definitive14a2010.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 x
Filed by
a Party other than the Registrant o
Check the
appropriate box:
o Preliminary
Proxy Statement
o Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
x Definitive
Proxy Statement
o Definitive
Additional Materials
o 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):
x No
fee required.
o 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:
o Fee
paid previously with preliminary materials.
o
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 |
|
|
|
March 25,
2010 |
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, April 28, 2010 at
Shadowbrook Inn & Resort, 615 State Route 6, Tunkhannock, Pennsylvania, for
the following purposes:
|
1.
|
To
elect eight directors to the Board of Directors for stated
terms;
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2.
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To
ratify the appointment of PricewaterhouseCoopers LLP as independent
auditor for 2010; and
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|
3.
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To
transact any other business which may properly come before the Meeting or
any adjournment thereof.
|
|
By Order of
the Board of Directors |
|
|
|
|
|
|
|
Donna J.
Drengel |
|
Secretary |
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IMPORTANT
NOTICE |
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|
Whether
or not you plan to attend the Annual Meeting, please vote your shares by
one of the following methods as soon as possible: (1) a toll-free
telephone call, (2) the Internet, or (3) the enclosed proxy in the postage
paid envelope provided. If you hold shares through a broker or other
custodian, please complete the voting instructions of that broker or
custodian. Please
note that this year the rules that guide how brokers vote your stock have
changed. Brokers may no longer vote your shares on the election of
directors in the absence of your specific instructions as to how to
vote. Please vote your shares so your vote can be
counted.
|
|
COMMUNITY
BANK SYSTEM, INC.
5790
Widewaters Parkway
DeWitt,
New York 13214-1883
PROXY
STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS, APRIL 28, 2010
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, April 28, 2010, at Shadowbrook Inn & Resort,
615 State Route 6, Tunkhannock, Pennsylvania. This Proxy Statement
and the form of Proxy are first being sent to Shareholders on approximately
March 25, 2010.
The proxy
materials relating to the 2010 Annual Meeting and the 2009 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.
VOTING
RIGHTS AND PROXIES
The Board
has fixed the close of business on March 11, 2010 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, 33,038,541 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. An abstention by a Shareholder with respect to a matter
to be voted on will be counted for purposes of determining the presence of a
quorum and will have the effect of a vote cast against the matter being voted on
at the Meeting. Any broker non-votes will be counted as being present
for purposes of determining the presence of a quorum, but will not be counted as
a vote cast on the matter being voted on at the Meeting.
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.
For
beneficial owners who vote their proxies by instructing their brokers, if a
shareholder instructed his or her broker or nominee to vote such shares, the
beneficial owner can change his or her vote only by following the broker or
nominee’s instructions for doing so. Beneficial owners can only
change their vote at the Meeting if they have obtained a “legal proxy” from
their broker or other nominee holding the shares that confirms the beneficial
ownership of the shares and gives the beneficial owner the right to vote his or
her shares at the Meeting.
The
Company will pay its costs relating to the solicitation of
Proxies. We have retained The Altman Group, Inc., 1200 Wall Street
West, Lyndhurst, New Jersey 07071 to assist in soliciting proxies for a base fee
of $6,500 plus reasonable and approved out of pocket
expenses. Proxies may be solicited by officers, directors, and staff
members of the Company personally, by mail, by telephone, or by other electronic
means. The Company will also reimburse brokers, custodians, nominees,
and fiduciaries for reasonable expenses in forwarding proxy materials to
beneficial owners of our stock.
The
Annual Report of the Company for the fiscal year ended December 31, 2009,
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, 2009 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
|
|
|
|
BlackRock,
Inc.
40
East 52nd
Street
New
York, NY 10022
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3,026,361
(1)
|
9.24%
|
|
|
|
Dimensional
Fund Advisors LP
1299
Ocean Avenue
Santa
Monica, CA 90401
|
2,040,270
(2)
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6.23%
|
|
|
|
The
Vanguard Group, Inc.
100
Vanguard Blvd.
Malvern,
PA 19355
|
1,666,447
(3)
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5.08%
|
|
(1)
|
Based
on information contained in the referenced Schedule 13G filing, BlackRock,
Inc. has sole voting and sole dispositive power with respect to all shares
listed.
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(2)
|
Based
on information contained in the referenced Schedule 13G filing,
Dimensional Fund Advisors LP has sole voting power with respect to
2,007,002 shares and sole dispositive power with respect to all shares
listed.
|
|
(3)
|
Based
on information contained in the referenced Schedule 13G filing, The
Vanguard Group, Inc. has sole voting power with respect to 44,886 shares
and sole dispositive power with respect to 1,621,561
shares.
|
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 eight directors, five of
whom shall hold office for three years, one who will hold office for two years,
and two of whom shall hold office for a term of one year and until his or her
successor shall have been duly elected and qualified. Directors
Nicholas A. DiCerbo, James A. Gabriel, and Charles E. Parente whose terms are
scheduled to expire as of the date of the Meeting, will stand for
re-election. Directors Mark J. Bolus, Neil E. Fesette, Edward S.
Mucenski, John Parente, and John F. Whipple, Jr., each of whom were appointed to
the Board earlier this year, will stand for election at this
Meeting. 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 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, the proxy agents intend to vote for
the election of a successor nominee, if any, as the Board may
recommend. 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 fifteen 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.
For each
nominee standing for election at the Meeting and for each director of the
Company whose term of office continues after the Meeting, the Nominating and
Corporate Governance Committee considered the business experience set forth in
the table below, as well as the additional qualifications set forth in the
section “Qualifications of Directors,” to determine that such director is
qualified to serve on the Board.
NOMINEES
FOR DIRECTOR AND DIRECTORS CONTINUING IN
OFFICE
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|
|
|
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|
Shares
of Company Common
Stock
Beneficially Owned (c)
as
of March 11, 2010 (d)
|
Name
and
Age
(a)
|
|
Director
of the Company Since |
|
Business
Experience
During
Past
Five Years (b)
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|
Number
(e)
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|
Percent
|
|
|
|
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Nominees (for terms to expire at Annual Meeting in
2013): |
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|
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|
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Nicholas
A. DiCerbo
Age
63
|
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1984
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|
Attorney,
law firm of DiCerbo and Palumbo, Olean, New York.
|
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305,607
(f)
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.92%
|
|
|
|
|
|
|
|
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James
A. Gabriel
Age
62
|
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1984
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Attorney,
law firm of Franklin & Gabriel, Ovid, New York.
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171,507
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.52%
|
|
|
|
|
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Charles
E. Parente
Age
69
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|
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.
|
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423,790
(f)
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1.28%
|
|
|
|
|
|
|
|
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|
Mark
J. Bolus
Age
44
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2010
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|
President
and Chief Executive Officer of Bolus Motor Lines, Inc. and Bolus Freight
Systems, Inc., a regional trucking company in Scranton,
Pennsylvania.
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50,123(f)
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|
*
|
|
|
|
|
|
|
|
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Edward
S. Mucenski
Age 62
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2010
|
|
Managing
Director of the Pinto, Mucenski, Hooper, VanHouse & Co., P.C.,
Certified Public Accountants, a firm located in Potsdam, New York that
provides accounting, tax and financial services.
|
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4,692(f)
|
|
*
|
|
|
|
|
|
|
|
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|
|
|
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|
Shares
of Company Common
Stock
Beneficially Owned (c)
as
of March 11, 2010 (d)
|
Name
and
Age
(a)
|
|
Director
of the Company Since |
|
Business
Experience
During
Past
Five Years (b)
|
|
Number
(e)
|
|
Percent
|
|
|
|
|
|
Nominees and Directors (for term to expire at
Annual Meeting in 2011)
|
|
John
Parente
Age
43
|
|
2010
|
|
Chief
Executive Officer of CP Media, LLC, an owner and operator of broadcast
television stations located in Wilkes-Barre, Pennsylvania since April 1,
2007. Previously served as Chief Executive Officer of Kem
Plastic Playing Cards, Inc. (1997-2003).
