Cooperative, Inc.; Director - Central
Cooperative Insurance Co.
All Directors and Officers as a Group (22 in Group) 411,910 11.46
</TABLE>
-4-
<PAGE>
* Year in which the Director was first elected to the Board of Directors
of Cortland First, Oneida Valley or their respective bank
representatives.
** Messrs. Dew, Fearon, Kuiper, Lovell, Shafer, Shay, Smith and Spaulding
are members of Class II with terms expiring in 2000; Ms. Bellardini and
Messrs. Buck, Lanzafame, Mott, Newcomb, Thoma and Young are members of
Class III with terms expiring in 2001.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended ("Exchange Act"), a person is deemed to be the beneficial owner,
for purposes of this table, of any shares of the Company's common stock if
he or she has or shares voting or investment power with respect to such
shares or has a right to acquire beneficial ownership at any time within 60
days from March 12, 1999. Includes shares owned by family members residing
in the same household as to which certain Directors disclaim beneficial
ownership. Except as otherwise indicated the named Director has sole voting
and sole investment power with respect to all of the indicated shares.
Share amounts are rounded to the nearest whole number.
(2) Includes 212 shares owned by Mr. Alvord's wife, Kathleen, as to which Mr.
Alvord disclaims any beneficial ownership.
(3) Includes 1,080 shares owned by Mr. Dunn's daughter, Deborah, as to which
Mr. Dunn disclaims any beneficial ownership.
(4) Includes 2,200 shares owned by Mr. Marsted's wife, Katia, 11,985 shares
held by the Estate of Mary Ellen G. Marsted for which Mr. Marsted serves as
personal representative and 24,815 shares held in various trusts for which
Mr. Marsted serves as co-trustee, all as to which Mr. Marsted disclaims any
beneficial ownership.
(5) Includes 67,549 shares owned by Mr. Fearon's wife, Ada May, as to which Mr.
Fearon disclaims any beneficial ownership, and 5,040 shares held in trust
for which Mr. Fearon serves as trustee.
(6) Includes 709 shares owned by Mr. Kuiper's wife, Marieke, as to which Mr.
Kuiper disclaims any beneficial ownership.
(7) Includes 435 shares owned by Mr. Lovell's daughter, Adrienne, pursuant to
the Uniform Gift to Minors Act, for which Mr. Lovell has sole voting and
investment power.
(8) Includes 3,339 shares owned by Mr. Shafer's wife, Judith, and 900 shares
owned by each of Mr. Shafer's two sons, Kurt and Erich, all as to which Mr.
Shafer disclaims any beneficial ownership.
(9) Includes 2,985 shares owned by Mr. Spaulding's wife, Elizabeth, as to which
Mr. Spaulding disclaims any beneficial ownership.
(10) Includes 2,836 shares owned by Mr. Lanzafame's wife, Janet, and 1,800
shares owned by Mr. Lanzafame's children, all as to which Mr. Lanzafame
disclaims any beneficial ownership.
(11) Includes 2,646 shares owned by Mr. Newcomb's wife, Muriel, as to which Mr.
Newcomb disclaims any beneficial ownership.
(12) Based on 3,594,811 shares outstanding on March 12, 1999.
-5-
<PAGE>
ORGANIZATION AND COMPENSATION OF THE BOARD OF DIRECTORS
Each Director of the Company is also a Director of First National Bank
of Cortland or Oneida Valley National Bank. During 1998 there were six regularly
scheduled meetings and nine special meetings of the Company's Board of
Directors. All but one of the incumbent Directors of the Company who served on
the Cortland First Board of Directors attended at least seventy-five percent
(75%) of the aggregate of all of the meetings of the Board of Directors and any
committees on which the Director was a member. Mr. Lovell attended sixty-five
(65%) of the aggregate of all such meetings.
