UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] Filed by the Registrant
[ ] Filed by a Party other than the Registrant
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS
PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
FIRST KEYSTONE CORPORATION
_____________________________________________________
(Exact name of registrant as specified in its Charter)
_____________________________________________________
(Name of Person(s) Filing Proxy Statement if other
than Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction
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applied:
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computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and
state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rul 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
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(4) Date Filed:
FIRST KEYSTONE CORPORATION
_________________________________________________________________
111 West Front Street
Berwick, Pennsylvania 18603
March 28, 2008
Dear Fellow Shareholders of First Keystone Corporation:
It is my pleasure to invite you to attend the 2008 Annual
Meeting of Shareholders of First Keystone Corporation to be held
on Tuesday, May 6, 2008, at 10:00 a.m., Eastern Daylight Time.
The Annual Meeting this year will be held at the McBride
Memorial Library, Community Room, 500 Market Street, Berwick,
Pennsylvania 18603.
The Notice of the Annual Meeting and the Proxy Statement on
the following pages address the formal business of the meeting.
The formal business schedule includes:
* The election of 3 Class C Directors; and
* The ratification of the selection of J. H. Williams &
Co., LLP, as the independent auditors for the corporation
for the fiscal year ending December 31, 2008.
At the meeting, members of the corporation's management
will review the corporation's operations during the past year
and will be available to respond to questions.
We strongly encourage you to vote your shares, whether or
not you plan to attend the meeting. It is very important that
you sign, date and return the accompanying proxy form as soon as
possible, in the postage-prepaid envelope. If you do attend the
meeting and wish to vote in person, you must give written notice
of your intentions to the Secretary of the corporation so that
any ballot you submit at the meeting will supersede your prior
proxy.
Thank you for your continued support. I look forward to
seeing you at the Annual Meeting if you are able to attend.
Sincerely,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz
President
[THE PAGE INTENTIONALLY LEFT BLANK]
FIRST KEYSTONE CORPORATION
________________________________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 2008
________________________________________
TO THE SHAREHOLDERS OF FIRST KEYSTONE CORPORATION:
Notice is hereby given that the Annual Meeting of
Shareholders of First Keystone Corporation will be held at 10:00
a.m., Eastern Daylight Time, on Tuesday, May 6, 2008, at the
McBride Memorial Library, Community Room, 500 Market Street,
Berwick, Pennsylvania 18603, for the following purposes:
1. To elect 3 Class C Directors to serve for a three year
term and until their successors are properly elected and
qualified;
2. To ratify the selection of J. H. Williams & Co., LLP as
the independent auditors for the corporation for the fiscal year
ending December 31, 2008; and
3. To transact any other business as may properly come
before the Annual Meeting and any adjournment or postponement of
the meeting.
In accordance with the bylaws of the corporation and action
of the Board of Directors, the corporation is giving notice of
the Annual Meeting only to those shareholders on the
corporation's records as of the close of business on March 4,
2008, and only those shareholders may vote at the Annual Meeting
and any adjournment or postponement of the Annual Meeting.
A copy of the corporation's Annual Report for the fiscal
year ended December 31, 2007, is mailed with this Notice.
Additional copies of the corporation's Annual Report for the
2007 fiscal year may be obtained, at no cost, by contacting
Cheryl Wynings, Investor Relations, First Keystone Corporation,
111 West Front Street, Berwick, Pennsylvania 18603, telephone:
(570) 752-3671.
Whether or not you expect to attend the Annual Meeting in
person, we ask you to complete, sign, date, and promptly return
the enclosed proxy form in the accompanying postage prepaid
envelope. By so doing, you will ensure your proper
representation at the meeting. The prompt return of your signed
proxy will also save the corporation the expense of additional
proxy solicitation. The execution and delivery of the enclosed
proxy does not affect your right to vote in person if you attend
the meeting and give written notice to the Secretary of the
corporation.
By Order of the Board of Directors,
/s/ J. Gerald Bazewicz
J. Gerald Bazewicz, President
Berwick, Pennsylvania
March 28, 2008
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON MAY 6, 2008
Table of Contents
________________
Page
General Information 3
Introduction, Date, Time and
Place of Annual Meeting 3
Solicitation and Voting of Proxies 3
Revocability of Proxy 4
Voting Securities, Record Date and Quorum 4
Vote Required for Approval of Proposals 4
Governance of the Company 5
Code of Ethics 5
Committees of the Board of Directors 5
Committees of the Bank 6
Board Meetings and Attendance 7
Shareholder Communications 7
Shareholder Proposals and Nominations 7
Proposal No. 1: Election of Directors 8
Information as to Directors and Nominees 8
Share Ownership 10
Principal Owners 10
Beneficial Ownership by Officers,
Directors and Nominees 10
Directors' Compensation Table 12
Compensation of Directors 13
Report of the Audit Committee 13
Compensation Discussion and Analysis 15
Summary Compensation Table 21
Principal Officers of the Bank and
the Corporation 30
Legal Proceedings 31
Proposal No. 2: Ratification of
Independent Auditors 31
Section 16(A) Beneficial Ownership
Reporting Compliance 32
Availability of Form 10-K 32
Other Matters 32
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
OF FIRST KEYSTONE CORPORATION TO BE HELD ON MAY 6, 2008
GENERAL INFORMATION
INTRODUCTION, DATE, TIME AND PLACE OF ANNUAL MEETING
____________________________________________________
First Keystone Corporation, a Pennsylvania business
corporation and registered bank holding company, furnishes this
Proxy Statement in connection with the solicitation, by its
Board of Directors, of proxies to be voted at the Annual Meeting
of Shareholders and at any adjournment or postponement of the
Annual Meeting. The corporation will hold the meeting on
Tuesday, May 6, 2008, at 10:00 a.m., Eastern Daylight Time, at
the McBride Memorial Library, Community Room, 500 Market Street,
Berwick, Pennsylvania 18603.
The principal executive office of the corporation is
located at First Keystone National Bank, 111 West Front Street,
Berwick, Pennsylvania 18603. The bank is the sole, wholly owned
subsidiary of the corporation. The telephone number for the
corporation is (570) 752-3671. All inquiries should be directed
to J. Gerald Bazewicz, President of the corporation and the
bank.
SOLICITATION AND VOTING OF PROXIES
__________________________________
This Proxy Statement and the enclosed proxy form are first
being sent to shareholders of the corporation on or about March
28, 2008.
By properly completing and returning the accompanying
proxy, a shareholder is appointing the proxy holders to vote his
or her shares as the shareholder specifies on the proxy. If a
shareholder signs the proxy but does not make any selection, the
proxy holders will vote the proxy:
* FOR the election of the nominees for Class C Director
named below; and
* FOR the ratification of the selection of J. H.
Williams & Co. as the independent auditors for
the corporation for the year ending December 31,
2008.
The execution and return of the enclosed proxy will not
affect your right to attend the Annual Meeting and vote in
person, after giving written notice to the Secretary of the
corporation.
The corporation will pay the cost of preparing, assembling,
printing, mailing and soliciting proxies, and any additional
material that the corporation may furnish shareholders in
connection with the Annual Meeting. In addition to the use of
the mail, directors, officers and employees of the corporation
and the bank may solicit proxies personally, by telephone,
telecopier or other electronic means. The corporation will not
pay any additional compensation for the solicitation. The
corporation will make arrangements with brokerage houses and
other custodians, nominees and fiduciaries to forward proxy
solicitation material to the beneficial owners and will
reimburse them for their reasonable forwarding expenses.
Proxy Statement Page 3
REVOCABILITY OF PROXY
_____________________
A shareholder who returns a proxy may revoke the proxy at
any time before it is voted only:
* By giving written notice of revocation to John E.
Arndt, Secretary of First Keystone Corporation,
at 111 West Front Street, Berwick, Pennsylvania,
18603;
* By executing a later dated proxy and giving
written notice of this fact to the Secretary of
the corporation; or
* By attending the Annual Meeting and voting in
person, after giving written notice to the
Secretary of the corporation, in person or at the
above address.
VOTING SECURITIES, RECORD DATE AND QUORUM
_________________________________________
At the close of business on March 4, 2008, the corporation
had 5,440,076 shares of common stock outstanding, par value
$2.00 per share. Our common stock is the corporation's only
issued and outstanding class of stock. The corporation also had
247,691 shares held in treasury, as issued but not outstanding
shares on that date. The corporation's Articles of
Incorporation authorize the issuance of up to 10,000,000 shares
of common stock and up to 500,000 shares of preferred stock. As
of March 4, 2008, no shares of preferred stock were issued or
outstanding.
Only shareholders of record as of the close of business on
March 4, 2008, may vote at the Annual Meeting. Cumulative
voting rights do not exist with respect to the election of
directors. On all matters to come before the Annual Meeting,
each shareholder is entitled to one vote for each share of
common stock held on the record date.
Pennsylvania law and the bylaws of the corporation require
the presence of a quorum for each matter that shareholders will
vote on at the Annual Meeting. The presence, in person or by
proxy, of shareholders entitled to cast at least a majority of
the votes that all shareholders are entitled to cast constitutes
a quorum for the transaction of business at the Annual Meeting.
The corporation will count votes withheld and abstentions in
determining the presence of a quorum for a particular matter.
The corporation will not count broker non votes in determining
the presence of a quorum for a particular matter. A broker non
vote occurs when a broker nominee, holding shares for a
beneficial owner, does not vote on a particular proposal because
the nominee does not have discretionary voting power with
respect to that item, and has not received instructions from the
beneficial owner. Those shareholders present, in person or by
proxy, may adjourn the meeting to another time and place if a
quorum is lacking.
VOTE REQUIRED FOR APPROVAL OF PROPOSALS
_______________________________________
Assuming the presence of a quorum, the 3 nominees for
director receiving the highest number of votes cast by
shareholders will be elected. Votes withheld from a nominee and
broker non votes will not be cast for the nominee.
Assuming the presence of a quorum, ratification of the
selection of independent auditors requires the affirmative vote
of a majority of all votes cast by shareholders, in person or by
proxy, on the matter. Abstentions and broker non votes are not
votes cast and, therefore, do not count either for or against
ratification. Abstentions and broker non votes, however, have
the practical effect of reducing the number of affirmative votes
required to achieve a majority for each matter by reducing the
total number of shares voted from which the majority is
calculated.
Page 4 First Keystone Corporation
GOVERNANCE OF THE COMPANY
Our Board of Directors believes that the purpose of
corporate governance is to ensure that we maximize shareholder
value in a manner consistent with legal requirements and the
highest standards of integrity. The Board has adopted and
adheres to corporate governance practices which the Board and
senior management believe promote this purpose, and are sound
and represent best practices.
