SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 15, 1997
KEYSTONE HERITAGE GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 0-13775 23-2219740
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
555 Willow Street
Lebanon, Pennsylvania 17046
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (717) 274-6800
Not Applicable
(Former name or former address, if changed since last report)
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ITEM 5. Other Events.
On August 15, 1997, Keystone Heritage Group, Inc., a Pennsylvania
corporation ("Keystone"), and Fulton Financial Corporation, a Pennsylvania
corporation ("Fulton"), entered into a Merger Agreement (the "Merger Agreement")
providing for the merger of Keystone with and into Fulton, with Fulton being the
surviving corporation (the "Merger"). Pursuant to the Merger Agreement, all of
the Common Shares of Keystone outstanding at the effective time of the Merger
will be converted into and become 1.83 Common Shares of Fulton, subject to
adjustment pursuant to the Merger Agreement. Fulton is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended, having branch
offices throughout the mid-Atlantic region of the United States.
The closing of the transactions contemplated by the Merger Agreement
is subject to customary conditions, including the receipt of necessary
stockholder and regulatory approvals.
In connection with the transactions contemplated by the Merger
Agreement, Keystone and Fulton have entered into a Warrant Agreement dated as of
August 15, 1997 (the "Warrant Agreement"), pursuant to which Keystone has
granted Fulton a Warrant to purchase up to 981,740 Common Shares of Keystone, at
a purchase price of $36.75 per share, subject to adjustment as provided therein
(the "Warrant"). The Warrant is exercisable upon the occurrence of certain
events, including certain transactions involving the acquisition of 25% or more
of the Common Shares of Keystone. Keystone has granted Fulton certain
registration rights in the Warrant Agreement with respect to the Common Shares
of Keystone issuable upon exercise of the Warrant (the "Warrant Shares"). In
addition, the Warrant Agreement provides for the repurchase or redemption of the
Warrant or the Warrant Shares upon the occurrence of certain events.
Also in connection with the transactions contemplated in the Merger
Agreement, Lebanon Valley National Bank, a wholly-owned subsidiary of Keystone
("Lebanon"), has entered into Employment Agreements dated as of August 15, 1997
with each of Albert B. Murry, the current President and Chief Executive Officer
of Lebanon ("Murry"), and Kurt A. Phillips, the current Executive Vice President
and Chief Financial Officer of Lebanon ("Phillips"), pursuant to which Murry and
Phillips shall each serve in their current positions, at their current salary
levels and for a term of four years and three years, respectively, following the
consummation of the Merger.
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Item 7. Exhibits.
Exhibit Number
(Referenced to
Item 601 of
Regulation S-K) Description of Exhibit
2 Merger Agreement dated August 15, 1997 by and
between Keystone Heritage Group, Inc. and
Fulton Financial Corporation.
4 Warrant dated August 15, 1997 by and between
Keystone Heritage Group, Inc. and Fulton
Financial Corporation.
10.1 Warrant Agreement dated August 15, 1997 by
and between Keystone Heritage Group, Inc. and
Fulton Financial Corporation.
10.2 Employment Agreement dated August 15, 1997 by
and between Lebanon Valley National Bank and
Albert B. Murry.
10.3 Employment Agreement dated August 15, 1997 by
and between Lebanon Valley National Bank and
Kurt A. Phillips.
Schedules (and similar attachments) to Exhibits 2 and 10.1 are not being filed.
The Registrant agrees to furnish supplementally a copy of any omitted schedules
or attachments to the Commission upon request.
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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 hereunto duly authorized.
KEYSTONE HERITAGE GROUP, INC.
Date: September 5, 1997 By: /s/ Albert B. Murry
--------------------
Albert B. Murry,
President and Chief
Executive Officer
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<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
2 Merger Agreement dated August 15, 1997 by and
between Keystone Heritage Group, Inc. and
Fulton Financial Corporation.
4 Warrant dated August 15, 1997 by and between
Keystone Heritage Group, Inc. and Fulton
Financial Corporation.
10.1 Warrant Agreement dated August 15, 1997 by
and between Keystone Heritage Group, Inc. and
Fulton Financial Corporation.
10.2 Employment Agreement dated August 15, 1997 by
and between Lebanon Valley National Bank and
Albert B. Murry.
10.3 Employment Agreement dated August 15, 1997 by
and between Lebanon Valley National Bank and
Kurt A. Phillips.
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MERGER AGREEMENT
BY AND BETWEEN
KEYSTONE HERITAGE GROUP, INC.
AND
FULTON FINANCIAL CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PLAN OF MERGER
Section 1.1 Plan of Merger.................................................... 2
ARTICLE II
CONVERSION OF SHARES AND EXCHANGE OF STOCK CERTIFICATES
Section 2.1 Conversion of Shares.............................................. 2
(a) General.............................................................. 2
(b) Antidilution Provision............................................... 2
(c) No Fractional Shares................................................. 2
(d) Closing Market Price................................................. 3
Section 2.2 Exchange of Stock Certificates.................................... 3
(a) Exchange Agent....................................................... 3
(b) Surrender of Certificates............................................ 3
(c) Dividend Withholding................................................. 4
(d) Failure to Surrender Certificates.................................... 4
(e) Expenses............................................................. 4
Section 2.3 Treatment of Outstanding KHG Options.............................. 4
Section 2.4 Reservation of Shares............................................. 5
Section 2.5 Taking Necessary Action........................................... 6
Section 2.6 Press Releases.................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KHG
Section 3.1 Authority......................................................... 6
Section 3.2 Organization and Standing......................................... 7
Section 3.3 Subsidiaries...................................................... 7
Section 3.4 Capitalization.................................................... 7
Section 3.5 Charter, Bylaws and Minute Books.................................. 8
Section 3.6 Financial Statements.............................................. 8
Section 3.7 Absence of Undisclosed Liabilities................................ 8
Section 3.8 Absence of Changes................................................ 9
Section 3.9 Dividends, Distributions and Stock Purchases...................... 9
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Section 3.10 Taxes............................................................ 9
Section 3.11 Title to and Condition of Assets................................. 9
Section 3.12 Contracts....................................................... 10
Section 3.13 Litigation and Governmental Directives.......................... 10
Section 3.14 Compliance with Laws; Governmental Authorizations............... 11
Section 3.15 Insurance....................................................... 11
Section 3.16 Financial Institutions Bonds.................................... 12
Section 3.17 Labor Relations and Employment Agreements....................... 12
Section 3.18 Employee Benefit Plans.......................................... 12
Section 3.19 Related Party Transactions...................................... 13
Section 3.20 No Finder....................................................... 13
Section 3.21 Complete and Accurate Disclosure................................ 13
Section 3.22 Environmental Matters........................................... 14
Section 3.23 Proxy Statement/Prospectus...................................... 14
Section 3.24 SEC Filings..................................................... 15
Section 3.25 Reports......................................................... 15
Section 3.26 Loan Portfolio of the LVNB...................................... 15
Section 3.27 Investment Portfolio............................................ 16
Section 3.28 Regulatory Examinations......................................... 16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FFC
Section 4.1 Authority........................................................ 16
Section 4.2 Organization and Standing........................................ 17
Section 4.3 Capitalization................................................... 17
Section 4.4 Articles of Incorporation and Bylaws............................. 17
Section 4.5 Subsidiaries..................................................... 18
Section 4.6 Financial Statements............................................. 18
Section 4.7 Absence of Undisclosed Liabilities............................... 18
Section 4.8 Absence of Changes............................................... 19
Section 4.9 Litigation and Governmental Directives........................... 19
Section 4.10 Compliance with Laws; Governmental Authorizations............... 19
Section 4.11 Complete and Accurate Disclosure................................ 19
Section 4.12 Labor Relations................................................. 20
Section 4.13 Employee Benefits Plans......................................... 20
Section 4.14 Environmental Matters........................................... 21
Section 4.15 SEC Filings..................................................... 21
Section 4.16 Proxy Statement/Prospectus...................................... 21
Section 4.17 Accounting Treatment............................................ 21
Section 4.18 Regulatory Approvals............................................ 22
Section 4.19 No Finder....................................................... 22
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Section 4.20 Taxes........................................................... 22
Section 4.21 Title to and Condition of Assets................................ 22
Section 4.22 Contracts....................................................... 23
Section 4.23 Insurance....................................................... 23
ARTICLE V
COVENANTS OF KHG
Section 5.1 Conduct of Business.............................................. 23
Section 5.2 Best Efforts..................................................... 25
Section 5.3 Access to Properties and Records................................. 25
Section 5.4 Subsequent Financial Statements.................................. 26
Section 5.5 Update Schedules................................................. 26
Section 5.6 Notice........................................................... 26
Section 5.7 Other Proposals.................................................. 26
Section 5.8 Affiliate Letters................................................ 27
Section 5.9 No Purchases or Sales of FFC Common Stock During Price
Determination Period............................................. 27
Section 5.10 Accounting Treatment............................................ 27
Section 5.11 Dividends....................................................... 28
ARTICLE VI
COVENANTS OF FFC
Section 6.1 Best Efforts..................................................... 28
(a) Applications for Regulatory Approval................................ 29
(b) Registration Statement.............................................. 29
(c) State Securities Laws............................................... 29
(d) Stock Listing....................................................... 29
(e) Adopt Amendments.................................................... 29
Section 6.2 Access to Properties and Records................................. 30
Section 6.3 Subsequent Financial Statements.................................. 30
Section 6.4 Update Schedules................................................. 30
Section 6.5 Notice........................................................... 30
Section 6.6 Employment Arrangements.......................................... 30
Section 6.7 No Purchase or Sales of FFC Common Stock During Price
Determination Period............................................. 32
Section 6.8 Restructuring, Directors, Etc.................................... 32
Section 6.9 Appointment of FFC Directors..................................... 33
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ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Common Conditions................................................ 33
(a) Stockholder Approval................................................ 34
(b) Regulatory Approvals................................................ 34
(c) Stock Listing....................................................... 34
(d) Tax Opinion......................................................... 34
(e) Registration Statement.............................................. 35
(f) No Suits............................................................ 36
(g) Pooling............................................................. 36
Section 7.2 Conditions Precedent to Obligations of FFC....................... 36
(a) Accuracy of Representations and Warranties.......................... 36
(b) Covenants Performed................................................. 36
(c) Opinion of Counsel for KHG.......................................... 36
(d) Affiliate Agreements................................................ 37
(e) KHG Options......................................................... 37
(f) Decline in Market Price of FFC Common Stock......................... 37
(g) Accountants' Letter................................................. 37
(h) Federal and State Securities and Antitrust Laws..................... 38
(i) Environmental Matters............................................... 38
(j) Closing Documents................................................... 38
(k) Employment Agreements............................................... 39
Section 7.3 Conditions Precedent to the Obligations of KHG................... 39
(a) Accuracy of Representations and Warranties.......................... 39
(b) Covenants Performed................................................. 39
(c) Opinion of Counsel for FFC.......................................... 39
(d) FFC Options......................................................... 39
(e) Fairness Opinion.................................................... 39
(f) Closing Documents................................................... 40
(g) Employment Agreements............................................... 40
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination...................................................... 40
(a) Mutual Consent...................................................... 40
(b) Unilateral Action by FFC............................................ 40
(c) Unilateral Action By KHG............................................ 40
Section 8.2 Effect of Termination............................................ 41
(a) Effect.............................................................. 41
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(b) Limited Liability................................................... 41
(c) Confidentiality..................................................... 41
Section 8.3 Amendment........................................................ 41
Section 8.4 Waiver........................................................... 42
ARTICLE IX
CLOSING AND EFFECTIVE DATE
Section 9.1 Closing.......................................................... 42
Section 9.2 Effective Date................................................... 42
ARTICLE X
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 10.1 No Survival..................................................... 42
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Expenses........................................................ 43
Section 11.2 Other Mergers and Acquisitions.................................. 43
Section 11.3 Notices......................................................... 43
Section 11.4 Counterparts.................................................... 44
Section 11.5 Governing Law................................................... 44
Section 11.6 Parties in Interest............................................. 44
Section 11.7 Entire Agreement................................................ 44
Section 11.8 Materiality Standard............................................ 45
<PAGE>
INDEX OF SCHEDULES
Schedule 2.3 KHG Options
Schedule 3.7 Undisclosed Liabilities
Schedule 3.8 Changes
Schedule 3.9 Dividends, Distributions and Stock Purchases
Schedule 3.10 Taxes
Schedule 3.11 Title to and Condition of Assets
Schedule 3.12 Contracts
Schedule 3.13 Litigations and Governmental Directives
Schedule 3.14 Compliance with Laws; Governmental Authorizations
Schedule 3.15 Insurance
Schedule 3.16 Financial Institutions Bonds
Schedule 3.17 Labor Relations and Employment Agreements
Schedule 3.18 Employee Benefit Plans
Schedule 3.19 Related Party Transactions
Schedule 3.20 Finders
Schedule 3.22 Environmental Matters
Schedule 3.26 Loan Portfolio
Schedule 3.27 Investment Portfolio
Schedule 4.5 Subsidiaries
Schedule 4.7 Undisclosed Liabilities
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Schedule 4.9 Litigation and Governmental Directives
Schedule 4.10 Compliance with Laws; Governmental Authorizations
Schedule 4.14 Environmental Matters
<PAGE>
INDEX OF EXHIBITS
Exhibit A Form of Plan of Merger
Exhibit B Form of Employment Agreement
Exhibit C Form of Opinion of KHG's Counsel
Exhibit D Form of Opinion of FFC's Counsel
<PAGE>
PGM/AGR/334721.10/090597
EXHIBIT 2 - MERGER AGREEMENT
MERGER AGREEMENT
Merger Agreement made as of the 15th day of August, 1997, by and
between FULTON FINANCIAL CORPORATION, a Pennsylvania business corporation having
its administrative headquarters at One Penn Square, P. O. Box 4887, Lancaster,
Pennsylvania 17604 ("FFC"), and KEYSTONE HERITAGE GROUP, INC., a Pennsylvania
business corporation having its administrative headquarters at 555 Willow
Street, Lebanon, Pennsylvania 17046 ("KHG").
Background:
FFC is a bank holding company registered under the Bank Holding Company
Act of 1956, as amended (the "BHC Act"). KHG is a bank holding company
registered under the BHC Act. FFC and KHG wish to merge with each other. Subject
to the terms and conditions of this Agreement, the foregoing transaction will be
accomplished by means of a merger (the "Merger") in which (i) KHG will be merged
with and into FFC, (ii) FFC will survive the Merger, and (iii) all of the
outstanding shares of the common stock of KHG, $5.00 par value per share ("KHG
Common Stock"), will be converted into shares of the common stock of FFC, par
value $2.50 per share ("FFC Common Stock").
In addition, Lebanon Valley National Bank ("LVNB"), a national banking
association, and Keystone Heritage Life Insurance Corporation ("KHLIC"), a
Arizona insurance company, which are wholly-owned subsidiaries of KHG, will
become wholly-owned subsidiaries of FFC.
Simultaneously with the effectiveness of the Merger, FFC shall cause
(i) LVNB to merge with an existing bank subsidiary of FFC and (ii) the resulting
bank from such merger immediately to transfer certain of its branch offices to
other existing bank subsidiaries of FFC, all as more fully described in Section
6.8(a) herein (the "Restructuring").
Simultaneously with the execution of this Agreement, the parties are
entering into a Warrant Agreement of even date herewith (the "Warrant
Agreement"), which provides for the delivery by KHG of a warrant (the "Warrant")
entitling FFC to purchase shares of the KHG Common Stock in certain
circumstances.
WITNESSETH:
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and intending to be legally bound, the parties hereby agree as follows:
<PAGE>
ARTICLE I
PLAN OF MERGER
Section 1.1 Plan of Merger. Subject to the terms and conditions of this
Agreement, KHG shall merge with and into FFC in accordance with the Plan of
Merger substantially in the form of Exhibit C attached hereto.
ARTICLE II
CONVERSION OF SHARES AND EXCHANGE OF STOCK CERTIFICATES
Section 2.1 Conversion of Shares. On the Effective Date (as defined in
Section 10.2 herein) the shares of KHG Common Stock then outstanding shall be
converted into shares of FFC Common Stock, as follows:
(a) General: Subject to the provisions of Sections 2.1(b),
2.1(c) and 2.1(d) herein, each share of KHG Common Stock issued and outstanding
immediately before the Effective Date shall, on the Effective Date, be converted
into and become, without any action on the part of the holder thereof, 1.83
(such number, as it may be adjusted under Section 2.1(b) herein, the "Conversion
Ratio") shares of FFC Common Stock and the corresponding number of rights
associated with the Rights Agreement dated June 20, 1989 between FFC and Fulton
Bank.
(b) Antidilution Provision: In the event that FFC shall at any
time before the Effective Date: (i) issue a dividend in shares of FFC Common
Stock, (ii) combine the outstanding shares of FFC Common Stock into a smaller
number of shares, or (iii) subdivide the outstanding shares of FFC Common Stock
into a greater number of shares, then the Conversion Ratio shall be
proportionately adjusted (calculated to two decimal places), so that each KHG
stockholder shall receive on the Effective Date, in exchange for his shares of
KHG Common Stock, the number of shares of FFC Common Stock as would then have
been owned by him if the Effective Date had occurred before the record date of
such event (For example, if FFC were to declare a ten percent (10%) stock
dividend after the date of this Agreement and if the record date for that stock
dividend were to occur before the Effective Date, the Conversion Ratio would be
adjusted from 1.83 shares to 2.01 shares).
(c) No Fractional Shares: No fractional shares of FFC Common
Stock shall be issued in connection with the Merger. In lieu of the issuance of
any fractional share to which he would otherwise be entitled, each former
stockholder of KHG shall receive in cash an amount equal to the fair market
value of his fractional interest,
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which fair market value shall be determined by multiplying such fraction by the
Closing Market Price (as defined in Section 2.1(d) herein).
(d) Closing Market Price: For purposes of this Agreement, the
Closing Market Price shall be the average of the per share closing bid and asked
prices for FFC Common Stock, rounded up to the nearest $.125, for the ten (10)
trading days immediately preceding the date which is two (2) business days
before the Effective Date, as reported on the National Market System of the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), the foregoing period of ten (10) trading days being hereinafter
sometimes referred to as the "Price Determination Period" (For example, if
February 28, 1998 were to be the Effective Date, then the Price Determination
Period would be February 11, 12, 13, 17, 18, 19, 20, 23, 24 and 25, 1998). In
the event that NASDAQ shall fail to report a closing bid price for FFC Common
Stock for any trading day during the Price Determination Period, the closing bid
price for that day shall be equal to the average of the closing bid prices and
the average of the closing asked prices as quoted: (i) by F. J. Morrissey &
Company, Inc. and by Ryan, Beck & Co.; or (ii) in the event that both of these
firms are not then making a market in FFC Common Stock, by two brokerage firms
then making a market in FFC Common Stock to be selected by FFC and approved by
KHG.
Section 2.2 Exchange of Stock Certificates. KHG Common Stock
certificates shall be exchanged for FFC Common Stock certificates in accordance
with the following procedures:
(a) Exchange Agent: The transfer agent of FFC shall act as
exchange agent (the "Exchange Agent") to receive KHG Common Stock certificates
from the holders thereof and to exchange such stock certificates for FFC Common
Stock certificates and (if applicable) to pay cash for fractional shares of KHG
Common Stock pursuant to Section 2.1(c) herein. FCC shall cause the Exchange
Agent on or promptly after the Effective Date, to mail to each former
stockholder of KHG a notice specifying the procedures to be followed in
surrendering such stockholder's KHG Common Stock certificates.
(b) Surrender of Certificates: As promptly as possible after
receipt of the Exchange Agent's notice, each former stockholder of KHG shall
surrender his KHG Common Stock certificates to the Exchange Agent; provided,
that if any former stockholder of KHG shall be unable to surrender his KHG
Common Stock certificates due to loss or mutilation thereof, he may make a
constructive surrender by following procedures comparable to those customarily
used by FFC for issuing replacement certificates to FFC shareholders whose FFC
Common Stock certificates have been lost
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or mutilated. Upon receiving a proper actual or constructive surrender of KHG
Common Stock certificates from a former KHG stockholder, the Exchange Agent
shall issue to such stockholder, in exchange therefor, an FFC Common Stock
certificate representing the whole number of shares of FFC Common Stock into
which such stockholder's shares of KHG Common Stock have been converted in
accordance with this Article II, together with a check in the amount of any cash
to which such stockholder is entitled, pursuant to Section 2.1(c) herein, in
lieu of the issuance of a fractional share.
(c) Dividend Withholding: Dividends, if any, payable by FFC
after the Effective Date to any former stockholder of KHG who has not prior to
the payment date surrendered his KHG Common Stock certificates may, at the
option of FFC, be withheld. Any dividends so withheld shall be paid, without
interest, to such former stockholder of KHG upon proper surrender of his KHG
Common Stock certificates.
