<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 Banks, 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(5) Total fee paid:
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[_] 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:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF COMMUNITY BANKS, INC.]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Date: May 2, 2000
Time: 10:00 a.m.
Place: Sheraton Inn East
800 East Park Drive
Harrisburg, Pennsylvania
Matters to be voted on:
1. Election of Directors. Election of four (4) Class A Directors to serve
until the 2004 annual meeting.
2. 2000 Directors Stock Option Plan. Approval of our 2000 Directors Stock
Option Plan.
3. Employee Stock Purchase Plan. Approval of our 2000 Employee Stock
Purchase Plan.
4. Other Business. Any other business properly brought before the
shareholders at the meeting.
You can vote your shares of common stock if our records show that you owned
the shares at the close of business on February 29, 2000 (the "Record Date").
Your vote at the annual meeting is very important to us. Please vote your
shares of common stock by completing the enclosed proxy card and returning it
to us in the enclosed prepaid envelope. This proxy will not be used if you are
present at the meeting and desire to vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Patricia E. Hoch
PATRICIA E. HOCH
Secretary
Millersburg, Pennsylvania
March 30, 2000
<PAGE>
COMMUNITY BANKS, INC.
----------------
PROXY STATEMENT
MARCH 30, 2000
----------------
GENERAL INFORMATION
This proxy statement has information about the annual meeting of
shareholders of Community Banks, Inc. ("CBI"). The respective management of
CBI, Community Banks, N.A. ("CBNA") and Peoples State Bank ("PSB") prepared
this proxy statement for the Board of Directors. We first mailed this proxy
statement and the enclosed proxy card to shareholders on March 30, 2000.
We will pay the costs of preparing, printing and mailing the proxy and all
related materials. In addition to sending you these materials, some of our
employees may contact you by telephone, by mail or in person.
Our executive offices are located at 150 Market Square, Millersburg,
Pennsylvania, and our telephone number is (717) 692-4781. Our mailing address
is P.O. Box 350, Millersburg, Pennsylvania 17061.
Shareholder Proposals for the 2001 Annual Meeting of Shareholders
If you want to include a shareholder proposal in the proxy statement for the
2001 annual meeting, you must deliver the proposal to our secretary at our
executive offices by November 19, 2000.
If the date of our next annual meeting is advanced or delayed by more than
30 days from May 2, 2001, we will promptly inform you of the change of the
annual meeting and the date by which shareholder proposals must be received.
VOTING
Who can vote?
You can vote your shares of common stock if our records show that you owned
the shares at the close of business on February 29, 2000 (the "Record Date").
A total of 6,778,216 shares of common stock were outstanding on the Record
Date and can vote at the annual meeting. You get one vote for each share of
common stock. The enclosed proxy card shows the number of shares you can vote.
We will hold the annual meeting if the holders of a majority of the shares of
the common stock entitled to vote either sign and return their proxy cards or
attend the meeting in person.
The Trust Department of CBNA, as sole trustee, holds 19,082 shares of CBI
common stock. The Trust Department may vote these shares at the annual
meeting.
As of the Record Date, management of CBI beneficially owned a total of
1,131,173 shares of CBI common stock.
What vote is required?
All matters to be voted on at the annual meeting, including election of
directors, must be approved by the holders of a majority of the shares of
common stock entitled to vote.
What if other matters come up at the annual meeting?
The matters described in this proxy statement are the only matters we know
will be voted on at the meeting. If other matters are properly presented at
the annual meeting, the proxyholders named in the enclosed proxy card will
vote your shares as they see fit.
1
<PAGE>
How are votes counted?
Our transfer agent counts all votes cast by proxy before the annual meeting.
Our judges of election will manually count all votes which are cast in person
or by proxy at the annual meeting.
Voting is an important right of shareholders. If you abstain or otherwise
fail to cast a vote on any matter, the abstention or failure is not a vote and
will not be counted.
Can I change my vote after I return my proxy card?
Yes. At any time before the vote on a proposal, you can change your vote
either by:
. giving CBI's secretary a written notice revoking your proxy card; or
. signing, dating and returning to us a new proxy card.
We will honor the proxy card with the latest date.
Can I vote in person at the annual meeting?
Yes. We encourage you to complete and return the proxy card to ensure that
your vote is counted. However, you may attend the meeting and vote in person
whether or not you have previously returned a proxy card.
ELECTION OF DIRECTORS OF CBI
With respect to electing directors, CBI's bylaws provide as follows:
. the board of directors will consist of not less than five nor more than
25 directors;
. there will be four classes of directors, as nearly equal in number as
possible;
. each class will be elected for a term of four years; and
. each class will be elected in a separate election, so that the term of
office of one class of directors will expire in each year.
At the annual meeting, we will nominate the four persons named in this proxy
statement as Class A Directors. Although we don't know of any reason why any
of these nominees might not be able to serve, we will propose a substitute
nominee if any nominee is not available for election.
Shareholders also can nominate persons to be directors. If you want to
nominate someone, you must deliver or mail a notice to the secretary of CBI
not less than 45 days prior to the date of the annual meeting. Your notice
must state your name and residence address and the number of shares of CBI
which you own. Your notice must also contain the following information on each
proposed nominee:
. the name, address and age of the nominee;
. the principal occupation of the nominee;
. the number of shares of CBI common stock owned by the nominee; and
. the total number of shares that, to your knowledge, will be voted for
the nominee.
If you do not follow this procedure, the Chairman of the meeting will
disregard your nominations and the judges of election will disregard any votes
cast for your nominees.
The proxyholders named in the proxy card intend to vote for the election of
the four persons listed as Class A Directors to serve until the 2004 annual
meeting. Unless you indicate otherwise, your proxy will be voted in favor of
the election of those nominees. Each nominee for the position of Class A
Director is currently a director of CBI and CBNA.
2
<PAGE>
The following table shows the name and age of each nominee and the current
directors in each class. The table also shows the following information on
each nominee and director:
. business experience, including principal occupation for the past five
years;
. the period during which he or she has served as a director of CBI; and
. the number and percentage of outstanding shares of common stock of CBI
which he or she beneficially owned as of the Record Date.
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 A Directors:
To be elected for a four
year term ending in
2004:
Thomas L. Miller........ Retired Chairman and 1966 67,551(3) .99%
Age 67 CEO of CBI, and Retired
Chairman, President and
CEO of CBNA
James A. Ulsh........... Attorney-at-Law, 1977 17,109 .25%
Age 53 Mette, Evans &
Woodside,
Harrisburg, PA
Ronald E. Boyer......... President, Alvord- 1981 24,020(4) .35%
Age 62 Polk, Inc.
(manufacture of
cutting tools),
Millersburg, PA
Peter DeSoto............ CEO, J.T. Walker 1981 46,481 .69%
Age 60 Industries, Inc.
(manufacture of
metal products),
Elizabethville, PA
Class D Directors:
To continue in office
until 2003:
Leon E. Kocher.......... Chairman of the 1963 28,565 .42%
Age 87 Board, Kocher Enterprises
Robert W. Rissinger..... Secretary/Treasurer 1968 255,217(5) 3.77%
Age 73 Alvord-Polk, Inc.
Engle Rissinger Auto Group
John W. Taylor, Jr...... President, 1998 20,704(6) .31%
Age 69 Air Brake & Power
Equipment Co.
Susan K. Nenstiel....... Regional Director of 1996 220 --
Age 48 Development
Lutheran Welfare Services
Hazleton, PA
Wayne H. Mummert........ Retired U.S. Postal Service/ 1998 76,173(7) 1.12%
Age 66 Farmer
</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>
Class C Directors:
To continue in office
until 2002:
Kenneth L. Deibler...... Self-Employed 1966 33,696 .50%
Age 77 Insurance Broker,
Elizabethville, PA
Allen Shaffer........... Attorney-at-Law, 1961 46,844(8) .69%
Age 74 Millersburg and
Harrisburg, PA
Ernest L. Lowe.......... Chairman--CBI, CBNA, 1990 44,559(9) .65%
Age 63 and PSB
Earl L. Mummert......... Consulting Actuary 1998 30,740(10) .45%
Age 55 Conrad M. Siegel, Inc.
