<PAGE> 1
SCHEDULE 14A-INFORMATION REQUIRED IN PROXY
STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
NATIONAL BANCSHARES CORPORATION OF TEXAS
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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:
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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][NATIONAL BANCSHARES LETTERHEAD]
April 21, 1999
Dear Shareholder,
You are cordially invited to attend the 1999 Annual Meeting of Shareholders of
National Bancshares Corporation of Texas to be held on Friday, May 21, 1999 at
10:30 a.m. at the new NBC Bank Corporate Headquarters, 12400 Hwy 281 North, San
Antonio, Texas. IN ADDITION, WE HOPE YOU CAN ALSO ATTEND A SPECIAL OPEN HOUSE
CELEBRATING THE OPENING OF OUR NEW HEADQUARTERS TO BE HELD ON THURSDAY, MAY 20,
1999 FROM 5:30 TO 8:30 P.M. IF YOU PLAN TO ATTEND PLEASE RSVP TO (210) 403-4100.
We look forward to this opportunity to update you on the current activities of
the Company.
The notice of meeting and proxy statement following this letter describe the
business expected to be transacted at the meeting. Whether or not you expect to
be present and regardless of the number of shares you own, please mark, sign and
mail the enclosed proxy card in the envelope provided so that your shares will
be represented.
Sincerely,
/s/ JAY H. LUSTIG
Jay H. Lustig
Chairman of the Board
/s/ MARVIN E. MELSON
Marvin E. Melson
President
<PAGE> 3
NATIONAL BANCSHARES CORPORATION OF TEXAS
12400 Hwy 281 North
San Antonio, Texas 78216
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1999
- --------------------------------------------------------------------------------
To the Shareholders of National Bancshares Corporation of Texas:
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
National Bancshares Corporation of Texas, a Texas corporation, will be held at
the Corporate Headquarters, 12400 Hwy 281 North, San Antonio, Texas 78216 on
Friday, May 21, 1999, at 10:30 a.m. for the following purposes:
(1) To elect five directors to serve until the 2000 Annual Meeting of
Shareholders and until their successors are duly elected and
qualified;
(2) To approve the appointment of auditors for the 1999 fiscal year; and
(3) To transact such other business as may properly come before the
meeting or any adjournment thereof.
In accordance with the bylaws of the Company and a resolution of the Board
of Directors, the record date for the meeting has been fixed at April 21, 1999.
Only shareholders of record at the close of business on that date will be
entitled to vote at the meeting or any adjournment thereof.
Shareholders who do not expect to attend the meeting in person are urged to
sign the enclosed proxy card and return it promptly in the accompanying
envelope. This will ensure that your vote is counted, whether or not you are
able to be present.
By order of the Board of Directors,
/s/ MARVIN E. MELSON
Marvin E. Melson
President and Secretary
April 23, 1999
<PAGE> 4
NATIONAL BANCSHARES CORPORATION OF TEXAS
12400 HWY 281 NORTH
SAN ANTONIO, TEXAS 78216
- --------------------------------------------------------------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 21, 1999
- --------------------------------------------------------------------------------
This statement is furnished in connection with the solicitation of
proxies by the Board of Directors of National Bancshares Corporation of Texas, a
Texas corporation (the "Company"), to be used at the 1999 Annual Meeting of
Shareholders on Friday, May 21, 1999, at 10:30 a.m., or at any adjournment
thereof. This proxy statement and the accompanying proxy card are being mailed
to shareholders beginning on or about April 27, 1999.
The Company's Annual Report to Shareholders for the year ended December
31, 1998 is being furnished with this Proxy Statement to the shareholders of
record on April 21, 1999. The Annual Report to Shareholders does not constitute
a part of the proxy soliciting material.
VOTING AND PROXIES
Only holders of record of the Company's Common Stock, par value $.001
(the "Common Stock"), at the close of business on April 21, 1999, will be
entitled to vote at the meeting. There were 4,167,559 shares of Common Stock
outstanding on the record date, each entitled to one vote. A majority of the
shares outstanding will constitute a quorum at the meeting.
All shares represented by proxies will be voted in accordance with the
shareholders' directions. If the proxy card is signed and returned without any
direction given, shares will be voted in accordance with the recommendations of
the Board of Directors as described in this proxy statement. Any shareholder
giving a proxy may revoke it at any time before the proxy is voted by giving
written notice of revocation to the Secretary of the Company, by submitting a
later-dated proxy or by attending the meeting and voting in person.
