UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
KEYSTONE HERITAGE
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
(2) Aggregate number of securities to which transaction applies:
N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
N/A
(4) Proposed maximum aggregate value of transaction:
N/A
(5) Total fee paid:
N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
KEYSTONE HERITAGE
GROUP INCORPORATED
555 Willow Street
P.O. Box 1285
Lebanon, Pennsylvania 17042
March 7, 1997
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD TUESDAY, APRIL 15, 1997
To Stockholders:
The Annual Meeting of the Stockholders of KEYSTONE HERITAGE GROUP, INC.
(the "Company") will be held in the Ballroom of the Quality Inn Lebanon Valley,
625 Quentin Road, Lebanon, Pennsylvania, at 10:00 A.M. on Tuesday, April 15,
1997, for the following purposes:
1. TO ELECT FOUR DIRECTORS OF THE COMPANY.
2. TO RATIFY THE SELECTION of KPMG Peat Marwick LLP as the Company's
Independent Public Accountants for the fiscal year ending December 31,
1997.
3. TO TRANSACT SUCH other business as may properly come before the meeting
or any postponements or adjournments thereof.
Only stockholders of record at the close of business on February 20, 1997
shall be entitled to notice of and to vote at this meeting.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING ON
APRIL 15, 1997. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE ANNUAL MEETING,
PLEASE SIGN AND DATE THE ENCLOSED FORM OF PROXY AND RETURN IT IN THE ENCLOSED
POSTAGE PAID ENVELOPE. THIS WILL NOT LIMIT YOUR RIGHT TO VOTE IN PERSON IF YOU
WISH TO DO SO AT THE MEETING.
By order of the Board of Directors
Lance M. Frehafer
Secretary
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
555 Willow Street
Lebanon, Pennsylvania 17046
PROXY STATEMENT
Voting at the Meeting
This Proxy Statement, which is being sent to stockholders on or about March
7, 1997, is furnished in connection with the solicitation of proxies by the
Board of Directors of Keystone Heritage Group, Inc., (the "Company") for use at
the Annual Meeting of Stockholders of the Company to be held April 15, 1997 (the
"Annual Meeting") and any postponements or adjournments thereof.
Only stockholders of record of the Company's Common Stock at the close of
business on February 20, 1997, shall be entitled to vote at the Annual Meeting.
As of February 20, 1997, the Company had issued and outstanding 3,965,583 common
shares of par value $5.00 per share (the "Common Stock"). Each stockholder shall
have the right to one vote for each share of Common Stock held in such
stockholder's name on the books of the Company. Cumulative voting for the
election of directors is not permitted.
The cost of soliciting proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited personally or by telephone or
telecopy by officers, directors, and certain employees of the Company who will
not be specially compensated for such soliciting. The Company will, at its
expense, upon the receipt of a request from brokers and other custodians,
nominees, and fiduciaries, forward proxy soliciting material to the beneficial
owners of shares held of record by such persons.
Your proxy, when properly executed, will be voted in accordance with the
specific instructions indicated on your proxy card. Unless contrary instructions
are given, your proxy will be voted FOR the election of the four nominees for
director, as identified under "Election of Directors" below; and FOR the
ratification of the selection of KPMG Peat Marwick LLP as the Company's
Independent Public Accountants for the 1997 fiscal year; and, to the extent
permitted by the rules of the Securities and Exchange Commission, in accordance
with the judgment of the persons voting the proxies upon such other matters as
may properly come before the Annual Meeting or any postponements or adjournments
thereof.
Execution of the accompanying proxy will not affect a stockholder's right
to attend the meeting and vote in person. Any stockholder executing a proxy has
the right to revoke it by delivering notice of revocation or a duly executed
proxy bearing a later date to the Secretary of the Company at any time before
the proxy is voted. If you attend the meeting and you desire to vote in person,
you may revoke your proxy at that time.
1
<PAGE>
The presence at the Annual Meeting, in person or by proxy, of stockholders
entitled to cast a majority of votes which all stockholders are entitled to cast
will constitute a quorum for the meeting. In the election of directors, assuming
a quorum is present, the four nominees receiving the highest number of votes
cast at the Annual Meeting will be elected. The affirmative vote of a majority
of the votes cast at the meeting is required for the selection of the Company's
Independent Public Accountants, assuming a quorum is present with respect to
such matters. An abstention or the specific direction not to cast any vote on a
specific matter, such as broker non-vote, will not constitute the casting of a
vote.
