sched14aproxy.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a)
of the
Securities Exchange Act of 1934
Filed by
the Registrant þ
Filed by
a Party other than the Registrant □
Check the
appropriate box:
þ Preliminary
Proxy Statement
□ Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
□ Definitive
Proxy Statement
□ Definitive
Additional Materials
□ Soliciting
Material Pursuant to § 240.14a-12
Community
Bank System, Inc.
_________________________________________________________________________________________________________________________________________
(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):
þ No
fee required.
□ Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1)
Title of each class of securities to which transaction applies:
_________________________________________________________________________________________________________________________________________
(2)
Aggregate number of securities to which transaction applies:
_________________________________________________________________________________________________________________________________________
(3) Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
_________________________________________________________________________________________________________________________________________
(4)
Proposed maximum aggregate value of transaction:
_________________________________________________________________________________________________________________________________________
(5)
Total fee paid:
_________________________________________________________________________________________________________________________________________
□ |
Fee
paid previously with preliminary materials. |
□
|
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
|
(1)
Amount Previously
Paid:______________________________________________________________
(2) Form,
Schedule or Registration Statement
No.:____________________________________________
(3)
Filing
Party:________________________________________________________________________
(4) Date
Filed:_________________________________________________________________________
COMMUNITY
BANK SYSTEM, INC.
5790
Widewaters Parkway
DeWitt,
New York 13214-1883
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
|
April 16,
2009
To
the Shareholders of Community Bank System, Inc.:
At the
direction of the Board of Directors of Community Bank System, Inc., a
Delaware corporation (the “Company”), NOTICE IS HEREBY
GIVEN that the Annual Meeting of Shareholders of the Company (the
“Meeting”) will be held at 1:00 p.m. on Wednesday, May 20, 2009 at
Yokum Hall, State University of New York, College at Plattsburgh, Plattsburgh,
New York, for the following purposes:
|
1.
|
To
elect four directors to hold office for a term of three years and elect
one director to hold office for a term of two
years;
|
|
2.
|
To
ratify the appointment of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm for the 2009 fiscal
year;
|
|
3.
|
To
vote on an amendment to the Company’s Certificate of Incorporation and
Bylaws to declassify the Board of Directors;
and
|
|
4.
|
To
transact any other business which may properly be brought before the
Meeting or any adjournment thereof.
|
|
By Order of
the Board of Directors |
|
/s/ Donna J.
Drengel |
|
Donna J.
Drengel |
|
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.
|
COMMUNITY
BANK SYSTEM, INC.
5790
Widewaters Parkway
DeWitt,
New York 13214-1883
PROXY
STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS, MAY 20, 2009
This
Proxy Statement is furnished as part of the solicitation of proxies by the Board
of Directors (the “Board”) of Community Bank System, Inc. (the “Company”), the
holding company for Community Bank, N.A. (the “Bank”), for use at the Annual
Meeting of Shareholders of the Company (the “Meeting”) to be held at
1:00 p.m. on Wednesday, May 20, 2009, at Yokum Hall, State University of
New York, College at Plattsburgh, Plattsburgh, New York. This Proxy
Statement and the form of Proxy are first being sent to Shareholders on
approximately April 16, 2009.
The proxy
materials relating to the 2009 Annual Meeting and the 2008 Annual Report are
available on the Internet. Please go to http://www.snl.com/irweblinkx/docs.aspx?iid=100185
to view and obtain the materials online.
At the
Meeting, the Shareholders will be asked to vote for the election of directors
and the ratification of PricewaterhouseCoopers LLP as the Company’s independent
registered public accounting firm for the 2009 fiscal year. Five of
the total of ten directors who currently serve on the Company’s Board will stand
for election to the Board at the Meeting. Voting will also be
conducted on any other matters which are properly brought before the Meeting,
including a proposal to amend the Company’s Certificate of Incorporation and
Bylaws to provide for a single class of directors.
VOTING
RIGHTS AND PROXIES
The Board
has fixed the close of business on April 2, 2009 as the record date for
determining which Shareholders are entitled to notice of and to vote at the
Meeting. At the close of business on the record date,[___________]
shares of common stock were outstanding and entitled to vote at the Meeting,
which is the Company’s only class of voting stock. Each share of
outstanding common stock is entitled to one vote with respect to each item to
come before the Meeting. The Bylaws of the Company provide that
one-third of the outstanding shares of the Company, represented in person or by
proxy, shall constitute a quorum at a Shareholder meeting.
If the
enclosed form of Proxy is properly executed and returned to the Company prior to
or at the Meeting, and if the Proxy is not revoked prior to its exercise, all
shares represented thereby will be voted at the Meeting and, where instructions
have been given by a Shareholder, will be voted in accordance with such
instructions.
Any
Shareholder executing a Proxy which is solicited hereby has the power to revoke
it at any time prior to its exercise. A Proxy may be revoked by
giving written notice to the Secretary of the Company at the Company’s address
set forth above, by attending the Meeting and voting the shares of stock in
person, or by executing and delivering to the Secretary a later-dated
Proxy.
The
Company will bear all costs of soliciting Proxies. The solicitation
of Proxies will be by mail, but Proxies may also be solicited by telephone,
email, or in person by directors, officers, and other regular employees of the
Company or of the Bank. Should the Company, in order to solicit
Proxies, request the assistance of other financial institutions, brokerage
houses, or other custodians, nominees, or fiduciaries, the Company will
reimburse such persons for their reasonable expenses in forwarding proxy
materials to Shareholders and obtaining their Proxies.
The
Annual Report of the Company for the fiscal year ended December 31, 2008,
incorporating the Form 10-K filed by the Company with the Securities and
Exchange Commission, is being sent to Shareholders with this Proxy
Statement.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The
following table provides information as of December 31, 2008 with respect to any
person known by the Company to beneficially own more than 5% of the Company’s
outstanding stock. The information included in the table is from
Schedules 13G filed with the Securities and Exchange Commission by the listed
beneficial owners.
Name
and Address
of Beneficial Owner
|
Number
of Shares
of
Common Stock
Beneficially Owned
|
Percent of Class
|
|
|
|
Barclays
Global Investors, NA
400
Howard Street
San
Francisco, CA 94105
|
3,565,148
(1)
|
10.93%
|
|
|
|
Dimensional
Fund Advisors LP
1299
Ocean Avenue
Santa
Monica, CA 90401
|
2,212,132
(2)
|
6.78%
|
|
(1)
|
Based
on information contained in the referenced Schedule 13G filing, Barclays
Global Investors, NA and its affiliates have sole voting power with
respect to 2,892,214 shares and sole dispositive power with respect to all
shares listed.
|
|
(2)
|
Based
on information contained in the referenced Schedule 13G filing,
Dimensional Fund Advisors LP has sole voting power with respect to
2,186,617 shares and sole dispositive power with respect to all shares
listed.
|
ITEM
ONE: ELECTION OF DIRECTORS AND INFORMATION WITH
RESPECT
TO DIRECTORS AND EXECUTIVE OFFICERS
The first
item to be acted upon at the Meeting is the election of five directors, four of
whom shall hold office for three years and one who will hold office for two
years and until his or her successor shall have been duly elected and
qualified. Directors David C. Patterson, Sally A. Steele, and Mark E.
Tryniski, whose terms are scheduled to expire as of the date of the Meeting,
will stand for re-election. Directors James W. Gibson, Jr. and James
A. Wilson, both of whom were appointed to the Board on January 1, 2009, will
stand for election at the Meeting. Mr. Gibson is standing for
election to a term expiring in 2011 in order to provide for as close to equal
number of directors in each class of directors on the Board in accordance with
the Company’s Certificate of Incorporation and Delaware corporate
law. William M. Dempsey retired from the Board of Directors on
December 31, 2008 pursuant to the Company’s mandatory retirement age
policy. The nominees receiving a plurality of the votes represented
in person or by proxy at the Meeting will be elected directors.
All
Proxies in proper form which are received by the Board prior to the election of
directors at the Meeting will be voted “FOR” the nominees listed below, unless
authority is withheld in the space provided on the enclosed Proxy. In
the event any nominee declines or is unable to serve, it is intended that the
Proxies will be voted for a successor nominee designated by the
Board. All nominees have indicated a willingness to serve, and the
Board knows of no reason to believe that any nominee will decline or be unable
to serve if elected. The ten members of the Board whose terms will
continue beyond the Meeting (including the nominees for election at the Meeting,
if elected) are expected to continue to serve on the Board until their
respective terms expire or until they reach the mandatory retirement age in
accordance with the Company’s Bylaws.
The
information set forth below is furnished for each nominee for director to be
elected at the Meeting and each director of the Company whose term of office
continues after the Meeting. The share ownership numbers for certain
directors include shares that would be issuable upon exercise of “Offset
Options” granted to these directors in order to reduce the Company’s liability
under its Stock Balance Plan. The purpose of the Offset Options is
explained on page 12. See footnote “(e)” on pages 6-7 for the number
of currently exercisable stock options (including, without limitation, Offset
Options) held by specific directors.
NOMINEES
FOR DIRECTOR AND DIRECTORS CONTINUING IN
OFFICE
|
|
|
|
Shares of Company
Common Stock Beneficially Owned (c) as of April 2, 2009
(d)
|
Name and Age
(a)
|
Director
of the Company
Since |
Business Experience During Past
Five Years (b)
|
Number
(e) |
|
Percent |
|
Nominees (for terms to
expire at Annual Meeting
in 2012):
|
David
C. Patterson
Age
67
|
1991
|
President
and owner of Wight and Patterson, Inc., manufacturer and seller of
livestock feed located in Canton, New York.
|
[_______]
(f)
|
|
[___]%
|
|
|
|
|
|
|
Sally
A. Steele
Age
53
|
2003
|
Attorney,
self-employed as general practitioner with concentration in
real
estate
and elder law, Tunkhannock, Pennsylvania.
|
[_______]
(f)
|
|
[___]%
|
|
|
|
Shares of Company
Common Stock Beneficially Owned (c) as of April 2, 2009
(d) |
Name
and Age (a)
|
Director
of the Company Since |
Business
Experience During Past Five Years (b) |
Number
(e) |
|
Percent |
Mark
E. Tryniski
Age
48
|
2006
|
President
and Chief Executive Officer of the Company. Prior service with
the Company as Executive Vice President and Chief Operating Officer of the
Company (March 2004 -July 31, 2006) and Executive Vice President and Chief
Financial Officer (July 2003 - February 2004). Prior to 2003,
partner
at
the firm of PricewaterhouseCoopers LLP in Syracuse, New
York.
|
[_______]
|
|
[___]%
|
|
|
|
|
|
|
James
A. Wilson
Age
63
|
2009
|
Retired.
Prior to April 2008, principal at the firm of Parente Randolph, LLC in
Wilkes-Barre, Pennsylvania.
|
[_______]
|
|
[___]%
|
Nominee (for term to
expire at Annual Meeting in 2011):
|
James
W. Gibson, Jr.
Age
62
|
2009
|
Retired. Prior
to 2005, partner at the firm of KPMG, LLP in New York, New
York.
|
[_______]
|
|
[___]%
|
|
|
|
|
|
|
Terms expiring at
Annual Meeting in 2010: |
Nicholas
A. DiCerbo
Age
62
|
1984
|
Partner,
law firm of DiCerbo and Palumbo, Olean, New York.
|
[_______]
(f)
|
|
[___]%
|
|
|
|
|
|
|
James
A. Gabriel
Age
61
|
1984
|
Owner,
law firm of Franklin & Gabriel,
Ovid,
New York.
|
[_______]
|
|
[___]%
|
|
|
|
|
|
|
Charles
E. Parente
Age
68
|
2004
|
Chief
Executive Officer of Pagnotti Enterprises, Inc., a diversified holding
company whose primary business includes workers’ compensation insurance,
real estate, anthracite coal mining preparation and sales; Chairman of CP
Media, LLC, owner and operator of broadcast television
stations.
|
[_______]
(f)
|
|
[___]%
|
Terms expiring at Annual Meeting in
2011:
Brian
R. Ace
Age
54
|
2003
|
Owner,
Laceyville Hardware, Laceyville, Pennsylvania.
|
[_______]
(f)
|
|
[___]%
|
|
|
|
|
|
|
Paul
M. Cantwell, Jr.
Age
67
|
2001
|
Owner,
law firm of Cantwell & Cantwell, Malone,
New York. Prior to January 2001, Chairman and President,
The Citizens National Bank of Malone.
|
[_______]
(f)
|
|
[___]%
|
|
|
|
|
|
|
|
|
Shares of Company
Common Stock Beneficially Owned (c) as of April 2, 2009
(d) |
Name and Age
(a) |
Business Experience
During Past Five Years (b) |
Number
(e) |
|
Percent |
Scott
A. Kingsley
Age
44
|
Executive
Vice President, Chief Financial Officer. Prior to August 2004,
Vice President and Chief Financial Officer of Carlisle Engineered
Products, Inc.
|
[_______]
|
|
[___]%
|
|
|
|
|
|
Brian
D. Donahue
Age
53
|
Executive
Vice President and Chief Banking Officer
|
[_______]
|
|
[___]%
|
|
|
|
|
|
George
J. Getman
Age
52
|
Executive
Vice President and General Counsel. Prior to January 2008,
member of Bond, Schoeneck & King, PLLC
|
[_______]
|
|
[___]%
|
|
|
|
|
|
J.
David Clark
Age
55
|
Senior
Vice President and Chief Credit Officer
|
[_______]
|
|
[___]%
|
|
|
|
|
|
Number
of shares of Company common stock beneficially owned by all directors,
persons chosen to become directors and executive officers of the Company
as a group (14 persons)
|
[_______]
|
|
[___]%
|
|
(a)
|
No
family relationships exist between any of the aforementioned directors or
executive officers of the Company.
|
|
(b)
|
Other
than Mr. Tryniski, who serves as a director of CONMED Corporation, and Mr.
