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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:
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(4) Date Filed:
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<PAGE> 2
NATIONAL PROCESSING, INC.
------------------
May 10, 1999
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 Annex, Cleveland, Ohio 44114, on Wednesday, May 26, 1999,
commencing at 11:00 a.m., EASTERN DAYLIGHT TIME.
The primary business of the meeting will be the election of four Class I
directors, the approval of the selection of Ernst & Young LLP as independent
auditors for 1999, and the transaction of 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 is set forth on the
following page. Our Annual Report on Form 10-K for the year 1998 was delivered
to you previously.
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 us, the mailing address of our principal executive
offices is: National Processing, Inc., 1231 Durrett Lane, Louisville, Kentucky
40285.
Sincerely,
/s/ Robert 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 Annex, Cleveland, Ohio
44114, on Wednesday, May 26, 1999, at 11:00 a.m., EASTERN DAYLIGHT TIME, for the
purpose of considering and voting upon the following matters:
1. The election of four Class I directors;
2. The approval of the selection of independent auditors for 1999; and
3. The transaction of such other business as may properly come before
the meeting.
Shareholders of record on March 29, 1999, 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., 1231 Durrett Lane, Louisville, Kentucky 40285 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
May 10, 1999
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<PAGE> 4
PROXY STATEMENT
MAY 10, 1999
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 1999 Annual Meeting of Shareholders of
National Processing (the "1999 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 1999 Annual Meeting will be held on Wednesday, May 26, 1999, 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, by such person appearing at the 1999 Annual Meeting and electing to vote
in person, or by receipt of a written revocation by the Secretary of National
Processing.
INFORMATION AS TO VOTING SECURITIES
The board of directors has fixed the close of business on March 29, 1999, as
the record date for the determination of shareholders entitled to receive notice
of and to vote at the 1999 Annual Meeting. Holders of National Processing Common
of record on the record date are the only shareholders entitled to vote at the
Annual Meeting. On the record date, there were 50,644,651 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 board committee meetings. Each director has access to all books,
records, and reports of National Processing; and members of management are
available at all times to answer any director's questions.
In 1998, the board of directors of National Processing held 6 meetings.
Average attendance by directors at those meetings was 91%. All directors of
National Processing attended 75% or more of the meetings of the board and the
board committees they were scheduled to attend.
The board of directors of National Processing has established two standing
committees comprised of directors who are appointed to those committees
annually. The standing committees are the Audit Committee and the Compensation
Committee, each of which is described below. The members of
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each committee are identified below and in the biographical information of the
nominees for election of directors and continuing directors.
THE AUDIT COMMITTEE. The Audit Committee meets on the call of is chairman and
met twice during 1998. 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 independent auditors of National Processing and general
auditor of National City Corporation ("National City"), a diversified financial
services company, which owns approximately 88% of the outstanding National
Processing Common as of December 31, 1998. 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 of National City, and the management
of National Processing. The members of the Audit Committee are Messrs. Cotsakos,
Gonzalez-Baz and Heller. Mr. Gonzalez-Baz is chairman.
THE COMPENSATION COMMITTEE. The Compensation Committee meets on the call of
its chairman and met four times during 1998. 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.
The members of the Compensation Committee are Messrs. Cotsakos, Gonzalez-Baz and
Heller. Mr. Cotsakos is chairman.
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, pursuant to the National Processing, Inc. Nonemployee
Directors Stock Option Plan, each non-affiliated director is awarded options to
purchase 2,500 shares of National Processing Common on the first Friday
following each
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annual meeting of National Processing's shareholders, with an exercise price
equal to the market value as of the date of such first Friday.
Messrs. Cotsakos, Gonzalez-Baz and Heller each received non-qualified stock
options to purchase 2,500 shares in 1998.
SHAREHOLDER ACTION
1. ELECTION OF DIRECTORS.
National Processing's 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 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. Likewise, the term of
office of the Class II directors, which began upon the due election and
qualification of those directors at the 1998 Annual Meeting of Shareholders,
will expire upon the due election and qualification of their respective
successors at the 2000 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 I 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 four nominees for election as Class I directors and the continuing Class
II directors are identified below and in the following pages. All of the
nominees are presently Class I directors of National Processing, and all were
elected as such at the 1997 Annual Meeting of Shareholders, which was held on
May 13, 1997. All of the Class II directors of National Processing were elected
as such at the 1998 Annual Meeting of Shareholders, which was held on May 21,
1998. The following material contains biographical information concerning each
nominee and each continuing director, 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, 1999. 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.