The Company's full Board of Directors nominates individuals for
election to the Board. The Board will consider written recommendations from
shareholders for nominees to be elected to the Board of Directors that are sent
to the Secretary of the Company at the Company's address. Section 202 of the
Company's Bylaws provides that nominations for Directors to be elected at an
annual meeting of the Company's shareholders, except those made by the Board,
must be submitted in writing to the Secretary of the Company not less than 90
days nor more than 120 days immediately preceding the date of the meeting. The
notice must contain (i) the name, age, business address and residence address of
each proposed nominee; (ii) the principal occupation and employment of each
proposed nominee; (iii) the total number of shares of capital stock of the
Company owned by each proposed nominee; (iv) the name and residence address of
the notifying shareholder; (v) the number of shares of capital stock of the
Company owned by notifying shareholder; and (vi) any other information relating
to such person that is required to be disclosed in solicitations for proxies for
the election of directors, or otherwise required pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Nominations not made in accordance with this procedure may be disregarded by the
presiding officer at the annual meeting, in his or her discretion.
The Company's Executive/Loan Committee has the power to exercise all of
the executive and supervisory powers of the entire Board of Directors in the
interim between meetings of the Board. The present members of this committee
include Directors Alvord, Ames, Buck, Dew, Dunn and Mott. In addition, Directors
Bailey, Fearon, Shafer, Smith, Spaulding, Thoma and Young will serve three-month
terms on the Committee at various times during 1999. Neither the Executive/Loan
Committee, nor its predecessor (Cortland First's Executive Committee), met in
1998.
The Company has an Audit/Compliance Committee, which supervises the
internal audit activities of the Banks and supervises and directs the Banks'
auditors. The function of the Committee is to ensure that the Company's and
Banks' activities are being conducted in accordance with law and banking rules
and regulations established by the Comptroller of the Currency and other
regulatory and supervisory authorities, and in conformance with established
policy. In addition, the Audit/Compliance Committee recommends to the Board the
services of a reputable certified public accounting firm. The Committee receives
and reviews the reports of the certified public accounting firm and presents
them to the Board of Directors with comments and recommendations. Prior to the
merger, Cortland First did not have an Audit/Compliance Committee, and the
Company's Audit/Compliance Committee did not meet last year. However, First
National Bank of Cortland had an Audit and Compliance Committee which met six
times in 1998. The present members of the Audit/Compliance Committee are
Directors Lanzafame (Chair), Ames, Buck, Kuiper, Newcomb and Smith.
The Company also has a Compensation Committee whose membership and
functions are described more fully on page 10.
Board of Directors Fees
Each Director of the Company is also a Director of First National Bank
of Cortland or Oneida Valley National Bank. Each Bank Board member receives an
annual retainer fee of $3,000 for service on his or her respective Board and
$400 for each meeting attended. In addition, members of the Compensation
Committee receive $200 per meeting attended, while members of the Trust,
Audit/Compliance, Executive/Loan, and Business Development Committees each
receive $150 per committee meeting attended. Finally, Directors of the Company
receive $400 for each Company Board meeting attended when such meeting is held
on a day that the Bank's Board on which the Director serves is not also meeting.
Directors of the Company receive no other compensation for serving in such
capacity.
-6-
<PAGE>
Deferred Compensation Agreement
First National Bank of Cortland has adopted a Deferred Compensation
Agreement with its Directors. The purpose of the Agreement is to provide
Directors with the option to defer the receipt of all or a portion of their
director's fees. The election must be made on or before December 31st of the
year preceding the year in which the fees are to be paid. Once made, the
election will remain in effect until revoked by the individual Director. All
amounts deferred pursuant to the Agreement will be credited with interest each
month at the rate being paid on one year U.S. Treasury Notes as of January 1st
of the particular year. Upon a Director no longer being a member of the Bank's
Board, all amounts deferred by the Director plus any earnings thereon shall be
paid, at the Director's election, over a period of ten years or in a lump sum. A
Director may elect to defer commencement of any installment payments for up to
five years following his or her termination as a member of the Board. During
1998, three First National Bank of Cortland Directors participated in the
deferred compensation arrangement. These Directors deferred a total of $26,500
in director's fees.
Oneida Valley National Bank has a Deferred Compensation Plan which
provides Directors with the option to defer receipt of all or a portion of their
director's fees. Amounts deferred under the Plan have historically been credited
to a reserve account and deemed to be invested in shares of Oneida Valley
Bancshares, Inc. Common Stock based on the book value of the stock for the year
ending preceding the date of deferral. For 1999, the book value was established
as of the effective date of the merger with Cortland First Financial
Corporation. The reserve account is also credited quarterly with additional
amounts equivalent to the number of whole shares and fractions thereof which
could be purchased at book value as described above with dividends declared and
paid on the stock. Upon a Director no longer being a member of the Bank's Board,
all amounts deferred by the Director, plus any earnings thereon, shall be paid
at the Director's election over a period of up to ten years or in a lump sum.
