Exhibit 10.18

 

COMMUNITY BANKS, INC.

 

SURVIVOR INCOME AGREEMENT

 

THIS AGREEMENT is made the          day of                         , 199     by
and between COMMUNITY BANKS, INC., Millersburg, Pennsylvania, and THE PEOPLES
STATE BANK, East Berlin, Pennsylvania, (collectively the “Company”), and EDDIE
L. DUNKLEBARGER (the “Executive”).

 

INTRODUCTION

 

To encourage the Executive to remain an employee of the Company, the Company is
willing to provide benefits to the Executive’s beneficiary if the Executive dies
prior to terminating employment. The Company will pay the benefits from its
general assets, but only so long as one of its general assets is a life
insurance policy on the Executive’s life.

 

AGREEMENT

 

The Executive and the Company agree as follows:

 

Article 1

 

Entitlement to Benefit

 

1.1 Pre-Termination Survivor Income Benefit. If the Executive dies before
otherwise terminating employment with the Company, and if the Company owns a
life insurance policy on the Executive’s life at the time of such death, the
Company shall pay to the Executive’s designated beneficiary the survivor income
benefit described in Article 2.

 

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1.2 Disability Continuation. If the Executive terminates employment due to
disability and then dies before recovering from such disability, the Company
shall pay to the Executive’s designated beneficiary the survivor income benefit
described in Article 2. Whether the Executive is disabled or has recovered from
a disability shall be determined by the Company in its sole discretion.

 

1.3 Suicide. No benefits shall be payable if the Executive commits suicide
within two years after the date of this Agreement.

 

1.4 Change of Control. Notwithstanding any other provision of this Agreement, in
the event of a Change of Control (as defined below), the Company or its
successor shall maintain in full force and effect this Agreement and the related
life insurance policy that is in existence on the date the Change of Control
occurs and, in no event shall the Company or its successor terminate or
otherwise abrogate the Executive’s interest in the life insurance policy;
provided, however, that at all times the life insurance policy shall be subject
to the claims of the Company’s creditors.

 

Change of Control shall mean:

 

(a) A reorganization, merger, consolidation or sale of substantially all of the
assets of the Company, or a similar transaction in which the Company is not the
resulting entity; or

 

(b) Individuals who constitute the Incumbent Board (as herein defined) of the
Company cease for any reason to constitute a majority of the Board of Directors.
For these purposes, “Incumbent Board” shall mean the members of the Board of

 

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Directors of the Company on the effective date hereof. Any person becoming a
member of the Board of Directors subsequent to such effective date, whose
election was approved by a vote of at least three-quarters (3/4) of the members
of the Board of Directors comprising the Incumbent Board, or whose nomination
for election by members or shareholders was approved by the same nominating
committee serving under the Incumbent Board, shall be considered as though he or
she were a member of the Incumbent Board.

 

Article 2

 

Survivor Income Benefit

 

2.1 Amount of Benefits. The survivor income benefit shall be determined in
accordance with the following formula.

 

x

  =    y + T%x

 

wherein

 

x

   =    the survivor income benefit payable hereunder

T%

   =    the Company’s projected marginal tax rate for federal income tax
purposes for the year in which the Executive’s death occurs and

y

   =    the lesser of (1) three times the Executive’s base salary as established
by the Company’s Board of Directors for the calendar year in which the
Executive’s death occurs or (2) the life insurance policy proceeds the Company
receives due to the Executive’s death less the cash surrender value of such
policy on the day before the Executive’s death

 

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2.2 Form of Benefits. The survivor income benefit shall be paid to the
Executive’s beneficiary in a lump sum within sixty (60) days after the
Executive’s death.

 

Article 3

 

Beneficiaries

 

3.1 Beneficiary Designations. The Executive shall designate a beneficiary by
filing a written designation with the Company. The Executive may revoke or
modify the designation at any time by filing a new designation. However,
designations will only be effective if signed by the Executive and accepted by
the Company during the Executive’s lifetime. The Executive’s beneficiary
designation shall be deemed automatically revoked if the beneficiary predeceases
the Executive, or if the Executive names a spouse as beneficiary and the
marriage is subsequently dissolved. If the Executive dies without a valid
beneficiary designation, all payments shall be made to the Executive’s surviving
spouse, if any, and if none, to the Executive’s surviving children and the
descendants of any deceased child by right of representation, and if no children
or descendants survive, to the Executive’s estate.

 

3.2 Facility of Payment. If a benefit is payable to a minor, to a person
declared incompetent, or to a person incapable of handling the disposition of
his or her property, the Company may pay such benefit to the guardian, legal
representative or person having the care or custody of such minor, incompetent
person or incapable person. The Company may require proof of incompetency,
minority or guardianship as it may deem appropriate prior to distribution of the
benefit. Such distribution shall completely discharge the Company from all
liability with respect to such benefit.