NOMINEES FOR ELECTION AS CLASS I DIRECTORS
<TABLE>
<S> <C>
Bell Photo JAMES R. BELL, III, Executive Vice President of National City, since 1996. Executive
Vice President of Retail Sales and Distribution of National City, since 1998. President
and Chief Executive Officer of National City Bank of Kentucky, a commercial bank, from
1996 to 1998. Vice Chairman of National City Bank of Kentucky from 1995 to 1996 and
Executive Vice President of National City Bank of Kentucky from 1994 to 1995. Director
of National Processing since 1996. Age: 42. Shares of National Processing Common owned:
3,030.
</TABLE>
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<TABLE>
<S> <C>
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: 51. Shares of National
Processing Common owned: 0; options exercisable within 60 days: 19,168.
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 Committee and the Compensation Committee. Age: 69. Shares of National
Processing Common owned: 4,500; options exercisable within 60 days: 19,168.
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: 53. Shares of National Processing
Common owned: 10,000.
</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 II DIRECTORS WHOSE TERMS CONTINUE UNTIL THE 2000 ANNUAL MEETING OF
SHAREHOLDERS
<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: 50.
Shares of National Processing Common owned: 11,100; options exercisable within 60 days:
19,168.
Kelly Photo JEFFREY D. KELLY, Executive Vice President of National City since 1994. Senior Vice
President of National City from 1990 to 1994. Age: 45. 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: 62. Shares of
National Processing Common owned: 45,200; options exercisable within 60 days: 150,001.
</TABLE>
BENEFICIAL OWNERSHIP
As of March 31, 1999, 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
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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, 1999, to be the owner
of more than five percent 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.
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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
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<S> <C> <C> <C>
Common Stock National City
Corporation
1900 East Ninth Street
Cleveland, OH 44114-3484 44,365,400 88%
</TABLE>
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(1) The listed beneficial owner is not known to have had, as of March 31, 1999,
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.
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 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, 1998, all of National Processing's
directors and officers satisfied such filing requirements in full.
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BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 31, 1999, the beneficial security
ownership (including shares with respect to which the following persons have the
right to acquire beneficial ownership within 60 days after such date) 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; (c) John J. Leehy, III, who, but for the fact that he was
not serving as an executive officer of National Processing at the end of 1998,
would have been among the four most highly compensated executive officers (other
than the chief executive officer) who were serving as executive officers of
National Processing at the end of 1998; and (d) all directors and executive
officers of National Processing as a Group:
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BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP OF CLASS
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<S> <C> <C> <C>
Common Stock James R. Bell, III 3,030 *
Common Stock Christos M. Cotsakos 30,268(5) *
Common Stock Aureliano Gonzalez-Baz 19,168(5) *
Common Stock Preston B. Heller, Jr. 23,668(5) *
Common Stock Robert E. Johnson(1) 125,001(6) *
Common Stock Jeffrey D. Kelly 1,000 *
Common Stock Donald J. Kenney(2) 100,000(7) *
Common Stock John J. Leehy, III(3) 33,333(8) *
Common Stock Gregory W. Sahrmann(4) 25,000 *
Common Stock Robert E. Showalter 195,201(9) *
Common Stock Robert G. Siefers 10,000 *
Common Stock Thomas A. Wimsett 149,368(10) *
Common Stock Directors and Executive Officers 875,373 1.70%
of National Processing as a
Group
</TABLE>
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* The percent of National Processing Common beneficially owned is less than 1%.
(1) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(2) Donald J. Kenney resigned as Executive Vice President of National Processing
effective as of April 2, 1999.
(3) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(4) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998.
(5) Includes 19,168 shares of National Processing Common of which the named
beneficial owner has the right to acquire beneficial ownership, as specified
in Rule 13d-3(d)(1) under the Exchange Act.
(6) Includes 125,001 shares of National Processing Common of which Robert E.
Johnson has the right to acquire beneficial ownership, as specified in Rule
13d-3(d)(1) under the Exchange Act.
(7) Includes 100,000 shares of National Processing Common of which Donald J.
Kenney has the right to acquire beneficial ownership as specified in Rule
132-3(d)(1) under the Exchange Act.
