SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x]Preliminary Proxy Statement
[ ]Confidential, for use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ]Definitive Proxy Statement
[ ]Definitive Additional Materials
[ ]soliciting Material Pursuant to 240.14a-11c or 240.14a-12
Drovers Bancshares Corporation
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x]No fee required
[ ]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) title of each class of securities to which transactions applies:
_______________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_______________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
_______________________________________________________________________
(5) Total Fee paid:
_______________________________________________________________________
[ ]Fee paid previously with preliminary materials.
[ ]Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing registrant statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
_______________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
_______________________________________________________________________
(3) Filing Party:
_______________________________________________________________________
(4) Date Filed:
_______________________________________________________________________
(Amended by Sec Act Rel No. 7331; Exch Act Rel 37692, eff. 10/7/96.)
TABLE OF CONTENTS
Presidents Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Share Ownership of Certain Beneficial Owners . . . . . . . . . . . . . 4
Proposal 1
Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . 4
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 8
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . 8
Options/SAR Grants and Exercises and Fiscal Year-end Values . . . . . 10
Report on Executive Compensation . . . . . . . . . . . . . . . . . . . 13
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Proposal 2
To Approve an Amendment to Article Fifth of the Company's
Articles of Incorporation . . . . . . . . . . . . . . . . . . . . . 17
Proposal 3
To Approve the Company's 1999 Non-Employee Directors Stock Option Plan 18
Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exhibit A
1999 Non-Employee Directors Stock Option Plan . . . . . . . . . . A-1
Exhibit B
Proxy Voting Card . . . . . . . . . . . . . . . . . . . . . . . . B-1
<PAGE>
DROVERS BANCSHARES CORPORATION
______________________________
30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
April 23, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Drovers Bancshares Corporation to be held, Thursday, May 27, 1999, 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 attend the
meeting and wish to vote in person, you must give written notice thereof
to the Secretary of the Company so 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
1<PAGE>
DROVERS BANCSHARES CORPORATION
______________________________
30 SOUTH GEORGE STREET, YORK, PENNSYLVANIA 17401
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 27, 1999
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 Thursday, May 27,
1999, 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 2003 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 approve an amendment to the Company's Articles of
Incorporation which would eliminate the concept of par value as it relates
to the Company's common stock.
3. To consider and ratify the adoption by the Board of Directors of the
Company of the Drovers Bancshares Corporation 1999 Non-Employee Directors
Stock Option Plan.
4. To transact such other business as may properly come before the Annual
Meeting and any adjournments or postponements thereof.
The Board of Directors has fixed March 24, 1999, 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 adjournments or postponements 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/John D. Blecher
York, Pennsylvania John D. Blecher
April 23, 1999 Secretary
2<PAGE>
DROVERS BANCSHARES CORPORATION
Proxy Statement for the Annual Meeting of Shareholders
To be Held on May 27, 1999
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 Thursday, May 27, 1999, 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 John D.
Blecher, Secretary, Drovers Bancshares Corporation at 30 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 23,
1999.
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 named in the accompanying Proxy,
For approval of the Company's 1999 Non-Employee Directors Stock Option
Plan and For approval of an amendment to the Company's Articles of
Incorporation to eliminate par value as it relates to the Company's common
stock. 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 March 24, 1999,
are entitled to notice of, and to vote at, the Annual Meeting. On that
date, there were 4,468,461 common shares of the Company outstanding. Each
outstanding share is entitled to one vote on each matter presented at the
Annual Meeting. Shareholders do not have the right to vote their shares
cumulatively in the election of Directors. A majority of the outstanding
common stock present in person or by proxy constitutes a quorum for the
transaction of business at the Annual Meeting. In the case of the
election of Directors, the nominees receiving the highest number of votes,
up to the number of Directors to be elected, shall be elected to the Board
of Directors. The affirmative vote of holders of a majority of the votes
cast by shareholders in person or by proxy and entitled to vote at the
Annual Meeting is required to approve the 1999 Non-Employee Directors
Stock Option Plan and the amendment to the Company's Articles of
Incorporation. Abstentions and broker non-votes will not constitute or be
counted as votes for purposes of the Annual Meeting.
The Company's annual report for the year ended December 31, 1998, was
previously mailed to shareholders of record. It is not to be regarded as
proxy solicitation material.
3<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:
Percentage of
Outstanding
Name and Address Number of Shares Common Stock
of Beneficial Owner Beneficially Owned 1 Owned
Gary A. Stewart 176,518 3.95
910 Upland Road, York, PA 17403
Robert H. Stewart, Jr. 141,506 3.17
RD #4, Spring Grove, PA 17362
1 Mr. Gary A. Stewart, Mr. Robert H. Stewart, Jr. 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 16.16% of the Company's issued and
outstanding shares.
PROPOSAL 1
ELECTION OF DIRECTORS
At the Annual Meeting, four (4) Directors of the Company are to be
elected, each Director to hold office for a four-year term expiring in
2003 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 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 March 24, 1999, 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").
4<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since 1 Owned 2 Outstanding
NOMINEES FOR A FOUR-YEAR TERM EXPIRING IN 2003:
D. John Sparler 50 1984 14,391 *
Investments; formerly President, Treasurer
and Chief Operating Officer, Yorktowne
Paper Mills, Inc. (Paperboard and
Paperboard Products) until September 1997
David C. McIntosh 70 1985 5,058 3 *
Retired, Formerly President, MCD
Technologies, Inc. until February 1998
Gary A. Stewart 51 1996 176,518 4 3.95
Partner - Stewart Associates. Formerly
Chairman & CEO, Stewart & March, Inc.
Until January 1999 (General Contractors)
George W. Hodges 48 1994 4,183 5 *
President, The Wolf Organization, Inc.
(Distributors of Lumber & Building
Supplies)
TERMS EXPIRING IN 2000:
J. Samuel Gregory 68 1978 10,460 *
Chairman and CEO, AAA Southern
Pennsylvania (Insurance, Travel and
Member Services)
Daniel E. Hess 67 1982 12,110 *
President, Hess Management, Inc.
(Management Consultant)
Herbert D. Lavetan 69 1979 126,585 2.83
Retired. Formerly Director, Lavetan &
Associates, Inc.(Postal, Business and
Communications Services)until January 1999
L. Doyle Ankrum 70 1979 8,138 6 *
Retired
Robert H. Stewart, Jr. 59 1987 141,506 4 3.17
President, York Building Products Co., Inc.
