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Registration No. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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KEYSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA 6711 23-2289209
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(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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ONE KEYSTONE PLAZA, FRONT AND MARKET STREETS
P.O. BOX 3660, HARRISBURG, PENNSYLVANIA 17105-3660
(717) 233-1555
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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BEN G. ROOKE, ESQUIRE, KEYSTONE FINANCIAL, INC.
ONE KEYSTONE PLAZA, FRONT AND MARKET STREETS
P.O. BOX 3660, HARRISBURG, PENNSYLVANIA 17105-3660
(717) 231-5701
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: The date of mailing the Proxy Statement/Prospectus contained herein.
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CALCULATION OF REGISTRATION FEE
============================================================================================================
Title of Amount Proposed Proposed maximum Amount of
securities to to be maximum offering aggregate registration
be registered registered price per share offering price fee
- ------------------------------------------------------------------------------------------------------------
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Common Stock,
$2 par value............. 1,298,763 shs. $13.29* $17,257,843* $5,950.98
============================================================================================================
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* Estimated solely for the purpose of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) on the basis of the aggregate book
value of the Common Stock, par value $5.00 per share, of National American
Bancorp, Inc. on June 30, 1995 of $17,257,843.
----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Page 1 of 170
Exhibit Index at Page 140
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KEYSTONE FINANCIAL, INC.
CROSS-REFERENCE SHEET BETWEEN
ITEMS OF FORM S-4
AND CAPTIONS IN PROXY STATEMENT/PROSPECTUS
------------------------------------------
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FORM S-4 ITEM CAPTION(S) OR LOCATION IN
NUMBER AND CAPTION PROXY STATEMENT/PROSPECTUS
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A. Information About the Transaction
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus...................... Outside Front Cover Page of Proxy Statement/
Prospectus
2. Inside Front and Outside
Back Cover Pages of Prospectus................ Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information................................... Summary
4. Terms of the Transaction...................... Plan of Merger; Comparison of Keystone
Common Stock and NAB Common Stock
5. Pro Forma Financial
Information................................... NA
6. Material Contacts with the
Company Being Acquired........................ Plan of Merger--Background of and Reasons
for the Merger;--Voting Agreements;--
Interests of Certain Persons in the
Transaction;--Warrant Agreement; --Effect of
Certain Transactions Involving Keystone
7. Additional Information Required
for Reoffering by Persons
and Parties Deemed to be
Underwriters................................... NA
8. Interests of Named
Experts and Counsel............................ NA
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................................ NA
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FORM S-4 ITEM CAPTION(S) OR LOCATION IN
NUMBER AND CAPTION PROXY STATEMENT/PROSPECTUS
------------------ --------------------------
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B. Information About the Registrant
------------------------------------
10. Information with Respect to
S-3 Registrants................................ Information Concerning Keystone
11. Incorporation of Certain
Information by Reference....................... Information Concerning Keystone--Keystone
Documents Incorporated by Reference
12. Information with Respect to
S-2 or S-3 Registrants......................... NA
13. Incorporation of Certain
Information by Reference....................... NA
14. Information with Respect to
Registrants Other than S-3
or S-2 Registrants............................. NA
C. Information About the Company Being Acquired
15. Information with Respect to
S-3 Companies................................. NA
16. Information with Respect to
S-2 or S-3 Companies.......................... Information Concerning NAB; Information
Concerning NAB--NAB Documents
Incorporated by Reference
17. Information with Respect to
Companies Other Than
S-2 or S-3 Companies........................... NA
FORM S-4 ITEM CAPTION(S) OR LOCATION IN
NUMBER AND CAPTION PROXY STATEMENT/PROSPECTUS
------------------ --------------------------
D. Voting and Management Information
-------------------------------------
18. Information if Proxies, Consents or
Authorizations are to be Solicited:
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(2)
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ITEM NUMBER AND CAPTION IN SCHEDULE
14A UNDER THE SECURITIES EXCHANGE CAPTION(S) OR LOCATION IN
ACT OF 1934 OR REGULATION S-K PROXY STATEMENT/PROSPECTUS
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(1) Date, Time and Place
Information.............................. Outside Front Cover Page of Proxy Statement/
Prospectus; Summary; Introduction
(2) Revocability of Proxy.................... Introduction--Voting and Revocation of Proxies
(3) Dissenters' Rights of
Appraisal................................ Plan of Merger--Dissenters' Rights of NAB
Shareholders;
(4) Persons Making the
Solicitation............................. Outside Front Cover Page of Proxy Statement/
Prospectus; Introduction; Introduction--
Solicitation of Proxies
(5) Interest of Certain
Persons in Matters to be
Acted Upon............................... Plan of Merger--Interests of Certain Persons in
the Transaction
(6) Voting Securities and
Principal Holders
Thereof.................................. Introduction--Record Date; Voting Rights;
Information Concerning Keystone--Keystone
Documents Incorporated by Reference;
Information Concerning NAB--NAB Documents
Incorporated by Reference
(21) Vote Required for
Approval................................. Plan of Merger--Required Vote; Management
Recommendation
(401) Directors and Executive
Officers................................. Information Concerning Keystone--Keystone
Documents Incorporated by Reference
(402) Executive Compensation................... Information Concerning Keystone--Keystone
Documents Incorporated by Reference
(404) Certain Relationships and
Related Transactions..................... Information Concerning Keystone--Keystone
Documents Incorporated by Reference
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(3)
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CAPTION(S) OR LOCATION IN
FORM S-4 ITEM NUMBER AND CAPTION PROXY STATEMENT/PROSPECTUS
-------------------------------- --------------------------
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19. Information if Proxies,
Consents or Authorizations
are Not to be Solicited, or
in Exchange Offer.............................. NA
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(4)
<PAGE>
[PRELIMINARY COPY]
PROXY STATEMENT/PROSPECTUS
KEYSTONE FINANCIAL, INC.
UP TO 1,298,763 SHARES OF COMMON STOCK, $2 PAR VALUE
ISSUABLE IN PROPOSED MERGER WITH
NATIONAL AMERICAN BANCORP, INC.
This Proxy Statement/Prospectus is being furnished to the holders of Common
Stock, par value $5.00 per share ("NAB Common Stock"), of National American
Bancorp, Inc. ("NAB") in connection with the solicitation of proxies by its
Board of Directors for use at a Special Meeting of Shareholders of NAB (the
"Special Meeting") to be held on November 21, 1995. The purpose of the Special
Meeting is to consider a proposed merger (the "Merger") of NAB into Keystone
Financial, Inc. ("Keystone"). As a result of the Merger, Keystone, which will be
the surviving corporation, will acquire all of the assets and liabilities of
NAB, and the shareholders of NAB will become shareholders of Keystone. The
number of shares of Common Stock, par value $2.00 per share of Keystone
("Keystone Common Stock") into which each outstanding share of NAB Common Stock
will be converted in the Merger will be determined by dividing $60.00 by the
average closing bid price for Keystone Common Stock for the 20 trading days
ending 11 trading days prior to the Merger, but will not be less than 2.00
shares nor more than 2.20 shares of Keystone Common Stock for each NAB share. On
September 27, 1995, the closing bid price for Keystone Common Stock on the
NASDAQ National Market System was $30.75 per share, and the closing sale price
was also $30.75 per share. NAB shareholders should note that the market value of
the Keystone Common Stock may change prior to consummation of the Merger. The
approximate date on which this Proxy/Statement Prospectus will first be mailed
to the shareholders of NAB is October _____, 1995.
___________
THE SHARES OF KEYSTONE COMMON STOCK TO BE ISSUED IN THE MERGER HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF KEYSTONE COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR
SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
___________
No person has been authorized to give any information or to make any
representation not contained in this Proxy Statement/Prospectus, and, if given
or made, any such information or representation should not be relied upon as
having been authorized by Keystone or NAB. This Proxy Statement/Prospectus does
not constitute an offer or solicitation by any person in any State in which such
offer or solicitation is not authorized by the laws thereof or in which the
person making such offer or solicitation is not qualified to make the same.
Neither the delivery of this Proxy Statement/Prospectus at any time nor the
distribution of Keystone Common Stock hereunder shall imply that the information
contained herein is correct as of any time subsequent to its date.
___________
The date of this Proxy Statement/Prospectus is October _____, 1995.
<PAGE>
AVAILABLE INFORMATION
Keystone has filed with the Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933 (the "Securities Act") a Registration Statement
on Form S-4 (the "Registration Statement") covering the shares of Keystone
Common Stock issuable in the Merger. As permitted by the rules and regulations
of the SEC, this Proxy Statement/Prospectus omits certain information, exhibits
and undertakings contained in the Registration Statement. The statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document filed as an exhibit to the Registration Statement are of
necessity brief descriptions and are not necessarily complete. Each such
statement is qualified in its entirety by reference to the copy of such contract
or document filed as an exhibit to the Registration Statement. The Registration
Statement and the exhibits thereto can be inspected at the public reference
facilities of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.,
and copies of such material can be obtained at prescribed rates by mail
addressed to the SEC, Public Reference Section, Washington, D.C. 20549.
Keystone and NAB are subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
file reports, proxy statements and other information with the SEC. Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C.; Suite 1400, 500 West Madison Street, Chicago, Illinois; and
Room 1228, 75 Park Place, New York, New York. Copies of such material can also
be obtained at prescribed rates by mail addressed to the SEC, Public Reference
Section, Washington, D.C. 20549. Keystone Common Stock is quoted on the NASDAQ
National Market System, and such Keystone reports and proxy statements and other
Keystone information can also be inspected at the offices of NASDAQ Operations,
1735 K Street, N.W., Washington, D.C.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS
RELATING TO THE MERGER, TO KEYSTONE AND TO NAB WHICH ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. SEE "PLAN OF MERGER," "INFORMATION CONCERNING KEYSTONE--
KEYSTONE DOCUMENTS INCORPORATED BY REFERENCE" AND "INFORMATION CONCERNING NAB--
NAB DOCUMENTS INCORPORATED BY REFERENCE." COPIES OF SUCH DOCUMENTS, INCLUDING
THE PLAN OF MERGER, ARE AVAILABLE UPON WRITTEN OR ORAL REQUEST AND WITHOUT
CHARGE TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED.
REQUESTS FOR COPIES OF DOCUMENTS INCORPORATED BY REFERENCE HEREIN AND RELATING
TO THE MERGER OR TO KEYSTONE SHOULD BE DIRECTED TO KEYSTONE FINANCIAL, INC., ONE
KEYSTONE PLAZA, FRONT AND MARKET STREETS, P.O. BOX 3660, HARRISBURG,
PENNSYLVANIA 17105-3660, ATTENTION: BEN G. ROOKE, CORPORATE SECRETARY
(TELEPHONE: 717-231-5701). REQUESTS FOR COPIES OF NAB DOCUMENTS INCORPORATED BY
REFERENCE HEREIN SHOULD BE DIRECTED TO NATIONAL AMERICAN BANCORP, INC., 312 MAIN
STREET, TOWANDA, PENNSYLVANIA 18848-0500, ATTENTION: DONALD R. BRENNAN, VICE
PRESIDENT AND TREASURER (TELEPHONE: 717-265-6191). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST BY AN NAB SHAREHOLDER SHOULD BE MADE
NOT LATER THAN NOVEMBER 14, 1995.
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KEYSTONE FINANCIAL, INC.
AND
NATIONAL AMERICAN BANCORP, INC.
_____
PROXY STATEMENT/PROSPECTUS
_____
TABLE OF CONTENTS
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PAGE
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SUMMARY......................................................... iii
INTRODUCTION
Record Date; Voting Rights.................................. 1
Purpose of the Special Meeting.............................. 1
Voting and Revocation of Proxies............................ 2
Solicitation of Proxies..................................... 2
PLAN OF MERGER
The Merger.................................................. 2
Background of and Reasons for the Merger.................... 3
Required Vote; Management Recommendation.................... 5
Voting Agreements........................................... 5
Trust Department Shares..................................... 6
Opinion of NAB Financial Advisor............................ 6
Conversion of NAB Common Stock.............................. 10
Tax Consequences to NAB Shareholders........................ 11
Interests of Certain Persons in the Transaction............. 13
Warrant Agreement........................................... 15
Inconsistent Activities..................................... 16
Conduct of NAB Business Pending the Merger.................. 16
NAB Dividend Provision...................................... 16
Conditions to the Merger.................................... 17
Representations and Warranties.............................. 17
Amendment, Waiver and Termination........................... 18
Dissenters' Rights of NAB Shareholders...................... 18
Restrictions on Resales by NAB Affiliates................... 21
Effect of Certain Transactions Involving Keystone........... 21
Expenses.................................................... 21
Effective Date of the Merger................................ 22
Accounting Treatment........................................ 22
INFORMATION CONCERNING KEYSTONE
SELECTED FINANCIAL DATA...................................... 23
STOCK PRICES AND DIVIDENDS ON KEYSTONE COMMON STOCK.......... 25
KEYSTONE DOCUMENTS INCORPORATED BY REFERENCE................. 26
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INFORMATION CONCERNING NAB
SELECTED FINANCIAL DATA...................................... 27
MARKET AND DIVIDEND INFORMATION CONCERNING
NAB COMMON STOCK........................................... 28
NAB DOCUMENTS INCORPORATED BY REFERENCE...................... 29
COMPARISON OF KEYSTONE COMMON STOCK
AND NAB COMMON STOCK......................................... 30
LEGAL OPINIONS.................................................. 36
EXPERTS......................................................... 36
OTHER MATTERS................................................... 36
ANNEXES
I. Opinion of Berwind Financial Group, L.P. to NAB........ A-1
II. Statutory Provisions Concerning Dissenters'
Rights of NAB Shareholders............................. A-3
III. 1994 Annual Report of NAB.............................. A-9
IV. Quarterly Report on Form 10-Q of NAB
for the quarter ended June 30, 1995 A-43............ A-43
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<PAGE>
SUMMARY
THE FOLLOWING IS A BRIEF SUMMARY OF CERTAIN INFORMATION WHICH MAY ALSO BE
CONTAINED ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS. THIS SUMMARY IS PROVIDED
FOR CONVENIENCE AND SHOULD NOT BE CONSIDERED COMPLETE. IT IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS AND IN THE ANNEXES HERETO.
THE PARTIES
Keystone Financial, Inc. ("Keystone"), a Pennsylvania corporation, is a
bank holding company with its principal executive offices at One Keystone Plaza,
Front and Market Streets, P.O. Box 3660, Harrisburg, Pennsylvania 17105-3660
(telephone: 717-233-1555).
In terms of assets, Keystone is the seventh largest bank holding company in
Pennsylvania. Its banking subsidiaries are Northern Central Bank, Williamsport,
Pennsylvania; Mid-State Bank and Trust Company, Altoona, Pennsylvania;
Pennsylvania National Bank and Trust Company, Pottsville, Pennsylvania; The
Frankford Bank, N.A., Horsham, Pennsylvania; American Trust Bank, Cumberland,
Maryland; and American Trust Bank of West Virginia, Inc., Keyser, West Virginia.
Keystone's subsidiary banks provide a wide range of financial products and
services through a combined total of 140 community offices located in central
and southeastern Pennsylvania, western Maryland and northeastern West Virginia.
Keystone's subsidiary banks operate under the "supercommunity" banking
philosophy, functioning as local community banks with a personalized service
approach to customers while at the same time taking advantage of the size of the
larger Keystone organization to provide a broad product line and gain operating
and management efficiencies through economies of scale. In addition to the
traditional banking services provided by its member banks, Keystone has
established several nonbanking subsidiaries to deliver an array of services to
both Keystone and its customers, including brokerage, mortgage banking, leasing,
investments and credit life and accident and health insurance. See "Keystone
Documents Incorporated by Reference."
Keystone Common Stock is traded in the over-the-counter market under the
symbol "KSTN" and is listed in the NASDAQ National Market System. On September
27, 1995, the closing sale price for Keystone Common Stock on the NASDAQ
National Market System was $30.75. See "Information Concerning Keystone--Stock
Prices and Dividends on Keystone Common Stock."
At June 30, 1995, Keystone reported consolidated total assets of $4.734
billion, deposits of $3.855 billion and net loans and leases of $3.240 billion.
Keystone reported net income of $51,359,000, or $2.20 per share, for the year
ended December 31, 1994 and net income of $29,677,000, or $1.27 per share, for
the six months ended June 30, 1995. See "Information Concerning Keystone--
Selected Financial Data" and "Keystone Documents Incorporated by Reference."
National American Bancorp, Inc. ("NAB"), a Pennsylvania corporation, is a
bank holding company with its principal executive offices at 312 Main Street,
Towanda, Pennsylvania 18848-0500 (telephone: 717-265-6191). Its bank subsidiary
is The First National Bank of Bradford County ("First National Bank"), which has
10 banking offices in Bradford County in north central Pennsylvania. Through its
10 banking offices, First National Bank offers traditional depository, lending
and personal trust services to consumers, businesses and governmental units
which are located primarily in Bradford County and its contiguous counties,
including those in the southern tier counties of New York state. See
"Information Concerning NAB--NAB Documents Incorporated by Reference."
At June 30, 1995, NAB reported consolidated total assets of $152.673
million, deposits of $126.386 million and net loans of $74.309 million. NAB
reported net income of $1,592,200, or $2.88 per share, for the year ended
December 31, 1994 and net income of $911,902, or $1.63 per share, for the six
months ended June 30,
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1995. See "Information Concerning NAB--Selected Financial Data" and "Information
Concerning NAB--NAB Documents Incorporated by Reference."
THE NAB SPECIAL MEETING
The Special Meeting of Shareholders of NAB (the "Special Meeting") will be
held at 10:00 a.m., local time, on Tuesday, November 21, 1995 at NAB's main
office, 312 Main Street, Towanda, Pennsylvania. Only holders of record of Common
Stock, par value $5.00 per share, of NAB ("NAB Common Stock") at the close of
business on October 10, 1995 will be entitled to notice of and to vote at the
Special Meeting. At that date, [574,347] shares of NAB Common Stock were
outstanding, each share being entitled to one vote. See "Introduction."
THE MERGER
At the Special Meeting, the shareholders of NAB will be asked to approve an
Agreement and Plan of Reorganization and a related Agreement and Plan of Merger
(collectively, the "Plan of Merger") between Keystone and NAB. The Plan of
Merger provides for the merger of NAB into Keystone (the "Merger"). It is
contemplated that simultaneously with or following the Merger, First National
Bank will be merged (the "Bank Merger") into Northern Central Bank, one of
Keystone's operating bank subsidiaries. See "Plan of Merger--The Merger."
As a result of the Merger, the shareholders of NAB will become shareholders
of Keystone. Each outstanding share of NAB Common Stock will be converted in the
Merger into a number of shares of Keystone Common Stock to be determined by
dividing $60.00 by the average closing bid price for Keystone Common Stock for
the 20-trading-day period ending on the 11th trading day prior to the Merger,
but in no event shall such number be less than 2.00 shares nor more than 2.20
shares of Keystone Common Stock for each share of NAB Common Stock. Cash will be
paid in lieu of any fractional share of Keystone Common Stock. See "Plan of
Merger--Conversion of NAB Common Stock." On September 27, 1995, the closing bid
price for Keystone Common Stock on the NASDAQ National Market System was $30.75
per share, and the closing sale price was also $30.75 per share.
REASONS FOR THE MERGER
NAB. In the last several years, economic and competitive forces have
converged with legislative and regulatory changes to accelerate the pace of
consolidation in the banking industry. The growing disparity in resources
between larger regional bank holding companies and smaller independent
organizations could impede the ability of those organizations to continue to
provide their customers with competitive and cost-effective services and
products and to retain talented officers and employees. In this environment,
many banking companies have concluded that shareholder value is enhanced by
merging with a larger organization rather than remaining independent.
In reaching its conclusion to approve the Plan of Merger and Warrant
Agreement, NAB's Board of Directors considered a variety of factors, including:
(i) The terms and conditions of the Plan of Merger and other
documents to be executed in connection with the Merger;
(ii) The consideration offered by Keystone in the Plan of Merger in
relation to the market value, book value and earnings per share
of NAB Common Stock and the prospects for a higher current
trading value for the Keystone Common Stock to be received in the
Merger and better prospects for further growth than if NAB were
to remain independent;
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<PAGE>
(iii) NAB's business, results of operations, financial condition and
prospects were it to remain independent;
(iv) The current general business, economic and market conditions and
prospects for the markets in which NAB operates;
(v) Keystone's management, business, results of operations, financial
condition and prospects;
(vi) The price attainable for NAB's Common Stock at this time compared
with the risks involved and possible price available at a later
time;
(vii) The current and historical dividends paid on NAB Common Stock and
Keystone Common Stock and the significant increase in dividends
which would result to NAB's shareholders from the Merger;
(viii) The future prospects of Keystone and the anticipated strengths
and synergies (including cost savings and efficiencies)
anticipated from the Merger;
(ix) The structure of the Merger, including the expectation that the
Merger will be a tax-free transaction to NAB's shareholders
(except for the portion of consideration to be paid in cash for
fractional shares);
(x) The financial terms of other recent business combinations in the
banking industry;
(xi) The financial advice rendered by the investment banking firm of
Berwind Financial Group, L.P. ("Berwind"), including its opinion
to the effect that the consideration to be received by NAB
shareholders in the Plan of Merger is fair, from a financial
point of view, to NAB's shareholders and the factors considered
by Berwind as set forth in such opinion; and
(xii) The effect of the Merger on NAB's employees, customers, the
communities served by NAB and other constituencies.
Keystone. Through the Merger, Keystone seeks to strengthen its franchise by
expanding its existing presence in the middle region of Pennsylvania, which is
historically Keystone's primary market area. Through the Bank Merger, Keystone
seeks to bolster its operations in north central Pennsylvania and to enhance its
service to the residents and businesses of that region. The addition of First
National Bank's offices to Northern Central Bank will enable it to provide more
efficient and convenient service to its customers in Bradford County and to
better serve the market's larger commercial customers by making more services
available to these customers.
VOTE REQUIRED FOR APPROVAL
Approval of the Plan of Merger by the shareholders of NAB requires the
affirmative vote of the holders of a majority of the shares of NAB Common Stock
represented in person or by proxy at the Special Meeting. An abstention will
have the same legal effect as a vote against approval of the Plan of Merger. A
broker non-vote will not affect the number of votes required for approval of the
Plan of Merger. See "Plan of Merger--Required Vote; Management Recommendation."
As of October 10, 1995, the directors and executive officers of NAB beneficially
owned an aggregate of [15.05%] of the outstanding NAB Common Stock.
The directors of NAB have entered into agreements with Keystone to vote in
favor of the Plan of Merger shares of NAB Common Stock beneficially owned by
them individually or jointly and to use their best efforts to cause certain
other shares over which they have or share voting power to be voted in favor of
the Plan of Merger. These agreements cover an aggregate of [12.21%] of the
outstanding NAB Common Stock. No monetary or other
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<PAGE>
compensation was paid to any NAB director for entering into these agreements.
See "Plan of Merger--Voting Agreements."
As of September 22, 1995, First National Bank, NAB's wholly owned
subsidiary, acting in a fiduciary capacity, had sole voting power over 0.79% of
the outstanding NAB Common Stock, and as of September 15, 1995, Keystone's
subsidiary banks, acting in a fiduciary capacity, had sole voting power over
0.29% of the outstanding NAB Common Stock. It is anticipated that the shares
over which the banks have voting power will be voted in favor of the Plan of
Merger. See "Plan of Merger--Trust Department Shares."
The Merger does not require approval by the shareholders of Keystone.
OPINION OF FINANCIAL ADVISOR
The investment banking firm of Berwind Financial Group, L.P. has rendered
an opinion to the Board of Directors of NAB dated October ____, 1995 that the
terms of the Merger are fair, from a financial point of view, to NAB
shareholders. This opinion is attached as Annex I to this Proxy
Statement/Prospectus and should be read in its entirety for information as to
the matters considered and the assumptions made in rendering such opinion. See
"Plan of Merger--Opinion of NAB Financial Advisor."
BOARD OF DIRECTORS' RECOMMENDATION
THE BOARD OF DIRECTORS OF NAB BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE SHAREHOLDERS OF NAB AND UNANIMOUSLY RECOMMENDS THAT NAB
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF MERGER. See "Plan of Merger--
Required Vote; Management Recommendation."
NAB SHAREHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE ACCOMPANYING
PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
David S. Packard, the President and Chief Executive Officer and a director
of NAB, has an employment agreement which provides for his employment as
President and Chief Executive Officer of NAB and First National Bank through
1998 at an annual salary of $130,000, for him to serve as a consultant
thereafter through 2006 at an annual fee of $110,000 and for him to receive an
annual retirement allowance thereafter for life equal to $110,000 minus an
offset based on his retirement benefits under First National Bank's pension
plan. The agreement provides that in the event of a "change in control,"
including a merger of NAB or First National Bank and another entity, Mr. Packard
may terminate his employment and receive for life the retirement allowance of
$110,000 per year minus, after 2006, the pension plan offset. The agreement
further provides that if Mr. Packard is removed as President and Chief Executive
officer of NAB and First National Bank before 1999 or is assigned duties
inconsistent with this status, Mr. Packard may terminate his employment and
receive the same salary, consulting fee, retirement allowance and other benefits
under the agreement as he would have received in the absence of such
termination. In connection with the Plan of Merger, Mr. Packard and Keystone
have entered into an amendment to the employment agreement effective upon
consummation of the Merger. Under the amendment, Mr. Packard has released
Keystone from any obligation to provide life, medical or other insurance under
the employment agreement after termination of his employment in consideration of
Keystone making certain payments to Mr. Packard, including eight annual payments
of $40,000 each beginning in 1999. The amendment does not otherwise affect the
terms of Mr. Packard's employment agreement.
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<PAGE>
First National Bank has agreements with Mr. Packard and with Donald R.
Brennan, Edward F. Earley and James E. Parks, three other executive officers of
NAB, providing for the maintenance of life insurance policies on the lives of
these officers. The agreements provide that if the officer's employment is
terminated prior to retirement age for any reason other than disability, the
officer will be entitled to receive the cash surrender value of the policy plus
accrued interest and dividends. As of September 30, 1995, the cash surrender
values of the policies were $188,000 for Mr. Packard, $22,859 for Mr. Brennan,
$13,025 for Mr. Earley and $23,356 for Mr. Parks.
Messrs. Packard, Brennan, Earley and Parks hold outstanding options under
NAB's 1994 Employee Stock Option Plan to purchase up to 10,000, 2,500, 1,500,
and 2,000 shares of NAB Common Stock, respectively, at an option price of $35
per share. While the options held by the other three officers are exercisable in
full, Mr. Packard's option is currently exercisable for only 5,700 shares and
will become exercisable for an additional 2,850 shares on January 1, 1996 and
for the remaining 1,450 shares on January 1, 1997. In connection with the Plan
of Merger, Keystone has agreed with NAB that if the Merger is consummated before
January 1, 1996, it will assume the options, which will then become options for
Keystone Common Stock. If the Merger is not consummated before January 1, 1996,
Keystone will not assume the options, with the result that all options will be
exercisable in full immediately prior to the Merger and, to the extent not
exercised, will terminate upon consummation of the Merger. Under the terms of
the Plan, unexercised options would terminate three months after termination of
the optionee's employment for any reason other than death or disability.
Keystone has agreed to indemnify NAB's directors and officers with respect
to events occurring prior to the Merger and to provide such persons with certain
directors' and officers' liability insurance coverage. See "Plan of Merger--
Interests of Certain Persons in the Transaction."
TAX CONSEQUENCES
No gain or loss for federal or Pennsylvania income tax purposes will be
recognized by shareholders of NAB on the exchange of their shares for Keystone
Common Stock in the Merger, except with respect to cash received in lieu of
fractional shares and cash paid to shareholders who elect dissenters' rights.
For a more complete description of the Federal and Pennsylvania income tax
consequences of the Merger, see "Plan of Merger--Tax Consequences to NAB
Shareholders."
WARRANT AGREEMENT
In connection with the Plan of Merger, NAB has entered into an Investment
Agreement granting Keystone a Warrant (together, the "Warrant Agreement") to
purchase up to 19.9% of the outstanding NAB Common Stock, at an exercise price
of $60.00 per share, upon the occurrence of certain events. In general, the
events which would permit Keystone to exercise its Warrant would involve an
attempt by a third person to gain control of NAB. The Warrant Agreement is
designed to compensate Keystone for its risks, costs and expenses and the
commitment of resources associated with the Plan of Merger in the event the
Merger is not consummated due to an attempt by a third person to gain control of
NAB. The Warrant Agreement may discourage third persons from making competing
offers to acquire NAB and is intended to increase the likelihood that the Plan
of Merger will be consummated in accordance with its terms. Exercise of the
Warrant for more than 5% of the outstanding NAB Common Stock would be subject to
the approval of regulatory authorities. See "Plan of Merger--Warrant Agreement."
DISSENTERS' RIGHTS
Record holders of NAB Common Stock who object to the Merger and comply with
the prescribed statutory procedures are entitled to have the fair value of their
shares determined in accordance with the Pennsylvania Business Corporation Law
and paid to them in cash in lieu of the shares of Keystone Common Stock they
would
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<PAGE>
otherwise be entitled to receive in the Merger. A copy of the pertinent
statutory provisions is attached to this Proxy Statement/Prospectus as Annex II.
FAILURE TO FOLLOW SUCH PROVISIONS PRECISELY MAY RESULT IN A LOSS OF DISSENTERS'
RIGHTS. See "Plan of Merger--Dissenters' Rights of NAB Shareholders."
DIFFERENCES IN SHAREHOLDER RIGHTS
The rights of the holders of Keystone Common Stock differ in certain
respects from those of the holders of NAB Common Stock. While for both NAB and
Keystone supermajority shareholder votes are required to approve certain mergers
and other transactions between the corporation and a substantial shareholder and
certain amendments to the Articles of Incorporation or By-Laws, the types of
transactions or amendments subject to the special vote requirements and the
votes required for approval differ between the two companies. While both NAB and
Keystone have classified Boards of Directors, Keystone shareholders do not have
cumulative voting rights in the election of directors, and there are differences
in the rights of shareholders of the two companies to nominate and remove
directors. NAB shareholders have certain redemption rights not available to
Keystone shareholders in the event a person or group acquires 75% of the
outstanding shares. Unlike NAB, Keystone has established a shareholder rights
plan which may discourage outside persons from attempting to acquire control of
Keystone. While both NAB and Keystone are subject to certain provisions of the
Pennsylvania Business Corporation Law which may make an attempt to acquire
control of the corporation more difficult, Keystone has elected to opt out from
coverage by some of these provisions. Because Keystone has more than 2,000
shareholders of record, holders of Keystone Common Stock are not entitled to
dissenters' appraisal rights in a variety of situations in which such rights
would be available to shareholders of NAB. Unlike NAB, Keystone has an
authorized class of preferred stock which, if issued, could affect the rights of
the holders of Keystone Common Stock. For a more detailed discussion of the
differences between the rights of the holders of NAB Common Stock and those of
the holders of Keystone Common Stock, see "Comparison of Keystone Common Stock
and NAB Common Stock."
REGULATORY APPROVALS
The Merger requires approval by the Board of Governors of the Federal
Reserve System and the Pennsylvania Department of Banking. The Bank Merger
requires approval by the FDIC and the Pennsylvania Department of Banking.
Applications for these approvals have been filed and are expected to be
approved, although no assurances may be given as to whether or when such
approvals may be received.
CONDITIONS; AMENDMENT; TERMINATION
In addition to NAB shareholder and regulatory approval, consummation of the
Merger is contingent upon the receipt of certain tax and accounting opinions and
the satisfaction of a number of other conditions. See "Plan of Merger--
Conditions to the Merger." Notwithstanding prior NAB shareholder approval, the
Plan of Merger may be amended in any respect other than the formula for
converting NAB Common Stock into Keystone Common Stock in the Merger.
The Plan of Merger may be terminated, and the Merger abandoned,
notwithstanding prior NAB shareholder approval, by mutual agreement of Keystone
and NAB or by either of them in the event of a material breach of the Plan of
Merger by the other party, failure to receive NAB shareholder or regulatory
approval or failure to satisfy the conditions to the Merger prior to June 30,
1996 or, in certain circumstances, September 30, 1996. NAB may also terminate
the Plan of Merger if the average closing bid price for Keystone Common Stock
shall be less than $25.50 for any period of 20 consecutive trading days or if
such closing bid price shall be less than $25.50 on the day prior to the closing
date for the Merger. See "Plan of Merger--Amendment, Waiver and Termination."
-viii-
<PAGE>
EFFECTIVE DATE OF THE MERGER
It is presently anticipated that if the Plan of Merger is approved by the
shareholders of NAB, the Merger will become effective in the fourth quarter of
1995 or early in 1996. However, there can be no assurance that all conditions
necessary to the consummation of the Merger will be satisfied or, if satisfied,
that they will be satisfied in time to permit the Merger to become effective at
the anticipated time. See "Plan of Merger--Effective Date of the Merger."
EXCHANGE OF CERTIFICATES
Instructions on how to effect the exchange of NAB Common Stock certificates
for Keystone Common Stock certificates will be sent as promptly as practicable
after the Merger becomes effective to each shareholder of record of NAB
immediately prior to the Merger. SHAREHOLDERS SHOULD NOT SEND IN STOCK
CERTIFICATES UNTIL THEY RECEIVE WRITTEN INSTRUCTIONS TO DO SO.
PRE-ANNOUNCEMENT PRICES
The following table sets forth (i) the closing sale price for Keystone
Common Stock on the NASDAQ National Market System on July 27, 1995, the last
trading day prior to the first public announcement of the Merger and (ii) an
equivalent per share price for NAB Common Stock computed by multiplying the
closing sale price for Keystone Common Stock on July 27, 1995 by 2.017. The
conversion rate of 2.017 assumes that the 20-day average closing bid price for
Keystone Common Stock which will be used in the conversion formula under the
Plan of Merger was $29.75, which was the closing bid price for Keystone Common
Stock on July 27, 1995. See "Plan of Merger--Conversion of NAB Common Stock."
<TABLE>
<CAPTION>
LAST
PRE-ANNOUNCEMENT EQUIVALENT PER
PRICE SHARE PRICE
----- -----------
<S> <C> <C>
Keystone Common Stock.............. $30.25 --
NAB Common Stock................... -- $61.01
</TABLE>
On September 27, 1995, the closing sale price for Keystone Common Stock was
$30.75, and the closing bid price was also $30.75. Using these prices and making
the assumptions set forth above, the exchange ratio would have been 2.00, and
the equivalent per share price for NAB Common Stock would have been $61.50.
The last trade of NAB Common Stock known to NAB management to have occurred
prior to announcement of the Merger was a trade of 132 shares of NAB Common
Stock at $38.00 per share on July 3, 1995. The most recent trade of NAB Common
Stock known to NAB management prior to the date of this Proxy
Statement/Prospectus was a trade of [200] shares of NAB Common Stock at [$55.00]
per share on [August 28], 1995. Both of such transactions were by parties not
affiliated with NAB. There is no established public trading market for NAB
Common Stock, and there has been only limited trading in NAB Common Stock.
Therefore, these prices may not necessarily be indicative of the true market
value of NAB Common Stock. See "Information Concerning NAB--Market and Dividend
Information Concerning NAB Common Stock."
PENDING ACQUISITION BY KEYSTONE
Keystone has entered into merger agreements dated January 5, 1995 to
acquire Shawnee Financial Services Corporation ("Shawnee") and its wholly owned
subsidiary, The Everett Bank, which has four banking offices in Bedford County
in south central Pennsylvania. Pursuant to the agreements, Shawnee will be
merged into
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<PAGE>
Keystone, and the shareholders of Shawnee will receive approximately 501,150
shares of Keystone Common Stock. It is contemplated that simultaneously with the
merger of Shawnee and Keystone, The Everett Bank will be merged into Keystone's
subsidiary, Mid-State Bank and Trust Company. The transaction was approved by
Shawnee's shareholders on August 22, 1995, and regulatory approvals have been
received. Consummation of the transaction is anticipated in October 1995.
At June 30, 1995, Shawnee reported total assets of $72,943,000, deposits of
$63,845,000, net loans of $38,765,000 and shareholders' equity of $8,342,000.
Shawnee reported net income of $727,000 for the year ended December 31, 1994 and
net income of $422,000 for the six months ended June 30, 1995. The Shawnee
merger will be accounted for by Keystone under the pooling-of-interests method
of accounting.
ACCOUNTING TREATMENT
The Merger will be accounted for by Keystone under the pooling-of-interests
method of accounting. See "Plan of Merger--Accounting Treatment." Pro forma
financial information concerning the Merger and the Shawnee merger is not
included herein since the addition of NAB and Shawnee would not have materially
affected the Keystone historical financial information as presented.
-x-
<PAGE>
SELECTED FINANCIAL INFORMATION--(UNAUDITED)
The following table sets forth certain historical financial information for
Keystone and NAB. The addition of NAB and Shawnee would not have materially
affected the Keystone financial information as presented. This information is
based on the consolidated financial statements of Keystone and NAB incorporated
herein by reference and should be read in conjunction with such statements and
the related notes.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
KEYSTONE
Earnings
Net interest
income.................. $ 98,449 $ 91,561 $ 188,418 $ 182,510 $ 177,927 $ 163,734 $ 155,726
Provision for
credit losses........... 4,342 3,976 9,484 7,940 16,053 16,323 15,107
Net income............... 29,677 27,986 51,359 51,349 45,742 40,268 37,720
Per Share
Net income............... $ 1.27 $ 1.20 $ 2.20 $ 2.20 $ 1.99 $ 1.77 $ 1.66
Dividends................ 0.68 0.64 1.30 1.19 1.10 1.02 0.91
Balances at Period End
Assets................... $4,733,638 $4,372,549 $4,706,000 $4,419,726 $4,311,779 $4,120,215 $4,041,232
Deposits................. 3,855,377 3,600,398 3,827,983 3,582,688 3,655,261 3,560,284 3,523,779
Long-term
debt.................... 4,929 7,043 6,054 5,990 5,144 2,143 2,989
Shareholders'
equity.................. 436,448 407,843 407,774 412,880 378,314 348,143 327,092
NAB
Earnings
Net interest
income................ $ 3,090 $ 2,682 $ 5,551 $ 5,394 $ 5,313 $ 5,053 $ 4,806
Provision for
loan losses........... 20 0 0 58 102 460 190
Net income............. 912 765 1,592 1,567 1,476 1,271 1,427
Per Share
Net income............. $ 1.63 $ 1.39 $ 2.88 $ 2.85 $ 2.70 $ 2.34 $ 2.58
Dividends.............. 0.54 0.52 1.05 .97 .91 .87 .83
Balances at Period End
Assets................. $ 152,673 $ 152,726 $ 155,433 $ 148,705 $ 139,752 $ 138,294 $ 127,302
Deposits............... 126,386 123,905 123,959 125,950 125,892 125,359 115,311
Long-term
debt.................. 6,500 6,500 6,500 0 0 0 0
Shareholders'
equity................ 17,258 15,114 15,372 15,367 13,443 12,124 11,110
</TABLE>
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<PAGE>
COMPARATIVE PER SHARE DATA--(UNAUDITED)
The following table sets forth for the periods indicated (i) historical
earnings, book values and dividends per share for Keystone Common Stock and (ii)
historical and equivalent comparative earnings and book values per share for NAB
Common Stock. The addition of NAB and Shawnee would not have materially affected
Keystone's historical earnings and book values per share. The following data is
based on the consolidated financial statements of Keystone and NAB incorporated
herein by reference and should be read in conjunction with such statements and
the related notes.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
Keystone Shareholders
Keystone................. $ 1.27 $ 1.20 $ 2.20 $ 2.20 $ 1.99 $ 1.77 $ 1.66
NAB Shareholders
NAB...................... $ 1.63 $ 1.39 $ 2.88 $ 2.85 $ 2.70 $ 2.34 $ 2.58
NAB equivalent (1)
Minimum................. 2.54 2.40 4.40 4.40 3.98 3.54 3.32
Maximum................. 2.79 2.64 4.84 4.84 4.38 3.89 3.65
BOOK VALUE PER COMMON SHARE
Keystone Shareholders
Keystone................ $ 18.60 $ 17.49 $ 17.46 $ 17.65 $ 16.29 $ 15.27 $ 14.41
NAB Shareholders
NAB..................... $ 30.05 $ 27.36 $ 27.83 $ 27.82 $ 24.06 $ 22.23 $ 20.62
NAB equivalent (1)
Minimum............... 37.20 -- 34.92 -- -- -- --
Maximum............... 40.92 -- 38.41 -- -- -- --
CASH DIVIDENDS DECLARED PER
COMMON SHARE (2)
Keystone Shareholders
Keystone............... $ 0.68 $ 0.64 $ 1.30 $ 1.19 $ 1.10 $ 1.02 $ 0.91
NAB Shareholders
NAB................... $ 0.54 $ 0.52 $ 1.05 $ .97 $ .91 $ .87 $ .83
NAB equivalent (1)
Minimum............. 1.36 1.28 2.60 2.38 2.20 2.04 1.82
Maximum............. 1.50 1.41 2.86 2.62 2.42 2.24 2.00
</TABLE>
_______________
(1) The Plan of Merger provides for the conversion of each share of NAB Common
Stock into not less than 2.00 (minimum) and not more than 2.20 (maximum)
shares of Keystone Common Stock. The NAB equivalent per share data
represents the historical data of Keystone multiplied by the minimum and
maximum exchange ratios.
(2) While Keystone is not obligated to pay cash dividends, the Board of
Directors presently intends to continue the policy of paying quarterly
cash dividends. Future dividends will depend, in part, upon the earnings
and financial condition of Keystone.
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<PAGE>
KEYSTONE FINANCIAL, INC.
AND
NATIONAL AMERICAN BANCORP, INC.
__________
PROXY STATEMENT/PROSPECTUS
__________
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Board of Directors of National American Bancorp, Inc.
("NAB") of proxies to be voted at a Special Meeting of Shareholders of NAB (the
"Special Meeting") to be held on Tuesday, November 21, 1995 and at any
adjournment or adjournments thereof. The Special Meeting will be held at 10:00
a.m., local time, at NAB's main office, 312 Main Street, Towanda, Pennsylvania.
The approximate date on which this Proxy Statement/Prospectus will first be
mailed to the shareholders of NAB is October ____, 1995.
RECORD DATE; VOTING RIGHTS
The Board of Directors of NAB has fixed the close of business on October
10, 1995 as the record date for determining the shareholders of NAB entitled to
notice of and to vote at the Special Meeting. At that date, [574,347] shares of
Common Stock, par value $5.00 per share, of NAB ("NAB Common Stock") were
outstanding. Each such share entitles its holder of record at the close of
business on the record date to one vote on each matter properly submitted to the
shareholders for action at the Special Meeting. NAB does not have any other
outstanding class of capital stock. On August 31, 1995, there were approximately
598 shareholders of record of NAB Common Stock.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the shareholders of NAB will be asked to consider
and vote upon a proposal to approve an Agreement and Plan of Reorganization and
a related Agreement and Plan of Merger, each dated as of July 26, 1995
(collectively, the "Plan of Merger"), between NAB and Keystone Financial, Inc.
("Keystone"). As more fully described below under "Plan of Merger," the Plan of
Merger provides for a merger of NAB into Keystone (the "Merger"). In the Merger,
each outstanding share of NAB Common Stock (other than shares subject to
dissenters' rights) will be converted into not more than 2.20 shares and not
less than 2.00 shares of Keystone Common Stock, with the actual exchange ratio
depending upon the market value of Keystone Common Stock prior to the Merger. It
is contemplated that simultaneously with or shortly following the Merger, NAB's
bank subsidiary, The First National Bank of Bradford County ("First National
Bank"), will be merged into Northern Central Bank, one of Keystone's operating
bank subsidiaries.
NAB has received an opinion of the investment banking firm of Berwind
Financial Group, L.P. ("Berwind") that the terms of the Merger are fair to the
shareholders of NAB from a financial point of view. See "Plan of Merger--Opinion
of NAB Financial Advisor."
<PAGE>
THE BOARD OF DIRECTORS OF NAB BELIEVES THAT THE MERGER IS IN THE BEST
INTERESTS OF THE SHAREHOLDERS OF NAB AND UNANIMOUSLY RECOMMENDS THAT NAB
SHAREHOLDERS VOTE TO APPROVE THE PLAN OF MERGER.
VOTING AND REVOCATION OF PROXIES
All properly executed proxies not theretofore revoked will be voted at the
Special Meeting or any adjournments thereof in accordance with the instructions
thereon. Proxies containing no voting instructions will be voted in favor of
approval of the Plan of Merger. The Board of Directors of NAB knows of no other
business to be presented for consideration at the Special Meeting. However, if
any other matter is properly brought before the Special Meeting and submitted to
a shareholder vote, proxies will be voted in accordance with the judgment of the
proxyholders named thereon. However, the proxy of any shareholder who votes
against approval of the Plan of Merger will not be used to vote in favor of any
proposal to adjourn the Special Meeting in the event NAB management wishes to
adjourn the Special Meeting in order to allow time for the solicitation of
additional votes to approve the Plan of Merger.
A shareholder who has executed and returned a proxy may revoke it at any
time before it is voted by filing with the Secretary of NAB written notice of
such revocation, by submitting a later dated proxy or by attending the Special
Meeting and voting in person by ballot. Attendance at the Special Meeting will
not, of itself, constitute a revocation of a proxy.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
NAB or First National Bank may solicit proxies from the shareholders of NAB in
person or by telephone or otherwise. No additional compensation will be paid for
such solicitation. Brokerage houses, nominees, fiduciaries and other custodians
will be requested to forward proxy soliciting materials to beneficial owners of
shares held of record by them and will be reimbursed by NAB for their reasonable
expenses. NAB will bear its own expenses in connection with the solicitation of
proxies for the Special Meeting, except that Keystone and NAB will each pay 50%
of the printing costs related to the solicitation of proxies from NAB
shareholders. See "Plan of Merger--Expenses." NAB estimates that its out-of-
pocket expenses in connection with the solicitation of proxies for the Special
Meeting will be approximately $8,000, including 50% of total printing costs
estimated at $12,000.
PLAN OF MERGER
This section of the Proxy Statement/Prospectus describes the material terms
of the Plan of Merger. The following description does not purport to be complete
and is qualified in its entirety by reference to the Plan of Merger, which has
been filed with the SEC as an exhibit to the Registration Statement. The Plan of
Merger is incorporated in this Proxy Statement/Prospectus by reference to such
filing and is available upon request. See "Available Information."
THE MERGER
The Plan of Merger provides for a merger of Keystone and NAB in which
Keystone will be the surviving corporation. As a result of the Merger, Keystone
will acquire all of the assets and liabilities of NAB, and NAB will cease to
exist as a separate corporation.
In the Merger, the shareholders of NAB will become shareholders of
Keystone. The number of shares of Keystone Common Stock into which each
outstanding share of NAB Common Stock (other than shares subject to
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<PAGE>
dissenters' rights) will be converted will be determined by dividing $60.00 by
the average closing bid price for Keystone Common Stock for the 20 trading days
ending 11 trading days prior to Merger, but will not be less than 2.00 nor more
than 2.20 shares of Keystone Common Stock for each share of NAB Common Stock. On
September 27, 1995, the closing bid price for Keystone Common Stock was $30.75
per share. Cash will be paid in lieu of any fractional share of Keystone Common
Stock. See "Conversion of NAB Common Stock."
Keystone is a bank holding company with its principal executive offices in
Harrisburg, Pennsylvania. The principal subsidiaries of Keystone are Northern
Central Bank, Williamsport, Pennsylvania; Mid-State Bank and Trust Company,
Altoona, Pennsylvania; Pennsylvania National Bank and Trust Company, Pottsville,
Pennsylvania; The Frankford Bank, N.A., Horsham, Pennsylvania; American Trust
Bank, Cumberland, Maryland; and American Trust Bank of West Virginia, Inc.,
Keyser, West Virginia. Keystone's bank subsidiaries operate a combined total of
140 banking offices in central and southeastern Pennsylvania, western Maryland
and northeastern West Virginia. See "Summary--The Parties--Keystone" and
"Keystone Documents Incorporated by Reference."
NAB is a bank holding company with its principal executive offices in
Towanda, Pennsylvania. NAB's bank subsidiary is First National Bank, which has
10 banking offices in Bradford County in north central Pennsylvania. See
"Summary--The Parties--NAB" and "NAB Documents Incorporated by Reference."