Harrisburg, PA
Class B Directors:
To continue in office
until 2001:
Ray N. Leidich.......... Retired Dentist, Tremont, 1985 70,848(11) 1.05%
Age 71 PA
Thomas W. Long.......... Partner, Millersburg 1981 9,857 .15%
Age 70 Hardware Co.,
Millersburg, PA
Donald L. Miller........ President, Miller 1981 92,403 1.36%
Age 70 Bros. Dairy,
Millersburg, PA
Samuel E. Cooper........ Retired Superintendent, 1992 2,247 .03%
Age 66 Warrior Run School
District
Eddie L. Dunklebarger... President/CEO 1998 125,794(12) 1.84%
Age 46 CBI, CBNA, and PSB
Prior to March 31, 1998--
President/CEO of PSB
</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 29,
2000. Beneficial ownership may be disclaimed as to certain of the
securities.
(3) Includes Stock Options to acquire 33,457 shares.
(4) Includes 6,854 shares owned by Alvord-Polk, Inc., the stock of which is
held 50% by Robert W. Rissinger and 50% by Ronald E. Boyer, and 539
shares owned by Mr. Boyer's wife, Judith Boyer, and her mother.
5
<PAGE>
(5) Includes 6,854 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 15,273 shares owned by Engle Rissinger Auto Group, Inc., 45,496
shares owned by Mr. Rissinger's wife, Shirley Rissinger, 11,106 shares
owned by Engle Rissinger Auto Group, Inc. Profit Sharing Plan (R.
Ibberson and H. Engle, Co-Trustees), and 89,306 shares held by Mr.
Rissinger's IRA.
(6) Includes 1,270 shares owned by Mr. Taylor's wife, LouAnn Taylor, and 908
held in Mr. Taylor's IRA.
(7) Includes 17,671 shares held by Mr. Mummert's wife, Shirley, and Stock
Options to acquire 2,103 shares.
(8) Includes 7,633 shares owned by Mr. Shaffer's Retirement account.
(9) Includes 193 shares owned by Mr. Lowe's wife, Barbara Lowe and 23 shares
owned by Mr. Lowe's son, and also includes Stock Options to acquire
32,107 shares.
(10) Includes 19,568 shares held by Mr. Mummert's IRA, and Stock Options to
acquire 2,103 shares.
(11) Includes 35,424 shares owned by Dr. Leidich's wife, Dolores Leidich.
(12) Includes 10,233 shares owned by Mr. Dunklebarger's children, 323 shares
owned by Mr. Dunklebarger's wife, Connie, 9,075 shares held in Mr.
Dunklebarger's 401k, Stock Options to acquire 72,094 shares, and 7,607
shares in his IRA.
Harry B. Nell, currently a Class A Director, has chosen not to be nominated
for re-election. Mr. Nell beneficially owns 34,215 shares of common stock, or
.50% of the issued and outstanding CBI common stock.
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)
------------------------
Percent of
Title of Class Direct Indirect Class
-------------- ----------- ------------ ----------
<S> <C> <C> <C>
Common.............................. 964,645 166,528(2) 16.22%
</TABLE>
- --------
(1) See footnote 2 on page 5.
(2) The 6,854 shares owned by Alvord-Polk, Inc. are counted only once in this
total. Alvord-Polk, Inc. is 50% owned Robert W. Rissinger and 50% owned by
Ronald E. Boyer. Thus, these shares are indicated above as being
beneficially owned by both Mr. Rissinger and Mr. Boyer.
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 29, 2000.
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 125,794 1.84%
Age 46 Executive Officer
Ernest L. Lowe............ Chairman 44,559 .65%
Age 63
Robert W. Lawley.......... Executive Vice-President 16,966 .25%
Age 45
Terry L. Burrows.......... Executive Vice-President and 24,837 .37%
Age 51 Chief Financial Officer
Anthony N. Leo............ Executive Vice-President 24,489 .36%
Age 39
Jeffrey M. Seibert........ Executive Vice-President 44,492 .65%
Age 40
</TABLE>
- --------
(1) Includes currently exercisable options to acquire shares of CBI.
BOARD EXECUTIVE COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Committee Interlocks and Insider Participation
Members of the Compensation Committee as of December 31, 1999 were, Robert
W. Rissinger, James A. Ulsh, Earl L. Mummert, Peter DeSoto and John W. Taylor,
Jr. None of these committee members have been officers or employees of CBI or
any of its subsidiaries at any time. 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.
Through our executive compensation policy, we seek to achieve the following
goals in determining compensation of our executive officers:
. integrate compensation with CBI, CBNA and PSB annual and long-term
performance goals;
. reward exceptional performance;
. recognize individual initiative and achievements;
. attract and retain qualified executives;
. provide compensation packages competitive with those offered by other
similarly situated bank holding companies and banks; and
. encourage stock ownership by executive officers.
7
<PAGE>
In order to achieve the goals set forth in our executive compensation
policy, the Compensation Committee considers a variety of criteria in
evaluating and establishing compensation. Among other things, the Compensation
Committee considers and compares information reported in SNL Securities Bank
Performance Report and the SNL Executive Compensation Review for Commercial
Banks in evaluating executive compensation.
The Compensation Committee believes that compensation for CBI's executive
officers can best be accomplished through a combination of techniques,
including:
. salary;
. the CBI Bonus Plan;
. the Long-Term Incentive Plan; and
. appropriate fringe benefits.
CBI Bonus Plan
We maintain a Bonus Plan for the executive officers of CBI and its
subsidiaries. Pursuant to this plan, a certain percentage of net income is
placed in a bonus pool. Bonuses paid to the executive officers are determined
by the Compensation Committee pursuant to guidelines established by the
Committee. The guidelines are based upon the level of net income CBI achieves
during the year. The remainder of the bonus pool is distributed to other
officers of CBI or its subsidiaries. The Compensation Committee delegates to
the Chief Executive Officer the distribution of the remainder of the bonus
pool. In 1999, Eddie L. Dunklebarger, Chief Executive Officer, and Ernest L.
Lowe, Chairman, each received bonuses of $50,000. The total amount of bonuses
paid to all executive officers, including those amounts paid Mr. Dunklebarger
and Mr. Lowe, was $200,274. The remainder of the bonus pool distributed to
other officers of CBI and its subsidiaries totaled $600,000.
Long-Term Incentive Plan
In 1998, we adopted a Long-Term Incentive Plan. Under the plan, we can issue
incentive stock options, stock appreciation rights, and non-qualified stock
options. The Compensation Committee believes that stock ownership by
management helps align management's interests with the interests of the
shareholders in enhancing and increasing the value of CBI common stock. The
Compensation Committee considers the same criteria in awarding stock options
that it considers in making other compensation decisions.
Employment Agreements
We have entered into employment agreements with our executive officers and
some of our other key employees. Following is a summary of those agreements.
Mr. Dunklebarger and Mr. Lowe
Mr. Dunklebarger's employment agreement provides that he is employed for a
period of five (5) years beginning March 31, 1998. 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.
Pursuant to his agreement, Mr. Lowe is employed for a period of three (3)
years beginning March 31, 1998. 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 the anniversary date.
8
<PAGE>
Pursuant to their agreements, Mr. Dunklebarger and Mr. Lowe each received an
initial annual salary of $190,000. Their salaries are subject to increase as
the Compensation Committee and the Board of Directors deems appropriate. For a
period of two (2) years (beginning with calendar year 1998), Mr. Dunklebarger
and Mr. Lowe each received 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
executive bonus plan. Going forward, Mr. Dunklebarger and Mr. Lowe will each
participate in CBI's executive bonus plan. Additionally, Mr. Dunklebarger and
Mr. Lowe are entitled to participate in or receive benefits under all CBI
employment benefit plans, including the right to receive options for at least
6,000 shares of CBI Common Stock (to be adjusted for stock splits and stock
dividends), 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.
Mssrs. Lawley, Burrows, Leo, and Seibert
The agreements with Robert W. Lawley, Terry L. Burrows, Anthony N. Leo, and
Jeffrey M. Seibert generally provide that they are employed for rolling terms
of two (2) years. On each anniversary date of the agreements, the term of the
agreements automatically renews and is extended for an additional one-year
period unless either party has provided the other party with notice of intent
not to renew within sixty (60) days before the anniversary date. The
agreements also provide that if the employee's employment is terminated
pursuant to a change in control, as defined in the agreements, the employee
may elect to receive in a single payment an amount equal to salary to which
the employee would be entitled to be paid between the date of termination and
the end of the remaining term of the agreement.