ELECTION OF DIRECTORS
The Board of Directors currently consists of thirteen directors, divided
into one class of five directors and two separate classes of four directors. The
Board intends to nominate Messrs. Raymond M. Dorsch, Jr., Donald W. Lesher, Jr.,
Mark Randolph Tice and Ms. Wendie DiMatteo Holsinger, the members of the class
of four directors whose terms expire at the Annual Meeting, for re-election at
the Annual Meeting to serve until the Company's 2000 Annual Meeting of
Stockholders and until their successors have been duly elected and have
qualified. The Board of Directors has the authority to fill any vacancy, and if
any vacancy occurs, the term of the director appointed to fill such vacancy
shall continue for the remainder of the term which was vacated. It is the
intention of the named proxy voters to vote FOR the nominees set forth below for
the terms indicated unless directed otherwise. While it is not anticipated that
any of the nominees will be unable to serve, if any should be unable to serve,
the persons named in the proxy may vote such proxy for such other person as they
may determine.
The Company has set a mandatory retirement age of 72 years for its
directors. No Director shall be elected or continue to serve as director who has
attained the age of 72 years as of the time of the Annual Meeting. Mr. Lance M.
Frehafer and Mr. Earnest D. Williams, Jr., currently directors of the Company
whose terms expire in 1998 and 1999, respectively, will retire from the Board of
Directors at the April 1997 Annual Meeting pursuant to this policy. The vacated
Director positions of Mr. Frehafer and Mr. Williams will not be filled at the
Annual Meeting.
2
<PAGE>
The following table provides certain information, including age and
principal occupation of each nominee and continuing director of the Company.
DIRECTORS TO BE ELECTED FOR A THREE-YEAR TERM EXPIRING IN 2000
<TABLE>
<CAPTION>
Director
of the
Company
Name and Age Principal Occupation Since
<S> <C> <C>
Raymond M. Dorsch, Jr. (67) Vice President for Medical Affairs, 1983
Good Samaritan Hospital
(1987-Present)
Wendie DiMatteo Holsinger (38)Chief Executive Officer, ASK Foods, Inc. 1995
(Manufacturer and Distributor of food products)
(1991-Present)
Donald W. Lesher, Jr. (52) Chairman of the Board, Lebanon Valley National Bank 1983
President, Lesher Mack Sales and Service, Inc.
(Retail truck sales and service)
(1968-Present)
Mark Randolph Tice (55) President, APR Supply Company 1983
(Distributor of plumbing, heating, and cooling products)
(1971-Present)
DIRECTORS CONTINUING IN OFFICE UNTIL 1998
Director
of the
Company
Name and Age Principal Occupation Since
Charles V. Henry, III (62) Senior Partner, Henry & Beaver, 1983
(Attorneys-at-law)
(1960-Present)
Bruce A. Johnson (52) Owner, Gallery 444, Ltd. 1992
(Art gallery)
(1980-Present)
John E. Wengert (64) President, Wengert's Dairy, Inc. 1995
(1989-Present)
</TABLE>
3
<PAGE>
DIRECTORS CONTINUING IN OFFICE UNTIL 1999
<TABLE>
<CAPTION>
Director
of the
Company
Name and Age Principal Occupation Since
<S> <C> <C>
Harry J. Gensemer (35) President, J. Wilson Barto Sons, Inc. 1993
(Hardware, plumbing, heating, and fuel oil)
(1989-Present)
Albert B. Murry (56) President and Chief Executive Officer 1983
Keystone Heritage Group, Inc.
(1983-Present)
Lebanon Valley National Bank
(1978-Present)
Thomas I. Siegel (42) President, Stanilla and Siegel, CPA's 1993
(Public Accounting)
(1976-Present)
Brett H. Tennis (37) Partner, Walz, Deihm, Geisenberger, 1993
Bucklen & Tennis, CPAs
(Public Accounting)
(1988-Present)
</TABLE>
4
<PAGE>
BENEFICIAL OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of February 14, 1997 by (a) each
director or executive officer who owned beneficially any Common Shares and (b)
all directors and executive officers of the Company as a group. As of February
14, 1997, there was no Schedule 13-G filed with the Securities and Exchange
Commission by an individual(s) indicating such person(s) beneficially owned more
than five percent of the Company's outstanding Common Stock. The following
information is based upon the information provided to the Company by such
persons.
