<PAGE>
As filed with the Securities and Exchange Commission on March 27, 1997
Registration No. 333-20283
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
KEYSTONE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Pennsylvania 6711 23-2289209
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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)
------------------
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)
------------------
Approximate date of commencement of the proposed sale of the securities to the
public: The date of mailing the Joint Proxy Statement/Prospectus contained
herein.
------------------
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.
================================================================================
<PAGE>
Joint Proxy Statement/Prospectus
KEYSTONE FINANCIAL, INC.
Up to 15,903,416 Shares of Common Stock, $2 par value,
issuable in proposed mergers with
FINANCIAL TRUST CORP
and
FIRST FINANCIAL CORPORATION OF WESTERN MARYLAND
This Joint Proxy Statement/Prospectus is being furnished to the
shareholders of Keystone Financial, Inc. ("Keystone"), Financial Trust Corp
("FTC") and First Financial Corporation of Western Maryland ("FFWM") in
connection with the solicitation of proxies by their respective Boards of
Directors for use at the Annual Meeting of Shareholders of Keystone to be held
on May 8, 1997, a Special Meeting of Shareholders of FTC to be held on May 7,
1997 and a Special Meeting of Shareholders of FFWM to be held on May 8, 1997.
At the Keystone and FTC Meetings, shareholders of Keystone and FTC will vote
upon a proposed merger of FTC into Keystone (the "FTC Merger"). As a result of
the FTC Merger, Keystone, which will be the surviving corporation, will acquire
all of the assets and liabilities of FTC, and the shareholders of FTC will
become shareholders of Keystone. Each outstanding share of FTC Common Stock will
be converted in the FTC Merger into 1.65 shares of Keystone Common Stock. At
the Keystone Meeting, Keystone shareholders will also vote upon the election of
directors, the ratification of independent auditors, an amendment to Keystone's
Restated Articles to increase its authorized shares and two compensation plans.
The purpose of the FFWM Special Meeting is to consider a proposed merger of FFWM
into Keystone (the "FFWM Merger"). As a result of the FFWM Merger, Keystone,
which will be the surviving corporation, will acquire all of the assets and
liabilities of FFWM, and each outstanding share of FFWM Common Stock will be
converted into either 1.29 shares of Keystone Common Stock or an equivalent
amount in cash, as elected by the holder thereof subject to the limitations
described herein. The FTC Merger and the FFWM Merger are separate and
independent transactions. Either Merger may be consummated whether or not the
other is approved by the shareholders entitled to vote thereon and whether the
other is consummated or not consummated for any reason. On March 25, 1997, the
closing sale price for Keystone Common Stock on the NASDAQ National Market
System was $27.25 per share. FTC and FFWM shareholders should note that the
market value of the Keystone Common Stock may change prior to consummation of
the Mergers.
----------------------------------------
THE SHARES OF KEYSTONE COMMON STOCK TO BE ISSUED IN THE MERGERS 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 JOINT
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 herein, and, if given or made, any such information
or representation should not be relied upon as having been authorized. This
Joint 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 Joint Proxy
Statement/Prospectus at any time nor the distribution of Keystone Common Stock
hereunder shall imply that the information herein is correct as of any time
subsequent to its date.
The date of this Joint Proxy Statement/Prospectus is March 28, 1997.
<PAGE>
AVAILABLE INFORMATION
Keystone, FTC and FFWM 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
Securities and Exchange Commission (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 1300, 7 World Trade Center, New York, New York; and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois. Copies
of such material can also be obtained at prescribed rates by writing to the SEC,
Public Reference Section, Washington, D.C. 20549. Such material may also be
accessed electronically by means of the SEC's home page on the Internet at
http://www.sec.gov. Keystone Common Stock, FTC Common Stock and FFWM Common
Stock are quoted on the NASDAQ National Market System, and such reports, proxy
statements and other Keystone, FTC and FFWM information can also be inspected at
the offices of NASDAQ Operations, 1735 K Street, N.W., Washington, D.C.
Keystone has filed with 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
Mergers. As permitted by the rules and regulations of the SEC, this Joint Proxy
Statement/Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. The statements contained in this Joint
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 or
incorporated by reference 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 the addresses set forth above or through the
SEC's home page on the Internet. Copies of such material can be obtained at
prescribed rates by mail addressed to the SEC, Public Reference Section,
Washington, D.C. 20549.
This Joint Proxy Statement/Prospectus incorporates by reference
certain documents relating to Keystone, FTC and FFWM which are not presented
herein or delivered herewith. See "Information Concerning Keystone--Keystone
Documents Incorporated by Reference," "Information Concerning FTC--FTC Documents
Incorporated by Reference" and "Information Concerning FFWM--FFWM Documents
Incorporated by Reference." Copies of such documents are available upon request
and without charge to any person to whom this Joint Proxy Statement/Prospectus
has been delivered. Requests for Keystone documents 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 FTC documents should be
directed to Financial Trust Corp, 1415 Ritner Highway, Carlisle, Pennsylvania
17013, Attention: Lauren L. Shutt, Corporate Secretary (telephone: 717-241-
7710). Requests for FFWM documents should be directed to First Financial
Corporation of Western Maryland, 118 Baltimore Street, Cumberland, Maryland
21502, Attention: William C. Marsh, Executive Vice President and Chief Financial
Officer (telephone: 301-784-3106). In order to ensure timely delivery of the
documents, any request by a Keystone shareholder should be made not later than
May 1, 1997, any request by an FTC shareholder should be made not later than
April 30, 1997 and any request by an FFWM shareholder should be made not later
than May 1, 1997.
<PAGE>
KEYSTONE FINANCIAL, INC.
FINANCIAL TRUST CORP
and
FIRST FINANCIAL CORPORATION OF WESTERN MARYLAND
-----------
JOINT PROXY STATEMENT/PROSPECTUS
-----------
TABLE OF CONTENTS
Page
----
SUMMARY.............................................................. iv
The Parties..................................................... iv
The Meetings.................................................... v
Proposed Mergers................................................ vi
Other Proposals for Keystone Shareholders....................... vi
Elections by FFWM Shareholders.................................. vii
Limitations on Effectiveness of Elections by FFWM Shareholders.. viii
Relationship of the Two Mergers................................. viii
Reasons for the FTC Merger...................................... viii
Reasons for the FFWM Merger..................................... ix
Opinions of Financial Advisors.................................. ix
Votes Required for Approval..................................... x
Boards of Directors' Recommendations............................ xi
Post-Merger Boards of Directors................................. xi
Interests of Certain Persons in the Transactions................ xi
Tax Consequences................................................ xii
Warrant/Option Agreements....................................... xii
Dissenters' Rights.............................................. xiii
Differences in Shareholder Rights............................... xiii
Regulatory Approvals............................................ xiv
Conditions; Amendment; Termination.............................. xiv
Effective Dates of the Mergers.................................. xv
Exchange of Certificates........................................ xv
Pre-Announcement Prices......................................... xv
Keystone Stock Repurchase Program............................... xvi
Selected Financial Information.................................. xvii
Comparative Per Share Data...................................... xix
INTRODUCTION
Record Dates; Voting Rights..................................... 1
Purposes of the Shareholder Meetings............................ 2
Voting and Revocation of Proxies................................ 4
Trust Department Shares......................................... 4
Solicitation of Proxies......................................... 5
FTC PLAN OF MERGER
The FTC Merger.................................................. 5
Background of and Reasons for the FTC Merger.................... 6
Required Votes; Management Recommendations...................... 9
-i-
<PAGE>
Voting Agreements............................................... 9
Opinion of Keystone Financial Advisor........................... 10
Opinion of FTC Financial Advisor................................ 12
Conversion of FTC Shares........................................ 16
Tax Consequences to FTC Shareholders............................ 17
Keystone Board of Directors Following the FTC Merger............ 18
Interests of Certain Persons in the Transaction................. 18
Warrant Agreement............................................... 19
Inconsistent Activities......................................... 20
Conduct of FTC's Business Pending the FTC Merger................ 21
FTC Dividend Limitation......................................... 21
Conditions to the FTC Merger.................................... 21
Representations and Warranties.................................. 22
Amendment, Waiver and Termination............................... 22
Absence of Dissenters' Rights of Keystone or FTC Shareholders.. 22
Restrictions on Resales by FTC Affiliates....................... 23
Effect of Certain Transactions Involving Keystone............... 23
Effect on FTC Employee and Director Stock Options............... 23
Effect on FTC's Dividend Reinvestment Plan...................... 24
Expenses........................................................ 24
Effective Date of the FTC Merger................................ 24
OTHER PROPOSALS FOR KEYSTONE SHAREHOLDERS
ELECTION OF KEYSTONE DIRECTORS.................................. 24
RATIFICATION OF APPOINTMENT OF KEYSTONE AUDITORS................ 27
INCREASE IN AUTHORIZED KEYSTONE COMMON STOCK.................... 27
1996 PERFORMANCE UNIT PLAN...................................... 29
1997 STOCK INCENTIVE PLAN....................................... 34
PRO FORMA COMBINED FINANCIAL INFORMATION
INFORMATION CONCERNING THE PRO FORMA COMBINED FINANCIAL DATA.... 43
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION............. 44
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME............... 45
INFORMATION CONCERNING KEYSTONE
KEYSTONE SELECTED FINANCIAL DATA................................ 46
STOCK PRICES AND DIVIDENDS ON KEYSTONE COMMON STOCK............. 47
KEYSTONE EXECUTIVE COMPENSATION................................. 48
KEYSTONE HUMAN RESOURCES COMMITTEE 1996 REPORT ON
EXECUTIVE COMPENSATION......................................... 50
OTHER INFORMATION CONCERNING KEYSTONE DIRECTORS AND OFFICERS.... 55
KEYSTONE STOCK PRICE PERFORMANCE GRAPH.......................... 59
5% BENEFICIAL OWNERS OF KEYSTONE COMMON STOCK................... 60
KEYSTONE DOCUMENTS INCORPORATED BY REFERENCE.................... 60
INFORMATION CONCERNING FTC
FTC SELECTED FINANCIAL DATA..................................... 61
STOCK PRICES AND DIVIDENDS ON FTC COMMON STOCK.................. 62
FTC DOCUMENTS INCORPORATED BY REFERENCE......................... 63
FFWM PLAN OF MERGER
The FFWM Merger................................................. 64
Background of the FFWM Merger................................... 64
Reasons for the FFWM Merger..................................... 66
-ii-
<PAGE>
Required Vote; Management Recommendation........................ 67
Voting Agreements............................................... 67
Opinion of FFWM Financial Advisor............................... 68
Elections by FFWM Shareholders.................................. 71
Limitations on Effectiveness of Elections....................... 72
Additional Procedures and Determinations........................ 73
Conversion of FFWM Shares....................................... 73
Tax Consequences to FFWM Shareholders........................... 75
Boards of Directors Following the FFWM Merger................... 76
Interests of Certain Persons in the Transaction................. 76
Stock Option Agreement.......................................... 78
Inconsistent Activities......................................... 79
Conduct of Business Pending the FFWM Merger..................... 80
FFWM Dividend Limitation........................................ 80
Conditions to the FFWM Merger................................... 80
Representations and Warranties.................................. 81
Amendment, Waiver and Termination............................... 81
Termination Fee................................................. 81
Dissenters' Rights of FFWM Shareholders......................... 82
Restrictions on Resales by FFWM Affiliates...................... 84
Effect on FFWM's Dividend Reinvestment Plan..................... 84
Expenses........................................................ 84
Accounting Treatment............................................ 85
Effective Date of the FFWM Merger............................... 85
INFORMATION CONCERNING FFWM
FFWM SELECTED FINANCIAL DATA.................................... 86
STOCK PRICES AND DIVIDENDS ON FFWM COMMON STOCK................. 87
FFWM DOCUMENTS INCORPORATED BY REFERENCE........................ 88
COMPARISON OF KEYSTONE COMMON STOCK
AND FTC COMMON STOCK................................................ 89
COMPARISON OF KEYSTONE COMMON STOCK
AND FFWM COMMON STOCK............................................... 94
LEGAL OPINIONS....................................................... 101
EXPERTS.............................................................. 101
SHAREHOLDER PROPOSALS AND NOMINATIONS................................ 101
OTHER MATTERS........................................................ 102
ANNEXES
I. Opinion of Danielson Associates Inc. to Keystone............. A-1
II. Opinion of Berwind Financial Group, L.P. to FTC.............. A-2
III. Opinion of Alex. Brown & Sons Incorporated to FFWM........... A-4
IV. Statutory Provisions Concerning Dissenters' Rights of FFWM
Shareholders............................................... A-6
-iii-
<PAGE>
SUMMARY
The following is a brief summary of certain information which may also
be contained elsewhere in this Joint 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
Joint Proxy Statement/Prospectus and in the Annexes hereto.
The Parties
Keystone Financial, Inc. ("Keystone") 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 fifth largest bank holding company
headquartered in Pennsylvania. Its banking subsidiaries are American Trust
Bank, N.A., Cumberland, Maryland ("American Trust Bank"); Frankford Bank, N.A.,
Horsham, Pennsylvania; Keystone National Bank, Lancaster, Pennsylvania; Mid-
State Bank and Trust Company, Altoona, Pennsylvania; Northern Central Bank,
Williamsport, Pennsylvania; and Pennsylvania National Bank and Trust Company,
Pottsville, Pennsylvania. Keystone also has several nonbank subsidiaries and
divisions providing specialized services, including Keystone Financial Mortgage
Company, Lancaster, Pennsylvania; Martindale Andres & Co. (asset management
firm), West Conshohocken, Pennsylvania; and Keystone Financial Dealer Center,
Williamsport, Pennsylvania.
Keystone's subsidiary banks provide a wide range of financial products
and services through a combined total of 145 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 Keystone organization to provide a broad product line and gain
operating and management efficiencies through centralized banking operation. In
addition to traditional banking services provided by its community banks,
Keystone's nonbank subsidiaries deliver an array of services to both Keystone
and its customers, including brokerage, investment, mortgage banking, leasing,
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 March
25, 1997, the closing sale price for Keystone Common Stock on the NASDAQ
National Market System was $27.25 per share. See "Information Concerning
Keystone--Stock Prices and Dividends on Keystone Common Stock."
At December 31, 1996, Keystone reported total assets of $5.231
billion, deposits of $4.097 billion, and net loans and leases of $3.509 billion.
Keystone reported net income of $69,475,000, or $1.83 per share for the year
ended December 31, 1996. See "Information Concerning Keystone--Selected
Financial Data" and "Keystone Documents Incorporated by Reference."
Financial Trust Corp ("FTC") is a bank holding company with its
principal executive offices at 1415 Ritner Highway, Carlisle, Pennsylvania 17013
(telephone: 717-243-8003).
In terms of assets, FTC is the 17th largest bank holding company
headquartered in Pennsylvania. Its banking subsidiaries are Financial Trust
Company, Carlisle, Pennsylvania; Chambersburg Trust Company, Chambersburg,
Pennsylvania; First National Bank and Trust Co., Waynesboro, Pennsylvania; and
Washington County National Bank, Williamsport, Maryland.
FTC's subsidiary banks operate a combined total of 48 banking offices
in south central Pennsylvania and western Maryland. FTC also delivers trust
services to its commercial bank markets through Financial Trust
-iv-
<PAGE>
Services Company and provides credit life and disability insurance to its
subsidiary banks' loan customers through Financial Trust Life Insurance Company.
See "FTC Documents Incorporated by Reference."
FTC Common Stock is traded in the over-the-counter market under the
symbol "FITC" and is listed in the NASDAQ National Market System. On March 25,
1997, the closing sale price for FTC Common Stock on the NASDAQ National Market
System was $43.625 per share. See "Information Concerning FTC--Stock Prices and
Dividends on FTC Common Stock."
At December 31, 1996, FTC reported total assets of $1.219 billion,
deposits of $963 million, and net loans of $772 million. FTC reported net
income of $20,031,000, or $2.35 per share for the year ended December 31, 1996.
See "Information Concerning FTC--Selected Financial Data" and "FTC Documents
Incorporated by Reference."
First Financial Corporation of Western Maryland ("FFWM") is a thrift
holding company with its principal executive offices at 118 Baltimore Street,
Cumberland, Maryland 21502 (telephone: 301-724-3363).
FFWM's principal subsidiary is First Federal Savings Bank of Western
Maryland ("First Federal"), which operates 10 banking offices in Allegany,
Garrett and Washington Counties, in western Maryland. See "FFWM Documents
Incorporated by Reference."
FFWM Common Stock is traded in the over-the-counter market under the
symbol "FFWM" and is listed in the NASDAQ National Market System. On March 25,
1997, the closing sale price for FFWM Common Stock on the NASDAQ National Market
System was $33.375 per share. See "Information Concerning FFWM--Stock Prices
and Dividends on FFWM Common Stock."
At December 31, 1996, FFWM reported total assets of $361 million,
deposits of $277 million, and net loans of $291 million. FFWM reported net
income of $3,600,000, or $1.65 per share for its fiscal year ended June 30, 1996
and net income of $1,229,000, or $0.57 per share for the six months ended
December 31, 1996. See "Information Concerning FFWM --Selected Financial Data"
and "FFWM Documents Incorporated by Reference."
The Meetings
Keystone Annual Meeting. The Annual Meeting of Shareholders of
Keystone (the "Keystone Annual Meeting") will be held at 2:00 p.m., local time,
on May 8, 1997 at the Harrisburg Hilton Hotel, Market Square, Harrisburg,
Pennsylvania. Only holders of record of Common Stock, par value $2.00 per
share, of Keystone ("Keystone Common Stock") at the close of business on March
14, 1997 will be entitled to vote at the Keystone Annual Meeting. At that date,
approximately 37,313,000 shares of Keystone Common Stock were outstanding, each
share being entitled to one vote. See "Introduction."
FTC Special Meeting. The Special Meeting of Shareholders of FTC (the
"FTC Special Meeting") will be held at 10:00 a.m., local time, on May 7, 1997 at
1415 Ritner Highway, Carlisle, Pennsylvania. Only holders of record of Common
Stock, par value $5.00 per share, of FTC ("FTC Common Stock") at the close of
business on March 21, 1997 will be entitled to vote at the FTC Special Meeting.
At that date, 8,532,131 shares of FTC Common Stock were outstanding, each share
being entitled to one vote. See "Introduction."
FFWM Special Meeting. The Special Meeting of Shareholders of FFWM
(the "FFWM Special Meeting") will be held at 10:00 a.m., local time, on May 8,
1997 at the Cumberland Country Club, 10200 Country Club Road, Cumberland,
Maryland. Only holders of record of Common Stock, par value $1.00 per share, of
FFWM ("FFWM Common Stock"), at the close of business on March 21, 1997 will be
entitled to vote at the FFWM Special Meeting. At that date, 2,175,659 shares of
FFWM Common Stock were outstanding, each share being entitled to one vote. See
"Introduction."
-v-
<PAGE>
Proposed Mergers
Keystone and FTC. At their respective Meetings, the shareholders of
Keystone and FTC will be asked to approve an Agreement and Plan of
Reorganization and a related Agreement and Plan of Merger (collectively, the
"FTC Plan of Merger") between Keystone and FTC. The FTC Plan of Merger provides
for a merger of FTC into Keystone (the "FTC Merger") in which Keystone will
acquire all of the assets and liabilities of FTC, and the subsidiaries of FTC
will become Keystone subsidiaries. See "FTC Plan of Merger--The FTC Merger."
As a result of the FTC Merger, the shareholders of FTC will become shareholders
of Keystone. Each outstanding share of FTC Common Stock will be converted in
the FTC Merger into 1.65 shares of Keystone Common Stock, with cash to be paid
in lieu of any fractional share. See "FTC Plan of Merger--Conversion of FTC
Common Stock." On March 25, 1997, the closing sale price for Keystone Common
Stock on the NASDAQ National Market System was $27.25 per share.
Keystone and FFWM. At the FFWM Special Meeting, the Shareholders of
FFWM will be asked to approve an Agreement and Plan of Merger between Keystone
and FFWM (the "FFWM Plan of Merger"). The FFWM Plan of Merger provides for the
merger (the "FFWM Merger") of FFWM into Keystone. It is contemplated that
contemporaneously with the FFWM Merger, FFWM's subsidiary, First Federal, will
be merged into American Trust Bank, one of Keystone's operating bank
subsidiaries (the "FFWM Bank Merger"). See "FFWM Plan of Merger--The FFWM
Merger." In the FFWM Merger, each outstanding share of FFWM Common Stock will
be converted into either (1) 1.29 shares of Keystone Common Stock, with cash to
be paid in lieu of any fractional share or (2) cash in an amount equal to 1.29
times the average of the closing bid prices for Keystone Common Stock on the
NASDAQ National Market System for the 20 trading days ending with the sixth
trading day preceding the closing date for the FFWM Merger. FFWM shareholders
may elect to receive either Keystone Common Stock or cash, but not both, subject
to certain limitations described herein. See "FFWM Plan of Merger--Elections by
FFWM Shareholders;" "FFWM Plan of Merger--Limitations on Effectiveness of
Elections;" and "FFWM Plan of Merger--Conversion of FFWM Common Stock." On
March 25, 1997, the closing bid price for Keystone Common Stock on the NASDAQ
National Market System was $27.125 per share.
Other Proposals for Keystone Shareholders
In addition to the FTC Merger, at the Keystone Annual Meeting, the
shareholders of Keystone will be asked to consider and vote upon the following
matters:
Keystone Proposal No. 2: Election of Keystone Directors. Six
directors will be elected at the Keystone Annual Meeting to serve for terms
expiring at Keystone's Annual Meeting in 2000. The Board of Directors of
Keystone has nominated June B. Barry, J. Glenn Beall, Jr., Richard W. DeWald,
Gerald E. Field, Philip C. Herr, II and William L. Miller, all of whom are
presently members of the Board. For information concerning the nominees and the
other Keystone directors whose terms will continue after the Annual Meeting, see
"Other Proposals for Keystone Shareholders--Election of Keystone Directors."
The Board of Directors of Keystone recommends that Keystone shareholders vote
"FOR" the election of the six nominees.
Keystone Proposal No. 3: Ratification of Appointment of Keystone
Auditors. Pursuant to the recommendation of the Audit Committee, the Board of
Directors of Keystone has appointed the firm of Ernst & Young LLP as independent
auditors for Keystone for 1997. Ratification of this appointment requires the
affirmative vote of a majority of the votes cast on the proposal at the Keystone
Annual Meeting. The Board of Directors of Keystone recommends that Keystone
shareholders vote "FOR" ratification of the appointment of Ernst & Young LLP.
See "Other Proposals for Keystone Shareholders--Ratification of Appointment of
Keystone Auditors."
Keystone Proposal No. 4: Increase in Authorized Keystone Common
Stock. The Board of Directors of Keystone has proposed an amendment to
Keystone's Restated Articles to increase the number of authorized shares
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<PAGE>
of Keystone Common Stock from 75 million to 100 million. While the increase in
authorized shares is not necessary for the consummation of the FTC Merger and
the FFWM Merger, the Board believes that it is desirable to have the additional
authorized shares of Keystone Common Stock available for possible future
acquisition transactions, financing transactions, employee benefit plans and
other general corporate purposes. For additional information concerning this
proposal, see "Other Proposals for Keystone Shareholders--Increase in Authorized
Keystone Common Stock." Approval of this proposal requires the affirmative vote
of a majority of the votes cast on the proposal at the Keystone Annual Meeting.
The Board of Directors of Keystone recommends that Keystone shareholders vote
"FOR" approval of the proposed amendment to the Restated Articles to increase
the authorized shares of Keystone Common Stock.
Keystone Proposal No. 5: Keystone 1996 Performance Unit Plan. At the
Keystone Annual Meeting, Keystone shareholders will be asked to consider and
vote upon a proposal to approve the adoption by Keystone's Board of Directors of
Keystone's 1996 Performance Unit Plan. This Plan, which is intended to provide
key employees with long-term incentives to work to increase shareholder value,
permits the Human Resources Committee of the Board to grant to eligible
employees, including executive officers, cash Performance Unit awards which may
be earned by achieving objective Performance Targets established by the
Committee for a Performance Period of from one to six years. For additional
information concerning this proposal, see "Other Proposals for Keystone
Shareholders--Keystone 1996 Performance Unit Plan." Approval of this proposal
requires the affirmative vote of a majority of the votes cast on the proposal at
the Keystone Annual Meeting. The Board of Directors of Keystone recommends that
Keystone shareholders vote "FOR" approval of Keystone's 1996 Performance Unit
Plan.
Keystone Proposal No. 6: Keystone 1997 Stock Incentive Plan. At the
Keystone Annual Meeting, Keystone shareholders will also be asked to consider
and vote upon a proposal to approve the adoption by Keystone's Board of
Directors of Keystone's 1997 Stock Incentive Plan. This Plan, which is intended
to provide key employees with stock incentives to work to increase shareholder
value, permits the Human Resources Committee of the Board to grant to eligible
employees, including executive officers, stock incentive awards in the form of
stock options, performance shares, restricted shares or other stock awards. The
aggregate number of shares of Keystone Common Stock which may be issued under
the Plan is limited to 2,500,000 shares. If approved by the Keystone
shareholders, the 1997 Stock Incentive Plan will replace Keystone's 1992 Stock
Incentive Plan, under which 568,662 shares of Keystone Common Stock currently
remain available, and no further awards under the 1992 Plan will be granted.
For additional information concerning this proposal, see "Other Proposals for
Keystone Shareholders--Keystone 1997 Stock Incentive Plan." Approval of this
proposal requires the affirmative vote of a majority of the votes cast on the
proposal at the Keystone Annual Meeting. The Board of Directors of Keystone
recommends that Keystone shareholders vote "FOR" approval of Keystone's 1997
Stock Incentive Plan.
Elections by FFWM Shareholders
FFWM shareholders may elect to receive in the FFWM Merger for each
share of FFWM Common Stock held of record either (1) 1.29 shares of Keystone
Common Stock, with cash to be paid in lieu of any fractional share (the "Stock
Election") or (2) cash in an amount equal to 1.29 times the average of the
closing bid prices for Keystone Common Stock on the NASDAQ National Market
System for the 20 trading days ending with the sixth trading day preceding the
closing date for the FFWM Merger (the "Cash Election"). Each FFWM shareholder
(other than nominees) must make the same Election for all FFWM shares held of
record. Included with the mailing of this Joint Proxy Statement/Prospectus to
FFWM shareholders is a Form of Election for designating either the Stock
Election or the Cash Election. Persons who become holders of record of FFWM
Common Stock after the record date for the FFWM Special Meeting may obtain a
Form of Election by writing to First Financial Corporation of Western Maryland,
118 Baltimore Street, Cumberland, Maryland 21502, Attention: William C. Marsh,
Executive Vice President and Chief Financial Officer. To be effective, a Form
of Election must be received by FFWM no later than 10:00 a.m., local time, on
May 8, 1997 (the "Election Deadline"). Upon this deadline
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Elections will become irrevocable and will bind any transferee of the shares of
the electing FFWM shareholder. See "FFWM Plan of Merger--Elections by FFWM
Shareholders"
Limitations on Effectiveness of Elections by FFWM Shareholders
The FFWM Plan of Merger requires that the aggregate market value of
the Keystone Common Stock to be issued under the Stock Election (1) shall be at
least equal to 55% of the total consideration payable by Keystone in the FFWM
Merger (the "Minimum Stock Limitation") and (2) shall not (unless permitted by
Keystone in its sole discretion) exceed 60% of such total consideration (the
"Maximum Stock Limitation") except as necessary to assure that each FFWM
shareholder shall be deemed to have made either solely the Stock Election or
solely the Cash Election. If necessary to meet either of these limitations, the
Elections made by certain FFWM shareholders may be disregarded. In applying
these limitations, Keystone will first treat FFWM shareholders who fail to
submit a Form of Election by the Election Deadline as having made either the
Stock Election or the Cash Election, as necessary to meet the limitations. If
after allocating all such non-electing holders to either the Stock Election or
the Cash Election, as necessary to meet the limitations, Keystone determines
that the Minimum or the Maximum Stock Limitation still will not be met, the
Elections made by the FFWM shareholders holding the smallest numbers of shares
of FFWM Common Stock will automatically be converted to the Stock Election or
the Cash Election, as necessary to meet the limitations, in the order of their
holdings of FFWM Common Stock, so that the holder of the smallest number of
shares is converted first, the holder of the second smallest number of shares is
converted second, and so on, until the Minimum or Maximum Stock Limitation is
satisfied. See "FFWM Plan of Merger--Limitations on Effectiveness of
Elections."
Relationship of the Two Mergers
The FTC Merger and the FFWM Merger are separate and independent
transactions. Either Merger may be consummated whether or not the other is
approved by the shareholders entitled to vote thereon and whether or not the
other is consummated or is not consummated for any reason. Therefore, in
considering whether to vote in favor of the FTC Merger, Keystone and FTC
shareholders should consider the effect of the FTC Merger both with and without
consummation of the FFWM Merger. Similarly, in considering whether to vote in
favor of the FFWM Merger, FFWM shareholders should consider the effect of the
FFWM Merger both with and without consummation of the FTC Merger.
Reasons for the FTC Merger
Keystone. For Keystone, the FTC Merger will provide entry into new
markets in south-central Pennsylvania and western Maryland which Keystone has
long considered to be desirable areas for the expansion of its franchise. Not
only will the FTC Merger give Keystone significant penetration into these
markets, it will add to the Keystone family a financial institution with a solid
reputation, a record of consistent high performance, good asset quality and a
loyal customer base. The affiliation with Keystone will make available to FTC's
subsidiaries the economies of scale of a larger organization and the ability to
offer to their customers a variety of financial products and services which they
do not currently provide. By leveraging these advantages, Keystone believes
that over the long term it will be able to achieve both greater penetration into
FTC's markets and better financial performance than either Keystone or FTC would
be able to achieve in the absence of the FTC Merger. See "FTC Plan of Merger--
Background of and Reasons for the FTC Merger."
FTC. Over the past decade, as the pace of change within the banking
industry has accelerated and as competition from non-bank financial service
providers has increased, FTC carefully reviewed its strategic alternatives and
long-term goals and considered what steps should be taken to maintain and
enhance its competitive position. In prior years this process led the FTC Board
of Directors to determine that it should continue its strategy of independence
and to seek growth internally and through acquisitions.
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While FTC as an independent entity historically has been able to
implement effective strategies to achieve strong financial performance, the
changing dynamics of the banking industry is likely to inhibit its ability to
continue to achieve comparable future performance. The efficiencies of larger
organizations whose cost of doing business is on average less than that of FTC
creates a competitive disadvantage. This disadvantage will most likely be
amplified in the future as the role of technology expands, placing greater
emphasis on substantial capital investment with a somewhat uncertain outcome.
Additionally, the ability of nonbank competition to provide banking-related
services with substantially less regulatory oversight, the preclusion of banking
institutions to engage in certain financial product lines and the migration of
traditional bank products such as deposits to alternative investments likely
will adversely affect institutions such as FTC in their ability to generate
competitive returns to their shareholders.
As a consequence of the foregoing factors, and considering FTC's
strategic geographical fit within Keystone's franchise, as well as the share
exchange ratio and the increased dividends and improved liquidity the
transaction is likely to provide to FTC's shareholders, the Board of Directors
of FTC believes that the FTC Merger will be in the best interests of FTC's
shareholders and its customers and the communities which it serves. See "FTC
Plan of Merger--Background of and Reasons for the FTC Merger."
Reasons for the FFWM Merger
FFWM. During August 1996, the FFWM Board of Directors determined that
it was appropriate to explore and evaluate the various options available to FFWM
to maximize shareholder value, including the possible sale of FFWM. To this
end, the Board of Directors engaged the investment banking firm of Alex. Brown &
Sons Incorporated ("Alex. Brown") to assist FFWM in its evaluation. Alex. Brown
conducted extensive efforts to identify potential acquirors and assist the Board
of Directors in evaluating the proposals received, which ultimately resulted in
the selection of Keystone as the acquiror of FFWM. The FFWM Board of Directors
believes that the FFWM Merger is in the best interests of FFWM's shareholders
and the communities in which FFWM operates. In reaching this determination
FFWM's Board of Directors evaluated numerous factors and obtained a written
opinion from Alex. Brown to the effect that the consideration to be paid to
shareholders of FFWM in connection with the FFWM Merger is fair, from a
financial point to view, to FFWM's shareholders. For a more detailed discussion
of the reasons for the FFWM Merger see "FFWM Plan of Merger--Background of and
Reasons for the FFWM Merger."
Keystone. Through the merger of FFWM's subsidiary, First Federal,
with Keystone's subsidiary, American Trust Bank, Keystone seeks to increase
American Trust Bank's market penetration in the areas currently served by both
banks and to extend American Trust Bank's market geographically. Keystone hopes
following the merger to retain First Federal's depositors and consumer borrowers
and thereby increase its retail customer base. In turn, American Trust Bank
will have the opportunity to expand banking relationships with its new customers
by offering them products and services not presently offered by First Federal.
Keystone believes that the merger may enable it to realize cost efficiencies at
the same time that it expands its customer base. Finally, the merger will
enable American Trust Bank to expand its market geographically, both in the
counties in which both banks have offices and into the city of Hagerstown,
Maryland, where First Federal currently has an office, but American Trust Bank
does not. See "FFWM Plan of Merger--Background of and Reasons for the FFWM
Merger."
Opinions of Financial Advisors
The investment banking firm of Danielson Associates Inc. has rendered
an opinion to Keystone dated January 23, 1997 that the terms of the FTC Merger
are fair, from a financial point of view, to Keystone and its shareholders. The
investment banking firm of Berwind Financial Group, L.P. has rendered an opinion
to FTC dated March 26, 1997 that the terms of the FTC Merger are fair, from a
financial point of view, to FTC shareholders. The investment banking firm of
Alex. Brown & Sons Incorporated has rendered an opinion to the
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FFWM Board of Directors dated November 26, 1996 that the total consideration to
be received by FFWM shareholders in the FFWM Merger is fair, from a financial
point of view, to FFWM shareholders. These opinions are attached as Annexes I,
II and III to this Joint Proxy Statement/Prospectus and should be read in their
entirety for information as to the matters considered and the assumptions made
in rendering such opinions. See "FTC Plan of Merger--Opinion of Keystone
Financial Advisor," "FTC Plan of Merger--Opinion of FTC Financial Advisor" and
"FFWM Plan of Merger--Opinion of FFWM Financial Advisor."
Votes Required for Approval
FTC Merger. Approval of the FTC Plan of Merger by the shareholders of
Keystone requires the affirmative vote of a majority of the votes cast on the
proposal by the holders of Keystone Common Stock, with a quorum of a majority of
the outstanding shares of Keystone Common Stock being present or represented at
the Keystone Annual Meeting.. An abstention or a broker non-vote is not a vote
cast and will not affect the number of Keystone votes required for approval.
See "FTC Plan of Merger--Required Votes; Management Recommendations." As of
March 7, 1997, the directors and executive officers of Keystone beneficially
owned an aggregate of 3.70% of the outstanding Keystone Common Stock. As of
March 14, 1997 the trust departments of Keystone's bank subsidiaries, acting in
a fiduciary capacity, had sole voting power over approximately 0.01% of the
outstanding Keystone Common Stock. See "Introduction--Trust Department
Shares."
Approval of the FTC Plan of Merger by the shareholders of FTC requires
the affirmative vote of the holders of two-thirds of the outstanding shares of
FTC Common Stock. An abstention or a broker non-vote by an FTC shareholder will
have the same legal effect as a vote against the approval of the FTC Plan of
Merger. See "FTC Plan of Merger--Required Votes; Management Recommendations."
As of February 21, 1997, the directors and executive officers of FTC
beneficially owned an aggregate of 5.38% of the outstanding FTC Common Stock. As
of February 21, 1997 FTC's trust subsidiary, acting in a fiduciary capacity, had
sole voting power over approximately 6.18% of the outstanding FTC Common Stock.
As of March 21, 1997, Keystone owned and had voting power over 40,400 shares of
FTC Common Stock, representing 0.47% of the outstanding shares. See
"Introduction--Trust Department Shares."
The directors of FTC have entered into agreements with Keystone to
vote in favor of the FTC Merger shares of FTC 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 FTC Merger. These agreements cover an aggregate of 5.27% of the outstanding
FTC Common Stock. No monetary or other consideration was paid to any FTC
director for entering into these agreements. See "FTC Plan of Merger--Voting
Agreements."
Shareholders of FFWM are not being asked to approve the FTC Merger.
FFWM Merger. Approval of the FFWM Plan of Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of FFWM
Common Stock. An abstention or a broker non-vote by an FFWM shareholder will
have the same legal effect as a vote against the approval of the FFWM Plan of
Merger. See FFWM Plan of Merger--Required Vote; Management Recommendation."
As of March 21, 1997, the directors and executive officers of FFWM
beneficially owned an aggregate of 7.3% of the outstanding FFWM Common Stock.
The directors of FFWM have entered into agreements with Keystone to vote in
favor of the FFWM Merger shares of FFWM 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
FFWM Merger. These agreements cover an aggregate of 6.5% of the outstanding
FFWM Common Stock. No monetary or other consideration was paid to any FFWM
director for entering into these agreements. See "FFWM Plan of Merger--Voting
Agreements." As of March 21, 1997, Keystone owned and had voting power over
50,850 shares of FFWM Common Stock, representing 2.25% of the outstanding
shares.
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<PAGE>
Shareholders of Keystone and FTC are not being asked to approve the
FFWM Plan of Merger.
Boards of Directors' Recommendations
Keystone. The Board of Directors of Keystone believes that the FTC
Merger is in the best interests of the shareholders of Keystone and unanimously
recommends that Keystone shareholders vote "FOR" approval of the FTC Plan of
Merger.
FTC. The Board of Directors of FTC believes that the FTC Merger is in
the best interests of the shareholders of FTC and unanimously recommends that
FTC shareholders FTC vote "FOR" approval of the FTC Plan of Merger.
FFWM. The Board of Directors of FFWM believes that the FFWM Merger is
in the best interests of the shareholders of FFWM and unanimously recommends
that FFWM shareholders vote "FOR" approval of the FFWM Plan of Merger.
SHAREHOLDERS OF KEYSTONE, FTC AND FFWM ARE REQUESTED TO COMPLETE, DATE
AND SIGN THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
Post-Merger Boards of Directors
Following the FTC Merger, Ray L. Wolfe, Chairman and Chief Executive
Officer of FTC, will become Chairman of the Board of Keystone. Mr. Wolfe and
two other directors of FTC, to be designated by FTC subject to Keystone's
approval, will become members of the Board of Directors of Keystone. See "FTC
Plan of Merger--Keystone Board of Directors Following the Merger."
Following the FFWM Merger, Cheston H. Browning, III and Marc E.
Zanger, both currently directors of FFWM, and one other director of FFWM to be
selected by Keystone will become members of the Board of Directors of American
Trust Bank. See "FFWM Plan of Merger--Boards of Directors following the
Merger."
Interests of Certain Persons in the Transactions
FTC Merger. In connection with the FTC Merger, Keystone has entered
into an employment agreement with Ray L. Wolfe, the Chairman of the Board and
Chief Executive Officer of FTC. The agreement provides for Mr. Wolfe's
employment by Keystone for three years following the FTC Merger at an annual
compensation of $350,000 and for his retention as a consultant thereafter until
August 15, 2003 at an annual compensation of $177,000. The FTC Plan of Merger
also provides that when the FTC Merger becomes effective, Mr. Wolfe will become
Chairman of the Board of Keystone and will become a member of Keystone's Board
of Directors with a term expiring in 2000. See "FTC Plan of Merger--Keystone
Board of Directors Following the FTC Merger" and "FTC Plan of Merger--Interests
of Certain Persons in the Transaction."
Keystone has also agreed to honor FTC's and its subsidiaries'
obligations to indemnify their directors and officers, and charter and bylaw
provisions limiting the liability of directors, with respect to events occurring
prior to the FTC Merger and to provide employees of FTC and its subsidiaries
with credit for their prior service with FTC in determining eligibility and
vesting under Keystone's employee benefit plans. See "FTC Plan of Merger--
Interests of Certain Persons in the Transaction."
FFWM Merger. In consideration of their being available to Keystone
for advisory services, Keystone has agreed to pay each director of FFWM who
continues to serve until the FFWM Merger an amount equal to the fees
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paid to the director by FFWM during the year preceding the FFWM Merger. These
amounts, which are estimated to range between $12,200 and $13,400 per director,
will be reduced by any fees received for service as a director of American Trust
Bank.
FFWM and First Federal are parties to an employment agreement with
Patrick J. Coyne, Chairman of the Board, President and Chief Executive Officer,
and severance agreements with Kenneth W. Andres, William C. Marsh and R. Craig
Pugh, three Executive Vice Presidents. Under these agreements, upon
consummation of the FFWM Merger and in satisfaction of the employers'
obligations under the terms of the agreements and existing stock option and
incentive plan agreements, Messrs. Coyne, Andres, Marsh and Pugh will receive
pre-tax severance payments in the amounts of $1,334,348, $421,827, $344,152 and
$445,594, respectively. The employment of each of Messrs. Coyne, Andres, Marsh
and Pugh will terminate effective on the effective date of the FFWM Merger, and
none of these officers will have any continuing employment with Keystone or
American Trust Bank following the effective date.
Keystone has agreed in the FFWM Plan of Merger to honor FFWM's
obligations to indemnify the directors and officers of FFWM and its
subsidiaries, and charter and bylaw provisions limiting the liability of FFWM
directors, with respect to events occurring prior to the FFWM Merger and to
provide FFWM's directors and officers with certain liability insurance coverage
for three years following the FFWM Merger. It has also agreed to pay FFWM
directors and officers who hold unexercised stock options under FFWM's stock
incentive plan, in exchange for the cancellation of their options, an amount
equal to the net amount that would have been received under the Cash Election if
the option had been exercised prior to the FFWM Merger. Finally, Keystone has
agreed that employees of FFWM and its subsidiaries who become Keystone employees
will be entitled to participate in Keystone employee benefit plans, with credit
for their prior service with FFWM in determining eligibility and vesting, and
that employees of FFWM and its subsidiaries with at least one year of service
prior to the FFWM Merger will be entitled to participate in a Keystone severance
plan that will provide severance benefits if the employee's employment is
terminated in certain circumstances upon or following the FFWM Merger. See
"FFWM Plan of Merger--Interests of Certain Persons in the Transaction."
Tax Consequences
Keystone Shareholders. No gain or loss for federal or Pennsylvania
income tax purposes will be recognized by Keystone shareholders as a result of
either the FTC Merger or the FFWM Merger.
FTC Shareholders. No gain or loss for federal or Pennsylvania income
tax purposes will be recognized by shareholders of FTC on the exchange of their
shares for Keystone Common Stock in the FTC Merger, except with respect to cash
received in lieu of fractional shares. For a more complete description of the
Federal and Pennsylvania income tax consequences of the FTC Merger, see "FTC
Plan of Merger--Tax Consequences to FTC Shareholders."
FFWM Shareholders. No gain or loss for federal income tax purposes or
for Maryland personal income tax purposes will be recognized by shareholders of
FFWM who make or are deemed to have made the Stock Election, except with respect
to cash received in lieu of fractional shares. For FFWM shareholders who make
or are deemed to have made the Cash Election or who exercise dissenters' rights,
the cash received will be treated as a distribution in redemption of their FFWM
Common Stock, subject to the provisions and limitations of Section 302 of the
Internal Revenue Code of 1986. For a more complete description of the Federal
and Maryland income tax consequences of the FFWM Merger, see "FFWM Plan of
Merger--Tax Consequences to FFWM Shareholders."
Warrant/Option Agreements
FTC Warrant Agreement. In connection with the FTC Plan of Merger, FTC
has entered into an agreement granting Keystone a warrant to purchase up to
19.9% of the outstanding FTC Common Stock, at an exercise price of $43.725 per
share, upon the occurrence of certain events. In general, the events which
would
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permit Keystone to exercise its warrant would involve an attempt by a third
person to gain control of FTC. The Warrant Agreement is designed to compensate
Keystone for its risks, costs and expenses and the commitment of resources
associated with the FTC Plan of Merger in the event the FTC Merger is not
consummated due to an attempt by a third person to gain control of FTC. The
Warrant Agreement may discourage third persons from making competing offers to
acquire FTC and is intended to increase the likelihood that the FTC Plan of
Merger will be consummated in accordance with its terms. Exercise of the warrant
for more than 5% of the outstanding FTC Common Stock would be subject to the
approval of regulatory authorities. See "FTC Plan of Merger--Warrant Agreement."
FFWM Option Agreement. In connection with the FFWM Plan of Merger,
FFWM has entered into an agreement granting Keystone an option to purchase up to
16.6% of the outstanding FFWM Common Stock, at an exercise price of $34.19 per
share, upon the occurrence of certain events. In general, the events which
would permit Keystone to exercise its option would involve an attempt by a third
person to gain control of FFWM. The Option Agreement is designed to compensate
Keystone for its risks, costs and expenses and the commitment of resources
associated with the FFWM Plan of Merger in the event the FFWM Merger is not
consummated due to an attempt by a third person to gain control of FFWM. The
Option Agreement may discourage third persons from making competing offers to
acquire FFWM and is intended to increase the likelihood that the FFWM Plan of
Merger will be consummated in accordance with its terms. Exercise of the option
for more than 5% of the outstanding FFWM Common Stock would be subject to the
approval of regulatory authorities. See "FFWM Plan of Merger--Option
Agreement."
Dissenters' Rights
Keystone Shareholders. Keystone shareholders will not have statutory
dissenters' rights with respect to the FTC Merger or the FFWM Merger.
FTC Shareholders. FTC shareholders will not have statutory dissenters'
rights with respect to the FTC Merger.
FFWM Shareholders. Record holders of FFWM Common Stock who object to
the FFWM Merger and comply with the prescribed statutory procedures are entitled
to have the fair value of their shares determined in accordance with the
Delaware General Corporation Law and paid to them in cash in lieu of the shares
of Keystone Common Stock or cash they would otherwise be entitled to receive in
the FFWM Merger. A copy of the pertinent statutory provisions is attached to
this Joint Proxy Statement/Prospectus as Annex IV. Failure to follow such
provisions precisely may result in a loss of dissenters' rights. See "FFWM Plan
of Merger--Dissenters' Rights of FFWM Shareholders."
Differences in Shareholder Rights
The rights of the holders of Keystone Common Stock differ in certain
respects from those of the holders of FTC Common Stock and FFWM Common Stock.
FTC Common Stock. While for both FTC and Keystone supermajority
shareholder votes are required to approve certain mergers and other transactions
and certain amendments to the Articles of Incorporation or Bylaws, 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 FTC
and Keystone have classified Boards of Directors, there are differences in the
rights of shareholders of the two companies to increase or decrease the size of
the Board, to fill vacancies and to nominate and remove directors. Unlike FTC,
Keystone has established a shareholder rights plan which may discourage outside
persons from attempting to acquire control of Keystone. While both FTC 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
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from coverage of some of these provisions. Unlike FTC, 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 FTC Common Stock and those of
the holders of Keystone Common Stock, see "Comparison of Keystone Common Stock
and FTC Common Stock."
FFWM Common Stock. While for both FFWM and Keystone supermajority
shareholder votes are required to approve certain mergers and other transactions
with a substantial shareholder and certain charter and bylaw amendments, the
types of transactions and amendments subject to the special vote requirements
and the votes required for approval differ between the two companies. While
both FFWM and Keystone have classified Boards of Directors, there are
differences in the rights of shareholders of the two companies to nominate and
remove directors. Keystone has established a shareholder rights plan which may
discourage outside persons from attempting to acquire control of Keystone. FFWM
does not have a shareholder rights plan but does restrict the ability of any
person to vote more than 10% of its outside shares. While the statutes
governing both Keystone and FFWM contain additional provisions that may
discourage takeover attempts by outside persons, the provisions of the two
statutes are not the same. For a more detailed discussion of the differences
between the rights of the holders of FFWM Common Stock and those of the holders
of Keystone Common Stock, see "Comparison of Keystone Common Stock and FFWM
Common Stock."
Regulatory Approvals
The FTC Merger requires approval by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board") and the Pennsylvania Department
of Banking. The approval of the Federal Reserve Board was received on March 19,
1997, and the approval of the Pennsylvania Department of Banking was received on
March 26, 1997.
The FFWM Bank Merger, which is a condition to the FFWM Merger,
requires approval by the Office of the Comptroller of the Currency ("OCC").
This approval was granted by the OCC on March 7, 1997.
Conditions; Amendment; Termination
In addition to shareholder and regulatory approval, consummation of
each Merger is contingent upon the receipt of certain tax opinions and the
satisfaction of a number of other conditions. See "FTC Plan of Merger--
Conditions to the FTC Merger" and "FFWM Plan of Merger--Conditions to the FFWM
Merger." Notwithstanding prior shareholder approval, either Plan of Merger may
generally be amended in any respect other than the ratio for converting FTC
Common Stock into Keystone Common Stock in the FTC Merger or the formulas for
converting FFWM Common Stock into Keystone Common Stock or cash in the FFWM
Merger.
The FTC Plan of Merger may be terminated, and the FTC Merger
abandoned, notwithstanding prior shareholder approval, by mutual agreement of
Keystone and FTC or by either of them in the event of a material breach by the
other party, the failure of the shareholders of either party to approve the FTC
Merger, the denial of a required regulatory approval or failure to satisfy the
conditions to the FTC Merger prior to December 31, 1997. See "FTC Plan of
Merger--Amendment, Waiver and Termination."
The FFWM Plan of Merger may be terminated, and the FFWM Merger
abandoned, notwithstanding prior shareholder approval, by mutual agreement of
Keystone and FFWM or by either of them in the event of a material breach by the
other party, the failure of the shareholders of FFWM to approve the FFWM Merger,
or failure to consummate the FFWM Merger prior to November 26, 1997.
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Effective Dates of the Mergers
It is presently anticipated that if the FTC Plan of Merger is approved
by the shareholders of Keystone and FTC, the FTC Merger will become effective in
the second quarter of 1997. However, there can be no assurance that all
conditions necessary to the consummation of the FTC Merger will be satisfied or,
if satisfied, that they will be satisfied in time to permit the FTC Merger to
become effective at the anticipated time. See "FTC Plan of Merger--Effective
Date of the FTC Merger."
It is presently anticipated that if the FFWM Plan of Merger is
approved by the shareholders of FFWM, the FFWM Merger will become effective in
the second quarter of 1997. However, there can be no assurance that all
conditions necessary to the consummation of the FFWM Merger will be satisfied
or, if satisfied, that they will be satisfied in time to permit the FFWM Merger
to become effective at the anticipated time. See "FFWM Plan of Merger--
Effective Date of the FFWM Merger."
Exchange of Certificates
Instructions on how to effect the exchange of FTC Common Stock
certificates for Keystone Common Stock certificates or the exchange of FFWM
Common Stock certificates for Keystone Common Stock certificates or cash will be
sent as promptly as practicable after the FTC Merger or FFWM Merger becomes
effective to each shareholder of record of FTC or FFWM immediately prior to such
Merger. Shareholders should not send in stock certificates until they receive
written instructions to do so.
Pre-Announcement Prices
Keystone and FTC Common Stock. The following table sets forth (i) the
closing sale price for Keystone Common Stock on the NASDAQ National Market
System on December 19, 1996, the last trading day prior to the first public
announcement of the FTC Merger, (ii) the closing sale price for FTC Common Stock
on the NASDAQ National Market System on December 19, 1996, and (iii) an
equivalent per share price for FTC Common Stock computed by multiplying the
closing sale price for Keystone Common Stock on December 19, 1996 by the FTC
Merger exchange ratio of 1.65.
<TABLE>
<CAPTION>
Last
Pre-Announcement Equivalent Per
Prices Share Price
------ -----------
<S> <C> <C>
Keystone Common Stock........... $26.75 --
FTC Common Stock................ $29.25 $44.14
</TABLE>
On March 25, 1997, the closing sale price for Keystone Common Stock
was $27.25. Using this price, the equivalent per share price for FTC Common
Stock would have been $44.96. The closing sale price for FTC Common Stock on
March 25, 1997 was $43.625.