(8) Includes 33,333 shares of National Processing Common of which John J. Leehy,
III has the right to acquire beneficial ownership as specified in Rule
132-3(d)(1) under the Exchange Act.
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(9) Includes 150,001 shares of National Processing Common of which Robert E.
Showalter has the right to acquire beneficial ownership, as specified in
Rule 13d-3(d)(1) under the Exchange Act.
(10) Includes 141,668 shares of National Processing Common of which Thomas A.
Wimsett has the right to acquire beneficial ownership as specified in Rule
132-3(d)(1) under the Exchange Act.
2. SELECTION OF INDEPENDENT AUDITORS.
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 1999. 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 1999. A representative of the firm is expected
to be present at the 1999 Annual Meeting, 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 enable
National Processing to be successful. National Processing has structured 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 any
individual 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. No payment was required to be made for the 1996-1998 plan
cycle.
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 base salary from March
1997 to March 1998 was $300,000. As of March 1, 1998, Mr. Showalter's salary was
increased to $325,000 to reflect his performance during 1997, including the
consummation of several strategic acquisitions. Mr. Showalter has received no
salary increase in 1999.
For 1998, Mr. Showalter received no bonus under the National Processing
Company Short-Term Incentive Compensation Plan for Senior Officers. Mr.
Showalter's receipt of a bonus under this plan depended upon the attainment of
pre-determined objectives related primarily to National Processing's net income.
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 in its peer group. 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.
Mr. Showalter received a long-term bonus of $140,923 for the three-year plan
cycle ending December 31, 1998.
15
<PAGE> 15
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 appropriate employment incentives and
rewards for superior performance by encouraging capital accumulation and stock
ownership. In 1998, Mr. Showalter received options to purchase 50,000 shares of
National Processing Common with an exercise price of $11.813.
Mr. Showalter also participates in the National City Savings and Investment
Plan, the National City Executive Savings Plan, and the National City
Supplemental Executive Retirement Plan. Mr. Showalter is eligible to receive
options to purchase shares of National City common stock, par value $4.00 per
share ("National City Common").
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, 1998 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 $19.00.
[GRAPH] COMPARISON OF CUMULATIVE TOTAL RETURN
17
<PAGE> 17
REMUNERATION OF EXECUTIVE OFFICERS
AND TRANSACTIONS WITH MANAGEMENT
EXECUTIVE COMPENSATION
(a) COMPENSATION. The following table sets forth, together with certain other
information, the compensation earned during the fiscal year ended December 31,
1998 by (i) Robert E. Showalter, who served as President and Chief Executive
Officer of National Processing, (ii) the four other most highly compensated
executive officers of National Processing and its subsidiaries and (iii) John J.
Leehy, III who, but for the fact that he was not serving as an executive officer
of National Processing at the end of 1998 would have been among the four other
most highly compensated executive officers who were serving as executive
officers of National Processing at the end of 1998.
- --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------ ------------------------------------
AWARDS PAYOUTS
----------------------- ----------
RESTRICTED SECURITIES ALL
OTHER STOCK UNDERLYING OTHER
NAME AND PRINCIPAL BONUS ANNUAL AWARD(S) OPTIONS/ LTIP COMP
POSITION YEAR SALARY($) ($) COMP($) ($) SARS(#)(6) PAYOUTS($) ($)(7)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Robert E. Showalter(1) 1998 $320,833 $ 0 $0 $0 70,571 $140,923 $48,343
President and 1997 $284,792 $216,000 $0 $0 226,481 $ 45,753 $31,706
Chief Executive Officer 1996 $ $ $ $ $ $
Robert E. Johnson(2) 1998 $173,183 $ 66,000 $0 $0 25,000 $ 0 $24,483
Executive Vice President 1997 $168,683 $ 24,350 $0 $0 75,000 $ 0 $21,636
1996 $165,667 $ 71,638 $0 $0 100,000 $ 0 $21,551
Donald J. Kenney(3) 1998 $226,154 $ 0 $0 $0 125,000 $ 0 $11,308
Executive Vice President 1997 $ $ $ $ $ $
1996 $ $ $ $ $ $
John J. Leehy, III(4) 1998 $200,000 $ 0 $0 $0 0 $ 0 $10,000
1997 $ 38,351 $ 0 $0 $0 100,000 $ 0 $ 0
1996 $ $ $ $ $ $
Gregory W. Sahrmann(5) 1998 $191,667 $ 42,000 $0 $0 75,000 $ 0 $ 9,611
1997 $ 36,215 $ 0 $0 $0 50,000 $ 0 $ 0
1996 $ $ $ $ $ $
Thomas A. Wimsett 1998 $183,333 $ 0 $0 $0 25,000 $ 0 $21,117
Executive Vice President 1997 $170,000 $ 77,700 $0 $0 100,000 $ 0 $24,600
1996 $152,500 $ 84,700 $0 $0 100,000 $ 0 $11,938
</TABLE>
- --------------------------------------------------------------------------------
(1) Robert E. Showalter was elected President and Chief Executive Officer of
National Processing during March, 1997.
