EXHIBIT 3
WARRANT AGREEMENT
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THIS WARRANT AGREEMENT is made August 15, 1997 by and between Fulton
Financial Corporation, a Pennsylvania business corporation ("FFC") and Keystone
Heritage Group, Inc., a Pennsylvania business corporation ("KHG").
W I T N E S S E T H:
WHEREAS, FFC and KHG are, simultaneously with the execution of this
Agreement, entering into a Merger Agreement dated as of the date hereof (the
"Merger Agreement"); and
WHEREAS, as a condition to FFC's entry into the Merger Agreement and in
consideration of such entry, KHG has agreed to issue to FFC, on the terms and
conditions set forth herein, a warrant entitling FFC to purchase up to an
aggregate of 981,740 shares of KHG's common stock, $5.00 par value per share
(the "Common Stock");
NOW, THEREFORE, in consideration of the execution of the Merger Agreement
and the premises herein contained, and intending to be legally bound, FFC and
KHG agree as follows:
1. Issuance of Warrant. Concurrently with the execution of the Merger
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Agreement and this Agreement, KHG shall issue to FFC a warrant in the form
attached as Exhibit A hereto (the "Warrant", which term as used herein shall
include any warrant or warrants issued upon transfer or exchange of the original
Warrant) to purchase up to 981,740 shares of Common Stock, subject to adjustment
as provided in this Agreement and in the Warrant. The Warrant shall be
exercisable at a purchase price of $36.75 per share, subject to adjustment as
provided in the Warrant (the "Exercise Price"). So long as the Warrant is
outstanding and unexercised, KHG shall at all times maintain and reserve, free
from preemptive rights, such number of authorized but unissued shares of Common
Stock as may be necessary so that the Warrant may be exercised, without any
additional authorization of Common Stock, after giving effect to all other
options, warrants, convertible securities and other rights to acquire shares of
Common Stock. KHG represents and warrants that it has duly authorized the
execution and delivery of the Warrant and this Agreement and the issuance of
Common Stock upon exercise of the Warrant. KHG covenants that the shares of
Common Stock issuable upon exercise of the Warrant shall be, when so
issued, duly authorized, validly issued, fully paid and nonassessable and
subject to no preemptive rights. The Warrant and the shares of Common Stock to
be issued upon exercise of the Warrant are hereinafter collectively referred to,
from time to time, as the "Securities." So long as the Warrant is owned by FFC,
the Warrant will in no event be exercised for more than that number of shares of
Common Stock equal to 981,740 (subject to adjustment as provided in the Warrant)
less the number of shares of Common Stock at the time owned by FFC.
2. Assignment, Transfer, or Exercise of Warrant. FFC will not sell,
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assign, transfer or exercise the Warrant, in whole or in part, without the prior
written consent of KHG except upon or after the occurrence of any of the
following: (i) a knowing breach of any representation, warranty, or covenant
set forth in the Merger Agreement by KHG which would permit a termination of the
Merger Agreement by FFC pursuant to Section 8.1(b)(i) thereof following: (A)
the occurrence of an event described in subparagraphs (iii) or (iv) below or (B)
an offer or filing described in subparagraph (v) below; (ii) the failure of
KHG's shareholders to approve the Merger Agreement at a meeting called for such
purpose if at the time of such meeting there has been an announcement by any
Person (other than FFC) of an offer or proposal to acquire 25% or more of the
Common Stock (before giving effect to any exercise of the Warrant), or to
acquire, merge or consolidate with KHG, or to purchase all or substantially all
of KHG's assets (including without limitation any shares of Lebanon Valley
National Bank ("LVNB") or all or substantially all of LVNB's assets) and, within
ten business days after such announcement, the Board of Directors of KHG either
fails to recommend against acceptance of such offer by KHG's shareholders or
takes no position with respect thereto; (iii) the acquisition by any Person of
Beneficial Ownership of 25% or more of the Common Stock (before giving effect to
any exercise of the Warrant); (iv) any Person (other than FFC) shall have
commenced a tender or exchange offer, or shall have filed an application with an
appropriate bank regulatory authority with respect to a publicly announced
offer, to purchase or acquire securities of KHG such that, upon consummation of
such offer, such Person would have Beneficial Ownership of 25% or more of the
Common Stock (before giving effect to any exercise of the Warrant) and, within
12 months from such offer or filing, such person consummates an acquisition
described in subparagraph (iii) above; (v) KHG shall have entered into an
agreement, letter of intent, or other understanding with any Person (other than
FFC) providing for such Person (A) to acquire, merge, consolidate or enter into
