<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Community Bank, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
<PAGE>
[LOGO OF COMMUNITY BANKS, INC.]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1999
TO OUR SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Community Banks, Inc. ("CBI") will be held at 10:00 a.m. on May
4, 1999 at the Sheraton Inn East, 800 East Park Drive, Harrisburg,
Pennsylvania, for the purpose of considering and voting upon the following
matters:
1. Election of Directors. To elect five (5) Class D Directors to serve
until the 2003 Annual Meeting of Shareholders.
2. Other Business. Such other business as may be properly brought before
the Annual Meeting of Shareholders or any adjournment or adjournments
thereof.
Information regarding the matters to be acted upon at the meeting is
contained in the Proxy Statement accompanying this notice.
IN ACCORDANCE with the statutes in such case made and PROVIDED only those
holders of record of Common Stock of CBI at the close of business on February
26, 1999 (the "Record Date"), are entitled to notice of and to vote at the
Annual Meeting of Shareholders and any adjournment or adjournments thereof.
The Stock Transfer Books of CBI will not be closed.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patricia E. Hoch
PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 22, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, MANAGEMENT URGES THAT
YOU SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE PREPAID ENVELOPE
PROVIDED. THIS PROXY WILL NOT BE USED IF YOU ARE PRESENT AND DESIRE TO VOTE IN
PERSON.
<PAGE>
COMMUNITY BANKS, INC.
----------------
PROXY STATEMENT
MARCH 22, 1999
----------------
GENERAL INFORMATION
This proxy statement (the "Proxy Statement") is furnished in connection with
solicitation by the Board of Directors of Community Banks, Inc. ("CBI"), a
corporation organized under the laws of the Commonwealth of Pennsylvania, of
proxies to be voted at the Annual Meeting of Shareholders of CBI to be held on
May 4, 1999 at 10:00 a.m. prevailing time and at any and all adjournments or
postponements thereof. This Proxy Statement and the enclosed form of proxy
(the "Proxy") are first being sent to shareholders of CBI on or about March
22, 1999.
The costs of preparing, printing and mailing the Proxy and all materials
used in the solicitation thereof will be borne by CBI. In addition to the use
of the mail, proxies may be solicited by officers, directors and employees of
CBI personally, by telephone or by fax.
CBI's executive offices are located at 150 Market Square, Millersburg,
Pennsylvania, and its telephone number is (717) 692-4781. CBI's mailing
address is P.O. Box 350, Millersburg, Pennsylvania 17061.
Date by which Security Holder Proposals must be Received to be Presented at
Next Annual Meeting of Shareholders.
Proposals of security holders of CBI intended to be presented at the next
annual meeting of shareholders of CBI must be received by CBI for inclusion in
CBI's proxy statement and the form of proxy relating to that meeting by
November 19, 1999.
If the date of the next annual meeting of shareholders of CBI is advanced or
delayed by more than 30 days from May 4, 2000, security holders will be timely
informed of the change of the annual meeting of shareholders and the date by
which proposals of security holders must be received.
Voting; Revocation of Proxies
Each Proxy may be revoked at any time before its exercise by, among other
methods, giving written notice to the Secretary of CBI. A subsequently dated
Proxy will, if presented to the Secretary of CBI, revoke a prior dated Proxy.
Any shareholder of CBI may attend the meeting and vote in person whether or
not he has previously given a Proxy.
The enclosed Proxy confers discretionary authority to vote with respect to
any and all of the following matters that may come before the Annual Meeting
of Shareholders: (i) matters which the Board of Directors does not know, a
reasonable time before the proxy solicitation, are to be presented at the
meeting; (ii) approval of the minutes of a prior meeting of the shareholders,
if such approval does not amount to ratification of the action taken at that
meeting; and (iii) matters incident to the conduct of the meeting. In
connection with such matters, the persons named in the enclosed Proxy will
vote in accordance with their best judgment.
The Board of Directors of CBI is not presently aware of any matters (other
than procedural matters) which will be brought before the Annual Meeting of
Shareholders which are not referred to in the Notice of Annual Meeting of
Shareholders. If other business is properly brought before the Annual Meeting
of Shareholders, the persons named in the Proxies will act or vote in
accordance with their judgment.
1
<PAGE>
Vote Required; Shares Entitled To Vote
The presence in person or by proxy of the holders of a majority of the
outstanding shares of CBI's Common Stock will constitute a quorum for the
transaction of business at the Annual Meeting of Shareholders. At the close of
business on February 26, 1999, there were 6,517,967 shares of CBI Common Stock
outstanding. Each share of CBI's Common Stock outstanding on the Record Date
is entitled to one vote on all matters, including the election of directors,
to come before the Annual Meeting.
Management of CBI, in the aggregate, beneficially owned 1,044,382 shares of
the outstanding Common Stock of CBI on February 26, 1999. The Trust Department
of Community Banks, N.A. ("CBNA"), held, as sole trustee, in the aggregate,
17,678 shares of CBI Common Stock, which may not be voted in the election of
directors of CBI. All matters which are expected to come before the
shareholders, including election of directors, will require the affirmative
vote of the holders of a majority of CBI's outstanding Common Stock
represented at the meeting, if a quorum is present.
At the Annual Meeting, the Judges of Election will manually tabulate all
votes which are cast in person or by proxy. Those Shareholders wishing to vote
in person will be provided ballots with which to vote.
Voting is an important right of Shareholders. If a Shareholder abstains or
otherwise fails to cast a vote on any matter brought before the Shareholders,
the Pennsylvania Business Corporation Law provides that notwithstanding any
intention to the contrary, the abstention or failure is not a vote and will
not be counted. This is true of broker non-votes as well as non-votes by other
Shareholders.
INCORPORATION OF DOCUMENTS BY REFERENCE
Certain documents previously filed by CBI with the Commission pursuant to
the Exchange Act are hereby incorporated by reference in this Proxy Statement
as follows:
(1) the Annual Report on Form 10-K for the year ended December 31, 1998.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that also is or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement. All
information appearing in this Proxy Statement should be read in conjunction
with, and is qualified in its entirety by, the information and financial
statements (including notes thereto) appearing in the documents incorporated
herein by reference, except to the extent set forth in the immediately
preceding statement.
PURPOSES OF THE MEETING
The Annual Meeting of Shareholders will be held for the following purposes:
1. To elect five (5) Class D Directors to serve until the 2003 Annual
Meeting of Shareholders; and
2. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.
ELECTION OF DIRECTORS OF CBI
The Bylaws of CBI provide that the Board of Directors may, from time to
time, fix the number of directors. The number of directors that shall
constitute the whole Board of Directors shall be not less than 5 nor more than
25. The Bylaws of CBI also provide that the Board of Directors shall be
classified into four (4) classes as nearly
2
<PAGE>
equal in number as possible, each class to be elected for a term of four (4)
years. Each class shall be elected in a separate election. At each annual
meeting of shareholders, successors to the class of directors whose term is
expiring shall be elected to hold office for a term of four (4) years so that
the term of office of one class of directors expires in each year.
