Cortland Bancorp DEF 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934 (Amendment
No. )
Filed by the
Registrant þ
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))
|
þ Definitive
Proxy Statement
|
o Definitive
Additional Materials
|
o Soliciting
Material Pursuant to §240.14a-12
|
CORTLAND BANCORP
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|
|
þ |
No fee required.
|
|
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:
|
|
|
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.:
|
Cortland Bancorp
194 West Main Street
Cortland, Ohio 44410
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
|
|
|
|
|
|
|
Annual
|
|
April 22, 2008
|
|
Vernons Cafe |
|
|
Meeting:
|
|
7:00 p.m., EST
|
|
720 Youngstown-Warren Road |
|
|
|
|
|
|
Niles, Ohio 44446
|
|
|
Record Date |
|
|
|
|
|
|
and Voting: |
|
8:00 a.m., EST, March 3, 2008. If you were a shareholder at that time, you may vote at the Annual Meeting. Each
common share entitles the holder to one vote on each matter to be voted on by shareholders at the Annual Meeting.
On the record date, Cortland Bancorp had 4,398,878 common shares outstanding. |
|
|
|
|
|
|
|
Agenda: |
|
1. To elect three directors to serve for terms of three years each until the Annual Meeting in 2011 and until
their successors are elected and qualified. |
|
|
|
|
|
|
|
|
|
2. To transact any other business that may properly come before the meeting. |
|
|
|
|
|
|
|
Proxies: |
|
Unless you specify on the proxy card to vote differently, the management proxies will vote all signed and
returned proxies FOR the Boards nominees for directors. The management proxies will use their discretion on
any other matters that may arise. If a named nominee cannot or will not serve as a director, the management
proxies will vote for a substitute person nominated by the Board to serve as a director. |
|
|
|
|
|
|
|
Proxies |
|
|
Solicited By: |
|
The Board of Directors of Cortland Bancorp. The cost of the solicitation is being borne by Cortland Bancorp.
Proxies will be solicited by mail and may be further solicited, for no additional compensation, by officers,
directors or employees of Cortland Bancorp and its subsidiaries by mail, telephone or personal contact. Cortland
Bancorp will also pay the standard charges and expenses of brokerage houses, voting trustees, banks, associations
and other custodians, nominees and fiduciaries who are record holders of common shares not beneficially owned by
them, for forwarding proxy materials to, and obtaining proxies from, the beneficial owners of such common shares. |
|
|
|
|
|
|
|
Mailing Date: |
|
We anticipate mailing this proxy statement on or about March 27, 2008. |
|
|
|
|
|
|
|
Revoking |
|
|
|
|
|
|
Your Proxy: |
|
You may revoke your proxy before it is voted at the Annual Meeting. You may revoke your proxy by: |
|
|
|
sending written notice revoking your proxy to James M. Gasior, the Secretary
of Cortland Bancorp at 194 West Main Street, Cortland, Ohio 44410, which must be
received prior to the Annual Meeting; |
|
|
|
|
sending in another signed proxy card with a later date, which must be
received by Cortland Bancorp prior to the Annual Meeting; or |
|
|
|
|
attending the Annual Meeting and revoking your proxy in
person if your common shares are held in your name. If your common shares are held in the name of
your broker, financial institution or other holder of record, you must bring an
account statement or letter from the broker, financial institution or other
holder of record indicating that you were the beneficial owner of the
common shares on the record date. |
|
|
|
|
|
|
|
|
|
Attendance at the Annual Meeting will not, in and of itself, constitute revocation of a proxy. |
|
|
|
|
|
|
|
Note on Stock |
|
|
|
|
|
|
Dividend: |
|
All shares, share prices and related figures in this proxy
statement have been adjusted to reflect the 1% stock
dividend paid January 1, 2008. |
CONTENTS
|
|
|
|
|
General Information
|
|
|
1 |
|
|
|
|
3 |
|
|
|
|
4 |
|
|
|
|
4 |
|
|
|
|
4 |
|
|
|
|
6 |
|
|
|
|
7 |
|
|
|
|
11 |
|
|
|
|
13 |
|
|
|
|
16 |
|
|
|
|
17 |
|
|
|
|
18 |
|
|
|
|
18 |
|
|
|
|
18 |
|
2
SHARE OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
The following table furnishes information regarding the beneficial ownership of common shares,
as of March 3, 2008, for each of the current directors, each of the nominees for re-election as a
director, each of the individuals named in the Summary Compensation Table, and all current
directors and executive officers as a group. To the knowledge of Cortland Bancorp, no person
beneficially owns more than 5% of the outstanding common shares.
|
|
|
|
|
|
|
|
|
Name of Beneficial |
|
Number of |
|
Percentage of |
Owner(1) |
|
Shares |
|
Outstanding Shares (2) |
Jerry A. Carleton |
|
|
3,609.96 |
|
|
|
(3 |
) |
David C. Cole |
|
|
3,693.06 |
|
|
|
(3 |
) |
Lawrence A. Fantauzzi (4) |
|
|
12,459.39 |
|
|
|
(3 |
) |
James M. Gasior (4) |
|
|
6,520.19 |
|
|
|
(3 |
) |
George E. Gessner |
|
|
26,710.79 |
|
|
|
(3 |
) |
James E. Hoffman, III |
|
|
4,099.23 |
|
|
|
(3 |
) |
Neil J. Kaback |
|
|
189.00 |
|
|
|
(3 |
) |
K. Ray Mahan |
|
|
109,461.44 |
|
|
|
2.49 |
% |
Richard B. Thompson |
|
|
89,112.90 |
|
|
|
2.03 |
% |
Timothy K. Woofter |
|
|
55,996.65 |
|
|
|
1.27 |
% |
Stephen A. Telego (4) |
|
|
2,144.54 |
(5) |
|
|
(3 |
) |
|
All directors and executive officers
as a group (19 persons) |
|
|
325,280.52 |
|
|
|
7.40 |
% |
|
|
|
(1) |
|
Unless otherwise indicated in the footnotes to this table, each beneficial owner has
sole voting and investment power with respect to all of the common shares reflected in the
table for such beneficial owner. The mailing address of each of the current executive
officers and directors of Cortland Bancorp is 194 West Main Street, Cortland, Ohio 44410. |
|
(2) |
|
The Percent of Class computation is based upon the sum of 4,398,878 common shares
outstanding as of March 3, 2008. |
|
(3) |
|
Represents beneficial ownership of less than 1% of the outstanding common shares. |
|
(4) |
|
Individual named in the Summary Compensation Table. |
|
(5) |
|
Includes 6.568 shares in a Uniform Transfer to Minor Account for the benefit of
Stephen A. Telego, Jr. and 6.568 shares in a Uniform Transfer to Minor Account for the
benefit of Robert Telego. Both are sons of Stephen A. Telego. |
3
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act),
requires the Companys executive officers and directors file reports with the Securities and
Exchange Commission (SEC) reporting their initial beneficial ownership of common shares and any
subsequent changes in their beneficial ownership. Specific due dates have been established by the
SEC, and Cortland Bancorp is required to disclose in this proxy statement any late reports. To
Cortland Bancorps knowledge, based solely on a review of reports furnished to Cortland Bancorp and
written representations that no other reports were required, during the 2007 fiscal year, Cortland
Bancorps executive officers and directors complied with all Section 16(a) filing requirements with
one exception. One late Form 4, reporting a purchase of Cortland Bancorp stock for Mr. Carleton,
was filed.
