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SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
NATIONAL PROCESSING, 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:
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NATIONAL PROCESSING, INC.
------------------
April 10, 1998
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of National
Processing, Inc., which will be held at National City Bank, 1900 East Ninth
Street, 4th Floor, Cleveland, Ohio 44114, on Thursday, May 21, 1998, commencing
at 11:00 a.m., EASTERN DAYLIGHT SAVINGS TIME.
The primary business of the meeting will be the election of four Class II
directors and the approval of the selection of Ernst & Young LLP as independent
auditors for 1998, and to transact such other business as may properly come
before the meeting.
The formal Notice of Annual Meeting and Proxy Statement containing further
information pertinent to the business of the meeting are set forth on the
following pages. Our Annual Report on Form 10-K for the year 1997 is also
enclosed. We shall report to you at the meeting on the business and affairs of
National Processing, Inc.
Your vote is important no matter how many shares you own. We hope you will be
able to attend the meeting in person; but, in any event, please sign and date
the enclosed proxy and return it in the accompanying envelope. If you wish to
communicate directly with National Processing, Inc., the mailing address of the
executive offices is: National Processing, Inc., One Oxmoor Place, 101 Bullitt
Lane, Suite 450, Louisville, Kentucky 40222.
Sincerely,
/s/ Robert E. Showalter
ROBERT E. SHOWALTER
President and Chief Executive Officer
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<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Shareholders of
NATIONAL PROCESSING, INC.
The Annual Meeting of Shareholders of National Processing, Inc. will be held
at National City Bank, 1900 East Ninth Street, 4th Floor, Cleveland, Ohio 44114,
on Thursday, May 21, 1998, at 11:00 a.m., EASTERN DAYLIGHT SAVINGS TIME, for the
purpose of considering and voting upon the following matters:
1. The election of four Class II directors;
2. The approval of the selection of independent auditors for 1998; and
3. The transaction of such other business as may properly come before
the meeting.
Shareholders of record on March 20, 1998, are entitled to receive notice of
and to vote at the meeting. A list of the shareholders will be available at the
meeting and for the 10 days preceding the meeting at the offices of National
Processing, Inc., One Oxmoor Place, 101 Bullitt Lane, Suite 450, Louisville,
Kentucky 40222 and National City Bank, 1900 East Ninth Street, Cleveland, Ohio
44114-3484.
All Shareholders who are entitled to vote, even if they now plan to attend the
meeting, are requested to execute the enclosed proxy card and return it without
delay in the enclosed postage-paid envelope. You may revoke your proxy at any
time before it is voted by giving written notice to National Processing, Inc. If
you attend the meeting and vote in person, your vote will supersede your proxy.
Please mark, date, and sign the enclosed proxy and return it in the
accompanying envelope.
By Order of the Board of Directors
/s/ Carlton E. Langer
CARLTON E. LANGER
Secretary
April 10, 1998
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PROXY STATEMENT
APRIL 10, 1998
SOLICITATION AND REVOCABILITY OF PROXIES
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of National Processing, Inc. ("National Processing") of the
accompanying proxy to be used at the Annual Meeting of Shareholders of National
Processing (the "1998 Annual Meeting"), and any adjournment thereof, and is
being sent on approximately the date of this Proxy Statement to each of the
holders of National Processing's Common Stock ("National Processing Common").
The 1998 Annual Meeting will be held on Thursday, May 21, 1998, at the time and
place and for the purposes set forth in the accompanying Notice of Annual
Meeting of Shareholders. Shares represented by properly executed proxies, if
such proxies are received in time and not revoked, will be voted at such meeting
in accordance with any specifications thereon or, if no specifications are made,
will be voted as set forth therein. Any proxy may be revoked by the person
giving it at any time before it is exercised by receipt of a later dated proxy,
or by receipt by the Secretary of National Processing of a revocation, or by
such person appearing at the meeting and electing to vote in person.
INFORMATION AS TO VOTING SECURITIES
The Board of Directors has fixed the close of business on March 20, 1998, as
the record date for the determination of shareholders entitled to receive notice
of and to vote at the 1998 Annual Meeting. On the record date, National
Processing had 50,575,000 shares of National Processing Common outstanding.
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors of National Processing has responsibility for
establishing broad corporate policies and for overall performance of National
Processing. However, it is not involved in the day-to-day operating details of
National Processing's business. Members of the Board are kept informed of
National Processing's business through various documents and reports provided by
the Chairman and other officers of National Processing and by participating in
Board and committee meetings. All directors have access to all books, records,
and reports of National Processing; and members of management are available at
all times to answer their questions.
In 1997, the Board of Directors of National Processing held 8 meetings.
Average attendance by directors at those meetings was 89%, and all directors
attended 75% or more of the meetings of the Board of Directors.
The Board of Directors of National Processing has established two permanent
committees comprised of directors who are appointed annually to those
committees. The principal committees are the Audit Committee and the
Compensation Committee, each of which is described below. The members of each of
those committees are identified in the biographical material of the nominees for
election of Directors.
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THE AUDIT COMMITTEE. The Audit Committee meets at least semiannually and met 4
times during 1997. The Audit Committee is comprised of directors who are
independent of the management of National Processing and are free of any
relationship that would interfere with their exercise of independent judgment as
committee members. The responsibility for effective auditing of National
Processing and any subsidiary is carried out by the Audit Committee with the
assistance of the general auditor of National City Corporation ("National
City"), a diversified financial services company, which owns approximately 88%
of the National Processing Common outstanding, and the independent auditors. The
Audit Committee provides assistance to the Board of Directors in fulfilling its
responsibility to shareholders, potential shareholders, and the investment
community relating to corporate accounting and reporting practices of National
Processing, effectiveness of its internal control structure and procedures for
financial reporting, and compliance with designated laws and regulations. In so
doing, the Audit Committee maintains free and open communications among the
directors, the independent auditors, the general auditor, and the management of
National Processing.
THE COMPENSATION COMMITTEE. The Compensation Committee meets on the call of
the Chairman and met 6 times during 1997. The Compensation Committee is
comprised of directors who are independent of the management of National
Processing. The Compensation Committee considers matters relating to
compensation policy and compensation of senior officers of National Processing
and its subsidiaries and makes recommendations to the Board of Directors on
matters relating to succession and organization of senior executive management.
Under the terms of each of the National Processing, Inc. 1996 Stock Option Plan
and the National Processing, Inc. Non-Employee Directors Stock Option Plan, the
Compensation Committee is authorized to grant share option rights and share
appreciation rights to officers and employees of National Processing and its
subsidiaries. The Compensation Committee also determines participants for the
National City Processing Company Long-Term Incentive Compensation Plan for
Senior Officers and sets the awards granted pursuant to the National City
Processing Company Short-Term Incentive Compensation Plan for Senior Officers.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of National Processing who are not officers
of National City, National Processing or any of their subsidiaries ("Outside
Directors"), receive a yearly retainer, payable in quarterly installments, and a
fee for each meeting of the Board, and each committee thereof, which they
attend. The yearly retainer is $12,000. The fee for attendance at any Board
meeting or any committee meeting is $1,000. The chairperson of each committee
receives a fee of $500 for each meeting of that committee attended by that
chairperson. In addition, each non-affiliated director is awarded options to
purchase 2,500 shares of National Processing Common on the first Friday
following each annual meeting of National Processing's shareholders, with an
exercise price equal to the market value as of the date of such first Friday.
Pursuant to the National Processing, Inc. Nonemployee Directors Stock Option
Plan, Messrs. Cotsakos, Gonzalez-Baz, and Heller each received non-qualified
stock options to purchase 25,000 shares of National Processing Common at 100% of
the fair market value as of the date upon which those options were granted.
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SHAREHOLDER ACTION
1. ELECTION OF DIRECTORS -- NATIONAL PROCESSING.
The Board of Directors is comprised of seven individuals, four of whom are
classified as Class I directors, and three of whom are classified as Class II
directors. Each class of directors has a two-year term of office. Accordingly,
the term of office of the Class II directors, which began upon the due election
and qualification of those directors at the 1996 Annual Meeting of Shareholders,
will expire upon the due election and qualification of their respective
successors at the 1998 Annual Meeting. Likewise, the term of office of the Class
I directors, which began upon the due election and qualification of those
directors at the 1997 Annual Meeting of Shareholders, will expire upon the due
election and qualification of their respective successors at the 1999 Annual
Meeting of Shareholders. It is intended that shares represented by the proxies,
unless contrary instructions are given, will be voted for the election of the
Class II nominees listed as directors. Although management does not expect that
any nominee will be unavailable for election, in the event that vacancies occur
unexpectedly, the shares will be voted for substitute nominees, if any.