The election of each nominee for director requires a plurality of the
votes cast. The affirmative vote of a majority of the shares present and voting
at the meeting in person or by proxy is required for approval of the appointment
of auditors. Abstentions and broker non-votes will be included in determining
the presence of a quorum at the meeting. Abstentions and broker non-votes will
not be included in determining the number of votes cast on any matter.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The bylaws of the Company provide for a Board of Directors of five (5)
members. All of the current directors have been nominated by the Board of
Directors for re-election to serve until the 2000 Annual Meeting of Shareholders
and until their successors are duly elected and qualified. The current directors
are Jay H. Lustig, Marvin E. Melson, H. Gary Blankenship, John W. Lettunich, and
Charles T. Meeks. The Board of Directors recommends a vote FOR such nominees.
The nominees named in the accompanying proxy, who have been designated
by the Board of Directors, intend to vote for the above mentioned nominees for
election as directors, unless otherwise specified. Such nominees have indicated
a willingness to serve as directors, but should any of them decline or be unable
to serve, the persons named as proxies may vote for another person in the place
of such nominee according to their best judgment and in the interest of the
Company.
<PAGE> 5
The following information is furnished with respect to each of the
nominees. Such information includes all positions with the Company and principal
occupations during the last five years.
NOMINEES FOR ELECTION
JAY H. LUSTIG, Mr. Lustig, age 44, has been Chairman of the Board of
the Company since May 1992. Mr. Lustig has been the Chairman of the Board and
CEO of NBI, Inc., a publicly traded holding company, since 1993. In May 1995,
Mr. Lustig became President of Equibond, Inc., an investment firm based in Santa
Monica, California. From September 1988 to May 1995, Mr. Lustig had been
associated with Drake Capital Securities, Inc., an NASD member, via J.H.L.
Holdings, Inc., a personally owned investment holding company.
MARVIN E. MELSON, age 63, has been a Director, Chief Executive Officer,
President, and Secretary of the Company since May 1992; Chairman of the Board of
NBC-Laredo and a Director of NBC-Eagle Pass and NBC-Rockdale since May 1992;
President of NBC-Laredo from August 1993 to March 1998; and Director of
NBC-Luling since September 1996. Mr. Melson served as Executive Vice President
and Commercial Loan Officer at Laredo National Bank, Laredo, Texas, from August
1989 to May 1992. From March 1981 to August 1989, Mr. Melson served as Chairman
of the Board and President of NBC-Laredo.
H. GARY BLANKENSHIP, age 58, has been a Director of the Company since
May 1992. Mr. Blankenship has been Chairman of Greater Southwest Bancshares,
Inc., and its subsidiary, Bank of the West, Irving, Texas, since 1986 (neither
of which entities is affiliated with the Company).
JOHN W. LETTUNICH, age 69, has been a Director of the Company since
March 1995, and has been Chairman of the Board of NBC-Eagle Pass since January
1997. Mr. Lettunich was Chairman of the Board, President and CEO of NBC-Eagle
Pass from 1989 to January 1997.
CHARLES T. MEEKS, age 64, has been a Director of the Company since
March 1995. Since July 1994, Mr. Meeks has been the principal of the Charles T.
Meeks Company, a bank consulting firm. Mr. Meeks was Senior Vice President, Alex
Sheshunoff Management Services, Inc., from February 1989 to June 1994. Mr. Meeks
is also Chairman of the Board of Texline State Bank in Texline, Texas.
No family relationships exist among the executive officers and
directors of the Company.
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS
MEETINGS AND COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1998, the Board of Directors
held four (4) meetings. During the fiscal year ended December 31, 1998, no
director attended fewer than seventy-five percent (75%) of the aggregate of (i)
the total number of meetings of the Board of Directors held during the period
for which he has been a director, and (ii) the total number of meetings held by
all committees on the Board of Directors on which he has served.
Each outside director receives $1,500 for attending each meeting of the
Board of Directors of the Company and is eligible to participate in certain of
the Company's stock option plans.
Audit Committee. The Audit Committee of the Board of Directors, which currently
consists of H. Gary Blankenship, John Lettunich, and Charles T. Meeks met five
(5) times during the 1998 fiscal year. The functions of the Audit Committee are
to recommend the selection of independent accountants, review and recommend
approval of annual audited financial statements, review significant changes in
accounting policies and procedures and monitors the internal audit reports for
each subsidiary of the Company. In addition, the Audit Committee reviews the
adequacy of internal controls and record-keeping systems, reviews compliance
with applicable regulations and policies (including environmental regulations
and policies on insider trading), and monitors litigation, fraud, and conflict
of interest and their potential impact on financial results.
