UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
HUDSON VALLEY HOLDING CORP.
(Name of Registrant as Specified In Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(1) Title of each class of securities to which transaction applies:
___________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
___________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________________________
(5) Total fee paid:
___________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
___________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
___________________________________________________________________________
(3) Filing Party:
___________________________________________________________________________
(4) Date Filed
___________________________________________________________________________
(HUDSON VALLEY HOLDING CORP. LOGO)
HUDSON VALLEY HOLDING CORP.
21 SCARSDALE ROAD
YONKERS, NEW YORK 10707
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 10, 2007
We will hold the annual meeting of shareholders of Hudson Valley Holding
Corp. a New York corporation (the "Company"), at Yonkers Raceway, 810 Yonkers
Avenue, Yonkers, New York on Thursday, May 10, 2007 at 4:00 p.m., local time,
for the following purposes:
1. To elect directors of the Company to serve until the next annual
meeting of shareholders.
2. To act on the proposal to amend the Company's Certificate of
Incorporation to increase the number of authorized shares of our
common stock from 10,000,000 to 25,000,000.
3. To act on the proposal to amend the Company's 2002 Stock Option Plan
to increase the maximum number of option awards available under the
plan from 635,000 to 1,535,000 shares of the Company's common stock.
4. To act on such other matters as may be properly brought before the
meeting or any adjournments, postponements or continuations of the
meeting.
The Board of Directors recommends that you vote:
- FOR the election of all of the nominees for director;
- FOR the proposal to amend the Company's Certificate of
Incorporation; and,
- FOR the proposal to amend the Company's 2002 Stock Option Plan.
The Board of Directors has fixed the close of business on April 5, 2007, as
the record date for the meeting. Only shareholders of record at the close of
business on this date are entitled to notice of, and to vote at, the meeting or
any adjournments, postponements or continuations of the meeting.
All shareholders are invited to attend the meeting. To ensure your
representation at the meeting, however, you are urged to mark, sign and return
the enclosed proxy in the accompanying envelope, whether or not you expect to
attend the meeting. In the event that you attend the meeting, you may vote in
person even if you have returned a proxy.
Your vote is important.
To vote your shares, please sign, date and complete the enclosed proxy and
mail it promptly in the enclosed return envelope.
April 12, 2007
By Order of the Board of Directors
----------------------------------------
James M. Coogan
Secretary
HUDSON VALLEY HOLDING CORP.
21 SCARSDALE ROAD
YONKERS, NEW YORK 10707
PROXY STATEMENT
This proxy statement is furnished to you in connection with the
solicitation of proxies by the Board of Directors to be used at the 2007 annual
meeting of shareholders of Hudson Valley Holding Corp. (the "Company"). Copies
of this proxy statement are being mailed on or about April 12, 2007 to persons
who were shareholders of record on April 5, 2007.
The Company is a New York corporation founded in 1982. The Company is
registered as a bank holding company under the Bank Holding Company Act of 1956.
The Company provides financial services through its wholly-owned
subsidiaries, Hudson Valley Bank ("HVB"), a New York chartered commercial bank
headquartered in Westchester County, New York, and NYNB Bank ("NYNB"), a New
York chartered commercial bank headquartered in Bronx County, New York (together
with HVB, "the Banks"). HVB is an independent bank established in 1982. NYNB, an
independent bank, is the successor to New York National Bank, a national banking
association which the Company acquired effective January 1, 2006.
The Company provides investment management services through a wholly-owned
subsidiary of HVB, A.R. Schmeidler & Co., Inc.
HVB is the primary operating subsidiary of the Company.
DATE, TIME AND PLACE OF MEETING
We will hold the 2007 annual meeting of shareholders on Thursday, May 10,
2007, at 4:00 p.m. local time, at Yonkers Raceway, 810 Yonkers Avenue, Yonkers,
New York, for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders.
MATTERS TO BE CONSIDERED AT THE MEETING
At the meeting, we will ask our shareholders to consider and vote upon:
- the election of directors to serve until our next annual meeting;
- the proposal to amend the Company's Certificate of Incorporation
to increase the number of authorized shares of our common stock
from 10,000,000 to 25,000,000; and,
- the proposal to amend the Company's 2002 Stock Option Plan.
The shareholders will also consider and vote upon such other matters as may
properly be brought before the meeting or any adjournment, postponement or
continuation thereof.
VOTE REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
shares entitled to vote generally for the election of directors is necessary to
constitute a quorum at the meeting. Abstentions and broker "non-votes" are
counted as present and entitled to vote for purposes of determining a quorum. A
broker "non-vote" occurs when a nominee holding shares for a beneficial owner
does not vote on a particular proposal because the nominee does not have
discretionary power with respect to that item and has not received instructions
from the beneficial owner.
A plurality of the votes cast by the shareholders present in person or by
proxy and entitled to vote is required to elect directors. With regard to the
election of directors, you may vote in favor of, or withhold
-1-
your vote from, each nominee. Abstentions and broker "non-votes" will have no
effect on the outcome of the election of directors.
The affirmative vote of the holders of a majority of the Company's shares
of common stock outstanding is required to approve the proposal to amend the
Company's Certificate of Incorporation to increase the number of authorized
shares of our common stock from 10,000,000 to 25,000,000. Since the vote of a
majority of the Company's outstanding shares of common stock is required to
approve the amendment, abstentions and broker "non-votes" will have the effect
of a vote against the proposal.
The affirmative vote of the holders of a majority of the shares of the
Company's common stock present in person or by proxy and entitled to vote at the
annual meeting is required to approve the proposal to amend the Company's 2002
Stock Option Plan to increase the maximum number of option awards available
under the plan from 635,000 to 1,535,000 shares of the Company's common stock.
Abstentions and broker "non-votes" will have no effect on the outcome of the
vote.
VOTING OF PROXIES
Shares of our common stock represented by properly executed proxies
received in time for the meeting, unless previously revoked, will be voted at
the meeting as specified by the shareholders on the proxies. If a proxy is
returned without any voting instructions, the shares represented thereby will be
voted in favor of the nominated slate of directors and in favor of both the
proposal to amend the Company's Certificate of Incorporation to increase the
number of authorized shares of our common stock from 10,000,000 to 25,000,000
and the proposal to amend the Company's 2002 Stock Option Plan, each as
recommended by the Board of Directors.
REVOCABILITY OF PROXIES
If you authorize a proxy, you have the power to revoke it at any time
before it is voted. You can do so in one of three ways. First, you can send a
written notice to our Vice President, Shareholder Relations at the following
address stating that you would like to revoke your proxy. Second, you can
complete a new proxy card and send it to our Vice President, Shareholder
Relations at the following address. Third, you can attend the meeting and vote
in person. You should send any written notice or new proxy card to:
Wendy Croker
Vice President, Shareholder Relations
Hudson Valley Holding Corp.
21 Scarsdale Road
Yonkers, NY 10707
You may request a new proxy card by calling Wendy Croker at (914) 961-6100.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE; QUORUM
Only shareholders of record at the close of business on April 5, 2007, will
be entitled to receive notice of and vote at the meeting. As of the record date
8,956,829 shares of common stock were issued and outstanding. Each share of
common stock is entitled to one vote on each matter on which holders of common
stock are entitled to vote. A majority of the outstanding shares of common stock
entitled to vote must be represented in person or by proxy at the meeting in
order for a quorum to be present.
SOLICITATION OF PROXIES
This proxy solicitation is being made by the Board of Directors, the form
of which is enclosed, for the meeting. The cost of any solicitation will be
borne by the Company. Our officers, directors or regular employees may
communicate with shareholders personally or by mail, telephone, telegram or
otherwise for the purpose of soliciting proxies. We and our authorized agents
will request brokers or other custodians, nominees and fiduciaries to forward
proxy soliciting material to the beneficial owners of shares held of record by
these persons and will reimburse their reasonable out-of-pocket expenses in
forwarding the material.
-2-
PROPOSALS OF SHAREHOLDERS AND COMMUNICATION WITH SHAREHOLDERS
Shareholders of the Company who intend to present a proposal for action at
the 2008 Annual Meeting of Shareholders of the Company, must notify the
Company's management of such intention by notice, received at the Company's
principal executive offices not later than December 14, 2007 for such proposal
to be included in the Company's proxy statement relating to such meeting.
The Board maintains active communication directly with shareholders. Oral
and written inquiries from shareholders are responded to by the Vice President,
Shareholder Relations, one of the Executive Officers or the Chairman of the
Board. The Board is advised of shareholder inquiries where appropriate. The
Board meets with and interacts with shareholders on an ad hoc basis and believes
the existing program facilitates effective open communication with the Company's
shareholders. Shareholders who wish to communicate with the Board of Directors
directly may do so by writing to the Board of Directors or to any member of the
Board at the Company's offices or through the HVB website at
www.hudsonvalleybank.com.
We have adopted a service approved by the Securities and Exchange
Commission (the "SEC") referred to as "householding", which is designed to
reduce duplicate mailings to you and to save printing and postage cost. This
rule allows us to send a single set of any shareholder documents, including
proxy information statement, and annual report, to any household at which
multiple shareholders reside, if we believe the shareholders are members of the
same family. You will continue to receive individual proxy cards for each
individual shareholder.
If a shareholder of record residing at such an address wishes to receive
separate documents in the future, he or she may contact Wendy Croker, Vice
President, Shareholder Relations, Hudson Valley Holding Corp., 21 Scarsdale
Road, Yonkers, NY 10707; telephone (914) 961-6100; email: wcroker@hvbank.com.
Your continued consent to householding will be presumed unless you notify us
that you wish to receive separate documents. We will begin sending separate
documents within 30 days after receipt of notice revoking consent. If you own
your shares through a bank, broker or other nominee, you can request
householding by contacting the nominee.
FINANCIAL STATEMENTS
Copies of the Company's Annual Report on Form 10-K for the year ended
December 31, 2006 are being delivered to shareholders together with this proxy
statement. Representatives of Deloitte & Touche LLP, the Company's independent
registered public accounting firm, are expected to attend the annual meeting of
shareholders, will have the opportunity to make a statement if they so desire
and will be available to respond to appropriate questions.
OTHER MATTERS
The Board of Directors knows of no matters that are expected to be
presented for consideration at the meeting that are not described herein.
However, if other matters properly come before the meeting, it is intended that
the persons named in the accompanying proxy will vote thereon in accordance with
their best judgment.
ELECTION OF DIRECTORS
It is the intention of the persons named in the enclosed form of proxy to
vote the shares represented by such proxy for the election of all of the
nominees listed below, unless such proxy specifies otherwise. Certain
information regarding each nominee is set forth in the table and text below. The
number of shares, if any, beneficially owned by each nominee is listed under
"Security Ownership of Certain Beneficial Owners and Management", beginning on
page 31.
-3-
NOMINEES FOR THE BOARD OF DIRECTORS
All directors of the Company serve for a term of one year, until the next
annual meeting of shareholders or until their respective successors have been
duly elected and qualified. All of the nominees are currently serving as
directors. The following table contains the position with the Company, if any,
and the principal occupation and certain other information about the nominees
based on information obtained from each nominee.
POSITION WITH THE COMPANY DIRECTOR
NAME AGE AND PRINCIPAL OCCUPATION SINCE
- ---- --- ------------------------- --------
William E. Griffin..... 74 Mr. Griffin is an attorney and is a 1981
shareholder and President of Griffin,
Coogan & Veneruso, P.C., a law firm
located in Bronxville, New York. Mr.
Griffin has served as Chairman of the
Board since 1990.
James J. Landy......... 52 President and Chief Executive Officer 2000
of the Company since January 2001.
Previously, Mr. Landy served as
Executive Vice President of HVB and in
various other executive capacities with
HVB. He has been employed by HVB since
1977.
Stephen R. Brown....... 51 Senior Executive Vice President, Chief 2000
Financial Officer and Treasurer of the
Company since July 2004. Previously,
Mr. Brown served as Senior Executive
Vice President, Chief Operating Officer
and Chief Financial Officer of the
Company from January 2001 to June 2004.
He has been employed by HVB since 1993.
James M. Coogan........ 64 Mr. Coogan is an attorney and is a 1994
shareholder and Vice President of
Griffin, Coogan & Veneruso P.C., a law
firm located in Bronxville, New York.
Mr. Coogan has served as Secretary
since 1997.
Bruno J. Gioffre....... 72 Mr. Gioffre is an attorney and is a 2006
shareholder and President and Director
of Gioffre & Gioffre P. C., a law firm
located in Purchase, New York, since
1970. Mr. Gioffre served as Chairman of
Sound Federal Bank, a community bank,
in Westchester County, New York from
1997 to July 2006. Previously, Mr.
Gioffre was elected Rye Town Justice in
1966 where he served until his
retirement in 1999.
Gregory F. Holcombe.... 45 Vice President, BMW Machinery Co., 1999
Inc., an investment holding company,
since 1988. From 2000 to January 2006,
Mr. Holcombe also served as Vice
President of Supply Chain Management of
Precision Valve Corporation, a maker of
aerosol spray valves based in Yonkers,
New York.
Michael P. Maloney..... 45 Executive Vice President, Chief Banking 2006
Officer of HVB since October 2005. From
January 2001 to October 2005, Mr.
Maloney served as Executive Vice
President, Strategic Relationships and
Sales of HVB. He has been employed by
HVB since 1999.
Angelo R. Martinelli... 79 Chairman of the Board of Gazette Press, 1990
Inc., a printing company located in
Yonkers, New York since 1948.
-4-
William J. Mulrow...... 51 Director of Citigroup Global Markets 2003
Inc., a financial services company
based in New York City, since October
2005. Mr. Mulrow is also a Managing
Director of Paladin Capital Group, a
private equity investment firm, since
January 2004. Previously, Mr. Mulrow
was Senior Vice President of Gabelli
Asset Management, Inc., an asset
management and financial services
company in Rye, New York from April
1999 to September 2005.
John A. Pratt Jr....... 76 Consultant to HVB since 1996, advising 1983
HVB on new business development and
business retention. Previously, Mr.
Pratt was the President and Chief
Executive Officer of the Company,
retiring in 1995.
Cecile D. Singer....... 77 Principal in Cecile D. Singer 1994
Consulting, a consulting firm located
in Yonkers, New York, specializing in
government relations since 1995.
Craig S. Thompson...... 53 President and principal shareholder of 1988
Thompson Pension Employee Plans, Inc.,
a company located in New York City and
specializing in pension administration
and investment and insurance sales for
over 20 years.
EXECUTIVE OFFICERS
Certain information with respect to executive officers of the Company and
of HVB is set forth below. All executive officers are elected by the Board of
Directors and serve until their successors are duly elected by the Board of
Directors. Messrs. Landy and Brown serve as executive officers of both the
Company and HVB, while the other individuals named below are executive officers
of HVB only. Biographical information concerning executive officers who are also
members of the Board of Directors is given above under the caption "Nominees for
the Board of Directors".
NAME AGE POSITION
- ---- --- --------
James J. Landy......... 52 President, Chief Executive Officer and Director
Stephen R. Brown....... 51 Senior Executive Vice President, Chief Financial
Officer, Treasurer and Director
Michael J. Gilfeather.. 49 Executive Vice President, Branch Banking of HVB
since July 2005. From May 2001 to 2005, Mr.
Gilfeather was President of Home Services Shop, a
service company in Westchester County. Previously,
he was a senior manager in Retail Banking for The
Bank of New York since 1980.
Michael P. Goldrick.... 42 Executive Vice President, Business and
Professional Banking of HVB since August 2005.