(d) Failure to Surrender Certificates: All KHG Common Stock
certificates must be surrendered to the Exchange Agent within two (2) years
after the Effective Date. In the event that any former stockholder of KHG shall
not have properly surrendered his KHG Common Stock certificates within two (2)
years after the Effective Date, the shares of FFC Common Stock that would
otherwise have been issued to him may, at the option of FFC, be sold and the net
proceeds of such sale, together with the cash (if any) to which he is entitled
in lieu of the issuance of a fractional share and any previously accrued
dividends, shall be held by the Exchange Agent in a noninterest bearing account
for his benefit. From and after any such sale, the sole right of such former
stockholder of KHG shall be the right to collect such net proceeds, cash and
accumulated dividends. Subject to all applicable laws of escheat, such net
proceeds, cash and accumulated dividends shall be paid to such former
stockholder of KHG, without interest, upon proper surrender of his KHG Common
Stock certificates.
(e) Expenses: All costs and expenses associated with the
foregoing surrender and exchange procedure shall be borne by FFC.
Section 2.3 Treatment of Outstanding KHG Options.
(a) Each holder of an option (collectively, "KHG Options") to
purchase shares of KHG Common Stock that (i) is outstanding on the Effective
Date, (ii) has been granted pursuant to the 1994 Stock Incentive Plan and the
1996 Independent Directors Stock Option Plan (collectively, the "KHG Stock
Option Plans") and (iii) would otherwise survive the Effective Date shall be
entitled to receive, in cancellation
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of such KHG Option, an option to acquire shares of FFC Common Stock on the terms
set forth below (an "FFC Stock Option").
(b) An FFC Stock Option shall be a stock option to acquire
shares of FFC Common Stock with the following terms: (i) the number of shares of
FFC Common Stock which may be acquired pursuant to such FFC Stock Option shall
be equal to the product of the number of shares of KHG Common Stock covered by
the KHG Option multiplied by the Conversion Ratio, provided that any fractional
share of FFC Common Stock resulting from such multiplication shall be rounded to
the nearest whole share; (ii) the exercise price per share of FFC Common Stock
shall be equal to the exercise price per share of KHG Common Stock of such KHG
Option, divided by the Conversion Ratio, provided that such exercise price shall
be rounded to the nearest whole cent; (iii) the duration and other terms of such
KHG Option shall be unchanged except that all references to KHG shall be deemed
references to FFC, and that each such FFC Stock Option shall be fully
exercisable as of the Effective Date, and shall remain exercisable at least
until the stated expiration date of the corresponding KHG Option; (iv) FFC shall
assume such stock option as contemplated by Section 424(a) of the Internal
Revenue Code of 1986, as amended (the "Code"); and (v) to the extent KHG Options
qualify as incentive stock options under Section 422 of the Code, the FFC
Options exchanged therefor shall also so qualify. Subject to the foregoing, the
KHG Stock Option Plans and all options or other rights to acquire KHG Common
Stock issued thereunder shall terminate on the Effective Date.
(c) FFC shall not issue or pay for any fractional shares
otherwise issuable upon exercise of a FFC Stock Option. Prior to the Effective
Time of Merger, FFC shall reserve for issuance and, if not previously registered
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), register,
the number of shares of FFC Common Stock necessary to satisfy FFC's obligations
with respect to the issuance of FFC Common Stock pursuant to the exercise of FFC
Stock Options.
(d) As of the Effective Date (to the extent required as
determined by FFC and KHG), FFC shall receive agreements from each holder of a
KHG Option, pursuant to which each such holder agrees to accept such FFC Options
in exchange for the cancellation of such KHG Options on the Effective Date.
Section 2.4 Reservation of Shares. FFC agrees that (i) prior to the
Effective Date it will take appropriate action to reserve a sufficient number of
authorized but unissued shares of FFC Common Stock to be issued in accordance
with this Agreement, and (ii) on the Effective Date, FFC will issue shares of
FFC Common Stock to the extent set forth in, and in accordance with, this
Agreement.
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Section 2.5 Taking Necessary Action. FFC and KHG shall take all such
actions as may be reasonably necessary or appropriate in order to effectuate the
transactions contemplated hereby including, without limitation, providing
information necessary for preparation of any filings needed to obtain the
regulatory approvals required to consummate the Merger and the Restructuring. In
case at any time after the Effective Date any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest FFC with full
title to all properties, assets, rights, approvals, immunities and franchises of
KHG, the officers and directors of KHG, at the expense of FFC, shall take all
such necessary action.
Section 2.6 Press Releases. FFC and KHG agree that all press releases
or other public communications relating to this Agreement or the transactions
contemplated hereby will require mutual approval by FFC and KHG, unless counsel
has advised any such party that such release or other public communication must
immediately be issued and the issuing party has not been able, despite its good
faith efforts, to obtain such approval.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF KHG
KHG represents and warrants to FFC, as of the date of this Agreement
and as of the date of the Closing (as defined in Section 9.1 herein), as
follows:
Section 3.1 Authority. The execution and delivery of this Agreement,
the Warrant Agreement and the Warrant and the performance of the transactions
contemplated herein and therein have been authorized by the Board of Directors
of KHG and, except for the approval of this Agreement by its stockholders, KHG
has taken all corporate action necessary on its part to authorize this
Agreement, the Warrant Agreement and the Warrant and the performance of the
transactions contemplated herein and therein. This Agreement, the Warrant
Agreement and the Warrant have been duly executed and delivered by KHG and,
assuming due authorization, execution and delivery by FFC, constitute valid and
binding obligations of KHG. The execution, delivery and performance of this
Agreement, the Warrant Agreement and the Warrant will not constitute a violation
or breach of or default under (i) the Articles of Incorporation or Bylaws of
KHG, (ii) the Articles of Association or Bylaws of LVNB, (iii) any statute,
rule, regulation, order, decree or directive of any governmental authority or
court applicable to KHG or LVNB, or (iv) any agreement, contract, memorandum of
understanding, indenture or other instrument to which KHG or LVNB is a party or
by which KHG or LVNB or any of their properties are bound.
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Section 3.2 Organization and Standing. KHG is a business corporation
that is duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania. KHG is a bank holding company under the BHC
Act, and has full power and lawful authority to own and hold its properties and
to carry on its business as presently conducted. LVNB is a national banking
association that is duly organized, validly existing and in good standing under
the laws of the United States. LVNB is an insured bank under the provisions of
the Federal Deposit Insurance Act, as amended (the "FDI Act"), and is a member
of the Federal Reserve System. LVNB has full power and lawful authority to own
and hold its properties and to carry on its business as presently conducted.
KHLIC is an insurance company that is duly organized, validly existing and in
good standing under the laws of the State of Arizona. KHLIC has full power and
lawful authority to own and hold its properties and to carry on its business as
presently conducted.
Section 3.3 Subsidiaries. LVNB and KHLIC are wholly-owned direct
subsidiaries of KHG. Except for LVNB and KHLIC (the "KHG Subsidiaries"), KHG
owns no subsidiaries, directly or indirectly.
Section 3.4 Capitalization. The authorized capital of KHG consists
exclusively of 10,000,000 shares of KHG Common Stock. There are 3,951,583 shares
of KHG Common Stock validly issued, outstanding, fully paid and non-assessable,
and 120,100 shares are held as treasury shares. In addition, 98,330 shares of
KHG Common Stock are reserved for issuance upon the exercise of Stock Options
granted under KHG's Stock Option Plans and 981,740 shares of KHG Common Stock
are reserved for issuance upon exercise of the Warrant. Except for the KHG
Options and the Warrant, there are no outstanding obligations, options or rights
of any kind entitling other persons to acquire shares of KHG Common Stock and
there are no outstanding securities or other instruments of any kind that are
convertible into shares of KHG Common Stock. All outstanding shares of LVNB
Common Stock are owned beneficially and of record by KHG. There are no
outstanding obligations, options or rights of any kind entitling other persons
to acquire shares of LVNB Common Stock, and there are no outstanding securities
or instruments of any kind that are convertible into shares of LVNB Common
Stock. All outstanding shares of KHLIC Common Stock are owned beneficially and
of record by KHG. There are not outstanding obligations, options or rights of
any kind entitling other persons to acquire shares of KHLIC Common Stock, and
there are no outstanding securities or instruments of any kind that are
convertible into shares of KHLIC Common Stock. The Common Stock of LVNB and
KHLIC is sometimes collectively referred to herein as the "KHG Subsidiaries
Common Stock."
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Section 3.5 Charter, Bylaws and Minute Books. The copies of the
Certificate of Incorporation and Bylaws of KHG and the KHG Subsidiaries that
have been delivered to FFC are true, correct and complete. Except as previously
disclosed to FFC in writing, the minute books of KHG and the KHG Subsidiaries
that have been made available to FFC for inspection are true, correct and
complete in all material respects and accurately record the actions taken by the
Boards of Directors and stockholders of KHG and the KHG Subsidiaries at the
meetings documented in such minutes.
Section 3.6 Financial Statements. KHG has delivered to FFC the
following financial statements: Consolidated Balance Sheets at December 31, 1996
and 1995 and Consolidated Statements of Income, Consolidated Statements of
Stockholders' Equity, and Consolidated Statements of Cash Flows of KHG for the
years ended December 31, 1996, 1995 and 1994, certified by KPMG Peat Marwick
LLP, and set forth in the 1996 Annual Report to KHG's stockholders and a
Consolidated Balance Sheet of KHG at June 30, 1997 and Consolidated Statements
of Income, Consolidated Statements of Changes in Stockholders' Equity and
Consolidated Statements of Cash Flows of KHG for the six-month period ended June
30, 1997, as filed with the Securities and Exchange Commission (the "SEC") in a
Quarterly Report on Form 10-Q (the aforementioned Consolidated Balance Sheet as
of June 30, 1997 being hereinafter referred to as the "KHG Balance Sheet"). Each
of the foregoing financial statements fairly present the consolidated financial
condition, assets and liabilities, and results of operations of KHG and LVNB at
their respective dates and for the respective periods then ended and has been
prepared in accordance with generally accepted accounting principles
consistently applied, except as otherwise noted in a footnote thereto and except
for the omission of the notes from the financial statements applicable to any
interim period.
Section 3.7 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 3.7, or as reflected, noted or adequately reserved against in the KHG
Balance Sheet, as at June 30, 1997, KHG had no consolidated liabilities (whether
accrued, absolute, contingent or otherwise) which were required to be reflected,
noted or reserved against in the KHG Balance Sheet under generally accepted
accounting principles. Except as disclosed in Schedule 3.7, KHG and the KHG
Subsidiaries have not incurred, since June 30, 1997, any such liability, other
than liabilities of the same nature as those set forth in the KHG Balance Sheet,
all of which have been reasonably incurred in the Ordinary Course of Business.
For purposes of this Agreement, the term "Ordinary Course of Business" shall
mean the ordinary course of business consistent with KHG's and the KHG
Subsidiaries' customary business practices.
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Section 3.8 Absence of Changes. Since June 30, 1997, KHG and the KHG
Subsidiaries have each conducted their businesses in the Ordinary Course of
Business and, except as disclosed in Schedule 3.8, neither KHG nor the KHG
Subsidiaries have undergone any changes in its condition (financial or
otherwise), assets, liabilities, business or operations, other than changes in
the Ordinary Course of Business, which have been, in the aggregate, materially
adverse as to KHG and the KHG Subsidiaries.
Section 3.9 Dividends, Distributions and Stock Purchases. Except as
disclosed in Schedule 3.9, since July 1, 1997, KHG has not declared, set aside,
made or paid any dividend or other distribution in respect of the KHG Common
Stock, or purchased, issued or sold any shares of KHG Common Stock or the KHG
Subsidiaries Common Stock.
Section 3.10 Taxes. KHG and the KHG Subsidiaries have filed all
federal, state, county, municipal and foreign tax returns, reports and
declarations which are required to be filed by them or either of them as of June
30, 1997. Except as disclosed in Schedule 3.10: (i) KHG and the KHG Subsidiaries
have paid all taxes, penalties and interest which have become due pursuant
thereto or which became due pursuant to federal, state, county, municipal or
foreign tax laws applicable to the periods covered by the foregoing tax returns,
(ii) neither KHG nor the KHG Subsidiaries have received any notice of deficiency
or assessment of additional taxes, and no tax audits are in process; and (iii)
the Internal Revenue Service (the "IRS") has not commenced or given notice of an
intention to commence any examination or audit of the federal income tax returns
of KHG for any year through and including the year ended December 31, 1996.
Except as disclosed in Schedule 3.10, neither KHG nor the KHG Subsidiaries have
granted any waiver of any statute of limitations or otherwise agreed to any
extension of a period for the assessment of any federal, state, county,
municipal or foreign income tax. Except as disclosed in Schedule 3.10, the
accruals and reserves reflected in the KHG Balance Sheet are adequate to cover
all taxes (including interest and penalties, if any, thereon) that are payable
or accrued as a result of KHG's consolidated operations for all periods prior to
the date of such Balance Sheet.
Section 3.11 Title to and Condition of Assets. Except as disclosed in
Schedule 3.11, KHG or the KHG Subsidiaries have good and marketable title to all
consolidated real and personal properties and assets reflected in the KHG
Balance Sheet or acquired subsequent to June 30, 1997 (other than property and
assets disposed of in the Ordinary Course of Business), free and clear of all
liens or encumbrances of any kind whatsoever; provided, however, that the
representations and warranties contained in this sentence do not cover liens or
encumbrances that: (i) are reflected in the KHG Balance Sheet or in Schedule
3.11; (ii) represent liens of current taxes not yet due or
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which, if due, may be paid without penalty, or which are being contested in good
faith by appropriate proceedings; and (iii) represent such imperfections of
title, liens, encumbrances, zoning requirements and easements, if any, as are
not substantial in character, amount or extent and do not materially detract
from the value, or interfere with the present use, of the properties and assets
subject thereto. The structures and other improvements to real estate,
furniture, fixtures and equipment reflected in the KHG Balance Sheet or acquired
subsequent to June 30, 1997: (A) are in good operating condition and repair
(ordinary wear and tear excepted), and (B) comply in all material respects with
all applicable laws, ordinances and regulations, including without limitation
all building codes, zoning ordinances and other similar laws, except where any
noncompliance would not materially detract from the value, or interfere with the
present use, of such structures, improvements, furniture, fixtures and
equipment. KHG and the KHG Subsidiaries own or have the right to use all real
and personal properties and assets that are material to the conduct of their
respective businesses as presently conducted.
Section 3.12 Contracts. Each written or oral contract entered into by
KHG or the KHG Subsidiaries (other than contracts with customers reasonably
entered into by KHG or KHG Subsidiaries in the Ordinary Course of Business)
which involves aggregate payments or receipts in excess of $100,000 per year,
including without limitation every employment contract, employee benefit plan,
agreement, lease, license, indenture, mortgage and other commitment to which
either KHG or the KHG Subsidiaries are a party or by which KHG or any of the KHG
Subsidiaries or any of their properties may be bound (collectively referred to
herein as "Material Contracts") is identified in Schedule 3.12. Except as
disclosed in Schedule 3.12, all Material Contracts are enforceable against KHG
or the KHG subsidiaries, as the case may be and , KHG or the KHG subsidiaries
have in all material respects performed all obligations required to be performed
by them to date and are not in default in any material respect and KHG is not
aware of any default by a third party under a Material Contract. Schedule 3.12
identifies all Material Contracts which require the consent or approval of third
parties to the execution and delivery of this Agreement or to the consummation
of the transactions contemplated herein.
Section 3.13 Litigation and Governmental Directives. Except as
disclosed in Schedule 3.13, (i) there is no litigation, investigation or
proceeding pending, or to the knowledge of KHG or the KHG Subsidiaries
threatened, that involves KHG or the KHG Subsidiaries or any of their properties
and that, if determined adversely, would materially and adversely affect the
condition (financial or otherwise), assets, liabilities, business, operations or
future prospects of KHG or the KHG Subsidiaries; (ii) there are no outstanding
orders, writs, injunctions, judgments, decrees, regulations, directives,
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consent agreements or memoranda of understanding issued by any federal, state or
local court or governmental authority or arbitration tribunal issued against or
with the consent of KHG or the KHG Subsidiaries that materially and adversely
affect the condition (financial or otherwise), assets, liabilities, business,
operations or future prospects of KHG or the KHG Subsidiaries or that in any
manner restrict the right of KHG or the KHG Subsidiaries to carry on their
businesses as presently conducted taken as a whole; and (iii) neither KHG nor
the KHG Subsidiaries are aware of any fact or condition presently existing that
might give rise to any litigation, investigation or proceeding which, if
determined adversely to either KHG or the KHG Subsidiaries, would materially and
adversely affect the consolidated condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of KHG or the KHG
Subsidiaries or would restrict in any manner the right of KHG or the KHG
Subsidiaries to carry on their businesses as presently conducted taken as a
whole. All litigation (except for bankruptcy proceedings in which KHG or the KHG
Subsidiaries have filed proofs of claim) in which KHG or the KHG Subsidiaries
are involved as a plaintiff (other than routine collection and foreclosure suits
initiated in the Ordinary Course of Business) in which the amount sought to be
recovered is less than $50,000 is identified in Schedule 3.13.
Section 3.14 Compliance with Laws; Governmental Authorizations. Except
as disclosed in Schedule 3.14 or where noncompliance would not have a material
and adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of KHG or the KHG
Subsidiaries: (i) KHG and the KHG Subsidiaries are in compliance with all
statutes, laws, ordinances, rules, regulations, judgments, orders, decrees,
directives, consent agreements, memoranda of understanding, permits,
concessions, grants, franchises, licenses, and other governmental authorizations
or approvals applicable to KHG or the KHG Subsidiaries or to any of their
properties; and (ii) all material permits, concessions, grants, franchises,
licenses and other governmental authorizations and approvals necessary for the
conduct of the business of KHG or the KHG Subsidiaries as presently conducted
have been duly obtained and are in full force and effect, and there are no
proceedings pending or threatened which may result in the revocation,
cancellation, suspension or materially adverse modification of any thereof.
Section 3.15 Insurance. All policies of insurance relating to KHG's and
the KHG Subsidiaries' operations (except for title insurance policies),
including without limitation all financial institutions bonds, held by or on
behalf of KHG or the KHG Subsidiaries are listed in Schedule 3.15. All such
policies of insurance are in full force and effect, and no notices of
cancellation have been received in connection therewith.
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Section 3.16 Financial Institutions Bonds. Since January 1, 1993, LVNB
has continuously maintained in full force and effect one or more financial
institutions bonds listed in Schedule 3.16 insuring LVNB against acts of
dishonesty by each of its employees. No claim has been made under any such bond
and LVNB is not aware of any fact or condition presently existing which might
form the basis of a claim under any such bond. LVNB has received no notice that
its present financial institutions bond or bonds will not be renewed by its
carrier on substantially the same terms as those now in effect.
Section 3.17 Labor Relations and Employment Agreements. Neither KHG nor
any of the KHG Subsidiaries are a party to or bound by any collective bargaining
agreement. KHG and the KHG Subsidiaries enjoy good working relationships with
their employees, and there are no labor disputes pending, or to the knowledge of
KHG or the KHG Subsidiaries threatened, that might materially and adversely
affect the condition (financial or otherwise), assets, liabilities, business or
operations of KHG or LVNB. Except as disclosed in Schedule 3.17, neither KHG nor
any of the KHG Subsidiaries have any employment contract, severance agreement,
deferred compensation agreement, consulting agreement or similar obligation (an
"Employment Obligation") with any director, officer, employee, agent or
consultant. Except as disclosed in Schedule 3.17, as of the Effective Date (as
defined in Section 9.2 herein), neither KHG nor any of the KHG Subsidiaries will
have any liability for employee termination rights arising out of any Employment
Obligation.
Section 3.18 Employee Benefit Plans. All employee benefit plans,
contracts or arrangements to which KHG or any of the KHG Subsidiaries are a
party or by which KHG or any of the KHG Subsidiaries are bound, including
without limitation all pension, retirement, deferred compensation, incentive,
bonus, profit sharing, stock purchase, stock option, life insurance, death or
survivor's benefit, health insurance, sickness, disability, medical, surgical,
hospital, severance, layoff or vacation plans, contracts or arrangements, are
identified in Schedule 3.18. The Lebanon Valley National Bank Pension Plan and
the Lebanon Valley National Bank Retirement Savings Plan (the "KHG Pension
Plans") are exempt from tax under Sections 401 and 501 of the Code, has been
maintained and operated in material compliance with all applicable provisions of
the Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). No "prohibited transaction" (as such term is defined in the Code or
in ERISA) has occurred in respect of the KHG Pension Plans or any other employee
benefit plan, (all "employee benefit pension plans" and all "employee welfare
benefit plans", as those terms are defined in ERISA, of KHG or any of the KHG
Subsidiaries being collectively referred to herein as "KHG Benefit Plans" and
individually as a "KHG Benefit Plan"), to which KHG or any of the KHG
Subsidiaries are a party or by which
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KHG or any of the KHG Subsidiaries are bound. There have been no material
breaches of fiduciary duty by any fiduciary under or with respect to the KHG
Pension Plans or any other KHG Benefit Plan, and no claim is pending or
threatened with respect to any KHG Benefit Plan other than claims for benefits
made in the Ordinary Course of Business. Neither KHG nor any of the KHG
Subsidiaries have incurred any material liability for any tax imposed by Section
4975 of the Code or for any material penalty imposed by the Code or by ERISA
with respect to the KHG Pension Plans or any other KHG Benefit Plan. There has
not been any audit of any KHG Benefit Plan by the Department of Labor, the IRS
or the PBGC since 1990.