(Concrete Masonry Units, Crushed
Stone-Bituminous Concrete)
5<PAGE>
Name and Principal Common Shares Percent of
Occupation for Past Director Beneficially Total Shares
Five Years Age Since Owned Outstanding
TERMS EXPIRING IN 2001:
Richard M. Linder 68 1976 14,941 7 *
Retired; formerly Chairman of the
Company and the Bank until March 1996
Frank Motter 71 1975 44,517 *
Chairman of the Board & President
Motter Printing Press Co. (Web-Fed
Printing Equipment)
Robert L. Myers, Jr. 70 1968 34,274 9 *
President, John H. Myers & Son, Inc.
(Lumber & Building Supplies)
A. Richard Pugh 58 1990 65,478 10 1.46
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
TERMS EXPIRING IN 2002:
Harlowe R. Prindle
President, York Auto Parts Co.; 56 1993 25,944 *
Chairman & CEO, Shenk & Tittle
Management Co.
Basil A. Shorb, III
President, REH Holdings, Inc. 53 1993 98,423 11 2.20
(Holding Company Providing
Management Services to Five
Wholly Owned Subsidiaries Engaged
in Steel Fabrication, Highway Sign
Manufacturing and Specialty
Construction)
Delaine A. Toerper 55 1995 1,698 *
Self-Employed (Consulting Services)
Retired; formerly Executive Vice
President and Chief Operating
Officer of Tighe Industries, Inc.
(Manufacturers, Designers and Marketers
of Dance Costumes, Dance Apparel and
Gymnastic Apparel) until August 1996
James S. Wisotzkey 45 1997 1,575 *
President and Chief Operating Officer
The Maple Press Company (Printer)
All Directors and Executive Officers as a 857,230 12 19.18
Group (22)
_________________________________________________________________________
6<PAGE>
* 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 or shares voting and investment power with
their spouse.
3 Includes 162 shares held by his wife.
4 See footnote number 1 under Share Ownership of Certain Beneficial
Owners.
5 Includes 3,657 shares owned by his wife.
6 Includes 6,229 shares owned by his wife.
7 Includes 387 shares owned by his wife.
8 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).
9 Includes 4,766 shares owned by his wife and 17,226 shares held by
the Elsbeth M. Myers Trust, of which he is a trustee sharing
investment and voting authority.
10 Includes 10,506 shares held jointly with his wife, 165 shares owned
by his children for which he is custodian and 52,429 shares Mr. Pugh
has the right to acquire upon exercise of stock options granted
pursuant to the Company's 1985 Incentive Stock Option Plan and 1995
Stock Option Plan.
11 Includes 31,545 shares owned by his wife, 9,186 shares owned by his
son for which he is custodian, 9,172 shares owned by his son for
which his wife is custodian and 44,395 shares held by Triple M
Associates of which his wife is a partner sharing voting and
investment authority.
12 Beneficial ownership is as of March 24, 1999.
7<PAGE>
ADDITIONAL INFORMATION
During 1998 the Boards of Directors of the Bank and the Company met 12 and
10 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 1998 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, 1998, this committee's members were
David C. McIntosh (Chairman), L. Doyle Ankrum, Daniel E. Hess, George W.
Hodges, Frank Motter, Robert L. Myers, Jr., Harlowe R. Prindle, A.
Richard Pugh and Gary A. Stewart.
The Audit Committee, which met 4 times in 1998, 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, 1998, this committee's members were Basil A. Shorb,III,
Chairman, L. Doyle Ankrum, Daniel E. Hess, Herbert D. Lavetan, D.
John Sparler, Robert H. Stewart, Jr., Delaine A. Toerper and James S.
Wisotzkey.
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 after 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 1
time in 1998. As of December 31, 1998, this committee's members were J.
Samuel Gregory (Chairman), George W. Hodges, Herbert D. Lavetan, Frank
Motter, A. Richard Pugh, Basil A. Shorb, III, D. John Sparler and Delaine
A. Toerper.
The Personnel Committee, which met 4 times in 1998, 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 Senior Vice Presidents and above, and
compensation for Senior Vice Presidents and above. As of December 31,
1998, this committee's members were George W. Hodges (Chairman), L. Doyle
Ankrum, Frank Motter, Robert L. Myers, Jr., Harlowe R. Prindle and A.
Richard Pugh.
During 1998, 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.
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
8<PAGE>
years ended December 31, 1998, 1997 and 1996 of those persons who were, at
December 31, 1998, 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 $100,000 in 1998.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards Payouts
Other All
Name Annual Restricted Securities Other
And Compen- Stock Underlying LTIP Compen-
Principal Salary Bonus Sation Awards SARs Payouts sation
Position Year ($) ($) ($) 1 ($) (#) 2 ($) ($) 3
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. Richard Pugh, 1998 225,000 91,855 - - 5,690 - 4,800
Chairman, 1997 210,000 56,224 - - 10,238 - 2,375
President and CEO 1996 200,000 22,000 - - 9,845 - 2,250
Debra A. Goodling 1998 112,000 45,928 - - 2,846 - 4,203
Executive Vice 1997 107,000 28,112 - - 4,095 - 1,409
President 1996 97,000 10,670 - - 4,529 - 1,014
Michael J. Groft 1998 112,000 45,928 - - 2,846 - 1,475
Executive Vice 1997 107,000 28,112 - - 4,095 - 562
President 1996 97,000 10,670 - - 4,529 - 531
Shawn A. Stine 1998 92,000 30,081 - - 1,851 - 3,326
Executive Vice 1997 - - - - - - -
President 4 1996 - - - - - - -
George L.F. Guyer, Jr. 1998 79,000 39,739 - - 1,391 - 2,924
Senior Vice 1997 - - - - - - -
President 4 1996 - - - - - - -
</TABLE>
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, a 5% stock dividend issued in November of
1997 and a 3 for 2 stock split issued in May 1998.
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 $100,000.
9<PAGE>
OPTIONS/SAR GRANTS AND EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to options granted in 1998
pursuant to the Company's 1995 Stock Option Plan to the named executive
officers.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Individual Grants
Percent of
Number of Total Grant
Securities Options/SARs Date
Underlying Granted to Exercise or Present
Options/SARs Employees in Base price Expiration Value
Name Granted Fiscal Year ($/Share) 1 Date ($) 2
<S> <C> <C> <C> <C> <C>
A. Richard Pugh,
Chairman, 5,690 24% $25.00 2/13/08 $37,854
President and CEO
Debra A. Goodling
Executive Vice 2,846 12% $25.00 2/13/08 $18,932
President
Michael J. Groft
Executive Vice 2,846 12% $25.00 2/13/08 $18,932
President
Shawn A. Stine
Executive Vice 1,851 8% $25.00 2/13/08 $12,315
President
George L.F. Guyer, Jr.