Mssrs. Hawley, Bogle, Bednar, Fulk and Helt
The employment agreements of David E. Hawley, Lewis C. Bogle, Ronald E.
Bednar, Brett D. Fulk and James P. Helt have similar provisions. The
agreements generally provide that if the employee's employment is terminated
pursuant to a change in control, as defined in the agreement, the employee
will receive severance compensation equal to two times the employee's gross
salary for the calendar year preceding the date of termination. This severance
compensation will be paid in cash within thirty (30) days from the date of
termination. The benefits provided under these agreements are unfunded and
will be paid out of the general assets of CBI when they become payable.
Executive Compensation
The Compensation Committee seeks to attract and retain qualified executive
officers by offering compensation competitive with that offered by similar
bank holding companies. The Compensation Committee considers objective and
subjective criteria. Among other things, the Committee considers data from the
SNL Executive Compensation Review. The SNL Executive Compensation Review helps
the Committee compare CBI's executive compensation to that of a peer group of
14 Pennsylvania bank holding companies with assets between $300,000,000 and
$1,350,000,000. The SNL Executive Compensation Review compares:
. asset size;
. return on assets;
. the salaries of the chief executive officer and other executive
officers;
. return on average assets; and
. return on average equity.
The Compensation Committee also considers the performance of CBI common
stock on the American Stock Exchange, particularly compared with the
performance of the stock of other comparable bank holding companies.
The Compensation Committee does not make its recommendations based solely on
corporate performance. The Committee also considers subjective factors.
However, the Committee considers peer group information and corporate
performance to be significant factors in determining executive compensation.
9
<PAGE>
Eddie L. Dunklebarger--President and CEO of CBI, CBNA and PSB
For 1999, Mr. Dunklebarger received an annual salary of $205,033. He was
also a participant in the CBI Long Term Incentive Plan and the CBI Bonus Plan.
Mr. Dunklebarger received a bonus of $50,000, based on 1998 performance.
Pursuant to the CBI Long Term Incentive Plan, Mr. Dunklebarger received stock
options to purchase 15,000 shares of CBI common stock at an exercise price of
$22.50 per share. These options, granted in December of 1999, were based on
1999 performance.
Ernest L. Lowe--Chairman of CBI, CBNA and CBI
For 1999, Mr. Lowe received an annual salary of $205,000. He was also a
participant in the CBI Long Term Incentive Plan and CBI Bonus Plan. Mr. Lowe
received a bonus of $50,000, based on 1998 performance. Pursuant to the CBI
Long Term Incentive Plan, Mr. Lowe received stock options to purchase 10,000
shares of CBI common stock at an exercise price of $22.50 per share. These
options, granted in December of 1999, were based on 1999 performance.
Other Executive Officers
With respect to the compensation of CBI's other executive officers, the
Compensation Committee considers information provided by the Chief Executive
Officer about each executive officer including:
. level of individual performance;
. contribution to the consolidated organization; and
. salary history.
The Compensation Committee also considers:
. the earnings of CBI on a consolidated basis;
. the peer group compensation information discussed above;
. individual performance factors; and
. its subjective evaluation of the services provided by each executive
officer.
You can see the compensation paid to CBI's other executive officers in the
Summary Compensation Table on page 12 of this proxy statement.
This report is given over the signatures of the Compensation Committee,
consisting of Robert W. Rissinger, Peter DeSoto, James A. Ulsh, Earl L.
Mummert, and John W. Taylor, Jr.
10
<PAGE>
Stock Performance Graph
The following graph shows the yearly percentage change in CBI's cumulative
total shareholder return on its common stock from December 31, 1994 to
December 31, 1999 compared with the cumulative total return of the AMEX Stock
Market (US Companies) and a self-determined peer group consisting of 12 bank
holding companies. The bank holding companies in the peer group are Bryn Mawr
Bank Corp., Commerce Bancorp, Inc., Drovers Bancshares Corp., F & M Bancorp
MD, First Colonial Group, Inc., Harleysville National Corp., Harris Financial,
Inc., Main Street Bancorp, Inc., National Penn Bancshares, Inc., Omega
Financial Corp., Sun Bancorp, Inc. and York Financial Corp.
11
<PAGE>
Cash Compensation
The following Summary Compensation Table shows the annual salary and other
compensation for our executive officers for the last three years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------------ ---------- --------
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
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... 1999 205,033 50,000 -- -- 15,000 -- 55,732(5)
President & CEO of 1998 184,808 59,200 -- -- 32,552 -- 41,885
CBI, CBNA and PSB(6) 1997 135,482 58,000 -- -- 17,229 -- 97,707
Ernest L. Lowe.......... 1999 205,000 50,000 -- -- 10,000 -- 103 ,100(7)
Chairman of CBI, 1998 190,000 36,586 -- -- 10,500 -- 5,400
CBNA and PSB 1997 146,000 29,894 -- -- 3,938 -- 3,000
Robert W. Lawley........ 1999 107,000 25,137 -- -- 5,000 -- 17,414(8)
Executive Vice- 1998 100,400 29,220 -- -- 5,250 -- --
President 1997 93,000 24,013 -- -- 2,363 -- --
Terry L. Burrows........ 1999 98,000 25,137 -- -- 5,000 -- 18,297(9)
Executive 1998 91,100 27,792 -- -- 5,250 -- --
Vice-President & CFO 1997 84,300 21,803 -- -- 2,363 -- --
Jeffrey M. Seibert...... 1999 100,800 25,000 -- -- 5,000 -- 19,223(10)
Executive 1998 88,269 29,200 -- -- 11,552 -- 17,624
Vice-President(11) 1997 74,077 27,200 -- -- 5,741 -- 28,189
Anthony N. Leo.......... 1999 100,800 25,000 -- -- 5,000 -- 19,161(12)
Executive Vice- 1998 88,269 29,200 -- -- 11,552 -- 17,382
President(13) 1997 74,077 27,200 -- -- 5,741 -- 26,594
</TABLE>
- --------
(1) The total 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 shown. This does not include benefits
that are available to all salaried officers, directors and employees on a
non-discriminatory basis.
(2) We have not issued any Restricted Stock Awards to any executive officer.
(3) In 1997, 1998 and 1999, Mr. Lowe, Mr. Lawley and Mr. Burrows each
received stock options to acquire the number of shares shown in the
Summary Compensation Table. These options, granted pursuant to the CBI
Long-Term Incentive Plan. In 1998 and 1999, Mr. Dunklebarger, Mr. Seibert
and Mr. Leo each received stock options to acquire the number of shares
shown 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 and 1997 include options awarded to them as officers of
PSB, prior to the PSB Merger. When appropriate, stock options shown above
have been adjusted for subsequent stock dividends and stock splits.
(4) CBI does not maintain any Long-Term Incentive Plan as defined in the
applicable SEC regulations, and has made no payouts pursuant to any such
plan.
(5) Includes director fees of $4,800 in 1999, and $2,250 in 1998. Includes
employer contributions to the CBI 401(k) Plan of $14,354 in 1999, $14,600
in 1998, and $14,350 in 1997. Includes SERP accruals of $26,978 in 1999,
$25,035 in 1998 and $83,357 in 1997.
(6) 1997 figures reflect amounts paid as an officer of PSB.
12
<PAGE>
(7) Includes director fees of $5,400 in 1999 and 1998, and $3,000 in 1997.
Includes employer contributions to the CBI 401(k) Plan of $12,800 in
1999. Includes SERP accruals of $84,900 in 1999.
(8) Includes employer contributions to the CBI 401(k) Plan of $10,714 in
1999. Includes SERP accruals of $6,700 in 1999.
(9) Includes employer contributions to the CBI 401(k) Plan of $9,897 in 1999.
Includes SERP accruals of $8,400 in 1999.
(10) Includes employer contributions to the CBI 401(k) Plan of $11,322 in
1999, $10,292 in 1998, and $9,213 in 1997. Includes SERP accruals of
$7,901 in 1999, $7,332 in 1998 and $18,976 in 1997.
(11) 1997 figures reflect amounts paid as an officer of PSB.
(12) Includes employer contributions to the CBI 401(k) Plan of $11,925 in
1999, $10,667 in 1998, and $9,213 in 1997. Includes SERP accruals of
$7,236 in 1999, $6,715 in 1998 and $17,381 in 1997.