From January 2001 to August 2005, Mr. Goldrick was
Vice President, Middle Market Commercial Banking
for M&T Bank, a regional bank headquartered in New
York.
Daniel J. Harris....... 50 Executive Vice President and Chief Credit Officer
of HVB since April 2003. From March 1999 to
December 2002, Mr. Harris served as President,
Chief Executive Officer and a Director of
Lowestloan.com, Inc., an internet mortgage banker.
-5-
Michael P. Maloney..... 45 Executive Vice President, Chief Banking Officer of
HVB since October 2005. From January 2001 to
October 2005, Mr. Maloney served as Executive Vice
President, Strategic Relationships and Sales of
HVB. He has been employed by HVB since 1999.
Mary B. Minieri........ 48 Executive Vice President and Special Assistant to
the President of HVB since August 2005. From March
2002 to August 2005, Ms. Minieri served as
Executive Vice President, Branch Administrator of
HVB. Previously, she served as Senior Vice
President, Branch Administrator of HVB from
October 1997 to February 2002. She has been
employed by HVB since 1989.
Vincent T. Palaia...... 60 Executive Vice President and Chief Lending Officer
of HVB since 1997. He has been employed by HVB
since 1988.
Frank J. Skuthan....... 53 Executive Vice President and Marketing Director of
HVB since August 2000.
Christopher J. Taylor.. 56 Executive Vice President and Chief Operating
Officer of HVB since October 2005. From March 2004
to April 2005, Mr. Taylor served as Chief
Operating Officer, Retail Banking, The Bank of New
York, a financial institution based in New York.
From January 2002 to March 2004, he served as
Retail Banking Sector Head, The Bank of New York.
Prior to this he held various management positions
with The Bank of New York since 1990.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Corporate Governance
The Company's Board of Directors directly assumes responsibility for
governance duties. It establishes the criteria for membership on the Company's
Board of Directors and finds and recruits individuals whose experience and other
qualifications will enhance the goals of the Company. In evaluating candidates
for membership on the Board of Directors, the Board considers, in addition to
other factors, the candidate's business experience, community service, judgment,
integrity and ability to make the time commitment necessary to be an effective
member of the Board. It assesses the composition and effectiveness of the
Company's Board, HVB's Board, NYNB's Board and their Committees. The purpose of
this corporate governance process is (i) to identify the individuals qualified
to become members of the Board of Directors and to recommend the selection of
the nominees for membership on the Board of Directors for election at the annual
meeting of shareholders; (ii) to determine the composition of the Board and its
committees; and (iii) to monitor a process to assess Board effectiveness and to
develop and implement codes of ethics. Because the Board believes that this
process functions effectively to achieve its purpose, the Board does not have a
separate corporate governance or nominating committee.
Shareholders may propose director candidates for consideration by the
Company's Board of Directors by submitting same, in writing, to the Chairman of
the Board of the Company, Hudson Valley Holding Corp., 21 Scarsdale Road,
Yonkers, New York 10707. Also see "Proposals of Shareholders and Communication
with Shareholders" on page 3. The Board of Directors has not adopted formal,
specific minimum qualifications that must be met by a prospective nominee for a
position on the Company's Board. However, the Board considers those factors
outlined above, as well as other factors, in evaluating a nominee for the
Company's Board.
Although the Company's shares are not listed on the New York Stock Exchange
(the "NYSE") or any other stock exchange, the Company measures the independence
of its Board of Directors under the independence standards of the NYSE. Under
these standards, the Board of Directors believes that Ms.
-6-
Singer and Messrs. Mulrow, Gioffre and Holcombe would meet the standards of
independence for board members required for companies listed on the NYSE. The
Board considered the banking relationship that exists between HVB and Ms. Singer
and Messrs. Mulrow, Gioffre and Holcombe in determining each directors'
independence. Since these banking products and services are provided in the
normal course of business and are available on the same basis as to customers in
general, the Board concluded that these relationships do not affect the
directors' independence.
The Company's Board of Directors has adopted a code of ethics for Senior
Financial Officers in accordance with Item 406 of Regulation S-K promulgated by
the SEC. This code of ethics can be found on HVB's website at
www.hudsonvalleybank.com. The Company intends to disclose waivers from its code
of ethics on the HVB website at www.hudsonvalleybank.com.
The Company's Board of Directors convened 12 times in 2006. The Company's
Board of Directors reorganized its committees making the Audit Committee a
separate committee of the Board of Directors of the Company, effective June,
2006 and the Compensation and Organization Committee a separate committee of the
Company's Board effective February, 2007. Other policy decisions for the Company
and its subsidiaries continue to often be made by the full Board of Directors,
or by a standing committee of the Board of Directors of HVB and/or the Board of
NYNB. Each of the members of the Board of Directors of the Company is also a
member of the Board of Directors of HVB. No director attended fewer than 75
percent of the meetings of the Board and the Committees of the Board on which he
or she has served.
The Company encourages Board members to attend the Annual Meeting of
Shareholders. All Board members were in attendance at the most recent Annual
Meeting of Shareholders held May 11, 2006.
The Compensation and Organization Committee is charged with the
responsibility for: conducting performance reviews of all executive officers and
certain other officers of the Company and its subsidiaries; reviewing and
approving all officer promotions; reviewing salary ranges by grade, staffing
levels, vacancies, recruiting programs, benefit plans, pension plans and related
investment performance; approving stock option plans and all grants of stock
options; and reviewing the life insurance policies on executive officers. The
Compensation and Organization Committee also reviews and approves personnel
policies and engages consultants as required. The Committee convened six times
in 2006. Ms. Singer and Messrs. Griffin, Holcombe, Martinelli and Thompson
served as non-employee directors of this Committee, along with Messrs. Landy and
Brown, the Company's two employee directors. Although the Company's shares are
not listed on the NYSE, the Company measures the independence of its
Compensation and Organization Committee under the independence standards of the
NYSE. Under these standards, the Board of Directors believes that Ms. Singer and
Mr. Holcombe would meet the standards of independence for Compensation and
Organization Committee members for companies listed on the NYSE.
The Compensation and Organization Committee oversees the Company's
compensation programs. Our compensation programs include programs designed
specifically for our executive officers, including the CEO and CFO. The
Committee evaluates the performance of executive officers and makes all final
compensation decisions for executive officers. The Committee utilizes
independent, qualified consultants to provide research, analysis and
recommendations to the Committee regarding executive officers compensation. The
consultants assist the Committee in designing compensation plans, analyzing peer
group comparative data, setting performance goals and determining the mix
(salary, cash bonus, equity incentives) and total amount of compensation. See
"Executive Compensation - Compensation Discussion and Analysis" beginning on
page 9 of this Proxy Statement for more information regarding the Committee's
role in determining executive compensation.
The Audit Committee assists the Board of Directors in fulfilling its
oversight responsibilities as to accounting policies and financial reporting
practices of the Company and its subsidiaries, the sufficiency of auditing
relative thereto and the adequacy and effectiveness of the Company's internal
controls. The Committee also has responsibility for reviewing compliance with
the Company's business ethics and conflict of interest policies. The Audit
Committee has the responsibility for and authority to select and terminate the
independent registered public accounting firm and approve their fees and
expenses. The Audit
-7-
Committee operates under a written charter adopted by the Board of Directors
which can be found on HVB's website at www.hudsonvalleybank.com. The Committee
convened five times in 2006. During 2006, the Audit Committee members were Ms.
Singer, Messrs. Mulrow, Coogan, Pratt and Thompson. Although the Company's
shares are not listed on the NYSE, the Company measures the independence of its
Audit Committee under the independence standards of the NYSE. Under these
standards, the Board of Directors believes that Ms. Singer and Mr. Mulrow would
meet the standards of independence for audit committee members required for
companies listed on the NYSE.
The Board of Directors is not required to designate one Committee member as
a financial expert since the Company's stock is not listed on an exchange. The
Board of Directors does not believe that any one member would meet the
qualifications to be designated a financial expert, however, the Board of
Directors believes that the Audit Committee members, collectively, based upon
their experience on the Company's Board, as well as other relevant experience,
possess significant understanding of the Company's financial reporting and
related systems of control and are therefore effective in fulfilling their
responsibilities.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors,
the Audit Committee (the "Committee"), which consists entirely of non-employee
directors, assists the Board of Directors in fulfilling its responsibility for
oversight of the quality and integrity of the accounting, auditing and financial
reporting practices of the Company.
In discharging its oversight responsibility as to the audit process, the
Committee obtained from the independent registered public accounting firm a
formal written statement describing all relationships between them and the
Company that might bear on their independence consistent with the Independence
Standards Board Standard No. 1, "Independence Discussions with Audit
Committees." The Committee discussed with the independent registered public
accounting firm any relationships that may impact their objectivity and
independence, including fees for non-audit services, and satisfied itself as to
the firm's independence.
Pursuant to Section 404 of the Sarbanes-Oxley Act, management is required
to prepare as part of the Company's 2006 Annual Report on Form 10-K a report by
management on its assessment of the Company's internal control over financial
reporting, including management's assessment of the effectiveness of such
internal control. Deloitte & Touche LLP has issued an audit report relative to
internal control over financial reporting. During the course of fiscal 2006,
management regularly discussed the internal control review and assessment
process with the Audit Committee, including the framework used to evaluate the
effectiveness of such internal controls, and at regular intervals updated the
Audit Committee on the status of this process and actions taken by management to
respond to issues identified during this process. The Audit Committee also
discussed this process with Deloitte & Touche LLP. Management's assessment
report and the auditors' audit report are included as part of the 2006 Annual
Report on Form 10-K.
The Committee discussed and reviewed with the independent registered public
accounting firm all communications required by generally accepted auditing
standards, including those described in Statement on Auditing Standards No. 61,
as amended, "Communications with Audit Committees" and, with and without
management present, discussed and reviewed the independent auditors' audit of
the financial statements. The Committee also discussed the results of the
internal audit examinations.
The Committee reviewed the audited financial statements of the Company as
of and for the year ended December 31, 2006, with management and the independent
registered public accounting firm. Management has the responsibility for the
preparation of the Company's financial statements and the independent registered
public accounting firm has responsibility for the audit of those statements.
Based on the above-mentioned review and discussions with the independent
registered public accounting firm, the Committee recommended to the Board of
Directors that the Company's audited
-8-
financial statements be included in its Annual Report on Form 10-K for the year
ended December 31, 2006, for filing with the SEC. The Committee has not yet
determined whether to reappoint Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the year ending December 31,
2007. In making its determination, the Committee will consider price, quality of
service and the potential benefits of rotating accounting firms.
William J. Mulrow, Chairman
James M. Coogan
John A. Pratt Jr.
Cecile D. Singer
Craig S. Thompson
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES
Set forth below is a summary of the fees paid for the years ended December
31, 2006 and December 31, 2005 to the Company's independent registered public
accounting firm, Deloitte & Touche LLP.
2006 2005
-------- --------
Audit Fees $350,000 $250,000
Audit-related fees(1) 185,000 230,000
Tax fees(2) 84,507 71,000
-------- --------
Total $619,507 $551,000
(1) Audit of internal controls over financial reporting and other related
matters
(2) Tax fees
2006 2005
------- -------
Tax return preparation and review $52,800 $48,000
Tax consulting - tax research 22,957 --
Tax consulting - tax examinations 8,750 23,000
------- -------
$84,507 $71,000
PRE-APPROVAL POLICIES
In accordance with the procedures set forth in its charter, the Audit
Committee approves in advance all audit services and permitted non-audit
services (including the fees and terms of those services) to be performed for
the Company by its independent registered public accounting firm. All services
must be submitted to the Committee for approval in writing, generally in the
form of an engagement letter, which outlines the services to be performed and
the associated fees. All of the fees and services described above were
pre-approved by the Audit Committee.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION & ANALYSIS
This is a report of the Company and our Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"). In this "Compensation Discussion and Analysis"
section, the terms "we," "our," "us," refer to the Company and, when the context
requires, to the CEO and the CFO.
OVERSIGHT OF EXECUTIVE COMPENSATION PROGRAM
The Compensation and Organization Committee of our Board of Directors (the
"Compensation Committee") oversees our compensation programs. Our compensation
programs include programs designed specifically for our executive officers,
including the CEO, CFO and other executive officers named in the Summary
Compensation Table on page 21 (the "Senior Executives" or "Named Executive
Officers").
-9-
The Board of Directors established the Compensation Committee to, among
other things, establish, review and approve the compensation levels of Senior
Executives, evaluate the performance of Senior Executives and certain other
officers and consider senior management succession issues and related matters
for the Company. The objectives and the goals of the Company's compensation
program are to attract, retain, motivate and reward executives capable of
leading the Company in achieving its business objectives and annual goals. The
Company's program is intended to reward past performance of the Senior
Executives and align their long-term interests with those of our shareholders.
The Compensation Committee has utilized independent, qualified consultants
to assist them in the design and administration of the compensation programs
applicable to Senior Executives and others. During 2005 and 2006, the
Compensation Committee engaged Pearl, Meyer and Partners ("Pearl") to assist
them in revising the compensation program to more clearly define the
relationship between performance expectations and related compensation.
ROLE OF CEO AND CFO IN COMPENSATION DECISIONS
The CEO and CFO are Directors of the Company and serve on the Compensation
Committee. The CEO and CFO do not participate in the process of determining the
compensation of the Board of Directors or their own compensation. The
Compensation Committee, with input from the non-employee directors, determines
the compensation of the CEO and CFO without the CEO's or CFO's participation or
presence.
The Compensation Committee makes all final compensation decisions for
Senior Executives, including equity awards. The CEO annually reviews the
performance of each Senior Executive (other than his own). The conclusions and
recommendations resulting from the CEO's reviews, including proposed salary
adjustments and annual award amounts, are then presented to the Compensation
Committee for its consideration and approval. The Compensation Committee
exercises its discretion in modifying performance recommendations presented to
them. The CEO and CFO do not participate in the determination of their own
compensation.
OBJECTIVES OF HUDSON VALLEY HOLDING CORP.'S COMPENSATION PROGRAMS
We compensate Senior Executives through a combination of base salary,
bonus, equity participation, retirement plans and other personal benefits
designed to be competitive with comparable employers. Our underlying goal is to
motivate our executives to attain their annual goals and to align management's
incentives with the long-term interests of our shareholders. Our compensation
setting process consists of the CEO and CFO, working together with the
Compensation Committee to establish targeted total compensation for each Senior
Executive and then allocating that compensation among base salary and incentive
compensation, including equity incentives in the form of stock options. As this
Proxy Statement indicates, we are asking shareholders to increase the number of
shares reserved for issuance under the Company's 2002 Stock Option Plan. This
amendment would permit additional 900,000 stock options to be awarded to Senior
Executives and to employees, directors and other persons providing services to
the Company.
Our process begins with establishing individual and corporate performance
objectives for Senior Executives for the year. Together, the Board of Directors
and each Senior Executive establish individual and corporate performance
objectives. A key performance objective has been, and remains, the attainment of
annual profitability targets determined as a return on average shareholder
equity. This performance target for 2006 was determined to be 18.5%. This target
is established annually and is intended to result in financial performance that
exceeds industry norms and, as a result, provides superior returns to our
shareholders. Other performance targets are also established annually. For 2006,
these included specific loan, deposit and fee income growth targets as well as
expansion of the Company's branch banking network. For 2006, these targets were:
loan growth of 22%, deposit growth of 11%, fee income of $11 million and the
opening of at least two new branch banking offices. These targets are approved
by the Board of Directors, considering current general industry trends as well
as the degree of difficulty in achieving the target.
