Document:

EXHIBIT 10.8

                              EMPLOYMENT AGREEMENT

     AGREEMENT  made this 29th day of October,  1997,  by and between  COMMUNITY
BANKS, INC., a Pennsylvania corporation,  ("Community"), THE PEOPLES STATE BANK,
a Pennsylvania  state chartered banking  institution  ("Peoples") and ANTHONY N.
LEO, an adult individual (hereinafter referred to as "Executive").

                              W I T N E S S E T H:

     WHEREAS,  Executive is  currently  employed by Peoples,  as Peoples'  Chief
General Counsel,  pursuant to a certain Employment Agreement between Peoples and
Executive, dated May 3, 1994; and

     WHEREAS,  Community  and Peoples have entered into a certain  Agreement and
Plan of  Reorganization  of even date (the "Merger  Agreement")  whereby Peoples
will be merged with and into PSB Interim Bank, a  Pennsylvania  state  chartered
banking institution, as of the Effective Date of the Merger (as defined therein)
and,  upon the Effective  Date of the Merger,  PSB Interim Bank shall change its
name to The Peoples State Bank; and

     WHEREAS,  as of  the  Effective  Date  of the  Merger,  Peoples  will  be a
wholly-owned subsidiary of Community; and

     WHEREAS, for purposes of the Agreement,  Community and Peoples are referred
to collectively as the "Company."

     WHEREAS,  the Company wishes to employ Executive and Executive wishes to be
employed by Company, as an Executive Vice President and the Chief Administrative
Officer of Peoples,  upon the terms set forth below, as of the Effective Date of
the Merger; and

     NOW, THEREFORE,  in consideration of the agreements  hereinafter contained,
and intending to be legally bound hereby, the parties agree as follows:

          1. Length of  Employment.  Company  agrees to employ  Executive  for a
rolling term of two (2) years commencing on the Effective Date of the Merger. On
each  anniversary  date of the  Effective  Date of the Merger,  the term of this
Agreement  shall  automatically  renew and extend for an additional one (1) year
period unless either party shall have provided notice of its intent not to renew
within  sixty (60) days  prior to such  anniversary  date.  Upon the date of any
Change in Control (as defined in  Paragraph  8) should  occur,  the term of this
Agreement shall  automatically renew and be extended for two (2) years from such
date.

          2. Position and Responsibilities. During the course of his employment,
Executive shall (i) perform the duties and responsibilities of an Executive Vice
President of Company and Chief Administrative  Officer of Peoples,  (ii) perform
such  other  senior  management  duties  and  responsibilities  as the  Board of
Directors  and CEO may  direct,  and  (iii)  shall be  afforded  the  title  and
privileges  associated  with being at least an Executive  Vice  President of the
Company.

<PAGE>

          3. Performance of Responsibilities, Loyalty.

          a.  Executive  shall  devote his full time to the  performance  of his
     responsibilities  hereunder.  Executive  shall  at  all  times  faithfully,
     industriously and to the best of his abilities perform all duties necessary
     to carry out his responsibilities.

          b.  Throughout  the term  hereof,  Executive  shall not at any time or
     place,  either directly or indirectly engage in any business or activity in
     competition with or adverse to the interests of Company.

          4. Compensation.

          a. During the  initial  calendar  year of the term of this  Agreement,
     Company  shall pay to Executive a base salary of not less than  $90,000.00.
     During  successive  calendar  years,  the Company  may, in its  discretion,
     adjust the base salary; provided that it shall at no point be reduced below
     the  initial   base   salary.   This  salary  shall  be  paid  in  regular,
     substantially  equal  installments  in accordance  with the regular payroll
     practices of the Company, less any and all applicable deductions for taxes,
     medical benefits, etc.

          b. In  addition  to base  salary,  during the term of this  Agreement,
     Company shall provide  Executive with an automobile,  including all related
     maintenance,  repairs,  insurance  and other  costs.  In lieu of  providing
     Executive  with  an  automobile,  Company  may  provide  Executive  with  a
     reasonable  allowance  on a monthly  basis,  which  allowance  shall  cover
     Executive's   costs  associated  with  an  automobile,   including  without
     limitation, lease or installment payments, maintenance,  repairs, insurance
     and other costs.