No assurance can be given as to what the market price of Keystone
Common Stock will be when and if the FTC Merger is consummated. Because the FTC
Merger exchange ratio is fixed and because the market price of Keystone Common
Stock is subject to fluctuation, the value of the shares of Keystone Common
Stock that holders of FTC Common Stock will receive in the FTC Merger may
increase or decrease prior to and following the FTC Merger. Keystone and FTC
shareholders are advised to obtain current market quotations for Keystone Common
Stock and FTC Common Stock.
FFWM Common Stock. The following table sets forth (i) the closing sale
price for Keystone Common Stock on the NASDAQ National Market System on November
25, 1996, the last trading day prior to the first
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<PAGE>
public announcement of the FFWM Merger, (ii) the closing sale price for FFWM
Common Stock on the NASDAQ National Market System on November 25, 1996, and
(iii) an equivalent per share price for FFWM Common Stock computed by
multiplying the closing sale price for Keystone Common Stock on November 25,
1996 by the FFWM Merger exchange ratio of 1.29.
<TABLE>
<CAPTION>
Last
Pre-Announcement Equivalent Per
Prices Share Price
------ -----------
<S> <C> <C>
Keystone Common Stock........... $26.75 --
FFWM Common Stock............... $27.75 $34.35
</TABLE>
On March 25, 1997, the closing sale price for Keystone Common Stock
was $27.25. Using this price, the equivalent per share price for FFWM Common
Stock would have been $35.15. The closing sale price for FFWM Common Stock on
March 25, 1997 was $33.375.
No assurance can be given as to what the market price of Keystone
Common Stock will be when and if the FFWM Merger is consummated. Because the
FFWM Merger exchange ratio is fixed and the market price of Keystone Common
Stock is subject to fluctuation (1) the value of the shares of Keystone Common
Stock that holders of FFWM Common Stock may receive in the FFWM Merger under the
Stock Election may increase or decrease prior to and following the FFWM Merger
and (2) the amount per share of FFWM Common Stock that FFWM shareholders may
receive under the Cash Election may increase or decrease prior to the FFWM
Merger. FFWM shareholders are advised to obtain current market quotations for
Keystone Common Stock and FFWM Common Stock.
Keystone Stock Repurchase Program
On November 16, 1995, as part of its capital management planning
process, Keystone's Board of Directors authorized a common share repurchase
program of up to 1.5 million shares of Keystone Common Stock. However, any
determination as to the amount and timing of share repurchases would be subject
to an evaluation of alternative investment returns and overall capitalization
levels. Shares repurchased under the program were to be held as treasury stock
for such corporate purposes as may be determined, including to fund Keystone's
existing employee benefit and share related plans. In order to satisfy pooling-
of-interests accounting requirements associated with the FTC Merger, on January
23, 1997 Keystone's Board of Directors amended the share repurchase program to
limit the maximum number of shares to be reacquired to 1.2 million and to
provide that the program shall terminate no later than the closing date for the
FTC Merger.
At December 31, 1996, Keystone had 320,000 shares of Keystone Common
Stock held in treasury. Through March 26, 1997, an additional 819,271
shares of Keystone Common Stock have been repurchased in 1997.
In a separate action, at the January 23, 1997 meeting of the Keystone
Board of Directors, the Board authorized the repurchase of up to 1.5 million
shares of Keystone Common Stock for issuance in the FFWM Merger. The FFWM
Merger will be accounted for as a purchase business combination. This
repurchase program will be completed no later than 30 days subsequent to the
closing date for the FFWM Merger.
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<PAGE>
Selected Financial Information--(unaudited)
The following table sets forth certain historical financial
information for Keystone, FTC and FFWM and certain pro forma combined financial
information for Keystone giving effect to the FTC Merger under the pooling-of-
interests method of accounting. See "Information Concerning the Pro Forma
Combined Financial Data." The FFWM Merger will be accounted for under the
purchase method of accounting. The addition of FFWM would not have materially
affected the pro forma combined financial information as presented. This
information is based on the historical financial statements of Keystone, FTC and
FFWM incorporated herein by reference and the pro forma combined financial
information appearing elsewhere herein and should be read in conjunction with
such statements and information and the related notes.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------ ----------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Keystone (1)
Earnings
Net interest income............................ $ 209,763 $ 197,352 $ 188,418 $ 182,510 $ 177,927
Provision for credit losses.................... 9,858 7,859 9,484 7,940 16,053
Net income..................................... 69,475 61,314 51,359 51,349 45,742
Per Share
Net income..................................... $ 1.83 $ 1.73 $ 1.46 $ 1.47 $ 1.33
Cash dividends declared........................ 0.98 0.93 0.86 0.79 0.73
Statement of Condition at Period End
Assets......................................... $5,231,268 $5,074,785 $4,706,000 $4,419,726 $4,311,779
Deposits....................................... 4,097,111 4,061,888 3,827,983 3,582,688 3,655,261
Long-term debt................................. 2,154 4,048 6,054 5,990 5,144
Shareholders' equity........................... 507,307 480,694 407,774 412,880 378,314
FTC (2)
Earnings
Net interest income............................ $ 52,356 $ 48,659 $ 46,013 $ 43,950 $ 42,272
Provision for loan losses...................... 855 709 840 3,640 2,800
Income before cumulative effect
of accounting change......................... 20,031 18,135 16,429 13,962 15,020
Cumulative effect of
accounting change............................ -- -- -- 373 --
Net income..................................... 20,031 18,135 16,429 14,335 15,020
Per Share
Income before cumulative effect
of accounting change......................... $ 2.35 $ 2.12 $ 1.92 $ 1.64 $ 1.77
Cumulative effect of
accounting change............................ -- -- -- 0.04 --
Net income..................................... 2.35 2.12 1.92 1.68 1.76
Cash dividends declared........................ 0.96 0.85 0.79 0.71 0.65
Statement of Condition at Period End
Assets......................................... $1,219,311 $1,138,437 $1,090,576 $ 995,171 $ 964,917
Deposits....................................... 962,610 931,720 898,859 836,733 828,687
Long-term debt................................. 419 487 549 615 683
Shareholders' equity........................... 153,099 141,072 125,869 114,737 105,375
</TABLE>
-xvii-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ------------ ---------- ----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Pro Forma Combined
Keystone and FTC (1) (2)
Earnings
Net interest income........................... $ 262,119 $ 246,011 $ 234,431 $ 226,460 $ 220,199
Provision for credit losses................... 10,713 8,568 10,324 11,580 18,853
Net income.................................... 89,506 79,449 67,788 65,311(3) 60,762
Per Share
Net income.................................... $ 1.72 $ 1.60 $ 1.38 $ 1.33(3) $ 1.25
Cash dividends declared....................... 0.98 0.93 0.86 0.79 0.73
Statement of Condition at Period End
Assets........................................ $6,450,579 $6,213,222 $5,796,576 $5,414,897 $ 5,276,696
Deposits...................................... 5,059,721 4,993,608 4,726,842 4,419,421 4,483,948
Long-term debt................................ 2,573 4,535 6,603 6,605 5,827
Shareholders' equity.......................... 660,406 621,766 533,643 527,617 483,689
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended December 31, Year Ended June 30,
------------------- -----------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
-------- ---------- ---------- ---------- -------- --------- -----------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
FFWM
Earnings
Net interest income................. $ 7,814 $ 6,751 $ 14,378 $ 13,365 $ 11,931 $ 11,298 $ 10,249
Provision for loan losses........... 75 300 600 5,985 780 350 317
Income (loss) before
cumulative effect
of accounting change.............. 1,229 1,613 3,600 (1,219) 2,364 2,153 3,252
Cumulative effect
of accounting change.............. -- -- -- -- 1,695 -- --
Net income (loss)................... 1,229 1,613 3,600 (1,219) 4,059 2,153 3,252
Per Share
Income (loss) before
cumulative effect
of accounting change.............. $ 0.57 $ 0.74 $ 1.65 $ (0.56) $ 1.09 $ 1.02 $ 0.51(4)
Cumulative effect
of accounting change.............. -- -- -- -- 0.78 -- --
Net income (loss)................... $ 0.57 $ 0.74 $ 1.65 $ (0.56) $ 1.87 $ 1.02 $ 0.51(4)
Cash dividends declared............. 0.24 0.24 0.48 0.46 0.37 0.27 0.07
Statement of Condition at
Period End
Assets.............................. $360,849 $ 337,749 $ 321,994 $ 329,375 $345,646 $343,557 $ 342,281
Deposits............................ 276,795 286,427 274,756 283,360 301,208 301,820 304,962
Long-term debt...................... 483 588 483 580 676 773 869
Shareholders' equity................ 42,142 39,963 41,707 38,470 40,267 37,472 34,021
</TABLE>
- --------------
(1) Keystone financial information for the two years ended December 31, 1993 has
been restated to reflect mergers with the Frankford Corporation, WM Bancorp
and Elmwood Bancorp, Inc. which occurred in 1994. These transactions were
accounted for as poolings of interests. Keystone per share information has
been adjusted to reflect a 3-for-2 stock split in the form of a 50% stock
dividend in August 1996.
(2) FTC financial information for the three years ended December 31, 1994 has
been restated to reflect the acquisition of Washington County National Bank,
which occurred in 1995 and was accounted for as a pooling of interests. FTC
per share information has been adjusted to reflect a 10% stock dividend in
June 1996.
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<PAGE>
(3) Calculated before cumulative effect of FTC accounting change in 1993.
(4) For the period February 10, 1992 (effective date of stock conversion and
initial public offering) through June 30, 1992, the portion of the year in
which the FFWM Common Stock was outstanding.
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, FTC and
FFWM Common Stock, (ii) pro forma comparative earnings and book values per share
for Keystone, FTC and FFWM Common Stock giving effect to the FTC Merger (but not
to the FFWM Merger) under the pooling-of-interests method of accounting and
(iii) pro forma comparative dividends per share for FTC and FFWM Common Stock.
The addition of FFWM would not have materially affected the pro forma
comparative earnings and book values per share. The following data is based on
the historical financial statements of Keystone, FTC and FFWM incorporated
herein by reference and the pro forma combined financial information appearing
elsewhere herein and should be read in conjunction with such financial
statements and such information and the related notes.
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
(In Thousands, Except Per Share Amounts)
Net Income (Loss) Per Common
Share (1) (2)
Keystone Shareholders
Keystone............................. $ 1.83 $ 1.73 $ 1.46 $ 1.47 $ 1.33
Keystone and FTC Pro Forma........... 1.72 1.60 1.38 1.33 1.25
FTC Shareholders
FTC.................................. $ 2.35 $ 2.12 $ 1.92 $ 1.64(3) $ 1.77
FTC Pro Forma Equivalent............. 2.84 2.64 2.28 2.20 2.06
FFWM Shareholders
FFWM................................. $ 1.48 $(0.50) $ 1.08 $ 1.11(3) $ 1.25
FFWM Pro Forma Equivalent
Keystone......................... 2.36 2.23 1.88 1.90 1.72
Keystone and FTC................. 2.22 2.06 1.78 1.72 1.61
Book Value Per Common Share (1) (2)
Keystone Shareholders
Keystone............................. $13.38 $12.69 $11.64 $11.77 $10.86
Keystone and FTC Pro Forma........... 12.70 11.96 10.86 10.73 9.89
FTC Shareholders
FTC.................................. $17.94 $16.52 $14.74 $13.43 $12.36
FTC Pro Forma Equivalent............. 20.96 19.73 17.92 17.70 16.32
FFWM Shareholders
FFWM................................. $19.44 $18.44 $19.39 $20.45 $18.56
FFWM Pro Forma Equivalent
Keystone........................... 17.26 16.37 15.02 15.18 14.01
Keystone and FTC................... 16.38 15.43 14.01 13.84 12.76
</TABLE>
-xix-
<PAGE>
<TABLE>
<CAPTION>
Twelve Months Ended December 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- -------- ------- ---------- -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Cash Dividends Declared Per
Common Share (1) (2) (4)
Keystone Shareholders
Keystone.............................. $ 0.98 $ 0.93 $ 0.86 $ 0.79 $ 0.73
FTC Shareholders
FTC................................... $ 0.96 $ 0.85 $ 0.79 $ 0.71 $ 0.65
FTC Pro Forma Equivalent.............. 1.62 1.53 1.42 1.30 1.20
FFWM Shareholders
FFWM.................................. $ 0.48 $ 0.48 $ 0.42 $ 0.30 $ 0.13
FFWM Pro Forma Equivalent............. 1.26 1.20 1.11 1.02 0.94
</TABLE>
- -----------------------
(1) The Keystone pro forma per share information is prepared on the basis of the
pro forma combined financial information, which includes the impact of the
FTC Merger, as included elsewhere herein. See "Pro Forma Combined Financial
Information." The FTC pro forma equivalent per share information represents
the Keystone and FTC pro forma book values and net income per share and the
Keystone historical dividends per share, multiplied by the FTC Merger
exchange ratio of 1.65 shares of Keystone Common Stock for each share of FTC
Common Stock. The FFWM pro forma equivalent per share information
represents the Keystone historical and the Keystone and FTC pro forma book
values and net income per share and the Keystone historical dividends per
share, multiplied by the FFWM Merger exchange ratio of 1.29 shares of
Keystone Common Stock for each share of FFWM Common Stock. Keystone
financial information for the three years ended December 31, 1993 has been
restated to reflect mergers with The Frankford Corporation, WM Bancorp and
Elmwood Bancorp, Inc., which occurred in 1994, and FTC financial information
for the fours years ended December 31, 1994 has been restated to reflect the
acquisition of Washington County National Bank, which occurred in 1995.
These transactions were accounted for as poolings of interests.
(2) Keystone per share information has been restated to reflect three-for-two
stock split in the form of a 50% stock dividend declared in 1996. FTC per
share information has been restated to reflect a 10% stock dividend declared
in 1996.
(3) Before cumulative effects of accounting changes, which increased FTC net
income by $.05 per share in 1993 and increased FFWM net income by $.78 per
share in FFWM's fiscal year ended June 30, 1994.
(4) 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.
-xx-
<PAGE>
KEYSTONE FINANCIAL, INC.
FINANCIAL TRUST CORP
and
FIRST FINANCIAL CORPORATION OF WESTERN MARYLAND
---------------------------
JOINT PROXY STATEMENT/PROSPECTUS
---------------------------
INTRODUCTION
This Joint Proxy Statement/Prospectus is furnished in connection with the
solicitation by the Boards of Directors of Keystone Financial, Inc.
("Keystone"), Financial Trust Corp ("FTC") and First Financial Corporation of
Western Maryland ("FFWM") of proxies to be voted at the 1997 Annual Meeting of
Shareholders of Keystone and at Special Meetings of Shareholders of FTC and
FFWM, respectively, and at any adjournment or adjournments thereof
(collectively, the "Shareholder Meetings"). The Keystone Annual Meeting will be
held at 2:00 p.m., local time, on Thursday, May 8, 1997 at the Harrisburg Hilton
Hotel, Market Square, Harrisburg, Pennsylvania. The FTC Special Meeting will be
held at 10:00 a.m., local time, on Wednesday, May 7, 1997 at 1415 Ritner
Highway, Carlisle, Pennsylvania. The FFWM Special Meeting will be held at 10:00
a.m., local time, on Thursday, May 8, 1997 at the Cumberland Country Club, 10200
Country Club Road, Cumberland, Maryland. The approximate date on which this
Joint Proxy Statement/Prospectus will first be mailed to the shareholders of
Keystone, FTC and FFWM is April 4, 1997.
Record Dates; Voting Rights
The Board of Directors of Keystone has fixed the close of business on March
14, 1997 as the record date for determining the shareholders of Keystone
entitled to notice of and to vote at the Keystone Annual Meeting. At that date,
approximately 37,313,000 shares of Common Stock, par value $2.00 per share, of
Keystone ("Keystone Common Stock") were outstanding. On March 14, 1997, there
were approximately 12,464 shareholders of record of Keystone Common Stock.
The Board of Directors of FTC has fixed the close of business on March 21,
1997 as the record date for determining the shareholders of FTC entitled to
notice of and to vote at the FTC Special Meeting. At that date, 8,532,131
shares of Common Stock, par value $5.00 per share, of FTC ("FTC Common Stock")
were outstanding. On February 21, 1997, there were approximately 3,593
shareholders of record of FTC Common Stock.
The Board of Directors of FFWM has fixed the close of business on March 21,
1997 as the record date for determining the shareholders of FFWM entitled to
notice of and to vote at the FFWM Special Meeting. At that date, 2,175,659
shares of Common Stock, par value $1.00 per share, of FFWM ("FFWM Common Stock")
were outstanding. On March 21, 1997, there were 871 shareholders of
record of FFWM Common Stock.
Each share of Keystone, FTC or FFWM Common Stock 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 appropriate Shareholder
Meeting. Keystone, FTC and FFWM do not have any other outstanding classes of
capital stock.
-1-
<PAGE>
Purposes of the Shareholder Meetings
Keystone and FTC Meetings: Approval of FTC Plan of Merger. At their
respective Shareholder Meetings, the shareholders of Keystone and FTC 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
December 19, 1996 (collectively, the "FTC Plan of Merger"), between FTC and
Keystone. As more fully described below under "FTC Plan of Merger," the FTC
Plan of Merger provides for a merger of FTC into Keystone (the "FTC Merger").
In the FTC Merger, each outstanding share of FTC Common Stock will be converted
into the right to receive 1.65 shares of Keystone Common Stock.
Keystone has received an opinion of the investment banking firm of Danielson
Associates Inc. that the terms of the FTC Merger are fair to the shareholders of
Keystone from a financial point of view. See "FTC Plan of Merger--Opinion of
Keystone Financial Advisor."
FTC has received an opinion of the investment banking firm of Berwind
Financial Group, L.P. that the terms of the FTC Merger are fair to the
shareholders of FTC from a financial point of view. See "FTC Plan of Merger--
Opinion of FTC Financial Advisor."
THE BOARDS OF DIRECTORS OF KEYSTONE AND FTC BELIEVE THAT THE FTC MERGER IS IN
THE BEST INTERESTS OF THEIR RESPECTIVE SHAREHOLDERS, AND EACH UNANIMOUSLY
RECOMMENDS THAT ITS SHAREHOLDERS VOTE TO APPROVE THE FTC PLAN OF MERGER.
Keystone Annual Meeting: Other Proposals for Keystone Shareholders. In
addition to the FTC Merger, at the Keystone Annual Meeting, the shareholders of
Keystone will be asked to consider and vote upon the following matters:
Keystone Proposal No. 2: Election of Keystone Directors. Six directors will
be elected at the Keystone Annual Meeting to serve for terms expiring at
Keystone's Annual Meeting in 2000. The Board of Directors of Keystone has
nominated June B. Barry, J. Glenn Beall, Jr., Richard W. DeWald, Gerald E.
Field, Philip C. Herr, II and William L. Miller, all of whom are presently
members of the Board. For information concerning the nominees and the other
Keystone directors whose terms will continue after the Annual Meeting, see
"Other Proposals for Keystone Shareholders--Election of Keystone Directors."
The Board of Directors of Keystone recommends that Keystone shareholders vote
"FOR" the election of the six nominees for director.
Keystone Proposal No. 3: Ratification of Appointment of Keystone Auditors.
Pursuant to the recommendation of the Audit Committee, the Board of Directors of
Keystone has appointed the firm of Ernst & Young LLP as independent auditors for
Keystone for 1997. Ratification of this appointment requires the affirmative
vote of a majority of the votes cast on the proposal at the Keystone Annual
Meeting. The Board of Directors of Keystone recommends that Keystone
shareholders vote "FOR" ratification of the appointment of Ernst & Young LLP.
See "Other Proposals for Keystone Shareholders--Ratification of Appointment of
Keystone Auditors."
Keystone Proposal No. 4: Increase in Authorized Keystone Common Stock. The
Board of Directors of Keystone has proposed an amendment to Keystone's Restated
Articles of Incorporation to increase the number of authorized shares of
Keystone Common Stock from 75 million to 100 million. While the increase in
authorized shares is not necessary for the consummation of the FTC Merger and
the FFWM Merger, the Board believes that it is desirable to have the additional
authorized shares of Keystone Common Stock available for possible future
acquisition transactions, financing transactions, employee benefit plans and
other general corporate purposes. For additional information concerning this
proposal, see "Other Proposals for Keystone Shareholders--Increase in Authorized
Keystone Common Stock." Approval of this proposal requires the affirmative vote
of a majority of the votes cast on the proposal at the Keystone Annual Meeting.
The Board of Directors of Keystone recommends
-2-
<PAGE>
that Keystone shareholders vote "FOR" approval of the proposed amendment to
Keystone's Restated Articles to increase the authorized shares of Keystone
Common Stock.
Keystone Proposal No. 5: Keystone 1996 Performance Unit Plan. At the
Keystone Annual Meeting, Keystone shareholders will be asked to consider and
vote upon a proposal to approve the adoption by Keystone's Board of Directors of
Keystone's 1996 Performance Unit Plan. This Plan, which is intended to provide
key employees with long-term incentives to work to increase shareholder value,
permits the Human Resources Committee of the Board to grant to eligible
employees, including executive officers, cash Performance Unit awards which may
be earned by achieving objective Performance Targets established by the
Committee for a Performance Period of from one to six years. For additional
information concerning this proposal, see "Other Proposals for Keystone
Shareholders--Keystone 1996 Performance Unit Plan." Approval of this proposal
requires the affirmative vote of a majority of the votes cast on the proposal at
the Keystone Annual Meeting. The Board of Directors of Keystone recommends that
Keystone shareholders vote "FOR" approval of Keystone's 1996 Performance Unit
Plan.
Keystone Proposal No. 6: Keystone 1997 Stock Incentive Plan. At the Keystone
Annual Meeting, Keystone shareholders will also be asked to consider and vote
upon a proposal to approve the adoption by Keystone's Board of Directors of
Keystone's 1997 Stock Incentive Plan. This Plan, which is intended to provide
key employees with stock incentives to work to increase shareholder value,
permits the Human Resources Committee of the Board to grant to eligible
employees, including executive officers, stock incentive awards in the form of
stock options, performance shares, restricted shares or other stock awards. The
aggregate number of shares of Keystone Common Stock which may be issued under
the Plan is limited to 2,500,000 shares. If approved by the Keystone
shareholders, the 1997 Stock Incentive Plan will replace Keystone's 1992 Stock
Incentive Plan, under which 568,662 shares of Keystone Common Stock currently
remain available, and no further awards under the 1992 Plan will be granted.
For additional information concerning this proposal, see "Other Proposals for
Keystone Shareholders--Keystone 1997 Stock Incentive Plan." Approval of this
proposal requires the affirmative vote of a majority of the votes cast on the
proposal at the Keystone Annual Meeting. The Board of Directors of Keystone
recommends that Keystone shareholders vote "FOR" approval of Keystone's 1997
Stock Incentive Plan.
FFWM Special Meeting: Approval of FFWM Plan of Merger. At the FFWM Special
Meeting, the shareholders of FFWM will be asked to consider and vote upon a
proposal to approve an Agreement and Plan of Merger dated as of November 26,
1996 between FFWM and Keystone (the "FFWM Plan of Merger"). As more fully
described below under "FFWM Plan of Merger," the FFWM Plan of Merger provides
for a merger of FFWM into Keystone (the "FFWM Merger"). In the FFWM Merger,
each outstanding share of FFWM Common Stock (other than shares subject to
dissenters' rights) will be converted into the right to receive, at the election
of the holder, either (1) 1.29 shares of Keystone Common Stock or (2) cash in an
amount equal to 1.29 times the average of the closing bid prices for Keystone
Common Stock on the NASDAQ National Market System for the 20 trading days ending
with the sixth trading day preceding the closing date for the FFWM Merger. The
elections by the holders of FFWM Common Stock are subject to certain limitations
described below as to the minimum and maximum numbers of shares of FFWM Common
Stock that may be converted into Keystone Common Stock. See "FFWM Plan of
Merger--Limitations on Effectiveness of Elections." It is contemplated that
contemporaneously with the FFWM Merger, FFWM's bank subsidiary, First Federal
Savings Bank of Western Maryland, will be merged into American Trust Bank, one
of Keystone's operating bank subsidiaries.
FFWM has received an opinion of the investment banking firm of Alex. Brown &
Sons Incorporated that the total consideration to be received by FFWM
shareholders in the FFWM Merger is fair, from a financial point of view, to FFWM
shareholders. See "FFWM Plan of Merger--Opinion of FFWM Financial Advisor."
THE BOARD OF DIRECTORS OF FFWM BELIEVES THAT THE FFWM MERGER IS IN THE BEST
INTERESTS OF THE SHAREHOLDERS OF FFWM AND UNANIMOUSLY RECOMMENDS THAT FFWM
SHAREHOLDERS VOTE TO APPROVE THE FFWM PLAN OF MERGER.
-3-
<PAGE>
Voting and Revocation of Proxies
All properly executed proxies not theretofore revoked will be voted at the
Shareholder Meetings or any adjournments thereof in accordance with the
instructions thereon. FTC proxies containing no voting instructions will be
voted in favor of approval of the FTC Plan of Merger. Keystone and FTC proxies
containing no voting instructions will be voted in favor of approval of the FTC
Plan of Merger, in favor of the election as directors of the nominees named
herein, in favor of the ratification of the appointment of Ernst & Young LLP as
independent auditors for Keystone for 1997, in favor of the amendment described
below to Keystone's Restated Articles of Incorporation and in favor of approval
of Keystone's 1996 Performance Unit Plan and 1997 Stock Incentive Plan. FFWM
proxies containing no voting instructions will be voted in favor of approval of
the FFWM Plan of Merger.
As to any other matter brought before a Shareholder 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 Keystone or FTC
shareholder who votes against approval of the FTC Plan of Merger will not be
used to vote in favor of any proposal to adjourn the Keystone Annual Meeting or
the FTC Special Meeting in the event Keystone or FTC management wishes to
adjourn the Meeting in order to allow time for the solicitation of additional
votes to approve the FTC Plan of Merger. Similarly, the proxy of any FFWM
shareholder who votes against approval of the FFWM Plan of Merger will not be
used to vote in favor of any proposal to adjourn the FFWM Special Meeting in the
event FFWM management wishes to adjourn the Meeting in order to allow time for
the solicitation of additional votes to approve the FFWM 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 Keystone, FTC or FFWM, as the
case may be, written notice of such revocation or a later dated proxy or by
attending the appropriate Shareholder Meeting and voting in person. Attendance
at a Shareholder Meeting will not, of itself, constitute a revocation of a
proxy.
Trust Department Shares
As of March 14, 1997 the trust departments of Keystone's bank subsidiaries,
acting in a fiduciary capacity for various trusts and estates, held an aggregate
of 2,389,953 shares of Keystone Common Stock (approximately 6.41% of the
outstanding shares). Of these shares, the banks have sole voting power over
3,725 shares, share voting power with other persons over 97,299 shares, have
sole investment power over 1,821,193 shares and share investment power with
other persons over 122,031 shares. See "Information Concerning Keystone--5%
Beneficial Owners" for information concerning other persons who have or share
voting and/or investment power over more than 5% of the outstanding Keystone
Common Stock.
As of February 21, 1997 FTC's trust company subsidiary, Financial Trust
Services Company, acting in a fiduciary capacity for various trusts, estates and
agency accounts, beneficially owned an aggregate of 667,832 shares of FTC Common
Stock, or approximately 7.83% of the outstanding FTC Common Stock. Of these
shares, the trust company has sole voting power over 526,988 shares and shares
voting power with other persons over 121,747 shares. The trust company had no
voting power over 19,097 shares.
In addition to shares held in a fiduciary capacity, as of March 21, 1997
Keystone owned approximately 40,400 shares of FTC Common Stock, and a subsidiary
of FTC owned approximately 937 shares of Keystone Common Stock.
It is anticipated that shares of Keystone or FTC Common Stock over which
Keystone, FTC or their subsidiaries have sole voting power will be voted in
favor of approval of the FTC Plan of Merger. Shares as to which the
subsidiaries share voting power will be voted in consultation with the other
persons having voting power over such shares.
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Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of
Keystone, FTC and FFWM may solicit proxies from the shareholders of Keystone,
FTC and FFWM, respectively, in person or by telephone or otherwise for no
additional compensation. 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 for their
reasonable expenses. Keystone, FTC and FFWM will each bear its own expenses in
connection with the solicitation of proxies for its Shareholder Meeting.
Keystone has retained the firm of Corporate Investor Communications, Inc.
("CIC"), 111 Commerce Road, Carlstadt, New Jersey 07072-2586, to assist in the
solicitation of proxies for the Keystone Annual Meeting. For these services CIC
will receive a fee of $7,500, plus reimbursement for its out-of-pocket
disbursements. If requested to contact individual registered holders and
nonobjecting beneficial owners, CIC will charge a fee of $3.00 per holder
contacted, which fee includes directory assistance and related telephone
expenses. Keystone estimates the total cost of the services of CIC to be
approximately $9,500.
FFWM has retained Morrow & Co., Inc., 909 Third Avenue, 20th Floor, New York,
New York 10022, a professional proxy soliciting firm, to assist in the
solicitation of proxies and for related services. FFWM will pay Morrow & Co.,
Inc. a fee of $5,000 and has agreed to reimburse it for its reasonable out-of-
pocket expenses.
FTC PLAN OF MERGER
This section of the Joint Proxy Statement/Prospectus describes certain of the
more important aspects of the FTC Plan of Merger. The following description
does not purport to be complete and is qualified in its entirety by reference to
the FTC Plan of Merger, which has been filed with the SEC as an exhibit to the
Registration Statement. The FTC Plan of Merger is incorporated in this Joint
Proxy Statement/Prospectus by reference to such filing and is available upon
request. See "Available Information."
The FTC Merger
The FTC Plan of Merger provides for a merger of Keystone and FTC in which
Keystone will be the surviving corporation. As a result of the FTC Merger,
Keystone will acquire all of the assets and liabilities of FTC, FTC's
subsidiaries will become subsidiaries of Keystone, and FTC will cease to exist
as a separate corporation.
In the FTC Merger, the shareholders of FTC will become shareholders of
Keystone. Each of the approximately 8,532,131 outstanding shares of FTC Common
Stock will be converted into the right to receive 1.65 shares of Keystone Common
Stock, with cash to be paid in lieu of any fractional share. See "Conversion of
FTC Shares." The shares of Keystone Common Stock held by the current Keystone
shareholders will remain outstanding and not be converted or exchanged as a
result of the FTC Merger.
Keystone is a bank holding company with its principal executive offices in
Harrisburg, Pennsylvania. Its bank subsidiaries are American Trust Bank,
Cumberland, Maryland, Frankford Bank, N.A., Horsham, Pennsylvania; Keystone
National Bank, Lancaster, Pennsylvania; Mid-State Bank and Trust Company,
Altoona, Pennsylvania; Northern Central Bank, Williamsport, Pennsylvania; and
Pennsylvania National Bank and Trust Company, Pottsville, Pennsylvania, which
operate a combined total of 145 banking offices in central and southeastern
Pennsylvania, western Maryland and northeastern West Virginia. It also has a
number of nonbank subsidiaries and divisions which provide services to Keystone
and its customers, including brokerage, investment, mortgage banking, leasing
and insurance. See "Summary--The Parties--Keystone" and "Keystone Documents
Incorporated by Reference."
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FTC is a bank holding company with its principal executive offices in
Carlisle, Pennsylvania. Its bank subsidiaries are Financial Trust Company,
Carlisle, Pennsylvania; Chambersburg Trust Company, Chambersburg, Pennsylvania;
First National Bank and Trust Co., Waynesboro, Pennsylvania; and Washington
County National Bank, Williamsport, Maryland, which operate a combined total of
48 banking offices in south central Pennsylvania and western Maryland. FTC also
has two nonbank subsidiaries which provide trust services and insurance to FTC
customers. See "Summary--The Parties--FTC" and "FTC Documents Incorporated by
Reference." Following the FTC Merger, FTC's subsidiaries will be wholly owned
subsidiaries of Keystone. It is contemplated that FTC's three Pennsylvania bank
subsidiaries will be merged to form a single Keystone bank subsidiary under the
name of Financial Trust Company and that FTC's Maryland bank subsidiary,
Washington County National Bank, will be merged into Keystone's Maryland bank
subsidiary, American Trust Bank.
Background of and Reasons for the FTC Merger
FTC. As the pace of change within the banking industry has accelerated over
the past decade, and as competition from non-bank financial service providers
has increased, FTC carefully reviewed its strategic alternatives and long-term
goals and took appropriate steps to maintain and enhance its competitive
position. As part of this process, FTC confirmed its commitment to the
Pennsylvania and Maryland markets in which it operates by building on existing
strengths and expanding into neighboring markets, both through internal growth
as well as through identifying appropriate acquisition opportunities.
FTC's Board of Directors has, over a number of years, periodically reviewed
strategic alternatives including (i) remaining independent and continuing its
strategy of internal growth and expansion through acquisitions, (ii) engaging in
a merger-of-equals type transaction and (iii) undertaking a strategic
combination with a larger banking organization. In prior years, FTC's Board
determined that it should continue its strategy of independence and to seek
growth internally and through acquisitions. It was in this context that FTC
entered into an agreement to acquire Washington County National Bank in 1995.
However, such opportunities are increasingly limited in FTC's market area.
While FTC historically has been able to implement effective strategies to
achieve strong financial performance, the changing dynamics of the banking
industry are likely to inhibit the company's ability to continue to achieve
comparable future performance. The efficiencies of larger organizations whose
cost of doing business is on average less than FTC's creates a competitive
disadvantage. This disadvantage will most likely be amplified in the future as
the role of technology expands, placing greater emphasis on substantial capital
investment with a somewhat uncertain outcome. Additionally, the ability of
nonbank competition to provide banking-related services with substantially less
regulatory oversight, the preclusion of banking institutions to engage in
certain financial product lines and the migration of traditional bank products
such as deposits to alternative investments likely will adversely affect
institutions such as FTC in their ability to generate competitive returns to
their shareholders.
Messrs. Wolfe and Campbell, the chief executive officers of FTC and Keystone,
respectively, have known each other for a number of years as a result of the
geographic proximity of the two institutions and their service with various
community and bank industry groups. On occasion, they have previously
discussed, on an informal basis, the strategic direction of their respective
institutions, as well as the implications of consolidation within the banking
industry and increased competition from nonbank service providers.
In early 1996, Messrs. Wolfe and Campbell discussed the implications of
1995's record level of merger and acquisition activity on, in particular, the
markets in which they operate. At this time, they decided to explore, at least
conceptually, whether a combination of FTC and Keystone was feasible from a
financial, business and cultural perspective. These discussions were terminated
during the month of April, however, as FTC decided to continue its existing
strategic plan.
By November, Keystone's stock price had appreciated and FTC's earnings had
increased, leading to a further contact by Mr. Campbell and the resumption of
conversations between Messrs. Wolfe and Campbell concerning a potential
combination between the two companies. They discussed the possibility that a
transaction
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between the two companies might be possible considering that FTC's improved
earnings could potentially warrant the issuance of a greater number of Keystone
shares which, due to the increase in the Keystone stock price, could produce a
higher transaction value for FTC and its shareholders.
On November 19th, Mr. Wolfe met with FTC's Planning Committee, a subcommittee
of the Board consisting of Mr. Wolfe and five other board members, to discuss
his recent conversations with Mr. Campbell. After deliberation, the Planning
Committee decided that it might be in FTC's shareholders' best interest to
consider pursuing a combination with Keystone. The Planning Committee then
decided to invite representatives of Keystone to make a presentation to FTC's
Board of Directors to discuss the company's operating philosophy, strategic
direction, current stock valuation and other various areas of interest. The
Planning Committee also decided that it would be advisable to retain a financial
advisor, and it selected Berwind Financial Group, L.P. ("Berwind"), which had
provided such services to FTC in the past. This selection was subject to
ratification by the FTC Board of Directors, which was given on December 16.
Upon the request of the Planning Committee, FTC held a special board meeting
on November 25th at which representatives of Berwind and Keystone made a formal
presentation. Also in attendance were representatives of FTC's legal advisor,
McNees, Wallace & Nurick. Berwind began its presentation by providing an
overview of the banking industry in general, citing various trends and
developments including among others, competition for banking assets, migration
of banking deposits, importance of technology and consolidation. Next, Berwind
addressed FTC's position within the industry, comparing various performance
ratios with certain comparable peer groups. Berwind then provided similar
commentary on Keystone. Lastly, Berwind addressed FTC's strategic position from
a financial point of view with respect to (i) remaining independent and (ii) a
possible affiliation with Keystone. Thereafter, representatives of Keystone
joined the meeting and provided an overview of their institution, including
financial, operational and stock performance. In addition, the representatives
discussed FTC's potential strategic and geographical fit within Keystone's
franchise. After their presentation, Keystone's representatives were excused
from the meeting. At this time FTC's Board discussed its options generally,
with a principal focus on various considerations relevant to remaining
independent versus entering into a strategic alliance with Keystone. One aspect
discussed was whether to solicit additional proposals for the acquisition of
FTC. Considering other possible viable buyers, the consensus was that combining
with Keystone specifically would be an excellent geographical fit resulting in a
strong competitive franchise covering a significant geographic area, that
Keystone's particular culture and its approach of allowing significant local
bank decisionmaking would benefit FTC's employees and the communities and
customers it serves, and also that Keystone had the ability and greatest
apparent incentive to pay a high transaction price to acquire FTC. After
deliberation, the Board unanimously agreed to explore further a possible
affiliation with Keystone. In addition, pending further discussions with
Keystone, the Board of Directors decided not to authorize conversations with any
other party.
Discussions between the senior staffs of FTC and Keystone occurred subsequent
to the November 25th Board meeting. These meetings and conversations focused on
quantifying what synergies and revenue enhancements would be realizable in a
combination of the two companies. In addition, conversations were held
concerning FTC's on-going role in the pro forma entity, namely, board and
managerial representation. Following these discussions, Keystone indicated its
willingness to continue negotiations based upon a 1.60 stock exchange ratio.
After Keystone improved the proposed exchange ratio to 1.65 as a result of
further negotiation, the Planning Committee on December 12th met with
representatives of Berwind to evaluate the proposed transaction from a financial
point of view. Berwind discussed with the Planning Committee, among other
things, the ability of FTC to generate sufficient returns to its shareholders
both internally and externally and to improve shareholder liquidity in light of
increasing bank and non-bank competition. Berwind then outlined with the
Committee certain financial considerations of the proposed transaction based
upon the exchange ratio. Discussions focused on the proposed price, potential
rates of return and improved liquidity the transaction would provide FTC's
shareholders. After consultation with Berwind's representatives, the Planning
Committee decided that, although a further effort
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should be made to obtain a greater exchange ratio, a transaction based upon the
proposed exchange ratio warranted FTC's Board of Directors' review.
On December 16th, a special meeting of the FTC Board of Directors was held to
discuss the results of discussions held with Keystone. Representatives of
McNees, Wallace & Nurick, FTC's legal counsel, and Berwind were in attendance.
Mr. Wolfe updated the Board on the result of senior management's discussions
with Keystone. At that time, representatives of Berwind made an extensive
presentation and distributed materials to the directors of FTC relating to
current banking markets, industry trends and conditions, the current value of
the future prospects for FTC as an independent entity and the value of the
merger and a comparison of the exchange ratio to those used in comparable bank
mergers. Following Berwind's presentation, counsel explained in detail various
legal and regulatory aspects of the transaction. At the conclusion of these
presentations, extensive discussions followed involving the Board of Directors,
Berwind and counsel. Upon the conclusion of these discussions, the Board
authorized management to negotiate the terms of a definitive agreement with
Keystone based upon a 1.65 exchange ratio. Mr. Wolfe advised the Board that it
would be important that the process move quickly in order to preserve
confidentiality.
On the afternoon of December 19th, 1996, FTC's Board of Directors reconvened
to review the proposed Agreement and Plan of Reorganization and other related
transactional documents. At the meeting, representatives of Berwind and McNees,
Wallace & Nurick were present to discuss in detail, among other things, the
potential financial and strategic benefits of the proposed transaction, the
fairness of the transaction to FTC's shareholders and the anticipated tax and
accounting treatment of the proposed transaction. In reviewing the proposed
transaction in conjunction with FTC's alternatives of remaining independent or
possibly seeking a combination with another partner, the Board considered that
merging with Keystone would produce a transaction price that, according to
Berwind's data, was at the very high end of comparable historical price ranges
in bank mergers, and that in view of consolidation trends within the industry, a
combination with Keystone would offer the possibility of further enhanced value
to the FTC shareholders in the event of a subsequent acquisition of Keystone.
The Board also considered the favorable reputation of the Keystone franchise and
that the combined post-merger organization would be positioned to compete
effectively with other full-service financial institutions in the overall market
area. After being apprised of the results of the continuing negotiations to
finalize the documentation and consideration of related information, FTC's
Board, by unanimous vote of all directors present, approved the Agreement and
Plan of Reorganization and the transactions contemplated thereby. Although two
directors were unable to attend the meeting, both have signed an agreement,
described above under "FTC Plan of Merger--Voting Agreements," to vote their
shares in favor of the FTC Merger.
Keystone. Keystone has long viewed the region of Pennsylvania south of
Harrisburg as a desirable market for expansion of its franchise. The desire to
increase its visibility in these markets was partly responsible for the decision
to move Keystone's corporate headquarters to Harrisburg from State College,
Pennsylvania in 1986. Although Keystone's Pennsylvania franchise forms a
crescent surrounding this region to the east, north and west, Keystone does not
currently have banking offices in Franklin, Perry or Adams Counties, and its
presence in Cumberland and York Counties and southern Dauphin County is limited.
While the FFWM Merger would provide Keystone with one office in Hagerstown,
Maryland, Keystone also does not have a significant presence in Maryland's
Washington County.
FTC's franchise covers portions of south-central Pennsylvania and western
Maryland which Keystone views as desirable markets because of their dynamic and
growing economies. It includes the communities on the west shore of the
Susquehanna River opposite Harrisburg, Gettysburg in Adams County, Hanover in
York County and the Interstate Route 81 corridor extending from Harrisburg south
through Carlisle, Shippensburg, Chambersburg and Greencastle to Hagerstown,
Maryland, where Interstate 81 intersects Interstate 70 leading to the Baltimore-
Washington Metroplex and from where Interstate 81 leads south to the Shenandoah
Valley of Virginia. The affiliation with FTC offers Keystone a unique
opportunity to expand its franchise into this market in a significant way.
Not only does the affiliation with FTC provide Keystone with a means of
entering into what it views as an extremely desirable market, but it also adds
to the Keystone family a financial institution with a solid reputation, a
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record of consistent high performance, good asset quality and a loyal customer
base. The addition not only of FTC's $1.2 billion in assets and $963 million in
deposits, but also the attendant customer relationships will provide Keystone
with a ready market to offer its ever expanding array of financial products and
services. The customer receives greater value, and Keystone has the opportunity
for greater profitability. At the same time, the affiliation with Keystone will
make available to FTC's subsidiaries the economies of scale of a larger
organization and the consequent ability to profitably offer an expanded range of
financial products and services which they do not currently provide. These
products and services include complete banking services, discount brokerage,
leasing, investment advisory services, mutual funds, annuities, mortgage
services and automobile dealer financing. By leveraging these advantages,
Keystone believes that over the long term it can achieve both greater
penetration into FTC's market area and better financial performance than either
Keystone or FTC would be able to achieve in the absence of the FTC Merger.
Required Votes; Management Recommendations
Keystone. Approval by the Keystone shareholders of the FTC Plan of
Merger requires the affirmative vote of a majority of the votes cast on the
proposal by the holders of Keystone Common Stock, voting in person or by proxy,
with a quorum of a majority of the outstanding shares of Keystone Common Stock
being present or represented at the Keystone Annual Meeting. An abstention or a
broker non-vote is not a vote cast and will not be counted in determining the
number of votes required for approval by the shareholders of Keystone. THE
BOARD OF DIRECTORS OF KEYSTONE UNANIMOUSLY RECOMMENDS THAT KEYSTONE SHAREHOLDERS
VOTE "FOR" APPROVAL OF THE FTC PLAN OF MERGER.
FTC. Approval by the FTC shareholders of the FTC Plan of Merger
requires the affirmative votes of the holders of at least two-thirds of the
outstanding shares of FTC Common Stock, voting in person or by proxy at the FTC
Special Meeting. Because FTC shareholder approval requires the affirmative
votes of two-thirds of all outstanding FTC shares, an abstention or a broker
non-vote will have the same legal effect as a vote by a FTC shareholder against
approval of the FTC Plan of Merger. THE BOARD OF DIRECTORS OF FTC UNANIMOUSLY
RECOMMENDS THAT FTC SHAREHOLDERS VOTE "FOR" APPROVAL OF THE FTC PLAN OF MERGER.
Voting Agreements
In connection with the FTC Plan of Merger, the directors of FTC have
entered into agreements to vote certain shares of FTC Common Stock beneficially
owned by them in favor of the FTC Merger. The directors of FTC have agreed with
Keystone that they will vote in favor of the FTC Merger all shares of FTC 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 FTC Common Stock over which they have or
share voting power to be voted in favor of the FTC Merger. Based on the share
ownership by FTC directors as of February 21, 1996, in the aggregate these
agreements commit 449,449 shares of FTC Common Stock (5.27% of the outstanding
shares) to be voted in favor of the FTC Merger.
The agreements further provide that with respect to shares of FTC
Common Stock owned by the 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 FTC Merger has been
consummated or the FTC 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 FTC or any of its
subsidiaries 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 FTC or any of its subsidiaries or (iii) for the principal purpose of avoiding
the director's obligations under the agreement. The agreements 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 or (2) direct the management and policies of
FTC or a subsidiary.
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The agreements are applicable to the directors only in their
capacities as shareholders and do not affect the exercise of their
responsibilities as directors or officers. The agreements also do not apply to
any shares of FTC Common Stock held by a director as a trustee or other
fiduciary. No monetary or other compensation was paid to any FTC 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.
Opinion of Keystone Financial Advisor
Keystone retained Danielson Associates Inc. ("Danielson Associates")
to advise the Keystone Board of Directors as to the fairness of the FTC Plan of
Merger to Keystone and its shareholders. Danielson Associates is regularly
engaged in the valuation of banks, bank holding companies and thrifts in
connection with mergers, acquisitions and other securities transactions and has
extensive knowledge of, and experience with, Pennsylvania banking markets and
banking organizations operating in those markets. Danielson Associates was
selected by Keystone because of its knowledge of, experience with, and
reputation in the financial services industry.
At the January 23, 1997 meeting of the Keystone Board of Directors,
Danielson Associates delivered an oral opinion that, in its opinion, as of such
date, the financial terms of the FTC Plan of Merger are "fair" to Keystone and
its shareholders. No limitations were imposed by the Keystone Board of
Directors upon Danielson Associates with respect to the investigations made or
procedures followed by it in arriving at its opinion. Although Danielson
Associates furnished its opinion as to the fairness to Keystone and its
shareholders of the consideration to be paid by Keystone in the FTC Merger, the
amount of such consideration was determined by negotiations between Keystone and
FTC in which Danielson Associates did not participate.
In arriving at its opinion, Danielson Associates (a) reviewed certain
business and financial information relating to FTC and Keystone, including FTC's
and Keystone's Form 10-K annual reports for the years 1989 through 1995 and
FTC's and Keystone's Form 10-Q quarterly reports for the quarters ended March
31, June 30 and September 30, 1996; (b) analyzed certain financial projections
of FTC and Keystone prepared by their managements; (c) discussed the past and
current operations, financial condition and prospects of FTC and Keystone with
their senior executives; (d) analyzed the pro forma impact of the FTC Merger on
Keystone's earnings per share, capitalization and financial ratios; (e) reviewed
the reported prices and trading activity for FTC Common Stock and Keystone
Common Stock and compared them to similar bank holding companies; (f) discussed
the results of recent regulatory examinations of FTC with its senior management;
(g) discussed the strategic objectives of Keystone; (h) reviewed and discussed
with senior management of Keystone selected estimates of the cost savings and
revenue enhancements projected by Keystone for the combined company and compared
such amounts to those estimated in certain precedent transactions; (i) reviewed
and compared the financial terms, to the extent publicly available, with
comparable transactions; and (j) reviewed the FTC Plan of Merger and certain
related documents.
Danielson Associates did not perform on its own or obtain any
independent appraisal of assets or liabilities of FTC or Keystone or their
respective subsidiaries nor has Danielson Associates examined any individual
loan credit files of FTC or Keystone. Further, Danielson Associates did not
independently verify the information provided by FTC or Keystone and assumed the
accuracy and completeness of all such information. In addition, Danielson
Associates has assumed the FTC Merger will be consummated in accordance with the
terms set forth in the FTC Plan of Merger.
In arriving at its opinion, Danielson Associates performed a variety
of financial analyses, which it believes must be considered as a whole and that
consideration of portions of such analyses and the factors considered
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therein, without considering all factors and analyses, could create an
incomplete view of the analyses and the process underlying its opinion. The
preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis and summary
description.
In its analyses, Danielson Associates made certain assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which are beyond Keystone's or FTC's control. Any estimates
contained in Danielson Associates' analyses are not necessarily indicative of
further results or value, which may be significantly more or less favorable than
such estimates. Estimates of values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold.
Comparable Companies Analyses. Danielson Associates compared FTC's
(a) tangible capital of 11.35% of assets as of September 30, 1996; (b) 0.31% of
assets not performing as of September 30, 1996; (c) net operating income of
2.36% of average assets for the twelve-month period ending September 30, 1996;
and (d) a loan portfolio mix, with 33% of assets in residential mortgages, 24%
in commercial and commercial real estate, and 7% consumer, and a deposit mix
with demand deposits of 10% of assets, certificates of deposits 36%, and all
other deposits 35%, with the medians for selected bank holding companies that
Danielson Associates deemed comparable. These medians were (a) tangible capital
of 8.65% of assets; (b) 0.63% of assets not performing; (c) net operating income
of 1.91% of average assets and (d) a loan portfolio mix of 25% of assets in
residential mortgages, 26% in commercial and commercial real estate, and 15%
consumer and the deposit mix of 9% of assets in demand deposits, 37% in
certificates of deposit, and 31% in other forms of deposit. The comparable
companies included publicly-traded Pennsylvania bank holding companies with
assets between $1 and $10 billion.
Danielson Associates also compared Keystone's (a) stock price as of
December 18, 1996 of 14.6 times earnings and 201% of book value, (b) dividend
yield based on stock price as of December 18, 1996 and trailing four quarters
dividends as of September 30, 1996 of 3.92%, (c) tangible capital of 9.44% of
assets as of September 30, 1996, (d) nonperforming assets as of September 30,
1996, 0.86% of total assets and (e) return on average assets during the trailing
four quarters ended September 30, 1996 of 1.36% with the medians for selected
bank and bank holding companies that Danielson Associates deemed to be
comparable to Keystone. The comparable medians were (a) stock price of 14.0
times earnings and 169% of book value, (b) dividend yield of 3.33%, (c) tangible
capital of 8.65% of assets, (d) 0.63% of assets nonperforming and (e) return on
average assets of 1.17%.
Comparable Transactions Analysis. Danielson Associates also compared
the consideration to be paid in the FTC Merger to the latest twelve months
earnings and equity capital of FTC with the earnings and capital multiples paid
in recent bank acquisitions. For this comparison, Danielson Associates used the
median of the multiples of 1996 announced merger and acquisition transactions as
of December 18, 1996 for acquisitions of banks with assets at the time of
acquisition of between $400 million and $5 billion and located in the Middle
Atlantic and Northeast regions of the country. The comparable transactions
included the mergers of Southern National Corporation - United Carolina
Bancshares Corporation, Crestar Financial Corporation - Citizens Bancorp, First
Virginia Bank, Inc. - Premier Bancshares Corporation, HUBCO, Inc. - Lafayette
American Bank and Trust Company, Summit Bancorporation - B.M.J. Financial
Corporation and Valley National Bancorp - Midland Bancorporation Inc. At the
time Danielson Associates made its analysis, the consideration to be paid in the
FTC Merger equaled 256% of FTC's September 30, 1996 book value and 19.1 times
FTC's earnings for the trailing four quarters as of September 30, 1996. This
compares to median multiples of 238% of book value and 20.4 times earnings for
the most comparable acquisitions.
Discounted Dividend Analysis. Danielson Associates performed a
discounted dividend analysis to determine a range of present values per share of
FTC Common Stock assuming FTC continued to operate as a stand-alone entity.
