UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 2000
Commission file number 0-15366
ALLIANCE FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
NEW YORK 16-1276885
(State or other jurisdiction of (IRS Employer I.D. #)
incorporation or organization)
65 MAIN STREET, CORTLAND, NEW YORK 13045
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (607) 756-2831
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
The number of shares outstanding of the registrant's common stock on August 11,
2000: COMMON STOCK, $1.00 PAR VALUE - 3,656,252 SHARES.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of June 30, 2000 (unaudited)
and December 31, 1999
Condensed Consolidated Statements of Income for the Three Months
Ended June 30, 2000 and 1999 and Six Months Ended June 30, 2000 and
1999 (unaudited)
Consolidated Statements of Comprehensive Income for the Three
Months Ended June 30, 2000 and 1999 and Six Months Ended June
30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in Shareholders' Equity for the
Six Months Ended June 30, 2000 (unaudited)
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2000 and 1999 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of the Results of Operations and
Financial Conditions
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holder
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Condition
(Dollars in Thousands)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Cash and due from banks $ 19,961 $ 20,231
Federal funds sold -- --
-------- --------
Total cash and cash equivalents 19,961 20,231
Held-to-maturity investment securities 10,955 12,449
Available-for-sale investment securities 204,283 181,933
-------- --------
Total investment securities (fair value
$215,389 & $194,382, respectively) 215,238 194,382
Total loans 306,371 286,497
Unearned income (632) (1,060)
Allowance for possible loan losses (3,481) (3,412)
-------- --------
Net loans 302,258 282,025
Bank premises, furniture, and equipment 10,035 8,888
Other assets 15,425 13,671
-------- --------
Total Assets $562,917 $519,197
======== ========
LIABILITIES
Non-interest-bearing deposits $52,824 $56,562
Interest-bearing deposits 382,126 378,512
-------- --------
Total deposits 434,950 435,074
Short-term Borrowings 74,162 31,225
Other liabilities 4,077 3,653
-------- --------
Total Liabilities 513,189 469,952
SHAREHOLDERS' EQUITY
Preferred stock (par value $25.00)
1,000,000 shares authorized, none issued
Common stock (par value $1.00)
10,000,000 shares authorized
3,815,305 and 3,641,035 shares issued;
3,665,081 and 3,526,011 shares outstanding,
respectively 3,815 3,641
Surplus 7,096 3,641
Undivided profits 44,656 46,768
Accumulated other comprehensive loss (2,377) (2,086)
Treasury stock, at cost; 150,224 shares
and 115,024 shares, respectively (3,462) (2,719)
-------- --------
Total Shareholders' Equity 49,728 49,245
Total Liabilities & Shareholders' Equity $562,917 $519,197
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Condensed Consolidated Statements of Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Interest Income:
<S> <C> <C> <C> <C>
Interest & fees on loans $6,449 $5,634 $12,566 $11,024
Interest on investment securities 3,354 2,975 6,397 5,596
Interest on federal funds sold 117 175 233 325
------ ------ ------- -------
Total Interest Income 9,920 8,784 19,196 16,945
Interest Expense:
Interest on deposits 4,127 3,298 7,921 6,616
Interest on borrowings 515 174 882 186
------ ------ ------- -------
Total Interest Expense 4,642 3,472 8,803 6,802
Net Interest Income 5,278 5,312 10,393 10,143
Provision for loan losses 300 250 550 475
------ ------ ------- -------
Net Interest Income After Provision for Losses 4,978 5,062 9,843 9,668
Other Income 1.420 1,016 2,752 2,127
------ ------ ------- -------
Total Operating Income 6,398 6,078 12,595 11,795
Other Expenses 4,485 4,199 8,867 8,146
------ ------ ------- -------
Income Before Income Taxes 1,913 1,879 3,728 3,649
Provision for income taxes 507 506 988 1,027
------ ------ ------- -------
Net Income $1,406 $1,373 $ 2,740 $ 2,622
====== ====== ======= =======
Net Income per Common Share/Basic and Diluted $ .40 $ .38 $ .78 $ .73
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Comprehensive Income
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Income $1,406 $ 1,373 $2,740 $ 2,622
Other Comprehensive Income (Loss), net of taxes:
Unrealized net gain on securities:
Unrealized holding gains (losses) arising during the period 286 (2,662) (299) (3,451)
Less: Reclassification adjustment for gains
included in net income (186) (34) (187) (127)
------ ------- ------ -------
100 (2,628) (486) (3,324)
Income tax (provision) benefit (40) 1,052 195 1,330
------ ------- ------ -------
Other Comprehensive gains (losses), net of tax 60 (1,576) (291) (1,994)
------ ------- ------ -------
Comprehensive Income (Loss) $1,466 $ (203) $ 2,449 $ 628
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Changes in Shareholders' Equity
for the Six Months Ended June 30, 2000
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Issued
Common Common Undivided
Shares Stock Surplus Profits
------ ----- ------ -------
<S> <C> <C> <C> <C>
Balance at December 31, 1999 3,641,035 $3,641 $3,641 $46,768
Net Income 2,740
Cash Dividend, $.35 per share (1,223)
5% Stock Dividend 174,270 174 3,455 (3629)
Change in unrealized net loss on
investment securities
Treasury stock purchased
Balance at June 30, 2000 3,815,305 $3,815 $7,096 $44,656
====== ====== ========
<CAPTION>
Accumulated
Other
Comprehensive Treasury
Loss Stock Total
---- ----- ----
<S> <C> <C> <C>
Balance at December 31, 1999 $(2,086) $(2,719) $49,245
Net Income 2,740
Cash Dividend, $.35 per share (1,223)
5% Stock Dividend -
Change in unrealized net loss on
investment securities (291) (291)
Treasury stock purchased (743) (743)
Balance at June 30, 2000 $ (2,377) $(3,462) $49,728
========= ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
OPERATING ACTIVITIES 2000 1999
<S> <C> <C>
Net Income $ 2,740 $ 2,622
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 550 475
Provision for depreciation 577 537
Realized investment security gains (187) (127)
Amortization of investment security premiums, net 82 305
Change in other assets and liabilities (898) (245)
------- -------
Net Cash Provided by Operating Activities 2,864 3,567
INVESTMENT ACTIVITIES
Proceeds from maturities of investment securities,
available-for-sale 10,382 31,939
Proceeds from maturities of investment securities,
held-to-maturity 4,427 500
Purchase of investment securities, available-for-sale (39,838) (72,241)
Purchase of investment securities, held-to-maturity (2,933) -
Proceeds from the sale of investment securities 6,725 8,466
Increase in surrender value of life insurance (231) -
Net increase in loans (20,783) (8,463)
Purchase of premises and equipment, net (1,724) (1,208)
------- -------
Net Cash Used by Investing Activities (43,975) (41,007)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW & savings accounts 14,289 14,061
Net decrease in time deposits (14,413) (494)
Net increase in borrowings 42,937 8,448
Treasury Stock purchased (743) -
Cash dividends (1,229) (1,258)
------- -------
Net Cash Provided by Financing Activities 40,841 20,757
Decrease in Cash and Cash Equivalents (270) (16,683)
Cash and cash equivalents at beginning of year 20,231 34,131
------- -------
Cash and Cash Equivalents at End of Period $19,961 $17,448
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and short-term borrowings $7,937 $6,810
Income taxes 922 851
Non-Cash Investing Activities:
Decrease in net unrealized gains/losses on
available-for-sale securities 486 3,324
Non-Cash Financing Activities:
Dividend declared and unpaid 611 629
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
ALLIANCE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited financial statements were prepared in
accordance with the instructions for Form 10-Q and Regulation S-X and,
therefore, do not include information for footnotes necessary for a
complete presentation of financial condition, results of operations,
and cash flows in conformity with generally accepted accounting
principles. The following material under the heading "Management's
Discussion and Analysis of Results of Operations and Financial
Condition" is written with the presumption that the users of the
interim financial statements have read, or have access to, the latest
audited financial statements and notes thereto of the Company, together
with Management's Discussion and Analysis of the Results of Operations
and Financial Condition as of December 31, 1999 and for the three-year
period then ended, included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999. Accordingly, only material
changes in the results of operations and financial condition are
discussed in the remainder of Part 1.