The corporation's Board of Directors oversees all business,
property and affairs of the corporation. The Chairman and the
corporation's officers keep the members of the Board informed of
the corporation's business through discussions at Board meetings
and by providing them with reports and other materials. The
directors of the corporation also serve as the directors of the
corporation's wholly owned bank subsidiary, First Keystone
National Bank, upon election by the corporation.
Currently, our Board of Directors has 11 members. Based on
the qualifications for independence established under the
Securities and Exchange Commission (the "SEC") and NASDAQ
standards for independence, Don E. Bower, Dudley P. Cooley, and
Jerome F. Fabian meet the standards for independence. Only
independent directors serve on our Audit Committee.
In determining the directors' independence, the Board of
Directors considered loan transactions between the bank and the
directors, their family members and businesses with whom they
are associated, as well as any contributions made to non profit
organizations with whom they are associated.
CODE OF ETHICS
As required by law and regulation, in 2003 we adopted our
Code of Ethics to be applicable to our directors and senior
officers. The Code of Ethics is posted on our website at
www.firstkeystonecorporation.com, which we filed with the SEC as
exhibit 14 on Form 8-K on January 11, 2007.
COMMITTEES OF THE BOARD OF DIRECTORS
The corporation's board of directors has, at present, an
audit committee.
AUDIT COMMITTEE. Members of the Audit Committee, during
2007, were Dudley P. Cooley, Chairman, Don E. Bower, and Jerome
F. Fabian, each of whom the Board of Directors has determined
satisfies the independence and audit committee qualification
standards. The Audit Committee met 4 times during 2007. The
principal duties of the Audit Committee, are set forth in its
charter which is available on our website at
www.firstkeystonecorporation.com under the governance documents
menu. The duties include reviewing significant audit and
accounting principles, policies and practices, reviewing
performance of internal auditing procedures, reviewing reports
of examination received from regulatory authorities, and
recommending annually, to the Board of Directors the engagement
of an independent certified public accountant.
The Board of Directors has determined that Dudley P. Cooley
is an "audit committee financial expert" and "independent" as
defined under applicable SEC and NASDAQ rules. The Board deems
Mr. Cooley a "financial expert" as he possess the following
attributes:
Proxy Statement Page 5
* An understanding of financial statements;
* Proficiency in assessing the general utilization of such
principles in connection with accounting for estimates,
accruals and reserves;
* Lengthy experience preparing, auditing, analyzing and
evaluating financial statements;
* Understanding of internal controls and procedures for
financial reporting; and
* Understanding of audit committee functions.
During 2007, the corporation did not have formal nominating
or compensation committees. The Board determined that it is
appropriate for the corporation not to have a nominating or
compensation committee in view of the corporation's relative
size, stability of the corporation's Board of Directors, and the
historic involvement of the entire Board in the director
selection process and in the compensation process. Because
there is no formal nominating or compensation committee, the
corporation does not have a formal charter for such committees.
COMMITTEES OF THE BANK
During 2007, the bank's board of directors maintained
standing committees: trust, asset liability management,
marketing, loan administration, human resources, building and
executive. The composition of these committees is described
below:
Name Trust ALCO Marketing
____ _____ _____ ________
<s> <c> <c> <c>
John E. Arndt X X
J. Gerald Bazewicz X X X
Don E. Bower X
Robert A. Bull X X X
Robert E. Bull X X
Dudley P. Cooley X
Jerome F. Fabian X*
David R. Saracino X
Robert J. Wise X* X
Number of Meetings
Held in 2007 12 4 4
Loan Human
Name Administration Resources
____ _____________ ________
<s> <c> <c>
John E. Arndt X*
J. Gerald Bazewicz X X
Don E. Bower X* X
Robert A. Bull X
Robert E. Bull X
Dudley P. Cooley X
Jerome F. Fabian X X
David R. Saracino X
Robert J. Wise X X
Number of Meetings
Held in 2007 4 1
Name Executive Building
____ _________ ________
<s> <c> <c>
John E. Arndt X
J. Gerald Bazewicz X X
Don E. Bower X
Robert A. Bull
Robert E. Bull X* X
Dudley P. Cooley X
Jerome F. Fabian X
David R. Saracino X
Robert J. Wise X X*
Number of Meetings
Held in 2007 0 0
*Denotes Chairman of Respective Committee
Messrs. Joseph B. Conahan, Jr. and John G. Gerlach were appointed to the
Board of Directors in December 2007 and therefore, did not serve on any
standing committees in 2007.
TRUST COMMITTEE - This committee ensures that all trust
activities of the bank are performed in a manner that is
consistent with the legal instrument governing the account,
prudent trust administration practices, and approved trust
policy.
ASSET/LIABILITY COMMITTEE - This committee reviews
asset/liability committee reports and provides support and
discretion in managing the bank's net interest income, liquidity,
and interest rate sensitivity positions.
Page 6 First Keystone Corporation
MARKETING COMMITTEE - This committee provides guidance to
management in formulating marketing/sales plans and programs to
assist in evaluating the performance of the bank relative to
these plans.
LOAN ADMINISTRATION COMMITTEE - This committee monitors
loan review and compliance activities. Also, the committee
ensures that loans are made and administered in accordance with
the loan policy.
HUMAN RESOURCES COMMITTEE - This committee helps ensure
that a sound human resources management system is developed and
maintained. This committee determines compensation for non
executive officers and employees. The entire Board of Directors
acts as the Compensation Committee for the corporation and
determines compensation for the executive officers.
EXECUTIVE COMMITTEE - This committee exercises the
authority of the Board of Directors in the management of the
business of the bank between the dates of regular Board of
Directors meetings.
BUILDING COMMITTEE - This committee makes recommendations
to the Board relating to the bank's physical assets, including
both current and proposed physical assets.
BOARD MEETINGS AND ATTENDANCE
The members of the Board of Directors of the corporation
also serve as members of the Board of Directors of First Keystone
National Bank. During 2007, the corporation's Board of Directors
held 14 meetings. Each of the directors attended at least 75% of
the combined total number of meetings of the corporation's Board
of Directors and the committees of which he is a member.
Although there is no formal policy, all directors are expected to
attend the Annual Meeting of Shareholders. All directors
attended the 2007 Annual Meeting of Shareholders.
SHAREHOLDER COMMUNICATIONS
__________________________
The Board of Directors does not have a formal process for
shareholders to send communications to the Board. Due to the
infrequency of shareholder communications to the Board of
Directors, the Board does not believe that a formal process is
necessary.
SHAREHOLDER PROPOSALS AND NOMINATIONS
_____________________________________
If a shareholder wants us to include a proposal in our proxy
statement for presentation at our 2009 Annual Meeting of
Shareholders, the proposal must be received by us at our
principal executive offices at 111 West Front Street, Berwick,
Pennsylvania 18603, no later than December 1, 2008. Any proposal
must comply with Securities and Exchange Commission regulations
regarding the inclusion of shareholder proposals in company
sponsored proxy materials. If a shareholder proposal is
submitted to the company after December 1, 2008, it is considered
untimely; and, although the proposal may be considered at the
annual meeting, the company is not obligated to include it in the
2009 Proxy Statement.
The corporation's Board of Directors nominates individuals
for the position of director. Neither the corporation nor the
bank has a nominating committee. In addition, a shareholder who
desires to propose an individual for consideration by the Board
of Directors as a nominee for director should submit a proposal
in writing to the Secretary of the corporation in accordance with
Section 10.1 of the corporation's bylaws. Any shareholder who
intends to recommend nomination of any candidate
Proxy Statement Page 7
for election to the Board of Directors must notify the Secretary
of the corporation in writing not less than 45 days prior to the
date of any meeting of shareholders called for the election of
directors and must provide the specific information listed in
Section 10.1 of the bylaws. You may obtain a copy of the
corporation's bylaws by writing to John E. Arndt, Secretary,
First Keystone Corporation, 111 West Front Street, Berwick,
Pennsylvania 18603.
PROPOSAL NO. 1: ELECTION OF CLASS C DIRECTORS
The corporation's bylaws provide that its Board of Directors
will manage the corporation's business. Sections 10.2 and 10.3
of the Bylaws provide that the number of directors on the Board
will not be less than 7 nor more than 25 and that the Board of
Directors will be classified into 3 classes, each class to be
elected for a term of 3 years. Within the foregoing limits, the
Board of Directors may, from time to time, fix the number of
directors and their classifications. No person over 70 years old
may serve as director with the exception of Messrs. Bull and
Wise. Section 11.1 of the bylaws require that a majority of the
remaining members of the Board of Directors, even if less than a
quorum, will select and appoint directors to fill vacancies on
the Board, and each person so appointed will serve as director
until the expiration of the term of office of the class of
directors to which he or she was appointed.
Section 10.3 of the bylaws provide for a classified Board of
Directors with staggered three year terms of office. Accordingly,
at the 2008 Annual Meeting of Shareholders, 3 Class C Directors
will be elected to serve for a three year term and until their
successors are properly elected and qualified. The Board of
Directors of the corporation has nominated the current Class C
Directors to serve as Class C Directors for the next three year
term of office. The nominees for reelection this year are as
follows:
* Don E. Bower, director since 2001;
* Robert A. Bull, director since 2006; and
* Dudley P. Cooley, director since 1987.
Each nominee has consented to serve a three year term of
office and until his successor is elected and qualified.
Unless otherwise instructed, the proxy holders will vote the
proxies for the election of these 3 nominees. If any nominee
should become unavailable for any reason, proxies will be voted
in favor of a substitute nominee named by the Board of Directors
of the corporation. A majority of the directors of the
corporation, in office, may appoint a new director to fill any
vacancy occurring on the Board for any reason, and the new
director will serve until the expiration of the term of the class
of directors to which he or she was appointed.
The corporation's Articles of Incorporation provide that
cumulative voting rights will not exist with respect to the
election of directors. Accordingly, each share of common stock
entitles its owner to cast one vote for each nominee. For
example, if a shareholder owns 10 shares of common stock, he or
she may cast up to 10 votes for each director to be elected.
The Board of Directors recommends that shareholders vote FOR
the election of the above named nominees.
INFORMATION AS TO DIRECTORS AND NOMINEES
________________________________________
The following selected biographical information about the
directors and nominees for director is accurate as of March 4,
2008, and includes each person's business experience for at least
the past 5 years.
Page 8 First Keystone Corporation
CURRENT CLASS C DIRECTORS WHOSE TERM EXPIRES IN 2008
AND NOMINEES FOR CLASS C DIRECTOR WHOSE TERM WILL EXPIRE IN 2011
Don E. Bower Mr. Bower (age 59), is the President
and owner of Don E. Bower, Inc., an
excavation contracting corporation
located in Berwick, Pennsylvania. He
has been a director of the corporation
and the bank since 2001.