This range was determined by adding (i) the estimated future dividend stream
that FTC could generate, and (ii) the "terminal value" of FTC Common Stock at
the end of year 2001. The dividend stream and terminal values were discounted
to present values using discount rates which Danielson Associates viewed as
appropriate for a company with FTC's risk characteristics.
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As part of its analysis of the acquisition valuation, Danielson
Associates assumed that the net present value of estimated cost savings and
revenue enhancements was added to the stand-alone value of FTC Common Stock
calculated as described above. Based on cost savings and revenue enhancements
ranging from $6.4 million to $8 million (20% to 26% of FTC's non-interest
expense base) per year estimated by the management of Keystone to result from
the FTC Merger, Danielson Associates estimated the implied acquisition value of
FTC Common Stock. These analyses showed a range of present values from $39.38
to $45.74 per share for FTC Common Stock. The discounted dividend analysis is a
widely used valuation methodology. The results of such methodology are highly
dependent upon the numerous assumptions that must be made, including asset and
earnings growth rates, projected savings, dividend payout rates, terminal values
and discount rates.
Pro Forma Merger Analysis. Danielson Associates analyzed the
financial impact of the FTC Merger on the holders of Keystone Common Stock,
using earnings estimates for 1997, based on actual 1996 performance, through
2001 and Keystone's estimates for cost savings and revenue enhancements expected
to result from the FTC Merger. This analysis showed that, after giving effect
to the FTC Merger, before the impact of one-time merger-related charges, current
holders of Keystone Common Stock would realize a decrease in fully diluted
earnings per share in 1997 and a subsequent increase in fully diluted earnings
per share, in each case compared to Keystone on a stand-alone basis. Danielson
Associates also analyzed the changes in return on equity from Keystone on a
stand-alone basis, noting that such return on equity would increase following
the FTC Merger.
The foregoing is a summary of the material factors and analyses
performed by Danielson Associates in connection with its opinion. The summary
set forth above does not purport to be a complete description of the analyses
performed by Danielson Associates. In addition, no company or transaction used
in any comparisons is identical to FTC and Keystone. Accordingly, an analysis
of the results of the foregoing is not purely mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the company or companies to which they are being
compared.
Compensation of Danielson Associates. Under the terms of an
engagement agreement dated January 8, 1997, Keystone has paid to Danielson
Associates a fixed fee of $30,000 for furnishing its opinion. This fee was not
contingent upon the contents of Danielson Associates' opinion or the conclusions
reached therein. Keystone has also agreed to reimburse Danielson Associates for
its out-of-pocket expenses incurred in connection with its engagement and to
indemnify Danielson Associates and its officers and employees against
liabilities and expenses resulting from its engagement.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson Associates in
the course of arriving at its opinions. The full text of the opinion of
Danielson Associates dated as of January 23, 1997, which sets forth assumptions
made and matters considered, is attached as Appendix I to this Proxy
Statement/Prospectus. Keystone shareholders are urged to read this opinion in
its entirety. Danielson Associates' opinion is directed only to the
consideration to be received by FTC shareholders in the Merger and does not
constitute a recommendation to any Keystone shareholder as to how such
shareholder should vote at the Keystone Annual Meeting.
Opinion of FTC Financial Advisor
FTC retained Berwind to act as its financial advisor and to render a
fairness opinion in connection with the FTC Merger. Berwind rendered its
opinion (the "Opinion") to the Board of Directors of FTC that, based upon and
subject to the various considerations set forth therein, as of March 26, 1997,
the consideration to be received in the FTC Merger is fair, from a financial
point of view, to the holders of FTC Common Stock.
The full text of Berwind's Opinion, which sets forth the assumptions
made, matters considered and limitations of the review undertaken, is attached
as Appendix II to this Joint Proxy Statement/Prospectus and is incorporated
herein by reference. FTC's shareholders are urged to read the Opinion in its
entirety in connection
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with this Joint Proxy Statement/Prospectus. Berwind's Opinion is directed only
to the consideration to be received by FTC's shareholders in the FTC Merger and
does not constitute a recommendation to any holder of FTC Common Stock as to how
such holder should vote at the FTC Special Meeting. This Section of the Joint
Proxy Statement/Prospectus sets forth the material terms of Berwind's Opinion;
however, the summary of the Opinion as set forth herein is qualified in its
entirety by reference to the full text of such Opinion attached as Appendix II
to this Joint Proxy Statement/Prospectus.
Berwind was selected to act as FTC's financial advisor in connection
with the FTC Merger based upon its qualifications, expertise and experience.
Berwind has knowledge of, and experience with, Pennsylvania and surrounding
banking markets as well as banking organizations operating in those markets and
was selected by FTC because of its knowledge of, experience with, and reputation
in the financial services industry. 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 and private placements, and also is engaged in
providing valuations for various other purposes and in the determination of
adequate consideration in such transactions.
In such capacity, Berwind advised FTC in the negotiations with respect
to pricing and other terms of the FTC Merger, but the decision with respect to
the FTC Merger was determined by FTC's Board of Directors following negotiations
with Keystone. On December 19, 1996 FTC's Board of Directors approved and its
officers executed the FTC Plan of Merger. In connection with and as a condition
precedent to the FTC Merger, Berwind delivered its Opinion to FTC stating that,
as of the date of the Opinion, the consideration to be received in the FTC
Merger was fair to the shareholders of FTC from a financial point of view. The
full text of the Opinion which sets forth assumptions made, matters considered
and limits on the review undertaken is attached as Appendix II to this Joint
Proxy Statement/Prospectus. No limitations were imposed by FTC's Board of
Directors upon Berwind with respect to the investigations made or procedures
followed by Berwind in rendering the Opinion.
In rendering its Opinion, Berwind: (i) reviewed the historical
financial performances, current financial positions and general prospects of FTC
and Keystone; (ii) reviewed the FTC Plan of Merger; (iii) reviewed and analyzed
the stock market performance of FTC and Keystone; (iv) studied and analyzed
certain consolidated financial and operating data of FTC and Keystone such as
Form 10-Ks, Annual Reports, Quarterly Reports on Form 10-Q, certain interim
reports to shareholders and certain other communications the companies have
issued to their respective shareholders; (v) considered the terms and conditions
of the proposed FTC Merger as compared with the terms and conditions of
comparable bank and bank holding company mergers and acquisitions; (vi) met
and/or communicated with certain members of FTC's and Keystone's senior
management to discuss their respective operations, historical financial
statements, and future prospects; (vii) reviewed this Joint Proxy
Statement/Prospectus, and (viii) conducted such other financial analyses,
studies and investigations as Berwind deemed appropriate.
In delivering its Opinion, Berwind assumed that in the course of
obtaining the necessary regulatory and governmental approvals for the FTC
Merger, no restriction will be imposed that would have a material adverse effect
on the contemplated benefits of the FTC Merger. Berwind also assumed that there
would not occur any change in applicable law or regulation that would cause a
material adverse change in the prospects or operations of Keystone after the FTC
Merger.
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 FTC's financial
projections reviewed by Berwind in rendering its Opinion, Berwind assumed that
such financial projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of FTC as to the
future financial performance of FTC. Berwind did not make an independent
evaluation or appraisal of the assets (including loans) or liabilities of FTC 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 in the balance sheets of FTC and Keystone were
adequate and complied fully with applicable law, regulatory policy and sound
banking practice as of the date of such financial statements.
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The following is a summary of selected analyses prepared by Berwind in
connection with the delivery of its Opinion:
Comparable Companies and Comparable Acquisition Transaction Analyses.
Berwind compared selected financial and operating data for FTC with those of a
peer group of selected banks and bank holding companies with assets between $1
billion and $2 billion, as of the most recent financial period publicly
available, located in Pennsylvania, Maryland, Ohio and West Virginia. Financial
data and operating ratios compared in the analysis of the FTC peer group
included but were not limited to: return on average equity, shareholders'
equity to assets ratio and certain asset quality ratios. The analysis showed
FTC's return on average assets was 1.70% compared to the peer group median of
1.30%, its return on average shareholders' equity was 14.01% compared to the
peer group median of 13.31%, its shareholders' equity as a percent of assets was
12.6% compared to the peer group median of 9.2%, its nonperforming assets as a
percentage of loans and other real estate owned was 0.17% compared to the peer
group median of 0.83%, its nonperforming assets and loans past due 90 days or
more as a percentage of shareholders' equity and loan loss reserve was 2.32%
compared to the peer group median of 6.94% and its loan loss reserve as a
percentage of nonperforming assets was 846.39% versus the median of 197.23% 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 $3.5 billion and $7 billion, as of the most recent period
publicly available, located in Pennsylvania, Maryland, New York, New Jersey,
Ohio 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. The analysis showed Keystone's return on average
assets was 1.37% compared to the peer group median of 1.30%, its return on
average shareholders' equity was 14.11% compared to the peer group median of
14.32%, its shareholders' equity as a percentage of assets was 9.7% compared to
the peer group median of 9.0%, it nonperforming assets as a percentage of loans
and other real estate owned was 0.75% compared to the peer group median of
0.54%, its nonperforming assets and loans past due 90 days or more as a
percentage of shareholders' equity and loan loss reserve was 8.03% compared to
the peer group median of 5.74% and its loan loss reserve as a percentage of
nonperforming assets was 168.47% versus the median of 256.51% for the peer
group.
In addition, the analysis showed that Keystone's common stock price
per share ($27.25 on the date of the Opinion) as a percentage of book value and
tangible book value per share was 203.7% and 209.3%, respectively, compared to
the peer group medians of 233.7% and 241.5%, respectively, and its common stock
price per share as a multiple of latest twelve months' earnings per share of
14.9 times compared to the peer group median of 16.3 times.
Berwind also compared the multiples of book value, tangible book value
and latest twelve months' earnings of the FTC 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 January 1, 1994 to the date of the Opinion, in which the selling
institution's assets were between $750 million and $3 billion as of the most
recent publicly available period preceding the announced transaction. Berwind
compared transactions located throughout the country and analyzed those
transactions in three groups: a national group (37 banks), a regional group (4
banks) and a performance group (6 banks). The national group included bank and
bank holding company transactions throughout the United States; the regional
group included bank and bank holding company transactions in which the selling
institution was located in either Pennsylvania, Maryland or New Jersey; and the
performance group included bank and bank holding company transactions in which
the selling institution had total shareholders' equity as a percentage of total
assets greater than 10.00%, return on average shareholders' equity greater than
10.00% and nonperforming assets as a percentage of total assets less than 1.00%
as of the most recent period publicly available prior to the announcement of a
transaction. The median values calculated for price as a percentage of book
value were 190.6%, 221.8% and 182.1% for the national, regional and performance
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group, respectively; the median values calculated for price as a percentage of
tangible book value were 206.2%, 230.9% and 185.9% for the national, regional
and performance group, respectively; and the median values calculated for price
as a multiple of the latest twelve months' earnings per share were 16.6, 14.9
and 15.8 times for the national, regional and performance group, respectively.
These medians compare to the FTC Merger price per share as a percentage of book
value, price per share as a percentage of tangible book value and price per
share as a multiple of the latest twelve months' earnings of 250.6%, 264.2% and
19.1 times, respectively.
No company or transaction, however, used in this analysis is identical
to FTC, Keystone or the FTC 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 Analyses. Using discounted dividend analyses,
Berwind estimated the present value of the future dividend streams that FTC
could produce over a five-year period under various earnings growth assumptions.
Berwind also estimated the terminal value for FTC's Common Stock after the five-
year period by applying a range of earnings multiples to FTC's terminal year
earnings. The range of multiples used reflected a variety of scenarios
regarding the growth and profitability prospects of FTC. The dividend streams
and terminal values were then discounted to present value using discount rates,
reflecting different assumptions regarding the rates of return expected by
holders or prospective buyers of FTC'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 FTC
Common Stock prior to the FTC Merger and 1.65 shares of Keystone Common Stock
after the FTC Merger. The analysis considered, among other things, the changes
that the FTC Merger would cause to FTC's earnings per share, book value per
share, tangible book value per share and indicated dividends. On a per share
basis, FTC's earnings per share was $2.84, its book value per share was $20.96
and its dividend per share was $1.62. In reviewing the pro forma combined
earnings, equity and assets of Keystone based on the FTC Merger with FTC,
Berwind analyzed the contribution that FTC would have made to the combined
company's earnings, equity and assets as of and for the period ended December
31, 1996. Berwind also reviewed the percentage ownership that FTC shareholders
would hold in the combined company.
In connection with rendering its Opinion, Berwind performed a variety
of financial analyses. Berwind believes its analyses 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 FTC'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. Additionally, the
evaluation of the fairness, from a financial point of view, of the consideration
to be paid in the FTC Merger was to some extent a subjective one based on the
experience and judgment of Berwind and not merely the result of mathematical
analyses of financial data.
In reaching its opinion as to fairness, none of the analyses performed
by Berwind was assigned a greater or lesser weighting by Berwind than any other
analysis. As a result of its consideration of the aggregate of all factors
present and analyses performed, Berwind reached the conclusion, and opined, that
the consideration to be received in the FTC Merger as set forth in the FTC Plan
of Merger is fair from a financial point of view to FTC and its shareholders.
Berwind's 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 Opinion was delivered; events occurring after the date of its Opinion
could materially affect the assumptions used in preparing its Opinion. Berwind
has not undertaken to reaffirm and revise its Opinion or otherwise comment upon
any events occurring after the date thereof.
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Pursuant to the terms of its engagement, FTC has paid Berwind $250,000
for acting as financial advisor in connection with the FTC Merger including
delivering its Opinion. In addition, FTC has also agreed to pay Berwind
$1,550,000 upon the consummation of the FTC Merger and to reimburse Berwind for
its reasonable out-of-pocket expenses. Whether or not the FTC Merger is
consummated, FTC 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 Opinion of Berwind dated as of March 26, 1997,
which sets forth assumptions made and matters considered, is attached hereto as
Appendix II. FTC's shareholders are urged to read the Opinion in its entirety.
Berwind's Opinion is directed only to the consideration to be received by FTC's
shareholders in the FTC Merger and does not constitute a recommendation to any
holder of FTC Common Stock as to how such holder should vote at the FTC Special
Meeting.
THE FOREGOING PROVIDES ONLY A SUMMARY OF THE OPINION OF BERWIND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THAT OPINION, WHICH
IS SET FORTH IN APPENDIX II TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
Conversion of FTC Shares
Exchange Ratio. On the effective date of the FTC Merger, each
outstanding share of FTC Common Stock will be converted into the right to
receive 1.65 shares of Keystone Common Stock, with cash to be paid in lieu of
any fractional share. On March 25, 1997, the closing sale price for Keystone
Common Stock reported on the NASDAQ National Market System was $27.25 per share.
Surrender of Certificates. As promptly as practicable after the
effective date of the FTC Merger, Keystone will send to each shareholder of
record of FTC immediately prior to the FTC Merger a letter of transmittal
containing instructions on how to effect the exchange of FTC Common Stock
certificates for certificates representing the shares of Keystone Common Stock
into which their shares have been converted. FTC 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 FTC Merger will apply to all whole shares of Keystone Common Stock
into which shares of FTC Common Stock have been converted in the FTC Merger.
However, no former FTC shareholder will be entitled to receive any such dividend
until such shareholder's FTC 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 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 FTC Merger. If the FTC
Common Stock certificates surrendered for exchange by an FTC shareholder would
otherwise entitle the shareholder to a fraction of a share of Keystone Common
Stock, the FTC shareholder will receive (1) a certificate for the whole shares
of Keystone Common Stock represented by the surrendered FTC certificates and (2)
cash for the fractional share computed by multiplying $26.50 by the fraction of
a Keystone share. For example, if an FTC shareholder holds 50 shares of FTC
Common Stock, then under the FTC Merger exchange ratio of 1.65, the shareholder
would be entitled to 82.5 shares of Keystone Common Stock (50 x 1.65 = 82.5).
In this event, upon surrender of the certificate for 50 shares of FTC Common
Stock the shareholder would receive a certificate for 82 shares of Keystone
Common Stock and a check for $13.25 ($26.50 x 0.5) as payment for the fractional
share.
Unexchanged Certificates. On the effective date of the FTC Merger,
the stock transfer books of FTC will be closed, and no further transfers of FTC
Common Stock will be made or recognized. Certificates for FTC Common Stock not
surrendered for exchange will entitle the holder only to receive, upon surrender
as provided in
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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 FTC Merger becomes effective and any former FTC shareholder
does not surrender his or her FTC Common Stock certificates for exchange on or
before the second anniversary of the effective date, 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 FTC Common
Stock certificates, the net proceeds of the sale, after deducting any fees,
commissions, legal and accounting fees or other expenses incurred by Keystone in
making the sale. Such net proceeds will be paid 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
FTC Common Stock--Keystone Shareholder Rights Plan") shall have occurred prior
to the effective date of the FTC Merger, then each share of Keystone Common
Stock issued in the FTC 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 FTC Merger that Keystone take one of the actions set forth
under "Conditions to the FTC Merger" below.
Adjustment of Exchange Ratio. The FTC 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 FTC Common Stock which occurs prior to the FTC
Merger.
Tax Consequences to FTC Shareholders
Federal Income Tax. The FTC Plan of Merger requires as a condition to
the FTC Merger that Keystone and FTC receive a written opinion of the law firm
of Reed Smith Shaw & McClay, Pittsburgh, Pennsylvania, counsel for Keystone in
connection with the FTC Merger, that for purposes of federal income tax:
(1) The FTC 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 FTC 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 FTC as a result
of the FTC Merger;
(3) Except for cash received in lieu of fractional shares, no gain or
loss will be recognized by holders of FTC 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 FTC will be the same as the basis of the shares of
FTC Common Stock exchanged therefor; and
(5) The holding period of the shares of Keystone Common Stock
received by the shareholders of FTC will include the period during which
the FTC Common Stock exchanged therefor was held by the FTC shareholder,
provided that the FTC 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 FTC on the exchange of their shares for whole shares of Keystone
Common Stock. However, gain or loss will be recognized by FTC 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 FTC 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
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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 FTC
Common Stock was a capital asset in the hands of the shareholder.
If any shares of Keystone Common Stock received in the FTC Merger are
subsequently sold, gain or loss on the sale should be computed by allocating the
cost or other basis of the FTC Common Stock exchanged in the FTC 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 FTC Merger will
include the holding period for the shares of FTC Common Stock exchanged in
determining, for example, whether any such gain or loss is a long-term or short-
term capital gain or loss.
Pennsylvania Personal Income Tax. No gain or loss for Pennsylvania
personal income tax purposes will be recognized by shareholders of FTC who are
subject to that tax on the receipt by them of whole shares of Keystone Common
Stock in exchange for their FTC Common Stock. For Pennsylvania personal income
tax purposes, the tax basis for the Keystone Common Stock received by FTC
shareholders in the FTC Merger (including any fractional share interests to
which they are entitled) will be the same as the basis of the FTC 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 FTC shareholder and then immediately sold by the shareholder to Keystone
for the cash received.
The foregoing is intended only as a summary of certain federal income
tax and Pennsylvania personal income tax consequences of the FTC 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 FTC Merger. Among other
things, the summary does not address state income tax consequences in states
other than Pennsylvania, local taxes, or the federal or state income tax
considerations that may affect the treatment of a shareholder who acquired FTC
Common Stock pursuant to an employee stock option. Accordingly, it is
recommended that FTC 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 FTC
Merger.
Keystone Board of Directors Following the FTC Merger
At the time the FTC Merger becomes effective, Ray L. Wolfe, currently
Chairman and Chief Executive Officer of FTC, will become Chairman of the Board
of Keystone and will become a member of the Board of Directors of Keystone with
a term expiring at Keystone's Annual Meeting in the year 2000. In addition, two
other directors of FTC, each to be designated by FTC subject to the approval of
Keystone, will become members of the Board of Directors of Keystone to serve for
terms expiring at Keystone's Annual Meetings in 1998 and 1999, respectively. If
prior to the FTC Merger Mr. Wolfe or one of the other two FTC directors becomes
unable or declines to serve as a director of Keystone, FTC shall be entitled to
designate a substitute director acceptable to Keystone.
Keystone's Board of Directors presently consists of 17 directors,
divided into three classes. See "Comparison of Keystone Common Stock and FTC
Common Stock--Board of Directors--Classified Boards." Six Keystone directors
will be elected at the Keystone Annual Meeting to serve for terms expiring in
2000. Of the remaining directors, the terms of five expire at the 1998 Annual
Meeting and six at the 1999 Annual Meeting. See "Other Proposals for Keystone
Shareholders--Election of Keystone Directors."
Interests of Certain Persons in the Transaction
Ray L. Wolfe Employment Agreement. In connection with the FTC Plan of
Merger, Keystone has entered into an Employment Agreement with Ray L. Wolfe,
Chairman and Chief Executive Officer of FTC. The Employment Agreement, which
would become effective only on consummation of the FTC Merger, provides for Mr.
Wolfe's employment by Keystone for a period of three years following the
effective date of the FTC Merger at
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an all inclusive annual rate of compensation of $350,000, plus participation in
such benefit and qualified retirement plans as are generally available to
Keystone employees. For 1996, Mr. Wolfe's aggregate compensation from FTC and
its subsidiaries was $413,760, plus stock option grants for 3,682 shares of FTC
Common Stock. From the date of the FTC Merger until Keystone's annual meeting of
shareholders in 1998, Mr. Wolfe would serve as Chairman of the Board of
Keystone. Thereafter during the three-year period, Mr. Wolfe would serve in such
senior executive capacities as are mutually agreed from time to time between Mr.
Wolfe and Keystone's chief executive officer. From the end of the three-year
period until Mr. Wolfe's 65th birthday on August 15, 2003, Mr. Wolfe would be
employed by Keystone as a consultant at an annual rate of compensation of
$177,000, plus participation in Keystone's regular medical care benefits plan.
The Employment Agreement and the compensation and benefits to be provided to Mr.
Wolfe thereunder may not be terminated by Keystone except upon Mr. Wolfe's
death, total and permanent disability or substantial incapacity for a period
exceeding six months or a breach by Mr. Wolfe of the nondisclosure and
noncompetition provisions of the Agreement. The agreement prohibits Mr. Wolfe
from disclosing Keystone confidential information at any time or, during the
period ending two years after termination of his employment, from engaging
directly or indirectly in any business which is in competition with Keystone or
any of its subsidiaries in the areas of commercial banking, mortgage banking,
leasing or the taking of deposits and which is located or operating in any
county in which Keystone or a subsidiary has offices or any contiguous county.
In the event of a change of control of Keystone, as defined in the agreement,
Mr. Wolfe may elect to be paid the balance of the cash compensation for the term
of the agreement in a single lump sum. In this event, both parties would be
released from any further obligations under the agreement, except that Mr. Wolfe
would remain subject to the agreement's nondisclosure and noncompetition
provisions.
FTC Directors' and Officers' Indemnification. Keystone has agreed
that, to the extent permitted by law, all rights to indemnification and
limitation of liability existing in favor of the current or former directors or
officers of FTC and its subsidiaries, as provided in their respective charters
or bylaws, shall survive the FTC Merger and that following the FTC Merger, to
the extent permitted by law, Keystone and the former subsidiaries of FTC shall
honor such obligations with respect to events, acts or omissions occurring prior
to the FTC Merger. Any amendment after the FTC Merger to the limitation of
liability or indemnification provisions of an FTC subsidiary's charter or bylaws
will not apply to events occurring prior to the FTC Merger. The bylaws of FTC
provide that a director of FTC generally shall not be personally liable for
monetary damages for any act or omission as a director unless the act or
omission constitutes a breach of duty amounting to self-dealing, willful
misconduct or recklessness. The articles of incorporation of FTC generally
require FTC to indemnify its directors and officers against any and all
expenses, liabilities or other matters for which indemnification is permitted by
applicable law. Pennsylvania law generally permits a Pennsylvania corporation
such as FTC to indemnify its directors and officers against expenses,
liabilities and other matters, both as to action in their official capacities
and as to action in another capacity while holding that office, except where the
act or omission giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness. The bylaws of
Keystone and its subsidiaries contain similar provisions regarding limitation of
liability and indemnification of directors and officers.
Employee Benefit Plans. The FTC Plan of Merger provides that
following the FTC Merger, employees of FTC's subsidiaries and employees of FTC
who become Keystone employees shall be entitled to participate in generally
applicable Keystone employee benefit plans on the same basis as other similarly
situated employees of Keystone and its subsidiaries. Prior service of such
employees with FTC and its subsidiaries shall be counted in determining
eligibility to participate in such plans and for purposes of vesting of
benefits, but not for purposes of benefit accrual.
Warrant Agreement
In connection with the FTC Plan of Merger, Keystone and FTC have
entered into an Investment Agreement, and FTC has issued to Keystone a Warrant
thereunder (collectively, the "Warrant Agreement") entitling Keystone to
purchase up to approximately 19.9% (after exercise) of FTC's outstanding Common
Stock upon the occurrence of certain events described below. The Warrant
Agreement covers 2,113,706 shares of FTC Common Stock at an exercise price of
$43.725 per share.
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The Warrant Agreement is designed to compensate Keystone for its
risks, costs and expenses and the commitment of resources associated with the
FTC Plan of Merger in the event the FTC Merger is not consummated due to an
attempt by a third person to gain control of FTC. See also "Expenses" below.
Keystone may not exercise or sell its Warrant except upon (i) a willful breach
by FTC of the FTC Plan of Merger, (ii) the failure of FTC's shareholders to
approve the FTC Plan of Merger after the announcement by a third person of a
proposal to acquire 10% or more of the FTC Common Stock, to acquire, merge or
consolidate with FTC or any of its subsidiaries or to acquire substantially all
of the assets of FTC or any of its subsidiaries, (iii) the acquisition by a
third person of beneficial ownership of 1% or more of the outstanding FTC Common
Stock if after such acquisition such person would beneficially own 10% or more
of the FTC 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 FTC Common Stock, or (v) the entry by FTC or any of its subsidiaries
into an agreement or understanding with a third person for the third person to
acquire, merge or consolidate with FTC or any of its subsidiaries or to acquire
substantially all of the assets of FTC or any of its subsidiaries (each of the
foregoing is hereafter referred to as a "Warrant Event"). No Warrant Event has
occurred as of the date of this Joint Proxy Statement/Prospectus, and neither
Keystone nor FTC 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 FTC and is intended to increase the likelihood that
the FTC Merger will be consummated in accordance with the terms set forth in the
FTC 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 FTC 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 FTC Common Stock purchased thereunder would be
subject to a right of first refusal by FTC unless sold in a public offering
registered under the Securities Act. FTC agrees in the Warrant Agreement to
effect such registration if requested.
Keystone may require FTC to redeem the Warrant or any shares of FTC
Common Stock purchased thereunder if (i) a third person acquires beneficial
ownership of 50% or more of the outstanding FTC Common Stock or (ii) a third
person acquires, merges or consolidates with FTC or any of its subsidiaries or
acquires substantially all of the assets of FTC or any of its subsidiaries (each
of the foregoing is hereafter referred to as a "Redemption Event"). In general,
the per 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 FTC 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 FTC the right to
repurchase shares of FTC 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 FTC or any of its subsidiaries.
The foregoing description is intended only as a summary of the
material provisions 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 Joint Proxy
Statement/Prospectus by reference to such filing.
Inconsistent Activities
FTC has agreed in the FTC Plan of Merger that unless and until the FTC
Merger has been consummated or the FTC Plan of Merger has been terminated in
accordance with its terms, FTC will not (i) solicit or encourage any proposals
by a third person to acquire more than 1% of the FTC Common Stock, any stock of
any FTC
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subsidiary or any significant portion of FTC's or any FTC 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 FTC's or
any FTC 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,
FTC 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
FTC'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
FTC becomes aware of any offer or proposed offer to acquire any shares of FTC or
any FTC subsidiary or any significant portion of FTC's or any FTC subsidiary's
assets, or of any other matter which could adversely affect the FTC Merger, FTC
is required to give immediate notice thereof to Keystone.
Conduct of FTC's Business Pending the FTC Merger
FTC has agreed in the FTC Plan of Merger that pending consummation of
the FTC Merger, except as consented to by Keystone, FTC and its subsidiaries
will conduct their businesses only in the ordinary course and will not, among
other things, (i) issue, purchase or otherwise dispose of or acquire any shares
of their capital stock or grant any options or other rights to acquire such
stock, except pursuant to the Warrant Agreement, FTC's employee stock option
plan or existing employee and director stock options; (ii) make certain changes
in the compensation or benefits payable to employees or enter into employment
contracts; (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.
FTC Dividend Limitation
FTC has agreed in the FTC Plan of Merger that pending the FTC Merger
it will not increase the rate of dividends on the FTC Common Stock to exceed
$.25 per share in the quarters ending March 31 and June 30, 1997 or $.27 per
share in any calendar quarter thereafter. During the quarter ended December 31,
1996, dividends on the FTC Common Stock were paid at the rate of $.25 per share.
Conditions to the FTC Merger
In addition to shareholder approval, the FTC Merger is contingent upon
the satisfaction of a number of other conditions, including (i) approval of the
FTC Merger by the Federal Reserve Board and the Pennsylvania Department of
Banking without conditions deemed unduly burdensome by Keystone, (ii) the
absence of any suit by the United States under the antitrust laws to prohibit
the FTC Merger filed within the 30 days following Federal Reserve Board
approval, (iii) receipt of the tax opinion described above (see "Tax
Consequences") and (iv) the absence of any judicial or administrative order
prohibiting or adversely affecting the FTC Merger or any pending or threatened
litigation or administrative proceeding challenging the FTC Merger. Keystone's
obligation to consummate the FTC Merger is subject to the following additional
conditions: (i) qualification of the FTC Merger for pooling-of-interests
accounting treatment and, if requested by Keystone, receipt of a letter from
Keystone's independent auditors to that effect and (ii) receipt of the
agreements of FTC affiliates described below under "Restrictions on Resales by
FTC Affiliates." In addition, unless waived, each party's obligation to
consummate the FTC Merger is subject to the performance by the other party of
its obligations under the FTC 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 FTC 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 exchange ratio for
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converting FTC Common Stock into Keystone Common Stock in the FTC Merger shall
have been proportionately adjusted as provided in the FTC 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 FTC Common Stock upon consummation of the FTC Merger. The FTC Merger is
independent of the FFWM Merger and is not in any way contingent upon the
consummation of the FFWM Merger.
Representations and Warranties
The representations and warranties of Keystone and FTC contained in
the FTC Plan of Merger relate, among other things, to the organization and good
standing of Keystone, FTC and their subsidiaries; the capitalization of Keystone
and FTC and ownership of their subsidiaries; the authorization by Keystone and
FTC of the FTC 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, 1995; the absence of
undisclosed litigation; compliance with laws; the absence of certain potential
environmental liabilities; and the accuracy of this Joint Proxy
Statement/Prospectus and of Keystone's Registration Statement of which it is a
part. Additional representations and warranties by FTC concern payment of
taxes; title to properties; and the absence of undisclosed equity investments,
employment contracts, employee benefit plans or material contracts. None of the
representations and warranties contained in the FTC Plan of Merger will survive
the consummation of the FTC Merger.
Amendment, Waiver and Termination
Notwithstanding prior shareholder approval, the FTC Plan of Merger may
be amended in any respect by written agreement between the parties, except that
after FTC shareholder approval no amendment may change the rate of exchange of
FTC Common Stock for Keystone Common Stock in the FTC Merger or change the form
of such consideration. Keystone or FTC 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 FTC Plan of Merger; and (iv)
waive any condition precedent to its obligations under the FTC Plan of Merger
other than approval by the shareholders of FTC and Keystone of the FTC Plan of
Merger, governmental regulatory approvals required to consummate the FTC Merger,
securities registration requirements incident to the issuance of Keystone Common
Stock in the FTC Merger and the receipt of the tax opinions described above.
Notwithstanding prior shareholder approval, the FTC Plan of Merger may
be terminated without liability of either party at any time prior to
effectiveness of the FTC Merger (i) by mutual consent of Keystone and FTC 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 shareholders of
Keystone or FTC to approve the FTC Plan of Merger at the appropriate Shareholder
Meeting, (c) a final judicial or regulatory determination denying any regulatory
approval required for the FTC Merger or imposing conditions or requirements
which Keystone reasonably determines to be materially adverse to its interests,
or (d) failure to satisfy prior to December 31, 1997 any condition to its
obligations to consummate the FTC 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.
Absence of Dissenters' Rights of Keystone or FTC Shareholders
Under Section 1571(b)(1)(ii) of the Pennsylvania Business Corporation
Law, shareholders of Keystone and FTC do not have statutory dissenters' rights
with respect to either the FTC Merger or the FFWM Merger since both Keystone
Common Stock and FTC Common Stock is held of record by more than 2,000
shareholders.
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Restrictions on Resales by FTC Affiliates
The shares of Keystone Common Stock issuable in the FTC Merger have
been registered under the Securities Act, and such shares will generally be
freely tradable by the FTC shareholders who receive Keystone Common Stock as a
result of the FTC Merger. However, this registration does not cover resales by
FTC shareholders who may be deemed to control or be under common control with
FTC and who therefore may be deemed "affiliates" of FTC 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 FTC 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 FTC will notify those
persons whom it believes may be such affiliates.
The FTC Plan of Merger requires as a condition to the FTC Merger that
each such FTC affiliate enter into an agreement not to sell the shares of
Keystone Common Stock acquired in the FTC 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 FTC Merger as a pooling of
interests, the agreement also prohibits FTC affiliates from selling any shares
of Keystone Common Stock or FTC Common Stock from the 30th day prior to the FTC
Merger until Keystone's financial results covering at least 30 days of post-FTC
Merger combined operations have been published.
Effect of Certain Transactions Involving Keystone
The FTC 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 FTC
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 FTC Plan of
Merger shall be appropriately amended so that FTC shareholders will receive in
the FTC Merger, for each share of FTC Common Stock held, the consideration paid
in such transaction for shares of Keystone Common Stock multiplied by the
exchange ratio under the FTC 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, FTC is not required to amend or waive this condition. Keystone
must obtain the consent of FTC, which shall not unreasonably be withheld, before
entering into an agreement for any such transaction which would result in
Keystone's acquisition of a business in which, excluding the impact of the FTC
Merger and the FFWM Merger, (1) Keystone's investment or proportionate share of
the assets would exceed 20% of Keystone's consolidated assets at the end of the
most recent year, (2) Keystone's equity in the income would exceed 20% of
Keystone's consolidated net income for the most recent year or (3) the number of
shares of Keystone Common Stock to be issued in the acquisition would exceed 20%
of the shares outstanding at initiation of the acquisition.
As of the date of this Joint 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.
Effect on FTC Employee and Director Stock Options
Stock options for 114,115 shares of FTC Common Stock (the "FTC
options") are presently outstanding under FTC's 1992 Stock Option Plan and its
1994 Non-Employee Director Stock Option Plan at option prices equal to the fair
market value of such shares on the dates the options were granted. Under the
FTC Plan of Merger, FTC may amend the agreements relating to the FTC options to
provide that when the FTC Merger
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becomes effective (i) unexercised FTC options will be converted into options for
the number of shares of Keystone Common Stock the optionee would have received
under the FTC Plan of Merger had the FTC option been exercised prior to the FTC
Merger and (ii) the option price per share will be proportionately adjusted.
Keystone has also agreed to register under the Securities Act the shares of
Keystone Common Stock issuable upon exercise of the amended FTC options by
filing a registration statement with the SEC not later than 30 days after its
first Annual Report on Form 10-K after the FTC Merger is filed with the SEC.
Holders of FTC options may be prohibited under the Securities Act from
exercising such options after the FTC Merger becomes effective until this
registration statement is filed and becomes effective even if, under the terms
of the FTC option, such option would expire prior to the time of such filing.
Effect on FTC's Dividend Reinvestment Plan
FTC's Dividend Reinvestment Plan will be terminated as of the last FTC
dividend payment date preceding the effective date of the FTC Merger. Following
the FTC Merger, shareholders will be able to participate in a Dividend
Reinvestment Plan offered by Keystone.
Expenses
Keystone and FTC will each pay its own expenses incurred in connection
with the FTC Plan of Merger, except that (1) each party will pay the cost of
printing and mailing this Joint Proxy Statement/Prospectus and other proxy
materials to its own shareholders, (2) each party will pay one-half of the cost
of the tax opinion referred to above and (3) Keystone will pay the costs of
printing and filing the Registration Statement and any materials required by
state securities laws and the costs of preparing and filing the applications for
the regulatory approvals required for the FTC Merger. However, the FTC Plan of
Merger provides that if the FTC Merger is not consummated as a direct or
indirect consequence of a change of control of Keystone or FTC, the party
experiencing the change of control shall reimburse the other party for all of
its reasonable out-of-pocket expenses incurred in connection with the FTC Plan
of Merger.
Effective Date of the FTC Merger
It is presently anticipated that if the FTC Plan of Merger is approved
by the shareholders of Keystone and FTC, the FTC Merger will become effective in
the second quarter of 1997. However, as noted above, consummation of the FTC
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 FTC
Merger will be satisfied or, if satisfied, that they will be satisfied in time
to permit the FTC Merger to become effective within the anticipated time frame.
In addition, as also noted above, Keystone and FTC retain the power to abandon
the FTC Merger or to extend the time for performance of conditions or
obligations necessary to its consummation, notwithstanding prior shareholder
approval.
OTHER PROPOSALS FOR KEYSTONE SHAREHOLDERS
Keystone Proposal No. 2
ELECTION OF KEYSTONE DIRECTORS
Six directors will be elected at the Keystone Annual Meeting to serve
for terms expiring at Keystone's Annual Meeting in 2000. By a vote of the Board
of Directors, the size of the Keystone Board was fixed at 17 members. Each
director elected will continue in office until a successor has been elected.
The Board of Directors of Keystone recommends that Keystone shareholders vote
"FOR" the election of the six nominees listed below. Each nominee has consented
to be named as a nominee and to serve if elected. If for any reason any
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nominee named is not a candidate (which is not expected) when the election
occurs, proxies will be voted for a substitute nominee determined by the
Keystone Board of Directors (the "Board").
The following table sets forth certain information about the nominees,
all of whom are presently members of the Board, and about the other directors
whose terms of office will continue after the Keystone Annual Meeting. If the
FTC Merger becomes effective, Ray L. Wolfe, currently Chairman and Chief
Executive Officer of FTC, will become a director of Keystone to serve for a term
expiring at Keystone's Annual Meeting in 2000, and two other FTC directors will
become directors of Keystone to serve for terms expiring at Keystone's Annual
Meetings in 1998 and 1999, respectively. See "FTC Plan of Merger--Keystone
Board of Directors Following the FTC Merger."
<TABLE>
<CAPTION>
Year Keystone Shares Percent of
First Beneficially Keystone
Name, Principal Occupations Became Owned as of Common Stock
During the Past Five Years, Age Director March 7, 1997 (1) Outstanding
------------------------------- -------- ----------------- ------------
<S> <C> <C> <C>
Nominees for terms expiring in 2000:
June B. Barry; Vice President, Human Resources and
Administration, of Betz Dearborn, Inc. (chemical
products); Age 45................................... 1996 150 .0004
J. Glenn Beall, Jr.; Chairman of the Compensation
Committee of The BGS&G Companies (insurance and
consulting services); Age 69........................ 1994 28,864(2) .08
Richard W. DeWald; Chairman of the Board of
Montgomery Plumbing & Supply Company; Age 63........ 1990 20,353(3) .05
Gerald E. Field; President of Weiner Iron and
Metal Corp.; Age 62................................ 1986 88,191 .24
Philip C. Herr, II; Partner, Herr, Potts & Herr
(attorneys-at-law); Age 60.......................... 1994 243,396(3) .65
William L. Miller; President of Ebinger Iron
Works, Inc. (steel fabricator); Age 48.............. 1986 23,410(3) .06
Continuing Directors with Terms Expiring in 1999:
A. Joseph Antanavage; Partner, Bear, Antanavage &
Moyer (attorneys-at-law); Partner, North Berks
Abstract (title insurance agency); Age 50........... 1986 25,910(3) .07
Donald Devorris; President of Blair Electric
Service Co. (electrical construction); President
of Blair Sign Co., Inc. (sign manufacturing);
President of Blair Design & Construction Co.
(general construction); President of Electrical
Construction Service, Inc. (electrical
construction); Age 62............................... 1984 102,287(3) .27
Uzal H. Martz, Jr.; President, Publisher and
Treasurer of J. H. Zerbey Newspapers, Inc. and
President of its subsidiary corporations,
WMBT Broadcasting, Inc., WQIN Broadcasting, Inc.
and Shenandoah Evening Herald Publishing
Company, Inc.; Age 62............................... 1986 33,306(3) .09
</TABLE>
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<TABLE>
<CAPTION>
Year Keystone Shares Percent of
First Beneficially Keystone
Name, Principal Occupations Became Owned as of Common Stock
During the Past Five Years, Age Director March 7, 1997 (1) Outstanding
------------------------------- -------- ----------------- ------------
<S> <C> <C> <C>
Max A. Messenger; Chairman of Wood Products, Inc.
(hardwood lumber & dry kilns), Chairman of
Global Hardwood, Inc. (residential construction),
General Partner of Messenger Limited Partnership
Land Holdings; Age 61............................... 1994 24,455 .07
Don A. Rosini; President of Shamokin Filler Co.,
Inc. (manufacturer of carbon additives and
specialty cements and grouts); Age 58............... 1986 41,808(4) .11
F. Dale Schoeneman; President of Schoeneman
Beauty Supply, Inc. (wholesale distributor);
Age 55.............................................. 1986 21,833 .06
Continuing Directors with terms expiring in 1998:
Carl L. Campbell; President and Chief Executive
Officer of Keystone; Age 53......................... 1986 187,396(3)(4)(5) .50
Paul I. Detwiler, Jr.; Chairman of the Board of
New Enterprise Stone and Lime Co., Inc.
(construction aggregates); Age 63................... 1988 19,166(3)(4) .05
Walter W. Grant, Principal of CMS Companies
(private equity investment partners); Age 52 (6).... 1992 107,991 .29
Ronald C. Unterberger; Attorney-at-Law, Partner,
Harper & Driver (attorneys-at-law); Age 61.......... 1994 16,651 .04
G. William Ward; Chairman of the Board of Ward
Trucking Corp.; Age 65.............................. 1984 46,431(3)(7) .12
All nominees, directors and executive officers as
a group (20 persons)................................ 1,400,834(8) 3.70
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</TABLE>
(1) Unless otherwise indicated in the other footnotes below, each director has
sole voting power and sole investment power over the shares indicated
opposite his or her name in the table, and a member of the group has sole
voting power and sole investment power over the shares indicated for the
group. The number of shares includes the following shares which each
director, except for Ms. Barry and Mr. Campbell, has the right to acquire
through currently exercisable stock options under Keystone's 1990 Non-
Employee Directors' Stock Option Plan or the stock option plans of
previously acquired companies: Mr. Antanavage, 12,598 shares; Mr. Beall,
2,812 shares; Mr. Detwiler, 11,248 shares; Mr. Grant, 8,436 shares; Mr.
Herr, 2,812 shares; Mr. Messenger, 2,812 shares; Mr. Schoeneman, 11,248
shares; Mr. Unterberger, 8,639 shares; and each remaining director, 14,060
shares.
(2) Includes 372 shares owned by The BGS&G Companies over which the Board of
Directors of that company exercises voting and investment power, and of
which Mr. Beall serves as Chairman of the Compensation Committee.
(3) Includes the following shares as to which voting and investment power is
shared with the spouse: Mr. Antanavage, 6,878 shares; Mr. Campbell, 23,009
shares; Mr. Detwiler, 5,625 shares; Mr. Devorris, 7,590 shares; Mr. DeWald,
3,997 shares; Mr. Herr, 3,805 shares; Mr. Martz, 11,784 shares; Mr. Miller,
2,260 shares; Mr. Ward, 421 shares; and all directors and executive officers
as a group, 93,375 shares.
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(4) Includes the following shares held by spouses and/or children as to which
beneficial ownership is disclaimed: Mr. Campbell, 16,314 shares; Mr.
Detwiler, 225 shares; and Mr. Rosini, 4,489 shares.
(5) Includes 102,355 shares which Mr. Campbell currently has the right to
acquire through stock options. Also includes 3,578 shares in Mr. Campbell's
401(k) plan account for which he has the power to direct the voting.
(6) Until becoming affiliated with CMS Companies in 1997, Mr. Grant was for at
least five years Partner and Director of Cooke & Bieler, Inc. (investment
advisory firm).
(7) Includes 11,896 shares held in a fiduciary capacity, as to which voting and
investment power is shared by Mr. Ward with co-fiduciaries.
(8) Includes 261,711 shares which the executive officers, except for Mr.
Campbell, as a group currently have the right to acquire through stock
options. Also includes 9,169 shares which the executive officers, except
Mr. Campbell, as a group have in their 401(k) plan accounts and for which
they have the power to direct the voting.
Additional information concerning the nominees and the other members
of the Keystone Board of Directors is set forth below under the caption
"Information Concerning Keystone--Other Information Concerning Keystone
Directors and Executive Officers."
Vote Required
The six candidates receiving the highest numbers of votes cast at the
Keystone Annual Meeting by the holders of Keystone Common Stock voting in person
or by proxy will be elected as directors. A proxy vote indicated as withheld
from a nominee will not be cast for such nominee but will be counted in
determining whether a quorum exists for the meeting. Keystone's Restated
Articles do not permit cumulative voting in the election of directors.
Keystone Proposal No. 3
RATIFICATION OF APPOINTMENT OF KEYSTONE AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors of Keystone has appointed the firm of Ernst & Young LLP as independent
auditors for Keystone for 1997.
Although the appointment of independent auditors is not required to be
approved by the shareholders, Keystone's Board of Directors believes the
shareholders should participate in the selection of independent auditors through
the ratification process. The Board of Directors recommends that Keystone
shareholders vote "FOR" ratification of the appointment of Ernst & Young LLP. A
vote of the Keystone shareholders not to ratify the appointment of Ernst & Young
LLP will be considered as a direction to the Audit Committee to recommend other
independent auditors for appointment for the following year.
Representatives of Ernst & Young LLP are expected to be present at the
Keystone Annual Meeting and to be available to respond to appropriate questions.
Approval of this proposal requires the affirmative vote of a majority
of the votes cast on the proposal at the Keystone Annual Meeting by the holders
of Keystone Common Stock voting in person or by proxy. Under the Pennsylvania
Business Corporation Law, an abstention is not a vote cast and will not be
counted in determining the number of votes required for approval, though it will
be counted in determining the presence of a quorum.
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Keystone Proposal No. 4
INCREASE IN AUTHORIZED KEYSTONE COMMON STOCK
The Board of Directors of Keystone proposes that the Keystone
shareholders consider and adopt an amendment to Article 6 of the Keystone's
Restated Articles of Incorporation (the "Articles") to increase the number of
authorized shares of Keystone Common Stock from 75,000,000 to 100,000,000
shares.
The Board of Directors of Keystone recommends that the Keystone
shareholders vote "FOR" approval of the proposed amendment to Keystone's
Restated Articles of Incorporation to increase the authorized Keystone Common
Stock to 100,000,000 shares.
Reasons for the Proposed Amendment
Of the 75,000,000 presently authorized shares of Keystone Common
Stock, approximately 37,313,000 shares are already issued and outstanding. An
additional approximately 16,000,000 shares will either be issued in the FTC
Merger and the FFWM Merger or required for outstanding employee and director
stock options to be assumed in connection with the Mergers. Of the remaining
authorized shares, approximately 5,070,000 shares are already reserved for
issuance under various employee benefit plans and Keystone's Dividend
Reinvestment Plan. Assuming the repurchase of an additional 1.5 million shares
of Keystone Common Stock in connection with the FFWM Merger, this leaves only
approximately 18,117,000 shares of Keystone Common Stock available for other
purposes.
Keystone's Board of Directors believes that it is desirable to have
the additional 25,000,000 authorized shares of Keystone Common Stock available
for possible future acquisition transactions, financing transactions, employee
benefit plans and other general corporate purposes. While Keystone has no
present plans or commitments with respect to the issuance of any of the
additional authorized shares, it is considered advisable to have the
authorization to issue the additional shares in order to permit Keystone, as the
need may arise, to move promptly to take advantage of market conditions or the
availability of other favorable opportunities without the delay and expense of
calling a special shareholders' meeting. The authorized but unissued shares of
Keystone Common Stock will be available for issuance by Keystone's Board of
Directors for any proper corporate purpose, to such persons and for such
consideration as the Board may determine, without any further action by the
shareholders except in the case of certain types of transactions requiring a
shareholder vote under Pennsylvania law or the rules of the NASDAQ National
Market System. The shareholders of Keystone will not have any preemptive rights
to purchase any of the additional authorized shares of Keystone Common Stock
which may be issued in the future.
Under certain circumstances, the additional authorized shares of
Keystone Common Stock could be used to create voting impediments to persons
seeking to effect a merger, engage in a proxy contest or otherwise gain control
of Keystone. Any of the authorized but unissued shares of Keystone Common Stock
could be privately placed with purchasers who might side with the Board in
opposing a hostile takeover bid. Under the Articles, unless approved by the
Board, a merger or similar transaction with a person or group which beneficially
owns more than 20% of the outstanding Keystone Common Stock or an amendment to
the Articles or the bylaws must be approved by the affirmative vote of 75% of
the outstanding shares and by a majority of the outstanding shares not
beneficially owned by such person or group.
The amendment might also be considered as having the effect of
discouraging an attempt by a person to acquire control of Keystone through the
acquisition of a substantial number of shares of Keystone Common Stock. The
additional authorized shares of Keystone Common Stock could be issued to dilute
the stock ownership for such person and to increase the cost to such person of
acquiring a majority of the outstanding shares. Further, under Keystone's
shareholder rights plan, each outstanding share of Keystone Common Stock carries
a right to purchase additional shares of Keystone Common Stock or preferred
stock under certain circumstances. If any person or group acquires beneficial
ownership of 20% or more of the outstanding Keystone Common Stock, the remaining
shareholders may exercise such rights to purchase shares of Keystone Common
Stock (or at the option of Keystone, equivalent shares of preferred stock)
having a market value of twice the $56.00 exercise price of the rights.
Alternatively, the Board may exchange the rights of the remaining
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shareholders by issuing one share of Keystone Common Stock (or at the option of
Keystone, equivalent shares of preferred stock) per right. The additional shares
of Keystone Common Stock authorized by the proposed amendment could be used by
the Board to facilitate such exercises and/or such an exchange without the
necessity of calling a shareholders' meeting to authorize additional shares. If
so used, the effect of the additional authorized shares of Keystone Common Stock
might be to deprive Keystone shareholders of an opportunity to sell their stock
at a temporarily higher price as a result of a tender offer or other purchase of
shares by a person seeking to obtain control of Keystone and to assist incumbent
management in retaining their present positions. To the knowledge of Keystone's
Board of Directors, no such takeover attempt is presently pending or threatened.
Except for the shares of Keystone Common Stock to be issued in
connection with the FTC Merger and the FFWM Merger and the shares currently
reserved for issuance under employee benefit plans and the Dividend Reinvestment
Plan, there are no present plans to issue any additional shares of Keystone
Common Stock.
Vote Required
Approval of the proposed amendment requires the affirmative vote of a
majority of the votes cast on the proposal by the holders of Keystone Common
Stock voting in person or by proxy, with a quorum of a majority of the
outstanding shares of Keystone Common Stock being present or represented at the
Keystone Annual Meeting. Under the Pennsylvania Business Corporation Law, an
abstention is not a vote cast and will not be counted in determining the number
of votes required for approval, though it will be counted in determining the
presence of quorum.
Keystone Proposal No. 5
KEYSTONE 1996 PERFORMANCE UNIT PLAN
Keystone's 1996 Performance Unit Plan was adopted by Keystone's Board
of Directors in March 1996, subject to approval by the Keystone shareholders at
the 1997 Annual Meeting. Keystone's Board of Directors recommends that Keystone
shareholders vote "FOR" approval of the adoption of the 1996 Performance Unit
Plan.
The principal features of the 1996 Performance Unit Plan (the
"Performance Plan") are summarized below. The summary is qualified in its
entirety by reference to the full text of the Performance Plan, which has been
filed with the SEC as an exhibit to the Registration Statement.