All adjustments (consisting of only normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
the financial statements have been included in the results of
operations for the three months and six months ended June 30, 2000 and
1999.
B. Earnings Per Share
Basic earnings per share has been computed by dividing net income by
the weighted average number of common shares outstanding throughout the
three months and six months ended June 30, 2000 and 1999, using
3,494,239 and 3,594,811 weighted average common shares outstanding for
the three months ended, and 3,505,824 and 3,594,811 weighted average
common shares outstanding for the six months ended, respectively.
Diluted earnings per share gives effect to weighted average shares
which would be outstanding assuming the exercise of options using the
treasury stock method. For the three months and six months ended June
30, 2000, the assumed exercise of certain options would be
antidilutive.
PART I
ITEM 2. Management's Discussion and Analysis of the Results of Operations and
Financial Condition
General
-------
Throughout this analysis, the term "the Company" refers to the consolidated
entity of Alliance Financial Corporation and its wholly-owned banking
subsidiary, Alliance Bank, N.A. Effective at the close of business on April 16,
1999, the Company merged its two banking subsidiaries, First National Bank of
Cortland and Oneida Valley National Bank under the name of Alliance Bank, N.A.
<PAGE>
The following discussion presents material changes in the Company's results of
operations and financial condition during the three and six months ended June
30, 2000, which are not otherwise apparent from the consolidated financial
statements included in this report.
This discussion and analysis contains certain forward-looking statements with
respect to the financial condition, results of operations and business of
Alliance Financial Corporation and its subsidiary. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated by such
forward-looking statements include, among others, the following possibilities:
(1) expected cost savings from merged operations cannot be fully realized or
cannot be realized as quickly as anticipated; (2) the planned expansion into the
Syracuse market is not completed on schedule or on budget or the new branches do
not attract the expected loan and deposit customers; (3) competitive pressure in
the banking industry increases significantly; (4) changes in the interest rate
environment reduce margins; (5) general economic conditions, either nationally
or regionally, are less favorable than expected, resulting in, among other
things, a deterioration in credit quality; (6) changes occur in the regulatory
environment; (7) changes occur in business conditions and inflation; (8) changes
occur in the securities markets; and (9) other factors detailed from time to
time in the Company's SEC filings.
Operating results for the three and six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
Results of Operations for the Three Months Ended June 30, 2000
--------------------------------------------------------------
Net income was $1,406,000, or $.40 per share, for the second quarter of 2000
compared to $1,373,000, or $.38 per share, for the same period in 1999. The
$33,000 increase in net income represents a 2.4% increase over the prior year
period while the earnings per share increase of $.02 represents a 5.3% increase.
The return on average assets and return on average shareholder's equity were
1.02% and 11.49%, respectively, for the three months ended June 30, 2000,
compared to 1.10% and 10.63%, respectively, for the second quarter of 1999.
Rising interest rates, the result of continued actions by the Federal Reserve
Board to slow the economy, increased the Company's interest expense at a pace
that exceeded the second quarter growth in interest income. As a result, the
Company's net interest margin continued to contract and net interest income of
$5,278,000 for the quarter ending June 30, 2000 was $34,000, or 0.6%, less than
the comparable quarter in 1999. Interest and fees on loans were up $815,000,
while interest on investment securities was up $379,000 when comparing the
quarter ended June 30, 2000 to the quarter ended June 30, 1999. Average total
loans for the 2000 second quarter were $291,561,000 compared to $260,116,000 for
the comparable period in 1999. Average investment securities for the quarter
ended June 30, 2000 were $22,221,000 greater than the comparable 1999 period.
Tax equivalent yields on average earning assets increased to 7.86% as of June
30, 2000, from 7.76% as of June 30, 1999. Interest expense of $4,642,000 for the
three month period ended June 30, 2000 compared to $3,472,000 for the same
period in the prior year, an increase of 33.7%. The average cost of interest
bearing liabilities for the second quarter of 2000, at 4.18%, was up 60 basis
points compared to the second quarter of 1999, while at the same time average
interest bearing liabilities over the comparable periods increased by $55.7
million. The tax equivalent net interest margin declined from 4.80% for the
quarter ending June 30, 1999 to 4.29% for the quarter ending June 30, 2000.
The provision for loan loss expense for the second quarter of 2000 was $300,000,
an increase of $50,000 compared to the second quarter of 1999 with the increase
supporting the growth in
<PAGE>
loans. Net charge-offs increased $285,000 when comparing the second quarter of
2000 to the second quarter of 1999 as the Company experienced a higher level of
charge-offs on commercial loans. Non-performing loans at 0.32% of total loans at
June 30, 2000 declined significantly from 0.58% when compared to a year earlier.
The allowance for possible loan losses balance as of June 30, 2000, in the
amount of $3,481,000, or 1.14% of total loans, compared to $3,260,000, or 1.24%
of total loans a year earlier.
Non-interest income of $1,420,000 for the second quarter of 2000 was up
$404,000, or 39.8%, compared to the comparable quarter of 1999. Contributing to
the growth were significant increases in trust revenues, electronic banking
fees, and increases in the cash value of company owned life insurance. The
Company took securities gains of $186,000 during the quarter, which were
$152,000 greater than the comparable period in the prior year.
Non-interest expense increased $286,000, or 6.8%, for the three months ended
June 30, 2000 compared to the same period in 1999. The Company increased salary
and benefits expense over the comparable periods by $349,000, or 16%, as
staffing increased in the 2000 second quarter in preparation for the opening of
two full service branches in the third quarter. Occupancy expense, associated
with branch expansion, increased $39,000, or 6.1%, while the Company reduced
other operating expenses by $98,000, or 7.1%, when comparing second quarter of
2000 to the second quarter of 1999.
Results of Operations for the Six Months ended June 30, 2000
------------------------------------------------------------
Net income was $2,740,000, or $.78 per share, for the first six months of 2000
compared to $2,622,000, or $.73 per share, for the same period in 1999. The
$118,000 increase in net income represents a 4.5% increase over the same period
in the previous year while the earnings per share increase of $.05 represents a
6.8% increase over the comparable period. The return on average assets declined
to 1.02% from 1.07% while the return on average equity improved to 11.19% from
10.09% when comparing the six months ended June 30, 2000 to the comparable
period in 1999. Rising market interest rates which increased asset yields, along
with a $45,599,000 increase in average earning assets, resulted in an increase
of $2,251,000, or 13.3%, in interest income when comparing the first six months
of 2000 to the same period in 1999. The increase in interest rates which also
increased the Company's cost of funds, coupled with a $53,054,000 increase in
average interest bearing liabilities, increased interest expense by $2,001,000,
or 29.4%. The tax equivalent net interest margin declined from 4.68% for the six
months ending June 30, 1999 to 4.32% for the six months ending June 30, 2000,
and net interest income increased $250,000, or 2.5% over the comparable periods.
