<PAGE>
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
KEYSTONE FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<PAGE>
[Logo of KEYSTONE FINANCIAL]
April 9, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Keystone Financial, Inc., to be held on Thursday, May 20, 1999 at 10:00 a.m.,
local time, at the Harrisburg Hilton Hotel, Market Square, Harrisburg,
Pennsylvania. A Notice and Proxy Statement for the meeting follow, and a proxy
card and return envelope are enclosed. Your Corporation's 1998 Annual Report
is also enclosed.
At this meeting the Executive Management of Keystone will review the results
of your Corporation for 1998 and comment on plans and strategies for the
current year and the future. The agenda for the annual meeting includes
election of directors and the ratification of the appointment of independent
auditors.
Your participation as a shareholder in the affairs of the Corporation is
encouraged. It is important that your stock be represented at the Meeting,
whether or not you are personally able to be present. Accordingly, PLEASE
PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE PAID
ENVELOPE PROVIDED FOR YOUR CONVENIENCE. You are urged to do so even if you
plan to attend the meeting. Your prompt cooperation and support will be
greatly appreciated.
The business and presentation portions of the meeting should last
approximately forty minutes. I, as well as the other Executive Officers of the
Corporation, will be available both before and after the meeting to answer any
questions you may wish to ask. I hope that you will be able to attend this
year's meeting and look forward to seeing you there.
Sincerely,
/s/ Carl L. Campbell
Carl L. Campbell
Chairman and Chief
Executive Officer
<PAGE>
[Logo of KEYSTONE FINANCIAL, INC.]
One Keystone Plaza
Front and Market Streets
P.O. Box 3660
Harrisburg, Pennsylvania 17105-3660
------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on May 20, 1999
------------
TO THE SHAREHOLDERS:
Notice is hereby given that the Annual Meeting of Shareholders of Keystone
Financial, Inc. will be held on Thursday, May 20, 1999 at 10:00 a.m., local
time, at the Harrisburg Hilton Hotel, Market Square, Harrisburg, Pennsylvania,
for the purpose of:
1. Electing seven directors to serve for terms expiring in 2002;
2. If presented, considering and acting upon two shareholder proposals
opposed by the Board of Directors;
2. Ratifying the appointment of Ernst & Young LLP as the independent
auditors for the Corporation for 1999;
3. Such other matters as may properly come before the meeting or any
adjournment thereof.
Only shareholders of record at the close of business on April 2, 1999 are
entitled to notice of and to vote at the Annual Meeting.
ALL SHAREHOLDERS ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. If you
attend the meeting, you may, if you wish, withdraw your proxy and vote your
shares in person.
By Order of the Board of Directors
/s/ Ben G. Rooke
Ben G. Rooke, Secretary
<PAGE>
[Logo of KEYSTONE FINANCIAL, INC.]
One Keystone Plaza
Front and Market Streets
Post Office Box 3660
Harrisburg, PA 17105-3660
------------
PROXY STATEMENT
Annual Meeting of Shareholders--May 20, 1999
------------
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of Keystone Financial, Inc. (the "Corporation") of proxies
to be voted at the 1999 Annual Meeting of Shareholders of the Corporation
which will be held at 10:00 a.m., local time, on Thursday, May 20, 1999, at
the Harrisburg Hilton Hotel, Market Square, Harrisburg, Pennsylvania, and at
any adjournment thereof. The approximate date on which this Proxy Statement
will first be mailed to the shareholders is April 9, 1999.
All properly executed proxies not previously revoked will be voted at the
Annual Meeting as specified thereon. If no specification is made, proxies will
be voted in favor of the election as directors of the nominees named below, in
favor of the ratification of the appointment of Ernst & Young LLP as
independent auditors for the Corporation for 1999 and against approval of the
two shareholder proposals described below. A proxy may be revoked at any time
before it is voted by written notice to the Secretary of the Corporation, or
by attending the meeting and voting in person.
The Board of Directors has fixed the close of business on April 2, 1999 as
the record date for determining the shareholders entitled to notice of and to
vote at the Annual Meeting. At that date, approximately 48,710,976 shares of
Common Stock, par value $2.00 per share ("Common Stock"), were issued and
outstanding. On April 2, 1999, there were approximately 15,396 shareholders of
record. Each share entitles its holder of record at the close of business on
the record date to one vote on each matter properly submitted to the
shareholders for action at the Annual Meeting. The Restated Articles do not
permit cumulative voting.
As of April 2, 1999, the trust departments of the Corporation's trust
companies and bank subsidiary, acting in a fiduciary capacity for various
trusts and estates, held an aggregate of 3,503,077 shares of Common Stock
(approximately 7.2% of the outstanding shares). Of these shares, the
subsidiaries have sole voting power over 104,216 shares, share voting power
with other persons over 264,443 shares, have sole investment power over
2,055,363 shares and share investment power with other persons over 291,674
shares.
MANAGEMENT PROPOSAL
Proposal No. 1
ELECTION OF DIRECTORS
By a vote of the Board of Directors, the size of the Board was fixed at 21
members. Seven directors will be elected at the Annual Meeting to serve for
terms expiring at the Annual Meeting in 2002. Each director elected will
continue in office until a successor has been elected. The Board of Directors
recommends that the shareholders vote "FOR" the election of the seven nominees
listed below. Each nominee has consented to be named as a nominee and to serve
if elected. If for any reason any nominee named is not a candidate (which is
not expected) when the election occurs, proxies will be voted for a substitute
nominee determined by the Board of Directors (the "Board").
<PAGE>
The following table sets forth certain information about the nominees, all of
whom are presently members of the Board, and about the other directors whose
terms of office will continue after the Annual Meeting:
<TABLE>
<CAPTION>
Shares Percent of
Year First Beneficially Common
Name, Principal Occupations Became Owned as of Stock
During the Past Five Years, Age Director April 1, 1999(1) Outstanding
------------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
Nominees for Director with terms
expiring in 2002:
A. Joseph Antanavage; Partner of Bear,
Antanavage & Moyer (attorneys-at-law);
Partner of North Berks Abstract (title
insurance agency); Age 52.............. 1986 32,430(2) .07
Donald Devorris; President of Blair
Electric Service Co. (electrical
construction); President of Blair Sign
Co., Inc. (sign manufacturing);
President of Blair Design &
Construction Co. (general
construction); President of Electrical
Construction Service, Inc. (electrical
construction); Age 64.................. 1984 109,552 .22
Richard G. King; President of Utz
Quality Foods, Inc. (salted snacks);
Age 54................................. 1997 11,330 .02
Uzal H. Martz, Jr.; President,
Publisher and Treasurer of J. H. Zerbey
Newspapers, Inc. (publisher of
newspapers and operator of Radio
Stations) and President of its
subsidiary corporations, WMBT
Broadcasting, Inc., WQIN Broadcasting,
Inc., Shenandoah Evening Herald
Publishing Company, Inc. and Hazelton
Easy to Read Telephone Directory, Inc.;
Age 64................................. 1986 38,364(2) .08
Max A. Messenger; Chairman of Wood
Products, Inc. (hardwood lumber & dry
kilns); Chairman of Global Hardwood,
Inc. (residential construction);
General Partner of Messenger Limited
Partnership (land holding company); Age
63..................................... 1994 30,079 .06
Don A. Rosini; President of Shamokin
Filler Co., Inc. (manufacturer of
carbon additives and specialty cements
and grouts); Age 60.................... 1986 46,452(3) .10
F. Dale Schoeneman; President of
Schoeneman Beauty Supply, Inc.
(wholesale distributor); Age 57........ 1986 28,043 .06
Continuing Directors with terms
expiring in 2000:
June B. Barry; Vice President, Human
Resources and Administration of
Hercules Incorporated (chemical
products); Age 47...................... 1996 3,454 .01
Gerald E. Field; President of Weiner
Iron and Metal Corp.; Age 64........... 1986 81,995 .17
Philip C. Herr, II; Partner of Herr,
Potts & Herr (attorneys-at-law);
Age 62................................. 1994 235,553(2) .48
William L. Miller; President and a
Director of Ebinger Iron Works, Inc.
(steel fabricator); Age 50............. 1986 30,248 .06
Mark L. Pulaski; President and Chief
Operating Officer of the Corporation;
Age 45 (5)............................. 1997 152,365(4) .31
Molly Dickinson Shepard; Chairman and
Co-Founder of Manchester, Inc.