General
The purposes of the Performance Plan are (1) to assist Keystone in
attracting and retaining outstanding key personnel by providing incentive
compensation opportunities competitive with other major companies and enabling
participation by key personnel in Keystone's long-term growth and financial
success and (2) to encourage the long-term commitment of selected key personnel
and motivate superior performance through long-term performance related
incentives.
Generally, Performance Unit awards under the Performance Plan are
intended to qualify as "performance-based compensation" exempt from the cap on
deductibility of executive compensation under Section 162(m) of the Internal
Revenue Code (the "Code").
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Administration
The Performance Plan is administered by a Committee (the "Committee")
appointed by Keystone's Board of Directors and consisting of not less than two
members of the Board, none of whom is eligible to participate in the Performance
Plan. Each member of the Committee must be an "outside director" as defined
under Section 162(m) of the Code. A subcommittee of the Human Resources
Committee of Keystone's Board of Directors has been appointed by the Board as
the Committee to administer the Performance Plan.
Subject to the provisions of the Performance Plan, the Committee has
full and final authority, in its discretion, to determine the employees who will
be participants in the Performance Plan for any Performance Period, the
eligibility of such participants and the number, value and other terms and
conditions of the Performance Units to be awarded to any employee selected as a
participant.
Eligibility
Any employee of Keystone or any subsidiary who, in the opinion of the
Committee, is one of a select group of officers, management personnel or other
key employees who have responsibilities for the development and implementation
of corporate strategy is eligible for selection by the Committee to be a
participant in the Performance Plan for any Performance Period. In determining
the eligibility of an employee, as well as in determining the number and value
of any Performance Units to be awarded to an employee for a Performance Period,
the Committee shall consider the position and responsibilities of the employee,
the nature and value to Keystone or a subsidiary of his or her services, his or
her present and/or potential contribution to the success of Keystone or a
subsidiary and such other factors as the Committee may deem relevant.
Performance Units
Performance Units are awarded by the Committee to eligible participants
with respect to a Performance Period established by the Committee of not less
than one nor more than six years. A Performance Unit generally represents a
fixed dollar amount but may also be established as a percentage of salary, as a
percentage of a pool based on earnings of Keystone, one or more subsidiaries, or
any branch, department or other unit or in any other manner determined by the
Committee, provided that the amount of the Performance Unit can be determined as
a fixed dollar amount as of the close of the Performance Period.
A Performance Unit is earned by meeting during the Performance Period a
specified Performance Target, which is a specific level or levels of achievement
of one or more objective Performance Criteria established by the Committee at
the time of the Performance Unit award. Performance Criteria are
preestablished, objective measures of performance during a Performance Period by
Keystone, one or more subsidiaries, any branch, department or other unit or the
participant individually, which are selected by the Committee in its discretion
to determine whether a Performance Unit has been earned in whole or in part.
Performance Criteria may be based on earnings per share, earnings, earnings
growth, return on equity, return on assets, asset growth or ratio of capital to
assets. Performance Criteria based on such performance measures may be based
either on the performance of Keystone or a subsidiary or other unit under such
measure for the Performance Period and/or upon a comparison of such performance
with the performance of a peer group of corporations. The Committee may in its
discretion also determine to use other objective performance measures as
Performance Criteria. However, if other Performance Criteria are used,
Performance Unit awards based thereon would not qualify as "performance-based
compensation" under Section 162(m) of the Code.
If the Performance Target is achieved during the Performance Period,
the dollar amount of the Performance Unit is earned in full. In addition to the
Performance Target, the Committee may also establish a Performance Threshold,
which is a minimum level of achievement of the selected Performance Criteria
necessary for any part of the Performance Unit to be earned, and/or a
Performance Maximum, which is a maximum dollar amount which may be earned based
on the level of achievement of the Performance Criteria. In such cases, the
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terms of the award must set forth the dollar value of the Performance Units at
the Performance Threshold, the level of achievement necessary to earn the
Performance Maximum and the method of determining the amount earned if the level
of achievement of the Performance Criteria is between the Performance Threshold
and the Performance Maximum.
Performance Unit Awards
Subject to the provisions of the Performance Plan, the Committee may
from time to time, in its discretion, establish Performance Periods and grant
awards of Performance Units to one or more eligible participants with respect to
any Performance Period so established. No award of Performance Units may be
made later than 90 days after the commencement of the applicable Performance
Period.
In granting an award of Performance Units to any participant, the
Committee must establish in writing: (a) the number of Performance Units awarded
to the participant; (b) the Performance Period applicable to the award; (c) the
Performance Criteria to be employed in determining whether all or any part of
the Performance Units awarded have been earned during the Performance Period and
the method of determining the dollar amount earned, including the applicable
Performance Target and any Performance Threshold or Performance Maximum. The
terms so established by the Committee must be objective such that a third party
having knowledge of the relevant facts could determine (1) whether or not the
Performance Target and any Performance Threshold or Performance Maximum has been
achieved and (2) the dollar amount which has been earned based on such
performance. A Performance Unit award may have such other terms and conditions,
not inconsistent with the provisions of the Performance Plan, as the Committee
in its discretion may determine.
Within 75 days following the end of a Performance Period, the Committee
must determine and certify in writing whether the applicable Performance Target,
any applicable Performance Threshold or Performance Maximum, and any other
material terms of a Performance Unit award were achieved or satisfied and the
amount, if any, earned by the participant. The amount earned, as certified by
the Committee, is payable to the participant on or before March 15 of the year
following the conclusion of the Performance Period. A participant who meets
eligibility criteria established by Federal law may elect to defer all or part
of an earned Performance Unit award for subsequent payment.
Performance Unit Plan Awards in 1996
In March 1996, following adoption of the Performance Plan by Keystone's
Board of Directors, the Committee granted Performance Unit awards under the
Performance Plan for the 1996-1998 Performance Period. The following table
shows the Performance Unit awards made to each of Keystone's executive officers
and to all other participating employees as a group:
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<TABLE>
<CAPTION>
Future Payouts at
Number Performance Targeted Performance Levels
of Period ----------------------------------
Name and Principal Position Units Until Payout Threshold Target Maximum
- ---------------------------------------- ------ ------------------ --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Carl L. Campbell, President 3,066 3 years $ 76,650 $ 306,600 $ 613,200
and Chief Executive Officer
George H. Groves, Senior 1,674 3 years $ 41,850 $ 167,400 $ 334,800
Executive Vice President
Mark L. Pulaski, Senior Executive 1,674 3 years $ 41,850 $ 167,400 $ 334,800
Vice President
Ben G. Rooke, 1,086 3 years $ 27,150 $ 108,600 $ 217,200
Executive Vice President
All other participants as a 10,416 3 years $260,400 $1,041,600 $2,083,200
group (16 persons)
</TABLE>
Payment of the Performance Unit awards is contingent upon attaining
targeted levels of cumulative earnings per share before extraordinary items for
the Performance Period of the years 1996 through 1998. No payments will be made
unless a Performance Threshold target is attained, and the amounts payable based
on the earnings per share targets are capped at the Performance Maximum amounts
shown in the table. The amounts shown in the table will be increased or
decreased by 20% if Keystone's return on average equity for the three-year
period ranks at or above the 75th percentile or at or below the 25th percentile
as compared to a peer group of financial institutions with total assets between
$2 billion and $10 billion. The Performance Unit awards made by the Committee
are expressly contingent upon the approval of the Performance Plan by Keystone's
shareholders.
Termination of Employment
Unless otherwise determined by the Committee at the time of making an award
of Performance Units and reflected in the terms of the award, if all employment
of a participant with Keystone and its subsidiaries terminates prior to the end
of a Performance Period for any reason other than death, disability, retirement
or an involuntary termination not for cause, all Performance Units held by the
participant for which the applicable Performance Period has not been completed
shall be deemed forfeited, and no payment shall be made with respect thereto.
In the case of a termination of employment prior to the end of a Performance
Period due to death, disability, retirement or involuntary termination not for
cause, the terms of the award may specify the manner of determining the amount,
if any, which shall be payable in respect of the Performance Units based on the
extent to which the applicable Performance Target has been achieved as of the
date of termination of employment, the percentage of the Performance Period
elapsed and/or such other factors as the Committee may deem relevant. In the
absence of such specification, the determination of whether any amount shall be
paid in respect of Performance Units if the employment of the participant
terminates prior to the end of the applicable Performance Period due to death,
disability, retirement or involuntary termination not for cause, and the amount
and timing of any such payment, shall be made by the Committee in its sole
discretion.
Change of Control
If a "change of control" occurs prior to the end of a Performance Period,
then unless otherwise expressly provided in the terms of the award, all
Performance Units then outstanding shall be deemed to have been earned as of the
date of the change of control without regard to actual performance, and the
participant shall be entitled to receive the maximum amount which could have
been earned during the Performance Period through achievement of the Performance
Maximum, if any, or if none, the Performance Target.
For purposes of the Performance Plan, a "change of control" is deemed to
occur if:
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(1) any person or group acquires a majority of the voting power of
Keystone's voting stock,
(2) a majority of Keystone's Board of Directors shall consist of
persons other than (i) persons who were members of the Board on the first
day of the applicable Performance Period, or (ii) persons (A) whose
nomination or election as directors was approved by at least two-thirds of
the then members of the Board (excluding any director referred to in clause
(B)) who either were directors of Keystone on such date or whose nomination
or election as a director was so approved and (B) who are not nominees or
representatives of (1) any person or group having beneficial ownership of
10% or more of the voting power of Keystone's voting stock or (2) any
participant in any actual or threatened proxy solicitation (other than a
solicitation by Keystone) relating to the election or removal of any
Keystone directors;
(3) Keystone or a subsidiary shall be a party to a merger,
consolidation, division, share exchange, transfer of assets or other
transaction outside the ordinary course of business (a "business
combination") as a result of which the shareholders of Keystone immediately
prior to the business combination (excluding any party, other than Keystone
or a subsidiary, to the business combination or any affiliate or associate
of any such party) shall not hold a majority of the voting power over at
least 65% of Keystone's consolidated total assets immediately prior to the
transaction; or
(4) If the participant's Performance Unit award agreement is with a
subsidiary, the subsidiary shall either (i) cease to be a subsidiary of
Keystone or (ii) be a party to a business combination as a result of which
Keystone shall not hold a majority of the voting power over at least 75% of
the subsidiary's consolidated total assets immediately prior to the
transaction.
If prior to the end of the applicable Performance Period an award of
Performance Units becomes payable due to a change of control, the amount paid
would not qualify as "performance-based compensation" under Section 162(m) of
the Code.
Possible Anti-Takeover Effect
The provisions of the Performance Plan providing for the deemed earnout and
payment of Performance Units upon the occurrence of a "change of control" may be
considered as having an anti-takeover effect.
Miscellaneous
Notwithstanding any other provision of the Performance Plan or any
Performance Unit award, in no event shall the aggregate amount payable to any
participant in a calendar year in respect of Performance Unit awards exceed
$900,000. For purposes of this limitation, the aggregate amount payable to a
participant in a calendar year shall include any amount which would have been
payable to the participant in the calendar year in the absence of an election to
defer payment but shall not include (1) any amounts payable to a participant by
reason of a deferral election made with respect to amounts otherwise payable in
a prior calendar year or (2) amounts payable in the calendar year solely by
reason of a termination of employment or a change of control.
The Board, in its sole discretion, may amend or terminate the Performance
Plan at any time, provided that no such amendment or termination shall, unless
consented to by the affected participant, (1) adversely affect the rights of a
participant under any outstanding Performance Unit award or (1) reduce the
participant's vested interest in payment of amounts previously earned. The
Performance Plan does not require shareholder approval of any amendments to the
Performance Plan. In the absence of shareholder approval, certain types of
amendments to the Performance Plan could cause payments of Performance Units to
fail to qualify under the "performance-based compensation" exception to the cap
on deductibility of executive compensation imposed by Section 162(m) of the
Code.
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Nothing contained in the Performance Plan shall preclude Keystone or any
subsidiary from paying incentive or other compensation to any of its employees
pursuant to any other plan or arrangement, whether or not approved by the
shareholders of Keystone.
Federal Income Tax Consequences
Performance Units. An awardee of Performance Units will not recognize any
taxable income for Federal income tax purposes upon receipt of the award. Any
cash received pursuant to the award will be treated as compensation income
received by the awardee generally in the year in which the awardee receives such
cash. Keystone or one of its subsidiaries generally will be entitled to a
deduction for compensation paid in the same amount treated as compensation
income to the awardee.
Other Tax Matters. The deemed earnout of Performance Units following
the occurrence of a change of control, in certain circumstances, may result in
(i) a 20% Federal excise tax (in addition to Federal income tax) to the awardee
on certain payments of cash resulting from such deemed earnout of Performance
Units and (ii) the loss of a compensation deduction which would otherwise be
allowable to Keystone or one of its subsidiaries as explained above. Keystone
and its subsidiaries may lose a compensation deduction, which would otherwise be
allowable, for all or a part of compensation paid in the form of Performance
Units if an award of such units is based in whole or in part on any goal or
measure other than Performance Criteria set forth in Section 2.01(r) of the
Plan, to any employee if, as of the close of the tax year, the employee is the
chief executive officer of Keystone (or acts in that capacity) or is among the
four highest compensated officers for that tax year (other than the chief
executive officer) for whom total compensation is required to be reported to
shareholders under the Exchange Act, if the total compensation paid to such
employee exceeds $1,000,000.
Vote Required
Approval of the adoption of the Performance Plan requires the
affirmative vote of a majority of the votes cast on the proposal by the holders
of Keystone Common Stock voting in person or by proxy, with a quorum of a
majority of the outstanding shares of Keystone Common Stock being present or
represented at the Keystone Annual Meeting. Under the Pennsylvania Business
Corporation Law, an abstention or broker non-vote is not a vote cast and will
not be counted in determining the number of votes required for approval, though
it will be counted in determining the presence of a quorum.
Keystone Proposal No. 6
KEYSTONE 1997 STOCK INCENTIVE PLAN
Keystone's 1997 Stock Incentive Plan was adopted by Keystone's Board
of Directors on March 27, 1997. If approved by the Keystone shareholders, the
1997 Stock Incentive Plan will replace Keystone's 1992 Stock Incentive Plan,
under which 568,662 shares of Keystone Common Stock currently remain available,
and no further awards under the 1992 Plan will be granted. Keystone's Board of
Directors recommends that Keystone shareholders vote "FOR" approval of the
adoption of the 1997 Stock Incentive Plan.
The principal features of the 1997 Stock Incentive Plan (the
"Incentive Plan") are summarized below. The summary is qualified in its
entirety by the full text of the Incentive Plan, which has been filed with the
SEC as an exhibit to the Registration Statement.
General
The purposes of the Incentive Plan are to encourage eligible employees
of Keystone and its subsidiaries, including executive officers, to increase
their efforts to make Keystone and each subsidiary more successful, to
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provide an additional inducement for such employees to remain with Keystone or
a subsidiary, to reward such employees by providing an opportunity to acquire
Keystone Common Stock on favorable terms and to provide a means through which
Keystone may attract able persons to enter the employ of Keystone or one of its
subsidiaries. Those employees of Keystone or any subsidiary who share
responsibility for the management, growth or protection of the business of
Keystone or any subsidiary are eligible to be granted stock incentive awards
("Awards") under the Incentive Plan.
The aggregate net number of shares of Keystone Common Stock which may
be issued under the Incentive Plan is 2,500,000 shares, subject to proportionate
adjustment in the event of stock splits and similar events. No Awards may be
granted under the Incentive Plan subsequent to March 26, 2007, except that
reload options and associated cash payment rights may be granted pursuant to
reload option rights then outstanding.
Administration
The Incentive Plan will be administered by a Committee (the
"Committee") appointed by Keystone's Board of Directors and consisting of not
less than two members of the Board, none of whom will be eligible to participate
in the Incentive Plan. Each member of the Committee must be an "outside
director" as defined under Section 162(m) of the Code and a "non-employee
director" as defined in Rule 16b-3 under the Exchange Act. A subcommittee of
the Human Resources Committee of Keystone's Board of Directors has been
appointed by the Board as the Committee to administer the Incentive Plan.
The Committee will have full authority, in its discretion, to grant
Awards under the Incentive Plan and to determine the employees to whom Awards
shall be granted and the number of shares to be covered by each Award. In
determining the eligibility of any employee, as well as in determining the
number of shares to be covered by an Award and the type or types of Awards to be
made, the Committee will consider the position and responsibilities of the
employee being considered, the nature and value to Keystone or a subsidiary of
his or her services, his or her present and/or potential contribution to the
success of Keystone or a subsidiary and such other factors as the Committee may
deem relevant.
The types of Awards which the Committee will have authority to grant
consist of (1) stock options (with or without reload option rights and/or cash
payment rights), (2) restricted shares, (3) performance shares and (4) other
stock awards. Each of these types of Awards is described below.
Stock Options
Stock options granted by the Committee may be either "incentive stock
options" (stock options qualifying under Section 422 of the Code), "nonstatutory
stock options" (stock options which do not so qualify) or both types of stock
options (but not in tandem). The option price for each stock option may not be
less than 100% of the fair market value of the Keystone Common Stock on the date
the stock option is granted. Fair market value, for purposes of the Incentive
Plan, will generally be the mean between the publicly reported high and low sale
prices per share of the Keystone Common Stock for the date as of which fair
market value is to be determined. On March 25, 1997 the fair market value of a
share of Keystone Common Stock, as so computed, was $27.25.
A stock option will become exercisable at such time or times and/or
upon the occurrence of such event or events as the Committee may determine.
Unless otherwise determined by the Committee, a stock option will be exercisable
from its date of grant. No stock option may be exercised after the expiration
of ten years from the date of grant. A stock option to the extent exercisable
at any time may be exercised in whole or in part.
Unless otherwise determined by the Committee in its discretion, if the
employment of an optionee terminates for any reason other than voluntary
termination with the consent of Keystone or a subsidiary, retirement under any
retirement plan of Keystone or a subsidiary or death, all outstanding stock
options granted to the
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optionee will automatically terminate, unless the exercise period has been
extended as described under "Additional Rights in Certain Events" below. If an
optionee voluntarily terminates his or her employment with the consent of
Keystone or a subsidiary, retires under a retirement plan of Keystone or a
subsidiary or dies during employment, Section 5(G) of the Incentive Plan
provides for limited periods following termination of employment during which
stock options granted to the optionee and outstanding at the time of
termination may be exercised by the optionee, his or her estate or, if
permitted by the Committee, any person to whom the option has been transferred.
The option price for each stock option will be payable in full in cash
at the time of exercise; however, in lieu of cash the holder of an option may,
if authorized by the Committee, pay the option price in whole or in part by
delivering to Keystone shares of Keystone Common Stock having a fair market
value on the date of exercise of the stock option equal to the option price for
the shares being purchased, except that any portion of the option price
representing a fraction of a share must be paid in cash, and no shares of
Keystone Common Stock which have been held less than six months may be delivered
in payment of the option price of a stock option.
Unless and except to the extent otherwise determined by the Committee
in the case of a nonstatutory stock option, no stock option granted under the
Incentive Plan is transferable other than by Will or by the laws of descent and
distribution, and a stock option may be exercised during an optionee's lifetime
only by the optionee.
Subject to the foregoing and the other provisions of the Incentive
Plan, stock options granted under the Incentive Plan may be exercised at such
times and in such amounts and be subject to such restrictions and other terms
and conditions, if any, as shall be determined, in its discretion, by the
Committee.
Reload Option Rights
The Committee may in its discretion grant reload option rights in
conjunction with a stock option. Reload option rights entitle the holder of a
stock option, upon exercise of the stock option through the delivery of
previously owned shares, to automatically be granted on the date of such
exercise a new nonstatutory stock option (a "reload option") (1) for a number of
shares of Keystone Common Stock not exceeding the number of shares delivered in
payment of the option price of the original option, (2) having an option price
not less than the fair market value of the Keystone Common Stock on the date of
grant of the reload option, (3) having an expiration date not later than the
expiration date of the original option and (4) otherwise having terms
permissible for an original grant of a stock option under the Incentive Plan.
In granting reload option rights, the Committee may provide for successive
reload option grants upon the exercise of reload options. Unless otherwise
determined by the Committee, reload options shall be granted only if the
underlying option is exercised during the employment with Keystone or a
subsidiary of the original awardee of the option.
Because the number of shares covered by a reload option is limited to
the number of previously owned shares delivered in payment of the option price
of the original option, reload option rights will not increase the net number of
shares which may be acquired under a stock option. Because the option price of
the reload option may not be less than fair market value on the date the
underlying option is exercised, reload option rights also will not increase the
total net value (excess of fair market value over the option price) realizable
under the original option. However, since an optionee who exercises an option
before the end of its term will not forfeit the potential for future market
price appreciation, reload option rights will encourage earlier stock option
exercises, thereby promoting the identification with shareholder interests
resulting from employee ownership of Keystone Common Stock.
Cash Payment Rights
The Committee may in its discretion grant cash payment rights in
conjunction with a nonstatutory stock option. Cash payment rights entitle the
original awardee of the stock option, or a person who acquires the option by
reason of the death of the awardee, upon exercise of the stock option or any
portion thereof, to receive cash from Keystone (in addition to the shares to be
received upon exercise of the stock option) equal to a percentage (not
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greater than 100%) set by the Committee of the excess of the fair market value
of a share of Keystone Common Stock on the date of exercise over the option
price per share, multiplied by the number of shares covered by the stock
option, or portion thereof, which is exercised. Cash payment rights may be
used by the Committee to provide funds to the option holder to pay the income
taxes payable upon exercise of a nonstatutory stock option. See "Federal
Income Tax Consequences--Nonstatutory Stock Options" below.
Performance Shares
Performance share awards under the Incentive Plan are similar to
Performance Unit awards under the Keystone's 1996 Performance Unit Plan, except
that they are expressed in shares of Keystone Common Stock. Generally, they are
intended to qualify as "performance-based compensation" exempt from the cap on
deductibility of executive compensation under Section 162(m) of the Code.
Performance shares may be awarded by the Committee to eligible
employees with respect to a Performance Period established by the Committee of
not less than one year. Performance shares are earned by meeting during the
Performance Period a specified Performance Target, which is a specific level or
levels of achievement of one or more objective Performance Criteria established
by the Committee at the time of the performance share award. Performance
Criteria are preestablished, objective measures of performance during a
Performance Period by Keystone, one or more subsidiaries, any branch, department
or other unit or the awardee individually, which are selected by the Committee
in its discretion to determine whether a performance share award has been earned
in whole or in part. Performance Criteria may be based on earnings per share,
earnings, earnings growth, return on equity, return on assets, asset growth or
ratio of capital to assets. Performance Criteria based on such performance
measures may be based either on the performance of Keystone or a subsidiary or
other unit under such measure for the Performance Period and/or upon a
comparison of such performance with the performance of a peer group of
corporations. The Committee may in its discretion also determine to use other
objective performance measures as Performance Criteria. However, if other
Performance Criteria are used, performance share awards based thereon would not
qualify as "performance-based compensation" under Section 162(m) of the Code.
If the Performance Target is achieved during the Performance Period,
the performance share award is earned in full. In addition to the Performance
Target, the Committee may also establish a Performance Threshold, which is a
minimum level of achievement of the selected Performance Criteria necessary for
any part of the performance share award to be earned, and/or a Performance
Maximum, which is a maximum number of performance shares which may be earned
based on the level of achievement of the Performance Criteria. In such cases,
the terms of the award must set forth the number of performance shares which
will be earned at the Performance Threshold, the level of achievement necessary
to earn the Performance Maximum and the method of determining the number of
performance shares earned if the level of achievement of the Performance
Criteria is between the Performance Threshold and the Performance Maximum.
Subject to the provisions of the Incentive Plan, the Committee may from
time to time, in its discretion, establish Performance Periods and grant awards
of performance shares to one or more eligible employees with respect to any
Performance Period so established. No award of performance shares may be made
later than 90 days after the commencement of the applicable Performance Period.
In granting an award of performance shares to any awardee, the
Committee must establish in writing: (d) the number of performance shares
awarded to the awardee; (e) the Performance Period applicable to the award; (f)
the Performance Criteria to be employed in determining whether all or any part
of the performance shares awarded have been earned during the Performance Period
and the method of determining the number of performance shares earned, including
the applicable Performance Target and any Performance Threshold or Performance
Maximum. The terms so established by the Committee must be objective such that
a third party having knowledge of the relevant facts could determine (1) whether
or not the Performance Target and any Performance Threshold or Performance
Maximum has been achieved and (2) the number of performance shares which have
been earned based on such performance. A performance share award may have such
other terms and
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conditions, not inconsistent with the provisions of the Incentive Plan, as the
Committee in its discretion may determine.
Within 75 days following the end of a Performance Period, the Committee
must determine and certify in writing whether the applicable Performance Target,
any applicable Performance Threshold or Performance Maximum, and any other
material terms of a performance share award were achieved or satisfied and the
number of performance shares, if any, earned by the awardee. Payment of earned
performance shares shall be made to the awardee on or before March 15 of the
year following the conclusion of the Performance Period. Payment in respect of
earned performance shares may be made in shares of Keystone Common Stock, in
cash, or partly in shares of Keystone Common Stock and partly in cash, as
determined by the Committee at the time of payment. For purposes of any payment
in cash, earned performance shares are converted to dollars based on the fair
market value of a share of Keystone Common Stock as of the date the amount
payable is determined by the Committee.
Unless otherwise determined by the Committee at the time of making an
award of performance shares and reflected in the terms of the award, if all
employment of an awardee with Keystone and its subsidiaries terminates prior to
the end of a Performance Period for any reason other than death, disability,
retirement or an involuntary termination not for cause, all performance shares
of the awardee for which the applicable Performance Period has not been
completed shall be deemed forfeited, and no payment shall be made with respect
thereto. In the case of a termination of employment prior to the end of a
Performance Period due to death, disability, retirement or involuntary
termination not for cause, the terms of the award may specify the manner of
determining the number of performance shares, if any, which shall be deemed
earned based on the extent to which the applicable Performance Target has been
achieved as of the date of termination of employment, the percentage of the
Performance Period elapsed and/or such other factors as the Committee may deem
relevant. In the absence of such specification, the determination of whether
any performance shares shall be deemed earned if the employment of the awardee
terminates prior to the end of the applicable Performance Period due to death,
disability, retirement or involuntary termination not for cause, and the number
of performance shares earned and the timing of payment thereof, shall be made by
the Committee in its sole discretion.
Restricted Shares
Restricted shares of Keystone Common Stock awarded by the Committee
will be subject to such restrictions (which may include restrictions on the
right to transfer or encumber the shares while subject to restriction) as the
Committee may impose thereon and will be subject to forfeiture in whole or in
part if certain events (which may, in the discretion of the Committee, include
termination of employment and/or performance-based events) specified by the
Committee occur prior to the lapse of the restrictions. The restricted share
agreement between Keystone and the awardee will set forth the number of
restricted shares awarded to the awardee, the restrictions imposed thereon, the
duration of such restrictions, the events the occurrence of which would cause a
forfeiture of the restricted shares in whole or in part and such other terms and
conditions as the Committee in its discretion deems appropriate.
If so determined by the Committee at the time of an award of
restricted shares, the lapse of restrictions on restricted shares may be based
on the extent of achievement over a specified Performance Period of one or more
Performance Targets, based on Performance Criteria established by the Committee
as described above for performance shares. In such case, the award of
restricted shares and all determinations by the Committee in respect thereto
shall be made by the Committee in accordance with the procedures applicable to
performance shares as described above.
Following a restricted share award and prior to the lapse or
termination of the applicable restrictions, share certificates for the
restricted shares will be held in escrow. Upon the lapse or termination of the
restrictions (and not before), the share certificates will be delivered to the
awardee. From the date a restricted share award is effective, however, the
awardee will be a shareholder with respect to the restricted shares and will
have all the rights of a shareholder with respect to such shares, including the
right to vote the shares and to receive all
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dividends and other distributions paid with respect to the shares, subject only
to the restrictions imposed by the Committee.
Other Stock Awards
The Committee shall have the authority in its discretion to grant to
eligible employees such other awards that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to, shares
of Keystone Common Stock as deemed by the Committee to be consistent with the
purposes of the Incentive Plan, including, without limitation, purchase rights,
shares awarded without restrictions or conditions, or securities or other rights
convertible or exchangeable into shares of Keystone Common Stock. In the
discretion of the Committee, such other stock awards, including shares of
Keystone Common Stock, or other types of awards authorized under the Incentive
Plan, may be used in connection with, or to satisfy obligations of Keystone or a
subsidiary to eligible employees under, other compensation or incentive plans,
programs or arrangements of Keystone or a subsidiary, including without
limitation the 1996 Performance Unit Plan. The Committee shall determine the
terms and conditions, if any, of any other stock awards made under the Incentive
Plan.
Additional Rights in Certain Events
The Incentive Plan provides for certain additional rights upon the
occurrence of one or more events described in Section 8 of the Incentive Plan
("Section 8 Events"). Such an event is deemed to have occurred when (1) any
person or group (other than Keystone, a subsidiary or any employee benefit plan
sponsored by Keystone) acquires beneficial ownership of 10% or more of the
voting power of Keystone, (2) a tender offer is made to acquire securities of
Keystone representing 20% or more of the voting power of Keystone, (3) a person
other than Keystone solicits proxies relating to the election or removal of 50%
or more of any class of Keystone's Board of Directors or (4) the shareholders of
Keystone approve a merger, consolidation, share exchange, division or sale or
other disposition of assets of Keystone as a result of which the shareholders of
Keystone immediately prior to the transaction will not own a majority of the
voting power of the surviving or resulting corporation or any corporation which
acquires the stock of Keystone or more than 10% of its consolidated assets.
Subject to the provisions of Section 4 of the Incentive Plan limiting
such rights in the case of incentive stock options, unless the agreement between
Keystone and the awardee otherwise provides, if any Section 8 Event occurs (1)
all outstanding stock options will become immediately and fully exercisable, (2)
all stock options held by an awardee whose employment with Keystone or a
subsidiary terminates within one year of any Section 8 Event for any reason
other than voluntary termination with the consent of Keystone or a subsidiary,
retirement under any retirement plan of Keystone or subsidiary or death will be
exercisable for a period of three months from the date of such termination of
employment, but in no event after the expiration date of the stock option, (3)
all restrictions applicable to restricted shares awarded under the Incentive
Plan will lapse and (4) all performance shares for which the Performance Period
has not yet been completed will be deemed to have been fully earned as of the
date of the Section 8 Event, without regard to actual performance, and there
shall be payable to the awardee with respect thereto the maximum number of
performance shares which could have been earned during the Performance Period
through achievement of the Performance Maximum, if any, or if none, the
Performance Target
If prior to the end of the applicable Performance Period an award of
performance shares becomes payable due to a Section 8 Event, the amount paid
would not qualify as "performance-based compensation" under Section 162(m) of
the Code.
Possible Anti-Takeover Effect
The provisions of the Incentive Plan providing for the acceleration of
the exercise date of stock options, the lapse of restrictions applicable to
restricted shares and the deemed earnout of performance shares upon the
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<PAGE>
occurrence of a Section 8 Event and for the extension of the period during which
stock options may be exercised upon termination of employment following a
Section 8 Event may be considered as having an anti-takeover effect.
Miscellaneous
The maximum aggregate number of shares of Keystone Common Stock which
shall be available for the grant of stock options, restricted shares and
performance shares to any one individual under the Incentive Plan during any
calendar year shall be limited to 200,000 shares. To the extent consistent with
Section 162(m) of the Code, in applying this limitation a reload option (a)
shall be deemed to have been granted at the same time as the original underlying
stock option and (b) shall not be deemed to increase the number of shares
covered by the original underlying stock option grant.
The Board of Directors may amend or terminate the Incentive Plan at
any time, except that the Board may not terminate any outstanding Award and
except that no amendment may be made without the approval of the shareholders of
Keystone (1) if the effect of the amendment is to make any changes in the class
of employees eligible to receive incentive stock options or increase the number
of shares for which incentive stock options may be granted under the Incentive
Plan or (2) if shareholder approval of the amendment is at the time required (a)
by the rules of the NASDAQ National Market System or any stock exchange on which
the Keystone Common Stock may then be listed or (b) for nonstatutory stock
options or performance shares granted under the Incentive Plan to qualify as
"performance based compensation" as then defined under Section 162(m) of the
Code.
If an awardee engages in a business which is in competition with
Keystone or any of its subsidiaries, the Committee may immediately terminate all
outstanding stock options of the awardee, declare forfeited all restricted
shares of the awardee as to which the restrictions have not yet lapsed,
terminate all outstanding performance share awards of the awardee for which the
applicable Performance Period has not been completed and declare forfeited all
outstanding other stock awards of the awardee which remain subject to
restriction or which have otherwise not yet become payable, whether or not any
such Awards are then held by the awardee. The preceding sentence shall not
apply if the exercise period of the stock option upon termination of employment
has been extended, the lapse of the restrictions applicable to the restricted
shares has been accelerated or the performance share award has been deemed to
have been earned as a result of the occurrence of a Section 8 Event.
Federal Income Tax Consequences
The following is a brief summary of the principal Federal income tax
consequences of the grant and exercise of Awards under present law.
Incentive Stock Options. An optionee will not recognize any taxable
income for Federal income tax purposes upon receipt of an incentive stock option
or, generally, at the time of exercise of an incentive stock option. The
exercise of an incentive stock option generally will result in an increase in an
optionee's taxable income for alternative minimum tax purposes.
If an optionee exercises an incentive stock option and does not
dispose of the shares received in a subsequent "disqualifying disposition"
(generally, a sale, gift or other transfer within two years after the date of
grant of the incentive stock option or within one year after the shares are
transferred to the optionee), upon disposition of the shares any amount realized
in excess of the optionee's tax basis in the shares disposed of will be treated
as a long-term capital gain, and any loss will be treated as a long-term capital
loss. In the event of a "disqualifying disposition," the difference between the
fair market value of the shares received on the date of exercise and the option
price (limited, in the case of a taxable sale or exchange, to the excess of the
amount realized upon disposition over the optionee's tax basis in the shares)
will be treated as compensation received by the optionee in the year of
disposition. Any additional gain will be taxable as a capital gain and any loss
as a capital loss, which will be long-term or short-term depending on whether
the shares were held for more than one year. Under proposed regulations,
special rules apply in determining the compensation income recognized upon a
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disqualifying disposition if the option price of the incentive stock option is
paid with shares of Keystone Common Stock. If shares of Keystone Common Stock
received upon the prior exercise of an incentive stock option are transferred to
Keystone in payment of the option price of an incentive stock option within
either of the periods referred to above, the transfer will be considered a
"disqualifying disposition" of the shares transferred, but, under proposed
regulations, only compensation income determined as stated above, and no capital
gain or loss, will be recognized.
Neither Keystone nor any of its subsidiaries will be entitled to a
deduction with respect to shares received by an optionee upon exercise of an
incentive stock option and not disposed of in a "disqualifying disposition." If
an amount is treated as compensation received by an optionee because of a
"disqualifying disposition," Keystone or one of its subsidiaries generally will
be entitled to a corresponding deduction in the same amount for compensation
paid.
Nonstatutory Stock Options. An optionee will not recognize any
taxable income for Federal income tax purposes upon receipt of a nonstatutory
stock option. Upon the exercise of a nonstatutory stock option the amount by
which the fair market value of the shares received, determined as of the date of
exercise, exceeds the option price will be treated as compensation received by
the optionee in the year of exercise. If the option price of a nonstatutory
stock option is paid in whole or in part with shares of Keystone Common Stock,
no income, gain or loss will be recognized by the optionee on the receipt of
shares equal in value on the date of exercise to the shares delivered in payment
of the option price. The fair market value of the remainder of the shares
received upon exercise of the nonstatutory stock option, determined as of the
date of exercise, less the amount of cash, if any, paid upon exercise will be
treated as compensation income received by the optionee on the date of exercise
of the stock option.
There is no published authority directly addressing the Federal income
tax consequences of certain aspects of transferring nonstatutory stock options,
and the following statements of the probable tax consequences are based on
Keystone's interpretation of present law. An optionee should not recognize any
taxable income for Federal income tax purposes upon transfer of a nonstatutory
stock option by gift. Upon the exercise of a nonstatutory stock option by the
transferee, the optionee should be treated as receiving compensation, which is
subject to tax withholding, even though the nonstatutory stock option is
exercised by a transferee rather than an optionee.
Keystone or one of its subsidiaries generally will be entitled to a
deduction for compensation paid in the same amount treated as compensation
received by the optionee.
Reload Option Rights. An optionee should not recognize any taxable
income for Federal income tax purposes upon receipt of reload option rights and
a reload option should be treated as a nonstatutory stock option. See
"Nonstatutory Stock Options" above.
Cash Payment Rights. An optionee will not recognize any taxable
income for Federal income tax purposes upon receipt of cash payment rights. Any
cash received in payment of cash payment rights will be treated as compensation
received by the optionee in the year in which the optionee receives the cash
payment. Keystone or one of its subsidiaries generally will be entitled to a
corresponding deduction in the same amount for compensation paid.
Restricted Shares. An awardee of restricted shares will not recognize
any taxable income for Federal income tax purposes in the year of the award,
provided the shares are subject to restrictions (that is, they are
nontransferable and subject to a substantial risk of forfeiture). The fair
market value of the shares on the date the restrictions lapse will be treated as
compensation income to the awardee and will be taxable in the year the
restrictions lapse. Keystone or one of its subsidiaries generally will be
entitled to a deduction for compensation paid in the same amount treated as
compensation income to the awardee.
Performance Shares. An awardee of performance shares will not
recognize any taxable income for Federal income tax purposes upon receipt of the
award. Any cash or shares of Keystone Common Stock received pursuant to the
award will be treated as compensation income received by the awardee generally
in the year in
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<PAGE>
which the awardee receives such cash or shares of Keystone Common Stock.
Keystone or one of its subsidiaries generally will be entitled to a deduction
for compensation paid in the same amount treated as compensation income to the
awardee.
Other Stock Awards. Any shares of Keystone Common Stock received
pursuant to an other stock award will be treated as compensation income received
by the awardee generally in the year in which the awardee receives such shares.
The amount of compensation income will equal the fair market value of the shares
of Keystone Common Stock on the date compensation income is recognized.
Keystone or one of its subsidiaries generally will be entitled to a
corresponding deduction in the same amount for compensation paid.
Other Tax Matters. The exercise by an awardee of a stock option, the
lapse of restrictions on restricted shares, or the deemed earnout of performance
shares following the occurrence of a Section 8 Event, in certain circumstances,
may result in (i) a 20% Federal excise tax (in addition to Federal income tax)
to the awardee on certain payments of Keystone Common Stock or cash resulting
from such exercise or deemed earnout of performance shares or, in the case of
restricted shares, on all or a portion of the fair market value of the shares on
the date the restrictions lapse and (ii) the loss of a compensation deduction
which would otherwise be allowable to Keystone or one of its subsidiaries as
explained above. Keystone and its subsidiaries may lose a compensation
deduction, which would otherwise be allowable, for all or a part of compensation
paid in the form of (i) restricted shares or performance shares if an award of
such shares is based in whole or in part on any goal or measure other than
Performance Criteria set forth in Section 6(B) of the Plan, or, in the case of
restricted shares, if the Committee fails to certify attainment of the
Performance Criteria prior to paying such award, or (ii) cash payment rights
granted after the grant of the related option, to any employee if, as of the
close of the tax year, the employee is the Chief Executive Officer of Keystone
(or acts in that capacity) or is among the four highest compensated officers for
that tax year (other than the Chief Executive Officer) for whom total
compensation is required to be reported to shareholders under the Exchange Act,
if the total compensation paid to such employee exceeds $1,000,000.
Vote Required
Approval of the adoption of the Incentive Plan requires the
affirmative vote of a majority of the votes cast on the proposal by the holders
of Keystone Common Stock voting in person or by proxy, with a quorum of a
majority of the outstanding shares of Keystone Common Stock being present or
represented at the Keystone Annual Meeting. Under the Pennsylvania Business
Corporation Law, an abstention or broker non-vote is not a vote cast and will
not be counted in determining the number of votes required for approval, though
it will be counted in determining the presence of a quorum.
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PRO FORMA COMBINED FINANCIAL INFORMATION
INFORMATION CONCERNING THE
PRO FORMA COMBINED FINANCIAL DATA
The FTC Merger will be accounted for by Keystone under the pooling-of-
interests method of accounting, which views the FTC Merger as a uniting of the
separate ownership interests of Keystone and FTC through an exchange of shares.
As such, the pro forma financial information which follows represents the
combined historical financial data of Keystone and FTC, subject only to certain
adjustments described in the notes to the data presented. Certain
reclassifications have been made to conform FTC's presentation with Keystone's
presentation. There is no impact on net income from these reclassifications.
Intercompany transactions between Keystone and FTC are immaterial and,
accordingly, have not been eliminated.
The FFWM Merger will be accounted for by Keystone under the purchase
method of accounting. See "FFWM Plan of Merger--Accounting Treatment." Pro
forma financial information concerning the FFWM Merger is not included herein.
The addition of FFWM would not have materially affected the pro forma combined
financial information as presented.
The pro forma financial information is unaudited and is not
necessarily indicative of the financial condition or the results of operations
of Keystone as they would have been had the FTC Merger been effective during the
periods presented, or as they may be in the future. The pro forma financial
information should be read in conjunction with the historical financial
statements of Keystone and FTC, including the notes thereto, incorporated by
reference herein. See "Information Concerning Keystone--Keystone Documents
Incorporated by Reference," and "Information Concerning FTC--FTC Documents
Incorporated by Reference."
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<PAGE>
Keystone Financial, Inc. and Financial Trust Corp
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
December 31, 1996
(unaudited)
The following unaudited pro forma combined condensed statement of
condition combines in condensed form the consolidated statement of condition of
Keystone and the consolidated balance sheet of FTC as of December 31, 1996 with
certain pro forma adjustments described in the notes below. This statement
should be read in conjunction with the historical financial statements of
Keystone and FTC, including the notes thereto; the notes to this pro forma
combined condensed statement of condition; and the pro forma combined condensed
statements of income, including the notes thereto.
<TABLE>
<CAPTION>
Combined
Keystone
(In Thousands) Keystone FTC Pro Forma and FTC
Historical Historical Adjustments Pro Forma
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks................... $ 167,403 $ 39,569 $ 206,972
Federal funds sold and other.............. 78,354 3,059 81,413
Investment securities available for sale.. 856,380 353,714 1,210,094
Investment securities held to maturity.... 379,958 -- 379,958
Assets held for resale.................... 51,225 -- 51,225
Loans and leases.......................... 3,553,662 782,808 4,336,470
Allowance for credit losses............... (45,016) (11,240) (56,256)
---------- ---------- ----------
Net loans................................. 3,508,646 771,568 4,280,214
Premises and equipment.................... 74,407 23,525 97,932
Other assets.............................. 114,895 27,876 142,771
---------- ---------- ----------
TOTAL ASSETS.............................. $5,231,268 $1,219,311 $6,450,579
---------- ---------- ----------
LIABILITIES:
Noninterest-bearing deposits.............. $ 511,931 $ 113,605 $ 625,536
Interest-bearing deposits................. 3,585,180 849,005 4,434,185
---------- ---------- ----------
Total deposits............................ 4,097,111 962,610 5,059,721
Fed funds purchased & security
repurchase agreements.................... 299,895 68,991 368,886
Other short-term borrowings............... 26,175 2,903 29,078
---------- ---------- ----------
Total short-term borrowings............... 326,070 71,894 397,964
FHLB borrowings........................... 205,929 18,274 224,203
Long-term debt............................ 2,154 419 2,573
Other liabilities......................... 92,697 13,015 105,712
---------- ---------- ----------
TOTAL LIABILITIES......................... 4,723,961 1,066,212 5,790,173
---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock........................... -- -- --
Common stock.............................. 76,456 42,703 (14,519)(1) 104,640
Surplus................................... 73,201 51,493 14,519 (1) 139,213
Retained earnings......................... 368,172 53,846 422,018
Deferred KSOP benefit expense............. (1,249) -- (1,249)
Treasury stock............................ (8,186) (226) (8,412)
Net unrealized securities gains
(losses), net of tax..................... (1,087) 5,283 4,196
---------- ---------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY................ 507,307 153,099 -- 660,406
---------- ---------- ----------- ----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY.. $5,231,268 $1,219,311 -- $6,450,579
========== ========== =========== ==========
</TABLE>
- ------------------------
(1) To transfer the common stock of FTC to surplus and reflect the issuance of
1.65 shares of Keystone Common Stock for each outstanding share of FTC
Common Stock.
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Keystone Financial, Inc. and Financial Trust Corp
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(unaudited)
The FTC Merger will be accounted for as a pooling of interests.
Accordingly, the following unaudited pro forma combined condensed statements of
income result from the combination of the historical consolidated condensed
statements of income of Keystone and FTC for each period presented. These
statements should be read in conjunction with the historical financial
statements of Keystone and FTC, including the notes thereto; the notes to these
pro forma combined condensed statements of income; and the pro forma combined
condensed statement of condition, including the notes thereto. The pro forma
combined results are not necessarily indicative of the results that would have
been obtained had the FTC Merger been effective during the periods presented or
of the combined results of future operations.
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts Year Ended December 31,
and Shares Outstanding) -------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Loans and fees on loans................. $ 370,364 $ 353,025 $ 296,492
Investment securities................... 92,700 83,062 84,494
Other................................... 10,356 10,699 5,908
----------- ----------- -----------
473,420 446,786 386,894
INTEREST EXPENSE:
Deposits................................ 186,257 176,571 137,103
Short-term borrowings................... 14,506 12,910 8,418
FHLB borrowings......................... 10,175 10,827 6,446
Long-term debt.......................... 363 467 496
----------- ----------- -----------
211,301 200,775 152,463
----------- ----------- -----------
NET INTEREST INCOME..................... 262,119 246,011 234,431
Provision for credit losses............. 10,713 8,568 10,324
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
CREDIT LOSSES.......................... 251,406 237,443 224,107
Other income............................ 71,525 58,137 51,921
Other expense........................... 196,245 182,130 182,333
----------- ----------- -----------
INCOME BEFORE INCOME TAXES.............. 126,686 113,450 93,695
Applicable income tax expense........... 37,180 34,001 25,907
----------- ----------- -----------
NET INCOME.............................. $ 89,506 $ 79,449 $ 67,788
----------- ----------- -----------
AVERAGE NUMBER OF SHARES
OUTSTANDING (1)........................ 52,118,819 49,557,082 49,188,960
----------- ----------- -----------
EARNINGS PER SHARE...................... $1.72 $1.60 $1.38
----------- ----------- -----------
</TABLE>
- ------------------------
(1) The average number of shares outstanding reflects Keystone historical shares
outstanding, adjusted for the 1996 three-for-two stock split, plus the
historical shares outstanding of FTC, adjusted for the 1996 10% stock
dividend, multiplied by the FTC Merger exchange ratio of 1.65.
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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>
Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
(In Thousands, Except Per Share Amounts and Ratios)
<S> <C> <C> <C> <C> <C>
Operations:
Interest income.......................... $ 384,521 $ 363,931 $ 313,202 $ 307,755 $ 330,645
Interest expense......................... 174,758 166,579 124,784 125,245 152,718
----------- ----------- ----------- ----------- -----------
Net interest income...................... 209,763 197,352 188,418 182,510 177,927
Provision for credit losses.............. 9,858 7,859 9,484 7,940 16,053
Noninterest income....................... 62,673 50,321 44,629 45,819 39,276
Noninterest expense...................... 162,559 150,634 151,723 148,003 138,840
Income tax expense....................... 30,544 27,866 20,481 21,037 16,568
----------- ----------- ----------- ----------- -----------
Net income............................... $ 69,475 $ 61,314 $ 51,359 $ 51,349 $ 45,742
----------- ----------- ----------- ----------- -----------
Pre-tax security gains, included in
above................................... $ 556 $ 1,317 $ 834 $ 1,669 $ 1,750
Per Share (1):
Net income............................... $ 1.83 $ 1.73 $ 1.46 $ 1.47 $ 1.33
Cash dividends declared.................. 0.98 0.93 0.86 0.79 0.73
Dividend payout ratio.................... 53.55% 53.28% 59.22% 54.01% 55.27%
Average shares outstanding............... 38,045,585 35,462,358 35,093,138 34,956,927 34,475,862
Balances at Period End:
Loans and leases......................... $ 3,553,662 $ 3,365,716 $ 3,193,405 $ 2,775,198 $ 2,785,335
Allowance for credit losses.............. 45,016 44,377 42,440 40,181 38,940
Total assets............................. 5,231,268 5,074,785 4,706,000 4,419,726 4,311,779
Deposits................................. 4,097,111 4,061,888 3,827,983 3,582,688 3,655,261
Long-term debt........................... 2,154 4,048 6,054 5,990 5,144
Shareholders' equity..................... 507,307 480,694 407,774 412,880 378,314
Book value per share (1)................. 13.38 12.69 11.64 11.77 10.86
Selected Ratios:
Return on average assets................. 1.37% 1.29% 1.16% 1.19% 1.08%
Return on average equity................. 14.11 14.06 12.71 12.98 12.58
Interest rate spread..................... 3.75 3.77 4.04 4.07 4.02
Net interest margin...................... 4.49 4.49 4.63 4.63 4.67
Equity to assets, average................ 9.74 9.16 9.09 9.13 8.62
Loans to deposits at period end.......... 86.74 82.86 83.42 77.46 76.20
Allowance for credit losses
to loans at period end.................. 1.27 1.32 1.33 1.45 1.40
Nonperforming assets to loans and ORE.... 0.75 0.78 0.95 1.32 1.66
Loans 90 days past due.................. 0.50 0.44 0.24 0.14 0.22
Total risk elements to loans
and ORE at period end (2)............... 1.25 1.22 1.19 1.46 1.88
Risk-Adjusted Capital Ratios:
Leverage ratio........................... 9.64% 9.28% 8.84% 9.18% 8.66%
"Tier 1" capital ratio................... 13.54 13.65 12.96 14.05 13.06
"Total" capital ratio.................... 14.77 14.83 14.21 15.30 14.26
</TABLE>
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(1) Keystone per share amounts have been restated to reflect a 3-for-2 stock
split, in the form of a 50% stock dividend, in 1996.
(2) Total risk elements include nonperforming assets and loans past due 90 days
or more.
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<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, as reported by NASDAQ, and the cash
dividends per share declared on Keystone Common Stock for such periods. The
information contained in the table has been adjusted to reflect a 3-for-2 split
of the Keystone Common Stock in the form of a 50% stock dividend in August 1996.
<TABLE>
<CAPTION>
Quarterly Sales
Price Range Cash
---------------------------- Dividends
High Low Declared
----------- --------------- ---------
<S> <C> <C> <C>
1995
First Quarter........... $20.17 $ 17.50 $0.23
Second Quarter.......... 19.33 18.00 0.23
Third Quarter........... 21.50 18.50 0.23
Fourth Quarter.......... 22.67 19.67 0.24
-----
$0.93
-----
1996
First Quarter........... $22.83 $ 19.83 $ .24
Second Quarter.......... 22.75 20.75 .24
Third Quarter........... 25.33 21.67 .24
Fourth Quarter.......... 27.75 24.50 0.26
-----
$0.98
-----
1997
First Quarter (through
March 25, 1997)..... $28.00 $24.875 $0.26
</TABLE>
On December 19, 1996, the last NASDAQ trading day prior to the public
announcement of the FTC Merger, the closing sale price for the Keystone Common
Stock was $26.75. On November 25, 1996, the last NASDAQ trading day prior to
the public announcement of the FFWM Merger, the closing sale price for Keystone
Common Stock was $26.625. On March 25, 1997, the closing sale price for
Keystone Common Stock was $27.25. On March 14, 1997, the record date for the
Keystone Annual Meeting, Keystone had approximately 12,464 shareholders of
record. At that date, approximately 37,313,000 shares of Keystone Common Stock
were outstanding.
While Keystone is not obligated to pay cash dividends, Keystone's
Board of Directors presently intends to continue the policy of paying quarterly
cash dividends. Future dividends will depend, in part, upon the earnings and
financial condition of Keystone.
