<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20459
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999, or
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No. 0-10587
-------
FULTON FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2195389
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Penn Square, P.O. Box 4887 Lancaster, Pennsylvania 17604
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(717) 291-2411
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $2.50 Par Value - 69,208,549 shares outstanding as of April
-------------------------------------------------------------------------
30, 1999.
- --------
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
-----
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998................................. 3
(b) Consolidated Statements of Income -
Three months ended March 31, 1999 and 1998........................... 4
(c) Consolidated Statements of Shareholders' Equity -
Three months ended March 31, 1999 and 1998........................... 5
(d) Consolidated Statements of Cash Flows -
Three months ended March 31, 1999 and 1998........................... 6
(e) Notes to Consolidated Financial Statements - March 31, 1999.......... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk........ 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 20
SIGNATURES................................................................ 21
</TABLE>
2
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 December 31
1999 1998
-------------------------------------
<S> <C> <C>
ASSETS
- ----------------------------------------------------------------------------------------------------------------------------
Cash and due from banks............................................................... $ 225,586 $ 247,558
Interest-bearing deposits with other banks............................................ 5,090 2,975
Mortgage loans held for sale.......................................................... 9,328 7,987
Investment securities:
Held to maturity (Fair value: $139,341 in 1999 and $177,939 in 1998)............. 138,182 176,623
Available for sale............................................................... 1,204,742 1,206,121
Loans................................................................................. 4,059,655 4,040,455
Less: Allowance for loan losses................................................. (58,440) (57,415)
Unearned income........................................................ (9,646) (10,064)
------------ ------------
Net Loans.................................................... 3,991,569 3,972,976
------------ ------------
Premises and equipment................................................................ 75,941 75,715
Accrued interest receivable........................................................... 33,897 34,942
Other assets.......................................................................... 102,246 113,766
------------ ------------
Total Assets................................................. $ 5,786,581 $ 5,838,663
============ ============
LIABILITIES
- ----------------------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing.............................................................. $ 706,152 $ 759,585
Interest-bearing................................................................. 3,802,271 3,833,384
------------ ------------
Total Deposits............................................... 4,508,423 4,592,969
------------ ------------
Short-term borrowings:
Securities sold under agreements to repurchase................................... 229,981 212,225
Federal funds purchased.......................................................... 19,840 19,521
Demand notes of U.S. Treasury.................................................... 5,186 3,839
------------ ------------
Total Short-Term Borrowings.................................. 255,007 235,585
------------ ------------
Accrued interest payable.............................................................. 34,229 34,255
Other liabilities..................................................................... 74,547 71,502
Long-term debt........................................................................ 295,826 296,018
------------ ------------
Total Liabilities............................................ 5,168,032 5,230,329
------------ ------------
SHAREHOLDERS' EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
Common stock ($2.50 par)
Shares: Authorized 400,000,000
Issued 69,360,146 (69,360,146 in 1998)
Outstanding 69,198,686 (69,185,120 in 1998)............................ 173,365 157,638
Capital surplus....................................................................... 408,461 293,897
Retained earnings..................................................................... 19,925 136,668
Accumulated other comprehensive income................................................ 20,156 23,619
Treasury stock, at cost (161,460 shares in 1999 and 175,026 shares in 1998)........... (3,358) (3,488)
------------ ------------
Total Shareholders' Equity................................... 618,549 608,334
------------ ------------
Total Liabilities and Shareholders' Equity................... $ 5,786,581 $ 5,838,663
============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
INTEREST INCOME
- -----------------------------------------------------------------------------------------------------
Loans, including fees.............................................. $ 82,280 $ 84,245
Investment securities:
Taxable......................................................... 16,219 13,708
Tax-exempt...................................................... 1,792 892
Dividends....................................................... 993 844
Federal funds sold................................................. 37 225
Interest-bearing deposits with other banks......................... 29 70
----------- ----------
Total Interest Income............................... 101,350 99,984
INTEREST EXPENSE
- -----------------------------------------------------------------------------------------------------
Deposits........................................................... 36,030 39,752
Short-term borrowings.............................................. 2,870 2,270
Long-term debt..................................................... 3,782 1,251
----------- ----------
Total Interest Expense.............................. 42,682 43,273
----------- ----------
Net Interest Income................................. 58,668 56,711
PROVISION FOR LOAN LOSSES.......................................... 1,967 1,611
----------- ----------
Net Interest Income After
Provision for Loan Losses......................... 56,701 55,100
----------- ----------
OTHER INCOME
- -----------------------------------------------------------------------------------------------------
Investment management and trust services........................... 3,417 3,037
Service charges on deposit accounts................................ 4,770 4,359
Other service charges and fees..................................... 3,069 2,702
Mortgage banking income............................................ 1,283 1,156
Investment securities gains........................................ 3,057 3,382
----------- ----------
Total Other Income.................................. 15,596 14,636
OTHER EXPENSES
- -----------------------------------------------------------------------------------------------------
Salaries and employee benefits..................................... 21,362 20,968
Net occupancy expense.............................................. 3,275 3,138
Equipment expense.................................................. 2,293 2,428
Special services................................................... 2,880 2,285
Other.............................................................. 9,213 10,180
----------- ----------
Total Other Expenses................................ 39,023 38,999
----------- ----------
Income Before Income Taxes.......................... 33,274 30,737
INCOME TAXES....................................................... 9,747 9,564
----------- ----------
Net Income.......................................... $ 23,527 $ 21,173
=========== ==========
- -----------------------------------------------------------------------------------------------------
PER-SHARE DATA:
Net income (basic)................................................. $ 0.34 $ 0.31
Net income (diluted)............................................... $ 0.34 $ 0.30
Cash dividends..................................................... $ 0.136 $ 0.125
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
FULTON FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHEN-
COMMON CAPITAL RETAINED SIVE
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) STOCK SURPLUS EARNINGS INCOME
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998..................................... $ 157,638 $ 293,897 $ 136,668 $ 23,619
Comprehensive income:
Net income..................................................... 23,527
Other - unrealized loss on securities (net of $1.9 million
tax benefit)........................................... (3,463)
Total comprehensive income..................................
Stock dividends declared - 10% (6,290,826 shares)................ 15,727 115,122 (130,849)
Stock issued (53,266 shares of treasury stock)................... (558)
Acquisition of treasury stock (39,700 shares)....................
Cash dividends - $0.136 per share................................ (9,421)
--------------------------------------------------------
Balance at March 31, 1999........................................ $ 173,365 $ 408,461 $ 19,925 $ 20,156
========================================================
Balance at December 31, 1997..................................... $ 126,497 $ 326,402 $ 84,634 $ 28,257
Comprehensive income:
Net income..................................................... 21,173
Other - unrealized gain on securities (net of $1.5 million
tax expense)............................................ 2,783
Total comprehensive income..................................
Stock issued (114,645 shares, including 67,194 shares of
treasury stock)................................................ 114 (464)
Acquisition of treasury stock (48,813 shares)....................
Cash dividends - $0.125 per share................................ (8,574)
--------------------------------------------------------
Balance at March 31, 1998........................................ $ 126,611 $ 325,938 $ 97,233 $ 31,040
========================================================
<CAPTION>
TREASURY
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) STOCK TOTAL
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1998..................................... $ (3,488) $ 608,334
Comprehensive income:
Net income..................................................... 23,527
Other - unrealized loss on securities (net of $1.9 million
tax benefit)........................................... (3,463)
-----------
Total comprehensive income.................................. 20,064
-----------
Stock dividends declared - 10% (6,290,826 shares)................ -
Stock issued (53,266 shares of treasury stock)................... 910 352
Acquisition of treasury stock (39,700 shares).................... (780) (780)
Cash dividends - $0.136 per share................................ (9,421)
-------------------------
Balance at March 31, 1999........................................ $ (3,358) $ 618,549
=========================
Balance at December 31, 1997..................................... $ (1,299) $ 564,491
Comprehensive income:
Net income..................................................... 21,173
Other - unrealized gain on securities (net of $1.5 million
tax expense)............................................ 2,783
-----------
Total comprehensive income.................................. 23,956
-----------
Stock issued (114,645 shares, including 67,194 shares of
treasury stock)................................................ 1,442 1,092
Acquisition of treasury stock (48,813 shares).................... (1,112) (1,112)
Cash dividends - $0.125 per share................................ (8,574)
-------------------------
Balance at March 31, 1998........................................ $ (969) $ 579,853
=========================
- --------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------------
1999 1998
------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income........................................................................... $ 23,527 $ 21,173
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses.......................................................... 1,967 1,611
Depreciation and amortization of premises and equipment............................ 2,383 2,332
Net amortization of investment security premiums................................... 405 59
Investment security gains.......................................................... (3,057) (3,382)
Net increase in mortgage loans held for sale....................................... (1,341) (3,027)
Amortization of intangible assets.................................................. 325 395
Decrease (increase) in accrued interest receivable................................. 1,045 (1,405)
Decrease in other assets........................................................... 12,784 12,325
(Decrease) increase in accrued interest payable.................................... (26) 2,390
Increase (decrease) in other liabilities........................................... 7,273 (1,938)
---------- ----------
Total adjustments.............................................................. 21,758 9,360
---------- ----------
Net cash provided by operating activities....................................... 45,285 30,533
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale................................. 7,070 7,844
Proceeds from maturities of securities held to maturity.............................. 38,524 55,266
Proceeds from maturities of securities available for sale............................ 73,018 47,899
Purchase of securities held to maturity.............................................. (121) (5,338)
Purchase of securities available for sale............................................ (85,307) (120,418)
Increase in short-term investments................................................... (2,115) (58,570)
Net (increase) decrease in loans..................................................... (20,560) 20,990
Purchase of premises and equipment................................................... (2,609) (3,074)
---------- ----------
Net cash provided by (used in) investing activities............................. 7,900 (55,401)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits............................... (70,551) 7,751
Net (decrease) increase in time deposits............................................. (13,995) 7,902
(Decrease) increase in long-term debt................................................ (192) 84,018
Increase (decrease) in short-term borrowings......................................... 19,422 (56,598)
Dividends paid....................................................................... (9,413) (8,574)
Net proceeds from issuance of common stock........................................... 352 1,092
Acquisition of treasury stock........................................................ (780) (1,112)
---------- ----------
Net cash (used in) provided by financing activities............................. (75,157) 34,479
---------- ----------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS................................... (21,972) 9,611
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD....................................... 247,558 208,289
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD............................................. $ 225,586 $ 217,900
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest........................................................................... $ 42,708 $ 40,883
Income taxes....................................................................... - 500
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
NOTE B - 10% STOCK DIVIDEND
The Corporation declared a 10% stock dividend on April 20, 1999 which will be
paid on June 1, 1999 to shareholders of record on May 10, 1999. All share and
per-share information has been restated to reflect the effect of this stock
dividend. In addition, shareholders' equity accounts have been adjusted to
reflect the impact of the dividend, assuming 62,908,000 shares are outstanding
on the payment date.
NOTE C - NET INCOME PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share,"
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital structures. The
Corporation's basic net income per share is calculated as net income divided by
the weighted average number of shares outstanding. For diluted net income per
share, net income is divided by the weighted average number of shares
outstanding plus the incremental number of shares added as a result of
converting common stock equivalents, calculated using the treasury stock method.
The Corporation's common stock equivalents consist solely of outstanding stock
options.
A reconciliation of the weighted average shares outstanding used to calculate
basic net income per share and diluted net income per share follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1999 1998
---- ----
<S> <C> <C>
Weighted average shares outstanding (basic)....... 69,170 68,822
Impact of common stock equivalents................ 406 1,041
--------- -------
Weighted average shares outstanding (diluted)..... 69,576 69,863
========= =======
</TABLE>
NOTE D - MERGERS AND ACQUISITIONS
Ambassador Bank of the Commonwealth. - On September 11, 1998, the Corporation
completed its acquisition of Ambassador Bank of the Commonwealth (Ambassador), a
$275 million bank located in Allentown, Pennsylvania. As provided under the
terms of the merger agreement, each of the 1.9 million shares of Ambassador's
common stock were exchanged for 1.54 shares of the Corporation's common stock.
In addition, the 417,000 options and warrants to acquire Ambassador stock were
exchanged for approximately 450,000 shares of the Corporation's common stock.
The Corporation issued approximately 3.4 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
As a result of the acquisition, Ambassador was merged with and into Lafayette
Bank, one of the Corporation's existing affiliate banks, which thereupon changed
its name to "Lafayette Ambassador Bank."
7
<PAGE>
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation completed its
acquisition of Keystone Heritage Group, Inc. (Keystone Heritage), a $650 million
bank holding company located in Lebanon, Pennsylvania. As provided under the
terms of the merger agreement, each of the approximately 4.0 million shares of
Keystone Heritage's common stock was exchanged for 2.517 shares of the
Corporation's common stock. In addition, each of the 70,000 options to acquire
Keystone Heritage stock was converted to options to acquire the Corporation's
stock. The Corporation issued 10.0 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
In order to effect the acquisition, Keystone Heritage was merged with and into
the Corporation. Its sole banking subsidiary, Lebanon Valley National Bank
(Lebanon Valley), was merged with and into Farmers Trust Bank, one of the
Corporation's existing affiliate banks, which changed its name to "Lebanon
Valley Farmers Bank." Lebanon Valley's deposits, loans and branches located in
Lancaster and Dauphin Counties were transferred by Lebanon Valley Farmers Bank
to Fulton Bank, the Corporation's Lancaster-based affiliate bank, immediately
after the merger was completed.
NOTE E - NEW ACCOUNTING STANDARDS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and for Hedging Activities" (Statement 133), was issued in July, 1998. Statement
133 replaces existing accounting practices with a single, integrated accounting
framework for derivatives and hedging activities. Under Statement 133, every
derivative is recorded in the balance sheet as either an asset or liability
measured at its fair value and changes in fair value are recognized currently in
earnings unless specific hedge accounting criteria are met. Statement 133 is
effective for years beginning after June 15, 1999. The Corporation does not
expect the adoption of Statement 133 to have a material impact on its balance
sheet or net income.
REPORTING COMPREHENSIVE INCOME: The Corporation adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (Statement 130)
in 1998. Statement 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The objective of Statement 130 is to report a measure of
all changes in equity that result from economic events of the period other than
transactions with owners. Comprehensive income is the total of net income and
all other non-owner changes in equity. Currently, other non-owner changes in
equity include only unrealized gains and losses on available for sale investment
securities.
The following table summarizes the reclassification adjustment for realized
security gains (net of taxes) for each of the indicated periods:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Unrealized holding (losses) gains arising during period....... $ (1,476) $ 4,981
Less: reclassification adjustment for gains included
in net income............................................. 1,987 2,198
---------- ---------
Net unrealized (losses) gains on securities................... $ (3,463) $ 2,783
========== =========
</TABLE>
NOTE F - SUBSEQUENT EVENTS
On June 20, 1989, the Board of Directors of the Corporation declared a dividend
of one common share purchase right (Original Rights) for each outstanding share
of common stock, par value $2.50 per share of the Corporation. The dividend was
paid to the shareholders of record as of the close of business on July 6, 1989.
On April 27, 1999, the Board of Directors approved an amendment to the Original
Rights
8
<PAGE>
and the agreement. The significant terms of the amendment included extending
expiration date from June 20, 1999 to April 27, 2009 and resetting the purchase
price to $90.00 per share.
The Rights are not exercisable or transferable apart from the common stock prior
to distribution. Distribution of the Rights will occur ten business days
following (1) a public announcement that a person or group of persons
("Acquiring Person") has acquired or obtained the right to acquire beneficial
ownership of 20% or more of the outstanding shares of common stock (the "Stock
Acquisition Date") or (2) the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 25% or more of such
outstanding shares of common stock. The Rights are redeemable in full, but not
in part, by the Corporation at any time until ten business days following the
Stock Acquisition Date, at a price of $0.01 per Right.
9
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
This discussion concerns Fulton Financial Corporation (the Corporation), a bank
holding company incorporated under the laws of the Commonwealth of Pennsylvania
in 1982, and its wholly-owned subsidiaries. This discussion and analysis should
be read in conjunction with the consolidated financial statements and other
financial information presented in this report.
The Corporation has made, and may continue to make, certain forward-looking
statements with respect to its management of net interest income and margin,
allowance and provision for loan losses and its progress in addressing Year 2000
issues. The Corporation cautions that these forward-looking statements are
subject to various assumptions, risks and uncertainties. Because of the
possibility of changes in these assumptions, risks and uncertainties, actual
results could differ materially from forward-looking statements.
In addition to the factors identified herein, the following could cause actual
results to differ materially from such forward looking statements: pricing
pressures on loan and deposit products, actions of bank and nonbank competitors,
changes in local and national economic conditions, changes in regulatory
requirements and regulatory oversight of the Corporation, actions of the Federal
Reserve Board, the Corporation's success in merger and acquisition integration
and the progress of the Corporation in its efforts to ensure Year 2000
compliance.
The Corporation's forward-looking statements are relevant only as of the date on
which such statements are made. By making any forward-looking statements, the
Corporation assumes no duty to update them to reflect new, changing or
unanticipated events or circumstances.
MERGER AND ACQUISITIONS
- -----------------------
Ambassador Bank of the Commonwealth. - On September 11, 1998, the Corporation
completed its acquisition of Ambassador Bank of the Commonwealth (Ambassador), a
$275 million bank located in Allentown, Pennsylvania. As provided under the
terms of the merger agreement, each of the 1.9 million shares of Ambassador's
common stock were exchanged for 1.54 shares of the Corporation's common stock.
In addition, the 417,000 options and warrants to acquire Ambassador stock were
exchanged for approximately 450,000 shares of the Corporation's common stock.
The Corporation issued approximately 3.4 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
As a result of the acquisition, Ambassador was merged with and into Lafayette
Bank, one of the Corporation's existing affiliate banks, which thereupon changed
its name to "Lafayette Ambassador Bank."
Keystone Heritage Group, Inc. - On March 27, 1998, the Corporation completed its
acquisition of Keystone Heritage Group, Inc. (Keystone Heritage), a $650 million
bank holding company located in Lebanon, Pennsylvania. As provided under the
terms of the merger agreement, each of the approximately 4.0 million shares of
Keystone Heritage's common stock was exchanged for 2.517 shares of the
Corporation's common stock. In addition, each of the 70,000 options to acquire
Keystone Heritage stock was converted to options to acquire the Corporation's
stock. The Corporation issued 10.0 million shares of its common stock in
connection with the merger, which was accounted for as a pooling of interests.
In order to effect the acquisition, Keystone Heritage was merged with and into
the Corporation. Its sole banking subsidiary, Lebanon Valley National Bank
(Lebanon Valley), was merged with and into Farmers Trust Bank, one of the
Corporation's existing affiliate banks, which changed its name to "Lebanon
Valley Farmers Bank." Lebanon Valley's deposits, loans and branches located in
Lancaster and Dauphin Counties were transferred by Lebanon Valley Farmers Bank
to Fulton Bank, the Corporation's Lancaster-based affiliate bank, immediately
after the merger was completed.
