<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
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 [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Cullen Frost Bankers, Inc.
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(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)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
- - --------------------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
LOGO
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1999
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To the Shareholders of
CULLEN/FROST BANKERS, INC.:
The Annual Meeting of Shareholders of Cullen/Frost Bankers, Inc.
("Cullen/Frost") will be held in the Commanders Room at The Frost National Bank,
100 West Houston Street, San Antonio, Texas, on Wednesday, May 26, 1999, at
10:00 a.m., San Antonio time, for the following purposes:
1. To elect six directors to serve until the 2002 Annual Meeting of
Shareholders, and two directors to serve until the 2001 Annual Meeting of
Shareholders;
2. To vote upon amendments to the 1992 Stock Plan, including an
increase of 1,700,000 available shares;
3. To approve the selection of Ernst & Young LLP to act as independent
auditors of Cullen/Frost for the fiscal year that began January 1, 1999;
4. To transact any other business that may properly come before the
meeting.
You must be a stockholder of record at the close of business on April 2,
1999, to vote at the Annual Meeting. In order to hold the meeting, holders of a
majority of the outstanding shares must be present either in person or by proxy.
Your vote is important, so please promptly complete and return the enclosed
proxy in the postage prepaid envelope provided.
All shareholders are cordially invited to attend the Annual Meeting.
By Order of the Board of Directors
/s/ DIANE JACK
DIANE JACK
Corporate Secretary
Dated: April 14, 1999
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<PAGE> 3
CONTENTS
<TABLE>
<S> <C>
Notice of Annual Meeting.................................... Cover
Proxy Statement............................................. 1
Election of Directors (Item 1 on Proxy Card)................ 2
General Information about the Board of Directors.......... 5
Meetings and Committees of the Board...................... 6
Executive Compensation...................................... 7
Compensation and Benefits Committee Report................ 7
Compensation Committee Interlocks and Insider
Participation.......................................... 9
Cash and Other Compensation............................... 10
Retirement Plans and Agreements........................... 11
Executive Stock Ownership................................. 13
Performance................................................. 14
Principal Shareholders...................................... 15
Transactions with Management................................ 15
Amendments to the 1992 Stock Plan (Item 2 on the Proxy
Card)..................................................... 15
Selection of Auditors (Item 3 on the Proxy Card)............ 19
Shareholder Proposals....................................... 19
Annex A -- 1992 Stock Plan.................................. A1
Annex A -- (First) Amendment to 1992 Stock Plan (effective
May 28, 1997)............................................. A7
Annex B -- Second Amendment to 1992 Stock Plan (proposed)... B1
</TABLE>
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<PAGE> 4
LOGO
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PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 26, 1999
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SOLICITATION AND REVOCATION OF PROXY
The Board of Directors of Cullen/Frost Bankers, Inc. ("Cullen/Frost" or the
"Company") is soliciting proxies to be used at the Annual Meeting of
Shareholders. The meeting will be held on May 26, 1999. This Proxy Statement and
the accompanying proxy card are being mailed to shareholders beginning on or
about April 14, 1999.
The Company will pay for solicitation of these proxies for the Annual
Meeting. The directors, officers, and employees of Cullen/Frost may solicit
proxies by mail, telephone, telegram, facsimile, or in person. Cullen/Frost has
also retained Georgeson & Co., Inc. to assist in the solicitation of proxies,
for a fee of approximately $6,500 plus out-of-pocket expenses. Cullen/Frost has
requested that brokers, nominees, fiduciaries, and other custodians forward
proxy-soliciting material to the beneficial owners of Cullen/Frost Common Stock.
Cullen/Frost will reimburse them for their out-of-pocket expenses.
All shares of Cullen/Frost Common Stock represented by properly executed
proxies, if returned in time, will be voted at the meeting in accordance with
the proxy's instructions. If no direction is given, proxies will be voted for
all the proposals listed on the proxy and in the discretion of persons named on
the proxy in connection with any other business properly coming before the
meeting. If authority to vote on any matter is withheld, the shares will still
be counted for determining the number of shares present at the meeting.
A shareholder may revoke a proxy at any time before it is voted by
delivering a written revocation notice at the Company's principal executive
office to the Secretary of Cullen/Frost, Ms. Diane Jack, 100 West Houston
Street, San Antonio, Texas 78205. A shareholder who attends the meeting may vote
by ballot at the meeting if desired, and such vote will cancel any proxy vote
previously given.
VOTING OF SECURITIES
The only class of voting securities of Cullen/Frost outstanding and
entitled to vote at the meeting is Common Stock, par value $0.01 per share. On
April 2, 1999, there were outstanding shares of Common Stock, each
entitled to one vote. A majority of the votes that could be cast by the
shareholders is needed to elect nominees for directors, amend the 1992 Stock
plan, and approve auditors.
Abstentions are considered shares present and will be used in determining
if a majority is present. Proxies marked "abstain" will also have the effect of
a negative vote.
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1
<PAGE> 5
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ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The Company's Bylaws provide for a classified Board of Directors. Directors
are assigned to one of three classes, all classes as equal in number as
possible. The term of office of Class I will expire at the 2000 Annual Meeting,
Class II at the 2001 Annual Meeting, and the term of office of Class III expires
at this 1999 Annual Meeting.
The six nominees assigned to Class III have been nominated to serve for a
three-year term. Five of the nominees are current Class III directors standing
for re-election. In addition, R. Denny Alexander stands for election and is a
new nominee in Class III. Two nominees assigned to Class II have been nominated
to serve for a two-year term. One nominee assigned to Class II, T. C. Frost, is
a current director standing for re-election. The other nominee assigned to Class
II, Cass Edwards, Jr., is standing for election. Two directors, Messrs. W.N.
Finnegan, III and Curtis Vaughan, Jr., will be retiring from the Board effective
May 26, 1999 because they have reached the retirement age for directors. If any
nominee is unable to serve, the persons named in the proxy will vote in
accordance with their best judgement unless otherwise instructed.
The table below provides information about each nominee and director whose
term continues after the meeting.
<TABLE>
<CAPTION>
SHARES OWNED(1)
------------------------
AMOUNT AND
NATURE OF
DIRECTOR BENEFICIAL
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP PERCENT
---- --- -------------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR TERM EXPIRING IN 2002:
Class III
- - ---------
R. Denny Alexander.......... 53 Investments; former 1998 140,506(6) .52
President, Overton
Bancshares Inc. (merged with
Cullen/Frost)
Bob W. Coleman.............. 67 President and Chief 1997 6,499(6) .02
Executive Officer, Texace
Corporation
Eugene H. Dawson, Sr. ...... 64 Chairman of the Board, Pape- 1996 18,200 .07
Dawson Consulting Engineers
Ruben M. Escobedo........... 61 Certified Public Accountant 1996 3,700 .01
Joe R. Fulton............... 64 President, Fulton 1997 11,500(7) .04
Construction Corporation
Ida Clement Steen........... 46 Investments 1996 3,600 .01
NOMINEES FOR TERM EXPIRING IN 2001:
Class II
- - --------
Cass Edwards, Jr. .......... 72 Chairman, Cassco Land Co., 1998 204,832 .76
Inc.; Manager, Edwards Geren
Limited; former Chairman,
Overton Bancshares Inc.
(merged with Cullen/Frost)
</TABLE>
(Table continued on following page)
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2
<PAGE> 6
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<TABLE>
<CAPTION>
SHARES OWNED(1)
------------------------
AMOUNT AND
NATURE OF
DIRECTOR BENEFICIAL
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP PERCENT
---- --- -------------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
T.C. Frost.................. 71 Senior Chairman of the Board 1966 776,319(5,7) 2.86
of Cullen/Frost
DIRECTORS WHOSE TERM EXPIRES IN 2001:
Class II
- - --------
Royce S. Caldwell........... 60 President, SBC Operations, 1994 3,400 .01
SBC Communications Inc.
Ruben R. Cardenas........... 68 Attorney, Cardenas, Whitis & 1995 4,000 .01
Stephen, L.L.P.
Henry E. Catto.............. 68 Partner, Catto & Catto 1993 14,000 .05
Insurance Agency; former
Director, U.S. Information
Agency; former U.S.
Ambassador to Great Britain,
and former Vice Chairman,
H&C Communications
Richard W. Evans, Jr. ...... 52 Chairman of the Board, Chief 1993 162,271(5,8) .60
Executive Officer, and
President of Cullen/Frost;
Chairman of the Board and
Chief Executive Officer of
Frost National Bank, a
Cullen/Frost Subsidiary
James W. Gorman, Jr. ....... 68 Oil, real estate, and 1987 8,000(6) .03
investments
Richard M. Kleberg, III..... 56 Banking and investments 1992 7,200 .03
Horace Wilkins, Jr. ........ 48 President, Special Markets, 1997 3,200 .01
SBC Communications Inc.;
former Regional President,
Southwestern Bell Telephone
Co.
DIRECTORS WHOSE TERM EXPIRES IN 2000:
Class I
- - -------
Isaac Arnold, Jr. .......... 63 Oil, real estate, 1977 16,984 .06
investments
Harry H. Cullen............. 63 Oil, real estate, 1993(2) 144,974(3) .53
investments
Roy H. Cullen............... 69 Oil, real estate, 1977 99,862(3,4) .37
investments
Patrick B. Frost............ 38 President, The Frost 1997 77,990(5) .29
National Bank, a
Cullen/Frost Subsidiary
James L. Hayne.............. 65 Managing partner of Catto & 1977 99,858(6) .37
Catto (insurance agency)
Robert S. McClane........... 59 President, McClane Partners; 1985 38,426(5) .14
Consultant, Cullen/Frost;
former President of Cullen/
Frost
</TABLE>
(Table continued on following page)
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3
<PAGE> 7
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<TABLE>
<CAPTION>
SHARES OWNED(1)
------------------------
AMOUNT AND
NATURE OF
DIRECTOR BENEFICIAL
NAME AGE PRINCIPAL OCCUPATION SINCE OWNERSHIP PERCENT
---- --- -------------------- -------- ------------- -------
<S> <C> <C> <C> <C> <C>
Mary Beth Williamson........ 65 Education (Consultant) 1996 3,440 .01
</TABLE>
- - ---------------
(1) Beneficial ownership is as of December 31, 1998 unless otherwise indicated.