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<PAGE>
KEYSTONE EXECUTIVE COMPENSATION
Summary Compensation Table
The following table is a summary of the compensation for the years
1996, 1995 and 1994 awarded or paid to, or earned by, Keystone's Chief Executive
Officer and each of Keystone's other executive officers in 1996 (the "named
officers"):
<TABLE>
<CAPTION>
Long-Term Compensation
---------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- -------------------------- -----------
Shares
Other annual Restricted Underlying LTIP All other
Name and Bonus compensation Stock Options payouts compensation
Principal Position Year Salary ($) ($)(1) ($) Awards (#)(3) ($)(4) ($)(5)
- --------------------- ---- --------- -------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl L. Campbell 1996 $340,000 $127,500 -- $0 87,427 $ 0 $62,917
President and Chief 1995 330,000 129,262 -- 0 16,447 0 53,062
Executive Officer 1994 330,000 140,000 -- 0 0 0 38,218
George H. Groves 1996 $270,000 $ 72,900 -- $0 7,832 $ 0 $42,306
Senior Executive 1995 260,000 66,508 -- 0 6,265 0 32,808
Vice President 1994 208,000 47,023 -- 0 45,000 0 28,531
Mark L. Pulaski 1996 $270,000 $ 72,900 -- $0 7,832 $ 0 $32,438
Senior Executive 1995 260,000 66,508 -- 0 7,233 0 28,068
Vice President 1994 188,000 42,502 -- 0 45,000 0 16,381
Ben G. Rooke 1996 $195,000 $ 52,650 -- $0 5,723 $ 0 $29,202
Executive Vice 1995 190,000 48,602 -- 0 4,971 0 23,824
President 1994 165,000 37,302 -- 0 45,000 0 17,810
</TABLE>
- ------------------------
(1) Bonus information is reported by year in which earned.
(2) Keystone has made no restricted stock awards.
(3) Options are reported in the year in which granted. The number of shares has
been adjusted to reflect a 3-for-2 split in the Keystone Common Stock in
August 1996. The option price of the options granted to the named executive
vice presidents in 1994 is 110% of the fair market value of the option
shares on the date the options were granted. The option price of all other
options shown is 100% of such fair market value.
(4) To date, Keystone has made no long-term incentive plan ("LTIP") payouts.
(5) The 1996 amounts reported in this column consist of the loan value of the
actual premium paid by Keystone for a split-dollar insurance policy for the
named officer as follows: Mr. Campbell, $21,841; Mr. Groves, $19,985; Mr.
Pulaski, $8,730; and Mr. Rooke, $11,963; imputed interest income for 1996 on
loans to the named officers under Keystone's Management Stock Ownership
Program as follows: Mr. Campbell, $27,001, Mr. Groves, $14,181; Mr.
Pulaski, $14,182; and Mr. Rooke, $10,364; employer matching contributions to
Keystone's retirement savings plans as follows: Mr. Campbell, $13,538; Mr.
Groves, $8,051; Mr. Pulaski, $9,173; and Mr. Rooke, $6,487; and the above
market portions of interest accrued for 1996 under one retirement savings
plan as follows: Mr. Campbell, $538; Mr. Groves, $89; Mr. Pulaski, $353;
and Mr. Rooke, $387.
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<PAGE>
Stock Option Grants in 1996
The following table sets forth information concerning the individual grants
of options to purchase Keystone Common Stock made to Keystone's named officers
in 1996. The options and the information shown in the table have been adjusted
to reflect a 3-for-2 split in the Keystone Common Stock in August 1996.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------------------
Number Percent of
of shares total options Grant
underlying granted to Exercise Market date
options employees Price Price Expiration present
Name granted (#) in 1996 (1) ($/Share) (1) ($/Share) date (3) value ($) (4)
- ------------------ ----------- -------------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl L. Campbell 12,247 46.64% $19.917 $19.917 01/02/2006 $ 33,159
75,000 $20.917 $20.917 01/25/2006 $210,165
667 $21.417 $21.417 04/10/2006 $ 1,381
George H. Groves 7,832 4.15% $19.917 $19.917 01/02/2006 $ 20,898
Mark L. Pulaski 7,832 4.15% $19.917 $19.917 01/02/2006 $ 20,898
Ben G. Rooke 5,723 3.03% $19.917 $19.917 01/02/2006 $ 15,271
</TABLE>
- ------------------------
(1) Total options granted to Keystone employees in 1996 were 188,885. The
option granted to Mr. Campbell for 667 shares is a reload option.
(2) The exercise price of options granted to Keystone employees in 1996 ranged
from $19.917 to $20.917.
(3) All options become exercisable approximately two years after the date of
grant. All options are subject to possible acceleration in certain events
involving an actual or potential change in control of Keystone. The options
have revocable reload rights.
(4) The grant date present value of the options has been determined utilizing
the Black-Scholes option pricing model. The assumptions used to arrive at
the present values were: stock price volatility of .1500; expected dividend
yield of 4.6%; expected seven-year option term; and a 5.5% risk-free rate of
return.
Aggregated Option Exercises in 1996 and Option Values as of December 31, 1996
The following table sets forth information concerning stock options exercised
by Keystone's named officers in 1996 and unexercised stock options held by the
named officers as of December 31, 1996. The options and the information shown
in the table have been adjusted to reflect a 3-for-2 split in the Keystone
Common Stock in August 1996.
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised in-the-money Options
Shares Value Options at 12/31/96 at 12/31/96 ($) (2)
Acquired on Realized -------------------------- --------------------------
Name Exercise (#) ($) (1) Exercisable Unexercisable Exercisable Unexercisable
---- ------------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl L. Campbell 1,500 $ 17,826 89,928 249,854 $935,882 $676,253
George H. Groves 0 -- 78,512 14,097 $464,741 $ 76,941
Mark L. Pulaski 0 -- 86,345 13,495 $562,515 $ 73,656
Ben G. Rooke 10,489 $180,589 79,955 10,694 $488,731 $ 58,368
</TABLE>
- ------------------------
-49-
<PAGE>
(1) Represents the difference between the market value on the date of exercise
of the shares acquired and the option price of those shares.
(2) Represents the difference between the aggregate market value at December 31,
1996 of the shares subject to the options and the aggregate option price of
those shares.
Long-Term Incentive Plan Awards in 1996
A table showing the Performance Unit awards made to Keystone's named officers
and to all other participating employees in 1996 under Keystone's 1996
Performance Unit Plan is set forth above under the caption "Other Proposals for
Keystone Shareholders--1996 Performance Unit Plan--Performance Unit Plan Awards
in 1996."
KEYSTONE HUMAN RESOURCES COMMITTEE
1996 REPORT ON EXECUTIVE COMPENSATION
In compliance with Securities and Exchange Commission guidelines on
disclosure of executive compensation levels and practices, the Human Resources
Committee (the "Committee") of Keystone's Board of Directors has prepared the
following report for Keystone's shareholders and other interested parties.
Role and Composition of the Human Resources Committee
The role of the Committee with respect to employee compensation is to
establish the compensation philosophy of the organization and to monitor
compensation plans and related practices for conformity with that philosophy.
In 1995, a compensation consultant assisted the Committee in the
development of a comprehensive compensation strategy for Keystone. As a result
of this effort, Keystone adopted a total compensation philosophy. This
philosophy restructured and enhanced Keystone's commitment to tie more of the
compensation of executives, managers and employees in direct revenue producing
positions to Keystone's performance.
Specifically in the area of executive compensation, the Committee's
role includes establishing appropriate compensation and benefit plans, reviewing
the Chief Executive Officer's recommendations on compensation for executive
officers, and determining compensation for executive officers and for the Chief
Executive Officer. An essential component of this role is the establishment of
performance standards for Keystone's salary administration and incentive
programs and monitoring actual performance against those standards.
During 1996, the Committee was composed of eight non-employee
directors: Ms. Barry, Messrs. DeWald, Field, Herr, Miller, Unterberger and
Ward, and Mr. Beall, who served as Chairperson/1/. Except for discussions and
decisions concerning his own compensation, Mr. Campbell attends Committee
meetings for
- ------------------------
/1/ After Keystone's 1996 Annual Meeting, consistent with the Board-approved
rotation policy, Mr. Beall became Chairman of the Committee. Ms. Barry and
Messrs. Miller and Ward became members of the Committee to replace Mr.
Gettig, who retired as of the 1996 Annual Meeting, and Messrs. Detwiler and
Devorris, who rotated to other Committees of the Board. A Subcommittee
consisting of Ms. Barry and Messrs. Beall, Dewald, Field, Miller and Ward
was formed in 1996 to administer the 1996 Performance Unit Plan and the
Corporation's Stock Incentive Plans. References in this report to actions
taken by the Committee include those taken by the Subcommittee under these
plans.
-50-
<PAGE>
discussions about executive compensation and does offer recommendations on
specific plans and individual actions for consideration by the Committee.
The Committee met four times during 1996. This report discusses
actions initiated and approved by the Committee over the course of the year.
Executive Compensation Program Objectives and Operating Philosophy
Keystone's executive compensation program is designed to (1) foster
continuous improvement in corporate performance, (2) maximize shareholder value,
(3) attract and retain qualified executives and (4) recognize and reward
executives' collective and individual contributions to the business. To these
ends, Keystone is pursuing a compensation strategy and specific compensation
plans to tie a significant portion of executive compensation to Keystone's
success in meeting predetermined performance goals and to appreciation in
Keystone's stock price.
In setting performance standards for executive officers during 1996,
the Committee considered the new compensation philosophy, compared Keystone's
recent performance to industry indices/2/ and also considered Keystone's stock
price performance over the last several years. (See "Keystone Stock Price
Performance Graph" below.) The target level of total compensation for Keystone
executives, including its four executive officers listed in the tables under
"Keystone Executive Compensation" above, when expected performance is achieved,
is the median level of market practice among financial services institutions of
similar asset size. The compensation program will provide better than median
level pay when Keystone's performance exceeds the expected level of performance.
The primary performance measure used by the Committee is net income.
Other measures that are also considered by the Committee are asset quality,
capital adequacy and prudent risk management. In addition, the Committee
considers such subjective measures as the officers' leadership and management
performance and the current economic environment.
The remainder of this report discusses specific plans, policies and
1996 actions for each component of the executive compensation program.
Base Salaries
Base salary ranges for the four executive officers are determined by
evaluating the responsibilities of the positions, required skills and
experiences and prevailing practices among financial services institutions of
similar type and asset size for comparable positions. Initial salary levels are
a function of the incumbent's specific capabilities at the time of hire.
Typically, annual salary adjustments are determined through an
evaluation of Keystone's performance against its goals for the prior year,
performance of functions and business units under the executive's management and
the executive's performance against individual goals assigned for the prior
year. The relative importance of each of the three criteria in making a salary
adjustment decision for a given executive will vary among the executives and
from year to year based on corporate priorities for that covered time period.
- ------------------------
/2/ The Committee and management review reports from securities and investment
banking firms, e.g., SNL Securities and Keefe, Bruyette & Woods, which
monitor performances of commercial banks and other financial services
institutions. Most of the banks included in these reports are also included
in the NASDAQ Bank Stock Index. Further, Keystone's Finance Department
annually prepares in-depth analyses of financial data on ten commercial
banks of similar or larger asset size operating in the Pennsylvania, Ohio,
Maryland, West Virginia, Virginia, Delaware and New Jersey banking markets.
-51-
<PAGE>
Corporate goals are expressed in terms of net income; the same goal
basis established for Keystone's Management Incentive Compensation Plan
("MICP"), the annual incentive plan. An example of a business unit performance
measure would be improved financial performance achieved through increased
business and/or expense reduction. An example of an individual performance
measure would be the implementation of a new business product.
Additionally, the executive's professional development, readiness for
other and broader responsibilities in the organization and overall contribution
to the management and the success of the business are considered. Keystone's
overall success, coupled with achievements against functional/business unit and
individual business goals, primarily determines the Committee's salary
adjustment decision. The other factors noted may influence the Committee's
decision.
The Chief Executive Officer reviews the performance of each executive
officer, except himself, with the Committee using a specific checklist of
performance goals and performance characteristics, and he offers a specific pay
increase recommendation for the Committee's consideration. The Chairperson of
the Committee likewise uses and discusses with the Committee a similar checklist
of performance goals and performance characteristics for the Chief Executive
Officer, and he offers a recommendation to the Committee on an appropriate
salary action for the CEO. These performance factors include: net income, asset
growth, asset quality, risk management, customer service, leadership, community
involvement, personal development, and the influence of the economy and
regulatory factors on the performance of Keystone. Once approved by the
Committee, all salary actions for the four executive officers are presented to
the Board of Directors for ratification.
In January 1996, the Committee approved salary increases for all four
executive officers of Keystone. Although each of these executives had different
performance goals for 1995, each had met his respective performance plan and
warranted a salary increase.
Annual Performance Incentives
The four executive officers participate in Keystone's MICP, an annual
incentive pay plan based primarily on net income achievement against a specific
goal defined at the beginning of the fiscal year. The Committee has the
discretion to modify the cash award for a particular executive officer if it
determines such action is appropriate. Such action is based on a subjective
evaluation of each executive officer's performance in such areas as teamwork,
management performance, and support of integration efforts related to recent
acquisitions and consolidations.
For 1996, the Committee established a range of specific achievement
levels for corporate net income. If threshold performance was not achieved, no
payment would be made. If performance exceeded the threshold level of
performance, actual awards would be proportionally greater in line with actual
performance up to the defined maximum award amount.
Keystone's net income performance for 1996 exceeded the threshold goal
established under the MICP. All participating executive officers qualified for
a cash award. Mr. Campbell, who participates in the MICP, received a cash award
of $127,500. This award was based on Keystone's net income performance
exceeding the threshold goal.
Long-term Incentives
Stock Options. Stock options were granted to the four executive
officers and selected senior officers of Keystone in January under Keystone's
1992 Stock Incentive Plan, which was approved by the shareholders. Incentive
stock option grants are made according to the Committee's established guideline
of shares at fair market value equal to a percentage of the recipient's salary;
a declining percentage based on level of position within the organization and
reflecting the desired "mix" of long-term incentive income opportunity for a
given position in the organization. The percentage range of salary is 60% to
75%, which is divided by the market price of Keystone's
-52-
<PAGE>
stock on the date of the grant to determine the number of options granted. The
size of the award can vary from year to year based on corporate and individual
performance. Corporate performance is usually gauged in terms of net income,
although other financial measures and performance comparisons within a peer
group may also be considered. In the event of poor corporate performance or poor
individual performance, the Committee can elect to make no award. If corporate
and/or individual performance exceeds expectations, the Committee may grant
larger than typical awards.
The January 1996 stock option awards were granted in recognition of
Keystone's increase in net income performance for 1995, and Keystone's favorable
ranking in the banking peer group.
In deciding on stock option awards to eligible participants, the
Committee does not currently consider the total number of outstanding options
held by a participant nor the number of shares held by the participant. The
Committee has not cancelled or repriced any prior stock option grants.
Stock options are designed to align executives' interests with those
of shareholders. Stock options are granted with an exercise price equal to the
fair market value on the date of grant. Grants carry a 2-year cliff vesting
provision, which means that the option cannot be exercised for two years from
the date of grant except in certain circumstances involving an actual or
threatened change in control. The granting of options at fair market value or a
premium over fair market value with a minimum 2-year vesting requirement
provides an incentive for the executive to increase shareholder value over the
long term since no benefit of the options can be realized unless stock price
appreciation occurs.
Mr. Campbell received stock option grants of 87,427 shares in 1996.
These grants included incentive stock options and nonstatutory stock options.
Mr. Campbell participates in Keystone's Stock Incentive Plan on the same basis
as all other participants. Of the January 1996 stock option grants made to Mr.
Campbell, 12,427 were made in accordance with the formula discussed above, and
75,000 shares represent an additional grant to Mr. Campbell given in recognition
of the financial performance of Keystone and as part of an understanding between
Mr. Campbell and the Committee to tie a substantial portion of his potential
compensation to corporate performance and shareholder value.
As discussed above under "Other Proposals for Keystone Shareholders--
Keystone 1997 Stock Incentive Plan" (Keystone Proposal No. 6), if approved by
Keystone's shareholders, the proposed 1997 Stock Incentive Plan would replace
Keystone's 1992 Stock Incentive Plan.
1996 Performance Unit Plan. In 1996 Keystone's Board of Directors
approved the implementation of the 1996 Performance Unit Plan (the "Performance
Plan") in which certain officers of Keystone would participate, including the
four executive officers.
The Performance Plan is a cash-based, long-term incentive plan. It is
expected that the Performance Plan will operate in three-year cycles beginning
on January 1, 1996, with a new cycle commencing every two years, i.e., January
1, 1998; January 1, 2000; January 1, 2002. Payout under the Plan for the
initial cycle is based upon the attainment by Keystone of a range of pre-
established three-year cumulative earnings per share goals. The goals for the
initial cycle were set based on a comparative peer group performance analysis.
The amounts payable under the Performance Plan's initial cycle may be increased
or decreased by 20% if Keystone's return on average equity for the three-year
cycle ranks at or above the 75th percentile or at or below the 25th percentile
as compared to a peer group of financial institutions. The performance awards
which may be earned during the initial three-year cycle by the four executive
officers and the other executives participating in the Performance Plan are
shown in the table appearing under the caption "Other Proposals for Keystone
Shareholders--Keystone 1996 Performance Unit Plan" (Keystone Proposal No. 5)
above. The Performance Plan, which is discussed in more detail under that
caption, is subject to the approval of Keystone's shareholders at the Keystone
Annual Meeting.
Keystone believes that stock options under the 1992 and 1997 Stock
Incentive Plans and performance unit awards under the 1996 Performance Unit Plan
qualify as "performance-based compensation" under Section 162(m)
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<PAGE>
of the Internal Revenue Code, and Keystone does not anticipate that it will be
affected by the cap on deductibility of executive compensation imposed by that
Section.
Other Executive Benefits
Effective in 1994, Keystone implemented a split-dollar type of
insurance policy which is owned by the covered executive. Under this policy,
Keystone has a collateral assignment which is intended to reimburse Keystone for
premiums paid into the policy when the policy is redeemed or the covered
executive dies.
On March 30, 1995, the Board of Directors approved the Management
Stock Ownership Program (the "Ownership Program"). The Ownership Program is
intended, among other things, to promote alignment of management and shareholder
interests and to encourage management to act like owners with a focus on value
creation. To accomplish these purposes, the Ownership Program establishes stock
ownership goals for the named officers and selected senior officers of Keystone
to be achieved over a five-year period. At the end of the five-year period,
each officer, including the executive officers, is expected to achieve a level
of ownership of Keystone Common Stock having a value equal to the following
percentages of the officer's current base salary: 300% for the chief executive
officer, 200% for executive vice presidents, 100% for presidents of Keystone's
bank and trust company subsidiaries and 50% for senior vice presidents.
In order to assist officers in attaining their stock ownership goals,
the Ownership Program provides for loans to the officers, in amounts not to
exceed 50% of the officer's stock ownership goal, to be used to purchase shares
of Keystone Common Stock from Keystone at their fair market value on the date of
purchase. Under the terms of the Ownership Program, the loans will be made on a
nonrecourse basis, and without interest, but will be secured by collateral
having an initial value of 120% of the loan amount and consisting of the shares
of Keystone Common Stock purchased with the loan plus additional shares of
Keystone Common Stock or other acceptable collateral owned by the officer. The
loans will be payable in full upon demand of Keystone at any time but not later
than the target date for achieving the officer's stock ownership goal. The
loans will also be payable in full not later than 90 days after termination of
the officer's employment with Keystone or a subsidiary for any reason other than
death and one year after termination due to the death of the officer.
In connection with the adoption of the Ownership Program, the Board
recommended that Keystone's shareholders approve the 1995 Management Stock
Purchase Plan (the "Purchase Plan"), which provides for the purchase of Keystone
Common Stock from Keystone by eligible employees at a price not less than fair
market value and for the financing of such purchases through loans secured by
the shares so purchased. Keystone's shareholders approved the Purchase Plan at
Keystone's 1995 Annual Meeting. In 1996, 20 of the 38 eligible officers,
including each of Keystone's four executive officers, participated in the
Purchase Plan and received loans from Keystone under the terms of the Ownership
Program.
Conclusion
Keystone's executive compensation program continues to evolve in line
with the objectives noted earlier in this report: continuous improvement in
annual corporate performance, maximizing shareholder value, attracting and
retaining qualified executives and recognizing and rewarding executives'
contributions to the business.
-54-
<PAGE>
Over the coming year, the Committee will continue to explore
opportunities to enhance the variable aspects of executive compensation,
strengthening the link between total pay and corporate performance.
Respectfully Submitted by:
THE HUMAN RESOURCES COMMITTEE: J. Glenn Beall, Jr., Chairperson;
June B. Barry;
Richard W. DeWald;
Gerald E. Field;
Philip C. Herr, II;
William L. Miller
Ronald C. Unterberger; and
G. William Ward
OTHER INFORMATION CONCERNING
KEYSTONE DIRECTORS AND EXECUTIVE OFFICERS
Human Resources Committee Interlocks and Insider Participation
Mr. Campbell, Keystone's President and Chief Executive Officer, is not
a member of the Human Resources Committee but is an invited guest at Committee
meetings concerning corporate compensation matters, including compensation
decisions for all named officers except himself. Director Devorris is a limited
partner in a partnership that leases at market rate office space to Keystone and
a bank subsidiary of Keystone. Mr. Devorris' limited partnership interest is
50%. The annual rent paid by the bank in 1996 was $415,214. There are no
interlocking relationships, as defined in regulations of the SEC, involving
members of the Human Resources Committee.
Board and Committee Meetings
The Executive Committee of Keystone's Board of Directors is composed
of Messrs. Antanavage, Beall, Campbell, Devorris, Herr, Martz and Miller.
During 1996 the Executive Committee met four times. The Executive Committee
exercises the powers of the Board of Directors between Board meetings and makes
recommendations to the full Board on various matters. The Executive Committee
reviews the policy and practice of Keystone and its subsidiaries in the areas of
strategic planning and franchise expansion and reports its recommendations to
the Board for action. The Executive Committee also functions as a nominating
committee and in this capacity establishes criteria for selection of nominees to
stand for election or reelection as Keystone directors at any annual meeting of
shareholders and reports its recommendations to the Board for action. Any
Keystone shareholder who desires to have an individual considered for nomination
by the Board must submit his recommendation in writing to the Secretary of
Keystone at least 90 days prior to the annual meeting at which the election of
directors will occur.
The Audit Committee of Keystone's Board of Directors, which met four
times during 1996, is composed of Messrs. Antanavage, Detwiler, Devorris, Grant,
Messenger, Rosini and Schoeneman. The Audit Committee recommends the selection
of independent auditors, provides oversight of the internal auditors of the
banks and reviews the reports of those persons.
The Human Resources Committee of Keystone's Board functions as a
compensation committee. The members of the Human Resources Committee, which met
four times in 1996, are Ms. Barry and Messrs. Beall, DeWald, Field, Herr,
Miller, Unterberger and Ward. The Human Resources Committee determines the
compensation of Keystone's executive officers and senior officers and recommends
policy regarding the salary administration program, health and welfare benefits
and annual human resources budget for all employees. The Human Resources
Committee also administers the 1992 and 1988 Stock Incentive Plans, the 1995 and
1990 Non-
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<PAGE>
Employee Directors' Stock Option Plans, the 1992 Director Fee Plan, the 1995
Employee Stock Purchase Plan and the 1995 Management Stock Purchase Plan.
During 1996 Keystone's Board of Directors met seven times. All of the
directors, with the exception of Ms. Barry, attended at least 80% of the
meetings of the Board and committees of which they were members during the
period they served as such.
Director Compensation
In 1996, directors of Keystone who are not salaried officers of
Keystone or its subsidiaries received an annual retainer of $10,000 (payable in
Keystone Common Stock only) and an additional $1,500 (payable in cash or
Keystone Common Stock) if they served as chairman of a Board committee. In
January 1996, non-officer directors received $1,250 for each Board meeting they
attended and $1,250 for each committee meeting attended on a day other than the
date of the regular Board meeting or a day that adjoins the date of a regular
Board meeting. For committee meetings attended on the same day as a regular
Board meeting, non-officer directors received $500; and for committee meetings
attended on an adjoining day of a regular Board meeting date, non-officer
directors received $750. Non-officer directors that participate in telephone
conferences received $500.
Keystone's 1992 Director Fee Plan, which was approved by the
shareholders at the 1992 Annual Meeting, permits non-officer directors to elect
to receive payment of their compensation as Keystone corporate and bank
directors either in cash or Keystone Common Stock or to defer such compensation
for subsequent payment in cash or Keystone Common Stock. During 1996, Keystone
accrued an aggregate total of $343,500 in director compensation. Of this
amount, $146,000 was paid currently in cash or stock. The balance of $197,500
was deferred compensation, of which $39,500 will be paid in cash and $158,000
will be paid in stock.
Keystone's 1995 Non-Employee Directors' Stock Option Plan was approved
by the shareholders at the 1995 Annual Meeting. Its purposes are to promote the
long-term success of Keystone by creating a long-term mutuality of interests
between the non-employee directors and shareholders of Keystone, to provide
additional inducement for such directors to remain with Keystone and to assist
Keystone in attracting and retaining able persons to serve as outside directors.
This Plan replaces the 1990 Non-Employee Directors' Stock Option Plan which
expired following the January 1995 stock option grants.
Under the 1995 Plan, directors who are not employees of Keystone or a
subsidiary receive annual stock option grants to purchase up to 2,812 shares of
Keystone Common Stock at an option price equal to the market value on the date
the options are granted. The options are exercisable two years from the date of
grant, subject to acceleration in certain events involving an actual or
potential change in control of Keystone or retirement by the director. The
options expire 10 years from the date of grant. Reload options are granted if a
director exercises an option by paying the option price in shares of Keystone
Common Stock.
Named Officer Stock Ownership
Information concerning Mr. Campbell's beneficial ownership of Keystone
Common Stock is included in the table above under "Other Proposals for Keystone
Shareholders--Election of Keystone Directors" (Keystone Proposal No. 2). The
following table shows the beneficial ownership of Keystone Common Stock by the
other named officers as of December 31, 1996:
-56-
<PAGE>
<TABLE>
<CAPTION>
Keystone Shares Percent of Keystone
Name Beneficially Owned (1) Common Stock Outstanding
- ---- ---------------------- -------------------------
<S> <C> <C>
George H. Groves.......... 123,703 .33%
Mark L. Pulaski........... 130,279 .35%
Ben G. Rooke.............. 115,405 .31%
</TABLE>
(1) Shares beneficially owned include the following shares of Keystone Common
Stock which the named officers have the right to acquire under currently
exercisable stock options granted under Keystone's Stock Incentive Plans:
Mr. Groves, 84,777 shares; Mr. Pulaski, 92,008 shares; and Mr. Rooke, 84,926
shares. Also includes the following shares of Keystone Common Stock in
their 401(k) plan accounts for which they have the power to direct the
voting: Mr. Groves, 3,217; Mr. Pulaski, 3,095; and Mr. Rooke, 2,856.
Named Officer Employment Agreements
Keystone has entered into employment agreements with certain of its officers,
including its four executive named in the summary compensation table. The
employment agreements for the named officers, including the Chief Executive
Officer, are for rolling three-year terms (five years for the CEO) and provide
that the officer will continue to be employed for the term of the agreement at
not less than his current compensation unless sooner terminated for cause or by
reason of death, disability or retirement. If the named officer's employment is
terminated by Keystone without cause or by the officer for "good reason" as
defined in the agreement prior to its expiration, the officer is entitled to a
payment of one and one-half times (two times for the CEO) his highest annual
base salary within the last three years and to a continuation of employee
benefits for 18 months (24 months for the CEO). Under this scenario, currently,
each of the named officers would receive a payment as follows: Mr. Campbell,
$680,000; Mr. Groves, $405,000; Mr. Pulaski, $405,000; and Mr. Rooke, $292,500.
If the named officer voluntarily terminates his employment in certain
circumstances following a change in control of Keystone, the officer is entitled
to a payment of two and one-half times the sum of his highest annual base salary
within the last three years and his highest annual incentive award during the
last three years; a continuation of benefits for a period of twenty-four months;
a release of the premium repayment obligation under his split-dollar life
insurance agreement; and certain outplacement services. Under this scenario,
currently, each of the named officers would receive a payment as follows: Mr.
Campbell, $1,200,000, Mr. Groves, $857,250, Mr. Pulaski, $857,250; and Mr.
Rooke, $619,125.
In consideration of the agreements, each named officer agrees not to engage
in any business in competition with Keystone or its subsidiaries for a period of
one year following any termination of his employment, other than a termination
within two years after a change in control.
Retirement Plans
Keystone has a noncontributory retirement plan which covers substantially all
employees, as well as supplemental plans to pay on an unfunded basis to certain
management employees, including the named officers, benefits which would have
been payable under the principal retirement plan but for certain limitations
contained in the Internal Revenue Code or the decision of the officer to defer
compensation otherwise subject to the plan. The following table shows the
combined annual retirement benefits payable under these plans to participants,
including the named officers, in selected compensation and years of service
classifications:
-57-
<PAGE>
<TABLE>
<CAPTION>
5-Year Years of Service
Average ----------------------------------------------------------
Compensation 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
200,000 $ 31,208 $ 46,811 $ 62,415 $ 78,019 $ 93,623 $109,226
300,000 47,708 71,561 95,415 119,269 143,123 166,976
400,000 64,208 96,311 128,415 160,519 192,623 224,726
500,000 80,708 121,061 161,415 201,769 242,123 282,476
600,000 97,208 145,811 194,415 243,019 291,623 340,226
700,000 113,708 170,561 227,415 284,269 341,123 397,976
</TABLE>
The amounts shown in the table are straight-life annuity amounts, assuming
normal retirement at age 65 and no election of any available survivorship
option, and are not subject to offset for social security or other benefits
received by the participant. Benefits under the plans are based on the
participant's average compensation for the five highest years in the ten years
immediately preceding retirement, with compensation including substantially all
taxable and deferred compensation. The 1996 covered compensation for the named
officers and their years of credited service at December 31, 1996 are as
follows: Mr. Campbell, $478,838 (24 years); Mr. Groves, $341,047 (11 years); Mr.
Pulaski, $341,534 (13 years); and Mr. Rooke, $245,976 (15 years).
Certain Transactions
As described above in the Keystone Human Resources Committee Report under
"Other Executive Benefits," Keystone has made loans to its executive officers
under the Management Stock Ownership Program. The named officers received loans
in the following aggregate amounts: Mr. Campbell, $494,984; Mr. Groves,
$259,970; Mr. Pulaski, $259,980; and Mr. Rooke $189,999. The amounts represent
the largest outstanding amounts during 1996, and are also the current
outstanding balances as of February 24, 1997. No interest is charged on loans
made under this program, but interest is imputed to the officer and deductible
by Keystone for federal income tax purposes. The amounts of interest income
imputed to the named officers in 1996 in connection with loans under the program
are shown in the "All Other Compensation" column in the Summary Compensation
Table under "Keystone Executive Compensation" above.
Keystone's bank subsidiaries have made loans in the ordinary course of
business to certain directors and named officers of Keystone, including members
of their immediate families and corporations or other organizations in which
such persons have a beneficial interest of 10% or more or are associated as
officers, partners or trustees. Such loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the
normal risk of collectability or present other unfavorable features.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that directors and officers of
Keystone file reports with the SEC with respect to changes in their beneficial
ownership of Keystone Common Stock. Based solely upon a review of the copies of
such reports furnished to Keystone and written representations by certain
persons that reports on Form 5 were not required, Keystone believes that all
1996 Section 16(a) filing requirements applicable to its directors and officers
were complied with.
-58-
<PAGE>
KEYSTONE STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total returns
(assuming reinvestment of dividends) for the five years ended December 31, 1996
of $100 invested on December 31, 1991 in each of Keystone Common Stock, the CRSP
Total Return Index for the NASDAQ Stock Market (U. S. Companies) and the CRSP
Total Return Index for NASDAQ Bank Stocks.
Comparison of 5-Year Cumulative Total Return
Keystone Financial, Inc.
NASDAQ U.S. Stock Market & NASDAQ Bank Stocks
[Printed definitive copies will include here a line graph plotting the price
points shown in the following table:]
<TABLE>
<CAPTION>
Year Ended December 31 1991 1992 1993 1994 1995 1996
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
KEYSTONE $ 100 $ 131 $ 145 $ 144 $ 149 $ 195
- ------------------------------------------------------------------
NASDAQ U.S. $ 100 $ 116 $ 134 $ 131 $ 185 $ 227
Stock Market
- ------------------------------------------------------------------
NASDAQ $ 100 $ 146 $ 166 $ 165 $ 246 $ 326
Bank Stocks
- ------------------------------------------------------------------
</TABLE>
-59-
<PAGE>
5% BENEFICIAL OWNERS OF KEYSTONE COMMON STOCK
The voting and investment power over Keystone Common Stock by the
trust departments of Keystone's subsidiary banks is reported above under
"Introduction--Trust Department Shares." The following are the only other
persons known by Keystone to have or share voting and/or investment power over
more than 5% of the outstanding Keystone Common Stock:
<TABLE>
<CAPTION>
Amount and nature of
Name and address beneficial ownership of Percent of outstanding
of beneficial owner (1) Keystone Common Stock Keystone Common Stock
- ----------------------- ----------------------- ----------------------
<S> <C> <C>
The Capital Group Companies, Inc. 2,725,050 (2)(3) 7.3%
333 South Hope Street
Los Angeles, CA 90071
Capital Research and Management Company 1,990,050 (2)(4) 5.3%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
- ------------------------
(1) The information contained in the table and these footnotes is based on a
Schedule 13G dated February 12, 1997, which was filed by the above-named
companies with the Securities and Exchange Commission.
(2) The Capital Group Companies, Inc. ("CGC") is the parent holding company of a
group of investment management companies which includes Capital Research and
Management Company ("CRMC"). The shares reported as beneficially owned by
CGC include the shares reported as beneficially owned by CRMC.
(3) Of these shares, CGC reports that its subsidiaries, including CRMC, have
sole voting power 705,000 shares, no voting power over 2,020,050 shares and
sole dispositive power over 2,725,050 shares.
(4) CRMC reports that it has no voting power and sole dispositive power over the
1,990,050 shares.
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 Joint Proxy Statement/Prospectus:
1. Keystone's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. Keystone's Current Reports on Form 8-K dated January 20 and
January 28, 1997; 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 Joint Proxy
Statement/Prospectus and prior to the dates of the Keystone, FTC and FFWM
Shareholder Meetings shall be deemed to be incorporated by reference in this
Joint Proxy Statement/Prospectus and to be a part hereof from the date of the
filing of such documents.
Keystone, FTC or FFWM 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.
-60-
<PAGE>
INFORMATION CONCERNING FTC
Financial Trust Corp
SELECTED FINANCIAL DATA
The following unaudited table of selected financial data should be
read in conjunction with FTC's consolidated financial statements and the related
notes and with FTC's management's discussion and analysis of financial condition
and results of operations, incorporated herein by reference. See "FTC Documents
Incorporated by Reference."
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In Thousands, Except Per Share Amounts and Ratios)
<S> <C> <C> <C> <C> <C>
Operations:
Interest income.......................... $ 88,899 $ 82,855 $ 73,692 $ 70,648 $ 76,486
Interest expense......................... 36,543 34,196 27,679 26,698 34,214
---------- ---------- ---------- ---------- ----------
Net interest income...................... 52,356 48,659 46,013 43,950 42,272
Provision for loan losses................ 855 709 840 3,640 2,800
Noninterest income....................... 8,852 7,816 7,292 6,865 6,319
Noninterest expense...................... 33,686 31,496 30,610 28,031 25,991
Income tax expense....................... 6,636 6,135 5,426 5,182 4,780
Cumulative effect of accounting change... -- -- -- 373 --
---------- ---------- ---------- ---------- ----------
Net income............................... $ 20,031 $ 18,135 $ 16,429 $ 14,335 $ 15,020
========== ========== ========== ========== ==========
Pre-tax security gains, included in
above................................... $ 315 $ 472 $ 144 $ 38 $ 192
Per Share (1):
Net income before cumulative
effect of accounting change............. $ 2.35 $ 2.12 $ 1.92 $ 1.64 $ 1.77
Net income............................... 2.35 2.12 1.92 1.68 1.77
Cash dividends declared.................. 0.96 0.85 0.79 0.71 0.65
Dividend payout ratio.................... 40.63% 37.40% 37.72% 39.20% 34.61%
Average shares outstanding............... 8,529,233 8,542,257 8,542,923 8,533,175 8,509,146
Balances at Period End:
Loans.................................... $ 782,808 $ 731,150 $ 707,495 $ 665,012 $ 635,934
Allowance for loan losses................ 11,240 11,038 11,268 10,903 7,465
Total assets............................. 1,219,311 1,138,437 1,090,576 995,171 964,917
Deposits................................. 962,610 931,720 898,859 836,733 828,687
Long-term debt........................... 419 487 549 615 683
Shareholders' equity..................... 153,099 141,072 125,869 114,737 105,375
Book value per share (1)................. 17.94 16.52 14.74 13.43 12.36
Selected Ratios:
Return on average assets................. 1.70% 1.64% 1.53% 1.47% 1.60%
Return on average equity................. 14.01 13.81 13.52 13.13 15.10
Interest rate spread..................... 4.45 4.41 4.45 4.72 4.63
Net interest margin...................... 5.12 5.06 4.95 5.23 5.25
Equity to assets, average................ 12.14 11.85 11.35 11.20 10.57
Loans to deposits at period end.......... 81.32 78.47 78.71 78.40 76.74
Allowance for loan losses to loans at
period end.............................. 1.44 1.51 1.59 1.64 1.17
Nonperforming assets to loans and ORE.... 0.17 0.44 0.49 0.71 0.43
Loans 90 days past due and
still accruing to loans and ORE......... 0.32 0.25 0.33 0.27 0.21
Total risk elements to loans
and ORE at period end (2)............... 0.49 0.69 0.82 0.98 0.64
Risk-Adjusted Capital Ratios:
Leverage ratio........................... 11.64% 11.42% 10.70% 11.29% 10.82%
"Tier 1" capital ratio................... 18.79 18.54 17.51 17.61 16.44
"Total" capital ratio.................... 20.03 19.78 18.76 18.86 17.62
</TABLE>
- ------------------------
(1) FTC per share amounts have been restated to reflect a 10% stock dividend
in 1996.
(2) Total risk elements include nonperforming assets and loans past due 90
days or more.
-61-
<PAGE>
STOCK PRICES AND DIVIDENDS ON FTC COMMON STOCK
FTC Common Stock is traded in the over-the-counter market under the
symbol "FITC" and is listed in the NASDAQ National Market System. The following
table sets forth the high and low closing sales prices for FTC Common Stock for
the periods indicated, as reported by NASDAQ, and the cash dividends per share
declared on FTC Common Stock for such periods. The information contained in the
table has been adjusted to reflect a 10% stock dividend paid on the FTC Common
Stock in June 1996.
<TABLE>
<CAPTION>
Quarterly Closing Sales
Price Range Cash
----------------------- Dividends
High Low Declared
------------- -------- ---------
<S> <C> <C> <C>
1995
First Quarter........... $ 26.36 $ 24.32 $0.209
Second Quarter.......... 25.45 24.32 0.209
Third Quarter........... 26.82 24.32 0.209
Fourth Quarter.......... 28.64 26.14 0.227
------
$0.854
------
1996
First Quarter........... $ 28.18 $ 26.59 $ 0.23
Second Quarter.......... 29.25 27.27 0.23
Third Quarter........... 29.00 26.00 0.25
Fourth Quarter.......... 40.75 26.75 0.25
------
$ 0.96
------
1997
First Quarter (through
March 25, 1997)..... $44.625 $39.625 $ 0.25
</TABLE>
On December 19, 1996, the last NASDAQ trading day prior to the public
announcement of the FTC Merger, the closing sale price for FTC Common Stock was
$29.25. On March 25, 1997, the closing sale price for FTC Common Stock was
$43.625. On February 21, 1997, FTC had approximately 3,593 shareholders of
record. On March 21, 1997, the record date for the FTC Special Meeting,
8,532,131 shares of FTC Common Stock were outstanding.
-62-
<PAGE>
FTC DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by FTC with the SEC pursuant
to the Exchange Act (File No. 0-10756) are hereby incorporated by reference in
this Joint Proxy Statement/Prospectus:
1. FTC's Annual Report on Form 10-K for the year ended December
31, 1996; and
2. The description of the FTC Common Stock which is contained in
Amendment No. 2 to FTC's Registration Statement on Form S-4 (No.
33-91154) filed on July 6, 1995.
All documents filed by FTC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the dates
of the Shareholder Meetings are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus and shall be deemed a part hereof from the date of
the filing of such documents.
Keystone, FTC and FFWM shareholders who wish to obtain copies of the
FTC documents incorporated by reference herein may do so by following the
instructions under "Available Information" above.
-63-
<PAGE>
FFWM PLAN OF MERGER
This section of the Joint Proxy Statement/Prospectus describes certain
of the more important aspects of the FFWM Plan of Merger. The following
description does not purport to be complete and is qualified in its entirety by
reference to the FFWM Plan of Merger, which has been filed with the SEC as an
exhibit to the Registration Statement. The FFWM Plan of Merger is incorporated
in this Joint Proxy Statement/Prospectus by reference to such filing and is
available upon request. See "Available Information."
The FFWM Merger
The FFWM Plan of Merger provides for a merger of FFWM and Keystone in
which Keystone will be the surviving corporation. In the FFWM Merger, each of
the approximately 2,175,659 outstanding shares of FFWM Common Stock (other than
shares subject to dissenters' rights) will be converted into the right to
receive either 1.29 shares of Keystone Common Stock or an equivalent amount of
cash, as elected by the holder in the manner and subject to the limitations
described below. See "Elections by FFWM Shareholders," "Limitations on
Effectiveness of Elections" and "Conversion of FFWM Shares."
Keystone is a bank holding company with its principal executive
offices in Harrisburg, Pennsylvania. Its bank subsidiaries are American Trust
Bank, Cumberland, Maryland, Frankford Bank, N.A., Horsham, Pennsylvania;
Keystone National Bank, Lancaster, Pennsylvania; Mid-State Bank and Trust
Company, Altoona, Pennsylvania; Northern Central Bank, Williamsport,
Pennsylvania; and Pennsylvania National Bank and Trust Company, Pottsville,
Pennsylvania, which operate a combined total of 145 banking offices in central
and southeastern Pennsylvania, western Maryland and northeastern West Virginia.
It also has a number of nonbank subsidiaries and divisions which provide
services to Keystone and its customers, including brokerage, investment,
mortgage banking, leasing and insurance. See "Summary--The Parties--Keystone"
and "Keystone Documents Incorporated by Reference."
FFWM is a thrift holding company with its principal executive offices
in Cumberland, Maryland. Its principal subsidiary is First Federal Savings Bank
of Western Maryland ("First Federal"), which operates 10 banking offices in
Allegany, Garrett and Washington Counties in Western Maryland. See "Summary--
The Parties--FFWM" and "FFWM Documents Incorporated by Reference."
As a result of the FFWM Merger, Keystone will acquire all of the
assets and liabilities of FFWM, and FFWM will cease to exist as a separate
corporation. It is contemplated that contemporaneously with the FFWM Merger,
FFWM's subsidiary, First Federal, will be merged into American Trust Bank, one
of Keystone's bank subsidiaries (the "Bank Merger").
Background of the FFWM Merger
In May 1996, FFWM received a proposal from its largest shareholder
requesting that the Board of Directors take steps to achieve a sale or merger of
FFWM. Further, this shareholder later indicated his intention to nominate an
alternative slate for election to FFWM's Board of Directors at the Annual
Meeting of Shareholders, anticipated to be held in October 1996. Prior to this
time, management was not engaged in the process of evaluating the possible sale
of FFWM.
During mid-August 1996, management contacted the investment banking
firm of Alex. Brown & Sons Incorporated ("Alex. Brown") to discuss its possible
engagement to assist FFWM in evaluating alternatives to maximize shareholder
value. After discussions with management, Alex. Brown attended a meeting of
FFWM's Board of Directors on August 19, 1996 and following a presentation to the
Board, was engaged by FFWM as its financial advisor in order to assist the Board
in exploring and evaluating the various options available to FFWM to maximize
shareholder value, including the possible sale of FFWM. As disclosed in the
press release issued on the
-64-
<PAGE>
same day, the Board determined that it was appropriate to identify potential
acquirors and to pursue discussions with interested parties, although no
assurance was given that discussions would occur or, if discussions were to
occur, that they would result in an offer being made to FFWM or that the Board
would determine that any such offer, if received, would be in the best interest
of FFWM's shareholders. Management did not give any greater consideration to the
shareholder proposal than it did to all other factors taken into account when
evaluating the options available to maximize shareholder value.
Later in August 1996, Alex. Brown began the process of contacting 31
parties whom Alex. Brown believed might have an interest in acquiring FFWM. Of
this number, 18 parties signed confidentiality agreements and received copies of
a confidential offering memorandum. On September 10, 1996, Alex. Brown received
four preliminary indications of interest regarding the possible acquisition of
FFWM. Each of these four parties proceeded to conduct an extensive due
diligence review of FFWM's business, operations and financial condition. On
October 10, 1996 three parties submitted formal proposals regarding the possible
acquisition of FFWM.
On August 30, 1996, the shareholder proposal relating to the sale of
FFWM was formally withdrawn. FFWM's largest shareholder also decided not to
nominate an alternative slate in opposition to the Board's nominees for election
as directors of FFWM. To FFWM's knowledge, each of these actions occurred
without the benefit of any knowledge, other than from publicly available
information, concerning the above-described events.
During the remainder of October 1996, management, together with Alex.
Brown and legal counsel, evaluated the three proposals and continued to discuss
with each party the terms and conditions of their respective proposal. The
shareholder referred to above did not participate or have any role whatsoever
concerning the evaluation of these proposals.
At a meeting of FFWM's Board of Directors held on November 6, 1996,
management, as well as FFWM's legal counsel and Alex. Brown, reviewed the terms
and conditions of the three proposals, two of which, including the proposal from
Keystone, were viewed as the most potentially advantageous to FFWM's
shareholders. After a thorough review and discussion of the terms, conditions
and relative levels of risk associated with each of these proposals, the Board
determined to authorize management, with the assistance of Alex. Brown and legal
counsel, to negotiate a definitive agreement with the competing bidder and to
conduct due diligence on the competing bidder's business, operations and
financial condition. However, the Board specifically reserved its right, in the
exercise of its fiduciary obligations, to reevaluate these competing proposals
if there should be any significant change in the terms, conditions or relative
levels of risk associated with either or both of the proposals. Keystone was
informed by Alex. Brown of the Board's decision to proceed with the competing
bidder.
During the course of negotiations with the competing bidder, the
competing bidder introduced several issues which FFWM believed were not
customary in a transaction of this type. While the negotiations with the
competing bidder were in process, FFWM was contacted by Keystone and informed
that Keystone believed that it had satisfactorily addressed FFWM's stated
concerns with its proposal and was prepared to improve upon its proposal.
Management, together with Alex. Brown and legal counsel, verified Keystone's
representation that it had addressed FFWM's stated concerns with Keystone's
proposal. On or about November 20, 1996, Alex. Brown informed the competing
bidder that Keystone had, through its own actions, reemerged as a potential
acquiror and that management, upon the advice of Alex. Brown and legal counsel,
believed that it was obligated to present to FFWM's Board of Directors the
change in circumstances relating to the terms of both the competing bidder's
proposal and Keystone's proposal.
On November 22, 1996, FFWM's Board of Directors met and was informed
by management, together with Alex. Brown and legal counsel, of the then existing
terms, conditions and relative levels of risk associated with the proposals by
the competing bidder and Keystone. The Board of Directors was informed by
management that it believed Keystone's proposal was, from a financial point of
view, superior to the competing bidder's proposal. After a lengthy discussion,
and while not terminating negotiations with the competing bidder, the Board
determined to authorize management, with the assistance of Alex. Brown and legal
counsel, to negotiate a definitive agreement with Keystone. Management also
began conducting due diligence on Keystone's business, operations and financial
condition.
-65-
<PAGE>
Negotiation of a definitive agreement with Keystone was completed
promptly and at a meeting of FFWM's Board of Directors held on November 26,
1996, management of FFWM, together with Alex. Brown and legal counsel, reviewed
among other things, the terms of the proposed FFWM Merger, the terms of the FFWM
Plan of Merger and a summary of management' s due diligence findings. Based on
that review and consideration of the factors discussed herein, including the
written fairness opinion provided by Alex. Brown, FFWM's Board of Directors
unanimously approved and authorized the execution of the FFWM Plan of Merger.
Reasons for the FFWM Merger
FFWM. In reaching its determination that the FFWM Merger and the FFWM
Plan of Merger are fair to, and in the best interests of, FFWM and its
shareholders, FFWM's Board of Directors consulted with its financial advisor, as
well as with FFWM's management, and considered a number of factors, including,
without limitation, the following: (i) the Board of Directors' belief that the
terms of the FFWM Plan of Merger are attractive in that the FFWM Plan of Merger
allows FFWM's shareholders, subject to specified limitations, to choose whether
to accept cash or to become shareholders of Keystone, a company that the Board
of Directors believes has positive future prospects; (ii) the written opinion of
Alex. Brown that the consideration is fair to FFWM's shareholders from a
financial point of view, (iii) pro forma financial information on the FFWM
Merger, including, among other things, earnings per share, dilution analysis and
ratio impact information; (iv) the sustainability of core earnings by Keystone
and potential for growth; (v) the tax-free nature of the transaction to FFWM and
shareholders who receive solely shares of Keystone Common Stock in connection
with the FFWM Merger; (vi) historical stock price information for both Keystone
and FFWM; (vii) the Board's review, based on a presentation by FFWM's management
regarding FFWM's due diligence and its analysis of the business, operations,
management, earnings and financial condition of Keystone on both a historical
and a prospective basis, of (A) the enhanced opportunities for operating
efficiencies, particularly in terms of integration of operations and support
functions such as product development, asset-liability management, marketing,
data processing, loan review and finance and accounting, that could result from
the FFWM Merger and (B) the enhanced opportunities for growth that the FFWM
Merger would make possible, particularly the ability to access the managerial
and other resources of Keystone in designing future products and services that
FFWM does not now offer and in responding to changing competitive, technological
and regulatory environments; (viii) the Board's belief that the combined
enterprise, having a greater size and greater resources than FFWM, could offer
FFWM's customers a broader range of products and services than FFWM presently
offers as an independent entity; (ix) the Board's review of alternatives to the
FFWM Merger (including the alternatives of remaining independent and growing
internally, remaining independent for a period of time and then selling FFWM and
remaining independent and growing through future acquisitions), including the
range of possible values to FFWM's shareholders obtainable through
implementation of such alternatives and the timing and likelihood of actually
receiving such values; (x) the Board's review of the competing proposals, as
discussed above; (xi) the Board's review of multiples of book value, earnings
per share and market price to be paid by Keystone and paid by other acquirors in
other comparable recent acquisitions of savings banks and thrifts; and (xii) the
current and prospective economic environment and competitive constraints facing
financial institutions, including FFWM and Keystone.
Keystone. Through the merger of FFWM's subsidiary, First Federal,
with Keystone's subsidiary, American Trust Bank, Keystone seeks to increase
American Trust Bank's market penetration in the areas currently served by both
banks and to extend American Trust Bank's market geographically. American Trust
Bank has offices in Allegany and Garret Counties in Maryland and Mineral County,
West Virginia. First Federal has eight offices in Allegany County, one office
in Garrett County, and one office in Washington County, Maryland. At September
30, 1996, First Federal had total assets of $346 million and deposits of $281
million. Of First Federal's total assets, approximately 66% consist of consumer
loans and residential mortgages. Keystone hopes following the merger to retain
First Federal's depositors and consumer borrowers and thereby significantly
increase its retail customer base. In turn, American Trust Bank will have the
opportunity to increase its earnings by expanding banking relationships with its
new customers by offering them products and services not presently offered by
First Federal. Keystone believes that the merger may enable it to realize cost
efficiencies at the same time that it expands its customer base. Finally, the
merger will enable American Trust Bank to expand its market
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geographically, both in the counties in which both banks have offices and into
the city of Hagerstown, in Washington County, Maryland, where First Federal
currently has an office, but American Trust Bank does not.