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79,433(f)
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*
|
|
|
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|
|
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John
F. Whipple, Jr.
Age
54
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2010
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|
Chief
Executive Officer of Buffamante Whipple Buttafaro, P.C., a regional
certified public accounting and business advisory firm with offices in
Olean, Jamestown and Orchard Park, New York.
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69(f)
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*
|
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Brian
R. Ace
Age
55
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2003
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|
Owner
and operator of Laceyville Hardware, a full service home product retail
store in Laceyville, Pennsylvania.
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81,383
(f)
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.25%
|
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|
|
|
|
|
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Paul
M. Cantwell, Jr.
Age
68
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2001
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|
Attorney,
law firm of Cantwell & Cantwell, Malone,
New York; Chair of the Board of the
Company.
|
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168,253
(f)
|
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.51%
|
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|
|
|
|
|
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|
James
W. Gibson, Jr.
Age
63
|
|
2009
|
|
Prior
to retirement in September 2004, partner at the firm of KPMG, LLP in New
York, New York providing accounting, auditing and other related services
to financial institutions and businesses in the New York
area.
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11,793
|
|
*
|
|
|
|
|
|
|
Shares
of Company Common
Stock
Beneficially Owned (c)
as
of March 11, 2010 (d)
|
Name
and
Age
(a)
|
|
Director
of the Company Since |
|
Business
Experience
During
Past
Five Years (b)
|
|
Number
(e)
|
|
Percent
|
|
|
|
|
|
|
|
|
|
Nominees and Directors (for term to expire at
Annual Meeting in 2012)
|
|
Neil
E. Fesette
Age
44
|
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2010
|
|
President
and Chief Executive Officer of Fesette Realty, LLC and Fesette Property
Management in Plattsburgh, New York specializing in residential and
commercial brokerage, property management, and real estate investment,
development and consultation.
|
|
85(f)
|
|
*
|
|
|
|
|
|
|
|
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|
David
C. Patterson
Age
68
|
|
1991
|
|
President
and owner of Wight and Patterson, Inc., manufacturer and seller of
livestock feed in Canton, New York.
|
|
144,972
(f)
|
|
.44%
|
|
|
|
|
|
|
|
|
|
Sally
A. Steele
Age
54
|
|
2003
|
|
Attorney,
general practice with concentration in real estate and elder law,
Tunkhannock, Pennsylvania.
|
|
89,762
(f)
|
|
.27%
|
|
|
|
|
|
|
|
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|
Mark
E. Tryniski
Age
49
|
|
2006
|
|
President
and Chief Executive Officer of the Company. Prior service with
the Company as Executive Vice President and Chief Operating Officer (March
2004 -July 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.
|
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184,780
|
|
.56%
|
|
|
|
|
|
|
|
|
|
James
A. Wilson
Age
64
|
|
2009
|
|
Prior
to retirement in April 2008, principal at the accounting firm of Parente
Randolph, LLC in Wilkes-Barre, Pennsylvania providing accounting, auditing
and other related services to financial and business institutions
throughout Pennsylvania.
|
|
13,293
|
|
*
|
|
|
|
|
|
|
Shares
of Company Common
Stock
Beneficially Owned (c)
as
of March 11, 2010 (d)
|
Name
and
Age
(a)
|
|
|
|
Business
Experience
During
Past
Five Years (b)
|
|
Number
(e)
|
|
Percent
|
The following information summarizes the security ownership of the
named executive officers of the Bank who are not directors:
|
|
|
|
|
|
|
|
Scott
A. Kingsley
Age
45
|
|
Executive
Vice President, Chief Financial Officer. Prior to August 2004,
Vice President and Chief Financial Officer of Carlisle Engineered
Products, Inc.
|
|
83,623
|
|
.25%
|
Brian
D. Donahue
Age
54
|
|
Executive
Vice President and Chief Banking Officer
|
|
106,069
|
|
.32%
|
|
|
|
|
|
|
|
George
J. Getman
Age
53
|
|
Executive
Vice President and General Counsel. Prior to January 2008,
member of Bond, Schoeneck & King, PLLC
|
|
25,243
|
|
*
|
|
|
|
|
|
|
|
J.
David Clark
Age
56
|
|
Senior
Vice President and Chief Credit Officer
|
|
82,600
|
|
.25%
|
|
|
|
|
|
|
|
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 (19 persons)
|
|
2,027,076
|
|
5.98%
|
|
*
|
Represents
less than .25% of the Company’s outstanding
shares.
|
|
(a)
|
No
family relationships exist between any of the named directors or executive
officers of the Company with the exception that Charles E. Parente is the
father of John Parente. Mr. Charles E. Parente will be retiring
from the Board on December 31, 2010 in accordance with the Company’s
mandatory retirement policy.
|
|
(b)
|
Other
than Mr. Tryniski, who has served as a director of CONMED Corporation
since 2007, and Mr. Charles E. Parente, who has served as a director of
W.P. Carey & Co. LLC since 2006, 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 the named individuals possessed sole or shared
voting or investment power as of March 11, 2010. 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. 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 in the section entitled
“Compensation of Directors.” See footnote “(e)” to the Nominees
for Directors and Directors Continuing in Office table for the number of
currently exercisable stock options (including, without limitation, Offset
Options) held by specific
directors.
|
|
(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 4,328 shares jointly with his wife, his
wife holds 121 shares, and 16,957 shares are held in the name of
Laceyville Hardware, of which Mr. Ace is owner; Mr. Bolus holds 36,823
shares jointly with his wife, 5,000 shares as Trustee of the Mark Bolus
Trust, and his children hold 680 shares; Mr. Cantwell’s wife holds
10,450 shares; Mr. Clark holds 6,137 shares with his wife and is the
beneficial owner of 10,859 shares held by the Company’s 401(k) Plan; Mr.
DiCerbo holds 72,843 shares jointly with his wife, 777 shares are held in
his wife’s IRA account, and 106,723 shares are held in the name of the law
partnership of DiCerbo and Palumbo; Mr. Donahue is the beneficial owner of
5,947 shares held by the Company’s 401(k) Plan; Mr. Getman’s wife holds
895 shares and he is the beneficial owner of 792 shares held by the
Company’s 401(k) Plan; Mr. Kingsley is the beneficial owner of 593 shares
held by the Company’s 401(k) Plan; Mr. Mucenski holds 1,589 shares jointly
with his wife and 3,103 shares are held in his 401(k) account; Mr. Charles
E. Parente is the beneficial owner of 21,000 shares held by the C.E.
Parente Trust U/A, his wife holds 3,000 shares, and 348,000 shares are
held by a partnership controlled by Mr. Charles E. Parente; Mr. John
Parente’s children hold 52,500 shares; Mr. Patterson holds 4,160 shares
jointly with his wife, 3,990 shares as Trustee for the Wight and Patterson
Profit Sharing Plan, and his wife holds 179 shares in her IRA account; Ms.