Nomination for elections to the Board of Directors may be made by the Board
of Directors or by any holder of the Common Stock of CBI entitled to vote at
the election of directors. Nominations, other than those made by or in behalf
of the existing management of CBI, shall be made in writing and shall be
delivered or mailed to the Secretary of CBI not less than 45 days prior to the
date of any meeting of shareholders called for the election of directors. Such
notification shall contain the following information to the extent known by
the notifying shareholder: (a) the name and address of each proposed nominee;
(b) the age of each proposed nominee; (c) the principal occupation of each
proposed nominee; (d) the number of shares of CBI owned by each proposed
nominee; (e) total number of shares that, to the knowledge of the notifying
shareholder, will be voted for each proposed nominee; (f) the name and
residence address of the notifying shareholder; and (g) the number of shares
of CBI owned by the notifying shareholder. Any nomination for director not
made in accordance with the above procedure shall be disregarded by the
chairman of the meeting, and votes cast for each such nominee shall be
disregarded by the judges of election.
It is the intention of persons named in the Proxy to vote for the election
of the five individuals listed as Class D Directors to serve until the 2003
Annual Meeting of Shareholders.
In absence of instructions to the contrary, proxies will be voted in favor
of the election of the management's nominees. In the event any nominee should
become unavailable, it is intended that the proxies will be voted for such
substitute nominee as may be nominated by management. Management has no
present knowledge that any of the nominees will be unavailable to serve.
Each nominee is currently a director of CBI. Leon E. Kocher, Robert W.
Rissinger and John W. Taylor, Jr. are also directors of CBNA. Wayne H. Mummert
is a director of Peoples State Bank ("PSB").
The following table sets forth the name and age of all directors, including
nominees for director of CBI, as well as the director's business experience,
including principal occupation for the past five years, the period during
which he or she has served as a director of CBI or CBNA (predecessor of CBI),
and the number and percentage of outstanding shares of Common Stock of CBI
beneficially owned by said director as of February 26, 1999.
3
<PAGE>
Directors of CBI
<TABLE>
<CAPTION>
Business Experience, Amount and Percentage
Including Principal Nature of of
Occupation for the Director Beneficial Outstanding
Name and Age Past Five Years Since(1) Ownership(2) Stock Owned
------------ ------------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Class D Directors:
To be elected for a four
year term ending in
2003:
Leon E. Kocher.......... Chairman of the Board, 1963 27,206 .42%
Age 86 Kocher Enterprises
Robert W. Rissinger..... Secretary/Treasurer 1968 242,491(3) 3.72%
Age 72 Alvord-Polk, Inc.
Engle Rissinger Auto
Group
John W. Taylor, Jr. .... President, 1998 19,074(4) .29%
Age 68 Air Brake & Power
Equipment Co.
Susan K. Nenstiel....... Regional Director of 1996 207 --
Age 47 Development Lutheran
Welfare Services
Hazleton, PA
Wayne H. Mummert ....... Retired U.S. Postal 1998 72,548(5) 1.11%
Age 65 Service/Farmer
Class C Directors:
To continue in office
until 2002:
Kenneth L. Deibler...... Self-Employed 1966 34,755(6) .53%
Age 76 Insurance Broker,
Elizabethville, PA
Allen Shaffer........... Attorney-at-Law, 1961 42,637(7) .65%
Age 73 Millersburg and
Harrisburg, PA
Ernest L. Lowe.......... Chairman--CBI 1990 38,029(8) .58%
Age 62 Chairman, President/CEO--
Community Banks, N.A.
Earl L. Mummert......... Consulting Actuary Conrad 1998 32,643(9) .50%
Age 54 M. Siegel, Inc.
Harrisburg, PA
Class B Directors:
To continue in office
until 2001:
Ray N. Leidich.......... Retired Dentist, 1985 67,476(10) 1.04%
Age 70 Tremont, PA
Thomas W. Long.......... Partner, Millersburg 1981 9,337 .14%
Age 69 Hardware Co.,
Millersburg, PA
Donald L. Miller........ President, Miller Bros. 1981 88,003 1.35%
Age 69 Dairy, Millersburg, PA
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Business Experience, Amount and Percentage
Including Principal Nature of of
Occupation for the Director Beneficial Outstanding
Name and Age Past Five Years Since(1) Ownership(2) Stock Owned
------------ --------------------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Samuel E. Cooper........ Retired 1992 2,082 .03%
Age 65 Superintendent,
Warrior Run School
District
Eddie L. Dunklebarger... President/CEO CBI and 1998 101,588(11) 1.55%
Age 45 PSB Prior to March
31, 1998--
President/CEO of PSB
Class A Directors:
To continue in office to
2000:
Thomas L. Miller........ Retired Chairman and 1966 57,721(12) .88%
Age 66 CEO of CBI, and
Retired Chairman,
President and CEO of
CBNA
James A. Ulsh........... Attorney-at-Law, 1977 16,295 .25%
Age 52 Mette, Evans &
Woodside, Harrisburg,
PA
Ronald E. Boyer......... President, Alvord- 1981 21,861(13) .34%
Age 61 Polk, Inc.
(manufacture of
cutting tools),
Millersburg, PA
Peter DeSoto............ CEO, J.T. Walker 1981 44,270 .68%
Age 59 Industries, Inc.
(manufacture of metal
products),
Elizabethville, PA
Harry B. Nell........... Retired Merchant 1998 34,683(14) .53%
Age 72
</TABLE>
- --------
(1) Includes service as a director of CBNA (formerly Upper Dauphin National
Bank), a wholly-owned subsidiary of CBI, prior to 1983 and service as a
director of CBI after 1983.
(2) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
regulations of the Securities and Exchange Commission. Accordingly, they
may include securities owned by or for, among others, the wife and/or
minor children of the individual and any other relative who has the same
home as such individual, as well as other securities as to which the
individual has or shares voting or investment power or has the right to
acquire under outstanding stock options within 60 days after February 26,
1999. Beneficial ownership may be disclaimed as to certain of the
securities.
(3) Includes 6,349 shares owned by Alvord-Polk Tool Co., Inc., the stock of
which is held 50% by Robert W. Rissinger and 50% by Ronald E. Boyer. Also
includes 14,150 shares owned by Engle Rissinger Auto Group, Inc., 43,330
shares owned by Mr. Rissinger's wife, Shirley Rissinger, 10,578 shares
owned by Engle Rissinger Auto Group, Inc. Profit Sharing Plan (R.
Ibberson and H. Engle, Co-Trustees), and 85,054 shares held by Mr.
Rissinger's IRA.
(4) Includes 1210 shares owned by Mr. Taylor's wife, LouAnn Taylor, and 865
held in Mr. Taylor's IRA.
(5) Includes 16,830 shares held by Mr. Mummert's wife, Shirley, and Stock
Options to acquire 2,004 shares.
5
<PAGE>
(6) Includes 2,819 shares owned by Mr. Deibler's grandchildren.
(7) Includes 7,270 shares owned by Mr. Shaffer's Retirement account.
(8) Includes 180 shares owned by Mr. Lowe's wife, Barbara Lowe and 21 shares
owned by Mr. Lowe's son, and also includes Stock Options to acquire
31,373 shares.