It is contemplated that simultaneously with or shortly following the Merger
of NAB and Keystone, First National Bank, NAB's bank subsidiary, will be merged
into Northern Central Bank, one of Keystone's bank subsidiaries (the "Bank
Merger"). The Bank Merger is conditioned upon the prior or simultaneous
consummation of the Merger of NAB and Keystone. While the Merger of NAB and
Keystone is not conditioned upon consummation of the Bank Merger, it is a
waivable condition to Keystone's obligations to consummate the Merger that the
regulatory approvals required for the Bank Merger shall have been received. See
"Conditions to the Merger."
BACKGROUND OF AND REASONS FOR THE MERGER
NAB. In the last several years, economic and competitive forces have
converged with legislative and regulatory changes to accelerate the pace of
consolidation in the banking industry. The growing disparity in resources
between larger regional bank holding companies and smaller independent
organizations could impede the ability of those smaller organizations to
continue to provide their customers with competitive and cost-effective services
and products and to retain talented officers and employees. In this environment,
many smaller banking companies have concluded that shareholder value is enhanced
by merging with a larger organization rather than remaining independent.
In mid-1994, NAB's Board of Directors decided to reevaluate whether
continuing as an independent entity was in the best interests of NAB's
shareholders and other constituencies. On August 23, 1994, Berwind was engaged
by NAB's Board to act as its financial advisor. In November 1994, Berwind met
with NAB's Board to discuss the probable valuation of NAB in a sale compared
with its valuation as an independent bank holding company. After various Board
discussions, Berwind was instructed in January 1995 to solicit preliminary
expressions of interest from potential acquirers of NAB.
On March 7, 1995, Berwind reported to NAB's Board on the results of its
solicitation and reviewed and evaluated the preliminary expressions of interest
which had been received. NAB's Board was dissatisfied with the prices suggested
in the preliminary expressions of interest and directed Berwind to contact
several of the respondents with the purpose of increasing the suggested offering
prices for NAB. Keystone was willing to negotiate with respect to the offering
price, and negotiations continued with Keystone with respect to price into May
1995. Keystone and NAB conducted due diligence investigations of their
respective organizations and negotiated various other aspects of the Plan of
Merger during May, June and July of 1995.
-3-
<PAGE>
NAB's Board of Directors held a special meeting on July 26, 1995 to
consider Keystone's merger proposal and the Plan of Merger and Warrant
Agreement. At this meeting, Berwind made a detailed presentation concerning the
merger proposal and compared the terms of the Keystone proposal to other recent
comparable transactions. NAB's legal counsel conducted a detailed review of the
Plan of Merger and Warrant Agreement. After extensive questions, discussion, and
deliberation, NAB's Board of Directors unanimously voted to accept the Keystone
merger proposal and approve the Plan of Merger and Warrant Agreement.
NAB's Board of Directors has considered the terms and provisions of the
Plan of Merger and Warrant Agreement and concluded that they are fair to the
shareholders of NAB and that consummation of the Merger is in the best interests
of NAB and its shareholders. The Board of Directors of NAB has approved the Plan
of Merger and Warrant Agreement and recommends approval of the Plan of Merger to
the shareholders of NAB.
In reaching its conclusion to approve the Plan of Merger and Warrant
Agreement, NAB's Board of Directors considered a variety of factors, including:
(i) The terms and conditions of the Plan of Merger and other
documents to be executed in connection with the Merger;
(ii) The consideration offered by Keystone in the Plan of Merger in
relation to the market value, book value and earnings per share
of NAB Common Stock and the prospects for a higher current
trading value for the Keystone Common Stock to be received in the
Merger and better prospects for further growth than if NAB were
to remain independent;
(iii) NAB's business, results of operations, financial condition and
prospects were it to remain independent;
(iv) The current general business, economic and market conditions and
prospects for the markets in which NAB operates;
(v) Keystone's management, business, results of operations, financial
condition and prospects;
(vi) The price attainable for NAB's Common Stock at this time compared
with the risks involved and possible price available at a later
time;
(vii) The current and historical dividends paid on NAB Common Stock and
Keystone Common Stock and the significant increase in dividends
which would result to NAB's shareholders from the Merger;
(viii) The future prospects of Keystone and the anticipated strengths
and synergies (including cost savings and efficiencies) from the
Merger;
(ix) The structure of the Merger, including the expectation that the
Merger will be a tax-free transaction to NAB's shareholders
(except for the portion of consideration to be paid in cash for
fractional shares);
(x) The financial terms of other recent business combinations in the
banking industry;
(xi) The financial advice rendered by Berwind, including its opinion
to the effect that the consideration to be received by NAB
shareholders in the Plan of Merger is fair, from a financial
point of view, to NAB's shareholders and the factors considered
by Berwind as set forth in such opinion; and
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(xii) The effect of the Merger on NAB's employees, customers, the
communities served by NAB and other constituencies.
Keystone. Through the Merger, Keystone seeks to strengthen its franchise
by expanding its existing presence in the middle region of Pennsylvania.
Keystone's roots are in the central portion of the state, having been formed
originally by the combination of Mid-State Bank and Trust Company based in
Altoona, Pennsylvania, Northern Central Bank, based in Williamsport,
Pennsylvania, and Pennsylvania National Bank and Trust Company, based in
Pottsville, Pennsylvania. Keystone has previously extended its central
Pennsylvania presence southward by the 1994 acquision of American Trust Bank,
based in Cumberland, Maryland, and American Trust Bank of West Virginia, based
in Keyser, West Virginia. Through the Bank Merger, Keystone seeks to bolster its
operations in north central Pennsylvania and to enhance its service to the
residents and businesses of that region.
Currently, Northern Central Bank has four offices in Bradford County, which
serve customers located over an area of 280 square miles. By merging with
First National Bank, a traditionally well-managed and profitable bank, Northern
Central Bank will be able to provide more efficient and convenient service to
its customers in Bradford County. Specifically, Northern Central Bank believes
it can better serve the market's larger commercial customers by making more
services available to these customers.
REQUIRED VOTE; MANAGEMENT RECOMMENDATION
Approval of the Plan of Merger requires the affirmative votes of a majority
of the shares of NAB Common Stock represented in person or by proxy at the
Special Meeting. Because a majority of all shares represented at the Special
Meeting is required for approval, an abstention will have the same legal effect
as a vote against approval of the Plan of Merger. Shares subject to broker non-
vote will not be considered to be represented at the Special Meeting and will
not be counted in determining the number of votes required for approval of the
Plan of Merger. THE BOARD OF DIRECTORS OF NAB UNANIMOUSLY RECOMMENDS THAT NAB
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN OF MERGER.
The Board of Directors of Keystone has approved the Plan of Merger, and
under the Pennsylvania Business Corporation Law no approval of the Plan of
Merger by the shareholders of Keystone is required.
VOTING AGREEMENTS
In connection with the Plan of Merger, the directors of NAB have entered
into agreements to vote certain shares of NAB Common Stock beneficially owned by
them in favor of the Plan of Merger. The directors of NAB have agreed with
Keystone that they will vote in favor of the Plan of Merger all shares of NAB
Common Stock owned by them as individuals or (to the extent of their
proportionate voting interest) jointly with other persons, and that they will
use their best efforts to cause any other shares of NAB Common Stock over which
they have or share voting power to be voted in favor of the Plan of Merger. In
the aggregate, these agreements commit 68,516 shares of NAB Common Stock (11.93%
of the outstanding shares) to be voted in favor of the Plan of Merger. An
additional 1,613 shares of NAB Common Stock (0.28% of the outstanding shares)
are subject to the best efforts provisions.
The agreements further provide that with respect to shares of NAB Common
Stock owned by the NAB directors as individuals or (to the extent of the
director's proportionate voting interest) jointly with other persons
(collectively, "Shares"), the directors will not until the Merger has been
consummated or the Plan of Merger has been terminated: (1) vote Shares in favor
of any other merger or transaction which would have the effect of a person other
than Keystone or an affiliate acquiring control of NAB or First National Bank or
(2) sell or otherwise transfer Shares (i) pursuant to any tender offer or
similar proposal made by a person other than Keystone or an affiliate, (ii) to
any person other than Keystone or an affiliate seeking to obtain control of NAB
or First National Bank or (iii) for the principal purpose of avoiding the
director's obligations under the agreement. The agreements
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define "control" as the ability to (1) direct the voting of 10% or more of the
shares eligible to vote in an election of directors of NAB or First National
Bank or (2) direct the management and policies of NAB or First National Bank.
The agreements are applicable to the directors only in their capacities as
shareholders and do not affect the exercise of their fiduciary responsibilities
as directors or executive officers. The agreements also do not apply to any
shares of NAB Common Stock held by a director as a trustee or other fiduciary.
No monetary or other compensation was paid to any NAB director for entering into
these agreements.
The foregoing is a summary of the material terms of the voting agreements.
The form of these agreements has been filed with the SEC as an exhibit to the
Registration Statement. Such form is incorporated herein by reference, and the
foregoing summary of the agreements is qualified in its entirety by reference to
such filing.
TRUST DEPARTMENT SHARES
As of September 22, 1995 NAB's bank subsidiary, First National Bank, acting
in a fiduciary capacity for various trusts and estates, had sole voting power
over 4,532 shares of NAB Common Stock, representing 0.79% of the outstanding
shares. As of September 15, 1995 Keystone's bank subsidiaries, acting in a
fiduciary capacity, had sole voting power over 1,674 shares of NAB Common Stock,
representing 0.29% of the outstanding shares. It is anticipated that the shares
of NAB Common Stock over which the banks have sole voting power will be voted in
favor of approval of the Plan of Merger.
OPINION OF NAB FINANCIAL ADVISOR
NAB retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the Merger. Berwind has rendered its opinion
to the Board of Directors of NAB that, based upon and subject to the various
considerations set forth therein, as of July 26, 1995, and as of October _____,
1995, the Merger is fair, from a financial point of view, to the holders of NAB
Common Stock.
The full text of Berwind's opinion as of October _____, 1995, which sets
forth the assumptions made, matters considered and limitations of the review
undertaken, is attached as Annex I to this Proxy Statement/Prospectus and should
be read in its entirety in connection with this Proxy Statement/Prospectus. This
section of the Proxy Statement/Prospectus sets forth the material terms of
Berwind's opinion; however, the summary of the opinion of Berwind set forth
herein is qualified in its entirety by reference to the full text of such
opinion attached as Annex I to this Proxy Statement/Prospectus.
NAB retained Berwind to act as NAB's financial advisor in connection with
the Merger. Berwind was selected to act as NAB's financial advisor based upon
its qualifications, expertise and experience. Berwind has knowledge of, and
experience with, Pennsylvania banking markets and banking organizations
operating in those markets and was selected by NAB because of its knowledge of,
experience with, and reputation in the financial services industry.
In such capacity, Berwind participated in the negotiations with respect to
the pricing and other terms of the Merger, but the decision with respect to the
Merger exchange ratio was determined by NAB in the process of its negotiations
with Keystone. On July 26, 1995, NAB's Board of Directors approved and executed
the Plan of Merger. Berwind delivered an opinion (the "July Opinion") to NAB's
Board of Directors stating that, as of such date, the Merger was fair to the
shareholders of NAB from a financial point of view. Berwind reached the same
opinion as of October _____, 1995. The full text of the opinion of Berwind dated
as of October _____, 1995, which sets forth assumptions made, matters considered
and limits on the review undertaken (the "Proxy Opinion"), is attached as Annex
I to this Proxy Statement/Prospectus. No limitations were imposed by NAB's Board
of Directors upon Berwind with respect to the investigations made or procedures
followed by Berwind in rendering the July Opinion or the Proxy Opinion.
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In rendering its Proxy Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of NAB
and Keystone, (ii) reviewed the Plan of Merger, (iii) reviewed and analyzed the
stock market performance of Keystone, (iv) studied and analyzed the consolidated
financial and operating data of NAB and Keystone, (v) considered the terms and
conditions of the proposed Merger between NAB and Keystone as compared with the
terms and conditions of comparable bank mergers and acquisitions, (vi) met
and/or communicated with certain members of NAB's and Keystone's senior
management to discuss their respective operations, historical financial
statements and future prospects and (vii) conducted such other financial
analyses, studies and investigations as it deemed appropriate.
Berwind relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to NAB's financial
forecasts reviewed by Berwind in rendering its opinion, Berwind assumed that
such financial forecasts were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of NAB as to the
future financial performance of NAB. NAB's senior management reviewed for
accuracy and completeness all information concerning NAB, including any
forecasts, provided to Berwind. Berwind did not make an independent evaluation
or appraisal of the assets (including loans) or liabilities of NAB or Keystone,
nor was it furnished with any such appraisal. Berwind also did not independently
verify and has relied on and assumed that all allowances for loan and lease
losses set forth on the balance sheets of NAB and Keystone were adequate and
complied fully with applicable law, regulatory policy and sound banking practice
as of the date of such financial statements.
The following is a summary of selected analyses prepared by Berwind and
presented to NAB's Board in connection with the July Opinion and analyzed by
Berwind in connection with the July and Proxy Opinions.
Comparable Companies and Comparable Acquisition Transaction Analyses.
Berwind compared selected financial and operating data for NAB with those of a
peer group of selected banks and bank holding companies with assets between
approximately $90 million and $240 million, as of the most recent financial
period publicly available, located in Pennsylvania and New York counties
surrounding Bradford County, Pennsylvania. Financial data and operating ratios
compared in the analysis of the NAB peer group included but were not limited to:
return on average assets, return on average equity, shareholders' equity to
assets ratio and certain asset quality ratios. The analysis showed NAB's return
on average assets was _____% compared to the peer group median of _____%, its
return on average equity was _____% compared to the peer group median of _____%,
its equity as a percentage of assets was _____% versus the peer group median of
_____%, its nonperforming assets as a percentage of assets was _____% compared
to the peer group median of _____%, its nonperforming assets as a percentage of
equity and loan loss reserves was _____% compared to the peer group median of
_____% and its loan loss reserve as a percentage of nonperforming assets was
_____% compared to the median of _____% for the peer group.
Berwind also compared selected financial, operating and stock market data
for Keystone with those of a peer group of selected commercial banks with assets
between $2.0 and $6.0 billion, as of the most recent period publicly available,
located in Delaware, Maryland, New Jersey, Pennsylvania and West Virginia.
Financial, operating and stock market data, ratios and multiples compared in the
analysis of the Keystone peer group included but were not limited to: return on
average assets, return on average equity, shareholders' equity to asset ratios,
certain asset quality ratios, price to book value, price to tangible book value,
price to earnings (latest twelve months) and dividend yield. This analysis
showed Keystone's return on average assets was _____% compared to the peer group
median of _____%, its return on average equity was _____% versus the peer group
median of _____%, its shareholders' equity as a percentage of assets was _____%
versus the peer group median of _____%, its nonperforming assets as a percentage
of loans and other real estate owned was _____% compared to the peer group
median of _____%, its nonperforming assets as a percentage of shareholders'
equity plus loan loss reserve was _____% compared to the peer group median of
_____% and its loan loss reserve as a percentage of nonperforming assets was
_____% compared to the median of _____% for the peer group.
In addition, the analysis showed that Keystone's common stock price per
share ($_____ on the date of the Proxy Opinion) as a percentage of book value
per share was _____% compared to the peer group median of _____%, its
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common stock price per share as a percentage of tangible book value was _____%
compared to the peer group median of _____% and its common stock price per share
as a multiple of latest twelve months' earnings per share of _____ times
compared to the peer group median of _____ times.
Berwind also compared the multiples of book value, tangible book value
and latest twelve months' earnings inherent to the Merger with the multiples
paid in recent acquisitions of banks and bank holding companies that Berwind
deemed comparable. The transactions deemed comparable by Berwind included both
interstate and intrastate bank and bank holding company acquisitions announced
since July 1, 1994, in which the selling institution's assets at the time of the
announced transaction were between $100 and $300 million.
Berwind compared _______________ transactions located throughout the
country and analyzed those transactions in three groups: a national group (_____
banks), a regional group (_____ banks) and a performance group (_____ banks).
The national group included transactions throughout the United States; the
regional group included transactions involving acquired banking institutions
located New Jersey, New York and Pennsylvania; and the performance group
included transactions involving commercial banking institutions with year to
date return on average assets greater than _____%, equity as a percentage of
assets greater than _____% and nonperforming assets as a percentage of assets
less than _____%. The median values calculated for price as a percentage of book
value were _____%, _____% and _____% for the national, regional and performance
group, respectively; the range of price as a percentage of tangible book value
was _____%, _____% and _____% for the national, regional and performance group,
respectively; and the range of the price per share as a multiple of latest
twelve months' earnings per share was _____, _____ and _____ times for the
national, regional and performance group, respectively.
These medians compare to the Merger's price per share as a percentage of
book value per share, price per share as a percentage of tangible book value,
and price per share as a multiple of latest twelve months' earnings of _____%,
_____% and _____ times, respectively. No company or transaction, however, used
in this analysis is identical to NAB, Keystone or the Merger. Accordingly, an
analysis of the result of the foregoing is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that would affect
the public trading values of the companies or company to which they are being
compared.
Discounted Dividend Analysis. Using discounted dividend analyses, Berwind
estimated the present value of the future dividend streams that NAB could
produce over a five year period under different assumptions as to dividend
payout levels, if NAB performed in accordance with various earnings growth
forecasts. Berwind also estimated the terminal value for NAB's Common Stock
after the five year period by applying a range of earnings multiples to NAB's
terminal year earnings. The range of multiples used reflected a variety of
scenarios regarding the growth and profitability prospects of NAB. The dividend
streams and terminal values were then discounted to present value using discount
rates reflecting different assumptions regarding the rates of return required by
holders or prospective buyers of NAB's Common Stock.
Pro Forma Contribution Analysis. Berwind analyzed the changes in the amount
of earnings, book value and dividends represented by one share of NAB stock
prior to the Merger and 2.00 to 2.20 shares of Keystone stock after the Merger.
The analysis considered, among other things, the changes that the Merger would
cause to NAB's earnings per share, book value per share and indicated dividends.
On a per share equivalent basis, NAB's earnings per share increases _____% from
$__________ to $__________, its tangible book value per share increases _____%
from $__________ to $__________ and its dividend per share increases _____% from
$__________ to $__________ per share. In reviewing the pro forma combined
earnings, equity and assets of Keystone based on the Merger with NAB, Berwind
analyzed the contribution that NAB would have made to the combined company's
earnings, equity and assets as of and for the latest twelve month period ended
June 30, 1995. Berwind also reviewed the percentage ownership that NAB's
shareholders would hold in the combined company.
In connection with rendering its July Opinion and Proxy Opinion, Berwind
performed a variety of financial analyses. Although the evaluation of the
fairness, from a financial point of view, of the consideration to be paid in the
Merger was to some extent a subjective one based on the experience and judgment
of Berwind and
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not merely the result of mathematical analysis of financial data, Berwind
principally relied on the previously discussed financial valuation methodologies
in its determinations. Berwind believes its analysis must be considered as a
whole and that selecting portions of such analyses and factors considered by
Berwind without considering all such analyses and factors could create an
incomplete view of the process underlying Berwind's opinion. In its analysis,
Berwind made numerous assumptions with respect to business, market, monetary and
economic conditions, industry performance and other matters, many of which are
beyond NAB's and Keystone's control. Any estimates contained in Berwind's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates.
In reaching its opinion as to fairness, none of the analyses performed by
Berwind was assigned a greater weighting by Berwind than any other analysis. As
a result of its consideration of the aggregate of all factors present and
analyses preformed, Berwind reached the conclusion, and opined, that terms of
the Merger as set forth in the Plan of Merger, are fair from a financial point
of view to NAB and its shareholders.
In connection with delivering its Proxy Opinion, Berwind updated certain
analyses described above to reflect current market conditions and events
occurring since the date of the Plan of Merger. Such reviews and updates led
Berwind to determine that it was not necessary to change the conclusions it had
reached in connection with rendering the July Opinion.
Berwind, as part of its investment banking business, is engaged regularly
in the valuation of assets, securities and companies in connection with various
types of asset and security transactions, including mergers, acquisitions,
private placements, valuations for various other purposes and in the
determination of adequate consideration in such transactions.
Berwind's Proxy Opinion was based solely upon the information available to
it and the economic, market and other circumstances as they existed as of the
date its Proxy Opinion was delivered; events occurring after the date of its
Proxy Opinion could materially affect the assumptions used in preparing its
Proxy Opinion. Berwind has not undertaken to reaffirm and revise its Proxy
Opinion or otherwise comment upon any events occurring after the date thereof.
In delivering its July Opinion and Proxy Opinion, Berwind assumed that in
the course of obtaining the necessary regulatory and governmental approvals for
the Merger, no restriction will be imposed on Keystone that would have a
material adverse effect on the contemplated benefits of the Merger. Berwind also
assumed that there would not occur any change in applicable law or regulation
that would cause material adverse change in the prospects or operations of
Keystone after the Merger.
Pursuant to the terms of the engagement letter dated August 23, 1994, NAB
has paid Berwind $50,000 for acting as financial advisor in connection with the
Merger, including delivering its July and Proxy Opinions. In addition, NAB has
agreed to pay Berwind approximately $256,000 upon the consummation of the Merger
and to reimburse Berwind for its reasonable out-of-pocket expenses. Whether or
not the Merger is consummated, NAB has also agreed to indemnify Berwind and
certain related persons against certain liabilities relating to or arising out
of its engagement.
The full text of the Proxy Opinion of Berwind as of October _____, 1995,
which sets forth assumptions made and matters considered, is attached hereto as
Annex I to this Proxy Statement/Prospectus. NAB's shareholders are urged to read
the Proxy Opinion in its entirety. Berwind's Proxy Opinion is directed only to
the consideration to be received by NAB's shareholders in the Merger and does
not constitute a recommendation to any holder of NAB Common Stock as to how such
holder should vote at the NAB Special Meeting.
THE ABOVE DISCUSSION SETS FORTH THE MATERIAL TERMS OF BERWIND'S PROXY
OPINION. HOWEVER, THE FOREGOING PROVIDES ONLY A SUMMARY OF THE PROXY OPINION
OF BERWIND AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
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TEXT OF THAT OPINION, WHICH IS SET FORTH IN ANNEX I TO THIS PROXY
STATEMENT/PROSPECTUS.
CONVERSION OF NAB COMMON STOCK
Exchange Ratio. On the effective date of the Merger, each outstanding share
of NAB Common Stock (other than shares subject to dissenters' rights) will be
converted into not more than 2.20 shares and not less than 2.00 shares of
Keystone Common Stock. Subject to these maximum and minimum exchange ratios, the
actual exchange ratio will be determined by dividing $60.00 by the 20-day
average pre-Merger closing bid price per share for Keystone Common Stock
(determined as described below) and rounding the result to three decimal places.
The following table illustrates the operation of the conversion formula:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
20-DAY AVERAGE KEYSTONE COMMON STOCK
PRE-MERGER CLOSING BID PRICE INTO WHICH EACH SHARE
PER SHARE OF OF NAB COMMON STOCK
KEYSTONE COMMON STOCK WILL BE CONVERTED
--------------------- -----------------
<S> <C>
$30.00 (or above) 2.000
$29.75 2.017
$29.50 2.034
$29.25 2.051
$29.00 2.069
$28.75 2.087
$28.50 2.105
$28.25 2.124
$28.00 2.143
$27.75 2.162
$27.50 2.182
$27.27 (or below) 2.200
</TABLE>
The 20-day average pre-Merger closing bid price for Keystone Common Stock
used in the formula will be the average of the closing bid prices for Keystone
Common Stock reported on the NASDAQ National Market System ("NASDAQ") for the
twenty NASDAQ trading days ending on (and including) the eleventh NASDAQ trading
day prior to the effective date of the Merger. If NASDAQ shall fail to report a
closing bid price for Keystone Common Stock for any NASDAQ trading day in the
twenty-day period, the closing bid price for such day shall be deemed to be the
same as the closing bid price for the most recent NASDAQ trading day for which
such a closing bid price was reported. On September 27, 1995, the closing bid
price for Keystone Common Stock reported on NASDAQ was $30.75.
Surrender of Certificates. As promptly as practicable after the effective
date of the Merger, Keystone will send to each shareholder of record of NAB
immediately prior to the Merger a letter of transmittal containing instructions
on how to effect the exchange of NAB Common Stock certificates for certificates
representing the shares of Keystone Common Stock into which their shares have
been converted. NAB SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE SUCH WRITTEN INSTRUCTIONS. However, certificates should be
surrendered promptly after instructions to do so are received.
Any dividends declared on Keystone Common Stock after the effective date of
the Merger will apply to all whole shares of Keystone Common Stock into which
shares of NAB Common Stock have been converted in the Merger. However, no former
NAB shareholder will be entitled to receive any such dividend until such
shareholder's NAB Common Stock certificates have been surrendered for exchange
as provided in the letter of transmittal. Upon such surrender, the shareholder
will be entitled to receive all such dividends payable on the
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whole shares of Keystone Common Stock represented by the surrendered certificate
or certificates (without interest thereon and less the amount of taxes, if any,
which may have been imposed or paid thereon).
Payment for Fractional Shares. No fractional shares of Keystone Common
Stock will be issued in connection with the Merger. Instead, each NAB
shareholder who surrenders for exchange NAB Common Stock certificates
representing a fraction of a share of Keystone Common Stock will be entitled to
receive, in addition to a certificate for the whole shares of Keystone Common
Stock represented by the surrendered certificates, cash in an amount equal to
such fractional part of a share multiplied by the value of $28.57 for one whole
share of Keystone Common Stock.
Unexchanged Certificates. On the effective date of the Merger, the stock
transfer books of NAB will be closed, and no further transfers of NAB Common
Stock will be made or recognized. Certificates for NAB Common Stock not
surrendered for exchange will entitle the holder only to receive, upon surrender
as provided in the letter of transmittal, a certificate for the whole shares of
Keystone Common Stock represented by such certificates, plus payment of any
amount for a fractional share or dividends to which such holder is entitled as
outlined above.
If the Merger becomes effective and any former NAB shareholder does not
surrender his or her NAB Common Stock certificates for exchange on or before the
second anniversary of the effective date of the Merger, Keystone, at its option,
may at any time thereafter sell such shareholder's Keystone Common Stock without
notice to the shareholder. After any such sale, the sole right of such
shareholder shall be to receive, upon surrender of the shareholder's NAB Common
Stock certificates, the net proceeds of the sale (without interest and less the
amount of any taxes which may have been imposed or paid thereon).
Keystone Shareholder Rights Plan. If no Distribution Date under Keystone's
shareholder rights plan (see "Comparison of Keystone Common Stock and NAB Common
Stock--Keystone Shareholder Rights Plan") shall have occurred prior to the
effective date of the Merger, then each share of Keystone Common Stock issued in
the Merger shall also evidence one Right under Keystone's shareholder rights
plan. If the Distribution Date shall have occurred, then it is a condition to
the Merger that Keystone take one of the actions set forth under "Conditions to
the Merger" below.
Adjustment of Exchange Ratio. The Plan of Merger contains provisions for
the proportionate adjustment of the exchange ratio in the event of a stock
dividend, stock split, reclassification or similar event involving the Keystone
Common Stock or the NAB Common Stock which occurs prior to the Merger.
TAX CONSEQUENCES TO NAB SHAREHOLDERS
Federal Income Tax. The Plan of Merger requires as a condition to the
Merger that each party receive a written opinion of counsel or of independent
public accountants that:
(1) The Merger will constitute a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), and Keystone and NAB will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by Keystone or NAB as a result
of the Merger;
(3) Except for cash received in lieu of fractional shares, no gain or
loss will be recognized by holders of NAB Common Stock on the exchange of
their shares for shares of Keystone Common Stock;
(4) The basis of the shares of Keystone Common Stock to be received
by the shareholders of NAB will be the same as the basis of the shares of
NAB Common Stock exchanged therefor; and
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(5) The holding period of the shares of Keystone Common Stock
received by the shareholders of NAB will include the period during which
the NAB Common Stock exchanged therefor was held by the NAB shareholder,
provided that the NAB Common Stock was held as a capital asset at the time
of the exchange.
No gain or loss for federal income tax purposes will be recognized by
shareholders of NAB on the exchange of their shares for whole shares of Keystone
Common Stock. However, gain or loss will be recognized by NAB shareholders upon
the receipt of cash in payment for a fractional share. To compute the amount, if
any, of such gain or loss, the cost or other basis of the NAB Common Stock
exchanged must be allocated proportionately to the total number of shares of
Keystone Common Stock received, including any fractional share interest. Gain or
loss will be recognized measured by the difference between the cash received and
the basis of the fractional share interest as so allocated. Under Section 302(a)
of the Code, any such gain or loss will generally be entitled to capital gain or
loss treatment if the NAB Common Stock was a capital asset in the hands of the
shareholder.
If any shares of Keystone Common Stock received in the Merger are
subsequently sold, gain or loss on the sale should be computed by allocating the
cost or other basis of the NAB Common Stock exchanged in the Merger to the
shares sold in the manner described in the preceding paragraph. The holding
period for the shares of Keystone Common Stock received in the Merger will
include the holding period for the shares of NAB Common Stock exchanged in
determining, for example, whether any such gain or loss is a long-term or short-
term capital gain or loss.
Where an NAB shareholder exercises dissenters' rights and receives cash in
exchange for NAB Common Stock, the cash will be treated as received by the
shareholder as a distribution in redemption of the NAB Common Stock subject to
the provisions and limitations of Section 302 of the Code. The cash received by
a dissenting NAB shareholder will be treated as if the shares had been sold to
NAB for the cash received and will generally be entitled to capital gain or loss
treatment under Section 302 of the Code, provided the shares are a capital asset
in the hands of the shareholder. However, because the ownership of shares by
certain individuals related to the shareholder and by certain partnerships,
estates, trusts and corporations in which the shareholder has an interest may
have an adverse impact on the tax treatment of the cash received by the
shareholder and result in it being taxed as a dividend, an NAB shareholder
should consult with his own personal tax advisor as to the federal, state and
local tax consequences of exercising dissenters' rights.
Pennsylvania Personal Income Tax. No gain or loss for Pennsylvania personal
income tax purposes will be recognized by shareholders of NAB who are subject to
that tax on the receipt by them of whole shares of Keystone Common Stock in
exchange for their NAB Common Stock. For Pennsylvania personal income tax
purposes, the tax basis for the Keystone Common Stock received by NAB
shareholders in the Merger (including any fractional share interests to which
they are entitled) will be the same as the basis of the NAB Common Stock
exchanged. Cash received in lieu of a fractional share of Keystone Common Stock
will be treated and taxed as if the fractional share had actually been received
by the NAB shareholder and then immediately sold by the shareholder to Keystone
for the cash received. Cash received by an NAB shareholder exercising
dissenters' rights will be treated as if the shareholder had sold his or her
shares to NAB for the cash received and will be taxed accordingly.
The foregoing is intended only as a summary of certain federal income tax
and Pennsylvania personal income tax consequences of the Merger under existing
law and regulations, as presently interpreted by judicial decisions and
administrative rulings, all of which are subject to change without notice, and
any such change might be retroactively applied to the Merger. Among other
things, the summary does not address state income tax consequences in states
other than Pennsylvania or any local taxes. Accordingly, it is recommended that
NAB shareholders consult their own tax advisors with specific reference to their
own tax situations and potential changes in the applicable law as to all
federal, state and local tax matters in connection with the Merger.
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INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
David S. Packard Employment Agreement. David S. Packard, the President and
Chief Executive Officer and a director of NAB, has an employment agreement with
NAB and First National Bank dated February 25, 1994. The employment agreement
provides for Mr. Packard to be employed as the President and Chief Executive
Officer of NAB and First National Bank until December 31, 1998 at an annual
salary of not less than $130,000, plus incentive compensation as determined by
NAB's Board of Directors and other employee benefits. Thereafter until December
31, 2006, Mr. Packard is to be retained as a consultant to NAB and First
National Bank for an annual consulting fee of $110,000 and is to receive the
same medical and life insurance benefits as First National Bank provides to its
full-time employees. Beginning in 2007 Mr. Packard is entitled to receive a
monthly retirement allowance for the remainder of his life in an annual amount
equal to $110,000 minus an offset based on the retirement benefits payable to
Mr. Packard under First National Bank's pension plan. If Mr. Packard should die
before his wife, beginning on or after January 1, 1999 his wife would be
entitled to receive a retirement allowance for the remainder of her life equal
to 50% of the retirement allowance which would have been payable to Mr. Packard.
During the period of the retirement allowances, First National Bank must provide
Mr. Packard and his wife with health insurance benefits as nearly equivalent as
possible to those provided to active employees as of the date Mr. Packard
terminates active employment and maintain the same group life insurance coverage
for Mr. Packard and his wife as it provides for other retirees.
The employment agreement provides that in the event of a "change in
control," which term is defined to include a merger involving NAB or First
National Bank and another entity, Mr. Packard may terminate his employment and
be entitled to receive for life the retirement allowance of $110,000 per year
minus, after 2006, the pension plan offset, and after his death his wife would
be entitled beginning in 1999 to 50% of this amount for life. In addition, Mr.
and Mrs. Packard would be entitled to receive the post-retirement health and
group life insurance benefits described above. The employment agreement further
provides that if before January 1, 1999 Mr. Packard is removed by First National
Bank from his position as President and Chief Executive Officer of NAB and First
National Bank or if he is assigned duties which are inconsistent with his status
as President and Chief Executive Officer, Mr. Packard may terminate his
employment and continue to receive the annual salary of $130,000 until December
31, 1998, the $110,000 annual consulting fee thereafter until December 31, 2007
and thereafter the retirement allowance and spousal retirement allowances
described above. In this event, the agreement provides that Mr. Packard and his
wife would be entitled to receive the same medical, life insurance and other
employee benefits to which they would have been entitled under the agreement in
the absence of such termination.
On July 26, 1995, in connection with the Plan of Merger, Mr. Packard and
Keystone entered into an amendment to Mr. Packard's employment agreement which
will become effective only in the event the Merger occurs. The amendment
provides that if Mr. Packard becomes an employee of Keystone or any of its
affiliates, Keystone will provide him so long as he is an employee with the same
package of benefits it provides to similarly situated employees. Further, upon
termination of Mr. Packard's employment for any reason other than cause,
Keystone agrees to pay Mr. Packard or his wife an amount equal to the monthly
COBRA insurance payment that would be available to Mr. Packard multiplied by the
number of whole months between the date of termination and December 31, 1998.
For 1996, the amount of the monthly COBRA insurance payment would be $289.
Finally, Mr. Packard releases Keystone from the obligation to provide any life,
medical or other insurance to Mr. Packard or his wife with respect to the period
after December 31, 1998 in consideration of Keystone's agreement to make annual
payments of $40,000 to Mr. Packard or his estate or assigns on the first
business day of each year from 1999 through 2006. The amendment does not
otherwise affect the terms of Mr. Packard's employment agreement as described
above.
Executive Officer Insurance Agreements. Mr. Packard is a party to two
agreements with First National Bank dated December 8, 1982 and October 1, 1985
which require the bank to maintain in effect two insurance policies on the life
of Mr. Packard in the aggregate face amount of $475,000. The agreements provide
that if Mr. Packard dies while employed prior to retirement, his designated
beneficiary would receive $300,000 from the death benefits under the policies
plus accumulated dividends and interest. If Mr. Packard is living and
continuously employed until January 1, 1999, or if prior to that date his
employment is terminated for any reason other than
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disability, he is entitled to receive the cash surrender value of the policies
plus accumulated dividends and interest. As of September 30, 1995, the combined
cash surrender value of the two policies was $188,000. These agreements will not
be affected by the amendment to Mr. Packard's employment agreement.
First National Bank has similar insurance agreements with three other
executive officers of NAB: Donald R. Brennan, Vice President and Treasurer of
NAB and Vice President and Cashier of First National Bank; Edward F. Earley, a
Vice President of NAB and First National Bank; and James E. Parks, a Vice
President of NAB and First National Bank. Mr. Brennan's agreement relates to a
life insurance policy in the face amount of $300,000 which had a cash surrender
value of $22,859 as of September 30, 1995. Mr. Earley's agreement relates to a
life insurance policy in the face amount of $250,000 which had a cash surrender
value of $13,025 as of September 30, 1995. Mr. Parks' agreement relates to a
life insurance policy in the face amount of $300,000 which had a cash surrender
value of $23,356 as of September 30, 1995.
Executive Officer Stock Options. Messrs. Packard, Brennan, Earley and
Parks hold outstanding incentive stock options under NAB's 1994 Employee Stock
Option Plan ("Plan"). Messrs. Brennan, Earley and Parks hold options which are
currently exercisable to purchase up to 2,500, 1,500 and 2,000 shares of NAB
Common Stock, respectively, at an option price of $35 per share. Mr. Packard
holds an option to purchase up to 10,000 shares of NAB Common Stock at an option
price of $35 per share. Mr. Packard's option is currently exercisable for 5,700
shares and will become exercisable for an additional 2,850 shares on January 1,
1996 and for the remaining 1,450 shares on January 1, 1997. Under the terms of
the Plan, unexercised options would terminate three months after termination of
the optionee's employment for any reason other than death or disability. The
Plan further provides that a merger, such as the Merger, in which NAB is not the
surviving corporation shall cause each outstanding option to terminate, provided
that the optionee shall have the right immediately prior to the merger to
exercise his option in whole or in part without regard to whether the option
would otherwise be exercisable under its terms. However, an option will not
terminate if it is assumed by the surviving corporation in the merger under
circumstances which would not cause loss of incentive stock option treatment
under the Code. In connection with the Plan of Merger, Keystone has entered into
an agreement with NAB providing that if the Merger is consummated on or after
January 1, 1996, Keystone will not assume the options, with the effect that the
options will be exercisable in full immediately prior to the Merger and, to the
extent not exercised, will terminate upon consummation of the Merger. If
Keystone desires to consummate the Merger on or before December 31, 1995,
Keystone will assume the options which will then become options to purchase, for
the same aggregate option price, a number of shares of Keystone Common Stock
equal to the number of shares of NAB Common Stock covered by the option
multiplied by the exchange ratio under the Plan of Merger.
NAB Directors' and Officers' Indemnification and Insurance. Keystone has
agreed that following the Merger it will perform the obligations of NAB under
NAB's by-laws concerning the indemnification of NAB's directors and officers
with respect to events occurring prior to the Merger and will cause Northern
Central Bank to perform the obligations of First National Bank under its
articles of association concerning the indemnification of the directors and
officers of First National Bank with respect to events occurring prior to the
Bank Merger. The by-laws of NAB generally require NAB to indemnify its directors
and officers against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any civil, criminal, administrative or investigative proceeding to which such
person is a party by reason of having served in such capacity, except that no
indemnification may be made where the act or failure to act giving rise to the
claim for indemnification is determined by a court to have constituted willful
misconduct or recklessness. The by-laws of Keystone and its subsidiaries contain
similar provisions regarding the indemnification of directors and officers. The
articles of association of First National Bank provide that directors and
officers may be indemnified for reasonable expenses actually incurred in
connection with any proceeding to which such person is a party by reason of
having served in such capacity, except that no indemnification shall be made as
to any matter as to which such person is found to have been guilty of or liable
for gross negligence, willful misconduct or criminal acts, and no person shall
be indemnified with respect to any matter which has been the subject of a
compromise settlement unless approved by a court, the parent holding company or
a majority of the board of directors of the bank composed of members not parties
to the proceeding.
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Keystone has also agreed to use its best efforts to obtain a one-year tail
policy of directors' and officers' liability insurance for the directors and
officers of NAB and its subsidiaries with respect to events which occurred prior
to the Merger. Such insurance is to be provided on terms generally available in
the industry, provided that the maximum premium Keystone must pay for such
policy is limited to approximately $19,000.
NAB Employee Benefit Plans. The Plan of Merger provides that following the
Merger Keystone and its subsidiaries shall perform the respective obligations of
NAB and its subsidiaries under all employee benefit plans of NAB and its
subsidiaries. Keystone shall have the right to amend or terminate any such
employee benefit plan (other than an employment, change in control, severance,
consulting or other agreement with a specific employee) or combine it with a
similar plan of Keystone or its subsidiaries if accomplished in accordance with
the terms of such plan and applicable law. Keystone has agreed that after the
Merger it will provide to the employees of NAB and its subsidiaries a package of
employee benefits that on an overall basis is comparable in value and coverage
to the employee benefits then provided to similarly situated employees of
Keystone and its subsidiaries and that with respect to participation in employee
benefit plans of Keystone and its subsidiaries such employees shall receive
credit for their service with NAB and its subsidiaries for all purposes other
than benefit accrual.
WARRANT AGREEMENT
In connection with the Plan of Merger, Keystone and NAB have entered into
an Investment Agreement, and NAB has issued to Keystone a Warrant thereunder
(collectively, the "Warrant Agreement"), entitling Keystone to purchase up to
approximately 19.9% of NAB's outstanding Common Stock upon the occurrence of
certain events described below. The Warrant Agreement covers 142,691 shares of
NAB Common Stock at an exercise price of $60.00 per share.
The Warrant Agreement is designed to compensate Keystone for its risks,
costs and expenses and the commitment of resources associated with the Plan of
Merger in the event the Merger is not consummated due to an attempt by a third
person to gain control of NAB. See also "Expenses" below. Keystone may not
exercise or sell its Warrant except upon (i) a willful breach by NAB of the Plan
of Merger, (ii) the failure of NAB's shareholders to approve the Plan of Merger
after the announcement by a third person of a bona fide proposal to acquire 10%
or more of the NAB Common Stock, to acquire, merge or consolidate with NAB or to
acquire substantially all of NAB's assets or First National Bank, (iii) the
acquisition by a third person of beneficial ownership of 1% or more of the
outstanding NAB Common Stock if after such acquisition such person would
beneficially own 10% or more of the NAB Common Stock, (iv) the commencement by a
third person of a tender offer or exchange offer which would result in
beneficial ownership of 10% or more of the NAB Common Stock or (v) the entry by
NAB into an agreement or understanding with a third person for the third person
to acquire, merge or consolidate with NAB or to acquire substantially all of its
assets or First National Bank (each of the foregoing is hereafter referred to as
a "Warrant Event"). No Warrant Event has occurred as of the date of this Proxy
Statement/Prospectus, and neither Keystone nor NAB is aware that any Warrant
Event is contemplated by any third person. The Warrant Agreement may discourage
third persons from making competing offers to acquire NAB and is intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms set forth in the Plan of Merger.
If a Warrant Event occurs, Keystone may exercise the Warrant in whole or in
part or may sell or transfer all or part of the Warrant to other persons. Under
federal banking law, exercise of the Warrant by Keystone for more than 5% of the
outstanding NAB Common Stock would require approval of the Board of Governors of
the Federal Reserve System ("Federal Reserve Board"). Any sale of the Warrant or
of shares of NAB Common Stock purchased thereunder would be subject to a right
of first refusal by NAB unless sold in a public offering registered under the
Securities Act. NAB agrees in the Warrant Agreement to effect such registration
if requested.
Keystone may require NAB to redeem the Warrant or any shares of NAB Common
Stock purchased thereunder if (i) a third person acquires beneficial ownership
of 50% or more of the outstanding NAB Common Stock or (ii) a third person
acquires, merges or consolidates with NAB or acquires substantially all of its
assets or First National Bank (each of the foregoing is hereafter referred to as
a "Redemption Event"). In general, the per
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share redemption price for the Warrant would be the higher of 10% of the
exercise price or a per share price based on the difference between the exercise
price and the highest price paid or agreed to be paid by the third person in
connection with the Redemption Event. The per share redemption price for shares
of NAB Common Stock purchased under the Warrant would generally be the higher of
110% of the exercise price or the highest price paid or agreed to be paid by the
third person in connection with the Redemption Event.
The Warrant Agreement also contains provisions giving NAB the right to
repurchase shares of NAB Common Stock issued under the Warrant in certain
limited circumstances and provisions for issuance of a substitute Warrant to
purchase shares of the surviving or acquiring company in the event of a merger
or other acquisition of NAB or First National Bank.
The foregoing description is a summary of the material terms of the Warrant
Agreement and does not purport to be complete. It is qualified in its entirety
by reference to the Warrant Agreement, which has been filed with the SEC as an
exhibit to the Registration Statement. The Warrant Agreement is incorporated in
this Proxy Statement/Prospectus by reference to such filing.
INCONSISTENT ACTIVITIES
NAB has agreed in the Plan of Merger that unless and until the Merger has
been consummated or the Plan of Merger has been terminated in accordance with
its terms, NAB will not (i) solicit or encourage any proposals by a third person
to acquire more than 1% of the NAB Common Stock, any stock of any NAB subsidiary
or any significant portion of its or any NAB subsidiary's assets (whether by
tender offer, merger, purchase of assets or otherwise), (ii) afford a third
party which may be considering any such transaction access to its or any NAB
subsidiary's properties, books or records except as required by law, (iii) enter
into any discussions, negotiations, agreement or understanding for any such
transaction or (iv) authorize or permit any of its directors, officers,
employees or agents to do any of the foregoing. Notwithstanding the foregoing,
NAB may take an action referred to in clause (ii) or (iii) of the previous
sentence (or permit its directors, officers, employees or agents to do so) if
NAB's Board of Directors, after consulting with counsel, determines that such
actions should be taken or permitted in the exercise of its fiduciary duties. If
NAB becomes aware of any offer or proposed offer to acquire any shares of NAB or
any NAB subsidiary or any significant portion or its or any NAB subsidiary's
assets, or of any other matter which is reasonably likely to adversely affect
the parties' ability to consummate the Merger, NAB is required to give immediate
notice thereof to Keystone.
CONDUCT OF NAB BUSINESS PENDING THE MERGER
NAB has agreed in the Plan of Merger that, pending consummation of the
Merger, NAB and its subsidiaries will conduct their businesses only in the
ordinary course and that, except as consented to by Keystone, NAB and its
subsidiaries will not, among other things, (i) issue, purchase or otherwise
dispose of or acquire any shares of their capital stock (except upon exercise of
existing employee stock options) or grant any options or other rights to acquire
such stock; (ii) make certain changes in the compensation or benefits payable to
employees or enter into employment contracts which are not terminable at will;
(iii) merge or consolidate with, or acquire control over, any other corporation,
bank or other organization or acquire or dispose of any material assets outside
the ordinary course of business; (iv) make capital expenditures or lease assets
in excess of certain limits; or (v) make material changes to their lending or
investment policies.
NAB DIVIDEND PROVISION
The Plan of Merger provides that pending the Merger NAB may declare and pay
cash dividends on the NAB Common Stock in an amount per share in any quarter not
exceeding the per share cash dividends on Keystone Common Stock for such quarter
multiplied by the Merger exchange ratio. Keystone and NAB have agreed to
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consult with respect to the amount of the last NAB dividend payable prior to the
Merger with the objective of assuring that the shareholders of NAB do not
receive a shortfall or a premium based on the record and payment dates of their
last dividend prior to the merger and the record and payment dates of the first
Keystone dividend following the Merger.
It is NAB's present intention that pending the Merger quarterly dividends
on the NAB Common Stock will be paid at a rate equal to the Keystone dividend
rate (currently $.34 per share) multiplied by the exchange ratio which would
have been applicable under the Plan of Merger if the Merger had been consummated
as of the dividend declaration date. See "Conversion of NAB Common Stock--
Exchange Ratio." However, the payment of such dividends remains subject to the
discretion of NAB's Board of Directors and may be influenced by other factors,
including the earnings and financial condition of NAB.
CONDITIONS TO THE MERGER
In addition to NAB shareholder approval, the Merger is contingent upon the
satisfaction of a number of other conditions, including (i) approval of the
Merger by the Federal Reserve Board and the Pennsylvania Department of Banking
without conditions deemed unduly burdensome by Keystone and the absence of any
suit by the United States under the antitrust laws to prohibit the Merger filed
within the 30 days following Federal Reserve Board approval, (ii) receipt of the
tax opinion described above (see "Tax Consequences") and (iii) the absence of
any judicial or administrative order prohibiting or adversely affecting the
Merger or any pending or threatened litigation or administrative proceeding
challenging the Merger. Keystone's obligation to consummate the Merger is
subject to the following additional conditions: (i) qualification of the Merger
for pooling-of-interests accounting treatment and, if requested by Keystone,
receipt of a letter from Keystone's independent auditors to such effect, (ii)
receipt of the agreements of NAB affiliates described below under "Restrictions
on Resales by NAB Affiliates" and (iii) approval of the Bank Merger by the
Federal Deposit Insurance Corporation ("FDIC") and the Pennsylvania Department
of Banking without conditions deemed unduly burdensome by Keystone and the
absence of any suit by the United States under the antitrust laws to prohibit
the Bank Merger filed during the 30 days following FDIC approval. In addition,
unless waived, each party's obligation to consummate the Merger is subject to
the performance by the other party of its obligations under the Plan of Merger,
the accuracy of the representations and warranties of the other party contained
therein and the receipt of certain certificates and opinions from the other
party and its counsel. If the Distribution Date under Keystone's shareholder
rights plan (see "Comparison of Keystone Common Stock and NAB Common Stock--
Keystone Shareholder Rights Plan") shall have occurred, then either (i) all
Rights outstanding under the plan (other than those which have become void)
shall have been exchanged for Keystone Common Stock and the ratio for converting
NAB Common Stock into Keystone Common Stock in the Merger shall have been
proportionately adjusted as provided in the Plan of Merger, (ii) all Rights
outstanding under the plan shall have been redeemed or (iii) Keystone shall have
made provision for the issuance of equivalent rights to the holders of NAB
Common Stock upon consummation of the Merger.