Parente, who serves as a director of W.P. Carey & Co. LLC, no nominee
or continuing director of the Company holds a directorship with any public
company (other than the Company) which is registered under the Securities
Exchange Act of 1934, or with any company which is a registered investment
company under the Investment Company Act of
1940.
|
|
(c)
|
Represents
all shares as to which named the individual possessed sole or shared
voting or investment power as of April 2, 2009. Includes shares
held by, in the name of, or in trust for, the spouse and dependent
children of the named individual and other relatives living in the same
household, even if beneficial ownership has been disclaimed as to any of
these shares by the nominee or
director.
|
|
(d)
|
The
listed amounts include shares as to which certain directors and named
executive officers are beneficial owners but not the sole beneficial
owners as follows: Mr. Ace holds [_______] shares jointly with his wife,
his wife holds [_______] shares, and [_______]shares are held in the name
of Laceyville Hardware, of which Mr. Ace is owner; Mr. Cantwell’s
wife holds [_______] shares; Mr. Clark holds [_______] shares with his
wife and is the beneficial owner of [_______] shares held by the Company’s
401(k) Plan; Mr. DiCerbo holds [_______] shares jointly with his wife and
[_______] shares are held in the name of the law partnership of DiCerbo
and Palumbo; Mr. Donahue is the beneficial owner of [_______] shares held
by the Company’s 401(k) Plan; Mr. Getman’s wife holds [_______] shares and
he is the beneficial owner of [_______] shares held by the Company’s
401(k) Plan; Mr. Kingsley is the beneficial owner of [_______] shares held
by the Company’s 401(k) Plan; Mr. Parente holds [_______] shares as
Trustee of the C.E. Parente Trust U/A, his wife holds [_______] shares,
and [_______] shares are held by a partnership controlled by Mr. Parente;
Mr. Patterson holds [_______] shares jointly with his wife and [_______]
shares as Trustee for the Wight and Patterson Retirement Plan; Ms. Steele
holds [_______] shares jointly with her husband; and Mr. Tryniski is the
beneficial owner of [_______] shares held by the Company’s 401(k)
Plan.
|
|
(e)
|
Includes
shares that the following individuals currently have the right to acquire,
or will have the right to acquire within 60 days of April 2, 2009, through
exercise of stock options issued by the Company: Mr. Ace, [_______]
shares; Mr. Cantwell, [_______] shares; Mr. Clark, [_______] shares;
Mr. DiCerbo, [_______] shares; Mr. Donahue, [_______] shares;
Mr. Gabriel, [_______] shares; Mr. Getman, [_______] shares; Mr.
Gibson, [_______] shares; Mr. Kingsley, [_______] shares;
Mr. Parente, [_______] shares; Mr. Patterson, [_______] shares; Ms.
Steele, [_______] shares; Mr. Tryniski, [_______] shares; and Mr. Wilson,
[_______] shares. These shares are included in the total number
of shares outstanding for the purpose of calculating the percentage
ownership of the foregoing individuals and of the group as a whole, but
not for the purpose of calculating the percentage ownership of other
individuals listed in the foregoing
table.
|
|
(f)
|
In
addition to the number of shares of common stock reported as beneficially
owned, the following directors have elected to defer cash director fees
under the director deferred compensation plan resulting in such directors
holding at risk share equivalent units, which are subject to fluctuations
in the market price of the Company’s stock, in the following
amounts: Mr. Ace, 10,431 units; Mr. Cantwell, 5,475 units; Mr.
DiCerbo, 38,765 units; Mr. Parente, 2,697 units; Mr. Patterson, 15,486
units; and Ms. Steele, 9,814 units.
|
CORPORATE
GOVERNANCE
The
Company maintains a corporate governance section on its website which contains
our principal governance documents including the Company’s Corporate Governance
Guidelines, Codes of Conduct applicable to directors, executive officers and
employees, the Company’s Whistleblower Policy, and the Committee Charters for
the Audit Committee, Compensation Committee, and the Nominating and Corporate
Governance Committee. These corporate governance documents are
available on our website at www.communitybankna.com
under the heading “Investor Relations – Corporate Information,” and a copy will
be provided to any shareholder who requests a copy from the
Company.
Director
Independence
The New
York Stock Exchange (“NYSE”) listing standards and the Company’s Corporate
Guidelines require the Board of Directors to be comprised of at least a majority
of independent directors. The Board has determined that 8 of the 10
directors nominated to serve on the Board or continuing in office after the
Meeting are independent under the NYSE standards and the Company’s Corporate
Governance Guidelines.
For a
director to be considered independent, the Board must determine that the
director does not have any direct or indirect material relationship with the
Company. To assist it in determining director independence, the Board
uses categorical standards which conform to, or are more exacting than, the
independence requirements in the NYSE listing standards. Under these
standards, absent other material relationships, transactions or interests, a
director will be deemed to be independent unless within the preceding three
years: (i) the director was employed by the Company or received more than
$100,000 per year in direct compensation from the Company, other than director
and committee fees and pension or other forms of deferred compensation payments
for prior service, (ii) the director was a partner of or employed by the
Company’s independent auditor, (iii) the director is part of an interlocking
directorate in which an executive officer of the Company serves on the
Compensation Committee of another company that employs the director, (iv) the
director is an executive officer or employee of another company that makes
payments to, or receives payments from, the Company for property or services in
an amount which, in any fiscal year, exceeds the greater of one million dollars
or 2% of the other company’s consolidated gross revenues, or (v) the director
had an immediate family member in any of the categories in (i) –
(iv). In determining whether a director is independent, the Board
relies on the stated categorical standards but also considers whether a director
has any direct or indirect material relationships, transactions or interests
with the Company that might be viewed as interfering with the exercise of his or
her independent judgment.
Based on
these independence standards, the Board of Directors determined that the
following individuals who served as directors during all or part of the last
fiscal year were independent directors during their service on the Board during
such year: Brian R. Ace, Paul M. Cantwell, Jr., William M. Dempsey,
James A. Gabriel, Charles E. Parente, David C. Patterson, and Sally A.
Steele.
In
reviewing the independence of Paul M. Cantwell, Jr., James A. Gabriel, and Sally
A. Steele, the Board considered the transactions described in the section
entitled “Transactions with Related Parties” on pages 12-13, including the legal
services provided by law firms in which the directors have a direct or indirect
material interest and determined that the relationships disclosed would not
interfere with the exercise of the director’s independent judgment.
Pursuant
to the Company’s Corporate Governance Guidelines, the independent directors meet
in executive session at least quarterly, without the Company’s management and
non-independent directors present. The director who presides over
these executive sessions is determined by the Board on the recommendation of the
Nominating and Corporate Governance Committee.
Board
Committees
Among its
standing committees, the Company has an Audit Committee, Compensation Committee
and a Nominating and Corporate Governance Committee. As described
more fully on page 35, the Audit Committee reviews internal and external audits
of the Company and the Bank and the adequacy of the Company’s and the Bank’s
accounting, financial, and compliance controls, and selects the Company’s
independent auditors. The Audit Committee held eight meetings during
2008, and its present members are Directors Charles E. Parente (Chair), Brian R.
Ace, James W. Gibson, Jr., and James A. Wilson. William M. Dempsey,
who retired on December 31, 2008, was the former Chair of the Audit
Committee.
The
Company’s Compensation Committee reviews and makes recommendations to the
Company’s and the Bank’s Boards regarding compensation adjustments and employee
benefits to be instituted. As described more fully on page 14, the
Compensation Committee reviews the compensation of nonofficer employees in the
aggregate, and the salaries and performance of executive officers are reviewed
individually. The Compensation Committee held four meetings in 2008,
and its present members are Directors Brian R. Ace (Chair), James A. Gabriel,
Charles E. Parente, David C. Patterson, and Sally A. Steele.
The
Company’s Nominating and Corporate Governance Committee evaluates and maintains
corporate governance policies and makes recommendations to the Board for
nominees to serve as directors. The Nominating and Corporate
Governance Committee held five meetings in 2008, and its present members are
Directors Sally A. Steele (Chair), James A. Gabriel, and David C.
Patterson. Director Dempsey served on the Nominating and Corporate
Governance Committee prior to his retirement. The Board has
determined that each of the Nominating and Corporate Governance Committee’s
members is “independent” as defined by the NYSE Rules.
The
Nominating and Corporate Governance Committee will consider written
recommendations from Shareholders for nominees to serve on the Board that are
sent to the Secretary of the Company at the Company’s main office. In
considering candidates for the Board, the Nominating and Corporate Governance
Committee and the Board consider the entirety of each candidate’s credentials
and do not have any specific minimum qualifications that must be met by a
nominee. Factors considered include, but are not necessarily limited
to, outstanding achievement in a candidate’s personal career; broad experience;
integrity; ability to make independent, analytical inquiries; understanding of
the business environment; and willingness to devote adequate time to Board
duties. The Board believes that each director should have a basic
understanding of (i) the principal operational and financial objectives and
plans and strategies of the Company, (ii) the results of operations and
financial condition of the Company and of any significant subsidiaries or
business segments, and (iii) the relative standing of the Company and its
business segments in relation to its competitors. Prior to nominating an
existing director for re-election to the Board, the Board and the Nominating and
Corporate Governance Committee consider and review, among other relevant
factors, the existing director’s meeting attendance and performance, length of
Board service, ability to meet regulatory independence requirements, and the
experience, skills, and contributions that the director brings to the
Board. The Nominating and Corporate Governance Committee has adopted
a written charter setting forth its composition and responsibilities, a copy of
which is available at the Company’s website at www.communitybankna.com
and in print to any Shareholder who requests it.
The Chair
of the Board serves as a non-voting ex officio member of all Board Committees,
except the Audit Committee, for the purpose enhancing coordination of Board
matters. The President and Chief Executive Officer of the Company
serves as a non-voting ex officio member of all Board committees except the
Audit Committee, the Compensation Committee, and the Nominating and Corporate
Governance Committee, and receives no compensation for serving in this
capacity.
Communication with
Directors
Shareholders
and any interested parties may communicate directly with the Board of the
Company by sending correspondence to the address shown below. The
receipt of any such correspondence addressed to the Board and the nature of its
content will be reported at the next Board meeting and appropriate action, if
any, will be taken. If a Shareholder or an interested party desires
to communicate with a specific director, the correspondence should be addressed
to that director. Correspondence addressed to a specific director
will be delivered to the director promptly after receipt by the
Company. The director will review the correspondence received and, if
appropriate, report the receipt of the correspondence and the nature of its
content to the Board at its next meeting, so that the appropriate action, if
any, may be taken.
Correspondence
should be addressed to:
Community
Bank System, Inc.
Attention:
[Board of Directors or Specific Director]
5790
Widewaters Parkway
DeWitt,
New York 13214-1883
Stock Ownership
Guidelines
The Board
of Directors has adopted stock ownership guidelines for directors of the
Company. The guidelines require each director to own shares of
Company common stock and share equivalent units (based on cash fees that
directors have deferred in the deferred compensation plan) which have a market
value of $125,000 within six years of becoming a director. In the
event of declining stock value after attaining $125,000 in market value,
directors are required to maintain ownership of at least 10,000 shares. In
addition, new directors are required to acquire at least 2,000 shares within one
year of joining the Board of Directors. All directors are in
compliance with the requirements of the stock ownership guidelines.
In
addition, the Board of Directors has adopted stock ownership guidelines for
senior executives of the Company. The guidelines require (i) the
Chief Executive Officer to own shares of Company common stock and share
equivalents equal to the lesser of two times his base salary or 45,000 shares,
and (ii) the Chief Financial Officer and other Executive Vice Presidents to own
shares of common stock or share equivalents equal to the lesser of one times
their base salary or 15,000 shares. Senior executive officers have up
to six years to meet the ownership requirements and shares held or acquired
through the 401(k) Savings Plan or executive Deferred Compensation Plan through
the election to defer cash compensation by the executive will be included in
shares owned under the guidelines. All executives subject to the
requirements are in compliance with the guidelines or are anticipated to achieve
the ownership requirements within the required time period.
Compensation of
Directors
As
directors of both the Company and the Bank, Board members receive an annual
retainer of $25,000, $1,250 for each Board meeting they attend, and $1,000 for
each committee meeting they attend. Any executive officer serving on
the Board does not receive an annual retainer or compensation for attending
Board and committee meetings. The Chair of the Board receives a
retainer of $55,000 for serving in that capacity, as well as Board meeting fees
for the meetings he attends. The Chairs of the Audit Committee and
the Loan/ALCO Committee receive an annual retainer of $7,500; the Chairs of the
Compensation Committee, Nominating and Corporate Governance Committee, and the
Strategic/Executive Committee each receive an annual retainer of $5,000; and the
Chair of the Trust Committee receives an annual retainer of
$2,500. The Company pays the travel expenses incurred by each
director in attending meetings of the Board.
The
Company does not make payments (or have any outstanding commitments to make
payments) to director legacy programs or similar charitable award
programs. The following table summarizes the annual compensation paid
to each non-employee director for his or her service to the Board and its
committees in 2008.