          5. Benefits.

          a.  Executive  shall  receive  employee  benefits from Company no less
     favorable than the employee  benefits he received as an employee of Peoples
     and, in addition,  shall be eligible to participate in all employee benefit
     plans  generally  available  to  executive  officers of Company,  including
     without limitation, health and dental insurance plans, group life insurance
     plans,   retirement  plans,  incentive  compensation  plans,   supplemental
     executive  retirement plans and stock option,  grant or appreciation rights
     plans.  The  participation  of Executive in each benefit plan  described in
     this paragraph  shall be subject to the terms of the applicable plan and to
     procedures  generally  applicable to Company officers;  provided,  however,
     that  Executive  shall receive credit for years of service with Peoples for
     vesting purposes only. Nothing in this paragraph shall obligate the Company
     to offer any such plans.

          b. Executive shall be provided holiday pay, personal days, sick leave,
     short-term  disability and long-term  disability in accordance with Company
     policy  for  officers  of  similar  position   performing  similar  duties.
     Executive  shall be entitled to at least four (4) weeks paid  vacation each
     calendar year.

          c. The Company shall pay the reasonable  costs of Executive  attending
     continuing education seminars and banking conventions and meetings.

                                       2
<PAGE>

          6.  Relocation.  Company  shall  not,  without  the prior  consent  of
Executive,  transfer or relocate the office in which Executive performs the bulk
of his duties to any  location  more than  thirty  (30) miles from East  Berlin,
Pennsylvania without an increase in duties and responsibilities and commensurate
compensation.  In the event  Executive is so transferred  or relocated,  Company
shall  pay all  reasonable  out-of-pocket  expenses  incurred  by  Executive  in
connection  with such  relocation.  Company shall not require  Executive to move
from his residence.

          7. Termination of Employment.  This Agreement may be terminated during
the term hereof as follows:

          a. (1) At any time by mutual agreement of Executive and Company.

             (2) If this Agreement is terminated pursuant to subparagraph (a)(1)
     of  this  Paragraph  7, neither  party  shall have  further   obligation or
     liability to the other hereunder,  except that Executive shall be entitled
     to accrued and unpaid salary.

          b. (1) By  Company,  at any  time for  Cause.  "Cause"  shall  include
     Executive's  personal dishonesty,  willful misconduct,  breach of fiduciary
     duty  involving  personal  profit,  incompetence,  intentional  failure  to
     perform  stated  duties,  willful  violation of any law, rule or regulation
     (other than traffic  violations or offenses not involving moral turpitude),
     final cease and desist order of any government  agency having  jurisdiction
     over Company,  or material  breach of this Agreement,  following  Company's
     notice  thereof to Executive  and  Executive's  failure to cure same within
     thirty (30) days of such notice.

             (2) If this Agreement is terminated pursuant to subparagraph (b)(1)
     of this Paragraph 7, Company shall have no further  obligation or liability
     to Executive hereunder, except that Executive shall be entitled to accrued
     and unpaid salary.

          c. (1)  Automatically,  if  Executive  is removed  and/or  permanently
     prohibited  from  participating  in the conduct of Company's  affairs by an
     order issued by an appropriate  regulatory agency under Section 8(e) of the
     Federal Deposit Insurance Act, as amended,  or any similar state or federal
     law.

             (2) If this Agreement is terminated pursuant to subparagraph (c)(1)
     of this Paragraph 7, Company shall have no further obligation  or liability
     hereunder,  except that  Executive  shall be entitled to accrued and unpaid
     salary.

          d. (1) By Company at any time, if in its sole judgment and  discretion
     the  continued  employment  of Executive  would no longer be  beneficial or
     desirable.

             (2) In the event that Executive's employment is terminated pursuant
     to this subparagraph (d)(1) of this  Paragraph  7,  Executive  shall not be
     obligated to perform any services on behalf of Company and Company shall be
     obligated to continue  Executive's  salary and those  benefits set forth in
     Paragraph 5(a) hereof for the remaining term of this  Agreement;  provided,
     however, that in no event shall this provision obligate Company to make any
     further increase to Executive's salary above his salary on the date of such
     termination,   or  continue  Executive's  participation  in  any  incentive
     compensation plan, or stock option,  grant or appreciation  rights plan, or
     any similar incentive based compensation plan.