ELECTION OF DIRECTORS
As of the date of this proxy statement, Cortland Bancorps Board of Directors currently has
ten members. The Board of Directors is divided into three classes, and directors of each class
serve for three-year terms. Three directors serve in the class whose terms will expire at the
Annual Meeting, three directors serve in the class whose terms expire in 2009 and four directors
serve in the class whose terms expire in 2010.
BOARD NOMINEES
The Board of Directors proposes that the three nominees identified below be elected for a new
term of three years. Each nominee was recommended by the Nominating Committee. Each individual
elected as a director at the Annual Meeting will hold office for a term to expire at the Annual
Meeting of Shareholders to be held in 2011 and until his successor is duly elected and qualified,
or until his earlier resignation, removal from office or death. While it is contemplated that all
nominees will stand for re-election, if a nominee who would otherwise receive the required number
of votes becomes unavailable or unable to serve as a candidate for re-election as a director, the
individuals designated as proxies on the proxy card will have full discretion to vote the common
shares represented by the proxies they hold for the election of the remaining nominees and for the
election of any substitute nominee or nominees designated by the Board of Directors following
recommendation by the Nominating Committee. The Board of Directors knows of no reason why any of
the nominees named below will be unavailable or unable to serve if elected to the Board.
The following information, as of March 3, 2008, concerning the age, principal occupation or
employment, other affiliations and business experience of each nominee for re-election as a
director has been furnished to Cortland Bancorp by each director. Unless otherwise indicated, each
individual has had his principal occupation for more than five years. Director James E. Hoffman,
III is a first cousin to Craig M. Phythyon, an executive officer of Cortland Bancorp and the Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director of the |
|
|
|
|
|
|
|
|
Position(s) Held with the |
|
Company |
|
Nominee |
|
|
|
|
|
|
Company and its Subsidiaries |
|
Continuously |
|
for Term |
Nominee |
|
Age |
|
and Principal Occupation(s) |
|
Since |
|
Expiring In |
David C. Cole
|
|
|
49 |
|
|
Partner and President of Cole Valley Motor
Company, an automobile dealership. President of
JDT, Inc., Cole Valley Chevrolet, CJB Properties
and David Tom LTD, automobile sales, since 2001.
|
|
|
1989 |
|
|
|
2011 |
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director of the |
|
|
|
|
|
|
|
|
Position(s) Held with the |
|
Company |
|
Nominee |
|
|
|
|
|
|
Company and its Subsidiaries |
|
Continuously |
|
for Term |
Nominee |
|
Age |
|
and Principal Occupation(s) |
|
Since |
|
Expiring In |
Lawrence A. Fantauzzi
|
|
|
60 |
|
|
President and Chief Executive Officer of Cortland
Bancorp since November 1, 2005. President and
Chief Executive Officer of the Bank since October
3, 2005. Senior Vice President, Controller and
Chief Financial Officer, and Secretary-Treasurer
of both Cortland Bancorp and Bank from 1999 to
October 2005. Senior Vice President, Controller
and Chief Financial Officer and Treasurer of both
Cortland Bancorp and the Bank from 1996 to 1999
and Controller and Treasurer of both Cortland
Bancorp and the Bank since 1987. Vice President
and Director of New Resources Leasing
Corporation, a subsidiary of the Cortland
Bancorp, since 1995.
|
|
|
1999 |
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil J. Kaback
|
|
|
47 |
|
|
Mr. Kaback is Vice President of
Cohen & Company, Inc. a firm that provides marketing for Cohen &
Company LTD which is an accounting firm where Mr.
Kaback is also a Vice President. Mr. Kaback is a
partner in Cohen & Company Investment
Partnership, a financial planning firm and Vice
President of Cohen Fund Audit Services, a mutual
fund auditing firm. Member of the American
Institute of CPAs and the Ohio Society of CPAs.
|
|
|
2004 |
|
|
|
2011 |
|
Recommendation and Vote
Under Ohio law and Cortland Bancorps Code of Regulations, the three nominees receiving the
greatest number of votes FOR election will be elected to the Board of Directors. Common shares
represented by properly executed and returned proxy cards will be voted FOR the election of the
Board of Directors nominees named above unless authority to vote for one or more nominees is
withheld. Common shares as to which the authority to vote is withheld and broker non-votes will be
counted for quorum purposes, but will not be counted toward the election of directors or toward the
election of the individual nominees specified on the proxy card.
The Board of Directors recommends a vote FOR the election of the nominees named above.
5
CONTINUING DIRECTORS
The following information, as of March 3, 2008, concerning the age, principal occupation or
employment, other affiliations and business experience of each continuing director has been
furnished to Cortland Bancorp by each director. Unless otherwise indicated, each individual has
had his principal occupation for more than five years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director of the |
|
|
|
|
|
|
|
|
Position(s) Held with the |
|
Company |
|
|
|
|
|
|
|
|
Company and its Subsidiaries |
|
Continuously |
|
Term Expires |
Name |
|
Age |
|
and Principal Occupation(s) |
|
Since |
|
In |
George E. Gessner
|
|
|
63 |
|
|
Attorney. Partner, Director and
Corporate Secretary in the law firm of
Gessner & Platt Co., L.P.A.
|
|
|
1987 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Hoffman, III
|
|
|
56 |
|
|
Attorney. President of Hoffman & Walker
Co., L.P.A.
|
|
|
1984 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy K. Woofter
|
|
|
57 |
|
|
President, CEO and Director of Stanwade
Metal Products, a manufacturer of tanks
and distributor of oil equipment, and
Lucky Oil Equipment, a distributor of
oil equipment. Partner in the Woofter
Family Limited Partnership. Owner,
Jester Investments, a residential and
commercial property rental company.
Director of the Trade Association, Steel
Tank Institute.
|
|
|
1985 |
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerry A. Carleton
|
|
|
65 |
|
|
Owner of Jerry
Carleton
Enterprises, Inc.,
a general
contracting and
development
company, since
1972. Limited
Partner in Eagle
Ridge Properties
LLC in Browns
Farm, a development
company. Professor
Emeritus and
advisor for campus
planning and
development at Kent
State University
Trumbull Campus,
since 1995.
|
|
|
2004 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Ray Mahan
|
|
|
68 |
|
|
President of Mahan
Packing Company, a
meat packing
company.
|
|
|
1976 |
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. Gasior
|
|
|
48 |
|
|
Senior Vice
President, Chief
Financial Officer
and Secretary of
Cortland Bancorp;
Senior Vice
President, Chief
Financial Officer
and Secretary of
the Bank.
Certified Public
Accountant and
member of the
American Institute
of CPAs and the
Ohio Society of
CPAs.
|
|
|
2005 |
|
|
|
2010 |
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director of the |
|
|
|
|
|
|
|
|
Position(s) Held with the |
|
Company |
|
|
|
|
|
|
|
|
Company and its Subsidiaries |
|
Continuously |
|
Term Expires |
Name |
|
Age |
|
and Principal Occupation(s) |
|
Since |
|
In |
Richard B. Thompson
|
|
|
59 |
|
|
Owner and executive of Therm-O-Link,
Inc., Vulkor, Inc.
and Therm-O-Link of
Texas, Inc., all
manufacturers of
electrical wire and
cable. Owner and
executive of Geneva
Partners, a
condominium
development company
which is no longer
active. Partner in
Kinsman Land
Company, a grocery
store. Partner in
Dana Partners and
Dana Gas, a gas
well operation.