(outplacement and human resources
consulting firm); Age 52 (6)........... 1998 6,668 .01
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Shares Percent of
Year First Beneficially Common
Name, Principal Occupations Became Owned as of Stock
During the Past Five Years, Age Director April 1, 1999(1) Outstanding
------------------------------- ---------- ---------------- -----------
<S> <C> <C> <C>
Ray L. Wolfe; Officer of the
Corporation; Age 60 (8)......... 1997 64,608 .13
Continuing Directors with terms
expiring in 2001:
George T. Brubaker; Partner of
Hartman, Underhill & Brubaker
(attorneys-at-law); Age 56....... 1998 5,171(2)(3) .01
Carl L. Campbell; Chairman and
Chief Executive Officer of the
Corporation; Age 56 (7).......... 1986 438,830(2)(3)(4) .89
Paul I. Detwiler, Jr.; Chairman
of the Board of New Enterprise
Stone and Lime Co., Inc.
(construction aggregates); Age
65............................... 1988 25,376(2) .05
Allan W. Holman, Jr.; Senior
Partner of Holman & Holman
(attorneys-at-law); Age 69....... 1997 12,104 .02
James I. Scheiner; President and
Chief Operating Officer of
Benetec Associates, Inc.
(engineering, architectural &
environmental services firm);
Director of Harsco Corporation;
Age 54........................... 1998 1,260 .003
Ronald C. Unterberger; Partner of
Harper & Driver (attorneys-at-
law); Age 63..................... 1994 19,778 .04
G. William Ward; Chairman of the
Board of Ward Trucking Corp.;
Age 67........................... 1984 51,932(2) .11
All nominees, directors and
executive officers as a group
(28 persons).................... 1,800,843(4) 3.63
</TABLE>
- --------
(1) Unless otherwise indicated in the other footnotes below, each director or
nominee has sole voting power and sole investment power over the shares
indicated opposite his or her name in the table, and a member of the
group has sole voting power and sole investment power over the shares
indicated for the group. The number of shares includes the following
shares which each director or nominee, except for Mr. Brubaker, Mr.
Campbell, Mr. Pulaski, Mr. Scheiner and Ms. Shepard, has the right to
acquire through stock options which are or will become exercisable within
60 days under the Corporation's Non-Employee Directors' Stock Option
Plans or the stock option plans of previously acquired companies: Mr.
Antanavage, 18,222 shares; Ms. Barry, 2,812 shares; Mr. Herr, 8,436
shares; Mr. Holman, 967 shares; Mr. King, 2,177 shares; Mr. Messenger,
5,568 shares; Mr. Unterberger, 11,766 shares; Mr. Wolfe, 5,754 shares;
Mr. Detwiler and Mr. Schoeneman, 16,872 shares each; and each remaining
director, 19,684 shares.
(2) Includes the following shares as to which voting and investment power is
shared with other persons: Mr. Antanavage, 8,496 shares; Mr. Brubaker,
2,000 shares; Mr. Campbell, 19,826 shares; Mr. Detwiler, 5,625 shares;
Mr. Herr, 2,770 shares; Mr. Martz, 11,784 shares; and Mr. Ward, 25,322
shares.
(3) Includes the following shares held by spouses and/or children as to which
beneficial ownership is disclaimed: Mr. Brubaker, 2,000 shares; Mr.
Campbell, 35,510 shares; and Mr. Rosini, 4,489 shares.
(4) Includes the following shares which executive officers have the right to
acquire through stock options which are or will become exercisable within
60 days: Mr. Campbell, 340,670 shares; Mr. Pulaski, 104,985 shares; and
all other executive officers as a group, 269,975 shares. Also includes
the following shares held in 401(k) plan accounts, as to which the
executive officers have voting power only: Mr. Campbell, 4,186 shares;
Mr. Pulaski, 3,660 shares; and all other executive officers as a group,
14,020 shares.
(5) From November 1997 to May 1998, Mr. Pulaski served as Vice Chairman and
Chief Operating Officer of the Corporation. From 1995 to November 1997,
he served as Senior Executive Vice President, Chief Financial Officer
("CFO") and Chief Administrative Officer ("CAO") of the Corporation; and
prior to 1995 he served as Executive Vice President, CFO and CAO of the
Corporation.
3
<PAGE>
(6) Prior to October 1997, Ms. Shepard was President, Chief Operating Officer
and Co-Founder of Manchester, Inc.
(7) From December 1986 to May 1998, Mr. Campbell was President and CEO of the
Corporation.
(8) From May 1998 to December 1998, Mr. Wolfe served as Chairman of the Board
of Financial Trust Company. From May 1997 to May 1998, he served as
Chairman of the Board of the Corporation and Chairman, President and
Chief Executive Officer of Financial Trust Company. Prior to May 30,
1997, Mr. Wolfe was Chairman and Chief Executive Officer of Financial
Trust Corp, which was acquired by the Corporation on that date.
Additional information concerning the nominees and the other members of the
Board is set forth below under the caption "Other Information Concerning
Directors and Executive Officers."
Vote Required
The seven candidates receiving the highest numbers of votes cast at the
Annual Meeting by the holders of Common Stock voting in person or by proxy
will be elected as directors. A proxy vote indicated as withheld from a
nominee will not be cast for that nominee but will be counted in determining
whether a quorum exists for the meeting. The Corporation's Restated Articles
do not permit cumulative voting in the election of directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table is a summary of the compensation for the years 1998,
1997 and 1996 awarded or paid to, or earned by, the Corporation's Chief
Executive Officer, and the Corporation's four other most highly compensated
executive officers in 1998 (the "named officers"):
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------------- --------------------- --------
Restricted Shares
Other annual Stock Underlying LTIP All other
Name and Bonus compensation Awards Options payouts compensation
Principal Position Year Salary($) ($)(1) ($) (2) (#)(3) ($)(1) ($)(4)
------------------- ---- --------- -------- ------------ ---------- ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carl L. Campbell 1998 $430,014 $128,177 -- $ 0 21,786 $121,720 $54,975
Chairman and Chief 1997 400,010 168,505 -- 0 25,500 0 67,445
Executive Officer 1996 340,000 127,500 -- 0 88,094 0 62,917
Mark L. Pulaski 1998 $325,013 $ 30,876 -- $ 0 10,379 $ 66,458 $28,920
President and Chief 1997 300,014 83,964 -- 0 14,301 0 40,609
Operating Officer 1996 270,000 72,900 -- 0 7,832 0 32,438
Ben G. Rooke 1998 $219,994 $ 31,799 -- $ 0 5,000 $ 43,114 $26,387
Vice Chairman, 1997 205,000 57,531 -- 0 9,240 0 38,192
General Counsel and 1996 195,000 52,650 -- 0 5,723 0 29,202
Secretary
James E. Deitch(5) 1998 $203,076 $107,300 -- $ 0 3,500 $ 33,824 $14,175
Executive Vice
President
Robert E. Leech(5) 1998 $190,000 $ 36,146 -- $ 0 3,500 $ 33,824 $19,990
Executive Vice
President
</TABLE>
- --------
(1) Bonus and LTIP payout information is reported by year in which earned.
(2) The Corporation has made no restricted stock awards.
4
<PAGE>
(3) Options are reported in the year in which granted. The number of shares
granted in 1996 has been adjusted to reflect a 3-for-2 split in the
Corporation's Common Stock in August 1996. The number of options granted
also includes reload options as follows: Mr. Campbell, 6,786 shares in
1998 and 677 shares in 1996; Mr. Pulaski, 1,379 shares in 1998 and 801
shares in 1997; Mr. Rooke, 240 shares in 1996. The option price of all
options shown is 100% of fair market value on the date the options were
granted.
(4) The 1998 amounts reported in this column consist of the loan value of the
actual premium paid by the Corporation for a split-dollar insurance
policy for the named officers as follows: Mr. Campbell, $18,884; Mr.
Pulaski, $8,286; Mr. Rooke, $10,853; Mr. Deitch, $4,605; and Mr. Leech,
$10,659; imputed interest income for 1998 on loans to the named officers
under the Corporation's Management Stock Ownership Program as follows:
Mr. Campbell, $18,760; Mr. Pulaski, $9,853; Mr. Rooke, $7,201; Mr.
