SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
[Amendment No. ___________]
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
Keystone Heritage Group, Inc.
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
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pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
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<PAGE>
KEYSTONE HERITAGE
GROUP INCORPORATED
555 Willow Street
P.O. Box 1285
Lebanon, Pennsylvania 17042
March 7, 1996
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, APRIL 16, 1996
To Stockholders:
The Annual Meeting of the Stockholders of KEYSTONE HERITAGE GROUP, INC.
(the "Company") will be held in the Ballroom of the Quality Inn Lebanon Valley,
625 Quentin Road, Lebanon, Pennsylvania, at 10:00 A.M. on Tuesday, April 16,
1996, for the following purposes:
1. TO ELECT FIVE DIRECTORS OF THE COMPANY.
2. TO APPROVE AND ADOPT the Keystone Heritage Group, Inc. 1996
Independent Directors Stock Option Plan for non-employee directors of
Keystone Heritage Group, Inc.
3. TO VOTE ON A STOCKHOLDER PROPOSAL.
4. TO RATIFY THE SELECTION of KPMG Peat Marwick LLP as the Company's
Independent Public Accountants for the fiscal year ending December 31,
1996.
5. TO TRANSACT SUCH other business as may properly come before the
meeting or any postponements or adjournments thereof.
Only stockholders of record at the close of business on February 22, 1996
shall be entitled to notice of and to vote at this meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING ON
APRIL 16, 1996. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING,
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE PAID ENVELOPE. THIS WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON IF YOU
WISH TO DO SO AT THE MEETING.
By order of the Board of Directors
Lance M. Frehafer
Secretary
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
555 Willow Street
Lebanon, Pennsylvania 17046
PROXY STATEMENT
Voting at the Meeting
This Proxy Statement, which is being sent to stockholders on or about March
7, 1996, is furnished in connection with the solicitation of proxies by the
Board of Directors of Keystone Heritage Group, Inc., (the "Company") for use at
the Annual Meeting of Stockholders of the Company to be held April 16, 1996 (the
"Annual Meeting") and any postponements or adjournments thereof.
Only stockholders of record of the Company's Common Stock at the close of
business on February 22, 1996, shall be entitled to vote at the Annual Meeting.
As of February 22, 1996, the Company had issued and outstanding 4,071,683 common
shares of par value $5.00 per share (the "Common Stock"). Each stockholder shall
have the right to one vote for each share of Common Stock held in such
stockholder's name on the books of the Company. Cumulative voting for the
election of directors is not permitted.
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone or
telecopy by officers, directors, and certain employees of the Company who will
not be specially compensated for such soliciting. The Company will, at its
expense, upon the receipt of a request from brokers and other custodians,
nominees, and fiduciaries, forward proxy soliciting material to the beneficial
owners of shares held of record by such persons.
Your proxy, when properly executed, will be voted in accordance with the
specific instructions indicated on your proxy card. Unless contrary instructions
are given, your proxy will be voted FOR the election of the five nominees for
director, as identified under "Election of Directors" below; FOR the approval
and adoption of the 1996 Stock Option Plan for non-employee directors, as
provided under "APPROVAL AND ADOPTION OF THE KEYSTONE HERITAGE GROUP, INC. 1996
INDEPENDENT DIRECTORS STOCK OPTION PLAN" below; AGAINST the stockholder proposal
as provided under "STOCKHOLDER PROPOSAL" below; and FOR the ratification of the
selection of KPMG Peat Marwick LLP as the Company's Independent Public
Accountants for the 1996 fiscal year; and, to the extent permitted by the rules
of the Securities and Exchange Commission, in accordance with the judgment of
the persons voting the proxies upon such other matters as may properly come
before the Annual Meeting or any postponements or adjournments thereof.
Execution of the accompanying proxy will not affect a stockholder's right
to attend the meeting and vote in person. Any stockholder executing a proxy has
the right to revoke it by delivering notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company at any time before
the proxy is voted. If you attend the meeting and you desire to vote in person,
you may revoke your proxy at that time.
1
<PAGE>
The presence at the Annual Meeting, in person or by proxy, of stockholders
entitled to cast a majority of votes which all stockholders are entitled to cast
will constitute a quorum for the meeting. In the election of directors, assuming
a quorum is present, the five nominees receiving the highest number of votes
cast at the Annual Meeting will be elected. The affirmative vote of a majority
of the votes cast at the meeting is required for the approval and adoption of
the Keystone Heritage Group, Inc. 1996 Independent Director Stock Option Plan,
for the approval of the stockholder proposal and for the ratification of the
selection of the Company's Independent Public Accountants, assuming a quorum is
present with respect to such matters. An abstention or the specific direction
not to cast any vote on a specific matter, such as broker non-vote, will not
constitute the casting of a vote.
ELECTION OF DIRECTORS
The Board of Directors currently consists of thirteen directors, divided
into one class of five directors and two separate classes of four directors. The
Board intends to nominate Messrs. Harry J. Gensemer, Albert B. Murry, Thomas I.
Siegel, Brett H. Tennis and Earnest D. Williams, Jr., the members of the class
of five directors whose terms expire at the Annual Meeting, for re-election at
the Annual Meeting to serve until the Company's 1999 annual meeting of
stockholders and until their successors have been duly elected and have
qualified. The Board of Directors has the authority to fill any vacancy, and if
any vacancy occurs, the term of the director appointed to fill such vacancy
shall continue for the remainder of the term which was vacated. It is the
intention of the named proxy voters to vote FOR the nominees set forth below for
the terms indicated unless directed otherwise. While it is not anticipated that
any of the nominees will be unable to serve, if any should be unable to serve,
the persons named in the proxy may vote such proxy for such other person as they
may determine. No director shall be elected or continue to serve as director who
has attained the age of 72 years as of the time of the Annual Meeting. Mr.
Williams will reach the mandatory retirement age (according to the Company's
By-Laws) in 1997 and is expected to retire from the Board at that point in time.
2
<PAGE>
The following table provides certain information, including age and
principal occupation of each nominee and continuing director of the Company.
DIRECTORS TO BE ELECTED FOR A THREE-YEAR TERM EXPIRING IN 1999
<TABLE>
<CAPTION>
Director
of the
Company
Name and Age Principal Occupation Since
<S> <C> <C>
Harry J. Gensemer (34) President, J. Wilson Barto Sons, Inc. 1993
(Hardware, plumbing, heating, and fuel oil)
(1989-Present)
Albert B. Murry (55) President and Chief Executive Officer 1983
Keystone Heritage Group, Inc.