Owner of the
Heritage Hill Grain
Company, an
agricultural
business, since
2003. Partner in
Stratton Creek
Woodworks, a maker
of wood products,
and Smearcase, a
real estate holding
company, each since
2005. Partner in
Goodview, a
Brazilian
agricultural
business.
|
|
|
2001 |
|
|
|
2010 |
|
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Independence of Directors
The Board of Directors has reviewed, considered and discussed each directors relationships,
both direct or indirect, with Cortland Bancorp and its subsidiaries and the compensation and other
payments, if any, each director has, both directly or indirectly, received from or made to Cortland
Bancorp and its subsidiaries in order to determine whether such director qualifies as independent
under Rule 4200(a)(15) of the Marketplace Rules of The Nasdaq Stock Market, Inc. (Nasdaq). The
Board of Directors has determined that the Board of Directors has at least a majority of
independent directors, and that each of the following directors has no financial or personal ties,
either directly or indirectly, with the Cortland Bancorp or its subsidiaries (other than
compensation as a director of the Cortland Bancorp and its subsidiaries, banking relationships in
the ordinary course of business with the Bank and ownership of the Cortland Bancorps common shares
as described in this proxy statement) and thus qualifies as independent under Nasdaq Marketplace
Rule 4200(a)(15): Jerry A. Carleton, David C. Cole, George E. Gessner, James E. Hoffman, III, Neil
J. Kaback, K. Ray Mahan, Richard B. Thompson and Timothy K. Woofter.
Lawrence A. Fantauzzi and James M. Gasior do not qualify as independent directors because they
currently serve as executive officers of Cortland Bancorp and the Bank.
Meetings of the Board of Directors and Attendance at Annual Meeting of Shareholders
In 2007, the Board of Directors of Cortland Bancorp held a total of eleven (11) meetings.
Each incumbent director attended at least 75% of the aggregate of the total number of meetings held
by the Board of Directors and the total number of meetings held by the Board committees on which he
served, in each case during the period of his service.
Cortland Bancorp encourages all incumbent directors and director nominees to attend each
annual meeting of shareholders. All of the incumbent directors and director nominees attended
Cortland Bancorps last annual meeting of shareholders held on April 24, 2007.
Communications with the Board of Directors
Although Cortland Bancorp has not to date adopted formal procedures by which shareholders may
communicate directly with directors, it believes that its current process, wherein any
communication sent to the Board, either generally or in care of the Chief Executive Officer,
Secretary, the Investor Relations Officer or another corporate officer, is forwarded to all members
of the Board, has adequately served the needs of the Board and shareholders. There is no screening
process, and all communications that are received by officers for the Boards attention are
forwarded to the Board.
7
Until any other procedures are developed and posted on Cortland Bancorps website at
www.cortland-banks.com, any communication to the Board may be mailed to the Board, in care of the
Investor Relations Officer, at Cortland Bancorps headquarters in Cortland, Ohio. The mailing
envelope must contain a clear notation indicating that the enclosed letter is a Shareholder-Board
Communication or Shareholder-Director Communication. In addition, communication via Cortland
Bancorps website may be used. Correspondence through the investor relations page of the website
should also be directed to the Investor Relations Officer and indicate that the communication is a
Shareholder-Board Communication or Shareholder-Director Communication. All such
communications, whether via mail or website, must identify the author as a shareholder and clearly
state whether the intended recipients are all members of the Board or just certain specified
individual directors or committee members. The Investor Relations Officer will make copies of all
such communications and circulate them to the appropriate director or directors.
Board Committees
Audit Committee
The Board of Directors has an Audit Committee comprised of Messrs. Kaback (Chair), Thompson
and Woofter. The Board of Directors has determined that each member of the Audit Committee
qualifies as independent under Nasdaq Marketplace Rules 4200(a)(15) and 4350(d)(2) as well as under
Rule 10A-3 promulgated under the Exchange Act.
The Board of Directors has determined that the audit committee does not have an audit
committee financial expert as that term is defined by the Securities and Exchange Commission. The
Board of Directors has determined that each Audit Committee member has sufficient knowledge in
financial and accounting matters to serve effectively on the Committee.
The Audit Committee conducts its business pursuant to a written charter adopted by the Board
of Directors. A current copy of the charter of the Audit Committee is posted on Cortland Bancorps
website at www.cortland-banks.com on the investor relations page under Governance Documents Audit
Committee Charter. At least annually, the Audit Committee reviews and reassesses the adequacy of
its charter and recommends any proposed changes to the full Board of Directors for approval as
necessary.
The Audit Committee is responsible for appointing, compensating and overseeing the independent
registered public accounting firm employed by Cortland Bancorp for the purpose of preparing and
issuing an audit report or other audit, review or attestation services. The Audit Committee
evaluates the independence of the independent registered public accounting firm on an ongoing
basis. The Audit Committee also approves audit reports and plans, accounting policies, and audit
outsource arrangements, including audit scope, internal audit reports, audit fees and certain other
expenses. The Audit Committee is responsible for developing procedures for the receipt, retention
and treatment of complaints regarding accounting, internal auditing controls or auditing matters,
including procedures for the confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
The Audit Committee held nine (9) meetings during 2007. The Audit Committees report relating
to the 2007 fiscal year appears on page 17.
Executive Compensation Committee
The Board of Directors of the Bank has an Executive Compensation Committee which also serves
as the compensation committee of Cortland Bancorp. The Executive Compensation Committee is
comprised of Messrs. Carleton, Cole, Gessner and Woofter (Chair). The Board of Directors has
determined that each member of the Executive Compensation Committee qualifies as independent under
Rule 4200(a)(15) of the Nasdaq Marketplace Rules. In addition, each member of the Compensation
Committee qualifies as an outside director for purposes of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the Internal Revenue Code), and as a non-employee director for
purposes of Section 16b-3 under the Exchange Act.
The Executive Compensation Committee oversees executive officer compensation as well as
compensation under the Profit Sharing Program and the Employee Benefit Plan 401(k). The Executive
Compensation Committee reviews and recommends officer compensation levels and benefit plans. The
Executive Compensation Committee does not have a formal charter.
The Executive Compensation Committee held three (3) meetings in 2007.
8
Nominating Committee
The Board of Directors has a Nominating Committee comprised of Messrs. Cole, Mahan and Woofter
(Chair). The Board of Directors has determined that each member of the Governance and Nominating
Committee qualifies as independent under Nasdaq Marketplace Rule 4200(a)(15). The purpose of the
Nominating Committee is to:
|
|
|
identify qualified candidates for election, nomination or appointment to the Board
and recommend to the full Board a slate of director nominees for each annual meeting of
the shareholders of Cortland Bancorp or as vacancies occur; |
|
|
|
|
make recommendations to the full Board and the Chairman of the Board regarding
assignment and rotation of members and chairs of committees of the Board; |
|
|
|
|
recommend the number of directors to serve on the Board; and |
|
|
|
|
undertake such other responsibilities as may be referred to the Nominating Committee
by the full Board or the Chairman of the Board. |
The Nominating Committee held one (1) meeting during 2007. The charter of the Nominating
Committee is reviewed annually and is available on Cortland Bancorps website at
www.cortland-banks.com on the investor relations page under Governance Documents Nominating and
Corporate Governance Committee Charter.