The three nominees for election to the Board of Directors as Class II
directors and the Class I directors are identified on pages 7 through 9. All of
the nominees are presently directors of National Processing with the exception
of Mr. Kelly, who stands for election as a director of National Processing for
the first time. Mr. Cotsakos was elected to the Board of Directors of National
Processing during 1996. Mr. Showalter was elected to the Board of Directors of
National Processing on March 12, 1997. All of the Class I directors were elected
at the 1997 Annual Meeting of Shareholders of National Processing, which was
held on May 13, 1997. The following material contains biographical information
concerning each director and nominee, including recent employment, positions
with National Processing, other directorships, age, and the number of shares of
National Processing Common beneficially owned, all as of March 31, 1998. Unless
otherwise indicated, the directors and nominees have sole voting and investment
power with respect to National Processing's securities shown to be owned by
each.
CLASS II NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<S> <C>
Cotsakos Photo CHRISTOS M. COTSAKOS, President and Chief Executive Officer of E*TRADE Group, Inc., an
electronic commerce company, since 1996. President and Co-Chief Executive Officer of A.
C. Nielsen, Inc. from 1992 to 1995. Director of National Processing since 1996.
Chairman of the Compensation Committee and Member of the Audit Committee. Age: 49.
Shares of National Processing Common owned: 11,100; options exercisable within 60 days:
9,166.
</TABLE>
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<TABLE>
<S> <C>
Kelly Photo JEFFREY D. KELLY, Executive Vice President of National City since 1994. Senior Vice
President of National City from 1990 to 1994. Senior Vice President of National City
Bank from 1987 to 1990. Age: 44. Shares of National Processing owned: 1,000.
Showalter Photo ROBERT E. SHOWALTER, President and Chief Executive Officer of National Processing since
March 1997. President and Chief Executive Officer of National City Bank, Northeast from
1995 to 1997 and President and Chief Executive Officer of National City Bank, Northwest
from 1991 to 1995. Director of National Processing since 1997. Age: 61. Shares of
National Processing Common owned: 45,200; options exercisable within 60 days: 66,666.
</TABLE>
VOTE BY SHAREHOLDERS
The election of directors requires the plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors.
THE BOARD OF DIRECTORS OF NATIONAL PROCESSING RECOMMENDS A VOTE FOR THE SLATE
OF DIRECTOR NOMINEES.
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CLASS I DIRECTORS WHOSE TERMS CONTINUE UNTIL THE 1999 ANNUAL SHAREHOLDERS
MEETING.
<TABLE>
<S> <C>
Bell Photo JAMES R. BELL, III, President and Chief Executive Officer of National City Bank of
Kentucky, a commercial bank, since 1996. Vice Chairman of National City Bank of
Kentucky from 1995 to 1996 and Executive Vice President from 1994 to 1995. Senior Vice
President of National City Bank from 1991 to 1993. Director of National Processing
since 1996. Age: 41. Shares of National Processing Common owned: 3,030.
Gonzalez-Baz Photo AURELIANO GONZALEZ-BAZ, Partner in Bryan Gonzalez Vargas y Gonzalez-Baz, a full service
law firm, since 1974. Director of National Processing since 1996. Chairman of the Audit
Committee and Member of the Compensation Committee. Age: 50. Shares of National
Processing Common owned: 0; options exercisable within 60 days: 9,166.
Heller, Jr. Photo PRESTON B. HELLER, JR., Retired as Chairman, Chief Executive Officer and President of
Pioneer-Standard Electronics, Inc., an industrial distributor of electronics and
computer products, during 1996. Prior to that time he served as Chairman and Chief
Executive Officer from 1992 to 1995. Director of National Processing since 1996. Member
of the Audit and Compensation committees. Age: 68. Shares of National Processing Common
owned: 4,500; options exercisable within 60 days: 9,166.
Siefers Photo ROBERT G. SIEFERS, Chairman of the Board of National Processing since May, 1997. Vice
Chairman and Chief Financial Officer of National City since August, 1997. Executive
Vice President and Chief Financial Officer of National City from 1991 to August, 1997.
Director of National Processing since 1996. Age: 52. Shares of National Processing
Common owned: 10,000.
</TABLE>
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BENEFICIAL OWNERSHIP
As of March 31, 1998, National Processing had one class of equity security
outstanding, National Processing Common without par value.
Beneficial ownership of National Processing's outstanding equity security, for
purposes of the ownership disclosures, has been determined in accordance with
Rule 13d-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934 ("Exchange Act"), under which Rule a person is deemed to be the
beneficial owner of securities if he or she has or shares voting power or
investment power in respect of such securities or has the right to acquire
beneficial ownership within 60 days. Accordingly, the amounts shown in the
following table do not purport to represent beneficial ownership for any purpose
other than as set forth under such Rule. Further, beneficial ownership as
determined in this manner does not necessarily bear on the economic incidence of
ownership of National Processing's equity securities.
The following table sets forth the beneficial security ownership of all
shareholders known to National Processing as of March 31, 1998, to be the owner
of more than five percent of National Processing Common.
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
<TABLE>
<CAPTION>
(2) (3)
NAME AMOUNT
(1) AND ADDRESS AND NATURE OF (4)
TITLE OF OF BENEFICIAL BENEFICIAL PERCENT
CLASS OWNER OWNERSHIP(1) OF CLASS
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock National City
Corporation
1900 East Ninth Street
Cleveland, OH 44114-3484 44,365,400 87.7%
</TABLE>
- --------------------------------------------------------------------------------
(1) No listed beneficial owner is known to have had, as of March 31, 1998, the
right to acquire beneficial ownership, as specified in Rule 13d-3(d)(1)
under the Exchange Act, of any shares of National Processing Common.
For purposes of this disclosure, the amount of outstanding National Processing
Common is the aggregate number of shares of National Processing Common actually
outstanding on such date plus an amount equal to the aggregate amount of
National Processing Common which could be issued upon the exercise of stock
options by such person or firm at that date. Beneficial ownership of National
Processing Common includes, as of such date, those shares which could have been
acquired by the exercise of stock options.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under federal securities law, National Processing's directors, certain
officers, and persons holding more than 10% of any class of National
Processing's equity securities are required to report, within specified monthly
and annual due dates, their initial ownership in any class of National
Processing's equity securities and all subsequent acquisitions, dispositions or
other transfers of interest in such
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securities, if and to the extent reportable events occur that require reporting
by such due dates. National Processing is required to describe in this proxy
statement whether it has knowledge that any person required to file such a
report may have failed to do so in a timely manner. In this regard, to National
Processing's knowledge, based solely on the review of copies of reports
furnished to National Processing by its directors and executive officers
pursuant to Rule 16a-3 promulgated pursuant to the Exchange Act, and on written
representations that no other reports were required during the period ending
December 31, 1997, all of National Processing's directors and officers satisfied
such filing requirements in full except for John J. Leehy III, who filed one
late Form 3, relating to the granting of an option to purchase shares of
National Processing Common, after having been elected Executive Vice President
of National Processing during 1997.
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1998, the beneficial security
ownership of (a) each director and nominee of National Processing; (b) the chief
executive officer and the four other most highly compensated executive officers
of National Processing; and (c) all directors and executive officers of National
Processing as a Group (including shares that such individuals could have
acquired by the exercise of options within 60 days thereafter):
- --------------------------------------------------------------------------------
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock James R. Bell, III 3,030 *
Common Stock Jim W. Cate 46,666(3) *
Common Stock Christos M. Cotsakos 20,266(4) *
Common Stock Aureliano Gonzalez-Baz 9,166(4) *
Common Stock Delroy R. Hayunga 22,726(5) *
Common Stock Preston B. Heller, Jr. 13,666(4) *
Common Stock Tony G. Holcombe(1) 100 *
Common Stock Robert E. Johnson 63,333(6) *
Common Stock Jeffrey D. Kelly 1,000 *
Common Stock William R. Robertson 10,000 *
Common Stock Robert E. Showalter 111,866(7) *
Common Stock Robert G. Siefers 10,000 *
Common Stock Thomas A. Wimsett 74,366(7) *
Common Stock David R. Zook(2) 72,816(7) *
Common Stock Directors and Executive Officers 458,901 *
of National Processing as a
Group
</TABLE>
- --------------------------------------------------------------------------------
* The percent of National Processing Common beneficially owned is less than 1%.