                                       3
<PAGE>

             (3) Notwithstanding the provisions of  subparagraph  (d)(2) of this
     Paragraph,  in the event that Executive's employment is terminated pursuant
     to  subparagraph  (d)(1)  of this  Paragraph  7  subsequent  to a Change in
     Control,  or the  Company  shall  breach any  provision  of this  Agreement
     subsequent to a Change in Control,  Executive may elect, which election may
     be made in Executive's  sole  discretion,  to receive from Company a single
     payment upon such  termination  amounting to any salary to which  Executive
     would be entitled  pursuant to  subparagraph  (d)(2),  such single  payment
     being in lieu of the pay  ments  and  benefits  set  forth in  subparagraph
     (d)(2).  As used in this  paragraph,  "Change  in  Control"  shall have the
     meaning defined in Paragraph 8 hereof.

          e. (1) By Executive upon a Change in Control.

             (2) In the event that Executive  terminates his employment pursuant
     to subparagraph (e)(i)  of this  Paragraph 7,  Executive  may  elect, which
     election  may be made in  Executive's  sole  discretion,  to  receive  from
     Company a single payment upon such  termination  amounting to any salary to
     which Executive would be entitled  pursuant to subparagraph  (d)(2) of this
     Paragraph 7, such single payment being in lieu of the payments and benefits
     set forth in subparagraph (d)(2) of this Paragraph 7.

          f. By  Executive  at any time,  upon thirty (30) days prior  notice to
     Company;  provided,  however,  that if this  Agreement  shall be terminated
     pursuant to this subparagraph (f) of this Paragraph 7, Company shall not be
     further ob ligated or liable under this  Agreement,  except for the payment
     of accrued and unpaid salary.

          8.  Definition of Change of Control.  For purposes of this  Agreement,
the term "Change of Control" shall mean:

          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  Company  representing  24.99%  or  more of the
     combined voting power of Company's securities then outstanding;

          b. A merger,  consolidation or other reorganization of Company, except
     where the  resulting  entity is  controlled,  directly  or  indirectly,  by
     Company;

          c. A merger,  consolidation or other reorganization of Company, except
     where shareholders of Company 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 Com pany's Board of Directors;

                                       4
<PAGE>

          d. A sale,  exchange,  transfer or other  disposition of substantially
     all of the  assets  of  Company  to  another  entity,  except  to an entity
     controlled,  directly or  indirectly,  by Company or a  corporate  division
     involving Company;

          e. A contested  proxy  solicitation  of  Company'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 Company.

          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 Company  cease for any
     reason (other than for health,  disability  or other medical  incapacity or
     voluntary re tirement) to constitute at least a majority thereof.

          g. The  termination  of employment of the Chief  Executive  Officer of
     Company,  other  than for  Cause  pursuant  to  Section  6(c) or  voluntary
     termination  under Section 6(e) of a certain  Employment  Agreement between
     Eddie L.  Dunklebarger  and  Company  of even  date,  during the period com
     mencing  on the  Effective  Date of the  Merger  and  ending  two (2) years
     thereafter.

          9. Suspension. If Executive is suspended and/or temporarily prohibited
from participating in the conduct of the Company's affairs by a notice served in
accordance  with  law  by  an  appropriate   regulatory  agency,  the  Company's
obligations  under this Agreement  shall be suspended as of the date of service,
unless  stayed by  appropriate  proceedings.  If the  charges  in the notice are
dismissed,  Company  shall (i) pay Executive  all of the  compensation  withheld
while its contract  obligations  were  suspended  and (ii)  reinstate any of its
obligations which were suspended.

          10.  Death or  Disability.  In the event that  Executive  is  rendered
unable  to  complete  the  terms of this  Agreement  due to death or  disability
continuing in excess of ninety (90) days, this Agreement shall be terminated and
Company  shall  have  no  further  liability,  obligations  or  responsibilities
hereunder except as set forth in Paragraph 5(b) hereof.

          11.  Covenant Not to Compete.  In the event  Executive  terminates his
employment with Company pursuant to Paragraph 7(f), he agrees that, for a period
of one (1) year following such termination, he shall not (i) solicit any Company
employees or officers to leave Company to accept  employment by Executive or his
new employer; and (ii) solicit or encourage any Company customers to cease doing
business  with the  Company  and/or  to  transfer  any or all of their  business
relationships to any institution which Executive may found or to Executive's new
employer.