The Company increased its provision for loan loss expense by $75,000 in the
first six months of 2000 compared to the comparable period in 1999 in connection
with continued loan growth and increased loan losses. Net change-offs increased
$265,000, to $481,000, for the six month period ending June 30, 2000 compared to
$216,000 for the same period in 1999. Non-performing loans as a percent of total
loans were 0.32% as of June 30, 2000, compared to 0.58% as of June 30, 1999,
while non-performing assets as a percent of total assets were 0.22%, compared to
0.36% for the same periods.
Non-interest income of $2,752,000 for the first half of 2000 was up $625,000, or
29.4%, as compared to the first half of 1999. The Company benefited from
significant increases in trust revenues, which were up $218,000, or 48%,
compared to the prior year period. Other income also resulted from increases in
the cash value of company owned life insurance, along with
<PAGE>
growth in electronic banking fees and other service charges. During the first
six months of 2000, the Company took gains on the sales of securities in the
amount of $187,000, $60,000 greater than the first six months of 1999.
Non-interest expense increased $721,000, or 8.9%, for the six months ended June
30, 2000 compared to the same period in 1999. Increases in non-interest expense
resulted primarily from increases in salary and benefits expense associated with
growth in the Company's employee base as it staffed new branch locations in its
growing market. Salary and benefits expense for the six months ending June 30,
2000 was up $603,000, or 13.7%, compared to the six months ended June 30, 1999.
Occupancy expense, also associated with the new branches, was up $124,000, or
9.8%, for the comparable periods. Other non-interest expense reflected no
increase over the prior year.
Financial Condition
-------------------
Total assets increased $43,720,000, or 8.4%, to $562,917,000 at June 30, 2000
from $519,197,000 at December 31, 1999. For the six months ending June 30, 2000,
total loans, net of unearned discount, increased $20,302,000, or 7.1%, to
$305,739,000. Commercial loans increased $9,762,000, or 9.3%, while indirect
auto loans increased $10,852,000, or 53.6%, during the first six months of 2000.
Investment securities as of June 30, 2000 in the amount of $215,238,000 were up
$20,856,000, or 10.7%, since December 31, 1999. Deposits as of June 30, 2000
declined $124,000 to $434,950,000, compared to the prior year-end. The Company
experienced a seasonal decline in local public funds deposits of $23,801,000
during the month of June, replacing the deposits with advances from the Federal
Home Loan Bank. Average deposits for the first six months of 2000 were
$457,868,000. Shareholders' equity at June 30, 2000 was $49,728,000, or 8.8% of
assets. During the first six months of 2000 the Company's retained earnings
increased shareholder's equity by $1,517,000. The Company repurchased 35,200
shares of its stock during the first half of 2000, reducing shareholder's equity
by $743,000.
Other Information
-----------------
In December 1998, the Oneida Indian Nation ("The Nation") and the U.S. Justice
Department filed motions to amend a longstanding claim against the State of New
York to include a class of 20,000 unnamed defendants who own real property in
Madison and Oneida Counties. If the motion is granted to amend the claim,
litigation could involve assets of the Company. On March 26, 1999, the United
States District Court heard arguments on the matter and has reserved its
decision pending a negotiated settlement of the matter by the State of New York
and The Nation. The Nation has indicated that the purpose of the legal action
currently being undertaken is to force the State of New York to negotiate an
equitable settlement of their claim which was ruled on by the United States
Supreme Court in favor of The Nation over 13 years ago. Management believes
that, ultimately, the State of New York will be held responsible for these
claims and this matter will be settled without adversely impacting the Company.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's market risk arises principally from interest rate risk in its
lending, deposit and borrowing activities. Management actively monitors and
manages its interest rate risk exposure using a computer simulation model that
measures the impact of changes in interest rates on its interest income. As of
June 30, 2000, an instantaneous 200 basis point increase in market
<PAGE>
interest rates was estimated to have a negative impact of 9.9% on net interest
income over the next twelve month period, while a 200 basis point decrease in
market interest rates was estimated to have a positive impact of 5.8% on the
Company's net interest income. By comparison, at March 31, 2000 the Company
estimated an instantaneous 200 basis point rise in rates would have a negative
impact of 8.6% on net interest income during the following twelve month period
while a 200 basis point decline in rates would have a positive impact of 7% on
net interest income during the following twelve month period. The Company took
on slightly more risk to rising interest rates during the second quarter of 2000
as it increased borrowings and short term repriceable deposits, investing a
percentage of the funds in fixed rate consumer loans and intermediate term
securities. The Company believes that the increase in yield for the extended
maturities warrants the increase in its overall interest rate risk. The
potential change in net interest income resulting from this analysis falls
within the Company's interest rate risk policy guidelines.
Computation of the prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, loan prepayments and deposit rate and mix changes, and should not be
relied upon as indicative of actual results.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
<PAGE>
Item 4. Submission of Matters to a Vote of Securities Holders
The Company held its Annual Meeting of Shareholders on May 2, 2000
(the "Meeting"). At the Meeting, each of the following persons was
elected as a Class II director whose term will expire at the 2003
Annual Meeting of Shareholders:
<TABLE>
<CAPTION>
FOR WITHHELD NON-VOTES
--- -------- ---------
<S> <C> <C> <C>
DONALD H.DEW 2,647,042 50,316 808,503
------------ --------- ------ -------
CHARLES E. SHAFER 2,646,542 50,816 808,503
----------------- --------- ------ -------
CHARLES H. SPAULDING 2,647,042 50,316 808,503
-------------------- --------- ------ -------
</TABLE>
Item 5. Other Information
On June 21, 2000, the Company announced that its Board of
Directors has declared a 5% stock dividend in addition to a
regular quarterly cash dividend of $0.175 per share on its common
stock. Both dividends will be payable July 10, 2000 to
shareholders of record as of the close of business July 3, 2000.
Alliance Bank, N.A. has filed an application with the Office of
the Comptroller of the Currency to open an in-store office in the
Town of Camillus, New York at the P&C Market on West Genesee
Street. It is anticipated that the office will open during the
fourth quarter of this year.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits required by Item 601 of Regulation S-K:
Ex. No. Description
------- -----------
3.1 Amended and Restated Certificate of Incorporation of
the Company(1)
3.2 Amended and Restated Bylaws of the Company(1)
10.1 Employment Agreement, dated as of May 1, 2000, by and
among the Company, Alliance Bank, N.A., and Jack H.
Webb (2)
10.2 Supplemental Retirement Agreement, dated as of
May 1, 2000, by and among the Company, Alliance Bank,
N.A., and Jack H. Webb (2)
27 Financial Data Schedule (2)
--------------------------
(1) Incorporated herein by reference to the exhibit with
the same number to the Registration Statement on Form
S-4 (Registration No. 333-62623) of
<PAGE>
the Company previously filed with the Securities and
Exchange Commission on August 31, 1998, as amended.