10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Quarter ended March 31, 1999 versus Quarter ended March 31, 1998
- ------------------------------------------------------------------
Fulton Financial Corporation's net income for the first quarter of 1999
increased $2.4 million, or 11.1%, in comparison to net income for the first
quarter of 1998. Diluted net income per share increased $0.04, or 13.3%,
compared to 1998. First quarter net income of $23.5 million, or $0.34 per share
(basic and diluted), represented a return on average assets (ROA) of 1.66% and a
return on average equity (ROE) of 15.62%. This compares to 1998 net income of
$21.2 million, or $0.31 per share (basic) and $0.30 per share (diluted) (1.60%
ROA and 15.06% ROE). Excluding the impact of unrealized gains on investment
securities, return on average equity was 16.25% in 1999 and 15.85% in 1998.
The increase in net income in 1999 was a result of continued growth of the
Corporation's core banking business, as shown by increases in both net interest
income and non-interest income. The Corporation's expense levels also remained
flat in comparison to prior year.
Net Interest Income
- -------------------
Net interest income increased $2.0 million, or 3.5%, for the quarter. Overall,
this increase was a result of growth in the Corporation's balance sheet, offset
by declines in interest rates. The following tables summarize the components of
the increase in net interest income as well as the changes in average balances
of interest-earning assets and interest-bearing liabilities from the first
quarter of 1998 to the first quarter of 1999 and the average interest rates
thereon. All dollar amounts are in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31 CHANGE
------------------------------- --------------------------------
1999 1998 DOLLAR PERCENT
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income................. $ 101,350 $ 99,984 $ 1,366 1.4%
Interest expense................ 42,682 43,273 (591) (1.4%)
----------- ----------- ----------- ------------
Net interest income............. $ 58,668 $ 56,711 $ 1,957 3.5%
=========== =========== =========== ===========
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------------- ---------------
1999 1998 % CHANGE
------------- ------------ ---------------
<S> <C> <C> <C>
Average interest-earning assets.................... $ 5,362,577 4,998,954 7.3%
Yield on earning assets............................ 7.66% 8.11% (5.5%)
Average interest-bearing liabilities............... $ 4,364,970 $ 4,071,187 7.2%
Cost of interest-bearing liabilities............... 3.97% 4.31% (7.9%)
Net interest margin (fully taxable equivalent)..... 4.56% 4.70% (3.0%)
</TABLE>
The 7.3% increase in average earning assets accounted for an interest income
increase of approximately $7.3 million. However, this was offset by a $5.9
million reduction due to the 45 basis point decline in yield. Overall yields on
earning assets declined from the first quarter of 1998 to the first quarter of
1999 as a result of several factors. First, interest rates in general declined
as evidenced by the decrease in the Fulton Bank prime lending rate from 8.50% in
1998 to 7.75% in 1999. Second, the mix of earning assets changed from 79% loans
and 21% investments in 1998 to 75% loans and 25% investments in 1999. In
general, the yields on investments are lower.
The Corporation's average loan portfolio grew by approximately $74 million, or
1.9%, mainly in commercial mortgages ($120 million or 12.4% increase). Overall
loan growth has been negatively impacted by the relatively low interest rate
environment as borrowers have been refinancing residential mortgage
11
<PAGE>
loans to fixed rates. These loans are generally sold by the Corporation to
reduce its interest rate risk. As a result, residential mortgages decreased $46
million or 5.1% from 1998 to 1999. The majority of the growth in earning assets
was realized in investment securities which increased $296 million, or 28.0%.
The 7.2% increase in average interest-bearing liabilities resulted in a $3.1
million increase in interest expense. This was offset by a $3.7 million decrease
in interest expense as a result of a 34 basis point decrease in the overall cost
of interest-bearing liabilities. The majority of the increase in interest-
bearing liabilities occurred in long-term debt, which grew $208 million or 237%,
as the Corporation borrowed from the Federal Home Loan Bank to take advantage of
lower fixed interest rates.
Due to the decline in interest rates, the shift in the mix of earning assets,
and the increase in long-term debt, the Corporation's net interest margin
decreased 14 basis points, from 4.70% in 1998 to 4.56% in 1999. The financial
services industry has become increasingly competitive in recent years.
Competition for loans has resulted in downward pressure on yields and
competition for deposits has resulted in upward pressure on rates. In the
future, the ability to maintain the net interest margin while growing the
balance sheet will continue to be a challenge for the Corporation. Management
believes, however, that the Corporation has an effective asset/liability
management function. See "Liquidity and Interest Rate Risk."
Provision and Allowance for Loan Losses
- ---------------------------------------
The following table summarizes loans outstanding (including unearned income) as
of the dates shown:
<TABLE>
<CAPTION>
MARCH 31 December 31
1999 1998
------------ ---------------
(in thousands)
<S> <C>
Commercial, financial and agricultural....... $ 589,046 $ 559,517
Real estate - construction................... 132,061 130,051
Real estate - mortgage....................... 2,600,769 2,596,364
Consumer..................................... 676,969 698,323
Leasing and other............................ 60,810 56,200
----------- ------------
Totals.................................... $ 4,059,655 $ 4,040,455
=========== ============
</TABLE>
12
<PAGE>
The following table summarizes the activity in the Corporation's allowance for
loan losses:
<TABLE>
<CAPTION>
Three Months Ended March 31
--------------------------------
1999 1998
-------------- ---------------
(dollars in thousands)
<S>............................................................ <C> <C>
Loans outstanding at end of period (net of unearned)........... $ 4,050,009 $ 3,939,564
============ ============
Daily average balance of loans and leases...................... $ 4,040,545 $ 3,966,607
============ ============
Balance of allowance for loan losses
at beginning of period...................................... $ 57,415 $ 57,557
Loans charged-off:
Commercial, financial and agricultural...................... 624 399
Real estate - mortgage...................................... 157 245
Consumer.................................................... 1,403 978
Leasing and other........................................... 17 27
------------ ------------
Total loans charged-off..................................... 2,201 1,649
------------ ------------
Recoveries of loans previously charged-off:
Commercial, financial and agricultural...................... 560 166
Real estate - mortgage...................................... 284 61
Consumer.................................................... 415 331
Leasing and other........................................... - 1
------------ ------------
Total recoveries............................................ 1,259 559
------------ ------------
Net loans charged-off.......................................... 942 1,090
Provision for loan losses...................................... 1,967 1,611
------------ ------------
Balance at end of period....................................... $ 58,440 $ 58,078
============ =============
Net charge-offs to average loans (annualized).................. 0.09% 0.11%
============ =============
Allowance for loan losses to loans outstanding................. 1.44% 1.47%
============ =============
</TABLE>
The following table summarizes the Corporation's non-performing assets as of the
periods shown:
<TABLE>
<CAPTION>
MARCH 31 DEC. 31 MARCH 31
(Dollars in thousands) 1999 1998 1998
-------------- -------------- -------------
<S> <C> <C> <C>
Nonaccrual loans............................... $ 18,149 $ 19,281 $ 20,707
Loans 90 days past due and accruing............ 11,009 11,109 8,950
Other real estate owned (OREO)................. 1,478 1,420 1,949
-------------- -------------- --------------
Total non-performing assets.................... $ 30,636 $ 31,810 $ 31,606
============== ============== ==============
Non-performing loans/Total loans............... 0.72% 0.75% 0.75%
Non-performing assets/Total assets............. 0.53% 0.54% 0.58%
Non-performing assets/Gross loans and OREO..... 0.76% 0.81% 0.80%
</TABLE>
Additions to the allowance for loan losses are charged to income through the
provision for loan losses when, in the opinion of management and based on
continuing analyses of the loan portfolio, it is believed that the allowance is
not adequate. Management considers various factors in assessing the adequacy of
the allowance for loan losses and determining the provision for the period.
Among these are charge-off history and trends, risk classification of
significant credits, adequacy of collateral, the mix and risk
13
<PAGE>
characteristics of loan types in the portfolio, and the balance of the allowance
relative to total and nonperforming loans. Additional consideration is given to
local and national economic conditions. The Corporation's policy is individually
applied to each of the eleven affiliate banks. Resulting provisions and
allowances are aggregated for consolidated financial reporting.
For the first quarter of 1999, net charge-offs totaled $942,000, or 0.09%, of
average loans on an annualized basis. This compares to $1.1 million, or 0.11%,
for the first quarter of 1998 and 0.14% for all of 1998. Non-performing loans
to total loans were 0.72% at March 31, 1999 as compared to 0.75% at both
December 31, 1998 and March 31, 1998.
Although there were slight improvements in the loan quality measures described
above, the provision for loan losses increased $356,000 or 22.1% in comparison
to the first quarter of 1998. This increase was due to several factors. First,
the $942,000 in charge-offs for the first quarter includes four commercial
recoveries totaling approximately $300,000. Excluding these items, which are not
considered to be indicative of the Corporation's normal recovery history,
annualized net charge-offs to average loans would be 0.12%.
Second, since focusing on indirect lending as a loan growth strategy over the
last few years, the Corporation's consumer charge-offs have continued to grow.
In the first quarter of 1998, consumer charge-offs were 59% of total net charge-
offs, or 0.39% of average consumer loans on an annualized basis. For the first
quarter of 1999, consumer charge-offs accounted for 79% of the total (as
adjusted for the $300,000 in commercial charge-offs discussed in the preceding
paragraph) or 0.66% of total consumer loans. Although the growth in consumer
loans has slowed significantly as a result of rate competition, much of the
remaining portfolio consists of loans originated in the past three years. These
loans are believed to include additional losses consistent with recent charge-
off history.
The Corporation's periodic loan portfolio review and allowance calculation
resulted in an unallocated allowance for loan losses of 32% at March 31, 1999
and 30% at December 31, 1998. This fairly stable unallocated level supports the
provision for loan losses for the quarter and the balance of the allowance for
loan losses as of March 31, 1999. Management believes that the allowance balance
of $58.4 million is sufficient to cover losses incurred in the loan portfolio
and appropriate based on applicable accounting standards.
Other Income
- ------------
Other income for the quarter ended March 31, 1999 was $15.6 million. This was an
increase of $960,000 or 6.6% over the comparable period in 1998. Excluding
investment security gains, which decreased from $3.4 million in 1998 to $3.1
million in 1999, other income increased $1.3 million or 11.4%. Increases were
realized in all major categories of other income. Investment management and
trust services income increased $380,000, or 12.5%, due to the introduction of
new trust products and services, such as investment brokerage services, and
continued emphasis on the Corporation's traditional trust services. Service
charges on deposit accounts increased $411,000, or 9.4%, as a result of the $132
million or 6.1% growth in average savings and demand deposit accounts which
generate the majority of service charges.
Other service charges and fees increased $367,000, or 13.6%, as a result of
higher debit card revenue ($134,000, or 40.0% increase), and other special fee
revenue. Mortgage banking income increased $127,000, or 11.0%, as relatively low
interest rates continued to support higher than normal refinance volumes.
Other Expenses
- --------------
Total other expenses for the first quarter of 1999 of $39.0 million showed an
increase of only $24,000 or 0.1% over 1998. This small increase was
attributable to expense management efforts in 1999 as well as certain non-
recurring items in 1998. In 1998, the Corporation incurred $895,000 in
professional fee expenses related to its acquisition of Keystone Heritage Group,
Inc. Excluding these expenses, the increase in total other expenses was
moderate at $919,000, or 2.4%.
14
<PAGE>
Salaries and employee benefits increased $394,000, or 1.9%, in comparison to the
first quarter of 1998. Salaries expense decreased slightly ($43,000, or 0.2%),
reflecting the absorption of employees from Keystone Heritage and Ambassador
into the Corporation over the past year. Employee benefits expense increased
$437,000, or 12.8%, mainly due to increased medical insurance costs.
Net occupancy expense increased $137,000, or 4.4%, due to growth. Equipment
expense decreased $135,000, or 5.6%, and special services expense, which
represents the cost of data processing, increased $595,000, or 26.0%. The
decrease in equipment expense and the increase in special services reflect the
conversion of Lebanon Valley to the Corporation's outside data processing
servicer upon merging with the Corporation in March, 1998. Prior to the merger,
Lebanon Valley's core data processing function was in-house, using bank-owned
equipment, software and personnel. Subsequent to the merger, Lebanon Valley was
added to the Corporation's organization-wide third party data processing system.
Other expenses decreased $967,000, or 9.5%, in 1999 to $9.0 million, as compared
to $10.0 million for the same period in 1998. This decrease was mainly due to
the merger related professional fees discussed above.
Income Taxes
- ------------
Income tax expense for the quarter was $9.7 million as compared to $9.6 million
for the comparable period in 1998, a $183,000 or 1.9% increase. The effective
tax rate was 29.3% for 1999 and 31.1% in 1998. The 1998 effective rate was
higher due to the impact of the non-deductible merger-related expenses incurred
in 1998. In addition, federal tax credits from the Corporation's investments in
qualifying low income housing projects increased to $1.5 million in 1999 from
$1.3 million in 1998. Adjusting for these factors, the 1998 effective tax rate
would have been 29.4%.
FINANCIAL CONDITION
- -------------------
At March 31, 1999, the Corporation had total assets of $5.8 billion, reflecting
a decrease of $52.1 million, or 0.9%, from December 31, 1998.
During the first quarter of 1999, the decrease in assets was generally a
function of lower funding levels. Non-interest bearing deposits decreased $53.4
million, or 7.0%, and interest-bearing deposits decreased $31.1 million or 0.8%.
However, with net loans increasing only $19.6 million or 0.5% as a result of
competition and residential mortgage run-off (see "Net Interest Income"), the
Corporation did not have to replace these all of these lost funds with higher-
cost alternatives. Short-term borrowings increased only $19.4 million or 8.2%.
In addition, cash balances decreased by $22.0 million and funds from maturities
of investment securities held to maturity, totaling $38.5 million, were not
reinvested.
Capital Resources
- -----------------
Shareholders' equity increased $10.2 million or 1.7% during the first three
months of 1999. This increase was a result of net income for the quarter, offset
by cash dividends paid to shareholders. As of March 31, 1999, retained earnings
was reduced by the value of stock to be issued for the 10% stock dividend to be
paid on June 1, 1999. Common stock and capital surplus were adjusted
accordingly.
Current capital guidelines measure the adequacy of a bank holding company's
capital by taking into consideration the differences in risk associated with
holding various types of assets as well as exposure to off-balance sheet
commitments. The guidelines call for a minimum risk-based Tier I capital
percentage of 4.0% and a minimum risk-based total capital of 8.0%. Tier I
capital includes common shareholders' equity less goodwill and non-qualified
intangible assets. Total capital includes all Tier I capital components plus
the allowance for loan losses.
The Corporation is also subject to a "leverage capital" requirement, which
compares capital (using the definition of Tier I capital) to total balance sheet
assets and is intended to supplement the risk based capital
15
<PAGE>
ratios in measuring capital adequacy. The minimum acceptable leverage capital
ratio is 3.0% for institutions which are highly-rated in terms of safety and
soundness and which are not experiencing or anticipating any significant growth.
Other institutions are expected to maintain capital levels at least one or two
percent above the minimum.
As of March 31, 1999, the Corporation and each of its subsidiaries met the
minimum capital requirements. In addition, the Corporation and each of its
subsidiaries' capital ratios exceeded the amounts required to be considered
"well-capitalized" as defined in the regulations.
The Corporation's total and Tier I risk-based capital ratios have placed the
Corporation in the top half of its self-defined peer group over the past year.
The Corporation's ratio of Tier I capital to average assets, however, has placed
it in the top quartile in comparison to its peers.
On April 27, 1999, the Board of Directors approved a plan to repurchase up to
770,000 shares of the Corporation's common stock through March 31, 2000.
Treasury stock acquired under this plan will be used for the Corporation's
Employee Stock Purchase Plan, Incentive Stock Option Plan and other benefit
plans. Through March 31, 1999, 266,630 shares had been repurchased under a
previous plan which expired on March 31, 1999.
YEAR 2000
- ---------
The Corporation's business, operations and financial condition may be affected
by the "Year 2000 Problem" where certain computer and other electronic
information processing systems may not be able to properly recognize dates after
1999. A financial institution's ability to process financial data such as
deposits, loans and trust accounts through its various data processing systems
is the most obvious area of exposure to the Year 2000 Problem. In addition, a
financial institution's ability to collect payments on loans could be impacted
if borrowers are unable to make payments as a result of their own Year 2000
deficiencies. Furthermore, financial institutions could be affected by the Year
2000 readiness of business customers, vendors and correspondents, customer
perception of the problem, and regulatory influences, among other things.
In 1997, the Corporation formed committees at each subsidiary bank and at the
Corporation to identify, evaluate and manage the risks related to the Year 2000
Problem. A comprehensive plan adopted by the Board of Directors of the
Corporation established a five step process - awareness, assessment, renovation,
validation and implementation - to address the Year 2000 Problem. The plan
established priorities for addressing the Year 2000 Problem, with systems
classified as being most mission critical receiving the highest priority
treatment. The primary focus of the plan is on assuring that information
technology systems will be operable, but it also addresses non-information
technology issues such as embedded technology in security and other systems.
Federal bank regulatory agencies have issued Year 2000 project guidelines for
financial institutions and have conducted examinations of the Corporation and
its banks on the Corporation's plans to address the Year 2000 Problem. The
Corporation has used such guidance to establish Year 2000 work tasks for each
phase.
The awareness and assessment phases of the plan have been completed. The
renovation of all mission critical systems, including third party systems, is
substantially complete. The Corporation is currently in the validation and
implementation phases for its mission critical systems, which will be
substantially complete by June 30, 1999. The Corporation is also in the process
of completing business contingency plans for all critical processes within the
organization. These plans will be substantially complete by June 30, 1999.
During the last half of 1999, the Corporation will re-inspect all processes,
beginning with the most critical, for continual assurance that contingency
planning adequately addresses potential disruptions. In addition, the
Corporation will validate its documented business contingency plans.
16
<PAGE>
Since the beginning of the Corporation's Year 2000 efforts, the Corporation has
incurred approximately $1.1 million in expenses related to the Year 2000. In
addition, capital expenditures to replace non-compliant hardware, software and
other equipment have totaled approximately $3.0 million. Through 1999, the
Corporation anticipates incurring an additional $1.5 million in expenses and
$2.7 million in capital expenditures.
While these costs are related to the Year 2000 Problem, many also represent
significant improvements to the technology infrastructure for Fulton Financial
Corporation and its bank subsidiaries. Improvements at Fulton Bank include
finishing migration to a new branch automation solution and completing the wide
area telecommunications network for both branch and security communication.
Since third-party service providers perform most major data processing functions
of the Corporation, the Corporation does not anticipate that it will incur any
material costs to address the Year 2000 Problem other than those discussed
above. The Corporation expects, at this time, that the Year 2000 Problem should
have no material adverse effect on the products and services it offers or on
competitive conditions; however, further testing with mission critical third-
party service providers will validate the readiness of these providers for this
change. Similarly, the Corporation believes that the Year 2000 Problem should
have no material adverse effect on the Corporation's business, operations or
financial condition, based on surveys of its major business loan customers and
other actions designed to evaluate the risks associated with the Year 2000
Problem, however, it cannot rule out the possibility that the Year 2000 Problem
might have such an effect. The Corporation will continue to evaluate such risks
throughout 1999.