          12. Entire  Agreement.  As of the Effective  Date of the Merger,  this
Agree ment and a certain Salary  Continuation  Agreement  between  Executive and
Peoples shall constitute the entire  agreement  between the parties and no prior
promises,  agreements or  warranties,  verbal or written,  shall be of any force
unless embodied herein.  No modification of this Agreement shall be of any force
or effect  unless  reduced to  writing  and  signed by both  parties.  As of the
Effective Date of the Merger, the existing Employment  Agreement between Peoples
and  Executive  shall be  terminated,  with no  further  rights  or  obligations
thereunder due to or from either party, and this Agreement shall supersede same.

                                       5
<PAGE>

          13. Miscellaneous.

          a. This  Agreement  shall be binding  upon and inure to the benefit of
     the parties hereto, their respective heirs, successors and assigns. b. This
     Agreement  shall not be  modified or changed in any way except by a written
     agreement signed by the parties hereto. c. No waiver by any party hereto of
     any provision of this Agreement  shall be deemed a waiver of said provision
     or any other  provisions  of this  Agreement.  d. This  Agreement  shall be
     interpreted,  construed  and  governed in  accordance  with the laws of the
     Commonwealth of  Pennsylvania.  The invalidity or  unenforceability  of any
     provision of this Agreement shall not affect the validity or enforceability
     of any other provision of this Agreement,  which shall remain in full force
     and effect.

          IN WITNESS WHEREOF, the parties have set their hands and seals.

ATTEST:                                              COMMUNITY BANKS, INC.

/S/ Patricia E. Hoch                              By:/S/ Thomas L. Miller
-------------------------------------                ---------------------------

                                                      THE PEOPLES STATE BANK

/S/ Carole L. Parr                                By:/S/ Eddie L. Dunklebarger
-------------------------------------                ---------------------------

WITNESS:                                              EXECUTIVE:

/S/ Carole L. Parr                                   /S/ Anthony N. Leo
-------------------------------------                ---------------------------
                                                         Anthony N. Leo

                                       6
<PAGE>

                    AGREEMENT TO MODIFY EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  TO  MODIFY  EMPLOYMENT  AGREEMENT  ("Employment  Agreement
Modification")  is entered into on this 11th day of January,  2002, by COMMUNITY
BANKS, INC., a Pennsylvania corporation  ("Community"),  COMMUNITY BANKS, a bank
and trust company  organized and existing under the laws of the  Commonwealth of
Pennsylvania,  formerly known as The Peoples State Bank ("Bank"), and ANTHONY N.
LEO (the "Executive"). BACKGROUND

_____A.  Community,  Bank and  Executive  entered into an  Employment  Agreement
 ("Agreement") on or about October 29, 1997.

     B. The parties wish to modify the  identification  of Executive's job title
in the
Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and intending to
be legally bound, the parties hereby agree as follows:

     1.  Modification of Job Title.  Effective  March 30, 2001,  Executive's job
title  shall be  "Managing  Director -  Financial  Services  and  Administrative
Division",  in addition to his title of Executive Vice President of the Bank and
the Corporation.

     2. No Other Changes.  Except as specifically modified herein, all terms and
conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Executive and duly authorized officers of Community
and Bank have signed this Employment Agreement Modification.

EXECUTIVE:

  /S/ Anthony N. Leo
-----------------------------------------------
      Anthony N. Leo

WITNESS/ATTEST:                                         COMMUNITY BANKS

  /S/ Patricia E. Hoch                         By  /S/ Eddie L. Dunklebarger
  ----------------------------------               -----------------------------
                                               Title   President & CEO
                                                    ----------------------------

WITNESS/ATTEST:                                       COMMUNITY BANKS, INC.

  /S/ Patricia E. Hoch                          By /S/ Eddie L. Dunklebarger
-----------------------------------                -----------------------------

                                       7EXHIBIT 10.9

                              EMPLOYMENT AGREEMENT

     AGREEMENT  made this 27th day of October,  1997,  by and between  COMMUNITY
BANKS, INC., a Pennsylvania corporation,  ("Community"), THE PEOPLES STATE BANK,
a Pennsylvania  state chartered banking  institution  ("Peoples") and JEFFREY M.
SEIBERT, an adult individual (hereinafter referred to as "Executive").