REPRESENTATIONS AND WARRANTIES
The representations and warranties of Keystone and NAB contained in the
Plan of Merger relate, among other things, to the organization and good standing
of Keystone, NAB and their subsidiaries; the capitalization of Keystone and NAB
and ownership of their subsidiaries; the authorization by Keystone and NAB of
the Plan of Merger and the Warrant Agreement and the absence of conflict with
laws or other agreements; the accuracy and completeness of the financial
statements and other information furnished to the other party; the absence of
material adverse changes since December 31, 1994; the absence of undisclosed
litigation; compliance with laws; and the accuracy of this Proxy
Statement/Prospectus and of Keystone's Registration Statement of which it is a
part. Additional representations and warranties by NAB concern payment of taxes;
title to properties; the absence of undisclosed equity investments, employment
contracts, employee benefit plans or material contracts; and the absence of
certain potential environmental liabilities. None of the representations and
warranties contained in the Plan of Merger will survive the consummation of the
Merger.
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AMENDMENT, WAIVER AND TERMINATION
Notwithstanding prior NAB shareholder approval, the Plan of Merger may be
amended in any respect by written agreement between the parties, except that
after NAB shareholder approval no amendment may change the rate of exchange of
NAB Common Stock for Keystone Common Stock in the Merger or change the form of
such consideration. Keystone or NAB may also (i) extend the time for performance
of any of the obligations of the other; (ii) waive any inaccuracies in the
representations and warranties of the other; (iii) waive compliance by the other
with any of its obligations under the Plan of Merger; and (iv) waive any
condition precedent to its obligations under the Plan of Merger other than
approval by the shareholders of NAB of the Plan of Merger, governmental
regulatory approvals required to consummate the Merger, securities registration
requirements incident to the issuance of Keystone Common Stock in the Merger,
the receipt of the tax opinions described above and the absence of any judicial
or administrative order prohibiting the Merger.
Notwithstanding prior NAB shareholder approval, the Plan of Merger may be
terminated without liability of either party at any time prior to effectiveness
of the Merger (i) by mutual consent of Keystone and NAB or (ii) by either party
in the event of (a) a material breach by the other party of a representation and
warranty or covenant which has not been cured within 30 days after notice to the
breaching party, (b) failure of the NAB shareholders to approve the Plan of
Merger at the Special Meeting, (c) a final judicial or regulatory determination
denying any regulatory approval required for the Merger or imposing conditions
or requirements which Keystone reasonably determines to be unduly burdensome or
(d) failure to satisfy prior to June 30, 1996 any condition to its obligations
to consummate the Merger, if such failure occurs despite the good faith effort
of the terminating party to perform all covenants and satisfy all conditions
required of it. The deadline for satisfying the conditions to the Merger will be
extended to September 30, 1996 if the failure to satisfy such conditions results
from a delay in receiving Federal Reserve Board approval.
In addition to the foregoing, NAB may terminate the Plan of Merger if (i)
the average of the closing bid prices for Keystone Common Stock on NASDAQ shall
be less than $25.50 per share for any period of 20 consecutive trading days or
(ii) such closing bid price shall be less than $25.50 on the day before the
Merger closing.
DISSENTERS' RIGHTS OF NAB SHAREHOLDERS
A holder of shares of NAB Common Stock is entitled to exercise the rights
of a dissenting shareholder under Subchapter D of Chapter 15 ("Subchapter D") of
the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL"), to
object to the Plan of Merger and make written demand that NAB or Keystone, as
the surviving corporation in the Merger, pay in cash the fair value of the
shares held as determined in accordance with such statutory provisions. The
following summary does not purport to be a complete statement of the provisions
of Subchapter D and is qualified in its entirety by reference to such statutory
provisions, which (together with Section 1930 of the BCL) are set forth in full
as Annex II to this Proxy Statement/Prospectus.
A record holder of shares of NAB Common Stock may assert dissenters' rights
as to fewer than all such shares registered in his name only if he dissents with
respect to all the shares beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf he dissents.
A beneficial owner of shares of NAB Common Stock who is not the record
holder of such shares is entitled to assert dissenters' rights with respect to
shares held on his behalf only if he submits to NAB no later than the time of
the assertion of dissenters' rights a written consent of the record holder of
such shares. A beneficial owner may not dissent with respect to less than all
shares of NAB Common Stock owned by him, whether or not the shares so owned by
him are registered in his name.
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In the event that a holder of shares of NAB Common Stock wishes to dissent
to the Plan of Merger and obtain payment of the fair value of his shares, he
must satisfy all the following conditions to acquire any right to payment of the
fair value of his shares under Subchapter D:
(1) He must file with NAB, prior to the vote on the Plan of Merger, a
written notice of intention to demand that he be paid the fair value for
his shares if the Plan of Merger is effectuated. Neither a proxy indicating
a vote against, nor a vote in person against, the Plan of Merger shall
constitute the written notice required.
(2) He must effect no change in the beneficial ownership of his
shares from the date of filing such written notice continuously through the
effective date of the Merger.
(3) He must not vote his shares in favor of the Plan of Merger.
Neither an abstention from voting with respect to, nor failure to vote in
person or by proxy against approval of, the Plan of Merger constitutes a
waiver of the rights of a dissenting shareholder. However, a signed proxy
that is returned without any instruction as to how the proxy should be
voted will be voted in favor of approval of the Plan of Merger and will be
deemed a waiver of the rights of a dissenting shareholder.
A dissenter who fails in any of these respects shall not acquire any right
to payment of the fair value of his shares under Subchapter D. Each written
notice of intention to demand payment must clearly state that the shareholder
intends to demand that he be paid the fair value of his shares if the Plan of
Merger is effectuated, must provide the name, address and telephone number of
the shareholder and should be sent to National American Bancorp, Inc., 312 Main
Street, Bradford, Pennsylvania 18848-0500, Attention: Donald R. Brennan, Vice
President and Treasurer. A dissenting shareholder shall retain all other rights
of an NAB shareholder until those rights are modified by effectuation of the
Plan of Merger.
If the Plan of Merger is approved by the shareholders of NAB by the
required vote at the Special Meeting, NAB or Keystone shall mail a notice to all
dissenters who gave due notice of intention to demand payment of the fair value
of their shares and who did not vote in favor of the Plan of Merger. Such notice
shall:
(1) State where and when a demand for payment must be sent and
certificates representing NAB shares must be deposited in order to obtain
payment. The time set for receipt of the demand and deposit of shares shall
be not less than 30 days from the mailing of the notice.
(2) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(3) Be accompanied by a copy of Subchapter D.
The dissenting shareholder must make written demand for payment of the
fair value of the shares with respect to which dissent is made and must deposit
certificates representing such shares in accordance with the terms of the notice
to demand payment sent by NAB or Keystone. A shareholder who fails to timely
demand payment, or fails to timely deposit certificates, as required by the
notice to demand payment, shall not have any right under Subchapter D to receive
payment of the fair value of his shares.
Within 60 days after the date set for demanding payment and depositing
certificates, if the Plan of Merger has not been effectuated, NAB or Keystone
shall return any certificates that have been deposited. When deposited
certificates have been returned, NAB or Keystone may at any later time send a
new notice to demand payment, which will have a like effect as the original
notice.
Promptly after effectuation of the Plan of Merger, or upon timely receipt
of demand for payment if the Plan of Merger has already been effectuated,
Keystone shall either remit to dissenters who have made demand and
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have deposited their certificates the amount that Keystone estimates to be the
fair value of the shares, or shall give written notice that no remittance will
be made. The remittance or notice shall be accompanied by: (1) the closing
balance sheet and statement of income of NAB for the fiscal year ending not more
than 16 months before the date of remittance or notice, together with the latest
available interim financial statements; (2) a statement of Keystone's estimate
of the fair value of the shares; and (3) a notice of the right of the dissenter
to demand payment or supplemental payment, as the case may be, accompanied by a
copy of Subchapter D. If Keystone does not remit the amount of its estimate of
the fair value of the shares, it shall return any certificates that have been
deposited. Keystone may make a notation on any such certificates that demand for
payment has been made.
If Keystone gives notice of its estimate of the fair value of the shares,
without remitting such amount, or remits payment of its estimate of the fair
value of a dissenter's shares and the dissenter believes that the amount stated
or remitted is less than the fair value of his shares, the dissenter may send to
Keystone his own estimate of the fair value of the shares, which shall be deemed
a demand for payment of such amount or the deficiency.
Where the dissenter does not file his own estimate within 30 days after the
mailing by Keystone of its remittance or notice, the dissenter shall be entitled
to no more than the amount stated on the notice or remitted to him by Keystone.
Within 60 days after the latest of (1) effectuation of the Plan of Merger,
(2) timely receipt of any demands for payment, or (3) timely receipt of any
estimates by dissenters of the fair value of their shares, if any demands for
payment remain unsettled, Keystone may file in court an application for relief
requesting that the fair value of the shares be determined by the court. All
dissenting shareholders, wherever residing, whose demands have not been settled
shall be made parties to the proceeding. A copy of the application for relief
shall be served on each such dissenter.
The court may appoint an appraiser to receive evidence and recommend a
decision on the issue of fair value, which appraiser shall have such power and
authority as may be specified by the court.
Each dissenter who is made a party to the proceeding shall be entitled to
recover the amount, if any, by which the fair value of his shares is found to
exceed the amount, if any, previously remitted by Keystone, plus interest.
If Keystone fails to file an application for relief, any dissenter who made
a demand and who has not already settled his claim against Keystone may do so in
the name of Keystone at any time within 30 days after the expiration of the 60-
day period. If a dissenter does not file an application within such 30-day
period, each dissenter entitled to file an application shall be paid Keystone's
estimate of the fair value of his shares and no more, and may bring an action to
recover any amount not previously remitted.
In general, the costs and expenses of any valuation proceeding, including
the reasonable compensation and expenses of the appraiser appointed by the
court, shall be determined by the court and assessed against Keystone. However,
any part of the costs and expenses may be apportioned and assessed as the court
deems appropriate against all or some of the dissenting shareholders who are
parties to the proceeding and whose action in demanding supplemental payment the
court finds to be dilatory, obdurate, arbitrary, vexatious or in bad faith.
Fees and expenses of counsel and of experts for the respective parties may
be assessed as the court deems appropriate against Keystone and in favor of any
or all dissenters if Keystone or NAB failed to comply substantially with the
requirements of Subchapter D. Such fees and expenses may be assessed against
either Keystone or a dissenter, in favor of any other party, if the court finds
that the party against whom the fees and expenses are assessed acted in bad
faith or in a dilatory, obdurate, arbitrary or vexatious manner in respect to
the rights provided by Subchapter D. If the court finds that the services of
counsel for any dissenter were of substantial benefit to other dissenters
similarly situated and should not be assessed against Keystone, it may award to
those counsel reasonable fees to be paid out of the amounts awarded to the
dissenters who were benefited.
-20-
<PAGE>
NAB SHAREHOLDERS WISHING TO EXERCISE DISSENTERS' RIGHTS ARE ADVISED TO
CONSULT THEIR OWN COUNSEL TO ENSURE THAT THEY FULLY AND PROPERLY COMPLY WITH THE
REQUIREMENTS OF SUBCHAPTER D.
RESTRICTIONS ON RESALES BY NAB AFFILIATES
The shares of Keystone Common Stock issuable in the Merger have been
registered under the Securities Act, and such shares will generally be freely
tradeable by the NAB shareholders who receive Keystone Common Stock as a result
of the Merger. However, this registration does not cover resales by NAB
shareholders who may be deemed to control or be under common control with NAB
and who therefore may be deemed "affiliates" of NAB as that term is defined in
Rule 145 under the Securities Act. Such affiliates may not sell their shares of
Keystone Common Stock acquired in the Merger except pursuant to: (i) an
effective Registration Statement under the Securities Act covering the shares to
be sold; (ii) the conditions contemplated by Rules 144 and 145 under the
Securities Act; or (iii) another applicable exemption from the registration
requirements of the Securities Act. The management of NAB will notify those
persons whom it believes may be such affiliates.
The Plan of Merger requires as a condition to the Merger that each such NAB
affiliate enter into an agreement not to sell the shares of Keystone Common
Stock acquired in the Merger except in accordance with the requirements of the
Securities Act and the regulations thereunder. In order to preserve the intended
accounting treatment of the Merger as a pooling of interests, the Plan of Merger
also requires as a condition of the Merger that each NAB affiliate enter into an
agreement not to sell any shares of Keystone Common Stock or NAB Common Stock
from the 30th day prior to the Merger until Keystone's financial results
covering at least 30 days of post-Merger combined operations have been
published.
EFFECT OF CERTAIN TRANSACTIONS INVOLVING KEYSTONE
The Plan of Merger provides that Keystone may not enter into an agreement
for a merger, consolidation or share exchange in which it will not be the
surviving or resulting corporation unless the surviving or resulting corporation
shall have agreed in writing to be bound by the terms of the Plan of Merger and
the Warrant Agreement. If under the terms of any such transaction the
outstanding Keystone Common Stock is converted into or exchanged for other
securities of any person, cash or other property, the Plan of Merger shall be
appropriately amended so that NAB shareholders will receive in the Merger, for
each share of NAB Common Stock held, the consideration paid in such transaction
for shares of Keystone Common Stock multiplied by the exchange ratio under the
Plan of Merger (appropriately adjusted to reflect such event). As indicated
above, it is a condition to the Merger that the parties receive the tax opinion
described under "Tax Consequences" above. While this condition will not prevent
Keystone from entering into any such transaction, NAB is not required to amend
or waive this condition.
As of the date of this Proxy Statement/Prospectus, Keystone does not
contemplate entering into any transaction of the type described above, and
Keystone is not aware that any such transaction is contemplated by any third
person.
EXPENSES
Keystone and NAB will each pay 50% of (1) all printing costs related to
securities registration and the solicitation of proxies for the Special Meeting
and (2) all filing fees and legal and accounting fees and expenses related to
the tax opinion referred to above and to the regulatory approvals required for
the Merger, except that the portion of such costs payable by NAB is limited to
$50,000. Each party will pay its own other expenses incurred in connection with
the Plan of Merger. However, the Plan of Merger provides that if the Merger is
not consummated as a direct or indirect consequence of a change of control of
NAB, NAB shall reimburse Keystone for
-21-
<PAGE>
all of its reasonable out-of-pocket expenses incurred in connection with the
Plan of Merger up to a maximum amount of $200,000.
EFFECTIVE DATE OF THE MERGER
It is presently anticipated that if the Plan of Merger is approved by the
shareholders of NAB, the Merger will become effective in the fourth quarter of
1995 or early in 1996. However, as noted above, consummation of the Merger is
subject to the satisfaction of a number of conditions, some of which cannot be
waived. There can be no assurance that all conditions to the Merger will be
satisfied or, if satisfied, that they will be satisfied in time to permit the
Merger to become effective within the anticipated time frame. In addition, as
also noted above, Keystone and NAB retain the power to abandon the Merger or to
extend the time for performance of conditions or obligations necessary to its
consummation, notwithstanding prior NAB shareholder approval.
ACCOUNTING TREATMENT
The Merger will be accounted for by Keystone under the pooling-of-interests
method of accounting, which views the Merger as a uniting of the separate
ownership interests of Keystone and NAB through an exchange of shares. Under the
pooling-of-interests method, the financial statements of the merged company
normally reflect the combined historical financial data of the merging
companies, subject only to certain adjustments to the capital accounts to
reflect the exchange of shares. However, due to the immaterial impact of the
Merger on Keystone's previously reported results, it is anticipated that
Keystone's historical financial statements will not be restated.
Pro forma financial information concerning the Merger and the pending
Shawnee merger is not included herein since the addition of NAB and Shawnee
would not have materially affected the Keystone historical financial information
as presented.
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<PAGE>
INFORMATION CONCERNING KEYSTONE
KEYSTONE FINANCIAL, INC.
SELECTED FINANCIAL DATA
The following unaudited table of selected financial data should be read in
conjunction with Keystone's consolidated financial statements and the related
notes and with Keystone's management's discussion and analysis of financial
condition and results of operation (Financial Review), incorporated herein by
reference. See "Keystone Documents Incorporated by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest income.............. $ 178,859 $ 149,137 $ 313,202 $ 307,755 $ 330,645 $ 365,516 $ 377,048
Interest expense............. 80,410 57,576 124,784 125,245 152,718 201,782 221,322
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income.......... 98,449 91,561 188,418 182,510 177,927 163,734 155,726
Provision for credit losses.. 4,342 3,976 9,484 7,940 16,053 16,323 15,107
Noninterest income........... 23,851 23,431 44,629 45,819 39,276 33,563 29,185
Noninterest expense.......... 75,490 71,682 151,723 148,003 138,840 127,896 120,501
Income tax expense........... 12,791 11,348 20,481 21,037 16,568 12,810 11,583
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income................... $ 29,677 $ 27,986 $ 51,359 $ 51,349 $ 45,742 $ 40,268 $ 37,720
=========== =========== =========== =========== =========== =========== ===========
Pre-tax security gains,
included in above......... $ 386 $ 919 $ 834 $ 1,669 $ 1,750 $ 1,976 $ 84
PER SHARE:
Net income................... $ 1.27 $ 1.20 $ 2.20 $ 2.20 $ 1.99 $ 1.77 $ 1.66
Dividends.................... 0.68 0.64 1.30 1.19 1.10 1.02 0.91
Dividend payout ratio........ 53.54% 53.33% 59.22% 54.01% 55.27% 57.58% 54.89%
Average shares
outstanding................ 23,448,250 23,399,111 23,395,425 23,304,618 22,983,908 22,732,729 22 ,700,587
BALANCES AT PERIOD END:
Loans and leases............. $ 3,283,331 $ 2,878,983 $ 3,193,405 $ 2,775,198 $ 2,785,335 $ 2,821,302 $2 ,762,647
Allowance for
credit losses.............. 43,589 39,305 42,440 40,181 38,940 35,770 32,299
Total assets................. 4,733,638 4,372,549 4,706,000 4,419,726 4,311,779 4,120,215 4 ,041,232
Deposits..................... 3,855,377 3,600,398 3,827,983 3,582,688 3,655,261 3,560,284 3 ,523,779
Long-term debt............... 4,929 7,043 6,054 5,990 5,144 2,143 2,989
Shareholders' equity......... 436,448 407,843 407,774 412,880 378,314 348,143 327,092
Book value per share......... 18.60 17.49 17.46 17.65 16.29 15.27 14.41
SELECTED RATIOS:
Return on average assets..... 1.27% 1.30% 1.16% 1.19% 1.08% 0.98% 0.96%
Return on average equity..... 14.25 13.75 12.71 12.98 12.58 11.87 11.82
Interest rate spread......... 3.87 4.06 4.04 4.07 4.02 3.66 3.51
Net interest margin.......... 4.57 4.61 4.63 4.63 4.67 4.48 4.45
Average equity to
average assets............. 8.93 9.40 9.09 9.13 8.62 8.29 8.10
Loans to deposits
at period end.............. 85.16 79.96 83.42 77.46 76.20 79.24 78.40
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -----------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS (CONTINUED):
Allowance for credit losses to
loans at period end............. 1.33 1.37 1.33 1.45 1.40 1.27 1.17
Nonperforming assets to
loans and ORE................... 0.70 1.22 0.95 1.32 1.66 1.51 1.17
Loans 90 days past due............ 0.39 0.16 0.24 0.14 0.22 0.30 0.53
Total risk elements to loans and
ORE at period end (1)........... 1.09 1.38 1.19 1.46 1.88 1.81 1.70
RISK-ADJUSTED CAPITAL RATIOS:
Leverage ratio.................... 9.17% 9.47% 8.84% 9.18% 8.66% 8.30% 7.81%
"Tier 1" capital ratio............ 13.41 14.43 12.96 14.05 13.06 12.21 11.21
"Total" capital ratio............. 14.65 15.68 14.21 15.30 14.26 13.44 12.36
</TABLE>
___________
(1) Total risk elements include nonperforming assets and loans past due 90
days or more.
-24-
<PAGE>
STOCK PRICES AND DIVIDENDS ON KEYSTONE COMMON STOCK
Keystone Common Stock is traded in the over-the-counter market under the
symbol "KSTN" and is listed in the NASDAQ National Market System. The following
table sets forth the high and low closing sales prices for Keystone Common Stock
for the periods indicated, in each case as reported by NASDAQ, and the cash
dividends per share declared on Keystone Common Stock for such periods.
<TABLE>
<CAPTION>
QUARTERLY CLOSING SALES CASH
PRICE RANGE DIVIDENDS
-----------------------
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
1993
First Quarter............ $34.00 $29.00 $ .29
Second Quarter........... 34.50 30.75 .29
Third Quarter............ 31.75 28.25 .29
Fourth Quarter........... 32.50 29.75 .32
-----
$1.19
=====
1994
First Quarter............ $32.25 $27.50 $ .32
Second Quarter........... 32.00 27.75 .32
Third Quarter............ 32.00 27.75 .32
Fourth Quarter........... 30.25 27.25 .34
-----
$1.30
=====
1995
First Quarter............ $30.25 $26.25 $ .34
Second Quarter........... 29.125 26.75 .34
Third Quarter (through
September 27, 1995)..... 32.50 27.75 .34
</TABLE>
On July 27, 1995, the last NASDAQ trading day prior to the public
announcement of the Merger, the closing sale price for the Keystone Common Stock
was $30.25. On September 27, 1995, the closing sale price for the Keystone
Common Stock was $30.75. On September 6, 1995, there were approximately
24,220,338 shares of Keystone Common Stock outstanding, held by approximately
10,624 shareholders of record.
While Keystone is not obligated to pay cash dividends, Keystone's Board
of Directors presently intends to continue the policy of paying quarterly cash
dividends. Future dividends will depend, in part, upon the earnings and
financial condition of Keystone.
-25-
<PAGE>
KEYSTONE DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Keystone with the SEC pursuant
to the Exchange Act (File No. 0-11460) are hereby incorporated by reference into
this Proxy Statement/Prospectus:
1. Keystone's Annual Report on Form 10-K for the year ended December 31,
1994;
2. Keystone's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1995; and
3. The description of the Keystone Common Stock which is contained in
Keystone's Current Report on Form 8-K dated July 31, 1992.
All documents filed by Keystone with the SEC pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the NAB Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the date of the filing of such documents.
NAB shareholders who wish to obtain copies of the Keystone documents
incorporated by reference herein may do so by following the instructions under
"Available Information" above.
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<PAGE>
INFORMATION CONCERNING NAB
NATIONAL AMERICAN BANCORP, INC.
SELECTED FINANCIAL DATA
The following unaudited table of selected financial data should be read in
conjunction with NAB's consolidated financial statements and the related notes,
which appear on pages 3 through 22 of Annex III and pages 2 through 6 of Annex
IV, and with NAB's management's discussion and analysis of financial condition
and results of operations, incorporated herein by reference. See "NAB Documents
Incorporated by Reference."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------------- -------------------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest income.......... $ 5,916 $ 4,938 $ 10,346 $ 10,046 10,750 $ 11,850 $ 11,858
Interest expense......... 2,826 2,256 4,795 4,652 5,437 6,797 7,052
-------- -------- -------- -------- ------- -------- --------
Net interest income...... 3,090 2,682 5,551 5,394 5,313 5,053 4,806
Provision for loan losses 20 0 0 58 102 460 190
Noninterest income....... 309 440 805 791 759 776 730
Noninterest expense...... 2,087 2,128 4,233 4,038 4,011 3,810 3,607
Income tax expense....... 380 229 531 522 483 288 312
-------- -------- -------- -------- ------- -------- --------
Net income............... $ 912 $ 765 $ 1,592 $ 1,567 1,476 $ 1,271 $ 1,427
======== ======== ======== ======== ======= ======== ========
Pre-tax security gains
(losses),
included in above...... $ 0 $ 105 $ 137 $ 61 69 $ 74 $ 4
PER SHARE:
Net income............... $ 1.63 $ 1.39 $ 2.88 $ 2.85 2.70 $ 2.34 $ 2.58
Dividends................ 0.54 0.52 1.05 0.97 0.91 0.87 0.83
Dividend payout ratio.... 33.36% 37.54% 36.43% 34.07% 33.73% 37.27% 32.06%
Average shares
outstanding............ 558,491 552,347 552,347 549,772 546,673 544,041 553,996
BALANCES AT PERIOD END:
Loans.................... $ 75,185 $ 75,387 $ 77,455 $ 76,313 71,653 $ 68,440 $ 70,846
Allowance for loan losses 876 886 875 932 896 850 535
Total assets............. 152,673 152,726 155,433 148,705 139,752 138,294 127,302
Deposits................. 126,386 123,905 123,959 125,950 125,892 125,359 115,311
Long-term debt........... 6,500 6,500 6,500 0 0 0 0
Shareholders' equity..... 17,258 15,114 15,372 15,367 13,443 12,124 11,110
Book value per share..... 30.05 27.36 27.83 27.82 24.06 22.23 20.62
SELECTED RATIOS:
Return on average assets. 1.17% 1.03% 1.05% 1.10% 1.08% 0.97% 1.14%
Return on average equity. 11.26 10.04 10.42 11.30 11.67 10.94 13.09
Interest rate spread..... 3.56 3.39 3.39 3.50 3.64 3.44 3.25
Net interest margin...... 4.38 4.13 4.11 4.25 4.45 4.45 4.38
Average equity to
average assets......... 10.43 10.22 10.06 9.72 9.23 8.82 8.70
Loans to deposits
at period end.......... 59.49 60.84 62.48 60.59 56.92 54.60 61.44
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED RATIOS (CONTINUED):
Allowance for loan losses to
loans at period end.... 1.17 1.18 1.13 1.22 1.25 1.24 0.76
Nonperforming assets to
loans and ORE.......... 0.25 0.30 0.33 0.41 0.81 0.90 0.66
Loans 90 days past due... 0.61 0.19 0.76 0.09 0.29 0.56 0.66
Total risk elements to loans and
ORE at period end (1).. 0.86 0.49 1.09 0.50 1.10 1.46 1.32
RISK-ADJUSTED CAPITAL RATIOS:
Leverage ratio........... 10.92% 9.73% 9.90% 9.67% 9.62% 8.77% 8.73%
"Tier 1" capital ratio... 23.76 19.83 22.12 17.61 16.59 15.88 14.60
"Total" capital ratio.... 25.00 21.02 23.38 18.76 17.70 16.99 15.31
</TABLE>
_______________
(1) Total risk elements include nonperforming assets and loans past due 90 days
or more.
MARKET AND DIVIDEND INFORMATION CONCERNING NAB COMMON STOCK
There is no established public trading market for, and there has been only
limited trading in, NAB Common Stock. While NAB's management from time to time
receives information concerning trades of NAB Common Stock, it does not have any
reliable basis on which to provide information concerning historical ranges of
trading prices as bid and ask quotations. The last trade of NAB Common Stock
known to NAB management to have occurred prior to the announcement of the Merger
was a trade of 138 shares at $38.00 per share on July 3, 1995. The most recent
trade of NAB Common Stock known to NAB management prior to the date of this
Proxy Statement/Prospectus was a trade of 200 shares at $55.00 per share on
August 28, 1995. However, since there is only limited trading in NAB Common
Stock, these prices may not necessarily be considered indicative of the true
market value of NAB Common Stock. On October 10, 1995, there were approximately
[574,347] shares of NAB Common Stock outstanding. On August 31, 1995, NAB had
approximately 598 shareholders of record.
The following table sets forth the cash dividends per share declared on
NAB Common Stock for the periods indicated:
<TABLE>
<CAPTION>
CASH DIVIDEND CASH DIVIDEND CASH DIVIDEND
1993 DECLARED 1994 DECLARED 1995 DECLARED
<S> <C> <C> <C> <C> <C>
First Quarter $ .21 First Quarter $ .26 First Quarter $ .27
Second Quarter .22 Second Quarter .26 Second Quarter .27
Third Quarter .26 Third Quarter .26 Third Quarter .68 (1)
Fourth Quarter .28 Fourth Quarter .27
----- -----
$ .97 $1.05
</TABLE>
________________
(1) As permitted by the Plan of Merger, NAB's Board of Directors declared a
dividend for the third quarter of 1995 in an amount per share equal to the
per share amount of Keystone's third quarter dividend ($.34) multiplied by
the exchange ratio (2.00) which would have been applicable under the Plan
of Merger if the Merger had been consummated as of the dividend declaration
date. See "Plan of Merger--NAB Dividend Provision."
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<PAGE>
NAB DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by NAB with the SEC pursuant to
the Exchange Act (File No. 0-12776) are hereby incorporated by reference into
this Proxy Statement/Prospectus:
1. NAB's Annual Report on Form 10-K for the year ended December 31, 1994
("NAB Form 10-K");
2. NAB's Quarterly Reports on Form 10-Q for the quarters ended March 31
and June 30, 1995; and
3. NAB's Current Report on Form 8-K dated August 3, 1995.
All documents filed by NAB with the SEC pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the date of the Special Meeting shall be
deemed to be incorporated by reference in this Proxy Statement/Prospectus and to
be a part hereof from the date of the filing of such documents.
NAB's 1994 Annual Report to Shareholders ("NAB Annual Report") and its
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 are reproduced
as Annexes III and IV to this Proxy Statement/Prospectus. The following portions
of the NAB Annual Report have been incorporated by reference into the NAB Form
10-K and by reference to the NAB Form 10-K are also incorporated by reference
herein:
1. "Financial Highlights" on page 2; and
2. "Report of Independent Certified Public Accountants," "Consolidated
Balance Sheet," "Consolidated Statement of Income," "Consolidated
Statement of Changes in Shareholders' Equity, "Consolidated Statement
of Cash Flows" and "Notes to Consolidated Financial Statements" on
pages 3 through 22.
Portions of the NAB Annual Report other than those listed above as
incorporated herein by reference are furnished for information only and are not
a part of this Proxy Statement/Prospectus. The NAB Annual Report does not
contain all of the information contained in the NAB Form 10-K. NAB shareholders
who wish to obtain copies of the NAB documents incorporated by reference herein
may do so by following the instructions under "Available Information" above.
-29-
<PAGE>
COMPARISON OF KEYSTONE COMMON STOCK AND NAB COMMON STOCK
GENERAL
Upon consummation of the Merger, shareholders of NAB will become
shareholders of Keystone. Since the Articles of Incorporation ("Articles") and
By-Laws of Keystone and NAB are not the same, the Merger will result in certain
changes in the rights of the holders of NAB Common Stock. The material
differences in the rights of holders of Keystone Common Stock and NAB Common
Stock are discussed below.
VOTING RIGHTS
General. The holders of Keystone Common Stock, like the holders of NAB
Common Stock, are generally entitled to one vote for each share held of record
on all matters submitted to a shareholder vote. Unlike the holders of NAB Common
Stock, the holders of Keystone Common Stock do not have cumulative voting rights
in the election of directors. Under cumulative voting, a shareholder is entitled
to a number of votes equal to the number of shares held multiplied by the number
of directors to be elected and may cast all of such votes for a single nominee
or spread them among two or more nominees. The absence of cumulative voting
means that a nominee for director must receive the votes of a plurality of the
shares voted in order to be elected.
Special Votes for Certain Transactions. The Articles of Keystone and NAB
contain provisions requiring special shareholder votes to approve certain types
of transactions. In the absence of these provisions, either the transactions
would require approval by a majority of the shares voted or represented at a
meeting or no shareholder vote would be required.
Keystone's Articles require that certain transactions between Keystone or a
subsidiary and an "interested shareholder" be approved by the votes of the
holders of (1) 75% of the voting power of all outstanding voting stock of
Keystone and (2) a majority of the voting power of the voting stock not
beneficially owned by the interested shareholder. An "interested shareholder" is
generally defined by Keystone's Articles to mean a person or a group acting in
concert that beneficially owns more than 20% of the voting power of Keystone's
outstanding voting stock.
The transactions subject to Keystone's special vote requirements include
(1) a merger, consolidation or share exchange of Keystone or a subsidiary with
an interested shareholder, (2) the sale, lease, exchange or other disposition,
or the loan, mortgage, pledge or investment, by Keystone or a subsidiary of 5%
or more of Keystone's assets to, with or for the benefit of an interested
shareholder, (3) the issuance or transfer to an interested shareholder of
securities of Keystone or a subsidiary valued at 5% or more of Keystone's
consolidated total assets, (4) the adoption of any plan for the liquidation of
Keystone proposed by or on behalf of an interested shareholder, (5) any
reclassification of securities, recapitalization of Keystone, merger or
consolidation of Keystone with a subsidiary or other transaction which increases
the percentage of any class of stock of Keystone or a subsidiary owned by an
interested shareholder and (6) any other transaction which is similar in purpose
or effect to the foregoing.
Keystone's special shareholder vote requirements do not apply to any
transaction approved by a majority of the "disinterested directors." A
disinterested director is any member of the Keystone Board who is not an
interested shareholder or an affiliate, associate or representative of an
interested shareholder and who (1) was a director before the interested
shareholder became an interested shareholder or (2) is a successor to a
disinterested director and was recommended for election by a majority of the
disinterested directors then on the Board.
NAB's Articles require that certain transactions between NAB and an
"acquiring entity" be approved by the vote of the holders of (1) 75% of the
shares of each class of NAB's capital stock outstanding and entitled to vote and
(2) a majority of the shares of NAB Common Stock not held by the acquiring
entity or by any shareholders affiliated with the acquiring entity. An
"acquiring entity" is generally defined by NAB's Articles to
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mean a person which is the direct or indirect beneficial owner of more than 5%
of the outstanding NAB Common Stock.
The transactions subject to NAB's special voting requirements are (1) a
merger or consolidation of NAB with an acquiring entity, (2) a share exchange in
which an acquiring entity acquires the issued or outstanding shares of capital
stock of NAB pursuant to a vote of shareholders, (3) a sale, lease, exchange or
other transfer of all or substantially all of the assets of NAB to an acquiring
entity, (4) any transaction similar to, or having similar effect as, any of the
foregoing or (5) the voluntary complete liquidation or dissolution of NAB.
Except for a liquidation or dissolution, if any of these transactions is with a
person that is not the direct or indirect beneficial owner of more 5% of the
outstanding NAB Common Stock, then, except as discussed below, the affirmative
vote of the holders of a majority of the shares of each class of NAB's capital
stock outstanding and entitled to vote is required to approve the transaction.
NAB's special voting requirements do not apply to any transaction (1) which
is approved in advance by two-thirds of NAB's "continuing directors," defined as
those directors of NAB who were elected as directors (a) prior to the time the
acquiring entity became a direct or indirect beneficial owner of more than 10%
of the NAB Common Stock, (b) by the shareholders other than the acquiring entity
or any shareholders affiliated with the acquiring entity or (c) by the other
continuing directors or (2)(a) which is approved in advance by two-thirds of the
members of NAB's entire Board of Directors and (b) the terms of which provide
that the consideration per share to be received by the holders of NAB Common
Stock other than the acquiring entity or its affiliates is payable in cash and
is not less than the highest amount paid by the acquiring entity in acquiring
shares of NAB Common Stock.
BOARD OF DIRECTORS
Classified Boards. The Articles of Keystone and NAB divide the Board of
Directors into three classes, each consisting of one-third (or as near as may
be) of the whole number of the Board of Directors. One class of directors is
elected at each Annual Meeting of Shareholders, and each class serves for a term
of three years.
The number of directors which constitute the full Board of Directors of
Keystone may be increased or decreased only by the Board of Directors, by a vote
including a majority of the disinterested directors then in office, and except
as otherwise required by law, vacancies on the Board of Directors of Keystone,
including vacancies resulting from an increase in the size of the Board, may be
filled only by the Board of Directors by a similar vote. Directors elected by
the Board to fill vacancies serve for the full remainder of the term of the
class to which they have been elected.
NAB's Articles provide that NAB's Board of Directors shall consist of not
less than six nor more than 24 directors, as fixed by NAB's Board of Directors.
The number of directors fixed for any class of directors may not be increased
during its term except by a majority vote of the Board. Any vacancy on the NAB
Board, including a vacancy resulting from an increase in the number of
directors, may be filled only by a majority of the remaining directors, even if
less than a quorum. Directors elected by the NAB Board to fill vacancies serve
for the full remainder of the term of the class to which they have been elected.
NAB's By-Laws provide that, unless waived by a majority of the directors, a
majority of the Board of Directors of NAB shall be persons who are not
directors, officers, employees, agents or record or beneficial holders of more
than 5% of the voting securities of any corporation or entity which is the
record or beneficial holder of two-thirds or more of NAB's outstanding voting
shares.
Removal of Directors. Keystone's Articles provide that a director, any
class of directors or the entire Board of Directors may be removed from office
by shareholder vote only for cause and only if, in addition to any other vote
required by law, such removal is approved by a majority of the voting power of
the outstanding voting stock of Keystone which is not beneficially owned by an
interested shareholder.
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NAB's Articles provide that no director shall be removed from office by
shareholder vote if the votes of a sufficient number of shares are cast against
the resolution for his removal which, if cumulatively voted at an annual
election of directors, would be sufficient to elect one or more directors. Under
the Pennsylvania Business Corporation Law ("BCL"), because NAB has a classified
Board, the entire Board, any class of directors or any individual director may
be removed from office only for cause by a majority of the votes cast at a
meeting of the NAB shareholders. In addition, the entire Board may be removed
from office with or without cause by the unanimous vote or consent of the
holders of NAB Common Stock.
Nomination of Director Candidates. The Articles of Keystone and NAB require
that any shareholder intending to nominate a candidate for election as a
director must give the corporation advance written notice of the nomination,
containing certain specified information. Keystone's Articles require that the
notice be given not later than 120 days in advance of the meeting at which the
election is to be held. NAB's By-Laws generally require the notice to be given
not less than 60 days nor more than 90 days prior to the meeting at which the
election is to be held.
AMENDMENT OF ARTICLES AND BY-LAWS
Proposal of amendments. Under the BCL, because the Common Stock of Keystone
and NAB is registered under the Exchange Act, the shareholders of Keystone and
NAB are not entitled by statute to propose amendments to the Articles of the
corporation. Any amendment to the Articles must first be proposed by the Board
of Directors.
Approval of Amendments. Keystone's Articles require the votes of the
holders of (1) 75% of the voting power of all outstanding voting stock of
Keystone and (2) a majority of the voting power of the voting stock not
beneficially owned by an interested shareholder to approve any amendment to
Keystone's Articles or By-Laws. The special voting requirement does not apply to
any amendment approved by a majority of the disinterested directors if at the
time of such approval the disinterested directors constitute a majority of
Keystone's Board. Under applicable provisions of the BCL, such amendments may be
adopted by a majority of the votes cast at a meeting of Keystone shareholders.
Except as to matters for which a shareholder vote is required by statute,
Keystone's Board may also amend the By-Laws without shareholder approval by a
vote including a majority of the disinterested directors then in office.
NAB's Articles require special votes to amend the provisions of NAB's
Articles described herein under "Voting Rights--Special Votes for Certain
Transactions," "Board of Directors--Classified Boards," "Board of Directors--
Removal of Directors" and "Redemption Rights of NAB Shareholders" and the
provisions of NAB's Articles governing amendments to NAB's Articles and By-Laws.
Amendments to such provisions require approval by either (1) the holders of (a)
75% of the shares of each class of NAB's capital stock outstanding and entitled
to vote and (b) a majority of the shares of NAB Common Stock not held by an
acquiring entity or any shareholders affiliated with an acquiring entity or
(2)(a) two-thirds of the continuing directors and (b) the holders of a majority
of the shares of each class of NAB's capital stock outstanding and entitled to
vote. Under NAB's By-Laws, amendments to other provisions of NAB's Articles may
be approved by the vote of a majority of the shares represented at a meeting of
NAB shareholders.
NAB's Articles require the vote of the holders of at least 75% of the
outstanding NAB Common Stock to adopt any amendment to the By-Laws of NAB.
Except as to matters for which a shareholder vote is required by statute, NAB's
Board may also amend the By-Laws without shareholder approval by a majority vote
of the members of the Board or, in the case of certain amendments to the
provisions of NAB's By-Laws relating to director liability or indemnification,
by the vote of 75% of the entire Board.
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REDEMPTION RIGHTS OF NAB SHAREHOLDERS
NAB's Articles provide that if any person or group becomes the beneficial
owner of 75% or more of the outstanding NAB Common Stock in a transaction or
series of transactions not previously approved or recommended by two-thirds of
the Board of Directors of NAB, each other NAB shareholder shall have the right
to demand, within 90 days of notice to or knowledge by the shareholder that a
75% acquisition has occurred, that NAB repurchase the shareholder's shares of
NAB Common Stock for cash at a price equal to the average price paid by such
person or group for all shares of NAB Common Stock owned by the person or group.
NAB must consummate the purchase within 30 days of the demand, subject to tender
of the share certificates and to applicable restrictions on the ability of NAB
to repurchase its shares. The holders of Keystone Common Stock do not have
similar redemption rights.
KEYSTONE SHAREHOLDER RIGHTS PLAN
Keystone has established a shareholder rights plan under which each share
of Keystone Common Stock presently outstanding or which is issued hereafter
prior to the Distribution Date (defined below) is granted one preferred share
purchase right (a "Right"). Each Right entitles the registered holder to
purchase from Keystone eight one-thousandths (8/1,000ths) of a share of Series A
Junior Participating Preferred Stock, par value $1.00 per share (the "Preferred
Shares"), of Keystone at a price of $56.00 per eight one-thousandths of a
Preferred Share, subject to adjustment in the event of stock dividends and
similar events occurring prior to the Distribution Date. Each eight one-
thousandths of a Preferred Share would have voting, dividend and liquidation
rights which are the approximate equivalent of one share of Keystone Common
Stock.
The Rights are not exercisable until the Distribution Date, which is the
earlier to occur of (i) 10 days following a public announcement that a person or
group (an "Acquiring Person") has acquired beneficial ownership of 20% or more
of the outstanding Keystone Common Stock or (ii) 10 business days (unless
extended by the Board of Directors prior to any person or group becoming an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 20% or more of the
outstanding Keystone Common Stock.
Until the Distribution Date, the Rights will be transferred with and only
with Keystone Common Stock, and the surrender for transfer of any certificate
for Keystone Common Stock will also constitute the transfer of the Rights
associated with the shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights will be mailed to holders of record of Keystone Common Stock as of
the close of business on the Distribution Date, and the Rights will then become
separately tradeable.
In the event that any person becomes an Acquiring Person, each holder of a
Right, other than Rights beneficially owned by the Acquiring Person or its
associates or affiliates (which will be void), will thereafter have the right to
receive upon exercise that number of Common Shares or, at the option of
Keystone, Preferred Shares (or shares of a class or series of Keystone's
preferred stock having equivalent rights, preferences and privileges) or, in
certain circumstances, other securities or assets, having a market value of two
times the exercise price of the Right. In the event that after the first public
announcement that any person has become an Acquiring Person, Keystone is
acquired in a merger or other business combination transaction or 50% or more of
its consolidated assets or earning power are sold, proper provision will be made
so that each holder of a Right, other than rights beneficially owned by the
Acquiring Person or its associates or affiliates (which will be void) will
thereafter have the right to receive, upon exercise of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right.
At any time after the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding Keystone Common Stock and prior to
the acquisition by such person or group of 50% or more of the outstanding
Keystone Common Stock, the Board of Directors may exchange the Rights (other
than Rights owned by such person or group, which have become void), in whole or
in part, at an exchange ratio of one share of
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Keystone Common Stock, or eight one-thousandths of a Preferred Share (or of
a share of a class or series of Keystone's preferred stock having equivalent
rights, preferences and privileges), or, in certain circumstances, an amount of
other securities or assets having equivalent value, per Right (subject to
adjustment) .
At any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the outstanding Keystone Common Stock, the Board of
Directors may redeem the Rights in whole, but not in part, at a price of $.01
per Right.
Prior to the Distribution Date, the terms of the Rights may be amended by
the Board of Directors in any respect whatever, without the consent of the
holders of the Rights, except for an amendment that would reduce the redemption
price. Prior to any person becoming an Acquiring Person, Keystone may without
the consent of the holders of the Rights lower the 20% thresholds referred to
above to not less than the greater of (i) any percentage greater than the
largest percentage of the outstanding Keystone Common Stock then known to
Keystone to be beneficially owned by any person or group of affiliated or
associated persons and (ii) 10%. The Rights will expire on February 8, 2000,
unless the expiration date is extended or unless the Rights are earlier redeemed
by Keystone as described above.
PENNSYLVANIA BUSINESS CORPORATION LAW
The provisions of the Articles of Keystone and NAB described under "Voting
Rights" and "Board of Directors" above, the provisions of NAB's Articles
described above under "Redemption Rights of NAB Shareholders" and Keystone's
shareholder rights plan are in addition to certain provisions of Chapter 25 of
the BCL which may have the effect of discouraging or rendering more difficult a
hostile takeover attempt against Keystone or NAB.
Under Section 2538 of the BCL, any merger, consolidation, share exchange or
sale of assets between Keystone or NAB or their subsidiary and any shareholder
of the corporation, any division of Keystone or NAB in which any shareholder
receives a disproportionate amount of any shares or other securities of any
corporation resulting from the division, any voluntary dissolution of Keystone
or NAB in which a shareholder is treated differently from other shareholders of
the same class or any reclassification in which any Keystone or NAB
shareholder's voting or economic interest in the corporation is materially
increased relative to substantially all other shareholders must, in addition to
any other shareholder vote required, be approved by a majority of the votes
which all shareholders other than the shareholder receiving the special
treatment are entitled to cast with respect to the transaction. This special
vote requirement does not apply to a transaction (1) which has been approved by
a majority vote of the Board, without counting the vote of certain directors
affiliated with or nominated by the interested shareholder or (2) in which the
consideration to be received by the shareholders is not less than the highest
amount paid by the interested shareholder in acquiring shares of the same class.
Under Subchapter 25E of the BCL, if any person or group acting in concert
acquires voting power over Keystone or NAB shares representing 20% or more of
the votes which all shareholders of the corporation would be entitled to cast in
an election of directors, any other shareholder may demand that such person or
group purchase such shareholder's shares at a price determined in an appraisal
proceeding.
Under Subchapter 25G of the BCL, Keystone or NAB may not engage in merger,
consolidation, share exchange, division, asset sale or a variety of other
"business combination" transactions with a person which becomes the "beneficial
owner" of shares representing 20% or more of the voting power in an election of
directors of the corporation unless (1) the business combination or the
acquisition of the 20% interest is approved by the Board of Directors of the
corporation prior to the date the 20% interest is acquired, (2) the person
beneficially owns at least 80% of the outstanding shares and the business
combination (a) is approved by a majority vote of the disinterested shareholders
and (b) satisfies certain minimum price and other conditions prescribed in
Subchapter 25F, (3) the business combination is approved by a majority vote of
the disinterested shareholders at a meeting called no earlier than five years
after the date the 20% interest is acquired or (4) the business combination (a)
is
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approved by shareholder vote at a meeting called no earlier than five years
after the date the 20% interest is acquired and (b) satisfies certain minimum
price and other conditions prescribed in Subchapter 25F.
Keystone has elected to opt out from coverage by Subchapter 25G of the BCL,
which would have required a shareholder vote to accord voting rights to control
shares acquired by a 20% shareholder in a control-share acquisition, and
Subchapter 25H of the BCL, which would have required a person or group to
disgorge to Keystone any profits received from a sale of Keystone's equity
securities within 18 months after the person or group acquired or offered to
acquire 20% of Keystone's voting power or publicly disclosed an intention to
acquire control of Keystone. NAB has not elected to opt out from coverage by
Subchapters 25G or 25H and is subject to these provisions.