(9) Includes 13,723 shares held by Mr. Mummert's IRA, and Stock Options to
acquire 2,004 shares.
(10) Includes 33,738 shares owned by Dr. Leidich's wife, Dolores Leidich.
(11) Includes 8,922 shares owned by Mr. Dunklebarger's children, 300 shares
owned by Mr. Dunklebarger's wife, Connie, 7,446 shares held in Mr.
Dunklebarger's 401k, Stock Options to acquire 53,635 shares, and 6,726
shares in his IRA.
(12) Includes Stock Options to acquire 24,964 shares.
(13) Includes 6,349 shares owned by Alvord-Polk, Inc., the stock of which is
held 50% by Robert W. Rissinger and 50% by Ronald E. Boyer, and 499
shares owned by Mr. Boyer's wife, Judith Boyer, and her mother.
(14) Includes 791 shares owned by Mr. Nell's wife, Helen M. Nell, and also
includes Stock Options to acquire 2,004 shares.
None of the directors or nominee directors are directors of other companies
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
The following is all shares owned beneficially by all directors and
executive officers of CBI as a group:
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership(1)
-----------------------
Title of Class Direct Indirect Percent of Class
-------------- ----------- ------------ ----------------
<S> <C> <C> <C>
Common........................... 877,187 167,195 15.64%
</TABLE>
- --------
(1)See footnote 2 on page 5.
6
<PAGE>
MANAGEMENT OF CBI
Executive Officers
The following table sets forth the executive officers of CBI (as determined
in accordance with the rules and regulations of the Securities and Exchange
Commission), their ages, their positions with CBI and the beneficial ownership
of Common Stock of CBI by each of such persons. Share information is stated as
of February 26, 1999.
Executive Officers of CBI
<TABLE>
<CAPTION>
Amount and Percentage
Nature of of
Beneficial Outstanding
Name and Age Title Ownership(1) Stock
- ------------ ----- ------------ -----------
<S> <C> <C> <C>
Eddie L. Dunklebarger... President and Chief 101,588 1.55%
Age 45 Executive Officer
Ernest L. Lowe.......... Chairman 38,029 .58%
Age 62
Robert W. Lawley........ Executive Vice--President 13,259 .20%
Age 44
Terry L. Burrows........ Executive Vice--President and 21,360 .33%
Age 50 Chief Financial Officer
Anthony N. Leo.......... Executive Vice--President 26,013 .40%
Age 38
Jeffrey M. Seibert...... Executive Vice--President 37,193 .57%
Age 39
</TABLE>
- --------
(1) Includes currently exercisable Options to acquire shares of CBI.
BOARD EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
CBI does not have a Compensation Committee. The Board of Directors has
delegated to the Executive Committee initial review and recommendations for
executive compensation. Recommendations of the Executive Committee are
reviewed and ratified by the full Board of Directors.
On December 31, 1998 members of the Executive Committee were Robert W.
Rissinger, Wayne H. Mummert, Harry B. Nell, Earl L. Mummert, John W. Taylor,
Jr. Thomas L. Miller, Peter DeSoto, Allen Shaffer, James A. Ulsh and Donald L.
Miller. With the exception of Thomas L. Miller, none of these committee
members have been officers or employees of CBI or any of its subsidiaries at
any time. Allen Shaffer is an attorney practicing in Harrisburg and
Millersburg, Pennsylvania, who has been retained in the last fiscal year by
CBI and who CBI proposes to retain in the current fiscal year. James A. Ulsh
is a shareholder/employee of the law firm of Mette, Evans & Woodside,
Harrisburg, Pennsylvania, which CBI has retained in the last fiscal year and
proposes to retain in the current fiscal year. Earl L. Mummert is a consulting
actuary with Conrad M. Seigel, Inc. which provides actuarial services for CBI.
The CBI Executive Committee adopted an Executive Compensation Policy which
sets forth the following goals to be achieved in determining compensation of
the executive officers of CBI, CBNA and the Peoples State Bank ("PSB"): (i)
integrate compensation with CBI, CBNA and PSB annual and long-term performance
goals; (ii) reward above average performance; (iii) recognize individual
initiative and achievements; (iv) attract and retain qualified executives; (v)
be consistent with compensation packages offered by other similarly situated
bank holding companies and banks; and (vi) encourage stock ownership by
executive officers.
7
<PAGE>
In order to achieve the goals set forth in the Executive Compensation
Policy, a variety of criteria in evaluating and establishing compensation are
to be considered. The Executive Committee has identified the SNL Securities
Bank Performance Report and the SNL Executive Compensation Review for
Commercial Banks as appropriate sources of comparative information in
evaluating executive compensation.
The Executive Committee recognizes that compensation, particularly for the
Chief Executive Officer and other executive officers, can best be accomplished
through a combination of techniques, including salary, the CBI Bonus Plan, the
Long-Term Incentive Plan, and the provision of appropriate fringe benefits.
CBNA Bonus Plan
CBNA maintains a Bonus Plan for the Chief Executive Officer and other
officers of CBNA. Pursuant to this plan, a certain percentage of net income,
before security gains and losses, of the amount in excess of one percent of
the return on average assets for the year (15% in 1997), is placed in a bonus
pool. Bonuses paid in 1998 were based on 1997 net income. From this pool,
between 20% and 25% is allocated to bonuses for staff officers. The remainder
of the pool is distributed to the Chief Executive Officer and the other
executive officers of the bank. The Executive Committee typically delegates to
the Chief Executive Officer the distribution of the staff officers' bonuses
and the remainder of the Net Bonus Pool to executive officers. The percentage
distributable to the Chief Executive Officer and the other officers is
reviewed on an annual basis and adjusted as deemed appropriate. Thomas L.
Miller, who was the Chief Executive Officer of CBNA in 1997, received 26% of
the 1997 Net Bonus Pool remaining after staff officers' bonuses were deducted.
In order to pay Mr. Miller his percentage of the 1997 Net Bonus Pool prior to
his retirement, CBNA paid his bonus in 1997, rather than 1998. Ernest L. Lowe,
the current Chief Executive Officer of CBNA, received 15% of the 1997 Net
Bonus Pool after staff officers' bonuses were deducted.
Long-Term Incentive Plan
In 1998, CBI adopted a Long-Term Incentive Plan which authorizes the
issuance of incentive stock options, stock appreciation rights, and non-
qualified stock options. The Executive Committee believes that stock ownership
by management is beneficial in aligning management's interests with the
interests of the shareholders in enhancing and increasing the value of CBI
common stock. The Executive Committee considers the same criteria in awarding
stock options that it considers in making other compensation decisions. These
criteria are outlined above.
Employment Agreements
CBI and CBNA have entered into employment agreements with David E. Hawley,
Terry L. Burrows, Robert W. Lawley, Lewis Bogle and Ronald E. Bednar. The
agreements generally provide that if one of these employee's employment with
CBI or CBNA is terminated pursuant to a change in control or ownership, as
defined in the agreement, the employee shall receive severance compensation
equal to two times the employee's gross salary for the calendar year preceding
the date of the employee's termination of employment. This severance
compensation shall be paid in cash within thirty (30) days from the date on
which the employee ceases to be employed by the Company. The benefits provided
under these agreements are unfunded and will be paid out of the general assets
of CBI or CBNA at such times as the benefits become payable.