 

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Article 4

 

Claims and Review Procedures

 

4.1 Claims Procedure. The Company shall notify the Executive’s beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Agreement. If
the Company determines that the beneficiary is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific reasons for such denial,
(2) a specific reference to the provisions of the Agreement on which the denial
is based, (3) a description of any additional information or material necessary
for the claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Agreement’s claims review procedure and
other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.

 

4.2 Review Procedure. If the beneficiary is determined by the Company not to be
eligible for benefits, or if the beneficiary believes that he or she is entitled
to greater or different benefits, the beneficiary shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the beneficiary
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the beneficiary (and counsel, if any) an opportunity to present his
or her position to the Company orally or in writing, and the beneficiary (or
counsel) shall have the right to review the pertinent documents. The Company
shall notify the beneficiary of its decision in writing within the sixty-day
period, stating specifically the basis of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Agreement on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient, the decision may be deferred
for up to another sixty-day period at the election of the Company, but notice of
this deferral shall be given to the beneficiary.

 

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Article 5

 

Conversion to Split Dollar

 

If the Executive voluntarily terminates employment after attaining the age of
sixty-five (65) and completes ten (10) years of service, or terminates
employment subsequent to a change of control (as defined herein), unless the
Executive elects otherwise by written notice to the Company, the Split Dollar
Insurance Agreement attached as the Addendum to this Agreement shall
automatically take effect as of the Executive’s termination of employment. The
Company shall take all actions necessary to implement the Split Dollar Insurance
Agreement.

 

Article 6

 

Amendments and Termination

 

Except as provided in Section 1.4 of this Agreement, the Company may amend or
terminate this Agreement at any time prior to the Executive’s death by written
notice to the Executive.

 

Article 7

 

Miscellaneous

 

7.1 Exclusive Agreement/Binding Effect. This Agreement is the entire agreement
between the Company and the Executive, written or oral, related to the Company’s
obligation to pay any survivor income benefits to the Executive’s

 

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beneficiaries or survivors. This Agreement supersedes all prior agreements,
understandings and negotiations. This Agreement shall bind the Executive and the
Company, and their beneficiaries, survivors, executors, administrators and
transferees.

 

7.2 No Guaranty of Employment. This Agreement is not an employment policy or
contract. It does not give the Executive the right to remain an employee of the
Company, nor does it interfere with the Company’s right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive’s right to terminate employment at any time.

 

7.3 Tax Withholding. The Company shall withhold any taxes that are required to
be withheld from the benefits provided under this Agreement.

 

7.4 Applicable Law. The Agreement and all rights hereunder shall be governed by
the laws of the Commonwealth of Pennsylvania, except to the extent preempted by
the laws of the United States of America.

 

7.5 Unfunded Plan. The beneficiary is a general unsecured creditor of the
Company for the payment of benefits under this Agreement. The benefits represent
the mere promise by the Company to pay such benefits. The beneficiary’s rights
to such benefits are not subject in any manner to anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors. Any insurance on the Executive’s life is a general asset of the
Company to which the Executive and designated beneficiary have no preferred or
secured claim.

 

IN WITNESS WHEREOF, the Executive and a duly authorized Company officer have
signed this Agreement.

 

COMPANY:

 

COMMUNITY BANKS, INC.     THE PEOPLES STATE BANK By:  

/s/ Ernie Lowe

    By:  

/s/ Sally J. Lear

Title:

 

Chairman

   

Title:

 

Corporate Secretary

 

EXECUTIVE:    

/s/ Eddie L. Dunklebarger

         

 

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SPLIT DOLLAR ADDENDUM TO

COMMUNITY BANKS, INC.

SURVIVOR INCOME AGREEMENT

 

THIS ADDENDUM is part of the Survivor Income Agreement between COMMUNITY BANKS,
INC., Millersburg, Pennsylvania, and THE PEOPLES STATE BANK, East Berlin,
Pennsylvania (collectively the “Company”), and EDDIE L. DUNKLEBARGER (the
“Executive”).

 

INTRODUCTION

 

Under the terms of the Survivor Income Agreement between the Executive and the
Company, the parties desire to divide the death proceeds of a life insurance
policy on the Executive’s life.

 

Article 1

 

General Definitions

 

The following terms shall have the meanings specified:

 

1.1 “Insurer” means WEST COAST LIFE INSURANCE COMPANY, or TRANSAMERICA ASSURANCE
COMPANY, as the case may be.

 

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1.2    “Policy” means:

 

West Coast Life Insurance Company policy

 

Transamerica Assurance Company policy

 

Article 2

 

Policy Ownership/Interests

 

2.1 Company Ownership. The Company owns the Policy and shall have the right to
exercise all incidents of ownership and to receive the Policy values in excess
of the Executive’s interest described in Section 2.2.