Robert A. Bull <F1> Mr. Bull (age 55), is an attorney at
the law firm Bull, Bull, & Knecht, LLP.
Mr. Bull has been a director of the
corporation and the bank since 2006.
Dudley P. Cooley Mr. Cooley (age 69), is a retired
financial consultant. He has been a
director of the corporation and the
bank since 1987.
CLASS A DIRECTORS WHOSE TERM EXPIRES IN 2009
Jerome F. Fabian Mr. Fabian (age 65), is the President
and owner of Tile Distributors of
America, Inc., located in Wilkes Barre,
Pennsylvania. He has served as a
director of the corporation and the
bank since 1998.
John G. Gerlach Mr. Gerlach (age 66), is the President
of Pocono Community Bank, a division of
First Keystone National Bank. He has
been a director of the corporation and
the bank since 2007.
David R. Saracino Mr. Saracino (age 63), is the former
Vice President, Cashier, and Chief
Financial Officer of First Keystone
National Bank. Mr. Saracino has served
as a director of the corporation and
the bank since 2006.
Robert J. Wise Mr. Wise (age 78), now retired, has
served as a director of the corporation
since 1983 and of the bank since 1967.
Mr. Wise is also the Vice Chairman of
the Board of the corporation and the
bank, a position he has held since
1996.
CLASS B DIRECTOR WHOSE TERM EXPIRES IN 2010
John E. Arndt Mr. Arndt (age 46), is an insurance
broker and the owner of Arndt Insurance
Agency in Berwick, Pennsylvania. He
has served as a director of the
corporation and the bank since 1995.
J. Gerald Bazewicz Mr. Bazewicz (age 59), serves as the
President and Chief Executive Officer
of the corporation and the bank, a
position he has held since 1987. He
has served as a director of the
corporation and the bank since 1986.
Robert E. Bull <F1> Mr. Bull (age 85), now retired,
practiced as an attorney at the law
firm Bull, Bull & Knecht, LLP, of which
he remains a partner. He has been the
Chairman of the Board of the
corporation since 1983 and of the bank
since 1981. He has served as a
director of the corporation since 1983
and of the bank since 1956.
Proxy Statement Page 9
Joseph B. Conahan, Jr. Dr. Conahan (age 64), is an
Ophthalmologist and President of Pocono
Eye Associates, Inc. Dr. Conahan has
been a director of the corporation and
the bank since 2007.
<FN>
<F1>
Robert E. Bull is the father of Robert A. Bull.
</FN>
SHARE OWNERSHIP
PRINCIPAL OWNERS
________________
The following table sets forth, as of March 4, 2008, the
name and address of each person who owns of record or who is
known by the Board of Directors to be the beneficial owner of
more than 5% of the corporation's outstanding common stock, the
number of shares beneficially owned by the person and the
percentage of the corporation's outstanding common stock so
owned.
________________________________________________________________________
Amount and Percent of
Nature of Outstanding
Beneficial Common Stock
Name and Address Ownership <F1> Beneficially Owned
________________________________________________________________________
<s> <c> <c>
Berbank 467,041 <F2> 8.59%
First Keystone National
Bank Trust Department
111 West Front Street
Berwick, PA 18603
____________________
<FN>
<F1>
The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
and may include securities owned by or for the individual's spouse and
minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 4, 2008. Beneficial ownership may be disclaimed as to certain
of the securities.
<F2>
Nominee registration for the common stock held by the Trust Department of
the bank on behalf of various trusts, estates and other accounts for which
the bank acts as fiduciary with sole voting and dispositive power over
381,750 shares and as fiduciary with shared voting and dispositive power
over 85,291 shares. Total does not include 130,623 shares held by the
Trust Department of the bank for which the bank does not have sole or
shared voting or dispositive power. The Trust Department intends to cast
all shares under its voting power for the election of the nominees for
director named below and for the ratification of J. H. Williams & Co.,
LLP, independent auditors of the corporation.
</FN>
BENEFICIAL OWNERSHIP BY OFFICERS, DIRECTORS AND NOMINEES
________________________________________________________
The following table sets forth, as of March 4, 2008, the
amount and percentage of the outstanding common stock
beneficially owned by each director, nominee for director, and
other named executive officer of the corporation. The table also
indicates the total number of shares owned by all directors,
nominees for director, and executive officers of the corporation
and the bank as a group. A person owns his shares directly as an
individual unless otherwise indicated.
Page 10 First Keystone Corporation
Number of
Name Shares Owned Percentage
<F1><F2> <F3>
____ _____________ _______
<s> <c> <c>
Nominee for Class C Directors
(to serve until 2011)
And Class C Director
____________________
Don E. Bower 38,204 <F4> -
Robert A. Bull 71,270 <F5> 1.31%
Dudley P. Cooley 7,697 -
Class A Director
(to serve until 2009)
____________________
Jerome F. Fabian 36,557 <F6> -
John G. Gerlach 6,064 <F7> -
David R. Saracino 12,053 <F8> -
Robert J. Wise 188,090 <F9> 3.46%
Class B Director
(to serve until 2010)
____________________
John E. Arndt 8,187 <F10> -
J. Gerald Bazewicz 41,744 <F11> -
Robert E. Bull 216,603 <F12> 3.98%
Joseph B. Conahan, Jr. 45,939 <F13> -
Other Named Executive Officer
_____________________________
Matthew P. Prosseda 2,320 <F14> -
Diane C. Rosler 3,456 <F15> -
All Directors and Executive
Officers as a Group
(15 Persons in Total) 687,947 12.65%
____________________
<FN>
<F1>
The securities "beneficially owned" by an individual are determined in
accordance with the definitions of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission
and may include securities owned by or for the individual's spouse and
minor children and any other relative who has the same home, as well as
securities to which the individual has or shares voting or investment
power or has the right to acquire beneficial ownership within 60 days
after March 4, 2008. Beneficial ownership may be disclaimed as to certain
of the securities.
<F2>
Information furnished by the directors and the corporation.
<F3>
Less than 1% unless otherwise indicated.
<F4>
Includes 36,832 shares held individually by Mr. Bower, 700 shares held
jointly with his spouse, and 672 shares held as custodian for his
grandchildren.
<F5>
Includes 22,519 shares held individually by Mr. R.A. Bull, 4,238 shares
held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a
partner, 26,139 shares held jointly with his spouse, 4,840 shares held
individually by his spouse, and 11,034 shares held by his child.
<F6>
Includes 6,628 shares held individually by Mr. Fabian, 13,680 shares by
the Jerome F. Fabian Trust Under Agreement for which Mr. Fabian exercises
dispositive power, and 16,249 shares held jointly with his spouse.
<F7>
Includes 500 shares held individually by Mr. Gerlach and 5,564 shares held
jointly with his spouse.
Proxy Statement Page 11
<F8>
Includes 3,075 shares pledged securities.
<F9>
Includes 78,750 shares held individually by Mr. Wise, 30,590 shares held
jointly with his spouse, and 78,750 shares held individually by his
spouse.
<F10>
Includes 7,082 shares held individually by Mr. Arndt, and 1,105 shares
held individually by his spouse.
<F11>
Includes 18,602 shares held individually by Mr. Bazewicz, 7,040 shares
held in his bank 401(k) plan, 5,593 shares held jointly with his spouse,
797 shares held individually by his spouse, and 9,712 shares which may be
purchased upon the exercise of stock options.
<F12>
Includes 128,695 shares held individually by Mr. R.E. Bull, 4,238 shares
held by Bull, Bull & Knecht, LLP, a law firm of which Mr. Bull is a
partner, and 83,670 shares held by the Sara E. Bull Decedent Estate Trust
of which Mr. Bull is the trustee.
<F13>
Includes 41,449 shares held individually by Dr. Conahan and 4,490 shares
held jointly with his spouse.
<F14>
Includes 1,267 shares held individually by Mr. Prosseda, 528 shares held
in his bank 401(k) plan, and 525 shares which may be purchased upon the
exercise of stock options.
<F15>
Includes 646 shares held in her bank 401(k) plan and 2,810 shares which
may be purchased upon the exercise of stock options.
</FN>
DIRECTORS' COMPENSATION TABLE
FEES EARNED
OR PAID
IN CASH STOCK
NAME ($) AWARDS
____ _______ ______
<s> <c> <c>
John Arndt 27,050.00 ---
Don E. Bower 25,700.00 ---
Robert A. Bull 27,800.00 ---
Robert E. Bull 30,200.00 ---
Joseph B. Conahan, Jr. 1,200.00 ---
Dudley P. Cooley 24,800.00 ---
Jerome F. Fabian 25,700.00 ---
David R. Saracino 25,700.00 ---
Robert J. Wise 28,850.00 ---
NON-EQUITY
OPTION INCENTIVE PLAN
NAME AWARDS COMPENSATION
____ ______ ____________
<s> <c> <c>
John Arndt --- ---
Don E. Bower --- ---
Robert A. Bull --- ---
Robert E. Bull --- ---
Joseph B. Conahan, Jr. --- ---
Dudley P. Cooley --- ---
Jerome F. Fabian --- ---
David R. Saracino --- ---
Robert J. Wise --- ---
CHANGE IN PENSION
VALUE AND
NON-QUALIFIED
DEFERRED ALL OTHER
COMPENSATION COMPENSATION
NAME EARNINGS ($)
____ ________ ____________
<s> <c> <c>
John Arndt --- ---
Don E. Bower --- ---
Robert A. Bull --- ---
Robert E. Bull --- ---
Joseph B. Conahan, Jr. --- ---
Dudley P. Cooley --- ---
Jerome F. Fabian --- ---
David R. Saracino --- ---
Robert J. Wise --- ---
TOTAL
($)
_____
<s> <c>
John Arndt 27,050.00
Don E. Bower 25,700.00
Robert A. Bull 27,800.00
Robert E. Bull 30,200.00
Joseph B. Conahan, Jr. 1,200.00
Dudley P. Cooley 24,800.00
Jerome F. Fabian 25,700.00
David R. Saracino 25,700.00
Robert J. Wise 28,850.00
Page 12 First Keystone Corporation
COMPENSATION OF DIRECTORS
_________________________
During 2007, each member of the corporation's Board of
Directors received $600 for his attendance at the Annual Meeting.
Other corporate Board meetings met concurrently with the bank's
Board, and directors received no additional compensation. The
bank's directors received $600 for each directors' meeting
attended. Non employee directors received a $5,000 retainer and
$300 for each committee meeting attended. In addition, Chairman
Bull received an annual stipend of $1,000, and Vice Chairman Wise
and Secretary Arndt each received an annual stipend of $750. In
the aggregate, the Board of Directors received $238,600 for all
Board of Directors' meetings and committee meetings attended in
2007, including all fees, and stipends paid to all directors in
2007.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee oversees the corporation's financial
reporting process on behalf of the Board of Directors. In that
connection, the committee, along with the Board of Directors, has
formally adopted an audit committee charter setting forth its
responsibilities.