(1983-Present)
Lebanon Valley National Bank
(1978-Present)
Thomas I. Siegel (41) Partner, Glick, Stanilla and Siegel, CPAs 1993
(Public Accounting)
(1976-Present)
Brett H. Tennis (36) Partner, Walz, Deihm, Geisenberger, 1993
Bucklen & Tennis, CPAs
(Public Accounting)
(1988-Present)
Earnest D. Williams, Jr. (71) Private Investor 1983
(1968-Present)
</TABLE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1997
<TABLE>
<CAPTION>
Director
of the
Company
Name and Age Principal Occupation Since
<S> <C> <C>
Raymond M. Dorsch, Jr. (66) Vice President for Medical Affairs, 1983
Good Samaritan Hospital
(1987-Present)
Wendie DiMatteo Holsinger (37) Chief Executive Officer, ASK Foods, Inc. 1995
(Manufacturer and Distributor of food products)
(1991-Present)
Donald W. Lesher, Jr. (51) Chairman of the Board, Lebanon Valley National Bank 1983
President, Lesher Mack Sales and Service, Inc.
(Retail truck sales and service)
(1968-Present)
Mark Randolph Tice (54) President, APR Supply Company 1983
(Distributor of plumbing, heating, and cooling
products)
(1971-Present)
</TABLE>
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
<TABLE>
<CAPTION>
Director
of the
Company
Name and Age Principal Occupation Since
<S> <C> <C>
Lance M. Frehafer (71) Secretary, Keystone Heritage Group, Inc. 1983
(1983-Present)
Charles V. Henry, III (61) Partner, Henry & Beaver, 1983
(Attorneys-at-law)
(1960-Present)
Bruce A. Johnson (51) Owner, Gallery 444, Ltd. 1992
(Art gallery)
(1980-Present)
John E. Wengert (63) President, Wengert's Dairy, Inc. 1995
(1989-Present)
</TABLE>
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of February 12, 1996 by (a) each
person who beneficially owns more than five percent of the Company's outstanding
Common Shares, (b) each director who owned beneficially any Common Shares and
(c) all directors and executive officers of the Company as a group. Such
information is based upon the information provided to the Company by such
persons.
Beneficial Ownership
Principal Stockholders Shares Percentage
Quest Advisory Corp (1) 209,849 5.15%
Directors
Raymond M. Dorsch, Jr. 13,795 *
Lance M. Frehafer 3,653 *
Harry J. Gensemer 77,896 (2) 1.91%
Charles V. Henry III 30,351 (3) *
Wendie DiMatteo Holsinger 266 *
Bruce A. Johnson 3,175 *
Donald W. Lesher, Jr. 24,892 (4) *
Albert B. Murry 7,472 (5) *
Thomas I. Siegel 29,872 (6) *
Brett H. Tennis 333 *
Mark Randolph Tice 14,488 *
John E. Wengert 5,866 *
Earnest D. Williams, Jr. 59,754 1.47%
4
<PAGE>
All directors and executive officers
of the Company as a group (14 persons) 274,605 6.74%
*Does not exceed one percent of the class so owned.
Shares which are shown as beneficially owned are held of record
individually by the person indicated or jointly with a spouse or children living
in the same household, or as trustee, custodian or guardian for minor children
living in the same household.
Footnotes to director information:
(1) The address of Quest Advisory Corp. is 1414 Avenue of the Americas, New
York, NY 10019.
(2) Mr. Gensemer holds shared voting and investment power with respect to 4,323
shares.
(3) Mr. Henry holds shared voting and investment power with respect to 1,476
shares.
(4) Mr. Lesher holds shared voting and investment power with respect to 1,167
shares.
(5) Mr. Murry holds shared voting and investment power with respect to 2,072
shares. Mr. Murry had been granted stock options amounting to 13,334 shares
under the Company's 1994 Stock Incentive Plan. As of February 12, 1996, the
stock option shares granted to Mr. Murry have not been exercised.
(6) Mr. Siegel holds shared voting and investment power with respect to 251
shares.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company held 11 formal meetings during 1995.
The Board of Directors of the Company has no standing committees. Nominations
for election as a director, other than those made by or on behalf of the
existing management of the Company shall be made in writing and shall be
delivered or mailed to the Secretary of the Company not less than forty-five
(45) days prior to any meeting of the stockholders called for the election of
directors. Each director of the Company is also elected as a director of Lebanon
Valley National Bank (the "Bank"), the Company's wholly owned subsidiary.
The Board of Directors of the Bank held 24 formal meetings during 1995.
The Board of Directors of the Bank has a Lending Committee, a Trust
Committee, an Audit Committee, a Compensation Committee and a Finance Committee.
All committee members are appointed annually by the Board of Directors to serve
a one-year term. The Board has no standing Nominating Committee.
The Bank's Audit Committee consists of Messrs. Dorsch, Frehafer, Gensemer
and Tennis. The Committee reviews and approves the Bank's Internal Audit Group's
annual audit plan, including audit procedures and reports of audits conducted.
The Committee also meets with the Company's Independent Public Accountants to
discuss their Report of Audit of the Company's financial records and reviews the
banking regulatory agencies' reports of examination and the Bank's reply to
these reports. The Committee met 5 times during 1995.
The Bank's Compensation Committee consists of Messrs. Dorsch, Lesher,
Siegel, Tice and Ms. Holsinger. The Committee reviews the compensation and
benefits program for the Company's and the Bank's Board of Directors, officers
and employees. The Committee met 7 times during 1995.
During 1995, all directors attended by person at least 75% of the aggregate
of the total number of meetings of the Board of Directors of the Company except
for Thomas I. Siegel who attended 46 of the 64 meetings of the Boards of
Directors and the Committees of which he serves.
5
<PAGE>
Remuneration of Directors
The Chief Executive Officer of the Company and of the Bank does not receive
any additional compensation for serving on the Board of Directors of the Company
or the Bank or for attending any committee meetings. Each other director of the
Company and the Bank receives an annual retainer fee of $9,000 for their
services provided to both boards, and also is reimbursed for certain expenses
incurred in attending Board and committee meetings. The Chairman of the Board of
the Bank receives an annual stipend of $12,000 for service in such capacity.
Each director also receives $200 for each meeting of the Board attended, and
fees of $250 for each committee meeting attended. In addition, members of the
Audit Committee who are not officers of the Company receive an annual retainer
of $1,000.
Total remuneration of directors of the Company and the Bank for Board and
committee meetings during 1995 was $170,950.
Certain Director Relationships
Charles V. Henry, III, Esquire, is a partner in the law firm of Henry &
Beaver, which provided legal services to the Company and the Bank during 1995
and in prior years. During 1995 the Company paid to Henry & Beaver fees
totalling $129,108. The Company and the Bank plan to continue to use the
services of this law firm during 1996.