Nominating Procedures
As described above, Cortland Bancorp has a standing Nominating Committee that has the
responsibility to identify and recommend individuals qualified to become directors. Each candidate
must satisfy the eligibility requirements set forth in Cortland Bancorps Code of Regulations,
Article Two, Section 2.01 Authority and Qualifications. No person who has attained the age of 70
shall be eligible for election as a director, and each director must hold shares of stock of
Cortland Bancorp with an aggregate par value or stated value of $500, an aggregate shareholder
equity of at least $500, or an aggregate fair market value of at least $500.
When considering potential candidates for the Board, the Nominating Committee strives to
assure that the composition of the Board, as well as its practices and operation, contributes to an
effective representation and advocacy of shareholders interest. The Nominating Committee may
consider those factors it deems appropriate in evaluating director candidates, including judgment,
skill, diversity, strength of character, experience with business and organizations comparable in
size and scope to Cortland Bancorp, experience and skills relative to other Board members, and
specialized knowledge or experience. Depending upon the current needs of the Board, certain
factors may be weighed more heavily than others by the Nominating Committee.
In considering candidates for the Board, the Nominating Committee evaluates the entirety of
each candidates credentials and, other than the eligibility requirements set forth in Cortland
Bancorps Code of Regulations, there are no specific minimum qualifications that must be met by a
Nominating Committee recommended nominee. However, the Nominating Committee does believe that each
member of the Board should be of the highest character and integrity; possess a reputation for
working constructively with others; have sufficient time to devote to Board matters; and be without
any conflict of interest that would impede the individuals performance as a director.
The Nominating Committee will consider candidates for the Board from any reasonable source,
including shareholder recommendations. The Nominating Committee will not evaluate candidates
differently based on who has made the recommendation. The Nominating Committee will have the
authority to hire and pay a fee to consultants or search firms for the purpose of identifying and
evaluating candidates. No such consultants or search firms have been used to date and,
accordingly, no fees have been paid to consultants, search firms or any other individuals.
According to Section 2.03(B) of Cortland Bancorps regulations, any shareholder who desires to
nominate an individual to the Board must provide timely written notice. To be timely, the notice
must be mailed to the President of Cortland Bancorp at least 14 days but no more than 50 days,
before the meeting at which directors will be elected, or within
7 days after notice of the meeting is mailed to shareholders if the meeting is held within 21
days after Cortland Bancorp mails notice of the meeting.
9
The shareholders notice of nomination must give:
|
|
|
the name and address of the nominee; |
|
|
|
|
the principal occupation of the nominee; |
|
|
|
|
the approximate number of shares the shareholder making the nomination reasonably
anticipates will be voted in favor of the proposed nominee; |
|
|
|
|
the name and address of the shareholder making the nomination; and |
|
|
|
|
the number of shares beneficially owned by the shareholder making the nomination. |
We will disregard a shareholders nomination if it is not made in compliance with these rules
and standards.
Code of Ethics
Cortland Bancorp has adopted a code of ethics as part of its corporate governance program.
The code of ethics applies to all of the Cortland Bancorps officers and employees, including its
Chief Executive Officer and Chief Financial Officer. The Code of Ethics is posted on the investor
relations page of the Companys website at www.cortland-banks.com under Governance Documents Code
of Business Conduct and Ethics. Any amendments to, or waivers from, this code of ethics will be
posted on this same website. In addition, a copy of the Code is available to shareholders upon
request. Shareholders desiring a copy of the Code should address written requests to Mr. James M.
Gasior, Senior Vice President and Chief Financial Officer of Cortland Bancorp, 194 West Main
Street, Cortland, Ohio 44410 and are asked to mark Code of Business Conduct and Ethics on the
outside of the envelope containing the request.
10
DIRECTOR COMPENSATION IN 2007
The following table shows the compensation of Cortland Bancorp directors for their service in
2007, other than Directors Fantauzzi and Gasior. The director compensation information to follow
represents compensation for the full year, through December 31, 2007. The majority of the director
compensation is paid by the Bank for directors service on the Banks board and the Banks board
committees, but compensation shown in the table is aggregate compensation paid for directors
service both to Cortland Bancorp and the Bank. Information about compensation paid to and earned
by Directors Fantauzzi and Gasior is included elsewhere in this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
Fees Earned or |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
|
Paid in Cash(1) |
|
Compensation |
|
Earnings(2) |
|
Compensation(3) |
|
Total |
Name |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Jerry A. Carleton |
|
|
18,000 |
|
|
|
n/a |
|
|
|
9,022 |
|
|
|
313 |
|
|
|
27,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Cole |
|
|
18,000 |
|
|
|
n/a |
|
|
|
3,586 |
|
|
|
81 |
|
|
|
21,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
George E. Gessner |
|
|
18,000 |
|
|
|
n/a |
|
|
|
8,890 |
|
|
|
796 |
|
|
|
27,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Hoffman, III |
|
|
18,000 |
|
|
|
n/a |
|
|
|
6,561 |
|
|
|
468 |
|
|
|
25,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neil J. Kaback |
|
|
18,000 |
|
|
|
n/a |
|
|
|
1,898 |
|
|
|
183 |
|
|
|
20,081 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. Ray Mahan |
|
|
18,000 |
|
|
|
n/a |
|
|
|
1,206 |
|
|
|
1,520 |
|
|
|
20,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard B. Thompson |
|
|
18,000 |
|
|
|
n/a |
|
|
|
3,816 |
|
|
|
606 |
|
|
|
22,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy K. Woofter |
|
|
18,000 |
|
|
|
n/a |
|
|
|
6,712 |
|
|
|
520 |
|
|
|
25,232 |
|
(1) In 2007, non-employee directors of the Bank received an $18,000 annual retainer and employee
directors of the Bank received a $7,200 annual retainer.
(2) Represents the addition in 2007 to the liability accrual balance established by Cortland
Bancorp to account for the Companys obligation to pay retirement benefits under director
retirement agreements entered into with all non employee directors.
(3) Perquisites and other personal benefits provided to each of directors described in the table
were less than $10,000 in 2007. The figures in the all other compensation column consist of the
imputed monetary value of life insurance policies for the directors.
Retirement Agreements and Insurance for Non-Employee Directors. Directors Carleton, Cole,
Gessner, Hoffman, Kaback, Mahan, Thompson, and Woofter are parties to director retirement
agreements with Cortland Bancorp. In December 2007, Cortland entered into amended director
retirement agreements with these directors (excluding Director Mahan) for purposes of Internal
Revenue Code Section 409A compliance. If a nonqualified deferred compensation plan fails to comply
with Internal Revenue Code Section 409A, either in form or in operation, the tax consequences are
immediate inclusion in income of amounts previously deferred, plus an interest penalty, plus a 20%
federal excise tax penalty. Cortland did not enter into an amended director retirement agreement
with Mr. Mahan because his director retirement agreement was fully accrued and vested before the
enactment of Internal Revenue Code Section 409A. The amended director retirement agreements
promise a post-retirement benefit of $10,000 payable annually for 10 years if the director retires
after reaching his normal retirement age, which is a function of years of service on the Board and
attained age. Normal retirement ages for these directors are age 61 (Mr. Cole), age 62 (Mr.