a statutory share exchange with KHG or to purchase all or substantially all of
KHG's assets (including without limitation any shares of LVNB or all or
substantially all of LVNB's assets), or (B) to negotiate with KHG with respect
to any of the events or transactions mentioned in the preceding clause (A) or
(vi) termination, or attempted termination, of the Merger Agreement by KHG under
Section 5.7 of the Merger Agreement. As used in this Paragraph 2, the terms
"Beneficial Ownership" and "Person" shall have the respective meanings set forth
in Paragraph 7(f).
3. Registration Rights. If, at any time within two years after the
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Warrant may be exercised or sold, KHG shall receive a written request therefor
from FFC, KHG shall prepare and file a shelf registration statement (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), covering the Warrant and/or the Common Stock issued or
issuable upon exercise of the Warrant (the "Securities"), and shall use its best
efforts to cause the Registration Statement to become effective and remain
current for such period not in excess of 180 days from the day such registration
statement first becomes effective as may be reasonably necessary to affect such
sale or other disposition. Without the prior written consent of FFC, neither
KHG nor any other holder of securities of KHG may include such securities in the
Registration Statement.
4. Duties of KHG upon Registration. If and whenever KHG is required by
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the provisions of Paragraph 3 of this Agreement to effect the registration of
any of the Securities under the Securities Act, KHG shall:
(a) prepare and file with the Securities and Exchange Commission (the
"SEC") such amendments to the Registration Statement and supplements to the
prospectus contained therein as may be necessary to keep the Registration
Statement effective and current;
(b) furnish to FFC and to the underwriters of the Securities being
registered such reasonable number of copies of the Registration Statement,
the preliminary prospectus and final prospectus contained therein, and such
other documents as FFC or such underwriters may reasonably request in order
to facilitate the public offering of the Securities;
(c) use its best efforts to register or qualify the Securities
covered by the Registration Statement under the state securities or blue
sky laws of such jurisdictions as FFC or such underwriters may reasonably
request;
(d) notify FFC, promptly after KHG shall receive notice thereof, of
the time when the Registration Statement has become effective or any
supplement or amendment to any prospectus forming a part of the
Registration Statement has been filed;
(e) notify FFC promptly of any request by the SEC for the amending or
supplementing of the Registration Statement or the prospectus contained
therein, or for additional information;
(f) prepare and file with the SEC, promptly upon the request of FFC,
any amendments or supplements to the Registration Statement or the
prospectus contained therein which, in the opinion of counsel for FFC, are
required under
the Securities Act or the rules and regulations promulgated by the SEC
thereunder in connection with the public offering of the Securities;
(g) prepare and promptly file with the SEC such amendments of or
supplements to the Registration Statement or the prospectus contained
therein as may be necessary to correct any statements or omissions if, at
the time when a prospectus relating to such Securities is required to be
delivered under the Securities Act, any event shall have occurred as the
result of which such prospectus as then in effect would include an untrue
statement of a material fact or would omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(h) advise FFC, promptly after KHG shall receive notice or obtain
knowledge of the issuance of any stop order by the SEC suspending the
effectiveness of the Registration Statement, or the initiation or
threatening of any proceeding for that purpose, and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(i) at the request of FFC, furnish on the date or dates provided for
in the underwriting agreement: (i) an opinion or opinions of counsel for
KHG for the purposes of such registration, addressed to the underwriters
and to FFC, covering such matters as such underwriters and FFC may
reasonably request and as are customarily covered by issuer's counsel at
that time; and (ii) a letter or letters from the independent accountants
for KHG, addressed to the underwriters and to FFC, covering such matters as
such underwriters or FFC may reasonably request, in which letters such
accountants shall state (without limiting the generality of the foregoing)
that they are independent accountants within the meaning of the Securities
Act and that, in the opinion of such accountants, the financial statements
and other financial data of KHG included in the Registration Statement or
any amendment or supplement thereto comply in all material respects with
the applicable accounting requirements of the Securities Act.