(1) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March 1997. He was succeeded in the same month by
Robert E. Showalter.
(2) David R. Zook resigned as Executive Vice President of National Processing
effective as of March 27, 1998. He was succeeded as of March 31, 1998 by
Donald J. Kenney.
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(3) Includes 41,666 shares of National Processing Common of which Jim W. Cate
has the right to acquire beneficial ownership, as specified in Rule
13d-3(a)(1) under the Exchange Act.
(4) Includes 9,166 shares of National Processing Common of which the named
beneficial owner has the right to acquire beneficial ownership, as specified
in Rule 13d-3(a)(1) under the Exchange Act.
(5) Includes 16,666 shares of National Processing Common of which Delroy R.
Hayunga has the right to acquire beneficial ownership as specified in Rule
13d-3(a)(1) under the Exchange Act.
(6) Includes 58,333 shares of National Processing Common of which Robert E.
Johnson has the right to acquire beneficial ownership, as specified in Rule
13d-3(a)(1) under the Exchange Act.
(7) Includes 66,666 shares of National Processing Common of which the named
beneficial owner has the right to acquire beneficial ownership, as specified
in Rule 13d-3(a)(1) under the Exchange Act.
2. SELECTION OF INDEPENDENT AUDITORS -- NATIONAL PROCESSING.
The Board of Directors of National Processing believes it appropriate to
submit for action by the shareholders of National Processing the approval of the
selection of Ernst & Young LLP, independent auditors, as auditors for National
Processing for the year 1998. This firm and its predecessors have served as
independent auditors for National Processing Company, a subsidiary of National
Processing, since 1993. In the opinion of the Board of Directors of National
Processing, the reputation, qualifications, and experience of the firm make
appropriate its appointment for 1998. A representative of the firm is expected
to be present at the Annual Meeting of National Processing, with the opportunity
to make a statement if such representative desires to do so, and is expected to
be available to respond to appropriate questions.
VOTE BY SHAREHOLDERS
The proposal requires for its adoption the affirmative vote of the majority of
votes cast in person or by proxy at the meeting.
THE BOARD OF DIRECTORS OF NATIONAL PROCESSING RECOMMENDS A VOTE FOR THIS
PROPOSAL.
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REPORT OF COMPENSATION COMMITTEE
National Processing believes that its shareholders should be provided
information about executive compensation that is easily understood and
consistent with the Securities and Exchange Commission's proxy rules on
executive compensation.
The information provided is intended to enable shareholders to fully
understand the cash, performance-based and equity-based compensation programs
for executives. National Processing welcomes shareholder comments or suggestions
on whether the disclosure objectives have been met. Please send any comments to
the Secretary, National Processing, Inc., c/o National City Corporation, 1900
East Ninth Street, Cleveland, OH 44114-3484, Attn: Carlton E. Langer, Loc. No.
2174.
COMPENSATION PHILOSOPHY
National Processing is committed to aligning compensation strategies with
overall business objectives. The performance of National Processing's employees
is key to delivering the types of products and services that will result in
returned value to shareholders. National Processing will structure its
compensation plans to reward individuals based on their contributions to
individual, unit, and corporate objectives. Compensation strategies that support
and are aligned with business objectives will be pursued. National Processing's
compensation philosophy recognizes the need for diversification in pay
practices. Variable pay opportunities provided through incentive plans and
performance bonus programs are important vehicles for rewarding individual
employee contributions.
EXECUTIVE COMPENSATION PRINCIPLES
National Processing believes that executive compensation should be dependent
on the attainment of aggressive business goals, and the integration and
implementation of annual and strategic planning. Above-average executive
compensation levels can only be attained by meeting corporate and individual
goals.
The cornerstone of the executive compensation programs of National Processing
is based on the following guiding principles.
The program:
Focuses on total compensation in determining overall and individual
competitiveness;
Provides rewards for long-term strategic management and promotes a
concept of equity ownership as a reinforcement of corporate success and
attention to shareholder values;
Places significant pay at risk based on the attainment of both corporate
and individual performance goals; and
Attracts and retains key executives critical to the long-term success of
National Processing.
National Processing believes that it is in the best interest of
shareholders to retain as much flexibility as possible, now and in the
future, with respect to the design and payment of
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compensation to its executive officers. National Processing does, however,
recognize the constraints imposed on this flexibility by Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") which disallows
a tax deduction for non-exempted compensation it pays in excess of
$1,000,000 to key executives. National Processing's compensation plans are
currently structured in such a manner that it is unlikely that non-exempted
compensation paid to any executive officer in any year will exceed the
limitation for deduction by National Processing established by Section
162(m).
EQUITY-BASED REWARDS
National Processing is committed to ensuring that the shareholders and
employee owners share long-term interests. A focus on increasing employee equity
ownership strengthens the link between executive rewards and long-term corporate
performance.
Stock Options are an important component of total compensation and provide a
long-term incentive to participants to align performance with shareholder
interests. Stock options are awarded to employees based on their performance and
contributions. Broad guidelines are used to award the stock options, with
above-average awards linked to above-average individual performance and long-
term potential.
CASH-BASED REWARDS
National Processing believes that cash compensation should be driven by the
attainment of aggressive business goals. These goals are based on annual and
three-year plan cycles. Performance is assessed in terms of achievement of
National Processing division and individual goals. In addition, the chief
executive officer's cash compensation is also dependent on the performance of
National City.
National Processing establishes a salary range for each executive officer that
is determined by an evaluation of job criteria. National Processing's objective
is to provide base compensation at market median and to provide total cash
compensation opportunities above the market median when there is above-average
performance. Executive salaries can vary within National Processing's range
structure based on performance, experience, and long-term potential.
THE NATIONAL PROCESSING COMPANY SHORT-TERM INCENTIVE COMPENSATION PLAN FOR
SENIOR OFFICERS allows for rewards to be based on the achievement of individual
performance goals and National Processing's results. Awards under this plan are
a percent of base pay and can range from 0% to 55% for the executive vice
presidents, 0% to 40% for senior vice presidents, and 0% to 20% for vice
presidents of National Processing or its major subsidiaries.
THE NATIONAL PROCESSING COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN FOR
SENIOR OFFICERS is designed to maximize returns to shareholders by linking the
compensation of key executives to the overall profitability and success of
National Processing. Awards under this plan are based on the attainment of goals
over a three-year plan cycle. The first plan cycle began on January 1, 1995, and
a new plan cycle begins on January 1 of each fiscal year. Awards for plan cycles
commencing on or before January 1, 1997 are based on National Processing's
compound growth rate in earnings over the plan cycle. An individual
participant's award for such a plan cycle can range from 20% to 40% of the
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participant's average annual salary for the plan cycle if goals for the plan
cycle are achieved. Awards for plan cycles commencing on or after January 1,
1998 are based on National Processing's ranking, according to increase in total
shareholder return over the plan cycle, relative to a peer group comprised of
comparable corporations. An individual participant's award for such a plan cycle
can range from 12% to 40% of the participant's average annual salary for the
plan cycle if goals for the plan cycle are achieved, but in no event can the
award for the plan cycle exceed $1,000,000.
Awards for a plan cycle are paid following the cycle if the goals for that
cycle are achieved. The first potential award was to be paid following
completion of the 1995-1997 plan cycle, but no payment was required to be made.
The second potential award will be paid following completion of the 1996-1998
plan cycle if performance goals for that plan cycle are met.
SUMMARY
National Processing's compensation programs serve to closely align an
individual's compensation opportunities with the impact of the individual's
contributions on the overall performance of National Processing. Both cash-based
and equity-based vehicles are used to reward performance that is measured
annually and over a three-year period. Achievement of aggressive business goals
is used as measurement criteria. National Processing will continue to build on
programs that tie total compensation to National Processing's success.
THE COMPENSATION COMMITTEE'S REVIEW OF CEO COMPENSATION
National Processing's executive compensation program is based on National
Processing's, National City's, and the individual's performance and places a
significant portion of an executive's compensation at risk if these goals are
not attained. In addition, the program rewards long-term strategic management by
using compensation vehicles that promote equity ownership and emphasize
attention to shareholder value.