-10-
We do not believe that it is appropriate to establish compensation levels
based solely on benchmarking against peer group data. We do believe, however,
that information regarding pay practices at other companies is useful in at
least two respects. First, we recognize that our compensation practices must be
competitive in the marketplace. Second, this marketplace information is one of
the many factors that the Compensation Committee considers in assessing the
reasonableness of compensation. We utilize consultants to regularly update
marketplace pay practices.
In 2006, the CEO recommended to the Compensation Committee that each Senior
Executive's compensation be based primarily upon an assessment of each Senior
Executive's leadership, performance and potential to enhance long-term
shareholder value. We rely upon our judgment about each individual, as well as
their attainment of annual performance targets, in determining the amount and
mix of compensation elements and whether each particular payment or award
provides an appropriate incentive and reward for the attainment of annual
performance targets and for performance that sustains and enhances long-term
shareholder value. Key factors affecting our judgment include: (i) performance
compared to the financial, operational and strategic goals established for the
Senior Executive at the beginning of the year; (ii) nature, scope and level of
responsibilities; and (iii) contribution to the Company's financial results,
particularly with respect to return on equity.
The Compensation Committee met six times in 2006 to discuss, analyze,
approve and recommend to the Board certain compensation matters for the Senior
Executives and the non-employees directors.
COMPENSATION CONSULTANT
In 2005, the Company and the Compensation Committee engaged a third party
compensation consultant, Pearl Meyers and Partners ("Pearl"), to provide
research, analysis and recommendations to the Compensation Committee regarding
Senior Executives' and other officers' compensation for 2006 and beyond. During
2006, representatives of Pearl attended three of the Compensation Committee
meetings. Further, representatives of Pearl attended numerous meetings with the
Chairman of the Board and the Compensation Committee Chairperson as well as
designated officers to consult on plan design.
Pearl assisted the Compensation Committee by providing comparative market
data on compensation practices and programs based on an analysis of peer
competitors. Pearl also provided guidance on industry best practices. Pearl
advised the Compensation Committee in: (i) determining base salaries and annual
incentive compensation for Senior Executives for 2006 and beyond; (ii) setting
individual performance goals and award levels for Senior Executives for
long-term incentive compensation beginning in 2006, and (iii) designing and
determining individual equity grant levels for Senior Executives, consonant with
Company objectives.
PEER GROUP AND COMPENSATION TARGETS
With respect to incentive compensation to Senior Executives and total
compensation of these Senior Executives, the Compensation Committee, with the
assistance of Pearl, performed a comparison study of the current compensation of
the Senior Executives at the Company with comparable financial institutions (the
"Peer Group"). The Peer Group was used to provide a benchmark of executive
compensation levels against companies that have executive positions with
responsibilities similar in breadth and scope to the Company and have businesses
that compete with the Company for executive talent.
In order to remain consistent from year to year, we have determined that we
will use Pearl or other independent, qualified consultants as part of our annual
marketplace study. On the other hand, because some of the specific financial
institutions included in the Peer Group may change their size, relevance or
other pertinent factors, the Peer Group could include new or different companies
in the future.
The Compensation Committee reviews compensation data, such as the data
collected from the Peer Group, prepared with the assistance of Pearl (the
"Survey Data") to ensure that our total Senior Executive compensation program is
competitive. The Survey Data is a compilation of compensation and other data
-11-
prepared by Pearl based upon its review of the Peer Group as well as other
companies that participate in banking surveys.
The Compensation Committee, based upon the Survey Data and comparison
study, determined that the Senior Executives' total compensation for the year
2006 would be targeted to the 65th percentile of the median of total
compensation for respective executive officers in the Peer Group. The reason for
targeting total compensation is based upon various factors including, but not
limited to, establishing the appropriate mix of each element of total
compensation.
OVERVIEW OF COMPENSATION PHILOSOPHY
The Compensation Committee believes that the most effective executive
compensation program is one that is designed to reward the achievement of
specific annual, long-term and strategic goals by the Company. Our strategy
attempts to align executives' interests with those of the shareholders by
rewarding performance that attains established goals, with the ultimate
objective of improving shareholder value. The Compensation Committee evaluates
both performance and compensation to ensure that the Company maintains its
ability to attract and retain superior employees in key positions. We strive to
maintain compensation that is competitive relative to the compensation paid to
similarly situated executives of our peer companies. To that end, the
Compensation Committee believes executive compensation packages provided by the
Company to its Senior Executives should include both cash and stock-based
compensation that reward performance as measured against established goals.
The following compensation objectives are considered in setting the
compensation programs for our Senior Executives:
- drive and reward performance which supports the Company's financial
performance targets, most specifically, return on equity;
- provide a significant percentage of total compensation that is
"at-risk", or variable based on predetermined performance criteria;
- encourage stock holdings to align the interests of Senior Executives
with those of shareholders;
- design competitive total compensation and rewards programs to enhance
our ability to attract and retain knowledgeable and experienced Senior
Executives; and
- set compensation and incentive levels that reflect competitive market
practices.
COMPENSATION ELEMENTS AND RATIONALE FOR PAY MIX DECISIONS
To reward both short- and long-term performance and in furtherance of our
compensation objectives noted above, our Senior Executive compensation
philosophy includes the following four principles:
(I) COMPENSATION SHOULD BE RELATED TO PERFORMANCE
We believe that a significant portion of a Senior Executive's compensation
should be tied not only to individual performance, but also to the performance
of the Company measured against both financial and non-financial goals and
objectives. During periods when performance meets or exceeds the established
objectives, Senior Executives should be paid commensurate with their
performance. When our performance does not meet key objectives, incentive award
payments should be diminished.
-12-
(II) INCENTIVE COMPENSATION SHOULD REPRESENT A MAJOR PORTION OF A SENIOR
EXECUTIVE'S TOTAL COMPENSATION
The mix between salary and short- and long-term incentives (bonus and stock
options) should be appropriate so as to remain competitive in the marketplace
and to significantly motivate Senior Executives to achieve performance targets.
A significant portion of compensation should be paid in the form of short-term
and long-term incentives, which are calculated and paid based primarily on
financial measures of profitability and shareholder value creation. Senior
Executives have the incentive of increasing Company profitability and
shareholder return in order to earn the major portion of their compensation
package.
(III) COMPENSATION LEVELS SHOULD BE COMPETITIVE
The Compensation Committee reviews the Survey Data to ensure that the
compensation program is competitive with that provided by other comparable
firms, such as the Peer Group. We believe that a competitive compensation
program enhances our ability to attract and retain Senior Executives.
(IV) INCENTIVE COMPENSATION SHOULD BALANCE SHORT-TERM AND LONG-TERM
PERFORMANCE
The Compensation Committee seeks to achieve a balance between encouraging
strong short-term annual results and ensuring our long-term viability and
success. To reinforce the importance of balancing these perspectives, Senior
Executives will be provided both short- and long-term incentives. We provide
Senior Executives and most employees with the means to become shareholders of
the Company so as to share in increased value with shareholders. These
opportunities are provided through stock option grants.
METRICS USED IN COMPENSATION PROGRAMS
The Compensation Committee working with the CEO adopted a general outline
of performance-based metrics for defining Senior Executive incentive
compensation. These metrics (the "Performance Metrics") are defined, and their
use in Senior Executive's annual compensation is described, below:
FINANCIAL METRIC
The Financial Metric comprises the Company's adherence to its 2006
Financial Plan (the "Financial Plan"). The Financial Plan, devised by management
and approved by the Board of Directors, contains initiatives in virtually all
phases of the Company's operations. The goal of the Financial Plan was to
maximize shareholder value in 2006 by increasing earnings through numerous
initiatives in the areas of operating efficiency, asset and liability mix, and
loan and deposit growth. A significant feature of the Financial Plan related to
growth in loans and deposits and the attainment of an 18.5% return on equity.
For 2006, the targets for growth were: loan growth 22%, deposit growth 11% and
fee income of $11 million.
NON FINANCIAL METRIC
The Non-Financial Metric entails the expansion of the Company's branch
banking network through identifying, equipping and opening at least two new
locations. We believe such branch banking expansion is important to our ability
to continue to increase loans and deposits in 2006 and beyond.
COMPENSATION BENCHMARKING RELATIVE TO MARKET
In 2006, Pearl provided the Compensation Committee with the Survey Data to
assist in the review and comparison of each element of compensation for the
Senior Executives. With such information, the Compensation Committee reviewed
and analyzed compensation for each Senior Executive and used the Survey Data
from the Peer Group as a guide to determine base salary and incentive
compensation factors and weighting for determination of cash bonuses and stock
option grants. The Compensation Committee targets different compensation levels
for each element of compensation as described below.
-13-
REVIEW OF SENIOR EXECUTIVE PERFORMANCE
The Compensation Committee reviews each compensation element of a Senior
Executive. In each case, we take into account the scope of responsibilities and
experience, and balance them against competitive salary levels. Members of the
Compensation Committee have the opportunity to interact with the Senior
Executives at various times during the year, which allows the Compensation
Committee to form its own assessment of each individual's performance. This
interaction is further supplemented by input from the Board which also regularly
interacts with Senior Executives.
Each year the CEO presents to the Compensation Committee his evaluation of
each Senior Executive, which includes a review of contribution and performance
over the past year, strengths, weaknesses, development plans and succession
potential. Following this presentation, and a review of the Survey Data, the
Compensation Committee makes its own assessments and determines the compensation
for each Senior Executive.
COMPONENTS OF THE EXECUTIVE COMPENSATION PROGRAM
We believe the total compensation and benefits program for Senior
Executives should consist of the following:
- base salaries;
- annual incentive plan awards;
- long-term incentive compensation awards, through stock option grants;
and
- retirement, health, welfare and personal benefits.
BASE SALARIES
Senior Executives' base salaries are generally targeted at the 65th
percentile of the Survey Data. Base salaries are determined by evaluating a
Senior Executive's level of responsibility and experience, the Company's
performance and Survey Data.
Adjustments to base salaries, if any, are driven primarily by Company and
individual performance and comparative information from the Survey Data.
Individual performance is evaluated by reviewing the Senior Executive's success
in achieving business results.
When considering the base salary of the Senior Executives for fiscal year
2006, we reviewed the compensation of comparable senior executives from the
Survey Data. We also considered the Company's continuing achievement of its
short-term and long-term goals:
- return on equity and earnings after tax goals;
- growth in loans and deposits;
- successfully manage institutional risk;
- expand our branch banking network; and
- attract, retain and develop human resource capability.
Base Salary decisions for 2007 and beyond will reflect our success in
continuing to meet these goals as well as the Performance Metrics of each Senior
Executive.
Pearl assists us with the evaluation of the Survey Data, general economic
conditions and marketplace compensation trends. The Compensation Committee may
then adjust base salaries for Senior Executives when:
-14-
- the current compensation demonstrates a significant deviation from the
market data;
- it wishes to recognize outstanding individual performance; and
- it wishes to recognize an increase in responsibility.
Benchmarking and aligning base salaries is critical to a competitive
compensation program. Other elements of compensation are affected by changes in
base salary. Annual incentives (bonus and stock options) are targeted and paid
out as a percentage of base salary. The salaries paid to the CEO, CFO and other
Senior Executives during fiscal year 2006 are shown in the Summary Compensation
Table on page 21.
ANNUAL INCENTIVE CASH COMPENSATION
The annual incentive cash compensation award provides Senior Executives
with the opportunity to earn cash bonuses based on the achievement of specific
Company-wide and individual performance goals. The Compensation Committee
designs the annual incentive component of our compensation program to align
Senior Executives' pay with our annual (short-term) performance. Incentive cash
bonuses are generally paid in part in the third quarter of each year based upon
performance year to date (but no more than 40% of target award) with the balance
paid in the first quarter of the subsequent year.
The Compensation Committee approves a target incentive payout as a
percentage of the base salary earned during the incentive period for each Senior
Executive. These target percentages are based on competitive practices for each
comparable position in the Survey Data. The incentive target percentage
represents the Senior Executive's annual bonus opportunity if the annual
performance goals of the incentive plan are achieved.
The incentive compensation award establishes a set of Financial and
Non-Financial Metrics for each Senior Executive. These metrics are selected to
drive annual performance. Each Performance Metric has a weight within the plan,
and the sum of the weights is 100%. In 2006, Financial Metrics comprised 95% of
the target incentive and Non-Financial Metrics comprised 5% of the target
incentive. Below is a table showing the 2006 Annual Incentive Plan Weightings
for Senior Executives.
INCENTIVE FACTORS AND WEIGHTING (%)
INCENTIVE -------------------------------------------------
TARGET AT % RETURN ON DEPOSIT LOAN FEE BRANCH
NAME OF SALARY EQUITY GROWTH GROWTH INCOME EXPANSION
- ---- ----------- --------- ------- ------ ------ ---------
James J. Landy 60 50 20 15 10 5
Stephen R. Brown 55 50 20 15 10 5
Michael P. Maloney 50 50 20 15 10 5
Vincent T. Palaia 50 50 15 20 10 5
Christopher J. Taylor 50 50 20 15 10 5
Performance targets are established at levels that are achievable, but
require financial performance in excess of industry norms. Each of the Senior
Executives received an annual bonus based on their individual contributions to
the 2006 performance.
The amount to be paid to each Senior Executive as annual incentive for 2006
was determined by analyzing Company-wide and individual Performance Metrics and
in consultation with Pearl as previously discussed. The Compensation Committee
analyzes the Company's attainment of each Incentive Factor as well as the
individual Senior Executives contribution to attainment of these Incentive
Factors. For example, Senior Executives with individual business development
goals have a more direct impact on certain Incentive Factors, such as loan and
deposit growth, than do other Senior Executives with no individual business
development goals. Each Incentive Factor's weighting is adjusted to reflect the
actual percentage of achievement of the targets for the year. The Compensation
Committee sets minimum, target and maximum levels for each component of the
Performance Metrics for the annual cash incentive compensation. Payments of
annual incentive compensation are based upon the achievement of such objectives
for the current year. The 2006 annual cash incentive payments awarded to the
Senior Executives
-15-
(awarded in two payments, in the third quarter of 2006 and in the first quarter
of 2007) are shown on the Summary Compensation Table on page 21.
For 2006, each Incentive Factor was attained by the Company and Senior
Executives except, deposit growth attained was 75% of target and the branch
expansion targets were not attained.
EQUITY INCENTIVE PLAN - STOCK OPTIONS
On May 14, 2002, our Shareholders adopted the 2002 Stock Option Plan (the
"2002 Plan"). The 2002 Plan provides for the grant of equity awards to officers,
directors, employees, consultants and other persons providing services to the
Company.
Our stock option program is a vital element of our drive to recruit, retain
and motivate the high-potential leaders who will sustain our performance as we
continue our focus on our business objectives. It also reinforces in the Company
the real incentive for our employees to sustain and enhance the Company's
long-term performance. The Board and the Compensation Committee believes that
the superior performance of these individuals will contribute significantly to
the Company's future success.
As of the date hereof, 972,600 options (adjusted for subsequent stock
dividends) have been granted under the 2002 Plan. The 2002 Plan, when adopted,
provided that 635,000 shares were reserved for issuance pursuant to option
awards. The Board of Directors is seeking shareholder approval to increase the
number of shares reserved for issuance to 1,535,000. Until an option is
exercised, shares subject to options cannot be voted nor are they eligible to
receive cash dividends. The Board of Directors and the Compensation Committee
believes the award of options to officers, directors, employees, consultants and
other persons is an important element of our compensation programs and directly
ties performance rewards to the long-term growth in earnings and shareholder
value. The award of options currently represents a meaningful part of annual
compensation for Senior Executives. The approval of the increase in number of
shares reserved for issuance under the 2002 Plan is the subject of Proposal 3 in
this Proxy Statement on page 34.