(2) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(3) Donald J. Kenney was elected Executive Vice President of National Processing
effective as of March 31, 1998. He resigned as Executive Vice President of
National Processing effective as of April 2, 1999.
(4) John J. Leehy, III was elected Executive Vice President of National
Processing effective as of October 24, 1997. Although he resigned as
Executive Vice President of National Processing during July, 1998, he
continues to be employed by National Processing in an advisory capacity.
18
<PAGE> 18
(5) Gregory W. Sahrmann joined National Processing on October 24, 1997 and was
elected Executive Vice President of National Processing effective as of May
21, 1998. He resigned as Executive Vice President of National Processing
effective as of December 31, 1998.
(6) The Securities Underlying Options/SARS pertain to options to purchase shares
of National Processing Common with the exception of Robert E. Showalter who
received options to purchase 20,571 shares of National City Common and
options to purchase 50,000 shares of National Processing Common.
(7) 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 1998, 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, $11,130; Robert E.
Johnson, $11,002; Donald J. Kenney, $6,308; John J. Leehy, III, $$6,250;
Gregory W. Sahrmann, $6,314; and Thomas A. Wimsett, $4,750. The named
executive officers were credited with the following match and profit-sharing
amount under the Executive Savings Plan during the year 1998; Robert E.
Showalter, $19,151; Robert E. Johnson, $7,309; Donald J. Kenney, $5,000;
John J. Leehy, III, $3,750; Gregory W. Sahrmann, $3,297; and Thomas A.
Wimsett, $16,367. 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 1998, respectively, as
applicable: Robert E. Showalter, $18,062; Robert E. Johnson, $6,172; Donald
J. Kenney, $0; John J. Leehy, III, $0; Gregory W. Sahrmann, $0; and Thomas
A. Wimsett, $0. The premiums paid by National Processing in connection with
the life insurance policies issued pursuant to such Split Dollar Life
Insurance Agreements, set forth in the preceding sentence, generally will be
recovered in full by National Processing upon the cancellation or purchase
by a named executive officer of any such life insurance policy or the
payment of any death benefits under any such life insurance policy.
- --------------------------------------------------------------------------------
(b) OPTIONS. The following table provides information on options to acquire
National City Common and National Processing Common granted during 1998 to the
named executive officers.
- --------------------------------------------------------------------------------
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR(1) ($/SH) DATE VALUE($)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... 50,000(2) 6.22% $11.813 5/21/08 $347,000(6)
1,472(3) 7.16% 67.875 7/28/08 16,531(7)
8,528(4) 41.46% 67.875 7/28/08 95,769(7)
4,517(5) 21.96% 69.002 7/22/06 51,584(7)
6,054(5) 29.43% 69.062 7/28/07 69,137(7)
Robert E. Johnson(8).................... 25,000(2) 3.11% 11.813 5/21/08 173,500(6)
Donald J. Kenney(9)..................... 100,000(2) 12.45% 12.375 3/31/08 727,000(6)
25,000(2) 3.11% 11.813 5/21/08 173,500(6)
John J. Leehy, III(10).................. 0 0%
Gregory W. Sahrmann(11)................. 75,000 9.34% 11.813 5/21/08 520,500(6)
Thomas A. Wimsett....................... 25,000(2) 3.11% 11.813 5/21/08 173,500(6)
</TABLE>
- --------------------------------------------------------------------------------
(1) National Processing granted options representing 803,300 shares to National
Processing employees during 1998. National City granted options
representing 20,571 shares to National Processing employees during 1998.
(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 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.
(4) 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.
(5) 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.