Federal bank regulators have initiated a series of examinations of all financial
institutions to assess their progress in addressing the Year 2000 Problem and
have indicated that institutions which have not adequately addressed the issue
will be subject to various sanctions, including denial of, or delay in acting
on, regulatory applications. The Corporation believes that it has made
sufficient progress on the Year 2000 Problem to minimize the likelihood of
regulatory sanctions.
MARKET RISK
- -----------
Market risk is the exposure to economic loss that arises from changes in the
values of certain financial instruments. The types of market risk exposures
generally faced by banking entities include interest rate risk, equity market
price risk, foreign currency risk and commodity price risk. Due to the nature of
its operations, only equity market price risk and interest rate risk are
significant to the Corporation.
Equity Market Price Risk
- ------------------------
Equity market price risk is the risk that changes in the values of equity
investments could have a material impact on the financial position or results of
operations of the Corporation. The Corporation's equity investments consist of
common stocks of publicly traded financial institutions (cost basis of
approximately $54.3 million) and U.S. Government and agency stock (cost basis of
approximately $26.9 million). The Corporation's financial institutions stock
portfolio had unrealized gains of approximately $26.4 million at March 31, 1999.
Although the book value of equity investments accounted for only 1.9% of the
Corporation's total assets, the unrealized gains on the portfolio represent a
potential source of revenue. The Corporation has a history of periodically
realizing gains from this portfolio and, if values were to decline
significantly, this revenue source could be lost.
The Corporation manages its equity market price risk by investing only in
regional financial institutions. Management continuously monitors the fair value
of its equity investments and evaluates current market conditions and operating
results of the companies. Periodic sale and purchase decisions are made based on
this monitoring process. None of the Corporation's equity securities are
classified as trading. Future cash flows from these investments are not provided
here since none of them have maturity dates.
17
<PAGE>
Interest Rate Risk
- ------------------
Interest rate risk creates exposure in two primary areas. First, changes in
rates have an impact on the Corporation's liquidity position and could affect
its ability to meet obligations and continue to grow. Second, movements in
interest rates can create fluctuations in the Corporation's net income and
changes in the economic value of its equity.
The Corporation employs various management techniques to minimize its exposure
to interest rate risk. An Asset/Liability Management Committee (ALCO),
consisting of key financial and senior management personnel, meets on a weekly
basis. The ALCO is responsible for reviewing the interest rate sensitivity
position of the Corporation, approving asset and liability management policies,
and overseeing the formulation and implementation of strategies regarding
balance sheet positions and earnings. The primary goal of asset/liability
management is to address the liquidity and net income risks noted above.
From a liquidity standpoint, the Corporation must maintain a sufficient level of
liquid assets to meet the ongoing cash flow requirements of customers, who, as
depositors, may want to withdraw funds or who, as borrowers, need credit
availability. Liquidity sources are found on both sides of the balance sheet.
Liquidity is provided on a continuous basis through scheduled and unscheduled
principal reductions and interest payments on outstanding loans and investments.
Liquidity is also provided through the availability of deposits and borrowings.
The Corporation uses three complementary methods to measure and manage interest
rate risk. They are static gap analysis, simulation of net interest income, and
estimates of economic value of equity. Using these measurements in tandem
provides a reasonably comprehensive summary of the magnitude of interest rate
risk in the Corporation, level of risk as time evolves, and exposure to changes
in interest rate relationships.
Static gap analysis provides a measurement of repricing risk in the
Corporation's balance sheet as of a point in time. This measurement is
accomplished through stratification of the Corporation's assets and liabilities
into predetermined repricing periods. The assets and liabilities in each of
these periods are summed and compared for mismatches within that maturity
segment. Core deposits having noncontractual maturities are placed into
repricing periods based upon historical balance performance. Repricing for
mortgage loans held and for mortgage-backed securities includes the effect of
expected cash flows. Estimated prepayment effects are applied to these balances
based upon industry projections for prepayment speeds. The Corporation's policy
limits the cumulative 6-month gap to plus or minus 15 percent of total earning
assets. The Corporation was positioned within this range throughout the first
quarter of 1999.
Simulation of net interest income and of net income is performed for the next
twelve-month period. A variety of interest rate scenarios is used to measure
the effects of sudden and gradual movements upward and downward in the yield
curve. These results are compared to the results obtained in a flat or
unchanged interest rate scenario. Simulation of earnings is used primarily to
measure the Corporation's short-term earnings exposure to rate movements. The
Corporation's policy limits the potential exposure of net interest income to 10%
of the base case net interest income for every 100 basis point "shock" in
interest rates. A "shock' is an immediate upward or downward movement of
interest rates across the yield curve based upon changes in the prime rate. As
of March 31, 1999, the Corporation was within policy limits for potential
exposure of net interest income.
Economic value of equity estimates the discounted present value of asset cash
flows and liability cash flows. Discount rates are based upon market prices for
like assets and liabilities. Upward and downward shocks of interest rates are
used to determine the comparative effect of such interest rate movements
relative to the unchanged environment. This measurement tool is used primarily
to evaluate the longer
18
<PAGE>
term repricing risks and options in the Corporation's balance sheet. A policy
limit of 10% of economic equity may be at risk for every 100 basis point "shock"
movement in interest rates. As of March 31, 1999, the Corporation was within
policy limits of economic value of equity at risk.
Since December 31, 1998, the Corporation's market risk position has not
experienced a material change, based on expected cash flows and weighted average
interest rates for each significant interest rate sensitive financial instrument
in specific maturity periods.
19
<PAGE>
PART II -- OTHER INFORMATION
- ----------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits -- The following is a list of the exhibits required by
Item 601 of Regulation S-K and filed as part of this report:
(1) Articles of incorporation, as amended and restated, and
Bylaws of Fulton Financial Corporation as amended.
(2) Instruments defining the right of securities holders,
including indentures:
(a) Rights Agreement dated June 20, 1989, as amended and
restated on April 27, 1999 between Fulton Financial
Corporation and Fulton Bank - Incorporated by reference
to Exhibit 1 of the Fulton Financial Corporation
Current Report on Form 8-K dated April 27, 1999.
(3) Material Contracts - Executive Compensation Agreements and
Plans:
(a) Severance Agreements entered into between Fulton
Financial and: Rufus A. Fulton Jr., as of April
17, 1984; R. Scott Smith, Jr., as of May 17, 1988;
Charles J. Nugent, as of November 19, 1992; and Richard
J Ashby, Jr., as of May 17, 1988.
(b) Incentive Stock Option Plan adopted September 19,
1995 -Incorporated by reference from Exhibit A of
Fulton Financial Corporation's 1996 Proxy Statement.
(4) Financial Data Schedule - March 31, 1999
(5) Financial Data Schedule - March 31, 1998 (restated).
(b) Reports on Form 8-K:
(1) Form 8-K dated April 27, 1999 reporting the Amended and
Restated Rights Agreement.
20
<PAGE>
FULTON FINANCIAL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULTON FINANCIAL CORPORATION
Date: May 7, 1999 /s/ Rufus A. Fulton, Jr.
------------------ -----------------------------
Rufus A. Fulton, Jr.
Chairman, President and
Chief Executive Officer
Date: May 7, 1999 /s/ Charles J. Nugent
------------------ -----------------------------
Charles J. Nugent
Executive Vice
Chief Financial Officer
21
<PAGE>
EXHIBIT INDEX
EXHIBITS REQUIRED PURSUANT
TO ITEM 601 OF REGULATION S-K
-----------------------------
3. Articles of incorporation, as amended and restated, and Bylaws of Fulton
Financial Corporation as amended.
4. Instruments defining the rights of security holders, including indentures.
(a) Rights Agreement dated June 20, 1989, as amended and restated on April
27, 1999 between Fulton Financial Corporation and Fulton Bank -
Incorporated by reference to Exhibit 1 of the Fulton Financial
Corporation Current Report on Form 8-K dated April 27, 1999.
10. Material Contracts
(a ) Severance Agreements entered into between Fulton Financial and: Rufus
A. Fulton, Jr., as of April 17, 1984; R. Scott Smith, Jr., as of May
17, 1988; Charles J. Nugent, as of November 19, 1992; and Richard J
Ashby, Jr., as of May 17, 1988.
(b) Incentive Stock Option Plan adopted September 19, 1995 - Incorporated
by reference from Exhibit A of Fulton Financial Corporation's 1996
Proxy Statement.
27 Financial data schedule - March 31, 1999.
27.1 Financial data schedule - March 31, 1998 (restated).
22
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION
FULTON FINANCIAL CORPORATION
ARTICLE 1
---------
1. The name of the corporation is Fulton Financial Corporation.
ARTICLE 2
---------
2. The location and post office address of the registered office of the
corporation in this Commonwealth is:
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
ARTICLE 3
---------
3. The corporation is incorporated under the Business Corporation Law of
the Commonwealth of Pennsylvania for the purpose of engaging in and doing any
lawful act concerning any and all lawful business for which a corporation may be
incorporated under the Business Corporation Law of the Commonwealth of
Pennsylvania.
ARTICLE 4
---------
4. The term for which the corporation is to exist is perpetual.
ARTICLE 5
---------
5. The aggregate number of shares which the corporation shall have
authority to issue is 410,000,000 shares, divided into 400,000,0000 shares of
Common Stock of Two and 50/100 Dollars ($2.50) par value per share and
10,000,000 shares of Preferred Stock, without par value. The Board of Directors
shall have authority to the full extent now or hereafter permitted by law from
time to time to issue Preferred Stock as a class without series or in one or
more series and to fix by resolution the voting rights (which may be full,
limited, multiple, fractional or withheld altogether), designation, preferences,
qualifications,
<PAGE>
limitations, restrictions, privileges, options, redemption rights, conversion
rights, and other special or relative rights of such class or any series
thereof.
ARTICLE 6
---------
6. The shareholders of the corporation shall not have the right to
cumulate their votes for the election of directors.
ARTICLE 7
---------
7.1 A greater than majority shareholder vote shall be required in order to
authorize certain Business Combinations (notwithstanding the fact that no vote
may be required or that a lesser percentage may be required by law), as follows:
(a) In addition to any affirmative vote which may otherwise be
required by law (including, without limitation, the affirmative vote of the
holders of any series of Preferred Stock then outstanding, voting separately as
a class, in the event that such a separate class vote shall be required under
the terms of the resolution of the Board of Directors authorizing the issuance
of such series and designating the rights of the holders thereof), and except as
otherwise expressly provided in Section 7.2 of this Article 7, the affirmative
vote of the holders of not less than 85% of the voting power of the then
outstanding shares of Voting Stock, voting together as a single class, shall be
required in order to authorize the following corporate actions:
(1) any merger or consolidation of the corporation or any
Subsidiary with or into any Interested Shareholder or with or into any other
corporation (whether or not itself an Interested Shareholder) which is, or after
such merger or consolidation would be, an Affiliate or Associate of an
Interested Shareholder;
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (whether in one transaction or in a series of transactions) to, with
or for the benefit of any Interested Shareholder or any Affiliate or Associate
of any Interested Shareholder, of any assets of the corporation or of any
Subsidiary having an aggregate Fair Market Value equal to or greater than 10% of
consolidated shareholders equity as reported in the most recent year-end
financial statement of the corporation;
2
<PAGE>
(3) any issuance, sale or transfer by the corporation or by any
Subsidiary (whether in one transaction or in a series of transactions) of any
securities of the corporation or of any Subsidiary to any Interested Shareholder
or to any Affiliate or Associate of any Interested Shareholder in exchange for
cash, securities or other consideration having an aggregate Fair Market Value
equal to or greater than 10% of consolidated shareholders equity as reported in
the most recent year-end financial statements of the corporation;
(4) the adoption of any plan or proposal for the liquidation or
dissolution of the corporation proposed by or on behalf of any Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder;
(5) any reclassification of stock (including any reverse stock
split) or recapitalization of the corporation, or any merger or consolidation of
the corporation with or into any Subsidiary or any other transaction (whether or
not with or into or otherwise involving an Interested Shareholder) which has the
effect, directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of stock of the corporation or of any Subsidiary
which is directly or indirectly owned by any Interested Shareholder or by any
Affiliate or Associate of any Interested Shareholder; or
(6) any transaction or series of transactions which is similar in
purpose, form or effect to any of the foregoing.
(b) For purposes of this Article 7, the term "Business Combination"
shall mean any transaction which is referred to in any one or more of clauses
(1) through (6) of Paragraph (a) of Section 7.1 of this Article 7.
7.2 In addition to any affirmative vote which may otherwise be required by
law (including, without limitation, the affirmative vote of the holders of any
series Preferred Stock then outstanding, voting separately as a class, in the
event that such a separate class vote shall be required under the terms of the
resolution of the Board of Directors authorizing the issuance of such series and
designating the rights of the holders thereof), the affirmative vote of the
holders of only 66-2/3% of the voting power of the then outstanding Voting
Stock, voting together as a single class, shall be required in order to
authorize a Business Combination, if all of the conditions specified in either
of the following Paragraphs (a) or (b) are met:
(a) The Business Combination shall have been approved by a majority
of the Continuing Directors; or
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(b) All of the following six conditions shall have been met:
(1) The transaction constituting the Business Combination shall
provide for a consideration to be received by holders of Common Stock in
exchange for their stock, and the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of Common
Stock in such Business Combination shall be at least equal to the highest of the
following:
(A) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of Common Stock beneficially owned by the Interested
Shareholder which were acquired (i) within the three-year period immediately
prior to the first public announcement of the proposed Business Combination (the
Announcement Date) or (ii) in the transaction in which it became an Interested
Shareholder, whichever is higher;
(B) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Shareholder became an
Interested Shareholder (the Determination Date), whichever is higher; and
(C) the price per share equal to the Fair Market Value per share
of Common Stock determined pursuant to clause (B) immediately preceding,
multiplied by the ratio of (i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of Common Stock beneficially owned by the Interested
Shareholder which were acquired within the three-year period immediately prior
to the Announcement Date to (ii) the Fair Market Value per share of Common Stock
on the first day in such three-year period on which the Interested Shareholder
beneficially owned any shares of Common Stock.
(2) Whether or not the Interested Shareholder owns any shares of
Preferred Stock, the transaction constituting the Business Combination shall
provide for a consideration to be received by holders of Preferred Stock in
exchange for their stock, and the aggregate amount of the cash and the Fair
Market Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of Preferred
Stock shall be at least equal to the highest of the following:
(A) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid in order to
acquire any shares of Preferred Stock beneficially owned by the Interested
Shareholder which were acquired (i)
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within the three-year period immediately prior to the Announcement Date or (ii)
in the transaction in which it became an Interested Shareholder, whichever is
higher;
(B) the highest preferential amount per share to which the holders
of shares of Preferred Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the corporation;
(C) the Fair Market Value per share of Preferred Stock on the
Announcement Date or on the Determination Date, whichever is higher; and
(D) the price per share equal to the Fair Market Value per share of
Preferred Stock determined pursuant to clause (C) immediately preceding,
multiplied by the ratio of (i) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees) paid in
order to acquire any shares of Preferred Stock beneficially owned by the
Interested Shareholder which were acquired within the three-year period
immediately prior to the Announcement Date to (ii) the Fair Market Value per
share of Preferred Stock on the first day in such three-year period on which the
Interested Shareholder beneficially owned any shares of Preferred Stock.
(3) The consideration to be received by holders of Common Stock shall
be in cash or in the same form as the Interested Shareholder has previously paid
for shares of Common Stock. If the Interested Shareholder has paid for shares
of Common Stock with varying forms of consideration, the form of consideration
for Common Stock shall be either cash or the form used to acquire the largest
number of shares of Common Stock previously acquired by it. If the Interested
Shareholder does not own beneficially any shares of Preferred Stock, the
consideration to be received by holders of Preferred Stock shall be in cash. If
the Interested Shareholder owns beneficially any shares of Preferred Stock, the
consideration to be received by holders of Preferred Stock shall be in cash or
in the same form as the Interested Shareholder has previously paid for shares of
Preferred Stock. If the Interested Shareholder has paid for shares of Preferred
Stock with varying forms of consideration, the form of consideration for
Preferred Stock shall be either cash or the form used to acquire the largest
number of shares of Preferred Stock previously acquired by it.
(4) After such Interested Shareholder has become an Interested
Shareholder and prior to the consummation of such Business Combination:
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(A) except as approved by a majority of the Continuing Directors,
there shall have been no failure to declare and pay at the regular date therefor
any dividends (whether or not cumulative) payable on any outstanding Preferred
Stock;
(B) except as approved by a majority of the Continuing Directors,
there shall have been no reduction in the annual rate of dividends paid per
share on the Common Stock (adjusted as necessary for recapitalizations and for
stock splits, reverse stock splits, stock dividends and similar transactions
which have the effect of changing the number of outstanding shares of Common
Stock);
(C) such Interested Shareholder shall not have acquired beneficial
ownership of any additional shares of Voting Stock, except as part of the
transaction in which it became an Interested Shareholder; and
(D) such Interested Shareholder shall not have received the benefit,
directly or indirectly (except proportionately as a shareholder), of any loans,
advances, guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the corporation, whether in anticipation of
or in connection with such Business Combination or otherwise.
(5) Such Interested Shareholder shall have taken all action necessary
to ensure that the Board of Directors shall include at all times representation
by Continuing Directors in proportion to the ratio of (i) the voting power of
the Voting Stock not owned beneficially by such Interested Shareholder at any
given time, to (ii) the voting power of all Voting Stock then outstanding.
(6) A proxy statement meeting the requirements of the Securities
Exchange Act of 1934 shall have been mailed to all holders of Voting Stock at
least 30 days prior to the consummation of such Business Combination for the
purpose of soliciting shareholder approval of such Business Combination. Such
proxy statement shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the Business
Combination which the Continuing Directors, or any of them, may have furnished
in writing and, if deemed advisable by a majority of the Continuing Directors,
an opinion of a reputable investment banking firm as to the fairness (or
unfairness) of the terms of such Business Combination, from the point of view of
the holders of Voting Stock other than the Interested Shareholder (such
investment banking firm to be selected by a majority of the Continuing
Directors, to be furnished with all information it reasonably requests and to be
paid a reasonable fee for its services upon receipt by the corporation of such
opinion).
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7.3 (a) In addition to any affirmative vote which may otherwise be
required by law (including, without limitation, the affirmative vote of the
holders of any series of Preferred Stock then outstanding, voting separately as
a class, in the event that such a separate class vote shall be required under
the terms of the resolution of the Board of Directors authorizing the issuance
of such series and designating the rights of the holders thereof), the
affirmative vote of the holders of 66-2/3% of the voting power of the then
outstanding Voting Stock, voting together as a single class, shall be required
in order to authorize each of the following transactions which is not also a
Business Combination:
(1) Any merger or consolidation of the corporation pursuant to
which the approval of the shareholders of the corporation would be required
under the Business Corporation Law of the Commonwealth of Pennsylvania as then
in effect;
(2) Any merger or consolidation of a Subsidiary, if the surviving
or resulting corporation would not be a Subsidiary;
(3) Any sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation;
(4) Any acquisition of all or substantially all of the assets of
another corporation in exchange, in whole or in part, for shares of Voting Stock
which, following such acquisition, will constitute more than 50% of the voting
power of the Voting Stock then outstanding; or
(5) Any plan for the dissolution of the corporation.