CBI and PSB have entered into employment agreements with Eddie L.
Dunklebarger, Jeffrey M. Seibert, and Anthony N. Leo. The employment
agreements with Mr. Leo and Mr. Seibert generally provide that they are
employed for rolling terms of two (2) years, each commencing on the effective
date of the PSB Merger. On each anniversary date of the effective date of the
PSB Merger, the term of the employment agreements automatically renews and is
extended for an additional one-year period unless either party shall have
provided the other party with notice of intent not to renew within sixty (60)
days prior to such anniversary date. The employment agreements also provide
that in the event of termination of employment subsequent to a change in
control, as defined in the employment agreement, the employee may elect to
receive in a single payment an amount equal
8
<PAGE>
to salary to which the employee would be entitled to be paid between the date
of termination and the end of the then term of the employment agreement.
Mr. Dunklebarger, pursuant to his employment agreement, is employed for a
period of five (5) years from March 31, 1998, the effective date of the PSB
Merger. Upon the expiration of the third year of the initial five-year term,
and upon the expiration of each additional year of employment, Mr.
Dunklebarger's employment automatically extends for an additional year
(resulting in successive three-year terms) unless, no later than ninety (90)
days prior to the expiration date, either the Board of Directors of CBI or Mr.
Dunklebarger gives written notification to the other of its/his intent not to
renew the employment agreement.
CBI has also entered into an employment agreement with Ernest L. Lowe, which
became effective March 31, 1998. Pursuant to his agreement, Mr. Lowe serves as
the Chairman of the Board of Directors of CBI, and as Chairman, President and
Chief Executive Officer of CBNA. Mr. Lowe is employed for a period of
three (3) years from the effective date of the agreement. On each anniversary
date of the effective date of the agreement, the term of the employment
agreements automatically renews and is extended for an additional one-year
period unless either party shall have provided the other party with notice of
intent not to renew within sixty (60) days prior to such anniversary date.
Pursuant to their employment agreements, Mr. Dunklebarger and Mr. Lowe will
each receive an annual salary of $190,000. For a period of two (2) years
(commencing with calendar year 1998), Mr. Dunklebarger and Mr. Lowe will each
be paid a bonus equal to the greater of (i) $50,000, or (ii) any bonus to
which he would be entitled to as a participant in CBI's existent executive
bonus program. After this two-year period, Mr. Dunklebarger and Mr. Lowe will
each participate in CBI's existent executive bonus program. Additionally, Mr.
Dunklebarger and Mr. Lowe will each be entitled to participate in or receive
benefits under all CBI employment benefit plans, including the right to
receive options for at least 9,000 shares of CBI Common Stock (adjusted for
the May 8, 1998 3-for-2 stock split), per year, under CBI's existing stock
option plan. Mr. Dunklebarger and Mr. Lowe will also be entitled to other
benefits and perquisites as CBI's Board of Directors deems appropriate.
Executive Compensation
In determining the compensation of executive officers for 1999, the
Executive Committee first considered 1997 data from SNL Executive Compensation
Review, comparing CBI's Chief Executive Officer's compensation to a group of
14 bank holding companies with assets between $300,000,000 and $1,350,000,000
headquartered in Pennsylvania. During 1997 the report showed that CBI was
ranked 10th out of 14 in asset size, and 7th in return on assets. Its Chief
Executive Officer's salary was ranked 7th out of 14. The SNL report also
compared CBI's performance with other bank holding companies in this peer
group and showed that CBI had a 1.34% return on average assets versus the peer
group's average of 1.34%, and an 11.89% return on average equity versus the
peer group's return on average equity of 13.39%. The Executive Committee
considers peer group information to be a significant factor in determining
executive compensation in order to offer competitive salaries to attract and
retain qualified executive officers.
The Executive Committee also considered the 1998 performance of CBI's common
stock on the American Stock Exchange, particularly as it compared to the
performance of the stock of other comparable bank holding companies. The per
share market value of CBI common stock was $28.00 (adjusted for the May, 1998
stock split) at year end 1997. The per share market value of CBI common stock
was $25.125 at year end 1998. Despite the decrease in per share market value,
the Executive Committee was satisfied with the performance of CBI's common
stock versus the performance of the stock of its peers in the banking
industry.
For 1998, Eddie L. Dunklebarger's annual salary was $190,000. He was also a
participant in the CBI Long Term Incentive Plan. Pursuant to the CBI Long Term
Incentive Plan, Mr. Dunklebarger was awarded stock options to purchase 15,000
shares of CBI Common Stock at an exercise price of $23.75 per share. This
option, granted in December of 1998, was based on 1998 performance. In January
of 1998, prior to the PSB Merger, and based on PSB's 1997 performance, PSB
granted Mr. Dunklebarger stock options which entitle him to purchase 16,002
shares of CBI Common Stock.
9
<PAGE>
For 1998, Ernest L. Lowe's annual salary was $190,000. He was also a
participant in the CBI Long Term Incentive Plan and CBI Bonus Plan. Mr. Lowe's
1998 Bonus, based on 1997 performance, was $36,586. Pursuant to the CBI Long
Term Incentive Plan, Mr. Lowe was awarded stock options to purchase 10,000
shares of CBI Common Stock at an exercise price of $23.75 per share. This
option, granted in December of 1998, was based on 1998 performance.
Effective January 1, 1998, the Board of Directors of CBI appointed Ernest L.
Lowe as Chairman, President and Chief Executive Officer of CBI and CBNA. As of
March 31, 1998, the effective date of the PSB Merger, Eddie L. Dunklebarger
was appointed President and Chief Executive Officer of CBI and PSB, and
Ernest L. Lowe became Chairman of the Board of Directors of CBI, and continued
as Chairman, President and Chief Executive Officer of CBNA.
With respect to the compensation of executive officers other than the Chief
Executive Officer, the Executive Committee considered information provided by
the Chief Executive Officer as to each executive officer's level of individual
performance, contribution to the consolidated organization and salary history.
The compensation recommendations of the Executive Committee were based on its
overall subjective assessment of the value of the services provided by each
executive officer after considering the earnings of the corporation on a
consolidated basis, peer group compensation information, and individual
performance factors.
This report is given over the signatures of the Executive Committee,
consisting of Robert W. Rissinger, Peter DeSoto, Allen Shaffer, James A. Ulsh,
Donald L. Miller, Thomas L. Miller, Wayne H. Mummert, Harry B. Nell, Earl L.
Mummert, and John W. Taylor, Jr.