Required Vote; Management Recommendation
Approval of the FFWM Plan of Merger requires the affirmative vote of
the holders of a majority of the outstanding shares of FFWM Common Stock.
Because approval requires the affirmative vote of a majority of all outstanding
FFWM shares, an abstention or a broker non-vote will have the same legal effect
as a vote against approval of the FFWM Plan of Merger. THE BOARD OF DIRECTORS
OF FFWM UNANIMOUSLY RECOMMENDS THAT FFWM SHAREHOLDERS VOTE "FOR" APPROVAL OF THE
PLAN OF MERGER.
The Board of Directors of Keystone has approved the FFWM Plan of
Merger, and under the Pennsylvania Business Corporation Law no approval of the
FFWM Plan of Merger by the shareholders of Keystone is required.
Voting Agreements
In connection with the FFWM Plan of Merger, the directors of FFWM have
entered into agreements to vote certain shares of FFWM Common Stock beneficially
owned by them in favor of the FFWM Merger. The directors of FFWM have agreed
with Keystone that they will vote in favor of the FFWM Merger all shares of FFWM
Common Stock owned by them as individuals or (to the extent of their
proportionate interest) jointly with other persons, and that they will use their
best efforts to cause any other shares of FFWM Common Stock over which they have
or share voting power to be voted in favor of the FFWM Merger. In the
aggregate, these agreements commit 141,309 shares of FFWM Common Stock (6.5%
of the outstanding shares) to be voted in favor of the FFWM Merger.
The agreements further provide that with respect to shares of FFWM
Common Stock owned by the directors as individuals or (to the extent of the
director's proportionate interest) jointly with other persons (collectively,
"Shares"), the directors will not until the FFWM Merger has been consummated or
the FFWM 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 acquiring control of FFWM or First Federal 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 FFWM or First Federal or
(iii) for the principal purpose of avoiding the director's obligations under the
agreement. The agreements define "control" as the ability to direct (1) the
voting of 10% or more of the shares eligible to vote in an election of directors
or (2) the management and policies of FFWM or First Federal.
The agreements are applicable to the directors only in their
capacities as shareholders and do not affect the exercise of their
responsibilities as directors or officers. The agreements also do not apply to
any shares of FFWM Common Stock held by a director as a trustee or other
fiduciary. No monetary or other compensation was paid to any FFWM 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.
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Opinion of FFWM Financial Advisor
FFWM retained Alex. Brown to act as FFWM's financial advisor in
connection with the FFWM Merger and related matters. Alex. Brown was selected
to act as FFWM's financial advisor based upon its qualifications, expertise and
reputation, as well as Alex. Brown's prior investment banking relationship and
familiarity with FFWM. Alex. Brown regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly owned companies in that industry.
On November 26, 1996, at the meeting at which the FFWM Board approved
and adopted the FFWM Plan of Merger, Alex. Brown delivered a written opinion to
the FFWM Board of Directors that, as of such date, the Total Consideration
(defined below) to be received by the shareholders of FFWM, was fair to the
shareholders of FFWM from a financial point of view (the "Opinion"). Pursuant
to the Agreement, each share of FFWM common stock issued and outstanding
immediately prior to the effective time of the merger with Keystone will be
converted into the right to receive, at the election of the holder thereof,
either (i) 1.29 shares (the "Exchange Ratio") of common stock of Keystone or
(ii) an amount in cash equal to the Exchange Ratio multiplied by Keystone's
average closing bid price for the 20 consecutive trading days preceding the
sixth trading day prior to the closing date. The total consideration ("Total
Consideration") shall mean the sum of the stock election described under (i),
which will equal approximately 60% of the Total Consideration, and the cash
election described under (ii), which will equal approximately 40% of the Total
Consideration. No limitations were imposed by the FFWM Board of Directors upon
Alex. Brown with respect to the investigations made or procedures followed by it
in rendering the Opinion.
The full text of the Opinion, which sets forth assumptions made,
matters considered and limits on the review undertaken, is attached hereto as
Annex III and is incorporated herein by reference. FFWM shareholders are urged
to read the Opinion in its entirety. The following summary of the Opinion is
qualified in its entirety by reference to the full text of the Opinion.
In rendering the Opinion, Alex. Brown (i) reviewed the FFWM Plan of
Merger, certain publicly available business and financial information concerning
FFWM and Keystone, and certain internal financial analyses and forecasts for
FFWM and Keystone prepared by their respective managements; (ii) held
discussions with members of senior management of FFWM and Keystone regarding the
past and current business operations, financial condition, and future prospects
of their organizations; (iii) reviewed the reported price and trading activity
for FFWM Common Stock and Keystone Common Stock and compared certain financial
and stock market information for each of FFWM and Keystone with similar
information for certain other financial institutions, the securities of which
are publicly traded; (iv) reviewed the financial terms of certain recent
business combinations in the financial institutions industry which Alex. Brown
deemed comparable in whole or in part; and (v) performed such other studies and
analyses as Alex. Brown considered appropriate.
Alex. Brown 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 the financial
forecasts reviewed by Alex. Brown in rendering its Opinion, Alex. Brown assumed
that such financial forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of each of FFWM and Keystone as to the future financial performance of FFWM and
Keystone. Alex. Brown did not make an independent evaluation or appraisal of
the assets or liabilities of FFWM or Keystone, nor was it furnished with any
such appraisal.
The summary set forth below does not purport to be a complete
description of the analyses performed by Alex. Brown in this regard. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Accordingly, notwithstanding
the separate factors discussed below, Alex. Brown believes that its analyses
must be considered as a whole and that selecting portions of its analyses and of
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. No one of the analyses performed by Alex. Brown was assigned a greater
significance than any other. In performing its analyses, Alex. Brown made
numerous assumptions with respect to industry performance, business and economic
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conditions and other matters, many of which are beyond FFWM's or Keystone's
control. The analyses performed by Alex. Brown are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Analysis of Selected Publicly Traded Companies. In preparing the
Opinion, Alex. Brown, using publicly available information, compared selected
financial information, including book value, tangible book value, latest twelve
months ("LTM") earnings, 1996 estimated earnings, 1997 estimated earnings, asset
quality ratios and loan loss reserve levels, for FFWM and its peer group of
savings bank organizations.
The peer group was comprised of savings banks located in Maryland,
Virginia and West Virginia that possessed asset bases between $100 million and
$500 million ("Peer Group"). The Peer Group included American National Bancorp
(ANBK), Bedford Bancshares, Inc. (BFSB), Community Financial Corp. (CFFC),
Equitable Federal Savings Bank (EQSB), Essex Bancorp, Inc. (ESX), Fed One
Bancorp (FOBC), Guaranty Financial Corp. (GSLC), Harbor Federal Bancorp, Inc.
(HRBF), and Washington Savings Bank, FSB (WSB). As of November 25, 1996, the
relative multiples implied by the market price of FFWM's Common Stock and the
mean market price of the common stock of the Peer Group to such selected
financial data were: to LTM earnings 15.2x for FFWM and 11.2x for the Peer
Group; to 1996 I/B/E/S (Institutional Brokerage Estimation Service) estimated
earnings per share, 14.2x for FFWM and 11.8x for the Peer Group; to 1997 I/B/E/S
estimated earnings per share, 13.7x for FFWM and 11.5x for the Peer Group; to
stated book value, 146% for FFWM and 104% for the Peer Group; to tangible book
value, 146% for FFWM and 104% for the Peer Group; and to total assets, 17.1% for
FFWM and 9.8% for the Peer Group.
Analysis of Selected Acquisition Transactions. In preparing the
Opinion, Alex. Brown analyzed certain selected merger and acquisition
transactions for savings banks based upon the acquisition price relative to
stated book value, normalized book value (which assumes normalized book multiple
is paid for all equity up to 8.0% of assets and then dollar-for-dollar for all
additional equity), tangible book value, LTM earnings, total assets and the
premiums to core deposits and market price. The market price premium is
measured against the market price of the common stock one month prior to the
acquisition announcement. The analysis included a review and comparison of the
mean multiples represented by a sample of recently effected or pending savings
bank acquisitions nationwide having a transaction value greater than $20 million
and less than $100 million which were announced since January 1, 1995 (a total
of 59 transactions) ("National Transactions"), as segmented into: (i)
transactions in which the selling savings bank was headquartered in the Mid-
Atlantic Region (15) ("Regional Transactions"); (ii) transactions in which the
selling savings bank achieved a return on average assets ("ROAA") between 0.80%
and 1.20% in the year of its announced acquisition (26) ("Profitability-
Segmented Transactions"); and (iii) transactions in which the selling savings
bank had a tangible equity to assets ratio greater than 10.0% (27) ("Capital-
Segmented Transactions").
The relative multiples implied by the Total Consideration ($34.19
implied per share value to FFWM shareholders as of November 25, 1996) and each
of the selected acquisition transaction segmentations, respectively, are
provided in the following table:
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<TABLE>
<CAPTION>
Purchase Price to:
--------------------------------------------- Core
Book Norm. Bk Tang. Bk. LTM Deposits Market
Value Value Value EPS Assets Premium Premium
------ --------- ---------- ----- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consideration ($34.19 per share)....... 180.5% 221.5% 180.5% 18.8x 21.8% 13.1% 22.1%
Comparable Acquisition Transactions:
(a) Nationwide - Mean................. 146.5% 169.1% 149.1% 16.4x 16.3% 7.6% 30.3%
High......................... 202.0% 263.6% 202.2% 23.3x 34.0% 17.7% 86.3%
Low.......................... 110.0% 110.0% 110.0% 8.5x 6.3% 1.5% -3.8%
(b) Regional Transactions - Mean...... 153.2% 184.8% 155.0% 16.5x 19.2% 10.3% 31.8%
High......................... 202.0% 250.8% 202.2% 21.8x 29.5% 17.4% 86.3%
Low.......................... 110.8% 115.1% 126.4% 8.9x 9.2% 3.3% -1.5%
(c) Profitability-Segmented - Mean.... 153.0% 177.7% 153.9% 15.9x 18.2% 8.7% 31.2%
High......................... 202.0% 263.6% 202.2% 21.8x 34.0% 17.7% 86.3%
Low.......................... 110.5% 141.0% 110.5% 8.5x 8.1% 4.2% -1.5%
(d) Capital-Segmented - Mean.......... 140.6% 180.0% 141.5% 18.3x 21.8% 9.3% 24.2%
High......................... 198.3% 263.6% 198.3% 21.8x 34.0% 17.7% 57.6%
Low.......................... 110.0% 129.8% 110.0% 12.1x 13.9% 3.5% -3.8%
</TABLE>
Contribution Analysis. Alex. Brown also determined the contribution by FFWM
of key historical balance sheet items (including assets, loans and deposits) and
selected historical income statement items (including latest twelve months net
interest income and net income) to the resulting pro forma entity, as compared
to the implied value contributed by Keystone in stock and cash that was received
by current FFWM shareholders in aggregate as a result of the acquisition (as of
the exchange ratio on November 26, 1996).
The relative levels of contribution by FFWM in these selected areas and the
implied value contributed by Keystone in stock and cash received by current FFWM
shareholders, in aggregate, are presented in the following table:
<TABLE>
<CAPTION>
FFWM
Balance Sheet Items Contribution
- ------------------- -------------
<S> <C>
Assets............................. 6.2%
Loans.............................. 7.2%
Deposits........................... 6.4%
Net Income Items
- ----------------
LTM Net Interest Income............ 6.8%
LTM Net Income..................... 5.6%
Implied Value Contributed in Stock and
Cash by Keystone....................... 7.2%
</TABLE>
Impact on FFWM Shareholders. Based on the fixed exchange ratio that
FFWM shareholders could receive as part of the FFWM Plan of Merger, Alex. Brown
was able to determine the expected effect of the transaction to the current
shareholders of FFWM Common Stock. The pro forma values listed in the table
below and their resulting implications to current FFWM shareholders are based on
historical and projected Keystone and FFWM financials; the 1997 estimated
earnings per share figures also assume Keystone can recognize 40% pre-tax
expense savings relating to the FFWM Merger. As such the values listed in the
table below are not necessarily indicative of actual values, which may be
significantly more or less than such estimates.
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<TABLE>
<CAPTION>
FFWM FFWM
Stand-Alone Pro Forma
----------- ----------
<S> <C> <C>
1997 Estimated EPS......... $ 2.03 $ 2.59
Percent Change........ 28%
Book Value per Share....... $18.94 $17.72
Percent Change........ -3%
Dividends per Share........ $ 0.48 $ 1.24
Percent Change........ 158%
</TABLE>
Discounted Dividend Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that FFWM could
produce over a five-year period, under different assumptions as if FFWM
performed in accordance with management's forecasts and certain variants
thereof. Alex. Brown also estimated the terminal value for FFWM's common equity
after the five-year period by applying earnings acquisition multiples (14.0 -
18.0 times) currently being received by savings bank institutions with similar
profitability ratios as FFWM is projected to have during its calendar year
ending December 31, 2001. The range of multiples used reflected a variety of
scenarios regarding the growth and profitability prospects of FFWM. The
dividend streams and terminal values were then discounted to present values
using discount rates ranging from 11.0% to 15.0%, which reflect different
assumptions regarding the required rates of return of holders or prospective
buyers of FFWM's common equity.
Reference Range. Based in part on the several analyses discussed above,
Alex. Brown developed, for purposes of its Opinion, a reference range for the
value of FFWM common equity of $26.50 to $34.50 per share of FFWM Common Stock.
The values reflected in the foregoing reference range were considered along with
the other analyses performed by Alex. Brown and were not intended to represent
the price at which 100% of FFWM Common Stock could actually be sold. The
foregoing reference ranges were based in part on the application of economic and
financial models and are not necessarily indicative of actual values; which may
be significantly more or less than such estimates. The reference ranges do not
purport to be appraisals.
Compensation of Financial Advisor. Pursuant to the terms of an engagement
letter dated August 19, 1996, FFWM has agreed to pay Alex. Brown a fee of 1.0%
of the aggregate consideration received by FFWM shareholders in the FFWM Merger.
This fee is payable to Alex. Brown upon consummation of the FFWM Merger, and is
estimated to be approximately $750,000, assuming that the per share
consideration paid to FFWM shareholders is $34.19 at the consummation of the
FFWM Merger. Whether or not the FFWM Merger is consummated, FFWM also has
agreed to pay all of Alex. Brown's out-of-pocket expenses, including fees and
disbursements of counsel, incurred by Alex. Brown in carrying out its duties
under its engagement, and to indemnify Alex. Brown and certain related persons
against certain liabilities relating to or arising out of its engagement.
Elections by FFWM Shareholders
Pursuant to the FFWM Plan of Merger, each holder of record of FFWM
Common Stock may elect to receive, in exchange for each share of FFWM Common
Stock held of record by such holder, either solely (1) 1.29 shares of Keystone
Common Stock (the "Stock Election") or (2) an amount in cash equal to 1.29 times
the average of the closing bid prices for the Keystone Common Stock on the
NASDAQ National Market System for the 20 trading days ending with the sixth
trading day immediately preceding the closing date for the FFWM Merger (the
"Cash Election").
No Partial Elections. Except as discussed below with respect to
nominee holders, each FFWM shareholder will be required to make the same
Election (either solely the Stock Election or solely the Cash Election) for all
shares of FFWM Common Stock held of record by such holder, whether such shares
are held in a single or in multiple shareholder accounts. For purposes of the
FFWM Plan of Merger, a person holding shares of
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record individually will be treated as a separate holder from the same person
holding shares of record jointly with another person or in a fiduciary capacity.
Manner of Election. Included with the mailing of this Joint Proxy
Statement/Prospectus as sent to each FFWM shareholder of record on the record
date for the FFWM Special Meeting is a Form of Election on which such
shareholders may designate either the Stock Election or the Cash Election.
Persons who become FFWM shareholders of record after the record date for the
FFWM Special Meeting may obtain a Form of Election by writing to First Financial
Corporation of Western Maryland, 118 Baltimore Street, Cumberland, Maryland
21502, Attention: William C. Marsh, Executive Vice President and Chief
Financial Officer.
To be effective, a Form of Election (or a facsimile thereof), properly
completed and signed, must be received by FFWM at the above address not later
than 10:00 a.m., local time, on May 8, 1997 (the "Election Deadline"). Any FFWM
shareholder whose Form of Election is not received prior to the Election
Deadline will be deemed to have made either the Stock Election or the Cash
Election, as determined by Keystone in order to satisfy the Minimum Stock and
Maximum Stock Limitations described below. See "Limitations on Effectiveness of
Elections."
Revocability of Elections. Any FFWM shareholder who has submitted a
Form of Election may change it by submitting a revised Form of Election (or a
facsimile thereof) which is received by FFWM prior to the Election Deadline. In
the event multiple Forms of Election are submitted by the same shareholder, the
latest dated Form of Election will control.
Upon the Election Deadline, Elections will become irrevocable except
to the extent that changes are permitted, in the discretion of Keystone, to
satisfy the Minimum Stock and Maximum Stock Limitations described below. See
"Limitations on Effectiveness of Elections." In the event any shares of FFWM
Common Stock are transferred after an Election has been made (or is deemed to
have been made), the transferee of such shares will be bound by such Election
unless a revised Form of Election (or a facsimile thereof) is received by FFWM
prior to the Election Deadline.
Nominee Holders. A holder of record of FFWM Common Stock who is a
nominee only may submit one or more Forms of Election designating a combination
of Elections, provided that such holder certifies to the satisfaction of
Keystone that such shares are held as a nominee for more than one beneficial
owner and that either solely the Stock Election or solely the Cash Election has
been made with respect to all shares held as nominee for any one beneficial
owner. Each beneficial owner for which such a Form of Election is submitted
will be treated as a separate holder of FFWM Common Stock for the purpose of the
Minimum Stock and Maximum Stock Limitations described below.
Limitations on Effectiveness of Elections
The effectiveness of any Election made by an FFWM shareholder as
described above is subject to the following limitations:
(1) Minimum Stock Limitation. The aggregate market value on the
day prior to the FFWM Merger of all whole shares of Keystone Common Stock
to be issued pursuant to the Stock Election (the "Stock Value") must be at
least equal to 55% of the Total Consideration (defined below) payable to
FFWM shareholders in connection with the FFWM Merger; and
(2) Maximum Stock Limitation. The Stock Value may not exceed
60% (or such greater percentage as Keystone in its sole discretion may
determine to permit) of the Total Consideration except as necessary to
assure that either solely the Stock Election or solely the Cash Election
shall be in effect for each holder of FFWM Common Stock.
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For purposes of these limitations, the "Total Consideration" payable
to FFWM Shareholders in connection with the FFWM Merger is defined as the sum of
(1) the Stock Value plus (2) the aggregate amount of cash which may be payable
by Keystone (i) to FFWM shareholders making the Cash Election, (ii) in lieu of
fractional shares of Keystone Common Stock to FFWM shareholders making the Stock
Election (see "Conversion of FFWM Shares" below) and (iii) to FFWM shareholders
who may perfect their rights as dissenting shareholders, as determined by
Keystone as of the effective date of the FFWM Merger (see "Dissenters' Rights of
FFWM Shareholders" below).
In applying these limitations, Keystone will first treat any holders
of FFWM Common Stock who have not submitted a timely Form of Election ("non-
electing holders") as having made either the Stock Election as necessary to
satisfy the Minimum Stock Limitation or the Cash Election as necessary to
satisfy the Maximum Stock Limitation.
If after allocating all non-electing holders to the Stock Election,
Keystone determines that giving effect to all Cash Elections made by FFWM
shareholders would result in the Minimum Stock Limitation not being met, the
Cash Elections made by the FFWM shareholders holding the smallest numbers of
shares of FFWM Common Stock will automatically be converted to the Stock
Election in the order of their holdings of FFWM Common Stock, so that the holder
of the smallest number of shares will be converted first, the holder of the
second smallest number of shares will be converted second, and so on, until the
Minimum Stock Limitation is satisfied.
If after allocating all non-electing holders to the Cash Election,
Keystone determines that giving effect to all Stock Elections made by FFWM
shareholders would result in the Maximum Stock Limitation being exceeded, the
Stock Elections made by the FFWM shareholders holding the smallest numbers of
shares of FFWM Common Stock will automatically be converted to the Cash Election
in the order of their holdings of FFWM Common Stock, in the same manner as
described in the immediately preceding paragraph, until the Maximum Stock
Limitation is satisfied.
Additional Procedures and Determinations
Keystone has the right to establish additional procedures and to make
reasonable determinations not inconsistent with the FFWM Plan of Merger
governing any matters in connection therewith, including procedures and
determinations as to the manner, form and validity of Elections, the necessity
for, manner and extent of conversions of Elections resulting from the Minimum
Stock and Maximum Stock Limitations and the ranking of holders of FFWM Common
Stock for purposes of such conversions.
Conversion of FFWM Shares
On the effective date of the FFWM Merger, (1) each share of FFWM
Common Stock held by an FFWM shareholder who has made or is deemed to have made
the Stock Election will be converted into the right to receive 1.29 shares of
Keystone Common Stock, and (2) each share of FFWM Common Stock held by an FFWM
shareholder who has made or is deemed to have made the Cash Election will be
converted into the right to receive an amount in cash equal to 1.29 times the
average of the closing bid prices for the Keystone Common Stock on the NASDAQ
National Market System for the 20 trading days ending with the sixth trading day
immediately preceding the closing date for the FFWM Merger (the "Average
Keystone Price"). On March 25, 1997, the closing bid price for Keystone Common
Stock reported on the NASDAQ National Market System was $27.125.
Surrender of Certificates. As promptly as practicable after the
effective date of the FFWM Merger, Keystone will send to each shareholder of
record of FFWM immediately prior to the FFWM Merger a letter of transmittal
containing instructions on how to effect the exchange of FFWM Common Stock
certificates for certificates representing the shares of Keystone Common Stock
or for the cash into which their FFWM shares have been converted. FFWM
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.
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No interest will accrue or be payable in respect of any cash payable
on surrender for exchange of FFWM Common Stock certificates, and no such cash
will be paid or Keystone Common Stock certificates issued to any former FFWM
shareholder until such shareholder's FFWM Common Stock certificates are
surrendered for exchange as provided in the letter of transmittal.
Any dividends declared on Keystone Common Stock after the effective
date of the FFWM Merger will apply to all whole shares of Keystone Common Stock
into which shares of FFWM Common Stock have been converted in the FFWM Merger
under the Stock Election. However, no former FFWM shareholder will be entitled
to receive any such dividend until such shareholder's FFWM Common Stock
certificates have been surrendered for exchange as provided in the letter of
transmittal. Upon such surrender the former FFWM shareholder will be entitled
to receive all such dividends payable on the 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 FFWM Merger. If the FFWM
Common Stock certificates surrendered for exchange by an FFWM shareholder would
otherwise entitle the shareholder to a fraction of a share of Keystone Common
Stock, the FFWM shareholder will receive (1) a certificate for the whole shares
of Keystone Common Stock represented by the surrendered FFWM certificates and
(2) cash for the fractional share computed by multiplying $26.50 by the fraction
of a Keystone share. For example, if an FFWM shareholder holds 50 shares of
FFWM Common Stock, then under the FFWM Merger exchange ratio of 1.29, the
shareholder would be entitled to 64.5 shares of Keystone Common Stock (50 x 1.29
= 64.5). In this event, upon surrender of the certificate for 50 shares of FFWM
Common Stock the shareholder would receive a certificate for 64 shares of
Keystone Common Stock and a check for $13.25 ($26.50 x 0.5) as payment for the
fractional share.
Unexchanged Certificates. On the effective date of the FFWM Merger,
the stock transfer books for FFWM Common Stock will be closed, and no further
transfers of FFWM Common Stock will be made or recognized. Certificates for
FFWM Common Stock not surrendered for exchange will entitle the holder only to
receive, upon surrender as provided in the letter of transmittal, either (1) a
certificate for the whole shares of Keystone Common Stock into which the shares
represented thereby have been converted under the Stock Election, plus payment
of any amount for a fractional share or dividends to which such holder is
entitled as outlined above, or (2) the cash into which the shares represented
thereby have been converted under the Cash Election.
If the FFWM Merger becomes effective and any former FFWM shareholder
who makes or is deemed to have made the Stock Election does not surrender his or
her FFWM Common Stock certificates for exchange on or before the second
anniversary of the effective date, 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 FFWM Common Stock certificates,
the net proceeds of the sale, after deducting any fees, commissions, legal and
accounting fees or other expenses incurred by Keystone in making the sale. Such
net proceeds will be paid 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
FFWM Common Stock--Keystone Shareholder Rights Plan") shall have occurred prior
to the effective date of the FFWM Merger, then each share of Keystone Common
Stock issued in the FFWM 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 FFWM Merger that Keystone take one of the actions set
forth under "Conditions to the FFWM Merger" below.
Adjustment of Exchange Ratio. The FFWM Plan of Merger contains
provisions for the proportionate adjustment of the exchange ratio to be used for
converting FFWM Common Stock into Keystone Common Stock or cash in the FFWM
Merger if a stock dividend, stock split, reclassification or similar event
involving the Keystone
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Common Stock or the FFWM Common Stock occurs prior to the FFWM Merger. The
exchange ratio of 1.29 shares of Keystone Common Stock for each share of FFWM
Common Stock, as the same may be adjusted pursuant to such provisions, is
sometimes referred to below as the "Exchange Ratio."
Tax Consequences to FFWM Shareholders
Federal Tax Opinion. The FFWM Plan of Merger requires as a condition
to the FFWM Merger that Keystone and FFWM receive a written opinion of the law
firm of Reed Smith Shaw & McClay, Pittsburgh, Pennsylvania, counsel for Keystone
in connection with the FFWM Merger, to the effect that for purposes of federal
income tax:
(1) The FFWM Merger will constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code");
(2) Except for cash received in lieu of fractional shares, no
income, gain or loss will be recognized by the shareholders of FFWM who
receive solely Keystone Common Stock on the exchange of their shares of
FFWM Common Stock;
(3) The basis of shares of Keystone Common Stock to be received
by shareholders of FFWM will be the same as the basis of the shares of FFWM
Common Stock exchanged therefor; and
(4) The holding period of the shares of Keystone Common Stock
received by shareholders of FFWM will include the period during which the
FFWM Common Stock exchanged therefor was held by the FFWM shareholder,
provided that the FFWM Common Stock was held as a capital asset at the
effective time of the FFWM Merger.
Stock Election. An FFWM shareholder who makes or is deemed to have
made the Stock Election will not recognize gain or loss for federal income tax
purposes on the exchange of his FFWM shares for full shares of Keystone Common
Stock. However, gain or loss will be recognized upon the receipt of cash in
lieu of a fractional share interest. To compute the amount, if any, of such
gain or loss, the cost or other basis of the FFWM 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 FFWM Common Stock was a capital asset in the hands of the
shareholder and the cash received was not essentially equivalent to a dividend.
If any shares of Keystone Common Stock received in the FFWM Merger are
subsequently sold, gain or loss on the sale should be computed by allocating the
cost or other basis of the FFWM Common Stock exchanged in the FFWM 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 FFWM Merger will
include the holding period for the shares of FFWM Common Stock exchanged in
determining, for example, whether any such gain or loss is a long-term or short-
term capital gain or loss.
Cash Election. Where an FFWM shareholder makes or is deemed to have
made the Cash Election and receives cash in exchange for FFWM Common Stock, the
cash will be treated as received by the shareholder as a distribution in
redemption of Keystone Common Stock that the shareholder would have received if
the shareholder had made the Stock Election, subject to the provisions and
limitations of Section 302 of the Code. Pursuant to Section 302, and assuming
that the FFWM Common Stock of such shareholder is a capital asset in the hands
of the shareholder, an FFWM shareholder who makes or is deemed to have made the
Cash Election will realize capital gain or loss on the exchange if (i) such
shareholder has no stock interest in Keystone following the FFWM Merger, (ii)
the exchange is substantially disproportionate with respect to such shareholder
or (iii) the exchange is not
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essentially equivalent to a dividend. For these purposes, an FFWM shareholder
will be considered to own stock of Keystone owned after the FFWM Merger by
certain related individuals or entities under the attribution of ownership rules
set forth in Section 318 of the Code as made applicable to Section 302 of the
Code. If none of (i), (ii) or (iii) above applies, an FFWM shareholder who makes
or is deemed to have made the Cash Election will be treated as though the
shareholder had received a dividend equal to the cash received, taxable as
ordinary income in the year in which the FFWM Merger occurs.
As indicated under the caption "Elections by FFWM Shareholders," each
FFWM shareholder must make the same Election for all shares of FFWM Common Stock
held in a particular capacity. If an FFWM shareholder holds FFWM Common Stock
in more than one capacity--for example, a husband holds 100 shares individually
and he and his wife hold 100 shares as tenants by the entireties--the same
Election should be made for all such holdings. If the same Election is not
made, FFWM shareholder may be subject to Section 356 of the Code. Pursuant to
Section 356, the cash received may under certain circumstances be treated as a
dividend, taxable as ordinary income in the year in which the FFWM Merger
occurs.
Dissenting Shareholders. Where an FFWM shareholder exercises
dissenters' rights and receives cash in exchange for FFWM Common Stock, the cash
will be treated as received by the shareholder as a distribution in redemption
of the FFWM Common Stock subject to the provisions and limitations of Section
302 of the Code. The cash received by a dissenting FFWM shareholder will be
treated as if the shares had been sold to FFWM 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 FFWM shareholder should consult with his own personal tax
advisor as to the federal, state and local tax consequences of exercising
dissenters' rights.
Maryland Personal Income Tax. For FFWM shareholders who are subject
to the Maryland personal income tax, the Maryland state income tax consequences
of receiving Keystone Common Stock and cash in lieu of fractional shares
pursuant to the Stock Election, cash pursuant to the Cash Election, or cash as a
dissenting shareholder are the same as they are under the Code for federal
income tax purposes, as described above.
The foregoing is intended only as a summary of certain federal income
tax and Maryland personal income tax consequences of the FFWM 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 FFWM Merger. Among other
things, the summary does not address state income tax consequences in states
other than Maryland, local taxes, or the federal or state income tax
considerations that may affect the treatment of a shareholder who acquired FFWM
Common Stock pursuant to an employee stock option. Accordingly, it is
recommended that FFWM 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 FFWM
Merger.
Boards of Directors Following the FFWM Merger
The FFWM Merger will not result in any changes in the membership of
the Board of Directors of Keystone. However, at the time the FFWM Merger
becomes effective, Cheston H. Browning, III and Marc E. Zanger, both currently
directors of FFWM, along with one other FFWM director selected by Keystone will
be added to the Board of Directors of American Trust Bank, which presently
consists of 12 directors.
Interests of Certain Persons in the Transaction
Advisory Fees for FFWM Directors. Keystone has agreed in the FFWM
Plan of Merger that, in consideration of their being available for reasonable
advisory services during the one-year period following
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consummation of the FFWM Merger, Keystone will pay to each current director of
FFWM who remains a director until immediately prior to the FFWM Merger an amount
equal to the fees that such director received from FFWM during the one-year
period preceding the FFWM Merger, including retainer fees and fees for
attendance at Board of Directors and Board committee meetings. The amount paid
to any FFWM director who becomes a member of the Board of Directors of American
Trust Bank will be reduced by the amount of fees paid to the director for
service in that capacity.
Each director of FFWM receives a retainer of $200 each month so long as the
director's rate of attendance at meetings of the Board of Directors exceeds 75%
during the immediately preceding twelve-month period. Directors receive fees of
$500 and $100 for each meeting of the Board of Directors of First Federal and
subsidiaries thereof, respectively, attended and $50 for each committee meeting
of First Federal's Board attended. In the fiscal year ended June 30, 1996 fees
paid to FFWM directors ranged between $12,200 and $13,400 per director.
FFWM Executive Officer Severance Arrangements. FFWM and First Federal (the
"Employers") are parties to an Employment Agreement with Patrick J. Coyne,
Chairman, President and Chief Executive Officer of the Employers. The Employers
have also entered into Severance Agreements with the following Executive Vice
Presidents, Kenneth W. Andres, William C. Marsh and R. Craig Pugh. Each of
these agreements provide that in the event of a change of control, as defined in
the agreements, the respective executive officer shall be entitled to receive a
lump sum severance payment equal to three times (Mr. Coyne) or 2.99 times
(Messrs. Andres, Marsh and Pugh) his average annual compensation for the
preceding five years or, if employed for less than five years, such shorter
period of time. Consummation of the FFWM Plan of Merger will constitute a
change of control under the terms of each of the agreements. Further, the
employment of each of Messrs. Coyne, Andres, Marsh and Pugh will terminate
effective on the effective date of the FFWM Merger and none of these officers
will have any continuing employment with Keystone or American Trust Bank
following the effective date. Upon consummation of the FFWM Plan of Merger and
in satisfaction of the Employers' obligations under the terms of existing
employment, severance, stock option and incentive plan agreements, Messrs.
Coyne, Andres, Marsh and Pugh will receive pre-tax severance payments in the
amounts of $1,334,348, $421,827, $344,152 and $445,594, respectively. These
amounts are subject to reduction to the extent, if any, that the payments would
constitute "excess parachute payments" under Section 280G of the Internal
Revenue Code.
FFWM Directors' and Officers' Indemnification, Limitation of Liability
and Insurance. Keystone has agreed in the FFWM Plan of Merger that following
the FFWM Merger it will provide indemnification to any present or former
director, officer or employee of FFWM and its subsidiaries with respect to any
proceeding arising out of matters existing or occurring at or prior to the
effective time of the FFWM Merger to the fullest extent, if any, that such
person would have been entitled to indemnification by FFWM under FFWM's
certificate of incorporation and bylaws. The certificate of incorporation and
bylaws of FFWM generally require FFWM to indemnify its directors and officers,
and any person who was serving at the request of FFWM as a director, officer,
employee or agent of another corporation or enterprise, against expenses,
including attorneys' fees, liabilities, losses, judgments, fines and amounts
paid in settlement reasonably incurred in connection with any civil, criminal,
administrative or investigative proceeding in which such person is or is
threatened to be made a party is otherwise involved by reason of having served
in such capacity, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of FFWM, and, with
respect to any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Keystone has also agreed that the provision of FFWM's certificate of
incorporation which limits the liability of its directors shall survive the FFWM
Merger and continue in full force and effect with respect to liabilities arising
out of matters existing or occurring at or prior to the effective time of the
FFWM Merger. This provision provides that directors of FFWM shall not be liable
to the corporation or its shareholders for monetary damage for breach of
fiduciary duty as a director except for (i) a breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) the willful or negligent payment or making by the corporation of an
unlawful dividend, stock purchase or redemption or (iv) any transaction from
which the director derived an improper personal benefit.
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Finally, Keystone has agreed to maintain for three years following the
FFWM Merger FFWM's current directors' and officers' liability insurance policy
or a substantially equivalent policy covering FFWM's directors and officers for
acts or omissions occurring prior to the FFWM Merger, provided that if the
annual cost of such policy would exceed $20,590, then Keystone would only be
required to use its reasonable efforts to obtain as much comparable insurance as
is available for that amount.
Cashout of FFWM Director and Officer Stock Options. Stock options for
11,115 shares of FFWM Common Stock are presently outstanding under FFWM's
Stock Option Incentive Plan at option prices equal to the fair market value of
such shares on the dates the options were granted. The FFWM Plan of Merger
provides that each of these options which remains outstanding and unexercised at
the time the FFWM Merger becomes effective will be converted into the right to
receive, for each share of FFWM Common Stock subject to the option, an amount in
cash equal to the excess of (1) the product of (a) the Exchange Ratio,
multiplied by (b) the Average Keystone Price, over (2) the exercise price of the
option.
Benefit Plans and Severance Arrangements for FFWM Employees. Keystone
has agreed that as soon as administratively practicable after the FFWM Merger,
it will take appropriate action so that employees of FFWM and its subsidiaries
will be entitled to participate in Keystone employee benefit plans of general
applicability and that until such action is taken FFWM's plans shall remain in
effect. No employee of FFWM or a subsidiary who becomes an employee of Keystone
or a subsidiary shall be excluded from coverage under Keystone's medical
insurance plans on the basis of a preexisting condition that was not also
excluded under FFWM's medical insurance plans, except to the extent that such
preexisting condition was excluded from coverage under FFWM's plans. For
purposes of determining eligibility to participate in and the vesting of
benefits under Keystone's employee benefit plans, but not for purposes of
benefit accrual, Keystone will recognize years of service with FFWM or a
subsidiary prior to the FFWM Merger.
The FFWM Plan of Merger provides that employees of FFWM and its
subsidiaries with at least one year of service prior to the FFWM Merger, other
than employees who are parties to an employment or severance agreement, shall be
eligible for benefits under Keystone's severance plan for employees. Under
Keystone's severance plan, as modified for FFWM employees by the FFWM Plan of
Merger, if within one year after the FFWM Merger the employment of such an
employee is involuntarily terminated through no fault of the employee, or
voluntarily terminated by the employee within 30 days after being transferred to
a location more than 35 commuting miles from the employee's current job
location, then, in the absence of certain disqualifying events, the employee
will generally be entitled to receive biweekly severance payments in an
aggregate amount equal to one week's base compensation for each year of service
up to a maximum of 26 weeks and to continuation of certain medical and life
insurance benefits during the period of severance payments. If an eligible FFWM
employee is offered a position with Keystone or a subsidiary at an annual base
compensation below that in effect immediately prior to the FFWM Merger, the
employee may elect either to accept the position at the reduced compensation or
to refuse the position and take severance benefits. Severance payments will be
offset by compensation received from subsequent employment during the period of
severance benefits.
Stock Option Agreement
In connection with the FFWM Plan of Merger, Keystone and FFWM have
entered into a Stock Option Agreement (the "Option Agreement") under which FFWM
has granted Keystone an option (the "Option") to purchase up to 16.6% (after
exercise) of FFWM's outstanding Common Stock upon the occurrence of certain
events described below. The Option Agreement covers 423,600 shares of FFWM
Common Stock at an exercise price of $34.19 per share.
The Option Agreement is designed to compensate Keystone for its risks,
costs and expenses and the commitment of resources associated with the FFWM Plan
of Merger in the event the FFWM Merger is not consummated due to an attempt by a
third person to gain control of FFWM. Keystone may not exercise or sell its
Option unless (i) FFWM shall have authorized, recommended or publicly proposed,
or publicly announced an intention to authorize, recommend or propose, or
entered into an agreement with any third person to effect (A) a
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merger, consolidation or similar transaction involving FFWM or any of its
subsidiaries, (B) the sale or other disposition of 15% or more of the
consolidated assets of FFWM and its subsidiaries, or (C) the issuance, sale or
other disposition of securities representing 15% or more of the voting power of
FFWM or any of its subsidiaries (any of the foregoing an "Acquisition
Transaction"); or (ii) any third person or group shall have acquired beneficial
ownership of or the right to acquire beneficial ownership of 25% or more of the
then outstanding shares of FFWM Common Stock (each of the foregoing is hereafter
referred to as a "Purchase Event"). No Purchase Event has occurred as of the
date of this Joint Proxy Statement/Prospectus, and neither Keystone nor FFWM is
aware that any Purchase Event is contemplated by any third person. The Option
Agreement may discourage third persons from making competing offers to acquire
FFWM and is intended to increase the likelihood that the FFWM Merger will be
consummated in accordance with the terms set forth in the FFWM Plan of Merger.
If a Purchase Event occurs, Keystone may exercise the Option in whole
or in part or may sell or transfer all or part of the Option to other persons.
Under federal banking law, exercise of the Option by Keystone for more than 5%
of the outstanding FFWM Common Stock would require approval of regulatory
authorities.
Keystone may require FFWM to redeem the Option or any shares of FFWM
Common Stock purchased thereunder if (i) any third person or group shall have
acquired beneficial ownership of or the right to acquire beneficial ownership of
50% or more of the then outstanding shares of FFWM Common Stock or (ii) FFWM (A)
mergers or consolidates with any third person and is not the surviving
corporation, (B) engages in a merger with a third person in which it is the
surviving corporation but in which the outstanding shares of FFWM Common Stock
are exchanged for other securities, cash or property or after the merger
represent less than 50% of the outstanding shares or (C) sells or transfers more
than 50% of its consolidated assets to any third person (each of the foregoing
is hereafter referred to as a "Redemption Event"). In general, the per share
redemption price for the Option would be excess, if any, over the Option
exercise price of the highest of (i) the highest price paid for any share of
FFWM Common Stock by the person or group acquiring 50% beneficial ownership,
(ii) the price per share received by holders of FFWM Common Stock in connection
with any Redemption Event transaction, or (iii) the highest closing sales price
per share of FFWM Common Stock on the NASDAQ National Market System during the
60 business days preceding the request for redemption. The per share redemption
price for shares of FFWM Common Stock purchased under the Option would be the
sum of the Option redemption price and the exercise price paid for the Option
shares. The aggregate amount which FFWM is required to pay in redeeming the
Option or Option shares is limited to $4 million.
The Option Agreement also contains provisions for issuance of a
substitute Option Agreement to purchase shares of the surviving or acquiring
company in the event of a merger or other acquisition of FFWM or a majority of
its assets.
The foregoing description is intended only as a summary of the
material provisions of the Option Agreement and does not purport to be complete.
It is qualified in its entirety by reference to the Option Agreement, which has
been filed with the SEC as an exhibit to the Registration Statement. The Option
Agreement is incorporated in this Joint Proxy Statement/Prospectus by reference
to such filing.
Inconsistent Activities
FFWM has agreed in the FFWM Plan of Merger that it will not, and will
not permit its subsidiaries to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, lease or purchase of
all or a substantial portion of the assets of, or any equity interest in, FFWM
or a subsidiary (other than with Keystone or an affiliate); provided that FFWM's
Board of Directors may furnish such information or participate in such
negotiations or discussions if such Board, after having consulted with and
considered the advice of outside counsel, has determined that the failure to do
so would cause the members of such Board to breach their fiduciary duties under
applicable law. FFWM is required to promptly inform Keystone of any such
request for information or of any such negotiations or discussions and to
instruct its and its subsidiaries' directors, officers, representatives and
agents to refrain from taking any action prohibited by these provisions.
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Conduct of Business Pending the FFWM Merger
FFWM has agreed in the FFWM Plan of Merger that pending consummation
of the FFWM Merger, except as consented to by Keystone, FFWM and its
subsidiaries will conduct their business only in the ordinary course consistent
with past practice and will not, among other things, (i) issue any shares of
their capital stock or grant any options or other rights to acquire such stock,
except pursuant to the Option Agreement or existing employee and director stock
options, purchase any FFWM Common Stock or effect any recapitalization, stock
dividend or split; (ii) amend their charter documents, suffer any lien on FFWM's
ownership of its subsidiaries or waive or compromise any material right or
claim; (iii) make certain changes in the compensation or benefits payable to
employees and directors; (iv) enter into any transaction or agreement not in the
ordinary course of business, certain borrowing arrangements or employment or
labor contracts; (v) make voluntary changes in their accounting methods or tax
reporting, (vi) make capital expenditures or lease assets in excess of certain
limits; (vii) take certain actions with respect to branching; (viii) acquire
control over or make equity investments exceeding 5% in any business; (ix) enter
into interest-hedging agreements; (x) enter into any agreement granting a
preferential right to purchase any of their assets or rights or requiring
consent for their transfer; (xi) make material changes to their lending or
investment policies; or (xii) take any action which would prevent or impede the
FFWM Merger from qualifying as a reorganization within the meaning of Section
368 of the Internal Revenue Code.
Keystone has agreed that except as consented to by FFWM it will not
(i) amend its charter documents or those of a significant subsidiary in a manner
which would adversely affect the terms of the Keystone Common Stock or the
ability of Keystone and American Trust Bank to consummate the FFWM Merger and
the Bank Merger, (ii) make any acquisition, enter into any agreement or
transaction or take any other action that could materially adversely affect the
ability of Keystone and American Trust Bank to consummate the FFWM Merger and
the Bank Merger, (iii) declare or pay any dividend or distribution in respect of
the Keystone Common Stock other than regular quarterly cash dividends in an
amount determined by Keystone's Board of Directors in the ordinary course of
business and consistent with past practice or (iv) take any action, other than
the exercise of its rights under the Option Agreement, which would prevent or
impede the FFWM Merger from qualifying as a reorganization within the meaning of
Section 368 of the Internal Revenue Code.
FFWM Dividend Limitation
FFWM has agreed in the FFWM Plan of Merger that pending the FFWM
Merger it will not increase the rate of dividends on the FFWM Common Stock to
exceed $.12 per share in any calendar quarter. Beginning in the quarter ended
December 31, 1994, dividends on the FFWM Common Stock have been paid at the rate
of $.12 per share. See "Information Concerning FFWM--Stock Prices and Dividends
of FFWM Common Stock."
Conditions to the FFWM Merger
In addition to approval by the shareholders of FFWM, the FFWM Merger
is contingent upon the satisfaction of a number of other conditions, including
(i) receipt of regulatory approvals required for the consummation of the FFWM
Merger and the Bank Merger and the expiration or all statutory waiting periods
in connection therewith, (ii) the absence of any statute, rule or governmental
or judicial injunction, order or decree which prohibits or restricts
consummation of the FFWM Merger or the Bank Merger and (iii) receipt of the tax
opinion described above (see "Tax Consequences to FFWM Shareholders"). In
addition, unless waived, each party's obligation to consummate the FFWM Merger
is subject to the performance by the other party of its obligations under the
FFWM Plan of Merger, the accuracy of the representations and warranties of the
other party contained therein, the receipt of certain certificates and opinions
from the other party and the absence of any pending proceeding initiated by a
governmental authority seeking to prevent consummation of the FFWM Merger or the
Bank Merger. If the Distribution Date under Keystone's shareholder rights plan
(see "Comparison of Keystone Common Stock and FFWM Common Stock--Keystone
Shareholder Rights Plan") shall have occurred,
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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
Exchange Ratio shall have been proportionately adjusted as provided in the FFWM
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 FFWM Common Stock upon consummation of the
FFWM Merger.
Representations and Warranties
The representations and warranties of Keystone and FFWM contained in
the FFWM Plan of Merger relate, among other things, to the organization and good
standing of FFWM, Keystone and their subsidiaries; the capitalization of FFWM
and Keystone and the ownership of their subsidiaries; the authorization by
Keystone and FFWM of the FFWM Plan of Merger 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 September 30, 1996; payment of taxes; the absence
of undisclosed litigation; compliance with laws; insurance; and the accuracy of
this Joint Proxy Statement/Prospectus and of Keystone's Registration Statement
of which it is a part. Additional representations and warranties by FFWM
concern the absence of certain potential environmental liabilities; the absence
of undisclosed equity investments; the absence of undisclosed employment
contracts, employee benefit plans or material contracts or material defaults
thereunder; title to properties; and labor relations. None of the
representations and warranties contained in the FFWM Plan of Merger will survive
the consummation of the FFWM Merger.
Amendment, Waiver and Termination
Notwithstanding prior approval by the shareholders of FFWM, the FFWM
Plan of Merger may be amended in any respect by written agreement between the
parties, except that after such shareholder approval no amendment or waiver of
any provision of the FFWM Plan of Merger may change the amount or form of the
consideration to be received by the holders of FFWM Common Stock in the FFWM
Merger or otherwise materially adversely affect the FFWM shareholders without
the approval of the shareholders so affected. Keystone or FFWM 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 FFWM Plan of
Merger; and (iv) waive any condition precedent to its obligations under the FFWM
Plan of Merger other than approval of the FFWM Plan of Merger by the
shareholders of FFWM, governmental regulatory approvals required to consummate
the FFWM Merger, securities registration requirements incident to the issuance
of Keystone Common Stock in the FFWM Merger, receipt of the federal income tax
opinion described above and the absence of any judicial or administrative order
prohibiting the FFWM Merger.
Notwithstanding prior shareholder approval, the FFWM Plan of Merger
may be terminated at any time prior to effectiveness of the FFWM Merger (a) by
mutual consent of Keystone and FFWM or (b) by either party (1) in the event of a
breach by the other party of a representation and warranty or covenant which
would have a material adverse effect on the breaching party or on the ability of
the parties to consummate the transactions contemplated by the FFWM Plan of
Merger and which has not been cured within 30 days after notice to the breaching
party, (2) if a court or regulatory authority has issued a final and
nonappealable order enjoining or prohibiting consummation of the FFWM Merger or
the Bank Merger or (3) if other than as a result of a failure of the terminating
party to perform its obligations under the FFWM Plan of Merger (A) the
shareholders of FFWM do not approve the FFWM Plan of Merger at the FFWM Special
Meeting or any adjournment thereof or (B) the FFWM Merger has not become
effective on or prior to November 26, 1997.
Termination Fee
The FFWM Plan of Merger provides that if either party terminates the
FFWM Plan of Merger due to a pending proceeding initiated by a governmental
authority seeking to prevent consummation of the FFWM Merger
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or the Bank Merger or because an application for a regulatory approval required
to consummate the FFWM Merger or the Bank Merger is finally denied or withdrawn
at the request of the regulatory agency, Keystone will pay to FFWM a termination
fee of $1,000,000. If within three years from the date of such termination, FFWM
or any of its subsidiaries enters into an agreement providing for (a) the merger
or consolidation of FFWM or any of its subsidiaries with any third person, (b)
the disposition to any third person or persons in one or a series of related
transactions not in the ordinary course of business of assets or deposits
representing 15% or more of the consolidated assets or deposits of FFWM or (c)
the issuance, sale, transfer or other disposition to any one person (including
its affiliates or associates) of securities representing 15% or more of the
voting power of FFWM or any of its subsidiaries, FFWM must repay such amount to
Keystone without interest.
Dissenters' Rights of FFWM Shareholders
A record holder of shares of FFWM Common Stock is entitled to exercise
the rights of a dissenting shareholder under Section 262 of the Delaware General
Corporation Law, as amended ("Section 262"), to object to the FFWM Plan of
Merger and make written demand that Keystone, as the surviving corporation in
the FFWM Merger, pay in cash the appraised value of the shares held as
determined in accordance with Section 262. The following summary does not
purport to be a complete statement of the provisions of Section 262 and is
qualified in its entirety by reference to Section 262, the complete text of
which is set forth as Annex IV to this Joint Proxy Statement/Prospectus.
A beneficial owner of shares of FFWM Common Stock who is not the
record holder of such shares is not entitled to exercise dissenters' rights
directly, but instead must request the record holder of the shares to exercise
such rights on his or her behalf. A beneficial owner wishing to exercise such
rights should contact the record holder promptly and assure that the record
holder complies with all of the statutory provisions and procedures summarized
herein.
If a record holder of shares of FFWM Common Stock (a "holder") wishes
to dissent from the FFWM Plan of Merger and obtain payment of the appraised
value of the holder's shares, he or she must satisfy all of the following
conditions in order to obtain any right to payment of the appraised value of the
shares under Section 262:
(1) The holder must deliver to FFWM, before the taking of the vote on
the FFWM Plan of Merger, a written demand for appraisal of the holder's
shares. Such demand will be sufficient if it reasonably informs FFWM of
the identity of the holder and that the holder intends thereby to demand
the appraisal of the holder's shares. A proxy or vote against the FFWM
Plan of Merger shall not constitute such a demand. A holder electing to
take such action must do so by separate written demand as provided in
Section 262.
(2) The holder must hold of record the shares as to which appraisal
is demanded on the date of making such written demand and continuously
thereafter through the effective date of the FFWM Merger.
(3) The holder must not vote the shares in favor of the FFWM Plan of
Merger. Neither an abstention from voting with respect to, nor failure to
vote in person or by proxy against approval of the FFWM Plan of Merger
constitutes a waiver of the rights of a dissenting shareholder. However, a
signed proxy card that is returned without any instruction as to how the
proxy should be voted will be voted in favor of approval of the FFWM 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 will not acquire any right
to payment of the appraised value of the holder's shares under Section 262.
Each written demand for appraisal should clearly state that the holder intends
thereby to demand the appraisal of the holder's shares, should provide the name,
address and telephone number of the holder and the number of shares of FFWM
Common Stock held of record by the holder as to which appraisal is demanded and
should be sent to First Financial Corporation of Western Maryland, 118 Baltimore
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Street, Cumberland, Maryland 21502, Attention: William C. Marsh, Executive Vice
President and Chief Financial Officer.