Deitch, $2,639; and Mr. Leech, $2,937; employer matching contributions to
the Corporation's retirement savings plans as follows: Mr. Campbell,
$17,331; Mr. Pulaski, $10,781; Mr. Rooke, $7,479; Mr. Deitch, $6,931; and
Mr. Leech, $5,152; and the above market portions of interest accrued for
1998 under one retirement savings plan as follows: Mr. Rooke, $854; and
Mr. Leech, $1,242.
(5) Compensation information for 1997 and 1996 is not provided for Mr. Deitch
and Mr. Leech as they did not serve as executive officers of the
Corporation during these years.
Stock Option Grants in 1998
The following table sets forth information concerning the individual grants
of options to purchase the Corporation's Common Stock made to the named
officers in 1998:
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Number Percent of
of shares total options Grant
underlying granted to Exercise date
options employees Price Expiration present
Name granted(#) in 1998(1) ($/Share)(2) date(3) value($)(4)
---- ---------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Carl L. Campbell 15,000 8.60% $40.38 01/02/2008 $121,857
615 .35% $38.75 06/30/1999 $ 2,112
3,013 1.73% $36.44 06/30/1999 $ 7,982
2,680 1.54% $29.87 12/27/2005 $ 16,106
478 .27% $29.87 06/30/1999 $ 8,791
Mark L. Pulaski 9,000 5.16% $40.38 01/02/2008 $ 73,115
1,379 .79% $34.44 01/02/2002 $ 6,798
Ben G. Rooke 5,000 2.87% $40.38 01/02/2008 $ 40,619
James M. Deitch 3,500 2.01% $40.38 01/02/2008 $ 28,434
Robert E. Leech 3,500 2.01% $40.38 01/02/2008 $ 28,434
</TABLE>
- --------
(1) Total options granted to employees in 1998 were 174,500.
(2) The exercise price of each option is equal to the fair market value on
the date of the option grant.
(3) All options, except reload options, become exercisable approximately two
years after the date of grant. Reload options become exercisable 6 months
after date of grant. All options are subject to possible acceleration in
certain events involving an actual or potential change in control of the
Corporation. All options have revocable reload rights. The options
granted to Mr. Campbell for 615, 3,013, 2,680 and 478 shares and the
option granted to Mr. Pulaski for 1,379 shares are reload options.
(4) The grant date present value of the options has been determined utilizing
the Black-Scholes option pricing model. The assumptions used to arrive at
the present values were: stock price volatility of .1500; expected
dividend yield of 2.8%; expected seven-year option term; and a 5.6% risk-
free rate of return.
5
<PAGE>
Aggregated Option Exercises in 1998 and Option Values as of December 31, 1998
The following table sets forth information concerning stock options
exercised by the named officers in 1998 and unexercised stock options held by
the named officers as of December 31, 1998:
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised in-the-money Options
Shares Value Options at 12/31/98 at 12/31/98($)(2)
Acquired on Realized ------------------------- -------------------------
Name Exercise(#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Carl L. Campbell 30,731 $648,321 312,012 43,658 $4,809,748 $273,101
Mark L. Pulaski 3,033 $ 56,932 91,485 22,500 $1,551,739 $129,087
Ben G. Rooke 1,608 $ 27,081 88,781 14,000 $1,560,367 $ 89,433
James M. Deitch 5,000 $ 95,833 18,846 10,550 $ 287,596 $ 71,462
Robert E. Leech 2,250 $ 44,156 27,676 10,550 $ 461,140 $ 71,462
</TABLE>
- --------
(1) Represents the difference between the market value on the date of
exercise of the shares acquired and the option price of those shares.
(2) Represents the difference between the aggregate market value at December
31, 1998 of the shares subject to the options and the aggregate option
price of those shares.
Performance Unit Plan Awards in 1998
The following table shows the long-term incentive awards made to the named
officers in 1998 under the Corporation's 1996 Performance Unit Plan:
<TABLE>
<CAPTION>
Future Payouts at
Number of Performance Targeted Performance Levels
Performance Period Until ---------------------------
Name and Principal Position Units Payout Threshold Target Maximum
- --------------------------- ----------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
Carl L. Campbell 3,100 3 years $77,500 $310,000 $620,000
Mark L. Pulaski 1,970 3 years $49,250 $197,000 $394,000
Ben G. Rooke 1,100 3 years $27,500 $110,000 $220,000
James M. Deitch 760 3 years $19,000 $ 76,000 $152,000
Robert E. Leech 760 3 years $19,000 $ 76,000 $152,000
</TABLE>
Payment of the Performance Units is contingent upon attaining targeted
levels of cumulative earnings per share before extraordinary items for the
Performance Period of the years 1998 through 2000. No payments will be made
unless a Performance Threshold target is attained, and the amounts payable
based on the earnings per share targets are capped at the maximum amounts
shown in the table. The amounts shown in the table will be increased or
decreased by 20% if the Corporation's return on equity for the three-year
period ranks at or above the 75th percentile or at or below the 25th
percentile as compared to a peer group of financial services companies. In the
event of a change of control of the Corporation prior to the end of the
Performance Period, the Performance Units become payable immediately at the
maximum amounts shown in the table.
6
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total returns
(assuming reinvestment of dividends) for the five years ended December 31, 1998
of $100 invested on December 31, 1993 in each of the Common Stock, the CRSP
Total Return Index for the NASDAQ Stock Market (U. S. Companies) and the CRSP
Total Return Index for NASDAQ Bank Stocks.
Year Ended December 31 1993 1994 1995 1996 1997 1998
KEYSTONE $100 $ 99 $103 $134 $224 $213
NASDAQ U.S. $100 $ 98 $138 $170 $209 $293
Stock Market
NASDAQ
Bank Stocks $100 $100 $149 $196 $331 $325
7
<PAGE>
HUMAN RESOURCES COMMITTEE
1998 REPORT ON EXECUTIVE COMPENSATION
In compliance with Securities and Exchange Commission ("SEC") guidelines on
disclosure of executive compensation levels and practices, the Human Resources
Committee (the "Committee") of the Corporation's Board of Directors has
prepared the following report for shareholders and other interested parties.
Role and Composition of the Human Resources Committee
The role of the Committee with respect to employee compensation is to
establish the compensation philosophy of the organization and to monitor
compensation plans and related practices for conformity with that philosophy.
With the assistance of a compensation consultant, the Committee has
developed a comprehensive compensation strategy, and as a result of this
effort, the Corporation has adopted a total compensation philosophy that links
more of the compensation of executives, managers and employees in direct
revenue producing positions to the Corporation's performance.
Specifically in the area of executive compensation, the Committee's role
includes establishing appropriate compensation and benefit plans, reviewing
the Chief Executive Officer's recommendations on compensation for executive
officers, and determining compensation for executive officers and for the
Chief Executive Officer. An essential component of this role is the
establishment of performance standards for the Corporation's salary
administration and incentive programs and monitoring actual performance
against those standards.
The Committee is composed of seven non-employee directors. Except for
discussions and decisions concerning their own compensation, Mr. Campbell and
Mr. Pulaski attend Committee meetings for discussions about executive
compensation and do offer recommendations on specific plans and individual
actions for consideration by the Committee.
The Committee met five times during 1998. This report discusses actions
initiated and approved by the Committee over the course of the year.
Executive Compensation Program Objectives and Operating Philosophy
The Corporation's executive compensation program is designed to (1) foster
continuous improvement in corporate performance, (2) maximize shareholder
value, (3) attract and retain qualified executives and (4) recognize and
reward executives' collective and individual contributions to the business. To
these ends, the Corporation is pursuing a compensation strategy and specific
compensation plans to tie a significant portion of executive compensation to
the Corporation's success in meeting predetermined performance goals and to
appreciation in the Corporation's stock price.
In setting performance standards for executive officers during 1998, the
Committee considered the compensation philosophy, compared the Corporation's
recent performance to industry indices/1/ and also considered the
Corporation's stock price performance over the last several years. (See "Stock
Price Performance Graph" below.) The target level of total compensation for
the Corporation's executives, including the executive officers listed in the
tables under "Executive Compensation" above, when expected performance is
achieved, is the median level of market practice among financial services
institutions of similar asset size. The compensation program will provide
better than median level pay when the Corporation's performance exceeds the
expected level of performance.