Hoffman), age 63 (Messrs. Mahan and Woofter), age 66 (Mr. Gessner), age 67 (Mr. Kaback), and age 70
(Messrs. Carleton and Thompson). A reduced annual retirement benefit is payable if the director
terminates service or becomes disabled before reaching the normal retirement age, but the benefit
is not paid until the director finally reaches the normal retirement age. Mr. Mahan has reached
his normal retirement age. If termination of the directors service occurs within one year after a
change in control of Cortland Bancorp, the director will receive cash in a single lump sum equal to
the retirement benefit expense accrued by Cortland Bancorp. The amended director retirement
agreement benefits to which a director is entitled are payable to his beneficiary after the
directors death, but if the director dies in active service to Cortland Bancorp before reaching
his normal retirement age, his beneficiary will be entitled to cash in a single lump sum equal to
the retirement benefit expense accrued by Cortland Bancorp.
11
Cortland Bancorp purchased insurance on the lives of directors who are parties to the amended
director retirement agreements and entered into split dollar agreements with them, promising to
share a portion of the life insurance death benefits with the directors designated beneficiaries.
Each directors portion of the policys death benefit is $100,000, payable to the directors
beneficiary whether the directors death occurs while in active service to Cortland Bancorp or
after retirement. Cortland Bancorp will receive any death benefits remaining after payment to the
directors beneficiary. Although Cortland Bancorp expects the life insurance benefits to
ultimately offset the premium payment obligations, the directors contractual entitlements under
the amended director retirement agreements are not funded and remain contractual liabilities of
Cortland Bancorp. In December 2007, Cortland entered into an amended split dollar agreement and
endorsement with Mr. Carleton to add a Section 2.4 pursuant to which Cortland promises to maintain
the split dollar policy in full force and effect similar to the other directors split dollar
agreements.
Director Indemnification. At the 2005 annual meeting, the shareholders of Cortland Bancorp
approved the form and use of indemnification agreements with directors. On May 24, 2005, Cortland
Bancorp entered into indemnification agreements with each of the current directors. The
indemnification agreements allow a director to select the most favorable indemnification rights
provided under:
|
|
|
Cortland Bancorps Articles of Incorporation or Regulations in effect on the
date of the indemnification agreement or on the date expenses are incurred; |
|
|
|
|
state law in effect on the date of the indemnification agreement or on the date
expenses are incurred; |
|
|
|
|
any liability insurance policy in effect when a claim is made against the
director or on the date expenses are incurred; and |
|
|
|
|
any other indemnification arrangement otherwise available. |
The indemnification agreements cover all fees, expenses, judgments, fines, penalties, and
settlement amounts paid in any matter relating to the directors role as director, officer,
employee, agent, or when serving as Cortland Bancorps representative with another entity. Each
indemnification agreement provides for the prompt advancement of all expenses incurred in a
proceeding, subject to the directors obligation to repay those advances if it is determined later
that the director is not entitled to indemnification.
Retainer and Fees. Currently, the Board of Directors of Cortland Bancorp and the Board of
Directors of the Bank consist of the same individuals. Non-employee directors of Cortland Bancorp
serve without retainer or fee for services on the Board of Directors of Cortland Bancorp. Instead,
they are paid by the Bank for services rendered in their capacities as directors of Cortland
Bancorp and the Bank.
In 2007, non-employee directors of the Bank received an $18,000 annual retainer and employee
directors of the Bank received a $7,200 annual retainer. Directors of the Bank (both employee and
non-employee directors) may also elect to participate in the Banks health care plans.
Director Emeritus Compensation. For up to ten years after retirement as a director, an
emeritus director of the Bank is paid $300 for each meeting attended up to $6,000 annually,
provided the director emeritus attends at least 75% of board meetings. Emeritus directors are also
entitled to continue participation in the Banks health care plan, although the former director is
responsible for paying 100% of the Banks cost to maintain health care coverage, currently $174.55
for Rodger W. Platt and $195.18 for William Hagood monthly. After the emeritus directors death,
his or her spouse may similarly maintain health care coverage, at the spouses cost. Emeritus
directors participate in Board meetings but are not entitled to vote on any matters coming before
the Board.
12
EXECUTIVE COMPENSATION
Cortland Bancorp does not provide any monetary compensation directly to its executive
officers. Instead, the executive officers of Cortland Bancorp are paid by the Bank for services
rendered in their capacity as executive officers of Cortland Bancorp and the Bank. For the Chief
Executive Officer and the 2 other most highly compensated executive officers, who were serving as
officers at the end of 2007 and whose total compensation exceeded $100,000, the following table
shows all forms of compensation paid or payable for the year indicated.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonqualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
|
|
|
|
|
Salary(1) |
|
Bonus |
|
Compensation |
|
Earnings(2) |
|
Compensation(3) |
|
Total |
Name and Principal Position |
|
Year |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
|
($) |
Lawrence A. Fantauzzi |
|
|
2007 |
|
|
|
202,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
83,622 |
|
|
|
33,745 |
|
|
|
319,567 |
|
President and Chief
Executive Officer of
Cortland Bancorp and the
Bank
|
|
|
2006 |
|
|
|
192,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
77,449 |
|
|
|
26,706 |
|
|
|
296,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James M. Gasior |
|
|
2007 |
|
|
|
153,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
21,639 |
|
|
|
21,240 |
|
|
|
196,079 |
|
Senior Vice President,
Chief Financial Officer
and Secretary of Cortland
Bancorp and the Bank
|
|
|
2006 |
|
|
|
148,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
19,885 |
|
|
|
20,209 |
|
|
|
188,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen A. Telego, Sr. |
|
|
2007 |
|
|
|
115,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
39,915 |
|
|
|
15,498 |
|
|
|
170,413 |
|
Senior Vice President and
Director of Human
Resources and Corporate
Administration of the Bank
|
|
|
2006 |
|
|
|
110,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
36,874 |
|
|
|
13,685 |
|
|
|
160,559 |
|
(1) Includes salary deferred at the election of the executive under the Banks 401(k) retirement
plan. Also includes fees for service as a director of Cortland Bancorp and the Bank. Mr.
Fantauzzis and Mr. Gasiors director fees in 2007 were $7,200 each. Mr. Fantauzzis and Mr.
Gasiors director fees in 2006 were also $7,200 each.
(2) Represents the addition in 2007 and in 2006 to the liability accrual balance established by the
Bank to account for the Banks obligation to pay retirement benefits under the second amended
salary continuation agreements entered into with the named executive officers.
(3) Perquisites and other personal benefits provided to each of the named executive officers in
2007 and in 2006 exceeded $10,000. The figures in the all other compensation column consist of
the Banks contribution to the 401(k) plan accounts for the named executive officers, the imputed
monetary value of life insurance policies, bank-owned vehicle expenses, and club memberships for
the named executive officers. For 2007, the Bank made contributions of $10,256 to the 401(k) plan
account of Mr. Fantauzzi, $7,662 to the account of Mr. Gasior, and $6,077 to the account of Mr.
Telego. The imputed value of life insurance policies for income tax purposes in 2007 was $7,467
for Mr. Fantauzzi, $1,418 for Mr. Gasior, and $2,929 for Mr. Telego. Bank-owned vehicle expenses
in 2007 were $10,116 for Mr. Fantauzzi, $7,260 for Mr. Gasior, and $6,492 for Mr. Telego. Club
membership dues in 2007 were $5,906 for Mr. Fantauzzi and $4,900 for Mr. Gasior. For 2006, the
Bank made contributions of $9,610 to the 401(k) plan account of Mr. Fantauzzi, $7,413 to the
account of Mr. Gasior, and $5,824 to the account of Mr. Telego. The imputed value of life
insurance policies for income tax purposes in 2006 was $5,232 for Mr. Fantauzzi, $1,451 for Mr.