Upon the date selected by a participating Director to commence receiving
deferred payments, the reserve account value is to be determined based on the
increase or decrease in the book value of the stock as of the preceding year
end, provided that in no event will the Director's payments be less than the
amounts actually deferred by the Director. During 1998, nine Oneida Valley
National Bank Directors participated in the Deferred Compensation Plan. These
Directors deferred a total of $72,300 in director's fees.
The Company is in the process of amending and consolidating the First
National Bank of Cortland and Oneida Valley National Bank deferred compensation
plans into an Alliance Bank, N.A. plan, to be effective following consummation
of the Bank merger described on page 1. Among other things, the Alliance Bank,
N.A. plan will provide for a single valuation mechanism for Director accounts.
-7-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation paid
by the Company to persons who served as Chief Executive Officer or Co-Chief
Executive Officer during 1998 and any other most highly compensated executive
officers whose salary and bonus from the Company exceeded $100,000 during 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term All Other
Name and Principal Compensation Compensa-
Position Year Salary($) Bonus($)(1) Awards tion($)(2)
------------------
Stock Options
(#)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
David R. Alvord 1998 172,500 25,900 50,000 81,999
Co-Chief Executive 1997 165,000 16,500 0 93,084
Officer 1996 153,000 16,830 0 77,247
John C. Mott 1998 143,125 34,294 50,000 49,017
Co-Chief Executive
Officer*
</TABLE>
* Mr. Mott became Co-Chief Executive Officer of the Company upon
consummation of the merger effective November 25, 1998; amounts also include
compensation paid to Mr. Mott by Oneida Valley Bancshares, Inc. and/or Oneida
Valley National Bank during 1998.
(1) Paid to Mr. Alvord and Mr. Mott under the Executive Incentive Compensation
Plans described on pages 14-15.
(2) Includes the following amounts for Mr. Alvord for 1998: $8,000 for the 1998
contribution to the Employee Salary Savings Plan - 401K; $6,400 for the
1998 contribution to the pension plan; $60,549 for the 1998 contribution to
the Excess Benefit Plan described on pages 13-14; and $7,050 for Director
meeting fees during 1998. Includes the following amounts for Mr. Mott for
1998: $10,000 for the 1998 contribution to the Oneida Valley National Bank
Deferred Profit Sharing/401K plan; $3,667 for the 1998 contribution to the
Oneida Valley National Bank Nonqualified Retirement Savings Plan; $25,200
for the 1998 contribution to the Excess Benefit Plan described on page 14;
and $10,150 for Director meeting fees during 1998.
-8-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides further information on grants of stock
options pursuant to the Alliance Financial Corporation 1998 Incentive
Compensation Plan in fiscal year 1998 to the named executives as reflected in
the Summary Compensation Table on page 8.
<TABLE>
<CAPTION>
% of Total
Options Potential Realizable Value at
Granted to Exercise or Assumed Annual Rates of
Options Employees in Base Price Expiration Stock Price Appreciation
Name Granted (#) Fiscal Year ($/Sh) Date for Option Term ($)
-----------------------------
5% 10%
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Alvord 50,000 50% 29.125 11/25/2008 915,750 2,321,250
John C. Mott 50,000 50% 29.125 11/25/2008 915,750 2,321,250
</TABLE>
Effective November 25, 1998, the Company issued incentive and
non-statutory stock options to Messrs. Alvord and Mott at the then current
market price of $29.125 per share. These options become exercisable over the
course of three years, with one-third of the options becoming exercisable on
November 25, 1999, 2000 and 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information for the named executive
officers, with respect to stock options exercised in fiscal year 1998 and the
number of stock options held at the end of fiscal year 1998. The stock options
held by the named executive officers had no in-the-money value as of December
31, 1998.