- --------
/1/The Committee and management review reports from securities and
investment banking firms, e.g., SNL Securities and Keefe, Bruyette &
Woods, which monitor performances of commercial banks and other financial
services institutions. Most of the banks included in these reports are
also included in the NASDAQ Bank Stock Index. Further, the Corporation's
Finance Department annually prepares in-depth analyses of financial data
on ten commercial banks of similar or larger asset size operating in the
Pennsylvania, Maryland, West Virginia, Virginia and Ohio banking markets.
8
<PAGE>
The primary performance measure used by the Committee is net income. Other
measures that are also considered by the Committee are asset quality, capital
adequacy and prudent risk management. In addition, the Committee considers the
current economic environment and such subjective measures as the executive
officers' leadership and management performance.
The remainder of this report discusses specific plans, policies and 1998
actions for each component of the executive compensation program.
Base Salaries
Base salary ranges for the executive officers are determined by evaluating
the responsibilities of the positions, required skills and experiences and
prevailing practices among financial services institutions of similar type and
asset size for comparable positions./2/
Typically, annual salary adjustments are determined through an evaluation of
the Corporation's performance against its goals for the prior year,
performance of functions and business units under the executive's management
and the executive's performance against individual goals assigned for the
prior year. The relative importance of each of the three criteria in making a
salary adjustment decision for a given executive will vary among the
executives and from year to year based on corporate priorities for that
covered time period.
Corporate goals are expressed in terms of net income or earnings per
share/3/; the same goal bases established for the Management Incentive
Compensation Plan ("MICP"), the annual incentive plan. An example of a
business unit performance measure would be improved financial performance
achieved through increased business and/or expense reduction. An example of an
individual performance measure would be the implementation of a new business
product.
Additionally, the executive's professional development, readiness for other
and broader responsibilities in the organization and overall contribution to
the management and the success of the business are considered. The
Corporation's overall success, coupled with achievements against
functional/business unit and individual business goals, primarily determines
the Committee's salary adjustment decision. The other factors noted may
influence the Committee's decision.
The Chief Executive Officer reviews the performance of each executive
officer, except himself, with the Committee using a specific checklist of
performance goals and performance characteristics, and he offers a specific
pay increase recommendation for the Committee's consideration. The Chairperson
of the Committee likewise uses and discusses with the Committee a similar
checklist of performance goals and performance characteristics for the Chief
Executive Officer, and she offers a recommendation to the Committee on an
appropriate salary action for the CEO. These performance factors include: net
income, asset growth, asset quality, risk management, customer service,
leadership, community involvement, personal development, and the influence of
the economy and regulatory factors on the performance of the Corporation. Once
approved by the Committee, all salary actions for the executive officers are
presented to the Board of Directors for ratification.
In January 1998, the Committee approved a salary increase for Mr. Campbell.
In light of the fact that he had met his performance goals for 1998 and met
his performance plan, the Committee determined that he warranted this salary
increase.
Annual Performance Incentives
The executive officers participate in the Corporation's MICP, an annual
incentive pay plan based primarily on net income achievement against a
specific goal. Where an officer has bank subsidiary responsibilities, the
- --------
/2/The base salaries for the Executive Vice Presidents who are named officers
were determined prior to their appointment as Executive Vice Presidents.
/3/The primary measure used for executive officers in the Corporation's
banking subsidiaries is the subsidiaries' net income and the measure used
for executive officers in the Corporation is earnings per share.
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<PAGE>
majority of the participant's incentive award is based on the operating
subsidiary's net income performance, and the remainder is based on the
Corporation's earnings per share. Officers of the Corporation, including the
eligible named officers, having corporate responsibilities receive incentive
awards based solely on achievement of goals expressed in terms of earnings per
share. The Committee has the discretion to modify the cash award for a
particular officer if it determines such action is appropriate. Such action is
based on a subjective evaluation of each officer's performance in such areas
as teamwork, management performance, and support of integration efforts
related to recent acquisitions and consolidations.
For 1998, the Committee established a range of specific achievement levels
for corporate earnings per share and subsidiary net income. If threshold
performance was not achieved, no payment would be made. If performance
exceeded the threshold level of performance, actual awards would be
proportionally greater in line with actual performance up to the defined
maximum award amount.
The Corporation's performance for 1998 exceeded the threshold goal
established under the MICP. The named officers qualified for a cash award. Mr.
Campbell, who participates in the MICP, received a cash award of $128,177 for
1998. This award was based on the Corporation's earnings per share performance
exceeding the threshold goal.
Long-Term Incentives
Stock Options. Stock options were granted to each of the named officers, and
selected senior officers of the Corporation, in January 1998 under the
Corporation's 1997 Stock Incentive Plan. These stock option grants were made
according to the Committee's established guideline of granting options at fair
market value using a declining percentage of base salary based on level of
position within the organization to achieve the desired "mix" of long-term
incentive income opportunity for a given position in the organization. The
percentage of base salary ranged from 32.5% for the Chief Executive Officer to
a low of 17.5% for senior vice presidents, with the exact number of option
grants determined by using the Black-Scholes option pricing model. The size of
the award can vary from year to year based on corporate and individual
performance. Corporate performance is usually gauged in terms of net income,
although other financial measures and performance comparisons within a peer
group may also be considered. In the event of poor corporate performance or
poor individual performance, the Committee can elect to make no award. If
corporate and/or individual performance exceeds expectations, the Committee
may grant larger than typical awards.
The January 1998 stock option awards were granted in recognition of the
Corporation's increase in net income performance for 1997, and the
Corporation's favorable ranking in the banking peer group.
In deciding on stock option awards to eligible participants, the Committee
does not currently consider the total number of outstanding options held by a
participant nor the number of shares held by the participant. The Committee
has not canceled or repriced any prior stock option grants.
Stock options are designed to align executives' interests with those of
shareholders. Typically, stock options are granted with an exercise price
equal to the fair market value on the date of grant./4/ Grants carry a 2-year
cliff vesting provision, which means that the option cannot be exercised for
two years from the date of grant except in certain circumstances involving an
actual or threatened change in control. The granting of options at fair market
value or a premium over fair market value with a minimum 2-year vesting
requirement provides an incentive for the executives to increase shareholder
value over the long term since no benefit of the options can be realized
unless stock price appreciation occurs.
Mr. Campbell received stock option grants of 15,000 shares in 1998 which
reflected the targeted percentage for his position. These grants included
incentive stock options and nonstatutory stock options. Mr. Campbell
participates in the Corporation's Stock Incentive Plan on the same basis as
all other participants.
- --------
/4/The Corporation has issued premium stock options in the past. Such stock
options are granted with an exercise price greater than the fair market
value on the date of the grant. No premium stock options were granted in
1998.
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<PAGE>
1996 Performance Unit Plan. In 1996 the Board of Directors approved the
implementation of the 1996 Performance Unit Plan (the "Performance Plan") in
which certain officers of the Corporation would participate. This Performance
Plan was approved by shareholders at the 1997 Annual Meeting. The named
officers are participating in the Performance Plan.
The Performance Plan is a cash-based, long-term incentive plan. When
approved it was expected that the Performance Plan would operate in three-year
cycles beginning on January 1, 1996, with a new cycle commencing every two
years, i.e., January 1, 1998; January 1, 2000; January 1, 2002. In fact, a new
cycle did commence on January 1, 1998. The performance unit awards made to the
named officers for the 1998 cycle are shown in the table on page 6. Payout
under the Plan for the 1998 cycle is based upon the three-year cumulative
earnings per share performance measured against a pre-established range of
goals. The goals for the 1998 cycle were set based on a comparative peer group
performance analysis. The amounts payable under the Performance Plan's 1998
cycle will be increased or decreased by 20% if the Corporation's return on
average equity for the three-year cycle ranks at or above the 75th percentile
or at or below the 25th percentile as compared to a peer group of financial
institutions.
The Corporation believes that stock options under its Stock Incentive Plans
and performance unit awards under the Performance Plan qualify as
"performance-based compensation" under Section 162(m) of the Internal Revenue
Code, and the Corporation does not anticipate that it will be affected by the
cap on deductibility of executive compensation imposed by that Section.
Other Executive Benefits
In 1994, the Corporation implemented a split-dollar type of insurance policy
which is owned by the covered executive. Under this policy, the Corporation
has a collateral assignment which is intended to reimburse the Corporation for
premiums paid into the policy when the policy is redeemed or the covered
executive dies.