Transactions with Directors and Officers
Certain directors and executive officers of the Company, and their
associates, were customers of and had transactions with the Bank in the ordinary
course of business during the Company's fiscal year ended December 31, 1995.
Such transactions included the purchase of certificates of deposit and
extensions of credit in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risks of collectability or present other unfavorable features.
It is expected that any other transactions with directors and officers and their
associates in the future will take place in the future.
APPROVAL AND ADOPTION OF THE KEYSTONE HERITAGE GROUP, INC.
1996 INDEPENDENT DIRECTORS STOCK OPTION PLAN
On February 13, 1996, the Board of Directors of the Company (the "Board")
approved the Keystone Heritage Group, Inc. 1996 Independent Directors Stock
Option Plan (the "Stock Option Plan") and directed that the Stock Option Plan be
submitted to the stockholders of the Company for their approval at the 1996
Annual Meeting of Stockholders to be held on April 16, 1996.
The purpose of the Stock Option Plan is to advance the development, growth
and financial condition of the Company by providing incentives through
participation in the appreciation of capital stock of the Company so as to
secure, retain and motivate individuals who are not officers or employees of the
Company or any subsidiary thereof to serve as members of the Board
("non-employee directors").
Generally, the Stock Option Plan will become effective as of the date it is
approved by the Company's stockholders. The shares of Common Stock that may be
issued under the Stock Option Plan will not exceed in the aggregate 60,000
shares of common stock, provided that this amount may be increased by up to
5,000 shares of Common Stock for each new non-employee director admitted to the
Board at any time within the next 5 years. The Common Stock utilized by the
Stock Option Plan may be authorized and unissued or it may be treasury stock.
6
<PAGE>
Under the Stock Option Plan, current non-employee directors will be granted
for each of the next five years an annual option to purchase 1,000 shares of the
Common Stock (the "Stock Option"). Non-employee directors who are elected or
appointed to the Board at any time within a five year period after the effective
date of the Stock Option Plan will be granted a Stock Option on the date he or
she is elected or appointed to the Board and then annually for the four years
thereafter. Each Stock Option may be exercised within ten years from the date of
the grant. The purchase price of the Common Stock under the Stock Option will be
the "fair market value" of the Stock which will be determined by the bid and
asked quotations of the Common Stock for the five days prior to the date of the
annual meeting of stockholders for the year in which the Stock Option is
granted. If the director ceases to be a member of the Board, he or she will not
be entitled to receive any subsequent Stock Options under the Stock Option Plan.
Also, if the director ceases to be a director for any reason other than
retirement pursuant to the mandatory age requirement under the company's
by-laws, all Stock Options then held must be exercised within 12 months of such
date.
As of February 13, 1996, there were 12 non-employee directors, each of whom
will participate in the Stock Option Plan.
Certain terms and conditions of the Stock Option Plan are discussed below.
A copy of the Stock Option Plan is attached to this Proxy Statement as Exhibit
"A", and is deemed to be an integral part hereof and incorporated in its
entirety by reference. The summary description of the Stock Option Plan
contained herein is qualified in its entirety by reference to the express
provisions of the Stock Option Plan attached as Exhibit "A".
Term
The Stock Option Plan shall be effective as of the date it is approved by
the Company's stockholders. If the Stock Option Plan is so approved by the
stockholders, it shall continue in effect until all awards either have lapsed,
been satisfied or cancelled according to the terms under the Stock Option Plan.
Stock
The shares that may be issued under the Stock Option Plan shall not exceed
in the aggregate 60,000 shares of Common Stock provided that this amount may be
increased by an amount not to exceed 5,000 shares of Common Stock for each
individual, who has not previously served as a member of the Board, is elected
as a non-employee director at any time within the next 5 years. The number of
shares of Common Stock subject to the Stock Option Plan shall be adjusted for
stock splits, dividends, or any other change in the capital structure of the
Company.
Eligibility
Persons who will receive Stock Options shall be all current non-employee
directors and any other individuals, who have not previously served as a member
of the Board, elected or appointed to the Board as non-employee directors within
the five year period after the effective date of the Stock Option Plan.
Federal Income Tax Consequences of Stock Options
The Stock Option is considered a "Non-Qualified Option" under the Internal
Revenue Code of 1986, as amended. A non-employee director who receives a Stock
Option will not recognize taxable income upon the grant of the option. However,
upon the exercise of a Stock Option, the non-employee director will recognize
taxable income in an amount equal to the excess of the fair market value of the
Common Stock on the date that the option is exercised over the purchase price
paid for the Stock. The Company will be entitled to an income tax deduction in
the year of exercise in an amount equal to the amount of income recognized by
the director.
The foregoing discussion is intended as a summary only. The federal income
tax consequences to a non-employee director and the Company may vary from those
described above, depending upon the particular facts and circumstances.
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<PAGE>
STOCKHOLDER PROPOSAL
Stockholder proposals may be submitted for inclusion in the Company's 1997
proxy material, but in order to be considered proposals must be received no
later than November 1, 1996. Proposals must be in writing and sent via
registered, certified or express mail to: Corporate Secretary, Keystone Heritage
Group, Inc., 555 Willow Street, P.O. Box 1285, Lebanon, Pennsylvania 17042-1285.
Management carefully considers all proposals and suggestions from its
stockholders. When adoption is clearly in the best interests of the Company and
stockholders, and can be accomplished without stockholder approval, the proposal
is implemented without inclusion in the Proxy statement.
Management opposes the following proposal for the reasons stated after the
proposal.
Management has been advised that John R. Musheno, 1021 East Cumberland
Street, Lebanon, Pennsylvania 17042, the owner of 78,054 shares as of the Annual
Meeting record date, intends to submit the following proposal at the 1996 Annual
Meeting:
RESOLVED: "That the stockholders of the Company recommend that the board of
directors, as promptly as practicable, study the anticipated benefits that
would be realized in a current merger or sale of the Lebanon Valley
National Bank compared to the benefits of remaining independent."
The Company has also received from Mr. Musheno for inclusion in this Proxy
Statement the following statement in support of his stockholder proposal:
In any given industry there is a time to buy and a time to sell, and it is
my opinion and one obviously shared by many of the nation's community banks,
that now would be a good time to sell or merge. I believe that banks will
continue to lose their share of the market to mutual funds and other
investments. I submit the following considerations to support my opinion.
(1) In the near future it will be increasingly difficult for a regional
size community bank to compete and grow substantially given the investments
that larger banks will be able to make in computer banking and mutual
funds.
(2) Big banks are hungry to make acquisitions at this time. If we do not
explore this now, Lebanon Valley National Bank may miss a timely
opportunity. "He who hesitates is lost." A few years from now, after the
current flurry of mergers and buyouts of the 90's has passed us by, we may
be forced to take this defensive action anyway but at a much less than
premium opportunity for us the stockholders.
