DROVERS BANCSHARES CORPORATION
96 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
April 18, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Drovers Bancshares Corporation to be held, Friday, May 23, 1997, 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of the Company so that your proxy will be superseded by any ballot that you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
<PAGE>
DROVERS BANCSHARES CORPORATION
96 SOUTH GEORGE STREET, YORK, PENNSYLVANIA, 17401
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 23, 1997
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 23, 1997,
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 four (4) Directors for a four-year term expiring in 2001 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 consider and ratify the adoption by the Board of Directors of the
Company of the Drovers Bancshares Corporation 1997 Employee Stock Purchase
Plan.
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 4, 1997 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 18, 1997
<PAGE>
DROVERS BANCSHARES CORPORATION
Proxy Statement For the Annual Meeting Of Shareholders
To Be Held on May 23, 1997
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 23, 1997, 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 18, 1997.
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 4, 1997 are
entitled to notice of, and to vote at, the Annual Meeting. On that date,
there were 2,809,180 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 four
(4) Directors to be elected. There are no cumulative voting rights.
The Company's annual report for the year ended December 31, 1996 was
previously mailed to shareholders of record. It is not to be regarded as
proxy solicitation material.
<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
1520 Dunster Road
York, PA 17403 165,535 1 5.89%
Daniel J. Sparler
731 Carroll Road
York, PA 17403 179,479 2 6.38%
Yorktowne Paper Mills, Inc.
1001 Loucks Mill Road
York, PA 17402 156,905 5.58%
Gary A. Stewart
910 Upland Road
York, PA 17403 88,146 3 3.13%
Robert H. Stewart, Jr.
R.D. #4
Spring Grove, PA 17362 87,181 3 3.10%
___________________
1. See footnote number 9 under Election of Directors.
2. See footnote number 14 under Election of Directors.
3. Mr. Gary A. Stewart and Mr. Robert H. Stewart and other members of the
Stewart family have filed, as a group, a Schedule 13D, as amended, 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 may be deemed to beneficially own
approximately 15.7% of the Company's issued and outstanding shares.
ELECTION OF DIRECTORS
At the Annual Meeting, four Directors of the Company are to be elected, each
Director to hold office for a four-year term expiring in 2001 and until his
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 that any of the
nominees is unable to accept nomination or election, any Proxy given pursuant
to this solicitation will be voted in favor of such other persons as the
management of the Company may recommend. The following table provides
information as of April 4, 1997, 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").
<PAGE>
Percent of
Name and Principal Occupation Director Common Shares Total Shares
For Past Five Years Age Since 1 Beneficially Owned 2 Outstanding
NOMINEES FOR A FOUR-YEAR TERM EXPIRING IN 2001:
Richard M. Linder
Retired; formerly Chairman
of the Company and the Bank
until March 1996 66 1976 12,018 3 *
Frank Motter 4
Chairman of the Board & President,
Motter Printing Press Co.
(Web-Fed Printing Equipment) 69 1975 29,027 1.03%
Robert L. Myers, Jr.
President, John H. Myers & Son, Inc.
(Lumber & Building Supplies) 68 1968 22,188 5 *
A. Richard Pugh
Chairman of the Board, President and
Chief Executive Officer of the Company
and the Bank; formerly President and Chief
Executive Officer of the Company and the
Bank until March 1996 56 1990 27,408 6 *
INFORMATION REGARDING CONTINUING DIRECTORS
TERMS EXPIRING IN 1998:
Harlowe R. Prindle
President, York Auto
Parts Co., Inc. 54 1982 16,473 *
Basil A. Shorb, III
President, Helm Coal Corporation
(Holding Company Providing Management
Services to Six Wholly-Owned Subsidiaries
Engaged in Steel Fabrication, Highway Sign
Manufacturing and
Specialty Construction) 51 1993 62,425 7 2.22%
Delaine A. Toerper
Executive Vice President and Chief
Operating Officer, Tighe Industries,
Inc. (Manufacturers, Designers
and Marketers of Dance Costumes,
Dance Apparel and
Gymnastic Apparel) 53 1995 597 *
James S. Wisotzkey
President and Chief Operating Officer,
The Maple Press Co. (Printer) 43 1997 1,000 *
<PAGE>
TERMS EXPIRING IN 1999:
D. John Sparler 8
President, Treasurer and Chief
Operating Officer, Yorktowne
Paper Mills, Inc. (Paperboard
and Paperboard Products) 48 1984 165,535 9 5.89%
David C. McIntosh
President, MCD Technologies, Inc.