Section 3.19 Related Party Transactions. Except as disclosed in
Schedule 3.19, neither KHG nor any of the KHG Subsidiaries have any contract,
extension of credit, business arrangement or other relationship of any kind with
any of the following persons: (i) any executive officer or director (including
any person who has served in such capacity since January 1, 1995) of KHG or any
of the KHG Subsidiaries; (ii) any stockholder owning five percent (5%) or more
of the outstanding KHG Common Stock; and (iii) any "associate" (as defined in
Rule 405 under the 1933 Act) of the foregoing persons or any business in which
any of the foregoing persons is an officer, director, employee or five percent
(5%) or greater equity owner. Each such contract or extension of credit
disclosed in Schedule 3.19, except as otherwise specifically described therein,
has been made in the Ordinary Course of Business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable arms' length transactions with other persons that do not involve
more than a normal risk of collectability or present other unfavorable features.
Section 3.20 No Finder. Except as disclosed in Schedule 3.20, neither
KHG nor any of the KHG Subsidiaries have paid or become obligated to pay any fee
or commission of any kind whatsoever to any broker, finder, advisor or other
intermediary for, on account of or in connection with the transactions
contemplated in this Agreement.
Section 3.21 Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to KHG, the KHG Subsidiaries, KHG Common Stock, KHG
Subsidiaries Common Stock, and the involvement of KHG and the KHG Subsidiaries
in the transactions contemplated hereby) nor any financial statement, schedule
(including without limitation its Schedules to this Agreement), certificate, or
other statement or document delivered by KHG or the KHG Subsidiaries to FFC in
connection herewith contains any statement which, at the time and in light of
the circumstances under which it is made, is false or misleading with respect to
any
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material fact or omits to state any material fact necessary to make the
statements contained herein or therein not false or misleading.
Section 3.22 Environmental Matters. Except as disclosed in Schedule
3.22, neither KHG nor any of the KHG Subsidiaries have any knowledge that any
environmental contaminant, pollutant, toxic or hazardous waste or other similar
substance has been generated, used, stored, processed, disposed of or discharged
onto any of the real estate now or previously owned or acquired (including
without limitation any real estate acquired by means of foreclosure or exercise
of any other creditor's right) or leased by KHG or any of the KHG Subsidiaries.
In particular, without limiting the generality of the foregoing sentence, except
as disclosed in Schedule 3.22, neither KHG nor any of the KHG Subsidiaries have
any knowledge that: (i) any materials containing asbestos have been used or
incorporated in any building or other structure or improvement located on any of
the real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of any
other creditor's right) or leased by KHG or any of the KHG Subsidiaries; (ii)
any electrical transformers, fluorescent light fixtures with ballasts or other
equipment containing PCB's are or have been located on any of the real estate
now or previously owned or acquired (including without limitation any real
estate acquired by means of foreclosure or exercise of any other creditor's
right) or leased by KHG or any of the KHG Subsidiaries; or (iii) any underground
storage tanks for the storage of gasoline, petroleum products or other toxic or
hazardous wastes or similar substances are or have ever been located on any of
the real estate now or previously owned or acquired (including without
limitation any real estate acquired by means of foreclosure or exercise of any
other creditor's right) or leased by KHG or any of the KHG Subsidiaries.
Section 3.23 Proxy Statement/Prospectus. At the time the Proxy
Statement/Prospectus (as defined in Section 6.1(b) herein) is mailed to the
stockholders of KHG and at all times subsequent to such mailing, up to and
including the Effective Date, the Proxy Statement/Prospectus (including any pre-
and post-effective amendments and supplements thereto), with respect to all
information relating to KHG, the KHG Subsidiaries, KHG Common Stock, the KHG
Subsidiaries Common Stock and all actions taken and statements made by KHG and
the KHG Subsidiaries in connection with the transactions contemplated herein
(except for information provided by FFC to KHG or the KHG Subsidiaries) will:
(i) comply in all material respects with applicable provisions of the 1933 Act,
and the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
applicable rules and regulations of the SEC thereunder; and (ii) not contain any
statement which, at the time and in light of the circumstances under which it is
made, is false or misleading
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with respect to any material fact, or omits to state any material fact that is
required to be stated therein or necessary in order (A) to make the statements
therein not false or misleading, or (B) to correct any statement in an earlier
communication with respect to the Proxy Statement/Prospectus which has become
false or misleading.
Section 3.24 SEC Filings. No registration statement, offering circular,
proxy statement, schedule or report filed and not withdrawn by KHG with the SEC
under the 1933 Act or the 1934 Act, on the date of effectiveness (in the case of
any registration statement or offering circular) or on the date of filing (in
the case of any report or schedule) or on the date of mailing (in the case of
any proxy statement), contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading.
Section 3.25 Reports. KHG and LVNB have filed all material reports,
registrations and statements that are required to be filed with the Federal
Reserve Board (the "FRB"), the Federal Deposit Insurance Corporation (the
"FDIC"), the Office of the Comptroller of the Currency (the "OCC") and any other
applicable federal, state or local governmental or regulatory authorities and
such reports, registrations and statements referred to in this Section 3.25
were, as of their respective dates, in compliance in all material respects with
all of the statutes, rules and regulations enforced or promulgated by the
governmental or regulatory authority with which they were filed; provided,
however, that the failure to file any such report, registration, or statement or
the failure of any report, registration or statement to comply with the
applicable regulatory standard shall not be deemed to be a breach of the
foregoing representation unless such failure has or may have a material adverse
impact on KHG and the KHG Subsidiaries on a consolidated basis. KHG has
furnished FFC with, or made available to FFC, copies of all such filings made in
the last three fiscal years and in the period from January 1, 1997 through the
date of this Agreement. KHG is required to file reports with the SEC pursuant to
Section 12 of the 1934 Act, and has made all appropriate filings under the 1934
Act and the rules and regulations promulgated thereunder. The KHG Common Stock
is traded on the American Stock Exchange under the symbol "KHG."
Section 3.26 Loan Portfolio of the LVNB.
(a) Attached hereto as Schedule 3.26 is a list of (w) all
outstanding commercial relationships, i.e. commercial loans, commercial loan
commitments and commercial letters of credit, of LVNB (x) all loans of LVNB
classified by LVNB or any regulatory authority as "Monitor," "Substandard,"
"Doubtful" or "Loss," (y) all
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commercial and mortgage loans of LVNB classified as "non-accrual," and (z) all
commercial loans of LVNB classified as "in substance foreclosed."
(b) LVNB has adequately reserved for or charged off loans in
accordance with applicable regulatory requirements and LVNB's reserve for loan
losses is adequate in all material respects.
Section 3.27 Investment Portfolio. Attached hereto as Schedule 3.27 is
a list of all securities held by KHG and LVNB for investment, showing the
principal amount, book value and market value of each security as of a recent
date, and of all short-term investments held by it as of June 30, 1997. These
securities are free and clear of all liens, pledges and encumbrances, except as
shown on Schedule 3.27.
Section 3.28 Regulatory Examinations.
(a) Except for normal examinations conducted by a regulatory
agency in the regular course of the business of KHG or any of the KHG
Subsidiaries, no regulatory agency has initiated any proceeding or investigation
into the business or operations of KHG or any of the KHG Subsidiaries. Neither
KHG nor any of the KHG Subsidiaries have received any objection from any
regulatory agency to KHG's or the KHG Subsidiaries' response to any violation,
criticism or exception with respect to any report or statement relating to any
examinations of KHG and the KHG Subsidiaries which would have a materially
adverse effect on KHG and any of the KHG Subsidiaries on a consolidated basis.
(b) Neither KHG nor any of the KHG Subsidiaries are required
to divest any assets currently held by it or discontinue any activity currently
conducted as a result of the Federal Deposit Insurance Corporation Improvement
Act of 1991, any regulations promulgated thereunder, or otherwise which would
have a materially adverse effect on KHG and any of the KHG Subsidiaries on a
consolidated basis.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FFC
FFC represents and warrants to KHG, as of the date of this Agreement
and as of the date of the Closing, as follows:
Section 4.1 Authority. The execution and delivery of this Agreement and
the consummation of the transactions contemplated herein have been authorized by
the
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Board of Directors of FFC, and no other corporate action on the part of FFC is
necessary to authorize this Agreement or the consummation by FFC of the
transactions contemplated herein. This Agreement has been duly executed and
delivered by FFC and, assuming due authorization, execution and delivery by KHG,
constitutes a valid and binding obligation of FFC. The execution, delivery and
consummation of this Agreement will not constitute a violation or breach of or
default under the Articles of Incorporation or Bylaws of FFC or any statute,
rule, regulation, order, decree, directive, agreement, indenture or other
instrument to which FFC is a party or by which FFC or any of its properties are
bound.
Section 4.2 Organization and Standing. FFC is a business corporation
that is duly organized, validly existing and in good standing under the laws of
the Commonwealth of Pennsylvania. FFC is a registered bank holding company under
the BHC Act and has full power and lawful authority to own and hold its
properties and to carry on its present business.
Section 4.3 Capitalization. The authorized capital of FFC consists
exclusively of 200,000,000 shares of FFC Common Stock and 10,000,000 shares of
preferred stock without par value (the "FFC Preferred Stock"). There was
39,627,648 shares of FFC Common Stock validly issued, outstanding, fully paid
and non-assessable and no shares are held as treasury shares. No shares of FFC
Preferred Stock have been issued as of the date of this Agreement, and FFC has
no present intention to issue any shares of FFC Preferred Stock. As of the date
of this Agreement, there are no outstanding obligations, options or rights of
any kind entitling other persons to acquire shares of FFC Common Stock or shares
of FFC Preferred Stock and there are no outstanding securities or other
instruments of any kind convertible into shares of FFC Common Stock or into
shares of FFC Preferred Stock, except as follows: (i) 888,506 shares of FFC
Common Stock were issuable upon the exercise of outstanding stock options
granted under the FFC Incentive Stock Option Plan and the FFC Employee Stock
Purchase Plan and (ii) there were outstanding 39,627,648 Rights representing the
right under certain circumstances to purchase shares of FFC Common Stock
pursuant to the terms of a Shareholder Rights Agreement, dated June 20, 1989,
entered into between FFC and Fulton Bank and (iii) shares of FFC Common Stock
reserved from time to time for issuance pursuant to FFC's Employee Stock
Purchase and Dividend Reinvestment Plans.
Section 4.4 Articles of Incorporation and Bylaws. The copies of the
Articles of Incorporation, as amended, and of the Bylaws, as amended, of FFC
that have been delivered to KHG are true, correct and complete.
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Section 4.5 Subsidiaries. Schedule 4.5 contains a list of all
subsidiaries ("Subsidiaries") which FFC owns, directly or indirectly. Except as
otherwise disclosed on Schedule 4.5: (i) FFC owns, directly or indirectly, all
of the outstanding shares of capital stock of each Subsidiary, and (ii) as of
the date of this Agreement: (A) there are no outstanding obligations, options or
rights of any kind entitling persons (other than FFC or any Subsidiary) to
acquire shares of capital stock of any Subsidiary, and (B) there are no
outstanding securities or other instruments of any kind held by persons (other
than FFC or any Subsidiary) that are convertible into shares of capital stock of
any Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction pursuant to which it is
incorporated. Each Subsidiary has full power and lawful authority to own and
hold its properties and to carry on its business as presently conducted. Each
Subsidiary which is a banking institution is an insured bank under the
provisions of the FDI Act.
Section 4.6 Financial Statements. FFC has delivered to KHG the
following financial statements: Consolidated Balance Sheets, Consolidated
Statements of Income, Consolidated Statements of Shareholders' Equity, and
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994, certified by Arthur Andersen LLP and set forth in the Annual
Report to the shareholders of FFC for the year ended December 31, 1996 and
Consolidated Balance Sheets as of June 30, 1997, Consolidated Statements of
Income for the three-month and six-month periods ended June 30, 1997, and
Consolidated Statements of Cash Flows for the six months ended June 30, 1997 and
1996, as filed with the SEC in a Quarterly Report on Form 10-Q (the Consolidated
Balance Sheet as of June 30, 1997 being hereinafter referred to as the "FFC
Balance Sheet"). Each of the foregoing financial statements fairly presents the
consolidated financial position, assets, liabilities and results of operations
of FFC at their respective dates and for the respective periods then ended and
has been prepared in accordance with generally accepted accounting principles
consistently applied, except as otherwise noted in a footnote thereto.
Section 4.7 Absence of Undisclosed Liabilities. Except as disclosed in
Schedule 4.7 or as reflected, noted or adequately reserved against in the FFC
Balance Sheet, at June 30, 1997 FFC had no material liabilities (whether
accrued, absolute, contingent or otherwise) which are required to be reflected,
noted or reserved against therein under generally accepted accounting principles
or which are in any case or in the aggregate material. Except as described in
Schedule 4.7, since June 30, 1997 FFC has not incurred any such liability other
than liabilities of the same nature as those set forth in the FFC Balance Sheet,
all of which have been reasonably incurred in the ordinary course of business.
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Section 4.8 Absence of Changes. Since June 30, 1997 there has not been
any material and adverse change in the condition (financial or otherwise),
assets, liabilities, business, operations or future prospects of FFC.
Section 4.9 Litigation and Governmental Directives. Except as disclosed
in Schedule 4.9: (i) there is no litigation, investigation or proceeding
pending, or to the knowledge of FFC threatened, that involves FFC or its
properties and that, if determined adversely to FFC, would materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of FFC; (ii) there are no outstanding
orders, writs, injunctions, judgments, decrees, regulations, directives, consent
agreements or memoranda of understanding issued by any federal, state or local
court or governmental authority or of any arbitration tribunal against FFC which
materially and adversely affect the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of FFC or restrict in any
manner the right of FFC to carry on its business as presently conducted; and
(iii) FFC is not aware of any fact or condition presently existing that might
give rise to any litigation, investigation or proceeding which, if determined
adversely to FFC, would materially and adversely affect the condition (financial
or otherwise), assets, liabilities, business, operations or future prospects of
FFC or restrict in any manner the right of FFC to carry on its business as
presently conducted.
Section 4.10 Compliance with Laws; Governmental Authorizations. Except
as disclosed in Schedule 4.10 or where noncompliance would not have a material
and adverse effect upon the condition (financial or otherwise), assets,
liabilities, business, operations or future prospects of FFC: (i) FFC and each
of its Subsidiaries are in compliance with all statutes, laws, ordinances,
rules, regulations, judgments, orders, decrees, directives, consent agreements,
memoranda of understanding, permits, concessions, grants, franchises, licenses,
and other governmental authorizations or approvals applicable to their
respective operations and properties; and (ii) all permits, concessions, grants,
franchises, licenses and other governmental authorizations and approvals
necessary for the conduct of the respective businesses of FFC and each of its
Subsidiaries as presently conducted have been duly obtained and are in full
force and effect, and there are not proceedings pending or threatened which may
result in the revocation, cancellation, suspension or materially adverse
modification of any thereof.
Section 4.11 Complete and Accurate Disclosure. Neither this Agreement
(insofar as it relates to FFC, FFC Common Stock, and the involvement of FFC in
the transactions contemplated hereby) nor any financial statement, schedule
(including, without limitation, its Schedules to this Agreement), certificate or
other statement or
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document delivered by FFC to KHG in connection herewith contains any statement
which, at the time and under the circumstances under which it is made, is false
or misleading with respect to any material fact or omits to state any material
fact necessary to make the statements contained herein or therein not false or
misleading. In particular, without limiting the generality of the foregoing
sentence, the information provided and the representations made by FFC to KHG in
connection with the Registration Statement (as defined in Section 6.1(b)), both
at the time such information and representations are provided and made and at
the time of the Closing, will be true and accurate in all material respects and
will not contain any false or misleading statement with respect to any material
fact or omit to state any material fact required to be stated therein or
necessary in order (i) to make the statements made not false or misleading, or
(ii) to correct any statement contained in an earlier communication with respect
to such information or representations which has become false or misleading.
Section 4.12 Labor Relations. Neither FFC nor any of its Subsidiaries
is a party to or bound by any collective bargaining agreement. FFC and each of
its Subsidiaries enjoy good working relationships with their employees, and
there are no labor disputes pending, or to the knowledge of FFC or any
Subsidiary threatened, that might materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business or operations of FFC.
Section 4.13 Employee Benefits Plans. FFC's contributory profit-sharing
plan, defined benefits pension plan and 401(k) plan (hereinafter collectively
referred to as the "FFC Pension Plans") are exempt from tax under Sections 401
and 501 of the Code, have been maintained and operated in compliance with all
applicable provisions of the Code and ERISA, are not subject to any accumulated
funding deficiency within the meaning of ERISA and the regulations promulgated
thereunder, and do not have any outstanding liability to the PBGC. No
"prohibited transaction" or "reportable event" (as such terms are defined in the
Code or ERISA) has occurred with respect to the FFC Pension Plans or any other
employee benefit plan to which FFC or any of its subsidiaries are a party or by
which FFC or any of its subsidiaries are bound (each hereinafter called an "FFC
Benefit Plan"). There have been no breaches of fiduciary duty by any fiduciary
under or with respect to the FFC Pension Plans or any other FFC Benefit Plan,
and no claim is pending or threatened with respect to any FCC Benefit Plan other
than claims for benefits made in the Ordinary Course of Business. Neither FCC or
any of its subsidiaries have incurred any liability for any tax imposed by
Section 4975 of the Code or for any penalty imposed by the Code or by ERISA with
respect to the FFC Pension Plans or any other FFC Benefit Plan. There has not
been
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any audit of any FCC Benefit Plan by the Department of Labor, the IRS or the
PBGC since 1990.
Section 4.14 Environmental Matters. Except as disclosed in Schedule
4.14 or as reflected, noted or adequately reserved against in the FFC Balance
Sheet, FFC has no knowledge of any material liability relating to any
environmental contaminant, pollutant, toxic or hazardous waste or other similar
substance that has been used, generated, stored, processed, disposed of or
discharged onto any of the real estate now or previously owned or acquired
(including without limitation real estate acquired by means of foreclosure or
other exercise of any creditor's right) or leased by FFC and which is required
to be reflected, noted or adequately reserved against in FFC's consolidated
financial statements under generally accepted accounting principles.
Section 4.15 SEC Filings. No registration statement, offering circular,
proxy statement, schedule or report filed and not withdrawn by FFC with the SEC
under the 1933 Act or the 1934 Act, on the date of effectiveness (in the case of
any registration statement or offering circular) or on the date of filing (in
the case of any report or schedule) or on the date of mailing (in the case of
any proxy statement), contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
Section 4.16 Proxy Statement/Prospectus. At the time the Proxy
Statement/Prospectus (as defined in Section 6.1(b)) is mailed to the
stockholders of KHG and at all times subsequent to such mailing, up to and
including the Effective Date, the Proxy Statement/Prospectus (including any pre-
and post-effective amendments and supplements thereto), with respect to all
information relating to FFC, FFC Common Stock, and actions taken and statements
made by FFC in connection with the transactions contemplated herein (other than
information provided by KHG or LVNB to FFC), will: (i) comply in all material
respects with applicable provisions of the 1933 Act and 1934 Act and the
pertinent rules and regulations thereunder; and (ii) not contain any statement
which, at the time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact that is required to be stated therein or necessary in order (A) to
make the statements therein not false or misleading, or (B) to correct any
statement in an earlier communication with respect to the Proxy
Statement/Prospectus which has become false or misleading.
Section 4.17 Accounting Treatment. To the best of FFC's knowledge after
reasonable investigation and consultation with its advisors, and subject to any
factors
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beyond FFC's control, the Merger will qualify for treatment as a
"pooling-of-interests" for accounting purposes.
Section 4.18 Regulatory Approvals. FFC is not aware of any reason why
any of the required regulatory approvals to be obtained in connection with the
Merger should not be granted by such regulatory authorities or why such
regulatory approvals should be conditioned on any requirement which would be a
significant impediment to FFC's ability to carry on its business.
Section 4.19 No Finder. FFC has not paid or become obligated to pay any
fee or commission of any kind whatsoever to any broker, finder, advisor or other
intermediary for, on account of, or in connection with the transactions
contemplated in this Agreement.
Section 4.20 Taxes. FFC has filed, or has received extension for
filing, all federal, state, county, municipal and foreign tax returns, reports
and declarations which are required to be filed by it as of June 30, 1997. To
the best of FFC's knowledge, (i) FFC has paid all taxes, penalties and interest
which have become due pursuant thereto or which became due pursuant to federal,
state, county, municipal or foreign tax laws applicable to the periods covered
by the foregoing tax returns, and (ii) FFC has not received any notice of
deficiency or assessment of additional taxes. To the best of FFC's knowledge,
the accruals and reserves reflected in the FFC Balance Sheet are adequate to
cover all material taxes (including interest and penalties, if any, thereon)
that are payable or accrued as a result of FFC's consolidated operations for all
periods prior to the date of such Balance Sheet.