Typically, at the beginning of each year, we make annual grants of stock
options to our Senior Executives and employees based upon overall Company
financial performance during the prior year. Senior Executives and other
employees may also receive stock options at the time they are first employed and
then annually. Non-employee directors are typically granted stock options at the
time they are appointed to the Board and then annually.
Each stock option permits the Senior Executive to purchase one share of
common stock from the Company at the exercise price, which is the per share fair
market value of the Company stock on the date of grant. Stock options have value
only to the extent the price of the Company stock on the date of exercise
exceeds the exercise price. Stock options granted in 2006 will generally become
exercisable in five equal annual installments beginning with the grant date. For
non-employee directors, their stock options are fully vested on the date of
grant. The number of stock options granted to Senior Executives and non-employee
directors, and the value of these awards based on the present value of the
estimated future benefit using the Black-Scholes options pricing model, are
shown on the Grant of Plan-Based Awards Table on page 22. Additional information
on these grants, including the number of shares subject to each grant, is also
shown in the Grants of Plan-Based Awards Table.
Stock options are granted based upon the attainment of Company-wide
financial performance goals annually as well as individual performance. The
Compensation Committee has established targets, represented as a percentage of
salary, for the future value of stock options, awarded annually. These target
values are adjusted based upon individual performance as shown in the table
below:
INDIVIDUAL PERFORMANCE PERCENTAGE OF TARGET
- ---------------------- --------------------
Outstanding 125
Above Average 105
Standard 90
Below Standard 0
-16-
Various persons are involved in the stock option granting process. The
Compensation Committee approves stock option grants to Senior Executives and to
employees, directors and consultants of the Company. The Compensation Committee
oversees our stock option practices and administration of the 2002 Plan. The
Company's Corporate Controller, also its Principal Accounting Officer has
established procedures that provide for consistency and accuracy in determining
the fair market value of options and the expense regarding the stock option
grants in compliance with SFAS No. 123(R).
Our stock trades on a limited basis in the over-the-counter market. A
significant number of our shareholders purchased their shares subject to various
Stock Restriction Agreements. Pursuant to these Stock Restriction Agreements, we
hold a right of first refusal if the Shareholder proposes to sell their shares
to a third party. Historically, we have exercised our right of first refusal and
have purchased a substantial number of the shares offered to us pursuant to the
Stock Restriction Agreements. Exercising our right to repurchase such shares
limits the availability of shares in public markets.
As a result of the above limitations on shares traded in public markets, we
engage an independent, qualified third party to annually evaluate our stock and
establish the fair market value. We utilize the fair market value in
establishing our repurchase price for shares, as well as, determining the
exercise price of stock options at the date of grant. We believe this valuation
method is the most appropriate in determining the fair market value of our
stock. Refer to "Part II - Item 5 - Market for Registrant's Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity Securities" in our
2006 Annual Report on Form 10-K for more information regarding our stock.
Option grants are made at Compensation Committee meetings scheduled in
advance to meet appropriate deadlines for compensation related decisions.
There is a limited term in which the Senior Executive can exercise stock
options, known as the "option term". The option term for Senior Executives is
generally ten years from the date of grant. At the end of the option term, the
right to purchase any unexercised options expires. Option holders generally
forfeit any unvested options if their employment with us terminates.
TAX IMPLICATIONS OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") places a limit of $1,000,000 on the amount of compensation that may be
deducted by the Company in any year with respect to the CEO or any other Senior
Executive unless the compensation is performance-based compensation as described
in Section 162(m) and the related regulations. We have qualified certain
compensation paid to Senior Executives for deductibility under Section 162(m),
including (i) certain amounts paid as incentive compensation, (ii) certain
compensation expense related to options granted pursuant to the Company's 2002
Plan.
Although we have generally attempted to structure executive compensation so
as to preserve deductibility, we also believe that there may be circumstances
where our interests are best served by maintaining flexibility in the way
compensation is provided, even if it may result in the non-deductibility of
certain compensation under the Code.
Although equity awards may be deductible for tax purposes by the Company,
the accounting rules pursuant to APB 25 and SFAS No. 123(R) require that the
portion of the tax benefit in excess of the financial compensation cost be
recorded to paid-in-capital.
RETIREMENT, HEALTH AND WELFARE BENEFITS
We offer a variety of health and welfare programs to all eligible
employees. The Senior Executives generally are eligible for the same benefit
programs on the same basis as the rest of the eligible employees. The health and
welfare programs are intended to protect employees against catastrophic loss and
encourage a healthy lifestyle. Our health and welfare programs include medical,
pharmaceutical, dental, life insurance
-17-
and accidental death and disability. The Company provides full time employees,
regularly scheduled to work 30 or more hours per week, short-term disability,
long-term disability and life insurance. All employees, including Senior
Executives, contribute to the cost of these plans. We offer a qualified 401(k)
savings and profit sharing retirement plan. All Company employees, including
Senior Executives, are generally eligible for this plan. The Compensation
Committee determines the contribution to the profit sharing plan and the 401(k)
matching contribution annually.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
The Company provides supplemental retirement benefits to certain Senior
Executives and other officers. These benefits are provided through both the 1995
Supplemental Retirement Plan and the 1997 Supplemental Retirement Plan
(collectively the "SERP"). These plans are not qualified for tax purposes and
are available only to certain officers. Benefits under these plans are unfunded.
The SERP entitles participating officers to receive supplemental retirement
benefits for a period of 15 years payable on a monthly basis.
Pursuant to the 1995 Supplemental Retirement Plan, supplemental benefits
equal 75% of the officer's highest base salary in any of the last three years of
employment, less any retirement plan benefits provided to him by the Company.
Pursuant to the 1997 Supplemental Retirement Plan, supplemental benefits equal
60% of the average of the highest five years' annual base compensation paid to
the officer during his last 10 years of employment, reduced by (1) the value of
his qualified plan account as of the date of retirement; (2) the value of his
401(k) matching benefit as of the date of retirement; (3) 50% of his primary
social security benefit; and (4) the value of any other retirement type benefits
provided to him by the Company.
Of the Named Executive Officers, Messrs. Landy and Palaia are participants
in the 1995 Supplemental Retirement Plan, Messrs. Brown and Maloney are
participants in the 1997 Supplemental Retirement Plan.
PERSONAL BENEFITS
Each Senior Executive is provided certain additional benefits which include
personal use of a company car and club membership. The value of these benefits
are shown on the Summary Compensation Table on page 21 under the heading "All
Other Compensation".
SEVERANCE PLAN
The Company has no severance plan in place for any of its Senior
Executives.
EMPLOYMENT AGREEMENTS AND ARRANGEMENTS
The Company has no employment agreements or employment arrangements in
place for any of its Senior Executives.
CHANGE IN CONTROL AGREEMENTS
We have no Change in Control Agreements with any of the Senior Executives.
The SERP, provided to certain Senior Executives and certain other officers,
provides for the acceleration of a participant's age under the SERP should a
change in control of the Company occur.
COMPENSATION OF SENIOR EXECUTIVES
The base salary levels for the 2006 year for the Senior Executives were as
follows: Mr. Landy, $360,000 per year; Mr. Brown, $340,000 per year; Mr.
Maloney, $260,000 per year; Mr. Palaia $250,000 per year; and Mr. Taylor,
$231,250 per year.
-18-
Set forth below is information regarding compensation earned by or paid or
awarded to the following Senior Executives during the year ended December 31,
2006: (i) James J. Landy, President and Chief Executive Officer of the Company;
(ii) Stephen R. Brown, Senior Executive Vice President, Chief Financial Officer
and Treasurer of the Company; (iii) Michael P. Maloney, Executive Vice
President, Chief Banking Officer of HVB; (iv) Vincent T. Palaia, Executive Vice
President, Chief Lending Officer of HVB; and (v) Christopher J. Taylor,
Executive Vice President, Chief Operating Officer of HVB.
CHIEF EXECUTIVE OFFICER OF THE COMPANY. James J. Landy is the Company's
President and Chief Executive Officer. Based upon input and analysis from the
other Directors and the Compensation Committee, the total compensation for Mr.
Landy in 2006 was set at $708,110. As shown on the Summary Compensation Table on
page 21, Mr. Landy's 2006 base salary was $360,000. The Compensation
Committee approved incentive compensation of $194,400 for 2006. Mr. Landy
received 11,000 stock options (adjusted for a 10% stock dividend) at an exercise
price of $38.18 per share based upon Company and individual performance in 2005.
The value of the options is $26,600 under SFAS No. 123(R). Mr. Landy received
additional personal benefits of $37,969 as described in the Summary Compensation
Table on page 21. We believe that the amount of Mr. Landy's total compensation
in 2006 is appropriate since it is within the target set by the Compensation
Committee, since he and the other Senior Executives have done an excellent job
of implementing the shareholder value strategies mentioned above and his
performance was rated outstanding by members of the Compensation Committee and
the Board's non-employee directors. We believe that the incentive compensation
paid Mr. Landy is warranted in view of Mr. Landy's performance regarding: (a)
achieving certain financial based measurements of the Company, and (b) largely
achieving target levels for loan and deposit growth.
CHIEF FINANCIAL OFFICER AND TREASURER OF THE COMPANY. Stephen R. Brown is
the Company's Senior Executive Vice President, Chief Financial Officer and
Treasurer. Based upon input and analysis from the CEO, other directors and the
Compensation Committee, the total 2006 compensation for Mr. Brown was set at
$612,499. As shown on the Summary Compensation Table on page 21, Mr. Brown's
2006 base salary was $340,000. The Compensation Committee approved incentive
compensation of $168,500 for 2006. Mr. Brown also received 10,670 stock options
(adjusted for a 10% stock dividend) at an exercise price of $38.18 per share
based upon Company and individual performance in 2005. The value of the options
is $25,802 under SFAS No. 123(R). Mr. Brown received additional personal
benefits of $41,372 as described in the Summary Compensation Table on page 21.
We believe that the amount of Mr. Brown's total compensation in 2006 is
appropriate since it is within the target set by the Compensation Committee,
since he and other Senior Executives have done an excellent job of implementing
the shareholder value strategies mentioned above and his performance was rated
outstanding by members of the Compensation Committee and the Board's
non-employee directors. We believe that the incentive compensation paid Mr.
Brown is warranted in view of Mr. Brown's performance regarding: (a) achieving
certain financial based measurements of the Company, and (b) largely achieving
target levels for loan and deposit growth.
CHIEF BANKING OFFICER OF THE HVB. Michael P. Maloney is Executive Vice
President, Chief Banking Officer of HVB. We considered the Peer Group study and,
in particular, the Company's overall financial performance as well as
performance to individual loan and deposit growth targets in determining Mr.
Maloney's compensation. Based upon this analysis, we set the total 2006
compensation for Mr. Maloney at $440,703. As shown on the Summary Compensation
Table on page 21, Mr. Maloney's base salary was $260,000. The Compensation
Committee approved incentive compensation of $125,000 for 2006. Mr. Maloney also
received 3,630 stock options (adjusted for a 10% stock dividend) at an exercise
price of $38.18 per share based upon Company and individual performance in 2005.
The value of the options is $8,778 under SFAS No. 123(R). Mr. Maloney received
additional personal benefits of $40,158 as described in the Summary Compensation
Table on page 21. Mr. Maloney's total compensation is approximately the 65th
percentile of overall median compensation of chief banking officers in the Peer
Group, as calculated by Pearl. The Compensation Committee concluded that the
total compensation provided to Mr. Maloney is warranted since Mr. Maloney, like
our other Senior Executives, performed well in his performance regarding: (a)
achieving certain financial based measurements of the Company, (b) largely
achieving target levels for loan and deposit growth, and (c) achieving
individual business development goals.
-19-
CHIEF LENDING OFFICER OF HVB. Vincent T. Palaia is Executive Vice
President, Chief Lending Officer of HVB. We considered the Peer Group study and,
in particular, the Company's overall financial performance as well as
performance to individual loan and deposit growth targets in determining Mr.
Palaia's compensation. Based upon this analysis, we set the total 2006
compensation for Mr. Palaia at $603,152. As shown on the Summary Compensation
Table on page 21, Mr. Palaia's base salary was $250,000. The Compensation
Committee approved incentive compensation of $140,000 for 2006. Mr. Palaia also
received 3,630 stock options (adjusted for a 10% stock dividend) at an exercise
price of $38.18 per share based upon Company and individual performance in 2005.
The value of the options is $8,778 under SFAS No. 123(R). Mr. Palaia received
additional personal benefits of $29,913 as described in the Summary Compensation
Table on page 21. Mr. Palaia's total compensation is approximately the 65th
percentile of overall median compensation of chief lending officers in the Peer
Group, as calculated by Pearl. The Compensation Committee concluded that the
total compensation provided to Mr. Palaia is warranted since Mr. Palaia, like
our other Senior Executives, performed well in his performance regarding: (a)
achieving certain financial based measurements of the Company, (b) largely
achieving target levels for loan and deposit growth, and (c) achieving
individual business development goals.
CHIEF OPERATING OFFICER OF HVB. Christopher J. Taylor is Executive Vice
President, Chief Operating Officer of HVB. We considered the Peer Group study
and, in particular, the Company's overall financial performance as well as
individual performance in determining Mr. Taylor's compensation. Based upon this
analysis, we set the total 2006 compensation for Mr. Taylor at $376,104. As
shown on the Summary Compensation Table on page 21, Mr. Taylor's base salary was
$231,250. The Compensation Committee approved incentive compensation of $115,000
for 2006. Mr. Taylor received additional personal benefits of $29,854 as
described in the Summary Compensation Table on page 21. Mr. Taylor's total
compensation is approximately the 65th percentile of overall median compensation
of chief operating officers in the Peer Group, as calculated by Pearl. The
Compensation Committee concluded that the total compensation provided to Mr.
Taylor is warranted since Mr. Taylor, like our other Senior Executives,
performed well in his performance regarding: (a) achieving certain financial
based measurements of the Company, and (b) largely achieving target levels for
loan and deposit growth.
-20-
EXECUTIVE COMPENSATION - SUMMARY COMPENSATION TABLE
The following table sets forth for each of the Senior Executives: (i) the
dollar value of base salary and bonus earned during the year ended December 31,
2006; (ii) the aggregate grant date fair value of stock and option awards
granted during the year, computed in accordance with SFAS 123 (R); (iii) the
change in pension value and non-qualified supplemental retirement plan value
during the year; (iv) all other compensation for the year; and (v) the dollar
value of total compensation for the year.
SUMMARY COMPENSATION TABLE - SENIOR EXECUTIVES
CHANGE IN
PENSION VALUE &
NONQUALIFIED
OPTION DEFERRED
SALARY BONUS AWARDS COMPENSATION ALL OTHER TOTAL
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) EARNINGS COMPENSATION ($)
- --------------------------- ---- ------- ------- ------ --------------- ------------ -------
James J. Landy 2006 360,000 194,400 26,600 89,141(2) 37,969(4) 708,110
President and Chief
Executive Officer
Stephen R. Brown 2006 340,000 168,500 25,802 36,825(3) 41,372(5) 612,499
Senior Executive
Vice President, CFO
& Treasurer
Michael P. Maloney 2006 260,000 125,000 8,778 6,767(3) 40,158(6) 440,703
Executive Vice
President, Chief
Banking Officer of HVB
Vincent T. Palaia 2006 250,000 140,000 8,778 174,461(2) 29,913(7) 603,152
Executive Vice
President, Chief
Lending Officer of HVB
Christopher J. Taylor 2006 231,250 115,000 0 0 29,854(8) 376,104
Executive Vice
President, Chief
Operating Officer of HVB
(1) For each of the stock option grants the value shown is also included in the
Company's consolidated financial statements in accordance with SFAS No.