Senior Vice 1,391 6% $25.00 2/13/08 $8,772
President
</TABLE>
1 Includes effect of a 3 for 2 stock split issued in May 1998.
2 The Company uses the Black-Scholes Option Pricing Model to determine the
grant date value. The grant date value of options granted in 1998 was
$9.98 per option. The following assumptions were used: risk free
interest rate of 5.6%; expected life of 9.0 years; expected volatility of
15.4%; expected dividends of 1.6%.
10<PAGE>
Shown below is information concerning the exercise of options during 1998
and unexercised options held as of the end of 1998 by the named executive
officers.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the-money
Acquired Value Options/SARs at Fiscal Options/SARs at Fiscal
On Exercise Realized Year-end (#) Year-End ($)
Name (#) ($) Exercisable/Unexercisable1 Exercisable/Unexercisable
<S> <C> <C> <C> <C>
A. Richard Pugh,
Chairman, 10,000 $204,550 44,660/2,845 $475,113/$0
President and CEO
Debra A. Goodling
Executive Vice 0 $0 15,735/1,423 147,968/$0
President
Michael J. Groft
Executive Vice 0 $0 15,735/1,423 $147,968/$0
President
Shawn A. Stine
Executive Vice 0 $0 8,427/660 $61,325/$0
President
George L.F. Guyer, Jr
Senior Vice 4,004 $58,062 6,409/926 $76,414/$0
President
</TABLE>
1 Includes effect of all stock dividends and stock splits paid since
August 1993.
Change in Control Agreements
The Company and the Bank have entered into a Change in Control Agreement
with Mr. Pugh, Ms. Goodling, Mr. Groft and Mr. Stine. The Agreements
generally provide that in the event of the termination of the executive
officer'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, the executive officers 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. Mr. Pugh's Agreement provides for the
continued 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. The Agreement
with each of Messrs. Groft and Stine and Ms. Goodling provides for the
continued payment of the respective executive officer's full compensation
for 18 months (subject to reduction by one-half of the amount of any Form
W-2 income from any new employment); continuation of benefits for up to 18
11<PAGE>
months; and an acceleration of the right to exercise current options held
by the respective executive officer 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 0.58% 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 1999. For this purpose, the Social
Security integration level assumed is $23,060.
Final Annual Retirement Benefit For
Average Years of Service Indicated
Compensation 15 Years 25 Years 35 Years
$ 75,000 $ 28,399 $ 30,831 $ 30,831
100,000 38,824 42,706 42,706
125,000 49,249 54,581 54,581
150,000 59,674 66,456 66,456
175,000 63,844 71,206 71,206
200,000 63,844 71,206 71,206
225,000 63,844 71,206 71,206
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, only when inflation
permits a full $10,000 increase. As of 1998, this limit increased to
$160,000. Only accruals after 1993 will be affected by the compensation
limit.
As of December 31, 1998, A. Richard Pugh, Debra A. Goodling, Michael J.
Groft, Shawn A. Stine and George L.F. Guyer, Jr. were credited with 17
years, 22 years, 21 years, 7 years and 34 years of service,
respectively.
The Bank adopted a Supplemental Retirement 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.
12<PAGE>
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
contributes an amount equal to 50% 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
contributions for executive officers 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. As noted below, the Personnel Committee of the Bank is
responsible for making recommendations to the Board with respect to the
Bank's executive compensation programs. Mr. Pugh, the Chairman, President
and Chief Executive Officer of the Company and Bank, also is a member of
the Personnel Committee and the Board. While Mr. Pugh participated in
Committee and Board decisions regarding the compensation of subordinate
executive officers, he did not participate in any Committee or Board
Meetings regarding his own compensation.
REPORT ON EXECUTIVE COMPENSATION
The Company does not have a Compensation Committee. The Personnel
Committee of the Bank, composed of outside Directors and Mr. A. Richard
Pugh, the Company's Chairman, Chief Executive Officer and President,
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 Committee
meets without Mr. Pugh present to evaluate his performance under the
executive compensation program and reports on that evaluation to the full
Board. With regard to the other executive officers, the Committee
considers Mr. Pugh's recommendations before making final recommendations
to the full Board.
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. The base salary increases in 1998 over
amounts determined in 1997 averaged approximately 5.5%, which included
adjustments reflecting increases in 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
13<PAGE>
annual increase of base salaries expected by banks of similar asset size
on a regional 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 Bonus. The annual incentive bonus program was designed
to support and promote the pursuit of the Bank's organizational objectives
and financial goals as defined in the Company'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 Company's
return on equity. Bonuses are paid only to executive officers if the
targeted return on equity is achieved. In addition, other factors are
considered, such as: most recent CAMELS rating; most recent CRA rating and
the Company's leverage ratio. Assuming the target threshold is achieved,
the bonus paid is determined by a percentage of net income and is
allocated to each participant based upon a formula which considers level
of responsibility and industry practices.
Stock Options. Incentive compensation opportunities are available to
executives in positions with significant responsibilities and impact on
long-term performance 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. Options are granted to officers with the title Vice President and
above. In determining the number of options granted in 1998, 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 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 1998 are included in the Option Grant Table.
Chief Executive Officer Compensation. The Company and its Chief Executive
Officer 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 the Chief Executive Officer's compensation is more
closely tied to corporate performance and the long-term performance of the
Company's stock. Specifically, the Chief Executive Officer's compensation
is determined as follows:
Base Salary. In 1998 the Committee emphasized the Company's achievement
of its corporate performance goals and the responsibilities of Mr. Pugh as
Chairman of the Board and Chief Executive Officer. Mr. Pugh's year-end
base salary for 1998 was $225,000 which reflects an approximate 7%
increase in year-end base salary over 1997.
Annual Incentive Bonus. The Committee calculates Mr. Pugh's annual
incentive bonus in accordance with the formula set forth above. Thus, Mr.
Pugh receives such compensation only if the Company's return on
14<PAGE>
equity and other criteria as set forth above are met. Mr. Pugh's annual
incentive bonus earned in 1998 was $91,855.
Stock Options. 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 1998, 1997 and
1996, Mr. Pugh received stock options to purchase 5,690, 10,230 shares and
9,845 shares, respectively. The stock options granted represented 24%,
27% and 26% of all stock options granted in 1998, 1997 and 1996,
respectively.