Steele holds 41,570 shares jointly with her husband, 1,520 shares are held
in Ms. Steele’s 401(k) account, and 1,202 shares are held in Ms. Steele’s
simplified employee pension plan; and Mr. Tryniski is the beneficial owner
of 6,474 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 March 11, 2010,
through exercise of stock options issued by the Company: Mr. Ace, 45,470
shares; Mr. Bolus, 0 shares; Mr. Cantwell, 53,095 shares; Mr. Clark,
56,157 shares; Mr. DiCerbo, 89,173 shares; Mr. Donahue, 80,376 shares; Mr.
Fesette, 0 shares; Mr. Gabriel, 93,927 shares; Mr. Getman, 14,402
shares; Mr. Gibson, 9,293 shares; Mr. Kingsley, 71,254 shares; Mr.
Mucenski, 0 shares; Mr. Charles E. Parente, 37,754 shares; Mr. John
Parente, 0 shares; Mr. Patterson, 101,409 shares; Ms. Steele, 45,470
shares; Mr. Tryniski, 140,981 shares; Mr. Whipple, 0 shares; and Mr.
Wilson, 9,293 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 as of
December 31, 2009: Mr. Ace, 14,613 units; Mr. Bolus 2,498
units; Mr. Cantwell, 4,929 units; Mr. DiCerbo, 44,035 units; Mr. Fesette
1,422 units; Mr. Mucenski 1,442 units; Mr. Charles E. Parente, 3,526
units; Mr. John Parente 1,934 units; Mr. Patterson, 14,783 units; Ms.
Steele, 13,593 units; and Mr. Whipple 2,662
units.
|
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,” or 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 13 of the 15
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 standards which conform to, or are more exacting than, the NYSE
independence requirements. 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 $120,000 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 reviews the stated 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 determined that the following
individuals who served as directors during all or part of the last fiscal year
were independent director during such year and continue to be deemed independent
by the Board: Brian R. Ace, Paul M. Cantwell, Jr., James A. Gabriel,
James W. Gibson, Jr., Charles E. Parente, David C. Patterson, Sally A. Steele,
and James A. Wilson. The Board has also determined that Mark J.
Bolus, Neil E. Fesette, Edward S. Mucenski, John Parente, and John F. Whipple,
Jr. are independent directors.
In
reviewing the independence of Paul M. Cantwell, Jr., Neil E. Fesette, James A.
Gabriel, and Sally A. Steele, the Board considered the transactions described in
the section entitled “Transactions with Related Persons.” The Board
determined that the disclosed transactions were at market terms and pricing,
consistent with the best interests of the Company and, based on the nature of
the transactions, would not interfere with the exercise of such director’s
independent judgment.
Board Leadership
Structure
The
Company’s long-standing policy is to have an outside independent director serve
as Chair of the Board and preside over all meetings of the Board, ensuring a
separation in the position of Chair of the Board and Chief Executive
Officer. The Chair of the Board also serves as a non-voting ex
officio member of Board Committees, except for the Audit Committee, for purposes
of enhancing coordination of Board oversight and communication with
management. Similar to the Committee Chair positions, Chair of the
Board is subject to a four year term limit providing for continuous development
of strong and independent leadership qualities on the Board.
Executive
Sessions
Pursuant
to the Company’s Corporate Governance Guidelines, the independent directors meet
in executive sessions during Board and Committee meetings as appropriate,
without the Company’s management and non-independent directors present, to
facilitate full discussion of important matters. 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 in the Audit Committee Report contained in this Proxy Statement, 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 2009, and
its present members are Directors Charles E. Parente (Chair), Brian R. Ace,
James W. Gibson, Jr., and James A. Wilson.
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 in the section
entitled “Compensation of Executive Officers,” 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 five meetings in 2009,
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 will consider written recommendations from Shareholders for
nominees to serve on the Board that are sent to the Secretary of the Company at
the Company’s main office. The Nominating and Corporate Governance
Committee held two meetings in 2009, and its present members are Directors Sally
A. Steele (Chair), James A. Gabriel, and David C. Patterson. 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 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
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.
Qualification of
Directors
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 and relevant
experience; integrity; sound and independent judgment; experience and knowledge
of the business environment and markets in which the Company operates; business
acumen; and willingness to devote adequate time to Board duties. The
Nominating and Corporate Governance Committee considers diversity, but does not
have a specific policy, in the context of the Board as a whole including
personal characteristics, experience and background of directors and nominees to
facilitate Board deliberations that reflect a broad range of
perspectives. The Board believes that each director should have an
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
composition of the Board as a whole.
In
selecting directors and nominees to serve on the Company’s Board, the Nominating
and Corporate Governance Committee considered each individual’s business
experience set forth in the table starting on page 3 and the foregoing
qualifications. In addition, the Nominating and Corporate Governance
Committee considered each individual’s experience and knowledge of the banking
and financial services industry, knowledge of and standing in key geographic
markets in which the Company operates, experience and knowledge with the
organization, business model and strategic plans related to the Company’s
success, independence in judgment and regulatory standards, special skills
relevant to overall composition of the Board, including financial and accounting
expertise, service with public companies, and experience in real estate and
commercial finance. The Nominating and Corporate Governance Committee
and the Board believe that each director and nominee brings his or her own
particular expertise, knowledge and experience that provides the Board as a
whole with the appropriate mix of skills, characteristics and attributes to work
together and fulfill the Board’s oversight responsibilities to the Company’s
shareholders.
The
Company’s Bylaws and Corporate Governance Guidelines provide for (i) a mandatory
retirement age of 70, (ii) advance notice prior to serving on another public
company board, and (iii) review of continued board membership in the event of a
significant change in the responsibilities or job position of a
director.
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
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 are required to retain shares
received from stock option exercises or other equity awards, net of taxes, until
they have satisfied the equity ownership requirements. 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.
The Board
has also 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 equal in value to the lesser of
$125,000 or 10,000 shares within six years of becoming a
director. Under the guidelines, the qualifying share equivalent units
consist of at risk units resulting from directors’ deferment of cash director
fees under the deferred compensation plan. In addition, new directors
are required to acquire at least 2,000 shares within one year of joining the
Board. All directors are in compliance with the requirements of the
stock ownership guidelines or are anticipated to achieve the ownership
requirements within the required time period.
Board’s Role in Risk
Oversight
The
Company’s Board performs its risk oversight function in several
ways. The Board establishes standards for risk management by
approving policies that address and mitigate material risks. This
includes policies addressing credit risk, interest rate risk, investment risks,
liquidity risks, operational risks, strategic risks and compliance/legal risks,
among other matters. The Board also reviews and monitors enterprise
risks through various reports presented by management, internal and external
auditors and regulatory examiners.
The Board
conducts certain risk oversight activities through its committees which oversees
specific areas. The Audit Committee risk oversight functions include:
approving and reviewing the engagements and periodic reports of the Company’s
independent auditor and internal audit department; reviewing periodic reports on
risks related to bank compliance, information technology, credit review,
security, Sarbanes-Oxley compliance, enterprise risk management, and reviewing
our corporate insurance program annually. The Compensation Committee reviews and
considers risks related to the Company’s compensation policies, including
incentive plans to determine whether these plans subject the Company to
unnecessary or excessive risks. The Nominating and Corporate
Governance Committee considers only director candidates with appropriate
experience and temperament and continues to ensure appropriate corporate
governance policies are in place. Finally, the Bank’s Loan/ALCO
Committee oversees and reviews periodic reports from management on lending
activities, asset quality and the investment portfolio.
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
$2,500. The Company pays the travel expenses incurred by each
director in attending meetings of the Board.