10
<PAGE>
Stock Performance Graph
The following graph sets forth the yearly percentage change in CBI's
cumulative total shareholder return on its Common Stock from December 31, 1993
to December 31, 1998. This percentage change is measured by dividing (i) the
sum of (A) the cumulative amount of dividends for the period measured,
assuming dividend reinvestment and (B) the difference between CBI's share
price at December 31, 1998 and December 31, 1993 by (ii) the share price as of
December 31, 1993. This result, on the following performance graph, is
compared with cumulative total return of the AMEX Stock Market (US Companies)
and a self-determined peer group of the bank stocks listed below:
LEGEND
CRSP Total
Returns Index for: 12/31/93 12/30/94 12/29/95 12/31/96 12/31/97 12/31/98
- ------------------ -------- -------- -------- -------- -------- ------
- --
Community Banks, Inc. 100.0 79.1 93.6 101.5 176.3 162.2
AMEX Stock Market
(US Companies) 100.0 93.3 120.0 121.9 152.4 162.8
Self-Determined
Peer Group 100.0 113.8 137.8 149.5 255.4 221.8
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a
trading day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 12/31/1993.
11
<PAGE>
Cash Compensation
The following Summary Compensation Table sets forth the executive officers
of CBI (as defined in applicable securities regulations), the annual salary
and bonus of those officers for the preceding three years, and certain
information concerning stock option awards to these officers pursuant to the
CBI Long-Term Incentive Plan:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------------ ------------------- ----------
Other All
Annual Restricted Other
Compen- Stock Options/ LTIP Compen-
Name and Principal sation(1) Awards(2) SARs(3) Payouts(4) sation
Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
------------------ ---- ---------- --------- --------- ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eddie L. Dunklebarger... 1998 184,808 59,200 -- -- 31,002 -- 30,035(5)
President & CEO of 1997 135,482 58,000 -- -- 16,409 -- 88,107
CBI and PSB(6) 1996 145,000 42,000 -- -- 16,409 -- 4,453
Ernest L. Lowe.......... 1998 190,000 36,586 -- -- 10,000 -- 5,400(7)
Chairman of CBI, 1997 146,000 29,894 -- -- 3,750 -- 3,000
President & CEO 1996 134,000 24,295 -- -- 3,938 -- 2,400
of CBNA
Robert W. Lawley........ 1998 100,400 29,220 -- -- 5,000 -- --
Executive Vice- 1997 93,000 24,013 -- -- 2,250 -- --
President 1996 86,000 19,515 -- -- 2,363 -- --
Terry L. Burrows........ 1998 91,100 27,792 -- -- 5,000 -- --
Executive Vice- 1997 84,300 21,803 -- -- 2,250 -- --
President & CFO 1996 78,100 17,922 -- -- 2,363 -- --
Jeffrey M. Seibert...... 1998 88,269 29,200 -- -- 11,002 -- 10,486(8)
Executive Vice- 1997 74,077 27,200 -- -- 5,468 -- 21,842
President(9) 1996 68,000 20,000 -- -- 7,135 -- 2,557
Anthony N. Leo.......... 1998 88,269 29,200 -- -- 11,002 -- 9,974(10)
Executive Vice 1997 74,077 27,200 -- -- 5,468 -- 20,247
President(11) 1996 68,000 20,000 -- -- 7,135 -- 2,599
</TABLE>
- --------
(1) The aggregate of personal benefits provided by CBI and its subsidiaries
for any executive officer, individually or all executive officers as a
group did not exceed the lesser of (i) $50,000 or (ii) 10% of the salary
and bonus of the officer for any of the years referenced. This does not
include benefits that are available to all salaried officers, directors
and employees on a non-discriminatory basis.
(2) CBI has not issued any Restricted Stock Awards to any executive officer.
(3) In 1996, 1997 and 1998, Mr. Lowe, Mr. Lawley and Mr. Burrows each were
awarded Stock Options to acquire the number of shares disclosed in the
Summary Compensation Table. These options, granted pursuant to the CBI
Long-Term Incentive Plan, are discussed in greater detail below. In 1998,
Mr. Dunklebarger, Mr. Seibert and Mr. Leo were each awarded Stock Options
to acquire the number of shares disclosed in the Summary Compensation
Table, also pursuant to the CBI Long-Term Incentive Plan. Stock Options
for Mr. Dunklebarger, Mr. Seibert and Mr. Leo in 1998 include options
awarded to them as officers of PSB, prior to the PSB Merger. All Stock
Options reflected above have been adjusted for CBI's May 8, 1998 3-for-2
stock split. See "Stock Options".
(4) CBI does not maintain any Long-Term Incentive Plan as defined in the
applicable Securities and Exchange Commission Regulations, and
consequently has made no payouts pursuant to any such plan.
(5) Includes $2,250 in fees for service as a director of CBI in 1998.
Includes employer contributions of $5,000 in 1998, $4,750 in 1997 and
$4,453 in 1996 to PSB's 401(k) Plan. Includes SERP accruals of $25,035 in
1998 and $83,357 in 1997.
12
<PAGE>
(6) 1997 and 1996 figures reflect amounts paid as an officer of PSB.
(7) Includes $5,400 in fees for service as a director of CBI and CBNA in
1998, $3,000 in fees for service as a director in 1997, and $2,400 in
fees for service as a director in 1996.
(8) Includes employer contributions of $3,154 in 1998, $2,866 in 1997 and
$2,557 in 1996 to PSB's 401(k) Plan. Includes SERP accruals of $7,332 in
1998 and $18,976 and 1997.
(9) 1997 and 1996 figures reflect amounts paid as an officer of PSB.
(10) Includes employer contributions of $3,259 in 1998, $2,866 in 1997 and
$2,599 in 1996 to PSB's 401(k) Plan. Includes SERP accruals of $6,715 in
1998 and $17,381 and 1997.
(11) 1997 and 1996 figures reflect amounts paid as an officer of PSB.
Stock Options
In 1998, the shareholders of CBI adopted the CBI Long-Term Incentive Plan.
This Plan authorizes the issuance of Awards to key officers of CBI. Awards may
be made in the form of Incentive Stock Options (ISOS), Nonqualified Stock
Options (NQSOs) and Stock Appreciation Rights (SARs).
Incentive Stock Options
The Internal Revenue Code requires all ISOs to be granted at a price not
less than 100% of the fair market value of CBI Common Stock on the date the
ISO is granted. ISOs are not transferable, except upon death by will or
descent and distribution, and may not have a term of exercise in excess of ten
years. In addition, no ISO may be exercised for a period of at least six
months after the ISO is granted.
In December, 1998, Ernest L. Lowe was granted 8,016 ISOs.
In December, 1998, Eddie L. Dunklebarger was granted 8,285 ISOs.
The Plan requires adjustment of the options as appropriate to reflect
changes in the number of outstanding shares caused, among other events, by the
declaration and payment of a stock dividend. Consequently, the option price of
and number of shares subject to all ISOs granted has been adjusted each time a
stock dividend has been declared and paid.
Nonqualified Stock Options (NQSO)
NQSOs may or may not have a vesting schedule, depending on the terms of the
grant as determined by the Committee administering the Plan. Although tax
treatment of ISOs and NQSOs may differ, the Plan imposes the same general
conditions and restrictions on NQSOs as it does on ISOs. These are generally
described above. In December, 1998, Ernest L. Lowe was awarded 1,984 NQSOs.