DISSENTERS' RIGHTS
The BCL provides for dissenters' rights in a variety of transactions
including: (i) mergers or consolidations to which a corporation is a party
(other than mergers not requiring a shareholder vote); (ii) certain sales,
leases or exchanges of all or substantially all of the assets of a corporation;
and (iii) certain share exchanges or plans of division. However, except in the
case of (1) a merger, consolidation, share exchange or division in which their
shares would be converted into or exchanged for something other than shares of
the surviving, new, acquiring or other corporation (or cash in lieu of
fractional shares) or (2) a transaction in which certain shareholders receive
materially different treatment from that accorded other holders of the same
class or series of shares, shareholders of a Pennsylvania business corporation
are not entitled to dissenters' rights in any of the transactions mentioned
above if their stock is either listed on a national securities exchange or held
of record by 2,000 or more shareholders. Neither Keystone Common Stock nor NAB
Common Stock is listed on a national securities exchange. However, Keystone
currently has more than 2,000 shareholders of record, and NAB currently has
fewer than 2,000 shareholders of record. Shareholders of NAB will have the right
to dissent from the Merger. See "Plan of Merger--Dissenters' Rights of NAB
Shareholders."
PREFERRED STOCK
NAB's Articles do not authorize any class of stock other than NAB Common
Stock. The Articles of Keystone authorize Keystone to issue up to 8,000,000
shares of Keystone preferred stock.
The authorized shares of Keystone preferred stock are issuable in one or
more series on the terms set by the resolution or resolutions of Keystone's
Board of Directors providing for the issuance thereof. Each series of preferred
stock would have such dividend rate, which might or might not be cumulative,
such voting rights, which might be general or special, and such liquidation
preferences, redemption and sinking funds provisions, conversion rights or other
rights and preferences, if any, as Keystone's Board of Directors may determine.
Except for such rights as may be granted to the holders of any series of
preferred stock in the resolution establishing such series or as required by
law, all of the voting and other rights of the shareholders of Keystone belong
exclusively to the holders of Keystone Common Stock.
DIVIDEND RIGHTS
The holders of NAB Common Stock and Keystone Common Stock are entitled to
dividends when, as and if declared by their Board of Directors out of funds
legally available therefor. However, if Keystone preferred stock is issued, the
Board of Directors of Keystone may grant preferential dividend rights to the
holders of such stock which would prohibit payment of dividends on the Keystone
Common Stock unless and until specified dividends on the preferred stock had
been paid.
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LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of Keystone or NAB, whether
voluntary or involuntary, the holders of Keystone or NAB Common Stock are
entitled to share ratably in the assets of the corporation available for
distribution after all liabilities of the corporation have been satisfied.
However, if preferred stock is issued by Keystone, the Board of Directors of
Keystone may grant preferential liquidation rights to the holders of such stock
which would entitle them to be paid out of the assets of the corporation
available for distribution before any distribution is made to the holders of
Keystone Common Stock.
MISCELLANEOUS
There are no preemptive rights, sinking fund provisions, conversion rights,
or redemption provisions applicable to Keystone or NAB Common Stock. Holders of
fully paid shares of Keystone or NAB Common Stock are not subject to any
liability for further calls or assessments.
LEGAL OPINIONS
Opinions with respect to certain legal matters in connection with the
Merger will be rendered by Reed Smith Shaw & McClay, Pittsburgh, Pennsylvania,
as counsel for Keystone, and by Dilworth, Paxson, Kalish & Kauffman,
Philadelphia, Pennsylvania, as counsel for NAB.
EXPERTS
The consolidated financial statements of Keystone incorporated by reference
in Keystone's Annual Report (Form 10-K) for the year ended December 31, 1994
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon included therein and incorporated herein by reference. As
to the years 1993 and 1992, their report is based in part on the reports of
Coopers & Lybrand LLP, Deloitte & Touche LLP and KPMG Peat Marwick LLP,
independent auditors. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports, given upon the authority of
such firms as experts in auditing and accounting.
The consolidated financial statements of NAB incorporated by reference in
NAB's Annual Report (Form 10-K) for the year ended December 31, 1994 have been
audited by Parente, Randolph, Orlando, Carey & Associates, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon such report, given upon the authority of such firm as
experts in auditing and accounting.
OTHER MATTERS
The management of NAB does not know of any other matters intended to be
presented for shareholder action at the Special Meeting. If any other matter
does properly come before the Special Meeting and is put to a shareholder vote,
the proxies solicited hereby will be voted in accordance with the judgment of
the proxyholders named thereon.
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ANNEX I
BERWIND
FINANCIAL GROUP, L.P.
Investment Banking
Merchant Banking
_____________, 1995
Board of Directors
National American Bancorp, Inc.
312 Main Street
Towanda, Pennsylvania 18848
Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the shareholders of National American Bancorp, Inc. ("NAB") of the
financial terms of the proposed merger whereby NAB will be merged with and into
Keystone Financial, Inc. ("Keystone"). The terms of the proposed merger (the
"Merger") between NAB and Keystone are set forth in the Agreement and Plan of
Reorganization and the Agreement and Plan of Merger (together, the "Plan of
Merger") dated July 26, 1995, and provide that each outstanding share of NAB
Common Stock will be converted into the right to receive shares of Common Stock
par value $2.00 per share of Keystone as provided in the Plan of Merger, with
cash to be paid in lieu of any fractional shares.
Berwind Financial Group, L.P., as part of its investment banking business,
regularly is engaged in the valuation of assets, securities and companies in
connection with various types of asset and security transactions, including
mergers, acquisitions, private placements and valuations for various other
purposes, and in the determination of adequate consideration in such
transactions.
In arriving at our opinion, we have, among other things: (i) reviewed the
historical financial performances, current financial positions and general
prospects of NAB and Keystone, (ii) reviewed the Plan of Merger, (iii) reviewed
and analyzed the stock market performance of Keystone, (iv) studied and analyzed
the consolidated financial and operating data of NAB and Keystone, (v)
considered the terms and conditions of the Merger between NAB and Keystone as
compared with the terms and conditions of comparable bank mergers and
acquisitions, (vi) met and/or communicated with certain members of NAB's and
Keystone's senior management to discuss their respective operations, historical
financial statements, and future prospects, and (vii) conducted such other
financial analyses, studies and investigations as we deemed appropriate.
Our opinion is given in reliance on information and representations made or
given by NAB and Keystone, and their respective officers, directors, auditors,
counsel and other agents, and on filings, releases and other information issued
by NAB and Keystone including financial statements, financial projections, and
stock price data as well as certain information from recognized independent
sources. We have not independently verified the information concerning NAB and
Keystone nor other data which we have considered in our review and, for purposes
of the opinion set forth below, we have assumed and relied upon the accuracy and
completeness of all such information and data. Additionally, we assume that the
Merger is, in all respects, lawful under applicable law.
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Board of Directors
____________, 1995
Page 2
With regard to financial and other information relating to the general
prospects of NAB and Keystone, we have assumed that such information has been
reasonably prepared and reflects the best currently available estimates and
judgments of the managements of NAB and Keystone as to NAB's and Keystone's most
likely future performance. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Merger, and in
preparation of the final Proxy Statement/Prospectus, no conditions will be
imposed that will have a material adverse effect on the contemplated benefits of
the Merger to NAB.
Our opinion is based upon information provided to us by the managements of
NAB and Keystone, as well as market, economic, financial, and other conditions
as they exist and can be evaluated only as of the date hereof and speaks to no
other period. Our opinion pertains only to the financial consideration of the
Merger and does not constitute a recommendation to the Board or shareholders of
NAB.
Based on the foregoing, it is our opinion that, as of the date hereof, the
Merger between NAB and Keystone is fair, from a financial point of view, to the
shareholders of NAB.
Sincerely,
BERWIND FINANCIAL GROUP, L.P.
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ANNEX II
STATUTORY PROVISIONS CONCERNING DISSENTERS' RIGHTS
OF NAB SHAREHOLDERS
PENNSYLVANIA BUSINESS CORPORATION LAW OF 1988
SUBCHAPTER D.--DISSENTERS RIGHTS
(S) 1571. APPLICATION AND EFFECT OF SUBCHAPTER.
(a) GENERAL RULE.--Except as otherwise provided in subsection (b), any
shareholder of a business corporation shall have the right to dissent from, and
to obtain payment of the fair value of his shares in the event of, any corporate
action, or to otherwise obtain fair value for his shares, where this part
expressly provides that a shareholder shall have the rights and remedies
provided in this subchapter. See:
Section 1906(c) (relating to dissenters rights upon special treatment).
Section 1930 (relating to dissenters rights).
Section 1931(d) (relating to dissenters rights in share exchanges).
Section 1932(c) (relating to dissenters rights in asset transfers).
Section 1952(d) (relating to dissenters rights in division).
Section 1962(c) (relating to dissenters rights in conversion).
Section 2104(b) (relating to procedure).
Section 2324 (relating to corporation option where a restriction on
transfer of a security is held invalid).
Section 2325(b) (relating to minimum vote requirement).
Section 2704(c) (relating to dissenters rights upon election).
Section 2705(d) (relating to dissenters rights upon renewal of election).
Section 2907(a) (relating to proceedings to terminate breach of qualifying
conditions)
Section 7104(b)(3) (relating to procedure).
(b) EXCEPTIONS.--
(1) Except as otherwise provided in paragraph (2), the holders of the
shares of any class or series of shares that, at the record date fixed to
determine the shareholders entitled to notice of and to vote at the meeting at
which a plan specified in any of section 1930, 1931(d), 1932(c) or 1952(d) is to
be voted on, are either :
(i) listed on a national securities exchange; or
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(ii) held of record by more than 2,000 shareholders;
shall not have the right to obtain payment of the fair value of any such
shares under this subchapter.
(2) Paragraph (1) shall not apply to and dissenters rights shall be
available without regard to the exception provided in that paragraph in the
case of:
(i) Shares converted by a plan if the shares are not converted
solely into shares of the acquiring, surviving, new or other corporation
or solely into such shares and money in lieu of fractional shares.
(ii) Shares of any preferred or special class unless the articles,
the plan or the terms of the transaction entitle all shareholders of the
class to vote thereon and require for the adoption of the plan or the
effectuation of the transaction the affirmative vote of a majority of the
votes cast by all shareholders of the class.
(iii) Shares entitled to dissenters rights under section 1906(c)
(relating to dissenters rights upon special treatment).
(3) The shareholders of a corporation that acquires by purchase,
lease, exchange or other disposition all or substantially all of the
shares, property or assets of another corporation by the issuance of
shares, obligations or otherwise, with or without assuming the liabilities
of the other corporation and with or without the intervention of another
corporation or other person, shall not be entitled to the rights and
remedies of dissenting shareholders provided in this subchapter regardless
of the fact, if it be the case, that the acquisition was accomplished by
the issuance of voting shares of the corporation to be outstanding
immediately after the acquisition sufficient to elect a majority or more of
the directors of the corporation.
(c) GRANT OF OPTIONAL DISSENTERS RIGHTS.--The bylaws or a resolution of
the board of directors may direct that all or a part of the shareholders shall
have dissenters rights in connection with any corporate action or other
transaction that would otherwise not entitle such shareholders to dissenters
rights.
(d) NOTICE OF DISSENTERS RIGHTS.--Unless otherwise provided by statute, if
a proposed corporate action that would give rise to dissenters rights under this
subpart is submitted to a vote at a meeting of shareholders, there shall be
included in or enclosed with the notice of meeting:
(1) a statement of the proposed action and a statement that the
shareholders have a right to dissent and obtain payment of the fair value
of their shares by complying with the terms of this subchapter; and
(2) a copy of this subchapter.
(e) OTHER STATUTES.--The procedures of this subchapter shall also be
applicable to any transaction described in any statute other than this part that
makes reference to this subchapter for the purpose of granting dissenters
rights.
(f) CERTAIN PROVISIONS OF ARTICLES INEFFECTIVE.--This subchapter may not
be relaxed by any provision of the articles.
(g) CROSS REFERENCES.--See sections 1105 (relating to restriction on
equitable relief), 1904 (relating to de facto transaction doctrine abolished)
and 2512 (relating to dissenters rights procedure).
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(S) 1572. DEFINITIONS.
The following words and phrases when used in this subchapter shall have the
meanings given to them in this section unless the context clearly indicates
otherwise:
"CORPORATION." The issuer of the shares held or owned by the dissenter
before the corporate action or the successor by merger, consolidation, division,
conversion or otherwise of that issuer. A plan of division may designate which
of the resulting corporations is the successor corporation for purpose of this
subchapter. The successor corporation in a division shall have sole
responsibility for payments to dissenters and other liabilities under this
subchapter except as otherwise provided in the plan of division.
"DISSENTER." A shareholder or beneficial owner who is entitled to and does
assert dissenters rights under this subchapter and who has performed every act
required up to the time involved for the assertion of those rights.
"FAIR VALUE." The fair value of shares immediately before the effectuation
of the corporate action to which the dissenter objects, taking into account all
relevant factors, but excluding any appreciation or depreciation in anticipation
of the corporate action.
"INTEREST." Interest from the effective date of the corporate action until
the date of payment at such rate as is fair and equitable under all of the
circumstances, taking into account all relevant factors including the average
rate currently paid by the corporation on its principal bank loans.
(S) 1573. RECORD AND BENEFICIAL HOLDERS AND OWNERS.
(a) RECORD HOLDERS OF SHARES.--A record holder of shares of a business
corporation may assert dissenters rights as to fewer than all of the shares
registered in his name only if he dissents with respect to all the shares of the
same class or series beneficially owned by any one person and discloses the name
and address of the person or persons on whose behalf he dissents. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders.
(b) BENEFICIAL OWNERS OF SHARES.--A beneficial owner of shares of a
business corporation who is not the record holder may assert dissenters rights
with respect to shares held on his behalf and shall be treated as a dissenting
shareholder under the terms of this subchapter if he submits to the corporation
not later than the time of the assertion of dissenters rights a written consent
of the record holder. A beneficial owner may not dissent with respect to some
but less than all shares of the same class or series owned by the owner, whether
or not the shares so owned by him are registered in his name.
(S) 1574. NOTICE OF INTENTION TO DISSENT.
If the proposed corporate action is submitted to a vote at a meeting of
shareholders of a business corporation, any person who wishes to dissent and
obtain payment of the fair value of his shares must file with the corporation,
prior to the vote, a written notice of intention to demand that he be paid the
fair value for his shares if the proposed action is effectuated, must effect no
change in the beneficial ownership of his shares from the date of such filing
continuously through the effective date of the proposed action and must refrain
from voting his shares in approval of such action. A dissenter who fails in any
respect shall not acquire any right to payment of the fair value of his shares
under this subchapter. Neither a proxy nor a vote against the proposed corporate
action shall constitute the written notice required by this section.
A-5
<PAGE>
(S) 1575. NOTICE TO DEMAND PAYMENT.
(a) GENERAL RULE.--If the proposed corporate action is approved by the
required vote at a meeting of shareholders of a business corporation, the
corporation shall mail a further notice to all dissenters who gave due notice of
intention to demand payment of the fair value of their shares and who refrained
from voting in favor of the proposed action. If the proposed corporate action is
to be taken without a vote of shareholders, the corporation shall send to all
shareholders who are entitled to dissent and demand payment of the fair value of
their shares a notice of the adoption of the plan or other corporate action. In
either case, the notice shall:
(1) State where and when a demand for payment must be sent and
certificates for certificated shares must be deposited in order to obtain
payment.
(2) Inform holders of uncertificated shares to what extent transfer
of shares will be restricted from the time that demand for payment is
received.
(3) Supply a form for demanding payment that includes a request for
certification of the date on which the shareholder, or the person on whose
behalf the shareholder dissents, acquired beneficial ownership of the
shares.
(4) Be accompanied by a copy of this subchapter.
(b) TIME FOR RECEIPT OF DEMAND FOR PAYMENT.--The time set for receipt of
the demand and deposit of certificated shares shall be not less than 30 days
from the mailing of the notice.
(S) 1576. FAILURE TO COMPLY WITH NOTICE TO DEMAND PAYMENT, ETC.
(a) EFFECT OF FAILURE OF SHAREHOLDER TO ACT.--A shareholder who fails to
timely demand payment, or fails (in the case of certificated shares) to timely
deposit certificates, as required by a notice pursuant to section 1575 (relating
to notice to demand payment) shall not have any right under this subchapter to
receive payment of the fair value of his shares.
(b) RESTRICTION ON UNCERTIFICATED SHARES.--If the shares are not
represented by certificates, the business corporation may restrict their
transfer from the time of receipt of demand for payment until effectuation of
the proposed corporate action or the release of restrictions under the terms of
section 1577(a) (relating to failure to effectuate corporate action).
(c) RIGHTS RETAINED BY SHAREHOLDER.--The dissenter shall retain all other
rights of a shareholder until those rights are modified by effectuation of the
proposed corporate action.
(S) 1577. RELEASE OF RESTRICTIONS OR PAYMENT FOR SHARES.
(a) FAILURE TO EFFECTUATE CORPORATE ACTION.--Within 60 days after the date
set for demanding payment and depositing certificates, if the business
corporation has not effectuated the proposed corporate action, it shall return
any certificates that have been deposited and release uncertificated shares from
any transfer restrictions imposed by reason of the demand for payment.
(b) RENEWAL OF NOTICE TO DEMAND PAYMENT.--When uncertificated shares have
been released from transfer restrictions and deposited certificates have been
returned, the corporation may at any later time send a new notice conforming to
the requirements of section 1575 (relating to notice to demand payment), with
like effect.
A-6
<PAGE>
(c) PAYMENT OF FAIR VALUE OF SHARES.--Promptly after effectuation of the
proposed corporate action, or upon timely receipt of demand for payment if the
corporate action has already been effectuated, the corporation shall either
remit to dissenters who have made demand and (if their shares are certificated)
have deposited their certificates the amount that the corporation estimates to
be the fair value of the shares, or give written notice that no remittance under
this section will be made. The remittance or notice shall be accompanied by:
(1) The closing balance sheet and statement of income of the issuer
of the shares held or owned by the dissenter for a fiscal year ending not
more than 16 months before the date of remittance or notice together with
the latest available interim financial statements.
(2) A statement of the corporation's estimate of the fair value of
the shares.
(3) A notice of the right of the dissenter to demand payment or
supplemental payment, as the case may be, accompanied by a copy of this
subchapter.
(d) FAILURE TO MAKE PAYMENT.--If the corporation does not remit the amount
of its estimate of the fair value of the shares as provided by subsection (c),
it shall return any certificates that have been deposited and release
uncertificated shares from any transfer restrictions imposed by reason of the
demand for payment. The corporation may make a notation on any such certificate
or on the records of the corporation relating to any such uncertificated shares
that such demand has been made. If shares with respect to which notation has
been made shall be transferred, each new certificate issued therefor or the
records relating to any transferred uncertificated shares shall bear a similar
notation, together with the name of the original dissenting holder or owner of
such shares. A transferee of such shares shall not acquire by such transfer any
rights in the corporation other than those which the original dissenter had
after making demand for payment of their fair value.
(S) 1578. ESTIMATE BY DISSENTER OF FAIR VALUE OF SHARES.
(a) GENERAL RULE.--If the business corporation gives notice of its
estimate of the fair value of the shares, without remitting such amount, or
remits payment of its estimate of the fair value of a dissenter's shares as
permitted by section 1577(c) (relating to payment of fair value of shares) and
the dissenter believes that the amount stated or remitted is less than the fair
value of his shares, he may send to the corporation his own estimate of the fair
value of the shares, which shall be deemed a demand for payment of the amount or
the deficiency.
(b) EFFECT OF FAILURE TO FILE ESTIMATE.--Where the dissenter does not file
his own estimate under subsection (a) within 30 days after the mailing by the
corporation of its remittance or notice, the dissenter shall be entitled to no
more than the amount stated in the notice or remitted to him by the corporation.
(S) 1579. VALUE PROCEEDINGS GENERAL.
(a) GENERAL RULE.--Within 60 days after the latest of:
(1) effectuation of the proposed corporate action;
(2) timely receipt of any demands for payment under section 1575
(relating to notice to demand payment); or
(3) timely receipt of any estimates pursuant to section 1578
(relating to estimate by dissenter of fair value of shares);
if any demands for payment remain unsettled, the business corporation may file
in court an application for relief requesting that the fair value of the shares
be determined by the court.
A-7
<PAGE>
(b) MANDATORY JOINDER OF DISSENTERS.--All dissenters, wherever residing,
whose demands have not been settled shall be made parties to the proceeding as
in an action against their shares. A copy of the application shall be served on
each such dissenter. If a dissenter is a nonresident, the copy may be served on
him in the manner provided or prescribed by or pursuant to 42 Pa. C.S. Ch. 53
(relating to bases of jurisdiction and interstate and international procedure).
(c) JURISDICTION OF THE COURT.--The jurisdiction of the court shall be
plenary and exclusive. The court may appoint an appraiser to receive evidence
and recommend a decision on the issue of fair value. The appraiser shall have
such power and authority as may be specified in the order of appointment or in
any amendment thereof.
(d) MEASURE OF RECOVERY.--Each dissenter who is made a party shall be
entitled to recover the amount by which the fair value of his shares is found to
exceed the amount, if any, previously remitted, plus interest.
(e) EFFECT OF CORPORATION'S FAILURE TO FILE APPLICATION.--If the
corporation fails to file an application as provided in subsection (a), any
dissenter who made a demand and who has not already settled his claim against
the corporation may do so in the name of the corporation at any time within 30
days after the expiration of the 60-day period. If a dissenter does not file an
application within the 30-day period, each dissenter entitled to file an
application shall be paid the corporation's estimate of the fair value of the
shares and no more, and may bring an action to recover any amount not previously
remitted.
(S) 1580. COSTS AND EXPENSES OF VALUATION PROCEEDINGS.
(a) GENERAL RULE.--The costs and expenses of any proceeding under section
1579 (relating to valuation proceedings generally), including the reasonable
compensation and expenses of the appraiser appointed by the court, shall be
determined by the court and assessed against the business corporation except
that any part of the costs and expenses may be apportioned and assessed against
all or some of the dissenters who are parties and whose action in demanding
supplemental payment under section 1578 (relating to estimate by dissenter of
fair value of shares) the court finds to be dilatory, obdurate, arbitrary,
vexatious or in bad faith.
(b) ASSESSMENT OF COUNSEL FEES AND EXPERT FEES WHERE LACK OF GOOD FAITH
APPEARS.--Fees and expenses of counsel and of experts for the respective parties
may be assessed as the court deems appropriate against the corporation and in
favor of any or all dissenters if the corporation failed to comply substantially
with the requirements of this subchapter and may be assessed against either the
corporation or a dissenter, in favor of any other party, if the court finds that
the party against whom the fees and expenses are assessed acted in bad faith or
in a dilatory, obdurate, arbitrary or vexatious manner in respect to the rights
provided by this subchapter.
(c) AWARD OF FEES FOR BENEFITS TO OTHER DISSENTERS.--If the court finds
that the services of counsel for any dissenter were of substantial benefit to
other dissenters similarly situated and should not be assessed against the
corporation, it may award to those counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who were benefited.
A-8
<PAGE>
ANNEX III
ANNUAL
1994 -------------------------------------
REPORT
NATIONAL
AMERICAN
-------------------------------------
BANCORP, INC.
[LOGO OF THE FIRST NATIONAL BANK
OF BRADFORD COUNTY]
NATIONAL SECURITY
AMERICAN LIFE
INSURANCE COMPANY
A-9
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
A-10
<PAGE>
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
1994 proved again to be a successful year for National American Bancorp,
Inc., (Company) and its primary business, The First National Bank of Bradford
County (Bank). Positive performance was achieved in the significant areas of
your Company and Bank; earnings, quality asset growth, and shareholder's value.
Earnings for the year were $1,592,199.98, as compared to 1993 when they
were $1,567,202.27, a modest increase of 1.6%. The Bank contributed
$1,583,606.00 of the total income in 1994, a 3.3% increase, while the Insurance
Company's income fell to $13,984 from $42,033 in 1993. These quality sustaining
earnings allowed your Board of Directors to increase cash dividends to $1.05 per
share, an 8.25% gain. Dividends have grown 26.5% from $.83 per share in 1990.
Capital continues to be very strong at $15,371,820.86 at year end, which
is 9.89% of total assets. Assets reached $155,432,999.27, up $6,728,195.03 or
4.5%. The increase in assets was primarily in Government Backed Mortgage Pools
in our Held to Maturity Investment Account. This asset gain was funded through
borrowings at the Federal Home Loan Bank of Pittsburgh.
The market price of our stock continued to reflect market acceptance
finishing the year at a bid price of $37.50 per share, 134% of book value that
stood at $27.83 at year end.
As we enter 1995, we hope because of the political environment in
Washington, D.C., to see banking laws and regulations changed that will give us
a more level playing field to compete with other financial intermediaries. Also,
we believe that going forward, as our customers become more aware of the risks
of non-bank investments in a changing economic environment, we will be able to
regain deposits lost to mutual funds and other non-banking competitors. This
will afford us the opportunity to improve earnings.
We thank you for your continuing support. Please review the attending
financial statements as audited by Parente, Randolph, Orlando, Carey &
Associates and management's discussion. If you have any questions, please
contact me.
Yours very truly,
/s/ David S. Packard
--------------------
DAVID S. PACKARD
President
A-11
<PAGE>
FINANCIAL HIGHLIGHTS
In Thousands, except for Per Share Data
<TABLE>
<CAPTION>
FOR THE YEAR 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Interest income......................... $10,346 $10,046 $10,750 $11,850 $11,858
Interest expense........................ 4,795 4,652 5,437 6,797 7,052
------- ------- ------- ------- -------
Net interest income..................... 5,551 5,394 5,313 5,053 4,806
Provision for loan losses.............. - 58 102 460 190
------- ------- ------- ------- -------
Net interest income after
provision for loan losses............. 5,551 5,336 5,211 4,593 4,616
Other operating income.................. 805 791 759 776 730
Other operating expense................. 4,233 4,038 4,011 3,810 3,607
------- ------- ------- ------- -------
Income before income taxes.............. 2,123 2,089 1,959 1,559 1,739
Provision for income taxes.............. 531 522 483 288 312
------- ------- ------- ------- -------
Net income.............................. $ 1,592 $ 1,567 $ 1,476 $ 1,271 $ 1,427
======= ======= ======= ======= =======
Total cash dividend declared............ $ 580 $ 534 $ 498 $ 474 $ 457
======= ======= ======= ======= =======
Per common share:
Net income using weighted
average shares outstanding.......... $2.88 $2.85 $2.70 $2.34 $2.58
Cash dividend declared.................. 1.05 .97 .91 .87 .83
</TABLE>
<TABLE>
<CAPTION>
AT YEAR END 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Assets................................ $155,433 $148,705 $139,752 $138,294 $127,302
Deposits.............................. 123,959 125,950 125,892 125,359 115,311
Loans, net............................ 76,580 75,381 70,757 67,590 70,311
Investment securities................. 64,448 59,460 51,427 48,399 38,061
Shareholders' equity.................. 15,372 15,367 13,443 12,124 11,110
</TABLE>
MARKET PRICE AND DIVIDENDS
The following table sets forth the high and low prices for the Company's
stock on a quarterly basis for the past three years. These price quotations were
obtained, when available, from purchaser or seller at the time of transfer.
<TABLE>
<CAPTION>
Cash
Dividends
Period High Low Declared
<S> <C> <C> <C>
1994 4th Quarter..................... $37.50 $37.00 .27
3rd Quarter..................... 37.00 37.00 .26
2nd Quarter..................... 37.00 35.00 .26
1st Quarter..................... 35.00 34.11 .26
1993 4th Quarter..................... $40.00 $33.50 .28
3rd Quarter..................... 36.26 33.00 .26
2nd Quarter..................... 34.22 32.00 .22
1st Quarter..................... 34.00 32.00 .21
1992 4th Quarter..................... 33.00 $32.00 .26
3rd Quarter..................... 33.00 32.00 .24
2nd Quarter..................... 33.00 30.00 .21
1st Quarter..................... 33.00 31.00 .20
</TABLE>
The following brokerage firms will act as agent or make a market in the
Company's Stock:
RYAN, BECK & COMPANY ANTHONY MISCIAGNA & HOPPER SOLIDAY
80 Main Street COMPANY, INC. & COMPANY
West Orange, NJ 07052 6 Bird Cage Walk John J. Abbate
Phone: 201-325-3000 Hollidaysburg, PA 16648 100 Park Avenue
Phone: 1-800-343-5149 New York, NY 10017
Phone: 212-922-3500
A-12
<PAGE>
[LOGO OF PARENTE . RANDOLPLH . ORLANDO
CAREY & ASSOCIATES
- --------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS]
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
National American Bancorp, Inc.
and Subsidiaries
Towanda, Pennsylvania:
We have audited the accompanying consolidated balance sheets of National
American Bancorp, Inc. and subsidiaries (the "Company") as of December 31, 1994
and 1993, and the related consolidated statements of income, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of National
American Bancorp, Inc. and subsidiaries as of December 31, 1994 and 1993, and
the results of its operations and its cash flows for each of the three years in
the period ended December 31, 1994 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993,
the Company changed its method of accounting for income taxes by adopting
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" and the Company changed its method of accounting for investment
securities by adopting Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
/s/ Parente, Randolph, Orlando, Carey
& Associates
Wilkes-Barre, Pennsylvania
January 13, 1995
A-13
<PAGE>
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Cash and due from banks............................. $ 8,012,242 $ 4,966,086
Interest-bearing balances in banks.................. 794,446 756,721
Federal funds sold.................................. - 2,700,000
------------ ------------
Total......................................... 8,806,688 8,422,807
Held-to-maturity securities
(estimated market value of
$42,444,000 and $26,585,000
in 1994 and 1993, respectively)..................... 43,384,660 26,346,468
Available-for-sale securities......................... 21,063,244 33,113,678
Loans, net............................................ 76,579,717 75,380,858
Bank premises and equipment, net...................... 3,761,301 3,896,791
Accrued interest receivable........................... 1,245,429 1,275,037
Assets acquired through foreclosure................... 33,427 129,000
Other assets.......................................... 558,533 140,165
------------ ------------
TOTAL.............................. $155,432,999 $148,704,804
============ ============
LIABILITIES:
Deposits:
Noninterest-bearing................................. $ 16,072,342 $ 14,649,615
Interest-bearing.................................... 107,886,797 111,300,681
------------ ------------
Total deposits................................ 123,959,139 125,950,296
Borrowed funds...................................... 15,273,700 6,500,000
Accrued interest payable............................ 258,315 217,112
Other liabilities................................... 570,024 670,477
------------ ------------
Total liabilities............................. 140,061,178 133,337,885
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, par value $5 per share,
1,000,000 shares authorized; 555,970
shares issued and outstanding, of which
3,623 are held in the treasury...................... 2,779,850 2,779,850
Surplus............................................... 23,132 23,132
Retained earnings..................................... 12,700,290 11,688,055
Net unrealized holding (losses) gains on
available-for-sale securities....................... (15,515) 991,818
------------ ------------
15,487,757 15,482,855
------------ ------------
Less treasury stock - at cost......................... 115,936 115,936
------------ ------------
Total shareholders' equity.................... 15,371,821 15,366,919
------------ ------------
TOTAL.............................. $155,432,999 $148,704,804
============ ============
</TABLE>
- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
A-14
<PAGE>
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................ $ 6,776,156 $ 6,629,847 $ 6,815,537
Interest and dividends on investments:
Taxable interest income................. 3,379,578 3,085,318 3,464,005
Nontaxable interest income.............. 175,901 275,741 351,584
Dividends............................... 3,924 3,924 3,924
Interest on federal funds sold.......... 10,622 51,564 115,347
----------- ----------- -----------
Total interest income................ 10,346,181 10,046,394 10,750,397
----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits...................... 4,165,783 4,439,641 5,431,109
Interest on other borrowings.............. 629,646 212,823 5,864
----------- ----------- -----------
Total interest expense............... 4,795,429 4,652,464 5,436,973
----------- ----------- -----------
NET INTEREST INCOME......................... 5,550,752 5,393,930 5,313,424
PROVISION FOR POSSIBLE LOAN LOSSES.......... - 58,000 102,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES.................. 5,550,752 5,335,930 5,211,424
----------- ----------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts....... 341,565 352,266 365,585
Other income.............................. 295,143 281,557 288,144
Securities gains.......................... 136,708 60,678 68,649
Trust Department income................... 32,407 96,370 36,499
----------- ----------- -----------
Total other operating income......... 805,823 790,871 758,877
----------- ----------- -----------
OTHER OPERATING EXPENSES:
Salaries, wages and employee benefits..... 1,901,063 1,921,874 1,879,669
Occupancy expense......................... 265,013 253,508 249,411
Furniture and equipment expense........... 398,958 380,122 399,548
FDIC insurance............................ 279,782 276,196 276,849
Other expenses............................ 1,388,559 1,205,899 1,206,174
----------- ----------- -----------
Total other operating expenses....... 4,233,375 4,037,599 4,011,651
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES..................................... 2,123,200 2,089,202 1,958,650
PROVISION FOR INCOME TAXES.................. 531,000 522,000 483,000
----------- ----------- -----------
NET INCOME.................................. $ 1,592,200 $ 1,567,202 $ 1,475,650
=========== =========== ===========
NET INCOME PER SHARE........................ $ 2.88 $ 2.85 $ 2.70
=========== =========== ===========
Weighted average shares outstanding......... 552,347 549,772 546,673
=========== =========== ===========
</TABLE>
- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
A-15
<PAGE>
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NET UNREALIZED
HOLDING
GAINS (LOSSES) TOTAL
ON AVAILABLE- SHARE-
COMMON RETAINED FOR-SALE TREASURY HOLDERS'
STOCK SURPLUS EARNINGS SECURITIES STOCK EQUITY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance
December 31, 1991...... $2,779,850 $ 6,558 $ 9,676,901 $(339,008) $12,124,301
Net income............... 1,475,650 1,475,650
Sale of treasury
stock.................. 2,162 69,184 71,346
Dividends declared
($.91 per share)....... (497,780) (497,780)
---------- ------- ----------- ----------- --------- -----------
Balance,
December 31, 1992...... 2,779,850 8,720 10,654,771 (269,824) 13,173,517
Net income............... 1,567,202 1,567,202
Sale of treasury
stock.................. 14,412 153,888 168,300
Dividends declared
($.97 per share)....... (533,918) (533,918)
Net unrealized
holding gains on
available-for-sale
securities............. $ 991,818 991,818
---------- ------- ----------- ----------- --------- -----------
Balance,
December 31, 1993...... 2,779,850 23,132 11,688,055 991,818 (115,936) 15,366,919
Net income............... 1,592,200 1,592,200
Dividends declared
($1.05 per share)...... (579,965) (579,965)
Net unrealized
holding losses on
available-for-sale
securities............. (1,007,333) (1,007,333)
---------- ------- ----------- ----------- --------- -----------
Balance
December 31, 1994...... $2,779,850 $23,132 $12,700,290 $ (15,515) $(115,936) $15,371,821
========== ======= =========== =========== ========== ===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
A-16
<PAGE>
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
1994 1993 1992
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................... $ 1,592,200 $ 1,567,202 $ 1,475,650
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses.......... - 58,000 102,000
Provision for losses on assets
acquired through foreclosure.............. 47,039 27,936 20,228
Depreciation, amortization and accretion.... 928,209 1,113,009 577,638
Securities gains............................ (136,708) (60,678) (68,649)
Loss on sale of assets acquired
through foreclosure....................... 12,764 6,066 11,704
Deferred income tax provision (benefit)..... 9,000 (73,000) (28,000)
Change in:
Accrued interest receivable............ 29,608 30,858 45,529
Other assets........................... (135,600) 39,169 (14,850)
Accrued interest payable............... 41,203 (20,757) (88,611)
Other liabilities...................... 134,064 (9,524) (41,265)
----------- ----------- -----------
Net cash provided by
operating activities............. 2,521,779 2,678,281 1,991,374
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from maturity of bankers'
acceptances................................. 6,406,275 12,858,047 8,561,176
Purchase of banker's acceptances.............. (8,465,018) (9,549,508) (10,527,197)
Held-to-maturity securities:
Proceeds from sales......................... - 1,926,781 4,172,682
Proceeds from maturities.................... 22,617,449 19,959,964 15,909,174
Purchases................................... (39,894,096) (32,430,983) (21,286,995)
Available-for-sale securities:
Proceeds from sales......................... 6,994,744 - -
Proceeds from maturities.................... 15,825,000 - -
Purchases................................... (10,447,490) - -
Excess of loans originated over
principal collected......................... (1,290,898) (4,923,892) (3,367,859)
Bank premises and equipment additions......... (208,728) (370,219) (121,005)
Proceeds from sale of assets acquired
through foreclosure......................... 127,809 120,338 142,396
----------- ----------- -----------
Net cash used in investing
activities....................... (8,334,953) (12,409,472) (6,517,628)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net increase (decrease) in deposit
accounts.................................... (1,991,157) 58,171 532,809
Cash dividends................................ (585,488) (521,621) (491,764)
Net increase in borrowed funds................ 8,773,700 6,500,000 -
Proceeds from sale of treasury stock.......... - 168,300 71,346
----------- ----------- -----------
Net cash provided by
financing activities............. 6,197,055 6,204,850 112,391
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................... 383,881 (3,526,341) (4,413,863)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR....................................... 8,422,807 11,949,148 16,363,011
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 8,806,688 $ 8,422,807 $11,949,148
=========== =========== ===========
- ---------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
A-17
<PAGE>
NATIONAL AMERICAN BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
National American Bancorp, Inc. and its wholly-owned subsidiaries, The First
National Bank of Bradford County and National Security American Life
Insurance Company (collectively, the "Company"). Significant intercompany
balances and transactions have been eliminated in consolidation.
INVESTMENT SECURITIES
As of December 31, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards "SFAS" No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," for accounting and reporting for
investment securities. In accordance with SFAS No. 115, such investments are
accounted for as follows:
Held-to-Maturity Securities - include debt securities that the Company
has the positive intent and ability to hold to maturity. These securities
are reported at amortized cost.
Trading Securities - include debt and equity securities bought and held
principally for the purpose of selling them in the near term. The Company
does not hold any trading securities.
Available-for-Sale Securities - include debt and equity securities not
classified as either held-to-maturity securities or trading securities.
Such securities are reported at fair value, with unrealized holding gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity net of deferred income taxes.
The cumulative effect of the adoption of SFAS No. 115 as of December 31,
1993 resulted in an increase in shareholders' equity of $991,818 (unrealized
holding gain on available-for-sale securities of $1,500,346 less deferred
income tax effect of $508,528).
The fair value of investments, except certain state and municipal
securities, is estimated based on bid prices published in financial
newspapers or bid quotations received from securities dealers. The fair
value of certain state and municipal securities is not readily available
through market sources other than dealer quotations, so fair value estimates
are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses is based upon a credit review of the
loan portfolio, past loan loss experience, current economic conditions, the
risk characteristics of the various categories of loans and other pertinent
factors which form a basis for determining the adequacy of the allowance for
possible loan losses. In the opinion of management, the aggregate amount
reserved is deemed to be adequate to absorb future loan losses.
INTEREST ON LOANS
Interest income on loans, other than discounted installment loans, is
computed based upon the principal amount outstanding using an interest
method and is accrued when earned. Interest on discounted installment loans
is recognized using the sum-of-the-months-digits method, the use of which
does not result in income which is materially different than the income
which would be recorded using the interest method. Consumer loans are
placed in nonaccrual status when they become contractually 90 days past
(Continued)
A-18
<PAGE>
due. All other loans are placed in nonaccrual status when management
believes that collection of the interest is uncertain. Any payments
received on nonaccrual loans are applied, first to the outstanding loan
amounts, then to the recovery of any charged off loan amounts. Any
excess is treated as a recovery of lost interest.
LOAN FEES
Nonrefundable loan origination fees and certain direct loan origination
costs for loans are being recognized over the life of the related loans as
an adjustment of the yield. Prior to 1989, the Company recognized such fees
and costs in the year received or incurred.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated
depreciation. Routine maintenance and repair expenditures are expensed as
incurred while significant expenditures are capitalized.
Depreciation expense is determined on the straight-line and accelerated
methods over the following ranges of useful lives:
Building and improvements.......... 5 to 40 years
Furniture and equipment............ 3 to 20 years
ASSETS ACQUIRED THROUGH FORECLOSURE
Assets acquired through foreclosure are classified in compliance with
Statement of Position 92-3 ("SOP 92-3"), Accounting for Foreclosed Assets.
In accordance with SOP 92-3, the carrying amounts of foreclosed assets, all
of which are being held for sale, are being carried at the lower of cost or
fair value of the assets less estimated selling costs.
PENSION PLAN
It is the Company's policy to fund pension cost on a current basis to the
extent deductible under existing tax regulations. The Company's net periodic
pension cost is based on the provisions of Statement of Financial Accounting
Standards No. 87.
INCOME TAXES
During 1993, the Company changed its method of accounting for income taxes
to conform with the requirements of SFAS No. 109, "Accounting for Income
Taxes." The cumulative effect of the adoption of SFAS No. 109 as of January
1, 1993 was not material.
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
PER SHARE DATA
Data per share of common stock is computed using the weighted average number
of shares outstanding, adjusted for treasury stock.
TRUST ASSETS AND INCOME
Assets held by the Company in a fiduciary or agency capacity for its
customers are not included in the accompanying balance sheet since such
items are not assets of the Company. Trust Department income is reported on
a cash basis and is not materially different than if it were reported on the
accrual basis.
(Continued)
A-19
<PAGE>
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, interest-bearing balances in banks, and
federal funds sold. Generally, federal funds are purchased and sold for one-
day periods.
For purposes of reporting supplemental disclosure of cash flow information,
the Company transferred $92,039 and $241,840 of loans to assets acquired
through foreclosure in 1994 and 1993, respectively.
2. CASH AND DUE FROM BANKS:
The Company is required to maintain average reserve balances with the
Federal Reserve Bank based on a percentage of deposits. The average amounts
of those reserve balances for the years ended December 31, 1994 and 1993
were approximately $567,000 and $594,000, respectively.
Deposits with one financial institution are insured up to $100,000. The
Company maintains cash and cash equivalents with certain other financial
institutions in excess of the insured amount.
3. INVESTMENT SECURITIES:
The amortized cost and fair value of investment securities at December 31,
1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994
------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
Obligations of the U.S. Treasury.... $16,954 $ - $195 $16,759
Obligations of other U.S.
government corporations and
agencies.......................... 4,014 - 16 3,998
Obligations of state and
political subdivisions............ 2,808 39 42 2,805
Corporate debt obligations.......... 247 3 244
Mortgage-backed securities.......... 19,362 9 733 18,638
------- ---- ---- -------
Total debt securities.......... $43,385 $ 48 $989 $42,444
======= ==== ==== =======
Available-for-Sale
Securities:
Obligations of the U.S.
Treasury....................... $ 9,013 $132 $ 22 $ 9,123
Obligations of other U.S.
government corporations
and agencies................... 5,530 1 188 5,343
Corporate debt
securities........................ 1,223 17 24 1,216
------- ---- ---- -------
Total debt securities.......... 15,766 150 234 15,682
Bankers' acceptances................ 4,333 - - 4,333
Equity securities................... 992 56 - 1,048
------- ---- ---- -------
Total.......................... $21,091 $206 $234 $21,063
======= ==== ==== =======
</TABLE>
(Continued)
A-20
<PAGE>
<TABLE>
<CAPTION>
1993
-------------------------------------------
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Held-to-Maturity Securities:
Obligations of the U.S.
Treasury.............................. $11,609 $ 17 $ 3 $11,623
Obligations of other U.S.
government corporations
and agencies.......................... 2,815 32 - 2,847
Obligations of state and
political subdivisions................ 3,240 139 13 3,366
Corporate debt obligations.............. 5,424 11 3 5,432
Mortgage-backed securities.............. 983 60 1 1,042
------- ------ --- -------
Total debt securities.............. 24,071 259 20 24,310
Bankers' acceptances.................. 2,275 - - 2,275
------- ------ --- -------
Total........................... $26,346 $ 259 $20 $26,585
======= ====== === =======
Available-for-Sale
Securities:
Obligations of the U.S.
Treasury........................ $19,674 $1,123 $- $20,797
Obligations of other U.S.
government corporations
and agencies.................... 5,824 164 - 5,988
Corporate debt
securities...................... 5,318 169 - 5,487
------- ------ --- -------
Total debt securities........... 30,816 1,456 - 32,272
Equity securities.................. 797 45 - 842
------- ------ --- -------
Total........................... $31,613 $1,501 $- $33,114
======= ====== === =======
</TABLE>
There are no significant concentrations of investments (greater than 10
percent of shareholders' equity) in any individual security issuer other
than U.S. government securities.
Investment securities with a carrying value of approximately $18,272,000 and
$24,500,000 at December 31, 1994 and 1993, respectively, were pledged to
secure certain deposits and for other purposes as required by law.
The amortized cost and fair value of debt securities at December 31, 1994,
by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
(Continued)
A-21
<PAGE>
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------------------------------------------------------------------------
MATURING MATURING AFTER MATURING AFTER
WITHIN ONE BUT WITHIN FIVE BUT WITHIN MATURING AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------------- --------------- -------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
Securities:
Obligations of the
U.S. Treasury................... $14,454 4.39% $ 2,500 6.33% $ - -% $ - - % $16,954 5.36%
Obligations other U.S.
government agencies
and corporations................ 4,014 5.29 - - - - - - 4,014 5.29
Obligations of states and
political subdivisions.......... 737 5.47 1,202 6.41 769 5.25 100 9.88 2,808 6.48
Corporate debt securities........ - 247 6.00 247 6.00
Mortgage-backed securities....... 87 8.79 6,775 7.54 12,500 7.47 - - 19,362 7.50
------- ---- ------- ---- ------- ---- ---- ---- ------- ----
Total debt securities
at book value................... $19,292 5.99% $10,724 6.57% $13,269 6.36% $100 9.88% $43,385 6.13%
======= ==== ======= ==== ======= ==== ==== ==== ======= ====
Total debt securities
at fair value................... $19,138 $10,468 $12,725 $113 $42,444
======= ======= ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
IN THOUSANDS
---------------------------------------------------------------------------------------
MATURING MATURING AFTER MATURING AFTER
WITHIN ONE BUT WITHIN FIVE BUT WITHIN MATURING AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
---------------- --------------- -------------- --------------- ---------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
Securities:
Obligations of the
U.S. Treasury................... $4,009 5.23% $2,500 7.64% $2,504 8.57% $ - -% $ 9,013 6.65%
Obligations other
U.S. government agencies
and corporations................ 2,517 4.50 2,513 7.16 500 7.75 - - 5,530 6.69
Corporate debt securities........ 250 9.08 973 8.67 - - 1,223 8.75
------ ---- ------ ---- ------ ---- ---- ---- ------- ----
Total debt securities
at book value................... 6,776 6.27% 5,986 7.82% $3,004 8.16% $ - -% 15,766 7.36%
====== ==== ====== ==== ====== ==== ==== ==== ======= ====
Total debt securities
at fair value................... $6,708 $5,905 $3,069 $ - $15,682
====== ====== ====== ==== =======
</TABLE>
The unamortized premiums on mortgage-backed securities amounted to $103,228
and $2,632 as of December 31, 1994 and 1993, respectively. The unearned
discount on mortgage-backed securities amounted to $148,067 and $5,480 as of
December 31, 1994 and 1993, respectively.
Gross gains of $164,902 and gross losses of $28,194 were realized on
available-for-sale securities in 1994. Gross gains on the sale of
investments in debt securities of $60,678 and $68,649 were realized in 1993
and 1992, respectively. No losses were realized on the sale of investments
in debt securities in 1993 or 1992.
The Company has no derivative financial instruments requiring disclosure
under SFAS No. 119.
(Continued)
A-22
<PAGE>
4. LOANS:
Major classifications of loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1994 1993
<S> <C> <C>
Real estate loans........................................ $53,987 $51,998
Agricultural loans....................................... 4,352 3,673
Commercial and industrial................................ 9,378 12,583
Consumer................................................. 11,289 9,593
------- -------
Total............................................... 79,006 77,847
Less:
Unearned discount..................................... 1,357 1,282
Unamortized loan fees................................. 194 252
Allowance for possible loan losses.................... 875 932
------- -------
Loans, net............................................... $76,580 $75,381
======= =======
</TABLE>
The Company has no concentration of loans to borrowers engaged in similar
businesses or activities which exceed five percent of total assets at
December 31, 1994 or 1993 other than as disclosed above.
Loans on which the accrual of interest has been discontinued or reduced
amounted to $224,246 at December 31, 1994 and $185,080 at December 31, 1993.