(13) 1997 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 allows us to issue 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 longer than ten
years. In addition, no ISO may be exercised for a period of at least six
months after the ISO is granted.
In December, 1999:
. Eddie L. Dunklebarger was granted 5,554 ISOs; and
. Ernest L. Lowe was granted 4,258 ISOs.
The plan requires adjustment of the options to reflect changes in the number
of outstanding shares caused by events such as 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 conditions are
described above. In December, 1999:
. Eddie L. Dunklebarger was granted 9,446 NQSOs; and
. Ernest L. Lowe was granted 5,742 NQSOs.
To date, all NQSOs granted have an option price equal to the fair market
value of CBI common stock on the date the NQSO was granted.
Stock Option Grants
The following table shows:
. the number of stock options granted to executive officers in 1999;
. the percentage which the executive's options bears in relation to the
total options granted to all key employees during the year;
13
<PAGE>
. 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 10%($)(2)
---- ---------- ---------- --------- ---------- 5%($)(2) -------------
<S> <C> <C> <C> <C> <C> <C>
Eddie L. Dunklebarger... 15,000 17.05% $22.5000 12-06-2009 $ 212,252$ 537,888
Ernest L. Lowe.......... 10,000 11.36% $22.5000 12-06-2009 $ 141,501$ 358,592
Robert W. Lawley........ 5,000 5.68% $22.5000 12-06-2009 $ 70,751$ 179,296
Terry L. Burrows........ 5,000 5.68% $22.5000 12-06-2009 $ 70,751$ 179,296
Anthony N. Leo.......... 5,000 5.68% $22.5000 12-06-2009 $ 70,751$ 179,296
Jeffrey M. Seibert...... 5,000 5.68% $22.5000 12-06-2009 $ 70,751$ 179,296
</TABLE>
- --------
(1) Options were granted in December, 1999, each with an exercise price of
$22.50 per share. The option prices in all events equal the fair market
value of CBI common stock on the date of the grant. The options granted in
December 1999 were for calendar year 1999.
(2) Applicable SEC regulations require us to disclose 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. Appreciation is determined as of the expiration date of the
option. The figures shown above assume 5% and 10% rates of appreciation on
an annual basis, with annual compounding of the appreciation rate,
beginning with the original option price of $22.50 per share.
14
<PAGE>
Stock Option Exercises
The following table shows:
. all options exercised by each executive officer of CBI during 1999;
. the number of shares acquired on exercise;
. the value realized by the executive officer upon exercise; and
. the number of exercisable and un-exercisable options outstanding for
each executive officer, and the value of those options, as of December
31, 1999:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable(1) Unexercisable(1),(2)
---- ------------ ------------ ---------------- --------------------
<S> <C> <C> <C> <C>
Eddie L. Dunklebarger... -- -- 63,479/36,511 496,131/155,202
Ernest L. Lowe.......... 7,621 109,758 32,107/17,718 258,780/5,383
Robert W. Lawley........ 1,050 18,774 16,277/12,631 150,714/20,209
Terry L. Burrows........ 2,084 22,355 3,037/12,631 8,763/20,209
Anthony N. Leo.......... 8,600 107,811 7,435/9,200 1,190/2,946
Jeffrey M. Seibert...... -- -- 21,084/13,944 170,644/57,323
</TABLE>
- --------
(1) All options granted through December 31, 1999 are reported. Exercisable
options are fully vested. Options which will vest in the future are
reported as unexercisable.
(2) The dollar values shown above were calculated by determining the
difference between the closing trading price of CBI common stock at
December 31, 1999, which was $22.875 per share, and the option price of
each option as of December 31, 1999.
Pension Plan
CBNA maintains a pension plan for its employees. An employee becomes a
participant in the pension plan on January 1 or July 1 after completing one
year of service (12 continuous months) and reaching age 21. 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 reaching age 60
and the completing 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, 1999, the following officers have been credited with the
following years of service: Ernest L. Lowe--15 years of service, Robert W.
Lawley--24 years of service, and Terry L. Burrows--26 years of service.
In 1999, the Board of Directors amended the plan so that pension benefits
will be offset by employer contributions to the CBI 401(k) Plan. Employees
hired after December 31, 1998 are not eligible to participate in the pension
plan. 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 age 65. These amounts are offset for the employer contribution in the
401(k) Plan.
15
<PAGE>
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>
CBI 401(k) Profit Sharing Plan
Effective January 1, 2000, the previously existing PSB 401(k) Plan and CBNA
401(k) Plan were merged to create the CBI 401(k) Profit Sharing Plan for
employees of CBI and its subsidiaries. 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 will be submitted to the
Internal Revenue Service for favorable determination as a tax deferred
retirement program.
CBI allocates for participating accounts an annual amount based on CBI'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 to the total annual compensation paid by CBI to all employees
participating in the plan. Subject to limitations of the plan and the trust
under plan, 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 all 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 total 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. The normal retirement age under the plan is age 65.
Community Banks, N.A. / Peoples State Bank Executive Survivor Income
Agreements
On June 1, 1994, CBNA entered into Survivor Income Agreements with Ernest L.
Lowe, Robert W. Lawley, Terry L. Burrows, Lewis C. Bogle, and David E. Hawley.
On February 5, 1999, PSB and CBI entered into similar agreements with Eddie L.
Dunklebarger, Anthony N. Leo and Jeffrey M. Seibert. For the purpose of
describing the provisions of these agreements, CBNA and PSB will each be
referred to as the "Bank."
In these agreements, the Bank 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
16
<PAGE>
terminating employment with the Bank and only to the extent that the Bank 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:
. three times the executive employee's base salary for the calendar year
in which the executive's death occurs; or
. the amount of life insurance proceeds received by the Bank 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 the Bank, and are in place of each
executive employee's participation in the Bank's group life insurance plan. A
split dollar insurance agreement goes into effect after the executive employee
reaches the age of 65, as long 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.
Supplemental Executive Retirement Plans
CBI maintains Supplemental Executive Retirement Plans providing key man life
insurance on the lives of certain executive employees. Pursuant to the plans,
CBI has purchased key man life insurance policies with death benefits payable
to CBI if an executive dies in the course of his employment with CBI, in
initial net amounts of:
. $1,270,000 covering the life of Eddie L. Dunklebarger;
. $1,120,000 covering the life of Ernest L. Lowe;
. $912,000 covering the life of Robert W. Lawley;
. $679,500 covering the life of Terry L. Burrows;
. $575,000 covering the life of Anthony N. Leo; and
. $570,000 covering the life of Jeffrey M. Seibert.
The plans also provide salary continuation benefits for the executives
pursuant to Salary Continuation Agreements entered into between CBI and the
executives. If the executive remains employed by CBI until he or she reaches
age 62, then the executive will be entitled to salary continuation for twenty
years after retirement. Pursuant to their respective agreements, the following
individuals are entitled to the following amounts:
. Eddie L. Dunklebarger--$80,000 per year;
. Ernest L. Lowe--$45,000 per year;
. Anthony N. Leo--$40,000 per year;
. Jeffrey M. Seibert--$40,000 per year;
. Robert W. Lawley--$35,000; and
. Terry L. Burrows--$25,000.
If the executive's employment with CBI is terminated before age 62, the
executive will receive reduced benefits at age 62 in accordance with accrual
of benefits schedules set forth in the respective agreements. Benefits will
not be paid if an executive's employment is terminated for cause (as defined
in the respective agreements). In the event of termination due to disability,
CBI may elect to pay the accrued benefit immediately in a lump sum, discounted
to present value. In the event that an executive is terminated after a change
in control but prior
17
<PAGE>
to age 62, the executive will receive at age 62 his accrued benefit, plus an
additional benefit equal to three years additional accrual in the case of Mr.
Dunklebarger, and two years additional accrual in the cases of Mssrs. Leo,
Seibert, Lawley and Burrows. If the executive dies prior to or during the
benefit payment period, normal retirement benefits will be payable to the
executive's beneficiaries beginning within one month after the executive's
death.
Directors' Compensation
In 1999, each CBI director received a quarterly fee of $750. 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
Our directors and executive officers must file reports with the Securities
and Exchange Commission indicating:
. the number of shares of CBI common stock they beneficially own; and
. changes in their beneficial ownership.
To the best of our knowledge, our directors and executive officers filed all
required reports in 1999.