Shares
Acquired on Value Number of Unexercised
Name Exercise (#) Realized ($) Options at 12/31/98 (#)
--------------------------------
Exercisable Unexercisable
- ------------------------------------------------------------------------------
David R. Alvord 0 0 0 50,000
John C. Mott 0 0 0 50,000
-9-
<PAGE>
BOARD COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee meets semi-annually to conduct a
comprehensive performance review of all officers and to recommend the annual
base remuneration for the officers to the Board of Directors. The Committee
considers each officer's performance as measured against that individual's job
description.
In recommending the base annual salaries for the Co-Chief Executive
Officers, the Committee considers overall asset quality, earnings, capital
adequacy, peer group and industry comparisons, general economic trends and total
return to the Company's shareholders. The Committee believes that Mr. Alvord and
Mr. Mott have served the Company and their respective Banks exceptionally well
in each of the above measurable categories, and that the Banks' success is due,
in large part, to their efforts. Mr. Alvord and Mr. Mott do not participate in
the determination of their annual compensation.
The Committee meets separately to consider award payments under the
First National Bank of Cortland and Oneida Valley National Bank Executive
Incentive Compensation Plans. Descriptions of these plans are found on pages
14-15.
The Compensation Committee presently consists of:
Donald S. Ames (Chair)
John W. Bailey
Richard G. Smith
Charles H. Spaulding
David J. Taylor
Edward W. Thoma
-10-
<PAGE>
Stock Performance Graph
The following graph compares cumulative total returns (assuming
reinvestment of dividends) on the Company's common stock (Cortland First's
common stock prior to the merger) against the Standard & Poor's Composite 500
Stock Index (S&P 500) and the National Association of Securities Dealers
Automated Quotation System (NASDAQ) bank stocks for the five-year period ended
December 31, 1998.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
OF ALNC/CTLN, S&P 500 AND NASDAQ BANKS
1993 1994 1995 1996 1997 1998
Nasdaq Banks 100 100 148 196 328 325
S&P 100 101 140 172 230 296
ALNC/CTLN 100 148 149 178 244 245
Employment Agreements
Effective November 25, 1998, the Company entered into employment
agreements with David R. Alvord and John C. Mott, providing for them to serve as
Co-Chief Executive Officers of the Company for a period of three years. The
agreements require Messrs. Alvord and Mott to devote their full business time
and attention to the performance of their duties for an annual base salary of
$175,000, subject to review and potential increase by the Board of Directors on
an annual basis. Messrs. Alvord and Mott are also eligible to participate in any
and all incentive compensation, bonus, stock option or similar plans maintained
by the Company, as well as any Company-maintained employee pension benefit
plans, group life insurance plans, medical plans, dental plans, long-term
disability plans, business travel insurance programs and other fringe benefit
plans or programs. The agreements provide that, notwithstanding anything to the
contrary and except with respect to supplemental retirement benefits, Messrs.
Alvord and Mott will receive total annual cash compensation and fringe benefits
at least equal to the highest total annual cash compensation and fringe benefits
provided to Mr. Alvord or Mr. Mott by Cortland First or Oneida Valley,
respectively, during any of the three calendar years preceding the merger of
Cortland First and Oneida Valley.
The agreements may be terminated by the Company with or without cause.
If the Company terminates a Co-Chief Executive Officer's employment for reasons
other than cause, it must give him 60 days' prior written notice and must pay
him, within 30 days after the date of termination, a lump sum equal to the
unpaid compensation and benefits that he would have received if he had remained
employed under the terms of his agreement until the end of the three-year term
of employment. Either Co-Chief Executive Officer may terminate his agreement at
any time upon 60 days' prior written notice to the Company, in which case he
will be entitled only to compensation and benefits earned or accrued through the
date of termination.
If the employment of either Co-Chief Executive Officer is terminated by
the Company for any reason other than cause within 24 months following a change
of control that occurs during the term of his agreement, the Company shall (i)
within 60 days of termination, pay him 2.99 times his average annual
compensation during the five full taxable years (or any shorter period of
employment) that immediately precedes the year during which the change of
control occurs; (ii) provide him with fringe benefits, or the cash equivalent of
such benefits, to which he is entitled under his agreement for a period of 24
months following his termination; and (iii) treat as immediately vested and
exercisable all forms of equity-based compensation, including unexpired stock
options, previously granted to him.