The owners have sole voting and investment power for the shares of
Cullen/Frost Common Stock reported. Beneficial ownership includes shares
which the individual had a right to acquire pursuant to stock options
exercisable within sixty (60) days from December 31, 1998: Mr. T. C. Frost
191,202 (exercised 2,090 February, 1999), Mr. Evans 102,454 (exercised
25,872 March, 1999), Mr. Patrick B. Frost 50,524, and Mr. McClane 14,361;
all other directors 3,000 options each. The number of shares of Cullen/Frost
Common Stock beneficially owned by all directors, nominees and named
executive officers as a group is disclosed on page 13.
(2) Also served as a director of Cullen Bank, a former Cullen/Frost Subsidiary,
from 1969 to 1993.
(3) Includes 53,064 shares for which Mr. Harry Cullen has shared voting and
investment power with Mr. Roy Cullen, and 9,792 shares with shared voting
and investment power with others.
(4) Includes 42,372 shares for which Mr. Roy Cullen has shared voting and
investment power with others.
(5) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for Employees of Cullen/ Frost Bankers, Inc., for which each beneficial
owner has both sole voting and investment power: Mr. T. C. Frost 22,014, Mr.
Evans 15,952, Mr. Patrick B. Frost, 6,588, and Mr. McClane 1,027. In
addition, the number of shares reported for Mr. T. C. Frost includes 20,592
shares held in the Pat and Tom Frost Foundation Trust for which Mr. T. C.
Frost disclaims beneficial ownership.
(6) Disclaims beneficial ownership of shares: Mr. R Denny Alexander 13,000
shares held in a charitable foundation; Mr. Bob Coleman 1,000 shares held in
a charitable foundation; Mr. James Gorman 1,000 shares held in a charitable
foundation; Mr. James Hayne 87,060 shares due to spouse's investment in a
limited partnership.
(7) Beneficial ownership is as of February 28, 1999.
(8) Beneficial ownership is as of March 8, 1999.
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4
<PAGE> 8
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GENERAL INFORMATION ABOUT THE BOARD OF DIRECTORS
No nominee has had any other principal occupation or employment with
Cullen/Frost or any of its subsidiaries within the last five years.
The following are directorships held by nominees and directors in public
companies (other than Cullen/ Frost) or in investment companies:
<TABLE>
<S> <C>
Mr. Arnold........... Nuevo Energy Co.
Mr. Caldwell......... SBC Communications Inc.
Mr. Cardenas......... SBC Communications Inc.
Mr. H. Cullen........ Penzoil Co. (resigned 12/2/98)
Mr. Escobedo......... Valero Energy Corp.
Mr. Gorman........... Venus Exploration Inc.
Mr. Kleberg.......... Abraxas Petroleum Corp.
Mr. Wilkins.......... American Water Works
</TABLE>
There are no arrangements or understandings between any nominee or director
of Cullen/Frost and any other person regarding their selection as a director
nominee.
The only family relationships among the directors or executive officers of
Cullen/Frost which are first cousin or closer are those of Messrs. T. C. Frost
and Patrick B. Frost, who are father and son; Mr. Henry Catto and Mrs. James L.
Hayne, who are first cousins; Messrs. Harry Cullen and Roy Cullen who are
brothers; and the Cullen brothers and Mr. Arnold who are first cousins.
Section 16(a), Beneficial Ownership Reporting Compliance, of the Securities
Exchange Act of 1934, requires the Company's officers, directors, or persons
owning more than ten percent of the Company's outstanding stock to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Mr. Henry Catto filed a delinquent
Form 5 -- Annual Statement of Beneficial Ownership -- related to the purchase in
December 1998 of four shares of Common Stock which were subsequently gifted to
his grandchildren.
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5
<PAGE> 9
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MEETINGS AND COMMITTEES OF THE BOARD
The Cullen/Frost Board of Directors usually has four regularly scheduled
quarterly meetings each year. In 1998 there were nine meetings. The Board has
Executive, Audit, Compensation and Benefits, and Strategic Planning Committees.
The Committees' functions and current members are as follows:
<TABLE>
<CAPTION>
EMPLOYEE
COMMITTEE/MEMBERS (Y)ES FUNCTION
----------------- -------- --------
<S> <C> <C>
EXECUTIVE
T.C. Frost Y -- Acts for the Board of Directors between meetings,
Richard W. Evans, Jr. Y except as limited by Board resolutions, the
Patrick B. Frost Y Company's by-laws, or Texas law
Meetings in 1998: Five
AUDIT
Isaac Arnold, Jr. -- Reviews:
Royce S. Caldwell Scope and results of external audits
Ruben R. Cardenas External auditors' performance of non-audit
Eugene H. Dawson, Sr. services
W. N. Finnegan, III Independence of external auditors
Richard M. Kleberg, III Internal audits and loan reviews for each
subsidiary
Regulatory examinations
Levels of criticized assets
Financial reporting practices of Cullen/Frost
-- Recommends choice for external auditor
Meetings in 1998: Four
COMPENSATION AND BENEFITS
Roy H. Cullen -- Recommends compensation for certain officers
Ruben M. Escobedo -- Administrative committee for the Company's:
James W. Gorman, Jr. Retirement Plan
Curtis Vaughan, Jr. 1983 and 1988 Non-Qualified Stock Option Plan
David Straus Restricted Stock Plan
(Frost Bank director) 401(k) Stock Purchase Plan
John C. Korbell 1991 Stock Purchase Plan
(advisory director) 1992 Stock Plan
Pre-Tax Benefit Plan
Group Medical and Life Insurance Plans
Director's 1997 Stock Plan
Meetings in 1998: Four
STRATEGIC PLANNING
T. C. Frost Y -- Analyzes strategic directions for the Company
Isaac Arnold, Jr. -- Monitors corporate mission statement and capital
Richard W. Evans, Jr. Y planning
James L. Hayne -- Reviews short-and long-term goals
Curtis Vaughan, Jr.
Meetings in 1998: Six
</TABLE>
During 1998, all of the current directors attended at least 75 percent of
the aggregate of the meetings of the Board of Directors and the committees on
which they served except for Royce S. Caldwell.
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6
<PAGE> 10
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Directors who are Cullen/Frost employees receive no fees for their services
as directors or committee members. Outside directors receive $5,000 as an annual
retainer fee, $1,250 for each meeting attended, and a fee of $750 for each
committee meeting to which he or she has been appointed. The Chairman of the
Audit Committee receives $1,500 for each Audit Committee meeting attended. Each
outside director also receives a grant of stock options each year (2,000 stock
options granted in 1998).
EXECUTIVE COMPENSATION AND RELATED INFORMATION
1. BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation and Benefits Committee of the Board of Directors (the
"Committee") maintains compensation programs for the Company's executive
officers that further the Company's mission.
Compensation Policies
- Compensation levels should be competitive with the median of comparable
financial organizations to attract and maintain a stable, successful
management team;
- Executives' total compensation packages should depend upon the level of
success in meeting specified Company and individual performance goals;
- Executive ownership of the Company's Common Stock should be encouraged to
align executives' interests with shareholders' interests;
- Sustained superior performance by individual executives should be
rewarded.
Committee Functions
- Comprised of five independent, non-employee directors and one
independent, non-employee advisory director;
- Develop compensation policies linked to strategic business objectives and
Company values;
- Approve, assess, and administer compensation programs in support of
compensation policies;
- Review all salary arrangements and other remuneration for a group of
senior executives.
Each year an independent consultant engaged by the Committee provides a
comprehensive analysis of competitive market data. The data compares the
Company's compensation practices and programs to a group of comparator companies
that have business operations, total assets, market capitalizations, and lines
of business similar to the Company. These companies include, but are not limited
to, the companies in the Standard & Poor's (S&P's) Major Regional Bank Index.
The Committee has chosen not to use the S&P's Major Regional Bank Index as its
comparator group for compensation purposes since detailed data for all senior
executives at the banks comprising the index is not available.
The S&P's Major Regional Bank Index was used for comparison of total
shareholder return shown in the Performance Graph on page 14.
Key elements of the Company's executive compensation are base salary,
annual incentives, and long-term compensation. The Committee considers all
elements of an executive's total compensation package, including severance
plans, insurance, and other benefits.
BASE SALARY
- Represented approximately 60% of total executive compensation in 1998.
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7
<PAGE> 11
- - --------------------------------------------------------------------------------
- Reviewed annually for each of the four highest-paid executives.
- Based on subjective evaluation of individual performance, achievement,
and contribution to growth.
- May be adjusted to reflect competitive market levels following
performance evaluations.
- May be adjusted to attract and retain appropriate officers.
- Company base salary levels were slightly below median market levels of
comparator companies in 1998.
- Merit increases were at a rate comparable to the increases provided at
comparator companies.
ANNUAL INCENTIVES
- Represented approximately 16% of total executive compensation in 1998.
- Promote and reward teamwork as measured by overall corporate performance
and also recognize individual contributions.
- No bonus pool established until Company achieves a predetermined level of
financial performance as established by the Committee.
- Committee has authority to adjust the total bonus pool up or down by 20%.
LONG-TERM INCENTIVES
- Represented approximately 24% of total executive compensation in 1998.
- Award size dependent upon levels of responsibility, prior experience,
individual performance, and compensation practices at comparator
companies.
- Current stock holdings and the magnitude of outstanding long-term
incentives are not considered in making current awards.
STOCK OPTIONS
- Primary long-term incentive vehicle.
- Nonqualified stock options granted at a price not less than the fair
market value of the Common Stock on the date of grant.
- Size of stock option grants determined based on a percentage of
annualized base salary; may be adjusted based on Committee's subjective
evaluation of individual factors and historical awards.
- Committee's objective is to deliver a competitive award opportunity.
- Number awarded varies from year to year.
RESTRICTED STOCK
- Provides executives with immediate link to shareholder interests.
- Helps maintain a stable executive team.
In 1998, the Committee and senior management again reviewed competitive
market data for long-term incentive awards. Senior management made a conscious
decision to grant awards that were below both historical and competitive market
levels for 1998. Both the Committee and senior management felt that the most
efficient way to deliver this value was through a combination of stock options
and restricted stock.