Transactions with Officers and Directors
During 1999, CBNA 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. Management believes that
these loans present no 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.
Committees of the Board of Directors of CBI
The Board of Directors of CBI has established three (3) committees:
. the Audit Committee;
. the Executive Committee; and
. the Compensation Committee.
We do not have a nomination committee but provide for the nomination of
directors as described under "ELECTION OF DIRECTORS OF CBI" on page 2 of this
proxy statement.
The Board of Directors met five (5) times during 1999. No director attended
fewer than 75% of the total number of meetings of the Board and committees on
which he or she served.
18
<PAGE>
Audit Committee
<TABLE>
<CAPTION>
<S> <C> <C>
Members: Kenneth L. Deibler James A. Ulsh
Samuel E. Cooper Ronald Boyer
Ray N. Leidich Leon E. Kocher
Susan K. Nenstiel Todd E. Elgin
Earl L. Mummert Wayne H. Mummert
</TABLE>
Meetings: 4
Functions:
. Supervise and recommend to the Board changes in audit procedures;
. Recommend to the Board the hiring of the outside auditors;
. Review the complete audit of the books and financial statements of CBI
and its subsidiaries;
. Review and make recommendations to the Board regarding the internal
auditor's report and the certified public accountants' audit report;
. Review examination reports by state and federal banking regulators; and
. Review all insurance of CBI and its subsidiaries on an annual basis.
Executive Committee
<TABLE>
<CAPTION>
<S> <C> <C>
Members: 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 Thomas L. Miller
</TABLE>
Meetings: 7
Functions:
. Review policies and other items to be presented to the Board; and
. Act on behalf of the Board in between scheduled Board meetings as
permitted by law.
Compensation Committee
<TABLE>
<CAPTION>
<S> <C> <C>
Members: Robert W. Rissinger James A. Ulsh
Earl L. Mummert Peter DeSoto
John W. Taylor, Jr.
</TABLE>
Meetings: 1
Functions:
. Evaluate CBI's compensation policies and plans;
. Review and evaluate the individual performance of executive officers;
and
. Make recommendations to the Board regarding the compensation of
executive officers.
19
<PAGE>
APPROVAL OF DIRECTORS STOCK OPTION PLAN
At the annual meeting, you will be asked to vote to approve the CBI 2000
Directors Stock Option Plan. We recommend that you vote for it. A copy of the
plan is attached to this proxy statement as Appendix "A."
Vote Required
If a majority of the shares of common stock entitled to vote at the meeting
are voted for the plan, the plan will be approved.
Summary of the Plan
Here is a summary of the significant terms of the plan approved by the Board
of Directors on February 8, 2000:
Total Number of Shares 200,000
Covered...................
Administration............. The Compensation Committee will administer
the Plan.
Eligible Persons........... Non-employee Directors of CBI and its
subsidiaries.
Exercise Price............. Generally the fair market value of CBI's
common stock on the date we grant the
option.
Terms of Options........... Generally 10 years, but could be a shorter
period.
Vesting of Options......... Options granted under the plan generally
will not be subject to vesting schedules.
The holder of an option may exercise the
option one (1) year after the date of
grant.
Exercise of Options........ The holder of an option can pay the
exercise price of the option in cash, or at
the Board's or the Committee's discretion,
with CBI common stock (valued at the
closing price of the common stock on the
exercise date) or a combination of cash and
CBI stock.
Transferability............ Options are not transferable except by will
or by intestate succession.
Acceleration of Vesting If a Change of Control of CBI (as defined
Options................... in the plan) occurs, the options will vest
immediately and become exercisable in full
unless we determine otherwise.
Term of Plan............... The Plan will expire on December 31, 2010,
unless we terminate it earlier.
Federal Income Tax Consequences to Option-Holders
Options granted under the plan will be non-qualified stock options
("NSO's"). An option-holder generally will not recognize any taxable income
when we grant the option. When the option-holder exercises the option, he or
she will recognize ordinary income for tax purposes equal to the excess of the
fair market value of the shares over the exercise price. When the option-
holder resells the stock, he or she will recognize capital gain or loss equal
to any difference between the sale price and the exercise price to the extent
not recognized as ordinary income as provided above. We are entitled to take a
deduction in the amount of ordinary income recognized by the option-holder.
20
<PAGE>
This is only a summary of the federal income tax consequences of the grant
and exercise of options under the plan. It is not a complete statement of all
tax consequences. In particular, we have not discussed the income tax laws of
any municipality, state, or foreign country where an optionee resides.
APPROVAL OF EMPLOYEE STOCK PURCHASE PLAN
At the annual meeting, you will be asked to vote to approve the CBI Employee
Stock Purchase Plan. We recommend that you vote for it. A copy of the plan is
attached to this proxy statement as Appendix "B."
Vote Required
If a majority of the shares of common stock entitled to vote at the meeting
are voted for the plan, the plan will be approved.
Summary of the Plan
Here is a summary of the significant terms of the plan approved by the Board
of Directors on February 8, 2000:
Purpose.................... Provide a convenient method for employees
of CBI and its subsidiaries to acquire CBI
common stock.
Total Number of Shares 100,000
Covered...................
Administration............. The Board of Directors will appoint a
committee to administer the plan.
Eligible Persons........... Generally, employees of CBI and its
subsidiaries except those employees who
work 20 hours per week or less or 5 months
per calendar year or less. Certain
employees with substantial stock interests
in CBI or substantial rights to purchase
CBI stock under the plan may also be
excluded.
Participation.............. Employees can begin participating in the
plan by filing an authorization for payroll
deduction with us. Each participant will
choose to have deductions from his or her
base pay at rates between 2% and 10%.
Purchase Price............. 90% of the fair market value of CBI's
common stock on the first day of the
offering.
Offerings.................. The plan provides for monthly offerings of
CBI stock. Each offering will begin on the
first day of each month and end on the last
day of each month. On the first day of each
offering, we will grant each participant an
option to purchase CBI common stock. The
first offering under the Plan will begin
July 1, 2000.
Exercise of Options........ On the last day of each offering, each
participant's options will automatically be
exercised. The participant's payroll
deductions accumulated during that offering
will be used to pay the exercise price for
the stock.
Transferability............
Options are not transferable except by will
or by intestate succession.
21
<PAGE>
Federal Income Tax Consequences to Employees
If the employee holds the underlying stock for the required holding period,
he or she will receive special tax treatment. The employee will not recognize
any taxable income when we grant the option or when the employee exercises the
option. When the employee resells the stock, he or she will recognize capital
gain or loss equal to any difference between the sale price and the employee's
basis in the stock.
When the employee resells the stock, he or she will also recognize ordinary
income equal to the lesser of:
. the difference between the fair market value of the stock on the date of
grant and the option price; or
. the difference between the stock's fair market value at the time of sale
and the option price.
The amount which the employee recognizes as ordinary income will be added to
the employee's basis in the stock when calculating the employee's capital gain
on reselling the stock.
The required holding period is the later of one year from the date of
exercise or two years from the date of the grant. If the employee disposes of
the stock during this holding period, he or she will recognize ordinary income
equal to the difference between the fair market value on the date of exercise
and the exercise price. We are entitled to take a deduction in the amount of
ordinary income recognized by the employee.
This is only a summary of the federal income tax consequences of the grant
and exercise of options under the plan. It is not a complete statement of all
tax consequences. In particular, we have not discussed the income tax laws of
any municipality, state, or foreign country where an employee resides.
OTHER BUSINESS
At the date of mailing of this proxy statement, we are not aware of any
business to be presented at the annual meeting other than the proposals
discussed above. If other proposals are properly brought before the meeting,
any proxies returned to us will be voted as the proxyholders see fit.
22
<PAGE>
FORM 10-K ANNUAL REPORT
You can obtain a copy of the CBI Form 10-K Annual Report for the year ended
December 31, 1999 at no charge by writing to:
Terry L. Burrows, EVP/CFO
Community Banks, Inc.
P.O. Box 350
Millersburg, Pennsylvania 17061
Our Annual Report on Form 10-K for the year ended December 31, 1999, which
we filed with the SEC, is incorporated in this proxy statement by reference.
All information appearing in this proxy statement should be read together
with, and is qualified in its entirety by, the information and financial
statements (including notes) appearing in the Annual Report.