Robert E. Showalter has served as President and Chief Executive Officer of
National Processing since March 1997. Mr. Showalter's compensation plan includes
base salary, short- and long-term bonuses and stock options. Mr. Showalter
received a base salary of $300,000 plus a bonus of $216,000 for 1997. The
short-term bonus for Mr. Showalter is based upon financial performance
measurements, including the achievement of a pre-determined net income
objective, and the achievement of individual performance goals. In 1997, these
goals related to the consummation of several strategic acquisitions.
Mr. Showalter's long-term bonus is designed to maximize returns to
stockholders of National City by linking Mr. Showalter's compensation to the
overall profitability and success of National City. The bonus is based on
National City's ranking relative to a peer group comprised of approximately 16
super-regional banks. The ranking is determined by the increase in total
stockholder return over a three year plan cycle. The award is paid at the
completion of each plan cycle. Awards under this plan can range from 0% to 60%
of Mr. Showalter's average annual salary for the relevant plan cycle.
The purpose of the National Processing, Inc. 1996 Stock Option Plan is to
enable National Processing to attract, compensate, and retain officers and other
key employees and provide them with
15
<PAGE> 15
appropriate employment incentives and rewards for superior performance by
encouraging capital accumulation and stock ownership. Mr. Showalter received
options to purchase 200,000 shares of Common Stock with an exercise price of
$10.50.
Mr. Showalter also participates in the National City Savings and Investment
Plan, the National City Executive Savings Plan, the National City Short-Term
Incentive Compensation Plan for Senior Officers, and the National City
Supplemental Executive Retirement Plan. Mr. Showalter is eligible to receive
options to purchase shares of National City common stock.
COMPENSATION COMMITTEE
CHRISTOS M. COTSAKOS, CHAIRMAN
AURELIANO GONZALEZ-BAZ
PRESTON B. HELLER, JR.
16
<PAGE> 16
SHAREHOLDER RETURN PERFORMANCE
Set forth below is a line graph comparing the total shareholder return (stock
price change plus dividends) of National Processing Common from August 9, 1996
through December 31, 1997 with that of the Standard & Poor's 500 Index (the "S&P
500 Index") and the Standard & Poor's Computer Software and Services Index (the
"S&P Computer Software and Services Index"). The graph assumes that the value of
the investment in National Processing Common and each index was $100 on August
9, 1996 and that all dividends, if any, were reinvested. The initial public
offering of National Processing Common occurred on August 9, 1996, and the
initial offering price of $16.50 was used as the beginning price for National
Processing Common's price on the performance graph. National Processing also
notes that the initial offering price of $16.50 was different from National
Processing Common's initial trading price of $19.00.
COMPARISON OF CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
S&P
COMPUTER
SOFTWARE
AND
MEASUREMENT PERIOD NATIONAL SERVICES S&P 500
(FISCAL YEAR COVERED) PROCESSING INDEX INDEX
<S> <C> <C> <C>
8/9/96 100 100 100
9/30/96 118.2 104.6 104.0
12/31/96 97.0 112.2 112.6
3/31/97 48.5 112.9 115.5
6/30/97 62.1 147.4 135.5
9/30/97 67.5 155.8 145.6
12/31/97 59.9 146.7 149.8
</TABLE>
17
<PAGE> 17
REMUNERATION OF EXECUTIVE OFFICERS
AND TRANSACTIONS WITH MANAGEMENT -- NATIONAL PROCESSING
EXECUTIVE COMPENSATION
(a) COMPENSATION. The following table sets forth, together with certain other
information, the compensation earned during the fiscal year ended December 31,
1997 by (i) Robert E. Showalter, who was elected President and Chief Executive
Officer of National Processing during March, 1997, (ii) Tony G. Holcombe, who
resigned as President and Chief Executive Officer of National Processing during
March, 1997, and (iii) the four other most highly compensated executive officers
of National Processing and its subsidiaries.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
AWARDS PAYOUTS
----------------------- ----------
RESTRICTED SECURITIES ALL
OTHER STOCK UNDERLYING OTHER
NAME AND PRINCIPAL BONUS ANNUAL AWARD(S) OPTIONS/ LTIP COMP
POSITION YEAR SALARY($) ($) COMP($) ($) SARS(#)(5) PAYOUTS($) ($)(6)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Robert E. Showalter(1) 1997 $284,792 $216,000 $0 $0 226,481 $0 $ 31,706
President and 1996 $ $ $0 $0 $0 $
Chief Executive Officer 1995 $ $ $0 $0 $0 $
Tony G. Holcombe(2) 1997 $ 58,750 $148,050 $0 $0 0 $0 $176,250(7)
President and 1996 $233,333 $148,050 $0 $0 200,000 $0 $ 24,753
Chief Executive Officer 1995 $225,000 $138,600 $0 $0 10,000 $0 $ 21,064
Jim W. Cate(3) 1997 $150,962 $ 61,380 $0 $0 75,000 $0 $ 11,048
Executive Vice President 1996 $ 89,115 $ 56,000 $0 $0 50,000 $0 $ 24,521(8)
1995 $ $ $0 $0 $0 $
Robert E. Johnson 1997 $168,683 $ 24,350 $0 $0 75,000 $0 $ 21,636
Executive Vice President 1996 $165,667 $ 71,638 $0 $0 100,000 $0 $ 21,551
1995 $157,500 $ 70,200 $0 $0 4,000 $0 $ 19,708
Thomas A. Wimsett 1997 $170,000 $ 77,700 $0 $0 100,000 $0 $ 24,600(9)
Executive Vice President 1996 $152,500 $ 84,700 $0 $0 100,000 $0 $ 11,938
1995 $103,833 $ 58,000 $0 $0 3,500 $0 $ 17,413
David R. Zook(4) 1997 $197,417 $ 28,800 $0 $0 100,000 $0 $ 21,370
Executive Vice President 1996 $187,998 $110,000 $0 $0 100,000 $0 $ 18,551
1995 $157,500 $190,000 $0 $0 7,000 $0 $ 66,633
</TABLE>
- --------------------------------------------------------------------------------
(1) Robert E. Showalter was elected President and Chief Executive Officer of
National Processing during March, 1997.
(2) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March, 1997. He was succeeded in the same month
by Robert E. Showalter.
(3) Jim W. Cate was elected Executive Vice President of National Processing
during May, 1997.
(4) David R. Zook resigned as Executive Vice President of National Processing
effective as of March 27, 1998. He was succeeded as of March 31, 1998 by
Donald J. Kenney.
(5) For year ended 1995, the Securities Underlying Options/SARS pertain to
options to purchase shares of National City Common Stock and not National
Processing Common. For years ended 1996 and 1997, the Securities Underlying
18
<PAGE> 18
Options/SARS pertain to options to purchase shares of National Processing
Common with the exception of Robert E. Showalter who received both as
follows: National City Common Stock 26,481; National Processing Common
200,000.
(6) All Other Compensation includes the Executive Savings Plan and the Savings
and Investment Plan matching and profit-sharing components together with
premiums paid by National Processing in connection with split dollar
insurance contracts, but does not include retirement accruals as these are
not calculable. For the year 1997, each of the named executive officers were
credited with the following matching and profit-sharing amount under the
Savings and Investment Plan; Robert E. Showalter, $9,737; Tony G. Holcombe,
$9,775; Jim W. Cate, $4,521; Robert E. Johnson, $9,768; Thomas A. Wimsett,
$9,737; David R. Zook, $9,800. The named executive officers were credited
with the following match and profit-sharing amount under the Executive
Savings Plan during the year 1997; Robert E. Showalter, $12,185; Tony G.
Holcombe, $11,308; Jim W. Cate, $6,527; Robert E. Johnson, $5,293; Thomas A.
Wimsett, $4,863; David R. Zook, $7,827. All other compensation also includes
the following amounts equal to the full dollar value of the remainder of the
premiums paid by National Processing in connection with life insurance
policies issued pursuant to the Split Dollar Life Insurance Agreements
between National City and the following Named Executive Officers during
1997, respectively, as applicable: Robert E. Showalter, $9,784; Tony G.
Holcombe, $3,975; Jim W. Cate, $-0-; Robert E. Johnson, $6,575; Thomas A.