(Industrial Product Research); formerly
President, Market Access, Inc.
until May, 1994 68 1985 6,419 10 *
Gary A. Stewart
Chairman & CEO, Stewart & March,
Inc. (General Contractors) 49 1996 88,146 11 3.13%
Josephine D. Appell
Chairman of the Board & Secretary,
York Blue Print Co., Inc. 73 1985 7,801 *
George W. Hodges
President, The Wolf
Organization, Inc. (Distributors
of Lumber & Building Supplies) 46 1994 2,657 12 *
TERMS EXPIRING IN 2000:
J. Samuel Gregory
Chairman and CEO,
AAA Southern Pennsylvania
(Insurance, Travel and
Member Services) 66 1978 6,232 *
Daniel E. Hess
President, Hess Management, Inc.
(Management Consultant) 65 1982 7,456 *
Herbert D. Lavetan
Director, Lavetan & Associates, Inc.
(Postal, Business and
Communications Services) 67 1979 80,372 2.86%
L. Doyle Ankrum
Retired 68 1979 5,283 13 *
Robert H. Stewart, Jr.
President, York Building Products
Co., Inc. (Concrete Masonry
Units, Crushed Stone-
Bituminous Concrete) 57 1987 87,181 11 3.10%
<PAGE>
DIRECTOR EMERITUS:
Daniel J. Sparler 8
Chairman & Chief Executive Officer,
Yorktowne Paper Mills, Inc.
(Paperboard & Paperboard
Products) 79 1963 179,479 14 6,38%
All Directors and Executive Officers
as a Group (25 persons) 650,792 15 23.16%
* Less than 1%
_____________________________
1. Includes period served as Director of the Bank.
2. Except as otherwise noted, the person listed possesses sole voting and
investment power of shares voting and investment power with their spouse.
3. Includes 52 shares owned by his wife, 195 shares held by his wife in
nominee name and 616 held by him in nominee name.
4. Mr. Motter is a Director of York Water Company (a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934).
5. Includes 2,508 shares owned by his wife and 10,938 held by the Elsbeth M.
Myers Trust, of which he is a trustee sharing investment and voting authority.
6. Includes 135 shares held by him in nominee name, 256 shares held jointly
with his wife, 103 shares owned by his children for which he is custodian and
26,397 shares Mr. Pugh has the right to acquire (at a present exercise price of
$10.11 for 8,778 shares under options granted on December 19, 1990, $17.75 for
4,681 shares under options granted on November 23, 1994, $16.17 per share for
6,688 shares under options granted on May 22, 1995 and $20.60 per share for
6,250 shares under options granted on April 15, 1996) upon exercise of stock
options granted pursuant to the Company's 1985 Incentive Stock Option Plan and
1995 Stock Option Plan.
7. Includes 19,051 shares owned by his wife, 4,683 shares owned by his son for
which he is custodian, 4,674 shares owned by his son for which his wife is
custodian and 31,599 shares held by Helm Coal Company of which his wife is a
partner sharing voting and investment authority.
8. Daniel J. Sparler and D. John Sparler are father and son.
9. Includes 156,905 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.
10. Includes 1,943 shares held by him in nominee name and 103 shares held by
his wife in nominee name.
11. See footnote number 3 under Share Ownership of Certain Beneficial Owners.
12. Includes 335 shares owned by his wife.
13. Includes 1,327 shares owned by his wife.
14. Includes 14,181 shares owned by his wife and 156,905 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.
15. Shares owned by Yorktowne Paper Mills, Inc. are only included once.
Beneficial ownership is as of April 4, 1997.
<PAGE>
ADDITIONAL INFORMATION
During 1996 the Boards of Directors of the Bank and the Company met 12 and 7
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.
The Executive Committee, which met 12 times in 1996 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, 1996, this committee's members were Richard M. Linder (Chairman),
L. Doyle Ankrum, George W. Hodges, David C. McIntosh, Frank Motter, Robert L.
Myers, Jr., Harlowe R. Prindle, and A. Richard Pugh.
The Audit Committee, which met 4 times in 1996, 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, 1996, this committee's members were L. Doyle Ankrum (Chairman),
Daniel E. Hess, George W. Hodges, Basil A. Shorb, III, D. John Sparler, Gary
A. Stewart, Robert H. Stewart, Jr., and Delaine A. Toerper.
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
1996. As of December 31, 1996, this committee's members were J. Samuel
Gregory (Chairman), Josephine D. Appell, George W. Hodges, Herbert D. Lavetan,
David C. McIntosh, Frank Motter, and Basil A. Shorb, III.