Section 4.21 Title to and Condition of Assets. FFC has good and
marketable title to all consolidated real and personal properties and assets
reflected in the FFC Balance Sheet or acquired subsequent to June 30, 1997
(other than property and assets disposed of in the Ordinary Course of Business),
free and clear of all liens or encumbrances of any kind whatsoever; provided,
however, that the representations and warranties contained in this sentence to
not cover liens or encumbrances that: (i) are reflected in the FFC Balance
Sheet; (ii) represent liens of current taxes not yet due or which, if due, may
be paid without penalty, or which are being contested in good faith by
appropriate proceedings; and (iii) represent such imperfections of title, liens,
encumbrances, zoning requirements and easements, if any, as are not substantial
in character, amount or extent and do not materially detract from the value, or
interfere with the present or proposed use, of the properties and assets subject
thereto.
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Section 4.22 Contracts. To the best of FFC's knowledge, all FFC
Material Contracts are enforceable against FFC, and FFC has in all material
respects performed all obligations required to be performed by it to date and is
not in default in any material respect. "FFC Material Contracts" shall be
defined as each written or oral contract entered into by FFC (other than
contracts with customers reasonably entered into by FFC in the Ordinary Course
of Business) which involves aggregate payments or receipts in excess of $100,000
per year, including without limitation every employment contract, employee
benefit plan, agreement, lease, license, indenture, mortgage and other
commitment to which either FFC or FFC Subsidiaries are a party or by which FFC
or any of the FFC Subsidiaries or any of their properties may be bound.
Section 4.23 Insurance. To the best of FFC's knowledge, all policies of
insurance covering operations of FFC which are, in the aggregate, material
(except for title insurance policies), including without limitation all
financial institutions bonds, held by or on behalf of FFC are in full force and
effect, and no notices of cancellation have been received in connection
therewith.
ARTICLE V
COVENANTS OF KHG
From the date of this Agreement until the Effective Date, KHG covenants
and agrees to do, and shall cause LVNB to do, the following:
Section 5.1 Conduct of Business. Except as otherwise consented to by FFC in
writing which consent will not be unreasonably withheld or delayed, KHG and the
KHG Subsidiaries shall: (i) use all reasonable efforts to carry on their
respective businesses in, and only in, the Ordinary Course of Business; (ii) to
the extent consistent with prudent business judgment, use all reasonable efforts
to preserve their present business organizations, to retain the services of
their present officers and employees, and to maintain their relationships with
customers, suppliers and others having business dealings with KHG or any of the
KHG Subsidiaries; (iii) maintain all of their structures, equipment and other
real property and tangible personal property in good repair, order and
condition, except for ordinary wear and tear and damage by unavoidable casualty;
(iv) to the extent consistent with prudent business judgment, use all reasonable
efforts to preserve or collect all material claims and causes of action
belonging to KHG or any of the KHG Subsidiaries; (v) to the extent consistent
with prudent business judgment, keep in full force and effect all insurance
policies now carried by KHG or any of the KHG Subsidiaries; (vi) to the extent
consistent with prudent business judgment, perform in all material respects each
of their obligations
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under all Material Contracts (as defined in Section 3.12 herein) to which KHG or
any of the KHG Subsidiaries are a party or by which any of them may be bound or
which relate to or affect their properties, assets and business; (vii) maintain
their books of account and other records in the Ordinary Course of Business;
(viii) comply in all material respects with all statutes, laws, ordinances,
rules and regulations, decrees, orders, consent agreements, memoranda of
understanding and other federal, state, and local governmental directives
applicable to KHG or any of the KHG Subsidiaries and to the conduct of their
businesses; (ix) not amend KHG's or any of the KHG Subsidiaries' Charter or
Bylaws; (x) not enter into or assume any Material Contract, incur any material
liability or obligation, or make any material commitment, except in the Ordinary
Course of Business; (xi) not make any material acquisition or disposition of any
properties or assets or subject any of their properties or assets to any
material lien, claim, charge, or encumbrance of any kind whatsoever; (xii) not
knowingly take or permit to be taken any action which would constitute a breach
of any representation, warranty or covenant set forth in this Agreement; (xiii)
except as permitted in Section 5.11 herein, not declare, set aside or pay any
dividend or make any other distribution in respect of KHG Common Stock; (xiv)
not authorize, purchase, redeem, issue (except upon the exercise of outstanding
options under the KHG Stock Option Plans) or sell (or grant options or rights to
purchase or sell) any shares of KHG Common Stock or any other equity or debt
securities of KHG except to the extent necessary to follow participants'
investment directions under the KHG Pension Plans; (xv) not increase the rate of
compensation of, pay a bonus or severance compensation to, establish or amend
any KHG Benefit Plan, except as required by law (as defined in Section 3.18
herein) for, or enter into or amend any Employment Obligation (as defined in
Section 3.17 herein) with, any officer, director, employee or consultant of KHG
or any of the KHG Subsidiaries, except that KHG and the KHG Subsidiaries may
grant reasonable salary increases and bonuses to their officers and employees in
the Ordinary Course of Business to the extent consistent with their past
practice and may enter into the Employment Agreements permitted by Section 5.12
herein; (xvi) not enter into any related party transaction of the kind
contemplated in Section 3.19 herein except in the Ordinary Course of Business
consistent with past practice (as disclosed on Schedule 3.19); (xvii) in
determining the additions to loan loss reserves and the loan write-offs,
writedowns and other adjustments that reasonably should be made by LVNB during
the fiscal year ending December 31, 1997, KHG and the KHG Subsidiaries shall
consult with FFC and shall act in accordance with generally accepted accounting
principles and KHG's and the KHG Subsidiaries' customary business practices;
(xviii) file with appropriate federal, state, local and other governmental
agencies all tax returns and other material reports required to be filed, pay in
full or make adequate provisions for the payment of all taxes, interest,
penalties, assessments or deficiencies shown to be due on tax returns or by any
taxing
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authorities and report all information on such returns truthfully, accurately
and completely; (xix) not renew any existing contract for services, goods,
equipment or the like or enter into, amend in any material respect or terminate
any contract or agreement (including without limitation any settlement agreement
with respect to litigation) that is or may reasonably be expected to have a
material adverse effect on KHG and the KHG Subsidiaries except in the Ordinary
Course of Business consistent with past practice (provided that FFC shall not
unreasonably withhold or delay its consent to such transactions); (xx) not make
any capital expenditures other than in the Ordinary Course of Business or as
necessary to maintain existing assets in good repair; (xxi) not make application
for the opening or closing of any, or open or close any, branches or automated
banking facility, except for one automated banking facility to be installed in
Myerstown, Pennsylvania; (xxii) not make any equity investment or commitment to
make such an investment in real estate or in any real estate development
project, other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructuring in the Ordinary Course of
Business consistent with customary banking practice; or (xxiii) not take any
other action similar to the foregoing which would have the effect of frustrating
the purposes of this Agreement or the Merger or cause the Merger not to qualify
for pooling-of-interests accounting treatment (if applicable) or as a tax-free
reorganization under Section 368 of the Code.
Section 5.2 Best Efforts. KHG and the KHG Subsidiaries shall cooperate
with FFC and shall use their best efforts to do or cause to be done all things
necessary or appropriate on its part in order to fulfill the conditions
precedent set forth in Article VII of this Agreement and to consummate the
transactions contemplated by this Agreement, including the Merger and
Restructuring. In particular, without limiting the generality of the foregoing
sentence, KHG and the KHG Subsidiaries shall: (i) cooperate with FFC in the
preparation of all required applications for regulatory approval of the
transactions contemplated by this Agreement and in the preparation of the
Registration Statement (as defined in Section 6.1(b)); (ii) call a meeting of
its stockholders and take, in good faith, all actions which are necessary or
appropriate on its part in order to secure the approval of this Agreement by its
stockholders at that meeting; and (iii) cooperate with FFC in making KHG's and
the KHG Subsidiaries' employees reasonably available for training by FFC at the
KHG Subsidiaries' facilities prior to the Effective Date, to the extent that
such training is deemed reasonably necessary by FFC to ensure that the KHG
Subsidiaries' facilities will be properly operated in accordance with FFC's
policies after the Merger.
Section 5.3 Access to Properties and Records. KHG and the KHG
Subsidiaries shall give to FFC and its authorized employees and representatives
(including without
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limitation its counsel, accountants, economic and environmental consultants and
other designated representatives) such access during normal business hours to
all properties, books, contracts, documents and records of KHG and the KHG
Subsidiaries as FFC may reasonably request, subject to the obligation of FFC and
its authorized employees and representatives to maintain the confidentiality of
all nonpublic information concerning KHG and the KHG Subsidiaries obtained by
reason of such access and subject to applicable law.
Section 5.4 Subsequent Financial Statements. Between the date of
signing of this Agreement and the Effective Date, KHG and the KHG Subsidiaries
shall promptly prepare and deliver to FFC as soon as practicable all internal
monthly and quarterly financial statements, all quarterly and annual reports to
stockholders and all reports to regulatory authorities prepared by or for either
KHG or any of the KHG Subsidiaries (which additional financial statements and
reports are hereinafter collectively referred to as the "Additional KHG
Financial Statements"). The representations and warranties set forth in Sections
3.6, 3.7 and 3.8 shall apply to the Additional KHG Financial Statements.
Section 5.5 Update Schedules. KHG or any of the KHG Subsidiaries shall
promptly disclose to FFC in writing any material change, addition, deletion or
other modification to the information set forth in its Schedules hereto.
Section 5.6 Notice. KHG or any of the KHG Subsidiaries shall promptly
notify FFC in writing of any actions, claims, investigations, proceedings or
other developments which, if pending or in existence on the date of this
Agreement, would have been required to be disclosed to FFC in order to ensure
the accuracy of the representations and warranties set forth in this Agreement
or which otherwise could materially and adversely affect the condition
(financial or otherwise), assets, liabilities, business operations or future
prospects of KHG or any of the KHG Subsidiaries or restrict in any manner their
ability to carry on their respective businesses as presently conducted.
Section 5.7 Other Proposals. KHG or any of the KHG Subsidiaries shall
not, nor shall they permit any of their officers, directors, employees, agents,
consultants or other representatives to: (i) solicit, initiate or encourage any
proposal for a merger or other acquisition of KHG or any of the KHG
Subsidiaries, or any material portion of their properties or assets, with or by
any person other than FFC, or (ii) cooperate with, or furnish any nonpublic
information concerning KHG or any of the KHG Subsidiaries to, any person in
connection with such a proposal (an "Acquisition Proposal"); provided, however,
that the obligations of KHG or any of the KHG Subsidiaries and
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their directors and other representatives under this Section 5.7 are subject to
the limitation that the Board of Directors shall be free to take such action as
the Board of Directors determines, in good faith, and after consultation with
outside counsel, it is not legally inconsistent with its fiduciary duty. KHG
will notify FFC immediately if any discussions or negotiations are sought to be
initiated, any inquiry or proposal is made, or any such information is
requested, with respect to an Acquisition Proposal or potential Acquisition
Proposal or if any Acquisition Proposal is received or indicated to be
forthcoming.
Section 5.8 Affiliate Letters. KHG shall deliver or cause to be
delivered to FFC, at or before the Closing, a letter from each of the officers
and directors of KHG (and shall use its best efforts to obtain and deliver such
a letter from each stockholder of KHG) who may be deemed to be an "affiliate"
(as that term is defined for purposes of Rules 145 and 405 promulgated by the
SEC under the 1933 Act) of KHG, in form and substance satisfactory to FFC, under
the terms of which each such officer, director or stockholder acknowledges and
agrees to abide by all limitations imposed by the 1933 Act and by all rules,
regulations and releases promulgated thereunder by the SEC with respect to the
sale or other disposition of the shares of FFC Common Stock to be received by
such person pursuant to this Agreement.
Section 5.9 No Purchases or Sales of FFC Common Stock During Price
Determination Period. KHG and the KHG Subsidiaries shall not, and shall use
their best efforts to ensure that their executive officers and directors do not,
and shall use their best efforts to ensure that each stockholder of KHG who may
be deemed an "affiliate" (as defined in SEC Rules 145 and 405) of KHG does not,
purchase or sell on NASDAQ, or submit a bid to purchase or an offer to sell on
NASDAQ, directly or indirectly, any shares of FFC Common Stock or any options,
rights or other securities convertible into shares of FFC Common Stock during
the Price Determination Period.
Section 5.10 Accounting Treatment. KHG acknowledges that FFC presently
intends to treat the business combination contemplated by this Agreement as a
"pooling-of-interests" for financial reporting purposes. KHG shall not take (and
shall use its best efforts not to permit any of the directors, officers,
employees, stockholders, agents, consultants or other representatives of KHG or
any of the KHG Subsidiaries to take) any action that would preclude FFC from
treating such business combination as a "pooling-of-interests" for financial
reporting purposes; provided however, that KHG may purchase shares of KHG Common
Stock in the ordinary course of business during the Price Determination Period
pursuant to KHG's dividend reinvestment plan.
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Section 5.11 Dividends. KHG shall not declare or pay a cash dividend on
the KHG Common Stock; provided, however, that KHG may declare and pay a dividend
of up to $.25 per share of KHG Common Stock on (i) November 10, 1997, (ii)
February 10, 1998, provided that the Effective Date does not occur (or is not
expected to occur) on or before the record date for the dividend on the FFC
Common Stock scheduled to be paid on April 15, 1998; (iii) May 10, 1998,
provided that the record date for the dividend does not occur (or is not
expected to occur) on or before the record date for the dividend on the FFC
Common Stock scheduled to be paid on July 15, 1998; and (iv) August 10, 1998,
provided that the Effective Date does not occur (or is not expected to occur) on
or before the record date for the dividend on the FFC Common Stock scheduled to
be paid on October 15, 1998 (it being the intent of FFC and KHG that KHG be
permitted to pay a dividend on the KHG Common Stock on the dates indicated in
subsections (ii), (iii) and (iv) above only if the shareholders of KHG, upon
becoming shareholders of FFC, would not be entitled to receive a dividend on the
FFC Common Stock on the payment dates indicated in such subsections.
Section 5.12 Agreements with Senior Employees. On the date of this
Agreement, KHG and the KHG Subsidiaries shall cause the existing employment
agreements with Albert B. Murry and Kurt A. Phillips (the "KHG Senior
Employees") to be terminated and enter into Employment Agreements in the forms
attached hereto as Exhibit B (the "Employment Agreements") with the KHG Senior
Employees; provided, however, that neither the termination of such existing
employment agreements or the Employment Agreements shall become effective until
the Effective Date. Without prior written consent of FFC, KHG and the KHG
Subsidiaries shall not modify the terms of the Employment Agreements or any
other Employment Obligations (as defined in Section 3.17) related to the KHG
Senior Employees. Neither KHG or the KHG Subsidiaries shall create any new
Employment Obligation related to the KHG Senior Employees.
ARTICLE VI
COVENANTS OF FFC
From the date of this Agreement until the Effective Date, or until such
later date as may be expressly stipulated in any Section of this Article VI, FFC
covenants and agrees to do the following:
Section 6.1 Best Efforts. FFC shall cooperate with KHG and the KHG
Subsidiaries and shall use its best efforts to do or cause to be done all things
necessary or appropriate on its part in order to fulfill the conditions
precedent set forth in Article VII of this Agreement and to consummate the
transactions contemplated by
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this Agreement, including the Merger and Restructuring. In particular, without
limiting the generality of the foregoing sentence, FFC agrees to do the
following:
(a) Applications for Regulatory Approval: FFC shall promptly
prepare and file, with the cooperation and assistance of (and after review by)
KHG and its counsel and accountants, all required applications for regulatory
approval of the transactions contemplated by this Agreement, including without
limitation applications for approval under the BHC Act, the Pennsylvania Banking
Code of 1965, as amended, the National Bank Act, as amended, and the Federal
Deposit Insurance Act, as amended.
(b) Registration Statement: FFC shall promptly prepare, with
the cooperation and assistance of (and after review by) KHG and its counsel and
accountants, and file with the SEC a registration statement (the "Registration
Statement") for the purpose of registering the shares of FFC Common Stock to be
issued to stockholders of KHG under the provisions of this Agreement and a proxy
statement and prospectus which is prepared as a part thereof (the "Proxy
Statement/Prospectus") for the purpose of registering the shares of FFC's Common
Stock to be issued to the stockholders of KHG, and the soliciting of the proxies
of KHG's stockholders in favor of the Merger, under the provisions of this
Agreement. FFC may rely upon all information provided to it by KHG and LVNB in
this connection and FFC shall not be liable for any untrue statement of a
material fact or any omission to state a material fact in the Registration
Statement, or in the Proxy Statement/Prospectus, if such statement is made by
FFC in reliance upon any information provided to FFC by KHG or the KHG
Subsidiaries or by any of their officers, agents or representatives.
(c) State Securities Laws: FFC, with the cooperation and
assistance of KHG and its counsel and accountants, shall promptly take all such
actions as may be necessary or appropriate in order to comply with all
applicable securities laws of any state having jurisdiction over the
transactions contemplated by this Agreement.
(d) Stock Listing: FFC, with the cooperation and assistance of
KHG and its counsel and accountants, shall promptly take all such actions as may
be necessary or appropriate in order to list the shares of FFC Common Stock to
be issued in the Merger on NASDAQ.
(e) Adopt Amendments: FFC shall not adopt any amendments to
its charter or bylaws or other organizational documents that would alter the
terms of FFC's Common Stock or could reasonably be expected to have a material
adverse effect on the ability of FFC to perform its obligations under this
Agreement.
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Section 6.2 Access to Properties and Records. FFC shall give to KHG and
to its authorized employees and representatives (including without limitation
KHG's counsel, accountants, economic and environmental consultants and other
designated representatives) such access during normal business hours to all
properties, books, contracts, documents and records of FFC as KHG may reasonably
request, subject to the obligation of KHG and its authorized employees and
representatives to maintain the confidentiality of all nonpublic information
concerning FFC obtained by reason of such access.
Section 6.3 Subsequent Financial Statements. Between the date of
signing of this Agreement and the Effective Date, FFC shall promptly prepare and
deliver to KHG as soon as practicable each Quarterly Report to FFC's
shareholders and any Annual Report to FFC's shareholders normally prepared by
FFC. The representations and warranties set forth in Sections 4.6, 4.7 and 4.8
herein shall apply to the financial statements (hereinafter collectively
referred to as the "Additional FFC Financial Statements") set forth in the
foregoing Quarterly Reports and any Annual Report to FFC's shareholders.
Section 6.4 Update Schedules. FFC shall promptly disclose to KHG in
writing any change, addition, deletion or other modification to the information
set forth in its Schedules to this Agreement.
Section 6.5 Notice. FFC shall promptly notify KHG in writing of any
actions, claims, investigations or other developments which, if pending or in
existence on the date of this Agreement, would have been required to be
disclosed to KHG in order to ensure the accuracy of the representations and
warranties set forth in this Agreement or which otherwise could materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business, operations or future prospects of FFC or restrict in any manner the
right of FFC to carry on its business as presently conducted.
Section 6.6 Employment Arrangements.
(a) From and after the Effective Date (subject to the
provisions of subsection (c) below) and subject to the Employment Agreements
contemplated by Section 5.12 herein, FFC shall cause the KHG Subsidiaries and/or
Lebanon Valley/ Farmers (as such term is defined in Section 6.8 below): (i) to
satisfy each of the Employment Obligations (as defined in Section 3.17 herein)
and (ii) to satisfy the KHG Subsidiaries' obligations under the KHG Benefit
Plans.
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(b) On and after the Effective Date and subject to the
Employment Agreements contemplated by Section 5.12 herein, (subject to the
provisions of subsection (c) below), FFC shall cause the KHG Subsidiaries and/or
Lebanon Valley/ Farmers to use their best efforts to retain each present
full-time employee of LVNB at such employee's current position (or, if offered
to, and accepted by, an employee, a position for which the employee is qualified
with FFC or an FFC subsidiary bank at a salary commensurate with the position),
(ii) pay compensation to each person who was employed as of the Effective Date
and who continues to be employed by KHG on and after the Effective Date, that is
at least equal to the aggregate compensation that such person was receiving from
KHG or the KHG Subsidiaries prior to the Effective Date (unless there is a
material change in the duties and responsibilities of such employee) and (iii)
provide employee benefits to each such person who is an employee, on and after
the Effective Date, that are substantially equivalent in the aggregate to the
employee benefits that such person was receiving as an employee from KHG or the
KHG Subsidiaries prior to the Effective Date and that are no less favorable than
employee benefits afforded to similarly situated employees of FFC and its
Subsidiaries. For vesting and eligibility purposes for employee benefits, former
LVNB employees shall receive credit for years of service with LVNB. With respect
to any welfare benefit plans to which such employees may become eligible, FFC
and its Subsidiaries shall cause such plans to provide credit for any
co-payments or deductibles by such employees and waive all pre-existing
condition exclusions and waiting periods.