2
<PAGE> 6
Compensation Committee. The Compensation Committee of the Board of Directors
currently consists of Jay H. Lustig, H. Gary Blankenship and Charles T. Meeks.
The Compensation Committee met two (2) times during the 1998 fiscal year. The
functions of the Compensation Committee are to review the compensation of
officers and other management personnel and to make recommendations concerning
such compensation. The Compensation Committee also administers the employee
benefit plans of the Company, including the Company's 1995 Stock Plan ("the 1995
Plan"). No officer of the Company is a member of the Compensation Committee.
Nominating Committee. The Board of Directors acts as the Company's Nominating
Committee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Subsidiary banks, from time to time, have entered into transactions
with their respective directors, executive officers, and their affiliates. Such
transactions were made in the ordinary course of business on substantially the
same terms and conditions, including interest rates and collateral, as those
prevailing at the same time for comparable transactions with other customers,
and did not, in the opinion of management, involve more than normal credit risk
or present other unfavorable features. The aggregate amount of loans to such
related parties at December 31, 1998, was $5,906,000. None of such transactions
have been entered into with the Company's Chairman of the Board, Mr. Lustig or
directors, Messrs. Blankenship, or Lettunich in 1998. During the year ended
December 31, 1998, new loans to such related parties amounted to $2,884,000, and
repayments amounted to $1,181,000. During fiscal year 1998, Mr. Meeks was
indebted to a subsidiary bank in connection with a real estate mortgage loan at
a high of $215,000, of which $209,000 was outstanding at year end. During fiscal
year 1998, Mr. Melson was indebted to a subsidiary bank in connection with a
real estate mortgage loan at a high of $239,000 of which $235,000 was
outstanding at year end. During fiscal year 1998, Ms. Renfroe was indebted to a
subsidiary bank in connection with a real estate mortgage loan at a high of
$177,000 of which $176,000 was outstanding at year end.
During 1998, the Company utilized a stock brokerage firm, which is 100%
owned by Mr. Lustig, to execute certain transactions on its behalf. The Company
uses an unrelated company to act as custodian and clearing firm for its
investment assets. Net revenues earned by the brokerage firm related to
investment transactions by the Company in 1998 totaled $35,918 on purchase and
sale transactions of $78,810,916.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers, and any persons holding more than ten
percent of the Company's Common Stock to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities Exchange Commission and to provide copies of such reports to the
Company. Based upon the Company's review of copies of such reports received by
the Company and written representations of its directors and executive officers,
the Company believes that during the year ended December 31, 1998, all Section
16(a) filing requirements were satisfied.
3
<PAGE> 7
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information as of March 1, 1999, as to
shares of Common Stock beneficially owned by (i) each director of the Company,
(ii) the directors and executive officers of the Company as a group, and (iii)
each person known by the Company to be the beneficial owner of more than five
percent of the outstanding shares of Common Stock. Except as otherwise indicated
and subject to applicable community property laws, each person has sole
investment and voting power with respect to the shares shown. Ownership
information is based upon information furnished by the respective individual or
entities, as the case may be.
<TABLE>
<CAPTION>
SHARES % OF TOTAL
BENEFICIALLY SHARES
OWNED OUTSTANDING
----- -----------
5% SHAREHOLDERS, OFFICERS AND DIRECTORS(1)
- ------------------------------------------
<S> <C> <C>
Jay H. Lustig (5) ................................................. 217,325 5.05%
Marvin E. Melson (3) .............................................. 139,031 3.23%
H. Gary Blankenship (2) ........................................... 44,562 1.04%
John W. Lettunich (3) ............................................. 71,968 1.67%
Charles T. Meeks (2) .............................................. 28,000 *
Hakatak Enterprises, Inc., Nominee (4) ............................ 300,000 6.97%
All directors and executive officers as a group (7 persons)(6)..... 509,086 11.83%
</TABLE>
- ------------
* Less than one percent
(1) The business address of the directors and officers of the Company is
the Company's business address. The mailing address of Hakatak
Enterprises, Inc. is P.O. Box 1623, Pacific Palisades, CA 90272.
(2) The number of shares beneficially owned by Messrs. Blankenship and
Meeks includes 28,000 shares of Common Stock reserved for issuance
under stock options which are exercisable by each of them within 60
days of March 1, 1999.