Beneficial Ownership
Shares Percentage
Directors (6)
Raymond M. Dorsch, Jr. 14,604 *
Lance M. Frehafer 3,653 *
Harry J. Gensemer 78,134 (1) 1.97%
Charles V. Henry, III 30,350 (2) *
Wendie DiMatteo Holsinger 266 *
Bruce A. Johnson 7,041 *
Donald W. Lesher, Jr. 23,553 *
Albert B. Murry 9,747 (3) *
Thomas I. Siegel 29,887 (4) *
Brett H. Tennis 333 *
Mark Randolph Tice 17,935 *
John E. Wengert 7,866 *
Earnest D. Williams, Jr. 60,079 1.52%
Other Executive Officers
Kurt A. Phillips 3,660 (5) *
All directors and executive officers
of the Company as a group (14 persons) 287,108 7.24%
*Does not exceed one percent of the class so owned.
Shares which are shown as beneficially owned are held of record
individually by the person indicated or jointly with a spouse or children living
in the same household, or as trustee, custodian or guardian for minor children
living in the same household.
Footnotes to director information:
(1) Mr. Gensemer holds shared voting and investment power with respect to
10,222 shares.
(2) Mr. Henry holds shared voting and investment power with respect to
1,476 shares.
(3) Mr. Murry holds shared voting and investment power with respect to
3,168 shares. Mr. Murry had been granted stock options amounting to
20,134 shares under the Company's 1994 Stock Incentive Plan. As of
February 14, 1997, the stock option shares granted to Mr. Murry have
not been exercised.
5
<PAGE>
(4) Mr. Siegel holds shared voting and investment power with respect to
250 shares.
(5) Mr. Phillips holds shared voting and investment power with respect to
71 shares. Mr. Phillips had been granted stock options amounting to
12,000 shares under the Company's 1994 Stock Incentive Plan. As of
February 14, 1997, the stock option shares granted to Mr. Phillips
have not been exercised.
(6) Each director listed in the table above had been granted stock options
amounting to 1,000 shares under the Company's 1996 non-employee
Director Stock Option Plan, except for Mr. Murry whose is not eligible
for the 1996 non-employee Director Stock Option Plan since he is
employed by the Company. As of February 14, 1997, none of the stock
option shares granted to the Company's Directors have been exercised.
Meetings and Committees of the Board of Directors
The Board of Directors of the Company held 8 formal meetings during 1996.
The Board of Directors of the Company has no standing committees. Nominations
for election as a director, other than those made by or on behalf of the
existing management of the Company, shall be made in writing and shall be
delivered or mailed to the Secretary of the Company not less than forty-five
(45) days prior to any meeting of the stockholders called for the election of
directors. Each director of the Company is also elected as a director of Lebanon
Valley National Bank (the "Bank"), the Company's wholly owned subsidiary.
The Board of Directors of the Bank held 13 formal meetings during 1996.
The Board of Directors of the Bank has a Lending Committee, a Trust
Committee, an Audit Committee, a Compensation Committee and a Finance Committee.
All committee members are appointed annually by the Board of Directors to serve
a one-year term. The Board has no standing Nominating Committee.
The Bank's Audit Committee consists of Messrs. Dorsch, Frehafer, Gensemer
and Tennis. The Committee reviews and approves the Bank's Internal Audit Group's
annual audit plan, including audit procedures and reports of audits conducted.
The Committee also meets with the Company's Independent Public Accountants to
discuss their Report of Audit of the Company's financial records and reviews the
banking regulatory agencies' reports of examination and the Bank's reply to
these reports. The Committee met 5 times during 1996.
The Bank's Compensation Committee consists of Messrs. Dorsch, Lesher,
Siegel, Tice and Ms. Holsinger. The Committee reviews the compensation and
benefits program for the Company's and the Bank's Board of Directors, officers
and employees. The Committee met 8 times during 1996.
During 1996, all directors attended, in person, at least 75% of the
aggregate of the total number of meetings of the Board of Directors of the
Company.
Remuneration of Directors
The Chief Executive Officer of the Company and of the Bank does not receive
any additional compensation for serving on the Board of Directors of the Company
or the Bank or for attending any committee meetings. Each other director of the
Company and the Bank receives an annual retainer fee of $9,000 for their
services provided to both boards, and also is reimbursed for certain expenses
incurred in attending Board and committee meetings. The Chairman of the Board of
the Bank receives an annual stipend of $12,000 for service in such capacity.
Each director also receives $200 for each meeting of the Board attended, and
fees of $250 for each committee meeting attended. In addition, members of the
Audit Committee who are not officers of the Company receive an annual retainer
of $1,000.
Total remuneration of directors of the Company and the Bank for Board and
committee meetings during 1996 was $197,900.