123(R). A complete description of the SFAS No. 123(R) valuations is
included in the Company's 2006 Annual Report on Form 10-K. The actual
number of options granted is shown in the "Grants of Plan-Based Awards
Table" included in this proxy statement on page 22.
(2) The amount shown represents the increase in the actuarial value during 2006
of the Supplemental pension benefit under the Company's 1995 Supplemental
Retirement Plan.
(3) The amount shown represents the increase in the actuarial value during 2006
of the Supplemental pension benefit under the Company's 1997 Supplemental
Retirement Plan.
(4) Other Compensation for Mr. Landy includes: $11,000 in employer contribution
to the Company's Profit Sharing Plan; $2,170 in employer matching
Contribution to the Company 401(k) Plan; $2,923 in group term life
insurance premiums; $16,684 for a Company provided automobile, and $5,192
for country club dues.
-21-
(5) Other Compensation for Mr. Brown includes: $11,000 in employer contribution
to the Company's Profit Sharing Plan; $2,107 in employer matching
Contribution to the Company 401(k) Plan; $2,757 in group term life
insurance premiums; $15,821 for a Company provided automobile, and $9,687
for country club dues.
(6) Other Compensation for Mr. Maloney includes: $11,000 in employer
contribution to the Company's Profit Sharing Plan; $2,200 in employer
matching Contribution to the Company 401(k) Plan; $2,097 in group term life
insurance premiums; $15,174 for a Company provided automobile, and $9,687
for country club dues.
(7) Other Compensation for Mr. Palaia includes: $11,000 in employer
contribution to the Company's Profit Sharing Plan; $2,200 in employer
matching Contribution to the Company 401(k) Plan; $1,485 in group term life
insurance premiums; $11,016 for a Company provided automobile, and $4,212
for country club dues.
(8) Other Compensation for Mr. Taylor includes: $1,587 in employer contribution
to the Company's Profit Sharing Plan (eligible to participate effective
October 2006); $139 in employer matching Contribution to the Company 401(k)
Plan (eligible to participate effective October 2006); $1,485 in group term
life insurance premiums; $11,081 for a Company provided automobile, and
$15,562 for country club dues.
GRANT OF PLAN-BASED AWARDS
The following table sets forth information regarding all stock option
awards that were made to the Senior Executives during 2006. Disclosure on a
separate line item is provided for each grant of an award made to a Named
Executive Officer during the year. The information supplements the dollar value
disclosure of stock option awards in the Summary Compensation Table on page 21
by providing additional details about such awards.
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2006
EXERCISE OR BASE
ALL OTHER PRICE OF OPTION
NAME GRANT DATE(1) OPTIONAWARDS (#)(2) AWARDS (PRICE/SH)(3)
- ---- ------------- ------------------- --------------------
James J. Landy 02/07/2006 11,000 $38.18
Stephen R. Brown 02/07/2006 10,670 $38.18
Michael P. Maloney 02/07/2006 3,630 $38.18
Vincent T. Palaia 02/07/2006 3,630 $38.18
Christopher J. Taylor n/a 0 $ 0
(1) All options vest 20% on the grant date with the remainder vesting 20% per
year over a four-year period
(2) The number of shares underlying options and the exercise price were
adjusted to reflect a 10% stock dividend in December 2006
(3) We engage an independent, qualified third party to annually evaluate our
stock and establish the fair market value, which we utilize in determining
the exercise price at the grant date. Refer to "Equity Incentive Plan -
Stock Options" on page 16.
-22-
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table sets forth information on outstanding stock option and
awards held by the Senior Executives at December 31, 2006, including the number
of shares underlying both exercisable and unexercisable portions of each stock
option as well as the exercise price and the expiration date of each outstanding
option.
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006 YEAR-END TABLE -
EXECUTIVE OFFICERS
Option Awards(1)
--------------------------------------------------------------------
Equity
Number of incentive plan
securities Number of awards: number
underlying securities of securities
unexercised underlying underlying Option
options unexercised unexercised exercise Option
(#) options (#) earned options price expiration
Name exercisable unexercisable (#) ($) date
- ---- ----------- ------------- -------------- -------- ----------
James J. Landy 16,105 0 0 $35.50 1/1/2012
14,641 0 0 $36.50 1/1/2013
7,986(2) 5,324(2) 0 $36.25 1/1/2014
4,840(2) 7,260(2) 0 $36.50 1/1/2015
2,200(2) 8,800(2) 0 $42.00 1/1/2016
Stephen R. Brown 4,928 0 0 $30.50 1/1/2009
13,148 0 0 $32.00 1/1/2010
15,056 0 0 $33.75 1/1/2011
15,621 0 0 $35.50 1/1/2012
14,201 0 0 $36.50 1/1/2013
7,743(2) 5,162(2) 0 $36.25 1/1/2014
4,694(2) 7,041(2) 0 $36.50 1/1/2015
2,134(2) 8,536(2) 0 $42.00 1/1/2016
Michael P. Maloney 4,627 1,754 0 $36.25 1/1/2014
3,290(2) 4,935(2) 0 $36.50 1/1/2015
726(2) 2,904(2) 0 $42.00 1/1/2016
Vincent T. Palaia 11,222 0 0 $32.00 1/1/2010
10,271 0 0 $33.75 1/1/2011
5,314 0 0 $35.50 1/1/2012
4,831 0 0 $36.50 1/1/2013
2,631(2) 1,754(2) 0 $36.25 1/1/2014
1,596(2) 2,394(2) 0 $36.50 1/1/2015
726(2) 2,904(2) 0 $42.00 1/1/2016
Christopher J. Taylor 2,420(2) 3,630(2) 0 $45.25 10/24/2015
(1) the number of shares underlying the options were adjusted to reflect 10%
stock dividends in the month of December 1999, 2000, 2001, 2002, 2003,
2004, 2005, 2006 as applicable
(2) options vest over a period of five (5) years, with the first 20% vesting at
the date of grant and 20% per year thereafter. The options are exercisable
for 10 years, and expire on the date 10 years from the date of grant.
-23-
OPTION EXERCISES AND STOCK VESTED
OPTION AWARDS
----------------------------------------
NUMBER OF SHARES VALUE REALIZED ON
ACQUIRED ON EXERCISE EXERCISE
NAME (#) ($)
- ---- -------------------- -----------------
Vincent T. Palaia 2,077 $97,100
PENSION BENEFITS
The Company makes available to its Senior Executives a qualified 401(k) and
profit sharing retirement plan, which is available to all employees on the same
terms and conditions.
The Company provides supplemental retirement benefits to certain Senior
Executives and other officers. These benefits are provided through both the 1995
Supplemental Retirement Plan and the 1997 Supplemental Retirement Plan
(collectively the "SERP"). These plans are not qualified for tax purposes and
are available only to certain officers. Benefits under these plans are unfunded.
The SERP entitles participating officers to receive supplemental retirement
benefits for a period of 15 years payable on a monthly basis.
Of the Named Executive Officers, Messrs. Landy and Palaia are participants
in the 1995 Supplemental Retirement Plan, Messrs. Brown and Maloney are
participants in the 1997 Supplemental Retirement Plan.
Pursuant to the 1995 Supplemental Retirement Plan, supplemental benefits
equal 75% of the officer's highest base salary in any of the last three years of
employment, less any retirement plan benefits provided to him by the Company.
Pursuant to the 1997 Supplemental Retirement Plan, supplemental benefits equal
60% of the average of the highest five years' annual base compensation paid to
the officer during his last 10 years of employment, reduced by (1) the value of
his qualified plan account as of the date of retirement; (2) the value of his
401(k) matching benefit as of the date of retirement; (3) 50% of his primary
social security benefit; and (4) the value of any other retirement type benefits
provided to him by the Company.
PENSION BENEFITS TABLE
NUMBER OF YEARS PRESENT VALUE OF
CREDITED SERVICE ACCUMULATED BENEFIT
NAME PLAN NAME (#)(1) ($)(2)
- ---- ----------------- ---------------- -------------------
James J. Landy 1995 Supplemental
Retirement Plan 29 332,128
Stephen R. Brown 1997 Supplemental
Retirement Plan 13 144,666
Michael P. Maloney 1997 Supplemental
Retirement Plan 13 12,415
Vincent T. Palaia 1995 Supplemental
Retirement Plan 18 770,046
Christopher J. Taylor n/a -- 0
(1) Under the terms of the 1995 and 1997 Supplemental Retirement Plans, a
participant must have 10 years credited service for pension benefit
eligibility
(2) The amount shown represents the actuarial accumulated pension benefit using
the same assumption used for financial reporting purposes in our 2006
Annual Report on Form 10-K. Retirement age is assumed to be the normal
retirement age as defined in each plan. A complete description of the 1995
and 1997 Supplemental Retirement Plans is included in the 2006 Annual
Report on Form 10-K
-24-
DISCLOSURE REGARDING TERMINATION AND
CHANGE IN CONTROL PROVISIONS
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
The Company has not established any change in control, severance or
employment agreements with Senior Executives pursuant to which the Senior
Executives would be paid benefits following a change in control. Under the SERP,
the participant's age is accelerated upon a change in control including a
merger, consolidation or sale of substantially all the Company's assets.
Following a change of control, each participant, with at least 10 years of
service, for purposes of the SERP will be deemed to be age 60. Should the
participant be terminated without cause subsequent to such transaction, the
participant will be entitled to receive a percentage of the retirement benefit
as follows:
AGE AT TERMINATION NUMBER OF YEARS SERVICE NON FORFEITURE BENEFIT
- ------------------ ----------------------- ----------------------
60 10 or more 50%
61 11 or more 60%
62 12 or more 70%
63 13 or more 80%
64 14 or more 90%
65 15 or more 100%
Upon a change in control in which the Company is not the surviving entity,
all unexercised options under the 2002 Plan would be canceled as of the
effective date of the reorganization; provided, however, that the Compensation
Committee shall give to an optionee, or the holder of the option(s) granted
under the 2002 Plan, at least 15 days' written notice of the reorganization and
during the period beginning when the optionee, or the holder of the option(s),
shall have the right to exercise the unexercised option(s) under the 2002 Plan
without regard to employment or directorship tenure requirements or installment
exercise limitations, if any.
TERMINATION OF EMPLOYMENT DUE TO DEATH OR DISABILITY
The Senior Executives (or their designated beneficiaries), who are
participants in the SERP, are entitled to certain benefits upon death or
disability (as defined in the SERP). These benefits entitle the Senior Executive
or their designated beneficiary to the same retirement benefits to which the
participant would be entitled at the normal retirement date.
COMPENSATION COMMITTEE REPORT
The Compensation and Organization Committee ("Committee") of the Board of
Directors has reviewed and discussed with the Company's management the
Compensation Discussion and Analysis that is required by the SEC rules to be
included in this Proxy Statement. Based on that review and those discussions,
the Committee has recommended to the Company's Board of Directors that the
Compensation Discussion and Analysis beginning on page 9 be included in this
Proxy Statement.
Cecile D. Singer, Chairperson
Stephen R. Brown
William E. Griffin
Gregory F. Holcombe
James J. Landy
Angelo R. Martinelli
Craig S. Thompson
-25-
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2006, Ms. Singer and Messrs. Griffin, Holcombe, Martinelli and
Thompson, each of whom are non-employee directors, and Messrs. Landy and Brown
as employee directors, served as members of the Compensation and Organization
Committee. Messrs. Griffin, Martinelli and Thompson are shareholders and
officers of firms that have performed services for the Company. Mr. Thompson
sold shares of the Company's common stock owned by him to the Company, and HVB
has made loans to Ms. Singer and Messrs. Griffin, Brown, Holcombe, Landy,
Martinelli and Thompson. See "Certain Relationships and Related Transactions,"
which begins on page 27. Members of the Committee who are employees do not
participate in deliberations concerning their own compensation. No executive
officer of the Company has served as a director or a member of a compensation
committee of another company of which any member of the Committee is an
executive officer.
DIRECTOR COMPENSATION
The Company uses a combination of cash and stock-based incentive
compensation to attract and retain qualified candidates to serve on the Board.
In setting director compensation, the Company considers the significant amount
of time that Directors expend in fulfilling their duties to the Company, the
business which they refer, as well as the skill-level required by the Company of
members of the Board. Employee directors (Messrs. Landy, Brown and Maloney) do
not receive Directors fees.
CASH COMPENSATION PAID TO BOARD MEMBERS
Members of the Board who are not employees of the Company are entitled to
receive an annual cash retainer of $60,000 for Board membership. The Chairman of
the Board receives an additional Chairman's Fee of $65,000 as well as a Company
provided car and club memberships. The Audit Committee Chairman receives an
additional retainer of $12,000. Directors who are members of the Loan Committee
of HVB receive an additional retainer of $10,000. Directors who are members of
the Boards of either NYNB or Hudson Valley Investment Corp. receive attendance
fees for these subsidiaries in addition to their Company Board retainer fee.
These retainer fees were approved by the Board and made effective January 1,
2006. Non-employee directors may elect to receive up to 50% of their cash
compensation in the Company's common stock.
STOCK OPTION PROGRAM
Each non-employee Director serving on the Board as of January 1, 2006,
received a stock option grant during 2006 as follows: Mr. Griffin, 13,965; Mr.
Coogan, 8,800; Mr. Holcombe, 9,460; Mr. Martinelli, 9,460; Mr. Mulrow, 7,260;
Mr. Pratt, 9,020; Mrs. Singer, 9,020; and Mr. Thompson, 9,130. All options were
granted at the fair market price of the stock on the date of grant (which the
Company considered to be January 1, 2006), $38.18 in each case and have been
adjusted to reflect a 10% stock dividend. Our independent registered public
accounting firm advised us that the measurement date for determining the value
of these option grants under SFAS No. 123(R) was June 12, 2006. In accordance
with the Company's historical practice of granting options to new non-employee
Directors upon appointment, Mr. Gioffre received an option grant of 1,540
options on his appointment to the Board in November, 2006 at the fair market
price of the Company's stock on the grant date, or $42.50 and have been adjusted
to reflect a 10% stock dividend. Options received by non-employee Directors vest
immediately upon the option grant.
-26-
DIRECTOR COMPENSATION TABLE
The following table discloses the cash, equity awards and other
compensation earned, paid or awarded, as the case may be, to each of the
Company's directors during the fiscal year ended December 31, 2006.
CHANGE IN PENSION
VALUE AND
FEES EARNED NONQUALIFIED
OR PAID IN DEFERRED ALL OTHER
CASH OPTION(1) COMPENSATION COMPENSATION
NAME ($) AWARDS ($) EARNINGS ($) TOTAL $
- ---- ----------- ---------- ----------------- ------------ -------
William E. Griffin(2) 135,400 61,825 77,858 40,310(8) 315,393
James M. Coogan 62,250 38,960 66,170 -- 167,380
Bruno Gioffre(3) 4,250 6,818 0 -- 11,068
Gregory F. Holcombe(4) 70,000 41,882 18,695 4,212(9) 134,789
Angelo R. Martinelli(5) 76,250 41,882 88,919 -- 207,051
William J. Mulrow 72,000 32,142 2,896 -- 107,038
John A. Pratt Jr.(6) 72,250 39,934 45,920 91,522(10) 249,626
Cecile D. Singer 70,000 39,934 57,266 -- 167,200
Craig S. Thompson(7) 74,000 40,421 41,441 -- 155,862
(1) For each of the stock option grants the value shown is also included in the
Company's consolidated financial statements in accordance with SFAS No.