Eddie L. Dunklebarger was granted 6,715 NQSOs in December, 1998. In January,
1998, prior to the PSB Merger, Mr. Dunklebarger was granted 16,002 options,
and Anthony N. Leo was granted 6,002 options, all of which are NQSOs. Jeffrey
M. Seibert was also granted 6,002 options in January, 1998, 4,443 of which are
NQSOs.
To date, all NQSOs granted have carried an option price equal to the fair
market value of CBI Common Stock on the date the NQSO was granted.
13
<PAGE>
Stock Option Grants
The following table sets forth, for each executive officer, the number of
ISOs and NQSOs (collectively "Options") granted in 1998, the percentage the
Options awarded to the executive officer bears to total Options granted to all
key employees during the years, the option price, the expiration of the
option, and the potential realizable value of the Options assuming certain
rates of stock appreciation:
STOCK OPTION GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------
Potential
Number of % of Total Realizable Value at
Securities Options/ Assumed Annual Alternative
Underlying SARs Rates of Stock Price
Options/ Granted to Exercise Appreciation
SARs Employees or Base for Option Term
Granted in Fiscal Price Expiration ---------------------------
Name (#) Year ($/Sh)(1) Date 5% ($)(2) 10% ($)(2)
---- ---------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eddie L. Dunklebarger... 15,000 12.51% $23.7500 12-07-2008 $ 224,044 $ 567,771
16,002 13.34% $24.5600 01-20-2008 $ 247,161 $ 626,355
Ernest L. Lowe.......... 10,000 8.34% $23.7500 12-07-2008 $ 149,362 $ 378,514
Robert W. Lawley........ 5,000 4.17% $23.7500 12-07-2008 $ 74,681 $ 189,257
Terry L. Burrows........ 5,000 4.17% $23.7500 12-07-2008 $ 74,681 $ 189,257
Anthony N. Leo.......... 5,000 4.17% $23.7500 12-07-2008 $ 74,681 $ 189,257
6,002 5.00% $24.5600 01-20-2008 $ 92,705 $ 234,932
Jeffrey M. Seibert...... 5,000 4.17% $23.7500 12-07-2008 $ 74,681 $ 189,257
6,002 5.00% $24.5600 01-20-2008 $ 92,705 $ 234,932
</TABLE>
- --------
(1) ISOs and NQSOs were granted in December, 1998, each with an exercise price
of $23.75 per share. The option prices in all events reflected the fair
market value of CBI Common Stock on the date of the grant. The Options
granted in December 1998 were for calendar year 1998. Additionally, prior
to the PSB Merger, PSB granted ISOs and NQSOs in January, 1998, each with
an exercise price of $24.56 per share (adjusted for CBI's May 8,1998 3-
for-2 stock split). The PSB option prices also reflect fair market value
on the date of the grant. The Options granted in January 1998 were for
calendar year 1997.
(2) Applicable Securities and Exchange Regulations require disclosure of the
potential appreciation in Options granted to executive officers, assuming
annualized rates of stock price appreciation of 5% and 10% over the term
of the Option, with appreciation to be determined as of the expiration
date of the Option. The figures disclosed above assume such rates of
appreciation on an annual basis, with annual compounding of the
appreciation rate, beginning with the original option prices of $23.75 and
$24.56, respectively, per share.
14
<PAGE>
Stock Option Exercises
The following table sets forth all Options exercised by each executive
officer of CBI during 1998, the number of shares acquired on exercise, the
value realized by the executive officer upon exercise, the number of
exercisable and un-exercisable Options outstanding for each executive officer
as of December 31, 1998, and the value of those Options as of December 31,
1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End ($)
Acquired on Realized Exercisable/ Exercisable/
Name Exercise (#) ($) Unexercisable(1) Unexercisable(1),(2)
---- ----------- ---------- ---------------- --------------------
<S> <C> <C> <C> <C>
Eddie L. Dunklebarger... -- -- 45,430/35,513 436,270/290,309
Ernest L. Lowe.......... 4,334 82,176.60 31,373/13,813 399,975/26,519
Robert W. Lawley........ -- -- 13,068/10,701 164,807/45,331
Terry L. Burrows........ 2,525 29,258.63 1,443/10,701 9,599/45,331
Anthony N. Leo.......... 12,894 189,364.84 14,272/5,000 111,621/6,875
Jeffrey M. Seibert...... -- -- 15,930/12,668 146,303/108,176
</TABLE>
- --------
(1) All Options granted through December 31, 1998 are reported. Exercisable
Options are fully vested. Options to vest in the future are reported as
unexercisable.
(2) The dollar values set forth above were calculated by determining the
difference between the closing trading price of CBI Common Stock at
December 31, 1998, which was $25.125 per share, and the option price of
each Option as of December 31, 1998.
Pension Plan
CBNA maintains a pension plan for their employees. An employee becomes a
participant in the pension plan on January 1 or July 1 after completion of one
year of service (12 continuous months) and attainment of the age of 21 years.
The cost of the pension is actuarially determined and paid by CBNA. The amount
of monthly pension is equal to 1.15% of average monthly pay up to $650, plus
.60% of average monthly pay in excess of $650, multiplied by the number of
years of service completed by an employee. The years of service for the
additional portion are limited to a maximum of 37. Average monthly pay is
based upon the 5 consecutive plan years of highest pay preceding retirement.
The maximum amount of annual compensation used in determining retirement
benefits is $160,000. A participant is eligible for early retirement after
attainment of the age of 60 years and the completion of five years of service.
The early retirement benefit is the actuarial equivalent of the pension
accrued to the date of early retirement. As of December 31, 1998, the
following officers have been credited with the following years of service:
Ernest L. Lowe--14 years of service, Robert W. Lawley--23 years of service,
and Terry L. Burrows--25 years of service.
15
<PAGE>
The amount shown on the following table assumes an annual retirement benefit
for an employee who chose a straight life annuity and who will retire at the
age of 65 years.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------
Remuneration 15 20 25 30 35 40
- ------------ ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
35,000......................... $ 8,486 $11,314 $14,143 $16,971 $19,800 $ 22,138
55,000......................... $13,736 $18,314 $22,893 $27,471 $32,050 $ 35,778
75,000......................... $18,986 $25,314 $31,643 $37,971 $44,300 $ 49,418
95,000......................... $24,236 $32,314 $40,393 $48,471 $56,550 $ 63,058
115,000........................ $29,486 $39,314 $49,143 $58,971 $68,800 $ 76,698
135,000........................ $34,736 $46,314 $57,893 $69,471 $81,050 $ 90,338
150,000........................ $38,673 $51,564 $64,455 $77,346 $90,237 $100,568
175,000........................ $41,298 $55,064 $68,830 $82,596 $96,362 $107,388
200,000........................ $41,298 $55,064 $68,830 $82,596 $96,362 $107,388
225,000........................ $41,298 $55,064 $68,830 $82,596 $96,362 $107,388
250,000........................ $41,298 $55,064 $68,830 $82,596 $96,362 $107,388
275,000........................ $41,298 $55,064 $68,830 $82,596 $96,362 $107,388
</TABLE>
Peoples State Bank 401(k) Profit Sharing Plan
PSB maintains a 401(k) profit sharing plan (the "Plan") for employees of
PSB. Each employee is eligible to participate in the Plan after they have
completed six months of service and have reached their twenty-first birthday.