In 1995, the Board of Directors approved the Management Stock Ownership
Program (the "Ownership Program"). The Ownership Program is intended, among
other things, to promote alignment of management and shareholder interests and
to encourage management to act like owners with a focus on value creation. To
accomplish these purposes, the Ownership Program establishes stock ownership
goals for the named officers and selected senior officers to be achieved over
a five-year period. At the end of the five-year period, each officer,
including the executive officers, is expected to achieve a level of ownership
of Common Stock having a value equal to the following percentages of the
officer's current base salary: 300% for the Chief Executive Officer, 200% for
the Vice Chairman and the Chief Operating Officer and the Executive Vice
Presidents of the Corporation, 100% for Presidents of the Corporation's bank
and trust company subsidiaries and 100% for Senior Vice Presidents of the
Corporation./5/
In order to assist officers in attaining their stock ownership goals, the
Ownership Program provides for loans to the officers, in amounts not to exceed
50% of the officer's stock ownership goal, to be used to purchase shares of
Common Stock from the Corporation at their fair market value on the date of
purchase. Under the terms of the Ownership Program, the loans are made on a
nonrecourse basis, and without interest, but are secured by collateral having
an initial value of 120% of the loan amount and consisting of the shares of
the Corporation's Common Stock purchased with the loan plus additional shares
of the Common Stock or other acceptable collateral owned by the officer. The
loans will be payable in full upon demand of the Corporation at any time but
not later than the target date for achieving the officer's stock ownership
goal. The loans are also payable in full not later than 90 days after
termination of the officer's employment with the Corporation or a subsidiary
for any reason other than death and one year after termination due to the
death of the officer.
- --------
/5/In September 1997, the Committee changed the goal for Senior Vice
Presidents from 50% to 100%, putting them in line with subsidiary
Presidents, and started a new five-year period within which the Senior
Vice Presidents are to achieve their stock ownership goal.
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<PAGE>
In connection with the adoption of the Ownership Program, the Board
recommended that the shareholders approve the 1995 Management Stock Purchase
Plan (the "Purchase Plan"), which provides for the purchase of Common Stock
from the Corporation by eligible employees at a price not less than fair
market value and for the financing of such purchases through loans secured by
the shares so purchased. The shareholders approved the Purchase Plan at the
1995 Annual Meeting. As of December 31, 1998, 27 of the 38 eligible officers,
including all of the named officers, were participating in the Purchase Plan
under the terms of the Ownership Program. All eligible participants in the
Ownership Program are on schedule to achieve their ownership goal.
Conclusion
The Corporation's executive compensation program continues to evolve in line
with the objectives noted earlier in this report: continuous improvement in
annual corporate performance, maximizing shareholder value, attracting and
retaining qualified executives and recognizing and rewarding executives'
contributions to the business.
The Committee continuously explores opportunities to enhance the variable
aspects of executive compensation, so as to strengthen the link between total
pay and corporate performance.
Respectfully Submitted by:
THE HUMAN RESOURCES COMMITTEE: June B. Barry, Chairperson;
Gerald E. Field;
Philip C. Herr, II;
Richard G. King;
William L. Miller;
Ronald C. Unterberger; and
G. William Ward
OTHER INFORMATION CONCERNING
DIRECTORS AND EXECUTIVE OFFICERS
Human Resources Committee Interlocks and Insider Participation
The current members of the Human Resources Committee are the individuals
whose names appear above. J. Glenn Beall, Jr. served on the Committee until he
retired as a member of the Board of Directors at the time of the Corporation's
annual meeting in May 1998. A Subcommittee consisting of Ms. Barry and Messrs.
Field, Miller and Ward was formed to administer the 1996 Performance Unit Plan
and the Corporation's Stock Incentive Plans. References in the Committee's
report to actions taken by the Committee include those taken by the
Subcommittee under these plans. Mr. Campbell, the Corporation's Chairman and
Chief Executive Officer, and Mr. Pulaski, the Corporation's President and
Chief Operating Officer, are not members of the Human Resources Committee but
are invited guests at Committee meetings. Mr. Campbell is involved in
corporate compensation matters, including compensation decisions for all
executive officers except himself. There are no interlocking relationships, as
defined in regulations of the SEC, involving members of the Human Resources
Committee.
Board and Committee Meetings
The Executive Committee of the Board of Directors is composed of Ms. Barry
and Messrs. Antanavage, Campbell, Devorris, Herr, Martz, Miller, Pulaski and
Wolfe. During 1998 the Executive Committee met four times. The Executive
Committee exercises the powers of the Board of Directors between Board
meetings and makes recommendations to the full Board on various matters. The
Executive Committee reviews the policy and practice of the Corporation and its
subsidiaries in the areas of strategic planning and franchise expansion and
12
<PAGE>
reports its recommendations to the Board for action. The Executive Committee
also functions as a nominating committee and in this capacity establishes
criteria for selection of nominees to stand for election or reelection as
Corporation directors at any annual meeting of shareholders and reports its
recommendations to the Board for action. Any shareholder who desires to have
an individual considered for nomination by the Board must submit his
recommendation in writing to the Secretary of the Corporation at least 90 days
prior to the annual meeting at which the election of directors will occur.
The Audit Committee of the Board of Directors, which met four times during
1998, is composed of Ms. Shepard and Messrs. Antanavage, Brubaker, Detwiler,
Devorris, Holman, Messenger, Rosini, Scheiner and Schoeneman. The Audit
Committee recommends the selection of independent auditors, provides oversight
of the internal auditors of the bank and reviews the reports of those persons.
During 1998 the Corporation's Board of Directors met eleven times. All of
the directors attended at least 75% of the meetings of the Board and
committees of which they were members during the period they served as such.
Director Compensation
In 1998, directors of the Corporation who are not salaried officers of the
Corporation or its subsidiaries received an annual retainer of $10,000
(payable in Common Stock only) and an additional $1,500 (payable in cash or
Common Stock) if they served as chairperson of a Board committee. In 1998,
non-employee directors received $1,350 for each Board meeting they attended
and $1,250 for each committee meeting attended on a day other than the date of
the regular Board meeting or a day that adjoins the date of a regular Board
meeting. For committee meetings attended on the same day as a regular Board
meeting, non-employee directors received $500; and for committee meetings
attended on an adjoining day of a regular Board meeting date, non-employee
directors received $750. Non-employee directors that participated in telephone
conferences received $500.
The Corporation's 1992 Director Fee Plan, which was approved by the
shareholders at the 1992 Annual Meeting, permits non-officer directors to
elect to receive payment of their compensation as Corporation and bank
directors either in cash or Common Stock or to defer such compensation for
subsequent payment in cash or Common Stock. During 1998, the Corporation
accrued an aggregate total of $468,080 in director compensation. Of this
amount, $198,850 was paid currently in cash or stock. The balance of $269,230
was deferred compensation, of which $38,650 will be paid in cash and $230,580
will be paid in stock.
The Corporation's 1995 Non-Employee Directors' Stock Option Plan was
approved by the shareholders at the 1995 Annual Meeting. Its purposes are to
promote the long-term success of the Corporation by creating a long-term
mutuality of interests between the non-employee directors and shareholders of
the Corporation, to provide additional inducement for such directors to remain
with the Corporation and to assist the Corporation in attracting and retaining
able persons to serve as outside directors.
Under the Plan, directors who are not employees of the Corporation or a
subsidiary receive annual stock option grants to purchase up to 2,812 shares
of Common Stock at an option price equal to the market value on the date the
options are granted. The options are exercisable two years from the date of
grant, subject to acceleration in certain events involving an actual or
potential change in control of the Corporation or retirement by the director.
The options expire 10 years from the date of grant. Reload options are granted
if a director exercises an option by paying the option price in shares of
Common Stock.
In connection with the acquisition of Financial Trust Corp in May 1997, the
Corporation entered into an employment agreement with Mr. Wolfe. The agreement
provides for Mr. Wolfe to be employed by the Corporation in a senior executive
capacity through May 2000 at an all inclusive annual salary of $350,000.
Thereafter, Mr. Wolfe will serve in a consulting capacity at an annual salary
of $177,000 until his 65th birthday in August 2003. In the event of a change
of control of the Corporation, as defined in the agreement, Mr. Wolfe may
elect to receive the balance of the unpaid salary for the remainder of the
agreement in a single lump sum.