RETURN OF PROXY
You should sign, date and return the enclosed proxy card as soon 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 30, 2000
23
<PAGE>
APPENDIX "A"
DIRECTORS STOCK OPTION PLAN
COMMUNITY BANKS, INC.
1. Purpose of Plan
The purpose of this Plan is to enable Community Banks, Inc. (hereinafter
referred to as the "Corporation") to continue to attract and retain
nonemployee Directors with outstanding abilities by making it possible for
them to purchase shares of the Corporation's Common Stock on terms which will
give them a direct and continuing interest in the future success of the
Corporation's business.
2. Definitions
"Corporation" means Community Banks, Inc., a Pennsylvania business
corporation.
"Committee of the Board" means a committee established by the Board
consisting of three or more members of the Board. The Compensation Committee
may be this committee.
"Director" means a Director of the Corporation who is not regularly employed
on a salary basis by the Corporation.
"Shares" means shares of Common Stock of the Corporation.
"Board" means the Board of Directors of the Corporation.
"Optionee" means a person to whom an option has been granted under this Plan
which has not expired or been fully exercised or surrendered.
3. Limits on Options
The total number of shares for which options may be granted under this Plan
shall not exceed in the aggregate 200,000 shares. This number shall be
appropriately adjusted if the number of issued shares shall be increased or
reduced by change in par value, combination, or split-up, reclassification,
distribution of a dividend payable in stock, or the like. The number of shares
previously optioned and not theretofore delivered and the option prices
therefor shall likewise be appropriately adjusted whenever the number of
issued shares shall be increased or reduced by any such procedure after the
date or dates on which such shares were optioned. Shares covered by options
which have expired or which have been surrendered may again be optioned under
this Plan.
4. Adjustment of Options
The number of shares optioned from time to time to individual Optionees
under the Plan, and the option prices therefor, shall be appropriately
adjusted to reflect any changes in par value, combination, split-up,
reclassification, distribution of dividend payable in stock, or the like.
5. Granting of Options
The Board, or if the Board so determines, the Committee of the Board, is
authorized to grant options to Directors pursuant to this Plan during the
calendar year 2000 and in any calendar year thereafter to December 31, 2010,
but not thereafter. The number of shares, if any, optioned in each year, the
Directors to whom options are granted, and the number of shares optioned to
each Director selected shall be wholly within the discretion of the Board or
the Committee of the Board. However, no Director shall be awarded more options
for more than 1,000 shares in any year. If the Board acts, however, it shall
do so only upon the advice and recommendation of the Committee of the Board
upon all matters relating to the granting of options and the administration of
this Plan, including determination of the rights and obligations of the
Optionees.
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6. Terms of Stock Options
The terms of stock options granted under this Plan shall be as follows:
(a) The option price shall be fixed by the Board or the Committee of the
Board but shall in no event be less than 100% of the fair market value of
the shares subject to the option on the date the option is granted.
(b) Options shall not be transferable otherwise than by will or by the
laws of descent and distribution. No option shall be subject, in whole or
in part, to attachment, execution or levy of any kind.
(c) Each option shall expire and all rights thereunder shall end ten (10)
years after the date on which it was granted, subject in all cases to
earlier expiration as provided in paragraphs (d), (e) and of this Section 6
in the event a Director ceases to serve as such or dies.
(d) During the lifetime of an Optionee, his option shall be exercisable
only by him and only while a Director of the Corporation or within three
(3) years after he otherwise ceases so to serve (but in any event not later
than the end of the period specified in paragraph (c) of this, Section 6).
(e) If an Optionee dies within a period during which his option could
have been exercised by him, his option may be exercised within three months
after his death (but not later than the end of the period specified in
paragraph (c) of this Section 6) by those entitled under his will or the
laws of descent and distribution, but only if and to the extent the option
was exercisable by him immediately prior to his death.
(f) If Optionee is removed as a Director for any of the reasons specified
in Section 1726(b) of the Pennsylvania Business Corporation Law of 1988,
all options theretofore granted to the Optionee preceding such removal
shall be forfeited by Optionee and rendered unexercisable.
(g) Subject to the foregoing terms and to such additional or different
terms regarding the exercise of the options as the Board or the Committee
of the Board may fix at the time of grant, options may be exercised in
whole or in part from time to time.
7. Exercise of Options
No option granted under this Plan may be exercised before the first to occur
of (i) one year from the date of option grant, and (ii) a Change in Control of
the Corporation. Thereafter, options may be exercised in whole, or from time
to time in part, for up to the total number of shares then subject to the
option, less the number of shares previously purchased by exercise of the
option.
8. Change in Control
For the purposes of this Agreement, a Change in Control with respect to any
Optionee shall be deemed to have occurred when any of the following events
shall have occurred without the prior written consent of such Optionee:
(a) An acquisition by any "person" or "group" (as those terms are defined
or used in Section 13(d) of the Exchange Act, as enacted and in force on
the date hereof) of "beneficial ownership" (within the meaning of Rule 13d-
3 under the Exchange Act, as enacted and in force on the date hereof) of
securities of the Corporation representing 24.99% or more of the combined
voting power of the Corporation's securities then outstanding;
(b) A merger, consolidation or other reorganization of the Corporation,
except where the resulting entity is controlled, directly or indirectly, by
the Corporation;
(c) A merger, consolidation or other reorganization of the Corporation,
except where shareholders of the Corporation immediately prior to
consummation of any such transaction continue to hold as least a majority
of the voting power of the outstanding voting securities of the legal
entity resulting from or existing after any transaction and a majority of
the members of the Board of Directors of the legal entity resulting from or
existing after a transaction are former members of the Corporation's Board
of Directors;
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(d) A sale, exchange, transfer or other disposition of substantially all
of the assets of the Corporation to another entity, except to an entity
controlled, directly or indirectly, by the Corporation or a corporate
division involving the Corporation;
(e) A contested proxy solicitation of the Corporation's shareholders that
results in the contesting party obtaining the ability to cast twenty-five
percent (25%) or more of the votes entitled to be cast in an election of
directors of the Corporation; or
(f) During any period of two (2) consecutive years during the term of
this Agreement and any renewal hereof, individuals who at the beginning of
such period constitute the Board of Directors of the Corporation cease for
any reason (other than for health, disability or other medical incapacity
or voluntary retirement) to constitute at least a majority thereof.
9. Reorganization of the Corporation
In the event that the Corporation is succeeded by another corporation or
bank in a reorganization, merger, consolidation, acquisition of property or
stock, separation or liquidation, the successor corporation or bank shall
assume the outstanding options granted under this Plan or shall substitute new
options for them.
10. Delivery of Shares
No shares shall be delivered upon the exercise of an option until the option
price has been paid in full in cash or, at the discretion of the Board or the
Committee of the Board, in whole or in part in the Corporation's Common Stock
owned by the Optionee valued at fair market value on the date of exercise. If
required by the Board, no shares will be delivered upon the exercise of an
option until the Optionee has given the Corporation a satisfactory written
statement that he is purchasing the shares for investment and not with a view
to the sale or distribution of any such shares.
11. Administration
The Board or the Committee of the Board may make such rules and regulations
and establish such procedures as it deems appropriate for the administration
of this Plan. In the event of a disagreement as to the interpretation of this
Plan or any amendment thereto or any rule, regulation or procedure thereunder
or as to any right or obligation arising from or related to this Plan, the
decision of the Board or the Committee of the Board (excluding, however, the
Director(s) affected by such dispute or disagreement) shall be final and
binding upon all persons in interest, including the Corporation and its
shareholders.
12. Reservation of Shares
Shares delivered upon the exercise of an option shall, in the discretion of
the Board or the Committee of the Board, be either shares heretofore or
hereafter authorized and then unissued, or previously issued shares heretofore
or hereafter acquired through purchase in the open market or otherwise, or
some of each. The Corporation shall be under no obligation to reserve or to
retain in its treasury any particular number of shares at any time, and no
particular shares, whether unissued or held as treasury shares, shall be
identified as those optioned under this Plan.
13. Amendment of Plan
The Board may amend this Plan from time to time as it deems desirable.
14. Termination of the Plan
The Board may, in its discretion, terminate this Plan at any time prior to
December 31, 2010, but no such termination shall deprive Optionees of their
rights under their options.
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15. Effective Date
This Plan shall become effective on January 2, 2000, and options hereunder
may be granted at any time on or after that date.