5. Expenses of Registration. With respect to the registration requested
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pursuant to Paragraph 3 of this Agreement, (a) KHG shall bear all registration,
filing and NASD fees, printing and engraving expenses, fees and disbursements of
its counsel and accountants and all legal fees and disbursements and other
expenses of KHG to comply with state securities or blue sky laws of any
jurisdictions in which the Securities to be offered are to be registered or
qualified; and (b) FFC shall bear all fees and disbursements of its counsel and
accountants, underwriting discounts and commissions, transfer taxes for FFC and
any other expenses incurred by FFC.
6. Indemnification. In connection with any Registration Statement or any
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amendment or supplement thereto:
(a) KHG shall indemnify and hold harmless FFC, any underwriter (as
defined in the Securities Act) for FFC, and each person, if any, who
controls FFC or such underwriter (within the meaning of the Securities Act)
from and against any and all loss, damage, liability, cost or expense to
which FFC or any such underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such loss, damage,
liability, cost or expense arises out of or is caused by any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or arises out of or is
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that KHG will not be liable in any
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such case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by FFC, such underwriter or such controlling person
in writing specifically for use in the preparation thereof.
(b) FFC shall indemnify and hold harmless KHG, any underwriter (as
defined in the Securities Act), and each person, if any, who controls KHG
or such underwriter (within the meaning of the Securities Act) from and
against any and all loss, damage, liability, cost or expense to which KHG
or any such underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such loss, damage, liability, cost
or expense arises out of or is caused by any untrue or alleged untrue
statement of any material fact contained in the Registration Statement, any
prospectus or preliminary prospectus contained therein or any amendment or
supplement thereto, or arises out of or is based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was so made in reliance
upon and in conformity with written information furnished by FFC
specifically for use in the preparation thereof.
(c) Promptly after receipt by any party which is entitled to be
indemnified, pursuant to the provisions of subparagraph (a) or (b) of this
Paragraph 6, of any claim in writing or of notice of the commencement of
any action involving the subject matter of the foregoing indemnity
provisions, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party pursuant to the provisions of subparagraph
(a) or (b) of this Paragraph 6, promptly notify the indemnifying party of
the receipt of such claim or notice of the commencement of such action, but
the omission to so notify the indemnifying party will not relieve it from
any liability which it may otherwise have to any indemnified party
hereunder. In case any such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement thereof,
the indemnifying party shall have the right to participate in and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
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defendants in any action include both the indemnified party or parties and
the indemnifying party and there is a conflict of interest which would
prevent counsel for the indemnifying party from also representing any
indemnified party, such indemnified party shall have the right to select
separate counsel to participate in the defense of such indemnified party.
After notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party, pursuant to the provisions of
subparagraph (a) or (b) of this Paragraph 6, for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof, other than reasonable costs of investigation, unless
(i) such indemnified party shall have employed separate counsel in
accordance with the provisions of the preceding sentence, (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable
time after the notice of the commencement of the action, or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
(d) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, any party
entitled to indemnification by the terms thereof shall be entitled to
obtain contribution with respect to its liabilities and expenses, except to
the extent that contribution is not permitted under Section 11(f) of the
Securities Act. In determining the amount of contribution to which the
respective parties are entitled there shall be considered the parties'
relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and/or
prevent any statement or omission, and any other equitable considerations
appropriate under the circumstances. FFC and KHG agree that it would not
be equitable if the amount of such contribution were determined by pro rata
or per capita allocation even if the underwriters and FFC as a group were
considered a single entity for such purpose.