Personnel Committee:
George W. Hodges, Chairman
L. Doyle Ankrum
Frank Motter
Robert L. Myers, Jr.
Harlowe R. Prindle
A. Richard Pugh
15<PAGE>
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 the Nasdaq Bank Index for the
period of five fiscal years commencing January 1, 1994, and ended December
31, 1998. The Company joined Nasdaq in June 1998. In prior years, the
Company used a peer group of similar size banks instead of the Nasdaq Bank
Index. The results of that peer group are also included for comparative
purposes. The shareholder return shown on the graph below is not
necessarily indicative of future performance.
1993 1994 1995 1996 1997 1998
Drovers Bancshares Corp 100.00 104.86 129.00 143.60 251.66 277.44
Nasdaq Bank Index 100.00 104.56 151.42 191.02 312.48 275.70
S&P 500 Index 100.00 99.26 139.31 171.21 228.26 293.36
Peer Group Index 100.00 114.19 130.63 146.68 203.74 236.11
The peer group for which information appears above includes the following
companies: ACNB Corp., Bryn Mawr Bank Corporation, Citizens & Northern
Corporation, CNB Financial Corporation, Codorus Valley Bancorp, Inc.,
Community Banks, Inc., First West Chester Corporation, Franklin Financial
Services Corp., Hanover Bancorp Inc., Juniata Valley Financial
Corporation, Penseco Financial Services Corporation, PennRock Financial
Services Corp., Pioneer American Holding Company and Sterling Financial
Corp. These companies were selected based on the following criteria:
total assets between $250 million and $900 million; market capitalization
greater than $40 million; and headquarters located in Pennsylvania.
Director Fees
Each Director of the Bank, who is not an employee of the Bank, received a
total retainer of $8,000 in 1998 as compensation for services as a
Director and for attending meetings of the Board and committees of the
Board. The retainer is paid on a quarterly basis at $2,000 per quarter.
16<PAGE>
PROPOSAL 2
TO APPROVE AN AMENDMENT TO ARTICLE FIFTH
OF THE COMPANY'S ARTICLES OF INCORPORATION
On February 24, 1999, the Board of Directors of the Company
unanimously approved and adopted resolutions to amend Article Fifth of the
Company's Articles of Incorporation to eliminate par value for the
Company's common stock. Article Fifth of the Company's Articles of
Incorporation, as proposed to be amended, and the resolutions approved and
adopted by the Board of Directors are set forth below.
NOW, THEREFORE, BE IT:
RESOLVED, that, as permitted by the Pennsylvania Business
Corporation Law of 1988, as amended, the Board of Directors hereby
approves and adopts an amendment to Article FIFTH of the Company's
Articles of Incorporation, as amended, to eliminate the concept of par
value as it relates to the Company's common stock; and
RESOLVED FURTHER, that Article FIFTH of the Company's Articles
of Incorporation, as amended, shall read in its entirety as follows:
FIFTH: The total number of shares of stock that the
Corporation shall have authority to issue shall be Fifteen Million
(15,000,000) shares, without par value, all of the one class called common
shares.
and;
RESOLVED FURTHER, that this Board hereby recommends the
approval of the foregoing amendment to the shareholders of the Company at
the Company's Annual Meeting of Shareholders to be held on May 27, 1999;
and
RESOLVED FURTHER, that the proper officers of the Company be
and they are hereby authorized, empowered and directed to submit the
amendment to the Articles of Incorporation to the shareholders of the
Company for their approval and adoption at the 1999 Annual Meeting of
Shareholders; and
RESOLVED FURTHER, that as soon as practicable after approval
and adoption of the amendment by the shareholders, the proper officers of
the Company be and they are hereby authorized, empowered and directed, for
and on behalf of the Company, to execute, deliver and file an appropriate
amendment to the Articles of Incorporation with the Commonwealth of
Pennsylvania, Department of State, designating that said amendment shall
be effective as of the filing date; and
RESOLVED FURTHER, that the proper officers of the Company be
and they are hereby authorized, empowered and directed, in the name of and
on behalf of the Company, to take any and all other actions as may be
desirable or appropriate in connection with the implementation of the
foregoing Resolutions.
The Board of Directors believes that it is in the best interests of
the Company and its shareholders to amend the Articles of Incorporation to
eliminate the outdated designation of a par value or a stated value with
respect to the Company's common stock. The Pennsylvania Business
Corporation Law of 1988, as amended (the "BCL"), at Section 1306(c), does
not require that a corporation's authorized shares of common or preferred
stock have a par value or a stated value. The Board believes that the
concept of par value deprives the Company of required flexibility in
connection with the issuance of additional shares of common stock for
17<PAGE>
proper corporate purposes, including stock splits and stock dividends,
because generally accepted accounting principles require the Company to
capitalize paid-in-capital (surplus) for the par value of shares to be
issued in connection with a partial stock split or stock split, unless
there is to be a corresponding change in the par value of the Company's
common stock. This accounting requirement has the unwanted effect of
reducing the level of capital surplus and possibly retained earnings
available to the Company for cash dividends and other proper corporate
purposes. The test for the legality of a dividend under the BCL is the
same whether a corporation continues to have shares with a par value or
not.
The elimination of par value will give the Board of Directors more
latitude and flexibility in regulating the affairs of the Company and will
not adversely affect or diminish the total shareholders' equity in the
Company, nor will the elimination of par value otherwise adversely change
the rights and privileges of the Company's common stock.
Vote Required.
Approval of the proposed amendment to Article FIFTH of the Company's
Articles of Incorporation requires the affirmative vote of holders of a
majority of all votes cast by all shareholders in person or by proxy and
entitled to vote thereon at the Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE AMENDMENT TO ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION
TO ELIMINATE PAR VALUE WITH REGARD TO THE COMPANY'S COMMON STOCK.
PROPOSAL 3
TO APPROVE THE COMPANY'S 1999
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
On February 24, 1999, the Board of Directors of the Company
unanimously approved and adopted, subject to shareholder approval, the
1999 Non-Employee Directors Stock Option Plan (the "Plan"). The purpose
of the Plan is to promote the long-term success of the Company and the
creation of shareholder value by (a) encouraging non-employee directors to
focus on critical long-range objectives, (b) encouraging the attraction
and retention of experienced and knowledgeable non-employee directors, and
(c) linking non-employee directors directly to shareholder interests
through increased stock ownership. The Plan seeks to achieve this
purpose by providing for awards in the form of non-statutory stock options
("NSOs" or "stock options") and by providing a mechanism for non-employee
directors to receive all or a portion of the director's retainer payments
and meeting fees, if any, in the form of NSOs.