(b) Any transaction involving the corporation or any Subsidiary which
is not a Business Combination and which is not referred to in Paragraph (a)(1)
through (a)(5) of Section 7.3 shall require only such shareholder approval, if
any, as may be required under (i) the Business Corporation Law of the
Commonwealth of Pennsylvania s then in effect, (ii) the provisions of any other
applicable Article of these Articles of Incorporation, or (iii) the terms of any
resolution of the Board of Directors authorizing the issuance of any series of
Preferred Stock and designating the rights of the holders thereof.
7.4 For purposes of this Article 7, the following terms shall have the
meanings set forth below:
(a) "Person" shall mean any individual, firm, corporation or other
entity.
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(b) "Interested Shareholder" shall mean any person (other than the
corporation or any Subsidiary) which, as of the record date for the
determination of shareholders entitled to vote on a proposed Business
Combination or immediately before the consummation of any such Business
Combination:
(1) Is at such time the beneficial owner, directly or indirectly,
of more than 5% of the voting power of the then outstanding Voting Stock;
(2) Is at such time an Affiliate of the corporation and at any
time within the two-year period immediately prior to such time was the
beneficial owner, directly or indirectly, of more than 5% of the voting power of
the then outstanding Voting Stock; or
(3) Is at such time an assignee of or has otherwise succeeded to
the beneficial ownership of any shares of Voting Stock which were at any time
within the two-year period immediately prior to such time beneficially owned by
any Interested Shareholder, if such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933.
(c) A person shall be a "beneficial owner" of any shares of Voting
Stock:
(1) Which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(2) Which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether or not such right is exercisable immediately)
pursuant to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise, or (ii)
the right to vote pursuant to any agreement, arrangement or understanding; or
(3) Which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Voting Stock.
(d) For purposes of determining whether a person is an Interested
Shareholder pursuant to Paragraph (b) of this Section 7.4, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed owned by an
Interested Shareholder through application of Paragraph (c) of this Section 7.4,
but shall not include
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any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise.
(e) "Affiliate" shall mean any person which directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with the person specified.
(f) The term "Associate" used to indicate a relationship with any
person, means (i) any corporation or other organization (other than the
corporation or a Subsidiary) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a director or officer of the corporation or of any Subsidiary.
(g) "Subsidiary" shall mean any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the corporation;
provided, however, that for purposes of the definition of Interested Shareholder
set forth in Paragraph (b) of this Section 7.4, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the corporation.
(h) "Continuing Director" shall mean (i) any member of the Board of
Directors of the corporation who is unaffiliated with and is not a
representative of an Interested Shareholder and who was a member of the Board of
Directors prior to the time that any Interested Shareholder became an Interested
Shareholder, and (ii) any successor of a Continuing Director who is unaffiliated
with and is not a representative of an Interested Shareholder and who is
recommended to succeed a Continuing Director by a majority of the Continuing
Directors then on the Board of Directors.
(i) "Fair Market Value" shall mean: (i) in the case of stock, the
highest closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange, or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation with
respect to a share of such stock during the 30-day period preceding the date in
question on the
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National Association of Securities Dealers, Inc. Automated Quotations System or
any system then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined by a
majority of the Continuing Directors in good faith; and (ii) in the case of
property other than cash or stock, the fair market value of such property on the
date in question as determined by a majority of the Continuing Directors in good
faith.
(j) "Voting Stock" shall mean all outstanding shares of capital stock
of the corporation entitled to vote generally in the election of directors.
(k) "Consideration other than cash to be received" as used in
Paragraphs (b)(1) and (b)(2) of Section 7.2 shall include, in the case of any
Business Combination in which the corporation is the surviving corporation, the
shares of Common Stock and the shares of Preferred Stock retained by the holders
thereof.
7.5 A majority of the Continuing Directors shall have the power and duty
to make factual determinations, on the basis of information known to them after
reasonable inquiry, as to all facts relating to the application of this Article
7, including, without limitation, the following:
(a) Whether a person is an Interested Shareholder;
(b) The number of shares of Voting Stock owned beneficially by any
person;
(c) Whether a person is an Affiliate or Associate of another;
(d) Whether a proposed transaction is a Business Combination within
the meaning of Paragraphs (a)(1) through (a)(6) of Section 7.1; and
(e) Whether the conditions set forth in Paragraph (b) of Section 7.2
have been met with respect to any Business Combination.
Any such determination made in good faith shall be binding upon and conclusive
with respect to all parties.
7.6 Nothing contained in this Article 7 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
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ARTICLE 8
---------
8. (a) For purposes of this Article 8, the term "Acquisition Proposal"
shall mean any action, proposal, plan or attempt by any person, firm,
corporation or other entity to: (1) make any tender or exchange offer for any
equity security of the corporation, (2) merge or consolidate the corporation or
any subsidiary of the corporation with or into another corporation, (3) purchase
or otherwise acquire all or substantially all of the assets of the corporation
or of any subsidiary of the corporation, or (4) any transaction or series of
transactions similar in purpose, form or effect to any of the foregoing.
(b) The Board of Directors, when evaluating an Acquisition Proposal
shall, in connection with the exercise of its judgment in determining what is in
the best interests of the corporation and its shareholders, give due
consideration to all relevant factors, including, without limitation, the
following:
(1) The adequacy of the offered consideration, not only in
relation to the then current market price of the securities of the corporation,
but also in relation to (i) the historical, present and anticipated future
operating results and financial position of the corporation, (ii) the value of
the corporation in a freely negotiated transaction, and (iii) the prospects and
future value of the corporation as an independent entity;
(2) The social and economic impact which the Acquisition Proposal,
if consummated, would have upon the customers, depositors and employees of the
corporation and its subsidiaries and upon the communities which they serve;
(3) The reputation and business practices and experience of the
offeror and its management and affiliates as they might affect (i) the business
of the corporation and its subsidiaries, (ii) the future value of the securities
of the corporation, and (iii) the customers, depositors and employees of the
corporation and its subsidiaries and the communities which they serve; and
(4) The antitrust and other legal and regulatory issues that might
arise by reason of the Acquisition Proposal.
(c) The Board of Directors may, in its sole discretion, oppose,
recommend or remain neutral with respect to an Acquisition Proposal on the basis
of its evaluation of which is in the best interests of the corporation and its
shareholders.
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(d) In the event that the Board of Directors determines that an
Acquisition Proposal is not in the best interests of the corporation and its
shareholders and should be opposed, it may take any lawful action for this
purpose, including, without limitation, the following:
(1) Advising the shareholders of the corporation of its opposition
to the Acquisition Proposal;
(2) Authorizing the initiation of legal proceedings;
(3) Authorizing the initiation of opposition proceedings before
any regulatory authority having jurisdiction over the Acquisition Proposal;
(4) Authorizing the corporation to acquire its own securities;
(5) Authorizing the corporation to issue authorized but unissued
securities, to sell treasury stock or to grant options with respect thereto; and
(6) Soliciting a more favorable offer from a third party.
ARTICLE 9
---------
9. (a) No director of the corporation shall be removed from office by
shareholder vote, except as follows:
(1) With cause, by the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the corporation entitled to vote generally in the election of directors, voting
together as a single class, at a meeting of shareholders duly convened after
notice to the shareholders of such purpose; or
(2) Without cause, by the affirmative vote of the holders of not
less than 85% of the voting power of the then outstanding shares of capital
stock of the corporation entitled to vote generally in the election of
directors, voting together as a single class, at a meeting of shareholders duly
convened after notice to the shareholders of such purpose.
(b) In the event that the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a class, to elect one
or more directors, the
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provisions of Paragraph (a) of this Article 9 shall not apply with respect to
any director so elected, who may be removed from office by shareholder vote upon
such affirmative vote of the holders of such Preferred Stock as may be specified
in the resolution of the Board of Directors authorizing the issuance of such
Preferred Stock and designating the rights of the holders thereof, or, if no
such vote is specified, upon such affirmative vote of the holders of such
Preferred Stock as may be required under the Business Corporation Law of the
Commonwealth of Pennsylvania as then in effect.
ARTICLE 10
----------
10. (a) No action required to be taken or which may be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a duly called meeting and the power of the shareholders of the
corporation to consent in writing to action without a meeting is specifically
denied.
(b) A special meeting of the shareholders of the corporation may be
called only by (i) the Chief Executive Officer of the corporation, (ii) the
Executive Committee of the Board of Directors, or (iii) the Board of Directors
pursuant to a resolution adopted by the affirmative vote of a majority of the
whole Board of Directors. Special meetings may not be called by shareholders.
ARTICLE 11
----------
11. The authority to make, amend, alter, change or repeal the bylaws of
the corporation is hereby expressly and solely granted to and vested in the
Board of Directors, subject always to the power of the shareholders to make,
amend, alter, change or repeal the bylaws of the corporation by the affirmative
vote of the holders of not less than 85% of the voting power of the then
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors, voting together as a single class, at a
meeting of shareholders duly convened after notice to the shareholders of such
purpose.
ARTICLE 12
----------
12. No provision of the Articles of Incorporation of the corporation may
be amended, altered, changed or repealed, except as follows:
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(a) Articles 5, 7, 8, 9, 10, 11, and this Article 12 may be amended,
altered, changed or repealed, or a provision inconsistent therewith may be
adopted, only as follows:
(1) Upon the affirmative vote of: (i) a majority of the Continuing
Directors (as that term is defined in Paragraph (h) of Section 7.4 of Article
7), (ii) a majority of the whole Board of Directors, and (iii) the holders of
not less than 66-2/3% of the voting power of the then outstanding shares of
capital stock of the corporation entitled to vote generally in the election of
directors, voting together as a single class, at a meeting of shareholders duly
convened after notice to the shareholders of such purpose; or
(2) Upon the affirmative vote of the holders of not less than 85% of
the voting power of the then outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, at a meeting of shareholders duly convened after
notice to the shareholders of such purpose.
(b) Articles other than those specified in Paragraph (a) of this
Article 12 may be amended, altered, changed or repealed, or a provision
inconsistent therewith may be adopted, only as follows:
(1) Upon the affirmative vote of: (1) a majority of the whole Board
of Directors, and (ii) the holders of not less than a majority of the voting
power of the then outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, at a meeting of shareholders duly convened after notice to the
shareholders of such purpose; or
(2) Upon the affirmative vote of the holders of not less than 85% of
the voting power of the then outstanding shares of capital stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, at a meeting of shareholders duly convened after
notice to the shareholders of such purpose.
(c) The vote specified in Paragraphs (a) and (b) of this Article 12
shall be in addition to any vote which may otherwise be required by law,
including, without limitation, the affirmative vote of the holders of any series
of Preferred Stock then outstanding, voting separately as a class, in the event
that such a separate class vote shall be required under the terms of the
resolution of the Board of Directors authorizing the issuance of such series and
designating the rights of the holders thereof.
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FULTON FINANCIAL CORPORATION
BYLAWS
Adopted June 30, 1982
Amended September 20, 1983
Amended February 17, 1987
(Effective April 28, 1987)
Amended June 20, 1989
Amended March 20, 1990
(effective April 17, 1990)
Amended October 20, 1998
ARTICLE I
SHAREHOLDER MEETINGS
--------------------
Section 1. Annual Meeting. The annual meeting of the shareholders of the
--------------
Company shall be held at the administrative office of the Company at One Penn
Square, Lancaster, Pennsylvania, or at such other place as may be authorized by
the Board of Directors, on such day each year as may be fixed from time to time
by the Board of Directors, or, if no day be so fixed, on the third Tuesday in
April of each year. Directors shall be elected at the annual meeting of the
shareholders and such other business as shall properly come before the meeting
may be transacted.
Section 2. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by (i) the Chief Executive officer, (ii) the Executive
Committee of the Board of Directors, or (iii) the Board of Directors pursuant to
a resolution adopted by the affirmative vote of a majority of the whole Board of
Directors. Special meetings may not be called by shareholders.
Section 3. Notice of Meetings. Written notice of all meetings of
------------------
shareholders shall be given to each shareholder of record entitled to vote at
the meeting at least ten (10) days prior to the day of the meeting by mail
addressed to the shareholder at his address as it appears on the books of the
Company. Such notice shall state the date, hour and place of the meeting and
shall also state the general nature of the business to be transacted in the case
of a special meeting. Notices shall be deemed to have been delivered when
deposited in the United States mail, postage prepaid, addressed to the
shareholder at his address as it appears on the books of the Company.
<PAGE>
Section 4. Record Date. The Board of Directors may fix a date for the
-----------
purpose of determining shareholders entitled to receive notice of and to vote at
any meeting or to receive any dividend, distribution or allotment of rights or a
date for any change, conversion or change of shares by fixing a record date not
more than fifty (50) days prior thereto.
Section 5. Voting List. The officer or agent having charge of the
-----------
transfer books for the shares of the Company shall make, at least five (5) days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each. Such list shall be kept on
file at the registered office of the Company until the time of the meeting and
shall be subject to inspection by any shareholder during usual business hours
and shall also be made available for inspection by any shareholder at any time
during the meeting.
Section 6. Quorum and Majority Action. A majority of the outstanding
--------------------------
shares, represented in person or by proxy, shall constitute a quorum at any
meeting of shareholders. A majority of votes cast shall decide each matter
submitted to the shareholders, except in cases where the vote of a larger number
of shares is required under the Articles of Incorporation or by law and except
that in elections of directors, the candidates receiving the highest number of
votes shall be elected.
Section 7. Voting of Shares. Each outstanding share entitled to vote at a
----------------
meeting shall be entitled to one (1) vote on each matter.
Shareholders may vote at any meeting of shareholders by proxy duly
authorized in writing. A proxy shall be valid only for one meeting to be
specified therein and any adjournments of such meeting. Proxies shall be dated
and shall be filed with the Secretary of the Company.
Section 8. Conduct of Meetings. At every meeting of the shareholders, the
-------------------
Chief Executive officer or, in his absence, an officer designated by the Chief
Executive officer, or, in the absence of such designation, a chairman (who shall
be one of the officers, if any is present) chosen by the shareholders of the
Company present, shall act as chairman of the meeting. The chairman of the
meeting shall appoint a person to serve as secretary of the meeting.
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Section 9. No Action by Written Consent. No action required to be taken
----------------------------
or which may be taken at any annual or special meeting of the shareholders may
be taken without a duly called meeting and the power of the shareholders of the
Company to consent in writing to action without a meeting is specifically
denied.
ARTICLE II
DIRECTORS
---------
Section 1. Powers. The business and affairs of the Company and all
------
corporate powers shall be exercised by or under the authority of the Board of
Directors, subject to any limitation imposed by law, the Articles of
Incorporation, or these Bylaws as to action which requires approval by the
shareholders.
Section 2. Number and Qualifications of Directors. The Board of Directors
--------------------------------------
shall consist of not less than two (2) nor more than thirty-five (35) persons.
The directors shall be classified with respect to the time they shall severally
hold office by dividing them into three (3) classes, each consisting as nearly
as possible of one-third (1/3) of the number of the whole Board of Directors;
provided, however, that nothing herein shall be construed to require exact
equality in the number of directors in each class. At the Annual Meeting of
Shareholders to be held in 1983, the directors of one class shall be elected for
a term of one (1) year; directors of a second class shall be elected for a term
of two (2) years; and directors of a third class shall be elected for a term of
three (3) years and at each Annual Meeting of Shareholders thereafter the
successors to the class of directors whose term shall expire that year shall be
elected to hold office for a term of three (3) years, so that the term of office
of one (1) class of directors shall expire in each year. The directors shall
hold office until the expiration of the term for which they were elected and
until their successors are elected and have qualified. The number of directors
in each class of directors shall be determined by the Board of Directors.
Any person shall be eligible to be elected as a director of the Company,
except that no person shall be nominated who will attain the age of seventy (70)
years on or before the date of the Annual Meeting of Shareholders at which he is
to be elected.
Section 3. Nomination of Directors. Nomination for election to the Board
-----------------------
of Directors may be made by the Board of Directors or by any shareholder
entitled to vote for the election of directors. Each nomination shall specify
the term of office for which the person nominated is to be elected. Nominations,
other than those made by or on behalf of the existing management
3
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of the Company, shall be made in writing and shall be delivered or mailed to the
Chief Executive officer not less than fourteen (14) days nor more than fifty
(50) days prior to any meeting of shareholders called for the election of
directors; provided, however, that if less than twenty-one (21) days' notice of
a meeting is given to shareholders, such nominations shall be mailed or
delivered to the Chief Executive Officer not later than the close of business on
the seventh day following the day on which the notice of meeting was mailed. The
notice to the Chief Executive officer of a nomination, other than one made on
behalf of existing management, shall set forth the name, age, residence address,
and principal occupation of the nominee. The chairman of the meeting shall
determine whether nominations have been made in accordance with the requirements
of this Section and, if he determines that a nomination is defective, the
nomination and any votes cast for the nominee shall be disregarded.
Section 4. Election. If directors of more than one class are to be
--------
elected at a meeting of the shareholders by reason of vacancy or otherwise,
there shall be a separate election for each class of directors to be elected at
that meeting.
Section 5. Organizational Meeting. Following the Annual Meeting of
----------------------
Shareholders, the chairman or the secretary of the meeting shall notify the
directors-elect of their election and they shall meet along with the continuing
directors at the first regularly scheduled meeting of the Board of Directors
following such annual meeting for the purpose of organizing the new Board,
appointing officers and transacting such other business as may properly come
before the meeting.
Section 6. Vacancies. A vacancy in the Board of Directors shall occur in
---------
the case of the happening of any of the following events: (a) a director shall
die or resign; (b) the shareholders shall fail to elect the number of directors
authorized to be elected at any meeting of shareholders at which any director is
to be elected; (c) the Board of Directors shall by resolution have elected to
increase the number of directors; (d) the Board of Directors shall declare
vacant the office of any director for such cause as the Board may determine; or
(e) a vacancy shall occur for any other reason.
Any vacancy occurring in the Board of Directors shall be filled by a
majority of the remaining members of the Board of Directors, though less than a
quorum, and each person so elected shall hold office until the next Annual
Meeting of Shareholders and until his successor is duly elected and has
qualified.
4
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Section 7. Place of Meetings. All meetings of the Board of Directors shall
-----------------
be held at the administrative office of the Company at One Penn Square,
Lancaster, Pennsylvania or at such other place within or without this
Commonwealth as may be designated from time to time by a majority of the
directors or as may be designated in the notice calling the meeting.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
----------------
shall be held, without call or notice, on the third Tuesday of January, March,
April, June, July, September, October and December or at such other times as a
majority of the Board of Directors may from time to time determine. When any
regular meeting of the Board of Directors falls upon a holiday, the meeting
shall be held on the next business day unless the Board shall designate some
other day.
Section 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by the Chief Executive officer or at the request of three (3) or
more directors. Not less than twenty-four (24) hours' notice of the date, time
and place of any special meeting of the Board of Directors shall be given to
each director either: (a) in person; (b) by telephone; or (c) by notice to the
director's personal residence or business address appearing on the books of the
Company by telephone, mail, telegram or written notice delivered to such place.