The
Company does not make payments (or have any outstanding commitments to make
payments) to director legacy programs or similar charitable award
programs. The following table summarizes the annual compensation paid
to each non-employee director for his or her service to the Board and its
committees in 2009.
DIRECTOR
COMPENSATION
Name
(1)
|
Fees
Earned or Paid in Cash ($)
|
Option
Awards ($) (2)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($) (3)
|
Total
($)
|
Brian
R. Ace
|
$63,000
|
$22,304
|
$1,003
|
$86,307
|
Paul
M. Cantwell, Jr.
|
$76,250
|
$22,304
|
$6,353
|
$104,907
|
Nicholas
A. DiCerbo
|
$57,250
|
$22,304
|
$2,950
|
$82,504
|
James
A. Gabriel
|
$63,000
|
$22,304
|
$3,592
|
$88,896
|
James
W. Gibson, Jr.
|
$44,250
|
$22,304
|
−
|
$66,554
|
Charles
E. Parente
|
$60,000
|
$22,304
|
$3,362
|
$85,666
|
David
C. Patterson
|
$62,750
|
$22,304
|
$5,448
|
$90,502
|
Sally
A. Steele
|
$56,500
|
$22,304
|
$945
|
$79,749
|
James
A. Wilson
|
$46,750
|
$22,304
|
−
|
$69,054
|
(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.
|
(2)
|
The
amounts in this column reflect the aggregate grant date fair value
computed in accordance with FASB ASC Topic 718 of each equity award
granted in 2009 pursuant to the Company’s 2004 Long-Term Incentive
Compensation Program. The options vest immediately upon grant
and the exercise price is $18.08. As of December 31, 2009, each
Director had the following number of options outstanding: Mr.
Ace 45,399; Mr. Cantwell 48,624; Mr. DiCerbo 103,942; Mr. Gabriel 98,696;
Mr. Gibson 4,822; Mr. Charles E. Parente 33,283; Mr. Patterson 96,938; Ms.
Steele 40,999; and Mr. Wilson
4,822.
|
(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 under the section entitled “Compensation of Directors.” The
Board, upon recommendation of the Compensation Committee, took action to
freeze benefits under this plan effective December 31, 2009. 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.
|
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,
2009: Mr. Ace, 14,613 units; Mr. Cantwell, 4,929 units; Mr. DiCerbo, 44,035
units; Mr. Charles E. Parente, 3,526 units; Mr. Patterson, 14,783 units; and Ms.
Steele, 13,593 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 nonemployee director is eligible to receive a stock
option grant 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 4,822 shares on January 29,
2009.
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 does not vest until completion of 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 were 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. The Board upon the recommendation of the Compensation Committee
has frozen benefits under the Stock Balance Plan as of December 31,
2009.
Transactions With Related
Persons
Various
directors, executive officers and other related persons 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
persons 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, 2009, 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 2009 and for related out-of-pocket disbursements, the law firm
of DiCerbo & Palumbo received approximately $241,876 from the Bank for
transactional and specialized commercial legal services and related loan
closings with customers of the Bank. During 2009, the firms of
Franklin & Gabriel, Cantwell & Cantwell, and Sally A. Steele each
received less than $100,000 from the Bank for services related to loan closings
in the relevant market area. In 2009, in connection with a
pre-existing arrangement, the Bank purchased advertising space from a company
affiliated with Neil E. Fesette in a total amount of $15,125. No
advisory services were provided in connection with the purchase of this
advertising. These relationships are expected to continue in 2010
subject to review of such relationships in accordance with the Company’s related
person transaction policy. 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. All of the
related person transactions with the named directors were reviewed and approved
by the Audit Committee after the Audit Committee determined that the
transactions were performed at market terms and pricing and were consistent with
the best interests of the Company.
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
persons. 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 persons 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 2009. There were
no Compensation Committee interlocks or insider (employee) participation during
2009.
Director Meeting
Attendance
The Board
of Directors held five regularly scheduled meetings and four special meetings
during the fiscal year ended December 31, 2009. 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 current directors attended the
Company’s last Annual Meeting of Shareholders held on May 20, 2009.
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
(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 to the Compensation Committee. At 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 firm of Pearl Meyer &
Partners in 2009 to assist the Compensation Committee by:
·
|
Providing
peer group data and input on executive officer
compensation;
|
·
|
making
recommendations to better correlate pay and performance for executive
officer compensation;
|
·
|
providing
peer group data and making general recommendations regarding director
compensation; and
|
·
|
providing
input on the design of long-term equity-based incentives and programs for
executive officers and management which avoid any material
risks.
|
The
Company has not utilized any compensation consultants which were engaged by the
Compensation Committee for additional or ancillary services. 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 which considers and avoids risks associated with incentive
performance criteria by balancing performance goals and quality and
sustainability of long-term earnings growth of the Company; 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. The Compensation Committee may consider various industry
surveys including the ABA Executive Compensation Standard Report, the NYBA
Compensation Standard Report, the Pennsylvania Bankers Association, and the
World at Work Compensation Standard Report to confirm the appropriateness of
overall compensation levels and the components of compensation for
executives. However, the compensation of our executive officers is
not tied to any specific targets or benchmarks at peer companies except as set
forth below.
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.
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 progress
is assessed on a continuing basis over the course of the year.
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’s business model is to provide products of a more comprehensive and
advanced nature than those offered by smaller financial 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
2009. Under the incentive plan in effect for 2008, the Company’s
achievement of specified earnings performance criteria, among other criteria,
triggered the payment (in 2009) 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 typically 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 specific business
objectives, including rewarding performance in start-up and turnaround
assignments and recognizing extraordinary service in consummating
acquisitions. The Company imposes both time and performance criteria
in the vesting conditions for stock options and restricted shares to better
correlate equity compensation with the long-term performance of the
Company.
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
2009.
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
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 58 percent of Messrs. Tryniski’s, Kingsley’s, Donahue’s, Getman’s
and Clark’s 2009 compensation (base salary, annual bonus, and equity award) is
attributable to base salary and approximately 42 percent is attributable to
performance-based incentive compensation (consisting of annual bonus and equity
awards).
It is the
Company’s policy to not 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).
As part
of an initiative to reduce operating costs, the Company will not be increasing
the base salaries for senior management and the named executive officers for
fiscal year 2010. In January 2009, the Compensation Committee
approved base salary increases for Messrs. Tryniski, Kingsley,
Donahue, Getman, and Clark in the range of 3-5 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 2008
evaluation period, (iii) satisfaction of individual performance goals, and (iv)
the named executive’s responsibilities and duties.
Please
see the Summary Compensation Table and the accompanying narrative disclosures
for more information regarding the base salaries of the named
executives.
Annual Bonus pursuant to the
Management Incentive Plan
The
awards of annual incentive bonuses are not based on a rigid mathematical
formula. Rather, the Compensation Committee retains significant
discretion in determining incentive bonuses to be paid based on many factors,
including the Committee’s assessment of the Company’s performance, management’s
overall performance as a group, and other individual
contributions. The Compensation Committee also takes into account
management’s performance in addressing unanticipated matters, general economic
conditions, and any other factors the Committee deems relevant.
A
principal factor in the Compensation Committee’s evaluation of performance is a
review of the achievement of the pre-determined annual corporate
goals. The goals are intended to focus management’s priorities in the
operation of the Company but are not intended to be the only element in the
Committee’s determination of incentive bonuses. Accordingly, the
compensation of each executive officer is based in part on the assessment of the
achievement of these corporate goals and in part on the subjective assessment of
other factors the Compensation Committee determines relevant at the end of each
year.