6
<PAGE>
In addition, the Board of Directors granted a total of 12,000 shares of the
Company's Common Stock to non-employee Directors under the Company's 1996
Independent Directors Stock Option Plan. The following Directors were each
granted 1,000 shares of Common Stock at an exercise price of $21.75 per share:
Messrs. Raymond M. Dorsch, Jr., Lance M. Frehafer, Harry J. Gensemer, Charles V.
Henry III, Bruce A. Johnson, Donald W. Lesher, Jr., Thomas I. Siegel, Brett H.
Tennis, Mark Randolph Tice, John E. Wengert, Earnest D. Williams, Jr and Ms.
Wendie DiMatteo Holsinger. The options became exercisable on November 14, 1996
and expire on May 14, 2006.
Certain Director Relationships
Charles V. Henry, III, Esquire, is a partner in the law firm of Henry &
Beaver, which provided legal services to the Company and the Bank during 1996
and in prior years. During 1996, the Company paid to Henry & Beaver fees
totalling $269,272. The Company and the Bank plan to continue to use the
services of this law firm during 1997.
Transactions with Directors and Officers
Certain directors and executive officers of the Company, and their
associates, were customers of and had transactions with the Bank in the ordinary
course of business during the Company's fiscal year ended December 31, 1996.
Such transactions included the purchase of certificates of deposit and
extensions of credit in the ordinary course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and did not involve more
than the normal risks of collectability or present other unfavorable features.
It is expected that any other transactions with directors and officers and their
associates in the future will similar as those made under normal business
circumstances.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
During 1996 the Company engaged KPMG Peat Marwick LLP, Independent Public
Accountants, as its principal accounting firm and has been selected by the Board
of Directors to serve in the same capacity for 1997. The Board of Directors
recommends that the stockholders ratify the selection of KPMG Peat Marwick LLP
as the Company's Independent Public Accountants for the year ending December 31,
1997. If the stockholders do not ratify the selection of KPMG Peat Marwick LLP,
the selection of independent public accountants will be reconsidered by the
Board of Directors. Even if the selection is ratified, the Board of Directors,
at its discretion, may direct the appointment of a new independent public
accounting firm at any time during the year if the Board determines that such a
change would be in the best interests of the Company and its stockholders.
Representatives of KPMG Peat Marwick LLP will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so, and will be available to respond to appropriate questions.
STOCKHOLDER PROPOSAL
Stockholder proposals may be submitted for inclusion in the Company's 1998
proxy material, but in order to be considered, proposals must be received no
later than November 3, 1997. Proposals must be in writing and sent via
registered, certified or express mail to: Corporate Secretary, Keystone Heritage
Group, Inc., 555 Willow Street, P.O. Box 1285, Lebanon, Pennsylvania 17042-1285.
Management carefully considers all proposals and suggestions from its
stockholders. When adoption is clearly in the best interests of the Company and
stockholders, and can be accomplished without stockholder approval, the proposal
is implemented without inclusion in the Proxy statement.
7
<PAGE>
OTHER MATTERS
As of the date of this Proxy Statement, the management and Board of
Directors of the Company know of no other business to be presented for action at
the meeting. If other matters should properly come before the Annual Meeting,
the persons named in the proxy will, to the extent permitted by the rules of the
Securities and Exchange Commission, have discretionary authority to vote the
shares represented by them in accordance with their best judgment. Management
urges each stockholder, whether or not he or she intends to be present and to
vote at the Annual Meeting, to complete, sign and return the enclosed proxy as
promptly as possible.
8
<PAGE>
ADDITIONAL INFORMATION
EXECUTIVE COMPENSATION
Remuneration of Management
The following table sets forth certain information concerning the
compensation of the President and Chief Executive Officer of the Company and the
Bank and the Treasurer of the Company, who is also the Executive Vice President
and Chief Financial Officer of the Bank, at December 31, 1996. There were no
other executive officers employed by the Company or the Bank at December 31,
1996 who received aggregate remuneration from the Company and the Bank for the
year ended December 31, 1996 which exceeded $100,000.