(3) The number of shares beneficially owned by Messrs. Melson and Lettunich
includes 28,400 and 27,400 shares of Common Stock reserved for issuance
under stock options which are exercisable by each of them within 60
days of March 1, 1999.
(4) Hakatak Enterprises, Inc., Nominee, holds its shares as nominees for HP
Partners, a California limited partnership, Tamir Hacker, an
individual, and Tamir and Teri Hacker as joint tenants. Of the shares
held by Hakatak Enterprises, Inc., Nominee, 270,000 are for HP
Partners, 15,000 are for Tamir Hacker and 15,000 are for Tamir and Teri
Hacker.
(5) The number of shares beneficially owned by Mr. Lustig includes 136,125
shares of Common Stock owned of record; 22,400 shares of Common Stock
owned by his wife and children; 35,600 shares in Prophecy Partners, a
Delaware limited partnership; and 23,200 shares of Common Stock options
which are exercisable within 60 days of March 1, 1999.
(6) The number of shares of Common Stock beneficially owned by the
directors and officers as a group includes 136,200 shares of Common
Stock reserved for issuance under stock options which are exercisable
within 60 days of February 20, 1998. See footnotes (2),(3) and (5)
above.
4
<PAGE> 8
EXECUTIVE COMPENSATION
BOARD COMPENSATION AND BENEFITS COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
is committed to maintaining compensation programs for the Company's
executive officers which further the Company's mission. We, therefore,
adhere to the following compensation policies which are intended to
facilitate the achievement of the Company's business strategies:
o Compensation levels for each element of pay should be targeted at
rates that are reflective of the median levels of current market
practices prevalent in comparable financial institutions. Offering
market-comparable pay allows the Company to attract and maintain a
stable, successful management team.
o The Company's compensation packages should strengthen the relationship
between pay and performance with variable, at-risk compensation that
is dependent upon the level of success in meeting specified Company
and individual performance goals.
o Ownership of the Company's Common Stock by executives should be
encouraged to further align executives' interests with those of
shareholders and the Company and to promote a continuing focus on
building profitability and shareholder value.
o Sustained superior performance by individual executives over a period
of years, including actions to increase revenues, reduce expenses,
enhance service and product quality, improve market share and thereby
enhancing shareholder value, should be rewarded.
To preserve objectivity in the achievement of its goals, the Committee
is comprised of three independent, non-employee directors. It is the Committee's
overall goal to develop compensation policies that are consistent with and
linked to strategic business objectives and Company values. The Committee
approves the design of, assesses the effectiveness of, and administers
compensation programs in support of compensation policies. The Committee also
reviews all salary arrangements and other remuneration for all executive
officers of the Company and the Subsidiary Banks. The various components of the
compensation programs for executive officers are discussed below.
BASE SALARY. Base salary levels are largely determined through
comparison with banking organizations of a size similar to the Company's.
Surveys are utilized to establish base salaries that are within the range of
those persons with similar years of experience and holding positions of
comparable responsibility at other banking organizations of a size and
complexity similar to the Company. Following the determination of market-based
pay, each officer's individual performance, achievements, and contributions to
the growth of the Company are evaluated subjectively in determining the
individual's base salary. The Committee reviews the base salary of all executive
officers on an annual basis.
INCENTIVE BONUS PLAN. In March 1995, the Board of Directors of the
Company adopted a Performance Compensation Plan (the "Plan") for its employees
and the employees of its subsidiary Banks. The Plan is administered by the
Committee. The amount of money available for distribution in the Plan is
dependent upon the attainment of performance objectives which the Committee
believes are important for achieving long-term shareholder value. The Presidents
of the subsidiary Banks, in consultation with one or more principal officers of
the respective Bank, determines the amount which will be awarded from the Plan
to the employees of the Bank. The amount of the bonus available for the
Presidents of the subsidiary Banks is determined by the Committee. The Plan
rewards all employees based on the attainment of certain performance goals of
the Company and its subsidiaries. The officers of the Company are eligible to
participate at the same level as all employees in relationship to their
respective base salaries. The performance goals effective for 1998 included
specific goals for profits, asset quality and operational productivity. All
awards under the Plan are contingent on the Company and the Subsidiaries
attaining certain basic financial objectives such as return on assets.