123(R). A complete description of the SFAS No. 123(R) valuations is
included in the Company's 2006 Annual Report on Form 10-K.
(2) Mr. Griffin had 13,964 options outstanding at December 31, 2006, all of
which were exercisable.
(3) Mr. Gioffre had 1,540 options outstanding at December 31, 2006, all of
which were exercisable.
(4) Mr. Holcombe had 19,019 options outstanding at December 31, 2006, all of
which were exercisable.
(5) Mr. Martinelli had 9,460 options outstanding at December 31, 2006, all of
which were exercisable.
(6) Mr. Pratt had 67,096 options outstanding at December 31, 2006, all of which
were exercisable.
(7) Mr. Thompson had 9,130 options outstanding at December 31, 2006, all of
which were exercisable.
(8) Other Compensation for Mr. Griffin includes: $23,581 for a Company provided
automobile, and; $16,729 for country club dues.
(9) Other Compensation for Mr. Holcombe includes $4,212 for country club dues.
(10) Other Compensation for Mr. Pratt includes: $12,310 for a Company provided
automobile, $4,212 for county club dues, and $75,000 in business
development related consulting fees.
The Company permits directors to defer all or any portion of the directors'
fees owed to them. The directors may elect to receive up to 50% of their fees in
common stock of the Company.
Directors who are not full-time employees of the Company or its
subsidiaries participate in the Directors' Retirement Plan. This plan is
designed to benefit all non-employee directors who serve two or more years as a
director. Benefits are paid upon a director's retirement or resignation. The
amount to be paid shall be the highest Basic Fee (as defined) paid to the
director in any one of the three prior years to the Directors retirement.
Benefits are payable for a period of up to 10 years after resignation or
retirement, depending on the number of years of service as a director. Benefits
under the plan are not funded. The following vesting schedule determines the
annual benefit to directors:
-27-
PERCENTAGE OF DIRECTOR'S FEES
NUMBER OF YEARS AS A DIRECTOR PAYABLE AT RETIREMENT AGE
- ----------------------------- -----------------------------
Less than 2 years 0%
2 years but less than 3 5.0%
3 years but less than 4 10.0%
4 years but less than 5 17.5%
5 years but less than 6 25.0%
6 years but less than 7 32.5%
7 years but less than 8 40.0%
8 years but less than 9 47.5%
9 years but less than 10 55.0%
10 years but less than 11 62.5%
11 years but less than 12 70.0%
12 years but less than 13 77.5%
13 years but less than 14 85.0%
14 years but less than 15 92.5%
15 years or more 100%
Estimated annual benefits to each of the non-employee directors at normal
retirement age under the Directors' Retirement Plan are: $128,000 to Mr.
Griffin, $82,000 to Mr. Coogan, $233,000 to Mr. Holcombe, $71,000 to Mr.
Martinelli, $171,000 to Mr. Mulrow, $81,000 to Mr. Pratt, $78,000 to Ms. Singer
and $179,000 to Mr. Thompson.
Mr. Pratt serves as a consultant to HVB on matters relating to new business
and business retention. The consulting contract calls for Mr. Pratt to make
between 30 and 40 calls per month to HVB's high income producing customers or to
customers who have the potential to attain this status. For consulting services
rendered in 2006, Mr. Pratt received a consulting fee of $75,000.
REQUIRED REPORTING OF TRANSACTIONS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and persons beneficially owning more than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the SEC, and to furnish to the Company copies of
such reports. Based solely on the review of copies of the forms received, the
Company believes that, during the last fiscal year, all filing requirements
under Section 16(a) applicable to its officers, directors and 10% stockholders
were timely, except as described below and for inadvertent late filings of Form
4s for all directors and all reporting officers of the Company relating to the
annual grant of options. Form 4s reporting the option grants were filed promptly
after the oversight was discovered.
In addition there was an inadvertent late filing of a joint Form 4 for
Marie A. Holcombe and Gregory F. Holcombe and a Form 4 of John P. Abplanalp
reflecting a transaction of shares between these Reporting Persons in February
2006 which were each corrected by the filing of a Form 4 in July 2006 and on a
Form 5 filing in February, 2007, respectively.
There were also late filings of the Initial Report of Beneficial Ownership
on Form 3 for Josephine Abplanalp and The Josephine Abplanalp Revocable Living
Trust f/b/o Marie A. Holcombe u/a/d January 6, 2006 following a realignment of
family holdings in February, 2006, as well as for Michael P. Goldrick a new
Executive Officer of HVB. These omissions were each corrected by the filings of
Form 3s in March 2007.
-28-
CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
LOANS TO OFFICERS, DIRECTORS AND 5% SHAREHOLDERS
The Banks make loans to the Company's executive officers, directors and 5%
Shareholders, and immediate family members or businesses with which they are
associated, in the ordinary course of business. Such loans are made on the same
terms and conditions, including interest rate and collateral, as those
prevailing at the same time for comparable transactions with unrelated persons.
None of the loans involve more than the normal risk of collectibility or present
other unfavorable features. The aggregate amount outstanding for all such loans
was $24,111,505 in 2006.
STOCK RESTRICTION AGREEMENTS
The Company has required all employees, directors and others who acquire
shares of common stock from the Company to enter into Stock Restriction
Agreements that give the Company a right of first refusal on any shares of
common stock that the shareholder wishes to transfer. Gifts to family members,
as provided in certain agreements, are not subject to the Company's right of
first refusal, but the donee must enter into a Stock Restriction Agreement with
the Company. Pursuant to the Stock Restriction Agreements, the Company may, but
is not required to, purchase all of the shares offered upon the same terms and
conditions as that offered by the prospective purchaser. The table below sets
forth the aggregate number of shares and aggregate purchase price for shares
purchased by the Company from executive officers, directors and beneficial
owners of five percent or more of the common stock (considered together with
members of their immediate family) pursuant to Stock Restriction Agreements in
2006. The table excludes data for each executive officer, director and
beneficial owner whose sales to the Company aggregated less than $120,000 per
annum in 2006.
STOCK PURCHASES BY THE COMPANY
------------------------------
(SHARES/DOLLAR AMOUNT)
Michael P. Maloney ............................ 2,500/$ 134,375
Craig S. Thompson ............................. 28,276/$1,473,145
CERTAIN OTHER RELATED PARTY TRANSACTIONS
Messrs. Griffin and Coogan are shareholders of the law firm of Griffin,
Coogan & Veneruso, P.C., which serves as the Company's general counsel. Griffin,
Coogan & Veneruso, P.C. received fees approximating $1,287,000 in 2006 for legal
services performed on behalf of the Company and its subsidiaries. Of this amount
$382,000 was paid directly by the Company.
Mr. Thompson is the President and principal shareholder of Thompson Pension
Employee Plans, Inc., which has written life insurance policies supporting the
Company's obligations under the supplemental retirement plans for executive
officers. The total annual premiums approximated $398,000 in 2006.
Mr. Martinelli is the Chairman of the Board and principal shareholder of
the Gazette Press, Inc., which received fees approximating $280,000 in 2006 in
exchange for printing services provided to the Company and its subsidiaries.
Policies Regarding Transactions with Related Persons
The Board of Directors has established and annually approves a written
policy governing transactions with related persons. The Company, in the normal
course of business, retains the services of various product and service
providers. It is our policy to purchase appropriate and necessary products and
services at competitive prices and with service quality appropriate to meet our
needs. We desire to do business, whenever possible, with those individuals and
businesses that are customers of ours, including
-29-
related persons provided that such business transactions are concluded on an
arms' length basis and comply with applicable law regarding such transactions.
In selecting a service or product supplier, the Company considers various
criteria, including:
- whether the provider is a customer of the Company,
- whether the provider has previously supplied the Company with goods or
services,
- the provider's knowledge of the Company and our needs specific to the
product or service to be rendered,
- the provider's qualifications, reputation and capability, and
- the total cost of the product or service to be provided.
The Company expects that products or services provided by related persons
will be of at least the same quality and competitively priced with those
available from non-related persons, including consideration of the items listed
above. The Company takes reasonable and appropriate steps to evaluate the
pricing, quality and capability of the related person product or service
provider.
-30-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the "beneficial ownership" (as that term is
defined in the rules of the SEC) of the common stock as of March 1, 2007, by (a)
each Named Executive Officer and member of the Board of Directors, (b) each
person known to be a beneficial owner of more than five percent of the common
stock and (c) all executive officers and members of the Board of Directors as a
group. Persons who hold options that are exercisable within 60 days of March 1,
2007 are deemed to own, beneficially, the shares of common stock that may be
acquired on the exercise of such options. Such shares are deemed outstanding for
purposes of computing the number of shares owned by the person holding the
option, but not for any other purpose.
NUMBER OF SHARES PERCENT OF OUTSTANDING
NAME OF COMMON STOCK SHARES OF COMMON STOCK
- ---- ---------------- ----------------------
Josephine Abplanalp(1) ............. 960,228(1) 10.7%
Marie A. Holcombe(2) ............... 1,684,533(2) 18.8
James J. Veneruso(3) ............... 953,601(3) 10.6
BMW Machinery Co., Inc.(4) ......... 522,050(4) 5.8
William E. Griffin ................. 333,355(5) 3.7
Stephen R. Brown ................... 115,239(6) 1.3
James M. Coogan .................... 258,854(7) 2.9
Bruno J. Gioffre ................... 1,540(8) *
Gregory F. Holcombe(9) ............. 1,684,533(9) 18.8
James J. Landy ..................... 158,087(10) 1.8
Michael P. Maloney ................. 36,276(11) *
Angelo R. Martinelli ............... 210,818(12) 2.4
William J. Mulrow .................. 27,442(13) *
John A. Pratt Jr ................... 161,792(14) 1.8
Cecile D. Singer ................... 91,240(15) 1.0
Craig S. Thompson .................. 208,329(16) 2.3
Vincent T. Palaia .................. 113,859(17) 1.2
Christopher J. Taylor .............. 2,420(18) *
All directors and executive
officers as a group
(19 persons) .................... 2,897,549(19) 31.2%
* Less than 1% of the outstanding shares of common stock.
(1) Includes 922,784 shares held by The Josephine Abplanalp Revocable Trust, of
which Josephine Abplanalp and Marie A. Holcombe are the beneficiaries and
trustees and James J. Veneruso is also a trustee.
(2) Mrs. Holcombe is the wife of Gregory F. Holcombe and the daughter of
Josephine Abplanalp. The shares beneficially owned by Marie A. Holcombe and
her husband, Gregory F. Holcombe, include 522,050 shares owned by BMW
Machinery Co., Inc. (of which Mr. and Mrs. Holcombe are principal
shareholders) 922,784 shares held by The Josephine Abplanalp Revocable
Trust, 86,831 shares held in trusts for the benefit of the children of
Gregory F. and Marie A. Holcombe (for which Mr. Holcombe serves as
trustee), and 16,496 shares held by the Heidi Foundation Inc. (of which Mr.
and Mrs. Holcombe are directors). The table also includes 5,498 shares held
in trusts for the benefit of the children of Mr. and Mrs. Holcombe for
which James J. Veneruso is the trustee and 2,362 shares for which Mr.
Holcombe is custodian for their children and 19,019 shares which may be
acquired Mr. Holcombe upon the exercise of options. 249,304 of these shares
are pledged as collateral.
(3) Includes 922,784 shares held by The Josephine Abplanalp Revocable Trust for
which James J. Veneruso is one of the trustees and 5,498 shares held in
trusts for the benefit of the children of Mr. and Mrs. Holcombe for which
James J. Veneruso is the trustee.
(4) BMW Machinery Co., Inc.'s principal shareholders are Mr. and Mrs. Holcombe.
See footnote 2 above.
-31-
(5) Includes 13,964 shares which may be acquired upon the exercise of options;
and 6,895 shares pledged as collateral.
(6) Includes 84,587 shares which may be acquired upon the exercise of options;
and 22,049 shares pledged as collateral.
(7) Includes 58,589 shares held by the William E. Griffin Irrevocable Trust for
which Mr. Coogan is the trustee.
(8) Includes 1,540 shares which may be acquired upon the exercise of options.
(9) For information concerning Mr. Holcombe's beneficial ownership, see
footnote 2 above.
(10) Includes 2,680 shares held by his son, as to which Mr. Landy disclaims
beneficial ownership and 39,744 shares which may be acquired upon the
exercise of options; and 24,133 shares pledged as collateral.
(11) Includes 11,891 shares which may be acquired upon the exercise of options,
and 22,300 shares pledged as collateral.
(12) Includes 9,460 shares which may be acquired upon the exercise of options.
99,816 shares are pledged as collateral.
(13) Includes 23,146 shares pledged as collateral.
(14) Includes 55,853 shares which may be acquired upon the exercise of options,
and 29,942 shares are pledged as collateral.
(15) Includes 40,867 shares pledged as collateral.
(16) Includes 104,275 shares pledged as collateral.
(17) Includes 38,992 shares which may be acquired upon the exercise of options
and 50,993 shares pledged as collateral.
(18) Includes 2,420 shares which may be acquired upon the exercise of options.
(19) Includes 321,543 shares which may be acquired upon the exercise of options.
-32-
PROPOSAL 2 TO AMEND THE COMPANIES CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON STOCK
FROM 10,000,000 TO 25,000,000
The Board of Directors is recommending to the shareholders that the
Company's Certificate of Incorporation, as amended, be amended to increase the
number of authorized shares of common stock from 10 million shares to 25 million
shares. The Board of Directors believes that this amendment to the Certificate
of Incorporation is in the best interests of the Company and its shareholders
and recommends approval of this proposal. The Certificate of Incorporation (as
amended) is set forth in Exhibit A. If approved by shareholders at the Annual
Meeting, the proposed amendment would become effective upon filing with the
Secretary of State of New York, which will occur promptly following the Annual
Meeting.
The authorized common stock of the Company currently consists of 10 million
shares, par value $0.20 per share. As of the record date there were 8,956,829
shares issued and outstanding and 492,062 treasury shares.
The Board of Directors believes that the availability of such additional
authorized common stock will provide the Company with the flexibility to issue
common stock for possible future stock splits or stock dividends, if such action
is determined by the Board of Directors to be advisable, or in connection with
acquisitions, equity incentive plans, financings or other corporate purposes
which may be identified in the future by the Board of Directors, without the
possible expense or delay of a special shareholders' meeting. Upon issuance,
such shares of common stock will have the same rights as the outstanding shares
of common stock. Issuance of additional shares of common stock could dilute the
voting rights of existing shareholders and could also dilute earnings per share
and book value per share of existing shareholders. Holders of common stock have
no preemptive rights, which means that current shareholders do not have a prior
right to purchase any new issuance of common stock in order to maintain their
proportionate ownership of common stock.
The increased authorized shares of common stock would be available for
issuance at such times and for such corporate purposes as the Board of Directors
may deem advisable, without further action by the Company's shareholders.