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8
<PAGE> 12
- - --------------------------------------------------------------------------------
CEO COMPENSATION
The Committee established Mr. Evans's base salary at $480,000 which is
somewhat below the median level of CEOs at comparator companies. The Committee
awarded Mr. Evans a bonus of $275,000 for 1998 which was slightly above his 50%
target bonus of $240,000. The additional bonus was in recognition of the
superior financial results of the Company and his outstanding leadership,
particularly with regard to the acquisitions made in 1998. Mr. Evans was also
granted 45,000 options with an exercise price of $48.31 as detailed in the table
on page 11. This award, in conjunction with an award of 5,000 restricted shares,
was below the median level for CEOs of comparator companies. As of December 31,
1998, Mr. Evans had beneficial ownership of 188,143 shares of stock (includes
102,454 shares of which he has a right to receive pursuant to presently
exercisable options.)
SECTION 162(M)
Section 162(m) of the Internal Revenue Code generally limits the corporate
tax deduction for compensation paid to the Chief Executive Officer and the four
other most highly compensated executive officers unless the compensation is
performance-based. One condition to qualify compensation as performance-based is
to establish the amount of the award on an objective formula that precludes any
discretion. The Committee continues to review the impact of this tax code
provision on the Company's incentive plans and has determined that Section
162(m) is currently inapplicable because no named executive officer receives
compensation in excess of $1 million. The Committee also believes it is in the
Company's and shareholders' best interests to retain the discretionary
evaluation of individual performance as provided in the annual incentive plan.
CONCLUSION
The Committee believes these executive compensation policies and programs
effectively serve the interests of shareholders and the Company. The various pay
vehicles offered are appropriately balanced to provide increased motivation for
executives to contribute to the Company's overall future successes, thereby
enhancing the value of the Company for the shareholders' benefit.
The Committee will continue to monitor the effectiveness of the Company's
total compensation program to meet the current needs of the Company.
Roy H. Cullen
Ruben M. Escobedo
James W. Gorman, Jr.
John C. Korbell (Advisory Director)
David Straus (Member of The Frost National Bank Board)
Curtis Vaughan, Jr., Chairman
2. COMPENSATION AND BENEFITS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Since January 1, 1998, some of the members of the Compensation and Benefits
Committee of Cullen/ Frost, and some of their associates, are and have been
customers of one or more of the Cullen/Frost subsidiary banks. In the opinion of
management, these transactions were in the ordinary course of such banks'
business. No special treatment was given with respect to interest rates,
collateral, or risk. Additional transactions in the future may be expected to
take place in the ordinary course of such banks' business.
- - --------------------------------------------------------------------------------
9
<PAGE> 13
- - --------------------------------------------------------------------------------
3. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
SUMMARY COMPENSATION TABLE
The table below gives information on compensation for the Chief Executive
Officer of Cullen/Frost and the other three most highly compensated executive
officers (the "named executive officers.")
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------- UNDERLYING
OTHER RESTRICTED OPTIONS/ ALL
ANNUAL STOCK SARS OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) (SHARES)(3) COMPENSATION(4)
--------------------------- ---- -------- -------- --------------- ---------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
T. C. Frost......................... 1998 $ 30,000 $ 0 $22,552 $ 0 4,000 $35,115
Senior Chairman of the Board 1997 $200,000 $250,000 $45,325 $ 0 0 $66,747
1996 $150,000 $250,000 $41,590 $ 0 62,000 $50,212
Richard W. Evans, Jr................ 1998 $413,333 $275,000 $16,193 $241,563 45,000 $30,920
Chairman of the Board and Chief 1997 $358,333 $175,000 $16,288 $240,938 15,000 $27,140
Executive Officer of Cullen/Frost 1996 $308,333 $122,500 $12,567 $ 0 31,000 $23,828
Patrick B. Frost.................... 1998 $232,500 $ 73,500 $ 6,622 $ 48,313 11,000 $14,495
President, The Frost National
Bank, 1997 $217,500 $ 69,000 $ 7,461 $ 96,375 5,000 $13,573
a Cullen/Frost Subsidiary 1996 $202,500 $ 64,500 $ 6,207 $ 0 17,000 $12,615
Phillip D. Green.................... 1998 $214,167 $ 95,000 $ 6,088 $ 43,481 10,000 $14,417
Senior Executive Vice President
and 1997 $185,000 $ 63,000 $ 6,135 $ 84,328 5,000 $12,475
Chief Financial Officer of
Cullen/Frost 1996 $171,667 $ 54,000 $ 5,049 $ 0 14,000 $11,575
</TABLE>
- - ---------------
(1) Represents payments to compensate the employee for income taxes on elective
deferrals and company matching contributions to Cullen/Frost's 1991 Thrift
Incentive Stock Purchase Plan ("1991 Thrift Plan") and comparable benefits
to the Company's 401(k) Plan for all employees whose participation in the
401(k) is limited by IRS rules. This is approximately 127 employees for
1998. Mr. T. C. Frost's values also include $21,691 to reimburse him for
taxes on life insurance premiums paid for by the Company.
(2) Represents the dollar value of restricted stock awards, based on the closing
market price of Cullen/Frost stock on the 1998 grant date ($48.3125). The
total number of restricted shares held and their aggregate market value at
December 31, 1998 were as follows: Mr. T. C. Frost, 0 shares valued at $0;
Mr. Evans, 10,000 shares valued at $548,750; Mr. P. Frost, 3,000 shares
valued at $164,625; Mr. Green, 2,650 shares valued at $145,419. Aggregate
market value is based on a fair market value of $54.875 at December 31,
1998. Dividends are paid on the restricted shares at the same time and at
the same rate as dividends paid to shareholders of unrestricted shares.
Stock awarded in 1997 vests at the end of 3 years from the date of award;
stock awarded in 1998 vests at the end of four years from the date of the
award.
(3) Reflects adjustment for the 2-for-1 stock split in 1996.
(4) Represents total and/or imputed income from certain insurance premiums paid
by Cullen/Frost and Company's contribution to the 1991 Thrift Plan. The
amounts for insurance premiums and/or imputed income for 1998 and 1997 were
$40,467 and $68,835, respectively. The Company's contribution to the 1991
Thrift Plan was $54,480 in 1998 and $77,090 in 1997.
- - --------------------------------------------------------------------------------
10
<PAGE> 14
- - --------------------------------------------------------------------------------
The following tables give information on stock options for 1998 under the
Cullen/Frost Bankers, Inc. 1992 Stock Plan to the named executive officers:
OPTION GRANTS IN LAST FISCAL YEAR(1)
<TABLE>
<CAPTION>
% OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS/SARS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTION/SARS IN FISCAL EXERCISE EXPIRATION -----------------------------
NAME GRANTED YEAR(1) PRICE DATE 5% 10%
---- ----------- ------------ -------- ---------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Frost........... 4,000 1.0% $48.3125 09/22/2008 $ 121,534 $ 307,991
Richard W. Evans,
Jr. ................ 45,000 10.7% $48.3125 09/22/2008 $ 1,367,256 $ 3,464,896
Patrick B. Frost...... 11,000 2.6% $48.3125 09/22/2008 $ 334,218 $ 846,975
Phillip D. Green...... 10,000 2.4% $48.3125 09/22/2008 $ 303,835 $ 769,977
All shareholders(2)... N/A N/A $48.3125 09/22/2008 $811,622,984 $2,056,811,992
</TABLE>
- - ---------------
(1) Based on 420,900 options granted to all employees in 1998.
(2) Shows potential realizable value at assumed annual rates for all
shareholders based on 26,712,648 shares outstanding as of December 31, 1998.
Gains on "All Shareholders" assume a base price of $48.3125.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
TOTAL NUMBER OF SECURITIES TOTAL VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/
SHARES OPTIONS/SARS AT SARS HELD AT FISCAL
ACQUIRED FISCAL YEAR-END(1) YEAR-END(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Frost..................... 0 $ 0 191,202 65,800 $7,447,648 $1,781,627
Richard W. Evans, Jr. .......... 628 $ 27,783 102,454 88,400 $3,855,891 $1,271,624
Patrick B. Frost................ 0 $ 0 50,524 33,200 $1,350,636 $ 628,873
Phillip D. Green................ 8,636 $379,279 26,760 27,600 $ 867,834 $ 476,999
</TABLE>
- - ---------------
(1) Reflects adjustment for 2-for-1 stock split in 1996.
(2) Total value of options based on a fair market value of Company Stock of
$54.875 as of December 31, 1998.
4. OTHER PLANS AND AGREEMENTS
Retirement Plan and Restoration Plan
Cullen/Frost has a non-contributory Retirement Plan and Trust for Employees
of Cullen/Frost Bankers, Inc. and its Affiliates for eligible employees which is
designed to comply with the requirements of the Employee Retirement Income
Security Act of 1974. It also has a Restoration Plan which provides benefits in
excess of the limits under Section 415 of the Internal Revenue Code and in
excess of limits on eligible earnings set by the Tax Reform Act of 1986;
benefits are provided in connection with both the Retirement Plan and a previous
employee stock ownership plan. The entire cost of the Retirement and Restoration
Plans is provided by Cullen/Frost and its subsidiaries.
- - --------------------------------------------------------------------------------
11
<PAGE> 15
- - --------------------------------------------------------------------------------
The Pension Plan Table below shows the anticipated annual benefit, computed
on a straight line basis, payable under the Retirement Plan and Restoration Plan
upon the normal retirement of a vested executive officer of Cullen/Frost at age
65 after 15, 20, 25, 30, 35, 40, 45 and 50 years of credited service at
specified annual compensation levels.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------------------------------------
REMUNERATION 15 20 25 30 35 40 45 50
- - ------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12$5,000... $ 30,333 $ 40,444 $ 50,555 $ 60,666 $ 70,777 $ 78,590 $ 86,402 $ 94,215
150,000.. 36,896 49,194 61,493 73,791 86,090 95,465 104,840 114,215
175,000.. 43,458 57,944 72,430 86,916 101,402 112,340 123,277 134,215
200,000.. 50,021 66,694 83,368 100,041 116,715 129,215 141,715 154,215
225,000.. 56,583 75,444 94,305 113,166 132,027 146,090 160,152 174,215
250,000.. 63,146 84,194 105,243 126,291 147,340 162,965 178,590 194,215
300,000.. 76,271 101,694 127,118 152,541 177,965 196,715 215,465 234,215
400,000.. 102,521 136,694 170,868 205,041 239,215 264,215 289,215 314,215
450,000.. 115,646 154,194 192,743 231,291 269,840 297,965 326,090 354,215
500,000.. 128,771 171,694 214,618 257,541 300,465 331,715 362,965 394,215
</TABLE>
The Retirement Plan provides a monthly benefit based on a percentage of an
eligible employee's final average Compensation based on the highest three years
of compensation during the last ten years of service. Included in "Compensation"
according to the Retirement Plan are Salary, Overtime, Bonuses, Commissions, and
Wages deferred for the Company 401(k) Plan or used to pay health care premiums
and expenses under the Company Pre Tax Plan (IRS Section 125 Plan). Participants
in the Plan are fully vested in their accrued benefits under the Plan upon
attaining age 65 or after five years of service, whichever occurs first. Death
benefits are provided to married participants who have completed five years of
service. Normal retirement is at age 65 but early retirement is available
starting at age 55. Early Retirement benefits are provided on a reduced basis.