DIRECTOR
COMPENSATION
Name
(1)
|
Fees
Earned or Paid in Cash ($)
|
Option
Awards ($) (2)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($) (3)
|
Total
($)
|
Brian
R. Ace
|
$68,500
|
$24,295
|
$5,413
|
$98,208
|
Paul
M. Cantwell
|
$82,500
|
$24,295
|
$3,258
|
$110,053
|
William
M. Dempsey (4)
|
$74,625
|
$24,295
|
$13,915
|
$112,835
|
Nicholas
A. DiCerbo
|
$64,000
|
$24,295
|
$6,436
|
$94,731
|
James
A. Gabriel
|
$65,750
|
$24,295
|
$6,943
|
$96,988
|
Charles
E. Parente
|
$57,750
|
$24,295
|
$12,400
|
$94,445
|
David
C. Patterson
|
$67,625
|
$24,295
|
$8,938
|
$100,858
|
Sally
A. Steele
|
$68,750
|
$24,295
|
$5,101
|
$98,146
|
(1)
|
Mark
E. Tryniski, President and Chief Executive Officer, does not receive any
compensation for his service as a director. Mr. Tryniski’s
compensation is set forth in the Summary Compensation Table on pages
22-24. Messrs. Gibson and Wilson were appointed to the Board
effective January 1, 2009 and did not receive any compensation in
2008.
|
(2)
|
The
amounts in this column reflect the dollar amount recognized for financial
statement reporting purposes for the fiscal year ended December 31, 2008,
in accordance with FAS 123R of stock option awards granted in 2008
pursuant to the Company’s 2004 Long-Term Incentive Compensation
Program. The options vest immediately upon grant and the
exercise price is $18.09. As of December 31, 2008, each
Director had the following number of options outstanding: Mr.
Ace 40,577; Mr. Cantwell 43,802; Mr. Dempsey 63,954; Mr. DiCerbo 99,120;
Mr. Gabriel 103,874; Mr. Parente 28,461; Mr. Patterson 103,734; and Ms.
Steele 36,177.
|
(3)
|
The amounts in this
column represent the aggregate change in the actuarial present value of
the Director’s Stock Balance Plan, a nonqualified plan which is
described on page 12. No earnings
are deemed above-market or preferential on compensation deferred under the
Deferred Compensation Plan for the Directors. Under the
Deferred Compensation Plan, a director may choose to have his or her
retainer and committee fees deferred until his or her membership on the
Board ends. Contributions are
deemed to be invested in the Company’s common stock which is deemed to
earn dividends at the same rate as the Company pays actual dividends on
actual shares.
|
(4)
|
Effective
as of December 31, 2008, Mr. Dempsey retired from the
Board. Pursuant to the Company’s Bylaws, a director is required
to retire from the Board on December 31st of the year in which he or she
attains the age of 70.
|
Directors
may elect to defer all or a portion of their director fees pursuant to a
deferred compensation plan for Directors. Directors who elect to
participate in the plan designate the percentage of their director fees which
they wish to defer (the “deferred fees”) and the date to which they wish to
defer payment of benefits under the plan (the “distribution
date”). The plan administrator establishes an account for each
participating director and credits to such account (i) on the date a
participating director would have otherwise received payment of his or her
deferred fees, the number of deferred shares of Company common stock which could
have been purchased with the deferred fees, and (ii) from time to time such
additional number of deferred shares which could have been purchased with any
dividends which would have been received had shares equal to the number of
shares credited to the account actually been issued and
outstanding. On the distribution date, the participating director
shall be entitled to receive shares of Company common stock equal to the number
of deferred shares credited to the director’s account either in a lump sum or in
annual installments over a three, five or ten year period. The effect
of the plan is to permit directors to invest deferred director fees in stock of
the Company, having the benefit of any stock price appreciation and dividends as
well as the risk of any decrease in the stock price. To the extent
that directors participate in the plan, the interests of participating directors
will be more closely associated with the interests of the Shareholders in
achieving growth in the Company’s stock price. Directors currently
participating in the plan hold at risk share equivalent units (based on cash
fees directors have deferred under the plan), which are subject to market price
fluctuations in the Company’s stock in the following amounts as of December 31,
2008: Mr. Ace, 10,431 units; Mr. Cantwell, 5,475 units; Mr. DiCerbo, 38,765
units; Mr. Parente, 2,697 units; Mr. Patterson, 15,486 units; and Ms. Steele,
9,814 units.
Consistent
with aligning director compensation with the long-term interests of
Shareholders, the Company’s 2004 Long-Term Incentive Compensation Program (the
“2004 Incentive Plan”) allows for the issuance of Non-Statutory Stock Options to
nonemployee directors. The Board believes that providing
Non-Statutory Stock Options to nonemployee directors is consistent with the
Company’s overall compensation philosophy by more closely aligning the interests
of individual directors with the long-term interests of the Company’s
Shareholders, and enabling the Company to continue to attract qualified
individuals to serve on the Board.
Under the
2004 Incentive Plan, each eligible nonemployee director is entitled to receive
an option to purchase shares of common stock on or about January 1st of his or
her first year as a director, and an option to purchase shares on or about the
date of the January Board meeting each year thereafter. Each option
granted to a nonemployee director is granted at an option price per share equal
to the market value per share of the Company’s common stock on the date of
grant, and is fully exercisable on its date of grant, provided that shares of
common stock acquired pursuant to the exercise of such options may not be sold
or otherwise transferred by a director within six months of the
grant. Each option remains exercisable after the grant date until the
earlier of (i) ten years from the date of grant, or (ii) termination of the
optionee’s service on the Board for cause (as defined in the 2004 Incentive
Plan). The number of shares of common stock which are subject to the
option grant is based upon the performance of the Company and the achievement of
objectives including earnings per share targets for the
Company. Pursuant to the 2004 Incentive Plan, each eligible
nonemployee director received an option to purchase 5,457 shares on January 16,
2008.
In
addition, in keeping with the objective of aligning director compensation with
the long-term interests of Shareholders, effective January 1, 1996, the Board
adopted a “Stock Balance Plan” for nonemployee directors of the Company who have
completed at least six months of service as director. The plan
establishes an account for each eligible director. Amounts credited
to those accounts reflect the value of 400 shares of the Company’s common stock
for each year of service between 1981 and 1995 at the December 31, 1995 market
value, plus an annual amount equal to 400 additional shares of common stock
beginning in 1996, plus an annual earnings credit equal to the most recent
year’s total return on the Company’s common stock. Each director’s
account balance is vested after six years of service and is payable in the form
of a lifetime annuity or, at the election of the director, monthly installment
payments over a three, five, or ten year period following the later of age 55 or
disassociation from the Board and is forfeitable in the event of termination
from the Board for cause.
The 2004
Incentive Plan allows the grant of “Offset Options” to directors. The
effect of these Offset Options is to permit the Company to reduce the grantee’s
Stock Balance Plan account balance by an amount equal to the growth in value of
the Offset Options (i.e., the amount by which the aggregate fair market value of
the common stock underlying the Offset Options exceeds the aggregate exercise
price of the Offset Options) as of the date on which the director’s account is
valued, provided that a director’s account may not be reduced below
zero. As such, the Offset Options are not intended to materially
change the level of compensation to participating directors under the Stock
Balance Plan, but are intended to reduce the cost of director compensation to
the Company. In the event that the growth in value of a director’s
Offset Options is less than the value of the director’s Stock Balance Plan
account, the shortfall will be paid to the director in cash. In the
event that the growth in value of a director’s Offset Options exceeds the value
of the director’s Stock Balance Plan account, no payment will be
made.
Transactions With Related
Parties
Various
directors, executive officers and other related parties of the Company and the
Bank (and members of their immediate families and corporations, trusts, and
other entities with which these individuals are associated) are indebted to the
Bank through business and consumer loans offered in the ordinary course of
business by the Bank. All such loans were made in the ordinary course
of business, were made on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable loans with
persons not related to the Bank, and did not involve more than the normal risk
of collectability or present other unfavorable features. The Company
expects that the Bank will continue to have banking transactions in the ordinary
course of business with its directors, executive officers and other related
parties on substantially the same terms, including interest rates and
collateral, as those then prevailing for comparable transactions with
others.
During
the year ended December 31, 2008, the law firm of Franklin & Gabriel, owned
by director James A. Gabriel, provided legal services to the Bank’s operations
in its Finger Lakes markets; the law firm of DiCerbo and Palumbo, of which
director Nicholas A. DiCerbo is a partner, provided legal services to the Bank’s
operations in its Southern Region markets; the law firm of Cantwell &
Cantwell, owned by Director Paul M. Cantwell, Jr., provided legal services to
the Bank’s operations in its Northern Region markets; and director Sally A.
Steele provided legal services and related residential loan closing services
through her law firm and related entities to the Bank’s operations in its
Pennsylvania markets. All of these relationships and transactions
relate to the provision of legal services in connection with, and in support of,
the Bank’s lending business in local and regional markets where the law firms
are established and well-recognized in the communities. For services
rendered during 2008 and for related out-of-pocket disbursements, the law firm
of DiCerbo & Palumbo received approximately $287,284 for transactional and
specialized commercial legal services performed for the Bank and related loan
closings with customers of the Bank. During 2008, the firms of
Franklin & Gabriel, Cantwell & Cantwell, and Sally A. Steele received
less than $100,000 for services performed for the Bank and related to loan
closings in the relevant market area. These relationships are
expected to continue in 2009 subject to review of such relationships in
accordance with the Company’s policies. Pursuant to the terms of its
written charter, the Audit Committee is responsible for reviewing and approving
related party transactions involving the Company or the Bank.
The
Company has a written policy, administered by the Audit Committee, which
provides procedures for the review of related party transactions involving
directors, executive officers, director nominees, and other related
parties. In deciding whether to approve such related party
transactions, the Audit Committee will consider, among other factors it deems
appropriate, whether the transaction is on terms comparable to those generally
available to nonaffiliated parties and is consistent with the best interests of
the Company. For purposes of this policy, a “related party
transaction” is a transaction, arrangement, or relationship or series of similar
transactions, arrangements or relationships in which (i) the Company or one
of its subsidiaries is involved, (ii) the amount involved exceeds $100,000 in
any calendar year, and (iii) a related party has a direct or indirect
material interest. Related parties include executive officers,
directors, director nominees, beneficial owners of more than 5% of the Company’s
stock, immediate family members of any of the forgoing persons, and any firm,
corporation or other entity in which any of the forgoing persons has a direct or
indirect material interest.
Compensation Committee
Interlocks and Insider Participation
Brian R.
Ace, James A. Gabriel, Charles E. Parente, David C. Patterson, and Sally A.
Steele served on the Compensation Committee during 2008. There were
no Compensation Committee interlocks or insider (employee) participation during
2008.
Director Meeting
Attendance
The Board
of Directors held nine regularly scheduled meetings and nine special meetings
during the fiscal year ended December 31, 2008. During this
period, each director of the Company attended at least 75% of the aggregate of
the total number of meetings of the Board and the total number of meetings held
by committees of the Board on which he or she served.
The
Company encourages all directors to attend each Annual Meeting of
Shareholders. All of the then nine incumbent directors attended the
Company’s last Annual Meeting of Shareholders held on May 21, 2008.
Code Of
Ethics
The
Company has a Code of Ethics for its directors, officers and
employees. The Code of Ethics requires that individuals avoid
conflicts of interest, comply with all laws and other legal requirements,
conduct business in an honest and ethical manner, and otherwise act with
integrity and in the best interests of the Company. In addition, the
Code of Ethics requires individuals to report illegal or unethical behavior they
observe.
The
Company also has adopted a Code of Ethics for Senior Executive Officers that
applies to its chief executive officer, chief financial officer, and other
senior officers performing similar functions. This Code of Ethics is
intended to promote honest and ethical conduct, full and accurate reporting, and
compliance with laws and regulations.
The text
of each Code is posted on the Company’s website at www.communitybankna.com
and is available in print to any Shareholder who requests it. The
Company intends to report and post on its website any amendment to or waiver
from any provision in the Code of Ethics for Senior Executive Officers as
required by SEC rules.
COMPENSATION
OF EXECUTIVE OFFICERS
Introduction; Role of the
Compensation Committee
The
Compensation Committee of the Board of Directors reviews and administers the
Company’s compensation policies and practices for the executive officers of the
Company, including the individuals listed in the compensation disclosure tables
beginning on page 22 (the “named executives”). The Compensation
Committee consists of five members of the Board, each of whom are independent,
non-employee directors.
The
Compensation Committee has authority for determining the level and components of
executive compensation. After appropriate input, review and
discussion, the Committee presents its recommendations to the Board for its
approval. The Compensation Committee does not delegate its duties to
any other person but does receive input from management to structure the named
executives’ performance goals. The Company’s Chief Human Resources
Officer and the human resources staff supports the Compensation Committee’s work
by providing information reports to the Compensation Committee. Prior
to the beginning of each fiscal year, the Compensation Committee discusses the
Company’s performance and sets future performance goals and objectives with the
President and Chief Executive Officer.
The
Compensation Committee, in addition to utilizing the human resources staff and
external resources, engaged the executive compensation firms of Corporate
Compensation Partners, Inc. and Pearl Meyer & Partners in 2008 to assist the
Compensation Committee with:
·
|
making
recommendations and benching compensation in connection with the Chief
Executive Officer’s employment agreement
renewal;
|
·
|
updating
peer group data that the Compensation Committee uses to analyze executive
officer compensation;
|
·
|
making
recommendations to better correlate pay and performance and to improve the
competitiveness of executive officer
compensation;
|
·
|
providing
peer group data and making recommendations on modifications to director
compensation; and
|
·
|
designing
long-term incentives for its executive
officers.
|
The
Compensation Committee’s written Charter is available at the Company’s website
www.communitybankna.com
and in print to any person who requests a copy.
Compensation Discussion and
Analysis
Philosophy and
Objectives
The
Company’s ability to hire and retain talented employees and executives with the
skills and experience to develop and execute business opportunities is essential
to its success and providing value to its Shareholders. The Company
seeks to provide fair and competitive compensation to its employees by
structuring compensation principally around two general
parameters. First, compensation is targeted to be near the median of
the market. Second, employees are rewarded for obtaining goals
designed to achieve growth in the Company’s earnings and specified performance
goals. As a result, selected elements of our compensation program are
tied to the achievement of individual and Company performance
goals.