(c) Notwithstanding anything herein to the contrary
(including, without limitation, the provisions of subsections (a) and (b)
above), (i) FFC may, after the Effective Date, discontinue and terminate the KHG
Stock Option Plans in accordance with Section 2.3, (ii) in the event that FFC
causes the KHG Subsidiaries and/or Lebanon Valley/Farmers to continue to employ
officers or employees of KHG and the KHG Subsidiaries as of the Effective Date,
the KHG Subsidiaries and/or Lebanon Valley/Farmers shall employ such persons on
the Effective Date, as "at will" employees subject to the continued satisfactory
performance of their respective duties, and (iii) in the event the KHG
Subsidiaries and/or Lebanon Valley/Farmers do not employ, or terminate the
employment (other than as a result of unsatisfactory performance of their
respective duties) of any officers or employees of KHG or any of the KHG
Subsidiaries as of the Effective Date, FFC shall cause the KHG Subsidiaries
and/or Lebanon Valley/Farmers to pay severance benefits to such employee as
follows: (A) in the event employment is terminated on or prior to the date which
is one year after the Effective Date, one week's salary plus an additional one
week's salary for each year of service with KHG or the KHG Subsidiaries, with a
maximum severance benefit of 26 weeks' salary and (B) in the event employment is
terminated
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thereafter, in accordance with the then existing severance policy of Lebanon
Valley/Farmers.
Section 6.7 No Purchase or Sales of FFC Common Stock During Price
Determination Period. Neither FFC nor any Subsidiary of FFC, nor any executive
officer or director of FFC or any Subsidiary of FFC, nor any shareholder of FFC
who may be deemed to be an "affiliate" (as that term is defined for purposes of
Rules 145 and 405 promulgated by the SEC under the 1933 Act) of FFC, shall
purchase or sell on NASDAQ, or submit a bid to purchase or an offer to sell on
NASDAQ, directly or indirectly, any shares of FFC Common Stock or any options,
rights or other securities convertible into shares of FFC Common Stock during
the Price Determination Period; provided, however, that FFC may purchase shares
of FFC Common Stock in the ordinary course of business during the Price
Determination Period pursuant to FFC's Benefit Plans or FFC's Dividend
Reinvestment Plan.
Section 6.8 Restructuring, Directors, Etc..
(a) Simultaneously with the effectiveness of the Merger FFC
anticipates effecting the Restructuring as follows: (i) LVNB and Farmers Trust
Bank ("Farmers"), a wholly-owned FFC subsidiary, will merge; (ii) the surviving
bank in such merger ("Lebanon Valley/Farmers") would immediately transfer (A)
branch offices of LVNB located in Dauphin and Lancaster Counties and the assets
and deposit liabilities related to such branch offices to Fulton Bank ("FB"),
another wholly-owned FFC subsidiary, and (B) the Sinking Spring branch office of
LVNB and the assets and deposit liabilities related to such branch office to
Great Valley Savings Bank ("GVSB"), also a wholly-owned FFC subsidiary and (iii)
to the extent determined advisable by FFC, FFC may close existing branches of
LVNB, Farmers, FB, GVSB or other subsidiaries of FFC which may overlap
geographically with other branches of FFC's subsidiary banks. Lebanon
Valley/Farmers, as a wholly-owned FFC subsidiary, would operate all Lebanon
County branch offices now operated by LVNB and Farmers, and in addition, the
Womelsdorf and Pine Grove branch of LVNB, under a corporate name which would
reflect the identities of both Lebanon Valley and Farmers.
(b) For a period from the Effective Date through a date
determined by FFC (not to be before five (5) years after the Effective Date),
FFC shall (subject to the right of FFC and the KHG Continuing Directors to
terminate such obligations under this Section 6.8(a) under subsections (c) and
(d) below): Offer appointment to all present directors of LVNB to the board of
directors of Lebanon Valley/Farmers who indicate their desire to serve (the
"LVNB Continuing Directors"), provided, that (A) each non-employee LVNB
Continuing Director shall receive director's fees from Lebanon
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Valley/Farmers in the form of an annual retainer of $9,000 and (B) each LVNB
Continuing Director shall be subject to FFC's mandatory retirement rules for
directors. Unless dissolved by KHG prior to the Effective Date, the Pine Grove,
Womelsdorf, Eastern Lebanon County and Agricultural advisory committees of LVNB
would be retained by Lebanon Valley/Farmers and members of such committee would
receive the same compensation which they are presently receiving. Albert B.
Murry would be appointed chairman of the board and chief executive officer of
Lebanon Valley/Farmers.
(c) FFC shall have the right to terminate its obligations
under subsection (b) of this Section 6.8 as a result of (i) regulatory
considerations, (ii) safe and sound banking practices, or (iii) the exercise of
their fiduciary duties by FFC's directors.
(d) Notwithstanding anything herein to the contrary, the LVNB
Continuing Directors, in their exercise of their fiduciary duty as to the best
interests of LVNB and FFC, may, by a majority vote of such directors, modify or
waive any or all of the foregoing provisions in subsection (b) of this Section
6.8.
Section 6.9 Appointment of FFC Directors.
FFC shall, on or promptly after the Effective Date, appoint to FFC's
Board of Directors two of KHG's current directors (designated, subject to the
reasonable approval of FFC, by vote of KHG's Board of Directors prior to the
Effective Date) to serve as directors of FFC. During the five-year period after
the Effective Date, the FFC Board of Directors shall nominate such designees for
election, and support their election, at each annual meeting of shareholders of
FFC at which such designees' terms expires. During such period, in the event
either of such designees shall cease to serve as a director of FFC, the LVNB
Continuing Directors shall have the right to designate one other person then
serving on the Board of Lebanon Valley/Farmers to serve as a director of FFC
(subject to the reasonable concurrence of FFC as to the person designated).
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Common Conditions. The obligations of the parties to
consummate this Agreement shall be subject to the satisfaction of each of the
following common conditions prior to or as of the Closing, except to the extent
that any such condition shall have been waived in accordance with the provisions
of Section 8.4 herein:
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(a) Stockholder Approval: This Agreement shall have been duly
authorized, approved and adopted by the stockholders of KHG.
(b) Regulatory Approvals: The approval of each federal and
state regulatory authority having jurisdiction over the transactions
contemplated by this Agreement (including the Merger and Restructuring),
including without limitation, the Federal Reserve Board, Pennsylvania Department
of Banking, the Office of the Comptroller of the Currency and the Federal
Deposit Insurance Corporation, shall have been obtained and all applicable
waiting and notice periods shall have expired, subject to no terms or conditions
which would (i) require or could reasonably be expected to require (A) any
divestiture by FFC of a portion of the business of FFC, or any subsidiary of FFC
or (B) any divestiture by KHG or the KHG Subsidiaries of a portion of their
businesses which FFC in its good faith judgment believes will have a significant
adverse impact on the business or prospects of KHG or LVNB, as the case may be,
or (ii) impose any condition upon FFC, or any of its subsidiaries, which in
FFC's good faith judgment (x) would be materially burdensome to FFC and its
subsidiaries taken as a whole, (y) would significantly increase the costs
incurred or that will be incurred by FFC as a result of consummating the Merger
or (z) would prevent FFC from obtaining any material benefit contemplated by it
to be attained as a result of the Merger.
(c) Stock Listing. The shares of FFC Common Stock to be issued
in the Merger shall have been authorized for listing on NASDAQ.
(d) Tax Opinion. Each of FFC and KHG shall have received an
opinion of FFC's counsel, Barley, Snyder, Senft & Cohen, LLP, reasonably
acceptable to FFC and KHG, addressed to FFC and KHG, with respect to federal tax
laws or regulations, to the effect that:
(1) The Merger will constitute a reorganization within
the meaning of Section 368(a)(1)(A) of the Code;
(2) No gain or loss will be recognized by FFC, KHG or
LVNB by reason of the Merger;
(3) The bases of the assets of KHG in the hands of FFC
will be the same as the bases of such assets in the hands of KHG immediately
prior to the Merger;
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(4) The holding period of the assets of KHG in the hands
of FFC will include the period during which such assets were held by KHG prior
to the Merger;
(5) A holder of KHG Common Stock who receives shares of
FFC Common Stock in exchange for his KHG Common Stock pursuant to the
reorganization (except with respect to each received in lieu of fractional
shares of FFC Common Stock deemed issued as described below) will not recognize
any gain or loss upon the exchange.
(6) A holder of KHG Common Stock who receives cash in
lieu of a fractional share of FFC Common Stock will be treated as if he received
a fractional share of FFC Common Stock pursuant to the reorganization and FFC
then redeemed such fractional share for the cash. The holder of KHG Common Stock
will recognize capital gain or loss on the constructive redemption of the
fractional share in an amount equal to the difference between the cash received
and the adjusted basis of the fractional share.
(7) The tax basis of the FFC Common Stock to be received
by the stockholders of KHG pursuant to the terms of this Agreement will include
the holding period of the KHG Common Stock surrendered in exchange therefor,
provided that such KHG Common Stock is held as a capital interest on the
Effective Date.
(8) The holding period of the shares of FFC Common Stock
to be received by the stockholders of KHG will include the period during which
they held the shares of KHG Common Stock surrendered, provided the shares of KHG
Common Stock are held as a capital asset on the date of the exchange.
(e) Registration Statement: The Registration Statement (as
defined in Section 6.1(b), including any amendments thereto) shall have been
declared effective by the SEC; the information contained therein shall be true,
complete and correct in all material respects as of the date of mailing of the
Proxy Statement/Prospectus (as defined in Section 6.1(b)) to the stockholders of
KHG; regulatory clearance for the offering contemplated by the Registration
Statement (the "Offering") shall have been received from each federal and state
regulatory authority having jurisdiction over the Offering; and no stop order
shall have been issued and no proceedings shall have been instituted or
threatened by any federal or state regulatory authority to suspend or terminate
the effectiveness of the Registration Statement or the Offering.
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(f) No Suits: No action, suit or proceeding shall be pending
or threatened before any federal, state or local court or governmental authority
or before any arbitration tribunal which seeks to modify, enjoin or prohibit or
otherwise adversely and materially affect the transactions contemplated by this
Agreement; provided, however, that if FFC agrees to defend and indemnify KHG and
LVNB and their respective officers and directors with regard to any such action,
suit or proceeding pending or threatened against them or any of them, then such
pending or threatened action, suit or proceeding shall not be deemed to
constitute the failure of a condition precedent to the obligation of KHG to
consummate this Agreement.
(g) Pooling: FFC and KHG shall have been advised in writing by
Arthur Anderson LLP on the Effective Date that the Merger should be treated as a
pooling transaction for financial accounting purposes.
Section 7.2 Conditions Precedent to Obligations of FFC. The obligations
of FFC to consummate this Agreement shall be subject to the satisfaction of each
of the following conditions prior to or as of the Closing, except to the extent
that any such condition shall have been waived by FFC in accordance with the
provisions of Section 8.4 herein:
(a) Accuracy of Representations and Warranties: All of the
representations and warranties of KHG as set forth in this Agreement, all of the
information contained in Schedules hereto and all KHG Closing Documents (as
defined in Section 7.2(j)) shall be true and correct in all material respects as
of the Closing as if made on such date (or on the date to which it relates in
the case of any representation or warranty which expressly relates to an earlier
date), except to the extent that any misrepresentations and breaches of warranty
at the Closing shall not in the aggregate be material to KHG and the KHG
Subsidiaries taken as a whole.
(b) Covenants Performed: KHG shall have performed or complied
in all material respects with each of the covenants required by this Agreement
to be performed or complied with by it.
(c) Opinion of Counsel for KHG: FFC shall have received an
opinion, dated the Effective Date, from Drinker Biddle & Reath LLP, counsel to
KHG, in substantially the form of Exhibit C hereto. In rendering any such
opinion, such counsel may require and, to the extent they deem necessary or
appropriate may rely upon, opinions of other counsel and upon representations
made in certificates of officers of KHG, FFC, affiliates of the foregoing, and
others.
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(d) Affiliate Agreements: Stockholders of KHG who are or will
be affiliates of KHG or FFC for the purposes of Accounting Series Release No.
135 and the 1933 Act shall have entered into agreements with FFC, in form and
substance satisfactory to FFC, reasonably necessary to assure (i) the ability of
FFC to use pooling-of-interests accounting for the Merger; and (ii) compliance
with Rule 145 under the 1933 Act.
(e) KHG Options: All holders of KHG Options shall have
delivered documentation reasonably satisfactory to FFC canceling the KHG Options
in exchange for FFC Stock Options pursuant to Section 2.3 herein.
(f) Decline in Market Price of FFC Common Stock: The Closing
Market Price (as adjusted appropriately for an event described in section 2.1(b)
herein and assuming the Effective Date is thirty (30) days after receipt of the
last required approval under Section 9.1 hereunder) shall be either (a) in
excess of $23.82 per share (82.5% of the closing bid price of FFC Common Stock
on August 14, 1997) or (b) in excess of an amount per share equal to (i) $28.875
(the closing bid price of FFC Common Stock on August 14, 1997) multiplied by
(ii) 0.825 multiplied by (iii) the quotient obtained by dividing the average
NASDAQ Bank Index for the Price Determination Period by the NASDAQ Bank Index on
August 14, 1997 (the "Market Test"). Thus, for example, assuming the average
NASDAQ Bank Index for the Price Determination Period reflects a decline of 10%
from August 14, 1997, (a) would be $23.82 and (b) would be $21.44 ($28.875 x
0.825 x 0.90) and the Closing Market Price would be required to be $21.44 or
lower for this condition precedent not to be satisfied or for KHG to terminate
this Agreement under Section 8.1(c)(iii) herein.
(g) Accountants' Letter: At its option, FFC shall have
received a "comfort" letter from the independent certified public accountants
for KHG, dated (i) the effective date of the Registration Statement and (ii) the
Effective Date, in each case substantially to the effect that:
(1) it is a firm of independent accountants with respect
to KHG and its subsidiaries within the meaning of the 1933 Act and the rules and
regulations of the SEC thereunder;
(2) in its opinion the audited financial statements of
KHG examined by it and included in the Registration Statement comply as to form
in all material respects with the applicable requirements of the 1933 Act and
the applicable
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published rules and regulations of the SEC thereunder with respect to
registration statements on the form employed; and
(3) on the basis of specified procedures (which do not
constitute an examination in accordance with generally accepted audit
standards), consisting of a reading of the unaudited financial statements, if
any, of KHG included in such Registration Statement and of the latest available
unaudited financial statements of KHG, inquiries of officers responsible for
financial and accounting matters of KHG and a reading of the minutes of meetings
of stockholders and the Board of Directors of KHG, nothing has come to its
attention which causes it to believe: (i) that the financial statements, if any,
of KHG included in such Registration Statement do not comply in all material
respects with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder; and (ii) that any such unaudited
financial statements of KHG from which unaudited quarterly financial information
set forth in such Registration Statement has been derived, are not fairly
presented in conformity with generally accepted accounting principles applied on
a basis consistent with that of the audited financial statements.
(h) Federal and State Securities and Antitrust Laws: FFC and
its counsel shall have determined to their satisfaction that, as of the Closing,
all applicable securities and antitrust laws of the federal government and of
any state government having jurisdiction over the transactions contemplated by
this Agreement shall have been complied with.
(i) Environmental Matters: No environmental problem of the
kind contemplated in Section 3.22 and not disclosed in Schedule 3.22 shall have
been discovered which would, or which potentially could, materially and
adversely affect the condition (financial or otherwise), assets, liabilities,
business or operations of either KHG or LVNB.
(j) Closing Documents: KHG shall have delivered to FFC: (i) a
certificate signed by KHG's President and Chief Executive Officer and by its
Secretary (or other officers reasonably acceptable to FFC) verifying that all of
the representations and warranties of KHG set forth in this Agreement are true
and correct in all material respects as of the Closing and that KHG has
performed in all material respects each of the covenants required to be
performed by it under this Agreement; (ii) all consents and authorizations of
landlords and other persons that are necessary to permit this Agreement to be
consummated without violation of any lease or other agreement to which KHG or
LVNB is a party or by which they or any of their properties are bound;
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and (iii) such other certificates and documents as FFC and its counsel may
reasonably request (all of the foregoing certificates and other documents being
herein referred to as the "KHG Closing Documents").
(k) Employment Agreements: The existing employment agreements
between LVNB and the Senior Executives shall be terminated and replaced with the
Employment Agreements, effective as of the Effective Date.
Section 7.3 Conditions Precedent to the Obligations of KHG. The
obligation of KHG to consummate this Agreement shall be subject to the
satisfaction of each of the following conditions prior to or as of the Closing,
except to the extent that any such condition shall have been waived by KHG in
accordance with the provisions of Section 8.4 herein:
(a) Accuracy of Representations and Warranties: All of the
representations and warranties of FFC as set forth in this Agreement, all of the
information contained in its Schedules hereto and all FFC Closing Documents (as
defined in Section 7.3(f) of this Agreement) shall be true and correct in all
material respects as of the Closing as if made on such date (or on the date to
which it relates in the case of any representation or warranty which expressly
relates to an earlier date), except to the extent that any misrepresentations
and breaches of warranty at the Closing shall not in the aggregate be material
to FFC and its subsidiaries taken as a whole.
(b) Covenants Performed: FFC shall have performed or complied
in all material respects with each of the covenants required by this Agreement
to be performed or complied with by FFC.
(c) Opinion of Counsel for FFC: KHG shall have received an
opinion from Barley, Snyder, Senft & Cohen, LLP, counsel to FFC, dated the
Effective Date, in substantially the form of Exhibit F hereto. In rendering any
such opinion, such counsel may require and, to the extent they deem necessary or
appropriate may rely upon, opinions of other counsel and upon representations
made in certificates of officers of FFC, KHG, affiliates of the foregoing, and
others.
(d) FFC Options: FFC Options shall be substituted in
cancellation of the KHG Options pursuant to Section 2.3 herein.
(e) Fairness Opinion: KHG shall have obtained from Danielson
Associates, Inc., or from another independent financial advisor selected by the
Board
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of Directors of KHG, an opinion dated within five (5) days of the Proxy
Statement/Prospectus to be furnished to the Board of Directors of KHG stating
that the terms of the acquisition contemplated by this Agreement are fair to the
stockholders of KHG from a financial point of view.
(f) Closing Documents: FFC shall have delivered to KHG: (i) a
certificate signed by FFC's President and Chief Executive Officer (or other
officer reasonably acceptable to KHG) verifying that all of the representations
and warranties of FFC set forth in this Agreement are true and correct in all
material respects as of the Closing and that FFC has performed in all material
respects each of the covenants required to be performed by FFC; and (ii) such
other certificates and documents as KHG and its counsel may reasonably request
(all of the foregoing certificates and documents being herein referred to as the
"FFC Closing Documents").
(g) Employment Agreements: The existing employment agreements
between LVNB and the Senior Executives shall be terminated and replaced with the
Employment Agreements, effective as of the Effective Date.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time
before the Effective Date (whether before or after the authorization, approval
and adoption of this Agreement by the stockholders of KHG) as follows:
(a) Mutual Consent: This Agreement may be terminated by mutual
consent of the parties upon the affirmative vote of a majority of each of the
Boards of Directors of KHG and FFC, followed by written notices given to the
other party.
(b) Unilateral Action by FFC: This Agreement may be terminated
unilaterally by the affirmative vote of the Board of Directors of FFC, followed
by written notice given to KHG, if: (i) there has been a material breach by KHG
of any representation, warranty or material failure to comply with any covenant
set forth in this Agreement and such breach has not been cured within thirty
(30) days after written notice of such breach has been given by FFC to KHG; or
(ii) any condition precedent to FFC's obligations as set forth in Article VII of
this Agreement remains unsatisfied, through no fault of FFC, on August 31, 1998.
(c) Unilateral Action By KHG: This Agreement may be terminated
unilaterally by the affirmative vote of a majority of the Board of Directors of
KHG,
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followed by written notice given to FFC, if: (i) there has been a material
breach by FFC of any representation, warranty or material failure to comply with
any covenant set forth in this Agreement and such breach has not been cured
within thirty (30) days after written notice of such breach has been given by
KHG to FFC; (ii) any condition precedent to KHG's obligations as set forth in
Article VII of this Agreement remains unsatisfied, through no fault of KHG, on
August 31, 1998 or (iii) the Market Test would not be met.
Section 8.2 Effect of Termination.
(a) Effect. In the event of a permitted termination of this
Agreement under Section 8.1 herein, the Agreement shall become null and void and
the transactions contemplated herein shall thereupon be abandoned, except that
the provisions relating to limited liability and confidentiality set forth in
Sections 8.2(b) and 8.2(c) herein shall survive such termination.
(b) Limited Liability. The termination of this Agreement in
accordance with the terms of Section 8.1 herein shall create no liability on the
part of either party, or on the part of either party's directors, officers,
shareholders, agents or representatives, except that if this Agreement is
terminated by FFC by reason of a material breach by KHG, or if this Agreement is
terminated by KHG by reason of a material breach by FFC, and such breach
involves an intentional, willful or grossly negligent misrepresentation or
breach of covenant, the breaching party shall be liable to the nonbreaching
party for all costs and expenses reasonably incurred by the nonbreaching party
in connection with the preparation, execution and attempted consummation of this
Agreement, including the reasonable fees of its counsel, accountants,
consultants and other advisors and representatives.