Wimsett, $-0-; and David R. Zook, $3,743. The premiums paid by National
Processing in connection with the life insurance policies issued pursuant to
such Split Dollar Life Insurance Agreements, set forth in the preceding
sentence, generally will be recovered in full by National Processing upon
the cancellation or purchase by a Named Executive Officer of any such life
insurance policy or the payment of any death benefits under any such life
insurance policy.
(7) Includes severance payable pursuant to an employment agreement.
(8) Includes signing bonus in the amount of $20,000.
(9) Includes payment of $10,000 in consideration for an agreement not to
compete.
- --------------------------------------------------------------------------------
(b) OPTIONS. The following table provides information on options to acquire
common stock of National City ("National City Common") and National Processing
Common granted during 1997 to the named executive officers.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE VALUE($)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... 200,000(2) 13.5% $ 10.50 3/11/07 1,162,000(6)
2,250(3) 8.50% 43.75 12/06/05 15,975(7)
1,742(4) 6.58% 57.375 7/28/07 16,218(7)
13,258(5) 50.06% 57.375 7/28/07 123,432(7)
2,483(3) 9.38% 59.063 6/14/05 23,787(7)
4,846(3) 18.30% 57.063 7/22/06 44,826(7)
1,902(3) 7.18% 63.00 12/06/05 19,438(7)
Tony G. Holcombe(8)..................... 0 0%
Jim W. Cate............................. 75,000(2) 5.1% 8.375 5/31/07 347,000(6)
Robert E. Johnson....................... 75,000(2) 5.1% 8.375 5/31/07 347,000(6)
Thomas A. Wimsett....................... 100,000(2) 6.7% 8.375 5/31/07 463,000(6)
David R. Zook(9)........................ 100,000(2) 6.7% 8.375 5/31/07 463,000(6)
</TABLE>
- --------------------------------------------------------------------------------
(1) National Processing granted options representing 1,483,000 shares to
National Processing employees during 1997. National City granted options
representing 26,481 shares to National Processing employees during 1997.
(2) Options are options to acquire National Processing Common. All such options
are non-qualified stock options. Subject to the named individual remaining
in the continuous employment of National Processing, the options become
exercisable 33% annually beginning one year from the date of grant and
expire not later than 10 years from the date of grant.
19
<PAGE> 19
(3) Options are Additional Options as defined in the Amended and Restated
National City Corporation 1993 Stock Option Plan ("Additional Options") to
acquire National City Common. Additional Options are granted at the market
price of National City Common on the date of grant and become exercisable 6
months after the date of grant. They have a contractual term equal to the
remaining term of the original option.
(4) Options are incentive stock options to acquire National City Common. One
half of each option grant becomes exercisable one year after the date of the
grant and the remainder becomes exercisable on the second anniversary of the
grant. For incentive stock options a further restriction is placed on the
exercise of options such that the maximum number of shares of National City
Common which become initially available for purchase under all post-1986
incentive stock option grants from National City in any calendar year shall
be limited to that number of shares the aggregate exercise price of which
does not exceed $100,000. Additional Option rights are attached to each
option and Additional Options will be granted upon exercise, subject to
certain provisions, if the exercise price or the related tax obligation is
paid using shares of National City Common owned by the optionee.
(5) Options are non-qualified stock options to acquire National City Common.
One-half of each option grant becomes exercisable one year after the date of
grant and the remainder becomes exercisable on the second anniversary of the
grant. The options have a contractual term of 10 years. Additional Option
rights are attached to each option and Additional Options will be granted
upon exercise, subject to certain provisions, if the exercise price or the
related tax obligation is paid using shares of National City Common owned by
the optionee.
(6) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following assumptions:
(i) an expected volatility of .441, (ii) an expected dividend yield of 0%,
(iii) a risk-free interest rate at the date of grant of 5.97%, (iv) an
expected option life of 7 years, and (v) no discounts for
non-transferability or risk of forfeiture. The estimated values have been
included solely for purposes of disclosure in accordance with the rules of
the Securities and Exchange Commission and represent theoretical values. The
actual value, if any, an executive may realize will depend upon the increase
in the market price of National Processing Common through the date of
exercise. Such an increase would benefit all shareholders of National
Processing.
(7) In accordance with Securities and Exchange Commission rules, the
Black-Scholes pricing model was used to estimate the Grant Date Present
Value. The values indicated were calculated using the following assumptions:
(i) an expected volatility of .194, (ii) an expected dividend yield of
3.50%, (iii) the risk-free interest rate at the date of grant based upon a
term equal to the expected life of the option of 5.70%, (iv) an expected
option life equal to the anticipated period of time from date of grant to
exercise of 3.9 years, and (v) no discounts for non-transferability or risk
of forfeiture. The estimated values have been included solely for purposes
of disclosure in accordance with the rules of the Securities and Exchange
Commission and represent theoretical values. The actual value, if any, an
executive may realize will depend upon the increase in the market price of
National City Common through the date of exercise. Such an increase would
benefit all stockholders of National City
(8) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March, 1997. He was succeeded in the same month
by Robert E. Showalter.
(9) David R. Zook resigned as Executive President of National Processing
effective as of March 27, 1998. He was succeeded as of March 31, 1998 by
Donald J. Kenney.
20
<PAGE> 20
- --------------------------------------------------------------------------------
The following table sets forth the stock options for National City Common and
National Processing Common exercised by each of the named executive officers
during the calendar year 1997 and the December 31, 1997 value of all unexercised
options for National City Common and National Processing Common held by the
named executive officers.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS OPTIONS/SARS
AT 12/31/97 AT 12/31/97
SHARES ----------------- ----------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... 17,188(2) $447,892.87(2) 41,761/31,732(2) $1,535,622/$422,091(4)
0(3) 0(3) 0/200,000(3) $0/$0(5)
Tony G. Holcombe(6)..................... 9,998(2) 208,396(2) 0/0(2) $0/$0(4)
0(3) 0(3) 0/0(3) $0/$0(5)
Jim W. Cate............................. 0(2) 0(2) 0/0(2) $0/$0(4)
0(3) 0(3) 16,667/108,333(3) $0/$112,500(5)
Robert E. Johnson....................... 0(2) 0(2) 14,300/0(2) $566,135/$0(4)
0(3) 0(3) 33,333/141,667(3) $0/$112,500(5)
Thomas A. Wimsett....................... 0(2) 0(2) 6,400/0(2) $239,387/$0(4)
0(3) 0(3) 33,333/166,667(3) $0/$150,000(5)
David R. Zook(7)........................ 0(2) 0(2) 7,000/0(2) $251,125/$0(4)
0(3) 0(3) 33,333/166,667(3) $0/$150,000(5)
</TABLE>
- --------------------------------------------------------------------------------
(1) The "Value Realized" is equal to the difference of the fair market value on
the date of exercise less the option exercise price.
(2) Pertains to options to purchase shares of National City Common.
(3) Pertains to options to purchase shares of National Processing Common.
(4) The "Value of Unexercised In-The-Money Options/SARs at 12/31/97" is equal to
the difference (in no case less than zero) of the closing price of National
City Common on December 31, 1997, which was $65.75, less the option/SAR
exercise price.
(5) The "Value of Unexercised In-the-Money-Options/SARs at 12/31/97" is equal to
the difference (in no case less than zero) of the closing price of National
Processing Common on December 31, 1997, which was $9.875, less the
option/SAR exercise price.
(6) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March, 1997. He was succeeded in the same month
by Robert E. Showalter.
(7) David R. Zook resigned as Executive Vice President of National Processing
effective as of March 27, 1998. He was succeeded as of March 31, 1998 by
Donald J. Kenney.
- --------------------------------------------------------------------------------
21
<PAGE> 21
The following table provides information on the awards of long-term incentive
plan participation during the year 1997.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE NON-STOCK
NUMBER OF OR OTHER PRICE-BASED PLANS(3)
SHARES, UNITS PERIOD UNTIL --------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT(2) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... N/A December 31, 2000 60,686 101,143 202,285
Tony G. Holcombe(5)..................... N/A December 31, 2000 --(4) 0 0
Jim W. Cate............................. N/A December 31, 2000 --(4) 33,359 66,718
Robert E. Johnson....................... N/A December 31, 2000 --(4) 37,224 74,448
Thomas A. Wimsett....................... N/A December 31, 2000 --(4) 37,625 75,250
David R. Zook(6)........................ N/A December 31, 2000 --(4) 0 0
</TABLE>
- --------------------------------------------------------------------------------
(1) Awards are cash awards based on a percentage of the individual's base pay.