The Personnel Committee, which met 4 times in 1996, 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 of Vice Presidents and above, and compensation for Senior Vice
Presidents and above. As of December 31, 1996, this committee's members were
Robert L. Myers, Jr. (Chairman), L. Doyle Ankrum, Richard M. Linder, Frank
Motter, Harlowe R. Prindle, and A. Richard Pugh.
During 1996 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 and Robert H.
Stewart, Jr.
<PAGE>
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,
1996, 1995 and 1994 of those persons who were, at December 31, 1996, Chairman,
President and Chief Executive Officer and other executive officers of the
Company or the Bank who received a total annual salary and bonus exceeding
$100,000 in 1996.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Awards Payouts
Other Securities All
Name Annual Restricted Underlying Other
and Compen- Stock Options LTIP Compen
Principal Salary Bonus sation Awards /SARs Payouts sation
Position Year ($) ($) ($)1 ($) (#)2 ($) ($)3
A. Richard Pugh, Chairman, President and CEO
1996 200,000 22,000 - 0 6,250 0 2,250
1995 175,000 17,500 - 0 6,688 0 2,250
1994 152,557 13,720 - 0 4,681 0 1,687
Debra A. Goodling, Executive Vice President
1996 97,000 10,670 - 0 2,875 0 1,014
1995 4
1994 4
Michael J. Groft, Executive Vice President
1996 97,000 10,670 - 0 2,875 0 531
1995 4
1994 4
__________________________
1. Perquisites and other personal benefits which do not exceed the lesser of
$50,000 or 10% of total annual salary and bonus are excluded.
2. Includes effect of a 25% dividend in the form of a 5 for 4 stock split
issued in August of 1996.
3. Amounts shown represent contributions by the Bank to the Bank's Salary
Deferral Plan, described in page 11 of this Proxy Statement.
4. No disclosure is made for these years because total annual salary plus
bonus did not exceed $100,000.
OPTION/SAR GRANTS AND EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to options granted in 1996 pursuant to
the Company's 1995 Stock Option Plan and unexercised options to purchase the
Company's common stock granted in years prior to 1996 under the Company's 1985
Incentive Stock Option Plan to the named officers and held by them at December
31, 1996.
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Percent of Potential Realizable
Number of Total Value at Assumed Annual Rate
Securities Options/SARs of Stock Price
Underlying Granted to Exercise or Appreciation for Option
Options/SARs Employees in Base Price Expiration Term
Name Granted Fiscal Year ($/Share) Date 5% ($) 10% ($)
A. Richard Pugh, Chairman, President and CEO
6,250 26% $20.60 4/15/06 $80,971 $205,189
Debra A. Goodling, Executive Vice President
2,875 12% $20.60 4/15/06 $37,247 $94,387
Michael J. Groft, Executive Vice President
2,875 12% $20.60 4/15/06 $37,247 $94,387
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL-YEAR-END OPTION VALUES
Number of Securities, Value of Unexercised
Underlying Unexercised in-the-money
Options/SARs at Fiscal Options/SARs at Fiscal
Year-End (#) Year-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable 1 Unexercisable
A. Richard Pugh, Chairman, President and CEO
0 0.00 23,272/3,125 $148,120/$1,640
Debra A. Goodling, Executive Vice President
0 0.00 5,049/1,438 $17,732/$754
Michael J. Groft, Executive Vice President
0 0.00 5,049/1,438 $17,732/$754
______________________
1. Includes effect of a 5% stock dividend paid in August of 1993, a 25%
dividend in the form of a 5 for 4 stock split issued in September of 1994, a 7%
stock dividend paid in November of 1995 and a 25% dividend in the form of a 5
for 4 stock split issued in August of 1996.
<PAGE>
Change in Control Agreements
The Company and the Bank have entered into an agreement with Mr. Pugh
providing that in the event of the termination of Mr. Pugh's 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, Mr. Pugh 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. The agreement provides for the payment of Mr. Pugh'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 1997. For this purpose, the Social
Security integration level assumed is $29,304.