The benefit amounts listed in the table represent amounts payable from the plans
and are not subject to any additional deduction for social security benefits or
other offset amounts.
The years of credited service under the Retirement Plan as of December 31,
1998 for each person named in the Summary Compensation Table on page 10 are: Mr.
T. C. Frost -- 49 years; Mr. Evans -- 28 years (40 years at age 65); Mr. P.
Frost -- 14 years (41 years at age 65); and Mr. Green -- 18 years (39 years at
age 65). Mr. T. C. Frost activated his retirement benefit effective July 1,
1994, but still remains an active employee. Each year, his retirement benefits
will be recalculated based on his earnings for that year.
The Company also maintains a supplemental executive retirement plan (SERP).
The plan provides for target retirement benefits, as a percentage of annual cash
compensation, beginning at age 55. The target percentage is 45% of annual cash
compensation at age 55, increasing to 60% at age 60 and later. Benefits under
the SERP are reduced, dollar-for-dollar, by benefits received under the
Retirement and Restoration Plans, described previously, and any social security
benefits. Mr. Evans currently participates in the SERP. At current salary
levels, at age 60, Mr. Evans would receive $63,060 annually.
Change-in-Control Agreements
Cullen/Frost has change-in-control agreements with three of the four named
executives above and other key employees. The main purposes of these agreements
are (i) to help executives evaluate objectively whether a potential
change-in-control is in the best interests of shareholders, (ii) to help protect
against the departure of executives, thus assuring continuity of management, in
the event of an actual or threatened merger or change-in-control, and (iii) to
maintain compensation and benefits comparable to those available from competing
employers. "Change-in-control" is defined as an acquisition of 20 percent or
more of Cullen/Frost Common Stock by an individual, corporation, partnership,
group, association, or other person; certain changes
- - --------------------------------------------------------------------------------
12
<PAGE> 16
- - --------------------------------------------------------------------------------
in the composition of the Board of Directors by 50 percent or more; or certain
changes-in-control which must be reported to the Securities and Exchange
Commission.
Messrs Evans, P. Frost, and Green could receive 2.99 times their average
annual compensation during the previous five years if their position is
terminated within two years following the change-in-control either by
Cullen/Frost, if the termination is for reasons other than cause, disability or
retirement, or by the covered person if the covered person terminates his
employment for good reason. "Good reason" is defined as a significant reduction
or change in responsibility, involuntary transfer to a new location, a reduction
in compensation or benefits, the failure of any successor to Cullen/Frost to
assent to such change-in-control agreement, any purported termination by
Cullen/Frost of the covered person without providing such person a proper
written notice of termination or, in the case of the three executives, their
good faith determination, within 90 days of a change-in-control, that as a
result of the change-in-control they are not able to discharge their duties
effectively. The agreements also provide for a continuation of certain employee
benefits for qualifying executives upon a change-in-control.
Assuming that a change-in-control of Cullen/Frost had occurred effective
December 31, 1998 and that termination of employment also had occurred on that
date, the maximum amounts that could be payable to the named executives are: Mr.
Evans $1,654,252; Mr. P. Frost $860,167; and Mr. Green $1,227,984.
5. EXECUTIVE OWNERSHIP
The table below lists the number of shares of Cullen/Frost Common Stock
beneficially owned by each of the named executive officers and by all directors,
nominees, and executive officers of Cullen/Frost as a group:
<TABLE>
<CAPTION>
SHARES OWNED(1)
------------------------
AMOUNT AND
NATURE OF
BENEFICIAL
OWNERSHIP(2) PERCENT
------------ -------
<S> <C> <C>
T. C. Frost................................................. 776,319(3,5) 2.86%
Richard W. Evans, Jr. ...................................... 162,271(6) .60
Patrick B. Frost............................................ 77,990 .29
Phillip D. Green............................................ 44,715 .16
All directors, nominees and executive officers as a Group
(25 persons, including two advisory directors)............ 1,986,840(4) 7.33
</TABLE>
- - ---------------
(1) Beneficial ownership is as of December 31, 1998 unless otherwise indicated.
Beneficial ownership includes shares for which the individual had a right to
acquire pursuant to employee stock options exercisable within sixty (60)
days from December 31, 1998, as follows: Mr. T. C. Frost 191,202 (exercised
2,090 February, 1999), Mr. Evans 102,454 (exercised 25,872 March, 1999), Mr.
P. Frost 50,524, Mr. Green 26,760, and all executive officers and directors
as a group 405,339.
(2) Includes the following shares allocated under the 401(k) Stock Purchase Plan
for which each beneficial owner has both sole voting and investment power:
Mr. T. C. Frost 22,014, Mr. Evans 15,952, Mr. P. Frost 6,588, and Mr. Green
9,600.
(3) Includes 20,592 shares held in the Pat and Tom Frost Foundation Trust for
which Mr. T. C. Frost disclaims beneficial ownership.
(4) Includes 55,181 shares for which directors, nominees and named executive
officers have both sole voting and investment power, 105,228 shares with
shared voting and shared investment power with others, and 93,364 shares
owned by two advisory directors.
(5) Beneficial ownership is as of February 28, 1999.
(6) Beneficial ownership is as of March 8, 1999.
- - --------------------------------------------------------------------------------
13
<PAGE> 17
- - --------------------------------------------------------------------------------
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return on Cullen/Frost Common Stock with the cumulative total return of
companies on the Standard & Poor's 500 Stock Index and the Standard & Poor's
Major Regional Bank Index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
S&P Major
Measurement Period Cullen/Frost Regional
(Fiscal Year Covered) Bankers, Inc. S&P 500 Bank Index
<S> <C> <C> <C>
1993 100 100 100
1994 89 101 95
1995 148 139 149
1996 203 171 203
1997 378 228 306
1998 350 293 337
</TABLE>
ASSUMES $100 INVESTED ON 12/31/93 AND REINVESTMENT OF DIVIDENDS.
- - --------------------------------------------------------------------------------
14
<PAGE> 18
- - --------------------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
At December 31, 1998, the only shareholders known by the management of
Cullen/Frost to own beneficially more than five percent of the outstanding
shares of Cullen/Frost Common Stock were:
<TABLE>
<CAPTION>
VOTING AUTHORITY INVESTMENT AUTHORITY AMOUNT OF PERCENT
----------------------------- ---------------------------- BENEFICIAL OF
NAME AND ADDRESS SOLE SHARED NONE SOLE SHARED NONE OWNERSHIP(1) CLASS
---------------- ------- --------- ------- ------- ------ --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cullen/Frost Bankers,
Inc. ...................... 148,178 1,541,742 415,074 181,178 25,526 1,898,290 2,104,994 7.88%
P.O. Box 1600
San Antonio, Texas 78296
The Frost National Bank...... 106,116 1,503,726 241,257 98,557 22,894 1,729,648 1,851,099 6.93%
P.O. Box 1600
San Antonio, Texas 78296
</TABLE>
- - ---------------
(1) Cullen/Frost owned no securities of Cullen/Frost for its own account. All of
the shares are held by Cullen/Frost subsidiary banks, The Frost National
Bank and United States National Bank of Galveston. Each bank has reported
that the securities, registered in its name as fiduciary or in the names of
various of its nominees, are owned by many separate accounts. The accounts
are governed by separate instruments which set forth the powers of the
fiduciary with regard to the securities held.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Since January 1, 1998, some of the executive officers and directors of
Cullen/Frost, and some of their associates, are current or past customers of
Cullen/Frost subsidiary banks. Transactions with these banks have been in the
ordinary course of business. Other transactions have included, in addition to
borrowings from the subsidiary banks, the following:
1. Cullen/Frost and some of its subsidiaries have policies of
insurance written through Catto & Catto. Mr. Catto and Mr. Hayne, both
Cullen/Frost directors, are partners in the insurance agency. Fees paid by
Cullen/Frost and its subsidiaries aggregated less than five percent of the
total gross revenues of Catto & Catto for its fiscal year ended December
31, 1998.
2. The offices of the Hulen Financial Center of The Frost National
Bank are leased on a long-term basis from OPNB Building, a Texas joint
venture. During 1998, lease payments of $878,667 were made by Frost Bank to
OPNB Building J.V. Mr. R. Denny Alexander, a director of Cullen/Frost, owns
30 percent interest in OPNB Building J.V.
3. Mr. Eugene Dawson, Sr., owns 28.35 percent of Jesse A. Baker
Investments, Inc. (JAB). JAB has a loan for land development purposes with
The Frost National Bank. Principal payments on this loan totaled $483,378
and interest payments totaled $32,703 during 1998. The balance of the loan
at December 31, 1998 was $33,150. The loan was paid in full in January
1999.
In the opinion of management, all of the foregoing transactions had
substantially the same terms, interest rates, collateral, or risk as those
transactions with unaffiliated individuals. Additional transactions may take
place in the future.