No shares or other rights are granted.
(2) Awards are based on a three-year cycle starting 1/1/97 and ending 12/31/99.
Messrs. Showalter, Holcombe, Cate, Johnson, Wimsett and Zook were each
awarded the opportunity to participate in the next three-year cycle. Payouts
occur only at the end of the cycle.
(3) In the case of Mr. Showalter, the payout is a percentage of his average
annual salary for the three-year cycle, determined on the basis of National
City's ranking, according to increase in total shareholder return over the
three-year cycle, relative to a peer group comprised of approximately 16
super-regional banks. In all other cases, the payout is a percentage of the
participant's average annual salary for the three-year cycle, determined on
the basis of National Processing's compound growth rate in earnings over the
three-year cycle.
(4) Under the terms of the National Processing Company Long-Term Incentive
Compensation Plan, participants are not entitled to any threshold award for
any plan cycle commencing prior to January 1, 1998.
(5) Tony G. Holcombe resigned as President and Chief Executive Officer of
National Processing during March, 1997. He was succeeded in the same month
by Robert E. Showalter. Under the terms of the National Processing Company
Long-Term Incentive Compensation Plan, participants who resign prior to the
end of a three-year cycle are not entitled to any award under the plan for
that cycle. Accordingly, the estimated future payouts to Mr. Holcombe for
the three-year cycle commencing January 1, 1997 are zero.
(6) David R. Zook resigned as Executive Vice President of National Processing
effective as of March 27, 1998. He was succeeded as of March 31, 1998 by
Donald J. Kenney. Under the terms of the National Processing Company
Long-Term Incentive Compensation Plan, participants who resign prior to the
end of a three-year cycle are not entitled to any award under the plan for
that cycle. Accordingly, the estimated future payouts to Mr. Zook for the
three-year cycle commencing January 1, 1997 are zero.
- --------------------------------------------------------------------------------
22
<PAGE> 22
The value of benefits paid or furnished by National Processing in 1997 to
executive officers, other than those included in the preceding table, are less
than the amounts required to be disclosed pursuant to the Exchange Act.
DESCRIPTION OF NATIONAL PROCESSING'S COMPENSATION AND BENEFIT PLANS
SAVINGS PLAN. National Processing participates in the National City Savings
and Investment Plan (the "Savings Plan"). The Savings Plan is a qualified salary
reduction profit-sharing plan within the meaning of Section 401(k) of the Code.
Under the Savings Plan as amended, all eligible employees (generally, an
eligible employee is one who has completed one year of continuous service, is 21
years of age or older and has completed 1,000 hours of service) of National
Processing and its adopting subsidiaries may participate in the Savings Plan by
directing their employers to make Before-Tax Contributions (as defined in the
Savings Plan) to the Savings Plan Trust (the "Trust") for their accounts and to
reduce their compensation by an equal amount. Contributions may be directed in
any whole percentage between 1% and 10% of the employee's base compensation. The
employers also make contributions to the Trust ("Matching Employer
Contributions") in an amount equal to the Matching Employer Contribution
percentage then in effect (the Matching Employer Contribution percentage is
currently an amount equal to 100% of the first 3% of the employee's pay
contributed as a Before-Tax Contribution, plus 50% of the next 4% of the
employee's pay similarly contributed as a Before-Tax Contribution, with no
further Matching Employer Contribution for any additional pay contributed as a
Before-Tax Contribution). Amounts contributed pursuant to the Savings Plan may
be invested in certain investment choices. Before-Tax Contributions and Matching
Employer Contributions are fully vested at all times.
During 1997, the Savings Plan had a profit-sharing feature based upon National
City's profitability, as measured by the percentage return on common equity
("ROE") from year to year. The profit-sharing contribution was in addition to
the regular Matching Employer Contributions described above. The additional
amount of this profit-sharing contribution in any year was dependent upon
National City's ROE for that year and ranged, in five-cent increments from no
additional contribution, if a minimum ROE of 12% was not attained, to a maximum
of 50 cents for each $1.00 of an individual's Before-Tax Contributions for the
year if National City's ROE was equal to or greater than 18.5%. In 1997,
National City's ROE was 18.53%, which resulted in National City contributing 50
cents for each $1.00 of an individual's Before-Tax Contribution as a
profit-sharing contribution for the year 1997. The profit-sharing contribution
for the year 1997 was made in February, 1998.
Effective January 1, 1998, the profit-sharing contribution for any year,
commencing with 1998, will be determined on the basis of the reported growth in
National City's earnings per share ("EPS") since the end of the immediately
preceding year. Under the Savings Plan, as so amended, the amount of the profit
sharing contribution for any year, commencing in 1998, will range, in five cent
increments, from zero, if growth in National City's reported EPS since the end
of the immediately preceding year is less than 8%, to a maximum of 50 cents for
each $1.00 of an individual's Before-Tax Contributions for that year if growth
in National City's reported EPS since the end of the immediately preceding year
is equal to or greater than 14.01%. The profit-sharing contribution for
23
<PAGE> 23
each year will be made during the immediately succeeding year. Any
profit-sharing contribution will be in addition to any Regular Matching Employer
Contributions.
EXECUTIVE PLAN. National Processing participates in the National City
Executive Savings Plan (the "Executive Plan"). The Executive Plan is a
non-qualified salary reduction profit-sharing plan, similar to the Savings Plan.
The Executive Plan is to supplement the Savings Plan with respect to employee
Before-Tax Contributions and the attendant Matching Employer Contributions
which, by reason of an individual's annual compensation, would not be otherwise
allowed because of the annual maximum limit of the Code or because of the
application, under the Code, of actual deferral percentage testing against
prohibited excessive deferrals by highly compensated employees. The Executive
Plan is substantially similar to the Savings Plan as to amounts of employee
Before-Tax Contributions and Matching Employer Contributions.
Participants in the Executive Plan are limited to those key officers of
National Processing or its subsidiaries who may be designated from time to time
by the Compensation Committee of the Board of Directors. The benefits of the
Executive Plan are without regard to any limitation imposed by the Code, or any
other applicable law limiting the amount payable under a qualified plan (such as
the Savings Plan), and represent unfunded general obligations of National
Processing. Portions of such benefits are subject to certain provisions for
forfeiture as set forth in the Executive Plan.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing, National City or any of their subsidiaries are
not eligible to participate in the Savings Plan or the Executive Plan.
NATIONAL PROCESSING COMPANY LONG-TERM INCENTIVE COMPENSATION PLAN. The
National Processing Company Long-Term Incentive Compensation Plan (the
"Long-Term Plan") for Senior Officers focuses on maximizing returns to
shareholders and promotes the long-term profitability and success of National
Processing by providing an incentive to those key executives who are primarily
responsible for such profitability and success.
The Long-Term Plan is administered by the Compensation Committee. Awards are
based on the earnings of National Processing over a three-year cycle commencing
on January 1 of each fiscal year. Each new fiscal year begins a new three-year
plan cycle. Awards under the Long-Term Plan are based on the attainment of goals
over a three-year plan cycle. Participants for plan cycles commencing on or
before January 1, 1997 may receive either a target award or a maximum award
expressed in either case as a percentage of average annual salary for the plan
cycle and determined on the basis of National Processing's compound growth rate
in earnings over the plan cycle. If National Processing has attained a compound
growth rate in earnings of 10% over the plan cycle, then each participant for
that plan cycle shall receive the target award. If National Processing has
attained a compound growth rate in earnings of 15% or more over the plan cycle,
then each participant for that plan cycle shall receive the maximum award. In
the event that National Processing's compound growth rate in earnings over the
plan cycle is greater than 10% but less than 15%, the award for the plan cycle
shall be pro-rated.
24
<PAGE> 24
Participants for plan cycles commencing on or after January 1, 1998 may
receive a threshold award, a target award or a maximum award expressed in each
case as a percentage of average annual salary for the plan cycle and determined
on the basis of National Processing's ranking, according to increase in total
shareholder return over the plan cycle, relative to a peer group comprised of
comparable corporations. Prior to the beginning of each such plan cycle, the
Compensation Committee establishes threshold award, target award, and maximum
award performance levels for the plan cycle, against which National Processing
total stockholder return for the plan cycle shall be compared to other members
of a peer group based on ranking of plan cycle results of National Processing
and members of the peer group. At the same time, the Compensation Committee
determines membership in the peer group for the plan cycle, which is comprised
of a group of comparable corporations.