Section 10. Quorum and Majority Action. A majority of all the members of
--------------------------
the Board of Directors in office shall constitute a quorum for the transaction
of business. If at any time fixed for a meeting, including the meeting to
organize the new Board following the Annual Meeting of Shareholders, a quorum is
not present, the directors in attendance may adjourn the meeting from time to
time until a quorum is obtained and the meeting may be held as adjourned without
further notice. Except as otherwise provided herein, a majority of those
directors present at any meeting of the Board of Directors at which a quorum is
present shall decide each matter considered.
A director may not vote by proxy or otherwise act by proxy at a meeting of
the Board of Directors.
Section 11. Conduct of Meetings. At every meeting of the Board of
-------------------
Directors, the Chairman of the Board or the President, or in their absence, an
officer of the Company designated by one of them, or, in the absence of such
designation, a chairman chosen by a majority of the directors present, shall
preside. A person to be designated by the Chairman of the Board shall serve as
secretary of the Board of Directors.
5
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One or more directors may participate in a meeting of the Board of
Directors by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other.
Section 12. Mandatory Retirement. The office of a director shall be
--------------------
considered vacant at the annual meeting of shareholders next following his
attaining the age of seventy (70) years.
Section 13. Compensation. The Board of Directors, by the affirmative vote
------------
of a majority of the directors then in office and irrespective of any personal
interest of any of its members, shall have authority to establish a fee to be
paid to each director for attendance at meetings; provided, however, that no
such fee may be paid to any director who is also a salaried officer of the
Company or of any subsidiary of the Company.
Section 14. Personal Liability of Directors.
-------------------------------
(a) General Rule: A director of the Company shall not be personally
------------
liable for monetary damages for any action taken or any failure to take any
action, except to the extent that exemption from liability for monetary damages
is not permitted under the laws of the Commonwealth of Pennsylvania as now or
hereafter in effect. The provisions of this Subsection (a) are intended to
exempt the directors of the Company from liability for monetary damages to the
maximum extent permitted under the Pennsylvania Directors' Liability Act (42 Pa.
C.S. (S)8361 et seq.) or under any other law now or hereafter in effect.
-- ---
(b) Specific Rule Under Directors' Liability Act: Without limitation
--------------------------------------------
of Subsection (a) above, a director of the Company shall not be personally
liable for monetary damages for any action taken or any failure to take any
action, unless: (i) the director has breached or failed to perform the duties of
his office under Section 8363 of the Directors' Liability Act, and (ii) the
breach or failure to perform constitutes self-dealing, willful misconduct or
recklessness. The provisions of the preceding sentence shall not exempt a
director from: (i) the responsibility or liability of a director pursuant to any
criminal statute; or (ii) the liability of a director for the payment of taxes
pursuant to local, state or federal law.
(c) Modification or Repeal: The provisions of this Section may be
----------------------
modified or repealed by the Board of Directors in accordance with the procedures
for amending these Bylaws; provided, however, that any such modification or
repeal shall not have any effect upon the liability of a director relating to
any action taken, any failure to take any action, or events which
6
<PAGE>
occurred prior to the effective date of such modification or repeal.
(d) Effective Date: ThiS Section shall become effective immediately
--------------
following its ratification by the shareholders of the corporation at a meeting
of shareholders duly convened after notice to the shareholders of such purpose.
ARTICLE III
COMMITTEES
----------
Section 1. Authority. The Board of Directors, by resolution adopted by a
---------
majority of the whole Board of Directors, may create such permanent or temporary
committees as the Board of Directors deems necessary for the proper conduct of
the business of the Company. Each committee shall consist of at least three (3)
directors and shall have and may exercise such powers as shall be conferred or
authorized by resolution of the Board and which are not inconsistent with these
Bylaws. The creation of any committee and the delegation to it of authority
shall not relieve the Board of Directors of any responsibility imposed by law
upon it.
Section 2. Appointment of Committees. The Chief Executive officer shall
-------------------------
submit to the Board of Directors, at its first meeting after the Annual Meeting
of Shareholders, his recommendations for the members of and chairmen of each
standing committee. The Board of Directors shall then appoint, in accordance
with such recommendations or otherwise, the members and a chairman for each such
committee. If the appointees accept their appointment, they shall serve for one
(1) year or until their successors are appointed. The Board of Directors may
fill any vacancy occurring on any committee and may remove and replace any
member of any committee. A director may be a member of more than one committee.
The Chairman of the Board and the President shall be ex-officio members of
all committees of the Board of Directors, except the Audit Committee (if one be
appointed).
Section 3. Place and Notice of Meetings. All committee meetings shall be
----------------------------
held at the administrative office of the Company at one Penn Square, Lancaster,
Pennsylvania or at such other place as may be designated by the chairman of the
committee or as may be designated in the notice calling the meeting.
7
<PAGE>
Not less than twenty-four (24) hours' notice of the date, time and place of
any special committee meeting shall be given to each member of that committee
either: (a) in person; (b) by telephone; or (c) by notice to the member's
personal residence or business address appearing on the books of the Company by
telephone, mail, telegram, or written notice delivered to such place.
Section 4. Conduct of Committees. A majority of the membership of a
---------------------
committee shall constitute a quorum for the transaction of business; provided,
however, that in any case where the Chairman of the Board and the President are
members ex-officio of a committee and have not been specifically appointed to a
committee by resolution of the Board of Directors, then the number of members of
that committee necessary to constitute a quorum shall be that number which is a
majority of the number of members of that committee other than the ex-officio
members, but, for purposes of determining the presence of a quorum at any
meeting of that committee, any ex-officio members who are present shall be
counted. In any case, ex-officio committee members shall be entitled to vote.
Regular meetings of a committee may be held, without call or notice, at
such times as the committee members decide or as the Board of Directors may
require. Special meetings of a committee may be called at any time by its
chairman or by the Chairman of the Board or by the President. Except for its
chairman (who shall be appointed by the Board of Directors), each committee may
appoint a secretary and such other officers as the committee members deem
necessary. Each committee shall have the power and authority to obtain from the
appropriate officers of the Company all information necessary for the conduct of
the proper business of the committee.
One or more directors may participate in a meeting of a committee by means
of conference telephone or similar communication equipment by means of which all
persons participating in the meeting can hear each other.
Section 5. Executive Committee. There shall be a standing committee of the
-------------------
Board of Directors to be known as the Executive Committee consisting of the
Chief Executive officer and not less than five (5) other directors. Such
committee, during the intervals between meetings of the Board of Directors,
shall exercise all the powers and authority of the Board of Directors in the
management of the affairs of the Company, except the power and authority to do
the following: (a) to fill vacancies in the Board of Directors and the Executive
Committee; (b) to propose to the shareholders amendment of the Articles of
Incorporation; (c)
8
<PAGE>
to make, alter, amend or repeal these Bylaws; (d) to adopt or propose to the
shareholders for adoption any plan of merger, consolidation, liquidation, or
dissolution; (e) to approve the sale of substantially all of the assets of the
Company; (f) to approve the sale and issuance of long term debt; (g) to declare
dividends; (h) to authorize the issuance of stock; or (i) to authorize
redemption of stock or distributions to shareholders.
The Executive Committee shall keep minutes of its proceedings and shall
report on its activities at each regular meeting of the Board of Directors.
Meetings of the Executive Committee may be called from time to time by the
persons specified in Section 4 above, or, in their absence or inability to act,
by a Vice-President
ARTICLE IV
OFFICERS
--------
Section 1. Number and Titles. The officers of the Company shall be a
-----------------
Chairman of the Board, a President, one or more Vice-Presidents, a Secretary, a
Treasurer and such other officers as may be appointed by the Board of Directors.
The same person may hold two (2) or more offices, excePt both the offices of
President
Section 2. Election and Term. The officers of the Company, except such
-----------------
officers as may be appointed in accordance with the provisions of Section 4 of
this Article IV, shall be elected annually by the Board of Directors and shall
hold office until they shall resign, shall be removed or otherwise disqualified
to serve, or their successors shall be elected and have qualified.
Section 3. Chief Executive Officer. At the annual organization meeting of
-----------------------
the new Board of Directors, the Board shall designate whether the Chairman of
the Board or the President or both shall have general executive powers and which
one shall be the Chief Executive officer of the Company.
Section 4. Subordinate Officers. The Chief Executive Officer may appoint
--------------------
such other officers or agents as he may deem necessary, subject to the authority
of the Board of Directors to disapprove any such appointment. A subordinate
officer shall hold office for such period, have such authority and perform such
duties as may be determined by the Chief Executive Officer. The Board of
Directors may delegate to any officer or committee the power to appoint
subordinate officers and to specify their duties and authority and to determine
their compensation.
9
<PAGE>
Section 5. Chairman of the Board. The Chairman of the Board shall be a
---------------------
member of the Board of Directors. The Chairman of the Board shall, if present,
preside at all meetings of the Board of Directors and shall be an ex officio
member of all committees of the Board of Directors except the Audit Committee
(if one be appointed). The Chairman of the Board shall supervise the
administration of the policies adopted or approved by the Board of Directors and
he shall also have and may exercise such further powers and duties as from time
to time may be conferred upon or assigned to him by the Board of Directors. The
Chairman of the Board shall have authority to sign the share certificates of the
Company.
Section 6. President. The President of the Company shall be a member of
---------
the Board of Directors. In the absence or disability of the Chairman of the
Board, the President shall perform all the duties of the Chairman of the Board.
Subject to such supervisory powers as may be given by the Board of Directors to
the Chairman of the Board, the President shall have and may exercise any and all
powers and duties of supervision, direction and control of the business and
affairs of the Company vested by law, regulation and practice in the office of
President of a corporation and, in addition, he shall also have and may exercise
such further powers and duties as from time to time may be conferred upon or
assigned to him by the Board of Directors. The President shall be an ex-officio
member of all committees of the Board of Directors, except the Audit Committee
(if one be appointed). The President shall have the authority to sign the share
certificates of the Company.
Section 7. Vice-President. Each Vice-President of the Company shall have
--------------
such powers and duties as may be assigned to him by the Board of Directors. one
Vice-President shall be designated by the Board of Directors, in the absence or
inability to act of the President, to perform all of the duties of the
President.
Section 8. Secretary. The Secretary of the Company shall be responsible
---------
for the minute book of the Company. The Secretary shall attest such documents as
may be required and, in addition, shall have and may exercise such further
powers and duties as from time to time may be conferred upon or assigned to him
by the Board of Directors. The Secretary shall have authority to sign the share
certificates of the Company.
10
<PAGE>
Section 9. Treasurer. The Treasurer of the Company shall be responsible
---------
for all of the Company's funds and securities, shall be responsible for keeping
complete and accurate records relating thereto, and shall prepare such reports
of the financial condition of the Company as may from time to time be requested
by the Board of Directors. In addition, the Treasurer shall have and may
exercise such further powers and duties as from time to time may be conferred
upon or assigned to him by the Board of Directors.
ARTICLE V
INDEMNIFICATION
---------------
Section 1. General Rule. Subject to the provisions of Section 2 below, the
------------
Company shall, to the fullest extent permitted under the laws of the
Commonwealth of Pennsylvania as now or hereafter in effect, indemnify any person
(and his heirs, executors and administrators) who was or is a party, witness or
other participant, or is threatened to be made a party, witness or other
participant, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including, without
limitation, actions by or in the right of the Company), by reason of the fact
that he is or was a director or officer of the Company, or is or was serving at
the request of the Company as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, and may, to the fullest
extent permitted under the laws of the Commonwealth of Pennsylvania as now or
hereafter in effect, indemnify any person (and his heirs, executors and
administrators) who was or is a party, witness or other participant, or is
threatened to be made a party, witness or other participant, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, actions by or in
the right of the Company), by reason of the fact that he is or was an employee
or agent of the Company, or is or was serving at the request of the Company as
an employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, against all expenses (including attorneys' fees, court
costs, transcript costs, fees of experts and witnesses, travel expenses and all
other similar expenses), judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
11
<PAGE>
Section 2. Standard of Conduct. Except as provided in Section 4 below,
-------------------
indemnification shall be provided under Section 1 above only if it is determined
in accordance with the procedure set forth in Section 3 below that: (i) the
person seeking indemnification acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company; and (ii)
the act or failure to act giving rise to the claim for indemnification does not
constitute willful misconduct or recklessness. Notwithstanding the foregoing, no
person shall be indemnified in any case where the act or failure to act giving
rise to the claim for indemnification is determined by a court to have
constituted willful misconduct or recklessness.
Section 3. Procedure. Except as provided under Section 4 below,
---------
indemnification under Section 1 above (unless ordered by a court) shall be made
by the Company only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the person seeking
indemnification has met the applicable standard of conduct set forth in Section
2 above. All such determinations shall be made in accordance with the following
procedure:
(a) Method of Determination (Directors and Officers): All
------------------------------------------------
determinations with respect to directors and officers shall be made as follows.
(1) If a Change in Control has occurred, unless the person seeking
indemnification shall have requested in writing that such determination be made
in accordance with Subsection (2) below, the determination shall be made by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to the person seeking indemnification; or
(2) If a Change in Control has not occurred, the determination shall
be made by the Board of Directors by majority vote of a quorum consisting of
directors who were not parties to the action, suit or proceeding in respect of
which indemnification is sought. In the event that such a quorum is not
obtainable, or, even if obtainable, a majority of such quorum so directs, the
determination shall be made by Independent Counsel in a written opinion to the
Board of Directors, a copy of which shall be delivered to the person seeking
indemnification.
12
<PAGE>
(b) Method of Determination (Employees and Agents): All
----------------------------------------------
determinations with respect to employees and agents shall be made by the Board
of Directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding in respect of which indemnification is
sought. In the event that such a quorum is not obtainable, or, even if
obtainable, a majority of such quorum so directs, the determination shall be
made by Independent Counsel in a written opinion to the Board of Directors, a
copy of which shall be delivered to the person seeking indemnification.
(c) Selection and Payment of Independent Counsel: In the event that a
--------------------------------------------
determination is to be made by Independent Counsel, such Independent Counsel
shall be selected and his fee paid as follows:
(1) If a Change in Control has not occurred, the Independent Counsel
shall be selected by the Board of Directors and the law firm or person so
selected shall be subject to the approval of the person seeking indemnification,
which approval shall not be unreasonably withheld.
(2) If a Change in Control has occurred, the Independent Counsel
shall be selected by the person seeking indemnification and the law firm or
person so selected shall be subject to the approval of the Board of Directors,
which approval shall not be unreasonably withheld.
(3) The Company shall pay all reasonable fees and expenses of the
Independent Counsel.
(d) No Presumption: The termination of any action, suit or proceeding
--------------
referred to in Section 1 above or of any claim, issue or matter therein, by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not of itself create a presumption that a person did not
act in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation or that the act or failure to
act giving rise to the claim for indemnification constitutes willful misconduct
or negligence.
Section 4. Successful Defense. Notwithstanding any other provision of this
------------------
Article, to the extent that a person has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section 1
above, or in defense of any claim, issue or matter therein, he shall be
indemnified by the Company against all expenses (including attorneys' fees,
court costs, transcript costs, fees of experts and witnesses,
13
<PAGE>
travel expenses and all other similar expenses) actually and reasonably incurred
by him in connection therewith.
Section 5. Advance Payment of Expenses. Subject to such terms, conditions
---------------------------
and limitations, if any, as the Board of Directors may in its discretion
determine to be appropriate, the Company shall (in the case of a director or
officer) and may (in the case of an employee or agent) advance all reasonable
expenses (including attorneys' fees, court costs, transcript costs, fees of
experts and witnesses, travel expenses and all other similar expenses)
reasonably incurred in connection with the defense of or other response to any
action, suit or proceeding referred to in Section 1 above upon receipt of an
undertaking by or on behalf of the person seeking the advance to repay all
amounts advanced if it shall ultimately be determined upon final disposition of
such action, suit or proceeding that he is not entitled to be indemnified by the
Company under the provisions of this Article. Notwithstanding the provisions of
the preceding sentence, the Company shall not be required to make any advance
payment of expenses (or to make any further advance if one or more advances
shall have been previously made) in the event that a determination is made by
the Board of Directors that the making of an advance or further advance would be
inappropriate in the circumstances because there is reason to believe that the
person seeking the advance did not meet the applicable standard of conduct set
forth in Section 2 above.
Section 6. No Duplication of Payments. The Company shall not be liable
--------------------------
under this Article to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that the person seeking indemnification has
otherwise actually received payment under any insurance policy, contract,
agreement or otherwise. In the event that the Company makes an advance payment
of expenses to or on behalf of any person, such person shall repay to the
Company the amount so advanced, if and to the extent that he subsequently
receives payment therefor under any insurance policy, contract, agreement or
otherwise.
Section 7. Insurance. The Company may purchase and maintain at its own
---------
expense one or more policies of insurance to protect itself and to protect any
director, officer, employee or agent of the Company or of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss incurred by such person in such capacity, whether or not the
Company would have the authority to indemnify such person against any such
expense, liability or loss under this Article or under the laws of the
Commonwealth of Pennsylvania.
14
<PAGE>
Section 8. Indemnification Agreements. The Company shall have authority by
--------------------------
vote of a majority of the Board of Directors to enter into an Indemnification
Agreement with any person who may be indemnified by the Company pursuant to the
provisions of this Article or otherwise. Any such Indemnification Agreement may
contain such terms and conditions as a majority of the Board of Directors shall
in the exercise of their discretion determine to be necessary or appropriate,
provided that such terms and conditions may not be inconsistent with the
substantive provisions of this Article. The fact that the Company has not
entered into an Indemnification Agreement with any person shall not in any way
limit the indemnification rights of such person under this Article or otherwise.
Section 9. Non-Exclusivity. The right to indemnification and to the
---------------
payment of expenses incurred in defending against or otherwise responding to any
action, suit or proceeding in advance of its final disposition as set forth in
this Article shall not be exclusive of any other rights which any person may now
have or hereafter acquire under any agreement, vote of shareholders, vote of
disinterested directors, or under any applicable law or under the Articles of
Incorporation of the Company, or otherwise.
Section 10. Certain Definitions. For purposes of this Article, the
-------------------
following terms shall have the meanings set forth below.
(a) Change in Control: Shall mean a change in control of the kind
-----------------
that would be required to be reported in response to Item 1 of Securities and
Exchange Commission Form 8-K promulgated under the Securities Exchange Act of
1934 and as in effect on the effective date of this Article. Without limitation
of the foregoing, a Change in Control of the Company shall be deemed to have
occurred upon the occurrence of any of the following events:
(1) Any person or group of persons acting in concert shall have
acquired, directly or indirectly, beneficial ownership of 20 percent or more of
the outstanding shares of the voting stock of the Company; or
(2) The composition of the Board of Directors of the Company shall
have changed such that during any period of 24 consecutive months, the persons
who at the beginning of such period were members of the Board of Directors cease
for any reason to constitute a majority of the Board of Directors, unless the
nomination or election of each director who was not a director at the beginning
of such period was approved in advance by directors representing not less than
two-thirds of the
15
<PAGE>
directors then in office who were directors at the beginning of the period; or
(3) The Company shall be merged or consolidated with or its assets
purchased by another corporation and, as a result of such merger, consolidation
or sale of assets, less than a majority of the outstanding voting stock of the
surviving, resulting or purchasing corporation is owned, immediately after the
transaction, by the holders of the voting stock of the Company outstanding
immediately before the transaction: or
(4) The shareholders of the Company shall have approved any plan or
proposal for the liquidation or dissolution of the Company.