7. Redemption and Repurchase Rights.
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(a) From and after the date on which any event described in Paragraph
2 of this Agreement occurs, the Holder as defined in the Warrant (which
shall include a former Holder), who has exercised the Warrant in whole or
in part shall have the right to require KHG to redeem some or all of the
shares of Common Stock for which the Warrant was exercised at a redemption
price per share (the "Redemption Price") equal to the highest of: (i) the
Exercise Price, (ii) the highest price paid or agreed to be paid for any
share of Common Stock by an Acquiring Person (as defined below) during the
one year period immediately preceding the date of redemption, and (iii) in
the event of a sale of all or substantially all of KHG's assets or all or
substantially all of LVNB's assets: (x) the sum of the price paid in such
sale for such assets and the current market value of the remaining assets
of KHG as determined by a recognized investment banking firm selected by
such Holder, divided by (y) the number of shares of Common Stock then
outstanding. If the price paid consists in whole or in part of securities
or assets other than cash, the value of such securities or assets shall be
their then current market value as determined by a recognized investment
banking firm selected by the Holder and reasonably acceptable to KHG.
(b) From and after the date on which any event described in Paragraph
2 of this Agreement occurs, the Holder as defined in the Warrant (which
shall include a former Holder), shall have the right to require KHG to
repurchase all or any portion of the Warrant at a price (the "Warrant
Repurchase Price") equal to the product obtained by multiplying: (i) the
number of shares of Common Stock represented by the portion of the Warrant
that the Holder is requiring KHG to repurchase, times (ii) the excess of
the Redemption Price over the Exercise Price.
(c) The Holder's right, pursuant to this Paragraph 7, to require KHG
to repurchase a portion or all of the Warrant, and/or to require KHG to
redeem some or all of the shares of Common Stock for which the Warrant was
exercised, shall expire on the close of business on the 60th day following
the occurrence of any event described in Paragraph 2.
(d) The Holder may exercise its right, pursuant to this Paragraph 7,
to require KHG to repurchase all or a portion of the Warrant, and/or to
require KHG to redeem some or all of the shares of Common Stock for which
the Warrant was exercised, by surrendering for such purpose to KHG, at its
principal office within the time period specified in the preceding
subparagraph, the Warrant and/or a certificate or certificates representing
the number of shares to be redeemed accompanied by a written notice stating
that it elects to require KHG
to repurchase the Warrant or a portion thereof and/or to redeem all or a
specified number of such shares in accordance with the provisions of this
Paragraph 7. As promptly as practicable, and in any event within five
business days after the surrender of the Warrant and/or such certificates
and the receipt of such notice relating thereto, KHG shall deliver or cause
to be delivered to the Holder: (i) the applicable Redemption Price (in
immediately available funds) for the shares of Common Stock which it is not
then prohibited under applicable law or regulation from redeeming, and/or
(ii) the applicable Warrant Repurchase Price, and/or (iii) if the Holder
has given KHG notice that less than the whole Warrant is to be repurchased
and/or less than the full number of shares of Common Stock evidenced by the
surrendered certificate or certificates are to be redeemed, a new
certificate or certificates, of like tenor, for the number of shares of
Common Stock evidenced by such surrendered certificate or certificates less
the number shares of Common Stock redeemed and/or a new Warrant reflecting
the fact that only a portion of the Warrant was repurchased.