Gasior, and $1,314 for Mr. Telego. Bank-owned vehicle expenses in 2006 were $7,200 for Mr.
Fantauzzi, $7,260 for Mr. Gasior, and $6,492 for Mr. Telego. Club membership dues in 2006 were
$4,664 for Mr. Fantauzzi, $4,085 for Mr. Gasior, and $55 for Mr. Telego.
13
Severance Agreements. Cortland Bancorp and the Bank entered into severance agreements in
December 2000 with eight officers, including Messrs. Fantauzzi, Gasior, and Telego. The initial
term of each severance agreement is three years, renewing each year for an additional one-year term
unless the Board gives advance written notice that the agreement will not automatically renew. The
severance agreements terminate when an executive attains age 65.
The severance agreements provide that the executive is entitled to severance compensation if a
change in control occurs during the term of the agreement, payable in a single lump sum. The
change-in-control benefit under the severance agreements is a single-trigger benefit, in contrast
to a double-trigger benefit payable solely after employment termination following a change in
control. The severance compensation equals the executives annual salary when the change in
control occurs, plus the amount of any bonus earned for the last whole calendar year. For purposes
of the severance agreements, the term change in control means (i) a merger occurs and shareholders
of Cortland Bancorp do not own a majority of the shares of the company surviving the merger, (ii) a
shareholder or group of shareholders acquires 25% or more of Cortland Bancorps common stock, (iii)
a majority of the directors are replaced in any period of two years or less by individuals not
nominated by the continuing directors, or (iv) Cortland Bancorp sells substantially all of its
assets. If an executives employment terminates within one year after a change in control,
Cortland Bancorp must also continue his life, health, and disability insurance coverage for up to
three years, along with fringe benefits such as club memberships. The executive will also be
entitled to out-placement services for one year, and tax and financial planning services for three
years after termination. The severance agreements also include a promise on the part of Cortland
Bancorp and the Bank to pay the executives legal fees associated with the interpretation,
enforcement, or defense of the executives rights under the severance agreements, up to a maximum
of $500,000, as adjusted for inflation from time to time.
If a change in control occurs and the total benefits or payments to which an executive is
entitled constitute so-called excess parachute payments and are therefore subject to the 20%
excise tax under Sections 280G and 4999 of the Internal Revenue Code (whether under the severance
agreement or under any other compensation arrangement), Cortland Bancorp must also make an adjusted
gross-up payment to Messrs. Fantauzzi, Gasior, and Telego compensating them for the excise tax as
well as for income, payroll, and excise taxes imposed on that parachute payment excise tax
reimbursement payment. A 20% excise tax is imposed under Section 4999 if the value of an
executives aggregate change-in-control benefits calculated according to procedures specified in
Section 280G and accompanying IRS regulations equals or exceeds three times his or her five-year
average taxable compensation. The five-year average is known as the so-called base amount. If the
value of the aggregate change-in-control benefits equals or exceeds three times the base amount, a
20% excise tax is imposed on all benefits exceeding the base amount and the employer forfeits its
compensation deduction for those same benefits. The total adjusted gross-up payment to Messrs.
Fantauzzi, Gasior, and Telego would consist of (i) a payment equal to the initial excise tax and
(ii) a gross-up payment that is calculated by determining the difference between the full gross-up
amount needed to provide the excise tax payment net of all income, payroll, and excise taxes and
the excise tax payment multiplied by eighty percent (80%).
Salary Continuation Agreements. On March 1, 2001, the Bank entered into salary continuation
agreements with eight officers, including Messrs. Fantauzzi, Gasior, and Telego. The March 1, 2001
salary continuation agreements were amended in 2003 by adoption of second amended salary
continuation agreements. The second amended salary continuation agreements provide Messrs.
Fantauzzi, Gasior, and Telego with annual normal retirement benefits at age 65 of $85,700, $72,100,
and $74,500, respectively. After their specified normal retirement age of 65, the Bank will make
these annual benefit payments to the executives for 15 years.
The second amended salary continuation agreements are intended to reinforce the executives
long-term commitment to the Bank. The full normal retirement benefit is payable if and only if the
executive remains employed with the Bank to the normal retirement age. The second amended salary
continuation agreements provide for reduced benefits in the case of early termination on or after
reaching the early retirement age (age 62), or in the case of termination due to disability
occurring at any age, but in either case benefits do not become payable until the executive finally
reaches the normal retirement age. Payment of benefits is accelerated if the executives service
with the Bank terminates within one year after a change in control, whether termination is
voluntary or involuntary. No benefit is payable and an executives agreement terminates if his
employment terminates for cause. Under generally accepted accounting principles, the Bank must
accrue a liability on its books for the obligation under the second amended salary continuation
agreements. By the time the executive attains the normal retirement age the total liability amount
accrued by the Bank must equal the present value of the Banks obligation to the executive. Each
executives accrual balance is calculated using a level principal amount, with interest computed at
a reasonable discount rate under generally accepted accounting principles.
If the executives service with the Bank terminates within one year after a change in control
occurs, the Bank will pay to each executive an amount calculated as described in the agreement.
The term change in control is defined in the agreements in a manner identical to the way a
change of control is defined under the executives severance agreements (i.e., merger,
acquisition of 25% of Cortland Bancorps shares, change in a majority of the Board, and sale of
assets). The payment
14
is the accrual balance projected to exist at these executives normal retirement age discounted to
present value using a current discount rate of 5.75%. Because these benefits are payable
immediately after separation from service, they are double-trigger change-in-control benefits and
are subject to the six-month payment delay imposed by Internal Revenue Code Section 409A. The
second amended salary continuation agreements also provide that the Bank must reimburse up to
$500,000 in legal expenses incurred by each of the executives if the agreements are challenged
after a change in control occurs.
If an executive dies before age 65 in active service to the Bank, instead of salary
continuation agreement benefits, the executives beneficiaries will receive a life insurance death
benefit in a fixed amount. With a single premium payment of $2.3 million, the Bank purchased life
insurance policies on the eight officers who were parties to the March 1, 2001 salary continuation
agreements, including Messrs. Fantauzzi, Gasior, and Telego. With an additional single premium
payment of $2.5 million in July 2003, the Bank purchased additional life insurance policies to
support (i) the enhanced benefits payable under the second amended salary continuation agreements
and (ii) a new salary continuation agreement for a ninth officer. The life insurance policies are
owned by the Bank, but the Bank entered into endorsement split dollar arrangements allowing the
executives to designate the beneficiary of a portion of the policy death benefits. The Bank will
receive the remainder of the death benefits. The Bank purchased the life insurance policies as
informal financing for the salary continuation agreement payment obligation arising out of an
executives death before retirement. Although the Bank expects the split dollar life insurance
policy benefits to support the payment obligations under the second amended salary continuation
agreements, the executives contractual entitlements under the agreements are not funded and remain
contractual liabilities of the Bank.
Under the split dollar agreements and endorsements entered into with each of Messrs.
Fantauzzi, Gasior, and Telego, at the executives death before retirement at age 65, a portion of
the total death benefits under the insurance policies will be paid to the executives designated
beneficiary. The death benefit that would have been payable as of December 31, 2007, to Mr.
Fantauzzis beneficiary was $807,051, and in the case of Messrs. Gasior and Telego, the death
benefit payable to their beneficiaries would be $678,977 and $701,578, respectively. If an
executive dies after termination of employment, the executives beneficiaries will receive any
payments to which the executive would have been entitled under the second amended salary
continuation agreements, but none of the proceeds of the life insurance. The split dollar
agreements and endorsements terminate upon the first to occur of any of the following (i)
surrender, lapse, or other termination of the policy by the Bank, (ii) distribution of the death
benefit proceeds, (iii) upon the executives 65th birthday, or (iv) upon the executives
termination of employment.