                              W I T N E S S E T H:

     WHEREAS,  Executive is  currently  employed by Peoples,  as Peoples'  Chief
Lending Officer,  pursuant to a certain Employment Agreement between Peoples and
Executive, dated May 2, 1994; and

     WHEREAS,  Community  and Peoples have entered into a certain  Agreement and
Plan of  Reorganization  of even date (the "Merger  Agreement")  whereby Peoples
will be merged with and into PSB Interim Bank, a  Pennsylvania  state  chartered
banking institution, as of the Effective Date of the Merger (as defined therein)
and,  upon the Effective  Date of the Merger,  PSB Interim Bank shall change its
name to The Peoples State Bank; and

     WHEREAS, as of the Effective Date of the Merger,  Peoples will be a wholly-
owned subsidiary of Community; and

     WHEREAS, for purposes of the Agreement,  Community and Peoples are referred
to collectively as the "Company."

     WHEREAS,  the Company wishes to employ Executive and Executive wishes to be
employed  by Company,  as an  Executive  Vice  President  and the Chief  Lending
Officer of Peoples,  upon the terms set forth below, as of the Effective Date of
the Merger; and

     NOW, THEREFORE,  in consideration of the agreements  hereinafter contained,
and intending to be legally bound hereby, the parties agree as follows:

          i.   Length of Employment.  Company  agrees to employ  Executive for a
               rolling term of two (2) years commencing on the Effective Date of
               the Merger. On each anniversary date of the Effective Date of the
               Merger, the term of this Agreement shall  automatically renew and
               extend for an additional  one (1) year period unless either party
               shall have  provided  notice of its  intent  not to renew  within
               sixty (60) days prior to such anniversary  date. Upon the date of
               any Change in Control (as defined in Paragraph  8) should  occur,
               the  term of this  Agreement  shall  automatically  renew  and be
               extended for two (2) years from such date.
<PAGE>

          ii.  Position   and   Responsibilities.   During  the  course  of  his
               employment,   Executive   shall  (i)   perform   the  duties  and
               responsibilities  of an Executive  Vice  President of Company and
               Chief Lending Officer of Peoples,  (ii) perform such other senior
               management duties and  responsibilities as the Board of Directors
               and CEO may direct,  and (iii)  shall be  afforded  the title and
               privileges  associated  with  being at least  an  Executive  Vice
               President of the Company.

          iii. Performance of Responsibilities, Loyalty.

               (1)  Executive  shall devote his full time to the  performance of
                    his responsibilities hereunder. Executive shall at all times
                    faithfully,  industriously  and to the best of his abilities
                    perform   all   duties    necessary   to   carry   out   his
                    responsibilities.

               (2)  Throughout the term hereof,  Executive shall not at any time
                    or  place,  either  directly  or  indirectly  engage  in any
                    business or activity in  competition  with or adverse to the
                    interests of Company.

          iv.  Compensation.

               (1)  During  the  initial  calendar  year  of the  term  of  this
                    Agreement,  Company  shall pay to Executive a base salary of
                    not less than $90,000.00.  During successive calendar years,
                    the Company may, in its discretion,  adjust the base salary;
                    provided  that it shall at no point  be  reduced  below  the
                    initial base  salary.  This salary shall be paid in regular,
                    substantially  equal  installments  in  accordance  with the
                    regular payroll  practices of the Company,  less any and all
                    applicable deductions for taxes, medical benefits, etc.

               (2)  In  addition  to  base  salary,  during  the  term  of  this
                    Agreement,   Company   shall  provide   Executive   with  an
                    automobile,  including  all  related  maintenance,  repairs,
                    insurance  and other costs.  In lieu of providing  Executive
                    with an  automobile,  Company may provide  Executive  with a
                    reasonable  allowance on a monthly  basis,  which  allowance
                    shall cover Executive's costs associated with an automobile,
                    including without limitation, lease or installment payments,
                    maintenance, repairs, insurance and other costs.

                                       2
<PAGE>

          v.   Benefits.

               (1)  Executive  shall receive  employee  benefits from Company no
                    less favorable than the employee  benefits he received as an
                    employee of Peoples and, in  addition,  shall be eligible to
                    participate   in  all  employee   benefit  plans   generally
                    available  to  executive  officers  of  Company,   including
                    without  limita  tion,  health and dental  insurance  plans,
                    group life insurance plans,  retirement plans, incentive com
                    pensation plans, supplemental executive retirement plans and
                    stock  option,  grant  or  appreciation  rights  plans.  The
                    participation of Executive in each benefit plan described in
                    this  paragraph  shall  be  subject  to  the  terms  of  the
                    applicable  plan and to procedures  generally  applicable to
                    Company officers;  provided,  however,  that Executive shall
                    receive credit for years of service with Peoples for vesting
                    purposes only.  Nothing in this paragraph shall obligate the
                    Company to offer any such plans.