APPROVAL OF THE AMENDMENTS TO THE 1992 STOCK PLAN
(ITEM 2 ON PROXY CARD)
In 1992, the shareholders approved the establishment of the Cullen/Frost
Bankers, Inc., 1992 Stock Plan. The complete text of the 1992 Stock Plan is
attached as Annex A, as first amended in 1997. The Plan's purpose is to enable
Cullen/Frost and its affiliates to retain and motivate key employees and to
encourage their
- - --------------------------------------------------------------------------------
15
<PAGE> 19
- - --------------------------------------------------------------------------------
ownership of Cullen/Frost stock, providing them a way to acquire or increase a
proprietary interest in the Company's success.
The Board of Directors believes the Plan is a key element of Cullen/Frost's
executive compensation program because stock-based incentive compensation ties
executive compensation directly to stock value. In order to ensure that there
will be sufficient shares available for grant under the Plan and to enhance
flexibility under the Plan, the Board of Directors has unanimously approved,
subject to shareholder approval, a second amendment to the 1992 Stock Plan (the
"Amendment"). The complete text of the Amendment is attached as Annex B.
Four types of incentives may now be granted under the Plan -- restricted
stock, incentive stock options, nonqualified stock options, and/or stock
appreciation rights. Approval of the Amendment will permit the Company to
structure awards as restricted stock units as well. The structuring of awards as
restricted stock units will permit the Company to grant awards based on the
value of Company shares with favorable tax consequences. Each type of incentive
is more fully described below.
Shares granted under the Plan may be authorized but unissued shares or
previously issued shares reacquired by Cullen/Frost, including shares purchased
on the open market and not reserved for any other purposes.
The Board of Director's Compensation and Benefits Committee, ("the
Committee") composed of five outside directors and one outside advisory
director, administers the Plan, selects participants, and determines the type,
number, and conditions of incentive awards. Eligible employees are those who, in
the Committee's opinion, are materially responsible for the management, growth,
and protection of significant parts of the business or functions of the Company
and/or its subsidiaries or affiliates. Since the Plan contemplates grants to
future as well as present employees, Cullen/Frost cannot currently predict the
total number of participants.
SUMMARY DESCRIPTION OF THE AMENDMENT TO THE 1992 STOCK PLAN
The following summarizes the material terms of the Amendment to the 1992
Stock Plan. If adopted by shareholders, the Amendment will be effective as of
May 26, 1999.
INCREASE IN SHARE AUTHORIZATION
The Plan currently authorizes 2,860,000 shares for issuance, of which
866,434 shares remain available for grant. In order to ensure that there will be
sufficient shares available for grant under the Plan in future years, the
Amendment increases the total number of shares of Common Stock authorized for
issuance under the Plan by 1,700,000 shares (1,500,000 for options, 200,000 for
restricted stock.) Of the 4,560,000 total shares authorized under the Plan
pursuant to the Amendment, no more than 465,000 shares may be granted in the
form of restricted stock.
RESTRICTED STOCK UNITS
Pursuant to the Amendment, the Plan may now offer Restricted Stock Units
under the same terms and conditions as Restricted Stock is currently awarded
under the Plan.
In order to exempt future awards from the tax deductibility limitations of
Internal Revenue Code Section 162(m), the Amendment to the 1992 Stock Plan
provides that no more than 150,000 shares will be paid out under any Restricted
Stock Unit award in any one fiscal year, to any Participant. This Amendment is
not intended to increase future award sizes or otherwise alter the Compensation
and Benefits Committee's general practices in determining award sizes.
- - --------------------------------------------------------------------------------
16
<PAGE> 20
- - --------------------------------------------------------------------------------
REPRICING OF STOCK OPTIONS
The Amendment also provides that Options issued under the Plan may not be
repriced without the approval of shareholders. The Amendment would thus preclude
the Company from repricing stock options without first seeking the approval of
shareholders.
LIMITED TRANSFERABILITY
Each Incentive awarded under the Plan may only be exercised by the
Participant or, in the case of the Participant's death, by the Participant's
estate. The Amendment to the Plan, however, now permits the Participant to
transfer an award to an immediate family member or family trust as approved by
the Committee.
SUMMARY DESCRIPTION OF THE EXISTING PLAN
Restricted Stock and Restricted Stock Units: When it awards shares or units
of restricted stock, the Committee will have established a restriction period
during which shares awarded may not be sold, exchanged, transferred, pledged, or
otherwise encumbered by the participant. However, in the case of shares of
restricted stock, during the restriction period, the participant shall generally
have all shareholder rights including voting, dividends, and other
distributions.
Incentive and Nonqualified Stock Options: The purchase price of stock
issued under both types of stock options will be determined by the Committee,
but will not be less than the fair market value of Common Stock subject to the
option at the time the option is granted. Incentive Stock Options will not be
transferable other than by will or laws of descent and distribution. As provided
in the Amendment, Nonqualified Stock Options generally will not be transferable
other than by will or laws of descent and distribution except as may be
permitted at the discretion of the Committee. As provided in current plans, the
Board of Directors may, upon recommendation of the Committee and to carry out
purposes of this plan, amend options to reduce the exercise price and number of
shares.
Stock Appreciation rights (SARs): The Committee may grant SARs either in
tandem with stock options or freestanding and unrelated to options. In either
case, the form of payment of a SAR will be determined by the Committee either at
grant time or when exercised, and may be in shares of Common Stock, cash, or a
combination of the two: (i) if granted other than in tandem, the Committee will
determine the number of shares of Common Stock covered by and the exercise
period for the SAR. Upon exercise of the SAR, the participant will receive an
amount equal to the excess of the fair market value of one share of stock on the
date the exercise is received by the Company over the fair market value of one
share of the stock on the grant date, multiplied by the number of shares of
stock covered by the SAR; (ii) if granted in tandem with an option, a SAR may be
awarded when the option is granted or any time thereafter, the Committee may
limit the exercise period of the SAR except that the SAR's exercise period may
not exceed that of the option. The participant may exercise the SAR when the
option is exercisable, surrender the option, and receive on exercise an amount
equal to the excess of fair market value of one share of stock on the date the
election to surrender is received by the Company over the option purchase price,
multiplied by the number of shares of stock covered by the surrender option.
FEDERAL INCOME TAX CONSEQUENCES OF THE 1992 STOCK PLAN
Federal Tax Treatment of Incentive Stock Options: A participant will not
realize taxable income when an incentive stock option is granted under the 1992
Plan or when an incentive stock option is exercised, and the Company will not be
entitled to a deduction with respect to the granting of exercise of such an
option except in the limited circumstances discussed below. If an incentive
stock option grantee holds the shares acquired under the option for at least two
years from the date the option is granted and at least one year from the date
the option is exercised, any gain realized by the participant when the shares
are sold will be taxable to
- - --------------------------------------------------------------------------------
17
<PAGE> 21
- - --------------------------------------------------------------------------------
the grantee as capital gain. If the shares are not held for the two- and the
one-year periods, the participant will realize ordinary income in the year of
disposition of the shares in an amount equal to the excess of the fair market
value of the shares on the date of exercise (or the proceeds of the disposition,
if lower) over the option exercise price, and the Company will be entitled to a
corresponding deduction. Any remaining gain will generally be capital gain. If
the shares are disposed of at a loss, the loss will be a capital loss. The
difference between the exercise price of an incentive stock option and the fair
market value of the shares subject to the option at the time of exercise is an
item of tax preference which may result in the participant being subject to the
alternative minimum tax. Whether a participant is subject to the alternative
minimum tax in lieu of "regular" income tax will depend on individual facts and
circumstances.
Federal Tax Treatment of Nonqualified Stock Options: A participant will not
realize taxable income, and the Company will not be entitled to a deduction, at
the time that a nonqualified stock option is granted under the 1992 Plan. Upon
exercising a nonqualified stock option, a participant will realize ordinary
income, and the Company will be entitled to a corresponding deduction, in an
amount equal to the excess of the fair market value on the exercise date of the
shares subject to the option over the exercise price of the option. The
participant will have a basis in the shares received as a result of the
exercise, for purposes of computing capital gain or loss on a future sale or
exchange of those shares, equal to the fair market value of those shares on the
exercise date.
Federal Tax Treatment of Restricted Stock: The recipient of a grant of
restricted stock under the 1992 Plan will not realize taxable income and the
Company will not be entitled to a deduction with respect to such grant on the
date of such grant unless the recipient makes an election under Section 83(b) of
the Code, within 30 days after grant, to include in income the fair market value
of the stock on the date of grant. When the participant becomes entitled to
freely transfer the stock, the grantee will realize ordinary income in an amount
equal to the excess of the fair market value of the stock on such date over the
amount, if any, that the recipient paid for the stock and the Company will
generally be entitled to a corresponding deduction.
Federal Tax Treatment of Restricted Stock Units: The recipient of a grant
of restricted stock units will not realize taxable income and the Company will
not be entitled to deduction with respect to such grant on the date of such
grant. Upon payout of the restricted stock units, the recipient will realize
ordinary income, and the Company will be entitled to a corresponding deduction,
equal to the amount of the payout.
Federal Tax Treatment of SARs: The recipient of a grant of SARs will not
realize taxable income and the Company will not be entitled to a deduction with
respect to such grant on the date of such grant. Upon the exercise of a SAR, the
recipient will realize ordinary income, and the Company will be entitled to a
corresponding deduction, equal to the amount of cash received.
The 1992 Stock Plan shall terminate not later than 10 years after its
original approval by the Board of Directors, and the Board has the power to
terminate it at any earlier time. The benefits that will be received under the
1992 Stock Plan, as amended, by particular individuals or groups are not
determinable at this time. The benefits that were received for the 1998 fiscal
year by the Named Executive Officers pursuant to the 1992 Stock Plan are
summarized in tables on page 11.
The accompanying proxy will be voted in favor of approval of the Amendment
unless contrary instructions are noted on the proxy. The affirmative vote of a
majority of the shares of Cullen/Frost Common Stock present in person or by
proxy entitled to vote at the Annual Meeting is required for adoption of the
Amendment to the Plan.
The Board of Directors recommends a vote "FOR" approval of the Amendment.
- - --------------------------------------------------------------------------------
18
<PAGE> 22
- - --------------------------------------------------------------------------------
SELECTION OF AUDITORS
(ITEM 3 ON PROXY CARD)
The Board of Directors recommends that the shareholders of the Company
approve the selection of Ernst & Young LLP, certified public accountants, as
independent auditors of Cullen/Frost. With an affirmative vote of a majority of
the shares of Cullen/Frost Common Stock present in person or by proxy at the
meeting, the Board of Directors will adopt a resolution naming Ernst & Young LLP
as independent auditors of Cullen/Frost for the fiscal year which began January
1, 1999. Ernst & Young LLP has audited the financial statements of Cullen/Frost
since 1969.