The
Compensation Committee structures the annual cash incentive and equity-based
elements of the compensation program with input from senior management to
promote the achievement of the Company’s long-term growth goals, including
targeted earnings per share (“EPS”) each year. EPS is generally
defined as the Company’s net income divided by the weighted average number of
shares outstanding during that period. EPS reflects the best
measurement of the Company’s performance and progress towards continuously
increasing Shareholder value.
The
Company’s compensation program seeks to:
1. Attract,
retain and motivate highly qualified executives through both short-term and
long-term incentives that, where appropriate, emphasize overall corporate or
group performance;
2. Provide
incentives to increase Shareholder value by:
·
|
structuring
incentive compensation on financial and non-financial performance measures
tied to creation of Shareholder
value, and
|
·
|
utilizing
equity-based compensation to more closely align the interests of
executives with those of the Company’s
Shareholders;
|
3. Manage
fixed compensation costs through the use of performance and equity-based
compensation; and
4. Serve
as a retention tool for key executive talent through structuring of equity
compensation and vesting schedules and by rewarding executives for superior
performance.
Policies and
Procedures
To
achieve the compensation program’s objectives, the Company utilizes the
following policies and procedures.
The Company seeks to provide
competitive compensation. The Company regularly compares its
cash, equity and benefits-based compensation practices with those of other
companies of similar size operating in similar geographic market areas, many of
which are represented in the stock performance graph included on page 13 of the
Form 10-K filed with the Securities and Exchange Commission on March 13,
2009. The Company establishes its own total compensation parameters
based, in part, on that review.
Comparisons to Similar Bank
Holding Companies. The Company utilizes compensation
information from its Regional Peer Bank Index, the ABA Executive Compensation
Standard Report, the NYBA Compensation Standard Report, the Pennsylvania Bankers
Association, and the World at Work Compensation Standard Report. The
Company’s Regional Peer Bank Index consists of performance, compensation and
other publicly reported data from seven New York banks and seven Pennsylvania
banks. In 2008, the Company primarily relied upon these broad
databases, and other publicly available information, to determine appropriate
levels and types of compensation. The Company believes that its
executive compensation practices are consistent with the compensation philosophy
of providing competitive compensation with appropriate incentive and
equity-based components.
The Company encourages
teamwork. The Company recognizes that its long-term success
results from the coordinated efforts of employees, working towards common,
well-established objectives. While individual accomplishments are
encouraged and rewarded, the performance of the Company as a whole is a
determining factor in total compensation opportunities.
The Company strives for
fairness in the administration of compensation. The Company
strives to ensure that compensation levels accurately reflect the level of
responsibility that each individual has within the
Company. Executives are informed of individual and Company-wide
objectives. Decisions regarding individual performance are based upon
valid assessments of performance.
Performance Review and
Assessment. Performance assessment involves the
following:
1. At
the beginning of each fiscal year, the Company’s President and Chief Executive
Officer distributes written performance goals, which are pre-approved by the
Compensation Committee and the full Board. Performance goals include
specific financial and operational objectives for the Company.
2. All
performance goals are reviewed on an ongoing basis to ensure that the Company is
responding to changes in the marketplace and economic climate, and that
accomplishment of attained goals is realistic.
3. At
the end of the fiscal year, Company and individual performance is evaluated
against the established goals. These evaluations, as well as
consideration of an individual’s position responsibilities, affect decisions on
the individual’s salary, cash incentive, and equity-based
compensation.
Overview of the Company’s
Compensation Program
The
Company defines itself as a super-community bank which provides products of a
more comprehensive and advanced nature than those offered by smaller
institutions, while simultaneously providing a level of service which exceeds
the service quality delivered by larger regional and money center
organizations. The delivery of those products and services, in ways
that enhance Shareholder value, requires that the Company attract key people,
promote teamwork, and reward results. In furtherance of those
requirements, the Company maintains the following compensation
programs.
Cash-Based
Compensation
Salary. The
Company sets base salaries for employees by reviewing the total cash
compensation opportunities for comparable positions in the market.
Management Incentive
Plan. In order to more closely align the employee’s
compensation to the Company’s performance, an annual incentive plan is
maintained in which 28 percent of the Company’s employees participated in
2008. Under the incentive plan in effect for 2007, the Company’s
achievement of specified earnings performance criteria, among other criteria,
triggered the payment (in 2008) of cash awards for all employees in this group
as determined by the Compensation Committee. Incentive award levels,
expressed as a percentage of salary, are established for different
organizational levels within the Company. For the named executives,
their respective award opportunities reflect the Company’s performance relative
to the financial targets and their own performance with respect to other
quantitative and qualitative goals specific to their respective areas of
responsibility.
Equity-Based
Compensation.
The
Company believes that the use of equity-based compensation, such as stock
options and restricted stock, is important because it aligns the interests of
key personnel with those of the Shareholders. The Board typically
awards equity-based compensation on an annual basis. Equity awards
are generally based on a percentage of salary; and various percentages have been
established for different organizational levels within the
Company. Equity awards may consist of a combination of restricted
stock and stock options. Stock options and restricted stock can also
serve as an effective tool in recruiting key individuals to work for the Company
and vesting requirements encourage those individuals to continue in the employ
of the Company. The Company has, on occasion, issued limited amounts
of restricted stock to individuals to support a variety of specific business
objectives, including rewarding performance in start-up and turnaround
assignments, and recognizing extraordinary service in consummating
acquisitions.
Benefits.
All
salaried employees participate in a variety of retirement, health and welfare,
and paid time-off benefits designed to enable the Company to attract and retain
a talented workforce in a competitive marketplace. These benefits and
related plans help ensure that the Company has a productive and focused
workforce. The Company utilizes pension and 401(k) savings plans to
enable employees to plan and save for retirement.
The
Company’s tax-qualified 401(k) employee stock ownership plan (the “401(k) Plan”)
allows employees to contribute up to 90 percent of their base salaries to the
401(k) Plan on a pre-tax or after-tax basis, subject to various limits imposed
by the Internal Revenue Code. The Company provided a matching
contribution up to 3.5 percent of the contributing participant’s salary in
2008.
The
401(k) Plan also includes a discretionary profit sharing feature, pursuant to
which the Company may make an annual contribution based on the Company’s net
income. For the past three years, the Company has made profit sharing
contributions. Profit sharing contributions, if any, are allocated to
the plan accounts of participants who complete at least 1,000 hours of service
during the year, other than the named executives whose contributions, if any,
are made to the Executive Deferred Compensation Plan. Allocations are
made on a pro rata basis to all eligible participants based upon their base
salaries.
Compensation of the named
executives
The
compensation program for senior executives is built around the philosophy of
targeting market-median compensation with incentive components that reflect
positive, as well as negative, Company and individual
performance. The Company’s compensation program consists of three key
elements:
·
|
annual
bonus pursuant to the Management Incentive Plan (“MIP”);
and
|
·
|
equity-based
and other long-term incentives.
|
Consistent
with the Company’s goal to emphasize performance-based compensation,
approximately 60 percent of Messrs. Tryniski’s, Kingsley’s, Donahue’s, Getman’s
and Clark’s 2008 compensation (base salary, annual bonus, and equity award) is
attributable to base salary and approximately 40 percent is attributable to
performance-based incentive compensation (consisting of annual bonus and equity
awards).
It is not
the Company’s practice to compensate any executive in excess of the Section
162(m) of the Internal Revenue Code limits. Section 162(m) generally
limits the Company’s tax deductions relating to the compensation paid to
executives, unless the compensation is performance-based and the material terms
of the applicable performance goals are disclosed to and approved by the
Company’s Shareholders. The Company’s equity-based compensation plan
has received shareholder approval and, to the extent applicable, was prepared
with the intention that the incentive compensation would qualify as
performance-based compensation under Section 162(m).
Base
Salary
The
Company uses the base salary element of total compensation to provide the
foundation of a fair and competitive compensation opportunity for each
individual named executive. Each year, the Company reviews base
salaries and targets salary compensation at or near the median base salary
practices of the market, but maintains flexibility to deviate from market-median
practices for individual circumstances. Generally, the Compensation
Committee starts the total compensation review for executives by reviewing any
identified compensation trends including general changes in market rates and any
recommendations with respect to the base salary of each named
executive. The determination of base salaries is generally
independent of the decisions regarding other elements of compensation, but the
other elements of total compensation are dependent on the determination of base
salary, to the extent they are expressed as percentages of base salary (e.g.,
the cash incentive under the MIP is a percentage of the executive’s base
salary).
In
January 2008, the Compensation Committee approved base salary increases for
Messrs. Tryniski, Kingsley, Donahue, and Clark in the range of 3-6.5
percent, based on the Committee’s evaluation of the following factors: (i)
competitive wage survey data, (ii) realization of the Company’s strategic
accomplishments during the 2007 evaluation period, (iii) satisfaction of
individual performance goals, and (iv) the named executive’s responsibilities
and duties.
Please
see the Summary Compensation Table presented on pages 22-24 and the accompanying
narrative disclosures for more information regarding the base salaries of the
named executives.
Annual Bonus pursuant to the
Management Incentive Plan
In the
2008 plan year, the Compensation Committee utilized a “Report Card”, which
contains seven performance objectives weighted to achieve a desired impact on
the Company’s growth and profitability, as a means to determine cash incentives
under the MIP. The Company’s overall success in achieving the
performance objectives is the principal factor in determining what percentage of
the total cash incentive award will be made for the plan year. The
cash incentive award can be modified at the discretion of the Compensation
Committee and the Board. In addition to the seven metrics, the named
executives’ ultimate MIP awards may also take into account qualitative factors,
such as individual goals and accomplishments. The following general
categories were included in the Report Card: EPS growth; growth of loans and
deposits; operational objectives of commercial banking and lending business;
improvement in efficiency and qualitative objectives for commercial banking;
earnings of wealth management and benefit administration businesses; and
maintenance of asset quality metrics. Please see the Grants of
Plan-Based Awards table presented in this Proxy Statement and the accompanying
narrative disclosure for more information regarding the amount received by each
of the named executives under the MIP.
Equity-Based and Other
Long-Term Incentive Compensation
The
Compensation Committee believes that the interests of the Company’s Shareholders
are best served when a significant percentage of its officers’ compensation is
comprised of equity-based and other long-term incentives that appreciate in
value contingent upon increases in the share price of the Company’s stock and
other indicators that reflect improvements in business
fundamentals. Therefore, it is the Compensation Committee’s intention
to make annual grants of equity-based awards to the named executives and other
key employees which are designed to accomplish long-term objectives of the
Company’s compensation program.
Each year
senior management and the Board establishes objectives for use in the
determination of equity-based awards under the Company’s 2004 Long-Term
Incentive Compensation Program. Starting with the 2006 plan year and
continuing with the 2007 and 2008 plan year, the Company provided an equity
program under which the named executives receive 66 percent of their total
available equity compensation on an annual basis. Half of this
compensation is in the form of appreciation shares (incentive stock options) and
half is in the form of full value shares (restricted stock). The
remaining 34 percent of available equity compensation will be granted in the
form of appreciation shares (nonqualified stock options) which have a three-year
vesting schedule tied to the satisfaction of long-term goals over that three
year period. The long-term performance goals consist of EPS growth
and total shareholder return in comparison to a regional peer group of financial
institutions and asset growth requirements. The FAS 123R fair values
for grants vesting under the 2004 Long-Term Incentive Compensation Program are
set forth under the column titled “Option Awards” on the Summary Compensation
Table on pages 22-24.
The
Compensation Committee recognizes that no set of performance goals can
anticipate every situation and changing environments that the Company must react
to with appropriate business strategies. Therefore, the Compensation
Committee maintains the right in its judgment to adjust or modify the
achievement of some or all of the performance goals if extraordinary
circumstances significantly influence the Company’s actual results or change the
Company’s performance goals.
The
Company does not backdate options or grant options
retrospectively. In addition, the Company does not coordinate grants
of options so that they are made before announcements of favorable information,
or after announcement of unfavorable information. The Company’s
options are granted at fair market value on a fixed date with all required
approvals obtained in advance of or on the actual grant date. All
grants to executive officers require the approval of the Compensation
Committee. The Company’s general practice is to grant options only on
the annual grant date, although there are occasions when grants have been made
on other dates, such as the employment of new employees with grants being made
as of the date of hire. The exercise price of the stock options is
determined as the closing price of a share of the Company’s common stock on the
New York Stock Exchange on the date of grant.
Please
see the Summary Compensation Table and the Grants of Plan-Based Awards table
presented in this Proxy Statement and the accompanying narrative disclosure for
more information regarding the number and value of the stock option awards
received by each of the named executives.
Perquisites
Although
perquisites are not a key element of the Company’s compensation program, the
Company’s named executives, along with certain other senior level executives,
are provided a limited number of perquisites whose purpose is to support those
executives in their business functions. The Company provides the
following perquisites to some, but not all, of the named executives, as
quantified in the Summary Compensation Table on pages 22-24.
·
|
memberships
to local country and social clubs to enable executives to interact and
foster relationships with customers and the local business
community. Memberships do not exceed $11,500 for each named
executive;
|
·
|
use
of a Company-owned vehicle for those executives responsible for managing
geographic territories which span the Company’s market from Northeastern
Pennsylvania to the Canadian border;
and
|
·
|
term
life insurance coverage in excess of limits generally available to
employees.
|
Please
see the Summary Compensation Table and accompanying narrative disclosures
presented in this Proxy Statement for more information on perquisites and other
personal benefits the Company provides to the named executives.