The following summary of the material terms of the Plan is qualified
in its entirety by reference to the full text of the Plan, a copy of which
is attached as Exhibit A to this Proxy Statement.
Administration and Amendment.
The Plan will be administered by the full Board of Directors. The
Board may delegate its duties with respect to the Plan to a committee of
the Board of Directors composed of two or more "non-employee directors" as
such term is defined by the Securities and Exchange Commission's Rule
16b-3. The Board (or such committee) shall be responsible for determining
the type, number, vesting requirements and other features and conditions
of the stock options to be granted under the Plan to the extent not
specified
18<PAGE>
in the Plan as described below. The Board of Directors may at any time
amend, suspend or terminate the Plan or any provision thereof. An
amendment of the Plan by the Board of Directors shall be subject to
approval by the shareholders of the Company only if and to the extent such
approval is required by applicable laws, rules or regulations.
Performance Based Stock Options.
This element of the Plan provides for annual grants of NSOs to all
eligible non-employee directors which are linked to the financial
performance of the Company as measured by return on equity ("ROE"). On
March 1 of each calendar year commencing with the year 2000, each
non-employee director then in office who has been in office since at least
July 1 of the previous calendar year may receive NSOs covering a number of
common shares to be determined by the Board of Directors based on the
Company's ROE for the most recently completed calendar year. The Board
shall establish a range of ROE performance targets and related number of
NSOs to be awarded upon the achievement of the specified target.
Performance targets and the number of NSOs to be awarded shall be subject
to change from year to year in the discretion of the Board. The Board may
also determine, in its discretion, not to grant performance based options
in any particular year. All performance based stock options granted to a
non-employee director under this section of the Plan shall be immediately
exercisable and, unless otherwise determined by the Board, in its
discretion from time to time, the exercise price shall be equal to 100% of
the fair market value of the common share on the date of the grant. All
stock options granted to a non-employee director under this element of the
Plan will expire at the earlier of ten (10) years after the date of grant
or sixty (60) months after the termination of such director's services as
a director for any reason, subject to earlier termination as provided in
the Plan.
Discretionary Grants.
The Board may also from time to time during the existence of the
Plan award stock options to non-employee directors on such terms and
conditions as the Board establishes in its discretion, provided such terms
and conditions are consistent with the Plan. Unless otherwise determined
by the Board, in its discretion from time to time, the exercise price of
stock options granted pursuant to this discretionary authority shall be
100% of the fair market value of a common share on the date of grant and
the options may not have a term in excess of ten (10) years. The
provisions of discretionary stock options with respect to exercisability,
payment of the exercise price and termination may be different than the
provisions for stock options awarded pursuant to other sections of the
Plan.
Exchange of Director Fees for Stock Option Grants.
Under this portion of the Plan, non-employee directors will be
permitted to exchange cash director fees for stock options issued under
the Plan. The number of stock options to be granted to non-employee
directors in lieu of retainers and any meeting fees that would otherwise
be paid in cash shall be calculated using the Black-Scholes Option Pricing
Model or in such other manner as may be determined by the Board from time
to time. These options shall be immediately exercisable and have a term
of ten (10) years, subject to earlier termination if the director's
service terminates as described above. Unless otherwise determined by the
Board, in its discretion from time to time, the exercise price shall be
equal to the fair market value of the Company's common stock on the date
of grant, which is the date the retainer or other cash compensation
19<PAGE>
otherwise would be payable. At present, non-employee directors receive an
annual retainer in the amount of $8,000 (paid quarterly in the amount of
$2,000 per quarter) and do not receive any additional fees for attendance
at meetings.
Shares Available for Issuance.
The total number of shares of common stock reserved for issuance
under the Plan is 150,000, subject to anti-dilution provisions. If any
stock options granted under the Plan are forfeited or if stock options
terminate for any other reason prior to exercise, then the underlying
shares of common stock again become available for awards under the Plan.
Eligibility.
Only non-employee directors of the Company and any subsidiary of the
Company designated by the Board shall be eligible to participate in the
Plan. Only non-employee directors who have been in office since at least
July 1 of the most recently completed calendar year are eligible to
receive a performance based stock option grant. Subject to approval by
the Board, non-employee directors who elect to convert their retainer
payments in exchange for stock options must do so prior to the beginning
of the period of service for which the retainer is to be paid.
Tax Consequences of Stock Options.
There are no federal income tax consequences to the optionee or the
Company upon a grant of a stock option with an exercise price equal to
fair market value on the date of grant. Any grant of a stock option with
an exercise price less than 100% of fair market value on the date of grant
could result in income to the optionee upon such grant. Upon exercise of
an NSO, the optionee normally will recognize taxable ordinary income equal
to the excess of the fair market value of the common stock on the date of
exercise over the option exercise price. Subject to the requirement of
reasonableness and the provisions of Section 162(m) of the Internal
Revenue Code of 1986, as amended, the Company generally will be entitled
to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the common stock acquired
upon exercise of an NSO, the optionee will recognize a capital gain or
loss equal to the difference between the selling price and the sum of the
amount paid for such common stock plus any amount recognized as ordinary
income upon exercise of the stock option. Such gain or loss will be
long-term or short-term, depending on whether the stock was held for more
than one year. The election of non-employee directors to receive stock
options in lieu of cash compensation as described above would not result
in taxable income to the director merely because of the election not to
receive cash compensation so long as the election is made prior to the
director's earning the compensation.
New Plan Benefits.
The Board of Directors has full discretion to determine the number
and amount of stock option awards to be granted to non-employee directors
under the Plan. Accordingly, the actual number of awards to be granted to
an individual is not determinable.
The Plan is effective as of January 1, 1999, subject to approval by
the shareholders. Unless earlier terminated by the Board, the Plan will
terminate when no shares remain available under the Plan and the Company
and Directors have no further rights and obligations under the Plan.
20<PAGE>
Vote Required.
Adoption of the proposal to approve the Plan requires the
affirmative vote of holders of a majority of all votes cast by all
shareholders in person or by proxy and entitled to vote thereon at the
Annual Meeting.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE 1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
Transactions with Management and Others
During 1998, some of the Directors and Executive Officers of the Company
and of the Bank, members of their immediately 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.
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, 1998, its
Officers and Directors complied with all applicable Section 16(a) filing
requirements.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
For the year ended December 31, 1998, the Company engaged Stambaugh -
Ness, P.C. independent certified public accountants. The Company has
instituted a policy of appointing its independent public accountants
through action of its Board of Directors. Representatives of the
Company's independent public accountants do not routinely attend the
Company's Annual Meetings and are not expected to attend the 1999 Annual
Meeting.