Amounts awarded under the Long-Term Plan may be in cash, in unfunded future
benefits, or a combination thereof. With the exception of the cash award, awards
are not funded, but simply remain contractual liabilities of National Processing
and are subject to payment upon the recipient's termination of employment with
National Processing or its subsidiaries. Generally, these unfunded benefits,
together with earnings thereon, are payable to the former officer, his
beneficiary, or his estate on an installment basis over 10 years. Unfunded
future benefits awards are considered as invested in the funds described in the
Savings Plan or as directed by the recipient from time to time in the equivalent
of a savings account and are subject to the gains or losses on those
investments.
The Long-Term Plan provides that, if a change in control of National
Processing shall occur, then the implementation date of that change in control
shall be the last day of all then current plan cycles, and no further plan
cycles shall commence. The award of each participant in the Long-Term Plan for
any then current plan cycle in which such participant participates shall be
payable in cash to the participant within five business days after the
implementation date of the change in control, and shall be in an amount equal to
the participant's maximum award for that plan cycle multiplied by a fraction the
numerator of which is the number of full months completed since the beginning of
that plan cycle and the denominator of which is thirty-six. In adopting this
plan, it was felt this change in control provision was appropriate in that those
individuals previously charged with providing superior total returns to the
shareholders of National Processing would no longer be in the same position to
guide the affairs of National Processing as they were prior to the event
constituting a change in control. Furthermore, following change in control of
National Processing, no further performance comparisons could be made.
Directors of National Processing or its subsidiaries who are not also
employees of National Processing or its subsidiaries are not eligible to
participate in the Long-Term Plan.
NATIONAL PROCESSING COMPANY SHORT-TERM INCENTIVE COMPENSATION PLAN. The
National Processing Company Short-Term Incentive Compensation Plan for Senior
Officers (the "Short-Term Plan") focuses on the short-term goals achieved by the
individual participant, National Processing's results and in some cases,
National City's financial results. Under this plan, awards can be granted to any
senior officer of National Processing, or to other officers of National
Processing or its subsidiaries as may be designated from time to time by the
Compensation Committee. Each participant in the
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Short-Term Plan is evaluated annually with respect to performance on approved
objectives. Awards are based on individual results and can range from 0% to 70%
of the recipient's base salary in effect at the close of the year for which the
evaluation is made. Awards under this plan are paid or credited no later than
the end of first quarter of the following year.
Amounts awarded under the Short-Term Plan may be in cash, in unfunded future
benefits, or a combination thereof. With the exception of the cash award, awards
are not funded, but simply remain contractual liabilities of National Processing
and are subject to payment upon the recipient's termination of employment with
National Processing and its subsidiaries. Generally, these unfunded benefits,
together with earnings thereon, are payable to the former officer, his
beneficiary, or his estate on an installment basis over 10 years. Unfunded
future benefits awards are considered as invested as directed by the recipient
from time to time, in funds described in the Savings Plan or in the equivalent
of a savings account and are subject to the gains or losses on those
investments.
In the event of a change in control, the Short-Term Plan provides that each
participant will be paid at the effective time of the change in control, the
maximum benefit the participant is entitled to receive under the Short-Term
Plan.
STOCK OPTION PLAN. The National Processing, Inc. 1996 Stock Option Plan (the
"Option Plan") generally provides for the granting of options to purchase shares
of National Processing Common. The options are non-qualified options which are
not intended to qualify as Incentive Stock Options under Section 422 of the
Code.
The Option Plan provides for an additional stock option grant (an "Additional
Option") when the employee has used previously owned National Processing Common
to pay the exercise price of an original option grant (a swap transaction) or to
pay the amount to be withheld under applicable federal, state and local income
tax laws in connection with the exercise of an option. The additional option
feature typically encourages an employee to exercise the option grant earlier
than if the feature were not present, thereby increasing the employee's level of
equity ownership. Each Additional Option's termination date is the same as the
termination of the option that originally had the additional option feature. Its
option price is the market price at the time of the exercise of the original
option. An Additional Option is not provided upon exercise of an Additional
Option unless the Board of Directors directs otherwise. This feature supports
National Processing's focus on increased equity ownership. The Option Plan also
allows for the granting of Appreciation Rights, but only in tandem with stock
options previously granted or contemporaneously being granted.
Under the Option Plan, no options may be granted at less than 100% of the
market value of National Processing Common on the date of the grant of the
option. Stock option awards are based on current individual performance.
Previous awards are not considered except for assuring the plan maximums are not
exceeded.
AGREEMENTS WITH EXECUTIVES. Certain key executives have employment agreements
(the "Employment Agreements") with National Processing Company ("NPC"), a
subsidiary of National Processing. Each of the Employment Agreements provides
for a minimum annual base salary that
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does not differ materially from the amounts shown as salary in the Summary
Compensation Table on page 18. The Employment Agreements generally provide that
if such Executive Officer is terminated for any reason other than his violation
of the contract an amount equal to his base pay will be paid in monthly
installments, for either one or two years after his termination, depending on
the position he holds. Pursuant to his Employment Agreement, Tony G. Holcombe,
who resigned as President and Chief Executive Officer during March, 1997, will
receive his base pay and annual bonus for two years after his resignation.
Pursuant to his Employment Agreement, David R. Zook, who resigned as Executive
Vice President of NPC effective as of March 27, 1998, will receive his base pay
for two years after his resignation. The Employment Agreements also generally
provide for the continuation of certain employee benefits.
Each of the Executive Officers has agreed pursuant to the Employment
Agreements not to compete with National Processing in the United States and, in
some cases, Mexico by not engaging in any capacity in any business that is
competitive with, in the case of certain executives, any business of NPC and, in
the case of the other certain executives, the business of National Processing
for which such officer bears primary managerial responsibility. These
non-competitive restrictions remain in effect for the period in which such
executive is entitled to receive payments under the Employment Agreement
following termination as generally described above.
SEVERANCE AGREEMENTS. In order to assure itself of both present and future
continuity of management in the event of a change in control, National
Processing has entered into severance agreements (the "Severance Agreements")
with certain of its senior executive officers and other key employees
("Executives"). The Severance Agreements become immediately operative upon a
change in control.
The Severance Agreements provide that following a change in control, such
Executives will be entitled to severance compensation upon termination of
employment during the period commencing with the occurrence of the change in
control and continuing until the earliest of (i) the third anniversary of the
occurrence of the change in control, (ii) death, or (iii) attainment of age
sixty-five and upon the occurrence of one or more certain additional events. As
of the date of this proxy, there are Severance Agreements with 16 key employees
of National Processing and its subsidiaries.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum (for Executives) and two times the sum (for other senior
officers) of (i) base pay at the highest rate in effect for any period prior to
the termination date plus (ii) incentive pay in an amount equal to not less than
the highest aggregate annual bonus, incentive, or other payments of cash
compensation made or to be made in regard to services rendered in any calendar
year during the three calendar years immediately preceding the year in which the
change in control occurs, less the sum of (iii) any and all payments received
from National Processing, National City, or a successor or their affiliates
following a change in control plus (iv) any future payments to be made in
accordance with any Employment Agreements or other contracts between National
Processing and such other entities (specifically excluding payments from any
deferred compensation plan). For three years (for Executives) and two years (for
other senior officers) following termination, National Processing will arrange
to provide the Executives with welfare benefits substantially similar to those
they were
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receiving or were entitled to receive immediately prior to the termination date,
with such three-year period qualifying as service with National Processing for
the purpose of determining service credits and benefits under National
Processing's various retirement benefit plans. Each Executive may waive one year
of severance pay in exchange for being released from the non-competition
restrictions contained in their respective Employment Agreements.
National Processing has agreed to pay any and all legal fees incurred by the
Executives in connection with the interpretation, enforcement, or defense of
their rights under the Severance Agreements. The term of each Severance
Agreement runs until the later of (i) the close of business on the third
anniversary of the date of that Severance Agreement or (ii) the expiration of
the three-year period of severance benefit coverage. On January 1 of each year,
the term of each Severance Agreement is automatically extended for an additional
year unless, not later than September 30 of the immediately preceding year,
National Processing or the Executive shall have given notice that the party
giving such notice does not wish to have the term extended. If, prior to a
change in control, an Executive ceases for any reason to be an employee of
National Processing or any subsidiary thereof, however, then the term of that
Executive's Severance Agreement will immediately terminate. For purposes of an
Executive's Severance Agreement, any termination of employment of the Executive
or the removal of the Executive from the office or position in National
Processing following the commencement of any discussion with a third person that
ultimately results in a change in control shall be deemed to be a termination or
removal of the Executive after a change in control.