(2) Filed herewith.
b) Reports on Form 8-K
N/A
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLIANCE FINANCIAL CORPORATION
DATE May 12, 2000 /s/ David R. Alvord
--------------------- ----------------------
David R. Alvord, President
DATE May 12, 2000 /s/ David P. Kershaw
-------------------------------- ----------------------
David P. Kershaw, Treasurer
& CFO
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This sets forth the EMPLOYMENT AGREEMENT made and entered into
as of May 1, 2000 by and among (i) Alliance Financial Corporation, a New York
corporation and registered bank holding company ("Corporation"), and Alliance
Bank, N.A. ("Bank"), which is a wholly-owned subsidiary of the Corporation
(collectively, the Corporation and Bank are hereafter referred to as
"Employer"), both having offices located in Cortland and Oneida, New York, and
(ii) JACK H. WEBB, an individual currently residing at 5216 Duane Drive,
Fayetteville, New York ("Employee").
WITNESSETH
IN CONSIDERATION of the mutual premises, covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree to
the following employment terms.
1. Employment.
----------
(a) Term. Employer shall employ Employee, and Employee shall
serve as an executive officer of Employer, in accordance with the terms and
conditions of this Agreement, for a term commencing on May 1, 2000 and ending on
December 31, 2003, subject to earlier termination as provided in this Agreement.
Not later than six months prior to the expiration of this Agreement, the parties
agree to commence discussions regarding a renewal of this Agreement. If the
parties cannot reach agreement regarding the terms for continued employment,
this Agreement shall automatically renew for a 12 month period on the same terms
in effect at that time unless either party provides written notice of intent not
to renew at least 60 days prior to the expiration of this Agreement.
(b) Duties. On the terms and subject to the conditions set
forth herein, the Employer employs the Employee to initially serve as the
Executive Vice President of the Corporation and President of the Bank. The
Employee shall perform the regular duties commensurate with his position,
subject to the control and supervision of Employer's Board of Directors, as from
time to time may be reasonably assigned to Employee by Employer based upon his
position. Employee shall devote Employee's best efforts to the affairs of
Employer, serve faithfully and to the best of Employee's ability and devote all
of Employee's working time and attention, knowledge, experience, energy and
skill to the business of Employer, except that Employee may affiliate with
professional associations, business and civic organizations, provided that
Employee's involvement in such activities does not adversely affect the
performance of his duties on behalf of Employer. Within three months of the
commencement of this Agreement, Employee shall be appointed to the Board of
Directors of the Corporation and the Bank subject to the regular and legally
required procedures for renomination and election by shareholders of the
Corporation. Employee shall also serve on the Board of Directors of, or as an
officer of Employer's affiliates, if requested to do so by the Board of
Directors of Employer.
<PAGE>
(c) Additional Positions. On or about April 1, 2001 (but in no
event later than June 1, 2001), Employee shall be appointed to the additional
position of Chief Executive Officer of the Bank, assuming he is performing his
duties in a satisfactorily manner in the Board of Director's reasonable
judgment. On or about April 1, 2002 (but in no event later than June 1, 2002),
the Employee shall be appointed as the President and Chief Executive Officer of
the Corporation assuming he is performing his duties in a satisfactory manner in
the Board of Director's reasonable judgment. If, despite satisfactory
performance, Employee is not promoted to the additional positions in accordance
with the terms and conditions outlined in this paragraph, he may elect to
terminate his employment and shall be entitled to receive as a severance payment
the greater of (i) one year's base salary (based on the base salary at the time
of termination), or (ii) the base salary Employee would be entitled to for the
remaining term of this Agreement (based on base salary in effect at the time of
termination).
2. Compensation and Benefits.
-------------------------
(a) Employer. Whenever in this Agreement Employee is entitled
to compensation, benefits or other remuneration from Employer, the term Employer
shall mean the Corporation or the Bank. Employee shall not be entitled to
duplicate compensation, benefits or other remuneration from the Corporation and
the Bank.
(b) Base Salary. The Employee shall initially be paid a base
salary at an annualized rate of $150,000. On an annual basis, consistent with
Employer's regular review procedures, the Employee's base salary shall be
reviewed and may be increased (but not decreased) in the discretion of the
Corporation's Board of Directors. If Employee is promoted to Chief Executive
Officer of the Bank in accordance with paragraph 1(b), the Employee's annual
base salary shall be adjusted upward based upon the review and determination of
the Compensation Committee of the Board of Directors but in no event shall
Employee's annual base salary be less than $200,000 upon such promotion. If
Employee is promoted to President and Chief Executive Officer of the Corporation
in accordance with paragraph 1(b), the Employee's annual base salary shall be
adjusted upward based upon the review and determination of the Compensation
Committee of the board of Directors but in no event shall Employee's annual base
salary be less than $250,000 upon such promotion. Employee's Base Salary shall
be paid in accordance with Employer's regular payroll practices for executive
employees.
(c) Bonuses. Employee shall be entitled to participate in the
short term and long term incentive compensation plans, bonus, or similar plans
maintained from time to time by the Employer for its senior executive officers.
Upon termination of Employee's employment, other than a termination for cause
pursuant to subparagraph 5(e), Employee shall be entitled to a pro rata portion
(based on Employee's complete months of active employment in the applicable
year) of the annual cash bonuses that are payable with respect to the year
during which the termination occurs.
(d) Benefit Plans. Employee shall be eligible to participate
in any Employer maintained employee pension benefit plans (as that term is
defined under Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended), group life insurance plans, medical plans, dental plans,
long-term disability plans, business travel insurance programs and other fringe
benefit plans or programs maintained by Employer for the benefit of its
executive
<PAGE>
employees. Employee's participation in any such benefit plans and
programs shall be based on, and subject to satisfaction of, the eligibility
requirements and other conditions of such plans and programs.
(e) Expenses. Upon submission to Employer of vouchers or other
required documentation, Employee shall be reimbursed for Employee's actual
out-of-pocket travel and other expenses reasonably incurred and paid by Employee
in connection with Employee's duties under this Agreement.
(f) Other Benefits. During the period of employment,
Employee shall also be entitled to receive the following benefits:
(i) Paid vacation of at least 4 weeks during each
calendar year (prorated for partial years) (with no carry over of
unused vacation to a subsequent year) and any holidays that may be
provided to all employees of Employer in accordance with Employer's
holiday policy;
(ii) Reasonable sick leave;
(iii) Reimbursement of membership fees incurred by
Employee at the Century Club of Syracuse and at a country club of
Employee's choice;
(iv) The use of an Employer-owned automobile of
Employee's choice, the purchase and replacement of which shall be
subject to the approval of the Board of Directors of Employer; and
(v) Reimbursement of the purchase price of a cellular
telephone and all Employer-related business charges incurred in
connection with the use of such telephone.
(g) Stock Options. Employee shall be eligible to participate
in the Corporation's 1998 Long Term Compensation Plan ("Plan") and shall be
granted the following stock options subject to the terms and conditions of the
Plan:
(i) Upon the later of Employee's first day of active
employment or the effectiveness of this Agreement, Employee shall be granted an
option to purchase an aggregate of 10,000 shares of common stock of the
Corporation at the per share market value of the stock on the day of grant
determined pursuant to the terms of the Plan. The 10,000 shares shall vest and
become exercisable in equal amounts (rounded to nearest whole number) over a 3
year period with the first one-third vesting on May 1, 2001 and the other
one-third amounts vesting on May 1, 2002 and May 1, 2003. In the event the
Employee's employment is terminated for any reason, these shares shall vest and
become exercisable (to the extent not previously vested and exercisable). To the
extent permitted under the Plan, the option shall be treated as an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code").