Management has the primary responsibility for the financial
statements and the reporting process including the systems of
internal control. In fulfilling its oversight responsibilities,
the committee reviewed the audited financial statements in the
Annual Report with management including a discussion of the
quality, not just the acceptability, of the accounting
principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
The committee reviewed with the independent auditors, who
are responsible for expressing an opinion on the conformity of
those audited financial statements with generally accepted
accounting principles, their judgments as to the quality, not
just the acceptability, of the corporation's accounting
principles and such other matters as are required to be discussed
with the committee under generally accepted auditing standards.
In addition, the committee has discussed with the independent
auditors the auditors' independence from management and the
corporation including the matters in written disclosures required
by the Independence Standards Board and considered the
compatibility of non audit services with the auditors'
independence.
The committee discussed the overall scope and plans for
their audits with the corporation's internal and independent
auditors. The committee meets with the internal and independent
auditors, with and without management present, to discuss the
results of their examinations, their evaluations of the
corporation's internal controls and the overall quality of the
corporation's financial reporting. The corporation believes that
it has established appropriate policies and procedures to comply
with requirements of the Sarbanes-Oxley Act of 2002. The
committee held 4 meetings during fiscal year 2007 in addition to
reviewing the quarterly results with the financial auditors prior
to press release.
In reliance on the reviews and discussions referred to
above, the committee recommended to the Board of Directors (and
the Board has approved) that the audited financial statements be
included in the Annual Report on Form 10-K for the year ended
December 31, 2007 for filing with the Securities and Exchange
Commission. The committee and the Board of Directors have also
approved the selection of the corporation's independent auditors
for 2008.
With respect to the corporation's outside auditors, the
committee, among other things, discussed with J.H. Williams &
Co., LLP matters relating to its independence, including the
written disclosures made to the committee by the outside auditors
and the letter from the outside auditors as required by the
Independence Standards Board No. 1 (Independence Discussions with
Audit Committees).
Proxy Statement Page 13
Aggregate fees billed to the corporation and the bank by J.
H. Williams & Co., LLP for services rendered during the years
ended December 31, 2007 and 2006 were as follows:
Year Ended December 31,
2007 2006
____ ____
<s> <c> <c>
Audit fees <F1> $ 84,100 $81,800
Audit related fees <F2> 23,645 0
Tax fees <F3> 6,400 6,200
All other fees <F4> 0 0
________ _______
Total $113,645 $88,000
======== =======
_________________
<FN>
<F1>
Audit Fees include fees billed for profession services rendered
for the audit of annual financial statement and fees billed for
the review of financial statements included in First Keystone
Corporation's Forms 10-Q or services that are normally provided
by J. H. Williams & Co., LLP in connection with statutory and
regulatory filings or engagements.
<F2>
Audit Related Fees include fees reasonably related to the audit
services provided by J. H. Williams & Co, LLP but not reported
under Audit Fees. These services include review of certain
financial information related to an acquisition of a financial
institution.
<F3>
Tax Fees include fees billed for professional services rendered
by J. H. Williams & Co., LLP for tax compliance, tax advice, and
tax planning. These services include preparation of Federal and
State Annual Tax Returns for the Corporation.
<F4>
All Other Fees include fees billed for products and services
provided by J. H. Williams & Co., LLP, other than the services
reported under the Audit Fees, Audit Related Fees, or Tax Fees.
</FN>
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON AUDIT
SERVICES OF INDEPENDENT AUDITOR
_______________________________
The Audit Committee pre approves all audit and permissible
non audit services provided by the independent auditors. These
services may include audit services, audit related services, tax
services, and other services. The Audit Committee has adopted a
policy for the pre approval of services provided by the
independent auditors. Under the policy, pre approval is
generally provided for up to one year and any pre approval is
detailed as to the particular service or category of services and
is subject to a specific budget. In addition, the Audit
Committee may also pre approve particular services on a case by
case basis. For each proposed service, the independent auditor
is required to provide a detailed engagement letter.
The committee is comprised of 3 directors, all of whom are
considered "independent" as defined by the NASDAQ listing
standards. The Board of Directors has determined that no member
of the committee has a relationship with the corporation that
should interfere with his independence from the corporation or
its management.
The foregoing report has been furnished by the current
members of the committee.
MEMBERS OF THE AUDIT COMMITTEE
Dudley P. Cooley, Chairman
Don E. Bower
Jerome F. Fabian
Page 14 First Keystone Corporation
COMPENSATION DISCUSSION AND ANALYSIS
INTRODUCTION
____________
The Board of Directors serves as the Compensation Committee
for the Bank and develops the bank's and the corporation's
executive compensation policy, with the guidance of the Human
Resources Committee. The Human Resources Committee consists of
independent directors and the Chief Executive Officer and helps
ensure that a sound human resources management system is
developed and maintained.
Executive compensation includes base salary, cash bonuses,
long term incentives, and health and welfare and pension plans.
The basic mission of the corporation's executive compensation
policy is to provide executives with a competitive compensation
package that attracts and retains qualified executives while
placing a portion of total pay at risk. At risk elements of
compensation may have no value or may be worth less than the
target value if goals are not met. At risk compensation includes
all components of core compensation other than base salary,
pension plans, and health and welfare benefits. Equity based
compensation provides an incentive for the executives which are
aligned with the interests of the shareholders.
The compensation program is designed to reward the named
executive officers based on their level of assigned management
responsibilities, individual performance levels, and individual
value in the job marketplace. The Chief Executive Officer's
individual performance objectives are the same as the strategic
and financial performance objectives of the bank as a whole. For
other executives, individual performances objectives are set by
the Chief Executive Officer and a year end performance appraisal
on each executive is prepared and reviewed by the Board of
Directors.
The executive compensation established by the Board of
Directors is based upon its overall subjective assessment of the
value of the services provided by each executive officer with
consideration performance factors and peer group compensation
information. The Board considers information provided by the
Chief Executive Officer in determining the appropriate level of
compensation for other executives, including the Chief Executive
Officer's views on the appropriate levels of compensation for
other named executive officers for the ensuing year. No
executive officer other than the Chief Executive Officer attends
those portions of the Board meetings during which the performance
of the other named executive officers is evaluated or their
compensation is being determined. For compensation provided to
the Chief Executive Officer, the Board considers his performance,
the results of management decisions made by him, and the earnings
of the organization. The Chief Executive Officer is not present
during these discussions.
COMPENSATION CONSULTANT
_______________________
The firm of L.R. Webber & Associates acts as a compensation
consultant for the bank. L.R. Webber was hired by the Board of
Directors. The bank requested that the consultant provide
compensation survey information and be available to address the
bank's questions. The consultant did not play a role in setting
compensation.
BENCHMARKING
____________
The Board of Directors uses data from the L. R. Webber &
Associates compensation survey of the Pennsylvania banking and
thrift industry to assist in determining executive pay. The peer
group of financial institutions chosen by the Board of Directors
for purposes of making a comparative analysis of executive
compensation does not include all of the same financial
institutions incorporated in the peer group established to
compare shareholder returns as indicated in the performance graph
included in the Form 10-K.
Proxy Statement Page 15
From the L. R. Webber survey, the financial institutions
chosen to benchmark included (15) banks and (2) thrifts with
assets between $500 million and $1 billion, or financial
institutions with headquarters located in Northeastern
Pennsylvania. The financial institutions included:
- - Citizens Savings Bank (Clarks Summit)
- - Columbia County Farmers National Bank (Bloomsburg)
- - Community Bank & Trust Company (Clarks Summit)
- - Dime Bank (Honesdale)
- - Ephrata Naitonal Bank (Ephrata)
- - ESSA Bank & Trust (Stroudsburg)
- - Fidelity Deposit & Discount Bank (Dunmore)
- - First Citizens National Bank (Mansfield)
- - First Community Bank & Trust Co.
- - First Liberty Bank & Trust (Jermyn)
- - First National Community Bank (Dunmore)
- - Jersey Shore State Bank (Williamsport)
- - Luzerne Bank (Luzerne)
- - Mauch Chunk Trust Company (Jim Thorpe)
- - Merchants National Bank of Bangor (Bangor)
- - Orrstown Bank (Shippensburg)
- - Peoples National Bank (Hallstead)
As a result of the benchmarking, after reviewing base
salaries and benefits, no adjustments to compensation were
necessary in 2007, other than the normal annual salary increases.
The goal of First Keystone Corporation to compensate at
approximately the average range mid point for each job
classification with at risk portion of compensation for the
executives to reward favorable overall bank earnings performance.
The executive positions reviewed were all in the mid point range
except for the Chief Financial Officer, which was below the mid
point range because of the limited amount of time the present CFO
served in this position.
BASE SALARY
___________
The Board of Directors determines base salary for the
executive officers with guidance from the Human Resources
Committee and from compensation surveys. For the base salary
paid to executive officers other than the Chief Executive
Officer, the Board of Directors considers information provided by
the Chief Executive Officer as to each executive officer's level
of individual performance, contribution to the organization,
scope of responsibilities, salary history, and market levels.
For the base salary paid to the Chief Executive Officer, the
Board of Directors, with the Chief Executive Officer not being
present, considers his performance level, the results of
management decisions made by him, and the earnings of the
organization. The Board of Directors considers the return on
assets and return on equity when determining whether or not the
Chief Executive Officer's base pay should be at the median, below
the median, or above the median provided in the compensation
surveys. No particular weight is assigned to any of the
foregoing individual performance factors.
Decisions regarding base salary are made without
consideration of other forms of compensation provided. Bonuses
and long term incentive awards are intended to provide additional
incentive to the executives to achieve a higher level of success.
Adjusting the base salary to correspond with the amount of the
bonuses and long term incentive awards would defeat the purpose
of having at risk compensation. The at risk compensation
incorporates a performance target for the corporation as
described in cash bonuses below.
Page 16 First Keystone Corporation
CASH BONUSES
____________
The purpose of the Management Incentive Compensation Plan
(the "Plan") is to provide incentives and awards to top
management employees who, through high levels of performance,
contribute to the success and profitability of the bank. The
bonus plan serves as short term incentives that align executive
pay with the annual performance of the corporation and is earned
through the achievement of overall annual earnings objectives.