The proposed increase in the authorized common stock is not designed to
have an anti-takeover effect. However, although the Board of Directors has no
present intention of doing so, it could issue shares of common stock (within the
limits imposed by applicable law) which could, depending upon the circumstances,
make more difficult or discourage an attempt to obtain control of the Company by
means of a merger, tender offer, proxy contest or other means, including sale or
issuance to persons favorable to the Board of Directors or management or
otherwise having the effect of diluting the stock ownership of a person or
entity, and thereby protect the continuity of present management. The proposed
amendment has been prompted by business and financial considerations and the
Company is not aware of any threat of takeover or change in control. The Company
currently has no firm plans or commitments involving the issuance of common
stock, other than under its equity incentive plans.
Approval of the amendment to the Company's Certificate of Incorporation
requires the affirmative vote of a majority of the outstanding common stock
entitled to vote at the Annual Meeting. Abstentions and broker "non-votes" would
have the same effect as a vote against the amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE
AMENDMENT TO THE CERTIFICATE OF INCORPORATION.
-33-
PROPOSAL 3: TO AMEND THE COMPANY'S 2002 STOCK OPTION PLAN
GENERAl
The Board of Directors has approved for submission to the Company's
shareholders an amendment to the Company's 2002 Stock Option Plan to increase
the number of shares available for grant under the plan. The full text of the
plan, as amended, is attached to this Proxy Statement as Exhibit B and the
following description of the plan and the amendment is qualified in its entirety
by reference to Exhibit B. The purposes of the plan are to provide additional
incentive to officers and key employees of the Company and its subsidiaries, to
motivate such officers and employees to faithfully and diligently perform their
responsibilities, to attract and retain competent and dedicated individuals, and
to align the interests of those officers and employees more closely with the
interests of the Company's shareholders.
On February 27, 2007, the Board of Directors approved an amendment to the
plan (the "Amendment") in order to increase the number of shares of the
Company's common stock available for awards under the plan from 635,000 to
1,535,000.
Shareholder approval of the amendment to the plan requires the affirmative
vote of a majority of votes cast and entitled to vote at the meeting.
Abstentions and broker "non-votes" will have no effect on the outcome of the
vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE AMENDMENT TO
THE PLAN.
DESCRIPTION OF THE 2002 STOCK OPTION PLAN
The 2002 Stock Option Plan is administered by the Compensation Committee.
As of April 1, 2007, there were approximately 460 employees, directors,
consultants or advisors eligible to receive options. The Compensation Committee
has the sole discretion, subject to the provisions of the plan, to select those
to whom options under the plan will be granted from among those eligible, the
purchase price of the underlying stock, the term and vesting provisions of each
option, and the number of options to be granted. The Compensation Committee has
the authority to interpret and construe the plan, and any such interpretation or
construction of the provisions of the plan or of any options granted under the
plan is final and conclusive.
The Company's 2002 Stock Option Plan provides for the granting of (1) non
statutory stock options (also referred to as non qualified stock options) for
directors, consultants or advisors who are not employees of the Company and its
subsidiaries, and (2) incentive stock options and non statutory stock options to
employees of the Company and its subsidiaries. Options will generally expire not
later than ten years after the date on which they are granted. Options will vest
at such times and in such installments as the Committee shall determine. The
option price paid to the Company must be no less than the fair market value of
the Company's common stock on the date of grant. As a result, options benefit
the recipient only when a rising price benefits all common shareholders. Payment
of the exercise price of options granted under the plan must be made in cash.
If an option granted under the plan expires, terminates, or is cancelled
for any reason, the shares of stock underlying that option become available
again under the plan. No options may be exercised under the plan after the tenth
anniversary of the date of the grant of the option.
Optionees have no rights as shareholders with respect to shares of stock
subject to options prior to the date of issuance of a certificate for such
shares. Prior to receiving any shares of stock, the optionee must enter into a
Stock Restriction Agreement with the Company.
Common shares issued under the plan may be newly issued shares, treasury
shares, reacquired shares or any combination thereof. In the event of a
declaration of a stock dividend, or a reorganization,
-34-
merger, consolidation, acquisition, disposition, separation, recapitalization,
stock split, spin-off, combination or exchange of any shares of our common stock
or like event, the number or character of the shares subject to outstanding
options or the exercise price of any such option may be appropriately adjusted
as deemed appropriate by the Compensation Committee.
The Compensation Committee may at any time amend, suspend or discontinue
the plan. The Compensation Committee may not alter, amend, discontinue or revoke
or otherwise impair any outstanding options granted under the plan without
written consent of the optionee. The Compensation Committee may not increase the
number of shares reserved for options under the plan without shareholder
approval.
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the Federal income tax consequences of
transactions under the Stock Option Plan, based on Federal income tax laws in
effect on January 1, 2007. This summary is not intended to be comprehensive and
does not describe state, local or foreign income tax consequences.
No income is realized by a participant upon the grant or exercise of an
incentive stock option. If shares of common stock are transferred to a
participant upon the exercise of an incentive stock option, and if no
disqualifying disposition of such shares is made by such participant within two
years after the date of grant of the option or within one year after the
transfer of such shares to such participant, then (1) upon the sale or exchange
of such shares, any amount realized in excess of the option exercise price will
be taxed to such participant as a long-term capital gain and any loss sustained
will be treated as a long-term capital loss, and (2) no deduction will be
allowed to the Company for Federal income tax purposes. The exercise of an
incentive stock option will give rise to an item of tax preference that may
result in alternative minimum tax liability for the participant.
The Stock Option Plan provides that, with the Company's permission, an
optionee may transfer previously owned shares to the Company to satisfy the
purchase price under an option (a "Stock Swap"). Generally, if an optionee
utilizes previously owned shares to purchase shares upon the exercise of a stock
option, the optionee will not realize any gain upon the exchange of the old
shares for the new shares and will carry over into the same number of new shares
the basis and holding period for the old shares.
If more shares are acquired than surrendered, the incremental shares
received in the Stock Swap will generally be taxed as compensation income in an
amount equal to their fair market value at the time of the Stock Swap. The
optionee's basis in those additional shares will be their fair market value
taken into account in quantifying the optionee's compensation income and the
holding period for such shares will begin on the date of the Stock Swap.
If common stock acquired upon the exercise of an incentive stock option is
disposed of prior to two years after the grant date or one year after the
exercise date, generally (1) the participant will realize compensation (i.e.,
ordinary income) in the year of disposition in an amount equal to the excess (if
any) of the fair market value of such shares at exercise (or if less, the amount
realized on the disposition of such shares, if the shares are disposed of by
sale or exchange) over the option exercise price paid for such shares, and (2)
the Company will be entitled to deduct the amount of compensation income, which
was taxed to the participant for Federal income tax purposes, if it complies
with applicable reporting requirements (the "reporting requirements") and if the
amount represents an ordinary and necessary business expense of the Company (the
"ordinary and necessary test"). Any further gain (or loss) realized by the
participant will be taxed as short-term or long-term capital gain (or loss), as
the case may be, and will not result in any deduction by the Company.
If an incentive stock option is exercised more than three months following
the termination of employment, the exercise of the option will generally be
taxed in the same manner as the exercise of a nonqualified stock option (as
described below), except if the termination is due to the death or disability of
the employee.
-35-
Pursuant to the Stock Option Plan, for federal income tax purposes the
options granted to non-employee directors are not incentive options under the
tax code but are non-qualified stock options.
In the case of nonqualified stock options: (1) no income is realized by the
optionee at the time the option is granted; (2) the optionee realizes ordinary
income at exercise in an amount equal to the difference between the option
exercise price paid for the shares and the fair market value of the shares on
the date of exercise; (3) the Company is entitled to a Federal income tax
deduction equal to the amount of income taxed to the optionee, subject to the
Company's satisfaction of the reporting requirements and the ordinary and
necessary test; and (4) upon disposition of the common stock acquired by
exercise of the option, appreciation (or depreciation) occurring after the date
of exercise is treated as either short-term or long-term capital gain (or loss),
depending on the recipient's holding period of the shares.
Under current law, a taxpayer's net capital gain (i.e., the amount by which
the taxpayer's net long-term capital gains exceed his net short-term capital
losses) from a sale of shares is subject to a maximum federal income tax rate of
15% if the shares have been held for more than 12 months. Ordinary income is
subject to tax at rates as high as 35%. Capital losses are currently deductible
against capital gains without limitation, but are currently deductible against
ordinary income in any year only to the extent of $3,000 ($1,500 in the case of
a married individual filing a separate return). Capital losses which are not
currently deductible by reason of the foregoing limitation may be carried
forward to future years.
OTHER MATTERS
The Board of Directors is not aware of any other matters that may come
before the annual meeting. However, in the event such other matters come before
the meeting, it is the intention of the persons named in the proxy to vote on
any such matters in accordance with the recommendation of the Board of
Directors.
Shareholders are urged to sign the enclosed proxy and return it in the
enclosed envelope. The proxy is solicited on behalf of the Board of Directors.
By Order of the Board of Directors
----------------------------------------
James M. Coogan
Secretary
Yonkers, New York
April 12, 2007
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) FOR THE
YEAR ENDED DECEMBER 31, 2006 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
HAS BEEN FURNISHED TO SHAREHOLDERS WITH THIS PROXY STATEMENT AND FORMS PART OF
THE ANNUAL MEETING OF SHAREHOLDERS MEETING MATERIAL. ADDITIONAL COPIES ARE
AVAILABLE UPON WRITTEN REQUEST ADDRESSED TO WENDY CROKER, VICE PRESIDENT,
SHAREHOLDER RELATIONS, HUDSON VALLEY HOLDING CORP., 21 SCARSDALE ROAD, YONKERS,
NEW YORK 10707. THE COMPANY'S ANNUAL REPORT ON FORM 10-K (WITHOUT EXHIBITS) IS
ALSO AVAILABLE ON THE COMPANY'S WEBSITE AT WWW.HUDSONVALLEYBANK.COM.
-36-
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HUDSON VALLEY HOLDING CORP.
Under Section 807 of the Business Corporation Law
IT IS HEREBY CERTIFIED THAT:
1. The name of the Corporation is:
HUDSON VALLEY HOLDING CORP.
2. The Certificate of Incorporation was filed by Department of State on
November 15, 1982.
3. The purpose or purposes for which the corporation is formed as follows, to
wit:
To acquire by subscription, purchase or otherwise, to hold for investment
or for resale, to sell, pledge, hypothecate and in all ways deal with:
stocks, shares, script, bonds, consols, debentures, mortgages, notes, trust
receipts, certificates of indebtedness, interim receipts and other
obligations and securities of corporations.
To do all things suitable and proper for the protection, conservation or
enhancement of the value of stocks, shares, securities, evidences of
indebtedness or other properties held by it, including the exercise of the
right to vote thereon. To bid upon and purchase at foreclosure or at other
sales, real property and rights of interests therein of all kinds.
This corporation may purchase, acquire, hold and dispose of the stocks,
shares, bonds and other evidences of indebtedness of any corporation, and
issue in exchange therefor its shares, bonds or other obligations.
To own, operate, manage, acquire and deal in property, real and personal,
which may be necessary to the conduct of the business.
Without limiting any of the purposes or powers of the corporation it shall
have the power to do any one or more or all of the things set forth, and
all other things likely, directly or indirectly, to promote the interests
of the corporation. In the carrying on of its business it shall have the
power to do any and all things and powers which a co-partnership or a
natural person could do, either as a principal, agent, representative,
lessor, lessee or otherwise, either alone or in conjunction with others,
and in any part of the world. In addition, it shall have and exercise all
rights, powers and privileges now belonging to or conferred upon
corporations organized under the Business Corporation Law.
4. The office of the corporation is to be located in the City of Yonkers,
County of Westchester, State of New York.
5. The aggregate number of shares which the corporation shall have authority
to issue is 25,000,000 shares, at $0.20 par value.
A-1
6. The Secretary of State is designated as agent of the corporation upon whom
process against it may be served. The post office address to which the
Secretary of State shall mail a copy of any process against the corporation
served upon him is:
Griffin, Coogan & Veneruso, P.C.
51 Pondfield Road
Bronxville, New York 10708
7. The corporation shall indemnify any person made, or threatened to be made,
a party to an action or proceeding (other than one by or in the right of
the corporation to procure a judgment in its favor), whether civil or
criminal, including an action by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any
director or officer of the corporation served in any capacity at the
request of the corporation, by reason of the fact that he, his testator or
intestate, was a director or officer of the corporation, or served such
other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise in any capacity, against judgments, fines, amounts paid
in settlement and reasonable expense, including attorney's fees actually
and necessarily incurred as a result of such action or proceeding, or any
appeal therein, if such director or officer acted, in good faith, for a
purpose which he reasonably believed to be in, or in the case of service
for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best
interests of the corporation and, in criminal actions or proceedings, in
addition, had no reasonable cause to believe that his conduct was unlawful.
8. The corporation shall indemnify any person made, or threatened to be made,
a party to an action by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a director or officer of the corporation, or its or
was serving at the request of the corporation as a director or officer of
any of any other corporation of any type or kind, domestic or foreign, of
any partnership, joint venture, trust, employee benefit plan or other
enterprise, against amounts paid in settlement and reasonable expenses,
including attorney's fees, actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in connection
with an appeal therein, if such director or officer acted, in good faith,
for a purpose which he reasonably believed to be in, or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to, the best
interests of the corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened action, or a pending
action which is settled or otherwise disposed of, or (2) any claim, issue
or matter as to which such person shall have been adjudged to be liable to
the corporation, unless and only to the extent that the court in which the
action was brought, or, if no action was brought, any court of competent
jurisdiction, determines upon application that, is view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the
court deems proper.
9. No director of the corporation shall be held personally liable to the
corporation or to its shareholders for damages for any breach of duty while
acting as director, unless said breach of duty, whether an act or an
omission, is found, by a judgment of a court of competent jurisdiction, or
other final adjudication to have been committed in bad faith or involved
intentional misconduct or a knowing violation of law, or that said director
personally gained, in fact, a financial profit or other advantage to which
the director was not legally entitled, or that the director's acts violated
Section 719 of the Business Corporation Law. Nothing contained herein shall
eliminate the liability of any director of the corporation for any act or
omission committed before the adoption of this provision on.
A-2
10. All of the foregoing terms have previously been authorized by votes of the
Board of Directors followed by votes of the holders of a majority of all
outstanding shares entitled to vote therein at meetings of shareholders of
the corporation.
IN WITNESS WHEREOF, the undersigned has duly executed this certificate this
__th day of May, 2007.
HUDSON VALLEY HOLDING CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-3
EXHIBIT B
AMENDED AND RESTATED
HUDSON VALLEY HOLDING CORP.
2002 STOCK OPTION PLAN
1. PURPOSE OF THE PLAN
The purpose of the Hudson Valley Holding Corp. 2002 Stock Option Plan (the
"2002 Plan") is to provide a means by which Hudson Valley Holding Corp. (the
"Corporation"), through the grant of incentive stock options and nonstatutory
stock options to eligible employees, directors, consultants and advisors, may
attract and retain persons of ability and motivate these persons to exert their
best efforts on behalf of the Corporation and any Subsidiary Corporation of the
Corporation, ("Subsidiary Corporation"). For the purposes of the 2002 Plan, and
any option agreement under the 2002 Plan, the term "Subsidiary Corporation"
means a Subsidiary Corporation as defined by Section 424(f) of the Internal
Revenue Code of 1986, as amended. It is intended that options issued under the
Plan may be either incentive stock options which meet the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended, or nonstatutory
stock options.
2. SHARES SUBJECT TO THE 2002 PLAN
Subject to the provisions of Section 5B(8) of the 2002 Plan, 1,535,000
shares of the common stock of the Corporation (the "Common Stock") shall be
reserved and may be optioned under the 2002 Plan. The reserved shares may be
authorized and unissued shares, treasury shares, or any combination of both.