(ii) Upon the later of Employee's first day of active
employment or the effectiveness of this Agreement, Employee shall also be
granted an option to purchase an aggregate of 30,000 shares of common stock of
the Corporation at the per share market value of
<PAGE>
the stock on the date of grant determined pursuant to the terms of the Plan. The
30,000 shares shall vest and become exercisable according to the following
schedule:
(a) 15,000 shares (50 percent of the total
number of shares awarded) may be purchased at any time during the period that
begins on the later of (i) the first anniversary of the grant date and (ii) the
first trading date that follows the 30th consecutive trading date on which
shares of Common Stock have traded on an established securities market at a
price of at least 109% of the exercise price following the grant date, and ends
on the tenth anniversary of the grant date;
(b) 7,500 shares (25 percent of the total number
of shares awarded) may be purchased at any time during the period that begins on
the later of (i) the first anniversary of the grant date and (ii) the first
trading date that follows the 30th consecutive trading date on which shares of
Common Stock have traded on an established securities market at a price of at
least 121% of the exercise price following the grant date, and ends on the tenth
anniversary of the grant date; and
(c) 7,500 shares (25 percent of the total number
of shares awarded) may be purchased at any time during the period that begins on
the later of (i) the first anniversary of the grant date and (ii) the first
trading date that follows the 30th consecutive trading date on which shares of
Common Stock have traded on an established securities market at a price of at
least 141% of the exercise price following the grant date, and ends on the tenth
anniversary of the grant date.
(d) Notwithstanding the exercise periods
described in (a), (b) and (c) above, all option rights granted under paragraph
2(g)(ii) shall be exercisable during the period that begins on the ninth
anniversary of the grant date and ends on the tenth anniversary of the grant
date. In addition, if Employee's employment is terminated without cause pursuant
to paragraph 5(f), any option rights granted under paragraph 2(g)(ii) that have
not yet vested shall vest immediately upon notice of such termination without
cause.
The foregoing grants of stock options shall be documented in separate Stock
Option Agreements.
4. Supplemental Retirement Benefit. Supplemental retirement benefits
shall be provided pursuant to a separate agreement between Employee and
Employer.
5. Termination. Prior to a "Change of Control" (as defined in
subparagraph 6(c)), Employee's employment by Employer shall be subject to
termination as follows:
(a) Expiration of the Term. Except as provided in subparagraph
17(d), this Agreement and Employee's employment with Employer shall terminate
automatically at the expiration of this Agreement, unless the parties enter into
a written agreement extending Employee's employment.
(b) Voluntary Termination. Employee may terminate this
Agreement upon not less than 60 days prior written notice delivered to Employer,
in which event Employee shall be entitled only to the compensation and benefits
Employee has earned or accrued through the date of termination, including
vesting of stock options under paragraph 2(g)(i).
<PAGE>
(c) Termination Upon Death. This Agreement shall terminate
upon Employee's death. In the event this Agreement is terminated as a result of
Employee's death, Employer shall continue payments of Employee's Base Salary for
a period of 60 days following Employee's death to the beneficiary designated by
Employee on the "Beneficiary Designation Form" attached to this Agreement as
Appendix A.
(d) Termination Upon Disability. Employer may terminate this
Agreement upon Employee's disability. For purposes of this Agreement, Employee's
inability to perform Employee's duties hereunder by reason of physical or mental
illness or injury for a period of 26 consecutive weeks that follows Employee's
use of all available sick leave (the "Disability Period") shall constitute
disability. The determination of disability shall be made by a physician
selected by Employer and a physician selected by Employee; provided, however,
that if the two physicians so selected shall disagree, or if Employer shall
disagree with the findings of the physicians, the determination of disability
shall be submitted to arbitration in accordance with the rules of the American
Arbitration Association and the decision of the arbitrator shall be binding and
conclusive on Employee and Employer. During the Disability Period, Employee
shall be entitled to 100% of Employee's Base Salary otherwise payable during
that period, reduced by any other Employer-provided benefits to which Employee
may be entitled with respect to the Disability Period on account of such
disability (including, but not limited to, benefits provided under any
disability insurance policy or program, worker's compensation law, or any other
benefit program or arrangement).
(e) Termination for Cause. Subject to satisfaction of the
notice and correction provisions of this subparagraph (e), Employer may
terminate Employee's employment for "cause" by written notice to Employee. For
purposes of this Agreement, a termination shall be for "cause" if the
termination results from any of the following events:
(i) Material breach of this Agreement;
(ii) Misconduct as an executive or director of
Employer, or any subsidiary or affiliate of Employer for which Employee
is performing services hereunder which consists of misappropriating any
funds or property of any such company, or attempting to obtain any
personal profit (x) from any transaction to which such company is a
party or (y) from any transaction with any third party in which
Employee has an interest which is adverse to the interest of any such
company, unless, in either case, Employee shall have first obtained the
written consent of the Board of Directors of Employer;
(iii) Unreasonable neglect or refusal to perform
the duties assigned to Employee under or pursuant to this Agreement;
(iv) Conviction of a crime involving moral
turpitude;
(v) Adjudication as a bankrupt, which adjudication
has not been contested in good faith, unless bankruptcy is caused
directly by Employer's unexcused failure to perform its obligations
under this Agreement; or
<PAGE>
(vi) Failure to follow the reasonable instructions of
the Board of Directors of Employer, provided that the instructions do
not require Employee to engage in unlawful conduct.
Employer may not terminate Employee for cause unless and until Employer has
provided Employee with a copy of a resolution duly adopted by the affirmative
vote of at least two-thirds of the members of Employer's Board of Directors at a
meeting of the Board of Directors called and held for that purpose, and at which
Employee (after reasonable notice) and/or Employee's counsel shall be given a
reasonable opportunity to be heard, finding that in the good faith opinion of
Employer's Board of Directors Employee has engaged in conduct constituting cause
as defined above and describing the basis for such opinion in detail; provided,
however, that, in the case cause is asserted within the meaning of clause (i),
(iii) or (vi) above, Employee shall be given a period of at least 90 days after
written notice of such asserted cause to correct the asserted conduct giving
rise to the asserted cause. Notwithstanding any other term or provision of this
Agreement to the contrary, if Employee's employment is terminated for cause,
Employee shall forfeit all rights to payments and benefits otherwise provided
pursuant to this Agreement; provided, however, that Base Salary shall be paid
through the date of termination.
(f) Termination Without Cause. Employer may terminate
Employee's employment for reasons other than "cause" (as defined in subparagraph
5(e)) upon not less than 60 days prior written notice delivered to Employee, in
which event Employer shall pay to Employee, within 30 days of the date of
termination, a lump sum payment equivalent to the unpaid compensation and
benefits (including vesting of stock options he is entitled to under paragraph
2(g)(ii)) that would have been paid to or earned by Employee pursuant to this
Agreement, if Employee had remained employed under the terms of this Agreement
until the expiration of this Agreement. This subparagraph (f) shall not require
an acceleration or duplication of payments to be made pursuant to paragraph 4,
or benefits to be provided pursuant to paragraph 6, following Employee's
termination of employment.
(g) Change of Control. If Employee's employment by Employer
shall cease for any reason other than "cause" (as defined in subparagraph 5(e))
within 24 months following a "Change of Control" (as defined in subparagraph
6(c)) that occurs during the term of this Agreement, the provisions of
paragraphs 6 shall apply.