(c) Confidentiality. In the event of a termination of this
Agreement, neither FFC nor KHG nor LVNB shall use or disclose to any other
person any confidential information obtained by it during the course of its
investigation of the other party or parties, except as may be necessary in order
to establish the liability of the other party or parties for breach as
contemplated under Section 8.2(b) herein.
Section 8.3 Amendment. To the extent permitted by law, this Agreement
may be amended at any time before the Effective Date (whether before or after
the authorization, approval and adoption of this Agreement by the stockholders
of KHG), but only by a written instrument duly authorized, executed and
delivered by FFC and by KHG; provided, however, that any amendment to the
provisions of Section 2.1 herein relating to the consideration to be received by
the former stockholders of KHG
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in exchange for their shares of KHG Common Stock shall not take effect until
such amendment has been approved, adopted or ratified by the stockholders of KHG
in accordance with applicable Pennsylvania law.
Section 8.4 Waiver. Any term or condition of this Agreement may be
waived, to the extent permitted by applicable federal and state law, by the
party or parties entitled to the benefit thereof at any time before the
Effective Date (whether before or after the authorization, approval and adoption
of this Agreement by the stockholders of KHG) by a written instrument duly
authorized, executed and delivered by such party or parties.
ARTICLE IX
CLOSING AND EFFECTIVE DATE
Section 9.1 Closing. Provided that all conditions precedent set forth
in Article VII of this Agreement shall have been satisfied or shall have been
waived in accordance with Section 8.4 of this Agreement, the parties shall hold
a closing (the "Closing") at the offices of FFC at One Penn Square, Lancaster,
Pennsylvania, within thirty (30) days after the receipt of all required
regulatory and shareholder approvals and after the expiration of all applicable
waiting periods on a date to be agreed upon by the parties, at which time the
parties shall deliver the KHG Closing Documents, the FFC Closing Documents, the
opinions of counsel required by Sections 7.1(d), 7.2(c) and 7.3(c) herein, and
such other documents and instruments as may be necessary or appropriate to
effectuate the purposes of this Agreement.
Section 9.2 Effective Date. The merger of KHG with and into FFC shall
become effective and this Agreement shall be consummated on the date (the
"Effective Date") of the filing of (or on such later date specified in such
document) Articles of Merger with the Department of State of the Commonwealth of
Pennsylvania.
ARTICLE X
NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES
Section 10.1 No Survival. The representations and warranties of KHG and
of FFC set forth in this Agreement shall expire and be terminated on the
Effective Date by consummation of this Agreement, and no such representation or
warranty shall thereafter survive.
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ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Expenses. Except as provided in Section 8.2(b) herein,
each party shall pay its own expenses incurred in connection with this Agreement
and the consummation of the transactions contemplated herein. For purposes of
this Section 11.1 herein, the cost of printing the Proxy Statement/Prospectus
shall be deemed to be an expense of FFC.
Section 11.2 Other Mergers and Acquisitions. Subject to the right of
KHG to refuse to consummate this Agreement pursuant to Section 8.1(c) herein by
reason of a material breach by FFC of the warranty and representation set forth
in Section 4.7 herein, nothing set forth in this Agreement shall be construed:
(i) to preclude FFC from acquiring, or to limit in any way the right of FFC to
acquire, prior to or following the Effective Date, the stock or assets of any
other financial services institution or other corporation or entity, whether by
issuance or exchange of FFC Common Stock or otherwise; (ii) to preclude FFC from
issuing, or to limit in any way the right of FFC to issue, prior to or following
the Effective Date, FFC Common Stock, FFC Preferred Stock or any other equity or
debt securities; or (iii) to preclude FFC from taking, or to limit in any way
the right of FFC to take, any other action not expressly and specifically
prohibited by the terms of this Agreement.
Section 11.3 Notices. All notices, claims, requests, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly delivered if delivered
in person, transmitted by telegraph or facsimile machine (but only if receipt is
acknowledged in writing), or mailed by registered or certified mail, return
receipt requested, as follows:
(a) If to FFC, to:
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Fulton Financial Corporation
One Penn Square
P.O. Box 4887
Lancaster, Pennsylvania 17604
43
<PAGE>
With a copy to:
Paul G. Mattaini, Esq.
Barley, Snyder, Senft & Cohen, LLP
126 East King Street
Lancaster, PA 17602
(b) If to KHG, to:
Albert B. Murry, President and Chief Executive Officer
Keystone Heritage Group, Inc.
555 Willow Street
Lebanon, PA 17046
With a copy to:
F. Douglas Raymond, III, Esquire
Drinker Biddle & Reath LLP
Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
Section 11.4 Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all such counterparts together shall be deemed to be one and the
same instrument.
Section 11.5 Governing Law. This Agreement shall be deemed to have been
made in, and shall be governed by and construed in accordance with the
substantive laws of, the Commonwealth of Pennsylvania.
Section 11.6 Parties in Interest. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns and legal representatives; provided, however, that neither party may
assign its rights or delegate its duties under this Agreement without the prior
written consent of the other party.
Section 11.7 Entire Agreement. This Agreement, together with the
Warrant Agreement and the Warrant being executed by the parties on the date
hereof, sets forth the entire understanding and agreement of the parties hereto
and supersedes any
44
<PAGE>
and all prior agreements, arrangements and understandings, whether oral or
written, relating to the subject matter hereof and thereof.
Section 11.8 Materiality Standard. For the purposes of this Agreement,
terms such as "material," "materially," "in any material respect," etc., as they
may apply to KHG or its subsidiaries, shall be measured with respect to KHG and
its subsidiaries on a consolidated basis.
45
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers all as of the day and year first
above written.
FULTON FINANCIAL CORPORATION
By:/s/ Rufus A. Fulton, Jr.
------------------------------------
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Attest:/s/ William R. Colmery
--------------------------------
William R. Colmery, Secretary
KEYSTONE HERITAGE GROUP, INC.
By: /s/ Albert B. Murry
------------------------------------
Albert B. Murry, President and
Chief Executive Officer
Attest: /s/ Peggy Y. Layser
--------------------------------
Peggy Y. Layser, Secretary
46
EXHIBIT 4 - WARRANT
WARRANT
to Purchase up to 981,740 Shares of the
Common Stock, No Par Value,
of
KEYSTONE HERITAGE GROUP, INC.
This is to certify that, for value received, Fulton Financial
Corporation ("FFC") or any permitted transferee (FFC or such transferee being
hereinafter called the "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from Keystone Heritage Group, Inc., a Pennsylvania
business corporation ("KHG"), at any time on or after the date hereof, an
aggregate of up to 981,740 fully paid and non-assessable shares of common stock,
no par value (the "Common Stock"), of KHG at a price per share equal to $36.75,
subject to adjustment as herein provided (the "Exercise Price").
1. Exercise of Warrant. Subject to the provisions hereof and the
limitations set forth in Paragraph 2 of a Warrant Agreement of even date
herewith by and between FFC and KHG (the "Warrant Agreement"), which Warrant
Agreement was entered into simultaneously with a Merger Agreement of even date
herewith between FFC and KHG (the "Merger Agreement"), this Warrant may be
exercised in whole or in part or sold, assigned or transferred at any time or
from time to time on or after the date hereof. This Warrant shall be exercised
by presentation and surrender hereof to KHG at the principal office of KHG,
accompanied by (i) a written notice of exercise, (ii) payment to KHG, for the
account of KHG, of the Exercise Price for the number of shares of Common Stock
specified in such notice, and (iii) a certificate of the Holder specifying the
event or events which have occurred and entitle the Holder to exercise this
Warrant. The Exercise Price for the number of shares of Common Stock specified
in the notice shall be payable in immediately available funds.
Upon such presentation and surrender, KHG shall issue promptly (and
within one business day if requested by the Holder) to the Holder or its
assignee, transferee or designee the number of shares of Common Stock to which
the Holder is entitled hereunder. KHG covenants and warrants that such shares of
Common Stock, when so issued, will be duly authorized, validly issued, fully
paid and non-assessable, and free and clear of all liens and encumbrances.
If this Warrant should be exercised in part only, KHG shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
shares of Common Stock issuable hereunder. Upon receipt by KHG of this Warrant,
in proper form for exercise, the Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of KHG
<PAGE>
may then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. KHG shall pay all expenses,
and any and all United States federal, state and local taxes and other charges,
that may be payable in connection with the preparation, issue and delivery of
stock certificates pursuant to this Paragraph 1 in the name of the Holder or its
assignee, transferee or designee.
2. Reservation of Shares; Preservation of Rights of Holder.
KHG shall at all times, while this Warrant is outstanding and
unexercised, maintain and reserve, free from preemptive rights, such number of
authorized but unissued shares of Common Stock as may be necessary so that this
Warrant may be exercised without any additional authorization of Common Stock
after giving effect to all other options, warrants, convertible securities and
other rights to acquire shares of Common Stock at the time outstanding. KHG
further agrees that (i) it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act or omission, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder or under the Warrant Agreement by KHG, (ii) it will
promptly take all action (including (A) complying with all pre-merger
notification, reporting and waiting period requirements specified in 15 U.S.C.
ss.18a and the regulations promulgated thereunder and (B) in the event that,
under Section 3 of the Bank Holding Company Act of 1956, as amended (12 U.S.C.
ss.1842(a)(3)), or the Change in Bank Control Act of 1978, as amended (12 U.S.C.
ss.1817(j)), prior approval of the Board of Governors of the Federal Reserve
System (the "Board") is necessary before this Warrant may be exercised,
cooperating fully with the Holder in preparing any and all such applications and
providing such information to the Board as the Board may require) in order to
permit the Holder to exercise this Warrant and KHG duly and effectively to issue
shares of its Common Stock hereunder, and (iii) it will promptly take all action
necessary to protect the rights of the Holder against dilution as provided
herein.
3. Fractional Shares. KHG shall not be required to issue fractional
shares of Common Stock upon exercise of this Warrant but shall pay for any
fractional shares in cash or by check at the Exercise Price.
4. Exchange or Loss of Warrant. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof at
the principal office of KHG for other warrants of different denominations
entitling the
2
<PAGE>
Holder to purchase in the aggregate the same number of shares of Common Stock
issuable hereunder. The term "Warrant" as used herein includes any warrants for
which this Warrant may be exchanged. Upon receipt by KHG of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, KHG will execute and deliver a new Warrant of like tenor
and date.
5. Repurchase. The Holder shall have the right to require KHG to
repurchase all or any portion of this Warrant under the terms and conditions of
Paragraph 7 of the Warrant Agreement.
6. Adjustment. The number of shares of Common Stock issuable upon the
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph 6.
(A) Stock Dividends, etc.
(1) Stock Dividends. In case KHG shall pay or make a
dividend or other distribution on any class of capital stock of KHG in Common
Stock, the number of shares of Common Stock issuable upon exercise of this
Warrant shall be increased by multiplying such number of shares by a fraction of
which the denominator shall be the number of shares of Common Stock outstanding
at the close of business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of shares and the
total number of shares of Common Stock constituting such dividend or other
distribution, such increase to become effective immediately after the opening of
business on the day following such distribution.
(2) Subdivisions. In case outstanding shares of Common
Stock shall be subdivided into a greater number of shares of Common Stock, the
number of shares of Common Stock issuable upon exercise of this Warrant at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall each be combined into a smaller number
of shares of Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be proportionately
decreased, such increase or decrease, as the case may be, to become effective
immediately after the opening of business on
3
<PAGE>
the day following the date upon which such subdivision or combination becomes
effective.
(3) Reclassifications. The reclassification of Common
Stock into securities (other than Common Stock) and/or cash and/or other
consideration shall be deemed to involve a subdivision or combination, as the
case may be, of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of securities and/or
cash and/or other consideration outstanding immediately thereafter and the
effective date of such reclassification shall be deemed to be "the day upon
which such subdivision becomes effective," or "the day upon which such
combination becomes effective," as the case may be, within the meaning of clause
(2) above.
(4) Optional Adjustments. KHG may make such increases in
the number of shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be determined by
its Board of Directors to be advisable in order to avoid taxation so far as
practicable of any dividend of stock or stock rights or any event treated as
such for federal income tax purposes to the recipients.
(5) Adjustment to Exercise Price. Whenever the number of
shares of Common Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 6(A), the Exercise Price shall be adjusted by a
fraction in which the numerator is equal to the number of shares of Common Stock
issuable prior to the adjustment and the denominator is equal to the number of
shares of Common Stock issuable after the adjustment.
(B) Certain Sales of Common Stock.
(1) Adjustment to Shares Issuable. If and whenever KHG
sells or otherwise issues (other than under circumstances in which Paragraph
6(A) applies) any shares of Common Stock, the number of shares of Common Stock
issuable upon exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction, the denominator of which shall be the number
shares of Common Stock outstanding at the close of business on the day
immediately preceding the date of such sale or issuance and the numerator of
which shall be the sum of such number of shares and the total number of shares
constituting such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such sale or
issuance.
4
<PAGE>
(2) Adjustment to Exercise Price. If and whenever KHG
sells or otherwise issues any shares of Common Stock (excluding any stock
dividend or other issuance not for consideration to which Paragraph 6(A)
applies) for a consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the Exercise
Price shall be forthwith changed (but only if a reduction would result) to the
price (calculated to the nearest cent) determined by dividing: (i) an amount
equal to the sum of (aa) the number of shares of Common Stock outstanding
immediately prior to such issue or sale, multiplied by the then effective
Exercise Price, plus (bb) the total consideration, if any, received and deemed
received by KHG upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale.
(C) Definition. For purposes of this Paragraph 6, the term
"Common Stock" shall include (1) any shares of KHG of any class or series which
has no preference or priority in the payment of dividends or in the distribution
of assets upon any voluntary or involuntary liquidation, dissolution or winding
up of KHG and which is not subject to redemption by KHG, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or any stock or
securities convertible into or exchangeable for shares of Common Stock (such
convertible or exchangeable stock or securities being hereinafter called
"Convertible Securities"), whether or not such rights or options or the right to
convert or exchange any such Convertible Securities are immediately exercisable.
For purposes of any adjustments made under Paragraph 6(A) or 6(B) as a result of
the distribution, sale or other issuance of rights or options or Convertible
Securities, the number of Shares of Common Stock outstanding after or as a
result of the occurrence of events described in Paragraph 6(A)(1) or 6(B)(1)
shall be calculated by assuming that all such rights, options or Convertible
Securities have been exercised for the maximum number of shares issuable
thereunder.
7. Notice. (A) Whenever the number of shares of Common Stock for which
this Warrant is exercisable is adjusted as provided in Paragraph 6, KHG shall
promptly compute such adjustment and mail to the Holder a certificate, signed by
the principal financial officer of KHG, setting forth the number of shares of
Common Stock for which this Warrant is exercisable as a result of such
adjustment having become effective.
(B) Upon the occurrence of any event which results in the
Holder having the right to require KHG to repurchase this Warrant, as provided
in Paragraph 7 of the Warrant Agreement, KHG shall promptly notify the Holder of
such event; and KHG shall promptly compute the Warrant Repurchase Price and
furnish to the Holder
5
<PAGE>
a certificate, signed by the principal financial officer of KHG, setting forth
the Warrant Repurchase Price and the basis and computation thereof.
8. Rights of the Holder. (A) Without limiting the foregoing or any
remedies available to the Holder, it is specifically acknowledged that the
Holder would not have an adequate remedy at law for any breach of the provisions
of this Warrant and shall be entitled to specific performance of KHG's
obligations under, and injunctive relief against any actual or threatened
violation of the obligations of any Person (as defined in Paragraph 7 of the
Warrant Agreement) subject to, this Warrant.
(B) The Holder shall not, by virtue of its status as Holder,
be entitled to any rights of a shareholder in KHG.
9. Termination. This Warrant and the rights conferred hereby shall
terminate (i) upon the Effective Date of the merger provided for in the Merger
Agreement, (ii) upon a valid termination of the Merger Agreement prior to the
occurrence of an event described in Paragraph 2 of the Warrant Agreement, or
(iii) to the extent this Warrant has not previously been exercised, 60 days
after the occurrence of an event described in Paragraph 2 of the Warrant
Agreement.
6
<PAGE>
10. Governing Law. This Warrant shall be deemed to have been delivered
in, and shall be governed by and interpreted in accordance with the substantive
laws of, the Commonwealth of Pennsylvania.
Dated: August 15, 1997
KEYSTONE HERITAGE GROUP, INC.
By: /s/ Albert B. Murry
------------------------------------
Albert B. Murry, President and
Chief Executive Officer
Attest: /s/ Peggy Y. Layser
---------------------------------
Peggy Y. Layser, Secretary
7
EXHIBIT 10.1 - WARRANT AGREEMENT
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made August 15, 1997 by and between Fulton
Financial Corporation, a Pennsylvania business corporation ("FFC") and Keystone
Heritage Group, Inc., a Pennsylvania business corporation ("KHG").
W I T N E S S E T H:
WHEREAS, FFC and KHG are, simultaneously with the execution of this
Agreement, entering into a Merger Agreement dated as of the date hereof (the
"Merger Agreement"); and
WHEREAS, as a condition to FFC's entry into the Merger Agreement and in
consideration of such entry, KHG has agreed to issue to FFC, on the terms and
conditions set forth herein, a warrant entitling FFC to purchase up to an
aggregate of 981,740 shares of KHG's common stock, $5.00 par value per share
(the "Common Stock");
NOW, THEREFORE, in consideration of the execution of the Merger
Agreement and the premises herein contained, and intending to be legally bound,
FFC and KHG agree as follows:
1. Issuance of Warrant. Concurrently with the execution of the Merger
Agreement and this Agreement, KHG shall issue to FFC a warrant in the form
attached as Exhibit A hereto (the "Warrant", which term as used herein shall
include any warrant or warrants issued upon transfer or exchange of the original
Warrant) to purchase up to 981,740 shares of Common Stock, subject to adjustment
as provided in this Agreement and in the Warrant. The Warrant shall be
exercisable at a purchase price of $36.75 per share, subject to adjustment as
provided in the Warrant (the "Exercise Price"). So long as the Warrant is
outstanding and unexercised, KHG shall at all times maintain and reserve, free
from preemptive rights, such number of authorized but unissued shares of Common
Stock as may be necessary so that the Warrant may be exercised, without any
additional authorization of Common Stock, after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares of
Common Stock. KHG represents and warrants that it has duly authorized the
execution and delivery of the Warrant and this Agreement and the issuance of
Common Stock upon exercise of the Warrant. KHG covenants that the shares of
Common Stock issuable upon exercise of the Warrant shall be, when so issued,
duly authorized, validly issued, fully paid and nonassessable and subject to no
preemptive rights. The Warrant and the shares of Common Stock to be issued upon
<PAGE>
exercise of the Warrant are hereinafter collectively referred to, from time to
time, as the "Securities." So long as the Warrant is owned by FFC, the Warrant
will in no event be exercised for more than that number of shares of Common
Stock equal to 981,740 (subject to adjustment as provided in the Warrant) less
the number of shares of Common Stock at the time owned by FFC.
2. Assignment, Transfer, or Exercise of Warrant. FFC will not sell,
assign, transfer or exercise the Warrant, in whole or in part, without the prior
written consent of KHG except upon or after the occurrence of any of the
following: (i) a knowing breach of any representation, warranty, or covenant set
forth in the Merger Agreement by KHG which would permit a termination of the
Merger Agreement by FFC pursuant to Section 8.1(b)(i) thereof following: (A) the
occurrence of an event described in subparagraphs (iii) or (iv) below or (B) an
offer or filing described in subparagraph (v) below; (ii) the failure of KHG's
shareholders to approve the Merger Agreement at a meeting called for such
purpose if at the time of such meeting there has been an announcement by any
Person (other than FFC) of an offer or proposal to acquire 25% or more of the
Common Stock (before giving effect to any exercise of the Warrant), or to
acquire, merge or consolidate with KHG, or to purchase all or substantially all
of KHG's assets (including without limitation any shares of Lebanon Valley
National Bank ("LVNB") or all or substantially all of LVNB's assets) and, within
ten business days after such announcement, the Board of Directors of KHG either
fails to recommend against acceptance of such offer by KHG's shareholders or
takes no position with respect thereto; (iii) the acquisition by any Person of
Beneficial Ownership of 25% or more of the Common Stock (before giving effect to
any exercise of the Warrant); (iv) any Person (other than FFC) shall have
commenced a tender or exchange offer, or shall have filed an application with an
appropriate bank regulatory authority with respect to a publicly announced
offer, to purchase or acquire securities of KHG such that, upon consummation of
such offer, such Person would have Beneficial Ownership of 25% or more of the
Common Stock (before giving effect to any exercise of the Warrant) and, within
12 months from such offer or filing, such person consummates an acquisition
described in subparagraph (iii) above; (v) KHG shall have entered into an
agreement, letter of intent, or other understanding with any Person (other than
FFC) providing for such Person (A) to acquire, merge, consolidate or enter into
a statutory share exchange with KHG or to purchase all or substantially all of
KHG's assets (including without limitation any shares of LVNB or all or
substantially all of LVNB's assets), or (B) to negotiate with KHG with respect
to any of the events or transactions mentioned in the preceding clause (A) or
(vi) termination, or attempted termination, of the Merger Agreement by KHG under
Section 5.7 of the Merger Agreement. As used in this Paragraph 2, the terms
"Beneficial Ownership" and "Person" shall have the respective meanings set forth
in Paragraph 7(f).