At the
beginning of each calendar year, the Compensation Committee establishes annual
corporate performance goals. Corporate goals are proposed by senior
management, reviewed and approved by the Committee and also approved by the
Board of Directors on an annual basis. The Committee considers and
assigns a relative weight to appropriately focus efforts on corporate goals that
are intended to enhance shareholder value. In December 2008, prior to
approving payment of the incentive bonuses in 2009, the Committee evaluated the
Company’s performance by assessing if, and the extent to which, the Company
achieved or failed to achieve the corporate goals approved by the Board of
Directors for 2008. Based on its’ assessment of performance in achieving the
pre-determined goals and other factors deemed to be relevant, the Committee
determined that the Company’s performance exceeded the approved corporate
goals.
The
Company’s corporate goals for payments made under the 2008 MIP paid in 2009 and
the level at which the Compensation Committee determined they were achieved are
as follows:
|
Corporate
Goal
|
Relative
Weight
|
2008
Achievement
|
(1)
|
Improvement
in earnings per share above prior year
|
30%
|
100%
|
(2)
|
Improvement
in operational objectives in commercial lending, including improved
efficiencies in lending process, development of lender personnel and
growth in production objectives
|
15%
|
100%
|
(3)
|
Improvement
in regional operating objectives including commercial loans, growth and
related deposits
|
15%
|
150%
|
(4)
|
Maintenance
of asset quality metrics
|
10%
|
150%
|
(5)
|
Achievement
of goals for organic growth in loans, deposits and non-interest
income
|
15%
|
150%
|
(6)
|
Achievement
of earnings goals for wealth management and benefit administration
business
|
15%
|
33.3%
|
|
Totals
|
100%
|
110%
|
In order
to better focus the Company’s priorities, full achievement of corporate goals
are typically set by the Compensation Committee at a level that is satisfied
only as a result of superior performance (i.e., stretch goals). The
Compensation Committee takes this factor into account in determining annual
incentive bonuses. 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. The performance levels achieved for the 2009 MIP plan
year, to be paid in 2010, were below target level by 25% resulting in the actual
awards for the 2009 plan year being approximately 75% of the target
amounts.
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
the Compensation Committee determines equity-based awards under the Company’s
2004 Long-Term Incentive Compensation Program. For the last several
years, the Company has 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 stock options and half
is in the form of restricted stock. The remaining 34 percent of
available equity compensation has been granted in the form of performance stock
option awards which have a three-year vesting schedule tied to the satisfaction
of long-term goals over that three year period.
The
Compensation Committee established performance measures on which the vesting of
the performance stock options awards were based for the three-year period
starting January 1, 2007 and ending December 31, 2009. The
performance measures for the long-term performance stock options awards consist
of: (i) earnings per share growth relative to a Regional Peer Bank Group
average, (ii) growth in total assets to $5.4 billion, and (iii) total
shareholder returns relative to a Regional Peer Bank Group
average. The earnings per share factor will be weighted at 70% and
each of the other factors will be weighted at 15%. The Committee
believed that use of these performance measures correlate to the performance of
the Company’s core business and long-term sustainable
growth. Superior performance under these measures over the three-year
measurement period will ultimately benefit Company shareholders through
increased profits, dividends and share value.
The
Committee has also established threshold, target and maximum levels of
performance for each of the measures and determined that 50% of the target level
long-term incentive award would vest for threshold level performance, 100% of
long-term incentive award would vest for target level performance, and 200% of
the target level long-term incentive award would vest for performance at or
above the maximum level. The Regional Peer Bank Group used in the
earnings per share and total shareholder return measures is comprised of 14
banks in markets comparable to the Company in New York State and Pennsylvania
including NBT Bancorp Inc., Tompkins Financial Corp., TrustCo Bank Corp. NY,
First Niagara Financial Group, Inc., Susquehanna Bancshares, Inc., Arrow
Financial Corp., Alliance Financial Corp., Financial Institutions, Inc., S &
T Bancorp, Inc., FNB Corp., Citizens & Northern, Corp., Harleysville
National Corp., National Penn Bancshares, Inc., and First Commonwealth Financial
Corp.
The
following table shows the threshold, target and maximum performance levels for
each of the performance measures.
Performance
Levels Established by the Compensation Committee
|
Performance
Measure
|
Threshold
|
Target
|
Maximum
|
|
|
|
|
|
(i)
|
Earnings
per share
(70%
weight)
|
90%
of Peer Group Average
|
100%
of Peer Group Average
|
110%
of Peer Group Average
|
(ii)
|
Growth
in total assets
(15%
weight)
|
$5.0
billion
|
$5.4
billion
|
$5.8
billion
|
|
|
|
|
|
(iii)
|
Total
shareholder returns
(15%
weight)
|
90%
of Peer Group Average
|
100%
of Peer Group Average
|
110%
of Peer Group Average
|
After
reviewing final performance measures, the Compensation Committee determined that
overall achievement of the objectives was 185% of the maximum target level
amount. The FASB ASC Topic 718 fair values for grants issued under
the 2004 Long-Term Incentive Compensation Program are set forth under the column
titled “Option Awards” on the Summary Compensation Table.
The
Compensation Committee recognizes that no set of performance goals can
anticipate every situation and the 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 levels for 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.
·
|
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 $8,500 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.” 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.”
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.” 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 under the section
entitled “Employment Agreements.” Such change in control provisions
all 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, 2009.
Brian R. Ace,
Chair
James A.
Gabriel
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, 2009, 2008 and 2007. 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
under the section entitled “Employment Agreements.”
SUMMARY
COMPENSATION TABLE
for
Fiscal
Years End December 31, 2009, 2008 and 2007
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
|
2009
|
$471,700
|
$74,399
|
$275,501
|
$242,551
|
$217,307
|
$45,679
|
$1,327,137
|
2008
|
$441,002
|
$69,339
|
$69,335
|
$223,600
|
$240,355
|
$44,494
|
$1,088,125
|
2007
|
$416,000
|
$65,356
|
$243,193
|
$160,000
|
$89,888
|
$28,446
|
$1,002,883
|
Scott
A. Kingsley
Executive
Vice President and Chief Financial Officer
|
2009
|
$332,310
|
$28,512
|
$112,881
|
$110,000
|
$74,110
|
$32,089
|
$689,902
|
2008
|
$309,915
|
$29,107
|
$29,098
|
$94,000
|
$45,145
|
$29,798
|
$537,063
|
2007
|
$291,000
|
$27,436
|
$102,067
|
$67,152
|
$33,270
|
$29,782
|
$550,707
|
Brian
D. Donahue
Executive
Vice President and Chief Banking Officer
|
2009
|
$273,122
|
$23,468
|
$95,227
|
$84,158
|
$149,611
|
$27,096
|
$652,682
|
2008
|
$255,024
|
$24,639
|
$24,642
|
$79,500
|
$80,201
|
$25,142
|
$489,148
|
2007
|
$246,400
|
$23,330
|
$86,834
|
$64,452
|
$40,549
|
$19,600
|
$481,165
|
George
J. Getman, Executive Vice President and General Counsel
(6)
|
2009
|
$327,115
|
$41,403
|
$102,023
|
$99,000
|
$48,942
|
$19,446
|
$637,929
|
2008
|
$294,231
|
$99,350
|
$0
|
$0
|
$28,491
|
$8,419
|
$430,491
|
J.