Retirement and Other
Benefits
The
Company provides retirement benefits through a combination of the Pension Plan
and the 401(k) Plan for most of its regular employees, including the named
executives. The 401(k) Plan and the Pension Plan are more fully
described under the section entitled “Retirement Plan Benefits” on page
28. The Pension Plan is available to all of the Company’s employees
after one year of service and the entire cost of such benefits is paid by the
Company.
Certain
named executives are also covered by an individual supplemental retirement
agreement that generally provides for non-qualified retirement benefits that
cannot be provided to the named executives under the Pension Plan due to
Internal Revenue Code limitations. The Company’s retirement plans are
more fully described under the section entitled “Pension Benefits” on page
28.
The
Company offers the named executives and certain other senior level executives
the opportunity to participate in the Deferred Compensation Plan for Certain
Executive Employees of Community Bank System, Inc. (the “Deferred Compensation
Plan”). The named executives may elect to defer cash compensation
into the Deferred Compensation Plan as described under the section entitled
“Nonqualified Deferred Compensation Plan” on page 30. The Company
also makes contributions to the Deferred Compensation Plan on behalf of the
named executives equal to the amount of the profit sharing contribution, if any,
that would have been allocated to the named executives under the 401(k) Plan,
but for the 401(k) Plan provision that excludes named executives from profit
sharing allocations under the 401(k) Plan.
The
Company has entered into an employment agreement with each of the named
executives. These individual agreements generally provide for
severance or other benefits following the termination, retirement, death or
disability of the named executives. The agreements, which also
include change in control provisions, are more fully described on pages
32-34. Such change in control provisions contain a “double trigger,”
providing benefits only upon an involuntary termination or constructive
termination of the named executive in connection with a change in
control.
The
Company currently has a succession plan to help assure a smooth transition with
respect to any changes that may occur in senior management. In the
event of such changes, the Compensation Committee will consider appropriate
transition agreements with key officers of the Company consistent with the
purposes of the succession plan. The terms and conditions of any such
transition agreements will be recommended by management and approved by the
Compensation Committee.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management. Based upon its review and discussion
with management, the Compensation Committee has recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
Proxy Statement and the Company’s Annual Report on Form 10-K for the year ended
December 31, 2008.
Brian R.
Ace, Chair
Charles
E. Parente
David C.
Patterson
Sally A.
Steele
EXECUTIVE
COMPENSATION DISCLOSURE TABLES
The
following table summarizes the compensation of the named executive officers for
the fiscal years end December 31, 2006, 2007 and 2008. The named
executives are the Company’s Chief Executive Officer, Chief Financial Officer,
and the three other most highly compensated executive officers ranked by their
total compensation in the table below (reduced, if required, by the amount set
forth in the column entitled Change in Pension Value and Nonqualified Deferred
Compensation Earnings). The material terms of the employment,
consulting and separation agreements with the named executives are set forth on
pages 32-34.
SUMMARY
COMPENSATION TABLE
for
Fiscal
Years End December 31, 2006, 2007 and 2008
Name
and
Principal
Position
|
Year
|
Salary
($)
|
Stock
Awards ($) (1)
|
Option
Awards ($) (2)
|
Non-Equity
Incentive Plan Compensation ($) (3)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
($) (4)
|
All
Other Compensation ($) (5)
|
Total
($)
|
Mark
E. Tryniski
President,
Chief
Executive Officer and Director
|
2008
|
$441,002
|
$26,349
|
$148,561
|
$223,600
|
$240,355
|
$44,494
|
$1,124,361
|
2007
|
$416,000
|
$13,007
|
$146,357
|
$160,000
|
$89,888
|
$28,446
|
$853,698
|
2006
|
$356,731
|
$0
|
$67,791
|
$90,000
|
$64,397
|
$37,217
|
$616,136
|
Scott
A. Kingsley
Executive
Vice President and Chief Financial Officer
|
2008
|
$309,915
|
$11,039
|
$85,563
|
$94,000
|
$45,145
|
$29,798
|
$575,460
|
2007
|
$291,000
|
$5,460
|
$78,198
|
$67,152
|
$33,270
|
$29,782
|
$504,862
|
2006
|
$265,377
|
$0
|
$44,924
|
$73,500
|
$29,051
|
$26,319
|
$439,171
|
Brian
D. Donahue
Executive
Vice President and Chief Banking Officer
|
2008
|
$255,024
|
$9,441
|
$72,240
|
$79,500
|
$80,201
|
$25,142
|
$521,548
|
2007
|
$246,400
|
$4,634
|
$74,371
|
$64,452
|
$40,549
|
$19,600
|
$450,006
|
2006
|
$238,049
|
$0
|
$52,494
|
$69,000
|
$65,577
|
$24,708
|
$449,828
|
George
J. Getman, Executive Vice President and General Counsel
(6)
|
2008
|
$294,231
|
$32,666
|
$0
|
$0
|
$28,491
|
$8,419
|
$363,807
|
J.
David Clark
Senior
Vice President and Chief Credit Officer
|
2008
|
$198,387
|
$6,176
|
$48,856
|
$51,765
|
$30,336
|
$25,025
|
$360,545
|
2007
|
$192,608
|
$3,028
|
$51,697
|
$49,320
|
$30,732
|
$22,858
|
$350,243
|
2006
|
$186,095
|
$0
|
$38,698
|
$45,500
|
$42,287
|
$24,248
|
$336,828
|
(1)
|
The
amounts in this column reflect the dollar amount recognized for financial
statement reporting purposes for the fiscal year ended December 31, 2008,
in accordance with FAS 123R, of restricted stock awards pursuant to the
Company’s 2004 Long-Term Incentive Compensation Program. These
amounts are based on the shares of restricted stock vesting in the
applicable year at the market value on the date of grant. The
restricted stock held by Mr. Getman was awarded when he joined the Company
on January 1, 2008 and vests over the course of three years with one-third
of the shares vesting each year. Additional information about
the Company’s accounting for stock-based compensation arrangements is
contained in footnote L to the Company’s audited financial statements for
the fiscal year ended December 31, 2008 included in the Company’s Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
March 13, 2009.
|
(2)
|
The
amounts in this column reflect the dollar amount recognized for financial
statement reporting purposes for the fiscal year ended December 31, 2008,
in accordance with FAS 123R, of stock option awards pursuant to the
Company’s 2004 Long-Term Incentive Compensation Program. These
amounts are based on the Black-Scholes option pricing model, which may not
be reflective of the current intrinsic value of the
options. Assumptions used in the calculation of these amounts
are included in footnote L to the Company’s audited financial statements
for the fiscal year ended December 31, 2008 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 13, 2009.
|
(3)
|
For
all named executives, the amounts shown in this column reflect payments
received in 2008 for performance in 2007 under the Company’s Management
Incentive Plan, an annual cash award plan based on performance and
designed to provide incentives
for employees. The awards for the 2007 plan year (paid in 2008)
were approximately 108% of the target
amount.
|
(4)
|
The
amounts shown in this column include the aggregate change in the actuarial
present value of the named executive’s accumulated benefit under the
Company’s Pension Plan and the named executive’s individual supplemental
executive retirement agreement. No earnings are deemed
above-market or preferential on compensation deferred under the Company’s
non-qualified Deferred Compensation Plan. All contributions to
the Deferred Compensation Plan are invested in investment options selected
by the named executive from the same array of options predetermined by the
Company. The change in the actuarial present value under
the individual supplemental retirement agreements for the years ended
December 31, 2008, December 31, 2007, and December 31, 2006 are,
respectively, $206,366, $68,108 and $42,826 for Mr. Tryniski; $16,728,
$16,466 and $13,949 for Mr. Kingsley; $48,885, $32,017 and $63,511 for Mr.
Donahue; and
$28,491 for Mr. Getman. The change in the actuarial present
value under the Company’s Pension Plan for the years ended December 31,
2008, December 31, 2007 and December 31, 2006 are, respectively, $33,989,
$21,780 and $21,571 for Mr. Tryniski; $28,417, $16,804 and $15,102 for Mr.
Kingsley; $31,316, $8,532 and $2,066 for Mr. Donahue; and
$30,336, $30,732 and $42,287 for
Mr. Clark.
|
(5)
|
The
amounts in this column include: (a) the reportable value of the
personal use of Company-owned vehicles amounting to $8,202 for Mr.
Tryniski; $4,033 for Mr. Kingsley; $4,128 for Mr. Donahue; and $4,926 for
Mr. Clark; (b) the value of group term life insurance benefits in
excess of $50,000 under a plan available to all full-time employees for
which Messrs. Tryniski, Kingsley, Donahue, Getman, and Clark received
$450, $300, $690, $690, and $690, in 2008, respectively; (c) the
Company’s contributions to the 401(k) Employee Stock Ownership Plan, a
defined contribution plan, amounting to $8,050 for Mr. Tryniski, Mr.
Donahue and Mr. Clark and $3,786 and $5,731 for Mr. Kingsley and Mr.
Getman, respectively; (d) the Company’s contributions under the
Company’s Deferred Compensation Plan, amounting to $16,646 for Mr.
Tryniski; $10,533 for Mr. Kingsley; $9,142 for Mr. Donahue; and $7,115 for
Mr. Clark in 2008; and (e) the Company’s payment for country and/or social
club memberships amounting to $11,146 for Mr. Tryniski and Mr. Kingsley;
$3,132 for Mr. Donahue; $1,998 for Mr. Getman; and $4,244 for Mr.
Clark. The Company does not maintain any “split-dollar”
arrangements for the named executive
officers.
|
(6)
|
Mr.
Getman joined the Company as Executive Vice President and General Counsel
on January 1, 2008. As a result, he was not eligible for equity
and non-equity incentive compensation awards made in connection with 2007
performance objectives and paid in
2008.
|
The
following Grants of Plan-Based Awards table provides information about equity
and non-equity incentive plan awards granted to the named executives in
connection with the year ended December 31, 2008. All equity awards
are made under the terms of the Company’s 2004 Long-Term Incentive Compensation
Program and the non-equity awards are made under the terms of the Company’s
Management Incentive Plan (“MIP”). The MIP awards and the equity
awards were subject to the satisfaction of 2008 performance objectives and were
paid or granted in 2009.
GRANTS
OF PLAN-BASED AWARDS
Name
|
Grant
Date
|
Potential
Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
|
Potential
Estimated Future Payouts Under Equity Incentive Plan
Awards
|
Exercise
or Base Price of Option Awards
($/Sh)
|
Grant
Date Fair Value of Stock and Option Awards ($)
|
Target
($)
|
Target
(#)
|
Mark
E. Tryniski
|
|
$220,500
|
|
|
|
1/29/09
|
|
16,323
(2)
|
$18.08
|
$75,500
|
1/29/09
|
|
4,115(3)
|
$18.08
|
$74,399
|
Scott
A. Kingsley
|
|
$92,975
|
|
|
|
1/29/09
|
|
6,257
(2)
|
$18.08
|
$28,941
|
1/29/09
|
|
1,577
(3)
|
$18.08
|
$28,512
|
Brian
D. Donahue
|
|
$76,507
|
|
|
|
1/29/09
|
|
5,149
(2)
|
$18.08
|
$23,816
|
1/29/09
|
|
1,298
(3)
|
$18.08
|
$23,468
|
George
J. Getman
|
|
$88,269
|
|
|
|
1/29/09
|
|
9,085
(2)
|
$18.08
|
$42,022
|
1/29/09
|
|
2,290
(3)
|
$18.08
|
$41,403
|
J.
David Clark
|
|
$49,597
|
|
|
|
1/29/09
|
|
3,338
(2)
|
$18.08
|
$15,440
|
1/29/09
|
|
841
(3)
|
$18.08
|
$15,205
|
(1)
|
The
amounts in this column represent target awards under the MIP, which equal
a specified percentage of base salary in effect on December 31 of the year
before payment is made. Awards paid pursuant to the MIP (if
any) are not subject to minimum or maximum amounts. The MIP
awards could be increased based upon extraordinary performance and reduced
for less than adequate performance based upon the Report Card described on
pages 18-19 and personal performance. The performance
objectives for 2008 exceeded the target level by 10% resulting in the
actual awards for the 2008 plan year (paid in 2009) being approximately
110% of the target amounts set forth in this table. The MIP
awards paid to the named executives in 2008 are
set forth in the Summary Compensation Table under the column entitled
“Non-Equity Incentive Plan Compensation.” These amounts were
determined based upon the satisfaction of the 2007 MIP performance
objectives.
|
(2)
|
The
stock options are granted pursuant to the 2004 Long-Term Incentive
Compensation Program. The options are subject to time only
vesting requirements and are not subject to performance-based conditions.
The options
become exercisable over the course of five years, with one-fifth of the
options becoming exercisable on January 29, 2010, 2011, 2012, 2013, and
2014. Upon the named executive’s termination, the named
executive generally has three months to exercise any vested
options. Except for employees retiring in good standing, all
unvested options at the date of termination are forfeited. For
employees who retire in
good standing, all unvested options will become vested as of the
retirement date. Such retirees may exercise the options before
the expiration date.
|
(3)
|
The
shares of restricted stock are granted pursuant to the 2004 Long-Term
Incentive Compensation Program. The restricted stock vests
ratably over five years. During the vesting period, the named
executive has all of the rights of a shareholder including the right to
vote such shares at any meeting of the shareholders and the right to
receive all dividends. Nonvested shares may not be sold,
exchanged or otherwise transferred.
|
The
following table summarizes the equity awards the Company has made to the named
executives which are outstanding as of December 31, 2008.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
(1) (2)
|
Number
of Securities Underlying Unexercised Options
(#)
Unexercisable
(2)
|
Option
Exercise Price
($/Sh)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested (#)(3)
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
(4)
|
Mark
E. Tryniski
|
15,000
11,740
7,604
6,095
2,222
0
|
0
2,936
5,070
9,143
42,222
15,574
|
$18.95
$24.15
$24.84
$23.74
$22.94
$18.09
|
6/2/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
|
6,113
|
$149,096
|
Scott
A. Kingsley
|
12,000
6,083
4,977
932
0
|
3,000
4,056
7,467
17,721
6,536
|
$22.53
$24.84
$23.74
$22.94
$18.09
|
8/2/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
|
2,566
|
$62,585
|
Brian
D. Donahue
|
4,356
9,844
8,954
10,298
7,262
6,083
4,672
793
0
|
0
0
0
0
1,816
4,056
7,010
15,076
5,535
|
$11.56
$12.38
$13.10
$15.68
$24.15
$24.84
$23.74
$22.94
$18.09
|
1/1/2010
1/1/2011
1/1/2012
1/1/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
|
2,176
|
$53,073
|
George
J. Getman (5)
|
0
|
0
|
0
|
0
|
5,000
|
$121,950
|
J.