3. Registration Rights. If, at any time within two years after the
Warrant may be exercised or sold, KHG shall receive a written request therefor
from FFC, KHG shall
<PAGE>
prepare and file a shelf registration statement (the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), covering
the Warrant and/or the Common Stock issued or issuable upon exercise of the
Warrant (the "Securities"), and shall use its best efforts to cause the
Registration Statement to become effective and remain current for such period
not in excess of 180 days from the day such registration statement first becomes
effective as may be reasonably necessary to affect such sale or other
disposition. Without the prior written consent of FFC, neither KHG nor any other
holder of securities of KHG may include such securities in the Registration
Statement.
4. Duties of KHG upon Registration. If and whenever KHG is required by
the provisions of Paragraph 3 of this Agreement to effect the registration of
any of the Securities under the Securities Act, KHG shall:
(a) prepare and file with the Securities and Exchange
Commission (the "SEC") such amendments to the Registration Statement
and supplements to the prospectus contained therein as may be necessary
to keep the Registration Statement effective and current;
(b) furnish to FFC and to the underwriters of the Securities
being registered such reasonable number of copies of the Registration
Statement, the preliminary prospectus and final prospectus contained
therein, and such other documents as FFC or such underwriters may
reasonably request in order to facilitate the public offering of the
Securities;
(c) use its best efforts to register or qualify the Securities
covered by the Registration Statement under the state securities or
blue sky laws of such jurisdictions as FFC or such underwriters may
reasonably request;
(d) notify FFC, promptly after KHG shall receive notice
thereof, of the time when the Registration Statement has become
effective or any supplement or amendment to any prospectus forming a
part of the Registration Statement has been filed;
(e) notify FFC promptly of any request by the SEC for the
amending or supplementing of the Registration Statement or the
prospectus contained therein, or for additional information;
(f) prepare and file with the SEC, promptly upon the request
of FFC, any amendments or supplements to the Registration Statement or
the prospectus contained therein which, in the opinion of counsel for
FFC, are required under the Securities Act or the rules and regulations
promulgated by the SEC thereunder in connection with the public
offering of the Securities;
<PAGE>
(g) prepare and promptly file with the SEC such amendments of
or supplements to the Registration Statement or the prospectus
contained therein as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such Securities
is required to be delivered under the Securities Act, any event shall
have occurred as the result of which such prospectus as then in effect
would include an untrue statement of a material fact or would omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(h) advise FFC, promptly after KHG shall receive notice or
obtain knowledge of the issuance of any stop order by the SEC
suspending the effectiveness of the Registration Statement, or the
initiation or threatening of any proceeding for that purpose, and
promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued; and
(i) at the request of FFC, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion or opinions
of counsel for KHG for the purposes of such registration, addressed to
the underwriters and to FFC, covering such matters as such underwriters
and FFC may reasonably request and as are customarily covered by
issuer's counsel at that time; and (ii) a letter or letters from the
independent accountants for KHG, addressed to the underwriters and to
FFC, covering such matters as such underwriters or FFC may reasonably
request, in which letters such accountants shall state (without
limiting the generality of the foregoing) that they are independent
accountants within the meaning of the Securities Act and that, in the
opinion of such accountants, the financial statements and other
financial data of KHG included in the Registration Statement or any
amendment or supplement thereto comply in all material respects with
the applicable accounting requirements of the Securities Act.
5. Expenses of Registration. With respect to the registration requested
pursuant to Paragraph 3 of this Agreement, (a) KHG shall bear all registration,
filing and NASD fees, printing and engraving expenses, fees and disbursements of
its counsel and accountants and all legal fees and disbursements and other
expenses of KHG to comply with state securities or blue sky laws of any
jurisdictions in which the Securities to be offered are to be registered or
qualified; and (b) FFC shall bear all fees and disbursements of its counsel and
accountants, underwriting discounts and commissions, transfer taxes for FFC and
any other expenses incurred by FFC.
<PAGE>
6. Indemnification. In connection with any Registration Statement or
any amendment or supplement thereto:
(a) KHG shall indemnify and hold harmless FFC, any underwriter
(as defined in the Securities Act) for FFC, and each person, if any,
who controls FFC or such underwriter (within the meaning of the
Securities Act) from and against any and all loss, damage, liability,
cost or expense to which FFC or any such underwriter or controlling
person may become subject under the Securities Act or otherwise,
insofar as such loss, damage, liability, cost or expense arises out of
or is caused by any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any prospectus
or preliminary prospectus contained therein or any amendment or
supplement thereto, or arises out of or is based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
provided, however, that KHG will not be liable in any such case to the
extent that any such loss, damage, liability, cost or expense arises
out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission so made in conformity with information
furnished by FFC, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
(b) FFC shall indemnify and hold harmless KHG, any underwriter
(as defined in the Securities Act), and each person, if any, who
controls KHG or such underwriter (within the meaning of the Securities
Act) from and against any and all loss, damage, liability, cost or
expense to which KHG or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such
loss, damage, liability, cost or expense arises out of or is caused by
any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, any prospectus or preliminary prospectus
contained therein or any amendment or supplement thereto, or arises out
of or is based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in
which they were made, not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance upon
and in conformity with written information furnished by FFC
specifically for use in the preparation thereof.
(c) Promptly after receipt by any party which is entitled to
be indemnified, pursuant to the provisions of subparagraph (a) or (b)
of this Paragraph 6, of any claim in writing or of notice of the
commencement of any action involving the subject matter of the
foregoing indemnity provisions, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party
pursuant to the provisions of subparagraph (a) or (b) of this Paragraph
6, promptly notify the indemnifying party of the receipt of such claim
<PAGE>
or notice of the commencement of such action, but the omission to so
notify the indemnifying party will not relieve it from any liability
which it may otherwise have to any indemnified party hereunder. In case
any such action is brought against any indemnified party and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party shall have the right to participate in and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any action include both the indemnified party or parties
and the indemnifying party and there is a conflict of interest which
would prevent counsel for the indemnifying party from also representing
any indemnified party, such indemnified party shall have the right to
select separate counsel to participate in the defense of such
indemnified party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party,
pursuant to the provisions of subparagraph (a) or (b) of this Paragraph
6, for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than
reasonable costs of investigation, unless (i) such indemnified party
shall have employed separate counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have
employed counsel satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the
commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
(d) If recovery is not available under the foregoing
indemnification provisions, for any reason other than as specified
therein, any party entitled to indemnification by the terms thereof
shall be entitled to obtain contribution with respect to its
liabilities and expenses, except to the extent that contribution is not
permitted under Section 11(f) of the Securities Act. In determining the
amount of contribution to which the respective parties are entitled
there shall be considered the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and/or prevent any statement or
omission, and any other equitable considerations appropriate under the
circumstances. FFC and KHG agree that it would not be equitable if the
amount of such contribution were determined by pro rata or per capita
allocation even if the underwriters and FFC as a group were considered
a single entity for such purpose.
<PAGE>
7. Redemption and Repurchase Rights.
(a) From and after the date on which any event described in
Paragraph 2 of this Agreement occurs, the Holder as defined in the
Warrant (which shall include a former Holder), who has exercised the
Warrant in whole or in part shall have the right to require KHG to
redeem some or all of the shares of Common Stock for which the Warrant
was exercised at a redemption price per share (the "Redemption Price")
equal to the highest of: (i) the Exercise Price, (ii) the highest price
paid or agreed to be paid for any share of Common Stock by an Acquiring
Person (as defined below) during the one year period immediately
preceding the date of redemption, and (iii) in the event of a sale of
all or substantially all of KHG's assets or all or substantially all of
LVNB's assets: (x) the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of KHG as
determined by a recognized investment banking firm selected by such
Holder, divided by (y) the number of shares of Common Stock then
outstanding. If the price paid consists in whole or in part of
securities or assets other than cash, the value of such securities or
assets shall be their then current market value as determined by a
recognized investment banking firm selected by the Holder and
reasonably acceptable to KHG.
(b) From and after the date on which any event described in
Paragraph 2 of this Agreement occurs, the Holder as defined in the
Warrant (which shall include a former Holder), shall have the right to
require KHG to repurchase all or any portion of the Warrant at a price
(the "Warrant Repurchase Price") equal to the product obtained by
multiplying: (i) the number of shares of Common Stock represented by
the portion of the Warrant that the Holder is requiring KHG to
repurchase, times (ii) the excess of the Redemption Price over the
Exercise Price.
(c) The Holder's right, pursuant to this Paragraph 7, to
require KHG to repurchase a portion or all of the Warrant, and/or to
require KHG to redeem some or all of the shares of Common Stock for
which the Warrant was exercised, shall expire on the close of business
on the 60th day following the occurrence of any event described in
Paragraph 2.
(d) The Holder may exercise its right, pursuant to this
Paragraph 7, to require KHG to repurchase all or a portion of the
Warrant, and/or to require KHG to redeem some or all of the shares of
Common Stock for which the Warrant was exercised, by surrendering for
such purpose to KHG, at its principal office within the time period
specified in the preceding subparagraph, the Warrant and/or a
certificate or certificates representing the number of shares to be
redeemed accompanied by a written notice stating that it elects to
require KHG to repurchase the Warrant or a portion thereof and/or to
redeem all or a specified number of such shares in accordance with the
provisions of this
<PAGE>
Paragraph 7. As promptly as practicable, and in any event within five
business days after the surrender of the Warrant and/or such
certificates and the receipt of such notice relating thereto, KHG shall
deliver or cause to be delivered to the Holder: (i) the applicable
Redemption Price (in immediately available funds) for the shares of
Common Stock which it is not then prohibited under applicable law or
regulation from redeeming, and/or (ii) the applicable Warrant
Repurchase Price, and/or (iii) if the Holder has given KHG notice that
less than the whole Warrant is to be repurchased and/or less than the
full number of shares of Common Stock evidenced by the surrendered
certificate or certificates are to be redeemed, a new certificate or
certificates, of like tenor, for the number of shares of Common Stock
evidenced by such surrendered certificate or certificates less the
number shares of Common Stock redeemed and/or a new Warrant reflecting
the fact that only a portion of the Warrant was repurchased.
(e) To the extent that KHG is prohibited under applicable law
or regulation, or as a result of administrative or judicial action,
from repurchasing the Warrant and/or redeeming the Common Stock as to
which the Holder has given notice of repurchase and/or redemption, KHG
shall immediately so notify the Holder and thereafter deliver or cause
to be delivered, from time to time to the Holder, the portion of the
Warrant Repurchase Price and/or the Redemption Price which it is no
longer prohibited from delivering, within five business days after the
date on which KHG is no longer so prohibited; provided, however, that
to the extent that KHG is at the time and after the expiration of 25
months, so prohibited from delivering the Warrant Repurchase Price
and/or the Redemption Price, in full (and KHG hereby undertakes to use
its best efforts to obtain all required regulatory and legal approvals
as promptly as practicable), KHG shall deliver to the Holder a new
Warrant (expiring one year after delivery) evidencing the right of the
Holder to purchase that number of shares of Common Stock representing
the portion of the Warrant which KHG is then so prohibited from
repurchasing, and/or KHG shall deliver to the Holder a certificate for
the shares of Common Stock which KHG is then so prohibited from
redeeming, and KHG shall have no further obligation to repurchase such
new Warrant or redeem such Common Stock; and provided further, that
upon receipt of such notice and until five days thereafter the Holder
may revoke its notice of repurchase of the Warrant and/or redemption of
Common Stock by written notice to KHG at its principal office stating
that the Holder elects to revoke its election to exercise its right to
require KHG to repurchase the Warrant and/or redeem the Common Stock,
whereupon KHG will promptly redeliver to the Holder the Warrant and/or
the certificates representing shares of Common Stock surrendered to KHG
for purposes of such repurchase and/or redemption, and KHG shall have
no further obligation to repurchase such Warrant and/or redeem such
Common Stock.
<PAGE>
(f) As used in this Agreement the following terms have the
meanings indicated:
(1) "Acquiring Person" shall mean any "Person"
(hereinafter defined) who or which is the "Beneficial Owner"
(hereinafter defined) of 25% or more of the Common Stock;
(2) A "Person" shall mean any individual, firm,
corporation or other entity and shall also include any
syndicate or group deemed to be a "Person" by operation of
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended;
(3) A Person shall be a "Beneficial Owner", and shall
have "Beneficial Ownership," of all securities:
(i) which such Person or any of its
Affiliates (as hereinafter defined) beneficially
owns, directly or indirectly; and
(ii) which such Person or any of its
Affiliates or Associates has (1) the right to acquire
(whether such right is exercisable immediately or
only after the passage of time or otherwise) pursuant
to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (2) the
right to vote pursuant to any proxy, power of
attorney, voting trust, agreement, arrangement or
understanding; and
(4) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the regulations promulgated by the SEC under the Securities
and Exchange Act of 1934, as amended.
8. Remedies. Without limiting the foregoing or any remedies available
to FFC, it is specifically acknowledged that FFC would not have an adequate
remedy at law for any breach of this Warrant Agreement and shall be entitled to
specific performance of KHG's obligations under, and injunctive relief against
any actual or threatened violation of the obligations of any Person subject to,
this Agreement.
<PAGE>
9. Miscellaneous.
(a) The representations, warranties, and covenants of KHG set
forth in the Merger Agreement are hereby incorporated by reference in
and made a part of this Agreement, as if set forth in full herein.
(b) This Agreement, the Warrant and the Merger Agreement set
forth the entire understanding and agreement of the parties hereto and
supersede any and all prior agreements, arrangements and
understandings, whether written or oral, relating to the subject matter
hereof and thereof. No amendment, supplement, modification, waiver, or
termination of this Agreement shall be valid and binding unless
executed in writing by both parties.
(c) This Agreement shall be deemed to have been made in, and
shall be governed by and interpreted in accordance with the substantive
laws of, the Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized officers as of the day and year first above
written.
FULTON FINANCIAL CORPORATION
By:/s/ Rufus A. Fulton, Jr.
-------------------------------------
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Attest:/s/ William R. Colmery
---------------------------------
William R. Colmery, Secretary
KEYSTONE HERITAGE GROUP, INC.
By:/s/ Albert B. Murry
-------------------------------------
Albert B. Murry, President
and Chief Executive Officer
Attest:/s/ Peggy Y. Layser
---------------------------------
Peggy Y. Layser, Secretary
EXHIBIT 10.2 - EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
Employment Agreement dated as of August 15, 1997, between Lebanon
Valley National Bank, a national banking association (the "Bank"), and Albert B.
Murry (the "Executive").
BACKGROUND
Executive is currently employed as the President and Chief Executive
Officer of the Bank. The Bank's parent, Keystone Heritage Group, Inc., and
Fulton Financial Corporation ("FFC") have merged into a Merger Agreement of even
date (the "Merger Agreement"). The Bank desires to employ Executive, and
Executive desires to remain in the employ of the Bank, on the terms and
conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
Section 1. Capacity and Duties
1.1 Employment: Acceptance of Employment. The Bank hereby employs
Executive and Executive hereby agrees to continue employment by the Bank for the
period and upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall serve as the Bank's Chairman and Chief
Executive Officer. Executive shall perform such other duties and shall have such
authority consistent with his position as may from time to time reasonably be
specified by the Boards of Directors of the Bank and FFC (the "Boards").
Executive shall report directly to the Board and shall perform his duties for
the Bank principally at the Bank's offices located in, or at such other
locations determined by the Boards within a 30 mile radius of, Lebanon,
Pennsylvania, except for periodic travel that may be necessary or appropriate in
connection with the performance of Executive's duties hereunder.
(b) Executive shall devote his full working time, energy,
skill and best efforts to the performance of his duties hereunder, in a manner
that will faithfully and diligently further the business and interests of the
Bank, and shall not be employed by or participate or engage in or be a part of
in any manner the management or operation of any business enterprise other than
the Bank without the prior written consent of the Boards, which consent may be
granted or withheld in their sole discretion.
Section 2. Term of Employment
2.1 Term. The initial term of Executive's employment hereunder
shall be four (4) years commencing on the effective date of the merger
contemplated by the Merger Agreement unless further extended or sooner
terminated in accordance with the provisions hereof.
<PAGE>
Section 3. Compensation
3.1 Basic Compensation. As compensation for Executive's services
during 1998, the Bank shall pay to Executive a salary of at the annual rate
equal to Executive's salary and bonus for 1997 (determined under Bank's current
compensation program), payable in periodic installments in accordance with the
Bank's regular payroll practices in effect from time to time. For years
subsequent to 1998, Executive's salary shall be in the amount of his salary for
1998 with such increases, if any, as may be established by the Board of
Directors of FFC in consultation with Executive. Executive's annual salary, as
determined in accordance with this Section 3.1, is hereinafter referred to as
his "Base Salary".
3.2 Employee Benefits. In addition to the compensation provided
for in Section 3.1, Executive shall be entitled during the term of his
employment to participate in such of the Bank's employee benefit plans and
benefit programs, including medical benefit programs, as may from time to time
be provided for executive officers of the Bank. Executive shall also be entitled
to participate in FFC's Incentive Stock Option Plan subject to the discretion of
FFC's Stock Option Committee as to option awards.
3.3 Vacation. Executive shall be entitled to a paid vacation
during the term of his employment commensurate with vacations as may from time
to time be provided for executive officers of the Bank.
3.4 Expense Reimbursement. During the term of his employment, the
Bank shall reimburse Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in accordance with its
regular reimbursement policies as in effect from time to time and upon receipt
of itemized vouchers therefor and such other supporting information as the Bank
may reasonably require.
Section 4. Termination of Employment
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which the Bank shall not hereafter be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued as of the date of Executive's death
in accordance with generally accepted accounting principles.
4.2 Disability of Executive. If Executive, in the reasonable
opinion of the Board, is or has been materially unable for any reason to perform
his duties hereunder for a period of 180 consecutive days, then the Board shall
have the right to terminate Executive's employment upon 30 days' prior written
notice to Executive at any time during the continuation of such inability, in
which event the Bank shall not thereafter be obligated to make any further
payments hereunder other than amounts (including salary, expense reimbursement)
accrued under this Agreement as of the date of such termination in accordance
with generally accepted accounting principles.
<PAGE>
4.3 Termination for Cause. Executive's employment hereunder shall
terminate immediately upon notice that the Board is terminating Executive for
"Cause" (as defined herein), in which event the Bank shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued under this Agreement as of the date
of such termination in accordance with generally accepted accounting principles.
As used herein, "Cause" shall mean the following, provided that, in the case of
circumstances described in clauses (c) through (d) below, Executive has failed
to remedy the circumstances to the Board's satisfaction within 30 days following
notice thereof to Executive:
(a) fraud committed in connection with Executive's
employment, dishonesty, theft, misappropriation or
embezzlement of the Bank's funds;
(b) conviction of any felony, crime involving fraud or
misrepresentation, or of any other crime (whether or
not connected with his employment) the effect of which
is likely to adversely affect the Bank or its
affiliates;
(c) repeated and consistent failure of Executive to be
present at work during normal business hours unless the
absence is because of a disability as described in
Section 4.2;
(d) insubordination, gross incompetence or misconduct in
the performance of, or gross neglect of, Executive's
duties hereunder; or
(e) use of alcohol or other drugs which interferes with the
performance by Executive of his duties.
4.4 Termination Without Cause; Termination for Good Reason.
(a) In the event:
(i) Executive's employment is terminated by the Bank
for any reason other than Cause or the death or
disability of Executive; or
(ii) Executive's employment is terminated by Executive
for "Good Reason" (as defined herein);
then the Bank shall continue to pay Executive all of the consideration provided
for in Section 3.1 above (including the increases provided herein) during the
remainder of the then-current term of Executive's employment and subject to the
applicable provisions thereof, all stock options granted to Executive by Fulton
Financial Corporation shall become immediately vested and exercisable on the
date of such termination and for 90 days thereafter. Executive shall also
continue to receive employee benefits cited in Section 3.2.
(b) As used in this Section 4, the terms "persons" and
"beneficial owners" have the same meanings as such terms under Section 13(d) of
the Securities Exchange Act of 1934 and the rules and regulations thereunder.