Within 10 days after the effective date of the FFWM Merger, Keystone shall
notify each holder of FFWM Common Stock who has complied with the requirements
of Section 262 and who has not voted in favor of the FFWM Plan of Merger of the
date that the FFWM Merger has become effective.
Within 120 days after the effective date of the FFWM Merger, Keystone or
any holder who has complied with the requirements of Section 262 and who is
otherwise entitled to appraisal rights, may file a petition in the Delaware
Court of Chancery demanding a determination of the value of the stock of all
such holders. Notwithstanding the foregoing, at any time within 60 days after
the effective date of the FFWM Merger, any holder shall have the right to
withdraw the holder's demand for appraisal and to accept the terms offered in
the FFWM Plan of Merger. Within 120 days after the effective date of the FFWM
Merger, any holder who has complied with the requirements of Section 262, upon
written request, shall be entitled to receive from Keystone a statement setting
forth the aggregate number of shares not voted in favor of the FFWM Merger and
with respect to which demands for appraisal have been received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
holder within 10 days after his written request for such a statement is received
by Keystone or within 10 days after expiration of the period for delivery of
demands for appraisal, whichever is later.
Upon the filing of any such petition by a holder, service of a copy thereof
shall be made upon Keystone, which shall within 20 days after such service file
in the office of the Register in Chancery in which the petition was filed a duly
verified list containing the names and addresses of all holders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by Keystone. If the petition is filed by
Keystone, it shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to
Keystone and to the holders shown on the list at the addresses therein stated.
Such notice shall also be given by one or more publications at least one week
before the day of the hearing, in a newspaper of general circulation published
in Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the Court,
and the costs thereof shall be approved by the Court and shall be borne by
Keystone.
At the hearing on such petition, the Court shall determine the holders who
have complied with Section 262 and who have become entitled to appraisal rights.
The Court may require the holders who have demanded an appraisal for their
shares to submit their FFWM Common Stock certificates to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings; and
if any holder fails to comply with such direction, the Court may dismiss the
proceedings as to such holder.
After determining the holders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the FFWM Merger,
together with a fair rate of interest, if any, to be paid upon the amount
determined to be the fair value. In determining such fair value, the Court
shall take into account all relevant factors. In determining the fair rate of
interest, the Court may consider all relevant factors, including the rate of
interest which Keystone would have had to pay to borrow money during the
pendency of the proceeding. Upon application by Keystone or by any holder
entitled to participate in the appraisal proceeding, the Court may, in its
discretion, permit discovery or other pretrial proceedings and may proceed to
trial upon the appraisal prior to the final determination of the holders
entitled to an appraisal. Any holder whose name appears on the list filed by
Keystone and who has submitted his FFWM Common Stock certificates to the
Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to appraisal
rights under Section 262.
The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by Keystone to the holders entitled thereto.
Interest may be simple or compound, as the Court may direct. Payment shall be
so made to each such holder upon the surrender to Keystone of the FFWM Common
Stock certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, notwithstanding that
Keystone is not a Delaware corporation.
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The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a holder, the Court may order all or a portion of the expenses incurred by
any holder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of all the shares entitled to an
appraisal.
From and after the effective date of the FFWM Merger, no holder of FFWM
Common Stock who has demanded appraisal rights shall be entitled to vote such
stock for any purpose or to receive payment of dividends or other distributions
on the stock (except dividends or other distributions payable to shareholders of
record at a date which is prior to the effective date of the FFWM Merger);
provided, however, that if no petition for an appraisal shall be filed within
the time required by Section 262, or if such holder shall deliver to Keystone a
written withdrawal of the holder's demand for an appraisal and an acceptance of
the FFWM Merger, either within 60 days after the effective date of the FFWM
Merger or thereafter with the written approval of Keystone, then the right of
such holder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
holder without the approval of the Court, and such approval may be conditioned
upon such terms as the Court deems just.
FFWM 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 SECTION 262.
Restrictions on Resales by FFWM Affiliates
The shares of Keystone Common Stock issuable in the FFWM Merger have
been registered under the Securities Act, and such shares will generally be
freely tradable by the FFWM shareholders who receive Keystone shares as a result
of the FFWM Merger. However, this registration does not cover resales by FFWM
shareholders who may be deemed to control or be under common control with FFWM
and who therefore may be deemed "affiliates" of FFWM 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 FFWM 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 FFWM will notify those
persons whom it believes may be such affiliates.
Effect on FFWM's Dividend Reinvestment Plan
FFWM's Dividend Reinvestment Plan will be terminated as of the last
FFWM dividend payment date preceding the effective date of the FFWM Merger.
Following the FFWM Merger, FFWM shareholders who become Keystone shareholders
will be able to participate in a Dividend Reinvestment Plan offered by Keystone.
Expenses
Keystone will pay 75% and FFWM will pay 25% of the expenses of
printing the Registration Statement, and Keystone and FFWM will each pay 50% the
portion of registration fee relating to the FFWM Merger to be paid to the SEC in
connection therewith. Each party will pay its own other expenses incurred in
connection with the FFWM Plan of Merger.
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Accounting Treatment
The FFWM Merger will be accounted for under the purchase method of
accounting. The assets and liabilities of FFWM acquired in the FFWM Merger will
be recorded by Keystone for financial reporting purposes at their market values
as of the date of the FFWM Merger, and any excess of the consideration paid over
the net market values acquired will be recorded and amortized as goodwill.
Effective Date of the FFWM Merger
It is presently anticipated that if the FFWM Plan of Merger is
approved by the shareholders of FFWM, the FFWM Merger will become effective in
the second quarter of 1997. However, as noted above, consummation of the FFWM
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 FFWM
Merger will be satisfied or, if satisfied, that they will be satisfied in time
to permit the FFWM Merger to become effective within the anticipated time frame.
In addition, as also noted above, Keystone and FFWM retain the power to abandon
the FFWM Merger or to extend the time for performance of conditions or
obligations necessary to its consummation, notwithstanding prior shareholder
approval.
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INFORMATION CONCERNING FFWM
First Financial Corporation of Western Maryland
SELECTED FINANCIAL DATA
The following unaudited table of selected financial data should be
read in conjunction with FFWM's consolidated financial statements and the
related notes and with FFWM's management's discussion and analysis of financial
condition and results of operation, incorporated herein by reference. See "FFWM
Documents Incorporated by Reference."
<TABLE>
<CAPTION>
Six Months
Ended December 31, Year Ended June 30,
-------------------------- ---------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(In Thousands, Except Per Share Amounts and Ratios)
Operations:
Interest income............... $ 14,215 $ 12,921 $ 26,480 $ 24,809 $ 23,228 $ 25,050 $ 29,116
Interest expense.............. 6,401 6,170 12,102 11,444 11,297 13,752 18,867
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income........... 7,814 6,751 14,378 13,365 11,931 11,298 10,249
Provision for loan losses..... 75 300 600 5,985 780 350 317
Noninterest income............ 612 440 1,472 1,269 915 1,149 2,004
Noninterest expense........... 6,347(1) 4,291 9,379 10,633 8,237 8,717 6,604
Income tax expense (benefit).. 775 987 2,271 (765) 1,465 1,227 2,080
Cumulative effect of
accounting change............ -- -- -- -- 1,695 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............. $ 1,229 $ 1,613 $ 3,600 $ (1,219) $ 4,059 $ 2,153 $ 3,252
---------- ---------- ---------- ---------- ---------- ---------- ----------
Pre-tax security gains,
included in above............ $ 51 $ -- $ 179 -- $ 6 -- --
Per Share:
Net income (loss) before
cumulative effect of
accounting change............ $ 0.57 $ 0.74 $ 1.65 $ (0.56) $ 1.09 $ 1.02 $ 0.51
Net income (loss)............. 0.57 0.74 1.65 (0.56) 1.87 1.02 0.51
Cash dividends declared....... 0.24 0.24 0.48 0.46 0.37 0.27 0.07
Dividend payout ratio......... 42.11% 32.43% 29.09% -- 19.79% 26.47% 13.73%
Average shares outstanding.... 2,145,357 2,182,254 2,180,000 2,175,000 2,169,000 2,112,000 1,876,000
Balances at Period End:
Loans......................... $ 299,333 $ 244,762 $ 250,908 $ 231,656 $ 224,065 $ 227,497 $ 236,473
Allowance for loan losses..... 7,846 8,913 7,795 8,590 4,561 3,841 3,553
Total assets.................. 360,849 337,749 321,994 329,375 345,646 343,557 342,281
Deposits...................... 276,795 286,427 274,756 283,360 301,208 301,820 304,962
Long-term debt................ 483 588 483 580 676 773 869
Shareholders' equity.......... 42,142 39,963 41,707 38,470 40,267 37,472 34,021
Book value per share.......... 19.44 18.44 19.16 18.06 20.03 18.97 18.13
Selected Ratios:
Return on average assets (2).. 0.72% 0.97% 1.09% -- 1.18% 0.62% 0.95%
Return on average equity (2).. 5.97 8.22 8.97 -- 9.97 6.02 11.99
Interest rate spread.......... 3.97 3.78 4.08 3.73 3.31 3.20 3.02
Net interest margin........... 4.54 4.18 4.52 4.11 3.63 3.47 3.19
Equity to assets, average..... 11.99 11.87 12.20 11.66 11.86 10.38 7.96
Loans to deposits
at period end................ 108.14 85.45 91.32 81.75 74.39 75.38 77.54
Allowance for loan losses
to loans at period end....... 2.62 3.64 3.11 3.71 2.04 1.69 1.50
Nonperforming assets to
loans and ORE................ 1.30 2.86 2.55 3.29 2.97 5.01 4.12
</TABLE>
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<TABLE>
<CAPTION>
Six Months
Ended December 31, Year Ended June 30,
------------------------- --------------------------------------------------------------
1996 1995 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Regulatory Capital Ratios:
Tangible capital ratio......... 10.93% 11.19% 12.36% 10.98% 11.11% 10.33% 9.38%
Core capital ratio............. 10.93 11.19 12.36 10.98 11.11 10.33 9.38
Risk-based capital ratio....... 19.08 19.51 21.60 20.60 21.58 20.27 17.66
- ------------------------
</TABLE>
(1) Includes nonrecurring assessment of $1.9 million relating to the
recapitalization of the SAIF insurance fund.
(2) Ratios for the six months ended December 31, 1996 and 1995 have been
annualized.
STOCK PRICES AND DIVIDENDS ON FFWM COMMON STOCK
FFWM Common Stock is traded in the over-the-counter market under the
symbol "FFWM" and is listed in the NASDAQ National Market System. The following
table sets forth the high and low closing sales prices for FFWM Common Stock for
the periods indicated, as reported by NASDAQ, and the cash dividends per share
declared on FFWM Common Stock for such periods.
<TABLE>
<CAPTION>
Quarterly Closing Sales
Price Range Cash
----------------------- Dividends
High Low Declared
------------- -------- ---------
<S> <C> <C> <C>
Fiscal 1995 Quarter Ended:
First Quarter, September 30, 1994.. $ 25.75 $22.50 $0.10
Second Quarter, December 31, 1994.. 27.50 18.50 0.12
Third Quarter, March 31, 1995...... 22.50 19.75 0.12
Fourth Quarter, June 30, 1995...... 22.00 18.75 0.12
-----
$0.46
-----
Fiscal 1996 Quarter Ended:
First Quarter, September 30, 1995.. $ 22.50 $19.75 $0.12
Second Quarter, December 31, 1995.. 23.75 19.63 0.12
Third Quarter, March 31, 1996...... 20.50 18.00 0.12
Fourth Quarter, June 30, 1996...... 20.75 17.75 0.12
-----
$0.48
-----
Fiscal 1997 Quarter Ended:
First Quarter, September 30, 1996.. $ 28.75 $20.13 $0.12
Second Quarter, December 31, 1996.. 32.50 27.00 0.12
Third Quarter (through
March 25, 1997)............... 33.625 30.00 0.12
</TABLE>
On November 25, 1996, the last NASDAQ trading day prior to the public
announcement of the FFWM Merger, the closing sale price for the FFWM Common
Stock was $27.75. On March 25, 1997, the closing sale price for the FFWM Common
Stock was $33.375. On March 21, 1997, the record date for the FFWM Special
Meeting, FFWM had 871 shareholders of record. At that date, 2,175,659 shares of
FFWM Common Stock were outstanding.
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While FFWM 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 FFWM.
FFWM DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by FFWM with the SEC pursuant
to the Exchange Act (File No. 0-10756) are hereby incorporated by reference in
this Joint Proxy Statement/Prospectus:
1. FFWM's Annual Report on Form 10-K for the year ended June 30,
1996 ("FFWM Form 10-K");
2. FFWM's Quarterly Reports on Form 10-Q for the quarters ended
September 30 and December 31, 1996; and
3. FFWM's Current Reports on Form 8-K dated August 2, August 19,
October 23 and December 2, 1996 and January 22, 1997.
All documents filed by FFWM pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the dates
of the Shareholder Meetings are hereby incorporated by reference in this Joint
Proxy Statement/Prospectus and shall be deemed a part hereof from the date of
the filing of such documents.
Keystone, FTC and FFWM shareholders who wish to obtain copies of the
FFWM documents incorporated by reference herein may do so by following the
instructions under "Available Information" above.
Copies of FFWM's 1996 Annual Report to Shareholders ("FFWM Annual
Report") and its Quarterly Reports on Form 10-Q for the quarters ended September
30 and December 31, 1996 are being mailed to FFWM shareholders along with this
Joint Proxy Statement/Prospectus. The following portions of the FFWM Annual
Report have been incorporated by reference into the FFWM Form 10-K and by
reference to the FFWM Form 10-K are also incorporated by reference herein:
1. "Selected Consolidated Financial Data" on page 1; and
2. "Management's Discussion and Analysis," Report of Independent
Certified Public Accountants," "Consolidated Statements of Financial
Condition," "Consolidated Statements of Operations," Consolidated
Statements of Stockholders' Equity," "Consolidated Statements of Cash
Flows," "Notes to Consolidated Financial Statements" and "Stock and
Dividend Information" on pages 4 through 42.
Portions of the FFWM Annual Report other than those listed above as
incorporated herein by reference are furnished for information only and are not
a part of this Joint Proxy Statement/Prospectus. The FFWM Annual Report does
not contain all of the information contained in the FFWM Form 10-K.
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COMPARISON OF KEYSTONE COMMON STOCK AND FTC COMMON STOCK
General
Upon consummation of the Merger, shareholders of FTC will become
shareholders of Keystone. Since the Articles of Incorporation ("Articles") and
Bylaws of Keystone and FTC are not the same, the Merger will result in certain
changes in the rights of the holders of FTC Common Stock. These changes are
discussed below.
Voting Rights
General. The holders of Keystone Common Stock, like the holders of
FTC Common Stock, are generally entitled to one vote for each share held of
record on all matters submitted to a shareholder vote and do not have cumulative
voting rights in the election of directors. 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
FTC 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 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.
FTC's Articles require that certain transactions involving FTC be
approved by the vote of the holders of at least two-thirds of the outstanding
shares of FTC Common Stock. The transactions subject to FTC's special voting
requirements are a merger or consolidation of FTC with another corporation or
the sale, lease or exchange of all or substantially all of the assets of FTC.
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Board of Directors
Classified Boards. The Articles of Keystone and the Bylaws of FTC
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.
FTC's Bylaws provide that FTC's Board of Directors shall consist of
such number of directors, not less than five, as the Board may determine.
Vacancies on the FTC Board, including vacancies resulting from an increase in
the number of directors, may be filled by a majority of the Board. Directors
elected by the Board to fill vacancies serve only until the next annual meeting
of shareholders or until an earlier special meeting called to elect directors.
The shareholders of FTC can also change the number of FTC directors by amending
the Bylaws in accordance with the provisions described below and may at the same
meeting elect directors to fill any vacancies created by an increase in the size
of the Board.
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.
FTC's Articles and Bylaws are silent as to removal of directors.
Under the Pennsylvania Business Corporation Law ("BCL"), because FTC has a
shareholder-adopted 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 FTC 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 FTC Common Stock.
Nomination of Director Candidates. The Articles of Keystone and the
Bylaws of FTC 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. FTC's Articles require the notice
to be given not less than 14 or more than 50 days prior to the meeting at which
the election is to be held, except that if less than 21 days' notice of the
meeting is given by FTC, the notice may be given within seven days after the
notice of the meeting was mailed.
Amendment of Articles and Bylaws
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 Bylaws. 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. Except as to
matters for which a shareholder vote is required by statute, Keystone's Board
may also amend the Bylaws without shareholder approval by a vote including a
majority of the disinterested directors then in office.
FTC's Articles require the vote of the holders of at least two-thirds
of the outstanding FTC Common Stock to amend the special shareholder vote
provisions described above under "Voting Rights--Special Votes for Certain
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<PAGE>
Transactions." Under applicable provisions of the BCL, the other provisions of
FTC's Articles may be amended by a majority of the votes cast at a meeting of
FTC shareholders. However, in order to be deemed to be adopted by FTC, any
Articles amendment adopted by the shareholders must also be approved by Board of
Directors.
Under the BCL, FTC's Bylaws may be amended by the shareholders at any
annual or special meeting by a majority of the votes cast on the proposal.
Except as to matters for which a shareholder vote is required by statute, FTC's
Bylaws may also be amended by the vote of a majority of the Board of Directors,
subject to the power of the shareholders to change such action, except that the
Board may not adopt amendments fixing their qualifications, classification or
term of office.
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 5.333 one-thousandths (0.005333) 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 5.333 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 5.333 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 tradable.
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 Keystone Common Stock, or 5.333
one-thousandths of a Preferred Share (or of a share of a class or series of
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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.
The terms of the Rights may be amended by the Board of Directors
without the consent of the holders of the Rights before the Distribution Date in
any respect whatever, 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 Keystone's and FTC's Articles and Bylaws described
under "Voting Rights" and "Board of Directors" above 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 FTC.
Under Section 2538 of the BCL, any merger, consolidation, share
exchange or sale of assets between Keystone or FTC or their subsidiary and any
shareholder of the corporation, any division of Keystone or FTC 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 FTC in which a shareholder is treated differently from other
shareholders of the same class or any reclassification in which any Keystone or
FTC 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 FTC 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 FTC 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 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.
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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. FTC has not elected to opt out from coverage by
Subchapters 25G or 25H and is subject to these provisions.
Preferred Stock
FTC's Articles do not authorize any class of stock other than FTC
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 FTC 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.
Liquidation Rights
Upon liquidation, dissolution or winding up of Keystone or FTC,
whether voluntary or involuntary, the holders of Keystone or FTC 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 FTC Common Stock.
Holders of fully paid shares of Keystone or FTC Common Stock are not subject to
any liability for further calls or assessments.
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COMPARISON OF KEYSTONE COMMON STOCK AND FFWM COMMON STOCK
General
FFWM is a Delaware corporation and, as such, is governed by Delaware
General Corporation Law ("GCL"). As a result of the FFWM Merger, shareholders
of FFWM who make or are deemed to have made the Stock Election will become
shareholders of Keystone. Keystone is a Pennsylvania business corporation and,
as such, the rights of Keystone's shareholders are governed by the Pennsylvania
Business Corporation Law ("BCL"). Differences between the rights of FFWM
shareholders and the rights of Keystone shareholders will arise from this change
of applicable statute as well as from differences between the Certificate of
Incorporation ("Certificate") and Bylaws of FFWM and the Articles of
Incorporation ("Articles") and Bylaws of Keystone. These differences are
described below.
Voting Rights
General. The holders of Keystone Common Stock, like the holders of
FFWM Common Stock, are generally entitled to one vote for each share held of
record on all matters submitted to a shareholder vote and do not have cumulative
voting rights in the election of directors. 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. Both Keystone's Articles and
FFWM's Certificate contain provisions requiring special shareholder votes to
approve certain types of transactions. In the absence of these provisions,
either no shareholder vote would be required or, in the case of Keystone, the
BCL would require approval of the transaction by a majority of the shares
Keystone Common Stock voted at a meeting, and in the case of FFWM, the GCL would
require approval of the transaction by either a majority of the outstanding
shares of FFWM Common Stock or a majority of the shares of FFWM Common Stock
represented at a meeting and entitled to vote.
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.
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FFWM's Certificate requires that certain "business combinations" with
or upon a proposal by an "interested stockholder" be approved by the votes of
the holders of 80% of the voting power of the voting stock of FFWM not
beneficially owned by the interested stockholder. An "interested stockholder"
is defined by FFWM's Certificate to mean any person who is either (1) the
beneficial owner of 10% or more of the voting power of FFWM's voting stock, (2)
an affiliate of FFWM who was the beneficial owner of 10% or more of such voting
power at any time in the previous two years or (3) a transferee which in the
previous two years received voting stock from an interested stockholder in a
transaction not involving a public offering.
The "business combinations" subject to FFWM's special vote requirements
include (1) a merger, consolidation or share exchange of FFWM or a subsidiary
with an interested stockholder, (2) the sale, lease, exchange, pledge, transfer
or other disposition by FFWM or a subsidiary to an interested stockholder of
assets having a fair market value equal to 25% or more of FFWM's consolidated
assets, (3) the issuance or transfer by FFWM or a subsidiary to an interested
stockholder of securities of FFWM or a subsidiary for consideration equal to 25%
or more of the fair market value of the outstanding FFWM Common Stock, (4) any
reclassification of securities, recapitalization, merger, consolidation or other
transaction, whether or not involving an interested stockholder, which has the
direct or indirect effect of increasing the percentage of any class of FFWM's
equity or convertible securities which is directly or indirectly owned by an
interested stockholder and (5) the adoption of any plan for the liquidation or
dissolution of FFWM or a subsidiary proposed by or on behalf of an interested
stockholder.
FFWM's special shareholder vote requirements do not apply to any
business combination approved by a majority of the "disinterested directors." A
disinterested director is any member of the FFWM Board who (1) has no material
financial interest in the interested stockholder, (2) is not a director of the
interested stockholder, (3) is not affiliated with the interested stockholder
and (4) was not elected or appointed as a director of FFWM through the voting
power or influence of the interested stockholder within two years preceding the
date that approval of the business combination by the disinterested directors is
required. FFWM's special shareholder vote requirements also do not apply to any
business combination in which consideration is received by the shareholders of
FFWM and which satisfies certain specified price and procedural conditions.
FFWM 10% Vote Limitation. Under FFWM's Certificate, any shares of FFWM
Common Stock beneficially owned by a person in excess of 10% of the outstanding
shares are not entitled to voting rights. The 10% limitation does not apply if
the offer to acquire, or beneficial ownership of, shares in excess of the limit
has been approved by a two-thirds vote of FFWM's Board of Directors, excluding
any directors who are not disinterested directors.
Board of Directors
Classified Boards. Both Keystone's Articles and FFWM's Certificate
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 Keystone's full Board of
Directors 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 Keystone's Board of Directors,
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. Keystone 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.
The number of directors which constitute FFWM's full Board of
Directors also may be increased or decreased only by the Board of Directors. In
the absence of an interested stockholder, the vote required is a majority of the
entire Board. During any time in which the Board is considering whether or has
determined that there is an interested stockholder, the vote required is two-
thirds of the entire Board. Any increase or decrease in
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the number of directors must be apportioned among the three classes by a two-
thirds vote of the directors, determined after giving effect to the increase or
decrease. Vacancies on FFWM's Board of Directors, including vacancies resulting
from an increase in the size of the Board, may be filled only by the Board of
Directors by the vote of a majority of the directors in office. FFWM 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.
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.
FFWM's Certificate provides that a director may be removed from office
only for cause by the vote of at least 80% of the voting power of FFWM's
outstanding voting stock at a meeting called expressly for that purpose with at
least 30 days' prior written notice to the director or directors to be removed.
Nomination of Director Candidates. Keystone's Articles and FFWM's
Bylaws 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 must be given not later than 120 days in advance of the
meeting at which the election is to be held. FFWM's Bylaws require the notice
to be given at least 30 days in advance of the meeting at which the election is
to be held, except that if less than 40 days' notice or public disclosure of the
meeting date is given by FFWM, the notice may be given within 10 days after the
date notice of the meeting date was mailed or publicly disclosed.
Shareholder Meetings
FFWM's Certificate provides that special meetings of shareholders may
be called only by the Chairman of the Board, the President or by a two-thirds
vote of FFWM's Board of Directors. Although under the BCL Keystone shareholders
do not have a statutory right to call a special meeting of shareholders,
Keystone's Bylaws currently provide that special meeting may be called by the
shareholders by a written request of the holders of at least 20% of the
outstanding shares of Keystone Common Stock. FFWM's Certificate also provides
that any action by the shareholders of FFWM must be taken at a duly called
annual or special meeting and may not be taken by written consent. Although the
shareholders of Keystone may take action by written consent without a
shareholder meeting, under the BCL any such action would require the unanimous
written consent of all Keystone shareholders.
FFWM's Bylaws require that in order for any proposal by an FFWM
shareholder to be considered at an annual meeting, the shareholder must provide
FFWM with written notice of the proposal, containing specified information, not
less than 30 days prior to the date of the annual meeting. Keystone's Articles
and Bylaws do not contain any special provisions requiring advance notice of
shareholder proposals intended to be presented at a Keystone annual meeting.
However, in order to be considered for inclusion in Keystone's or FFWM's proxy
statement for an annual meeting, a shareholder proposal must be submitted in
compliance with SEC regulations requiring, among other things, that the proposal
be received by the corporation 120 days prior to the date of the proxy statement
for the preceding annual meeting.
Amendment of Charter and Bylaws
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 Bylaws. 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. Except as to
matters for which
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a shareholder vote is required by statute, Keystone's Board may also amend the
Bylaws without shareholder approval by a vote including a majority of the
disinterested directors then in office.
FFWM's Certificate provides that the affirmative vote of the holders
of at least 80% of the voting power of the outstanding FFWM voting stock is
required to amend certain provisions of FFWM's Certificate or any provision of
FFWM's Bylaws. The Certificate provisions subject to this special voting
requirement include the special vote provisions described under "Voting Rights--
Special Votes for Certain Transactions" above, the provisions described under
"Voting Rights--FFWM 10% Vote Limitation" above, the provisions relating to
FFWM's Board of Directors and absence of cumulative voting described under
"Voting Rights--General" and "Board of Directors" above, the provisions
restricting the call of special meetings and action by written consent described
under "Shareholder Meetings" above, the provisions relating to director
liability and indemnification described above under FFWM Plan of Merger--
Interests of Certain Persons in the Transaction," and the provisions requiring
an 80% vote for amendments. Under the GCL, the remaining provisions of FFWM's
Certificate may be amended with the affirmative vote of a majority of the
outstanding shares of FFWM Common Stock. However, no Certificate amendment may
be adopted by shareholders unless it is first proposed by FFWM's Board of
Directors. Except as to matters for which a shareholder vote is required by
statute, FFWM's Board may also amend the Bylaws without shareholder approval by
a vote of two-thirds of the directors then in office.
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 5.333 one-thousandths (0.005333) 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 5.333 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 5.333 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 tradable.
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
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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 Keystone Common Stock, or 5.333
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.
The terms of the Rights may be amended by the Board of Directors
without the consent of the holders of the Rights before the Distribution Date in
any respect whatever, 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 Keystone's Articles and Bylaws described under
"Voting Rights" and "Board of Directors" above 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.
Under Section 2538 of the BCL, any merger, consolidation, share
exchange or sale of assets between Keystone or a subsidiary and any shareholder
of Keystone, any division of Keystone 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 in which a
shareholder is treated differently from other shareholders of the same class or
any reclassification in which any Keystone 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 shares representing 20% or more of
the votes which all shareholders of Keystone 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 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 Keystone unless (1) the business combination or the acquisition of
the 20% interest is approved by the Board of Directors of
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Keystone 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 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.
Delaware General Corporation Law
The provisions of FFWM's Certificate described above under "Voting
Rights--Special Votes for Certain Transactions" are in addition to restrictions
on business combinations between FFWM and a substantial shareholder imposed by
Section 203 of the GCL. Under Section 203, FFWM may not engage in a "business
combination" with an "interested stockholder" for a period of three years
following the time that the shareholder became an interested stockholder unless
(1) prior to such time FFWM's Board of Directors approved either the business
combination or the transaction which resulted in the shareholder becoming an
interested stockholder, (2) upon consummation of the transaction in which the
shareholder became an interested stockholder, the interested stockholder owned
at least 85% of the outstanding FFWM Common Stock, excluding shares owned by
persons who are both directors and officers of FFWM or by certain employee stock
plans or (3) at or subsequent to such time the business combination is approved
by FFWM's Board of Directors and authorized at an annual or special meeting by
the vote of at least two-thirds of the FFWM Common Stock which is not
beneficially owned by the interested stockholder. For purposes of Section 203,
an "interested stockholder" is generally (1) a beneficial owner of 15% or more
of the outstanding FFWM Common Stock or (2) an affiliate or associate of FFWM
which was a 15% beneficial owner at any time during the preceding three years.
The definition of "business combination" under Section 203 includes transactions
similar to those covered by the special voting provision of FFWM's Certificate
described above under "Voting Rights--Special Votes for Certain Transactions."
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. Although Keystone Common Stock is not
listed on a national securities exchange, it is held of record may more than
2,000 shareholders.
The GCL also provides for dissenters' rights in certain mergers or
consolidations involving FFWM. However, except in the case of a merger or
consolidation in which they would be required to accept for their shares
something other than (1) stock of the surviving or resulting corporation or (2)
stock of another corporation which is listed on a national securities exchange,
designated as a NASDAQ National Market System security or held of
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record by more than 2,000 shareholders (or cash in lieu of fractional shares),
the shareholders of a Delaware corporation are not entitled to dissenters'
rights under the GCL if their stock is either listed on a national securities
exchange, designated as a NASDAQ National Market System security or held of
record by more than 2,000 shareholders. Although FFWM Common Stock is a NASDAQ
National Market System security, because under the FFWM Plan of Merger the Stock
Election may not be available to all FFWM shareholders desiring to make that
election, shareholders of FFWM will have the right to dissent from the FFWM
Merger. See "FFWM Plan of Merger--Dissenters' Rights of FFWM Shareholders."
Preferred Stock
Both Keystone's Articles and FFWM's Certificate authorize the
corporation to issue shares of preferred stock. Keystone's Articles authorize
up to 8,000,000 shares of Keystone preferred stock, and FFWM's Certificate
authorizes up to 2,000,000 shares of FFWM preferred stock.
The authorized shares of preferred stock are issuable in one or more
series on the terms set by the resolution or resolutions of the Board of
Directors of Keystone or FFWM 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 the 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 and FFWM belong exclusively to the holders of common stock.
Dividend Rights
The holders of FFWM 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 or FFWM preferred
stock is issued, the Board of Directors of the corporation may grant
preferential dividend rights to the holders of such stock which would prohibit
payment of dividends on the corporation's common stock unless and until
specified dividends on the preferred stock had been paid.
Liquidation Rights
Upon liquidation, dissolution or winding up of Keystone or FFWM,
whether voluntary or involuntary, the holders of Keystone or FFWM 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 or FFWM, the Board of
Directors of the corporation 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 common stock.
Miscellaneous
There are no preemptive rights, sinking fund provisions, conversion
rights, or redemption provisions applicable to Keystone or FFWM Common Stock.
Holders of fully paid shares of Keystone or FFWM Common Stock are not subject to
any liability for further calls or assessments.
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LEGAL OPINIONS
Opinions with respect to certain legal matters in connection with the
Mergers will be rendered by Reed Smith Shaw & McClay, Pittsburgh, Pennsylvania,
as counsel for Keystone. Opinions with respect to certain legal matters in
connection with the FTC Merger will be rendered by McNees, Wallace & Nurick,
Harrisburg, Pennsylvania, as counsel for FTC.
EXPERTS
The consolidated financial statements of Keystone incorporated by
reference in Keystone's Annual Report on Form 10-K for the year ended December
31, 1996 have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein in
reliance upon such report, given upon the authority of such firm as experts in
auditing and accounting.
The consolidated financial statements of FTC for the year ended
December 31, 1996 appearing in FTC's Annual Report on Form 10-K for the year
ended December 31, 1996 have been audited by Beard & Company, Inc., independent
auditors, as set forth in their report thereon included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein in reliance upon such report, given upon the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements of FTC at December 31, 1995 and
for each of the two years in the period ended December 31, 1995 appearing in
FTC's Annual Report on Form 10-K for the year ended December 31, 1996 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing therein and incorporated by reference elsewhere herein, which
as to the year 1994, is based in part on the report of Smith Elliott Kearns &
Company, LLC, independent auditors. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports, given upon the
authority of said firms as experts in auditing and accounting.
The consolidated financial statements of FFWM as of June 30, 1996 and
1995, and for each of the years in the three-year period ended June 30, 1996,
have been incorporated by reference herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, which report is incorporated by reference in the Annual Report on
Form 10-K filed by FFWM for its fiscal year ended June 30, 1996, and upon the
authority of said firm as experts in accounting and auditing. The report of
KPMG Peat Marwick LLP covering the June 30, 1996 consolidated financial
statements of FFWM refers to a change in the method of accounting for income
taxes during 1994 and for loan impairment and mortgage servicing rights during
1996.
SHAREHOLDER PROPOSALS AND NOMINATIONS
Due to the Mergers, it is presently anticipated that no Annual
Meetings of Shareholders of FTC or FFWM will be held in 1997. In the event the
FTC Merger is not consummated or is delayed, the shareholders of FTC will be
advised as to the date of FTC's 1997 Annual Meeting of Shareholders and as to
the date by which proposals of FTC shareholders must be received by FTC in order
to be considered for inclusion in FTC's proxy statement for that meeting. In
the event the FFWM Merger is not consummated or is delayed, the shareholders of
FFWM will be advised as to the date of FFWM's 1997 Annual Meeting of
Shareholders and as to the date by which proposals of FFWM shareholders must be
received by in order to be considered for inclusion in FTC's proxy statement for
that meeting.
Proposals of Keystone shareholders intended to be presented at
Keystone's 1998 Annual Meeting of Shareholders must be received by the Secretary
of Keystone, at Keystone's address appearing on page iv above, not
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later than December 5, 1997 in order to be considered for inclusion in
Keystone's proxy statement and form of proxy for that meeting.
Keystone's Restated Articles of Incorporation require that any
shareholder who intends to nominate a candidate for election as a director of
Keystone must furnish a written notice of the nomination, containing the
information specified in the Articles, so that it is received by the Secretary
of Keystone not later than 120 days in advance of the meeting at which the
election is to be held. A copy of these requirements will be furnished to any
shareholder upon request to the Secretary at the address set forth on page iv.
OTHER MATTERS
The managements of Keystone, FTC and FFWM do not know of any other
matters intended to be presented for shareholder action at their respective
Shareholder Meetings. If any other matter does properly come before any of the
Shareholder Meetings 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
[Letterhead of Danielson Associates Inc.]
January 23, 1997
Board of Directors
Keystone Financial, Inc.
One Keystone Plaza
Front & Market Street
P.O. Box 3660
Harrisburg, Pennsylvania 17105-3660
Dear Members of the Board:
Set forth herein is Danielson Associates Inc.'s ("Danielson
Associates") independent opinion as to the "fairness" of the offer by Keystone
Financial, Inc. ("Keystone") to buy all of the outstanding common stock of
Financial Trust Corp ("Financial Trust") through an exchange of stock having a
value at the time of the offer of about $375 million.
In the course of preparing the opinion, the markets served by
Financial Trust have been analyzed; its business and prospects have been
discussed with management; its financial performance has been compared with
banks in the region; the sale prices of comparable banks have been analyzed; and
any unique characteristics have been considered. We also reviewed the Agreement
and Plan of Reorganization and the Agreement and Plan of Merger (collectively,
"Plan of Merger") between Keystone and Financial Trust.
This opinion is based on data supplied by Keystone and Financial
Trust, and it relies on some public information, all of which is believed to be
reliable, but neither the completeness nor accuracy of such information can be
guaranteed. The opinion assumes, based on Financial Trust's management's
representation, that there are no significant loan problems beyond what are
stated in recent reports to regulatory agencies and in the monthly report to the
directors. We also have reviewed the financial projections made by Keystone,
including estimates of cost savings and revenue enhancements expected to result
from the merger and have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgments of Keystone.
In determining the "fair" sale value of Financial Trust, the emphasis
has been on prices paid for banks and bank holding companies that have similar
financial, structural and market characteristics. These prices were then
related to earnings, assets and equity capital, also referred to as "book."
In determining the "fairness" of the offer, we also have compared the
common stock to be exchanged by Keystone with other similar bank holding
companies. In so doing, we also compared Keystone's financial performance with
these comparable financial institutions.
Based on the foregoing, we are of the opinion on the date hereof that
the offer made by Keystone to acquire all of the common stock of Financial Trust
pursuant to the Plan of Merger is fair from a financial point of view to
Keystone and its shareholders.
Respectfully submitted,
/s/ Arnold G. Danielson
Arnold G. Danielson
Chairman
Danielson Associates Inc.
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ANNEX II
[Letterhead of Berwind Financial Group, L.P.]
March 26, 1997
Board of Directors
Financial Trust Corp.
1415 Ritner Highway
Carlisle, PA 17013
Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Financial Trust Corp ("Financial Trust")
of the financial terms of the proposed merger between Financial Trust and
Keystone Financial, Inc. ("Keystone Financial"). The terms of the proposed
merger (the "Proposed Merger") between Financial Trust and Keystone Financial
are set forth in the Agreement and Plan of Reorganization dated as of December
19, 1996, (the "Agreement") and provide that each outstanding share of Financial
Trust Common Stock, par value $5.00 per share, will receive 1.65 shares of
Common Stock, par value $2.00 per share, of Keystone Financial determined in
conformity with the exchange ratio set forth in the Agreement, 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 assets and securities
transactions, including mergers, acquisitions, private placements and valuation
for various other purposes, and in the determination of adequate consideration
in such transactions.
In arriving at our opinion, we have: (i) reviewed the historical
financial performances, current financial positions and general prospects of
Financial Trust and Keystone Financial, (ii) reviewed the Agreement, (iii)
reviewed and analyzed the stock market performance of Financial Trust and
Keystone Financial, (iv) studied and analyzed the consolidated financial and
operating data of Financial Trust and Keystone Financial, (v) considered the
terms and conditions of the Proposed Merger between Financial Trust and Keystone
Financial as compared with the terms and conditions of comparable bank and bank
holding company mergers and acquisitions, (vi) met and/or communicated with
certain members of Financial Trust's and Keystone Financial's senior management
to discuss their respective operations, historical financial statements and
future prospects, (vii) reviewed the Joint Proxy Statement/Prospectus, and
(viii) conducted such other financial analyses, studies and investigations as we
deemed appropriate such as comparable company analyses, comparable transaction
analyses, discounted dividend analyses and pro forma contribution analyses.
Our opinion is given in reliance on information and representations
made or given by Financial Trust and Keystone Financial, and their respective
officers, directors, auditors, counsel and other agents, and on filings,
releases and other information issued by Financial Trust and Keystone Financial
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 Financial Trust and Keystone
Financial 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 Proposed Merger is, in all respects, lawful under applicable
law.
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Board of Directors
March 26, 1997
Page 2
With regard to financial and other information relating to the general
prospects of Financial Trust and Keystone Financial, we have assumed that such
information has been reasonably prepared and reflects the best currently
available estimates and judgments of the managements of Financial Trust and
Keystone Financial as to Financial Trust's and Keystone Financial's most likely
future performance. In rendering our opinion, we have assumed that in the
course of obtaining the necessary regulatory approvals for the Proposed Merger
no conditions will be imposed that will have a material adverse effect on the
contemplated benefits of the Proposed Merger to Financial Trust. Berwind also
assumed that there would not occur any change in applicable law or regulation
that would cause a material adverse change in the prospects or operations of
Keystone Financial after the Proposed Merger.
Our opinion is based upon information provided to us by the
managements of Financial Trust and Keystone Financial, 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 Proposed Merger and does not constitute a
recommendation to the Board of Financial Trust and does not constitute a
recommendation to Financial Trust's shareholders as to how such shareholders
should vote on the Proposed Merger.
Based on the foregoing, it is our opinion that, as of the date hereof,
the Proposed Merger between Financial Trust and Keystone Financial is fair, from
a financial point of view, to the shareholders of Financial Trust.
Sincerely,
/s/ Berwind Financial Group, L.P.
BERWIND FINANCIAL GROUP, L.P.
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ANNEX III
[Letterhead of Alex. Brown & Sons Incorporated]
November 26, 1996
First Financial Corporation of Western Maryland
118 Baltimore Street
Cumberland, MD 21502
Dear Members of the Board of Directors:
First Financial Corporation of Western Maryland ("First Financial" or
the "Company) and Keystone Financial, Inc. ("Keystone"), a Pennsylvania
Corporation, have entered into an Agreement and Plan of Merger dated as of
November 26, 1996 (the "Agreement"). Pursuant to the Agreement, First Financial
shall be merged with and into Keystone (the "Merger'), and each share of First
Financial common stock issued and outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive, at the election
of the holder thereof, either (i) 1.29 shares (the "Exchange Ratio") of common
stock of Keystone or (ii) an amount in cash equal to the Exchange Ratio
multiplied by Keystone's average closing bid price for the 20 consecutive
trading days preceding the sixth trading day prior to the closing date. The
total consideration ("Total Consideration") shall mean the sum of the stock
election described under (i), which will equal approximately 60% of the Total
Consideration, and the cash election described under (ii), which will equal
approximately 40% of the Total Consideration. You have requested our opinion as
to whether the Total Consideration is fair, from a financial point of view, to
First Financial's stockholders.
Alex. Brown & Sons Incorporated ("Alex. Brown"), as a customary part
of its investment banking business, is engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of First
Financial in connection with the transaction described above and will receive a
fee for our services, the entirety of which is contingent upon consummation of
the Merger. Alex. Brown regularly publishes research reports regarding the
banking industry and the businesses and securities of publicly traded companies
in the banking industry. In the ordinary course of business, Alex. Brown may
actively trade the securities of banks and thrifts for our own account and the
account of our customers and, accordingly, may at any time hold a long or short
position in such securities.
In connection with this opinion, we have reviewed certain publicly
available financial information and other information concerning First Financial
and Keystone and certain internal analyses and other information furnished to us
by First Financial and Keystone. We have also held discussions with the members
of the senior managements of First Financial and Keystone regarding the business
prospects of their respective companies and the joint prospects of a combined
company. In addition, we have (i) reviewed the reported prices and trading
activity for the common stock of both First Financial and Keystone, (ii)
compared certain financial and stock market information for First Financial and
Keystone with similar information for certain companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (iv) reviewed the
terms of the Agreement, and (v) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to the information relating to the prospects of
First Financial and Keystone, we have assumed that such information reflects the
best currently available
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judgments and estimates of the managements of First Financial and Keystone as to
the likely future financial performances of their respective companies. In
addition, we have not made nor been provided with an independent valuation or
appraisal of the assets and liabilities of First Financial and Keystone, nor
have we been furnished with any such evaluations or appraisals. We are not
expressing our opinion as to the value of Keystone's common stock when issued
pursuant to the Merger or the prices at which Keystone's common stock will trade
subsequent to such issuance. Our opinion is based on market, economic and other
conditions as they exist and can be evaluated as of the date of this letter.
Our advisory services and the opinion expressed herein were prepared
for the use of the Board of Directors of First Financial and do not constitute a
recommendation to any stockholder as to how such stockholder should vote. We
hereby consent to the inclusion of this opinion in its entirety as an exhibit to
any proxy or registration statement distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter, the Total Consideration is fair, from a financial point
of view, to First Financial's stockholders.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Donald W. Delson
--------------------------
Name: Donald W. Delson
Managing Director
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ANNEX IV
STATUTORY PROVISIONS CONCERNING DISSENTERS' RIGHTS
OF FFWM SHAREHOLDERS
DELAWARE GENERAL CORPORATION LAW
SECTION 262--APPRAISAL RIGHTS
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to (S)228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class
or series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
subsection (g) of Section 251), 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant
to (S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under (S)253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within twenty days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intend thereby to demand the appraisal
of such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or
(ii) the surviving or resulting
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corporation shall send such a second notice to all such holders on or
within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given; provided that, if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair
rate of interest, the Court may consider all relevant factors, including the
rate of interest which the surviving or resulting corporation would have had to
pay to borrow money during the pendency of the proceeding. Upon application by
the surviving or resulting corporation or by any stockholder entitled to
participate
A-8
<PAGE>
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by the certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
349, L. '96, eff. 7-1-96.)
A-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Harrisburg,
Pennsylvania, on the 26th day of March, 1997.
KEYSTONE FINANCIAL, INC.
By /s/ Carl L. Campbell
----------------------------------
Carl L. Campbell, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Capacity Date
---------------------- ----
<S> <C>
CARL L. CAMPBELL, President, Chief Executive Officer
and Director; MARK L. PULASKI, Senior Executive Vice
President, Chief Administrative Officer and Chief
Financial Officer; DONALD F. HOLT, Senior Vice
President, Controller and Principal Accounting Officer;
A. JOSEPH ANTANAVAGE, Director; JUNE B. BARRY, Director;
J. GLENN BEALL, JR. , Director; PAUL I. DETWILER, JR.,
Director; DONALD DEVORRIS, Director; RICHARD W. DEWALD,
Director; GERALD E. FIELD, Director; WALTER W. GRANT,
Director; PHILIP C. HERR II, Director; UZAL H. MARTZ,
JR., Director; MAX A. MESSENGER, Director; WILLIAM L.
MILLER, Director; DON A. ROSINI, Director; F. DALE
SCHOENEMAN, Director; RONALD C. UNTERBERGER, Director;
and G. WILLIAM WARD, Director.
By: /s/ Carl L. Campbell March 26, 1997
---------------------------------
Carl L. Campbell
Attorney-In-Fact
</TABLE>
II-1
<PAGE>
EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
<TABLE>
<CAPTION>
Exhibit
No. Description and Method of Filing
- ------- -----------------------------------------------------------------------
<C> <S>
23.7 Consent of Berwind Financial Group, L.P. (filed herewith).
24.1 Power of Attorney (set forth on Page II-5 of the Registration Statement
as filed January 23, 1997).
99.1 Letter to shareholders of Keystone Financial, Inc. (filed herewith).
99.2 Notice of Special Meeting of Shareholders of Keystone Financial, Inc.
(filed herewith).
99.3 Form of proxy for use by shareholders of Keystone Financial, Inc.
(filed herewith).
99.4 Letter to shareholders of Financial Trust Corp (filed herewith).
99.5 Notice of Special Meeting of Shareholders of Financial Trust Corp
(filed herewith).
99.6 Form of proxy for use by shareholders of Financial Trust Corp (filed
herewith).
99.10 Letter to shareholders of First Financial Corporation of Western
Maryland (filed herewith).
99.11 Notice of Special Meeting of Shareholders of First Financial
Corporation of Western Maryland (filed herewith).
99.12 Form of proxy for use by shareholders of First Financial Corporation of
Western Maryland (filed herewith).
99.15 Form of Election for use by shareholders of First Financial Corporation
of Western Maryland (filed herewith).
99.17 Keystone Financial, Inc. 1997 Stock Incentive Plan (filed herewith).
</TABLE>
II-2
<PAGE>
EXHIBIT 23.7
CONSENT OF BERWIND FINANCIAL GROUP, L.P.
We hereby consent to the reference in the Joint Proxy Statement/Prospectus
forming a part of this Registration Statement on Form S-4 of Keystone Financial,
Inc. to our opinion, dated March 26, 1997, with respect to the merger of
Keystone Financial, Inc. and Financial Trust Corp, and to our firm,
respectively, and to the inclusion of such opinion as an annex to the Joint
Proxy Statement/Prospectus.
BERWIND FINANCIAL GROUP, L.P.
By Michael J. Hughes
------------------------------
Title Senior Vice President
------------------------------
Philadelphia, Pennsylvania
March 26, 1997
<PAGE>
EXHIBIT 99.1
[LOGO]
April 4, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Keystone Financial, Inc., to be held on Thursday, May 8, 1997, at 2:00 p.m.,
local time, at the Harrisburg Hilton Hotel, Market Square, Harrisburg,
Pennsylvania. A Notice and Proxy Statement for the meeting follow, and a proxy
card and return envelope are enclosed. Also enclosed is the Corporation's 1996
Annual Report.
At this meeting the Executive Management of Keystone will review the
results of your Corporation for 1996 and comment on plans and strategies for the
current year and the future. You will be asked to vote on a proposed merger
with Financial Trust Corp, Carlisle, Pennsylvania ("FTC"). As a result of this
merger, FTC's bank and nonbank subsidiaries will become subsidiaries of the
Corporation, and the FTC shareholders will become Corporation shareholders.
Acquisition of FTC's subsidiary banks will increase our growing presence in the
south central Pennsylvania and western Maryland banking markets. The
accompanying Proxy Statement also describes a proposed merger in which First
Federal Savings Bank of Western Maryland will be merged into American Trust
Bank, N.A., a Keystone subsidiary bank.
The agenda for the Annual Meeting also includes election of directors,
ratification of the appointment of independent auditors, a proposed amendment to
the Corporation's Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock and two compensation plans.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSALS INCLUDED IN THE PROXY
STATEMENT ARE IN THE BEST INTEREST OF ALL SHAREHOLDERS AND RECOMMENDS A VOTE
"FOR" THESE PROPOSALS.
Your participation as a shareholder in the affairs of the Corporation is
encouraged. It is important that your stock be represented at the meeting,
whether or not you are personally able to be present. Accordingly, PLEASE
PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE PAID
ENVELOPE PROVIDED FOR YOUR CONVENIENCE. You are urged to do so even if you plan
to attend the meeting. Your prompt cooperation and support will be greatly
appreciated.
The business and presentation portions of the meeting should last
approximately forty minutes. I, as well as the other Executive Officers of the
Corporation, will be available both before and after the meeting to answer any
questions you may wish to ask. I hope that you will be able to attend this
year's meeting and look forward to seeing you there.
Sincerely,
/s/ Carl L. Campbell
----------------------------------
Carl L. Campbell
President and Chief
Executive Officer
<PAGE>
EXHIBIT 99.2
KEYSTONE FINANCIAL, INC. [LOGO]
One Keystone Plaza
Front and Market Streets
P.O. Box 3660
Harrisburg, Pennsylvania 17105-3660
--------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 8, 1997
--------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Keystone
Financial, Inc. (the "Corporation") will be held on Thursday, May 8, 1997 at
2:00 p.m., local time, at the Harrisburg Hilton Hotel, Market Square,
Harrisburg, 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 December 19, 1996, between the
Corporation and Financial Trust Corp, which provide for the merger into
the Corporation of Financial Trust Corp and are described in the
accompanying Joint Proxy Statement/Prospectus;
2. The election of six directors to serve for terms expiring in 2000;
3. The ratification of the appointment of Ernst & Young LLP as the
independent auditors for the Corporation for 1997;
4. Adoption of an amendment to the Corporation's Restated Articles of
Incorporation to increase the aggregate number of shares of Common Stock
which the Corporation shall have authority to issue to 100,000,000
shares;
5. Approval of the adoption of the Corporation's 1996 Performance Unit
Plan;
6. Approval of the adoption of the Corporation's 1997 Stock Incentive Plan;
and
7. Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on March 14, 1997 are
entitled to notice of and to vote at the Annual Meeting.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. If you
attend the meeting you may, if you wish, withdraw your proxy and vote your
shares in person.
By Order of the Board of Directors
/s/ Ben G. Rooke
--------------------------------------
Ben G. Rooke, Secretary
April 4, 1997
<PAGE>
EXHIBIT 99.3
KEYSTONE FINANCIAL, INC.
PROXY FOR 1997 ANNUAL MEETING
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Paul I. Detwiler, Jr., Max A. Messenger and F.
Dale Schoeneman, or any of them, as proxies, with full power of substitution, to
vote all shares of Common Stock of Keystone Financial, Inc. which the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
May 8, 1997 and at any adjournments thereof, as follows:
(To be Completed and Signed on Reverse Side)
<PAGE>
[X] Please mark
your votes as
in this example
FOR all WITHHOLD
nominees AUTHORITY
(except as to vote for Nominees:
shown below) all nominees
2. Election of June B. Barry
Directors for [_] [_] J. Glenn Beall, Jr.
terms ending Richard W. Dewald
in 2000 Gerald E. Field
Philip C. Herr, II
William L. Miller
A vote FOR includes discretionary authority to
vote for a substitute nominee if any nominee
named becomes unable or unwilling to serve.