Representatives from Ernst & Young LLP will not be present at the meeting.
If any shareholder wants to ask them a question, management will ensure that the
question is sent to the independent auditors and that an appropriate response is
made directly to the shareholder.
SHAREHOLDER PROPOSALS
To be eligible under the Securities and Exchange Commission's shareholder
proposal rule (Rule 14a-8) for inclusion in Cullen/Frost's proxy statement,
proxy card, and presentation at Cullen/Frost's 2000 Annual Meeting of
Shareholders (tentatively scheduled to be held on May 31, 2000), a proposal of a
shareholder must be received by Cullen/Frost at its principal offices no later
than March 31, 2000. For a shareholder proposal submitted outside of the process
provided by rule 14a-8, to be eligible for presentation at Cullen/Frost's 2000
Annual Meeting, timely notice thereof must be received by Cullen/Frost by 60
days before the meeting. This notice must be in the manner and form required by
Cullen/Frost's by-laws.
OTHER MATTERS
Management of Cullen/Frost knows of no other business to be presented at
the meeting. If other matters do properly come before the meeting, the persons
named in the proxy will vote shares according to their best judgment unless they
are instructed differently.
By Order of the Board of Directors
/s/ DIANE JACK
DIANE JACK
Corporate Secretary
Dated: April 14, 1999
A copy of Cullen/Frost's 1998 Annual Report on Form 10-K is available
without charge (except for exhibits) upon written request to Cullen/Frost
Bankers, Inc., attention Greg Parker, 100 West Houston Street, San Antonio,
Texas 78205.
- - --------------------------------------------------------------------------------
19
<PAGE> 23
ANNEX A
- - --------------------------------------------------------------------------------
CULLEN/FROST BANKERS, INC.
1992 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1. Establishment. Cullen/Frost Bankers, Inc. hereby establishes an
incentive stock plan for key employees, as described herein, which shall be
known as the CULLEN/FROST BANKERS, INC. 1992 STOCK PLAN (hereinafter referred to
as the "Plan").
1.2. Purpose. The Purpose of the Plan is to enable the Company and its
subsidiaries and affiliates to retain and motivate key employees, and to
encourage stock ownership by such key employees, by providing them with a means
to acquire a proprietary interest, or to increase such interest, in the success
of the Company, subject to the terms and conditions of and in the manner
contemplated by this plan.
1.3. Incentives. Incentives under the Plan may be granted in any one or a
combination of (A) Restricted Stock; (B) Incentive Stock Options; (C)
Nonqualified Stock Options; and (D) Stock Appreciation Rights.
1.4. Effective Date. This Plan shall become effective upon its adoption by
the Board of Directors; provided, however, that the validity of the Plan and any
Incentive provided hereunder is subject to approval of the Plan at the next
shareholders meeting following its adoption by the Board of Directors. If the
shareholders fail to timely approve the Plan, the Plan and any Incentive that
may be issued hereunder shall be null and void.
SECTION 2. DEFINITIONS
2.1. Definitions. Whenever used herein, the following terms shall have the
meanings set forth below:
(a) "Board of Directors" means the Board of Directors of the Company.
(b) "Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported (assuming such event has
not been "previously reported") in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the effective date of the Plan,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided that, without limitation, such a
Change in Control shall be deemed to have occurred at such time as (a) any
"person," within the meaning of Section 14(d) of the Exchange Act, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of 20 percent or more of the combined voting
power of the Company's outstanding securities ordinarily having the right
to vote for the election of directors (the "Voting Securities"); or (b)
individuals who constitute the Board of Directors on the effective date of
the Plan cease for any reason to constitute a majority thereof, provided
that any person becoming a director subsequent to the effective date of the
Plan whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least three quarters of the
directors comprising the Incumbent Board (either by a specific vote or by
approval of the proxy statement of the Company in which such person is
named as nominee for director, without objection to such nomination) shall
be, for purposes of this clause (b), considered as though such person were
a member of the Incumbent Board.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Compensation & Benefits Committee of the
Board of Directors.
(e) "Company" means Cullen/Frost Bankers, Inc., a Texas corporation.
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(f) "Disability" means a total and permanent disability as defined in
the Company's basic retirement plan, as may be amended from time to time.
(g) "Employee" means any person employed by the Company or a
subsidiary or affiliate.
(h) "Incentive" means a Restricted Stock, Incentive Stock Option,
Nonqualified Stock Option, or Stock Appreciation Right granted pursuant to
the Plan.
(i) "Incentive Stock Option" means a Stock Option meeting the
requirements of Section 422 of the Code.
(j) "Nonqualified Stock Option" means any Stock Option, other than an
Incentive Stock Option, granted pursuant to the Plan.
(k) "Participant" means any Employee selected by the Committee to
receive a grant of an Incentive under the Plan.
(l) "Restricted Stock" means Stock granted to a Participant pursuant
to Section 6 of the Plan.
(m) "Restriction Period" means that period of time determined by the
Committee during which the transfer of shares of Restricted Stock is
restricted and such shares of Restricted Stock are subject to forfeiture.
(n) "Retirement" shall be as defined in the Company's basic retirement
plan.
(o) "Stock" means the Common Stock, par value $5 per share, of the
Company.
(p) "Stock Appreciation Right" means the right to receive the
appreciation in the fair market value of shares of Stock granted pursuant
to Section 8 of the Plan.
(q) "Stock Option" means any Incentive Stock Option or Nonqualified
Stock Option granted pursuant to the Plan.
2.2. Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender when used in the Plan also shall include the
feminine and neuter genders, the singular shall include the plural, and the
plural shall include the singular.
SECTION 3. ELIGIBILITY AND PARTICIPATION
3.1. Eligible Employees. Employees, who, in the opinion of the Committee,
are from time to time materially responsible for the management, growth, and
protection of a material part or all of the business or functions of the Company
or a subsidiary or affiliate of the Company shall be eligible to be granted
Incentives under the Plan.
SECTION 4. ADMINISTRATION
4.1. Administration. The Committee shall be responsible for the
administration and interpretation of the Plan. No member of the Committee shall
(i) be eligible to be granted Incentives under the Plan while serving on the
Committee or at any time within one year prior to his appointment to the
Committee, or (ii) receive an award of equity securities under any other plan of
the Company or any of its affiliates while serving on the Committee or at any
time within one year prior to his appointment to the Committee, except as
permitted by Rule 16b-3 under the Securities Exchange Act of 1934 without the
member being considered other than a disinterested person thereunder. The
Committee is authorized to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan, to provide for conditions and
assurance deemed necessary or advisable to protect the interest of the Company,
and to make all of the determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. Determinations, interpretations or other actions made or
taken by the Committee pursuant to the
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provisions of the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever.
SECTION 5. STOCK SUBJECT TO THE PLAN
5.1. Number. The total number of shares of Stock that may be granted under
the Plan may not exceed 800,000, subject to adjustment as provided in Section
5.3. Such shares may consist, in whole or in part, of authorized but unissued
shares or previously issued shares reacquired by the Company including shares
purchased on the open market and not reserved for any other purpose. In no event
may greater than 75,000 shares be available for issuance with respect to grants
of Restricted Stock under the Plan.
5.2. Unused Stock. In the event any Incentive granted under the Plan
expires, terminates, is canceled or is forfeited and reacquired by the Company,
the shares of Stock subject to or reserved for such Incentive again shall be
available for issuance under the Plan.
5.3. Recapitalization Adjustment. In the event of a reorganization,
recapitalization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
of shares of capital stock of the Company, the Committee shall, subject to the
provisions of Section 7.5, make such adjustment, if any, as it may deem
appropriate in the number and kind of shares authorized by the Plan; in the
number and kind of shares covered by Incentives granted; in the case of Stock
Options, in the option price; and in the case of Stock Appreciation Rights, in
the Stock Option purchase price, or fair market value, as appropriate.
SECTION 6. RESTRICTED STOCK
6.1. Grant of Restricted Stock. The Committee may, in its discretion, grant
Incentives to Participants from time to time in the form of Restricted Stock and
shall determine the number of shares of Restricted Stock which will be granted
to a Participant.
6.2. Restricted Stock Agreement. Each grant of shares of Restricted Stock
shall be evidenced by a Restricted Stock Agreement and shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe.
6.3. Restriction Period. At the time of the grant of shares of Restricted
Stock, the Committee shall select the Restriction Period to apply to the shares
of Restricted Stock.
6.4. Nontransferability of Restricted Stock. Prior to the lapse of
restrictions as provided in Section 6.5, shares of Restricted Stock may not be
sold, exchanged, transferred, pledged, assigned, or otherwise alienated,
hypothecated, whether voluntarily or involuntarily.
6.5. Removal of Restrictions. Except as otherwise provided in Section 6.9,
and subject to Section 6.6, shares of Restricted Stock covered by each
Restricted Stock grant made under this Plan shall become freely transferable by
the Participant after the expiration of the Restriction Period or upon
satisfaction of other conditions as specified by the Committee in its sole
discretion.
6.6. Other Restrictions. The Company shall impose such other restrictions
on any shares granted pursuant to this Plan as it may deem advisable including,
without limitation, restrictions under applicable Federal laws, under the
requirements of any stock exchange or interdealer quotation system upon which
share of shares of the same class are then listed or quoted and under blue sky
or state securities laws applicable to such shares. The Company may legend the
certificates representing Restricted Stock to give appropriate notice of such
restrictions.
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6.7. Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 6.6 hereof, each certificate representing shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in the Cullen/ Frost
Bankers, Inc. 1992 Stock Plan, and a Restricted Stock Agreement dated
. A copy of the Plan, such rules, and the Restricted Stock
Agreement may be obtained from the Secretary of Cullen/Frost Bankers, Inc.
6.8. Voting Rights and Dividends with Respect to Restricted Stock. With
respect to shares of Restricted Stock, prior to the lapse of restrictions under
Section 6.5, each Participant shall generally have the rights and privileges of
a shareholder, including the right to vote the shares and to receive dividends
and other distributions made with respect to the shares; provided, however, that
the shares of Restricted Stock shall be subject to all the terms, conditions,
and restrictions of the Plan and the Restricted Stock Agreement, including,
without limitation, the provisions of this Section 6.