(e) To the extent that KHG is prohibited under applicable law or
regulation, or as a result of administrative or judicial action, from
repurchasing the Warrant and/or redeeming the Common Stock as to which the
Holder has given notice of repurchase and/or redemption, KHG shall
immediately so notify the Holder and thereafter deliver or cause to be
delivered, from time to time to the Holder, the portion of the Warrant
Repurchase Price and/or the Redemption Price which it is no longer
prohibited from delivering, within five business days after the date on
which KHG is no longer so prohibited; provided, however, that to the extent
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that KHG is at the time and after the expiration of 25 months, so
prohibited from delivering the Warrant Repurchase Price and/or the
Redemption Price, in full (and KHG hereby undertakes to use its best
efforts to obtain all required regulatory and legal approvals as promptly
as practicable), KHG shall deliver to the Holder a new Warrant (expiring
one year after delivery) evidencing the right of the Holder to purchase
that number of shares of Common Stock representing the portion of the
Warrant which KHG is then so prohibited from repurchasing, and/or KHG shall
deliver to the Holder a certificate for the shares of Common Stock which
KHG is then so prohibited from redeeming, and KHG shall have no further
obligation to repurchase such new Warrant or redeem such Common Stock; and
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provided further, that upon receipt of such notice and until five days
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thereafter the Holder may revoke its notice of repurchase of the Warrant
and/or redemption of Common Stock by written notice to KHG at its principal
office stating that the Holder elects to revoke its election to exercise
its right to require KHG to repurchase the Warrant and/or redeem the Common
Stock, whereupon KHG will promptly redeliver to the Holder the Warrant
and/or the certificates representing shares of Common Stock surrendered to
KHG for purposes of such repurchase and/or redemption, and KHG shall have
no further obligation to repurchase such Warrant and/or redeem such Common
Stock.
(f) As used in this Agreement the following terms have the meanings
indicated:
(1) "Acquiring Person" shall mean any "Person" (hereinafter
defined) who or which is the "Beneficial Owner" (hereinafter defined)
of 25% or more of the Common Stock;
(2) A "Person" shall mean any individual, firm, corporation or
other entity and shall also include any syndicate or group deemed to
be a "Person" by operation of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended;
(3) A Person shall be a "Beneficial Owner", and shall have
"Beneficial Ownership," of all securities:
(i) which such Person or any of its Affiliates (as
hereinafter defined) beneficially owns, directly or indirectly;
and
(ii) which such Person or any of its Affiliates or
Associates has (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time or
otherwise) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (2) the right to
vote pursuant to any proxy, power of attorney, voting trust,
agreement, arrangement or understanding; and
(4) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the regulations
promulgated by the SEC under the Securities and Exchange Act of 1934,
as amended.
8. Remedies. Without limiting the foregoing or any remedies available to
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FFC, it is specifically acknowledged that FFC would not have an adequate remedy
at law for any breach of this Warrant Agreement and shall be entitled to
specific performance of KHG's obligations under, and injunctive relief against
any actual or threatened violation of the obligations of any Person subject to,
this Agreement.
9. Miscellaneous.
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(a) The representations, warranties, and covenants of KHG set forth
in the Merger Agreement are hereby incorporated by reference in and made a
part of this Agreement, as if set forth in full herein.
(b) This Agreement, the Warrant and the Merger Agreement set forth
the entire understanding and agreement of the parties hereto and supersede
any and all prior agreements, arrangements and understandings, whether
written or oral, relating to the subject matter hereof and thereof. No
amendment, supplement, modification, waiver, or termination of this
Agreement shall be valid and binding unless executed in writing by both
parties.
(c) This Agreement shall be deemed to have been made in, and shall be
governed by and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their duly authorized officers as of the day and year first above
written.
FULTON FINANCIAL CORPORATION
By:___________________________________
Rufus A. Fulton, Jr., President
and Chief Executive Officer
Attest:_______________________________
William R. Colmery, Secretary
KEYSTONE HERITAGE GROUP, INC.
By:__________________________________
Albert B. Murry, President
and Chief Executive Officer
Attest:_______________________________
Peggy Y. Layser, Secretary