It aligns management's interests with those of the shareholders
because, generally, the higher the net income for the year, the
larger the bonuses paid to management. The Plan is also designed
to support organizational objectives and financial goals, as
defined by the bank's Strategic and Financial Plans, by making
available additional, variable, and contingent incentive
compensation. The required budget net income figure has
generally been 5% to 10% over the previous year's net income for
the corporation.
The Plan is based upon the achievement of a required budget
net income figure of $6.4 million in 2007 before any incentive
award "pool" is formed. The calculation of share of profits to
be distributed to the Plan participants, and the incentive
formulas, are constructed to provide awards that are consistent
with achieved profitability levels. The incentive formulas
insure a level of incentive award that will enable the bank to
attract, retain, and motivate high quality management personnel
and support continued growth and profitability.
The Plan is also established to augment regular salary and
benefits programs already in existence. It is not meant to be a
substitute for salary increases, but as a supplement to salary,
and, as stated earlier, as an incentive for performance that
contributes to outstanding levels of achievement.
A committee appointed by the Board recommends performance
levels to the Board for final action. Plan participants who are
members of that committee shall not be entitled to vote on
matters relating to the eligibility for and/or determination of
their own incentive compensation awards. The committee, in the
exercise of its discretion with respect to the determination of
the amount of the incentive plan pool for any given plan year,
may take into account the presence or absence of nonrecurring or
extraordinary items of income, gain, expense, or loss, and any
and all factors that, in its sole discretion, may deem relevant.
Extraordinary occurrences may be excluded when calculating
performance results to insure that the best interests of the Bank
are protected and are not brought into conflict with the best
interest of plan participants. No management incentive cash
bonuses were paid out in 2007 or 2006.
Participation in the Plan is limited to the executive
management team. This management team includes the following
functional job titles: Chief Executive Officer/President,
Executive Vice President/Director of Lending, Vice
President/Deposit/Operations Division Manager, Vice
President/Technology Division Manager, and Trust Services
Division Manager.
LONG TERM INCENTIVES
____________________
Long term company performance is best achieved through an
ownership culture that encourages long term performance through
the use of stock based awards. The Board of Directors believes
that stock option awards under the corporation's 1998 Stock
Incentive Plan ("1998 Plan") provide a vehicle for long term
incentive compensation through financial rewards dependent on
future increases in the market value of the corporation's stock.
The purpose of the 1998 Plan is to advance the development,
growth and financial condition of the corporation and its
subsidiaries by providing incentives through participation in the
appreciation of capital stock of the corporation in order to
secure, retain and motivate personnel responsible for the
operation and management of the corporation and its subsidiaries.
The 1998 Plan is designed to attract and retain individuals of
outstanding ability as employees of the corporation and its
subsidiaries, to encourage employees to acquire a proprietary
interest in the corporation, to continue their employment with
the corporation and its subsidiaries and to
Proxy Statement Page 17
render superior performance during such employment. The 1998 Plan
is administered by the board of directors. Persons eligible to
receive awards under the 1998 Plan are those key officers and
other management employees of the corporation and its
subsidiaries as determined by the committee. Thus, executive
officers are encouraged to manage the corporation with a view
toward maximizing long term shareholder value.
Under the 1998 Plan, the corporation makes grants of options
to purchase shares of the corporation's common stock to
employees, including executives, and the corporation has absolute
power to determine what, to whom, when and under what facts and
circumstances awards are made. The Board of Directors bases
decisions relating to the awards on its overall subjective
assessment of the value of the services provided by each
executive officer with consideration to performance of the
corporation and peer group compensation information. The options
generally vest 6 months after issuance and expire ten years from
the date of the grant. The options are awarded at the fair
market value on the date of grant.
The value realized by named executive officers from award
grants in prior years is not taken into account in the process of
setting compensation for the current year. We also do not
maintain any equity or other security ownership guidelines or
requirements.
401(K) PLAN
___________
The Board believes that it is essential for employees to
save for retirement and as such has provided all employees a
vehicle through which to do so. The Bank maintains a 401(k)
plan, which has a combined tax qualified savings feature and
profit sharing feature. The Plan provides benefits to employees
who have completed at least one year of service and are at least
21 years of age. The Plan provides that the bank will match
employee deferrals to the plan up to 3% of their respective
eligible compensation. The bank may make a discretionary
contribution annually to the plan. Contributions made by the bank
to the plan are allocated to participants in the same portions
that each participant's compensation bears to the aggregate
compensation of all participants. Each participant in the plan
is 100% vested at all times. As employees of the bank, the named
executive officers are also eligible to participate in the 401(k)
under the same terms and conditions as other employees.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
_____________________________________
The Supplemental Employee Retirement Plan ("SERP") rewards
the executive officers for their long term contributions to the
bank. To encourage the executives to continue their employment
with the corporation, the Board believed it to be in the best
interests of the corporation to enter into certain salary
continuation agreements with the certain executives. The
agreements were also established to reward the executives for
past and future services to the corporation. The Board believes
the income benefit amounts are reasonable and consistent with the
compensation standards of Section 39 of the Federal Deposit
Insurance Company Improvement Act of 1991 and the related
implementing regulations.
The corporation maintains a SERP for which Mr. Bazewicz
participates. The SERP provides that if the executive officer
continues to serve as an officer of the bank until a stated
retirement age of 60 years, the bank will pay 240 guaranteed
consecutive monthly payments commencing on the first day of the
month following the officer's 60th birthday and the termination
of employment in the amounts indicated in this proxy. Generally,
no benefit will be paid if the executive officer voluntarily
terminates employment prior to attaining the stated retirement
age.
Page 18 First Keystone Corporation
The Board has also determined that it is in the best
interests of the corporation to finance the SERP benefits by
purchasing life insurance on the life of certain executives. The
Board selected Bank Compensation Strategies Group, a benefits
consulting firm endorsed by the American Banking Association and
many other state bank associations to calculate cost projections
and choose life insurance appropriate to finance the obligations.
HEALTH AND WELFARE PLANS
________________________
Health and welfare plans are not tied to corporation or
individual performance. The costs of providing such benefits to
all employees are not taken into account when determining
specific salaries of the named executives and is seen as a cost
of doing business.
Group life insurance, group disability, vision benefits, and
health insurance are available to all employees, as well is an
IRS 125 plan. Such plans are standard in the industry and in the
geographic area for all industries and necessary to compete for
talented employees at all levels of the corporation. Named
executives participate in these plans under the same terms and
conditions as other employees.
Health insurance premiums are partially paid by employees
through payroll deductions for the employee share of the health
care cost.
TRIGGERING EVENTS IN CONTRACTS
______________________________
Mr. Gerlach is the only named executive officer who is a
party to an employment agreement with the corporation. His
agreement was negotiated as part of the merger agreement with
Pocono Community Bank as Mr. Gerlach was also a party to an
employment agreement with Pocono Community Bank. The triggering
events contained in his employment agreement are typical in the
financial services industry including termination without cause,
termination by the executive for good reason, termination upon a
disability or death and termination subsequent to a change of
control.
Under the Supplemental Executive Retirement Plan to which
both Mr. Bazewicz and Mr. Prosseda are parties, the triggering
events are change of control, disability, involuntary
termination, and death.
The Compensation Committee believes that the triggering
events in these agreements are appropriate in that they encourage
executives to act in the best interests of the shareholders in
evaluating any change of control opportunities and it keeps the
executives focused on running the corporation in the face of real
or rumored corporate transactions.
ACCOUNTING AND TAX TREATMENTS
_____________________________
Sections 162(m) of the Internal Revenue Code generally
limits the tax deductibility of compensation paid in one year to
highly compensated employees to $1 million. Performance based
compensation is not subject to the limits on deductibility of
Section 162(m) provided such compensation meets certain
requirements. The Compensation Committee strives to provide the
named executive officers with compensation which will preserve
the tax deductibility of compensation paid. Given the current
level of compensation, the Compensation Committee does not feel
that it is necessary to have a formal policy with regard to
Section 162(m).
MATERIAL DIFFERENCES IN NAMED EXECUTIVE OFFICERS' COMPENSATION
______________________________________________________________
With the exception of Mr. Gerlach, the Named Executive
Officers are compensated based upon their respective position and
longevity with the bank. Mr. Gerlach's compensation was
determined after negotiations between Mr. Gerlach and the
corporation during merger negotiations. Mr. Gerlach's
Proxy Statement Page 19
compensation also takes into consideration his previous role as
president of Pocono Community Bank, the one year term of the
employment agreement, and the three year noncompetition provision
contained in the employment agreement. Mr. Gerlach is subject to
the three year noncompetion and nonsolicitation provision
regardless of the reason of his termination of employment.
CONCLUSION
__________
The Compensation Committee believes the amount and types of
compensation provided to the Executives are competitive and
appropriate for First Keystone Corporation to attain its short
and long term objectives and goals. The compensation programs
are designed to provide an incentive to the Executive on both a
short term and long term basis. The programs have been tailored
by First Keystone Corporation so that the various elements of
compensation align the interests of our shareholders and those of
the Executives to maximize shareholder value.
COMPENSATION COMMITTEE REPORT
_____________________________
The Board of Directors has reviewed and discussed the
Compensation Discussion and Analysis with management, and based
on the review and discussions, the Board of Directors concluded
that the Compensation Discussion and Analysis be included in the
corporation's proxy statement.
BOARD OF DIRECTORS
Robert E. Bull, Chairman
Robert J. Wise, Vice Chairman
J. Gerald Bazewicz, President
John E. Arndt, Secretary
Don E. Bower
Robert A. Bull
Dr. Joseph B. Conahan, Jr.
Dudley P. Cooley
Jerome F. Fabian
John G. Gerlach
David R. Saracino
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
___________________________________________________________
The Board of Directors, which includes J. Gerald Bazewicz,
Chief Executive Officer, functions as the Compensation Committee.
For compensation paid to executive officers other than the Chief
Executive Officer, the Board of Directors considers information
provided by the Chief Executive Officer. For compensation paid
to the Chief Executive Officer, the Board of Directors, with Mr.
Bazewicz not being present, determines his compensation, as
outlined above under "Base Salary".
EXECUTIVE COMPENSATION
______________________
The table below shows information concerning the annual and
long term compensation for services rendered in all capacities to
the corporation and the bank for the fiscal year ended
December 31, 2007 of those persons who were:
* all individuals who served as the Principal
Executive Officer and Principal Financial Officer
during 2007, and
* the other 3 most highly compensated executive
officers of the corporation and the bank at
December 31, 2007 whose total compensation
exceeded $100,000.