Neither the premium amounts attributable to the policies on the executives lives nor the
potential death benefits payable to their beneficiaries are reflected in the Summary Compensation
Table. The imputed dollar values of the benefit to the executives for 2007 and 2006 of the
portions of the premium paid by the Bank related to death benefits payable to their respective
beneficiaries are included in the Summary Compensation Table.
Group Term Carve Out Plan. In December 2000, the Bank purchased with a single premium payment
approximately $2.8 million in life insurance on the lives of 22 officers for the group term carve
out plan. The 22 officers covered by the plan include Messrs. Fantauzzi, Gasior, and Telego. In
August 2002, the plan was amended to reflect changes in ERISA regulations. Under group term split
dollar endorsements, the Bank and the executives share the rights to death benefits payable under
the life insurance policies. An executives beneficiaries are entitled to one of the following
death benefit amounts
Pre-Retirement Death Benefit. If the executive dies before retirement, the death
benefit is the lesser of (a) $500,000 or (b) twice the executives current annual salary at the
time of death, less $50,000, or
Post-Retirement Death Benefit. If the executive was no longer employed by the Bank at
the time of death, but had terminated employment (i) within one year after a change in control,
(ii) due to disability, or (iii) on or after the early retirement age of 62, the death benefit is
the lesser of (a) $500,000 or (b) the Executives most recent salary at the time of death.
The Bank receives the remainder of the life insurance policy death benefits, which should be
sufficient to recover in full the Banks life insurance investment. No benefits are payable under
the plan to any executive whose employment terminates before the age of 62, unless termination is
due to disability or unless termination occurs within one year after a change in control. Benefits
are payable to the executives beneficiaries in a lump sum.
In December 2003, Mr. Telego entered into a revised group term split dollar endorsement
limiting his pre-retirement death benefit under the plan at $350,000. Mr. Telegos revised
endorsement accounts for the fact that a portion of the life insurance under the group term carve
out plan is dedicated to providing him with a pre-retirement death benefit under the split dollar
agreement accompanying his second amended salary continuation agreement.
15
Messrs. Fantauzzi, Gasior, and Telego also have life insurance benefits under the Banks group
term life insurance program for all employees, paying benefits up to $50,000 to the executives
beneficiaries if the executive dies while employed by the Bank. The Banks costs for the insurance
purchased on the executives lives for the group term carve out plan are not reflected in the
Summary Compensation Table included in this proxy statement.
On September 20, 2006, the Financial Accounting Standards Board (FASB) ratified Emerging
Issues Task Force (EITF) Issue No. 06-04, Accounting for Deferred Compensation and Postretirement
Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF No. 06-04 requires
employers to start accruing costs and liabilities for postretirement benefits provided by
endorsement split dollar life insurance arrangements in fiscal years beginning after December 15,
2007. Accordingly, the Bank will begin recognizing compensation expense associated with these
post-retirement split dollar insurance arrangements beginning in 2008.
Profit Sharing Program. If the Bank achieves its profit goal for the fiscal year, the Board
may (but is not required to) approve profit sharing. The Banks profit goal for profit sharing
purposes was not achieved in 2007. As a result, no profit-sharing distributions were made in 2007.
Should the Bank achieve its profit goal in the future, the Board may (but is not required to)
approve profit sharing.
Employee Benefit Plan 401(k). The Bank maintains a traditional 401(k) retirement plan for
employees. In general, the Bank matches participants voluntary contributions up to 5% of gross
pay. Employee contributions and matching contributions under the plan accumulate tax free until
distributions begin at the employees normal retirement age. The goal of the 401(k) plan is to
enable employees to provide for their own retirement and, combined with Social Security benefits,
to ensure that their aggregate post-retirement income is maintained at a percentage of
pre-retirement income sufficient to sustain a long-term retirement.
Perquisites and Other Compensation. The Executive Compensation Committee annually reviews the
perquisites that the management team receives. In the case of Messrs. Fantauzzi and Gasior,
membership in a golf or social club is encouraged to provide an appropriate forum for entertaining
existing customers, developing and promoting new business and generally interacting with
influential members of the local community.
Internal Revenue Code Limits. Cortland Bancorp considers tax and accounting implications in
the design of its compensation programs. Section 162(m) of the Internal Revenue Code places a
limit on the tax deduction for compensation in excess of $1 million paid to the chief executive
officer and four most highly compensated executive officers of a corporation in a taxable year.
All of the compensation Cortland Bancorp paid in 2007 to the named executive officers is expected
to be deductible under Section 162(m). The Executive Compensation Committee retains the
flexibility, however, to pay non-deductible compensation if it believes doing so is in the best
interests of the Company.
TRANSACTIONS WITH RELATED PERSONS
During the 2007 fiscal year, executive officers and directors of Cortland Bancorp, members of
their immediate families and corporations or organizations as to which directors of Cortland
Bancorp serve as executive officers or beneficially own more than 10% of the equity interest, were
involved in banking transactions with the Bank in the ordinary course of their respective
businesses and in compliance with applicable federal and state laws and regulations. It is
expected that similar banking transactions will be entered into in the future. Payments from the
Bank to such persons in connection with the deposit of funds or those bank subsidiaries acting in
an agency capacity have been made on substantially the same terms as those prevailing at the time
for comparable transactions with persons not affiliated with Cortland Bancorp or its subsidiaries.
Loans to these persons have been made on substantially the same terms, including the interest rate
charged and collateral required, as those prevailing at the time for comparable transactions with
persons not affiliated with Cortland Bancorp or its subsidiaries. These loans have been subject to
and are presently subject to no more than a normal risk of uncollectibility and present no other
unfavorable features. As of the date of this proxy statement, all of the loans described in this
paragraph were performing in accordance with their original terms.
16
AUDIT COMMITTEE MATTERS
Audit Committee Report for the Fiscal Year Ended December 31, 2007
The Audit Committee has reviewed the audited financial statements for the year ended December
31, 2007 and has discussed the audited financial statements with management. The Audit Committee
has also discussed with Packer Thomas, Cortland Bancorps independent registered public accounting
firm, the matters required to be discussed by Statement on Auditing Standards No. 61 (having to do
with accounting methods used in the financial statements). The Audit Committee has received the
written disclosures and the letter from Packer Thomas required by Independence Standards Board
Standard No. 1 (having to do with matters that could affect the independent registered accounting
firms independence), and has discussed with Packer Thomas the independent registered accounting
firms independence. Based on this, the Audit Committee recommended to the Board that Cortland
Bancorps audited consolidated financial statements be included in Cortland Bancorps Annual Report
on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and
Exchange Commission.
Submitted by the Audit Committee
Neil J. Kaback, Richard B. Thompson and Timothy K. Woofter
Pre-Approval of Services Performed by Independent Registered Public Accounting Firm
The Audit Committee pre-approves all audit and non-audit services provided by the independent
auditors prior to the engagement of the independent auditors with respect to such services. The
Chairman of the Audit Committee has been designated the authority by the Committee to pre-approve
the engagement of the independent auditors when the entire Committee is unable to do so. The
Chairman must report all such pre-approvals to the entire Audit Committee at the next committee
meeting. All of the services rendered by Packer Thomas to Cortland Bancorp and its subsidiaries
for each of the 2007 fiscal year and the 2006 fiscal year were pre-approved by the Audit Committee.