David Clark
Senior
Vice President and Chief Credit Officer
|
2009
|
$212,197
|
$15,205
|
$61,963
|
$58,000
|
$101,972
|
$28,006
|
$477,343
|
2008
|
$198,387
|
$16,046
|
$16,049
|
$51,765
|
$30,336
|
$25,025
|
$337,608
|
2007
|
$192,608
|
$15,209
|
$56,574
|
$49,320
|
$30,732
|
$22,858
|
$367,301
|
(1)
|
The
amounts in this column reflect the aggregate grant date fair value of
restricted stock awards issued in 2009 pursuant to the Company’s 2004
Long-Term Incentive Compensation Program computed in accordance with FASB
ASC Topic 718. 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, 2009 included in the Company’s Annual Report on
Form 10-K filed with the Securities and Exchange Commission on March 11,
2010.
|
(2)
|
The
amounts in this column reflect the aggregate grant date fair value of
stock option awards in 2009 pursuant to the Company’s 2004 Long-Term
Incentive Compensation Program computed in accordance with FASB ASC Topic
718. 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, 2009 included in the
Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 11,
2010.
|
(3)
|
For
all named executives, the amounts shown in this column reflect payments
received in the named year for performance in the prior year 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 2008, 2007 and 2006 plan year
(paid in 2009, 2008 and 2007) were approximately 110%, 108% and 82% 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, 2009, December 31, 2008, and December 31, 2007 are, respectively,
$178,272, $206,366, and $68,108 for Mr. Tryniski; $38,554, $16,728,
and $16,466 for Mr. Kingsley; $79,306, $48,885, and $32,017 for Mr.
Donahue; and $11,255 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, 2009, December 31, 2008 and December 31, 2007 are,
respectively, $39,035, $33,989, and $21,780 for Mr. Tryniski; $35,556,
$28,417, and $16,804 for Mr. Kingsley; $70,305, $31,316, and $8,532 for
Mr. Donahue; $37,687, $0 and $0 for Mr. Getman; and $101,972, $30,336, and
$30,732 for Mr. Clark.
|
(5)
|
The
amounts in this column include: (a) the reportable value of the
personal use of Company-owned vehicles amounting to $8,690 for Mr.
Tryniski; $5,013 for Mr. Kingsley; $4,703 for Mr. Donahue; and $6,934
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
$467, $467, $717, $717, and $1,340, in 2009, respectively; (c) the
Company’s contributions to the 401(k) Employee Stock Ownership Plan, a
defined contribution plan, amounting to $8,575 for Mr. Tryniski and Mr.
Donahue and $6,430, $7,523 and $8,061 for Mr. Kingsley, Mr. Getman, and
Mr. Clark, respectively; (d) the Company’s contributions under the
Company’s Deferred Compensation Plan, amounting to $19,805 for Mr.
Tryniski; $12,037 for Mr. Kingsley; $9,969 for Mr. Donahue; $8,884 for Mr.
Getman; and $7,455 for Mr. Clark in 2009; and (e) the Company’s payment
for country and/or social club memberships amounting to $8,142 for Mr.
Tryniski and Mr. Kingsley; $3,132 for Mr. Donahue; $2,322 for Mr. Getman;
and $4,216 for Mr. Clark. The Company does not maintain any
“split-dollar” arrangements for the named executive
officers.
|
(6)
|
Mr.
Getman joined the Company as Executive Vice President and General Counsel
on January 1, 2008. As a result, he was not eligible for
equity and non-equity incentive compensation awards made in connection
with 2007 performance objectives and paid in
2008.
|
The
following Grants of Plan-Based Awards table provides information about equity
and non-equity incentive plan awards granted to the named executives in
connection with the year ended December 31, 2009. All equity awards
are made under the terms of the Company’s 2004 Long-Term Incentive Compensation
Program and the non-equity awards are made under the terms of the Company’s
Management Incentive Plan (“MIP”). The MIP awards and the equity
awards were subject to the satisfaction of 2009 performance objectives and were
paid or granted in 2010.
GRANTS
OF PLAN-BASED AWARDS
Name
|
Grant
Date
|
Potential
Estimated
Future
Payouts Under Non-Equity Incentive Plan Awards (1)
|
Potential
Estimated Future Payouts Under Equity Incentive Plan
Awards
|
Exercise
or base price of options awards
|
Grant
date fair value of stock and option awards
|
Target
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
Mark
E. Tryniski
|
|
$227,115
|
|
|
|
|
|
1/20/10
|
|
|
17,360
(2)
|
|
$19.48
|
$96,562
|
1/20/10
|
|
|
4,928
(3)
|
|
|
$95,997
|
1/20/10
|
|
0
|
9,857(4)
|
19,713
|
|
$192,015
|
Scott
A. Kingsley
|
|
$96,001
|
|
|
|
|
|
1/20/10
|
|
|
6,671
(2)
|
|
$19.48
|
$37,106
|
1/20/10
|
|
|
1,894
(3)
|
|
|
$36,895
|
1/20/10
|
|
0
|
3,788
(4)
|
7,575
|
|
$73,791
|
Brian
D. Donahue
|
|
$78,902
|
|
|
|
|
|
1/20/10
|
|
|
5,483
(2)
|
|
$19.48
|
$30,498
|
1/20/10
|
|
|
1,556
(3)
|
|
|
$30,311
|
1/20/10
|
|
0
|
3,113
(4)
|
6,226
|
|
$60,641
|
George
J. Getman
|
|
$94,500
|
|
|
|
|
|
1/20/10
|
|
|
6,567
(2)
|
|
$19.48
|
$36,528
|
1/20/10
|
|
|
1,864
(3)
|
|
|
$36,311
|
1/20/10
|
|
0
|
3,728
(4)
|
7,456
|
|
$72,621
|
J.
David Clark
|
|
$51,085
|
|
|
|
|
|
1/20/10
|
|
|
3,550
(2)
|
|
$19.48
|
$19,746
|
1/20/10
|
|
|
1,008
(3)
|
|
|
$19,636
|
1/20/10
|
|
0
|
2,016
(4)
|
4,031
|
|
$39,272
|
(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 actual
awards for the 2009 plan year (paid in 2010) were approximately 75% of the
target amount set forth in this table due to the performance levels
achieved for 2009 being below target by 25%. The MIP awards
could be increased based upon extraordinary performance and reduced for
less than adequate performance based upon the Corporate Goals described
under the section entitled “Annual Bonus pursuant to the Management
Incentive Plan” and personal performance. The MIP awards paid
to the named executives in 2009 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 2008 MIP performance
objectives.
|
(2)
|
The
stock options are granted pursuant to the 2004 Long-Term Incentive
Compensation Program. The options are subject to time vesting
requirements. The options become
exercisable over the course of five years, with one-fifth of the options
becoming exercisable on January 20, 2011, 2012, 2013, 2014, and
2015. 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 and are subject to forfeiture upon termination of
employment for any reason. 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 are subject to
forfeiture and may not be sold, exchanged or otherwise
transferred.
|
(4)
|
The
shares of performance restricted stock are granted pursuant to the 2004
Long-Term Incentive Compensation Program. This long-term equity
award has a three-year vesting scheduled tied to the satisfaction of
long-term performance goals over that three year period. 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. Depending upon the achievement level of the
three-year long-term performance goals as determined by the Board at
December 31, 2012, the named executive officers may receive the maximum,
target or no shares from this
award.