The table summarizes the Chief Executive Officer's and the Executive Vice
President and Chief Financial Officer's compensation for the years ended
December 31, 1996, 1995 and 1994, including base salary. Compensation earned but
deferred is reported as annual salary.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Awards
Securities
Underlying All Other
Annual Compensation (1) Options/ Compen-
Name and Salary Bonus SARs sation
Principal Position Year ($) ($) (#) ($) (2)
Albert B. Murry 1996 195,000 38,136 6,800 3,986
President and Chief 1995 187,000 21,882 6,667 3,916
Executive Officer 1994 179,600 0 6,667 3,910
Kurt A. Phillips 1996 99,167 18,388 4,000 1,983
Executive Vice President 1995 85,000 3,675 4,000 1,700
and Chief Financial 1994 76,000 0 4,000 1,520
Officer
(1) The Company has omitted in the Summary Compensation Table information
concerning the value of perquisites and other personal benefits which, in
the aggregate, are less than the greater of $50,000 or 10% of the salary
and bonus reported for Mr. Murry or Mr. Phillips, including employee
benefit plans such as hospitalization insurance, group life insurance, and
long-term disability insurance which are offered on a non-discriminatory
basis to employees and officers.
(2) Mr. Murry received a benefit of $611 during 1996 in the form of employer-
provided automobile usage and $3,375 of 401-K Plan employer contributions.
Mr. Phillips received a benefit of $1,983 in the form of 401-K Plan
employer contributions.
9
<PAGE>
STOCK OPTION GRANTS
The following table sets forth information concerning grants of stock
options pursuant to the Company's Stock Option Plan with respect to the
Company's President and Chief Executive Officer and Executive Vice President and
Chief Financial Officer under the 1994 Stock Option Plan for officers and key
employees of the Company.
<TABLE>
<CAPTION>
Potential
Realizable Value at
OPTION GRANTS IN LAST FISCAL YEAR Assumed Annual
Rates of Stock Price
Appreciation
Individual Grants for Option Term
Number % of
of Total
Securities Options/
Underlying SARs
Options/ Granted to Exercise
SARs Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/Sh) (1) Date (2) 5% ($) 10% ($)
1994 Stock Option Plan
for Officers & key employees:
<S> <C> <C> <C> <C> <C> <C>
Albert B. Murry 6,800 38.2% $21.75 05/14/06 106,859 257,761
Kurt A. Phillips 4,000 22.5% 21.75 05/14/06 62,858 151,624
<FN>
(1) The exercise price of all options granted must be equal to or greater than
the fair market value on the date of the grant. The exercise price may be
paid in cash, or in shares of stock owned by the option holder prior to
exercising the option, provided such shares have a fair market value on the
date of payment equal to the option exercise price for the shares of stock
being purchased, or in any combination thereof.
(2) Terms of outstanding options are for a period of ten years from the date of
grant, subject to earlier termination upon certain events related to
termination of employment. Options were exercisable on or after November
14, 1996.
</FN>
</TABLE>
10
<PAGE>
The following table sets forth the value of unexercised options to purchase
Common Stock granted with respect to the Company's President and Chief Executive
Officer and Executive Vice President and Chief Financial Officer under the 1994
Stock Option Plan for officers and key employees of the Company.
AGGREGATED OPTION/EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/VALUES
Number of Securi- Value of
ties Underlying Unexercised
Unexercised In-the-Money
Options at Options at
12/31/96 (#) 12/31/96 ($)
Exercisable/ Exercisable/
Name Unexercisable Unexercisable(1)
1994 Stock Option Plan
for Officers & key employees:
Albert B. Murry 20,134/0 $29,301/$0
Kurt A. Phillips 12,000/0 $17,480/$0
(1) Average of the dealer "bid" and "asked" prices of the underlying securities
on the last day of 1996 minus the exercise price of "in-the-money" options. No
options were exercised in 1995 or 1996.
11
<PAGE>
Employment Agreements
The Bank has entered into an agreement with Albert B. Murry, President and
Chief Executive Officer, pursuant to which he is employed as President and Chief
Executive Officer and with Kurt A. Phillips, pursuant to which he is employed as
Executive Vice President and Chief Financial Officer of the Bank. Mr. Murry's
agreement provides that he is to be paid a base salary, plus increases and
bonuses as are consistent with those made available to other officers of the
Bank. The Bank may terminate this Agreement upon three-years notice, the death
or disability of Mr. Murry, upon his conviction of a crime involving moral
turpitude, or upon being charged with a criminal offense arising out of his
employment. Mr. Phillips' agreement provides that he is to be paid a base
salary, plus increases and bonuses as are consistent with those made available
to other officers of the Bank. The Bank may terminate this Agreement upon thirty
months notice, the death or disability of Mr. Phillips, upon his conviction of a
crime involving moral turpitude, or upon being charged with a criminal offense
arising out of his employment.