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APPENDIX "B"
COMMUNITY BANKS, INC.
EMPLOYEE STOCK PURCHASE PLAN
ARTICLE I--PURPOSE
1.01. Purpose
The Community Banks, Inc. Employee Stock Purchase Plan will provide a method
for employees of Community Banks, Inc. and its subsidiaries to acquire a
proprietary interest in Community Banks, Inc. (the "Company"). Under the
Employee Stock Purchase Plan, participating employees may purchase shares of
the Common Stock of the Company. The Company intends to have the Employee
Stock Purchase Plan qualify as an "employee stock purchase plan" under (S)423
of the Internal Revenue Code of 1986, as amended. The Employee Stock Purchase
Plan shall be construed to comply with the requirements of that section of the
Internal Revenue Code.
ARTICLE II--DEFINITIONS
2.01. Base Pay
"Base Pay" means the regular straight-time earnings of an employee,
excluding payments for overtime, shift premium, bonuses and other special
payments, commissions and other marketing incentive payments.
2.02. Board of Directors
"Board of Directors" means the Board of Directors of the Company.
2.03. Code
"Code" means the Internal Revenue Code of 1986, as amended.
2.04. Committee
"Committee" means the committee administering the Employee Stock Purchase
Plan, which is more fully described in Article XI.
2.05. Company
"Company" means Community Banks, Inc.
2.06. Employee
"Employee" means any person who is employed by the Company or any of its
subsidiaries, except those employees who work twenty (20) hours or less per
week, or five (5) months or less per calendar year.
2.07. Offerings
"Offerings" means the monthly offerings of the Company's common stock. The
first Offering will begin on July 1, 2000 and end on July 31, 2000.
2.08. Offering Commencement Date
"Offering Commencement Date" means the first day of each month.
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2.09. Offering Termination Date
"Offering Termination Date" means the last day of each month.
2.10. Participant
"Participant" means any eligible employee of the Company or any of its
subsidiaries that has completed an authorization for payroll deduction on the
form provided by the Company and filed the form with the Secretary of the
Company.
2.12. Plan
"Plan" means the Community Banks, Inc. Employee Stock Purchase Plan.
2.13. Stock
"Stock" means the common stock of the Company.
ARTICLE III--ELIGIBILITY AND PARTICIPATION
3.01. Initial Eligibility
An employee is eligible to participate in the Plan if: (i) he or she has
completed ninety (90) days' employment; and (ii) he or she is employed by the
Company or any of its subsidiaries on the date the employee's participation in
the Plan becomes effective. Eligible employees may participate in Offerings
under the Plan which commence on or after the employee meets the eligibility
requirements set forth in this section.
3.02. Leave of Absence
For purposes of the Plan, a person on leave of absence will be considered an
employee for the first 90 days of the leave of absence. The person's
employment shall be considered terminated at the close of business on the 90th
day of the leave of absence. Termination by the Company (or a subsidiary as
the case may be) of any employee's leave of absence, other than termination of
the leave of absence on return to full time or part time employment, will
terminate the employee's participation in the Plan and the employee's right to
exercise any option outstanding under the Plan.
3.03. Restrictions on Participation
Any provision of the Plan to the contrary notwithstanding, no employee will
be granted an option:
(a) if, immediately after the grant, the employee would own stock, and/or
hold outstanding options to purchase stock, possessing 5% or more of the
total combined voting power or value of all classes of stock of the Company
(for purposes of this paragraph, the rules of (S)424(d) of the Code shall
apply in determining stock ownership of any employee); or
(b) which permits the Participant's rights to purchase stock under all
employee stock purchase plans of the Company to accrue at a rate which
exceeds $25,000 determined by the fair market value of the stock
(determined at the time the option is granted) for each calendar year in
which the option is outstanding.
3.04. Commencement of Participation
An eligible employee may become a Participant by completing an authorization
for a payroll deduction on the form provided by the Company and filing it with
the Secretary of the Company. With respect to each Offering, the payroll
deduction authorization must be received by the Company on or before the date
set therefor by the Committee. For each Offering, payroll deductions for a
Participant will commence on the applicable
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Offering Commencement Date, and will end on the Offering Termination Date,
unless sooner terminated by the Participant as provided in Article VIII.
ARTICLE IV--OFFERINGS
4.01. Monthly Offerings
The Plan will be implemented by monthly Offerings of the Company's Common
Stock beginning on the 1st day of each month and terminating on the last day
of each month.
ARTICLE V--PAYROLL DEDUCTIONS
5.01. Amount of Deduction
At the time a Participant files the authorization for payroll deduction, he
or she shall elect to have deductions made from his or her pay. The deductions
shall be made on each payday during the time the employee is a Participant in
an Offering. The rate of each deduction shall be at the rate of 2, 3, 4, 5, 6,
7, 8, 9 or 10% of the Participant's base pay in effect at the Offering
Commencement Date.
5.02. Participant's Account
All payroll deductions made for a Participant shall be credited to the
Participant's account under the Plan. A Participant may not make any separate
cash payments into the account except when on leave of absence, and then only
as provided in (S)5.04.
5.03. Changes in Payroll Deductions
A Participant may discontinue participation in the Plan as provided in
Article VIII. No other change can be made during an Offering. Specifically, a
Participant may not alter the amount of his or her payroll deductions for that
Offering.
5.04 Leave of Absence
If a Participant goes on a leave of absence, that Participant will have the
right to elect:
(a) to withdraw the balance in his or her account pursuant to (S)7.02;
(b) to discontinue contributions to the Plan but remain a Participant in
the Plan; or
(c) remain a Participant in the Plan during the leave of absence,
authorizing deductions to be made from payments by the Company to the
Participant during the leave of absence and undertaking to make cash
payments to the Plan at the end of each payroll period to the extent that
amounts payable by the Company to the Participant are insufficient to meet
the Participant's authorized Plan deductions.
ARTICLE VI--GRANTING OF OPTION
6.01. Number of Option Shares
On the Commencement Date of each Offering, a Participant will be granted an
option to purchase as many whole and fractional shares of the Stock as he or
she will be able to purchase with the aggregate sum of the payroll deduction
deposited in his or her account during that Offering.
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6.02. Option Price
The option price of Stock purchased during each annual Offering for a
Participant shall be ninety (90%) percent of the fair market value of the
Stock on the Offering Commencement Date or the nearest prior business day to
the Offering Commencement Date. The percentage used shall be subject to change
in the sole and exclusive discretion of the Board of Directors.
ARTICLE VII--EXERCISE OF OPTION
7.01. Automatic Exercise
Unless a Participant gives written notice to the Secretary of the Company as
hereinafter provided, the Participant's option for the purchase of Stock with
payroll deductions made during any offering will be exercised automatically on
the Offering Termination Date for the purchase of the number of whole and
fractional shares of Stock which the balance in his or her account at that
time will purchase at the applicable option price (but not in excess of the
number of shares for which options have been granted to the employee pursuant
to (S)6.01).
7.02. Withdrawal of Account
By written notice to the Secretary of the Company, at any time prior to the
Offering Termination Date applicable to any Offering, a Participant may elect
to withdraw all the money in the Participant's account.
7.03. Fractional Shares
Fractional shares will be issued under the Plan.
7.04. Transferability of Option
During a Participant's lifetime, options held by the Participant shall be
exercisable only by that Participant.
ARTICLE VIII--WITHDRAWAL
8.01. In General
A Participant may withdraw payroll deductions credited to his or her account
under the Plan at any time (subject to Section 7.02) by giving written notice
to the Secretary of the Company. All of the Participant's payroll deductions
credited to his or her account will be paid to the Participant promptly after
receipt of notice of withdrawal. No further payroll deductions will be made
from the Participant's pay during such Offering.
8.02. Effect on Subsequent Participation
A Participant's withdrawal from any Offering will not have any effect upon
his or her eligibility to participate in any succeeding Offering or in any
similar plan which may hereafter be adopted by the Company.
8.03. Termination of Employment
Upon termination of the Participant's employment for any reason, including
retirement (but excluding death or continuation of a leave of absence for a
period beyond 90 days), the Participant's participation in the Plan shall
automatically terminate, the Participant shall not be entitled to purchase any
shares at the end of the Offering, and the payroll deductions credited to the
Participant's account will be returned to the Participant.