(3) New Jersey's two biggest banks, First Fidelity and Mid-Atlantic chose
recently to cash out and received a reported steep price from First Union
Corporation of Charlotte, N.C., and the PNC Bank Corporation of Pittsburgh.
(4) West One Bank Corporation secured a price for its stockholders of
nearly twice its book value when it recently sold to U.S. Bankcorp.
The Company's Board of Directors unanimously recommends a vote AGAINST this
proposal.
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<PAGE>
RESPONSE OF THE BOARD OF DIRECTORS
The Company's Board of Directors unanimously recommends that you vote AGAINST
this proposal.
The Board of Directors believes that the adoption of this resolution is
unnecessary and is not in the best interests of the Company and its
stockholders. A vote in favor of this proposal could be viewed by the market
place as hanging a "for sale" sign on the front door, which could disrupt
customer and employee relationships and interfere with the Company's strategy
for long-term growth.
The Board periodically evaluates the courses of action available to the
Company and has determined that presently the most effective means of maximizing
stockholder value over a sustained period of time is by remaining independent.
The Board recognizes its responsibility to exercise its fiduciary responsibility
to consider any bona fide proposal for the acquisition of the Company that may
be presented to it. No such proposal has ever been received by the Board of
Directors and the Board has never authorized the solicitation of any such
proposal.
The Board believes that the Company's prospects of generating levels of growth
and profitability that would increase stockholder value are quite good. Although
past performance may not always be indicative of the Company's future results,
the Company's performance over the past five years in terms of its five-year
cumulative total return on its common stock, return on average assets and return
on average stockholders' equity, and asset quality and capital ratios, serves to
support these prospects for its future performance.
The Company, and previously its predecessor, Lebanon Valley National Bank, have
been in the business of providing banking services and products to its local
communities for 165 years. During this period, the Company has endured various
economic and political cycles, extreme levels of government regulation, changes
in banking laws, and periods of frantic bank merger activity, among numerous
other factors which could have negatively affected the viability of the
Company's operations. The Company has been an important part of the local
communities that it serves, by providing needed credit and deposit products to
its local citizenship on a personalized basis. It has also been a significant
employer in many of its communities, and notes that one common consequence of
the current fad in bank mergers is the loss of many jobs of long-time and loyal
employees. A vote in favor of this proposal could therefore adversely affect the
Company's relationship with its employees.
In summary, your Board of Directors continues to consider all strategic
alternatives in order to perform its fiduciary commitment to maximize value to
its stockholders, but believes it would be imprudent to signal the market that
the Company is "in play" or may be "for sale". Furthermore, approval of the
proposal might be regarded as a signal that the Board of Directors, under
pressure from dissident stockholders, has lost the ability to determine the
appropriateness of the timing of any strategic transaction involving the
Company, and thus has little bargaining power and could be pressured into
accepting a reduced price. The Board of Directors has always sought to act and
will continue to act in the best interests of all the stockholders and it is for
this reason that the Board of Directors vigorously opposes the action proposed
in this resolution and urges you to vote against this proposal.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
During 1995 the Company engaged KPMG Peat Marwick LLP, Independent Public
Accountants, as its principal accounting firm and has been selected by the Board
of Directors to serve in the same capacity for 1996. The Board of Directors
recommends that the stockholders ratify the selection of KPMG Peat Marwick LLP
as the Company's Independent Public Accountants for the year ending December 31,
1996. If the stockholders do not ratify the selection of KPMG Peat Marwick LLP,
the selection of independent public accountants will be reconsidered by the
Board of Directors. Even if the selection is ratified, the Board of Directors,
at its discretion, may direct the appointment of a new independent public
accounting firm at any time during the year if the Board determines that
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<PAGE>
such a change would be in the best interests of the Company and its
stockholders.
Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so, and will be available to respond to appropriate questions.
OTHER MATTERS
As of the date of this Proxy Statement, the management and Board of
Directors of the Company know of no other business to be presented for action at
the meeting. If other matters should properly come before the Annual Meeting,
the persons named in the proxy will, to the extent permitted by the rules of the
Securities and Exchange Commission, have discretionary authority to vote the
shares represented by them in accordance with their best judgment. Management
urges each stockholder, whether or not he or she intends to be present and to
vote at the Annual Meeting, to complete, sign and return the enclosed proxy as
promptly as possible.
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<PAGE>
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
Remuneration of Management
The following table sets forth certain information concerning the
compensation of the President and Chief Executive Officer of the Company and the
Bank at December 31, 1995. There were no other executive officers employed by
the Company or the Bank at December 31, 1995 who received aggregate remuneration
from the Company and the Bank for the year ended December 31, 1995 which
exceeded $100,000.
The table summarizes the Chief Executive Officer's compensation for the
years ended December 31, 1995, 1994 and 1993 including base salary. Compensation
earned but deferred is reported as annual salary.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Securities
Underlying All Other
Annual Compensation (1) Options/ Compen-
Name and Salary Bonus SARs sation
Principal Position Year ($) ($) (#) ($) (2)
<S> <C> <C> <C> <C> <C>
Albert B. Murry 1995 187,000 21,882 6,667 3,916
President and Chief 1994 179,600 0 6,667 3,910
Executive Officer 1993 169,600 0 - 3,716
</TABLE>
(1) The Company has omitted in the Summary Compensation Table information
concerning the value of perquisites and other personal benefits which, in
the aggregate, are less than the greater of $50,000 or 10% of the salary
and bonus reported for Mr. Murry, including employee benefit plans such as
hospitalization insurance, group life insurance, and long-term disability
insurance which are offered on a non-discriminatory basis to employees and
officers.
(2) Mr. Murry received a benefit of $599 during 1995 in the form of employer-
provided automobile usage and $3,317 of 401-K Plan employer contributions.
-11-
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information concerning grants of stock
options pursuant to the Company's Stock Option Plan with respect to the
Company's President and Chief Executive Officer.
<TABLE>
<CAPTION>
Potential
Realizable Value at
OPTION GRANTS IN LAST FISCAL YEAR Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
Number % of
of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) (2) Date (3) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Albert B. Murry 6,667(1) 35.7% $23.34(1) 12/12/05 97,861 247,999
<FN>
(1) The number of stock options granted and the exercise or base price has been
adjusted to reflect the effects of the 4- for-3 stock split which occurred
in January 1996.
(2) The exercise price of all options granted must be equal to or greater than
the fair market value on the date of the grant. The exercise price may be
paid in cash, or in shares of stock owned by the option holder prior to
exercising the option, provided such shares have a fair market value on the
date of payment equal to the option exercise price for the shares of stock
being purchased, or in any combination thereof.