If these loans had been current throughout their respective terms, the
interest income which would have been recorded would have approximated
$45,386 and $30,700 for the years ended December 31, 1994 and 1993,
respectively. Accruing loans which are contractually past due 90 days or
more as to principal or interest payments amounted to $586,297 at December
31, 1994 and $71,103 at December 31, 1993. There are no loans which are
considered troubled debt restructurings at December 31, 1994 and 1993. In
addition to nonaccrual loans, certain other loans have had terms altered or
value has been received which was less than the debt or the debt was
satisfied via legal proceedings. These altered loans were not significant in
amount in either 1994 or 1993.
The Company grants agribusiness, commercial, residential and consumer loans
to customers primarily in Bradford County, Pennsylvania and its contiguous
counties and the counties in the southern tier of New York. Although the
Company has a diversified loan portfolio, a substantial portion of its
debtors' ability to honor their contracts is dependent on the economic
sector in which the Company operates.
A-23 (Continued)
<PAGE>
Final loan maturities and rate sensitivity of the loan portfolio at December
31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
WITHIN ONE - AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Real estate loans................ $21,720 $ 8,366 $23,901 $53,987
Agricultural loans............... 3,204 608 540 4,352
Commercial and industrial........ 7,386 902 1,090 9,378
Consumer......................... 3,487 7,507 295 11,289
------- ------- ------- -------
Total....................... $35,797 $17,383 $25,826 $79,006
======= ======= ======= =======
Loans at fixed
interest rates................. $ 6,073 $15,467 $25,256 $46,796
Loans at variable
interest rates.................. 29,724 1,916 570 32,210
------- ------- ------- -------
Total....................... $35,797 $17,383 $25,826 $79,006
======= ======= ======= =======
</TABLE>
Transactions in the allowance for possible loan losses account are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Beginning balance................................. $932 $896 $850
Provision charged to operations................... - 58 102
Recovery of loans previously
charged off...................................... 8 16 29
---- ---- ----
940 970 981
Loans charged off................................. 65 38 85
---- ---- ----
Ending balance.................................... 875 $932 $896
==== ==== ====
</TABLE>
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," "SFAS 114" which must be
adopted by the Company by 1995. SFAS 114 applies to loans other than groups
of smaller-balance homogenous loans (generally consumer loans) that are
collectively evaluated for impairment. The standard requires that impairment
of such loans be measured generally based on the present value of expected
future principal and interest cash flows, discounted at the loan's effective
interest rate, and established as a valuation allowance related to those
impaired loans. Under SFAS 114, a loan is considered impaired when, based on
current information and events, it is probable that a creditor will be
unable to collect all amounts due. Presently credit losses on all loans are
accounted for though the allowance for credit losses, which is maintained at
a level adequate to absorb losses inherent in the portfolio. Implementation
of SFAS 114, effective January 1, 1995, will not have a material impact on
the allowance for credit losses.
A-24 (Continued)
<PAGE>
5. BANK PREMISES AND EQUIPMENT:
A summary of bank premises and equipment is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1994 1993
------ ------
<S> <C> <C>
Land......................................... $ 780 $ 623
Bank premises................................ 3,393 3,529
Furniture and equipment...................... 2,507 2,824
Construction-in-progress..................... 94 -
------ ------
6,774 6,976
Less accumulated depreciation................ 3,013 3,079
------ ------
TOTAL................................... $3,761 $3,897
====== ======
</TABLE>
Depreciation of bank premises and equipment amounted to $344,218 in 1994,
$349,110 in 1993, $365,658 in 1992.
6. DEPOSITS:
Included in interest-bearing deposits are certificates of deposit issued in
amounts of $100,000 or more. These certificates and their maturities at
December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1994 1993
------ ------
<S> <C> <C>
Three months or less........................ $4,206 $2,697
Three through six months.................... 1,688 5,125
Six through twelve months................... 347 223
Over twelve months.......................... 2,243 1,253
------ ------
TOTAL.................................. $8,484 $9,298
====== ======
</TABLE>
Interest related to time deposits of $100,000 or more was $511,046, $451,799
and $495,207 for the years ended December 31, 1994, 1993 and 1992,
respectively.
The Company paid interest on all deposits of $4,124,580 $4,460,398 and
$5,525,584 during 1994, 1993 and 1992, respectively.
7. BORROWED FUNDS:
Borrowed funds consists of nine fixed rate advances and a flexline from the
Federal Home Loan Bank of Pittsburgh. The terms of the fixed rate advances
range from 60 months to 120 months at fixed interest rates from 5.5.% to
7.2%. These advances are secured by the Company's Federal Home Loan Bank
Stock, U.S. government agency and mortgage-backed securities, U.S. Treasury
notes, and first mortgage loans under a collateral pledge and security
agreement.
The Company has a $14,457,200 flexline with the Federal Home Loan Bank of
Pittsburgh. At December 31, 1994, the Company has outstanding borrowings of
$8,773,700 on the flexline.
Interest paid on borrowed funds was $629,646 and $212,823 for the years
ended December 31, 1994 and 1993, respectively.
A-25 (Continued)
<PAGE>
8. STOCK OPTION PLANS:
On March 30, 1994, the Company adopted two nonqualified stock option plans
for the directors and certain employees. Options to purchase 25,350 shares
of the Company's common stock at $35 per share were granted. These options
may be exercised, in whole or in part, at any time, subject to the
limitation that no option shall be exercisable after the expiration of ten
years from the date the option is granted, and no option shall be
exercisable for less than 100 shares. During 1994, there were no options
exercised. The Company has reserved an additional 74,650 shares for the
granting of future options.
9. PENSION PLAN:
The Company has a noncontributory defined benefit pension plan (the "Plan")
for all employees meeting certain age and length of service requirements.
Benefits are based primarily on years of service and the average annual
compensation during the last five years of employment. The Company's funding
policy is consistent with the funding requirements of federal law and
regulations. Plan assets are comprised of Company stock with an approximate
market value of $57,000 and $55,000 at December 31, 1994 and 1993,
respectively, and certificates of deposit issued by The First National Bank
of Bradford County.
Net periodic pension cost includes the following components (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Service cost benefits earned
during the period............. $ 55 $ 55 $ 45
Interest cost on projected
benefit obligation............ 64 68 64
Return on plan assets........... (27) (34) (46)
Net amortization and deferral... 20 21 22
---- ---- ----
Net periodic pension cost....... $112 $110 $ 85
==== ==== ====
</TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the Company's financial statements (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------
1994 1993
---- ----
<S> <C> <C>
Actuarial present value of benefit
obligation:
Vested..................................... $(576) $(509)
Nonvested.................................. (14) (11)
----- -----
Accumulated benefit obligation............... (590) (520)
Effects of future compensation levels........ (401) (440)
----- -----
Projected benefit obligation ................ (991) (960)
Plan assets at fair value.................... 716 615
----- -----
Excess of projected benefit
obligation over plan assets.............. (275) (345)
Unrecognized transition loss................. 6 10
Unrecognized prior service cost.............. (30) 26
Unrecognized net loss........................ 304 323
----- -----
Prepaid pension cost................. $ 5 $ 14
===== =====
</TABLE>
A-26 (Continued)
<PAGE>
The projected benefit obligation was determined using an assumed discount
rate of 7.0% and 6.75% at December 31, 1994 and 1993, respectively. An
assumed long-term rate of compensation increase of 5.5% was used at December
31, 1994 and 1993 and an assumed long-term rate of return on Plan assets of
7.0% was used for the year ended December 31, 1994 and 1993.
Effective December 31, 1994, the Plan was amended to reflect certain limits
on plan compensation to comply with the Internal Revenue Code. The amendment
resulted in a reduction of the projected benefit obligation of approximately
$30,000 during the year ended December 31, 1994. The Plan amendment will be
amortized over 8 years, resulting in an unrecognized prior service cost of
approximately $30,000 at December 31, 1994.
10. INCOME TAXES:
The following temporary differences gave rise to the deferred tax asset
(liability) at December 31, 1994 and 1993 in thousands:
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses................ $ 186 $ 205
Loan fees and costs...................... 66 86
Net unrealized holding losses on
available-for-sale securities.......... 12 -
Depreciation............................. 14 16
Deferred compensation.................... 58 -
----- -----
Total............................... 336 307
----- -----
Deferred tax liabilities:
Bond accretion........................... 48 24
Pension.................................. 2 -
Net unrealized holding gains on
available-for-sale securities.......... - 509
----- -----
Total............................... 50 533
----- -----
Deferred tax asset (liability), net......... $ 286 $(226)
===== =====
</TABLE>
The deferred tax asset at December 31, 1994 is included in other assets and
the deferred tax liability at December 31, 1993 is included in other
liabilities.
The provision for income taxes is comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Currently payable...................... $522 $579 $511
Deferred............................... 9 (57) (28)
---- ---- ----
Total provision..................... $531 $522 $483
==== ==== ====
</TABLE>
A-27 (Continued)
<PAGE>
An analysis of the temporary differences which result in a deferred income
tax provision (benefit) and the tax effect of each is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Loan loss provision.................. $ 19 $(12) $(16)
Accretion............................ 25 (48) 11
Net loan origination fees............ 20 (4) (16)
Depreciation......................... 1 1 -
Deferred compensation................ (58) - -
Pension.............................. 2 - -
Foreclosed assets held of sale....... - 6 (7)
---- ---- ----
Total deferred income tax
provision (benefit)............... $ 9 $(57) $(28)
==== ==== ====
</TABLE>
The effective federal income tax rates for the years ended December 31, 1994,
1993 and 1992 were 25.0%, 24.9% and 24.7%, respectively. A reconciliation
between the expected statutory income tax rates and the effective income tax
rates on income before income taxes follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
------------- ------------ -------------
AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C>
Provision at
statutory rate.... $ 722 34.0% $ 710 34.0% $ 666 34.0%
Tax-exempt
income............ (222) (10.4) (191) (9.2) (209) (10.7)
Nondeductible
expenses.......... 38 1.8 19 .9 26 1.4
Other, net.......... (7) (.4) (16) (.8) - -
----- ----- ----- ---- ----- -----
Effective
income tax
and rates......... $ 531 25.0% $ 522 24.9% $ 483 24.7%
===== ===== ===== ==== ===== =====
</TABLE>
The Company made income tax payments of approximately $526,000, $600,000 and
$511,000 during 1994, 1993 and 1992, respectively.
A-28 (Continued)
<PAGE>
11. PARENT COMPANY:
The following is condensed financial information for National American
Bancorp, Inc.:
<TABLE>
<CAPTION>
BALANCE SHEET
-------------
(IN THOUSANDS)
DECEMBER 31
------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS:
Cash................................................. $ 173 $ 185
Investments in subsidiaries:
First National Bank of
Bradford County.................................. 14,381 14,393
National Security American Life
Insurance Company................................ 709 690
Investment securities, available-
for-sale......................................... 127 122
Land............................................... 145 145
------- -------
TOTAL ASSETS..................................... $15,535 $15,535
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Dividends declared not paid.......................... $ 149 $ 155
Other liabilities.................................... 14 13
Shareholders' equity................................. 15,372 15,367
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................................... $15,535 $15,535
======= =======
</TABLE>
STATEMENT OF INCOME
-------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31
------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
INCOME:
Dividends................................... $ 579 $ 386 $ 433
Other income................................ 8 5 4
------ ------ ------
Total income.............................. 587 391 437
------ ------ ------
EXPENSES:
Real estate taxes........................... 10 10 9
Other taxes................................. 3 4 3
------ ------ ------
Total expenses............................ 13 14 12
------ ------ ------
INCOME BEFORE EQUITY IN
UNDISTRIBUTED INCOME OF
SUBSIDIARIES................................ 574 377 425
EQUITY IN UNDISTRIBUTED INCOME
OF SUBSIDIARIES............................. 1,017 1,190 1,051
------ ------ ------
NET INCOME.................................... $1,591 $1,567 $1,476
====== ====== ======
</TABLE>
A-29 (Continued)
<PAGE>
STATEMENT OF CASH FLOWS
-----------------------
<TABLE>
<CAPTION>
(IN THOUSANDS)
FOR YEARS ENDED DECEMBER 31
-----------------------------
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 1,591 $ 1,567 $ 1,476
Adjustments to reconcile net income to
net cash used in operating activities:
Equity in undistributed income
of subsidiaries........................... (1,017) (1,190) (1,051)
------- ------- -------
Net cash provided by
operating activities.................... 574 377 425
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of treasury stock........ - 168 71
Dividends paid.............................. (586) (521) (492)
------- ------- -------
Net cash used in financing
activities.............................. (586) (353) (421)
------- ------- -------
INCREASE (DECREASE) IN CASH................... (12) 24 4
CASH, BEGINNING OF YEAR....................... 185 161 157
------- ------- -------
CASH, END OF YEAR............................. $ 173 $ 185 $ 161
======= ======= =======
</TABLE>
12. LOANS TO DIRECTORS AND EXECUTIVE OFFICERS:
Loans are made to officers and directors, and companies in which they have
10 percent or more beneficial interest. All such loans were made in the
ordinary course of business, and were substantially on the same terms and at
those rates prevailing at the time for comparable transactions with others.
A summary of loan activity with officers and directors and associates of
such persons is listed below (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Balances, beginning of year......... $ 3,933 $ 4,469 $ 4,344
Advances............................ 3,000 4,774 3,711
Payments and other reductions....... (2,057) (5,310) (3,586)
------- ------- -------
Balances, end of year............... $ 4,876 $ 3,933 $ 4,469
======= ======= =======
</TABLE>
Other reductions of loans made to officers and directors arise from
separation of employment or discontinuance of membership of the board of
directors.
A-30 (Continued)
<PAGE>
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. Those instruments involve to varying degrees
elements of credit, interest rate or liquidity risk in excess of the amount
recognized in the consolidated balance sheet. The contract or notional
amounts of those instruments express the extent of involvement the Company
has in particular classes of financial instruments.
Company exposure to credit loss from nonperformance by the other party to
the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with off-balance-sheet credit
risk.
<TABLE>
<CAPTION>
CONTRACT OR
NOTIONAL AMOUNT
DECEMBER 31,
1994 1993
---- ----
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit.......... $3,356,193 $3,364,000
Standby letters of credit............. $ 420,875 $ 2,500
</TABLE>
Commitments to extend credit are legally binding agreements to lend to
customers. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of fees. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future liquidity
requirements. The Company evaluates each customer's credit-worthiness on a
case-by-case basis. The amount of collateral obtained if deemed necessary by
the Company on extension of credit is based on management's credit
assessment of the counterparty.
Standby letters of credit are conditional commitments issued by the Company
guaranteeing performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
14. REGULATORY RESTRICTIONS:
Various regulatory agencies require banks and bank holding companies to
maintain a leverage ratio of core capital to total assets at a prescribed
level, currently 3 percent. In addition, bank regulators have issued risk-
based capital guidelines. Under such guidelines, minimum ratios of core
capital and total qualifying capital as a percentage of risk-weighted assets
and certain off-balance sheet items of 8 percent and 4 percent,
respectively, are required at December 31, 1994.
At December 31, 1994 the Bank met all capital requirements. Core capital was
$14,436,870 or 9.3 percent of total assets and 21.0 percent of total risk-
weighted assets, while total qualifying capital was $15,306,547 or 22.0
percent of total risk-weighted assets. The Company's ratios are not
materially different than those of the Bank.
(Continued)
A-31
<PAGE>
The Company may not pay dividends in any year in excess of the total of the
current year's net income and the retained net income of the prior two years
without the approval of the Federal Reserve Bank. Accordingly, Company
dividends in 1995 may not exceed $2,045,519 plus Company net income for
1995. Additionally, similar banking regulations limit the amount of
dividends that may be paid to the Company by the Bank without prior approval
of the Bank's regulatory agency.
15. FINANCIAL INSTRUMENT DISCLOSURES:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," will
be implemented by the Company in 1995. SFAS No. 107 requires the disclosure
of the fair value of financial instruments, both assets and liabilities,
recognized and not recognized in the balance sheet, for which it is
practicable to estimate fair value.
(Concluded)
A-32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE SUMMARY OF OPERATIONS
National American Bancorp, Inc. (the Company) is a one-bank holding company
incorporated under the laws of the Commonwealth of Pennsylvania in 1984. The
Company provides financial services through its wholly-owned subsidiary, The
First National Bank of Bradford County (the Bank). The Bank has 10 offices and 6
MAC (Money Access Center) sites in Bradford County. In 1986 the Company formed
National Security American Life Insurance Company to provide life, accident and
health insurance for loans written by The First National Bank of Bradford
County.
The Company's assets increased by $6,728,195 or 4.5% in 1994 versus 1993. Loans
increased by 1.6% to $76,579,717 in 1994 over 1993. Tax free loans decreased by
$3,042,774 while mortgage and consumer loans increased by $4,244,583. Investment
securities increased by $4,987,758 or 8.4% to $64,447,904. Deposits decreased by
$1,991,157 or 1.6% in 1994 versus 1993. Savings and interest-bearing demand
deposits decreased by 10.3% to $44,463,645 while noninterest-bearing demand
deposits increased by 9.7% to $16,072,342 and time deposits increased by 2.8% to
$63,423,152. Shareholders' equity increased by $4,902 to $15,371,821 in 1994
over 1993, and primary capital was $16,247,308 on December 31, 1994 or 10.45% of
total assets. Shareholders' equity on December 31, 1994 included $15,515 of
unrealized holding losses on investment securities versus $991,818 of unrealized
holding gains on investment securities included in Shareholders' equity on
December 31, 1993. Shareholders' equity, excluding the unrealized holding
gains/losses on investment securities account, increased by 7.0% in 1994 over
1993.
The Company has no preliminary merger negotiations at this time.
The consolidated earnings of the Company are derived primarily from the
activities of the Bank. The economy in the Bank's service area is stable and is
expected to remain stable considering the current national economic forecast.
The service area has a diversified employer base to support the local economy.
The mixed employer base is a positive factor on the Bank's customers and future.
The Bank is reviewing the cost of constructing a new branch office for its North
Towanda Branch. The new branch will facilitate the customer needs for that
location which have outgrown the current facility.
The following discussion and analysis of the Company's results of operations for
the years 1994, 1993, and 1992 addresses the significant changes in the
principal sources of earnings and expenses. This review should be read in
conjunction with the information provided in the Consolidated Financial
Statements and accompanying Notes to Consolidated Financial Statements.
NET INCOME
Net income for 1994 was $1,592,200, an increase of $24,998, or 1.6% versus 1993.
In 1993 net income increased $91,552 or 16.2% over 1992. On a per-share basis,
net income for 1994 was $2.88, 1993 was $2.85 and 1992 was $2.70. The following
table presents the amount and percent of increase (decrease) for the major
components of net income for the years under review.
A-33
<PAGE>
<TABLE>
<CAPTION>
Increase (Decrease)
1994 vs. 1993 1993 vs. 1992
------------------ -------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Interest income................... $299,787 3.0 $(704,003) (6.6)
Interest expense.................. 142,965 3.1 (784,509) (14.4)
-------- ---------
Net interest income............... 156,822 2.9 80,506 1.5
Provision for loan losses......... (58,000) (100.0) (44,000) (43.1)
Net interest income after
provision for loan losses....... 214,822 4.0 124,506 2.4
Other operating income............ 14,952 1.9 31,994 4.2
Other operating expense........... 195,776 4.9 25,948 0.6
-------- ---------
Income before income taxes........ 33,998 1.6 130,552 6.7
Provision for income taxes........ 9,000 1.7 39,000 8.1
-------- ---------
Net Income........................ $ 24,998 1.6 $ 91,552 6.2
======== =========
</TABLE>
INTEREST INCOME
The level of interest income is determined by the volume, mix and yield of the
average earning assets managed during the year. The major components of earning
assets are loans, investment securities and bankers' acceptances.
The average daily balance of earning assets in 1994 was $140,939,719, an
increase of $8,645,271 over 1993 or 6.5%. In 1993 the average daily balance of
earning assets was $132,294,448, an increase of $6,460,072 over 1992 or 5.1%.
In 1994 interest and fees on loans increased $146,309 or 2.2% versus 1993. The
increase was a result of an increase in the average loan balance outstanding for
the year. In 1994 loans averaged $77,166,799 and had a yield of 8.78%. In 1993
loans averaged $74,071,175 and had a yield of 8.95%. In 1993 interest and fees
on loans decreased $185,689 or 2.7% versus 1992. This decrease was a result of a
decrease in the yield. In 1992 loans averaged $70,341,354 and had a yield of
9.69%. Investment income, including Federal Funds Sold income, for 1994
increased $153,478 or 4.5% versus 1993. The increase was caused by an increase
in the average balance. In 1994 investments averaged $63,772,921 and had a yield
of 5.60%. In 1993 investments averaged $59,103,994 and had a yield of 5.78%.
Investment income for 1993 decreased $518,314 or 13.4% versus 1992. The decrease
was a result of a decrease in the yield. In 1992 investments averaged
$55,493,022 and had a yield of 7.09%.
An analysis of the changes in interest income follows:
<TABLE>
<CAPITON>
Increase (Decrease)
1994 vs. 1993 1993 vs. 1992
--------------------- ---------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Interest and fees on loans........ $ 146,309 2.2 $(185,689) (2.7)
Interest and dividends on
investment securities:
U.S. Government................. 545,386 24.8 (305,695) (12.2)
Municipals...................... (99,840) (36.2) (75,843) (21.6)
Interest on federal funds
sold............................ (40,942) (79.4) (63,783) (55.3)
Interest on other
investments..................... (251,126) (28.1) (72,993) (7.6)
--------- ---------
TOTAL..................... $ 299,787 3.0 $(704,003) (6.6)
========= ==========
</TABLE>
A-34
<PAGE>
OTHER OPERATING INCOME
In 1994 other operating income (which includes all noninterest income) increased
$14,952 or 1.9% versus 1993. Trust income decreased $63,963 or 66.4%, securities
gains increased $76,030 or 125.3%, service charge on deposit accounts decreased
$10,701 or 3.0% and other income increased $13,586 or 4.8%. The large decrease
in trust income was the result of the high value and number of new and closed
trust accounts during 1993. In 1993 other operating income increased $31,994 or
4.2% versus 1992. Trust income increased $59,871 or 164.0%, service charge on
deposit accounts decreased $13,319 or 3.6%, securities gains decreased $7,971 or
11.6% and other income decreased $6,587 or 2.3%. The reason for the increase in
trust income is explained above. Security transactions (gains or losses) are the
result of a continuing evaluation of the investment portfolio by management to
match the assets of the investment portfolio with corresponding interest-bearing
liabilities and to improve yields.
INTEREST EXPENSE
Interest expense in 1994 increased $142,965 or 3.1% over 1993. This was due to
the increase in the average balance of interest-bearing deposits and
liabilities. In 1994 interest-bearing deposits and liabilities had an average
balance of $119,765,710 and an average rate of 4.0% versus 1993 which had an
average balance of $114,326,142 and an average rate of 4.1%. In 1993 interest
expense decreased $784,509 or 14.4% versus 1992. This was due to a decrease of
.8% in the average rate. In 1992 interest-bearing deposits and liabilities had
an average balance of $110,105,751 and an average rate of 4.9%.
An analysis of the change in interest expense follows:
<TABLE>
<CAPTION>
Increase (Decrease)
1994 vs. 1993 1993 vs. 1992
--------------------- ----------------------
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Savings........................... $ (32,231) (5.1) $(148,924) (18.9)
Interest-bearing demand
deposits........................ (101,240) (17.6) (174,276) (23.2)
Time deposits..................... (140,386) (4.4) (668,268) (17.2)
Other interest.................... 416,822 195.9 206,959 3,529.1
--------- ---------
TOTAL................... $ 142,965 3.1 $(784,509) (14.4)
========= =========
</TABLE>
OTHER OPERATING EXPENSE
Other operating expense increased $195,776 or 4.9% in 1994 versus 1993. Salaries
and employee benefits decreased $20,811 or 1.1%. Occupancy expense increased
$11,505 or 4.5% and furniture and fixtures expense increased $18,836 or 5.0%.
All other expenses increased $186,246 or 12.6%. This increase was due to
increased insurance cost, increased examination and audit expense and increased
reserve expense and paid claims in the Insurance Company. In 1993 other
operating expense increased $25,948 or .6% versus 1992. Salaries and employee
benefits increased $42,205 or 2.2%. Occupancy expense increased $4,097 or 1.6%
and furniture and fixture expense decreased $19,426 or 4.9%. All other expenses
decreased $928 or .1%.
PROVISION FOR INCOME TAXES
The increase in the provision for incomes taxes in 1994 of $9,000 versus 1993 is
the result of the increase in income before taxes. The increase in the provision
for income taxes in 1993 of $39,000 versus 1992 is also the result of the
increase in income before taxes.
A-35
<PAGE>
ASSETS ACQUIRED THROUGH FORECLOSURE
On December 31, 1993 the Bank held one property in Assets Acquired Through
Foreclosure, which was acquired in satisfaction of a loan. This property is
carried on the Bank's balance sheet at the lower of cost or fair market value.
This property is for sale and is annually reappraised to ensure that the value
carried on the books is not overstated. Management does not foresee any material
impact on future results or operations because of this property.
RATE SENSITIVITY
Rate sensitive balances are defined as those balances that mature or can be
repriced within one year. The object of interest rate sensitivity management is
to control interest rate risk, which is the change in net interest income which
may result from volatility in market interest rates. Interest rate risk is
measured by the gap position, the difference between interest-sensitive assets
and interest-sensitive liabilities. A positive gap, when interest-sensitive
assets exceed interest-sensitive liabilities, is generally favorable when market
interest rates are rising while a negative gap position, when interest-sensitive
liabilities exceed interest-sensitive assets is normally advantageous when
interest rates are declining.
As of December 1994, rate sensitive assets constituted 49.7% of total assets as
compared to 59.6% at December 31, 1993. During the same period, rate sensitive
liabilities increased from 50.4% in 1993 to 54.4% in 1994.
Management recognizes the need for financial planning and control in this area
as a part of asset and liability management. Policies have been established and
are continually reviewed by management to establish patterns of rate sensitivity
that will promote asset growth and increased earnings. Management uses its rate
sensitivity analysis to keep the Bank in a position that will allow it to adjust
the interest rates on its rate sensitive assets and liabilities to improve net
interest income. The following is an analysis of the Company's rate sensitivity:
A-36
<PAGE>
INTEREST RATE SENSITIVITY TABLE
December 31, 1994
In Thousands
<TABLE>
<CAPTION>
Noninterest-
Earning/
After Bearing
One Year Assets/
Within But Within After Liabilities
One Year* Five* Five Years* & Equity Total
<S> <C> <C> <C> <C> <C>
ASSETS:
Interest-bearing securities..... $ 794 $ $ $ $ 794
Investment securities........... 30,334 16,629 17,485 64,448
Loans........................... 46,090 19,787 10,703 76,580
Other assets.................... 13,611 13,611
------- ------- ------- ------- --------
Total Assets................. $77,218 $36,416 $28,188 $13,611 $155,433
======= ======= ======= ======= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY:
Interest-bearing deposits....... $75,749 $32,134 $ 4 $ $107,887
Demand deposits................. 16,072 16,072
Borrowings...................... 8,774 1,000 5,500 15,274
Other Liabilities............... 828 828
Shareholders' equity............ 15,372 15,372
------- ------- ------- ------- --------
Total liabilities and
shareholders' equity....... $84,523 $33,134 $ 5,504 $32,272 $155,433
======= ======= ======= ======= ========
INTEREST RATE
SENSITIVITY GAP................. $(7,305) $ 3,282 $22,684
======= ======= =======
</TABLE>
*The time periods refer to when interest rate changes or when the asset or
liability can be repriced, not the maturity date.
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Percent of total:
Rate sensitive assets............................ 49.7% 59.6%
Fixed rate assets................................ 50.3% 40.4%
Rate sensitive liabilities....................... 54.4% 50.4%
Fixed rate liabilities........................... 45.6% 49.6%
Ratio of rate sensitive assets
to rate sensitive liabilities.................... .91 1.18
Other ratios:
Return on average assets......................... 1.05% 1.10%
Return on average equity......................... 10.41% 11.30%
Dividend payout ratio............................ 36.43% 34.07%
Average equity to average assets ratio........... 10.12% 9.72%
</TABLE>
LIQUIDITY
The objectives of the liquidity management policy are to meet the cash flow
requirements of customers, to meet the Company's financial commitments and to
take advantage of market opportunities as they arise. Funding requirements
include loan origination, investments, depositor withdrawals and expense
disbursements.
A-37
<PAGE>
The Company's primary source of liquidity is deposits, other sources include
scheduled asset maturities, borrowed funds, shareholders' equity and the
investment portfolio.
The Company's long term liquidity needs are fulfilled with core deposits. Short
term liquidity needs are fulfilled by borrowing funds or selling investments.
At December 31, 1994, investment securities due within one year were 47.0% of
the total investment portfolio. Investment securities due within one year on
December 31, 1993 were 59.6% of the total investment portfolio. The maturity
distribution of the investment portfolio is given below (in thousands):
<TABLE>
<CAPTION>
1994 1993
Amount Percent Amount Percent
<S> <C> <C> <C> <C>
Maturities
Within one year............... $30,334 47.0% $35,439 59.6%
After one year but
within 5 years............. 16,629 25.8 16,108 27.1
After 5 years but within
10 years..................... 16,338 25.4 7,174 12.1
After 10 years............... 1,147 1.8 739 1.2
------- ----- ------- -----
TOTAL..................... $64,448 100.0% $59,460 100.0%
======= ===== ======= =====
</TABLE>
ASSET QUALITY ANALYSIS
The Company does not participate in high yield financing or non-investment grade
loans and investments.
The adequacy of the allowance for loan losses takes into consideration factors
including historical and anticipated loan loss expense, thorough analysis of
delinquent or non-performing loans, anticipated economic conditions, and review
of the loan portfolio by management.
Losses on loans to consumers, both installment and revolving credit, may be
reasonably predicted. This class of loans has historically generated small
losses due to the diversity of the loans and very active counseling efforts.
Real estate loans, primarily secured by mortgages on single family homes, have a
low loss potential due to diversity and managed collateral.
Commercial loans have the highest degree of economic risks. We analyze the
financial position of all commercial loan customers on a regular basis to insure
that any economic downturn in the general economy or in their business has not
adversely effected their ability to meet the terms of their loans. The Bank
performs a quarterly analysis of the adequacy of the allowance for loan losses.
In 1992 the Bank retained a consulting firm that specializes in the review of
loan portfolios for financial institutions. The review included determining the
adequacy of the allowance for loan loss and the overall quality of the loan
portfolio. The consulting firm's 1994 review concluded that the overall quality
of the portfolio and the adequacy of the allowance for loan losses were within
acceptable industry standards. It is the Bank's intention to continue with an
external review of the loan portfolio annually.
At December 31, 1994, the Bank had no undue concern about the eventual
collectability of loans that were performing according to terms at that date.
Through its internal credit review program, and with the assistance of the
annual independent, external loan review, potential risks are identified and
monitored, and appropriate action is taken. The Bank strives to mitigate future
concern through the proper analysis/assessment of loan originations and the
proper evaluation of collateral offered or required.
A-38
<PAGE>
Taking into consideration this loan policy, management does not foresee any
significant change in the Bank's excellent historical loan loss record as a
percent of average loans.
At December 31, 1994 and 1993, accruing loans which are contractually past due
90 days or more due to principal and interest payments amounted to $586,297 and
$71,103, respectively.
At year end loan loss allowance was $875,487, which is 1.13% of net loans and
1.20% of risk loans. Risk loans exclude those loans guaranteed by government
agencies and those secured by deposits. This allowance is deemed adequate when
compared to the loss record.
Although the Bank's credit extensions are primarily centered in its market area
and its loan portfolio is diversified, a substantial portion of its debtors'
ability to honor their contracts is dependent on the economic sector in which it
operates.
<TABLE>
<CAPTION>
Reconciliation and Analysis of the Allowance for Loan Losses
1994 1993 1992
<S> <C> <C> <C>
Allowance at beginning of year................ $932,328 $896,092 $850,160
Provision for loan losses..................... - 58,000 102,000
Losses charged off:
Commercial.................................. - - -
Agricultural................................ - - -
Real Estate................................. 47,039 16,436 29,046
Consumer.................................... 18,075 21,649 56,150
-------- -------- --------
Total losses charged off...................... 65,114 38,085 85,196
Recoveries of losses previously charged off:
Commercial.................................. - - -
Agricultural................................ - - -
Real Estate................................. - 2,329 11,574
Consumer.................................... 8,273 13,992 17,554
-------- -------- --------
Total recoveries.............................. 8,273 16,321 29,128
Net losses charged off........................ 56,841 21,764 56,068
-------- -------- --------
Allowance at end of year...................... $875,487 $932,328 $896,092
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Outstanding Loans
1994 1993 1992
<S> <C> <C> <C>
Loans net of unearned discount and
unamortized fees, at year end............... $77,455,204 $76,313,186 $71,652,898
Average net loans............................. $77,166,799 $74,071,175 $70,341,354
Risk loans, at year end....................... $72,891,333 $72,460,911 $67,211,063
Ratios:
Allowance / net loans at year end........... 1.13% 1.22% 1.25%
Net loans charged off average loans......... .07% .03% .08%
Allowance / risk loans / at year end........ 1.20% 1.29% 1.33%
</TABLE>
CAPITAL ADEQUACY
A strong capital position is a positive force in maintaining the confidence of
our customers and shareholders. If capital accounts were to fall below a minimum
level of total assets and asset quality was weakened, the ability to withstand a
major loss could be significantly impaired. Regulatory capital requirements have
minimum ratios of core capital of 4 percent and total qualifying capital of 8
percent of
A-39
<PAGE>
risk-weighted assets and certain off-balance sheet items for the Bank. At
December 31, 1994 core capital was 9.4% of total assets and total qualifying
capital was 22.0% of total risk-weighted assets. This strong capital position
will allow the Bank to plan for continued growth and expansion.
The only capital expenditures planned at this time relate to normal plant and
equipment items which will not have any material effect on the Company's current
capital ratios.
The Board of Directors and Management look forward to the challenges of 1995
with enthusiasm and an optimistic outlook for continued growth and
profitability.
Regulatory authorities have issued guidelines for assessing the capital adequacy
of a well-managed bank holding company. Prior to 1990 the minimum capital ratio
guideline was 5.5% of primary capital to total assets for Community Bank Holding
Companies such as National American Bancorp, Inc. The Company's primary capital
ratios for 1994, 1993 and 1992 were 10.45%, 10.96% and 10.07%, respectively. In
1990 new guidelines were established, which require banks and bank holding
companies to maintain a leverage ratio of core capital to total assets of 3
percent for 1991. Under the new guidelines banks must maintain minimum ratios of
core capital and total qualifying capital at 4 percent and 8 percent of risk-
weighted assets and certain off-balance sheet items, respectively. At December
31, 1994, the Bank's core capital was $14,436,869, total qualifying capital was
$15,306,547, total assets were $154,139,473 and total risk-weighted assets were
$69,574,150. Core capital was 9.4% of total assets and 20.8% of total risk-
weighted assets. Total qualifying capital was 22.0% of total risk-weighted
assets. At December 31, 1993, the Bank's core capital was $13,432,263, total
qualifying capital was $14,364,591, total assets were $147,399,855, and total
risk-weighted assets were $81,606,582. Core capital was 9.0% of totals assets
and 16.5% of total risk-weighted assets. Total qualifying capital was 17.6% of
total risk-weighted assets. At December 31, 1992, the Bank's core capital was
$12,284,329, total qualifying capital was $13,180,421, total assets were
$138,545,883, and total risk-weighted assets were $81,014,220. Core capital was
8.9% of total assets and 15.2% of total risk-weighted assets. Total qualifying
capital was 16.3% of total risk-weighted assets.
The following chart shows the Company's capital as a percent of total assets:
<TABLE>
<CAPTION>
1994 1993 1992
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Core capital...... $ 15,371,821 9.89% $ 15,366,919 10.33% $ 13,173,517 9.43%
Primary capital... $ 16,247,308 10.45% $ 16,299,248 10.96% $ 14,069,609 10.07%
Total assets...... $155,432,999 $148,704,804 $139,752,465
</TABLE>
A-40
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
DIRECTORS
DONALD E. ADAMS JOHN F. LANGAN
Retired, Overhead Door Co. Retired, Pharmacist
JOSEPH W. CUMMINGS DAVID S. PACKARD
Retired, Cummings Well President & CEO, National
Drilling American Bancorp, Inc. &
HENRY C. DUNN First National Bank of
President, Henry Dunn, Inc. Bradford County
Insurance/Real Estate H. LLOYD STREBY
JOHN J. GRIFFIN Retired, Supervisor GTE
President, Griffin, Dawsey Sylvania
& DePaola, P.C., Attorneys
at Law
OFFICERS
DAVID S. PACKARD..................................................... President
DONALD R. BRENNAN................................... Vice President & Treasurer
JAMES E. PARKS.................................................. Vice President
EDWARD F. EARLEY................................................ Vice President
JOHN F. LANGAN....................................................... Secretary
THE FIRST NATIONAL BANK OF BRADFORD COUNTY
DIRECTORS
DONALD E. ADAMS JOHN F. LANGAN
Retired, Overhead Door Co. Retired, Pharmacist
JOSEPH W. CUMMINGS WALTER E. NEWTON, JR.
Retired, Cummings Well Partner, Formula 1
Drilling Feeds, Inc.
HENRY C. DUNN DAVID S. PACKARD
President, Henry Dunn, Inc. President & CEO, National
Insurance/Real Estate American Bancorp, Inc. &
ROBERT L. FERRARIO First National Bank of
Owner, Ferrario Chevrolet, Bradford County
Inc. H. LLOYD STREBY
JOHN J. GRIFFIN Retired, Supervisor, GTE
President, Griffin, Dawsey Sylvania
& DePaola, P.C., Attorneys THOMAS C. THOMPSON, JR.
at Law Owner, Thomas C. Thompson
GERARD J. JANNONE CPA, Accounting Firm
Owner, Camp Ballibay, Inc.
R. JOSEPH LANDY
Partner, Landy & Landy
Attorneys at Law
DIRECTORS EMERITUS
NICHOLAS P. CHACONA JAMES E. MEREDITH DONALD REUTER
L. LANG DAYTON JAMES E. NICHOLS LEE R. SIMONS
OFFICERS
DAVID S. PACKARD..................................................... President
DONALD R. BRENNAN .................................... Vice President & Cashier
JAMES E. PARKS ................ Vice President, Branch Administration/Marketing
EDWARD F. EARLEY........................... Vice President, Loan Administration
A-41
<PAGE>
ACCOUNTING
HAROLD R. GRIMM....................................... Assistant Vice President
LOU ANN MCGUIRE.............................................. Assistant Cashier
BRANCHES - OPERATIONS
VALERIE W. KINNEY..... Assistant Vice President Branch Administration/Marketing
SHARON A. WILSON............................................ Compliance Officer
CINDY E. YANUZZI.......................................... Branch Administrator
LISA L. BROWN............................................. Branch Administrator
CONNIE R. BENTLEY............................................... Office Manager
KATHY L. BLEMLE................................................. Office Manager
M. SUE BRUMBAUGH.................................... Office Manager/CRA Officer
PHYLLIS H. FINCH................................................ Office Manager
ANNE J. HARKNESS................................................ Office Manager
SHEILA A. HOWARD................................................ Office Manager
MELANIE L. KELLOGG.............................................. Office Manager
DIANE M. SHAFFER................................................ Office Manager
ANITA J. THOMAS................................................. Office Manager
PATRICIA L. WILCOX.............................................. Office Manager
CORPORATE HEADQUARTERS
CONNIE B. WILLIAMS...................................... Administrative Officer
DATA PROCESSING
JOHN H. ENGLE......................... Assistant Vice President Data Processing
RANDY L. HICKOX.......................................... Assistant Cashier-EDP
LOAN DEPARTMENT
JAMES H. NICHOLS.......................................... Vice President Loans
JOSEPH J. GRILLY................................ Assistant Vice President Loans
JAMES A. BERRY.................................. Assistant Vice President Loans
E. RAE PARKS.................................... Assistant Vice President Loans
DANIEL K. ROOF........................................... Consumer Loan Officer
JOHN E. DALY, JR......................................... Consumer Loan Officer
KAREN O. GLOSENGER....................................... Mortgage Loan Officer
TRUST DEPARTMENT
MARY E. THOMAS................................................... Trust Officer
NATIONAL SECURITY AMERICAN LIFE INSURANCE COMPANY
DIRECTORS
DONALD E. ADAMS JOHN F. LANGAN
Retired, Overhead Door Co. Retired, Pharmacist
HENRY C. DUNN DAVID S. PACKARD
President, Henry Dunn, Inc. President & CEO, National
Insurance/Real Estate American Bancorp, Inc. &
JOHN J. GRIFFIN First National Bank of
President, Griffin, Dawsey Bradford County
& DePaola, P.C., Attorneys
at Law
OFFICERS
DAVID S. PACKARD..................................................... President
JAMES E. PARKS.................................................. Vice President
EDWARD F. EARLEY................................................ Vice President
DONALD R. BRENNAN.......................................... Secretary/Treasurer
A-42
<PAGE>
ANNEX IV
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
---------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended: June 30, 1995
No. 2-91041
-----------
(Commission File Number)
NATIONAL AMERICAN BANCORP, INC.
-------------------------------
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2296986
------------ ----------
(State of Incorporation) (IRS Employer ID Number)
312 MAIN ST., TOWANDA, PA 18848
------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(717) 265-6191
--------------
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
---
Number of Shares Outstanding as of June 30, 1995
CAPITAL STOCK-COMMON 577,970
-------------------- -------
(Title of Class) (Outstanding Shares)
A-43
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information
Item 1 - Financial Statements
CONSOLIDATED STATEMENT OF CONDITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS: 06/30/95 12/31/94
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks.......................... $ 5,973,004.24 $ 8,012,242.14
Interest-bearing balances in banks............... 806,282.21 794,446.12
Federal funds sold............................... 1,450,000.00 0.00
--------------- ---------------
TOTAL............................................ 8,229,286.45 8,806,688.26
Investment securities, held-to-maturity
(estimated market value of $42,060,992
and $42,444,117 on June 30, 1995 and
December 31, 1994, respectively)................. 41,588,935.58 43,384,659.83
Investment securities, available-for-sale.......... 22,983,688.92 21,063,244.08
Loans, Total....................................... 76,552,288.08 78,812,227.24
Less: Unearned Income........................... 1,367,636.84 1,357,022.92
Less: Reserve for possible Loan Loss............ 875,667.27 875,486.97
--------------- ---------------
Loans, Net....................................... 74,308,983.97 76,579,717.35
Bank premises and equipment........................ 3,677,664.98 3,761,300.64
Other real estate.................................. 23,000.00 33,427.14
Accrued interest receivable........................ 1,376,018.97 1,245,428.93
Other assets....................................... 485,569.99 558,533.04
--------------- ---------------
TOTAL............................................ $152,673,148.86 $155,432,999.27
=============== ===============
LIABILITIES:
Noninterest-bearing demand deposits................ $ 17,024,468.10 $ 16,072,341.82
Interest-bearing demand deposits................... 19,003,059.51 20,063,410.17
Savings deposits................................... 22,240,341.51 24,400,234.47
Time deposits...................................... 68,117,967.44 63,423,152.46
--------------- ---------------
Total deposits................................... 126,385,836.56 123,959,138.92
Borrowed Funds, long term.......................... 6,500,000.00 6,500,000.00
Borrowed Funds, short term......................... 1,000,000.00 8,773,700.00
Accrued interest payable........................... 302,275.42 258,315.10
Other liabilities.................................. 1,227,193.53 570,024.39
Total Liabilities................................ 135,415,305.51 140,061,178.41
--------------- ---------------
SHAREHOLDERS' EQUITY
Common stock, par value $5.00 per share
1,000,000 shares authorized, 555,970
issued and outstanding, of which 3,623
shares are in the treasury on 06/30/95............. 2,889,850.00 2,779,850.00
Surplus............................................ 696,882.00 23,132.00
Retained earnings.................................. 13,307,985.15 12,700,290.44
Unrealized gains/(losses) on securities............ 479,062.20 (15,515.58)
Less Treasury stock at cost........................ (115,936.00) (115,936.00)
--------------- ---------------
Total shareholders' equity....................... 17,257,843.35 15,371,820.86
--------------- ---------------
TOTAL............................................ $152,673,148.86 $155,432,999.27
=============== ===============
</TABLE>
A-44
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information (con't)
Item 1 - Financial Statements (con't)
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
06/30/95 06 /30/94
ASSETS:
<S> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans..................... $1,846,811.09 $1,723,666.30
Investment Income.............................. 1,196,445.41 788,719.64
Interest on Federal Funds Sold................. 5,056.92 2,036.03
------------- -------------
Total Interest Income........................ 3,048,313.42 2,514,421.97
INTEREST EXPENSE:
Interest on Deposits........................... 1,235,010.42 1,029,439.74
Other Interest Expense......................... 210,520.91 113,523.76
------------- -------------
Total Interest Expense....................... 1,445,531.33 1,142,963.50
NET INTEREST INCOME............................... 1,602,782.09 1,371,458.47
PROVISION FOR LOAN LOSSES......................... 15,000.00 0.00
------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES....................... 1,587,782.09 1,371,458.47
OTHER OPERATING INCOME:
Trust Department Income......................... 1,890.95 107.78
Service Charges on Deposit Accounts............ 75,222.20 88,107.50
Other Income................................... 68,039.30 67,595.94
Securities Gains (Losses)...................... 0.00 0.00
------------- -------------
Total Other Operating Income................. 145,152.45 155,811.22
OTHER OPERATING EXPENSES:
Salaries and Employee Benefits................. 473,916.13 477,662.77
Occupancy Expense (net)........................ 59,169.02 60,639.86
Furniture and Equipment Expense................ 93,084.04 97,507.80
Other Expense.................................. 412,468.84 409,798.80
------------- ------------
Total Other Operating Expense................ 1,038,638.03 1,045,609.23
INCOME BEFORE INCOME TAXES:....................... 694,296.51 481,660.46
Provision for Income Taxes..................... 214,000.00 103,000.00
------------- -------------
NET INCOME:....................................... $ 480,296.51 $ 378,660.46
============= =============
EARNINGS PER SHARE:
Net Income...................................... $ 0.85 $ 0.69
============= =============
Average Common Shares Outstanding............... 564,567 552,347
============= =============
</TABLE>
A-45
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information (con't)
Item I - Financial Statements (con't)
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
06/30/95 06/30/94
<S> <C> <C>
INTEREST INCOME:
Interest and Fees on Loans...................... $ 3,603,764.89 $ 3,351,100.48
Investment Income............................... 2,306,828.55 1,576,957.10
Interest on Federal Funds Sold.................. 5,056.92 10,344.54
------------- -------------
Total Interest Income......................... 5,915,650.36 4,938,402.12
INTEREST EXPENSE:
Interest on Deposits............................ 2,387,942.76 2,041,522.46
Other Interest Expense.......................... 437,960.75 214,689.59
------------- -------------
Total Interest Expense......................... 2,825,903.51 2,256,212.05
NET INTEREST INCOME............................... 3,089,746.85 2,682,190.07
PROVISION FOR LOAN LOSSES......................... 20,000.00 0.00
------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES...................... 3,069,746.85 2,682,190.07
OTHER OPERATING INCOME:
Trust Department Income......................... 27,620.13 25,599.19
Service Charges on Deposit Accounts............. 152,375.19 170,087.15
Other Income.................................... 129,085.83 138,775.29
Securities Gains (Losses)....................... 0.00 105,239.63
------------- -------------
Total Other Operating Income.................. 309,081.15 439,701.26
OTHER OPERATING EXPENSES:
Salaries and Employee Benefits.................. 954,288.22 954,177.59
Occupancy Expense (net)......................... 127,974.99 139,500.41
Furniture and Equipment Expense................. 188,794.02 196,387.75
Other Expense................................... 815,868.68 837,675.53
------------- -------------
Total Other Operating Expenses................ 2,086,925.91 2,127,741.28
INCOME BEFORE INCOME TAXES:....................... 1,291,902.09 994,150.05
Provision for Income Taxes...................... 380,000.00 229,000.00
------------- -------------
NET INCOME:....................................... $ 911,902.09 $ 765,150.05
============= =============
EARNINGS PER SHARE:
Net Income..................................... $ 1.63 $ 1.39
============= =============
Average Common Shares Outstanding.............. 558,491 552,347
============= =============
</TABLE>
A-46
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information (con't)
Item I - Financial Statements (con't)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Periods Indicated
<TABLE>
<CAPTION>
Six Months Ended
June 30
1995 1994
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATIONS...................... $ 1,461,558 $ 1,118,542
------------ -------------
INVESTING ACTIVITIES:
Proceeds from Maturity on Bankers
Acceptances...................................... 4,333,966 2,275,223
Purchase of Bankers Acceptances.................... (1,446,200) (4,131,051)
Proceeds from Sale of Other Investment
Securities....................................... 0 6,228,154
Proceeds from Maturity of Other Investment
Securities....................................... 12,012,450 17,450,811
Purchase of Other Investment Securities............ (14,297,023) (26,834,646)
(Excess) Deficit of Loans Originated
Over Principal Collected......................... 2,270,733 879,941
Bank Premises and Equipment Additions.............. (73,476) (104,325)
Proceeds from Sale of Bank Premises and
Equipment........................................