12
<PAGE>
Under the rules of the Securities and Exchange Commission, the Board
Compensation Committee Report on Executive Compensation below and the Stock
Price Performance Graph appearing in this proxy statement are not to be deemed
to be "solicitation material" or to be "filed" with the Commission, or to be
subject to certain of the proxy rules or to the liabilities of Section 18 of the
Securities Exchange Act of 1934 (the "Exchange Act"), except to the extent that
the Company specifically requests that such information be treated as
"soliciting material" or specifically incorporates it by reference into a filing
under the Securities Act of 1933 (the "Securities Act") or the Exchange Act.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act or the Exchange Act that might
incorporate future filings, including this proxy statement, in whole or in part,
the Board Compensation Committee Report and the Stock Price Performance Graph
shall not be incorporated by reference in such filings.
Board Compensation Committee Report on Executive Compensation
The Compensation Committee is a committee composed of five outside
directors of the Company's Board of Directors. The Committee makes
recommendations to the full Board of Directors regarding the adoption,
extension, amendment and termination of the Company's compensation plans and
benefits programs for the Company's and the Bank's directors, officers and
employees. It also reviews the specific compensation of senior management and
officers, including salaries and bonuses, the Stock Option Plan, and any other
supplemental compensation plans applicable to senior management or officers of
the Company. The compensation of the Company's executive officers is set by the
Board of Directors based upon the Compensation Committee's recommendations.
Compensation of Executive Officers
The Company applies a consistent philosophy in determining the compensation
of all of its employees, including senior management. The Company's policy for
executive compensation is designed to attract and retain employees with superior
skills and abilities through its compensation programs. Every officer and staff
position in the Company has a base salary range which has been determined after
consideration of salary levels in the labor markets in the Company's
marketplace. The Company rewards individual performance by providing annual
merit increases for its officers as an incentive which is based upon results
achieved as measured against specific performance goals for each position and
division as established by management. The Committee approved an overall merit
increase of 4.0 percent for 1996. These merit increases were awarded to officers
in a range from 0 percent to 7.24 percent determined according to the relative
performance of each individual.
Executive officers are compensated at levels which reflect the risks and
rewards of the strategic decision-making responsibilities which are an integral
component of those positions. Executive officers are reviewed annually by their
superiors and are evaluated based upon individual performance goals and
objectives established by senior management. The Compensation Committee consults
with the Chief Executive Officer to make salary decisions for executive officers
(other than the Chief Executive Officer) based on the experience, performance,
team results, and other factors for each of these officers.
The Company believes that a portion of its employee compensation,
especially for key officers, should be contingent upon the attainment of
demanding performance goals that support long-term growth in the Company's stock
market value. This policy is effected by the Company's bonus plan, which rewards
all employees, including executive officers, in the form of cash bonuses for
levels of performance by the Company which exceed predetermined benchmarks.
13
<PAGE>
Stock Option Grants
Under the Company's Stock Incentive Plan, shares of the Company's common
stock may be granted to executive officers and other employees. Grants are made
at a price no less than the common stock's fair market value which is defined as
the average of the dealer "bid" and "asked" prices as reported in years prior to
1995 by the National Association of Securities Dealers, Inc. and in 1995 and
1996, the average of the highest and lowest reported sale prices on the American
Stock Exchange as of the date of the grant. The purpose of the Stock Option Plan
is to provide an incentive to key officers through participation in the
appreciation of the Company's capital stock so as to secure, retain, and
motivate personnel who may be responsible for the operation and management of
the affairs of the Company.
Stock options were granted in 1996 with an exercise price equal to the fair
value of the stock, defined as the average of the highest and lowest sales
prices reported by the American Stock Exchange (securities exchange on which the
Company is listed) as of the date of the grant. The decision to make the grants
was based upon the financial performance of the Company, however the assessment
did not include any specific quantitative or qualitative factors or criteria,
and was made based upon subjective evaluation of the aforementioned factors.
Chief Executive Officer's and Executive Vice President and Chief Financial
Officer's Compensation and Stock Option Grants
The compensation of the Chief Executive Officer and of the Executive Vice
President and Chief Financial Officer is determined by the Compensation
Committee using the same philosophy as for other executive officers. The Chief
Executive Officer and the Executive Vice President do not attend Compensation
Committee meetings during their review of their compensation. The base
compensation of the Chief Executive Officer and of the Executive Vice President
is determined after subjective assessment of performance in the areas of
management oversight, development of strategy, involvement in community affairs
and leadership skills. Although the financial performance of the Company with
respect to return on average assets and return on average equity, absolute
earnings performance, changes in the value of the Company's stock and quantity
and quality of assets is considered, no specific measures are tied to the
compensation decision and a certain amount of subjective judgement is used in
arriving at this decision. The Compensation Committee determined the Chief
Executive Officer's 1996 base compensation by increasing his 1995 base salary by
4.3 percent. The Compensation Committee determined the Executive Vice
President's 1996 base compensation by considering compensation of individuals in
like positions at other similar institutions. Adjustments were made to Mr.