(3) Terms of outstanding options are for a period of ten years from the date of
grant, subject to earlier termination upon certain events related to
termination of employment. Options may be exercised after June 13, 1996.
</FN>
</TABLE>
-12-
<PAGE>
The following table sets forth the value of unexercised options to purchase
Common Stock granted to the Company's President and Chief Executive officer.
AGGREGATED OPTION/EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/VALUES
Number of Securi- Value of
ties Underlying Unexercised
Unexercised In-the-Money
Options at Options at
12/31/95 (#) 12/31/95 ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable1
Albert B. Murry 6,667/6,667 $23,734/$667
(1) Average of the dealer "bid" and "asked" prices of the underlying securities
on the last trading day of 1995 minus the exercise price of "in-the-money"
options. No options were exercised in 1994 or 1995.
Employment Agreements
The Bank has entered into an agreement with Albert B. Murry, President and
Chief Executive Officer, pursuant to which he is employed as President and Chief
Executive Officer. This agreement provides for Mr. Murry to be paid a base
salary, plus increases and bonuses as are consistent with those made available
to other officers of the Bank. The Bank may terminate this Agreement upon three-
years notice, the death or disability of Mr. Murry, upon his conviction of a
crime involving moral turpitude, or upon being charged with a criminal offense
arising out of his employment.
-13-
<PAGE>
Under the rules of the Securities and Exchange Commission, the Board
Compensation Committee Report on Executive Compensation below and the Stock
Price Performance Graph appearing in this proxy statement are not to be deemed
to be "solicitation material" or to be "filed" with the Commission, or to be
subject to certain of the proxy rules or to the liabilities of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act"), except to the extent that
the Company specifically requests that such information be treated as
"soliciting material" or specifically incorporates it by reference into a filing
under the Securities Act of 1933 (the "Securities Act") or the Exchange Act.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this proxy statement, in whole or in part,
the Board Compensation Committee Report and the Stock Price Performance Graph
shall not be incorporated by reference in such filings.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee is a committee composed of four outside
directors of the Company's Board of Directors. The Committee makes
recommendations to the full Board of Directors regarding the adoption,
extension, amendment and termination of the Company's compensation plans and
benefits programs for the Company's and the Bank's directors, officers and
employees. It also reviews the specific compensation of senior management and
officers, including salaries and bonuses, the Stock Option Plan, and any other
supplemental compensation plans applicable to senior management or officers of
the Company. The compensation of the Company's executive officers is set by the
Board of Directors based upon the Compensation Committee's recommendations.
Compensation of Executive Officers
The Company applies a consistent philosophy in determining the compensation
of all of its employees, including senior management. The Company's policy for
executive compensation is designed to attract and retain employees with superior
skills and abilities through its compensation programs. Every officer and staff
position in the Company has a base salary range which has been determined after
consideration of salary levels in the labor markets in the Company's
marketplace. The Company rewards individual performance by providing annual
merit increases for its officers as an incentive which is based upon results
achieved as measured against specific performance goals for each position and
division as established by management. The Committee approved an overall merit
increase of 4.0 percent for 1995. These merit increases were awarded to officers
in a range from .75 percent to 6.25 percent determined according to the relative
performance of each individual.
Executive officers are compensated at levels which reflect the risks and
rewards of the strategic decision-making responsibilities which are an integral
component of those positions. Executive officers are reviewed annually by their
superiors and are evaluated based upon individual performance goals and
objectives established by senior management. The Compensation Committee consults
with the Chief Executive Officer to make salary decisions for executive officers
(other than the Chief Executive Officer) based on the experience, performance,
team results, and other factors for each of these officers.
The Company believes that a portion of its employee compensation,
especially for key officers, should be contingent upon the attainment of
demanding performance goals that support long-term growth in the Company's stock
market value. This policy is effected by the Company's bonus plan, which rewards
all employees, including executive officers, in the form of cash bonuses for
levels of performance by the Company which exceed predetermined benchmarks.
-14-
<PAGE>
Stock Option Grants
Under the Company's Stock Incentive Plan shares of the Company's common
stock may be granted to executive officers and other employees. Grants are made
at a price no less than the common stock's fair market value which is defined as
the average of the dealer "bid" and "asked" prices as reported in years prior to
1995 by the National Association of Securities Dealers, Inc. and in 1995, the
average of the "bid" and "asked" prices on the American Stock Exchange as of the
date of the grant. The purpose of the Stock Option Plan is to provide an
incentive to key officers through participation in the appreciation of Company's
capital stock so as to secure, retain, and motivate personnel who may be
responsible for the operation and management of the affairs of the Company.
Stock options were granted in 1995 with an exercise price equal to the fair
value of the stock, defined as the average of the highest and lowest sales
prices reported by the American Stock Exchange (securities exchange on which the
Company is listed) as of the date of the grant. The decision to make the grants
was based upon the financial performance of the Company, however the assessment
did not include any specific quantitative or qualitative factors or criteria,
and was made based upon subjective evaluation of the aforementioned factors.
Chief Executive Officer's Compensation and Stock Option Grants
The compensation of the Chief Executive Officer is determined by the
Compensation Committee using the same philosophy as for other executive
officers. The Chief Executive Officer does not attend Compensation Committee
meetings during their review of his compensation. The base compensation of the
Chief Executive Officer is determined after subjective assessment of performance
in the areas of management oversight, development of strategy, involvement in
community affairs and leadership skills. Although the financial performance of
the Company with respect to return on average assets and return on average
equity, absolute earnings performance, changes in the value of the Company's
stock and quantity and quality of assets are considered, no specific measures
are tied to the compensation decision and a certain amount of subjective
judgement is used in arriving at this decision. The Compensation Committee
determined the Chief Executive Officer's 1995 base compensation by increasing
his 1994 base salary by 4.1 percent.
As previously discussed, the Company believes that a portion of its
employee compensation should be contingent upon the attainment of demanding
performance goals that support long-term growth in the Company's stock market
value. This policy is effected by the Company's bonus plan, which rewards all
employees, including executive officers, in the form of cash bonuses for levels
of performance by the Company that exceed predetermined benchmarks. During 1995,
Mr. Murry received $21,882 in the form of such bonuses. This amount was tied
specifically to the performance of the Company for 1994 as compared to a
predetermined benchmark. No bonuses were paid during 1994 or 1993 with respect
to the Company's financial performance.
On December 13, 1995 Mr Murry was granted an option to purchase 6,667
shares of the Company's Common Stock. This grant was made by the Committee after
consideration of the Company's financial performance and other factors as of the
date of the grant. Although the Committee considered this data and other factors
in granting this award, it did not apply any specific quantitative or
qualitative factors or criteria, and made this decision based upon subjective
judgement of the aforementioned factors.