5
<PAGE> 9
STOCK OPTIONS. On May 26, 1995, the Shareholders of the Company adopted
the 1995 Stock Plan (the "1995 Plan"). It is the Company's philosophy that
awarding stock options to executive officers of the Company and Subsidiary
Banks, based upon their respective positions and contributions to the Company's
overall success will help attract and retain high quality, results-oriented
professionals committed to creating long-term shareholder value. Additionally,
because options are subject to forfeiture if the employee leaves the Company
prior to their becoming exercisable, options provide an incentive to remain with
the Company long-term. Options granted in 1997 become exercisable in one-fifth
increments beginning one year from the date of the grant. The option price for
shares is the fair market value of the shares on the date of the grant. The
Named Executives who have received options under the 1995 Plan are, Marvin E.
Melson, who has received 38,000 options, Jay H. Lustig who has received 32,000
options, and John W. Lettunich who has received 33,000 options.
1998 COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Melson serves as the president and chief executive officer of the
Company. Mr. Melson's 1998 base salary is governed by his employment agreement
entered into by the Company and Mr. Melson in 1997, as described later in this
Proxy Statement. His salary is comparable to a survey of peer group
institutions. Mr. Melson participates in the incentive bonus plan at the Company
level. In 1998 he earned an incentive bonus of $30,000, which is approximately
18% of his base salary, which is lower than the average in the survey of the
peer group. The incentive bonus was based on attaining certain performance goals
including return on assets and net income. Mr. Melson has the right to purchase
38,000 shares of the Company's Common Stock. He is vested in 28,400 of these
shares as of December 31, 1998. Mr. Melson's option grants were based on the
Company's growth and performance and was in keeping with the Committee's intent
to place emphasis on long term incentives to remain with the Company which is
tied directly to the success of the Company, and, correspondingly, that of the
shareholders.
CONCLUSION
The Committee believes these executive compensation policies and
programs serve the interests of shareholders and the Company effectively and
that 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.
Jay H. Lustig, Chairman
H. Gary Blankenship
Charles T. Meeks
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors of
the Company was, during 1998, an officer or employee of the Company or any of
its subsidiaries, or was formerly an officer of the Company or any of its
subsidiaries or had any relationships requiring disclosure by the company under
Item 404 of Regulation S-K. During 1998, no executive officer of the Company (i)
served as a member of the compensation committee of another entity, one of whose
executive officers served on the Compensation Committee of the Company, (ii)
served as a director of another entity, one of whose executive officers served
on the Compensation Committee of the Company, or (iii) was a member of the
compensation committee of another entity, one of whose executive officers served
as a director of the Company.
6
<PAGE> 10
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth summary compensation information with
respect to the Company's Chairman and Chief Executive Officer, and the
most highly compensated executive officers of the Company who earn over
$100,000 in annual salary and bonus ("the Named Executives"), for the
years ended December 31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION NUMBER OF SECURITIES
NAME AND FISCAL -------------------- UNDERLYING OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS GRANTED (#) COMPENSATION (1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jay H. Lustig 1998 $ 60,000 $18,000 -- --
Chairman of the Company 1997 $ 60,000 $16,250 11,000 --
1996 $ 60,000 $ 6,000 -- --
Marvin E. Melson 1998 $164,000 $30,000 -- $4,000
President, CEO and Director 1997 $164,000 $30,000 12,000 $4,510
of the Company 1996 $164,000 $16,400 -- $3,040
John W. Lettunich 1998 $110,000 $26,000 -- $3,675
Director of the Company and 1997 $110,000 $26,000 7,000 $4,029
Chairman of NBC Bank - 1996 $110,000 $51,150 -- $2,635
Eagle Pass
</TABLE>
(1) All other compensation reflects payments by the Company to the Company's
401(k) Plan on behalf of Named Executives.
OPTION EXERCISES AND VALUATION
The table below reports exercises of stock options by the Named
Executives during fiscal year 1998 and the value of their unexercised stock
options as of December 31, 1998. The stock options were granted pursuant to the
Company's 1994 and 1995 Plans.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/98 OPTIONS AT 12/31/98
ACQUIRED ON VALUE ---------------------------- -------------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jay H. Lustig -- $ -- 23,200 8,800 $225,300 $29,700
Marvin E. Melson -- -- 28,400 9,600 $277,850 $32,400
John W. Lettunich -- -- 26,400 6,600 $266,380 $29,845
</TABLE>
- ---------------
(1) The value of options is based on the difference between the closing sales
price of $16.625 per share of Common Stock on December 31, 1998 and the
option's exercise price.
DEFERRED COMPENSATION
No deferred compensation has been awarded to the Named Executives.