6.9. Change in Control. In the event of a Change in Control, the applicable
Restriction Period with respect to all outstanding shares of Restricted Stock
shall automatically terminate.
SECTION 7. STOCK OPTIONS
7.1. Grant of Stock Options. The Committee may, in its discretion, grant
Stock Options which are Incentive Stock Options or Nonqualified Options, and
such Stock Options shall be subject to the following terms and conditions and
such other terms and conditions as the Committee may prescribe.
7.2. Option Agreements. Each Stock Option shall be evidenced by an Option
Agreement and shall contain such terms and conditions as may be approved by the
Committee. Each Stock Option and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by the optionee or his
guardian or legal representative. If, upon the recommendation of the Committee,
the Board of Directors shall determine that, in order to carry out the purposes
of the Plan, it is necessary or desirable to reduce the purchase price of Stock
issued under any Option, then the Board of Directors may amend any Option (i) to
reduce the exercise price, provided that in no case shall such exercise price be
reduced below the fair market value (as determined by the Committee) of the
Stock subject to such Option at the time the Option is amended and (ii) to
reduce the number of shares of Stock for which such Option is exercisable,
provided, that no such reduction shall be made without consent of the Optionee.
7.3. Option Price; Medium of Payment. The purchase price of Stock issued
under each Stock Option shall be determined by the Committee, but shall not be
less than the fair market value (as determined by the Committee) of the Stock
subject to the Stock Option at the time the Stock Option is granted. Payment of
such purchase price shall be made in cash or, if provided in the Option
Agreement, payment of such purchase price may be in shares of Stock which have
been held by the Participant for more than six months, or any combination of
both cash and shares of Stock; in such case, shares of Stock delivered to the
Company as payment for Stock issued upon exercise of an Option shall be valued
at their fair market value (as determined by the Committee) or their par value,
if higher.
7.4. Exercise of Stock Option. The shares covered by a Stock Option may be
purchased in such installments and on such exercise dates as the Committee may
determine. Any shares not purchased on the applicable exercise date may be
purchased thereafter at any time prior to the expiration of the Stock Option.
7.5. Merger or Consolidation. If the Company merges or consolidates with
one or more corporations and the Company shall be the surviving corporation
(other than as a subsidiary of another corporation or other entity), thereafter
upon any exercise of a Stock Option theretofore granted the optionee shall be
entitled to
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purchase under such Stock Option, in lieu of the number of shares of Stock as to
which such Stock Option would be exercisable, the number and class of shares of
stock and securities to which the Participant would have been entitled pursuant
to the terms of the agreement of merger or consolidation if, immediately prior
to such merger or consolidation, the Participant had been the holder of record
of the number of shares of Stock as to which such Stock Option would be
exercisable. If the Company shall not be the surviving corporation in any merger
or consolidation or shall survive only as a wholly-owned subsidiary of another
corporation or other entity, or if the Company is to be dissolved or liquidated,
then unless the surviving corporation (or the parent corporation or other entity
if the Company shall survive only as a subsidiary) assumes or substitutes new
options for all Stock Options then outstanding, (i) the time at which all Stock
Options then outstanding, may be exercised shall be accelerated and all such
Stock Options shall become exercisable in full on or before a date fixed by the
Company prior to the effective date such merger or consolidation or such
dissolution or liquidation, and (ii) upon such effective date any unexercised
Stock Options shall expire.
7.6. Change in Control. Any Option Agreement may provide that if at any
time there shall occur a Change in Control, then the time at which the Stock
Option evidenced thereby may be exercised shall be accelerated and the Stock
Option shall immediately become exercisable in full.
SECTION 8. STOCK APPRECIATION RIGHTS
8.1. Grant of Stock Appreciation Right. The Committee may, in its
discretion, grant Stock Appreciation Rights in tandem with a Stock Option, in
addition to a Stock Option, or freestanding and unrelated to a Stock Option. If
a Stock Appreciation Right is granted otherwise than in tandem with a Stock
Option, the Committee shall determine the number of shares of Stock covered by
such Stock Appreciation Right. Stock Appreciation Rights shall be subject to the
following terms and conditions and such other terms and conditions as the
Committee may prescribe.
8.2. Time and Period of Grant. If a Stock Appreciation Right is granted
with respect to a Stock Option, it may be granted at the time of the grant of
the Stock Option or at any time thereafter. If a Stock Appreciation Right is
granted in tandem with any Stock Option at the time the Stock Appreciation Right
is granted the Committee may limit the exercise period for such Stock
Appreciation Right. In no event shall the exercise period for a Stock
Appreciation Right in tandem with any Stock Option exceed the exercise period
for such Stock Option. If a Stock Appreciation Right is granted without being
related to an underlying Stock Option, the period for exercise of the Stock
Appreciation Right shall be set by the Committee at the time of grant.
8.3. Value of Stock Appreciation Right. If a Stock Appreciation Right is
granted in tandem with a Stock Option, the Participant will be entitled to
surrender the Stock Option at any time such Stock Option is exercisable and
receive in exchange therefor an amount equal to (i) the excess of the fair
market value of one share of the Stock on the date the election to surrender is
received by the Company over the Stock Option purchase price, multiplied by (ii)
the number of shares of Stock covered by the Stock Option which is surrendered.
If a Stock Appreciation Right is granted otherwise than in tandem with a Stock
Option, the Participant will receive upon exercise of the Stock Appreciation
Right an amount equal to (i) the excess of the fair market value of one share of
the Stock on the date the election to exercise such Stock Appreciation Right is
received by the Company over the fair market value of one share of the Stock on
the date of grant, multiplied by (ii) the number of shares of Stock covered by
the Stock Appreciation Right.
8.4. Payment of Stock Appreciation Right. Payment of a Stock Appreciation
Right shall be in the form of shares of Common Stock, cash, or any combination
of shares and cash. The form of payment upon exercise of such a right shall be
determined by the Committee either at the time of grant of the Stock
Appreciation Right or at the time of exercise of the Stock Appreciation Right.
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8.5. Change in Control. Any Stock Appreciation Right may provide that if at
any time there shall occur a Change in Control, then the time at which the Stock
Appreciation Right may be exercised shall be accelerated and the Stock
Appreciation Right shall immediately become exercisable in full.
SECTION 9. MISCELLANEOUS
9.1. No Right to Employment. Nothing in the Plan or in the terms of any
Incentive granted under the Plan shall in any manner be construed to limit or
restrict in any way the right of the Company or its subsidiaries or affiliates
to terminate any Participant's employment at any time and without regard to the
effect of such termination on the Participant under the Plan, nor confer upon
any Participant any right to continue in the employ of the Company or its
subsidiaries or affiliates.
9.2. Tax withholding. The Company shall have the right to deduct from all
payments any Federal, state, or local taxes required by law to be withheld with
respect to such payments, and the Participant or other person receiving shares
of Stock pursuant to the Plan may be required to pay the Company, as
appropriate, the amount of any such taxes which the Company is required to
withhold with respect to such Stock. A Participant may elect, subject to the
approval of the Committee, to have a portion of the shares of Stock which would
otherwise be transferred to the Participant under the Plan withheld by the
Company to satisfy the tax withholding requirement of this Section.
9.3. Governing Law. The Plan, and all agreements and other documents
delivered hereunder, shall be construed in accordance with and governed by the
laws of the State of Texas.
9.4. Expense of Plan. The expenses of administering the Plan shall be borne
by the Company.
9.5. Amendment or Termination of the Plan. The Board of Directors in its
discretion may amend or terminate the Plan at any time; provided, that no
amendment or termination that shall affect any Incentive theretofore granted may
be made which would impair the rights of the Participant without the consent of
such Participant; and provided, further, that the Board of Directors may not
make any amendment without the approval of the shareholders of the Company if
such approval is necessary in order for the Plan to continue to comply with Rule
16b-3 under the Securities Exchange Act of 1934.
9.6. Duration of the Plan. Subject to the Board's right to earlier
terminate the Plan pursuant to Section 9.5 hereof, the Plan shall terminate not
later than ten (10) years after the date of adoption of the Plan by the Board
and no Incentives shall be granted after termination of the Plan; provided,
however, that termination of the Plan will not adversely affect any Incentives
granted prior to termination of the Plan.
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ANNEX A
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AMENDMENT TO THE CULLEN/FROST BANKERS, INC. 1992 STOCK PLAN
(EFFECTIVE AS OF MAY 28, 1997)
The Board of Directors of Cullen/Frost Bankers, Inc., pursuant to Section
9.5 of Cullen/Frost Bankers, Inc. 1992 Stock Plan (the "Plan"), hereby amends
the Plan as described below; provided, however, that such amendments shall
become effective only after approval by the Company's shareholders. The
amendments are as follows:
The following terms and accompanying definitions shall be added to the Plan
under Section 2.1:
(r) "Covered Employee" means a Participant who the Committee
determines is likely to be, as of the date of vesting and/or payout of
Incentive, as applicable, is one of the group of "covered employees," as
defined in the regulations promulgated under Code Section 162(m), or any
successor thereto.
(s) "Performance-Based Exception" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
Section 5.1 of the Plan shall be deleted and replaced with the following:
5.1 Number of Shares Available for Grant. Subject to adjustment as
provided in Section 5.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be two million eight hundred sixty
thousand (2,860,000). In no event may greater than two hundred sixty-five
thousand (265,000) shares be available for issuance with respect to grants of
Restricted Stock under the Plan. The Board shall determine the appropriate
methodology for calculating the number of Shares issued pursuant to the Plan.
Unless and until the Board determines that an Incentive shall not be designed to
comply with the Performance-Based Exception, the following rules shall apply to
grants of such Incentives under the Plan:
(a) Stock Options: The maximum aggregate number of shares of Common
Stock that may be granted in the form of Stock Options, pursuant to any
Incentives granted in any one fiscal year to any one single Participant,
shall be four hundred thousand (400,000).
(b) SARs: The maximum aggregate number of shares of Common Stock that
may be granted in the form of Stock Appreciation Rights, pursuant to any
Incentives granted in any one fiscal year to any one single Participant,
shall be four hundred thousand (400,000).
