UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38192 / January 22, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9227 -------------------------------- : : ORDER INSTITUTING CEASE- In the Matter of : AND-DESIST PROCEEDINGS : PURSUANT TO SECTION 21C OF CORTLAND FIRST FINANCIAL : THE SECURITIES EXCHANGE ACT CORPORATION, DONALD S. AMES, : OF 1934 AND FINDINGS AND AND FREDERICK G. COMPAGNI, SR. : ORDER OF THE COMMISSION : : Respondents. : : -------------------------------- I. The Commission deems it appropriate and in the public interest that public administrative proceedings be, and they hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") to determine whether (a) Cortland First Financial Corporation ("Cortland") has failed to comply with Sections 13(a) and 14(a) of the Exchange Act, and Rules 13a-1 and 14a-3 promulgated thereunder, and (b) Donald S. Ames ("Ames") and Frederick G. Compagni, Sr. ("Compagni") have failed to comply with Section 16(a) of the Exchange Act, and Rules 16a-2, 16a-3 and former Rule 16a-1 thereunder. II. In anticipation of the institution of these administrative proceedings, Cortland, Ames and Compagni ("the Respondents") have submitted Offers of Settlement which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, the Respondents, without admitting or denying the matters set forth herein, consent to the issuance of this Order Instituting Cease- and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Findings and Order of the Commission ("the Order"), and to the entry of the findings, and imposition of the remedial sanctions set forth below. ==========================================START OF PAGE 2====== III. On the basis of this Order and the Respondents' Offers of Settlement, the Commission finds the following: A. FACTS 1. Respondents a. Cortland First Financial Corporation Cortland, a New York corporation with its principal offices in Cortland, New York, is a bank holding company whose wholly owned subsidiary and only operating entity is First National Bank of Cortland ("First National"). According to its Annual Report on Form 10-K for the fiscal year ended December 31, 1995, Cortland had total assets of $203,859,547 and had shareholders' equity of $23,653,651. For the fiscal year ended December 31, 1995, Cortland had net income of $2,732,868, or $4.07 per share. The common stock of Cortland was registered with the Commission pursuant to Section 12(g) of the Exchange Act on February 3, 1987. The shares of Cortland are traded in the over-the-counter market. b. Donald S. Ames Donald S. Ames, age 54, has been a member of Cortland's Board of Directors since 1986, and is a member of its Executive Committee and Audit Committee. c. Frederick G. Compagni, Sr. Frederick G. Compagni, Sr., age 72, was a director of Cortland from 1980 to March 28, 1994, when he retired. Compagni was a member of Cortland's Executive Committee at relevant times. B. APPLICABLE LAW Section 13(a) of the Exchange Act, Rule 13a-1 thereunder, Form 10-K and Item 405 of Regulation S-K promulgated under the Exchange Act, provide that every registrant having a class of securities registered pursuant to Section 12 of the Exchange Act, shall, in its Annual Reports on Form 10-K for fiscal years ending after October 31, 1991: (1) identify each person who, at any time during the fiscal year was a director, officer, or beneficial owner of more than 10% of any class of the registrant's equity securities, that failed to file on a timely basis any Forms 3, 4 and 5 required to be filed under Section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years; and ==========================================START OF PAGE 3====== (2) set forth, for each such person, the number of late reports, the number of transactions that were not reported on a timely basis, and any known failure to file a required Form. Registrants have a duty to ensure the accuracy of such disclosure and are entitled to rely upon Forms 3, 4 and 5 provided by insiders, or upon written representations from insiders that a Form 5 was not required. However, the absence of a Form 3 is an indication that Item 405 disclosure is required. Similarly, the absence of a Form 5 is an indication that disclosure is required, unless the registrant has received written representation that no Form 5 is required, or otherwise knows that no filing is required. Section 14(a) of the Exchange Act, Rule 14a-3 and Schedule 14A promulgated thereunder, provide that in any solicitation to shareholders where action is to be taken with respect to an election of directors, the information specified in Item 405 of Regulation S-K with respect to compliance with Section 16(a) of the Exchange Act shall be furnished to shareholders. Section 16(a) of the Exchange Act -[1]- requires that beneficial owners of more than ten percent of any class of any equity security registered pursuant to Section 12 of the Exchange Act and the officers and directors of the issuer of any such security (hereinafter "insider") file a statement with the Commission by the effective date of a registration statement filed pursuant to Section 12 of the Exchange Act, or within ten days of becoming such officer, director or beneficial owner, reporting the amount of all equity securities of such issuer of which they are a beneficial owner. Section 16(a) also requires an insider to file with the Commission within ten days after the close of each calendar month, if there has been a change in the insider's ownership of the issuer's equity securities during such month, a statement indicating such changes. The rules enacted pursuant to Section 16(a) provide that an initial statement by an ---------FOOTNOTES---------- -[1]- Until May 1, 1991, the statutory filing requirements under Section 16 of the Exchange Act were implemented by Rule 16a-1. On January 10, 1991, the Commission adopted a comprehensive revision of the rules under Section 16 which became effective on May 1, 1991. See Rel. 34-28869, 56 Fed. Reg. 7242 (Feb. 21, 1991). Among other things, these amendments place the implementation of the former Rule 16a-1 filing requirements in new Rules 16a-2 and 16a-3. Accordingly, this Order, at paragraph VI, orders that Ames and Compagni cease-and- desist from violating Rules 16a-2 and 16a-3. ==========================================START OF PAGE 4====== insider is to be made on a Form 3 and subsequent statements of changes in beneficial ownership are to be made on a Form 4 or a Form 5. C. CORTLAND'S VIOLATIONS OF SECTIONS 13(a) AND 14(a) OF THE EXCHANGE ACT AND THE RULES THEREUNDER Cortland's current and former officers and directors failed to file with the Commission Forms 3, 4 and 5 for the period February 1987 through May 9, 1996. On that date, twenty-six current and former officers and directors of Cortland filed twenty-six Forms 3 and 116 Forms 4, which were more than two months to nine years and five months late. These filings reflected changes in beneficial ownership of Cortland equity securities with an aggregate value of approximately $975,000 reported on Forms 4. Cortland's Annual Reports on Forms 10-K filed with the Commission for the fiscal years ended December 31, 1991 through December 31, 1995, contain no disclosure required by Item 405 of Regulation S-K regarding the compliance of its officers and directors with Section 16(a) of the Exchange Act. In addition, Cortland's Definitive Proxy Statements filed with the Commission for its meetings of shareholders, at which directors were elected, on March 22, 