7
<PAGE> 11
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Jay H. Lustig,
Marvin E. Melson and Morris D. Weiss. Mr. Lustig's agreement, effective as of
October 1, 1992, provides that he shall serve, at the pleasure and direction of
the Company's Board of Directors, as the Chairman of the Board of the Company.
Upon the expiration of the initial three year term, the agreement shall be
automatically renewed for successive periods of one year each, unless, not later
than 30 days prior to the end of the initial term or any renewal term, either
party has given notice that it does not wish to extend the agreement. During the
term of employment, the agreement provides for an annual base salary of $60,000.
Mr. Lustig is also eligible to participate in any other compensation, tax
benefit or other benefit plan of the Company, and is entitled to reimbursement
of all reasonable and customary expenses incurred in performing services
thereunder in accordance with the Company's policies and procedures. Mr.
Lustig's employment agreement also provides that in the event the Company
terminates or elects not to renew the agreement other than for cause (or if the
Company breaches the agreement), Mr. Lustig will receive the greater of the
amount of salary for he would have otherwise received for the partial term
remaining or six month's salary at the rate then in effect for such period,
payable in a lump sum within 30 days of termination. The agreement obligates the
Company to indemnify and hold harmless the employee to the fullest extent
authorized or permitted by Texas law, and to the fullest extent so permitted, to
require the Company to advance expenses on behalf of the employee as incurred.
On January 1, 1997, Mr. Melson entered into an employment agreement
with the Company. The term of this agreement is for two years, with a provision
for automatic renewal for continuing one year terms unless either the Company or
Mr. Melson gives prior notice of their intention not to continue with the
agreement. Pursuant to the agreement, Mr. Melson is to receive an annual base
salary of $164,000 to be paid by the Company. Mr. Melson is also eligible to
participate in any other compensation, tax benefit or other benefit plan of the
Company. Mr. Melson is, in addition, entitled to the use of a Company automobile
or to reimbursement for auto rental expenses related to his employment if no
Company automobile is available. If Mr. Melson is unable to perform his duties
under this agreement as a result of incapacity due to physical or mental
illness, Mr. Melson is entitled to receive, and not in lieu of any disability
benefits, the full salary he would have otherwise received under this agreement
for the partial term remaining in the then current term of this agreement plus,
as a lump sum, an additional amount equal to the greater of (i) the amount of
salary Mr. Melson would have otherwise received for the partial term remaining
in the then current term, or (ii) six months' salary at the rate in effect for
such period ("the Additional Amount"). If Mr. Melson's employment is terminated
by death, the Company shall pay to Mr. Melson's legal representative or
beneficiary, the full salary he would have received under this agreement for the
partial term remaining in the current term of this agreement plus the Additional
Amount. If Mr. Melson's employment is terminated for cause, Mr. Melson shall
receive all amounts due to him through thirty days after notice of termination
has been given. The agreement obligates the Company to indemnify and hold
harmless the employee to the fullest extent authorized or permitted by Texas
law, and to the fullest extent so permitted, to require the Company to advance
expenses on behalf of the employee as incurred.
On April 7, 1997, Mr. Weiss entered into an employment agreement with
the Company to serve as General Counsel of the Company. Mr. Weiss will devote
substantial but not exclusive attention to the affairs of the Company, it being
understood that Mr. Weiss is simultaneously entering into consulting
arrangements, with unrelated businesses and will be devoting substantial
attention to such other entities as well. The term of this agreement is for
three years, with a provision for automatic renewal for one year terms unless
either the Company or Mr. Weiss gives prior notice, not later than ninety (90)
days prior to the initial term or renewal term, of their intention not to
continue with the agreement. Pursuant to the agreement, Mr. Weiss is to receive
an annual base salary of $75,000 to be paid by the Company. Mr. Weiss is also
eligible to participate in any other compensation, tax benefit or other benefit
plan of the Company and is entitled to reimbursement of all reasonable and
customary expenses incurred in performing services thereunder in accordance with
the Company's policies and procedures. Mr. Weiss' employment agreement also
provides that in the event the Company terminates or elects not to renew the
agreement other than for cause (if Company breaches the agreement) or if there
is a change in control, Mr. Weiss will receive the greater of, the amount of
salary for he would have otherwise received for the partial term remaining, six
month's salary at the rate then in effect for such period, or any severance
payable under the then current policy of the Company, payable in a lump sum
within 30 days of termination. The agreement obligates the Company to indemnify
and hold harmless the employee to the fullest extent authorized or permitted by
Texas law,
8
<PAGE> 12
and to the fullest extent so permitted, to require the Company to advance
expenses on behalf of the employee as incurred.