COMPENSATION COMMITTEE
Mark Randolph Tice, Chairman
Raymond M. Dorsch
Wendie DiMatteo Holsinger
Donald W. Lesher, Jr.
Thomas I. Siegel
Stock Price Performance Graph
-15-
<PAGE>
The following graph compares for fiscal years 1991 through 1995 the yearly
change in the cumulative total return to holders of the common stock of the
Company with the cumulative total return of the NASDAQ Market Index and of an
index of a peer group of Mid Atlantic banking companies (the "Peer Group")
provided by an independent research firm. The index Peer Group may be available
for comparative presentation by other financial institutions, however, it is not
a nationally published index.
The Peer Group consists of 145 publicly-held Mid Atlantic banking companies
of various sizes. The companies included in this Peer Group are comparable with
the Company with respect to services offered and channels of distribution. For
the purpose of the Peer Group Index, the Peer Group companies have been weighted
based upon their relative market capitalizations.
THE COMPANY'S STOCK PERFORMANCE GRAPH APPEARS HERE IN THE PROXY STATEMENT
THAT IS IN PRINTED FORM. THE DATA POINTS BELOW DETAILS THE INFORMATION IN THE
GRAPH FROM DECEMBER 31, 1990 TO DECEMBER 31, 1995.
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
Keystone Heritage Group, Inc. 100.00 139.42 205.75 239.75 250.87 301.55
Industry Index 100.00 133.08 166.65 207.03 196.56 298.47
Broad Market Index 100.00 128.38 129.64 155.50 163.26 211.77
</TABLE>
-16-
<PAGE>
Employee Retirement Benefits
The Company has no retirement plan.
The Bank sponsors a defined benefit plan qualified under the Employee
Retirement Income Security Act of 1974. The following table shows for various
periods of credited service, the estimated annual benefits currently payable
upon retirement at age 65 to a participating employee, assuming retirement
occurred in 1995.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
Final Average
Salary Years of Credited Service
5 10 20 30 40
<S> <C> <C> <C> <C> <C>
$100,000 $ 9,908 $19,815 $39,630 $59,446 $ 76,853
120,000 12,058 24,115 48,230 72,346 93,403
140,000 14,208 28,415 56,830 85,246 109,953
160,000 15,283 30,565 61,130 91,696 118,228
180,000 15,283 30,565 61,130 91,696 118,228
200,000 15,283 30,565 61,130 91,696 118,228
220,000 15,283 30,565 61,130 91,696 118,228
</TABLE>
Payments to the Plan Trustee are made each year on the basis of actuarial
calculations. The amount of payment to the Plan Trustee in respect to a specific
person cannot be separately or individually calculated. Total pension expense
for the fiscal years 1995 and 1994 was $287,000 and $271,000 respectively.
All full-time and certain part-time employees of the Bank who attain the
age of 21 and complete one year of eligible service are eligible participants
under the Plan. The Plan generally provides for a prospective benefit at the age
of 65 calculated as follows: (a) 1.50% of the participants average compensation
during the five highest paid, consecutive years within the ten years prior to
retirement, plus (b) .65% of the participant's same average compensation in
excess of the Social Security integration level in effect on the date of
termination or retirement times the years of creditable service (maximum of 35
years for part (b)). The annual base salary used to calculate the average base
salary is the amount which would be earned in one year at the rate of earnings,
excluding overtime and bonus. The Social Security integration level for any plan
year is equal to 100% of covered compensation for an individual who attains
Social Security retirement age as of the beginning of such plan year.
Current Federal law places limitations on the amount of retirement income
that may be paid through a pension plan qualified under the Internal Revenue
Code. This limit is not reflected in the above chart. As of October 1, 1995,
such limitations have not been exceeded for any of the plan participants.
As of February 20, 1996, the Company's President and Chief Executive
Officer, the only executive officer named in the remuneration table, had
compiled credited service under the Plan as follows:
Albert B. Murry.................................... 18 years
-17-
<PAGE>
Compliance With Beneficial Ownership Reporting Rules
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities file with the
Securities and Exchange Commission and the American Stock Exchange initial
reports of ownership of the Company's equity securities on Form 3 and reports of
changes therein on Forms 4 and 5.
Based on the Company's records and other information furnished to it, the
Company believes that all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1995, including financial statements as audited by KPMG Peat
Marwick LLP, accompanies this proxy statement and is being mailed to
stockholders on or about March 7, 1997.
A copy of the Company's annual report on Form 10-K for the year ended
December 31, 1995 will be mailed to any stockholder without charge upon written
request directed to: Treasurer, Keystone Heritage Group, Inc., 555 Willow
Street, P.O. Box 1285, Lebanon, Pennsylvania 17042. Such Annual Report and Form
10-K are not to be deemed proxy solicitation material.
By order of the Board of Directors
Albert B. Murry
President and
Chief Executive Officer
-18-
<PAGE>
EXHIBIT A
KEYSTONE HERITAGE GROUP, INC.
1994 INDEPENDENT DIRECTORS STOCK OPTION PLAN
1. Purpose. The purpose of this Stock Option Plan (the "Plan") is to advance the
development, growth and financial condition of Keystone Heritage Group, Inc.
(the "Company"), by providing incentives through participation in the
appreciation of capital stock of the Company so as to secure, retain and
motivate members of the Company's Board of Directors (the "Board") who are not
officers and employees of the Company or any subsidiary thereof ("non-employee
directors"). This Plan shall be interpreted and implemented in a manner so that
non-employee directors will not fail, by reason of this Plan or their
participation in it, to be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended as to any employee
benefit plan of the Company or its affiliates.
2. Term. The Plan shall become effective as of the date the Company's
stockholders duly approve the Plan (the "Effective Date"). If the Plan is so
approved, it shall continue in effect until any stock options granted under the
Plan either have lapsed or been exercised, satisfied or cancelled according to
their terms under the Plan.
3. Stock. The shares of stock that may be issued under the Plan shall not
exceed, in the aggregate, Sixty Thousand (60,000) shares of the Company's common
stock, par value $5.00 per share (the "Stock"), provided that said shares of
Stock may be increased by an amount not to exceed Five Thousand (5,000) shares
of Stock for each individual who becomes a non-employee director, other than
current or prior members of the Board, at any time within a five (5) year period
after the Effective Date. In addition, the aggregate amount of Stock under the
Plan may be adjusted pursuant to paragraph 10. Such shares of Stock may be
either authorized and unissued shares of Stock, or authorized shares of Stock
issued by the Company and subsequently reacquired by it as treasury stock. Under
no circumstances shall any fractional shares of Stock be issued under the Plan.