Page 20 First Keystone Corporation
SUMMARY COMPENSATION TABLE
NAME AND
PRINCIPAL SALARY
POSITION YEAR ($)
________ ____ ______
<s> <c> <c>
J. Gerald Bazewicz 2007 193,000
Principal Executive Officer 2006 186,000
Diane C. Rosler 2007 57,681
Chief Financial Officer 2006 47,115
John G. Gerlach 2007 42,052
President, Pocono Division 2006 ---
Matthew P. Prosseda 2007 145,000
Executive Vice President 2006 140,000
NAME AND STOCK
PRINCIPAL BONUS AWARDS
POSITION ($) ($)
________ _____ ______
<s> <c> <c>
J. Gerald Bazewicz --- ---
Principal Executive Officer --- ---
Diane C. Rosler --- ---
Chief Financial Officer --- ---
John G. Gerlach --- ---
President, Pocono Division --- ---
Matthew P. Prosseda --- ---
Executive Vice President --- ---
CHANGE IN
PENSION
VALUE AND
NONQUALIFIED
DEFERRED
NAME AND OPTION COMPENSATION
PRINCIPAL AWARDS EARNINGS
POSITION ($) <F1> ($)
________ ______ ________
<s> <c> <c>
J. Gerald Bazewicz 96 77,689
Principal Executive Officer --- 73,541
Diane C. Rosler --- ---
Chief Financial Officer --- ---
John G. Gerlach 72 ---
President, Pocono Division --- ---
Matthew P. Prosseda 72 13,902
Executive Vice President --- ---
NAME AND ALL OTHER
PRINCIPAL COMPENSATION TOTAL
POSITION ($) ($)
________ ____ ______
<s> <c> <c>
J. Gerald Bazewicz 36,582 <F2> 307,367
Principal Executive Officer 34,065 <F2> 293,606
Diane C. Rosler 5,910 <F3> 63,591
Chief Financial Officer 4,829 <F3> 51,944
John G. Gerlach 540,280 <F4> 582,404
President, Pocono Division --- ---
Matthew P. Prosseda 14,862 <F5> 173,836
Executive Vice President 14,350 <F5> 154,350
____________________
<FN>
<F1>
Option awards represent the compensation expense and financial reporting
value of 2007 grants issued December 27, 2007 and recognized in 2007 for
the named executive officers. There can be no assurance that these values
will ever be realized by the executive in the future, or that the options
will ever be exercised.
<F2>
Amounts shown for Mr. Bazewicz in 2007 include $16,800 in Director fees,
$5,790 401(k) matching contribution and $13,992 401(k) profit sharing
award and in 2006 $15,000 in director fees, $5,580 401(k) matching
contribution and $13,485 401(k) profit sharing award.
<F3>
Amounts shown for Ms. Rosler in 2007 include $1,730 401(k) matching
contribution and $4,180 profit sharing award and in 2006 1,413 401(k)
matching contribution and $3,416 profit sharing award.
<F4>
Amounts shown for Mr. Gerlach in 2007 include $2,400 in director fees,
$3,049 in 401(k) matching contribution, $1,221 401(k) profit sharing
award, and $533,610 for the buyout of his Pocono warrants as provided in
the merger agreement.
<F5>
Amounts shown for Mr. Prosseda in 2007 include $4,350 401(k) matching
contribution and $10,512 401(k) profit sharing award and in 2006 $4,200
401(k) matching contribution and $10,150 401(k) profit sharing award.
</FN>
401(K) PLAN
___________
The bank maintains a 401(k) Plan which has a combined tax
qualified savings feature and profit sharing feature. The plan
provides benefits to employees who have completed at least one
year of service and are at least 21 years of age. The plan
agreement provides that the bank will match employee deferrals to
the plan up to 3% of their respective eligible compensations.
Additionally, the bank may make a discretionary profit sharing
contribution annually to the plan. Contributions made by the
bank to the plan are allocated to participants in the same
portions that each participant's compensation bears to the
aggregate compensation of all participants. Each participant in
the plan is 100% vested at all times. Benefits are payable under
the plan upon termination of employment, disability, death, or
retirement.
Proxy Statement Page 21
Of the $285,850 total expenses during 2007, $38,914 was
credited among the individual accounts of the 3 most highly
compensated executive officers of the bank. Of the $38,915, Mr.
Bazewicz was credited with $19,782, Mr. Prosseda with $14,862,
and Mr. Gerlach with $4,270. Mr. Bazewicz has been a member of
the plan for 22 years, Mr. Prosseda for 2 years, and Mr. Gerlach
for 2 months.
STOCK OPTION GRANTS IN FISCAL YEAR 2007
_______________________________________
The corporation granted stock options to executive officers
and other employees during fiscal year ended December 31, 2007.
All options were granted under the First Keystone Corporation
1998 Stock Incentive Plan. The table shows information about
these grants to the named executive officers:
All Other Stock
Awards: Number
of Securities
Underlying
Name Grant Date Options <F1>
(#)
(a) (b) (c)
_____ __________ ___________
<s> <c> <c>
J. Gerald Bazewicz 12/27/2007 1,000
John G. Gerlach 12/27/2007 750
Matthew P. Prosseda 12/27/2007 750
Grant Date
Fair Value
Exercise or of Stock
Base Price Option
Name Option Awards Awards <F2>
($/Sh) ($)
(a) (d) (e)
_____ ______ ______
<s> <c> <c>
J. Gerald Bazewicz 16.75 2,980
John G. Gerlach 16.75 2,235
Matthew P. Prosseda 16.75 2,235
____________________
<FN>
<F1>
Options are granted under First Keystone Corporation's 1998 Stock
Incentive Plan on December 27, 2007, and are exercisable on and after June
27, 2008.
<F2>
FAS 123R Fair Value - There can be no assurance that the executive will
ever exercise the options or realize the amounts in the future.
</FN>
AGGREGATED OPTION EXERCISES IN 2007 YEAR-END OPTION VALUES
The following table shows information about all exercises of
stock options by the named executive officer under the 1998 Stock
Incentive Plan.
Page 22 First Keystone Corporation
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2007
OPTION AWARDS
_______________________
NUMBER OF SECURITIES
UNDERLYING UNRESTRICTED
OPTIONS (#)
NAME EXERCISABLE
____ ___________
<s> <c>
J. Gerald Bazewicz 3,307
Principal Executive Officer 2,205
3,150
1,050
---
Diane C. Rosler 412
Chief Financial Officer 412
412
787
787
John G. Gerlach ---
President, Pocono Division
Matthew P. Prosseda 525
Executive Vice President ---
OPTION AWARDS
_______________________
NUMBER OF SECURITIES
UNDERLYING UNRESTRICTED
OPTIONS (#)
NAME UNEXERCISABLE
____ _____________
<s> <c>
J. Gerald Bazewicz ---
Principal Executive Officer ---
---
---
1,000 <F1>
Diane C. Rosler ---
Chief Financial Officer ---
---
---
---
John G. Gerlach 750 <F1>
President, Pocono Division
Matthew P. Prosseda ---
Executive Vice President 750 <F1>
OPTION AWARDS
_______________________
EQUITY INCENTIVE
PLAN AWARDS:
NUMBER OF SECURITIES
UNDERLYING UNRESTRICTED
NAME UNEARNED OPTIONS (#)
____ _____________
<s> <c>
J. Gerald Bazewicz ---
Principal Executive Officer
Diane C. Rosler ---
Chief Financial Officer
John G. Gerlach ---
President, Pocono Division
Matthew P. Prosseda ---
Executive Vice President
OPTION AWARDS
_______________________
OPTION EXERCISE
NAME PRICE ($)
____ _________
<s> <c>
J. Gerald Bazewicz 20.26
Principal Executive Officer 15.88
21.11
20.95
16.75
Diane C. Rosler 20.26
Chief Financial Officer 15.88
10.28
15.08
21.11
John G. Gerlach 16.75
President, Pocono Division
Matthew P. Prosseda 20.95
Executive Vice President 16.75
OPTION AWARDS
_______________________
NAME OPTION EXPIRATION DATE
____ ______________________
<s> <c>
J. Gerald Bazewicz 09/22/08
Principal Executive Officer 09/28/09
09/23/13
09/27/15
12/27/17
Diane C. Rosler 09/22/08
Chief Financial Officer 09/28/09
09/26/10
09/24/12
09/23/13
John G. Gerlach 12/27/17
President, Pocono Division
Matthew P. Prosseda 09/27/15
Executive Vice President 12/27/17
<FN>
<F1>
These shares become exercisable on June 27, 2008.
</FN>
OPTIONS EXERCISED DURING 2007
OPTION AWARDS
____________________________
NUMBER
OF SHARES VALUE
ACQUIRED REALIZED
NAME ON EXERCISE ON EXERCISE
(#) ($)
____ ___________ ____________
<s> <c> <c>
J. Gerald Bazewicz --- ---
Principal Executive Officer
Diane C. Rosler --- ---
Chief Financial Officer
Matthew P. Prosseda --- ---
Executive Vice President
Proxy Statement Page 23
EQUITY COMPENSATION PLAN INFORMATION
____________________________________
The following table provides information about our shares of
common stock that may be issued under our existing equity
compensation plans as of December 31, 2007.
Number of
Securities to
Be Issued
Upon Exercise
of Outstanding
Options
(A) (#)
______________
<s> <c>
Equity Compensation Plans
Approved by Stockholders 54,562 <F1>
Number of
Securities
Remaining
Available
For Future
Issuance
Weighted Under Equity
Average Compensation
Exercise Plans Excluding
Price Of Securities
Outstanding Reflected In
Options Column (A)
(B) ($) (C) (#)
______ ___________
<s> <c> <c>
Equity Compensation Plans
Approved by Stockholders 17.55 68,104
___________________
<FN>
<F1>
Includes shares issued under the corporation's 1998 Stock Incentive
Plan.
</FN>
The shares authorized and awarded under this plan have been
adjusted to reflect a 5% stock dividend paid by the corporation
on December 5, 2006. The corporation has no plans, contracts or
arrangements under which the corporation's common stock may be
issued to employees or non employees that have not been approved
by shareholders.
SUPPLEMENTAL EMPLOYEE RETIREMENT PLAN
_____________________________________
The corporation maintains a Supplemental Employee Retirement
Plan ("SERP") covering 2 of the bank's executive officers, J.
Gerald Bazewicz and Matthew P. Prosseda. The SERP, which is a
salary continuation agreement, provides that if the executive
officer continues to serve as an officer of the bank until a
stated retirement age of 60 years for Bazewicz and age 62 for
Prosseda, the bank will pay 240 guaranteed consecutive monthly
payments commencing on the first day of the month following the
officer's 60th or 62nd birthday and the termination of employment
in the amounts indicated below.
The established retirement benefit under the SERP for Mr.