PENSION AND PROFIT SHARING PLANS
During 1993, the Company adopted a defined contribution profit sharing
plan (the "401(k) Plan") for the benefit of substantially all employees. The
401(k) Plan includes a 401(k) retirement plan feature. Employees are allowed to
make contributions to the 401(k) Plan. Each subsidiary Bank's contribution to
the 401(k) Plan is determined annually by that Bank's Board of Directors. Profit
sharing expense for the years ended December 31, 1998 and 1997, totaled $140,767
and $104,873, respectively. Two Named Executives received contributions to the
401(k) Plan in 1998 and 1997: John W. Lettunich received $3,675 in 1998 and
$4,029 in 1997; and Marvin E. Melson received $4,000 in 1998 and $4,510 in 1997.
APPOINTMENT OF AUDITORS
(ITEM 2 ON PROXY CARD)
The Board of Directors of the Company has appointed the firm KPMG, LLP
("KPMG"), to audit the accounts of the Company for the 1999 fiscal year.
Padgett, Stratemann & Co., LLP ("Padgett") has audited the Company's financial
statements since 1992. Representatives of Padgett are expected to be present at
the Annual Meeting of Shareholders with the opportunity to make a statement if
they desire to do so and are expected to be available to respond to appropriate
questions.
In October 1998, the Audit Committee of the Board of Directors of the
Company authorized the engagement of KPMG as the Company's auditor for the 1999
fiscal year. This decision to change accountants was prompted by the ability of
KPMG to provide audit services for a recently formed subsidiary of the Company
which was established for the purpose of becoming approved as a securities
broker dealer. The Audit Committee believed that it would be more efficient to
have one firm of independent public accountants provide audit services for the
Company and its subsidiaries, rather than have two firms of independent public
accountants. The Audit Committee determined that Padgett, who have served as the
Company's independent accountants since 1992, would continue to serve until
completion of the audit for the year ended December 31, 1998.
KPMG entered into an engagement letter with the Company on April 22,
1999 and concurrently with that engagement, the Company, at the direction of the
Audit Committee, "dismissed" Padgett as its auditor within the meaning of Item
304(a)(1)(i) of Regulation S-K of the Securities and Exchange Commission. The
reports of Padgett on the financial statements for the past two fiscal years of
the Company contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The Audit Committee of the Company's Board of Directors participated in and
approved the decision to change independent accountants. In connection with its
audit for the two most recent fiscal years and through April 22, 1999, there
were no disagreements with Padgett on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements if not resolved to the satisfaction of Padgett would have caused
Padgett to make reference thereto in their report on the financial statements
for such years. However, as noted in the accompanying Form 10-K/A, the Company
has determined to restate its financial statements for 1996, 1997 and 1998
because of an error in the application of an accounting principle related to the
reporting of income taxes. Padgett has concurred in the conclusion that there
was an error in the prior financial statements regarding this issue. During the
two most recent fiscal years and through April 22, 1999, there were no
reportable events as that term is defined in Item 304 (a)(1)(v) of Regulation
S-K.
As stated above, the Company engaged KPMG as its new independent accountants
as of April 22, 1999. Such engagement was authorized by the Audit Committee of
the Company's Board of Directors on October 15, 1998; however, KPMG recently
completed its pre-engagement due diligence and, in connection with such process,
made inquiry regarding the issue which has now resulted in the restatement of
earnings. During the two most recent fiscal years and through April 22, 1999,
the Company has not consulted with KPMG regarding either:
(i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be
rendered on the Company's financial statements, and neither a written report was
9
<PAGE> 13
provided to the registrant nor oral advice was provided that KPMG concluded was
an important factor considered by the registrant in reaching a decision as to
the accounting, auditing or financial reporting issue; or
(ii) any matter that was either the subject of a disagreement, as that term
is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions
to Item 304 of Regulation S-K, or a reportable event, as that term is defined in
Item 304 (a) (1) (v) of Regulation S-K.
Approval of the appointment of auditors is not a matter which is
required to be submitted to a vote of shareholders, but the Board of Directors
considers it appropriate for the shareholders to express or withhold their
approval of the appointment. If shareholder approval should be withheld, the
Board would consider an alternative appointment for the succeeding year. The
Board recommends that the shareholders vote FOR approval of the appointment of
KPMG as independent auditors of the Company. The affirmative vote of a majority
of the shares present and voting at the meeting in person and by proxy is
required for approval.