               (2)  Executive shall be provided holiday pay, personal days, sick
                    leave,  short-term  disability and long- term  disability in
                    accordance  with  Company  policy  for  officers  of similar
                    position  performing  similar  duties.  Executive  shall  be
                    entitled  to at least  four (4)  weeks  paid  vacation  each
                    calendar year.

               (3)  The  Company  shall pay the  reasonable  costs of  Executive
                    attending   continuing   education   seminars   and  banking
                    conventions and meetings.

          vi.  Relocation.  Company  shall  not,  without  the prior  consent of
               Executive,  transfer  or relocate  the office in which  Executive
               performs the bulk of his duties to any location  more than thirty
               (30) miles from East Berlin,  Pennsylvania without an increase in
               duties and responsibilities and commensurate compensation. In the
               event Executive is so transferred or relocated, Company shall pay
               all reasonable  out-of-pocket  expenses  incurred by Executive in
               connection  with  such  relocation.  Company  shall  not  require
               Executive to move from his residence.

                                       3
<PAGE>

          vii. Termination  of  Employment.  This  Agreement  may be  terminated
               during the term hereof as follows:

               (1)  At any time by mutual agreement of Executive and Company.

                    (a)  If   this   Agreement   is   terminated   pursuant   to
                         subparagraph  (a)(1) of this Paragraph 7, neither party
                         shall have further obligation or liability to the other
                         hereunder,  except that Executive  shall be entitled to
                         accrued and unpaid salary.

               (2)  By Company,  at any time for Cause.  "Cause"  shall  include
                    Executive's personal dishonesty,  willful misconduct, breach
                    of fiduciary duty involving  personal profit,  incompetence,
                    intentional  failure  to  perform  stated  duties,   willful
                    violation of any law, rule or regulation (other than traffic
                    violations or offenses not involving moral turpitude), final
                    cease  and  desist  order of any  government  agency  having
                    jurisdiction  over  Company,  or  material  breach  of  this
                    Agreement,  following  Company's notice thereof to Executive
                    and Executive's failure to cure same within thirty (30) days
                    of such notice.

                    (a)  If   this   Agreement   is   terminated   pursuant   to
                         subparagraph  (b)(1) of this Paragraph 7, Company shall
                         have no further  obligation  or  liability to Executive
                         hereunder,  except that Executive  shall be entitled to
                         accrued and unpaid salary.

               (3)  Automatically,  if Executive is removed  and/or  permanently
                    prohibited  from  participating  in the conduct of Company's
                    affairs  by an order  issued  by an  appropriate  regulatory
                    agency under Section 8(e) of the Federal  Deposit  Insurance
                    Act, as amended, or any similar state or federal law.

                                       4
<PAGE>

                    (a)  If   this   Agreement   is   terminated   pursuant   to
                         subparagraph  (c)(1) of this Paragraph 7, Company shall
                         have no  further  obligation  or  liability  hereunder,
                         except that Executive  shall be entitled to accrued and
                         unpaid salary.

               (4)  By  Company  at  any  time,  if in  its  sole  judgment  and
                    discretion  the continued  employment of Executive  would no
                    longer be beneficial or desirable.

                    (a)  In the event that Executive's  employment is terminated
                         pursuant to this subparagraph  (d)(1) of this Paragraph
                         7,  Executive  shall not be  obligated  to perform  any
                         services  on behalf of  Company  and  Company  shall be
                         obligated  to  continue  Executive's  salary  and those
                         benefits  set forth in  Paragraph  5(a)  hereof for the
                         remaining term of this  Agreement;  provided,  however,
                         that in no event shall this provision  obligate Company
                         to make any  further  increase  to  Executive's  salary
                         above his  salary on the date of such  termination,  or
                         continue Executive's participation in any incentive com
                         pensation plan, or stock option,  grant or appreciation
                         rights   plan,   or   any   similar   incentive   based
                         compensation plan.