To withhold authority to vote FOR any individual
nominee, write that nominee's name on the line
below:
- ------------------------------------------------
FOR AGAINST ABSTAIN
1. Approval of the Agreement and Plan [_] [_] [_]
of Reorganization and the Agreement
and Plan of Merger dated as of
December 19, 1996 between the
Corporation and Financial Trust Corp
(FTC), which provide for the merger
of FTC into the Corporation and the
conversion of each share of FTC
Common Stock into 1.65 shares of
the Corporation's Common Stock,
as described in the Joint Proxy
Statement/Prospectus.
3. Ratification of Ernst & Young LLP [_] [_] [_]
as independent auditors for 1997.
4. Adoption of amendment to the [_] [_] [_]
Restated Articles to increase
authorized Common Stock to
100,000,000 shares.
5. Approval of adoption of the 1996 [_] [_] [_]
Performance Unit Plan.
6. Approval of adoption of the 1997 [_] [_] [_]
Stock Incentive Plan.
7. To vote in their discretion on such other matters as may properly come before
the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this proxy will be voted FOR Items 1 through 6.
PLEASE MARK, DATE, EXECUTE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE(S) DATE 1997
------------------------------------------ -----------------
Note: 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.
<PAGE>
EXHIBIT 99.4
[LOGO]
April 4, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Financial Trust Corp to be held on Wednesday, May 7, 1997, at 10:00 a.m., local
time, at 1415 Ritner Highway, Carlisle, Pennsylvania. A Notice and Proxy
Statement for the meeting follow, and a proxy card and return envelope are
enclosed.
At this Special Meeting you will be asked to vote on a proposed merger with
Keystone Financial, Inc., Harrisburg, Pennsylvania ("Keystone"). As a result of
this merger, the Corporation will be merged with and into Keystone. The merger
will result in the conversion of each outstanding share of the Corporation's
Common Stock into 1.65 shares of Keystone Common Stock. Your Board of Directors
believes that this merger is in your best interest and that of our community.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER WITH KEYSTONE
DESCRIBED IN THE PROXY STATEMENT IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" APPROVAL OF THIS MERGER.
Your participation as a shareholder in the affairs of the Corporation is
encouraged. It is important that your stock be represented at the Special
Meeting, whether or not you are personally able to be present. Accordingly,
PLEASE PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE
PAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE. You are urged to do so even if you
plan to attend the meeting. Your prompt cooperation and support will be greatly
appreciated.
Sincerely,
/s/ Ray L. Wolfe
------------------------------
Ray L. Wolfe
Chairman and
Chief Executive Officer
<PAGE>
EXHIBIT 99.5
FINANCIAL TRUST CORP
1415 Ritner Highway
Carlisle, Pennsylvania 17013
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 7, 1997
--------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Financial
Trust Corp (the "Corporation") will be held on Wednesday, May 7, 1997 at 10:00
a.m., local time, at 1415 Ritner Highway, Carlisle, 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 December 19, 1996, 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 1.65 shares of Keystone Common Stock, as
described in the accompanying Joint 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 March 21, 1997 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 Order of the Board of Directors
/s/ Lauren L. Shutt
------------------------------------
Lauren L. Shutt, Secretary
April 4, 1997
<PAGE>
EXHIBIT 99.6
FINANCIAL TRUST CORP
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Robert W. Chilton and Robert M. Frey, Esq., or
either of them, as proxies, with full power of substitution, to vote all shares
of Common Stock of Financial Trust Corp which the undersigned is entitled to
vote at the Special Meeting of Shareholders to be held May 7, 1997 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 December 19,
1996 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 1.65 shares of Keystone Common Stock,
as described in the Joint 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: , 1997
--------------------------------------
--------------------------------------------------
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 99.10
[LOGO]
April 4, 1997
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
First Financial Corporation of Western Maryland, to be held on Thursday, May 8,
1997, at 10:00 a.m., local time, at the Cumberland Country Club, 10200 Country
Club Road, Cumberland, Maryland. A Notice and Proxy Statement for the meeting
follow, and a proxy card, form of election card and return envelopes are
enclosed.
At this Special Meeting you will be asked to vote on a proposed merger with
Keystone Financial, Inc., Harrisburg, Pennsylvania ("Keystone"). As a result of
this merger, the Corporation will be merged with and into Keystone and the
Corporation's subsidiary savings bank will be merged with and into Keystone's
subsidiary American Trust Bank. The merger will result in the conversion of
each outstanding share of the Corporation's Common Stock into either 1.29 shares
of Keystone Common Stock or an equivalent amount in cash, as selected by you in
compliance with the terms of such election. Your Board of Directors believe
that this merger is in your best interest and that of our community.
YOUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED MERGER WITH KEYSTONE
DESCRIBED IN THE PROXY STATEMENT IS IN THE BEST INTEREST OF ALL SHAREHOLDERS AND
RECOMMENDS A VOTE "FOR" APPROVAL OF THIS MERGER.
Your participation as a shareholder in the affairs of the Corporation is
encouraged. It is important that your stock be represented at the Special
Meeting, whether or not you are personally able to be present. Accordingly,
PLEASE PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE
PAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE. FURTHER, PLEASE PROMPTLY SIGN, DATE
AND RETURN THE ENCLOSED FORM OF ELECTION CARD IN THE POSTAGE PAID ENVELOPE
PROVIDED FOR YOUR CONVENIENCE. You are urged to do so even if you plan to attend
the meeting. Your prompt cooperation and support will be greatly
appreciated.
If you should have any questions regarding the process of signing, dating
and returning the proxy card or the form of election card, please contact the
Corporation's information agent, Morrow & Co., Inc., at 1-800-662-5200.
Sincerely,
/s/ Patrick J. Coyne
---------------------------------
Patrick J. Coyne
Chairman, President and
Chief Executive Officer
<PAGE>
EXHIBIT 99.11
FIRST FINANCIAL CORPORATION OF WESTERN MARYLAND
118 Baltimore Street
Cumberland, Maryland 21502
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on May 8, 1997
--------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of First
Financial Corporation of Western Maryland (the "Corporation") will be held on
Thursday, May 8, 1997 at 10:00 a.m., local time, at the Cumberland Country Club,
10200 Country Club Road, Cumberland, Maryland, for the purpose of considering
and acting upon the following:
1. Approval of the Agreement and Plan of Merger, dated as of November 26,
1996, between the Corporation and Keystone Financial, Inc., a
Pennsylvania corporation ("Keystone"), which provides for the merger of
the Corporation into Keystone and the conversion of each outstanding
share of the Corporation's Common Stock into either 1.29 shares of
Keystone Common Stock or an equivalent amount in cash, as elected by
each shareholder in the manner and subject to the limitations described
in the accompanying Joint 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 March 21, 1997 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 AND FORM OF ELECTION CARD PROMPTLY IN THE ENCLOSED ENVELOPES, 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
and, similarly, submit a new form of election card.
By Order of the Board of Directors
/s/ Patrick J. Coyne
-----------------------------------
Patrick J. Coyne
Chairman, President and
Chief Executive Officer
April 4, 1997
<PAGE>
EXHIBIT 99.12
FIRST FINANCIAL CORPORATION OF WESTERN MARYLAND
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Cheston H. Browning, III, L. Fred Dean, Morton
W. Peskin, Jr. and R. Thomas Thayer, Jr., or any of them, as proxies, with full
power of substitution, to vote all shares of Common Stock of First Financial
Corporation of Western Maryland ("FFWM") which the undersigned is entitled to
vote at the Special Meeting of Shareholders to be held May 8, 1997 and at any
adjournments thereof, as follows:
The Board of Directors recommends that shareholders vote "FOR" Item 1.
1. Approval of the Agreement and Plan of
Merger dated as of November 26, 1996
between FFWM and Keystone Financial,
Inc., which provide for the merger of
FFWM into Keystone and the conversion
of each outstanding share of FFWM
Common Stock into either 1.29 shares of
Keystone Common Stock or an equivalent
amount of cash, as described in the
Joint 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.
EACH SHAREHOLDER SHOULD ALSO READ, COMPLETE AND RETURN THE ENCLOSED FORM OF
ELECTION, REGARDLESS OF WHETHER THE SHAREHOLDER VOTES "FOR" OR "AGAINST" THE
PROPOSED MERGER.
Dated: , 1997
--------------------------------------
--------------------------------------------------
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 99.15
FORM OF ELECTION
For Shareholders of First Financial Corporation of Western Maryland
EACH SHAREHOLDER SHOULD READ, COMPLETE, SIGN AND RETURN THIS FORM OF ELECTION IN
THE ENVELOPE PROVIDED, REGARDLESS OF WHETHER THE SHAREHOLDER VOTES "FOR" OR
"AGAINST" THE PROPOSED MERGER.
The undersigned shareholder of First Financial Corporation of Western Maryland
("FFWM") hereby elects to receive, upon the proposed merger (the "Merger") of
FFWM into Keystone Financial, Inc. ("Keystone") becoming effective, in exchange
for each share of FFWM Common Stock held by the undersigned, either:
[_] 1.29 shares of Keystone Common or [_] Cash in an amount equal to
Stock 1.29 times the average of the
closing bid prices for Keystone
Common Stock for the 20 NASDAQ
trading days ending with the
sixth trading day before the
closing date for the Merger
Only one of the two blocks may be checked.
ALL SHARES OF FFWM COMMON STOCK REGISTERED IN THE NAME OF AN FFWM SHAREHOLDER
WHOSE FORM OF ELECTION IS NOT RECEIVED BY FFWM PRIOR TO 10:00 A.M., LOCAL TIME,
ON MAY 8, 1997 OR WHO DOES NOT INDICATE A CHOICE ABOVE WILL BE CONVERTED INTO
EITHER KEYSTONE COMMON STOCK OR CASH IN ACCORDANCE WITH THE PROCEDURES DESCRIBED
IN THE JOINT PROXY STATEMENT/PROSPECTUS. THE EFFECTIVENESS OF ANY ELECTION BY
AN FFWM SHAREHOLDER IS SUBJECT TO THE LIMITATIONS AND PROCEDURES DESCRIBED IN
THE JOINT PROXY STATEMENT/PROSPECTUS.
Any FFWM shareholder who has submitted a Form of Election may change it by
submitting to FFWM a revised Form of Election (or a facsimile thereof) which is
received by FFWM prior to 10:00 a.m., local time, on May 8, 1997. At such time
Elections will become irrevocable except to the extent changes are permitted or
made in order to satisfy the limitations on Elections described in the Joint
Proxy Statement/Prospectus.
Dated: , 1997
--------------------------------------
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Signature
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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.
<PAGE>
KEYSTONE FINANCIAL, INC.
1997 STOCK INCENTIVE PLAN
The purposes of the 1997 Stock Incentive Plan (the "Plan") are to encourage
eligible employees of Keystone Financial, Inc. (the "Corporation") and its
Subsidiaries to increase their efforts to make the Corporation and each
Subsidiary more successful, to provide an additional inducement for such
employees to remain with the Corporation or a Subsidiary, to reward such
employees by providing an opportunity to acquire shares of the Common Stock, par
value $2.00 per share, of the Corporation (the "Common Stock") on favorable
terms and to provide a means through which the Corporation may attract able
persons to enter the employ of the Corporation or one of its Subsidiaries. For
the purposes of the Plan, the term "Subsidiary" means any corporation in an
unbroken chain of corporations beginning with the Corporation, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing at least fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in the chain.
SECTION 1
Administration
The Plan shall be administered by a Committee (the "Committee") appointed
by the Board of Directors of the Corporation (the "Board") and consisting of not
less than two members of the Board, each of whom at the time of appointment to
the Committee and at all times during service as a member of the Committee shall
be both (1) a "non-employee director" as then defined under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor rule and (2) an "outside director" as then defined in the regulations
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), or any successor provision.
The Committee shall interpret the Plan and prescribe such rules,
regulations and procedures in connection with the operations of the Plan as it
shall deem to be necessary and advisable for the administration of the Plan
consistent with the purposes of the Plan.
The Committee shall keep records of action taken at its meetings. A
majority of the Committee shall constitute a quorum at any meeting, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Committee, shall be
the acts of the Committee.
SECTION 2
Eligibility
Those employees of the Corporation or any Subsidiary who share
responsibility for the management, growth or protection of the business of the
Corporation or any Subsidiary shall be eligible to be granted stock options
(with or without reload option rights and/or cash payment rights) and to receive
restricted share, performance share or other stock awards as described herein.
Subject to the provisions of the Plan, the Committee shall have full and
final authority, in its discretion, to grant stock options (with or without
reload option rights and/or cash payment rights), restricted shares, performance
shares and other stock awards as described herein and to determine the employees
to whom any such grant shall be made and the number of shares to be covered
thereby. In determining the eligibility of any employee, as well as in
determining the number of shares covered by each grant of a stock option,
restricted shares, performance shares or other stock award and whether reload
option rights and/or cash payment rights shall be granted in conjunction with a
stock option, the Committee shall consider the position and the responsibilities
of the employee being considered, the nature and value to the Corporation or a
Subsidiary of his or her services, his or her present and/or potential
contribution to the success of the Corporation or a Subsidiary and such other
factors as the Committee may deem relevant.
<PAGE>
SECTION 3
Shares Available under the Plan
The aggregate net number of shares of Common Stock which may be issued and
as to which grants of stock options (including reload options), restricted
shares, performance shares or other stock awards may be made under the Plan is
2,500,000 shares, subject to adjustment and substitution as set forth in Section
7. If any stock option is exercised by delivering previously owned shares in
payment of the option price, the number of shares so delivered to the
Corporation shall again be available for purposes of the Plan. If any stock
option is cancelled by mutual consent or terminates or expires for any reason
without having been exercised in full, the number of shares subject thereto
shall again be available for purposes of the Plan. If shares of Common Stock
are forfeited to the Corporation pursuant to the restrictions applicable to
restricted shares or under the terms of any other stock award, the shares so
forfeited shall again be available for purposes of the Plan. To the extent any
award of performance shares or any other stock award is not earned or is paid in
cash rather than shares, the number of shares covered thereby shall again be
available for purposes of the Plan. The shares which may be issued under the
Plan may be either authorized but unissued shares or treasury shares or partly
each, as shall be determined from time to time by the Board.
The maximum aggregate number of shares of Common Stock which shall be
available for the grant of stock options, restricted shares and performance
shares to any one individual under the Plan during any calendar year shall be
limited to 200,000 shares. The limitation in the preceding sentence shall be
interpreted and applied in a manner consistent with Section 162(m) of the Code.
To the extent consistent with Section 162(m) of the Code, in applying this
limitation a reload option (a) shall be deemed to have been granted at the same
time as the original underlying stock option and (b) shall not be deemed to
increase the number of shares covered by the original underlying stock option
grant.
SECTION 4
Grant of Stock Options, Reload Options
and Cash Payment Rights and Awards of
Restricted Shares, Performance Shares and Other Stock Awards
The Committee shall have authority, in its discretion, (a) to grant
"incentive stock options" pursuant to Section 422 of the Code, to grant
"nonstatutory stock options" (i.e., stock options which do not qualify under
Sections 422 or 423 of the Code) or to grant both types of stock options (but
not in tandem), (b) to award restricted shares, (c) to award performance shares
and (d) to make other stock awards as described herein. The Committee also
shall have the authority, in its discretion, to grant reload option rights in
conjunction with incentive stock options or nonstatutory stock options with the
effect provided in Section 5(D) and to grant cash payment rights in conjunction
with nonstatutory stock options with the effect provided in Section 5(E).
Reload option rights granted in conjunction with an incentive stock option may
only be granted at the time the incentive stock option is granted. Cash payment
rights may not be granted in conjunction with incentive stock options. Reload
option rights and/or cash payment rights granted in conjunction with a
nonstatutory stock option may be granted either at the time the stock option is
granted or at any time thereafter during the term of the stock option.
Notwithstanding any other provision contained in the Plan or in any stock
option agreement, but subject to the possible exercise of the Committee's
discretion contemplated in the last sentence of this Section 4, the aggregate
fair market value, determined as provided in Section 5(I) on the date of grant,
of the shares with respect to which incentive stock options are exercisable for
the first time by an employee during any calendar year under all plans of the
corporation employing such employee, any parent or subsidiary corporation of
such corporation and any predecessor corporation of any such corporation shall
not exceed $100,000. If the date on which one or more of such incentive stock
options could first be exercised would be accelerated pursuant to any provision
of the Plan or any stock option agreement, and the acceleration of such exercise
date would result in a violation of the restriction set forth in the preceding
sentence, then, notwithstanding any such provision, but subject to the
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<PAGE>
provisions of the next succeeding sentence, the exercise dates of such incentive
stock options shall be accelerated only to the date or dates, if any, that do
not result in a violation of such restriction and, in such event, the exercise
dates of the incentive stock options with the lowest option prices shall be
accelerated to the earliest such dates. The Committee may, in its discretion,
authorize the acceleration of the exercise date of one or more incentive stock
options even if such acceleration would violate the $100,000 restriction set
forth in the first sentence of this paragraph and even if such incentive stock
options are thereby converted in whole or in part to nonstatutory stock options.
SECTION 5
Terms and Conditions of Stock Options,
Reload Option Rights and Cash Payment Rights
Stock options, reload option rights and cash payment rights granted under
the Plan shall be subject to the following terms and conditions:
(A) The purchase price at which each stock option may be exercised
(the "option price") shall be such price as the Committee, in its
discretion, shall determine but shall not be less than one hundred percent
(100%) of the fair market value per share of the Common Stock covered by
the stock option on the date of grant, except that in the case of an
incentive stock option granted to an employee who, immediately prior to
such grant, owns stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or any
Subsidiary (a "Ten Percent Employee"), the option price shall not be less
than one hundred ten percent (110%) of such fair market value on the date
of grant. For purposes of this Section 5(A), an individual (i) shall be
considered as owning not only shares of stock owned individually but also
all shares of stock that are at the time owned, directly or indirectly, by
or for the spouse, ancestors, lineal descendants and brothers and sisters
(whether by the whole or half blood) of such individual and (ii) shall be
considered as owning proportionately any shares owned, directly or
indirectly, by or for any corporation, partnership, estate or trust in
which such individual is a shareholder, partner or beneficiary.
(B) The option price for each stock option shall be paid in full upon
exercise and shall be payable in cash in United States dollars (including
check, bank draft or money order), which may include cash forwarded through
a broker or other agent-sponsored exercise or financing program; provided,
however, that in lieu of such cash the person exercising the stock option
may (if authorized by the Committee at the time of grant in the case of an
incentive stock option, or at any time in the case of a nonstatutory stock
option) pay the option price in whole or in part by delivering to the
Corporation shares of Common Stock having a fair market value on the date
of exercise of the stock option equal to the option price for the shares
being purchased; except that (i) any portion of the option price
representing a fraction of a share shall in any event be paid in cash and
(ii) no shares of Common Stock which have been held for less than six
months may be delivered in payment of the option price of a stock option.
Delivery of shares of Common Stock in payment of the exercise price of a
stock option, if authorized by the Committee, may be accomplished through
the effective transfer to the Corporation of shares of Common Stock held
through a broker or other agent. If the person exercising a stock option
participates in a broker or other agent-sponsored exercise or financing
program, the Corporation will cooperate with all reasonable procedures of
the broker or other agent to permit participation by the person exercising
the stock option in the exercise or financing program. Notwithstanding any
procedure of the broker or other agent-sponsored exercise or financing
program, if the option price is paid in cash, the exercise of the stock
option shall not be deemed to occur and no shares of Common Stock will be
issued until the Corporation has received full payment in cash (including
check, bank draft or money order) for the option price from the broker or
other agent. The date of exercise of a stock option shall be determined
under procedures established by the Committee, and as of the date of
exercise the person exercising the stock option shall be considered for all
purposes to be the owner of the shares with respect to which the stock
option has been exercised.
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<PAGE>
(C) Subject to Section 8(B), a stock option shall become exercisable
at such time or times and/or upon the occurrence of such event or events as
may be determined by the Committee at the time of grant of the stock option
or, in the case of a nonstatutory stock option, at any time thereafter
during the term of the stock option. Unless otherwise determined by the
Committee and reflected in the stock option agreement or, in the case of a
nonstatutory stock option, an amendment thereto, a stock option shall be
exercisable from its date of grant. No stock option shall be exercisable
after the expiration of ten years (five years in the case of an incentive
stock option granted to a Ten Percent Employee) from the date of grant. A
stock option to the extent exercisable at any time may be exercised in
whole or in part.
(D) Reload option rights granted in conjunction with a stock option
shall entitle the holder of the stock option, upon exercise of the stock
option or any portion thereof through delivery of previously owned shares
of Common Stock, to automatically be granted on the date of such exercise a
new nonstatutory stock option (a "reload option") (i) for a number of
shares of Common Stock not exceeding the number of full shares delivered in
payment of the option price of the original option, (ii) having an option
price not less than one hundred percent (100%) of the fair market value per
share of the Common Stock covered by the reload option on such date of
grant, (iii) having an expiration date not later than the expiration date
of the stock option so exercised and (iv) otherwise having terms
permissible for an original grant of a stock option under the Plan.
Subject to the preceding sentence and the other provisions of the Plan,
reload option rights and reload options granted thereunder shall have such
terms and be subject to such restrictions and conditions, if any, as shall
be determined, in its discretion, by the Committee and set forth in the
agreement referred to in Section 5(H) relating to the original option or,
for reload option rights and reload options not granted in conjunction with
an incentive stock option, in an amendment to such agreement, in the
agreement relating to the reload option or in an amendment thereto. In
granting reload option rights, the Committee, may, in its discretion,
provide for successive reload option grants upon the exercise of reload
options granted thereunder. Unless otherwise determined, in its
discretion, by the Committee, reload option rights shall entitle the holder
of a stock option to be granted a reload option only if the underlying
option or reload option to which it relates is exercised during employment
with the Corporation or a Subsidiary of the original grantee of the
underlying option. Notwithstanding any provision of the Plan or any stock
option agreement, no holder of reload option rights may be granted a reload
option covering a number of shares in excess of the number of shares then
remaining available under the Plan. Except as otherwise specifically
provided herein or required by the context, the term "stock option" as used
in this Plan shall include reload options granted hereunder.
(E) Cash payment rights granted in conjunction with a nonstatutory
stock option shall entitle the original grantee of the stock option, or the
person who becomes the holder of the stock option by reason of the death of
such original grantee, upon exercise of the stock option or any portion
thereof, to receive cash from the Corporation (in addition to the shares to
be received upon exercise of the stock option) equal to (1) such percentage
(not greater than 100%) as the Committee, in its discretion, shall
determine of the excess of the fair market value of a share of Common Stock
on the date of exercise of the stock option over the option price per share
of the stock option, multiplied by (2) the number of shares covered by the
stock option, or portion thereof, which is exercised. Payment of the cash
provided for in this Section 5(E) shall be made by the Corporation as soon
as practicable after the time the amount payable is determined. The
Committee may, in its discretion, provide for the grant of cash payment
rights in connection with reload options.
(F) No incentive stock option and, except to the extent otherwise
determined by the Committee and reflected in the stock option agreement or
an amendment thereto, no nonstatutory stock option shall be transferable by
the grantee otherwise than by Will, or if the grantee dies intestate, by
the laws of descent and distribution of the state of domicile of the
grantee at the time of death. All incentive stock options and, except to
the extent otherwise determined by the Committee and reflected in the stock
option agreement or an amendment thereto, all nonstatutory stock options
shall be exercisable during the lifetime of the grantee only by the
grantee.
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<PAGE>
(G) Subject to the provisions of Section 4 in the case of incentive
stock options, unless the Committee, in its discretion, shall otherwise
determine:
(i) If the employment of a grantee who is not disabled within
the meaning of Section 422(c)(6) of the Code (a "Disabled Grantee") is
voluntarily terminated with the consent of the Corporation or a
Subsidiary or a grantee retires under any retirement plan of the
Corporation or a Subsidiary, any then outstanding incentive stock
option held by such grantee shall be exercisable by the grantee (but
only to the extent exercisable by the grantee immediately prior to the
termination of employment) at any time prior to the expiration date of
such incentive stock option or within three months after the date of
termination of employment, whichever is the shorter period;
(ii) If the employment of a grantee who is not a Disabled
Grantee is voluntarily terminated with the consent of the Corporation
or a Subsidiary or a grantee retires under any retirement plan of the
Corporation or a Subsidiary, any then outstanding nonstatutory stock
option of such grantee (whether or not then held by the grantee) shall
be exercisable (but only to the extent exercisable immediately prior
to the grantee's termination of employment) at any time prior to the
expiration date of such nonstatutory stock option or within one year
after the date of termination of employment, whichever is the shorter
period;
(iii) If the employment of a grantee who is a Disabled Grantee
is voluntarily terminated with the consent of the Corporation or a
Subsidiary, any then outstanding stock option of such grantee (whether
or not then held by the grantee) shall be exercisable by in full
(whether or not so exercisable immediately prior to the grantee's
termination of employment) at any time prior to the expiration date of
such stock option or within one year after the date of termination of
employment, whichever is the shorter period;
(iv) Following the death of a grantee during employment, any
stock option of the grantee outstanding at the time of death shall be
exercisable in full (whether or not so exercisable immediately prior
to the death of the grantee) by the person entitled to do so under the
Will of the grantee, or, if the grantee shall fail to make
testamentary disposition of the stock option or shall die intestate,
by the legal representative of the grantee (or, in the case of a
nonstatutory stock option, if permitted under the stock option
agreement, by the grantee's inter vivos transferee) at any time prior
to the expiration date of such stock option or within one year after
the date of death, whichever is the shorter period;
(v) Following the death of a grantee after termination of
employment during a period when a stock option is exercisable, any
stock option of the grantee outstanding at the time of death shall be
exercisable (but only to the extent the stock option was exercisable
immediately prior to the death of the grantee) by such person entitled
to do so under the Will of the grantee or by such legal representative
(or, in the case of a nonstatutory stock option, by such inter vivos
transferee) at any time prior to the expiration date of such stock
option or within one year after the date of death, whichever is the
shorter period; and
(vi) Unless the exercise period of a stock option following
termination of employment has been extended as provided in Section
8(C), if the employment of a grantee terminates for any reason other
than voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the Corporation or
a Subsidiary or death, all stock options of the grantee outstanding at
the time of such termination of employment (whether or not then held
by the grantee) shall automatically terminate.
Whether termination of employment is a voluntary termination with the
consent of the Corporation or a Subsidiary and whether a grantee is a
Disabled Grantee shall be determined in each case,
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<PAGE>
in its discretion, by the Committee, and any such determination by the
Committee shall be final and binding.
If a grantee of a stock option, reload option rights, restricted
shares, performance shares or other stock award engages in the operation or
management of a business (whether as owner, partner, officer, director,
employee or otherwise and whether during or after termination of
employment) which is in competition with the Corporation or any of its
Subsidiaries, the Committee may immediately terminate all outstanding stock
options of the grantee, declare forfeited all restricted shares of the
grantee as to which the restrictions have not yet lapsed, terminate all
outstanding performance share awards of the grantee for which the
applicable Performance Period has not been completed and declare forfeited
all outstanding other stock awards of the grantee which remain subject to
restriction or which have otherwise not yet become payable (whether or not
such stock options, restricted shares, performance shares or other stock
awards are then held by the grantee); provided, however, that this sentence
shall not apply if the exercise period of a stock option following
termination of employment has been extended as provided in Section 8(C), if
the lapse of the restrictions applicable to restricted shares has been
accelerated as provided in Section 8(D) or if a performance share award has
been deemed to have been earned as provided in Section 8(E). Whether a
grantee has engaged in the operation or management of a business which is
in competition with the Corporation or any of its Subsidiaries shall also
be determined, in its discretion, by the Committee, and any such
determination by the Committee shall be final and binding.
(H) All stock options, reload option rights and cash payment rights
shall be confirmed by an agreement, or an amendment thereto, which shall be
executed by Corporation and the grantee.
(I) For all purposes under the Plan, fair market value of the Common
Stock shall be the mean between the following prices, as applicable, for
the date as of which fair market value is to be determined as quoted in The
---
Wall Street Journal (or in such other reliable publication as the
-------------------
Committee, in its discretion, may determine to rely upon): (a) if the
Common Stock is listed on the New York Stock Exchange, the highest and
lowest sales prices per share of the Common Stock as quoted in the NYSE-
Composite Transactions listing for such date, (b) if the Common Stock is
not listed on such exchange, the highest and lowest sales prices per share
of Common Stock for such date on (or on any composite index including) the
principal United States securities exchange registered under the Exchange
Act on which the Common Stock is listed, or (c) if the Common Stock is not
listed on any such exchange, the highest and lowest sales prices per share
of Common Stock for such date on the National Association of Securities
Dealers Automated Quotations System or any successor system then in use
("NASDAQ"). If there are no such sale price quotations for the date as of
which fair market value is to be determined but there are such sale price
quotations within a reasonable period both before and after such date, then
fair market value shall be determined by taking a weighted average of the
means between the highest and lowest sales prices per share of Common Stock
as so quoted on the nearest date before and the nearest date after the date
as of which fair market value is to be determined. The average should be
weighted inversely by the respective numbers of trading days between the
selling dates and the date as of which fair market value is to be
determined. If there are no such sale price quotations on or within a
reasonable period both before and after the date as of which fair market
value is to be determined, then fair market value of the Common Stock shall
be the mean between the bona fide bid and asked prices per share of Common
Stock as so quoted for such date on NASDAQ, or if none, the weighted
average of the means between such bona fide bid and asked prices on the
nearest trading date before and the nearest trading date after the date as
of which fair market value is to be determined, if both such dates are
within a reasonable period. The average is to be determined in the manner
described above in this Section 5(I). If the fair market value of the
Common Stock cannot be determined on the basis previously set forth in this
Section 5(I) on the date as of which fair market value is to be determined,
the Committee shall in good faith determine the fair market value of the
Common Stock on such date. Fair market value shall be determined without
regard to any restriction other than a restriction which, by its terms,
will never lapse.
(J) The obligation of the Corporation to issue shares of Common Stock
under the Plan shall be subject to (i) the effectiveness of a registration
statement under the Securities Act of 1933, as amended,
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<PAGE>
with respect to such shares, if deemed necessary or appropriate by counsel
for the Corporation, (ii) the condition that the shares shall have been
listed (or authorized for listing upon official notice of issuance) upon
each stock exchange, if any, on which the Common Stock shares may then be
listed and (iii) all other applicable laws, regulations, rules and orders
which may then be in effect.
Subject to the foregoing provisions of this Section and the other
provisions of the Plan, any stock option granted under the Plan may be exercised
at such times and in such amounts and be subject to such restrictions and other
terms and conditions, if any, as shall be determined, in its discretion, by the
Committee and set forth in the agreement referred to in Section 5(H), or an
amendment thereto.
SECTION 6
Terms and Conditions of Restricted Share,
Performance Shares and Other Stock Awards
(A) Restricted Shares.
Restricted share awards shall be evidenced by a written agreement in the
form prescribed by the Committee in its discretion, which shall set forth the
number of shares of Common Stock awarded, the restrictions imposed thereon
(including, without limitation, restrictions on the right of the grantee to
sell, assign, transfer or encumber such shares while such shares are subject to
other restrictions imposed under this Section 6(A)), the duration of such
restrictions, the events (which may, in the discretion of the Committee, include
performance-based events) the occurrence of which would cause a forfeiture of
the restricted shares in whole or in part and such other terms and conditions
as the Committee in its discretion deems appropriate. Restricted share awards
shall be effective only upon execution of the applicable restricted share
agreement by the Corporation and the grantee.
If so determined by the Committee at the time of an award of restricted
shares, the lapse of restrictions on restricted shares may be based on the
extent of achievement over a specified Performance Period of one or more
Performance Targets based on Performance Criteria established by the Committee
as provided in Section 6(B). In such case, the award of restricted shares and
all determinations by the Committee in respect thereto shall be made by the
Committee in accordance with the procedures applicable to performance shares as
provided in Section 6(B).
Following a restricted share award and prior to the lapse or termination of
the applicable restrictions, the Committee shall deposit share certificates for
such restricted shares in escrow. Upon the lapse or termination of the
applicable restrictions (and not before such time), the grantee shall be issued
or transferred share certificates for the restricted shares. From the date a
restricted share award is effective, the grantee shall be a shareholder with
respect to all the shares represented by such certificates and shall have all
the rights of a shareholder with respect to all such shares, including the right
to vote such shares and to receive all dividends and other distributions paid
with respect to such shares, subject only to the restrictions imposed by the
Committee.
(B) Performance Shares.
The Committee may award performance shares which shall be earned by an
awardee based on the level of performance during a specified Performance Period
by the Corporation, a Subsidiary or Subsidiaries, any branch, department or
other portion thereof or the awardee individually, as determined by the
Committee. No award of performance shares shall be granted later than 90 days
after the commencement of the applicable Performance Period. For the purposes
of the grant of performance shares, the following definitions shall apply:
(i) "performance share" shall mean an award, expressed in shares of
Common Stock, granted to an awardee with respect to a Performance Period.
(ii) "Performance Period" shall mean an accounting period of the
Corporation or a Subsidiary of not less than one year, as determined by the
Committee in its discretion.
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<PAGE>
(iii) "Performance Criteria" shall mean one or more preestablished,
objective measures of performance during a Performance Period by the
Corporation, a Subsidiary or Subsidiaries, any branch, department or other
portion thereof or the awardee individually, selected by the Committee in
its discretion to determine whether an award of performance shares has been
earned in whole or in part. Performance Criteria may be based on earnings
per share, earnings, earnings growth, return on equity, return on assets,
asset growth or ratio of capital to assets. Performance Criteria based on
such performance measures may be based either on the performance of the
Corporation, Subsidiary or portion thereof under such measure for the
Performance Period and/or upon a comparison of such performance with the
performance of a peer group of corporations selected or defined by the
Committee at the time of making a performance share award. The Committee
may in its discretion also determine to use other objective performance
measures as Performance Criteria.
(iv) "Performance Target" shall mean the level or levels of
achievement of one or more Performance Criteria which must be attained
during a Performance Period for a performance share award to be fully
earned, as established by the Committee at the time of making an award of
performance shares and set forth in the award agreement.
(v) "Performance Threshold" shall mean the minimum level or levels of
achievement of the Performance Criteria applicable to a Performance Period
which must be attained for any portion of a performance share award to be
earned. If the Performance Threshold is other than the Performance Target,
the Committee shall establish and the award agreement shall set forth, in
addition to the Performance Target, the Performance Threshold, the number
of performance shares earned if the Performance Threshold is achieved, and
the manner of determining the number of performance shares earned if the
actual level of performance is between the Performance Threshold and the
Performance Target.
(vi) "Performance Maximum" shall mean a maximum number of performance
shares which may be earned with respect to a performance share award and
the level or levels of achievement of the Performance Criteria applicable
to a Performance Period which must be attained or exceeded for such maximum
amount to be earned. If the Performance Maximum is higher than the number
of performance shares earned on achievement of the Performance Target, the
Committee shall establish and the award agreement shall set forth the
maximum number of performance shares which may be earned, the level or
levels of achievement of the Performance Criteria applicable to the
Performance Period which must be attained for such maximum number of
performance shares to be earned, and the manner of determining the number
of performance shares earned if the actual level of performance is between
the Performance Target and the Performance Maximum.
(vii) "Cause," "Disability" and "Retirement" shall have the meanings
provided in the Corporation's 1996 Performance Unit Plan.
In granting an award of performance shares, the Committee shall establish
and cause to be set forth in writing: () the number of performance shares
granted to the awardee; () the Performance Period applicable to the award; and
() the Performance Criteria to be employed in determining whether all or any
part of the performance shares awarded have been earned during the Performance
Period and the method of determining the number of performance shares earned,
including the applicable Performance Target and any Performance Threshold or
Performance Maximum. The terms so established by the Committee shall be
objective such that a third party having knowledge of the relevant facts could
determine (1) whether or not the Performance Target and any Performance
Threshold or Performance Maximum has been achieved and (2) the number of
performance shares which have been earned based on such performance. Each award
of performance shares shall be evidenced by a written award agreement executed
by the awardee and the Corporation which shall set forth the aforesaid terms of
the performance share award as established by the Committee and such other terms
and conditions, not inconsistent with the provisions of the Plan, applicable to
the award as the Committee in its discretion may determine to include therein.
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Within 75 days following the end of a Performance Period, the Committee
shall determine in accordance with the terms of the Plan and the award agreement
and shall certify in writing whether the applicable Performance Target, any
applicable Performance Threshold or Performance Maximum, and any other material
terms of a performance share award were achieved or satisfied and the number of
performance shares, if any, earned by the awardee. For this purpose, approved
minutes of the meeting of the Committee at which the certification is made shall
be sufficient to satisfy the requirement of a written certification. Payment of
earned performance shares shall be made to the awardee on or before March 15th
of the year following the end of the Performance Period. Payment in respect of
earned performance shares may be made in shares of Common Stock, in cash, or
partly in shares of Common Stock and partly in cash, as determined by the
Committee at the time of payment. For purposes of any payment in cash, earned
performance shares shall be converted to dollars based on the fair market value
of the Common Stock, determined as provided in Section 5(I), as of the date the
amount payable is determined by the Committee.
In establishing Performance Criteria and Performance Targets for any
Performance Period, the Committee may define accounting terms so as to specify
in an objectively determinable manner the effect of changes in accounting
principles, extraordinary items, discontinued operations, mergers or other
business combinations, acquisitions or dispositions of assets and the like.
Unless otherwise so determined by the Committee and reflected in the award
agreement, accounting terms used by the Committee in establishing Performance
Criteria and Performance Targets shall be defined, and the results based thereon
shall be measured, in accordance with generally accepted accounting principles
as applied by the Corporation in preparing its consolidated financial statements
and related financial disclosures for the Performance Period, as included in its
reports filed with the Securities and Exchange Commission.
If during any Performance Period (a) a dividend or other distribution shall
be declared upon the Common Stock payable in shares of Common Stock, (b) the
outstanding shares of Common Stock shall be changed into or exchangeable for a
different number or kind or shares of stock or other securities of the
Corporation or another corporation, whether through reorganization,
reclassification, stock split-up, combination of shares, merger or
consolidation, (c) there shall be a change in the capitalization of the
Corporation resulting from the separation from the Corporation of any
corporation or business through a spin-off or other distribution of stock or
property to the shareholders of the Corporation, a reorganization or a partial
or complete liquidation, an appropriate and proportionate adjustment shall be
made by the Committee with respect to any Performance Target, Performance
Threshold and Performance Maximum to be calculated by reference to earnings per
share or other stock-based Performance Criteria so as to preserve as nearly as
may be practicable the intended effect of such performance measures as
originally established by the Committee. Any such adjustment made by the
Committee shall be final, binding and conclusive as to all awardees,
notwithstanding the provisions of any award agreement. In any such event, the
number of performance shares subject to any award shall also be adjusted as
provided in Section 7.
Unless otherwise determined by the Committee at the time of making an award
of performance shares and reflected in the applicable award agreement, if all
employment of an awardee with the Corporation and its Subsidiaries terminates
prior to the end of a Performance Period for any reason other than death,
Disability, Retirement or an involuntary termination by the Corporation or a
Subsidiary not for Cause, then all performance shares of the awardee for which
the applicable Performance Period has not been completed as of the date of such
termination of employment shall be deemed forfeited. In the case of a
termination of employment prior to the end of the applicable performance Period
due to death, Disability, Retirement or involuntary termination not for Cause,
the award agreement may specify the manner of determining the number of
performance shares, if any, which shall be deemed earned based on the extent to
which the applicable Performance Target has been achieved as of the date of
termination of employment, the percentage of the Performance Period elapsed
and/or such other factors as the Committee may deem relevant. In the absence of
such specification, the determination of whether any performance shares shall be
deemed earned if the employment of the awardee terminates prior to the end of
the applicable Performance Period due to death, Disability, Retirement or
involuntary termination not for Cause, and the number of performance shares
earned and the timing of payment thereof, shall be made by the Committee in its
sole and absolute discretion. Payment in respect of any earned performance
shares following a termination of employment as provided in this paragraph shall
be made to the awardee, or in the event of death to his or her estate, as
promptly as practicable after the number of performance shares earned has been
determined by the
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Committee, which shall make such determination within 75 days after termination
of employment. If the Committee determines that all or any part of the
performance share award shall be paid, payment may be made in shares of Common
Stock, in cash, or partly in cash and partly in shares of Common Stock, as
determined by the Committee at the time of payment. For purposes of any payment
in cash, performance shares shall be converted to dollars based on the fair
market value of the Common Stock, determined as provided in Section 5(I), as of
the date the amount payable is determined by the Committee.
Any determination by the Committee on any matter with respect to
performance shares shall be final and binding on both the Corporation and the
awardee.
(C) Other Stock Awards.
The Committee shall have the authority in its discretion to grant to
eligible employees such other awards that are denominated or payable in, valued
in whole or in part by reference to, or otherwise based on or related to, shares
of Common Stock as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, purchase rights, shares awarded without
restrictions or conditions, or securities or other rights convertible or
exchangeable into shares of Common Stock. In the discretion of the Committee,
such other stock awards, including shares of Common Stock, or other types of
awards authorized under the Plan, may be used in connection with, or to satisfy
obligations of the Corporation or a Subsidiary to eligible employees under,
other compensation or incentive plans, programs or arrangements of the
Corporation or a Subsidiary, including without limitation the 1996 Performance
Unit Plan, the Management Incentive Compensation Plan and the Savings
Restoration Plan. The Committee shall determine the terms and conditions, if
any, of any other stock awards made under the Plan.
SECTION 7
Adjustment and Substitution of Shares
If a dividend or other distribution shall be declared upon the Common Stock
payable in shares of Common Stock, the number of shares of Common Stock then
subject to any outstanding stock options, performance share or other stock
awards and the number of shares of Common Stock which may be issued under the
Plan but are not then subject to outstanding stock options or awards shall be
adjusted by adding thereto the number of shares of Common Stock which would have
been distributable thereon if such shares had been outstanding on the date fixed
for determining the shareholders entitled to receive such stock dividend or
distribution. Shares of Common Stock so distributed with respect to any
restricted shares held in escrow shall also be held by the Corporation in escrow
and shall be subject to the same restrictions as are applicable to the
restricted shares on which they were distributed.
If the outstanding shares of Common Stock shall be changed into or
exchangeable for a different number or kind of shares of stock or other
securities of the Corporation or another corporation, or cash or other property,
whether through reorganization, reclassification, recapitalization, stock split-
up, combination of shares, merger or consolidation, then there shall be
substituted for each share of Common Stock subject to any then outstanding stock
option, performance share or other stock award, and for each share of Common
Stock which may be issued under the Plan but which is not then subject to any
outstanding stock option or award, the number and kind of shares of stock or
other securities (and in the case of outstanding options or awards, the cash or
other property) into which each outstanding share of the Common Stock shall be
so changed or for which each such share shall be exchangeable. Unless otherwise
determined by the Committee in its discretion, any such stock or securities, as
well as any cash or other property, into or for which any restricted shares held
in escrow shall be changed or exchangeable in any such transaction shall also be
held by the Corporation in escrow and shall be subject to the same restrictions
as are applicable to the restricted shares in respect of which such stock,
securities, cash or other property was issued or distributed.
In case of any adjustment or substitution as provided for in this Section
7, the aggregate option price for all shares subject to each then outstanding
stock option prior to such adjustment or substitution shall be the
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aggregate option price for all shares of stock or other securities (including
any fraction), cash or other property to which such shares shall have been
adjusted or which shall have been substituted for such shares. Any new option
price per share or other unit shall be carried to at least three decimal places
with the last decimal place rounded upwards to the nearest whole number.
No adjustment or substitution provided for in this Section 7 shall require
the Corporation to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution. Owners of restricted shares held in
escrow shall be treated in the same manner as owners of Common Stock not held in
escrow with respect to fractional shares created by an adjustment or
substitution of shares, except that, unless otherwise determined by the
Committee in its discretion, any cash or other property paid in lieu of a
fractional share shall be subject to restrictions similar to those applicable to
the restricted shares exchanged therefor.
If any such adjustment or substitution provided for in this Section 7
requires the approval of shareholders in order to enable the Corporation to
grant incentive stock options, then no such adjustment or substitution shall be
made without the required shareholder approval. Notwithstanding the foregoing,
in the case of incentive stock options, if the effect of any such adjustment or
substitution would be to cause the stock option to fail to continue to qualify
as an incentive stock option or to cause a modification, extension or renewal of
such stock option within the meaning of Section 424 of the Code, the Committee
may elect that such adjustment or substitution not be made but rather shall use
reasonable efforts to effect such other adjustment of each then outstanding
stock option as the Committee, in its discretion, shall deem equitable and which
will not result in any disqualification, modification, extension or renewal
(within the meaning of Section 424 of the Code) of such incentive stock option.
SECTION 8
Additional Rights in Certain Events
(A) Definitions.
For purposes of this Section 8, the following terms shall have the
following meanings:
(1) The term "Person" shall be used as that term is used in Sections
13(d) and 14(d) of the Exchange Act.
(2) Beneficial Ownership shall be determined as provided in Rule 13d-
3 under the Exchange Act as in effect on the effective date of the Plan.
(3) "Voting Shares" shall mean all securities of a company entitling
the holders thereof to vote in an annual election of Directors (without
consideration of the rights of any class of stock other than the Common
Stock to elect Directors by a separate class vote); and a specified
percentage of "Voting Power" of a company shall mean such number of the
Voting Shares as shall enable the holders thereof to cast such percentage
of all the votes which could be cast in an annual election of directors
(without consideration of the rights of any class of stock other than the
Common Stock to elect Directors by a separate class vote).
(4) "Tender Offer" shall mean a tender offer or exchange offer to
acquire securities of the Corporation (other than such an offer made by the
Corporation or any Subsidiary), whether or not such offer is approved or
opposed by the Board.
(5) "Section 8 Event" shall mean the date upon which any of the
following events occurs:
(a) The Corporation acquires actual knowledge that any Person
other than the Corporation, a Subsidiary or any employee benefit
plan(s) sponsored by the Corporation has
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acquired the Beneficial Ownership, directly or indirectly, of
securities of the Corporation entitling such Person to 10% or more of
the Voting Power of the Corporation;
(b) A Tender Offer is made to acquire securities of the
Corporation entitling the holders thereof to 20% or more of the Voting
Power of the Corporation; or
(c) A solicitation subject to Rule 14a-11 under the Exchange Act
(or any successor Rule) relating to the election or removal of 50% or
more of the members of any class of the Board shall be made by any
person other than the Corporation; or
(d) The shareholders of the Corporation shall approve a merger,
consolidation, share exchange, division or sale or other disposition
of assets of the Corporation as a result of which the shareholders of
the Corporation immediately prior to such transaction shall not hold,
directly or indirectly, immediately following such transaction a
majority of the Voting Power of (i) in the case of a merger or
consolidation, the surviving or resulting corporation, (ii) in the
case of a share exchange, the acquiring corporation or (iii) in the
case of a division or a sale or other disposition of assets, each
surviving, resulting or acquiring corporation which, immediately
following the transaction, holds more than 10% of the consolidated
assets of the Corporation immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a grantee
are included in determining the Beneficial Ownership of a Person referred
to in paragraph 5(a), (ii) a grantee is required to be named pursuant Item
2 of the Schedule 14D-1 (or any similar successor filing requirement)
required to be filed by the bidder making a Tender Offer referred to in
paragraph 5(b) or (iii) if a grantee is a "participant" as defined in 14a-
11 under the Exchange Act (or any successor Rule) in a solicitation (other
than a solicitation by the Corporation) referred to in paragraph 5(c), then
no Section 8 Event with respect to such grantee shall be deemed to have
occurred by reason of such event.
(B) Acceleration of the Exercise Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(H), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, in case any "Section 8 Event" occurs all outstanding stock options
(other than those held by a person referred to in the proviso to Section
8(a)(5)) shall become immediately and fully exercisable whether or not otherwise
exercisable by their terms.
(C) Extension of the Expiration Date of Stock Options.
Subject to the provisions of Section 4 in the case of incentive stock
options, unless the agreement referred to in Section 5(H), or an amendment
thereto, shall otherwise provide, notwithstanding any other provision contained
in the Plan, all stock options held by a grantee (other a grantee referred to in
the proviso to Section 8(a)(5)) whose employment with the Corporation or a
Subsidiary terminates within one year of any Section 8 Event for any reason
other than voluntary termination with the consent of the Corporation or a
Subsidiary, retirement under any retirement plan of the Corporation or a
Subsidiary or death shall be exercisable for a period of three months from the
date of such termination of employment, but in no event after the expiration
date of the stock option.
(D) Lapse of Restrictions on Restricted Share Awards.
If any "Section 8 Event" occurs prior to the scheduled lapse of all
restrictions applicable to restricted share awards under the Plan (other than
those held by a person referred to in the proviso to Section 8(a)(5)), then
unless the agreement referred to in Section 6(A), or an amendment thereto, shall
otherwise provide, all such restrictions shall lapse upon the occurrence of any
such "Section 8 Event" regardless of the scheduled lapse of such restrictions.
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(E) Payment of Performance Shares.
If any "Section 8 Event" occurs prior to the end of any Performance Period,
then unless otherwise provided in the applicable award agreement, all
performance shares awarded with respect to such Performance Period (other than
those held by a person referred to in the proviso to Section 8(a)(5)) shall be
deemed to have been fully earned as of the date of such Section 8 Event without
regard to actual performance, and as of the date of the Section 8 Event there
shall be due and payable to the awardee with respect thereto the maximum number
of performance shares which could have been earned during the Performance Period
through achievement of the Performance Maximum, if any, or if none, the
Performance Target.
SECTION 9
Effect of the Plan on the Rights of Employees and Employer
Neither the adoption of the Plan nor any action of the Board or the
Committee pursuant to the Plan shall be deemed to give any employee any right to
be granted a stock option (with or without reload option rights and/or cash
payment rights), restricted shares, performance shares or other stock awards
under the Plan. Nothing in the Plan, in any stock option, reload option rights
or cash payment rights granted under the Plan, in any restricted share,
performance share or other stock award under the Plan or in any agreement
providing for any of the foregoing shall confer any right to any employee to
continue in the employ of the Corporation or any Subsidiary or interfere in any
way with the rights of the Corporation or any Subsidiary to terminate the
employment of any employee at any time.
SECTION 10
Amendment
The right to amend the Plan at any time and from time to time and the right
to revoke or terminate the Plan are hereby specifically reserved to the Board;
provided that no amendment of the Plan shall be made without shareholder
approval (1) if the effect of the amendment is (a) to make any changes in the
class of employees eligible to receive incentive stock options under the Plan,
(b) to increase the number of shares with respect to which incentive stock
options may be granted under the Plan or (2) if shareholder approval of the
amendment is at the time required (a) by the rules of the NASDAQ National Market
System or any stock exchange on which the Common Stock may then be listed or (b)
for nonstatutory stock options or performance shares granted under the Plan to
qualify as "performance based compensation" as then defined in the regulations
under Section 162(m) of the Code. No alteration, amendment, revocation or
termination of the Plan shall, without the written consent of the holder of a
stock option, reload option rights, cash payment rights, restricted shares,
performance shares or other stock award theretofore awarded under the Plan,
adversely affect the rights of such holder with respect thereto.
SECTION 11
Effective Date and Duration of Plan
The effective date and date of adoption of the Plan shall be March 27,
1997, the date of adoption of the Plan by the Board, provided that such adoption
of the Plan by the Board is approved by a majority of the votes cast at a duly
held meeting of shareholders held on or prior to March 26, 1998 at which a
quorum representing a majority of the outstanding voting stock of the
Corporation is, either in person or by proxy, present and voting. No stock
option granted under the Plan may be exercised, and no restricted shares,
performance shares or other stock award may be payable, until after and
contingent upon such approval. No stock option, reload option rights, cash
payment rights, restricted shares, performance shares or other stock award may
be granted under the Plan subsequent to March 26, 2007, except that reload
options and associated cash payment rights may be granted pursuant to reload
option rights then outstanding.
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