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<PAGE>
Named Officer Stock Ownership
Information concerning Mr. Campbell's and Mr. Pulaski's beneficial ownership
of Common Stock is included in the table above under "Proposal No. 1--Election
of Directors". The following table shows the beneficial ownership of Common
Stock by the other named officers as of April 1, 1999:
<TABLE>
<CAPTION>
Shares Beneficially Percent of Common Stock
Name Owned (1) Outstanding
- ---- ------------------- -----------------------
<S> <C> <C>
Ben G. Rooke........................ 131,151 .27
James M. Deitch..................... 40,261 .08
Robert E. Leech..................... 46,276 .09
</TABLE>
- --------
(1) Shares beneficially owned include the following shares of Common Stock
which the named officers have the right to acquire under stock options
which are or will become exercisable within 60 days under the
Corporation's Stock Incentive Plans: Mr. Rooke, 97,781 shares; Mr. Deitch,
15,896 shares and Mr. Leech, 31,050 shares. Shares beneficially owned also
include the following shares of Common Stock in their 401(k) plan accounts
for which they have the power to direct the voting only: Mr. Rooke, 3,399
shares; Mr. Deitch, 867 shares and Mr. Leech, 1,194 shares.
Named Officer Employment Agreements
The Corporation has entered into employment agreements with certain of its
officers, including the named officers listed in the summary compensation
table. The employment agreements for all named officers are for rolling three-
year terms (five years for the CEO) and provide that the officer will continue
to be employed for the term of the agreement at not less than his current
compensation unless sooner terminated for cause or by reason of death,
disability or retirement. If the named officer's employment is terminated by
the Corporation without cause or by the officer for "good reason" as defined
in the agreement prior to its expiration, the officer is entitled to a payment
of one and one-half times (two times for the CEO) his highest annual base
salary within the last three years and to a continuation of employee benefits
for 18 months (24 months for the CEO). Under this scenario, currently, each of
the named officers would receive a payment as follows: Mr. Campbell, $860,028;
Mr. Pulaski, $487,520; Mr. Rooke, $329,991; Mr. Deitch, $304,614; and Mr.
Leech, $285,000.
If the named officer's employment terminates in certain circumstances
following a change in control of the Corporation, the officer is entitled to a
payment of two and one-half times the sum of his highest annual base salary
within the last three years and his highest annual incentive award during the
last three years; a continuation of benefits for a period of twenty-four
months; a release of the premium repayment obligation under his split-dollar
life insurance agreement; and certain outplacement services. Under this
scenario, currently, each of the named officers would receive a payment as
follows: Mr. Campbell, $1,496,298; Mr. Pulaski, $1,022,443; Mr. Rooke,
$693,813; Mr. Deitch, $775,940; and Mr. Leech, $578,100.
In consideration of the agreements, each named officer agrees not to engage
in any business in competition with the Corporation or its subsidiaries for a
period of one year following any termination of his employment, other than a
termination within two years after a change in control.
Retirement Plans
The Corporation has a noncontributory retirement plan which covers
substantially all employees, as well as supplemental plans to pay on an
unfunded basis to certain management employees, including the named officers,
benefits which would have been payable under the principal retirement plan but
for certain limitations contained in the Internal Revenue Code or the decision
of the officer to defer compensation otherwise subject to the plan.
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<PAGE>
The following table shows the combined annual retirement benefits payable
under these plans to participants, including the named officers, in selected
compensation and years of service classifications:
<TABLE>
<CAPTION>
5-Year Years of Service
Average ----------------------------------------------------------------
Compensation 10 15 20 25 30 35
- ------------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
200,000 $ 30,997 $ 46,465 $ 61,953 $ 77,442 $ 92,930 $108,418
300,000 47,447 71,215 94,953 118,692 142,430 166,168
400,000 63,977 95,965 127,953 159,942 191,930 223,918
500,000 80,477 120,715 160,953 201,192 241,430 281,668
600,000 96,977 145,465 193,953 242,442 290,930 339,418
700,000 113,477 170,215 226,953 283,692 340,430 397,168
800,000 129,977 194,965 259,953 324,942 389,930 454,918
</TABLE>
The amounts shown in the table are straight-life annuity amounts, assuming
normal retirement at age 65 and no election of any available survivorship
option, and are not subject to offset for social security or other benefits
received by the participant. Benefits under the plans are based on the
participant's average compensation for the five highest years in the ten years
immediately preceding retirement, with compensation including substantially
all taxable and deferred compensation. The 1998 covered compensation for the
named officers and their years of credited service at December 31, 1998 are as
follows: Mr. Campbell, $611,050 (26 years); Mr. Pulaski, $414,958 (15 years);
Mr. Rooke, $281,058 (17 years); Mr. Deitch, $298,997 (6 years); and Mr. Leech,
$232,834 (8 years).
Certain Transactions
Director Devorris is a limited partner in a partnership that leases office
space at market rate to the Corporation and its bank subsidiary. Mr. Devorris'
limited partnership interest is 50%. The total rent paid by the Corporation
and the bank in 1998 was $524,969.
As described above in the Human Resources Committee Report under "Other
Executive Benefits," the Corporation has made loans to certain of its
executive officers under the Management Stock Ownership Program. The largest
amounts of such loans outstanding to the named officers since January 1, 1998
and the amounts of such loans currently outstanding are as follows: Mr.
Campbell, $494,984; Mr. Pulaski, $259,980; Mr. Rooke, $95,003; Mr. Deitch
$69,638 and Mr. Leech $77,496. No interest is charged on loans made under this
program, but interest is imputed to the officer and deductible by the
Corporation for federal income tax purposes. The amounts of interest income
imputed to the named officers in 1998 in connection with loans under the
program are included in the "All Other Compensation" column in the Summary
Compensation Table under "Executive Compensation" above.
The Corporation's bank subsidiary has made loans in the ordinary course of
business to certain directors and executive officers of the Corporation,
including members of their immediate families and corporations or other
organizations in which such persons have a beneficial interest of 10% or more
or are associated as officers, partners or trustees. Such loans were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons
and do not involve more than the normal risk of collectability or present
other unfavorable features.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires that directors
and certain officers of the Corporation file reports with the SEC with respect
to changes in their beneficial ownership of the Common Stock. During 1998, Mr.
Field filed a late report disclosing five previously unreported transactions
which occurred on various dates since 1990. Based solely upon a review of the
copies of the reports of its directors and officers furnished to the
Corporation and written representations by certain persons that reports on
Form 5 were not required, the Corporation believes that all other 1998 Section
16(a) filing requirements applicable to its directors and officers were
complied with.
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SHAREHOLDER PROPOSALS
Proposals 2A and 2B
Set forth below are two proposals received from shareholders. The first
proposal (Shareholder Proposal 2A) recommends to the Board of Directors that
it take the necessary steps to achieve a prompt sale or merger of the
Corporation. The second proposal (Shareholder Proposal 2B) recommends to the
Board that it take steps to remove from the Corporation's Restated Articles of
Incorporation and Bylaws provisions previously approved by the shareholders in
order to protect the Corporation and its shareholders from hostile takeover
abuses. These proposals are included in the Proxy Statement in accordance with
the rules of the Securities and Exchange Commission and are not endorsed by
the Board of Directors. The Board of Directors recommends that shareholders
vote AGAINST approval of Shareholder Proposal 2A and AGAINST approval of
Shareholder Proposal 2B.
The Board of Directors opposes both of these proposals because it believes
that they are based on a faulty premise. Both proposals are based on the
premise that the Corporation should be promptly sold because, in the view of
the proponents, such a sale would enable them to realize a premium over the
current market price of the Corporation's stock. The Board does not contest
the proponents' assertion that a sale of the Corporation might produce a
short-term profit to shareholders in the form of a premium over current market
prices. The Board strongly disagrees, however, that this fact alone, even if
true, is any indication that an immediate sale of the Corporation would be
desirable or in the best interests of the Corporation and its shareholders. If
it were, then there would be scarcely a corporation in the country that should
not be sold immediately.