Fees of Independent Registered Public Accounting Firm
The Audit Committee appointed the firm of Packer Thomas to serve as the registered public
accounting firm for Cortland Bancorp for the period ending December 31, 2007. Fees billed for
services rendered by Packer Thomas for each of the 2007 fiscal year and the 2006 fiscal year were
as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Audit Fees (1) |
|
$ |
145,400 |
|
|
$ |
144,800 |
|
Audit-Related Fees (2) |
|
|
9,100 |
|
|
|
8,800 |
|
Tax Fees (3) |
|
|
10,900 |
|
|
|
10,900 |
|
All Other Fees |
|
|
-0- |
|
|
|
-0- |
|
|
|
|
(1) |
|
Audit fees consist of fees for professional services rendered for the audits of the consolidated
financial statements of Cortland Bancorp and quarterly reviews of the financial statements included in
Cortland Bancorps Quarterly Reports on Form 10-Q. |
|
(2) |
|
Audit-related fees include the financial statement audits of employee benefit plans. |
|
(3) |
|
Tax fees include U.S. federal, state and local tax planning and advice, and U.S. federal, state
and local tax compliance. |
Notification of Appointment of Independent Registered Public Accounting Firm
On March 18, 2008, the Audit Committee appointed the independent accounting firm of S.R.
Snodgrass, A.C. to audit the consolidated financial statement for the period ending December 31,
2008. The independent accounting firm of Packer Thomas, which has audited the consolidated
financial statements as of December 31, 2007, declined to stand for re-election after the
completion of the current audit of the consolidated financial statements and related audit of the
Companys employee benefit plan. Packer Thomas served as Cortland Bancorps independent
auditors/independent registered public accounting firm since 1994.
Representatives of Packer Thomas are expected to be present at the Annual Meeting, and will be
given the opportunity to make a statement if they desire to do so and will be available to respond
to appropriate questions. Packer
17
Thomas report on financial statements for the two years ending December 31, 2007 and 2006 did
not contain any adverse opinions, disclaimers nor were they qualified as to uncertainty, audit
scope or accounting principles.
There were no disagreements with Packer Thomas on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope and procedure, which disagreements, if
not resolved to the satisfaction of the former accountant, would have caused it to make reference
in connection with its report to the subject matter of the disagreement.
Representatives of S.R. Snodgrass, A.C. are not expected to be in attendance at the Annual
Meeting.
SUBMISSION OF SHAREHOLDER PROPOSALS
If any shareholder of the Corporation wishes to submit a proposal to be included in next
years Proxy Statement and acted upon at the annual meeting of the Corporation to be held in 2009,
the proposal must be received by the Secretary of Cortland Bancorp prior to the close of business
on November 25, 2008. Upon receipt of a shareholder proposal, Cortland Bancorp will determine
whether or not to include the proposal in the proxy materials in accordance with applicable SEC
Rules.
If a shareholder intends to present a proposal at the 2009 Annual Meeting, but has not sought
the inclusion of such proposal in Cortland Bancorps proxy materials, such proposal must be
received by the Secretary of Cortland Bancorp prior to January 31, 2009, or the management proxies
for the 2009 Annual Meeting will be entitled to use their discretionary voting authority, should
such proposal then be raised, without any discussion of the matter in Cortland Bancorps proxy
material.
DELIVERY OF PROXY MATERIALS TO SHAREHOLDERS SHARING AN ADDRESS
SEC rules provide for householding, which permits the Cortland Bancorp to send a single
annual report and a single proxy statement to any household at which two or more different
shareholders reside if Cortland Bancorp believes such shareholders are members of the same family
or otherwise share the same address or in which one shareholder has multiple accounts, if in each
case such shareholder(s) have not opted out of the householding process. Each shareholder would
continue to receive a separate notice of any meeting of shareholders and a separate proxy card.
The householding procedure reduces the volume of duplicate information that shareholders may
receive and reduces Cortland Bancorps expense. Cortland Bancorp may institute householding in the
future, and will notify those registered shareholders who will be affected by householding at that
time.
Many brokerage firms and other holders of record have instituted householding. If your family
has one or more street name accounts under which you beneficially own common shares of the
Cortland Bancorp, you may have received householding information from your broker, bank or other
nominee in the past. Please contact the holder of record directly if you have any questions,
require additional copies of the proxy statement or our annual report to shareholders for the 2007
fiscal year, or to revoke your consent to household and, thereby, receive multiple copies once
again. These options are available to you at any time.
OTHER BUSINESS
As of the date of this proxy statement, the Board of Directors knows of no other matters that
will be presented for action at the Annual Meeting other than those discussed in this proxy
statement. If any other business should properly arise, the persons acting under the proxies
solicited by the Board of Directors have the discretionary authority to vote in accordance with
their best judgement.
By Order of the Board of Directors.
James M. Gasior
Secretary
18
FORM OF PROXY
CORTLAND BANCORP
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of common shares of Cortland Bancorp hereby appoints George E. Gessner,
James E. Hoffman, III, and Timothy K. Woofter, or any one of them with full power of substitution,
to serve as my(our) proxy to attend the Annual Meeting of Shareholders of the Cortland Bancorp to
be held on Tuesday, April 22, 2008 at 7:00 p.m. at Vernons Cafe, 720 YoungstownWarren Road,
Niles, Ohio 44446, and to vote all of the common shares of Cortland Bancorp the undersigned is
entitled to vote at such Annual Meeting or adjournment as follows:
(1) |
|
Election of Directors |
|
|
|
|
|
|
|
|
|
|
DAVID C. COLE
|
|
[___]
FOR
|
|
[___]
WITHHOLD AUTHORITY |
|
|
|
|
|
|
|
|
|
|
|
LAWRENCE A. FANTAUZZI
|
|
[___]
FOR
|
|
[___]
WITHHOLD AUTHORITY |
|
|
|
|
|
|
|
|
|
|
|
NEIL J. KABACK
|
|
[___]
FOR
|
|
[___]
WITHHOLD AUTHORITY |
|
(INSTRUCTIONS: To vote for an individual nominee, place an X in the box marked FOR following
his name. If you prefer not to vote for an individual nominee, place an X in the box marked
WITHHOLD AUTHORITY following his name.)
(2) |
|
The Board of Directors of Cortland Bancorp was not aware of any other matters to be presented
for action at the Annual Meeting. However, should any such matters properly come before the
Annual Meeting, I authorize the above appointed proxies to vote in their discretion: |
|
|
|
|
|
|
[___]
|
|
[___] |
|
|
GRANT AUTHORITY
|
|
WITHHOLD AUTHORITY |
|
SHARES WILL BE VOTED AS SPECIFIED, BUT IF NO SPECIFICATION IS MADE, SHARES WILL BE VOTED FOR THE
ELECTION OF ALL OF THE NOMINEES LISTED IN ITEM (1), AND FOR ITEM (2), AND, AT THE DISCRETION OF THE
PROXIES, ON ANY OTHER MATTER WHICH PROPERLY COMES BEFORE THE ANNUAL MEETING.
Receipt of the accompanying Proxy Statement is acknowledged. Please sign, date, and return this
proxy promptly in the enclosed envelope.
Dated: , 2008
Signature
Signature
Please sign exactly as the name appears. If
executor, trustee, etc., give full title. If shares
are registered in two names, both should sign.