-11-
<PAGE>
Pension Benefits
First National Bank of Cortland has a non-contributory pension plan, in
which an employee is eligible to participate upon attaining age 21 and
completion of 12 months consecutive service during which the employee worked
1,000 or more hours of service. The Bank's contribution is determined according
to a formula based on years of service with the Bank. The Bank's contribution to
the Plan in 1998 totaled $126,629, including $6,400 for Mr. Alvord.
Oneida Valley National Bank is a member of the New York State Bankers
Retirement System, and thereby makes available to eligible employees a qualified
non-contributory defined benefit pension plan. All Bank employees who have
completed 1,000 hours of service and who are 21 years of age or older are
eligible to participate in the pension plan. Benefits under the plan are
computed based upon the average annual compensation for the highest consecutive
five years during the employee's creditable service. For purposes of calculating
the benefit, an employee may not be credited with more than 40 years of service.
The following table sets forth the estimated annual benefits under
the pension plan. Mr. Mott has been credited with 7 years of service under the
plan.
PENSION PLAN TABLE
Annual
Average
---------------------------------------------------------------
15 20 25 30 35
- ------------ ---------------------------------------------------------------
$50,000 $11,250 $15,000 $18,750 $22,500 $26,250
75,000 16,875 22,500 28,125 33,750 39,375
100,000 22,500 30,000 37,500 45,000 52,500
125,000 28,125 37,500 46,875 56,250 65,625
150,000 33,750 45,000 56,250 67,500 78,750
175,000 36,000 48,000 60,000 72,000 84,000
200,000 36,000 48,000 60,000 72,000 84,000
For 1998, the Internal Revenue Code limits the total compensation that
may be taken into account in calculating benefits to $160,000.
The Company is in the process of deciding upon a single pension plan
for Alliance Bank, N.A. employees, to be effective following consummation of the
Bank merger described on page 1.
Excess Benefit Plans
Effective January 1, 1991, the Board of Directors of First National
Bank of Cortland approved the adoption of an Excess Benefit Plan for David R.
Alvord (the "Excess Plan"). Its purpose is to provide Mr. Alvord with retirement
benefits in addition to those benefits provided pursuant to the Bank's pension
plan. Under the terms of the Excess Plan, Mr. Alvord is entitled to receive,
upon retirement at age 65, an amount equal to 80% of his then Average Base
Compensation increased by the amount of the Accumulated Fund expressed as a
straight life annuity and reduced by the sum of: (a) the annual benefit to be
provided Mr. Alvord pursuant to the Bank's pension plan expressed as a straight
life annuity; (b) the annual benefit to be provided from the vested portion of
the Bank's contributions to Mr. Alvord's account balance in the Bank's 401-K
Plan as if such balance were to be paid in the straight life annuity; and (c) an
amount equal to Mr. Alvord's primary social security benefit expressed in the
form of a straight life annuity. The
-12-
<PAGE>
Accumulated Fund is the amount that would have been contributed to the Bank's
pension plan on Mr. Alvord's behalf, but for the limitation imposed by Section
401(a)(4) of the Internal Revenue Code. The Accumulated Fund is deemed to have
earned interest each year at the same rate of return actually earned for such
year by the Bank's pension plan.
Under the original terms of the Excess Plan, the amount of the benefit
to be paid to Mr. Alvord was to be reduced in the event he retired before age
65. The amount of the reduction was based on a fraction, the numerator of which
was the number of years remaining until Mr. Alvord reaches age 65, and the
denominator of which was the total number of years of service Mr. Alvord would
have had if he had continued to work until such age. In addition, certain
actuarial reductions were to be applied to reflect the early commencement of
payments. Effective January 1, 1994, the Excess Plan was amended to provide that
no reduction will be made, whether to reflect remaining years of service to age
65 or to reflect the early commencement of payments, in the event such
retirement is the result of Mr. Alvord's retirement on or after the expiration
of his employment agreement, Mr. Alvord's disability, a termination of Mr.
Alvord's employment by the Bank without cause, the occurrence of an event which
gives Mr. Alvord the right to terminate his employment under his employment
Agreement, or Mr. Alvord's death. If Mr. Alvord retires before age 60, no
benefits are payable under the Excess Plan unless such retirement is the result
of a Change in Control, a material reduction in Mr. Alvord's authority, Mr.