Subject to the provisions of Section 5(B)8 of the 2002 Plan, if an option
granted under the 2002 Plan expires, terminates or is canceled for any reason,
the shares of stock representing that option shall be available again under the
2002 Plan.
3. ADMINISTRATION OF THE 2002 PLAN
The 2002 Plan shall be administered by the Compensation Committee of the
Corporation (the "Committee"). The Committee shall have plenary authority in its
sole discretion, subject to and not inconsistent with the express provisions of
the 2002 Plan, to grant options; to determine the purchase price of the Common
Stock covered by each option, the term of each option, the employees, directors,
consultants, and advisors to whom, and the time or times at which, options shall
be granted, and the number of shares to be covered by each option; to designate
options as incentive stock options or nonstatutory stock options; to interpret
the 2002 Plan; to prescribe, amend, and rescind rules and regulations relating
to the 2002 Plan; to determine the terms and provisions of the option agreements
(which need not be identical) for options granted under the 2002 Plan; and to
make all other determinations deemed necessary or advisable for the
administration and operation of the 2002 Plan.
The Committee shall keep minutes of its meetings. All actions of the
Committee shall be taken by a majority of its members. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all persons who have received awards, the Corporations,
any Subsidiary Corporation, and all other interested persons.
4. ELIGIBILITY AND GRANT OF OPTIONS UNDER THE 2002 PLAN
A. Incentive stock options may be granted to any employee of the
Corporation or of any Subsidiary Corporation who is a signatory to a Stock
Restriction Agreement with respect to all of his or her common stock, including
all stock presently owned, or hereinafter acquired. This Agreement will be
substantially in the form of Exhibit "A", attached hereto. No incentive stock
option may be granted to any employee who at the time of such grant owns more
than 10 percent of the total combined voting power of all classes of stock of
the Corporation or of any Subsidiary Corporation.
B-1
B. Nonstatutory stock options may be granted to any employee, director,
consultant, or advisor of the Corporation or of any Subsidiary Corporation and
who is a signatory to a Stock Restriction Agreement with respect to all of his
or her common stock, including all stock presently owned, or hereinafter
acquired.
5. TERMS AND CONDITIONS OF OPTIONS GRANTED UNDER THE 2002 PLAN
Each option granted under the 2002 Plan shall be evidenced by a written
agreement in a form determined by the Committee. Such agreement shall be subject
to the following express terms and conditions, and such other terms and
conditions as the Committee may deem appropriate.
A. IDENTIFICATION OF OPTION STATUS AND OPTION PERIOD
Each option agreement shall identify the status of the option as an
incentive stock option intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended, or as a nonstatutory stock option. An
incentive stock option and a nonstatutory stock option may not be granted
subject to a tandem exercise arrangement. Each option agreement shall specify
the period for which the option thereunder is granted and shall provide that the
option shall expire at the end of such period. The period for which an option is
granted may not exceed 10 years from the date of the grant of the option.
B. EXERCISE OF OPTION
(1) By an optionee while an Employee, Director, Consultant or Advisor.
Subject to the provisions of this Section 5B of the 2002 Plan, each option shall
be exercisable by an optionee while an employee, director, consultant, or
advisor of the Corporation or of any Subsidiary Corporation from time to time
over a period beginning on the date of the grant of the option and ending on the
earliest of the expiration, termination, or cancellation of the option;
provided, however, that the Committee may, by the provisions of any option
agreement, limit the period of time during which the option is exercisable and
limit the number of shares purchasable in any period of time during which the
option is exercisable.
(2) Exercise in the event of death or disability.
a. Death - If an optionee under an incentive stock option dies
while an employee of the Corporation or of any Subsidiary Corporation, or if an
optionee under a nonstatutory stock option dies while an employee, director,
consultant or advisor of the Corporation or of any Subsidiary Corporation, his
or her option(s) under the 2002 Plan may be exercised by the estate of the
deceased optionee or by any person who acquired such option(s) by bequest or
inheritance or by reason of the death of the optionee within the twelve (12)
months immediately following his or her death, and to the extent that the
deceased optionee was entitled to exercise such option(s) on the date of his or
her death; provided, however, that no option may be exercised after the fixed
period of that option.
b. Disability - If an optionee under an incentive stock option
ceases to be an employee of the Corporation or of any Subsidiary Corporation, or
if an optionee under a nonstatutory stock option ceases to be an employee,
director, consultant or advisor of the Corporation or of any Subsidiary
Corporation, because of a disability as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, his or her right to exercise the
options(s) under the 2002 Plan may be exercised by him or her, his or her
attorney-in-fact or conservator, within the 12 months immediately following the
date when he or she ceases to be an employee, director, consultant or advisor to
the extent that the optionee was entitled to exercise such option(s) on the date
when his or her employment with, directorship of, or engagement as a consultant
or advisor by the Corporation or any Subsidiary Corporation ceases; provided,
however, that no option may be exercised after the fixed period of that option
and that the exercise of any incentive stock option by an attorney-in-fact or
conservator of the optionee does not disqualify that option as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as amended.
As to all employee/optionees, if the disability leave does not exceed 90
days, the optionee will be deemed to be in the continuous employment of his or
her employer during the leave period. However, if the disability leave exceeds
90 days, the optionee will be deemed to have terminated his or her employment on
the
B-2
91st day of that leave, and will not, pursuant to Section 22(e) 3, continue to
accrue hours of service, unless re-employment is guaranteed by statute or
contract.
(3) Termination of Employment. If an optionee under an incentive stock
option or nonstatutory stock option ceases to be an employee of the Corporation
or of any Subsidiary Corporation, for any reason other than death or disability,
his or her right to exercise eligible option(s) as of the date of termination
under the 2002 Plan may be exercised by him or her within the 3 months
immediately following the date of his or her termination of employment, or the
expiration date of any mutually agreed salary continuation agreement, to the
extent that the optionee was entitled to exercise such option(s) at the date of
his or her termination of employment; provided, however, that no option may be
exercised after the fixed period of that option; provided further, that if an
optionee ceases to be an employee of the Corporation or of any Subsidiary
Corporation because he or she voluntarily terminates his or her employment or
because his or her employment is involuntarily terminated by the Corporation or
of any Subsidiary Corporation as a result of his or her willful misconduct, as
determined in the sole discretion of the Committee, all right to exercise the
option(s) under the 2002 Plan shall terminate on the date his or her employment
ceases.
(4) Termination of Directorship or of Engagement as a Consultant or
Advisor. If an optionee under a nonstatutory option ceases to be a director,
consultant or advisor of the Corporation or of any Subsidiary Corporation for
any reason other than his or her death or disability, his or her right to
exercise the option(s) under the 2002 Plan may be exercised within the 3 months
immediately following the date when his or her directorship terminates or when
his or her engagement as a consultant or advisor terminates, to the extent that
the optionee was entitled to exercise such option(s) at the date of that
termination; provided, however, that no option may be exercised after the fixed
period of that option; provided further, that if an optionee ceases to be a
director, consultant, or advisor of the Corporation or of any Subsidiary
Corporation because he or she voluntarily resigns from his or her directorship
or from his or her engagement as a consultant or advisor or because he or she is
removed for cause by the shareholders of the Corporation or of any Subsidiary
Corporation, or by the Board of Directors of the Corporation or of a Subsidiary
Corporation in the case of a consultant or advisor, all right to exercise the
option(s) under the 2002 Plan shall terminate on the date when his or her
directorship or engagement as a consultant or advisor ceases.
(5) Option Price. The option price per share shall be determined in
good faith by the Committee at the time an option is granted and shall be not
less than 100 percent of the fair market value of a share of the Common Stock of
the Corporation on the date of the grant. Each option shall provide that the
optionee agrees that the option price per share is determined in good faith by
the Committee at the time when that option is granted as not less than 100
percent of the fair market value of a share of the Common Stock of the
Corporation on the date of the grant.
(6) Payment of purchase price upon exercise. Each option shall provide
that the purchase price of the shares for which an option may be exercised shall
be paid in cash to the Corporation at the time of exercise.
(7) Nontransferability. No option granted under the 2002 Plan shall be
transferable other than by a will of an optionee or by the laws of descent and
distribution. During his or her lifetime, an option shall be exercisable only by
an optionee or by the optionee's attorney-in-fact or conservator, unless in the
case of an incentive stock option, such exercise by the attorney-in-fact or
conservator of the optionee would disqualify the option as an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended.
(8) Adjustments. Notwithstanding any other provision of the 2002 Plan,
in the event of any change in the outstanding Common Stock of the Corporation by
reason of any stock dividend, recapitalization, reorganization, merger,
consolidation, split-up, combination or exchange of shares, rights offering to
purchase the Common Stock at a price substantially below fair market value, or
of any similar change affecting the Common Stock, the number and kind of shares
which thereafter may be optioned and sold under the 2002 Plan and the number and
kind of shares subject to option in outstanding option agreements and the
purchase price per share thereof shall be appropriately adjusted consistent with
such change in such manner as
B-3
the Committee may deem equitable to prevent substantial dilution or enlargement
of the rights granted to, or available for an optionee under the 2002 Plan.
(9) No rights as a Shareholder. No optionee shall have any right as a
shareholder with respect to any share subject to his or her option under the
2002 Plan prior to the date of issuance to him or her of a certificate for such
share.
(10) No rights to continued directorship or engagement as a Consultant
or Advisor. The 2002 Plan and any option granted under the 2002 Plan shall
neither confer upon any optionee any right with respect to continuance of any
directorship or engagement as a consultant or advisor of the Corporation or of
any Subsidiary Corporation, nor shall it interfere in any way with the right of
the shareholders, or the board of directors of the Corporation or of a
Subsidiary Corporation in the case of a consultant or advisor, to remove him or
her at any time.
(11) No rights to continued employment. The 2002 Plan and any option
granted under the 2002 Plan shall neither confer upon any optionee any right
with respect to continuance of employment by the Corporation or by any
Subsidiary Corporation, nor shall it interfere in any way with the right of his
or her employer to terminate his or her employment at any time.
(12) Reorganization, Merger, Consolidation, Dissolution, Liquidation
or Sale of Assets. Upon a reorganization in which the Corporation is not the
surviving Corporation, all unexercised options under the 2002 Plan shall be
canceled as of the effective date of the reorganization; provided, however, that
the Committee shall give to an optionee, or the holder of the option(s) granted
under the 2002 Plan, at least 15 days' written notice of the reorganization and
during the period beginning when the optionee, or the holder of the option(s),
shall have the right to exercise the unexercised option(s) under the 2002 Plan
without regard to employment or directorship tenure requirements or installment
exercise limitations, if any; provided further, however, that the option(s) may
not be exercised after the period provided in either Section 5A or 5B of the
2002 Plan. For the purposes of the 2002 Plan, and any option agreement under the
2002 Plan, the term "reorganization" shall mean any merger, consolidation, sale
of substantially all of the assets of the Corporation, or sale of the securities
of the Corporation pursuant to which the Corporation is or becomes a
wholly-owned subsidiary of another Corporation after the effective date of the
reorganization.
(13) Stock Restriction Agreement. The Corporation shall not be
required to issue or deliver any shares of Common Stock upon the exercise of any
option granted under the 2002 Plan until the optionee, or the holder of the
option(s) becomes a signatory to a stock restriction agreement with respect to
all of his or her Common Stock, including all shares presently owned or
hereinafter acquired.
6. COMPLIANCE WITH LAWS AND REGULATIONS
The 2002 Plan, the grant and exercise of options under the 2002 Plan, and
the obligation of the Corporation to sell and deliver shares under such options,
shall be subject to all applicable federal and state laws and rules and
regulations and to such approvals by any government or regulatory agency as may
be required. The Corporation shall not be required to issue or deliver any
certificates for shares of Common Stock prior to the completion of any
registration or qualification or such shares under any federal or state law or
any ruling or regulation of any governmental body which the Corporation shall,
in its sole discretion, determine to be necessary or advisable.
7. AMENDMENT AND DISCONTINUANCE
The Committee may amend, suspend, or discontinue the 2002 Plan; provided,
however, that no action of the Committee may (a) increase the number of shares
reserved for options pursuant to Section 2 or (b) permit the granting of options
which expire beyond the period provided for in Section 5B(7). Without the
written consent of an optionee, no amendment or suspension of the 2002 Plan
shall alter or impair any option previously granted to him or her under the 2002
Plan.
B-4
8. EFFECTIVE DATE
The effective date of the 2002 Plan is July 1, 2002. It is subject to the
approval of the shareholders of the Corporation holding no less than a majority
of the shares. Notwithstanding the foregoing, options may be granted by the
Committee as provided by the terms of the 2002 Plan subject to such subsequent
shareholder approval. No option shall be granted under the 2002 Plan after June
30, 2012.
9. NAME OF THE 2002 PLAN
The Plan shall be known as the "Hudson Valley Holding Corp. 2002 Stock
Option Plan".
10. EFFECT OF THE PLAN ON OTHER STOCK PLANS
The adoption of the 2002 Plan shall have no effect on awards made or to be
made pursuant to other stock plans covering directors, officers, or employees of
the Corporation, any Subsidiary Corporation, a parent Corporation, or any
predecessors or successors thereto.
B-5
(HVHC LOGO) HUDSON VALLEY HOLDING CORP.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder hereby appoints Angelo R. Martinelli, Cecile D.
Singer and Craig S. Thompson or any one of them with full power to act alone as
proxy, with full power of substitution and revocation, to vote on behalf of the
undersigned all shares of common stock of Hudson Valley Holding Corp. which the
undersigned is entitled to vote at the annual meeting of shareholders to be held
on May 10, 2007, or any adjournments thereof.
1 ELECTION OF DIRECTORS
FOR all nominees listed below (except as marked to the contrary as described below)
WITHHOLD
AUTHORITY FOR
FOR ALL ALL
FOR NOMINEES EXCEPT
(William E. Griffin, James J. Landy, Stephen R. Brown, James M. Coogan, Bruno J. [ ] [ ] [ ]
Gioffre, Gregory F. Holcombe, Angelo R. Martinelli, William J. Mulrow, John A.
Pratt Jr., Cecile D. Singer, Craig S. Thompson)
(INSTRUCTION: to WITHHOLD authority to vote for any individual nominee only,
mark "FOR ALL EXCEPT" and cross out the nominee's name above)
FOR AGAINST ABSTAIN
2 TO ACT ON THE PROPOSAL to amend the Company's Certificate of Incorporation [ ] [ ] [ ]
to increase the 2 number of authorized shares of our common stock from
10,000,000 to 25,000,000
FOR AGAINST ABSTAIN
3 TO ACT ON THE PROPOSAL to amend the Company's 2002 Stock Option Plan to [ ] [ ] [ ]
increase the maximum number of option awards available under the plan from
635,000 to 1,535,000 shares of the Company's common stock.
</Table>
In the proxy's sole discretion, the proxy is authorized to vote upon
such other business as may properly come before the meeting or any
adjournment(s) thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE
UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED AS RECOMMENDED BY
THE BOARD OF DIRECTORS
Dated: , 2007
----------------
(Please sign exactly as
ownership appears on this
proxy. Where stock is held by
joint tenants, both should
sign. When signing as an
attorney, executor,
administrator, trustee or
------------------------------------- guardian, please give full
Signature title as such. If a
corporation, please sign in
full corporate name by an
authorized officer. If a
partnership, please sign in
partnership name by an
authorized person.)
-------------------------------------
Additional Signature (if held jointly)
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE