DROVERS BANCSHARES CORPORATION
96 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
April 19, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Drovers Bancshares Corporation to be held, Friday, May 24, 1996, at 2:00 p.m. at
the Research and Administrative Services Center of The Drovers & Mechanics Bank,
915 Indian Rock Dam Road, York, Pennsylvania 17403.
The notice of meeting and Proxy Statement that appear on the following pages
contain information about the matters which are to be considered at the meeting.
To ensure that your shares are represented at the Annual Meeting, please review
the material and complete, sign, date and return promptly the proxy card in the
enclosed envelope. Every shareholder's vote is important whether or not you are
personally able to attend. If you do attend the meeting and wish to vote in
person, you must give written notice thereof to the Secretary of the Company so
that your proxy will be superseded by any ballot that you submit during the
meeting.
Sincerely,
/s/ A. Richard Pugh
A. Richard Pugh
Chairman of the Board and
President
DROVERS BANCSHARES CORPORATION
96 SOUTH GEORGE STREET, YORK, PENNSYLVANIA, 17401
1<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 24, 1996
TO THE SHAREHOLDERS OF DROVERS BANCSHARES CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of DROVERS
BANCSHARES CORPORATION (the "Company") will be held on Friday, May 24, 1996, at
2:00 p.m. at the Research and Administrative Services Center of The Drovers &
Mechanics Bank, 915 Indian Rock Dam Road, York, Pennsylvania 17403, for the
following purposes:
1. To elect five (5) Directors for a four-year term expiring in 2000 and until
their successors are elected and qualified. The nominees of the Company's Board
of Directors are named in the accompanying Proxy Statement.
2. To ratify the selection of Harry Ness & Company to serve as independent
certified public accountants for the Company for the year ending December 31,
1996.
3. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.
The Board of Directors has fixed April 5, 1996 as the record date for the
meeting and only shareholders of record at the close of business on such date
will be entitled to notice of, and to vote at, the Annual Meeting and any
adjournment or postponement thereof.
You are cordially invited to attend the meeting. In order to assure your
representation at the meeting, please mark, sign, date and return your proxy as
promptly as possible. An envelope which requires no postage if mailed in the
United States is enclosed for this purpose. The prompt return of your signed
proxy, regardless of the number of shares you hold, will aid the Company in
reducing the expense of additional proxy solicitation. The giving of such proxy
does not affect your right to vote in person if you attend the meeting and give
written notice to the Secretary of the Company.
By Order of the Board of Directors
/s/ George L.F. Guyer, Jr.
George L.F. Guyer, Jr.
Secretary
York, Pennsylvania
April 19, 1996
2<PAGE>
DROVERS BANCSHARES CORPORATION
Proxy Statement For the Annual Meeting Of Shareholders
To Be Held on May 24, 1996
INTRODUCTION
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation by the Board of Directors of DROVERS BANCSHARES
CORPORATION (the "Company"), a Pennsylvania business corporation, of proxies to
be voted at the Annual Meeting of Shareholders of the Company to be held on
Friday, May 24, 1996, at 2:00 p.m. at the Research and Administrative Services
Center of The Drovers & Mechanics Bank, 915 Indian Rock Dam Road, York,
Pennsylvania 17403. The expense of soliciting proxies will be borne by the
Company. In addition to the use of the mails, certain officers and other
employees of the Company may solicit proxies personally or by telephone but will
receive no special compensation for performing this service. The Company will
make arrangements with brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to their principals and will
reimburse them for their expenses.
A shareholder who returns a proxy may revoke the proxy at any time before it is
voted only: (1) by giving written notice of revocation to George L.F. Guyer,
Jr., Secretary, Drovers Bancshares Corporation at 96 South George Street, York
Pennsylvania 17401; (2) by executing a later-dated proxy and giving written
notice thereof to the Secretary of the Company; or (3) by voting in person after
giving written notice to the Secretary of the Company.
This Proxy Statement and the enclosed form of proxy (the "Proxy") are first
being sent to shareholders of the Company on or about April 19, 1996.
Shares represented by proxies on the accompanying Proxy, if properly signed and
returned, will be voted in accordance with the specifications made thereon by
the shareholders. Any Proxy not specifying to the contrary will be voted FOR
the nominees and proposals named in the accompanying Proxy. Execution and
return of the enclosed Proxy will not affect a shareholder's right to attend the
Annual Meeting and vote in person, after giving written notice to the Secretary
of the Company.
Only shareholders of record at the close of business on April 5, 1996 are
entitled to notice of, and to vote at, the Annual Meeting. On that date, there
were 2,243,529 common shares of the Company outstanding, each of which will
entitle the holder thereof to one vote at the Annual Meeting. In the election
of Directors, each shareholder, or his duly authorized proxy, will have the
right to vote the number of shares owned by him for each of the five (5)
Directors to be elected. There are no cumulative voting rights.
The Company's annual report for the year ended December 31, 1995 was previously
mailed to shareholders of record. It is not to be regarded as proxy
solicitation material.
3<PAGE>
ELECTION OF DIRECTORS
At the Annual Meeting, five Directors of the Company are to be elected,
each Director to hold office for a four-year term expiring in 2000 and until
his or her successor shall have been elected and qualified. Shares
represented by properly executed proxies in the accompanying form will be
voted for the nominees named below unless authority to vote is withheld by
instructions. The persons receiving a plurality of the votes cast will be
elected as Directors. The Board of Directors has no reason to believe any of
the nominees will be unable to serve as a Director. In the event, however, of
the death or unavailability of any nominee or nominees, the Proxy to that
extent will be voted for such person or persons as the Board of Directors may
recommend unless the Board of Directors reduces the size of the Board.
The following table provides information as of April 5, 1996, concerning the
nominees and continuing Directors, including their principal occupations
during the past five years. All of the nominees are presently members of the
Board of Directors of the Company. Each Director of the Company also serves
as a Director of the Company's wholly-owned bank subsidiary, The Drovers &
Mechanics Bank (the "Bank").
Common Shares Percent of
Name and Principal Occupation Director Beneficially Total Shares
For Past Five Years Age SinceF1 OwnedF2 Outstanding
NOMINEES FOR A FOUR-YEAR TERM EXPIRING IN 2000:
J. Samuel Gregory 65 1978 4,859 *
Chairman and CEO, AAA
Southern Pennsylvania
(Insurance, Travel and
Member Services)
Daniel E. Hess 64 1982 5,804 *
President, Hess
Management, Inc.
(Management Consultant)
Herbert D. Lavetan 66 1979 64,298 2.86%
Director, Lavetan &
Associates, Inc. (Postal,
Business and
Communications Services);
formerly retired
L. Doyle Ankrum 67 1979 4,227F3 *
Retired
Robert H. Stewart, Jr. 56 1987 52,451F4 2.33%
President, York Building
Products Co., Inc.
(Concrete Masonry Units,
Crushed Stone-Bituminous
Concrete)
4<PAGE>
INFORMATION REGARDING CONTINUING DIRECTORS
TERMS EXPIRING IN 1997:
Richard M. Linder 65 1976 16,080F5 *
Retired; formerly Chairman
of the Company and the
Bank until March 1996;
formerly Chairman and
Chief Executive Officer of
the Company and the Bank
until July 1994
Frank MotterF6 68 1975 23,222 1.03%
Chairman of the Board &
President, Motter Printing
Press Co. (Web-Fed Printing
Equipment); formerly
Executive Vice President,
KBA-Motter Corp. until
December 1991
Robert L. Myers, Jr. 67 1968 17,958F7 *
President, John H. Myers &
Son, Inc. (Lumber &
Building Supplies)
A. Richard Pugh 55 1990 16,869F8 *
Chairman of the Board and
President of the Company
and the Bank; formerly
President and Chief
Executive Officer of the
Company and the Bank
until March 1996
TERMS EXPIRING IN 1998:
John U. Wisotzkey 66 1962 3,901 *
Chairman of the Board, The
Maple Press Company
(Printer)
Harlowe R. Prindle 53 1982 13,179 *
President, York Auto Parts
Co., Inc.
5<PAGE>
Basil A. Shorb, III 50 1993 46,618F9 2.07%
President, Helm Coal
Corporation (Holding
Company Providing
Management Services to Six
Wholly-Owned Subsidiaries
Engaged in Steel
Fabrication, Highway Sign
Manufacturing and Specialty
Construction)
Delaine A. Zimmer 52 1995 214 *
Executive Vice President
and Chief Operating
Officer, Tighe Industries,
Inc. (Manufacturers,
Designers and Marketers of
Dance Costumes, Dance
Apparel and Gymnastic
Apparel)
TERMS EXPIRING IN 1999:
D. John SparlerF10 47 1984 132,429F11 5.90%
President, Treasurer and
Chief Operating Officer,
Yorktowne Paper Mills, Inc.
(Paperboard and Paperboard
Products); formerly
Executive Vice President
and Treasurer until
December 1991
David C. McIntosh 67 1985 5,141F12 *
President, MCD
Technologies, Inc.
(Industrial Product
Research); formerly
President, Market Access,
Inc. until May 1994
Josephine D. AppellF6 72 1985 6,081 *
Chairman of the Board &
Secretary, York Blue Print
Co., Inc.
George W. Hodges 45 1994 2,126F13 *
President, The Wolf
Organization, Inc.
(Distributors of Lumber &
Building Supplies)
6<PAGE>
DIRECTOR EMERITUS:
Daniel J. SparlerF10 78 1963 154,929F14 6.90%
Chairman & Chief
Executive Officer,
Yorktowne Paper Mills, Inc.
(Paperboard & Paperboard
Products); formerly
Chairman, President &
Chief Executive Officer
until December 1991
All Directors and Executive
Officers as a Group (24 persons) 586,042F15 26.12%
* = Less than 1%
Footnotes
F1. Includes period served as Director of Bank.
F2. Except as otherwise noted, the persons listed possess sole voting and
investment power or share voting and investment power with their spouse.
F3. Includes 3,165 shares owned by his wife.
F4. See footnote number 3 under Share Ownership of Certain Beneficial Owners.
F5. Includes 42 shares owned by his wife, 156 shares held by his wife in
nominee name, 1,522 held by him in nominee name and 3,745 shares which Mr.
Linder has the right to acquire (at a present exercise price of $21.96 per share
for 3,745 shares under options granted on November 23, 1994) upon exercise of
stock options granted pursuant to the Company's 1985 Incentive Stock Option
Plan.
F6. Mr. Motter and Mrs. Appell are also Directors of York Water Company (a
company with a class of securities registered pursuant to Section 12 of the
Securities Exchange Act of 1934).
F7. Includes 1,597 shares owned by his wife and 8,751 shares held by the
Elsbeth M. Myers Trust, of which he is a trustee sharing investment and voting
authority.
F8. Includes 108 shares held by him in nominee name, 80 shares owned by his
children for which he is custodian and 16,117 shares Mr. Pugh has the right to
acquire (at a present exercise price of $12.64 for 7,022 shares under options
granted on December 19, 1990, $21.96 for 3,745 shares under options granted on
November 23, 1994 and $20.21 per share for 5,350 shares under options granted on
May 22, 1995) upon exercise of stock options granted pursuant to the Company's
1985 Incentive Stock Option Plan.
F9. Includes 14,441 owned by his wife, 2,944 shares owned by his son for which
he is custodian, 2,937 shares owned by his son for which his wife is custodian
and 24,635 shares held by Helm Coal Company of which his wife is a partner
sharing voting and investment authority.
F10. Daniel J. Sparler and D. John Sparler are father and son.
F11. Includes 125,524 shares owned by Yorktowne Paper Mills, Inc. of which he
is President, Treasurer and Chief Operating Officer and possesses sole voting
and investment authority in the absence of the Chairman and Chief Executive
Officer.
F12. Includes 1,555 shares held by him in nominee name and 83 shares held by
his wife in nominee name.
F13. Includes 1,858 shares owned by his wife.
F14. Includes 11,345 shares owned by his wife and 125,524 shares owned by
Yorktowne Paper Mills, Inc. of which he is Chairman and Chief Executive Officer
and possesses sole voting and investment authority in the absence of the
President, Treasurer and Chief Operating Officer.
F15. Shares owned by Yorktowne Paper Mills, Inc. are only included once.
Beneficial ownership is as of April 5, 1996.
7<PAGE>
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
There are no persons known to the Company who beneficially own more than five
percent (5%) of the Company's outstanding common shares, except as disclosed in
the following chart:
Name & Address Number of Shares Percentage of Outstanding
Of Beneficial Owner Beneficially Owned Common Stock Owned
D. John Sparler 132,429F1 5.90%
1520 Dunster Road
York, PA 17403
Daniel J. Sparler 154,929F2 6.90%
731 Carroll Road
York, PA 17403
Robert H. Stewart, Jr. 52,451F3 2.33%
R.D. #4
Spring Grove, PA 17362
FOOTNOTES
F1. See footnote number 11 under Election of Directors.
F2. See footnote number 14 under Election of Directors.
F3. Previously, 165,017 shares of the Company were owned by Stewart
Associates, a general partnership in which Mr. Stewart is a 25% general
partner. Effective October 25, 1995, these shares were distributed pro rata
to each general partner.The general partners and some of their immediate
family members filed, as a group, an Amended Schedule 13D, dated October 25,
1995, with the Securities and Exchange Commission. The Schedule 13D disclosed
that, while no member of such group beneficially owns or has power to vote
more than 5% of the Company's shares, as a group such persons beneficially
own, or have the power to vote or dispose of 14.67% of the Company's issued
and outstanding shares. Such amount includes 11,689 shares held by the York
Building Products Profit Sharing Plan, in which Mr. Stewart is a participant.
The number of shares beneficially owned by Mr. Stewart include his pro
rata distribution from Stewart Associates, and 920 shares as his portion of
the York Building Products Profit Sharing Plan.
ADDITIONAL INFORMATION
During 1995, the Boards of Directors of the Bank and the Company met 12 and 11
times, respectively. The Company has no committees. The Bank has Executive,
Audit, Nominating and Personnel Committees. Other Committees are appointed as
necessary to conduct the business of the Bank.
8<PAGE>
The Executive Committee, which met 12 times in 1995 during intervals between
meetings of the Board of Directors, may exercise the authority of the Board in
the management of the Bank's business to the extent permitted by law. As of
December 31, 1995, this committee's members were Richard M. Linder (Chairman),
L. Doyle Ankrum, David C. McIntosh, Frank Motter, Robert L. Myers, Jr., A.
Richard Pugh and John U. Wisotzkey.
The Audit Committee, which met 4 times in 1995, is responsible for recommending
to the Board a firm of independent certified public accountants to conduct an
annual audit of the books and accounts of the Company and its subsidiaries. The
Board has adopted an Audit Committee Charter that designates the
responsibilities of the Audit Committee in the areas of financial reporting,
corporate governance and internal control. As of December 31, 1995, this
committee's members were L. Doyle Ankrum (Chairman), George W. Hodges, Basil A.
Shorb, III, D. John Sparler and Robert H. Stewart, Jr, and Delaine A. Zimmer.
The Nominating Committee is responsible for recommending candidates for Board
membership. Shareholder nominations will be considered if made in writing and
delivered to the Company's principal office not later than the seventh day
following the day on which the notice of meeting was mailed. Nominations must
contain the same information about each candidate as is required to be contained
in the Company's Proxy Statement about management's candidates, the name and
address of the notifying shareholder and the number of shares of the Company
owned by the notifying shareholder. The committee met 4 times in 1995. As of
December 31, 1995, the committee's members were J. Samuel Gregory (Chairman),
Josephine D. Appell, George W. Hodges, Herbert D. Lavetan, David C. McIntosh and
Frank Motter.
The Personnel Committee, which met 5 times in 1995, is responsible for serving
in an advisory and consulting capacity to management in the development,
implementation and/or assessment of personnel policies, employee benefit issues,
organizational and succession planning and compensation and benefit programs.
The committee reviews and recommends for Board approval the election and re-
evaluation of vice presidents and above, and their compensation. As of December
31, 1995, the committee's members were John U. Wisotzkey (Chairman), Frank
Motter, Robert L. Myers, Jr. and L. Doyle Ankrum.
During 1995 all of the Directors of the Bank and of the Company attended at
least 75% of the aggregate of all meetings of the respective Boards and
committees on which they served, except Basil A. Shorb, III.
EXECUTIVE COMPENSATION
Company officers, all of whom are also officers of the Bank, do not receive
compensation from the Company. The following table shows information concerning
the annual compensation paid by the Bank for services in all capacities to the
Company and the Bank for the fiscal years ended December 31, 1995, 1994 and 1993
of those persons who were, at December 31, 1995, Chairman and President and
Chief Executive Officer. No other executive officers of the Company or the Bank
received a total annual salary and bonus exceeding $100,000.
9<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Other Annual
Principal Position Year Salary($) Bonus($) Compensation($)F1
Richard M. Linder, 1995 215,000 21,500 --
Chairman F4 1994 200,000 18,000 --
1993 192,000 23,040 --
A. Richard Pugh, 1995 175,000 17,500 --
President and 1994 152,557 13,720 --
Chief Executive 1993 122,000 14,640 --
Officer F4
Long-Term Compensation
Awards Payouts
Securities
Underlying
Name and Restricted Stock Options LTIP All Other
Principal Position Awards($) SARs(#)F2 Payouts($) Compensation($)F3
Richard M. Linder, 0 5,350 0 2,302
Chairman F4 0 3,500 0 2,062
0 0 0 2,248
A. Richard Pugh, 0 5,350 0 2,297
President and 0 3,500 0 1,687
Chief Executive 0 0 0 1,359
Officer F4
FOOTNOTES
F1. Perquisites and other personal benefits which do not exceed the lesser of
$50,000.00 or 10% of total annual salary and bonus are excluded.
F2. Includes effect of stock dividend paid in November 1995.
F3. Amounts shown represent contributions by the Bank to the Bank's Salary
Deferral Plan, described in pages 31-14 of this Proxy Statement.
F4. Mr. Pugh succeeded Mr. Linder as Chairman of the Board, effective March 1,
1996.
10<PAGE>
OPTION/SAR GRANTS AND EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to options granted in 1995 pursuant to
the Company's 1995 Incentive Stock Option Plan and unexercised options to
purchase the Company's common stock granted in years prior to 1995 under the
Company's 1985 Incentive Stock Option Plan to the named officers and held by
them at December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of Potential Realizable Value
Number of Total at Assumed Annual Rate
Securities Options/SARs of Stock Price
Underlying Granted to Exercise or Appreciation for
Options/SARs Employees in Base Price Expiration Option Term
Name Granted Fiscal Year ($/Share) Date 0% 5% 10%
Richard M. Linder, 5,000 20% $21.625 05/22/2005 0 68,000 172,319
Chairman F2
A. Richard Pugh, 5,000 20% $21.625 05/22/2005 0 68,000 172,319
President and Chief
Executive Officer F2
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL-YEAR-END OPTION VALUES
Number of Securities, Value of Unexercised
Underlying Unexercised in-the-money
Options/SARs at Fiscal Options/SARs at Fiscal
Year-End (#) Year-End ($)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise(#) Value Realized($) UnexercisableF1 Unexercisable
Richard M. Linder, 0 $0.00 11,685/2,675 $45,632.80/$8,479.75
Chairman F2
A. Richard Pugh, 0 $0.00 13,442/2,675 $80,732.46/$8,479.75
President and Chief
Executive Officer F2
FOOTNOTES
F1. Includes effect of stock dividend paid in November 1995.
F2. Mr. Pugh succeeded Mr. Linder as Chairman of the Board, effective March 1,
1996.
11<PAGE>
Change in Control Agreements
The Company and the Bank have entered into agreements with Messrs. Linder and
Pugh (the "Executives") providing that in the event of the termination of the
Executives' employment (other than for cause) with the Company or the Bank
under certain circumstances following a change in control of the Company or
the Bank, the Executives will be entitled to additional compensation. A
"change in control" is defined to include an acquisition of 25% or more of the
outstanding voting securities of the Company or the Bank; a merger or
consolidation of the Company or the Bank if, as a result of the transaction,
less than 75% of the voting securities of the surviving corporation are owned
by the former shareholders of the Company or the Bank, other than affiliates
of any party to the merger or consolidation; a sale of substantially all of
the assets of the Company or a change in a majority of the Directors of the
Company or the Bank during any two-year period. Each agreement provides for
the payment of the Executive's full compensation for three years (subject to
reduction by one-half of the amount of any base annual salary from any new
employment); a lump sum payment of 40% of his annual salary at the time of
termination; continuation of benefits for up to three years; continuation of
benefits under the Supplemental Retirement Plan described under Pension
Plan; and an acceleration of the right to exercise his current options under
the Company's Stock Option Plans.
Pension Plan
The Bank maintains a qualified pension plan covering all full-time employees
of the Bank who are at least 21 years of age and who have completed one year
of service with the Bank. Participants become fully vested in the plan after
5 years of service. Each participant in the plan is entitled to a monthly
benefit commencing at the participant's normal retirement date, assuming the
participant has attained at least age 65 and has completed five years of
participation, and continuing for life, with payments guaranteed for the first
120 months. Benefit amounts for a fully-vested participant equal 33% of the
participant's average monthly pay if the participant has 15 or more years of
service, plus .58% of average monthly pay in excess of the Social Security
Integration level as outlined in Table I Covered Compensation multiplied by
years of service at normal retirement up to a maximum of 25 years. Average
monthly pay is based upon the 5 plan years preceding the normal retirement
date. The Bank's contributions to the pension plan are determined on an
actuarial basis for all participants.
The following chart illustrates the estimated annual benefits payable upon
retirement to persons in specified salary and service classifications, assuming
retirement at age 65 during 1996. For this purpose, the Social Security
integration level assumed is $27,576.
ANNUAL RETIREMENT BENEFIT FOR
FINAL AVERAGE YEARS OF SERVICE INDICATED
COMPENSATION 15 YEARS 25 YEARS 35 YEARS
$ 75,000 $ 28,876 $ 31,626 $ 31,626
100,000 39,301 43,501 43,501
125,000 49,726 55,376 55,376
150,000 60,151 67,251 67,251
175,000 60,151 67,251 67,251
200,000 60,151 67,251 67,251
225,000 60,151 67,251 67,251
12<PAGE>
The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) has placed the limit on
compensation which may be taken into account under a defined benefit plan
reducing it from $235,840 in 1993 to $150,000 beginning in 1994. This new limit
will increase with inflation, but only when inflation permits a full $10,000
increase. Only future accruals will be affected by the $150,000 compensation
limit.
As of January 1, 1996, Richard M. Linder and A. Richard Pugh were credited with
21 and 14 years of service, respectively. (Richard M. Linder retired as of
March 1, 1996).
The Bank has also adopted a Supplemental Pension Plan for Mr. Linder. Pursuant
to such Plan, as of March 1, 1996, Mr. Linder is receiving payments which, when
added to his pension under the Bank's pension plan and the primary Social
Security amount, increase his pension benefits to 65% of his final compensation
as determined under the Bank's pension plan. The Bank adopted a Supplemental
Pension Plan for Mr. Pugh on January 1, 1995 which contains substantially
similar terms as Mr. Linder's Supplemental Pension Plan except that, under Mr.
Pugh's Plan, Mr. Pugh will be entitled to payments which increase his pension
benefits to 65% of his highest annual average compensation in three of his last
five years as an employee of the Bank.
Salary Deferral Plan
The Bank has a Salary Deferral Plan ("Plan") for employees who have completed 1
year of service, attained the age of 21 and receive eligible credit for each
year of service in which they complete at least 1,000 hours. Eligible employees
are permitted to make, by means of payroll deductions, annual contributions up
to the annual maximum of their gross compensation as determined from time to
time by Internal Revenue Service regulations. These contributions constitute a
salary reduction for Federal income tax purposes until distribution from the
Plan. The Bank will contribute an amount equal to 25% of the first 6% of these
contributions allocated to each participating employee in proportion to their
contribution. The amount of contribution made by the Bank is fully vested in
each participating employee. All contributions are invested in either a
principal stabilization fund, fixed income fund or equity fund as directed by
the participant. Investment earnings and Bank contributions are not subject to
Federal income tax until distributed to the participant. The benefits are
generally payable following retirement, disability, death, hardship or
13<PAGE>
termination of employment; however, in the event of a voluntary withdrawal for
hardship, the amount is limited to the amount of voluntary employee
contributions to date. The Bank's matching contribution for the plan year 1995
to Richard M. Linder and A. Richard Pugh are included in the Summary
Compensation Table.
Compensation Committee Interlocks and Insider Participants. There are no
interlocks between Officers of the Company and compensation committees and
boards of directors of other companies with which the Directors of the Company
are affiliated.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a Compensation Committee. The Personnel Committee of
the Bank, composed of outside Directors, none of whom has interlocking
relationships with Company executives, conducts a full review each year of the
executive compensation programs. The committee is responsible for making
recommendations to the Board with respect to the Bank's executive compensation
programs. The executive compensation programs are designed to attract, retain
and motivate the broad based executive talent required to achieve the Company's
business objectives and increase shareholder value. The committee recommends to
the Board the compensation for the Company's Chairman, Richard M. Linder and the
Company's Chief Executive Officer and President, A. Richard Pugh. The counsel
of Mr. Linder and Mr. Pugh is solicited by the committee prior to the
committee's compensation recommendations to the Board for the other executive
officers.
As the Bank has grown, the Committee has attempted to become more sophisticated
in its methods of determining executive compensation. In this regard, the
element of corporate performance now supplements individual performance and
compensation paid by similarly situated institutions as a factor in determining
executive compensation. Corporate performance is used as the sole factor in
determining annual incentive compensation and is also used, to a lesser degree,
to establish base salaries for senior officers. In the area of annual incentive
compensation, corporate performance is measured by a formula based on return on
average assets. The Committee believes corporate performance is more
appropriate than its stock price as a supplemental measure for determining
executive compensation in terms of base salaries and annual incentive
compensation. The Company's stock is fairly thinly traded with a limited number
of market makers and thus the price of the Company's stock sometimes moves
independently of the Company's performance and other market factors and
therefore the Committee believes that short-term movements in its stock price
are not necessarily indicative of the stock's value. However, in order to
encourage management to pursue policies which will enhance long-term shareholder
value, the Committee believes that the use of stock options is an effective
long-term incentive compensation method. Thus, to the extent stock options are
part of a particular executive's compensation package, the overall level of the
executive's compensation is tied to the long-term performance of the Company's
stock.
In 1993, the Committee and management retained an employee benefit consultant to
further refine the process of determining executive compensation and,
specifically, to take into consideration compensation packages at comparable
institutions and corporate performance in the process. As a result of its work
with the consultant, the Committee reviews, on an annual basis, the data
provided.
14<PAGE>
by specific surveys on competitive salary and the compensation practices of
financial institutions of similar asset size (i.e. institutions of between $200
million and $500 million in asset size) particularly in the Mid-Atlantic region
and nationally. During the past fiscal year, the Committee continued the recent
trend of viewing executive compensation as a whole rather than focusing on
individual elements. Thus, the Committee has attempted to design compensation
packages for individual executive officers by using different components and
weighing these components differently in individual cases.
The Bank's executive compensation program has three main components:
Base Salary. Base salaries for executive officers are determined by evaluating
the responsibilities of the position, the experience of the individual, the
financial results of the Company and by reference to the competitive
marketplace. Base salary adjustments are considered by the committee on an
annual basis. Using the surveys mentioned above as a guide and based on the
fact that the Company fits roughly in the middle of such marketplace in terms of
asset size, the Committee uses average base salaries paid by companies in such
marketplace to set an approximate range for the Company's base salaries, with
seniority, individual performance and corporate performance determining actual
base salaries. The base salary increases in 1995 over amounts determined in
1994 as a result of this process averaged approximately 6.8% which the Committee
believes is consistent with the percentage increase in the industry. To arrive
at the average annual increase of base salaries, the Committee considers the
following three factors: (i) the Committee conducts a survey of certain South
Central Pennsylvania banks to determine the average increase in base salaries
expected by such banks for the upcoming year; (ii) the Company's employee
benefit consultant provides an average annual increase of base salaries expected
by banks of similar asset size on a national level; and (iii) the Committee
determines the amount of increase which will be feasible in terms of the
Company's budget.
In general, specific individual performance is weighted more heavily than
corporate performance in determining base salaries of senior management.
However, as responsibility increases, more emphasis is placed on corporate
performance in setting an individual's base salary. For this purpose, corporate
performance is measured using a number of factors, such as achievement of
various budget goals, growth of the institution and peer group comparisons.
Annual Incentive Compensation. The annual incentive compensation program was
designed to support and promote the pursuit of the Bank's organizational
objectives and financial goals as defined in the Bank's strategic and financial
plans. The program provides for the payment of an annual cash bonus to
executive and certain key officers. The program is based on the Bank's return
on assets. Bonuses are only paid to executive officers if the return on average
assets equals or exceeds one percent (1%). The Committee considers a return on
average assets of 1% as an appropriate minimum target for community banks such
as the Bank. The Committee also believes that achieving this level of return on
average assets indicates acceptable performance when viewed in the context of
the Company's growing asset base. In a peer group analysis of 225 banks of
between $300 million and $500 million in asset size in the United States, the
Bank's return on average assets of 1.14% in 1994 (on which the 1995 annual
incentive compensation payment was based) ranked it in the 42nd percentile of
the peer group.
15<PAGE>
Assuming the 1% threshold is achieved, the bonus paid is determined by a
percentage of salary with such percentage increasing as the return on average
assets increases, e.g. the base amount of 5% of base salary at a 1% return on
average assets is increased by a percentage point for each .04% increase in
return on average assets over 1%.
Long-Term Incentive Compensation. Long-term incentive compensation
opportunities are available to executives in positions with significant
responsibilities, accountabilities and impact on long-term performance. Long-
term incentive compensation has been and is anticipated to be made available in
the form of stock options under the Company's Stock Option Plans. The Personnel
Committee believes that stock option grants are an effective way to align the
interests of the Company's executives with its shareholders by making a portion
of an optionee's compensation dependent upon the long-term performance of the
Company's stock. In the past, options had been granted only to the Company's
two most senior executive officers. During 1995, options were granted to
officers with the title senior vice president and above. In determining the
number of options granted in 1995, the Committee considered information
available to it regarding options granted by other public companies, and, in
particular, banking institutions. The Committee has followed a policy to date
of providing that only 50% of options granted are exercisable immediately. The
Committee uses both objective and subjective methods of determining the amount
of shares subject to future grants. Thus, it may consider such factors as the
potential realizable value of particular options based on an assumed rate of
appreciation in the price of the Company's stock, a desired level of ownership
in the Company based on position in the Company, formula grants and individual
performance. Stock option grants made to executive officers during fiscal year
1995 are included in Option Grant Table.
Chief Executive Officer Compensation. The Company and its Chief Executive
Officer, A. Richard Pugh, have not entered into an employment agreement. Thus,
the factors involved in establishing a compensation package for the Company's
chief executive officer are similar to those noted above for all executives.
However, the value of his compensation is more closely tied to corporate
performance and the long-term performance of the Company's stock. Specifically,
the chief executive's compensation is determined as follows:
Base Salary. In the case of the Company's Chief Executive Officer, corporate
performance is weighted more heavily than individual performance for purposes of
determining base salary. Thus, in 1995, the Committee emphasized the Company's
achievement of its corporate performance goals and the new responsibilities of
Mr. Pugh as successor to Mr. Linder in setting Mr. Pugh's salary as Chief
Executive Officer. Mr. Pugh's year-end base salary for 1995 was $175,000 which
reflects an approximate 9.3% increase in year-end base salary for 1994 due to
his new duties as Chief Executive Officer and, to a lesser extent, corporate
performance.
Annual Incentive Compensation. The Committee calculates Mr. Pugh's annual
incentive compensation in accordance with the formula set forth above. Thus,
Mr.Pugh receives such compensation only if the Company's return on average
assets equals 1% or more. Mr. Pugh's annual incentive compensation for 1995 was
$17,500.
16<PAGE>
Long-Term Incentive Compensation. Stock options are an important portion of the
Chief Executive Officer's overall compensation package, particularly given the
policy-making function of such position. The Committee believes linking a
portion of the Chief Executive Officer's compensation to the long-term
performance of the Company's stock encourages such officer to pursue policies
which enhance long-term shareholder value. No stock options were granted under
the Company's existing stock option plan in 1992 or 1993. In 1994 Mr. Pugh
received stock options to purchase 3,500 shares, which represented 37% of all
stock options granted in 1994. In 1995 Mr. Pugh received stock options to
purchase 5,000 shares, which represented 20% of all stock options granted in
1995.
Personnel Committee:
John U. Wisotzkey, Chairman
L. Doyle Ankrum
Frank Motter
Robert L. Myers, Jr.
PERFORMANCE GRAPH
The following table compares the yearly change in the cumulative total
shareholder return on the Company's common stock against the cumulative total
return on the S&P 500 Stock Index and a Peer Group Index for the period of five
fiscal years commencing January 1, 1991 and ended December 31, 1995. The
shareholder return shown on the table below is not necessarily indicative of
future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
1990 1991 1992 1993 1994 1995
Drovers BancShares Corporation 100.00 103.90 136.59 175.49 183.62 226.08
Peer Group Index 100.00 98.99 128.13 177.02 198.80 222.85
S&P 500 Index 100.00 126.31 131.95 141.25 139.08 186.52
The peer group for which information appears above includes the following
companies: ACNB Corporation; Bryn Mawr Bank Corporation; CNB Financial
Corporation; Century Financial Corporation; Citizens & Northern Corporation;
Community Banks, Inc.; First West Chester Corporation; Franklin Financial
Services Corp.; Hanover Bancorp, Inc.; Keystone Heritage Group, Inc.; Penn
Security Bank & Trust Co.; PennRock Financial Services, Inc.; Pioneer American
Holding Company and Sterling Financial Corporation. These companies were
selected based on the following criteria: total assets
between $275,000 million and $700,000 million; market capitalization greater
than $40 million; and headquarters located in Pennsylvania.
Directors Fees
Each Director of the Bank, who is not an employee of the Bank, received an
annual retainer of $7,500 in 1995 as compensation for services as a Director and
for attending meetings of the Board and committees of the Board. Delaine A.
Zimmer,
who became a Director in April 1995, received a retainer of $4,666. Mahlon P.
Leiphart, who retired in May 1995, received a retainer of $2,916.67. The
Company
pays no retainer.
17<PAGE>
Transactions with Management and Others
During 1995 some of the Directors and Executive Officers of the Company and of
the Bank, members of their immediate families, and some of the companies with
which they are associated, had banking transactions with the Bank in the
ordinary course of the Bank's business and additional transactions may be
expected to take place in the future. These transactions were made on
substantially the same terms, including interest rates, collateral requirements
and repayment terms, as those prevailing at the time for comparable transactions
with non-affiliated persons and did not involve more than the normal risk of
collectability or present other unfavorable features. The aggregate dollar
amount of related party loans on December 31, 1995 was $14,155,000. During
1995, $46,869,000 of new loans were made to related parties and repayments
totaled $49,730,000.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Officers and Directors to file reports of ownership and changes in ownership
with the Securities and Exchange Commission ("SEC"). Officers and Directors are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of such forms
furnished to the Company, if any, and written representations, if any, that no
additional reports were required, the Company believes that during the year
ended December 31, 1995, its Officers and Directors complied with all applicable
Section 16(a) filing requirements.
RATIFICATION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Unless instructed to the contrary, it is intended that votes will be cast
pursuant to the proxies for the ratification of the selection of Harry Ness &
Company, Certified Public Accountants, of York, Pennsylvania, as the Company's
independent public accountants for its 1996 fiscal year. The Company has been
advised by Harry Ness & Company that none of its members has any financial
interest in the Company. Ratification of Harry Ness & Company will require the
affirmative vote of a majority of the shares of common stock represented in
person or by proxy at the Annual Meeting. Harry Ness & Company served as the
Company's independent certified public accountants for the 1995 fiscal year,
assisted the Company and the Bank with the preparation of their federal and
state tax returns, and provided assistance in connection with regulatory
matters, charging the Bank for such services at its customary hourly billing
rates. These non-audit services were approved by the Company's and the Bank's
Board of Directors after due consideration of the effect of the performance
thereof on the independence of the accountants and after the conclusions by the
Company's and the Bank's Board of Directors that there was no effect on the
independence of the accountants. A representative of the Company will be
available to address appropriate questions concerning the annual report
presented by the shareholders at the Annual Meeting.
In the event that the shareholders do not ratify the selection of Harry Ness &
Company as the Company's independent public accountants for the 1996 fiscal
year, another accounting firm may be chosen to provide independent public
accountant audit services for the 1996 fiscal year.
18<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE SELECTION OF
HARRY NESS & COMPANY AS THE AUDITORS FOR THE COMPANY FOR THE YEAR ENDING
DECEMBER 31, 1996.
OTHER MATTERS
The Board of Directors is not aware of any matters to be presented for action at
the Annual Meeting other than stated in the meeting notice. If any other
matters should properly come before the meeting, however, the enclosed proxy
confers discretion of the persons named therein to act on such matters.
Upon written request of any shareholder, a copy of the Company's report on Form
10-K for its fiscal year ended December 31, 1995, including the financial
statements and the schedules thereto, required to be filed with the Securities
and Exchange Commission pursuant to Rule 13a-1 under the Securities and Exchange
Act of 1934, as amended, may be obtained without charge from the Company's
Secretary, George L. F. Guyer, Jr., P. O. Box 2557, York, Pennsylvania 17405.
Shareholder Proposals for Next Annual Meeting
Any shareholder proposal for consideration at the Annual Meeting of Shareholders
to be held in 1997 must be received by the Company at its principal offices, 96
South George Street, P. O. Box 2557, York, Pennsylvania 17405, no later than
Friday, December 20, 1996, in order for it to be included in the Company's proxy
materials. Submission by certified mail-return receipt requested is
recommended.
By Order of the Board of Directors
/s/ George L.F. Guyer, Jr.
George L. F. Guyer, Jr.
Secretary
19<PAGE>
DROVERS BANCSHARES CORPORATION
96 South George Street, York, Pennsylvania 17401
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints William H. Neff, Jr. and Timothy
P. Ruth, and each or any of them, with power of substitution in each, as proxies
to represent the undersigned at the Annual Meeting of Shareholders of Drovers
Bancshares Corporation (the "Company") to be held at the Research and
Administrative Services Center of The Drovers & Mechanics Bank, 915 Indian Rock
Dam Road, York, Pennsylvania 17403 on Friday, May 24, 1996 at 2:00 P.M., and at
any adjournments or postponements thereof, and to vote the same number of
shares, and as fully as the undersigned would be entitled to vote, if then
personally present, upon any matter which may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED IN ITEM 1 AND FOR PROPOSAL 2. THE UNDERSIGNED
HEREBY REVOKES ANY PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED TO VOTE AT THE
ANNUAL MEETING OR ANY ADJOURNMENTS THEREOF.
(continued on reverse side)
1. ELECTION OF DIRECTORS TO SERVE FOR A FOUR (4) YEAR TERM:
0 FOR all nominees 0 WITHHOLD J. Samuel Gregory, Daniel E. Hess, Herbert
listed (except AUTHORITY D. Lavetan, L. Doyle Ankrum, Robert H.
as marked to to vote for Stewart, Jr.
the contrary) all nominees
listed
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
2. RATIFICATION OF HARRY NESS & COMPANY TO SERVE AS CERTIFIED PUBLIC
ACCOUNTANTS FOR THE COMPANY FOR THE YEAR ENDING DECEMBER 31, 1996:
0 For 0 Against 0 Abstain
Please sign exactly as name appears. When shares are held by joint tenants,
both should sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation, please sign in
full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Date: ___________________________________, 1996
___________________________________
Signature
___________________________________
Signature if held jointly
(PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.)
20<PAGE>
(..continued)