Alvord's disability, or a termination by the Bank of Mr. Alvord's employment
without cause. For purposes of the Excess Plan, the term "Change in Control"
means a sale by the Company or the Bank of all or substantially all of its
assets, or any individual or entity acquiring at least 25% of those securities
of the Bank entitled to vote for the election of directors. "Average Base
Compensation" is generally defined as Mr. Alvord's average salary for the 36
month period immediately preceding his retirement, including any elective
contributions to the 401-K Plan and annual bonus, but excluding any bonuses paid
pursuant to the Bank's Executive Incentive Compensation Plans and the value of
any employee benefits paid on Mr. Alvord's behalf.
In order to fund its liability under the Excess Plan, effective January
1, 1995, the Bank established the "First National Bank of Cortland Excess
Benefit Trust for the Benefit of David R. Alvord." Each year the Bank will
contribute such amount to the Trust so that the balance of the Trust will equal
the actuarial value of the estimated benefit payable to Mr. Alvord pursuant to
the Excess Plan. The initial contribution to the Trust was $118,000. The
contribution for 1998 was $60,549.
Mr. Mott is covered by two separate arrangements with Oneida Valley
National Bank that will provide supplemental retirement income to Mr. Mott.
Under the first arrangement, entered into in 1991, Mr. Mott is entitled to
receive annual payments of $10,000 for ten years following his retirement upon
or after attaining age 65. Under the second arrangement, effective as of
September 1, 1997, Mr. Mott is entitled to receive a monthly benefit (following
retirement at or after age 62) generally equal to the difference between (i) 55%
of Mr. Mott's monthly base salary, and (ii) the sum of monthly retirement
benefits Mr. Mott is entitled to receive from Oneida Valley National Bank,
Social Security, and his prior employment with Merchants National Bank. The
benefit payable under the 1997 arrangement may be paid in various straight life
annuity or joint and survivor annuity forms. The 1998 expense associated with
Mr. Mott's supplemental retirement benefits was $25,200.
Executive Incentive Compensation Plan
First National Bank of Cortland maintains an Executive Incentive
Compensation Plan (the "Plan"). Its purpose is to enhance the Bank's performance
and to further its long-term objectives by providing certain key employees with
financial incentives. Under the terms of the Plan, at the beginning of each year
the Bank's Board of Directors establishes target performance goals for the Bank
for both the current year and for the next three years. If, in the opinion of
the Board, the one year goal is met, eligible employees could be entitled to
receive such awards as are determined by the Board of Directors. The annual
award fund for distribution to plan participants may not exceed 15% of
participating base payroll, exclusive of any overtime pay, bonuses or fringe
benefits. Similarly, if the three year goal is met, participants could be
entitled to an additional award payment as determined by the Board of Directors.
Such award fund may not exceed 15% of the average base salaries during the three
year performance period.
-13-
<PAGE>
Participation in the Plan is designed to include the Bank's President,
Chief Executive Officer, Function Managers, and those other employees who, in
the opinion of the Board, contribute significantly to the profitability of the
Bank. Plan awards are paid either in cash at the end of the applicable one year
or three year performance period or, at the election of the participating
employee, may be deferred until a later specified date. A total of $102,105 was
accrued for the year 1998 in connection with the one year goal for all executive
officers as a group. Of this amount, a total of $25,900 was earned by Mr.
Alvord.
Oneida Valley National Bank maintains a Short Term Incentive
Compensation Program. Its purpose is to motivate, reward, and retain management
and to focus perspective on short term goals and results. Under the terms of the
Program, at the beginning of each year the Bank's Board of Directors establishes
a target performance goal for the year. Participation in the Plan is designed to
include all management positions. Annual awards for distribution to Plan
participants may not exceed a certain percentage of the participant's base
salary which is established in the plan and is based on the participant's
management position. A total of $144,000 was accrued for the year 1998 in
connection with the goal for all management participants. Of this amount, a
total of $24,898 was earned by Mr. Mott.
The Company is in the process of amending and consolidating the First
National Bank of Cortland and Oneida Valley National Bank Executive/Management
Incentive Compensation Plans into a new plan for use by Alliance Bank, N.A.
following consummation of the Bank merger described on page 1.
TRANSACTIONS WITH MANAGEMENT
The Banks have had, and expect to have in the future, banking
transactions in the ordinary course of business with many Directors, officers
and their associates. All extensions of credit to such persons have been made in
the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with other persons, and in the opinion of the management of the
Banks, do not involve more than a normal risk of collectability or present other
unfavorable features.
Oneida Valley National Bank has a consulting agreement with Robert H.
Fearon, Jr., pursuant to which Mr. Fearon has agreed to provide consulting
services to the Bank through 1999. Mr. Fearon received compensation in the
amount of $6,000 for services rendered pursuant to the consulting agreement in
1998, and is scheduled to receive compensation of $6,000 for services to be
rendered under the agreement in 1999.
The law firm of Dunn, Vindigni & Bruno, of which Director Peter M. Dunn
is a principal, provided legal services to Oneida Valley National Bank in 1998.
The amount received by Dunn, Vindigni & Bruno for such services was less than 5%
of the gross revenues of the law firm for its last fiscal year.
The law firm of Riehlman, Shafer & Shafer, of which Director Charles E.
Shafer is a partner, provided legal services to First National Bank of Cortland
in 1998. The amount received by Riehlman, Shafer & Shafer for such services was
less than 5% of the gross revenues of the law firm for its last fiscal year.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board appointed PricewaterhouseCoopers LLP as the Company's
independent auditors for the year ending December 31, 1998. This appointment was
based upon the recommendation of the Audit Committee. An independent auditor has
not yet been selected for the Company's current year.
A representative of PricewaterhouseCoopers LLP is expected to be
present at the Annual Meeting of Shareholders, and will have an opportunity to
make a statement and to respond to appropriate questions.
-14-
<PAGE>
ANNUAL REPORT
The Annual Report of the Company, including financial statements for
the year 1998, is being sent to shareholders with this Proxy Statement. Copies
of the Annual Report will be furnished to any shareholder upon written request
to Donald S. Ames, Secretary, Alliance Financial Corporation, 65 Main Street,
Cortland, New York 13045.
SUBMISSION OF PROPOSALS BY SHAREHOLDERS
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 2000 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 19,
1999. 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.
OTHER MATTERS
The Board of Directors is not aware of any matters other than those
indicated above that will be presented for action at the meeting. The enclosed
Proxy gives discretionary authority, however, in the event any other matter may
properly come before the meeting.
By Order of the Board of Directors
Donald S. Ames
Secretary
Dated: March 19, 1999
-15-
<PAGE>
PROXY
ALLIANCE FINANCIAL CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS, APRIL 28, 1999
The undersigned hereby appoints Robert H. Fearon, Jr., John C. Mott, and
Charles H. Spaulding, and each of them, as proxies, with power of substitution,
to represent the undersigned at the Annual Meeting of Shareholders of Alliance
Financial Corporation (the "Company") to be held at the office of the Company at
160 Main Street, in the City of Oneida, Madison County, New York, on the 28th of
April, 1999, at 4:00 p.m. and at any adjournment or adjournments thereof, and to
vote all shares of stock, as designated on the reverse side, which the
undersigned may be entitled to vote at such Meeting, and with all other powers
which the undersigned would possess if personally present.
CONTINUED, AND TO BE MARKED, DATED AND SIGNED ON THE REVERSE SIDE
[ X ] Please mark your
votes as in this example.
FOR all nominees WITHHOLD
listed at right AUTHORITY
(except as withheld) to vote for all
in the space below) nominees at right Nominees: (CLASS I)
(1)ELECTION
OF [ ] [ ] David R. Alvord
DIRECTORS: Donald S. Ames
John W. Bailey
(Instructions: To withhold authority to vote for any Peter M. Dunn
individual nominee, write that nominee's name in the David P. Kershaw
space provided below.) Garrison A. Marsted
David J. Taylor
- ----------------------------------------------------
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
This Proxy will be voted as directed but, if no direction is indicated, it will
be voted FOR the election of all Directors.
PLEASE SIGN AND DATE BELOW, AND RETURN.
Signature(s) of Shareholder(s)_______________________ __________________________
Date:__________________, 1999
NOTE: Please sign exactly as name appears above and where shares are held
jointly each holder should sign. When signing as attorney, administrator,
executor, trustee, guardian, or other fiduciary, please give your full title. If
signing for a corporation, please indicate your office.