David Clark
|
2,500
5,514
7,570
8,528
6,012
3,822
3,081
517
0
|
0
0
0
0
1,504
2,549
4,623
9,822
3,605
|
$11.56
$12.38
$13.10
$15.68
$24.15
$24.84
$23.74
$22.94
$18.09
|
1/1/2010
1/1/2011
1/1/2012
1/1/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
|
1,418
|
$34,585
|
|
(1)
Stock options and restricted stock are not
transferable.
|
|
(2)
Employee stock options generally vest in five equal installments on the
anniversary of the grant date over a five year period, except for
performance options which are subject to satisfaction of performance
goals. For each grant listed above, the vesting date for the
final portion of the stock options is the fifth anniversary of the grant
date and the expiration date is the tenth anniversary of the grant date
(i.e., for the options expiring on January 1, 2008, the final portion of
the award vested on January 1,
2003).
|
|
(3)
Employee restricted stock generally vests in five equal installments on
the anniversary of the grant date over a five year period. The
restricted stock reflected in this column was granted on January 17, 2007
and January 16, 2008, with the exception of restricted stock granted to
Mr. Getman in connection with joining the Company in 2008 which shares
vest ratably over three years.
|
|
(4)
Based on the closing market value of the Company’s common stock on
December 31, 2008 of $24.39 per share, as reported on the New York Stock
Exchange.
|
|
(5)
Mr. Getman joined the Company in 2008 and was not eligible to receive
incentive equity awards under the incentive plan in
2008.
|
The
following Option Exercises and Stock Vested table provides additional
information about the value realized to the named executives on option awards
exercised and stock awards vested during the year ended December 31,
2008.
OPTION
EXERCISES AND STOCK VESTED
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized
on
Exercise
($)
(1)
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized
on
Vesting
($)
(2)
|
Mark
E. Tryniski
|
0
|
$0
|
569
|
$11,306
|
Scott
Kingsley
|
0
|
$0
|
239
|
$4,749
|
Brian
D. Donahue
|
5,900
|
$60,438
|
203
|
$4,034
|
George
J. Getman
|
0
|
$0
|
0
|
$0
|
J.
David Clark
|
4,100
|
$44,824
|
132
|
$2,623
|
(1)
|
The
value realized equals the fair market value of the shares on the date of
exercise less the exercise price.
|
(2)
|
The
value realized on the restricted stock is the fair market value on the
date of vesting.
|
RETIREMENT
PLAN BENEFITS
The table
below shows the present value of accumulated benefits payable to the named
executives, including the number of years of service credited to each named
executive, under the Pension Plan and named executives’ individual supplemental
retirement agreements. Such amounts were determined by using the
interest rate and mortality rate assumptions consistent with those used in the
Company’s financial statements.
PENSION
BENEFITS
Name
|
Plan
Name
|
Number
of Years Credited Service
(#)
|
Present
Value of Accumulated Benefit
($)
|
Payments
During Last Fiscal Year
($)
|
Mark
E. Tryniski
|
Community
Bank System, Inc. Pension Plan
|
6
|
$204,614
|
$0
|
Supplemental
Executive Retirement Agreement
|
6
|
$326,379
|
$0
|
Scott
A. Kingsley
|
Community
Bank System, Inc. Pension Plan
|
4
|
$103,011
|
$0
|
Supplemental
Executive Retirement Agreement
|
4
|
$47,650
|
$0
|
Brian
D. Donahue
|
Community
Bank System, Inc. Pension Plan
|
17
|
$279,931
|
$0
|
Supplemental
Executive Retirement Agreement
|
17
|
$169,157
|
$0
|
George
J. Getman
|
Supplemental
Executive Retirement Agreement
|
1
|
$28,491
|
$0
|
J.
David Clark
|
Community
Bank System, Inc. Pension Plan
|
16
|
$295,450
|
$0
|
Pension
Plan
The named
executives
participate in the Company’s Pension Plan, as do the other salaried
employees. The Pension Plan is a tax-qualified defined benefit
pension plan. Under the traditional formula, eligible
participants generally accrue benefits based on the participant’s service and
the participant’s average annual compensation for the highest consecutive five
years of plan participation. Pension benefits earned under the
traditional formula may be distributed as a lump sum or as an
annuity.
Under the
cash balance formula, benefits are expressed in the form of a hypothetical
account balance. Each year a participant’s cash balance account is
increased by (i) service credits based on the participant’s covered compensation
and compensation in excess of the Social Security taxable wage base for that
year, and (ii) interest credits based on the participant’s account balance as of
the end of the prior year. Service credits accrue at a rate between 5
percent and 6.10 percent, based on the participant’s age and date of
participation. Pension benefits earned under the cash balance formula
may be distributed as a lump sum or as an annuity.
Supplemental Retirement
Agreements
In
addition to the Pension Plan, certain named executives are covered by an
individual supplemental retirement agreement (“SERP”) that generally provides
for non-qualified retirement benefits that cannot be provided to the named
executives under the Pension Plan due to Internal Revenue Code
limitations. Messrs. Tryniski, Kingsley, Donahue and Getman have
entered into SERP agreements providing such post-retirement
benefits.
Mark E.
Tryniski. Under Mr. Tryniski’s SERP, the Company has agreed to
provide Mr. Tryniski with an annual SERP benefit equal to the product of (i) 3%,
times (ii) Mr. Tryniski’s years of service, times (iii) his final average
compensation. The SERP benefit is then reduced by Mr. Tryniski’s
other Company-provided retirement benefits. Mr. Tryniski will be
entitled to the foregoing SERP benefit (i.e., will become “vested”) only if he
completes 36 months as President and Chief Executive Officer. If Mr.
Tryniski fails to complete such 36-month period, then he shall be entitled to a
minimum SERP benefit generally equal to the excess (if any) of (x) the annual
benefit that he would have earned pursuant to the Company’s Pension Plan if (I)
100% of his annual compensation that is disregarded for Pension Plan purposes
solely because of the limit imposed by Internal Revenue Code Section 401(a)(17)
is added to the amount of his annual compensation actually taken into account
pursuant to the Pension Plan and (II) Internal Revenue Code Section 415 is
disregarded, minus (y) the annual benefit actually payable to him pursuant to
the Pension Plan. Mr. Tryniski’s SERP benefit is payable beginning on
the first day of the seventh month that follows the later of his termination of
employment with the Company or his attainment of age 55. Unless Mr.
Tryniski elects payment in another equivalent life annuity form, the benefit is
payable in the form of a single life annuity for the executive’s
life.
Change in Control
Provision. If Mr. Tryniski’s employment is terminated for
reasons other than cause, death, or disability within two years following a
change in control or if Mr. Tryniski voluntarily resigns during this period
based upon an involuntary and material adverse change in his title, duties,
responsibilities, working conditions, total remuneration, or the geographic
location of his assignment, the Company will treat Mr. Tryniski as fully vested
in the SERP benefit and will credit him (for SERP purposes) with 5 additional
years of service.
Scott A. Kingsley, Brian D.
Donahue and George J. Getman. Under the SERP agreements for
Messrs. Kingsley, Donahue and Getman, the Company shall pay the employee an
annual supplemental retirement benefit generally equal to the excess (if any) of
(i) the annual benefit that he would have earned pursuant to the Company’s
Pension Plan if (a) 100% of his annual compensation that is disregarded for
Pension Plan purposes solely because of the limit imposed by Internal Revenue
Code Section 401(a)(17) is added to the amount of his annual compensation
actually taken into account pursuant to the Pension Plan and (b) Internal
Revenue Code Section 415 is disregarded, minus (ii) the annual benefit actually
payable to him pursuant to the Pension Plan. The SERP benefit is
payable beginning on the first day of the seventh month that follows the later
of the employee’s cessation of employment with the Company or his attainment of
age 55. Unless the executive elects payment in another equivalent
life annuity form, the benefit is payable in the form of a single life annuity
for the executive’s life. The SERP agreements for Messrs. Kingsley,
Donahue and Getman do not contain change in control provisions.
Nonqualified Deferred
Compensation Plan
The
following table shows the executive contribution, the Company’s contributions,
earnings and account balances for the named executives in the Deferred
Compensation Plan for Certain Executive Employees of Community Bank System,
Inc.
NONQUALIFIED
DEFERRED COMPENSATION
Name
|
Plan
Name
|
Executive
Contributions
in
Last FY
($)
(1)
|
Registrant
Contributions
in
Last FY
($)
(2)
|
Aggregate
Earnings
in
Last FY
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance
at
Last
FYE
($)
|
Mark
E. Tryniski
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$26,000
|
$16,646
|
($47,784)
|
$0
|
$41,811
|
Scott A.
Kingsley
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$20,800
|
$10,533
|
($50,088)
|
$0
|
$78,265
|
Brian
D. Donahue
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$13,650
|
$9,142
|
($44,840)
|
$0
|
$36,568
|
George
J. Getman
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$0
|
$0
|
$0
|
$0
|
$0
|
J.
David Clark
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$9,450
|
$7,115
|
($14,785)
|
$0
|
$47,791
|
(1)
|
The
amount in this column was also reported as “Salary” in the Summary
Compensation Table on pages 22-24.
|
(2)
|
The
amount in this column was also reported in the column entitled “All Other
Compensation” in the Summary Compensation
Table.
|
Potential Payment on
Termination or Change in Control
The
Company has entered into employment agreements that provide severance benefits
to the named executives. Under the terms of the respective named
executive’s agreement, the executives are entitled to post-termination payments
in the event that they are no longer employed by the Company because of death,
disability, involuntary retirement or a change in control. The
triggers for post-termination payments under the respective employment
agreements are set forth in the descriptions of such agreements on pages
32-34. Payments under the employment agreement may be made in a lump
sum or in installments. In addition to the employment agreements, the
SERP agreements provide for post-termination benefits (notwithstanding the
retirement benefits intended to be conferred in the SERP agreements) in certain
situations in the event of death, disability and a change in
control.
The
following table describes the potential payments and benefits under the
Company’s compensation and benefit plans and arrangements to which the named
executives would be entitled upon termination of employment, assuming a December
31, 2008 termination date.
|
Expected
Post-Termination Payments
($)
|
Incremental
pension benefit (present value)
($)
(1)
|
Continuation
of Medical/Welfare Benefits
(present
value) ($)
|
Acceleration
and Continuation of Equity Awards (unamortized as of
12/31/08)
($)
(2)
|
Total
Termination Benefits
($)
(3)
|
Mark
E. Tryniski
|
|
|
|
|
|
|
|
|
|
|
· Death
|
$110,250
|
|
$0
|
|
$2,718
|
|
$313,846
|
|
$426,814
|
|
· Disability
|
220,500
|
|
0
|
|
5,437
|
|
313,846
|
|
539,783
|
|
· Involuntary
termination without cause
|
1,329,200
|
|
0
|
|
0
|
|
313,846
|
|
1,643,046
|
|
· Involuntary
or good reason termination after CIC
|
1,993,800
|
|
687,424
|
|
35,597
|
|
313,846
|
|
3,030,667
|
|
Scott
A. Kingsley
|
|
|
|
|
|
|
|
|
|
|
· Death
|
$77,479
|
|
$0
|
|
$2,688
|
|
$163,083
|
|
$243,250
|
|
· Disability
|
154,958
|
|
0
|
|
5,375
|
|
163,083
|
|
323,416
|
|
· Involuntary
termination without cause
|
954,485
|
|
0
|
|
0
|
|
163,083
|
|
1,117,568
|
|
· Involuntary
or good reason termination after CIC
|
1,211,745
|
|
54,766
|
|
35,266
|
|
163,083
|
|
1,464,860
|
|
Brian
D. Donahue
|
|
|
|
|
|
|
|
|
|
|
· Death
|
$63,756
|
|
$0
|
|
$2,630
|
|
$135,267
|
|
$201,653
|
|
· Disability
|
127,512
|
|
0
|
|
5,260
|
|
135,267
|
|
268,039
|
|
· Involuntary
termination without cause
|
426,066
|
|
0
|
|
0
|
|
135,267
|
|
561,333
|
|
· Involuntary
or good reason termination after CIC
|
1,003,572
|
|
98,699
|
|
34,536
|
|
135,267
|
|
1,272,074
|
|
George
J. Getman
|
|
|
|
|
|
|
|
|
|
|
· Death
|
$75,000
|
|
$0
|
|
$253
|
|
$64,538
|
|
$139,791
|
|
· Disability
|
150,000
|
|
0
|
|
505
|
|
64,538
|
|
215,043
|
|
· Involuntary
termination without cause
|
930,285
|
|
0
|
|
0
|
|
64,538
|
|
994,823
|
|
· Involuntary
or good reason termination after CIC
|
1,170,000
|
|
54,766
|
|
3,033
|
|
64,538
|
|
1,292,337
|
|
J.