Phillips 1996 base compensation to reflect the increased level of
responsibilities assigned to him in 1996 and 1995.
As previously discussed, the Company believes that a portion of its
employee compensation should be contingent upon the attainment of demanding
performance goals that support long-term growth in the Company's stock market
value. This policy is effected by the Company's bonus plan, which rewards all
employees, including executive officers, in the form of cash bonuses for levels
of performance by the Company that exceed predetermined benchmarks. During 1996,
Mr. Murry and Mr. Phillips received $38,136 and $18,388, respectively, in the
form of such bonuses. This amount was tied specifically to the performance of
the Company for 1995 as compared to a predetermined benchmark. Mr. Murry and Mr.
Phillips received a bonus of $21,882 and $3,675, respectively, in 1995 and
received no bonus during 1994 with respect to the Company's financial
performance.
14
<PAGE>
On May 14, 1996 Mr. Murry and Mr. Phillips were granted an option to
purchase 6,800 shares and 4,000 shares, respectively, of the Company's Common
Stock. This grant was made by the Committee after consideration of the Company's
financial performance and other factors as of the date of the grant. Although
the Committee considered this data and other factors in granting these awards,
it did not apply any specific quantitative or qualitative factors or criteria,
and made this decision based upon subjective judgement of the aforementioned
factors.
COMPENSATION COMMITTEE
Mark Randolph Tice, Chairman
Raymond M. Dorsch, Jr.
Wendie DiMatteo Holsinger
Donald W. Lesher, Jr.
Thomas I. Siegel
15
<PAGE>
Stock Price Performance Graph
The following graph compares for fiscal years 1992 through 1996 the yearly
change in the cumulative total return to holders of the common stock of the
Company with the cumulative total return of the NASDAQ Market Index and of an
index of a peer group of Mid Atlantic banking companies (the "Peer Group" or the
"MG Group") provided by an independent research firm. The index Peer Group may
be available for comparative presentation by other financial institutions,
however, it is not a nationally published index.
The Peer Group consists of 141 publicly-held Mid Atlantic banking companies
of various sizes. The companies included in this Peer Group are comparable with
the Company with respect to services offered and channels of distribution. For
the purpose of the Peer Group Index, the Peer Group companies have been weighted
based upon their relative market capitalizations.
THE COMPANY'S STOCK PERFORMANCE GRAPH APPEARS HERE IN THE PROXY STATEMENT
THAT IS IN PRINTED FORM. THE DATA POINTS BELOW DETAILS THE INFORMATION IN THE
GRAPH FROM DECEMBER 31, 1991 TO DECEMBER 31, 1996.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Keystone Heritage Group, Inc. 100.00 147.58 171.97 179.94 216.29 223.94
Industry Index 100.00 125.23 155.57 147.70 224.28 317.65
Broad Market Index 100.00 100.98 121.13 127.17 164.96 204.98
</TABLE>
16
<PAGE>
Employee Retirement Benefits
The Company has no retirement plan.
The Bank sponsors a defined benefit plan qualified under the Employee
Retirement Income Security Act of 1974. The following table shows for various
periods of credited service, the estimated annual benefits currently payable
upon retirement at age 65 to a participating employee, assuming retirement
occurred in 1996.
PENSION PLAN TABLE
Final Average
Salary Years of Credited Service
5 10 20 30 40
$100,000 $ 9,854 $19,708 $39,415 $59,123 $ 76,476
120,000 12,004 24,008 48,015 72,023 93,026
140,000 14,154 28,308 56,615 84,923 109,576
160,000 15,229 30,458 60,915 91,373 117,851
180,000 15,229 30,458 60,915 91,373 117,851
200,000 15,229 30,458 60,915 91,373 117,851
220,000 15,229 30,458 60,915 91,373 117,851
240,000 15,229 30,458 60,915 91,373 117,851
Payments to the Plan Trustee are made each year on the basis of actuarial
calculations. The amount of payment to the Plan Trustee in respect to a specific
person cannot be separately or individually calculated. Total pension expense
for the fiscal years 1996 and 1995 was $328,000 and $287,000 respectively.