                    (b)  Notwithstanding  the provisions of subparagraph  (d)(2)
                         of  this  Paragraph,  in  the  event  that  Executive's
                         employment  is  terminated   pursuant  to  subparagraph
                         (d)(1) of this  Paragraph 7  subsequent  to a Change in
                         Control,  or the Company  shall breach any provision of
                         this  Agreement  subsequent  to a  Change  in  Control,
                         Executive  may  elect,  which  election  may be made in
                         Executive's sole discretion,  to receive from Company a
                         single payment upon such  termination  amounting to any
                         salary to which Executive would be entitled pursuant to
                         subparagraph  (d)(2), such single payment being in lieu
                         of the payments and benefits set forth in  subparagraph
                         (d)(2). As used in this paragraph,  "Change in Control"
                         shall have the meaning defined in Paragraph 8 hereof.

                                       5
<PAGE>

               (5)  By Executive upon a Change in Control.

                    (a)  In the event that  Executive  terminates his employment
                         pursuant to  subparagraph  (e)(i) of this  Paragraph 7,
                         Executive  may  elect,  which  election  may be made in
                         Executive's sole discretion,  to receive from Company a
                         single payment upon such  termination  amounting to any
                         salary to which Executive would be entitled pursuant to
                         subparagraph  (d)(2) of this  Paragraph  7, such single
                         payment  being in lieu of the payments and benefits set
                         forth in subparagraph (d)(2) of this Paragraph 7.

               (6)  By Executive at any time, upon thirty (30) days prior notice
                    to Company; provided,  however, that if this Agreement shall
                    be  terminated  pursuant to this sub  paragraph  (f) of this
                    Paragraph  7,  Company  shall not be  further  obligated  or
                    liable  under  this  Agreement,  except  for the  payment of
                    accrued and unpaid salary.

          viii. Definition of Change of Control. For purposes of this Agreement,
               the term "Change of Control" shall mean:

               (1)  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  Company  representing  24.99% or more of the
                    combined   voting   power  of  Company's   securities   then
                    outstanding;

               (2)  A merger,  consolidation or other reorganization of Company,
                    except where the resulting entity is controlled, directly or
                    indirectly, by Company;

               (3)  A merger,  consolidation or other reorganization of Company,
                    except where  shareholders of Company  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
                    Company's Board of Directors;

                                       6
<PAGE>

               (4)  A  sale,   exchange,   transfer  or  other   disposition  of
                    substantially  all of  the  assets  of  Company  to  another
                    entity,   except  to  an  entity  controlled,   directly  or
                    indirectly,  by Company or a  corporate  division  involving
                    Company;

               (5)  A contested  proxy  solicitation  of Company'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 Company.

               (6)  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 Company  cease for any reason  (other than for
                    health,  disability or other medical incapacity or voluntary
                    retirement) to constitute at least a majority thereof.

               (7)  The termination of employment of the Chief Executive Officer
                    of Company, other than for Cause pursuant to Section 6(c) or
                    voluntary  termination  under  Section  6(e)  of  a  certain
                    Employment  Agreement  between  Eddie  L.  Dunklebarger  and
                    Company,  of even date,  during the period commencing on the
                    Effective  Date of the  Merger  and  ending  two  (2)  years
                    thereafter.

          ix.  Suspension.   If  Executive  is  suspended   and/or   temporarily
               prohibited  from  participating  in the conduct of the  Company's
               affairs  by  a  notice  served  in  accordance  with  law  by  an
               appropriate  regulatory agency,  the Company's  obligations under
               this  Agreement  shall be  suspended  as of the date of  service,
               unless stayed by appropriate  proceedings.  If the charges in the
               notice are dismissed,  Company shall (i) pay Executive all of the
               compensation   withheld  while  its  contract   obligations  were
               suspended and (ii)  reinstate any of its  obligations  which were
               suspended.

                                       7
<PAGE>

          x.   Death or  Disability.  In the event that  Executive  is  rendered
               unable to complete  the terms of this  Agreement  due to death or
               disability  continuing  in  excess  of  ninety  (90)  days,  this
               Agreement  shall be terminated  and Company shall have no further
               liability,  obligations or  responsibilities  hereunder except as
               set forth in Paragraph 5(b) hereof.

          xi.  Covenant Not to Compete.  In the event  Executive  terminates his
               employment  with Company  pursuant to Paragraph  7(f),  he agrees
               that, for a period of one (1) year following such termination, he
               shall not (i) solicit any Company  employees or officers to leave
               Company to accept  employment  by Executive or his new  employer;
               and (ii)  solicit or  encourage  any Company  customers  to cease
               doing  business with the Company and/or to transfer any or all of
               their business  relationships to any institution  which Executive
               may found or to Executive's new employer.