(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 .492, (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 .208, (ii) an expected dividend
yield of 3.00%, (iii) the risk-free interest rate at the date of grant
based upon a term equal to the expected life of the option of 4.539%, (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) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999. Under the terms of Mr. Johnson's
resignation, Mr. Johnson's National Processing options will terminate on
March 31, 2001.
(9) Donald J. Kenney was elected Executive Vice President of National
Processing on March 31, 1998. He resigned as Executive Vice President of
National Processing effective as of April 2, 1999. Under the terms of Mr.
Kenney's resignation, Mr. Kenney's National Processing options will
terminate on July 1, 1999.
(10) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(11) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998. Under the terms of the Stock
Option Agreement pursuant to which Mr. Sahrmann's options were granted, Mr.
Sahrmann's options terminated unexercised upon his resignation.
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 1998 and the December 31, 1998 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 12/31/98 AT 12/31/98
SHARES ------------------ ----------------------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... 19,991(2) $403,508.31(2) 49,800/34,700(2) $1,900,882.04/$299,772.94(4)
0(3) 0(3) 66,667/183,333(3) $0.00/$0.00(5)
Robert E. Johnson(6).................... 0(2) 0(2) 14,300/100(2) $662,660.00/$4,312.50(4)
0(3) 0(3) 91,667/108,333(3) $0.00/$0.00(5)
Donald J. Kenney(7)..................... 0(2) 0(2) 64,260/0(2) $3,546,657.90/$0.00(4)
0(3) 0(3) 0/125,000(3) $0.00/$0.00(5)
John J. Leehy, III(8)................... 0(2) 0(2) 0/0(2) $0.00/$0.00(4)
0(3) 0(3) 33,333/0(3) $0.00/$0.00(5)
Gregory W. Sahrmann(9).................. 0(2) 0(2) 0/0(2) $0.00/$0.00(4)
0(3) 0(3) 0/0(3) $0.00/$0.00(5)
Thomas A. Wimsett....................... 0(2) 0(2) 6,400/100(2) $282,587.50/$4,312.50(4)
0(3) 0(3) 100,001/124,999(3) $0.00/$0.00(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 12/31/98" is equal to
the difference (in no case less than zero) of the closing price of National
City Common on December 31, 1998, which was $72.50, less the option/SAR
exercise price.
(5) The "Value of Unexercised In-the-Money-Options/SARs at 12/31/98" is equal to
the difference (in no case less than zero) of the closing price of National
Processing Common on December 31, 1998, which was $5.50, less the option/SAR
exercise price.
(6) Robert E. Johnson resigned as Executive Vice President of National
Processing effective as of March 31, 1999.
(7) Donald J. Kenney was elected Executive Vice President of National Processing
on March 31, 1998. He resigned as Executive Vice President of National
Processing effective as of April 2, 1999.
21
<PAGE> 21
(8) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity.
(9) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998.
- --------------------------------------------------------------------------------
The following table provides information on the awards of long-term incentive
plan participation during the year 1998.
LONG-TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
PERFORMANCE NON-STOCK
NUMBER OF OR OTHER PRICE-BASED PLANS(3)
SHARES, UNITS PERIOD UNTIL --------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS(#)(1) PAYOUT(2) ($) ($) ($)
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Robert E. Showalter..................... N/A December 31, 2001 64,547 107,579 215,158
Robert E. Johnson(4).................... N/A December 31, 2000 0 0 0
Donald J. Kenney(5)..................... N/A December 31, 2000 0 0 0
John J. Leehy, III...................... N/A December 31, 2000 0 0 0
Gregory W. Sahrmann(6).................. N/A December 31, 2000 0 0 0
Thomas A. Wimsett....................... N/A December 31, 2000 25,220 42,033 84,067
</TABLE>
- --------------------------------------------------------------------------------
(1) Awards are cash awards based on a percentage of the individual's base pay.
No shares or other rights are granted.
(2) Mr. Showalter participates in the National City Corporation Long-Term
Incentive Compensation Plan. His award is based on a three-year cycle
starting 1/1/99 and ending 12/31/01. All other awards were made under the
National Processing Company Long-Term Incentive Compensation Plan, and are
based on a three-year cycle commencing 1/1/98 and ending 12/31/00. Mr.
Wimsett was awarded the opportunity to participate in the next three-year
cycle of the National Processing Company Long-Term Incentive Compensation
Plan. Under either plan, 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 high-performing
banking companies. 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) Robert E. Johnson resigned as Executive Vice President of National
Processing effective March 31, 1999. 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. Johnson for the three-year cycle commencing January 1, 1998 are zero.