A decision as to whether or when to sell a company such as the Corporation
involves a complex balancing of a variety of factors. It involves estimating
the short-term returns that might be achieved if the Corporation were sold in
the current market and in its current financial and business posture. It
involves comparing these with the long-term returns which might be achieved as
an independent company through execution of the Corporation's business plan or
through a future sale of the Corporation under different market conditions or
after execution of the business plan had changed the financial or business
posture of the Corporation. It involves considering the effects of a decision
to sell the Corporation, and the manner in which such a decision is announced
and executed, on the employee and customer base which represent the inherent
value of the Corporation to an even greater extent than its financial assets.
Because the making of such decisions requires detailed knowledge of the
Corporation's business, plans, prospects and the markets in which it operates
and the time to study and consider the myriad of factors involved, the
Pennsylvania Business Corporation Law places the responsibility for making
decisions as to whether, when and how to sell the Corporation in the Board of
Directors, subject to the ultimate control of the shareholders through their
power to elect the members of the Board. The statutes also place upon the
Board of Directors the fiduciary duty to make such decisions only in the
manner that it believes in good faith, after a proper investigation, to be in
the best interests of the Corporation.
In the exercise of its fiduciary duties to the Corporation, the Board does
consider the sale of the Corporation as an alternative for maximizing long-
term shareholder value, and good faith offers to purchase or merge with the
Corporation would be given careful consideration by the Board. As detailed in
the Annual Report, the Corporation is in the process of completing a
structural consolidation of its retail banking delivery system which the Board
believes will result in a long-term increase in the value of the Corporation,
whether its future results in a sale or in remaining an independent entity.
Even if the Board believed, which it does not, that an immediate sale of the
Corporation in the current environment offers the best long-term prospects for
the Corporation and its shareholders and other constituents, the Board would
not go about achieving a sale by announcing, as does Shareholder Proposal 2A,
that the Corporation is for immediate sale at the best price attainable. In
the opinion of the Board of Directors, the uncertainty that such an
announcement would engender among the Corporation's employees and customers
could
16
<PAGE>
only produce an immediate and ongoing deterioration in the business and value
of the Corporation. Any sale that might be achieved after an announcement such
as that contemplated by Shareholder Proposal 2A could be the equivalent of a
"going out of business" sale. The Board believes that the Corporation's
franchise has significant long-term value. The Board does not believe that a
fire sale is the manner in which to achieve that value for the shareholders.
At the Annual Meeting of Shareholders in 1987, the shareholders approved a
series of amendments to the Corporation's Restated Articles of Incorporation
which had the expressed purpose of helping to assure that any person seeking
to acquire control of the Corporation would have to negotiate with the Board
of Directors and could not unilaterally determine the price the Corporation's
shareholders would receive. The amendments approved by the shareholders
divided the Board of Directors into three classes, with one class elected at
each Annual Meeting,/6/ eliminated cumulative voting in the election of
directors/7/ and required special shareholder votes for mergers and other
business combinations or amendments to the Restated Articles or Bylaws which
were not approved by the Board./8/ Shareholder Proposal 2B recommends that the
Board take action to repeal these provisions/9/ because they present an
"obstacle for a suitor of the Company who is not approved by the Board of
Directors but who seeks to acquire the Company at a stock price above current
market prices."
The Board agrees with the proponent that these provisions may present an
obstacle to any person who seeks to avoid negotiating with the Board of
Directors concerning the price and terms upon which control of the Corporation
may be acquired. That is precisely their purpose. The Board disagrees,
however, with the proponent's characterization of these provisions as "anti-
takeover" defenses. The purpose and effect of these provisions is not to
prevent a takeover of the Corporation. Rather, their purpose and effect is to
help provide the Board of Directors with the negotiating leverage necessary
for it to fulfill its fiduciary duty to assure that any takeover of the
Corporation which does occur is not merely "at a stock price above current
market prices," but at a price and upon terms which reflect the true long-term
value of the Corporation's franchise.
For the reasons indicated above, the Board of Directors unanimously
recommends that the shareholders vote AGAINST approval of Shareholder Proposal
2A and AGAINST approval of Shareholder Proposal 2B. These proposals, and the
statements of the proponents in support of the proposals, are quoted below.
The Corporation assumes no responsibility for the content of these materials.
The names of the proponents and the numbers of shares which they hold will be
furnished to any shareholder upon request to the Corporate Secretary at the
address indicated on page 1.
SHAREHOLDER PROPOSAL 2A:
"PROPOSAL
"RESOLVED, it is recommended that the Board of Directors of Keystone
Financial, Inc. (`KSTN') promptly take the necessary steps to achieve a sale
or merger of KSTN on terms that will maximize shareholder value.
- --------
/6/Article 8.1 of the Restated Articles, the substance of which is
repeated in Sections 2.01 and 2.10 of the Bylaws.
/7/Article 12 of the Restated Articles.
/8/Article 9 of the Restated Articles (mergers and other business
combinations), Article 10.3 of the Restated Articles (amendment of the
Restated Articles) and Article 8.3 of the Restated Articles amendment
of the Bylaws). In each case, the special vote required is 75% of the
outstanding voting shares plus a majority of the shares which are not
beneficially owned by any 20% shareholder. Section 9.01 of the Bylaws
repeats the substance of Article 8.3 of the Restated Articles
concerning amendment of the Bylaws, and Article 10.2 of the Restated
Articles gives the Board of Directors the power to interpret the
Restated Articles and to make any determinations required to implement
their provisions.
/9/Proposal 2B also seeks repeal of Section 1.02 of the Bylaws, which
authorizes the Chairman, the President or the Board of Directors to
call a special meeting of shareholders, and Section 2.04 of the
Bylaws, which authorizes the Chairman, the President or one-fourth of
the members of the Board to call a special meeting of the Board of
Directors. Under the Pennsylvania Business Corporation Law, if these
provisions were repealed, then only a majority of the Board of
Directors would have the authority to call special meetings of the
shareholders or the Board.
17
<PAGE>
"SUPPORTING STATEMENT
"The proponent believes the value of KSTN is far greater than reflected by
the current stock price and that the sale or merger of KSTN will maximize
shareholder value. In the proponent's opinion, KSTN could be sold at a
substantial premium to its current market price of $34 on 12/8/98.
"Summary
"You have the power to influence your investment by voting YES on this
proposal and demanding a sale or merger of our bank."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST"
APPROVAL OF SHAREHOLDER PROPOSAL 2A.
SHAREHOLDER PROPOSAL 2B:
"Shareholder Proposal
"Resolved, it is recommended that the Board of Directors of Keystone
Financial, Inc. make every effort, unless precluded by applicable state or
federal law, to remove the following `anti-takeover' defenses from the
Company's Certificate of Incorporation and Bylaws:
"1. Article 8.1 (b) of the Company's Certificate of Incorporation.
"2. Article 8.1 (c) of the Company's Certificate of Incorporation.
"3. Article 8.1 (d) of the Company's Certificate of Incorporation.
"4. Article 8.3 of the Company's Certificate of Incorporation.
"5. Article 9 of the Company's Certificate of Incorporation.
"6. Article 10.2 of the Company's Certificate of Incorporation.
"7. Article 10.3 of the Company's Certificate of Incorporation.
"8. Article 12 of the Company's Certificate of Incorporation.
"9. Article I, Section 1.02 of the Company's Bylaws.
"10. Article II, Section 2.01 of the Company's Bylaws.
"11. Article II, Section 2.04 of the Company's Bylaws.
"12. Article II, Section 2.10 of the Company's Bylaws.
"13. Article IX, Section 9.01 of the Company's Bylaws.
"Supporting Statement
"The Certificate of Incorporation and Bylaws of Keystone Financial, Inc.
(the `Company') presently contain `anti-takeover' defenses which place
considerable restrictions on the ability of the stockholders to effectuate a
proposed takeover of the company that has not been approved by the Board of
Directors. These anti-takeover defenses may deprive stockholders the
opportunity to receive a substantial premium for their shares of stock. With
the anti-takeover defenses in place, potential takeover attempts, however
lucrative to the stockholders, stand little chance of success if the Board of
Directors decides, for whatever reason, to withhold its approval.
"The existence of these defenses may present an insurmountable obstacle for
a suitor of the Company who is not approved by the Board of Directors but who
seeks to acquire the Company at a stock price above current
18
<PAGE>
market prices. These provisions may also create negative connotations and
serve to discourage other suitors from even pursuing a takeover of the
company. Moreover, these provisions restrict the stockholders' ability to
alter the composition of the Board of Directors.