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, 1998, 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, John D. Blecher, P.O.
Box 2557, York, Pennsylvania 17405.
21<PAGE>
Shareholder Proposals for Next Annual Meeting
Any shareholder proposal for consideration at the Annual Meeting of
Shareholders to be held in 2000 must be received by the Company at its
principal offices, 30 South George Street, P.O. Box 2557, York,
Pennsylvania, 17405, no later than Wednesday, December 22, 1999, 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/John D. Blecher
John D. Blecher
Secretary
22<PAGE>
EXHIBIT "A"
DROVERS BANCSHARES CORPORATION
1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
ARTICLE 1
INTRODUCTION
The purpose of the Plan is to promote the long-term success of
the Company and the creation of shareholder value by (a) encouraging
Non-Employee Directors to focus on critical long-range objectives,
(b) encouraging the attraction and retention of experienced and
knowledgeable Non-Employee Directors and (c) linking Non-Employee
Directors directly to shareholder interests through increased stock
ownership. The Plan seeks to achieve this purpose by providing for
awards in the form of non-statutory stock options and by providing a
mechanism for Non-Employee Directors to receive all or a portion of
the director's annual retainer payments and meeting fees in the form
of Options. The Plan shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania
(except its choice-of-law provisions). Capitalized terms are
defined in Article 12.
ARTICLE 2
ADMINISTRATION
2.1 Committee Composition. The Plan shall be administered
by the Committee. The Committee shall consist of either (a) the
Board itself or (b) two or more disinterested directors of the
Company who shall be appointed by the Board. If the Board does not
appoint a separate committee to administer the Plan, then the Board
shall be the Committee. A member of the Board shall be deemed to be
"disinterested" for the purposes of service on a separate committee
of the Board only if he or she satisfies such requirements as the
Securities and Exchange Commission may establish for non-employee
directors or other eligible directors, if any, administering plans
intended to qualify for exemptions under Rule 16b-3 (or its
successor) under the Exchange Act dependent on approval by non-
employee or disinterested directors.
2.2 Committee Responsibilities. The Committee shall (a)
determine the type, number, vesting requirements and other features
and conditions of Options to be granted under the Plan to the extent
not specified in the Plan, (b) interpret the Plan and (c) make all
other decisions relating to the operation of the Plan. The
Committee may adopt such rules or guidelines as it deems appropriate
to implement the Plan. The Committee's determinations under the
Plan shall be final and binding on all persons. The Committee may
delegate some or all of the ministerial functions in connection with
the Plan to a committee of the Board or to a department or officers
of the Company; provided that decisions concerning the grant of
Options and the terms of Options may only be made by the Committee.
No member of the Committee shall be liable for any good faith
actions or omissions in connection with the Plan.
A-1<PAGE>
ARTICLE 3
SHARES AVAILABLE FOR GRANTS
3.1 Basic Limitation. Common Shares issued pursuant to the
Plan may be authorized but unissued shares or treasury shares. The
aggregate number of Common Shares for which Options may be awarded
under the Plan shall not exceed 150,000. The limitation of this
Section 3.1 shall be subject to adjustment pursuant to Article 7.
3.2 Additional Shares. If Options are forfeited or if
Options terminate for any other reason before being exercised, then
the corresponding Common Shares shall again become available for
Options under the Plan.
ARTICLE 4
ELIGIBILITY
4.1 General Rules. Only Non-Employee Directors of the
Company or a Designated Subsidiary shall be eligible for designation
as Participants by the Committee. Non-Employee Directors shall
receive no Options except as described in this Article 4.
4.2 Performance Grants.
(a) Unless the Committee, in its discretion,
determines not to grant Options pursuant to this Section 4.2
for a particular year, on March 1 of each calendar year
commencing with the year 2000, each Non-Employee Director then
in office who has been in office since at least July 1 of the
most recently completed calendar year shall receive an Option
covering a number of Common Shares to be determined each year
by the Board of Directors based on the Company's return on
equity ("ROE") for the most recently completed calendar year.
The Committee shall establish a range of ROE performance
targets and related number of Option shares to be awarded
pursuant to this Section 4.2 upon the achievement of the
specified target. Performance targets and the number of
Option shares to be awarded shall be subject to change by the
Committee from time to time in the discretion of the
Committee.
(b) The number of shares determined pursuant to
Subsection (a) of this Section 4.2 shall be subject to
adjustment under Article 7. In the event that for any reason
an ROE for a previous calendar year is not available as of
March 1 for the succeeding year, the grant date shall be as
soon as practicable thereafter as determined by the Committee.
(c) All Options granted to a Non-Employee Director
under this Section 4.2 shall be immediately exercisable.
(d) Unless otherwise determined by the Committee, in
its discretion from time to time, the Exercise Price under
Options granted to a Non-Employee Director under this Section
shall be equal to 100% of the Fair Market Value of a
Common Share on the date of grant, payable as provided in
Article 6.
(e) All Options granted to a Non-Employee Director
under this Section 4.2 shall terminate on the earliest of (i)
the 10th anniversary of the date of grant, and (ii) the date
60 months after the termination of such Non-Employee
Director's service as a director for any reason, subject to
earlier termination as provided in Section 5.3 and 7.2.
A-2<PAGE>
(f) Participants, who are Directors of both the
Company and a Designated Subsidiary shall only be eligible for
performance grants as a Director of the Company pursuant to
this Section 4.2.
4.3 Discretionary Grants. The Committee may also from time
to time during the existence of the Plan award Options to Non-
Employee Directors on such terms and conditions as the Committee
establishes in its discretion, provided such terms and conditions
shall be consistent with the Plan. Unless otherwise determined by
the Committee, in its discretion from time to time, the Exercise
Price under all Options granted pursuant to this Section 4.3 shall
be 100% of the Fair Market Value of a Common Share on the date of
grant. No Option granted pursuant to this Section 4.3 may have a
term in excess of ten years. The provisions of discretionary
Options granted pursuant to this Section 4.3 with respect to
exercisability, payment of the Exercise Price and termination may be
different than the provisions for Options awarded pursuant to
Section 4.2 of the Plan.
4.4 Payment of Director's Fees in Options.
(a) The provisions of this Section 4.4 shall be
effective only if the Board has determined to implement such
provisions and only so long as the Board has not suspended or
terminated the provisions.