(h) Resignation as Director. Upon Employee's termination of
employment for any reason, Employee agrees to resign as a member of Employer's
Board of Directors, if Employee is a director at the time of termination, and to
resign from any and all other offices and positions related to Employee's
employment with Employer and held by Employee at the time of termination.
6. Termination Following a Change of Control.
-----------------------------------------
(a) In the event of a "Termination" (as defined in paragraph
6(d) below) of Employee's employment in anticipation of, or within 24 months
after, a Change of Control (as defined in paragraph 6(c) below), the Employer
shall:
(i) Within 60 days of termination, pay to Employee
2.99 times the average annual compensation paid to Employee by Employer
and included in Employee's gross income for income tax purposes during
the five full taxable years, or shorter period
<PAGE>
of employment, that immediately precede the year during which the
Change of Control occurs;
(ii) Provide Employee with fringe benefits, or the
cash equivalent of such benefits, identical to those described in
paragraph 2 for a period of 24 months following Employee's termination
of employment; and
(iii) Treat as immediately vested and exercisable all
forms of equity-based compensation, including unexpired stock options,
previously granted to Employee pursuant to paragraph 2 that are not
otherwise vested or exercisable or that have not been exercised.
(b) If any portion of the amounts paid to, or value received
by, Employee following a Change of Control (whether paid or received pursuant to
this paragraph 6 or otherwise) constitutes an "excess parachute payment" within
the meaning of Internal Revenue Code Sections 280G and 4999, then the Employer
shall pay to Employee, within 90 days of Employee's termination of employment,
such additional amount as necessary to ensure that Employee retains the same net
amount, after payment of all excise taxes and additional income taxes, that
Employee would have retained if Internal Revenue Code Sections 280G and 4999 did
not apply. The amount of any payment required by this subparagraph (b) shall be
calculated by the Employer's independent auditors, assuming Employee is subject
to federal, state and local income taxes at the highest marginal rate.
(c) For purposes of paragraph 6(a), a "Change of Control"
shall be deemed to have occurred if:
(i) any "person," including a "group" as determined
in accordance with the Section 13(d)(3) of the Securities Exchange Act
of 1934 ("Exchange Act"), is or becomes the beneficial owner, directly
or indirectly, of securities of Employer representing 30% or more of
the combined voting power of Employer'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 Employer before the
Transaction shall cease to constitute a majority of the Board of
Directors of Employer or any successor to Employer;
(iii) Employer is merged or consolidated with another
corporation and as a result of the merger or consolidation less than
70% of the outstanding voting securities of the surviving or resulting
corporation shall then be owned in the aggregate by the former
stockholders of Employer, 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 Employer representing
30% or more of the combined voting power of Employer's then outstanding
voting securities; or
(v) Employer transfers substantially all of its
assets to another corporation which is not controlled by Employer.
<PAGE>
(d) For purposes of paragraph 6(a), "Termination" shall
mean
(i) termination by the Employer (or successor entity)
of the employment of Employee for any reason other
than death, Disability (as defined in paragraph 5(d)
or termination for "cause" (as defined in paragraph
5(e)), or
(ii) resignation by the Employee for the following
reasons: (A) a significant change in the nature or
scope of the Employee's authority from that prior to
a Change of Control, (B) a reduction in the
Employee's total compensation (including all earned
bonuses and benefits) from that prior to that Change
in Control, or (C) a change in the general location
where the Employee is required to perform services
from that prior to a Change of Control.
7. Covenants.
---------
(a) Confidentiality. Employee shall not, without the prior
written consent of Employer, disclose or use in any way, either during his
employment by Employer or thereafter, except as required in the course of his
employment by Employer, any confidential business or technical information or
trade secret acquired in the course of Employee's employment by Employer.
Employee acknowledges and agrees that it would be difficult to fully compensate
Employer for damages resulting from the breach or threatened breach of the
foregoing provision and, accordingly, that Employer shall be entitled to
temporary preliminary injunctions and permanent injunctions to enforce such
provision. This provision with respect to injunctive relief shall not, however,
diminish Employer's right to claim and recover damages. Employee covenants to
use his best efforts to prevent the publication or disclosure of any trade
secret or any confidential information concerning the business or finances of
Employer or Employer's affiliates, or any of its or their dealings, transactions
or affairs which may come to Employee's knowledge in the pursuance of his duties
or employment.
(b) No Competition. Employee's employment is subject to the
condition that during the term of his employment hereunder and for a period of
24 months following the date his employment ceases for any reason except for a
termination by Employer without cause pursuant to paragraph 5(f) (the "Date of
Termination"), Employee shall not, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
be connected as an officer, employee, partner, director, individual proprietor,
lender, consultant or otherwise with, or have any financial interest in, or aid
or assist anyone else in the conduct of, any entity or business (a "Competitive
Operation") which competes in the banking industry or with any other business
conducted by Employer or by any group, affiliate, division or subsidiary of
Employer, in any area or market where such business is being conducted at the
Date of Termination. Employee shall keep Employer fully advised as to any
activity, interest, or investment Employee may have in any way related to the
banking industry. It is understood and agreed that, for the purposes of the
foregoing provisions of this paragraph, (i) no business shall be deemed to be a
business conducted by Employer or any group, division, affiliate or subsidiary
of Employer unless 5% or more of Employer's consolidated gross sales or
operating revenues is derived from, or 5% or more of Employer's consolidated
assets are devoted to, such business;
<PAGE>
(ii) no business conducted by any entity by which Employee is employed or in
which he is interested or with which he is connected or associated shall be
deemed competitive with any business conducted by Employer or any group,
division or subsidiary of Employer unless it is one from which 2% or more of its
consolidated gross sales or operating revenues is derived, or to which 2% or
more of its consolidated assets are devoted; and (iii) no business which is
conducted by Employer at the Date of Termination and which subsequently is sold
by Employer shall, after such sale, be deemed to be a Competitive Operation
within the meaning of this paragraph. Ownership of not more than 1% of the
voting stock of any publicly held corporation shall not constitute a violation
of this paragraph.
Notwithstanding the restrictive covenants set forth in
paragraph 7(b), in the event this Agreement is not renewed upon its expiration
as set forth in paragraph 1(a) following the good faith negotiations of the
parties, then in that situation only, the period of noncompetition shall
continue for six months following the Date of Termination (instead of for two
years). In this event of non-renewal, the Employer at its sole option may extend
that period of noncompetition for an additional six-month period (for a total of
12 months following the Date of Termination) upon electing to pay an amount to
Employee equal to six months of his final base salary amount. If Employer elects
to extend the noncompetition period for the additional six month period it will
advise Employee in writing with 30 days of the Date of Termination and the
payment equivalent to six months' base salary shall be paid to Employee in six
equal monthly installments commencing within six months following the Date of
Termination.
(c) Certain Affiliates of Employer. It is understood that
Employee may have access to technical knowledge, trade secrets and customer
lists of affiliates of Employer or companies which Employer's parent may acquire
in the future and may serve as a member of the board of directors or as an
officer or employee of an affiliate of Employer. Employee covenants that he
shall not, during the term of his employment by Employer or for a period of 24
months thereafter, in any way, directly or indirectly, own, manage, operate,
control or participate in the ownership, management, operation or control of, or
be connected as an officer, employee, partner, director, individual proprietor,
lender, consultant or otherwise aid or assist anyone else in any business or
operation which competes with or engages in the business of such an affiliate.