David Clark
|
|
|
|
|
|
|
|
|
|
|
· Death
|
$49,597
|
|
$0
|
|
$2,601
|
|
$88,105
|
|
$140,303
|
|
· Disability
|
99,194
|
|
0
|
|
5,201
|
|
88,105
|
|
192,500
|
|
· Involuntary
Termination without cause
|
313,423
|
|
0
|
|
0
|
|
88,105
|
|
401,528
|
|
· Involuntary
or good reason termination after CIC
|
750,456
|
|
79,664
|
|
34,184
|
|
88,105
|
|
952,409
|
|
(1)
|
The
amounts set forth in this column reflect the present value of an
additional three years of accumulated benefits under the Company’s Pension
Plan. There would be no additional benefits accrued under the
individual supplemental executive retirement agreements except for Mr.
Tryniski’s agreement.
|
(2)
|
The
amounts set forth in this column reflect the dollar amount that would be
recognized in the financial statements in accordance with FASB 123R for
the early vesting of restricted stock and stock options pursuant to the
Company’s 2004 Long-Term Incentive Compensation Program. These
amounts are based on the market value of the shares of restricted stock on
the date of grant or the value of the stock options using the
Black-Scholes option pricing model on the day of grant, which may not be
reflective of the current intrinsic value of the
options.
|
(3)
|
The
amounts in this column do not include any excise tax gross-up
amounts. The Company is not obligated to pay any excise tax
gross-up amounts under any employment
agreements.
|
The
amounts shown in the table above do not include payments and benefits to the
extent they are provided on a nondiscriminatory basis to salaried employees
generally upon termination of employment, including accrued salary and vacation
pay, regular pension benefits under the Company’s Pension Plan, and distribution
of plan balances under the Company’s 401(k) Plan.
Employment
Agreements
The
Company has entered into Employment Agreements with each of the named
executives. The Employment Agreements provide for payments upon
termination in the event such executive is terminated prior to the expiration of
the employee agreement. The quantitative payout amounts are set forth
in the chart above.
Mark E.
Tryniski. The Company had an employment agreement with Mr.
Tryniski providing for his continued employment until December 31, 2008 which
agreement was renewed to cover the period from January 1, 2009 to December 31,
2011. The current agreement provides that the Company shall pay Mr.
Tryniski a base salary at an annual rate of at least $454,000, with his base
salary for calendar years after 2009 to be adjusted in accordance with the
Company’s regular payroll practices for executive employees. The
agreement may be terminated by the Company for cause at any time, and shall
terminate upon Mr. Tryniski’s death or disability. The agreement
provides for severance pay in the event of a termination for reasons other than
cause, death, or disability, equal to the greater of (i) 200% of the sum of Mr.
Tryniski’s annual base salary at the time of termination and the most recent
payment to him under the Company’s MIP, or (ii) amounts of base salary and
expected MIP payments payable to Mr. Tryniski through the unexpired term of his
employment agreement. In the event that Mr. Tryniski’s employment is
terminated solely because the Company elects not to renew or extend the
agreement at the end of its term for reasons other than cause, Mr. Tryniski is
entitled to severance pay equal to 200% of the sum of his then current base
salary plus the most recent payment to him under the MIP.
Change in Control
Provision. If Mr. Tryniski’s employment is terminated for
reasons other than cause, death, or disability within two years following a
change in control or if Mr. Tryniski voluntarily resigns during this period
based upon an involuntary and material adverse change in his title, duties,
responsibilities, working conditions, total remuneration, or the geographic
location of his assignment, the Company will pay him an amount equal to three
times his then current base salary plus his annual bonus for the year
immediately preceding the change in control, will provide fringe benefits for a
36 month period, will permit him to dispose of any restricted stock previously
granted to him, and his stock options will become fully
exercisable.
Scott A.
Kingsley. The Company has an employment agreement with Mr.
Kingsley providing for his continued employment until December 31,
2010. The agreement provides that during the term of the agreement,
the Company shall pay Mr. Kingsley a base salary at an annual rate of at least
$310,000, with his base salary for calendar years after 2008 to be adjusted in
accordance with the Company’s regular payroll practices for executive
employees. The agreement may be terminated by the Company for cause
at any time, and shall terminate upon Mr. Kingsley’s death or
disability. The agreement provides for severance pay, in the event of
a termination for reasons other than cause, death, or disability, equal to the
greater of (i) the sum of Mr. Kingsley’s annual base salary at the
time of termination and the most recent payment to him under the Company’s MIP,
or (ii) amounts of base salary and expected MIP payments payable to Mr. Kingsley
through the unexpired term of his employment. In the event that Mr.
Kingsley’s employment is terminated solely because the Company elects not to
renew or extend the agreement at the end of its term for reasons other than
cause, Mr. Kingsley is entitled to severance pay equal to 175% of the sum of his
then current base salary plus the most recent payment to him under the
MIP.
Change in Control
Provision. If Mr. Kingsley’s employment is terminated for
reasons other than cause, death, or disability within two years following a
change in control, or if Mr. Kingsley voluntarily resigns during this period
based upon an involuntary and material adverse change in his title, duties,
responsibilities, working conditions, total remuneration, or the geographic
location of his assignment, the Company will pay him an amount equal to three
times his then current base salary plus his annual bonus for the year
immediately preceding the change in control, will provide fringe benefits for a
36 month period, will permit him to dispose of any restricted stock previously
granted to him, and his stock options will become fully
exercisable.
Brian D.
Donahue. The Company has an employment agreement with Mr.
Donahue providing for his continued employment until December 31, 2009 which
agreement was amended in 2008 for purposes of complying with Section 409A of the
Internal Revenue Code. The agreement provides that during the period
from August 1, 2004 through December 31, 2009, the Company shall pay Mr. Donahue
a base salary at an annual rate of at least $230,000, with his base salary for
calendar years after 2004 to be adjusted in accordance with the Company’s
regular payroll practices for executive employees. The agreement may
be terminated by the Company for cause at any time, and shall terminate upon
Mr. Donahue’s death or disability. The agreement provides for
severance pay, in the event of a termination for reasons other than cause,
death, or disability, equal to the greater of (i) the sum of Mr. Donahue’s
annual base salary at the time of termination and the most recent payment to him
under the Company’s MIP, or (ii) amounts of base salary and expected MIP
payments payable to Mr. Donahue through the unexpired term of his
employment. In the event that Mr. Donahue’s employment is terminated
solely because the Company elects not to renew or extend the agreement at the
end of its term for reasons other than cause, Mr. Donahue is entitled to
severance pay equal to 175% of the sum of his then current base salary plus the
most recent payment to him under the MIP.
Change in Control
Provision. If Mr. Donahue’s employment is terminated for
reasons other than cause, death, or disability within two years following a
change in control, or if Mr. Donahue voluntarily resigns during this period
based upon an involuntary and material adverse change in his title, duties,
responsibilities, working conditions, total remuneration, or the geographic
location of his assignment, the Company will pay him an amount equal to three
times his then current base salary plus his annual bonus for the year
immediately preceding the change in control, will provide fringe benefits for a
36 month period, will permit him to dispose of any restricted stock previously
granted to him, will pay him the difference between 94% of the market value of
his residence and the proceeds of the sale of such residence (if he elects to
relocate), and his stock options will become fully exercisable.
George J.
Getman. The Company has an employment agreement with Mr.
Getman providing for his continued employment until December 31,
2010. The agreement provides that during the term of the agreement,
the Company shall pay Mr. Getman a base salary at an annual rate of at least
$300,000, with his base salary for calendar years after 2008 to be adjusted in
accordance with the Company’s regular payroll practices for executive
employees. The agreement may be terminated by the Company for cause
at any time, and shall terminate upon Mr. Getman’s death or
disability. The agreement provides for severance pay, in the event of
a termination for reasons other than cause, death, or disability, equal to the
greater of (i) the sum of Mr. Getman’s annual base salary at the time
of termination and the most recent payment to him under the Company’s MIP, or
(ii) amounts of base salary and expected MIP payments payable to Mr. Getman
through the unexpired term of his employment. In the event that Mr.
Getman’s employment is terminated solely because the Company elects not to renew
or extend the agreement at the end of its term for reasons other than cause, Mr.
Getman is entitled to severance pay equal to 175% of the sum of his then current
base salary plus the most recent payment to him under the MIP.
Change in Control
Provision. If Mr. Getman’s employment is terminated for
reasons other than cause, death, or disability within two years following a
change in control, or if Mr. Getman voluntarily resigns during this period based
upon an involuntary and material adverse change in his title, duties,
responsibilities, working conditions, total remuneration, or the geographic
location of his assignment, the Company will pay him an amount equal to three
times his then current base salary plus his annual bonus for the year
immediately preceding the change in control, will provide fringe benefits for a
36 month period, will permit him to dispose of any restricted stock previously
granted to him, and his stock options will become fully
exercisable.
J. David
Clark. The Company has an employment agreement with Mr. Clark
providing for his continued employment until December 31, 2009 which agreement
was amended in 2008 for purposes of complying with Section 409A of the Internal
Revenue Code. The agreement provides that during the period from
October 1, 2004 to December 31, 2009, the Company shall pay Mr. Clark a base
salary at an annual rate of at least $175,000, with his base salary for calendar
years after 2004 to be adjusted in accordance with the Company’s regular payroll
practices for executive employees. The agreement may be terminated by
the Company for cause at any time, and shall terminate upon Mr. Clark’s
death or disability. The agreement provides for severance pay, in the
event of a termination for reasons other than cause, death, or disability, equal
to the greater of (i) the sum of Mr. Clark’s annual base salary at the time
of termination and the most recent payment to him under the Company’s MIP, or
(ii) amounts of base salary and expected MIP payments payable to Mr. Clark
through the unexpired term of his employment. In the event that Mr.
Clark’s employment is terminated solely because the Company elects not to renew
the agreement at the end of its term for reasons other than cause, Mr. Clark is
entitled to severance pay equal to 175% of the sum of his then current base
salary plus the most recent payment to him under the MIP.
Change in Control
Provision. If Mr. Clark’s employment is terminated for reasons
other than cause, death, or disability within two years following a change in
control, or if Mr. Clark voluntarily resigns during this period based upon an
involuntary and material adverse change in his title, duties, responsibilities,
working conditions, total remuneration, or the geographic location of his
assignment, the Company will pay him an amount equal to three times his then
current base salary plus his annual bonus for the year immediately preceding the
change in control, will provide fringe benefits for a 36 month period, will
permit him to dispose of any restricted stock previously granted to him, and his
stock options will become fully exercisable.
AUDIT
COMMITTEE REPORT
In
accordance with its written charter adopted by the Board of Directors, a copy of
which is available at the Company’s website at www.communitybankna.com
and in print to any Shareholder who requests it, the Company’s Audit Committee
assists the Board in fulfilling its responsibility for oversight of the quality
and integrity of the accounting, auditing, and financial reporting practices of
the Company and the Bank. The Company’s management has responsibility
for establishing and maintaining adequate internal controls, preparing the
financial statements and the public reporting
process. PricewaterhouseCoopers LLP, the Company’s independent
registered public accounting firm for 2008, is responsible for
performing an audit of the Company’s financial statements and opining on
management’s internal controls over financial reporting and the effectiveness of
those controls in accordance with the standards of the Public Company Accounting
Oversight Board (“PCAOB”). The Committee reviews internal and
external audits of the Company and the Bank and the adequacy of the Company’s
and the Bank’s accounting, financial, and compliance controls, oversees major
policies with respect to risk assessment and management, and selects the
Company’s independent registered public accounting firm.
The Audit
Committee is currently comprised of four directors, each of whom the Board has
determined to be independent as independence for audit committee members is
defined by the Sarbanes-Oxley Act and the NYSE Rules. In addition,
each member of the Committee is financially literate and three of the
Committee’s members meet the NYSE standard of having “accounting or related
financial management expertise.” In addition, the Board has
determined that Charles E. Parente, James W. Gibson, Jr., and James A. Wilson
are each qualified as an “audit committee financial expert” as defined by the
SEC Rules.
In
discharging its oversight responsibilities, the Committee has reviewed and
discussed the Company’s 2008 audited consolidated financial statements with
management of the Company and its independent registered public accounting firm
and has discussed with its independent registered public accounting firm all
matters required by generally accepted auditing standards, including those
described in Statement on Auditing Standards No. 61, as amended by Statement on
Auditing Standards No. 90 (Audit Committee Communications), as adopted by the
PCAOB in Rule 3200T.
The
Committee has also received the written disclosures and letter from the
Company’s its
independent registered public accounting firm as required by applicable
requirements of the Public Company Accounting Oversight Board and has discussed
with the its
independent registered public accounting firm its
independence. In concluding that the its independent registered
public accounting firm is independent, the Committee considered, among
other factors, the non-audit services provided by the its independent registered
public accounting firm as described on page 36.
Based on
the above-mentioned reviews and discussions with management and the independent
registered public accounting firm, the Committee recommended to the Board of
Directors that the Company’s audited financial statements be included in its
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, for
filing with the Securities and Exchange Commission.
Charles
E. Parente (Chair)
Brian R.
Ace
James W.
Gibson, Jr.
James A.
Wilson
ITEM
TWO: RATIFICATION OF APPOINTMENT OF
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
During
the fiscal year ended December 31, 2008, the firm of PricewaterhouseCoopers LLP,
the Company’s independent registered public accounting firm, was retained by the
Audit Committee of the Board of Directors to perform the annual examination of
the consolidated financial statements of the Company and its
subsidiaries. The Audit Committee also retained
PricewaterhouseCoopers LLP to advise the Company in connection with various
other matters as described below.