1993, March 28, 1994, March 27, 1995 and March 25, 1996, contain no such Item 405 disclosure. Cortland did not have copies of Forms 3, 4 or 5 filed by its officers or directors, or written representations from them that no Forms 5 were required to be filed. D. AMES' AND COMPAGNI'S VIOLATIONS OF SECTION 16(a) OF THE EXCHANGE ACT AND THE RULES THEREUNDER Ames failed for nine years and three months to file a Form 3 with the Commission reporting his holdings of Cortland, failed for periods ranging from eight months to eight years and five months to file twenty-three Forms 4 reporting changes in his beneficial ownership of Cortland's securities, and failed for periods ranging from eight months to four years and eight months to file five Forms 5. The combined value of Ames' securities transactions reported late on Forms 4 is $521,940. Compagni failed for nine years and three months to file a Form 3 with the Commission reporting his holdings of Cortland, failed for periods ranging from more than two years and two months to nine years and five months to file nineteen Forms 4 reporting changes in his beneficial ownership of Cortland's securities, and failed for periods ranging from two years and eight months to four years and eight months to file three Forms 5. The combined value of Compagni's securities transactions reported late on Forms 4 is $169,882. ==========================================START OF PAGE 5====== Ames' and Compagni's history of delinquency, compiled from the ownership reports they filed with the Commission, is set forth below: ==========================================START OF PAGE 6====== DONALD S. AMES Forms 3, 4 and 5 For Holdings and Transactions in the Equity Securities of Cortland First Financial Corporation February 3, 1987 through October 18, 1996 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Form 3 02-87 Form 3 410 02-03-87 9y3m 05-09-96 Forms 4, 5 11-87 Other 410 N/R N/R 12-10-87 8y5m Acq. 05-09-96 10-88 Buy 72 36.00 2,592 12-12- 88 7y5m 05-09-96 11-88 Buy 400 37.50 15,000 12-12- 88 7y5m 280 36.00 10,080 05-09-96 25,080 12-88 Buy 420 37.50 15,750 01-10- 89 7y4m 740 36.00 26,640 05-09-96 42,390 01-89 Buy 400 37.50 15,000 02-10- 89 7y3m 05-09-96 03-89 Buy 1,568 37.00 58,016 04-10- 89 7y1m 05-09-96 12-89 Buy 135 39.00 5,265 06-11- 90 5y11m 05-09-96 ==========================================START OF PAGE 7====== 05-90 Buy 600 40.00 24,000 06-11- 90 5y11m 05-09-96 06-90 Buy 354 39.00 13,806 07-10- 90 5y10m 400 39.00 15,600 05-09-96 29,406 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 07-90 Buy 1,420 39.00 55,380 08-10- 90 5y9m 05-09-96 01-91 Buy 830 40.00 33,200 02-11- 91 5y3m 05-09-96 02-91 Buy 1,260 40.00 50,400 03-11- 91 5y2m 05-09-96 05-91 Buy 365 40.50 14,783 06-10- 91 4y11m 05-09-96 06-91 Buy 290 40.50 11,745 07-10- 91 4y10m 05-09-96 FY-91 Form 5 02-14-92 4y8m Not rec'd** 04-92 Buy 810 43.00 34,830 05-11-924y 05-09-96 07-92 Buy 370 45.50 16,835 08-10- 92 3y9m 05-09-96 FY-92 Form 5 02-16-93 3y8m Not rec'd 08-93 Other 11,534 N/R N/R 02-14-94 2y2m3w Acq. 05-09-96 12-93 Sale 20 35.00 700 01-10- 94 2y4m ==========================================START OF PAGE 8====== 05-09-96 FY-93 Form 5 02-14-94 2y8m Not rec'd 05-94 Buy 200 49.50 9,900 07-11- 94 1y10m 05-09-96 06-94 Buy 500 51.50 25,750 07-11- 94 1y10m 05-09-96 12-94 Sale 100 54.50 5,450 01-10- 95 1y4m 05-09-96 FY-94 Form 5 02-14-95 1y8m Not rec'd Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 01-95 Buy 300 54.25 16,275 02-10- 95 1y3m 05-09-96 08-95 Buy 852 52.75 44,943 09-11-958m 05-09-96 FY-95 Form 5 02-14-96 8m Not rec'd 04-96 Other 49,600 N/R N/R 02-14-97 T Acq. 05-09-96 Total value late reported transactions: $ 521,940 * = Price per share rounded off ** = Lateness calculated through October 18, 1996 ==========================================START OF PAGE 9====== FREDERICK G. COMPAGNI, SR. Forms 3, 4 and 5 For Holdings and Transactions in the Equity Securities of Cortland First Financial Corporation February 3, 1987 through October 18, 1996 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Form 3 02-87 Form 3 4,526 02-03-87 9y3m 05-09-96 Forms 4, 5 06-86 Buy 100 48.00 4,800 12-10- 86 9y5m 05-09-96 08-86 Buy 100 50.00 5,000 12-10- 86 9y5m 05-09-96 11-86 Buy 150 51.00 7,650 12-10- 86 9y5m 05-09-96 12-86 Buy 20 51.00 1,020 01-12- 87 9y4m 150 51.00 7,650 05-09-96 24 52.00 1,248 9,918 11-87 Other 5,070 N/R N/R 12-10- 87 8y5m Acq. 05-09-96 11-88 Buy 260 36.00 9,360 01-10- 89 7y4m 05-09-96 12-88 Buy 370 37.00 13,690 01-10- 89 7y4m 05-09-96 ==========================================START OF PAGE 10====== 08-89 Buy 500 39.00 19,500 09-11- 89 6y8m 05-09-96 01-90 Buy 200 39.00 7,800 03-12- 90 6y2m 05-09-96 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late 02-90 Buy 200 39.00 7,800 03-12- 90 6y2m 05-09-96 06-90 Buy 354 39.00 13,806 07-10- 90 5y10m 05-09-96 08-90 Buy 250 40.00 10,000 09-10- 90 5y8m 05-09-96 12-90 Buy 100 40.00 4,000 06-10- 91 4y11m 05-09-96 01-91 Buy 100 40.00 4,000 06-10- 91 4y11m 05-09-96 05-91 Buy 100 40.50 4,050 06-10- 91 4y11m 05-09-96 FY-91 Form 5 02-14-92 4y8m Not rec'd** 05-92 Buy 130 44.50 5,785 09-10- 92 3y8m 05-09-96 08-92 Buy 460 44.50 20,470 09-10- 92 3y8m 05-09-96 08-92 Sale 200 44.50 8,900 09-10- 92 3y8m 05-09-96 ==========================================START OF PAGE 11====== 10-92 Buy 170 47.00 7,990 02-16- 93 3y2m3w 05-09-96 FY-92 Form 5 02-16-93 3y8m Not rec'd 08-93 Other 13,134 N/R N/R 02-14- 94 2y2m3w Acq. 05-09-96 FY-93 Form 5 02-14-94 2y8m Not rec'd 03-95 Buy 100 53.63 5,363 02-14-97T 05-09-96 Date Month Price Due/ Apprx. of No. of Per Total Date Yrs/Mos/ Trans. Type Shares Share* $Value Rec'd Wks.Late Total value late reported transactions: $ 169,882 * = Price per share rounded off ** = Lateness calculated through October 18, 1996 ==========================================START OF PAGE 12====== IV. FINDINGS Based on the above, the Commission finds that (1) Cortland violated Sections 13(a) and 14(a) of the Exchange Act, and Rules 13a-1 and 14a-3 promulgated thereunder, and (2) Ames and Compagni violated Section 16(a) of the Exchange Act, Rules 16a-2, 16a-3 and former Rule 16a-1 promulgated thereunder. V. OFFER OF SETTLEMENT Cortland, Ames and Compagni have submitted Offers of Settlement in this proceeding which the Commission has determined to accept. Cortland, in its Offer, consents to this Order making findings, as set forth above, and ordering it to cease and desist from committing or causing any violation of, and committing or causing any future violation of, Sections 13(a) and 14(a) of the Exchange Act and Rules 13a-1 and 14a-3 promulgated thereunder. Ames and Compagni, in their Offer, consent to this Order making findings, as set forth above, and ordering Ames and Compagni to cease and desist from committing or causing any violation of, and committing or causing any future violation of, Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 promulgated thereunder. VI. ORDER Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Cortland cease and desist from committing or causing any violation of, and committing or causing any future violation of, Sections 13(a) and 14(a) of the Exchange Act and Rules 13a-1 and 14a-3 promulgated thereunder. IT IS FURTHER ORDERED, pursuant to Section 21C of the Exchange Act, that Ames and Compagni cease and desist from committing or causing any violation of, and committing or causing any future violation of, Section 16(a) of the Exchange Act and Rules 16a-2 and 16a-3 promulgated thereunder. By the Commission. Jonathan G. Katz Secretary