(d) Termination of Payments. Upon the breach by Employee of
any covenant under this paragraph 7, Employer may terminate, offset and/or
recover from Employee immediately any and all benefits paid to Employee pursuant
to this Agreement, in addition to any and all other remedies available to
Employer under the law or in equity.
(e) Modification. Although the parties consider the
restrictions contained in this paragraph 7 reasonable as to protected business,
duration, and geographic area, in the event that any court of competent
jurisdiction deems them to be unreasonable, then such restrictions shall apply
to the broadest business, longest period, and largest geographic territory as
may be considered reasonable by such court, and this paragraph 7, as so amended,
shall be enforced.
(f) Other Agreements. Employee represents and warrants that
neither Employee's employment with the Corporation nor Employee's performance of
his obligations hereunder will conflict with or violate Employee's obligations
under the terms of any agreement with a previous employer or other party
including agreements to refrain from competing, directly or indirectly, with the
business of such previous employer or any other party.
<PAGE>
8. Withholding. Employer shall deduct and withhold from compensation
and benefits provided under this Agreement all necessary income and employment
taxes and any other similar sums required by law to be withheld.
9. Notices. Any notice which may be given hereunder shall be sufficient
if in writing and mailed by certified mail, return receipt requested, to
Employee at his residence and to Employer at its headquarters in Cortland, New
York or at such other addresses as either Employee or Employer may, by similar
notice, designate.
10. Rules, Regulations and Policies. Employee shall use his best
efforts to abide by and comply with all of the rules, regulations, and policies
of Employer, including without limitation Employer's policy of strict adherence
to, and compliance with, any and all requirements of the banking, securities,
and antitrust laws and regulations.
11. Return of Employer's Property. After Employee has received notice
of termination or at the end of the Period of Employment, whichever first
occurs, Employee shall immediately return to Employer all documents and other
property in his possession belonging to Employer.
12. Construction and Severability. The invalidity of any one or more
provisions of this Agreement or any part thereof, all of which are inserted
conditionally upon their being valid in law, shall not affect the validity of
any other provisions to this Agreement; and in the event that one or more
provisions contained herein shall be invalid, as determined by a court of
competent jurisdiction, this Agreement shall be construed as if such invalid
provisions had not been inserted.
13. Governing Law. This Agreement was executed and delivered in New
York and shall be construed and governed in accordance with the laws of the
State of New York.
14. Assignability and Successors. This Agreement may not be assigned by
Employee or Employer, except that this Agreement shall be binding upon and shall
inure to the benefit of the successor of Employer through merger or corporate
reorganization.
15. Counterparts. This Agreement may be executed in counterparts (each
of which need not be executed by each of the parties), which together shall
constitute one and the same instrument.
16. Jurisdiction and Venue. The jurisdiction of any proceeding between
the parties arising out of, or with respect to, this Agreement shall be in a
court of competent jurisdiction in New York State, and venue shall be in
Onondaga County. Each party shall be subject to the personal jurisdiction of the
courts of New York State.
17. Miscellaneous.
-------------
(a) This Agreement constitutes the entire understanding and
agreement between the parties with respect to the subject matter hereof and
shall supersede all prior understandings and agreements.
<PAGE>
(b) This Agreement cannot be amended, modified, or
supplemented in any respect, except by a subsequent written agreement entered
into by the parties hereto.
(c) The services to be performed by Employee are special and
unique; it is agreed that any breach of this Agreement by Employee shall entitle
Employer (or any successor or assigns of Employer), in addition to any other
legal remedies available to it, to apply to any court of competent jurisdiction
to enjoin such breach.
(d) The provisions of paragraphs 5, 6 and 7 hereof shall
survive the termination or expiration of this Agreement.
The foregoing is established by the following signatures of
the parties.
ALLIANCE FINANCIAL CORPORATION
By: /s/ John C. Mott
----------------
Its: Chairman & CEO
--------------
ALLIANCE BANK, N.A.
By: /s/ David R. Alvord
-------------------
Its: President & CEO
---------------
/s/ Jack H. Webb
------------------
Jack H. Webb
<PAGE>
EXHIBIT 10.2
SUPPLEMENTAL RETIREMENT AGREEMENT
This sets forth the terms of an agreement for the payment of
supplemental retirement income ("Agreement") made as of May 1, 2000 between (i)
Alliance Financial Corporation, a New York corporation and registered bank
holding company ("Corporation"), and Alliance Bank, N.A., a national banking
institution and a wholly-owned subsidiary of the Corporation ("Bank"), both
having offices located in Oneida and Cortland, New York (the Corporation and the
Bank are referred to collectively in this Agreement as the "Employer"), and (ii)
JACK H. WEBB, an individual currently residing at 5216 Duane Drive,
Fayetteville, New York ("Employee").
1. Purpose of the Agreement. As consideration for the future services
of Employee to the Bank, the Bank wishes to provide Employee a supplemental
retirement benefit in accordance with the terms of this Agreement.
2. Amount of Supplemental Retirement Benefit.
-----------------------------------------
(a) If Employee shall remain actively employed by the Bank
through December 31, 2003, and subject to the other terms and conditions of this
Agreement, the Bank shall pay Employee an annual "Supplemental Retirement
Benefit" equal to the excess of (a) 70 percent of Employee's "Final Average
Compensation," over (b) Employee's "Other Retirement Benefits," determined as of
the "Determination Date."
(b) For purposes of this Agreement, "Final Average
Compensation" shall mean the annualized average of Employee's monthly base
salary actually paid by the Bank over the 36 consecutive months prior to
Employee's termination of employment.
(c) For purposes of this Agreement, "Other Retirement
Benefits" shall mean the sum of:
<PAGE>
(i) the annual benefit that could be provided by
(A) Bank contributions (other than
Employee's elective deferral contributions)
made on Employee's behalf under the Internal
Revenue Section 401(k) plan maintained by
the Bank (and any successor or additional
plan), and (B) actual earnings on
contributions described in (A), if such
contributions and earnings were converted to
an actuarially equivalent benefit payable to
Employee at age 65 in the same form as the
benefit paid under this Agreement; plus
(ii) the estimated annual benefit payable to
Employee commencing at age 65 pursuant
to the Federal Social Security Act; plus
(iii) the annual benefit payable to Employee at
age 65 pursuant to any other pension, profit
sharing, or similar plan maintained by any
prior employer in which Employee was a
participant prior to his employment with the
Bank (converted, if necessary, to an
actuarially equivalent benefit payable in
the same form as the benefit paid under this
Agreement) to the extent such benefit is
provided by contributions of the prior
employer and earnings on those
contributions.
The amount of Other Retirement Benefits shall be determined by an actuary
selected by the Bank, with such determination to be made without reduction for
payment of benefits prior to any stated "normal retirement date" and without
regard to whether Employee is receiving payment of such benefits on the
Determination Date. To the extent Employee receives a payment of Other
Retirement Benefits described in subparagraph (c)(i) or (iii) prior to the date
the Supplemental Retirement Benefit is determined pursuant to this Agreement,
the total of such Other Retirement Benefits shall be determined by including
amounts received and assuming that such amounts earned interest at an annual
rate of 8% from the date received to the date Other Retirement Benefits are
calculated for
<PAGE>
purposes of this Agreement. Employee shall provide such financial and other
information as the Bank may reasonably require to determine Other Retirement
Benefits.
(d) For purposes of this Agreement, "Determination Date" shall
mean the earlier of Employee's termination of employment or August 1, 2017 (the
first day of the month following Employee's attainment of age 65).