|
The
following table summarizes the equity awards the Company has made to the named
executives which are outstanding as of December 31, 2009.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
Option
Awards (1)
|
Stock
Awards (1)
|
Name
|
Number
of Securities Underlying Unexercised Options
(#)
Exercisable
(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
14,676
10,139
9,142
4,444
3,114
0
0
|
0
0
2,535
6,096
40,000
12,460
16,323
41,949
|
$18.95
$24.15
$24.84
$23.74
$22.94
$18.09
$18.08
$17.82
|
6/2/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
1/29/2019
4/22/2019
|
8,892
|
$171,705
|
Scott
A. Kingsley
|
15,000
8,111
7,466
1,865
1,307
0
0
|
0
2,028
4,978
16,788
5,229
6,257
17,606
|
$22.53
$24.84
$23.74
$22.94
$18.09
$18.08
$17.82
|
8/2/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
1/29/2019
4/22/2019
|
3,583
|
$69,188
|
Brian
D. Donahue
|
9,844
8,954
10,298
9,078
8,111
7,009
1,586
1,107
0
0
|
0
0
0
0
2,028
4,673
14,283
4,428
5,149
14,978
|
$12.38
$13.10
$15.68
$24.15
$24.84
$23.74
$22.94
$18.09
$18.08
$17.82
|
1/1/2011
1/1/2012
1/1/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
1/29/2019
4/22/2019
|
2,999
|
$57,911
|
George
J. Getman
|
0
0
|
9,085
12,585
|
$18.08
$17.82
|
1/29/2019
4/22/2019
|
5,623
|
$108,580
|
J.
David Clark
|
5,514
7,570
8,528
7,516
5,096
4,622
1,034
721
0
0
|
0
0
0
0
1,275
3,082
9,305
2,884
3,338
9,758
|
$12.38
$13.10
$15.68
$24.15
$24.84
$23.74
$22.94
$18.09
$18.08
$17.82
|
1/1/2011
1/1/2012
1/1/2013
1/21/2014
1/19/2015
1/18/2016
1/17/2017
1/16/2018
1/29/2019
4/22/2019
|
1,949
|
$37,635
|
|
(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,
January 16, 2008, and January 29, 2009, 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, 2009 of $19.31 per share, as reported on the New York Stock
Exchange.
|
The
following Option Exercises and Stock Vested table provides additional
information about the value realized to the named executives on option awards
exercised and stock awards vested during the year ended December 31,
2009.
OPTION
EXERCISES AND STOCK VESTED
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Shares
Acquired
on Exercise
(#)
|
Value
Realized on Exercise
($)
(1)
|
Number
of Shares
Acquired
on Vesting
(#)
|
Value
Realized on Vesting
($)
(2)
|
Mark
E. Tryniski
|
0
|
$0
|
1,905
|
$46,463
|
Scott
A. Kingsley
|
0
|
$0
|
799
|
$19,488
|
Brian
D. Donahue
|
6,856
|
$65,705
|
678
|
$16,536
|
George
J. Getman
|
0
|
$0
|
1,667
|
$40,658
|
J.
David Clark
|
4,272
|
$34,394
|
442
|
$10,780
|
(1)
|
The
value realized equals the fair market value of the shares on the date of
exercise less the exercise price.
|
(2)
|
The
value realized on the restricted stock is the fair market value on the
date of vesting.
|
RETIREMENT
PLAN BENEFITS
The table
below shows the present value of accumulated benefits payable to the named
executives, including the number of years of service credited to each named
executive, under the Pension Plan and named executives’ individual supplemental
retirement agreements. Such amounts were determined by using the
interest rate and mortality rate assumptions consistent with those used in the
Company’s financial statements.
PENSION
BENEFITS
Name
|
Plan
Name
|
Number
of Years Credited Service
(#)
|
Present
Value of Accumulated Benefit
($)
|
Payments
During Last Fiscal Year
($)
|
Mark
E. Tryniski
|
Community
Bank System, Inc. Pension Plan
|
7
|
$243,649
|
$0
|
Supplemental
Executive Retirement Agreement
|
7
|
$504,650
|
$0
|
Scott
A. Kingsley
|
Community
Bank System, Inc. Pension Plan
|
5
|
$138,567
|
$0
|
Supplemental
Executive Retirement Agreement
|
5
|
$86,204
|
$0
|
Brian
D. Donahue
|
Community
Bank System, Inc. Pension Plan
|
18
|
$350,236
|
$0
|
Supplemental
Executive Retirement Agreement
|
18
|
$248,463
|
$0
|
George
J. Getman
|
Community
Bank System, Inc. Pension Plan
|
2
|
$37,687
|
$0
|
Supplemental
Executive Retirement Agreement
|
2
|
$39,746
|
$0
|
J.
David Clark
|
Community
Bank System, Inc. Pension Plan
|
17
|
$397,422
|
$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 years of
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 up to a maximum of 20 years, times
(iii) his final average compensation. The SERP benefit is then
reduced by Mr. Tryniski’s other Company-provided retirement
benefits. If Mr. Tryniski’s employment is terminated without cause in
connection with a change in control or (subject to required notices to the
Company and opportunities to cure by the Company) if Mr. Tryniski resigns within
two years of a change in control based upon an involuntary and material adverse
change in his authority, duties, responsibilities, or base compensation, or the
geographic location of his assignment, the Company will treat Mr. Tryniski as
vested with five additional years of service in the SERP benefit. The
Company has determined that this benefit, which is subject to the 20-year
maximum and is applicable only if the double trigger change of control events
occur, is a reasonable and appropriate benefit in the context of the executive’s
entire benefit package and the level of retirement benefits which may be earned
over the course of the executive’s career. 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.
Scott A.
Kingsley. Under Mr. Kingsley’s SERP, the Company has agreed to
provide Mr. Kingsley with an annual retirement benefit equal to the product of
(i) 2.5%, times (ii) Mr. Kingsley’s years of service up to a maximum of 20
years, times (iii) his final average compensation. This benefit is
then reduced by other retirement benefits provided to Mr. Kingsley under the
Company’s Pension Plan. Mr. Kingsley will be entitled to the
foregoing SERP benefit (i.e., will become “vested”) only upon his satisfactory,
continuous and full time service in a senior executive capacity through March
31, 2014. If Mr. Kingsley fails to meet the vesting requirements, he
will be entitled to benefits which are 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. If Mr. Kingsley’s
employment is terminated without cause in connection with a change in control or
(subject to required notices to the Company and opportunities to cure by the
Company) if Mr. Kingsley resigns within two years of a change in control based
upon an involuntary and material adverse change in his authority, duties,
responsibilities, or base compensation, or the geographic location of his
assignment, the Company will treat Mr. Kingsley as vested with five additional
years of service in the SERP benefit. The Company has determined that
this benefit, which is subject to the 20-year maximum and is applicable only if
the double trigger change of control events occur, is a reasonable and
appropriate benefit in the context of the executive’s entire benefit package and
the level of retirement benefits which may be earned over the course of the
executive’s career. Mr. Kingsley’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. Kingsley elects payment in another equivalent life annuity form, the benefit
is payable in the form of a single life annuity for Mr. Kingsley’s
life.
Brian D. Donahue and George
J. Getman. Under the SERP agreements for Messrs. 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. 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
|
$19,805
|
$48,321
|
0
|
$135,937
|
Scott A.
Kingsley
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$20,800
|
$12,037
|
$35,246
|
0
|
$146,347
|
Brian
D. Donahue
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$13,650
|
$9,969
|
($10,594)
|
0
|
$49,593
|
George
J. Getman
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$29,800
|
$8,884
|
$2,343
|
0
|
$41,027
|
J.