<PAGE>
(c) As used herein, the term "Good Reason" shall mean the
following:
(i) material breach of the Bank's material
obligations under this Agreement, provided that
the Bank has not remedied such breach after
notice and a reasonable opportunity to cure;
(ii) any decrease in Executive's Base Salary as
increased during his term of employment pursuant
to this Agreement (except for decreases that are
in conjunction with decreases in executive
salaries generally), any material reduction in
Executive's duties or authority, and any material
reduction in Executive's employee benefits below
those required to be provided from time to time
pursuant to Section 3.2 and 3.3;
(iii) The Bank requiring Executive to be based at a
location outside a 30 mile radius of Lebanon,
Pennsylvania, except for reasonably required
travel on the Bank's business
4.5 Voluntary Termination. In the event Executive's employment is
voluntarily terminated by Executive without Good Reason, the Bank shall not be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued as of the date of Executive's
termination in accordance with generally accepted accounting principles. Upon
making the payments described in this Section 4.5, the Bank shall have no
further obligation to Executive hereunder.
Section 5. Restrictive Covenants
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to the Bank and shall not, at any time during or after his
employment by the Bank, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of the Bank or any of
its affiliates obtained or acquired by him while so employed. All computer
software, address books, rolodexes, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, books, records, files and know-how
acquired while an employee of the Bank, are acknowledged to be the property of
the Bank and shall not be duplicated, removed from the Bank's possession or made
use of other than in pursuit of the Bank's business and, upon termination of
employment for any reason, Executive shall deliver to the Bank, without further
demand, all copies thereof which are then in his possession or under his
control.
5.2 Non-Competition. Except under the provisions of Sections 4.3
and 4.5, Executive shall not during the term of employment hereunder and for a
period of three (3) years thereafter, directly or indirectly:
<PAGE>
(a) engage, anywhere in the Commonwealth of Pennsylvania,
in commercial banking;
(b) be or become a stockholder partner, owner, officer,
director or employee or agent of, or a consultant to or
give financial or other assistance to any person or
entity considering engaging in commercial banking or so
engaged;
(c) seek in competition with the business of the Bank or
FFC to procure orders from or do business with any
customer of the Bank or FFC;
(d) solicit, or contact with a view to the engagement or
employment by, any person or entity of any person who
is an employee of the Bank or FFC;
(e) seek to contract with or engage (in such a way as to
adversely affect or interfere with the business of the
Bank or FFC) any person or entity who has been
contracted with or engaged to manufacture, assemble,
supply or deliver products, goods, materials or
services to the Bank; or
(f) engage in or participate in any effort or act to induce
any of the customers, associates, consultants, or
employees of the Bank, FFC or any of their affiliates
to take any action which might be disadvantageous to
the Bank, FFC or any of their affiliates; provided,
however, that nothing herein shall prohibit the
Executive and his affiliates from owning, as passive
investors, in the aggregate not more than 5% of the
outstanding publicly traded stock of any corporation so
engaged.
For the purpose of the foregoing, FFC shall be deemed to refer to
FFC and all of its present or future affiliates.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the covenants
contained herein are fair and reasonable in light of the consideration paid
hereunder, and that damages alone shall not be an adequate remedy for any breach
by Executive of his covenants contained herein and accordingly expressly agrees
that, in addition to any other remedies which the Bank may have, the Bank shall
be entitled to injunctive relief in any court of competent jurisdiction for any
breach or threatened breach of any such covenants by Executive. Nothing
contained herein shall prevent or delay the Bank from seeking, in any court of
competent jurisdiction, specific performance or other equitable remedies in the
event of any breach or intended breach by Executive of any of its obligations
hereunder.
<PAGE>
(b) Notwithstanding the equitable relief available to
company, the Executive, in the event of a breach of his covenants contained in
Section 5 hereof, understands and agrees that the uncertainties and delay
inherent in the legal process would result in a continuing breach for some
period of time, and therefore, continuing injury to the Bank until and unless
the Bank can obtain such equitable relief. Therefore, in addition to such
equitable relief, the Bank shall be entitled to monetary damages for any such
period of breach until the termination of such breach, in an amount deemed
reasonable to cover all actual and consequential losses, plus all monies
received by Executive as a result of said breach and all costs and attorney's
fees incurred by the Bank in enforcing this Agreement. If Executive should use
or reveal to any other person or entity any confidential information, this will
be considered a continuing violation on a daily basis for so long a period of
time as such confidential information is made use of by Executive or any such
other person or entity.
Section 6. Miscellaneous.
6.1 Invalidity. If any provision hereof is determined to be
invalid or unenforceable by a court of competent jurisdiction, Executive shall
negotiate in good faith to provide the Bank with protection as nearly equivalent
to that found to be invalid or unenforceable and if any such provision shall be
so determined to be invalid or unenforceable by reason of the duration or
geographical scope of the covenants contained therein, such duration or
geographical scope, or both, shall be considered to be reduced to a duration or
geographical scope to the extend necessary to cure such invalidity.
6.2 Assignment: Benefit. This Agreement shall not be assignable by
Executive, and shall be assignable by the Bank only to any affiliate or to any
person or entity which may become a successor in interest (by purchase of assets
or stock, or by merger, or otherwise) to the Bank in the business or a portion
of the business presently operated by it. Subject to the foregoing, this
Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon, the parties hereto and each of their respective
permitted successors, assigns, heirs, executors and administrators.
6.3 Notices. All notices hereunder shall be in writing and shall
be sufficiently given if hand-delivered, sent by documented overnight delivery
service or registered or certified mail, postage prepaid, return receipt
requested or by telegram, fax or telecopy (confirmed by U. S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
(a) If to the Bank:
Lebanon Valley National Bank
555 Willow Street
Lebanon, PA 17046
Attention:
<PAGE>
(b) If to Executive:
820 Tudor Lane
Lebanon, Pennsylvania 17042
6.4 Entire Agreement and Modification. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters
contemplated herein and supersedes all prior agreements and understandings with
respect thereto. The existing employment agreement between the Bank and
Executive shall be terminated, with no further rights or obligations thereunder
due to or from either party, as of the effective date of the merger contemplated
by the Merger Agreement. Any amendment, modification, or waiver of this
Agreement shall not be effective unless in writing. Neither the failure nor any
delay on the part of any party to exercise any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other right,
remedy, power, or privilege with respect to any occurrence be constr led as a
waiver of any right, remedy, power, or privilege with respect to any other
occurrence.
6.5 Governing Law. This Agreement is made pursuant to, and shall
be construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania (and United States federal law, to the extent applicable), without
giving effect to otherwise applicable principles of conflicts of law.
6.6 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.7 Further Assurances. Each of the parties hereto shall execute
such further instruments and take such other actions as any other party shall
reasonably request in order to effectuate the purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LEBANON VALLEY NATIONAL BANK
By:President and Chief Executive Officer
-----------------------------------------
Title
/s/ Albert B. Murry
-----------------------------------------
Albert B. Murry
EXHIBIT 10.3 - EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT
Employment Agreement dated as of August 15, 1997, between Lebanon
Valley National Bank, a national banking association (the "Bank"), and Kurt A.
Phillips (the "Executive").
BACKGROUND
Executive is employed as the Executive Vice President and Chief
Financial Officer of the Bank. Currently the Bank's parent, Keystone Heritage
Group, Inc., and Fulton Financial Corporation ("FFC") have entered into a Merger
Agreement of even date (the "Merger Agreement"). The Bank desires to employ
Executive, and Executive desires to remain in the employ of the Bank, on the
terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and intending to be legally bound
hereby, the parties hereto agree as follows:
Section 1. Capacity and Duties
1.1 Employment: Acceptance of Employment. The Bank hereby employs
Executive and Executive hereby agrees to continue employment by the Bank for the
period and upon the terms and conditions hereinafter set forth.
1.2 Capacity and Duties.
(a) Executive shall initially serve as the Bank's Executive
Vice President and Chief Financial Officer. Executive shall perform such other
duties, shall serve in such other positions at the Bank, FFC or at an FFC
affiliate bank and shall have such authority consistent with his position or
duties as may from time to time reasonably be specified by the President of the
Bank and the Boards of Directors of the Bank and FFC (the "Boards"). Executive
shall report directly to President of the Bank and shall perform his duties for
the Bank, FFC or an FFC affiliate bank principally at the Bank's offices located
in Lebanon, Pennsylvania, FFC's offices in Lancaster, Pennsylvania or at such
other locations determined by the Boards within a 30 mile radius of Lebanon,
Pennsylvania, except for periodic travel that may be necessary or appropriate in
connection with the performance of Executive's duties hereunder. In the event
Executive performs duties for, or is appointed to a position with, FFC or
another FFC affiliate bank, references as to the Bank herein shall include FFC
or such other FFC affiliate bank, as appropriate.
(b) Executive shall devote his full working time, energy,
skill and best efforts to the performance of his duties hereunder, in a manner
that will faithfully and diligently further the business and interests of the
Bank, and shall not be employed by or participate or engage in or be a part of
in any manner the management or operation of any business enterprise other than
the Bank without the prior written consent of the Boards, which consent may be
granted or withheld in their sole discretion.
<PAGE>
Section 2. Term of Employment
2.1 Term. The initial term of Executive's employment hereunder
shall be three (3) years commencing on the effective date of the merger
contemplated by the Merger Agreement unless further extended or sooner
terminated in accordance with the provisions hereof.
Section 3. Compensation
3.1 Basic Compensation. As compensation for Executive's services
during 1998, the Bank shall pay to Executive a salary of at the annual rate
equal to Executive's salary and bonus for 1997 (determined under Bank's current
compensation program), payable in periodic installments in accordance with the
Bank's regular payroll practices in effect from time to time. For years
subsequent to 1998, Executive's salary shall be in the amount of his salary for
1998 with such increases, if any, as may be established by the Bank's
Compensation Committee in consultation with Executive. Executive's annual
salary, as determined in accordance with this Section 3.1, is hereinafter
referred to as his "Base Salary".
3.2 Employee Benefits. In addition to the compensation provided
for in Section 3.1, Executive shall be entitled during the term of his
employment to participate in such of the Bank's employee benefit plans and
benefit programs, including medical benefit programs, as may from time to time
be provided for executive officers of the Bank.
3.3 Vacation. Executive shall be entitled to a paid vacation
during the term of his employment commensurate with vacations as may from time
to time be provided for executive officers of the Bank.
3.4 Expense Reimbursement. During the term of his employment, the
Bank shall reimburse Executive for all reasonable expenses incurred by him in
connection with the performance of his duties hereunder in accordance with its
regular reimbursement policies as in effect from time to time and upon receipt
of itemized vouchers therefor and such other supporting information as the Bank
may reasonably require.
Section 4. Termination of Employment
4.1 Death of Executive. Executive's employment hereunder shall
immediately terminate upon his death, upon which the Bank shall not hereafter be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued as of the date of Executive's death
in accordance with generally accepted accounting principles.
4.2 Disability of Executive. If Executive, in the reasonable
opinion of the Board, is or has been materially unable for any reason to perform
his duties hereunder for a period of 180 consecutive days, then the Board shall
have the right to terminate Executive's employment upon 30 days' prior written
notice to Executive at any time during the continuation of such inability, in
which event the Bank shall not thereafter be obligated to make any further
payments hereunder other than
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amounts (including salary, expense reimbursement) accrued under this Agreement
as of the date of such termination in accordance with generally accepted
accounting principles.
4.3 Termination for Cause. Executive's employment hereunder shall
terminate immediately upon notice that the Board is terminating Executive for
"Cause" (as defined herein), in which event the Bank shall not thereafter be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued under this Agreement as of the date
of such termination in accordance with generally accepted accounting principles.
As used herein, "Cause" shall mean the following, provided that, in the case of
circumstances described in clauses (c) through (d) below, Executive has failed
to remedy the circumstances to the Board's satisfaction within 30 days following
notice thereof to Executive:
(a) fraud committed in connection with Executive's
employment, dishonesty, theft, misappropriation or
embezzlement of the Bank's funds;
(b) conviction of any felony, crime involving fraud or
misrepresentation, or of any other crime (whether or
not connected with his employment) the effect of which
is likely to adversely affect the Bank or its
affiliates;
(c) repeated and consistent failure of Executive to be
present at work during normal business hours unless the
absence is because of a disability as described in
Section 4.2;
(d) insubordination, gross incompetence or misconduct in
the performance of, or gross neglect of, Executive's
duties hereunder; or
(e) use of alcohol or other drugs which interferes with the
performance by Executive of his duties.
4.4 Termination Without Cause; Termination for Good Reason.
(a) In the event:
(i) Executive's employment is terminated by the Bank
for any reason other than Cause or the death or
disability of Executive; or
(ii) Executive's employment is terminated by Executive
for "Good Reason" (as defined herein);
then the Bank shall continue to pay Executive all of the consideration provided
for in Section 3.1 above (including the increases provided herein) during the
remainder of the then-current term of Executive's employment and subject to the
applicable provisions thereof, all stock options granted to Executive by Fulton
Financial Corporation shall become immediately vested and exercisable on
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the date of such termination and for 90 days thereafter. Executive shall also
continue to receive employee benefits cited in Section 3.2.
(b) As used in this Section 4, the terms "persons" and
"beneficial owners" have the same meanings as such terms under Section 13(d) of
the Securities Exchange Act of 1934 and the rules and regulations thereunder.
(c) As used herein, the term "Good Reason" shall mean the
following:
(i) material breach of the Bank's material
obligations under this Agreement, provided that
the Bank has not remedied such breach after
notice and a reasonable opportunity to cure;
(ii) any decrease in Executive's Base Salary as
increased during his term of employment pursuant
to this Agreement (except for decreases that are
in conjunction with decreases in executive
salaries generally), any material reduction in
Executive's duties or authority (subject to the
provisions of Section 1.2(a) herein), and any
material reduction in Executive's employee
benefits below those required to be provided from
time to time pursuant to Section 3.2 and 3.3;
(iii) The Bank requiring Executive to be based at a
location outside a 30 mile radius of Lebanon,
Pennsylvania (other than in FFC's offices in
Lancaster, Pennsylvania), except for reasonably
required travel on the Bank's business.
4.5 Voluntary Termination. In the event Executive's employment is
voluntarily terminated by Executive without Good Reason, the Bank shall not be
obligated to make any further payments hereunder other than amounts (including
salary, expense reimbursement, etc.) accrued as of the date of Executive's
termination in accordance with generally accepted accounting principles. Upon
making the payments described in this Section 4.5, the Bank shall have no
further obligation to Executive hereunder.
Section 5. Restrictive Covenants
5.1 Confidentiality. Executive acknowledges a duty of
confidentiality owed to the Bank and shall not, at any time during or after his
employment by the Bank, retain in writing, use, divulge, furnish, or make
accessible to anyone, without the express authorization of the Board, any trade
secret, private or confidential information or knowledge of the Bank or any of
its affiliates obtained or acquired by him while so employed. All computer
software, address books, rolodexes, business cards, telephone lists, customer
lists, price lists, contract forms, catalogs, books, records, files and know-how
acquired while an employee of the Bank, are acknowledged to be the property of
the Bank and shall not be duplicated, removed from the Bank's possession or made
use of other than in pursuit of the Bank's business and, upon termination of
employment for any reason,
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Executive shall deliver to the Bank, without further demand, all copies thereof
which are then in his possession or under his control.
5.2 Non-Competition. Except under the provisions of Sections 4.3
and 4.5, Executive shall not during the term of employment hereunder and for a
period of three (3) years thereafter, directly or indirectly:
(a) engage, anywhere in the Commonwealth of Pennsylvania,
in commercial banking;
(b) be or become a stockholder partner, owner, officer,
director or employee or agent of, or a consultant to or
give financial or other assistance to any person or
entity considering engaging in commercial banking or so
engaged;
(c) seek in competition with the business of the Bank or
FFC to procure orders from or do business with any
customer of the Bank or FFC;
(d) solicit, or contact with a view to the engagement or
employment by, any person or entity of any person who
is an employee of the Bank or FFC;
(e) seek to contract with or engage (in such a way as to
adversely affect or interfere with the business of the
Bank or FFC) any person or entity who has been
contracted with or engaged to manufacture, assemble,
supply or deliver products, goods, materials or
services to the Bank; or
(f) engage in or participate in any effort or act to induce
any of the customers, associates, consultants, or
employees of the Bank, FFC or any of their affiliates
to take any action which might be disadvantageous to
the Bank, FFC or any of their affiliates; provided,
however, that nothing herein shall prohibit the
Executive and his affiliates from owning, as passive
investors, in the aggregate not more than 5% of the
outstanding publicly traded stock of any corporation so
engaged.
For the purpose of the foregoing, FFC shall be deemed to refer to
FFC and all of its present or future affiliates.
5.3 Injunctive and Other Relief.
(a) Executive acknowledges and agrees that the covenants
contained herein are fair and reasonable in light of the consideration paid
hereunder, and that damages alone shall not be an adequate remedy for any breach
by Executive of his covenants contained herein and accordingly expressly agrees
that, in addition to any other remedies which the Bank may have, the Bank shall
be entitled to injunctive relief in any court of competent jurisdiction for any
breach or threatened breach of any such covenants by Executive. Nothing
contained herein shall prevent or delay the
<PAGE>
Bank from seeking, in any court of competent jurisdiction, specific performance
or other equitable remedies in the event of any breach or intended breach by
Executive of any of its obligations hereunder.
(b) Notwithstanding the equitable relief available to
company, the Executive, in the event of a breach of his covenants contained in
Section 5 hereof, understands and agrees that the uncertainties and delay
inherent in the legal process would result in a continuing breach for some
period of time, and therefore, continuing injury to the Bank until and unless
the Bank can obtain such equitable relief. Therefore, in addition to such
equitable relief, the Bank shall be entitled to monetary damages for any such
period of breach until the termination of such breach, in an amount deemed
reasonable to cover all actual and consequential losses, plus all monies
received by Executive as a result of said breach and all costs and attorney's
fees incurred by the Bank in enforcing this Agreement. If Executive should use
or reveal to any other person or entity any confidential information, this will
be considered a continuing violation on a daily basis for so long a period of
time as such confidential information is made use of by Executive or any such
other person or entity.
Section 6. Miscellaneous.
6.1 Invalidity. If any provision hereof is determined to be
invalid or unenforceable by a court of competent jurisdiction, Executive shall
negotiate in good faith to provide the Bank with protection as nearly equivalent
to that found to be invalid or unenforceable and if any such provision shall be
so determined to be invalid or unenforceable by reason of the duration or
geographical scope of the covenants contained therein, such duration or
geographical scope, or both, shall be considered to be reduced to a duration or
geographical scope to the extend necessary to cure such invalidity.
6.2 Assignment: Benefit. This Agreement shall not be assignable by
Executive, and shall be assignable by the Bank only to any affiliate or to any
person or entity which may become a successor in interest (by purchase of assets
or stock, or by merger, or otherwise) to the Bank in the business or a portion
of the business presently operated by it. Subject to the foregoing, this
Agreement and the rights and obligations set forth herein shall inure to the
benefit of, and be binding upon, the parties hereto and each of their respective
permitted successors, assigns, heirs, executors and administrators.
6.3 Notices. All notices hereunder shall be in writing and shall
be sufficiently given if hand-delivered, sent by documented overnight delivery
service or registered or certified mail, postage prepaid, return receipt
requested or by telegram, fax or telecopy (confirmed by U. S. mail), receipt
acknowledged, addressed as set forth below or to such other person and/or at
such other address as may be furnished in writing by any party hereto to the
other. Any such notice shall be deemed to have been given as of the date
received, in the case of personal delivery, or on the date shown on the receipt
or confirmation therefor, in all other cases. Any and all service of process and
any other notice in any such action, suit or proceeding shall be effective
against any party if given as provided in this Agreement; provided that nothing
herein shall be deemed to affect the right of any party to serve process in any
other manner permitted by law.
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(a) If to the Bank:
Lebanon Valley National Bank
555 Willow Street
Lebanon, PA 17046
Attention:
(b) If to Executive:
1480 Old Hickory Lane
Lebanon, Pennsylvania 17046
6.4 Entire Agreement and Modification. This Agreement constitutes
the entire agreement between the parties hereto with respect to the matters
contemplated herein and supersedes all prior agreements and understandings with
respect thereto. The existing employment agreement between the Bank and
Executive shall be terminated, with no further rights or obligations thereunder
due to or from either party, as of the effective date of the merger contemplated
by the Merger Agreement. Any amendment, modification, or waiver of this
Agreement shall not be effective unless in writing. Neither the failure nor any
delay on the part of any party to exercise any right, remedy, power or privilege
preclude any other or further exercise of the same or of any other right,
remedy, power, or privilege with respect to any occurrence be constr led as a
waiver of any right, remedy, power, or privilege with respect to any other
occurrence.
6.5 Governing Law. This Agreement is made pursuant to, and shall
be construed and enforced in accordance with, the laws of the Commonwealth of
Pennsylvania (and United States federal law, to the extent applicable), without
giving effect to otherwise applicable principles of conflicts of law.
6.6 Headings; Counterparts. The headings of paragraphs in this
Agreement are for convenience only and shall not affect its interpretation. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed to be an original and all of which, when taken together, shall be deemed
to constitute but one and the same Agreement.
6.7 Further Assurances. Each of the parties hereto shall execute
such further instruments and take such other actions as any other party shall
reasonably request in order to effectuate the purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LEBANON VALLEY NATIONAL BANK
By:Executive Vice President
-----------------------------------------
Title
/s/ Kurt A. Phillips
-----------------------------------------
Kurt A. Phillips