3. Time of Payment.
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(a) Except as provided in subparagraph 3(b), the Supplemental
Retirement Benefit shall be paid by the Bank commencing on August 1, 2017 (the
first day of month following Employee's attainment of age 65).
(b) Notwithstanding subparagraph 3(a), the Bank, in its sole
discretion, may commence payment of the Supplemental Retirement Benefit at any
time after Employee's termination of employment with the Bank and prior to the
date specified in subparagraph 3(a). If payment of the Supplemental Retirement
Benefit commences before August 1, 2017 (the first day of the month following
Employee's attainment of age 65), the amount paid shall equal the product of (i)
the Supplemental Retirement Benefit, times (ii) a fraction, the numerator of
which shall be the number of complete months of Employee's employment with the
Bank (using May 1, 2000 as Employee's employment commencement date), and the
denominator of which is 207 (the number of complete months of employment
Employee would have had if he remained employed by the Bank through age 65).
4. Form of Payment.
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(a) The Supplemental Retirement Benefit described in paragraph
2 of this Agreement shall be paid as a straight life annuity, payable in monthly
installments, for Employee's life.
(b) Notwithstanding the foregoing of this paragraph 4, the
Bank, in its sole discretion, may accelerate the payment of all or any portion
of the Supplemental Retirement Benefit
<PAGE>
at any time. Any payment accelerated in accordance with this subparagraph 4(b)
shall be the actuarial equivalent of the payment(s) being accelerated, as such
actuarial equivalent shall be determined by an actuary selected by the Bank.
(c) If payment of the Supplemental Retirement Benefit
commences before August 1, 2017 (the first day of the month following Employee's
attainment of age 65) pursuant to subparagraph 3(b), and payments are
accelerated pursuant to this paragraph 4, the reduction described in
subparagraph 3(b) shall be applied before any actuarial equivalent is determined
under this paragraph 4.
5. Payments Upon Employee's Death. No payment shall be due or paid
pursuant to this Agreement upon or following Employee's death.
6. Actuarial Assumptions. To the extent interest rate, mortality and/or
other assumptions are needed to determine an actuarial equivalent amount under
this Agreement, the Employer shall select such reasonable assumptions as
Employer shall consider necessary or appropriate.
7. Forfeiture.
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(a) Notwithstanding any other provision of this Agreement, if
Employee's employment with the Bank is terminated for "Cause," Employee shall
forfeit all rights to any payment under this Agreement.
(b) For purposes of this Agreement, whether Employee's
termination is for "Cause" shall be determined pursuant to the terms of the
employment agreement between Employee and Employer.
8. Bank Discretion. The Bank shall have the exclusive authority and
discretion to interpret this Agreement, and shall have the authority and
discretion to interpret, construe and apply all of the terms and provisions of
this Agreement. The Bank's exercise of its discretionary authority to interpret,
construe and apply the terms and provisions of this Agreement, and all its
determinations, shall be conclusive and binding upon Employee, Employer and all
other persons having or claiming
<PAGE>
an interest under this Agreement, shall be entitled to deference upon review by
any court, agency or other entity empowered to review its decisions, and shall
not be overturned or set aside by any court, agency or other entity unless found
to be arbitrary, capricious or made in bad faith.
9. Claims Procedure.
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(a) Any claim for benefits by Employee shall be made in
writing to the Bank.
(b) If the Bank denies a claim in whole or in part, it shall
send Employee a written notice of the denial within 90 days after the date it
receives a claim, unless it needs additional time to make its decision. In that
case, the Bank may authorize an extension of up to an additional 90 days, if it
notifies Employee of the extension within the initial 90-day period. The
extension notice shall state the reasons for the extension and the expected
decision date.
(c) A denial notice shall be written in a manner calculated to
be understood by Employee and shall contain:
(i) the specific reason or reasons for the denial of the
claim;
(ii) specific reference to pertinent Agreement provisions
upon which the denial is based;
(iii) a description of any additional material or
information necessary to perfect the claim, with an
explanation of why the material or information is
necessary; and
(iv) an explanation of the review procedures provided
below.
(d) Within 60 days after Employee receives a denial notice,
Employee may file a request for review with the Bank. Any such request must be
made in writing.
(e) If Employee timely requests review, Employee shall have
the right to review pertinent documents, to submit additional information or
written comments, and to be represented.
(f) The Bank shall send Employee a written decision on any
request for review within 60 days after the date it receives a request for
review, unless an extension of time is needed,
<PAGE>
due to special circumstances. In that case, the Bank may authorize an extension
of up to an additional 60 days, provided it notifies Employee of the extension
within the initial 60-day period.
(g) The review decision shall be written in a manner
calculated to be understood by Employee and shall contain:
(i) the specific reason or reasons for the decision; and
(ii) specific reference to the pertinent Agreement
provisions upon which the decision is based.
(h) If the Bank does not send Employee a review decision
within the applicable time period, the claim shall be deemed denied on review.
(i) The review decision (including a deemed decision)
shall be the Bank's final decision.
10. Assignment. Employee may not transfer his right to payments to
which he is entitled under this Agreement. The Supplemental Retirement Benefit
payable under this Agreement shall not be subject in any manner to alienation,
sale, transfer, assignment, pledge or encumbrance, nor subject to the debts,
contracts, or liabilities of Employee.
11. Continued Employment. This Agreement shall not be construed as
conferring on Employee a right to continued employment with the Bank.
12. Funding.
(a) The Supplemental Retirement Benefit at all times shall be
entirely unfunded, and no provision shall at any time be made with respect to
segregating any assets of the Bank for payments of any benefits hereunder.
(b) Employee shall not have any interest in any particular
assets of the Bank by reason of the right to receive a benefit under this
Agreement. Employee shall have only the rights of a general unsecured creditor
of the Bank with respect to any rights under this Agreement.
<PAGE>
(c) Nothing contained in this Agreement shall constitute a
guarantee by the Bank or any entity or person that the assets of the Bank will
be sufficient to pay any benefit hereunder.
13. Withholding. Any payment made pursuant to this Agreement shall be
reduced by federal and state income, FICA or other employee payroll, withholding
or other similar taxes the Bank may be required to withhold. In addition, as the
Supplemental Retirement Benefit accrues during Employee's employment with the
Bank, the Bank may withhold from Employee's regular compensation from the Bank
any FICA or other employee payroll, withholding or other similar taxes the Bank
may be required to withhold.
14. Successors and Assigns. This Agreement shall be binding upon, and
shall inure to the benefit of, the successors and assigns of the Bank.
15. Applicable Law. This Agreement shall be construed and administered
in accordance with the laws of the State of New York, unless preempted by
federal law.
16. Amendment. This Agreement may not be amended, modified or otherwise
altered except by written instrument executed by both parties.
17. Entire Agreement. This Agreement constitutes the entire agreement
and understanding of the parties, and supersedes all prior agreements or
understandings (whether oral or written) between the parties, relating to
deferred compensation and/or supplemental retirement income.
<PAGE>
The parties hereby execute this Agreement as follows:
ALLIANCE FINANCIAL CORPORATION
By: /s/ John C. Mott
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Date: May 1, 2000 Its: Chairman & CEO
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ALLIANCE BANK, N.A.
By: /s/ David R. Alvord
----------------------
Date: May 1, 2000 Its: President & CEO
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Date: May 1, 2000 /s/ Jack H. Webb
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Jack H. Webb