David Clark
|
Community
Bank System, Inc. Deferred Compensation Plan
|
$11,900
|
$7,455
|
($3,640)
|
0
|
$63,506
|
(1)
|
The
amount in this column was also reported as “Salary” in the Summary
Compensation Table.
|
(2)
|
The
amount in this column was also reported in the column entitled “All Other
Compensation” in the Summary Compensation
Table.
|
Potential Payment on
Termination or Change in Control
The
Company has entered into employment agreements that provide severance benefits
to the named executives. Under the terms of the respective named
executive’s agreement, the executives are entitled to post-termination payments
in the event that they are no longer employed by the Company because of death,
disability, involuntary retirement or a change in control. The
triggers for post-termination payments under the respective employment
agreements are set forth in the descriptions of such agreements under the
section entitled “Employment Agreements.” Payments under the
employment agreement may be made in a lump sum or in installments. In
addition to the employment agreements, the SERP agreements provide for
post-termination benefits (notwithstanding the retirement benefits intended to
be conferred in the SERP agreements) in certain situations in the event of
death, disability and a change in control.
The
following table describes the potential payments and benefits under the
Company’s compensation and benefit plans and arrangements to which the named
executives would be entitled upon termination of employment, assuming a December
31, 2009 termination date.
|
Expected
Post-Termination Payments ($)
|
Incremental
pension benefit (present value) ($) (1)
|
Continuation
of Medical/Welfare Benefits
(present
value) ($)
|
Acceleration
and Continuation of Equity Awards (unamortized as of 12/31/09) ($)
(2)
|
Total
Termination Benefits ($) (3)
|
Mark
E. Tryniski
|
|
|
|
|
|
· Death
|
$113,558
|
$0
|
$0
|
$316,239
|
$429,797
|
· Disability
|
227,115
|
0
|
0
|
316,239
|
543,354
|
· Involuntary
termination without cause
|
1,553,467
|
0
|
0
|
316,239
|
1,869,706
|
· Involuntary
or good reason termination after CIC
|
2,090,343
|
867,760
|
34,674
|
316,239
|
3,309,016
|
Scott
A. Kingsley
|
|
|
|
|
|
· Death
|
$80,001
|
$0
|
$0
|
$123,655
|
$203,656
|
· Disability
|
160,002
|
0
|
0
|
123,655
|
283,657
|
· Involuntary
termination without cause
|
488,005
|
0
|
0
|
123,655
|
611,660
|
· Involuntary
or good reason termination after CIC
|
1,290,009
|
51,557
|
34,271
|
123,655
|
1,499,492
|
Brian
D. Donahue
|
|
|
|
|
|
· Death
|
$65,752
|
$0
|
$0
|
$105,297
|
$171,049
|
· Disability
|
131,503
|
0
|
0
|
105,297
|
236,800
|
· Involuntary
termination without cause
|
1,115,979
|
0
|
0
|
105,297
|
1,221,276
|
· Involuntary
or good reason termination after CIC
|
1,041,492
|
86,003
|
33,613
|
105,297
|
1,266,405
|
George
J. Getman
|
|
|
|
|
|
· Death
|
$78,750
|
$0
|
$0
|
$100,950
|
$179,700
|
· Disability
|
157,500
|
0
|
0
|
100,950
|
258,450
|
· Involuntary
termination without cause
|
480,375
|
0
|
0
|
100,950
|
581,325
|
· Involuntary
or good reason termination after CIC
|
1,242,000
|
51,557
|
3,033
|
100,950
|
1,397,540
|
J.
David Clark
|
|
|
|
|
|
· Death
|
$51,085
|
$0
|
$0
|
$68,544
|
$119,629
|
· Disability
|
102,169
|
0
|
0
|
68,544
|
170,713
|
· Involuntary
termination without cause
|
262,338
|
0
|
0
|
68,544
|
330,882
|
· Involuntary
or good reason termination after CIC
|
787,014
|
91,617
|
33,261
|
68,544
|
980,436
|
(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 ASC Topic
718 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,
2012. The agreement provides that during the period from January 1,
2010 through December 31, 2010, the Company shall pay Mr. Donahue a base salary
at an annual rate of at least $263,000, with his base salary for calendar years
after 2010 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, 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
which expired December 31, 2009. 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 2009, 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 2009 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 independent registered
public accounting firm as required by applicable requirements of the
Public Company Accounting Oversight Board and has discussed with the independent registered
public accounting firm its independence. In concluding that
the independent
registered public accounting firm is independent, the Committee
considered, among other factors, the non-audit services provided by the independent registered
public accounting firm as described in the section entitled “Fees Paid to
PricewaterhouseCoopers LLP.”
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, 2009, 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, 2009, 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, 2010. 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, 2008 and 2009.
|
|
2008
|
|
2009
|
Audit
Fees (1)
|
|
$491,295
|
|
$496,838
|
Audit
Related Fees (2)
|
|
20,000
|
|
17,000
|
Tax
Fees (3)
|
|
113,850
|
|
107,950
|
All
Other Fees (4)
|
|
7,332
|
|
4,740
|
|
(1)
|
Includes
fees incurred in connection with the audits of Community Bank System, Inc.
and its subsidiaries Community Investment Services, Inc., Hand Benefit and
Trust, and Hand Securities, Inc., as well as $90,000 in 2008 related to
filing a Form S-3 registration statement, $49,358 in 2009 related to the
acquisition of Citizens and $5,980 in 2009 related to a comment letter
from the Securities and Exchange
Commission.
|
|
(2)
|
Includes
fees related to the Uniform Single Attestation Program for Mortgage
Bankers and agreed upon procedures related to the Transitional Assessment
Reconciliation (Form SIPC-7T) of the Securities Investor Protection
Corporation.
|
|
(3)
|
Includes
tax preparation and compliance fees of $38,000 and $37,500 for 2009 and
2008, respectively, and fees incurred in connection with tax consultation
related to acquisitions, tax planning, and other matters of $69,950 and
$76,350 for 2009 and 2008,
respectively.
|
|
(4)
|
Represents
subscription fees to Comperio, a PricewaterhouseCoopers LLP trademarked
product.
|
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 2008 and fiscal
2009.
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, 2009, the Company believes that
all Reporting Persons complied with all Section 16(a) filing requirements in the
fiscal year ended December 31, 2009, except as follows: due to administrative
oversight in connection with the reporting of transactions under the settlement
of the Directors’ Deferred Compensation Plan, certain Form 4 filings, each
reporting one late transaction, were not timely filed for Directors Cantwell,
Charles E. Parente and Patterson, and Mr. DiCerbo had one late Form 5 filing
reporting three holdings which were inadvertently omitted from his
filings.
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 2011 Annual
Meeting of Shareholders will not be deemed to be timely submitted unless they
are received by the Company at its principal executive offices by November 25,
2010. 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: March
25, 2010
By Order of the Board of
Directors
Donna J.
Drengel
Secretary
The
Directors and Officers
of
COMMUNITY
BANK SYSTEM, INC.
extend
a cordial invitation for you to
join
them for refreshments in the Ballroom at
Shadowbrook
Inn and Resort
615
State Route 6
Tunkhannock,
Pennsylvania
at
12:00 Noon
immediately
prior to the
ANNUAL
MEETING OF SHAREHOLDERS
Wednesday,
April 28, 2010
Paul
M. Cantwell, Jr.
|
Mark
E. Tryniski
|
Chairman
|
President
& CEO
|
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 April 28, 2010
or any adjournment thereof.
(Continued,
and to be marked, signed and dated on the reverse side)