Bazewicz and Mr. Prosseda will be $3,750 per month and $4,167 per
month, respectively, and is not subject to change. If the
executive officer attains their stated retirement age, but dies
before receiving all of the guaranteed monthly payments, then the
bank will make the remaining payments to the officer's
beneficiary. In the event the officer dies while serving as an
officer, prior to their stated retirement age, the bank will
remit the guaranteed monthly payment to the officer's beneficiary
commencing the month following the executive's death. In the
event of a change of control and the termination of the officer's
employment, the guaranteed monthly payments will commence the
month following the executive's termination of service.
Generally, no benefit will be paid if the executive officer
voluntarily terminates employment prior to attaining the stated
retirement age or is terminated for cause.
The SERP allows the executive officers to achieve a
retirement income percentage that is more consistent with their
experience and years of service to the bank. The plan objective
is to provide the executive officers with a final wage
replacement ratio of approximately 75% of projected final salary
including projected benefits from the bank 401(k), social
security, and salary continuation provided through the agreement.
Page 24 First Keystone Corporation
PENSION BENEFITS
NUMBER
OF YEARS
PLAN CREDITED
NAME NAME SERVICE (#)
____ ____ ___________
<s> <c> <c>
J. Gerald Bazewicz SERP 11
Chief Executive Officer
Matthew P. Prosseda SERP 1
Executive Vice President
PERCENT PAYMENTS
VALUE OF DURING
ACCUMULATED LAST FISCAL
NAME BENEFIT ($) YEAR ($)
____ ___________ ________
<s> <c> <c>
J. Gerald Bazewicz 479,567 ---
Chief Executive Officer
Matthew P. Prosseda 13,902 ---
Executive Vice President
EMPLOYMENT AGREEMENT
____________________
In conjunction with the merger of Pocono Community Bank with
First Keystone Corporation, Mr. Gerlach was provided an
employment agreement for a one year period commencing November 1,
2007 and a consulting agreement for a one year period commencing
November 1, 2008. The annual base salary under the employment
agreement is $295,500. The annual base salary under the
consulting agreement is $150,000.
POST TERMINATION BENEFITS
_________________________
JOHN G. GERLACH
The following tables and narratives set forth the potential
post termination benefits payable to Mr. Gerlach under his
Employment Agreement and Consulting Agreement in a lump sum or
over a period of time, upon certain termination events assuming
that the Executive's employment was terminated as of December 31,
2007. No benefits are shown for the 1998 Stock Incentive Plan
since the options granted to Mr. Gerlach were not vested and the
exercise price was higher than the year end market value.
TERMINATION FOR CAUSE AND VOLUNTARY TERMINATION. If Mr.
Gerlach's employment is terminated for "Cause" as defined in the
Employment Agreement or voluntarily terminates his employment,
First Keystone Corporation shall not thereafter be obligated to
make any further payments.
TERMINATION WITHOUT CAUSE OR FOR GOOD REASON - BEFORE A
CHANGE IN CONTROL. If Mr. Gerlach terminates his employment for
"Good Reason" as defined in the Employment Agreement, or his
employment is terminated by First Keystone Corporation "Without
Cause," he would be entitled to receive the payment listed below.
The Employment Agreement does not provide for other post
termination benefits such as medical, dental and vision benefits.
Assuming that Mr. Gerlach's employment was terminated Without
Cause or for Good Reason as of December 31, 2007, and assuming
that First Keystone Corporation did not award a bonus, he would
receive the following post termination benefits:
Salary Payable
Lump Sum November 1, Total
($) 2008 ($) ($)
________ ___________ _____
<s> <c> <c> <c>
Employment Agreement 142,080 150,000 292,080
Proxy Statement Page 25
In the event that Mr. Gerlach receives payment under this
section of the Agreement, Mr. Gerlach shall not be entitled to
any payment under the Consulting Agreement.
DEATH OR DISABILITY. In the event of a termination of
employment as a result of Mr. Gerlach's death or disability, the
Executive's dependents, beneficiaries or estate, as the case may
be, will receive benefits as they may be entitled under the terms
of First Keystone Corporation's benefit programs, which includes
Life Insurance proceeds of twice base salary under the Death
Benefit Agreement. Mr. Gerlach's estate will receive the
following payments under the employment agreement.
Death Disability
($) ($)
_____ __________
<s> <c> <c>
Employment Agreement 292,080 292,080
Life Insurance Proceeds 591,000 ---
TERMINATION UPON OR AFTER A CHANGE IN CONTROL. If at a
"Change in Control" as defined in the Employment Agreement and
ending 180 days after such Change in Control, the Executive is
terminated by First Keystone Corporation he would be entitled to
the benefits listed below. Assuming that, as of December 31,
2007 the Executive was terminated upon or after a Change in
Control, Mr. Gerlach would have received the following post
termination benefits:
Salary Payable
Lump Sum November 1, Total
($) 2008 ($) ($)
________ ___________ _____
<s> <c> <c> <c>
Employment Agreement 142,080 150,000 292,080
Executive shall not be entitled to any payment under the
consulting agreement.
J. GERALD BAZEWICZ
The following tables and narratives set forth the potential
post termination benefits payable to Mr. Bazewicz under the
Supplemental Employee Retirement Plan in a lump sum or over a
period time, upon certain termination events assuming that the
Executive's employment was terminated as of December 31, 2007.
No benefits are shown for the 1998 Stock Incentive Plan since the
options granted to Mr. Bazewicz were not in the money and the
exercise price was higher than the year-end market value.
TERMINATED FOR CAUSE AND VOLUNTARY TERMINATION. If Mr.
Bazewicz's employment is terminated for "Cause" as defined in the
Supplemental Employee Retirement Plan or he voluntarily
terminates his employment, First Keystone Corporation shall not
thereafter be obligated to make any further payments.
TERMINATION WITHOUT CAUSE OR FOR GOOD REASON- BEFORE A
CHANGE OF CONTROL. If Mr. Bazewicz's employment is terminated
"Without Cause" or "Good Reason," he would be entitled to receive
the following payments.
Page 26 First Keystone Corporation
Termination
Without
Cause ($)
___________
<s> <c>
Supplemental Employee Retirement Plan 479,567
SERP benefit would be paid in guaranteed monthly payments of
$3,750 per month for 240 months commencing the month following
the executive's termination of service.
DEATH OR DISABILITY. In the event of a termination of
employment as a result of Mr. Bazewicz's death or disability, his
dependents, beneficiaries or estate, as the case may be, will
receive benefits as they may be entitled under the terms of First
Keystone Corporation's benefit programs, which includes Life
Insurance proceeds of twice base salary under the Death Benefit
Agreement and as follows.
Death Disability
($) ($)
_____ __________
<s> <c> <c>
Supplemental Employee
Retirement Plan 479,567 479,567
Life Insurance Proceeds 386,000 ---
The SERP benefit under death would be paid to the
beneficiary in monthly payments of $3,750 for 240 months
commencing following the executive's death. The SERP benefit
under disability shall be paid in a lump sum within 60 days after
the executive's termination of employment.
TERMINATION UPON OR AFTER A CHANGE IN CONTROL. If a "Change
of Control" as defined in the Supplemental Executive Retirement
Agreement occurs, Mr. Bazewicz shall be entitled to the following
payments.
Change of
Control ($)
___________
<s> <c>
Supplemental Employee Retirement Plan 479,567
The SERP benefit under a change of control would be paid in
monthly payments of $3,750 for 240 months commencing with the
month following the executive's termination of service.
MATTHEW P. PROSSEDA
The following tables and narratives set forth the potential
post termination benefits payable to Mr. Prosseda under the
Supplemental Employee Retirement Plan in a lump sum or over a
period of time upon certain termination events assuming that the
executive's employment was terminated as of December 31, 2007.
No benefits are shown for the 1998 Stock Incentive Plan since the
options granted to Mr. Prosseda were not in the money and the
exercise price was higher than the year-end market value.
Proxy Statement Page 27
TERMINATION FOR CAUSE AND VOLUNTARY TERMINATION. If Mr.
Prosseda's employment is terminated for "Cause" as defined in the
Supplemental Employee Retirement Plan or he voluntarily
terminates his employment, First Keystone Corporation shall not
thereafter be obligated to make any further payments.
TERMINATION WITHOUT CAUSE OR FOR GOOD REASON- BEFORE A
CHANGE OF CONTROL. If Mr. Prosseda's employment is terminated
"Without Cause" or "Good Reason," he would be entitled to receive
the following payments.
Termination
Without
Cause ($)
___________
<s> <c>
Supplemental Employee Retirement Plan 13,902
SERP benefit would be paid in guaranteed monthly payments of
$258 for 240 months commencing the month following the
executive's termination of service.
DEATH OR DISABILITY. In the event of a termination of
employment as a result of Mr. Prosseda's death or disability, his
dependents, beneficiaries or estate, as the case may be, will
receive benefits as they may be entitled under the terms of First
Keystone Corporation's benefit programs, which includes Life
Insurance proceeds of twice base salary under the Death Benefit
Agreement and as follows.
Death Disability
($) ($)
_____ __________
<s> <c> <c>
Supplemental Employee
Retirement Plan 584,494 13,902
Life Insurance Proceeds 290,000 ---
SERP benefit under death would be paid to the beneficiary in
monthly payments of $4,167 for 240 months commencing the month
following the executive's death. The SERP benefit under
disability shall be paid in a lump sum 60 days after the
executive's termination of employment.
TERMINATION UPON OR AFTER A CHANGE IN CONTROL. If a "Change
of Control" as defined in the Supplemental Executive Retirement
Agreement occurs, Mr. Prosseda shall be entitled to the following
payments.
Change of
Control ($)
___________
<s> <c>
Supplemental Employee Retirement Plan 584,494
Page 28 First Keystone Corporation
DIANE C. ROSLER
The following tables and narratives set forth the potential
post termination benefits payable to Ms. Rosler under the 1998
Stock Incentive Plan.
TERMINATION FOR CAUSE AND VOLUNTARY TERMINATION. If Ms.
Rosler's employment is terminated for "Cause" or she voluntarily
terminates her employment, First Keystone Corporation shall be
obligated to make the following payments.
Termination Voluntary
for Cause Termination
($) ($)
_____ __________
<s> <c> <c>
1998 Stock Incentive Plan 2,841 2,841
TERMINATION WITHOUT CAUSE OR FOR GOOD REASON- BEFORE A
CHANGE OF CONTROL. If Ms. Rosler's employment is terminated
"Without Cause" or "Good Reason," she would be entitled to
receive the following payments.
Termination
Without
Cause ($)
___________
<s> <c>
1998 Stock Incentive Plan 2,841
DEATH OR DISABILITY. In the event of a termination of
employment as a result of Ms. Rosler's death or disability, her
dependents, beneficiaries or estate, as the case may be, will
receive benefits as they may be entitled under the terms of First
Keystone Corporation's benefit programs, which includes Life
Insurance proceeds of twice base salary under the Death Benefit
Agreement and as follows.