(b) A Non-Employee Director may elect to receive
Options in lieu of all or a portion of such Director's
retainer payments and/or any meeting fees from the Company or
a Designated Subsidiary. Such Options shall be issued under
the Plan. An election under this Section 4.4 shall be filed
with the Company on the form prescribed by the Company and in
accordance with procedures established by the Company. The
election may be amended or canceled by filing a new form with
the Company in accordance with such procedures as may be
established by the Company from time to time.
(c) The number of Options (or Common Shares covered by
an Option) to be granted to Non-Employee Directors in lieu of
retainers and any meeting fees that would otherwise be paid in
cash shall be calculated using the Black-Scholes Option
Pricing Model or in such other manner determined by the Board
from time to time. Only Options for a specified number of
whole Common Shares shall be granted and rounding adjustments
of any calculations shall be within the discretion of the
Committee.
(d) Options granted pursuant to this Section 4.4 shall
have the terms specified in Subsections (c), (d) and (e) of
Section 4.2 and shall be subject to adjustment under Article 7.
A-3<PAGE>
ARTICLE 5
STOCK OPTION AGREEMENT
5.1 Stock Option Agreement. Each grant of an Option under
the Plan shall be evidenced by a Stock Option Agreement between the
Optionee and the Company, which Agreement shall incorporate by
reference the terms of the Plan. Such Option shall be subject to
all applicable terms of the Plan and may be subject to any other
terms approved by the Committee that are not inconsistent with the
Plan. Subject to the terms of the Plan, the Stock Option Agreements
and the terms thereof need not be identical. All Options shall be
non-statutory options intended not to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended.
5.2 Number of Shares. Each Stock Option Agreement shall
specify the number of whole Common Shares initially subject to the
Option and shall provide for the adjustment of such number in
accordance with Article 7.
5.3 Exercisability and Term. Each Stock Option Agreement
shall specify the Exercise Price and the date when all or any
installment of the Option is to become exercisable. The Stock
Option Agreement shall also specify the term of the Option
consistent with the terms of the Plan. A Stock Option Agreement for
a discretionary Option awarded pursuant to Section 4.3 may provide
for accelerated exercisability in the event of the Optionee's death,
disability or termination of service on the Board or on the board of
directors of a Designated Subsidiary or other events and may provide
for expiration prior to the end of its term in the event of the
termination of the Optionee's service on the Board or on the board
of directors of a Designated Subsidiary.
5.4 Modification or Assumption of Options. Within the
limitations of the Plan, the Committee may modify, extend or assume
outstanding options or may accept the cancellation of outstanding
options (whether granted by the Company or by another issuer) in
return for the grant of new options for the same or a different
number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.
ARTICLE 6
EXERCISE AND PAYMENT FOR OPTION SHARES
6.1 Procedure for Exercise. An Option may be exercised, in
whole or in part, from time to time prior to its expiration or
termination. An Option shall be deemed to be exercised when written
notice of such exercise has been given to the Company in accordance
with the terms of the Option by the person entitled to exercise the
Option and full payment of the Exercise Price for the Common Shares
with respect to which the Option is exercised has been received by
the Company in accordance with Section 6.2. The minimum number of
Shares with respect to which an option may be exercised at any one
time shall be one hundred (100) Shares, unless the number purchased
is the total number at the time available for purchase under the
Option. An Option may not be exercised for a fractional Share.
A-4<PAGE>
6.2 Payment in Cash or Stock. The entire Exercise Price of
Common Shares issued upon exercise of Options shall be payable in
cash at the time when such Common Shares are purchased or with
Common Shares which have already been owned by the Optionee for more
than six months, or by a combination of cash and previously owned
Common Shares. The previously owned Common Shares shall be valued
at their Fair Market Value on the date when the new Common Shares
are purchased under the Plan. Unless prohibited by the Committee,
payment may also be made as provided in Section 6.3.
6.3 Exercise/Sale. Unless prohibited by the Committee,
payment of the Exercise Price may be made by the delivery (on a form
prescribed by the Company) of an irrevocable direction to a
securities broker approved by the Company to sell Common Shares and
to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any applicable
withholding taxes; provided that the Company shall not be required
to deliver certificates for the shares purchased upon exercise of an
Option until it has received full payment, including payment of such
sale proceeds.
6.4 Discretionary Options. With respect to discretionary
Options granted pursuant to Section 4.3, the Committee may also
provide for payment to be made in any other form that is consistent
with applicable laws, regulations and rules.
ARTICLE 7
PROTECTION AGAINST DILUTION
7.1 Adjustments. In the event of a subdivision of the
outstanding Common Shares, a declaration of a dividend payable in
Common Shares, a declaration of a dividend payable in a form other
than Common Shares in an amount that has a material effect on the
price of Common Shares, a combination or consolidation of the
outstanding Common Shares (by reclassification or otherwise) into a
lesser number of Common Shares, a recapitalization, spin-off or a
similar occurrence, the Committee shall make such adjustments as it,
in its sole discretion, deems appropriate in one or more of (a) the
number of Options available for future award under Article 3, (b)
the number of Options to be granted to Non-Employee Directors under
Articles 4, (c) the number of Common Shares covered by each
outstanding Option and/or the Exercise Price under each outstanding
Option. Except as provided in this Article 7, a Participant shall
have no rights by reason of any issue by the Company of stock of any
class or securities convertible into stock of any class, any
subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in
the number of shares of stock of any class.
7.2 Reorganizations. In the event that the Company is a
party to a merger or other reorganization, outstanding Options shall
be subject to the agreement of merger or reorganization. Such
agreement may provide, without limitation, for the assumption of
outstanding Options by the surviving corporation or association, or
its parent, for their continuation by the Company (if the Company is
a surviving corporation), for accelerated vesting and accelerated
expiration, or for settlement in cash.
A-5<PAGE>
ARTICLE 8
LIMITATION OF RIGHTS
8.1 Retention Rights. Neither the Plan nor any Option
granted under the Plan shall be deemed to give any individual a
right to remain an employee, consultant or director of the Company,
a Parent, a Subsidiary or an Affiliate. The Company and its Parents
and Subsidiaries reserve the right to terminate the service of any
employee, consultant or director at any time, with or without cause,
subject to applicable laws and the applicable articles of
incorporation and by-laws.
8.2 Shareholders' Rights. A Participant shall have no
dividend rights, voting rights or other rights as a shareholder with
respect to any Common Shares covered by a Participant's Options
prior to the issuance of a stock certificate for such Common Shares.