Proceeds from Sale of Assets Acquired
through foreclosure.............................. 28,049 116,236
------------ ------------
Net Cash Used in Investing Activities.............. 2,828,499 (4,119,657)
------------ ------------
FINANCING ACTIVITIES:
Net Increase (Decrease) in Deposit
Accounts......................................... 2,426,698 (2,044,990)
Proceeds from Borrowed Funds....................... (7,773,700) 6,535,700
Cash Dividends..................................... (304,207) (287,220)
Proceeds from Stock Options Exercised.............. 783,750
------------ ------------
Net Cash Provided (Used) by Financing
Activities....................................... (4,867,459) 4,203,490
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (577,402) 1,202,375
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD.............................................. 8,806,688 8,422,807
CASH AND CASH EQUIVALENTS, END OF PERIOD............. $ 8,229,286 $ 9,625,182
============ ============
</TABLE>
A-47
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information (con't)
Item 1 - Financial Statements (con't)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
- ------------------------------------------
(1) Reporting and Accounting Policies:
The Interim Financial Statements are unaudited, but, in the opinion of the
Management, reflect all adjustments necessary for a fair presentation of
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
The Financial Statements should be read in conjunction with the "Notes to
Financial Statements" contained in the December 31, 1994 annual report for
National American Bancorp, Inc.
(2) Investment Securities:
The estimated market value of investment securities held-to-maturity on
December 31, 1994 was $42,444,117, on June 30, 1995 it was $42,060,992.
(3) Deposits:
Time deposits over $100,000 were $8,484,000 and $7,777,994 on December 31,
1994 and June 30, 1995, respectively.
A-48
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part I - Financial Information (con't)
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation.
FINANCIAL CONDITION:
- -------------------
Loans declined $2,270,734 in the first half of 1995. Commercial loans
decreased $664,262, tax free loans decreased $864,052, mortgage loans decreased
$298,875, all other loans decreased $443,545. The decrease was the result of
higher interest rates, and the economic slowdown. Deposits increased $2,426,698
in the first six months of 1995. Demand deposits increased $952,126 and time
deposits increased $4,694,815 but savings and interest-bearing demand deposits
declined by $3,220,244. Borrowed funds declined $7,773,700 during the first
half. The borrowings were paid off with funds from the reduction in loans and
the increase in deposits. Shareholders' equity increased $1,886,022 in the
first half of 1995. Stock options exercised amounted to $783,750 and the
increase in unrealized gains on securities amounted to $494,578. Shareholders'
equity was 11.30% of assets on June 30, 1995 compared to 9.89% on December 31,
1994.
RESULTS OF OPERATION:
- --------------------
Net interest income after provision for loan losses increased $216,324 or
16% in the second quarter of 1995 versus the second quarter of 1994. Other
operating income decreased $10,659 or 7% and other operating expense decreased
$6,971 or 1% in the second quarter of 1995 versus the second quarter of 1994.
The provision for income taxes increased because of the increase in income
before taxes.
Net interest income after provision for loan losses increased $387,557 or
14% in the first half of 1995 versus the first half of 1994. Other operating
income decreased $130,620 or 30% in the first half of 1995 versus the first half
of 1994. In 1994 net security gains were $105,000 versus 1994 which were zero.
Other operating expenses declined $40,815 or 2% in the first half of 1995 versus
the first half of 1994. The provision for income taxes increased because of the
increase in income before taxes.
A-49
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
Part II - Other Information
NOT APPLICABLE
Item 1. Legal Proceedings
NOT APPLICABLE
Item 2. Changes in Securities
NOT APPLICABLE
Item 3. Defaults Upon Senior Securities
NOT APPLICABLE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NOT APPLICABLE
Item 6. Exhibits and Reports on Form 8-K
NOT APPLICABLE
A-50
<PAGE>
NATIONAL AMERICAN BANCORP, INC.
FORM 10-Q
SIGNATURE PAGE
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Registrant, National American Bancorp, Inc.
Date July 14, 1995 /s/ David S. Packard
------------- -------------------------------------------
David S. Packard
President and Chief Executive Officer
Date July 14, 1995 /s/ Donald R. Brennan
------------- -------------------------------------------
Donald R. Brennan
Secretary/Treasurer
(Chief Financial Officer)
A-51
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
1. Pennsylvania Business Corporation Law. Sections 1741 and 1742 of the
Pennsylvania Business Corporation Law (the "BCL") provide that a business
corporation shall have the power to indemnify any person who was or is a party,
or is threatened to be made a party, to any proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that such person is or
was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such proceeding, if such
person acted in good faith and in a manner he reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. In the case of an action by or in the right of the corporation, such
indemnification is limited to expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable to
the corporation unless, and only to the extent that, a court determines upon
application that, despite the adjudication of liability but in view of all the
circumstances, such person is fairly and reasonably entitled to indemnity for
the expenses that the court deems proper.
BCL Section 1744 provides that, unless ordered by a court, any
indemnification referred to above shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct. Such determination shall be made:
(1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding; or
(2) if such a quorum is not obtainable, or if obtainable and a
majority vote of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
(3) by the shareholders.
Notwithstanding the above, BCL Section 1743 provides that to the extent
that a director, officer, employee or agent of a business corporation is
successful on the merits or otherwise in defense of any proceeding referred to
above, or in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
BCL Section 1745 provides that expenses (including attorneys' fees)
incurred by an officer, director, employee or agent of a business corporation in
defending any proceeding may be paid by the corporation in advance of the final
disposition of the proceeding upon receipt of an undertaking to repay the amount
advanced if it is ultimately determined that the indemnitee is not entitled to
be indemnified by the corporation.
BCL Section 1746 provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, the foregoing provisions is not
exclusive of any other rights to which a person seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or directors or
otherwise, and that indemnification may be granted under any bylaw, agreement,
vote of shareholders or disinterested directors or otherwise for any action
taken or any failure to take any action whether or not the corporation would
have the power to indemnify the person under any other provision of law and
whether or not the indemnified liability arises or arose from any action by or
in the right of the corporation, provided, however, that no indemnification may
be
II-1
<PAGE>
made in any case where the act or failure to act giving rise to the claim for
indemnification is determined by a court to have constituted willful misconduct
or recklessness.
BCL Section 1747 permits a Pennsylvania business corporation to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation or other enterprise, against any liability asserted against such
person and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify the
person against such liability under the provisions described above.
2. Indemnification By-Law. Section 8.01 of the registrant's By-Laws (the
"Indemnification By-Law") was adopted by the shareholders at their Annual
Meeting held on May 28, 1987 and became effective on that date. Under the
Indemnification By-Law, except as prohibited by law, every director and officer
of the registrant is entitled as of right to be indemnified by the registrant
against all expenses and liabilities incurred in connection with any actual or
threatened claim or proceeding, whether civil, criminal, administrative,
investigative or other, whether brought by or in the right of the registrant or
otherwise, in which the director or officer may be involved in any manner, by
reason of his being or having been a director or officer of the registrant or by
reason of the fact that he is or was serving at the request of the registrant as
a director, officer, employee, fiduciary or other representative of another
corporation or other entity. In an action brought by a director or officer
against the registrant, the director or officer is only entitled to
indemnification for expenses in certain circumstances. Each director and
officer is also entitled as of right to have his expenses in defending an action
paid in advance by the registrant prior to final disposition of the action,
subject to any obligation which may be imposed to reimburse the registrant in
certain events. The Indemnification By-Law establishes a procedure whereby a
director or officer may bring an action against the registrant if a written
claim for indemnification or advancement of expenses is not paid by the
registrant in full within thirty days after the claim has been presented. The
director or officer is also entitled to advancement of expenses in this
proceeding. The only defense to an action to recover a claim for
indemnification is that the indemnitee's conduct was such that under
Pennsylvania law the registrant is prohibited from indemnifying the indemnitee.
The only defense to an action to recover payment of expenses in advance is
failure by the indemnitee to make an undertaking to reimburse the registrant if
such an undertaking is required.
The Indemnification By-Law applies to every action, other than actions
filed prior to January 27, 1987, except that it does not apply to the extent
that Pennsylvania law does not permit its application to any breach or failure
of performance of duty by a director or officer occurring prior to January 27,
1987. Any amendment or repeal of the Indemnification By-Law will operate
prospectively only and will not affect any action taken, or failure to act, by a
director or officer prior to the adoption of such amendment or repeal.
3. Director and Officer Liability Insurance. The registrant maintains
director and officer liability insurance covering its directors and officers
with respect to liability which they may incur in connection with their serving
as such, which liability could include liability under the Securities Act of
1933. Under the insurance, the registrant is entitled to reimbursement for
amounts as to which the directors and officers are indemnified under the
Indemnification By-Law. The insurance may also provide certain additional
coverage for the directors and officers against certain liability even though
such liability is not subject to indemnification under the Indemnification By-
Law.
4. Indemnification Agreements. At their Annual Meeting held on May 28,
1987, the shareholders also approved a proposed form of Indemnification
Agreement to be entered into between the registrant and each of its present and
future directors and such other officers, employees and agents of the registrant
and its subsidiaries as shall be designated from time to time by the Board of
Directors.
The form of agreement provides essentially the same rights to
indemnification against liabilities and expenses as are provided in the
Indemnification By-Law. In addition, the form of agreement requires the
registrant to either maintain the liability insurance coverage currently in
effect for the benefit of the contractee or to hold the contractee harmless to
the full extent of such coverage.
II-2
<PAGE>
Further, the form of agreement provides that if the full indemnification
claimed by the contractee may not be paid by the registrant because prohibited
by law and the registrant is jointly liable with the contractee as to the matter
for which indemnification was sought (or would be so liable if the registrant
were joined in such matter), the contractee has a right to contribution from the
registrant for the amount of any expenses and liabilities incurred by the
contractee as to such matter based on the relative benefits received by the
registrant and the contractee from the transaction from which the liability
arose and the relative fault of the registrant (including the registrant's other
directors, officers, employees or agents) and the contractee in connection with
the events which resulted in such expenses or liability, as well as any other
relevant equitable considerations.
Under the form of agreement, a contractee is entitled to the rights to
indemnification for expenses and liability, advancement of expenses and
contribution provided by the agreement notwithstanding any amendment or repeal
of the Indemnification By-Law. In addition, although a change in law restricting
indemnification rights would automatically restrict the indemnification rights
provided under the Indemnification By-Law, the form of agreement provides that a
change in law restricting indemnification rights will not affect the rights of a
contractee under the agreement unless the law so requires.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. An Exhibit Index, containing a list of all exhibits filed
with this Registration Statement, is included on page II-8.
(b) Financial Statement Schedules. Not applicable.
(c) Report, Opinion or Appraisal. Not applicable. The opinion of Berwind
Financial Group, L.P. is furnished as Annex I to the Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(2) to deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report
to security holders that is incorporated by reference in the prospectus
and furnished pursuant to and meeting the requirements of Rule 14a-3 or
Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X is not set forth in the prospectus, to deliver, or cause to be
delivered to each person to whom the prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(3) that prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus
will contain the information called for by the applicable registration
form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
II-3
<PAGE>
(4) that every prospectus (i) that is filed pursuant to paragraph
(3) immediately preceding, or (ii) that purports to meet the requirements
of Section 10(a)(3) of the Securities Act of 1933, as amended, and is used
in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(5) that insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 above, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(6) to respond to requests for information that is incorporated by
reference into the Proxy Statement/Prospectus pursuant to Items 4, 10(b),
11 or 13 of Form S-4, within one business day of receipt of such request,
and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(7) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement
when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN HARRISBURG, PENNSYLVANIA, ON THE 27TH
DAY OF SEPTEMBER, 1995.
KEYSTONE FINANCIAL, INC.
BY /S/ CARL L. CAMPBELL
---------------------
CARL L. CAMPBELL, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl L. Campbell, Ben G. Rooke, Donald F. Holt
and George R. Barr, Jr., and each of them, his true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or their or his substitutes, may lawfully do or cause to be done by virtue
thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Carl L. Campbell President, Chief Executive September 27, 1995
- -----------------------------------
Carl L. Campbell Officer and Director
/s/ Mark L. Pulaski Executive Vice President, Treasurer September 27, 1995
- -----------------------------------
Mark L. Pulaski and Chief Financial Officer
/s/ Donald F. Holt Senior Vice President, Controller September 27, 1995
- -----------------------------------
Donald F. Holt and Principal Accounting Officer
/s/ A. Joseph Antanavage Director September 27, 1995
- -----------------------------------
A. Joseph Antanavage
/s/ J. Glenn Beall, Jr. Director September 27, 1995
- -----------------------------------
J. Glenn Beall, Jr.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Paul I. Detwiler, Jr. Director September 27, 1995
- -----------------------------------
Paul I. Detwiler, Jr.
/s/ Donald Devorris Director September 27, 1995
- -----------------------------------
Donald Devorris
/s/ Richard W. Dewald Director September 27, 1995
- -----------------------------------
Richard W. Dewald
/s/ Gerald E. Field Director September 27, 1995
- -----------------------------------
Gerald E. Field
/s/ William A. Gettig Director September 27, 1995
- -----------------------------------
William A. Gettig
/s/ Walter W. Grant Director September 27, 1995
- -----------------------------------
Walter W. Grant
/s/ Philip C. Herr II Director September 27, 1995
- -----------------------------------
Philip C. Herr II
/s/ Uzal H. Martz, Jr. Director September 27, 1995
- -----------------------------------
Uzal H. Martz, Jr.
/s/ Max A. Messenger Director September 27, 1995
- -----------------------------------
Max A. Messenger
/s/ William L. Miller Director September 27, 1995
- -----------------------------------
William L. Miller
/s/ Robert R. Mitchell Director September 27, 1995
- -----------------------------------
Robert R. Mitchell
/s/ Don A. Rosini Director September 27, 1995
- -----------------------------------
Don A. Rosini
/s/ F. Dale Schoeneman Director September 27, 1995
- -----------------------------------
F. Dale Schoeneman
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Ronald C. Unterberger Director September 27, 1995
- -----------------------------------
Ronald C. Unterberger
/s/ G. William Ward Director September 27, 1995
- -----------------------------------
G. William Ward
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
PAGE NUMBER
IN SEQUENTIAL
EXHIBIT NUMBERING
NO. DESCRIPTION AND METHOD OF FILING SYSTEM
------- -------------------------------- -------------
<S> <C> <C>
2.1 Agreement and Plan of Reorganization dated as of
July 26, 1995 between Keystone Financial, Inc. and
National American Bancorp, Inc. and Agreement and
Plan of Merger dated as of July 26, 1995 between
Keystone Financial, Inc. and National American
Bancorp, Inc. (filed herewith). 117
4.1 Restated Articles of Incorporation of Keystone
Financial, Inc., as amended (filed as Exhibit 3.1 to
the Annual Report on Form 10-K of Keystone
Financial, Inc. for the year ended December 31, 1994
and incorporated herein by reference thereto). NA
4.2 By-Laws of Keystone Financial, Inc., as amended to
May 14, 1992 (filed as Exhibit 3.2 to the Annual
Report on Form 10-K of Keystone Financial, Inc. for
the year ended December 31, 1992 and incorporated
herein by reference thereto). NA
4.3 Keystone Financial, Inc. Series A Junior
Participating Preferred Stock Rights Agreement dated
as of June 25, 1990 (filed as Exhibit 1 to the Form
8-A Registration Statement of Keystone Financial,
Inc. dated January 25, 1990 and incorporated herein
by reference thereto). NA
4.4 Amendment No. 1 to Series A Junior Participating
Preferred Stock Rights Agreement dated as of
December 20, 1990 (filed as Exhibit 2 to the Form 8
Amendment of Keystone Financial, Inc. dated December
20, 1990 and incorporated herein by reference
thereto). NA
The registrant hereby agrees to furnish to the
Commission upon request copies of the instruments
defining the rights of the holders of the long-term
debt of the registrant and its consolidated
subsidiaries.
5.1 Opinion of Reed Smith Shaw & McClay regarding the
legality of the shares of Common Stock being
registered (filed herewith). 140
13.1 1994 Annual Report to Shareholders of National
American Bancorp, Inc. (filed herewith as Annex III
to the Proxy Statement/Prospectus and incorporated
herein by reference thereto). 64
The 1994 Annual Report to Shareholders of National
American Bancorp, Inc., except for the portions
thereof incorporated by reference into the Annual
Report on Form 10-K of National American Bancorp,
Inc. for the year ended December 31, 1994 and
incorporated herein by reference to such Annual
Report on Form 10-K, is furnished for the
information of the Commission and is not to be
considered part of this Registration Statement.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
PAGE NUMBER
IN SEQUENTIAL
EXHIBIT NUMBERING
NO. DESCRIPTION AND METHOD OF FILING SYSTEM
- ------- -------------------------------- -------------
<S> <C> <C>
13.2 Quarterly Report on Form 10-Q of National American
Bancorp, Inc. for the quarter ended June 30, 1995
(filed herewith as Annex IV to the Proxy
Statement/Prospectus and incorporated herein by
reference thereto). 98
23.1 Consent of Ernst & Young LLP, independent auditors
(filed herewith). 142
23.2 Consent of Parente, Randolph, Orlando, Carey &
Associates, independent auditors (filed herewith).
143
23.3 Consent of Reed Smith Shaw & McClay (contained in
their opinion filed as Exhibit 5.1). NA
23.4 Consent of Berwind Financial Group, L.P. (to be
filed by amendment). NA
23.5 Consent of Coopers & Lybrand L.L.P. (filed herewith)
144
23.6 Consent of Deloitte & Touche LLP (filed herewith)
145
23.7 Consent of KPMG Peat Marwick LLP (filed herewith) 146
24.1 Power of Attorney (set forth on Page II-5 of the
Registration Statement). NA
99.1 Preliminary copy of letter to shareholders of
National American Bancorp, Inc. (filed herewith). 147
99.2 Preliminary copy of Notice of Special Meeting of
Shareholders of National American Bancorp, Inc.
(filed herewith). 148
99.3 Preliminary copy of form of proxy for use by
shareholders of National American Bancorp, Inc.
(filed herewith). 149
99.4 Investment Agreement dated as of July 26, 1995
between Keystone Financial, Inc. and National 151
American Bancorp, Inc. (filed herewith).
99.5 Form of Agreement between Keystone Financial,
Inc. and each director of National American
Bancorp, Inc. (filed herewith). 165
99.6 1994 Employee Stock Option Plan of National
American Bancorp, Inc. (filed as Exhibit B to
the definitive proxy statement of National
American Bancorp, Inc. (File No. 2-91041) dated
March 9, 1994 and incorporated herein by
reference thereto). NA
99.7 Letter Agreement dated July 26, 1995 between
Keystone Financial, Inc. and National American
Bancorp, Inc. concerning outstanding stock
options of National American Bancorp, Inc.
(filed herewith). 168
</TABLE>
II-9
<PAGE>
<TABLE>
<S> <C> <C>
99.8 Employment Agreement dated February 25, 1994 between
David S. Packard and The First National Bank of
Bradford County, joined in by National American
Bancorp, Inc. (filed as Exhibit 10.1 to the Annual
Report on Form 10-K of National American Bancorp,
Inc. (File No. 2-91041) for the year ended December
31, 1994 and incorporated herein by reference
thereto). NA
99.9 Agreement dated as of July 26, 1995 between Keystone
Financial, Inc. and David S. Packard amending
Employment Agreement dated as of February 25, 1994
(filed herewith). 169
</TABLE>
II-10
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
THIS AGREEMENT dated as of July 26, 1995 (the "Agreement") between
KEYSTONE FINANCIAL, INC., a Pennsylvania corporation ("Keystone"), and NATIONAL
AMERICAN BANCORP, INC., a Pennsylvania corporation ("NAB"),
W I T N E S S E T H :
-------------------
WHEREAS, Keystone and NAB desire to accomplish the reorganization
provided for herein;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements herein contained and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
THE MERGERS
-----------
1.01. The Merger. The reorganization contemplated by this Agreement
----------
is the merger (the "Merger") of NAB and Keystone pursuant to the Agreement and
Plan of Merger attached hereto as Appendix A (the "Merger Agreement"). As
provided in the Merger Agreement, at the Effective Time (as defined in Section
8.01 hereof) NAB will be merged with and into Keystone, which will be the
surviving corporation. In the Merger, each outstanding share of Common Stock,
par value $5.00 per share, of NAB ("NAB Common Stock") (other than shares, if
any, as to which the holders shall perfect dissenters' rights) will be converted
into not less than 2.00 nor more than 2.20 shares of Common Stock, par value
$2.00 per share, of Keystone ("Keystone Common Stock") (with cash in lieu of any
fractional share) as provided in the Merger Agreement.
1.02. The Bank Merger. Simultaneously with or following the Merger,
---------------
Keystone intends to cause The First National Bank of Bradford County, a national
banking association and a wholly owned subsidiary of NAB ("First National"), to
be merged with and into Northern Central Bank, a Pennsylvania bank and trust
company and a wholly owned subsidiary of Keystone ("NCB"). The merger described
in the preceding sentence is referred to herein as the "Bank Merger." The
Merger and the Bank Merger are sometimes referred to collectively herein as the
"Mergers." Consummation of the Bank Merger is conditioned upon the prior or
simultaneous consummation of the Merger. Consummation of the Merger is not
conditioned upon consummation of the Bank Merger.
ARTICLE II
CONDITIONS
----------
2.01. Mutual Conditions to the Merger. The respective obligations of
-------------------------------
each party to effect the Merger shall be subject to the fulfillment at or prior
to the Closing of the following conditions:
(a) Shareholder Approval. This Agreement and the Merger Agreement
--------------------
shall have been approved by the affirmative votes of at least a majority
of the votes cast thereon by the holders of NAB Common Stock at the NAB
Shareholders' Meeting referred to in Section 6.03, at which meeting a
quorum of such shareholders shall be present in person or by proxy.
(b) Regulatory Approvals. The Merger shall have been approved
--------------------
by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under Section 3(a) of the Bank Holding Company Act of 1956
(12 U.S.C. (S) 1842(a)) (the "Bank Holding Company Act") and by the
Pennsylvania Department of Banking (the "Department") under Section 112
the Pennsylvania Banking Code of 1965
<PAGE>
(7 P.S. (S) 112) (the "Pennsylvania Banking Code"), and any other
regulatory approvals necessary to the consummation of the Merger shall
have been obtained and all waiting periods imposed by any governmental
authority in connection therewith shall have expired. None of such
regulatory approvals shall contain or impose any conditions or
requirements, including without limitation requirements relating to
divestiture of branches or other material assets, which Keystone in its
reasonable judgment considers to be materially adverse to its interests.
No action or suit to enjoin or prohibit the Merger shall have been filed
by the United States under the antitrust laws during the 30 days following
the date of the approval of the Merger by the Federal Reserve Board.
(c) Securities Act Registration. The Registration Statement
---------------------------
contemplated by Section 6.01 hereof shall have been filed by Keystone with
the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended (the "Securities Act"), and shall have been declared
effective prior to the time the proxy statement/prospectus contained
therein (the "Proxy Statement/Prospectus") is first mailed to the
shareholders of NAB, and no stop order with respect to the effectiveness
of the Registration Statement shall have been issued nor any proceeding
therefor initiated or threatened. In addition, the shares of Keystone
Common Stock to be issued pursuant to the Merger Agreement shall be duly
registered or qualified under the securities or "blue sky" laws of all
states in which such action is required for purposes of the initial
issuance of such stock and its distribution to the shareholders of NAB
entitled to receive it.
(d) Federal Tax Opinion. There shall have been received by
-------------------
each party an opinion of counsel or of independent public accountants
satisfactory to the parties, to the effect that:
(i) The Merger will constitute a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of
1986, as amended (the "Code"), and Keystone and NAB will each be a
"party to a reorganization" within the meaning of Section 368(b) of
the Code;
(ii) No gain or loss will be recognized by Keystone or NAB
as a result of the Merger;
(iii) Except for cash received in lieu of fractional shares,
no gain or loss will be recognized by the shareholders of NAB who
receive solely Keystone Common Stock on the exchange of their shares
of NAB Common Stock for shares of Keystone Common Stock;
(iv) The basis of the shares of Keystone Common Stock to be
received by the shareholders of NAB will be the same as the basis of
the shares of NAB Common Stock exchanged therefor; and
(v) The holding period of the shares of Keystone Common
Stock to be received by shareholders of NAB will include the period
during which the NAB Common Stock surrendered in exchange therefor
was held by the NAB shareholder, provided such NAB Common Stock was
held as a capital asset in the hands of the NAB shareholder at the
time of the exchange.
(e) Orders and Injunctions. Neither Keystone nor NAB shall be
----------------------
subject to any order, decree or injunction of any court or agency of
competent jurisdiction which enjoins or prohibits the Merger.
2.02. Keystone Conditions to the Merger. The obligations of Keystone to
---------------------------------
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of the following conditions:
(a) Representations and Warranties; Performance of Obligations.
----------------------------------------------------------
Except as otherwise consented to in writing by Keystone or contemplated by
this Agreement, the representations and warranties of NAB contained herein
shall be true and correct in all material respects as of the date hereof
and as of the date of the Closing as though made on such date, except that
any representation or warranty which specifically relates to an earlier
date shall be true and correct in all material respects as of such earlier
date; NAB shall
-2-
<PAGE>
have performed or complied in all material respects with all agreements,
covenants and conditions under this Agreement and the Merger Agreement
required to be performed or complied with by NAB at or prior to the
Closing; and Keystone shall have received a certificate to each of the
foregoing effects signed by the principal executive officer, the principal
accounting officer and the secretary or an assistant secretary of NAB,
which shall be based on their actual knowledge.
(b) Affiliates' Agreements. Keystone shall have received from each
----------------------
of the persons identified by NAB pursuant to Section 6.04 hereof an
executed counterpart of an affiliate's agreement in the form contemplated
by such Section.
(c) Legal Opinion. Keystone shall have received from Dilworth,
-------------
Paxson, Kalish & Kauffman, counsel for NAB, an opinion dated the date of
the Closing and in form and substance reasonably satisfactory to Keystone
as to such matters related to this Agreement, the Merger Agreement and the
transactions contemplated thereby as Keystone may reasonably request.
(d) Bank Merger Regulatory Approvals. The Bank Merger shall have
--------------------------------
been approved by the Federal Deposit Insurance Corporation ("FDIC") under
the Bank Merger Act (12 U.S.C. (S) 1828(c)) and by the Department under
the Pennsylvania Banking Code (7 P.S. (S) 1604) and any other regulatory
approvals necessary to the consummation of the Bank Merger shall have been
obtained and all waiting periods imposed by any governmental authority in
connection therewith shall have expired. None of such regulatory
approvals shall contain or impose any conditions or requirements,
including without limitation requirements relating to divestiture of
branches or other material assets, which Keystone in its reasonable
judgment considers to be materially adverse to its interests. No action
or suit to enjoin or prohibit the Bank Merger shall have been filed by the
United States under the antitrust laws during the 30 days following the
date of the approval of the Bank Merger by the FDIC.
(e) Accounting Treatment. The Merger shall as of the date of the
--------------------
Closing meet the requirements for pooling-of-interests accounting
treatment under generally accepted accounting principles and under the
accounting rules of the SEC, and, if requested by Keystone, Keystone shall
have received a letter from Ernst & Young LLP in form and substance
reasonably satisfactory to Keystone as to the foregoing matters.
(f) Litigation, etc. None of Keystone, NAB, NCB or First National
---------------
shall be subject to any order, decree or injunction of any court or agency
of competent jurisdiction which materially adversely affects either of the
Mergers or to any pending or threatened litigation or proceeding by or
before any such court or agency which seeks to enjoin or prohibit either
of the Mergers or to impose material damages on any of such parties or any
of their directors or officers by reason thereof.
(g) Additional Documents. Keystone shall have received such
--------------------
certified or other copies of such documents and proceedings of NAB in
connection with the transactions contemplated hereby as Keystone may
reasonably request.
2.03. NAB Conditions to the Merger. The obligations of NAB to effect the
----------------------------
Merger shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(a) Representations and Warranties; Performance of Obligations.
----------------------------------------------------------
Except as otherwise consented to in writing by NAB or contemplated by this
Agreement, the representations and warranties of Keystone contained herein
shall be true and correct in all material respects as of the date hereof
and as of the date of the Closing as though made on such date, except that
any representation or warranty which specifically relates to an earlier
date shall be true and correct in all material respects as of such earlier
date; Keystone shall have performed or complied in all material respects
with all agreements, covenants and conditions under this Agreement and the
Merger Agreement required to be performed or complied with by Keystone at
or prior to the Closing; and NAB shall have received a certificate to each
of the foregoing effects signed
-3-
<PAGE>
by the principal executive officer, the principal accounting officer and
the secretary or an assistant secretary of Keystone, which shall be based
on their actual knowledge.
(b) Investment Banker's Opinion. NAB shall have received from
---------------------------
Berwind Financial Group, L.P. an affirmative written opinion, dated as of
a date within ten business days of the date of mailing of the
Proxy/Statement Prospectus, to the effect that, as of the date of such
opinion, the terms of the Merger are fair, from a financial point of view,
to NAB and its shareholders.
(c) Legal Opinion. NAB shall have received from Reed Smith Shaw &
-------------
McClay, counsel for Keystone, an opinion dated the date of the Closing and
in form and substance reasonably satisfactory to NAB as to such matters
related to this Agreement, the Merger Agreement and the transactions
contemplated thereby as NAB may reasonably request.
(d) Litigation, etc. None of Keystone, NAB, NCB or First National
---------------
shall be subject to any order, decree or injunction of any court or agency
of competent jurisdiction which materially adversely affects the Merger or
to any pending or threatened litigation or proceeding by or before any
such court or agency which seeks to enjoin or prohibit the Merger or to
impose material damages on NAB or First National or any of their directors
or officers by reason thereof.
(e) Keystone Rights Agreement. If a Distribution Date, as such
-------------------------
term is defined in the Rights Agreement dated as of January 25, 1990, as
amended (the "Keystone Rights Agreement"), between Keystone and American
Stock Transfer and Trust Company, as Rights Agent, shall have occurred,
then either (i) all Rights (as defined in the Keystone Rights Agreement)
then outstanding (other than Rights which have become void pursuant to
Section 7(f) of the Keystone Rights Agreement) shall have been either (A)
exchanged for shares of Keystone Common Stock pursuant to Section 24 of
the Keystone Rights Agreement or (B) redeemed pursuant to Section 23 of
the Keystone Rights Agreement or (ii) Keystone shall have made adequate
provision for the issuance of a right substantially equivalent to the
Rights with each share of Keystone Common Stock issuable pursuant to the
Merger Agreement.
(f) Additional Documents. NAB shall have received such certified
--------------------
or other copies of such documents and proceedings of Keystone in
connection with the transactions contemplated hereby as NAB may reasonably
request.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NAB
-------------------------------------
NAB represents and warrants to Keystone that, except in each case as
disclosed in a letter delivered to Keystone on the date of this Agreement:
3.01. Organization. NAB is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and is duly registered as a bank holding company under the Bank Holding Company
Act. NAB has full corporate power and legal authority (including all material
licenses, franchises, permits and other governmental authorizations which are
legally required) to own its assets and to transact the business in which it is
presently engaged.
3.02. Capitalization. The authorized capital stock of NAB consists as of
--------------
the date of this Agreement of 1,000,000 shares of NAB Common Stock, of which
574,347 shares are issued and outstanding. All of such issued and outstanding
shares are duly and validly authorized and issued, fully paid and nonassessable.
Except for (1) the Investment Agreement between Keystone and NAB dated the date
hereof and the Warrants issued thereunder (collectively, the "Warrant
Agreement") and (2) stock options for 16,000 shares of NAB Common Stock (the
"Outstanding NAB Options") outstanding under NAB's 1994 Employee Stock Option
Plan, NAB is not a party to
-4-
<PAGE>
or bound by any option, call, warrant, conversion privilege or other agreement
obligating NAB at present, at any future time or upon the occurrence of any
event to issue or sell any shares of NAB Common Stock or other capital stock of
NAB.
3.03. Subsidiaries. NAB owns directly all of the issued and outstanding
------------
shares of capital stock of First National and of National Security American Life
Insurance Company ("National Life" and, together with First National, the "NAB
Subsidiaries"). NAB has no other direct or indirect subsidiaries. All of the
issued and outstanding capital stock of the NAB Subsidiaries is duly and validly
authorized and issued, fully paid and nonassessable (except, in the case of
First National, as provided in Section 55 of the National Bank Act) and is owned
by NAB free and clear of any liens, security interests, encumbrances,
restrictions or other rights of any third person with respect thereto. There
are no options, calls, warrants, conversion privileges or other agreements
obligating any NAB Subsidiary at present or upon the occurrence of any event to
issue or sell any shares of its capital stock. First National is a national
banking association duly organized, validly existing and in good standing under
the laws of the United States and is duly authorized to engage in the banking
and trust business as an insured bank under the Federal Deposit Insurance Act
(the "FDIC Act"). National Life is a corporation duly organized, validly
existing and in good standing under the laws of the State of Arizona. Each NAB
Subsidiary has full corporate power and legal authority (including all material
licenses, franchises, permits and other governmental authorizations which are
legally required) to own its assets and to transact the business in which it is
presently engaged.
3.04. Joint Ventures, etc. Neither NAB nor any NAB Subsidiary is a party
-------------------
to any joint venture, a general or limited partner of any partnership or the
owner of any equity or similar interest in any other person (including without
limitation any interest pursuant to which NAB or any NAB Subsidiary has or may
in any circumstance have an obligation to make a capital contribution to, or be
liable for or on account of the liabilities, acts or omissions of, such other
person) except (i) NAB's ownership of all of the issued and outstanding capital
stock of the NAB Subsidiaries identified in Section 3.03, (ii) the ownership of
marketable equity securities held as investments in the ordinary course of
business and not exceeding 5% of the outstanding shares of any class and (iii)
joint venture interests disclosed to Keystone in writing on or prior to the date
hereof (the "NAB Joint Ventures").
3.05. Corporate Authority; Absence of Violation. The Board of Directors
-----------------------------------------
of NAB has authorized the execution and delivery by NAB of this Agreement, the
Merger Agreement and the Warrant Agreement, has authorized the performance by
NAB of this Agreement and the Warrant Agreement, has directed or will direct
that this Agreement and the Merger Agreement be submitted to the shareholders of
NAB for their approval and, subject to such approval, has authorized the
performance by NAB of the Merger Agreement. NAB has the full power, authority
and legal right to enter into this Agreement, the Merger Agreement and the
Warrant Agreement, to perform its obligations hereunder and under the Warrant
Agreement (except that the acquisition of more than 5% of the outstanding NAB
Common Stock and certain other transactions pursuant to the Warrant Agreement
would require the approval of regulatory authorities) and, subject to the
approval of its shareholders and regulatory authorities, to perform its
obligations under the Merger Agreement. This Agreement, the Merger Agreement
and the Warrant Agreement have been duly and validly executed and delivered by
NAB, and this Agreement constitutes, and subject to the approval of its
shareholders and regulatory authorities the Merger Agreement will constitute, a
valid and binding obligation of NAB enforceable against NAB in accordance with
its terms except to the extent enforcement is limited by bankruptcy, insolvency,
moratorium, conservatorship, receivership or other similar laws of general
application affecting creditors' rights or by the application by a court of
equitable principles. Neither the execution and delivery by NAB of this
Agreement, the Merger Agreement or the Warrant Agreement, compliance by NAB with
any provision hereof or of the Warrant Agreement, nor, subject to the approval
of its shareholders and regulatory authorities, compliance by NAB with any
provision of the Merger Agreement will (i) violate any provision of the Articles
of Incorporation or By-Laws of NAB, (ii) conflict with or result in a material
breach of or material default under any material agreement, obligation or
instrument to which NAB or any NAB Subsidiary is a party or by which any of them
is bound or to which any of their material properties or assets is subject or
(iii) violate any order or decree of any court or governmental authority or any
statute, rule or regulation applicable to NAB, any NAB Subsidiary or any of
their properties or assets (except that
-5-
<PAGE>
the acquisition of more than 5% of the outstanding NAB Common Stock and certain
other transactions pursuant to the Warrant Agreement would require the approval
of regulatory authorities).
3.06. Reports and Financial Statements. NAB has delivered to Keystone
--------------------------------
(i) NAB's Annual Report on Form 10-K for the year ended December 31, 1994
containing consolidated balance sheets of NAB at December 31, 1994 and 1993 and
consolidated statements of income, stockholders' equity and cash flows of NAB
for the three years ended December 31, 1994, all certified by Parente, Randolph,
Orlando, Carey & Associates, independent auditors, (ii) NAB's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995 containing an unaudited
consolidated balance sheet of NAB as of such date and unaudited consolidated
statements of income and cash flows of NAB for the interim periods reflected
therein and (iii) any Current Reports on Form 8-K filed by NAB since December
31, 1994. All such reports (i) comply in all material respects with the
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations of the SEC thereunder, (ii) do not contain any untrue
statement of a material fact and (iii) do not omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All such
financial statements, including the related notes and schedules, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as indicated therein) and fairly present the
consolidated financial condition, assets and liabilities of NAB at the dates
thereof and the consolidated results of operations, stockholders' equity and
cash flows of NAB for the periods stated therein, subject, in the case of the
interim financial statements, to normal and recurring year-end audit adjustments
and except that the interim financial statements do not contain all of the notes
required by generally accepted accounting principles.
3.07. Absence of Certain Changes. Since December 31, 1994 there has not
--------------------------
been any material change in the condition, financial or otherwise, or in the
assets, liabilities or business of NAB and the NAB Subsidiaries other than
changes in the ordinary course of business, none of which changes has had, or
may be reasonably expected to have, a material adverse effect on the financial
condition, results of operations, adequacy of the allowance for loan losses or
business of NAB and the NAB Subsidiaries taken as a whole. Since December 31,
1994 there has not been (i) any damage to or destruction or loss of property of
NAB or any NAB Subsidiary (whether or not insured) which has had or may have a
material adverse effect on the business of NAB or any NAB Subsidiary or (ii) any
material event which, had it occurred subsequent to the date hereof, would have
required the consent of Keystone under Section 5.01 hereof.
3.08. Taxes. (a) The Federal income tax returns of NAB and the NAB
-----
Subsidiaries have either been audited by the Internal Revenue Service or closed
by statute for all periods beginning prior to January 1, 1992. All taxes,
deficiencies, interest and penalties which are reflected as due under such
returns or which have been assessed as a result of such audits have been paid in
full, and there are no outstanding agreements to extend periods during which
additional assessments may be made.
(b) Federal income tax returns of NAB and the NAB Subsidiaries for all
periods beginning on or after January 1, 1992 have been timely filed. Such
returns are accurate in all material respects, and to the best of NAB's
knowledge there is no material proposed deficiency, assessment, penalty or
delinquency with respect to any of such returns or any of the taxes reflected as
due and payable thereby. All taxes, deficiencies, interest and penalties which
are reflected as due under such returns or which have been assessed as a result
of audits thereof have either been paid in full or have been accrued or
adequately reserved against in the financial statements contained in NAB's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
(c) All required Federal income tax returns of any NAB Joint Venture and
all returns in respect of all other Federal, state and local taxes of any kind
required to be filed by NAB, any NAB Subsidiary or any NAB Joint Venture have
been timely filed, and all taxes, interest and penalties due in respect thereof
have been paid. Such returns are accurate in all material respects, and to the
best of NAB's knowledge there is no material proposed deficiency, assessment,
penalty or delinquency with respect to any of such returns or any of the taxes
reflected as due and payable thereby.
-6-
<PAGE>
3.09. Properties. NAB and the NAB Subsidiaries have good and marketable
----------
title to all of their properties and assets (including those reflected in the
consolidated balance sheet of NAB at December 31, 1994, except such as have been
disposed of in the ordinary course of business) free of any mortgage,
encumbrance, lien or security interest, except pledges of assets to secure
public deposits and minor imperfections in title and encumbrances which do not
materially detract from the value or impair the use of the properties affected
thereby. All leases material to NAB pursuant to which NAB or any NAB
Subsidiary, as lessee, leases real or personal property are valid and effective
in accordance with their respective terms, and there is not, under any of such
leases, any material existing default by NAB or any NAB Subsidiary or any event
which with notice or lapse of time or both would constitute such a material
default.
3.10. Employee Contracts and Plans. Neither NAB nor any NAB Subsidiary
----------------------------
is a party or subject to (i) any contract of employment or consulting agreement
not terminable at will without penalty, (ii) any collective bargaining agreement
or (iii) any profit sharing, pension, retirement, thrift, savings, incentive
compensation, deferred compensation, bonus, stock option, stock purchase,
restricted stock, stock appreciation right, performance share, performance unit,
severance, salary continuation, holiday, vacation, disability, insurance,
medical or other employee benefit, incentive or welfare plan, policy, contract
or arrangement ("Employee Benefit Plan"). NAB has heretofore made available to
Keystone copies of all Employee Benefit Plans of NAB and the NAB Subsidiaries,
including individual employment contracts and stock option agreements. There
are no pending or threatened strikes or labor stoppages involving any employees
of NAB or any NAB Subsidiary, nor is NAB or any NAB Subsidiary aware of any
organizing activity seeking to certify a collective bargaining unit or
representative for any of such employees. All retirement and employee benefit
or welfare plans of NAB or any NAB Subsidiary have been maintained and operated
in accordance with their terms, and all such plans which are subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") and/or the Code have
been maintained and operated in material compliance with all applicable
provisions of ERISA and the Code and the regulations thereunder and are not
subject to any accumulated funding deficiency within the meaning of ERISA and
the regulations thereunder or to any outstanding liability to the Pension
Benefit Guaranty Corporation. No "prohibited transaction" has occurred and is
continuing with respect to any such plan, nor has any "reportable event"
occurred in respect thereof, as such terms are defined in ERISA and the
regulations thereunder, and no such plan is a "Multiemployer Plan" or a
"Multiple Employer Plan", as such terms are defined in ERISA and the regulations
thereunder. The current value of the assets of each NAB Employee Benefit Plan
that is subject to Title IV of ERISA exceeds the present value of the accrued
benefits under such plan based upon the actuarial assumptions (to the extent
reasonable) presently used by such plan, and there is no complete or partial
withdrawal liability within the meaning of Sections 4205 and 4203 of ERISA (and
there would be no such liability assuming a complete or partial withdrawal from
all NAB Employee Benefit Plans at the Effective Time) with respect to any such
plan. There are no pending, threatened or anticipated claims (other than
routine claims for benefits) by, on behalf of or against any of the NAB Employee
Benefit Plans or any trusts related thereto.
3.11. Other Material Contracts. Neither NAB nor any NAB Subsidiary is a
------------------------
party or subject to any other contract or agreement which, if entered into after
the date hereof, would require the consent of Keystone under Section 5.01
hereof.
3.12. Litigation and Other Proceedings. Neither NAB nor any NAB
--------------------------------
Subsidiary is a party or subject to any pending, or to the knowledge of NAB may
become a party or subject to any threatened, action, suit, arbitration,
administrative proceeding or investigation, or judicial or administrative order,
judgment or decree, which individually or in the aggregate will have, or could
reasonably be expected to have, a material adverse effect on the consolidated
financial condition, results of operations or business of NAB and the NAB
Subsidiaries taken as a whole.
3.13. Compliance with Laws; Regulatory Matters. NAB and the NAB
----------------------------------------
Subsidiaries are in compliance in all material respects with all laws, rules and
regulations, all orders, directives and supervisory letters of, and all
agreements, memoranda of understanding or similar arrangements with, regulatory
authorities and all other legal requirements applicable to them or their
businesses. Neither NAB nor any NAB Subsidiary is subject to any order,
directive or supervisory letter of, or agreement, memorandum of understanding or
similar arrangement (including
-7-
<PAGE>
board resolutions adopted at the request of a regulatory authority) with, any
regulatory authority restricting its operations, restricting it from taking any
action or requiring that certain actions be taken, and NAB has no knowledge that
any such order, directive, supervisory letter, agreement, memorandum of
understanding or similar arrangement is threatened, contemplated or under
consideration by any regulatory authority.
3.14. Environmental Matters. To the knowledge of the senior management
---------------------
of NAB, no Hazardous Substances (as hereinafter defined) have been stored,
treated, dumped, spilled, disposed of, discharged, released or deposited at,
under or on (1) any property now owned, occupied or leased ("Present Property")
by NAB, any NAB Subsidiary, any former subsidiary of NAB or any NAB Joint
Venture (each, an "NAB Entity"), (2) any property previously owned, occupied or
leased ("Former Property") by any NAB Entity during the time of such previous
ownership, occupancy or lease; or (3) any Participation Facility (as hereinafter
defined) during the time that any NAB Entity participated in the management of,
or may be deemed to be or to have been an owner or operator of, such
Participation Facility. To the knowledge of the senior management of NAB, no
NAB Entity has disposed of, or arranged for the disposal of, Hazardous
Substances from any Present Property, Former Property or Participation Facility,
and no owner or operator of a Participation Facility disposed of, or arranged
for the disposal of, Hazardous Substances from a Participation Facility during
the time that any NAB Entity participated in the management of, or may be deemed
to be or to have been an owner or operator of, such Participation Facility. To
the knowledge of the senior management of NAB, no Hazardous Substances have been
stored, treated, dumped, spilled, disposed of, discharged, released or deposited
at, under or on any Loan Property (as hereinafter defined), nor is there, with
respect to any such Loan Property, any violation of environmental law which
could materially adversely affect the value of such Loan Property to an extent
which could prevent or delay any NAB Entity from recovering the full value of
its loan in the event of a foreclosure on such Loan Property.
As used in this Section 3.14, (a) "Participation Facility" shall mean any
property or facility of which any NAB Entity (i) has at any time participated in
the management or (ii) may be deemed to be or to have been an owner or operator,
(b) "Loan Property" shall mean any real property in which any NAB Entity holds a
security interest in an amount greater than $100,000 and (c) "Hazardous
Substances" shall mean (i) any flammable substances, explosives, radioactive
materials, hazardous materials, hazardous substances, hazardous wastes, toxic
substances, pollutants, contaminants or any related materials or substances
specified in any applicable Federal or Pennsylvania law or regulation relating
to pollution or protection of human health or the environment (including,
without limitation, ambient or indoor air, surface water, groundwater, land
surface or subsurface strata) and (ii) friable asbestos, polychlorinated
biphenyls, urea formaldehyde, and petroleum and petroleum-based fuels.
3.15. Proxy Statement/Prospectus, etc. None of the information relating
-------------------------------
to NAB or any NAB Subsidiary contained in the Proxy Statement/Prospectus or in
any amendment or supplement thereto, at the time the Registration Statement is
declared effective, at the time the Proxy Statement/Prospectus is mailed to the
shareholders of NAB or at the date of the Shareholders' Meeting of NAB to
consider the Merger, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made, not misleading. All documents which NAB or any NAB Subsidiary is
responsible for filing with any regulatory agency in connection with the Mergers
will comply as to form in all material respects with the requirements of
applicable law, and all of the information relating to NAB or any NAB Subsidiary
in any document filed with the Federal Reserve Board, the FDIC, the Department
or any other regulatory agency in connection with this Agreement, the Merger
Agreement or the transactions contemplated thereby shall be true and correct in
all material respects.
3.16. Accurate and Complete Disclosure. To the knowledge of NAB, the
--------------------------------
information furnished to Keystone by or on behalf of NAB or any NAB Subsidiary
in connection with its investigation of NAB and the NAB Subsidiaries, whether
before or after the date of this Agreement, is true and correct in all material
respects, and no representation or warranty of NAB contained herein contains any
untrue statement of a material fact or, to the knowledge of the officers of NAB,
omits to state a material fact necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. Other than matters of a general economic, regulatory or political
nature, there are no presently existing material facts, circumstances or
contingencies known to NAB which have had or which may be reasonably expected in
the future to have a material
-8-
<PAGE>
adverse effect on the consolidated financial condition, results of operations or
business of NAB and the NAB Subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF KEYSTONE
------------------------------------------
Keystone represents and warrants to NAB that, except in each case as
disclosed in a letter delivered to NAB on the date of this Agreement:
4.01. Organization. Keystone is a corporation duly organized, validly
------------
existing and in good standing under the laws of the Commonwealth of Pennsylvania
and is duly registered as a bank holding company under the Bank Holding Company
Act. Keystone has full corporate power and legal authority (including all
material licenses, franchises, permits and other governmental authorizations
which are legally required) to own its assets and to transact the business in
which it is presently engaged.