The Plan offers both immediate and future benefits to employees in the
program. The Plan has been reviewed and approved by the Internal Revenue
Service as a tax deferred retirement program.
PSB allocates for participating accounts an annual amount based on PSB's
earnings at the end of each calendar year. The amount allocated to an
employee's account is based on the relationship of the employee's annual
compensation, total annual compensation paid by PSB to all employees
participating in the Plan, and PSB's earnings for the year. Subject to
limitations of the Plan and the trust thereunder, an employee can receive a
percentage (to be determined in the discretion of the Board of Directors) of
his or her annual compensation as a contribution to the Plan account each
year. The monies allocated to each employee's account are held and invested by
the trustee for the Plan. Employees become fully vested in the Plan after five
years of service. Upon retirement, employees will be eligible to withdraw
their vested interest in the Plan according to the Plan provisions. Should the
participant become disabled or upon his or her death, the Plan allows for
other payment options. As a participant in the Plan, the employee has the
right to direct the investment of his or her funds. An employee may split his
or her investment between two or more types of investments or instruct the
Administrator to place the entire amount in one investment account.
In order to allow participants the opportunity to increase their retirement
income, each participant may, at the discretion of the administrator, elect to
voluntarily contribute no less than 1% and no more than 17% (subject to
certain limitations) of his or her aggregate compensation earned while a
participant under the Plan. PSB will make a matching contribution equal to 50%
of the voluntary contribution. Only voluntary contributions up to 6% of the
participants aggregate compensation are considered for the matching
contribution. The amounts in each participant's voluntary and matching
contribution account are fully vested at all times and are not subject to
forfeiture for any reason. The normal retirement date under the Plan is 62
years of age.
Community Banks, N.A. 401(k) Plan
In September of 1998, CBNA adopted a 401(k) plan (the "Plan") for employees
of CBNA. Each employee is eligible to participate in the Plan after they have
completed one year of service and have reached their twenty-first birthday.
CBNA has not yet submitted the Plan to the Internal Revenue Service for
approval as a "qualified"
16
<PAGE>
retirement plan. However, CBNA does reserve the right to submit the Plan to
the Internal Revenue Service for approval as a "qualified" retirement plan.
Each participant may, at the discretion of the administrator, elect to
voluntarily contribute no less than 1% and no more than 17% (subject to
certain limitations) of his or her aggregate compensation earned while a
participant under the Plan. The amounts in each participant's voluntary
contribution account are fully vested at all times and are not subject to
forfeiture for any reason. Each employee directs the investment of his or her
funds.
CBNA may also contribute a discretionary matching contribution equal to the
salary reduction percentage elected by the employee, and an additional
discretionary amount to be determined each year by CBNA. The monies allocated
to each employee's account are held and invested by the trustee for the Plan.
Employees become fully vested in the Plan after five years of service. Upon
retirement, employees will be eligible to withdraw their vested interest in
the Plan according to the Plan provisions. The normal retirement date under
the Plan is 65 years of age. Should the participant become disabled or upon
his or her death, the Plan allows for other payment options.
Community Banks, N.A. / Peoples State Bank Executive Survivor Income
Agreements
On June 1, 1994, CBNA entered into Survivor Income Agreements with Thomas L.
Miller, Robert W. Lawley, Ernest L. Lowe, Terry L. Burrows, Lewis C. Bogle,
and David E. Hawley. In these Agreements, CBNA promised to pay to each
executive employee's designated beneficiary a survivor income benefit. The
survivor's income benefit is payable only if the executive employee dies
before terminating employment with CBNA and only to the extent that CBNA owns
life insurance policies on the executive employee's life at the time of his or
her death. The base death benefit is equal to the lesser of (i) three times
the executive employee's base salary as established by the Board of Directors
for the calendar year in which the executive's death occurs, or (ii) the
amount of life insurance proceeds received by CBNA due to the executive's
death. The base death benefit, however, will be increased by an amount equal
to the death benefit multiplied by CBI's projected highest marginal federal
income tax rate for the year in which the executive's death occurs. The
survivor's income benefit will be paid in a lump sum within 60 days after the
executive employee's death. These Agreements are funded by life insurance
policies on each executive employee's life. The life insurance policies are
owned by CBNA, and are in lieu of each executive employee's participation in
CBNA's group life insurance plan. A split dollar insurance agreement goes into
effect after the executive employee attains the age of 65 provided he has
completed ten (10) years of service. Pursuant to the terms of the split dollar
agreement the executive employee has the right to designate the beneficiary of
the death proceeds of the policy to the extent the proceeds exceed the cash
surrender value of the policy on the date before the executive employee's
death.
On February 5, 1999, PSB and CBI entered into Survivor Income Agreements
with Eddie L. Dunklebarger, Anthony N. Leo and Jeffrey M. Seibert. In these
Agreements, PSB promised to pay to each executive employee's designated
beneficiary a survivor income benefit. The survivor's income benefit is
payable only if the executive employee dies before terminating employment with
PSB and only to the extent that PSB owns life insurance policies on the
executive employee's life at the time of his or her death. The base death
benefit is equal to the lesser of (i) three times the executive employee's
base salary as established by the PSB Board of Directors for the calendar year
in which the executive's death occurs, or (ii) the amount of life insurance
proceeds received by PSB due to the executive's death. The base death benefit,
however, will be increased by an amount equal to the death benefit multiplied
by CBI's projected highest marginal federal income tax rate for the year in
which the executive's death occurs. The survivor's income benefit will be paid
in a lump sum within 60 days after the executive employee's death. These
Agreements are funded by life insurance policies on each executive employee's
life. The life insurance policies are owned by PSB, and are in lieu of each
executive employee's participation in PSB 's group life insurance plan. A
split dollar insurance agreement goes into effect after the executive employee
attains the age of 65 provided he has completed ten (10) years of service, or
terminates subsequent to a change in control. Pursuant to the terms of the
split dollar agreement the executive employee has
17
<PAGE>
the right to designate the beneficiary of the death proceeds of the policy to
the extent the proceeds exceed the cash surrender value of the policy on the
date before the executive employee's death.
Supplemental Executive Retirement Plans
PSB maintains Supplemental Executive Retirement Plans providing for key man
life insurance upon the lives of Messrs. Dunklebarger, Leo and Seibert (the
"Executives") as well as salary continuation benefits for those Executives.
Pursuant to the Plans, PSB has purchased key man life insurance policies
providing for death benefits payable to PSB in the event that any such
Executive shall die in the course of his employment with PSB, in initial net
amounts of $1,270,000, $575,000, and $570,000, covering the lives of Messrs.
Dunklebarger, Leo and Seibert, respectively.
The Plans also provide for salary continuation benefits for the Executives
pursuant to Salary Continuation Agreements (the "Agreements") entered into
between PSB and the Executives. In the event that the Executive shall remain
employed by PSB until he reaches age 62, then the Executive shall receive
$80,000 per year for twenty years thereafter, in the case of Mr. Dunklebarger,
and $40,000 per year for twenty years thereafter, in the cases of Messrs. Leo
and Seibert. In the event that the Executive should cease to be employed by
PSB prior to age 62, he shall receive reduced benefits at age 62 in accordance
with accrual of benefits schedules set forth in the respective Agreements.