          xii. Entire  Agreement.  As of the Effective Date of the Merger,  this
               Agreement and a certain  Salary  Continuation  Agreement  between
               Executive  and  Peoples  shall  constitute  the entire  agreement
               between  the  parties  and  no  prior  promises,   agreements  or
               warranties,  verbal  or  written,  shall be of any  force  unless
               embodied  herein.  No  modification of this Agreement shall be of
               any force or effect unless  reduced to writing and signed by both
               parties.  As of the  Effective  Date of the Merger,  the existing
               Employment  Agreement  between  Peoples  and  Executive  shall be
               terminated,  with no further rights or obligations thereunder due
               to or from either party, and this Agreement shall supersede same.

          xiii. Miscellaneous.

               (1)  This  Agreement  shall  be  binding  upon  and  inure to the
                    benefit  of the  parties  hereto,  their  respective  heirs,
                    successors and assigns.

               (2)  This  Agreement  shall not be modified or changed in any way
                    except by a written agreement signed by the parties hereto.

               (3)  No  waiver  by any party  hereto  of any  provision  of this
                    Agreement  shall be deemed a waiver of said provision or any
                    other provisions of this Agreement.

                                       8
<PAGE>

               (4)  This Agreement shall be interpreted,  construed and governed
                    in  accordance   with  the  laws  of  the   Commonwealth  of
                    Pennsylvania.  The  invalidity  or  unenforceability  of any
                    provision of this Agreement shall not affect the validity or
                    enforceability  of any other  provision  of this  Agreement,
                    which shall remain in full force and effect.

     IN WITNESS WHEREOF, the parties have set their hands and seals.

ATTEST:                                            COMMUNITY BANKS, INC.

/S/Patricia E. Hoch                             By: /S/ Thomas L. Miller
-------------------                                ---------------------

                                                   THE PEOPLES STATE BANK

/S/ Carole L. Parr                              By: /S/ Eddie L. Dunklebarger
------------------                                  -------------------------

WITNESS:                                                 EXECUTIVE:

/S/ Carole L. Parr                                  /S/ Jeffrey M. Seibert
------------------                                  ----------------------
                                                        Jeffrey M. Seibert

                                       9
<PAGE>

                    AGREEMENT TO MODIFY EMPLOYMENT AGREEMENT

     THIS  AGREEMENT  TO  MODIFY  EMPLOYMENT  AGREEMENT  ("Employment  Agreement
Modification")  is entered into on this 15th day of January,  2002, by COMMUNITY
BANKS, INC., a Pennsylvania corporation  ("Community"),  COMMUNITY BANKS, a bank
and trust company  organized and existing under the laws of the  Commonwealth of
Pennsylvania,  formerly known as The Peoples State Bank ("Bank"), and JEFFREY S.
SEIBERT (the "Executive").

                                   BACKGROUND

     A.  Corporation,  Bank and Executive  entered into an Employment  Agreement
("Agreement") on or about October 29, 1997.

     B. The parties wish to modify the  identification  of Executive's job title
in the Agreement.

     NOW, THEREFORE, in consideration of the foregoing premises and intending to
be legally bound, the parties hereby agree as follows:

     1.  Modification of Job Title.  Effective  March 30, 2001,  Executive's job
title shall be "Managing Director - Banking Services  Division",  in addition to
his title of Executive Vice President of the Bank and the Corporation.

     2. No Other Changes.  Except as specifically modified herein, all terms and
conditions of the Agreement shall remain in full force and effect.

     IN WITNESS WHEREOF, the Executive and duly authorized officers of Community
and Bank have signed this Employment Agreement Modification.

EXECUTIVE:

 /S/ Jeffrey M. Seibert
-----------------------------------------------
Jeffrey S. Seibert

WITNESS/ATTEST:                                           COMMUNITY BANKS

 /S/ Patricia E. Hoch                               By /S/ Eddie L. Dunklebarger
---------------------------------------------          -------------------------
                                                    Title President & CEO
                                                         -----------------------

WITNESS/ATTEST:                                        COMMUNITY BANKS, INC.

 /S/ Patricia E. Hoch                               By /S/ Eddie L. Dunklebarger
----------------------------------------------         -------------------------
                                                    Title   Chairman & CEO
                                                         -----------------------

                                       10

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