4.02. Capitalization. The authorized capital stock of Keystone consists
--------------
as of the date of this Agreement of 50,000,000 shares of Keystone Common Stock,
of which approximately 23,395,179 shares are issued and outstanding as of the
date hereof, and 8,000,000 shares of Preferred Stock, par value $1.00 per share,
of which no shares have been issued as of the date hereof. All of such issued
and outstanding shares are, and upon consummation of the Merger the shares of
Keystone Common Stock to be issued pursuant to the Merger Agreement will be,
duly and validly authorized and issued, fully paid and nonassessable.
4.03. Bank Subsidiaries. Keystone owns, directly or indirectly, all of
-----------------
the issued and outstanding shares of capital stock of NCB, Mid-State Bank and
Trust Company, Pennsylvania National Bank and Trust Company, The Frankford Bank,
N.A., American Trust Bank, and American Trust Bank of West Virginia, Inc.
(collectively, the "Keystone Bank Subsidiaries"). All of the issued and
outstanding capital stock of the Keystone Bank Subsidiaries is duly and validly
authorized and issued, fully paid and nonassessable (except with respect to the
national banks as provided in Section 55 of the National Bank Act) and is owned
by Keystone free and clear of any liens, security interests, encumbrances,
restrictions on transfer or other rights of any third person with respect
thereto. There are no options, calls, warrants, conversion privileges or other
agreements obligating any Keystone Bank Subsidiary at present or upon the
occurrence of any event to issue or sell any shares of its capital stock. Each
of the Keystone Bank Subsidiaries is duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation and is duly
authorized to engage in the banking or banking and trust business as an insured
depository institution under the FDIC Act. Each Keystone Bank Subsidiary has
full corporate power and legal authority (including all material licenses,
franchises, permits and other governmental authorizations which are legally
required) to own its assets and to transact the business in which it is
presently engaged.
4.04. Corporate Authority; Absence of Violation. Keystone has the full
-----------------------------------------
power, authority and legal right to enter into this Agreement, the Merger
Agreement and the Warrant Agreement, to perform its obligations hereunder and
under the Warrant Agreement (except that the acquisition of more than 5% of the
outstanding NAB Common Stock and certain other transactions pursuant to the
Warrant Agreement would require the approval of regulatory authorities) and,
subject to the approval of regulatory authorities, to perform its obligations
under the Merger Agreement. This Agreement, the Merger Agreement and the
Warrant Agreement have been duly and validly executed and delivered by Keystone,
and this Agreement constitutes, and subject to the approval of regulatory
authorities the Merger Agreement constitutes, a valid and binding obligation of
Keystone enforceable against Keystone in accordance with its terms except to the
extent enforcement is limited by bankruptcy, insolvency, moratorium,
conservatorship, receivership or other similar laws of general application
affecting creditors' rights or by the application by a court of equitable
principles. Neither the execution and delivery by Keystone of this Agreement,
the Merger Agreement or the Warrant Agreement, compliance by Keystone with any
provision hereof or of the Warrant Agreement, nor, subject to the approval of
regulatory authorities, compliance by Keystone with any provision of the Merger
Agreement will (i) violate any provision of the Articles of Incorporation
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<PAGE>
or By-Laws of Keystone, (ii) conflict with or result in a material breach of or
material default under any material agreement, obligation or instrument to which
Keystone or any of its subsidiaries is a party or by which any of them is bound
or to which any of their material properties or assets is subject or (iii)
violate any order or decree of any court or governmental authority or any
statute, rule or regulation applicable to Keystone, any of its subsidiaries or
any of their properties or assets (except that the acquisition of more than 5%
of the outstanding NAB Common Stock and certain other transactions pursuant to
the Warrant Agreement would require the approval of regulatory authorities).
4.05. Exchange Act Reports and Financial Statements. Keystone has
---------------------------------------------
delivered to NAB (i) Keystone's Annual Report on Form 10-K for the year ended
December 31, 1994 containing consolidated statements of condition of Keystone at
December 31, 1994 and 1993 and consolidated statements of income, changes in
shareholders' equity and cash flows of Keystone for the three years ended
December 31, 1994, all certified by Ernst & Young LLP, independent auditors,
(ii) Keystone's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995 containing unaudited consolidated statements of condition of Keystone as of
such date and unaudited consolidated statements of income and cash flows of
Keystone for the interim periods reflected therein and (iii) any Current Reports
on Form 8-K filed by Keystone since December 31, 1994. All such reports (i)
comply in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC thereunder, (ii) do not contain any untrue
statement of a material fact and (iii) do not omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. All such
financial statements, including the related notes and schedules, have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and fairly present the consolidated financial condition,
assets and liabilities of Keystone at the dates thereof and the consolidated
results of operations and changes in shareholders' equity and cash flows of
Keystone for the periods stated therein, subject, in the case of the interim
financial statements, to normal and recurring year-end audit adjustments and
except that the interim financial statements do not contain all of the notes
required by generally accepted accounting principles.
4.06. Absence of Certain Changes. Since December 31, 1994, there has not
--------------------------
been any material adverse change in the consolidated financial condition,
results of operations or business of Keystone and its subsidiaries taken as a
whole.
4.07. Litigation and Other Proceedings. Neither Keystone nor any of its
--------------------------------
subsidiaries is a party or subject to any pending, or to the knowledge of
Keystone may become a party or subject to any threatened, action, suit,
arbitration, administrative proceeding or investigation, or judicial or
administrative order, judgment or decree, which individually or in the aggregate
will have, or could reasonably be expected to have, a material adverse effect on
the consolidated financial condition, results of operations or business of
Keystone and its subsidiaries taken as a whole.
4.08. Compliance with Laws; Regulatory Matters. Keystone and its
----------------------------------------
subsidiaries are in compliance in all material respects with all laws, rules and
regulations, all orders, directives and supervisory letters of, and all
agreements, memoranda of understanding or similar arrangements with, regulatory
authorities and all other legal requirements applicable to them or their
businesses. Neither Keystone nor any of its subsidiaries is subject to any
order, directive or supervisory letter of, or agreement, memorandum of
understanding or similar arrangement (including board resolutions adopted at the
request of a regulatory authority) with, any regulatory authority restricting
its operations, restricting it from taking any action or requiring that certain
actions be taken, and Keystone has no knowledge that any such order, directive,
supervisory letter, agreement, memorandum of understanding or similar
arrangement is threatened, contemplated or under consideration by any regulatory
authority.
4.09. Registration Statement, etc. Except for information relating to
---------------------------
NAB and the NAB Subsidiaries, neither the Registration Statement, the Proxy
Statement/Prospectus nor any amendment or supplement thereto, at the time the
Registration Statement is declared effective, at the time the Proxy
Statement/Prospectus is mailed to the shareholders of NAB or at the date of the
Shareholders' Meeting of NAB to consider the Merger, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to
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<PAGE>
make the statements therein, in light of the circumstances under which they are
made, not misleading. All documents which Keystone or NCB is responsible for
filing with the SEC or any regulatory agency in connection with the Mergers will
comply as to form in all material respects with the requirements of applicable
law, and all of the information relating to Keystone and its subsidiaries in any
document filed with the SEC or any other regulatory agency in connection with
this Agreement, the Merger Agreement or the transactions contemplated thereby
shall be true and correct in all material respects.
4.10. Accurate and Complete Disclosure. To the knowledge of Keystone,
--------------------------------
the information furnished to NAB by or on behalf of Keystone or any of its
subsidiaries in connection with NAB's investigation of Keystone and its
subsidiaries, whether before or after the date of this Agreement, is true and
correct in all material respects, and no representation or warranty of Keystone
contained herein contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. Other
than matters of a general economic, regulatory or political nature, there are no
presently existing material facts, circumstances or contingencies known to
Keystone which have had or which may be reasonably expected in the future to
have a material adverse effect on the consolidated financial condition, results
of operations or business of Keystone and its subsidiaries taken as a whole.
ARTICLE V
CONDUCT OF NAB'S BUSINESS PENDING THE EFFECTIVE TIME
----------------------------------------------------
5.01. Conduct of Business in Ordinary Course. Pending the Effective
--------------------------------------
Time, except as otherwise consented to in writing by Keystone or as contemplated
by this Agreement or the Warrant Agreement, (a) NAB will and will cause each NAB
Subsidiary to (i) conduct its business only in the ordinary course thereof as
conducted on the date hereof and (ii) use its best efforts to preserve its
business organization and assets intact and to preserve its good will with its
customers and others having business relations with it and (b) NAB will not and,
except in the case of clause (ii) below, will not permit any NAB Subsidiary to:
(i) amend its Articles of Incorporation or By-Laws;
(ii) declare, pay or set aside any dividend or other distribution
in respect of its capital stock, except for cash dividends on the NAB
Common Stock in an amount per share in any calendar quarter not in excess
of the per share cash dividends on Keystone Common Stock for such quarter
multiplied by the Exchange Ratio (as defined in the Merger Agreement).
The parties agree to consult with respect to the amount of the last NAB
dividend payable prior to the Effective Time with the objective of
assuring that the shareholders of NAB do not receive a shortfall or a
premium based on the record and payment dates of their last dividend prior
to the Merger and the record and payment dates of the first dividend of
Keystone following the Merger;
(iii) Except for the issuance and sale of NAB Common Stock upon
exercise of the Outstanding NAB Options, issue, sell, purchase, redeem or
otherwise dispose of or acquire, or grant any options, warrants or other
rights to purchase or acquire, or combine, split or reclassify, any shares
of its capital stock or any securities convertible into its capital stock;
(iv) enter into any contract of employment or consulting
agreement not terminable at will without penalty;
(v) adopt or modify to increase the compensation or benefits
under any Employee Benefit Plan or otherwise increase the compensation
payable to its employees, except for modifications or increases required
by law or existing contract or involving merit increases in accordance
with past practices, normal cost-of-living increases, regular bonuses and
normal increases related to promotions or increased job
-11-
<PAGE>
responsibilities, it being understood that, regardless of the Effective
Date, NAB or First National may pay incentive bonuses aggregating up to
$96,610 under their 1995 Incentive Pay program;
(vi) merge or consolidate with or into any other corporation or
bank, subject to the proviso in the first sentence of Section 6.08;
acquire control over, or any equity interest in, any other firm, bank,
corporation or organization (except in connection with foreclosures in
bona fide loan transactions or investments in marketable equity securities
----------
in the ordinary course of business and not exceeding 5% of the outstanding
shares of any class); liquidate; or purchase or acquire or, subject to the
proviso in the first sentence of Section 6.08, sell or otherwise dispose
of any material assets otherwise than in the ordinary course of business;
(vii) make any expenditure for a capital asset in excess of
$25,000 per asset or $100,000 in the aggregate except as required by law
or existing contract or enter into as lessee any lease of personal
property providing for annual payments in excess of $25,000 or any lease
of real property;
(viii) change or modify in any material respect any of its lending
or investment policies;
(ix) take any action which if taken as of the date hereof would
constitute a material breach of any representation or warranty contained
herein; or
(x) enter into any agreement, commitment or understanding with
any person relating to any action prohibited by this Agreement, subject
the proviso to the first sentence of Section 6.08.
5.02. Access and Information. Pending the Effective Time, NAB will
----------------------
afford Keystone and its authorized representatives reasonable access during
normal business hours to its properties, books and records and personnel and
those of the NAB Subsidiaries and will furnish promptly to Keystone such
financial and operating data and other information relating to its, the NAB
Subsidiaries' and the NAB Joint Ventures' business, assets and personnel as
Keystone may reasonably request; provided, however, that Keystone and its
authorized representatives shall not remove from NAB premises copies of any NAB
deposit or loan customer lists. Keystone will provide to Berwind Financial
Group, L.P. such access to the properties, books and records and personnel of
Keystone and its subsidiaries and such financial and operating data and other
information relating to Keystone and its subsidiaries as such firm may
reasonably request for the purposes of providing its opinion referred to in
Section 2.03(b).
ARTICLE VI
COVENANTS AND ACTIONS PENDING THE EFFECTIVE TIME
------------------------------------------------
6.01. Securities Registration and Disclosure. As soon as practicable
--------------------------------------
after the date hereof, Keystone will file with the SEC under the Securities Act
a registration statement for the registration of the shares of Keystone Common
Stock to be issued pursuant to the Merger Agreement (the "Registration
Statement"). The parties shall cooperate in the preparation of the Proxy
Statement/Prospectus and any amendments or supplements thereto, and each party
shall be responsible for providing all information concerning itself and its
subsidiaries required to be included therein. Keystone shall take any action
required to be taken under any applicable state securities or "blue sky" laws in
connection with the issuance of shares of Keystone Common Stock pursuant to the
Merger Agreement, and NAB shall furnish Keystone all information concerning NAB
and its shareholders as Keystone may reasonably request in connection with any
such action. Each party will promptly provide the other with copies of all
correspondence, comment letters, notices or other communications to or from the
SEC relating to the Registration Statement, the Proxy Statement/Prospectus or
any amendment or supplement thereto, and Keystone will advise NAB promptly after
it receives notice thereof, of the effectiveness of the Registration Statement,
of the issuance of any stop order with respect to the effectiveness thereof, of
the suspension of the qualification of the Keystone Common Stock issuable in
connection with the Merger for offering or sale in any jurisdiction, or of the
initiation or threat of any proceeding for any such purpose.
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<PAGE>
6.02. Regulatory Approvals. As soon as practicable after the date
--------------------
hereof, the parties shall prepare and file (i) with the Federal Reserve Board an
application for its approval of the Merger under the Bank Holding Company Act,
(ii) with the Department an application for its approval of the Merger under the
Pennsylvania Banking Code and (iii) with any other regulatory agencies having
jurisdiction any other applications for approvals or consents which may be
necessary for the consummation of the Merger. Subject to the limitations herein
provided, the parties will take or cause to be taken all actions necessary for
such applications to be approved, and each party will promptly provide the other
with copies of all correspondence, notices or other communications to or from
such agencies relating to such applications.
6.03. NAB Shareholders' Meeting. NAB will take appropriate action to
-------------------------
call a meeting of its shareholders (the "NAB Shareholders' Meeting"), to be held
not more than forty-five days following the effective date of the Registration
Statement, to consider approval of this Agreement and the Merger Agreement and,
subject to the fiduciary duties of NAB's Board of Directors, will use its best
efforts to secure such approval. In connection with the NAB Shareholders'
Meeting, NAB will duly solicit the vote of its shareholders by mailing or
delivering to each such shareholder, as soon as practicable after the
effectiveness of the Registration Statement, the Proxy Statement/Prospectus, and
as soon as practicable thereafter, any amendments or supplements thereto as may
be necessary to assure that at the date of the NAB Shareholders' Meeting the
Proxy Statement/Prospectus shall conform to the requirements of Sections 3.15
and 4.09 hereof.
6.04. NAB Affiliates' Agreements. NAB will furnish to Keystone a list of
--------------------------
all persons known to NAB who at the date of the NAB Shareholders' Meeting may be
deemed to be "affiliates" of NAB within the meaning of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for "pooling of
interests" accounting treatment ("NAB Affiliates"). NAB will use its best
efforts to cause each NAB Affiliate to deliver to Keystone not later than 30
days prior to the Effective Time a written agreement providing that such person
will not sell, pledge, transfer or otherwise dispose of (a) the shares of
Keystone Common Stock to be received by such person in the Merger (the "Merger
Shares") or any other shares of Keystone Common Stock or NAB Common Stock held
by such person during the period commencing 30 days prior to the Effective Time
and ending at such time as financial results covering at least 30 days of post-
Merger combined operations have been published within the meaning of Section
201.01 of the SEC's Codification of Financial Reporting Policies or (b) the
Merger Shares except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
6.05. Public Announcements. The parties will consult with each other as
--------------------
to the form and substance of any press release or other public disclosure of
matters related to this Agreement or any of the transactions contemplated
hereby.
6.06. Notice of Certain Events. Pending the Effective Time, each party
------------------------
will promptly notify the other of (i) any material change in the normal course
of its business or in the operation of its properties, (ii) any event which may
cause any of its representations and warranties hereunder to be inaccurate in
any material respect as of the time of the Closing and (iii) any actions, claims
or legal, administrative or arbitration proceedings or investigations threatened
or commenced against it or its subsidiaries which are or may be material to
their business or assets or to the consummation of the Mergers and the
transactions contemplated hereby.
6.07. All Reasonable Efforts. Subject to the terms and conditions herein
----------------------
provided, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement and the Merger
Agreement, including, without limitation, using reasonable efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the Merger; provided, however, that
nothing contained herein shall require Keystone to agree to any condition or
requirement which is sought or imposed by any regulatory authority in connection
with the regulatory approvals referred to in Sections 2.01(b) and 2.02(d) hereof
and which Keystone reasonably considers to be materially adverse to its
interests. Each party agrees to use all reasonable efforts to fulfill, or cause
to be fulfilled, all conditions provided hereunder to the obligations of the
other party to consummate the Merger. Each party will, and will cause its
subsidiaries to, use its best efforts to obtain all consents of third parties
required
-13-
<PAGE>
in connection with this Agreement or the transactions contemplated hereby under
any other contract or agreement of such party or its subsidiaries. Nothing
contained in this Section 6.07 shall require NAB or any of its directors or
officers to take any action if NAB's Board of Directors, after consulting with
counsel, determines that such action should not be taken in the exercise of its
fiduciary duties; provided, that this sentence shall apply only to this Section
--------
6.07 and shall not override any other covenant or provision contained herein.
6.08. Inconsistent Activities. Unless and until the Merger has been
-----------------------
consummated or this Agreement has been terminated in accordance with its terms,
NAB will not (i) solicit or encourage, directly or indirectly, any inquiries or
proposals to acquire more than 1% of the NAB Common Stock, any other capital
stock of itself or any NAB Subsidiary or any significant portion of its or any
NAB Subsidiary's assets (whether by tender offer, merger, purchase of assets or
other transactions of any type); (ii) afford any third party which may be
considering any such transaction access to its or any NAB Subsidiary's
properties, books or records except as required by mandatory provisions of law;
(iii) enter into any discussions or negotiations for, or enter into any
agreement or understanding which provides for, any such transaction or (iv)
authorize or permit any of its directors, officers, employees or agents to do or
permit any of the foregoing; provided, however, that notwithstanding the
-------- -------
foregoing, NAB may afford such access, enter into any such discussions,
negotiations or agreements or understandings, or authorize or permit any of its
directors, officers, employees or agents to do so if the Board of Directors of
NAB, after consulting with counsel, determines that such actions should be taken
or permitted in the exercise of its fiduciary duties. If NAB becomes aware of
any offer or proposed offer to acquire any such shares of capital stock of
itself or any NAB Subsidiary or any significant portion of its or any NAB
Subsidiary's assets (regardless of the form of the proposed transaction) or of
any other matter which could adversely affect this Agreement or the Mergers, NAB
shall immediately give notice thereof to Keystone.
6.09. Bank Merger. Subject to the condition that the Bank Merger shall
-----------
not be consummated unless the Merger shall have been consummated prior thereto
or simultaneously therewith and to the other limitations herein provided,
promptly upon the request of Keystone NAB shall, and shall cause First National
to, (a) cooperate with Keystone by providing to Keystone, promptly upon request,
such information and assistance as Keystone may reasonably request in order to
prepare and file (i) with the FDIC an application for its approval of the Bank
Merger under the FDIC Act, (ii) with the Department an application for its
approval of the Bank Merger under the Pennsylvania Banking Code and (iii) with
any other regulatory agencies having jurisdiction any other applications for
approvals or consents which may be necessary for the consummation of the Bank
Merger and (b) take or cause to be taken such additional actions as Keystone may
reasonably determine to be necessary for such applications to be approved and
for the Bank Merger to be consummated simultaneously with or promptly following
the Merger, including without limitation execution and approval of a merger
agreement between NCB and First National in such form as Keystone may reasonably
request. Each party will promptly provide the other with copies of all
correspondence, notices or other communications to or from such agencies
relating to such applications.
6.10. Acquisition of Keystone. Keystone shall not enter into any
-----------------------
agreement for a merger, consolidation or share exchange with or into any other
person, unless the surviving or resulting corporation, if other than Keystone,
shall have agreed in writing to be bound by the terms of this Agreement, the
Merger Agreement and the Warrant Agreement. In the event that under the terms
of any such agreement the outstanding Keystone Common Stock is converted into or
exchanged for other securities of any person, cash or other property, the terms
of this Agreement and the Merger Agreement shall be appropriately amended so
that the shareholders of NAB shall receive in the Merger, for each share of NAB
Common Stock, the consideration per share received by the holders of Keystone
Common Stock in such transaction multiplied by the Exchange Ratio (as defined in
the Merger Agreement and appropriately adjusted to reflect such event), provided
that fractional shares or fractional units of other securities or property may
be paid in cash based on the value of $28.57 for one whole share of Keystone
Common Stock. It is understood that the condition contained in Section 2.01(d)
shall not prevent Keystone from entering into any such transaction, but NAB
shall not be required to amend or waive such condition.
6.11. Employee Benefit Plans. Upon consummation of the Merger, Keystone
----------------------
shall assume and perform all obligations of NAB under, and shall cause the NAB
Subsidiaries (or any successors thereto) to perform their respective obligations
under, each Employee Benefit Plan. After consummation of the Merger, Keystone
shall have
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<PAGE>
the right to amend or terminate any Employee Benefit Plan (other than any
employment, change-in-control, severance, consulting or other agreement to which
a specific employee is a party and of which a copy has been provided to Keystone
on or prior to the date hereof) or combine any such Employee Benefit Plan with a
similar plan offered by Keystone or its subsidiaries, provided that such
amendment, termination or combination is accomplished in accordance with the
terms of such plan and all applicable laws. After consummation of the Merger,
Keystone shall provide to all employees of NAB and the NAB Subsidiaries a
package of employee benefits that on an overall basis is comparable in value and
coverage to the employee benefits then provided to similarly situated employees
of Keystone and its subsidiaries, and with respect to participation in employee
benefit plans of Keystone and its subsidiaries such employees shall receive
credit for their service with NAB and the NAB Subsidiaries for all purposes
other than benefit accrual.
6.12. Indemnification and Insurance.
-----------------------------
(a) From and after the Effective Time, subject to applicable law,
Keystone shall perform the obligations of NAB concerning the indemnification of
NAB's directors and officers with respect to events occurring prior to the
Effective Time as provided in Article Nine of NAB's Bylaws, and shall cause
First National or, following the Bank Merger, NCB to perform First National's
obligations concerning the indemnification its directors and officers as
provided in Article Tenth of First National's Articles of Association. Any
amendment to Article Tenth of the Articles of Association of First National
after the Effective Time shall not apply to events occurring prior to the
Effective Time.
(b) For a period of one year after the Effective Time, Keystone shall use
its best efforts to provide for the directors and officers of NAB and the NAB
Subsidiaries directors' and officers' liability "tail" coverage with respect to
claims made after the Effective Time arising from facts or events which occurred
before the Effective Time on such terms as are generally available in the
industry, provided that the cost thereof shall not exceed 110% of the current
annual premium for NAB's directors' and officers' liability policy.
(c) The obligations of Keystone under this Section 6.12 are intended to
benefit, and be enforceable against Keystone directly by the directors and
officers of NAB and the NAB Subsidiaries.
ARTICLE VII
AMENDMENT, WAIVER AND TERMINATION
---------------------------------
7.01. Amendment. Subject to applicable law, this Agreement or the Merger
---------
Agreement may be amended in any respect by an instrument in writing signed by an
authorized officer of each of the parties thereto, whether before or after the
NAB Shareholders' Meeting, except that no such amendment after the NAB
Shareholders' Meeting shall affect the rate of exchange of NAB Common Stock for
Keystone Common Stock provided in the Merger Agreement or change the form of
such consideration.
7.02. Waiver. Keystone or NAB may (i) extend the time for performance of
------
any of the obligations of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party, (iii) waive compliance by the
other party with any of its covenants or agreements contained herein and (iv)
waive the fulfillment of any condition to its obligations hereunder other than
those set forth in Section 2.01 hereof, all of the foregoing to the fullest
extent permitted by law.
7.03. Termination. Notwithstanding prior approval by the shareholders of
-----------
NAB, this Agreement may be terminated and the Merger abandoned:
(a) by mutual written consent of each of the parties hereto at any
time prior to the Effective Time; or
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<PAGE>
(b) by either party in the event of a material breach of a
representation and warranty or covenant of the other party contained
herein, which breach has not been cured within 30 days after written
notice of such breach is given to the breaching party by the party
electing to terminate; or
(c) by either party at any time after the shareholders of NAB shall
fail to approve this Agreement and the Merger Agreement in a vote taken at
a meeting duly convened for that purpose, provided that the party electing
to terminate shall have performed its obligations under Section 6.03
hereof; or
(d) by either party at any time after a final judicial or
regulatory determination (as to which all periods for appeal have expired
and no appeal shall be pending) denying any regulatory approval required
for the Merger or imposing conditions or requirements which Keystone in
its reasonable judgment has determined to be materially adverse to its
interests; or
(e) by either party at any time after June 30, 1996 in the event of
failure to satisfy any of the conditions to the obligations of the party
electing to terminate, if such failure occurred despite the good faith
effort of such party to perform all agreements and covenants and to
satisfy all conditions required to be performed or satisfied by it;
provided, however, that if the failure to satisfy such conditions results
from a delay in receiving the approval of the Federal Reserve Board, then
the deadline for satisfying such conditions shall be extended to September
30, 1996; or
(f) by NAB in the event that (i) the average of the closing bid
prices for Keystone Common Stock on the NASDAQ National Market System
shall be less than $25.50 per share for any period of 20 consecutive
trading days or (ii) the closing bid price for Keystone Common Stock on
the NASDAQ National Market System on the day before the date of the
Closing shall be less than $25.50 per share.
Termination pursuant to subparagraphs (b) through (f) of this Section 7.03
shall be effected by written notice provided by the terminating party in
accordance with Section 8.06 hereof. Notice of termination pursuant to
subparagraph (f) of this Section 7.03 shall be effective only if given within
five business days following the close of the 20 trading day period referred to
therein or by the close of business on the date of the Closing, as the case may
be.
7.04. Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 7.03, this Agreement and the Merger Agreement
shall forthwith become void, and there shall be no liability on the part of
either party or their respective officers or directors except (i) as set forth
in Sections 8.02, 8.07 and 8.08 hereof and (ii) in the event of a willful breach
of this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
------------------------
8.01. Closing and Effective Time. The closing of the transactions
--------------------------
contemplated by this Agreement and the Merger Agreement (the "Closing") shall
take place at the offices of Keystone, One Keystone Plaza, Front & Market
Streets, Harrisburg, Pennsylvania at 10:00 a.m., local time, on the second
business day following the fulfillment of all conditions set forth in Section
2.01 hereof, or at such other place, time and date as the parties shall agree.
Subject to the fulfillment or waiver at or prior to the Closing of all other
conditions to its obligations to consummate the Merger, each party shall execute
and deliver for filing with the Pennsylvania Department of State Articles of
Merger specifying that the Merger shall become effective at the close of
business on the date of the Closing or at such other time and date as the
parties shall agree (the "Effective Time").
8.02. Confidentiality. Each party hereto shall cause all information
---------------
obtained by it or its subsidiaries or representatives from the other party and
its subsidiaries and representatives under or in connection with this Agreement
or the negotiation hereof to be treated as confidential unless such information
is, or through no fault of
-16-
<PAGE>
such party becomes, generally available to the public or unless required by
legal process to release such information. Neither party shall use, or unless
required by legal process to release such information knowingly permit others to
use, any such information for any purpose other than in connection with this
Agreement and the transactions contemplated hereby unless such information is,
or through no fault of such party becomes, generally available to the public.
In the event of termination of this Agreement, each party will, and will cause
its subsidiaries and representatives to, return to the other all documents
(including copies thereof and extracts therefrom) obtained by it from the other
party and its subsidiaries and representatives under or in connection with this
Agreement or its negotiation and which are not publicly available.
8.03. Entire Agreement. This Agreement, together with the Merger
----------------
Agreement, the Warrant Agreement and any other agreements signed between the
parties on the date hereof, sets forth the entire understanding of the parties
with respect to the subject matter hereof and supersedes all previous agreements
or understandings between the parties with respect thereto.
8.04. Counterparts; Headings. This Agreement may be executed in several
----------------------
counterparts, and by the parties hereto on separate counterparts, each of which
will constitute an original. The headings and captions contained herein are for
reference purposes only and do not constitute a part hereof.
8.05. Further Assurances. Each party will execute and deliver such
------------------
instruments and take such other actions as the other party hereto may reasonably
request in order to carry out the intent and purposes hereof and of the Merger
Agreement.
8.06. Communications. All notices and other communications hereunder
--------------
shall be in writing and will be deemed to have been given if delivered by hand
or express carrier, telecopied with acknowledgment of receipt, or mailed by
first-class or by registered or certified mail, postage prepaid, addressed as
follows:
If to Keystone:
Keystone Financial, Inc.
One Keystone Plaza
Front & Market Streets
P.O. Box 3660
Harrisburg, PA 17105-3660
Telecopier: 717-231-5759
Attention: Ben G. Rooke, Esquire
With a copy to:
Reed Smith Shaw & McClay
James H. Reed Building
435 Sixth Avenue
Pittsburgh, PA 15219-1886
Telecopier: 412-288-3063
Attention: Nelson W. Winter, Esquire
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<PAGE>
If to NAB:
National American Bancorp, Inc.
312 Main Street
Towanda, PA 18848
Telecopier: 717-265-1960
Attention: David S. Packard, President
and Chief Executive Officer
With a copy to:
Dilworth, Paxson, Kalish & Kauffman
3200 Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Telecopier: 215-575-7200
Attention: J. Roger Williams, Jr., Esquire
or at such other address or addresses as may hereafter be furnished by the
addressee party in accordance with this Section 8.06. All such notices and
other communications shall be deemed to have been duly given as follows: when
delivered by hand, if personally delivered; five business days after being
deposited in the mail, postage prepaid, if delivered by mail; when receipt
acknowledged, if telecopied; and the next business day after being delivered to
an overnight delivery service.
8.07. Expenses. Each party shall pay its own expenses incident to
--------
preparing for, entering into and carrying out this Agreement and to the
consummation of the Merger, including fees of its accountants, attorneys and
investment advisors, except that, whether or not the Merger shall be
consummated, Keystone and NAB shall each pay 50% of (i) all printing costs
related to the Registration Statement, the Proxy Statement/Prospectus and the
solicitation of proxies for the NAB Shareholders' Meeting and (ii) all filing
fees and all legal, accounting and other third-party fees and expenses related
to the tax opinion referred to in Section 2.01(d) hereof and the applications
for approval of the Merger by the Federal Reserve Board and the Department,
provided, however that the maximum amount payable by NAB pursuant to clauses (i)
and (ii) of this sentence shall be limited to $50,000. Notwithstanding the
foregoing, if the Merger is not effected as a consequence, directly or
indirectly, of a change in control of NAB which would require the filing of a
report under Item 1 of Form 8-K under the Exchange Act, NAB shall reimburse
Keystone for all of its reasonable out-of-pocket expenses incurred in connection
with this Agreement and the transactions contemplated hereby up to a maximum
amount of $200,000.
8.08. Brokers. Keystone and NAB each represents and warrants that except
-------
as disclosed in writing to the other party on or prior to the date hereof,
neither it nor any of its subsidiaries is obligated to pay any brokerage
commissions, finder's fees or other like payments in connection with the
transactions contemplated hereby. Each party agrees to pay or discharge and to
indemnify and hold the other and its subsidiaries harmless from and against any
and all claims or liabilities for brokerage commissions, finder's fees and other
like payments incurred by such party or its subsidiaries in connection with the
transactions contemplated hereby.
8.09. Survival. The representations and warranties of the parties
--------
contained herein or in any schedule or certificate delivered in connection
herewith will not survive the Closing and Effective Time but will expire with
and be terminated and extinguished by the consummation of the Merger
contemplated hereby.
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<PAGE>
8.10. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the Commonwealth of Pennsylvania without regard
to principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[CORPORATE SEAL]
Attest: NATIONAL AMERICAN BANCORP, INC.
/s/ John F. Langan By /s/ David S. Packard
- ----------------------------------- --------------------------------
John F. Langan, David S. Packard, President
Secretary and Chief Executive Officer
[CORPORATE SEAL]
Attest: KEYSTONE FINANCIAL, INC.
/s/ Ben G. Rooke By /s/ Carl L. Campbell
- ----------------------------------- --------------------------------
Ben G. Rooke, Carl L. Campbell, President
Secretary and Chief Executive Officer
-19-
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT dated as of July 26, 1995 between KEYSTONE FINANCIAL, INC.,
a Pennsylvania corporation ("Keystone"), and NATIONAL AMERICAN BANCORP, INC., a
Pennsylvania corporation ("NAB"),
W I T N E S S E T H:
-------------------
WHEREAS, Keystone and NAB have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Reorganization Agreement") which
provides, among other things, for the merger of NAB and Keystone (the "Merger");
NOW, THEREFORE, in consideration of their mutual covenants and agreements
contained herein and in the Reorganization Agreement, and for the purpose of
stating the method, terms and conditions of the Merger, including the rights of
the shareholders of NAB, and such other details and provisions as are deemed
desirable, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. The Merger. Subject to the terms and conditions of this Agreement and
----------
the Reorganization Agreement, and in accordance with the laws of the
Commonwealth of Pennsylvania, at the Effective Time (as defined in Section 8.01
of the Reorganization Agreement) NAB shall be merged with and into Keystone,
which shall be the surviving corporation.
2. Articles of Incorporation. The Articles of Incorporation of Keystone
-------------------------
as in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the surviving corporation.
3. By-Laws. The By-Laws of Keystone as in effect immediately prior to
-------
the Effective Time shall be the By-Laws of the surviving corporation.
4. Conversion of NAB Shares. (a) Subject to the provisions of Section 5
------------------------
hereof with respect to the payment of fractional shares in cash and Section 7
hereof with respect to dissenters' rights, upon the Merger becoming effective,
each share of Common Stock, par value $5.00 per share, of NAB ("NAB Common
Stock") shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into a number of shares of Common Stock, par value
$2.00 per share, of Keystone ("Keystone Common Stock") equal to the Exchange
Ratio, as hereinafter defined. No change will be made by reason of the Merger
in the shares of Keystone Common Stock outstanding immediately prior to the
Effective Time.
(b) For purposes of this Agreement, the following terms shall have the
meanings indicated below:
(i) The "Exchange Ratio" shall be determined as follows:
(A) divide $60.00 (the "Formula Price") by the Twenty-Day
Average Last Bid Price, the resulting quotient being referred to
herein as the "Formula Number;"
(B) (1) if the Formula Number is less than or equal to
2.000, then the Exchange Ratio shall be 2.000;
(2) if the Formula Number is greater than or equal to
2.200, then the Exchange Ratio shall be 2.200; and
A-1
<PAGE>
(3) if the Formula Number is greater than 2.000 but less than
2.200, then the Exchange Ratio shall be the Formula Number, rounded
to the nearest thousandth.
(ii) "Last Bid Price" for Keystone Common Stock for any NASDAQ
Trading Day shall mean the last bid price for Keystone Common Stock
reported on NASDAQ as of 4:00 p.m., Eastern Time, on such NASDAQ Trading
Day (or, if NASDAQ shall fail to report such last bid price for any NASDAQ
Trading Day, then the "Last Bid Price" for such NASDAQ Trading Day shall
be the Last Bid Price for the most recent NASDAQ Trading Day for which
such a last bid price was reported).
(iii) "NASDAQ Trading Day" shall mean a full trading day for the
National Market System of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ").
(iv) "Twenty-Day Average Last Bid Price" shall mean the arithmetic
average of the Last Bid Prices for Keystone Common Stock for the twenty
consecutive NASDAQ Trading Days commencing with (and including) the
thirtieth NASDAQ Trading Day before (and not including) the day of the
Effective Time and ending with (and including) the eleventh NASDAQ Trading
Day before (and not including) the day of the Effective Time.
(c) If after the date of this Agreement and prior to the Effective Time
the number of outstanding shares of Keystone Common Stock or NAB Common Stock
shall have been increased or decreased by reason of a dividend payable in shares
of Common Stock or a split or combination of outstanding shares, or if pursuant
to Section 24 of the Keystone Rights Agreement (as defined in the Reorganization
Agreement) all Rights (as defined in the Keystone Rights Agreement) then
outstanding (other than Rights which have become void pursuant to Section 7(f)
of the Keystone Rights Agreement) shall have been exchanged for shares of
Keystone Common Stock, then the Exchange Ratio shall be adjusted (a) in the case
of any such event involving the Keystone Common Stock by multiplying the figures
2.000 and 2.200 as used in the definition of the Exchange Ratio (the "Collar
Limits") by a fraction the numerator of which shall be the number of shares of
Keystone Common Stock issued and outstanding immediately after such event and
the denominator of which shall be the number of shares of Keystone Common Stock
issued and outstanding immediately prior to such event and (b) in the case of
any such event involving the NAB Common Stock by multiplying the Formula Price
and the Collar Limits by a fraction the numerator of which shall be the number
of shares of NAB Common Stock issued and outstanding immediately prior to such
event and the denominator of which shall be the number of shares of NAB Common
Stock issued and outstanding immediately after such event. The Exchange Ratio
shall also be appropriately adjusted to reflect any capital reorganization
involving the reclassification of the Keystone Common Stock or the NAB Common
Stock subsequent to the date of this Agreement and prior to the Effective Time.
Similar adjustments shall be made to the amount payable in lieu of fractional
shares.
5. Surrender and Exchange of NAB Certificates. As promptly as
------------------------------------------
practicable after the Effective Time, Keystone shall cause to be sent to each
person who immediately prior to the Effective Time was a holder of record of NAB
Common Stock transmittal materials and instructions for surrendering
certificates for NAB Common Stock ("Old Certificates") in exchange for a
certificate or certificates for the number of whole shares of Keystone Common
Stock to which such person is entitled under Section 4 hereof.
No certificates for fractional shares of Keystone Common Stock shall be
issued in connection with the Merger. In lieu thereof, Keystone shall issue to
any holder of NAB Common Stock certificates otherwise entitled to a fractional
share, upon surrender of such certificates in accordance with the instructions
furnished by Keystone, a check for an amount of cash equal to the fraction of a
share of Keystone Common Stock represented by the certificates so surrendered
multiplied by the value of $28.57 for one whole share of Keystone Common Stock.
If any dividend on Keystone Common Stock is declared after the Effective
Time, the declaration shall include dividends on all whole shares of Keystone
Common Stock into which shares of NAB Common Stock have been converted under
this Agreement, but no former holder of record of NAB Common Stock shall be
entitled to receive payment of any such dividend until surrender of the
shareholder's Old Certificates shall have been effected
A-2
<PAGE>
in accordance with the instructions furnished by Keystone. Upon surrender for
exchange of a shareholder's Old Certificates, such shareholder shall be entitled
to receive from Keystone an amount equal to all such dividends (without interest
thereon and less the amount of taxes, if any, which may have been imposed or
paid thereon) declared, and for which the payment date has occurred, on the
whole shares of Keystone Common Stock into which the shares represented by such
Old Certificates have been converted.
After the Effective Time, there shall be no transfer on the stock transfer
books of NAB or Keystone of shares of NAB Common Stock. If Old Certificates are
presented for transfer after the Effective Time, they shall be cancelled and
certificates representing whole shares of Keystone Common Stock (and a check in
lieu of any fractional share) shall be issued in exchange therefor as provided
herein.
6. Failure to Surrender Old Certificates. In the event that any Old
-------------------------------------
Certificates have not been surrendered for exchange in accordance with Section 5
hereof on or before the second anniversary of the Effective Time, Keystone may
at any time thereafter, with or without notice to the holders of record of such
Old Certificates, sell for the accounts of any or all of such holders pursuant
to Section 1532 of the Pennsylvania Business Corporation Law any or all of the
shares of Keystone Common Stock which such holders are entitled to receive under
Section 4 hereof (the "Unclaimed Shares"). Any such sale may be made by public
or private sale or sale at any broker's board or on any securities exchange in
such manner and at such times as Keystone shall determine. If in the opinion of
counsel for Keystone it is necessary or desirable, any Unclaimed Shares may be
registered for sale under the Securities Act of 1933 and applicable state laws.
Keystone shall not be obligated to make any sale of Unclaimed Shares if it shall
determine not to do so, even if notice of sale of the Unclaimed Shares has been
given. The net proceeds of any such sale of Unclaimed Shares shall be held for
the holders of the unsurrendered Old Certificates whose Unclaimed Shares have
been sold, to be paid to them upon surrender of their Old Certificates. From
and after any such sale, the sole right of the holders of the unsurrendered Old
Certificates whose Unclaimed Shares have been sold shall be the right to collect
the net sale proceeds held by Keystone for their respective accounts, and such
holders shall not be entitled to receive any interest on such net sale proceeds
held by Keystone.
7. Dissenters' Rights of NAB Shareholders. The rights and remedies of a
--------------------------------------
dissenting shareholder under Subchapter D of Chapter 15 of the Pennsylvania
Business Corporation Law, as amended, shall be afforded to any holder of NAB
Common Stock who objects to this Agreement and who takes the necessary steps to
perfect the rights of a dissenting shareholder.
8. Termination and Amendment. Notwithstanding prior approval by the
-------------------------
shareholders of NAB, this Agreement shall be terminated and the Merger shall be
abandoned in the event that prior to the Effective Time the Reorganization
Agreement is terminated as provided therein. If there is such termination after
the delivery of Articles of Merger to the Pennsylvania Department of State, the
parties shall execute and file prior to the Effective Time with such Department
a statement of termination pursuant to Section 1902 of the Pennsylvania Business
Corporation Law. Notwithstanding prior approval by the shareholders of NAB,
this Agreement may be amended in any respect in the manner and subject only to
the limitations set forth in Section 7.01 of the Reorganization Agreement.
9. Counterparts; Headings. This Agreement may be executed in several
----------------------
counterparts, and by the parties hereto on separate counterparts, each of which
will constitute an original. The headings and captions contained herein are for
reference purposes only and do not constitute a part hereof.
A-3
<PAGE>
10. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the Commonwealth of Pennsylvania without regard to
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly
authorized, have executed this Agreement as of the day and year first above
written.
[CORPORATE SEAL]
Attest: NATIONAL AMERICAN BANCORP, INC.
/s/ John F. Langan By /s/ David S. Packard
- ---------------------------------- ---------------------------------
John F. Langan, David S. Packard, President
Secretary and Chief Executive Officer
[CORPORATE SEAL]
Attest: KEYSTONE FINANCIAL, INC.
/s/ Ben G. Rooke By /s/ Carl L. Campbell
- ---------------------------------- ----------------------------------
Ben G. Rooke, Carl L. Campbell, President
Secretary and Chief Executive Officer
A-4
<PAGE>
EXHIBIT 5.1
REED SMITH SHAW & MCCLAY
435 SIXTH AVENUE
MAILING ADDRESS: WASHINGTON, DC
P.O. BOX 2009 PITTSBURGH, PA 15219-1886 PHILADELPHIA, PA
PITTSBURGH, PA 15230-2009 HARRISBURG, PA
412-288-3063 McCLEAN, VA
FACSIMILE 412-288-3063 PRINCETON, NJ
WRITER'S DIRECT DIAL NUMBER
September 29, 1995
Keystone Financial, Inc.
One Keystone Plaza
Front and Market Streets
P.O. Box 3660
Harrisburg, Pennsylvania 17105-3660
Gentlemen:
We have acted as counsel to Keystone Financial, Inc. ("Keystone") in
connection with the Agreement and Plan of Reorganization and the related
Agreement and Plan of Merger, each dated as of July 26, 1995 (collectively, the
"Plan of Merger"), between Keystone and National American Bancorp, Inc. ("NAB").
The Plan of Merger provides for the merger of NAB with and into Keystone (the
"Merger"). At the time the Merger becomes effective, each issued and outstanding
share of common stock, par value $5.00 per share, of NAB ("NAB Common Stock")
(other than shares as to which the holders exercise dissenters' rights) will be
converted into the right to receive not less than 2.00 nor more than 2.20 shares
of common stock, par value $2.00 per share, of Keystone ("Keystone Common
Stock") in accordance with the formula provided in the Plan of Merger.
We are also acting as counsel to Keystone in connection with the
Registration Statement on Form S-4 (the "Registration Statement") to be filed by
Keystone with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, the shares of Keystone
Common Stock into which outstanding NAB Common Stock may be converted in the
Merger. This opinion is being furnished to you for the purpose of being filed as
an Exhibit to the Registration Statement .
In connection with this opinion we have examined, among other things:
(1) an executed copy of the Plan of Merger;
(2) a copy certified to our satisfaction of the Restated Articles of
Incorporation of Keystone as in effect on the date hereof;
(3) copies certified to our satisfaction of resolutions adopted by the
Board of Directors of Keystone on May 11 and September 27, 1995,
including resolutions approving the Plan of Merger; and
(4) such other documents, corporate proceedings, statutes and decisions
as we considered necessary to enable us to furnish this opinion.
We have assumed for the purposes of this opinion that:
(1) the Plan of Merger has been duly and validly authorized, executed
and delivered by NAB; and
(2) the Merger will be consummated in accordance with the terms of the
Plan of Merger.
<PAGE>
REED SMITH SHAW & MCCLAY
Keystone financial, Inc. -2- September 29, 1995
Based upon the foregoing, we are pleased to advise you that in our
opinion, the shares of Keystone Common Stock into which the outstanding NAB
Common Stock will be converted in the Merger will, at the time the Merger
becomes effective, be duly authorized, validly issued, fully paid and
nonassessable shares of Keystone Common Stock.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Opinions" in the Proxy Statement/Prospectus forming a part of the Registration
Statement.
Yours truly,
/s/ Reed Smith Shaw & McClay
REED SMITH SHAW & McCLAY
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and the related Proxy Statement/Prospectus of
Keystone Financial, Inc. for the registration of 1,298,763 shares of its common
stock and to the incorporation by reference therein of our report dated January
31, 1995 with respect to the consolidated financial statements of Keystone
Financial, Inc. and subsidiaries included in its Annual Report (Form 10-K) for
the year ended December 31, 1994, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
September 27, 1995
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Proxy
Statement/Prospectus which is a part of this Registration Statement on Form S-4
of our report dated January 13, 1995, on the consolidated financial statements
of National American Bancorp, Inc. and subsidiaries. We also consent to the
references made to us under the caption "Experts" in such Proxy
Statement/Prospectus.
/s/ Parente, Randolph, Orlando, Carey & Associates
PARENTE, RANDOLPH, ORLANDO, CAREY & ASSOCIATES
Wilkes-Barre, Pennsylvania
September 29, 1995
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of Keystone
Financial, Inc. of our report dated January 14, 1994, except for Note 13 as to
which the date is January 18, 1994, on our audits of the consolidated financial
statements of The Frankford Corporation and subsidiaries as of December 31, 1993
and for the years ended December 31, 1993 and 1992, which report is included in
the Annual Report on Form 10-K of Keystone Financial, Inc. for the year ended
December 31, 1994.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
September 26, 1995
<PAGE>
EXHIBIT 23.6
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Keystone Financial, Inc. on Form S-4 and the related Proxy Statement/Prospectus
of our report with respect to the consolidated financial statements of Elmwood
Bancorp, Inc. and subsidiary as of December 31, 1993 and for each of the two
years ended December 31, 1993, dated January 24, 1994, appearing in and
incorporated by reference in the Annual Report on Form 10-K of Keystone
Financial, Inc. for the year ended December 31, 1994.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
September 29, 1995
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement on Form S-4 and the related Proxy Statement/Prospectus of our report
dated January 28, 1994, with respect to the consolidated financial statements of
WM Bancorp and subsidiaries as of December 31, 1993 and for the years ended
December 31, 1993 and 1992, which report is included in the Annual Report on
Form 10-K of Keystone Financial, Inc. for the year ended December 31, 1994.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Baltimore, Maryland
September 27, 1995
<PAGE>
EXHIBIT 99.1
[PRELIMINARY COPY]
NATIONAL AMERICAN BANCORP, INC.
312 MAIN STREET
TOWANDA, PENNSYLVANIA 18848-0500
October _____, 1995
Dear Shareholder:
A Special Meeting of Shareholders ("Special Meeting") of National American
Bancorp, Inc. ("NAB") will be held on Tuesday, November 21, 1995 at 10:00 a.m.,
local time, at the main office of NAB, 312 Main Street, Towanda, Pennsylvania.