The Audit
Committee has selected PricewaterhouseCoopers LLP to serve as the Company’s
independent registered public accounting firm for the fiscal year ending
December 31, 2009. PricewaterhouseCoopers LLP has acted in such
capacity since its appointment in fiscal year 1991.
Shareholder
ratification of the selection of PricewaterhouseCoopers LLP as the Company’s
independent registered public accounting firm is not required by the Company’s
bylaws or otherwise. However, the Board of Directors is submitting
the selection of PricewaterhouseCoopers LLP to the Shareholders for ratification
as a matter of good corporate practice. If the Shareholders fail to
ratify the selection, the Audit Committee will reconsider whether or not to
retain that firm. Even if the selection is ratified, the Audit
Committee in their discretion may appoint a different firm at any time during
the year if they determine that such a change would be in the best interests of
the Company.
Representatives
of PricewaterhouseCoopers LLP will be present at the Meeting and will be given
the opportunity to make a statement, if the representatives desire, and will be
available to respond to appropriate questions from Shareholders.
Vote
Required and Recommendation
Ratification
of the appointment of the independent registered public accounting firm requires
the affirmative vote of a majority of the votes cast in person or by proxy at
the Meeting.
The Board
of Directors recommends that Shareholders vote FOR this
Proposal. Proxies solicited by the Board of Directors will be voted
in favor of the Proposal unless Shareholders specify otherwise.
FEES
PAID TO PRICEWATERHOUSECOOPERS LLP
The
following table sets forth the aggregate fees billed to the Company by
PricewaterhouseCoopers LLP for professional services rendered for the fiscal
years ended December 31, 2007 and 2008.
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2007
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2008
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Audit
Fees
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$363,459
(1)
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$491,295
(2)
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Audit
Related Fees
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0
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20,000
(3)
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Tax
Fees (4)
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82,250
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113,850
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All
Other Fees (5)
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0
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7,332
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(1)
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Includes
fees incurred in connection with the audits of Community Bank System, Inc.
and its subsidiaries Community Investment Services, Inc., and Hand Benefit
and Trust.
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(2)
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Includes
fees incurred in connection with the audits of Community Bank System, Inc.
and its subsidiaries Community Investment Services, Inc., Hand Benefit and
Trust, as well as $18,000 for the audit of Hand Securities, Inc. and
$90,000 for services rendered in connection with a Form S-3 registration
statement.
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(3)
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Includes
fees related to the Uniform Single Attestation Program for Mortgage
Bankers.
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(4)
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Includes
tax preparation and compliance fees of $37,500 and $40,500 for 2008 and
2007, respectively, and fees incurred in connection with tax consultation
related to acquisitions, tax planning, and other matters of $76,350 and
$41,750 for 2008 and 2007,
respectively.
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(5)
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Represents
subscription fees to Comperio, a PricewaterhouseCoopers LLP trademarked
product.
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Pursuant
to the Audit Committee Charter, the Company is required to obtain pre-approval
by the Audit Committee for all audit and permissible non-audit services obtained
from its independent auditors to the extent required by applicable
law. In accordance with this pre-approval policy, the Audit Committee
pre-approved all audit and non-audit services for fiscal 2007 and fiscal
2008.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s directors,
executive officers and holders of more than 10% of the Company’s common stock
(collectively, “Reporting Persons”) to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
the common stock. Such persons are required by regulations of the
Securities and Exchange Commission to furnish the Company with copies of all
such filings. Based solely on its review of the copies of such
filings received by it and written representations of Reporting Persons with
respect to the fiscal year ended December 31, 2008, the Company believes that
all Reporting Persons complied with all Section 16(a) filing requirements in the
fiscal year ended December 31, 2008, except as follows: due to administrative
oversight in connection with the reporting of transactions under the Directors’
Deferred Compensation Plan, certain Form 4 filings, each reporting one late
transaction, were not timely filed for (i) Directors Ace, Dempsey, DiCerbo,
Parente, and Steele regarding the acquisition of deferred stock pursuant to the
Directors’ Deferred Compensation Plan, and (ii) Directors Cantwell, Dempsey,
Parente, and Patterson regarding the distribution of deferred stock pursuant to
the Directors’ Deferred Compensation Plan.
ITEM THREE: PROPOSAL TO AMEND
COMPANY’S CERTIFICATE OF INCORPORATION AND BYLAWS TO DECLASSIFY THE BOARD OF
DIRECTORS
The
Company’s Certificate of Incorporation currently provides that the Board of
Directors is divided into three classes, as nearly equal in number as possible,
with the members of each class serving for staggered three year
terms. After consideration of a number of factors, including the
response to a shareholder proposal at the 2008 annual meeting, the Board of
Directors is proposing that the Company’s Certificate of Incorporation be
amended to declassify the Board and provide for the annual election of all
directors at each annual meeting. This amendment to the Company’s
corporate structure requires a supermajority shareholder vote to approve, and
shareholders should carefully consider this proposal when voting your shares at
the Meeting.
A
shareholder proposal to declassify the Company’s Board of Directors was included
in the Company’s 2008 Proxy Statement and received support from a majority of
the shares cast at the meeting but less than a majority of the outstanding
shares. In light of shareholder support for the proposal, the Board
and its Nominating and Corporate Governance Committee have reconsidered the
merits of declassifying the Board. In its review, the Board
considered the purposes of a classified board to enhance continuity and
effectives of experienced directors to plan and execute long-term strategies
with respect to the various businesses and markets in which we operate and to
promote the ability of independent directors to negotiate effectively with a
potential acquirer to receive the greatest possible shareholder
value. The Board also considered corporate governance trends, support
for a similar proposal at last year’s annual meeting, and the view held by many
institutional stockholders that a classified board has the effect of reducing
the accountability of directors. The Board of Directors, after
careful consideration, and upon the recommendation of the Nominating and
Corporate Governance Committee, has determined it is appropriate to declassify
the Board and is recommending that shareholders approve the proposal to
declassify the Board.
Under the
proposed amendment to the Certificate of Incorporation, the declassification of
the Board and annual election of directors would be effective as of the
Company’s 2010 annual meeting of shareholders and would be phased in over a
three-year period. Directors who had been previously elected for
three-years terms ending in 2011 and 2012 would continue to serve out those
terms so that no director previously elected to a three-year term would have his
or her term shortened. If the proposed amendment is approved by the
required shareholder vote, the Company will take prompt action to amend its
Certificate of Incorporation, and related provisions in its Bylaws, consistent
with the text of the proposed amendment as set forth in Appendix A of this Proxy
Statement.
Vote
Required and Recommendation
Pursuant
to Article 11 of the Company’s Certificate of Incorporation, the affirmative
vote of the holders of at least 75% of the outstanding shares of Common Stock
entitled to vote at the Meeting is required to approve the proposed
amendment.
The Board
of Directors recommends that Shareholders vote FOR this Proposal.
SHAREHOLDER
PROPOSALS
If
Shareholder proposals are to be considered by the Company for inclusion in a
proxy statement for a future meeting of the Company’s Shareholders, such
proposals must be submitted on a timely basis and must meet the requirements
established by the Securities and Exchange Commission for Shareholder
proposals. Shareholder proposals for the Company’s 2010 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 December 18,
2009. 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 of the Company is not aware of any other matters that may come
before the Meeting. However, the Proxies may be voted with
discretionary authority with respect to any other matters that may properly come
before the Meeting.
Date: April
16, 2009
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By Order of
the Board of Directors |
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/s/ Donna J.
Drengel |
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Donna J.
Drengel |
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Secretary |
Appendix
A
PROPOSED
AMENDMENT TO ARTICLES 6 AND 11 OF THE
CERTIFICATE
OF INCORPORATION OF
COMMUNITY
BANK SYSTEM, INC.
The text
below is the portion of Community Bank System, Inc.’s Certificate of
Incorporation proposed to be amended by Item Three. Proposed
additions are indicated by underlining and proposed deletions are indicated by
strike−outs.
6. Directors; Election
and
Classification.
(a) Members
of the Board of Directors may be elected either by written ballot or by voice
vote.
(b) Commencing
with the 2010 annual meeting of the stockholders, directors shall be elected
annually for terms of one year and shall hold office until the next succeeding
annual meeting. Directors elected at the 2007 annual meeting of
stockholders shall hold office until the 2010 annual meeting of stockholders;
directors elected at the 2008 annual meeting of stockholders shall hold office
until the 2011 annual meeting of stockholders; and directors elected at the 2009
annual meeting of stockholders shall hold office until the 2012 annual meeting
of stockholders. In all cases, directors shall hold office until
their respective successors are duly elected and
qualified. The
Board of Directors shall be divided into three (3) classes. The
number of directors of the first class shall equal one-third (1/3) of the total
number of directors as determined in the manner provided in the By-Laws, with
fractional remainders to count as one (1); the number of directors of the second
class shall equal one-third (1/3) of said total number of directors, or the
nearest whole number thereto; and the number of directors of the third class
shall equal said total number of directors minus the aggregate number of
directors of the first and second classes. At the election of the
first Board of Directors, the class of each of the members then elected shall be
designated. The term of office of each member then designated
as a director of the first class shall expire at the annual meeting of the
stockholders next ensuing, that of each member then designate as a director of
the second class at the annual meeting of stockholder one (1) year thereafter,
and that each member then designated as a director of the third class at the
annual meeting stockholders two (2) years thereafter. At each annual
meeting of stockholders held after the election and classification of the first
Board of Directions, directors shall be elected for a full term of three (3)
years to succeed those members whose terms then expire.
11. Amendments to
Articles. Notwithstanding any other provisions of this
Certificate of Incorporation or the Bylaws of the Corporation, the affirmative
vote required to amend or repeal, or adopt any provisions inconsistent with,
Articles 6,
9 or 10, or this Article 11 shall consist of (1) a majority vote of the Board of
Directors and of the holders of at least three-fourths (3/4) of the votes
entitled to be cast by the holders of all then-outstanding shares of Common
Stock, or (2) at least two-thirds (2/3) of the votes entitled to be cast by said
common stockholders if the amendment, repeal, or adoption shall have been
approved by at least two-thirds (2/3) of the Continuing Directors within the
meaning of paragraph (B)(8) of Article 10.
Form of Proxy [To be
finalized]
PROXY
COMMUNITY BANK SYSTEM, INC.
5790
Widewaters Parkway
Dewitt, New York 13214-1883
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Charles M. Ertel and Donna J. Drengel, proxies, with
power to act without the other and with power of substitution, and hereby
authorizes them to represent and vote, as designated on the other side, all the
shares of stock of Community Bank System, Inc. standing in the name of the
undersigned with all powers which the undersigned would possess if present at
the Annual Meeting of Shareholders of the Company to be held May 20, 2009
or any adjournment thereof.
ANNUAL MEETING OF SHAREHOLDERS
OF
COMMUNITY
BANK SYSTEM, INC.
May 20, 2009
PROXY VOTING INSTRUCTIONS
MAIL - Date, sign and mail your
proxy card in the envelope provided as soon as possible.
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OR -
TELEPHONE
- Call toll-free
1-800-PROXIES
(1-800-776-9437)
in the United States or 1-718-921-8500 from foreign
countries and follow the instructions. Have your proxy card available when you
call.
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OR -
INTERNET - Access “www.voteproxy.com” and follow
the on-screen instructions. Have your proxy card available when you access the
web page.
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OR -
IN
PERSON - You may
vote your shares in person by attending the Annual Meeting.
COMPANY NUMBER
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ACCOUNT NUMBER
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You may
enter your voting instructions at 1-800-PROXIES in the United States or
1-718-921-8500 from foreign countries or www.voteproxy.com up until 11:59 PM
Eastern Time the day before the cut-off or meeting date.
THE
BOARD OF DIRECTORS RECOMMEND A VOTE “FOR” PROPOSITIONS #1, #2 AND #
3.
PLEASE
SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE
IN BLUE OR BLACK INK AS SHOWN HERE x
1. ELECTION OF
DIRECTORS:
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FOR
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AGAINST
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ABSTAIN
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o
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FOR
ALL NOMINEES
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NOMINEES:
¡ James W. Gibson,
Jr.
¡ David C.
Patterson
¡ Sally A.
Steele
¡ Mark E.
Tryniski
¡ James A.
Wilson
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2.
RATIFICATION OF APPOINTMENT OF PWC as the Company’s independent registered
public accounting firm for the 2009 fiscal year
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o
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o
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o
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WITHHOLD
AUTHORITY
FOR
ALL NOMINEES
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3.
PROPOSAL TO AMEND THE COMPANY’S CERTIFICATE OF INCORPORATION AND BYLAWS TO
DECLASSIFY THE BOARD OF DIRECTORS
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o
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o
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FOR
ALL EXCEPT
(See
instructions below)
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INSTRUCTIONS:
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To
withhold authority to vote for any individual nominee(s), mark “FOR ALL EXCEPT” and
fill in the circle next to each nominee you wish to withhold, as shown
here: l
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To
change the address on your account, please check the box at right and
indicate your new address in the address space above. Please note that
changes to the registered name(s) on the account may not be submitted via
this method.
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In
their discretion, such attorneys-in-fact and proxies are authorized to
vote upon such other business as may properly come before the
meeting.
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This
Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned.
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IF
NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED “FOR” PROPOSITIONS # 1, #
2 AND # 3.
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Please
check hare if you plan to attend the meeting.
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Signature
of Shareholder
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Date:
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Signature
of Shareholder
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Date:
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Note:
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Please
sign exactly as your name or names appear on this Proxy. When shares are
held jointly, each holder should sign. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as
such. If the signer is a corporation, please sign full corporate name by
duly authorized officer, giving full title as such. If signer is a
partnership, please sign in partnership name by authorized
person.
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