All full-time and certain part-time employees of the Bank who attain the
age of 21 and complete one year of eligible service are eligible participants
under the Plan. The Plan generally provides for a prospective benefit at the age
of 65 calculated as follows: (a) 1.50% of the participants average compensation
during the five highest paid, consecutive years within the ten years prior to
retirement, plus (b) .65% of the participant's same average compensation in
excess of the Social Security integration level in effect on the date of
termination or retirement times the years of creditable service (maximum of 35
years for part (b)). The annual base salary used to calculate the average base
salary is the amount which would be earned in one year at the rate of earnings,
excluding overtime and bonus. The Social Security integration level for any plan
year is equal to 100% of covered compensation for an individual who attains
Social Security retirement age as of the beginning of such plan year.
Current Federal law places limitations on the amount of retirement income
that may be paid through a pension plan qualified under the Internal Revenue
Code. This limit is not reflected in the above chart. As of October 1, 1996,
such limitations have not been exceeded for any of the plan participants.
As of February 20, 1997, the Company's President and Chief Executive
Officer and the Company's Executive Vice President named in the remuneration
table, had compiled credited service under the Plan as follows:
Albert B. Murry.................................... 19 years
Kurt A. Phillips................................... 18 years
17
<PAGE>
Compliance With Beneficial Ownership Reporting Rules
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors, executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities file with the
Securities and Exchange Commission and the American Stock Exchange initial
reports of ownership of the Company's equity securities on Form 3 and reports of
changes therein on Forms 4 and 5.
Based on the Company's records and other information furnished to it, the
Company believes that all persons subject to the reporting requirements of
Section 16(a) filed the required reports on a timely basis.
ANNUAL REPORT
The Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1996, including financial statements as audited by KPMG Peat
Marwick LLP, accompanies this proxy statement and is being mailed to
stockholders on or about March 7, 1997.
A copy of the Company's annual report on Form 10-K for the year ended
December 31, 1996 will be mailed to any stockholder without charge upon written
request directed to: Treasurer, Keystone Heritage Group, Inc., 555 Willow
Street, P.O. Box 1285, Lebanon, Pennsylvania 17042. Such Annual Report and Form
10-K are not to be deemed proxy solicitation material.
By order of the Board of Directors
Albert B. Murry
President and
Chief Executive Officer
18
<PAGE>
KEYSTONE HERITAGE GROUP, INC.
PROXY FOR ANNUAL MEETING 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS OF KEYSTONE HERITAGE GROUP, INC.
The undersigned holder of common stock of Keystone Heritage Group, Inc.
(the "Company") hereby appoints Ira L. Kreider and Richard R. Klotz, or either
of them, with full power of substitution, the proxy or proxies of the
undersigned to vote all shares of the common stock of Keystone Heritage Group,
Inc. held of record in the name or names of the undersigned at the Annual
Meeting (the "Meeting") of the Stockholders of the Company to be held at 10:00
A.M., on Tuesday, April 15, 1997, in the Ballroom of the Quality Inn Lebanon
Valley, 625 Quentin Road, Lebanon, Pennsylvania, and at all postponements or
adjournments thereof, with all the powers the undersigned would possess if
personally present. Said proxies are specifically authorized to vote:
1. ELECTION OF DIRECTORS
[ ] FOR the following nominees [ ] WITHHOLD AUTHORITY to vote
(except as marked to the contrary) for all nominees listed below
For a Three Year Term Expiring in 2000
Raymond M. Dorsch, Jr. Donald W. Lesher, Jr.
Wendie DiMatteo Holsinger Mark Randolph Tice
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
draw a line through the nominee's name.
2. PROPOSAL to ratify the selection of KPMG Peat Marwick LLP as the
Company's independent public accountants for the fiscal year ending December 31,
1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion upon the transaction of such other matters as may
properly come before the meeting or any postponement or adjournments
thereof.
The shares represented by the Proxy will be voted as specified. If no
specification is made, this Proxy will be voted "FOR" the election of nominees
for director listed above and "FOR" the ratification of the selection of the
independent public accountants. This Proxy may be revoked at any time prior to
the voting thereof.
PLEASE SIGN HERE EXACTLY
AS NAME APPEARS ON LABEL.
Date:___________, 1997
WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE. IF MORE THAN ONE TRUSTEE, ALL SHOULD SIGN. ALL JOINT
OWNERS MUST SIGN.