The purpose of the Special Meeting is to consider and vote on a proposal
to approve an Agreement and Plan of Reorganization and Agreement and Plan of
Merger (collectively, the "Plan of Merger") between NAB and Keystone Financial,
Inc. ("Keystone") pursuant to which NAB will be merged with and into Keystone
(the "Merger").
If the Merger becomes effective, each outstanding share of Common Stock of
NAB will be converted into not less than 2.00 nor more than 2.20 shares of
Common Stock of Keystone as described in the accompanying Proxy
Statement/Prospectus.
After careful consideration, your Board of Directors has unanimously
approved the proposed Merger as being in the best interests of NAB and its
shareholders. In order for the Merger to be consummated, the Plan of Merger
must be approved by the affirmative vote of a majority of the shares of NAB
Common Stock represented in person or by proxy at the Special Meeting. The
Board of Directors recommends that you vote in favor of the proposal presented
at the Special Meeting.
Attached is a Notice of Special Meeting and a Proxy Statement/Prospectus
containing a more complete description of the terms of the Merger and the
related transactions. We urge you to carefully read the enclosed material and
to complete, sign, date and return the enclosed proxy card as soon as possible
in the enclosed stamped envelope.
David S. Packard
President and Chief Executive Officer
<PAGE>
EXHIBIT 99.2
[PRELIMINARY COPY]
NATIONAL AMERICAN BANCORP, INC.
312 MAIN STREET
TOWANDA, PENNSYLVANIA 18848-0500
____________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 21, 1995
____________________
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of National
American Bancorp, Inc. (the "Corporation") will be held on Tuesday, November 21,
1995 at 10:00 a.m., local time, at the main office of the Corporation, 312 Main
Street, Towanda, Pennsylvania, for the purpose of considering and acting upon
the following:
1. Approval of the Agreement and Plan of Reorganization and the Agreement
and Plan of Merger, each dated as of July 26, 1995, between the
Corporation and Keystone Financial, Inc., a Pennsylvania corporation
("Keystone"), which provide for the merger of the Corporation into
Keystone and the conversion of each outstanding share of the
Corporation's Common Stock into not less than 2.00 nor more than 2.20
shares of Keystone Common Stock, as described in the accompanying Proxy
Statement/Prospectus;
2. Such other matters as may properly come before the Special Meeting or
any adjournments thereof.
Only shareholders of record at the close of business on October 10, 1995
are entitled to notice of and to vote at the Special Meeting.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE SPECIAL MEETING. If you attend the Special Meeting you may, if you
wish, withdraw your proxy and vote your shares in person by ballot.
By Order of the Board of Directors
John F. Langan, Secretary
October _____, 1995
<PAGE>
EXHIBIT 99.3
[PRELIMINARY COPY]
NATIONAL AMERICAN BANCORP, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Elton L. Pepper, Elbert O. Remsnyder and James
E. Meredith, or any of them, as proxies, with full power of substitution, to
vote all shares of Common Stock of National American Bancorp, Inc. which the
undersigned is entitled to vote at the Special Meeting of Shareholders to be
held November 21, 1995 and at any adjournments thereof, as follows:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 1.
1. Approval of the Agreement and Plan of
Reorganization and the Agreement and Plan of
Merger dated as of July 26, 1995 between the
Corporation and Keystone Financial, Inc.,
which provide for the merger of the
Corporation into Keystone and the conversion
of each outstanding share of the
Corporation's Common Stock into not less
than 2.00 nor more than 2.20 shares of
Keystone Common Stock, as described in the
Proxy Statement/Prospectus.................. FOR [] AGAINST [] ABSTAIN []
2. To vote in their discretion on such other matters as may properly come
before the Special Meeting or any adjournments thereof.
(continued)
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEM 1.
Dated:_____________________________, 1995
_________________________________________
Signature
_________________________________________
Signature
Please sign exactly as name appears
hereon. For joint accounts, each joint
owner should sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign the full corporate name by
President or other authorized officer,
giving your full title as such. If a
partnership, please sign in the
partnership name by authorized person,
giving your full title as such.
PLEASE MARK, DATE, EXECUTE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT 99.4
INVESTMENT AGREEMENT
--------------------
THIS AGREEMENT dated as of July 26, 1995 (the "Agreement") between
---------
KEYSTONE FINANCIAL, INC. ("Keystone") and NATIONAL AMERICAN BANCORP, INC. (the
--------
"Corporation"),
- ------------
W I T N E S S E T H:
-------------------
WHEREAS, Keystone and the Corporation have, simultaneously with executing
this Agreement, entered into an Agreement and Plan of Reorganization and an
Agreement and Plan of Merger dated as of the date hereof (collectively, the
"Plan"); and
----
WHEREAS, as a condition to Keystone's entry into the Plan and in
consideration of such entry, the Corporation has agreed to issue to Keystone, on
the terms and conditions set forth herein, warrants entitling Keystone to
purchase up to an aggregate of 142,691 shares (the "Shares") of the
------
Corporation's common stock, par value $5.00 per share (the "Common Stock");
------------
NOW, THEREFORE, in consideration of the execution of the Plan and the
agreements herein contained, Keystone and the Corporation agree as follows:
1. Concurrently with the execution of the Plan and this Agreement, the
Corporation shall issue to Keystone a warrant or warrants in the form of
Attachment A hereto (the "Warrant", which term as used herein shall include any
-------
warrants issued upon transfer or exchange of the original Warrant or pursuant to
Paragraph 8 of this Agreement) to purchase up to 142,691 Shares of the Common
Stock. Each Warrant shall be exercisable at a price per Share of $60.00,
subject to adjustment as therein provided (the "Exercise Price"). So long as
--------------
the Warrant is outstanding and unexercised, the Corporation shall at all times
maintain and reserve, free from preemptive rights, such number of authorized but
unissued or treasury shares of Common Stock as may be necessary so that the
Warrant may be exercised without 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. The
Corporation represents and warrants that it has duly authorized the issuance of
the Shares upon exercise of the Warrant and covenants that the Shares issued
upon exercise of the Warrant shall be duly authorized, validly issued and fully
paid and nonassessable and subject to no preemptive rights. The Warrant and the
Shares are hereinafter collectively referred to, from time to time, as the
"Securities".
- -----------
So long as the Warrant is owned by Keystone, in no event shall Keystone
exercise the Warrant for a number of shares of Common Stock, which when added to
the number of shares of Common Stock owned or controlled by Keystone (otherwise
than in a fiduciary capacity) would result in Keystone owning or controlling
(otherwise than in a fiduciary capacity) more than 19.9% of the shares of Common
Stock issued and outstanding immediately after giving effect to such exercise.
2. Subject to the terms and conditions hereof, Keystone may exercise or
sell the Warrant, in whole or in part, upon: (i) a willful breach of the Plan by
the Corporation which would permit termination of the Plan by Keystone; (ii) the
failure of the Corporation's shareholders to approve the Plan at a meeting
called for such purpose after the announcement by any person (other than
Keystone or any of its affiliates) of a bona fide offer or proposal to acquire
10% or more of the Common Stock, or to acquire, merge or consolidate with the
Corporation or to purchase or acquire all or substantially all of the
Corporation's assets, First National Bank of Bradford County (the "Bank") or all
----
or substantially all of the Bank's assets; (iii) the acquisition by any person
(other than Keystone or any of its affiliates) after the date of this Agreement
of beneficial ownership of 1% or more of the outstanding Common Stock if
following such acquisition such person would beneficially own 10% or more of the
Common Stock, in each case exclusive of shares of Common Stock sold directly or
indirectly to such person by Keystone or any of its affiliates; (iv) any person
(other than Keystone or any of its affiliates) shall have commenced a bona fide
<PAGE>
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 the Corporation such that, upon consummation
of such offer, such person would own, control or have the right to acquire 10%
or more of the Common Stock (before giving effect to any exercise of the
Warrant); or (v) the Corporation shall have entered into an agreement or other
understanding with a person (other than Keystone or any of its affiliates) for
such person to acquire, merge or consolidate with the Corporation or to purchase
or acquire all or substantially all of the Corporation's assets, the Bank or all
or substantially all of the Bank's assets. As used in this Paragraph 2,
"person" and "beneficial ownership" shall have the same meanings as in the
Warrant.
Notwithstanding the foregoing, the Corporation shall not be obligated to
issue Shares upon exercise of the Warrant (i) in the absence of any required
governmental or regulatory approval or consent necessary for the Corporation to
issue the Shares or for Keystone to exercise the Warrant or prior to the
expiration or termination of any waiting period required by law or (ii) so long
as any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale or
delivery of the Shares. Keystone's right to exercise the Warrant shall terminate
and be of no further effect, except as to notices of exercise given prior
thereto, upon termination of the Warrant as provided in Paragraph 10 thereof.
Any sale of the Warrant, in whole or in part, or any of the Shares by
Keystone, other than a registered public offering pursuant to Paragraph 3 hereof
or a sale to a majority-owned subsidiary of Keystone, shall be subject to the
right of first refusal of the Corporation (or any assignee or assignees of the
Corporation the identity of whom or which prior to the date thereof has been
given to Keystone) at a price equal to the written offer price which Keystone
receives from a third party (other than a majority-owned subsidiary of Keystone)
and intends to accept. The right of first refusal shall terminate 15 days after
notice of Keystone's intention to sell has been delivered to the Corporation.
If an offer is made for a consideration which in whole or in part consists of
other than cash, the value of the noncash portion of the consideration shall be
determined by a recognized investment banking firm selected jointly by Keystone
and the Corporation, and such determination shall in no event be made later than
the fifth day after notice of Keystone's intention to sell has been delivered to
the Corporation. In the event of the failure or refusal of the Corporation to
purchase the Warrant or all the Shares covered by Keystone's notice to sell,
Keystone may, within 30 days from the date of such notice, unless additional
time is needed to give notification to or to obtain approval from any
governmental or regulatory authority and, if so required, within five days after
the date on which the required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
with respect thereto has passed, sell all, but not less than all, of the portion
of the Warrant or such Shares covered by such notice to such proposed transferee
at no less than the price specified and on terms no more favorable to the buyer
than those set forth in the notice.
3. If, at any time after the Warrant may be exercised or sold and on or
before December 31, 1997, the Corporation shall receive a written request
therefor from Keystone, the Corporation shall prepare, file and keep current a
shelf registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the Warrant and/or the Shares, and shall use its
--------------
best efforts to cause such registration statement to become effective and remain
current for a period of not more than 245 days. Without the written consent of
Keystone, neither the Corporation nor any other holder of securities of the
Corporation (other than any other holder who as of the date hereof has
contractual right to do so) may include securities in such registration
statement. The Corporation shall not be obligated to make effective more than
one registration statement pursuant to this Section 3.
4. If and whenever the Corporation is required by the provisions of
Paragraph 3 hereof to effect the registration of any of the Securities under the
Securities Act, the Corporation will:
(a) prepare and file with the Securities and Exchange Commission
(the "SEC") such amendments to such registration statement and supplements
---
to the prospectus contained therein as may be necessary to keep such
registration statement current for a period of not more than 245 days;
(b) furnish to Keystone and to Keystone's underwriters of the
Securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
-2-
<PAGE>
such other documents as Keystone 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 such registration statement under such state securities or blue
sky laws of such jurisdictions as Keystone or such underwriters may
reasonably request; provided that the Corporation shall not be required by
virtue hereof to submit to jurisdiction or to furnish a general consent to
service of process in any state;
(d) notify Keystone, promptly after the Corporation shall
receive notice thereof, of the time when such registration statement has
become effective or any supplement or amendment to any prospectus forming
a part of such registration statement has been filed;
(e) notify Keystone promptly of any request by the SEC for the
amending or supplementing of such registration statement or prospectus or
for additional information;
(f) prepare and file with the SEC, promptly upon the request of
Keystone, any amendments or supplements to such registration statement or
prospectus which, in the opinion of counsel for Keystone and the
Corporation, are required under the Securities Act or the rules and
regulations promulgated thereunder in connection with the distribution of
the Securities by Keystone;
(g) prepare and promptly file with the SEC such amendment or
supplement to such registration statement or prospectus 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 omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in which they were
made, not misleading;
(h) advise Keystone, promptly after it shall receive notice or
obtain knowledge, of the issuance of any stop order by the SEC suspending
the effectiveness of such 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 Keystone, furnish on the date or dates
provided for in the underwriting agreement: (i) an opinion or opinions of
counsel to the Corporation for the purposes of such registration,
addressed to the underwriters and to Keystone, covering such matters as
such underwriters and Keystone may reasonably request and as are
customarily covered by issuer's counsel at that time; and (ii) a letter or
letters from the independent certified public accountants of the
Corporation, addressed to the underwriters and to Keystone, covering such
matters as such underwriters or Keystone may reasonably request, in which
letters such accountants shall state (without limiting the generality of
the foregoing) that they are independent certified public accountants
within the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements and other financial data of the
Corporation 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. With respect to the registration requested pursuant to Paragraph 3
hereof, the following fees, costs and expenses shall be borne by Keystone unless
any event specified in the second paragraph of Paragraph 7 or clause (i) of the
first sentence of Paragraph 2 shall have occurred or the Corporation shall have
approved or recommended to its shareholders any third party offer or proposal
referred to in clause (ii) or (iii) of the first sentence of Paragraph 2, in
which case such fees, costs and expenses shall be borne by the Corporation: All
registration, filing and NASD fees, printing and engraving expenses, fees and
disbursements of the Corporation's counsel and accountants and all reasonable
legal fees and disbursements and other expenses of the Corporation 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.
-3-
<PAGE>
Fees and disbursements of counsel and accountants for Keystone, underwriting
discounts and commissions and transfer taxes for Keystone and any other expenses
incurred by Keystone shall be borne by Keystone.
6. In connection with any registration statement:
(a) The Corporation will indemnify and hold harmless Keystone,
any underwriter (as defined in the Securities Act) for Keystone, and each
person, if any, who controls Keystone or such underwriter (within the
meaning of the Securities Act) from and against any and all loss, damage,
liability, cost or expense to which Keystone 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 such 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
to make the statements therein, in the light of the circumstances in which
they were made, not misleading; provided, however, that the Corporation
-------- -------
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 Keystone, such underwriter
or such controlling person in writing specifically for use in the
preparation thereof.
(b) Keystone will indemnify and hold harmless the Corporation,
any underwriter (as defined in the Securities Act), and each person, if
any, who controls the Corporation or such underwriter (within the meaning
of the Securities Act) from and against any and all loss, damage,
liability, cost or expense to which the Corporation 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 such 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 to make the statements therein, in the 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 Keystone specifically for
use in the preparation thereof.
(c) Promptly after receipt by an indemnified party 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 will, if a claim in respect thereof is to be made against the
indemnifying party pursuant to the provisions of said subparagraph (a) or
(b), promptly notify the indemnifying party of the receipt of such claim
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 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 and the indemnifying party and there is a
conflict of interest which would prevent counsel for the indemnifying
party from also representing the indemnified party, the indemnified party
or parties shall have the right to select one separate counsel to
participate in the defense of such indemnified party or parties. 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 said
subparagraph (a) or (b) 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) the indemnified
party shall have employed counsel in accordance with the provisions of the
-4-
<PAGE>
preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably 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, the parties entitled to indemnification by the terms thereof
shall be entitled to contribution to 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. Keystone and the Corporation 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 Keystone as a group were considered a single entity for such purpose.
7. Subject to applicable regulatory restrictions, from and after the date
on which any event described in the second paragraph of this Paragraph 7 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
the Corporation to redeem some or all of the Shares at a redemption price per
share (the "Redemption Price") equal to the highest of (i) 110% of 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 in the Warrant) during the
twelve months immediately preceding the date notice of the election to require
redemption is given by the Holder under the third paragraph of this Paragraph 7
(as appropriately adjusted to reflect any of the events described in Paragraph
7(A) of the Warrant) and (iii) in the event of a sale of all or substantially
all of the Corporation's assets, the Bank or all or substantially all of the
Bank'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 the Corporation 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.
The Holder's right to require the Corporation to redeem some or all of the
Shares under this Paragraph 7 shall expire at the close of business on the later
of (1) the 180th day following the occurrence of any event described in the
second paragraph of this Paragraph 7 and (2) February 26, 1997.
The redemption rights provided in this Paragraph 7 shall become
exercisable upon the occurrence of any of the following events: (i) the
acquisition by any person (other than Keystone or any subsidiary of Keystone) of
beneficial ownership of 50% or more of the Common Stock (before giving effect to
any exercise of the Warrant) exclusive of shares of Common Stock sold directly
or indirectly to such person by Keystone or (ii) a transaction of the type
specified in Paragraph 2(v) shall have been consummated. As used in this
Paragraph 7 "person" and "beneficial ownership" shall have the same meanings as
------ --------------------
in the Warrant.
The Holder may exercise its right to require the Corporation to redeem
some or all of the Shares pursuant to this Paragraph 7 by surrendering for such
purpose to the Corporation at its principal office, within the time period
specified in the second preceding paragraph, a certificate or certificates
representing the number of Shares to be redeemed accompanied by a written notice
stating that it elects to require the Corporation to redeem all or a specified
number of such Shares in accordance with the provisions of this Paragraph 7. As
promptly as practicable, and in any event within five business days after the
surrender of such certificates and the receipt of such notice relating thereto,
the Corporation shall deliver or cause to be delivered to the Holder the
applicable Redemption Price for the Shares which it is not then prohibited under
applicable law or regulation from redeeming, and, if the Holder has given the
Corporation notice that less than the full number of Shares evidenced by the
surrendered certificate or certificates are to be redeemed, a new certificate or
certificates, of like tenor, for the number of Shares evidenced by such
surrendered certificate or certificates, less the number of Shares redeemed. To
the extent that the Corporation is prohibited under applicable law or
regulation, or by judicial or administrative action, from
-5-
<PAGE>
redeeming all of the Shares as to which the Holder has given notice to redeem
hereunder, the Corporation shall immediately notify the Holder and thereafter
deliver or cause to be delivered to the Holder the applicable Redemption Price
for such number of the Shares as it is not prohibited from redeeming within five
business days after the date on which the Corporation is no longer so
prohibited; provided, however, that, at the option of Keystone, at any time
-------- -------
after receipt of such notice from the Corporation, the Corporation shall deliver
to the Holder a certificate for such number of the Shares as it is then
prohibited from redeeming, or, at the Holder's option, all the Shares, and the
Corporation shall have no further obligation to redeem such Shares.
8. In the event that the Corporation issues any additional shares of
Common Stock after the date of this Agreement, the Corporation shall issue
additional warrants to Keystone, such that, after such issuance, the number of
shares of Common Stock subject to all warrants hereunder, together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
sum of (1) the number of shares of Common Stock issued and outstanding following
such issuance and (2) the number of shares of Common Stock subject to all
warrants hereunder. Such additional warrants shall be identical to the Warrant.
9. The Corporation will not enter into any transaction described in (a),
(b) or (c) of Paragraph 6(A) of the Warrant unless the Acquiring Corporation (as
defined in the Warrant) assumes in writing, in form and substance satisfactory
to the Holder, all the obligations of the Corporation hereunder.
10. If Keystone acquires Shares and, during the period ending on the
later of (1) one year after the date of such acquisition or (2) January 26, 1997
the merger contemplated by the Plan has not been completed, then, during the
thirty-day period commencing at the expiration of such period the Corporation
shall have the right to repurchase all (but not less than all) of such Shares of
Common Stock so acquired by Keystone and held by Keystone at the time of such
repurchase at a price equal to the sum of (a)(i) the greater of the current
market price or the Exercise Price paid for such Shares, multiplied by (ii) the
number of such Shares so acquired, plus (b) Keystone's after-tax carrying cost.
For the purposes of this calculation, the "current market price" shall mean the
average of the daily averages of the bid and asked price quotations for the
Common Stock for the 25 trading days immediately preceding the repurchase, as
quoted by F.J. Morrissey & Co., and Keystone's pre-tax carrying cost shall be
equal to interest on the Exercise Price paid for such Shares so purchased from
the date of purchase at the prime rate of interest established by Mellon Bank,
N.A. as in effect throughout such period, less any dividends received on such
Shares so purchased.
11. To the extent that Keystone acquires Shares, and until the
Corporation's rights (if any) to redeem such Shares pursuant to Paragraph 10 of
this Agreement have expired, Keystone agrees to vote such Shares in accordance
with the recommendation of the Board of Directors of the Corporation so long as
at least a majority of such Board of Directors is the same as on the date
hereof, except as to voting in connection with mergers, acquisitions,
liquidations or sales or other dispositions of assets involving the Corporation
or the Bank, in which instance no such restrictions shall apply, provided,
however, that the covenant contained in this Paragraph 11 shall not apply to any
Holder other than Keystone or one of its subsidiaries.
12. Without limiting the foregoing or any remedies available to Keystone,
it is specifically acknowledged that Keystone would not have an adequate remedy
at law for any breach of this Agreement and will be entitled to
-6-
<PAGE>
specific performance of the obligations under, and injunctive relief against
actual or threatened violations of the obligations of any person subject to,
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers and their corporate
seals to be hereunto affixed, all as of the day and year first above written.
[CORPORATE SEAL]
Attest: NATIONAL AMERICAN BANCORP, INC.
/s/ John F. Langan By /s/ David S. Packard
- ----------------------------------- -------------------------------------
John F. Langan, David S. Packard, President
Secretary and Chief Executive Officer
[CORPORATE SEAL]
Attest: KEYSTONE FINANCIAL, INC.
/s/ Ben G. Rooke By /s/ Carl L. Campbell
- ----------------------------------- -------------------------------------
Ben G. Rooke, Carl L. Campbell, President
Secretary and Chief Executive Officer
-7-
<PAGE>
ATTACHMENT A
WARRANT
to Purchase up to 142,691 Shares of
Common Stock
of
National American Bancorp, Inc.
This is to certify that, for value received, KEYSTONE FINANCIAL, INC.
("Keystone") or any permitted transferee (Keystone or such transferee
--------
hereinafter the "Holder") is entitled to purchase, subject to the provisions of
------
this Warrant and of the Agreement (as hereinafter defined), from NATIONAL
AMERICAN BANCORP, INC. (the "Corporation"), at any time on or after the date
-----------
hereof, an aggregate of up to 142,691 fully paid and nonassessable shares of
common stock, par value $5.00 per share (the "Common Stock") of the Corporation
------------
at a price per share equal to $60.00, 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 an Investment Agreement dated as of July
26, 1995 by and between Keystone and the Corporation (the "Agreement") executed
---------
and delivered in connection with an Agreement and Plan of Reorganization and an
Agreement and Plan of Merger dated as of July 26, 1995 between Keystone and the
Corporation (collectively, the "Plan"), this Warrant may be exercised 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 the Corporation at the
principal office of the Corporation, accompanied by (i) a written notice of
exercise, (ii) payment to the Corporation, for the account of the Corporation,
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 which 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. This Warrant may not be
exercised in part for less than 25,000 shares, except (i) for an initial
exercise resulting in ownership of approximately 5% of the outstanding shares of
Common Stock after giving effect to the exercise, (ii) as limited by applicable
law, regulation or regulatory order or (iii) when this Warrant becomes
exercisable for less than 25,000 shares, the remaining shares for which it is
then exercisable.
Upon such presentation and surrender, the Corporation shall issue promptly
(and within two business days if requested by the Holder) to the Holder or its
assignee, transferee or designee the shares of Common Stock to which the Holder
is entitled hereunder.
If this Warrant should be exercised in part only, the Corporation 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 purchasable hereunder. Upon receipt by the
Corporation 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 the Corporation
may then be closed or that certificates representing such shares of Common Stock
shall not then be actually delivered to the Holder. The Corporation 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. The
-------------------------------------------------------
Corporation shall at all times while this Warrant is outstanding and unexercised
maintain and reserve, free from preemptive rights, such number of authorized but
unissued or treasury shares of Common Stock as may be necessary so that this
Warrant may be exercised without 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. The
Corporation further agrees (i) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of
A-1
<PAGE>
any of the covenants, stipulations or conditions to be observed or performed
hereunder or under the Agreement by the Corporation, (ii) that it will use its
best efforts to take all action (including (A) complying with all premerger
notification, reporting and waiting period requirements specified in 15 U.S.C.
(S)18a and the regulations promulgated thereunder and (B) in the event that
under the Bank Holding Company Act of 1956, the Change in Bank Control Act, the
Pennsylvania Banking Code of 1965 or any other law, prior approval of the Board
of Governors of the Federal Reserve System (the "Board"), the Office of the
-----
Comptroller of the Currency (the "OCC"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Pennsylvania Department of Banking (the
"Department") and/or any other regulatory agency 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, the OCC, the
FDIC, the Department and/or any such other regulatory agency as such agencies
may require) in order to permit the Holder to exercise this Warrant and the
Corporation duly and effectively to issue shares of its Common Stock hereunder,
and (iii) that it will promptly take all action necessary to protect the rights
of the Holder against dilution as provided herein.
3. Fractional Shares. The Corporation shall not be required to issue
-----------------
fractional shares of Common Stock upon exercise of this Warrant but shall pay
for such fraction of a share in cash or by certified or official bank check in
an amount equal to the product of such fraction of a share and the Exercise
Price.
4. Exchange, Transfer or Loss of Warrant. This Warrant is exchangeable
-------------------------------------
or, subject to Paragraph 2 of the Investment Agreement, transferable, without
expense, at the option of the Holder, upon presentation and surrender hereof at
the principal office of the Corporation for other Warrants of different
denominations entitling the Holder to purchase in the aggregate the same number
of shares of Common Stock purchasable hereunder. The term "Warrant" as used
-------
herein includes any Warrants for which this Warrant may be exchanged. Upon
receipt by the Corporation 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, the Corporation will
execute and deliver a new Warrant of like tenor and date.
This Warrant may not be exercised or sold except in accordance with the
terms of the Agreement.
5. Redemption. (A) Subject to applicable regulatory restrictions, from
----------
and after the date on which any event described in the second paragraph of
Paragraph 7 of the Agreement occurs, the Holder shall have the right to require
the Corporation to redeem this Warrant at a redemption price (the "Redemption
----------
Amount") equal to the highest of (i) the number of shares of Common Stock for
- ------
which this Warrant is then exercisable (the "Conversion Number") multiplied by
-----------------
the Exercise Price multiplied by .10, (ii)(x) the highest price paid or agreed
to be paid for any share of Common Stock by the Acquiring Person (as hereinafter
defined) during the twelve months immediately preceding the date notice of the
election to require redemption is given by the Holder under Paragraph 5(B) (such
price to be appropriately adjusted to reflect the effect of any of the events
described in Paragraph 7(A) hereof), less the Exercise Price, multiplied by (y)
the Conversion Number, and (iii) in the event of the sale of all or
substantially all of the assets of the Corporation, First National Bank of
Bradford County (the "Bank") or all or substantially all of the Bank's assets,
----
the Conversion Number multiplied by (x)(I) the sum of (a) the price paid for
such assets, (b) the current market value of the remaining assets of the
Corporation, as determined by a recognized investment banking firm selected by
the Holder, and (c) the Exercise Price multiplied by the Conversion Number,
divided by (II) the sum of the number of shares of Common Stock then outstanding
and the Conversion Number, less (y) the Exercise Price. If, for the purpose of
this calculation or calculating the Assigned Value (as hereinafter defined), 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.
The Holder's right to require the Corporation to redeem this Warrant under this
Paragraph 5 shall expire at the close of business on the later of (1) the 180th
day following the occurrence of any event described in the second paragraph of
Paragraph 7 of the Agreement and (2) February 26, 1997.
(B) The Holder of this Warrant may exercise its right to require the
Corporation to redeem this Warrant pursuant to this Paragraph 5 by surrendering
for such purpose to the Corporation, at its principal office, within the
A-2
<PAGE>
period specified above, this Warrant accompanied by a written notice stating
that the Holder elects to require the Corporation to redeem this Warrant in
accordance with the provisions of this Paragraph 5. As promptly as practicable,
and in any event within ten business days after the surrender of this Warrant
and the receipt of such notice relating thereto, the Corporation shall deliver
or cause to be delivered to the Holder the Redemption Amount therefor or the
portion thereof which it is not then prohibited under applicable law and
regulation from delivering to the Holder.
To the extent that the Corporation is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from redeeming
this Warrant in full, the Corporation shall immediately notify the Holder and
thereafter deliver or cause to be delivered to the Holder the portion of the
Redemption Amount which it is no longer prohibited from delivering to the Holder
within five business days after the date on which the Corporation is no longer
so prohibited; provided, however, that, at the option of the Holder, at any time
-------- -------
after receipt of such notice, the Corporation shall deliver to the Holder a new
Warrant evidencing the right of the Holder to purchase that number of shares of
Common Stock obtained by multiplying the Conversion Number in effect at such
time by a fraction, the numerator of which is the Redemption Amount less the
portion thereof (if any) theretofore delivered to the Holder and the denominator
of which is the Redemption Amount, and the Corporation shall have no further
obligation to redeem such new Warrant.
(C) As used in this Warrant the following terms have the meanings
indicated:
(a) "Acquiring Person" shall mean any "Person" (hereinafter
----------------
defined) who or which shall be the "Beneficial Owner" (as hereinafter
defined) of 10% or more of the Common Stock;
(b) A "Person" shall mean any individual, firm, corporation or
------
other entity and include as well any syndicate or group deemed to be a
"person" by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended;
(c) A Person shall be a "Beneficial Owner" of all securities:
----------------
(i) which such Person or any of its "Affiliates" (as
hereinafter defined) or "Associates" (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 agreement, arrangement or understanding; and
(d) "Affiliate" and "Associate" shall have the respective
--------- ---------
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations promulgated under the Securities Exchange Act of 1934, as
amended, as in effect on the date of the Agreement.
6. Certain Transactions. (A) In case the Corporation (a) shall
--------------------
consolidate with or merge into any Person, other than the Holder or one of its
Affiliates, and shall not be the continuing or surviving corporation of such
consolidation or merger, (b) shall permit any Person, other than the Holder or
one of its Affiliates, to merge into the Corporation and the Corporation shall
be the continuing or surviving corporation, but, in connection with such merger,
the then outstanding shares of Common Stock shall be changed into or exchanged
for stock or other securities of any other Person or cash or any other property
or shall represent less than 50% of the shares of Common Stock immediately after
giving effect to the merger, or (c) shall sell or otherwise transfer all or
substantially all of its assets, the Bank or all substantially all of the Bank's
assets to any Person, other than the Holder or one of its Affiliates, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that this Warrant shall (at the option of the Holder, in whole or
in part), upon the consummation of any such transaction and upon the terms and
conditions set forth herein, be converted into, or
A-3
<PAGE>
exchanged for, a warrant, at the option of the Holder, of either (I) the
Acquiring Corporation (as hereinafter defined), (II) any company which controls
the Acquiring Corporation, or (III) in the case of a merger described in clause
(A)(b), the Corporation, in which case such warrant shall be a newly issued
warrant (in any such case, the "Substitute Warrant").
------------------
(B) The following terms have the meanings indicated:
(a) "Acquiring Corporation" shall mean (I) the continuing or
---------------------
surviving corporation of a consolidation or merger with the Corporation
(if other than the Corporation), (II) the corporation merging into the
Corporation in a merger in which the Corporation is the continuing or
surviving person and in connection with which the then outstanding shares
of Common Stock are changed into or exchanged for stock of other
securities of any other Person or cash or any other property or shall
represent less than 50% of the shares of Common Stock immediately after
giving effect to the merger, and (III) the transferee of all or
substantially all of the Corporation's assets, the Bank or all or
substantially all of the Bank's assets;
(b) "Substitute Common Stock" shall mean the common stock issued
-----------------------
by the issuer of the Substitute Warrant;
(c) "Assigned Value" shall mean the Redemption Price per share
--------------
of Common Stock (as defined in Paragraph 7 of the Agreement) multiplied by
the Conversion Number;
(d) "Average Price" shall mean the average closing price (or if
-------------
unavailable, the average of the daily averages of the closing bid and
asked prices) of a share of Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question, but
in no event higher than the closing price (or average of the closing bid
and asked prices) of a share of Substitute Common Stock on the day
preceding such consolidation, merger or sale; provided that if the
Corporation is the issuer of the Substitute Warrant, the Average Price
shall be computed with respect to a share of the common stock issued by
the Person merging into the Corporation or by any company which controls
such Person, as the Holder may elect. If the Average Price cannot be
computed as aforesaid because neither closing prices nor closing bid and
asked prices are available for such one-year period, then the Average
Price shall be the average fair market value of a share of Substitute
Common Stock for such period (but in no event higher than the fair market
value on the day preceding such consolidation, merger or sale) as
determined by a recognized investment banking firm selected by Keystone.
(C) The Substitute Warrant shall have the same terms as this Warrant
provided that if the terms of the Substitute Warrant cannot, for legal reasons,
be the same as this Warrant, such terms shall be as similar as possible and in
no event less advantageous to the Holder. The issuer of the Substitute Warrant
shall also enter into an agreement with the then Holder of the Substitute
Warrant in substantially the same form as the Agreement, which shall be
applicable to the Substitute Warrant. For purposes of the Substitute Warrant
and such agreement, any event referred to in Paragraph 2 or Paragraph 7 of the
Agreement shall be deemed to have occurred when it occurred with respect to the
Corporation.
(D) The Substitute Warrant shall be immediately exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
divided by the Average Price. The exercise price of the Substitute Warrant per
share of Substitute Common Stock shall be equal to the Exercise Price multiplied
by a fraction in which the numerator is the Conversion Number and the
denominator is the number of shares of Substitute Common Stock for which the
Substitute Warrant is exercisable.
(E) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Warrant be exercisable for more than 19.9% of the aggregate of the
outstanding shares of Substitute Common Stock and the shares of Substitute
Common Stock issuable upon exercise of the Substitute Warrant.
A-4
<PAGE>
7. Adjustment. The number of shares of Common Stock purchasable upon the
----------
exercise of this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph 7:
(A)(1) In case the Corporation shall pay or make a dividend or
other distribution on any class of capital stock of the Corporation in
Common Stock, the number of shares of Common Stock purchasable 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
constituting such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day following
such distribution, provided, however, that in no event shall the Warrant
-------- -------
be exercised for more than 19.9% of the shares of Common Stock issued and
outstanding following such exercise.
(2) 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 purchasable 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
purchasable 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
the day following the day upon which such subdivision or combination
becomes effective, provided, however, that in no event shall the Warrant
-------- -------
be exercised for more than 19.9% of the shares of Common Stock issued and
outstanding following such exercise.
(3) The reclassification (excluding any transaction in which a
Substitute Warrant would be issued) 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) The Corporation may make such increases in the number of shares
of Common Stock purchasable 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.
(B) Whenever the number of shares of Common Stock purchasable upon
exercise of this Warrant is adjusted as herein provided, the Exercise
Price shall be adjusted by a fraction in which the numerator is equal to
the number of shares of Common Stock purchasable prior to the adjustment
and the denominator is equal to the number of shares of Common Stock
purchasable after the adjustment.
(C) For the purpose of this Paragraph 7, the term "Common Stock"
shall include any shares of the Corporation 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 the Corporation and which is not subject to
redemption by the Corporation.
8. Notice. (A) Whenever the number of shares for which this Warrant is
------
exercisable is adjusted as provided in Paragraph 7, the Corporation shall
promptly compute such adjustment and mail to the Holder a certificate, signed by
a principal financial officer of the Corporation, setting forth the number of
shares of Common
A-5
<PAGE>
Stock for which this Warrant is exercisable as a result of such adjustment, a
brief statement of the facts requiring such adjustment and the computation
thereof and when such adjustment will become effective.
(B) Upon the occurrence of any event which results in this Warrant
becoming redeemable, as provided in Paragraph 5, the Corporation shall promptly
notify the Holder of such event; and promptly compute the Redemption Amount and
furnish to the Holder a certificate, signed by a principal financial officer of
the Corporation, setting forth the Redemption Amount and the basis and
computation thereof.
(C) Upon the occurrence of an event which results in this Warrant
becoming convertible into, or exchangeable for, the Substitute Warrant, as
provided in Paragraph 6, the Acquiring Corporation and the Corporation shall
promptly notify the Holder of such event; and, upon receipt from the Holder of
its choice as to the issuer of the Substitute Warrant, the Acquiring Corporation
and the Corporation shall promptly compute the number of shares of Substitute
Common Stock for which the Substitute Warrant is exercisable and furnish to the
Holder a certificate, signed by a principal financial officer of each of the
Acquiring Corporation and the Corporation, setting forth the number of shares of
Substitute Common Stock for which the Substitute Warrant is exercisable, a
computation thereof and when such adjustment will become effective.
9. 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 provision
of this Warrant and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Warrant.
(B) Except as provided in the third paragraph of Paragraph 1 hereof, the
Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
in the Corporation.
10. Termination. This Warrant and the rights conferred hereby shall
-----------
terminate (i) upon a willful breach of the Agreement by Keystone, (ii) at the
Effective Time of the Merger pursuant to the Plan, (iii) upon a valid
termination of the Plan prior to the occurrence of an event described in
Paragraph 2 of the Agreement or (iv) upon the failure of the shareholders of the
Corporation to approve the Merger by the required vote at a meeting duly called
and held in accordance with the requirements of Section 6.03 of the Agreement
and Plan of Reorganization prior to the occurrence of an event described in
Paragraph 2 of the Agreement and (v) to the extent this Warrant has not
previously been exercised, at the close of business on the later of (A) February
26, 1997 and (B) 12 months after the occurrence of an event described in
Paragraph 2 of the Agreement, provided that such termination pursuant to this
clause (v) shall not affect any redemption under Paragraph 5 as to which
exercise under Paragraph 5(B) has previously occurred.
11. Securities Act Representation. The Holder, by acceptance hereof,
-----------------------------
agrees that, unless the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended, (the
"Securities Act") and any other applicable securities laws for sale or other
--------------
disposition by the Holder, it will deliver to the Corporation upon the exercise
hereof a written representation that it is acquiring the shares of Common Stock
issuable upon the exercise hereof solely for its own account and not with a view
to the distribution thereof within the meaning of the Securities Act and that
any certificate or certificates representing such shares may bear a legend to
the effect that such shares may not be sold except pursuant to an effective
registration statement under the Securities Act or any exemption from
registration thereunder and registration or qualification under any other
applicable securities laws or exemptions therefrom.
A-6
<PAGE>
12. Governing Law. This Warrant shall be governed by, and interpreted in
-------------
accordance with, the substantive laws of the Commonwealth of Pennsylvania.
Dated: July 26, 1995
[CORPORATE SEAL]
Attest: NATIONAL AMERICAN BANCORP, INC.
/s/ John F. Langan By /s/ David S. Packard
- ----------------------------------- -------------------------------------
John F. Langan, David S. Packard, President
Secretary and Chief Executive Officer
A-7
<PAGE>
EXHIBIT 99.5
National American Bancorp, Inc.
312 Main Street
Towanda, Pennsylvania 18848
July 26, 1995
Keystone Financial, Inc.
One Keystone Plaza
Front & Market Streets
P.O. Box 3660
Harrisburg, PA 17105-3660
Gentlemen:
The undersigned understands that Keystone Financial, Inc. ("Keystone") is
about to enter into an Agreement and Plan of Reorganization and an Agreement and
Plan of Merger (collectively, the "Merger Agreements") with National American
Bancorp, Inc. ("NAB"). The Merger Agreements provide for the merger of NAB into
Keystone (the "Merger") and the conversion of outstanding shares of NAB Common
Stock into Keystone Common Stock in accordance with the formula therein set
forth.
In order to induce Keystone to enter into the Merger Agreements, and
intending to be legally bound hereby, the undersigned represents, warrants and
agrees that at the NAB Shareholders' Meeting contemplated by Section 6.03 of the
Agreement and Plan of Reorganization and any adjournment thereof the undersigned
will, in person or by proxy, vote or cause to be voted in favor of the Merger
Agreements and the Merger the shares of NAB Common Stock beneficially owned by
the undersigned individually or, to the extent of the undersigned's
proportionate voting interest, jointly with other persons, as well as (to the
extent of the undersigned's proportionate voting interest) any other shares of
NAB Common Stock over which the undersigned may hereafter acquire beneficial
ownership in such capacities (collectively, the "Shares"). Subject to the final
paragraph of this agreement, the undersigned further agrees that he will use his
best efforts to cause any other shares of NAB Common Stock over which he has or
shares voting power to be voted in favor of the Merger Agreements and the
Merger.
The undersigned further represents, warrants and agrees that until the
earlier of (i) the consummation of the Merger or (ii) the termination of the
Merger Agreements in accordance with their terms, the undersigned will not,
directly or indirectly:
(a) vote any of the Shares, or cause or permit any of the Shares to
be voted, in favor of any other merger, consolidation, plan of
liquidation, sale of assets, reclassification or other transaction
involving NAB or First National Bank of Bradford County ("First National")
which would have the effect of any person other than Keystone or an
affiliate acquiring control over NAB, First National or any substantial
portion of the assets of NAB or First National. As used herein, the term
"control" means (1) the ability to direct the voting of 10% or more of the
outstanding voting securities of a person having ordinary voting power in
the election of directors or in the election of any other body having
similar functions or (2) the ability to direct the management and policies
of a person, whether through ownership of securities, through any
contract, arrangement or understanding or otherwise.
(b) sell or otherwise transfer any of the Shares, or cause or permit
any of the Shares to be sold or otherwise transferred (i) pursuant to any
tender offer, exchange offer or similar proposal made by any person other
than Keystone or an affiliate, (ii) to any person seeking to obtain
control of NAB, First National or any substantial portion of the assets of
NAB or First National or to any other person (other than Keystone or an
affiliate) under circumstances where such sale or transfer may reasonably
be expected
<PAGE>
to assist a person seeking to obtain such control or (iii) for the
principal purpose of avoiding the obligations of the undersigned under
this agreement.
It is understood and agreed that this agreement relates solely to the
capacity of the undersigned as a shareholder or other beneficial owner of the
Shares and is not in any way intended to affect the exercise by the undersigned
of the undersigned's responsibilities as a director or officer of NAB or First
National. It is further understood and agreed that the term "Shares" shall not
include any securities beneficially owned by the undersigned as a trustee or
fiduciary, and that this agreement is not in any way intended to affect the
exercise by the undersigned of the undersigned's fiduciary responsibility in
respect of any such securities.
Very truly yours,
________________________________
Accepted and Agreed to:
KEYSTONE FINANCIAL, INC.
By___________________________________
Title________________________________
-2-
<PAGE>
Name of Director or Officer: ___________
<TABLE>
<CAPTION>
Shares of NAB Common Stock
Beneficially Owned
As of July 26, 1995
-------------------
Capacity of
Name(s) of Director's/Officer's Number of
Record Owner(s) Beneficial Ownership Shares
- --------------- -------------------- ------
<S> <C> <C>
</TABLE>
-3-
<PAGE>
EXHIBIT 99.7
KEYSTONE
FINANCIAL
- -------------------------------------------------------------------------------
One Keystone Plaza
Front & Market Streets
P.O. Box 3660
Harrisburg, PA 17105-3660
717/233-1555
July 26, 1995
National American Bancorp, Inc.
312 Main Street
Towanda, PA 18848
Gentlemen:
The purpose of this letter is to confirm our understanding with regard to the
incentive stock options (the "Options") for an aggregate of 16,000 shares of
Common Stock of National American Bancorp, Inc. ("NAB") currently outstanding to
Donald R. Brennan, Edward F. Earley, David S. Packard and James E. Parks (the
"Optionees") under NAB's 1994 Employee Stock Option Plan (the "Plan"):
1. If the merger between NAB and Keystone Financial, Inc. (the
"Merger") is consummated on or after January 1, 1996, Keystone will not
assume NAB's obligations under the Options with the results that, pursuant
to Section 5(g) of the Plan, (1) the Optionees shall have the right
immediately prior to the Merger to exercise the Options in whole or in
part without regard to any installment provisions and (2) the Options, to
the extent unexercised, shall terminate upon consummation of the Merger.
2. If Keystone desires to consummate the Merger on or before
December 31, 1995, Keystone will assume the Options with the result that
unexercised options will become options for Keystone Common Stock,
proportionately adjusted to reflect the ratio for exchanging NAB Common
Stock for Keystone Common Stock in the Merger. In such event, it is
Keystone's present intention that upon request of the Optionees Keystone
would cause the Keystone shares issuable upon exercise of the Options to
be registered on Form S-8 under the Securities Act of 1933 (the "Act").
It is understood that by reason of the prohibitions contained in Section 5
of the Act and as provided in the third paragraph of the Option
agreements, the Options may not be exercised following the Merger in the
absence of such registration.
If this conforms to your understanding, kindly confirm our agreement by signing
in the space indicated below and returning a signed copy to the undersigned.
Very truly yours,
KEYSTONE FINANCIAL, INC.
By /s/ George R. Barr, Jr.
----------------------------------
Senior Vice President
Accepted and agreed to:
NORTH AMERICAN BANCORP, INC.
By /s/ David S. Packard
-----------------------------------------
President
<PAGE>
EXHIBIT 99.9
AMENDMENT TO EMPLOYMENT AGREEMENT DATED FEBRUARY 25, 1994
---------------------------------------------------------
THIS AGREEMENT dated as of July 26, 1995, (the "Agreement") between
KEYSTONE FINANCIAL, INC., a Pennsylvania Corporation ("Keystone"), and DAVID S.
PACKARD, an individual residing at R.D.#1, North Towanda Township, Towanda,
Pennsylvania,
W I T N E S S E T H:
--------------------
WHEREAS, Keystone and NATIONAL AMERICAN BANCORP, INC. ("NAB"), have
executed an Agreement and Plan of Reorganization dated July 26, 1995, which
provides for the merger of NAB with and into Keystone, which will be the
surviving corporation (the "Merger").
WHEREAS, Packard currently is employed as President and Chief
Executive Officer of NAB and The First National Bank of Bradford County;
WHEREAS, Packard entered into an employment agreement as of February
25, 1994, with NAB and the First National Bank of Bradford County (the
"Employment Agreement");
WHEREAS, Keystone and Packard desire to modify the Employment
Agreement effective simultaneously with the closing of the Merger, all
consistent with the terms of this Agreement;
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements herein contained and intending to be legally bound
hereby, covenant and agree as follows:
1. Effective Date. The effective date of this Agreement shall be
--------------
the date of the Merger (the "Effective Date").
2. Life and Medical Insurance After December 31, 1998. Packard
--------------------------------------------------
releases Keystone from the obligation to provide any life, medical or other
insurance to Packard or his spouse with respect to the period after December 31,
1998, and Keystone agrees to pay to Packard or his executor, administrator or
assigns eight equal consecutive annual payments of $40,000 each on the first
business day of each year from 1999 through 2006.
3. Life and Medical Insurance and Other Benefits Prior to January 1,
-----------------------------------------------------------------
1999. So long as Packard is employed by Keystone or any of its affiliates,
- ----
Keystone agrees to provide to him the same package of benefits that it provides
to similarly situated employees. Furthermore, upon termination for any reason
other than for Cause as defined in the Employment Agreement, Keystone agrees to
pay to Packard or his spouse an amount equal to the monthly COBRA insurance
payment that would be available to Packard times the number of whole months
between the date of termination and December 31, 1998.
<PAGE>
4. Stock Options/Life Insurance Agreements. This Amendment shall not
---------------------------------------
affect Packard's stock options issued under NAB's 1994 Employee Stock Option
Plan, nor the Life Insurance Agreements dated December 8, 1982 and October 1,
1985, as amended, between Packard and NAB.
5. Termination. This Agreement shall terminate if the Merger is
-----------
abandoned and the Agreement and Plan of Reorganization dated July 26, 1995 is
terminated.
6. Conflict with Employment Agreement. Except as provided herein,
----------------------------------
all the terms of the Employment Agreement remain in full force and effect. If
the terms of this Agreement shall be in conflict with or otherwise inconsistent
with the terms of the Employment Agreement, the terms of this Agreement shall
control.
7. Headings. The headings and captions contained herein are for
--------
reference purposes only and do not constitute a part hereof.
8. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with laws of the Commonwealth of Pennsylvania without regard to
the principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the parties hereto, have executed this Agreement
as of the day and the year first above written.
Attest: KEYSTONE FINANCIAL, INC.
/s/ Ben G. Rooke By /s/ Carl L. Campbell
- ------------------------------------ ------------------------------------
Ben G. Rooke, Carl L. Campbell,
Secretary President & Chief Executive Officer
By /s/ David S. Packard
------------------------------------
David S. Packard,
An Individual
2