10
<PAGE> 14
PERFORMANCE GRAPH
Below is a performance graph comparing the cumulative total shareholder
return on National Bancshares Corporation of Texas common Stock with the
cumulative total return of companies on the Standard & Poor's 500 Stock Index
and American Stock Exchange Bank Index.
NATIONAL BANCSHARES CORP.
[GRAPH]
<TABLE>
<CAPTION>
PERIOD ENDING
----------------------------------------------------------------------
INDEX 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
National Bancshares Corp. 100.00 142.05 232.95 272.73 431.82 377.84
S&P 500 100.00 101.32 139.39 171.26 228.42 293.69
SNL AMEX Bank Index 100.00 108.21 159.05 205.64 350.99 365.04
</TABLE>
11
<PAGE> 15
SHAREHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 2000 Annual
Meeting of Shareholders must be received in writing by the Company at its
corporate office no later than December 30, 1999. The Company's corporate office
is located at 12400 Hwy 281 North, San Antonio, TX 78216.
The cost of soliciting proxies will be borne by the Company. To assist
in the proxy solicitation, the Company has engaged Corporate Investors
Communications, Inc. for a fee of $3,000, plus reimbursement for out-of-pocket
expenses. Proxies may be solicited through the mail and through telephonic or
telegraphic communication to, or by meeting with, shareholders or their
representatives by directors, officers, and other employees of the Company who
will receive no additional compensation therefor.
The Company requests persons such as brokers, nominees and fiduciaries
holding stock in their names for others, or holding stock for others who have
the right to give voting instructions, to forward proxy material to their
principals and to request authority for the execution of the proxy. The Company
reimburses such persons for their reasonable expenses.
OTHER MATTERS
No business other than the matters set forth in this proxy statement is
expected to come before the Annual Meeting, but should any other matters
requiring a vote of shareholders arise, including a question of adjourning the
Annual Meeting, the persons named in the accompanying proxy will vote thereon
according to their best judgment in the interest of the Company.
By Order of the Board of Directors,
/s/ MARVIN E. MELSON
-----------------------------------
Marvin E. Melson
President & Secretary
Dated: April 23, 1999
12
<PAGE> 16
NATIONAL BANCSHARES CORPORATION OF TEXAS
12400 HWY. 281 NORTH
SAN ANTONIO, TX 78216
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF NATIONAL BANCSHARES CORPORATION OF TEXAS.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
National Bancshares Corporation of Texas (the "Company") and hereby appoints Jay
H. Lustig and Marvin E. Melson, and each of them, the attorneys of the
undersigned, with power of substitution, for and in the name of the undersigned,
to vote as proxies for the undersigned according to the number of shares of
Common Stock the undersigned would be entitled to vote if then personally
present at the Annual Meeting of Shareholders of the Company to be held May 21,
1999, or at any adjournment thereof, and to vote all shares of Common Stock of
the Company held by the undersigned and entitled to be voted upon the following
matters as indicated on the reverse side.
This Proxy may be revoked at any time prior to the voting thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSALS NUMBER 1, NUMBER 2 AND NUMBER 3.
1. To vote the nominees for the Board of Directors.
<TABLE>
<S> <C> <C>
FOR all nominees listed below [ ] WITHHOLD AUTHORITY [ ] * EXCEPTIONS [ ]
to vote for all nominees listed below
</TABLE>
Jay H. Lustig, Marvin E. Melson, H. Gary Blankenship, John W. Lettunich, Charles
T. Meeks
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE EXCEPTIONS BOX AND WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW.)
* Exceptions
- --------------------------------------------------------------------------------
(Please date and sign on other side.)
<PAGE> 17
2. To vote the appointment of KPMG, L.L.P. as the Company's auditors for the
1999 fiscal year.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. In their discretion, to vote upon such other business as may properly come
before the meeting or any adjournment thereof.
Address Change and/or Comments
- --------------------------------------------------------------------------------
Dated , 1999
----------------------------
------------------------------
Signature(s)
------------------------------
Signature(s)
Please sign exactly as your
name appears to the left. When
shares are held by joint
tenants, both should sign.
When signing as attorney, as
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
full corporate name by
President or other authorized
officer. If a partnership,
please sign in partnership
name by authorized person.
VOTES MUST BE INDICATED X [X] IN BLACK OR BLUE INK.
PLEASE COMPLETE, SIGN, DATE, AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