Benefits will not be paid in the event that an Executive's employment is
terminated for cause (as defined in the respective Agreements). In the event
of termination due to disability, PSB may elect to pay the accrued benefit
immediately in a lump sum, discounted to present value. In the event that the
Executive should die prior to or during the benefit payment period, accrued
benefits shall be payable to the Executive's beneficiaries beginning within
one month of the Executive's death.
Directors' Compensation
In 1998, each director of CBI was paid a quarterly fee of $750, plus each
outside director received a fee of $250 for each Board meeting attended. Each
director who was not an executive officer also received $250 for each
Committee meeting attended.
Section 16(a) Beneficial Ownership Reporting Compliance
In 1998, to the knowledge of CBI, all Executive Officers and directors
timely filed all reports with the Securities Exchange Commission, except Peter
DeSoto who filed one Form 4 report, regarding one transaction, two days late.
Transactions with Officers and Directors
During 1998, CBNA has had, and expects to have in the future, banking
transactions in the ordinary course of business with directors, officers and
principal shareholders of CBI and their associates on the same terms,
including interest rates and collateral on loans, as those prevailing at the
time for comparable transactions with other persons. Such loans do not
involve, in the opinion of management, more than the normal risk of
collectibility or other unfavorable features.
Allen Shaffer, a director of CBI, is an attorney practicing in Harrisburg
and Millersburg, Pennsylvania, who has been retained in the last fiscal year
by CBI and who CBI proposes to retain in the current fiscal year. James A.
Ulsh, a director of CBI, is a shareholder/employee of the law firm of Mette,
Evans & Woodside, Harrisburg, Pennsylvania, which CBI has retained in the last
fiscal year and proposes to retain in the current fiscal year. Thomas J.
Carlyon, a director of CBNA, is a partner in the law firm of Carlyon &
McNelis, Hazleton, Pennsylvania, which CBI has retained in the last fiscal
year and proposes to retain in the current fiscal year. Earl L. Mummert, a
director of CBI, is an actuarial consultant with Conrad M. Siegel, Inc.,
Harrisburg, Pennsylvania,which provides actuarial services to CBI.
18
<PAGE>
Committees of the Board of Directors of CBI
The Board of Directors of CBI has established three (3) committees of the
Board: the Executive Committee, the Dividend Reinvestment Committee, and the
Audit Committee. CBI does not have a nomination committee but provides for the
nomination of directors as described under "ELECTION OF DIRECTORS OF CBI."
The total number of CBI's Board of Directors' meetings during 1998 was five
(5) and no director attended fewer than 75% of the aggregate of the total
number of meetings of the Board of Directors and the total number of meetings
held by all committees of the Board on which he or she served, except Peter
DeSoto and Donald L. Miller who attended 69% of such meetings.
Audit Committee
Members of the Audit Committee are Kenneth L. Deibler, Samuel E. Cooper,
Ronald Boyer, Ray N. Leidich, Leon E. Kocher, Susan K. Nenstiel, Earl L.
Mummert and Wayne H. Mummert. The Committee met 3 times during 1998. The Audit
Committee supervises and recommends to the Board of Directors all changes in
audit procedures, recommends to the Board the hiring of the outside auditors,
reviews the complete audit of the books and financial statements of CBI and
its subsidiaries, and upon receipt and review of the internal auditor's report
and certified public accountants' audit report, the Committee brings to the
Board of Directors its recommendations concerning the audit. The Committee
also reviews the examination reports by the Comptroller of the Currency, the
Pennsylvania Department of Banking, and the FDIC, and reviews all insurance of
CBI and its subsidiaries on an annual basis.
Executive Committee
During 1998 members of the Executive Committee were Robert W. Rissinger,
Peter DeSoto, Allen Shaffer, James A. Ulsh, Donald L. Miller, John W. Taylor,
Jr., Earl L. Mummert, Wayne H. Mummert, Harry B. Nell and Thomas L. Miller.
The Committee met 8 times during 1998. The Committee meets when called by the
Chairman and acts for the Board of Directors. It reviews salaries and
remuneration, policies, and other items that would come before the Board of
Directors of CBI.
OTHER BUSINESS
To transact any other matters connected with and incidental to the election
of directors that may properly come before the Annual Meeting of Shareholders.
Management, at present, knows of no other business except those items
explained herein that may require the vote of the shareholders to be presented
by or on behalf of CBI or its management at the meeting.
19
<PAGE>
FORM 10-K ANNUAL REPORT
SECURITIES AND EXCHANGE COMMISSION FORM 10-K ANNUAL REPORT IS AVAILABLE FREE
OF CHARGE. IF YOU DESIRE A COPY OF THIS REPORT, FORWARD YOUR REQUEST TO:
TERRY L. BURROWS, EVP/CFO
COMMUNITY BANKS, INC.
P.O. BOX 350
MILLERSBURG, PENNSYLVANIA 17061
RETURN OF PROXY
YOU ARE URGED TO SIGN, DATE AND RETURN THE ACCOMPANYING PROXY AS PROMPTLY AS
POSSIBLE WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patricia E. Hoch
PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 22, 1999
20
<PAGE>
PROXY
COMMUNITY BANKS, INC.
P. O. Box 350
Millersburg, PA 17061
Telephone: (717) 692-4781
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS OF COMMUNITY BANKS, INC.
The undersigned hereby appoints Thomas Bischoff, Kathy Mull, and Kimberly Dove
as Proxies, each with the power to appoint his substitute, and authorizes them
to represent and vote, as designated below, all the shares of Common Stock of
Community Banks, Inc. ("CBI") held of record by the undersigned on February 26,
1999 at the Annual Meeting of Shareholders to be held on May 4, 1999 or any
adjournments thereof.
1. ELECTION OF DIRECTORS:
For all Nominees Listed Below [ ] Withhold Authority [ ]
(except as indicated below)
CLASS D
Leon E. Kocher
Robert W. Rissinger
John W. Taylor, Jr.
Susan K. Nenstiel
Wayne H. Mummert
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space immediately below.
-----------------------
2. OTHER BUSINESS: Take action on other business which may properly come
before the meeting.
FOR _____ AGAINST _____ ABSTAIN _____
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION OR DIRECTION IS MADE, THEY WILL BE VOTED FOR THE ELECTION OF EACH
CLASS D DIRECTOR, AND FOR ANY OTHER BUSINESS IN ACCORDANCE WITH THE
RECOMMENDATIONS OF MANAGEMENT. THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE.
PLEASE RETURN THIS PROXY AS SOON AS POSSIBLE IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
Dated the day of , 1999.
__________________________(SEAL)
Signature
__________________________(SEAL)
Signature
Please date and sign exactly as your
name appears hereon. When signing as
an Attorney, Executor, Administrator,
Trustee or Guardian, please give full
title. If more than one Trustee, all
must sign. All joint owners must
sign.