(c) Restricted Stock: The maximum aggregate grant with respect to
Incentives granted in the form of Restricted Stock granted in any one
fiscal year to any one participant shall be one hundred fifty thousand
(150,000) shares of common stock.
Section 5.4 shall be added to the Plan and shall read as follows:
5.4 Performance Measures. Unless and until the Committee proposes for
shareholder vote and shareholders approve a change in the general performance
measures set forth in this Section 5.4, the attainment of which may determine
the degree of payout and/or vesting with respect to Incentives granted to
Covered Employees which are designed to qualify for the Performance-Based
Exception, the performance measure(s) to be used for purposes of such grants
shall be chosen from among:
(a) Return on Equity;
(b) Earnings Per Share;
(c) Operating Cash Flow;
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(d) Gross Revenue;
(e) Income Before Taxes;
(f) Net Income;
(g) Return on Revenue; and
(h) Stock Price Appreciation.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals, provided, however,
that Incentives which are designed to qualify for the Performance-Based
Exception, and which are held by Covered Employees, may not be adjusted upward
(the Committee shall retain the discretion to adjust such Incentives downward).
In the event that applicable tax and/or securities laws change to permit
Board discretion to alter the governing performance measures without obtaining
shareholder approval of such changes, the Board shall have sole discretion to
make such changes without obtaining shareholder approval. In addition, in the
event that the Committee determines that it is advisable to grant Incentives
which shall not qualify for the Performance-Based Exception, the Committee may
make such grants without satisfying the requirements of Code Section 162(m).
The second sentence of Section 7.2 of the Plan shall be deleted and replaced
with the following:
Each Incentive Stock Option and all rights granted thereunder shall not be
transferable other than by will or the laws of descent and distribution, and
shall be exercisable during the optionee's lifetime only by the optionee or his
guardian or legal representative. Except as may be otherwise provided by the
Committee, each Nonqualified Stock Option and all rights granted thereunder
shall not be transferable other than by will or the laws of descent and
distribution, and shall be exercisable during the optionee's lifetime only by
the optionee or his guardian or legal representative.
Section 9.7 shall be added to the Plan and shall read as follows:
9.7 Pooling of Interests Accounting. Notwithstanding any other provision
of the Plan to the contrary, in the event that the consummation of a Change in
Control is contingent on using the pooling of interests accounting methodology,
the Board may take any action necessary to preserve the use of pooling of
interests accounting.
Section 9.8 shall be added to the Plan and shall read as follows:
9.8 Compliance with Code Section 162(m). At all times when Code Section
162(m) is applicable, all Incentives granted under this Plan shall comply with
the requirements of Code Section 162(m); provided, however, that in the event
the Board determines that such compliance is not desired with respect to any
Incentive or Incentives available for grant under the Plan, then compliance with
Code Section 162(m) will not be required. In addition, in the event that changes
are made to Code Section 162(m) to permit greater flexibility with respect to
any Incentive or Incentives available under the Plan, the Board may make any
adjustments it deems appropriate.
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ANNEX B
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SECOND AMENDMENT TO THE CULLEN/FROST BANKERS, INC. 1992 STOCK PLAN
The Board of Directors of Cullen/Frost Bankers, Inc. (the "Company"),
pursuant to Section 9.5 of the Cullen/Frost Bankers, Inc. 1992 Stock Plan (the
"Plan"), hereby amends the Plan as described below; provided, however, that such
amendments shall become effective only after approval by the Company's
shareholders. The amendments are as follows:
The First Paragraph of Section 5.1 of the Plan shall be deleted and replaced
with the following:
5.1. Number of Shares Available for Grant. Subject to adjustment as
provided in Section 5.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be four million five hundred sixty
thousand (4,560,000). In no event may greater than four hundred sixty-five
thousand (465,000) shares be available for issuance with respect to grants of
Restricted Stock under the Plan. The Board shall determine the appropriate
methodology for calculating the number of shares issued pursuant to the Plan.
Unless and until the Board determines that an Incentive granted to a Covered
Employee shall not be designed to comply with the Performance-Based Exception,
the following rules apply to grants of such Incentives under the Plan:
Section 5.1(d) shall be added to the Plan and shall read as follows:
(d) Restricted Stock Units: The maximum aggregate grant with respect
to Incentives granted in the form of Restricted Stock Units granted in any
one fiscal year to any one Participant shall be one hundred fifty thousand
(150,000) shares of Common Stock.
Section 6 of the Plan is deleted in its entirety and replaced with the
following:
SECTION 6. RESTRICTED STOCK AND RESTRICTED STOCK UNITS
6.1. Grant of Restricted Stock or Restricted Stock Units. The Committee
may, in its discretion, grant Incentives to Participants from time to time in
the form of Restricted Stock or Restricted Stock Units and shall determine the
number of shares or units of Restricted Stock that will be granted to a
Participant.
6.2. Restricted Stock Agreement. Each grant of shares or units of
Restricted Stock shall be evidenced by a Restricted Stock Agreement and shall be
subject to the following terms and conditions and such other terms and
conditions as the Committee may prescribe.
6.3. Restriction Period. At the time of the grant of shares or units of
Restricted Stock, the Committee shall select the Restriction Period to apply to
the shares or units of Restricted Stock.
6.4. Nontransferability of Restricted Stock. Prior to the lapse of
restrictions as provided in Section 6.5, shares or units of Restricted Stock may
not be sold, exchanged, transferred, pledged, assigned, or otherwise alienated,
hypothecated, whether voluntarily or involuntarily.
6.5. Removal of Restrictions. Except as otherwise provided in Section 6.9,
and subject to Section 6.6, shares or units of Restricted Stock covered by each
Restricted Stock grant made under this Plan shall become freely transferable by
the Participant after the expiration of the Restriction Period or upon
satisfaction of other conditions as specified by the Committee in its sole
discretion.
6.6. Other Restrictions. The Company shall impose such other restrictions
on any shares or units granted pursuant to this Plan as it may deem advisable
including, without limitation, restrictions under applicable Federal laws, under
the requirements of any stock exchange or interdealer quotation system upon
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which share of shares of the same class are then listed or quoted and under blue
sky or state securities laws applicable to such shares. The Company may legend
the certificates representing Restricted Stock to give appropriate notice of
such restrictions.
6.7. Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 6.6 hereof, each certificate representing shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
The sale or other transfer of the shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is subject
to certain restrictions on transfer set forth in the Cullen/Frost Bankers, Inc.
1992 Stock Plan, and a Restricted Stock Agreement dated . A copy of
the Plan, such rules, and the Restricted Stock Agreement may be obtained from
the Secretary of Cullen/Frost Bankers, Inc.
6.8. Voting Rights and Dividends with Respect to Restricted Stock. With
respect to shares of Restricted Stock, prior to the lapse of restrictions under
Section 6.5, each Participant shall generally have the rights and privileges of
a shareholder, including the right to vote the shares and to receive dividends
and other distributions made with respect to the shares; provided, however, that
the shares of Restricted Stock shall be subject to all the terms, conditions,
and restrictions of the Plan and the Restricted Stock Agreement, including,
without limitation, the provisions of this Section 6. Holders of Restricted
Stock Units shall have no rights as to voting or dividends prior to the lapse of
restrictions under Section 6.5, except as provided in the Restricted Stock
Agreement.
6.9. Change in Control. In the event of a Change in Control, the applicable
Restriction Period with respect to all outstanding shares or units of Restricted
Stock shall automatically terminate.
A New Section 7.3(a) shall be added to the Plan as follows:
(a) Repricing of Stock Options. The purchase price of Stock issued
under each Stock Option shall not be repriced without prior shareholder
approval.
A New Section 9.7 shall be added to the Plan as follows:
9.7. Limited Transferability. Each Incentive, and each right under any
Incentive, shall be exercisable only by the Participant during the Participant's
lifetime, or, if permissible under applicable law, by the Participant's guardian
or legal representative as determined by the Committee; provided, however, that
Incentives under the Plan may be transferred to immediate family members or
family trusts as determined by the Committee.
- - --------------------------------------------------------------------------------
B-2
<PAGE> 33
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF CULLEN/FROST BANKERS, INC.
The undersigned hereby revoking all proxies previously granted, appoints
T.C. FROST, RICHARD W. EVANS, JR., and PATRICK B. FROST, and each of them, with
power of substitution, as proxy of the undersigned, to attend the Annual Meeting
of Shareholders of Cullen/Frost Bankers, Inc. on May 26, 1999, and any
adjournments thereof, and to vote the number of shares the undersigned would be
entitled to vote if personally present as designated on the reverse.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, AND 3
AND AT THE DISCRETION OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE ANNUAL MEETING.
(Continued and to be dated and signed on the reverse.)
CULLEN/FROST BANKERS, INC.
P.O. BOX 11100
NEW YORK, N.Y. 10203-0100
- - --------------------------------------------------------------------------------
(1) ELECTION OF DIRECTORS
<TABLE>
<S> <C> <C> <C> <C>
FOR all nominees [ ] WITHHOLD AUTHORITY to vote [ ] *EXCEPTIONS: FOR all [ ]
listed below for all nominees listed below nominees except those listed below
Class III: R. Denny Alexander, Bob W. Coleman, Eugene H. Dawson, Sr.,
Ruben M. Escobedo, Joe R. Fulton, Ida Clement Steen
Class II: Cass Edwards, Jr., T. C. Frost
*Exceptions
-------------------------------------------------------------
(2) The approval of the amendments to the 1992 Stock Plan including an increase
of 1,700,000 available shares.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(3) The approval of the selection of Ernst & Young LLP as independent auditors of
Cullen/Frost for the fiscal year that began January 1, 1999.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
Address Change [ ]
and/or Comments Mark Here
Signature should correspond with the
printed name appearing hereon. When
signing in a fiduciary or representative
capacity, give full title as such, or
when more than one owner, each should
sign.
Dated: , 1999
---------------------------
[ ] ---------------------------------------
(Signature of Shareholder)
---------------------------------------
(Signature of Shareholder)
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. [ ]
</TABLE>
PLEASE BE CERTAIN THAT YOU HAVE DATED AND SIGNED THIS PROXY. RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE.