Death Disability
($) ($)
_____ __________
<s> <c> <c>
1998 Stock Incentive Plan 2,841 2,841
Life Insurance Proceeds 115,362 ---
TERMINATION UPON OR AFTER A CHANGE IN CONTROL. If a "Change
of Control" occurs, Ms. Rosler shall be entitled to the following
payments.
Change of
Control ($)
___________
<s> <c>
1998 Stock Incentive Plan 2,841
Proxy Statement Page 29
RELATED PERSON TRANSACTIONS
___________________________
In deciding whether to approve a related person transaction
the following factors may be considered:
* information about the goods or services proposed to be or
being provided by or to the related party or the nature of
the transactions;
* the nature of the transactions and the costs to be
incurred by the Corporation or payments to the
Corporation;
* an analysis of the costs and benefits associated with the
transaction and a comparison of comparable or alternative
goods or services that are available to the Corporation
from unrelated partes; and
* the business advantage the Corporation would gain by
engaging in the transaction.
To receive approval, the related person transaction must be
on terms that are fair and reasonable to the Corporation, and
that are as favorable to the Corporation as would be available
from non related entities in comparable transactions.
Other than described below, there have been no material
transactions between the corporation or the bank, nor any
material transactions proposed, with any director or executive
officer of the corporation or the bank, or any associate of these
persons. The law firm Bull, Bull & Knecht, LLP, of which
Directors Robert E. Bull and Robert A. Bull, are partners,
provided routine legal services to the bank according to the
firm's normal fee schedule and billing rates, and the bank
intends to continue to engage the firm's services in the future.
The bank paid total fees of $33,265.10 to the law firm during
2007. In addition, the corporation and the bank have engaged in
and intend to continue to engage in banking and financial
transactions in the ordinary course of business with directors
and officers of the corporation and the bank and their associates
on comparable terms and with similar interest rates as those
prevailing from time to time for other customers of the
corporation and the bank.
Total loans outstanding from the corporation and the bank at
December 31, 2007, to the corporation's and the bank's executive
officers and directors as a group and members of their immediate
families and companies in which they had an ownership interest of
10% or more was $5,323,382, or approximately 7.51% the total
equity capital. Loans to such persons were made in the ordinary
course of business, 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 did
not involve more than the normal risk of collectibility or
present other unfavorable features. All loans are current and
being paid as agreed. The largest aggregate amount of
indebtedness outstanding at any time during fiscal year 2007 to
officers and directors of the corporation and the bank, and their
affiliates as a group was $5,263,397. The aggregate amount of
outstanding indebtedness as of the latest practicable date, March
1, 2008, to the above described group was $5,043,468.
PRINCIPAL OFFICERS OF THE BANK AND THE CORPORATION
The following table presents selected information as of
March 7, 2008, about the executive officers of the bank and
corporation, each of whom is elected by the Board of Directors
and each of whom holds office at the discretion of the Board of
Directors:
Page 30 First Keystone Corporation
Age as of
March 7, Office and Position
Name 2008 with the Bank
____ _______ ___________________
<s> <c> <c>
Robert E. Bull 85 Chairman of the Board
Robert J. Wise 78 Vice Chairman
of the Board
J. Gerald Bazewicz 59 President and CEO
John E. Arndt 46 Secretary
Matthew P. Prosseda <F1> 46 Executive Vice
President and
Assistant Secretary
Diane C. Rosler 43 Chief Financial
Officer
Age as of
March 7, Office and Position
Name 2008 with the Corporation
____ ____ ___________________
<s> <c> <c>
Robert E. Bull 85 Chairman of the Board
Robert J. Wise 78 Vice Chairman
of the Board
J. Gerald Bazewicz 59 President and CEO
John E. Arndt 46 Secretary
Matthew P. Prosseda <F1> 46 Treasurer and
Assistant Secretary
Diane C. Rosler 43 ----
____________________
<FN>
<F1>
Mr. Prosseda is the Director of Lending. Prior to his employment with the
Bank in March 2005, Mr. Prosseda served as Executive Vice President and
Director of Lending at Citizens & Northern Bank.
</FN>
LEGAL PROCEEDINGS
In the opinion of the management of First Keystone
Corporation and its banking subsidiary, there are no proceedings
pending to which the corporation or its banking subsidiary is a
party to, or which their property is subject, which, if
determined adversely to the corporation or the bank, would have a
material effect on their undivided profits or financial
condition. There are no proceedings pending other than routine
litigation incident to the business of the corporation and its
banking subsidiary. In addition, to the Board's knowledge, no
government authorities have initiated, threatened to initiate, or
contemplated any material proceedings against First Keystone
Corporation or its banking subsidiary.
PROPOSAL NO. 2: RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors has appointed J. H. Williams & Co.,
LLP, Certified Public Accountants, located at 270 Pierce Street,
Kingston, Pennsylvania 18704, as the corporation's independent
auditors for its 2008 fiscal year. The Board proposes that
shareholders ratify this selection. J. H. Williams & Co., LLP,
has advised the corporation that none of its members has any
financial interest in the corporation. Ratification of J. H.
Williams & Co., LLP, will require the affirmative vote of a
majority of the votes cast in person or by proxy at the Annual
Meeting by shareholders entitled to vote. J. H. Williams & Co.,
LLP served as the corporation's independent auditors for the 2007
fiscal year, assisted the corporation and the bank with
preparation of their federal and state tax returns, and provided
assistance in connection with regulatory matters, charging the
bank for services at its customary hourly billing rates. The
corporation's and the bank's Board of Directors approved these
non audit services after due consideration of the accountants'
objectivity and after finding them to be wholly independent.
Proxy Statement Page 31
Representatives of J. H. Williams & Co., LLP, will attend
the Annual Meeting of Shareholders, will have the opportunity to
make a statement and are expected to be available to respond to
any questions. In the event that the shareholders do not ratify
the selection of J. H. Williams & Co, LLP, as the corporation's
independent auditors for the 2008 fiscal year, another accounting
firm may be chosen to provide independent audit services for the
2008 fiscal year.
The Board of Directors recommends that the shareholders vote
FOR the ratification of the selection of J. H. Williams & Co.,
LLP, as the independent auditors for the corporation for the
year ending December 31, 2008.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Corporation's directors, executive officers and
shareholders who own more than 10% of the Corporation's
outstanding equity stock to file initial reports of ownership and
reports of changes in ownership of common stock and other equity
securities of the Corporation with the Securities and Exchange
Commission. Based solely on its review of copies of Section
16(a) forms received by it, or written representations from
reporting persons that no Forms 5 were required for those
persons, the corporation believes that during the period January
1, 2007 through December 31, 2007, its officers, directors and
reporting shareholders were in compliance with all filing
requirements applicable to them.
AVAILABILITY OF FORM 10-K
The Company will file with the SEC an Annual Report on Form
10-K for 2007. The Company will provide a copy of that report on
written request without charge to any person. Please address
your request to Cheryl Wynings, Investor Relations, First
Keystone Corporation, 111 West Front Street, Berwick,
Pennsylvania 18603, telephone: (570) 752-3671.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS
FOR THE SHAREHOLDERS' MEETING TO BE HELD ON MAY 6, 2008. THE
2008 PROXY STATEMENT AND THE 2007 ANNUAL REPORT ON FORM 10-K ARE
ALSO AVAILABLE AT WWW.FKYSCORP.COM.
OTHER MATTERS
The Board of Directors does not know of any matters to be
presented for consideration other than the matters described in
the accompanying Notice of Annual Meeting of Shareholders, but if
any matters are properly presented, the persons named in the
accompanying proxy intend to vote on the matters as they
determine to be in the best interest of the corporation.
Page 32 First Keystone Corporation
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REVOCABLE PROXY
FIRST KEYSTONE CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 6, 2008
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS
The undersigned hereby appoints William Selden, Jr. and
Evelyn Bower, and each or any of them, as proxies, with full
power of substitution to represent and vote, all of the shares of
Common Stock of First Keystone Corporation held of record by the
undersigned on March 4, 2008, at the Annual Meeting of the
Shareholders to be held at McBride Memorial Library, Community
Room, 500 Market Street, Berwick, Pennsylvania, on Tuesday, May
6, 2008, at 10:00 a.m., Eastern Daylight time, and at any
adjournment or postponement thereof.
Please be sure to sign and
date this Proxy in the box below
________________________________
________________________________
Date: __________________________
PROPOSAL 1: Election of Class C Directors to serve until the
Annual Meeting of Shareholders in 2011 (except as marked to the
contrary below):
[ ] For [ ] Withhold [ ] For All Except
Don E. Bower Robert A. Bull Dudley P. Cooley
INSTRUCTION: To withhold authority to vote for any individual
nominee, mark "For All Except" and write that nominee's name in
the space provided below.
_________________________________________________________
PROPOSAL 2: To Ratify the selection of J. H. Williams & Co., LLP
as the Independent Auditors for the Corporation for the year
ending December 31, 2008.
[ ] For [ ] Against [ ] Abstain
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE "FOR" EACH OF THE PROPOSALS.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER(S). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL NOMINEES
LISTED ABOVE AND "FOR" PROPOSAL 2.
This proxy also confers authority as to other business as
may properly come before the meeting and any adjournment or
postponement thereof. The Board of Directors at present knows of
no other business to be brought before this meeting. However, if
any other business is properly brought before the meeting, the
shares represented by this proxy in absence of instructions to
the contrary will be voted in accordance with the recommendations
of the management of the Corporation.
It is important that your shares be represented at the
meeting. Please sign, date and return this proxy as promptly as
possible, whether or not you plan to attend this meeting.
___________________________________________________________
Detach above card, sign, date and mail
in postage paid envelope provided.
FIRST KEYSTONE CORPORATION
111 WEST FRONT STREET
BERWICK, PENNSYLVANIA 18603
The undersigned acknowledges receipt of the Notice of Annual
Meeting of Shareholders and Proxy Statement dated March 28, 2008,
and hereby revoke(s) all other proxies heretofore given by the
undersigned in connection with this meeting.
Number of shares Held on Record on March 4, 2008: ________
This proxy must be dated, signed by the shareholder(s) and
returned promptly in the enclosed envelope. When shares are held
by joint tenants, all should sign. When singing as attorney,
executor, administrator, trustee or guardian, please give full
title as such. If more than one trustee, all should sign. If a
corporation, please sign in full corporate name by president or
authorized officer. If a partnership, please sign in partnership
name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE
SPACE PROVIDED BELOW AND RETURN THIS PORTION WITH THE PROXY IN
THE ENVELOPE PROVIDED.
__________________________________
__________________________________
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