(5) Donald J. Kenney resigned as Executive Vice President of National Processing
effective as of April 2, 1999. Under the terms of the National Processing
Company Long-Term Incentive
22
<PAGE> 22
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. Kenney for the three-year
cycle commencing January 1, 1998 are zero.
(6) John J. Leehy, III resigned as Executive Vice President of National
Processing during July, 1998. He continues to be employed by National
Processing in an advisory capacity. Because the term of Mr. Leehy's
employment agreement is scheduled to expire before the end of the three-year
cycle commencing January 1, 1998, Mr. Leehy will not be entitled to any
award under the National Processing Company Long-Term Incentive Compensation
Plan for that three-year cycle. Accordingly, the estimated future payouts to
Mr. Leehy for the three-year cycle commencing January 1, 1998 are zero.
(7) Gregory W. Sahrmann resigned as Executive Vice President of National
Processing effective as of December 31, 1998. 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. Sahrmann for the three-year cycle commencing
January 1, 1998 are zero.
- --------------------------------------------------------------------------------
The value of benefits paid or furnished by National Processing in 1998 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.
Prior to 1998, 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
23
<PAGE> 23
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.
Effective January 1, 1998, the profit-sharing contribution for any year,
commencing with 1998, is 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, 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 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. 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.
24
<PAGE> 24
The Long-Term Plan is administered by the Compensation Committee. Each new
fiscal year begins a new three-year plan cycle. For three-year cycles beginning
before January 1, 1998, awards under the Long-Term Plan are based on the
attainment of goals over a three-year plan cycle. Participants for plan cycles
commencing prior to January 1, 1998 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.
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
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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 and on National Processing's 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 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
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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 executive officers of National
Processing 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 does
not differ materially from the amounts shown as salary in the Summary
Compensation Table. The Employment Agreements generally provide that if the
executive officer subject thereto is terminated for any reason other than the
executive officer's violation of the contract, an amount equal to the officer's
base pay will be paid in monthly installments, for either one or two years after
termination, depending on the position held. The Employment Agreements also
generally provide for the continuation of certain employee benefits.
Each of the executive officers who has entered into an Employment Agreement
has thereby agreed 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 the
executive officer 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 statement, there are Severance Agreements with 14 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
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<PAGE> 27
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 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 the Compensation and
Organization Committee of the board of directors of National City, 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.
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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 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.
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 2000 Annual Meeting of Shareholders which, unless changed, is
scheduled to be held on May 24, 2000, in Cleveland, Ohio must cause such
proposal to be received by National Processing at its principal office not later
than January 11, 2000. 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 2000 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 2000 Annual
Meeting of Shareholders.
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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 1998. 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
independent auditors for 1999, requires the affirmative vote of the holders of a
majority of the votes cast, whether in person or by proxy at the 1999 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 1999 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
May 10, 1999
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NATIONAL PROCESSING, INC.
Notice of Annual Meeting
and
Proxy Statement
Annual Meeting of Shareholders
to be held on
May 26, 1999
<PAGE> 31
NATIONAL PROCESSING, INC. PROXY SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR MAY 26, 1999
ANNUAL MEETING
The undersigned shareholder of National Processing, Inc.
P ("National Processing") hereby appoints Thomas A. Richlovsky and
Carlton E. Langer and each of them, with power of substitution,
R proxies for the undersigned to vote all the shares of Common Stock of
National Processing which the undersigned is entitled to vote at the
O Annual Meeting of Shareholders of National Processing to be held on
May 26, 1999 and any adjournment thereof as follows and in their
X discretion to vote and act upon such other business as may properly
come before the meeting. The board of directors recommends a vote FOR
Y the following:
1. THE ELECTION OF DIRECTORS
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ]
(except as otherwise marked below) to vote for all nominees
listed below
James R. Bell, III, Aureliano Gonzalez-Baz, Preston B. Heller, Jr.,
and Robert G. Siefers.
(Instructions: to withhold authority to vote for any individual
nominee, strike a line through that nominee's name.)
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 THE NOMINEES LISTED ON THE OPPOSITE SIDE OF THIS CARD AS
DIRECTORS AND FOR THE APPROVAL OF THE SELECTION OF ERNST & YOUNG LLP.
Dated , 1999
-----------------
----------------------------
----------------------------
(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.