ANNUAL RETIREMENT BENEFIT FOR
YEARS OF SERVICE INDICATED
FINAL AVERAGE
COMPENSATION 15 YEARS 25 YEARS 35 YEARS
$ 75,000 $ 28,726 $ 31,376 $ 31,376
100,000 39,150 42,251 43,251
125,000 49,576 55,126 55,126
150,000 60,001 67,001 67,001
175,000 64,171 71,751 71,751
200,000 64,171 71,751 71,751
225,000 64,171 71,751 71,751
<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. The new
limit increases with inflation, but only when inflation permits a full $10,000
increase. As of 1997, this limit increased to $160,000. Only accruals after
1993 will be affected by the compensation limit.
As of January 1, 1997, A. Richard Pugh, Debra A. Goodling and Michael J. Groft
were credited with 15 years, 20 years and 19 years of service, respectively.
The Bank adopted a Supplemental Pension Plan for Mr. Pugh on January 1, 1995.
Pursuant to this Plan, Mr. Pugh will be entitled to receive payments, which,
when added to his pension under the Bank's pension plan and primary Social
Security amount, 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
one 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 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 1996 to A. Richard Pugh, Debra A. Goodling and
Michael J. Groff 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. Likewise, the outside Directors on the Personnel Committee of
the Bank have no interlocking relationships with Company executives.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a Compensation Committee. The Personnel Committee
of the Bank, composed of outside Directors and A. Richard Pugh, 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, Chief Executive Officer and President, A. Richard Pugh.
The counsel of Mr. Pugh is solicited by the committee prior to the committee's
compensation recommendations to the Board for the other executive officers.
<PAGE>
As the Bank has grown, the Committee's methods of determining executive
compensation have evolved. 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.
The Committee and management retained an employee benefit consultant in 1993
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. Utilizing the
methodology developed by the consultant, the Committee reviews, on an annual
basis, the data provided by specific surveys on competitive salary and the
compensation practices of financial institutions of similar asset size (i.e.
institutions of between $300 million and $750 million in asset size)
nationally and particularly in the Mid-Atlantic region. 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
1996 over amounts determined in 1995 as a result of this process averaged
approximately 8.4%, which included adjustments reflecting the promotions and
responsibilities of several executive officers. 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.
<PAGE>
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. 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 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 1996, options were granted to
officers with the title Vice President and above. In determining the number
of options granted in 1996, 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 1996 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:
<PAGE>
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 1996, the Committee emphasized the
Company's achievement of its corporate performance goals and the new
responsibilities of Mr. Pugh as Chairman of the Board and Chief Executive
Officer. Mr. Pugh's year-end base salary for 1996 was $200,000 which reflects
an approximate 14.3% increase in year-end base salary over 1995 due to his new
duties as Chairman of the Board, President and Chief Executive Officer.
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 earned for
1996 was $22,000.
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. In 1996, 1995 and 1994, Mr. Pugh
receive stock options to purchase 5,000 shares, 5,000 shares and 3,500 shares
respectively. The stock options granted represented 26%, 20% and 37% of all
stock options granted in 1996, 1995 and 1994 respectively.
Personnel Committee:
Robert L. Myers, Jr., Chairman
Frank Motter
L. Doyle Ankrum
Richard M. Linder
Harlowe R. Prindle
A. Richard Pugh
PERFORMANCE GRAPH
The following graph 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, 1992 and ended December 31, 1996. The
shareholder return shown on the graph below is not necessarily indicative of
future performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
1991 1992 1993 1994 1995 1996
Drovers BancShares Corporation 100.00 131.63 168.93 177.04 217.92 242.36
Peer Group Index 1 100.00 129.49 179.75 201.68 230.53 253.00
S&P 500 Index 100.00 104.46 111.83 110.11 147.67 177.60
__________________________________
1. The peer group for which information appears above includes the following
companies: ACNB Corporation, Bryn Mawr Bank Corporation, Century Financial
Corporation, Citizens & Northern Corporation, CNB Financial Corporation,
Community Banks, Inc.; First West Chester Corporation; Franklin Financial
Services Corp.; Hanover Bancorp, Inc.; Heritage 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 $300 million and $750 million; market capitalization
greater than $40 million; and headquarters located in Pennsylvania.
<PAGE>
Directors Fees
Each Director of the Bank, who is not an employee of the Bank, received an
annual retainer of $8,000 in 1996 as compensation for services as a Director
and for attending meetings of the Board and committees of the Board. Richard
M. Linder, former Chairman of the Company and the Bank, retired on March 1,
1996 and received a retainer of $6,666 for the balance of the year. In June
of 1996, Gary A. Stewart became a Director. In July of 1996, John U.
Wisotzkey retired from the Board. Messrs. Wisotzkey and Stewart each received
a retainer of $4,666. The Company pays no retainer.