(b) Independent Counsel: Shall mean a law firm, or a member of a law
-------------------
firm, that is experienced in matters of corporation law and that has not in the
immediately preceding five years been retained to represent the Company, the
person seeking indemnification or any other party to the action, suit or
proceeding giving rise to the claim for indemnification.
Section 11. Survival of Rights. The indemnification rights provided to a person
under the provisions of this Article shall continue after such person ceases to
be a director, officer, employee or agent of the Company or of another entity,
as to any action taken, any failure to take action, or any events which occurred
while such person was a director, officer, employee or agent of the Company or
of another entity.
Section 12. Modification or Repeal. The provisions of this Article may be
----------------------
modified or repealed by the Board of Directors in accordance with the procedures
for amending these Bylaws; provided, however, that any such modification or
repeal shall not have any effect upon the indemnification rights of any person
as they relate to any action taken, any failure to take action, or events which
occurred prior to the effective date of such modification or repeal.
Section 13. Effective Date. This Article shall become effective
--------------
immediately following its ratification by the shareholders of the Company at a
meeting of shareholders duly convened after notice to the shareholders of such
purpose and shall thereafter be subject to modification or repeal by the Board
of Directors as provided in Section 12 above.
16
<PAGE>
ARTICLE VI
EMERGENCIES
-----------
Section 1. Emergency Executive Committee. In the event of any
-----------------------------
emergency declared by governmental authority, the result of a regional or
national disaster and of such severity as to prevent the normal conduct and
management of the affairs of the Company by its directors and officers as
contemplated by these Bylaws, any three (3) available directors shall constitute
the Executive Committee and may exercise the full authority of that committee
until such time as a duly elected Board of Directors can again assume full
responsibility for and control of the Company.
ARTICLE VII
AMENDMENT
---------
Section 1. Procedure. The authority to make, amend, alter, change or
---------
repeal the Bylaws of the Company is hereby expressly and solely granted to and
vested in the Board of Directors, subject always to the power of the
shareholders to make, amend, alter, change or repeal the Bylaws by the
affirmative vote of the holders of not less than 85% of the voting power of the
then outstanding shares of capital stock of the Company entitled to vote
generally in the election of directors, voting together as a single class, at a
meeting of shareholders duly convened after notice to the shareholders of such
purpose. The authority hereby granted to and vested in the Board of Directors
may be exercised upon the vote of a majority of entire Board of Directors at any
meeting of the Board, provided that 10 days' notice of the proposed amendment
has been given to each director.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 1. Restrictions on Transfer. To the extent that the Rights
------------------------
Agreement dated as of June 20, 1989 between the Company and Fulton Bank may be
deemed to impose restrictions on the transfer of securities of the Company, such
restrictions are hereby authorized.
Section 2. Uncertificated Shares. The Board of Directors may, by
---------------------
resolution, designate that any or all classes and series of shares of the
Corporation's stock, or any part thereof, shall be uncertificated shares;
provided, however, that such a designation shall not apply to shares represented
by a certificate until the certificate is surrendered to the Corporation.
17
<PAGE>
SEVERANCE AGREEMENT
MADE as of this 17th day of May, 1988, by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square, P.O.
4887, Lancaster, Pennsylvania 17604 (the Company) and R. Scott Smith, Jr., an
adult individual who resides at 1348 Silver Spring Road, Holtwood, Pennsylvania
17532 (Executive).
Background
Executive is a Senior Vice President of the Company, a Pennsylvania bank
holding company, and an Executive Vice President of Fulton Bank, the principal
subsidiary and flagship bank of the Company. Executive is an integral part of
the management team of the Company and Bank.
As a result of changes in federal and state banking laws, there has been a
dramatic increase in the number of mergers and other acquisitions of
Pennsylvania bank and bank holding companies. While the Company remains firmly
committed to its policy of remaining a strong, independent regional bank holding
company, it recognizes that it might nevertheless be acquired as a result of an
unsolicited takeover attempt or in a negotiated transaction. Executive will
play a critical role in any such acquisition, as it falls principally upon him
and the other members of Management vigorously and aggressively to represent and
to protect the interests of the shareholders of the Company.
The Company believes that Executive should not be forced to sacrifice his
future financial security in order to fulfill his responsibilities to the
shareholders. The Board of Directors of the Company has carefully considered
this problem and has determined that it should be addressed. Specifically, the
Board of Directors has concluded that basic financial protection should be
provided to Executive in the form of certain limited severance benefits payable
in the event that he is discharged or resigns following, and for reasons
relating to a change in control of the Company.
The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Executive's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will
take effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company as that concept is
defined below.
WITNESSETH:
NOW, THEREFORE, in consideration of Executive's continuing service to the
Company and of the mutual covenants and undertakings hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. Undertaking of the Company
The Company shall provide to Executive the severance benefits specified
in Paragraph 6 below in the event that any time within 36 months following a
Change in Control of the Company:
(a) Executive is discharged by the Company, other than for Cause pursuant
to Paragraph 3 below or for Disability pursuant to Paragraph 4 below;
or
(b) Executive resigns from the Company for Good Reason pursuant to
Paragraph 5 below.
2. Change in Control
(a) For purposes of this Agreement, a Change in Control of the Company
shall mean a change in control of the kind that would be required to be
reported in response to Item 1 of Securities and Exchange Commission
Form 8-K promulgated under the Securities Exchange Act of 1934 and as
in effect on the date hereof.
(b) Without limitation of the foregoing, a Change in Control of the Company
shall be deemed to have occurred upon the occurrence of any of the
following events:
(1) Any person or group of persons acting in concert, shall have
acquired, directly or indirectly, beneficial ownership of 20
percent or more of the outstanding shares of the voting stock of
the Company;
(2) The composition of the Board of Directors of the Company shall
have changed such that during any period of two consecutive
years during the term of this Agreement, the persons who at the
beginning of such period were members of the Board of Directors,
unless the nomination or election of each director who was not a
director at the beginning of such period was approved in advance
by directors representing not less than two-thirds of the
directors then in office who were directors at the beginning of
the period; or
(3) The Company shall be merged or consolidated with or its assets
purchased by another corporation and as a result of such merger,
consolidation or sale of assets, less than a majority of the
outstanding voting stock of the surviving, resulting or
purchasing corporation is owned, immediately after the
transaction, by the holders of the voting stock of the Company
outstanding immediately before the transaction.
(c) For purposes of Paragraph 2(b)(1) above, a person shall be deemed to be
the beneficial owner of any shares which he or any of his affiliates or
associates (i) owns, directly or indirectly, (ii) has the right to
acquire, or (iii) has the right to vote or direct the voting thereof
pursuant to any agreement, arrangement or understanding.
<PAGE>
3. Discharge for Cause
(a) The Company may at any time following a Change in Control discharge
Executive for Cause, in which event Executive shall not be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company shall have Cause to
discharge Executive only under the following circumstances:
(i) Executive shall have committed an act of dishonesty constituting a
felony and resulting or intending to result directly or indirectly in
gain or personal enrichment at the expense of the Company; or
(ii) Executive shall have deliberately and intentionally refused (for
reasons other than incapacity due to accident or physical or mental
illness) to perform his duties to the Company for a period of 30
consecutive days following the receipt by him of written notice from
the Company setting forth in detail the facts upon which the Company
relies in concluding that Executive has deliberately and
intentionally refused to perform such duties.
4. Discharge for Disability
(a) The Company may at any time following a Change in Control discharge
Executive for Disability as provided in this Paragraph 4, in which event
Executive shall not be entitled to receive the severance benefits
specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company may discharge Executive for
Disability only under the following circumstances:
(i) Executive shall have been unable, for reasons of incapacity due to
accident or physical or mental illness, for a period of six
consecutive months to perform his duties to the Company.
(ii) The Company, following the expiration of such period of six
consecutive months, shall have to give Executive 30 days written
notice of its intention to discharge him for disability and he shall
not within that 30 day period have returned to the performance of his
duties to the Company on a full-time basis; and
(iii) The Company shall provide or cause to be provided to Executive
short-term and long-term disability benefits and fringe benefits not
less generous than the following: (A) Executive shall receive each
month for six months following the date of his discharge for
Disability his full month salary (as in effect immediately before his
discharge for Disability); (B) Executive shall receive each month
thereafter 60 percent of his monthly salary (as in effect immediately
before his discharge for Disability) until his death or until
December 31 of the calendar year in which he attains age 65,
whichever shall first occur; and (c) Executive shall receive those
fringe benefits customarily provided by the Company to disabled
former employees, which
<PAGE>
benefits shall include, but shall not be limited to, life, medical,
health, accident and disability insurance and a survivor's income
benefit.
(c) In the event that Executive shall at any time cease to be disabled
following his discharge for Disability, the Company shall do one of the
following:
(i) Reappoint Executive to his position with the Company, with full
salary and benefits, as they existed immediately before his discharge
for Disability, in which case this Agreement shall remain in full
force and effect as though Executive had never been so discharged; or
(ii) Treat Executive as though he has been discharged for reasons other
than Cause or Disability, in which case Executive shall be entitled
to receive the severance benefits specified in Paragraph 6 below.
(d) In the event that Executive shall disagree with a determination on the
part of the Company that he is disabled or in the event that the Company
shall disagree with a determination on the part of Executive that he is
no longer disabled, the matter shall be submitted to an impartial and
reputable medical doctor to be selected by mutual agreement of the
parties. In the event that Executive and the Company are unable to
agree, the matter shall be submitted to an impartial and reputable
medical doctor to be selected, upon petition by either party, by the
Lancaster County Court of Common Pleas.
5. Resignation for Good Reasons
(a) Executive may at any time following a Change in Control resign from the
Company for Good Reason, in which event Executive shall be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, Executive shall have Good Reason to
resign under the following circumstances:
(i) The Company, without Executive's prior written consent, shall have
changed or attempted to change in any significant respect the
authority, duties, compensation, benefits or other terms or
conditions of Executive's employment; or
(ii) Executive shall have determined in good faith and in his sole and
absolute discretion that he is unable to work harmoniously and
effectively with the new management of the Company or that he is
otherwise unable effectively to carry out his duties and discharge
his responsibilities to the Company.
6. Severance Benefits
The severance benefits to be provided to Executive by the Company under
this Agreement are as follows:
(a) Salary Continuation: The Company shall pay to Executive each month during
-------------------
the Severance Benefit Period an amount equal to one-twelfth of his base
annual salary.
<PAGE>
Executive's base annual salary shall be deemed to be an amount equal to
twenty percent (20%) of the aggregate salary paid to Executive by or on
behalf of the Company and the Bank during the most recent five (5)
taxable years ending before the Change of Control shall occur. The
payment to be made in respect of each month shall be made on or be fore
the 15th day of the next following month. In the event that the Severance
Benefit Period begins or ends on other than, respectively, the first or
last day of a calendar month, the payment to be made in respect of that
month shall be prorated accordingly. It is understood that the Company
shall withhold from each monthly payment such amounts as may be required
under any applicable federal, state or local income tax law.
(b) Fringe Benefits: The Company shall at its expense provide to Executive
---------------
throughout Severance Benefit Period life, medical, health, accident and
disability insurance and a survivor's income benefit in form, substance
and amount which is in each case substantially equivalent to that
provided to him immediately before the Change in Control or immediately
before the commencement of the Severance Benefit Period, whichever
Executive shall in each case select.
7. Severance Benefit Period
The Severance Benefit Period shall commence upon the effective date of
Executive's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:
(a) The expiration of 36 months following the effective date of Executive's
discharge or resignation;
(b) The expiration of the calendar year in which Executive attains age 65;
(c) Executive's death; or
(d) The election of Executive to terminate the Severance Benefit period
pursuant to Paragraph 8(b) below.
8. Covenant Not To Compete
(a) Executive agrees that he will not without the prior written consent of
the Company at any time during the Severance Benefit Period become an
officer, director, or employee of or consultant to any bank, bank
holding company or other financial services institution.
(b) Executive may elect at any time to terminate the Severance Benefit
Period by delivering written notice to the Company in which event the
covenant not to compete set forth in Paragraph 8(a) above shall expire
and have no further force or effect.
(c) In the event of any breach by Executive of the covenant not to compete
set forth in Paragraph 8(a) above, the parties agree that the exclusive
remedy of the Company shall be to obtain an injunction, order for
specific performance, or other form of equitable relief from a court of
competent jurisdiction and that the Company shall not under any
<PAGE>
circumstances be entitled to recover monetary damages from Executive by
reason of any such breach.
9. Mitigation and Setoff
(a) Executive shall not be required to mitigate the amount of any payment or
benefit provided for in Paragraph 6 above by seeking employment or
otherwise and the Company shall not be entitled to setoff against the
amount of any payment or benefit provided for in Paragraph 6 above any
amounts earned by Executive in other employment during the Severance
Benefit Period.
(b) The Company hereby waives any and all rights to set off in respect to
any claim, debt, obligation or other liability of any kind whatsoever,
against any payment or benefit provided for in Paragraph 6 above.
10. Attorneys' Fees and Related Expenses
All attorneys' fees and related expenses incurred by Executive in
connection with or relating to enforcement by him of his rights under this
Agreement shall be paid for in full by the Company.
11. Successors and Parties in Interest
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, including, without
limitation, any corporation which acquires, directly or indirectly, by
purchase, merger, consolidation or otherwise, all or substantially all
of the business or assets of the Company. Without limitation of the
foregoing, the Company shall require any such successor, by agreement in
form and substance satisfactory to Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same
extent that it is required to be performed by the Company.
(b) This Agreement is binding upon and shall inure to the benefit of
Executive, his heirs and personal representatives.
12. Rights under Other Plans
This Agreement is not intended to reduce, restrict or eliminate any
benefit to which Executive may otherwise be entitled at the time of his
discharge or resignation under any employee benefit plan of the Company then in
effect.
13. Termination
This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Executive.
<PAGE>
14. Notices
All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Executive, as the case may be, at their respective addresses set forth above.
15. Severability
In the event that any provision of this Agreement shall be held to be
invalid or unenforceably by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement. It is the intention of the parties hereto that Executive shall
receive the maximum severance benefits under this Severance Agreement which
Executive may receive without any payment of such benefits being classified as
an "excess parachute payment" (as defined in Section 280G of the Internal
Revenue Code) and to the extent that payment of such benefits hereunder would be
classified as an "excess parachute payment," such payment shall be automatically
reduced to the maximum amount which would not be classified as an "excess
parachute payment."
16. Governing Law, Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.
17. Entire Agreement
This Agreement constitutes the entire agreement between the Company and
Executive concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Executive.
IN WITNESS WHEREOF, this Agreement is executed the day and year first above
written.
ATTEST: FULTON FINANCIAL CORPORATION
By: /s/ Kenneth E. Shenenberger By: /s/ Robert D. Garner
--------------------------- --------------------------
Title: Secretary Title: Chairman
<PAGE>
(CORPORATE SEAL)
WITNESS:
/s/ Kenneth E. Shenenberger /s/ R. Scott Smith, Jr.
- --------------------------- -----------------------
R. SCOTT SMITH, JR.
<PAGE>
SEVERANCE AGREEMENT
MADE as of this 17th day of May, 1988, by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square, P.O.
4887, Lancaster, Pennsylvania 17604 (the Company) and Richard J. Ashby, Jr., an
adult individual who resides at 127 St. Thomas Road, Lancaster, Pennsylvania
17601 (Executive).
Background
Executive is a Senior Vice President of the Company, a Pennsylvania bank
holding company, and an Executive Vice President of Fulton Bank, the principal
subsidiary and flagship bank of the Company. Executive is an integral part of
the management team of the Company and Bank.
As a result of changes in federal and state banking laws, there has been a
dramatic increase in the number of mergers and other acquisitions of
Pennsylvania bank and bank holding companies. While the Company remains firmly
committed to its policy of remaining a strong, independent regional bank holding
company, it recognizes that it might nevertheless be acquired as a result of an
unsolicited takeover attempt or in a negotiated transaction. Executive will
play a critical role in any such acquisition, as it falls principally upon him
and the other members of Management vigorously and aggressively to represent and
to protect the interests of the shareholders of the Company.
The Company believes that Executive should not be forced to sacrifice his
future financial security in order to fulfill his responsibilities to the
shareholders. The Board of Directors of the Company has carefully considered
this problem and has determined that it should be addressed. Specifically, the
Board of Directors has concluded that basic financial protection should be
provided to Executive in the form of certain limited severance benefits payable
in the event that he is discharged or resigns following, and for reasons
relating to a change in control of the Company.
The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Executive's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will
take effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company as that concept is
defined below.
WITNESSETH:
NOW, THEREFORE, in consideration of Executive's continuing service to the
Company and of the mutual covenants and undertakings hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. Undertaking of the Company
The Company shall provide to Executive the severance benefits specified
in Paragraph 6 below in the event that any time within 36 months following a
Change in Control of the Company:
(a) Executive is discharged by the Company, other than for Cause pursuant
to Paragraph 3 below or for Disability pursuant to Paragraph 4 below;
or
(b) Executive resigns from the Company for Good Reason pursuant to
Paragraph 5 below.
2. Change in Control
(a) For purposes of this Agreement, a Change in Control of the Company
shall mean a change in control of the kind that would be required to be
reported in response to Item 1 of Securities and Exchange Commission
Form 8-K promulgated under the Securities Exchange Act of 1934 and as
in effect on the date hereof.
(b) Without limitation of the foregoing, a Change in Control of the Company
shall be deemed to have occurred upon the occurrence of any of the
following events:
(1) Any person or group of persons acting in concert, shall have
acquired, directly or indirectly, beneficial ownership of 20
percent or more of the outstanding shares of the voting stock of
the Company;
(2) The composition of the Board of Directors of the Company shall
have changed such that during any period of two consecutive years
during the term of this Agreement, the persons who at the beginning
of such period were members of the Board of Directors, unless the
nomination or election of each director who was not a director at
the beginning of such period was approved in advance by directors
representing not less than two-thirds of the directors then in
office who were directors at the beginning of the period; or
(3) The Company shall be merged or consolidated with or its assets
purchased by another corporation and as a result of such merger,
consolidation or sale of assets, less than a majority of the
outstanding voting stock of the surviving, resulting or purchasing
corporation is owned, immediately after the transaction, by the
holders of the voting stock of the Company outstanding immediately
before the transaction.
(c) For purposes of Paragraph 2(b)(1) above, a person shall be deemed to be
the beneficial owner of any shares which he or any of his affiliates or
associates (i) owns, directly or indirectly, (ii) has the right to
acquire, or (iii) has the right to vote or direct the voting thereof
pursuant to any agreement, arrangement or understanding.