 

2.2 Executive’s Interest. The Executive shall have 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 day before the Executive’s
death. The Executive shall also have the right to elect and change settlement
options that may be permitted for such beneficiary.

 

Article 3

 

Premiums

 

3.1 Premium Payment. The Company shall pay any premiums due on the Policy.

 

3.2 Imputed Income. The Company shall then impute income to the Executive in an
amount equal to the current term rate for the Executive’s age multiplied by the
aggregate death benefit payable to the Executive’s beneficiary. The “current
term rate” is the minimum amount required to be imputed under Revenue Rulings
64-328 and 66-110, or any subsequent applicable authority.

 

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3.3 Cash Payment. If the Executive’s termination of employment occurs after the
Normal Retirement Date, the Company shall annually pay to the Executive the
amount necessary to pay the federal and state income taxes attributable to the
imputed income and to the additional cash payments under this sentence. In
calculating the cash payments, the Company shall use the highest marginal income
tax brackets. The cash payments shall continue until the Executive’s death.

 

3.4 Company Portion. The Company shall then pay to the Insurer any premiums due.

 

Article 4

 

Assignment

 

The Executive may assign without consideration all interests in the Policy and
in this Addendum to any person, entity, or trust.

 

Article 5

 

Insurer

 

The Insurer shall be bound only by the terms of the Policy. Any payments the
Insurer makes or actions it takes in accordance with the Policy shall fully
discharge it from all claims, suits and demands of all persons. The Insurer
shall not be bound by or be deemed to have notice of the provisions of this
Addendum.

 

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Article 6

 

Claims Procedure

 

6.1 Claims Procedure. The Company shall notify the Executive’s beneficiary in
writing, within ninety (90) days of his or her written application for benefits,
of his or her eligibility or noneligibility for benefits under the Addendum. If
the Company determines that the beneficiary is not eligible for benefits or full
benefits, the notice shall set forth (1) the specific reasons for such denial,
(2) a specific reference to the provisions of the Addendum on which the denial
is based, (3) a description of any additional information or material necessary
for the claimant to perfect his or her claim, and a description of why it is
needed, and (4) an explanation of the Addendum’s claims review procedure and
other appropriate information as to the steps to be taken if the beneficiary
wishes to have the claim reviewed. If the Company determines that there are
special circumstances requiring additional time to make a decision, the Company
shall notify the beneficiary of the special circumstances and the date by which
a decision is expected to be made, and may extend the time for up to an
additional ninety-day period.

 

6.2 Review Procedure. If the beneficiary is determined by the Company not to be
eligible for benefits, or if the beneficiary believes that he or she is entitled
to greater or different benefits, the beneficiary shall have the opportunity to
have such claim reviewed by the Company by filing a petition for review with the
Company within sixty (60) days after receipt of the notice issued by the
Company. Said petition shall state the specific reasons which the beneficiary
believes entitle him or her to benefits or to greater or different benefits.
Within sixty (60) days after receipt by the Company of the petition, the Company
shall afford the beneficiary (and counsel, if any) an opportunity to present his
or her position to the Company orally or in writing, and the beneficiary (or
counsel) shall have the right to review the pertinent documents. The Company
shall notify the beneficiary of its decision in writing within the sixty-day
period, stating specifically the basis of its decision, written in a manner
calculated to be understood by the beneficiary and the specific provisions of
the Addendum on which the decision is based. If, because of the need for a
hearing, the sixty-day period is not sufficient, the decision may be

 

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deferred for up to another sixty-day period at the election of the Company, but
notice of this deferral shall be given to the beneficiary.

 

Article 7

 

Amendments and Termination

 

The Company may amend this Addendum at any time prior to the Executive’s death
by written notice to the Executive. Either party may terminate this Addendum at
any time prior to the Executive’s death by written notice to the other party.

 

Upon termination of this Addendum, the Executive may purchase the Policy from
the Company for an amount equal to the Policy’s cash surrender value as of the
date of the termination.

 

Article 8

 

Miscellaneous

 

8.1 Binding Effect. This Addendum shall bind the Executive and the Company,
their beneficiaries, survivors, executors, administrators and transferees, and
any Policy beneficiary.

 

8.2 No Guaranty of Employment. This Addendum is not an employment policy or
contract. It does not give the Executive the right to remain an employee of the
Company, nor does it interfere with the Company’s right to discharge the
Executive. It also does not require the Executive to remain an employee nor
interfere with the Executive’s right to terminate employment at any time.

 

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8.3 Applicable Law. The Addendum and all rights hereunder shall be governed by
and construed according to the laws of the Commonwealth of Pennsylvania, except
to the extent preempted by the laws of the United States of America.

 

The parties’ signatures on the Survivor Income Agreement witness their agreement
to the terms of this Addendum.

 

Eddie L. Dunklebarger

 

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