The Company shall reserve and keep available, and shall duly apply for any
requisite governmental authority to grant the stock options under this Plan, and
issue or sell the number of shares of Stock needed to satisfy the requirements
of the Plan while in effect. The Company's failure to obtain any such
governmental authority deemed necessary by the Company's legal counsel for the
proper grant of the stock options under this Plan and/or the issuance and sale
of Stock under the Plan shall relieve the Company of any duty, or liability for
the failure to grant the stock options under this Plan and/or issue or sell the
Stock as to which such authority has not been obtained.
4. Stock Options. Stock options shall be granted under the Plan to all current
non-employee directors of the Company, and any non-employee director, other than
current or prior members of the Board, who becomes a member of the Board at any
time within a five (5) year period after the Effective Date (such directors
shall be referred to under this Plan as a "Director"). Every stock option
granted to a Director shall be exercisable during his or her lifetime only by
the Director, and shall not be salable, transferable or assignable by the
Director except by his or her Will or pursuant to applicable laws of descent and
distribution. Commencing on the Effective Date and then annually for the four
(4) years thereafter, or in the case of a Director who becomes a member of the
Board at any time within a five (5) year period after the Effective Date,
commencing on the date he or she is elected or appointed to the Board and then
annually for the four (4) years thereafter, a Director shall be granted a stock
option to purchase one thousand (1,000) shares of Stock (the "Stock Option")
under the following terms and conditions:
(a) The time period during which any Stock Option is exercisable shall be ten
(10) years after the date the Stock Option is granted to the Director.
(b) If the Director ceases to be a member of the Board for any reason other than
his or her mandatory retirement because of age pursuant to the Company's
By-Laws, the Director may exercise the Stock Option not more than twelve (12)
months after such cessation; if the Director dies at any time, the Director's
qualified personal representative or any persons who acquire the Stock Options
pursuant to his or her Will or laws of descent and distribution, may exercise
any Stock Options during their remaining terms for a period of not more than
twelve (12) months after the Director's death to the extent that the Stock
Options would then and remain exercisable; if the Director retires because of
the aforesaid mandatory age requirement, he or she may exercise any Stock
Options granted to him or her for their remaining terms; in all of the above
events, the Director shall not receive any further grants of Stock Options under
the Plan.
(c) The purchase price of a share of Stock subject to a Stock Option shall be
the fair market value of the Stock as determined under paragraph 6 hereof.
-19-
<PAGE>
5. Exercise. Except as otherwise provided in the Plan, the Stock Option may be
exercised in whole or in part by giving written notice thereof to the Secretary
of the Company, or his or her designee, identifying the Stock Option being
exercised, the number of shares of Stock with respect thereto, and other
information pertinent to the exercise of the Stock Option. The purchase price of
the shares of Stock with respect to which a Stock Option is exercised shall be
paid with the written notice of exercise, either in cash or in Stock which has
been held by the Director for at least six (6) months at its then current fair
market value, or in any combination thereof. Funds received by the Company from
the exercise of any Stock Option shall be used for its general corporate
purposes. The number of shares of Stock subject to a Stock Option shall be
reduced by the number of shares of Stock with respect to which the Director has
exercised rights under the Stock Option.
If the Company or its stockholders execute an agreement to dispose of all
or substantially all of the Company's assets or capital stock by means of sale,
merger, consolidation, reorganization, liquidation or otherwise, as a result of
which the Company's stockholders as of immediately before such transaction will
not own at least fifty percent (50%) of the total combined voting power of all
classes of voting capital stock of the surviving entity (be it the Company or
otherwise) immediately after the consummation of such transaction, thereupon any
and all Stock Options which the Director would be entitled to receive under the
Plan shall be immediately granted to the Director until the consummation of such
transaction, or if not consummated, until the agreement therefor expires or is
terminated, in which case thereafter all Stock Options shall be treated as if
said agreement never had been executed. If during any period of two (2)
consecutive years, the individuals who at the beginning of such period
constituted the Board, cease for any reason to constitute at least a majority of
the Board, unless the election of each director of the Board, who was not a
director of the Board at the beginning of such period, was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period, thereupon any and all Stock Options which the
Director would be entitled to receive under the Plan shall be immediately
granted to the Director. If there is an actual, attempted or threatened change
in the ownership of at least twenty-five percent (25%) of any classes of voting
capital stock of the Company through the acquisition of, or an offer to acquire
such percentage of the Company's voting capital stock by any person or entity,
or persons or entities acting in concert or as a group, and such acquisition or
offer has not been duly approved by the Board, thereupon any and all Stock
Options which the Director would be entitled to receive under the Plan shall be
immediately granted.
6. Value. Where used in the Plan, the "fair market value" of Stock shall mean
and be determined as follows: in the event that the Stock is listed on an
established exchange, the closing price of the Stock on the date of the annual
meeting of stockholders for the year when the Stock Option is granted to the
Director (the "Relevant Date") or, if no trade did occur on that day, on the
next preceding day on which a trade occurred. In the event that no closing bid
or asked quotation is available on one (1) or more of such trading days, the
fair market value shall be determined by reference to the five (5) trading days
immediately preceding the Relevant Date on which closing bid and asked
quotations are available.
7. Continued Relationship. Nothing in the Plan or any Stock Option shall confer
upon any Director or any right to continue his or her relationship with the
Company as a director, or limit or affect any rights, powers or privileges that
the Company or its affiliates may have to supervise, discipline and terminate
such Director, and the relationships thereof.
8. General Restrictions. Each Stock Option shall be subject to the requirement
and provision that if at any time the Board determines it necessary or desirable
as a condition of or in consideration of making such Stock Option, or the
purchase or issuance or Stock thereunder, (a) the listing, registration or
qualification of the Stock subject to the Stock Option, or the Stock Option
itself, upon any securities exchange or under any federal or state securities or
other laws, (b) the approval of any governmental authority, or (c) an agreement
by the Director with respect to disposition of any Stock (including without
limitation that at the time of the Director's exercise of the Stock Option, any
Stock thereby acquired is being and will be acquired solely for investment
purposes and without any intention to sell or distribute such Stock), then such
Stock Option shall not be consummated in whole or in part unless such listing,
registration, qualification, approval or agreement shall have been appropriately
effected or obtained to the satisfaction of the Board and legal counsel for the
Company. Notwithstanding anything to the contrary herein, a Director shall not
sell, transfer or otherwise dispose of any shares of Stock acquired pursuant to
a Stock Option unless at least six (6) months have elapsed from the date the
Stock Option was granted, if at the time of such disposition the Director is
subject to Section 16 of the Securities Exchange Act of 1934, as amended.