<PAGE>
3. Discharge for Cause
(a) The Company may at any time following a Change in Control discharge
Executive for Cause, in which event Executive shall not be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company shall have Cause to
discharge Executive only under the following circumstances:
(i) Executive shall have committed an act of dishonesty constituting a
felony and resulting or intending to result directly or indirectly
in gain or personal enrichment at the expense of the Company; or
(ii) Executive shall have deliberately and intentionally refused (for
reasons other than incapacity due to accident or physical or
mental illness) to perform his duties to the Company for a period
of 30 consecutive days following the receipt by him of written
notice from the Company setting forth in detail the facts upon
which the Company relies in concluding that Executive has
deliberately and intentionally refused to perform such duties.
4. Discharge for Disability
(a) The Company may at any time following a Change in Control discharge
Executive for Disability as provided in this Paragraph 4, in which
event Executive shall not be entitled to receive the severance benefits
specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company may discharge Executive for
Disability only under the following circumstances:
(i) Executive shall have been unable, for reasons of incapacity due to
accident or physical or mental illness, for a period of six
consecutive months to perform his duties to the Company.
(ii) The Company, following the expiration of such period of six
consecutive months, shall have to give Executive 30 days written
notice of its intention to discharge him for disability and he
shall not within that 30 day period have returned to the
performance of his duties to the Company on a full-time basis; and
(iii)The Company shall provide or cause to be provided to Executive
short-term and long-term disability benefits and fringe benefits
not less generous than the following: (A) Executive shall receive
each month for six months following the date of his discharge for
Disability his full month salary (as in effect immediately before
his discharge for Disability); (B) Executive shall receive each
month thereafter 60 percent of his monthly salary (as in effect
immediately before his discharge for Disability) until his death
or until December 31 of the calendar year in which he attains age
65, whichever shall first occur; and (c) Executive shall receive
those fringe benefits customarily provided by the Company to
disabled former employees, which benefits shall include,
<PAGE>
but shall not be limited to, life, medical, health, accident and
disability insurance and a survivor's income benefit.
(c) In the event that Executive shall at any time cease to be disabled
following his discharge for Disability, the Company shall do one of the
following:
(i) Reappoint Executive to his position with the Company, with full
salary and benefits, as they existed immediately before his
discharge for Disability, in which case this Agreement shall
remain in full force and effect as though Executive had never been
so discharged; or
(ii) Treat Executive as though he has been discharged for reasons other
than Cause or Disability, in which case Executive shall be
entitled to receive the severance benefits specified in Paragraph
6 below.
(d) In the event that Executive shall disagree with a determination on the
part of the Company that he is disabled or in the event that the
Company shall disagree with a determination on the part of Executive
that he is no longer disabled, the matter shall be submitted to an
impartial and reputable medical doctor to be selected by mutual
agreement of the parties. In the event that Executive and the Company
are unable to agree, the matter shall be submitted to an impartial and
reputable medical doctor to be selected, upon petition by either party,
by the Lancaster County Court of Common Pleas.
5. Resignation for Good Reasons
(a) Executive may at any time following a Change in Control resign from the
Company for Good Reason, in which event Executive shall be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, Executive shall have Good Reason to
resign under the following circumstances:
(i) The Company, without Executive's prior written consent, shall
have changed or attempted to change in any significant respect
the authority, duties, compensation, benefits or other terms or
conditions of Executive's employment; or
(ii) Executive shall have determined in good faith and in his sole
and absolute discretion that he is unable to work harmoniously
and effectively with the new management of the Company or that
he is otherwise unable effectively to carry out his duties and
discharge his responsibilities to the Company.
6. Severance Benefits
The severance benefits to be provided to Executive by the Company under
this Agreement are as follows:
(a) Salary Continuation: The Company shall pay to Executive each month
-------------------
during the Severance Benefit Period an amount equal to one-twelfth of
his base annual salary.
<PAGE>
Executive's base annual salary shall be deemed to be an amount equal to
twenty percent (20%) of the aggregate salary paid to Executive by or on
behalf of the Company and the Bank during the most recent five (5)
taxable years ending before the Change of Control shall occur. The
payment to be made in respect of each month shall be made on or before
the 15th day of the next following month. In the event that the
Severance Benefit Period begins or ends on other than, respectively,
the first or last day of a calendar month, the payment to be made in
respect of that month shall be prorated accordingly. It is understood
that the Company shall withhold from each monthly payment such amounts
as may be required under any applicable federal, state or local income
tax law.
(b) Fringe Benefits: The Company shall at its expense provide to Executive
---------------
throughout Severance Benefit Period life, medical, health, accident and
disability insurance and a survivor's income benefit in form, substance
and amount which is in each case substantially equivalent to that
provided to him immediately before the Change in Control or immediately
before the commencement of the Severance Benefit Period, whichever
Executive shall in each case select.
7. Severance Benefit Period
The Severance Benefit Period shall commence upon the effective date of
Executive's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:
(a) The expiration of 36 months following the effective date of Executive's
discharge or resignation;
(b) The expiration of the calendar year in which Executive attains age 65;
(c) Executive's death; or
(d) The election of Executive to terminate the Severance Benefit period
pursuant to Paragraph 8(b) below.
8. Covenant Not To Compete
(a) Executive agrees that he will not without the prior written consent of
the Company at any time during the Severance Benefit Period become an
officer, director, or employee of or consultant to any bank, bank
holding company or other financial services institution.
(b) Executive may elect at any time to terminate the Severance Benefit
Period by delivering written notice to the Company in which event the
covenant not to compete set forth in Paragraph 8(a) above shall expire
and have no further force or effect.
(c) In the event of any breach by Executive of the covenant not to compete
set forth in Paragraph 8(a) above, the parties agree that the exclusive
remedy of the Company shall be to obtain an injunction, order for
specific performance, or other form of equitable relief from a court of
competent jurisdiction and that the Company shall not under any
<PAGE>
circumstances be entitled to recover monetary damages from Executive by
reason of any such breach.
9. Mitigation and Setoff
(a) Executive shall not be required to mitigate the amount of any payment
or benefit provided for in Paragraph 6 above by seeking employment or
otherwise and the Company shall not be entitled to setoff against the
amount of any payment or benefit provided for in Paragraph 6 above any
amounts earned by Executive in other employment during the Severance
Benefit Period.
(b) The Company hereby waives any and all rights to set off in respect to
any claim, debt, obligation or other liability of any kind whatsoever,
against any payment or benefit provided for in Paragraph 6 above.
10. Attorneys' Fees and Related Expenses
All attorneys' fees and related expenses incurred by Executive in
connection with or relating to enforcement by him of his rights under this
Agreement shall be paid for in full by the Company.
11. Successors and Parties in Interest
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, including, without
limitation, any corporation which acquires, directly or indirectly, by
purchase, merger, consolidation or otherwise, all or substantially all
of the business or assets of the Company. Without limitation of the
foregoing, the Company shall require any such successor, by agreement
in form and substance satisfactory to Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same
extent that it is required to be performed by the Company.
(b) This Agreement is binding upon and shall inure to the benefit of
Executive, his heirs and personal representatives.
12. Rights under Other Plans
This Agreement is not intended to reduce, restrict or eliminate any
benefit to which Executive may otherwise be entitled at the time of his
discharge or resignation under any employee benefit plan of the Company then in
effect.
13. Termination
This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Executive.
<PAGE>
14. Notices
All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Executive, as the case may be, at their respective addresses set forth above.
15. Severability
In the event that any provision of this Agreement shall be held to be
invalid or unenforceably by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement. It is the intention of the parties hereto that Executive shall
receive the maximum severance benefits under this Severance Agreement which
Executive may receive without any payment of such benefits being classified as
an "excess parachute payment" (as defined in Section 280G of the Internal
Revenue Code) and to the extent that payment of such benefits hereunder would be
classified as an "excess parachute payment," such payment shall be automatically
reduced to the maximum amount which would not be classified as an "excess
parachute payment."
16. Governing Law, Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.
17. Entire Agreement
This Agreement constitutes the entire agreement between the Company and
Executive concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Executive.
IN WITNESS WHEREOF, this Agreement is executed the day and year first above
written.
ATTEST: FULTON FINANCIAL CORPORATION
By: /s/ Kenneth E. Shenenberger By: /s/ Robert D. Garner
--------------------------- ------------------------------
Title: Secretary Title: Chairman
<PAGE>
(CORPORATE SEAL)
WITNESS:
/s/ Kenneth E. Shenenberger /s/ Richard J. Ashby, Jr.
- --------------------------- -------------------------
RICHARD J. ASHBY, JR.
<PAGE>
SEVERANCE AGREEMENT
MADE as of this 19/th/ day of November, 1992 by and between Fulton
Financial Corporation, a Pennsylvania corporation with offices at One Penn
Square, P.O. 4887, Lancaster, Pennsylvania 17604 (the Company) and Charles J.
Nugent, an adult individual who resides at 313 Box Elder Drive, West Chester,
Pennsylvania 19380 (Executive).
Background
Executive has been appointed Executive Vice President and Chief Financial
Officer of the Company, a Pennsylvania bank holding company, and is an integral
part of the management team of the Company.
As a result of changes in federal and state banking laws, there has been a
dramatic increase in the number of mergers and other acquisitions of
Pennsylvania bank and bank holding companies. While the Company remains firmly
committed to its policy of remaining a strong, independent regional bank holding
company, it recognizes that it might nevertheless be acquired as a result of an
unsolicited takeover attempt or in a negotiated transaction. Executive will
play a critical role in any such acquisition, as it falls principally upon him
and the other members of Management vigorously and aggressively to represent and
to protect the interests of the shareholders of the Company.
The Company believes that Executive should not be forced to sacrifice his
future financial security in order to fulfill his responsibilities to the
shareholders. The Board of Directors of the Company has carefully considered
this problem and has determined that it should be addressed. Specifically, the
Board of Directors has concluded that basic financial protection should be
provided to Executive in the form of certain limited severance benefits payable
in the event that he is discharged or resigns following, and for reasons
relating to a change in control of the Company.
The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Executive's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will
take effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company as that concept is
defined below.
WITNESSETH:
NOW, THEREFORE, in consideration of Executive's continuing service to the
Company and of the mutual covenants and undertakings hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. Undertaking of the Company
The Company shall provide to Executive the severance benefits
specified in Paragraph 6 below in the event that any time within 36 months
following a Change in Control of the Company:
(a) Executive is discharged by the Company, other than for Cause pursuant
to Paragraph 3 below or for Disability pursuant to Paragraph 4 below;
or
(b) Executive resigns from the Company for Good Reason pursuant to
Paragraph 5 below.
2. Change in Control
(a) For purposes of this Agreement, a Change in Control of the Company
shall mean a change in control of the kind that would be required to
be reported in response to Item 1 of Securities and Exchange
Commission Form 8-K promulgated under the Securities Exchange Act of
1934 and as in effect on the date hereof.
(b) Without limitation of the foregoing, a Change in Control of the
Company shall be deemed to have occurred upon the occurrence of any of
the following events:
(1) Any person or group of persons acting in concert, shall have
acquired, directly or indirectly, beneficial ownership of 20
percent or more of the outstanding shares of the voting stock of
the Company;
(2) The composition of the Board of Directors of the Company shall
have changed such that during any period of two consecutive years
during the term of this Agreement, the persons who at the
beginning of such period were members of the Board of Directors,
unless the nomination or election of each director who was not a
director at the beginning of such period was approved in advance
by directors representing not less than two-thirds of the
directors then in office who were directors at the beginning of
the period; or
(3) The Company shall be merged or consolidated with or its assets
purchased by another corporation and as a result of such merger,
consolidation or sale of assets, less than a majority of the
outstanding voting stock of the surviving, resulting or
purchasing corporation is owned, immediately after the
transaction, by the holders of the voting stock of the Company
outstanding immediately before the transaction.
(c) For purposes of Paragraph 2(b)(1) above, a person shall be deemed to
be the beneficial owner of any shares which he or any of his
affiliates or associates (i) owns, directly or indirectly, (ii) has
the right to acquire, or (iii) has the right to vote or direct the
voting thereof pursuant to any agreement, arrangement or
understanding.
<PAGE>
3. Discharge for Cause
(a) The Company may at any time following a Change in Control discharge
Executive for Cause, in which event Executive shall not be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company shall have Cause to
discharge Executive only under the following circumstances:
(i) Executive shall have committed an act of dishonesty constituting
a felony and resulting or intending to result directly or
indirectly in gain or personal enrichment at the expense of the
Company; or
(ii) Executive shall have deliberately and intentionally refused (for
reasons other than incapacity due to accident or physical or
mental illness) to perform his duties to the Company for a period
of 30 consecutive days following the receipt by him of written
notice from the Company setting forth in detail the facts upon
which the Company relies in concluding that Executive has
deliberately and intentionally refused to perform such duties.
4. Discharge for Disability
(a) The Company may at any time following a Change in Control discharge
Executive for Disability as provided in this Paragraph 4, in which
event Executive shall not be entitled to receive the severance
benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company may discharge Executive
for Disability only under the following circumstances:
(i) Executive shall have been unable, for reasons of incapacity due
to accident or physical or mental illness, for a period of six
consecutive months to perform his duties to the Company.
(ii) The Company, following the expiration of such period of six
consecutive months, shall have to give Executive 30 days
written notice of its intention to discharge him for disability
and he shall not within that 30 day period have returned to the
performance of his duties to the Company on a full-time basis;
and
(iii) The Company shall provide or cause to be provided to Executive
short-term and long-term disability benefits and fringe
benefits not less generous than the following: (A) Executive
shall receive each month for six months following the date of
his discharge for Disability his full month salary (as in
effect immediately before his discharge for Disability); (B)
Executive shall receive each month thereafter 60 percent of his
monthly salary (as in effect immediately before his discharge
for Disability) until his death or until December 31 of the
calendar year in which he attains age 65, whichever shall first
occur; and (c) Executive shall receive those fringe benefits
customarily provided by the Company to disabled former
employees, which benefits shall include,
<PAGE>
but shall not be limited to, life, medical, health, accident and
disability insurance and a survivor's income benefit.
(c) In the event that Executive shall at any time cease to be disabled
following his discharge for Disability, the Company shall do one of
the following:
(i) Reappoint Executive to his position with the Company, with full
salary and benefits, as they existed immediately before his
discharge for Disability, in which case this Agreement shall
remain in full force and effect as though Executive had never
been so discharged; or
(ii) Treat Executive as though he has been discharged for reasons
other than Cause or Disability, in which case Executive shall be
entitled to receive the severance benefits specified in Paragraph
6 below.
(d) In the event that Executive shall disagree with a determination on the
part of the Company that he is disabled or in the event that the
Company shall disagree with a determination on the part of Executive
that he is no longer disabled, the matter shall be submitted to an
impartial and reputable medical doctor to be selected by mutual
agreement of the parties. In the event that Executive and the Company
are unable to agree, the matter shall be submitted to an impartial and
reputable medical doctor to be selected, upon petition by either
party, by the Lancaster County Court of Common Pleas.
5. Resignation for Good Reasons
(a) Executive may at any time following a Change in Control resign from
the Company for Good Reason, in which event Executive shall be
entitled to receive the severance benefits specified in Paragraph 6
below.
(b) For purposes of this Agreement, Executive shall have Good Reason to
resign under the following circumstances:
(i) The Company, without Executive's prior written consent, shall
have changed or attempted to change in any significant respect
the authority, duties, compensation, benefits or other terms or
conditions of Executive's employment; or
(ii) Executive shall have determined in good faith and in his sole and
absolute discretion that he is unable to work harmoniously and
effectively with the new management of the Company or that he is
otherwise unable effectively to carry out his duties and
discharge his responsibilities to the Company.
6. Severance Benefits
The severance benefits to be provided to Executive by the Company under
this Agreement are as follows:
(a) Salary Continuation: The Company shall pay to Executive each month
-------------------
during the Severance Benefit Period an amount equal to one-twelfth of
his base annual salary.
<PAGE>
Executive's base annual salary shall be deemed to be an amount equal
to twenty percent (20%) of the aggregate salary paid to Executive by
or on behalf of the Company and the Bank during the most recent five
(5) taxable years ending before the Change of Control shall occur. The
payment to be made in respect of each month shall be made on or before
the 15/th/ day of the next following month. In the event that the
Severance Benefit Period begins or ends on other than, respectively,
the first or last day of a calendar month, the payment to be made in
respect of that month shall be prorated accordingly. It is understood
that the Company shall withhold from each monthly payment such amounts
as may be required under any applicable federal, state or local income
tax law.
(b) Fringe Benefits: The Company shall at its expense provide to
---------------
Executive throughout Severance Benefit Period life, medical, health,
accident and disability insurance and a survivor's income benefit in
form, substance and amount which is in each case substantially
equivalent to that provided to him immediately before the Change in
Control or immediately before the commencement of the Severance
Benefit Period, whichever Executive shall in each case select.
7. Severance Benefit Period
The Severance Benefit Period shall commence upon the effective date of
Executive's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:
(a) The expiration of 36 months following the effective date of
Executive's discharge or resignation;
(b) The expiration of the calendar year in which Executive attains age 65;
(c) Executive's death; or
(d) The election of Executive to terminate the Severance Benefit period
pursuant to Paragraph 8(b) below.
8. Covenant Not To Compete
(a) Executive agrees that he will not without the prior written consent of
the Company at any time during the Severance Benefit Period become an
officer, director, or employee of or consultant to any bank, bank
holding company or other financial services institution.
(b) Executive may elect at any time to terminate the Severance Benefit
Period by delivering written notice to the Company in which event the
covenant not to compete set forth in Paragraph 8(a) above shall expire
and have no further force or effect.
(c) In the event of any breach by Executive of the covenant not to compete
set forth in Paragraph 8(a) above, the parties agree that the
exclusive remedy of the Company shall be to obtain an injunction,
order for specific performance, or other form of equitable relief from
a court of competent jurisdiction and that the Company shall not under
any
<PAGE>
circumstances be entitled to recover monetary damages from Executive
by reason of any such breach.
9. Mitigation and Setoff
(a) Executive shall not be required to mitigate the amount of any payment
or benefit provided for in Paragraph 6 above by seeking employment or
otherwise and the Company shall not be entitled to setoff against the
amount of any payment or benefit provided for in Paragraph 6 above any
amounts earned by Executive in other employment during the Severance
Benefit Period.
(b) The Company hereby waives any and all rights to set off in respect to
any claim, debt, obligation or other liability of any kind whatsoever,
against any payment or benefit provided for in Paragraph 6 above.
10. Attorneys' Fees and Related Expenses
All attorneys' fees and related expenses incurred by Executive in
connection with or relating to enforcement by him of his rights under this
Agreement shall be paid for in full by the Company.
11. Successors and Parties in Interest
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, including, without
limitation, any corporation which acquires, directly or indirectly, by
purchase, merger, consolidation or otherwise, all or substantially all
of the business or assets of the Company. Without limitation of the
foregoing, the Company shall require any such successor, by agreement
in form and substance satisfactory to Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same
extent that it is required to be performed by the Company.
(b) This Agreement is binding upon and shall inure to the benefit of
Executive, his heirs and personal representatives.
12. Rights under Other Plans
This Agreement is not intended to reduce, restrict or eliminate any
benefit to which Executive may otherwise be entitled at the time of his
discharge or resignation under any employee benefit plan of the Company then in
effect.