"Please join me in voting Yes for this proposal."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "AGAINST"
APPROVAL OF SHAREHOLDER PROPOSAL 2B.
Vote Required
Approval of either shareholder proposal would require a majority of the
votes cast on the proposal at the Annual Meeting by the holders of Common
Stock voting in person or by proxy. An abstention or a broker non-vote is not
considered a vote cast and would not be included in determining the number of
votes required for approval.
MANAGEMENT PROPOSAL
Proposal No. 3
RATIFICATION OF APPOINTMENT OF AUDITORS
Pursuant to the recommendation of the Audit Committee, the Board of
Directors has appointed the firm of Ernst & Young LLP as independent auditors
for the Corporation for 1999.
Although the appointment of independent auditors is not required to be
approved by the shareholders, the Board of Directors believes the shareholders
should participate in the selection of independent auditors through the
ratification process. The Board of Directors recommends that the shareholders
vote "FOR" ratification of the appointment of Ernst & Young LLP. A vote of the
shareholders not to ratify the appointment of Ernst & Young LLP will be
considered as a direction to the Audit Committee to recommend other
independent auditors for appointment for the following year.
Representatives of Ernst & Young LLP are expected to be present at the
Annual Meeting and to be available to respond to appropriate questions.
Vote Required
Approval of this proposal requires the affirmative vote of a majority of the
votes cast on the proposal at the Annual Meeting by the holders of Common
Stock voting in person or by proxy. Under the Pennsylvania Business
Corporation Law, an abstention is not a vote cast and will not be counted in
determining the number of votes required for approval, though it will be
counted in determining the presence of a quorum.
5% BENEFICIAL OWNERS OF COMMON STOCK
Voting and investment power over Common Stock by the trust departments of
the Corporation's subsidiaries is reported above under "Introduction". The
following is the only other person known by the Corporation to have or share
voting and/or investment power over more than 5% of the outstanding Common
Stock:
<TABLE>
<CAPTION>
Amount and nature of
Name and address beneficial ownership of Percent of outstanding
of beneficial owner (1) Common Stock Common Stock
- ----------------------- ----------------------- ----------------------
<S> <C> <C>
Capital Research and Management
Company 3,840,050(1) 7.5%
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
19
<PAGE>
- --------
(1) In a Schedule 13G filed with the SEC dated February 8, 1999, Capital
Research and Management Company ("CRMC") reports that it is a registered
investment advisor and that as of December 31, 1998, acting in its
capacity as investment advisor to various registered investment companies,
it had sole dispositive power over 3,840,050 shares of Common Stock. CRMC
further reported that, as of the same date, it had no voting power over
any shares of Common Stock.
SHAREHOLDER PROPOSALS AND NOMINATIONS
The Bylaws of the Corporation require that any shareholder intending to
present a proposal for action at an Annual Meeting must give written notice of
the proposal, containing the information specified in the Bylaw, so that it is
received by the Corporation not later than the notice deadline determined
under the Bylaw. This notice deadline will generally be 120 days prior to the
anniversary date of the Corporation's Proxy Statement for the previous year's
annual meeting, or December 11, 1999 for the Corporation's Annual Meeting in
2000.
The Bylaw described in the preceding paragraph does not affect the right of
a shareholder to request inclusion of a shareholder proposal in the
Corporation's Proxy Statement pursuant to SEC Rule 14a-8 or to present for
action at an Annual Meeting any proposal so included. Rule 14a-8 requires that
notice of a shareholder proposal requested to be included in the Corporation's
Proxy Statement pursuant to the Rule must also generally be received by the
Corporation not later than 120 days prior to the anniversary date of the
Corporation's Proxy Statement for the previous year's Annual Meeting. For the
Corporation's Annual Meeting in 2000, this deadline would also be December 11,
1999.
The Corporation's Restated Articles of Incorporation require that any
shareholder who intends to nominate a candidate for election as a director of
the Corporation must furnish a written notice of the nomination, containing
the information specified in the Articles, so that it is received by the
Corporation not later than 120 days in advance of the meeting at which the
election is to be held.
The notices of shareholder proposals and nominations described under this
caption must be given to the Secretary of the Corporation at the address set
forth on page 1. A copy of the Bylaw and Articles provisions described above
will be furnished to any shareholder upon written request to the Secretary at
the same address.
OTHER MATTERS
As of the date of this Proxy Statement, no matters are expected to be
presented to the shareholders for action at the Annual Meeting other than
those referred to in the Notice of Meeting. However, if any further business
should properly come before the meeting, the persons named in the accompanying
proxy will be authorized to vote on such matters in accordance with their best
judgment.
ANNUAL REPORT ON FORM 10-K
Upon written request to the Investor Relations Department of the
Corporation, at the address set forth on page 1, the Corporation will furnish
without charge to any shareholder whose proxy is solicited hereby a copy of
the Corporation's 1998 Annual Report on Form 10-K to the Securities and
Exchange Commission, including the financial statements and schedules thereto.
20
<PAGE>
EXPENSES OF SOLICITATION
The cost of solicitation of proxies for the Annual Meeting will be paid by
the Corporation. The Corporation has retained the firm of Innisfree M&A
Incorporated to assist in the solicitation of proxies for the Annual Meeting.
For these services, Innisfree will receive a fee not to exceed $12,500, plus
reimbursement for its out-of-pocket expenses. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward proxy materials
to beneficial owners of shares held of record by them and will be reimbursed
by the Corporation for their expenses. In addition to solicitation by mail,
directors, officers and employees of the Corporation and its subsidiaries may
solicit proxies in person or by telephone or otherwise. Such persons will
receive no additional compensation for these services.
By the Order of the Board of Directors,
/s/ Ben G. Rooke
Ben G. Rooke, Secretary
April 9, 1999
21
<PAGE>
KEYSTONE FINANCIAL, INC.
PROXY FOR 1999 ANNUAL MEETING
This Proxy is solicited on behalf of the Board of Directors
The undersigned hereby appoints Gerald E. Field, Allan W. Holman, Jr. and
William L. Miller, or any of them, as proxies, with full power of substitution,
to vote all shares of Common Stock of Keystone Financial, Inc. which the
undersigned is entitled to vote at the 1999 Annual Meeting of Shareholders and
at any adjournment thereof, as follows:
(To be Completed and Signed on Reverse Side)
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
1999 Annual Meeting of Shareholders
KEYSTONE FINANCIAL, INC.
\/ Please Detach and Mail in the Envelope Provided \/
A [X] Please mark your
votes as in this
example.
FOR all nominees
1. Election of (except as shown) WITHHOLD AUTHORITY
Directors (below) to vote for all nominees
for terms [ ] [ ]
ending in 2002
A vote FOR includes discretionary
---
authority to vote for a substitute
nominee if any nominee named becomes
unable or unwilling to serve. To
withhold authority to vote FOR any
---
individual nominee, write that
nominee's name on the line below:
- --------------------------------------
Nominee: (for a term expiring in 2002)
A. Joseph Antanavage
Donald Devorris
Richard G. King
Uzal H. Martz, Jr.
Max A. Messenger
Don A. Rosini
F. Dale Schoeneman
Management recommends a Vote AGAINST Proposals 2A & 2B Below:
-------
2. Shareholder Proposals FOR AGAINST ABSTAIN
A. Shareholder Proposal 2A [ ] [ ] [ ]
B. Shareholder Proposal 2B [ ] [ ] [ ]
Management recommends a Vote FOR Proposal 3 Below.
---
3. Ratification of Ernst & Young LLP as independent
auditors for 1999. [ ] [ ] [ ]
4. To vote in their discretion on such other matters as may properly come before
the meeting or any adjournment thereof.
This proxy, when properly executed, will be voted in the manner directed herein.
If no direction is made, this proxy will be voted AGAINST Items 2A & 2B and FOR
---
Items 1 and 3.
PLEASE MARK DATE, EXECUTE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE.
SIGNATURE(S) DATE 1999
-------------------------------------------- --------------
Note: Please sign exactly as name appears hereon. For joint accounts, each joint
owner should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give your full title as such. If a corporation, please sign the
full corporate name by President or other authorized officer, giving your full
title as such. If a partnership, please sign in the partnership name by
authorized person, giving your full title as such.