9. Rights. Except as otherwise provided in the Plan, the Director shall have no
rights as a holder of the Stock subject thereto unless and until one or more
certificates for the shares of such Stock are issued and delivered to the
Director. No adjustments shall be made for dividends, either ordinary or
extraordinary, or any other distributions with respect to Stock,
-20-
<PAGE>
whether made in cash, securities or other property, or any rights with respect
thereto, for which the record date is prior to the date that any certificates
for Stock subject to a Stock Option are issued to the Director pursuant to his
or her exercise thereof. No Stock Option, or the grant thereof, shall limit or
affect the right or power of the Company or its affiliates to adjust,
reclassify, recapitalize, reorganize or otherwise change its or their capital or
business structure, or to merge, consolidate, dissolve, liquidate or sell any or
all of its or their business, property or assets.
10. Adjustments. In the event of any change in the number of issued and
outstanding shares of Stock which results from a stock split, reverse stock
split, payment of a stock dividend or any other change in the capital structure
of the Company, the maximum number of shares subject to each outstanding Stock
Option, and (where appropriate) the purchase price per share thereof (but not
the total purchase price), shall be proportionately adjusted so that upon
exercise or realization of such Stock Option, the Director shall receive the
same number of shares he or she would have received had he or she been the
holder of all shares subject to his or her outstanding Stock Option and
immediately before the effective date of such change in the number of issued and
outstanding shares of Stock. Such adjustments shall not, however, result in the
issuance of fractional shares.
In the event the Company is the surviving company of any merger,
consolidation or other reorganization, any and all outstanding Stock Options
shall apply and relate to the securities to which a holder of Stock is entitled
after such merger, consolidation or other reorganization. Upon any liquidation
or dissolution of the Company, or any merger, consolidation or other
reorganization of which the Company is not the surviving company, any and all
outstanding Stock Options shall terminate upon consummation of such merger,
consolidation or other reorganization, but prior to such consummation shall be
exercisable to the extent that the same otherwise are exercisable under the
Plan.
11. Forfeiture. Notwithstanding anything to the contrary in this Plan, if the
involved Director has been engaged in fraud, embezzlement, theft, commission of
a felony, or dishonesty in the course of his or her relationship with the
Company or its affiliates that has damaged them, or that the Director has
disclosed trade secrets of the Company or its affiliates, the Director shall
forfeit all rights under and to all unexercised Stock Options, and all exercised
Stock Options under which the Company has not yet delivered certificates for
shares of Stock (as the case may be), and all rights to receive Stock Options
shall be automatically cancelled.
12. Miscellaneous. Any reference contained in this Plan to a particular section
or provision of law, rule or regulation, including but not limited to the
Internal Revenue Code of 1986 and the Securities Exchange Act of 1934, both as
amended, shall include any subsequently enacted or promulgated section or
provision of law, rule or regulation, as the case may be, of similar import.
With respect to persons subject to Section 16 of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") transactions under this Plan are intended
to comply with all applicable conditions of Rule 16b-3 or any successor rule
that may be promulgated by the Securities and Exchange Commission. To the extent
any provision of this Plan fails to so comply, it shall be deemed null and void,
to the extent permitted by applicable law, subject to the provisions of
paragraph 13 below. Where used in this Plan: the plural shall include the
singular, and unless the context otherwise clearly requires, the singular shall
include the plural; and, the term "affiliates" shall mean each and every
subsidiary and any parent of the Company. The captions of the numbered
paragraphs contained in this Plan are for convenience only, and shall not limit
or affect the meaning, interpretation or construction of any of the provisions
of the Plan.
13. Amendment. The Plan may not be amended, suspended or terminated except as
may be provided for herein, or as may be required under the provisions of the
Internal Revenue Code of 1986, as amended, and Section 16 of the Securities
Exchange Act of 1934, as amended, and Rule 16b-3 of the Securities and Exchange
Commission. If any provision of the Plan would cause a non-employee director not
to be a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act as then applicable to any employee benefit plan of the Company,
such provision shall be construed or deemed amended to the extent necessary to
preserve such non-employee director's status as a "disinterested person".
14. Taxes. The issuance of shares of Stock under the Plan shall be subject to
any applicable taxes or other laws or regulations of the United States of
America and any state or local authority having jurisdiction thereover.
-21-
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
PROXY FOR ANNUAL MEETING 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF KEYSTONE HERITAGE GROUP, INC.
The undersigned holder of common stock of Keystone Heritage Group, Inc.
(the "Company") hereby appoints Ira L. Kreider and Lester L. Kreider, or either
of them, with full power of substitution, the proxy or proxies of the
undersigned to vote all shares of the common stock of Keystone Heritage Group,
Inc. held of record in the name or names of the undersigned at the Annual
Meeting (the "Meeting") of the Stockholders of the Company to be held at 10:00
A.M., on Tuesday, April 16, 1996, in the Ballroom of the Quality Inn Lebanon
Valley, 625 Quentin Road, Lebanon, Pennsylvania, and at all postponements or
adjournments thereof, with all the powers the undersigned would possess if
personally present. Said proxies are specifically authorized to vote:
1. ELECTION OF DIRECTORS
|_| FOR the following nominees |_| WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below
For a Three Year Term Expiring in 1999
Harry J. Gensemer Brett H. Tennis
Albert B. Murry Earnest D. Williams, Jr.
Thomas I. Siegel
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
draw a line through the nominee's name.
2. PROPOSAL TO APPROVE AND ADOPT the Keystone Heritage Group, Inc. 1996
Independent Directors Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
The Board of Directors recommends a vote FOR this proposal.
3. STOCKHOLDER PROPOSAL (SEE PROXY STATEMENT, PAGES 8-9).
|_| FOR |_| AGAINST |_| ABSTAIN
The Board of Directors recommends a vote AGAINST this proposal.
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<PAGE>
4. PROPOSAL to ratify the selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ending
December 31, 1996.
|_| FOR |_| AGAINST |_| ABSTAIN
5. In their discretion upon the transaction of such other matters as may
properly come before the meeting or any postponement or adjournments
thereof.
The shares represented by the Proxy will be voted as specified. If no
specification is made, this Proxy will be voted "FOR" the election of nominees
for director listed above, "FOR" the Keystone Heritage Group, Inc. 1996
Independent Directors Stock Option Plan, "AGAINST" the Stockholder proposal and
"FOR" the ratification of the selection of the independent public accountants.
This Proxy may be revoked at any time prior to the voting thereof.
_________________________________
_________________________________
PLEASE SIGN HERE EXACTLY
AS NAME APPEARS ON LABEL.
Date: ____________________, 1996
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. ALL JOINT OWNERS
MUST SIGN.