13. Termination
This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Executive.
<PAGE>
14. Notices
All notices and other communications required to be given hereunder
shall be in writing and shall be deemed to have been given or made when hand
delivered or when mailed, certified mail, return receipt requested, to the
Company or to Executive, as the case may be, at their respective addresses set
forth above.
15. Severability
In the event that any provision of this Agreement shall be held to be
invalid or unenforceably by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement. It is the intention of the parties hereto that Executive shall
receive the maximum severance benefits under this Severance Agreement which
Executive may receive without any payment of such benefits being classified as
an "excess parachute payment" (as defined in Section 280G of the Internal
Revenue Code) and to the extent that payment of such benefits hereunder would be
classified as an "excess parachute payment," such payment shall be automatically
reduced to the maximum amount which would not be classified as an "excess
parachute payment."
16. Governing Law, Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania. In the event that either party
shall institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.
17. Entire Agreement
This Agreement constitutes the entire agreement between the Company
and Executive concerning the subject matter hereof and supersedes all prior
written or oral agreements or understandings between them. No term or provision
of this Agreement may be changed, waived, amended or terminated, except by
written instrument duly executed by the Company and by Executive.
IN WITNESS WHEREOF, this Agreement is executed the day and year first
above written.
ATTEST: FULTON FINANCIAL CORPORATION
By: /s/ Kenneth E. Shenenberger By: /s/ Robert D. Garner
------------------------------ --------------------------------
Title: Secretary Title: Chairman
<PAGE>
(CORPORATE SEAL)
WITNESS:
/s/ Kathy L. Patterson /s/ Charles J. Nugent
- ---------------------------------- ------------------------------------
CHARLES J. NUGENT
<PAGE>
SEVERANCE AGREEMENT
MADE as of this 17/th/ day of April, 1984, by and between Fulton Financial
Corporation, a Pennsylvania corporation with offices at One Penn Square, P.O.
4887, Lancaster, Pennsylvania 17604 (the Company) and Rufus A. Fulton, Jr., an
adult individual who resides at 700 Buttonwood Farm Road, Millersville,
Pennsylvania 17551 (Executive).
Background
Executive is Executive Vice President of the Company, a Pennsylvania bank
holding company, and an Executive Vice President of Fulton Bank, the principal
subsidiary and flagship bank of the Company. As one of the four members of
Senior Management of the Company, Executive is an integral part of its
management team.
As a result of changes in federal and state banking laws, there has been a
dramatic increase in the number of mergers and other acquisitions of
Pennsylvania bank and bank holding companies. While the Company remains firmly
committed to its policy of remaining a strong, independent regional bank holding
company, it recognizes that it might nevertheless be acquired as a result of an
unsolicited takeover attempt or in a negotiated transaction. Executive will
play a critical role in any such acquisition, as it falls principally upon him
and the other members of Senior Management vigorously and aggressively to
represent and to protect the interests of the shareholders of the Company.
The Company believes that Executive should not be forced to sacrifice his
future financial security in order to fulfill his responsibilities to the
shareholders. The Board of Directors of the Company has carefully considered
this problem and has determined that it should be addressed. Specifically, the
Board of Directors has concluded that basic financial protection should be
provided to Executive in the form of certain limited severance benefits payable
in the event that he is discharged or resigns following, and for reasons
relating to a change in control of the Company.
The purpose of this Agreement is to define these severance benefits and to
specify the conditions under which they are to be paid. This Agreement is not
intended to affect the terms of Executive's employment in the absence of a
change in control of the Company. Accordingly, although this Agreement will
take effect upon execution as a binding legal obligation of the Company, it will
become operative only upon a change in control of the Company as that concept is
defined below.
WITNESSETH:
NOW, THEREFORE, in consideration of Executive's continuing service to the
Company and of the mutual covenants and undertakings hereinafter set forth, the
parties hereto, intending to be legally bound, hereby agree as follows:
<PAGE>
1. Undertaking of the Company
The Company shall provide to Executive the severance benefits specified
in Paragraph 6 below in the event that any time within 60 months following a
Change in Control of the Company:
(a) Executive is discharged by the Company, other than for Cause pursuant to
Paragraph 3 below or for Disability pursuant to Paragraph 4 below; or
(b) Executive resigns from the Company for Good Reason pursuant to Paragraph
5 below.
2. Change in Control
(a) For purposes of this Agreement, a Change in Control of the Company shall
mean a change in control of the kind that would be required to be
reported in response to Item 1 of Securities and Exchange Commission
Form 8-K promulgated under the Securities Exchange Act of 1934 and as in
effect on the date hereof.
(b) Without limitation of the foregoing, a Change in Control of the Company
shall be deemed to have occurred upon the occurrence of any of the
following events:
(1) Any person or group of persons acting in concert, shall have
acquired, directly or indirectly, beneficial ownership of 20
percent or more of the outstanding shares of the voting stock of
the Company;
(2) The composition of the Board of Directors of the Company shall
have changed such that during any period of two consecutive years
during the term of this Agreement, the persons who at the
beginning of such period were members of the Board of Directors,
unless the nomination or election of each director who was not a
director at the beginning of such period was approved in advance
by directors representing not less than two-thirds of the
directors then in office who were directors at the beginning of
the period; or
(3) The Company shall be merged or consolidated with or its assets
purchased by another corporation and as a result of such merger,
consolidation or sale of assets, less than a majority of the
outstanding voting stock of the surviving, resulting or
purchasing corporation is owned, immediately after the
transaction, by the holders of the voting stock of the Company
outstanding immediately before the transaction.
(c) For purposes of Paragraph 2(b)(1) above, a person shall be deemed to be the
beneficial owner of any shares which he or any of his affiliates or
associates (i) owns, directly or indirectly, (ii) has the right to acquire,
or (iii) has the right to vote or direct the voting thereof pursuant to any
agreement, arrangement or understanding.
<PAGE>
3. Discharge for Cause
(a) The Company may at any time following a Change in Control discharge
Executive for Cause, in which event Executive shall not be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company shall have Cause to
discharge Executive only under the following circumstances:
(i) Executive shall have committed an act of dishonesty constituting
a felony and resulting or intending to result directly or
indirectly in gain or personal enrichment at the expense of the
Company; or
(ii) Executive shall have deliberately and intentionally refused (for
reasons other than incapacity due to accident or physical or
mental illness) to perform his duties to the Company for a
period of 30 consecutive days following the receipt by him of
written notice from the Company setting forth in detail the
facts upon which the Company relies in concluding that Executive
has deliberately and intentionally refused to perform such
duties.
4. Discharge for Disability
(a) The Company may at any time following a Change in Control discharge
Executive for Disability as provided in this Paragraph 4, in which
event Executive shall not be entitled to receive the severance benefits
specified in Paragraph 6 below.
(b) For purposes of this Agreement, the Company may discharge Executive for
Disability only under the following circumstances:
(i) Executive shall have been unable, for reasons of incapacity due
to accident or physical or mental illness, for a period of six
consecutive months to perform his duties to the Company.
(ii) The Company, following the expiration of such period of six
consecutive months, shall have to give Executive 30 days written
notice of its intention to discharge him for disability and he
shall not within that 30 day period have returned to the
performance of his duties to the Company on a full-time basis;
and
(iii) The Company shall provide or cause to be provided to Executive
short-term and long-term disability benefits and fringe benefits
not less generous than the following: (A) Executive shall
receive each month for six months following the date of his
discharge for Disability his full month salary (as in effect
immediately before his discharge for Disability); (B) Executive
shall receive each month thereafter 60 percent of his monthly
salary (as in effect immediately before his discharge for
Disability) until his death or until December 31 of the calendar
year in which he attains age 65, whichever
<PAGE>
shall first occur; and (c) Executive shall receive those fringe
benefits customarily provided by the Company to disabled former
employees, which benefits shall include, but shall not be
limited to, life, medical, health, accident and disability
insurance and a survivor's income benefit.
(c) In the event that Executive shall at any time cease to be disabled
following his discharge for Disability, the Company shall do one of the
following:
(i) Reappoint Executive to his position with the Company, with full salary
and benefits, as they existed immediately before his discharge for
Disability, in which case this Agreement shall remain in full force
and effect as though Executive had never been so discharged; or
(ii) Treat Executive as though he has been discharged for reasons other
than Cause or Disability, in which case Executive shall be entitled to
receive the severance benefits specified in Paragraph 6 below.
(d) In the event that Executive shall disagree with a determination on the part
of the Company that he is disabled or in the event that the Company shall
disagree with a determination on the part of Executive that he is no longer
disabled, the matter shall be submitted to an impartial and reputable
medical doctor to be selected by mutual agreement of the parties. In the
event that Executive and the Company are unable to agree, the matter shall
be submitted to an impartial and reputable medical doctor to be selected,
upon petition by either party, by the Lancaster County Court of Common
Pleas.
5. Resignation for Good Reasons
(a) Executive may at any time following a Change in Control resign from the
Company for Good Reason, in which event Executive shall be entitled to
receive the severance benefits specified in Paragraph 6 below.
(b) For purposes of this Agreement, Executive shall have Good Reason to
resign under the following circumstances:
(i) The Company, without Executive's prior written consent, shall
have changed or attempted to change in any significant respect
the authority, duties, compensation, benefits or other terms or
conditions of Executive's employment; or
(ii) Executive shall have determined in good faith and in his sole and
absolute discretion that he is unable to work harmoniously and
effectively with the new management of the Company or that he is
otherwise unable effectively to carry out his duties and
discharge his responsibilities to the Company.
<PAGE>
6. Severance Benefits
The severance benefits to be provided to Executive by the Company under
this Agreement are as follows:
(a) Salary Continuation: The Company shall pay to Executive each month during
-------------------
the Severance Benefit Period an amount equal to one-twelfth of his base
annual salary as in effect immediately before the Change in Control or
immediately before the commencement of the Severance Benefit Period, which
ever is greater. The payment to be made in respect of each month shall be
made on or before the 15th day of the next following month. In the event
that the Severance Benefit Period begins or ends on other than,
respectively, the first or last day of a calendar month, the payment to be
made in respect of that month shall be prorated accordingly. It is
understood that the Company shall withhold from each monthly payment such
amounts as may be required under any applicable federal, state or local
income tax law.
(b) Fringe Benefits: The Company shall at its expense provide to Executive
---------------
throughout Severance Benefit Period life, medical, health, accident and
disability insurance and a survivor's income benefit in form, substance and
amount which is in each case substantially equivalent to that provided to
him immediately before the Change in Control or immediately before the
commencement of the Severance Benefit Period, whichever Executive shall in
each case select.
(c) Supplemental Retirement Benefit: The Company shall pay to Executive (or to
-------------------------------
his estate in the event of his death) in cash on or before the 30th day
following termination of the Severance Benefit Period, an amount equal to
15 percent of the salary continuation payments (before any applicable
withholding) made to Executive pursuant to Paragraph 6(a) above, plus
interest on such amounts compounded annually and credited from the date of
each monthly payment at a rate which is equal to the average discount rate
on 90 day Treasury Bills issued during the immediately preceding calendar
quarter, which rate shall be adjusted quarterly on the first day of each
calendar quarter.
7. Severance Benefit Period
The Severance Benefit Period shall commence upon the effective date of
Executive's discharge (for reasons other than Cause or Disability) or
resignation (for Good Reason) and shall terminate upon the first to occur of the
following events:
<PAGE>
(a) The expiration of 60 months following the effective date of Executive's
discharge or resignation;
(b) The expiration of the calendar year in which Executive attains age 65;
(c) Executive's death; or
(d) The election of Executive to terminate the Severance Benefit period
pursuant to Paragraph 8(b) below.
8. Covenant Not To Compete
(a) Executive agrees that he will not without the prior written consent of
the Company at any time during the Severance Benefit Period become an
officer, director, or employee of or consultant to any bank, bank
holding company or other financial services institution.
(b) Executive may elect at any time to terminate the Severance Benefit
Period by delivering written notice to the Company in which event the
covenant not to compete set forth in Paragraph 8(a) above shall expire
and have no further force or effect.
(c) In the event of any breach by Executive of the covenant not to compete
set forth in Paragraph 8(a) above, the parties agree that the exclusive
remedy of the Company shall be to obtain an injunction, order for
specific performance, or other form of equitable relief from a court of
competent jurisdiction and that the Company shall not under any
circumstances be entitled to recover monetary damages from Executive by
reason of any such breach.
9. Mitigation and Setoff
(a) Executive shall not be required to mitigate the amount of any payment
or benefit provided for in Paragraph 6 above by seeking employment or
otherwise and the Company shall not be entitled to setoff against the
amount of any payment or benefit provided for in Paragraph 6 above any
amounts earned by Executive in other employment during the Severance
Benefit Period.
(b) The Company hereby waives any and all rights to set off in respect to
any claim, debt, obligation or other liability of any kind whatsoever,
against any payment or benefit provided for in Paragraph 6 above.
10. Attorneys' Fees and Related Expenses
All attorneys' fees and related expenses incurred by Executive in
connection with or relating to enforcement by him of his rights under this
Agreement shall be paid for in full by the Company.
<PAGE>
11. Successors and Parties in Interest
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company and its successors and assigns, including, without
limitation, any corporation which acquires, directly or indirectly, by
purchase, merger, consolidation or otherwise, all or substantially all
of the business or assets of the Company. Without limitation of the
foregoing, the Company shall require any such successor, by agreement
in form and substance satisfactory to Executive, expressly to assume
and agree to perform this Agreement in the same manner and to the same
extent that it is required to be performed by the Company.
(b) This Agreement is binding upon and shall inure to the benefit of
Executive, his heirs and personal representatives.
12. Rights under Other Plans
This Agreement is not intended to reduce, restrict or eliminate any benefit
to which Executive may otherwise be entitled at the time of his discharge or
resignation under any employee benefit plan of the Company then in effect.
13. Termination
This Agreement may not be terminated except by mutual consent of the
parties, as evidenced by a written instrument duly executed by the Company and
by Executive.
14. Notices
All notices and other communications required to be given hereunder shall
be in writing and shall be deemed to have been given or made when hand delivered
or when mailed, certified mail, return receipt requested, to the Company or to
Executive, as the case may be, at their respective addresses set forth above.
15. Severability
In the event that any provision of this Agreement shall be held to be
invalid or unenforceably by any court of competent jurisdiction, such provision
shall be deemed severable from the remainder of the Agreement and such holding
shall not invalidate or render unenforceable any other provision of this
Agreement.
16. Governing Law, Jurisdiction and Venue
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania. In the event that either party shall
institute any suit or other legal proceeding, whether in law or in equity,
arising from or relating to this Agreement, the courts of the Commonwealth of
Pennsylvania shall have exclusive jurisdiction and venue shall lie exclusively
in the Court of Common Pleas of Lancaster County.
<PAGE>
17. Entire Agreement
This Agreement constitutes the entire agreement between the Company and
Executive concerning the subject matter hereof and supersedes all prior written
or oral agreements or understandings between them. No term or provision of this
Agreement may be changed, waived, amended or terminated, except by written
instrument duly executed by the Company and by Executive.
IN WITNESS WHEREOF, this Agreement is executed the day and year first above
written.
ATTEST: FULTON FINANCIAL CORPORATION
By: /s/ Kenneth E. Shenenberger By: /s/ Robert D. Garner
_____________________________ _________________________
Title: Secretary Title: Chairman
(CORPORATE SEAL)
WITNESS:
/s/ Kenneth E. Shenenberger /s/ Rufus A. Fulton, Jr.
_________________________________ _____________________________
RUFUS A. FULTON, JR.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Fulton
Financial Corporation consolidated balance sheet as of March 31, 1999 and the
related consolidated statement of income for the three months ended March 31,
1999 and other financial data included within management's discussion and
analysis of financial condition and results of operations as of and for the
three months ended March 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 225,586
<INT-BEARING-DEPOSITS> 5,090
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,204,742
<INVESTMENTS-CARRYING> 138,182
<INVESTMENTS-MARKET> 139,341
<LOANS> 4,050,009
<ALLOWANCE> 58,440
<TOTAL-ASSETS> 5,786,581
<DEPOSITS> 4,508,423
<SHORT-TERM> 255,007
<LIABILITIES-OTHER> 108,776
<LONG-TERM> 295,826
0
0
<COMMON> 173,365
<OTHER-SE> 445,184
<TOTAL-LIABILITIES-AND-EQUITY> 5,786,581
<INTEREST-LOAN> 82,280
<INTEREST-INVEST> 19,004
<INTEREST-OTHER> 66
<INTEREST-TOTAL> 101,350
<INTEREST-DEPOSIT> 36,030
<INTEREST-EXPENSE> 42,682
<INTEREST-INCOME-NET> 58,668
<LOAN-LOSSES> 1,967
<SECURITIES-GAINS> 3,057
<EXPENSE-OTHER> 39,023
<INCOME-PRETAX> 33,274
<INCOME-PRE-EXTRAORDINARY> 23,527
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,527
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
<YIELD-ACTUAL> 4.56
<LOANS-NON> 18,149
<LOANS-PAST> 11,009
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 57,415
<CHARGE-OFFS> 2,201
<RECOVERIES> 1,248
<ALLOWANCE-CLOSE> 58,440
<ALLOWANCE-DOMESTIC> 58,440
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 18,851
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Fulton
Financial Corporation consolidated balance sheet as of March 31, 1998 and the
related consolidated statement of income for the three months ended March 31,
1998 and other financial data included within management's discussion and
analysis of financial condition and results of operations as of and for the
three months ended March 31, 1998 and is qualified in its entirety by reference
to such financial statements. This information has been restated for the
Corporation's aquisition of Ambassador Bank of the Commonwealth on September 11,
1998, which was accounted for as a pooling of interests.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 217,900
<INT-BEARING-DEPOSITS> 3,722
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 808,908
<INVESTMENTS-CARRYING> 293,117
<INVESTMENTS-MARKET> 294,250
<LOANS> 3,939,564
<ALLOWANCE> 58,078
<TOTAL-ASSETS> 5,455,022
<DEPOSITS> 4,434,196
<SHORT-TERM> 191,703
<LIABILITIES-OTHER> 112,209
<LONG-TERM> 137,063
0
0
<COMMON> 126,611
<OTHER-SE> 453,240
<TOTAL-LIABILITIES-AND-EQUITY> 5,455,022
<INTEREST-LOAN> 84,245
<INTEREST-INVEST> 15,444
<INTEREST-OTHER> 295
<INTEREST-TOTAL> 99,984
<INTEREST-DEPOSIT> 39,752
<INTEREST-EXPENSE> 43,273
<INTEREST-INCOME-NET> 56,711
<LOAN-LOSSES> 1,611
<SECURITIES-GAINS> 3,382
<EXPENSE-OTHER> 38,999
<INCOME-PRETAX> 30,737
<INCOME-PRE-EXTRAORDINARY> 21,173
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,173
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 4.70
<LOANS-NON> 20,707
<LOANS-PAST> 8,950
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 57,557
<CHARGE-OFFS> 1,649
<RECOVERIES> 559
<ALLOWANCE-CLOSE> 58,078
<ALLOWANCE-DOMESTIC> 58,078
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