Transactions with Management and Others
During 1996, 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, 1996 was
$13,017,000. During 1996, $21,686,000 of new loans were made to related
parties and repayments totaled $22,824,000.
Section 16(a) Beneficial Ownership Reporting Compliance
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, 1996, its Officers and Directors complied with all
applicable Section 16(a) filing requirements.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For the year ended December 31, 1996, the Company engaged Stambaugh $ Ness,
P.C. (successor to Harry Ness & Company), independent certified public
accountants. The Company has instituted a policy of appointing its
independent public accountants through action of its Board of Directors which
will be reviewed by the Board periodically. Representatives of the Company's
independent public accountants do not routinely attend the Company's Annual
Meetings and are not expected to attend the 1997 Annual Meeting.
1997 EMPLOYEE STOCK PURCHASE PLAN
On February 26, 1997, the Board of Directors of the Company adopted the
Drovers Bancshares Corporation 1997 Employee Stock Purchase Plan (the "1997
Stock Purchase Plan"), covering 150,000 shares of common stock of the Company
The 1997 Stock Purchase Plan is required to be approved by the shareholders
of the Company within 12 months of the date of its adoption. At the Annual
Meeting of Shareholders, the adoption of the 1997 Stock Purchase Plan will be
submitted to the Company's shareholders for ratification. The affirmative
vote of the holders of a majority of the shares of stock of the Company
represented by Proxy or present and voting at the Annual Meeting is required
for approval of the 1997 Stock Purchase Plan.
<PAGE>
The 1997 Stock Purchase Plan will be administered by the Personnel Committee
of the Bank. The 1997 Stock Purchase Plan provides for twenty (20) quarterly
offerings of common stock to employees. The purpose of the 1997 Stock
Purchase Plan is to provide a means whereby employees of the Company or any
present or future subsidiary of the Company (including the Bank) will have the
opportunity to acquire a proprietary interest in the Company through the
purchase of the Company's common stock. Participating employees will purchase
stock through payroll deductions. Each employee of the Company or any of its
subsidiaries is eligible to participate, except that employees with less than
two (2) years of employment, customary employment of twenty (20) hours per
week or five (5) months per calendar year or less and/or highly compensated
employees may be excluded from participation and certain employees with
substantial stock interest in the Company or its subsidiaries or with
substantial rights to purchase stock accruing under the 1997 Stock Purchase
Plan are excluded from participation. The purchase price of each share of
common stock sold pursuant to each offering will be set by the Personnel
Committee but may not be less than the lesser of (i) 85% of the fair market
value per share on the offering date or (ii) 85% of the fair market value per
share on the date three months after the offering date.
On the grant or exercise of an option under the 1997 Stock Purchase Plan, no
tax liability will result to an employee who retains the stock for the
required holding periods under the 1997 Employee Stock Purchase Plan and no
deduction will be allowed to the Company for the stock involved. When the
stock is sold after the required holding period, and the option price is less
than 100% (but not less than 85%) of the fair market value at the time
granted, an employee will realize ordinary income to the extent of (i) the
amount by which the fair market value of the stock at the time the option was
granted exceeded the option price or (ii) the amount by which the fair market
value of the stock at the time of disposition of the stock exceeded the price
paid, whichever is less. If an employee sells the stock before the expiration
of the required holding period, the employee will realize ordinary income to
the extent of the difference between the option price and the fair market
value of the stock at the date the option was exercised. When an employee is
required to include compensation in his gross income because of his
disposition of stock acquired under the 1997 Employee Stock Purchase Plan, the
amount of compensation is added to the basis of his stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE ADOPTION OF
THE 1997 EMPLOYEE STOCK PURCHASE PLAN.
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, 1996, 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.
<PAGE>
Shareholder Proposals for Next Annual Meeting
Any shareholder proposal for consideration at the Annual Meeting of
Shareholders to be held in 1998 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 19, 1997, 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
<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 23, 1997 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 listed (except as marked to the contrary)
0 WITHHOLD AUTHORITY to vote for all nominees listed
Richard M. Linder, Frank Motter, Robert L. Myers, Jr., A. Richard Pugh
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW
2. RATIFICATION OF ADOPTION OF DROVERS BANCSHARES CORPORATION 1997 EMPLOYEE
STOCK PURCHASE PLAN:
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: ________________________________, 1997
___________________________________
Signature
___________________________________
Signature if held jointly
(PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE.)
(..continued)