8.04. Termination of Employment Due to Death
Upon termination of the Participant's employment because of death, the
Participant's beneficiary (as defined in (S)12.01) shall have the right to
elect, by written notice given to the Secretary of the Company prior to the
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earlier of the Offering Termination Date or the expiration of a period of
sixty (60) days commencing with the date of death of the Participant, either:
(a) to withdraw all of the payroll deductions credited to the
Participant's account under the Plan; or
(b) to exercise the Participant's option for the purchase of Stock on the
Offering Termination Date following the date of the Participant's death
under the terms described in Section 7.01.
In the event that no written notice of election is received by the Secretary
of the Company, the beneficiary shall automatically be deemed to have elected,
pursuant to paragraph (b), to exercise the Participant's option.
8.05. Leave of Absence
A Participant on leave of absence shall, subject to the election made by the
Participant pursuant to (S)5.04, continue to be a Participant in the Plan so
long as the Participant is on continuous leave of absence. A Participant who
has been on leave of absence for more than 90 days will not be entitled to
participate in any offering commencing after the 90th day of such leave of
absence. Notwithstanding any other provisions of the Plan, unless a
Participant on leave of absence returns to regular full time or part time
employment with the Company at the earlier of: (a) the termination of such
leave of absence or (b) three months from the 90th day of the leave of
absence, the Participant's participation in the Plan shall terminate on
whichever of such dates first occurs.
ARTICLE IX--INTEREST
9.01 Payment of Interest
No interest will be credited to a Participant's account regardless of
whether the funds in the account are used to exercise options or are
withdrawn.
ARTICLE X--STOCK
10.01 Maximum Shares
The maximum number of shares which will be issued under the Plan, for all
Offerings shall be 100,000 shares, subject to adjustment upon changes in
capitalization of the Company as provided in (S)12.03
10.02. Participant's Interest in Option Stock
The Participant will have no interest in Stock covered by his or her option
until the option has been exercised.
10.03. Dividends
By participating in an Offering, each Participant shall be deemed to have
authorized the Company to collect and accumulate all dividends paid on shares
held in his or her account and to apply those dividends to the purchase of
additional shares of Stock as of the dividend payment date, and at the then
applicable fair market value (without any discount).
10.04. Registration of Stock
Stock to be delivered to a Participant under the Plan will be registered in
the name of the Participant, or, if the Participant directs by written notice
to the Company prior to the Offering Termination Date, in the names of the
Participant and one such other person as may be designate by the Participant,
as joint tenants with rights of survivorship or as tenants by the entireties,
to the extent permitted by applicable law, or in the name of a registered
broker-dealer.
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ARTICLE XI--ADMINISTRATION
11.01. Appointment of Committee
The Board of Directors shall appoint a committee (the "Committee") to
administer the Plan. The Committee which shall consist of no fewer than three
members of the Board of Directors. No member of the Committee shall be
eligible to purchase stock under the Plan.
11.02. Authority of Committee
The Committee shall have plenary authority in its discretion to interpret
and construe any and all provisions of the Plan, to adopt rules and
regulations for administering the Plan, and to make all other determinations
necessary or advisable for administering the Plan. The Committee's
determination shall be conclusive.
11.03. Rules Governing the Administration of the Committee
The Board of Directors may from time to time appoint members of the
Committee in substitution for or in addition to members previously appointed
and may fill vacancies, however caused, in the Committee. The Committee may
select one of its members as its Chairman and shall hold its meetings at such
times and places as it shall deem advisable. Meetings by telephone are
permissible. A majority of its members shall constitute a quorum. All
decisions of the Committee shall be made by a majority of its members. The
Committee may correct any defect or omission or reconcile any inconsistency in
the Plan, in the manner and to the extent it shall deem desirable. Any
decision or determination reduced to writing and signed by a majority of the
members of the Committee will be as fully effective as if it had been made by
a majority vote at a meeting duly called and held. The Committee may appoint a
secretary and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
ARTICLE XII--MISCELLANEOUS
12.01. Transferability
In no event may any rights with regard to the exercise of an option or to
receive stock under the Plan be assigned, transferred, pledged, or otherwise
disposed of in any way by the Participant other than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds in accordance with (S)7.02.
12.02. Use of Funds
All payroll deductions received or held by the Company under this Plan may
be used by the Company for any corporate purpose. The Company shall not be
obligated to segregate such payroll deductions.
12.03. Adjustment Upon Changes in Capitalization
(a) If, while any options are outstanding, the outstanding shares of Common
Stock of the Company have increased, decreased, changed into, or been
exchanged for a different number or kind of shares or securities of the
Company through reorganization, stock split, reverse stock split or similar
transaction, appropriate and proportionate adjustments may be made by the
Committee. In addition, the number and/or kind of shares which may be offered
in the Offerings described in Article IV hereof shall also be proportionately
adjusted. No adjustments shall be made for stock dividends. For the purposes
of this Paragraph, any distribution of shares to shareholders in an amount
aggregating 20% or more of the outstanding shares shall be deemed a stock
split and any distributions of shares aggregating less than 20% of the
outstanding shares shall be deemed a stock dividend.
(b) Upon the (i) dissolution or liquidation of the Company; (ii)
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving
corporation;
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or (iii) upon a sale of substantially all of the property or stock of the
Company to another corporation, the holder of each option then outstanding
under the Plan will thereafter be entitled to receive at the next Offering
Termination Date upon the exercise of such option for each share as to which
such option shall be exercised, as nearly as reasonably may be determined, the
cash, securities and/or property which a holder of one share of the Common
stock was entitled to receive upon and at the time of such transaction. The
Board of Directors shall take such steps in connection with such transactions
as the Board shall deem necessary to assure that the provisions of this
(S)12.04 shall thereafter be applicable, as nearly as reasonably may be
determined, in relation to the said cash, securities and/or property as to
which such holder of such option might thereafter be entitled to receive.
12.04. Amendment and Termination
The Board of Directors shall have complete power and authority to terminate
or amend the Plan. The Board of Directors shall not, without the approval of
the stockholders of the Corporation (i) increase the maximum number of shares
which may be issued under any Offering (except pursuant to (S)12.04); (ii)
amend the requirements as to the class of employees eligible to purchase stock
under the Plan or permit the members of the Committee to purchase stock under
the Plan. No termination, modification, or amendment of the Plan may, without
the consent of an employee then having an option under the Plan to purchase
stock, adversely affect the rights of such employee under such option.
12.05. Effective Date
The Plan shall become effective as of July 1, 2000, subject to approval by
the holders of the majority of the Stock present and represented at the 2000
annual meeting of the shareholders. If the Plan is not approved, the Plan
shall not become effective.
12.06. No Employment Rights
The Plan does not, directly or indirectly, create any right for the benefit
of any employee or class of employees to purchase any shares under the Plan,
or create in any employee or class of employees any right with respect to
continuation of employment by the Company. The Plan shall not be deemed to
interfere in any way with the Company's right to terminate, or otherwise
modify, an employee's employment at any time.
12.07. Effect of Plan
The provisions of the Plan will be binding upon all successors of each
employee participating in the Plan, including, without limitation, the
employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such employee.
12.08. Governing Law
The law of the State of Pennsylvania will govern all matters relating to
this Plan except to the extent it is superseded by the laws of the United
States.
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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 Bischof, 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 shares of common stock of
Community Banks, Inc. ("CBI") held of record by the undersigned on February 29,
2000 at the Annual Meeting of Shareholders to be held on May 2, 2000 or any
adjournments thereof.
The Board of directors recommends that you vote for Items 1 - 4 below.
1. ELECTION OF DIRECTORS:
For all Nominees Listed Below [_] Withhold Authority [_]
(except as indicated below)
CLASS A
Thomas L. Miller James A. Ulsh
Ronald E. Boyer Peter DeSoto
INSTRUCTION: To withhold authority to vote for any individual nominee(s),
write that nominee's name(s) in the space immediately below.
--------------------
2. 2000 DIRECTORS STOCK OPTION PLAN: To approve our 2000 Directors Stock
Option Plan.
FOR ____ AGAINST ____ ABSTAIN ____
3. EMPLOYEE STOCK PURCHASE PLAN: To approve our Employee Stock Purchase Plan.
FOR ____ AGAINST ____ ABSTAIN ____
4. 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 A Director, for the 2000 Directors Stock Option Plan, for the Employee
Stock Purchase Plan 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 , 2000. (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.