No adjustment shall be made for cash dividends or other rights for
which the record date is prior to the date when such certificate is
issued, except as expressly provided in Article 7.
8.3 Regulatory Requirements. Any other provision of the
Plan notwithstanding, the obligation of the Company to issue Common
Shares under the Plan shall be subject to all applicable laws, rules
and regulations and such approval by any regulatory body as may be
required. The Company reserves the right to restrict, in whole or
in part, the delivery of Common Shares pursuant to any Option prior
to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification
or listing or to an exemption from registration, qualification or
listing, and, in connection with the foregoing, to place such
restrictive legends as it deems appropriate on the certificates for
any Common Shares issued pursuant to the Plan.
ARTICLE 9
WITHHOLDING TAXES (IF ANY)
9.1 General. To the extent required by applicable federal,
state, local or foreign law, a Participant or a Participant's
successor shall make arrangements satisfactory to the Company for
the satisfaction of any withholding tax obligations that arise in
connection with the Plan. The Company shall not be required to
issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
9.2 Share Withholding. The Committee may, in its
discretion, permit a Participant to satisfy all or part of a
Participant's withholding or income tax obligations, if any, by
having the Company withhold all or a portion of any Common Shares
that otherwise would be issued to the Participant or by surrendering
all or a portion of any Common Shares that the Participant
previously acquired. Such Common Shares shall be valued at their
Fair Market Value on the date when taxes otherwise would be withheld
in cash.
ARTICLE 10
ASSIGNMENT OR TRANSFER OF OPTIONS
An Option shall be transferable only as provided in the applicable
Stock Option Agreement. Such Agreement may permit a transfer of the
Option by beneficiary designation, will or intestate succession.
A-6<PAGE>
ARTICLE 11
FUTURE OF THE PLAN
11.1 Term of the Plan. The Plan, as set forth herein, shall
become effective on January 1, 1999, subject to shareholder approval
of the Plan at the Company's 1999 Annual Meeting of Shareholders.
The Plan shall remain in effect until it is terminated under Section
11.2.
11.2 Amendment, Suspension or Termination. The Board may,
at any time and for any reason, amend, suspend or terminate the Plan
or any provision hereof. An amendment of the Plan shall be subject
to the approval of the Company's shareholders only to the extent
required by applicable laws, regulations or rules. No Options shall
be granted under the Plan after the termination thereof. The
termination of the Plan shall not affect any Option previously
granted under the Plan.
ARTICLE 12
DEFINITIONS
12.1 Affiliate means any entity other than a Subsidiary, if
the Company and/or one or more Subsidiaries own not less than 50% of
such entity.
12.2 Board means the Company's Board of Directors, as
constituted from time to time.
12.3 Code means the Internal Revenue Code of 1986, as
amended.
12.4 Committee means the Board itself or a committee of the
Board designated to administer the Plan, as described in Article 2.
12.5 Common Share means one share of the common stock of the
Company.
12.6 Company means Drovers Bancshares Corporation, a
Pennsylvania corporation.
12.7 Designated Subsidiary means a Subsidiary that the Board
has designated as a "Designated Subsidiary" for purposes of this
Plan. The Board, in its discretion, may designate a Subsidiary as a
Designated Subsidiary for purposes of grants pursuant to Sections
4.2, 4.3 and 4.4 or any one or more of such Sections.
12.8 Exchange Act means the Securities Exchange Act of 1934,
as amended.
12.9 Exercise Price means the amount for which one Common
Share may be purchased upon exercise of such Option, as specified in
the applicable Stock Option Agreement.
A-7<PAGE>
12.10 Fair Market Value as of a specific date means the fair
market value of a Common Share, determined by the Committee as
follows:
(a) If the Common Shares were traded over-the-counter
on the date in question and were traded on the Nasdaq system
or The Nasdaq National Market, then the Fair Market Value
shall be equal to the closing price quoted for such date by
the Nasdaq system or The Nasdaq National Market or, in the
absence of reported trading in the Common Stock on such date,
the mean between the lowest bid and highest asked price, each
as reported for such date (or for the previous business day
if the date is not a business day); or
(b) If in the judgment of the Committee, the foregoing
provision is not applicable or appropriate under the
circumstances, then the Fair Market Value shall be determined
by the Committee in good faith on such basis as it deems
appropriate.
12.11 Non-Employee Director for purposes of eligibility to
participate in the Plan shall mean a member of the Board or a member
of the board of directors of a Designated Subsidiary who is not a
common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate.
12.12 Option means a non-statutory stock option granted under
the Plan and entitling the holder to purchase a specified number of
Common Shares.
12.13 Optionee means an individual or estate who holds an
Option.
12.14 Parent means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each
of the corporations other than the Company owns stock possessing 50%
or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain. A corporation that
attains the status of a Parent on a date after the adoption of the
Plan shall be considered a Parent commencing as of such date.
12.15 Participant means an individual or estate who holds an
Option.
12.16 Plan means this Drovers Bancshares Corporation 1999 Non-
Employee Directors Stock Option Plan, as amended from time to time.
12.17 Stock Option Agreement means the agreement between the
Company and an Optionee which contains the terms, conditions and
restrictions pertaining to an Option.
12.18 Subsidiary means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company, if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status
of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
A-8<PAGE>
EXHIBIT "B"
DROVERS BANCSHARES CORPORATION
30 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
Thursday, May 27, 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 PROPOSAL 1 AND FOR
PROPOSALS 2, 3 AND 4. 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)
FOLD AND DETACH HERE
B-1<PAGE>
1. ELECTION OF DIRECTORS TO SERVE FOR A FOUR (4) YEAR TERM:
FOR all nominees WITHHOLD D. John Sparler, David C.
listed (except as AUTHORITY McIntosh, Gary A. Stewart,
marked to the to vote for all George W. Hodges
contrary) nominees listed
INSTRUCTIONS: TO WITHHOLD
AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE, WRITE
NOMINEE'S NAME IN THE
SPACE PROVIDED BELOW
________________________
2. TO APPROVE AN AMENDMENT TO ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF
INCORPORATION TO ELIMINATE PAR VALUE FOR THE COMPANY'S COMMON STOCK.
FOR AGAINST ABSTAIN
3. TO APPROVE THE COMPANY'S 1999 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
4. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENT
THEREOF.
FOR AGAINST 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.
(PLEASE MARK, DATE, SIGN AND RETURN THIS
PROXY IN THE ENCLOSED ENVELOPE)
Signature(s)___________ (Signature(s)_______________
Date____________________, 1999
FOLD AND DETACH HERE
B-2<PAGE>