Under the Severance Agreements, a change in control occurs upon either of the
following events: (i) National Processing is merged, consolidated or reorganized
into or with another person other than National City, a successor of National
City or an affiliate of National City or (ii) National Processing sells or
otherwise transfers all or substantially all of its assets to another
corporation, or National Processing causes or permits the sale or transfer of
all or substantially all of its assets or assets of any subsidiary that has
assets equal to or greater than 80% of the total assets of National Processing
as reported on a consolidated basis, and as a result of such sale or transfer
less than 50% of the combined voting power of the then outstanding securities of
such corporation is held by National City.
Mr. Showalter has a severance agreement with National City. The severance
agreement was entered into upon the recommendation of National City's
Compensation and Organization Committee and the form of the agreement was
approved by National City's Board of Directors at its December 19, 1994 meeting.
The agreement becomes immediately operative upon a change in control.
The severance agreement provides that upon termination of employment with
National City, a subsidiary, or a successor to National City within three years
following a change in control, unless the termination is because of death,
permanent disability, or cause, Mr. Showalter will be entitled to severance
compensation. The severance agreement also provides that following a change in
control, Mr. Showalter may terminate his own employment with National City or a
subsidiary with the right to severance compensation during the period commencing
with the occurrence of the change in control and continuing until the earliest
of (i) the third anniversary of the occurrence of the change in control, (ii)
death, or (iii) attainment of age sixty-five and upon the occurrence of one or
more certain additional events. His severance agreement also provides that in
the event of a change in control, he may terminate his employment with National
City or any subsidiary for any reason during
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the thirty-day period immediately following the first anniversary of the first
occurrence of a change in control without cause with the right to severance
compensation.
The severance compensation will be a lump sum payment in an amount equal to
three times the sum of (i) base pay at the highest rate in effect for any period
prior to the termination date plus (ii) incentive pay in an amount equal to not
less than the highest aggregate annual bonus, incentive, or other payments of
cash compensation made or to be made in regard to services rendered in any
calendar year during the three calendar years immediately preceding the year in
which the change in control occurs. For thirty-six months following the
termination, National City will arrange to provide Mr. Showalter with employee
benefits that are welfare benefits substantially similar to those which he was
receiving or was entitled to receive immediately prior to the termination date
and such thirty-six month period will be considered service with National City
for the purpose of determining service credits and benefits due and payable
under National City's various retirement benefit plans.
National City has agreed to bear the expense of any and all legal fees
incurred by Mr. Showalter associated with the interpretation, enforcement, or
defense of his rights under the severance agreement.
NATIONAL PROCESSING SHAREHOLDER PROPOSALS
Holders of National Processing Common who wish to make a proposal to be
included in National Processing's Proxy Statement and Proxy for National
Processing's 1999 Annual Meeting of Shareholders which, unless changed, is
scheduled to be held on May 20, 1999, in Cleveland, Ohio must cause such
proposal to be received by National Processing at its principal office not later
than December 11, 1998. Each proposal submitted should be accompanied by the
name and address of the shareholder submitting the proposal, the number of
shares of National Processing Common owned, and the dates those shares were
acquired by the shareholder. If the proponent is not a shareholder of record,
proof of beneficial ownership should also be submitted. The proponent should
also state his or her intention to appear at National Processing's 1999 Annual
Meeting, either in person or by representative, to present the proposal. The
proxy rules of the Commission govern the content and form of shareholder
proposals and the minimum stockholding requirement. All proposals must be made
in compliance with National Processing's Amended Articles of Incorporation and
Code of Regulations and must be a proper subject for action at National
Processing's 1999 Annual Meeting of Shareholders.
TRANSACTIONS WITH MANAGEMENT
Aureliano Gonzalez-Baz, a director since 1996, provided various legal services
in excess of $60,000 to National Processing and its subsidiaries in the ordinary
course of business in 1997. Such services pertained to legal advice related to
National Processing's business operations in foreign countries. Without
exception, all services provided by the director were at market rates. Similar
additional services may be provided in the ordinary course of business in the
future.
VOTING
A quorum is required for the transaction of business by shareholders at the
meeting. The election of directors requires the plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. The selection of Ernst & Young LLP as
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independent auditors for 1998, requires the affirmative vote of the holders of a
majority of the votes cast, whether in person or by proxy at the 1998 Annual
Meeting. Abstentions are not counted for the purposes of determining the number
of votes cast in person or by proxy on the election of directors or the
selection of Ernst & Young LLP and will have no impact on the election of
directors and selection of independent auditors. Abstentions are counted for
determining if a quorum is present. Shares not voted on proxies returned by
brokers are not counted for the purposes of determining the number of votes cast
in person or by proxy at the meeting and will have no impact on the election of
directors and the selection of independent auditors.
GENERAL
The costs of solicitation of proxies will be borne by National Processing. In
addition to using the mails, proxies may be solicited by personal interview,
telephone, and wire; and it is anticipated that banks and brokerage houses, and
other institutions, nominees, or fiduciaries will be requested to forward their
proxy soliciting material to their principals and to obtain authorizations for
the executions of proxies. Officers and regular employees of National Processing
or its subsidiaries, acting on its behalf, may solicit proxies personally or by
telephone or wire. National Processing does not expect to pay any other
compensation for the solicitation of proxies, but may, upon request, pay the
standard charges and expenses of banks, brokerage houses, and other
institutions, nominees, and fiduciaries for forwarding proxy materials to and
obtaining proxies from their principals. However, no such payment will be made
to any National Processing subsidiaries acting through their nominees or acting
as a fiduciary.
Management of National Processing is not aware of any matter which may be
presented for action at the Annual Meeting other than the matters herein set
forth. If any other matters come before the meeting or any adjournment thereof,
it is the intention of the persons named in the enclosed proxy to vote the
shares represented thereby in accordance with their best judgment pursuant to
the discretionary authority granted in the proxy.
By Order of the Board of Directors
CARLTON E. LANGER
Secretary
April 10, 1998
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NATIONAL PROCESSING, INC.
Notice of Annual Meeting
and
Proxy Statement
Annual Meeting of Shareholders
to be held on
May 21, 1998
<PAGE> 31
NATIONAL PROCESSING, INC. PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR MAY 21, 1998
ANNUAL MEETING
P The undersigned shareholder of National Processing, Inc.
R ("National Processing") hereby appoints Thomas A. Richlovsky and
O Carlton E. Langer and each of them, with power of substitution,
X proxies for the undersigned to vote all the shares of Common Stock of
Y National Processing which the undersigned is entitled to vote at the
Annual Meeting of Shareholders of National Processing to be held on
May 21, 1998 and any adjournment thereof as follows and in their
discretion to vote and act upon such other business as may properly
come before the meeting. The Board of Directors recommends a vote FOR
the following:
1. THE ELECTION OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as otherwise marked below) to vote for all nominees listed below
Christos M. Cotsakos, Jeffrey D. Kelly, William R. Robertson and Robert E. Showalter.
(Instructions: to withhold authority to vote for any individual nominee, strike a line through that
nominee's name.)
</TABLE>
2. APPROVE THE SELECTION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued, and to be signed, on the reverse side.)
Proxy No. (Continued from reverse side.) Shares
UNLESS OTHERWISE INDICATED, THE PROXIES ARE INSTRUCTED TO VOTE FOR THE
ELECTION OF DIRECTORS AND FOR THE SELECTION OF ERNST & YOUNG LLP.
Dated , 1998
-----------------
----------------------------
----------------------------
(Sign here)
INSTRUCTIONS: Please sign
exactly as shown hereon.
When signing as a fiduciary
or on behalf of a
corporation, bank, trust
company, or other similar
entity, your title or
capacity should be shown.
PLEASE SIGN, DATE, AND RETURN YOUR PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE TO STOCK TRANSFER DEPT., (NPI),
NATIONAL CITY BANK, P.O. BOX 92301, CLEVELAND, OHIO 44193-0900.
